Sunday, December 7, 2008
We long ago gave up hope that President Bush would acknowledge his many mistakes, or show he had learned anything from them. Even then we were unprepared for the epic denial that Bush displayed in his interview with ABC News' Charles Gibson the other day, which he presumably considered an important valedictory chat with the American public as well.
It was bad enough when Bush piously declared that he hopes Americans believe he is a guy who "didn't sell his soul for politics." (We suppose we should not bother remembering how his team drove Senator John McCain out of the 2000 primaries with racist attacks or falsified Senator John Kerry's war record in 2004.)
It was skin crawling to hear him tell Gibson that the thing he will really miss when he leaves office is no longer going to see the families of slain soldiers, because they make him feel better about the war. But Bush's comments about his decision to invade Iraq were a "mistakes were made" rewriting of history and a refusal to accept responsibility to rival that of Richard Nixon.
At one point, Bush was asked if he wanted any do-overs. "The biggest regret of the presidency has to have been the intelligence failure in Iraq," he said. "A lot of people put their reputations on the line and said the weapons of mass destruction" were cause for war.
After everything the American public and the world have learned about how Bush and Vice President Dick Cheney manipulated Congress, public opinion and anyone else they could bully or lie to, Bush is still acting as though he decided to invade Iraq after suddenly being handed life and death information on Saddam Hussein's arsenal.
The truth is that Bush, Cheney and Defense Secretary Donald Rumsfeld had been chafing to attack Iraq before Sept. 11, 2001. They justified that unnecessary war using intelligence reports that they knew or should have known to be faulty. And it was pressure from the White House and a highly politicized Pentagon that compelled people like Secretary of State Colin Powell and George Tenet, the director of central intelligence, to ignore the counter-evidence and squander their good names on hyped claims of weapons of mass destruction.
Despite it all, Bush said he will "leave the presidency with my head held high." And, presumably, with his eyes closed to all the disasters he is dumping on the American people and his successor.
IW: In three weeks and three days and I will close as many windows onto The Shop as I can. I have studied The Shop this year, more closely each day. As each day has passed I have become increasingly angry, ashamed, disgusted, frightened and depressed. Most of the beauty I find in this world I find in The Valley.
For some weeks, each morning, as I set out to compile this blog, my stomach is knotted with excitement, tension, fear and desire. Desire and excitement that I will discover that perhaps something glorious will have happened out there, that perhaps I'll understand it all.
Mostly however, I must admit, I am excited that I am one day closer to shutting the windows.
We've gone long on safety for our family, until at least May 2010. That deal came through at the end of last week and it feels good.
Irish pork products recalled after dioxin is found
The Associated Press
Sunday, December 7, 2008
LONDON: European supermarkets were ordered Sunday to clear their shelves of Irish bacon, ham and sausages after the authorities announced that Irish pork products had been tainted with a potentially cancer-causing chemical.
Health officials across the continent warned their consumers not to eat Irish pork after the discovery of dioxins in Irish pigs and pig feed at 80 to 200 times the safety limit. Irish government officials described the recall - which affects all pig products produced since Sept. 1 - as precautionary. Farmers called it a nightmare for the industry.
The Food Safety Authority said the dioxin made its way into the food chain after pig feed from one producer was tainted with some sort of industrial oil. While only 10 percent of Ireland's pig meat was affected, that was processed and mixed in with other meat, resulting in widespread contamination.
On Sunday the crisis spread to Britain, as the government of Northern Ireland announced that nine farms there had used the same tainted feed.
"We're actually reeling in shock at the moment at the scale of this disaster," Tim Cullinan, an official with the Irish Farmers Association and a pig farmer, told the Irish state radio network RTE.
He said he believed that the authorities had identified the source of the contamination and hoped to get fresh pork back on the shelves within days. Meanwhile, he said, the recall had dealt a body blow to pig farmers and processors.
"It couldn't have come at worse time, the weeks leading up to Christmas," he said "It's a nightmare, to be honest."
Tony Holohan, the Irish Department of Health's chief medical officer, urged people not to purchase or consume pork products, but stressed the move was precautionary.
"We're not anticipating significant health effects," he said on RTE. His comments were echoed by the British Food Standards Agency, which said it did not see any significant risk to consumers.
Ireland's farms produce more than three million pigs a year, nearly half of which are consumed within the republic. But Irish pork also is heavily exported to Northern Ireland and Britain - and appears in grocery stores and processed meats through much of Europe and Asia.
Last year Ireland exported 113,000 tons of pig meat, nearly half of that to Britain. Ireland also shipped more than 500,000 live pigs to Britain for slaughter and processing there.Ireland's other major customers for pork are Germany, which bought 9,000 tons last year; France, Italy and several Eastern European countries, which together took more than 20,000 tons; Russia, 6,600 tons, and China, 1,100 tons.
The German ministry for consumer protection said Sunday that it had called on wholesalers and supermarkets to pull any Irish pork from their shelves, but said it was too early to say how much meat was involved. Similar warnings were issued by other European bodies.
The British arm of the discount supermarket chain Lidl said it was recalling Irish-made black pudding and pork bellies as a precaution. Other British grocers said they were also checking their stocks.
European Union authorities said they were monitoring the situation.
Dioxins typically result from industrial combustion and other chemical processes. Exposure to dioxins at high levels is linked to increased incidence of cancer, though experts said there was unlikely to be any immediate cause for concern in this case.
"These compounds take a long time to accumulate in the body, so a relatively short period of exposure would have little impact on the total body burden," said Alan Boobis, a toxicologist at Imperial College in London. "One would have to be exposed to high levels for a long period of time before there would be a health risk."
Managing our investment in nature
By Julia Marton-Lefèvre and Nikita Lopoukhine
Sunday, December 7, 2008
While economists are developing solutions to the economic crisis, they are not considering investment, at least so far, in the values of nature. Nature's provision of clean water, pollination, food and fiber are discounted as free services. Even in the best of times, investments in nature conservation and restoration get low priority.
Nature, of course, is not like a bank looking for a bailout, but when we accept the impoverishment of biological diversity, we compromise future options and risk losing the ecological services we take for granted. Nature can be restored, however, and it can yield incredible benefits, but actions have to be real, massive and must start now.
In the coming days, two major global gatherings will debate key issues of our time: climate change, global development and poverty reduction. The conferences will provide a definitive look at our relationship with nature and how and what we produce and consume. It is vital that these two conferences integrate the issues of nature and development - not consider them in isolation - and that global economic solutions recognize the values of nature.
In Poznan, Poland, experts are meeting to continue discussions toward a post-Kyoto agreement that is complicated by factors such as the rapidly growing economies in China, India, Russia and Brazil, and the increasing awareness that combating climate change will require concessions and significant lifestyle changes.
Meanwhile, in Doha, Qatar, the United Nations will host a conference on Financing for Development. At the Monterrey conference in 2002, governments confirmed their target for development funding of 0.7 percent of gross national product. Sadly, many rich countries have not met this target. The Organization for Economic Cooperation and Development also just released an updated report, "Aid targets slipping out of reach," whose pessimistic title suggests that the future for development finance is not bright.
Governments are looking for ways to stimulate the economy. The objective of any economic jolt must diminish greenhouse gas emissions and should consider the protection and restoration of ecosystems as well as provide for effectively managed protected areas for species.
Similarly, decisions on investment for development and poverty reduction should not play second fiddle to considerations of nature. Achieving sustainable development is vital to long-term economic global stability, but it can only succeed if it is built upon well-managed environmental infrastructure.
Rather than looking to traditional ways to boost consumption, let us use stimulant investments for more efficient energy use, to improve the quality of the air we breathe, the water we drink and the food we eat. Working with nature assures the safest, most efficient and cheapest solutions.
This would not be the first time decision-makers have turned to the environment to solve a problem. Uganda, for example, uses wetlands to treat wastewater for Kampala. And a decision by New York City officials to conserve a watershed in the Catskills at a cost of $1.5 billion was a bargain compared to the estimated cost of as much as $8 billion to construct new filtration plants.
The value of nature's services has been catalogued many times and includes a value of $270 billion per year for global forest products or more than $60 billion in the growing carbon market.
We already have centuries of experience in managing the environment to produce the services we need. But the 2005 Millennium Ecosystem Assessment warned us that more than half of nature's services are "endangered." If we want them to continue to support us, now is the time to invest in our environment and restore the benefits we often take for granted. We are about to witness a wave of public spending on an unprecedented scale. Let's make sure that the planned benefit to economies will have an equally positive impact on nature, its ecosystems and species. In so doing we will protect nature's capacity to mitigate climate change and provide for holistically our children and their children for years to come.
Julia Marton-Lefèvre is director general of the International Union for Conservation of Nature. Nikita Lopoukhine is chairman of the union's World Commission on Protected Areas.
State tv reports earthquake shakes south Iran
Sunday, December 7, 2008
TEHRAN: A 5.6 magnitude earthquake hit an area in southern Iran, Iran's state Press TV reported on Sunday, giving no detail of any damage.
"Magnitude 5.6 quake rocks Dargahan area in south Iran," the English-satellite television station said in a scrolling headline, without specifying the time it struck.
Iran, the world's fourth-largest oil producer, is criss-crossed by faultlines and often experiences earthquakes.
(Writing by Fredrik Dahl; Editing by Charles Dick)
Ghana votes for new president to usher in oil era
Sunday, December 7, 2008
By Kwasi Kpodo and Alistair Thomson
Ghanaians voted in large numbers on Sunday to choose between two foreign-trained lawyers hoping to lead them into an era of oil-funded prosperity in a tight poll that may set an example for African democracy.
Observers said voting was generally peaceful despite delays in some areas and violence at a handful of polling stations.
Successful polls would be a boost for democracy in Africa after electoral bloodshed in Kenya, Zimbabwe and Nigeria, and would underpin a country that has become one of Africa's brightest investment prospects due to its political stability.
Blue-clad Electoral Commission workers at the Richard Akwei Memorial School polling station in the coastal capital Accra said a prayer, emptied hundreds of ballot papers onto a table and counted them out loud, to cheers from a crowd of onlookers.
Provisional results are expected mid-week, but local media are likely to broadcast early voting trends before then.
Many voters queued from the early hours for the 7 a.m. (0700 GMT) start.
"I was here at 3:15 a.m. I'm anxious for my party to win," Gregoire Adukpo, 62, a retired private security official, said at a polling station set up at a Catholic church.
Local radio stations reported that delays distributing vote materials by helicopter meant voting started hours late and may be extended in some islands in Lake Volta, one of the biggest man-made lakes in the world.
The opposition National Democratic Congress (NDC) said it was concerned by the delays and other irregularities.
"Voter turnout is going to be very high. I should expect a higher number than we saw in the last elections because I could see this one is very competitive," Electoral Commission Chairman Kwadwo Afari-Gyan said. Turnout in 2004 was a record 85 percent.
President John Kufuor, who turns 70 on Monday, is standing down on January 7 after serving the maximum two terms.
"What excites me is that I've ended my tenure, I believe, on a good note with the entire nation showing readiness to help select my successor and members of the next parliament," he said after voting near his home in one of Accra's most exclusive areas.
He has asked Ghanaians to hand a first-round win to his New Patriotic Party's (NPP) chosen successor Nana Akufo-Addo, a British-trained lawyer and son of a former president.
Seven other candidates are standing but many people expect a December 28 run-off between Akufo-Addo and main opposition candidate and tax law expert John Atta Mills, of the centre-left NDC.
Mills voted in Accra and Akufo-Addo in his home constituency north of Accra. Both said they would win in the first round.
NDC founder Jerry Rawlings, a former coup leader who brought democratic rule in the 1990s and stood down eight years ago, voted to loud cheers in a poor neighbourhood behind the seat of government Christianborg Castle, a former slave-trading fort.
Voters are also electing the National Assembly, which is currently dominated by Kufuor's NPP with 128 of the 230 seats.
The discovery of offshore oil, which Britain's Tullow Oil plans to start pumping at a rate of 120,000 barrels per day in late 2010, has heightened international attention to the poll. But the global slowdown means celebrations may be delayed.
"Although there is "everything to play for' in terms of oil, the economic reality is that 2009 will be a difficult year in which to manage the economy," Razia Khan, Africa research head at Standard Chartered Bank, said in a note to investors.
Kufuor's centre-right administration has seen the economy grow by over 5 percent annually in recent years and in 2007 launched black Africa's first Eurobond outside South Africa.
The former British colony is the world's second biggest cocoa grower and Africa's No. 2 gold miner. But many Ghanaians say the increased wealth has passed them by.
"We want the new government to provide jobs. They should give us better schools, better health facilities," said jobless Derrick Agbanyo, 28, waiting to vote in a poor part of Accra.
Government critics complain about corruption, and a wave of cocaine trafficking in West Africa over the past few years has not spared Ghana. Last year a member of Kufuor's ruling NNP was jailed in the United States for heroin smuggling.
Ghana's fifth consecutive multiparty elections will lead to the second transfer of power from one leader to another through the ballot box -- a rare achievement in a continent beset by conflicts often made worse by vote-rigging.
Sudan confirms troop build-up in oil region
Sunday, December 7, 2008
By Andrew Heavens
Sudan's government on Sunday confirmed it had moved troops to a volatile energy-rich central region, telling state media it wanted to halt "feverish attempts" to attack the area by Darfur rebels.
The deployment into South Kordofan raised tension in the province that contains key oil fields and borders some of Sudan's most sensitive areas, including the western Darfur region, southern Sudan and the contested town of Abyei.
The announcement came days after officials in semi-autonomous southern Sudan accused the north of building up a large force in South Kordofan over the past three weeks.
A southern official on Friday said the new deployment of six northern battalions broke the terms of the constitution and the 2005 peace deal that ended two decades of north-south civil war.
On Sunday, an unnamed government spokesman told the state Suna news agency the northern army had built up its forces "to thwart the feverish attempts of JEM (the Darfur rebel Justice and Equality Movement) to transfer their activities to the state of Southern Kordofan."
There have been unconfirmed rumours circulating among United Nations agencies, aid groups and government bodies that a JEM force crossed into South Kordofan around three weeks ago.
No one was immediately available to comment from JEM, a movement which has fought in South Kordofan before and repeatedly said it wants to take its struggle beyond Darfur to what it sees as other marginalised areas of Sudan.
The rebel movement's spokesman last week told Reuters he would not "confirm or deny" a new JEM push into South Kordofan.
The Sudanese government has been on the lookout for large-scale movements of JEM forces since the insurgents launched an unprecedented attack on the country's capital Khartoum in May.
The government told Suna on Sunday it had sent assurances that the new northern forces had no intention of attacking the south's Sudan People's Liberation Army also deployed in the area.
The statement did not respond to the southern accusations that the move broke the terms of the 2005 peace deal.
The north and the south have had a troubled relationship since the signing of the Comprehensive Peace Agreement. Their troops have clashed, most recently in May over the oil town of Abyei, which both sides claim.
Under the deal, the north's Sudan Armed Forces were to be reduced to pre-war levels in South Kordofan, one of three "transitional areas" bordering the south where large sections of the population supported the southern rebels during the war.
The International Crisis Group think tank said in October the 2005 peace deal was at risk in South Kordofan, which had "many of the same ingredients" that produced the raging conflict in the neighbouring region of Darfur.
Sudan says it produces 500,000 barrels of oil a day, a figure which it hopes to raise to 600,000 in 2009.
Beijing assails Sarkozy for meeting Dalai Lama
The Associated Press
Sunday, December 7, 2008
BEIJING: President Nicolas Sarkozy of France drew an angry protest from China on Sunday over a meeting with the Dalai Lama, the exiled Tibetan spiritual leader, with Beijing warning of broader damage to relations with the European Union.
The two met privately Saturday in Gdansk, Poland, during celebrations marking the 25th anniversary of former President Lech Walesa's Nobel Peace Prize. The Dalai Lama has also received the prize.
The meeting came five days after China had called off a summit meeting with the EU to protest Sarkozy's plans. China says Tibet has been part of its territory for more than seven centuries and denounces the Dalai Lama as a separatist who seeks to end Chinese rule of the Himalayan region. Many Tibetans say they were an independent country for most of that time.
Although China routinely lodges protests when world leaders meet with the Dalai Lama, the complaint Sunday - reported by the official Xinhua News Agency - came as China hardens its line toward the Himalayan region.
China's relations with the French have been especially strained over the issue of Tibet since April, when pro-Tibetan activists protested en masse in the streets of Paris as the Olympic flame passed through the city on its world tour. Some Chinese called for boycotts of French products afterward.
China demanded several times over the last week that Sarkozy cancel the meeting and called off a major China-EU meeting this month in protest. Sarkozy played down the furor, saying, "There's no need to dramatize things."
But on Sunday, China's deputy foreign minister, He Yafei, summoned the French ambassador to China, Hervé Ladsous, "and lodged a strong protest," Xinhua said. It quoted He as saying the meeting "grossly interfered in China's internal affairs."
"It also severely undermined China's core interest, gravely hurt the feelings of the Chinese people and sabotaged the political basis of China-France and China-EU relations," He said.
France now holds the rotating presidency of the 27-nation bloc.
Chinese state television quoted He as saying France now must "correct its mistake with actual deeds to enable China-France relations to continue to be healthy and stable and advance forward."
Sarkozy stressed that his talk with the Dalai Lama posed no threat to Beijing.
"I told him how much importance I attach to the pursuit of dialogue between the Dalai Lama and the Chinese leadership," Sarkozy said. "The Dalai Lama confirmed what I already knew, that he is not demanding independence."
The West is pushing for closer Chinese cooperation, especially in the areas of trade and currency in the hopes of limiting damage from a worldwide economic crisis. Beijing, in turn, views Europe as a major market for Chinese industrial goods that it sees threatened by further tariffs or restrictions.
Some French commentators criticized what they called Sarkozy's inconsistent policies over China and human rights.
"They are only punishing the numerous about-turns in our policy," Jean-Luc Domenach, a researcher on China at the Paris Institute of Political Studies, told the weekly Journal du Dimanche, which is usually supportive of Sarkozy.
"Since the Tibetan riots in March, Sarkozy has changed his attitude toward Beijing several times. First he was very pro-Chinese, then he took a harder line before returning to a position in the middle."
Sarkozy campaigned on the promise of putting human rights at the center of his foreign policy, saying he opposed lifting an EU weapons embargo on China that was imposed after Beijing's crackdown on protests in Tiananmen Square in 1989.
But shortly after taking office, he reversed his position on the arms embargo and went on a visit to China, during which French companies sealed about $30 billion in business deals.
After the deadly riots in Tibet, Sarkozy said he might not attend the opening ceremony of the Beijing Olympics, depending on China's handling of the situation in Tibet. It was not until July that he said he would go.
An official in Sarkozy's office said last week that he had seen no sign of any French products being boycotted, adding that the EU and China were mutually dependent economically.
Roger Cohen: Paris-Cuba
By Roger Cohen
Sunday, December 7, 2008
PARIS: Since visiting Cuba a few weeks ago, I've been thinking about the visual assault on our lives. Climb into a New York taxi these days and a TV comes on with its bombardment of news and ads. It's become passé to gaze out the window, watch the sunlight on a wall, a child's smile, the city breathing.
In Havana, I'd spend long hours contemplating a single street. Nothing - not a brand, an advertisement or a neon sign - distracted me from the city's sunlit surrender to time passing. At a colossal price, Fidel Castro's pursuit of socialism has forged a unique aesthetic, freed from agitation, caught in a haunting equilibrium of stillness and decay.
Such empty spaces, away from the assault of marketing, beyond every form of message (e-mail, text, twitter), erode in the modern world, to the point that silence provokes a why-am-I-not-in-demand anxiety. Technology induces ever more subtle forms of addiction, to products, but also to agitation itself. The global mall reproduces itself, its bright and air-conditioned sterility extinguishing every distinctive germ.
Paris, of course, has resisted homogenization. It's still Paris, with its strong Haussmannian arteries, its parks of satisfying geometry, its islands pointing their prows toward the solemn bridges, its gilt and gravel, its zinc-roofed maids' rooms arrayed atop the city as if deposited by some magician who stole in at night.
It's still a place where temptation exists only to be yielded to and where time stops to guard forever an image in the heart. All young lovers should have a row in the Tuileries in order to make up on the Pont Neuf.
Yet, for all its enduring seductiveness, Paris has ceased to be the city that I knew. The modern world has sucked out some essence, leaving a film-set perfection hollowed out behind the five-story façades. The past has been anaesthetized. It has been packaged. It now seems less a part of the city's fabric than it is a kitschy gimmick as easily reproduced as a Toulouse-Lautrec poster.
I know, in middle age the business of life is less about doing things for the first than for the last time. It is easy to feel a twinge of regret. Those briny oysters, the glistening mackerel on their bed of ice at the Rue Mouffetard, the drowsy emptied city in August, the unctuousness of a Beef Bourguignon: These things can be experienced for the first time only once.
So what I experience in Paris is less what is before me than the memory it provokes of the city in 1975. Memories, as Apollinaire noted, are like the sound of hunters' horns fading in the wind. Still, they linger. The town looks much the same, if prettified. What has changed has changed from within.
At dinner with people I'd known back then, I was grappling with this elusive feeling when my friend lit a match. It was a Russian match acquired in Belgrade and so did not conform to current European Union nanny-state standards. The flame jumped. The sulfur whiff was pungent. A real match!
Then it came to me: What Paris had lost to modernity was its pungency. Gone was the acrid Gitane-Gauloise pall of any self-respecting café. Gone was the garlic whiff of the early-morning Metro to the Place d'Italie. Gone were the mineral mid-morning Sauvignons Blancs downed bar-side by red-eyed men.
Gone were the horse butchers and the tripe restaurants in the 12th arrondissement. Gone (replaced by bad English) was the laconic snarl of Parisian greeting. Gone were the bad teeth, the yellowing moustaches, the hammering of artisans, the middle-aged prostitutes in doorways, the seat-less toilets on the stairs, and an entire group of people called the working class.
Gone, in short, was Paris in the glory of its squalor, in the time before anyone thought a Frenchman would accept a sandwich for lunch, or decreed that the great unwashed should inhabit the distant suburbs. The city has been sanitized.
But squalor connects. When you clean, when you favor hermetic sealing in the name of safety, you also disconnect people from one another. When on top of that you add layers of solipsistic technology, the isolation intensifies. In its preserved Gallic disguise, Paris is today no less a globalized city than New York.
Havana has also preserved its architecture - the wrought-iron balconies, the caryatids, the baroque flourishes - even if it is crumbling. What has been preserved with it, thanks to socialist economic disaster, is that very pungent texture Paris has lost to modernity.
The slugs of Havana Club rum in bars lit by fluorescent light, the dominos banged on street tables, the raucous conversations in high doorways, the whiff of puros, the beat through bad speakers of drums and maracas, the idle sensuality of Blackberry-free days: Cuba took me back decades to an era when time did not always demand to be put to use.
I thought I'd always have Paris. But Havana helped me see, by the flare of a Russian match, that mine is gone.
Readers are invited to comment at my blog: www.iht.com/passages
Kenyan prime minister calls for military intervention in Zimbabwe
The Associated Press
Sunday, December 7, 2008
NAIROBI: Foreign troops should prepare to intervene in Zimbabwe to end a worsening humanitarian crisis and the Zimbabwean president, Robert Mugabe, should be investigated for crimes against humanity, the Kenyan prime minister said Sunday.
Raila Odinga, in the latest sign of growing international frustration over Zimbabwe's slide into chaos, urged the African Union to call an emergency meeting to authorize sending troops into Zimbabwe.
"If no troops are available, then the AU must allow the Un to send its forces into Zimbabwe with immediate effect, to take over control of the country and ensure urgent humanitarian assistance to the people dying of cholera," Odinga said.
According to official statistics, more than 500 Zimbabweans have died of the disease since an outbreak in August. But health officials fear the toll may be much higher. They warn that deaths could spiral into the thousands due to the collapse of Zimbabwe's health system, the scarcity of food and the oncoming rainy season, which may help spread infections.
Odinga said Mugabe had reduced a once-prosperous country to a "basket case" and warned, "Mugabe's case deserves no less than investigations by the International Criminal Court at The Hague."
Odinga assailed other African leaders for being slow to criticize Zimbabwe, saying they had shamed the continent by treating Mugabe with "kid gloves" because Mugabe had supported their liberation struggles.
"We refuse to accept the idea that African countries should be judged by lesser standards than other countries in the world," Odinga said. "Participation in the liberation struggle is no license for anyone to own a country."
He declined to say whether Kenya was ready to send troops. The AU and UN are already over-stretched in Africa, unable to fulfill commitments in Sudan's Darfur region and Somalia.
Global criticism of Mugabe is growing louder. On Sunday former President Jimmy Carter, former UN Secretary General Kofi Annan and the human rights campaigner Graça Machel issued a report in Paris urging Zimbabwean leaders to end their power-sharing impasse and concentrate on saving lives. The three members of group called The Elders were refused visas to enter Zimbabwe but interviewed aid workers, politicians and others for the report.
Machel is the wife of the Elders founder Nelson Mandela, the former South African President. She said either Zimbabwe's leaders do not understand how deeply their people are suffering "or they don't care."
In the United States, Secretary of State Condoleezza Rice told ABC News that the cholera outbreak in Zimbabwe endangered the whole of southern Africa and the international community was failing to protect the people of Zimbabwe.
"I am still really appalled at the inability of the international community to deal with tyrants," she said. "Robert Mugabe should have gone a long time ago."
Future of Somalia's transitional government looks bleak
By Jeffrey Gettleman
Sunday, December 7, 2008
NAIROBI: Somalia's transitional government looks as if it is about to flatline. The Ethiopians who have been keeping it alive for two years say they are leaving the country, essentially pulling the plug on their military support.
For 17 years, Somalia has been ripped apart by anarchy, violence and famine. It seems as though things there can never get worse. But then they do.
The pirates off Somalia's coast are getting bolder, wilier and somehow richer, despite an armada of Western naval ships hot on their trail. Shipments of emergency food aid are barely keeping much of Somalia's population of nine million from starving. The most fanatical wing of Somalia's Islamist insurgency is gobbling up territory and imposing its own harsh brand of Islamic law, like whipping dancers and stoning a 13-year-old girl to death.
With the government on the brink of collapse and the Islamists about to seize control for the second time, the operative question inside and outside Somalia seems to be: Now what?
"It will be bloody," predicted Rashid Abdi, a Somalia analyst at the International Crisis Group, a research institute that tracks conflicts worldwide. "The Ethiopians have decided to let the transitional government sink. The chaos will spread from the south to the north. Warlordism will be back."
Abdi sees Somalia deteriorating into an Afghanistan-like cauldron of militant Islamism, drawing in hard-core fighters from the Comoros, Zanzibar, Kenya and other neighboring Islamic areas, a process that seems to have already started. Those men will eventually go home, spreading the killer ethos.
"Somalia has now reached a very dangerous phase," he said. "The whole region is in for more chaos, I'm afraid."
Most informed predictions go something like this: If the several thousand Ethiopian troops withdraw by January, as Addis Ababa has said they would, the 3,000 or so African Union peacekeepers in Somalia could soon follow, leaving the country wide open to the Islamist insurgents who have been massing on the outskirts of Mogadishu, the capital.
The transitional government, which in reality controls only a few city blocks of the country, will collapse, just as the 13 previous transitional governments did. The only reason it has not happened yet is the Ethiopians.
The government has been a mess for the past few weeks - many would argue for the past few years - with the president and the prime minister bitterly and publicly blaming each other for the country's crisis. More than 100 of the 275 members of Parliament are in Kenya, refusing to go home, saying they will be killed.
Western diplomats, UN officials and the Ethiopians finally seem to be turning against the transitional president, Abdullahi Yusuf Ahmed, a cantankerous former warlord in his 70s who has thwarted nearly every peace proposal.
"Yusuf has gone from being seen as the solution to being seen as the problem," said a senior Western diplomat in Kenya, speaking on condition of anonymity. But Yusuf's clan still backs him, and Western diplomats said he might soon flee to his clan stronghold in northeast Somalia.
Most analysts predict that the war-weary people of Mogadishu will initially welcome the Islamists, out of either relief or fear.
In 2006, Islamist troops teamed up with clan elders and business owners to drive out the warlords who had been preying upon Somalia's people since the central government first collapsed in 1991. The six months the Islamists ruled Mogadishu turned out to be one of the most peaceful periods in modern Somali history.
But today's Islamists are a harder, more brutal group than the ones who were ousted by an Ethiopian invasion, backed by the United States, in late 2006. The old guard included many moderates, but those who have tried to work with the transitional government have mostly failed, leaving them weak and marginalized, and removing an influence on the die-hard insurgents.
On top of that, the unpopular and bloody Ethiopian military operations over the past two years have radicalized many Somalis and sent hundreds of unemployed young men - most of whom have never gone to school, never been part of a functioning society and never had much of a chance to do anything but shoulder a gun - into the arms of militant Islamic groups.
The most militant group is the Shabab, a multi-clan insurgent force that the United States classifies as a terrorist organization. A few weeks ago, the Shabab kidnapped and brutally beheaded a man it accused of being a spy.
Somalia is nearly 100 percent Muslim, but most Somalis are moderate Muslims. Many analysts expect that the militant Islamic wave will soon crest because Somalis will inevitably chafe under strict Islamist law, especially when the Islamists try to take away their beloved khat, the ubiquitous, mildly stimulating leaf that Somalis chew like bubble gum.
Then, many analysts say, the Islamist groups will slug it out among themselves, with Ethiopia and other neighboring countries backing rival factions, and with clan warlords jumping in.
Osman Mohamed Abdi, deputy chairman of the Somali Youth Development Network, a nonprofit group in Mogadishu, called this possibility the "worst man-made catastrophe."
Two possibilities could avert this bloodbath, but both are long shots.
Ethiopia could delay its pullout until a larger peacekeeping force arrived. But with both Darfur and now Congo needing peacekeepers, there are few volunteers for lawless Somalia.
Or the transitional government could share power with the Islamists. There is a piece of paper called the Djibouti Agreement that paves the way for moderate Islamists to join the transitional government.
But the problem with the Djibouti Agreement, Abdi of the International Crisis Group said, is that "the interlocutors have no power on the ground."
The government's collapse and the human disaster that would follow would be strike three for U.S. efforts in Somalia.
The United States failed disastrously in its peacekeeping mission in the early 1990s. In 2005 and 2006, the CIA paid some of Somalia's most reviled warlords to fight the Islamists. That backfired. In the winter of 2006, the United States took a third approach, encouraging Ethiopia to invade and backing them with U.S. airstrikes and intelligence.
"The Bush administration made a major miscalculation," said Dan Connell, who teaches African politics at Simmons College in Boston.
He likened the situation to America's involvement in Lebanon in the 1980s, "when a regional ally, Israel, pulled us into a failed state in a quixotic effort to transform a hostile neighbor into a pliant ally." That only radicalized the population, he said, adding that in Somalia, "again, we will be in its sights."
Taliban destroys U.S. transport center
By Jane Perlez
Sunday, December 7, 2008
ISLAMABAD, Pakistan: More than 100 trucks loaded with supplies for U.S. forces in Afghanistan were destroyed Sunday by militants in Peshawar, the city that serves as an important transit point for the Afghan war effort.
It was the third major attack by Taliban militants on NATO supplies in Pakistan in less than a month, and served to expose the vulnerability of the route from the port of Karachi through Peshawar and over the border into Afghanistan.
The United States relies on the route for an overwhelming proportion of its supplies for the war in Afghanistan. The damaged trucks were loaded with U.S. war materiel, including Humvees, destined for the Afghan National Army, said Colonel Greg Julian, a spokesman for U.S. forces in Kabul.
The militants overwhelmed the rudimentary security system at two parking lots where the trucks were parked in the heart of Peshawar.
At about 2:30 a.m., they easily disarmed security guards and then threw grenades and fired rockets at the loaded trucks.
"We were unable to challenge such a large number of armed men," said Muhammad Rafiq, a security guard. "The police and militias reached the spot when the attackers had accomplished operation."
Rafiq estimated that about 200 militants took part in the attack.
Pakistani security forces apparently fired artillery at the attackers.
"There was artillery and rapid exchange of fire," said a retired police official, Hidyatullah Arbab, who heard the firing from his home. "Peshawar is becoming a battleground."
Over all, Julian said the loss of equipment would have a minimum impact on the overall war effort.
"It's a very insignificant loss in terms of everything transported into Afghanistan," he said.
But critics of the war effort in Afghanistan have argued that the United States needs to more urgently shape the Afghan Army into an effective fighting force. The loss of supplies to the Afghan Army would be a setback in that endeavor.
About 80 percent of supplies for the war move from Karachi through Pakistan and onto Afghanistan.
Peshawar is the last staging point before the border 60 kilometers away, or 40 miles, about an hour's journey.
From Peshawar, the Pakistani trucks loaded with military supplies travel through the Khyber section of the Federally Administered Tribal Areas.
The Khyber area is almost totally controlled by various factions of the Taliban, and many civilian government officials no longer dare to travel the road that the trucks use.
The Pakistani government said two weeks ago that it had beefed up protection for the supply trucks along the route.
But the brash attack Sunday showed that the militants could destroy the supplies even as they waited to move forward from Peshawar. The ease with which the militants destroyed the vehicles exposed the susceptibility of stationary equipment to attack, even in the center of a city that houses the 11th Corps of the Pakistani Army.
Militants attacked another parking area in Peshawar this month. About 12 trucks with NATO supplies were ruined in that attack.
Perhaps the most brazen attack came on Nov. 10 when about 60 Taliban militants hijacked a convoy of trucks as it traveled through the Khyber road in broad daylight. To make their point, they offloaded a Humvee, called photographers and then, with rifles in hand, the Taliban posed in front of the vehicle, their banner draped over the hood.
The Pakistani government is anxious to hold onto the trucking business that supplies the war in Afghanistan.
The companies that control the trucks are a powerful constituency in Karachi, the port city, and the revenue from the supply route is important, particularly in the middle of a national economic crisis.
But the truck owners complain that the government is impotent in the face of the Taliban.
The hijacking of the truck convoy last month was carried out by Taliban loyal to Baitullah Mehsud, the head of the umbrella group called Tehrik-e-Taliban. After that incident, one trucker said that the government had stood by, a "silent spectator." The Taliban attacked his trucks, looted them and killed his drivers even as they passed near security check points, he said.
The Pakistani military had proved unable to stop them, he said.
The three attacks in less than a month makes the need for alternate routes more urgent, Julian said.
The U.S. military has said that it is looking to supply the Afghan war theater through Central Asia, and once negotiations are completed to move material through the new routes, the dependence on Pakistan will diminish, American military officials have said.
UN official calls for more sensitivity to Afghan demands
By Kirk Semple
Sunday, December 7, 2008
KABUL, Afghanistan: In unusually blunt remarks, the chief of the United Nations mission in Afghanistan warned in an interview this weekend that unless Afghanistan's international partners conducted their military operations with more care and cultural sensitivity, redoubled their work to minimize civilian casualties and accelerated their reconstruction programs, they risked jeopardizing their efforts to stabilize and rebuild the country.
Kai Eide, the United Nations special representative for Afghanistan, also came to the defense of the embattled president Hamid Karzai, saying that Karzai's harsh public criticism of his foreign allies on both the military and development fronts had been authentic, not to mention an accurate reflection of widespread and growing frustration among Afghans.
Some foreign diplomats have dismissed Karzai's recent remarks as a cynical effort to curry favor with Afghan voters during the prelude to national elections, Eide said.
"Listen to the concerns of the Afghan people, and listen to what President Karzai said," Eide said. "I think he reflects a deep and growing concern within the Afghan public about the impact of what we're doing on the ground."
He said he was compelled to speak out because of what he called the "opportunity" presented by a change of presidential administrations in Washington.
"It's a unique opportunity to mobilize energy and also to streamline our efforts," he said.
There has been growing outrage in Afghanistan over American-led military operations, including aerial bombings and house raids, that have inflicted civilian casualties and increasingly alienated the international security forces from the Afghan population that they are trying to protect.
In addition, Afghans have grown weary of the slow reconstruction process. More than seven years after the invasion that drove the Taliban from power, infrastructure still remains poor, and poverty and unemployment are high.
During a visit here late last month by a United Nations Security Council delegation, Karzai lashed out in a private meeting at his foreign partners, criticizing mounting civilian casualties inflicted by coalition security forces and the lack of coordination in the development sector.
Karzai, whose office later distributed a transcript of his comments publicly, also urged the international community to do more to "Afghanize" the country by strengthening its security forces and government institutions.
"Every debate about what we're planning to do in Afghanistan must be an Afghan-led debate, it must take place on Afghan terms," Eide said Saturday during an interview in his office in a guarded United Nations compound here.
"If what we seek is to strengthen Afghan institutions and strengthen the Afghan government — and that's what we've been saying — then it must be clear to everybody that the debate that we are conducting involves the Afghans fully and has the Afghan in the leading role."
Eide, a Norwegian, assumed his current post in April and, among other responsibilities, is in charge of coordinating the civilian redevelopment effort. Publicly, he has cut a figure of quiet determination. But during the interview, his emotions occasionally overrode his normally low-key demeanor, his voice rising in crescendos of pique.
His comments come as the United States is planning to deploy more than 20,000 additional troops to Afghanistan to fighting a strengthening insurgency, train Afghan security forces and prepare for national elections.
An army brigade is scheduled to arrive next month.
Eide said that he welcomed the debate about more deployments, but that all future deployments must be done hand in hand with a parallel debate, informed by the concerns of the Karzai administration and the Afghan people, about the impact of the military engagement.
"Are we sufficiently sensitive to Afghan concerns?" he asked. "Are we sure that we behave in a way that brings Afghan communities closer to the government? Do we listen sufficiently to the concerns we hear from the president and so many Afghans? I'm not convinced that we are."
He added, "We see how we can go wrong now."
Eide referred to an episode in August in Azizabad, a village in eastern Afghanistan, where cannon fire from an AC-130 gunship against a suspected Taliban hideout killed dozens of civilians. He said the incident "shook" Karzai and helped to focus his concerns more acutely on the problem of civilian casualties and other problems of the foreign military engagement.
Bush aides preparing Afghanistian strategy review for Obama
By David E. Sanger
Sunday, December 7, 2008
WASHINGTON: The Bush administration is preparing to present President-elect Barack Obama with a lengthy, classified strategy review aimed at reversing the gains that militants have made in destabilizing Afghanistan and Pakistan.
The review contains an array of options, including telling the military in Pakistan that billions of dollars in American aid will depend on the military's being reconfigured to effectively fight militants. That proposal amounts to a tacit acknowledgment that roughly $10 billion in military aid provided to Pakistan as "reimbursements" for its efforts to root out militant groups has largely been wasted.
The payments have been the source of increasing criticism on Capitol Hill and from independent review groups, which have concluded that Pakistan diverted much of the money to build up its forces against India.
Revamping the aid to the military was part of a three-month study of what has gone wrong in the seven-year war along the Afghanistan-Pakistan border. The study calls for a new and broadly regional approach to insurgencies that move freely across the mountainous border between Afghanistan and Pakistan.
In the short term, it calls for continued covert strikes into Pakistani territory from Afghanistan, though the U.S. military has been reluctant to repeat the kind of ground attack that led to an open exchange of fire with Pakistani border forces in September.
The report, which is expected to be presented to Obama's top national security advisers in the next week or two, was the product of a highly unusual strategy review begun in mid-September, just four months before President George W. Bush leaves office.
"We've gone seven long years proclaiming that Pakistan was an ally and that it was doing everything we asked in the war on terror," said one senior official involved in drafting the report. "And the truth is that $10 billion later, they still don't have the basic capacity for counterinsurgency operations. What we are telling Obama and his people is that has to be reversed."
As a war that Bush once believed he had won came back to life in 2005 and 2006, the White House began a series of strategic reassessments, the most recent one reporting in the autumn of 2006, just before the forced resignation of Donald Rumsfeld as secretary of defense.
But those past studies looked primarily at the dynamics in Afghanistan. The current one, headed by the White House's top coordinator for Afghanistan policy, Lieutenant General Douglas Lute, took a far broader view. The drafts prepared for the incoming Obama administration suggest that the United States has never focused sufficiently on nation-building, jobs creation, construction of schools and roads, and, most important, pushing the Pakistani government to focus on counterterrorism and counterinsurgency.
It also urges Obama to take a far more regional approach to the problem, something he has indicated in speeches he is inclined to do.
"The Pashtun tribes treat these countries as one territory, and we have to begin to do something similar," one official familiar with the report said, declining to speak on the record because the contents of the report are confidential.
The report includes options, not "recommendations," so that Obama would not be put in the position of endorsing or rejecting Bush's suggested policies.
It was completed just before the terrorist attacks in Mumbai, the commercial capital of India, last month, and the reaction to those events is likely to complicate some of the central options even before they are handed off to Obama.
Though Pakistani officials regularly promised Bush, his intelligence chiefs and top American military officials that they would rout Al Qaeda and other militants from their sanctuary in Pakistan's tribal areas, mountains of intelligence suggest that the country was playing both sides, financing the Taliban even while fighting them. The group accused of the Mumbai attacks, Lashkar-e-Taiba, was essentially the creation of the Pakistani intelligence services, as a proxy to fight in Kashmir against India.
Now, with the strong possibility that India will strike back for the Mumbai attacks, many in the Pakistani military are expected to argue that they were prudent to keep their forces primarily arrayed against India, rather than hunting down Al Qaeda and other militants.
"The real danger here is that what happened in Mumbai is going to reinforce all the instincts to focus on India," said one official familiar with the contents of the strategy review. "It worsens their paranoia."
As recently as 2006, Bush would speak regularly of eventual "victory" in Afghanistan, as he did in Iraq. He is leaving office declaring that the so-called military surge in Iraq was successful, and with a status of forces agreement that calls for the withdrawal of the bulk of the American force over the next two years. But he has said little about Afghanistan, where the fighting has worsened, and the strategy review was premised on intelligence assessments that said that the United States was not losing the war, but was in danger of losing ground.
Several members of the strategy review, notably David Kilcullen, an Australian counterinsurgency expert, have publicly offered a significantly grimmer view. Kilcullen told senior officials before he left a State Department post that the United States could begin to lose the war soon if strategy was not reversed. He has advocated working to secure major population centers rather than using NATO troops to chase the Taliban around the Afghan countryside.
A senior aide to Secretary of State Condoleezza Rice, Eliot Cohen, also joined the panel, along with a top Marine general and a number of officials from the intelligence agencies.
Asked about the study, a White House spokesman, Gordon Johndroe, said only: "We are concluding our review. We intend to pass it to the new team, since most policy adaptations would take place on their watch. This is another part of our efforts to ensure a smooth transition."
The tone of the new report, officials familiar with it say, is in line with arguments made over the past year by the secretary of defense, Robert Gates, who has agreed to remain in his post under Obama. He has made clear in an article he wrote for a forthcoming issue of the journal Foreign Affairs that the kind of military victory Bush once spoke of, the military crippling of militants in both Afghanistan and Pakistan, is not the way to think about the future of the conflict.
"Over the long term, the United States cannot kill or capture its way to victory," Gates wrote. "Where possible, what the military calls kinetic operations should be subordinated to measures aimed at promoting better governance, economic programs that spur development, and efforts to address the grievances among the discontented, from whom the terrorists recruit. It will take the patient accumulation of quiet successes over a long time to discredit and defeat extremist movements and their ideologies."
Yet the problem in Pakistan has been getting the military to accept help from the United States, which it suspects is tilting toward India and may harbor plans to seize Pakistan's nuclear arsenal if the government in Islamabad collapses. In Afghanistan, the problem is incompetence, corruption, and the inability of President Hamid Karzai to extend his control of the country significantly beyond the capital, Kabul.
A senior military official said "the message of the report is that you can't win in Afghanistan without first fixing Pakistan.
"But even if you fix Pakistan," the official said, "that won't be enough."Militants burn 106 vehicles
Suspected militants attacked a transport terminal used to supply NATO and U.S. troops in neighboring Afghanistan, killing a guard and burning 106 vehicles early Sunday, The Associated Press reported from Peshawar, Pakistan, citing a police official.
The assault by 30 assailants at the Portward Logistic Terminal was the boldest yet on trucks carrying supplies to foreign troops in Afghanistan, feeding concern that Taliban militants could cut or disrupt the route through the famed Khyber Pass.
Up to 75 percent of the supplies for Western forces in Afghanistan pass through Pakistan.
Mumbai, Kashmir and the Pakistan connection
Sunday, December 7, 2008
Pakistan's government has fiercely denied any role in the terrorist attacks on Mumbai that killed more than 160 people. We hope that is true. But there are strong signs that the terrorists were members of the Pakistani-based group Lashkar-e-Taiba, a former proxy of Islamabad's powerful intelligence service that - despite being officially banned - continues to operate in plain sight in Pakistan.
Any act of terrorism is horrifying, but the potential aftermath of this one is even more so.
India and Pakistan have already fought three wars. Both have nuclear weapons. It is not hard to imagine that the attackers' real goal was to disrupt recent efforts to improve relations - and provoke an even greater cataclysm. Everything must be done to avoid that.
India has so far shown extraordinary restraint. It will have to continue to do so as the investigation moves forward. Pakistan, which has bounced between sympathy and bluster, must provide full cooperation - no matter where the investigation leads.
Pakistan's president, Asif Ali Zardari, must face up to his country's involvement - whether official or nearly so. We know his new civilian government is weak, and he may not be able to accede to New Delhi's demands that all suspects be turned over to India for prosecution.
At a minimum, his government must be ready to arrest and try anyone involved in the attacks, and mete out long jail terms if they are convicted. Islamabad must finally shut down all the Lashkar training camps and recruitment.
We also are waiting for a forceful public repudiation of the militant groups from the army chief of staff, General Ashfaq Parvez Kayani, and his personal pledge that all ties between Pakistan's military and the extremists will be severed. His silence is deafening.
India must share intelligence with Pakistan on the attack. Instead of boxing Zardari in, it should ask his government to arrest only people who are directly linked to the Mumbai attacks, not other incidents.
For any lasting peace, India and Pakistan must settle their dispute over Kashmir, the biggest flashpoint. India's growing investment and intelligence network in Afghanistan also is feeding Islamabad's insecurity and sense of encirclement. India must be transparent about its involvement in Afghanistan.
If the two countries are going to inch back from the brink, they will need strong support from the United States, China and others powers. These countries also must develop a strategy to strengthen Pakistan's fragile civilian government and stop the country from becoming even more ungovernable.
That does not mean impunity for anyone involved in the Mumbai attacks. It means that the leaders of Pakistan's military and intelligence services must finally realize that the extremists pose a clear and present threat to their own country's survival.
Indian police arrest 2 in Mumbai investigation
By Jeremy Kahn
Sunday, December 7, 2008
MUMBAI, India: The police in New Delhi and Calcutta arrested two men on Friday night and were investigating whether they helped procure SIM cards that terrorists used to make calls during their attacks last month in Mumbai, a deputy Calcutta police commissioner said.
The men, Tauseef Rehman, a native of Calcutta, and Mukhtar Ahmed, originally from the Indian state of Jammu and Kashmir, are charged with fraud and criminal conspiracy, accused of using false documents to buy subscriber identity module, or SIM, cards. Rehman was arrested in Calcutta and Ahmed in New Delhi.
The police official, Javed Shamim, said both men were in Calcutta in October when Rehman used a dead relative's photo identification to buy the SIM cards. Rehman then activated them and either gave or sold them to Ahmed, Shamim said. He emphasized that no definitive links to the attacks in Mumbai had been established by the police.
Rakesh Maria, a joint commissioner with the Mumbai police, said Friday that the police had recovered seven cellphones, in addition to three Global Positioning System handsets and one satellite phone, all of which they believed the terrorists had used.
The police have said that 10 terrorists carried out the attacks on luxury hotels and several other locations that began on Nov. 26, and that all of them came from Pakistan. This was the first sign that the attackers may have had help from Indian citizens.
In a signal of how fraught the relations between nuclear-armed Indian and Pakistan have become, the English-language newspaper Dawn in Pakistan reported Saturday that the Pakistani government had put its forces on high alert during the siege in Mumbai after what appeared to have been a prank call to the president. The caller pretended to be India's foreign minister and threatened military action unless Pakistan's president, Asif Ali Zardari, acted immediately against those responsible for the attacks, Dawn said.
The report said the air force was on alert for 24 hours.
The Indian Foreign Ministry on Sunday morning issued a statement officially denying that the Minister, Pranab Mukherjee, made a "threatening call" to the Pakistani president.
"I had made no such telephone call," Mukherjee said in the statement. "It is, however, worrying that a neighboring state might even consider acting on the basis of such a hoax call, try to give it credibility with other states, and confuse the public by releasing the story in part."
Decribing the lead-up to the Friday night arrests, Shamin said the police traced the SIM cards used during the Mumbai attacks to Rehman in Calcutta. The police then forced Rehman to call Ahmed and ask him his location. This allowed the police to find and arrest him in New Delhi, the deputy commissioner said.
Ahmed is believed to be a member of a police force in the city of Srinagar, in Indian-controlled Kashmir, but the Calcutta police have not verified this, according to Manab Bandopadhy, a Calcutta police spokesman.
Lashkar-e-Taiba, the Pakistani-based militant group that Indian and American officials believe was behind the attacks in Mumbai, which killed 163 people, has long been focused on trying to wrest Kashmir from Indian control and has had a history of infiltrating militants into that state.
The Mumbai police said last week that they were searching for anyone in Mumbai or elsewhere in India who might have aided the attackers. Friday's arrests were the first thought to be connected to the case other than that of the single surviving gunman, a Pakistani citizen identified by the police as Muhammad Ajmal Kasab, who is in custody in Mumbai.
In a brief conversation Saturday night, Maria of the Mumbai police confirmed reports that FBI agents had taken DNA samples from Kasab that they hoped to compare with relatives in Pakistan to confirm his identity. But he denied reports that the FBI or other foreign governments had been given direct access to Kasab.
Police investigators say that an Indian man, Faheem Ahmed Ansari, in jail in Uttar Pradesh, India, may also be linked to the militants who attacked Mumbai. Ansari, who was detained in February, has told the authorities that he scouted targets in Mumbai for another Lashkar-e-Taiba plot. That plan was foiled when he and five co-conspirators were captured in connection with an attack on a police training camp in the city of Rampur that took place last New Year's Eve.
Ansari told the police in Uttar Pradesh that he had been in contact with two Lashkar-e-Taiba leaders, Zaki ur-Rehman Lakhvi, and a man known alternately as Yusuf or Muzammil. Those two men also directed the Mumbai attacks, according to the police.
In an additional development, an explosive device was found at a hospital in Nagpur, in the Indian state of Madhya Pradesh, according to Pravin Dikshit, the police commissioner there. The hospital was evacuated and the bomb was being defused, Dikshit said. He declined to provide further details, and it was unclear whether the bomb was linked to the attacks.
The militants in the Mumbai attacks each carried a 17-pound bomb, which they planted throughout the city, according to the police. Seven of the bombs exploded.
Kashmiris queue at poll booths despite boycott call
Sunday, December 7, 2008
CHADORA, India: Thousands of war-weary Kashmiris defied a separatist call for a boycott and queued up to vote on Sunday in the disputed Himalayan region for the fourth phase of state elections.
At least 15 people were injured when police fired teargas shells and batons to disperse hundreds of anti-poll protesters in a separatist stronghold, Sopore town, north of Srinagar, Kashmir's summer capital.
"Elsewhere polling was brisk and peaceful," Javid Ahmad a senior police official said.
Six photographers, including one from Reuters, were hurt in the violence.
Separatist leaders, most of them locked up or under house arrest, have called for a boycott of the seven-stage state polls saying New Delhi portrays voting as an endorsement of its rule over the Kashmir region.
But in the elections so far there has been a high turnout.
"It is for the first time since 1990 that I am voting because our locality has been neglected by the government and we are suffering," 65-year-old Ali Mohammad, a retired government employee, said near a highly guarded polling booth.
"And I want to get rid of violence completely."
More than 47,000 people have been killed since a revolt against New Delhi's rule broke out in 1989.
Women in headscarves and men in skullcaps formed long queues to vote.
Thousands of troops patrolled streets and guarded 1,836 polling stations in the region, where polling officials said the turnout in 18 constituencies was nearly 40 percent in the first six hours of voting.
Srinagar, which goes to the polls in the last phase, was totally locked down, as thousands of troops were out in force to prevent anti-election rallies.
Officials say violence involving government forces and Muslim militants has declined in the region after India and Pakistan, who claim the region in full but rule in parts, launched a peace process in 2004.
But people are still killed in daily shootouts and occasional explosions.
Government forces have shot dead four separatist militants, including two members of Pakistan-based Lashkar-e-Taiba rebel group, since Saturday, police said.
Lashkar-e-Taiba is blamed by Indian authorities for the three-day rampage in Mumbai that killed 171 people.
(Reporting By Sheikh Mushtaq; Editing by Alistair Scrutton)
Indian foreign minister denies "threatening call" to Pakistani leader
The Associated Press
Sunday, December 7, 2008
MUMBAI: The Indian Foreign Ministry issued a statement Sunday morning officially denying that its minister, Pranab Mukherjee, had made a "threatening call" to President Asif Ali Zardari of Pakistan at the height of the recent attacks on Mumbai, prompting Zardari's government to put the Pakistani Air Force on high alert.
"I had made no such telephone call," Mukherjee said in the statement. "It is, however, worrying that a neighboring state might even consider acting on the basis of such a hoax call, try to give it credibility with other states, and confuse the public by releasing the story in part."
In a signal of how fraught the relations between Indian and Pakistan have become, the English-language Pakistani newspaper Dawn reported Saturday that the Pakistani government had put forces on high alert during the siege in Mumbai after what appeared to have been a prank call to the president. The caller pretended to be the Indian foreign minister and threatened military action unless Zardari acted immediately against those responsible for the attacks, Dawn reported.
The exchange over the call came as India continued its investigation into the three-day standoff that killed 169 people, plus nine gunmen.
The police in New Delhi and Calcutta arrested two men Friday night and were investigating whether they had helped procure SIM cards that the terrorists used to make calls during the attacks in Mumbai, a deputy Calcutta police commissioner said.
The men, Tauseef Rehman, a native of Calcutta, and Mukhtar Ahmed, originally from the Indian state of Jammu and Kashmir, are charged with fraud and criminal conspiracy, accused of using false documents to buy subscriber identity module, or SIM, cards. Rehman was arrested in Calcutta and Ahmed in New Delhi.
The police official, Javed Shamim, said both men were in Calcutta in October when Rehman used a dead relative's photo identification to buy the SIM cards. Rehman then activated them and either gave or sold them to Ahmed, Shamim said. He emphasized that the police had not established any definitive links to the attacks in Mumbai.
Rakesh Maria, a joint commissioner with the Mumbai police, said Friday that the police had recovered seven cellphones, three global positioning system handsets and one satellite phone, all of which they believed the terrorists had used.
The police traced the SIM cards used during the attacks to Rehman in Calcutta, Shamim said. The police then forced Rehman to call Ahmed and ask him where he was. This allowed the police to find and arrest him in New Delhi, the deputy commissioner said.
Ahmed is believed to be a member of a local police force in the city of Srinagar, in Indian-controlled Kashmir, but the Calcutta police have not verified this, according to Manab Bandopadhy, a Calcutta police spokesman.
Lashkar-e-Taiba, the Pakistani militant group that Indian and U.S. officials believe was behind the attacks, has long been focused on trying to wrest Kashmir from Indian control and has had a history of infiltrating militants into that state.
The Mumbai police said last week that they were searching for anyone in India who might have aided the attackers. The Friday arrests were the first thought to be connected to the case other than that of the single surviving gunman, a Pakistani citizen identified by the police as Muhammad Ajmal Kasab, who is in custody in Mumbai. The police have said that 10 terrorists carried out the Nov. 26 attacks and that all of them came from Pakistan. This was the first sign that they may have had help from Indian citizens.
Speaking of the continuing investigation in India, Maria, in a brief conversation Saturday night, confirmed reports that FBI agents had taken DNA samples from Kasab that they hoped to compare with relatives in Pakistan to confirm his identity. But he denied reports that the FBI or other foreign governments had been given direct access to Kasab.
Police investigators say that an Indian man, Faheem Ahmed Ansari, in jail in Uttar Pradesh, India, may also be linked to the militants who attacked Mumbai. Ansari, who was detained in February, has told the authorities that he scouted targets in Mumbai for a different Lashkar-e-Taiba plot. That plan was foiled when he and five co-conspirators were captured in connection with an attack on a police training camp in the city of Rampur that took place last New Year's Eve.
Ansari told the police in Uttar Pradesh that he had been in contact with two Lashkar-e-Taiba leaders, Zaki ur-Rehman Lakhvi, and a man known alternately as Yusuf or Muzammil. Those two men also directed the Mumbai attacks, according to the police.
In an additional development, an explosive device was found at a hospital in Nagpur, in the Indian state of Madhya Pradesh, according to Pravin Dikshit, the police commissioner there. The hospital was evacuated and the bomb was being defused, Dikshit said. He declined to provide further details, and it was unclear whether the bomb was linked to the attacks.
The militants in the Mumbai attacks each carried a 17-pound, or eight-kilogram, bomb, which they planted throughout the city, according to the police. Seven of the bombs exploded, and two were defused on the night of the attacks, the police said. The 10th bomb was discovered last Wednesday afternoon in one of the city's main train stations, where two of the militants, including Kasab, had opened fire on passengers. The station had been reopened for almost a week before the bomb was found. The police now say that all of the bombs have been accounted for, but Indian news reports have disputed this.
Pakistan raids camp of group blamed for Mumbai
Sunday, December 7, 2008
By Kamran Haider
Pakistani security forces on Sunday raided a camp used by Lashkar-e-Taiba (LeT), two sources said, in a strike against the militant group blamed by India for last month's deadly attacks on Mumbai.
Local man Nisar Ali told Reuters the operation began in the afternoon in Shawai on the outskirts of Muzaffarabad, the capital of the Pakistani side of disputed Kashmir region.
"I don't know details as the entire area was sealed off, but I heard two loud blasts in the evening after a military helicopter landed there," Ali said.
An official with the Jamaat-ud-Dawa charity, which is linked to LeT, said security forces had taken over the camp.
India has demanded Pakistan take swift action over what it says is the latest anti-India militant attack emanating from Pakistani soil. No comment on the raid was immediately available from Indian officials.
At least 171 people were killed during the three-day assault last month across Mumbai, India's financial capital, which has imperilled the improving ties between the south Asian nuclear rivals.
Mumbai police have said the gunmen were controlled by the Pakistan-based LeT group blamed for earlier attacks including a 2001 assault on India's parliament that nearly sparked the two countries' fourth war since independence from Britain in 1947.
LeT was formed with the help of Pakistan's intelligence agencies to fight Indian rule in Kashmir, but analysts say it is now part of a global Islamist militant scene. They say it is sympathetic to, and may have direct ties with, al Qaeda.
HOAX CALL ROW
Pakistani territory was used to stage the attacks on Mumbai, U.S. Secretary of State Condoleezza Rice said on Sunday, again urging Islamabad to help bring the perpetrators to justice.
"I think there's no doubt that Pakistani territory was used, by probably non-state actors," Rice told CNN's "Late Edition."
She has just returned from a trip to the region to urge cooperation between the old enemies India and Pakistan.
"I don't think that there is compelling evidence of involvement of Pakistani officials," she added.
India's foreign minister had earlier accused Pakistan of trying to dodge blame over the Mumbai attacks' Pakistani origins by leaking a story about a hoax call to Pakistan's president that set off diplomatic panic.
Pakistan's Dawn newspaper reported on Saturday that Pakistan had put its forces on high alert after a caller pretending to be Indian Foreign Minister Pranab Mukherjee threatened President Asif Ali Zardari while the attacks were still going on.
Police in the Himalayan region of Kashmir, over which India and Pakistan have fought for six decades, said on Sunday that one of two men arrested on Friday for helping get mobile phone cards to the gunmen had recently been hired as a constable.
"We are investigating whether he was on an undercover operation," a top Kashmir police officer said on condition of anonymity. The man, Mukhtar Ahmed, had worked for years as an informal anti-militant informant, the officer said.
An LeT-linked man suspected of reconnoitring Mumbai well before the attacks has been in custody since February in the northern state of Uttar Pradesh, police Special Task Force chief Brij Lal told Reuters.
The disclosure about Faim Ansari, a 26-year-old native of Mumbai, was the first evidence to emerge of Indian complicity in the attacks.
(Reporting by New Delhi, Mumbai and Islamabad bureaux and Sharat Pradhan in Lucknow and Sheikh Mushtaq in Srinagar; Editing by Keith Weir and Mark Trevelyan)
Mumbai siege mobilizes the prosperous
By Somini Sengupta
Sunday, December 7, 2008
MUMBAI: An extraordinary public interest lawsuit was filed Wednesday in this city's highest court. It charged that the government had lagged in its constitutional duty to protect its citizens' right to life, and it pressed the state to modernize and upgrade its security forces.
The lawsuit was striking mainly for the people behind it: investment bankers, corporate lawyers and representatives of some of India's largest companies, which have their headquarters here in the country's financial capital, formerly known as Bombay.
The Bombay Chamber of Commerce and Industry, the city's largest business association, joined as a petitioner. It was the first time it had lent its name to litigation in the public interest.
The three-day siege of Mumbai, which ended more than a week ago, was a watershed for India's prosperous classes. It prompted many of those who live in their own private Indias, largely insulated from the country's dysfunction, to demand a vital public service: safety.
Since the attacks, which killed 163 people, as well as nine gunmen, there has been an outpouring of anger from unlikely quarters. On Wednesday, tens of thousands of urban, English-speaking citizens stormed the Gateway of India, a famed waterfront monument, venting anger at their elected leaders. There were similar protests in the capital, New Delhi, and the southern technology hubs, Bangalore and Hyderabad. All were organized spontaneously, with word spread through text messages and Facebook pages.
On Saturday, young people affiliated with a new political party, called Loksatta, or People's Power, gathered at the Gateway, calling for a variety of reforms, including banning criminals from running for political office. (Virtually every political party has convicts and suspects among its elected officials.)
Social networking sites were ablaze with memorials and citizens' action groups, including one that advocated refraining from voting altogether as an act of civil disobedience. Never mind that in India, voter turnout among the rich is far lower than among the poor.
Another group advocated not paying taxes, as though that would improve the quality of public services. On Saturday an e-mail campaign began called "I Am Clean," urging citizens not to bribe police officers or drive through red lights. And there were countless condemnations of how democracy had failed in this, the world's largest democracy. Those condemnations led Vir Sanghvi, a columnist writing in Mint, a financial newspaper, to remind his readers of 1975, when Indira Gandhi, then the prime minister, imposed emergency rule.
Sanghvi wrote, "I am beginning to hear the same kind of middle-class murmurs and whines about the ineffectual nature of democracy and the need for authoritarian government."
Perhaps the most striking development was the lawsuit, because it represented a rare example of corporate India confronting the government outright rather than making backroom deals.
"It says in a nutshell, 'Enough is enough,"' said Cyrus Guzder, who owns a logistics company. "More precisely, it tells us that citizens of all levels in the country believe their government has let them down and believe that it now needs to be held accountable."
In India's city of gold, the distinction between public and private can be bewildering. For members of the working class, who often cannot afford housing, public sidewalks become living rooms. In the morning, commuters from gated communities in the suburbs pass children brushing their teeth at the edge of the street. Women are forced to relieve themselves on the railroad tracks, usually in the dark, for the sake of modesty. The poor sometimes sleep on highway medians, and it is not unheard of for drunken drivers to mow them down.
Mumbai has been roiled by government neglect for years. Its commuter trains are so overcrowded that 4,000 riders die every year on average, some pushed from trains in the fierce competition to get on and off. Monsoon rains in 2005 killed more than 400 people in Mumbai in one day alone; so clogged were the city's ancient drains, so crowded its river plains with unauthorized construction, that water had nowhere to go.
Rahul Bose, an actor, suggested setting aside such problems for the moment. In a plea published last week in The Hindustan Times, he laid out the desperation of this glistening, corroding place. "We overlook for now your neglect of the city," he wrote on the newspaper's opinion page. "Its floods, its traffic, its filth, its pollution. Just deliver to us a world-standard anti-terrorism plan."
None of the previous terrorist attacks, even in Mumbai, had so struck the cream of Bombay society. Bombs have been planted on commuter trains in the past, but few people who regularly dine at the Taj Mahal Palace and Tower Hotel, one of the worst-hit sites, travel by train. "It has touched a raw nerve," said Amit Chandra, who runs a prominent investment firm. "People have lost friends. Everyone would visit these places."
In any event, public anger could not have come at a worse time for incumbent politicians, who were at their most contrite last week. National elections are due next spring, and security is likely to be one of the principal issues in the vote, particularly among the urban middle class. It remains to be seen whether outrage will prompt them to turn out to vote in higher numbers or whether politicians will be compelled to pay greater attention to them than in the past.
"There's a revulsion against the political class I have never seen before," said Gerson D'Cunha, a former advertising executive whose civic group, AGNI, presses for better government. "The middle class that is laid back, lethargic, indolent, they've been galvanized."
For how long? That is a question on everyone's lips. At a memorial service on Thursday evening for a slain alumnus of the elite St. Xavier's College here, a placard asked: "One month from now, will you care?" "It's helplessness - what do we do?" said Probir Roy, the owner of a technology company and an alumnus of St. Xavier's. "All the various stakeholders - the police, politicians - you can't count on them anyway. Now what do you do?" Tops, a private security agency, has plenty to do. It is consulting schools, malls and "high net individuals" on how to protect themselves better. Security was a growth industry in India even before the latest attacks. Tops's global chairman, Rahul Nanda, said the company employed 73,000 security guards today, compared with about 15,000 three years ago.
Mumbai is not the only place suffering from official neglect. Public services have deteriorated across India, all the more so in the countryside. Government schools are mismanaged. Doctors do not show up to work on public health projects. Corruption is endemic.
In some of India's booming cities, private developers drill for their own water and generate electricity for their own buildings.
Political interference often gets in the way of India's woefully understaffed and poorly paid police force. Repeatedly, courts and commissions have called for law enforcement to be liberated from political control. Politicians have balked.
The three-day standoff with terrorists was neither the deadliest that India has seen, nor the most protracted; there have been other extended convulsions of violence, including mass killings of Sikhs in Delhi in 1984 and of Muslims in Gujarat in 2002.
Yet, the recent attacks, which the Indian police say were the work of a Pakistan-based terrorist group called Lashkar-e-Taiba, were profoundly different. Two of the four main targets were luxury hotels frequented by the city's wealthy elite: the Taj and the twin Oberoi and Trident hotels, a few miles west on Nariman Point.
They were the elite's watering holes and business dinner destinations. And to lose them, said Alex Kuruvilla, who runs the Condé Nast publications in India, is like losing a limb. "It's like what I imagine an amputee would feel," he said. "It's so much part of our lives."
In The Indian Express newspaper on Friday, a columnist named Vinay Sitapati wrote a pointed open letter to "South Bombay," shorthand for the city's most wealthy enclave. The column first berated the rich gently for lecturing at Davos and failing in Hindi exams. "You refer to your part of the city simply as 'town,"' he wrote, and then he begged: "Vote in person. But vote in spirit, too: Use your clout to demand better politicians, not pliant ones. "In your hour of need today," he added, "it is India that needs your help."
U.S. prosecutor in Blackwater shooting case arrives in Baghdad
By Katherine Zoepf
Sunday, December 7, 2008
BAGHDAD: An American prosecutor working on the case against the five Blackwater security guards indicted in connection with a 2007 shooting in Baghdad has arrived in Iraq and will be meeting with victims' families this week.
An Iraqi official familiar with the investigation told The New York Times that the meeting would take place Saturday in the National Police Headquarters, a stone's throw from Nisour Square, the traffic circle in Baghdad where at least 17 Iraqis were killed on Sept. 16, 2007, by private security guards working for Blackwater Worldwide.
The U.S. Embassy in Baghdad is contacting victims' families before that meeting, the official said. The prosecutor will make a presentation to the families as a group, he said, briefing them about how the investigation has been conducted to date, taking them through what will happen during the trial and explaining how they can make claims against Blackwater.
"The prosecutor is coming on Saturday to tell people what is going to happen, and especially how to make claims," said the official, who asked not to be identified because he is not authorized to speak about the investigation. "He will speak in front of all of them. The families of the victims deserve to know what comes next."
A team from the FBI is in Iraq, the official said, and has been interviewing Iraqi witnesses to the shootings. Four witnesses have been extensively interviewed and are preparing to fly to the United States to testify at the trial, he added. An FBI spokeswoman, reached in Washington, said she had "no comment on Blackwater," before hanging up the phone.
Blackwater maintains that its employees - hired to guard American diplomats in Iraq - were firing in response to an attack. But Iraqi investigators, supported by witness accounts, have failed to turn up evidence of any attack on Blackwater guards that might have provoked the shooting.
Abdulwahab Abdulkader, 33, a bank employee who is one of the four witnesses expected to testify at the trial, said he was on his way to buy a birthday gift for a friend's daughter when he got caught in a traffic jam at Nisour Square on the morning of the shooting. The gridlock, he said, included a convoy of Blackwater vehicles.
Abdulkader said the company's guards opened fire on the vehicles in the traffic circle without warning or apparent provocation.
He said he watched a car with a woman and a young man inside explode into flames after it came under fire. Frightened, he said he started to drive in the direction of his house, but a Blackwater vehicle followed and forced him to stop by ramming into his car. He said guards then fired three shots through the roof. One of the bullets hit him in the right arm. He said he still has difficulty performing certain tasks with his arm.
In the weeks after the shooting, Abdulkader said, FBI agents showed him satellite images of the circle and asked him detailed questions about the position of his car and the direction that the bullets had come from. Agents also examined his car, he said, and eventually purchased it from him.
Abdulkader said he had been flown to the United States in May where he appeared before a federal grand jury. He said that he and other victims had been invited to Blackwater's offices in Baghdad's Green Zone and that the U.S. Embassy in Baghdad had given him $7,500 as partial compensation.
Mohammed Hafedh, whose 9-year-old son was killed in the incident, said he has refused offers of compensation from the U.S. Embassy.
"We were guilty of nothing more than being Iraqis," he said. "I'm glad they are going to trial because this will stop them. Justice has to be accomplished."
In Baquba on Sunday, meanwhile, a bomb exploded in a busy market just as a large group of local government and security officials arrived in the area.
Thirty-six people were wounded, some of them seriously, an official of the Iraqi Interior Ministry said.
Among the wounded were the mayor of Baquba, Abdullah al-Hayali, and Raghib al-Omairi, the municipal security chief.
Bomb targets Iraqi police as they lift barricades
Sunday, December 7, 2008
BAGHDAD: A bomb went off on Sunday, wounding 35 police and neighbourhood patrolmen in the volatile northern city of Baquba as they were ceremoniously dismantling security barriers to show that violence was on the decline.
Twenty-nine of the wounded were police, including a police commander of Diyala province, Lieutenant Colonel Raghib al-Umairi, police said. Also wounded was the Baquba city mayor, Abdullah al-Hiyali.
The police officers and officials had been removing concrete barriers placed across downtown streets in Baquba two years ago, when ethnic and sectarian bloodshed raged across Iraq and Baquba, a volatile and religiously mixed city, was a war zone.
"They were just walking along in a group when they reached an electrical appliance store. Suddenly a powerful blast happened. The front of the store was totally destroyed," said Ali Abu Shahad, a Sunni Arab patrolman who witnessed the blast.
Six members of Shahad's "Sons of Iraq" neighbourhood patrol were among the wounded in Baquba, 65 km (40 miles) northeast of Baghdad. It lies in Diyala, a province that was once in the grip of Sunni Islamist al Qaeda and which continues to be one of Iraq's most restive regions.
"They were all walking together. That's why we had so many wounded," Shahad said.
Violence has fallen significantly in Iraq this year but insurgents are still capable of carrying out bloody attacks.
Tensions remain high in Diyala between majority Shi'ites and Sunni Arabs, some of whom initially sided with al Qaeda, ahead of provincial elections next year and the withdrawal by mid-2009 of U.S. troops from Iraqi cities and towns.
(Editing by Charles Dick)
Palestinians fear Israeli moves in parts of East Jerusalem
By Isabel Kershner
Sunday, December 7, 2008
JERUSALEM: A series of recent Israeli actions in the mainly Arab neighborhoods of East Jerusalem have raised tensions there, with Palestinian and Israeli critics contending that they are part of a wider plan to "Judaize" historically charged areas around the Old City.
The actions, ostensibly unconnected, include the demolition of two Arab homes in Silwan, a neighborhood adjacent to the Old City above the ruins of an ancient Jewish site; the start of a controversial infrastructure project there; and the eviction of a Palestinian family from its home in Sheik Jarrah, another neighborhood coveted by Jewish nationalists near the Old City.
None of these actions in themselves are that unusual here. But the spate of high-profile, highly symbolic moves in the past few weeks has reignited concerns that an increasing Jewish presence in Arab areas will further complicate the chances of reaching an Israeli-Palestinian political agreement based on a two-state solution that calls for a division of powers in a shared capital.
And they come as a new Jerusalem mayor who has vocally supported expansion of Jewish settlements in East Jerusalem takes office.
"East Jerusalem must be the capital of the Palestinian state," said Hatem Abdel Qader, an adviser on Jerusalem affairs to the Palestinian Authority prime minister, Salam Fayyad. "Israel is trying to create facts on the ground and determine the results before we reach any solution."
Some believe that the Israeli authorities and Jewish nationalists, who are increasingly gaining footholds in the Arab neighborhoods, are intentionally exploiting the period of political transition in the United States, as well as the political vacuum in Israel before the February elections.
"Several elements combine to make the situation in Jerusalem much more dangerous," said Hagit Ofran of Peace Now, a left-wing Israeli group that opposes Jewish settlements in areas that are expected to be part of a Palestinian state. The conditions are ideal, she said, "for settlers to seek to force their agenda without fear of challenge or repercussions."
A spokesman for Jerusalem City Hall, Gidi Schmerling, rejected the accusations, saying municipal enforcement is carried out equally and according to the law in the eastern part of the city and the predominantly Jewish western part. He added that the demolition of the houses, which were built on public land, was carried out after the residents lost their appeals in the district and supreme courts.
The home demolitions in that part of Silwan, where a volatile mix of about 7,000 Palestinians and a few hundred Jewish ultranationalists live in cramped quarters on steep hillsides above the ruins of the ancient City of David, set off a riot. They were the first of 88 homes to be razed in a compound built without proper permits where Israeli planners want to expand a national archaeological park.
The infrastructure improvements, in ordinary circumstances, would be welcome news in a poor and neglected neighborhood like Silwan. But in the charged atmosphere of East Jerusalem, which Israel seized from Jordan in the 1967 war and later annexed, some perceive even municipal road works and new traffic arrangements as part of a larger plan.
In late November, thee Jerusalem city authorities and East Jerusalem Development, an Israeli government company, began a project to lay new water and sewage pipes and to repave one of Silwan's main roads. The road, known to Arabs as Wadi Hilweh and renamed by the Israeli authorities as City of David Steps, runs roughly from the main entrance of the City of David site down toward the compound known as the Bustan, where the demolitions took place.
Many local residents oppose the traffic changes, which have already been instituted, as well as plans to turn empty spaces along the road into parking lots, saying they will benefit the tourists to the detriment of the local residents.
"We lack schools, playgrounds, everything," said Jawwad Siyam, an activist in Silwan. "The Israeli government and Jerusalem city are now like tools in the settlers' hands."
With the help of the Association for Civil Rights in Israel, a human rights group, Siyam and several other residents have gone to court to try to halt the work. They told the court that they feared that the road works would turn up archaeological finds, requiring a salvage dig "that could paralyze life in the area for years."
Eli Shmuelyan, the deputy director of East Jerusalem Development, dismissed the complaints. "We're creating parking lots for the residents as well," he said, "so the streets will be clear and the buses can move."
Perhaps the opponents of the project "enjoy traffic jams," he said.
But what the opponents see is a pattern, a direct line extending from the City of David and the Bustan - where the demolition orders were issued in 2005 but were delayed, largely because of international pressure - to the eviction of the Palestinian family in Sheik Jarrah.
The family, the Kurds, which had lived in its home there for more than 50 years, was evicted in early November. A Jewish association claims ownership of the land and has plans to build a large Jewish housing complex there.
For years, the Kurds had refused to pay rent as protected tenants in their own home, as they had been ordered to do, pending the outcome of a protracted legal battle against the Jewish claimants. Religious Jewish nationalists had already moved into an extension of the Kurds' small, single-story stone house.
The Kurds' home is adjacent to a site held by Jews to be the ancient tomb of Shimon Hatzadik, or Simeon the Just, a Jewish high priest from the days of the Second Temple. A Jewish organization has reclaimed the land based on property deeds whose authenticity is disputed, and which date back to the 1870s, long before the Jewish state was established in 1948.
Another 27 Palestinian families are threatened with eviction on the same grounds.
"People in the neighborhood are very upset and fear they will be next," said a resident, Mahmoud Abu Turk, who was visiting the mourning tent.
The Palestinian Authority, based in the West Bank, is responding by trying to assert its presence.
Abdel Qader and Rafiq Husseini, the director of the president's office, took a group of foreign consular officials on a tour of Silwan, Sheik Jarrah and other problematic areas of East Jerusalem last week.
The tour was "symbolic," Abdel Qader said, a "message to Israel" that the Palestinian leadership can also operate in Jerusalem.
Others note that the Jewish reclamation of pre-state property in East Jerusalem could open a political Pandora's box of counterclaims.
In a symbolic protest Thursday, Muhammad al-Kurd's widow, Fawziyah, 56, accompanied by Palestinian and Israeli activists and two Arab Israeli members of Parliament, briefly set up a tent in the affluent West Jerusalem neighborhood of Talbieh.
She said her parents abandoned a home there when they became refugees in 1948.
Steven Soderbergh's 'Che': Revolutionary glamour
By Terrence Rafferty
Sunday, December 7, 2008
"We only won the war," Commandante Ernesto Guevara says a couple of hours into the movie that bears his memorable nickname, "Che." "The revolution begins now."
Not in this picture, though. Steven Soderbergh's ambitious new film, opening Dec. 12 in the United States and worldwide through February, consists of two parts (each running 131 minutes). The first is set in Cuba, where Guevara helped Fidel Castro overthrow the dictator Fulgencio Batista in a long guerrilla campaign that ended in December 1958; the second takes place in Bolivia, where Guevara went in 1966 to start a revolution that he hoped would spread throughout Latin America (he was Argentine by birth) and where he died a year later. What's missing in the film is the very revolution whose beginning he has so solemnly announced.
This is odd but somehow not surprising, because movies about revolutions do tend to give pride of place to the fighting and to elide the duller, often grimmer business of actually governing in a revolutionary way. And movie revolutionaries frequently deliver themselves of weighty pronouncements like Guevara's, to which the viewer is expected to nod thoughtfully in agreement.
His revolution-begins-now statement is something he really said, and it was stirring enough to reappear, paraphrased, as the wisdom of an Algerian insurgent in Gillo Pontecorvo's classic 1966 "Battle of Algiers." "It's hard enough to start a revolution, even harder to sustain it, and hardest of all to win it," says one of the more intellectual leaders of the militants in that film. "But it's only afterward, once we've won, that the real difficulties begin."
Both Guevara and his North African counterpart are, of course, absolutely right: what happens after the battles have been won is indeed the most difficult part of the strange, inherently improvisatory process of revolution - so tricky that many leaders, Castro among them, manage to maintain power only by declaring a kind of eternal state of revolution. (It keeps beginning and beginning and beginning. ...) And because this strategy is neither dramatically nor humanly very satisfying, the movies have rarely shown much interest in the internal dynamics of revolutionary governments; in this Soderbergh's film is not alone.
But weirdly, Richard Fleischer's much maligned 1969 "Che!," with its ridiculous exclamation point, does make at least an attempt to deal with the first few years of the Castro regime, to examine the peculiar relationship between the Maximum Leader, Fidel, and the ideological hard-liner Che, and even to acknowledge Guevara's complicity in the orgy of executions that accompanied the new government's ascension to power. The movie's studio gloss undermines its pretensions to seriousness, as does its old Hollywood approach to ethnic casting: the Egyptian matinee idol Omar Sharif as Guevara and the ineffably absurd Jack Palance as a cartoon Castro, wily and doltish by turns. (The new "Che" has a far more convincing Guevara in Benicio Del Toro and a slyly funny performance by Demián Bichir as Castro.) But in its maladroit way "Che!," though clearly designed to exploit the fascination of late-'60s radical youth with their favorite countercultural martyr, does get at some uncomfortable truths about the ambiguities of revolutionary governance.
Naturally, you never see anything of that sort in films made under the auspices of the revolutionary regimes themselves, for which art exists only to perpetuate the heroic mythology of the (permanent) struggle. That's as true of Cuba in the past half-century as it was of the Soviet Union in the 70-plus years between the Bolshevik revolution and perestroika, though the early Soviet filmmakers did a much, much better job of mythologizing their cause.
Sergei Eisenstein's first two films, "Strike" (1924) and "The Battleship Potemkin" (1925), are, despite the crudeness of their propaganda, fiercely exciting as cinema, full of eloquent compositions and startlingly inventive editing and with a passionate, nervous energy that was like nothing else in movies at the time.
Castro's Cuba never enjoyed that sort of cinematic renaissance, not even for a short time. There is virtually nothing of value to be learned from the Cuban movies of the last 50 years, most of which adhere to the dreary Stalinist aesthetic of socialist realism, as if artistic imagination were somehow threatening to the revolution, an unseemly and dangerous form of competition.
This would probably have been the case in the French Revolution, too, had the movies been invented in time for the likes of Robespierre to lop off the heads of pesky auteurs. And although France is at this point pretty definitively postrevolutionary, it's still uncommon to see a French film that does full justice to the bloodbath in which the republic was born. To do so would risk violating the nation's sense of itself, as even the venerable Eric Rohmer discovered when his bracingly intelligent "The Lady and the Duke" (2001) was pilloried in the Paris press. The most penetrating movie about the French Revolution, "Danton" (1983) was directed by a Pole, Andrzej Wajda, who brings to the story of deadly factional politicking a welcome objectivity and a macabre sense of absurdity - a cold-eyed horror at the spectacle of murder in the name of revolution.
So it could be a while before we get the whole story of Guevara, Castro and the Cuban revolution; and when we do, it's sure to come from outside Cuba. Probably not from Hollywood, which hasn't had much success with this piece of history, the most notable attempt being Sydney Pollack's expensive flop "Havana" (1990). That picture tried, strenuously, to do something that wasn't worth doing, to make a Cuban "Doctor Zhivago," one of those ordinary-people-swept-up-in-the-tides-of-history epics whose fatal flaw is that they tend to leave the politics out of the most obviously political events.
The 2005 film "The Lost City," which covers much of the same ground, is better, perhaps because it was written by a Cuban exile, G. Cabrera Infante, and directed by a Cuban-American, Andy Garcia. (It certainly isn't apolitical; it's unabashedly anti-Castro, and whether you agree with that position or not, it gives the movie the focus and the drive that "Havana" conspicuously lacks.)
You can get a little more of the sad story from Julian Schnabel's moving "Before Night Falls" (2000), about the persecution of the gay Cuban novelist and poet Reinaldo Arenas, and more still from Néstor Almendros's blistering documentaries "Improper Conduct" (1984) and "Nobody Listened" (1987). (Only the latter is available on DVD, though there's a clip from "Improper Conduct" on the DVD of "Before Night Falls.")
But that's if you're interested in something like the truth, and truth isn't always of paramount importance when it comes to revolution (or movies, for that matter). Revolution is, in many people's minds, more about ideals, wild hopes, romance; too many facts, and the world looks impossible to change.
Che Guevara was literally the embodiment of the romantic notion that unyielding dedication and unceasing struggle could achieve the liberation of all the world's oppressed, and this is such an attractive idea that one may prefer not to dwell on his humorlessness, his rigidity, his icy ruthlessness. Most revolutions are necessary, most end up betraying the ideals they claimed to represent, and most revolutionaries are at least mildly sociopathic. "Revolutions attract crazies; it's a well-known fact," the French leftist filmmaker Chris Marker says in his brilliant documentary essay "The Last Bolshevik" (1993). But he says it sort of tenderly.
Marker's film (which is available on DVD through the Wexner Center for the Arts in Columbus, Ohio) is perhaps the only completely sane movie ever made on the deranging subject of revolution, because it's all paradoxes. The film takes the form of a series of letters from Marker to his dead friend Aleksandr Medvedkin, a Soviet filmmaker and committed Communist whose work often displeased his Kremlin masters.
"The Last Bolshevik" is about the power of images to reveal and to lie, and about the insidious effect of images on those who make them, whether innocently (as Medvedkin mostly did) or more calculatingly. Sometimes in a revolution, it can be hard to tell the difference.
Olmert slams "pogrom" but Palestinians still fearful
Sunday, December 7, 2008
By Alastair Macdonald
Israeli Prime Minister Ehud Olmert said on Sunday that attacks by Jewish settlers on Palestinians last week were a "pogrom" and that Israeli police must end "intolerable leniency" towards such violent offenders.
"As a Jew, I am ashamed of other Jews doing such a thing," Olmert told his cabinet, referring to a shooting incident.
But in the West Bank city of Hebron, where at least three Palestinians were wounded by gunfire on Thursday after troops cleared dozens of hardline, religious settlers from a large building, many locals were sceptical of such Israeli promises.
"We're expecting to be attacked again at any time by the settlers," said Bassem al-Jabari, as he and other neighbours looked at the evacuated site on Sunday. "No one cares about us."
Olmert, who has resigned over a corruption scandal but stays on as caretaker until after a February 10 election, has lately taken to describing settler attacks as "pogroms," using the Russian term for violence against Jews a century ago that drove some to emigrate to Palestine and, in time, establish the Israeli state.
"We are a people whose historical ethos is built on the memory of pogroms," Olmert told his cabinet, according to a statement. "The sight of Jews standing with guns and shooting at innocent Palestinian civilians can only be called a pogrom."
His latest remarks were among his strongest yet. They follow the broadcasting of video apparently showing a settler shooting and wounding Palestinians, as well as stone-throwing and other violence across the West Bank, including the torching of olive groves, which Palestinians leaders described as "waging war."
Olmert said he was pressing for prosecutions and "an end to the intolerable leniency ... towards settlers who break the law."
An Israeli court remanded one settler in custody on Sunday over the shooting allegation and released another on bail.
The United States, which failed in efforts to broker a peace in this final year of George W. Bush's presidency, has described the settlement of half a million Israelis in the West Bank since Israel captured the territory in 1967 as an obstacle to peace.
Olmert says Israel should clear outposts but draw borders with a new Palestinian state to ensure major settlements, deemed illegal under international law, are incorporated into Israel.
In Hebron, troops now occupy the building, dubbed "House of Peace" by the dozen or so settler families who refused to obey a court order to leave last month. A Palestinian denies selling it to them and is asking Israeli courts to return his property.
Mohammed al-Jabari, who lives close by the building, on a strip of hillside separating Hebron's ancient centre from the Jewish settlement of Kiryat Arba, said neighbours were glad the army was now in control: "It's better now. There is respect for the law. When the settlers were here, there was no law."
Longer term, however, his neighbours are not optimistic.
Jabari and other householders, mostly also from the Jabari clan, living in flat-roofed houses among patches of field and olive trees around the evacuated building recount a year or more of tension and clashes with the Jewish former occupants.
Though the allegations could not easily be verified, tales of rocks thrown at homes, women intimidated, a dead dog tossed into the courtyard of the local mosque, a horse poisoned, and so on were repeated by several Palestinians living close to a hard core of settlers. These see expansion in Hebron, which is home to the tomb of Abraham, as a religious and nationalist duty.
Israeli troops protect some 650 Jews living in the centre of Hebron, a city of 180,000, as well as surrounding settlements.
Palestinians say Israeli forces turn a blind eye to settler attacks while punishing Arabs who resort to violence: "It's double standards," Issa Amro, 28, a human rights activist.
He said local people were particularly fearful that settlers are allowed to carry rifles: "There is an Israeli soldier to protect every one of them," Amro said. "Why do they need M-16s?"
Another neighbour, using his nickname Abu Firas, recalled how his children had been terrified as settlers attacked their home with burning material and stones on Thursday: "They burnt our homes with the protection of the Israeli state," he said.
"Right now, I see no Israeli government. I see gang law," he added, surveying the hillside from a cemetery where at least two Muslim headstones have been daubed with a star of David.
"The only way to end this is for Israel to pull all settlers from the West Bank. It's a fight for survival. It's us or them."
Millions of Muslims prepare to stone devil at haj
Sunday, December 7, 2008
By Inal Ersan
More than two million Muslim pilgrims headed to Muzdalifa on Sunday to cast stones at the devil in the most dangerous part of the haj pilgrimage.
A sea of pilgrims, some on foot, some in vehicles, moved from the plain of Arafat down a desert boulevard lit by towering floodlights. At Muzdalifa, just outside Mecca, they gathered small pebbles to throw at large walls at the Jamarat Bridge, symbolising the rejection of temptation.
"I'm very proud to be a Muslim today. No other religion can gather this many people for any event," said Zahi Khan, a 58-year-old Pakistani.
Pilgrims will spend the next three days visiting the bridge as well as revisiting the Grand Mosque in Mecca. Monday is also Eid al-Adha, commemorating the willingness of biblical patriarch Abraham to sacrifice his son for God.
The bridge has been the scene of a number of deadly stampedes -- 362 people were crushed to death there in 2006 in the worst haj tragedy since 1990.
Saudi authorities have made renovations to ease the flow of pilgrims at the Bridge, adding an extra level so that pilgrims have four platforms from which to throw stones each day.
They are also making clear appeals to pilgrims this year to throw their stones at any time of day rather than only in the afternoon, as Saudi clerics have often insisted in the past.
Saudi Arabia has not so far reported any glitches in the haj, a logistical feat of organisation that has been marred in previous years by deadly fires, hotel collapses, police clashes with protesters and stampedes caused by overcrowding.
But authorities were not able to stop some political activities, which pilgrims had been called on to avoid.
Iranian television showed Iranian pilgrims at Arafat chanting "Death to America" and "Death to Israel." Ayatollah Mohammad Mohammadi Reyshahri, head of Iran's haj mission, said Islam was now resurgent, despite some Muslims' despair "in the face of Western civilization's onslaught."
PRAYER AT ARAFAT
Pilgrims spent the day in prayer at Arafat 15 km (10 miles) east of Mecca at the climax of haj, a duty for every able-bodied Muslim once in a lifetime and one of the largest manifestations of religious devotion in the world today.
Throughout the day men in white seamless robes and veiled women in long dresses wept with emotion while sprinklers cooled temperatures of 30 degrees Celsius (86 Fahrenheit).
"O God, I am answering your call," many chanted.
"Being here is better than anything I have ever experienced ... better than the time I saw my children for the first time," said Rawya Mohammad, a secretary from Egypt.
"I feel privileged. I am one in a million Muslims with the honour of performing pilgrimage this year. This is a reward," said Omar Salah, a 38-year-old engineer, also from Egypt.
The haj retraces the path of Prophet Mohammad 14 centuries ago after he removed pagan idols from Mecca, his birthplace, and years after he started calling people to the new faith, which is now embraced by more than one billion people worldwide.
Some prayed for an end to the global financial crisis. "The economic crisis is on the mind of most pilgrims ... It's an unexpected crisis and the only solution is mercy from heaven," said Mohammad Fateh, from an Egyptian brokerage.
Saudi Grand Mufti Sheikh Abdul-Aziz Al al-Sheikh said in a sermon at Arafat that straying from Islamic sharia law was behind the financial collapse and other problems.
As part of its beefed-up crowd control measures, the government has been tougher this year in preventing Saudis and residents taking part without official haj permits.
Saudi media said a record 1.72 million pilgrims came from abroad this year; over half a million come from inside the country, home to Islam's holiest sites.
(Additional reporting by Hashem Kalantari in Tehran; Editing by Elizabeth Piper)
Israel halts boat planning to deliver aid to Gaza
Sunday, December 7, 2008
TEL AVIV: Israeli police on Sunday blocked an attempt by Israeli Arabs to sail a boat from Israel to the Hamas-controlled Gaza Strip with a cargo of food and medical supplies.
Israel's blockade of the Gaza Strip has been stepped up in recent weeks amid a surge of violence along its frontier with the Palestinian territory.
An Islamic group in Israel comprised mainly of Arab citizens of the Jewish state organized what was to have been the first voyage of a boat from Israel to the Gaza Strip with humanitarian supplies.
But police in the port of Jaffa instructed the boat's owner not to set off for Gaza and ordered him to move the vessel to the nearby Tel Aviv marina, where it was put under watch.
"We warned the boat's owner that he would be breaking the law and would be arrested if his boat were to try to sail to Gaza," police spokesman Micky Rosenfeld said.
Israeli law bans Israeli citizens from travelling to the Gaza Strip, territory Israeli soldiers and settlers quit in 2005.
"This is a cowardly act by people and the police who fear our delivery of medication to Gaza's Shifa hospital. But we will continue to try to break the siege," said Ahmed Tibi, an Arab member of Israel's parliament.
About a fifth of Israel's citizens are Arabs, many of whom see themselves as Palestinians. Most are descendants of Palestinians who stayed in what became Israel while hundreds of thousands of others fled or were driven out in a 1948 war over the state's establishment.
Many of Israel's Arab citizens belong to the same families as Palestinians living in coastal Gaza and the West Bank, territories captured by Israel in a 1967 Arab-Israeli war.
The United Nations and human rights groups have voiced concern about the humanitarian situation in the Gaza Strip and called on Israel to ease its blockade.
Last week, the Israeli navy turned back a Libyan ship which Palestinian and Libyan officials said was trying to deliver 3,000 tonnes of food, medicine and other aid to the Gaza Strip.
Israel, apparently seeking to avoid a public confrontation, had previously allowed several boats carrying pro-Palestinian foreign activists and humanitarian goods to dock in the Gaza Strip after setting sail from Cyprus.
Israel said it launched an air strike in Gaza on Sunday against a group of Palestinians preparing to fire rockets at Israel. There were no reported casualties. Dozens of rockets and mortar bombs have been fired at Israel since the weekend.
(Writing by Ori Lewis and Allyn Fisher-Ilan; Editing by Charles Dick)
Obama's best pick yet: Jones as national security adviser
By Albert R. HuntBloomberg News
Sunday, December 7, 2008
Last week, the world was taken by President-elect Barack Obama's new foreign policy team: Hillary Rodham Clinton as U.S. secretary of state and Robert Gates, who is being kept on as head of the Defense Department.
Both choices are remarkable. There has not been anything approaching the selection of Clinton since 1980, when Ronald Reagan offered the vice presidency to an old rival, the ex-President Gerald Ford; in contrast, the Clinton appointment is probably a good idea.
Only a year ago, a central theme of the Obama insurgency campaign was his opposition to the war in Iraq. Imagine if it was suggested then that he would win the election and keep President George W. Bush's defense chief.
This is a testament to both Gates and to the recent U.S. success in Iraq.
Yet the most impressive, and perhaps important, choice may have been Obama's tapping General James Jones to be his national security adviser.
In his own right, Jones, 64, is as formidable as the other two heavyweights. He's a retired four-star general; a highly decorated 40-year Marine veteran; a former commandant of the corps and supreme allied commander of NATO forces. He also rejected Bush's overtures for positions including deputy secretary of state and chairman of the Joint Chiefs of Staff.
Jones looks the part. If there was a movie about this team, the tall, broad-shouldered Jones would play himself, now that John Wayne is gone.
"He has a terrific military background, great discipline, considerable diplomatic skills and a commanding presence," said former Defense Secretary William Cohen. Cohen has known Jones for 30 years - the general was his top military aide at the Pentagon - and still doesn't know whether Jones is a Republican or a Democrat.
Although Jones and Obama barely know each other, people who know them well predict they will forge a close relationship. Both are intellectually curious, self-confident, more pragmatic than ideological, and interested in seeking out people with different perspectives.
"If they didn't think there would be a rapport, the offer would not have been given or accepted," said Senator Jack Reed, a Rhode Island Democrat who is one of the preeminent military specialists in Congress. "Intellectually and temperamentally, they are similar."
If so, Jones would bring something to the national security job that has been sorely missing. He is an honest and effective mediator and broker of ideas, assuring that strong policy differences are framed for the president in a fair way and that only big matters are brought to him.
This is the role so effectively played by another general, Brent Scowcroft, during the first Bush presidency. Scowcroft, who was personally close to George H.W. Bush, has been an adviser to and a model for Jones and helped Jones decide to accept this post, associates say.
During the first Bush administration, Scowcroft served as a go-between for high-powered officials - Jim Baker at State, Dick Cheney at Defense and Colin Powell, chairman of the Joint Chiefs - and always did it with skill and sensitivity and with the president's interests preeminent.
The honest-broker national security role was derailed for most of the current Bush presidency. Defense Secretary Donald Rumsfeld and Vice President Cheney bypassed all channels, intent on outmaneuvering Secretary of State Powell. With an acquiescent and passive president, they succeeded in making a travesty of the national security decision-making process.
Even before Clinton has been confirmed by the Senate, fears are being stoked that she will try similar end runs in an Obama administration. Some of her associates have put out the word that she will have a unique ability to deal with the president directly and be more equal than others.
"That would not be a great prescription," warned Cohen, who headed the Pentagon during Bill Clinton's presidency.
If anyone tries an end run, they would be likely to find the national security adviser a formidable obstacle. Jones has privately been appalled and frustrated at the breakdown of a coherent interagency national security system and is determined to restore that process.
His record suggests he will be a realpolitik internationalist and reject the neoconservative unilateral approach.
He has told friends that it is important to "get it right" on Russia and not simply to act reflexively on Vladimir Putin's aggressiveness.
He appreciates that the most important bilateral relationship will be with China. In the Middle East, as in other matters, he will follow the president's directives while advocating more engagement. And he wants to close the Guantánamo detention center and end torture.
It is not hard to see why he and Rumsfeld did not see eye to eye.
Jones, never a fan of the Iraq war, has indicated that he considers Afghanistan an enormous challenge. Although he supports sending more forces there, he also believes that success is impossible without a comparable effort to reform the Afghan government and to use American "soft power."
He brings another credential that Reed, a veteran of the 82nd Airborne Division, considers vital: "He has commanded marines in combat. He knows decisions made in Washington ultimately are carried out by young marines, soldiers, sailors and airmen."
Jones is a tough marine. He also has wide-ranging interests and an attractive gentle side. He and his wife, parents of a special-needs daughter, created a program for Marine families in similar situations when he was commandant.
When recognized several years ago by the Atlantic Council, a musical response was suggested. In fluent French, he sang Édith Piaf's "La Vie en Rose."
Indeed, about the only myth in the Jones lore is that he was an outstanding basketball player for a renowned Georgetown University basketball program in the 1960s. Actually, he played there before Georgetown became a national power and averaged only 0.8 points per game.
Yet Cohen, once an all-state basketball player in Maine, has played pickup games with Jones for years and warns he can be fairly imposing on the court. Not nearly as imposing, Cohen adds, as off the court.
Ahead of new nuclear talks, North Korea lashes out at Japan
By Choe Sang-Hun
Sunday, December 7, 2008
SEOUL: As representatives from five regional powers converged in Beijing on Sunday to join what is possibly the Bush administration's final major effort to revive a nuclear disarmament deal with North Korea, Pyongyang vowed to ignore Japan at the talks.
The U.S. assistant secretary of state, Christopher Hill, will use the Beijing talks, scheduled to begin Monday, to try to persuade North Korea to allow outside experts to take nuclear waste samples for testing, considered a key procedure in determining the extent of the reclusive Communist country's past nuclear activities.
Hill held preliminary talks with his North Korean counterpart, Kim Kye Gwan, in Singapore last week and later said he expected the Beijing conference to be "difficult." On Sunday, Kim Sook, the South Korean envoy to the six-nation talks, said: "I am not very optimistic."
In its final weeks in power, the Bush administration is struggling to complete the so-called "second phase" of a program working toward Washington's ultimate goal of dismantling North Korea's nuclear weapons programs.
The plan for that phase called for North Korea to disable - but not destroy - its main nuclear complex north of Pyongyang and to agree to a method of verifying its past nuclear activities in return for one million tons of fuel aid and its removal from Washington's list of state sponsors of terrorism.
Hill's last-ditch efforts face serious hurdles in Pyongyang, where analysts say the regime is more interested in dealing with the new administration of President-elect Barack Obama, and also in Tokyo, where disgruntled policy makers have refused to join Washington and others in shipping fuel aid to North Korea.
In a rebuff to Washington's approach, Japan has refused to donate its share of 200,000 tons of aid fuel unless North Korea first addresses the kidnappings of more than a dozen Japanese citizens in the 1970s and '80s.
Washington and Seoul are now talking with countries like Australia and New Zealand about shouldering Japan's share.
Only half of the promised one million tons of fuel has been delivered. North Korea in turn is slowing down the disablement of its nuclear complex in Yongbyon, where it has produced plutonium for weapons.
Barring a dramatic breakthrough in Beijing this week, officials in Seoul say that the task of completing the second phase would be handed over to the Obama administration.
"We will neither treat Japan as a party to the talks nor deal with it even if it impudently appears in the conference room, lost to shame," a North Korean Foreign Ministry spokesman was quoted as saying Saturday by the official Korean Central News Agency.
North Korea has issued similar threats in the past. China and Russia are also party to the talks, which began after Pyongyang withdrew from the Nuclear Nonproliferation Treaty in 2003.
Since Hill became Washington's front man on North Korea in 2005, he has cobbled together key agreements with North Korea, including the September 2005 deal that laid out a road map toward the North's nuclear disarmament. But he has stumbled over Pyongyang's tactic of giving vague commitments to win U.S. concessions and then retracting them, saying that nothing was written down.
The latest case in point involves the dispute over nuclear samples. In October, Washington announced that the North had agreed to allow sampling, and removed the North from its terrorism blacklist. But a month later, the North said that it had never given such a promise and that Washington had no written document to prove otherwise.
Washington seeks a comprehensive method of verifying North Korea's nuclear history. It wants, for example, to check whether North Korea has a uranium-enrichment program and whether it has proliferated nuclear technology to countries like Syria.
But North Korea insists that separate, more detailed verification systems be renegotiated in line with progress in the disarmament talks. It intends to keep key parts of its nuclear programs in the dark so it can use them as leverage in future talks, analysts say.
Debt watchdogs: Tamed or caught napping?
By Gretchen Morgenson
Sunday, December 7, 2008
"These errors make us look either incompetent at credit analysis or like we sold our soul to the devil for revenue, or a little bit of both."
— A Moody's managing director responding anonymously to an internal management survey, September 2007.
The housing mania was in full swing in 2005 when analysts at Moody's Investors Service, the nation's oldest and most prestigious credit-rating agency, were pressured to go back to the drawing board.
Moody's, which judges the quality of debt that corporations and banks issue to raise money, had just graded a pool of securities underwritten by Countrywide Financial, the nation's largest mortgage lender. But Countrywide complained that the assessment was too tough.
The next day, Moody's changed its rating, even though no new and significant information had come to light, according to two people briefed on the change who requested anonymity to preserve their professional relationships.
Moody's had assigned high grades to many securities containing Countrywide mortgages. Those securities and mortgages, issued during the lending spree of recent years, later soured — leaving investors with large losses and homeowners and communities struggling with foreclosures.
That was not the only time Moody's softened its stance on Countrywide securities. It elevated ratings several times after Countrywide complained, the people briefed on the matter say.
Since the subprime mortgage troubles exploded into a full-blown financial crisis last year, the three top credit-rating agencies — Moody's, Standard & Poor's and Fitch Ratings — have faced a firestorm of criticism about whether their rosy ratings of mortgage securities generated billions of dollars in losses to investors who relied on them.
The agencies are supposed to help investors evaluate the risk of what they are buying. But some former employees and many investors say the agencies, which were paid far more to rate complicated mortgage-related securities than to assess more traditional debt, either underestimated the risk of mortgage debt or simply overlooked its danger so they could rake in large profits during the housing boom.
A Moody's spokesman, Anthony Mirenda, said the company would not change ratings without substantive reasons. "As a matter of policy, Moody's is obligated to reconvene a rating committee if there is new information put forth by an issuer that could have a material impact on a security's creditworthiness," he said, "and our policies prohibit changes to ratings for anything other than credit considerations."
He added that "Moody's knows of no instances in which a reconvened rating committee resulted in improper changes to ratings on Countrywide securities."
Bank of America, which took over Countrywide earlier this year, said it could not verify details of prior management's interactions with Moody's.
Members of Congress have grilled the agencies, asking their executives to answer accusations of incompetence and to say whether they assigned glowing ratings to keep clients happy and expand their business.
State and U.S. government officials are also making inquiries. Moody's recently disclosed in its regulatory filings that it had received subpoenas from state attorneys general and other authorities pertaining to its role in the credit crisis.
Moody's said it was cooperating with the investigations.
"Moody's credit ratings play an important but limited role in the financial markets — to offer reasoned, independent, forward-looking opinions about relative credit risk, based on rigorous analysis and published methodologies," Mirenda said. The company denies that it went easy on ratings to generate income.
That the credit-rating agencies missed immense problems in the mortgage-related securities they blessed is undeniable. Moody's declined to say how many classes of the securities it has downgraded. But the number is in the thousands and the original value in the hundreds of billions of dollars.
When Moody's began lowering the ratings of a wave of debt in July 2007, many investors were incredulous.
"If you can't figure out the loss ahead of the fact, what's the use of using your ratings?" asked an executive with Fortis Investments, a money management firm, in a July 2007 e-mail message to Moody's. "You have legitimized these things, leading people into dangerous risk."
Whether such risks were truly undetectable, or were ignored by Moody's and the other agencies, is at the core of what regulators, legislators, investigators and investors are trying to determine.
Moody's current woes, former executives say, were set in motion a decade or so ago when top management started pushing the company to be more profit-oriented and friendly to issuers of debt. Along the way, the firm, whose objectivity once derived from the fact that its revenue came from investors who bought Moody's research and analysis, ended up working closely with the companies it rated, and being paid by them.
And in 2000, when Moody's issued stock to the public for the first time, executives hungry to churn out quarterly profit growth had another incentive to redirect the firm's focus from low-margin ratings of relatively simple bonds to highly lucrative assessments of much more complex debt securities.
As it rode the mortgage wave, Moody's came to enjoy profit margins that were higher than those of the mightiest of Fortune 500 companies, including Exxon and Microsoft.
"Moody's was like a good watchdog that had regarded the financial markets as its turf and barked and growled when anybody it didn't know came near it," said Thomas McGuire, a former director of corporate development at the company who left in 1996. "But in the '90s, that watchdog got muzzled and gelded. It was told to turn into a lapdog."
A lucrative niche
A key reason for the soaring housing market was a process known as securitization. The machinery, devised by Wall Street, packaged individual mortgages into ever larger and more complex bundles. This allowed banks to sell their loans to investors, thereby reducing the banks' risk and allowing them to lend more to aspiring homeowners.
Wall Street made handsome profits bundling and selling the loans, and investors stepped up to buy the packaged debt, often because rating agencies like Moody's had graded it as safe enough for the investors' portfolios.
The agencies divided the securities into slices known as tranches and analyzed each based on its risk. The securities deemed safest received the rating Moody's called Aaa.
Consider a residential mortgage pool put together in summer 2006 by Goldman Sachs. Called GSAMP 2006-S5, it held $338 million of second mortgages to subprime, or riskier, borrowers.
The safest slice of the security held $165 million in loans. When it was issued on Aug. 17, 2006, Moody's and S&P rated it triple-A. Just eight months later, Moody's alerted investors that it might downgrade the top-rated tranche. Sure enough, it dropped the rating to Baa, the lowest investment-grade level, on Aug. 16, 2007.
Then, on Dec. 4, 2007, Moody's downgraded the tranche to a "junk" rating. On April 15 of this year, Moody's downgraded the tranche yet again; today, it no longer trades. The combination of downgrades and defaults hammered the securities.
Reversals like this have enraged investors. Internal e-mail messages disclosed by Congress in October, for example, recounted a July 2007 conversation Moody's had with an irate customer at Pimco, a major money management firm.
"He feels that Moody's has a powerful control over Wall Street but is frustrated that Moody's doesn't stand up to Wall Street," the e-mail stated. "They are disappointed that in this case Moody's has 'toed the line. Someone up there just wasn't on top of it,' he said."
For decades after its founding in 1909, Moody's was an independent and respected arbiter of credit quality. Today, the company's 1,200 analysts rate debts of 100 nations, 12,000 corporate issuers, 29,000 public issuers like cities and 96,000 complex securities known as "structured finance." It is a franchise that generated revenue of $1.35 billion and earnings of $370 million in the first three quarters of this year alone.
Edmund Vogelius, a Moody's vice president, explained the company's business model in a 1957 article in The Christian Science Monitor.
"We obviously cannot ask payment for rating a bond," he wrote. "To do so would attach a price to the process, and we could not escape the charge, which would undoubtedly come, that our ratings are for sale."
In the early 1970s, Moody's and other rating agencies began charging issuers for opinions. The numbers of securities — and their complexity — had increased and the agencies could no longer finance their operations on revenue from investors who bought Moody's publications.
In 1975, the Securities and Exchange Commission secured the rating agencies' positions by allowing banks to base their capital requirements on the ratings of securities they held. The upside of this was that it theoretically created an elegant self-policing mechanism: any firm that ran afoul of the agencies also would run afoul of investors. The heavier hand of direct government regulation could be scaled back.
But for McGuire, the former director of corporate development at Moody's, there were also dangers in relying on ratings as a form of regulation because the agencies would be able to sell ratings even if they failed investors.
"Rating agencies are staffed by ordinary people with families to support and bills to meet and mortgages to pay," he said in a speech to the SEC in 1995. "Government regulators are inadvertently subjecting those people to improper pressure, and share accountability for any scandals which may result."
Fortunes tied to issuers
As the agencies exerted growing sway, they became the arbiters that issuers loved to hate. Yet instead of viewing that ire as a reflection of their independence, Moody's executives decided that it signaled a need to become more friendly to issuers of debt, according to Jerome Fons, a former managing director for credit quality at Moody's.
"In my view, the focus of Moody's shifted from protecting investors to being a marketing-driven organization," he said in testimony before Congress last month. "Management's focus increasingly turned to maximizing revenues. Stock options and other incentives raised the possibility of large payoffs."
An early proponent of the profit push was John Rutherfurd Jr., who joined Moody's in 1985. In 1998, he became chief executive; a news release that year praised him for helping the company's bottom line.
According to people who worked with him at Moody's, Rutherfurd was very focused on profit. They recall a conversation about 10 years ago in which he said he wanted every Moody's analyst to produce at least $1 million in revenue each year. This encouraged Moody's to generate as many ratings per analyst as possible.
In an interview, Rutherfurd said that he might have discussed such a goal but that he did not recall it specifically.
"Moody's has to be all the time both a standards business and a service business," he said. "I wasn't in Moody's in the old days, so to speak, but I think I always understood both elements of what we had to do."
By the time Moody's became a public company in 2000, structured finance had become its top source of revenue. Employees in this unit rated bundles of assets like credit card receivables, car loans and residential mortgages. Later they rated collateralized debt obligations, or CDO's, yet another combination of various bundles of debt.
Moody's could receive between $200,000 and $250,000 to rate a $350 million mortgage pool, for example, while rating a municipal bond of a similar size might have generated just $50,000 in fees, according to people familiar with Moody's fee structure.
A standard of profitability at many companies is its operating margin, which measures how much of its revenue is left over after it pays most expenses. While operating margins at Moody's were always enviable — in 2000 they stood at 48 percent — they climbed even higher as revenue from structured finance rose. From 2000 to 2007, company documents show, operating margins averaged 53 percent.
Even thriving companies like Exxon and Microsoft had margins of 17 and 36 percent respectively in 2007. But Moody's and its counterparts were not founded to be profit machines.
"The mistaken notion that Moody's was a company like any other, that was very fundamental," said Sylvain Raynes, a former Moody's analyst who is co-founder of R&R Consulting, a firm that helps investors gauge debt risks. "It is not just a profit-maximization entity like Exxon or Microsoft. Moody's has a duty to the American public. People trusted it."
Moody's soaring fortunes were tied to the housing boom. When the Federal Reserve Board cut interest rates to 1 percent in 2003, Moody's structured-finance revenue stood at $474 million, more than twice the amount generated just three years earlier.
As low interest rates fed the housing surge, Moody's structured-finance business continued to rack up impressive gains. In 2005, structured finance generated $715 million, or 41 percent, of Moody's total revenue.
In both 2005 and 2006, almost all of the unit's growth came from mortgage-related securities, the company said, rather than other forms of debt like credit card receivables or auto loans. By the first quarter of 2007, structured finance accounted for 53 percent of Moody's revenue.
The man overseeing Moody's structured-finance unit in the midst of the mania was Brian Clarkson, 52. He had joined Moody's as an analyst in 1991 and rose through the organization until he became president in 2007. He resigned last May; he declined to comment for this article.
As mortgage securities grew more complex, investors leaned more heavily on the agencies' ratings. There was little transparency around the composition and characteristics of the loans held in the pools, and the securitization process grew so complicated that it required sophisticated systems to assess the risks embedded in each bundle.
Even though the standards at many lenders declined precipitously during the boom, rating agencies did not take that into account. The agencies maintained that it was not their responsibility to assess the quality of each and every mortgage loan tossed into a pool.
Anger from investors
By early 2007, it was becoming more and more obvious that the subprime mortgage boom was ending. Yet Moody's did not start downgrading mortgage-related securities until that summer. In July and August, the firm cut the ratings on almost 1,000 securities valued at almost $25 billion.
"These loans are defaulting at a rate materially higher than original expectations," Moody's said. Investors sharply criticized Moody's over the tardiness of the response, internal documents made public in congressional hearings show.
Two e-mail messages in July 2007 recount conversations Moody's had with executives at Vanguard, BlackRock and Fortis, three huge money management firms. While Fortis offered some of the harshest assessments, none of the firms were pleased.
The Vanguard executive, the messages show, was frustrated that Moody's was willing to "allow issuers to get away with murder." As a result, the Moody's messages say, Vanguard "finds itself 'less and less relying on the opinions of rating agencies.' " BlackRock, meanwhile, said that Moody's "relied too much on manufactured data that is weak" when rating residential mortgage securities.
Two months later, Moody's executives held a meeting for their managing directors to talk about the crisis. The tone of the meeting, according to a transcript released by Congress, was defiant.
Moody's had become a "punching bag," said one of its executives, an easy target for investors eager to deflect responsibility for escalating mortgage losses.
"One of the questions everybody asks is, 'Why does everybody hate us so much?' " Clarkson said during the meeting. "The theory that I've come up with lately is the fact that it's perfect. It's perfect to be able to blame us for everything."
During the meeting, Moody's executives predicted that the current crisis of confidence would pass, just as investor outrage over the company's failure to detect trouble at Enron and Worldcom had several years earlier.
Other employees at the meeting were not so sure. When asked by top management if the meeting addressed the topics of greatest concern, one managing director whose anonymous comments were part of the documents given to Congress said there had been "really no discussion of why the structured group refused to change their ratings in the face of overwhelming evidence they were wrong."
And two months later, Christopher Mahoney, former vice chairman of Moody's and the person who led its credit policy committee, wrote in an e-mail message to Raymond McDaniel, the firm's chief executive, that although mistakes had been made in subprime mortgage loss estimates, "more importantly I think sector wide risk management rules should have done more to alert investors of problems."
Obama economic recovery plan includes vast public works program
By Brian Knowlton, Peter Baker and John M. Broder
Sunday, December 7, 2008
WASHINGTON: Saying that the U.S. economy would probably worsen before it improved, President-elect Barack Obama on Sunday pledged to pursue a recovery plan "equal to the task ahead," with a vast public works program built around not just bridge and highway projects, but also the creation of "green jobs" and the spread of new technologies.
"This is a big problem," Obama said of the economic crisis, "and it's going to get worse."
He also said in an interview with NBC News that any bailout of the domestic automakers should be tied to a reinvention by Detroit of an industry "that really works." But with Congress poised to act on the automakers' urgent pleas for help, he also said that despite the industry's mistakes, "I don't think it's an option to simply allow it to collapse."
As his transition team formulates its plans for recovery, Obama promised far tougher regulation of the financial sector.
"What you will see coming out of my administration right at the center," he said, "is a strong set of new financial regulations, in which banks, ratings agencies, mortgage brokers, a whole bunch of folks start having to be much more accountable and behave much more responsibly."
But with jobs evaporating and the recession deepening, the biggest news Obama made probably came in the details he offered Saturday for the recovery program he is trying to fashion with congressional leaders in hopes of being able to enact it shortly after being sworn in on Jan. 20.
It would be, he told NBC, elaborating on remarks he made Saturday, "the largest infrastructure program in roads and bridges and other traditional infrastructure since the building of the federal highway system in the 1950s."
His comments followed a report on Friday indicating that the country lost 533,000 jobs in November alone, bringing the total number of jobs lost over the past year to nearly two million.
Obama would not put a dollar value on his proposed works program, but said the key in deciding which projects to finance would not be "the old, traditional politics" but assessing which projects could most quickly boost the economy while providing longer-term benefits.
His remarks showcased his ambition to expand the definition of traditional work programs for the middle class, like infrastructure projects to repair roads and bridges, to include jobs in technology and so-called green jobs that reduce energy use and global-warming emissions.
Obama's plan would be in part a government-directed industrial policy, with lawmakers and administration officials picking winners and losers among private projects and raining large amounts of taxpayer money on them.
It would cover a range of programs to expand broadband Internet access, to make government buildings more energy-efficient, to improve information technology at hospitals and doctors' offices, and to upgrade computers in schools.
"It is unacceptable that the United States ranks 15th in the world in broadband adoption," Obama said Saturday. "Here, in the country that invented the Internet, every child should have the chance to get online."
President George W. Bush and many conservative economists have opposed such large-scale government intervention because it supports enterprises that might not survive in a free market. That is the crux of the argument against a government bailout of the auto industry.
But Obama proposes to charge ahead, asserting that extensive government support is needed to preserve and create jobs while building the latticework of a 21st-century economy.
Obama said he would invest record amounts of money in an infrastructure program, which would include work on schools, sewer systems, mass transit, electrical grids, dams and other public utilities. The green jobs would include those dedicated to creating alternative fuels, windmills and solar panels; building energy-efficient appliances; or installing fuel-efficient heating or cooling systems.
Paul Bledsoe, a former White House energy adviser in the Clinton administration, said that Obama had now settled whatever debate there was in his transition team and among Democrats in Congress over how to lift the economy in the short term and over a longer horizon.
"It's now clear that Obama intends to stimulate the economy through large direct government spending on infrastructure projects as well as through business and individual tax cuts," said Bledsoe, now an official of the National Commission on Energy Policy, a nonpartisan research group in Washington. "He is advocating things like guaranteeing every American a college education, wiring the entire country for Internet, putting in a smart electric grid. If he can do it, these will be major systemic advantages for the United States in the competitive global economy."
Obama and his team are working with congressional leaders to devise a spending package that some lawmakers suggest could total $400 billion to $700 billion.
A big part of that will be public works spending. When Obama met with the nation's governors last week, they said the states had $136 billion worth of road, bridge, water and other projects ready to go once money became available.
Local and regional transit systems have $8 billion more in projects that could begin immediately, like buying hybrid buses and expanding light rail systems.
"He hasn't given us any commitment, but we are fairly certain it's going to be large," Governor Edward Rendell of Pennsylvania, a Democrat and chairman of the National Governors Association, said Saturday. "I think he understands if you're trying to reverse the economy and turn it around, this is not the time to do it on the cheap."
Bush and other Republicans have resisted such an approach partly out of concern for the already soaring federal budget deficit, which could easily hit $1 trillion this year.
Conservative economists say public works spending has not been a reliable catalyst for short-term growth and lends itself to political misuse.
Obama implicitly tried to counter such arguments by invoking the federal interstate highway program, seen as one of the most successful public works efforts in American history.
President Dwight Eisenhower signed the Federal Aid Highway Act in 1956, ultimately resulting in the construction of 42,795 miles of roads, dramatically improving highway travel. In 1991, the government concluded that the total cost came to $128.9 billion.
The green-jobs portion of the economic package could run as high as $100 billion over two years, according to an aide familiar with the discussions.
Obama, on NBC, reiterated his pledge to give tax cuts to 95 percent of Americans, and said that the days of the rich benefiting disproportionately while the middle class loses ground were a "real aberration." He would not say how quickly he might move to raise taxes on the wealthiest Americans.
His NBC interview was aired a few hours before an afternoon news conference at which he said he would be nominating General Eric Shinseki as his secretary of veterans affairs.
The general fell out with the Bush administration after predicting that it would take hundreds of thousands of U.S. troops to occupy Iraq. The nomination of a Japanese-American held special poignance, falling on the anniversary of the Pearl Harbor attack.
Asked about the Mumbai attacks, Obama said the United States needed strong strategic relationships with every country in the region and said that so far, President Asif Ali Zardari of Pakistan had "sent the right signals" by indicating that he knew terrorists in his border area threatened not just outsiders, but also Pakistan itself.
And, at a time of considerable tension with Russia, he said that his administration would "reset relations with Russia" - without offering any elaboration of how he planned to do so.
News Analysis: Are automakers really too big to fail?
By Steven Greenhouse
Sunday, December 7, 2008
NEW YORK: In the days before Lehman Brothers was allowed to fail, U.S. Treasury officials made it clear that they did not think the investment bank's collapse would have a major ripple effect.
And in recent weeks, in congressional hearing rooms and at water coolers across the United States, a lot of people have been saying the same thing about the beleaguered Detroit automakers.
What Lehman's failure shows, supporters of the Big Three bailout contend, is that there can be unanticipated consequences of allowing a major company to go under, and the full extent of the risks becomes clear only after the fact - when it can be too late to contain the repercussions.
Over the weekend, congressional leaders and the Bush administration provisionally agreed to a bailout in which some $17 billion in taxpayer money would be used to keep General Motors and Chrysler afloat. Ford, meanwhile, says it does not need immediate U.S. aid.
But some lawmakers and economists continue to argue that General Motors and Chrysler are too far gone to be saved and that trying to bail them out would amount to throwing away taxpayer dollars. Moreover, those lawmakers warn that rushing to the rescue with U.S. money would reward the automakers for years of poor management and myopic decisions, like producing gas guzzlers.
Back in September, Treasury officials similarly argued that bailing Lehman out would have wrongly rewarded it for bad behavior and excessive risk-taking, and thereby would have given the U.S. financial sector a green light for future bad behavior.
Seeing how Lehman's collapse shocked the stock and credit markets, Robert Barbera, chief economist at ITG, an investment firm, cautioned that not bailing out the Big Three could prove short-sighted.
"It's very different from Lehman, because you don't have the systemic financial system risk, but it would be equally stupid," Barbera said. "If Congress allows the auto companies to fail, and with the effect that this would have on sales and production, what this means to the real economy will have instantaneous and brutal effects on the stock market."
In other words, Barbera warned that opposition to lending either the $17 billion agreed to - or to the $34 billion that the car companies originally requested - could result in stock markets plunging by hundreds of billions of dollars. And that does not include the billions of dollars in unemployment insurance benefits and pension bailouts that would be required to assist not just the displaced auto workers, but also the many other workers, from truck drivers to waitresses, whose jobs depend on the Big Three.
"There will be tremendous regret if we don't help them avoid bankruptcy in the next few weeks or months," said Mark Zandi, chief economist with Economy.com. "If they go into bankruptcy now, they'll go into liquidation and there will be the loss of hundreds of thousands, if not a million jobs - on top of the four or five million we're going to lose. That will add almost a point to unemployment by itself."
At a House Committee hearing Friday about Detroit's woes, Edward Altman, a professor of finance at New York University's Stern School of Business, recommended that the automakers enter bankruptcy reorganization.
Through such a move, he said, the automakers could sharply cut their costs by negotiating deals with their creditors, dealers and labor unions.
Many supporters of a bailout warn that filing for bankruptcy reorganization could quickly lead to liquidation because car buyers might lose faith in the companies and worry that their auto warranties would not be honored.
Altman said that large-scale debtor-in-possession lending - either by the U.S. government or banks that get a superpriority over other creditors - could help keep the automakers operating (and guaranteeing their warranties) as they restructure to regain competitiveness.
He said a restructuring, helped by financing under the bankruptcy laws, could actually reassure the stock market that "the damage can be minimized with a large debtor-in-possession financing" because "there will be more assurance that GM will be around for a long time."
Representative Spencer Bachus of Alabama, the ranking Republican on the House Committee on Financial Services, which held the hearing Friday, warned against a wholesale liquidation because it would jeopardize three million jobs. Yet he also opposed a U.S. bailout "because it's just taking money and putting into an inefficient operation, and that money will be simply washed down the drain."
Bachus voiced confidence that bankruptcy filings by one or more auto company would not cause markets to plunge. "I think a restructuring plan done with the protection of certain benefits of bankruptcy might be positively perceived," he said.
But Barbera warned against overconfidence, saying that Treasury officials thought they would carefully exact only a pound of flesh from Wall Street by letting Lehman fail, helping teach other investment banks not to take excessive risks.
"But," he said, "it turned out not to be a pound of flesh that was taken. It was a ton."
About those charges of bailout bias...
By David M. Herszenhorn
Sunday, December 7, 2008
WASHINGTON: Word that congressional Democrats were prepared to hammer out a government rescue plan for the beleaguered American auto industry came late Friday, not quite 12 hours after the Labor Department reported staggering new job losses.
But even before the unsettling news that another 533,000 Americans had fallen out of work, there was an angry undercurrent to the debate in Congress: the notion that Washington was much more motivated to bail out Wall Street financial firms than blue-collar manufacturers.
"In the district, people feel that this is clearly Congress caring more about people who wear Guccis than people who wear Levi's," said Representative Thaddeus McCotter, Republican of Michigan, one of the most conservative members of the House, whose constituents live just west of Detroit.
Representative Barney Frank, Democrat of Massachusetts and the chairman of the House Financial Services Committee, made a similar point at a hearing with the auto executives Friday but slung the arrow at the Bush administration. "I do think there is, at the decision-making level, a blue-collar, white-collar bias," he said.
For all the heated language, though, lawmakers and administration officials close to the decision making say class warfare was a negligible factor, compared with other critical differences, in how the two bailout cases have played out.
The culture clash over helping the auto companies was less Main Street vs. Wall Street than it was the usual battles in Washington: White House vs. Congress, House vs. Senate, Democrat vs. Republican. Politics, timing and the broader economic circumstances also factored into the debates on Capitol Hill.
While some have suggested that the American public was less sympathetic to the auto industry because more people than ever prefer to drive Toyotas and Hondas, lawmakers say that they actually heard much louder opposition from their constituents to the Wall Street bailout than to the rescue plan for the auto industry.
By Friday afternoon, Representative John Yarmuth, Democrat of Kentucky, had received roughly 700 calls about the automakers' pleas for help, running 60-40 in favor of a taxpayer rescue, a spokesman, Stuart Perelmuter, said. In September, Yarmuth received thousands of calls about the $700 billion bailout, at first with 20 to one opposed, and then four to one against, after the House initially voted the plan down and stock markets plummeted.
But the biggest difference, officials say, was that the case for the $700 billion was made to Congress directly by the Treasury secretary, Henry M. Paulson Jr., and the chairman of the Federal Reserve, Ben Bernanke, two public officials, who testified that urgent congressional action was needed to prevent a global economy cataclysm. And Congress did not have to pick and choose among the financial firms to help.
"We authorized the program but the specific beneficiaries, the specific details were worked out by Treasury," said Senator Jack Reed, Democrat of Rhode Island, adding that Chrysler, General Motors and Ford have had to make their own case for aid.
"They are making the presentation themselves, not a public official who says we need a program to help these people, and in that sense it's harder for them to get traction."
Reed, who favors a government rescue plan, said that if the individual financial firms had been forced to plead their case in the same way, Congress would have debated the merits of each request, just as the Treasury had to make separate decisions about Bear Stearns, Lehman Brothers, American International Group and Citigroup.
And just as lawmakers questioned why the American automakers seemed to be so much worse off than their foreign-based counterparts, Reed said Congress would have raised similar questions about the financial firms.
"They would have run into the same types of perceptions," Reed said. "Why this company? What about the other companies in this industry?"
The automakers also faced a much steeper climb because of their unfortunate timing, coming to Washington tin cup in hand during a post-election, lame duck session, and at a time when there is severe bailout fatigue on Capitol Hill.
Unlike the financial system bailout, which was debated six weeks before a major election, with the entire membership of the House facing the voters' judgment, there was not a similar level of political urgency, despite the projections by some experts that General Motors could collapse before year's end.
The awful November jobs report helped provide some of that urgency.
In recent days, outrage among many Democrats over the Bush administration's handling of the bigger bailout, fueled by a sharply critical report by the Government Accountability Office, only added to the reluctance to put taxpayer money on the line.
Whether that reluctance can be overcome will be known when congressional Democrats put the rescue package up for votes later this week.
The White House flatly dismissed suggestions that it favored white-collar financial firms over the blue-collar automakers and accused Pelosi and Democrats of playing politics. The administration said it was working with Congress toward a deal.
"The financial rescue isn't about white collar vs. blue collar or Wall Street vs. Main Street," said Tony Fratto, the deputy press secretary. "And it's not about knee-jerk Democratic class warfare. It's about preventing the collapse of our entire economy."
Fratto noted that thousands of financial firm employees had lost their jobs in recent months, and that the U.S. government's intervention in the case of Bear Stearns led to the dissolution of the storied investment bank — not exactly a cheery ending.
At times there were also charges of regional bias, and some defenders of the auto industry suggested that there was an anti-union animus among lawmakers from areas where organized labor has only a small presence.
Still, some lawmakers said they could only conclude that the automakers were forced to travel an unduly rough road, and that the financial firms got a free pass.
At a banking committee hearing on Thursday, Senator Jon Tester, Democrat of Montana, gestured angrily at a chart showing the billions that have been received by the financial firms. "You guys have been put under far more scrutiny, far more scrutiny than the people up here on the board, for far less money," he told the auto executives. "I would love to have those birds in here again because they need to be talked to."
Frank noted on Friday that the United Auto Workers had agreed to cuts in base pay while the financial bailout legislation required only the end of bonuses and golden-parachutes for high-flying financial executives.
"I am sure the autoworkers would be willing to give up their bonuses," Frank scoffed.
At GM, innovation sacrificed to profits
By Micheline Maynard
Sunday, December 7, 2008
General Motors did not apologize for anything in its first trip to Congress more than two weeks ago to plead for a U.S. government rescue. The company's only problem, it insisted, was the current financial crisis.
"What exposes us to failure now is not our product lineup, or our business plan, or our long-term strategy," Rick Wagoner, GM's chief executive, said in his testimony.
On its return visit to a skeptical Congress this week, however, General Motors bowed its head. "GM has made mistakes in the past," Wagoner told Congress, and named three: agreeing to expensive union contracts, not investing enough in smaller cars and failing to convert its plants so they could build more than one type of vehicle.
It was an unusual concession from a company that has rarely felt the need to apologize for anything, given its bragging rights as the world's largest automaker with operations in 35 countries, and as a company that has built 445 million vehicles and sat atop corporate America for much of its 100-year history.
But the mistakes Wagoner acknowledged do not begin to explain why General Motors finds itself on the brink of insolvency, begging Congress for financial help.
GM's biggest failing, reflected in a clear pattern over recent decades, has been its inability to strike a balance between those inside the company who pushed for innovation ahead of the curve, and the finance executives who worried more about returns on investment.
The two views were rarely in sync — in effect, fighting over the steering wheel that controlled GM's direction — and the internal battles distracted GM from spotting shifts in the marketplace.
Time and again over the last 30 years, GM has spent billions of dollars on innovative ideas like its Saturn small-car company in the 1980s and the EV1 electric vehicle in the 1990s, only to then deprive those projects of further financing because money was needed elsewhere or because they were not delivering enough profit.
The failure is frustrating to those who remember the high value placed on innovation by legendary company leaders like Alfred Sloan Jr. and Charles Wilson, who felt GM could sell cars to the masses by demonstrating it was out in front.
"Until the 1960s, innovation was part of GM's DNA," said John Casesa, a veteran industry analyst with the Casesa Shapiro Group. "Now, it's a matter of trying to play catch-up."
One such area is hybrid technology, an area where GM might be leading if it had encouraged the engineers who led its hybrid development as long ago as the 1970s, and continued building on expertise it gained with the EV1.
While Toyota has sold more than 600,000 Prius hybrids in the United States since 2000, General Motors will not start selling its Volt plug-in hybrid until 2010, when it hopes to sell 10,000 of them in the first year.
"We were late on hybrids," George M. C. Fisher, the lead outside director on GM's board, said in an interview this week. "Why were we late? We made a business decision as opposed to a marketing decision. That's probably a mistake, in retrospect."
Another, as Wagoner said last week, was its slow reaction to greater demand for smaller, more fuel-efficient vehicles. Although more are on the way, the only small car in its vast lineup of models to compete with the likes of the Honda Fit and the Toyota Yaris is the Chevrolet Aveo, a car made in Korea by GM's Daewoo subsidiary.
General Motors has tried to answer the call for greater fuel efficiency in the short run by outfitting some of its pickups, big SUV's and larger cars with hybrid-electric engines, but they have not caught on with consumers.
In the early 1990s, the company lagged Chrysler's Jeep and Ford by five years in bringing an SUV to market with mass appeal. Once it had ramped up its offerings, GM was reluctant to shift from big profitable vehicles to building small, less profitable cars, even when gas prices spiked.
By contrast, Ford, which also minted profits on a lineup heavy with SUV's, shifted its lineup faster to cars, although it still does not have one that can compete directly with the Fit and Yaris.
"We would have been chastised the other way if we had missed that opportunity," said Fisher, referring to its decision to focus so many resources on producing SUV's. "Giving consumers what they want is not a bad business decision."
Indeed, that approach worked well for GM for decades.
Its strategy of offering consumers an array of brands and choices, like the 70 different models across eight separate brands that it sells now, was meant to fulfill the goal set by its legendary chairman, Alfred Sloan, to offer a "a car for every purse and purpose."
(The idea was meant to contrast with Henry Ford's quip that a consumer could have any color he wanted, "as long as it's black.")
GM executives have long defended the myriad choices as necessary to defend the company's turf in a market crowded with competition both from across town as well as overseas. Likewise, its bet was always that GM, with its enormous marketing and research and development budget, could afford to offer such options.
Only now, in its second plea to Congress, did it acknowledge what just about every industry analyst has said for years: that GM has too many brands, now that its market share has fallen by nearly two-thirds from its peak in 1960 to just 22 percent today.
GM said last week that it would focus on just four core brands — Chevrolet, Buick, GMC and Cadillac — and sell or play down Saturn, Pontiac, Saab and Hummer.
The goal, it said in its new plan, is "to focus available resources and growth strategies on the company's profitable operations."
That may sound like an obvious strategy for any car company, but the automobile industry, like the aviation business, involves bets of billions of dollars that may not pay off for years, if at all.
For those willing to gamble and to follow through on their bets — like Chrysler did with minivans, like Toyota did with Prius and as Honda has done with its focus on fuel efficiency even when gas was cheap — the payoff in sales and reputation can be enormous.
But GM, despite its tradition of fostering innovation, has often been impatient for profits to emerge.
Casesa said that pattern stemmed from the fact that so many of the company's top executives had a background in finance, not in engineering and designing cars and trucks.
For the last half-century, virtually all of GM's chief executives, including Wagoner, have come from its financial side, which has judged most initiatives based on whether they will be profitable.
That "earn it" philosophy has led to the demise of some of GM's most publicized efforts to try something new, like the EV1 electric car, which GM leased to owners from 1996 to 1999, before killing the program as too expensive.
It also led GM not to introduce any new Saturn models for five years during the 1990s, effectively starving the division of new products that might have lured in new customers.
By contrast, Toyota lost money for years on Prius, which never caught on in Japan until Toyota halved its price. Likewise, Prius might have remained a cult car in the United States had gas prices remained low. But Prius sold out once prices topped $3 a gallon, and gave Toyota political cover when it introduced the big Tundra pickup truck in 2007.
Worries over profits has also stifled innovation at GM. Engineers actually started work on minivans a decade before Chrysler popularized them in the 1980s, said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan, and the son of a former GM president, who has advised GM for years. But GM's finance staff refused to give the go-ahead.
"They looked at it and thought, 'Why would people need minivans if they had station wagons?' " Cole said. After Chrysler's vans were a big hit, GM tried to capture attention in the early 1990s with a series of slope-nosed vans derided as "Dustbusters" that failed to sell well. After other attempts, General Motors stopped selling minivans this year.
GM's failure to press forward with its own hybrids was a deep disappointment to Robert Stempel, the former chief executive who gave the go-ahead to the EV1 program during his brief tenure in the early 1990s.
"I'm furious," Stempel said in a 2003 interview. "GM had the technology. The lead was there. I know it."
This week, Wagoner told Congress that GM would innovate once more, this time in the hope of securing some sort of aid. The company's restructuring plan, he said, is "a blueprint for creating a new General Motors, one that is lean, profitable, self-sustaining and fully committed to product excellence and technology leadership."
This new blueprint undoubtedly was not what Wagoner had in mind less than three months ago, when he stood before hundreds of employees and executives to mark GM's centennial.
"What's our assignment for today and tomorrow?" Wagoner asked, and then provided the answer. "Above all, it's to demonstrate to the world that we are more than a 100-year-old company. We're a company that's ready to lead for 100 years to come."
Now the question is whether GM will make it to its 101st birthday as a solvent company.
In hard times, fear can impair decision-making
By Gregory Berns
Sunday, December 7, 2008
WORK is feeling more and more like a Skinner box.
Technically, a Skinner box is an operant conditioning chamber — in other words, a cage that automatically trains a laboratory animal to associate flashing lights and levers with rewards and punishments. It was invented in the 1950s by B. F. Skinner, the experimental psychologist, to study learning.
A green light flashes, or the animal pushes the right lever, and it is rewarded with a morsel of food. But some operant conditioning chambers were built with electrified floors: a red light comes on, and zap!
It doesn't take long for a rat to figure out which light goes with the shock and which goes with the food pellet. All animals, including we primates, are good at making these associations. Pretty soon, we don't even need the light — the mere sight of the cage can send some of us into a state of apoplexy.
And while the workplace is not quite an electrified cage, I think I would prefer a brief jolt of electricity over the intermittent shocks of watching the blinking red arrow of the stock market or the jolts of cutback after cutback by businesses.
Everyone I know is scared. Workers' fear has generalized to their workplace and everything associated with work and money. We are caught in a spiral in which we are so scared of losing our jobs, or our savings, that fear overtakes our brains. And while fear is a deep-seated and adaptive evolutionary drive for self-preservation, it makes it impossible to concentrate on anything but saving our skin by getting out of the box intact.
Ultimately, no good can come from this type of decision-making. Fear prompts retreat. It is the antipode to progress. Just when we need new ideas most, everyone is seized up in fear, trying to prevent losing what we have left.
I am a neuroeconomist, which means that I use brain-scanning technologies like magnetic resonance imaging to decode the decision-making systems of the human mind. It is a messy business, but a few pearls of wisdom have emerged about the fear system of the human brain and how to keep it from short-circuiting sound decision-making.
My colleagues and I conducted a brain-imaging experiment with our version of a Skinner box. Instead of a box, our participants were inside an MRI scanner. Instead of using an electrified floor, we attached electrodes to the tops of their feet. Although not unbearably painful, the shocks were designed to be unpleasant enough that the individual would prefer to avoid them altogether.
The kicker was that they had to wait for the shocks. Every trial began with a statement of how big the shock would be and how long they would have to wait for it: a range of one to almost 30 seconds. For many people, the wait was worse than the shock. Given a choice, almost everyone preferred to expedite the shock rather than wait for it. Nearly a third feared waiting so much that, when given the chance, they preferred getting a bigger shock right away to waiting for a smaller shock later. It sounds illogical, but fear — whether of pain or of losing a job — does strange things to decision-making.
Some people showed strong fear conditioning, and their brains displayed it through early and strong deployment of neural resources to deal with the impending shock. Most of this activity appeared in the parts of the brain devoted to processing pain. That makes sense, but the activity rose well in advance of receiving the shock. All of this worrying took energy. It means that these extreme responders had less available neural processing power to deal with other tasks.
Why is this important? The reason has to do with the "endowment effect," the innate tendency to value things you own more highly than everyone else does. A recent brain imaging study showed that the same parts of the brain we observed in our experiment are also active when people must sell something they are attached to. The cause and effect have not been fully sorted out, but the implication is that when our brains sense pain, or anticipate loss, we tend to hold onto what we have. When everyone does this at once, the result is a downward economic spiral.
The most concrete thing that neuroscience tells us is that when the fear system of the brain is active, exploratory activity and risk-taking are turned off. The first order of business, then, is to neutralize that system.
This means not being a fearmonger. It means avoiding people who are overly pessimistic about the economy. It means tuning out media that fan emotional flames. Unless you are a day-trader, it means closing the Web page with the market ticker. It does mean being prepared, but not being a hypervigilant, everyone-in-the-bunker type.
I DON'T care what your business is, but if you think it will eventually come back to what it was — your brain is in the grips of the fear-based endowment effect. What I am doing is looking for new opportunities. This means applying neuroscience discovery to realms where it hasn't been used before.
I have teamed up with anthropologists to apply brain imaging to understand the biological roots of political conflict. I am starting another project to use brain imaging to predict which teenagers are likely to make fatally bad judgments and, hopefully, train them to make better decisions.
This strategy keeps the exploratory system of my brain active. And right now there are incredible opportunities to do something differently. Yes, they're risky, and some will fail. But while others wait for the storm to pass, I'm busy expanding into new areas. If I wait for money to start flowing again, the opportunities will have passed.
Diversification failed this year
By Natsuko Waki
Sunday, December 7, 2008
LONDON: The attractiveness of spreading your investment eggs in many baskets is fading fast in the short term, as strengthening correlations of different asset classes are aggravating losses on a diversified portfolio.
During the credit boom from 2002 to early 2007, investors were encouraged to diversify their traditional equity-bond portfolio, spread risks and seek extra returns by buying commodities, hedge funds and real estate, which were seen as having almost no correlation with traditional stocks and bonds.
However, since the credit crisis began in August 2007, these alternatives fell in lockstep with, or sometimes faster than, equities, driving volatility higher and amplifying the losses of a risky portfolio.
"Diversification failed in 2008," said Terence Moll, head of multi-asset strategy at Investec Asset Management. "Some alternative assets went through bubbles, and precisely these bubbles got punished. Assets that are overpriced do not give diversification."
His analysis shows that returns to an eight-asset-class portfolio, comprising stocks, bonds, emerging market stocks and bonds, real estate, commodities, hedge funds and managed futures, lost 29.1 percent since October 2007.
This compares with a loss of 26.3 percent in a simple equity-bond portfolio. And adding in fancier asset classes such as timber or infrastructure, a 12-asset class portfolio lost an even deeper 43 percent in roughly the same period.
For example, world stocks, measured by MSCI, fell 5 percent last week. Light crude plunged 25 percent on the New York market, while the Reuters-Jefferies CRB index of commodities and futures fell 14 percent.
"Until the last three months it used to be said that diversification is the only free lunch in the market, but that free lunch seems to have gone away," said Andrew Dyson, head of Europe, Middle East and Africa institutional business at BlackRock.
Analysts say the very unique nature of the deleveraging this year has resulted in all risk assets falling at the same time.
"We are under stress, and the correlation is going up," said William De Vijlder, chief investment officer at Fortis Investments. "But undervaluation is not related to the view that diversification is bad. Valuation on a diversified portfolio has gone down, but that creates opportunities."
Investec's Moll thinks investors may not want to seek out new and seemingly uncorrelated asset classes to diversify their portfolio, but they should consider mixing traditional and alternative assets in the right proportions.
"Alternative is never going to be alternative again," he said.
Last week, central banks from New Zealand, Australia, Sweden, Denmark, Britain and the euro zone slashed interest rates, with Sweden surprising investors with an aggressive cut of 1.75 percentage points.
This week's expected data on British manufacturing and retail sectors and U.S. retail sales and investor confidence, among others, is only likely to reinforce the argument that interest rates have further to fall in the next few months.
Merrill Lynch estimates that central banks around the world have cut interest rates by a total of 88 basis points this year. It expects an additional 86 basis point of cuts by the end of 2009.
Speculation is also swirling that interest rates in major economies are heading to zero, especially in the United States, where investors expect the Federal Reserve to cut the cost of borrowing to 0.25 percent this month.
The world of zero rates seems even closer in reality, looking at real interest rates - nominal interest rates minus inflation. Credit Suisse estimates that official rates of 1 percent in both Britain and Europe would give a real rate of zero.
The Swiss bank has found that in Europe defensive stocks such as food and health care tended to outperform the market three months after the first rate cut, followed by cyclical stocks such as technology and autos three months after the second cut.
However, the bank cautions against overbuying cyclical stocks, as they do not yet fully discount recession, and its model suggests a further 5 percent underperformance.
Fund managers also agree generally on the issue of getting back into stocks now.
"A lot of people admit that there are a lot of opportunities. But they are on a buyers' strike," De Vijlder of Fortis said. "If you get the timing wrong you can lose 7 to 8 percent. It's not the environment where you do your asset allocation on Jan. 2 and not do anything for the rest of the year."
Sebastian Tong contributed reporting.
It may not look that way, but diversification still works
By Paul J. Lim
Sunday, December 7, 2008
THIS market meltdown is testing not only investors' patience and risk tolerance, but also their faith in one of the most widely accepted principles of investing: diversification.
When you own different types of assets in a portfolio, some holdings should be rising while others are falling. That's the theory, anyway. But it hasn't been working out that way for many investors.
With the exception of Treasury securities, virtually all asset classes have fallen in unison of late. These include even supposedly safe investments like high-quality corporate bonds; the average intermediate-term, investment-grade fixed-income fund has lost more than 6 percent of its value since the stock market peaked on Oct. 9, 2007.
Many asset classes have performed even worse, falling by various double-digit percentages since the market peak. This group includes domestic blue-chip stocks, small-company shares, foreign equities, commodities, real estate investment trusts, high-yield bonds and emerging-market debt.
Over the short term, diversification does not promise that your portfolio won't decline. Rather, the strategy is intended to ensure that at least some of your investments hold their value at any given time.
By this token, diversification hasn't entirely failed in the current downturn. But investors needed to diversify some of their money into two specific assets — Treasury securities and cash — to call this strategy a success.
Simply diversifying your types of stocks didn't help. For example, between the October 2007 peak and the start of December this year, both the Standard & Poor's 500 index of domestic stocks and the Morgan Stanley Capital International EAFE index of foreign shares fell more than 40 percent.
Nor did it help to own commodities, which some investors thought would soar regardless of the health of the United States economy. But as it became clear that the entire global economy was slowing — and as crude oil prices fell to less than $50 a barrel from around $140 — most of the major commodity indexes plummeted.
Clearly, the most important step in diversifying your portfolio is to hold some of your money in stocks and some in bonds, said James Shambo, a financial planner in Colorado Springs. But only if you had put a large portion of your bond holdings into Treasury securities would your overall portfolio not have fallen so severely.
Say you invested $100,000 in the S&P 500 on Oct. 9, 2007, and held it there until the start of this month. Thanks to the bear market, you would be left with just $58,750. Had you diversified properly — say, by putting 40 percent of your money in the S&P 500; 25 percent in foreign stocks in the MSCI EAFE index; 25 percent in the broad bond market as represented by the Barclays Capital U.S. Aggregate Bond index; and 10 percent in cash instruments like Treasury bills, you would still be down, but your portfolio would be worth more than $72,825.
As for your stocks, the only strategy that seemed to work — or at least incur smaller losses — was dollar-cost averaging, a way of diversifying by making purchases in regular increments.
For example, if you invested $150,000 in a lump sum in the S&P 500 at the start of October 2007, you would have had $90,400 left by the start of this month. But had you invested $10,000 a month, every month, starting last October, you would have had roughly $106,000 left in your account.
Time is a crucial ingredient in all diversification strategies. "Pooh-poohing diversification will always work if you pick a short-enough time period to look at," said Sam Stovall, chief investment strategist at S&P
This is particularly true if you examine only periods of crisis. In a panic, there tends to be a "flight to quality." This means frightened investors are likely to sell their risky assets to move into Treasury securities, which has happened in the current crisis. Of course, all the assets investors sell during panics will move in lock step.
That would explain why, in most bear markets, "there is simply no place to hide in the stock market," Stovall said. He studied bear markets going back to 1946 and found that every sector in the S&P 500 lost ground by double-digit percentages during the average downturn.
Only over time does diversification really show its worth. For example, over the 10 years through November, the S&P 500 lost almost 1 percent a year, on average. But a diversified portfolio of 40 percent S&P 500 stocks, 25 percent foreign shares in the MSCI EAFE index, 25 percent in fixed-income securities found in the Barclays Capital U.S. Aggregate Bond Index, and 10 percent in Treasury bills gained nearly 2 percent annually, on average, according to T. Rowe Price.
At least that was a gain. And the diversified portfolio was also 36 percent less volatile than the all-stock portfolio.
Investors need to appreciate the limits of diversification, said Ned Notzon, chairman of the asset allocation committee of T. Rowe Price.
"If someone is really concerned about the losses they suffered in the past year — if on Dec. 31, 2007, they thought they needed to preserve all their money as of Dec. 31, 2008 — then they really shouldn't have been diversified to begin with," Notzon said. Instead, those short-term investors should have kept their money in cash, or a combination of cash and short-term debt.
Shambo adds that investors who are growing skeptical of diversification need to ask themselves an important question: What other choices do they have?
"If the alternative is to concentrate your bets, where would you have concentrated during this sell-off?" he asked.
The answer, of course, is Treasuries. But even if you were smart enough to put all your money in them before the stock market peaked in October 2007, you would now have a portfolio that is concentrated in the sole asset class that is trading at frothy prices in this bear market.
OF course, if your intention is simply to hold Treasuries to maturity, you'll have no problem. But if you want to sell those bonds — or a Treasury bond fund — once the economy starts to recover, you may be disappointed by the price you are offered.
That is why it still makes sense for long-term investors to diversify — to ensure that not all of their money is tied up in the priciest asset at any given moment.
An economic downturn? Not yet for North Dakota
By Monica Davey
Sunday, December 7, 2008
FARGO, North Dakota: As the rest of the United States sinks into a 12th grim month of recession, this state, at least up until now, has been quietly reveling in a picture so different that it might well be on another planet.
The number of new cars sold statewide was 27 percent higher this year than last, state records through November showed. North Dakota's foreclosure rate was minuscule in the second quarter of this year, among the lowest in the country. Many homes have still been gaining modestly in value and, here in Fargo, construction workers can be found on any given day hammering away on a new condominium complex in the city center, complete with a $540,000 penthouse (still unsold, but with a steady stream of lookers).
While dozens of states, including neighboring ones, have desperately begun raising fees, firing workers, shuttering tourist attractions and even abolishing holiday displays to overcome gaping deficits, lawmakers this week in Bismarck, the state capital, were contemplating what to do with a $1.2 billion budget surplus. And as some states' unemployment rates stretched perilously close to the double digits in the autumn, North Dakota's was 3.4 percent, among the lowest in the country.
"We feel like we have been living in a bubble," said Justin Theel, part owner of a dealership that sells Toyotas, Dodges and Scions in Bismarck. "We see the national news every day. We know things are tough. But around here, our people have gone to their jobs every day knowing that they're going to get a paycheck and that they'll go back the next day."
North Dakota's cheery circumstance - which economic analysts are quick to warn is showing clear signs that it, too, may be in jeopardy - can be explained by an odd collection of circumstances: a recent rise in oil production that catapulted the state to fifth-largest producer in the nation; a mostly strong year for farmers (agriculture is the state's biggest business); and a conservative, steady, never-fancy culture that has nurtured fewer sudden booms of wealth like those seen elsewhere ("Our banks don't do those goofy loans," Theel said); and also fewer tumultuous slumps.
As it happens, one of the state's biggest worries right now is precisely the reverse of most other states: North Dakota has about 13,000 unfilled jobs and is struggling to find people to take them.
"We could use more people with skills for some of these jobs," Marty Aas, who leads the Fargo branch of the state's Job Service North Dakota, said on a recent afternoon, as his offices - where the unemployed might come for help - sat quiet and nearly empty. State employees outnumbered approximately six clients on a recent afternoon. (Aas insisted that such a slow afternoon was rare.)
State officials and private companies have begun looking elsewhere to recruit workers, including traveling in October to Michigan, where tens of thousands of workers have been laid off and, this month, holding an "online job fair," anything to lure people to a place that is, at least for now, removed from the deep financial dismay - if also just plain removed.
"Our problem is that everybody thinks that it's a cold, miserable place to live," said Bob Stenehjem, a Republican and the majority leader of the state Senate. "They're wrong, of course. But North Dakota is a pretty well-kept secret."
With 635,867 residents, North Dakota is among the least populous states in the country and, in the past few years, more people have moved away, census figures show, than have moved there.
Katie Hasbargen, a spokeswoman for Microsoft's Fargo campus, which is in the middle of a $70 million or so building expansion and is, even now, looking for a few additions to its work force (of more than 1,500 people), said false perceptions of the state were the problem when it came to recruiting workers.
"The movie," she said, referring to the 1996 film that bears this city's name, "didn't do us a lot of favors."
On a recent evening, as the night shift arrived at DMI Industries, where 383 workers (an all-time high) weld gigantic towers for wind turbines and where a $20 million expansion is under way, Phillip Christiansen, the general manager, wandered the plant, noting those who had been recruited from elsewhere - three from Michigan not long ago, another from Louisiana. "It's very competitive around here trying to find people," Christiansen said. "In this environment, it's a little hard."
Not that people are complaining much. Downtown, in the line of gift shops along Broadway, where shop owners reported sales that were healthy, residents said they were pleased - if a tad guilty - about the state's relative good fortune.
No one was gloating. No wild spending sprees were apparent. No matter how well things seemed to be going, many said, they were girding, in well-practiced Midwestern style, for the worst. "You're always a little worried," Christiansen said. "You get a tickle at the pit of your stomach."
Economic analysts said North Dakota has already begun showing some of the painful ripples seen elsewhere. Some manufacturing companies here have lately made temporary job cuts as orders for products have dropped nationally. Shrinking 401(k) retirement plans are no bigger here than anywhere else. And, most of all, drops in oil prices and farm commodity prices are sure to sink local fortunes, experts said.
An economist at Moody's Economy.com recently warned that conditions in North Dakota had "slowed measurably in recent months, and the state is now at risk of being dragged into recession." In an interview, Glenn Wingard, the economist, described North Dakota as "an outlier" up to now in a broad, national slump.
Dogfighting subculture is taking hold in Texas
By James C. Mckinley Jr.
Sunday, December 7, 2008
HOUSTON: The two undercover agents were miles from any town, deep in the East Texas countryside, following a car carrying three dogfighting fanatics and a female pit bull known for ripping off the genitals of other dogs. A car trailed the officers with two burly armed guards, hired to protect the dog and a $40,000 wager.
When the owners of the opposing dog, a crew from Louisiana, got cold feet and took off, the men in the undercover agents' party reacted with fury, offering to chase them down and kill them. The owner of the female pit bull, an American living in Mexico, was merciful. He decided to take the opposing dog and let the men live, the officers said.
Over 17 months, the agents from the Texas state police penetrated a murky and dangerous subculture in East Texas, a world where petty criminals, drug dealers and a few people with ordinary jobs shared a passion for watching pit bulls tear each other apart in a 12-foot-square pit.
Investigators found that dogfighting was on the rise in Texas and was much more widespread than they had expected. The ring broken up here had links to dogfighting organizations in other states and in Mexico, suggesting an extensive underground network of people devoted to the activity, investigators said.
Besides a cadre of older, well-established dogfighters, officials said, the sport has begun to attract a growing following among young people from hardscrabble neighborhoods in Texas, where gangs, drug dealing and hip-hop culture make up the backdrop.
The investigation here led to the indictments of 55 people and the seizing of 187 pit bulls, breaking up what officials described as one of the largest dogfighting rings in the country.
"It's like the Saturday night poker game for hardened criminals," said one of the undercover agents, Sergeant C. T. Manning, describing the tense atmosphere at the fights.
In between screaming obscenities at the animals locked in combat, Manning said, the participants smoked marijuana, popped pills, made side deals about things like selling cocaine and fencing stolen property, and, always, talked about dogs.
Dogfighting drew national attention in 2007 when Michael Vick, the quarterback for the Atlanta Falcons, was convicted of felony conspiracy after holding dogfights on his property in Smithfield, Virginia On Monday, officials in Los Angeles announced the breakup of a dogfighting ring. It was the outcry among animal-welfare groups after Vick's arrest that prompted the Texas Legislature to make dogfighting a felony in September 2007. Before that, the police in Texas had largely ignored the phenomenon because the offense was a misdemeanor.
In the Texas case, law enforcement officials described a secretive society of men who set up prize fights between their pit bulls and bet large sums on the outcome. Many of those indicted had long criminal records, but they also include a high school English teacher, a land purchaser for an oil company and a manager at a Jack in the Box restaurant.
The participants generally arranged the fight over the phone, matching dogs by weight and sex, and agreeing to a training period of six or eight weeks.
The training techniques were brutal. One man who was indicted trained a dog by forcing it to run for up to an hour at a time through a cemetery with a chain around its neck that weighed as much as it did. Then he forced dogs to swim for long periods before running on a treadmill. Every day the dogs would be given dog protein powders, vitamins and high-grade food to build muscle.
Then, as the fight date approached, the trainers would starve the dog, give it very little water and pump it full of an anti-inflammatory drug.
The fights were held in out-of-the-way places — an abandoned motel in the refinery town of Texas City, a horse corral in a slum on the Houston outskirts, behind a barn on a farm near Jasper and at a farmhouse in Matagorda County, south of Houston.
The two undercover agents, Manning and his partner, S. A. Davis, posed as members of a motorcycle gang who stole automated teller machines for a living. They infiltrated the ring, allied themselves with a group of people who owned fighting dogs and rented a warehouse in Houston, where fights were eventually held.
People came to the contests from as far away as Tennessee, Michigan and the Czech Republic. Every weekend, fights were held throughout the area for purses that usually ran about $10,000. The agents documented at least 50 fights.
"The undercover cops were sometimes invited to three different dogfights in a night," said Belinda Smith, the Harris County assistant district attorney prosecuting the cases, along with Stephen St. Martin.
The ring members called the fights "dog shows." The two dogs would be suspended from a scale with a thin cord tied around their neck and torso. If one of the dogs did not make weight, the owner would forfeit his half of the prize money, or the odds would be adjusted. After the weigh-in, the owners washed each others' dogs in water, baking soda, warm milk and vinegar to make sure their coats were not poisoned.
Then dogs were forced to face off in a portable plywood box two feet tall, usually with a beige carpet on the floor, to show the blood, officials said. At the command of "face your dogs," the animals were turned toward each other. When the handlers released them, the dogs would collide with a thud in the center of the ring, tearing at each other's mouths, jaws, necks, withers and genitals, officials said. A referee usually would let the dogs fight until one backed off, then the handlers would take them back to their corners and wash them for 30 seconds.
During the fight, the exhausted animals would sometimes overheat, lock onto each other and lie in the ring. The handlers would blow on them to cool them off and force them to fight.
The fight usually ended when a dog refused to cross a line in the center of the ring to confront the opponent, known as "standing the line." Such dogs were usually drowned or bludgeoned to death the next day, officials said.
"These guys take it very personally," Manning said. "It's a reflection on them."
Most of the dogs seized were kept outside in muddy yards, chained to axles sunk in the ground, with only six feet of tether and no shelter, beyond, in some cases, a toppled plastic 40-gallon barrel. All suffered from multiple parasites, veterinarians said.
"These dogs were kept in more than cruel conditions — they were subjected to torturous conditions," said Timothy Harkness, of the Houston Humane Society. "Death was more pleasant than what they had to exist for."
Many of the surviving animals had battle wounds on their necks and mouths, Harkness said. Although some were not aggressive toward people, they were all bred to attack other dogs, and officials made the decision to euthanize them last week.
Dawn Blackmar, director of veterinary public health for Harris County, said that putting down more than 80 dogs in her care was heart-wrenching. "It was absolutely awful," Blackmar said. "It's not the dogs' fault. It's that people have taken and exploited this breed."
The members of the dogfighting ring were careful about who attended a fight, often limiting each side to 10 guests and quizzing people about who they were, who they knew.
The principals would keep the location of the fight secret until the last minute and then go in a caravan of cars to the rendezvous point, making it difficult to collect evidence, law enforcement officials said. They were also secretive about where they kept their dogs, for fear of robbery.
"People would go to the fights and talk about their yards," said Smith, the assistant district attorney. "But they were very secretive about where their yards are."
Smith said dozens of people who attended fights had yet to be identified, despite photos, because they piled into cars that did not belong to them to go to the events and never used their real names.
"There are a lot of people doing this," she said. "We could have gone on and on and on with this investigation."
A case for scrapping the Bush tax cuts
By Robert H. Frank
Sunday, December 7, 2008
On the campaign trail, Barack Obama promised to eliminate the Bush tax cuts for top earners after taking office in January. Now he seems to favor letting those cuts expire as scheduled in 2010.
His apparent concern is that raising anyone's taxes right away might worsen the economic crisis. As Obama's senior adviser, David Axelrod, said when asked about the delay on Fox News, "The main thing right now is to get this economic recovery package on the road, to get money in the pockets of the middle class, to get these projects going, to get America working again."
The U.S. government's first priority must of course be to stimulate spending as quickly as possible, deficits be damned. But it's important to get the biggest possible stimulus for any given deficit. To that end, it makes sense to stick with Obama's original timetable. Eliminating the Bush tax cuts right away would make it possible to generate a much larger immediate increase in total spending.
A robust finding in behavioral research is that people are extremely reluctant to accept cutbacks in their standard of living. With few exceptions, high-income taxpayers earn substantially more during their lifetimes than they spend, generally bequeathing the surplus to heirs or charities. If these taxpayers faced slightly higher rates, they would have ample resources to maintain their current lifestyle, so most of them would continue spending as before. The only consequence would be that they would leave smaller bequests.
The additional revenue from eliminating the Bush tax cuts would pay for larger temporary tax cuts for low- and middle-income families than the permanent tax cuts that are currently planned. And because these families spend most or all of their post-tax income, the immediate effect would be an increase in total spending roughly equal to the additional revenue from repealing the Bush tax cuts.
Or, the extra revenue could be used to raise benefits such as unemployment insurance and extend them more broadly. That would lift total spending by almost the full amount of the additional revenue.
Still another option would be to increase grants for city and state road maintenance crews. Here again, 100 percent of the distributions would be spent immediately.
But the additional stimulus would not stop there. When someone spends an extra dollar this way, others receive an extra dollar of income, some portion of which they spend, creating still more income for others. Appearing before the Senate Budget Committee last month, Mark Zandi, chief economist at Moody's Economy.com, testified that because of this multiplier effect, each dollar of new U.S. government spending would generate roughly $1.50 of additional demand.
In brief, there would be a lot more stimulus for any given budget deficit if the Bush tax cuts for top earners were scrapped immediately and the resulting revenue steered to people who would spend it.
Those who oppose repealing the Bush tax cuts will offer the same argument they employed to promote those cuts during Bush's first term in office, and echoed during the campaign by Senator John McCain: that low tax rates for top earners spur job creation by small businesses. Although this claim went largely unchallenged during the campaign, it flies in the face of the economic logic of hiring decisions. It rests implicitly on the premise that business owners will hire new workers whenever they can afford to do so. What matters, however, is not whether owners can afford to hire but whether hiring will increase their profits. If the goods produced by additional workers can be sold for at least enough to cover their salaries, hiring makes economic sense. But if additional workers won't produce enough to cover their salaries, hiring is a losing move. The after-tax personal incomes of business owners are irrelevant for hiring decisions.
Wouldn't tax cuts encourage additional hiring by owners who need cash to cover recruiting and training costs before new workers start generating extra revenue? In normal circumstances, cash-strapped owners would borrow to cover those costs if they expected additional workers to be productive enough to cover not just their salaries but also repayment of the loans. But during the current financial crisis, bank loans may not be readily available, so tax cuts could help. It would make far more sense, however, to offer hiring loans - as Obama proposed during the campaign.
In any event, the most important barrier to current hiring is not an absence of credit but the fact that not enough people want to buy what companies are selling. To eliminate this demand deficit as quickly as possible, the Bush tax cuts on top earners should be repealed right away, freeing up money for more effective use.
Although the new administration's first concern must be to get the economy back on its feet, economic justice was a central theme of Obama's campaign. After the Sept. 11, 2001, attacks, Americans were poised to respond to a call for national sacrifice. Instead, President George W. Bush and his allies in Congress enacted huge tax cuts for the wealthiest families. Those tax cuts made income inequality worse and drove deficits to record levels.
Referring to those cuts, Obama said, "People didn't need them, and they weren't even asking for them."
Economic fairness and economic growth are sometimes conflicting goals. But not here. Repealing the Bush tax cuts immediately is not just the fairest policy option but also the most efficient.
Grim times spur hunt for new fix
By Emily KaiserReuters
Sunday, December 7, 2008
WASHINGTON: The U.S. recession is deepening, and even massive government spending may not be enough to stop the downturn.
U.S. job losses hit a 34-year high last month, which worsens an already grim outlook for U.S. consumer spending and thus undercuts what had been one of the most reliable global growth engines for the past decade.
If recent downturns are any guide, it may be well into 2010 or perhaps even 2011 before unemployment peaks, which means the global economy should not count on a substantial U.S. consumer spending rebound any time soon.
"The economy is now locked in a vicious downward spiral in which employment, incomes and spending are collapsing together," said Nigel Gault, chief U.S. economist at IHS Global Insight.
Gault said the worsening outlook was putting pressure on President-elect Barack Obama to devise an even larger stimulus package to arrest the decline.
"We had assumed a $550 billion package over three years," Gault said. "We will need more than that."
Figures due this week are likely to illustrate just how hard household finances have been hit, and how far the repercussions from the yearlong U.S. recession has spread.
A U.S. Federal Reserve report Thursday is expected to show that household wealth declined for a fourth straight quarter through September. A separate report that day from the U.S. Commerce Department will likely indicate that the U.S. trade deficit narrowed, with exports and imports declining.
"Right now the economy, globally and domestically, is in a mutually reinforcing downward spiral," said Bill Cheney, chief economist at John Hancock Financial.
Slower consumer spending has limited U.S. imports and contributed to a steep drop in the price of oil. As demand in the rest of the world weakens, that is hurting U.S. exports, exacerbating job losses.
Figuring out when the vicious cycle will end would entail predicting when credit markets will return to something resembling normal, which is uncertain. But this much is clear: employment typically rebounds long after recessions end.
In the 1990 downturn in the United States, it took another 15 months for unemployment to peak. In the 2001 downturn, the jobless rate topped out 19 months after the recession ended.
Even in the most optimistic forecasts, few economists can envision the current episode ending before April, so if the economy follows a similar trajectory, that would put the unemployment peak well into 2010 or even 2011.
In the last three months alone, nearly 1.3 million U.S. jobs were lost, sending the unemployment rate to a 15-year high of 6.7 percent.
Steven Wieting, an economist with Citigroup, thinks unemployment may rise toward 9 percent by mid-2010, and that presumes some "healing" in credit markets.
Citigroup expects a global recession next year, with growth remaining slow into 2010 even with big spending plans in the United States, Europe, China and elsewhere.
Interest rates are also falling quickly, as evidenced by steep reductions in the euro zone and Britain last week. The U.S. Federal Reserve has already cut its benchmark rate to 1 percent, and many economists now think it will reach zero in January, if not this month.
Yet despite the steps taken so far and expectations of more, economic indicators offer little hope that the U.S. or global economy will bottom any time soon.
The series of reports last week on global manufacturing and services showed record lows in new orders, which heralds even more job losses.
So how to break the cycle? Government spending will help, but it will take time to be felt.
The developed world will probably need a boost from other sources.
The answer may lie with reserve-rich countries like China and the oil exporters, which are increasing spending at home to compensate for falling exports.
With the drop in U.S. spending and the slide in oil prices and global trade, the gap between surpluses in those nations and the U.S. deficit has narrowed.
That trend looks set to continue as Americans rediscover savings after years of relying on real estate and stock market wealth to fund retirement.
India moves to bolster growth
Innovation is a team sport
EU antitrust chief faces battle between principles and politics
Unexpected shocks for Chinese manufacturers
A domino effect in the global work force
A closer look at GE Capital
The last temptation of plastic
By Eric Dash
Sunday, December 7, 2008
Was that a layaway sign I saw?
For the last two decades in the United States, layaway has been a relic, a vestige of a time when banks promoted Christmas savings clubs and a Depression ethos of thrift reigned. Instead of swiping a credit card and walking off with the goods, shoppers would put their objects of desire on hold until they paid for them.
Almost sounds like a novel idea: "Pay first. Buy later."
Today, with the financial crisis worsening, the layaway sign has crept back into consumption culture. Discount retailers like Kmart and Sears are aggressively promoting layaway as a smart and exciting way to buy. No less a tastemaker than Oprah Winfrey has suggested that a new frugality might herald the return of the installment plan. "Remember layaway?" she prodded on her talk show this fall. "That is where we are heading."
Perhaps. But never underestimate the cravings of the American consumer and the convenience of the credit card. Fifty years ago, the financial industry was transformed by a thin piece of plastic. It was an innovation that lifted the American economy — and the world's, too. By making it easier to obtain credit — sometimes recklessly easy — the credit card empowered people to buy their dreams.
Still, the economic upheaval now under way raises the question: will the current crisis leave a lasting impression on the credit card? Consumers, having watched their home values, their retirement plans and in many cases even their jobs evaporate, are plucking more slowly from their wallets. Banks, already crippled by billions of dollars in mortgage-related losses and fearful that bad credit card debt will balloon, are tightening standards and raising interest rates. And the U.S. government is considering tough new regulations that the industry says will end up restricting credit further.
"We are in the throes of a global credit crisis that has implications on consumers at all income levels," said Carl Pascarella, a former chief executive of Visa USA. "People are going to have to live within their means."
If they do, the impact on the American economy could be profound. Debt-fueled consumer spending accounts for as much as 70 percent of gross domestic product.
"We are probably going to be in a period of slower growth for the next two to five years," said Bernard Baumohl, chief global economist at the Economic Outlook Group.
Ever since BankAmerica blanketed Fresno, California, with a mass mailing of credit cards in 1958, flexing plastic has been part of daily life. With a flick of the wrist, we could buy groceries or a refrigerator, pay for a vacation or a hospital stay, furnish a home or finance a business. It might not have been life, liberty or the pursuit of happiness, but easy access to credit was surely an inalienable right.
For the last half-century, that basic precept has held true. Credit card debt has grown to roughly $822 billion today, increasing almost every year, even when the economy slumped.
Amid the recession of the early 1980s, lenders put more cards in the hands of senior citizens, students and other low-income customers. By charging high interest and pesky fees, banks were making money as borrowers defaulted.
During the recession of the early 1990s, lenders continued to extend credit to a broad range of borrowers, including those who already had two or three cards. Subprime lenders aggressively marketed their cards to unemployed workers for "bridge loans" until they found another job.
And after the technology bubble burst in 2001, credit card issuers confidently loosened lending standards and even went after indebted borrowers with zero-interest teaser rates. Lenders reasoned that cardholders who lost their jobs could still refinance debts by extracting the equity from the rising value of their homes.
Still, this recession is different. Many consumers today have maxed out on their credit and have little or no home equity. And credit card lending is no longer as profitable for banks since their own borrowing costs have risen.
"This is the first crisis of the modern credit card industry," said Robert Manning, the author of "Credit Card Nation" and a critic of credit practices.
And the crisis is widening.
Credit card lenders are on pace to write off at least $45 billion on bad debt this year. As the unemployment rate soars — the loss of 533,000 jobs in November was the largest one-month drop in 34 years — the industry could lose an additional $60 billion or so in 2009. Many analysts and bankers believe that loss rate could easily eclipse the record 7.9 percent level of outstanding credit card debt reached in early 2002.
Lenders have been rushing to slow the spread. Every major credit card issuer — from Bank of America, Chase and Citigroup to the finance arms of General Electric and Target Corporation — is approving fewer new applicants, pulling in credit limits and canceling unused accounts.
And sweeping regulatory changes could reduce the amount of credit available to consumers even more. Having missed the implications of the housing bubble, the Federal Reserve and Congress are considering rules to crack down on unfair lending practices.
"Lenders will ultimately choose to provide fewer credit lines to fewer customers," Meredith Whitney, a banking analyst, said recently. By her projections, consumers could lose access to $2 trillion in credit in the next 18 months.
This would force many Americans to radically change their behavior — saving for what they can afford rather than financing what they covet.
Already, there are some signs of such a shift. Visa said that spending on its credit cards in the United States dropped in the first three weeks in October after barely increasing in the third quarter. Spending volume has fallen only twice before — immediately after the 9/11 attacks, and in late 1980, when the country slipped into recession.
Cardholders are also changing how they spend their money. Bank executives say more customers are using their credit cards for groceries, gasoline and other necessities and are deferring purchases of big-ticket items like furniture and flat-screen televisions. Retailers are bracing for the worst holiday shopping season in decades.
New government statistics, meanwhile, suggest that Americans are socking away more money. The savings rate has been climbing since it flattened out in April at a record low of zero.
Thrift is hot on Madison Avenue and Hollywood, too. Wal-Mart's new slogan is "Save money. Live better." Bank of America has been advertising its "Keep the Change" debit card savings program and risk-free certificates of deposit. And in what was either prescient or a lucky bit of timing, "Confessions of a Shopaholic," a morality tale for the "Sex and the City" set, is coming to theaters in February. Its protagonist is head over her high heels in credit card debt until she becomes Successful Savings magazine's advice columnist, finds true love with her handsome editor and ultimately pays off her loans and learns to live within her means.
Whether there will be a lasting cultural change in the way consumers use their credit cards is likely to depend on the depth and duration of the current recession. History suggests that we are quick to forget. Often when the American economy contracts, some new innovation in credit seems to follow, paving the way for an even bolder era of consumption.
After the Great Depression, commercial banks began moving into the consumer lending business, which blossomed into the Golden Era of Consumption of the 1950s. The downturn of the late 1970s ushered in the electronic payment revolution. Credit cards became even more convenient to use. The 1980s are remembered for "Generation Me."
This time, Americans may think twice about using credit cards and start flexing debit cards more frequently — just as they do in Europe and Asia, where credit cards are less a part of daily life.
In 2007, Americans used a debit card in roughly 21 percent of all transactions; credit cards accounted for about 19 percent, according to The Nilson Report, an industry newsletter. By 2012, debit card use is expected to rise to about 29 percent of all transactions, while credit card use would stay about the same.
Gary Perlin, Capital One's chief financial officer, said he has seen a "mild shift" to debit card use in the past three months as his customers hunker down. Other industry experts suggest that the downturn could accelerate this trend.
Indeed, some banks have begun offering an overdraft line of credit on debit cards. Others are testing a rewards point program, as they have done with credit cards for years.
The layaway and other installment plans that are making a return this holiday season may also be here to stay. Burlington Coat Factory, Marshalls, and TJ Maxx are filling up their layaway racks. Business is also bustling at E-Layaway.com, an online service bringing the old-fashioned installment plan into the new economy.
It's probably premature to suggest that consumers will wean themselves from their costly addiction to credit cards, though. "I have always been struck by how many people want to see this as the end of an era of consumer excess and the beginning of a new age of thrift," said Lendol Calder, a history professor at Augustana College who has studied the role of consumer credit in American culture. "I don't see that happening."
"We will see people pulling in their belts for one or two years," Calder added, "and then it will be back to where we left off."
In private equity, the limits of Apollo's power
By Julie Creswell
Sunday, December 7, 2008
LEON BLACK, one of Wall Street's buyout kingpins, is having a tough year.
In the spring, the home furnishings retailer Linens 'n Things went bust, costing the Apollo Group, the private equity firm that Black co-founded 18 years ago, its entire $365 million investment.
Apollo's attempt to disentangle itself from another potentially bad deal — an acquisition of Huntsman, the chemical company — has resulted in a messy flurry of lawsuits.
The sagging economy and piles of debt, meanwhile, are causing several other companies that Apollo owns, including Harrah's, Claire's and a real estate entity that controls Century 21 and Coldwell Banker, to struggle — putting at risk about a third of some $10 billion Black raised years ago during the buyout boom.
On top of all that, a gymnasium that housed Black's indoor tennis courts on his 90-acre Westchester County estate burned to the ground in October. And just last week, in a new twist on the term "frenemies," Black's good buddy and longtime tennis partner Carl Icahn sued another Apollo company because he was unhappy with its plans to restructure debt.
So it just ain't easy being Leon Black — or any other Master of the Universe — these days.
"Traditional private equity is dead and has been for a year," says Black, seated at a round conference table in an office once occupied by L. Dennis Kozlowski, who was ousted as chief executive of Tyco International. "It will probably remain so for a couple of years."
Part of the allure of private-equity honchos like Black is that they made an art out of making money during the boom years. Their fist-pounding negotiations were legendary. Their corporate turnarounds became Harvard Business School case studies. Their multiple homes, black-tie parties, sports cars and yachts were alternately envied and vilified.
Today, with Wall Street in tatters and the easy money long gone, the question now for Black and his peers is whether they have enough moves left to turn the bleak outlook for private equity into something rosier for themselves, their companies, their investors and the legions of workers they employ.
Achieving that will hinge on whether Black and his peers can persuade banks and investors to give their companies more time to make good on their debts, something that Icahn's lawsuit suggests is not always easy.
The other parts of the equation — how long the economic malaise lasts and how deep it becomes, as well as its ultimate impact on the companies they own — are something that even the Wall Street power brokers can't control.
Over the last year, Stephen Schwarzman, the co-founder of the Blackstone Group, has watched his company's high-profile stock plunge 71 percent. And Henry Kravis has yanked copycat plans for his storied firm, Kohlberg Kravis Roberts, to go public as well.
Several other superstars in the private-equity universe, including TPG and the Carlyle Group, are scrambling as some of their companies collapse — firms for which they paid top dollar during the recent buyout boom.
Those mounting losses — and the dearth of cheap and easy financing that fueled private equity's rocketing returns over the years — have some people wondering what the future holds for private-equity firms and the companies they have acquired.
Black has an answer. His shirt wrinkled and his tie askew, he calmly says that the outlook for him and his competitors is not as bleak as it seems. In fact, he says his firm is poised to take advantage of the turbulence.
Apollo has just raised $20 billion in new money that he says will go, in part, toward buying cheap debt.
"We've totally turned into a bond house," he declares.
BLACK says the big money over the next few years will be made in vast restructurings — the financial, operational and structural changes that companies will need to make if they hope to survive the economic malaise.
Of course, the question is how many of these overhauls will involve Black's own companies.
Apollo thought it had a home run with Linens 'n Things. It bought that struggling retailer in 2005 for $1.3 billion — $365 million of its own money, the rest from co-investors and banks — and installed a retail industry veteran as its chief executive.
The deal, however, soured quickly. Sales continued to slide and nervous investors who held its debt started to dump it. In May, a mere two years after Apollo acquired the company, Linens 'n Things filed for bankruptcy.
"It was an incredibly fast implosion," said Kim Noland, the director of high-yield research with Gimme Credit.
Some point to the collapse of Linens 'n Things as an omen for the private-equity industry and some of the companies these firms acquired during the gold rush.
Armed with cheap bank funding, private-equity firms — just like consumers who bid up home prices on the back of cheap mortgages — paid sky-high prices for troubled companies that they promised they could streamline and make more efficient.
They piled layers and layers of debt — "leverage," in Wall Street parlance — onto these companies just before the economy came screeching to a halt.
"The idea was that Apollo was going to turn it around and fix whatever was causing the issues, but operations just got worse and worse and then there was the overleverage," Noland said of Linens 'n Things. "They just didn't have too much of a chance."
Black calls the Linens collapse "unusual," saying that Apollo "underestimated the severity of the downturn of the housing market."
Besides, he says, the Linens bankruptcy barely singed his investors, costing them half a percentage point on returns. (The Apollo fund that held Linens has returned 49 percent to investors, net of fees, since its inception in 2001.)
The promise behind private-equity firms like Apollo is that they can fix broken companies far from the bright glare of the public eye. No longer tied to meeting investors' quarterly earnings expectations, company management can focus instead on improving operations.
Private-equity firms raise huge sums from investors like pension funds and endowments and then borrow more from banks and other lenders so they can put ever larger sums to work.
During the period when they own a company, private-equity firms pay out some of the company's profits to their investors — and the buyout firm itself — sometimes recouping several times their original investment in dividends before they either sell the company or take it public again.
One of the longstanding criticisms of buyout firms is that they engorge targets with debt and skim the profits for themselves. That image was reinforced during the boom with stories about buyout executives' over-the-top birthday parties and other lavish excesses.
The notion that buyout firms were only on the hunt for quick gains was further strengthened by actions of Apollo and some of its peers. Sometimes within just a year of acquiring a company, they issued debt that was used to pay fat dividends to the funds themselves.
Besides layering more debt onto the companies, the move effectively allowed Apollo and its competitors to handily recoup some, if not all, of their initial investments.
Earlier this year, a major ratings agency, Moody's Investors Service, said that Apollo and a handful of other buyout firms were particularly aggressive about yanking out nearly all of their initial investments.
"We saw some firms taking out a large amount of the equity they put in, and they were doing this less than a year after announcing the buyouts," said John Rogers, an analyst at Moody's. "It would be rare that the performance of the business had improved so much during that time."
Black defends the payouts.
"In some cases, we took 60 percent, 85 percent or even 100 percent of our investment out," says Black, adding that Apollo can put more money into the deals if necessary. "It was the right thing to do for our investors."
Josh Lerner, a professor at Harvard Business School who has studied private equity, says it is too soon to say whether those debt deals further weakened the affected companies.
"So far," he said, "I think it's hard to find any statistical difference between the performance of companies that did the dividend deals and those that didn't."
But do these deals remove the incentive that Apollo and others have to stick around and fix troubled companies, when they have already cashed out?
"There is a fundamental conflict in private equity between taking steps that generate a good return for investors and doing things that are in the best interests of the companies," Lerner says. "In an ideal world, those are aligned. But in the real world, they aren't always."
Some data suggests that that disconnect is causing trouble.
In a report by the ratings agency Standard & Poor's, 86 companies weren't meeting their debt obligations through mid-November of this year, with 53 of those, or 62 percent, having ties to private-equity firms at one point in their lives.
The firm's analysts anticipate that an additional 125 companies could default by next fall, raising the nation's default rate to 7.6 percent from current levels of 3.2 percent.
Whatever transpires, Black says he's not planning to walk away from his stable of companies.
"Most of the companies we own are businesses or industries that we really like," he says. In the same breath, however, he concedes that that won't be the case with every company.
"There are going to be cases like Linens 'n Things," he says. "We didn't put more money into Linens because it would have been just putting good money after bad."
That argument could be sorely tested with Apollo's troubled sixth fund, which raised about $10 billion from investors and went on a spending spree from 2006 through this year.
It acquired a broad range of companies — cruise lines, paper companies and grocery store chains. Black allows that five of those companies are "cyclically challenged."
Those five are the hot-tub manufacturer Jacuzzi; the accessories retailer Claire's; Realogy (which owns Century 21 and Coldwell Banker) and the Countrywide real estate firm in Britain; and a gambling company, Harrah's.
WHILE Black remains upbeat about the prospects for those companies, some analysts say most of them are severely indebted and are crumbling quickly because of the economy.
That has had an impact on Apollo's 2006 fund. The fund has had a net internal rate of return of negative 12.8 percent from its inception through the end of September, according to someone with direct knowledge of its performance who was not authorized to release the data. The fund didn't disclose its more recent performance to investors in a November letter.
That letter did state that the fund has returned $1.3 billion to investors through dividends, but that it marked down the overall value of its holdings by $789 million.
In an effort to conserve cash and give themselves some breathing room, Harrah's and Realogy are trying to persuade investors to exchange the securities for new debt that will reduce overall leverage or lengthen maturities. Currently, Harrah's, Realogy and Claire's are keeping up with some of their debt payments by issuing more debt to investors rather than paying them in cash — a maneuver made possible by agreements reached during the boom.
Some analysts see these moves as little more than putting off the inevitable.
"What they're doing is putting more debt on a company at a time when we are in a recessionary environment. Also, the companies that we're talking about are some of the lowest-rated companies out there, so the margin for error is razor thin," says Diane Vazza, head of global fixed-income research at Standard & Poor's. "What this does is buys them a little bit of time, but the day of reckoning is around the corner."
Black has one of the financial world's most interesting and varied pedigrees. And some of his past is rooted in tragedy.
On Feb. 3, 1975, his father, Eli Black, strode into his office on the 44th floor of the Pan Am Building in Manhattan. He then used his heavy attaché case to smash through his office window and leapt to his death.
It was later revealed that regulators were investigating whether payments made by the company Black led, United Brands (predecessor to Chiquita), to a Honduran official were illegal.
Until that moment, Leon Black had led a fairly serene and even gilded life. His mother is an artist and a beloved aunt owned a Manhattan gallery, which he says influenced his early appreciation of the arts.
Today he is one of Manhattan's best-known collectors. "Art and literature are what differentiate us from barbarians," he says, adding that he will probably give away most of his collection eventually. Black and his family have also given or committed more than $150 million to various educational, health care and cultural institutions.
After studying history and philosophy at Dartmouth, Black envisioned himself someday teaching at Oxford, but his father convinced him to give business school a try. He was in his second year at Harvard Business School when his father died. ( Black has financed chairs at Dartmouth in Shakespearean studies in his own name and Jewish studies in his father's honor.)
"After my father died, we were pretty much wiped out, financially, as a family," Black says. "So I decided to give finance a try."
AFTER Harvard, Black landed on the steps of the investment banking firm Drexel Burnham Lambert, where he had a rocky start.
His boss at the time said Black wanted to jump immediately into big-picture planning, but he believed Black needed to understand the basics first. He "wasn't working as hard as we had hoped, so I had some harsh discussions with him," recalls Frederick Joseph, the former head of Drexel.
Not long after that little heart-to-heart, Black began climbing the ranks at the firm and became an influential financier as Drexel began financing megabuyouts.
"He would work all day, party all night and come back and do it again the next day," Joseph says. "But he brought a lot more brains and a lot more strategic capacity to his deals than a lot of other guys on Wall Street at the time."
Black and Drexel financed deals orchestrated by the likes of Icahn, Ted Turner and Kohlberg Kravis Roberts, particularly in its famed takeover of RJR Nabisco.
Although Black comes across as a quiet, introverted man, he has a famous temper. Joseph recalls seeing that temper flare a few times at Drexel when he disagreed with co-workers over whether to get involved in deals.
But Black said that what he loved most in his 13 years at Drexel was the frenetic pace.
"The day they closed the doors was a bad day," he says, nodding ruefully.
Drexel collapsed in 1990 after investigations into illegal activities in the bond market, driven by one of Black's close associates, Michael Milken, who was eventually imprisoned for securities violations.
"I think what happened to the firm was unfair, but we were very politically naïve," Black says. "I'm not sure fairness was relevant."
Black, who was the head of Drexel's huge mergers-and-acquisitions group at the time of its demise, walked away from the collapse unscathed. Along with two other Drexel refugees, he started Apollo in 1990.
Armed with the experience he and his team earned at Drexel in tearing apart balance sheets and understanding complex credit structures, Black and Apollo emerged as one of the shrewdest investors of the 1990s, specializing in distressed companies.
"When we do distressed-debt investing, we have made money in 98 percent of those deals," he says.
In Apollo's early days, Black sought to distance himself and his firm from the bad-boy image of leveraged buyout firms in the 1980s. His message was that he was a long-term investor, not a raider out for short-term gains.
"We want to be like Warren Buffett," Black said in an interview with The New York Times in 1993. In that same interview, Black also eschewed the notion of investing in high-tech companies and said that any future leveraged buyouts would be "more rational" and involve "less leverage, more equity."
Yet, over time, Black would venture again into leveraged buyouts — and those buyouts would involve, in more recent deals, gobs of debt.
Over the years, Apollo has built up a strong track record, posting net internal rates of return of 27 percent, on average, after fees, according to filings Apollo made with the Securities and Exchange Commission this summer.
That compares with about 19 percent for Blackstone and 20 percent for Kohlberg Kravis Roberts.
Today, of course, the returns at Apollo are threatened, and the company is also mired in a legal fracas.
In July 2007, the Hexion Specialty Chemicals unit of Apollo offered $28 a share, plus assumption of debt, to buy Huntsman in a deal valued at $10.6 billion. Hexion was buying a company twice its size in a deal financed almost entirely by two banks, Deutsche Bank and Credit Suisse.
But earlier this year when soaring commodity prices and the sharply declining dollar took a huge bite out of Huntsman's profits, Hexion tried to pull out of the deal, citing earnings declines.
Huntsman's management said that Apollo merely had cold feet and regretted the bidding war that forced it to pay handsomely to get the deal done. In court, Hexion argued that if the two entities were combined, the resulting company would be insolvent.
The Delaware Chancery Court ordered Hexion to move forward with the merger, but by then nervous banks wanted no part of the deal. Huntsman has sued the banks in Texas to force them to back the deal.
NOW Apollo is stuck trying to figure out how to make an unwanted marriage work out and how to persuade the banks to be a part of the nuptials, analysts say. Black declined to speak about the deal other than in generalities.
"Sure, I regret where things stand now. But there was originally a very good industrial logic to doing the deal," he says. "I'm not smart enough to predict how things will turn out."
As for the rest of the companies he now oversees, Black acknowledges that the markets have all but written off some of them.
But he's been in tight corners before, Black notes, saying that he has overcome previous downturns and produced solid returns.
"I don't believe in the notion of Masters of the Universe. People either do their job or they don't," he says, shrugging. "It's ultimately all about performance."
Trading stocks for beach time
By Michelle Higgins
Sunday, December 7, 2008
Need a vacation from watching your stocks drop?
Hoping to lure travelers amid the slumping economy, a resort chain in the Caribbean is offering to barter rooms for depressed stock.
Elite Island Resorts, a chain of upscale hotels - including the St. James's Club on Antigua and the Palm Island Resort in the Grenadines - announced Friday that it would accept payments in stock for vacations booked by Jan. 31 using the value the stock was trading at on July 1. The deal, in effect, gives travelers a chance to roll back the value of currently depressed stocks to levels before the market began to really tank.
"Things are so quiet you have to do things out of the box," said Steven Heydt, president of Elite Island Resorts, who concocted the idea. "I've been thinking about what could I do to turn things around and somehow relate to the overall economy and the stock market declines."
Here's how the promotion works: An all-inclusive seven-night stay for a family of four begins at $4,445 based on a nightly rate of $635 at the Verandah Resort and Spa in Antigua. A traveler with American Express stock, which closed at $21.78 Friday, would need about 111 shares for the trip, with Elite Island Resorts valuing the stock at $40 per share or what it was approximately trading on July 1.
Merrill Lynch stock is even better. It closed at $13.04 on Friday, down from $32.25 on July 1.
The deal is good for vacations through mid-December of next year, with no blackout dates. So travelers can use stock for payment even during peak holiday travel periods like Christmas, New Year's or Easter, as long as space is available. Vacationers "paying" with stock may hold a reservation for a specific date if they wish with a credit card, which will not be charged, while the stock is being transferred into a dedicated Merrill Lynch account. Travelers should consult their accountant about any possible tax implications resulting from such a transaction.
The maximum credit per room that will be accepted in stock is $5,000. If a vacation costs more than $5,000, the difference will be charged to a credit card.
Elite Island Resorts initially set aside $10 million in room inventory for the promotion, but it may expand the program.
The company has selected about 100 stocks of major companies including Aetna, Citigroup, General Electric and MetLife (a complete list is at EliteIslandResorts.com/stocks).
The company plans to hold on to the stock until it can trade or sell it. With demand off between 25 and 30 percent, said Heydt, the promotion is "a far better way for us to have a return on our investment." He added, "We all believe there is great value in the U.S. stock market. We are willing to wait for this market to turn around."
Police shooting sparks riots in Greece
By Anthee Carassava
Sunday, December 7, 2008
ATHENS: Youth angry over the killing of a teenager by police rioted in Athens and other Greek cities for a second day on Sunday, while the police announced that two officers had been arrested for their roles in boy's death.
The country's worst riots in recent years began hours after a 15-year-old boy was shot Saturday night during a confrontation between police and youth in the Exarchia neighborhood of central Athens, a district of bars, bookshops and restaurants where clashes between far-left youth and the police have previously occurred.
As news of the death spread, hundreds of youth took to the streets, burning scores of shops, cars and businesses while throwing fire bombs and stones at riot police, who countered with tear gas. At least six people were arrested in Athens for looting goods from the debris of destroyed department stores and boutiques.
The violence spread to other cities on Sunday, including Greece's second-largest city, Thessaloniki, as well as Chania on the island of Crete.
Stylianos Volirakos, an Athens police spokesman, said "dozens" of officers had been injured in their bid to seal off streets around Athens Polytechnic University, where rioters, hiding behind blazing trash bins and the university's soaring gates, threw stones and fire bombs at security forces. It remained unclear Sunday night whether authorities would move to storm the state university, a move forbidden by Greek law after military tanks in 1973 rammed the gates of the school to quash a student uprising against the then-ruling military junta. At least 22 civilians died in that attack, which is marked every year by youth-led marches that occasionally turn violent.
Authorities fired several rounds of tear gas, which cloaked parts of Athens with plumes of acrid grey smoke. At least one apartment block was evacuated after masked youth torched a French car dealership and ensuing flames reached the balconies of residents, the private television station Alpha reported.
An Athens prosecutor charged two officers from an elite police corps with the shooting death of the 15-year-old, Andreas Grigoropoulos.
A 37-year-old officer who allegedly fired the shots was charged with manslaughter, while the other officer in the car was charged with abetting him, a statement from the prosecutor's office said. Agence France-Presse identified Epaminondas Korkoneas as the older officer and Vassilis Saraliotis as his partner.
According to the police, the two police officers had been patrolling Exarchia when their car was stopped by some 30 youths, many of them hurling stones, at about 9 p.m. Both officers left their car to confront the mob, "firing three shots that resulted in the death of the minor," according to the statement, even though witness accounts differ.
Private Greek media and a website popular among leftist youths, www.indymedia.org, said the teenager had been shot in the chest and died while being transferred to a local hospital.
Both officers were being detained at the nation's police headquarters in Athens, the police said.
Greece's prime minister, Costas Karamanlis, wrote a letter to the boy's parents expressing his sorrow. "I know nothing can relieve your pain, but I assure you . . . the state will act, as it ought to, so that yesterday's tragedy won't be repeated," he wrote.
"It is inconceivable for there not to be punishment when a person, let alone a minor, loses their life," Interior Minister Prokopis Pavlopoulos said at a Saturday news conference. "The loss of life is something that is inconceivable in a democracy."
As government officials quickly moved to condemn the shooting, thousands took the streets oin protest. A march on Sunday in central Athens with some 3,000 demonstrators was peaceful until it was interrupted by youths throwing more rocks and handmade bombs, and police shot tear gas in an attempt to disperse the crowd. Private television networks broke into scheduled programming to broadcast the street fighting. Young men were seen smashing storefronts, targeting banks and burning dozens of refuse containers and cars along the meandering streets of Athens' high-end commercial district.
Pavlopoulos, who offered to resign early Sunday, called for restraint. His resignation was not accepted by the prime minister.
"People have the right to protest and will do so, but while the pain and grief caused by the minor's death is understandable, no outrage," he said, "can lead to the violence and destruction of private property that was witnessed."
Nicholas D. Kristof: A killer without borders
Sunday, December 7, 2008
YEREVAN, Armenia: As if you didn't have enough to worry about ...
consider the deadly, infectious and highly portable disease sitting in the lungs of a charming young man here, Garik Hakobyan. In effect, he's a time bomb.
Hakobyan, 34, an artist, carries an ailment that stars in the nightmares of public health experts - XDR-TB, the scariest form of tuberculosis. It doesn't respond to conventional treatments and is often incurable.
XDR-TB could spread to your neighborhood because it isn't being aggressively addressed now, before it rages out of control. It's being nurtured by global complacency.
When doctors here in Armenia said they would introduce me to XDR patients, I figured we would all be swathed in protective clothing and chat in muffled voices in a secure ward of a hospital. Instead, they simply led me outside to a public park, where Hakobyan sat on a bench with me.
"It's pretty safe outside, because his coughs are dispersed," one doctor explained, "but you wouldn't want to be in a room or vehicle with him." Then I asked Hakobyan how he had gotten to the park.
"A public bus," he said.
He saw my look and added: "I have to take buses. I don't have my own Lincoln Continental." To his great credit, Hakobyan is trying to minimize his contact with others and doesn't date, but he inevitably ends up mixing with people.
Afterward, I asked one of his doctors if Hakobyan could have spread his lethal infection to other bus passengers. "Yes," she said thoughtfully. "There was one study that found that a single TB patient can infect 14 other people in the course of a single bus ride."
People don't think much about TB. But drug-resistant TB is spreading - half a million cases a year already - and in a world connected by jet planes and constant flows of migrants and tourists, the risk is that our myopia will catch up with us.
Barack Obama's administration should ensure it isn't complacent about TB in the way that Ronald Reagan was about AIDS. Reagan didn't let the word AIDS pass his lips publicly until he was into his second term, and this inattention allowed the disease to spread far more than necessary. That's not a mistake the Obama administration should make with tuberculosis.
One-third of the world's population is infected with TB, and some 1.5 million people die annually of it. That's more than die of malaria or any infectious disease save AIDS.
"TB is a huge problem," said Tadataka Yamada, president of global health programs for the Bill and Melinda Gates Foundation. "It's a problem that in some ways has been suppressed. We often don't talk about it."
Ineffective treatment has led to multi-drug resistant forms, or MDR-TB. Scarier still is XDR-TB, which stands for extensively drug resistant TB. That is what Hakobyan has. There were only 83 cases of XDR-TB reported in the United States from 1993 to 2007, but it could strike with a vengeance.
"We always think we live in a protected world because of modern medicines and the like," Yamada said. "But if we get a big problem with XDR, we could be in a situation like we had in the 19th century when we didn't have good treatments."
If we were facing an equivalent military threat capable of killing untold numbers of Americans, there might be presidential commissions and tens of billions of dollars in appropriations, not to mention magazine cover stories. But with public health threats, we all drop the ball.
Because of this complacency about TB, there hasn't been enough investment in treatments and diagnostics, although some new medication is on the horizon.
"Amazingly, the most widely used TB diagnostic is a 19th-century one, and it's as lousy as you might imagine," said Dr. Paul Farmer, the Harvard public health expert whose Partners in Health organization was among the first to call attention to the dangers of drug-resistant TB.
In Armenia, the only program for drug-resistant TB, overseen by Doctors Without Borders, can accept only 15 percent of the patients who need it. And the drugs often are unable to help them.
"After two years of treatment with toxic drugs, less than half of such chronic TB patients are cured, and that's very demoralizing," noted Stobdan Kalon, the medical coordinator for Doctors Without Borders here. And anyone who thinks that drug-resistant TB will stay in places like Armenia is in denial. If it isn't defused, Hakobyan's XDR time bomb could send shrapnel flying into your neighborhood.
Sin may pay, but Obama is ethical investors' hope
Sunday, December 7, 2008
By Cecilia Valente
The combination of recession and efforts to jump-start economies can be an investment headache.
In recessions, vices like tobacco and alcohol win ground among those daring enough to buy shares. But if Barack Obama's plans to invest in clean energy and tighten regulation set a trend, growth plays in worthier sectors may also reward.
This mix of slowdown and conscientious investment suggests that while a sprinkling of traditional defensive vice may help short-term, some ethical stocks could benefit too.
Received wisdom among fund managers is that the next generation of fund products will be designed to be "back to basics', easy to understand. Among classic defensive plays, companies focussing on human habits fit that bill squarely.
"People will not stop smoking in recession, they might even smoke more because they are nervous," said professor Andrew Clare, chair in asset management at London Cass Business School.
"Whatever happens people need cigarettes and do not tend to cut back on alcohol," he said.
Amid the fracas of recent months, many investments in classic defensive sectors -- of the type offered by a U.S.-based fund that uses the idea of "vice" as its promotional gimmick -- have fallen less sharply than the broader market.
British firm Imperial Tobacco on November 25 reported an annual adjusted earnings increase of 15 percent, despite smoking bans enforced in Britain and other Western countries.
In the year to November 30 the stock declined by 31.2 percent, but still outperformed the FTSE 100's 35.8 percent fall. British American Tobacco fell by just 14.6 percent over the period, and drinks producer Diageo also outperformed, falling 18.1 percent.
More ethical, or socially responsible, funds have to date shown a marked underperformance, but the changing tune coming from the United States could give some a lift.
"My view is that the clean energy sector will be one of the first to come out of the recession," forecast Nick Robins, senior analyst on Socially Responsible Investing at HSBC and author of a book, "Sustainable Investing."
Investors prepared to look beyond the obviously addictive products such as alcohol and cigarettes to invest in gambling and weapons manufacturers in the aerospace industry could explore the "Vice Fund," which covers just these four sectors.
Data on its Web site shows the fund was hit by the market downturn but outperformed its benchmark of reference, the S&P 500, in the year to March 31, when it yielded a positive 4.44 percent return against a 5.08 percent fall for the index.
It underperformed in the first 10 months of the year, returning minus 37.5 percent versus the S&P's minus 34 percent.
"We focus on four sectors that have the potential for long-term gains in a variety of different market and economic conditions," said Charles Norton of GNI Capital Inc, which is involved with the fund's management. "They also are often overlooked and underfollowed, which means our target sectors tend to offer more inefficiencies and opportunities."
The Vice Fund's main fund manager, Mutual Advisors, declined comment.
But if some plain vanilla defensive investments -- whether focussed on escapist sins or basic necessities -- offer shelter in times of trouble, they also tend to lag a market recovery.
Karina Litvack, head of governance and socially responsible investment at UK-based asset manager F&C argues investors would be better off preparing for a recovery that demands stricter corporate governance and higher accountability.
"People talk about environmental social and ethical factors as "non financial'," she told Reuters. "From my perspective anything that is a value-driver and makes the company succeed over the longer term is a financial risk factor, only it does not drive the share price up or down in the next 24 hours."
With its launch of the Stewardship Growth Fund to exclude alcohol, tobacco and gambling stocks in 1984, F&C was one of the first to join the broad church of investment products known as ethical or socially responsible investments (SRI).
At the end of October the Stewardship Growth Fund had 468.3 million pounds in assets, having underperformed its benchmark, the FTSE All-Share Index. On a year-to-date basis, the fund yielded minus 38.7 percent versus the FTSE's minus 31.2 percent.
In spite of the losses, Litvack said investors in this fund, most of them retail investors, have remained generally loyal due to their long-term view.
A patient customer base is also what Christian Zimmermann, portfolio manager for the 739 million euro Pioneer Global Ecology Fund, says he can count on.
Zimmermann said most of its investors stuck to the fund, even though assets had nearly halved since the end of 2007 when it had 1.3 billion euros.
Though considering upping the fund's cash weighting from the current five percent, he maintained opportunities would come from Obama.
"Obama has committed to renewable energy," he said. "At the moment it looks like the immediate future is depressing but looking beyond 2009, it is brighter than it seems now."
Cass Business School's Clare warned against reading too much into funds' simplistic tags, noting that subtleties of definition could disappoint some investors.
He also doubted there is any financial advantage in the ethical route: "The academic data that I have seen suggests that the difference in the performance of an SRI fund and an ordinary (one) are very limited."
Of course, HSBC's Robins disagreed.
He said investments in companies incorporating ethical social and corporate governance (ESG) principles outperformed the MSCI World index in the five years to 2007.
(Editing by Sara Ledwith)
The return of the Gotcha! Gang
By William Safire
Sunday, December 7, 2008
This is that time of the year when your language maven feels the compulsion to grovel.
"In your article on 'Boots on the Ground,"' e-mails Dr. David Sachar, "did you deliberately bypass the opportunity to introduce your readership to that wonderful figure of speech, synecdoche?" Another reader, Katherine Noone agrees: "I noticed a synecdoche in your column (boot). When I was in elementary school, I found a book that explained the difference between metonymy and synecdoche, which time seems to have fudged. Given Kaufman's new movie, it is time for some attention to the figure of speech."
They must have forgotten my column of only 16 years ago, which explained that metonymy, pronounced muh-TAHN-uh mee, identifies a person or thing by something closely associated with it - like "the brass" for high military officers, "the crown" for royalty and "the suits" for executives, usually male, and other stiffs in traditional business garb. "Metonymy is not to be confused with synecdoche," I wrote, "which is pronounced correctly only in Schenectady and uses the part to refer to the whole" like "wheels" for automobiles and "head" for cattle.
No one is a somebody who correctly notes the re-emergence of the synecdoche (sih-NECK-doe-key) in the punning title of a new movie directed by the Oscar-winning surrealist screenwriter Charlie Kaufman: "Synecdoche, New York." Kaufman's new work - whose hero is described as a narcissist haunted by the thought of death - is hailed as one of the best films of the decade by Philip Kennicott of The Washington Post. That reviewer notes that "my death is your death is her death is our death - possibly accounting for the title, which isn't just a phonetic play on Schenectady but a speech form in which a part of something can stand for the whole." Headline of his review: "Synecdoche: A Part of Life That Makes Us Whole."
Other headline writers are beginning to catch synecdochal fever. A recent article in The New York Times, datelined Rutshuru in eastern Congo, reported on "white-collar rebels" known as guerrilla warriors who are now trying as civilians to administer the territory they control. The rhyming headline: "Rebels Used to Boots, Not Suits, Seek to Govern Congo."
Charlie Kaufman has taken a term of grammar that had been suffering in desuetude and put it up in metaphoric lights. The city in New York State whose name he plays upon (possibly derived from the Mohawks' word for "near the pines") is going through industrial hard times, but worried residents can hope to have found their avant-guardian.
Only a few months ago, the euphemism of choice for writers of corporate reports and economic analysts who did not want to strike fear into investors' hearts was headwind. The metaphor was breezily chosen to show that the profit picture of individual companies was quite likely to meet with economy-wide resistance.
Some headwind, with major financial indexes down by half. My semantic error, however, in a column titled "Toxic Bailout," was in writing: "A headwind is one that is blowing in your face. It was popularized in the 1920s by pilots; 'bucking a headwind' cuts down on air speed." Right date, wrong definition.
"I'm probably the one-millionth pilot to comment on this," writes Bill Flemer of Princeton, New Jersey. (In fact, he was the 60th.) "But what one loses when bucking a headwind is groundspeed, or forward progress over the ground." Isabelle Hunter of Providence, Rhode Island, a former private pilot, notes: "Actually a headwind increases air speed, which is the speed of the plane relative to the air it's traveling through. A headwind decreases groundspeed, the speed of the plane relative to the ground." Tom Morris writes: "Gotcha! At long last! Groundspeed equals airspeed minus headwind speed." (Or plus tailwind speed.)
O.K. If you're in the prediction dodge, blow off the euphemism headwinds. The term on the tip of financial tongues today is volatile, from the Latin volare, "to fly." In the 17th century, the meaning became "birdlike, capable of flying," and that ability to soar and swoop gave rise to today's primary sense of "unexpected, dramatic movement." But we can all cheer up, even as the economic groundspeed slows down, by recalling Francis Bacon's usage in 1626: "The Catterpiller toward the End of Summer waxeth Volatile, and turneth to a Butterflie."
Off ramp to on ramp: It can be a hard journey for women
By Hannah Seligson
Sunday, December 7, 2008
JAMIE MARKOVITZ HOFFMAN, 40, a former senior vice president at UBS, the global financial company, had what she describes as "one of those extreme jobs."
"I loved working," she says. But her career path reached a crossroads when her second child was born, and she left her job in February 2007.
Markovitz Hoffman is one of many people who have left the work force to take a break. Sylvia Ann Hewlett, founding president of the Center for Work-Life Policy, has described this type of career detour — which is more common for women than for men — as "off-ramping." Typically it occurs when the balancing act of parenting and work becomes too arduous.
A study by the center found that more than 90 percent of women who off-ramp want to on-ramp back into the work force eventually. But making the transition back to work is rarely easy, and it is even harder in this economic climate of layoffs and hiring freezes.
To address some of the obstacles faced by on-rampers, Merrill Lynch recently held a three-day program called "Greater Returns: Restarting Your Career" at Columbia University. Attending the program were 37 women — including Markovitz Hoffman — who had taken breaks from high-level jobs in fields like finance, law, technology and retail.
The women met with a cross-section of leaders from a range of businesses, including Ernst & Young, KPMG and Intel. They also attended sessions on topics like how to re-enter the job market in a down economy, how to differentiate yourself from the competition and how to tap into your ambition.
"The goal of the three days was to have them walk away with a new set of peers and senior mentors and a big shot of confidence," said Hewlett, who was tapped by Merrill Lynch to run the program.
Subha Barry, managing director of global diversity and inclusion at Merrill Lynch, said her company's involvement was not about paying lip service to a women's issue; it was about finding talent and improving the bottom line.
"As a business," Barry said, "we need diversity of thoughts and experience to stay relevant in the marketplace, so we started digging into the question of why we don't attract more women at higher levels when we have the same number of men and women at the entry level."
She said examining that question meant looking at the psychology of re-entry and accepting that demands on women, especially in terms of child-rearing, are greater.
The company wants to help women "re-acclimate to their careers when, after raising young children for a few years, the slope looks so steep," she said
One woman who successfully made the transition is Lori Brown, who left her job as a principal at a consulting firm in 2004 to spend more time with her two young sons. She was recently hired as the director of benefits, strategy, and compliance at L'Oréal in Clark, New Jersey.
Brown, 48, found the position on Theladders.com, a site for jobs that pay more than $100,000. She said her search, which lasted seven months, was much more involved than just mining postings on the Internet.
Not only did she "network like crazy," she said, but she also went to see a career coach to ensure that her re-entrance looked more like a pirouette than a clumsy stumble.
"Coming back into the work force after five years means you have to be incredibly clear about what you value both personally and professionally," said Brown. "Seeking outside help was helpful in setting that direction."
Emma Gilbey Keller, who wrote "The Comeback: Seven Stories of Women Who Went From Career to Family and Back Again," says that one of the most efficient ways to return to the work force is to look for project-based employment and temporary work, particularly in this economy.
"Jobs are being cut, but companies still need hands on deck," said Keller (who is married to Bill Keller, executive editor of The New York Times). "Right now, short-term work is going to be easier to come by than landing the managing editor position or a getting on the partner track at a law firm."
According to one school of thought, women looking to make a comeback might even have an advantage in the current economy, especially if they are looking for part-time or consultant positions that do not offer benefits. And a majority of on-rampers are women with extensive résumés that could give them an edge over less-experienced competition.
Regardless of the job sought, though, experts and those in the trenches warn to be prepared for resistance.
"You have to anticipate questions about whether you are really ready to get back into the work force and why now," said Sarah Grayson, a partner at On-Ramps, a recruiting and consulting firm specializing in workplace innovation. "Some employers have been burned by on-rampers" who have changed their minds, she said.
BROWN said she ran into one recruiter who told her that she was a very attractive candidate, but that her five-year break was a huge liability. That encounter was the exception, she said.
Still, even if many on the hiring side are empathetic, coming up with a language to talk about a career detour is crucial.
"You absolutely cannot be defensive about why you off-ramped," Brown said.
Markovitz Hoffman says "defensive" would have been her default tone if the Greater Returns program had not taught her how to describe the years she spent at home. "I now feel confident talking to an employer and saying, 'Yes, I have been out of the work force, but here is where I can make significant contributions.' "
Markovitz Hoffman says she is puzzled that companies aren't doing more to address the issue of women returning to work. "Most firms have a diversity office; why don't they have an on-ramping department?" she said.
Pearl Harbor conspiracy theory about 'winds' message refuted
By Sam Roberts
Sunday, December 7, 2008
It has remained one of World War II's most enduring mysteries, one that resonated decades later in the aftermath of Sept. 11: Who in Washington knew what and when before the Japanese attacked Pearl Harbor on Dec. 7, 1941?
Specifically, who heard or saw a transcript of a Tokyo shortwave radio news broadcast that was interrupted by a prearranged coded weather report? The weather bulletin signaled Japanese diplomats around the world to destroy confidential documents and codes because war with the United States, the Soviet Union or Britain was beginning.
In testimony for government inquiries, witnesses said that the "winds execute" message was intercepted as early as Dec. 4, three days before the attack.
But after analyzing American and foreign intelligence sources and decrypted cables, historians for the National Security Agency concluded in a historical documentary released last week that whatever other warnings reached Washington about the attack, the "winds execute" message was not one of them.
A Japanese message intercepted and decoded on Nov. 19, 1941, at an American monitoring station on Bainbridge Island, Washington, appeared to lay out the "winds execute" situation. If diplomatic relations were "in danger" with one of three countries, a coded phrase would be repeated as a special weather bulletin twice in the middle and twice at the end of the daily Japanese-language news broadcast.
"East wind rain" would mean the United States; "north wind cloudy," the Soviet Union; and "west wind clear," Britain.
In the history "West Wind Clear," published by the National Security Agency's Center for Cryptologic History, Robert Hanyok and David Mowry attribute accounts of the message being broadcast to the flawed or fabricated memory of some witnesses, perhaps to deflect culpability from other officials for the United States' insufficient readiness for war.
A congressional committee grappled with competing accounts of the "winds execute" message in 1946, by which time the question of whether it had been broadcast had blown into a controversy. The New York Times described it at the time as a "bitter microcosm" of the investigation into American preparedness.
"If there was such a message," the paper wrote, "the Washington military establishment would have been gravely at fault in not having passed it along" to military commanders in Hawaii. If there was not, then the supporters of those commanders "would have lost an important prop to their case."
In an interview, Hanyok said there were several lessons from the controversy that reverberate today. He said that some adherents of the theory that the message was sent and seen were motivated by an unshakable faith in the efficacy of radio intelligence, and that when a copy of the message could not be found they blamed a cover-up - a reminder that no intelligence-gathering is completely foolproof.
Washington also missed potential warning signs because intelligence resources had been diverted to the Atlantic theater, he said, and the Japanese deftly practiced deception to mislead Americans about the whereabouts of Tokyo's naval strike force.
"The problem with the conspiracy theory," Hanyok said, "is that it diverted attention from the real substantive problems, the major issue being the intelligence system was so bureaucratized."
Beginning about Dec. 1, Washington became aware that the Japanese were ordering diplomats overseas to selectively destroy confidential documents. But, the NSA study found, "because of the sometimes tardy exploitation of these messages, intelligence officers in the Army and Navy knew only parts of the complete program. It is possible that they viewed the Japanese actions as ominous, but also contradictory and perhaps even confusing. More importantly, though, the binge of code destruction was occurring without the transmittal of the winds execute message."
The authors concluded that the weight of the evidence "indicates that one coded phrase, 'west wind clear,' was broadcast according to previous instructions some six or seven hours after the attack on Pearl Harbor."
"In the end, the winds code never was the intelligence indicator or warning that it first appeared to the Americans, as well as to the British and Dutch," they wrote. "In the political realm, it added nothing to then current view in Washington (and London) that relations with Tokyo had deteriorated to a dangerous point.
"From a military standpoint, the winds coded message contained no actionable intelligence either about the Japanese operations in Southeast Asia and absolutely nothing about Pearl Harbor.
"In reality," they concluded, "the Japanese broadcast the coded phrase(s) long after hostilities began - useless, in fact, to all who might have heard it."
The New York Times
By Eric Pfanner
Sunday, December 7, 2008
PARIS: During a recent episode of "Jamie's Ministry of Food," the British television chef Jamie Oliver let fly with a four-letter word and its variations 23 times in 50 minutes. Nary a "bleep" was heard.
A tolerance for foul-mouthed television chefs and talk-show hosts is one of those little things that used to separate Britain from an America riven by culture wars. But after several unusually saucy broadcasts, even the British seem to be having second thoughts about the language that goes out over their airwaves.
A lobbying group called Mediawatch-UK last month started a petition calling on the government to "stop the use of unnecessary swearing and bad language" on television and in the movies.
"The language we hear on television is damaging our language, our culture, our educational system," said John Beyer, director of Mediawatch-UK. "If they were to do something about that, it would have benefits across the board."
Beyer introduced the petition after the BBC Trust, which oversees the BBC, rebuked the broadcaster over a television talk show in which the host, Jonathan Ross, used a four-letter word in a sexual reference to a guest, the actress Gwyneth Paltrow.
In another case cited by the BBC Trust, Ross and another host, Russell Brand, left messages on a retired actor's telephone answering machine during a radio show, saying Brand had slept with the actor's granddaughter. Their language, of course, was slightly more colorful than that.
This year, Ofcom, the British media regulator, reprimanded the BBC for failing to stop Madonna, Phil Collins and other musicians from swearing during broadcasts of the Live Earth concert.
This summer, the BBC embarked on a review of its editorial guidelines, which deal with matters like language. Even before the new guidelines are put in place, the BBC has been moving to curb the use of four-letter words, according to Jana Bennett, the BBC director of vision, a job that includes overseeing the broadcaster's television channels.
"We have actually been pushing back a bit on language," she was reported as saying at a conference last month. "It is possible that some language alienates some audiences unnecessarily."
Because it relies on public money for most of its funding, the BBC has to pay close attention to public opinion, even when outrage is whipped up by tabloid newspapers, as has been the case over swearing.
Bennett's comments followed similar remarks by Michael Grade, the chairman of ITV, the biggest commercial television company in Britain, who complained last month that swearing on television had become "rather indiscriminate."
But another British broadcaster, Channel 4, is having none of that kind of talk. The channel, which features Oliver and another chef with a salty tongue, Gordon Ramsay, "strives to reflect the reality of life and society in its programs, and strong language is frequently part of that reality," a spokesman said.
"We judge each program individually, but strong and potentially offensive language will continue to feature in our programs where we consider the context justifies its use and the program is responsibly scheduled," said the spokesman, who declined to be named because of company policy.
Ofcom can fine the BBC up to £250,000, or $367,000, and other broadcasters up to 5 percent of their revenue, for violations of its broadcasting code. The code says "the most offensive language" must not be broadcast before 9 p.m., when children are most likely to be watching.
Even after 9 p.m., when television chefs heat up their kitchens, strong language must be justified by the context, according to the code.
Unlike the Federal Communications Commission in the United States, which has gone to the Supreme Court to try to stamp out swearing on broadcast television, Ofcom makes no distinction between over-the-air TV and cable or satellite transmission, where American channels have more linguistic leeway. Last spring, MTV was fined £255,000 in Britain because of profanity in music videos and other programming that, like Live Earth, was shown before 9 p.m.
One challenge for broadcasters and regulators is to determine what words are considered offensive. The FCC has been helped in this regard by the late comedian George Carlin, whose routine about seven dirty words formed the basis of a 1978 Supreme Court decision that has allowed the commission to try to keep swearing off the American airwaves.
The FCC has gone back to the Supreme Court in a case against the Fox television network over the use of "fleeting expletives" that creep into broadcasts.
In Britain, there is no pithy equivalent to Carlin's summation. In fact, it took Ofcom 87 pages to write up the results of a 2005 investigation into the matter.
In the study, focus groups were shown clips that included epithets with sexual, excretory, religious, ethnic and other connotations, and asked for their opinions.
Bennett, in her comments at the media festival, shed some light on the BBC's thinking with regard to the degree of offensiveness of certain swear words.
Any on-air use of a notorious four-letter word, she said, required her personal clearance. The heads of individual BBC channels, however, are permitted to approve the use of off-color words.
Beyer, at Mediawatch, said regulators ought to make it simple and ban swearing outright.
"The only way to do it is to publish a list and say, these words should not be used on television," Beyer said. "No matter how illiberal that sounds, that's the best way to do it."
Another media watchdog, Richard Lindley, chairman of a group called Voice of the Listener and Viewer, said an outright ban would be a step too far, though he, too, expressed concern about the amount of swearing on British television.
"I don't see why some television chef has to swear his way through his entire show," he said.
"But we don't want to go back to the days of World War II feature films where you went 90 minutes without hearing the word 'damn."'
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