Those Wall Street financial alchemists who turned garbage into gold must have helped John McCain prepare for his debate with Barack Obama last Friday.

Senator McCain’s insistent claims that the US is winning the war in Iraq thanks to his "surge" strategy are the military-political equivalent of the junk securities that Wall Street’s shady financiers have been selling around the globe.

McCain successfully peddled this latest untruth about Iraq on Friday night with skill and verve. Sen. Barack Obama mostly let him get away with it. Obama should have skewered McCain over Iraq and all the lies he supported to ignite this unnecessary conflict. There is enough criminal behavior over the Iraq War to fill a phone book. Two out of three America’s think it was a terrible mistake.

But Obama’s gentle, professorial criticism of the Iraq war was tepid and ineffective, leaving McCain to capture the flag of patriotism with his reheated Cold War rhetoric.

Why didn’t Obama tell Americans that the ill-begotten Iraq War has played a key role in the nation’s current financial near-death experience?

Obama should also have riposted to McCain’s bombast over Georgia: "Senator McCain, are you ready to go to war with Russia over Georgia? That’s where your plans could lead."

The two candidates did reasonably well in the debates, and both emerged looking presidential. But McCain seized the jingoistic high ground by using carefully selected slogans like "victory" and "free world," and lambasting America’s favorite hobbyhorses, Iran’s Ahmadinejad and Russia’s Putin. The two vied over who could more fulsomely support Israel.

McCain’s claims that the US is heading toward victory in Iraq thanks to his inspired military leadership immediately recalled the epic words of Pyrrhus, King of Eprius. In 281 BC, after defeating a Roman army at Heraclea in an extremely bloody, hard-fought battle in which his forces suffered grave losses, Pyrrhus famously exclaimed, "one more such victory and we are ruined!"

The Red King of Epirus (modern Albania) might as well have been speaking of Iraq. Far from the victory described by McCain, the Roman historian Tacitus’s words are appropriate: "they make a desert and call it peace."

That is precisely what the US has so far done in Iraq, a small, devastated nation of only 25 million. After five years of war, over four thousand American GI’s are dead, and 30,000 seriously wounded (some figures say 75,000), many with incurable head injuries.

No one knows how many Iraqis have died, but estimates run as high as one million – and this does not include the 500,000 who died from hunger and disease as a result of the draconian US-led embargo of Iraq and the destruction of its national water purification and sewage system by the US Air Force in 1991.

The "surge," an addition of over 30,000 US troops to the Iraq conflict, was not the primary cause of the sharp drop in violence there over the past 12 months, as McCain claims, though it did play a supporting role.

The real reason for the drop in violence and attacks on US occupation forces lies in three other areas. First, ethnic cleansing. The US occupation quietly abetted the ethnic cleansing by Shia militias of millions of Sunni Iraqis. The US took yet another page from Israel’s West Bank occupation copybook by segregating off entire neighborhoods of Iraqi cities with high, concrete walls, and conducting round-the-clock house search operations.

Today, between four and five million Iraqis are either refugees in neighboring nations or internally displaced, one of the world’s biggest number of refugees. Most are Sunni Muslims. The United States is wholly responsible for this human disaster.

The US has done what it vowed to oppose: the partition of Iraq into three weak parts: Shia, Sunni, and Kurdish. There are now three Iraqi de facto mini-states. Breaking up Iraq and US-approved ethnic cleansing by Shia death squads – just the type of criminal behavior the US condemned in Bosnia and Kosovo – has put the damper on the Sunni-Shia conflict. But it has left Iraq a ruined state, with the Sunni region a no-man’s land, the Shia region dominated by Iran, and the Kurds under US and Israel tutelage.

Second, US occupation forces finally got smart and realized it’s cheaper to buy off your foes than try to kill them all. So the US now pays 80,000 Sunni gunmen, called Awakening Councils, to fight resistance forces. Attacks by al-Qaida fanatics in Iraq against fellow Sunnis opposing US occupation drove the more moderate resistance groups into the arms of the US.

But now, the US is handing control of these Sunni gunmen, which were patterned on death squads in El Salvador, over to Shia control. The US-armed Sunni militias who sought protection against Shia government forces by siding with the Americans are now likely to become a major new problem.

Third, the firebrand Shia militia leader, Muktada al-Sadr, whose ragtag Mehdi Army used to fight US forces, has gone to ground and ordered his gunmen to stack their arms. His volte-face reflects changes in internal Shia politics but also pressure from Iran which, fearing attack by the US, ordered Muktada to stop his attacks.

But less violence, at least for now, does not in any way mean victory. Polls show 75% of Iraqis want US troops to depart. Iraq remains a nation under foreign occupation. Its US-installed regime controls nothing but the Baghdad Green Zone. Real power remains in the hands of the Shia and Sunni militias, and the two Kurdish parties in their by now almost independent state. There is still no agreement on sharing oil.

The occupation is costing the US at least $10 billion per month, not counting depreciation, $67 billion replacement costs for equipment, and billions for medical care of wounded and veterans benefits. By the end of 2008, the supposed "cake walk" in Iraq will have cost US taxpayers $1 trillion, a good part of its borrowed from Japan and China, making it America’s second most expensive war in history.

Half the US Army is bogged down in Iraq. This war and Afghanistan have led the US ground and air forces "to the breaking point," in the words of senior American commanders. History shows that all occupation armies become brutalized, corrupted and demoralized.

At least 30,000 Iraqi prisoners are held by the US and routinely tortured or executed without trial. They should be considered political prisoners. Saddam Hussein’s prisons held less inmates. The brutality of the US occupation of Iraq has enraged the Muslim world against America and, according to US intelligence agencies, has created a whole new generation of anti-American militants.

The Bush administration’s torrent of lies about Iraq and ongoing occupation are seen around the globe as crude imperialism worthy of the 19^th-century British Raj or old Soviet Union. Sen. Obama was at least right in the debate when he noted that America’s image is an important factor in national security. Today, America is hated around the globe, thank you George Bush and Dick Cheney.

Washington’s current plans to continue ruling Iraq by means of a puppet government and mercenary army backed by US air power are an attempt to copy the way the British Empire ruled Iraq and exploited its oil. But once most of the US forces are withdrawn, Iraq may dissolve once again into violence and chaos, or complete its process of splintering into three mini-states, inviting intervention from its covetous neighbors. Iran has already become the dominant power in eastern Iraq, and Turkey, hungry for Iraq’s oil, is watching menacingly.

I wish Obama had riposted: "Senator McCain, one more victory like this and America is ruined. You had better think about this as you and your neocon alter ego Joe Lieberman urge confrontation against Iran, Hezbullah, Pakistan, Taliban, al-Qaida, insubordinate Arabs, Russia and China."

PS: And don’t forget Venezuela, Cuba, Somalia, and Sudan.