Tesco profit meets forecasts even as shoppers grow more picky on price
LONDON: Tesco, the biggest retailer in Britain, on Tuesday met forecasts with a 10 percent increase in profit for the first half, signaling that it could cope with weak markets.
Shares of Tesco jumped 4.8 percent, bolstered by the company's strong showing in international markets, which accounted for about half of the profit growth.
In Britain, sales of products bearing Tesco's own brand grew strongly, while high-end and organic foods, which had been strong performers, suffered as cost-conscious shoppers cut back. Sales of nonfood items also slowed.
"A robust performance in a tough consumer environment deserves a premium rating, especially in the currently turbulent financial markets," said Andrew Kasoulis, an analyst at Credit Suisse.
Many retailers around the world are struggling as shoppers curb spending in the face of higher food and fuel costs as well as economic uncertainty that has been worsened by the collapse of several major banks.
Tesco's chief executive, Terry Leahy, said in an interview that shoppers were "hard pressed" but that business conditions were not yet as bad as in 1991-1992, when interest rates and unemployment were higher.
"Inflation has passed its peak," he said, " and that will leave room for interest rate cuts, which I think will be welcomed."
Tesco, the world's No. 3 retailer, after Wal-Mart and Carrefour, said profit before taxes and one-time items was £1.45 billion, or $2.6 billion, in the 26 weeks that ended on Aug. 23, on sales of £25.6 billion, a 14 percent increase
Unilever recalls Lipton milk tea powder in Hong Kong
BEIJING: Global consumer goods group Unilever said on Tuesday that it was recalling some of its Lipton-brand milk tea powder in Hong Kong and Macau after it was found to contain traces of melamine.
Unilever Hong Kong said in a statement that it had decided to recall four batches of Lipton Milk Tea sold in the two markets after internal checks found traces of melamine, an industrial chemical.
The move was meant to comply with local regulations and as a precautionary measure, the firm said, adding that no other Lipton milk tea powder products were affected.
"As far as Unilever China is concerned, based on our stringent quality control processes and additional rigorous and systematic testing by local Chinese authorities, we are fully confident with the safety of our products in China," Unilever said.
A growing list of Chinese milk and milk-related products have been taken off shelves in recent weeks after it came to light that some milk had been contaminated with melamine, leading to thousands affected and four deaths.
China detains 22 in milk case
SHANGHAI: China said Monday that it had detained 22 people suspected of operating an underground network that intentionally adulterated milk with an industrial chemical, melamine. The contamination has led to the nation's worst food safety crisis in decades.
The announcement, carried by the official Xinhua News Agency, was the third regarding a mass detention of suspects in the contamination, which has sickened more than 50,000 children, caused the deaths of at least four from kidney stones, and led to recalls of products in China and abroad suspected of containing adulterated Chinese milk powder.
On Sept. 14, the government said 19 people had been detained, and on Sept. 19 it reported the detention of 12 more. The government did not explain in the Monday announcement how many suspects in all had been detained in the investigation, or whether some had been included in the earlier announcements.
The announcement said police officers in northern China, the nation's biggest dairy production area, had raided more than 40 dairy farms and milk stations in Hebei Province and seized more than 220 kilograms, or 485 pounds, of melamine, a chemical commonly used to make plastics and fertilizer. Melamine can also be used to illegally inflate the nutrition value of foods by fooling testers measuring protein levels.
The government accused the group of operating as a kind of criminal syndicate, producing melamine in underground factories and then marketing it to dairy farms and milking stations in Hebei Province to adulterate the milk for profit.
The announcement was the government's latest effort to calm fears after some of the nation's biggest dairy producers had been blamed for selling infant milk formula adulterated with melamine to save money.
On Sunday, Prime Minister Wen Jiabao vowed to strengthen regulation and clean up the nation's $18 billion dairy industry, which had been booming in recent years because of government-backed efforts to get children to consume more milk.
Over the past week, a growing number of global companies have been drawn into the scandal after tests showed that some of their foods had also been produced with melamine-tainted milk products originating in China.
On Monday, Cadbury PLC, one of the world's biggest confectioners, said that some of the chocolate it sells in Hong Kong, Taiwan and Australia had tested positive for melamine. The company said those products had all been produced in its Beijing facility, and the products affected, including dark chocolate and Cadbury Eclairs, had not been exported to other countries.
"We have been monitoring the developing situation with regard to the contamination of dairy products with melamine in China with concern and the greatest sympathy for all those affected," Cadbury, which is based in Britain, said in a news release. "As a result, we believe it is appropriate to take a precautionary step to withdraw from the market all of our Cadbury chocolate products that have been manufactured in Beijing."
Most of China's dairy exports are shipped to Hong Kong, Taiwan, Singapore, Japan and other parts of Asia, though in an increasingly globalized world, some goods made with Chinese dairy products could also easily end up in the United States and Europe, which has led regulators there to issue warnings.
In China, though, the milk scare has set off a minor panic. In Hebei Province alone, where the scandal is centered because it is the location of the headquarters of the Sanlu Group, the country's biggest maker of infant milk formula, more than 200,000 children had been brought into hospitals to be checked for melamine contamination or kidney stone problems over the past few weeks.
Since announcing last week that about 53,000 children had been affected by melamine-tainted dairy goods, the Chinese government has not updated the number of victims, nor has it held a news conference in recent days detailing its findings.
But in recent days the government has tried to assure consumers that the country's dairy supply is safe, reporting that hundreds of tests conducted after Sept. 14 and involving some of the biggest dairy makers had not detected melamine.
Melamine is the same chemical blamed last year for sickening thousands of pets in the United States. Regulators later discovered that the animals had consumed pet food ingredients that had intentionally been spiked with melamine in China, apparently in an effort to save money by substituting real protein with melamine.
On Monday, the government said one suspect had admitted producing melamine as "protein powder" since last year, and another had admitted helping sell the powder to milking stations.
Pipes but no water: A need grows in Egypt
CAIRO: The women line up at a well, jugs in hand and on their heads, to draw water. It is a pastoral scene celebrated in paintings and in Middle Eastern lore from ancient times.
This tableau, however, is in a treeless alley in 21st-century Cairo, the biggest city in Africa. As the Nile River flows abundantly by to the east, residents in the Saft al-Laban neighborhood carry out a ritual of desperation, not tradition.
Forty percent of Cairo's 17 million inhabitants get drinking water for no more than three hours a day, according to the Egyptian government's National Research Center. At least four large districts receive no water at all from the municipal system, including a swath of Saft al-Laban, home to 100,000 people.
"They act as if we are not here, as if we were not part of the city and deserved to live like animals in the desert," says Ferial Abdel-Hafiz, 42, a mother of seven children who wandered the neighborhood on a recent early morning searching for water.
She is among the victims of a government failure to provide a vital utility in areas that grew up helter-skelter during 40 years of migration by rural people seeking jobs.
Drinking water is not easy to find in many parts of the lush Nile Valley and its delta, home to 95 percent of Egyptians. According to the Land Center for Human Rights, an independent research and advocacy group based in Cairo, 30 percent of Egyptians are not supplied with potable water and must retrieve it themselves from wells, neighbors or directly from the river.
Pressure to provide water piles yet another layer of unresolved problems on the government of President Hosni Mubarak, 80, who has governed Egypt since 1981. A shortage of subsidized bread this year sparked riots across Egypt. The failure to put out a fire that engulfed the upper house of Parliament on Aug. 19 and a slow response this month to a rock slide that crushed a Cairo slum have raised accusations of chronic government incompetence.
Last month in Suez, 500 people blocked the main highway to Cairo to protest a two-month drought in municipal water supplies to parts of the city. Through the summer, demonstrators blocked roads radiating from Burullus, a Mediterranean coastal town, complaining of chronic water shortages.
More than one billion people worldwide lack access to safe drinking water, according to the World Water Council, a private organization based in Marseille. Reports on the council's Web site say scarcity in arid areas and pollution in water tables and rivers aggravate the problem.
Pollution is a major hazard in Cairo, says Osama Ahmed-Ali, a researcher in the National Research Center's water and pollution department. "It was safer to drink water right from the Nile in the 1960s than to drink tap water now," he says. He purifies his home drinking water through three carbon filters and puts it under ultraviolet light to kill germs.
Explosive population growth in the past half-century has contributed to Cairo's plight. It is less a city than a jumble of rickety rural villages surrounding developed central areas and ringed by new, upscale suburbs. The unpaved alleys of Saft al-Laban are jammed with chickens, goats, donkeys and even the occasional water buffalo. Pipes were laid under the streets; there's just no water flowing through them.
"The growth of these neighborhoods has been mainly a political problem," said Ahmed-Ali, 64, who has studied Cairo's water supply for 30 years. "They developed without planning, but no one took the initiative to stop" them. Cairo would need to double its capacity for treating water to meet present needs, he says.
Hussein Fadl, vice chairman of the municipal water department in Cairo's Giza district, says such an expansion is planned, but delivery of the treated water will remain a problem. As a stopgap measure for Saft al-Laban, the neighborhood will be temporarily connected to adjacent districts by sets of new pipes by November.
"You won't hear them crying after that," said Fadl. "These neighborhoods grew up by themselves, like cancer cells, and we are trying to keep up."
Permanent conduits will reach other hard-hit Cairo areas near the Pyramids of Cheops and the neighborhood of Bulaq near downtown by year's end, he says. Slums like Manshiet Nasser, the site of the rock slide, will have to wait until 2010. Fadl blames the behind-the-curve response to a lack of development in Egypt's utilities that dates from economically slow times in the 1960s and 1970s.
Mohammed Muheb Eddin, 35, a Saft al-Laban resident, has led a one-person campaign since 2002 to get running water. He sent letters to municipal authorities, carried his complaints to television and in 2006, started a petition drive. He says he was called into the local police station on suspicion of subversive activities and then released within a day.
"It was an intimidation technique," he says. "It's a mystery to everyone: We have pipes but no water."
The drinking-water drought gives rise to routines of improvisation. Some people in Saft al-Laban have drilled wells into the sandy Nile Valley floor to pull up cloudy water for bathing and cleaning and, when boiled, to drink.
Each day, women roam the alleys to inquire whose well is being pumped, or who, on the periphery of the neighborhood, has water trickling in from a better-supplied district.
"Some days we can't find any," says Ferial Abdel-Hafiz, 42, a mother of five. "We just walk around in circles."
India-France nuclear accord provides opening for Areva
PARIS: The governments of France and India signed an agreement Tuesday that would allow French companies to sell civilian nuclear technology to India.
Although no contracts were signed, French officials said they expected "new developments in the coming months."
The deal - the highlight of a series of meetings in Paris between President Nicolas Sarkozy and Prime Minister Manmohan Singh - came days after the U.S. House of Representatives approved a similar accord.
The American deal, which next goes to the U.S. Senate for a vote, would allow the United States to provide nuclear materials to India.
Senator Harry Reid, the majority leader, told his colleagues on the Senate floor that he was "quite sure we can finalize that so there can be a vote" on Wednesday.
Singh declined to speak to reporters after Tuesday's talks, but French officials said India would define its energy needs.
India has an arsenal of nuclear weapons, which it built outside the Nuclear Non-Proliferation Treaty, the accord that allows civilian nuclear trade in exchange for a pledge from signing countries not to pursue nuclear weapons.
India has refused to sign nonproliferation agreements and has faced a nuclear trade ban since its first atomic test in 1974.
The Nuclear Suppliers Group, whose 45 member countries supply nuclear material and technology, agreed in September to lift the ban on civilian nuclear trade with India.
France, which relies heavily on nuclear power and is home to Areva, the world's largest builder of nuclear reactors, is expected to compete with the United States, Japan and Russia for nuclear work in the Indian market.
Critics of the French and U.S. agreements assert that providing India with new nuclear material will lead to an atomic weapons race in Asia by allowing the Indians to divert domestic uranium to their weapons program.
Opponents also say the agreements act as an incentive to Iran to continue work on its uranium enrichment program. Iran says its nuclear program is purely civilian.
The United States and France are among the countries that say Tehran wants to build nuclear weapons.
Toyota cuts production in China as sales growth slips
TOKYO: Toyota Motor has started cutting its production in China because sales growth in the region is not increasing as expected.
"Sales in China are not as expanding as we had thought," said Paul Nolasco, a Toyota spokesman. "Sales in the market as a whole are not expanding as rapidly either. So we are taking a flexible approach to adjust production, such as by altering the pace of production in the Guangdong operation."
The automaker declined to specify the level of production adjustment and types of models.
But the Nikkei daily said in its Sunday edition that Toyota had begun to reduce by about 10 percent its production of small and medium-sized automobiles at its main factory in the southern Chinese province of Guangdong, which has an annual production capacity of 200,000 vehicles.
Sales of cars in China fell 6.2 percent in August, the first monthly decline in more than two years as high fuel prices and a falling stock market dented consumer demand, the country's industry association said earlier this month.
Toyota declined to disclose its production target by area for this year, but production in China was 450,000 vehicles last year, Nolasco said.
Toyota's 2008 sales target in China is 700,000, which is 40 percent higher than the previous year.
Earlier this month, the chairman of the Japan Automobile Manufacturers Association, Satoshi Aoki, said that demand in healthy markets like those in China and India warranted close monitoring, as sales had recently weakened compared with earlier growth rates.
Shares of Toyota ended the morning session lower 1.5 percent to ¥4,670, with the Nikkei index rising 0.5 percent.
Pakistani Army chief names new head of spy agency
ISLAMABAD: The chief of the Pakistani Army on Tuesday appointed a new head of the nation's top spy organization in a move that consolidated his control over an agency that the United States contends has been helping the Taliban mount operations against U.S. forces in Afghanistan.
The new spy chief is Lieutenant General Ahmed Shuja Pasha, 56, director general of military operations, the nerve center for the Pakistani Army.
He was appointed by General Ashfaq Parvez Kayani, who led the spy agency, the Inter-Services Intelligence, or ISI, until he became army chief last November. That was when Pervez Musharraf stepped down as head of the army, nine months before resigning as president.
Under Pakistan's new civilian government, Kayani has been making his mark on the army, and the announcement Tuesday of the new spy chief, along with a roster of appointments of new senior generals, put his personal stamp on the top echelon of the military, Pakistan's elite institution.
As head of the intelligence agency, Pasha will be dealing directly with the Central Intelligence Agency about Washington's determination to stanch attacks by Taliban and Al Qaeda forces into Afghanistan, and to inhibit the ability of the extremists to plot a major terror attack against the United States from the secrecy of the ungoverned tribal region.
He assumes the role at a time of tension between the United States and Pakistan.
In September, U.S. Special Forces soldiers crossed from Afghanistan into Waziristan in Pakistan's tribal area on a raid against Qaeda operatives who provide much of the technical and strategic support for the Taliban fighters. The U.S. raid elicited a tough public rebuke from Kayani that Washington had breached Pakistan's sovereignty. Kayani said Pakistan would defend its borders at "all costs," an extraordinary statement from one ally to another, and since then there have been no known incursions by U.S. ground forces.
In August, Pasha accompanied Kayani to a secret, and unusual, meeting between top Pakistani military leaders and U.S. commanders, including the chairman of the Joint Chiefs of Staff, Admiral Mike Mullen, on the Abraham Lincoln aircraft carrier.
Pakistani officials said the appointments announced Tuesday were part of regularly scheduled changes and had little to do with the new civilian government. They said the choices were entirely Kayani's. The promotion notices were signed by the prime minister, Yousaf Raza Gilani, as a routine matter, Shuja Nawaz, an expert on the Pakistani military said.
Pasha, as director general of military operations, was ultimately responsible for the military assaults in the Bajaur district of the tribal area and in Swat, in the North-West Frontier Province, Nawaz said.
Pasha's appointment came two months after President Asif Ali Zardari and the senior adviser at the Interior Ministry, Rehman Malik, made a failed effort to wrest control of the spy agency from the army, which has always run it.
Kayani's promotion of Pasha reaffirmed the military's institutional control of the intelligence agency, the English-language newspaper Dawn reported Tuesday.
The political party that Zardari heads, the Pakistan People's Party, has often criticized the intelligence agency for meddling in domestic affairs and arresting suspects without reason.
The spokesman for the party, Farhatullah Babar, said the leadership change did not necessarily address the core issues of concern.
"The real issue is whether the ISI is subject to civilian control or not; whether it is bound by a certain framework for the Parliament; whether their operations, action and finances are subject to review by the Parliament," Babar said.
Retired Pakistani officers considered friendly toward the United States said Pasha's appointment was positive. "It will give a good signal to the Americans," said Talat Masood, a retired general. "He is rated a really good officer by international standards."
Pasha may also provide an opening for more candid discussions with the Americans, particularly over the Taliban, Masood said.
American officials have long complained that Pakistan conducts a "dual policy" with regards to the Taliban - hostile to them as an ally of the United States while at the same time keeping up ties and allowing them to operate in Afghanistan.
"There will be greater clarity regarding the dual policy," Masood said. "What is needed is a better understanding by the United States and India why it is that Pakistan supports the Haqqani network."
Masood was referring to the militants of Jalaluddin Haqqani, an Afghan warlord who fought against the Soviet Union in the 1980s, but who has since turned his assets against the United States.
Past and present Pakistani officers said they were intrigued by Kayani's selection process to settle on Pasha, who served as a commander in a United Nations peacekeeping mission in Sierra Leone.
Kayani passed over 14 major generals for promotion, a distinctive break with Musharraf, who used to indulge in wholesale promotions, regardless of merit, to create his own lobby, said a senior military officer who asked not to be named because personnel matters were involved.
Among the other changes announced Tuesday were shifts of two Musharraf appointees who were due for rotation. The head of the agency's domestic activities, General Nusrat Naeem, and the chief of special operations, General Asif Akhtar, were replaced and not promoted.
Afghanistan approaches Saudis about peace talks
KABUL: As the war intensifies and U.S. commanders call for more troops, President Hamid Karzai of Afghanistan said Tuesday that he had sought the intercession of the Saudi royal family to bring the resurgent Taliban to peace negotiations.
But there was no immediate indication that the Taliban were ready to talk.
Karzai was delivering a message to Afghans marking Id al-Fitr, the Islamic festival at the end of the holy month of Ramadan. Standing on the grounds of the presidential palace, he said Afghan envoys had been to Saudi Arabia and Pakistan but had been unable to start negotiations with the increasingly assertive Taliban.
"The reality is that for the last two years, we have been sending letters and messages to the king of Saudi Arabia," Karzai said, "and we had urged him as a leader of the Islamic world - for us he is considered as leader of the Islamic world - to help us for security, peace and reconciliation in Afghanistan and for good relations in the region."
"There has been no negotiation and nothing done yet. If any negotiation happens, it should be inside our country."
Karzai said he had urged the Taliban leaders to "come back to your country and work for your people's happiness and stop killing and harming people."
Karzai was speaking as the conflict assumes ever more dire proportions. The death toll among foreign troops in Afghanistan has been climbing and militant operations have spread from Afghanistan into Pakistan, confronting U.S. strategists with increasingly complex calculations and deadly encounters.
The latest casualties were made known Tuesday, when the U.S.-led coalition said three soldiers had died in a roadside bomb explosion in southern Afghanistan.
The nationality of the soldiers was not released.
In a message marking the Islamic feast, the Taliban leader, Mullah Omar, made no reference to peace talks and accused the Afghan security forces of being thieves, smugglers and criminals, The Associated Press reported. His message demanded the withdrawal of foreign troops from Afghanistan.
Omar went into hiding after the invasion that ousted the Taliban in 2001. His whereabouts are disputed, with Afghan officials saying he is hiding in Pakistan and Pakistani officials insisting he is in Afghanistan.
Karzai offered to shield potential Taliban interlocutors from Western soldiers operating in Afghanistan. "Don't be afraid of the foreigners," he said. "If they try to harm you, I will stand in front of them."
It was not clear how the United States would view negotiations involving the Taliban.
In his message, by contrast, Omar seemed to refer to plans to increase the size of the Afghan Army from a cap of 80,000 to 134,000.
"There are thousands of security forces and it is clear that they are criminals, thieves, and the people cannot trust the security forces at all," he said in a statement posted on a Web site that has carried many Taliban statements in the past, The AP reported. "Foreign forces are the thieves of our culture, faith, as well as natural resources, in the same way the army and police steal the money, dignity and the honor of the people."
U.S. drone strike kills five in Pakistan
MIRANSHAH, Pakistan: A U.S. pilotless drone fired two missiles at a house in northwest Pakistan killing five people, Pakistani intelligence agency officials said on Wednesday.
Frustrated by an intensifying Taliban insurgency in Afghanistan, U.S. forces have in the past month carried out seven missile strikes by pilotless drones and a commando raid on the Pakistani side of the border.
In the latest attack, a drone fired two missiles at a house near the town of Mir Ali in North Waziristan, at about midnight on Tuesday (7 p.m. British time, two intelligence agency officials said.
The area is a known sanctuary for Pakistani Taliban and foreign militants near the Afghan border.
"We have reports of five dead including foreign militants," said one of the officers, who declined to be identified as he is not authorised to speak to the media.
He said he had no more information about the casualties.
The U.S. strikes into Pakistan, in particular the September 3 raid by ground troops, have angered Pakistan, straining ties between the allies and leading to tension along the border which Pakistani forces have vowed to defend.
The government says the strikes are an infringement of Pakistani sovereignty.
U.S. commanders have spoken of respect for Pakistan's sovereignty but have suggested they will not stop cross-border strikes on militants.
Three U.S.-led soldiers killed in Afghanistan
KABUL: Three soldiers from a U.S.-led coalition force in Afghanistan have been killed in a blast in the south of the country, the U.S. military said on Tuesday.
Violence has surged in Afghanistan this year with about 3,000 people, at least 1,000 of them civilians, killed in the bloodiest year since U.S.-led and Afghan forces overthrew the Taliban in 2001.
This summer has also been the deadliest period for foreign troops in the country, with the militants launching more daring and deadly attacks.
"Three coalition service members were killed September 29 in southern Afghanistan when their vehicle struck an IED," the U.S. military said in a statement, referring to an improvised explosive device, or roadside bomb.
The U.S. military did not release the nationalities of the soldiers and said the incident was under investigation.
Marketing flaw played big role in House rejection of 'bailout'
WASHINGTON: The surprise rejection of President George W. Bush's $700 billion proposal to stanch the bleeding in American markets underscored the failure of the White House and the congressional leadership to sell the country on the need for such a massive program.
As they scrambled to put together a plan authorizing the government to dive headfirst into the private sector, the president and his allies in both parties never managed to find a way to explain it to the public in a compelling way. By the time Bush addressed the nation on behalf of his "rescue plan," it was already tagged a "bailout."
As a result, the administration and Congress were left to play catch-up as critics on the Internet and talk radio succeeded in framing the debate. On conservative Web sites and airwaves, the plan was cast as nothing less than socialism. On liberal blogs and commentary shows, it was portrayed as a boon for Wall Street fat cats who gambled away other people's money.
"It's really unfortunate shorthand for a very complicated issue," the White House deputy press secretary, Tony Fratto, said Tuesday about the "bailout" term. "Our critics took the language of 'a bailout for Wall Street' and I think it's undeniable that the media chose that labeling for this debate."
Senator John McCain, the Republican presidential nominee, summed up the marketing mistake during an interview on CNN.
On Peachtree Street, the equivalent of Main Street in downtown Atlanta, people said Tuesday that they wanted the government to do something - but not to bail out Wall Street.
They recognized that the financial situation is dire, and that no perfect solution is readily at hand. And they seemed puzzled when asked what middle ground Congress might find where a majority of Democrats and Republicans may be willing to stand together.
Joe Reger, who runs a social-media company, said he wanted to see a compromise, but said he valued the importance of a free market.
He quoted Representative John Linder, a Republican who represents Georgia's Seventh District and voted against the compromise.
The Peachtree district is Georgia's Fifth and is represented by John Lewis, a senior House Democrat, who also voted against the plan.
"Congressman Linder said, 'The market punishes bad behavior.' That is my opinion, too," Reger said. "I don't believe it should be a bailout."
In his view, Congress was making a statement in defense of laissez faire when it walked away from the intervention plan. But it may have gone too far: "They've made their statement; now get down to work."
"When it hits Main Street, when it hits you and me, financing for cars and homes and everything we need is going to dry up," he said, echoing the warnings coming from Washington. "I don't want anybody to tell me this is going to be easy. The markets are going to work it through, but it's not going to be easy. For the person on Main Street to think this won't affect them is ludicrous."
Lina Ardila, a business strategist, also said she wanted an amorphous something from Congress - something she was reluctant to call a "bailout." But she said most people do not know enough about the financial crisis to make informed suggestions to Congress, adding, "At this point, we don't have any other options."
The one thing she knew that she wanted, she said, was that "whoever is responsible needs to be accountable. The government should present us with who the accountable people are."
R. Bruce Josten, an executive vice president of the U.S. Chamber of Commerce, which represents business people like Ardila and Reger, said it was hard to overcome the popular perception.
"The word 'bailout' has pretty much, by definition, killed this debate," Josten said. "I would be less than honest with you if I didn't tell you I've had to explain to some staff up on the Hill as well as some members, as well as some of my own business members who ask, 'What's the systemic risk?"'
As they sifted through the wreckage of the House rejection the plan Monday, administration officials said they were hamstrung by the urgency of the issue, never having the chance to rally allies and prepare a comprehensive marketing strategy as they usually would do for a major economic proposal.
"We had less time for that than normally," said Michele Davis, assistant secretary for public affairs at the Treasury, who helps devise strategies for explaining economic policies. "The situation that Wednesday and Thursday in the credit markets was so horrific, and with the short congressional schedule ahead of us, we had to get out fast."
As debate nears, concerns about Palin's readiness
A month after Sarah Palin joined John McCain's ticket to a burst of excitement and anticipation among Republicans, she is heading into a critical debate Thursday facing challenges from conservatives about her credentials, signs that her popularity is slipping and evidence that party members are worried about how much help she will be in November.
Palin, the vice-presidential nominee, flew to McCain's home in Sedona, Arizona, on Monday for three days of preparation with a team of aides, a sharp contrast to the less structured preparation that led up to McCain's debate with Barack Obama last week.
The amount of time and staff power being devoted to Palin's preparation suggested concern among McCain's associates that her early triumphs - a well-received convention speech and subsequent crowds at her appearances - had been overtaken by a series of setbacks, creating higher stakes for her in the forthcoming debate with the Democratic nominee for vice president, Joseph Biden Jr.
"I think she has pretty thoroughly - and probably irretrievably - proven that she is not up to the job of being president of the United States," David Frum, a former speechwriter for President George W. Bush who is now a conservative columnist, said in an interview. "If she doesn't perform well, then people see it.
"And this is a moment of real high anxiety, a little bit like 9/11, when people look to Washington for comfort and leadership and want to know that people in charge know what they are doing."
Palin, who continues to draw large crowds, is helping McCain with fund-raising and drawing volunteers and is drumming up support among the Republican base, party leaders said in interviews. Yet these rough two weeks have led some Republicans to reconsider their initial assessment that she would sharply increase McCain's appeal among women and independents.
Last week, for example, she sat for an interview with Katie Couric, anchor of "CBS Evening News." It did not go well. At one point, Couric asked Palin, who is governor of Alaska, what she meant when she cited her state's proximity to Russia as foreign affairs experience and specifically if she had ever been involved in negotiations with her Russian neighbors.
"We have trade missions back and forth," Palin said. "We - we do - it's very important when you consider even national security issues with Russia as Putin rears his head and comes into the airspace of the United States of America, where - where do they go? It's Alaska. It's just right over the border.
"It is from Alaska that we send those out to make sure that an eye is being kept on this very powerful nation, Russia, because they are right there. They are right next to - to our state."
The interview gave fodder for a devastating parody on "Saturday Night Live" and alarmed many Republicans.
"I think the Katie Couric interview shows that she needs to be briefed more on certain aspects," said Jim Greer, the Republican chairman in Florida. "She continues to be viewed very positively by the base of the party, but she needs to demonstrate that she's got the knowledge and ability to be president should the need arise."
Polling suggests that the number of Americans who think she is not fit to be president has increased since her introduction last month. A number of conservative columnists and thinkers have publicly turned against her or criticized McCain for choosing her, including George Will, David Brooks and Kathleen Parker, who wrote a column entitled "She's Out of Her League" for The National Review Online.
Frum noted the difficulty that Dan Quayle, who was elected vice president in 1988, had in recovering from an early set of mistakes that led him to be ridiculed as an intellectual lightweight.
"The story of Dan Quayle is he did probably 1,000 smart things as vice president, but his image was locked in and it was very difficult to turn around," he said. "And Dan Quayle never in his life has performed as badly as Sarah Palin in the last month."
Several Republicans said that all of this could ultimately play to Palin's benefit, lowering expectations for her so much that an otherwise mediocre performance in the debate could be hailed as a success.
"Thanks to the mainstream media, quite a low expectation has been created for her performance," said Ron Carey, chairman of Minnesota's Republican Party. "The style of Sarah Palin is going to amaze people. She is going to be able to amaze people with the substance she is going to deliver."
McCain's aides disputed the expressions of concern and said that if anything, the barrage of criticism and the performance in the few television interviews Palin has done gave her a low bar to clear in the debate. "I seriously hope that people continue to underestimate the most popular governor in America and a woman who speaks to the heart of America's economic angst," said Nicolle Wallace, a senior adviser to McCain.
McCain, appearing with Palin in another interview with Couric on Monday night, offered a hearty endorsement.
"I've seen underestimation before," he said. "I'm very proud of the excitement that Governor Palin has ignited with our party and around this country. It is a level of excitement and enthusiasm, frankly, that I haven't seen before."
Palin is preparing for the debate at a time of enormous uncertainty about a highly complicated issue, the unfolding crisis on Wall Street, which makes preparing for the face-off especially hard.
The McCain campaign appears to be leaving nothing to chance. Palin is spending two days in debate preparation at McCain's vacation home in Sedona, with her husband and children. She is practicing for the debate with Steve Beigun, a former staff member of Bush's National Security Council; Randy Scheunemann, McCain's chief foreign policy aide; Mark Wallace, a deputy campaign manager for Bush's 2004 re-election campaign; and Wallace, who was a communications director in the Bush White House.
"This debate will probably determine her political persona for the rest of the campaign," said Saul Anuzis, chairman of the Republican Party of Michigan, another swing state where recent polling suggests that McCain is trailing. "I expect Palin to show the country she is capable, articulate and has the leadership skills necessary to serve."
Katon Dawson, chairwoman of the South Carolina Republican Party, said the debate would be important to clear up what he described as misapprehensions about her created by "a pile-on by the media elite."
"You don't have this kind of negative, media attack without a question mark being put up," she said. "She's going to have a chance to erase that question mark."
Palin has traveled with a briefing team since Sept. 10, when she returned to Alaska and began preparations there. Two people close to the campaign, addressing her difficulties, said Palin had been stuffed with facts as if preparing for an oral exam and had become nervous and unnatural in the few interviews.
Advisers said Palin was a diligent, hard worker and was frequently up until the small hours of the morning in her hotel room trying to cram as much information as possible before the debate.
"I think she has to be careful not to be overprogrammed for the debate," said Robert Bennett, the Ohio Republican chairman. "I think she's a lot brighter than people are giving her credit for."
A failure of U.S. political leadership undermined the bailout effort
WASHINGTON: The collapse of the proposed rescue plan for the teetering financial system was the product of a larger failure - of political leadership in Washington - at a moment when the world was looking to the United States to contain the cascading economic crisis.
From the White House and Congress to the presidential campaign trail, the principal players did not rally the votes they needed in the House. They appeared not to comprehend or address in a convincing way an intense strain of opposition to the deal among American voters. They allowed partisan politics to flare at sensitive moments.
If there was any doubt that President George W. Bush had been left politically impotent by his travails over the past few years and his lame-duck status, it was erased Monday when, despite his personal pleas and an all-out lobbying effort by the White House, Republicans in the House abandoned the plan in droves.
There were lawmakers who opposed the package on the merits - and given that no one has faced a situation quite like this before, there is no proven playbook for addressing it. Yet substantial portions of both parties, keenly aware that the U.S. election is just five weeks away, judged that to favor the bill would be to imperil their own political futures.
But the leaders of both parties failed, many analysts agreed, in bringing the measure to the House floor without knowing whether it had the votes to pass - a bad move at any time, but especially so in this case, given the risk of the markets and the badly weakened financial system reacting badly.
Representative John Boehner, the House Republican leader, became emotional as he urged his party to muster the will to approve the package. After two-thirds of his members voted against it, he tried to shift the blame to a partisan speech delivered on the floor just before the vote by Representative Nancy Pelosi, a Democrat and the House speaker.
Pelosi delivered the Democratic votes she had promised, but could not muster enough of them to avert a defeat that could long be remembered.
The candidates to replace Bush, Senators John McCain and Barack Obama, were far from Washington, bit actors at best in helping to resolve a crisis that one of them will inherit.
The breakdown, even if temporary, dramatized the difficulties of dealing with fast-moving emergencies through the slow-moving and inherently political legislative process.
And despite rare bipartisan agreement among party leaders in this case, the gulf between what lawmakers were hearing in Washington and what they have been hearing from home proved too vast for many, particularly Republicans, to jump.
As a study in his prospective leadership, the role of McCain, the Republican presidential nominee, has done him no political good.
After interrupting his campaign last week and vowing to work with Republicans until a resolution was in hand, McCain was campaigning in Ohio on Monday with his running mate, Governor Sarah Palin, as the House vote commenced. There he implicitly took credit for the compromise bailout that congressional leaders had negotiated over the weekend, even as it was going down to defeat.
In his plane before takeoff to Iowa, McCain spoke by phone with Treasury Secretary Henry Paulson Jr. and the Federal Reserve chairman, Ben Bernanke. With no credit to claim in the bill's defeat, he flew to Iowa without making a statement to reporters on board. In Iowa, he criticized Obama, his Democratic rival, before adding, "Now is not the time to fix blame."
Even before the vote, House Republicans had trouble pointing to any contributions by McCain to their deliberations since late last week, when he and they forced the administration officials and congressional leaders to reopen negotiations and alter the package to impose some safeguards for the taxpayers' billions.
Obama, campaigning in Colorado, likewise was taken by surprise. He quickly revised his prepared speech, which announced the bipartisan agreement, to call for Congress to "step up to the plate and get this done." While Obama had tepidly endorsed the plan and kept in daily touch with Paulson and congressional leaders, aides said he had not twisted the arms of unwilling Democrats in its support.
At the White House, aides described the president as assiduously working the phones to lobby a dozen lawmakers. Vice President Dick Cheney, a former No. 2 House Republican leader, pitched in as well, with no better results.
"I think everyone with a phone is calling to see if we can shore up a member who may be skeptical of the proposal," Tony Fratto, the deputy White House press secretary, said before the vote.
But numerous other Republicans, including lawmakers and veterans of past administrations, groused that it was too little, too late. They said Bush should have summoned lawmakers to the White House and gone to the Capitol to plead his case personally - as other presidents including Bush have done in the past to sell their highest priorities.
"Reagan did it!" one said.
"There probably could have been an outreach that began earlier than in just the last couple of days," said Representative Adam Putman of Florida, a member of the Republican leadership, who supported the bailout. "But it is very difficult to deal with an outgoing administration" - its leverage waning - "than one that's early in its term."
The episode underscored that Bush's credibility and political clout, long gone among Democrats, is lacking among Republicans as well.
"There is a fair number of people who believe we're not staring into the abyss as has been represented," Putnam said. "And some people do believe we are facing a market collapse and something needs to be done, but they would rather not be the ones who have to vote for it."
Putnam, who lobbied colleagues opposed to the plan, said they were reporting that e-mails and calls against the bailout were pouring in at the rate of several hundred to every one for it.
Both parties agreed that the bailout would easily pass in the Senate, which is controlled by Democrats and where most of the Republicans were expected to support the bill. So the House Republicans made the difference.
Their mutiny captured just how much the Republican Party has changed from its 19th-century roots as the party of business and economic stewardship. The party's base has shifted to the more socially conservative and populist South and West, and away from its historic roots in the Northeast, including Wall Street.
House Republicans, most of them in districts purposely drawn to be packed with like-minded conservative voters, reflect that shift.
"I don't think this was a failure of leadership so much as a failure of followership," said Thomas Mann, a scholar on Congress at the Brookings Institution. "This is a function of a group of House Republicans who are philosophically opposed to doing anything like this bailout, and are prepared to take the risk."
David Brooks: Revolt of the nihilists
In 1933, Franklin Roosevelt inherited an economic crisis. He understood that his first job was to restore confidence, to give people a sense that somebody was in charge, that something was going to be done.
This generation of American political leaders is confronting a similar situation, and, so far, they have failed utterly and catastrophically to project any sense of authority, to give the world any reason to believe that this country is being governed. Instead, by rejecting the rescue package, they have made the psychological climate much worse.
George W. Bush is completely out of juice, having squandered his influence with Republicans as well as Democrats. Treasury Secretary Henry Paulson is a smart money man, but an inept legislator. He was told time and time again that House Republicans would not support his bill, and his response was to get down on bended knee before House Speaker Nancy Pelosi.
House leaders of both parties got wrapped up in their own negotiations, but did it occur to any of them that it might be hard to pass a bill fairly described as a bailout to Wall Street? Was media darling Barney Frank too busy to notice the 95 Democrats who opposed his bill? Pelosi's fiery speech at the crucial moment didn't actually kill this bill, but did she have to act like a Democratic fund-raiser at the most important moment of her career?
And let us recognize above all the 228 who voted no - the authors of this revolt of the nihilists. They showed the world how much they detest their own leaders and the collected expertise of the Treasury and Fed. They did the momentarily popular thing, and if the country slides into a deep recession, they will have the time and leisure to watch public opinion shift against them.
House Republicans led the way and will get most of the blame. It has been interesting to watch them on their single-minded mission to destroy the Republican Party. Not long ago, they led an anti-immigration crusade that drove away Hispanic support. Then, too, they listened to the loudest and angriest voices in their party, oblivious to the complicated anxieties that lurk in most American minds.
Now they have once again confused talk radio with reality. If the economy slides, they will go down in history as the Smoot-Hawleys of the 21st century. With this vote, they've taken responsibility for this economy, and they will be held accountable. The short-term blows will fall on John McCain, the long-term stress on the existence of the Republican Party as we know it.
I've spoken with several House Republicans over the past few days and most admirably believe in free-market principles. What's sad is that they still think it's 1984. They still think the biggest threat comes from socialism and Walter Mondale liberalism. They seem not to have noticed how global capital flows have transformed the political economy.
We're living in an age when a vast excess of capital sloshes around the world fueling cycles of bubble and bust. When the capital floods into a sector or economy, it washes away sober business practices, and habits of discipline and self-denial. Then the money managers panic and it sloshes out, punishing the just and unjust alike.
What we need in this situation is authority. Not heavy-handed government regulation, but the steady and powerful hand of some public institutions that can guard against the corrupting influences of sloppy money and then prevent destructive contagions when the credit dries up.
The congressional plan was nobody's darling, but it was an effort to assert some authority. It was an effort to alter the psychology of the markets. People don't trust the banks; the bankers don't trust one another. It was an effort to address the crisis of authority in Washington. At least it might have stabilized the situation so fundamental reforms of the world's financial architecture could be undertaken later.
But the 228 House members who voted no have exacerbated the global psychological free fall, and now we have a crisis of political authority on top of the crisis of financial authority.
The only thing now is to try again - to rescue the rescue. There's no time to find a brand-new package, so the congressional plan should go up for another vote on Thursday, this time with additions that would change its political prospects. Leaders need to add provisions that would shore up housing prices and directly help mortgage holders. Martin Feldstein and Lawrence Lindsey both have good proposals, of the sort that could lead to a plausible majority coalition. Loosening deposit insurance rules would also be nice.
If that doesn't happen, the world could be in for some tough economic times (the Europeans, apparently, have not even begun to acknowledge their toxic debt), but also tough political times.
The American century was created by American leadership, which is scarcer than credit just about now.
By Stephen S. Roach
In my 35 years as a professional economist, I have endured five recessions and about a dozen financial crises. Yet never has one hit this close to home. That makes the experience personal, which runs the added risk of coloring the judgment of the cold calculating analyst that I like to think I am. But here's a shot in any case.
While we have been in a credit crisis for more than 14 months, there can be no mistaking the telltale signs of the panic phase of this crisis that first became evident last week. We are in the midst of what the academic Charles Kindleberger called the "revulsion stage" of a crisis - indiscriminate and contagious selling of distressed assets that leads "banks to stop lending on the collateral of such assets."
When such fear grips the markets, investors (and speculators) are quick to generalize, punishing many for the sins of few. That's the most dangerous phase of any crisis - when market implosions start to take on a self-reinforcing life of their own.
The most important thing about financial panics is that they are all temporary. They either die of exhaustion or are overwhelmed by the heavy artillery of government policies.
That raises the most important question of all: What will it take to bring this panic to an end?
Kindleberger, again, lays it out clearly. He argued that financial panics tend to feed on themselves until one or more of three things happen: 1) prices fall to depths that bring investors back into distressed assets; 2) exchanges are closed, or 3) central banks spring into action. Right now, progress is not encouraging on any of those counts.
That's particularly true of the long-awaited fiscal policy response - the Emergency Economic Stabilization Act of 2008 that was surprisingly rejected by the U.S. House of Representatives on Monday. With financial markets melting down in the aftermath of the U.S. Congress's politicization of this crisis, I have sneaking suspicion that American politicians will now quickly change their minds and vote to approve this plan in the next few days. And that will most assuredly benefit the most illiquid portions of increasingly dysfunctional credit markets.
Unfortunately, the congressional fix is deficient in several key respects, especially regarding the scope of the package. The original Paulson plan was set at $700 billion. Yet the congressional version proposed a down payment of only $250 billion and offered up the remainder in two separate tranches - one tied to presidential approval and the other dependent on a new congressional authorization.
During times of crisis and panic, the policy response should err on the side of overkill. This approach errs on the side of underkill.
Furthermore, a policy response should also be unmistakably direct in its focus to arrest markets in disarray. The original Paulson plan of three and a half pages was precisely that. Sure, it had flaws, but it was unmistakably clear in taking dead aim on dysfunctional mortgage and credit markets.
Congress responded with a 110-page piece of legislation, complete with added stipulations on equity warrants for participating institutions, restrictions on executive compensation, a supplementary insurance scheme and four new bureaucratic oversight functions. This dilutes the thrust of the policy response and blunts its impact on market angst.
With the fiscal package falling short on those counts, the burden for a fix is now likely to fall more acutely on monetary policy. In times of extreme crisis, the central bank needs to make a strong and unequivocal statement that it is prepared to do everything in its power as a lender of last resort.
Specifically, I think the Fed needs to borrow a page from the Greenspan script of the crash of 1987 and send a direct and simple message of open-ended liquidity support to markets in crisis. At the same time, it should make a strong symbolic move by cutting its policy rate by 50 basis points immediately to let the markets know it takes this matter very seriously. And the Fed should enlist other major central banks to join in a rare coordinated policy action.
I am convinced that such a powerful monetary policy response, in the face of a suboptimal fiscal response, would go a long way in stopping the madness that is now gripping financial markets.
Such actions would also go a long way in tempering the collateral damage that is being inflicted on the U.S. and broader global economy. The Fed chairman, Ben Bernanke, is a renowned expert on the Great Depression. He knows better than anyone that the most important lesson from that period was a series of major policy blunders by America's central bank. That knowledge now needs to be put to work.
Today's Fed is hardly an innocent bystander to this mess, especially in light of the role it played in condoning the excesses of the past decade. Is it doomed to stay that course, as well as repeat the errors of the 1930s?
My bet is a resounding "no." But it's time for Bernanke to dispel any doubts once and for all. And it's high time for Congress to put aside the politics of scapegoating and get on with the heavy lifting of crisis containment. The alternative is simply unacceptable.
Stephen S. Roach is chairman of Morgan Stanley's Asia operations.
Global stocks surge on optimism over U.S. bailout
PARIS: Stock markets refused to capitulate Tuesday, despite U.S. lawmakers' rejection of a $700 billion financial bailout plan. But interest rates for lending between banks hit fresh record highs, reflecting continued stress in the financial system despite additional cash pumped in by central banks.
After a rough start in Asia, markets began a rebound that carried over into Europe and to Wall Street.
U.S. stocks staged a broad recovery Tuesday after the big sell-off Monday. The Dow Jones industrials average gained 485.21 points, halving the record 777-point decline on Monday. The Standard & Poor's 500-stock index rose 58.34 points, or 5.27 percent, to 1,164.73, and the Nasdaq composite index rose 98.60 points, or 4.97 percent, to 2,082.33.
On top of bargain hunting, investors seemed to be coming down on the side of optimism in the tug of war between uncertainty and hope that the U.S. bailout would eventually be approved by the U.S. Congress.
"The market's disappointed, shocked even, by what happened in Washington, but there's still an expectation that a deal will be done," said Henk Potts, equity strategist at Barclays Wealth in London. There was also a sense that there was "aggressive overselling" on Wall Street Monday, he said.
It is not unusual for stocks to show signs of recovery in the hours after a significant rout. In the last several decades, the Standard and Poor's 500 index has dropped by more than 6 percent on only a handful of occasions. (It fell nearly 9 percent on Monday.) On average, the index has rallied by 3.5 percent the following day, according to data from Citigroup.
The upswing came despite new reasons for European investors especially to worry about contagion. Dexia, a French-Belgian lender, was given a state-backed rescue of 6.4 billion, or $9.2 billion. The Irish Finance Ministry said all deposits in Ireland's six locally registered banks would be guaranteed by the taxpayer if any of them failed.
The health of the U.S. economy and the global financial system is by no means assured.
Strains worsened overnight in the credit markets, the plumbing of the economy that many businesses rely on to finance routine expenses like utilities and payroll. Banks sharply increased their lending rates on short-term loans, sending Libor, a benchmark rate, to its highest level ever. Several measures of anxiety in the market reached record highs as new injections of central bank money failed to dampen a hoarding mentality among financial institutions.
"The money markets have completely broken down, with no trading taking place at all," said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. "There is no market any more. Central banks are the only providers of cash to the market; no one else is lending."
But in the public eye, the stock markets are the most visible gauge of an economy's condition.
In Europe, the Dow Jones Euro Stoxx 50 index, a benchmark for the euro region, rose 30 points, or 1 percent, to close at 3,038. In Paris, the CAC 40 rose 78 points, or 2 percent, to close at 4,032 points; in Frankfurt, DAX rose 24 points, or 0.41 percent, to close at 5,831 points; and in London, the FTSE-100 rose 83 points, or 1.74 percent, to close at 4,902 points.
Asian stocks pared losses at the close, having plunged in early trading. In Tokyo, the Nikkei 225 closed down 4.1 percent to end at a three-year low of 11,259.86 points. The benchmark index in Hong Kong closed up by almost 1 percent. In India, the top index fell to a two-year low before bouncing back to end 1.9 percent higher.
In European trading, Dexia shares, which were suspended at the open, vaulted 10.1 percent to close at 7.79.
"The market is encouraged - this restores confidence," Georg Krijgh, an analyst at Rabo Securities in Amsterdam, said of the Dexia bailout. "It shows the government is supporting the banks and makes Dexia one of most solvent in the region, with Fortis and KBC."
Still, some analysts expressed concern about the long-term implications of relying on state bailouts, and of greater concentration in the banking sector.
The euro fell 2.6 percent to $1.4061. Against the yen, the dollar rose 2 percent to ¥106.24.
In London, shares in HBOS, the mortgage lender that has accepted a bid from a rival, Lloyds TSB, fell 19.6 pence, or 13.8 percent, to close at 122.40 pence, as a result of speculation that Lloyds could renegotiate the deal.
The Moscow Interbank Currency Exchange index rose 8 points, or .080 percent, to close at 1,027 points after a slide that is among the worst emerging market sell-offs in a decade. The Micex is down about 50 percent just this quarter. Regulators suspended trading on Tuesday morning after shares in Gazprom and other big companies tumbled. The Federal Financial Market Service had already suspended trading twice this month.
"The cause of the risk is not in Russia, it is in Washington," Roland Nash, chief analyst at Renaissance Capital, said.
Oil prices were still volatile after plummeting Monday. Light, sweet crude for November delivery was up $3.73 at $100.10 a barrel in afternoon trading on the New York Mercantile Exchange.
U.S. Treasury securities fell in New York, paring gains Monday, as a result of speculation that U.S. lawmakers would salvage the legislation.
As markets swung back and forth on Tuesday, governments and central banks moved to calm investors with interventions, verbal and financial.
In Japan, Prime Minister Taro Aso vowed to protect "the Japanese economy and prevent the financial system from falling apart." The German chancellor, Angela Merkel, said that the quick passage of a U.S. rescue was "the precondition for creating new confidence on the markets and that is of incredibly great significance."
The European Central Bank lent banks 190 billion for seven days. It also lent banks $30 billion for one day. The Bank of Japan pumped $29 billion into credit markets, its third intervention of this scale since the collapse of Lehman Brothers in September. On Monday, the Federal Reserve increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide.
There was also speculation building about the likelihood of cuts in short-term interest rates, at least from the Fed and the Bank of England, as inflation pressures moderate.
Still, interbank lending remained stuck, analysts said. Euribor, the rate that banks charge each other for one-month loans in euros, climbed to a record 5.05 percent on Tuesday, according to the European Banking Federation.
The overnight London interbank offered rate, or Libor, for dollar loans climbed 431 basis points to an all-time high of 6.87 percent, the British Bankers' Association said.
Analysts said the problems were being exacerbated by the fact that Tuesday was the end of the calendar month and the end of the quarter, meaning calls on cash were higher than normal.
"Central banks are flooding the market with liquidity," said Richard McGuire, a fixed income strategist at RBC Capital Markets in London, "but it doesn't tackle head on the concerns about counter-party risk. The best we can hope for is a moderation in spreads and short term rates."
The gap between three-month Libor rates and the three-month U.S. Treasury yields grew slightly to about 3.51 percentage points in afternoon trading in London, the widest on record.
Some analysts are only just starting to look at the shape of the banking sector in the months and years ahead.
"A more concentrated banking sector seems likely and higher costs of funds with lower growth are other reasonable conclusions," Nigel Myer and Folkert Jan Van Der Veer, analysts at Kleinwort Benson, said in a research note. "These effects will be passed on to the real economy in the form of higher borrowing costs and lower leverage for the private sector."
Interbank lending slowed nearly to a halt on Tuesday in Hong Kong, where nerves are still raw from a run last Wednesday against Bank of East Asia, which survived the panic. The Securities and Futures Commission there said it would not hesitate to act against abusive short selling.
The Hong Kong Monetary Authority, which effectively serves as the central bank, announced a plan for making more liquidity available for banks. The measure allows commercial bank to submit dollar-denominated securities to the monetary authority and obtain Hong Kong dollars in exchange.
Stephen Roach, the chairman of Morgan Stanley Asia, said Asian financial institutions had bought relatively few exotic financial securities in recent years and so had been insulated from the drying up of markets in the West for many of these securities. But with its reliance on exports, Asia may still be susceptible to a global economic slowdown, he said.
What goes before a fall? On Wall Street, reassurance
"Jim, we have a great future as an independent company," Robert Steel, Wachovia's chief executive, told James Cramer on CNBC's "Mad Money." "We're also focused on very exciting prospects when we get things right going forward. I didn't have time today to talk about the good things going on at Wachovia."
That interview wasn't last month or last year, it took place, amazingly, two weeks ago. Wachovia's shares closed at $10.71 that day. On Monday, Citigroup bought the company for $1 a share.
What was Steel thinking? Did he think he could "spin" his way to survival?
It is a conundrum that CEO's of troubled companies seem always to face. In an effort to bolster public confidence in their businesses, they give interviews and try to put on a happy face right before their companies go off a cliff.
We've seen it over and over again, especially during this latest chapter being written about the financial industry, a world that is predicated on betting billions of dollars of paper on little else than the confidence that the guy on the other side of the bet will be in business tomorrow. A rumor that a company is in trouble can turn into a self-fulfilling prophesy unless it's stamped out quickly, or at least that's the thinking on Wall Street.
Just rewind the tape: Days before Bear Stearns was sold to JPMorgan Chase for $2 a share, as speculation swirled about Bear's stability, Alan Schwartz, Bear's chief executive, went on television to say: "We don't see any pressure on our liquidity, let alone a liquidity crisis."
That same month, Erin Callan, then Lehman Brothers' chief financial officer, confidently told analysts that the firm had raised enough capital. "We took care of our full-year needs at that point," Callan said in a conference call before exchanging high-fives with her colleagues; her performance moved Lehman's shares higher even though the company reported miserable numbers.
Of course, after the fact, we point fingers. Were they lying? In hindsight, it always seems that way no matter how they rationalize away their comments.
On Yahoo's chat boards, a chorus of Wachovia investors, some of whom bought stock after Steel's appearance, were raging on Monday. Quoting one poster verbatim: "He should be put in JAIL!!! I saw him on CNBC in the last few weeks & I thought he said "EVERYTHIBG was OK."
It didn't help that Cramer later told his TV audience to buy Wachovia, calling it one of only a few potential "winners" in the $700 billion bailout being proposed, and said that Steel's background as the former Treasury under secretary meant he had "a better handle on how this process works than anyone else."
On Cramer's show Monday night, he spent an entire segment apologizing to his viewers about having Steel on the program and for his own bullish call on Wachovia's stock. "I screwed up," he said, referring at one point to Steel as a friend for 25 years. "I believed in the guy. Did he take advantage of me? Perhaps yes."
A spokeswoman for Steel defended his appearance, saying, "The environment we were operating in dramatically changed" between then and now. She added, "If you look at his comments, he tempered them by saying 'We always do what's right for shareholders.' "
In fairness, she's right about that. Steel said on the same program that, "We're a public company. So we're going to do what's right for shareholders, I can promise you that." And at times, he seemed to show some self-restraint, resisting talking directly about Wachovia, instead spending much of the program talking in generalities about the troubles in the market.
But at $1 a share, it wasn't much of a promise. And to those in the takeover game, Steel's promise seemed like a vague hint that he might sell the company, at a premium no less. Shareholders piled in on speculation of a deal, possibly with Morgan Stanley. (A week later, Steel hired his former employer, Goldman Sachs, to shop the firm.)
But by all accounts, Steel is a pretty smart guy. He had to know that going on television the same day that Lehman Brothers went bankrupt, Bank of America bought Merrill Lynch and AIG was on the brink of collapse was just asking for trouble. And it's hard to imagine he didn't appreciate the precarious state of his own company given the carnage around him. He knew how fast a bank's fate can turn. Worse, he and all the other happy-talk executives put themselves in legal jeopardy.
It is hard to imagine that taxpayers would spend $700 billion (or any amount) to bail out Wall Street and the economy without some big-name executive going to jail. For better or worse, it is the way our society works. Michael Milken can tell you all about it.
More likely than not, when we start seeing pictures of CEO perp walks, the crime won't be theft or some other kind of financial chicanery, it will be some kind of fraud probably lying to the investing public.
"If there are ways people in this room go to jail, it's probably through crimes of upholstery the cover-up will kill you," Joseph Grundfest, a professor of law at Stanford University who is a former commissioner of the Securities and Exchange Commission, said at a class for directors of the nation's Fortune 500 that I attended in 2002 in the aftermath of Enron's collapse. It's a great line that I've never forgotten.
An advertising deal with Wachovia but suddenly nothing to market
It may go down in the annals of Madison Avenue as the shortest tenure on a big account.
Three days after awarding a team of agencies owned by the WPP Group its creative and media assignments, Wachovia suspended the decision. The team was to be led by the flagship New York office of Ogilvy & Mather Worldwide.
The reason for the "never mind" was an announcement on Monday morning that Citigroup would acquire the banking operations of Wachovia. That will most likely eliminate the need for the WPP agencies because Citigroup has its own agencies, which include the Publicis Worldwide unit of the Publicis Groupe and Mediaedge:cia, part of WPP.
"In light of today's announcement," a spokeswoman for Wachovia, Mary Beth Navarro, said on Monday afternoon in an e-mail message, referring to the deal with Citigroup, "Wachovia has paused the finalization of our agreement with Ogilvy."
"We will work closely with our Ogilvy partners and our future colleagues at Citigroup to determine the best way to support our brands and our business going forward," the statement concluded.
A spokeswoman for Ogilvy New York, Toni Lee, said the agency did not have anything to add to the statement from Wachovia, which is based in Charlotte, North Carolina.
Wachovia's announcement on Friday ended a review that began in May. The review had been narrowed to the team led by Ogilvy New York and a team led by another WPP agency, Y&R.
Ogilvy New York was to take on the creative duties for Wachovia that had been handled by the Winston-Salem, North Carolina, office of Mullen, part of the Interpublic Group of Companies. The Maxum unit of WPP was to become the Wachovia agency for media planning and buying, replacing the Boston office of Carat, part of the Aegis Group.
And Wachovia was to have worked with other WPP agencies like Neo@Ogilvy, for digital marketing, and Soho Square, to create direct-mail campaigns to promote credit cards.
Actually, the WPP agencies did not even have three days to celebrate. Hours after Wachovia announced its decision on Friday, reports appeared on newspaper Web sites that Wachovia had started merger conversations with Citigroup, Wells Fargo and other banks.
When the review began, it was estimated that Wachovia spent about $150 million a year on advertising. In its announcement on Friday, Wachovia said it would spend less on advertising in 2009 than it would this year, citing "market conditions" as well as the efficiencies of consolidating most of its campaigns at agencies all owned by the same company.
In retrospect, some of what Wachovia announced last week might be viewed as whistling past the graveyard.
"Selecting one of the premier ad agencies in the world should be viewed as a strong indication of our focus on future growth," Art Smith, head of global brand marketing at Wachovia, said in a news release that Wachovia distributed on Friday. "The Wachovia brand is synonymous with the best customer service in the financial industry, and the Ogilvy team has the expertise and creative strength to help Wachovia ensure that our brand remains strong and becomes even more valuable over time."
If it is any consolation for the WPP agencies, they have company on Madison Avenue as the banking industry rapidly consolidates as a result of the financial crisis.
In October 2007, the Playa del Rey, California, office of TBWA/Chiat/Day, part of the TBWA Worldwide division of the Omnicom Group, was chosen as the new creative agency for Washington Mutual, which spent about $100 million last year on advertising. Four months later, TBWA/Chiat/Day brought out a new campaign for WaMu with an upbeat theme, "Whoo hoo!"
But last Friday, WaMu was sold to JPMorgan Chase, which plans to operate Washington Mutual branches under the Chase bank brand and eliminate the Washington Mutual name. Chase has its own agencies, which include McGarryBowen for creative duties.
The trade publication Advertising Age, in an article on its Web site on Monday, estimated that after all the deals now pending, Citigroup would emerge as the bank that spends the most each year on advertising and marketing, at more than $540 million, followed by JPMorgan Chase at more than $510 million.
The acquisition of Merrill Lynch by Bank of America may also result in agency changes if Bank of America decides to reassign campaigns for Merrill Lynch to the agencies that work for Bank of America.
European leaders seek to blunt financial crisis
FRANKFURT: European leaders went on the offensive Tuesday in a bid to blunt the effects of the global financial crisis, bailing out another major bank that operates in France and Belgium and promising to protect all bank depositors in Ireland.
The actions, which reflected the range of financial troubles suddenly popping up across the Continent, were accompanied by soothing words and promises of further action from London and Paris to Madrid to Berlin.
With illusions firmly dispelled that Europe could escape a sustained pummeling from credit and equity markets, governments threw a 6.4 billion, or $9 billion, lifeline to Dexia, a French-Belgian lender, only a day after swinging into action on behalf of a raft of other banks.
Irish authorities, unsettled by a record plunge in stocks the previous day and rumors of frantic bank withdrawals, announced a blanket guarantee for all depositors and creditors of six Irish banks. Previously, deposits were insured up to 100,000, recently raised from 20,000. The decision leaves the Irish government committed to $400 billion in liabilities, an amount twice the country's annual economic output.
Separately, the European Central Bank redoubled its efforts to keep creaking money markets supplied with cash so that lending will not dry up. But it was hard-pressed to stay on top of the situation.
The brisk pace of firefighting efforts came on a day when investors and policy makers around the world digested, with a mixture of surprise and disdain, the rejection Monday by the House of Representatives of the $700 billion U.S. bailout plan of Treasury Secretary Henry Paulson Jr.
Chancellor Angela Merkel of Germany, striking a lecturing but hopeful tone, reminded U.S. legislators of what was at stake.
"The German government expects, and I expect, that the rescue package in the United States of America be approved this week," Merkel said in Berlin. She added that the bailout was "the precondition for creating new confidence in the markets and that is of incredibly great significance."
At the same time, other European leaders pointed to efforts under way to shelter Europe from the storm.
Spanish officials cited their regulatory approach, which has kept their banks generally well-capitalized despite a real estate meltdown there as bad as in the United States.
In Britain, Alistair Darling, the chancellor of the Exchequer, promised to outline the government's plans in a speech next week even as David Cameron, the Conservative Party leader, struck a rare bipartisan note by saying he would work with the governing Labour Party to solve the crisis.
President Nicholas Sarkozy of France, who is trying to organize a mini-summit meeting of some European leaders as early as Friday in Paris, huddled with senior bankers at the Élysée Palace on Tuesday morning.
Jean-Claude Juncker, Luxemburg's prime minister and finance minister, will also attend the meeting in his role as chairman of finance chiefs from the euro area, as will Jean-Claude Trichet, president of the ECB. Juncker said that the 27-nation European Union needed to work together more closely but the outlines of a common strategy remained hazy at best.
"We all agree that the method by which everyone comes up with ad hoc solutions in his corner the moment a crisis starts in a financial company isn't a systematic enough method," Juncker said.
But a senior French official said the idea is not to come up with "a European version of the Paulson plan." European governments neither have the fiscal leeway to borrow enough money, nor do they have a joint treasury. Instead, one measure under discussion is to suspend strict EU antitrust rules in the case of an emergency nationalization, while another would link pay of traders to long-term performance rather than short-term gains.
Dexia, which was created in the 1990s from a network of Belgian and French municipal lenders, came under pressure after it extended credit this summer to a New York bond insurer that has suffered alongside similar American companies. Its shares lost nearly a third of their value Monday, rebounding on Tuesday after the bailout was announced.
The Belgian authorities and shareholders agreed to split 6 billion of the bailout with the French government and its state-owned bank, Caisse des Dépôts, leaving the French faction with more than 25 percent of the lender - a blocking minority for key decisions.
The Luxemburg government kicked in 376 million via convertible notes.
Axel Miller, Dexia's chief executive, said Dexia felt it was in the clear until another Belgian bank, Fortis, had to be bailed out Monday alongside several other European institutions.
"The management of the crisis has at times been a little chaotic and the markets just don't accept that," Miller, who is leaving the bank, said. "It's time for regulators globally to get together to find some kind of global solution."
Brian Lenihan, Ireland's finance minister, traced his country's decision back to the bankruptcy of Lehman Brothers two weeks ago, saying the U.S. authorities "were mistaken in permitting that bank to go to the wall because it has had very serious consequences for the world financial system."
Lenihan urged his fellow EU members to consider the Irish solution.
The biggest fear is that one of Europe's most prominent cross-border banks might find itself in trouble. Most analysts said that prospect remained remote. But they warned that the ad hoc approach to the Fortis bailout, in which Belgium, the Netherlands and Luxemburg each took stakes in national units, would be hard to duplicate on a bigger scale, even though France and Belgium bought into Dexia's holding company.
"Could you replicate that in the case of a Deutsche Bank where the Germans bail out Deutsche Germany and the British bail out Deutsche U.K.?" asked Daniel Gros, director of the Center for European Policy Studies in Brussels. "That is the logic of the Fortis bailout."
On Wednesday, the European Commission, the executive arm of the EU, is scheduled to publish proposals for stricter regulation of rating agencies and bank capital, but those are longer-term measures.
The ECB is not authorized to recapitalize failed institutions, only to provide liquidity against collateral, a function that is keeping money markets alive. A raft of individual operations by the ECB on Tuesday captured the acute jitters among banks.
It lent 190 billion in its normal weekly refinancing operation, an unusually big amount. It fed the constant thirst for dollars from its currency swap line with the U.S. Federal Reserve in the morning and then decided to repeat the process in the afternoon because demand was so voracious. Banks also lodged ever-larger deposits with the ECB, foregoing higher returns elsewhere but safe in the knowledge that the central bank could not go bust.
Evidence that market judgment of European banks was anything but rational abounded.
Royal Bank of Scotland, a bank with a strong capital base and a diversified retail business, felt compelled to issue a statement after investors pounded its shares. The red flag was raised over Royal Bank, in the eyes of investors, because it joined a consortium with Fortis before the crisis began 14 months ago.
The apparent determination of European policy makers to stick with a case-by-case approach left many vulnerabilities, some analysts said.
"We just don't know what's next," said one French official close to talks with banks, who declined to be identified because of market sensitivities. "Even if many European banks are more diversified than some American banks that got into trouble, in this business everything is linked."
US/INTERNATIONAL: Hedge funds face multiple threats
Hedge fund sector resilience? Whereas banking sector difficulties have provoked a host of policy responses, including Treasury Secretary Henry Paulson's now-moribund 700 billion bailout package -- no hedge fund problem has yet necessitated a similar systemic response. The apparent resilience of the sector is particularly striking given that recent estimates suggest that the 2 trillion dollar hedge fund industry accounts for approximately 30% of US equity and bond trades (although volatile market conditions have led many managers to shift greater percentages of their holdings into cash-equivalents). Hedge fund advantages. Hedge funds are subject to minimal regulation. Yet since hedge fund managers are allowed to invest their own money alongside that of their clients -- in contrast to the situation in the banking sector -- they theoretically have considerable incentives to focus on risk management issues. Moreover, hedge funds by design limit inflows and outflows of investments:
By law, only affluent investors and institutional investors may invest in hedge funds; in practice, the leading hedge funds have substantially higher minimum investment requirements than the statutory threshold.
Investors are usually allowed to exit funds only on the final day of the financial quarter, and are subject to tight limitations on the percentage of their investments that may be withdrawn.
Hedge storm warning? Yet the juxtaposition of the quarterly deadline today for redeeming hedge funds investments and yesterday's House vote to reject Paulson's bailout plan may lead to increased withdrawals by hedge fund investors wary of locking up their investments in what promises to be an extremely challenging quarter:
Investor liquidation incentive? Some investors may liquidate their hedge fund investments not because of underperformance per se, but to increase their liquidity in the face of continued tight credit conditions, since the structure of hedge fund investments only allows redemptions at certain fixed times. Therefore, the risk averse position is to move funds into cash if it looks likely that it will be necessary to have access to funding during the current quarter. In the current tight credit market conditions -- where many investors may need to access liquidity -- there may be a rush to liquidate investments during quarterly 'redemption windows'.
Leverage problems. In current market conditions, hedge funds' use of leverage is also highly problematic. Leverage magnifies losses, as well as gains. If redemptions or market losses force some funds rapidly to unwind their positions, this could worsen the current asset-price and de-leveraging spirals.
Operating challenges. Hedge fund managers also face substantial near- and medium-term operating challenges:
Short selling bans. Hedge fund managers rely on complex strategies that require access to a range of instruments, including futures, options and derivative instruments, and tactics, including short selling. UK and US regulators have imposed temporary short-selling bans on certain financial shares, among other restrictions, despite limited evidence that unbridled short selling has caused share sell-offs, particularly in the financial sector. Moreover, various common trading and other hedging strategies require an investor to short one asset while going long on another.
Regulatory clampdown? Beyond the standard threat of hedge fund regulation, in the form of registration, monitoring, and disclosure requirements, and accelerating investigations into alleged manipulation, regulators and political figures are seeking scapegoats. Measures may not necessarily be targeted at hedge funds per se, but instead these institutions may no longer be excluded from regulation designed to mitigate systemic risks. This represents a serious long-term threat to standard hedge fund operating procedures.
Scores killed in stampede at Indian temple
JODHPUR, India: At least 147 people died in a stampede Tuesday at a temple in Rajasthan State as Hindus gathered to begin one of the most important religious festivals of the year, the police said.
A handful of people fell while climbing a steep slope toward the Chamunda temple, which is inside a hilltop fort near Jodhpur, triggering the stampede and the crush, a Reuters photographer at the scene said.
Officials said the crowds at the temple were especially large Tuesday, as pilgrims gathered for the start of Navratri, a nine-day festival. Estimates put the size of the crowd between 12,000 and 20,000.
"Some people fell on a ramp leading to the temple and it caused more casualties," said Rajiv Dasoth, an inspector general with the Rajasthan police. He added that a barricade dividing women and children from men broke, causing more casualties.
Local television showed volunteers carrying bodies and trying to revive them on the street. One child cried over her father's lifeless body, wailing, "Daddy, please get up."
"People were falling over one another," said Anubhav, a witness who only gave his first name. "Many ran but were trampled under the feet of thousands."
Some witnesses said too many people were trying to pass through a narrow part of the climb at the same time. Many suffocated after they fell.
"We have a final figure of 147 people died and 55 injured," Dasoth said. "The situation is under control, and all the injured are being taken care of in hospitals."
Another official at the scene, Naresh Pal Gangwar, a district collector, said 168 people had died.
Bodies were piled high in a local hospital, while the injured writhed in pain, the Reuters photographer said.
The Rajasthan home minister, Gulab Chand Kataria, said, "We will definitely conduct an inquiry and if we find people were negligent, we will definitely take action."
In India, stampedes are not uncommon at temples, where thousands gather to pray during festivals and the police fail to control the surging worshippers.
Last month, a crush outside a Hindu temple in the mountains of northern India killed at least 145 pilgrims. The authorities have ordered an investigation into the disaster, which occurred after rumors of a landslide caused pilgrims to panic at the Naina Devi Temple in Himachal Pradesh State.
'Is my money safe?' and other questions to ask
For all of you on Main Street who have been watching the turmoil on Wall Street for the last few weeks, Monday's shockwaves rattled even the most steadfast.
The day began with the announcement that another big bank Wachovia had been taken over, just days after Washington Mutual collapsed and was sold. In early afternoon, the House rejected the bailout package for the financial industry. Stocks plunged, with the Dow ending the day down nearly 778 points in the worst single-day drop in two decades.
What is a regular investor to make of it all? What about people who have money in bank accounts? Below are some answers to questions that are probably on your mind.
Q. Why did the stock market fall so far so fast on Monday?
A. The element of surprise surely didn't help, since everyone was expecting the bailout bill to pass. There may have been a bit of investor disgust thrown in, too, a sense that our representatives in Washington just don't get it.
Fear may be the biggest driver, however the worry that it may be weeks or longer before companies can get the affordable, short-term loans they need to finance their operations. Without easy access to that money, it's hard to run a profit-making operation on a day-to-day basis, let alone grow over the long haul. The professional investors who often drive big market moves don't want to hold onto stocks to see if things will really get that bad.
Q. What's likely to happen in the markets over the next few days?
A. It's possible that Monday's market moves will spook members of the House of Representatives enough that they will be willing to change their votes with only a modest amount of compromise. Or, there may be hasty efforts to write a new bill from scratch. This will take days, however, not hours, since Tuesday is the Jewish holiday of Rosh Hashana. Stocks may rebound, at least somewhat, if another similar bill emerges. But much will depend on the revisions.
Q. Is any investment truly safe right now?
A. As long as you trust the United States government, sure. Plenty of banks, like HSBC Direct and Capital One are offering online savings accounts paying more than 3 percent. These accounts have all the normal Federal Deposit Insurance Corp. protections of at least $100,000. Also, the Treasury Department is currently insuring investors who had holdings in money market mutual funds as of Sept. 19, as long as the fund company pays to participate.
Q. What about Treasury bills?
A. Treasuries are issued and backed by the United States government. But since throngs of investors have rushed into these investments, it has pushed their yields down. Way down. Some Treasuries, with maturities in the one-week to three-month range, are yielding less than 1 percent, anywhere from 0.10 percent to 0.50 percent. Clearly, many investors are willing to accept paltry yields as long as they know their money is secure.
Another government offering is Treasury Inflation-Protected Securities, or TIPS, which protect investors against rising inflation. That may be one result of any big government bailout.
Q. My retirement portfolio has been wrecked by this. How should I respond?
A. Continue to save. Big losses mean you'll need that much more time, or good news, to bring your balances back to where they need to be for you to retire comfortably. If your employer matches your contributions, this is a great time to take advantage of the largess.
As for whether you should pile into beaten down stocks, no one knows how much further the markets will fall or how long they'll take to bounce back. But people who move their savings to ultrasafe investments and then leave them there usually miss out on the gains when the markets come back. If you need to do that to sleep at night or avoid stomach ulcers, then do what you have to do. But it may cost you in quality of life come retirement time.
Q. But what if I am about to retire? Then what?
A. Leaving the work force at a time like this creates big problems. Not only is your portfolio down, but you need to start withdrawing from it. So you are essentially locking in your losses.
If your portfolio has taken a big hit, it may be time to seriously consider delaying retirement. Working just a few years more can make a big difference. Or, a part-time job may keep you from having to dip into your portfolio before it recovers. To get a better idea of how much you can afford to withdraw, you can test different amounts with a retirement income calculator on the Web, like T. Rowe Price's.
Q. With things looking increasingly gloomy, though, why not allocate extra cash to other types of savings or paying down debt?
A. If you're saving for a downpayment, you could put enough money in your retirement account to match any employer contribution. Then, use whatever money you have left for the downpayment fund, which should be in an ultrasafe account. The same logic goes for a teenager's college fund, which ought to be mostly in steady investments by now. There are nice tax breaks on 529 college savings accounts, too.
Yes, paying down debt, especially high-interest credit card debt, is always a good idea, though it's probably best to take advantage of employer matches on retirement savings first.
Q. Is it time to buy stocks?
A. Like gambling? This is a great time to make bets on the wide price swings that we're seeing in some stocks and entire sectors of the market. Just be prepared to lose big, as plenty of professionals have done of late.
Q. I'm worried sick about my parents, who rely on stock dividends for their income. What will happen to them?
A. It's not a great time to be relying on dividends. We've seen plenty of companies cut them. (Citibank did so on Monday as part of its acquisition of Wachovia's banking operations.) Still, if your parents were planning all along to keep their shares until they die and live only off the dividends and Social Security, perhaps now is the time to encourage them to be selfish. They could sell some shares and live well now, even if it means you'll get less later when they pass on.
Q. I'm a long-term investor and prefer not to see my retirement balances as real numbers for now. So the crisis doesn't feel like it has hit me financially yet. Should I be doing anything defensively?
A. It's not yet clear how much more the crisis will affect employment levels. Still, this seems like the best moment in years to have a few months of cash set aside in one of those online savings accounts just in case you lose your job or face some large expense that you haven't predicted.
Q. What's the next shoe to drop?
A. It seems certain that it will be harder for consumers to borrow money in the next year or two than it was earlier this decade. How much harder isn't clear yet. It will be more difficult for people who need jumbo mortgages than for those whose lenders can simply sell off their loans to Fannie Mae or Freddie Mac. Home-equity lenders are already cutting plenty of people off, while credit card companies are lowering credit limits on others.
Q. What about more bank failures?
A. They will happen. In recent days, we've seen the FDIC getting out in front of troubles at big banks like Wachovia and Washington Mutual, by arranging for other banks to take over their consumer accounts. What's less clear, however, is how many healthy institutions are left to take in other big banks that may run into trouble.
As always, stay within FDIC deposit limits. Then, the worst-case scenario is that it will take a couple of days to extract your funds from a failed bank.
By Kris Holloway
It's the 10th anniversary of the death of my dear friend Monique Dembele. She died on Oct. 15, 1998, on a birthing table in Koutiala, Mali, West Africa. And her unborn son died with her. One in 12 Malian women will die this way - but I never thought she would.
Monique was the esteemed village midwife and my host for two years in the Peace Corps. Despite her hardscrabble world of cement birthing tables to labor on and kerosene lanterns to work by, she loved her job. She was the first village woman to shine a light on safe childbirth, healthy pregnancy and birth control.
My husband and I recently returned to Mali. We were keen to see Monique's legacy and if her life continued to inspire those who knew her.
This young midwife certainly has inspired folks in the United States who have come to know her through a book I wrote about her. Since its publication, I've donated more than $30,000 of its proceeds, and we wanted to see the impact of this support.
Nampossela was much the same: dirt roads, mud-brick homes, water drawn from wells, and no electricity. People looked skinnier than I remembered.
One change was that everyone had a cellphone (most had the ring tone of the Russian dance from "The Nutcracker Suite," which could be heard reverberating off tin-roofed huts). This meant that in an emergency, the midwife could locate a car in the area to transport women rather than putting them on the back of a moped for the eight rutted miles to the hospital.
I feared that women might have returned to giving birth in their mud-floored huts, as Monique was the first midwife to encourage use of the birthing house.
But as I held a healthy newborn, his mother told me that the new midwife is gentle and strong, and that the birthing house is in daily use. The prenatal and birth register held detailed medical entries of many healthy babies and mothers. The baby-weighing that Monique started continues to catch children before they get too sick to be helped, and engages mothers in preventive care. And the village clinic, though low on supplies, now has a consultation room and a recovery/IV room.
In another village, Monique's cousin Maxim runs Cabinet de Soins Monique, or Clinique Monique. Also a health worker, he founded the clinic in 2004 in a cramped, rented room. Through donor funding, a larger clinic with rooms for birthing and surgeries, and solar panels for energy, is being built and should open in late 2009. It will offer ob/gyn services and two staff midwives, and serve as a community center for women. Total cost: around $50,000.
Maxim is pursuing a two-year medical assistant degree in neighboring Burkina Faso ($1,500 a year), so he can perform minor surgeries, including desperately needed dental work.
Monique's sister Angele also works at a health clinic, which serves as a home for orphans; one-third of the children are HIV positive.
Inspired by Monique, Angele obtained her midwifery and nursing degree (total cost: $800). Unlike Monique, who was betrothed at the age of 5, and suffered a foolish and jealous husband until she died, Angele has waited. She is 32 and this December will marry a man she adores and her parents approve of.
Monique's daughters (ages 14 and 21) are also unbetrothed. They attend school outside Mali's capital, pursuing opportunities that their mother never had. Their spunk and willingness to question assured me that they have the skills for whatever careers they choose as well as their mother's joy and courage.
Ten other children are being educated thanks to U.S. donors (cost: $100 to $300/year per child). We left Mali reinvigorated. Monique's hope, despite poverty and endless work, lives on through a widening circle of people realizing her dreams of helping women and children.
Those of us in the West must open up to what's bright and inspiring about Mali, and indeed all of Africa. We must sacrifice a bit of our abundance. And I say a bit because that's all that's needed to support the dreams and goals of the people there.
If Monique's family keep and nourish this hope, how can we dare not to?
Kris Holloway is author of "Monique and the Mango Rains: Two Years with a Midwife in Mali."
The current financial debacle may herald the end of an era epitomized by three letters: MBA. The mad stampede among talented students and young entrepreneurs to earn an MBA from Harvard, Stanford and Wharton, and thereby get on the fast track to a job on Wall Street, has drained the pool of talent for other more essential but less lucrative professions. What a tragic waste when all that accumulated talent, energy and learning only produces a giant, burst bubble in the biggest casino in the world.
Clearly something must be missing in the magic mix that is being imparted on these bright young titans of the universe if they can throw themselves into such a selfish, unproductive world of financial brinkmanship on such a massive scale.
Do ethics or historical and social perspective have any place in their curriculum? We need to ask those charged with teaching our brightest and best whether the values they teach need to be rethought.
Robert Nadler, London
Somali pirates tell all: They're in it for the money
NAIROBI, Kenya: The Somali pirates who hijacked a Ukrainian freighter loaded with tanks, artillery, grenade launchers and ammunition said in an interview Tuesday that they had no idea that the ship was carrying arms when they seized it on the high seas.
"We just saw a big ship," the pirates' spokesman, Sugule Ali, told The New York Times. "So we stopped it."
The pirates quickly learned, though, that their booty was an estimated $30 million worth of heavy weaponry, heading for Kenya or Sudan, depending on whom you ask.
In a 45-minute-long interview, Sugule expounded on everything from what the pirates want "just money" to why they were doing this "to stop illegal fishing and dumping in our waters" to what they eat rice, meat, bread, spaghetti, "you know, normal human-being food."
He said that so far, in the eyes of the world, the pirates had been misunderstood. "We don't consider ourselves sea bandits," he said. "We consider sea bandits those who illegally fish in our seas and dump waste in our seas and carry weapons in our seas. We are simply patrolling our seas. Think of us like a coast guard."
The pirates who answered the phone call on Tuesday morning from The New York Times said they were speaking by satellite phone from the bridge of the Faina, the Ukrainian cargo ship that was hijacked about 200 miles off the coast of Somalia on Thursday. Several pirates talked, but they said that only Sugule was authorized to be quoted. Sugule acknowledged that they were now surrounded by American warships bristling with firepower but he did not sound afraid. "You only die once," Sugule said.
He said that all was peaceful on the ship, despite unconfirmed reports from a maritime organization in Kenya that three pirates had been killed in a shoot-out among themselves on Monday night.
He insisted that the pirates were not interested in the weapons and had no plans to sell them to Islamist insurgents battling Somalia's weak transitional government. "Somalia has suffered from many years of destruction because of all these weapons," he said. "We don't want that suffering and chaos to continue. We are not going to offload the weapons. We just want the money."
He said that they were asking for $20 million in cash "we don't use any other system than cash." But he added that they were willing to bargain. "That's deal making," he explained.
Piracy in Somalia is a highly-organized, lucrative, ransom-driven business. Just this year, pirates have hijacked more than 25 ships, and in many cases, they were paid million dollar ransoms to release them. The juicy payoffs have attracted gunmen from across Somalia and the pirates are thought to now number in the thousands.
The piracy industry started about 10 to 15 years ago, Somali officials said, as a response to illegal fishing. Somalia's central government imploded in 1991, casting the country into chaos. With no patrols along the shoreline, Somalia's tuna-rich waters were soon plundered by commercial fishing fleets from around the world. Somali fishermen armed themselves and turned into vigilantes by confronting illegal fishing boats and demanding that they pay a tax.
"From there, they got greedy" explained Mohamed Osman Aden, a Somali diplomat in Kenya. "They starting attacking everyone."
By the early 2000s, many of the fishermen had traded in their nets for machine guns and were hijacking any vessel sailboat, oil tanker, United Nations-chartered food ship that they could catch.
"It's true that the pirates started to defend the fishing business," Mohamed said. "And illegal fishing is a real problem for us. But this does not justify these boys to now act like guardians. They are criminals. The world must help us crack down on them."
The United States and several European countries, in particular France, have been talking about ways to patrol the waters together. The United Nations is even considering creating something like a maritime peacekeeping force. Because of all the hijackings, the waters off of Somalia's 1,880-mile-long coast are now considered the most dangerous shipping lanes in the world.
On Tuesday, several American warships had the hijacked freighter cornered along the craggy Somali coastline. The American ships were allowing the pirates to bring food and water on board but not to take any weapons off. A Russian frigate is also on its way to the area.
Lieutenant Nathan Christensen, a navy spokesman, said on Tuesday that he had heard the unconfirmed reports about the inter-pirate shootout but that the navy had no more information. "To be honest, we're not seeing a whole lot of activity" on the ship, he said.
Kenyan officials continued to maintain that the weapons aboard were part of a legitimate arms deal for the Kenyan military, even though several Western diplomats, Somali officials and the pirates themselves said the arms were part of a secret deal to funnel the weapons to southern Sudan.
Somali officials are urging the Western navies to storm the ship and arrest the pirates because they say that paying ransoms only fuels the problem. Western diplomats, however, have said that it would be a very difficult commando operation because the ship is full of explosives and the pirates could use the 20 crew members as human shields.
Sugule said that his men are treating the crew members well (the pirates would not let the crew members speak on the phone, saying it was against their rules). "Killing is not in our plans," he said. "We only want money, so we can protect ourselves from hunger."
When asked why the pirates needed $20 million to protect themselves from hunger, Sugule laughed over the phone and said: "Because we have a lot of men."
MOSCOW: The tattered Georgian flags, the NATO-style uniforms and the U.S. assault rifles clutter a small corner of the Russian Central Armed Forces Museum in Moscow. They are trophies from Russia's recent war with Georgia, gathered haphazardly but displayed with a clear message.
"Now people understand who started this," said Aleksandr Nikonov, the museum's director. And, he did not have to add, who finished it.
Along with the ragtag spoils of war, photographs displayed at the exhibition, "The Caucasus: Five Days in August," portray Russia's victory over Georgia as absolute. Raw images of mangled and burned soldiers scattered among bombed-out tanks are captioned, "The enemy has been stopped." Other photos show relieved, war-weary villagers welcoming Russian troops.
This hastily assembled exhibition has a message that goes well beyond rendering a verdict on the Georgian conflict.
Never mind that Russia has suffered a diplomatic bruising after its overpowering incursion into Georgia - which Moscow defends as an emergency response to Georgia's assault on South Ossetia, the separatist enclave at the heart of the conflict. Or that Russia's recognition of independence for South Ossetia and Abkhazia, another breakaway Georgian enclave, has been condemned in much of the world.
Never mind all that. After decades of embarrassing military defeats, in Afghanistan in the 1980s and in the first Chechnya war in the 1990s, Russia is once again a winner.
"We can thank the Georgians for a small victorious war; it was helpful for our nation, for Russia," said Oleg Sergienko, a 38-year-old lawyer who was visiting the exhibition. "For the last 20 years Russia's sense of identity greatly declined. Now there is cohesiveness."
Sergienko said he had fought in one of Russia's wars, but declined to say which one.
National pride like Sergienko's seems right at home in the 90-year-old Central Armed Forces Museum, an institution honoring Russian military achievement since the early years of the Soviet Union. A large bust of Lenin, bold against an impressive red mosaic of machine-gun-toting Soviet soldiers, greets visitors at the door.
The exhibition, which opened on Sept. 9, cannot match some of the museum's installations about more historic events for inspiring awe. Its cavernous Hall of Victory features a 400-kilogram, or 1,000-pound, Nazi eagle taken from Hitler's Reich Chancellery. The huge mute bird lies cracked amid a pile of swastika-emblazoned banners, commemorating the defeat of Nazi Germany in the Great Patriotic War.
An exhibit a few halls away features the twisted remains of Francis Gary Powers's U-2 plane, shot down over the Urals in 1960 while spying for the United States.
Beyond the museum's walls, the precise origins of August's short but bloody war remain in dispute, obscured by ethnic claims and counterclaims, realpolitik and competing propaganda. Organizers of the exhibition nevertheless say that it provides stark proof that Georgia, bolstered by Western military training, egged on by Western allies and bristling with Western weapons, attacked a largely defenseless people, forcing a swift and strong Russian response.
"The Georgian Army was given help from Western instructors, including from the United States," said Nikonov, who has been the museum's director for 16 years. "The level of Georgia's militarization and the amount of money spent on arming its military - this of course was surprising."
Nikonov pointed to a list of 13 nations said to have helped to arm Georgia before the conflict, including Ukraine, Israel, France and the United States. Across the room, the contents of a soldier's rucksack include a workbook titled "Level 4 American Language," from a military language school at Lackland Air Force Base in Texas.
Four U.S. M4 carbines are also on display. A photograph nearby shows one of several U.S. Humvees that Russian forces confiscated last month in Poti, a Georgian Black Sea port. "It is difficult to look at these things," said one visitor, Evgeny Ivanov, 66, a former antiaircraft system operator. "There was a time when we were all together," he added, referring to the Soviet era, when Georgia and Russia were parts of the Soviet Union.
Echoing Russia's leaders, including President Dmitri Medvedev and Prime Minister Vladimir Putin, Ivanov suggested that Georgia's Western backers had provoked this war between longtime neighbors. "Someone dragged them into this situation," he said.
It is undisputed that other nations, mainly the United States, assisted Georgia's military: Americans helped train a Georgian unit that fought in Iraq and later in South Ossetia. But the U.S. government has insisted that its officials repeatedly warned Georgia's leadership not to confront the Russians militarily.
Still, the exhibition left Russian visitors with the sense that whatever the direct involvement of foreigners, the responsibility for Georgia's war against Russia did not lie with Georgia alone.
Anna Ryzhova, 22, was pondering photos of bloodied civilian victims of Georgia's attack on Tskhinvali, the capital of South Ossetia.
"I think that while Georgia was being armed, a question should have been asked," she said. "What do they need these weapons for?"
Georgia plans to open its own war exhibit in Gori, where a Russian air attack killed dozens of civilians. It will be housed in a special wing of the museum dedicated to Gori's most famous son: Stalin.
Besides the fear and the bitter cold, Argentine war veterans say the worst thing about serving in the Falklands was the systematic abuse they suffered at the hands of their officers during the 1982 war.
Many veterans stayed silent for years, too scared or ashamed to speak out, but now they are gathering evidence for the first judicial investigation into charges of rights crimes against conscripts in the British-ruled islands, called the Malvinas in Spanish.
"It's not about revenge. It's just about saying 'I want people to know what they did to me,'" said Orlando Pascua, who was sent to the South Atlantic archipelago as a 19-year-old conscript.
Pascua is a witness in one of dozens of incidents being probed by a federal judge in Tierra del Fuego -- the chilly Argentine province that counts the disputed islands as part of its jurisdiction.
Veterans tell of being tied and pinned to the frozen ground with tent pegs for hours or buried up to their necks in wet sand on the beach for misdeeds as minor as stealing biscuits or killing a sheep to bolster their meagre rations.
According to the court case, four soldiers died of hunger during the war. It says troops were systematically denied food by officers, some of whom still serve in the armed forces.
The Argentine invasion to enforce its historic claim on the Falklands is widely seen as a mistake by the already discredited military junta, but for years the veterans' fate was taboo -- a painful memory that most people wanted to forget.
A total of 8,000 Argentine conscripts served during the war in which 649 Argentines and 255 British troops were killed. It ended with Argentina's June 14 surrender, 10 weeks after invading the islands a few hundred miles (kilometres) east of its coast.
According to ex-servicemen's groups, 450 Falklands war veterans have committed suicide and some blame the cruel punishments they accuse officers of meting out in the islands.
"The young men who served in the Malvinas were condemned to 25 years of silence," said Pablo Vassel, who started gathering evidence when he was the human rights secretary in the northern province of Corrientes, from where many veterans hail.
"Because of this there were more suicides among former soldiers than were killed during the conflict, and that's part of the reason why we have to investigate this," he added.
So far, 73 incidents are being probed by the Patagonian court and veterans plan to travel to the region in November to present additional evidence as more and more veterans come forward, Vassel said.
A court official in Tierra del Fuego said federal judge Lilian Herraez might be in a position to decide whether to advance to a trial sometime next year.
The case has been backed by human rights groups such as the famous Mothers of the Plaza de Mayo, who have marched for years to find out the fate of their children who were kidnapped and killed during the 1976-1983 "dirty war" dictatorship.
They say the same military regime that tortured and killed up to 30,000 people on the mainland also abused the young conscripts in the Falklands.
"The torturers of the 1970s ... are implicated in the Malvinas war," said Taty Almeida, one of the leaders of the Mothers. "Terrible things were done to these soldiers ... and by Argentine officers. Not even the British treated the Argentine soldiers like that."
For some veterans, the case is a way to move on from the war.
"No society can grow and develop without truth and justice," Pascua said. "It's about ending impunity."
LONDON: A British court on Tuesday struck down immigration restrictions placed on Gurkha veterans who served in the country's armed forces, handing a significant victory to a group that has served Britain for nearly 200 years.
The High Court ordered the government to draw up a new immigration policy for the Nepalese soldiers, who demanded the repeal of regulations that bar some of them from settling in Britain.
"This court has struck that policy down as being completely unlawful, and has ordered the government to draw up a new policy as soon as possible that takes in account the long a distinguished service of these men," attorney David Enright said.
Gurkha soldiers outside the court broke into cheers, played bagpipes and waved green flags emblazoned with two crossed kukri bent Nepalese knives the Gurkhas adopted as their standard.
Mercenaries recruited from the Himalayan hills, the Gurkhas served Britain starting in 1815, through the conflagrations of the 20th century and into the 21st, fighting in Iraq and Afghanistan.
But they have struggled to secure equal treatment from British authorities.
Gurkhas were not automatically allowed to settle in Britain until after 1997. And the government argued that some who retired before 1997 had only weak links to Britain and should have their cases reviewed individually.
The Gurkhas sued, arguing their service was what mattered not where it took place.
Justice Nicholas Blake said the government restrictions were illegal and demanded they be reformulated.
Blake said soldiers had a covenant with the nation they served: In exchange for their personal sacrifice they should always expect fair treatment.
"Rewarding long and distinguished service by the grant of residence in the country for which the service was performed would, in my judgment, be a vindication and an enhancement of this covenant," Blake said.
Enright said the judgment gave the government no choice but to remove obstacles to the Gurkha's entry.
"It has to be hugely widened, and we would expect to see a dramatic lowering of the hurdle," Enright said.
Gurkhas said they felt vindicated.
"It's hard to say you have no strong ties to Britain when you were part of the British Army," said 53-year-old Chandra Pakhrin, a veteran of the 10th Princess Mary's Own Gurkha Rifles. "We shouldn't have to go through this."
MADRID: Coastguards have rescued 229 Africans trying to reach the Canary Islands by boat, the biggest group intercepted in a single vessel off the Spanish archipelago, a government official said Tuesday.
Coastguards found the 30-metre (100-foot) fishing boat late Monday about 100 km (60 miles) south of Gran Canaria and took the would-be immigrants to the port of Los Cristianos in Tenerife, arriving just after midnight.
All the Africans were male, including at least 20 children, a spokeswoman for Spain's emergency services said.
"Such a large fishing boat could not have set off from the shore directly into the sea," Juan Antonio Corujo of the Spanish Red Cross told national radio.
"This boat must have been loaded from a pier or probably smaller boats took people to the boat once it was at sea."
The Red Cross treated the boat's occupants in Tenerife and five were taken to health centres for treatment for dehydration and hypothermia.
Tuesday, a second boat carrying almost 100 people washed up on the beach of Pozo Izquierdo on Gran Canaria, where residents, emergency services and the Red Cross gave assistance to the occupants.
Dozens of Africans have died in the past few months trying to take advantage of calmer summer weather to make the journey to the Canary Islands and the Spanish mainland to find jobs in Europe.
Tens of thousands have reached Spanish shores in recent years, prompting Spain's Socialist government to toughen its line on illegal immigration.
Thousands more are believed to have drowned or died of thirst or exposure in the attempt.
According to Spain's Interior Ministry, between January and August the number of illegal immigrants reaching the Spanish coast by boat fell 8 percent compared with a year earlier and was down 64 percent on 2006.
A Malaysian coastguard official said rescuers pulled out 107 survivors but said the death toll could be higher.
"At this point we are still undertaking search and rescue operations. The boat sank near Port Klang and eyewitnesses have said that there were quite a few bodies," said a coastguard spokesman, referring to Malaysia's busiest port.
Marine police commandant Marzuki Ismail in central Selangor state was quoted by the online edition of the Star newspaper as saying the boat could have capsized because it was overcrowded with illegal workers.
Every year, thousands of illegal immigrants from Indonesia cross the busy Malacca Strait to return home to the Indonesian island of Sumatra. Seeking to avoid Malaysia's coastguard, they often set off from beaches and mangrove creeks along Malaysia's west coast in rickety wooden boats.
Violence broke out at Rudangia village in Orissa's Kandhamal district after Hindus attacked Christians, setting fire to their houses and burning a church, according to district collector Krishan Kumar.
The violence came after a string of attacks on Christians in three states which has left at least 33 people dead and dozens of churches damaged in the last month. Christians have responded with some violence in Orissa state.
The clashes were sparked by the issue of religious conversion in Orissa's poor tribal region, home to many Christian missionary groups.
More than 3,700 federal police have already been deployed in the area.
The attacks on Christians in India have been condemned by Pope Benedict, and Roman Catholic bishops have urged the European Union to treat persecution of Christians as a humanitarian emergency.
But violence has continued, especially in Kandhamal where thousands of Christians now live in government camps because their homes are destroyed or they are too fearful to return.
Religious clashes have also been reported in Madhya Pradesh and Karnataka states.
India does not have a long history of attacks on minority Christians, but intolerance has risen in the past two decades with a revival of Hindu nationalism.
In the holy Iraqi Shi'ite city of Najaf, Iranian tourists throng the streets, speak to shopkeepers in Farsi and pay in Iranian money. Farsi chants blare from speakers at a nearby shrine.
The scene would probably horrify both the United States and Iraq's Sunni Arab neighbours, who suspect Shi'ite non-Arab Iran of nefarious and subversive influence in Arab lands. Even some of Najaf's citizens are wary of Iranian leverage.
But the city, a centre of religious and political power in Shi'ite-majority Iraq, benefits from Iranian tourism and aid.
The uniforms of rubbish men sport Farsi inscriptions, as do their gleaming new Iran-donated rubbish trucks. Iranian builders toil at the site of a new Iranian-sponsored hospital.
Iranian donations pay for the renovation of Shi'ite holy sites, and Iran has offered cash and expertise to boost electricity capacity in Iraq's Shi'ite south.
Each year hundreds of thousands of Iranian pilgrims visit Najaf's shrine of Imam Ali, one of the most important figures of Shi'ite Islam.
Najaf officials, up for re-election in provincial polls expected early next year, play down Iranian influence.
"Do you see Iranian councillors? Iranian police? ... There is no influence at all," Najaf provincial governor Assad Abu-Gelal said in a recent interview in the southern city.
But ordinary residents say Iranian influence is there, and they don't necessarily mind.
"There's an Iranian hand in Najaf, but it's a positive hand. They've help develop the city, the hospital, the tourism," said Hussein Abbas, who works in a Najaf toy shop. The province's current administrators will get his vote in the provincial elections, he added, despite the whiff of Iranian backing.
Iraq and Iran were sworn enemies under Saddam Hussein, a Sunni Arab dictator who launched a ruinous eight-year war with Shi'ite Iran in the 1980s in which 1 million people died, many Iraqi Shi'ite conscripts.
But since U.S. troops overthrew Saddam in 2003 and a Shi'ite led-government came to power in Baghdad, Iran has conspicuously shown off its clout, partly through its ties with Shi'ite politicians and parties that were based in Iran for years during the rule of Saddam.
In March this year, President Mahmoud Ahmadinejad made a triumphant visit -- becoming not only first Iranian leader to visit Iraq since the 1980s, but also the first regional head of state to visit since the U.S.-led invasion.
Iran has had a full-service embassy in Baghdad for years, while no Sunni Arab state had an ambassador in the Iraqi capital for three years until this month.
Washington -- Tehran's arch enemy for 30 years -- accuses Iran of supplying Shi'ite militants in Iraq with arms, training and cash, accusations Tehran denies.
Almost all of oil-rich southern Iraq's provincial councils, including Najaf, are dominated by the Supreme Islamic Iraqi Council (ISCI), a Shi'ite political group formed in exile in Iran during Saddam's reign.
Many Iraqis, including Shi'ites, say ISCI is still backed by Iran. Yet ISCI is also a key part of Iraq's U.S.-backed government, and strongly denies Iran directs its policies.
"ISCI was in Iran. And from Iran we went to Washington. Iran has no ties to America. It's at political war with it," said Najaf deputy governor and ISCI member Abdul Hussain Abtan.
"We allow for good relations with Iran, but built on mutual respect, and not interfering in each other's affairs."
CLEAR AS THE SUN
Iraqis bristle at the prospect of their politicians taking Tehran's orders.
"We love the tourists, but if (Iran) tries to take part in politics, we'll fight it. And it is clear as the sun that they are," said Karar Kadham, sitting outside the Imam Ali shrine.
But he praised ISCI's leadership in the city and predicted most Najaf residents would vote to keep the party in power.
Majid Ali, a clothes shop owner, was careful to distinguish between Iranian cultural and political influence, saying Najaf city has had trade and religious links with Iran for centuries.
But he said he would not vote in local or national polls because Iraq's political leadership was "constrained" by Iran.
"Iran's aim is clear. To counter U.S. influence. They're facing the United States and the Arabs on the Iraqi stage," he said, before breaking off for a phone call in Farsi.
Ali Abshar, an Iranian pilgrim in Najaf, said he felt comfortable in the city, and that it was just like the Iranian city of Qom, Shi'ite Islam's other main seat of learning. He had no hard feelings over U.S. demonisation of his country.
"Americans came and got rid of Saddam," he said, holding two thumbs up and grinning.
Armed with guns, slingshots, knives and stun grenades, Jewish settlers pelted the house of Palestinian Nahla Makhlouf with stones, uprooted young trees and painted the Star of David on her walls.
In Makhlouf's West Bank village of Asira al-Kibilya, Palestinians brace for possible attack by their Jewish settler neighbours from nearby Titzhar almost every weekend. But the latest attack exceeded their expectations.
"They sprayed some sort of tear gas through the window. It smelled strong and made our eyes run and made it hard to breath, especially for my baby," said the 33-year-old mother of four.
Israeli Prime Minister Ehud Olmert reacted strongly to the September 13 attack, saying he would not tolerate "pogroms" by Jewish extremists who are determined on religious grounds to stop Israel swapping occupied land for peace.
Last week, an outspoken Israeli critic of the settlements was wounded by a pipe bomb outside his Jerusalem home, in what Olmert said was evidence of "an evil wind of extremism, of hatred, of violence" threatening Israeli democracy.
Settlers and the Israeli army said the Asira assault was triggered by the wounding of a nine-year-old settler boy by a Palestinian whom he had disturbed in the act of setting fire to a house in the Yitzhar settlement while the family was away.
But settler vigilante violence is growing, according to a recent U.N. report, which recorded 222 incidents in the first half of 2008, versus 291 in all of 2007.
Some half a million Jewish settlers live in the West Bank, including Arab East Jerusalem. Their presence, viewed by major powers as illegal under international law, is partly shielded by a 790 km (490 mile) barrier Israel has been building since 2002.
In a newspaper interview on Monday, Olmert broke new ground by urging Israel's withdrawal "from almost all the territories" captured in the 1967 Middle East war in return for peace.
But Olmert says Israel plans to keep major settlements in the West Bank in any peace deal, and would have to compensate the Palestinians for land lost.
The Palestinians say they cannot have a viable country of their own if it is chopped into pieces by Israeli settlement islands and the snaking walls and fences of the new barrier.
U.S. Secretary of State Condoleezza Rice has called the settlements "an obstacle to peace" which must go.
Some settlers justified the attack on Asira, saying the army failed to protect them against a violent infiltration.
"If the Israeli army had done what it should, maybe this wouldn't have happened. They should either have prevented that infiltration or carried out a raid after," Renana Cohen said.
Dani Dayan of Israel's mainstream settlers' organisation says the Arabs do not want peace. A Palestinian state would be a "launching pad" from which they would conduct "ethnic cleansing" against the Israelis, he argues. Many Israelis feel the same.
Most settlers oppose vigilante violence. But most agree that withdrawal would be "a sure recipe for war," as Dayan puts is, because there will no "peace-loving Palestinians taking over."
A younger, more aggressive breed of religious ideologues vows a violent response to any eviction threat, warning a heavy price would be exacted for any bid to close settlements down.
Residents of Asira say the settlers need no provocation or pretext. Attacks on Asira date back three years, Makhlouf said.
Palestinians complain of unremitting harassment, such as the burning of their olive trees and stoning attacks on farmers in the fields, as a prelude to land-creep and confiscation.
The garden and rooftop of Makhlouf's neighbour, Ahmed Dawood, were littered by stones rained onto his house in the settler rampage. The water tank was holed by four bullet.
Dawood's son and a labourer in his field were shot and wounded. The army, he said, made no effort to stop the attack.
"I complained to the soldiers and they shouted back 'Get inside' and started shooting," he said.
"We have nothing to protect ourselves with. We just take precautions such as putting metal grids on the windows. But the solution is to have them uprooted from here."
Asira's predicament is well known to Israeli human rights group B'Tselem, who gave Makhlouf a small video camera in 2007 to document violence. The lens was knocked off focus by a rock in the latest attack but still provided an audio record.
Yoav Gross of B'Tselem said the settlers can be heard giving the army a one-minute ultimatum to act against the Palestinians or they would do the job themselves.
"They started counting one, two, three...," he said. "They were giving orders to the soldiers, not the other way around."
One Israeli human rights lawyer, Michael Sfard, says most soldiers do not realise they have not only the right but also the duty, as the occupying power, to defend Palestinians.
Settler attacks may rise in the upcoming olive harvest, when Arab farmers work the groves close to settlement perimeters.
One Palestinian woman in Asira was stocking up on corrosive cleaning fluids to throw at the attackers next time they visit.
"They have the army to protect them even while they are attacking us," said the woman, who was afraid to give her name.
"But we have no one to defend us."
Healing the deep rift between them is seen as a vital step towards an eventual peace deal with Israel.
But there was no evident sign of a change of position on either part signalling that their feud, which climaxed with militant Islamist Hamas fighters forcing Fatah forces out of the Gaza Strip in June 2007, would soon be resolved.
"We hope the current national dialogue sessions in Cairo will succeed in ending the division caused by a party that rejected the choice of the people," said top Hamas official Ismail Haniyeh, referring to Fatah.
The Islamist group sought success in Egyptian-sponsored unity talks with the Fatah faction of Palestinian President Mahmoud Abbas Fatah, but would make no concessions, he said.
Abbas marked the feast of Eid al-Fitr by laying flowers at a monument to fallen soldiers in Ramallah, his de facto capital in the Israeli-occupied West Bank.
"President Mahmoud Abbas and the Palestinian leadership are exerting great efforts for the success of the dialogue that Egypt is holding," his spokesman Nabil Abu Rdainah said.
A deal in Cairo would pave the way to "comprehensive national dialogue that will be followed by a meeting of Arab foreign ministers," he added.
Egyptian intelligence chief Omar Suleiman conducted separate talks with the two sides throughout September. He met Fatah last week and will see Hamas officials on Oct 8. A Fatah official said all factions may convene in Cairo on November 4.
Banking system's woes increase British vitriol over U.S.-style pay
LONDON: This past spring, Mervyn King, the governor of the Bank of England, gave a speech denouncing the hubris of bankers. That very same day, the British bank Barclays disclosed a £18.5 million pay reward to its president, Robert Diamond Jr., for 2007 - despite sustaining a £1.6 billion write-down that year.
King followed up his criticism of the excesses of the City of London, as the financial district is known, by choosing not to accept an increase in his salary of £290,000, or $516,000.
Diamond, by comparison, is the American-born chief of Barclay's asset management and investment banking businesses, whose outsize personality and bonuses have made him one of the most visible symbols of a Wall Street ethos that has taken root in the financial district.
Stark as the contrast might have been, it was a mere hint of the uproar, led by Prime Minister Gordon Brown of Britain and joined by union leaders and theologians, that has emerged here in recent days over how to best curb a perceived culture of escalating pay packages that propelled bankers to push for exorbitant risks.
This week, the nationalization of the mortgage lender Bradford & Bingley, an industry estimate that 12,000 financial-sector jobs would be lost in the coming months, and news reports that said a senior executive from the City had died after throwing himself under a train, only added to a backlash against the City's financiers and a sense that they had led the country down a wayward path.
The dismay over high pay, business failures and U.S.-style laissez-faire capitalism has been sweeping across Europe for some time, but it has been given fresh wind as investors and politicians struggle to make sense of a credit vise that tightens by the day. Even before the latest meltdown, steps were taken in the Netherlands and France to limit excessive compensation, and the issue is back on the agenda when European finance ministers meet Oct. 6 in Luxembourg.
In the United States, outrage among many voters over the prospect of bailing out perceived gamblers and fat cats on Wall Street was behind the surprising rejection Monday of a $700 billion financial system rescue plan in the House of Representatives.
But in Britain, which before the arrival of Margaret Thatcher as prime minister in 1979 was led by Labor and Conservative governments that sought to rein in capitalism rather than unleash it, the vitriol has been even more bitter.
It seemed touched as well by a sense of schadenfreude as bankers, who once lived so high, were being brought low, making them popular whipping boys.
"It is in our psyche - we always knock success," said Vic Daniels, a former banker who runs a Web site, hereisthecity.com, that tracks the foibles, appetites and bonuses of London's financial elite. "Who are the most hated football teams? Manchester United and Chelsea. Why? Because they are the most successful. The Brits just don't like the in-your-face winners."
At his party conference on Sunday, the Conservative Party leader, David Cameron, took note of the public mood by expressing support for a closer examination of how financial-sector executives are paid. But mindful of the party's base, Cameron also warned against excessive bashing.
As it is, the pay of top bankers in Britain and across the Continent does not approach that of chief executives in the United States. Fred Goodwin, chief executive of Royal Bank of Scotland, was paid £4 million for 2007. By comparison, Richard Fuld Jr., chief executive of Lehman Brothers, was paid more than $40 million last year just months before his company collapsed. Now Diamond, who took a pay cut in 2007 and is leading Barclay's purchase of some of the best parts of Lehman, is preparing to open an office in Lehman's former headquarters in New York.
Despite the pay gap, the economic benefits of the long boom in the City of London are clear: The financial sector contributes 10 percent to Britain's gross domestic product. But also clear have been the conspicuous displays of consumption that include £44,000 wine tabs for twentysomething bankers and £25 million homes bought by hedge fund executives - all of which sticks more firmly in the collective craw.
"We have all gone to this temple called money," John Sentamu, the archbishop of York, said at a dinner held last week by a trade group called the Worshipful Company of International Bankers. "We have all worshipped at it. No one is guiltless."
Indeed, this resistance to the brazen ways of financiers dates to the late 19th century, when the landed English gentry expressed their revulsion at the spendthrift ways of plutocrats from abroad who suddenly appeared at the dinner tables of their country homes.
"There might as well have been a Goddess of Gold erected for overt worship," one hostess was quoted as saying in "The Decline and Fall of the British Aristocracy," by David Cannadine.
Some peg the rise of the bonus culture to 1986 when fixed commissions were abolished and the doors opened for U.S. brokerage houses to set up shop in London. Subsequently, the idea of banks' taking on more risk, and getting paid for it, became widespread.
"There was none of this frantic trading and multimillion payoffs," said George Blakey, who worked as a stock broker in the City from 1966 to 1990 and recently wrote a history of the London stock market. "The function of a stock market was to raise capital for industry. But then our old companies were taken over by these big pushy banks and it all became a crazy capitalist casino."
Still, even with the outcry over bonuses, the British financial scene remains devoid of a larger-than-life financial figure to serve as an appropriate symbol of this wave of public distaste.
While Diamond may come across as more assertive than most on the City of London's stage, his habits and attitudes pale in comparison with major figures on the other side of the Atlantic like Ronald Perelman and Henry Kravis. Nor has Diamond organized for himself a $3 million 60th-birthday party, as did Stephen Schwarzman, chairman of the private equity firm Blackstone Group, an event in February 2007 that came to epitomize an era of excess.
"We have a prudish attitude toward people making too much money," said Stuart Fraser, a top official at the City of London. "But our financial services industry has to remain competitive. We can't have heavy-handed regulation."
Such a view was echoed more forcefully by Boris Johnson, the mayor of London who said recently that the backlash against bankers might jeopardize the City of London's competitive position with New York as a destination for international capital.
"I am very much concerned when I read attacks on greed and spivs and speculation, attacks by neo-socialists on the culture of bonuses," Johnson said. "The last thing we want to do now is throw the baby out with the bath water with some form of excessive regulation."
Nevertheless, as house prices sink and a recession looms, the depth of the anti-banker mood has been powerful enough to affect even the bankers themselves.
Late last week, an investment banker posted an anonymous letter on hereisthecity.com, which has a readership of about 154,000, most of whom work in London's financial district.
"Quite frankly, most of us more senior (and so-called 'experienced') bankers who work in the markets don't deserve a bonus," he wrote. "We are not worthy."
This is music to the ears of Derek Simpson, the joint general secretary of Unite, Britain's largest union. "Even President Bush has said that the irresponsibility of the few have threatened the stability of many," Simpson said.
"When President Bush, the archbishop of York and Derek Simpson line up together, the financial system should be trembling in its shoes."
School of Life offers British a road map to 'happiness'
LONDON: The School of Life, which just opened here, is the sort of place that would welcome the news out of Bari, Italy, the other day. A certain Dr. Marina de Tommaso, leading a team of Italian colleagues, recently asked a dozen young men and women to choose 20 attractive pictures and 20 ugly ones from several hundred works of art. The volunteers stared at said images while being zapped with a laser beam that caused them mild pain.
The intensity of their suffering, it turned out, diminished while they gazed at a Leonardo or a Botticelli or at van Gogh's "Starry Night." It persisted before Picasso and Fernando Botero.
Beauty makes you feel better, de Tommaso concluded, notwithstanding that Edvard Munch's "Scream" muddied the results: Some volunteers found it beautiful, others not so much, proving the different scientific point that everyone's an art critic.
Sophie Howarth is director of the School of Life. She likes to call this storefront school in Bloomsbury "an apothecary of the mind." Adults enroll in courses on love, politics, family and play. They may take an instructional tour of the M1 motorway or spend an overnight snooping around Heathrow Airport (staying in a Japanese capsule hotel) with the best-selling author Alain de Botton as guide, lecturing about the art of travel.
There are also bibliotherapists on call, dispensing literary advice; consultants to recommend the most agreeable route for a nighttime walk through the London neighborhood of Brixton; and group meals to enhance conversational skills.
One recent afternoon a line formed on the sidewalk outside the school. Dozens of people were waiting for impromptu private therapy sessions, on a leopard-spotted chaise longue, with David Gale, an actor who described himself as a "nonpsychotherapist." Strangers revealed their secrets to him anyway.
It may all sound like a big metaprank, but the school is perfectly sincere. The ambition is to offer a road map to a fuller life - secular and interior, not religious - toward which end a sense of humor helps. For reticent Britons, disinclined to emote in public, it's a kind of lubricant.
Whimsy being in short supply these days, every little bit helps, especially here. The $200 million ( Damien Hirst auction at Sotheby's in September, when the world financial markets imploded, summed up the local climate. London has become a greedy city.
The school, too, is looking to turn a profit. (Courses cost about $350 each.) But it's the earnest brainchild of various London writers, artists and friends - Geoff Dyer, the writer, among them. Like de Botton, he belongs to the faculty, and is scheduled to deliver a lecture ( "sermon" in school speak) this fall on punctuality.
The other day, apropos of the Esalen Institute in California, and the Jack Kerouac School of Disembodied Poetics in Colorado, he said the School of Life, by contrast, existed "in a postideological vacuum, in the wake of the thing that Margaret Thatcher said didn't exist: society."
"It's maybe part of the attempt to rebuild a notion of society," Dyer continued.
Howarth, the school's 33-year-old director, frowned when a visitor wondered aloud if it were instead a kind of twee Learning Annex for those who wouldn't be caught dead at the Learning Annex. McSweeney's, the American literary enterprise with an educational component, was the comparison she preferred.
"The alchemy of learning involves making ideas theatrical," she explained, before a large round table in the school's basement classroom ("our Wonderworld," Howarth called it). The walls were decorated with Lewis Carroll-like scenes by Charlotte Mann, an artist.
"Design is not a trivial part of the enjoyment of how you learn," Howarth continued. "There's a snootiness in the culture sphere around teaching 'relevance.' We have spent a lot of time talking to psychotherapists about the questions people really care about, so that we can provide a broader mental apparatus to decide when you wake up in the morning whether to park on the yellow line or to make up with your dad."
De Botton sees such instruction as responding to a specifically English problem. On the one hand, he said, there is the exclusionary elitism of ancient higher education. On the other, for English people, "sitting down and talking with strangers about emotional things is taboo, and so we use wit at the school because wit is what the English use when they want to talk about something serious, like the soul."
Along which lines the school occupies not a formal campus but a modest shop on busy Marchmont Street in Bloomsbury among neighborhood hairdressers, newsstands and cheap restaurants. The Pasha spa and clinic is nearby, as is a store called Gay's the Word. The aforementioned chaise beckons from just inside the school's front window, inviting passers-by to recline with a book purchased from the select few shelves that Howarth daily organizes by shifting categories. (The other morning the categories included "Things to Learn About Sex" and "For Those Who Worry About Death.")
The design scheme involves tasteful variations of beige and taupe, along with a few artfully arranged birch trunks. With its bookshelves and a glass cabinet stocked with knickknacks, it looks much more like a curiosity shop than like a school.
Leaning on that old wonder-cabinet idea, the school sells $1.50 postcards of airplanes (an AvAtlantic Boeing 727 on the tarmac at Fort Lauderdale, dated 1992); $10 bottles of "I Love You" Marmite; and posters printed with aphorisms by, among others, Voltaire and Mae West. ("Between two evils, I always pick the one I never tried before.") The frugal can take Tunnock's Milk-Chocolate Coated Caramel bars, in shiny gold and red wrappers, free from a glass jar.
"The school is sort of pointless, like art, culture, sport and many of the other good things in life," is how Dyer put it. "We English don't have your excellent American assumption that the purpose of life is to be happy, that the waiters in restaurants should bring us exactly the food we want, promptly and gladly. We have a much more stoic or Soviet attitude. So the school is a way either of making us happier, i.e., more American, or helping us make an accommodation with the shortcoming of our lot."
London already offers adult evening classes in women's self-defense, Indian cooking and Hegel. They're often a good excuse to unwind at the pub afterward. In a way, Dyer suggested, the school brings the pub's charm into the classroom.
Charm, like taste, is a matter of opinion, of course. So far the charm of the school seems to be working. More than 1,000 Londoners turned up on opening day, Sept. 6. Spots in de Botton's Heathrow holiday and a two-day jaunt to the Isle of Wight with the photographer Martin Parr quickly disappeared. For optimists, the coincidence of the school's arrival with the banking collapse and Hirst's auction hinted at a possible, if slight, turning point in the city's ethos.
"At the School of Life, we're not necessarily trying to take the pain out of life," Howarth said - she now had that Bari study on beauty in mind, which she said she did welcome - "but rather to ensure that most of us have the resources to act wisely in the face of inevitable challenges and hurdles."
"By the way," she added, referring to the books for sale in the store, "we've just put up two new shelves."
The latest category: "For Those Feeling the Credit Crunch."
LONDON: Britain, which is in a lending drought every bit as serious as that in the United States, is far less able to mount a government rescue and may well come out much worse.
Britain is about a year behind the United States in its property crash but seems to be doing its level best to narrow the gap, with prices falling at about 1.5 percent a month and mortgage availability collapsing.
The mortgage lender Bradford & Bingley, the ninth largest in the country, was nationalized Monday after it could no longer fund itself in an increasingly dysfunctional interbank credit market.
B&B's death will worsen mortgage conditions, which are already pretty terrible. Net mortgage lending in August was only 2 percent of the level of a year before and was the lowest since records began in 1993.
The announcement helped push the pound into its biggest one-day percentage fall against the dollar in over a decade Monday. Whereas the United States has effectively nationalized its mortgage industry and is considering the further $700 billion bank bailout plan that is now struggling in Congress, Britain is still trying to fight fires as they flare up.
It probably has very little choice. Unlike the United States, which benefits from the dollar's being the pre-eminent global reserve currency and is generally an 800-pound gorilla, though an increasingly battered one, Britain simply could not get away with borrowing and spending freely to try to stem its crisis. If Prime Minister Gordon Brown and his finance minister, Alistair Darling, tried to hatch a plan of proportionate size, investors would sell the pound and shun British government debt, sending interest rates higher.
"Try to do a major bailout here and it would be a massive struggle," said Marc Ostwald, a strategist at Monument Securities in London.
This doesn't mean that the British authorities won't at some point feel they must intervene more forcefully - either by backstopping mortgage issuance or bailing out banks directly - but that they will pay a higher cost for doing so and get less return on money spent.
There have already been rumblings from financial institutions that Britain needs to do more, and a former Bank of England official, Willem Buiter, has explicitly called for a British version of the U.S. plan to buy up distressed assets from banks.
Really in some ways the remarkable thing is not that Britain would see its currency hit and interest rates rise if it took on too much government debt, but that the same has not happened to the United States. That may well change, but if it does not it means that the U.S. plan will help to limit the possibility of a very negative outcome.
The same cannot be said for Britain, which has a really unfortunate combination of characteristics; it depends heavily on property and finance, and its consumers are very stretched.
First off, the size of the property bubble in Britain was if anything bigger than that in the United States. British households are more indebted than their U.S. counterparts and arguably save less.
And, as is proved by the big fall in mortgages, Britain depended even more on securitization to make up the shortfall in savings.
But a crucial difference is that Britain has no equivalent to the now nationalized Fannie Mae and Freddie Mac, which while they bear some responsibility for the bubble are at least now still able to lend.
"With current levels of mortgage approvals consistent with a drop in house prices of at least 20 percent by early next year, even the most bearish housing market commentators may yet be surprised," Seema Shah, a property economist at Capital Economics in London, wrote in a note to clients.
The implication for banks is that they will see their loan losses climb and that their problem when the next round comes will not be funding but capital. It is possible that Britain tries to head off the situation by extending and loosening the Special Liquidity Scheme, allowing banks to swap new loans with the Bank of England. But the Bank of England governor, Mervyn King, has thus far resisted.
My best guess is that Britain will sit tight, hope measures in the United States provide some relief and deal with banks as they become critical.
They may at some point try to go large, but if they do, Britain risks a financing crisis. The United States has gotten away with it so far; Britain may not be so lucky.
BIRMINGHAM, England: Ahead in the opinion polls, bolstered by a run of special election victories over the governing Labour Party and newly in charge of London's city hall, the Conservatives, the main British opposition, have every reason to feel confident.
But their leader, David Cameron, has reined in the celebratory mood at an annual rally, in the central English city of Birmingham, insisting on a sober and cautious front as his party plots its course to Downing Street.
Stung by Prime Minister Gordon Brown's rebuke last week that the world's financial crisis meant Britain could ill afford a novice at the helm, Cameron was preparing a statesmanlike address Wednesday.
The 41-year-old opposition chief has secured his party's political revival with a program to mend Britain's social ills, but now he must sketch out a solution to the world's economic woes.
Cameron's party has traditionally been Britain's chief defender of business, but he warned bankers and traders they would no longer be guaranteed protection when the crisis passed.
"They paid themselves vast rewards when it was all going well, and the minute it went wrong, they came to us to bail them out," Cameron told delegates. "There will be a day of reckoning."
Cameron knows that financial jitters could help Brown - Treasury chief for a decade from 1997 - find his political feet after a year of missteps. Polls show Brown has cut Cameron's lead in the last week amid the banking turmoil, but the opposition leader is still ahead by more than 10 points, enough for a landslide election victory.
Even before the current crisis, Cameron - Tory leader since December 2005 - was attempting to assume a more statesmanlike demeanor.
Now he tours world capitals, turning up in Georgia at the height of the recent crisis for example, to burnish his credentials. He touts a plan for smaller government, and even lower taxes.
"Let us show them that this is the end for the big spending, big taxing, recklessly borrowing, big, bossy, interfering government that promises so much and delivers so little," Cameron said Sunday.
Brown has criticized his rival as a slick salesman with presentation skills but few new ideas to help Britain prosper.
But Cameron's party has cranked out hundreds of pages of plans recently, including proposals on health care, education, law enforcement and energy.
Cameron has also sought to steal a march on Brown on the world stage.
He jetted to Georgia during the country's war with Russia ahead of Brown and his ministers; has struck up a bond with Prime Minister Yousaf Raza Gilani of Pakistan; and shared friendly talks in July with Senator Barack Obama.
Patrick Dunleavy, a political scientist at the London School of Economics, said polls showed Cameron could win a 150-seat majority in the House of Commons in elections to be held before mid-2010. Brown now has a 64-seat majority.
But some see parallels with the days of the Conservative prime minister John Major's government, when a resurgent opposition Labour Party blazed ahead in opinion polls, appeared certain to win a 1992 national election, but failed to oust the incumbents.
Analysts said a triumphalist speech by, Neil Kinnock, Labour's leader at the time, on the eve of the election effectively ruined his party's prospects.
Andrew Russell, a senior politics lecturer at the University of Manchester, said Cameron appeared mindful of that.
"What was going to be a huge party and celebration at the conference has changed. They have realized that could be a dangerous image to present," Russell said. "He knows that people sipping Champagne and slapping each other on the back is not what the public want to see at a time like this."
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