Gates warns U.S. enemies not to test Obama
Reuters
Saturday, December 13, 2008
MANAMA: U.S. Defence Secretary Robert Gates warned the United States' enemies on Saturday against trying to take advantage of the early months of the new Washington administration to test U.S. resolve.
Gates also said the United States would stay deeply involved in the Middle East and the Gulf under Barack Obama's administration.
"I can assure you that a change in administration does not alter our fundamental interests, especially in the Middle East," he told a regional security conference in Bahrain.
Asked about Iran, he said the United States was not seeking to oust the country's leaders but did want to see a change in Iranian policies.
"Nobody is after a regime change in Iran. What we're after is a change in policies and a change in behaviour," Gates said.
"The president-elect and his team are under no illusions about Iran's behaviour and what Iran has been doing in the region and is doing in terms of its own weapons programs."
Many foreign policy experts, including vice-president elect Sen. Joe Biden, have suggested enemies of the United States will try to provoke a crisis early in Obama's term while the new administration is still finding its feet.
Gates, who will stay on under Obama, said extensive planning has gone into preparing for the transition.
"Anyone who thought that the upcoming months might present opportunities to test the new administration would be sorely mistaken," he told the Manama Dialogue conference, organized by the London-based International Institute for Strategic Studies.
"President Obama and his national security team, myself included, will be ready to defend the interests of the United States and our friends and allies from the moment he takes office on January 20th."
Gates, a former CIA director, said the security of the Gulf had long been a central concern for Washington and he brought a message of continuity and commitment from Obama to U.S. allies in the region.
He repeated longstanding appeals for Sunni Arab states to support Iraq's U.S.-backed government with full diplomatic relations and forgiveness of Saddam Hussein-era debts.
Sunni Arab powers have harboured deep reservations about the Baghdad government, believing it to be sectarian and too close politically to Shi'ite-dominated Iran.
Gates said Sunni states should welcome a chance to forge close relations with Iraq, partly to prevent Iran from doing so.
"There is no doubt that Iran has been heavily engaged in trying to influence the development and direction of the Iraqi government -- and has not been a good neighbour," he said.
"Iraq wants to be your partner," he told his audience. "And, given the challenges in the Gulf, and the reality of Iran, you should wish to be theirs."
Gates restated U.S. complaints that Iran supports groups such as Hamas in the Palestinian territories and Hezbollah in Lebanon and said its nuclear program was "almost assuredly" meant to lead to atomic weapons -- a charge Tehran disputes.
(Editing by Matthew Jones)
0430
Global car crisis far from over, executives say
Reuters
Saturday, December 13, 2008
By Marcel Michelson
Top European car makers warned of a bleak 2009 as signs grew the deep crisis in the auto sector went far beyond the U.S. industry's life-or-death struggle.
The heads of Renault-Nissan and Fiat said the car market would decline further next year after steep sales drops pushed the U.S. Big Three to ask for the bailout that was rejected by Congress and prompted White House action.
The world's largest carmaker Toyota Motor Corp was set to report a loss of about 100 billion yen (738 million pounds) for October-March, according to Japanese media on Saturday, and is expected to cut its earnings forecast again.
German premium car maker BMW , which also sells Mini cars and Rolls-Royce limousines, is putting up financial aid to its German dealer network for at least 100 million euros (90 million pounds), according to WirtschaftWoche weekly.
Daimler aims to cut costs at Mercedes-Benz by 10-15 percent in 2009, a German weekly said.
Pressure may also be renewed if OPEC ministers meeting on Wednesday cut output sharply, as expected. A renewed rally in petrol prices at the pump will mean further misery for the global car sector which employs 50 million people.
The car industry has been floored by a combination of high energy and raw material prices as well as a blow to consumer confidence from the financial crisis.
German weekly Automobilwoche said Europe's biggest car maker Vokswagen would discuss cost cuts on Thursday while Europe's biggest car parts firm Robert Bosch plans to cut up to 2,000 jobs to save costs in the downturn.
"I do not see a rapid issue to the crisis in the automobile industry," said Carlos Ghosn, chief executive at French maker Renault and its Japanese ally Nissan Motor .
His comments were carried by the Le Figaro and La Tribune newspapers. "We have not touched the bottom yet," he added.
LIQUIDITY NEEDED
Ghosn said the crisis was above all financial and the sector depended a lot on credit. "If the financial markets remain what they are we will all be having problems," he said.
French President Nicolas Sarkozy has summoned Ghosn and Christian Streiff of PSA Peugeot Citroen for a meeting on Monday after he had promised to help the sector if makers promised not to transfer any jobs abroad. Renault, PSA and car parts group Faurecia are shedding several thousands of jobs in France and elsewhere in Europe to as they cut output.
Ghosn said the authorities understood the seriousness of the situation and he expected concrete action in the coming weeks.
"The state has to provide liquidity, we have already cut our investment plans for 2009," he said. Car makers asked for 40 billion euros in European aid.
Ghosn said the current situation was much more serious than the crisis of 1992-1993, which took five years recovery time. Renault had a debt of 2 billion euros at end 2007 and is keeping a close eye on stocks of unsold cars, which drain cash. "If the stocks rise by 30 percent, the debt doubles," he said
Fiat head Sergio Marchionne, who last week predicted only six carmakers would survive in the long run from the current 50, said in La Repubblica that 2009 would be the most difficult year he had ever seen in his life.
Milano Finanza newspaper said Italian Prime Minister Berlusconi and Sarkozy discussed a tie-up of Fiat with Peugeot Citroen, which would give them critical mass [ID:nLD144936].
(Additional reporting by Ian Simpson in Milan, Hashem Kalantari in Tehran, Chisa Fujioka and Chang-Ran Kim in Tokyo and Birgit Mittwollen, Maria Sheahan and Matthias Inverardi in Berlin, editing by William Hardy)
Reuters
Saturday, December 13, 2008
By Marcel Michelson
Top European car makers warned of a bleak 2009 as signs grew the deep crisis in the auto sector went far beyond the U.S. industry's life-or-death struggle.
The heads of Renault-Nissan and Fiat said the car market would decline further next year after steep sales drops pushed the U.S. Big Three to ask for the bailout that was rejected by Congress and prompted White House action.
The world's largest carmaker Toyota Motor Corp was set to report a loss of about 100 billion yen (738 million pounds) for October-March, according to Japanese media on Saturday, and is expected to cut its earnings forecast again.
German premium car maker BMW , which also sells Mini cars and Rolls-Royce limousines, is putting up financial aid to its German dealer network for at least 100 million euros (90 million pounds), according to WirtschaftWoche weekly.
Daimler aims to cut costs at Mercedes-Benz by 10-15 percent in 2009, a German weekly said.
Pressure may also be renewed if OPEC ministers meeting on Wednesday cut output sharply, as expected. A renewed rally in petrol prices at the pump will mean further misery for the global car sector which employs 50 million people.
The car industry has been floored by a combination of high energy and raw material prices as well as a blow to consumer confidence from the financial crisis.
German weekly Automobilwoche said Europe's biggest car maker Vokswagen would discuss cost cuts on Thursday while Europe's biggest car parts firm Robert Bosch plans to cut up to 2,000 jobs to save costs in the downturn.
"I do not see a rapid issue to the crisis in the automobile industry," said Carlos Ghosn, chief executive at French maker Renault and its Japanese ally Nissan Motor .
His comments were carried by the Le Figaro and La Tribune newspapers. "We have not touched the bottom yet," he added.
LIQUIDITY NEEDED
Ghosn said the crisis was above all financial and the sector depended a lot on credit. "If the financial markets remain what they are we will all be having problems," he said.
French President Nicolas Sarkozy has summoned Ghosn and Christian Streiff of PSA Peugeot Citroen for a meeting on Monday after he had promised to help the sector if makers promised not to transfer any jobs abroad. Renault, PSA and car parts group Faurecia are shedding several thousands of jobs in France and elsewhere in Europe to as they cut output.
Ghosn said the authorities understood the seriousness of the situation and he expected concrete action in the coming weeks.
"The state has to provide liquidity, we have already cut our investment plans for 2009," he said. Car makers asked for 40 billion euros in European aid.
Ghosn said the current situation was much more serious than the crisis of 1992-1993, which took five years recovery time. Renault had a debt of 2 billion euros at end 2007 and is keeping a close eye on stocks of unsold cars, which drain cash. "If the stocks rise by 30 percent, the debt doubles," he said
Fiat head Sergio Marchionne, who last week predicted only six carmakers would survive in the long run from the current 50, said in La Repubblica that 2009 would be the most difficult year he had ever seen in his life.
Milano Finanza newspaper said Italian Prime Minister Berlusconi and Sarkozy discussed a tie-up of Fiat with Peugeot Citroen, which would give them critical mass [ID:nLD144936].
(Additional reporting by Ian Simpson in Milan, Hashem Kalantari in Tehran, Chisa Fujioka and Chang-Ran Kim in Tokyo and Birgit Mittwollen, Maria Sheahan and Matthias Inverardi in Berlin, editing by William Hardy)
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Thousands flee fighting in Sudan oil flashpoint
Reuters
Saturday, December 13, 2008
By Andrew Heavens
Thousands have fled Sudan's volatile oil town of Abyei after fresh north-south fighting has reignited tensions over the contested area, officials said on Saturday.
At least one person was killed after shooting broke out on Friday between police and soldiers in the first significant violence since northern and southern troops clashed in the town in May, raising fears for a north-south peace deal.
Both Khartoum and its semi-autonomous south claim Abyei which is close to lucrative oil fields and a key pipeline.
The borders of the town and its surrounding territory were left undecided in the 2005 Comprehensive Peace Agreement that ended two decades of north-south civil war. Both sides have refused to compromise over the demarcation.
Scores were killed, more than 50,000 were left homeless and Abyei was burnt to the ground in the May clashes, which observers say may have started after a relatively minor confrontation at a checkpoint spiralled out of control.
Both sides eventually signed a roadmap agreement setting up a temporary administration, withdrawing troops and replacing them with integrated police and military units made up of both northerners and southerners.
Local officials said up to 10,000 Abyei residents had returned to the area to rebuild their homes before Friday's clashes.
But a U.N. official, speaking on condition of anonymity, said almost all the people who had moved back to the town had been forced to flee again on Friday. A night curfew was now in force for those who remained, the official added.
DISPLACED
"The population fled in all directions," Colonel James Monday from Abyei's police force told reporters.
"There's very few people left. The market is closed. There's no bread and no meat," he added.
Monday said the shooting started after a northern soldier in the joint military unit got into an argument with a trader in the town's market and police tried to intervene.
"The army released bullets and the police released bullets and there was a fight. Two civilians were injured in the market," he said, adding that one northern soldier was killed and four other troops injured.
U.N. peacekeepers managed to separate the fighters and sent delegations to northern and southern army bases outside the town, urging calm.
A spokesman from the northern Sudanese army declined to comment on the clashes.
Major General Biar Ajang, from the southern Sudan People's Liberation Army, told reporters he had heard two northern soldiers had died in the fighting.
He said the fighting had added to a broader build-up of tension in the region, citing recent reinforcements by northern troops in the Southern Kordofan region, north of Abyei.
Khartoum earlier this month said it was building up troops to counter moves from rebels in war-torn Darfur region.
But Ajang dismissed the explanation as "just excuses."
"There is the border, there are other political issues that we assume to be the reason for the mobilization of troops in this area," he said.
June's Abyei roadmap deal also agreed to refer the issue of Abyei's disputed borders -- which would decide whether one of Sudan's two largest oil fields is in north or south Sudan -- to the Permanent Court of Arbitration in The Hague.
(Additional reporting by Skye Wheeler in Juba; Editing by Sami Aboudi)
Reuters
Saturday, December 13, 2008
By Andrew Heavens
Thousands have fled Sudan's volatile oil town of Abyei after fresh north-south fighting has reignited tensions over the contested area, officials said on Saturday.
At least one person was killed after shooting broke out on Friday between police and soldiers in the first significant violence since northern and southern troops clashed in the town in May, raising fears for a north-south peace deal.
Both Khartoum and its semi-autonomous south claim Abyei which is close to lucrative oil fields and a key pipeline.
The borders of the town and its surrounding territory were left undecided in the 2005 Comprehensive Peace Agreement that ended two decades of north-south civil war. Both sides have refused to compromise over the demarcation.
Scores were killed, more than 50,000 were left homeless and Abyei was burnt to the ground in the May clashes, which observers say may have started after a relatively minor confrontation at a checkpoint spiralled out of control.
Both sides eventually signed a roadmap agreement setting up a temporary administration, withdrawing troops and replacing them with integrated police and military units made up of both northerners and southerners.
Local officials said up to 10,000 Abyei residents had returned to the area to rebuild their homes before Friday's clashes.
But a U.N. official, speaking on condition of anonymity, said almost all the people who had moved back to the town had been forced to flee again on Friday. A night curfew was now in force for those who remained, the official added.
DISPLACED
"The population fled in all directions," Colonel James Monday from Abyei's police force told reporters.
"There's very few people left. The market is closed. There's no bread and no meat," he added.
Monday said the shooting started after a northern soldier in the joint military unit got into an argument with a trader in the town's market and police tried to intervene.
"The army released bullets and the police released bullets and there was a fight. Two civilians were injured in the market," he said, adding that one northern soldier was killed and four other troops injured.
U.N. peacekeepers managed to separate the fighters and sent delegations to northern and southern army bases outside the town, urging calm.
A spokesman from the northern Sudanese army declined to comment on the clashes.
Major General Biar Ajang, from the southern Sudan People's Liberation Army, told reporters he had heard two northern soldiers had died in the fighting.
He said the fighting had added to a broader build-up of tension in the region, citing recent reinforcements by northern troops in the Southern Kordofan region, north of Abyei.
Khartoum earlier this month said it was building up troops to counter moves from rebels in war-torn Darfur region.
But Ajang dismissed the explanation as "just excuses."
"There is the border, there are other political issues that we assume to be the reason for the mobilization of troops in this area," he said.
June's Abyei roadmap deal also agreed to refer the issue of Abyei's disputed borders -- which would decide whether one of Sudan's two largest oil fields is in north or south Sudan -- to the Permanent Court of Arbitration in The Hague.
(Additional reporting by Skye Wheeler in Juba; Editing by Sami Aboudi)
France charges three suspected ETA guerrillas
Reuters
Saturday, December 13, 2008
PARIS: A French judge has charged three suspected members of the Basque separatist group ETA, including the man believed to be its new military leader, and ordered them to be detained pending trial, an official said Saturday.
The three men were charged with belonging to a criminal group with links to a terrorist organisation.
"The three ETA militants have been charged and put in custody in line with the prosecution's request," said Isabelle Montagne, spokeswoman for the Paris prosecutor.
They include Aitziol Iriondo, who is thought to be ETA's new military leader. He was arrested along with Eneko Zarrabeitia and Aitor Artetxe by police Monday near Bagneres-de-Bigorre in southwestern France. The town is outside the French Basque region.
The French Interior Ministry believes Iriondo had succeeded Txeroki, the alias for Garikoitz Aspiazu Rubina, as the head of ETA's military operations.
Rubina was jailed in November in Paris after being arrested in Cauterets, in the Pyrenees.
Spanish authorities say ETA has been reduced to a relatively small number of guerrillas after a series of arrests of senior figures. But it has continued to carry out regular bombings.
ETA began its violent campaign for the independence of traditional Basque territories in northern Spain and southwest France in the late years of the dictatorship of Francisco Franco in the 1960s, and has killed more than 800 people in four decades.
(Reporting by Thierry Leveque and Elizabeth Pineau; Writing by
Marcel Michelson; Editing by Katie Nguyen and Angus MacSwan)
Reuters
Saturday, December 13, 2008
PARIS: A French judge has charged three suspected members of the Basque separatist group ETA, including the man believed to be its new military leader, and ordered them to be detained pending trial, an official said Saturday.
The three men were charged with belonging to a criminal group with links to a terrorist organisation.
"The three ETA militants have been charged and put in custody in line with the prosecution's request," said Isabelle Montagne, spokeswoman for the Paris prosecutor.
They include Aitziol Iriondo, who is thought to be ETA's new military leader. He was arrested along with Eneko Zarrabeitia and Aitor Artetxe by police Monday near Bagneres-de-Bigorre in southwestern France. The town is outside the French Basque region.
The French Interior Ministry believes Iriondo had succeeded Txeroki, the alias for Garikoitz Aspiazu Rubina, as the head of ETA's military operations.
Rubina was jailed in November in Paris after being arrested in Cauterets, in the Pyrenees.
Spanish authorities say ETA has been reduced to a relatively small number of guerrillas after a series of arrests of senior figures. But it has continued to carry out regular bombings.
ETA began its violent campaign for the independence of traditional Basque territories in northern Spain and southwest France in the late years of the dictatorship of Francisco Franco in the 1960s, and has killed more than 800 people in four decades.
(Reporting by Thierry Leveque and Elizabeth Pineau; Writing by
Marcel Michelson; Editing by Katie Nguyen and Angus MacSwan)
Pakistan walks delicate line with a radical
By Richard A. Oppel Jr. and Salman Masood
Saturday, December 13, 2008
LAHORE, Pakistan: On a normal Friday afternoon the line of cars and red Honda motorbikes outside the Qadssiya Mosque stretches to a gasoline station a kilometer away. Eight thousand worshipers typically come to hear Hafiz Muhammad Saeed preach at the headquarters of the organization he leads, Jamaat-ud-Dawa, the charity that fronts for the militant group Lashkar-e-Taiba. The two-tiered mosque can accommodate only a portion of the crowd, so the remainder spill out onto a broad concrete courtyard.
But this Friday the road outside was clear, and the few thousand who showed up were all able to fit inside. The day before, the Pakistani authorities had put Saeed under house arrest and closed dozens of the group's offices across the country. Many followers were unnerved.
"The government has created a panic," said Mohammed Nawaz, 35, one of the mosque administrators, who estimated that only one in four people came to this week's services. "Our leader has been arrested, so what happens if they come to prayers? Not a lot of people have come today. People are not certain what will happen next."
A few kilometers away, in Saeed's leafy neighborhood, it was a decidedly more relaxed scene. Several dozen police officers ringed the area around his home, standing casually with rifles and enforcing a house arrest that seemed more of a forced vacation.
Two heavily bearded workers from Jamaat-ud-Dawa arrived with food, and the police raised the barricades and allowed them through, choosing not to inspect their Suzuki truck. Saeed's relatives have been allowed to come and go freely from the home, the police said. A young boy and a girl standing on the second-floor balcony of Saeed's home looked down at the officers and smiled.
One local police commander, seeing journalists arrive, rushed over and proclaimed that Saeed was confined inside his home, banned from going outside now or at any other time.
Almost on cue, Saeed emerged moments later from the mosque across the street, clad in a green jacket and a cream-colored shalwar kameez, the long tunic and baggy pants that Pakistani men commonly wear, and ambled back to his house. "No, no, it's not Hafiz Saeed," the embarrassed commander said, though it clearly was.
"I'm just following instructions," he added.
The two scenes underscored the Pakistani government's deeply mixed reaction to Saeed and his organization following the terrorist attacks in Mumbai that the Indian and U.S. governments have accused Lashkar of carrying out.
Under intense pressure to show some resolve against homegrown terrorism, the Pakistani government claims to have arrested the Lashkar official suspected of running the Mumbai attacks, and then on Thursday and Friday it shut down dozens of Jamaat-ud-Dawa offices and said it had detained many of the group's members.
But the government has also taken clear steps to soften the blow, like allowing Saeed to hold a defiant news conference before his house arrest began. Saeed maintains that neither he nor Jamaat-ud-Dawa has had connections to Lashkar for more than six years.
As was apparent at his home on Friday, the government is clearly reluctant to cut off Saeed and his group too abruptly, partly out of expediency but partly out of fear, too.
Pakistan has used Lashkar and other militant groups as surrogate security forces in Kashmir, the disputed Himalayan region claimed by both Pakistan and India, and many in the country's army are sympathetic to Lashkar and other Islamist militant groups. The country's premier spy agency, Inter-Services Intelligence, helped establish Lashkar in the 1980s to undermine the Indian authorities in Kashmir.
Lashkar and Jamaat-ud-Dawa remain popular in Punjab, the most populous Pakistani province, where the cities and villages that spread out from Lahore, the provincial capital, have been the principal recruiting ground for Lashkar and Jamaat-ud-Dawa and for the men accused of carrying out the Mumbai attacks. In these rural areas the two organizations are synonymous.
Moreover, Jamaat-ud-Dawa is seen by many Punjabis as a more effective relief agency than the government, bringing shelter, food, blankets and medicine to people devastated by earthquakes in Kashmir in 2005 and in Baluchistan Province in October.
"All the relief work will be badly affected" by the crackdown, said Mohammed Faizan Kashif, a 28-year-old Lahore banker who attended Friday's service and, like many here, sharply criticized what he described as the government's fecklessness and kowtowing to U.S. and Indian pressure. "If I try to organize a fashion show, the government will facilitate it," he said. "But if I try to highlight the Kashmir issue, the government would stop it."
Inside the mosque, Saeed's 38-year-old son, Mohammed Talha Saeed, took his father's place at the podium and inveighed against the government's crackdown as the result of "dictation from the United States" and pressure from "Jews and the Hindu lobby."
"If the government continues this type of activity, then one day the army of God will come," he lectured, urging the worshipers to remain patient.
Waqar Gillani contributed reporting.
By Richard A. Oppel Jr. and Salman Masood
Saturday, December 13, 2008
LAHORE, Pakistan: On a normal Friday afternoon the line of cars and red Honda motorbikes outside the Qadssiya Mosque stretches to a gasoline station a kilometer away. Eight thousand worshipers typically come to hear Hafiz Muhammad Saeed preach at the headquarters of the organization he leads, Jamaat-ud-Dawa, the charity that fronts for the militant group Lashkar-e-Taiba. The two-tiered mosque can accommodate only a portion of the crowd, so the remainder spill out onto a broad concrete courtyard.
But this Friday the road outside was clear, and the few thousand who showed up were all able to fit inside. The day before, the Pakistani authorities had put Saeed under house arrest and closed dozens of the group's offices across the country. Many followers were unnerved.
"The government has created a panic," said Mohammed Nawaz, 35, one of the mosque administrators, who estimated that only one in four people came to this week's services. "Our leader has been arrested, so what happens if they come to prayers? Not a lot of people have come today. People are not certain what will happen next."
A few kilometers away, in Saeed's leafy neighborhood, it was a decidedly more relaxed scene. Several dozen police officers ringed the area around his home, standing casually with rifles and enforcing a house arrest that seemed more of a forced vacation.
Two heavily bearded workers from Jamaat-ud-Dawa arrived with food, and the police raised the barricades and allowed them through, choosing not to inspect their Suzuki truck. Saeed's relatives have been allowed to come and go freely from the home, the police said. A young boy and a girl standing on the second-floor balcony of Saeed's home looked down at the officers and smiled.
One local police commander, seeing journalists arrive, rushed over and proclaimed that Saeed was confined inside his home, banned from going outside now or at any other time.
Almost on cue, Saeed emerged moments later from the mosque across the street, clad in a green jacket and a cream-colored shalwar kameez, the long tunic and baggy pants that Pakistani men commonly wear, and ambled back to his house. "No, no, it's not Hafiz Saeed," the embarrassed commander said, though it clearly was.
"I'm just following instructions," he added.
The two scenes underscored the Pakistani government's deeply mixed reaction to Saeed and his organization following the terrorist attacks in Mumbai that the Indian and U.S. governments have accused Lashkar of carrying out.
Under intense pressure to show some resolve against homegrown terrorism, the Pakistani government claims to have arrested the Lashkar official suspected of running the Mumbai attacks, and then on Thursday and Friday it shut down dozens of Jamaat-ud-Dawa offices and said it had detained many of the group's members.
But the government has also taken clear steps to soften the blow, like allowing Saeed to hold a defiant news conference before his house arrest began. Saeed maintains that neither he nor Jamaat-ud-Dawa has had connections to Lashkar for more than six years.
As was apparent at his home on Friday, the government is clearly reluctant to cut off Saeed and his group too abruptly, partly out of expediency but partly out of fear, too.
Pakistan has used Lashkar and other militant groups as surrogate security forces in Kashmir, the disputed Himalayan region claimed by both Pakistan and India, and many in the country's army are sympathetic to Lashkar and other Islamist militant groups. The country's premier spy agency, Inter-Services Intelligence, helped establish Lashkar in the 1980s to undermine the Indian authorities in Kashmir.
Lashkar and Jamaat-ud-Dawa remain popular in Punjab, the most populous Pakistani province, where the cities and villages that spread out from Lahore, the provincial capital, have been the principal recruiting ground for Lashkar and Jamaat-ud-Dawa and for the men accused of carrying out the Mumbai attacks. In these rural areas the two organizations are synonymous.
Moreover, Jamaat-ud-Dawa is seen by many Punjabis as a more effective relief agency than the government, bringing shelter, food, blankets and medicine to people devastated by earthquakes in Kashmir in 2005 and in Baluchistan Province in October.
"All the relief work will be badly affected" by the crackdown, said Mohammed Faizan Kashif, a 28-year-old Lahore banker who attended Friday's service and, like many here, sharply criticized what he described as the government's fecklessness and kowtowing to U.S. and Indian pressure. "If I try to organize a fashion show, the government will facilitate it," he said. "But if I try to highlight the Kashmir issue, the government would stop it."
Inside the mosque, Saeed's 38-year-old son, Mohammed Talha Saeed, took his father's place at the podium and inveighed against the government's crackdown as the result of "dictation from the United States" and pressure from "Jews and the Hindu lobby."
"If the government continues this type of activity, then one day the army of God will come," he lectured, urging the worshipers to remain patient.
Waqar Gillani contributed reporting.
******************
*******************
Pakistan says Indian planes entered airspace
By Richard A. Oppel Jr. and Salman Masood
Sunday, December 14, 2008
LAHORE, Pakistan: Indian warplanes crossed into Pakistani airspace on Saturday over two parts of the country where the militant group accused of carrying out the Mumbai terror attacks is active, according to Pakistani officials, who said they scrambled their own air force jets to chase the Indian aircraft back across the border.
The incursions would appear to be an aggressive display by India, whose top officials describe neighboring Pakistan as the "epicenter of terrorism" and say Pakistan's own intelligence service has long aided Lashkar-e-Taiba, the group blamed for the attacks in Mumbai last month, which sharply raised tensions between the nuclear-armed rivals.
Pakistani officials trumpeted the airspace breaches in statements to the news media but said there was no cause for "alarm." They also said they had contacted Indian officials, who confirmed the breaches as accidental. But Indian outlets also reported on Sunday morning that the Indian military had denied any improper flyovers.
The Pakistani government sought to play down the airspace violations as "inadvertent," but it did not elaborate on how two separate breaches so far away could be unintended and coincidental.
According to the Pakistani account, one violation occurred over the portion of the disputed Himalayan region of Kashmir that is controlled by Pakistani forces, while the other happened at least 100 miles south, near Lahore, the capital of Punjab Province and Pakistan's second-largest city. Both areas are strongholds of Lashkar and Jamaat-ud-Dawa, the charity group shut down last week by the Pakistani government after the United Nations labeled it a front for Lashkar.
The attacks in Mumbai, which began the night of Nov. 26 and ended three days later in a battle between gunmen and Indian commandos, left at least 163 people dead along with nine gunmen.
By Richard A. Oppel Jr. and Salman Masood
Sunday, December 14, 2008
LAHORE, Pakistan: Indian warplanes crossed into Pakistani airspace on Saturday over two parts of the country where the militant group accused of carrying out the Mumbai terror attacks is active, according to Pakistani officials, who said they scrambled their own air force jets to chase the Indian aircraft back across the border.
The incursions would appear to be an aggressive display by India, whose top officials describe neighboring Pakistan as the "epicenter of terrorism" and say Pakistan's own intelligence service has long aided Lashkar-e-Taiba, the group blamed for the attacks in Mumbai last month, which sharply raised tensions between the nuclear-armed rivals.
Pakistani officials trumpeted the airspace breaches in statements to the news media but said there was no cause for "alarm." They also said they had contacted Indian officials, who confirmed the breaches as accidental. But Indian outlets also reported on Sunday morning that the Indian military had denied any improper flyovers.
The Pakistani government sought to play down the airspace violations as "inadvertent," but it did not elaborate on how two separate breaches so far away could be unintended and coincidental.
According to the Pakistani account, one violation occurred over the portion of the disputed Himalayan region of Kashmir that is controlled by Pakistani forces, while the other happened at least 100 miles south, near Lahore, the capital of Punjab Province and Pakistan's second-largest city. Both areas are strongholds of Lashkar and Jamaat-ud-Dawa, the charity group shut down last week by the Pakistani government after the United Nations labeled it a front for Lashkar.
The attacks in Mumbai, which began the night of Nov. 26 and ended three days later in a battle between gunmen and Indian commandos, left at least 163 people dead along with nine gunmen.
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In Iraq, Gates affirms U.S. pullout goal
By Elisabeth Bumiller
Saturday, December 13, 2008
BALAD, Iraq: The top American commander in Iraq said Saturday that some soldiers would remain in a support role in cities beyond summer 2009, when a new security agreement calls for the removal of American combat troops from urban areas.
The commander, General Ray Odierno, said American troops would remain at numerous security outposts in order to help support and train Iraqi forces. "We believe that's part of our transition teams," he told reporters in Balad while accompanying Defense Secretary Robert Gates, who arrived on an unannounced trip Saturday.
General Odierno declined to say how many American troops might remain in Iraqi cities past the summer and said the number still remained to be negotiated with the Iraqi government under the terms of the so-called status of forces agreement. "But what I would say is we'll maintain our very close partnership with the Iraqi security forces throughout Iraq even after the summer."
Later on Saturday, a spokesman for General Odierno, Lieutenant Colonel James Hutton, reiterated that the soldiers staying in cities would not be combat forces but rather "enablers," who would provide services like medical care, air traffic control and helicopter support that the Iraqis cannot perform themselves. He said that all their actions would be closely coordinated with the Iraqi government, and that all tenets of the security agreement would be followed.
Gates met with Odierno for an hour and then was scheduled to return to Washington. Before the meeting, Gates held a question-and-answer session with American soldiers and repeated the Bush administration's pledge to the Iraqi government of a complete troop withdrawal by the end of 2011.
But Odierno said Saturday, as Pentagon officials have said previously, that the agreement might be renegotiated with the Iraqi government. "Three years is a very long time," he told reporters.
Gates came to Baghdad from Manama, Bahrain, where he warned that foreign powers should not try to "test" President-elect Barack Obama with a crisis in his first months in office. He said the new administration would be committed to security in the Gulf and criticized Iran as trying to destabilize the region.
"The president-elect and his team are under no illusions about Iran's behavior and what Iran has been doing in the region and apparently is doing with weapons programs," he said.
Gates, who was speaking at a conference on regional security, said that Obama and his advisers had done more extensive planning across the government for the transition than any other incoming administration he could remember and asserted that they would therefore be prepared from their first day in office. Gates, who is staying on as defense secretary, has worked for seven presidents; Obama will be his eighth.
"So anyone who thought that the upcoming months might present opportunities to 'test' the new president would be sorely mistaken," Gates said at the conference. "President Obama and his national security team, myself included, will be ready to defend the interests of the United States and our friends and allies from the moment he takes office on Jan. 20."
In response to questions from audience members after his formal remarks, Gates said that although the Pentagon would be sending thousands of additional troops to Afghanistan over the next months, he was ultimately worried about the size of the American presence on Afghan soil. The United States plans to add some 20,000 troops in Afghanistan in 2009.
"I am more mindful than most that with 120,000 troops the Soviets still lost, because they never had the support of the Afghan people," Gates said. "I think that after we complete these troop increases that we're talking about, we ought to think long and hard about how many more go in."
Asked about the problem of piracy of commercial ships off the coast of Somalia, Gates said he did not think the United States had enough information to launch attacks on pirate bases on land, but he said such attacks might be possible in the future. The comment appeared to put Gates at odds for now with a United Nations resolution that the United States began circulating in the Security Council on Wednesday that would increase interdiction efforts by permitting foreign forces to conduct land-based attacks.
Gates said there were a number of "minimally intelligent things" that ship captains could do when pirates approached, like "speed up" and "pull up the ladders." He added, "This is not rocket science."
By Elisabeth Bumiller
Saturday, December 13, 2008
BALAD, Iraq: The top American commander in Iraq said Saturday that some soldiers would remain in a support role in cities beyond summer 2009, when a new security agreement calls for the removal of American combat troops from urban areas.
The commander, General Ray Odierno, said American troops would remain at numerous security outposts in order to help support and train Iraqi forces. "We believe that's part of our transition teams," he told reporters in Balad while accompanying Defense Secretary Robert Gates, who arrived on an unannounced trip Saturday.
General Odierno declined to say how many American troops might remain in Iraqi cities past the summer and said the number still remained to be negotiated with the Iraqi government under the terms of the so-called status of forces agreement. "But what I would say is we'll maintain our very close partnership with the Iraqi security forces throughout Iraq even after the summer."
Later on Saturday, a spokesman for General Odierno, Lieutenant Colonel James Hutton, reiterated that the soldiers staying in cities would not be combat forces but rather "enablers," who would provide services like medical care, air traffic control and helicopter support that the Iraqis cannot perform themselves. He said that all their actions would be closely coordinated with the Iraqi government, and that all tenets of the security agreement would be followed.
Gates met with Odierno for an hour and then was scheduled to return to Washington. Before the meeting, Gates held a question-and-answer session with American soldiers and repeated the Bush administration's pledge to the Iraqi government of a complete troop withdrawal by the end of 2011.
But Odierno said Saturday, as Pentagon officials have said previously, that the agreement might be renegotiated with the Iraqi government. "Three years is a very long time," he told reporters.
Gates came to Baghdad from Manama, Bahrain, where he warned that foreign powers should not try to "test" President-elect Barack Obama with a crisis in his first months in office. He said the new administration would be committed to security in the Gulf and criticized Iran as trying to destabilize the region.
"The president-elect and his team are under no illusions about Iran's behavior and what Iran has been doing in the region and apparently is doing with weapons programs," he said.
Gates, who was speaking at a conference on regional security, said that Obama and his advisers had done more extensive planning across the government for the transition than any other incoming administration he could remember and asserted that they would therefore be prepared from their first day in office. Gates, who is staying on as defense secretary, has worked for seven presidents; Obama will be his eighth.
"So anyone who thought that the upcoming months might present opportunities to 'test' the new president would be sorely mistaken," Gates said at the conference. "President Obama and his national security team, myself included, will be ready to defend the interests of the United States and our friends and allies from the moment he takes office on Jan. 20."
In response to questions from audience members after his formal remarks, Gates said that although the Pentagon would be sending thousands of additional troops to Afghanistan over the next months, he was ultimately worried about the size of the American presence on Afghan soil. The United States plans to add some 20,000 troops in Afghanistan in 2009.
"I am more mindful than most that with 120,000 troops the Soviets still lost, because they never had the support of the Afghan people," Gates said. "I think that after we complete these troop increases that we're talking about, we ought to think long and hard about how many more go in."
Asked about the problem of piracy of commercial ships off the coast of Somalia, Gates said he did not think the United States had enough information to launch attacks on pirate bases on land, but he said such attacks might be possible in the future. The comment appeared to put Gates at odds for now with a United Nations resolution that the United States began circulating in the Security Council on Wednesday that would increase interdiction efforts by permitting foreign forces to conduct land-based attacks.
Gates said there were a number of "minimally intelligent things" that ship captains could do when pirates approached, like "speed up" and "pull up the ladders." He added, "This is not rocket science."
******************
U.S. draft hails steps in Mideast talks
Reuters
Saturday, December 13, 2008
By Louis Charbonneau
The United States handed the U.N. Security Council a draft resolution on Saturday that hails progress made in Israeli-Palestinian peace talks but calls for an "intensification" of efforts to secure a deal.
U.S. Ambassador to the United Nations Zalmay Khalilzad said the 15-nation council would vote on the resolution on Tuesday at a meeting which U.S. Secretary of State Condoleezza Rice, her Russian counterpart Sergei Lavrov and other foreign ministers are expected to attend.
If approved, it will be the Security Council's first resolution on the conflict between Israel and the Palestinians since November 2003, when it endorsed the Middle East "road map" peace plan for eventual Palestinian statehood.
Khalilzad told reporters the resolution endorsed the goals of peace talks launched in November 2007 by the administration of U.S. President George W. Bush in Annapolis, Maryland.
The Bush administration had wanted an agreement on Palestinian statehood by the end of this year but all sides now say that will not happen. Bush leaves office on January 20, when Barack Obama will become U.S. president.
"We believe it's very important at this time to recognise the progress that has been made," Khalilzad said.
It was crucial for the push for a two-state solution "to be sustained and for the council to express its support so there is no pause in the negotiations," he added.
Diplomats in New York say the highly unpopular Bush administration hopes this resolution will help draw attention to the good it has done for the Middle East and counter some of the criticism it has faced for its 2003 invasion of Iraq.
NO SPECIFICS
The text, expected to be revised before Tuesday's vote, mentions none of the specific complaints the Palestinians and Israelis have raised.
The Palestinians have said Israeli settlement building in Palestinian areas threatens to derail the peace process. U.N. diplomats said Arab delegations wanted settlements mentioned in the text but the Americans do not want to include details of specific disagreements.
Instead, the resolution urges both sides to "refrain from any steps that could undermine confidence or prejudice the outcome of the negotiations" and calls for "an intensification of diplomatic efforts" aimed at securing a "comprehensive, just, and lasting peace in the Middle East."
Russian Ambassador Vitaly Churkin said Moscow backed the text and agreed that the change of U.S. and Israeli administrations should not slow the peace process.
"We believe it's very important to continue the momentum," he said. "Considerable effort has been made over the last 12 months or so, and we believe that the effort has to be pinned down and it has to continue without a pause."
French Ambassador Jean-Maurice Ripert, speaking on behalf of the French presidency of the European Union, said the draft text was a "very good basis to get an agreement."
He said he was optimistic the Security Council would reach a unanimous agreement on the resolution by Tuesday.
Libya, a strong supporter of the Palestinians, is the only Arab state on the Security Council at the moment. It has repeatedly clashed with Washington on Palestinian issues.
The Palestinian delegation did not comment on the draft.
(Editing by John O'Callaghan)
Reuters
Saturday, December 13, 2008
By Louis Charbonneau
The United States handed the U.N. Security Council a draft resolution on Saturday that hails progress made in Israeli-Palestinian peace talks but calls for an "intensification" of efforts to secure a deal.
U.S. Ambassador to the United Nations Zalmay Khalilzad said the 15-nation council would vote on the resolution on Tuesday at a meeting which U.S. Secretary of State Condoleezza Rice, her Russian counterpart Sergei Lavrov and other foreign ministers are expected to attend.
If approved, it will be the Security Council's first resolution on the conflict between Israel and the Palestinians since November 2003, when it endorsed the Middle East "road map" peace plan for eventual Palestinian statehood.
Khalilzad told reporters the resolution endorsed the goals of peace talks launched in November 2007 by the administration of U.S. President George W. Bush in Annapolis, Maryland.
The Bush administration had wanted an agreement on Palestinian statehood by the end of this year but all sides now say that will not happen. Bush leaves office on January 20, when Barack Obama will become U.S. president.
"We believe it's very important at this time to recognise the progress that has been made," Khalilzad said.
It was crucial for the push for a two-state solution "to be sustained and for the council to express its support so there is no pause in the negotiations," he added.
Diplomats in New York say the highly unpopular Bush administration hopes this resolution will help draw attention to the good it has done for the Middle East and counter some of the criticism it has faced for its 2003 invasion of Iraq.
NO SPECIFICS
The text, expected to be revised before Tuesday's vote, mentions none of the specific complaints the Palestinians and Israelis have raised.
The Palestinians have said Israeli settlement building in Palestinian areas threatens to derail the peace process. U.N. diplomats said Arab delegations wanted settlements mentioned in the text but the Americans do not want to include details of specific disagreements.
Instead, the resolution urges both sides to "refrain from any steps that could undermine confidence or prejudice the outcome of the negotiations" and calls for "an intensification of diplomatic efforts" aimed at securing a "comprehensive, just, and lasting peace in the Middle East."
Russian Ambassador Vitaly Churkin said Moscow backed the text and agreed that the change of U.S. and Israeli administrations should not slow the peace process.
"We believe it's very important to continue the momentum," he said. "Considerable effort has been made over the last 12 months or so, and we believe that the effort has to be pinned down and it has to continue without a pause."
French Ambassador Jean-Maurice Ripert, speaking on behalf of the French presidency of the European Union, said the draft text was a "very good basis to get an agreement."
He said he was optimistic the Security Council would reach a unanimous agreement on the resolution by Tuesday.
Libya, a strong supporter of the Palestinians, is the only Arab state on the Security Council at the moment. It has repeatedly clashed with Washington on Palestinian issues.
The Palestinian delegation did not comment on the draft.
(Editing by John O'Callaghan)
********************
A Saudi's luxurious plight in terror's shadow
By Landon Thomas Jr.
Saturday, December 13, 2008
JIDDA: Yassin Kadi welcomes a visitor into the sun-drenched living room of his compound in this bustling commercial capital of Saudi Arabia. Expecting to be photographed, he has chosen to appear in Western dress - brown shirt, slacks and blue suede shoes.
It is an outfit that Kadi, a multimillionaire businessman with investments and charities that span the globe, rarely wears these days.
Once a man of the world, Kadi is confined to Saudi Arabia. His travel is limited mainly to the short drive from his home in Jidda to the office where he manages his shrunken business affairs.
In October 2001, right after the attacks on the World Trade Center and the Pentagon, the U.S. Treasury designated Kadi a terrorist supporter, accusing him of funneling money to Osama bin Laden and Al Qaeda through a web of businesses, foundations and universities.
His ample worldwide assets were frozen, an order supported by the United Nations Security Council, and he has been advised by the Saudi government to not leave the country. But he is not exactly suffering; not financially, at least.
"I am not bankrupt," he said, as a servant brought sandwiches and coffee.
"I still have my life, my house and my car, but it's embarrassing. I have never been in a situation of asking other people for money."
As is customary in such cases, Washington has presented no direct evidence linking Kadi to terrorism. But it has made public a dense labyrinth of associations and business and personal ties that it says establishes Kadi's relationship with bin Laden and his allies.
Kadi, who has repeatedly claimed his innocence, is caught up in a legal limbo with no end in sight. The accusations against him are in the form of a government order. But because he has never been charged with any crime, he has not ever had the opportunity to stand before a jury or a judge to plead his case.
"We have not found Mr. Kadi guilty of anything," said Adam Szubin, the director of the Treasury's office of foreign assets control. "But we have found that he is a supporter of terror."
Washington's broad freedom to sanction those suspected of being terrorism financiers has mostly gone unchallenged since the attacks of Sept. 11, 2001. And few have rushed to defend wealthy foreigners the way civil rights lawyers and others have sought to bring attention to the plight of the prisoners held in Guantánamo Bay.
But in September, in what Kadi's lawyers have called a major legal victory, the European Court of Justice overturned a lower court ruling that supported Europe's right to freeze his assets.
The ruling is nonbinding, however, and the Bush administration continues to maintain that Kadi is guilty. But the decision raises questions about the Treasury's ability to impose such administrative sanctions indefinitely.
A scion of a wealthy and well-connected businessman, Sheik Yassin, as he is widely known in Saudi Arabia, has the commanding presence of a chief executive and is quite obviously accustomed to the deference that comes to those who deploy large sums of money.
In interviews with government officials, Kadi has said that his net worth is as much as $65 million. His Jidda compound is spacious and well-appointed. He has servants and a chauffeur to drive his luxury cars, and he remains an active investor in world currency and stock markets.
(Under the terms of his asset freeze, he can continue to trade his portfolio and to collect dividends, but he cannot take money out.)
Kadi is mindful that his position is different from those serving time in Guantánamo Bay but insists that the paradox of his legal condition is no less unfair. "When it is classified," he said, "you can never defend yourself."
And, he says, his suffering has been acute in it own regard - he has struggled with bouts of depression, diabetes and the humiliation of having to ask family members for financial help.
The Treasury claims that it responds to new evidence presented by designees and says that it took 154 names off the list - 4,102 remain - from November 2007 to November 2008. But Kadi is unlikely to benefit from any reassessment.
"We stand by our designation," said Szubin, the Treasury official, "and you can quote me on that."
Kadi does not dispute his ties to bin Laden but maintains that he does not support him and has not spoken to him since the early 1990s.
They do share a common background: Now in their early 50s, they were both born to wealthy families in Jidda, studied engineering and first met in Chicago in 1981. Kadi was working for the architectural firm Skidmore Owings Merrill, and bin Laden, who then was 24 and working for the family contracting business, had come to Chicago to recruit American-trained engineers to work for the bin Laden group - his first known trip to the United States. As Kadi remembers it, he put bin Laden in touch with a group of engineers, several of whom were eventually hired.
They came together again in Pakistan in the late 1980s as enthusiastic backers of the Afghan rebels in their war with the Soviet Union and became large investors in Sudan in the early 1990s.
But Kadi says he cut ties after bin Laden began to adopt an anti-American, openly radical attitude in the mid-1990s.
In the absence of a full airing of the evidence against him, however, it seems unlikely that Kadi's guilt or innocence will be established. Like many wealthy Saudis, Kadi has been an enthusiastic underwriter of Islamic-hued causes, including hospitals in Peshawar, Pakistan, and in Albania, a university in Yemen and the publication of a definitive English translation of the Koran.
But this, he says, is nothing more than a form of blessed relief.
But Szubin and others say Kadi's giving is part of a disguised money trail to Al Qaeda and bin Laden.
Some of the evidence presented by his accusers, however, raises its own questions. For example, a Swiss prosecutor - who investigated Kadi but did not bring charges - tried to connect him to the fundamentalist Islamic philosopher Sayyid Qutb. The problem was that Qutb was put to death by the Egyptian government in 1966, when Kadi was 9 years old.
On the other hand, Kadi's continued refusal to renounce figures alleged to be terrorism supporters gives ready ammunition to his antagonists.
One of those individuals is Wael Juleidan, a prominent Saudi financier who was a close ally of bin Laden in the late 1980s. Another is Muhammad Salah, a Palestinian-American who was accused of sending money to Hamas, the militant group that controls Gaza. (Salah was acquitted of these charges in a federal court last year.)
Salah, who ran a Chicago-based Muslim charity, received about $1 million from Kadi in the early 1990s.
"If I wanted to send money to Hamas, I would do it directly, not via Chicago," Kadi said, in his smooth, American-accented English.
Such a comment, with its trace of smug self-assurance, illuminates why Kadi remains a target for so many anti-terrorism investigators.
He is a man who does not easily hide his disdain for the process that has trapped him in his own country or the efforts by the Bush administration to prevent another major terrorist attack.
But he insists that his deepest anger is reserved for bin Laden. Asked what he would say to him now, Kadi takes his time before responding.
"I would say, 'Wash your hands of the blood of innocent people,"' Kadi said, using the Arabic word fitna to describe the devastation bin Laden's actions have brought upon him and the Islamic world. "Islam is innocent of all this. This was a big mistake. Now, everyone is suspicious."
By Landon Thomas Jr.
Saturday, December 13, 2008
JIDDA: Yassin Kadi welcomes a visitor into the sun-drenched living room of his compound in this bustling commercial capital of Saudi Arabia. Expecting to be photographed, he has chosen to appear in Western dress - brown shirt, slacks and blue suede shoes.
It is an outfit that Kadi, a multimillionaire businessman with investments and charities that span the globe, rarely wears these days.
Once a man of the world, Kadi is confined to Saudi Arabia. His travel is limited mainly to the short drive from his home in Jidda to the office where he manages his shrunken business affairs.
In October 2001, right after the attacks on the World Trade Center and the Pentagon, the U.S. Treasury designated Kadi a terrorist supporter, accusing him of funneling money to Osama bin Laden and Al Qaeda through a web of businesses, foundations and universities.
His ample worldwide assets were frozen, an order supported by the United Nations Security Council, and he has been advised by the Saudi government to not leave the country. But he is not exactly suffering; not financially, at least.
"I am not bankrupt," he said, as a servant brought sandwiches and coffee.
"I still have my life, my house and my car, but it's embarrassing. I have never been in a situation of asking other people for money."
As is customary in such cases, Washington has presented no direct evidence linking Kadi to terrorism. But it has made public a dense labyrinth of associations and business and personal ties that it says establishes Kadi's relationship with bin Laden and his allies.
Kadi, who has repeatedly claimed his innocence, is caught up in a legal limbo with no end in sight. The accusations against him are in the form of a government order. But because he has never been charged with any crime, he has not ever had the opportunity to stand before a jury or a judge to plead his case.
"We have not found Mr. Kadi guilty of anything," said Adam Szubin, the director of the Treasury's office of foreign assets control. "But we have found that he is a supporter of terror."
Washington's broad freedom to sanction those suspected of being terrorism financiers has mostly gone unchallenged since the attacks of Sept. 11, 2001. And few have rushed to defend wealthy foreigners the way civil rights lawyers and others have sought to bring attention to the plight of the prisoners held in Guantánamo Bay.
But in September, in what Kadi's lawyers have called a major legal victory, the European Court of Justice overturned a lower court ruling that supported Europe's right to freeze his assets.
The ruling is nonbinding, however, and the Bush administration continues to maintain that Kadi is guilty. But the decision raises questions about the Treasury's ability to impose such administrative sanctions indefinitely.
A scion of a wealthy and well-connected businessman, Sheik Yassin, as he is widely known in Saudi Arabia, has the commanding presence of a chief executive and is quite obviously accustomed to the deference that comes to those who deploy large sums of money.
In interviews with government officials, Kadi has said that his net worth is as much as $65 million. His Jidda compound is spacious and well-appointed. He has servants and a chauffeur to drive his luxury cars, and he remains an active investor in world currency and stock markets.
(Under the terms of his asset freeze, he can continue to trade his portfolio and to collect dividends, but he cannot take money out.)
Kadi is mindful that his position is different from those serving time in Guantánamo Bay but insists that the paradox of his legal condition is no less unfair. "When it is classified," he said, "you can never defend yourself."
And, he says, his suffering has been acute in it own regard - he has struggled with bouts of depression, diabetes and the humiliation of having to ask family members for financial help.
The Treasury claims that it responds to new evidence presented by designees and says that it took 154 names off the list - 4,102 remain - from November 2007 to November 2008. But Kadi is unlikely to benefit from any reassessment.
"We stand by our designation," said Szubin, the Treasury official, "and you can quote me on that."
Kadi does not dispute his ties to bin Laden but maintains that he does not support him and has not spoken to him since the early 1990s.
They do share a common background: Now in their early 50s, they were both born to wealthy families in Jidda, studied engineering and first met in Chicago in 1981. Kadi was working for the architectural firm Skidmore Owings Merrill, and bin Laden, who then was 24 and working for the family contracting business, had come to Chicago to recruit American-trained engineers to work for the bin Laden group - his first known trip to the United States. As Kadi remembers it, he put bin Laden in touch with a group of engineers, several of whom were eventually hired.
They came together again in Pakistan in the late 1980s as enthusiastic backers of the Afghan rebels in their war with the Soviet Union and became large investors in Sudan in the early 1990s.
But Kadi says he cut ties after bin Laden began to adopt an anti-American, openly radical attitude in the mid-1990s.
In the absence of a full airing of the evidence against him, however, it seems unlikely that Kadi's guilt or innocence will be established. Like many wealthy Saudis, Kadi has been an enthusiastic underwriter of Islamic-hued causes, including hospitals in Peshawar, Pakistan, and in Albania, a university in Yemen and the publication of a definitive English translation of the Koran.
But this, he says, is nothing more than a form of blessed relief.
But Szubin and others say Kadi's giving is part of a disguised money trail to Al Qaeda and bin Laden.
Some of the evidence presented by his accusers, however, raises its own questions. For example, a Swiss prosecutor - who investigated Kadi but did not bring charges - tried to connect him to the fundamentalist Islamic philosopher Sayyid Qutb. The problem was that Qutb was put to death by the Egyptian government in 1966, when Kadi was 9 years old.
On the other hand, Kadi's continued refusal to renounce figures alleged to be terrorism supporters gives ready ammunition to his antagonists.
One of those individuals is Wael Juleidan, a prominent Saudi financier who was a close ally of bin Laden in the late 1980s. Another is Muhammad Salah, a Palestinian-American who was accused of sending money to Hamas, the militant group that controls Gaza. (Salah was acquitted of these charges in a federal court last year.)
Salah, who ran a Chicago-based Muslim charity, received about $1 million from Kadi in the early 1990s.
"If I wanted to send money to Hamas, I would do it directly, not via Chicago," Kadi said, in his smooth, American-accented English.
Such a comment, with its trace of smug self-assurance, illuminates why Kadi remains a target for so many anti-terrorism investigators.
He is a man who does not easily hide his disdain for the process that has trapped him in his own country or the efforts by the Bush administration to prevent another major terrorist attack.
But he insists that his deepest anger is reserved for bin Laden. Asked what he would say to him now, Kadi takes his time before responding.
"I would say, 'Wash your hands of the blood of innocent people,"' Kadi said, using the Arabic word fitna to describe the devastation bin Laden's actions have brought upon him and the Islamic world. "Islam is innocent of all this. This was a big mistake. Now, everyone is suspicious."
*********************
Canadian's battle role cast in doubt at Guantanamo
Reuters
Saturday, December 13, 2008
By Jane Sutton
A Canadian teen was buried facedown under the rubble of a bombed-out compound when someone threw the grenade that killed a U.S. soldier in Afghanistan, according to a soldier's report cited at the U.S. war crimes tribunal at Guantanamo on Friday.
The account raised doubts about whether Canadian defendant Omar Khadr, who is charged with murdering U.S. Army Sgt. 1st Class Christopher Speer, could have thrown the grenade that killed Speer during the July 2002 firefight in a suspected al Qaeda compound in Afghanistan.
Defence lawyers want the soldier who gave that account of the battle to testify at Khadr's January 26 trial at the U.S. naval base in Guantanamo Bay, Cuba.
They debated the witness list in court on Friday even as they hoped that U.S. President-elect Barack Obama will pull the plug on the Guantanamo tribunals before Khadr's trial begins.
Obama takes office on January 20 and has said he would move the Guantanamo trials into the regular civilian or military courts. He has not specifically addressed how he would handle Khadr's case or 16 others already pending in the Guantanamo tribunals, which were established by the Bush administration to try foreign captives on terrorism charges and have been widely condemned by human rights activists and foreign governments.
"I cannot believe that the Obama administration really wants as one of its first official acts to be the first administration in U.S. history to preside over the trial of a child on war crimes," said Navy Lt. Cmdr. William Kuebler, Khadr's military lawyer.
Khadr, now a tall and bearded 22-year-old, was 15 when he was captured by U.S. forces who entered the compound after the aerial bombing ended. Speer was in the lead and was hit with a grenade but accounts of what happened next varied widely.
Khadr was sitting up and moving when a U.S. soldier shot him twice in the back, believing he had thrown the grenade that hit Speer, according to the shooter's report on the incident.
But another participant, identified in court documents only as Soldier No. 2, gave military investigators a conflicting account of what he found upon entering the compound.
"Mr. Khadr was so covered in rubble that soldier No. 2 inadvertently stood on top of him and thought he was standing on a trap door because the ground did not seem solid," according to a court document based on that soldier's report to military investigators.
"He bent down to move the brush away to see what was beneath him and discovered that he was standing on a person and that Mr. Khadr appeared to be 'acting dead.'"
PHOTOGRAPHS
Photographs taken at the scene show a pile of rubble from the collapsed roof, and then show the debris moved aside to reveal Khadr lying facedown in the dirt, Kuebler said.
He said the photos, which were not shown publicly, "make it abundantly clear Omar Khadr could not have thrown the hand grenade that killed 1st Sgt. Speer."
Defence lawyers also want to call as witnesses other U.S. soldiers who told investigators that U.S. forces were also throwing grenades at the time, suggesting Speer might have been killed by friendly fire.
Khadr, the Toronto-born son of an alleged al Qaeda financier, is one of two Guantanamo prisoners captured as juveniles and charged with crimes that carry a maximum penalty of life in prison. He has claimed he was abused and threatened with rape in U.S. custody in Afghanistan and at Guantanamo.
Prosecutors said Khadr's age could be a mitigating factor at sentencing but that they were confident the evidence would show he knowingly carried the crimes as charged. Their evidence includes videotape of Khadr building and planting roadside explosives in Afghanistan.
They said they were prepared to go to trial in January.
"We have no control over the political circumstances one way or the other," said one of them, Navy Capt. Keith Petty.
Khadr is charged with murder, attempted murder, conspiring with al Qaeda, providing material support for terrorism and spying on U.S. forces who invaded Afghanistan to route al Qaeda after the September 11 attacks.
(Editing by Jackie Frank)
Reuters
Saturday, December 13, 2008
By Jane Sutton
A Canadian teen was buried facedown under the rubble of a bombed-out compound when someone threw the grenade that killed a U.S. soldier in Afghanistan, according to a soldier's report cited at the U.S. war crimes tribunal at Guantanamo on Friday.
The account raised doubts about whether Canadian defendant Omar Khadr, who is charged with murdering U.S. Army Sgt. 1st Class Christopher Speer, could have thrown the grenade that killed Speer during the July 2002 firefight in a suspected al Qaeda compound in Afghanistan.
Defence lawyers want the soldier who gave that account of the battle to testify at Khadr's January 26 trial at the U.S. naval base in Guantanamo Bay, Cuba.
They debated the witness list in court on Friday even as they hoped that U.S. President-elect Barack Obama will pull the plug on the Guantanamo tribunals before Khadr's trial begins.
Obama takes office on January 20 and has said he would move the Guantanamo trials into the regular civilian or military courts. He has not specifically addressed how he would handle Khadr's case or 16 others already pending in the Guantanamo tribunals, which were established by the Bush administration to try foreign captives on terrorism charges and have been widely condemned by human rights activists and foreign governments.
"I cannot believe that the Obama administration really wants as one of its first official acts to be the first administration in U.S. history to preside over the trial of a child on war crimes," said Navy Lt. Cmdr. William Kuebler, Khadr's military lawyer.
Khadr, now a tall and bearded 22-year-old, was 15 when he was captured by U.S. forces who entered the compound after the aerial bombing ended. Speer was in the lead and was hit with a grenade but accounts of what happened next varied widely.
Khadr was sitting up and moving when a U.S. soldier shot him twice in the back, believing he had thrown the grenade that hit Speer, according to the shooter's report on the incident.
But another participant, identified in court documents only as Soldier No. 2, gave military investigators a conflicting account of what he found upon entering the compound.
"Mr. Khadr was so covered in rubble that soldier No. 2 inadvertently stood on top of him and thought he was standing on a trap door because the ground did not seem solid," according to a court document based on that soldier's report to military investigators.
"He bent down to move the brush away to see what was beneath him and discovered that he was standing on a person and that Mr. Khadr appeared to be 'acting dead.'"
PHOTOGRAPHS
Photographs taken at the scene show a pile of rubble from the collapsed roof, and then show the debris moved aside to reveal Khadr lying facedown in the dirt, Kuebler said.
He said the photos, which were not shown publicly, "make it abundantly clear Omar Khadr could not have thrown the hand grenade that killed 1st Sgt. Speer."
Defence lawyers also want to call as witnesses other U.S. soldiers who told investigators that U.S. forces were also throwing grenades at the time, suggesting Speer might have been killed by friendly fire.
Khadr, the Toronto-born son of an alleged al Qaeda financier, is one of two Guantanamo prisoners captured as juveniles and charged with crimes that carry a maximum penalty of life in prison. He has claimed he was abused and threatened with rape in U.S. custody in Afghanistan and at Guantanamo.
Prosecutors said Khadr's age could be a mitigating factor at sentencing but that they were confident the evidence would show he knowingly carried the crimes as charged. Their evidence includes videotape of Khadr building and planting roadside explosives in Afghanistan.
They said they were prepared to go to trial in January.
"We have no control over the political circumstances one way or the other," said one of them, Navy Capt. Keith Petty.
Khadr is charged with murder, attempted murder, conspiring with al Qaeda, providing material support for terrorism and spying on U.S. forces who invaded Afghanistan to route al Qaeda after the September 11 attacks.
(Editing by Jackie Frank)
In Illinois, a virtual expectation of corruption
By Kate Zernike
Saturday, December 13, 2008
As much as politicians in Illinois have had a tradition of corruption, the people of Illinois have had a tradition of accepting it — even expecting it — long before Governor Rod Blagojevich was accused of trying to put a Senate seat up to the highest bidder.
Otto Kerner, who served as governor in the 1960s, was found to have accepted bribes of racetrack stock but only after the track owner deducted it on her taxes as a cost of doing business.
After Paul Powell, an Illinois secretary of state, longtime state legislator and infamous dealmaker, died in 1970, associates discovered $800,000 in undocumented cash in shoeboxes, briefcases and strongboxes in his closet, a considerable cache for a man who had never earned a salary of more than $30,000.
Powell had emerged unscathed from a grand jury investigation into accusations that he bought stock in a harness racing company. As he said, "It wound up with the grand jurors wanting to know from me where they could buy racetrack stock."
The state's unusually lax laws have allowed corruption to flourish — in fact, prosecutors say, it was the threat of a new campaign finance law that takes effect in January that set Blagojevich on a last spree of pay-to-play. The tradition was established by the immigrants who settled the state in the 19th century and nurtured by a stubborn system of machine politics that other states eradicated long ago.
"There is this attitude among politicians, and frankly among citizens, that this is the way things are," said Kent Redfield, a professor of political science at the University of Illinois at Springfield. "Politics is for professionals."
The surprise for many Illinoisans last week was not that their governor was arrested, but that he could be brazen enough to try to sell a United States Senate seat when he was already under U.S. government investigation.
Now the culture of his adopted home state threatens to dog President-elect Barack Obama, whose vacated seat in the Senate Blagojevich is accused of putting up for auction, much as swampy Arkansas politics dogged the last young Democratic politician elected on a platform of change, Bill Clinton.
Prosecutors say Obama is not a subject of the investigation. And he has been a champion of ethics reform in the Illinois Legislature and in the Senate. But some Republicans have seized the opportunity to try to tie him to the worst side of Illinois politics.
As he faced questions at a press conference in Chicago last week, Obama argued that there were two Illinoises — and that he came from the one not represented in the criminal complaint against Blagojevich.
Cindi Canary, director of the Illinois Campaign for Political Reform, said, "It's as if we have a good angel on one shoulder and a bad angel on the other."
"We have produced some real leaders," Canary continued, mentioning former Senator Paul Simon, the former federal judge Abner Mikva and, of course, Abraham Lincoln. "At the same time, for historic and systemic reasons, we have real institutional corruption."
Certainly, other states have their problems. The Corporate Crime Reporter ranked Illinois a mere sixth on a list of the most corrupt states last year, based on the U.S. government public corruption convictions per 100,000 residents. (It was beaten by Louisiana, Mississippi, Kentucky, Alabama and Ohio; it was slightly ahead of New Jersey and New York.)
Still, as Mikva, who for many years was a member of Congress, said, "There's a kind of Gresham's law that operates: the bad drives out the good."
If indicted, Blagojevich would be the fifth of the last eight elected Illinois governors to be charged with a crime, and if he is sent to jail, the fourth to serve time. Since 1971, said Dick Simpson, head of the political science department at the University of Illinois at Chicago and a former Chicago alderman, 1,000 Illinois public servants have been convicted of corruption, and in Chicago, 30 aldermen have gone to jail.
Corruption, Simpson said, goes back at least to 1869, when three Chicago commissioners gave out a contract to paint City Hall, then used whitewash instead of paint, pocketing the savings.
Now Illinois remains the rare place where one governor who served jail time (he used fraudulent loans to repair his yacht) writes an opinion article in a newspaper accusing the current governor of "ranking with Al Capone in establishing a disgraceful image of Illinois," as Daniel Walker did in The Chicago Tribune on Thursday.
"Some people say it's in the water," said Mike Lawrence, who was a spokesman for former Governor Jim Edgar (one of the unindicted ones) and executive director of the Paul Simon Public Policy Institute at Southern Illinois University. "But Paul Simon drank the same water that Paul Powell drank, and there couldn't have been two more dramatically different politicians when it came to ethics."
The deep-seated corruption, Lawrence and others said, has its roots in the settlement of the state in the 19th century.
Irish immigrants, and later Italians and Poles, faced discrimination in getting jobs and organized themselves politically as a way to assimilate and gain strength. New immigrants would come to local bosses for housing, work and food, and public office became the marketplace for jobs, contracts, rewarding friends and punishing enemies.
"It isn't that the Irish are inherently corrupt," Mikva said. "It's that that's the way you got power."
Politicians mocked "goo-goo groups" like the "Plague of Women Voters" — good government being for girls and babies. "Politics was for people who had skin in the game," Professor Redfield said.
After the convictions of George Ryan, whom Blagojevich replaced in the governor's office, and Dan Rostenkowski, whose seat in the House of Representatives Blagojevich once held, their allies complained that prosecutors had criminalized politics. ( Blagojevich's lawyer, too, insisted that anything he had done was "just politics.")
"I think for a while Illinois was sort of proud of their scoundrels," said Mikva, who appeared on Friday with the Illinois attorney general in calling upon the State Supreme Court to declare Blagojevich unfit to govern.
"We bragged about Hinky Dink Mike Kenna and Bathhouse John Coughlin," he said, referring to the bosses who ruled the First Ward in Chicago from the late 19th century until World War II with a mix of extortion, favors and ballot-box stuffing.
"We've gotten over that," Mikva said, "but we've never put in the defense mechanisms in terms of ethics laws and limited contributions."
There are no limits on political contributions in Illinois. The law that is to take effect in January bans contributions only from those with state contracts larger than $50,000, and it was passed only under pressure (including from Obama, who called his former mentor in the State Senate, Emil Jones Jr., to encourage its passage.) Unlike the federal system, corporations can give directly to politicians.
"There is a bottomless thirst for cash, for campaign contributions, for personal enrichment," Canary said. "There is no speed limit."
Professor Redfield said, "The laws reflect the culture, and the culture is shaped by the lack of laws."
Long after machine politics died elsewhere — Prendergast in Kansas City, Tammany Hall in New York — Mayor Richard Daley's machine ruled Chicago. Powell was a product of the downstate machine, Ryan of the Kankakee County machine.
Under Daley's son, Richard M., the current mayor, Chicago's machine has simply adapted, many say, so that the building blocks of the power structure are interest groups, corporations and unions rather than the neighborhoods.
In parts of downstate, the collapse of the coal industry has left the state as the biggest source of jobs, in prisons, mental institutions and universities. That has bred corruption in places like East St. Louis, where several officials and precinct workers were convicted of vote fraud in 2005.
"Most Illinoisans put a higher priority on getting their streets shoveled than they do on scandal-free public servants," Lawrence said.
Instances of revolt are rare.
In the late 1970s, Lawrence said, after the Legislature and the governor slipped in a pay increase in a lame-duck session, outraged voters sent envelopes full of tea bags and even human feces. Then in 1980, they voted to reduce the size of the House by a third, from 177 to 118.
Mikva, who with Simon fought in vain to get the Legislature to pass limits on political contributions 50 years ago, recalled going to Blagojevich to suggest that he include such limits in a reform package. But while Blagojevich agreed to establish inspectors general and a new ethics board, Mikva said, he resisted ending pay-to-play.
By Kate Zernike
Saturday, December 13, 2008
As much as politicians in Illinois have had a tradition of corruption, the people of Illinois have had a tradition of accepting it — even expecting it — long before Governor Rod Blagojevich was accused of trying to put a Senate seat up to the highest bidder.
Otto Kerner, who served as governor in the 1960s, was found to have accepted bribes of racetrack stock but only after the track owner deducted it on her taxes as a cost of doing business.
After Paul Powell, an Illinois secretary of state, longtime state legislator and infamous dealmaker, died in 1970, associates discovered $800,000 in undocumented cash in shoeboxes, briefcases and strongboxes in his closet, a considerable cache for a man who had never earned a salary of more than $30,000.
Powell had emerged unscathed from a grand jury investigation into accusations that he bought stock in a harness racing company. As he said, "It wound up with the grand jurors wanting to know from me where they could buy racetrack stock."
The state's unusually lax laws have allowed corruption to flourish — in fact, prosecutors say, it was the threat of a new campaign finance law that takes effect in January that set Blagojevich on a last spree of pay-to-play. The tradition was established by the immigrants who settled the state in the 19th century and nurtured by a stubborn system of machine politics that other states eradicated long ago.
"There is this attitude among politicians, and frankly among citizens, that this is the way things are," said Kent Redfield, a professor of political science at the University of Illinois at Springfield. "Politics is for professionals."
The surprise for many Illinoisans last week was not that their governor was arrested, but that he could be brazen enough to try to sell a United States Senate seat when he was already under U.S. government investigation.
Now the culture of his adopted home state threatens to dog President-elect Barack Obama, whose vacated seat in the Senate Blagojevich is accused of putting up for auction, much as swampy Arkansas politics dogged the last young Democratic politician elected on a platform of change, Bill Clinton.
Prosecutors say Obama is not a subject of the investigation. And he has been a champion of ethics reform in the Illinois Legislature and in the Senate. But some Republicans have seized the opportunity to try to tie him to the worst side of Illinois politics.
As he faced questions at a press conference in Chicago last week, Obama argued that there were two Illinoises — and that he came from the one not represented in the criminal complaint against Blagojevich.
Cindi Canary, director of the Illinois Campaign for Political Reform, said, "It's as if we have a good angel on one shoulder and a bad angel on the other."
"We have produced some real leaders," Canary continued, mentioning former Senator Paul Simon, the former federal judge Abner Mikva and, of course, Abraham Lincoln. "At the same time, for historic and systemic reasons, we have real institutional corruption."
Certainly, other states have their problems. The Corporate Crime Reporter ranked Illinois a mere sixth on a list of the most corrupt states last year, based on the U.S. government public corruption convictions per 100,000 residents. (It was beaten by Louisiana, Mississippi, Kentucky, Alabama and Ohio; it was slightly ahead of New Jersey and New York.)
Still, as Mikva, who for many years was a member of Congress, said, "There's a kind of Gresham's law that operates: the bad drives out the good."
If indicted, Blagojevich would be the fifth of the last eight elected Illinois governors to be charged with a crime, and if he is sent to jail, the fourth to serve time. Since 1971, said Dick Simpson, head of the political science department at the University of Illinois at Chicago and a former Chicago alderman, 1,000 Illinois public servants have been convicted of corruption, and in Chicago, 30 aldermen have gone to jail.
Corruption, Simpson said, goes back at least to 1869, when three Chicago commissioners gave out a contract to paint City Hall, then used whitewash instead of paint, pocketing the savings.
Now Illinois remains the rare place where one governor who served jail time (he used fraudulent loans to repair his yacht) writes an opinion article in a newspaper accusing the current governor of "ranking with Al Capone in establishing a disgraceful image of Illinois," as Daniel Walker did in The Chicago Tribune on Thursday.
"Some people say it's in the water," said Mike Lawrence, who was a spokesman for former Governor Jim Edgar (one of the unindicted ones) and executive director of the Paul Simon Public Policy Institute at Southern Illinois University. "But Paul Simon drank the same water that Paul Powell drank, and there couldn't have been two more dramatically different politicians when it came to ethics."
The deep-seated corruption, Lawrence and others said, has its roots in the settlement of the state in the 19th century.
Irish immigrants, and later Italians and Poles, faced discrimination in getting jobs and organized themselves politically as a way to assimilate and gain strength. New immigrants would come to local bosses for housing, work and food, and public office became the marketplace for jobs, contracts, rewarding friends and punishing enemies.
"It isn't that the Irish are inherently corrupt," Mikva said. "It's that that's the way you got power."
Politicians mocked "goo-goo groups" like the "Plague of Women Voters" — good government being for girls and babies. "Politics was for people who had skin in the game," Professor Redfield said.
After the convictions of George Ryan, whom Blagojevich replaced in the governor's office, and Dan Rostenkowski, whose seat in the House of Representatives Blagojevich once held, their allies complained that prosecutors had criminalized politics. ( Blagojevich's lawyer, too, insisted that anything he had done was "just politics.")
"I think for a while Illinois was sort of proud of their scoundrels," said Mikva, who appeared on Friday with the Illinois attorney general in calling upon the State Supreme Court to declare Blagojevich unfit to govern.
"We bragged about Hinky Dink Mike Kenna and Bathhouse John Coughlin," he said, referring to the bosses who ruled the First Ward in Chicago from the late 19th century until World War II with a mix of extortion, favors and ballot-box stuffing.
"We've gotten over that," Mikva said, "but we've never put in the defense mechanisms in terms of ethics laws and limited contributions."
There are no limits on political contributions in Illinois. The law that is to take effect in January bans contributions only from those with state contracts larger than $50,000, and it was passed only under pressure (including from Obama, who called his former mentor in the State Senate, Emil Jones Jr., to encourage its passage.) Unlike the federal system, corporations can give directly to politicians.
"There is a bottomless thirst for cash, for campaign contributions, for personal enrichment," Canary said. "There is no speed limit."
Professor Redfield said, "The laws reflect the culture, and the culture is shaped by the lack of laws."
Long after machine politics died elsewhere — Prendergast in Kansas City, Tammany Hall in New York — Mayor Richard Daley's machine ruled Chicago. Powell was a product of the downstate machine, Ryan of the Kankakee County machine.
Under Daley's son, Richard M., the current mayor, Chicago's machine has simply adapted, many say, so that the building blocks of the power structure are interest groups, corporations and unions rather than the neighborhoods.
In parts of downstate, the collapse of the coal industry has left the state as the biggest source of jobs, in prisons, mental institutions and universities. That has bred corruption in places like East St. Louis, where several officials and precinct workers were convicted of vote fraud in 2005.
"Most Illinoisans put a higher priority on getting their streets shoveled than they do on scandal-free public servants," Lawrence said.
Instances of revolt are rare.
In the late 1970s, Lawrence said, after the Legislature and the governor slipped in a pay increase in a lame-duck session, outraged voters sent envelopes full of tea bags and even human feces. Then in 1980, they voted to reduce the size of the House by a third, from 177 to 118.
Mikva, who with Simon fought in vain to get the Legislature to pass limits on political contributions 50 years ago, recalled going to Blagojevich to suggest that he include such limits in a reform package. But while Blagojevich agreed to establish inspectors general and a new ethics board, Mikva said, he resisted ending pay-to-play.
***************
A champion of Wall St. reaps the benefits
By Eric Lipton and Raymond Hernandez
Saturday, December 13, 2008
"We are not going to rest until we change the rules, change the laws and make sure New York remains No. 1 for decades on into the future."
— Senator Charles Schumer, referring to financial regulations, Jan. 22, 2007
WASHINGTON — As the financial crisis jolted the nation in September, Senator Charles Schumer was consumed. He traded telephone calls with bankers, then became one of the first officials to promote a Wall Street bailout. He spent hours in closed-door briefings and a weekend helping congressional leaders nail down details of the $700 billion rescue package.
The next day, Schumer appeared at a breakfast fund-raiser in Midtown Manhattan for Senate Democrats. Addressing Henry Kravis, the buyout billionaire, and about 20 other finance industry executives, he warned that a bailout would be a hard sell on Capitol Hill. Then he offered some reassurance: The businessmen could count on the Democrats to help steer the nation through the financial turmoil.
"We are not going to be a bunch of crazy, anti-business liberals," one executive said, summarizing Schumer's remarks. "We are going to be effective, moderate advocates for sound economic policies, good responsible stewards you can trust."
The message clearly resonated. The next week, executives at firms represented at the breakfast sent in more than $135,000 in campaign donations.
Senator Schumer plays an unrivaled role in Washington as beneficiary, advocate and overseer of an industry that is his hometown's most important business.
An exceptional fund raiser — a "jackhammer," someone who knows him says, for whom " 'no' is the first step to 'yes,' " — Schumer led the Democratic Senatorial Campaign Committee for the last four years, raising a record $240 million while increasing donations from Wall Street by 50 percent. That money helped the Democrats gain power in Congress, elevated Schumer's standing in his party and increased the industry's clout in the capital.
But in building support, he has embraced the industry's free-market, deregulatory agenda more than almost any other Democrat in Congress, even backing some measures now blamed for contributing to the financial crisis.
Other lawmakers took the lead on efforts like deregulating the complicated financial instruments called derivatives, which are widely seen as catalysts to the crisis.
But Schumer, a member of the Banking and Finance Committees, repeatedly took other steps to protect industry players from government oversight and tougher rules, a review of his record shows. Over the years, he has also helped save financial institutions billions of dollars in higher taxes or fees.
He succeeded in limiting efforts to regulate credit-rating agencies, for example, sponsored legislation that cut fees paid by Wall Street firms to finance government oversight, pushed to allow banks to have lower capital reserves and called for the revision of regulations to make corporations' balance sheets more transparent.
"Since the financial meltdown, people have been asking, 'Where was Congress? Why didn't they see this coming? Why didn't they provide better oversight?' " said Barbara Roper, director of investor protection for the Consumer Federation of America. "And the answer for some, including Senator Schumer, is that they were actually too busy pursuing a deregulatory agenda. Their focus was on how we have to lighten up regulation on Wall Street."
In recent weeks, Schumer has worked closely with the Bush administration to try to mitigate the damage to New York's financial institutions. And as members of Congress and President-elect Barack Obama have called for new regulations to prevent future upheavals, Schumer has endorsed the need for reforms while still trying to make them palatable for Wall Street.
Calling himself "an almost obsessive defender of New York jobs," Schumer has often talked of the need to avoid excessive regulation of an industry that is increasingly threatened by global competition. At the same time, Schumer has cast himself as a populist who looks out for the middle class.
In an interview, Schumer said that until the recent market turmoil, he did not fully appreciate how much risk Wall Street had assumed and how much damage its practices could inflict on ordinary Americans. "It is a learning process, no question about it, an evolution," he said, adding that he now believed that investors and homeowners must be better protected.
But he defended his record. "Wall Street and Main Street are tied together," he said. "Often times, they are not in conflict. When they are in conflict, I tend to side with Main Street."
While Schumer has taken some pro-consumer stances, his critics fault him for tilting too far toward Wall Street in balancing his responsibilities.
"He is serving the parochial interest of a very small group of financial people, bankers, investment bankers, fund managers, private equity firms, rather than serving the general public," said John Bogle, the founder and former chairman of the Vanguard Group, the giant mutual fund house. "It has hurt the American investor first and the average American taxpayer."
Navigating the Street
Brash and brainy (perfect SATs and double Harvard degrees), Chuck Schumer, now 58, learned early in his career how to talk to the financiers and chief executives who would become a vital constituency for him. Though he did not grow up in that world — his father owned a small exterminating business in New York — he quickly showed a keen grasp of complex financial issues.
And, recognizing how central Wall Street is to the city's economy, he committed himself to keeping it strong.
"So much of what happens in this town is because we are the world financial center," Schumer said at City Hall in January 2007. "It helps support our museums, it provides the tax base for schools and health care. If we lose being the financial center, the rest goes down the drain."
Soon after arriving in Congress in 1981, Schumer snared a seat on the Financial Services Committee, which he viewed as the best way to help New York. While reliably liberal on many social issues, he established himself as a pragmatic Democrat willing to align with powerful business interests.
Schumer's political rise — he moved in 1999 to the Senate, where he now has a party leadership post — paralleled Wall Street's growing influence in Washington. As more Americans invested in the markets and financial institutions had a greater global reach, the industry came to rival the manufacturing sector as a driving force of the United States economy.
And in the 1990s, Democratic officials developed close links to a new generation of Wall Street leaders — labeled "New Moneycrats" by one author — who shared a free-market agenda.
Schumer became a magnet for campaign donations from wealthy industry executives, including Jamie Dimon, now the chief executive of JPMorgan Chase; John Mack, the chief executive at Morgan Stanley; and Charles Prince III, the former chief executive of Citigroup. And he was not at all reluctant to ask them for more.
Donors describe the Schumer pitch as unusually aggressive: He calls repeatedly to suggest breakfast or dinner, coffee or cocktails. He enlists intermediaries to invite prospects to events and recruits several senators to tag along. And he presses for the maximum contribution — "I need you to max out," he is known to say — then follows up by asking that a donor's spouse and four or five friends write checks, too.
"He was probably the kid that sold the most candy in grade school," said Julie Domenick, a Democratic lobbyist who has given to the senatorial campaign committee. "He is not shy."
Schumer, in the interview, acknowledged his full-speed-ahead approach. "Any job I do, I work hard at and I try to succeed at," he said.
As a result, he has collected over his career more in campaign contributions from the securities and investment industry than any of his peers in Congress, with the exception of Senator John Kerry of Massachusetts, the Democratic nominee for president in 2004, according to the Center for Responsive Politics, which analyzed U.S. government data. (By 2005, Schumer had so much cash in reserve that he shut down his fund-raising efforts.)
In the last two-year election cycle, he helped raise more than $120 million for the Democrats' Senate campaign committee, drawing nearly four times as much money from Wall Street as the National Republican Senatorial Committee. Donors often mention his "pro-business message" and record of addressing their concerns. John Kanas, the former chief executive of North Fork Bank, said: "He would solicit my opinion, listen to my advice and he appeared to take it into consideration."
Lee Pickard, a lawyer representing clients including the Bank of New York, whose employees have been significant donors to Schumer and other Senate Democrats, turned to Schumer last year to successfully beat back a regulatory initiative by the Securities and Exchange Commission. "If you get Chuck Schumer on your side, you are O.K.," he said.
That may help explain why some of the wealthiest financiers in New York attended the Sept. 22 breakfast hosted by Kravis at his office overlooking Central Park. A Republican with long ties to the Bush family, Kravis spent much of this year trying to help Senator John McCain, the eventual Republican nominee for president.
But last year, Kravis went to Capitol Hill to oppose a proposal that would have more than doubled taxes for executives at hedge funds and private equity firms like his, costing them up to $25 billion over 10 years.
Schumer had said publicly he would support the measure only if it also applied to executives at energy, venture capital and real estate partnerships, and he introduced alternative legislation that would do just that. His position was identical to that of lobbyists for a group paid by Kravis and other finance industry executives.
The Schumer bill, called a "poison pill" by the leading Republican advocate of the tax increase, went nowhere after provoking opposition from an array of industries.
At the breakfast meeting, Schumer, accompanied by fellow Senate Democrats Kent Conrad of North Dakota and Maria Cantwell of Washington, assessed the political landscape as debate over the bailout was beginning.
"On the right, you have those who view any government intervention as a threat to free markets," one executive recalled Schumer explaining. "On the left, you have people who choose to view this as a government handout to the rich. In the middle, you have everyone who knows and takes the Treasury secretary seriously and recognizes that if something is not done here, we could be staring into an abyss."
Within days, the businessmen sent out checks to the Senate campaign committee.
'Their Go-To Guy'
To Christopher Cox, the Republican chairman of the Securities and Exchange Commission, the need for action was obvious in the spring of 2006.
His agency, which would later be criticized for a 2004 ruling that let banks pile up debt, had grown deeply concerned about lack of oversight of the nation's largest credit-rating agencies, like Standard & Poor's and Moody's Investors Service. Linchpins of the financial system, their ratings are vital to safeguarding investors by evaluating the risks of bonds and other debt. After the collapse of Enron and WorldCom, which had repeatedly been awarded favorable ratings, the agencies had agreed to meet voluntary standards.
But the SEC concluded that those agreements were inadequate, so Cox urged Congress to give his agency oversight powers. "Without additional legislative authority, the SEC will not be able to regulate in a thoroughgoing way," he told the Senate banking committee at an April 2006 hearing.
The plan drew broad, bipartisan support on Capitol Hill. But executives at the credit-rating agencies soon began pressing Schumer and other allies in Congress to block the proposal or at least limit its reach, according to current and former employees.
"They knew Schumer would support them," said one former Moody's executive, who asked not to be named because he still works in the industry. "He was their go-to guy," the executive said.
While the New York-based agencies were not significant campaign donors to Schumer or the Senate campaign committee, their lobbyists and many of their clients were.
At that time, revenues for the agencies were skyrocketing. The housing market was robust, and Wall Street investment firms were paying the agencies to rate various mortgage-backed securities after first advising the firms — and also collecting fees — on how to package them to get high credit ratings.
It was an obvious conflict of interest, financial experts now say. Despite their high ratings, many of those securities, based on risky loans, would prove worthless, roiling markets and threatening financial institutions worldwide.
But Schumer argued that the companies voluntarily met requirements to eliminate such possible conflicts. He suggested that regulators simply encourage competition and disclosure of agencies' ratings methods. There was perhaps no need for an intrusive new law, he said in the spring of 2006. "They've implemented their codes of conduct," Schumer told Cox at a Senate hearing. "They're making good-faith efforts."
Schumer could not stop the legislation from passing, but he managed to get the measure amended so that it explicitly prohibited the SEC from regulating the procedures and methods the agencies use to determine ratings.
Richard Roberts, a former SEC commissioner, said the amendment Schumer won was troubling, adding that it could block the SEC from punishing a credit-rating agency that consistently issued unreliable ratings.
Sean Egan, managing director of a small Pennsylvania agency, Egan-Jones Ratings, and a proponent of the tougher regulations, was more blunt. "The bill was eviscerated," he said. "You have stripped away basic safeguards for the investors."
At times in Congress, Schumer has teamed up with Republicans, like former Senator Phil Gramm of Texas, who aggressively promoted a free-market agenda. Schumer pushed for the Gramm-Leach-Bliley law, passed in November 1999, which knocked down the walls between investment banks and commercial banks and allowed financial supermarkets to flourish. The law also weakened regulatory oversight by fracturing it among different agencies.
In 2001, Schumer and Gramm jointly proposed legislation that would cut fees paid by Wall Street firms and others to the SEC in half, or by $14 billion, over the coming decade. Their proposal included some extra money for salaries of commission employees.
But with trading volumes high, Schumer argued, the government was collecting far too much money from those fees and using it to subsidize other government operations. "It is a tax, an unintended but very real tax, on all sorts of investors," he said at the time.
But some Democrats, pointing to the recent corporate accounting scandals, argued that the SEC budget should be doubled or tripled so it could more effectively combat fraud that could lead to a major economic collapse.
"We are making a tragic mistake," Representative John LaFalce, Democrat of New York, warned in arguing for a much smaller reduction in SEC fees.
"We give the industry what it asks for unwittingly."
Schumer's argument prevailed, and the fee cut passed overwhelmingly.
Some consumer advocates laud Schumer for his stances on consumer finance issues, including combating high interest rates on credit cards, challenging predatory lending practices and advocating legislation to allow bankruptcy courts to force banks to accept lower interest rates so that families facing foreclosure could stay in their homes.
"He is a strong advocate for families and homeowners to make sure they are not taken advantage of," said Eric Stein, senior vice president at the Center for Responsible Lending, a nonprofit group that combats abusive lending practices.
But those efforts mostly affect commercial banks and mortgage lending operations around the country and in New York, not the securities and investment businesses in New York.
"He built his career in large part based on his ties to Wall Street," said Christopher Whalen, managing director of Institutional Risk Analytics, which advises investors on the regulatory system. "And he has given the Street what it wanted."
Schumer, though, has a surprising defender in Alfonse D'Amato, the onetime Republican senator he ousted.
"Don't take someone to task simply because a group has supported him politically and now he supports legislation that helps them," D'Amato said. "The question is, is the legislation good or bad? With Chuck, it is clear he tries to do what is best for the state and city as a whole."
Doling Out Criticism
For Schumer, Wall Street's crisis has been especially painful to watch. "It is horrible, just awful," he said in the interview. "And it affects everybody."
And he has already begun identifying those he faults for the devastation. Subprime lenders top the list, but he has lashed out with particular fury at the credit-rating industry, which he once defended but now says misled him and the investing public.
"The work at these ratings firms was severely compromised, and the companies were some of the biggest contributors to the current financial crisis," Schumer said earlier this month in response to an SEC move that same day to tighten control over the agencies. "The lesson from this is that the three major firms' stranglehold on the ratings industry must be loosened." Schumer has also blamed the Bush administration for its push to ease rules. "After eight years of deregulatory zeal by the Bush administration, an attitude of 'the market can do no wrong' has led it down a short path to economic recession," Schumer said on the Senate floor in September.
He has not assigned responsibility to himself or fellow Democrats, saying he had no way of knowing of the misdeeds going on on Wall Street. "I wish I was omniscient," he said. "I'm not."
Since the economy began to fall apart, Schumer has joined others in calling for new regulations to combat abuses. He has proposed tougher rules for credit-rating agencies, even changing the way they are paid so they are compensated by investors, not by the companies they are evaluating. He has said he is open to imposing regulations on hedge funds, which currently operate with limited government oversight.
And while he previously succeeded in limiting consumers' rights to sue financial institutions, he says he now favors offering that remedy in certain circumstances.
But he is also warning that any new rules must be carefully crafted so they don't impose excessive burdens.
"You need to provide safety and security to investors in order to attract them to the markets," Schumer told Wall Street executives in a speech last month. "On the other hand, you must be sure that regulation does not snuff out the entrepreneurial vigor and financial innovation that drives economic growth and makes financial institutions successful and profitable."
And he is seeking some regulatory concessions for some Wall Street supporters. He has proposed, for example, that the government lift a cap on how big the giant banks can get, an issue important to institutions like JPMorgan Chase. Lifting the cap would allow the biggest banks to absorb weaker ones, but it would also limit competition and increase the risks to the financial system posed by failure of one of the giants.
Schumer is also calling for the adoption of European-style regulations that impose far fewer rules and instead require banks to meet certain performance standards, a system institutions generally prefer but some banking experts criticize as not rigorous enough.
In recent weeks, Schumer has listened to Wall Street leaders for advice on what should come next. At a dinner at Morgan Stanley's headquarters the night before the presidential election, John Mack, the chief executive, and a dozen top hedge fund officials talked with Schumer about possible changes affecting their industry.
"People feel like he is going to be fair and reasonable," said one Morgan Stanley executive, who asked not to be identified because the session was private. "He is mindful that this is a very big part of his constituency — Wall Street."
By Eric Lipton and Raymond Hernandez
Saturday, December 13, 2008
"We are not going to rest until we change the rules, change the laws and make sure New York remains No. 1 for decades on into the future."
— Senator Charles Schumer, referring to financial regulations, Jan. 22, 2007
WASHINGTON — As the financial crisis jolted the nation in September, Senator Charles Schumer was consumed. He traded telephone calls with bankers, then became one of the first officials to promote a Wall Street bailout. He spent hours in closed-door briefings and a weekend helping congressional leaders nail down details of the $700 billion rescue package.
The next day, Schumer appeared at a breakfast fund-raiser in Midtown Manhattan for Senate Democrats. Addressing Henry Kravis, the buyout billionaire, and about 20 other finance industry executives, he warned that a bailout would be a hard sell on Capitol Hill. Then he offered some reassurance: The businessmen could count on the Democrats to help steer the nation through the financial turmoil.
"We are not going to be a bunch of crazy, anti-business liberals," one executive said, summarizing Schumer's remarks. "We are going to be effective, moderate advocates for sound economic policies, good responsible stewards you can trust."
The message clearly resonated. The next week, executives at firms represented at the breakfast sent in more than $135,000 in campaign donations.
Senator Schumer plays an unrivaled role in Washington as beneficiary, advocate and overseer of an industry that is his hometown's most important business.
An exceptional fund raiser — a "jackhammer," someone who knows him says, for whom " 'no' is the first step to 'yes,' " — Schumer led the Democratic Senatorial Campaign Committee for the last four years, raising a record $240 million while increasing donations from Wall Street by 50 percent. That money helped the Democrats gain power in Congress, elevated Schumer's standing in his party and increased the industry's clout in the capital.
But in building support, he has embraced the industry's free-market, deregulatory agenda more than almost any other Democrat in Congress, even backing some measures now blamed for contributing to the financial crisis.
Other lawmakers took the lead on efforts like deregulating the complicated financial instruments called derivatives, which are widely seen as catalysts to the crisis.
But Schumer, a member of the Banking and Finance Committees, repeatedly took other steps to protect industry players from government oversight and tougher rules, a review of his record shows. Over the years, he has also helped save financial institutions billions of dollars in higher taxes or fees.
He succeeded in limiting efforts to regulate credit-rating agencies, for example, sponsored legislation that cut fees paid by Wall Street firms to finance government oversight, pushed to allow banks to have lower capital reserves and called for the revision of regulations to make corporations' balance sheets more transparent.
"Since the financial meltdown, people have been asking, 'Where was Congress? Why didn't they see this coming? Why didn't they provide better oversight?' " said Barbara Roper, director of investor protection for the Consumer Federation of America. "And the answer for some, including Senator Schumer, is that they were actually too busy pursuing a deregulatory agenda. Their focus was on how we have to lighten up regulation on Wall Street."
In recent weeks, Schumer has worked closely with the Bush administration to try to mitigate the damage to New York's financial institutions. And as members of Congress and President-elect Barack Obama have called for new regulations to prevent future upheavals, Schumer has endorsed the need for reforms while still trying to make them palatable for Wall Street.
Calling himself "an almost obsessive defender of New York jobs," Schumer has often talked of the need to avoid excessive regulation of an industry that is increasingly threatened by global competition. At the same time, Schumer has cast himself as a populist who looks out for the middle class.
In an interview, Schumer said that until the recent market turmoil, he did not fully appreciate how much risk Wall Street had assumed and how much damage its practices could inflict on ordinary Americans. "It is a learning process, no question about it, an evolution," he said, adding that he now believed that investors and homeowners must be better protected.
But he defended his record. "Wall Street and Main Street are tied together," he said. "Often times, they are not in conflict. When they are in conflict, I tend to side with Main Street."
While Schumer has taken some pro-consumer stances, his critics fault him for tilting too far toward Wall Street in balancing his responsibilities.
"He is serving the parochial interest of a very small group of financial people, bankers, investment bankers, fund managers, private equity firms, rather than serving the general public," said John Bogle, the founder and former chairman of the Vanguard Group, the giant mutual fund house. "It has hurt the American investor first and the average American taxpayer."
Navigating the Street
Brash and brainy (perfect SATs and double Harvard degrees), Chuck Schumer, now 58, learned early in his career how to talk to the financiers and chief executives who would become a vital constituency for him. Though he did not grow up in that world — his father owned a small exterminating business in New York — he quickly showed a keen grasp of complex financial issues.
And, recognizing how central Wall Street is to the city's economy, he committed himself to keeping it strong.
"So much of what happens in this town is because we are the world financial center," Schumer said at City Hall in January 2007. "It helps support our museums, it provides the tax base for schools and health care. If we lose being the financial center, the rest goes down the drain."
Soon after arriving in Congress in 1981, Schumer snared a seat on the Financial Services Committee, which he viewed as the best way to help New York. While reliably liberal on many social issues, he established himself as a pragmatic Democrat willing to align with powerful business interests.
Schumer's political rise — he moved in 1999 to the Senate, where he now has a party leadership post — paralleled Wall Street's growing influence in Washington. As more Americans invested in the markets and financial institutions had a greater global reach, the industry came to rival the manufacturing sector as a driving force of the United States economy.
And in the 1990s, Democratic officials developed close links to a new generation of Wall Street leaders — labeled "New Moneycrats" by one author — who shared a free-market agenda.
Schumer became a magnet for campaign donations from wealthy industry executives, including Jamie Dimon, now the chief executive of JPMorgan Chase; John Mack, the chief executive at Morgan Stanley; and Charles Prince III, the former chief executive of Citigroup. And he was not at all reluctant to ask them for more.
Donors describe the Schumer pitch as unusually aggressive: He calls repeatedly to suggest breakfast or dinner, coffee or cocktails. He enlists intermediaries to invite prospects to events and recruits several senators to tag along. And he presses for the maximum contribution — "I need you to max out," he is known to say — then follows up by asking that a donor's spouse and four or five friends write checks, too.
"He was probably the kid that sold the most candy in grade school," said Julie Domenick, a Democratic lobbyist who has given to the senatorial campaign committee. "He is not shy."
Schumer, in the interview, acknowledged his full-speed-ahead approach. "Any job I do, I work hard at and I try to succeed at," he said.
As a result, he has collected over his career more in campaign contributions from the securities and investment industry than any of his peers in Congress, with the exception of Senator John Kerry of Massachusetts, the Democratic nominee for president in 2004, according to the Center for Responsive Politics, which analyzed U.S. government data. (By 2005, Schumer had so much cash in reserve that he shut down his fund-raising efforts.)
In the last two-year election cycle, he helped raise more than $120 million for the Democrats' Senate campaign committee, drawing nearly four times as much money from Wall Street as the National Republican Senatorial Committee. Donors often mention his "pro-business message" and record of addressing their concerns. John Kanas, the former chief executive of North Fork Bank, said: "He would solicit my opinion, listen to my advice and he appeared to take it into consideration."
Lee Pickard, a lawyer representing clients including the Bank of New York, whose employees have been significant donors to Schumer and other Senate Democrats, turned to Schumer last year to successfully beat back a regulatory initiative by the Securities and Exchange Commission. "If you get Chuck Schumer on your side, you are O.K.," he said.
That may help explain why some of the wealthiest financiers in New York attended the Sept. 22 breakfast hosted by Kravis at his office overlooking Central Park. A Republican with long ties to the Bush family, Kravis spent much of this year trying to help Senator John McCain, the eventual Republican nominee for president.
But last year, Kravis went to Capitol Hill to oppose a proposal that would have more than doubled taxes for executives at hedge funds and private equity firms like his, costing them up to $25 billion over 10 years.
Schumer had said publicly he would support the measure only if it also applied to executives at energy, venture capital and real estate partnerships, and he introduced alternative legislation that would do just that. His position was identical to that of lobbyists for a group paid by Kravis and other finance industry executives.
The Schumer bill, called a "poison pill" by the leading Republican advocate of the tax increase, went nowhere after provoking opposition from an array of industries.
At the breakfast meeting, Schumer, accompanied by fellow Senate Democrats Kent Conrad of North Dakota and Maria Cantwell of Washington, assessed the political landscape as debate over the bailout was beginning.
"On the right, you have those who view any government intervention as a threat to free markets," one executive recalled Schumer explaining. "On the left, you have people who choose to view this as a government handout to the rich. In the middle, you have everyone who knows and takes the Treasury secretary seriously and recognizes that if something is not done here, we could be staring into an abyss."
Within days, the businessmen sent out checks to the Senate campaign committee.
'Their Go-To Guy'
To Christopher Cox, the Republican chairman of the Securities and Exchange Commission, the need for action was obvious in the spring of 2006.
His agency, which would later be criticized for a 2004 ruling that let banks pile up debt, had grown deeply concerned about lack of oversight of the nation's largest credit-rating agencies, like Standard & Poor's and Moody's Investors Service. Linchpins of the financial system, their ratings are vital to safeguarding investors by evaluating the risks of bonds and other debt. After the collapse of Enron and WorldCom, which had repeatedly been awarded favorable ratings, the agencies had agreed to meet voluntary standards.
But the SEC concluded that those agreements were inadequate, so Cox urged Congress to give his agency oversight powers. "Without additional legislative authority, the SEC will not be able to regulate in a thoroughgoing way," he told the Senate banking committee at an April 2006 hearing.
The plan drew broad, bipartisan support on Capitol Hill. But executives at the credit-rating agencies soon began pressing Schumer and other allies in Congress to block the proposal or at least limit its reach, according to current and former employees.
"They knew Schumer would support them," said one former Moody's executive, who asked not to be named because he still works in the industry. "He was their go-to guy," the executive said.
While the New York-based agencies were not significant campaign donors to Schumer or the Senate campaign committee, their lobbyists and many of their clients were.
At that time, revenues for the agencies were skyrocketing. The housing market was robust, and Wall Street investment firms were paying the agencies to rate various mortgage-backed securities after first advising the firms — and also collecting fees — on how to package them to get high credit ratings.
It was an obvious conflict of interest, financial experts now say. Despite their high ratings, many of those securities, based on risky loans, would prove worthless, roiling markets and threatening financial institutions worldwide.
But Schumer argued that the companies voluntarily met requirements to eliminate such possible conflicts. He suggested that regulators simply encourage competition and disclosure of agencies' ratings methods. There was perhaps no need for an intrusive new law, he said in the spring of 2006. "They've implemented their codes of conduct," Schumer told Cox at a Senate hearing. "They're making good-faith efforts."
Schumer could not stop the legislation from passing, but he managed to get the measure amended so that it explicitly prohibited the SEC from regulating the procedures and methods the agencies use to determine ratings.
Richard Roberts, a former SEC commissioner, said the amendment Schumer won was troubling, adding that it could block the SEC from punishing a credit-rating agency that consistently issued unreliable ratings.
Sean Egan, managing director of a small Pennsylvania agency, Egan-Jones Ratings, and a proponent of the tougher regulations, was more blunt. "The bill was eviscerated," he said. "You have stripped away basic safeguards for the investors."
At times in Congress, Schumer has teamed up with Republicans, like former Senator Phil Gramm of Texas, who aggressively promoted a free-market agenda. Schumer pushed for the Gramm-Leach-Bliley law, passed in November 1999, which knocked down the walls between investment banks and commercial banks and allowed financial supermarkets to flourish. The law also weakened regulatory oversight by fracturing it among different agencies.
In 2001, Schumer and Gramm jointly proposed legislation that would cut fees paid by Wall Street firms and others to the SEC in half, or by $14 billion, over the coming decade. Their proposal included some extra money for salaries of commission employees.
But with trading volumes high, Schumer argued, the government was collecting far too much money from those fees and using it to subsidize other government operations. "It is a tax, an unintended but very real tax, on all sorts of investors," he said at the time.
But some Democrats, pointing to the recent corporate accounting scandals, argued that the SEC budget should be doubled or tripled so it could more effectively combat fraud that could lead to a major economic collapse.
"We are making a tragic mistake," Representative John LaFalce, Democrat of New York, warned in arguing for a much smaller reduction in SEC fees.
"We give the industry what it asks for unwittingly."
Schumer's argument prevailed, and the fee cut passed overwhelmingly.
Some consumer advocates laud Schumer for his stances on consumer finance issues, including combating high interest rates on credit cards, challenging predatory lending practices and advocating legislation to allow bankruptcy courts to force banks to accept lower interest rates so that families facing foreclosure could stay in their homes.
"He is a strong advocate for families and homeowners to make sure they are not taken advantage of," said Eric Stein, senior vice president at the Center for Responsible Lending, a nonprofit group that combats abusive lending practices.
But those efforts mostly affect commercial banks and mortgage lending operations around the country and in New York, not the securities and investment businesses in New York.
"He built his career in large part based on his ties to Wall Street," said Christopher Whalen, managing director of Institutional Risk Analytics, which advises investors on the regulatory system. "And he has given the Street what it wanted."
Schumer, though, has a surprising defender in Alfonse D'Amato, the onetime Republican senator he ousted.
"Don't take someone to task simply because a group has supported him politically and now he supports legislation that helps them," D'Amato said. "The question is, is the legislation good or bad? With Chuck, it is clear he tries to do what is best for the state and city as a whole."
Doling Out Criticism
For Schumer, Wall Street's crisis has been especially painful to watch. "It is horrible, just awful," he said in the interview. "And it affects everybody."
And he has already begun identifying those he faults for the devastation. Subprime lenders top the list, but he has lashed out with particular fury at the credit-rating industry, which he once defended but now says misled him and the investing public.
"The work at these ratings firms was severely compromised, and the companies were some of the biggest contributors to the current financial crisis," Schumer said earlier this month in response to an SEC move that same day to tighten control over the agencies. "The lesson from this is that the three major firms' stranglehold on the ratings industry must be loosened." Schumer has also blamed the Bush administration for its push to ease rules. "After eight years of deregulatory zeal by the Bush administration, an attitude of 'the market can do no wrong' has led it down a short path to economic recession," Schumer said on the Senate floor in September.
He has not assigned responsibility to himself or fellow Democrats, saying he had no way of knowing of the misdeeds going on on Wall Street. "I wish I was omniscient," he said. "I'm not."
Since the economy began to fall apart, Schumer has joined others in calling for new regulations to combat abuses. He has proposed tougher rules for credit-rating agencies, even changing the way they are paid so they are compensated by investors, not by the companies they are evaluating. He has said he is open to imposing regulations on hedge funds, which currently operate with limited government oversight.
And while he previously succeeded in limiting consumers' rights to sue financial institutions, he says he now favors offering that remedy in certain circumstances.
But he is also warning that any new rules must be carefully crafted so they don't impose excessive burdens.
"You need to provide safety and security to investors in order to attract them to the markets," Schumer told Wall Street executives in a speech last month. "On the other hand, you must be sure that regulation does not snuff out the entrepreneurial vigor and financial innovation that drives economic growth and makes financial institutions successful and profitable."
And he is seeking some regulatory concessions for some Wall Street supporters. He has proposed, for example, that the government lift a cap on how big the giant banks can get, an issue important to institutions like JPMorgan Chase. Lifting the cap would allow the biggest banks to absorb weaker ones, but it would also limit competition and increase the risks to the financial system posed by failure of one of the giants.
Schumer is also calling for the adoption of European-style regulations that impose far fewer rules and instead require banks to meet certain performance standards, a system institutions generally prefer but some banking experts criticize as not rigorous enough.
In recent weeks, Schumer has listened to Wall Street leaders for advice on what should come next. At a dinner at Morgan Stanley's headquarters the night before the presidential election, John Mack, the chief executive, and a dozen top hedge fund officials talked with Schumer about possible changes affecting their industry.
"People feel like he is going to be fair and reasonable," said one Morgan Stanley executive, who asked not to be identified because the session was private. "He is mindful that this is a very big part of his constituency — Wall Street."
*******************
Questions dogged Wall Street figure even before arrest
By Alex Berenson and Diana B. Henriques
Saturday, December 13, 2008
NEW YORK: For years, investors, rivals and regulators all wondered how Bernard Madoff worked his magic.
But on Friday, less than 24 hours after this prominent Wall Street figure was arrested for perpetrating what authorities portrayed as the biggest Ponzi scheme in financial history, questions began to be raised about whether Madoff acted alone and why his suspected con game was not uncovered sooner.
As investors from Palm Beach to New York to London counted their losses on Friday in what Madoff himself described as a $50 billion fraud, federal authorities took control of what remained of his firm and began to pore over its books.
But some investors said they had questioned Madoff's supposed investment prowess years ago, pointing to his unnaturally steady returns, his vague investment strategy and the obscure accounting firm that audited his books.
Despite these and other red flags, hedge fund companies kept promoting Madoff's funds to other funds and individuals, especially prominent Jewish families in New York and Florida. More recently, banks like Nomura, the Japanese firm, began soliciting investors for Madoff internationally.
The Securities and Exchange Commission, which investigated Madoff in 1992 but cleared him of wrongdoing, appears to have been completely surprised by the charges of fraud.
Now thousands, possibly tens of thousands of investors confront losses that range from serious to devastating. Some families said on Friday that they believed they had lost all their savings. A charity in Massachusetts said it had lost essentially its entire endowment and would have to close.
According to an affidavit sworn out by federal agents, Madoff himself said the fraud had totaled approximately $50 billion, a figure that would dwarf any previous financial fraud.
At first, the figure seemed impossibly large. But as the reports of losses mounted on Friday, the $50 billion figure looked increasingly plausible. One hedge fund advisory firm alone, Fairfield Greenwich Group, said on Friday that its clients had invested $7.5 billion with Madoff.
The collapse of Madoff's firm is yet another blow in a devastating year for Wall Street and investors. While Madoff's firm was not a hedge fund, the scope of the fraud is likely to increase pressure on hedge funds to accept greater regulation and transparency and protect their investors.
On Thursday, the Federal Bureau of Investigation and SEC said that Madoff's firm, Bernald L. Madoff Investment Securities, ran a giant Ponzi scheme, a type of fraud in which earlier investors are paid off with money raised from later victims - until no money can be raised and the scheme collapses.
Most Ponzi schemes collapse relatively quickly, but there is fragmentary evidence that Madoff's alleged scam may have lasted years or even decades. A Boston whistleblower has claimed that he tried to alert the SEC to the scheme as early as 1999, and Barron's weekly newspaper raised questions about Madoff's returns and strategy in 2001, although it did not accuse him of wrongdoing.
Investors may have been duped because Madoff sent detailed brokerage statements to investors whose money he managed, sometimes reporting hundreds of individual stock trades per month. Investors who asked for their money back could have it returned within days. And while typical Ponzi schemes promise very high returns, Madoff's promised returns were relatively realistic - about 10 percent a year - though they were unrealistically steady.
Madoff was not running an actual hedge fund, but instead managing accounts for investors inside his own securities firm. The difference, though seemingly minor, is crucial. Hedge funds typically hold their portfolios at banks and brokerage firms like JPMorgan Chase and Goldman Sachs. Outside auditors can check with those banks and brokerage firms to make sure the funds exist.
But because he had his own securities firm, Madoff kept custody over his clients' accounts and processed all their stock trades himself. His only check appears to have been Friehling & Horowitz, a tiny auditing firm based in New City, New York. Wealthy individuals and other money managers entrusted billions of dollars to funds that in turn invested in his firm, based on his reputation and reported returns.
Victims of the scam included grey-haired grandmothers in Florida, investment companies in London, and charities and universities across the United States. The Wilpon family, the main owners the New York Mets, and Yeshiva University both confirmed that they had invested with Madoff, and a Jewish charity in Massachusetts said it would lay off its five employees and close after losing nearly all of its $7 million endowment.
On Friday afternoon, investors and attorneys for investors with Madoff packed Judge Louis L. Stanton's federal courtroom in Manhattan, hoping for the chance to question attorneys for Madoff and the SEC. But a deputy for Stanton canceled the hearing, leaving investors with few answers. Several investors said they were planning to file lawsuits against the firm in the hope of recovering some of their money.
Based on the vagueness of the complaints against Madoff, his confession, as detailed in court filings, seems to have taken the FBI and SEC by surprise. Investigators have not explained when they believe the fraud began, how much money was ultimately lost and whether Madoff lost investors' money in the markets, spent it or both. It is not even clear whether Madoff actually made any of the trades he reported to investors.
The FBI and SEC have also not said whether they believe Madoff acted alone. According to the authorities, Madoff told FBI agents that the scheme was his alone. He worked closely with his brother, sons and other family members, many of whom have retained lawyers.
Also likely to face very difficult questions are the hedge funds, investment advisers and banks that raised money for Madoff. At least some big investment advisers steered clients away from putting money with Madoff, believing that his returns could not be real.
Robert Rosenkranz, principal of Acorn Partners, which helps wealthy clients choose money managers, said the steadiness of the returns that Madoff reported did not make sense, and the size of his auditor raised further concerns.
"Our due diligence, which got into both account statements of his customers, and the audited statements of Madoff Securities, which he filed with the SEC, made it seem highly likely that the account statements themselves were just pieces of paper that were generated in connection with some sort of fraudulent activity," Rosenkranz said.
Simon Fludgate, head of operational due diligence for Aksia, another firm that advised clients not to invest with Madoff, said the secrecy of his strategy also raised red flags. And Madoff's stock holdings, which he disclosed each quarter with the Securities and Exchange Commission, appeared to be too small to support the size of the fund he claimed. Madoff's promoters sometimes tried to explain the discrepancy claimed he sold all his shares at the end of each quarter and put his holdings in cash.
"There were no smoking guns, but too many things that didn't add up," Fludgate said.
However, the SEC had already investigated Madoff and two accountants who raised money for him in 1992, believing they might have found a Ponzi scheme. "We went into this thing just thinking it might be a huge catastrophe," an SEC official told The Wall Street Journal in December 1992.
Instead, Madoff turned out to have delivered the returns that the investment advisers had promised their clients. It is not clear whether the results of the 1992 investigation discouraged the SEC from examining Madoff again, even when new red flags surfaced. Lawyers at the SEC did not return calls for comment.
Meanwhile, Fairfield Greenwich Group, whose clients have $7.5 billion invested with Madoff, said it was "shocked and appalled by this news."
"We had no indication that we and many other firms and private investors were the victims of such a highly sophisticated, massive fraudulent scheme."
At the court hearing, an individual investor, who declined to give his name to avoid embarrassment, expressed a similar sentiment.
"Nobody knows where their money is and whether it is protected," the investor said. "The returns were just amazing and we trusted this guy for decades - if you wanted to take money out, you always got your check in a few days. That's why we were all so stunned."
Zachary Kouwe and Stephanie Strom contributed reporting.
By Alex Berenson and Diana B. Henriques
Saturday, December 13, 2008
NEW YORK: For years, investors, rivals and regulators all wondered how Bernard Madoff worked his magic.
But on Friday, less than 24 hours after this prominent Wall Street figure was arrested for perpetrating what authorities portrayed as the biggest Ponzi scheme in financial history, questions began to be raised about whether Madoff acted alone and why his suspected con game was not uncovered sooner.
As investors from Palm Beach to New York to London counted their losses on Friday in what Madoff himself described as a $50 billion fraud, federal authorities took control of what remained of his firm and began to pore over its books.
But some investors said they had questioned Madoff's supposed investment prowess years ago, pointing to his unnaturally steady returns, his vague investment strategy and the obscure accounting firm that audited his books.
Despite these and other red flags, hedge fund companies kept promoting Madoff's funds to other funds and individuals, especially prominent Jewish families in New York and Florida. More recently, banks like Nomura, the Japanese firm, began soliciting investors for Madoff internationally.
The Securities and Exchange Commission, which investigated Madoff in 1992 but cleared him of wrongdoing, appears to have been completely surprised by the charges of fraud.
Now thousands, possibly tens of thousands of investors confront losses that range from serious to devastating. Some families said on Friday that they believed they had lost all their savings. A charity in Massachusetts said it had lost essentially its entire endowment and would have to close.
According to an affidavit sworn out by federal agents, Madoff himself said the fraud had totaled approximately $50 billion, a figure that would dwarf any previous financial fraud.
At first, the figure seemed impossibly large. But as the reports of losses mounted on Friday, the $50 billion figure looked increasingly plausible. One hedge fund advisory firm alone, Fairfield Greenwich Group, said on Friday that its clients had invested $7.5 billion with Madoff.
The collapse of Madoff's firm is yet another blow in a devastating year for Wall Street and investors. While Madoff's firm was not a hedge fund, the scope of the fraud is likely to increase pressure on hedge funds to accept greater regulation and transparency and protect their investors.
On Thursday, the Federal Bureau of Investigation and SEC said that Madoff's firm, Bernald L. Madoff Investment Securities, ran a giant Ponzi scheme, a type of fraud in which earlier investors are paid off with money raised from later victims - until no money can be raised and the scheme collapses.
Most Ponzi schemes collapse relatively quickly, but there is fragmentary evidence that Madoff's alleged scam may have lasted years or even decades. A Boston whistleblower has claimed that he tried to alert the SEC to the scheme as early as 1999, and Barron's weekly newspaper raised questions about Madoff's returns and strategy in 2001, although it did not accuse him of wrongdoing.
Investors may have been duped because Madoff sent detailed brokerage statements to investors whose money he managed, sometimes reporting hundreds of individual stock trades per month. Investors who asked for their money back could have it returned within days. And while typical Ponzi schemes promise very high returns, Madoff's promised returns were relatively realistic - about 10 percent a year - though they were unrealistically steady.
Madoff was not running an actual hedge fund, but instead managing accounts for investors inside his own securities firm. The difference, though seemingly minor, is crucial. Hedge funds typically hold their portfolios at banks and brokerage firms like JPMorgan Chase and Goldman Sachs. Outside auditors can check with those banks and brokerage firms to make sure the funds exist.
But because he had his own securities firm, Madoff kept custody over his clients' accounts and processed all their stock trades himself. His only check appears to have been Friehling & Horowitz, a tiny auditing firm based in New City, New York. Wealthy individuals and other money managers entrusted billions of dollars to funds that in turn invested in his firm, based on his reputation and reported returns.
Victims of the scam included grey-haired grandmothers in Florida, investment companies in London, and charities and universities across the United States. The Wilpon family, the main owners the New York Mets, and Yeshiva University both confirmed that they had invested with Madoff, and a Jewish charity in Massachusetts said it would lay off its five employees and close after losing nearly all of its $7 million endowment.
On Friday afternoon, investors and attorneys for investors with Madoff packed Judge Louis L. Stanton's federal courtroom in Manhattan, hoping for the chance to question attorneys for Madoff and the SEC. But a deputy for Stanton canceled the hearing, leaving investors with few answers. Several investors said they were planning to file lawsuits against the firm in the hope of recovering some of their money.
Based on the vagueness of the complaints against Madoff, his confession, as detailed in court filings, seems to have taken the FBI and SEC by surprise. Investigators have not explained when they believe the fraud began, how much money was ultimately lost and whether Madoff lost investors' money in the markets, spent it or both. It is not even clear whether Madoff actually made any of the trades he reported to investors.
The FBI and SEC have also not said whether they believe Madoff acted alone. According to the authorities, Madoff told FBI agents that the scheme was his alone. He worked closely with his brother, sons and other family members, many of whom have retained lawyers.
Also likely to face very difficult questions are the hedge funds, investment advisers and banks that raised money for Madoff. At least some big investment advisers steered clients away from putting money with Madoff, believing that his returns could not be real.
Robert Rosenkranz, principal of Acorn Partners, which helps wealthy clients choose money managers, said the steadiness of the returns that Madoff reported did not make sense, and the size of his auditor raised further concerns.
"Our due diligence, which got into both account statements of his customers, and the audited statements of Madoff Securities, which he filed with the SEC, made it seem highly likely that the account statements themselves were just pieces of paper that were generated in connection with some sort of fraudulent activity," Rosenkranz said.
Simon Fludgate, head of operational due diligence for Aksia, another firm that advised clients not to invest with Madoff, said the secrecy of his strategy also raised red flags. And Madoff's stock holdings, which he disclosed each quarter with the Securities and Exchange Commission, appeared to be too small to support the size of the fund he claimed. Madoff's promoters sometimes tried to explain the discrepancy claimed he sold all his shares at the end of each quarter and put his holdings in cash.
"There were no smoking guns, but too many things that didn't add up," Fludgate said.
However, the SEC had already investigated Madoff and two accountants who raised money for him in 1992, believing they might have found a Ponzi scheme. "We went into this thing just thinking it might be a huge catastrophe," an SEC official told The Wall Street Journal in December 1992.
Instead, Madoff turned out to have delivered the returns that the investment advisers had promised their clients. It is not clear whether the results of the 1992 investigation discouraged the SEC from examining Madoff again, even when new red flags surfaced. Lawyers at the SEC did not return calls for comment.
Meanwhile, Fairfield Greenwich Group, whose clients have $7.5 billion invested with Madoff, said it was "shocked and appalled by this news."
"We had no indication that we and many other firms and private investors were the victims of such a highly sophisticated, massive fraudulent scheme."
At the court hearing, an individual investor, who declined to give his name to avoid embarrassment, expressed a similar sentiment.
"Nobody knows where their money is and whether it is protected," the investor said. "The returns were just amazing and we trusted this guy for decades - if you wanted to take money out, you always got your check in a few days. That's why we were all so stunned."
Zachary Kouwe and Stephanie Strom contributed reporting.
*******************
For the defrauded, little solace
By Diana B. Henriques and Alex Berenson
Saturday, December 13, 2008
NEW YORK: The zoning lawyer in Miami trusted him because his father had dealt profitably with him for decades. The officers of a little charity in Massachusetts respected him and relied on his advice.
Wealthy men like Ezra Merkin, the chairman of GMAC; Fred Wilpon, the principal owner of the New York Mets, and Norman Braman, who owned the Philadelphia Eagles, simply appreciated the steady returns he produced, regardless of market conditions.
But these clients of Bernard Madoff had this in common: They chose him to oversee much of their personal wealth.
And now, they fear, they have lost it.
While Madoff is facing federal criminal charges, accused by federal prosecutors of operating a vast $50 billion Ponzi scheme, many of his clients are facing an abrupt reversal of fortune that is the stuff of nightmares.
"There are people who were very, very well off a few days ago who are now virtually destitute," said Brad Friedman, a lawyer with the Milberg firm in Manhattan. "They have nothing left but their apartments or homes - which they are going to have to sell to get money to live on."
From New York to Palm Beach, business associates of Madoff spent Friday assessing the damage, the extent of which will not be known for some time. Many invested with Madoff through other funds and may not yet know that their money is at risk.
Emergency meetings were being held at country clubs, schools and charities to assess the potential losses on their investments and to look for options.
There is not much guidance available yet from regulators. On Friday, a federal judge appointed a receiver to oversee the Madoff firm's assets and customer accounts. A Web site is being set up to keep customers informed, but no one is sure yet whether any sort of safety net will catch the most vulnerable investors.
For Stephen Helfman, a lawyer in Miami whose father had opened an account with Madoff more than 30 years ago, the news on Thursday came as a hammer blow.
"The name Madoff' has overnight gone from being revered to reviled in the Helfman family," Helfman said on Friday. His grandmother, at 98, relied on her Madoff money to pay for round-the-clock care, he said, and his two children's college funds were wiped out.
"Thirty-six years of loyalty, through two generations, and this is what we get," he said.
The news was equally devastating for the Robert I. Lappin Charitable Foundation in Salem, Mass., which works to reverse the dilution of Jewish identity through intermarriage and assimilation by sending teenagers to Israel and supporting other Jewish education efforts.
The foundation was forced Friday to dismiss its small staff and shut down its programs to cope with its losses in the Madoff funds, according to Deborah Coltin, its executive director.
"We've canceled everything as of today, everything," she said tearfully.
Coltin said she did not know how the little foundation came to be so exposed to the Madoff firm. Its most recent tax filings show that it had $7 million at the end of 2006, with $143,344 in stocks and the rest in what it described as "government securities."
It reported the sale that year of "Bernie Madoff" securities, but did not explain what those securities were.
Sam Englebardt, a media investor in Los Angeles, said several of his relatives had entrusted virtually all of their assets to Madoff - and he understood why.
"It seems like a huge overallocation, I know," Englebardt said. "But remember, they had started out small and invested over five years, fifteen years, thirty years - and every year they got a great return, and they could always take money out without ever having a problem."
As that track record lengthened, his relatives gradually entrusted more of their savings to Madoff, he said. "I suspect that is what has happened across the board," he added. "People came to trust him so much that, eventually, they trusted him with everything."
Such stories were repeated in e-mails and telephone calls throughout the day on Friday. A woman in Brooklyn whose father died just weeks ago, found that his entire estate and a substantial portion of her stepmother's money was invested with Madoff. A law school official in Massachusetts fears he has lost millions in the collapse of the Madoff operation.
Some wealthy victims, of course, can afford to seek redress on their own. But for them, litigation seems the only certainty.
Throughout the rumor-fueled hedge fund world on Friday, money managers were comparing notes and assessing losses. By all accounts, they run broad and deep - in the billions.
Merkin, the founder of a hedge fund called Ascot Partners, jolted his clients on Thursday with a letter announcing that "substantially all" of that fund's $1.8 billion in assets were invested with Madoff.
"As one of the largest investors in our fund, I have also suffered major losses from this catastrophe," Merkin said in the letter. "We have retained counsel to determine what our next steps should be."
Some of Merkin's investors have also "retained counsel." Harry Susman, a lawyer in the Houston office of Susman Godfrey, said he is talking with several about their legal options.
"These investors were never aware that all of their money was invested with Madoff," Susman said. "They are obviously shocked."
Sterling Equities and the Wilpon family acknowledged on Friday that it had money at risk in the Madoff scandal.
"We are shocked by recent events and, like all investors, will continue to monitor the situation." said Richard Auletta, a spokesman for Sterling and the Wilpons.
(The Mets organization issued a statement saying that the scandal will not derail its new Citi Field stadium project on Long Island or "affect the day-to-day operations and long-term plans of the Mets organization."
A lawyer for Norman Braman of Miami, a wealthy retired retailer and the former owner of the Philadelphia Eagles football team, confirmed that Braman, too, had money locked up and perhaps lost in the Madoff mess.
And Bramdean Alternatives, a London asset manager run by Nicola Horlick, saw its share price plummet nearly 36 percent on Friday after it announced that nearly 10 percent of its holdings were caught in the Madoff scandal.
Madoff has resigned from his positions at Yeshiva University, where he was the university treasurer and deeply involved in the business school.
"Our lawyers and accountants are investigating all aspects of his relationship to Yeshiva University," said Hedy Shulman, a spokeswoman for the university.
The most recent tax filings for the university show that its endowment fund, a separate charity, was heavily invested in hedge funds and other nontraditional alternatives at the end of its fiscal year in 2006.
The student newspaper, The Yeshiva Commentator, recently reported that the university's endowment's value had dropped to $1.4 billion from $1.8 billion - before the scandal broke.
By Diana B. Henriques and Alex Berenson
Saturday, December 13, 2008
NEW YORK: The zoning lawyer in Miami trusted him because his father had dealt profitably with him for decades. The officers of a little charity in Massachusetts respected him and relied on his advice.
Wealthy men like Ezra Merkin, the chairman of GMAC; Fred Wilpon, the principal owner of the New York Mets, and Norman Braman, who owned the Philadelphia Eagles, simply appreciated the steady returns he produced, regardless of market conditions.
But these clients of Bernard Madoff had this in common: They chose him to oversee much of their personal wealth.
And now, they fear, they have lost it.
While Madoff is facing federal criminal charges, accused by federal prosecutors of operating a vast $50 billion Ponzi scheme, many of his clients are facing an abrupt reversal of fortune that is the stuff of nightmares.
"There are people who were very, very well off a few days ago who are now virtually destitute," said Brad Friedman, a lawyer with the Milberg firm in Manhattan. "They have nothing left but their apartments or homes - which they are going to have to sell to get money to live on."
From New York to Palm Beach, business associates of Madoff spent Friday assessing the damage, the extent of which will not be known for some time. Many invested with Madoff through other funds and may not yet know that their money is at risk.
Emergency meetings were being held at country clubs, schools and charities to assess the potential losses on their investments and to look for options.
There is not much guidance available yet from regulators. On Friday, a federal judge appointed a receiver to oversee the Madoff firm's assets and customer accounts. A Web site is being set up to keep customers informed, but no one is sure yet whether any sort of safety net will catch the most vulnerable investors.
For Stephen Helfman, a lawyer in Miami whose father had opened an account with Madoff more than 30 years ago, the news on Thursday came as a hammer blow.
"The name Madoff' has overnight gone from being revered to reviled in the Helfman family," Helfman said on Friday. His grandmother, at 98, relied on her Madoff money to pay for round-the-clock care, he said, and his two children's college funds were wiped out.
"Thirty-six years of loyalty, through two generations, and this is what we get," he said.
The news was equally devastating for the Robert I. Lappin Charitable Foundation in Salem, Mass., which works to reverse the dilution of Jewish identity through intermarriage and assimilation by sending teenagers to Israel and supporting other Jewish education efforts.
The foundation was forced Friday to dismiss its small staff and shut down its programs to cope with its losses in the Madoff funds, according to Deborah Coltin, its executive director.
"We've canceled everything as of today, everything," she said tearfully.
Coltin said she did not know how the little foundation came to be so exposed to the Madoff firm. Its most recent tax filings show that it had $7 million at the end of 2006, with $143,344 in stocks and the rest in what it described as "government securities."
It reported the sale that year of "Bernie Madoff" securities, but did not explain what those securities were.
Sam Englebardt, a media investor in Los Angeles, said several of his relatives had entrusted virtually all of their assets to Madoff - and he understood why.
"It seems like a huge overallocation, I know," Englebardt said. "But remember, they had started out small and invested over five years, fifteen years, thirty years - and every year they got a great return, and they could always take money out without ever having a problem."
As that track record lengthened, his relatives gradually entrusted more of their savings to Madoff, he said. "I suspect that is what has happened across the board," he added. "People came to trust him so much that, eventually, they trusted him with everything."
Such stories were repeated in e-mails and telephone calls throughout the day on Friday. A woman in Brooklyn whose father died just weeks ago, found that his entire estate and a substantial portion of her stepmother's money was invested with Madoff. A law school official in Massachusetts fears he has lost millions in the collapse of the Madoff operation.
Some wealthy victims, of course, can afford to seek redress on their own. But for them, litigation seems the only certainty.
Throughout the rumor-fueled hedge fund world on Friday, money managers were comparing notes and assessing losses. By all accounts, they run broad and deep - in the billions.
Merkin, the founder of a hedge fund called Ascot Partners, jolted his clients on Thursday with a letter announcing that "substantially all" of that fund's $1.8 billion in assets were invested with Madoff.
"As one of the largest investors in our fund, I have also suffered major losses from this catastrophe," Merkin said in the letter. "We have retained counsel to determine what our next steps should be."
Some of Merkin's investors have also "retained counsel." Harry Susman, a lawyer in the Houston office of Susman Godfrey, said he is talking with several about their legal options.
"These investors were never aware that all of their money was invested with Madoff," Susman said. "They are obviously shocked."
Sterling Equities and the Wilpon family acknowledged on Friday that it had money at risk in the Madoff scandal.
"We are shocked by recent events and, like all investors, will continue to monitor the situation." said Richard Auletta, a spokesman for Sterling and the Wilpons.
(The Mets organization issued a statement saying that the scandal will not derail its new Citi Field stadium project on Long Island or "affect the day-to-day operations and long-term plans of the Mets organization."
A lawyer for Norman Braman of Miami, a wealthy retired retailer and the former owner of the Philadelphia Eagles football team, confirmed that Braman, too, had money locked up and perhaps lost in the Madoff mess.
And Bramdean Alternatives, a London asset manager run by Nicola Horlick, saw its share price plummet nearly 36 percent on Friday after it announced that nearly 10 percent of its holdings were caught in the Madoff scandal.
Madoff has resigned from his positions at Yeshiva University, where he was the university treasurer and deeply involved in the business school.
"Our lawyers and accountants are investigating all aspects of his relationship to Yeshiva University," said Hedy Shulman, a spokeswoman for the university.
The most recent tax filings for the university show that its endowment fund, a separate charity, was heavily invested in hedge funds and other nontraditional alternatives at the end of its fiscal year in 2006.
The student newspaper, The Yeshiva Commentator, recently reported that the university's endowment's value had dropped to $1.4 billion from $1.8 billion - before the scandal broke.
******************
Coconuts cover Rio beach in protest on violence
Reuters
Saturday, December 13, 2008
RIO DE JANEIRO: A big black cross surrounded by 16,000 coconuts covered parts of Rio de Janeiro's famous Copacabana beach on Saturday to symbolize the homicides that have plagued the state of Rio de Janeiro in recent years.
"Shame" was written on a banner in four different languages, next to the coconuts laid out at sunrise. The protest lasted until after midday, when families of the victims arrived at the site.
Rio de Janeiro, the beach-side tourist hub, is one of Brazil's most dangerous cities and suffers from frequent confrontations between drug gangs and the police in the city's notorious slums.
"The coconuts represent the 16,000 people that were assassinated in the state of Rio in the past two years. If all the skulls of the people killed were put on the sand, that's what we would see," said Antonio Carlos, founder of Rio de Paz, the non-governmental organisation, which organized the protest.
(Reporting by Julio Villaverde, writing by Ana Nicolaci da Costa, editing by Vicki Allen)
Reuters
Saturday, December 13, 2008
RIO DE JANEIRO: A big black cross surrounded by 16,000 coconuts covered parts of Rio de Janeiro's famous Copacabana beach on Saturday to symbolize the homicides that have plagued the state of Rio de Janeiro in recent years.
"Shame" was written on a banner in four different languages, next to the coconuts laid out at sunrise. The protest lasted until after midday, when families of the victims arrived at the site.
Rio de Janeiro, the beach-side tourist hub, is one of Brazil's most dangerous cities and suffers from frequent confrontations between drug gangs and the police in the city's notorious slums.
"The coconuts represent the 16,000 people that were assassinated in the state of Rio in the past two years. If all the skulls of the people killed were put on the sand, that's what we would see," said Antonio Carlos, founder of Rio de Paz, the non-governmental organisation, which organized the protest.
(Reporting by Julio Villaverde, writing by Ana Nicolaci da Costa, editing by Vicki Allen)
******************
Lawyer seen as bold enough to cheat the best of investors
By Alison Leigh Cowan, Charles V. Bagli and William K. Rashbaum
Saturday, December 13, 2008
Marc Dreier knew the 45th-floor conference room of Solow Realty well. He had been in it many times as a trusted lawyer for the company's founder.
So nothing seemed amiss when he showed up one afternoon in October and told a receptionist he had a meeting with her boss, people associated with Solow say.
Dreier was elegantly dressed, as always, the people said. He had three people with him. The receptionist ushered the group past her desk. They were sitting there, visible inside the glass-walled room, a few minutes later when the boss, Steven M. Cherniak, happened to walk by.
Cherniak would later tell people at the company how surprised he had been to see Dreier. He had not scheduled any meeting with him, and he had no idea what Dreier was up to.
But people there gave little thought to Dreier's odd visit until November, when the company's founder, Sheldon Solow, received a disturbing call. The caller wanted to let Solow know that Dreier had offered him the chance to buy promissory notes that had been issued by the company, people associated with the firm said.
They were fake notes, and shortly thereafter, lawyers for Solow Realty — different lawyers — were in touch with U.S. government authorities, reporting their suspicions that Dreier might be engaged in financial fraud.
Since that opening tip, U.S. government authorities have been tracking what they describe as a brazen swindle of some of New York's savviest investors by one of New York's most accomplished lawyers. Dreier has been charged in connection with fraud and attempted fraud in the United States and Canada, and is being held without bail in New York.
In court last week, prosecutors said an early count put the money missing at $380 million, most of it lost by hedge funds and other investors who had bought promissory notes that were flat-out fictions.
In recent days, Dreier LLP, the Park Avenue law firm that Dreier founded, has been plunged into chaos. At least $35 million in escrow money that was to have been held by the firm also seems to be missing, the authorities say, and nearly all of its 250 lawyers are now looking for work.
The amounts pale next to the $50 billion fraud that another high-profile New York figure, Bernard Madoff, was accused last week of orchestrating, but they have unnerved lawyers and their clients in the broader legal community.
As the Dreier firm's lawyers rummage through the law firm's books, which had been until recently Dreier's exclusive preserve, the lawyers are finding that bills have not been paid in months. Their health insurance is in default and the firm will not be able to make its $2.6 million payroll on Monday, lawyers there say.
"No one is in charge," Vincent Pitta, a lawyer at the firm, complained last week in an affidavit in support of a government request to freeze assets. "The news of Dreier's arrest has had a neutron-bomb-like effect on Dreier LLP"
Few have fallen as quickly as Dreier, a Yale graduate and Harvard-educated lawyer who had been a partner at some of New York's better known firms before opening up a high-profile practice of his own in 1996 that now has offices in five cities.
"He promised lavish salaries and lavish compensation and he was attracting the best and the brightest," said Gerald Shargel, Dreier's lawyer. Shargel said Dreier is cooperating with the receiver now running the firm.
The expense of running such an operation does not provide a ready explanation for thefts of such magnitude. Even the cost of sustaining Dreier's appetite for luxury does not provide an easy answer for what instilled the kind of desperation that seems to have prompted schemes involved here, schemes that prosecutors said involved Dreier pretending to be other people.
Dreier's lifestyle includes a waterfront home in the Hamptons, a New York triplex and a place on Ocean Avenue in Santa Monica, California He kept a Mercedes 500 in New York, an Aston Martin in California, and a 121-foot, blue and white Heesen motor yacht with a Jacuzzi and a crew of 10 docked in New York or St. Maarten. Associates said the boat, the Seascape, was the site of late-night parties at which Dreier, who is divorced, was often joined by an attractive young crowd.
The law offices themselves at 499 Park Avenue were like modern art galleries. In court papers filed this week, the comptroller for the law firm reported that $30 million to $40 million of the firm's assets had been spent on art. Among Dreier's holdings were works by Picasso and a Warhol depiction of Jacqueline Kennedy Onassis.
In recent days, someone not affiliated with the firm was seen removing several pieces of artwork from the walls and carting them away, a person at the firm said. It was not clear what became of the art.
Friday, lawyers at the firm cannot remove even client papers without the permission of authorities who are struggling to track the apparent financial chicanery.
Dreier, 58, controlled the finances of his law firm to an unusual degree, according to lawyers there, because of the unusual way it was set up.
Dreier was the only equity partner in the firm, and deals were structured so that only he knew all the specifics and had access to all accounts, people with the firm said in court papers. Dreier persuaded lawyers that such an arrangement was best by stressing that it would allow them to concentrate on their first love, the law, while he worried about running the firm.
There would be no executive committee. No partners meetings. Dreier would handle all administrative chores.
For lawyers there now, the delegation of responsibility means that they are just now figuring out that Dreier had let their malpractice insurance lapse, exposing them to enormous risk if they are sued by Dreier's growing list of potential victims, lawyers said.
Dreier, who grew up on Long Island, the son of a refugee from Poland who owned movie theaters, evolved into a bon vivant who belonged to the Harmonie Club and was a staple of high-wattage charity events.
As a lawyer, Dreier could be aggressive, as was evident when he was reprimanded in 2004 by a bankruptcy court judge. The judge found that Dreier had, on Solow's behalf, played a role in placing false legal ads that highlighted the financial debts of a Solow Realty rival, Peter Kalikow.
The judge called the ads "an affront to the court" and "somewhat sleazy."
Two years later, though, Dreier still did some work for the Solow firm and relied on that connection to convince Wall Street veterans that he was legitimately selling promissory notes issued by the company.
In 2007, one investment house, Perella Weinberg Partners, bought a company that held $45 million worth of the supposed Solow paper, a spokesman for Perella said.
The investment firm said it had no reason to be overly suspicious about the notes because someone, ostensibly Dreier, had been paying interest on them in a timely manner. Now worthless, the notes equal roughly 4 percent of the portfolio holding them.
A subpoena shows the government is seeking information about an additional dozen hedge funds that may have been defrauded.
One investor on the list was Nick Maounis, the Connecticut trader who made headlines two years ago when a $6 billion fund he started called Amaranth blew up. He is now operating a new hedge fund known as Verition. A person close to Verition said the fund had declined to purchase the notes.
Making it harder to reconstruct the sale of the promissory notes is the possibility that investors sold them among themselves. Prosecutors contend that the evidence against Dreier is strong and includes tape recordings in which he admits that some of the promissory notes he was selling are fabricated.
Days before Dreier's arrest in New York, court documents showed, a lawyer with his firm asked Dreier to release $38 million from an escrow account for a client, only to discover that much of the money had vanished.
The next day, Dec. 2, Dreier flew to Canada by private jet and tried to hold a business meeting there very much like the unauthorized gathering he is said to have held in Solow's Midtown New York offices, the authorities say.
In the offices of the Ontario Teachers' Pension Plan, the authorities say, he tried to pass himself off as a lawyer for the plan and close the sale of an additional $33 million in fraudulent promissory notes supposedly backed by the plan.
But a receptionist there caught on, the authorities said, and called the police, who arrested him.
Being jailed in Toronto did not curb Dreier's interest in moving money between accounts, and he feverishly worked the phones, according to court papers.
At this point, the law firm's comptroller refused his requests to move millions of dollars. He did agree, though, to Dreier's request to be connected to the bank that handled the law firm's accounts, an assistant United States attorney, Jonathan Streeter, said in a bail hearing on Thursday.
"He successfully got $10 million transferred out of an escrow account into a personal account that he controlled," Streeter said.
That money, like all the rest, remains unaccounted for.
By Alison Leigh Cowan, Charles V. Bagli and William K. Rashbaum
Saturday, December 13, 2008
Marc Dreier knew the 45th-floor conference room of Solow Realty well. He had been in it many times as a trusted lawyer for the company's founder.
So nothing seemed amiss when he showed up one afternoon in October and told a receptionist he had a meeting with her boss, people associated with Solow say.
Dreier was elegantly dressed, as always, the people said. He had three people with him. The receptionist ushered the group past her desk. They were sitting there, visible inside the glass-walled room, a few minutes later when the boss, Steven M. Cherniak, happened to walk by.
Cherniak would later tell people at the company how surprised he had been to see Dreier. He had not scheduled any meeting with him, and he had no idea what Dreier was up to.
But people there gave little thought to Dreier's odd visit until November, when the company's founder, Sheldon Solow, received a disturbing call. The caller wanted to let Solow know that Dreier had offered him the chance to buy promissory notes that had been issued by the company, people associated with the firm said.
They were fake notes, and shortly thereafter, lawyers for Solow Realty — different lawyers — were in touch with U.S. government authorities, reporting their suspicions that Dreier might be engaged in financial fraud.
Since that opening tip, U.S. government authorities have been tracking what they describe as a brazen swindle of some of New York's savviest investors by one of New York's most accomplished lawyers. Dreier has been charged in connection with fraud and attempted fraud in the United States and Canada, and is being held without bail in New York.
In court last week, prosecutors said an early count put the money missing at $380 million, most of it lost by hedge funds and other investors who had bought promissory notes that were flat-out fictions.
In recent days, Dreier LLP, the Park Avenue law firm that Dreier founded, has been plunged into chaos. At least $35 million in escrow money that was to have been held by the firm also seems to be missing, the authorities say, and nearly all of its 250 lawyers are now looking for work.
The amounts pale next to the $50 billion fraud that another high-profile New York figure, Bernard Madoff, was accused last week of orchestrating, but they have unnerved lawyers and their clients in the broader legal community.
As the Dreier firm's lawyers rummage through the law firm's books, which had been until recently Dreier's exclusive preserve, the lawyers are finding that bills have not been paid in months. Their health insurance is in default and the firm will not be able to make its $2.6 million payroll on Monday, lawyers there say.
"No one is in charge," Vincent Pitta, a lawyer at the firm, complained last week in an affidavit in support of a government request to freeze assets. "The news of Dreier's arrest has had a neutron-bomb-like effect on Dreier LLP"
Few have fallen as quickly as Dreier, a Yale graduate and Harvard-educated lawyer who had been a partner at some of New York's better known firms before opening up a high-profile practice of his own in 1996 that now has offices in five cities.
"He promised lavish salaries and lavish compensation and he was attracting the best and the brightest," said Gerald Shargel, Dreier's lawyer. Shargel said Dreier is cooperating with the receiver now running the firm.
The expense of running such an operation does not provide a ready explanation for thefts of such magnitude. Even the cost of sustaining Dreier's appetite for luxury does not provide an easy answer for what instilled the kind of desperation that seems to have prompted schemes involved here, schemes that prosecutors said involved Dreier pretending to be other people.
Dreier's lifestyle includes a waterfront home in the Hamptons, a New York triplex and a place on Ocean Avenue in Santa Monica, California He kept a Mercedes 500 in New York, an Aston Martin in California, and a 121-foot, blue and white Heesen motor yacht with a Jacuzzi and a crew of 10 docked in New York or St. Maarten. Associates said the boat, the Seascape, was the site of late-night parties at which Dreier, who is divorced, was often joined by an attractive young crowd.
The law offices themselves at 499 Park Avenue were like modern art galleries. In court papers filed this week, the comptroller for the law firm reported that $30 million to $40 million of the firm's assets had been spent on art. Among Dreier's holdings were works by Picasso and a Warhol depiction of Jacqueline Kennedy Onassis.
In recent days, someone not affiliated with the firm was seen removing several pieces of artwork from the walls and carting them away, a person at the firm said. It was not clear what became of the art.
Friday, lawyers at the firm cannot remove even client papers without the permission of authorities who are struggling to track the apparent financial chicanery.
Dreier, 58, controlled the finances of his law firm to an unusual degree, according to lawyers there, because of the unusual way it was set up.
Dreier was the only equity partner in the firm, and deals were structured so that only he knew all the specifics and had access to all accounts, people with the firm said in court papers. Dreier persuaded lawyers that such an arrangement was best by stressing that it would allow them to concentrate on their first love, the law, while he worried about running the firm.
There would be no executive committee. No partners meetings. Dreier would handle all administrative chores.
For lawyers there now, the delegation of responsibility means that they are just now figuring out that Dreier had let their malpractice insurance lapse, exposing them to enormous risk if they are sued by Dreier's growing list of potential victims, lawyers said.
Dreier, who grew up on Long Island, the son of a refugee from Poland who owned movie theaters, evolved into a bon vivant who belonged to the Harmonie Club and was a staple of high-wattage charity events.
As a lawyer, Dreier could be aggressive, as was evident when he was reprimanded in 2004 by a bankruptcy court judge. The judge found that Dreier had, on Solow's behalf, played a role in placing false legal ads that highlighted the financial debts of a Solow Realty rival, Peter Kalikow.
The judge called the ads "an affront to the court" and "somewhat sleazy."
Two years later, though, Dreier still did some work for the Solow firm and relied on that connection to convince Wall Street veterans that he was legitimately selling promissory notes issued by the company.
In 2007, one investment house, Perella Weinberg Partners, bought a company that held $45 million worth of the supposed Solow paper, a spokesman for Perella said.
The investment firm said it had no reason to be overly suspicious about the notes because someone, ostensibly Dreier, had been paying interest on them in a timely manner. Now worthless, the notes equal roughly 4 percent of the portfolio holding them.
A subpoena shows the government is seeking information about an additional dozen hedge funds that may have been defrauded.
One investor on the list was Nick Maounis, the Connecticut trader who made headlines two years ago when a $6 billion fund he started called Amaranth blew up. He is now operating a new hedge fund known as Verition. A person close to Verition said the fund had declined to purchase the notes.
Making it harder to reconstruct the sale of the promissory notes is the possibility that investors sold them among themselves. Prosecutors contend that the evidence against Dreier is strong and includes tape recordings in which he admits that some of the promissory notes he was selling are fabricated.
Days before Dreier's arrest in New York, court documents showed, a lawyer with his firm asked Dreier to release $38 million from an escrow account for a client, only to discover that much of the money had vanished.
The next day, Dec. 2, Dreier flew to Canada by private jet and tried to hold a business meeting there very much like the unauthorized gathering he is said to have held in Solow's Midtown New York offices, the authorities say.
In the offices of the Ontario Teachers' Pension Plan, the authorities say, he tried to pass himself off as a lawyer for the plan and close the sale of an additional $33 million in fraudulent promissory notes supposedly backed by the plan.
But a receptionist there caught on, the authorities said, and called the police, who arrested him.
Being jailed in Toronto did not curb Dreier's interest in moving money between accounts, and he feverishly worked the phones, according to court papers.
At this point, the law firm's comptroller refused his requests to move millions of dollars. He did agree, though, to Dreier's request to be connected to the bank that handled the law firm's accounts, an assistant United States attorney, Jonathan Streeter, said in a bail hearing on Thursday.
"He successfully got $10 million transferred out of an escrow account into a personal account that he controlled," Streeter said.
That money, like all the rest, remains unaccounted for.
******************
Fraud case may erode investor confidence
By Michael J. de la Merced
Saturday, December 13, 2008
NEW YORK: Frauds on Wall Street aren't unheard of. But a $50 billion Ponzi scheme, one that purportedly struck at boldface names on several continents, is a bombshell by any standard.
The case against Bernard Madoff, the respected longtime trader accused of running one of the biggest frauds in Wall Street history, has been Topic A in the investor community. But close behind is a heated discussion of how the sordid drama will affect the already-battered community of hedge funds and other investment firms, many of which invested with Madoff.
Madoff's case could hardly have come at a worse time for hedge funds. The whipsawing markets and suddenly unfriendly lenders have already taken their toll on high financiers, and many have already suffered what amounts to runs on the bank by investors clamoring to withdraw their investments.
"It can't help but have the effect of further chipping away at the confidence that the investor community has in the hedge fund industry," said Ralph Schlosstein, the chief executive of Highview Investment Group, a money management firm and a former president of BlackRock. "But like many things that come at moments of fragility, its impact is magnified."
The collapse of Madoff's firm struck the vast majority of investors by surprise. Madoff, once the largest market maker on the Nasdaq stock market, was known for his modest demeanor and, perhaps more importantly, his steady and overwhelmingly positive returns. That in turn appears to have attracted scores of investors, from Palm Beach, Fla., country clubs to Manhattan social circles.
It is difficult to map out the swath of damage that the Madoff firm's collapse is likely to cut through the hedge fund industry, not to mention a wide range of other investors. But among its biggest investors were funds of funds, firms that invest in several hedge funds and are nominally among the most sophisticated judges of character in the industry. Because Madoff reported consistently positive returns for more than a decade - some say impossibly so - he drew vast amounts of business from them.
Now, the collateral damage from his scheme is likely to add to the chaos that has already been ravaging hedge funds. Spooked by losses and forced to raise cash quickly as the financial crisis ballooned, investors have sought to pull out their money from hedge funds, causing serious pain, and even some forced closures. A growing list of large, well-known firms have sought to block redemption requests in an effort to stem a mass exodus of investors who now desperately want to get into cash.
In a letter sent Friday, the Citadel Investment Group said it was halting redemptions at its two largest hedge funds through March 31.
Confidence will only weaken further with the Madoff firm scandal, intensifying pain for the industry.
"If you couple this with the deleveraging already, this means one thing: more redemptions," said Campbell R. Harvey, a professor at the Fuqua School of Business at Duke University.
The losses from the Madoff firm will also raise more questions about how well funds of funds perform due diligence, a concern already magnified by losses in the hedge fund industry.
"Funds of funds that invested in Madoff will get a double-whammy," said Whitney Tilson, who runs the T2 Partners hedge fund. "Not only will they have to take a loss, but they are going to have to do an awful lot of explaining for how they ever got fooled here."
Indeed, while many investors are asking how regulators could have missed a towering Ponzi scheme, some are beginning to question the whole process of due diligence. Several potential investors had raised questions about Madoff's claims of steady returns over the years, but regulators apparently took few steps to investigate.
"Where were the auditors?" asked Bill Grayson, the president of Falcon Point Capital, a hedge fund based in San Francisco. "Where was his chief compliance officer? Where was the SEC?"
Already under heightened scrutiny, the collapse of the Madoff firm is likely to fuel calls for greater regulation of the hedge fund industry, beyond the current optional registration with the Securities and Exchange Commission.
What's more, many investors in hedge funds are likely to ask tougher questions of the managers of these firms. Executives who are loath to disclose their investment strategies - instead running a "black box" model, as Madoff infamously did - will probably come under increased pressure to open the lid on their operations, at least a little bit.
"I suspect that many investors are going to start asking many more questions of their managers," Tilson said. "They will be much less tolerant of black box managers."
Still, some disagree that Madoff's arrest will lead to widespread contagion throughout the industry. Tilson argued that most investors will see the case as an unusual circumstance whose breadth and brazenness is unlikely to be duplicated. "This is not a Lehman Brothers," he said.
By Michael J. de la Merced
Saturday, December 13, 2008
NEW YORK: Frauds on Wall Street aren't unheard of. But a $50 billion Ponzi scheme, one that purportedly struck at boldface names on several continents, is a bombshell by any standard.
The case against Bernard Madoff, the respected longtime trader accused of running one of the biggest frauds in Wall Street history, has been Topic A in the investor community. But close behind is a heated discussion of how the sordid drama will affect the already-battered community of hedge funds and other investment firms, many of which invested with Madoff.
Madoff's case could hardly have come at a worse time for hedge funds. The whipsawing markets and suddenly unfriendly lenders have already taken their toll on high financiers, and many have already suffered what amounts to runs on the bank by investors clamoring to withdraw their investments.
"It can't help but have the effect of further chipping away at the confidence that the investor community has in the hedge fund industry," said Ralph Schlosstein, the chief executive of Highview Investment Group, a money management firm and a former president of BlackRock. "But like many things that come at moments of fragility, its impact is magnified."
The collapse of Madoff's firm struck the vast majority of investors by surprise. Madoff, once the largest market maker on the Nasdaq stock market, was known for his modest demeanor and, perhaps more importantly, his steady and overwhelmingly positive returns. That in turn appears to have attracted scores of investors, from Palm Beach, Fla., country clubs to Manhattan social circles.
It is difficult to map out the swath of damage that the Madoff firm's collapse is likely to cut through the hedge fund industry, not to mention a wide range of other investors. But among its biggest investors were funds of funds, firms that invest in several hedge funds and are nominally among the most sophisticated judges of character in the industry. Because Madoff reported consistently positive returns for more than a decade - some say impossibly so - he drew vast amounts of business from them.
Now, the collateral damage from his scheme is likely to add to the chaos that has already been ravaging hedge funds. Spooked by losses and forced to raise cash quickly as the financial crisis ballooned, investors have sought to pull out their money from hedge funds, causing serious pain, and even some forced closures. A growing list of large, well-known firms have sought to block redemption requests in an effort to stem a mass exodus of investors who now desperately want to get into cash.
In a letter sent Friday, the Citadel Investment Group said it was halting redemptions at its two largest hedge funds through March 31.
Confidence will only weaken further with the Madoff firm scandal, intensifying pain for the industry.
"If you couple this with the deleveraging already, this means one thing: more redemptions," said Campbell R. Harvey, a professor at the Fuqua School of Business at Duke University.
The losses from the Madoff firm will also raise more questions about how well funds of funds perform due diligence, a concern already magnified by losses in the hedge fund industry.
"Funds of funds that invested in Madoff will get a double-whammy," said Whitney Tilson, who runs the T2 Partners hedge fund. "Not only will they have to take a loss, but they are going to have to do an awful lot of explaining for how they ever got fooled here."
Indeed, while many investors are asking how regulators could have missed a towering Ponzi scheme, some are beginning to question the whole process of due diligence. Several potential investors had raised questions about Madoff's claims of steady returns over the years, but regulators apparently took few steps to investigate.
"Where were the auditors?" asked Bill Grayson, the president of Falcon Point Capital, a hedge fund based in San Francisco. "Where was his chief compliance officer? Where was the SEC?"
Already under heightened scrutiny, the collapse of the Madoff firm is likely to fuel calls for greater regulation of the hedge fund industry, beyond the current optional registration with the Securities and Exchange Commission.
What's more, many investors in hedge funds are likely to ask tougher questions of the managers of these firms. Executives who are loath to disclose their investment strategies - instead running a "black box" model, as Madoff infamously did - will probably come under increased pressure to open the lid on their operations, at least a little bit.
"I suspect that many investors are going to start asking many more questions of their managers," Tilson said. "They will be much less tolerant of black box managers."
Still, some disagree that Madoff's arrest will lead to widespread contagion throughout the industry. Tilson argued that most investors will see the case as an unusual circumstance whose breadth and brazenness is unlikely to be duplicated. "This is not a Lehman Brothers," he said.
*******************
Singapore's star rises as Switzerland stumbles
Reuters
Sunday, December 14, 2008
By Neil Chatterjee and John O'Donnell
As pressure mounts on Switzerland's flagship bank UBS and the country's secrecy code comes under fire from the United States and Germany, Singapore's star as a haven for the super-rich is rising fast.
The sun-drenched Asian city-state, with the highest density of millionaires in the world, is seeing wealth management prosper as the U.S. and Europe grapple with the worst slump in a generation.
Singapore's strict bank secrecy rules seem likely to be spared an assault similar to the one that Berne is defending now, following the charging of UBS's wealth management chief for helping Americans hide money.
With close ties to powerful Asia, Singapore is in a stronger position to resist pressure from the U.S. than rival Switzerland or Alpine retreat Liechtenstein, which recently partially surrendered bank secrecy.
"It's a wealth centre," said Martyn Schilte, a manager in charge of selling million dollar supercars in Singapore. "If you look at the type of client we sell to, it's people with a net worth of $50 million-plus."
The city-state has its sights on attracting the world's wealthy to its palm-tree-lined coastline where some apartments come with a private yacht berth. Its plan is working.
As Asia's elite move billions to the country, assets under management soared by a third last year to more than $800 billion (538 billion pounds).
The amount may be small compared to Switzerland. Singapore had $500 billion in offshore assets under management last year, according to the Boston Consulting Group, compared to four times as much in Switzerland.
But it puts the region on the map for banks hoping to capitalise on a more resilient Asia as the West slows.
As jobs cuts cloud London and New York, banks such as Credit Suisse and Macquarie Group are hiring wealth management staff in Singapore, despite a local recession.
Bank of China is one of the latest to plan a wealth management arm in the Southeast Asian country, hoping to meet millionaires such as those who recently gathered to buy and sell private jets on the sidelines of a Formula One night race.
"Singapore has developed a lot and has all the ingredients to compete internationally," said Deepak Sharma, an executive in charge of Citigroup's global wealth management business outside the United States.
NO SURRENDER
Like tax hideout Monaco, Singapore has a hard line on bank secrecy. It has not agreed to the Organisation for Economic Cooperation and Development's (OECD) standards of transparency and exchange of information.
Singapore, which is trying to grow financial services to wean dependence on manufacturing, is on the International Monetary Fund's list of tax havens and targeted by a proposed new U.S. anti-tax-abuse law.
Another country that had similarly shunned the OECD, Liechtenstein, recently agreed to a landmark deal with the U.S., paving the way for the exchange of bank account details with Washington in cases of tax evasion.
The agreement may pressure Switzerland into similar concessions, which could work to Singapore's advantage.
Singapore Prime Minister Lee Hsien Loong said this month such scrutiny in the West could lead to more European money flowing into the country, a hot talking point in the industry.
"It is interesting to notice a growth in the number of European clients booking wealth through Singapore, which unlike Switzerland does not recognise the European tax directive," said Sebastian Dovey of consultancy Scorpio Partnership.
But European cash comes with the risk that Singapore too could be targeted in the crackdown on tax havens. "I expect Singapore to come under pressure, too," Prime Minister Lee said.
The U.S. told Singapore and its banks last year to sever financial links with Myanmar's military junta, widely believed to use the city state as its main offshore banking centre.
"Increasingly Singapore is looking out on a limb," said Jeffrey Owens, director of the OECD's Centre for Tax Policy Administration.
"It's for the Singapore government to assess how the political climate is changing to protect the reputation of the Singapore brand," he said.
Singapore's central bank said confidentiality laws were no shield for criminal activities and that banks could disclose customer information to assist such investigations.
PANDORA'S BOX
Singapore is in a stronger position to resist the strong arm of Washington.
Singapore, experts in the region point out, is a U.S. military ally and one of the few Asian countries with a deepwater port that could hold a U.S. aircraft carrier.
Brussels too may shy away from a fight as it is unclear how many Europeans park money in Singapore. Bankers played down its significance as a destination for European money and said most comes from Asia and in particular Indonesia.
Singapore's central bank says over half the money managed in the city-state came from outside the Asia-Pacific, although this includes pension funds and hedge funds as well as private banking.
Ultimately, however, it may be politics that makes throwing down the gauntlet to Singapore difficult. To do so, said experts, would be an indirect challenge to China.
"If I were the Singapore government, I would not sign unless it's on equal footing with Hong Kong, the key competitor," said Roman Scott, managing director of consultancy Calamander Capital.
The European Union, said Scott, is not putting pressure on Hong Kong, however, because it is reluctant to confront Beijing.
Furthermore any agreement with Europe could pave the way for demands for the same treatment from countries such as Indonesia, Thailand or Taiwan.
"That is one of the reasons for the resistance as they do not want to open a Pandora's box," said Scott.
"They are scared what might come up. The European customers are minor -- what's more important is that you do not want to open up everything for everybody."
(Additional reporting by Laurence Tan and David Fogarty in Singapore and Lisa Jucca in Zurich; Editing by Megan Goldin)
Reuters
Sunday, December 14, 2008
By Neil Chatterjee and John O'Donnell
As pressure mounts on Switzerland's flagship bank UBS and the country's secrecy code comes under fire from the United States and Germany, Singapore's star as a haven for the super-rich is rising fast.
The sun-drenched Asian city-state, with the highest density of millionaires in the world, is seeing wealth management prosper as the U.S. and Europe grapple with the worst slump in a generation.
Singapore's strict bank secrecy rules seem likely to be spared an assault similar to the one that Berne is defending now, following the charging of UBS's wealth management chief for helping Americans hide money.
With close ties to powerful Asia, Singapore is in a stronger position to resist pressure from the U.S. than rival Switzerland or Alpine retreat Liechtenstein, which recently partially surrendered bank secrecy.
"It's a wealth centre," said Martyn Schilte, a manager in charge of selling million dollar supercars in Singapore. "If you look at the type of client we sell to, it's people with a net worth of $50 million-plus."
The city-state has its sights on attracting the world's wealthy to its palm-tree-lined coastline where some apartments come with a private yacht berth. Its plan is working.
As Asia's elite move billions to the country, assets under management soared by a third last year to more than $800 billion (538 billion pounds).
The amount may be small compared to Switzerland. Singapore had $500 billion in offshore assets under management last year, according to the Boston Consulting Group, compared to four times as much in Switzerland.
But it puts the region on the map for banks hoping to capitalise on a more resilient Asia as the West slows.
As jobs cuts cloud London and New York, banks such as Credit Suisse and Macquarie Group are hiring wealth management staff in Singapore, despite a local recession.
Bank of China is one of the latest to plan a wealth management arm in the Southeast Asian country, hoping to meet millionaires such as those who recently gathered to buy and sell private jets on the sidelines of a Formula One night race.
"Singapore has developed a lot and has all the ingredients to compete internationally," said Deepak Sharma, an executive in charge of Citigroup's global wealth management business outside the United States.
NO SURRENDER
Like tax hideout Monaco, Singapore has a hard line on bank secrecy. It has not agreed to the Organisation for Economic Cooperation and Development's (OECD) standards of transparency and exchange of information.
Singapore, which is trying to grow financial services to wean dependence on manufacturing, is on the International Monetary Fund's list of tax havens and targeted by a proposed new U.S. anti-tax-abuse law.
Another country that had similarly shunned the OECD, Liechtenstein, recently agreed to a landmark deal with the U.S., paving the way for the exchange of bank account details with Washington in cases of tax evasion.
The agreement may pressure Switzerland into similar concessions, which could work to Singapore's advantage.
Singapore Prime Minister Lee Hsien Loong said this month such scrutiny in the West could lead to more European money flowing into the country, a hot talking point in the industry.
"It is interesting to notice a growth in the number of European clients booking wealth through Singapore, which unlike Switzerland does not recognise the European tax directive," said Sebastian Dovey of consultancy Scorpio Partnership.
But European cash comes with the risk that Singapore too could be targeted in the crackdown on tax havens. "I expect Singapore to come under pressure, too," Prime Minister Lee said.
The U.S. told Singapore and its banks last year to sever financial links with Myanmar's military junta, widely believed to use the city state as its main offshore banking centre.
"Increasingly Singapore is looking out on a limb," said Jeffrey Owens, director of the OECD's Centre for Tax Policy Administration.
"It's for the Singapore government to assess how the political climate is changing to protect the reputation of the Singapore brand," he said.
Singapore's central bank said confidentiality laws were no shield for criminal activities and that banks could disclose customer information to assist such investigations.
PANDORA'S BOX
Singapore is in a stronger position to resist the strong arm of Washington.
Singapore, experts in the region point out, is a U.S. military ally and one of the few Asian countries with a deepwater port that could hold a U.S. aircraft carrier.
Brussels too may shy away from a fight as it is unclear how many Europeans park money in Singapore. Bankers played down its significance as a destination for European money and said most comes from Asia and in particular Indonesia.
Singapore's central bank says over half the money managed in the city-state came from outside the Asia-Pacific, although this includes pension funds and hedge funds as well as private banking.
Ultimately, however, it may be politics that makes throwing down the gauntlet to Singapore difficult. To do so, said experts, would be an indirect challenge to China.
"If I were the Singapore government, I would not sign unless it's on equal footing with Hong Kong, the key competitor," said Roman Scott, managing director of consultancy Calamander Capital.
The European Union, said Scott, is not putting pressure on Hong Kong, however, because it is reluctant to confront Beijing.
Furthermore any agreement with Europe could pave the way for demands for the same treatment from countries such as Indonesia, Thailand or Taiwan.
"That is one of the reasons for the resistance as they do not want to open a Pandora's box," said Scott.
"They are scared what might come up. The European customers are minor -- what's more important is that you do not want to open up everything for everybody."
(Additional reporting by Laurence Tan and David Fogarty in Singapore and Lisa Jucca in Zurich; Editing by Megan Goldin)
*******************
Violence erupts in Athens week after killing
By Renee Maltezou and Silvia Aloisi
By Renee Maltezou and Silvia Aloisi
Reuters
Sunday, December 14, 2008
Small bands of Greek rioters hurling firebombs attacked an environment ministry building, shops and banks in Athens on Saturday during an eighth day of protests following the killing of a teenager by police.
The latest, sporadic violence by a few hundred people followed a candlelit evening vigil marking a week since 15-year-old Alexandros Grigoropoulos was shot dead, sparking Greece's worst rioting in decades.
Police sources said groups of dozens of protesters armed with firebombs battled police in parts of the capital, including the leftist Exarchia neighbourhood where the teenager was killed by a police bullet on December 6.
"They threw stones at police in Exarchia, launched fire bombs against an environment ministry building and smashed four shops and two banks in central Athens," a police official, who asked not to be named, told Reuters.
Throughout most of the day, Athens had appeared calmer than in the past week. Even the night-time violence was confined to pockets of the city of around four million and was on a far smaller scale than the rampage that destroyed hundreds of shops earlier in the week.
Families and students clad in white and holding flowers staged peaceful rallies from around noon (1000 GMT) to pay tribute to the slain teenager.
Several people said they were tired of violent protests, blamed on an anarchist fringe tapping into resentment over political scandals and the impact of the global slowdown.
But as night fell, hooded youngsters wearing gas masks could be seen roaming around Exarchia, setting garbage bins on fire, throwing rocks and smashing shop windows.
Riot police manning street corners responded by firing tear gas. Some restaurants closed down early for fear of attacks, although outside the neighbourhood the city was quiet.
"LAST STRAW"
Banners in the main square outside parliament, where hundreds of people converged during the day, read "The state kills" and "Down with the government of murderers" but the atmosphere was calm.
"The murder of Alexis was the last straw. Being a young man in Greece today is a crime ... They are stealing our dreams," said one leaflet distributed in the square on Saturday.
The week-long unrest, which spread to 10 cities in Greece and sparked sympathy protests in other European countries, has caused an estimated 200 million euros ($265.3 million) of damage in Athens alone. More than 400 people have been detained.
The people who gathered outside parliament voiced anger at the police, whom they accuse of heavy-handedness.
"We're here to show our grief and sorrow because no one understands us. They are killing children for no reason," said Irini, 16, a pupil at the school Grigoropoulos attended.
The policeman charged with killing the teenager has been jailed pending trial, along with a colleague. He says he fired warning shots after being attacked by youths in a leftist Athens neighbourhood and that one bullet ricocheted.
Prime Minister Costas Karamanlis has vowed to guarantee safety, rebuffing calls to resign and hold early elections.
"Right now, the country is dealing with a serious, big international financial crisis ... It needs responsible policies and a steady hand on the wheel," Karamanlis said on Friday.
(Writing by Silvia Aloisi; Editing by Michael Roddy)
Sunday, December 14, 2008
Small bands of Greek rioters hurling firebombs attacked an environment ministry building, shops and banks in Athens on Saturday during an eighth day of protests following the killing of a teenager by police.
The latest, sporadic violence by a few hundred people followed a candlelit evening vigil marking a week since 15-year-old Alexandros Grigoropoulos was shot dead, sparking Greece's worst rioting in decades.
Police sources said groups of dozens of protesters armed with firebombs battled police in parts of the capital, including the leftist Exarchia neighbourhood where the teenager was killed by a police bullet on December 6.
"They threw stones at police in Exarchia, launched fire bombs against an environment ministry building and smashed four shops and two banks in central Athens," a police official, who asked not to be named, told Reuters.
Throughout most of the day, Athens had appeared calmer than in the past week. Even the night-time violence was confined to pockets of the city of around four million and was on a far smaller scale than the rampage that destroyed hundreds of shops earlier in the week.
Families and students clad in white and holding flowers staged peaceful rallies from around noon (1000 GMT) to pay tribute to the slain teenager.
Several people said they were tired of violent protests, blamed on an anarchist fringe tapping into resentment over political scandals and the impact of the global slowdown.
But as night fell, hooded youngsters wearing gas masks could be seen roaming around Exarchia, setting garbage bins on fire, throwing rocks and smashing shop windows.
Riot police manning street corners responded by firing tear gas. Some restaurants closed down early for fear of attacks, although outside the neighbourhood the city was quiet.
"LAST STRAW"
Banners in the main square outside parliament, where hundreds of people converged during the day, read "The state kills" and "Down with the government of murderers" but the atmosphere was calm.
"The murder of Alexis was the last straw. Being a young man in Greece today is a crime ... They are stealing our dreams," said one leaflet distributed in the square on Saturday.
The week-long unrest, which spread to 10 cities in Greece and sparked sympathy protests in other European countries, has caused an estimated 200 million euros ($265.3 million) of damage in Athens alone. More than 400 people have been detained.
The people who gathered outside parliament voiced anger at the police, whom they accuse of heavy-handedness.
"We're here to show our grief and sorrow because no one understands us. They are killing children for no reason," said Irini, 16, a pupil at the school Grigoropoulos attended.
The policeman charged with killing the teenager has been jailed pending trial, along with a colleague. He says he fired warning shots after being attacked by youths in a leftist Athens neighbourhood and that one bullet ricocheted.
Prime Minister Costas Karamanlis has vowed to guarantee safety, rebuffing calls to resign and hold early elections.
"Right now, the country is dealing with a serious, big international financial crisis ... It needs responsible policies and a steady hand on the wheel," Karamanlis said on Friday.
(Writing by Silvia Aloisi; Editing by Michael Roddy)
********************
Violence brings issues plaguing Greece to the surface
By Rachel Donadio and Anthee Carassava
Saturday, December 13, 2008
ATHENS: Just four years ago, this ancient capital was remade for the Summer Olympics by a new government that surged to power promising reform. Friday, Athenians are faced with the worst unrest in decades.
The question on many minds, as the capital faced its seventh day of violence following the shooting death by the police of a 15-year-old boy, was simply, "What happened?" Or it was, perhaps, "What didn't happen?"
For most Greeks, raised in a culture with a high tolerance for protest and disarray, it was the Olympics that were the anomaly, not the violence and government inertia on display here this week.
"The Olympics were a utopia," said Paraskevas Golfis, who was having coffee in an upscale shopping mall that opened two weeks ago in a former Olympic venue here. "Greek reality is what we're living today."
That reality — economic stagnation, widespread corruption, a troubled education system, rising poverty, precarious security — was thrust to the fore this week as thousands of Greeks spilled onto the streets to protest against the government.
The demonstrations were set off by the death last Saturday night of Alexandros Grigoropoulos, 15, who was killed by a police officer's bullet in the Exarchia neighborhood of central Athens. Many demonstrations turned violent, guided by a relatively small group of self-styled anarchists.
Although the government said it would not tolerate violence, it ordered the police not to use force to avoid further bloodshed. In the unrest, hundreds of businesses were destroyed nationwide, resulting in an estimated $1.3 billion in damage.
On Friday, youths smashed windows around a central square in central Athens and clashed with police officers who fired tear gas. Since last weekend, the police have made 176 arrests, the majority of them for looting, the authorities said.
Despite widespread criticism of Prime Minister Kostas Karamanlis's handling of the riots, he dismissed the idea of early elections at a news conference on Friday in Brussels. The prime minister had traveled for a European Union summit meeting as part of his strategy to diminish the riots by not straying from his normal routine. His party controls a one-seat majority in Parliament.
"Our government is strong," he said. "Strength isn't measured just by a parliamentary majority, which is slim, but by the resolve of a government to press ahead with its work and policies, and that's what I'm doing."
Karamanlis said there would be a "sober assessment" of how the authorities handled the protests. He added, "We should not confuse the actions of groups destroying public property with the right that people, students and workers have to protest."
That even peaceful demonstrations became so fierce spoke to the deep well of discontent in Greece Friday. Conversations with Athenians revealed great anxiety over the economy and a widespread feeling that they had been neglected — and, this week, abandoned — by a government they saw as corrupt.
"The government just shows that it's uninterested," said Paraskevas Tilipakis, manager of a shoe store at the mall. "We've lost our team spirit. That's why we're where we are today."
It was not supposed to be this way. In 2004, Karamanlis and his center-right New Democracy Party were elected on promises of much-needed reform after decades of Socialist governments.
They helped bolster national pride by pulling off the Olympics, reducing the fiscal deficit and increasing employment.
But problems soon arose in a culture torn between a deep need for structural reform and a profound resistance to change.
Karamanlis's efforts to reform the education system were met with such fierce resistance that state high schools and universities were closed for most of the 2006-07 school year. Wildcat strikes and other demonstrations followed another effort to reform Greece's generous and deficit-ridden pension system.
His government narrowly won re-election in 2007 and has since been plagued by multiple corruption scandals involving pension funds and land swaps. It was also criticized for its handling of the forest fires that burned out of control, killing 80 in the summer of 2007.
Across Southern Europe, young people are in a crisis, faced with less-than-ideal educational opportunities, few job prospects and the corrosive lack of autonomy that comes from living at home into their 30s because of high housing costs.
In Greece, the minimum wage is $880 a month, and one in five people live below the poverty line. Many Greeks work a second or third job to make ends meet. All this has helped bring Karamanlis's already shaky government to its weakest point yet. The leftist opposition has used this week's riots — and what many say is Karamanlis's weak response — to gain political ground.
"Greeks don't feel safe and secure," said Flora Vamvokou, 32, sitting with her housewares store colleagues at Starbucks. "They don't trust that the police will protect them."
She added, "The president hasn't even come out to address the Greeks and assure them and try to instill some sense of calm."
Then there are the economic anxieties. "This coffee cost 5 euros," said Nicole Tsoukalis, 33, pointing to her Starbucks drink. "If I make 700 euros a month, how can I afford that?"
The conditions were ripe for protests to continue, she said.
"This isn't going to end here," Tsoukalis said. "It's a revolution we're living, an uprising."
But in the Exarchia neighborhood surrounding Athens Polytechnic University, an anarchist stronghold, some said the situation was not so much a social uprising as a security situation that had spiraled out of control.
After the teenager's death last Saturday, the violent protests began. "The first night there was a reaction met with no response by the government," said Dimitris, a clerk in the Stournari bookstore near the university who only gave his first name for fear of reprisals. "That gave them further impetus, that's why the riots spread."
Memories of the military junta of the late '60s and '70s and the student uprisings of the '70s still loom large in the public imagination. And one small leftist party, Syriza, has been gaining ground among young people for its support of this and other demonstrations.
But it has also taken criticism for doing so, and few Athenians believe that better governance would come along with a return of the left to power. At the moment, Greeks do not see another hope like the Olympics.
"This must be the reality we like because we don't seem to be doing anything to change it," said Golfis at the mall. "This is what we like. This is who we are."
More protests are planned for next week.
By Rachel Donadio and Anthee Carassava
Saturday, December 13, 2008
ATHENS: Just four years ago, this ancient capital was remade for the Summer Olympics by a new government that surged to power promising reform. Friday, Athenians are faced with the worst unrest in decades.
The question on many minds, as the capital faced its seventh day of violence following the shooting death by the police of a 15-year-old boy, was simply, "What happened?" Or it was, perhaps, "What didn't happen?"
For most Greeks, raised in a culture with a high tolerance for protest and disarray, it was the Olympics that were the anomaly, not the violence and government inertia on display here this week.
"The Olympics were a utopia," said Paraskevas Golfis, who was having coffee in an upscale shopping mall that opened two weeks ago in a former Olympic venue here. "Greek reality is what we're living today."
That reality — economic stagnation, widespread corruption, a troubled education system, rising poverty, precarious security — was thrust to the fore this week as thousands of Greeks spilled onto the streets to protest against the government.
The demonstrations were set off by the death last Saturday night of Alexandros Grigoropoulos, 15, who was killed by a police officer's bullet in the Exarchia neighborhood of central Athens. Many demonstrations turned violent, guided by a relatively small group of self-styled anarchists.
Although the government said it would not tolerate violence, it ordered the police not to use force to avoid further bloodshed. In the unrest, hundreds of businesses were destroyed nationwide, resulting in an estimated $1.3 billion in damage.
On Friday, youths smashed windows around a central square in central Athens and clashed with police officers who fired tear gas. Since last weekend, the police have made 176 arrests, the majority of them for looting, the authorities said.
Despite widespread criticism of Prime Minister Kostas Karamanlis's handling of the riots, he dismissed the idea of early elections at a news conference on Friday in Brussels. The prime minister had traveled for a European Union summit meeting as part of his strategy to diminish the riots by not straying from his normal routine. His party controls a one-seat majority in Parliament.
"Our government is strong," he said. "Strength isn't measured just by a parliamentary majority, which is slim, but by the resolve of a government to press ahead with its work and policies, and that's what I'm doing."
Karamanlis said there would be a "sober assessment" of how the authorities handled the protests. He added, "We should not confuse the actions of groups destroying public property with the right that people, students and workers have to protest."
That even peaceful demonstrations became so fierce spoke to the deep well of discontent in Greece Friday. Conversations with Athenians revealed great anxiety over the economy and a widespread feeling that they had been neglected — and, this week, abandoned — by a government they saw as corrupt.
"The government just shows that it's uninterested," said Paraskevas Tilipakis, manager of a shoe store at the mall. "We've lost our team spirit. That's why we're where we are today."
It was not supposed to be this way. In 2004, Karamanlis and his center-right New Democracy Party were elected on promises of much-needed reform after decades of Socialist governments.
They helped bolster national pride by pulling off the Olympics, reducing the fiscal deficit and increasing employment.
But problems soon arose in a culture torn between a deep need for structural reform and a profound resistance to change.
Karamanlis's efforts to reform the education system were met with such fierce resistance that state high schools and universities were closed for most of the 2006-07 school year. Wildcat strikes and other demonstrations followed another effort to reform Greece's generous and deficit-ridden pension system.
His government narrowly won re-election in 2007 and has since been plagued by multiple corruption scandals involving pension funds and land swaps. It was also criticized for its handling of the forest fires that burned out of control, killing 80 in the summer of 2007.
Across Southern Europe, young people are in a crisis, faced with less-than-ideal educational opportunities, few job prospects and the corrosive lack of autonomy that comes from living at home into their 30s because of high housing costs.
In Greece, the minimum wage is $880 a month, and one in five people live below the poverty line. Many Greeks work a second or third job to make ends meet. All this has helped bring Karamanlis's already shaky government to its weakest point yet. The leftist opposition has used this week's riots — and what many say is Karamanlis's weak response — to gain political ground.
"Greeks don't feel safe and secure," said Flora Vamvokou, 32, sitting with her housewares store colleagues at Starbucks. "They don't trust that the police will protect them."
She added, "The president hasn't even come out to address the Greeks and assure them and try to instill some sense of calm."
Then there are the economic anxieties. "This coffee cost 5 euros," said Nicole Tsoukalis, 33, pointing to her Starbucks drink. "If I make 700 euros a month, how can I afford that?"
The conditions were ripe for protests to continue, she said.
"This isn't going to end here," Tsoukalis said. "It's a revolution we're living, an uprising."
But in the Exarchia neighborhood surrounding Athens Polytechnic University, an anarchist stronghold, some said the situation was not so much a social uprising as a security situation that had spiraled out of control.
After the teenager's death last Saturday, the violent protests began. "The first night there was a reaction met with no response by the government," said Dimitris, a clerk in the Stournari bookstore near the university who only gave his first name for fear of reprisals. "That gave them further impetus, that's why the riots spread."
Memories of the military junta of the late '60s and '70s and the student uprisings of the '70s still loom large in the public imagination. And one small leftist party, Syriza, has been gaining ground among young people for its support of this and other demonstrations.
But it has also taken criticism for doing so, and few Athenians believe that better governance would come along with a return of the left to power. At the moment, Greeks do not see another hope like the Olympics.
"This must be the reality we like because we don't seem to be doing anything to change it," said Golfis at the mall. "This is what we like. This is who we are."
More protests are planned for next week.
*****************
Land of opportunity?
By Floyd Norris
Saturday, December 13, 2008
The U.S. recession provides a double whammy for the job prospects of those trying to establish themselves. There are fewer jobs to go around, and older Americans who can do so are either delaying retirement or seeking to return to the work force.
The accompanying charts compare the average number of jobs in September, October and November of this year for each age group to the number of jobs the same age group held a year earlier. There are now more jobs than there were a year ago for every group over 55 years of age - and fewer jobs for every group under 55.
Those who focus on unemployment rates could easily miss that trend, because the rates are up for nearly every age group. For men age 65 to 69, for example, the rate in November was 5.9 percent, far above the 3.4 percent rate in November 2007, the month before the United States went into recession. And yet there were nearly 100,000 more men in that age group with jobs than there were a year earlier.
The difference reflects the fact many more older people want jobs. The labor force - defined as those who have jobs or are looking for them - has risen rapidly among those who have reached the ages at which many traditionally retire. Now, with their retirement-plan assets down sharply in value and their homes also worth less than they had been, many people are putting off retirement or seeking to return to work.
The recession has had a smaller impact on women, whose employment is down by just 0.4 percent year-over-year, than on men, who have 1.7 percent fewer jobs. But it has also taken its hardest toll on racial minorities.
Among men age 25 to 34 - the youngest group in which virtually all have completed their education - there were 1.6 percent fewer jobs for whites, 2.1 percent fewer for Hispanics, and 6.2 percent fewer for blacks.
All those figures are taken from the government's household survey, which can be volatile. That is why three-month averages were used. Had the figures simply compared November to November, the changes would have been even sharper.
The other survey on jobs, in which employers are asked about employment, shows ways in which this recession is unlike recent downturns, in that it is hitting industries that heretofore had escaped unscathed.
In the past, the financial services industry has undergone upheavals, but the changes usually reflected one part of the industry gaining competitive position over another, allowing industry employment to continue to rise. But over all, jobs in the industry are down 1.8 percent over the last year, the sharpest annual contraction since World War II. Similarly, employment in retail sales is off 3 percent, the sharpest decline since World War II.
But health care jobs are up 2.8 percent over the last year, the same gain as in the previous year. And federal government hiring, outside the postal service, has risen at a 4.7 percent rate over the 12 months, the fastest growth of the Bush presidency.
By Floyd Norris
Saturday, December 13, 2008
The U.S. recession provides a double whammy for the job prospects of those trying to establish themselves. There are fewer jobs to go around, and older Americans who can do so are either delaying retirement or seeking to return to the work force.
The accompanying charts compare the average number of jobs in September, October and November of this year for each age group to the number of jobs the same age group held a year earlier. There are now more jobs than there were a year ago for every group over 55 years of age - and fewer jobs for every group under 55.
Those who focus on unemployment rates could easily miss that trend, because the rates are up for nearly every age group. For men age 65 to 69, for example, the rate in November was 5.9 percent, far above the 3.4 percent rate in November 2007, the month before the United States went into recession. And yet there were nearly 100,000 more men in that age group with jobs than there were a year earlier.
The difference reflects the fact many more older people want jobs. The labor force - defined as those who have jobs or are looking for them - has risen rapidly among those who have reached the ages at which many traditionally retire. Now, with their retirement-plan assets down sharply in value and their homes also worth less than they had been, many people are putting off retirement or seeking to return to work.
The recession has had a smaller impact on women, whose employment is down by just 0.4 percent year-over-year, than on men, who have 1.7 percent fewer jobs. But it has also taken its hardest toll on racial minorities.
Among men age 25 to 34 - the youngest group in which virtually all have completed their education - there were 1.6 percent fewer jobs for whites, 2.1 percent fewer for Hispanics, and 6.2 percent fewer for blacks.
All those figures are taken from the government's household survey, which can be volatile. That is why three-month averages were used. Had the figures simply compared November to November, the changes would have been even sharper.
The other survey on jobs, in which employers are asked about employment, shows ways in which this recession is unlike recent downturns, in that it is hitting industries that heretofore had escaped unscathed.
In the past, the financial services industry has undergone upheavals, but the changes usually reflected one part of the industry gaining competitive position over another, allowing industry employment to continue to rise. But over all, jobs in the industry are down 1.8 percent over the last year, the sharpest annual contraction since World War II. Similarly, employment in retail sales is off 3 percent, the sharpest decline since World War II.
But health care jobs are up 2.8 percent over the last year, the same gain as in the previous year. And federal government hiring, outside the postal service, has risen at a 4.7 percent rate over the 12 months, the fastest growth of the Bush presidency.
UN report finds proxy war in eastern Congo
By Lydia Polgreen
Saturday, December 13, 2008
GOMA, Congo: A report to the UN Security Council by a panel of independent experts found evidence of links between senior officials of the Congolese and Rwandan governments and the armed groups fighting in eastern Congo. The findings portray a complex proxy struggle between the two nations, with each using armed forces based here to pursue political, financial and security objectives in a region ravaged by conflict.
The report, which was based on months of independent research in the region, gives the clearest picture yet of the underpinnings of the fighting in eastern Congo, revealing a sordid network of intertwined interests in Congo and Rwanda that have fueled the continuing chaos.
Tiny Rwanda and its vast neighbor to the west, Congo, have long been connected by a shared history of ethnic strife. In the aftermath of the Rwandan genocide in 1994, Hutu militias that carried out the killing fled into Congo, then known as Zaire.
In 1996, Rwanda backed a rebel force led by Laurent Kabila that ultimately toppled Congo's longtime president, Mobutu Sese Seko. The initial aim had been to capture the Hutu fighters who had carried out the genocide, but the fighting devolved into a frenzy of plundering of Congo's minerals, spawning a conflict that drew in half a dozen nations and left as many as five million people dead. Most died of hunger and disease.
The report's findings on the current conflict are likely to strain already tense relations between the two countries, providing ammunition for each. Congolese officials have accused Rwanda of supporting a rebel group led by a renegade general from the same Tutsi ethnic group as much of the Rwandan political establishment.
Rwanda has accused Congo's government of colluding with an armed group led by some of the Hutu militia who carried out the 1994 genocide in Rwanda. These are the fighters who fled afterward to Congo and eventually formed the Democratic Liberation Forces of Rwanda, or FDLR, which preys on Congolese civilians and enriches itself with the country's gold, tin and coltan, a mineral used in making the tiny processors in cellphones and other electronic equipment.
The independent experts found extensive evidence of high-level communication between the government of Rwanda and the Tutsi rebel group, the Congress for the Defense of the People, led by the renegade general Laurent Nkunda, based on reviews of satellite phone records.
Though the content of the calls is not known, the report said that they were "frequent and long enough to indicate at least extensive sharing of information."
In interviews, several of Nkunda's fighters described Rwandan soldiers helping the rebels inside Congo, according to the report. Rwandan soldiers also helped bring recruits, some of them children, to Congo's border to fight in Nkunda's rebellion, the report said.
It also investigated how Nkunda was paying for his militia, documenting hundreds of thousands of dollars in payments for taxes in territory that he controls. The report also named prominent business executives who had backed him financially.
Congo's military, meanwhile, has been collaborating with the Hutu militia that is led by the authors of the Rwandan genocide, according to the report. The weak and undisciplined Congolese army has frequently relied on help from these fighters in battling Nkunda's troops.
In exchange for ammunition, the militiamen have helped in numerous offensives, the report said, citing by name several senior Congolese military officers who had handed over materiel to the Hutu forces. According to satellite phone records, senior military and intelligence figures in Congo have spoken frequently with top Hutu militia leaders.
"It is obvious that Rwandan authorities and Congolese authorities are aware of support provided to rebel groups," Jason K. Stearns, the coordinator for the five-member panel that produced the report, said on Friday at a news conference at the United Nations. "They haven't done anything to bring it to an end."
He said the Congolese government said that it had no policy to aid the Hutu militia but that there might be support from individual military commanders. Both governments said that telephone records showing conversations between officials and rebels did not constitute support, he added.
Neil MacFarquhar contributed reporting from United Nations, New York.
By Lydia Polgreen
Saturday, December 13, 2008
GOMA, Congo: A report to the UN Security Council by a panel of independent experts found evidence of links between senior officials of the Congolese and Rwandan governments and the armed groups fighting in eastern Congo. The findings portray a complex proxy struggle between the two nations, with each using armed forces based here to pursue political, financial and security objectives in a region ravaged by conflict.
The report, which was based on months of independent research in the region, gives the clearest picture yet of the underpinnings of the fighting in eastern Congo, revealing a sordid network of intertwined interests in Congo and Rwanda that have fueled the continuing chaos.
Tiny Rwanda and its vast neighbor to the west, Congo, have long been connected by a shared history of ethnic strife. In the aftermath of the Rwandan genocide in 1994, Hutu militias that carried out the killing fled into Congo, then known as Zaire.
In 1996, Rwanda backed a rebel force led by Laurent Kabila that ultimately toppled Congo's longtime president, Mobutu Sese Seko. The initial aim had been to capture the Hutu fighters who had carried out the genocide, but the fighting devolved into a frenzy of plundering of Congo's minerals, spawning a conflict that drew in half a dozen nations and left as many as five million people dead. Most died of hunger and disease.
The report's findings on the current conflict are likely to strain already tense relations between the two countries, providing ammunition for each. Congolese officials have accused Rwanda of supporting a rebel group led by a renegade general from the same Tutsi ethnic group as much of the Rwandan political establishment.
Rwanda has accused Congo's government of colluding with an armed group led by some of the Hutu militia who carried out the 1994 genocide in Rwanda. These are the fighters who fled afterward to Congo and eventually formed the Democratic Liberation Forces of Rwanda, or FDLR, which preys on Congolese civilians and enriches itself with the country's gold, tin and coltan, a mineral used in making the tiny processors in cellphones and other electronic equipment.
The independent experts found extensive evidence of high-level communication between the government of Rwanda and the Tutsi rebel group, the Congress for the Defense of the People, led by the renegade general Laurent Nkunda, based on reviews of satellite phone records.
Though the content of the calls is not known, the report said that they were "frequent and long enough to indicate at least extensive sharing of information."
In interviews, several of Nkunda's fighters described Rwandan soldiers helping the rebels inside Congo, according to the report. Rwandan soldiers also helped bring recruits, some of them children, to Congo's border to fight in Nkunda's rebellion, the report said.
It also investigated how Nkunda was paying for his militia, documenting hundreds of thousands of dollars in payments for taxes in territory that he controls. The report also named prominent business executives who had backed him financially.
Congo's military, meanwhile, has been collaborating with the Hutu militia that is led by the authors of the Rwandan genocide, according to the report. The weak and undisciplined Congolese army has frequently relied on help from these fighters in battling Nkunda's troops.
In exchange for ammunition, the militiamen have helped in numerous offensives, the report said, citing by name several senior Congolese military officers who had handed over materiel to the Hutu forces. According to satellite phone records, senior military and intelligence figures in Congo have spoken frequently with top Hutu militia leaders.
"It is obvious that Rwandan authorities and Congolese authorities are aware of support provided to rebel groups," Jason K. Stearns, the coordinator for the five-member panel that produced the report, said on Friday at a news conference at the United Nations. "They haven't done anything to bring it to an end."
He said the Congolese government said that it had no policy to aid the Hutu militia but that there might be support from individual military commanders. Both governments said that telephone records showing conversations between officials and rebels did not constitute support, he added.
Neil MacFarquhar contributed reporting from United Nations, New York.
******************
The Year in Ideas
Saturday, December 13, 2008
Capital insurance
In 1988, the world tried to crack down on its bankers. Many nations, including the United States, adopted the Basel Capital Accord, which requires each country to ensure that its banks hold a certain amount of capital in reserve. Unfortunately, bankers have spent much of the past 20 years finding ways to evade the requirements of this agreement. Now a team of economists is proposing an alternative: capital insurance.
In accounting terms, capital is what's left over after you subtract a bank's liabilities from its assets. When times get tough, assets decline in value and liabilities rise, requiring banks to take steps to rebalance the equation and maintain the capital required by law. Banks do this by curtailing lending and liquidating assets - but in extreme cases, they may issue more stock, borrow from sovereign wealth funds or, in the latest instance, beg for (and receive) "capital injections" from the U.S. Treasury.
Is there a better way? Three economists - Anil Kashyap and Raghuram Rajan of the University of Chicago, and Jeremy Stein of Harvard - propose that banks be permitted to pay an insurance premium to a third party who agrees to inject capital into the bank in the event things go awry. For example, if a bank purchased a billion dollars' worth of capital insurance from a sovereign wealth fund, the fund would deposit a billion dollars' worth of a safe asset (Treasury bonds, for example) into an escrow account. If the bank ran into trouble, the billion dollars would flow out of the escrow account and into the bank's coffers. If not, the money would revert back to the sovereign wealth fund when the policy expires.
Stein and his colleagues say capital insurance could avoid the kind of regulatory arms race that leads to more regulation and more evasion - and the prospect of more crises.
- Stephen Mihm
Wine from China
In May, Berry Brothers & Rudd, England's oldest independent wine merchant, dropped an oenological bombshell. In its "Future of Wine Report," it predicted that in 50 years, China would be the world's leading wine producer. What's more, because of the country's favorable soil, low labor costs and soaring domestic demand for wine, the authors concluded that China had "all the essential ingredients to make fine wine to rival the best of Bordeaux."
Don't laugh just yet. China is already the world's sixth-largest producer, with about 400 wineries. And it has been making grape-based wine for at least 2,000 years. True, most Chinese wine today is unremarkable, even undrinkable to Western palates. And reports abound of counterfeiting and labeling imported wine as Chinese. But many among China's 1.3 billion citizens are developing a taste for wine, which experts say will drive better wine making. Producers are taking steps to raise quality, too, bringing in wine consultants from Australia, France and other regions. "None of us were drinking wines from Chile or Argentina 50 years ago," noted Bartholomew Broadbent, an importer and co-owner of Dragon's Hollow, a winery in Ningxia-Hui, an autonomous in northwestern China. "Why not China?"
Grace Vineyards, a winery complete with a French-style château in Shanxi Province, points to the country's potential. A bottle of Grace Chairman's Reserve, a Bordeaux-style blend, sells for $60 or more.
- Amy Cortese
'Locavestors'
Perhaps you've heard of locavores: people who eat only foods that have been produced within a tight radius of where they are consumed. Now some people - call them locavestors - are investing in much the same way. The idea is that by putting money into local businesses - rather than, say, a faceless conglomerate - investors can earn a profit while supporting their communities. To help match mostly local investors with capital-hungry local businesses, regional stock exchanges are starting to spring up around the globe.
Consider InvestBX, which was formed to serve businesses looking to raise relatively small sums in the West Midlands region of England. In February, InvestBX's first listed company, Teamworks Karting, which runs an indoor go-kart center in Birmingham, raised more than $735,000 to open a track in nearby Reading. In November, Key Technologies, a technology company with 232 employees and annual sales of about $26 million, floated shares worth nearly $3 million. To list on InvestBX, a company must be based in Britain and have a significant part of its operations in the West Midlands. Companies can raise about $3 million from "local and U.K.-wide investors," according to the exchange.
Local exchanges address a financing gap for smaller companies, which may not be able to attract venture capital and for whom the major exchanges may be out of reach. "Small businesses need funding options more than ever in today's recessionary climate," said Trexler Proffitt, a professor at Franklin & Marshall College in Lancaster, Pennsylvania, who recently completed a feasibility study for a seven-county Lancaster exchange. (His conclusion: affirmative.)
In a way, we are coming full circle. Until the 1950s, when they began to consolidate, there were thriving regional exchanges all across the United States. "Globalization has been advantageous, but we're starting to see the sacrifices we've made," Proffitt said. "People are interested in figuring out how to connect to their local communities again."
- Amy Cortese
The Mahlangu hand-washer
Irene van Peer is a Dutch designer who, with a group of colleagues, has devised a clever method for turning empty plastic beverage bottles into hand-washing devices that can help prevent the spread of disease in Africa.
Van Peer realized the need for such a device while working on sanitation projects in South African townships; many of the township residents have difficulty washing their hands because they lack easy access to water. Van Peer and her colleagues began by having conversations about the idea with people, mostly women, in the townships. "For me it was important to listen to their problems and to come back with a solution they could make themselves," she said.
Eventually, van Peer and her colleagues hit upon an ingenious design. It involves converting the cap of an empty bottle into a homemade tap. The cap is pierced and then a long, skinny cone made from a readily available material like cork is inserted. One end of a length of wire is pushed through the cone, and the other is wound around a weight, like a stone, to nestle in the palm of the hand. The bottle is held above the hand facing downward, and when the weight is pushed up, the water is released and trickles down the wire toward the weight. Used carefully, a one-liter bottle can perform up to 60 hand-washes.
After showing people in the townships how to use it, van Peer also left instructions to be passed on from person to person. She named it the Mahlangu after Johanna Mahlangu, a woman who told her she planned to make the hand-washers for her day care center for disabled children.
- Alice Rawsthorn
Carbon penance
We all contribute to climate change, but none of us can individually be blamed for it. So we walk around with a free-floating sense of guilt that is unlikely to be lifted by the purchase of wind-power credits or halogen bulbs. Annina Rüst, a Swiss-born artist-inventor, wanted to help relieve these anxieties by giving people a tangible reminder of their own energy use, as well as an outlet for the feelings of complicity, shame and powerlessness that surround the question of global warming.
So she built a translucent leg band that keeps track of your electricity consumption. When it detects, via a special power monitor, that electric current levels have exceeded a certain threshold, the wireless device slowly drives six stainless-steel thorns into the flesh of your leg. "It's therapy for environmental guilt," said Rüst, who modeled her "personal techno-garter" on the spiked bands worn as a means of self-mortification by a monk in Dan Brown's novel "The Da Vinci Code." (Brown derived the idea from the bands worn by some celibate members of the conservative Catholic group Opus Dei.)
Rüst built her prototype while working at the Computing Culture group of the Media Lab at the Massachusetts Institute of Technology. She also designed the band to punish wearers if they didn't spend enough time talking to their carbon-fixing house plants. But first Rüst may have to address a more mundane matter. When the spikes dug in, Rüst said, she noticed that the device "doesn't hurt that much."
- Jascha Hoffman
Capital insurance
In 1988, the world tried to crack down on its bankers. Many nations, including the United States, adopted the Basel Capital Accord, which requires each country to ensure that its banks hold a certain amount of capital in reserve. Unfortunately, bankers have spent much of the past 20 years finding ways to evade the requirements of this agreement. Now a team of economists is proposing an alternative: capital insurance.
In accounting terms, capital is what's left over after you subtract a bank's liabilities from its assets. When times get tough, assets decline in value and liabilities rise, requiring banks to take steps to rebalance the equation and maintain the capital required by law. Banks do this by curtailing lending and liquidating assets - but in extreme cases, they may issue more stock, borrow from sovereign wealth funds or, in the latest instance, beg for (and receive) "capital injections" from the U.S. Treasury.
Is there a better way? Three economists - Anil Kashyap and Raghuram Rajan of the University of Chicago, and Jeremy Stein of Harvard - propose that banks be permitted to pay an insurance premium to a third party who agrees to inject capital into the bank in the event things go awry. For example, if a bank purchased a billion dollars' worth of capital insurance from a sovereign wealth fund, the fund would deposit a billion dollars' worth of a safe asset (Treasury bonds, for example) into an escrow account. If the bank ran into trouble, the billion dollars would flow out of the escrow account and into the bank's coffers. If not, the money would revert back to the sovereign wealth fund when the policy expires.
Stein and his colleagues say capital insurance could avoid the kind of regulatory arms race that leads to more regulation and more evasion - and the prospect of more crises.
- Stephen Mihm
Wine from China
In May, Berry Brothers & Rudd, England's oldest independent wine merchant, dropped an oenological bombshell. In its "Future of Wine Report," it predicted that in 50 years, China would be the world's leading wine producer. What's more, because of the country's favorable soil, low labor costs and soaring domestic demand for wine, the authors concluded that China had "all the essential ingredients to make fine wine to rival the best of Bordeaux."
Don't laugh just yet. China is already the world's sixth-largest producer, with about 400 wineries. And it has been making grape-based wine for at least 2,000 years. True, most Chinese wine today is unremarkable, even undrinkable to Western palates. And reports abound of counterfeiting and labeling imported wine as Chinese. But many among China's 1.3 billion citizens are developing a taste for wine, which experts say will drive better wine making. Producers are taking steps to raise quality, too, bringing in wine consultants from Australia, France and other regions. "None of us were drinking wines from Chile or Argentina 50 years ago," noted Bartholomew Broadbent, an importer and co-owner of Dragon's Hollow, a winery in Ningxia-Hui, an autonomous in northwestern China. "Why not China?"
Grace Vineyards, a winery complete with a French-style château in Shanxi Province, points to the country's potential. A bottle of Grace Chairman's Reserve, a Bordeaux-style blend, sells for $60 or more.
- Amy Cortese
'Locavestors'
Perhaps you've heard of locavores: people who eat only foods that have been produced within a tight radius of where they are consumed. Now some people - call them locavestors - are investing in much the same way. The idea is that by putting money into local businesses - rather than, say, a faceless conglomerate - investors can earn a profit while supporting their communities. To help match mostly local investors with capital-hungry local businesses, regional stock exchanges are starting to spring up around the globe.
Consider InvestBX, which was formed to serve businesses looking to raise relatively small sums in the West Midlands region of England. In February, InvestBX's first listed company, Teamworks Karting, which runs an indoor go-kart center in Birmingham, raised more than $735,000 to open a track in nearby Reading. In November, Key Technologies, a technology company with 232 employees and annual sales of about $26 million, floated shares worth nearly $3 million. To list on InvestBX, a company must be based in Britain and have a significant part of its operations in the West Midlands. Companies can raise about $3 million from "local and U.K.-wide investors," according to the exchange.
Local exchanges address a financing gap for smaller companies, which may not be able to attract venture capital and for whom the major exchanges may be out of reach. "Small businesses need funding options more than ever in today's recessionary climate," said Trexler Proffitt, a professor at Franklin & Marshall College in Lancaster, Pennsylvania, who recently completed a feasibility study for a seven-county Lancaster exchange. (His conclusion: affirmative.)
In a way, we are coming full circle. Until the 1950s, when they began to consolidate, there were thriving regional exchanges all across the United States. "Globalization has been advantageous, but we're starting to see the sacrifices we've made," Proffitt said. "People are interested in figuring out how to connect to their local communities again."
- Amy Cortese
The Mahlangu hand-washer
Irene van Peer is a Dutch designer who, with a group of colleagues, has devised a clever method for turning empty plastic beverage bottles into hand-washing devices that can help prevent the spread of disease in Africa.
Van Peer realized the need for such a device while working on sanitation projects in South African townships; many of the township residents have difficulty washing their hands because they lack easy access to water. Van Peer and her colleagues began by having conversations about the idea with people, mostly women, in the townships. "For me it was important to listen to their problems and to come back with a solution they could make themselves," she said.
Eventually, van Peer and her colleagues hit upon an ingenious design. It involves converting the cap of an empty bottle into a homemade tap. The cap is pierced and then a long, skinny cone made from a readily available material like cork is inserted. One end of a length of wire is pushed through the cone, and the other is wound around a weight, like a stone, to nestle in the palm of the hand. The bottle is held above the hand facing downward, and when the weight is pushed up, the water is released and trickles down the wire toward the weight. Used carefully, a one-liter bottle can perform up to 60 hand-washes.
After showing people in the townships how to use it, van Peer also left instructions to be passed on from person to person. She named it the Mahlangu after Johanna Mahlangu, a woman who told her she planned to make the hand-washers for her day care center for disabled children.
- Alice Rawsthorn
Carbon penance
We all contribute to climate change, but none of us can individually be blamed for it. So we walk around with a free-floating sense of guilt that is unlikely to be lifted by the purchase of wind-power credits or halogen bulbs. Annina Rüst, a Swiss-born artist-inventor, wanted to help relieve these anxieties by giving people a tangible reminder of their own energy use, as well as an outlet for the feelings of complicity, shame and powerlessness that surround the question of global warming.
So she built a translucent leg band that keeps track of your electricity consumption. When it detects, via a special power monitor, that electric current levels have exceeded a certain threshold, the wireless device slowly drives six stainless-steel thorns into the flesh of your leg. "It's therapy for environmental guilt," said Rüst, who modeled her "personal techno-garter" on the spiked bands worn as a means of self-mortification by a monk in Dan Brown's novel "The Da Vinci Code." (Brown derived the idea from the bands worn by some celibate members of the conservative Catholic group Opus Dei.)
Rüst built her prototype while working at the Computing Culture group of the Media Lab at the Massachusetts Institute of Technology. She also designed the band to punish wearers if they didn't spend enough time talking to their carbon-fixing house plants. But first Rüst may have to address a more mundane matter. When the spikes dug in, Rüst said, she noticed that the device "doesn't hurt that much."
- Jascha Hoffman
Russian military retakes Georgia border village
Reuters
Saturday, December 13, 2008
By Margarita Antidze and Matt Robinson
Russian troops reoccupied a Georgian village near breakaway South Ossetia on Saturday, forcing back Georgian police and drawing criticism from European Union cease-fire monitors.
An EU mission monitoring the fragile cease-fire since Georgia's five-day war with Russia in August called on the Russian forces to immediately withdraw.
The mission said their presence in Perevi, a mountain village on a road into South Ossetia from the west, was "incompatible" with the EU-brokered cease-fire. Georgia said there were at least 500 Russian soldiers present.
Russian forces pulled back in October from a buffer zone adjacent to South Ossetia having repelled a Georgian military assault on the rebel territory in August. But it kept soldiers in Perevi, angering Tbilisi.
The troops pulled out of the village of 1,100 people on Friday. Georgian police moved in behind them, but the Russians were back by nightfall. Television pictures showed soldiers unloading sandbags from a truck and building up a checkpoint.
The EU monitors said they had verified that "Russian troops have reoccupied the Perevi checkpoint, near the administrative boundary line of South Ossetia, and even deployed a considerable number of troops in and around the village of Perevi."
They said in a statement that Russian troops had prevented European ambassadors from visiting the area.
"EUMM (European Union Monitoring Mission) calls on the Russian government to withdraw its units from the Perevi checkpoint and the Perevi village without delay," it said.
South Ossetia, recognised by Russia after the war as an independent state with Russian military protection, accused Georgia of violating the cease-fire by deploying special forces to the boundary.
"About 60 special forces soldiers were deployed to the village of Perevi directly on the border with South Ossetia," Interfax news agency quoted a South Ossetian defence ministry official as saying. "EU monitors are turning a blind eye."
Georgian Interior Ministry spokesman Shota Utiashvili said Russian troops had "put on a show" with helicopters, armoured vehicles and paratroopers. Georgian police withdrew. "The Russians kicked the police out of Perevi this morning," he said.
South Ossetia claims the village as its own. But the EU monitors say it clearly lies outside the region's boundary.
The monitors claimed credit on Friday for the Russian withdrawal, saying it followed EU discussions with the Russian foreign ministry and military.
South Ossetia and a second breakaway Georgian region, Abkhazia, threw off Tbilisi's rule in wars in the early 1990s.
Russia said it intervened in Georgia to save civilians from a Georgian military bid to retake South Ossetia after months of skirmishes and Georgian allegations of Russian provocation. The West condemned Moscow's response as disproportionate.
(Editing by Matthew Jones)
Reuters
Saturday, December 13, 2008
By Margarita Antidze and Matt Robinson
Russian troops reoccupied a Georgian village near breakaway South Ossetia on Saturday, forcing back Georgian police and drawing criticism from European Union cease-fire monitors.
An EU mission monitoring the fragile cease-fire since Georgia's five-day war with Russia in August called on the Russian forces to immediately withdraw.
The mission said their presence in Perevi, a mountain village on a road into South Ossetia from the west, was "incompatible" with the EU-brokered cease-fire. Georgia said there were at least 500 Russian soldiers present.
Russian forces pulled back in October from a buffer zone adjacent to South Ossetia having repelled a Georgian military assault on the rebel territory in August. But it kept soldiers in Perevi, angering Tbilisi.
The troops pulled out of the village of 1,100 people on Friday. Georgian police moved in behind them, but the Russians were back by nightfall. Television pictures showed soldiers unloading sandbags from a truck and building up a checkpoint.
The EU monitors said they had verified that "Russian troops have reoccupied the Perevi checkpoint, near the administrative boundary line of South Ossetia, and even deployed a considerable number of troops in and around the village of Perevi."
They said in a statement that Russian troops had prevented European ambassadors from visiting the area.
"EUMM (European Union Monitoring Mission) calls on the Russian government to withdraw its units from the Perevi checkpoint and the Perevi village without delay," it said.
South Ossetia, recognised by Russia after the war as an independent state with Russian military protection, accused Georgia of violating the cease-fire by deploying special forces to the boundary.
"About 60 special forces soldiers were deployed to the village of Perevi directly on the border with South Ossetia," Interfax news agency quoted a South Ossetian defence ministry official as saying. "EU monitors are turning a blind eye."
Georgian Interior Ministry spokesman Shota Utiashvili said Russian troops had "put on a show" with helicopters, armoured vehicles and paratroopers. Georgian police withdrew. "The Russians kicked the police out of Perevi this morning," he said.
South Ossetia claims the village as its own. But the EU monitors say it clearly lies outside the region's boundary.
The monitors claimed credit on Friday for the Russian withdrawal, saying it followed EU discussions with the Russian foreign ministry and military.
South Ossetia and a second breakaway Georgian region, Abkhazia, threw off Tbilisi's rule in wars in the early 1990s.
Russia said it intervened in Georgia to save civilians from a Georgian military bid to retake South Ossetia after months of skirmishes and Georgian allegations of Russian provocation. The West condemned Moscow's response as disproportionate.
(Editing by Matthew Jones)
Zimbabwe seen eyeing fresh polls
Reuters
Saturday, December 13, 2008
HARARE: Zimbabwe might be forced to hold early elections if a constitutional bill creating a power-sharing government with the opposition fails in parliament, state media reported on Saturday.
President Robert Mugabe's ZANU-PF lost its parliamentary majority for the first time since independence in 1980 to the opposition MDC, whose leader Morgan Tsvangirai beat the veteran leader in a March presidential poll but fell short of the necessary votes to avoid a run-off.
Mugabe won the second round after Tsvangirai pulled out, citing violence, but the vote was widely condemned. The 84-year-old leader is under Western pressure to step down following a cholera outbreak that has killed hundreds.
A power-sharing pact signed by Mugabe and Tsvangirai on September 15 has so far failed to materialise due to a dispute over key ministries and constitutional changes creating the prime minister's post for Tsvangirai has yet to be passed.
Zimbabwe's Justice Minister Patrick Chinamasa told the state-run Herald newspaper the constitutional bill would be published on Saturday and brought to parliament after 30 days of scrutiny by the public.
"If no support is forthcoming, it means that (the constitutional) amendment number 19 bill will be a dead matter," Chinamasa said.
"In the event that the collaboration that we envisage (to pass the bill) is not forthcoming, then that will necessitate fresh harmonised elections at some point in time."
Chinamasa said the constitutional amendment would need the support of the opposition as no single party had the two-thirds parliamentary majority required to pass the bill.
Tsvangirai's MDC controls 100 seats in the 210-member lower house of parliament, while ZANU-PF won 99 seats. The balance is held by a smaller faction of the MDC, led by Arthur Mutambara.
All the parties approved a constitutional draft during talks last month in South Africa.
Tsvangirai has refused to join the unity government, saying Mugabe and ZANU-PF wanted to make the MDC a junior partner in the government.
Analysts say the power-sharing agreement presents the best hope for reversing Zimbabwe's economic ruin, shown by the highest inflation rate in the world, above 231 million percent, and acute food and foreign currency shortages.
Zimbabwe is also battling a cholera epidemic that has killed nearly 800 people and infected over 16,700.
(Reporting by Nelson Banya; Editing by Sami Aboudi)
Reuters
Saturday, December 13, 2008
HARARE: Zimbabwe might be forced to hold early elections if a constitutional bill creating a power-sharing government with the opposition fails in parliament, state media reported on Saturday.
President Robert Mugabe's ZANU-PF lost its parliamentary majority for the first time since independence in 1980 to the opposition MDC, whose leader Morgan Tsvangirai beat the veteran leader in a March presidential poll but fell short of the necessary votes to avoid a run-off.
Mugabe won the second round after Tsvangirai pulled out, citing violence, but the vote was widely condemned. The 84-year-old leader is under Western pressure to step down following a cholera outbreak that has killed hundreds.
A power-sharing pact signed by Mugabe and Tsvangirai on September 15 has so far failed to materialise due to a dispute over key ministries and constitutional changes creating the prime minister's post for Tsvangirai has yet to be passed.
Zimbabwe's Justice Minister Patrick Chinamasa told the state-run Herald newspaper the constitutional bill would be published on Saturday and brought to parliament after 30 days of scrutiny by the public.
"If no support is forthcoming, it means that (the constitutional) amendment number 19 bill will be a dead matter," Chinamasa said.
"In the event that the collaboration that we envisage (to pass the bill) is not forthcoming, then that will necessitate fresh harmonised elections at some point in time."
Chinamasa said the constitutional amendment would need the support of the opposition as no single party had the two-thirds parliamentary majority required to pass the bill.
Tsvangirai's MDC controls 100 seats in the 210-member lower house of parliament, while ZANU-PF won 99 seats. The balance is held by a smaller faction of the MDC, led by Arthur Mutambara.
All the parties approved a constitutional draft during talks last month in South Africa.
Tsvangirai has refused to join the unity government, saying Mugabe and ZANU-PF wanted to make the MDC a junior partner in the government.
Analysts say the power-sharing agreement presents the best hope for reversing Zimbabwe's economic ruin, shown by the highest inflation rate in the world, above 231 million percent, and acute food and foreign currency shortages.
Zimbabwe is also battling a cholera epidemic that has killed nearly 800 people and infected over 16,700.
(Reporting by Nelson Banya; Editing by Sami Aboudi)
ALL PHOTOGRAPHS COPYRIGHT IAN WALTHEW 2008
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1 comment:
Photos are excellent,seeing the photos itself we can understand how peoples over there enjoys snowfall period.
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