Sugar harvest advances have social cost in Brazil
Monday, October 20, 2008
By Inae Riveras
Ines Ferreira dos Santos lives with four of her kids in a spacious, colourful house at the end of a dusty street.
"With money from sugar cane we built this house. It has been good to us, too good," the 43-year-old housewife said.
This is the eleventh year that her husband, Joao Barbosa dos Santos, has travelled the 3,000 kilometres (1,864 miles) to work as a sugar cane cutter in Sao Paulo state in southern Brazil.
This time he is accompanied by three sons, also labouring in the cane fields, and a daughter, who cooks for the group. Every month, they send 2,000 reais (544 pounds) to the rest of the family.
The Santos' story is that of most people in Princesa Isabel, a town of 19,000 people in the arid backlands of Paraiba state in northeastern Brazil. With few other options to make a living, three out of 10 residents have worked as cane cutters.
But that is about to change.
The days are numbered for manual cane cutting, a gruelling job once done by slaves, in top cane producing states such as Sao Paulo and Minas Gerais, which account for 70 percent of Brazil's sugar cane crop.
For environmental and public health reasons, cane burning in these states must be phased out by 2014 in flatlands and by 2017 in hilly areas. Similar initiatives are being discussed in fast-growing farming states Mato Grosso do Sul and Goias.
But the change is likely to have a big impact on cane cutters and the families who depend on them.
Controlled burning has long been used in cane plantations to remove foliage and make it easier for workers to move about the fields. But when humidity is low, thick clouds of black smoke billow above the fields.
Every year, a larger share of the crop is harvested by machines, a trend that is starting to drive up unemployment in faraway towns like Princesa Isabel.
The phasing out of manual cane cutting began to intensify two years ago, just as ethanol was making headlines around the world as a substitute for gasoline, ratcheting up the pressure for stricter environmental standards.
In Sao Paulo, where more than half of the crop this season will be cut mechanically, the number of cane cutters dropped to 140,000 from 158,000 in 2006, according to the Sugarcane Industry Association known as Unica. About 70 percent come from other states, mostly in the impoverished northeast.
"There will be a big number of unemployed people. What will happen to them? The government should help to settle them in their place of origin but little has been done," said Pedro Ramos, a cane industry expert at the University of Campinas.
The deaths of 20 workers on the job or while being transported to work locations in recent years increased calls for changes. Though the cause of these deaths is still being investigated, they put a spotlight on the brutal working conditions of cane cutters, driving up labour costs.
"Mechanized harvesting is today 25 percent cheaper than a cane cutter. Each machine replaces 90 workers per day," said Unica's technical director, Antonio de Padua Rodrigues.
In a sign of the times, not a single cane cutting job was created in Brazil's south-central region in the last two years, even as output surged to 487 million metric tons from 373 million metric tons.
"Things are already changing. There were less people going (to Sao Paulo) this year and some had already returned. In the past, no one would come me back before the end of season," said Joaquim Antonio Silva, who owns a transportation company to take workers from Princesa Isabel to Sao Paulo.
The bleak outlook for manual cane cutting has people on edge in Princesa Isabel, which has been churning out migrant workers for 15 years. Cane cutting is the town's main source of income after the public sector.
Every year, in February and March, about six buses leave town daily, southbound to Sao Paulo. About 2,500 to 3,000 workers make the journey, returning only in December.
"They send money every month. And when they get back, with the money from the contract's termination and unemployment insurance, sales jump in local shops," said Eduardo Abrantes, Princesa Isabel's financial secretary.
"Cane mechanization is a big worry for all of us. It's beginning to cause a very serious social problem."
Most of the streets in the town, which is named after the princess who signed a law abolishing slavery in Brazil in 1888, are unpaved. None of the houses have sewage.
Blessed with a favourable microclimate, the region was a big producer of beans and corn 20 years ago. But irregular rains and the allure of cane have emptied farms. The rural exodus snowballed, causing a disastrous drop in regional grain production, Abrantes said.
"More than government money, the worst problem here is the lack of technical assistance for small farmers," said Rinaldo de Medeiros Francisco, one of the region's largest producers.
Ines dos Santos, who also once travelled to Sao Paulo, to work as an orange picker with some of her kids, fears for their future.
"The only way will be going back to farming, just like it was before," she said.
(Reporting by Inae Riveras; Editing by Todd Benson and Eddie Evans)
Shortage of pollinators is not affecting crops, at least for now
By Henry Fountain
Monday, October 20, 2008
In recent years, the worldwide decline in pollinators has been big news in agriculture. The collapse of honeybee populations, which is still poorly understood, has gotten the most press, but more broadly there is evidence of declines among other pollinators.
Since many fruits, seeds and vegetables depend to varying extents upon pollination by insects or birds, agricultural experts have become concerned that a decline in pollinators may lead to a decrease in crop yields.
For those experts, there's good news and bad news in a study by Marcelo A. Aizen of the National University of Comahue in Argentina and colleagues. On a global scale, the researchers report in Current Biology, pollinator shortages are not affecting crop yields. But there could be problems in the future because, the researchers say, the amount of acreage being devoted to pollinator-dependent crops is increasing.
The researchers analyzed 45 years of Food and Agricultural Organization data for pollinator-dependent crops like fruits, nuts and seeds and nondependent crops like many grains and root vegetables. Over all since 1961, yields have increased consistently by about 1.5 percent a year, and in looking at trends over time, the researchers found little difference between pollinator-dependent and nondependent crops in either the developed or developing worlds.
They did find that the proportion of pollinator-dependent crops increased greatly over the decades — to 23 percent of total agricultural production in 2006 from 14 percent in 1961. So if pollinators keep declining, the shortage may eventually have an impact. Recommend More Articles in Science » A version of this article appeared in print on October 21, 2008, on page D3 of the New York edition.
Israel slams assaults on Palestinian olive harvest
Monday, October 20, 2008
JERUSALEM: Israeli Defence Minister Ehud Barak condemned Monday "assaults by hooligans" disrupting Palestinian olive picking in the occupied West Bank, but said Israeli security could not protect the harvesters everywhere.
Israel has deployed forces in a "supreme effort" to let the harvest proceed despite attacks by Jewish settlers in some olive groves this month, Barak told Israel's Army Radio.
Palestinian President Mahmoud Abbas told reporters Sunday that the disruption of the harvest was "a dangerous Israeli escalation." He pledged to fund the plantings of a million trees to make the rocky West Bank terrain greener.
Asked about Abbas's remarks, Barak said "the assaults by hooligans in the area ... deserve condemnation."
"But there are hundreds of sites where the olive harvest takes place and it isn't possible to be everywhere," Barak added. He also urged Palestinians to coordinate with Israeli security forces to ensure they could harvest olives safely.
Olives are an important cash crop for thousands of Palestinians among the three million Palestinians living in the territory captured by Israel in a 1967 war.
About 300,000 Jews live in settlements built by Israel in the territory, an issue that has bedevilled Western-backed peace talks for decades. Palestinians say settlements rob them of land they need for a viable state.
Israeli soldiers intervened to chase away dozens of settlers who assaulted olive harvesters near the West Bank town of Qalqilya Sunday, Palestinian witnesses said.
But another harvest near the West Bank town of Hebron was called off Saturday after several settlers assaulted two photographers and a foreign peace activist. Police restored order by forcing everyone to leave the area.
(Writing by Allyn Fisher-Ilan; Editing by Myra MacDonald)
Dogs die from tainted feed in China, veterinarian says
The Associated Press
Monday, October 20, 2008
BEIJING: Some 1,500 dogs in northeast China have died after eating animal feed tainted with the same chemical that contaminated dairy products and sickened tens of thousands of babies nationwide, a veterinarian said Monday.
The raccoon dogs — a breed native to east Asia that is raised for its fur — were fed a product that contained the chemical melamine and developed kidney stones, said Zhang Wenkui, a veterinary professor at Shenyang Agriculture University. All of the dogs died on farms in just one village.
Zhang determined that the animals died of kidney failure after performing a necropsy — an animal autopsy — on about a dozen dogs. He declined to say when the deaths occurred, but a report Monday in the Southern Metropolis Daily newspaper said they had occurred over the past two months.
"First, we found melamine in the dogs' feed, and second, I found that 25 percent of the stones in the dogs' kidneys were made up of melamine," Zhang told The Associated Press in a telephone interview.
The Southern Metropolis Daily also blamed the deaths of several hundred dogs on melamine, but it was not immediately clear how the chemical would have entered the raccoon dog feed. In the ongoing milk scandal, melamine was said to be added to watered-down milk to artificially boost nitrogen levels, making products seem higher in protein when tested.
Raccoon dogs take their name from their fur, which resembles that of raccoons, and is used to make clothing, especially coats.
The animal deaths raise questions about the extent of the chemical's presence in the country's food chain.
Melamine has been found in a wide range of Chinese-made dairy products and foods with milk ingredients over the past few months. The government is still trying to win back consumer confidence after those tainted products turned up on store shelves around the world.
Four Chinese babies' deaths have been blamed on infant formula that was laced with melamine. Some 54,000 other children were sickened.
Last year, melamine-tainted wheat gluten, a pet food ingredient made in China, was blamed for the deaths of dozens of dogs and cats in North America.
When ingested by humans, the industrial chemical — used in plastics and fertilizers — can cause kidney stones as the body tries to eliminate it and, in extreme cases, can lead to kidney failure. Infants are particularly susceptible.
Zhang said the company that produces the animal feed is in talks with breeders in Xishan, the village in Liaoning province where the dogs died, about providing compensation and has pressured them not to talk to the media.
Zhang did not give the company's name but the newspaper report said the feed was produced by Harbin Hualong Feed Co. The company refused to comment Monday, saying officials were unavailable because they were in a meeting.
An official surnamed Liu at the Liaoning provincial animal feed and medicine inspection center said the facility tested one sample of animal feed from Xishan and found that it contained about 500 parts per million of melamine. China's Health Ministry recently capped the amount of melamine permissible in milk, milk powder and food products that contain more than 15 percent dairy to 2.5 parts per million.
He said that the center was assisting the Ministry of Agriculture in a nationwide inspection of animal feed for similar contamination but would not give any other details.
The ministry did not respond to a list of faxed questions. Telephone calls to the agricultural department of the Ciyutuo County government, which oversees Xishan, rang unanswered.
China's products have been under intense scrutiny after high levels of industrial toxins were found last year in exports ranging from toothpaste to toys.
The milk scandal has resulted in recalls and the blocking of Chinese imports in numerous countries.
On Monday, Australia said it had ordered a recall of a milk drink and cake brand after tests showed they were contaminated with melamine.
Lydia Buchtmann, a spokeswoman for Food Standards Australia New Zealand, said Orion brand Tiramisu Italian Cake with Cheese Cream and Dali Yuan brand First Milk vanilla-flavored drink have been taken off store shelves.
China recalls another herbal drug after baby death
Monday, October 20, 2008
BEIJING: China has recalled a herbal remedy after it was blamed for the death of a newborn baby, state media said Monday, in the latest health scare to hit the country.
The 9-day-old baby in the northern province of Shaanxi died after being injected with "Yinzhihuang," a remedy containing herbal extracts and used to treat liver diseases and infantile jaundice, the official Xinhua news agency said.
Three other infants had suffered "adverse effects" after being injected and hospitals have been told to stop using the drug, the report said, citing the Ministry of Health.
Samples of the drug were being tested, Xinhua added.
Earlier this month, the government recalled another herbal injection whose use has been linked to the deaths of three people.
China recalled two batches of the herbal drug produced by a company based in northeastern Heilongjiang province, after the injections caused strong adverse reactions in six people from southwestern Yunnan province, three of whom died.
Authorities said the problem batches had been tainted with bacteria.
The incidents come on the heels of a scandal over milk adulterated with melamine, which has killed four children, sickened tens of thousands of others and prompted recalls around the world.
(Reporting by Ben Blanchard; Editing by Alex Richardson)
Out of a bottle or out of a faucet?
Monday, October 20, 2008
As consumers hunker down to cope with hard economic times, an environmental group in Washington has offered a suggestion for saving money: Get your water from the faucet not the bottle. The Environmental Working Group released a report Wednesday that charged that some bottled waters were "no different than tap water." And it found fertilizer residue, pain medication and other chemicals in some major brands.
While a lot of bottled water may be as pure as promised in those alluring commercials, the real problem is telling which is which. Public water supplies are regulated by the federal government. Not so for bottled water. The Food and Drug Administration does have some oversight, but bottled water is not very high on their list of priorities.
The International Bottled Water Association, which represents most of the industry, has voluntary standards to make sure there are no contaminants. The association encourages (but does not require) bottlers to release pertinent information about what's in their water when consumers call and ask.
Among the states, so far only California has set strict standards to make sure carcinogens and other contaminants are not being sold as something purer than that mountain stream usually pictured on the labels.
Some metropolitan water is better than others, of course, and New Yorkers are proudly unafraid to ask for their four-star tap water at the fanciest restaurants. The federal government requires all public water works to tell consumers once a year what is in their water and whether it meets federal standards.
Those public reports are not always as helpful as they should be. Some are printed in ant-size type and best understood by chemists. But at least they are readily available, and the same detail should be publicly available for bottled water.
For the extra cost and the promise of added purity - and the mound of plastic in landfills - that bottled water should be as good or even better than the less-expensive stuff that comes out of a tap. And consumers should be able to see certified data that prove it.
California's efforts to save energy create jobs, study finds
By Felicity Barringer
Monday, October 20, 2008
OAKLAND, California: California's energy-efficiency policies created nearly 1.5 million jobs from 1977 to 2007, while eliminating fewer than 25,000, according to a study that was to be released Monday.
The study, conducted by David Roland-Holst, an economist at the Center for Energy, Resources and Economic Sustainability at the University of California at Berkeley, found that while the state's policies lowered employee compensation in the electric power industry by an estimated $1.6 billion over that period, it improved compensation in the state by $44.6 billion.
Built into that figure were increases of $1.2 billion in the light industrial sector, $11.2 billion in wholesale and retail trade, $7.3 billion in the financial and insurance sectors and $17.8 billion in the service sector. "Consumers were able to reduce energy spending," the study said. "These savings were diverted to other demand."
"When consumers shift one dollar of demand from electricity to groceries," the report said, they create jobs among retailers, wholesalers, food processors and other businesses.
The study, which examined household spending, comes as state and regional initiatives on climate-change policies have been gathering momentum. Meanwhile, arguments have sharpened over how much it will cost the economy to cut the emission of greenhouse gases like carbon dioxide produced by burning fossil fuels, which are linked to climate change. Roughly half of U.S. electric power is generated by burning coal, the fuel that produces among the highest greenhouse gas emissions.
Some economists focus their studies on the cost of converting the power grid to run on low-carbon technologies, like wind energy, or the cost of developing technologies to separate the carbon dioxide from coal plant emissions and bury it underground. Others focus on the job-creating potential of new energy industries.
The Berkeley study is different in that it focuses as much on historical data as on modeling the future. California's energy-efficiency policies were adopted in 1978, long before the widespread push for greenhouse gas reductions, but the data they provide were highly relevant to the current economic debate.
Roland-Holst said he based his calculations on residential spending on electricity over the past 30 years, factoring in both the decrease in per-capita demand for electricity - now 40 percent below the national average - and the increase in electrical rates in California, which were about 40 percent above the national average in June. Household spending represents more than 70 percent of the gross state product.
Historically, Roland-Holst said, the decrease in per-capita demand for electricity outstripped the increase in rates. Much of the economic growth, the study said, was driven by efficiency standards for large appliances like refrigerators and for residential and commercial buildings.
In an interview, Roland-Holst said, "What I wanted to do to support the forward-looking vision is go back and look at the evidence we have in front of us."
In two months, California is set to adopt broad policies to enforce a new cap on greenhouse gas emissions that was signed into law two years ago. More detailed regulations will then be developed. That process is likely to be contentious, as it divides the overall costs of the new program among competing sectors of the state's economy.
Energy company cancels planned webcast on natural gas drilling
By John Metcalfe
Monday, October 20, 2008
Shale.TV, an online news program devoted to covering the extraction of natural gas in Texas, had a juicy story about the walloping that the industry has endured amid the economic crisis.
Unfortunately, Shale.TV happened to be part of this troubled industry. Last Monday the company that owned it, Chesapeake Energy of Oklahoma City, canceled the show to cut costs.
The program was an unusual attempt by Chesapeake to create its own news product, and the company had hoped to educate people in Fort Worth about the benefits of drilling a mammoth hunk of gas-rich rock below the city known as the Barnett Shale.
The show had accumulated several award-winning local journalists before its debut.
The price of natural gas, however, has dropped sharply during the economic downturn, and Chesapeake recently announced it would sell some assets. Its chief executive, Aubrey McClendon, sold nearly all of his stock this month to meet a margin call.
"There is no question that everyone was stunned and everyone was disappointed," said Olive Talley, a veteran of ABC and NBC who was the executive producer.
Some had wondered how the show would make natural gas pipes and industrial equipment watchable.
"They had some competent, experienced journalists behind it, but I can't imagine — other than people directly affected in Fort Worth and nearby areas — that there would be much of an audience at all," said Ed Bark, a former TV critic who now runs a Web site.
Nuclear power giant bids for NRG Energy
By Matthew L. Wald
Monday, October 20, 2008
WASHINGTON: Exelon Corp., the Chicago-based utility, said late Sunday that it had offered to buy NRG Energy, a power generator based in Princeton, New Jersey, for $6.2 billion.
A combined company would produce enough electricity to serve nearly half the households in the United States, Exelon said.
Exelon, one of the nation's largest electric companies that covers a broad swath of the Midwest and Middle Atlantic states, combines the assets of Commonwealth Edison and Philadelphia Electric. Its unsolicited, all-stock offer for NRG is a 37 percent premium over the closing price last Friday, Exelon said.
Joelle Frank, a spokeswoman for NRG, said the company had advised its shareholders to "take no action, pending review by NRG's board of directors." NRG has hired Citigroup and Credit Suisse to advise it, she said.
The Exelon announcement notes that a change of control at NRG would require refinancing much of its debt, now at $8 billion.
Exelon said one reason for the combination would be an enormous combined entity with investment-grade credit ratings and the financial strength to build new power plants.
A year ago, NRG asked the Nuclear Regulatory Commission for permission to build two nuclear reactors at a site 90 miles southwest of Houston, the first time since the mid-1970s that anyone has sought permission for a new nuclear power plant in the country. Exelon is one of the nation's largest and most successful nuclear operators. But the promised resurgence of nuclear power has been thrown into some doubt because of the credit crisis.
In a statement, Exelon said that the merged company would have "unparalleled" diversity in geography, in four major regions. NRG has major operations in Texas, Southern California and elsewhere. The merged company would also have diversity in fuel sources, including uranium, natural gas, coal and oil, Exelon said.
The limits of nuclear power
By Daniel B. Botkin
Monday, October 20, 2008
John McCain has called for building 45 new nuclear power plants by 2030 and 100 eventually. Barack Obama's Web site says, "It is unlikely that we can meet our aggressive climate goals if we eliminate nuclear power from the table."
But to what extent can nuclear power really help achieve energy independence?
There's a problem about nuclear energy that gets little attention. At present, fossil fuels provide 87 percent of the world's total energy while nuclear power plants provide just 4.8 percent. (All nuclear power plants currently generate electricity, accounting for about 15 percent of world electricity generation, while fossil fuels produce almost 67 percent of the electricity.)
The best estimates put the amount of uranium that can be mined economically (what geologists call the reserves) at about 5.5 million metric tons, and according to the International Atomic Energy Agency, today's nuclear power plants use 70,000 metric tons a year of uranium. At this rate of use, the uranium that could be mined economically would last about 80 years.
Suppose it were possible to replace all fossil fuels with nuclear power. Suppose that we could use nuclear energy to make liquid and gas fuels to power vehicles, and could do this quickly using conventional nuclear power plants.
We would have to build enough plants to increase energy production by 17.4 times, which means using 1.2 million tons of uranium ore each year. At that rate of use, the reserves of uranium would be used up in less than five years.
Geologists also estimate that there are about 35 million tons of uranium out there regardless of the cost of mining it (geologists call this identified resources). With nuclear power replacing all fossil fuels, even these would be used up in 29 years.
Thus, if the goal is to counter global warming by replacing all fossil fuels with nuclear power, this goal cannot be met.
Advocates of nuclear power point out that it doesn't have to replace all other sources of energy. Let's consider that approach.
At a recent meeting, the Group of Eight major industrial countries agreed to reduce carbon emissions 50 percent by 2050. Suppose nuclear energy increased just enough each year to enable fossil-fuel use to decline at a constant annual rate, to 50 percent by 2050, while nuclear power therefore increased to provide 50 percent of the world's energy.
At this rate of use, uranium reserves would run out by 2019, and the estimated maximum of 35 million metric tons of uranium in identified resources would run out by year 2038, gaining us less than two decades.
There are some important caveats. Exploring for minerals is done on an as-needed basis, and large areas of the world may have been little explored for uranium. Every mining geologist and mine corporation executive will tell you that estimates of total reserves of a mineral are just that - estimates - and that the reserves of many minerals always increase over time.
This approach may be all right for the planning time of mining companies, but it won't work for a long-term global energy strategy based on adequate supplies of uranium.
Considering the enormous costs of building the large number of nuclear power plants that are contemplated to replace fossil fuels, the United States would be courting disaster if it chose this route with nothing but blind faith that there may be a lot more uranium out there if we only look for it.
We need to know a lot more about available uranium resources and where they are. If they are in unfriendly countries, they might not be available at all.
Nuclear power advocates also argue that it is possible to recover significant amounts of uranium from spent fuel. According to the International Atomic Energy Agency, "In 2004, two-thirds of the uranium used was newly mined; the rest came from civil and military stockpiles, spent fuel reprocessing and re-enrichment of depleted uranium."
But the amount from spent fuels is not specified, and a reprocessing program to deal with 1.2 million tons of used uranium would be a major undertaking, perhaps not technologically feasible in the near future.
Others suggest that breeder reactors, which produce more nuclear fuel than they use, will solve the problem.
The United States experimented with a few breeder reactors from 1964 to 1994, but they were shut down or work on them halted in the 1990s.
Other nations have tried building them, and some are considering or developing them. But to my knowledge perhaps only one or two breeder reactors are in use and providing electrical energy anywhere in the world, and these are probably not "breeding."
There are reasons for this: The technology is not there yet, and the reactors are dangerous in themselves, even without considering their potential use in making atomic weapons. They are the kind of nuclear reactors that everybody fears Iran or North Korea might build and use to make atomic bombs.
In sum, the breeder-reactor route, if it is practical at all, is a long way in the future as a major contributor to the world's energy, and certainly not a way to reduce our dependence on fossil fuels now or in the near future.
The bottom line: From what is known about resources of uranium and the present and future state of nuclear power plants, there is no way that nuclear power can play a dominant role in the world's energy supply.
This is not to say that it could play no role in a mixed strategy involving many kinds of energy, only that those who continue to press for a greater role for nuclear power must first show that there will be enough uranium to assure that thousands of nuclear power plants built at enormous cost would not soon stand idle - and leave our economy standing idle too.
Daniel B. Botkin is an environmental scientist. His latest book, "Tomorrow's Energy: Fact and Fiction," will be published in 2009
FTSE up as energy and miners in demand
Monday, October 20, 2008
By Jon Hopkins
The top share index ended up 5.4 percent on Monday, extending Friday's recovery after the recent slump as confidence that the financial crisis may be easing grew, boosting commodity prices which lifted energy and mining stocks.
The FTSE 100 was up 219.66 points at 4,282.67 -- the session peak, having gained 5.2 percent on Friday. The blue chip index gained 3.3 percent last week after plunging more than 20 percent in the prior week.
"Today has felt like a normal day -- something we have not experienced for some time in global stock markets," said Tim Hughes, head of sales trading at IG Index.
"There may well be some more volatility on the way but it looks like traders are back to focusing on company fundamentals and earnings news, rather than rushing to throw the baby out with the bath water in the panic to sell," Hughes added.
Strength in heavyweight energy stocks was a big feature as crude rose nearly $1 per barrel on expectations that OPEC could cut output this week to lift prices which have plunged more than 50 percent from a record high in just three months.
Royal Dutch Shell gained 10.6 percent, BP added 10.4 percent, while BG Group added 6.8 percent.
Mining stocks were firmer, recovering from recent hefty losses on bargain-hunting as metals prices bounced back from multi-year lows set last week as fears eased about the extent of a recessionary fall-off in demand.
Rio Tinto , Xstrata , Eurasian Natural Resources and Anglo American gained between 5 percent and 13 percent.
U.S. stocks extended pre-weekend gains on Monday as investors snapped up beaten-down energy shares and Federal Reserve chairman Ben Bernanke said another economic stimulus plan may be needed to revive lagging growth.
Oil majors to post bumper quarter amid crude crash
Monday, October 20, 2008
By Braden Reddall
Reporting earnings for a quarter in which crude prices hit a record high once looked to be a lot easier for the world's top oil companies than it actually will be in the next few weeks.
The start of the third quarter in July, the month when U.S. crude oil topped out at $147, must seem a very long time ago for all energy producers now that a barrel goes for half that price.
So while they roll out more fat profits, some even setting new records, big oil companies will also face tough questions about what they plan to do with all the accumulated cash and how their outlook has changed now that crude and natural gas are trading near their lowest levels in more than a year.
"The earnings should be good because prices were high during the quarter, but whether that pulls investors into the stocks, I really don't know," said Mark Coffelt, head portfolio manager at Empiric Advisors in Austin, Texas.
"Right now we have a market of events, as opposed to a market of fundamentals."
The Chicago Board Options Exchange's index of oil companies has fallen 37 percent since the start of 2008, whereas U.S. crude oil is about 25 percent lower.
Coffelt said he would wait until oil prices stabilise before adding to his energy portfolio, which includes Exxon Mobil and ConocoPhillips -- the latter kicking things off for the sector, reporting on Wednesday.
Exxon, the largest non-government-controlled oil company, is expected to report a 32 percent rise in profit to $12.44 billion, based on Reuters Estimates, which would top the second quarter when its profit was a record for any U.S. company.
Analysts at Morgan Stanley said the market would likely look past the third-quarter profits of nearest rival Royal Dutch Shell and BP to what the two British oil majors planned to do with their money.
Investors would look for indications from executives of continued strong cash flows, as well as cues on any plans for mergers and acquisitions, Morgan Stanley said.
Jason Kenney at ING said he expected strong performances from Shell as well as BG Group , a British gas producer.
REFINING MARGINS A PLUS
Analysts also expect a recovery in fuel marketing margins, which took a hit in the second quarter as oil companies found it hard to pass on the full extent of surging crude prices.
Despite July's peak, the average U.S. oil price was about $118 a barrel last quarter, $7 lower than the second quarter.
And third-quarter refining margins were much higher in most regions than in the same period of 2007, according to BP data.
Chevron , the second-largest U.S. oil company which reports on October 31, said this month its third-quarter refining performance would be much stronger, but saw energy production as weaker due to the hurricanes and lower prices.
"We've seen a very substantial drop in oil prices, so the product out of the well is not going to bring the margins," said Frederic Dickson, market strategist at D.A. Davidson.
"I think we are going to hear companies are taking down their estimates, but the question will be have the analysts taken their numbers down low enough? I'm looking for fairly disappointing earnings and guidance, but I think that the market is anticipating earnings shortfalls."
Yet longer-term, others say energy prices must go up.
Andrew Gould, chief executive of oilfield services leader Schlumberger , said on Friday that energy prices should bounce back within 18 months if demand remains steady because there is such a shortage in global supply.
Thinking along similar lines, Fred Burke of Johnston Lemon Asset Management said his fund had been buying ConocoPhilips, Schlumberger, Chevron and Devon Energy on the view that energy demand in the Middle East and Asia will offset weak U.S. usage, which may be 500,000 barrels a day less in 2009.
"China picks that up right away," he added.
(Additional reporting by Anna Driver in Houston and Tom Bergin in London; Editing by Andre Grenon
Société Générale shares hit 5-year-low on capital concerns
Monday, October 20, 2008
PARIS: Shares of Société Générale fell to their lowest level in more than five years in Paris trading on speculation that the lender may have to raise new capital.
The stock shed as much as €5.25, or 12 percent, to €40.05, its lowest level since March 13, 2003. It was 8.1 percent lower at €41.62 as of 2:28 p.m. in Paris. The shares have lost 55 percent this year, slashing Société Générale's market value to €24.6 billion, or $33 billion.
"Rumors of a capital increase persist," said Yann Azuelos, a fund manager at Meeschaert Asset Management in Paris.
European banks led by Deutsche Bank and UniCredit may need to raise a combined €73 billion, Merrill Lynch analysts wrote in a note published Monday. Société Générale may have to raise €6.5 billion, the analysts said. The fund raisings "in most cases will require government support," wrote Merrill analysts Stuart Graham and Alex Tsirigotis.
ING Groep, the biggest Dutch financial-services firm, will get a €10 billion lifeline from the Netherlands after mounting credit-market losses drove the stock to a 13-year low, the Amsterdam-based company said Sunday.
"The news on ING also is hurting Societe Generale today as well as the shares of other banks," said Azuelos.
The finance minister for France, Christine Lagarde, said Monday that it was likely the state would inject capital in some banks.
"It is likely that we will enter the shareholding of some banks," she said in an interview with Europe 1 radio.
The French government has already taken a 5.7 percent stake in local government lender Dexia as part of an agreement earlier this month with Belgium and Luxembourg.
Laura Schalk, a spokeswoman for Société Générale in Paris, declined to comment on the capital increase speculation.
IMF chief apologizes for affair
Monday, October 20, 2008
WASHINGTON: The head of the International Monetary Fund, Dominique Strauss-Kahn, publicly apologized Monday for "an error of judgment" in an affair with a subordinate, but denied he had abused his position.
In a memo e-mailed to staff, Strauss-Kahn apologized to IMF staff, the woman he had the affair with, Piroska Nagy, and his wife for the trouble it had caused.
The IMF board of member countries ordered an investigation by an outside law firm into whether Strauss-Kahn gave Nagy, a senior economist, preferential treatment before she took a general staff buyout offer in August.
She is now working for the European Bank for Reconstruction and Development in London.
"I apologized and said that I very much regret this incident," Strauss-Kahn said in the staff e-mail.
"Second, while this incident constituted an error of judgment on my part, for which I take full responsibility, I firmly believe that I have not abused my position," he said, adding: "Third, I fully support the process that is underway and I will, of course, follow the board's guidance as to how best to resolve this matter."
Strauss-Kahn, a former French finance minister, said the result of the investigation was expected by the end of the month and urged the IMF board to inform staff of the outcome as soon as possible.
"I want to apologize to the staff member concerned for my error in initiating this relationship," Strauss-Kahn said. "She is a talented economist and consummate professional. I acknowledge and regret the difficult situation this has created for her. I also apologize to my wife and family," he added.
He told the IMF staff to focus on their work during the critical days of the financial crisis and not to be distracted by rumors.
"I am committed to doing what is right for the institution and it is my fervent wish that this matter be resolved as quickly as possible," he said.
France's beloved Sister Emmanuelle dies at 99
The Associated Press
Monday, October 20, 2008
PARIS: Sister Emmanuelle, a nun whose lifetime of service to the needy in North Africa and beyond won France's heart, has died. She was 99.
Sandrine de Carlo, the spokeswoman for the association Sister Emmanuelle created, says the Belgian-born nun died Monday in her sleep at her retirement home in the southeastern town of Callian.
Sister Emmanuelle worked in Tunisia, Turkey and Egypt, and spent more than 20 years helping slum children working in garbage dumps on the outskirts of Cairo. She helped create a network of clinics, schools and gardens in the slums.
Upon her return to France in 1993, Sister Emmanuelle continued to speak out for the needy. She often appeared on French television.
Top 3 executives at French bank resign over €600 million loss
PARIS (AP) - The top three executives at the Caisse d'Epargne bank in France have resigned under pressure from the government after the bank lost €600 million trading derivatives amid the worldwide stock market collapse earlier this month.
The auditing board of the bank, one of the largest in France, met for several hours Sunday, and announced in a statement the departures of Charles Milhoud, chairman of the management board, the chief executive Nicolas Merindol and Julien Carmona, head of finance.
Milhaud said he would not accept any severance pay and said in a separate statement that he took "full responsibility" for the $810 million worth of losses, which he called "a consequence of the exceptional volatility of the markets in this period, and of the violation of instructions that the board and myself had given."
During a radio interview Monday, the Finance Minister Christine Lagarde said the executives' resignation was "a good thing" and "what we expected of them."
The bank announced the loss Friday, saying it occurred in equity derivatives trading for its own account and was triggered by the "extreme market volatility" and the market crash during the week of Oct. 6.
The bank said a team of five or six employees "went beyond management orders." It said that it had sanctioned those responsible.
President Nicolas Sarkozy of France pressed the bank's leadership to "take the consequences" of the heavy losses, which come at a sensitive moment. Last week the French government put in place a €360 billion plan aimed at unblocking credit markets and ensuring the nation's banks do not collapse, part of a Europe-wide rescue effort.
Caisse d'Epargne and another French mutual bank, Banque Populaire, announced plans last week to merge. The tie-up would make the combined company one of France's biggest banking groups, with a total of €480 billion in savings deposits and more than 6 million customers.
Bernard Comolet was named as new chairman of Caisse d'Epargne and Alain Lemaire as new chief executive. Both had led regional divisions of the bank.
Foreign aid worker killed in Kabul
By Carlotta Gall
Monday, October 20, 2008
KABUL: A foreign aid worker was shot dead in a residential area of Kabul by two gunmen on a motorbike as she walked to work on Monday morning, police officials and residents said.
The aid worker, Gayle Williams, 34, was one of a team of women working with the British Christian organization, Serve Afghanistan, and had been working for two years in Afghanistan directing projects for the disabled, the organization said in a notice on its Web site, serveafghanistan.org. She held British and South African citizenship.
A Taliban spokesman claimed responsibility for the attack to Agence France-Presse, saying she was targeted because her organization was proselytizing. However, Serve Afghanistan, whose workers are all volunteers, has operated in Afghanistan since 1980 and is not known for proselytizing.
Also on Monday, five children and two German soldiers were killed by a suicide bomber on a bicycle in a village in the northern province of Kunduz, the provincial police chief, General Razaq Yaqoobi, said. The children were running behind the military convoy when the explosion occurred, he said.
The police also confirmed Monday the kidnapping of a former presidential candidate and member of Afghanistan's royal family, Homayoun Shah Asifi late Sunday night in the same residential district of Kabul where Williams was killed, Karte Char.
"Mr. Asifi was returning last night to his house and was abducted by four armed men driving a car," the deputy police chief of Kabul, General Ali Shah Ahmadzai, said. Asifi did not have his usual bodyguards and was driving with an assistant and his driver, the general said.
The kidnapping was part of a spate of kidnappings of Afghans and foreigners in recent weeks, which may be part of a campaign by the Taliban to increase their terror campaign and pressure on the government and the international forces, and at the same time raise funds through ransom demands for their insurgency, Afghan and Western officials have said.
Most kidnappings here are the work of local criminal gangs, many of which have connections with the police; they demand and often receive high ransoms. The son of a rich banker was recently kidnapped, the police said.
Williams was killed as she was walking to her office, dressed in pants, a long shirt, and a blue veil. "Construction workers at a building site across the road said they saw the man riding passenger on the motorbike get off, shoot three bullets, remount and zoom off. Face covered by her veil, her body lay on the pavement beside a wall for 20 minutes, they said, until police officers got there. "The woman was dead when police arrived," Ahmadzai said.
Someone had thrown earth over the spot where she died.
"It is very shameful to kill a woman," said Fareed Ahmad, 45, a shopkeeper who said he was giving change to two girls on their way to school when he heard the three shots.
Serve Afghanistan described Williams as an enthusiastic, stoic individual. "She never spoke of the rigors and privations of aid work in Kandahar, one of the most difficult places for a young woman to work in the world, but she kept a smile on her face and always had a good humored chuckle at the difficulties she must have endured," the organization said on its Web site.
"She was killed violently while caring for the most forgotten people in the world; the poor and the disabled," it said.
Government officials said the killing might have been an attempt to undermine the incoming interior minister, Hanif Atmar, who won a confidence vote for his appointment in Parliament on Monday, one Western diplomat said. Atmar, well-liked among the international community in Afghanistan for his proven ability in two previous ministerial posts and for his clean reputation, will be taking over the most corrupt ministry in the country, he said.
Atmar is likely to face resistance as he tries to enforce reforms and replace corrupt police official, and the recent increase in violence may be an early sign of that resistance, the diplomat suggested.
In a speech to Parliament, Atmar promised to improve security in the 80 violence-prone districts of Afghanistan, appoint more capable police and work closely with and people and community leaders in a concentrated effort to bring security.
Abdul Waheed Wafa, Sangar Rahimi and Taimoor Shah contributed reporting.
Afghan suicide bomb hits German troops
Monday, October 20, 2008
KUNDUZ, Afghanistan: A suicide bomber hit a convoy of German troops in northern Afghanistan on Monday, killing five children and seriously wounding at least two of the soldiers, a senior police official said.
There were "some fatalities" among the troops, said a spokesman for the NATO-led International Security Assistance Force (ISAF), who declined to give the nationalities of the soldiers. Some civilians had also been killed, he said.
Violence has surged in Afghanistan this year, with the Taliban launching more attacks in more areas. Some 4,000 people have been killed in the conflict this year, a third of them civilians.
But bomb attacks in the relatively peaceful north of the country are rare, with most of the violence centred around the mainly Pashtun south and east of the country.
Germany has around 3,300 soldiers serving in Afghanistan.
(Writing by Jon Hemming; Editing by Paul Tait)
U.S. repeats Soviet missteps in Afghanistan, envoy says
By John F. Burns
Monday, October 20, 2008
KABUL: It is one of a flow of disarming asides that Russia's ambassador to Kabul deploys while warning of the grim prospects that he says will doom the American enterprise in Afghanistan if the United States fails to learn from mistakes made during the Soviet occupation of the 1980s.
"I know quite a lot about the past," the ambassador, Zamir Kabulov, said in polished English with a broad smile during an interview in Kabul one morning last week. "But almost nothing about the future."
In fact, it is precisely because of a belief that the Soviet past may hold lessons for the American future that a talk with Kabulov is valued by many Western diplomats here. That is a perception that has drawn at least one NATO general to the Russian Embassy in Kabulov's years as ambassador, though the officer involved, not an American, showed no sign of having been influenced by what he heard, Kabulov said.
"They listen, but they do not hear," he said with another wry smile.
"Their attitude is, 'The past is the past,' and that they know more than I do." Perhaps, too, he said, "they think what I have to say is just part of a philosophy of revenge," a diplomatic turning of the tables by a government in Moscow that is embittered by the Soviet failure here and eager for the United States to suffer a similar fate.
Kabulov, 54, is no ordinary ambassador, having served as a KGB agent in Kabul, and eventually as the KGB resident, Moscow's top spy, in the 1980s and 1990s, during and after the nine-year Soviet military occupation. He also worked as an adviser to the United Nations' peacekeeping envoy during the turbulent period in the mid-1990s that led to the Taliban seizing power.
Now he is back as Moscow's top man, suave and engaging, happy to talk of a time when the old Soviet Embassy compound was the command center for an invasion that ended in disaster and speeded the collapse of the great power that undertook it.
The compound, ransacked during the warlord turmoil of the mid-1990s and given over for a decade to refugees who squatted amid the rubble, is spanking new again, with fresh marble and sparkling chandeliers, as well as a memorial commemorating the 13,500 Soviet troops who died here.
Nearly 20 years after Soviet troops withdrew in humiliation, in February 1989, Kabulov has become a gloomy oracle, warning that the fate that overtook the Russians here may be relived by the Americans and their coalition partners.
"They've already repeated all of our mistakes," he said, speaking of what the United States has done, and failed to do, since the Taliban were toppled from power in November 2001 and U.S. troops began moving into old Soviet bases like the one at Bagram, north of Kabul.
"Now, they're making mistakes of their own, ones for which we do not own the copyright."
The list of U.S. failures comes quickly. Like the Soviets, Kabulov said, the Americans "underestimated the resistance," thinking that because they swept into Kabul easily, the occupation would be untroubled. "Because we deployed very easily into the major cities, we didn't give much thought to what was happening in the countryside," where the stirrings of opposition that grew into a full-fledged insurgency began, he said.
He places that blunder in the context of a wider failure to understand the "irritative allergy" among Afghans to foreign occupation, one that every invading power since the British in the 1840s has come to rue, and which, Kabulov said, grows into a fire if the invaders, especially non-Muslims, don't pull out soon. "One of our mistakes was staying, instead of leaving. After we changed the regime, we should have handed over and said goodbye. But we didn't. And the Americans haven't, either."
Confronted by an elusive insurgency and unable to maintain a presence in the hinterland because of a lack of troops, the Soviets, like the Americans, resorted to an overreliance on heavy weapons, especially air power, he said. The casualties among the civilian population only worsened the situation.
"We abused human rights, including the use of aggressive bombardment," he said. "Now, it's the same, absolutely the same. Some Soviet generals gave instructions to wipe out the villages where the mujahedeen were entrenched with the civilian population. Is that what your generals are going to do?"
Rebutting the suggestion that Russia hopes for an American failure here, Kabulov noted that Moscow supported the 2001 invasion as part of an international coalition against terrorism that was as much a threat to the security of Russia as to that of the United States. Russia still has nothing to gain from a U.S. defeat, he said. "We have always said that it's better to fight the mujahedeen in the suburbs of Jalalabad than in Ashgabat," he said, referring to the capital of Turkmenistan, on Russia's southern border.
"How can they believe that we are so stupid and shortsighted?" Kabulov added. "Our approach is pragmatic. Why should we be jubilant at the prospect of the Americans being defeated by people who will take us on again, as they did in the 1990s in Chechnya?"
Still, the ambassador spoke with irritation at what he regards as an American distortion of the Soviet record here, one that ignores the "modernizing mission" Moscow pursued from the 1950s on, with billions of rubles spent on education, advancing the role of women and building roads, dams and an industrial infrastructure. "Where, I ask, are the big American projects to match those?" he said, and answered his own question.
"I'll tell you. There aren't any."
American generals, Kabulov said, have avoided contact with him. But with General David McKiernan, the U.S. commander, now pushing for a major increase in the 65,000 coalition troops that he commands, he said the Americans are replicating another of Moscow's mistakes: trying to turn the tide of the war by bringing in more troops.
Soviet troop strength in Afghanistan, he said, reached its peak in 1987 with a force of about 140,000.
"The more foreign troops you have roaming the country, the more the irritative allergy toward them is going to be provoked," he said.
The solution, Kabulov said, is to shift the fighting as quickly as possible to Afghan troops. This is something the United States and its partners have already embarked on, with a decision this summer to double the size of the Afghan army. But even that, Kabulov said, will accomplish little unless the Americans turn the army into a genuine national force, with a sense among the troops that they are fighting for their country, not as "clients" of the Americans, as Kabulov said he believes they see themselves now.
One emblem of the American approach, Kabulov says, is the decision to re-equip the Afghan forces with NATO weaponry. Kabulov said this would mean retraining Afghan soldiers to fight with American M-16 rifles, in place of the Kalashnikov assault rifles that have been ubiquitous here for decades.
"Afghans have been very adept at using Kalashnikovs for 30 years, as we know only too well, and now you'll send them to Pakistan to be melted down into scrap? I ask you, how much sense is there in that?"
U.S. gives Iraq $13 million to fix looted museum
Monday, October 20, 2008
By Aseel Kami
The U.S. government has announced a $13 million (7.6 million pounds) grant mainly to help refurbish Iraq's National Museum which was looted in the aftermath of the U.S.-led invasion in 2003, U.S. officials said on Monday.
U.S. Assistant Secretary of State for Educational and Cultural Affairs Goli Ameri announced the project at a news conference with Iraqi officials, held inside the dilapidated museum building which is still closed to the public.
Iraq's archaeological heritage is among the richest in the world, including treasures from thousands of years of civilisation in ancient Mesopotamia, much of it housed at the National Museum in Baghdad.
U.S. forces came under widespread criticism in the immediate aftermath of the invasion for failing to prevent the looting of priceless relics from the museum, even while troops were dispatched to secure other sites such as the Oil Ministry.
"This is an investment not only in Iraq's heritage but in the world's heritage," the U.S. ambassador in Iraq, Ryan Crocker, said. The money will be used for archaeology and museum training projects as well as the restoration of the museum.
More than 15,000 artefacts went missing from the museum during the looting, about 6,000 of which have been returned.
Violence in Iraq has fallen to four-year lows and other cultural attractions are reopening, but the museum is still awaiting refurbishment before it can reopen to the public. U.S. and Iraqi officials offered no timetable to reopen it.
(Editing by Sami Aboudi)
U.S. official hails Pakistani army offensives
Monday, October 20, 2008
By Robert Birsel
A senior U.S. official praised on Monday Pakistani offensives against Islamist militants and played down hopes negotiations could end violence in Pakistan and Afghanistan.
Deputy U.S. Secretary of State Richard Boucher also said the United States and nuclear-armed Pakistan's other allies wanted to support its efforts as it struggles with a balance of payments crisis.
But a Friends of Pakistan group, which includes the United States and is due to meet next month, would not simply offer Pakistan a cash advance, he said.
"We're glad to see serious military action against people whose only goal seems to be to blow up the Pakistan state and society," Boucher told a news conference in Islamabad.
Pakistani forces have been battling militants in the northwest since August and the military says well over 1,000 militants have been killed. There has been no independent verification of that casualty estimate.
The offensives were launched after a surge of militant violence since the middle of last year that has included a wave of suicide bomb attacks, one of which killed former Prime Minister Benazir Bhutto.
Boucher held talks with Bhutto's widower, Asif Ali Zardari, whose party leads a coalition government and who was elected president last month.
Boucher's visit comes during a period of tension between the allies over U.S. military attacks on militants in northwest Pakistan, including missile strikes by pilotless aircraft and a September 3 U.S. commando raid on a border village.
The attacks have angered Pakistan and led to calls from opposition politicians for an end to support for the unpopular U.S.-led campaign against militancy.
Pakistan says foreign military strikes on its territory violate its sovereignty and increase support for the militants.
"NO PRACTICAL NEGOTIATIONS"
Boucher declined to answer questions on the strikes but said the U.S. goal was to help Pakistan establish the writ of government in northwestern ethnic Pashtun areas, where militants orchestrate violence in both Afghanistan and Pakistan.
A small group of U.S. personnel is helping to train Pakistani paramilitary forces and Boucher said the United States wanted to help Pakistan deal with its own problems.
"The only way we're going to be able to solve this ... is dealing with this from both sides (of the border), so there are complementary actions," Boucher said.
A group of Afghans including former Taliban and government representatives met in Saudi Arabia last month for discussions on how to end the worsening conflict there.
All sides agreed that no real peace talks took place but the start of efforts to find a negotiated solution has been seized on as a glimmer of hope.
But Boucher played down prospects for negotiations, although he said there was room for a political process with those who abandoned violence.
"There's no practical negotiations going on," he said.
"All they're interested in is having more space to rebuild their capabilities," he said of the militants.
Boucher also met some ambassadors from the so-called Friends of Pakistan group at talks with Zardari on economic help. The group is expected to meet in Abu Dhabi in November.
Pakistan is haemorrhaging foreign reserves, and analysts say it needs up to $4 billion (2.3 billion pounds) urgently to stabilise its economy.
Boucher said multilateral institutions and donor countries' finance ministries were working on details of financial help, and that the "friends" would not be offering Pakistan a "cash advance" but aimed to coordinate strategy.
"The goals is not to throw money on the table but put it where it belongs, so we really cover some of these problems comprehensively," he said.
(Editing by Alex Richardson)
Pakistan divided on fighting Taliban and Al Qaeda
By Jane Perlez
Monday, October 20, 2008
ISLAMABAD: An unusual parliamentary debate designed to forge a Pakistani policy on how to fight the Taliban and Al Qaeda has exposed deep ambivalence about the militants, even as their reach extends to suicide attacks in the capital.
Calls for dialogue with the Taliban, peppered with opposition to fighting what is perceived as an American war, dominated the closed-door sessions, according to participants.
After seven years of military rule under General Pervez Musharraf, the new civilian government initiated the debate in an effort to convince the public and the political parties of the necessity of the war against the militants. Musharraf - who had been both head of the army and president, as well as an important ally of the Bush administration - never consulted Parliament.
The new president, Asif Ali Zardari, pledged a strong effort by Pakistan against terrorism during his visit to Washington earlier this month, and stressed the contrast between his civilian rule and that of his military predecessor.
But the tenor of the parliamentary proceedings, including criticism by politicians of a lengthy military briefing by a general on the conduct of the war, showed that members of the political elite have little stomach for the fight against the militants.
The Pakistani military launched a campaign against the Taliban and its Al Qaeda backers in the tribal area of Bajaur two months ago, an effort that American commanders have applauded as a way to stop the militants crossing into Afghanistan and launching attacks against American soldiers.
At a news conference in Islamabad on Monday, the U.S. assistant secretary of state for South Asia, Richard Boucher, called the "tough actions" of the Pakistanis "very impressive."
In a sign of the mood in Parliament, Nawaz Sharif, leader of the opposition party Pakistan Muslim League-N, sent a letter to the prime minister, Yousaf Raza Gilani, on Monday calling for dialogue with the militants. The letter suggested a halt in military operations while negotiations were given a chance, according to Ahsan Iqbal, an aide to Sharif.
In an interview last week, Sharif said: "What is wrong with talking?"
Pakistanis who support a tough fight against the militants have been surprised that the suicide bomb attack on the Marriott Hotel in Islamabad, which killed more than 50 people last month, has not produced more resolve in Parliament.
"I thought the Marriott would change everyone's attitude, but it has not," said Farook Saleem, a prominent newspaper columnist.
The sentiments in the speeches in Parliament were so opposed to fighting the militants that it was doubtful that the ruling Pakistan People's Party could engineer an "appropriate resolution," said Sardar Aseff Ahmed Ali, a senior member of the party and a former foreign minister.
A religious party, the Jamiat Ulema-e-Islam-Fazl, which serves in the coalition with the Pakistan People's Party, had voiced particularly strong opposition to the war against the militants, Ali said.
"They want the army to pull out of everything and start talks with the militants in North and South Waziristan, in Swat," Ali said. The army is fighting the Taliban in Swat, a settled area of North West Frontier Province, and has fought the Taliban in Waziristan, an area of the tribal belt.
It was possible, Ali said, that divergent opinions within the coalition could produce a parliamentary resolution that was "so hugely diluted that the whole exercise is left futile."
Behind the scenes, the idea of a parliamentary debate was encouraged by the head of the Pakistani Army, General Parvez Kayani, as a way to garner political support for the efforts of his military, according to two Pakistanis familiar with the general's thinking.
At a cabinet meeting attended by Kayani in late July, the civilian government gave the military permission to go ahead with operations against the militants.
But Kayani wanted more than cabinet approval, and was eager for a parliamentary debate that would show the army was responding to civilian rule, according to the Pakistanis who spoke to Kayani.
In that vein, General Ahmed Shuja Pasha, head of military operations for the Pakistani Army and the next head of the powerful Inter Services Intelligence agency, briefed a joint session of Parliament two weeks ago.
The presence of a senior general in Parliament was viewed in much of the Pakistani media as an encouraging, if fledgling, sign of civilian control of the military.
Pasha described what the army had done in several campaigns against militants in the past seven years, showed graphic images of militants slaughtering civilians, and said more than 1,500 Pakistani soldiers had died in operations, according to members of Parliament.
The briefing was poorly received by politicians, who lambasted it as showing little new. The members of Parliament also criticized Pasha for not offering a strategy for the future.
Salman Masood contributed reporting.
Drug violence traumatizes Mexico's children
By Marc Lacey
Monday, October 20, 2008
TIJUANA, Mexico: The little boy, his school uniform neatly pressed and his friends gathered around, held up 10 fingers, each one representing a dead body he said he had seen outside his school one morning. He was not finished, though. He put down the 10 fingers and then put up 2 more. Twelve bodies in all.
"They chopped out the tongues," the boy said, seemingly fascinated by what he saw at the scene of the mass killing outside Valentín Gómez Farías Primary School two weeks ago. "I saw the blood," offered a classmate, enthusiastically.
"They were tied," piped in a third.
The explosion of drug-related violence in Mexico has caught the attention of the country's children. Experts say the atrocities that young people are hearing about - and witnessing - are hardening them, traumatizing them, filling their heads with awful images that are hard to shake.
"Unfortunately, with this wave of drug violence, there's been collateral damage among children," said Jorge Alvarez Martínez, a professor at the National Autonomous University of Mexico who studies post-traumatic stress. Such exposure to violence, he said, can hinder learning, interrupt sleep and linger for years.
Nowhere is the trauma greater than along the border with the United States, where drug cartels are battling for a growing domestic market and the lucrative transit routes north. In Tijuana alone, a wave of gangland killings has left at least 99 people dead since Sept. 26, a death toll that rivals that in Baghdad over the same period.
Across Mexico, the carnage is impossible to hide, with severed heads and decapitated bodies turning up on the streets of towns from Chihuahua to Sinaloa, sometimes nearly a dozen at a time. There have been 3,725 killings related to drugs and organized crime this year, up from about 2,700 last year, the attorney general's office said last week, with Chihuahua the most violent state and the killings continuing.
Exchanging gruesome stories is nothing new for schoolchildren, who have a way of overstating their brushes with danger. But the 12 tortured, tongueless bodies that were the talk of the playground were no exaggeration. In the early hours of Sept. 29, the bodies of 11 men and one woman, bound and partly dressed, were found in an abandoned lot across from the school.
The headmaster, Miguel Ángel González Tovar, canceled classes soon after the bodies were discovered, but that did not stop some students from getting a glimpse of the bodies and many others from hearing about them.
"There's no doubt these images affect the children," said González, who had just emerged from a meeting with government psychologists who plan counseling sessions with the students. "Some of them are very quiet now. Some are asking us, 'Why did they die?"'
The body dump outside the school is only one of several macabre displays, forcing teachers to compete with the killers for the attention of Mexico's youth. It is hard to find a student here who does not know some of the gruesome details of recent killings, like the several vats of acid that were found outside a seafood restaurant recently containing what the authorities said they believed were human remains. Or the two bodies wrapped in what resembled cellophane that were found near a road sign that said "Thank you for visiting Tijuana."
Bodies have been hung from bridges, sliced into pieces, decapitated, burned.
González's biggest fear is that the awful scenes playing out across much of Mexico are so common that they will eventually lose their shock value among the young, making killing an expected, even acceptable, part of life.
"They may grow up with this sort of thing being normal," he said. "They can say, 'I saw 12! How many did you see?' You could never have imagined this years ago."
Children already know the names of the drug traffickers, picked up not just from the nightly news but also from popular songs that extol them as heroes and from the Internet, where the grisly homicide scenes can often be watched on YouTube.
In Tijuana, the leader of the Arellano Félix drug cartel is Fernando Sánchez Arellano, a nephew of the group's founders who goes by the nickname The Engineer. The authorities say they believe the outburst of killings here is the work of rival traffickers trying to seize control of his turf. That explains the note found propped up on the dozen bodies outside the school: "This is what happens to anyone associated with the loudmouth engineer."
Mexico's government has sent soldiers to trouble spots throughout the country to reinforce embattled local law enforcement officials. But the drug traffickers have proved better armed and hard to contain. They are not just violent but also sadistic in their killing, and they seem intent on showing off their latest killings, to young and old alike.
"They are sending some kind of perverse message," González speculated on why the 12 bodies were dumped near the front gate of his school. "They want attention and they know leaving bodies in front of a school has impact. Now we're worried that at any school at any time a body could turn up."
This month, just before a high school was letting out, the police were on the scene of another killing, this time a barrel containing the body of a man whose arms and legs had been cut off. The body, which had been left near a baseball field not far from the school, was whisked away by the authorities to the overflowing morgue before any students discovered it.
But it is not always possible to keep the drug violence hidden from young people.
In January, for instance, the police and soldiers engaged in a three-hour gun battle with narcotics traffickers from the Arellano Félix cartel in a residential neighborhood of Tijuana, requiring several schools in the area to evacuate their students. Heavily armed policemen carried crying children to safety as other law enforcement officers crept along the sidewalk with guns drawn.
By the time the shooting quieted, six people had been killed.
"It was awful," said Gloria Rico, director of the Garden of Happy Children, a preschool that was evacuated. "Even when it was over and we tried to return to normal, any little sound would make the children jump."
When a prison riot broke out here in September and there was another eruption of gunfire, teachers at the same preschool tried to distract the youngsters. "We told them they were fireworks," Rico said, since independence celebrations had just taken place. "We said, 'Don't worry,' but they were still anxious."
On Wednesday afternoon, another shoot-out forced yet another Tijuana school to evacuate. This time it was Secondary School 25 that called off classes midway through the day and quickly emptied its classrooms in a panic.
"It's terrible what's happening in Tijuana," said Antonio Ochoa Pastrán, the school's headmaster. "It's sad that now even in school children aren't safe."
Many children, Rico said, now associate anyone in uniform with violence, which is not an absurd proposition since many law enforcement personnel around the country are on the payroll of the traffickers. "The children see the police and they are scared," Rico said. "They fear that there is going to be more shooting."
And there will probably be more, which prompts parents to watch their children more closely than ever.
"You don't know if he goes out if he's going to come back," said Patricia Beltrán, who looked on as her 8-year-old son, Marco Antonio, played near the spot where a killing had taken place, the blood still visible in the dirt.
The fear is not misplaced, because innocent youngsters have been caught in the cross-fire. Most of the victims are younger than 30 because the cartels use young gunmen to protect their merchandise and enforce discipline in the ranks, the authorities said.
And given the extensive and often graphic media coverage of the killings, parents say it is impossible for them to shield their children psychologically.
"My kids are dreaming about this," said Laura Leticia Quezada, who has three children and three nieces and nephews at Valentin Gómez Farías, the primary school across from where the bodies were dumped. "They watch it on the news, and they know every last detail. When they first told me there were 12 bodies outside their school, I told them to stop lying."
Spanish prosecutor seeks to halt civil war inquiry
The Associated Press
Monday, October 20, 2008
MADRID: A Spanish prosecutor on Monday appealed a judge's decision to open a criminal investigation of atrocities committed during the country's civil war, citing a 1977 amnesty passed to help Spaniards put the war behind them.
Judge Baltasar Garzón of the National Court said last week in opening the first formal investigation into this era of Spanish history that General Francisco Franco had waged a systematic campaign to kill his political opponents during the 1936-39 war and the early years of his rightist dictatorship.
Garzón said this amounted to a crime against humanity. In declaring that he had jurisdiction to investigate the execution or disappearance of tens of thousands of civilians killed on grounds that they opposed Franco, whose uprising triggered the war, Garzón cited Spain's observance of the concept of universal justice.
This doctrine deals with particularly heinous crimes, like genocide and terrorism, that have no statute of limitations. Garzón has used the doctrine to indict the Chilean ruler Augusto Pinochet and the head of Al Qaeda, Osama bin Laden.
But Javier Zaragoza, the National Court's chief prosecutor, said in a statement Monday that the wartime executions and disappearances that the judge wants to investigate were covered by the 1977 law, which granted amnesty for atrocities committed during and after the conflict.
That law, passed two years after Franco's death, was part of a drive to help Spaniards focus on rebuilding the nation rather than on addressing old wounds.
Zaragoza said the offenses were not crimes against humanity. Rather, he argued, under the Spanish criminal code in effect when the war broke out, they should be considered ordinary crimes whose statute of limitations has expired.
The case now goes to an 18-judge National Court panel that must decide whether Garzón can proceed.
Zaragoza said his appeal did not halt the exhumation of 19 common graves as ordered by Garzón.
The civil war left an estimated half a million people dead and Spaniards are deeply divided over whether to revisit it with a formal investigation.
Both sides committed atrocities against civilians, but Garzón is essentially focusing on those people who were killed by the pro-Franco side.
In his writ last week, he noted that the Franco regime did a thorough accounting of pro-Franco civilians killed by the Republican side and gave them proper burials. The British historian Paul Preston, an acknowledged authority, puts this figure at about 55,000 people.
Garzón said that more than 114,000 people were reported to have disappeared from the start of the war until 1952, when, he said, the Franco regime's repression largely eased.
The judge asked to see the death certificates of Franco and 34 other wartime generals or officials who served in his regime. By certifying their deaths, the judge can declare them no longer criminally liable for atrocities.
But he ordered the Interior Ministry to help him identify former senior members of the Falange Española, the powerful political party that backed the Franco regime, to see whether any were still alive and could be charged.
The Associated Press
Monday, October 20, 2008
SEOUL: A financially strapped South Korean man went on an arson and stabbing rampage in Seoul on Monday, leaving six people dead and seven others wounded, the police said.
The 31-year-old suspect, identified only by his surname, Jeong, first set fire to his room in a low-cost lodging facility in southern Seoul and then stabbed other residents with a sashimi knife while fleeing the fire, the police said.
Five people were stabbed to death and another died after jumping out of a window to escape the blaze, the police said.
Seven others were wounded, including four seriously, and the death toll could rise, according to the police.
The suspect, arrested at the scene, told the police he did not want to live because "everybody looks down on me," said Kim Kap Shik, chief detective at the Gangnam Police Station in Seoul.
The police said they seized two more knives and a tear gas gun from Jeong.
Such random violence is not common in South Korea, though not unknown.
In 2003, a 56-year-old man with a record of mental illness ignited a carton filled with gasoline on a subway train in the southern city of Daegu. The blaze engulfed the entire train, leaving 198 people dead and 147 wounded.
In February this year, a 69-year-old man, upset over a land dispute, started a fire that destroyed a 14th-century gate in Seoul that was considered one of South Korea's most treasured landmarks.
Jeong used to work part time at restaurants and other places, but has been out of a job since April, the police said.
He had "been under considerable financial pressure" and could not pay his rent and mobile phone fees for months, Kim said.
Kim also said Jeong was facing a police investigation for not taking part in annual training for military reservists.
The police said Jeong told them that he had attempted suicide when he was a middle-school student, and had been suffering occasionally from severe headaches.
The Yonhap news agency and other media reported that Jeong had been convicted eight times of various crimes in the past. The police were not immediately available to comment on the reports.
The lodging facility has 85 tiny rooms on the third and fourth floors of a commercial building. The rooms are rented on a monthly basis and are generally used by low-income people living alone. Sixty-nine people were living in the facility, Yonhap said.
After the blaze started, about 100 firefighters brought the flames under control in half an hour.
Monday, October 20, 2008
PRINCETON, New Jersey: Forty years ago, Richard Nixon made a remarkable marketing discovery. By exploiting America's divisions - divisions over Vietnam, divisions over cultural change and, above all, racial divisions - he was able to reinvent the Republican brand. The party of plutocrats was repackaged as the party of the "silent majority," the regular guys - white guys, it went without saying - who didn't like the social changes taking place.
It was a winning formula. And the great thing was that the new packaging didn't require any change in the product's actual contents - in fact, the Republican Party was able to keep winning elections even as its actual policies became more pro-plutocrat, and less favorable to working Americans, than ever.
John McCain's strategy, in this final stretch, is based on the belief that the old formula still has life in it.
Thus we have Sarah Palin expressing her joy at visiting the "pro-America" parts of the country - yep, we're all traitors here in central New Jersey. Meanwhile we've got McCain making Samuel J. Wurzelbacher, aka Joe the Plumber - who had confronted Barack Obama on the campaign trail, alleging that the Democratic candidate would raise his taxes - the centerpiece of his attack on Obama's economic proposals.
And when it turned out that the right's new icon has a few issues, like not being licensed and comparing Obama to Sammy Davis Jr., conservatives played victim: See how much those snooty elitists hate the common man?
But what's really happening to the plumbers of Ohio, and to working Americans in general?
First of all, they aren't making a lot of money. You may recall that in one of the early Democratic debates Charles Gibson of ABC suggested that $200,000 a year was a middle-class income. Tell that to Ohio plumbers: According to the May 2007 occupational earnings report from the Bureau of Labor Statistics, the average annual income of "plumbers, pipefitters and steamfitters" in Ohio was $47,930.
Second, their real incomes have stagnated or fallen, even in supposedly good years. The Bush administration assured Americans that the economy was booming in 2007 - but the average Ohio plumber's income in that 2007 report was only 15.5 percent higher than in the 2000 report, not enough to keep up with the 17.7 percent rise in consumer prices in the Midwest. As Ohio plumbers went, so went the nation: Median household income, adjusted for inflation, was lower in 2007 than it had been in 2000.
Third, Ohio plumbers have been having growing trouble getting health insurance, especially if, like many craftsmen, they work for small firms. According to the Kaiser Family Foundation, in 2007 only 45 percent of companies with fewer than 10 employees offered health benefits, down from 57 percent in 2000.
And bear in mind that all these data pertain to 2007 - which was as good as it got in recent years. Now that the "Bush boom," such as it was, is over, we can see that it achieved a dismal distinction: For the first time on record, an economic expansion failed to raise most Americans' incomes above their previous peak.
Since then, of course, things have gone rapidly downhill, as millions of working Americans have lost their jobs and their homes. And all indicators suggest that things will get much worse in the months and years ahead.
So what does all this say about the candidates? Who's really standing up for Ohio's plumbers?
McCain claims that Obama's policies would lead to economic disaster. But President Bush's policies have already led to disaster - and whatever he may say, McCain proposes continuing Bush's policies in all essential respects, and he shares Bush's anti-government, anti-regulation philosophy.
What about the claim, based on Joe the Plumber's complaint, that ordinary working Americans would face higher taxes under Obama? Well, Obama proposes raising rates on only the top two income tax brackets - and the second-highest bracket for a head of household starts at an income, after deductions, of $182,400 a year.
Maybe there are plumbers out there who earn that much, or who would end up suffering from Obama's proposed modest increases in taxes on dividends and capital gains - America is a big country, and there's probably a high-income plumber with a huge stock market portfolio out there somewhere. But the typical plumber would pay lower, not higher taxes under an Obama administration, and would have a much better chance of getting health insurance.
I don't want to suggest that everyone would be better off under the Obama tax plan. Joe the plumber would almost certainly be better off, but Richie the hedge fund manager would take a serious hit.
But that's the point. Whatever today's Republican Party is, it isn't the party of working Americans.
By Maureen Dowd
Monday, October 20, 2008
It is the best of times, it is the worst of times.
The best of times because W.'s long Reign of Error is about to end. The worst of times because, well, you know why.
In this season of darkness, as Charles Dickens described an earlier mob scene, I'm feeling as vengeful and bloodthirsty as Madame Defarge sharpening her knitting needles at the guillotine.
I even felt a little thrill go up my leg, as Chris Matthews would put it, when I heard that the Lehman Brothers CEO, Richard Fuld, got punched in the company gym after it was announced that the firm was going under.
I can't wait to see the tumbrels rumble up and down Wall Street picking up the heedless and greedy financial aristocracy that plundered and sundered free-market capitalism.
Just when we thought executives of AIG, the insurance giant bailed out by taxpayers for $123 billion, had been shamed into stopping their post-bailout Marie Antoinette spa treatments, luxury sports suites, Vegas and California posh resort retreats, we were dumbfounded to learn that some AIG execs were cavorting at a lavish shooting party at a British country manor.
London's News of the World sent undercover reporters to hunt down the feckless financiers on their $86,000 partridge hunt as they tromped through the countryside in tweed knickers, and then later as they "slurped fine wine" and feasted on pigeon breast and halibut.
The paper reported that the AIG revelers stayed at Plumber Manor - a 17th-century country house in Dorset, not the ancestral home of Joe the Plumber - and spent $17,500 for food and rooms. The private jet to get there cost another $17,500, and the limos added up to $8,000 more.
In an astonishing let-them-eat-cake moment, AIG big shot Sebastian Preil held court at the bar and told an undercover reporter, "The recession will go on until about 2011, but the shooting was great today, and we are relaxing fine."
There were at least three New Yorkers bagging birds - Jeffrey Malkovsky, a senior director at AIG's Manhattan office, Hilary James, the general manager of the Bristol Plaza Hotel, and her friend, John Roberts, an AIG adviser.
Who are these looters of our loot? The New York Times should follow up the excellent Portraits of Grief it did after 9/11 with Portraits of Greed.
Payback doesn't have to go as far as the French Revolution. The grifters shafting us don't have to shed blood, but they do have to give the money back. As far as these self-serving corporate con men and short-selling traders are concerned, off with their headsets.
John McCain wasted his last-chance debate on Wednesday by trying to stir up faux class rage against Barack Obama with Joe the Unvetted Plumber instead of tapping into the real class rage the country feels over bailing out ungrateful financiers who gambled away the life savings of working people.
'Tis a far, far better thing that New York's attorney general, Andrew Cuomo, did when he demanded that AIG's former executives who were trying to abscond with many millions in severance payments, bonuses and golden parachutes surrender the swag. He set a good example for the feds, who slapped Fuld in the face with a subpoena.
Cuomo got AIG to instantly reverse itself and cancel 160 conferences and other events that would have cost more than $8 million, as well as give up information on compensation, bonuses and other payments to determine whether they were fitting. (How could they be?)
"We stopped a $10 million severance payment to Stephen Bensinger, the chief financial officer," Cuomo told me Friday. "Just look at the words chief financial officer. There's a phenomenon when senior management sees the corporation deteriorating and they concoct a version of looting the company to take care of themselves."
Even Cuomo, who has been locked in battle with AIG for a long time, was stunned when he learned of the British hunting folly. At first he thought it could not be true.
"That was our partridge hunting trip," he said. "The partridge paid the ultimate price, but the taxpayer came close."
Great. Now can he find the $123 billion lost by AIG that we now have to plug with taxpayers' money?
Let's hope that if Barack Obama becomes president, the first thing he does is keep his promise to make the junketeers come to Washington (preferably by bus or carpooling) and write the U.S. Treasury a check, after which he will fire them on the spot.
Monday, October 20, 2008
Your retirement savings are swirling through the drain of the market meltdown, your home isn't worth what a Chihuahua's doghouse was a year ago, and the United States may be facing the most severe recession since the Great Depression.
But cheer up, for this is a happy column! The economic misery is numbingly real, but it's also true that a downturn isn't uniformly bad and might even be good for you in several ways:
A recession could save your life. Christopher Ruhm, an economist at the University of North Carolina, Greensboro, argues that death rates go down during economic slowdowns. Ruhm's research indicates that suicides rise but total mortality rates drop, as do deaths from heart attacks, car accidents, pneumonia and most other causes.
For example, each 1-percentage-point drop in unemployment in the United States is associated with an extra 3,900 deaths from heart attacks.
Some experts are skeptical. But in downturns we drive less, so car accidents decline, while less business activity means fewer job accidents and less pollution. Moreover, in recessions people have more leisure time and seem to smoke less, exercise more and eat more healthily.
A bear market might benefit you, if you are in your working years and won't have to sell your stocks soon. That's because you're probably accumulating stocks now in your retirement account, and you'll accumulate more when share prices are low.
Americans are twice as likely to own a retirement account, like a 401(k) or an IRA, as to own a stock portfolio outright. For anyone a decade or more from retirement, a bear market is a chance to pick up bargains.
For such people, today's bear market probably won't affect share prices when you have to sell. I hit age 70 in 2029, and I doubt that the market level then will be affected by today's turmoil.
(This is the view of the "revert to the mean" school of financial economists, who see share prices eventually returning to long-term trends. Conversely, some economists in the "random walk" school think prices won't necessarily ever catch up. In the absence of firm evidence about who is right, you may as well side with the former; you'll feel better as you survey the wreckage of your 401(k).)
Falling housing prices harm landlords and speculators but benefit renters and first-time buyers (if they can still get mortgages). These beneficiaries tend to be low-income families, thus in this respect the poor may benefit. Likewise, a recession lowers prices of gas, oil and food, which disproportionately affect the poor.
More broadly, there's some evidence that falling home and stock prices will raise savings rates in the United States. That is necessary for the long-term health of the economy.
Income doesn't have much to do with happiness. Americans haven't become any happier as they have prospered in the last half-century.
And winning the lottery doesn't make people happier in the long term.
This is called the Easterlin Paradox: Once they have met their basic needs, people don't become happier as they become richer. In recent years, new research has undermined the Easterlin Paradox, yet it's still true that happiness has less to do with money than with friendships and finding meaning in a cause larger than oneself.
"There's pretty good evidence that money doesn't matter much for how you feel moment to moment," said Alan Krueger, a Princeton University economist who is conducting extensive research on happiness. "What seems to matter much more is having good friends and family, and time to spend on social activities."
The big exception to all this is people who lose their jobs or homes, and the new president should act immediately to help them.
Krueger argues that for these people, the losses are greater than we have generally realized, for their losses are not only monetary but also the erosion of self-esteem and friendships as they are wrenched out of social networks that enrich their lives (and help them find new jobs). And for those who lose health insurance, a medical or dental problem is enormously stressful, even life-threatening.
One lesson is that the government should try particularly hard to keep people in their homes. We should, for example, allow courts to ease the terms of mortgages to prevent foreclosures, while also boosting assistance to help the unemployed find jobs.
Obviously, a meltdown isn't good. Divorce rates spike in recessions. Credit evaporates, lives are upended, and for retirees counting on selling stocks to survive, a bear market is a catastrophe.
Yet that's not the whole picture, and we shouldn't overdo the gloom the way we overdid the giddiness during the boom. For most Americans, those who keep their homes and jobs and are years from retirement, even the most bearish cloud might have a silver lining.
By Louis Uchitelle and Robert Pear
Monday, October 20, 2008
NEW YORK: Like water rushing over a riverbank, the rapidly mounting expenses of the U.S. government are overwhelming the federal budget and increasing an already swollen deficit.
The bank bailout, in the latest big outlay, could cost $250 billion in just the next few weeks, and a newly proposed stimulus package would have $150 billion or more flowing from Washington before the next U.S. president takes office in January.
Adding to the damage, U.S. tax revenue is falling as the economy weakens, just as the government needs hundreds of billions of dollars to repair the financial system. Wars being waged by the country are growing more costly, as fighting spreads in Afghanistan. And a declining economy swells outlays for unemployment insurance, food stamps and other government aid.
A growing budget deficit in the United States can make it more difficult to respond to future crises. High debt can also spill over into international financial markets, as investors shun a currency that they find riskier and as interest rates rise.
But the extra spending, a sore point in normal times, has been widely accepted on both sides of the political aisle as necessary to avert another Great Depression.
"Right now would not be the time to balance the budget," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan Washington group that normally pushes the opposite message.
Confronted with a hugely expensive economic crisis, Democratic and Republican lawmakers alike have elected to pay the bill mainly by borrowing money rather than cutting spending or raising taxes. But while the borrowing is relatively inexpensive for the government in a weak economy, the cost will become a bigger burden as growth returns and interest rates rise. In addition, outlays for Medicare and Social Security are expected to balloon as the first wave of baby boomers reaches full retirement age three years from now.
"The next president will inherit a fiscal and economic mess of historic proportions," said Senator Kent Conrad, a Democrat of North Dakota and chairman of the Senate Budget Committee. "It will take years to dig our way out."
The Congressional Budget Office estimates that the deficit in the current fiscal year, which started this month, will reach roughly $700 billion, up more than 50 percent from the previous year. Measured as a percentage of all the nation's economic activity, the deficit, at 5 percent, would rival those of the early 1980s, when a severe recession combined with stepped-up government spending and Reagan-era tax cuts resulted in huge budget shortfalls.
Resorting to credit has long been the U.S. solution for dealing with expensive crises, as long as the solution has wide public support. Fighting World War II certainly had that support. Even now many Americans tolerate running up the deficit to pay for the wars in Iraq and Afghanistan, which cost $11 billion a month combined. And so far there is wide support for an initial outlay of at least $250 billion for a rescue of the financial system, if that will stabilize banks and save the country from a calamitous recession.
"There are extreme circumstances when a larger national debt is accepted as the lesser of two evils," said Robert Barbera, chief economist at the Investment Technology Group, a research and trading firm.
There are also assumptions that help to make U.S. deficits tolerable, even logical.
One is that people all over the world are willing, even eager, to lend to the United States, confident that the world's most powerful nation will always repay on time, whatever its current difficulties.
"So far the market is showing that it is quite willing to finance our needs," said Stephen McMillin, deputy director of the White House Office of Management and Budget.
Lenders are accepting interest rates of 4 percent or less, often much less, to buy what they consider super-safe American debt in the form of Treasury securities. The 4 percent rate means that the annual cost of borrowing an extra $1 trillion is $40 billion, a modest sum in a nearly $14 trillion economy, helping to explain why the current huge deficit has encountered little political resistance so far.
Still, circumstances change, and the next president is likely to eventually confront the deficit as a problem and consider unpopular remedies like cutting spending or raising taxes.
Interest rates typically rise during a recovery, so the low cost of servicing the nation's debt will not last - unless a recession set off by the banking crisis endures, repeating the Japanese experience in the 1990s and perhaps even stripping the United States and the dollar of their pre-eminent status. The assumption is that that will not happen, and as the economy recovers, the private sector will step up its demand for credit, making interest rates rise.
Higher rates in turn would increase the cost of financing the deficit, and there would probably be more pressure to reduce it through cuts in spending. That happened in the late 1980s, as Congress and the White House coped with the swollen Reagan deficits. The Gramm-Rudman-Hollings Act, with its attempt to put a ceiling on deficits, came out of this period, making deficit cutting a politically difficult issue for the president and Congress. That could eventually happen to either candidate running for the White House.
Another assumption, also based on 60 years of post-World War II experience, is that although the economy is sliding into recession, in a year or two that recession will end and the national income - also known as the gross domestic product - will expand once again. When that happens, the national debt, or the accumulated borrowing to finance all the annual deficits, will shrink in relation to the income available to pay off the debt.
The debt as a percentage of all economic activity, while growing alarmingly now, is not at historic highs. The portion held outside the U.S. government, at home and abroad, in the form of Treasury securities was $5.8 trillion at the end of last month. That is a relatively modest 40.8 percent of the nation's annual income, far below the 109 percent coming out of World War II or the nearly 50 percent in much of the 1990s.
Put another way, if the entire national income were dedicated to debt repayment, the debt would be paid off in less than five months.
For most of the years since 1940, paying down the debt would have taken longer, putting a greater strain on income.
Still, these are not ordinary times. The banking system is broken, and the national economy, in response, is plunging toward recession in a manner that evokes comparisons with the Great Depression. To soften the blow, the administration and Congress ran up a record $455 billion deficit in the just-ended 2008 fiscal year, and they are en route to a shortfall of $700 billion or more this year.
"I do think we need to be ready for a very significant increase in the budget deficit," said Peter Orszag, director of the Congressional Budget Office.
Apart from the war spending, outlays for unemployment insurance have risen by one-third and spending on food stamps has increased 13 percent during the past 12 months. Congress has agreed to expand education benefits for veterans of the current wars, and last spring it authorized $168 billion for a stimulus package, most of it in the form of tax rebate checks. Now the Democratic congressional leadership is pushing for another stimulus of at least that much.
All of this is happening as tax revenue is falling, particularly corporate tax receipts, which were down $66 billion, or 18 percent, in the fiscal year that just ended. The decline accelerated in September.
Many Republicans would probably go along with two elements in the stimulus package proposed by the Democrats, a tax cut of some sort and extended jobless benefits. But they resist stepped-up spending on public works projects and a temporary increase in federal aid to the states.
The Representative Roy Blunt of Missouri, the House Republican whip, said the stimulus bill should not be used to finance "a huge public works plan" or to bail out "states that spent a lot more money than they should have on Medicaid and other social programs."
By Michael M. Grynbaum
Monday, October 20, 2008
Fear is running high on Wall Street. Just look at the Fear Index.
With all those stomach-churning free falls and sharp reversals in the stock market recently, traders are keeping a nervous eye on an obscure index known as the VIX.
The VIX (officially the Chicago Board Options Exchange Volatility Index) measures volatility, the technical term for those wrenching market swings. A rising VIX is usually regarded as a sign that fear, rather than greed, is ruling the market. The higher the VIX goes, the more unhinged the market looks.
So how scared are investors? On Friday, the VIX rose to 70.33, its highest close since its introduction in 1993. To some experts, that suggests that the wild ride is far from over.
"Right now, it's an extremely important part of the puzzle," Steve Sachs, a trader at Rydex Investments, said of the VIX. "It's showing a huge amount of fear in the marketplace."
The VIX is hardly a household name like the Dow. But lately, it has become a fixture on CNBC and other financial news outlets, with commentators often invoking an index that most of the general public was blissfully unaware of only a few weeks ago.
Some traders think all the publicity has only added to the anxieties that the VIX is intended to reflect. "The VIX is a self-fulfilling prophecy," said Ryan Larson, head equity trader at Voyageur Asset Management. "It's almost adding to the problems."
Speaking on Thursday, when the VIX hit an intraday high of 81.17 before closing lower, he said:
"You see the VIX trade north of 80, and of course the media starts to pick it up." Larson continued, "It's blasted on the TV, and for the average investor sitting at home, they think, oh, my gosh, the VIX just broke 80 — I've got to go sell my stocks."
Put simply, the VIX measures the degree to which investors think stocks will swing violently in the next 30 days. It is calculated in real time throughout the trading day, fluctuating minute to minute.
The higher the VIX, the bigger the expected swings — and the index has a good track record. It spiked in 1998 when a big hedge fund, Long-Term Capital Management, collapsed, and after the 9/11 terrorist attacks.
Sachs, with some incredulity, said that the swings in the stock market have reflected the volatility implied by the VIX.
"We had a 17 percent peak-to-trough trading range this week," he said. "It should take two years under normal circumstances for the S&P 500 to have that type of trading range."
The VIX had its origin in 1993, when the Chicago Board Options Exchange approached Robert Whaley, then a professor at Duke, with a dual proposal.
"The first purpose was the one that is being served right now — find a barometer of market anxiety or investor fear," Whaley, who now teaches at the Owen Graduate School of Management at Vanderbilt University, recalled in an interview. But, he said, the board also wanted to create an index that investors could bet on using futures and options, providing a new revenue stream for the exchange.
Whaley spent a sabbatical in France toying with formulas. He returned to the United States with the VIX, which gauges anxiety by calculating the premiums paid in a specific options market run by the Chicago Board Options Exchange.
An option is a contract that permits an investor to buy or sell a security at a certain date at a certain price. These contracts often amount to insurance policies in case big moves in the market cause trouble in a portfolio. A contract, like insurance, costs money — specifically, a premium, whose price can fluctuate.
The VIX, in its current form, measures premiums paid by investors who buy options tied to the price of the Standard & Poor's 500-stock index.
In times of confusion or anxiety on Wall Street, investors are more eager to buy this insurance, and thus agree to pay higher premiums to get them. This pushes up the level of the VIX.
"It's analogous to buying fire insurance," Whaley said. "If there's some reason to believe there's an arsonist in your neighborhood, you're going to be willing to pay more for insurance."
The index is not an arbitrary number: it offers guidance for the expected percentage change of the S&P 500. Based on a formula, Friday's close of around 70 suggests that investors think the S&P 500 could move up or down about 20 percent in the next 30 days — an almost unheard-of swing.
So the higher the number, the bigger the swing investors think the market will take. Put another way, the higher the VIX, the less investors know about where the stock market is headed.
The current level shows that "investors are still very uncertain about where things will go," said Meg Browne of Brown Brothers Harriman, a currency strategist who was keeping a close eye on the VIX as the stock market soared last Monday.
Since 2004, investors have been able to buy futures contracts on the VIX itself, providing a way to hedge against volatility in the market. Options on the VIX have been available since 2006.
"You have seen more and more investors using it as an avenue toward hedging their portfolios," said Chris Jacobson, chief options strategist at the Susquehanna Financial Group. In times of crisis, "while you're losing your portfolio, you could make some money on the increase in volatility," he said.
Some investors are skeptical about the utility of the index. "If you're trading the markets, you pretty much know the fear, you know the volatility. I don't need an index to tell me there's volatility out there," Larson said.
By Julie Creswell and Ben White
Monday, October 20, 2008
THIS summer, when the Treasury secretary, Henry Paulson Jr., sought help navigating the Wall Street meltdown, he turned to his old firm, Goldman Sachs, snagging a handful of former bankers and other experts in corporate restructurings.
In September, after the government bailed out the American International Group, the faltering insurance giant, for $85 billion, Paulson helped select a director from Goldman's own board to lead AIG.
And earlier this month, when Paulson needed someone to oversee the government's proposed $700 billion bailout fund, he again recruited someone with a Goldman pedigree, giving the post to a 35-year-old former investment banker who, before coming to the Treasury Department, had little background in housing finance.
Indeed, Goldman's presence in the department and around the U.S. government response to the financial crisis is so ubiquitous that other bankers and competitors have given the star-studded firm a new nickname: Government Sachs.
The power and influence that Goldman wields at the nexus of politics and finance is no accident. Long regarded as the savviest and most admired firm among the ranks — now decimated — of Wall Street investment banks, it has a history and culture of encouraging its partners to take leadership roles in public service.
It is a widely held view within the bank that no matter how much money you pile up, you are not a true Goldman star until you make your mark in the political sphere. While Goldman sees this as little more than giving back to the financial world, outside executives and analysts wonder about potential conflicts of interest presented by the firm's unique perch.
They note that decisions that Paulson and other Goldman alumni make at Treasury directly affect the firm's own fortunes. They also question why Goldman, which with other firms may have helped fuel the financial crisis through the use of exotic securities, has such a strong hand in trying to resolve the problem.
The very scale of the financial calamity and the historic government response to it have spawned a host of other questions about Goldman's role.
Analysts wonder why Paulson hasn't hired more individuals from other banks to limit the appearance that the Treasury Department has become a de facto Goldman division. Others ask whose interests Paulson and his coterie of former Goldman executives have in mind: those overseeing tottering financial services firms, or average homeowners squeezed by the crisis?
Still others question whether Goldman alumni leading the U.S. bailout have the breadth and depth of experience needed to tackle financial problems of such complexity — and whether Paulson has cast his net widely enough to ensure that innovative responses are pursued.
"He's brought on people who have the same life experiences and ideologies as he does," said William Black, an associate professor of law and economics at the University of Missouri and counsel to the Federal Home Loan Bank Board during the savings and loan crisis of the 1980s. "These people were trained by Paulson, evaluated by Paulson so their mind-set is not just shaped in generalized group think — it's specific Paulson group think."
Not so fast, say Goldman's supporters. They vehemently dismiss suggestions that Paulson's team would elevate Goldman's interests above those of other banks, homeowners and taxpayers. Such chatter, they say, is a paranoid theory peddled, almost always anonymously, by less successful rivals. Just add black helicopters, they joke.
"There is no conspiracy," said Donald Langevoort, a law professor at Georgetown University. "Clearly if time were not a problem, you would have a committee of independent people vetting all of the potential conflicts, responding to questions whether someone ought to be involved with a particular aspect or project or not because of relationships with a former firm — but those things do take time and can't be imposed in an emergency situation."
In fact, Goldman's admirers say, the firm's ranks should be praised, not criticized, for taking a leadership role in the crisis.
"There are people at Goldman Sachs making no money, living at hotels, trying to save the financial world," said Jes Staley, the head of JPMorgan Chase's asset management division. "To indict Goldman Sachs for the people helping out Washington is wrong."
Goldman concurs. "We're proud of our alumni, but frankly, when they work in the public sector, their presence is more of a negative than a positive for us in terms of winning business," said Lucas Van Praag, a spokesman for Goldman. "There is no mileage for them in giving Goldman Sachs the corporate equivalent of most-favored-nation status."
PAULSON himself landed atop Treasury because of a Goldman tie. Joshua Bolten, a former Goldman executive and President George W. Bush's chief of staff, helped recruit him to the post in 2006.
Some analysts say that given the pressures Paulson faced creating a SWAT team to address the financial crisis, it was only natural for him to turn to his former firm for a capable battery.
And if there is one thing Goldman has, it is an imposing army of top-of-their-class, up-before-dawn über-achievers. The most prominent former Goldman banker now working for Paulson at Treasury is also perhaps the most unlikely.
Neel Kashkari arrived in Washington in 2006 after spending two years as a low-level technology investment banker for Goldman in San Francisco, where he advised start-up computer security companies. Before joining Goldman, Kashkari, who has two engineering degrees in addition to an MBA from the Wharton School of the University of Pennsylvania, worked on satellite projects for TRW, the space company that now belongs to Northrop Grumman.
He was originally appointed to oversee a $700 billion fund that Paulson orchestrated to buy toxic and complex bank assets, but the role evolved as his boss decided to invest taxpayer money directly in troubled financial institutions.
Kashkari, who met Paulson only briefly before going to the Treasury Department, is also in charge of selecting the staff to run the bailout program. One of his early picks was Reuben Jeffrey, a former Goldman executive, to serve as interim chief investment officer.
Kashkari is considered highly intelligent and talented. He has also been Paulson's right-hand man — and constant public shadow — during the financial crisis.
He played a main role in the emergency sale of Bear Stearns to JPMorgan Chase in March, sitting in a Park Avenue conference room as details of the acquisition were hammered out. He often exited the room to funnel information to Paulson about the progress.
Despite Kashkari's talents in deal-making, there are widespread questions about whether he has the experience or expertise to manage such a project.
"Kashkari may be the most brilliant, talented person in the United States, but the optics of putting a 35-year-old Paulson protégé in charge of what, at least at one point, was supposed to be the most important part of the recovery effort are just very damaging," said Michael Greenberger, a University of Maryland law professor and a former senior official with the Commodity Futures Trading Commission.
"The American people are fed up with Wall Street, and there are plenty of people around who could have been brought in here to offer broader judgment on these problems," Greenberger added. "All wisdom about financial matters does not reside on Wall Street."
Kashkari won't directly manage the bailout fund. More than 200 firms submitted bids to oversee pieces of the program, and Treasury has winnowed the list to fewer than 10 and could announce the results as early as this week. Goldman submitted a bid but offered to provide its services gratis.
While Kashkari is playing a prominent public role, other Goldman alumni dominate Paulson's inner sanctum.
The A-team includes Dan Jester, a former strategic officer for Goldman who has been involved in most of Treasury's recent initiatives, especially the government takeover of the mortgage giants Fannie Mae and Freddie Mac. Jester has also been central to the effort to inject capital into banks, a list that includes Goldman.
Another central player is Steve Shafran, who grew close to Paulson in the 1990s while working in Goldman's private equity business in Asia. Initially focused on student loan problems, Shafran quickly became involved in Treasury's initiative to guarantee money market funds, among other things.
Shafran, who retired from Goldman in 2000, had settled with his family in Ketchum, Idaho, where he joined the city council. Baird Gourlay, the council president, said he had spoken a couple of times with Shafran since he returned to Washington last year.
"He was initially working on the student loan part of the problem," Gourlay said. "But as things started falling apart, he said Paulson was relying on him more and more."
The Treasury Department said Shafran and the other former Goldman executives were unavailable for comment.
Other prominent former Goldman executives now at Treasury include Kendrick R. Wilson III, a seasoned adviser to chief executives of the nation's biggest banks. Wilson, an unpaid adviser, mainly spends his time working his ample contact list of bank chiefs to apprise them of possible Treasury plans and gauge reaction.
Another Goldman veteran, Edward Forst, served briefly as an adviser to Paulson on setting up the bailout fund but has since left to return to his post as executive vice president of Harvard. Robert Steel, a former vice chairman at Goldman, was tapped to look at ways to shore up Fannie Mae and Freddie Mac. Steel left Treasury to become chief executive of Wachovia this summer before the government took over the entities.
Treasury officials acknowledge that former Goldman executives have played an enormous role in responding to the current crisis. But they also note that many other top Treasury Department officials with no ties to Goldman are doing significant work, often without notice. This group includes David Nason, a senior adviser to Paulson and a former Securities and Exchange Commission official.
Robert Hoyt, general counsel at Treasury, has also worked around the clock in recent weeks to make sure the department's unprecedented moves pass legal muster. Michele Davis is a Capitol Hill veteran and Treasury policy director. None of them are Goldmanites.
"Secretary Paulson has a deep bench of seasoned financial policy experts with varied experience," said Jennifer Zuccarelli, a spokeswoman for the Treasury. "Bringing additional expertise to bear at times like these is clearly in the taxpayers' and the U.S. economy's best interests."
While many Wall Streeters have made the trek to Washington, there is no question that the axis of power at the Treasury Department tilts toward Goldman. That has led some to assume that the interests of the bank, and Wall Street more broadly, are the first priority. There is also the question of whether the department's actions benefit the personal finances of the former Goldman executives and their friends.
"To the extent that they have a portfolio or blind trust that holds Goldman Sachs stock, they have conflicts," said James Galbraith, a professor of government and business relations at the University of Texas. "To the extent that they have ties and alumni loyalty or friendships with people that are still there, they have potential conflicts."
Paulson, Kashkari and Shafran no longer own any Goldman shares. It is unclear whether Jester or Wilson does because, according to the Treasury Department, they were hired as contractors and are not required to disclose their financial holdings.
For every naysayer, meanwhile, there is also a Goldman defender who says the bank's alumni are doing what they have done since the days when Sidney Weinberg ran the bank in the 1930s and urged his bankers to give generously to charities and volunteer for public service.
"I give Hank credit for attracting so many talented people. None of these guys need to do this," said Barry Volpert, a managing director at Crestview Partners and a former co-chief operating officer of Goldman's private equity business. "They're not getting paid. They're killing themselves. They haven't seen their families for months. The idea that there's some sort of cabal or conflict here is nonsense."
In fact, say some Goldman executives, the perception of a conflict of interest has actually cost them opportunities in the crisis. For instance, Goldman wasn't allowed to examine the books of Bear Stearns when regulators were orchestrating an emergency sale of the faltering investment bank.
THIS summer, as he fought for the survival of Lehman Brothers, Richard Fuld Jr., its chief executive, made a final plea to regulators to turn his investment bank into a bank holding company, which would allow it to receive constant access to U.S. government funding.
Timothy Geithner, the president of the Federal Reserve Bank of New York, told him no, according to a former Lehman executive who requested anonymity because of continuing investigations of the firm's demise. Its options exhausted, Lehman filed for bankruptcy in mid-September.
One week later, Goldman and Morgan Stanley were designated bank holding companies.
"That was our idea three months ago, and they wouldn't let us do it," said a former senior Lehman executive who requested anonymity because he was not authorized to comment publicly. "But when Goldman got in trouble, they did it right away. No one could believe it."
The New York Fed, which declined to comment, has become, after Treasury, the favorite target for Goldman conspiracy theorists. As the most powerful regional member of the Federal Reserve system, and based in the nation's financial capital, it has been a driving force in efforts to shore up the flailing financial system.
Geithner, 47, played a pivotal role in the decision to let Lehman die and to bail out AIG. A 20-year public servant, he has never worked in the financial sector. Some analysts say that has left him reliant on Wall Street chiefs to guide his thinking and that Goldman alumni have figured prominently in his ascent.
After working at the New York consulting firm Kissinger Associates, Geithner landed at the Treasury Department in 1988, eventually catching the eye of Robert Rubin, Goldman's former co-chairman. Rubin, who became Treasury secretary in 1995, kept Geithner at his side through several international meltdowns, including the Russian credit crisis in the late 1990s.
Rubin, now senior counselor at Citigroup, declined to comment.
A few years later, in 2003, Geithner was named president of the New York Fed. Leading the search committee was Pete Peterson, the former head of Lehman Brothers and the senior chairman of the private equity firm Blackstone. Among those on an outside advisory committee were the former Fed chairman Paul Volcker; the former AIG chief executive Maurice Greenberg; and John Whitehead, a former co-chairman of Goldman.
The board of the New York Fed is led by Stephen Friedman, a former chairman of Goldman. He is a "Class C" director, meaning that he was appointed by the board to represent the public.
Friedman, who wears many hats, including that of chairman of the President's Foreign Intelligence Advisory Board, did not return calls for comment.
During his tenure, Geithner has turned to Goldman in filling important positions or to handle special projects. He hired a former Goldman economist, William Dudley, to oversee the New York Fed unit that buys and sells government securities. He also tapped E. Gerald Corrigan, a well-regarded Goldman managing director and former New York Fed president, to reconvene a group to analyze risk on Wall Street.
Some people say that all of these Goldman ties to the New York Fed are simply too close for comfort. "It's grotesque," said Christopher Whalen, a managing partner at Institutional Risk Analytics and a critic of the Fed. "And it's done without apology."
A person familiar with Geithner's thinking who was not authorized to speak publicly said that there was "no secret handshake" between the New York Fed and Goldman, describing such speculation as a conspiracy theory.
Furthermore, others say, it makes sense that Goldman would have a presence in organizations like the New York Fed.
"This is a very small, close-knit world. The fact that all of the major financial services firms, investment banking firms are in New York City means that when work is to be done, you're going to be dealing with one of these guys," said Langevoort at Georgetown. "The work of selecting the head of the New York Fed or a blue-ribbon commission — any of that sort of work — is going to involve a standard cast of characters."
Being inside may not curry special favor anyway, some people note. Even though Fuld served on the board of the New York Fed, his proximity to federal power didn't spare Lehman from bankruptcy.
But when bankruptcy loomed for AIG — a collapse regulators feared would take down the entire financial system — U.S. government officials found themselves once again turning to someone who had a Goldman connection. Once the government decided to grant AIG, the largest insurance company, an $85 billion lifeline (which has since grown to about $122 billion) to prevent a collapse, regulators, including Paulson and Geithner, wanted new executive blood at the top.
They picked Edward Liddy, the former CEO of the insurer Allstate. Liddy had been a Goldman director since 2003 — he resigned after taking the AIG job — and was chairman of the audit committee. (Another former Goldman executive, Suzanne Nora Johnson, was named to the AIG board this summer.)
Like many Wall Street firms, Goldman also had financial ties to AIG. It was the insurer's largest trading partner, with exposure to $20 billion in credit derivatives, and could have faced losses had AIG collapsed. Goldman has said repeatedly that its exposure to AIG was "immaterial" and that the $20 billion was hedged so completely that it would have insulated the firm from significant losses.
As the financial crisis has taken on a more global cast in recent weeks, Paulson has sat across the table from former Goldman colleagues, including Robert Zoellick, now president of the World Bank; Mario Draghi, president of the international group of regulators called the Financial Stability Forum; and Mark Carney, the governor of the Bank of Canada.
BUT Paulson's home team is still what draws the most scrutiny.
"Paulson put Goldman people into these positions at Treasury because these are the people he knows and there are no constraints on him not to do so," Whalen says. "The appearance of conflict of interest is everywhere, and that used to be enough. However, we've decided to dispense with the basic principles of checks and balances and our ethical standards in times of crisis."
Ultimately, analysts say, the actions of Paulson and his alumni club may come under more study.
"I suspect the conduct of Goldman Sachs and other bankers in the rescue will be a background theme, if not a highlighted theme, as Congress decides how much regulation, how much control and frankly, how punitive to be with respect to the financial services industry," said Langevoort at Georgetown. "The settling up is going to come in Congress next spring."
Monday, October 20, 2008
By Golnar Motevalli
No-one expects a fallen Master of the Universe to say sorry. But academics say an apology -- for all the litigation risk it entails -- can be the basis of revitalised confidence and trust.
With global markets paralysed by the inability to rely on a counterparty, and as trust and accountability form the kernel of debates about effective regulation, some say a slice of humble pie now can help ensure bankers earn trust in future.
Several studies in the United States have shown doctors who openly apologised for their mistakes actually reduced their risk of being sued by patients or their families, apparently because the emotive response persuaded people to trust them.
The bankers' journey to restoring complete trust and confidence will be tricky but is ultimately necessary, said Daniel Diermeier, professor of regulation and competitive practice at Northwestern University's Kellogg Management School.
"Financial service CEOs are not exactly known for their humbleness ... arrogance is almost part of the necessary portfolio you have to have to make it to the top," Diermeier said by telephone from the United States.
One case he cited in comparison was U.S. domestic airline Southwest Airlines, which faced intense media scrutiny in 2005 after one of its passenger planes skidded off a runway, killing a six-year old boy.
Within hours of the accident its CEO told a news conference: "there are absolutely no words to accurately state our grief and our sorrow over the tragedy."
Newspapers quoted analysts praising his response as potentially setting a new standard for how airlines would deal with crisis.
After a drop of 1.5 percent immediately after the crash, Southwest's share price climbed by 3.5 percent within a few days and by March 2006, was 11 percent above pre-crash levels.
"(Financial services show) a totally different attitude," Diermeier said. "Because the products are complicated, there's a sense that you are smarter than everyone else and aggressiveness is valued."
Since one of the first major bank collapses of the current crisis -- Northern Rock in September 2007 -- the failed institutions have demonstrated degrees of contrition.
Richard Fuld, CEO of collapsed Lehman Brothers, notably told U.S. lawmakers earlier this month he took full responsibility for his actions and felt "horrible about what has happened to the company," but insisted he shared the blame with regulators and Congress.
The entire management of Deutsche Bank have pledged to forgo bonuses this year, following Morgan Stanley CEO John Mack last year.
But so far -- perhaps on legal advice -- actual apologies have been thin on the ground. Steven Friel, a litigation partner at solicitors Davis Arnold Cooper, says his phone has been ringing "more often than in a long, long time."
"Actions speak louder than words," he said. "To the man on the street to know that someone has forgone their bonus would be as good as an apology."
"As soon as you start admitting liability or suggesting any culpability on your own part, you open the door to legal claims. I would not advise that anyone goes so far as apologise for their actions."
In Britain, the CEO of regulator the Financial Services Authority (FSA) recently apologised. "I have said sorry and I am saying sorry for our supervisory failings," Hector Sants told BBC Scotland.
But while his gesture may have been welcome, he was not directly responsible for bringing down an institution.
Unlike in Japan, where the culture of apology is established, it may seem naive to expect American or British banks to go hand-on-heart.
But Keith Skeoch, CEO of Standard Life Investments, Britain's seventh-largest fund manager, said the value of saying sorry should be appreciated by looking at the cost of arrogance in the industry.
"It's the price of arrogance that investors really get concerned about ... It's about making sure there is good engagement," Skeoch said.
Diermeier argued that in a business which depends heavily on trust, an empathetic, transparent and open approach to the public, customers and shareholders can reap gains.
"The more your dependence on trust the more it's important you understand its effect," he said.
Fund manager Skeoch said sincere engagement is crucial in building and maintaining trust, and a company's inability to respect shareholder views can be lethal.
Saying nothing is not really an option, said Diermeier: "Silence is treated as defensive ... if companies don't say anything we assume the worst about them."
Of course, the "never apologise, never explain" dictum is not restricted to bankers. But few expect the current crisis to usher in a new dawn of humility in financial services.
However, the experts do see a precedent for slightly chastened behaviour, in accountancy.
"The real comparative case with financials is the accounting industry (which) went through this meltdown with Enron and Arthur Anderson," Diermeier said.
"They have adjusted, not just in the way CEOs operate but the way they operate internally," he said.
"There's much more of an understanding and awareness of reputational risk. I think that's something that will have to happen with the financial services industry."
But -- in a point widely echoed by others, Benjamin Ho, an assistant professor of economics at the Cornell Johnson School of Management, said apologies also have to seem sincere.
"A carefully crafted legalistic apology is of no use," he said. "To be effective, an apology must make the apologiser vulnerable, open either to the possibility of civil suits or other sanctions, or open to the appearance of incompetence."
(Additional reporting by Olesya Dmitracova; Editing by Sara Ledwith)
By Souren Melikian
Monday, October 20, 2008
LONDON: The two-round match played out on the London auction scene this weekend left contemporary art badly bruised. Round One, fought at Sotheby's, revealed for the first time in years that all is not well in that field.
Sotheby's session on Friday night got off to a dashing start thanks to Oliver Barker, a "senior international specialist" and one of the most brilliant upcoming young auctioneers in London. Calling out bids at top speed, he managed to convey for a while the impression that raving buyers were scrambling on top of each other to put in bids.
Lot 1, "The Pink Tree" by John Currin, an oil on paper that could be a spoof of 16th century German painting, improbably doubled its estimate at £139,250, or $241,300. Next came Antony Gormley's "Domain LXIV," a construction of small stainless steel rods conjuring up the figure of a man standing. Like so much of contemporary art, it has a whiff of Dada, the art of the absurd invented a century ago by Marcel Duchamp as a slap in the face of the then-bourgeois establishment. Today's new establishment coughed up £193,250, well above the high estimate.
But an auctioneer's brio will take you just so far. By the time the third lot, Damien Hirst's "Beautiful Jaggy Snake Charity Painting" came up, enthusiasm was dying down. The 2007 Hirst, which resembles an enlarged close-up of traditional marbled paper painted in gaudy household gloss, sold with difficulty, under the low estimate, for £115,250.
That made the public uneasy. Howard Hodgkin's "Ekow," a kind of haphazard smear, dropped dead. Next, an abstract bronze and lacquer sculpture by Anish Kapoor also crashed. The failure of two works, both executed in 2008, did not augur well.
The sale became sticky. The first big lot, Andy Warhol's "skulls" of 1976, which reproduced 10 times in acrylic and silkscreen ink the image of a skull, very nearly failed and was retrieved by one £3.85 million bid, bringing the full price to £4.35 million, still far below the lowest expectations.
The second biggest lot, Gerhard Richter's "Abstract Picture (Red)," likewise sold by the skin of its teeth, for £2.84 million - one fifth less than the lowest price forecast by Sotheby's.
By the end of the sale, 27 percent of the works remained stranded. At the press conference held in a subdued atmosphere, a Sotheby's spokesperson revealed that the auction house had worked hard to persuade consignors to bring down their reserves. The house evidently succeeded to some extent - the six highest prices paid that evening were all well below the lower end of the estimate. All told, sales added up to £22 million. This was not a debacle, but undoubtedly a severe retreat.
As Christie's took over on Sunday afternoon in a leaden atmosphere, there were empty seats in the room.
In an eerie parallel to Sotheby's, the first three lots sold. Ron Arad's "London Parpadelle," a steel contraption which looked like a rug of steel mail unfolding and was No.6 in an edition of six, managed a generous £139,250. Takashi Murakami's composition "Close Encounters of the Third Kind," done in a futuristic comic strip style, then rose to £421,250, followed by Farhad Moshiri's "Golden Love Super Deluxe," a spoofy gilt wood cabinet filled with equally spoofy gilt porcelain and wooden pieces at £145,250.
At that point, the room lost interest. Andy Warhol's "Nine Multicolored Marilyns" dropped dead, and so did Jeff Koons's "Jim Beam-Log Car," a small stainless object produced in 1986 in an edition of three plus an artist proof. It matched its description but amused no one.
But Gilbert & George's set of 29 gelatin silver prints did. Titled "Muscadet," the set was "executed in 1973." Featured in many exhibitions, ranging from the Centre George Pompidou in Paris (1981) to the Hayward gallery in London (1987), it sold for £301,250.
Christie's, like Sotheby's, had persuaded some consignors to bring down their reserves, and that allowed the auctioneer to unload several heavyweights, all below the low reserve. A Lucio Fontana pulled through, on a single £8 million bid, missing the £10 million estimate quoted by Christie's "on request." But the oval piece of canvas, pierced with holes that give it the appearance of a moth-eaten doormat, was not cheap at £9 million, the price it cost with the sale charge.
Neither was the second most expensive painting, a realistic study of Bacon's face done more than 50 years ago by Lucian Freud. That realized £5.42 million, also less than the low estimate - but, again, a huge price.
By the auction's end, Christie's had sold 26 of 47 works for £32 million. The short message is that there is life left in the contemporary art market at 25 to 30 percent below current ambitions. That is very good in the current circumstances. Auction houses and their consigners had better heed the lesson.
Monday, October 20, 2008
DILI: Police in East Timor have detained 16 Sri Lankans and four Indonesians as they prepared to sail for Australia in an illegal boat, a government official said on Monday.
East Timor's director of immigration, Jose da Costa, said the 20 had been trying to reach Australia with false documents when they were stopped in the Betano area on the south coast.
The foreigners were being questioned at a Dili police command post.
"We don't know the motive of their travels. That's why we are investigating further. Maybe a decision on deportation will be taken next week," da Costa said.
Local media said the 20 people had been heading for Australia in search of jobs.
(Reporting by Tito Belo; editing by Roger Crabb)
Monday, October 20, 2008
JAKARTA: A strong earthquake with a magnitude of 6.5 hit Indonesia's Sulawesi island Monday but there were no immediate reports of any deaths or damage, an official at the national quake agency said.
The epicentre of the quake lay at a depth of 33 km (21 miles) and about 96 km (60 miles) southwest of Tolitoli town in Central Sulawesi province, Anas Fauzi, an analyst at the agency in Jakarta, said.
He said no tsunami warning had been issued.
Earthquakes are frequent in Indonesia which lies in an area of intense seismic activity where several tectonic plates collide.
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