I've been troubled for some time about the undeclared war between the U.S.A and Pakistan (two nuclear states) being fought through the proxies of Afghanistan, NATO and India on the one hand - more nuclear armed countries - and a Chinese (nuclear armed) or even Russian aided Pakistan on the other.
All it needs to radically escalate is either a nuclear terrorist act or some sign of radicals gaining power in Pakistan and/or a flash-point between India and Pakistan (we already have Kashmir but there is much more in the water). Equally provocative would be the Taliban retaking Kabul because clearly their next target would be Islamabad. And that meets hands on red buttons time, for all concerned, especially given American fears and Indian fears in a country ravaged by inter-religious violence.
Today was noteable for a brewing water dispute between Pakistan and India, the Pakistani president planning on China (why now? what does he need), an American arrested in Pakistan trying to enter the tribal areas (to do or pick up what?) and the usual fighting in Afghanistan/Pakistan.
If we add to this the recent stories of nuclear scientists (a Russian most recently) trading in missile technology, and what many security analysts see as a 50/50 chance of an act of nuclear terrorism in the West within the next decade (prompting a massive middle and upper class population shift out of cities to the countryside, on a scale which will make whites with S.U.Vs leaving New Orleans before Katrina look like a couple of families going hiking), things would deteriorate very quickly.
There is no doubt the Americans would use the opportunity to mop up Iran, using nukes, on first strike, because this is their only viable military capacity so to do. But let's assume the Iranians get one or two of theirs away (Israel; a strikeable NATO capital) If that escalates, with all the aid given to Iran by a puffed-chest Russia, one can better understand why the Russians aren't quite so keen to have American missile defence systems on their borders.
Now throw into the mix a 1 in 8 chance of Sara Palin becoming the President of the United States and being at the wheel when this kicks off. I said some time ago McCain would win: someone asked me why.
a) Lies, Lies, and more Lies, replayed time and time again about Obama;
b) Fear, real security fear, in the U.S.A and a man who got shot down and spent several years in a Vietcong prison is, apparently, a safer pair of hands;
c) Hilary voters, not many, but enough of them to tip a state or two, voting for the Republican ticket because it has a woman on it;
d) People not telling their private views to pollsters about voting intentions for Obama because the real war in the U.S.A is the undisclosed race war and there are plenty of working class, Democrat voting white men who will not vote a black man to be their president whatever they say down the phone in front of their wife and kids to a telephone pollster;
e) McCain's age and health problem history.
1 in 8 is the statistical chance on Palin becoming President of the U.S.A.
It's autumn now and I hope we don't see a tactical nuclear winter in the years to come.
Swiss find melamine in Thai, Sri Lankan biscuits
The Associated Press
Monday, October 13, 2008
GENEVA: Swiss authorities say they have found high concentrations of melamine in biscuits from Thailand and Sri Lanka, and have called on other European countries to withdraw the products.
Authorities in the canton of Geneva say tests have shown high melamine levels in the Thai biscuits, Milk Cookies S&P, and the Sri Lankan candies, LemonPuff Munchee.
Melamine in milk has been blamed for the deaths of four infants and for sickening more than 54,000 others in mainland China.
The authorities said in a statement Monday that the European distribution channels for the two biscuits have been identified.
They say tests on a dozen baby milk products have shown no melamine contamination.
New Kenyan brewery to battle beer behemoth
Monday, October 13, 2008
By Duncan Miriri
Standing in a massive burgundy-roofed brewery in the Kenyan town of Naivasha, Timothy Gikuhi peers at an empty bottle, looking for specks of dirt.
The Edinburgh-trained chief brewer knows he needs to be thorough if Keroche, Kenya's newest brewery, is to challenge the might of East African Breweries (EABL), whose beers and spirits dominate the country's buzzing bars.
Kenyan-owned Keroche hopes to tap a spring of consumer patriotism among a growing middle class in east Africa's largest economy when it launches its new beers later this month.
But it will have to take on the world's biggest alcoholic drinks group -- Britain's Diageo.
"We are prepared for the challenge, as long as there is a level playing field," said Gikuhi. "We will tell consumers that our beer is truly owned and brewed by Kenyans."
EABL, a Nairobi bourse blue chip and east Africa's second largest company by market capitalisation, is majority-owned by Diageo, maker of Johnnie Walker whisky, Smirnoff vodka and Guinness, a beer popular across Africa.
Multinationals like Diageo and London-based SABMiller dominate Africa's drinks industry, leaving local brewers with small niches in a market where consumption is growing as prosperity swells the ranks of the middle class.
Diageo and SABMiller went head to head in Kenya in the late 1990s in what became known as the Beer Wars.
Castle Breweries, an SABMiller subsidiary, closed its Kenyan operation after four years in 2002, citing high import duties as a sign of local hostility. The multinationals agreed a geographical carve-up to stem costs, leaving EABL dominant in Kenya and SABMiller in neighbouring Tanzania.
Many Kenyans stuck by EABL because it has a minority Kenyan shareholding. Its Tusker beer, named after the elephant that gored one of the brewery's founders on a hunting expedition in 1923, was marketed under the slogan "My Country, my beer."
As Keroche prepares to start marketing its Summit beers, sector analysts are already talking of "Beer Wars 2."
ROOM FOR ONE MORE?
Keroche has invested 1 billion shillings ($13.5 million) -- funded by a loan from Barclays International -- in its beer plant in Naivasha in the Great Rift Valley. It employs 100 workers and has a 40,000 bottle-per-day capacity compared with EABL's 176,000 bottle-per-hour capacity at its Nairobi plant.
Keroche's Managing Director Tabitha Karanja said she hoped to snare a 25-30 percent market share in five years. EABL holds around 50 percent of the market with the rest dominated by illicit home-made brews, often laced with industrial chemicals.
"Consumers are waiting for our brands ... It is a choice that they have never had for the last 86 years," Karanja said, referring to the foundation of EABL in 1922.
Keroche plans to sell its Summit Lager and Summit Malt brands using existing distribution networks. It has been making fortified wines for 10 years, mainly for low-income earners, but a jump in excise tax on its wine in 2006 pushed it to diversify.
The prospect of fresh competition does not appear to worry EABL's chief executive officer, Gerald Mahinda, who said the Kenyan market was large enough to accommodate other players.
"There is still a large, unfulfilled segment in this economy. We welcome competition, we will go on doing what we know best which is our strong brands and innovation agenda."
Some Kenyan analysts agree.
"The Kenyan market is not saturated at all," said Dzika Danha of Renaissance Capital, adding that Kenya's per capita beer consumption is around 12 litres a year, compared with 58.2 litres in South Africa.
"(Keroche) will not have a short-term impact on EABL's market share or positioning. Keroche's success will depend on its strategy," said Danha.
A POPULAR PASTIME
Drinking is a popular pastime in Kenya, where a youthful population has spare cash thanks to economic growth averaging around five percent a year over the past five years.
Research firm Consumer Insight says the leading brands are Tusker, Guinness and Pilsner -- all made by EABL.
Kenya teetered on the edge of political and economic disaster after a disputed election last December. Around 1,500 people were killed as rival political factions clashed over the vote and long-standing land and tribal disputes came into play.
Rival leaders have since formed a power-sharing government but sectors like tourism were hit hard.
Some analysts expect economic growth this year to slow to about 4.5 percent from 7 percent in 2007. Prime Minister Raila Odinga told Reuters on October 6 that the global financial crisis would hit the economy badly, although he gave no figures.
For the year to June, EABL reported a pre-tax profit of 12.3 billion shillings, up 16 percent despite the violence, rising inflation and higher fuel prices. The volume of beer it sold also rose 16 percent to 770,000 hectolitres.
Some Nairobi drinkers, long used to EABL and a few imports such as Heineken, said they were keen to sample Keroche's products. "If Keroche brews good beer, we might buy it because we feel it belongs to Kenya," said Francis Aduku.
Bootleggers playing hide-and-seek on the Alaskan tundra
By Dan Barry
Monday, October 13, 2008
BETHEL, Alaska: On a misty day the color of lead, a few people linger outside a general store in the small and remote city of Bethel, struggling but failing to achieve an air of purposeful loitering. Try as they might to feign enjoyment of the damp cold, they are clearly looking to score.
Jess Carson, a plainclothes investigator for the Alaska State Troopers, watches their fidgeting performance through the windshield of his pickup truck, a cramped theater that smells of wet dog, courtesy of Kilo, his scent-sensitive German shepherd. Carson seems less than riveted by an act he has seen too many times before.
This show is not about heroin or cocaine; it's about booze. Many rural Alaskan communities consider alcohol to be the primary accelerant for crime, domestic strife and other social problems, and either ban it outright or, as in Bethel, tightly restrict its use.
And with illicit alcohol come bootleggers who lack any roguish Prohibition-era charm; just one case of their whiskey can upend a small native village.
An outsider might scan an Alaska State Troopers annual report, come across that photograph of Coors Light cases stacked beside bottles of R&R whiskey, and see ingredients for a holiday party. But many people here see it the way others would a few kilos of cocaine, piled in a pyramid for the camera as seized contraband.
By the way, a fifth of R&R which stands for Rich & Rare, a highbrow name for a bottom-shelf blend sells for $10 or so in Anchorage. But that same bottle can sell for as much as $300 in a dry village in the tundra, making R&R the bootlegger's current alcohol of choice and the trooper's alcohol of interest.
"Ninety-five percent of all bootlegged alcohol in the Bethel area is R&R, and because of that we tend to focus on it," Carson says. But the brand is not for discriminating tastes, he adds. "Even the bootleggers don't like it."
Of course, bootleggers need go-betweens, some of whom will gladly work for the promise of a bottle. These runners and hustlers often congregate outside this corrugated warehouse of a store called the AC Value Center, where Listerine, Lysol and other items containing alcohol are kept behind the counter.
Carson sees something through his windshield: a woman in a yellow parka may have just slipped money to a runner now spiriting away. He steps out to question the woman. She says she has no idea what he's talking about, as those around her scatter like shards from a dropped bottle.
If need be, the woman will wait all day for that bootlegger's runner to return with her liquor. But there are so many other leaks to plug in the Alaskan bush, which some say has nowhere near the complement of officers needed to stem the illegal alcohol flow. The trooper returns to his dog-reeking truck and pulls away.
Carson, a boyish 32, has an innocent way that masks a street savvy culled from years as a narcotics investigator in Fairbanks, not far from his eastern Alaska hometown of Tok. Eighteen months ago he was transferred to Bethel, a western outpost of 6,000 that serves as a base for 56 native villages in the Yukon-Kuskokwim Delta.
Where he once concentrated on cocaine and heroin, he now focuses on beer, wine and spirits, with no doubt in the value of his mission. "Most of the sexual assaults, suicides and homicides are alcohol-related here," Carson says. "Whenever you show up at a scene, you'll see the alcohol. It increases the importance of getting that off the street."
He works out of a small office near the regional airport with a few other troopers, including Investigator Jerry Evan, 38, a Yup'ik Eskimo from the village of Napaskiak. Carson says his colleague's fluency in Yup'ik, understanding of native culture and prowess as a hunter have been invaluable in a region where often the only way to get from here to there is by boat or plane.
Evan, who listens more than he speaks, says he well knows the devastation that alcohol can do to a village like his. Suicides. Drownings. People freezing to death.
"Alcohol has always been an issue," he says.
So much so that dozens of communities have voted over the years to restrict or ban the importation, sale and possession of alcohol. These include many native villages, where alcohol is a relatively new addition to the culture.
"This is not a bunch of lawyers from Anchorage and Juneau, flying in from southeast Alaska to impose our law," says James Fayette, a supervising assistant attorney general for Alaska. "We're flying in to impose their law."
Then Fayette says something startling: "You need to understand that a case of bootleg whiskey in a small Alaska village of 600 people can shut down that village for a week."
The comment may sound hyperbolic, but various studies have documented the insidious effect of alcohol in the bush. And when Fayette's words are repeated to four elders in the native village of Akiachak, a short flight from here, the men nod in sad agreement. Then one growls, "I hate bootleggers."
Life in rural Alaska can sometimes seem like one long chase scene from "The Dukes of Hazzard," Fayette says. Two months ago, state troopers in Aniak, about 90 miles to the northeast, reported chasing two drunken bootleggers 25 miles up the Kuskokwim River, sometimes at speeds topping 40 miles an hour. The suspects were finally caught with five bottles of vodka.
Here in Bethel, you can possess alcohol, but not sell it. There are no bars or package stores, so many people, including several known bootleggers, have it sent by airmail from businesses in Anchorage with evocative names like Gold Rush and Brown Jug.
Though the amount someone can purchase in one month is limited and closely monitored by troopers when it lands at the airport people still smuggle. They tape bottles to their legs, or fill water bottles with vodka and apple juice bottles with whiskey, or use the name of some hanger-on down at the general store to exceed the monthly limit.
The bootleggers also know that troopers will actually listen to luggage, trying to detect the glug-glug sound of liquid in a bottle. So the smugglers will buy liquor that comes in plastic containers, "burp the bottle" by releasing the contained air without breaking the seal, then cover the cap with tape.
"It's identical to the drug trade," Carson says.
His pickup splashes its way out of the rutted parking lot of the AC Value Center and on through the misty gray of Bethel, a place so isolated that it has only a dozen miles of paved road. He checks out the loiterers outside another general store, then heads to the airport to record who is receiving what and how much.
At the Alaska Airlines depot, Carson logs in a case of vodka and two cases of beer. As he leaves, though, he passes a known bootlegger who is carrying away a case of R&R on his shoulder. Delivered legally, received legally, and within the limits of a Bethel resident's monthly allowance of purchased alcohol.
The trooper doubts the man will taste a drop of that scorching stuff.
SPECIAL REPORT BUSINESS OF GREEN
Companies with poor track records on environmental damage try for change
By James Kanter
Monday, October 13, 2008
BARCELONA: Few people call it eco-friendly when a company like Royal Dutch Shell, to pump natural gas and make petroleum products, disturbs coral reefs and damages the habitats of rare desert truffles and vulnerable birds. But the energy giant may have found a way to turn local environmental losses into a plus for biodiversity - and its business.
To make up for lost habitats in Qatar, where it is building a vast natural gas operation, Shell plans projects in other parts of the emirate to increase the antelope population and help to preserve endangered turtles and sea-cows.
"Sometimes you say there are no good solutions, but then you can agree on compensating measures elsewhere," said Jeroen van der Veer, the chief executive of Shell. "We are an extractive industry and we do build large installations," but Shell "can only get those new projects if we are in harmony with society, and certainly with local society."
Companies like Shell are facing new threats to their business. Communities that oppose big mining and drilling projects have caused costly delays, while governments have used the environmental records of companies against them - as happened to Shell in Russia in 2006, when it ceded control of the Sakhalin Island oil and natural gas project to Gazprom under threat of huge fines by the country's environmental regulators.
At the same time, after decades of failing to win adequate support for their policies, large sections of the conservation and environmental movement are aligning their strategies with those of financiers and big business to improve the chances of meeting their goals.
That has opened up opportunities for companies to demonstrate a good track record on biodiversity management and to burnish their green credentials by participating in market-style systems they have helped to design and that have the approval of campaign groups.
The best known of these new markets involves generating and trading permits to emit carbon dioxide, a greenhouse gas. Under binding regulations in the European Union, companies like Shell buy or sell permits based on whether they overshoot or come in beneath their pollution targets.
So far, the EU initiative has had little impact on emissions, and it has been heavily criticized for enabling financiers to profit from carbon-cutting projects in the developing world, while providing industries with windfall profits even as they continue to pollute in Europe.
The kind of experiment that Shell is pursuing in Qatar could be even more controversial. Such projects could, one day, allow companies that damage habitats and ecosystems to earn "credits" by protecting habitats and ecosystems elsewhere. Backers of this approach say it should become standard business practice, with the credits traded on markets like carbon-emission permits.
But while carbon dioxide is the same gas everywhere, ecosystems differ. No two areas of biodiversity are identical, which makes valuing compensation for environmental damage extremely difficult.
Critics also say that such compensation projects could become a way for extractive industries to spend less on improving their site operations, giving them what some campaigners call "a license to trash" in exchange for a poorly monitored, hard-to-measure commitment.
"Offsets are actually a zero-sum game," said Richard Steiner, professor of environmental policy and marine conservation at the University of Alaska Fairbanks. "Eventually, there will be nothing left with which to offset anything - what then?"
Van der Veer said Shell aimed for maximum damage mitigation at its operating sites, and would use offsets only to make up for residual damage. At the same time, Shell officials say that if their offsetting activities produce a net environmental gain, the company could sell surplus biodiversity "credits" to other companies.
In a similar vein, Tom Albanese, chief executive of Rio Tinto, the mining company, said his company could generate new revenue streams by improving local community livelihoods and helping to dissuade people from further degrading forest and other natural habitats, and by improving plant and animal life on large areas of disused land owned by company.
That land represented "a biodiversity buffer that also could be used to create the next generation of green credits," Albanese said.
Already, companies like Shell and Rio Tinto build schools and clinics and provide water for communities near their operations, and pay compensation for local damage to protected areas.
But some companies are now moving toward a system of comprehensive offsets for all their environmental effects - a revolution in business behavior, said Kerry ten Kate, director of the Business and Biodiversity Offset Program at Forest Trends, a nonprofit group that promotes market-based methods of sustainable forest management.
Forest Trends jointly runs the program - involving more than 40 companies, banks and government agencies - with Conservation International and the Wildlife Conservation Society to help design and implement biodiversity offsets.
Ten Kate acknowledged the scope for abuse of voluntary projects. But she warned that governments would be more likely to regulate and legislate to halt biodiversity loss if companies failed to make a voluntary system work effectively.
Julia Marton-Lefèvre, director general of the International Union for Conservation of Nature, said she favored imposing global rules that would require companies to compensate for environmental damage - but she also said she had strong reservations about offset projects.
"We're all thinking, do we have even the ethical right to say, 'OK, we kill the lizards here, and we'll get some other ones over there?"' Marton-Lefèvre said. "We don't want symbolic offsets. We really want the real thing."
In the United States, a similar idea emerged from the 1972 Clean Water Act, which established strict guidelines for projects developed in wetland areas. Those rules eventually gave way to a system that allowed limited wetland development as long as developers purchased offset credits in wetland restoration projects elsewhere.
But that led to investors sometimes creating new wetlands rather than restoring natural habitats. These new wetlands often have failed to attract displaced wildlife species or to contribute effectively to water flow management.
"We've had frankly a very mixed experience," said Robert Wolcott, a senior advisor to the Ecological Research Program at the U.S. Environmental Protection Agency. "Something on the order of 30 percent of all our wetland offsets have failed."
At the same time, however, Wolcott said it was critical that businesses and governments seek improved market-based systems of environmental management. "Private, market-driven vehicles are the only means we have to backstop the depleting public budgets for natural resource protection," he said.
For some environmental experts, Shell's experiment in Qatar is part of that search. There, on a 300-hectare, or 740 acre, site near the northeast tip of the country, 35,000 workers are building the world's largest onshore facility, known as the Pearl project, to convert natural gas into fuel and lubricants. The natural gas, from offshore platforms, will be transported to the plant through two undersea pipelines.
Sachin Kapila, the biodiversity adviser at Shell, said the company was exploring whether other companies investing in the emirate might adopt similar biodiversity compensation practices. He also said Shell was discussing ways to ensure that biodiversity gains would be maintained after the Pearl project ended, some 25 to 30 years from now.
Assisted by ten Kate of Forest Trends, and by experts from the IUCN, the body run by Marton-Lefèvre, Shell this year finished assessments of the environmental consequences of the onshore site in Qatar. Now Kapila is selecting a site, or sites, to protect similar ecosystems.
Among places on his short list are Al-Reem, on Qatar's western coast - already part of a network of reserves recognized by the United Nations Education, Scientific and Cultural Organization - where the soils are similar to those around the plant, and where, according to Unesco, breeders are re-introducing endangered native species like the Arabian Oryx. Other options to offset damage to habitats include upgrading the protection at a nesting site for hawksbill turtles, which are listed as a critically endangered species, and which Shell officials say may be temporarily affected by the construction work. Coral has been transplanted from the affected area, and there are options to offset marine damage, including safeguarding other reefs.
"Do we entirely recreate what we've lost, or do we do something a bit different that could be beneficial in different ways for conservation or for the entire region?" Kapila asked. "There are many ways of thinking about how to win the best return for the conservation buck."
Opposition grows against proposed chemical plant in China
Monday, October 13, 2008
BEIJING: Residents of a Chinese city plagued by pollution are mobilizing against a proposed chemical plant that they say could harm their health, with some urging marches against the plan, which they say puts growth before the environment.
The plant proposed for Taizhou, Zhejiang Province, on the eastern coast of China, would make paraxylene, a petrochemical also known as PX and used to make polyester. Last year, protests against a PX plant planned for another coastal city, Xiamen, led to its being shelved.
Now Taizhou residents, dismayed at the prospect of another chemical plant in an area already crowded with them, are threatening to re-enact those protests.
"Resolutely oppose the PX project. As Taizhou residents, everyone must take some action," said one message on a local Web site (bbs.taizhou.com) that has served as a platform for those opposed to the plant. "We want clear water and green hills, not toxic cash."
Leaders in China have vowed to create what it calls a more "harmonious society" with cleaner air and water, even at the cost of slower economic growth. But this dispute threatens to become another battle pitting citizens with environmental or health concerns against local officials whose priority often remains attracting fresh investment and revenue.
Another Internet site devoted to opposing the project, calling itself Baowei Taizhou - roughly translated as Safeguard Taizhou - is urging residents to "surround Taizhou."
"Let the people speak out. Give them full rights to know and express themselves," said the latest posting, dated Sunday. "Environmental problems are the world's problems, and every individual's."
Internet messages are also urging residents to send around text messages organizing mass "strolls" against the project.
Coastal Taizhou is a hub of chemical production, and the big plant would be a feather in the cap of local officials. "This is a rare historic opportunity, and a big project to enrich the people of Taizhou," said an official news report that announced the plan in April.
But residents and workers in Taizhou have long complained about water, air and fields putrid with pollution.
The proposed chemical production plant would make ethylene and paraxylene as part of a larger petroleum processing complex costing 60 billion yuan, or $8.8 billion, according to reports in the official Taizhou Daily.
A Taizhou city environmental official told Reuters that the project, led by China National Petroleum, was still in planning stages.
A potential merger between GM and Chrysler weighs on Detroit
By Bill Vlasic and Nick Bunkley
Monday, October 13, 2008
DETROIT: The Motor City spent the weekend considering the once-unthinkable prospect that its traditional Big Three automakers might shrink to the Big Two.
The merger talks between General Motors and Chrysler, first revealed on Friday, are yet another gut-punch to a city reeling from a mayoral scandal, soaring foreclosure and unemployment rates and huge losses in its hometown auto industry.
"Detroit was a symbol of the great American industrial machine, and those days are long gone," said Kevin Boyle, a historian who has written extensively about his native city. "It just weighs you down living in a place that seems to get hit again and again and again."
Many industry experts say that little is to be gained by merging GM, which has lost more than $18 billion this year, and Chrysler, whose sales have fallen farther than any other automaker since it was acquired last year by the private equity firm Cerberus Capital Management.
GM's revenues and profits have been decimated by a sharp decline in sales of its trucks and big sport utility vehicles. Consumers are demanding smaller, more fuel-efficient vehicles, but Chrysler's most popular products are Ram pickups, minivans and Jeep SUV's.
Moreover, industry analysts say GM should focus on shrinking to a size that is more in sync with the market by reducing its overlapping lineup of brands and bloated dealer network, and shifting its products to fit better with the times.
"On the surface, it just doesn't make any sense," said Erich Merkle, an auto industry analyst with the accounting firm Crowe Horwath in Grand Rapids, Michigan "General Motors needs fewer brands, not more. They need fewer dealerships, not more. And the product lines don't complement each other."
Despite all the obvious criticisms of the merger, the troubled companies are running out of options, and the status quo may not be among them.
GM and Chrysler, along with Ford Motor, have been battered by a weak economy, rising gas prices, a sharp shift by consumers away from their most profitable products and a credit crisis that has emptied dealer showrooms.
With all three automakers burning through billions of dollars in cash, analysts are increasingly skeptical they can avoid bankruptcy before the American auto market recovers.
"Detroit right now is the proverbial falling knife you are trying to grab," said John Casesa, a principal in consulting firm Casesa Shapiro Group in New York. "It has passed the threshold of a crisis."
For GM, a merger, for all the pitfalls, offers a way to increase its sales, add cash to its coffers, and save money by sharing operations and costs with a partner.
GM first approach Ford in July about a merger, but the overtures were rejected last month, according to people with knowledge of the talks.
Then, GM turned its focus to Chrysler, the smallest of the three and bought by Cerberus last year from the German automaker Daimler AG.
Talks between GM and Cerberus began about a month ago, but are still in the preliminary stages, according to people close to the discussions.
The principal driver of GM's interest in pursuing a merger is its president, Frederick Henderson, according to people familiar with deliberations inside GM. Henderson is the automaker's former chief financial officer and onetime head of its operations in Europe, Asia and South America.
Henderson has told other GM officials the company needs a broader revenue base and new sources of cash to survive.
Despite its recent woes, Chrysler still has an 11 percent share of the United States market that, added to GM's current 22.4 percent share, would put it far in front of Toyota, with which it has been battling for leadership in terms of market share.
Because it is privately owned, Chrysler does not report financial results. In August, however, Cerberus said that the automaker had $11 billion in cash.
That cash hoard could be a big lure for GM, which had $21 billion in cash on hand at the end of the second quarter, but is burning through an estimated $1 billion of it each month.
"The only way the deal makes sense is if there's some cash involved, because that's what GM needs," said Merkle.
People close to the GM-Chrysler talks have handicapped the chances of a deal at 50-50. Yet there appear to be pressing reasons for Cerberus to make a deal.
Cerberus's chairman, Stephen Feinberg, has come under intense pressure from Wall Street bankers to jettison Chrysler, according to people with knowledge of the situation.
A consortium of banks, led by JPMorgan Chase, was forced last year to lend Chrysler $10 billion because the debt could not be sold to credit-wary investors.
In addition, Chrysler has not been able to slash costs fast enough to balance out its 25 percent decline in sales in the United States this year. The automaker also needs money to reinvigorate its truck-heavy product lineup.
Cerberus is also talking to other automakers, notably Nissan Motor of Japan, about possible deals involving Chrysler, according to people close to the discussions.
Aside from core issues like price and other financial terms, a GM-Chrysler deal also hinges on the amount of cost savings a merger could yield.
GM has a task force studying possible synergies between the two automakers, according to one person with knowledge of the team's existence.
The biggest savings would likely come where they usually do in a merger — the elimination of jobs. And many of those cuts would come in Detroit and the rest of southeastern Michigan, where both GM and Chrysler have already slashed tens of thousands of workers from their payrolls.
More job losses would be another bitter blow in Motown. Since news of the exploratory discussions surfaced, the talk of Detroit has centered on how tough a merger would be on an already-beleaguered economy.
"Even since last year, nobody would have imagined how bad things would be now," said Boyle. "It's just mind boggling."
Still, many Detroiters believe it would be better for GM to swallow Chrysler before an outsider.
"Should this happen, look for a lot of bloodshed," wrote one person who posted a comment on a local Web site called DetroitYes.com. "However, it is better than another alternative — a Chinese company buys up Chrysler."
It is just another measure of the impact of the old Big Three on a city that once symbolized the manufacturing muscle for the nation.
"Ten years ago, Detroit was under intense pressure, but it always had access to money to borrow in the market," said Casesa. "Well, that's just not true anymore. In this case, being poor has taken Detroit's swagger away."
Goldman Sachs cuts forecast for oil prices
Monday, October 13, 2008
SINGAPORE: Goldman Sachs, one of the foremost bulls on commodities, turned a near-term bear on Monday after conceding that global financial turmoil would take a far bigger toll on demand than first anticipated.
"We have underestimated the depth and duration of the global financial crisis and its implications on economic growth and commodity demand," its commodity markets research team, led by Jeffrey Currie, said in a report dated Oct. 13.
The bank, which has consistently been at the top of Reuters oil price polls for years, said in the report that it now expected U.S. crude oil prices to end the year at around $70 a barrel, down from a previous forecast of $115 a barrel.
"However, should the financial and evolving economic crisis cut deeper into demand, the market could fall as low as $50, which we believe to be the industry's cash cost and shut in level," the analysts wrote.
U.S. crude rose $3.11, or 4 percent, to $80.81 a barrel on Monday as news of fresh European efforts to end the financial crisis revived prices from a 13-month low on Friday, when heavy selling and demand fears knocked prices 10 percent lower.
Goldman also cut its end-2009 price target to $107 a barrel from $125 and made an even deeper $37 cut to its average-2009 forecast, which it now put at $86 a barrel, making it the third most-bearish forecaster as of Reuters's last poll on Sept 26.
The bank also cut its forecast for copper prices in three months to $3,500 a ton versus and old forecast of $7,960, but predicted a recovery to $6,625 in 12 month's time. London Metals Exchange three-month copper rose 2.5 percent to $4,920 a ton.
It also cut its three-month view on aluminum to $2,060 from $2,950 and saw a more measured rise to $2,600 in 12 months.
"As copper is the only base metal that remains substantially above its marginal cost of production even at the current depressed price levels, we believe that it remains the most vulnerable to further downside in the near term," the report said.
But the analysts also said recent events strengthened their argument for a structural bull market, as commodity producers are "highly dependent upon access to capital and were already struggling to grow production capacity before recent events."
"While the swiftness and severity of the pullback in commodity and other asset prices stresses the ability of the industry to grow future production capacity, it also creates a much more unstable political environment in many of the producing countries around the world. As a result, it is likely that the supply constraints that have propelled commodity prices to record-high levels in recent years will likely be even more binding as the credit crisis resolves and as economic growth regains positive momentum.
"This suggests the potential for substantial upside from commodity investments in the medium-to-longer term," the analysts said.
On base metals, Goldman Sachs said infrastructure growth in China, the expansion of Chinese consumer demand for manufactured good and stretched production infrastructure supported a bullish case.
BG denies talks to sell Karachaganak stake to KMG
Monday, October 13, 2008
By Tom Bergin
Gas producer BG Group said it was not in talks to sell part of its stake in the giant Karachaganak gas field to Kazakhstan's state oil and gas company, KazMunaiGas.
The Times reported on Monday that KMG was in talks about taking a stake in Karachaganak, which is co-led by BG and Italian oil major ENI SpA, hitting BG's shares as investors fretted KMG would not pay a fair price and BG's output would suffer.
But a spokeswoman for BG said: "We are not engaged in any form of negotiations to alter our shareholding in the Karachaganak joint venture."
Eni and KMG declined to comment.
Timur Kulibayev, chairman of KazEnergy, the Kazakh oil industry association, told The Times that KMG was in talks about taking an interest in the project.
"KazMunaiGaz would like to participate, and now it is the subject of negotiation," the newspaper quoted him as saying.
Analysts at Credit Suisse cut their target price for BG stock by 4 percent to 1,470 pence on the report, and on fears of a rise in taxes for the company's assets in Trinidad, but it still rates the shares as "outperform."
BG stock traded up 2.5 percent at 792 pence at 2:51 p.m. on Monday, lagging a 7.55 percent rise in the DJ Stoxx European oil and gas sector index.
Karachaganak accounts for 18 percent of BG's total oil and gas production, and Credit Suisse said it represented over 25 percent of proven reserves.
"If we assume a scenario where KMG claims 20 percent of Karachaganak and BG receives no compensation, we estimate the reduction in equity would reduce BG's NAV (net asset value) by around $1.4 billion or 3 percent of the current share price," the bank said in a research note.
Shares in Eni, for whom the field is less material, traded up 10.45 percent at 15.24 euros.
ENI and BG both hold 32.5 percent stakes in the production-sharing agreement that covers the field, while U.S. company Chevron Corp has 20 percent and Russia's LUKOIL a 15 percent interest.
In January KazMunaiGas doubled its stake in Kazakhstan's Kashagan oil field to 16.81 percent in a sign that the government wants to echo Russia's strategy of exerting more state control over the natural resources sector.
KMG paid $1.78 billion for the stake, a price analysts considered on the low side and likely to reflect the government's eagerness for KMG to be part of the project.
Businesses join the green coalition of the willing
By Erica Gies
Monday, October 13, 2008
SAN FRANCISCO: Green is no longer just for hippies. Over the past couple of years, mainstream companies have started to realize that they need to fundamentally rethink their environmental policies, and while some still see the issues in terms of compliance, risk management or marketing, others see business opportunity.
Companies in the latter category have been appointing high-level executives as corporate sustainability officers and giving their managers financial incentives to meet environmental targets.
"There's a growing understanding that it's largely an opportunity for profit and growth for the companies that get on the right side of things and get ahead of the issue," said Rick Duke, director of the Center for Market Innovation at the Natural Resources Defense Council, an environmental nonprofit organization based in New York.
Interface, a U.S. manufacturer of modular carpets, is a case in point: It began greening every aspect of its business - from energy consumption to design to sales - in 1994, after its founder, Ray Anderson, read "The Ecology of Commerce" by the environmentalist and corporate critic Paul Hawken.
Among the resulting changes, the company created a senior management position, vice president of sustainability, about five years ago, which has been held for the past six months by Erin Meezan.
Meezan's team works with all Interface businesses, each of which has its own sustainability staff, and offers technical assistance on everything from waste programs to employee engagement. It is involved in strategic planning and works on external projects and partnerships.
Meezan says she reports directly to the chief executive, Dan Hendrix, "which is pretty huge. I also have regular interaction with our chief financial officer and with our business-level presidents. I think that really helps. I'm not removed from what's happening."
Intel, the chip maker, is also a leader in sustainable initiatives, winning top place in the 100 best corporate citizens list published this year by the magazine and Web site Corporate Responsibility Officer.
Dave Stangis, Intel's director of corporate responsibility since 2000, oversees a management review committee made up of the directors and vice presidents of most of the business units inside the company, "from operations, to products, to legal, to communications. "We as a group of people set strategy and policy," Stangis said.
Both Meezan and Stangis spend time educating employees about what they can do in their jobs to help meet sustainability goals, and they say employees are generally receptive.
Sustainability officers often turn to nongovernment organizations for advice, technical help and networking support. "I don't think any company can move itself toward sustainability with solely the people they have on staff," Meezan said. "It's critical for the person in charge of sustainability to have these outside resources, not just to figure out what's going on, but to help them make the case internally."
Many environmental organizations are eager to cooperate, harnessing the power of business to push their agenda.
Last year, for example, the Natural Resources Defense Council and other environmental groups joined 27 companies to form the U.S. Climate Action Partnership, which called for a cap on emissions and reductions of their levels by 60 percent to 80 percent by the middle of the century.
Duke, who acts as the council's business liaison director, said the partnership had helped to advance the political debate, proving to U.S. legislators that business planners would prefer legislation to uncertainty.
Some companies are starting to take environmental policy so seriously that they are linking, or planning to link, management bonuses to performance in meeting targets for reducing a company's use of carbon, water or energy.
Financial bonuses "definitely help to focus their minds," said Sonia Wildash, senior research analyst with Ethical Investment Research Services, a foundation based in London that conducts research on companies to provide a basis for socially responsible investing.
If sustainability targets are not linked to financial rewards, and supply chain commitments are not factored in to purchasing decisions, "you're not going to get any meaningful changes," Wildash said.
National Grid, a British utility that has recently expanded to the eastern United States, is auditing its emissions in preparation for setting itself carbon "budgets" next year. Its goal is an 80 percent reduction in emissions resulting from internal operations by 2050, with compliance to be measured by an independent auditing firm.
"Internal operations" include the emissions from the company's power generating plants on Long Island, New York, which represent 70 percent of its entire carbon output, said Chris Mostyn, a spokesman for National Grid's U.S. unit.
The company planned to raise efficiency at the Long Island plants and try to switch them to nonfossil fuels, he said.
"We'll take the cost of carbon into account if we're building a new substation, if we're installing new gas lines, if we're ordering a new fleet of vehicles for our linesmen; everything to ordering some new stationery for the office."
Though specifics have yet to be set, compliance with carbon reduction targets will be factored into management performance bonuses, alongside established criteria like safety and financial performance.
Joseph Kwasnik, head of climate change and corporate responsibility for National Grid, said that reducing emissions was a means to be "a more efficient company in the way we use natural resources, water, energy, anything that we use as a natural resource.
"This will not only lower emissions but also reduce the cost of our business. That should be music to the ears of our executives," he said.
In the first year of its emissions-reduction program, 10 percent to 20 percent of top managers' bonuses could be linked to meeting the carbon budgets, Kwasnik said. While this would be applied initially only to the heads of business divisions, they would be responsible for setting programs for their line managers, to get them on board to meet the targets.
"Executives want to do the right thing," Kwasnik said. "But it also helps to get their focus and their management to focus if you can say: 'Look, if you can meet these targets, you're going to be rewarded.' Rewarding is the capitalist tool to make things happen."
Danone, the French food company, has an even more ambitious program. In a pilot project, about 1,000 managers across the company already have one-sixth of their annual bonuses linked to their performance in meeting environmental targets.
"We're using the bonus to try to prepare internally and to make sure that we're improving quicker than our competition," said Pascal Desbourdes, vice president of executive development. "We want these incentives to show that it's a clear priority."
Danone is working to complete a census of all carbon emissions and water consumption by its businesses this year, prior to rolling out the carbon-reduction plan across all manufacturing operations next year.
It also aims to cut emissions by its agricultural suppliers and distributors. While specific strategies were still under discussion, Danone would "take a piece of the responsibility for the reduction," Desbourdes said, referring to carbon emissions by the company's supply chain partners.
In addition to incentives for compliance, a mix of factors may be needed for a successful sustainability policy, including aggressive goal setting and opening up the company culture to encourage experimentation - even if that may mean tolerating failure.
"Don't underestimate the value of setting really aggressive goals," said Meezan, of Interface, which aims to eliminate any negative impact it has on the environment by 2020. "By continuing to drive for zero, we're going to look at things that we wouldn't consider if we were only striving for 50 percent."
Also, she said, a chief sustainability officer needed to be backed from the top. "If companies think they're just going to hire a CSO because they need to have somebody to talk to the press and to write that part of the annual report - but the CEO is still disengaged and the board doesn't really understand it - ultimately they're not going to get their money's worth."
According to Stangis, part of Intel's success has come from moving beyond quarterly thinking to longer term planning. The result: For an investment of about $20 million on energy conservation projects, the company had saved, over time, more than $40 million, he said. "Plus today people are caring about the 500 million kilowatt-hours we saved as well. So it turns out to be a win-win-win."
Racing over mountains on twigs and fry oil
By Jesse McKinley
Monday, October 13, 2008
BERKELEY, California: It is a classic road rally, 600 miles from the liberal embrace of Berkeley to the anything-goes lights of Las Vegas.
No speeding is allowed, or in some cases even possible. And if you stop to refuel, it had better be in someone's trash.
On Saturday morning, five teams began the Escape From Berkeley, maybe the world's most eco-friendly motor race, driving all manner of alternative-fuel-burning jalopies, roadsters, and even a Mercedes-Benz fueled by frying oil, with a single goal: to complete the approximately 1,000-kilometer race using no petroleum.
"Gentlemen, start your whatever they are," the master of ceremonies shouted to begin the race, which offers the winner $5,000.
The final catch of the race is that participants - artists, environmentalists and even a cattle farmer from Alabama - have to find or scavenge their go-go juice, whether it is used vegetable oil from restaurants or twigs and sticks from the side of the road. All the vehicles, which are required to be street legal, were allowed to start with a single gallon, or about 3.8 liters, of whatever fuel they used.
"We're just going to hang out in front of Ace Hardware and beg," said Ben Wedlock, who was riding a two-man bicycle, augmented by a one-horsepower electric motor that runs on ethanol.
The race's route will also present some challenges, running as it does from the relatively mild terrain of the Bay Area, across the Sierra Nevada via the Tioga Pass (elevation 9,943 feet, or 3,030 meters) and finally through the deserts outside Las Vegas.
All of which is highly likely to make it more a matter of survival than of speed for some of the racers.
"Considering the Tioga Pass, it will be pretty much miraculous if we make it," said Shannon O'Hare, the designer of Kristie's Flyer, an elegant steam-powered vehicle on three wheels (two of which are wooden). "I think it's more of an art piece than a competitor."
Indeed, O'Hare and several other participants are veterans of Burning Man, the art-for-art's-sake festival held every summer in the desert north of Reno, Nevada. At an opening party for the race Friday night, a giant fire-breathing snail - late of Burning Man and made of metal - was in attendance.
Jim Mason, the founder of Shipyard Labs, the sponsor of the event, said the race was meant to encourage creative thinking about alternative energy. "We want to transfer it from an engineering problem to art," Mason said.
Many of the cars were worked on at the Shipyard, a 20,000-square-foot, or 1,900-square-meter, open-air garage, where self-described "geeks and gearheads" work in shipping containers.
"We have more Ph.D.s than Google," Mason said. "But here, they weld."
Not all of the racers are Bay Area cognoscenti. Wayne Keith, 59, is a cattleman from Springville, Alabama, who decided five years ago that he wanted to be independent from gas. "When gasoline hit $1.75, I bailed out," Keith said. "I'm a hostage to no one."
His adapted lime-green Dodge Dakota pickup burns wood in a pair of burners in the pickup bed and uses the gases created by the combustion - primarily hydrogen and carbon monoxide - to drive the engine. He said the ready availability of scrap wood on his farm made his energy expenses almost nil.
On Saturday, Keith's truck was also towing a table saw, in case he happened on any particularly large branches.
"I don't know if it makes me good or guilty," he said. "But the wood's going to rot if I don't use it."
Keith said the truck's top speed is about 90 miles per hour, or 145 kilometers per hour, making it a favorite to win the race. Not so for Wedlock, 24, and his racing partner, Mike Gittelsohn, 54, who spent about $3,000 to build their recumbent bicycle, complete with an engine better suited for a weed whacker.
Neither man is much of a cyclist, they said.
"A really strong human can produce about one-third of a horsepower," Wedlock said. "I'm probably less than a quarter."
The men's main concern was the wind, which had been gusting through Northern California for several days. The team, called Two Cats, had built a cover for their bike but were worried that it might be more of a sail than an aerodynamic sleeve.
"If we have crosswinds like we did today," Wedlock said, "it's going to be an issue."
The elements, including snow in the upper Sierras, were also quite likely to be an issue for the Prisoners of Petroleum team, which was driving an open-air and open-wheel two-seater.
Jack McCornack, part of the Prisoners team and the owner of Kinetic Vehicles, a maker of alternative cars in Cave Junction, Oregon, said his roadster could go 72 miles per hour - and get 70 miles to the gallon, or 25 kilometers to the liter - using nothing but vegetable oil.
"It's extremely no-frills," McCornack said of his car, which has no windows or doors. "It's everything you always wanted in a sports car, and less."
Sure enough, there was snow in the pass Sunday, and Wedlock and Gittelsohn had dropped out because of an engine problem, Mason said.
O'Hare's steam-powered carriage, which he had estimated would top out at 15 miles per hour, had been reduced to a ceremonial role, leaving three viable challengers in the race.
Mason said he suspected there might be a little more attrition before the race ends on Monday in Las Vegas. "It might just be one or two," he said. "But maybe they'll all make it."
Kerviel's lawyers question Société Générale accountants
Monday, October 13, 2008
PARIS: Jérôme Kerviel, blamed by Société Générale for the record trading loss it took this year, met Monday with accountants from Ernst & Young and Deloitte Touche Tohmatsu to ask about alerts they may have sent to the bank.
The meeting focused on how much auditors had known and told the bank about its exposure to what became €50 billion, or $68 billion, in unauthorized futures positions that cost Société Générale €4.9 billion to unravel in January.
The bank's assertions that it had not known know about Kerviel's activities are "a smoke screen," Bernard Benaiem, a lawyer for Kerviel, said before entering the interview in the offices of judges leading the investigation. "E-mail exchanges from their auditors kept them aware that the trades didn't exist."
The lawyers for Kerviel also planned to ask about the findings of the French banking commission in the case. The commission fined Société Générale €4 million in July for failing to comply with rules on internal controls. The report, which was not made public, was recently shared with Kerviel's legal team.
The auditors' evidence is "of no concern" to the criminal case against Kerviel, a Société Générale lawyer, Jean Veil, said during a break in the proceedings Monday. The bank's legal team also represented the auditors at the meeting.
Kerviel, 31, faces charges including breach of trust, falsifying documents and hacking the bank's computers. A report commissioned by Société Générale found that Kerviel had been able to build up €50 billion in unauthorized futures positions because of "fragmented" internal controls.
Kerviel's trades and cover-ups "deserved an inquiry, a disciplinary hearing, a reprimand, nothing else," said Eric Dupond-Moretti, another lawyer representing the former trader. Kerviel was fired by the bank while he was serving five weeks in preliminary detention.
The meeting Monday was in the style of a confrontational interview, which allowed both Kerviel's legal team and the judges, Renaud Van Ruymbeke and Françoise Desset, to question witnesses and compare accounts of the events.
Another such meeting is scheduled to take place Thursday with Maxime Kahn, the Société Générale employee who sold Kerviel's positions in January.
France to back bank loans and offer capital
Monday, October 13, 2008
PARIS: France will use two funding vehicles to prop up the financial sector, one of which will guarantee bank lending and the other will provide capital to banks in need, President Nicolas Sarkozy said on Monday.
The bank lending vehicle will have up to 320 billion euros (251 billion pounds) at its disposal while the second body will have a potential budget of 40 billion euros, he said.
Sarkozy in-law wades into Italy extradition case
Monday, October 13, 2008
PARIS: The sister of France's first lady Carla Bruni-Sarkozy said Monday she played a part in President Nicolas Sarkozy's decision not to extradite a former Red Brigades member to Italy as ordered by the courts.
Rome has long demanded the extradition from France of several former activists from the violent far-left group, including convicted murderer Marina Petrella, and Sarkozy's U-turn is likely to anger the Italian government.
She was found guilty in absentia by an Italian court in 1992 of murder, kidnapping, attempted kidnapping and armed robbery.
Petrella, who has lived in France for more than two decades, was arrested in August last year at Italy's request, shortly after Sarkozy came to power promising to end France's policy of giving asylum to repentant ex-members of the Red Brigades.
A French court approved her extradition in December and an order to send her back to Italy had been signed by the prime minister.
However, Sarkozy's office announced at the weekend that he had decided to reverse the extradition order on humanitarian grounds and the president's Italian-born sister-in-law, Valeria Bruni-Tedeschi, said she had intervened on Petrella's behalf.
"I told him (Sarkozy) about her, especially just after I saw her in jail. I gave him some information that was perhaps a little bit important in his decision," Bruni-Tedeschi, an actress, told French radio station Europe 1.
"He focussed his attention on a case that he hadn't completely focussed on before," said Carla's elder sister.
The French newspaper Liberation reported Monday that Carla and Valeria visited Petrella last Wednesday to assure her she would not be extradited.
Since her arrest, Petrella, who was born in 1954 has fallen into a severe depression, lost the will to live and wasted away to a weight of about 40 kg (88 pounds), according to her supporters who include Bruni-Tedeschi.
The Red Brigades carried out a campaign of violence in Italy during the "years of lead" in the 1970s, culminating in the kidnap and murder of former Prime Minister Aldo Moro in 1978.
The Bruni sisters were born in Italy to a rich family of entrepreneurs who emigrated to France partly because they feared kidnappings for ransom during the so-called "years of lead."
It is not immediately clear why Valeria or Carla took up Petrella's cause.
(Reporting by Elizabeth Pineau and Estelle Shirbon; Editing by Matthew Jones)
Tempting controversy at the Comédie Française
By Mary Blume
Monday, October 13, 2008
PARIS: Muriel Mayette is lithe, reddish-haired and an enthusiastic slangy talker despite a rotten head cold. For two years as administrateur général she has been in charge of the Comédie-Française, founded in 1680 and one of the jewels of the French nation, a position so august that she ranks 39th in official state protocol ("that does leave a margin," she said with a grin). Right now, in addition to the cold, she is embroiled in a headache-inducing controversy about her hope to extend the Comédie's activities to the MC93 theater in Bobigny.
Bobigny is an unlovely red-belt Paris suburb where, incidentally, Mayette lives. Its theater has been the scene, in the past, of fine classic and modern productions and the prospect of change has brought wide protests in the theater world despite Mayette's statement that she has no intention of undermining the house. She was replying to a press release by her own actors, signed "La Troupe," refusing to play the role of MC93's competitors or predators.
Patrick Sommier, MC93's present director, has flatly denounced the initiative as a hostile takeover. Mayette explains that it is no such thing, simply a proposal of a partnership that would benefit both houses artistically and financially. "Like the small theaters of the banlieue we have less and less money," she said. "So what do you do? Let both die?"
The proposal, initiated by the Ministry of Culture, is seen as the little guy being crushed by the mastodonic Establishment. In fact Mayette has worked successfully to co-produce plays in small outlying theaters and to defy tradition by dusting off the Comédie's stuffy image.
"I think when people talk about tradition they mean a rather dull 17th-century play that raises no problems and that you've forgotten by tomorrow. There's no point," she added, "in doing things that are useless.
"Since theater is the art of the present you must enrich and risk contemporary texts. With a classic if you have a mise en scene that overpowers the text, it's a mess. But if you have a modern scenic and dramaturgic approach that allows you to hear the text, even if it's shocking I am all for it."
Mayette, 44, has taught acting at the Conservatoire, directed both at the Comédie and other theaters, done some writing, and became the company's 477th sociétaire, or senior actor, in 1985. When she was invited to be the company's first woman administrator she was playing in Molière's "La Malade Imaginaire," and was surprised since she had never applied for the job.
"Their first choice turned it down," she said. "I had started in the profession very young and had done what I wanted, which is rare, so I found it perfectly normal for an artist to assume responsibility. I said yes, on condition that I could enlarge the troupe and add another theater."
The company's imposing headquarters houses some 400 staff, who include everyone from wigmakers to a concierge who has a portrait in a curly gilded frame of the great tragedian Rachel over his desk. But its theater is relatively small. It has a second house on the rue du Vieux-Colombier and Mayette succeeded in getting a tiny third one in the shopping mall under the Louvre. She has not managed to increase the number of actors, 56 compared to 70 actors 20 years ago.
Despite a state subsidy, money is short. Private backers are rare: "It's not like the plastic arts where they know what they are backing. In the theater there is a strong element of the unknown and we cannot offer space for big corporate dinners. We have extraordinary partners but it isn't they who can cover the salaries of my employees."
She has managed to increase the number of Comédie-Française subscribers to 6,180 from 3,600 and, despite often controversial productions, to reach 86 percent of capacity at the big house. The actors are salaried year-round and sociétaires get a bonus based on box-office earnings. Each time actors play they get an additional fee called a feu (fire), from the days when it was used to buy logs to heat their dressing rooms.
The fact that comédiens are in effect civil servants could, Mayette admitted, lead to laziness but they are subject to regular peer reviews, which in turn can lead to jealousy. "People say that it's like the House of Atreus but it's a great lesson in tolerance because you have to act together and by the third play you feel tender toward those you couldn't bear."
With its position as an instrument of the state, the Comédie-Française can seem bound by officialdom. "But it's a way of saying the state needs culture and we are its ambassadors," Mayette said. Actors are currently in rehearsal for two productions that will tour Eastern Europe to crown France's presidency of the European Union.
It may sound like the government using the Comédie as its showcase, but the idea was Mayette's. "Instead of taking one big spectacle to show off, we are doing two small farces. One is a classic directed by an Englishman with an Armenian and a Pole, the other is a contemporary Italian play directed by a Bulgarian. If I had been pressured into doing the tour I would have resigned. I am not here to do what I am told to do."
Among the activities on this season's program are what Mayette calls "les propositions," small encounters between the actors and audiences. They can be debates, for example, or what are called cartes blanches, in which the actors who feel typecast get a chance to do something else. "I might dream of being Phèdre, which I don't, and so in the carte blanche I could show how I'd do it. It's dangerous because you can be very wrong, but it also gives a chance to see actors differently whom you thought you knew very well."
Mayette has innovated but one of her favorite events is an extension of the traditional Jan. 15 birthday homage to Molière. In the past a little ceremony has been tacked on to the night's performance. Under Mayette's direction it is a full celebration, with Suzanne Lalique's famous 1951 set for "Le Bourgeois Gentilhomme" in the background and members of all the crafts appearing onstage - "seamstresses, flat-painters, people you never see, and actors playing the fool, showing off like kids."
The homage ends with a reading of a text by Charlotte Delbo, the assistant to Louis Jouvet, describing how when she was interned in Auschwitz and Ravensbrück the inmates put on, from memory, Molière's "La Malade Imaginaire."
"She tells how it suspended time, how it provided their real nourishment," Mayette said. "For people who ask what use the theater is today, I think this is the true answer: it is a natural need."
Britain's Lords reject proposal on extended detentions
By Raymond Bonner
Monday, October 13, 2008
LONDON: After nearly 12 hours of often-intelligent and ever-passionate debate over two days, the House of Lords on Monday overwhelmingly rejected a Labour government proposal to allow the authorities to extend the time the police can hold terrorist suspects to 42 days, from 28, without charges.
The vote was 309 to 118, with many Labour members joining Conservatives, Liberal Democrats and independents in opposition.
The defeat was a setback for Prime Minister Gordon Brown, who had invested considerable political capital in getting the bill through the House of Commons in June, where it passed by only nine votes.
Since coming to office last year, Brown's poll ratings have steadily declined, but he has enjoyed a slight rebound for his response to the financial crisis.
Brown and the supporters of the 42-day detention period argued that it was needed because of the complex nature of terrorism investigations, which cross borders and usually involve decrypting computer files.
They also argued that the terrorist threat in Britain has increased. It was an argument that some lords accepted, but they still voted against the bill.
Opposition to the law was widespread, across the political spectrum and even among high level counterterrorism officials. Two former heads of the MI5, Britain's domestic spy agency, Stella Remington and Eliza Manningham-Buller, criticized the law as wrong in principle, unneeded in practice and a move that would alienate the Muslim community.
In a speech to the House of Lords, Manningham-Buller said: "In deciding what I believe on these matters, I have weighed up the balance between the right to life, the most import civil liberty, the fact that there is no such thing as complete security and the importance of our hard won civil liberties. And therefore on a matter of principle, I cannot support the 42-days pre-charge detention."
Peter Goldsmith, the British attorney general under former Prime Minister Tony Blair, called the law "pernicious." The law was "not only unnecessary but also counterproductive," Goldsmith said in a column published Monday in The Guardian newspaper.
Writing in the Daily Telegraph on Monday, the columnist Philip Johnston described the law as "draconian" and said that it would "sign away basic freedoms which have long formed the very backbone of our society," going back to the Magna Carta.
About 40 of Britain's most famous writers used their pens to protest the law, writing poems, essays, satires and short stories that were published online at www.42writers.com.
British law already allows terrorist suspects to be held for 28 days without charge, one of the longest such periods in the world.
In the United States, the maximum period that a citizen can be held under federal law is 48 hours, though under the Patriot Act, quickly passed after the terrorist attacks on Sept 11, 2001, a noncitizen can be held for as long as seven days without charges.
A study by Liberty, a human rights organization in Britain, concluded that no other European democracy permitted anything close to 28 days' detention without trial.
The longest was 7.5 days in Turkey, 6 in France and 5 in Russia, the organization said. Under recent legislation, Australia now permits a detention of 14 days without trial.
"I don't really care what any other country does," Alan West, the Home Office minister, said during a powerful speech in support of the bill in the House of Lords on Monday evening. He added: "You're bloody lucky to live in this country."
The law is not dead yet. Brown could go back to the Commons but it was not clear if he would continue the struggle. In an editorial Monday, The Financial Times newspaper urged him to drop the effort. "A Lords defeat should be the last we hear of this contentious, damaging plan," the editorial said.
Nations coordinate bid to revive economies
By Nelson D. Schwartz
Monday, October 13, 2008
PARIS: In a sweeping round of announcements from European capitals on Monday, Britain took effective control of two of the country's largest banks, and leaders in Paris, Berlin, Madrid and elsewhere offered more than a trillion euros in loan guarantees and other support intended to restore trust between banks and thaw frozen credit markets.
On both sides of the Atlantic, there was a sense of frenzied activity, with the Treasury Department calling a meeting Monday afternoon in Washington with top banking executives to lay out how the government plans to proceed with its $700 billion financial rescue plan.
Although details of the administration's rescue plan were still being worked out on Monday evening, it was clear that the White House was planning to expand the contours of the program by providing new protections and confidence-builders for the American banking system.
The discussions, after a day in which the Wall Street markets staged a record-setting rebound, revolved around using up to $250 billion of the program's $700 billion to pump money into the banks through government purchases of equity stakes. Another proposal would remove the Federal Deposit Insurance Corp.'s ceiling on deposits that are insured. It was recently increased to $250,000 from $100,000.
The administration is expected to outline its plan on Tuesday morning.
The Federal Reserve also announced on Monday an agreement with central banks in Europe to provide even greater access to funds in dollars, on top of the trillions of dollars in commitments it has already offered to guarantee loans to financial institutions and major corporations in the commercial paper market.
The coordinated moves came after several weeks of finger-pointing amid worsening fears about Europe's banks and plunging stock markets worldwide.
The sense that governments were finally acting to get their arms around the crisis sparked a global rebound in stock markets. Asian bourses surged Monday morning, and exchanges across Europe followed, with gains of 8 percent to 11 percent. In New York stock markets were also booming, with the Dow Jones industrial average gaining 936 points, or 11.1 percent.
"Sometimes it does take a crisis for people to agree that what is obvious and should have been done years ago can no longer be postponed," the British prime minister, Gordon Brown, said in London in a speech calling for the adoption of a new Bretton Woods-style agreement among major countries. "We must now create the right new financial architecture for the global age."
And with the financial crisis now the leading issue in the American presidential contest, the Democratic contender, Barack Obama, laid out some fresh economic proposals to deal with the faltering economy, including tax credits for businesses that create jobs at home and a method to allow hard-pressed consumers to tap their retirement accounts without penalty.
The British government, in a remarkable departure from two decades of movement away from state ownership by both Labour and Conservative governments, said it would acquire controlling stakes in the Royal Bank of Scotland and the newly combined bank of Lloyds TSB and HBOS in exchange for a $64 billion capital infusion.
In Berlin, German leaders unveiled a 480 billion package consisting mostly of loan guarantees. It represented a U-turn from earlier German claims that the financial situation could be dealt with on a case-by-case basis.
"We're taking measures in order to prevent a repeat of what we've just experienced," said Angela Merkel, the German chancellor. "These are sweeping steps, but they're necessary to restore market confidence."
Unlike the British blueprint, however, the plan announced by Merkel does not call for Berlin to acquire direct stakes in German banks.
Instead, the German approach offers €400 billion in guarantees for inter-bank loans and another €80 billion for direct injections of capital to restore weakened balance sheets and purchase the toxic, illiquid assets that have already forced several German banks to the brink of collapse.
"This package is about stability and trust," said Peer Steinbrück, the German finance minister. "I cannot exaggerate the crisis in the global financial system."
In Paris, where President Nicolas Sarkozy of France had convened gatherings of his European counterparts for two weekends in a row to help put together a coordinated response, the French government detailed its own €360 billion effort.
The French government will create a fund that will raise money to guarantee debt for up to five years in a bid to make cash available to banks unwilling to lend to each other.
The banks will then be able to obtain these funds in exchange for putting up their own collateral, including debt currently not accepted as collateral by the European Central Bank.
In addition, a second state-sponsored company will provide up to €40 billion in direct capital injections to banks that request it, in exchange for handing over equity stakes.
While the actions were coordinated between Paris, Berlin, London and other capitals, the set of moves did not represent the pan-European bailout initially favored by the French and Dutch but opposed by Germany.
Instead, it was a common strategy with each country determining the magnitude and money of their effort, underscoring how much European leaders have struggled to come together in the face of the worst financial crisis since the Depression.
Nevertheless, Sarkozy could not resist lauding what seemed like a vindication of his common approach, while suggesting that Europe had now leapt ahead of the United States in addressing the crisis.
"Europe, a united Europe, has done more than the United States in total amounts," Sarkozy said, though he failed to take account of the vastly larger sums the United States has committed outside its $700 billion bailout program. "The time of everyone for themselves is over."
In Washington, where fresh elements emerged about the bailout package, its newly tapped leader echoed Sarkozy's sense of urgency.
"A program as large and complex as this would normally take months — or even years — to establish," said Neel Kashkari, a Treasury Department official who, like his boss, Henry Paulson Jr., is a veteran of Goldman Sachs. "We don't have months or years."
"Achieving this goal will require multiple tools to help financial institutions remove illiquid assets from their balance sheets, and attract both private and public capital," Kashkari said. "Our toolkit is being designed to help financial institutions of all sizes so they can grow stronger and provide crucial funding to our economy."
Kashkari said that the government had set up teams to determine the best ways to buy mortgage-backed securities, acquire equity stakes in banks, identify home loans that needed to be purchased, insure troubled assets, preserve homeownership, deal with executive compensation at banks that receive capital injections and assure compliance with regulatory laws.
"We will complete the design of these tools and deploy them as soon as they are ready," he said. Even as investors cheered, some experts questioned whether the plan would be big enough to stave of the broader economic worry: a prolonged Europe-wide recession.
According to an analysis by Capital Economics in London, the bailout packages are roughly similar in economic impact: 3.3 percent of gross domestic product in Germany, 2.1 percent in France, and 2.9 percent in Britain.
While Europe's biggest economies led the way, Austria also made €100 billion available for recapitalizations and loan guarantees; Spain will insure up to €100 billion in bank debt; and the Netherlands threw €220 billion into the pot.
"These amounts involved qualify as serious money by any yardstick," said Holger Schmieding, chief European economist for Bank of America in London.
Schmieding calculated that for Germany, France, the Netherlands and Austria — countries whose combined economies are just over half the size of the United States' — state guarantees and capital injections reach €1.3 trillion.
But despite the scale of the European efforts, the Capital report said, "we are skeptical as to whether they will on their own be enough to prevent the growth of bank lending from slowing sharply and causing a more prolonged slowdown."
Still, there were modest indications that the European plan was increasing the willingness of banks to lend to one another, a key goal. The three-month Libor rate fell to 4.75 percent Monday from 4.82 percent Friday .
While it was not clear how long European governments will hold onto their newly acquired equity stakes, they already are moving to exert some control, especially who sits in the corner office and what they get paid.
Sarkozy made clear that the vow to "not allow any financial establishment to go bankrupt" came with strings attached. If a bailout is required, he said, "management will be changed. There cannot be rescue without punishments of the errors."
In Britain, Brown announced limits on bonuses and dividends at the banks in which the government will have a stake.
At the Royal Bank of Scotland, which will receive $34 billion in the British bailout, the chief executive, Fred Goodwin, resigned, marking an end to the tenure of one of Britain's boldest and best-paid executives.
Paul Krugman: Gordon does good
By Paul Krugman
Monday, October 13, 2008
Has Gordon Brown, the British prime minister, saved the world financial system?
O.K., the question is premature - we still don't know the exact shape of the planned financial rescues in Europe or for that matter the United States, let alone whether they'll really work. What we do know, however, is that Brown and Alistair Darling, the chancellor of the Exchequer, have defined the character of the worldwide rescue effort, with other wealthy nations playing catch-up.
This is an unexpected turn of events. The British government is, after all, very much a junior partner when it comes to world economic affairs. It's true that London is one of the world's great financial centers, but the British economy is far smaller than the U.S. economy, and the Bank of England doesn't have anything like the influence either of the Federal Reserve or of the European Central Bank. So you don't expect to see Britain playing a leadership role.
But the Brown government has shown itself willing to think clearly about the financial crisis, and act quickly on its conclusions. And this combination of clarity and decisiveness hasn't been matched by any other Western government, least of all America's.
What is the nature of the crisis? The details can be insanely complex, but the basics are fairly simple. The bursting of the housing bubble has led to large losses for anyone who bought assets backed by mortgage payments; these losses have left many financial institutions with too much debt and too little capital to provide the credit the economy needs; troubled financial institutions have tried to meet their debts and increase their capital by selling assets, but this has driven asset prices down, reducing their capital even further.
What can be done to stem the crisis? Aid to homeowners, though desirable, can't prevent large losses on bad loans, and in any case will take effect too slowly to help in the current panic. The natural thing to do, then - and the solution adopted in many previous financial crises - is to deal with the problem of inadequate financial capital by having governments provide financial institutions with more capital in return for a share of ownership.
This sort of temporary part-nationalization, which is often referred to as an "equity injection," is the crisis solution advocated by many economists - and sources told The New York Times that it was also the solution privately favored by Ben Bernanke, the Federal Reserve chairman.
But when Henry Paulson, the U.S. Treasury secretary, announced his plan for a $700 billion financial bailout, he rejected this obvious path, saying, "That's what you do when you have failure." Instead, he called for government purchases of toxic mortgage-backed securities, based on the theory that ... actually, it never was clear what his theory was.
Meanwhile, the British government went straight to the heart of the problem - and moved to address it with stunning speed. On Wednesday, Brown's officials announced a plan for major equity injections into British banks, backed up by guarantees on bank debt that should get lending among banks, a crucial part of the financial mechanism, running again. And the first major commitment of funds came on Monday - five days after the plan's announcement.
At a special European summit meeting on Sunday, the major economies of continental Europe in effect declared themselves ready to follow Britain's lead, injecting hundreds of billions of dollars into banks while guaranteeing their debts. And whaddya know, Paulson - after arguably wasting several precious weeks - has also reversed course, and now plans to buy equity stakes rather than bad mortgage securities (although he still seems to be moving with painful slowness).
As I said, we still don't know whether these moves will work. But policy is, finally, being driven by a clear view of what needs to be done. Which raises the question, why did that clear view have to come from London rather than Washington?
It's hard to avoid the sense that Paulson's initial response was distorted by ideology. Remember, he works for an administration whose philosophy of government can be summed up as "private good, public bad," which must have made it hard to face up to the need for partial government ownership of the financial sector.
I also wonder how much the FEMAfication of government under President Bush contributed to Paulson's fumble. All across the executive branch, knowledgeable professionals have been driven out; there may not have been anyone left at Treasury with the stature and background to tell Paulson that he wasn't making sense.
Luckily for the world economy, however, Gordon Brown and his officials are making sense. And they may have shown us the way through this crisis.
Who has faith in the regulators?
By Gretchen Morgenson
Monday, October 13, 2008
Stock market investors, even more than the average Jane, hate unpleasant surprises. Unfortunately, as last week showed, this bailout business is chock full of them.
Consider the backstop recently provided to American International Group, the beleaguered insurer. On Sept. 16, the U.S. Treasury told taxpayers to lend it $85 billion. Last Wednesday, we had to cough up another $37.2 billion to keep the company operating. As part of a new lending facility announced by the Federal Reserve Bank of New York, our stake in AIG now approaches $122 billion.
That, you may recall, is more than triple the $40 billion that AIG requested when it went on life support in mid-September. As a recent "Saturday Night Live" comedy skit about the AIG bailout put it so memorably: "Oh my God, are you serious!?! Really!?!"
Then there was the midweek switcheroo by Henry Paulson Jr., the Treasury secretary. Instead of unfurling his original $700 billion taxpayer "troubled asset relief program," or TARP, to buy crippled mortgage securities, Paulson decided that the program would now take direct ownership stakes in banks.
Those little turnabouts reveal a couple of things. First, money sure goes fast these days. (Good thing Uncle Sam's printing presses are oiled and ready to roll.) Second, regulators are making up rules for these emergency programs as they go.
That is not necessarily bad. TARP was, after all, full of holes. A particularly gaping one: how much taxpayers would pay for troubled mortgages. Many were rightly suspicious that the government would pony up too much money to bolster banks trying to jettison the junk.
But the new direct investment plan raises questions, too. Who will decide which banks receive help and which won't? And what standards will be used to reach those decisions?
Apparently such decisions will fall to Neel Kashkari, assistant Treasury secretary for financial stability, and brand-new overseer of the $700 billion bailout. A former banker at Goldman Sachs, Kashkari, 35, is just six years out of business school.
That's a good bit of power for a young man to wield, don't you think? Sure, he's smart and he will probably have help from others at the Treasury, starting with Paulson. But choosing which financial institutions live and which die will be an interesting process to watch.
The more transparent this process is, of course, the less suspicious taxpayers will be about its outcome. Alas, transparency has not been a priority for Paulson or any of his partners at the Fed throughout this crisis.
And that has created the biggest problem for regulators right now: at precisely the moment they are entrusted with breathtaking powers, investors' and taxpayers' trust in them is at a nadir.
World financial markets operate on confidence, we can all agree. You trust that I will deliver shares when you buy them from me. Your broker trusts that you will send in a check to cover the purchase of municipal bonds you just made.
But the leading lights of finance, whether in Washington or on Wall Street, have completely squandered any trust that taxpayers may have had in them. Earning it back is going to take time and a commitment to transparency.
One reason the trust deficit looms so large is that the same people who are scrambling to reassure investors with bold actions were as recently as July telling investors that everything was hunky-dory.
Here is Paulson, quoted by The Associated Press, on July 20: "It's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation."
Let's rewind further, to early May. Paulson allowed that the worst was "likely" to be behind us. "There's no doubt that things feel better today, by a lot, than they did in March," he said.
His take on May 16, when the Dow Jones industrial average stood at 12,986, was as follows: "Looking forward, I expect that financial markets will be driven less by the recent turmoil and more by broader economic conditions and, specifically, by the recovery of the housing sector."
My personal favorites, however, involve a much broader cast of characters than just Paulson. In the first half of 2007, almost every senior regulator assured us that troubles in the mortgage markets would be "contained" to subprime loans.
(A tip of the hat to Joan McCullough, market commentator extraordinaire at East Shore Partners, for gathering those nuggets.)
There are a few straight talkers in the regulatory regime, of course. One is Gary Stern, president of the Federal Reserve Bank of Minneapolis, and co-author of "Too Big to Fail: The Hazards of Bank Bailouts." In a speech Thursday, Stern expressed deep unease over the consequences of using taxpayers' money to rescue big and reckless financial institutions.
"The too-big-to-fail problem, with which I have long been concerned, has been exacerbated by actions taken over the past year to bolster financial stability," he said, according to his prepared remarks. While conceding that the recent lifelines were appropriate, given the circumstances, he said that "it is critical that we address 'too big to fail' because, if left unchecked, it could well be a major source of future instability."
Stern's solution is an approach he calls "systemic focused supervision." It involves "early identification, enhanced prompt corrective action and stability-related communication."
First, regulators would identify what Stern described as "material exposures between large financial institutions and between these institutions and capital markets." In other words, regulators would know where the fault lines are before the earthquake begins. And they would be better able to assess which institutions required support and which could be cut loose.
Prompt corrective action is the second leg of the stool.
"Closing banks while they still have positive capital, or at most a small loss, can reduce spillovers in a fairly direct way," Stern said. "If a bank's failure does not impose large losses, by definition it cannot directly threaten the viability of other institutions that have exposure to it."
Finally, he said, regulators must communicate the actions they are taking. Otherwise, market participants might continue to believe that bailouts are coming, because policy makers had not advised them to the contrary, Stern said.
In other words, be transparent and communicate details on supervisory activities early and often.
Stern made this conclusion: Supervisors must "maintain a strong grasp of the operational activities and the inherent risk profile of the financial institutions they supervise as well as the risk management systems these firms employ."
The success of such a program, he emphasized, depends on its not becoming "an appendage to 'routine' supervision."
It is indeed unfortunate that it took a calamity of this measure to restore an appreciation for vigilant regulators. Putting Stern's ideas into action may require a complete overhaul. But the sooner we get started on that herculean task, the better.
European banks share blame
By Nelson D. Schwartz
Monday, October 13, 2008
PARIS: On the evening of Oct. 4, Italy's prime minister made abundantly clear just who he thought was to blame for the global credit crisis. From risk-taking Wall Street bankers to home buyers who borrowed more than they could afford, Silvio Berlusconi declared that Americans had embraced "the capitalism of adventurers."
By contrast, "Europeans set aside money in savings," he added, as the leaders of Britain, Germany and France looked on following a crisis meeting of European officials. "Europe is not facing and has never faced the risks in the American system."
Gordon Brown, the British prime minister, pointedly added that the crisis had "come from America."
The next 24 hours would dramatically undercut that view.
On Oct. 5 the board of Italy's second-largest bank called an emergency meeting to raise $9 billion in fresh capital, while German authorities hastily agreed to guarantee all bank accounts held by ordinary consumers and provide $67 billion to save a stricken property lender, Hypo Real Estate.
And within days, the British government would roll out a plan to commit £150 billion, or $256 billion, in government funds to shore up its own shaky banking system.
Europe's leaders have repeatedly pointed fingers at the United States since the latest wave in the credit crisis crossed the Atlantic this month. But the reality is that many European banks emulated the riskiest characteristics of their American counterparts, bulking up on what turned out to be toxic debt and relying on short-term loans, rather than deposits, to finance their operations.
By some measures, in fact, European banks exposed themselves to even higher levels of risky debt than American banks did.
While most European institutions don't face the kind of losses that brought down everybody from Lehman Brothers to Washington Mutual in the United States, heavy borrowing has made them vulnerable now that easy credit is a thing of the past, while plunging stock prices make it all but impossible to raise money without government help.
And though they did not provide mortgages to borrowers with dubious credit like their American counterparts, giants like UBS of Switzerland bought tens of billions in American subprime debt in a bid for higher yields.
In Germany, Hypo's loans exceeded its deposit base by more than eight times, forcing it to rely on short-term borrowing that dried up when credit markets tightened in recent months.
Two other troubled institutions, Royal Bank of Scotland and Fortis, a Dutch-Belgian lender, took on huge amounts of debt to finance expansions.
"Our balance sheets are overleveraged," said Vasco Moreno, who tracks European banks for Keefe, Bruyette & Woods, a research firm.
By one commonly used yardstick to measure borrowing, the ratio of assets to equity, European banks employed more than twice as much leverage as their American counterparts, according to Moreno.
To make matters worse, an ocean of short-term debt issued by European banks is coming due soon, with $375 billion maturing in the fourth quarter of 2008 and another $339 billion in the first quarter of 2009.
"We do not see an easy solution to this problem, and more importantly, neither do the authorities," Moreno added.
The deposit guarantees and capital injections deployed in Britain, Ireland and now across the rest of Europe might allay the immediate panic, but they will not free up credit for businesses already hard-hit by the global economic slowdown.
"If the banks do not manage to roll over" the debts coming due over the next few quarters, Moreno said, "we may witness balance sheet contraction with major negative implications for the real economy or more bank failures."
Even as excessive leverage emerges as the most pressing concern, the decision by some European institutions to wade into the market for complicated, mortgage-backed American securities and other derivatives overhangs the system.
After Fortis was divided up earlier this month, with the Dutch government nationalizing local operations, and Belgian authorities selling most of the remainder to BNP Paribas of France, experts found that it owned more than €10 billion, or $13.4 billion worth of toxic, illiquid securities.
The mostly American asset-backed securities have been placed within a separate "ring-fenced" entity. As part of the deal, Belgian taxpayers got stuck with nearly a quarter of this hard-to-sell portfolio.
The failure of Dexia, a French-Belgian lender to municipalities that was saved by a government-led $9.2 billion capital injection, can be traced to a similar mix of American troubles and European missteps.
In 2000, Dexia entered the fast-growing market for municipal bond insurance in the United States, acquiring Financial Security Assurance. To lift profit, the unit relied on credit default swaps and other now beaten-down derivatives, ultimately draining Dexia's capital and forcing the recent government intervention.
"Using credit-default swaps was cheaper, but it was opaque, and the board of Dexia couldn't follow all that," said one government official who was involved in the rescue.
Officials from Dexia and Fortis declined to comment.
Even worse, added this official, who spoke on condition of anonymity because he was not authorized to discuss internal matters, oversight of Dexia was split between Paris and Brussels. French regulators oversaw the unit of the company that included FSA, while Belgian authorities were responsible for monitoring the entire company.
"Nobody understood it," the government official said.
Wall St. soars 11% after global aid to banks
By Michael M. Grynbaum
Monday, October 13, 2008
The markets made a comeback on Monday.
Last week's stock sell-off gave way to a big rally, with the Dow Jones industrial average having its largest-ever point gain. The surge came as countries around the world took steps to ease the financial crisis, ushering in a drastic reshaping of the banking industry even as doubts lingered about its long-term effects.
The Dow Jones industrial average opened 400 points higher and never looked back, led by big gains in financial stocks. At the close, the blue-chip index was up 936.42 points, or 11.1 percent, at 9,387.61. The Dow's previous record for a one-day point gain was 499.19, or 4.93 percent, on March 16, 2000. Broader stock indicators also rose. The S&P 500 index advanced 104.13, or 11.6 percent, to 1,003.35; it was the biggest point gain ever for the S&P 500. The technology-heavy Nasdaq soared 194.74, or 11.8 percent, to 1,844.25.
Stocks in Paris and Frankfurt had their biggest one-day gains ever.
The rallies came after central banks flooded the financial system with billions of dollars in liquidity, throwing out the traditional financial playbook in favor of a series of moves that officials hoped would get banks lending again.
European countries — including Britain, France, Germany and Spain — announced aggressive plans to guarantee loans, take ownership stakes in banks or prop up ailing companies with billions in taxpayer funds. In Washington, Henry Paulson Jr., the Treasury secretary, is planning to meet this afternoon with Wall Street chief executives to hash out the terms of a new round of government intervention. Washington has also announced plans to take equity stakes in banks to get them lending again.
Monday morning also brought word that a financing deal for Morgan Stanley, the embattled investment bank, had finally gone through, a closely watched event that had become a gauge of confidence in the markets. Shares of Morgan Stanley rose more than 60 percent.
Despite the moves, some doubts remained about whether investors would be able to shake off the fears unleashed by last week's enormous sell-off, the worst on Wall Street since 1933.
The ultimate judgment on this weekend's developments may have to wait until Tuesday, when credit markets reopen after the Columbus Day holiday. Problems in the flow of credit are at the root of the current crisis; if these markets remained locked on Tuesday, stocks could fall once again.
Some investors said on Monday that stock investors may be holding off to see how the credit markets react. Still, they said that the 500-point gains in the Dow were too impressive to ignore.
"In this process you're going to have up days, with five-plus percentage swings, and you're going to see down days, five-plus percentage swings," said Ryan Larson, head equity trader at Voyageur Asset Management in Chicago. "The key thing to take away from this is the key pieces of this puzzle, of this fix, are beginning to appear."
The rally was even bigger in European markets, where the German DAX index and CAC 40 in Paris both finished up more than 11 percent, their biggest single-days gains ever. The FTSE-100 in London rose 8.3 percent.
In additional moves meant to restore confidence, Neel Kashkari, an assistant Treasury secretary who was recently put in charge of the government's plan for tackling the crisis, appeared in Washington on Monday morning to offer investors their first glimpse at the plan's inner workings. And the Fed said it would make billions of dollars available to banks via swap lines with the Bank of England, the European Central Bank and the Swiss National Bank.
Oil prices closed higher by $3.17 a barrel, to $80.84, in New York trading. The bond market was closed Monday.
Some analysts said they still have their doubts. "It's going to take actions more than words at this time, given the extreme distress that the money markets are in and the extreme distress that the equity markets were in," said Douglas Peta, a market strategist at J&W Seligman.
In Hong Kong, the Hang Seng index bounced 9.6 percent higher. The S&P/ASX 200 index in Sydney closed up 5.6 percent. Tokyo markets, which lost about a quarter of their value last week, were closed Monday for a national holiday.
In Moscow trading, the Micex index rose 4.5 percent.
"We're extremely cautious," Philippe Gijsels, senior equity strategist at Fortis Global Markets in Brussels, said. "This looks like the start of a typical bear-market rally." He said measures that Group of 7 countries announced over the weekend had helped banking stocks, but that the market had been due for a rally after major indexes posted some of their worst declines last week.
"To repair the market will take some time," he said. "The problem is that the financial problem has now become a real economic problem. The damage has been done."
Meeting in Paris over the weekend, European financial and political leaders agreed to a plan that would inject billions of euros into their banks in a bid to restore confidence to the teetering financial system.
Taking their cue from a rescue plan announced last week by Britain, the European countries led by Germany and France pledged to take equity stakes in distressed banks and vowed to guarantee bank lending for periods up to five years. Spain and Italy also announced bailout plans.
The Bank of Japan, it said, will consider the introduction of similar measures.
More gloom for emerging markets
By Jeffrey Hodgson and Nishant Kumar
Monday, October 13, 2008
SINGAPORE: Emerging markets will face more gloom after suffering their worst quarterly loss in history as the global financial crisis starts to bite into their high-growth economies, private bankers in Asia warned Monday.
Emerging markets, which suffered a full-blown crisis just a decade ago, are most vulnerable to prolonged pessimism because investors have probably already decided to keep their money in more liquid markets,
"The one thing that makes these markets a lot more volatile than, for example, the U.S. or the European markets is they're thinly capitalized," said Marcel Kreis, head of Asia-Pacific private banking for Credit Suisse. "Everyone is going to be reminded again that it is easy to buy. It's a hell of a lot more difficult to sell. And it's one of the reasons why we say be a little bit more cautious on direct investments in emerging markets."
Emerging-market equity funds saw more than $30 billion in outflows in the first nine months of the year after inflows in each of the past five calendar years, according to estimates from Morgan Stanley. The outflows have wiped out over a fifth of the total inflows between 2003 and 2007.
After rising more than 36 percent last year, MSCI's main emerging-market equity index hit a new three-year low Friday. The index has fallen more than 50 percent this year, much of that in the third quarter.
The index gained more than 4 percent Monday after policy makers around the world took increasingly bold steps to rescue the financial system, including guaranteeing bank deposits and taking ownership stakes in banks.
But the private bankers, who cater to the very rich, said that the impact of the global financial crisis on emerging economies was still unfolding and that many countries had heavy exposure to beaten-down commodity prices.
Corporate failures are also likely to increase across Asia as the global financial crisis, which makes it harder to secure access to credit, drives weaker companies to insolvency, said Jennifer Tay, the Asia-Pacific head of portfolio counseling for Citi Private Bank, a unit of Citigroup. The bank has warned its wealthy Asian clients that emerging markets are likely to suffer further losses in coming months, particularly in countries where political uncertainty is high.
"For the next few months, anything that is emerging-markets-oriented, they would have a further beating, that is what we anticipate," Tay said. "It doesn't help that the geopolitical situation in this area is also not great."
Russia, Romania, Ukraine and Indonesia are among the countries that have recently suspended trading on their markets to halt selling by panicked investors.
While private bankers said the strong, long-term economic outlook remained intact for many emerging markets, particularly in Asia, the risks of jumping into the asset class now were probably too high. Pierre Baer, SG Private Bank's chief executive for Singapore and South Asia, said, "We don't see the impetus happening now. Not yet."
Margin calls prompt sales, and drive shares even lower
By Alex Berenson and Geraldine Fabrikant
Monday, October 13, 2008
For some big investors and corporate executives, Mr. Margin is calling.
In the last week, as the value of stock portfolios has plunged, executives and fund managers who had bought shares on margin — that is, using borrowed money — have been forced to sell millions of dollars worth of stock to settle those loans with banks.
Professional investors say that the margin calls probably added to the downward pressure on stock prices last week, when the average stock plunged nearly 18 percent.
Some analysts and investors are concerned about a situation in which margin calls occur in larger numbers, causing an even bigger wave of selling, even though most analysts say that stock prices are already historically low. On Sunday evening, futures trading indicated that the major indexes would climb as much as 3 percent on Monday.
Margin calls affect more than those with outsize portfolios. By flooding the markets with sell orders, they can send prices broadly lower, ensnaring ordinary investors as well. Because margin calls force investors to sell their shares at times when stock prices are already falling, they can push stocks down quickly and mercilessly.
On Friday, Aubrey McClendon, the chief executive of Chesapeake Energy, issued a statement saying he had been forced to sell all of his 33.5 million shares in Chesapeake because of a margin call. And Sumner Redstone, the chairman of Viacom and CBS, disclosed that he would sell $400 million in shares in those companies to pay down a loan.
For shareholders, margin calls can be extremely painful, forcing them to liquidate their portfolios at exactly the worst moment, as stocks are near panic lows.
For example, in July, with Chesapeake trading above $60 a share, McClendon's stake in the company was worth more than $2 billion — the vast majority of his net worth, which was reported at $2.1 billion in last year's Forbes 400. But to meet last week's margin call, McClendon sold his entire stake, at prices ranging from $15 to $22.
Other investors will face similar squeezes, said Seymour Zises, who runs Family Management Corporation, a firm that manages money for wealthy families. "I believe that the predominant selling will be among hedge funds themselves and executives who control their own companies," Zises said.
Because margin loans are private transactions between banks and borrowers, it is difficult to know exactly how many executives or hedge funds may face margin calls as a result of the stock market's plunge. Corporate executives must report stock sales within two days of making them. But hedge funds do not have to disclose margin calls — and in some cases the first sign that they face calls may be their abrupt collapse.
Hal Vogel of Vogel Capital Management said he was taken aback when he learned that Redstone and his privately held company, National Amusements, were so heavily leveraged.
"That suggests that there may be other cases where chief executives who are controlling shareholders or the company's major shareholder with the same problem," Vogel said. "These people present themselves as financially savvy and not subject to great risk associated with debt. But in fact it seems that that is not always the case."
Knowing exactly how many firms used those strategies is all but impossible. But margin debt increased steadily from late 2002 to 2007, according to the New York Stock Exchange, which requires its member firms to report their margin loans outstanding. It peaked at $381 billion in July 2007, just before stocks peaked.
Since then, margin loans have fallen. In August, the most recent month for which data are available, they were $292 billion. But those figures do not fully account for loans made internationally, or for other strategies that funds use to increase their leverage.
Banks and brokerages offer investors loans against stock portfolios. But because stock prices are so volatile, banks require investors to have a substantial cushion, or margin.
Federal Reserve rules require that investors put up half of an investment with their own money as "initial margin" when they first buy a stock. After that, they must maintain a cushion of at least one-third of the value of the loan. Some brokerage firms require an even bigger cushion.
A margin call occurs when a bank tells an investor who has borrowed money against his portfolio that because the value of the shares in the portfolio has fallen, the investor must put up more cash — or immediately sell his shares and pay back the loan.
Suppose, for example, that the investor owns stock worth $1 million and borrows another $1 million from a bank or brokerage to buy even more shares. The portfolio is now worth $2 million.
If the value of the portfolio falls by 40 percent, it will now be worth $1.2 million. But the equity in the account will have fallen much further, to only $200,000.
The brokerage may then tell the investor to add another $400,000 in cash to the account as additional protection. If the investor does not have the money available, the bank will seize the portfolio and sell $1 million of shares to pay back the loan.
For hedge funds, the same process can occur on a much larger scale.
One firm's senior wealth management executive said it was seeing people with $30 million in their brokerage account being completely wiped out within days. Weekly margin call lists have started swelling, this executive added.
Wall Street bankers have been particularly hard hit. Many were given large amounts of their company's stock in annual bonuses, only to see it disappear. Making matters worse, the wealth management executive said, many of those bankers borrowed against those shares to buy stocks of other financial companies that they thought might rebound more quickly. Those shares have since plummeted.
U.S. has history of intervention
By Steve Lohr
Monday, October 13, 2008
NEW YORK: If the U.S. government moves ahead with a plan to take ownership stakes in American banks, as seems likely, it would be an exceptional step - but not an unprecedented one.
The United States has a culture that celebrates laissez-faire capitalism as the economic ideal, but the practice is sometimes different. Over the past century, the U.S. government has nationalized railways, coal mines and steel mills, and it has even taken a controlling interest in banks when that was deemed to be in the national interest.
The corporate wards of the state typically have been returned to private hands after short, sometimes fleeting, stretches under government stewardship.
Finance experts say that having Washington take stakes in U.S. banks now - like government interventions in the past - would be a promising step in addressing an economic emergency. The plan being weighed by the Treasury Department, they say, could supply banks with sorely needed capital and help restore confidence in financial markets. Across Europe, governments rolled out similar initiatives Monday.
In other countries, the government bank-investment programs are routinely called nationalization programs. But that is not likely in America, where nationalization is a word to avoid, given the cultural aversion to anything that hints of socialism.
"Putting this plan on the table makes a lot of sense, but you can't call it nationalization here," said Simon Johnson, an economist at the Massachusetts Institute of Technology's Sloan School of Management. "In France, it is fine, but not in the United States."
In times of war and national emergency, Washington has not hesitated. In 1917, the government seized the railroads to make sure goods, armaments and troops moved smoothly in the interests of national defense during World War I. Bondholders and stockholders were compensated, and railroads were returned to private ownership in 1920, after the war ended.
During World War II, Washington seized dozens of companies including railroads, coal mines and, briefly, the Montgomery Ward department store chain. In 1952, President Harry Truman seized 88 steel mills across the country, asserting that unyielding owners were determined to provoke an industry-wide strike that would cripple the Korean War effort. That forced nationalization did not last long, since the Supreme Court ruled the action an unconstitutional abuse of presidential power.
In banking, the U.S. government stepped in to take an 80 percent stake in the Continental Illinois National Bank and Trust in 1984. Continental Illinois failed in part because of bad oil-patch loans in Oklahoma and Texas. As one of the country's top 10 banks, Continental Illinois was deemed "too big to fail" by regulators, who feared wider turmoil in the financial markets. Continental was sold to Bank of America in 1994.
Yet the nearest precedent for the plan the Treasury is weighing, finance experts say, is the investments made by the Reconstruction Finance Corporation in the 1930s. The agency, established in 1932, not only made loans to distressed banks but also bought stock in 6,000 banks, at a total cost of about $3 billion, said Richard Sylla, an economist and financial historian at the Stern School of Business at New York University.
A similar effort these days, in proportion to the current economy, would be $400 to $500 billion, Sylla said.
When the economy eventually stabilized, the government sold the stock to private investors or the banks themselves.
That program was a good one, experts say, but the U.S. government moved too slowly to deal with the financial crisis, which precipitated and lengthened the Great Depression. The lesson of history, it seems, is for Washington to move quickly in times of economic crisis to revive the patient.
"The goal is to get the engine of capitalism going as productively as possible," said Nancy Koehn, a historian at the Harvard Business School. "Ideology is a luxury good in times of crisis."
The government plan to buy stakes in banks would be the latest step in Washington's efforts to ease the credit crisis. The government has already spent or authorized $800 billion to keep the investment bank Bear Stearns and the troubled insurer American International Group from collapsing and for the economic rescue package to buy soured mortgage-backed securities from banks and Wall Street companies. The Federal Reserve has cut interest rates and pumped money into the banking system to get the normal business of lending going again.
Nothing has turned the tide yet.
After World War II, several European countries nationalized basic industries like coal, steel and even autos, which typically remained in government hands until the 1980s, when most Western economies began paring back the state role in the economy.
Europe today remains far more comfortable with government's having a strong hand in business. So when Sweden, for example, faced a financial meltdown in the early 1990s, the nationalization of swaths of the banking industry was welcomed.
The Swedish government quickly bought stakes in banks, much as the Treasury is considering, and sold most of them off later, a model of swift, forceful intervention in a credit crisis, financial experts say.
"The obvious danger with anything that really starts to look like the government taking ownership or control of a significant piece of an industry is, Where do you stop?" said Robert Bruner, a finance expert at the Darden School of Business at the University of Virginia. "The auto industry is in dire straits, and the airline industry is in trouble, for example."
"But the spillover effects from the crisis in the financial system are so great, pulling down the rest of the economy in a way that no other industry can, so that the potential cost of not doing something like this is immense," Bruner said.
Maureen Dowd: Num Roma sumus?
By Maureen Dowd
Monday, October 13, 2008
With modernity crumbling, our thoughts turn to antiquity.
The decline and fall of the American Empire echoes the experience of the Romans, who also tumbled into the trap of becoming overleveraged empire hussies.
As America's sand-castle economy washes away under the tide of bad gambles and debts, this most self-indulgent society lurches toward stoicism (even bankrupt Iceland gives America the cold shoulder and turns to a solvent superpower). It's going to require more than giving up constant infusions of stocks, Starbucks and Botox.
As Seneca, the Roman Stoic who advised treating the body "somewhat strictly," wrote in a letter: "Avoid whatever is approved of by the mob, and things that are the gift of chance. Whenever circumstance brings some welcome thing your way, stop in suspicion and alarm...They are snares.... We think these things are ours when in fact it is we who are caught. That track leads to precipices; life on that giddy level ends in a fall."
The study of Latin and Greek, with illuminations on morality, philosophy, mob rule and chariot races, reached a nadir in the greedy '80s and '90s, when it seemed irrelevant for kids who yearned to be investment bankers and high-tech millionaires. But now we Americans have learned the hard way that greed is bad - avaritia mala est - and the classics have staged a comeback. Amo Latinam, so I was happy to see last week's New York Times story about the soaring enrollment for Latin classes in New York.
In high school, I translated swatches of Julius Caesar's "The Battle for Gaul" from Latin to English while nibbling cheese crackers. To boost the felicitous new trend toward Latin, I enlisted Gary D. Farney, an associate professor of history at Rutgers University, to translate (loosely and creatively) from English to Latin "The Battle of Gall," my take below on why the hyperventilating Republicans are not veni, vidi, vici-ing.
Manes Julii Caesaris paucis diebus aderant - "O, most bloody sight!" - cum Ioannes McCainus, mavericus et veteranus captivusque Belli Francoindosinini, et Sara Palina, barracuda borealis, qui sneerare amant Baracum Obamam causa oratorii, pillorant ut demagogi veri, Africanum-Americanum senatorem Terrae Lincolni, ad Republicanas rallias.
Rabidi subcanes candidati, pretendant "no orator as Brutis is," ut "stir men's blood" et disturbant mentes populi ad "a sudden flood of mutiny," ut Wilhelmus Shakespearus scripsit.
Cum Quirites Americani ad rallias Republicanas audiunt nomen Baraci Husseini Obamae, clamant "Mortem!" "Amator terroris!" "Socialiste!" "Bomba Obamam!" "Obama est Arabus!" "Caput excidi!" tempus sit rabble-rouseribus desistere "Smear Talk Express," ut Stephanus Colbertus dixit. Obama demonatus est tamquam Musulmanus-Manchurianus candidatus - civis "collo-cerviciliaris" ad ralliam Floridianam Palinae exhabet mascum Obamae ut Luciferis.
Obama non queretur high-tech lynching. Sed secreto-serventes agentes nervosissmi sunt.
Vix quisque audivit nomen "Palinae" ante lunibus paucis. Surgivit ex suo tanning bed ad silvas in Terram Eskimorum, rogans quis sit traitorosus, ominosus, scurrilosus, periculosus amator LXs terroris criminalisque Chicagoani? Tu betchus!
"Caeca ambitio Obamana," novum rumorem Palina McCainusque dixit. "Cum utilis, Obama laborat cum amatore terroris Wilhelmo Ayro. Cum putatus, perjuravit." McCainianus bossus maximus Francus Keatinx vocat Obamam, "plebeium," et ut iuvenum snifferendum cocaini minimi ("a little blow.")
Cum Primus Dudus, spousus Palinanus, culpari attemptaret "Centurionem-Gate," judices Terrae Santae Elvorumque castigat gubernatricem Palinam de abusu auctoritatis per familiam revengendum.
Tamen Sara et Ioannes bury Obama, not praise him. Maverici, ut capiunt auxilium de friga-domina, hench-femina, Cynthia McCaina Birrabaronessa, (quae culpat Obamam periculandi suum filum in Babylonia), brazen-iter distractant mentes populares de minimissimis IV 0 I K.ibus, deminutione "Motorum Omnium," et Depressione Magna II.0. Omnes de Georgio Busio Secundo colossale goofballo. "V" (because there's no W. in Latin) etiam duxit per disastrum ad gymnasium.
Gubernatrix (prope Russia) Palina, spectans candidaciam MMXII, post multam educationem cum Kissingro et post multam parodiam de Sabbatis Nocte Vivo atque de Tina Feia, ferociter vituperat Obamam, ut supralupocidit (aerial shooting of wolves) in Hyperborea.
Vilmingtoni, in Ohionem, McCain's Mean Girl (Ferox Puella) defendit se gladiatricem politicam esse: "Pauci dicant, O Jupiter, te negativam esse. Non, negativa non sum, sed verissima." Talk about lipsticka in porcam! Quasi Leeus Atwater de oppugnatione Busii Primi ad Dukakem: "non negativus, sed comparativus."
Out of panic, self-reliance
By Harold Bloom
Harold Bloom teaches at Yale University.
Monday, October 13, 2008
NEW HAVEN, Connecticut:
In the spring of 1837, a great depression afflicted the northeastern United States. All the banks in New York City, Philadelphia and Baltimore suspended cash payments, as did many in Boston. Of the 850 banks in the United States, nearly half closed or partly failed. If the crisis of 2008 was caused by poor lending, the Panic of 1837, too, featured speculation and inflation.
The bank failures of 1837 were followed by high unemployment that lasted into 1843. Foreign over-investment (chiefly British) had augmented the bubble, which burst when the wily English pulled their money out. President Martin Van Buren, a Jacksonian Democrat, refused any government involvement in a bailout, and so was widely blamed for the panic. Van Buren was defeated in his re-election bid in 1840 by his Whig opponent, William Henry Harrison.
The similarities between the crashes of 1837 and 1929 are evident again today. I am not an economist or a political scientist, but having been born in 1930, I retain poignant early memories of the impact of the Great Depression upon my father, a working man who struggled to maintain a family with five children in a very hard time.
I am a scholar of literature and religion, and would advise whoever becomes president to turn to Ralph Waldo Emerson, whose influential vision of America was deeply informed by the crisis of 1837:
I see a good in such emphatic and universal calamity as the times bring, that they dissatisfy me with society. Under common burdens we say there is much virtue in the world, and what evil co-exists is inevitable. I am not aroused to say, "I have sinned: I am in a gall of bitterness, and a bond of iniquity"; but when these full measures come, it then stands confessed - society has played out its last stake; it is checkmated. Young men have no hope. Adults stand like day laborers, idle on the streets. None calleth us to labor. The old wear no crown of warm life on their gray hairs. The present generation is bankrupt of principles and hope, as of property. I see man is not what man should be. He is the treadle of a wheel. He is a tassel at the apron string of society. He is a money chest. He is the servant of his belly. This is the causal bankruptcy, this is the cruel oppression, that the ideal should serve the actual, that the head should serve the feet. Then first, I am forced to inquire if the ideal might not also be tried. Is it to be taken for granted that it is impracticable? Behold the boasted world has come to nothing. Prudence itself is at her wits' end.
Pride, and Thrift, and Expediency, who jeered and chirped and were so well pleased with themselves, and made merry with the dream, as they termed it, of Philosophy and Love, - behold they are all flat, and here is the Soul erect and unconquered still. What answer is it now to say, "It has always been so?" I acknowledge that, as far back as I can see the widening procession of humanity, the marchers are lame and blind and deaf; but to the soul that whole past is but one finite series in its infinite scope. Deteriorating ever and now desperate. Let me begin anew. Let me teach the finite to know its master. Let me ascend above my fate and work down upon my world."
It may shock that the Sage of Concord should react to catastrophe with such idealistic glee. Most Americans would be startled by the admonition to begin anew and ascend above our fate.
There is little disagreement that Emerson was the most influential writer of 19th-century America, though these days he is largely the concern of scholars. Waldo the Sage was eclipsed from 1914 until 1965, when he returned to shine, after surviving in the work of major American poets like Robert Frost, Wallace Stevens and Hart Crane.
Beyond literary tradition, Emerson has maintained an effect upon American politics and sociology. The oddity of Emerson in the public sphere is that he has the power to foster fresh versions of the two camps he termed the Party of Memory and the Party of Hope. The political right appropriates his values of remembering private interests as part of the public good, while the left follows his exaltation of the American Adam, a New Man in a New World of hope. The rivalry between these polarized camps is very much apparent in this election.
Emerson would have understood our current raging polarities. That American cultural nationalism should have been stimulated by a banking disaster is a wholly Emersonian paradox. Another enigma is the direct link between the lingering financial crisis and Emerson's formulation of his mature religious stance, crucially in his essay, "Self-Reliance," of 1839-40:
Life only avails, not the having lived. Power ceases in the instant of repose; it resides in the moment of transition from a past to a new state, in the shooting of the gulf, in the darting to an aim ... Why then do we prate of self-reliance? Inasmuch as the soul is present there will be power not confident but agent. To talk of reliance is a poor external way of speaking. Speak rather of that which relies because it works and it is. Who has more obedience than I masters me, though he should not raise his finger. Round him I must revolve by the gravitation of spirits. We fancy it rhetoric when we speak of eminent value. We do not yet see that virtue is height, and that a man or a company of men, plastic and permeable to principles, by the law of nature must overpower and ride all cities, nations, kings, rich men, poets, who are not.
By "self-reliance" Emerson meant the recognition of the god within us, rather than the worship of the Christian godhead (a deity that some Americans cannot always distinguish from themselves).
Whether they know it or not, Senator John McCain and Senator Barack Obama seek power in just this ultimately serious sense, although that marvelous passage means one thing to Emersonians of the right and something very different to Emersonians of the left. Obama's mantra of "change" celebrates the shooting of the gulf, the darting to an aim, setting aside "the having lived." McCain's "change" reflects what remains most authentic about him, the nostalgia of the Party of Memory.
Obama emanates from the tradition of the black church, where "the little me within the big me" is part or particle of God, just as the Emersonian self was. But he is a subtle intellectual and will not mistake himself for the Divine, and he has the curbing influence of Senator Joseph Biden, a conventional Roman Catholic, at his side.
John McCain's religiosity is at one with the Party of Memory, but he has aligned himself with Governor Sarah Palin, who, as an Assemblies of God Pentecostalist, presumably enjoys closer encounters with the comforting Holy Spirit.
Regardless of these differences, whoever is elected will have to forge a solution to today's panic through his own understanding of self-reliance. As Emerson knew in his glory and sorrow, both of himself and all Americans: "The wealth of the universe is for me.
Every thing is explicable and practical for me ... I am defeated all the time; yet to victory I am born."
LETTER FROM ASIA
Worries mount in Asia over a coming storm
By Alan Wheatley
Monday, October 13, 2008
BEIJING: Even as hopes rise that Europe and the United States are finally getting to grips with the global credit crisis, worries are mounting in Asia that the region is ill prepared for the financial storm heading its way.
"The whole world economy has just hit the wall and is in free fall," said Larry Brainard, chief economist at the London consulting firm Trusted Sources.
Apart from steep share price sell-offs, Asia has largely been a bystander during the recent banking convulsions.
In contrast to the 1997-98 Asian financial crisis, banks in the region do not have a disastrous mismatch between short-term foreign-currency borrowings and long-term domestic-currency loans. And except for Australia and South Korea, banks have more deposits than loans, so they are not dependent on wholesale money markets for financing.
Moreover, East Asia's collective current account surplus swelled to almost 7 percent of gross domestic product last year from less than 3 percent in 2000, allowing governments to build up vast reserves of foreign currencies and so avoid reliance on fickle capital inflows. Indeed, an analysis by UBS shows Asia well down the list of emerging markets vulnerable to the 14-month-old global crisis.
And yet the timbers of Asia's financial house are beginning to creak.
In particular, analysts are nervously watching a widening in the spread between central banks' benchmark policy rates and how much commercial banks and companies have to pay to borrow money.
The risk is that banks will grow more reluctant to lend to Asian banks, no matter how strong their fundamentals, now that Australia, Britain and a clutch of European countries have recapitalized their banks and/or guaranteed their new borrowing. The United States is working on a similar plan.
"If it wasn't for the fact that every other banking sector around the world is going down this route, I don't think Asia would necessarily need to do the same," said Michael Buchanan, Goldman Sachs' chief economist in Asia. "But at some point, if every other bank has a government guarantee, then you're going to be at a bit of a disadvantage if you don't have a sovereign guarantee. So that issue might lead to some movement down the road."
Which leads to the next problem: regional coordination.
The whirlwind of the past weeks harshly exposed the European Union's lack of preparation for a cross-border banking crisis, despite a strong supranational institution in the form of the European Commission and decades of integration culminating in the creation of a single currency.
By contrast, Asia has done little more than pay lip service to financial cooperation. To be sure, central banks slung together an $80 billion web of swap lines to provide emergency liquidity after the 1997-8 crisis.
But the various blueprints drawn up by academics on how to harmonize bank and market regulations have gathered dust.
While it is unclear how Asian governments could pull off the sort of concerted action agreed upon by EU leaders at a meeting Sunday in Paris, economists do take heart from signs of closer monetary cooperation across the region.
Hard on the heels of Australia, central banks in China, South Korea, Taiwan, Singapore and India all acted decisively last week to ease monetary policy.
With Western consumer demand for Asian exports likely to be subdued for a long time, most economists are convinced that much more monetary and fiscal stimulus is in the pipeline. On Monday, Goldman Sachs lowered its forecast for growth in Asia ex-Japan next year to 6.7 percent from 7.2 percent.
Brainard, of Trusted Sources, said some countries, notably India, had not grasped the severity of the still-brewing crisis. He said he expected a substantial drop in growth, prompting India to cut interest rates as a follow-up to the 1.5 percentage point reduction in banks' reserve requirements last week.
"The Indians are probably still a bit in denial," he said. "They just don't understand the broader implications. It's impossible to get it into your head that it could be so bad."
Machines of mass destruction
By Richard Dooling
Monday, October 13, 2008
'Beware of geeks bearing formulas." So saith Warren Buffett, the Wizard of Omaha. Words to bear in mind as we bail out banks and buy up mortgages and tweak interest rates and nothing, nothing seems to make any difference on Wall Street or Main Street.
Years ago, Buffett called derivatives "weapons of financial mass destruction" - an apt metaphor considering that the Manhattan Project's math and physics geeks bearing formulas brought us the original weapon of mass destruction, at Trinity in New Mexico on July 16, 1945.
In a 1981 documentary called "The Day After Trinity," Freeman Dyson, a reigning gray eminence of math and theoretical physics, as well as an ardent proponent of nuclear disarmament, described the seductive power that brought us the ability to create atomic energy out of nothing.
"I have felt it myself," he warned. "The glitter of nuclear weapons. It is irresistible if you come to them as a scientist. To feel it's there in your hands, to release this energy that fuels the stars, to let it do your bidding. To perform these miracles, to lift a million tons of rock into the sky. It is something that gives people an illusion of illimitable power, and it is, in some ways, responsible for all our troubles - this, what you might call technical arrogance, that overcomes people when they see what they can do with their minds."
The Wall Street geeks, the quantitative analysts ("quants") and masters of "algo trading" probably felt the same irresistible lure of "illimitable power" when they discovered "evolutionary algorithms" that allowed them to create vast empires of wealth by deriving the dependence structures of portfolio credit derivatives.
What does that mean? You'll never know. Over and over again, financial experts and wonkish talking heads endeavor to explain these mysterious, "toxic" financial instruments to us lay folk. Over and over, they ignobly fail, because we all know that no one understands credit default obligations and derivatives, except perhaps Buffett and the computers who created them.
Somehow the genius quants - the best and brightest geeks Wall Street firms could buy - fed $1 trillion in subprime mortgage debt into their supercomputers, added some derivatives, massaged the arrangements with computer algorithms and - poof! - created $62 trillion in imaginary wealth. It's not much of a stretch to imagine that all of that imaginary wealth is locked up somewhere inside the computers, and that we humans, led by the silverback males of the financial world, Ben Bernanke and Henry Paulson, are frantically beseeching the monolith for answers.
As the current financial crisis spreads (like a computer virus) on the earth's nervous system (the Internet), it's worth asking if we have somehow managed to colossally outsmart ourselves using computers.
How fitting then, that almost 30 years after Freeman Dyson described the almost unspeakable urges of the nuclear geeks creating illimitable energy out of equations, his son, George Dyson, has written an essay (published at Edge.org) warning about a different strain of technical arrogance that has brought the entire planet to the brink of financial destruction. George Dyson is an historian of technology and the author of "Darwin Among the Machines," a book that warned us a decade ago that it was only a matter of time before technology out-evolves us and takes over.
His new essay - "Economic Dis-Equilibrium: Can You Have Your House and Spend It Too?" - begins with a history of "stock," originally a stick of hazel, willow or alder wood, inscribed with notches indicating monetary amounts and dates. When funds were transferred, the stick was split into identical halves - with one side going to the depositor and the other to the party safeguarding the money - and represented proof positive that gold had been deposited somewhere to back it up. That was good enough for 600 years, until we decided that we needed more speed and efficiency.
Making money, it seems, is all about the velocity of moving it around, so that it can exist in Hong Kong one moment and Wall Street a split second later. "The unlimited replication of information is generally a public good," George Dyson writes. "The problem starts, as the current crisis demonstrates, when unregulated replication is applied to money itself. Highly complex computer-generated financial instruments (known as derivatives) are being produced, not from natural factors of production or other goods, but purely from other financial instruments."
Only computers can understand and derive a correlation structure from observed collateralized debt obligation tranche spreads. Which leads us to the next question: Just how much of the world's financial stability now lies in the "hands" of computerized trading algorithms?
Here's a frightening party trick that I learned from the futurist Ray Kurzweil. Read this excerpt and then I'll tell you who wrote it:
"But we are suggesting neither that the human race would voluntarily turn power over to the machines nor that the machines would willfully seize power. What we do suggest is that the human race might easily permit itself to drift into a position of such dependence on the machines that it would have no practical choice but to accept all of the machines' decisions. ... Eventually a stage may be reached at which the decisions necessary to keep the system running will be so complex that human beings will be incapable of making them intelligently. At that stage the machines will be in effective control. People won't be able to just turn the machines off, because they will be so dependent on them that turning them off would amount to suicide."
Brace yourself. It comes from the Unabomber's manifesto. Yes, Theodore Kaczinski was a homicidal psychopath, but he was also a bloodhound when it came to scenting all of the horrors technology holds in store for us. Hence his mission to kill technologists before machines commenced what he believed would be their inevitable reign of terror.
Man is a fire-stealing animal, and we can't help building machines, even if we use them not only to outsmart ourselves but to bring us right up to the doorstep of Doom.
As the financial experts all over the world use machines to unwind Gordian knots of financial arrangements so complex that only machines can make - "derive" - and trade them, we have to wonder: Are we living in a bad sci-fi movie? Is the Matrix made of credit default swaps?
When Treasury Secretary Paulson came to Congress seeking an emergency loan, Senator Jon Tester of Montana, a Democrat still living on his family homestead, asked him: "I'm a dirt farmer. Why do we have one week to determine that $700 billion has to be appropriated or this country's financial system goes down the pipes?"
"Well, sir," Paulson could well have responded, "the computers have demanded it."
Richard Dooling is the author of "Rapture for the Geeks: When A.I. Outsmarts IQ."
The Associated Press
Monday, October 13, 2008
PRAGUE: A document written by the Czech Communist police claims that the author Milan Kundera informed on a purported Western spy in the 1950s, a state-sponsored institute said Monday.
The Institute for the Study of Totalitarian Regimes said a team of historians and researchers found a document written by the SNB, or the Czech Communist police, that identified Kundera as the person who informed on a man who was later imprisoned for 14 years.
The usually reclusive Kundera, author of "The Unbearable Lightness of Being," was quick to reject the charge.
"I am totally astonished by something that I did not expect, about which I knew nothing only yesterday and that did not happen," Kundera was quoted as saying by the CTK news agency. "I did not know the man at all."
He accused the institute and the media of "the assassination of an author."
According to the file, published on the institute's Web site, Kundera in 1950 informed on Miroslav Dvoracek, who had been recruited in Germany by the Czech émigré intelligence network to work as a spy against the Communist regime.
Dvoracek visited a woman in Prague and left a suitcase in her apartment. She told her boyfriend, who later told Kundera, and Kundera went to the police.
Dvoracek was arrested when he went to collect the suitcase. He was later sentenced to 22 years in prison and eventually served 14 years, working in uranium mines.
Collaboration with the Communist Party was widespread in Czechoslovakia. The country was one of the first to publish the names of suspected collaborators, as part of the so-called screening process in 1991.
The Institute for the Study of Totalitarian Regimes has been assigned by the Czech government to collect and publish Communist-era files. It is widely viewed as credible.
Kundera joined the Communist Party as a student but was expelled after criticizing its totalitarian nature. After the 1968 Soviet-led invasion of Czechoslovakia crushed the liberal reforms of Alexander Dubcek, Kundera left the country.
The books Kundera wrote after his departure were banned from publication in his homeland until the Communist collapse in 1989, but his work was respected among dissidents.
Kundera, 79, has lived in France since 1975 and it is there that he published his most famous books, including "The Unbearable Lightness of Being," "The Book of Laughter and Forgetting," "The Art of the Novel" and "Immortality." He was granted French citizenship in 1981.
He lives in virtual seclusion, travels to his former homeland only incognito and almost never speaks to the media.
By Ellen Barry
Monday, October 13, 2008
MOSCOW: This month Moscow blocked off two streets to make way for a small Communist demonstration. It was a march in memory of about 150 people who were killed in October 1993, when hard-line deputies in the Parliament tried to wrest power from Boris Yeltsin and halt the lurching course he was steering toward constitutional democracy and capitalism.
The whole, vast mass of Russia seemed to teeter for a few days. Sympathizers flocked to Moscow's White House, where the deputies were barricaded, and sat watch around bonfires, full of passion for the Soviet Union and the Communist Party. It didn't seem impossible that the gains of five years would vanish overnight.
I lived here then. I can't remember what impulse drove me to do it - maybe it is enough to say that I was 22, and that the weather was nice - but on Oct. 3, I showed my international student ID card to the Afghan war veterans at the door and walked into the White House, a warren of exhausted deputies and cable news anchors. Then I trailed along after the "defenders of the White House," as the Parliament's supporters called themselves, as they surged to the mayor's office, breaking windows and looting postcards from a gift shop on the ground floor.
The crowd was euphoric, convinced that their moment had come, but then I began to hear gunshots. I saw a man dragged out of the mayor's office with blood on his head and watched an old woman clinging to a tree, wailing, "Fascism must be stopped!" By nightfall, two young Americans I knew had been shot as the rebels tried to seize the television tower. I stayed up all night, holed up in an office building, and watched the next morning as tanks rumbled into the center of Moscow and began to shell Parliament.
Those events - a very short civil war, you could call it - were neutralized by the history that followed: Yeltsin survived a Communist challenge to win a second term, and Russia's economic transformation took on the air of inevitability. The left's voice grew quieter; then Vladimir Putin succeeded Yeltsin, bringing stability and growth and extinguishing political opposition.
A week ago, when a Communist member of the Duma, the lower house in Parliament, proposed a moment of silence in memory of those who died in 1993, the proposal was voted down.
A week ago Saturday, the "defenders of the White House" reconvened in a city that has barreled past them. Down the block, crystalline mockups of new skyscrapers were on display in a storefront. Moscow has been restored to its pre-revolutionary luster, with rows of mansions painted the colors of Easter eggs.
I made my way through a happy crowd in front of the zoo, and, around the corner, there they were: the demonstrators, 15 years older, marching in slow straight lines and carrying portraits of the dead.
It was like seeing ghosts. They wore cheap, polyester suits in the blues, grays and browns that clothed generations of Soviets. Elderly women wore bows in their hair and black socks under their pumps. Their aging leaders rode on a truck, shouting through tinny megaphones.
Their faces registered grief: They had lost Russia. They were dying off themselves. On the sidewalk, Valentina Ivanova, 56, was wiping away tears. "We once were a great country," she said. "Now we are divided into the rich and the poor."
They were poor, the people marching in front of us. The posters read, "No more increase in the price of food!" and "Revolution will return!" and "Capitalism = Death." Igor Mishenev, marching at the end of the procession, described Russia's post-Soviet history as a long heartbreak: The life expectancy for men is 59; the birthrate is half what it was in the late 1980s.
A small portion may have become wealthy, he said, but millions suffer. "All our slogans," he said. "They all came true."
Though he did not mention it, Russia's new capitalism was experiencing its worst week in 10 years. Stocks were down 53.2 percent since Jan. 1. The threat of global recession now looms so large that it threatens the oil boom that defined Putin's presidency.
As Russia heads into a period of economic distress, it would be foolish to forget how thin the film of wealth is in this society, and the vast ocean that lies below it. Putin certainly has not; though he silenced virtually all political opposition during his presidency, his most alarming challenge came from angry pensioners. Hundreds of thousands of them - some say up to two million - took to streets all over Russia in 2005, furious over his decision to convert benefits like free transportation and housing subsidies into cash payments. Putin backpedaled, blaming subordinates for the decision.
Olga Kryshtanovskaya, a prominent sociologist, said that "Putin's popularity is connected with money, with state money," which could be used to enrich programs for pensioners, the intelligentsia, or other restless segments of society. With oil prices high, she said, "he was swimming in money." But, she added, "If it disappears, then, at first, there will be weak voices; but then there will be a stronger voice of protest." Where would they come from? "Whoever suffers."
When they reached the gates of the old Parliament building, the crowd of aging Communists began to disperse. A cadaverous man in a shabby, cloth coat stood in the middle of the road, declaiming the lyrics to a Soviet anthem, and the portraits of the dead were loaded into the back of a van for the next demonstration. Mishenev, with a twinkle, said he expected to see the Communists back in power in Russia before too long.
And then he was gone, waving his hammer-and-sickle flag behind him. Street-cleaning machines roared down the avenue. The traffic police stepped aside. Behind them was a backlog of irritated motorists in late-model foreign cars, and they rushed down the street where, a minute before, Mishenev had stood.
The Associated Press
Monday, October 13, 2008
LUXEMBOURG: European Union countries were divided Monday over whether to resume talks on a political and economic pact with Russia that was frozen in protest of its war with Georgia.
Germany and Italy led the campaign to resume discussions on trade, energy and political ties after Moscow withdrew its forces from parts of Georgia according to the terms of a cease-fire brokered by the EU.
But some EU foreign ministers, headed by David Miliband of Britain, said they wanted to see progress in talks on the future of the disputed Georgian regions of South Ossetia and Abkhazia before pressing ahead with closer ties.
The debate will continue at a two-day EU summit meeting starting Wednesday in Brussels, officials said.
EU leaders agreed last month to suspend the talks to show their opposition to Moscow's invasion, a move that irked Russian officials. The leaders of the 27-nation bloc also ordered a review of overall ties and alternative energy sources. Russia supplies the EU with a third of its oil and 40 percent of its natural gas.
The French foreign minister, Bernard Kouchner, told EU foreign ministers at a meeting Monday that Russian troops had left Georgian territory outside the separatist regions but had not withdrawn to positions held before the five-day war broke out Aug. 7.
"Beyond Ossetia and Abkhazia there are no more Russians," said Kouchner, whose country holds the rotating EU presidency. Kouchner, who was in Georgia last week, added that "there were problems that remain."
He said the presence of Russian troops in portions of the breakaway regions that had been under Georgian control before the war - like the Kodori Gorge in Abkhazia and a broad swath of South Ossetia, including the town of Akhalgori - were still of concern to EU nations.
The Italian foreign minister, Franco Frattini, said the EU should announce the restart of talks during an EU-Russia meeting next month, saying Russia's attitude "was a constructive one."
But Britain said the EU should wait on the outcome of a first round of talks between Georgia and Russia in Geneva this week before deciding on ending the freeze.
The Geneva talks, mediated by the EU, the United Nations and the Organization for Security and Cooperation in Europe, are meant to try to solve the standoff between Russia and Georgia over the separatist regions.
Russia claims they should be granted independence from Georgia and has troops stationed there.
By Clifford J. Levy
Monday, October 13, 2008
MOSCOW: The stock market here has sputtered so often in recent weeks that regulators have repeatedly shut it down, as if Russia, which aspires to be a financial powerhouse, has become just another bumbling backwater.
The oligarchs, those Kremlin-connected magnates who once dazzled the world with their riches, are reeling. And Prime Minister Vladimir Putin is facing a threat to his long-sought legacy of bringing economic growth, stability and renewed swagger to this nation.
The global financial crisis has not spared Russia, wiping out about $1 trillion in wealth and impelling the government to adopt a broad rescue plan, signed into law Monday, to shore up banks. At stake is the Russian economy, which for the first time over much of the past decade has given many Russians a taste of comforts long enjoyed in the West.
For now, the damage has been largely limited to the Russian elite.
While the Russian stock market has plummeted by about two-thirds since May, more than markets in the United States and Western Europe, the country does not have a broad investor class, and most people have not put their savings into the market.
As a result, though the stock market here had soared to $1.5 trillion in value, making it one of the world's biggest, it had a very narrow base of investors. It was dominated by Russian and non- Russian investment funds, which sprinted for the exit when things started turning bad.
The Kremlin has also sought to contain the fallout from the crisis by having the major Russian television networks, which it controls, play down or even ignore the stock market collapse here. The network news programs have instead focused on financial troubles in the United States and Europe.
Still, the Russian stock market declines seem to be signaling investors' pessimism about the future of the economy and the government's stewardship of it. Even as Russia has experienced strong economic growth in recent years, driven by revenue from oil and natural gas, it has not moved toward a diversified economy. Nor has it significantly modernized decrepit roadways, power grids and housing.
Pervasive corruption, the perception that the Kremlin has meddled in the affairs of large companies and the Russian conflict with neighboring Georgia have deepened investors' concern. These issues may help explain why the Russian stock market has declined more than those in other emerging economies like Brazil's.
They might have longer-term economic effects as well. On Monday, EU nations were divided over whether to resume talks on a political and economic pact with Russia that had been frozen in a protest over its war with Georgia. The debate will continue at a two-day EU summit meeting, starting Wednesday in Brussels, the Associated Press reported.
The Russian government has run budget surpluses in recent years, putting $190 billion into contingency funds. The fear seems to be that this money will provide only a short-term cushion.
"The market drop has revealed one of the basic flaws in the Russian economy," said Christopher Weafer, chief strategist at Uralsib Bank in Moscow. "Over the last eight years, they have gotten $1.3 trillion in oil and gas revenues, but that money has not been able to bring up the country's infrastructure. The bureaucracy and red tape and corruption are all lagging. This is a big problem for the market."
Moreover, while average Russians have so far been insulated from the anxiety of Americans who have watched retirement plans shrivel, they could begin feeling pain soon. Major Russian companies, including Gazprom, the natural gas monopoly, and others controlled by the government, have lost large chunks of value, which could lead them to cut employment and spending.
Another danger is the drop in the prices of oil, natural gas, metals and other natural resources, which form the base for the Russian economy. If the financial crisis causes a sustained recession in the West, depressing demand for these commodities, government and industry in Russia could suffer a sharp decline in revenue.
The price of oil closed Friday at $78 a barrel, only slightly above the level that the Kremlin had factored to maintain its current spending. Oil traded at about $82 on Monday. If prices go much lower, the Russian government will run a deficit, officials said.
"It will take some time to be felt on Main Street in Russia," said Edward Parker, an analyst at Fitch Ratings, a bond rating firm. "We are seeing the failure of some companies and banks. We will see an increase in unemployment and gradually see a reduction in wages."
"With falling oil prices, Russia's terms of trade are now moving against it," Parker said. "It will take some time, but it certainly will be felt."
The decline of the market is already being felt by Russian oligarchs, the Kremlin allies who control large portions of the economy. One of richest men in Russia, a metals tycoon, Oleg Deripaska, who was said before the crisis to be worth more than $20 billions, has absorbed such severe losses that his associates have been obliged to give assurances that he is not sinking under debt.
The Kremlin has announced several plans to support the economy using its reserves, and last week, Putin, the former president, tried to project an image of calm, if not nonchalance. A judo expert, he released an instructional judo DVD in which he stars, and he was later shown on Russian television receiving a tiger cub for his 56th birthday.
He also seemed to take satisfaction in the American economic crisis.
"You are right in that confidence in the United States as leader of the free world and the free market, the trust in Wall Street as the center of this confidence, has been undermined - for good, I think," he told members of the Russian Parliament from the Communist Party.
Putin and his protégé, President Dmitri Medvedev, remain popular, in part because the stock market plunge has not yet touched most of the population. It was far different in 1998, when the government defaulted on its debt and devalued the ruble during the last major Russian economic crisis: Many Russians lost their life savings.
The Russian victory in the conflict in Georgia in August is also a factor in the Kremlin's popularity.
Yet analysts said that over time, if the financial crisis spreads and economic growth turns anemic, Putin's leadership could be called into question.
"The Russian population had gotten used to the fact that life was getting better - perhaps not as quickly as Russians thought they deserved, but getting better," said Boris Makarenko of the Center for Political Technologies, a nonpartisan consulting group in Moscow.
"All that was the foundation for a very positive attitude of Russians toward the Kremlin and optimistic behavior in general," he said.
"The long-term effects will erode this support somewhat," he said. "But it is not like in the United States, where the financial crisis reinvented the presidential campaign."
On Monday, with regulators worried about another plunge, they closed the RTS equities exchange after shares fell.
The Kremlin seems to be trying to forestall a public backlash by limiting news of the Russian stock market on the television networks.
One day last week, on the main television news at noon, the anchor described "a new drop in world stock markets," discussing declines in Japan and Europe, which he called a reaction to losses the day before in New York.
Only at the end of the segment did the anchor mention in passing that the Russian market was not even open - without saying why.Loss on unauthorized trades
Renaissance Capital, the Russian investment bank partly owned by the billionaire Mikhail Prokhorov, said an equities trader had lost $10 million on unauthorized trades during the Russian market rout, Bloomberg News reported from Moscow.
The trader built up about $130 million in unauthorized positions, using borrowed money in a client's account.
The Associated Press
Monday, October 13, 2008
VILNIUS, Lithuania: Voters dealt a major blow to Lithuania's leftist government by supporting the conservative opposition as well as some populist leaders - including an impeached former president - in weekend elections, according to official results Monday.
The results set the stage for coalition talks among center-right parties.
Andrius Kubilius, the Homeland Union leader whose party won the most votes in Sunday's first round, said he was ready to form a new cabinet. His party received 19.2 percent of the general vote, according to results after almost 100 percent of precincts were counted.
"I see a good chance to form a coalition that will be able to stabilize the situation," Kubilius said.
He did not give details of which parties might be involved in coalition talks, but likely allies include two other center-right parties - the Liberal Center Union and the Liberal Movement. Both of them narrowly cleared the 5 percent barrier to enter Parliament.
Likely to be left out is the governing Social Democratic Party, which has controlled the prime minister's office since 2001. The party finished fourth with 11.7 percent.
The results made public Monday were only for the party list vote, meaning the final outcome could shift, though not drastically. All of Parliament's 141 seats were being contested, but only three candidates received the minimum 50 percent required to win a seat outright in the single-mandate districts.
Sixty-eight will be decided by a runoff on Oct. 26, while the 70 remaining seats will be filled according to party lists. Conservative candidates were involved in 43 runoffs, 28 of which they were leading, the Central Election Committee said.
Coalition talks could also be complicated by the resurgence of two disgraced populist leaders as well as the surprisingly strong showing by the National Revival Party, a centrist upstart formed by television and pop music personalities, which placed second with 15.1 percent of the vote.
The Order and Justice party, led by Rolandas Paksas, a former president who was impeached and removed from office four years ago for violating the Constitution, received 12.7 percent of the vote, while an ally, Viktor Uspaskich's Labor Party, won 9 percent.
Uspaskich returned in May from his native Russia, to which he fled in 2006 as Lithuania began investigating him in a conflict of interest case. He is barred from leaving Lithuania until the investigation is resolved.
Paksas said Monday that he did not think his party would take part in a coalition with the conservatives.
"I was expecting better results, and it is very likely we will remain in the opposition," Paksas said.
The vote also featured a nonbinding referendum on whether to keep a Soviet-era nuclear plant operating beyond its scheduled closure in December 2009, but the referendum was invalid because of low turnout, the election committee said.
Only 47.8 percent of Lithuania's 2.6 million registered voters cast ballots. At least 50 percent must participate for a referendum to be valid.
By Rachel Donadio
Monday, October 13, 2008
MILAN: The metal shutters are closed at Shining Bar, a coffee shop near the central train station here. On the facade, someone has written "proud to be black" and spray-painted "Abba Lives" in red.
Abba was the nickname of Abdul William Guibre, who was born in Burkina Faso, raised in Italy and beaten to death here last month by the bar's father-and-son proprietors. The two, Fausto and Daniele Cristofoli, suspected Guibre, 19, of stealing money and set upon him with a metal rod, the authorities said, when it appeared he had stolen a package of cookies. During the altercation, the attackers shouted "dirty black," lawyers for both sides said.
Although there is some debate about whether the killing was racially motivated, the attack on Guibre was the most severe in a recent spate of violence against immigrants across Italy. The attacks are fueling a national conversation about racism and tolerance in a country that has only recently transformed itself from a nation of emigrants into a prime destination for immigrants.
"A black English person, or French person, or Dutch person, that's O.K.," said Giovanni Giulio Valtolina, a psychologist and scholar at the ISMU Foundation in Milan, which studies multiethnic society. "But a black Italian is a very new thing."
In recent weeks, a Ghanaian man, Emmanuel Bonsu Foster, 22, was injured in Parma in a scuffle with the police; a Chinese man, Tong Hongsheng, 36, was beaten by a group of boys in a rough neighborhood in Rome; and a Somali woman, Amina Sheikh Said, 51, said she was strip-searched and interrogated for hours at Ciampino Airport in Rome. Last month, six African immigrants were gunned down in Castel Volturno, a stronghold of the Neapolitan Mafia.
The confrontations have resonated at the highest levels. In a meeting with Pope Benedict XVI at the Quirinal Palace in Rome this month, President Giorgio Napolitano called for church and state to work together "to overcome racism." He cited a recent speech in which the pope pointed to "worrisome new signs" of deepening social tensions.
Last week, Parliament debated whether Italy was facing what newspaper headlines referred to as a "racism emergency." The interior minister, Roberto Maroni, of the separatist Northern League, said that the attacks were isolated and that the alarm was overstated.
Many on the left disagreed. "You can't say all Italians are racist, but it would also be dangerous to underestimate what's happening," said Jean-Léonard Touadi, the first black member of Parliament. "There's been a worrisome sequence of events, which can't just be catalogued as isolated incidents."
Touadi is originally from Brazzaville in the Congo Republic. Formerly Rome's deputy mayor for security, he was elected in April with Italy of Values, a party that supports judicial reform. "Faced with social and economic crisis, it's easy to push rage and frustration on the foreigner," he said, adding that the government should work to create more opportunities for everyone. "It shouldn't make this a war between poor Italians and poor immigrants."
Indeed, Italy's deep tradition of Roman Catholic tolerance is hitting up against economic uncertainty. And sometimes, church is pushing up against state.
A recent cover of Famiglia Cristiana, a Catholic weekly magazine, asked, "Is Italy Changing Its Skin?" and offered an investigation into "the rising number of episodes of intolerance and violence." The cover featured a photo of three young black participants at an antiracism march in Milan after Guibre's death.
Last week, Msgr. Agostino Marchetto, a high-ranking Vatican official, spoke out against "discrimination, xenophobia and racism" toward immigrants. Monsignor Marchetto, the secretary of the Pontifical Council for Pastoral Care of Migrants and Itinerant Peoples, said refugees were often treated "without consideration of the reasons that forced them to flee."
This has led, he said, to "measures aimed at preventing their entry into countries of arrival and to the adoption of measures designed to make this more difficult." He said the measures had caused "erosion of humanitarian standards."
Also last week, the Northern League called for greater controls on immigrants as part of a security bill pending in Parliament, including a system in which legal immigrants would be deported if they accumulated a certain number of points on their criminal records.
That prompted a front-page political cartoon in Corriere della Sera, Italy's leading daily newspaper, in which an official asks a black man for his residence permit. The man points to the bandage on his head and says "seven points"; in Italian, "punti" means both points and stitches.
The Northern League is a crucial member of Prime Minister Silvio Berlusconi's center-right coalition. In the campaign for elections in April, it ran on a platform of fiscal federalism and security concerns, which often resonated as anti-immigrant rhetoric.
There are paradoxes. The North, with the most integration and the most jobs, also registers the highest levels of anti-immigrant sentiment and the strongest support for the Northern League.
Immigration is definitely on the rise. The number of legal resident foreigners in Italy rose 17 percent last year to 3.4 million, or 6 percent of the population, according to recent data from the Italian National Institute of Statistics, the government research agency.
Italy is becoming a multiethnic society, said Touadi, the member of Parliament. "We shouldn't hide our heads and continue to deny it, but realize that this is a trend worth taking seriously. Also, because we don't have an alternative."
Monday, October 13, 2008
By James Grubel
Aborigines feel a strong sense of injustice over an Australian government intervention into scores of troubled remote communities and believe the program is racist, an independent review said Monday.
Australia's former conservative government sent police and soldiers into outback towns and settlements in June 2007 to stamp out widespread child sex abuse, fuelled by chronic alcoholism from "rivers of grog" in indigenous communities.
But an independent review of the intervention, set up by the centre-left Labour government after it won power last November, found widespread problems with the program, which was aimed at 73 Aboriginal communities in the Northern Territory.
"In many communities there is a deep belief that the measures introduced by the Australian government ... were a collective imposition based on race," said the review, released Monday by Indigenous Affairs Minister Jenny Macklin.
Australia's 460,000 Aborigines make up about 2 percent of the population. They suffer higher rates of unemployment, substance abuse and domestic violence, and have a life expectancy 17 years shorter than other Australians.
Prime Minister Kevin Rudd has made indigenous affairs a priority of his government, winning praise for apologising in parliament for historic injustices against Aborigines.
He has also promised to continue the controversial intervention, but to review the way it operates.
Former prime minister John Howard ordered the intervention in the final months of his 11-and-a-half years in office, declaring the widespread sexual abuse of Aboriginal children to be a national emergency.
Under the intervention, extra police and medical teams were sent to Aboriginal communities, where alcohol and pornography were banned and welfare payments were quarantined to make sure the money is spent on food, clothing and health care.
The independent review found the intervention affected 45,500 Aboriginal men, women and children in more than 500 communities in the Northern Territory, and progress on health care and security were undermined by a lack of full community support.
"There is a strong sense of injustice that Aboriginal people and their culture have been seen as exclusively responsible for problems within their communities," it said, adding many problems stemmed from years of government neglect.
The review said the intervention should continue, but the government needed to build a new relationship with Aborigines in order to ensure community support for the program.
"The relationship must be recalibrated to the principle of racial equality and respect for the human rights of all Australian citizens," it found.
(Editing by Paul Tait)
Monday, October 13, 2008
ISLAMABAD: Pakistan President Asif Ali Zardari has warned a brewing row with India over the waters of the Chenab river in the disputed Kashmir region could harm improving ties between the old rivals.
The warning came two days after Indian Prime Minister Manmohan Singh inaugurated a 450-megawatt hydro power project at Baglihar dam on the Chenab, which flows from the Indian side to the Pakistani side of Kashmir.
"Pakistan would be paying a very high price for India's move to block Pakistan's water supply from the Chenab River," the official Associated Press of Pakistan quoted Zardari as saying in a statement late on Sunday.
"Indian Prime Minister Manmohan Singh had assured me in our meeting in New York that his country is seriously committed to our water sharing treaty," he said, referring to their meeting on the sidelines of the U.N. General Assembly last month.
"We expect him to stand by his commitment."
Nuclear-armed Pakistan and India have fought three wars since their independence from British rule in 1947 and came close to a fourth in 2002, but relations improved after they launched a peace process in early 2004.
Pakistani newspapers reported last week that India had blocked water from the Chenab river, which raised Pakistani concerns about water availability for crops.
Zardari warned that violation of the 1960 Indus Water Treaty "would damage the bilateral ties the two countries had built over the years."
Under the accord, each country controls more than three rivers draining into the Indus river basin.
India has rejected Pakistan's contention that the Baglihar dam reduces the flow of water and says the project is crucial for power-starved Kashmir.
A World Bank team of experts conducted an inquiry into the dispute in 2005 but did not make its findings public.
Pakistan's water commissioner is due to go to New Delhi on Tuesday for discussions, officials said.
(Reporting by Kamran Haider; Editing by Zeeshan Haider and Paul Tait)
By Somini Sengupta
Monday, October 13, 2008
BOREPANGA, India: The family of Solomon Digal was summoned by neighbors to what serves as a public square in front of the village tea shop.
They were ordered to get on their knees and bow before the portrait of a Hindu preacher. They were told to turn over their Bibles, hymnals and the two brightly colored calendar images of Christ that hung on their wall. Then, Digal, 45, a Christian since childhood, was forced to watch his Hindu neighbors set the items on fire.
"'Embrace Hinduism, and your house will not be demolished,"' Digal recalled being told on that Wednesday afternoon in September.
"'Otherwise, you will be killed, or you will be thrown out of the village."'
India, the world's most populous democracy and officially a secular nation, is today haunted by a stark assault on one of its fundamental freedoms. Here in eastern Orissa State, riven by six weeks of religious clashes, Christian families like the Digals say they are being forced to abandon their faith in exchange for their safety.
The forced conversions come amid widening attacks on Christians here and in at least five other states across the country, as India prepares for national elections next spring.
The clash of faiths has brought panic and destruction throughout these once quiet hamlets fed by paddy fields and jackfruit trees. Here in Kandhamal, the district that has seen the greatest violence, more than 30 people have been killed, 3,000 homes burned and more than 130 churches destroyed, including the tin-roofed Baptist prayer hall where the Digals worshiped. Today it is a heap of rubble on an empty field, where cows blithely graze.
Across this ghastly terrain lie the singed remains of mud-and-thatch homes. Christian-owned businesses have been systematically attacked. Orange flags (orange is the sacred color of Hinduism) flutter triumphantly above the rooftops of houses and storefronts.
India is no stranger to religious violence between Christians, who make up about 2 percent of the population, and India's Hindu majority of 1.1 billion people. But this most recent spasm is the most intense in years.
It was set off, people here say, by the killing on Aug. 23 of a charismatic Hindu preacher known as Swami Laxmanananda Saraswati, who for 40 years had rallied the area's people to choose Hinduism over Christianity.
The police have blamed Maoist guerrillas for the swami's killing.
But Hindu radicals continue to hold Christians responsible.
In recent weeks, they have plastered these villages with gruesome posters of the swami's hacked corpse. "Who killed him?" the posters ask. "What is the solution?"
Behind the clashes are long-simmering tensions between equally impoverished groups: the Panas and Kandhas. Both original inhabitants of the land, the two groups for ages worshiped the same gods.
Over the past several decades, the Panas for the most part became Christian, as Roman Catholic and Baptist missionaries arrived here more than 60 years ago, followed more recently by Pentecostals, who have proselytized more aggressively.
Meanwhile, the Kandhas, in part through the teachings of Laxmanananda, embraced Hinduism. The men tied the sacred Hindu white thread around their torsos; their wives daubed their foreheads with bright red vermilion. Temples sprouted.
Hate has been fed by economic tensions as well, as the government has categorized each tribe differently and given them different privileges.
The Kandhas accused the Panas of cheating to obtain coveted quotas for government jobs. The Christian Panas, in turn, say their neighbors have become resentful as they have educated themselves and prospered.
Their grievances have erupted in sporadic clashes over the past 15 years, but they have exploded with a fury since the killing of Laxmanananda.
Two nights after his death, a Hindu mob in the village of Nuagaon dragged a Catholic priest and a nun from their residence, tore off much of their clothing and paraded them through the streets.
The nun told the police that she had been raped by four men, a charge the police say was borne out by a medical examination. Yet no one was arrested in the case until five weeks later, after a storm of media coverage. Today, five men are under arrest in connection with inciting the riots. The police say they are trying to find the nun and bring her back here to identify her attackers.
Given a chance to explain the recent violence, Subash Chauhan, the state's highest-ranking leader of Bajrang Dal, a Hindu radical group, described much of it as "a spontaneous reaction."
He said in an interview that the nun had not been raped but had had consensual sex.
On Sunday evening, as much of Kandhamal remained under curfew, Chauhan sat in the hall of a Hindu school in the state capital, Bhubaneshwar, beneath a huge portrait of the swami. A state police officer was assigned to protect him round the clock. He cupped a trilling BlackBerry in his hand.
Chauhan denied that his group was responsible for forced conversions and in turn accused Christian missionaries of luring villagers with incentives of schools and social services.
He was asked repeatedly whether Christians in Orissa should be left free to worship the god of their choice. "Why not?" he finally said, but he warned that it was unrealistic to expect the Kandhas to politely let their Pana enemies live among them as followers of Jesus.
"Who am I to give assurance?" he snapped. "Those who have exploited the Kandhas say they want to live together?"
Besides, he said, "they are Hindus by birth."
Hindu extremists have held ceremonies in the country's indigenous belt for the past several years designed to purge tribal communities of Christian influence.
It is impossible to know how many have been reconverted here, in the wake of the latest violence, though a three-day journey through the villages of Kandhamal turned up plenty of anecdotal evidence.
A few steps from where the nun had been raped in Nuagaon, five men, their heads freshly shorn, emerged from a soggy tent in a relief camp for Christians fleeing their homes.
The men had also been summoned to a village meeting in late August, where hundreds of their neighbors stood with machetes in hand and issued a firm order: Get your heads shaved and bow down before our gods, or leave this place.
Trembling with fear, Daud Nayak, 56, submitted to a shaving, a Hindu sign of sacrifice. He drank, as instructed, a tumbler of diluted cow dung, considered to be purifying.
In the eyes of his neighbors, he reckoned, he became a Hindu.
In his heart, he said, he could not bear it.
All five men said they fled the next day with their families. They refuse to return.
In another village, Birachakka, a man named Balkrishna Digal and his son, Saroj, said they had been summoned to a similar meeting and told by Hindu leaders who came from nearby villages that they, too, would have to convert. In their case, the ceremony was deferred because of rumors of Christian-Hindu clashes nearby.
For the time being, the family had placed an orange flag on their mud home. Their Hindu neighbors promised to protect them.
Here in Borepanga, the family of Solomon Digal was not so lucky.
Shortly after they recounted their Sept. 10 Hindu conversion story to a reporter in the dark of night, the Digals were again summoned by their neighbors. They were scolded and fined 501 rupees, or about $12, a pinching sum here.
The next morning, calmly clearing his cauliflower field, Lisura Paricha, one of the Hindu men who had summoned the Digals, confirmed that they had been penalized. Their crime, he said, was to talk to outsiders.
The Associated Press
Monday, October 13, 2008
BAGHDAD: A Christian music store owner was shot and killed in Mosul, the Iraqi police said Monday, in the latest in a series of killings that have prompted thousands of members of the religious minority to flee the northern city.
Religious leaders have called for action to stop the apparent Sunni insurgent campaign against Christians and the government has announced plans to send more troops.
Gunmen stormed into the businessman's store late Sunday in an eastern part of the city, killing him and wounding his teenage nephew, according to a police officer in the regional security operations center.
He spoke on condition of anonymity because he was not authorized to release the information.
The attack came as a government spokesman, Ali al-Dabbagh, said the national security council had decided to form a committee to investigate the problem, assuring "Christians of the government's commitment to their security and protection."
Christian leaders also are lobbying Parliament to pass a law setting aside a number of seats for them and other minorities in coming provincial elections, fearing they could be further marginalized.
Islamic extremists have frequently targeted Christians since the U.S. invasion in 2003, forcing tens of thousands to flee the country. Attacks had tapered off amid a drastic decline in overall violence nationwide.
Elsewhere in Iraq on Monday, police officers and witnesses said clashes broke out briefly on the outskirts of Baghdad's Shiite district of Sadr City after a roadside bomb targeted a U.S. patrol.
The U.S. military said American troops were not involved.
No serious casualties were reported. But the fighting reflected rising tensions amid U.S.-Iraqi negotiations over a security deal to extend the presence of American forces in Iraq beyond the end of the year.
Prime Minister Nouri al-Maliki said in an interview with The Times of London that the 4,100 British troops in southern Iraq were no longer necessary to provide security, although some might be needed for training and technical issues, the newspaper reported.
"Definitely, the presence of this number of British soldiers is no longer necessary," Maliki said. "We thank them for the role they have played, but I think that their stay is not necessary for maintaining security and control."
Monday, October 13, 2008
KABUL: Afghan and foreign troops killed 14 Taliban insurgents and eight civilians died in a string of attacks, Afghan officials and the U.S. military said Monday.
One U.S.-led coalition soldier was also killed in a roadside bomb attack Monday. Violence has surged in Afghanistan, with some 3,800 people -- a third of them civilians -- killed by the end of July this year, the United Nations said.
Already more foreign troops have been killed so far this year than in any year since U.S.-led and Afghan forces toppled the Taliban in 2001 for refusing to hand over al Qaeda leaders behind the September 11 attacks on the United States.
Six civilians were killed and two more wounded when their minibus hit a roadside bomb in Zana Khan district of Ghazni province Monday, a local official said.
"The roadside bomb was planted by insurgents who were targeting a foreign or Afghan military convoy using this road," said the governor's spokesman, Sayed Ismail Jahangir.
Separately, two civilians were killed and three wounded when a rocket landed on their home in Khost Sunday, the provincial police chief said.
"The rocket was aimed at a nearby foreign troop base," Abdul Qayum Batizoy said.
In another incident, U.S.-led coalition and Afghan troops killed five militants in an operation targeting a foreign fighters' network in Ghazni province, about 200 km (125) miles southwest of Kabul Monday, a U.S. military statement said.
Another nine Taliban insurgents were killed during a joint operation by Afghan and international troops in Ghazni's Waghaz district Sunday, said provincial police chief Mohammad Zaman.
Monday, a roadside bomb killed a soldier from U.S.-led coalition forces and wounded several more in southern Afghanistan, the U.S. military said, without giving further details.
(Reporting by Hamid Shalizi; Editing by Sami Aboudi)
The Associated Press
Monday, October 13, 2008
PESHAWAR, Pakistan: Pakistani police arrested a 20-year-old American man late Monday in a militant-infested area close to the Afghan border, an officer said.
Officers were investigating why the man was in the area, said officer Pir Shahab. The region has seen months of fighting between Taliban and al-Qaida extremists and is believed to be a possible hiding place for Osama bin Laden and other foreign extremists,
He said the man identified on his passport as Juddi Kenan was arrested at a checkpoint while trying to enter Mohmand tribal province without the special permission to be in the region required by Pakistani law.
A U.S. embassy spokesman said he had no information on the arrest.
Asked whether he was believed to be a journalist, a tourist, a soldier or a militant, Sahab said: "These are the questions we are trying to investigate."
Another police official, Marjan Khan, said the man was wearing a traditional Pakistani dress and appeared to be a civilian.
"He has told us that he was a student at a community college in Florida and wanted to enter the tribal region to see a friend," Khan said.
He said the man was carrying a laptop computer and a travel bag, adding that he had been moved to an undisclosed location for questioning.
Militants in the tribal area are blamed for rising attacks in Pakistan and Afghanistan.
Pakistani authorities often claim to kill or arrest foreign extremists, mostly from Afghanistan, the Middle East and Chechnya, in the border area.
By John F. Burns
Monday, October 13, 2008
KABUL: Less than 12 hours after NATO troops in Afghanistan defeated an ambitious attempt by the Taliban to storm a provincial capital in the far southwest, killing dozens of the fighters, the top U.S. commander in the country urged doubters to believe that the war against the Taliban would be won.
The commander, General David McKiernan, who leads more than 65,000 troops from about 40 countries, including 33,000 Americans, said at a news conference in Kabul that there had been "too many" reports in the media recently asserting that the NATO-led forces and their Afghan allies were losing the war. Recent news reports have centered on pessimistic comments about the war from a British ambassador to Afghanistan, a NATO commander on the ground and the Australian defense minister.
"I absolutely reject that idea. I don't believe it," the general said, referring to the notion that the Taliban was prevailing.
"It is true that there are many places in this country that don't have an adequate level of security. We don't have progress as even and as fast as any of us would like. But we are not losing in Afghanistan."
At another point, he was more emphatic. There are major challenges facing the war effort, he said, "but we will win."
The news conference was held on the general's return Sunday evening from Washington, where he participated in a wide-ranging review of war strategy in Afghanistan. Earlier, the NATO command confirmed a battle with several hundred Taliban fighters at nightfall on Saturday as they prepared to attack Lashkar Gah, the capital of Helmand Province, the center of Afghanistan's opium trade and one of the most heavily contested battlefields of the war.
A statement by the International Security Assistance Force, the official name of the NATO operation commanded by McKiernan, said its forces had attacked the Taliban fighters at 7:30 p.m. Saturday, when the Taliban were preparing to carry out a mortar attack on the city. At his news conference, McKiernan said that fighting had continued until daybreak Sunday, and that "a large number of Taliban" had been killed.
Dawood Ahmadi, a spokesman for the provincial governor, said by telephone that 62 Taliban fighters had been killed.
The spokesman said that a separate battle by Afghan and NATO troops to regain control of Nadali district - located 24 kilometers, or 15 miles, west of Lashkar Gah - had ended Saturday after two days and that 40 Taliban fighters had been killed there.
If accurate, the figures would make the fighting among the most intensive that NATO forces have experienced with the resurgent Taliban.
The wording of the NATO command statement suggested that the command viewed the Lashkar Gah attack as another in a series of so-called spectacular strikes by the Taliban in recent months in which it has aimed to demoralize NATO forces and Afghanistan's roughly 30 million people while creating a groundswell of opinion here that the U.S.-led forces are heading for the same dismal fate that met the Soviet occupation force in the 1980s.
The Taliban do appear to have served notice that, as they neared the seventh anniversary of the collapse of Taliban rule in Kabul, the Afghan capital, they have reorganized into a formidable fighting force.
Several times this year, they have shown that they are capable of massing hundreds of fighters for attacks in the east, south and southwest of Afghanistan, areas within a few days' trek of militant sanctuaries in the border areas of Pakistan.
In July, a large force of Taliban fighters, estimated at more than 100, carried out a bold assault on a remote U.S. base in Kunar Province, close to the Pakistan border. Nine American soldiers were killed.
That attack followed another daring attempt to threaten a major southern city, Kandahar. After a prolonged Taliban buildup in the district of Arghandab, just outside Kandahar, Afghan and NATO forces struck in late June, clearing hundreds of Taliban fighters from 18 villages in the area and killing 56, according to NATO statements at the time.
U.S. commanders have said that overall violence across the country has risen about 30 percent in the past year, with record numbers of casualties among U.S. and other NATO troops. The United Nations has put the number of Afghan civilians killed so far in 2008 at nearly 4,000.
On Monday, Reuters reported that U.S.-led coalition and Afghan troops killed five militants in an operation in Ghazni Province, southwest of Kabul, citing a U.S. military statement.
Confidence among Afghan citizens has plummeted, contributing to urgent calls by Western commanders and diplomats for a new strategy. At his news conference, McKiernan appeared concerned about stemming the tide of pessimism.
He also issued a new warning about inadequate NATO troop levels, a point made insistently in recent weeks by Robert Gates, the U.S. defense secretary, and McKiernan and General David Petraeus, the U.S. commanders who will oversee the war here.
Monday, October 13, 2008
Ignacio Alvarado, 40, is a freelance investigative reporter and Reuters contributor in the northern Mexican border city of Ciudad Juarez where he was born and now lives with his wife and two children. He has been a journalist for 20 years -- seven in Mexico city, the rest in Ciudad Juarez. In the following story he describes life in an increasingly lawless city where it's becoming almost commonplace to see daylight drug gang shootings and to walk past dumped bodies.
By Ignacio Alvarado
My neighbour has been kidnapped and my six-year-old daughter witnessed an armed robbery at the local store. A friend was almost killed by a stray bullet in a gun battle at a set of traffic lights.
I hear gunfire in the streets as I work in my house, behind a front door bolted with four locks, and I feel a knot in my stomach whenever the telephone rings.
Another friend recently picked up to hear a voice say: "I'll kill your children if you don't pay me a lot of money."
With dozens of abductions and extortions daily in this rundown northern Mexican border city, he didn't wait to find out if it was real or a hoax. He just moved to Toronto.
Life in Ciudad Juarez, a city infamous for the unsolved murders of hundreds of young women in the 1990s, was never exactly pleasant. But since a new war between rival drug cartels broke out this year, law and order has collapsed.
Mexico's most-wanted man, Joaquin "Shorty" Guzman, head of the Pacific-coast Sinaloa cartel, has declared war on the local drug baron, Vicente Carrillo Fuentes, and sent his foot soldiers to drive out the Juarez cartel. The Gulf cartel based around the Gulf of Mexico coast has joined the fight.
The battle for the city's drug trade and smuggling routes into the United States has killed 1,100 people since January -- that's nearly four people murdered each day.
With the rash of killings, which can be out-of-the blue shootings or the result of gruesome torture sessions, those police not working for drug gangs are too scared to go on patrol. Many quit their jobs after cartel hitmen put up lists in public with the names of cops they plan to kill.
The deployment of 3,000 troops, received as heroes by city residents earlier this year, hasn't changed a thing.
Ciudad Juarez is Mexico's most violent city in a drug war that has killed more than 3,000 people nationwide this year.
As daylight killings have come to seem almost normal, I've seen small children run under crime-scene barrier tapes to get a closer look at victims. Curious bystanders stop and peer at blood-spattered SUVs and body parts strewn on the ground.
"When will this end? When they've killed everyone in the city?" remarked an elderly woman recently as she surveyed a dead body on the sidewalk.
FROM BOOZE TO BLOOD
Ciudad Juarez was once a fairly glamorous place, a kind of Las Vegas that boomed in the U.S. Prohibition era of the 1920s and early 1930s as it lured American film stars and singers.
Named after Benito Juarez, a 19th-century reformist president, the city is scattered with historic buildings and monuments that recall the intense fighting here during the Mexican Revolution between 1910 and 1920.
The wood-panelled Kentucky Club bar served Frank Sinatra, Ernest Hemingway and Marilyn Monroe in the 1950s and claims to have invented the Margarita, a tequila-based cocktail.
More recently, since the 1994 North American Free Trade Agreement (NAFTA), Ciudad Juarez has developed into a major manufacturing centre producing goods for the U.S. market.
But with the dominating presence of the Juarez drug cartel felt everywhere, economic growth has failed to bring social infrastructure like city parks and public transport.
Instead, as factories have driven a population explosion, the city is ringed with shanty towns and garbage dumps.
Impunity rules, as city authorities showed by never responding to the killing of hundreds of young women in the 1990s. So when Guzman decided to expand his patch into Ciudad Juarez, there was no one to stand in his way.
"The social fabric of the city has never recovered from the femicides," said Clara Rojas of the Autonomous University of Ciudad Juarez. "Killing women like that was so brutal and the authorities never responded, provoking this kind of impunity."
As President Felipe Calderon's army clampdown fails to rein in cartel violence, people are more bitter than ever.
Bars, from cheap beer halls to the still-elegant Kentucky Club, are empty as more and more people stay in. In July alone, about 1,700 people, including me, had their cars stolen in the city.
The U.S. tourists who used to come for cheap medicines and a taste of the free-wheeling Mexican border scene are largely gone.
Almost everyone wants to leave and those with family ties in the United States are applying for visas to cross the Rio Grande and live in El Paso, Texas, where there have been just 12 homicides this year, none related to the drug war.
As I, like many others, fill in forms to apply for El Paso residence so I can continue my work as a journalist but protect my family, I have to laugh at Ciudad Juarez's tourist slogan: "The best border in Mexico."
I'd say it's a city that has lost its soul.
(Additional reporting by Tomas Bravo; Writing by Robin Emmott; Editing by Catherine Bremer and Kieran Murray)
Monday, October 13, 2008
VIENNA: North Korea restored access on Monday for U.N. monitors to its plutonium-producing nuclear complex, a day after pledging to resume work to disable it in a deal with the United States, diplomats told Reuters.
"The (International Atomic Energy Agency) inspectors can access all facilities at Yongbyon again, including the reprocessing plant," said one diplomat, referring to the site that made plutonium fuel for Pyongyang's atomic bomb programme.
There was no immediate comment from the U.N. nuclear watchdog's headquarters in Vienna but one official said fresh information on the monitors' status could come later in the day.
North Korea had barred the inspectors from Yongbyon last Wednesday in anger over Washington's refusal to remove it from a sponsors-of-terrorism blacklist in a dispute over the extent of verification measures required for denuclearisation.
The U.S. State Department announced on Saturday that it had delisted the maverick Stalinist state after Pyongyang agreed to a series of verification steps. On Sunday, North Korea said it would resume disablement work and allow IAEA monitors back in.
South Korea said on Monday it had seen no signs of the North restarting work to take apart Yongbyon, a vast Soviet vintage complex which includes a nuclear fuel fabrication facility and a 5 megawatt reactor.
The isolated and destitute North earlier was to be removed from the U.S. blacklist, a key to tapping into international finances, once it provided a full accounting of its nuclear programmes and allowed for a system to check its claims.
(Reporting by Mark Heinrich)
By Salman Masood
Monday, October 13, 2008
ISLAMABAD: President Asif Ali Zardari was scheduled to visit China for four days starting Tuesday, in an effort to reinforce Pakistani ties with a traditional ally at a time when relations with the United States have come under considerable strain.
The visit by Zardari comes barely two weeks after General Ashfaq Parvez Kayani, the Pakistani military chief, made a five-day visit to China.
The high-profile visits signify the importance Pakistan attaches to China, a neighbor that is considered a close and reliable ally. The relationship between the countries is unlike the relationship between Pakistan and the United States, which has been rocky and often complicated, and based on short-term needs and expediency.
Arif Rafiq, an analyst of Pakistani politics, said, however, that "the two closely timed visits to China by President Zardari and General Kayani are not part of a strategy by Pakistan to play Beijing and Washington off one another." Rather, he said, the timing was coincidental.
Pakistan, facing economic difficulties, is looking to China for foreign aid and closer economic cooperation. Zardari will also push for cooperation to assist the civilian nuclear program in Pakistan. To overcome an acute energy shortage, Pakistan relies on nuclear energy for power generation.
Zardari had announced that he would visit China last month, soon after assuming office, following the precedent set by other leaders. But his visit was postponed, which drew strong criticism by nationalists and opinion writers. Many of them accused the government of downgrading relations with China while trying to placate the United States.
Pakistani officials deny these assertions.
"Pakistan's relations with the United States and China are not an either-or proposition," said Husain Haqqani, the Pakistani ambassador to Washington, who is thought to be the intellectual driving force behind the government's foreign policy.
"While some armchair analysts might look unfavorably upon Pakistan's simultaneous pursuit of close relations with China and the United States," he said, "policy makers in Washington and Beijing share interest in strengthening Pakistan and do not see our country as an area of contention between the two powers." Haqqani emphasized that during the 1970s, Pakistan acted as a bridge between the United States and China.
The early relationship between Pakistan and China stemmed in large part from an effort to provide a bulwark against India. Both countries have fought wars against India.
Pakistan's military ties with China remain strong, and China has assisted Pakistan in tank production, fighter aircraft manufacturing and naval technology.
But since the late 1990s, economic concerns have gained increased importance. Trade and energy have taken precedence in Pakistan's relations with China. Trade between the countries is more than $7 billion a year, and both sides have set a target of $15 billion by 2010.
In recent years, Chinese investment in Pakistan has grown, with Beijing investing in heavy engineering, power generation, mining and telecommunications.
China has also helped Pakistan build a deep-water seaport in Gwadar, in Baluchistan Province. Apart from its economic value, analysts say, the port, in the country's southwest, has great strategic importance. It can be militarized in the future, providing China with a base to defend Gulf oil-shipping lanes. India regards the port with discomfort.
In his first speech before Parliament as president last month, Zardari vowed to take to greater heights what he called the "time-tested and all-weather friendship and strategic partnership with China."
He also said that Pakistan would not tolerate any violation of its sovereignty by "any power" - an allusion to the United States and its strikes inside Pakistani territory. American officials have expressed frustration with Pakistani efforts to curb the Taliban and Al Qaeda in its restive, semi-autonomous tribal regions along the border with Afghanistan.
At the same time, there are areas in which the Chinese have also expressed dissatisfaction. China has asked Pakistan to ensure and enhance the security of its citizens, who have been increasingly singled out in Pakistan.
Last month, two Chinese engineers working for a telecommunications company were abducted in the restive Swat region of North-West Frontier Province. Local Taliban leaders took responsibility.
Last year, hard-line clerics of the Red Mosque in Islamabad abducted seven Chinese masseuses working in a massage parlor. They were freed a day later, but the subsequent siege and military raid of the Red Mosque compound by Pervez Musharraf, then the president, was seen as a result of pressure from China.
By Jim Rutenberg
Monday, October 13, 2008
The most persistent falsehood about Senator Barack Obama's background first hit in 2004 just two weeks after the Democratic convention speech that arguably set him on the path to his presidential candidacy: "Obama is a Muslim who has concealed his religion."
That statement was contained in a press release and it spun a complex tale about the alleged ancestry of Obama, who is Christian.
The press release was picked up by the conservative FreeRepublic.com Web site and spread virally and steadily as others elaborated on its claims over the years in e-mail messages, Web sites and, ultimately, books. It continues to be an engine that drives other false rumors about Obama's background to this day, with one finding national, public voice on Friday, when a woman told Senator John McCain at a town-hall-style meeting, "I have read about him," and "he's an Arab." McCain corrected her.
Until this month, the man who is widely credited with starting the cyber-whisper campaign that still dogs Obama was a secondary character in news reports, with deep explorations of his background largely confined to liberal blogs where he is a bête noir.
But an appearance in a documentary-style program on the Fox News Channel watched by three million people last week thrust the man, Andy Martin, and his past into the foreground. The Fox program allowed Martin to assert falsely and without challenge that Obama had once trained to overthrow the government.
An examination of legal documents and election filings, and interviews with those from Martin's past, revealed a man with a history of scintillating if not always factual claims, who has left a trail of animosity including anti-Jewish comments -- among political leaders, lawyers and judges in three states over the course of more than 30 years.
A law school graduate, his admission to the Illinois state bar was blocked in the 1970s after a psychiatric finding of "moderately severe character defect manifested by well-documented ideation with a paranoid flavor and a grandiose character." Though he is not a licensed lawyer, Martin went on to become a prodigious filer of lawsuits, and he also made various unsuccessful attempts to run for public office in three states, as well as for president at least twice, in 1988 and 2000. Based in Chicago, he now identifies himself as an author and writer who focuses on his anti-Obama Web site and press releases.
Martin, in a series of interviews, did not dispute his influence in Obama rumors.
"Everybody uses my research as a take off point," Martin said, adding, however, that some take his writings "and exaggerate them to suit their own fantasies."
As to his background, he said, "I'm a colorful person, there's always somebody who has a legitimate cause in their mind to be angry with me."
When questions were raised last week about Martin's appearance and claims on "Hannity's America" on Fox News, the program's producer said his views were expressed as his opinion and not necessarily fact, and, as such, were not unwarranted.
It was not his first turn on national television.
The CBS News program "48 Hours" devoted an hour-long program to his legal prowess in 1993 entitled, "See You in Court; Civil War, Anthony Martin Clogs Legal System with Frivolous Lawsuits." He has filed so many lawsuits and paperwork containing anti-Semitic slurs a judge barred him from doing so in any federal court house without preliminary approval.
He prepared a run for Congress in Connecticut where paperwork for one of his campaign committees listed as one purpose "to exterminate Jew Power." He ran for the Florida State Senate and the United States Senate in Illinois. When running for president in 1999, he showed a television advertisement in New Hampshire that accused George W. Bush of cocaine use.
In the mid-1990s he was jailed in relation to an assault case in Florida.
His newfound prominence, and the persistence of his line of political attack -- updated regularly on his Web site and through press releases -- amazes those from his past.
"Well, that's just a bookend for me," said Tom Slade, a former chairman of the Florida Republican Party who says the party spent hundreds of thousands of dollars defending against lawsuits Martin brought for Slade's refusal to support his bid for state office. "He's crazy as a run-over dog. But he's fearless."
Given Obama's unique background, which was the focus of his first book, it was perhaps bound to become fodder for some opposed to his candidacy.
Obama was raised mostly by his white mother, an atheist, and his grandparents, who were Protestant, in Hawaii. He hardly knew his father, a Kenyan from a Muslim family who variously considered himself atheist or agnostic, Obama wrote. For a few childhood years Obama lived in Indonesia with a stepfather he described as a nonpracticing Muslim.
Theories about Obama's background have taken on a life of their own. But every independent analyst seeking the origins of the cyberspace attack winds up back at Martin's first press release, posted on the Free Republic Web site in August 2004.
Its general outlines have turned up in a host of works that have expounded falsely on Obama's heritage or supposed attempts to conceal it, including "Obama Nation," the widely discredited best-seller about Obama by Jerome S. Corsi. Corsi, who has made anti-Muslim and anti-Catholic slurs for which he later apologized, opens with a quote from Martin.
"Martin gets credit for the idea of, call it 'the sound bite narrative mien,"' said Danielle Allen, a professor at the Institute for Advanced Study at Princeton University who has investigated the e-mail campaign's circulation and origins. "What he's generating gets picked up in other places, and it's an example of how the Internet has given power to sources we would have never taken seriously at another point in time."
Allen said that Martin's original work found amplification in 2006, when a man named Ted Sampley wrote an article painting Obama as a secret practitioner of Islam. Quoting liberally from Martin, the article circulated on the Internet, and its contents eventually found their way into various e-mail messages, particularly an added claim that Obama had attended "Jakarta's Muslim Wahabbi schools. Wahabbism is the radical teaching that created the Muslim terrorists who are now waging jihad on the rest of the world."
Obama for two years attended a Catholic school in Indonesia, where he was taught about the Bible, he wrote in "Dreams of My Father," and for two years went to an Indonesian public school open to all religions where he was taught about the Koran.
Sampley, coincidentally, is a Vietnam veteran and longtime opponent of Senator John McCain and Senator John Kerry, both of whom he accused of ignoring his claims that American prisoners were left behind in Vietnam. He previously portrayed McCain as a "Manchurian candidate" and again opposed him this year in a primary-season campaign that was roundly denounced as a smear.
Speaking of Martin's influence on his Obama writings, Sampley said, "I keyed off of his work."
It is perhaps ironic that Martin's depictions of Obama as a secret Muslim have found resonance among some Jewish voters who have received e-mail messages containing various versions of his initial theory, often by new authors and with new twists.
In his original press release Martin wrote that he was personally "a strong supporter of the Muslim community." But, he wrote of Obama, "It may well be that his concealment is meant to endanger Israel," and, "His Muslim religion would obviously raise serious questions in many Jewish circles."
Yet in various court cases, Martin had impugned Jews.
A motion he filed in a 1983 bankruptcy case called the overseeing judge "a crooked, slimy Jew who has a history of lying and thieving common to members of his race."
In another motion, filed in 1983, Martin wrote, "I am able to understand how the Holocaust took place, and with every passing day feel less and less sorry that it did."
During an interview, Martin denied some statements against Jews attributed to him in court papers, blaming malicious judges for inserting them.
But in his "48 Hours" interview in 1993 he affirmed a different anti-Semitic portion of the affidavit that included the line about the Holocaust, saying, "The record speaks for itself."
On Friday, when asked about an assertion in his court papers that "Jews, historically and in daily living, act through clans and in wolf pack syndrome," he said, "That one sort of rings a bell."
He said he was not anti-Semitic. "I was trying to show that everybody in the bankruptcy court was Jewish and I was not Jewish," he said, "and I was being victimized by religious bias."
In discussing his denied admission to the Illinois bar, Martin said the psychiatric exam listing him as having a "moderately severe personality defect" was spitefully written by an evaluator he clashed with.
Monday, October 13, 2008
By Oleg Shchedrov
President Dmitry Medvedev oversaw the test firing of an intercontinental Topol missile on Sunday and vowed to commission new generation weapons for Russia's armed forces.
A Reuters reporter said the truck-mounted Topol was fired at 8:23 a.m. British time in drizzling rain from the Plesetsk cosmodrome, which is nestled among the taiga forests of Russia's north.
Half an hour later it hit the Kura testing site, 6000 km (3700 miles) away on the Kamchatka peninsula in the Pacific.
"I have just been told that the dummy warhead has landed in Kura," Medvedev said from the Topol launch pad where acrid smoke from the missile still hung thick in the air.
"We will continue to commission new types of weapons but we will also continue testing the ones we have now," said Medvedev. "Their effectiveness has been proved by time. Our shield is fine."
Russian nuclear submarines also successfully test fired two ballistic missiles from the Pacific Ocean and Barents Sea on Sunday to targets inside Russia, the navy said.
Medvedev, who was sworn in as president in May, has moved to beef up Russia's armed forces after a five-day conflict in Georgia this August which sparked a row with the United States and European Union.
Dressed in the army's new-style leather jacket -- with a badge saying commander-in-chief -- Medvedev inspected the 21.5 metre Topol rocket before the launch.
The rocket is designed to pierce anti-missile defence systems such as those that the United States wants to build in Eastern Europe. The Kremlin has opposed Washington's plans.
Medvedev's predecessor, Vladimir Putin, raised defence spending during his eight-year presidency to revive Russia's armed forces, which had been drained in the 1990s by corruption, low pay and a lack of funding.
Russia's strategic bombers have restarted regular patrols over the Atlantic Ocean, irking NATO, and a group of the Northern Fleet ships is on its way to the Caribbean to take part in joint exercises with U.S. foe Venezuela.
Two Russian warships and their support vessels docked in Tripoli ahead of making the trans-Atlantic trip. Russia on Saturday test-launched a strategic missile to the equatorial part of the Pacific Ocean for the first time.
The RS-12M Topol, called the SS-25 Sickle by NATO, has a maximum range of 10,000 km (6,125 miles).
"This missile and others which will be commissioned in the next few years are capable of effectively providing the nuclear deterrent and ensuring the security of Russia and its allies," Colonel-General Nikolai Solovtsov, Commander of Russia's Strategic Missile Forces, told Medvedev.
The Topol, a highly mobile missile designed in Soviet times, is a key part of Russia's nuclear deterrent.
But Russia has extended their use way past the 10-year guaranteed operational life set by the manufacturer and the launch on Sunday was aimed partly at testing how the rockets would fire after having their operational life extended so far.
"An extension of the operational life of the Topol rocket complexes ... will allow the systematic replacement of rockets being taken out of use with new generation rockets without any peak load on the military budget," Interfax news agency quoted Alexander Vovk, an adviser to the head of Russia's strategic forces, as saying.
(Writing by Guy Faulconbridge, editing by Angus MacSwan)
By Verlyn Klinkenborg
Monday, October 13, 2008
For a week at the end of September, I stayed in northern Finland, just south of the Arctic Circle and a few kilometers shy of the restricted zone that marks the Russian border. This is the boreal forest, a place of almost surreal silence this time of year, when most of the birds have already migrated.
The first night I was there I stood in the middle of a bridge over a broad, slow-moving river that flows into Russia. It was dusk, a clear night, and I had come out to listen to nothing.
There was no wind in the trees, not even the slightest breeze. The river below me was silent, and for the half-hour I stood there I heard not a sound.
I found myself checking, again and again, to see whether I had gone deaf. I popped my ears. I scuffed a shoe. I tossed a rock into an eddy along the river's edge. I tapped the guard-rail with a knuckle. There was nothing wrong with my hearing.
The human ear is not really meant for straining, and yet I was straining to hear. The silence felt more like an unnaturalI was too busy not hearing the things I'm used to hearing, muffling of my senses than the porous stillness of the natural world, of which I was a part.
The next week I spent in and out of the forest, listening with my eyes, so to speak, and not my ears. It had been a cold, wet summer in Finland, a season filled with the sound of rain falling through the spruces and pines. All of the Finns I met grimaced when they talked about it, as if the summer had tasted like cold, weak coffee. But the week I spent there was dry, and every night there was frost. The leaves were turning fast. A fog hung above the river in the mornings, which only deepened the illusion of silence.
I say illusion because on my last night there, I went back to the bridge, again under a clear sky. There were long shadows even at midday this time of year, and dusk is still reluctant to give way to real darkness. As I stood there, I heard the faint, but quite audible roar of the rapids a half-mile downstream and around a great bend. Why had I not heard it that first night? The answer, I suppose, is that I was too busy not hearing the things I'm used to hearing, including the great roar that underlies the city's quietest moments. It had taken a week to empty my ears, to expect to hear nothing and to find in that nothing something to hear after all.
Verlyn Klinkenborg is a member of the New York Times editorial board.
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