Friday, 2 January 2009

A Place in the Auvergne, Wednesday, 31st December 2008


Former head of Chinese dairy pleads guilty in scandal
By David Barboza
Wednesday, December 31, 2008
SHANGHAI: The former chairwoman of one of China's biggest dairy producers pleaded guilty on Wednesday to selling tainted powdered baby formula and acknowledged for the first time that the company knew of the problem months before alerting local officials to what has become one of the country's biggest food-safety crises, according to the state-run news media.
The former executive, Tian Wenhua, is one of the highest ranking corporate executives to go on trial in China and could face life imprisonment or even the death sentence, according to legal experts and the local media.
Since September, when the scandal became public, investigations have shown how widespread the problem of tainted milk is in China, with watered-down milk being doctored with a chemical used in plastics and fertilizer to falsely raise its protein count. The chemical, melamine, can cause kidney stones and other ailments, and the tainted formula sickened nearly 300,000 children and killed six.
The government has accused Sanlu and other big Chinese companies of failing to monitor the quality and safety of their powdered baby formula, and in some cases covering up knowledge that their dairy products contained high and impermissible levels of melamine. The scandal, which follows others in China's food and drug industries, has devastated the country's dairy industry and prompted global recalls of suspect food products, and forced the Chinese authorities to try to demonstrate a new seriousness in enforcement.
Tian's plea came on the first day of a trial that involves three other Sanlu executives. The court said that consumer complaints about Sanlu's milk came in as early as December 2007. Tian said she knew the company was selling contaminated formula by May 2008, but did not report the problem to local government officials until August. Between May and September, when Sanlu stopped production, prosecutors said the company made more than 900 tons of melamine contaminated baby milk powder.
Until Wednesday, company officials had maintained that they learned of the problem in only in August. That is when executives at the Fonterra Group of New Zealand, which owns a large stake in Sanlu, said they became aware of a problem and pushed Sanlu to issue a recall.
The Fonterra executives said they believed their warnings, on the eve of the Beijing Olympics, had reached government officials in the capital, but so far investigations have focused mostly on local officials, though the head of the country's product-safety watchdog, the General Administration of Quality Supervision and Quarantine, resigned. The trial involving Tian is in the city of Shijiazhuang, in the northern province of Hebei, where Sanlu is based. This week, an intermediate court rejected requests by some foreign media to attend. On Wednesday, Chinese state-controlled media broadcast images of Tian, who is 66, looking pale and ill, standing handcuffed before a microphone in a yellow jacket acknowledging her guilt.
According to state media reports, Tian said she was told in May 2008 that European standards allowed up to 20 milligrams of melamine per kilogram to be present in food products, in an indication that there was a problem with the chemical. In September, some Sanlu products were found to have over 2,000 milligrams per kilogram.
Wang Yuliang, another former Sanlu executive on trial, appeared in a wheelchair. State-run media outlets said he tried to commit suicide this year. Sanlu filed for bankruptcy protection last week.
Several high ranking Shijiazhuang government officials have been fired for not guarding public safety. The trial of the Sanlu executives and separate trials involving about 15 other dairy middlemen in Hebei Province during the past week has rekindled anger over the scandal. In Shijiazhuang, some families with children who had been sickened by the tainted milk powder gathered outside the courthouse on Wednesday, according to the state-run news media.
In 2007, after earlier product-safety scandals, the head of China's State Food and Drug Administration was executed after he was found guilty of corruption and dereliction of duty as a regulator.


Thai political crisis set to drag on in 2009
Wednesday, December 31, 2008
By Khettiya Jittapong
Supporters of former Thai Prime Minister Thaksin Shinawatra vowed on Wednesday to resume their street campaign for new elections in 2009, suggesting no respite from a long-running political crisis as a recession looms.
In a sign of the strife to come, leaders of the pro-Thaksin camp warned they may target a regional summit in Bangkok in February to pile pressure on the weeks-old government led by former opposition leader Abhisit Vejjajiva.
"We are discussing among DAAD leaders that we will protest against the government again after the New Year holidays," Veera Musikapong, leader of Democratic Alliance Against Dictatorship (DAAD), told reporters.
"Our demand is the same, a dissolution of the house," Veera said after thousands of red-shirted demonstrators ended a two-day blockade of parliament.
The siege forced Abhisit, an Oxford-educated economist and the country's fourth prime minister in 2008, to change the venue of his maiden policy speech.
The DAAD, which this week took a page from the playbook of the yellow-shirted People's Alliance for Democracy (PAD) that led a months-old street campaign against the previous pro-Thaksin government, has rejected Abhisit's calls for national unity.
They accuse the 44-year-old leader of being in an unholy alliance with the army and the PAD, which seized Bangkok's main airports last month, a charge he denies.
Thai newspapers said the outlook for political stability remained bleak as long as the rift between Bangkok's royalist and business elite, who accused Thaksin of corruption, and rural voters who loved his populist policies, remains unresolved.
"The point of negotiation has passed," Matichon said, comparing the country's politics to a paralysing illness.
"There is a chance that this disease will develop and cause death if we don't cure it or find the right cure," it said.
Thaksin, who fled into exile before his conviction this year on conflict of interest charges, continues to loom large more than two years after he was removed in a bloodless coup.
In his latest interview with a magazine in the Middle East, which was widely quoted in the Thai press on Wednesday, Thaksin said he would like to return and lead the government again.
Abhisit, who has said Thaksin can return as long as he respected the justice system, said on Tuesday the political chaos could push the country in recession despite his government's planned $8.6 billion (5.9 billion pound) stimulus package.
"These conflicts are the country's weakness, especially at a time when the world economy is entering its worst crisis in a century," he told legislators.
Slowing exports, falling tourist arrivals, weak commodity prices and delayed private investment would be major problems facing Thailand in 2009 as the global economy weakened, he said.
Many Thai and foreign companies have already cut jobs, prompting Abhisit to warn that unemployment could double without urgent government action.
But analysts doubt Abhisit's stimulus package can spare the economy from recession, given the country's heavy reliance on exports and the prospects for more political unrest in 2009.
(Writing by Darren Schuettler; Editing by Sugita Katyal)


Ghana presidential hopefuls in last-ditch vote race
Wednesday, December 31, 2008
By Kwasi Kpodo
Ghana's presidential rivals headed to a rural farming constituency on Wednesday, hoping to pick up votes ahead of a crucial ballot there on Friday which will decide one of Africa's closest ever leadership elections.
Tain constituency's 53,000 electors could not vote due to problems in last Sunday's run-off ballot, but will now choose who will lead the West African state, the world's No. 2 cocoa grower, for the next four years.
With votes counted from Ghana's 229 other constituencies, John Atta Mills of the opposition National Democratic Congress (NDC) has a wafer-thin lead with 50.13 per cent of votes.
Nana Akufo-Addo of the New Patriotic Party (NPP) has 49.87 percent, and just 23,050 votes separate the two foreign-trained lawyers, both aged 64.
Akufo-Addo said he was leaving on Wednesday for Tain, where Mills finished narrowly ahead in the first round of voting on December 7. But he protested over irregularities and incidents of violence in last Sunday's ballot and said he may yet pull out.
"Whether or not we should go forward in Tain is a matter that we are going to consider," he told reporters in Accra of his planned meetings with party officials in the rural constituency located in Ghana's central Brong Ahafo region.
He alleged that NPP polling agents for 10 polling stations in the NDC's Volta Region stronghold were physically prevented from monitoring the vote by opponents on Sunday, while others were assaulted.
President John Kufuor, of the NPP, steps down on January 7 after serving the maximum two 4-year terms, and the late voting in Tain has squeezed the timetable for an orderly handover.
Observers from the European Union, the U.S.-based Carter Centre and the West African regional bloc ECOWAS said the run-off vote had been generally orderly and transparent.
Yet both parties have accused the other's supporters of irregularities and violence during the poll, a hard-fought battle to lead one of Africa's brightest investment hopes as it prepares to start producing crude oil offshore in late 2010.
Although Akufo-Addo led with a narrow majority in the first round of voting on December 7, Mills' NDC has made the most of the elections so far, overturning an NPP majority in parliament.
"In short, the January 2 vote is essentially cosmetic," Sebastian Spio-Garbrah, Africa analyst at risk consultancy Eurasia Group in New York, wrote in a report.
"The opposition NDC ... has essentially won the majority of presidential ballots cast during the run-off and Atta Mills will before the end of the week be declared president-elect," he said.
Many NDC supporters celebrated on Tuesday when Mills' lead was officially announced. But hundreds of NPP voters gathered at Akufo-Addo's Accra residence on Wednesday expressed anger over alleged election flaws and accosted journalists whom they accused of publishing election results prematurely.
Ghana, on Africa's Gulf of Guinea, has enjoyed growth and stability in recent years, becoming an investors' favourite. The country, also a gold producer, will start producing oil in 2010.
But with state debts mounting and economic growth slowing amid a global downturn, the new president will likely face high inflation and unemployment, and falling income from foreign aid and remittances from Ghanaians working overseas.
(Writing by Alistair Thomson; editing by Pascal Fletcher and Philippa Fletcher)

Two of China's quake victims rebuild their lives
By Edward Wong
Wednesday, December 31, 2008
LUOCHEN VILLAGE, China: Li Wanzhi has learned to do certain things with just one arm.
Dressing herself, for example. That was easy. Washing clothes was something else entirely. For that, she needed the help of her mother-in-law.
Her husband, Wang Zhijun, was in good shape, by comparison. He had all his limbs, even though he and his wife had been trapped together in the rubble of their apartment building for 28 hours after the earthquake in Sichuan Province last May. They had lain with their arms wrapped around each other, their faces only inches apart. His right hand still aches, but he can hold chopsticks now.
"Sometimes when we think of that night, we say, 'Let the past be the past,"' Li said with a faint smile. "We feel we've already started a new life."
Like the stories of many survivors, the journey of Li and Wang after the earthquake has been one of steps taken by the inch. They are slowly piecing together a future after a disaster that left 88,000 people dead or missing and five million homeless in the rugged hills of southwest China.
The two sat on wooden chairs by a field of garlic on a gray afternoon, sipping tea with visitors. The empty left sleeve of Li's brown winter coat was tucked into a pocket. Wang rubbed his aching hand. They listened to their 14-year-old daughter playing with girlfriends in a makeshift tent.
This is Wang's home village in Sichuan, where irrigation canals line fields and a cement factory belches fumes.
Li and Wang now live in a flimsy wooden hut with a dirt floor.
Their disabilities prevent them from working. Besides missing an arm, Li has problems with her right foot. But they say they consider themselves lucky to be alive, and their spirits are much higher than when they were in a hospital room just three days after their harrowing ordeal last May.
Before the quake, Wang, 40, had been traveling across China doing odd jobs, and his marriage with Li had been on the wane. Since their rescue, it has proved sturdier than the thousands of buildings that crumbled to dust.
The night they were trapped beneath the rubble, they made promises to each other: They would rededicate themselves to each other if they made it out alive; together they would raise their daughter, Xinyi.
"He won't travel for now because he has to stay home to take care of me," said Li, 38.
Wang grinned. "Yeah, I have to be here to take care of her," he said.
Li glanced at Wang's hand. "My father often jokes, 'Look at this couple - one has a third-degree disability, the other has a second-degree disability; they're made for each other,"' she said.
They spend their days doing simple exercises to get back into shape. At night, they eat dinner with Wang's younger brother at his home, a large, wooden shelter where villagers gather around four tables to play mah-jongg. Then they return to their cold hut to sleep.
The hut has a stack of quilts and a cardboard box that serves as a table. Its one luxury is an old television set and DVD player that Wang's older sister rescued from her home.
The sister and her husband sleep next door in an even flimsier shelter, made of plastic tarps.
Each day, all across the village, survivors mix cement and stack bricks atop bricks to build new homes. But Li and Wang are in no condition to do such work.
"This year, we'll do our best to recover," Li said. "Next year, we'll live on our own and maybe start a small business."
Like other earthquake victims, they get a government subsidy of $44 a month. An American couple who read the tale of their survival last May in The New York Times gave them a small donation. And although Li no longer works, her employer, a chemical production company with a factory in the nearby town of Luoshui, continues to pay her a monthly salary of $150.
The couple had been living on the fourth floor of a workers' dormitory when it and the factory collapsed on the afternoon of May 12. More than a hundred of Li's co-workers died.
"My colleagues often call me to ask if I'm doing well," she said. "In my department, several died. Some others are fine."
Wang says he wants to buy a small truck next year to transport goods. Li may try her luck at business.
"I want to start a clothes shop," she said. "I often say to my husband, 'I want to feel like a beautiful woman, and to look at beautiful clothes every day.' I want to get my confidence back."
Li's arm became gangrenous after being crushed in the rubble. After it was amputated at a local hospital in May, she was flown to Shanghai for more surgery. Doctors gave her a plastic arm for upper-body balance and cosmetic purposes, but she rarely wears it.
At a recovery center in Shanghai, she saw other amputees outfitted with metal prosthetic arms. Someone told her the price for one: an astounding $4,400. Her dream now, she said, is to have an arm she can use again.
On weekends, Xinyi, their daughter, comes home. Most days, she stays at a friend's home close to her school in Shifang. Poorly built schools collapsed across southwestern China during the earthquake, killing as many as 10,000 children, but Xinyi's remained standing. The school was later torn down, though, and the students now go to class in a prefabricated schoolhouse.
"It's not bad," Xinyi said of life after the earthquake. "Baba and Mama are here. I don't think about the earthquake much."
But for Li, the hours she and her husband spent buried in the rubble are forever seared into her memory.
"I still think often of the earthquake," she said. "Sometimes when I see a high building, I think, 'I was buried after falling from the fourth floor, and I survived. How lucky I am!' The other day, I saw a six-story building and I thought, 'How did I survive?"'
Li fell quiet and looked at her husband. The pale winter light was fading. They got up from their chairs and walked into the tent where their daughter had been laughing all afternoon with other children.
Huang Yuanxi contributed research.

******************** Rich countries could be biggest losers in downturn
Thursday, January 1, 2009
Absent huge policy mistakes, the current downturn will not rival the Great Depression, when U.S. gross domestic product dropped by 27 percent and the unemployment rate reached 25 percent. Even the worst pessimists do not expect a GDP decline of double-digit percentage points. But there is a chance of a sort of quasi-depression - which could lead to a multi-decade decline in living standards in rich countries.
The gap between developing and developed world living standards is still huge. GDP per person in the United States is 4.6 times as high as the world average.
But globalization - in trade, communications and knowledge - is narrowing the difference. Both poor and rich have gotten richer, though the poor have got richer faster.
That could change. The growth of the poor might start to come at the expense of the rich.
Suppose that income gap of 4.6 times halves in the next 15 years while the world's GDP keeps growing at the same rate it did between 1960 and 2000 - 2.6 percent. If that happens, U.S. per capita GDP will mathematically be 27 percent lower in 2022 than in 2007 - the same fall as in the Great Depression, just spread out over many more years.
Rich countries can actually get poorer. The average Argentine was 9 percent poorer in 1945 than in 1929. It took heroic doses of wasteful macroeconomic policy to get that result. But the current rich-country policies of huge government deficits and tiny interest rates are not growth-friendly over the long term.
Unless reversed quickly, this mix tends to lead to larger governments, troublesome budget deficits and - when the debts cannot be paid off - increasingly dangerous inflation. Populist policies could make a bad situation worse. In the United States and other wealthy countries, the result could be a downward-sloping saw-toothed pattern of output, in which each recovery is feebler than the preceding downturn.
As it stands, the poor are closely tied to the rich, so China and its peers are suffering from the troubles in their big export markets. That could change, though, if poorer countries learn to rely less on low-value exports. Instead, they could create a self-sustaining upward spiral of useful investments, improved productivity and rising incomes. Such a decoupling would be highly advisable if rich countries turned to the economic equivalent of self-harming behavior.
Even if the rich get one-third poorer, they will be much richer than their ancestors were in 1929, before the Great Depression started. But the psychological effect of losing income for so many years could be just as great. Talk about depressing. - Martin Hutchinson

Gazprom begins halting gas to Ukraine
By Andrew E. Kramer
Wednesday, December 31, 2008
MOSCOW: Gazprom, the Russian natural gas monopoly, began shutting off its gas supplies to Ukraine, Russian state television reported on Thursday, a day after negotiations over gas prices between Russia and Ukraine unraveled.
In a live broadcast from the pumping station near Russia's border with Ukraine, the Vesti-24 television station said Gazprom headquarters in Moscow had ordered its pumping station on one of the pipeline routes to Ukraine to halt gas supplies and that the volume of gas to Ukraine was four times below what was normal.
Customers in Western Europe will see shortages as the same pipelines in Ukraine are used for export and internal distribution. It is a problem that has bedeviled Europe's energy supplies from Russia for years.
How quickly Western Europe would feel a shortage of natural gas was unclear, and would depend on the scale and duration of any Russian embargo of Ukraine. The fuel is used for heating and to generate electricity, and winter is the period of peak demand.
As in the past, the dispute blends political and economic grievances.
But the economic pressure on Ukraine is likely to be viewed through the lens of the war in Georgia in August, and Russia's subsequent claim to a privileged sphere of influence in the former Soviet republics. Like Georgia, Ukraine has angered Russia by seeking membership in the NATO alliance.
In comments broadcast on Russian state television Wednesday evening, the prime minister, Vladimir Putin, said any interference with Russia's gas exports to Europe would carry "serious consequences for the transit country itself," without elaborating.
Ukraine paid $1.5 billion to the Swiss-based trader that Gazprom uses to supply Ukraine, RosUkrEnergo, on Tuesday. President Viktor Yushchenko issued a statement saying Ukraine had settled for all deliveries in 2008.
Gazprom, however, maintains that Ukraine must also pay $600 million in late fees.
By Wednesday evening, the sides had also not settled on the price for 2009 deliveries or the tariff Ukraine would charge for transshipping Russian gas to customers in Western Europe.
Gazprom is asking Ukraine to pay $250 for a 1,000 cubic meters next year, up from $179 for the same volume in 2008, Putin said, characterizing this as a subsidized rate.
Bohdan Sokolovsky, the Ukrainian president's envoy on energy security, said Ukraine would not accept this price unless Russia offset the increase by paying more to transit gas to Europe.
The transit of Russian natural gas across former Soviet states to Western Europe is a pivotal economic and security interest of the Russian government as taxes on exports of oil and natural gas account for about 60 percent of the budget.
About 80 percent of Russia's gas exports to Europe, meanwhile, cross Ukrainian territory.
Customers include major European utilities like Germany's E.On and the Italy's Eni.
After the street protests known as the Orange Revolution installed a pro-Western government in Ukraine in 2004, talks over gas supply and transit became fraught.
Russia halted supplies to Ukraine for three days in 2006 in a dispute ostensible over pricing and transit fees.
Then, the drop in pressure in the integrated European pipeline system led to shortages as far away as Italy as Ukraine withdrew gas from the export shipments to meet internal demand. This year, however, Ukrainian authorities say they have sufficient reserves to meet internal demand for three months.
Russia's hardening position in this gas pricing negotiations come at a bad time for Ukraine, a country already hard hit by recession.
Still, Gazprom's chief executive, Aleksei Miller, on Wednesday reiterated the threat to cease deliveries Thursday morning.


Ukraine threatens to seize Russian gas, Gazprom says
The Associated Press
Wednesday, December 31, 2008
MOSCOW: Russia's state gas monopoly, Gazprom, said Wednesday that Ukraine has threatened to seize gas intended for European customers if no deal is reached on gas shipments to Ukraine starting Jan. 1.
Gazprom's deputy chairman, Alexander Medvedev, said Ukraine's threat amounted to "blackmail" of Russia and the European Union.
He condemned the threat contained in a letter from Ukraine's state gas company, Naftogaz, as "utterly irresponsible," saying that it violates Ukraine's obligations under previous agreements.
A seizure threat would raise fears of disruptions in supplies to Europe similar to those which occurred amid a similar dispute in January 2006. The announcement comes as Russian and Ukrainian officials remain locked in tough talks on Ukraine's debt over past gas shipments and future deliveries.
Gazprom supplies a quarter of the gas used by EU nations, and around 80 percent of it goes through Ukraine.
A Naftogaz spokesman, Valentyn Zemlyansky, and other Ukrainian officials had no immediate comment, but Medvedev showed a copy of the letter from the chief of Naftogaz, Oleh Dubina, at a news conference Wednesday.
Gazprom again warned it would cut gas supplies to Ukraine on Thursday and sharply raise the price for future deliveries if it fails to pay off $2.1 billion debt for Russian gas supplies by midnight.
Naftogaz has said it paid $1.5 billion to settle its debt for Russian gas imports. Medvedev said that the sum has reached the accounts of Rosukrenergo, a Russian-Ukrainian intermediary based in Switzerland, and voiced hope it would soon reach Gazprom's accounts.
But a Gazprom spokesman, Sergei Kupriyanov, said that it expects Ukraine to make good on the rest of its $2.1 billion debt.


Oilexco says unit faces insolvency as shares skid
Wednesday, December 31, 2008
By Alasdair Reilly
Oil exploration company Oilexco said on Wednesday that its North Sea operating unit intends to file for bankruptcy protection after lenders refused to provide further funding to the company.
Oilexco shares lost nearly three-quarters of their value, tumbling 64 Canadian cents to 25 Canadian cents on the Toronto Stock Exchange.
The company, which first announced financing problems in October, was the exchange's most heavily traded issue on New Year's Eve, with more than 24 million shares changing hands early in the session. Its London-listed shares sank 60 percent to 20 pence.
Calgary, Alberta-based Oilexco said in a statement that subsidiary Oilexco North Sea Ltd is likely to file for administration as early as next week.
Oilexco won a $47.5 million (33 million pound) bridge financing on December 17 with its banking syndicate, led by Royal Bank of Scotland . The bridge loan matures on January 31, 2009.
The company said in mid-December it was likely that incremental funding would be required in the short term, in addition to the bridge loan.
Oilexco is retaining Morgan Stanley and Merrill Lynch to conduct a strategic review to seek funding alternatives or a possible sale of the company or its assets.
Administrators are likely to continue those efforts, but the company said it could give no assurances that a deal would be completed.
Oilexco said it remains solvent and committed to the strategic review process.
The company tapped the financial market in October 2007 when it secured a $500 million loan from a syndicate of banks.
That financing was used to develop the Ptarmigan, Shelly and Huntington fields, for the completion of its acquisition of the Balmoral production vessel and for general corporate purposes.
Oilexco's producing properties, exploration and development activities are located in the North Sea, specifically the Outer Moray Firth and Central Graben areas off eastern Scotland.
It has been struggling with financing problems since October, when it announced the closing of a planned financing had been delayed by the credit crisis. It also cut its production target amid falling oil prices.
(Additional reporting by Jeffrey Jones in Calgary; editing by David Cowell and Rob Wilson)


Oil jumps 14 percent
Wednesday, December 31, 2008
By Edward McAllister
US crude oil ended 2008 up 14 percent a barrel in thin pre-holiday trade on Wednesday, tracking a jump in gasoline as a slowdown in domestic refinery activity sparked fears of tightening fuel supply this winter.
U.S. crude oil futures for February settled up $5.57 to $44.60 per barrel, but down 54 percent from the $95.98 on the last day in 2007.
London Brent settled up $5.44 at $45.59.
This year saw the record high prices in July above $147 a barrel crash to the year low of $32.40 on December 19 as the global recession dissolved world demand.
Weekly U.S. inventory data on Wednesday showed a decline in refinery activity and a 500,000 barrel rise in crude stocks, compared with forecasts for a 1.5 million barrel decrease.
"There's a sign that the industry might be cutting back on production rates to try to boost margins. As heating oil and gasoline prices are rallying, crude is tagging along," said Gene McGillian, analyst at Tradition Energy Stamford, Connecticut.
"The market is trading in pretty thin volume ahead of tomorrow's holiday and I think that's contributing to some of the strength," he added.
Inventories of refined products also rose, though less than analysts had expected. Gasoline stockpiles increased by 800,000 barrels, less than forecasts for a 1.5 million barrel build, while distillates rose by 700,000 barrels, below expectations for a 1.1 million barrel increase.
Demand for both gasoline and distillates, which include heating oil, was lower than the same time a year ago, extending the trend for reduced consumption.
Markets also were watching a dispute over gas supplies between Russia and Ukraine, which may have to buy distillates from Europe if gas supplies from Russia are halted.
Russia's gas export monopoly Gazprom said on Wednesday that talks with Ukraine over gas prices for 2009 have failed, making a cut-off of gas to Ukraine on January1 unavoidable.
"Thrown in with everything else, the Russian threat of a gas cutoff has everyone a bit nervous ahead of the close," said Tom Knight, trader with Truman Arnold in Texarkana, Texas.
Analysts forecast an average of $49 a barrel for U.S. crude in the first quarter, and an average of $58.48 for next year, down $14 from their previous forecasts, the latest Reuters poll showed.
Faced with slumping demand and prices, the Organisation of the Petroleum Exporting Countries (OPEC) this month said it was cutting output 2.2 million barrels per day (bpd), its deepest reduction ever.
Evidence is mounting that OPEC is complying with its goal to reduce production, led by top exporter Saudi Arabia.
Market sources said on Tuesday the kingdom's supplies to long-term buyers in February could imply production of even less than its new OPEC production target.
(Additional reporting by Timothy Gardner and Robert Gibbons in New York, Christopher Johnson in London and Chua Baizhen in Singapore; editing by Anthony Barker)


Iranian president proposes ending energy subsidies
By Nazila Fathi
Wednesday, December 31, 2008
TEHRAN: Faced with falling oil prices and a weakening economy, President Mahmoud Ahmadinejad presented a plan to Parliament on Tuesday that would scrap energy subsidies, a significant change in a major oil-producing country where gasoline is sold for 36 cents a gallon.
Economists warn that the move could spur inflation and raise unemployment. But Ahmadinejad urged Parliament to vote for the bill because of the need to curb costly energy consumption, which the subsidies have encouraged.
The president previously insisted that the global economic downturn and the decline in oil prices would not harm Iran's economy. But as oil prices have fallen to less than $40 a barrel from $147 in recent months, the pressures on the government have become unavoidable. It currently pays $100 billion a year in direct and indirect subsidies for goods, according to government figures.
"Falling oil prices encourage us to promptly implement the bill," Ahmadinejad told Parliament. "It is time we made a decision."
The falling international oil prices provided a good opportunity for Iran to act now to end subsidies that have been in place for years, he said. The resulting inflation, he argued, would be temporary.
Opposition to the plan is expected to be intense. But Parliament agreed to study the package and is expected to put it up for a vote within a month. Parliament has 290 members, and more than half of them would have to vote for the bill for it to pass.
Electricity is now sold at just 6 cents per 10 kilowatt-hours. The plan would abolish all government subsidies for things like heating gas, gasoline, electricity and water within the next three years and allow prices to reach international levels.
While the plan seems likely to be unpopular, Ahmadinejad's critics say he is trying to offset its impact and appeal to voters ahead of the June 2009 presidential election by also promising to give much of the money that is now paid in subsidies directly to the poor in the form of a monthly allowance.
The amount he proposes for the allowance is not yet clear, but monthly assistance to the poor has steadily dropped to $20 per person every month from nearly $70.
Ahmadinejad came to power in 2005 with a mandate to distribute windfall oil revenue among the poor. However, the economy has taken a downturn since his election. Unemployment has increased, and inflation already stands at nearly 30 percent.
Opponents of his plan say it would push inflation higher. A central bank official, Ramin Pashaifam, said Ahmadinejad's plan would increase inflation by an additional 11 to 15 percent, the daily newspaper Etemad quoted him as saying on Tuesday.

New Year's Eve car burnings rise sharply in France
The Associated Press
Thursday, January 1, 2009
PARIS: The French government says vandals burned 30 percent more cars on New Year's Eve this year than during the holiday last year.
Burning cars on the last day of the year has become a tradition in rundown French suburbs.
The Interior Ministry said 1,147 cars were burned overnight, compared with 878 last year. It said the police had arrested 288 people during the night, up from 259 last year.
President Nicolas Sarkozy said Thursday that minors caught setting vehicles ablaze should be banned from holding a driver's license until they have paid back victims for the damage done to their cars.
Sarkozy also advocates the more widespread use of video surveillance to identify culprits.
Worried that the global economic crisis might spark renewed violence in the suburbs this year, the government mobilized 35,000 police officers on New Year's Eve, about 7,000 more than last year.
French officials also were on heightened alert after five sticks of dynamite were left in a Paris department store just before Christmas by someone who demanded the withdrawal of French troops from Afghanistan.Fires set in Greece
Arsonists attacked 10 banks and 2 car dealerships around Athens early Thursday amid New Year's celebrations in the Greek capital, the police said, according to The Associated Press.
No injuries or arrests were reported by the authorities and the attacks caused minor damage. The police had braced for violence over New Year's Eve following riots this month over the fatal shooting of a teenage boy by police officers.
At least five arson attacks were also reported by the police in Thessaloniki. Police officers also briefly clashed with protesters in the city, the second-largest in Greece, and fired tear gas at rock-throwing demonstrators.

Israel rejects cease-fire, but offers Gaza aid
By Ethan Bronner
Wednesday, December 31, 2008
JERUSALEM: Israel sought on Wednesday to fend off growing international pressure over civilian casualties from its military assault on Gaza, saying it would expedite and increase humanitarian aid and work with its allies to build a durable, long-term truce. But Israel would not agree to a proposed 48-hour cease-fire.
The government said it would push ahead with its air, sea and ultimately ground operation, which one senior military official described as "making Hamas lose their will or lose their weapons."
A strike Thursday morning included the Parliament building among its targets, news agencies reported.
During the five days of combat, Israeli warplanes have been destroying buildings once considered off limits, including mosques and government and university compounds, with officials asserting that rocket launchers and ammunition were made, stored and even operated from there. They were also hitting the homes of militants, smuggler tunnels and even money exchange shops to choke off Hamas from its suppliers.
The military official said that Gaza was limited in size and cut off from the outside and that Israel could win if it stopped future supplies and destroyed enough of what Hamas had. He added, however, that targets were running short, and that a limited ground operation aimed at destroying remaining sites was likely once the wet weather cleared.
Meanwhile, overwhelmed hospital officials in Gaza said that of the more than 390 people killed by Israeli fighter planes since Saturday, 38 were children and 25 women. The United Nations, which has estimated the number of dead to be between 320 and 390, said 25 percent of those killed were civilians. Israel said that it was still checking the numbers.
In the Jabalya Refugee Camp north of Gaza City, hundreds lined up for hours in the rain for bread and other staples as F-16 jets menaced overhead. At one point, two rockets were launched from within the camp — among about 60 shot into Israel on Wednesday — and an Israeli missile then hit the launcher.
The rockets that have been sent some 20 miles into the Israeli cities of Ashkelon, Ashdod and Beersheba in recent days are known as grads. They measure nine feet in length with warheads that weigh 30 to 40 pounds and were not manufactured in Gaza but were bought abroad and smuggled through tunnels from Egypt, Israeli officials said.
In Shifa Hospital in Gaza City, emergency personnel engaged in a brutal form of triage, allowing the worst cases to fade as they found themselves unable to cope.
A senior Israeli official said the country was seeking ways to increase humanitarian aid so that its military endeavor could continue without further pressure to stop. It permitted a dozen wounded and ill Gazans into Israel on Wednesday for treatment at hospitals here and allowed in some 100 trucks of food and medicine.
He also said that one limitation on the aid was that crossing points had come under attack by Hamas. A second, he said, is that donors are not bringing enough goods. Of the donations so far, some come from United Nations agencies, but most are from private donors.
Tens of thousands of Gazans have received recorded phone calls from the Israeli Army warning them that their houses have been marked as targets because they harbored either militants or weapons facilities like rocket workshops. Noncombatants were urged to clear out. Hundreds of thousands of leaflets gave the same message.
Israeli officials say their goals for a truce include a complete cessation of rocket and mortar fire from Gaza, a ban on armed men approaching the border with Israel, full Israeli control over the border crossings and a mechanism to ensure that Hamas is meeting its commitments.
The Hamas leader, Ismail Haniya, told Israel that there would be no talk of a truce until it ended its attack and all the crossings into Gaza from Israel as well as from Egypt were opened to full commercial traffic. He did not mention the rockets that Israel considers the central cause of its campaign.
On Thursday, Foreign Minister Tzipi Livni was expected to fly to Paris to meet with Foreign Minister Bernard Kouchner and President Nicolas Sarkozy, who are seeking ways to promote a cease-fire.
From his ranch in Crawford, Texas, President George W. Bush called Prime Minister Ehud Olmert. A White House spokesman, Gordon Johndroe, said Olmert had "assured President Bush that Israel is taking appropriate steps to avoid civilian casualties" in Gaza. In addition, he said, the Israeli leader told Bush that Israel was "targeting only Hamas operatives and those affiliated with Hamas."
They discussed prospects for a cease-fire — "what steps could lead to a cessation of violence," Johndroe said — but did not "get into specific timetables."
"It all begins with Hamas agreeing to stop firing rockets" into Israel, Johndroe added. "The onus is on Hamas."
The White House praised the diplomatic efforts of Egypt, Jordan and Saudi Arabia, but denounced Iran and Syria, saying they had supplied weapons to terrorist groups.
"Hamas is pretty well supplied by Iran and, to a certain extent, Syria," Johndroe said. "Neither Iran nor Syria is playing a helpful role. They're not playing a constructive role in this current crisis, which is pretty typical for their actions with regard to Hamas and Hezbollah."
Israel's Supreme Court told the government on Wednesday to allow foreign journalists limited access to Gaza, which had been closed to them since early November. The ruling, which urged the government to allow in a group of up to a dozen foreign journalists, came in response to a petition filed by the Foreign Press Association.
Mahmoud Abbas, the president of the Palestinian Authority, based in the West Bank, appealed to the United Nations Security Council for a cease-fire. Abbas, whose troops were forcibly ejected from Gaza by Hamas 18 months ago, is in a delicate position of not wishing Hamas to triumph but not wishing Palestinians to suffer.
In a speech delivered on Wednesday, Abbas reiterated that Hamas was responsible for the Israeli invasion because it ended the cease-fire between it and Israel 12 days ago. But he called what Israel was doing "the bloodiest massacre and systemic destruction of all forms of life; it is an aggression that does not target Gaza only but the entire Palestinian people and their cause and future and their most basic human rights."
In the West Bank, the Palestinian police and security forces have had their leaves canceled. Some men associated with Hamas have been detained, and strict rules have been established for demonstrations in support of Gaza to avoid their turning into support for Hamas. Slogans and flags are limited, and close contact with Israeli forces and checkpoints has been barred to prevent trouble.
In Cairo, Arab countries appeared deeply divided over how to respond to the latest escalation in fighting between Israel and Hamas, with sharply differing comments from foreign ministers at the opening of an emergency Arab League meeting.
Moderate Arab states generally allied with the United States blamed Palestinian disunity for the crisis and more radical states, some of whom did not attend, urged collective action to defend the Palestinians against Israel.
In the most striking comments, Saudi Arabia's foreign minister, Prince Saud al-Faisal, criticized the Palestinians for their inability to remain united behind President Abbas of Fatah — an implicit condemnation of Hamas, which took over Gaza entirely in 2007 in a brief but violent civil war with Fatah. Normally, during periods of Israeli-Palestinian fighting, Arab leaders condemn only Israel.
"This terrible massacre would not have happened if the Palestinian people were united behind one leadership, speaking in one voice," Prince Saud said at the league meeting's opening. "We are telling our Palestinian brothers that your Arab nation cannot extend a real helping hand if you don't extend your own hands to each other with love."
Gunman wounds 2 Israelis in Denmark mall shooting
The Associated Press
Wednesday, December 31, 2008
COPENHAGEN, Denmark: A gunman shot and wounded two Israelis working at a packed central Denmark shopping mall Wednesday, police said.
Police spokesman Lars Thede said it was not immediately clear whether the Israelis were targeted because of their nationality. A video surveillance camera showed a swarthy man with a dark mustache and dark hair in his mid-20s pulling out a gun before opening fire.
"We cannot say whether he is Palestinian, Iraqi, Iranian or Bosnian, or where he is from," Thede said.
"It is too early to say whether this has something to do with what happens elsewhere," he said, referring to an Israeli offensive under way against Gaza's Hamas rulers in retaliation for rocket fire. The strikes have killed some 390 people so far.
Poul Bjoernhold Loehde, head of the police in Odense, said the Danish Security and Intelligence Service had been informed of the shooting.
"Because of the present world situation, we have contacted them. To us, it is an ordinary criminal case," Bjoernhold Loehde told The Associated Press.
No one at the agency was available for comment.
The two wounded men are Israelis in their 20s, Thede said. One of the wounded was shot in the arm and the other in the leg, police said. The wounds are not life threatening, police said.
The shooting took place at the Rosengaard mall in Odense, 170 kilometers (105 miles) west of Copenhagen. It occurred around 3.30 p.m. (1430 GMT), when the mall was filled with people doing last-minute shopping before the New Year's break.
Alem Dervisevic, an eyewitness, told TV2 that he thought fireworks were going off when the shooting occurred.
"But then we saw gun rounds on the floor, we saw people running and shouting," Dervisevic told TV2. "I saw blood and a man lying down near Kvickly (supermarket) and ambulance people picking him up."
The men, who were selling hair care products, had been harassed by a group of youths in recent days, Denmark's Ritzau news agency said. The nature of the harassment was not immediately known. According to the B.T. newspaper's Web site, a man shouted something in a Middle Eastern language and opened fire. Another Israeli inside the hairdressing shop threw a chair at the gunman, the newspaper said.
The shooter escaped in a dark vehicle which later was found nearby by police.
Civilians suffer in densely populated Gaza
By Taghreed El-Khodary
Thursday, January 1, 2009
GAZA: A dentist stood at the bed of a doctor, his good friend Ehab Madhoun, 32, who had just died, his shrapnel-pitted body wrapped in a white shroud.
The day before, Madhoun, a general practitioner, was in an ambulance responding to an Israeli airstrike at the Jabalya refugee camp in northern Gaza. Another missile hit the ambulance. The driver, Muhammad Abu Hasira, died instantly. Madhoun lingered for a day, dying of his wounds on Wednesday in the intensive care unit of Shifa Hospital, where hundreds of people have been brought since Israel began its heaviest assault on Gaza in three decades.
The dentist cried.
"He was just doing his work," said the dentist, who would not give his name. "He's a doctor, and I can't understand why Israel would hit an ambulance. They can tell from the cameras it's an ambulance."
It has always been the case, over years of conflict here, that civilians are killed in the densely populated Gaza Strip when Israel stages military operations it says are essential for its security. But six days of Israeli airstrikes have surpassed previous operations in scale and intensity; the long-distance bombardment of the Hamas-controlled territory has, however well aimed at those suspected of being militants, splintered families and shattered homes in one of the most densely populated places on earth.
Medical officials in Gaza said the number of Palestinians killed in the Israeli bombardment had topped 400. While many of the dead were Hamas security personnel, the United Nations said a quarter of those killed were civilians. Some Israeli officials have put the number of Palestinian civilians killed at more like 10 percent.
Israel broadened the scope of its air offensive against the Hamas infrastructure in Gaza on Thursday, destroying important symbols of government and killing a senior leader of the militant Islamic group.
With Israeli troops and tanks amassed along the border with Gaza poised for a possible ground invasion, the foreign minister, Tzipi Livni, flew to Paris to meet with French leaders who are seeking ways to promote a cease-fire. Before she left, Livni had suggested that Israel was seeking more time for its military operation, whose primary objective is to permanently halt Palestinian rocket fire.
The Israeli Air Force on Thursday afternoon bombed the house of Nizar Rayyan, a senior Hamas leader, killing him, two of his wives and four of their children, Palestinian hospital officials said. Rayyan was the first top Hamas figure killed in the Israeli campaign.
Israeli officials are coming under increasing pressure to ease conditions for civilians in Gaza, where severely limited supplies of electricity, water, food and medicine are worsening shortages in an area that was already sealed off from the outside world.
On the issue of civilian casualties, Israeli officials maintained that they do not take aim at civilians and do everything possible to avoid hitting them, like using precision-guidance systems, up-to-the minute intelligence, leaflets and phone calls to targeted areas.
They say killing and wounding civilians only undermines their primary mission: to stop Hamas from firing rockets into civilian areas of Israel.
"I haven't seen too many tears shed in Paris, London or Berlin over the fact that we have hit Hamas targets," said Mark Regev, a spokesman for Prime Minister Ehud Olmert. "So we have many reasons, both moral and political, for doing the utmost to make sure that our strikes are as surgical as possible."
Further complicating matters is the fact that Gaza's 1.4 million people are packed into an area of only 360 square kilometers, or 140 square miles. The military and government facilities of Hamas are intertwined with buildings where the civilian population lives and works. Israelis say Hamas fires rockets at Israel from civilian neighborhoods.
In Gaza, human rights groups said that the new scale of Israel's operation puts the area's civilians, even those accustomed to conflict, under particular stress.
Some of the wounded are afraid to seek treatment at the already overwhelmed hospitals, fearful of heading into a rocket attack while driving through streets of smashed buildings and concrete shards.
Large, multigenerational families huddle in their houses, hoarding the shrinking supplies of water, food and gasoline. Despite the cold, many have kept their windows open to prevent them from shattering when bombs explode nearby. Shops are closed except for grocery stores, bakeries and pharmacies.
"Conditions for parents and children in Gaza are dangerous and frightening," Maxwell Gaylard, the UN humanitarian coordinator for the Palestinian territories, said in a statement.
"It is absolutely crucial that there is an end to the fighting," he said. "Without it, more civilians will continue to be killed. Without the violence stopping, it is extremely difficult to get food to people who need it, we cannot assess where the most urgent needs are."
In the debate over civilian casualties, there is no clear understanding of what constitutes a military target. Palestinians argue that since Hamas is also the government in Gaza, many of the police officers who have been killed were civil servants, not hard-core militants. Israel disagrees.
The ambiguity was evident at the intensive care ward in Shifa Hospital, where Madhoun's body lay. There were 11 patients. One was a pharmacist, Rawya Awad, 32, who had a shrapnel wound to the head. Several were police officers. It was impossible to know the identities of many of the others.
But there were several children in another intensive care unit on Tuesday. Among them was Ismael Hamdan, 8, who had severe brain damage as well as two broken legs, said a doctor there. Earlier that day, two of his sisters, Lama, 5, and Hayya, 12, were killed.
"I prepared them breakfast that day in the garden," said their mother, Ayda, 36. "They had the tea, bread and thyme. Lama wanted a second pita, but we all teased her, saying keep it for lunch. She told us, 'Don't worry, God will provide us with bread.' ""She made all of us laugh," the mother said. "I cleaned after them and collected the garbage. Ismael volunteered to dump the garbage, but Hayya and Lama joined him. The garbage can is in front of the house, a five-minute walk away. All of a sudden I heard the news from a neighbor, and I ran barefoot to the hospital. A relative collected the bodies of Lama and Hayya on a donkey cart. "The neighbors ran trying to save Ismael, who was the only one breathing," she said. "They say my kids flew 40 meters before hitting the ground."
Ismael died Wednesday night.
At Kamal Edwan Hospital in Beit Lahiya, in northern Gaza, Mahmoud al-Sheikh, 11, was recovering from wounds he received two days before - he thinks from a rocket fired by an Israeli warplane. Even at his age, he is aware of how fighters and civilians are mixed together in Gaza, saying that the bomb was aimed at the house of his neighbor, Salim Zaqout, who he said was a member of Hamas.
"But Zaqout and his family evacuated the house a few days ago," Mahmoud said. "Can't Israel see all these houses that are adjacent to Zaqout's? Now Zaqout's house is completely destroyed, but so are other houses that have nothing to do with Hamas.
"I have a big hole in my left hand," he continued. "The doctor told me I'm fine. He filled the hole, but it's hurting. It feels like fire inside it."
Marc Santora contributed reporting from the United Nations, New York.
In Egyptian border town, commerce via tunnel halts
By Steven Erlanger
Thursday, January 1, 2009
RAFAH, Egypt: The Israeli warplanes flew loud and unhindered in the sunny winter sky, and there was the crashing crump of explosions in the near distance, in Gazan Rafah, only 100 yards away.
Hillal Ahmed looked up at the contrails of the jet. "The Israelis are there alone; Hamas has nothing up there," he said. "But on the ground it's different. They're deep underground in cement tunnels just over there, 20 meters deep."
Hamas is well armed and waiting for Israeli ground troops, insisted Ahmed, 35, who supports the group's aspirations to rule the Palestinians and drive out the Israelis from all occupied land.
Rafah is divided between Egypt and Gaza, which Egypt once held, and which is now run by Hamas, the radical Islamic group Israel is trying to dislodge and destroy. Families like Ahmed's live on both sides of the border, but the border has been closed tight, and families communicate by telephone.
The town, which the British used in 1917 as a base for their attack on Gaza, now lives on the smuggling of goods between Egypt and a closed Gaza, through hundreds of tunnels dug deep into the earth. The Israelis are bombing the tunnels day and night, in yet one more attempt to disrupt the passage of arms, explosives and cash into Hamas-run Gaza.
But for the people here, the tunnels are their livelihood, and a necessary lifeline into Gaza, which otherwise is dependent on Israel for nearly all its fuel and supplies.
"There is a state in the world with no heat, no gas, no oil, no diesel, no drugs, no food," said Muhammad Ahmed, 33, angrily. "The Jews have everything, and they won't understand that on the other side there is nothing!
"People dig the tunnels out of hunger," he insisted, and then warned, "When you don't feed animals, they get angry and they bite you!"
Both Ahmeds are businessmen; they, too, have tunnels, through which they ship consumer goods like cigarettes and snacks, like the popular Egyptian potato chips called Chipsy and Crunchy, as well as larger products like generators, televisions and washing machines.
"It's the No. 1 economy here," Hillal Ahmed said. "Dollars, pounds, shekels, it all comes from the tunnels." He laughed and opened his wallet. "We work for dollars," he said, showing four neatly folded $100 bills.
But with the Israeli bombing, and, unspoken, the heavy Egyptian police and military presence that the crisis has meant for the town, the tunnel trade has stopped for now, the residents said. "Nothing is going in now," said Nader Sayed, 28. "It's impossible now."
Hamas, the residents said, controls other tunnels, conduits for guns, cement, explosives and fertilizers for explosives.
Muhammad al-Zarb said that the Israelis somehow seemed to know which tunnels were commercial and which were run by Hamas, and that they seemed to be selective in their bombing. "If someone has a tunnel for Chipsy, it seems O.K.," he said. "When a Hamas guy has a tunnel for weapons, they bomb it."
There is widespread fear for family members on the other side and anger at Israel, with little patience for the Israeli argument that Hamas is an existential threat to the state or much of a threat to its citizens. "Hamas has no planes," Muhammad Ahmed said. "What is a Hamas rocket compared to an Israeli bomb?"
Hamas will not be destroyed, Hillal Ahmed said. "Hamas is legitimate and will not surrender," he said. "Even if they raze the place they will not surrender."
With the new escalation, there is further pressure on Egypt to open the border and help the Palestinians of Gaza, and not merely, as now, to provide humanitarian supplies and to take some of the most badly wounded to Egyptian hospitals. The area has now been declared a military zone, and the small town is crowded with soldiers, police officers and security officers in plain clothes.
They want to prevent demonstrations on this side, or efforts to breach the border from either side, by journalists or by desperate Gazans, as happened a year ago, and they are extremely sensitive to what is seen and written about the town.
Interviews with residents were interrupted by plainclothes officers of the Mukhabarat, or security police, who took this reporter and his interpreter in for questioning. The treatment was polite but firm, with warnings to stay away from Rafah for safety reasons, and after questioning and the copying of identification documents, the reporter and interpreter were left to depart.
With upgraded arsenal, Hamas strikes deep into Israel
By Mark Mazzetti
Thursday, January 1, 2009
WASHINGTON: By firing rockets deep into Israeli territory, the militant Palestinian group Hamas has in recent days displayed an arsenal that has been upgraded with weapons parts smuggled into Gaza since it seized control of the territory 18 months ago, according to American and Israeli officials.
For Hamas, a group largely confined to a sliver of land along the Mediterranean Sea, attacking Israeli cities with a rocket barrage has proved an effective strategy to reduce the advantage of Israel's expensive arsenal of fighter jets and warships.
That strategy was used successfully by Hezbollah militants against Israel in Lebanon in 2006, although Hezbollah had access to missiles and rockets far more sophisticated than those being used by Hamas. Israeli officials said that Hamas was still relying on unguided rockets, rather than guided weapons like the Iranian-made C-802 cruise missile that Hezbollah used against an Israeli ship during the summer of 2006.
Still, the rockets fired by Hamas in the current fighting have flown farther and been more accurate than weapons used by the group in the past, the officials said. Some have flown nearly two dozen miles, destroying buildings in the southern Israeli cities of Ashdod and Beersheba.
Hamas and other militant groups have lobbed thousands of rockets into Israel since 2001. The difference now, officials said, is that Hamas is using more of the imported Katyusha rockets, which have a longer range than the crude, homemade Qassam rockets it relied on in the past. Officials say the group has been emboldened to improve its arsenal since it routed its rival, Fatah, in 2007 and assumed control of Gaza.
The officials, who spoke on condition of anonymity because they were not authorized to discuss intelligence matters, said that Hamas appeared to have relied on a combination of black-market entrepreneurs and help from its longtime patrons Iran and Syria to procure rocket parts.
A senior Israeli military official said Israeli intelligence also believed that Hamas took advantage of a six-month truce with Israel to bolster its stockpiles.
The officials said the extent to which Iran and Syria directly supplied Hamas was murky because arms shipments were difficult to track. Yet they generally agree about the smuggling route: by land across the Sinai Peninsula, often aided by Bedouin tribes, and through the warren of tunnels under Egypt's border into Gaza.
An American counterterrorism official said it was rare for Hamas to try to smuggle complete weapons systems into Gaza. More frequently, he said, rocket parts were taken through the tunnels and assembled inside Gaza by Hamas munitions experts.
Israeli officials have said their objective in carrying out airstrikes on Gaza is to end Hamas's ability to carry out further rocket attacks. But analysts said that goal could require Israeli ground troops to strike into Gaza, in operations that could run the risk of fighting an entrenched guerrilla war in a densely populated area.
"The problem you have to consider from an Israeli perspective is that you score most of your victories from the air in the first 48 hours. Afterward, you get into punitive damage," said Anthony Cordesman, a military expert at the Center for Strategic and International Studies in Washington.
American officials said Hamas's tactics in recent years had evolved from suicide bombings to more sophisticated attacks like roadside bombings and bombs set off by cellphones, all of which would be a particular risk to Israeli troops and tanks.
David Schenker, a senior fellow at the Washington Institute and a former Pentagon official specializing in Middle East issues, said the increasing sophistication of Hamas's tactics was evidence that the group might have received training from Hezbollah.
American and Israeli officials said there was evidence that at least some Hamas fighters might also have been schooled in urban assault tactics at Iranian camps run by the Quds Force of Iran's Revolutionary Guards.
In April, the Israeli Intelligence and Terrorism Information Center released a report saying Hamas had been engaged in a military buildup since the group took control of Gaza in June 2007. The report cited data by Shin Bet, Israel's internal security service, asserting that Hamas had smuggled at least 80 tons of explosives into Gaza since then, and that the group had obtained advanced antitank weapons.
A senior Hamas leader called the report an "exaggeration" intended to scare Israelis.
The report concluded that if Israel were to carry out ground raids, Hamas would initially put up little resistance. But when Israeli troops reached densely populated areas, Hamas would use booby traps and roadside bombs.
Moderate Arab states feel popular anger over Israeli action
By Robert F. Worth
Wednesday, December 31, 2008
BEIRUT, Lebanon: After four days of Israeli airstrikes on Gaza, an outpouring of popular anger is putting pressure on American allies in the Arab world and appears to be worsening divisions in the region.
The sharpest rhetorical attacks have been aimed at Egypt, which is widely seen as having aided the Israeli campaign by closing its border with Gaza.
But as major street demonstrations continued Tuesday from North Africa to Yemen, some marchers and opinion-makers also lashed out at other moderate Arab governments for failing to take a stronger stand. Syria and Iran, meanwhile, have drawn praise for their militancy.
The Egyptian president, Hosni Mubarak, gave a televised address to defend his decision not to open the border with Gaza except for humanitarian purposes. He derided "those who are seeking political gains at the expense of the Palestinian people."
Although Jordan and Saudi Arabia — solid American allies — have been careful not to blame Hamas publicly, the violence has put them on the defensive, too.
"It's becoming clear that if you are silent, the Arab street is going to consider you part of the enemy," said Muhammad al-Masri, a researcher and political analyst at the Center for Strategic Studies in Amman, Jordan. "There is no way to be in the middle."
The polarization appears to have ended a thaw that had taken place in the past year, Masri said. Syria had been reaching out to the West and holding indirect peace talks with Israel. Lebanon's political factions had reached a peace deal. Syria and Saudi Arabia had made gestures toward resolving their feud.
Now, fault lines visible during the summer 2006 war between Israel and Hezbollah have reappeared. Syria has been pressing for an emergency Arab summit meeting, but Egypt and Saudi Arabia have resisted.
Although the conflict has sectarian overtones — many Sunni Arabs fear that Iran wants to extend its Shiite influence — it is rooted in politics, not religion.
To some extent, the outrage has forged a sense of trans-sectarian unity, allowing militant Shiite figures like Hassan Nasrallah, the leader of Hezbollah, to extend his influence in the Sunni Arab world, as he did during the 2006 war.
Demonstrations continued Tuesday in Cairo, where marchers have been carrying banners for days with slogans like "Down with Mubarak" and "Where is the Egyptian Army?" Angry disputes have broken out in the Egyptian Parliament, with members of the Muslim Brotherhood — the ideological parent of Hamas — accusing the government of colluding with Israel.
Protesters attacked the Egyptian consulate in Aden, Yemen on Tuesday, and 11 were arrested. There have been similar assaults on symbols of Egyptian authority in the region since Sunday.
In Tehran, a group of 30 to 40 students broke into the British Embassy's residential compound, where they vandalized buildings and replaced the British flag with a Palestinian flag, according to a witness and an embassy official.
Egypt is trapped between Israel, with which it has a peace treaty, and Hamas, which has popular support among Egyptians. The government has struggled with its own Islamist opposition and does not want Hamas operatives to cross into its territory, but it faces popular anger if it appears to endorse violence against Palestinians.
The Israeli airstrikes that began Saturday have exacerbated the situation. Hamas is ruling Gaza and is politically isolated from the West Bank, putting the onus more than ever on Egypt, the only state besides Israel that borders Gaza.
"Egypt is very much cornered this time," said Hassan Nafaa, a professor of political science at Cairo University. "There's a perception that Egypt is leading the moderate Arab camp in this, and that the moderate camp has not been able to achieve anything."
Egyptian officials see the hand of Iran, a patron of Hamas, in the current conflict. Iran had been pressing Egypt before the conflict, apparently eager to undermine Egypt's role as a mediator between the Palestinian factions. Demonstrators gathered in front of the Egyptian Embassy in Tehran on Dec. 17 to protest Egypt's position toward Hamas.
Recently, government-allied newspapers in Egypt have lashed out at Iran and its ally Hezbollah, whose leader, Hassan Nasrallah, demanded Sunday that Egypt open its border and allow weapons and supplies to flow to Hamas.
Nasrallah "has illusions that people in Egypt will take his orders, and that the government here submits to the kind of bribery he is used to in his country," wrote Usama Saraya in Tuesday's edition of Al Ahram, an Egyptian daily.
Television stations and newspapers allied with Iran and Syria continued to portray Egypt as a traitor. Some commentators had harsh words for other Arab states.
Saudi Arabia and Egypt "are even more excited about this war than they were during the 2006 war" between Israel and Hezbollah, said Ibrahim al-Amine, the chairman of the board of Al Akhbar, a newspaper aligned with Hezbollah.
"Israel would be satisfied with a compromise, but the Arab regimes want to finish Hamas completely," Amine said.
They cannot openly say so, he added, because Hamas is a Sunni movement, unlike Hezbollah, which Saudi Arabia and Egypt — both of them Sunni-led countries — publicly criticized at the start of the summer 2006 war with Israel.
US deaths down in Iraq in 2008, up in Afghanistan
The Associated Press
Wednesday, December 31, 2008
BAGHDAD: U.S. military deaths in Iraq plunged by two-thirds in 2008 from the previous year, a reflection of the improving security following the U.S. military's counterinsurgency campaign and al-Qaida's slow retreat from the battlefield.
By comparison, the war in Afghanistan saw American military deaths rise by 35 percent in 2008 as Islamic extremists shift their focus to a new front with the West.
According to a tally by The Associated Press, at least 314 U.S. soldiers died in Iraq in 2008, down from 904 in the previous year. In all, at least 4,221 U.S. soldiers have died in Iraq since the war began in 2003.
For Iraqis, the plunge was also marked: During 2008, at least 7,496 Iraqis died in war-related violence according to an AP count, including 6,068 civilians and 1,428 security personnel, down 60 percent from 2007.
The Associated Press tally does not reflect a comprehensive total for Iraqi deaths because reports do not come in from all of the country. The estimate, however, has proven accurate for tracking trends.
In Afghanistan, 151 U.S. soldiers died in 2008, compared with 111 in the previous year, according to an AP tally. The count recorded 1,160 civilians killed in insurgency-related violence, up from 875.
At least 625 U.S. soldiers have died because of the war in Afghanistan since the fighting began in 2001.
The AP count is based on figures from Afghan, U.S. and NATO officials.
The combined total of at least 465 U.S. deaths in both Iraq and Afghanistan for 2008 is the lowest combined total for both wars since 2003, when the U.S. invaded Iraq.
Many critics have said the U.S. focus on Iraq led it to neglect the war in Afghanistan, allowing both al-Qaida and Taliban militants to regroup after being routed in 2001. The Taliban, in the last year, moved into wide swaths of Afghan countryside, where Afghan security forces or international troops don't operate. Military commanders in Baghdad say they have enough troops to win all battles but not enough to hold territory, or to keep remote villages safe.
Seth Jones, an analyst with the RAND Corp., said he thinks the insurgency is still quite weak because there is no central command structure and because it doesn't have the support of local Afghans. But levels of violence have increased because of the continuing use of sanctuaries by militant groups in Pakistan.
"I think the second issue is the ability of groups to move into a vacuum in significant parts in Afghanistan, including in the east and south, where the Afghan government simply has not been able protect villages in rural areas," Jones said.
The plunge in violence in Iraq follows the U.S. "surge" of 2007, when thousands of additional troops were sent in to try to rein in a country that appeared to be on the verge of disintegration. That was coupled with a counterinsurgency campaign that included a decision by Sunni tribesmen to switch allegiances and fight al-Qaida. A focused effort to rout Shiite extremists gave U.S. and Iraqi forces the upper hand.
U.S. military spokesman Maj. Gen. David Perkins said recently that attacks in Iraq had declined to an average of 10 a day from 180 a year ago, and the murder rate in November was less than 1 per 100,000 people — far lower than many cities in the world.
The drop in violence has bolstered the Iraqi government's confidence as it takes what it calls full sovereignty of the country on Thursday. Under a new security agreement, Iraq will take the lead in security away from U.S. forces, regain control of its airspace, and take back the Green Zone, a wide area of downtown Baghdad that the U.S. occupied after its 2003 invasion.
But the deaths of two soldiers on the last day of the year underscored that significant violence persists. One soldier was killed by a mortar round in Baghdad and the other died from wound sustained in combat a day earlier in Tikrit, the military said.
Iraq remains gripped by hostility between Shiite and Sunni Muslims and disputes within the creeds.
Police announced Wednesday the arrest of a leading figure in a messianic Shiite cult that has battled Iraqi and U.S. forces, possibly thwarting plans by the group to carry out attacks against hundreds of thousands of pilgrims that will gather next week at one of Iraq's holiest shrines.
A top adviser to Prime Minister Nouri al-Maliki, Sadiq al-Rikabi, described Thursday as a "historic day" during which "the symbols of sovereignty, which are highly cherished by Iraqis, will be restored."
U.S. and Iraqi forces continue to battle al-Qaida in Iraq and other insurgents in the north and in Mosul, the country's third-largest city, where economic and political problems persist. Eight people were killed Wednesday in four bombings in the north.
In the southern city of Basra, Police Chief Maj. Gen. Adil Dahham said his forces had arrested a leader of the "Soldiers of Heaven" cult that has carried out bloody attacks during the Shiite Ashura holiday in the past two years.
Associated Press writers Patrick Quinn in Baghdad and Jason Straziuso in Kabul, Afghanistan, and researcher Monika Mathur in New York contributed to this report
Victor Krulak, Marine Corps legend, dies at 95
The Associated Press
Wednesday, December 31, 2008
SAN DIEGO: Lieutenant General Victor Krulak, who headed all U.S. Marine forces in the Pacific during part of the Vietnam War, has died. He was 95.
Krulak died Monday at the Wesley Palms Retirement Community in San Diego, according to Edith Soderquist, a staff member at the facility. The cause of death was not immediately known.
Krulak commanded about 100,000 marines in the Pacific from 1964 to 1968 - a span in which the United States drastically increases forces in Vietnam.
Krulak, nicknamed "Brute" for his direct, no-nonsense style, was a decorated veteran of World War II and the Korean War.
After retirement, he often criticized the government's handling of the Vietnam War. He wrote that the war could have been won only if the South Vietnamese had been protected and befriended and if enemy supplies from North Vietnam had been cut off.
"The destruction of the port of Haiphong would have changed the whole character of the war," he said two decades after the fall of Saigon.
Krulak once summed up the U.S. dilemma in Vietnam by saying, "It has no front lines. The battlefield is in the minds of 16 or 17 million people."
Before assuming command of Fleet Marine Force Pacific, Krulak served as principal adviser on counterinsurgency warfare to Secretary of Defense Robert McNamara and the joint chiefs of staff.
"I never got enthusiasm out of war, and I'm convinced that the true pacifists are the professional soldiers who have actually seen it," Krulak said many years after retiring from the post.
During World War II on the island of Choiseul in the Solomon Islands, Krulak led his outnumbered battalion during an eight-day raid on Japanese forces, diverting the enemy's attention from the U.S. invasion of Bougainville.
Krulak's troops destroyed hundreds of tons of supplies, burning both camps and landing barges. He was wounded on Oct. 13, 1943, and later received the Navy Cross for heroism, along with the Purple Heart.
At 43, he became the youngest brigadier general in Marine Corps history up to that time. Krulak received the second of two Distinguished Service Medals when he retired from the military.
For the next nine years, he worked for Copley Newspapers.
He also wrote the book "First to Fight," an insider's view of the Marine Corps.
His son Charles Krulak served as commandant - the Marines' top post - from 1995 to 1999.
Werner Wiskari, a former foreign correspondent and editor of international news for The New York Times, died on Dec. 8 in Wakefield, Rhode Island, near his home in Charlestown. He was 90.
Wiskari's death was confirmed by his wife, Millie Wiskari.
The son of a Finnish-born Lutheran pastor in Michigan, he served with the Navy in the Pacific in World War II and joined The Times as a radio news scriptwriter in 1948, soon after graduating from Columbia University and doing a year of postgraduate study there.
From 1958 to 1964, he was based in Stockholm as the northern European correspondent for The Times, its last.
He became an assistant to the foreign news editor of The Times in 1968. In 1971, he was part of the small team of editors that prepared the Pentagon Papers, the Defense Department's secret history of the Vietnam War, for publication.
When war broke out between Iran and Iraq in 1980, he compiled and rewrote fragmentary reports that he gleaned from news agencies and foreign publications and analyzed satellite photos of trench fortifications on either side.
U.S. vacates Baghdad palace ahead of handover
Wednesday, December 31, 2008
By Peter Graff
U.S. officials withdrew on Wednesday from the Saddam Hussein-era palace they have occupied in Baghdad since 2003, a sign of the change of power when their troops come under Iraqi authority at midnight.
The U.S. force in Iraq, now more than 140,000 strong, has operated since 2003 under a U.N. Security Council resolution which expires at midnight on New Year's Eve. From January 1, U.S. troops will operate with authority granted by the Iraqi government under a pact agreed by Washington and Baghdad.
The pact -- viewed by both countries as a milestone in restoring Iraqi sovereignty -- requires U.S. troops to leave in three years, revokes their power to hold Iraqis without charge and subjects contractors and off-duty troops to Iraqi law.
Iraq also reached a deal with Washington's main ally Britain on Tuesday giving its 4,100 troops until the end of July to depart. Small contingents from Australia, El Salvador, Romania, Estonia and the NATO alliance will also leave in 2009.
U.S. and Iraqi officials are planning a ceremony for the morning of New Year's Day to formally hand over control of the Green Zone, the heavily fortified central sector of the capital that houses Western diplomats and Iraqi government offices.
In recent weeks U.S. diplomats have gradually moved into a newly-built compound, the world's largest U.S. embassy, leaving behind a sprawling yellow marble palace of ousted dictator Saddam, which looms over the Tigris River.
"The palace will be in the possession of the Iraqi government from January 1, 2009," U.S. embassy spokeswoman Susan Ziadeh said of the ornate building, where Americans worked beneath garish frescoes depicting Saddam's arsenal of missiles.
U.S. officials ruled Iraq directly from the palace for more than a year after toppling Saddam in 2003, and it has remained a symbol of what many Iraqis consider a military occupation even as their nascent elected government has gained confidence.
Iraq's security spokesman for Baghdad, Major-General Qassim Moussawi, said Iraqi forces would take responsibility for guarding the Green Zone, with U.S. troops acting in support.
After years of extreme sectarian violence, Iraq has become far less bloody over the past year, although militants still launch bomb attacks frequently targeting civilians.
In the ethnically divided northern city of Mosul, a base for Sunni militants, gunmen on Wednesday killed a candidate standing in provincial elections due at the end of January. A car bomb killed four people and wounded 45 in the nearby town of Sinjar.
U.S. officials expect violence to rise as the poll nears.
The U.S. military announced the deaths of two soldiers, bringing the total killed by hostile action in December to seven, still among the lowest tolls since the war began.
Iraq Body Count, a group which monitors media reports of civilian deaths, says 2008 was the least deadly year of a war that has killed at least 90,000 Iraqi civilians. The group still tallied an average of about 25 civilians killed per day over the course of 2008, mostly in the first half of the year.
Under the bilateral pact which takes effect from midnight, U.S. combat forces will withdraw from Iraqi towns and cities by mid-2009 and all troops must leave by the end of 2011.
They will remain under U.S. command but will require authorisation from a joint U.S.-Iraqi committee to carry out military operations and can arrest people only with warrants from Iraqi judges.
Some 15,000 prisoners held at U.S. military detention camps must either be charged with crimes under Iraqi law or set free, although the procedure for doing so may take many months.
Contractors working for U.S. troops will be subject to Iraqi criminal law, and U.S. soldiers can be tried in Iraqi courts in narrow circumstances for serious crimes committed off duty.
(Editing by Charles Dick)
UK turns Iraqi suspects over to Baghdad
The Associated Press
Wednesday, December 31, 2008
LONDON: Two men accused of killing British soldiers have been turned over to Iraqi authorities in defiance of Europe's top human rights court, Britain's defense secretary said Wednesday.
Faisal al-Saadoon and Khalaf Mufdhi are now in Iraqi custody and face trial for war crimes, British Defense Secretary John Hutton said in a statement. The pair, former members of Saddam Hussein's Baath Party, are alleged to have killed Staff Sgt. Simon Cullingworth and Sapper Luke Allsopp after the pair were captured in an ambush during the opening days of the Iraq War. Photographs of the dying soldiers, surrounded by an Iraqi mob, were broadcast on the Arabic television channel, al-Jazeera.
British forces in southern Iraq arrested Mufdhi and al-Saadoon in April and November 2003 respectively, holding them at the city's airport as senior Baathists. British investigators later linked them to the killings, and the case was referred to Iraqi authorities for prosecution in late 2005.
Lawyers for al-Saadoon and Mufdhi have fought against any move to have the two tried in their home country, arguing that they might be tortured and face the death penalty.
But a British court ruled that the transfer was lawful. Hutton said he had no choice but to defy the European Court of Human Rights because Britain would lose the legal authority to hold the Iraqis in the new year, when its U.N. mandate expires.
"The European Court of Human Rights at Strasbourg has asked the U.K. to retain custody in Iraq of Mr. al-Saadoon and Mr. Mufdhi when we have no legal power to do so," Hutton said. "Compliance with Strasbourg requests would normally be a matter of course but these are exceptional circumstances."
Phil Shiner, an attorney who has fought to keep the men out of Iraqi hands, said the move is vindictive.
"The relevant public servants dealing with this case appear to enjoy the prospect of my clients being hung," he said.
Britain's military did not say when the men were transferred to Iraqi custody or give any indication as to their current whereabouts.
Judge agrees with Bush in ruling on 2 detainees
By William Glaberson
Wednesday, December 31, 2008
A federal judge in Washington ruled Tuesday that the government was properly holding two Guantánamo detainees as enemy combatants, the first clear-cut victories for the Bush administration in what are expected to be more than 200 similar cases.
The ruling by a federal district judge, Richard J. Leon, followed his decision last month in a separate case declaring that five Algerians had been held unlawfully at the detention camp in Guantánamo Bay, Cuba, for nearly seven years and ordering their release.
That case had been the only one to reach a full court hearing after a landmark ruling by the Supreme Court in June that said Guantánamo detainees have a constitutional right to challenge their detention in habeas corpus cases.
The cases Tuesday, involving a Yemeni and a Tunisian detainee, were the next to be decided, and some lawyers said they expected rulings for the government in other cases. The habeas rulings are being watched carefully, in part because decisions approving the holding of Guantánamo detainees could be used by the Obama administration as a legal justification to continue to hold some of them even if the prison in Cuba is closed.
Judge Leon said that the Tunisian, Hisham Sliti, was a Qaeda recruit in Afghanistan who attended a military training camp and had ties to terrorists. He rejected Sliti's explanation of the reasons for his travels, saying his "story about traveling to Afghanistan to kick a longstanding drug habit and find a wife is not credible."
In the case of the Yemeni, Moath Hamza Ahmed al Alwi, Judge Leon said it was unnecessary to rule on a government claim that he had been a bodyguard for Osama bin Laden. He ruled that there was no evidence that Alwi ever fought American forces, but said his close ties to Taliban and Qaeda forces were sufficient to establish that he was an enemy combatant.
Because of classified evidence relied upon by the government, both hearings were conducted mostly behind closed doors.
Lawyers for both men said they were considering appeals.
A lawyer for Sliti, Cori Crider of the British legal group Reprieve, said that there were many issues for appeal, including the government's reliance on classified evidence her client was not permitted to see.
Crider argued that the hearing did not conform to some requirements of the Supreme Court's June ruling that opened the door for habeas corpus cases by most of the remaining 250 detainees being held at Guantánamo. Detainees' lawyers greeted that ruling at the time as a watershed defeat for the Bush administration.
"The fact that the word 'habeas' was used doesn't mean that the process was fair," Crider said.
James Hosking, a lawyer for Alwi, noted that his client had not been charged with any crime. "It's time to charge the prisoners or release them," he said.
A spokesman for the Justice Department, Dean Boyd, said, "We're pleased with the court's ruling that these two individuals are being lawfully detained as enemy combatants."
Iraq to greet new year in a hush, officials say
By Sam Dagher
Wednesday, December 31, 2008
BAGHDAD: The government ordered hotels and private clubs in Baghdad to cancel their New Year's Eve celebrations, disappointing many Iraqis who had hoped they could celebrate the new year now that the streets are safer than they have been in years past.
The parties were canceled because New Year's Eve coincides with Muharram, a mournful religious period for Shiites. The government, which is dominated by religious Shiite parties, issued the order on Sunday.
Several hotels and private clubs in the capital, which have been hosting boisterous parties recently, given the improved security situation, said none would be held on Wednesday in compliance with government orders.
"The orders of the Ministry of Interior have been enforced at clubs, party venues and family clubs," said Major General Ali al-Yasseri, a police commander in Baghdad. "These places will be closed in accordance with Iraqi law."
He added, "We have no objection to those who want to have a dinner party without fanfare, noise, dancing and music."
Two Interior Ministry officials, who spoke on condition of anonymity out of fear for their safety, said that several police officers sympathetic to the Shiite cleric Moktada al-Sadr had also been "politely" informing Baghdad liquor stores that recently reopened that they must close for the holiday.
Many Iraqis, including Shiites, said the ban was unfair because this could be a momentous year for Iraq, with American soldiers beginning to pull out from urban areas. Last year there were several big parties and fireworks displays on New Year's Eve.
Mahdi al-Khayat, a Baghdad-based singer from a Shiite family in the holy city of Najaf, said that while the observance of Muharram was important, the rules should have been relaxed this year to allow Iraqis to revel in the improved security situation.
"The country has been in a miserable state over the past three to four years," he said. "It needs a jump-start with parties and optimism."
The Islamic New Year, which follows a lunar calendar and shifts each year, started on Monday. The first month of the year is called Muharram. It is a joyous time for Sunnis but not for Shiites, for whom its start begins the 10-day countdown to Ashura, which marks the martyrdom of the Prophet Muhammad's grandson, Imam Hussein, in A.D. 680 at the hands of Sunnis in the battle of Karbala, south of Baghdad.
Shiites in Iraq mark this occasion with the erection of symbolic black funeral tents in their neighborhoods. The death of Imam Hussein is lamented with prayers, rituals of chest beating and self-flagellation with chains.
The bloodiest attacks against Shiites in Iraq over the past several years have been during Muharram, prompting the government to mobilize considerable resources each year to protect the mourners.
"Everyone is free, but I will not have parties and singing," said Dhia Namnam, a popular Baghdad D.J. and party promoter, who is Shiite. "If you want to have a party, do it at home. Most Muslims here are Shiites."
Managers at popular party venues like the Sheraton and Babylon hotels on Abu Nuwas Street in central Baghdad and the Hunting Club in the upscale Mansour district said all plans for New Year's Eve festivities had been shelved.
Khayat, the singer, said that he had been contracted to sing at a New Year's Eve party in Beirut, Lebanon, but that he would not be going because he could not get a visa in time.
Indeed, most well-to-do Iraqis, including many Shiites, have already made plans to celebrate New Year's in Amman, Jordan; Damascus, Syria; or the Kurdistan region of Iraq. Ali Mohammed, a Shiite Kurd living in Baghdad, is headed to Sulaimaniya in Kurdistan for a party.
In Kurdistan's capital, Erbil, the upscale Erbil International Hotel plans two New Year's parties with open bars, bands and dancing until dawn, according to the manager, Nabaz Ghafour.
Iraq car bomb kills 4, wounds 45 in northern town
Wednesday, December 31, 2008
BAGHDAD: A car bomb killed four people and wounded 45 on Wednesday at a crowded market in the northern Iraqi town of Sinjar, mainly populated by the minority Yazidi sect, police said.
Violence has fallen sharply across Iraq over the past year but bombings, roadside explosions, assassinations and other violent incidents are still routine.
Police said the death toll in Sinjar -- lying west of the volatile city of Mosul some 390 km (240 miles) north of Baghdad, where al Qaeda and other militant groups still stage frequent attacks -- could well rise.
On Sunday, a suicide bomber on a bicycle killed a teenage boy and wounded 17 people at a demonstration in Mosul against Israeli airstrikes in Gaza.
Like other religious minorities, the Yazidis, a pre-Islamic religious sect dotted around northern Iraq and Syria, have been frequently targeted by Iraqi militants.
Gunmen killed seven Yazidis from a single family in Mosul earlier this month. Last year, suicide truck bombers killed hundreds of people in Yazidi villages north of Mosul in one of the deadliest militant attacks in Iraq's history.
(Reporting by Aseel Kami; Writing by Tim Cocks; Editing by Katie Nguyen)
On Saddam anniversary, Iraq readies macabre museum
Wednesday, December 31, 2008
By Waleed Ibrahim and Missy Ryan
The man putting together Iraq's newest museum doesn't like to be alone in his office, where he keeps bloodied nooses, a medieval-looking torture device and boxes of documents chronicling atrocities under Saddam Hussein.
"It's uncomfortable. You feel as if there's someone there with you," said the soft-spoken court official, who asked to go unnamed. To escape the eeriness, he works alongside colleagues next door.
On the two-year anniversary of Saddam's death by hanging, Iraq is preparing to open a new museum that will allow Iraqis to see up close such macabre mementos of mass executions, torture, and other atrocities committed in Saddam's decades-long rule.
Iraq's High Tribunal, set up after the U.S.-led invasion to try major crimes from Saddam's Baathist government, will open the museum in the two months in Baghdad's fortified Green Zone.
It will showcase torture devices such as a man-shaped metal cage where, in the Iraqi Olympic centre, Saddam's son Uday used to lock underperforming athletes for weeks at a time -- and set them naked under the burning sun, the metal searing their flesh.
There is a steel bar from an intelligence centre, with a specially welded hook from which countless Iraqis were hung.
It will include personal effects found with Saddam when he was discovered hiding on an Iraqi farm in December 2003, including a Quran, a cassette recording of Mozart, a dusty black briefcase.
Chairs will be on display that were sat in by Saddam and his top lieutenants during their High Tribunal trials, including the one that ended in Saddam's execution for killing 148 men and boys following an assassination attempt in 1982.
The museum will also have a research centre where legal researchers or historians can comb through 26 million documents, including the handwritten orders to crush opposition from minority Kurds, which led to the death of tens of thousands.
"We thought that people might forget the works committed by dictators who committed horrible acts against them," said Judge Arif Abdel-Razaq al-Shaheen, who heads the High Tribunal.
A floor below Shaheen's office, the High Tribunal continued on Tuesday proceedings against Ali Hassan al-Majeed, a Saddam confidante known as 'Chemical Ali' for his role in gassing Kurds, and Tareq Aziz, a former deputy prime minister, on charges they systematically crushed political opponents.
Majeed has already been sentenced twice to death, but his execution has been held up by political disputes. Since Saddam was executed, his half brother and several other officials have been sent to the gallows as well.
The new case against Majeed, Aziz and over 20 others revolves around the arrest and execution of tens of thousands of members of Prime Minister Nuri al-Maliki's Dawa party.
Its timing rankled some politicians outside Maliki's sphere, who complained it was a bid to influence provincial elections next month that will be a test of rival parties' influence and will set the tone for parliamentary polls in late 2009.
Violence has dropped sharply, but Iraq risks backsliding into civil war if it can't bury deep political grievances.
Shaheen rejected that any of the tribunal's dozen or so cases have been politicised, just as he sought to separate the new Saddam museum from the fractious politics of Iraq today, where former enemies have yet to fully reconcile.
"This is not related to national reconciliation. This museum is about history. History must not be forgotten," he said.
(Editing by Richard Balmforth)
Indian Muslims under pressure in Mumbai aftermath
Thursday, January 1, 2009
By Bappa Majumdar and Krittivas Mukherjee
In a government morgue in Mumbai lie the bodies of nine Islamist militants responsible for killing 179 people in a bloody attack on India's financial hub.
The deadly rampage happened in November, but India's Muslims have refused to bury the gunmen, distancing themselves from the killings in a country where Hindu nationalists often whip up anti-Muslim sentiment after such attacks.
"We strongly believe terrorists have no religion and they do not deserve a burial," said Maulana Zaheer Abbas Rizvi of the All India Shia Personal Law Board, a body for framing Muslim laws.
Leaders of India's 140-million-strong Muslim community have denounced the November 26-29 Mumbai attacks and thousands of Muslims have marched in protests against the bloodshed. It has been the strongest rejection yet of Islamist violence by Indian Muslims.
"We have lost our children in the Mumbai attacks too. And we, as Indians, share a common grief and demand justice," said Maulana Mehmood Daryabadi, general-secretary of the All-India Ulema Council, one of the biggest groupings of Muslim sects.
In Muslim neighbourhoods in the capital, residents observed low-key celebrations during an Islamic holiday in December.
Imran Ahmed, a book-seller, did not buy any new clothes for his children during the festival and did not distribute kebabs to neighbours as he does each year.
"So many people were killed by the terrorists. How could I celebrate?" asked the bearded book-seller, sitting outside his shop in the narrow, congested streets of Old Delhi.
For now, the issue of burial of the militants has been averted as Indian officials say the corpses are still needed for their investigation. At the same time, contacts are underway to convince Pakistan to take the bodies, so far to no avail.
Tension between India and Pakistan has flared in the wake of the attacks, blamed on the Pakistan-based Lashkar-e-Taiba.
As the two rivals bicker, India's Muslims have been caught in an uncomfortable position in the aftermath of the Mumbai attacks, which have intensified their feelings of being under siege even though Muslims make up about 13 percent of India's population.
Indian Muslims lag in health care, literacy and income. Official figures show Muslims are underrepresented in government jobs and the judiciary. Yet they are overrepresented in the prison populations in many Indian states.
Until recently India boasted that its Muslims, at least outside troubled Kashmir, had not embraced Islamist extremist violence of the type promoted by al Qaeda.
That has changed in recent years, with Indian Muslims thought to have carried out a series of bomb attacks on Indian cities this year and last.
Centuries of rule of Hindu-majority India by mediaeval Muslim invaders drove a wedge between the two communities, a suspicion that has only grown since the blood-soaked birth of Pakistan, carved out from Muslim-majority areas of India in 1947.
Alienation of Muslims has partly been fuelled by communal riots in the western state of Gujarat in 2002, when around 2,500 people, mostly Muslims, were hacked and burnt to death. Little has been done to catch the culprits despite a national outcry.
But the Mumbai attacks have generated a groundswell of public anger across religious and political fault lines against Pakistan for providing refuge for militants on their soil.
That anger is mixed with fear of a backlash.
"At the moment, Muslims are feeling very insecure. They have always felt as if they were under suspicion for all attacks on India," said Kudlip Nayar, a political commentator.
"In every terror attack in the past, Indian Muslims were suspected to have played some role, so now with a clear Pakistan hand emerging in the Mumbai attacks, the Muslims are reiterating that Indian Muslims are united and they had never supported terror acts," Nayar added.
Some Muslims are apprehensive about a new terror law that India's parliament passed recently, allowing police to hold suspects without filing charges for up to 180 days.
Human rights groups say a similar law was used in the past to round up innocent Muslims, detain them indefinitely or even torture them. Some fear that abuse of the law could stoke up more outrage against the Indian government among Muslims.
"Laws against militants must be strict, but there should be enough safeguards to stop people from misusing it," said Maulana Abdus Salaf Salfi, leader of the Jamiat Ahle Hadees group.
Meanwhile, the squabble over the burial of nine of the 10 Mumbai attackers -- one was captured -- is far from over.
"They have committed a crime against humanity and people who kill innocent people cannot be buried, not in Indian soil at least. Let Pakistan take them back home," said Rizvi.
(Editing by Megan Goldin)
Muted New Year festivities in India as Mumbai quiet
Wednesday, December 31, 2008
By Shilpa Jamkhandikar and Rina Chandran
Scanners, blocked roads and tight security will temper New Year revelries across India on Wednesday as fear of militant violence hangs over the country after last month's Mumbai attacks.
An unprecedented security blanket covered India's main cities this week, underscoring the collective jitters of a nation after gunmen attacked and killed 179 people in its financial capital.
While Mumbai was the worst attack, in all more than 400 people have been killed in about a dozen militant attacks this year across India. An economic slowdown has also dampened usually extravagant celebrations in Mumbai.
"It's going to be a quiet evening for me and a bunch of friends at home. We have no plans to party," said 24-year-old Nirbhay Kanoria.
Kanoria would be hard-pressed to find places to party, with most luxury hotels and clubs cancelling star-studded bashes and sticking to low-key live music bands and dinner.
At the Taj Mahal Hotel, one of two luxury hotels that was attacked by gunmen last month, the poolside has been opened to visitors, and restaurants will offer special menus, a spokesman said, including from the restaurants that were damaged.
While the celebrations for the city's well-heeled may go on well into the night, the more popular hangouts such as the Gateway of India and the Marine Drive promenade, where firework displays are common, would wind down revelries after midnight.
"This year, the mood is likely to be a bit subdued because the thought (of the attacks) might be weighing on people's minds," said K.L. Prasad, a senior police officer in Mumbai.
"Extra forces have been called and there will be an increased police presence throughout Mumbai," he said.
Lavish parties on yachts and midnight ferry rides will be missing this year, with a heightened alert in place after the Mumbai attackers made their way into the city by boat.
Marine police and the coastguard will patrol the harbour and be in touch with the Navy, which cancelled its Navy Week celebrations and annual ball.
Security is tight in other Indian cities as well, including capital New Delhi where police are locking down popular landmarks such as Connaught Place and the lawns of India Gate after sunset and asking bars and pubs to close by midnight.
Traffic will be regulated in all the major cities and people will be frisked and stopped to check for drink driving.
There would be about 60,000 police on the roads of New Delhi alone, while thousands of them will patrol the streets of Mumbai and Kolkata, the capital of West Bengal state which shares a porous border with Bangladesh.
Surveillance cameras and a large number of plainclothes police will be deployed at popular spots in Kolkata, said Shivaji Ghosh, a senior police official.
(Additional reporting by Sujoy Dhar in Kolkata and Krittivas Mukherjee in New Delhi; Editing by Krittivas Mukherjee and Alex Richardson)
Pakistani investigators reportedly find Mumbai link
Wednesday, December 31, 2008
ISLAMABAD: A leader of a banned Pakistani Islamist militant group has confessed to being a main planner of the attack on Mumbai, the Wall Street Journal reported on Wednesday, citing a Pakistani investigator.
The government has not responded to the report but President Asif Ali Zardari told U.S. President George W. Bush that anyone found involved in the attack on India's financial hub in which 179 people were killed would be dealt with.
India has blamed the assault on the Pakistan-based Islamist group Lashkar-e-Taiba (LeT).
It was set up by Pakistani security agencies in the late 1980s to fight Indian rule in the disputed Kashmir region but officially banned in 2002, after Pakistan signed up to the U.S.-led campaign against terrorism.
The Wall Street Journal said in an online report at least one top LeT leader, Zarar Shah, captured in an early December raid in Pakistani-controlled Kashmir, had confessed to the group's involvement in the attack.
"He is singing," an unidentified Pakistani security official told the newspaper.
India's angry accusation of a Pakistani link to the assault on Mumbai has revived old hostilities between the nuclear-armed rivals and raised fears of conflict.
Pakistan has condemned the Mumbai attacks and has denied any state role, blaming "non-state actors," and has promised to prosecute anyone found linked to the attack. But it has ruled out sending Pakistanis to India for trial.
Zardari reiterated to Bush that Pakistan would not allow its territory to be used for launching attacks on other countries, Zardari's office said. Bush had called Zardari, it said.
"Anyone found involved in such attacks from the soil of Pakistan would be dealt with sternly," Zardari told Bush.
The Wall Street Journal, citing the Pakistani security official, said Shah's admission was backed up by U.S. intercepts of a telephone call he had with one of the attackers during the assault.
Shah told interrogators that he was one of the main planners and he had spoken to the attackers during the rampage to give them advice and keep them focussed, the newspaper cited a second person familiar with the investigation as saying.
Shah had implicated other LeT members, and had broadly confirmed the account the sole captured gunman told Indian investigators, the newspaper cited its source as saying.
According to Indian reports, the captured gunman told Indian interrogators the 10 attackers trained in Pakistani Kashmir and later went by boat from Karachi to Mumbai.
India's home minister, P. Chidambaram, repeated India's line that its neighbour must act on what India says is evidence of Pakistani militants' involvement.
Pakistan has repeatedly said India has not provided evidence.
"If anyone is in a state of denial anything that we give will be denied," Chidambaram told reporters in New Delhi, referring to a statement from the surviving gunman captured in Mumbai.
Shah was picked up with another LeT commander, Zaki-ur-Rehman Lakhvi, in raids on militants launched after the attack, Prime Minister Yousaf Raza Gilani told reporters on December 10.
Pakistani authorities did not have evidence that the LeT was involved in the attacks before the militants were arrested in Kashmir. Their arrest was based on guidance from U.S. and British authorities, the newspaper cited an official as saying.
Pakistan and India have fought three wars since independence from Britain in 1947 and came to the brink of a fourth after gunmen attacked the Indian parliament in December 2001.
India has put a "pause" on a five-year-old peace process that had brought warmer ties.
(Additional reporting by Kamran Haider and Krittivas Mukherjee; Writing by Robert Birsel; Editing by Charles Dick)
Pakistani helicopters attack Khyber militants
Wednesday, December 31, 2008
By Ibrahim Shinwari
Pakistani army helicopters attacked militants along the Khyber Pass on Wednesday while tanks rumbled in to secure the vital supply link for Western forces in land-locked Afghanistan.
Authorities suspended the shipment of supplies up to the Afghan border on Tuesday to clear the way for the military to launch an offensive aimed at ending surging militant attacks on the route.
"Two helicopter gunships pounded militant hideouts while troops moved with tanks to secure the area," said Jehangir Khan Afridi, an administration official in the Khyber region.
The Khyber Pass runs between the northwestern city of Peshawar and the border town of Torkham and is a vital supply line for more than 65,000 Western troops battling the Taliban insurgency in Afghanistan.
The U.S. military sends 75 percent of supplies for the Afghan war through or over Pakistan, including 40 percent of the fuel for its troops, the U.S. Defence Department says.
A second overland route is through the town of Chaman to the southwest leading to the Afghan city of Kandahar, and is likely to become more important as the United States begins moving up to 30,000 new troops into Afghanistan next year.
Militants in Khyber have been trying to choke off supplies for months and have destroyed hundreds of trucks and killed several drivers.
Many truckers have stopped working on the road and supplies had been disrupted but not cut off until authorities sealed the route temporarily on Tuesday.
A spokesman for NATO's Afghan force welcomed the effort to make the route safer and played down the impact on military operations saying the force had stocks.
Nevertheless, the attacks have exposed the vulnerability of the route and forced the alliance to look for alternatives, including through Central Asia into northern Afghanistan.
Authorities have not said how long the offensive would last, only that they were determined to clear militants out.
The governor of the North West Frontier Province, Owais Ahmed Ghani, said the offensive would continue until objectives had been achieved and it could be extended to other areas. He did not elaborate.
Intelligence officials said on Tuesday troops had faced pockets of militant resistance and Afridi said two important militant hideouts had been destroyed.
But officials and residents said on Wednesday most insurgents had apparently fled the Khyber region to neighbouring areas.
"There has been no fire from the militants. They must have fled to remote areas or to Mohmand," said resident Irfan Afridi, referring to a neighbouring region where security forces have also been fighting Pakistani Taliban insurgents.
Militants melted away in June when security forces launched a similar sweep in Khyber.
A pro-Taliban ethnic Pashtun tribal elder surrendered to authorities, promising his tribe would support security.
"We're loyal to Pakistan and the government. We will not fight security forces, offer resistance nor give shelter to militants or criminals," the tribal leader, Attaullah Khan, told Reuters.
The offensive has coincided with growing tension with old rival India after the late November militant attacks in the Indian city of Mumbai that India blamed on Pakistan-based militants.
The Pakistani military has moved some troops off its western border with Afghanistan in response to the tension.
(Writing by Augustine Anthony; Editing by Robert Birsel and Sugita Katyal)
Bribes corrode Afghans' trust in government
By Dexter Filkins
Thursday, January 1, 2009
KABUL: When it comes to governing this violent, fractious land, everything, it seems, has its price.
Want to be a provincial police chief? It will cost you $100,000.
Want to drive a convoy of trucks loaded with fuel across the country? Be prepared to pay $6,000 per truck, so the police will not tip off the Taliban.
Need to settle a lawsuit over the ownership of your house? About $25,000, depending on the judge.
"It is very shameful, but probably I will pay the bribe," Mohammed Naim, a young English teacher, said as he stood in front of the Secondary Courthouse in Kabul. His brother had been arrested a week before, and the police were demanding $4,000 for his release. "Everything is possible in this country now. Everything."
Kept afloat by billions of dollars in American and other foreign aid, the government of Afghanistan is shot through with corruption and graft. From the lowliest traffic cop to the family of President Hamid Karzai himself, the state built on the ruins of the Taliban regime seven years ago now often seems to exist for little more than the enrichment of those who run it.
A raft of investigations has concluded that people at the highest levels of the Karzai administration, including President Karzai's own brother, Ahmed Wali Karzai, are cooperating in the country's opium trade, now the world's largest. In the streets and government offices, hardly a public transaction seems to unfold here that does not carry with it the requirement of a bribe, a gift, or, in case you are a beggar, "harchee" — whatever you have in your pocket.
The corruption, publicly acknowledged by President Karzai, is contributing to the collapse of public confidence in his government and to the dramatic resurgence of the Taliban, whose fighters have moved to the outskirts of the capital.
"All the politicians in this country have acquired everything — money, lots of money," President Karzai said in a speech at a rural development conference here last month. "God knows, it is beyond the limit. The banks of the world are full of the money of our statesmen."
The decay of the Afghan government presents President-elect Barack Obama with perhaps his most under-appreciated challenge as he tries to reverse the course of the war here. Not only may Obama be required to save the Afghan government from the Taliban insurgency — committing thousands of additional American soldiers to do so — but also the Afghan government from itself.
"This government has lost the capacity to govern because a shadow government has taken over," said Ashraf Ghani, a former Afghan finance minister. He quit that job in 2004, he said, because the state had been taken over by drug traffickers. "The narco-mafia state is now completely consolidated."
On the streets here, tales of corruption are as easy to find as kebab stands. Everything seems for sale: public offices, access to government services, even a person's freedom. The above mentioned examples — $25,000 to settle a lawsuit, $6,000 to bribe the police, $100,000 to secure a job as a provincial police chief — were told by people who experienced them directly or witnessed the transaction.
People pay bribes for large things, and for small things, too: to get electricity for their homes, to get out of jail, even to enter the airport.
Governments in developing countries are often riddled by corruption. But Afghans say the corruption they see now has no precedent, in either its brazenness or in its scale. Transparency International, a German firm that gauges honesty in government, ranked Afghanistan 117 out of 180 countries in 2005. This year, it fell to 176.
"Every man in the government is his own king," said Abdul Ghafar, a truck driver. Ghafar said he routinely pays bribes to police who threaten to hinder his passage through Kabul, sometimes several in a single day.
Nowhere is the scent of corruption so strong as in the Kabul neighborhood of Sherpur. Before 2001, it was a vacant patch of hillside that overlooked the stately neighborhood of Wazir Akbar Khan. Today it is the wealthiest enclave in the country, a series of gaudy, grandiose mansions that sell for hundreds of thousands of dollars.
Afghans refer to them as "poppy houses." Sherpur itself is often jokingly referred to as "Char-pur," which literally means "City of Loot."
Yet what is perhaps most remarkable about Sherpur is the owners of the houses. Many are government officials, whose annual salaries would not otherwise enable them to live here for more than a few days.
One of the mansions — three stories, several bedrooms, sweeping balconies — is owned by Abdul Jabbar Sabit, a former attorney general who made a name for himself by declaring a "jihad" against corruption.
Since being fired earlier this year by President Karzai, a video began circulating around town showing Sabit dancing giddily around a room and slurring his words, apparently drunk. Sabit now resides in Canada, but his house is available to rent for $5,000 a month.
An even grander mansion — ornate faux Greek columns, a towering fountain — is owned by Kabul's police chief, Mohammed Ayob Salangi. It can be had for $11,000 a month. Salangi's salary is unknown; that of Karzai, the president, is about $600 a month.
Ghani , the former finance minister, said the plots of land that hold the great mansions of Sherpur were doled out early in the Karzai administration for prices that were a tiny faction of what they were worth. (Ghani said he was offered a plot, too, and refused to accept it.)
"The money for these houses was illegal, I think," said Mohammed Yosin Usmani, director general of a newly created anti-corruption unit.
Often, the corruption here is blatant. On any morning, you can stand on the steps of the Secondary Courthouse in central Kabul and listen to the Afghans as they step outside.
One of them was Farooq Farani, who has been coming to the court for seven years, trying to resolve a property dispute. His predicament is a common one here: Farani fled the country in 1990, as the civil war began, and returned after the fall of the Taliban, only to find a stranger occupying his home.
Yet seven years on, the title to Farani's house is still up for grabs. Farani says he has refused to pay the bribes demanded by the judge in the case, who in turn has refused to settle his case.
"You are approached indirectly, by intermediaries — this is how it works," said Farani, who spent his exile in Wiesbaden, Germany. "My house is worth about $50,000, and I've been told that I can have the title if I pay $25,000 — half the value of the home."
Tales like Farani's abound here, so much so that it makes one wonder if an honest man can ever make a difference.
Amin Farhang, the Minister of Commerce, left Karzai's cabinet earlier this month after seven years. In a long talk in the sitting room of his home, Farhang recounted a two-year-long struggle to fire the man in charge of giving out licenses for new businesses.
The man, Farhang said, would grant a license only in exchange for a hefty bribe. But Farhang found that he was unable to fire the man, who, he said, simply bribed other members of the government to reinstate him.
"In a job like this, a man can make 10 or 12 times his salary," Farhang said. "People do anything to hang onto them."
Many Afghans, including Ghani, the former finance minister, place responsibility for the collapse of the state on Karzai, who, they say, has failed repeatedly to confront the powerful figures who are behind much of the corruption. In his stint as finance minister, Ghani said, two moments crystallized his disgust and finally prompted him to quit.
The first, Ghani said, was his attempt to impose order on Kabul's chaotic system of private property rights. The Afghan government had accumulated vast amounts of land during the period of communist rule in the 1970s and 1980s. And since 2001, the government has given much of it away — often, Ghani said, to shady developers at extremely low prices.
Much of that land has been sold and developed, rendering much of Kabul's property in the hands of unknown owners. Many of the developers who were given free land, Ghani said, were also involved in drug trafficking.
When he proposed drawing up a set of regulations to govern private property, Ghani said, he was told by President Karzai to stop.
"Just back off," he told me," Ghani said. "He said that politically it wasn't feasible."
A similar effort to impose regulations at the Ministry of Aviation, which Ghani described as rife with corruption, was met with a similar response by President Karzai, he said.
"Morally the question was, am I becoming the fig leaf to legitimate a system that was deeply corrupt? Or was I there to serve the people?" Ghani said. "I resigned."
The corruption may be endemic here, but if there is any hope in the future, it would seem to lie in the revulsion of ordinary Afghans like Farani, who, after seven years, is still refusing to pay.
"I won't do it," Farani said outside the courthouse. "It's a matter of principle. Never."
"But," he said, "I don't have my house, either, and I don't know that I ever will."
Taliban kill 20 policemen assigned to Afghan aide
By Taimoor Shah
Thursday, January 1, 2009
KABUL: Taliban militants on Wednesday attacked police officers assigned to protect a senior district official in the southern province of Helmand, killing 20 of them, in one of the bloodiest attacks on the security forces in months, local officials reported Thursday.
The Taliban, ousted as Afghanistan's rulers by the American-led invasion in late 2001 but now resurgent in their efforts to expel foreign troops, took responsibility for the attack and claimed the death toll was 32. Two of the attackers also died.
Dawood Ahmadi, a spokesman for the Helmand authorities, said the attack took place in the Musa Qala district of Helmand when Taliban militants attacked guards at security posts around the home of the senior official, Mullah Salam, the district governor. The governor was not home when the attack took place and was unhurt, local officials said.
A Taliban commander, Mullah Qasam, said a police commander with sympathies for the insurgent cause surrendered with 15 of his men before the attack. The Taliban commander claimed 32 policemen were killed, including four commanders, and the militants seized equipment including 24 AK-47 assault rifles, five rocket launchers, two police vehicles and four motorcycles.
Several areas in Helmand, one of Afghanistan's most restive provinces, are under Taliban control. The province is also known as a center of opium growing. The opium is harvested to produce heroin in an international narcotics trade that, Western officials say, provides income for the militants.
Afghan forces and the American-led coalition lost control of Musa Qala for much of 2007 but reasserted their authority late the same year.
News reports said Mullah Salam, the Musa Qala district governor, was a former commander of the Taliban who switched sides shortly before the offensive in 2007 that ended Taliban control of the area.
Separately, the U.S.-led coalition said Thursday that two foreign soldiers, one of them a British Marine, were killed Wednesday in southern Afghanistan.
The fatalities contributed to the highest annual death toll of foreign troops since the 2001 invasion. Reuters put the 2008 combat death toll at nearly 270 soldiers, including 127 Americans, compared to 169 combat deaths among foreign troops in 2007.
Alan Cowell contributed reporting from London.
4 North Koreans defect to South
By Choe Sang-Hun
Wednesday, December 31, 2008
SEOUL: The authorities are questioning four North Koreans who defected to South Korea by sea this week, the Seoul intelligence agency said Wednesday.
A spokesman for the spy agency, who spoke on the customary condition of anonymity, gave no further details. But Yonhap, the South Korean national news agency, reported that the defectors were a husband and wife and their son and daughter-in-law.
Yonhap, which cited no sources in its report, said the four North Koreans were in a small, wooden boat when a patrol boat from the South Korean Navy picked them up Tuesday night.
Escapes from North Korea across the heavily guarded land and sea borders between the two Koreas are uncommon. More than 14,000 people from the hunger-stricken North have defected to South Korea since the end of the Korean War in 1953, but most of them have traveled through China.
On Oct. 28, a North Korean believed to be a soldier defected to South Korea, officials in Seoul said. The man apparently entered at a South Korean military guard post. At the time, the North's military was threatening to attack unless Seoul prevented anti-North Korea "provocations," including the sending of airborne leaflets into the Communist North.
In recent months, conservative activists in the South - mainly North Korean defectors supported by Christian churches - have been unleashing balloons that carry leaflets to the North. The leaflets harshly criticize the North Korean leader, Kim Jong Il, and carry news about his alleged illness, a topic that is taboo in the North.
Defectors from North Korea said Dec. 22 that they had sent about 1.5 million propaganda leaflets across the border, ignoring an appeal by the South Korean government that they stop. A group of defectors flew 26 large balloons carrying the leaflets toward North Korea from an island off the west coast of South Korea, said Lee Min Bok, head of the North Korea Christian Association in South Korea.
South Korea to press North for talks
Wednesday, December 31, 2008
SEOUL: South Korea wants to resume frozen talks with North Korea next year and bolster its ability to keep an eye on its communist neighbour by working closely with the new Obama administration, policy papers on Wednesday said.
Ties between the Koreas crumbled over the past year, with the North lashing out at the South's president for ending what had once been a free flow of unconditional aid.
Seoul has instead linked handouts to progress Pyongyang made in nuclear disarmament.
"The government will sincerely urge North Korea to respond to our suggestions for inter-Korean dialogue," the Unification Ministry said in a policy plan for the new year it released with the defence and foreign ministries.
North Korea, with estimated annual economic output of about $20 billion (13.8 billion pounds), has lost out on at least $1 billion in aid the South had been supplying each year because of the strain in ties.
Impoverished North Korea faces a further cut in aid after the United States this month called for suspending shipments of heavy fuel aid to punish Pyongyang for failing to live up to a six-way nuclear deal by not agreeing to a system to check claims it made about its atomic programme.
The Defence Ministry said it wants to work with the United States to bolster its response to any possible North Korean aggression and enhance its surveillance of the reclusive state.
U.S. spy satellites and aircraft monitor activity at the North's nuclear arms facilities and also keep track of missile movements and launches.
The United States has about 28,000 troops in South Korea to support its 670,000 soldiers. The North, which is technically still at war with the South, positions most of its 1.2 million troops near the border with its capitalist neighbour.
South Korean media has reported in the past few days that Seoul would set up a programme to buy the release of more than 1,000 of its citizens held for decades in the North who include civilian abductees and prisoners not released at the end of the 1950-53 Korean War.
The Unification Ministry's policy paper did not outline specific plans on the issue, but said: "(The government) will try to fundamentally solve the issue of the abductees and prisoners of war."
(Reporting by Jon Herskovitz and Kim Junghyun, Editing by Dean Yates)

2008 sees 6 years of market gains slip away
By Vikas Bajaj
Wednesday, December 31, 2008
There was almost no place to hide from the crash of 2008.
By the time the New York Stock Exchange closed Wednesday to end the year, virtually anyone with money in stocks had felt the punishing drop in the market.
Shares ended higher on Wednesday, but overall, it was a very bad year to own stocks, any stocks — indeed, one of the worst ever.
The Dow Jones industrial average ended the year down more than 33 percent, the worst year for the index since 1931, and the broader Standard & Poor's 500-stock index more than 38 percent. Blue-chips like Bank of America, Citigroup and Alcoa lost more than 60 percent of their value.
All told, about $7 trillion of shareholders' wealth — the gains of the last six years — will be wiped out in a year marked by violent market swings.
But what is striking is not just the magnitude of the declines, staggering as they are, but also their breadth. All but 2 of the 30 Dow industrials, Wal-Mart and McDonalds, fell by more than 10 percent. Almost no industry was spared as the crisis that emerged in the subprime mortgage market metastasized and the economy sank into what could be a long, gray recession.
As the new year dawns, Wall Street is looking to Washington, where the balance of financial power has tipped in recent months. Analysts and investors are focusing on what the incoming Obama administration and the Federal Reserve will do to revive the economy and the financial system.
It is a remarkable turnabout from the mid-1990s, when Wall Street traders helped drive economic policy. Back then, bond investors flexed their financial muscle and prodded the Clinton administration and a Republican Congress to reduce the federal budget deficit.
These days, the market in ultra-safe United States Treasury securities seems like a refuge, even as the deficit balloons from the cost of bailing out banks, insurers and the Detroit auto companies. Many investors, having lost stocks and other investments, are buying Treasuries that offer little or no return. They are content simply to get their money back.
"The only willing risk taker is the government," said William Gross, the chief investment officer of the Pacific Investment Management Company, or Pimco, the giant bond trading firm. Speaking of the epicenter of the financial world, he added: "It is no longer New York, it's Washington."
Like many money managers, Gross is a conservative — he describes himself as a "Reagan fan from way back" — who generally prefers limited government involvement in the markets. But he and others say that the government's sweeping intervention into private industry and in the markets, though sometimes flawed, was necessary to prevent a collapse of the financial system. They are hoping that policy makers do even more to stimulate the economy and revive moribund financial markets.
Given the damage in the markets, however, policy makers face daunting challenges.
"When we have bear markets, they usually take twice as long to get down this far," said Robert Doll, vice chairman of BlackRock, the investment firm.
The markets have become incredibly volatile, especially since Lehman Brothers sank into bankruptcy in September. Since late September, there have been 18 days when the S.& P. moved more than 5 percent in either direction. In the previous 53 years, there were only 17 such days, according to calculations by Howard Silverblatt, an index analyst at S.& P.
Diversification — the idea that it is unwise to put all your eggs in one basket — did not pay off for investors in 2008, casting doubt over this cornerstone of modern investing. The American market was far from the worst hit in 2008. Stocks have fallen 55 percent to 72 percent in Brazil, Russia, India and China — the so-called BRIC economies that were darlings of the late, great boom. Stocks in developed European and Asian markets also fell sharply, though less than their emerging counterparts. Many commodities like oil and copper crashed.
Losses in the credit markets, which are at the heart of this financial crisis, appear small relative to the devastation in other markets. The International Monetary Fund estimated in October that banks and other investors would suffer $1.4 trillion in losses on loans and securities, a loss of just 6 percent. Financial institutions globally have already reported $1 trillion in write-downs, according to Bloomberg.
The IMF's estimate, however, does not count losses on derivatives, those complex instruments that derive their value from other assets. Losses on these instruments could outstrip those in the so-called cash markets because they are much bigger than their underlying assets.
A spokeswoman for the IMF said the fund's estimates do not include those losses because they are transfers of wealth from one party of a transaction to another. For example, when the insurance giant, American International Group, losses $1 billion on a credit default swap, a type of derivative, it makes payments to customers like investment banks.
These complex financial instruments will pose one of the biggest challenges to policy makers in the year ahead. Many investors have lost confidence in banks, insurers and other financial intermediaries, in part, because they do not know whether these companies are valuing opaque instruments properly. Some firms may be carrying enough toxic sludge to sink them, while others may be relatively unscathed.
"Until those assets can be removed from the balance sheets of the bank, or until the owners get a better understanding of what these assets are worth, we will have uncertainty," said Douglas Peta, an independent market analyst.
A broader focus for policy makers will be reviving the economy. Most financial and political analysts expect the Obama administration to enact a stimulus package that could approach $1 trillion. The effort will aim to create three million jobs by spending money on infrastructure, green energy technology, aid to states and other initiatives.
Many analysts say such an effort would help revive the economy, but they warn that it will not have immediate results. Infrastructure spending, for instance, can have a powerful impact by stimulating demand and creating jobs but, like much else in the economy, it often takes time to work.
Some are looking to efforts by the Treasury and Fed to jump start lending by lowering mortgage rates and improving the market for bonds backed by small business, auto and credit card loans. A recent drop in mortgage rates has already sparked a refinance boom, but analysts say home prices in many parts of the country are still too high for many would-be home buyers. Furthermore, employment and household savings, which began to rise sharply in the spring of last year, will likely have climb for some time before consumers have enough confidence to buy homes and money for down payments.
"Across the board, they can potentially prevent a further slide, and they deserve a lot of credit if they achieve that," Martin Fridson, chief executive of Fridson Investment Advisors, a bond-trading firm, said about policy makers. "I just don't think that they can push a button and have the economy and the stock market turn around."
Thomas Lee, the chief equity strategist at J.P. Morgan Chase, said a recovery early in the year could give way to another sell-off before the stock market finally bottoms later in the year. He said his forecast reflects "how unconventional the current recession is." Unlike in the past, policy makers cannot rely on consumers to push the economy ahead by borrowing and spending, he said.
"This is a recession where households are net debtors," he said. "They have lost money on houses and equities. That has rarely happened, at least since the 1950s."
Doll of BlackRock agreed that consumers will not "run back and power the economy ahead." But he nonetheless contends that several important markets, including stocks, may be close to their bottom. The Fed, he argued, has taken on a more activist role in the markets and the new administration is likely push through a massive stimulus.
Such sentiments have probably helped drive the S.& P. 500 index up by 20 percent since Nov. 20 and investment-grade corporate bonds up by nearly 9 percent since October.
"Perhaps we have seen a bottom," Doll said. But he added that like the economy, "the stock market recovery will be more muted as well."
Wall Street closes out worst year since Depression
Wednesday, December 31, 2008
By Chuck Mikolajczak and Chris Sanders
Wall Street closed out its worst year since the Great Depression on Wednesday after an unstoppable credit crisis and a dreadful economic outlook left investors questioning their faith in stock markets.
A string of financial disasters culminating in the collapse of Lehman Brothers in the middle of the night in September precipitated the third biggest percentage loss ever for the Dow industrials and the broad S&P 500.
By November 20, the S&P had hit an 11-year low, destroying more than a decade of returns for many Americans and wiping out memories of record highs reached just 13 months earlier.
"It was plain ugly out there," said Kurt Brunner, a portfolio manager with Swarthmore Group in Philadelphia.
"All in all, it's something that I truly hope is once-in-a lifetime thing."
Nonetheless, U.S. stocks managed to close the year on an up note on Wednesday as fresh efforts to stem the recession from Washington lifted equities for the second consecutive session.
For the year, the Dow fell 33.8 percent, for its bleakest year since 1931; the S&P skidded 38.5 percent; and the Nasdaq posted its worst year ever, with a 40.5 percent drop.
When all was said and done, the S&P 500 found itself $5.02 trillion (3.42 trillion pounds) lighter than it was last year.
The bursting of the housing bubble began a long chain of events culminating in the worst credit crisis in a generation.
A deep mistrust grew between banks while growing doubts among investors about the American banking model crippled financial stocks and yanked a key pillar supporting U.S. equity markets.
As the shortage of credit seeped into the broader economy, unemployment rose and consumer spending dived.
Only two stocks in the Dow ended higher for the year: Wal-Mart Stores and McDonald's Inc . Investors bet discounters like Wal-Mart and inexpensive fast-food restaurants would be the few places consumers spend scarce cash as unemployment soared and the economy crumbled.
The biggest decliner on the Dow was General Motors , which fell 87.1 percent for the year as the company was compelled, along with other automakers, to plead for funds from Washington in an attempt to avoid bankruptcy.
On the S&P, the biggest decliner for the year was insurer American International Group , which fell 97.3 percent after agreeing to an $85 billion bailout from the Federal Reserve in exchange for government control.
But the market rose on Wednesday as investors bet that fresh initiatives from Washington will help stave off a deep recession.
Late Tuesday, the U.S. Federal Reserve provided clarity on its plan to reduce mortgage costs and set a goal to buy $500 billion in mortgage-backed securities by mid-2009, a move that surprised analysts in its aggressiveness.
By buying back the securities more quickly than expected, investors hope mortgage rates will fall at a faster pace and stimulate the beleaguered housing market.
The Dow Jones industrial average rose 108 points, or 1.25 percent, to 8,776.39. The Standard & Poor's 500 Index gained 12.61 points, or 1.42 percent, to 903.25. The Nasdaq Composite Index added 26.33 points, or 1.70 percent, to 1,577.03.
For the week, the Dow and Nasdaq rose 3.1 percent while the S&P gained 3.5 percent. For the month, the Dow slid 0.6 percent, the S&P added 0.6 percent and Nasdaq climbed 2.7 percent.
Exxon Mobil was among the top boosts to the Dow, rising 1.6 percent to $79.83 as oil rose 14 percent to over $44 a barrel. Chevron rose 0.8 percent to $73.97 while the S&P Energy index added 1.3 percent.
The Fed move came a day after lawmakers gave an additional $6 billion to General Motors and its financing arm, GMAC, in another effort to stabilise the auto industry and prevent staggering job losses.
While 2008 has been a brutal year for global markets, investors are hoping the inauguration of President-elect Barack Obama will lay the ground for a recovery.
"There's an optimism that the new team is going to do something," said Michael Cuggino, president and portfolio manager of Permanent Portfolio Funds in San Francisco.
"The impact of fiscal policy will play a huge part in determining how deep and how long the recessionary period is and how robust the recovery period will be."
The Nasdaq was boosted on Wednesday by large-cap tech companies that are seen as better able to withstand the economic crisis due to large cash reserves. Qualcomm Inc , the wireless chip maker, was up 2.6 percent to $35.83, while BlackBerry maker Research in Motion rose 4.7 percent to $40.58.
Industrials helped lift the S&P 500, including Pall Corp , Textron and Dow component Caterpillar Inc . The S&P Industrials index gained 2 percent.
Pall, a maker of filtration products, jumped 9.4 percent to $28.43, while Textron surged 7.6 percent to $13.87. Heavy equipment maker Caterpillar rose 2.3 percent to $44.67 as one of the top performers on the Dow.
Housing was another bright spot. Interest rates on U.S. 30-year fixed-rate mortgages dropped for a ninth consecutive week and fell to their lowest level since 1971, according to a survey released by home funding company Freddie Mac.
The drop in rates boosted demand for home loans, and U.S. mortgage applications held at the highest level in more than five years during the Christmas holiday week, an industry group said on Wednesday.
The Dow Jones U.S. Home Builders index was up 2.5 percent after the data, led by luxury home builder Toll Brothers , up 4.1 percent to $21.43.
Volume was slim on the New York Stock Exchange, where about 1.2 billion shares changed hands, far below last year's estimated daily average of 1.90 billion. On the Nasdaq, about 1.53 billion shares traded, well below last year's daily average of 2.17 billion.
Advancers outnumbered decliners on the NYSE by a ratio of about 5 to 1, while on the Nasdaq about three stocks rose for every one that fell.
(Additional reporting by Leah Schnurr; Editing by Leslie Adler)
Dollar and yen rose in 2008
Thursday, January 1, 2009
NEW YORK: The dollar posted its first yearly gain against a basket of currencies since 2005 last year as the worst financial crisis in 80 years led investors to take refuge in the U.S. currency.
Despite a deepening recession in the United States, the dollar emerged from a seven-year downtrend as U.S.-based investors brought cash home and overseas investors parked money in the relative safety of dollar-denominated assets like U.S. Treasury securities.
The yen was the other top performer in 2008, soaring as the crisis brought an unwinding of carry trades - borrowing in the low-yielding yen to invest in higher-yielding assets elsewhere.
Liquidity was thin as traders closed their books on a year in which banks around the globe failed or sought government bailouts after the collapse of the U.S. housing bubble.
Central banks fought aggressively to shore up their economies, with the U.S. Federal Reserve and the Bank of Japan cutting rates virtually to zero.
In foreign exchange, "the year could be summed up in two words: risk aversion," said Dustin Reid, director for foreign exchange strategy at RBS Global Banking & Markets in Chicago. "The yen and the dollar were at the receiving end of that global flight to safety."
The euro fell about 4.5 percent against the dollar last year, its first annual drop since 2005, while the dollar gained about 6 percent against a basket of currencies.
"The volatility in euro/dollar in 2008 was simply spectacular," Reid said. "At the height of risk aversion a couple of months ago, the entire world rushed to buy dollars. But as the Fed reacted by bringing rates to zero, the dollar's luster has been gradually coming off."
Indeed, in the past few weeks, the euro has clawed back a significant portion of its decline from the midyear peak, gaining nearly 10 percent against the dollar in December, the largest monthly advance since the currency was born in 1999.
Despite its rally against higher-yielding currencies like the pound and the Australian and New Zealand dollars, the dollar tumbled more than 18 percent against the yen last year, the worst annual performance since a 23.2 percent decline in 1987. The euro fell 22 percent against the yen.
The pound stood out as the major loser in 2008, slumping nearly 27 percent against the dollar, its biggest drop since the last vestiges of the gold standard were abandoned in 1971.
The euro also gained nearly 30 percent against the pound last year. It touched a high of 98.05 pence Tuesday, within striking distance of parity.
Investors shunned the pound as the Bank of England lowered interest rates to 2 percent, their lowest level since the 1950s.
Analysts said that 2008 would be remembered as a year of intense volatility, as traders used foreign exchanges as a platform to put on risk-averse trades.
"It has been an exceptionally active year in the foreign exchange market as currency volatilities hit record highs," Kathy Lien, director of currency research at GFT Forex in New York, wrote in a research note.
"In the first half of the year, everyone was worried about how much further the dollar would fall, but in the second half of the year the concern became how much further the dollar would rise."
While analysts agree that none of the world's major economies will be spared from recession this year, views are divided about how economic weakness will affect currencies.
Jeremy Stretch, a strategist at Rabobank in London, said the euro was likely to continue a slide against the dollar on growing expectations that the U.S. economy might be among the first to recover from the downturn.
Other analysts, like David Powell at Bank of America, say that continuing U.S. economic troubles and uncertainty about how the country will finance a huge fiscal stimulus package will hurt the dollar in 2009.
"The trend of dollar weakness is unlikely to have yet seen the end," Powell said.
More economic pain seen in 2009 but some hope too
Wednesday, December 31, 2008
By Kim Coghill and Claudia Parsons
Many investors said good riddance on Wednesday to one of the worst years on record and prayed that government rescue plans will pull the global economy out of its fierce tailspin later in the new year.
More pain is expected in the near-term as bleak economic reports roll in, flagging more bankruptcies, bad debts and layoffs through at least early 2009, and more sleepless nights for everyone from central bankers to consumers struggling to pay off mortgages and credit card bills.
The biggest financial crisis in 80 years, sparked by a U.S. mortgage meltdown, made this year one of the worst ever for investors as recession stalked the global economy.
"It has been a shocking year, hardly anything was spared in the market carnage," said Michael Heffernan, senior client adviser and strategist at Austock Group in Australia.
The slump wiped out nearly $14 trillion (9.6 trillion pounds) in market value, according to the benchmark MSCI world index of larger companies.
"If there's any optimism, it's on the basis that stock markets recover in recessions," said Justin Urquhart Stewart, director at Seven Investment Management.
"Now we have the real recession, rather than the phoney recession. Last year we were so optimistic, that we were fooling ourselves. It's now gone too far the other way. We've discounted a huge amount of bad news."
Full-year losses on major world stock indexes ranged from 31 percent in London to 65 percent in Shanghai.
The crisis of 2008 has radically changed the financial landscape, bringing down U.S. investment banks Bear Stearns and Lehman Brothers, saddling other banks with huge losses and freezing the credit system that keeps world business humming.
Victims of the crisis are still piling up, with announcements almost daily of fresh company losses, more layoffs, and slumping prices for assets from cars to homes.
LyondellBasell, the world's third-largest petrochemical firm, said it is considering filing for Chapter 11 bankruptcy protection as it tries to restructure debt.
Next Monday, members of the U.S. House Financial Services committee will take their first close look at the alleged $50 billion fraud by Wall Street financier Bernard Madoff, whose burnt investors ranged from bearish "Dr. Doom" economist Henry Kaufman to actor Kevin Bacon.
Madoff faced a deadline on Wednesday to tell regulators how much he is worth and where his money and other assets are.
Oil surged to $44.60 a barrel on Wednesday but was still down 54 percent in 2008, hit by the economic slowdown. Oil has plummeted since a high in July above $147.
Gold was one of the few commodities to end higher on the year as economic turmoil burnished its lure as a haven for investors scampering away from risk.
Economic reports on Wednesday were mixed.
A larger than expected fall in new U.S. jobless claims reported on Wednesday was attributed to seasonal factors. [ID:nN31374038] A yearlong U.S. recession has already destroyed 2.7 million jobs, pushing unemployment up to 6.7 percent, with many economists expecting it to rise above 8 percent in 2009.
Separate reports on business activity in New York City and Milwaukee showed no sign of recovery, while 30-year fixed mortgage rates eased for the ninth week as official efforts to bolster the housing market appeared to gain traction.
With central banks cutting interest rates and governments pumping money into the system, some see better signs for 2009.
"I think we'll move ahead a bit in the new year and then stabilise for a while. Global policymakers are doing their utmost to ensure the recession doesn't degenerate into a deflationary malaise," said Mike Lenhoff, chief strategist at Brewin Dolphin.
World governments have started pumping more than $1 trillion into their economies, and more is expected in 2009.
In the latest bailout, the International Monetary Fund said on Wednesday it had agreed on a $2.5 billion emergency loan package with Belarus.
The U.S. Federal Reserve on Tuesday built on efforts to cut mortgage costs, setting a goal of buying $500 billion of mortgage-backed securities by mid-2009.
China's central bank reaffirmed on Wednesday that it would implement a moderately loose monetary policy as it seeks to reinvigorate its once fast-growing economy. [nLV504083]
Indonesia's president promised further fiscal stimulus to help Southeast Asia's biggest economy.
Global credit markets are showing signs of improvement, but banks remain reluctant to lend.
Government stimulus plans, corporate bailouts and rate cuts take time to be felt and their benefits are hotly debated. Nonetheless, mounting job losses are raising fears of social unrest in some countries, and piling pressure on governments to act quickly, even if it means huge deficits and debts.
Investors are now looking to January, when Barack Obama will be sworn in as U.S. president on January 20. He is expected to unveil a government spending programme which sources say could range from $675 billion to $775 billion over two years.
The new year will also mark attempts by policymakers to overhaul outdated regulatory systems to avert future crises.
U.S. Treasury Secretary Henry Paulson said the government had to battle the financial crisis without the tools needed to do the job, the Financial Times reported.
"We're dealing with something that is really historic and we haven't had a playbook," he said.
(Reporting by Reuters bureaux worldwide; Editing by Chizu Nomiyama)
In 2009, economy will depend on unlocking credit
By Eric Dash and Vikas Bajaj
Wednesday, December 31, 2008
"Credit, the disposition of one man to trust another, is singularly varying," Walter Bagehot, the financial journalist, wrote 135 years ago. "In England, after a great calamity, everybody is suspicious of everybody; as soon as that calamity is forgotten, everybody again confides in everybody."
He might have been describing modern-day Wall Street, where trust — and credit — are in short supply.
The financial crisis began in the credit markets, and eventually it will end there. But as the financial industry rounds out one of the most wrenching years in its history, bankers and policy makers are struggling to see the way out of this mess. Despite triage by Washington and trillions of dollars of taxpayers' money, credit is not flowing nearly as much as many had hoped.
The problem, as Bagehot observed, is trust — or rather, the lack of it. Even after receiving millions, in some cases billions, of dollars from the government, banks are reluctant to lend money. Crucial parts of the financial system have stopped functioning. The exuberance of the boom, which led bankers to make loans to people who could not repay them, has given way to a seemingly intractable fear of making any loans at all.
How long this situation lasts will determine the immediate course of the nation's economic life. Will the recession, already a year old, drag on through 2009 — or even longer? Will the stock market revive soon or shrivel further? What of the beleaguered housing market?
The answers to those questions will depend on the availability of credit in all its forms — home mortgages, personal and business loans and bonds sold by corporations, states and municipalities. For now, many banks are hoarding money rather than lending it. Their holdings of cash have nearly tripled to just over $1 trillion in the last three months, according to Federal Reserve data.
In the capital markets, bond investors who embraced risk in good times have abandoned all but the safest of investments. Many have rushed to buy ultra-safe United States Treasury securities, driving the yields on those investments to historic lows. Once the credit markets stabilize, bankers hope, investors will start buying other types of debt, unlocking the flow of credit.
A big worry is the future of securitization, a key mechanism of modern banking that enables banks to bundle loans and bonds into securities for sale to investors. This crucial market is moribund now that many of its creations have plunged in value. Some question when, or if, certain areas of securitization will revive.
Securitization, which works like a shadow banking system, has radically changed banking and the credit markets in recent years. Three decades ago, banks supplied $3 out of every $4 of credit worldwide. Today, because of securitization, that share has dropped to about $1 in $3.
Unless financial companies can securitize debt — which, in turn, depends on investors' willingness to buy the bundled loans — credit will remain tight even if banks resume lending.
"What started in 2008, and is going on now, is the undoing of that shadow banking system," said Alex Roever, a short-term credit analyst at J. P. Morgan Securities.
The Federal Reserve and Treasury are trying to fill the void, at least in part.
Since late November, news that the government planned to acquire billions of dollars in mortgage securities issued by Fannie Mae and Freddie Mac, the two mortgage finance giants, has driven down home loan rates. The national average 30-year fixed mortgage rate has fallen a full percentage point, to just over 5 percent, setting off a huge refinancing boom.
The drop in mortgage rates, coupled with a steep decline in government bond yields, is prompting investors to reconsider riskier, albeit higher-yielding investment-grade corporate bonds. Since October, the difference between the yields on such bonds and comparable Treasuries — a measure of the risk investors perceive in corporate debt — has fallen to about 4.3 percent, from 5.7 percent.
That's a good sign.
"October was the peak, during which everybody shut down and stopped doing a lot of things," said Curtis Ishii, the senior investment officer for fixed income at Calpers, the large California pension fund. "In December, things got a little better."
Still, many bond investors and analysts remain cautious. Despite the government interventions, and indeed even because of them, many investors are reluctant to act until they are sure of Washington's next step.
"Investors will regain their confidence when they are sure they understand the rules of the road," said Jaret Seiberg, a financial policy analyst at the Stanford Group, a research and consulting firm in Washington. "In the past 18 months, those rules have been rewritten so many times that nobody is sure when the government will intervene and when it won't."
Banks are struggling to navigate various crosscurrents from Washington and Wall Street. Regulators are urging banks to make loans, but they are also instructing them to reduce the amount of money they borrow themselves. Credit card lenders are facing new rules that the industry claims will restrict credit just when consumers need it most.
In such an environment, many investors refuse to part with their cash.
"The government is trying to use its full faith and credit as a substitute for investor confidence," Seiberg said.
A crucial test case may come in February, when policy makers try to kick-start consumer and small-business lending with the Term Asset-Backed Securities Loan Facility, or TALF.
TALF is supposed to help lure investors back to the market for bonds backed by auto and student loans, credit card receivables and small-business debts. Alarmed by rising delinquencies, many investors are shunning these securities. That, in turn, has choked credit, since banks can no longer fashion the loans they make into securities.
To allay investors' fears, the Federal Reserve, with the aid of the Treasury Department, will lend money against highly rated asset-backed securities. But the benefits may not trickle down to consumers for several months.
After one of the industry's worst years on record, many banks are bracing for still more losses in 2009. The collapse of Lehman Brothers in September is still reverberating through the markets: many banks were forced to absorb assets that investors were no longer willing to buy.
"The banks are somewhat fearful," said Hyun Song Shin, a Princeton economics professor. "The fundamentals look somewhat less promising, and the incentive to hoard capital will be stronger."
The troubles in the economy, of course, only add to the anxiety. Investors and bankers will be reluctant to extend credit until home prices stop falling and until more people are finding jobs than losing them. In a struggling economy, even a seemingly solid loan can turn bad quickly.
Analysts say they see few signs that the recession will end quickly, even if the Obama administration enacts a huge fiscal stimulus plan that, according to some reports, could near $1 trillion. All of that spending will not revive the job market and lift housing values overnight.
"I don't think it will be a V-shaped bottom," said Donald Galante, senior vice president for fixed income at MF Global, the securities dealer. "It might be a double-dip or it might be a pan-shaped bottom."
Or as Bagehot observed, confidence — and credit — will return when bankers start to forget the pain of 2008.
U.S. home prices fell at their sharpest pace in October
By Jack Healy
Wednesday, December 31, 2008
Home values in 20 large metropolitan areas across the country dropped at a record pace in October as the fallout from the financial collapse reverberated through the housing market, according to data released Tuesday.
The price of single-family homes fell 18 percent in October from a year earlier, according to the closely watched Standard & Poor's/Case Shiller Housing Index. All 20 cities reported annual price declines in October; prices in 14 of the 20 metropolitan areas surveyed fell at a record rate as the financial crisis reached a critical point.
"October was clearly the free-fall month," said David Blitzer, chairman of the index committee at Standard & Poor's. "Everything was going against us in October, without exception."
After increasing steadily through the first part of the decade, home prices have fallen every month since January 2007, their slide accelerating as troubles in the housing market infected the broader economy and brought down financial firms.
Prices are falling at the fastest pace on record, a sign that the housing market is a long way from recovery.
"It is unlikely that we are anywhere near a bottom in nationwide home prices," Joshua Shapiro, chief United States economist at MFR, wrote in a note.
And only 2.5 percent of Americans say they plan to buy a home in the next six months, according to a December survey of consumers by the Conference Board. Despite relief from high gasoline prices, overall consumer confidence dropped to its lowest levels on record this month after rising slightly in November, as Americans braced for a long recession.
Only 6.6 percent of Americans said that business conditions were good, and 6.2 percent of people said jobs were plentiful, down from 23.6 percent a year ago.
The 10-city index dropped 19.1 percent in October, its largest decline in its 21-year history, and the new numbers show that the cities that played host to the greatest excesses of the housing boom are suffering the deepest drops.
Prices in Las Vegas and Phoenix, where developers built subdivisions stretching into the desert, fell by nearly a third in October from 2008. Home prices fell 31 percent in San Francisco and 29 percent in Miami. Prices in New York declined 7.5 percent in October over the same month a year ago.
Fourteen of the 20 cities in the Case-Shiller survey posted double-digit declines for the year. The relative winner was Dallas, which had the smallest yearly decline, of 3 percent. The value of a single-family house in Detroit, which has been pummeled by closing plants and the implosion of the auto industry, was less in October than it was in October 1998.
The Case-Shiller numbers were the latest round of bleak news for the housing sector, which is at the center of the country's broader economic troubles. Foreclosures, bad loans and collapsing housing prices contributed to the financial crisis earlier this year, and now the widening recession is dragging housing down even more.
Last week, the National Association of Realtors reported that sales of previously owned homes, which dominate the market, fell to the lowest pace in years. Home values tumbled 13 percent in November from a year earlier, the sharpest drop in more than 40 years, the industry group reported.
A glut of unsold houses is weighing down the market, and housing is likely to deteriorate further in 2009 as the jobs picture continues to weaken. Unemployment is now at 6.7 percent, its highest point in a decade, and economists predict it will rise to 8 or 10 percent next year.
"People who think they're going to lose their job don't buy a home," Steven Ricchiuto, chief economist at Mizuho Securities, said.
A renter's market for New York offices
By Terry Pristin
Wednesday, December 31, 2008
With its 15-year Midtown New York office lease expiring in early 2009, the law firm of Anderson Kill & Olick began shopping for space last winter, when rents were still sky-high.
The search became even more daunting in March when an investment management firm, Paulson & Company, took two floors in the same office tower, the Mitsui Building at 1251 Avenue of the Americas, for more than twice the rent of $54 a square foot that Anderson Kill was paying a few floors below. "We were competing with hedge funds for which price was no object," said Robert Horkovich, the firm's managing partner.
But when the financial markets collapsed, Anderson Kill was able to negotiate an 18-month renewal, instead of the customary 10- to 15-year lease. The firm, which occupies 44,000 square feet, will pay $75 a square foot, far less than Paulson's rent of $125 a square foot. Horkovich said he would start looking again next summer, when he expects rents to reach their nadir.
Even to industry veterans who have lived through other downturns, the precipitous decline in the New York office market, especially in Midtown, has been startling.
"We have fallen further faster than any time in the last 20 years," said Mitchell Steir, chief executive of Studley, a national brokerage firm that represents tenants. "There has been more damage to real estate values in the last four months than in any other four-month period. The pace with which it has occurred has been astonishing."
According to Studley, asking rents in New York over all declined 4.4 percent from the third quarter to the fourth quarter, with the decrease in Midtown even more pronounced, 8.3 percent, the steepest since 2001.
But brokers say that actual rents have fallen much further than the data suggests. Studley said that the asking rents for 40 percent of the spaces included in its research are listed as "negotiable."
"No one knows what the rents are, because there has been very little activity for the past three months," said Ruth Colp-Haber, a partner at Wharton Property Advisors, which represents small to medium-size tenants. "No one is paying attention to the asking rents."
When concessions from the landlords — like months of free rent and help in renovating the space — are factored in, actual rents have slipped as much as 25 percent since the summer, said Mitchell Konsker, a vice chairman of Cushman & Wakefield.
Brokers say they are still busy showing space but are having a much tougher time persuading tenants to close deals. Only 5.4 million square feet of space were leased in the last quarter, well below the quarterly average of 7.2 million square feet in the last nine years, Studley reported. Nearly 25 percent of the fourth-quarter activity was represented by Viacom's renewal of its lease for 1.3 million square feet at 1515 Broadway in Times Square. The next largest lease was Deutsche Investment Management's renewal of 150,000 square feet at 345 Park Avenue, near 52nd Street.
"The market is frozen," said Richard Warshauer, a senior managing director at Williams Real Estate, a FirstService Company. "They don't have the money, and they can't borrow the money. The velocity has slowed to a virtual standstill."
As the market has slowed, the availability rate — empty space and space that will become available within a year — has climbed from 8.9 percent in the third quarter to 10.4 percent. For prime buildings in Midtown Manhattan, the availability rate rose from 9.5 percent to 12.1 percent, its highest level since the 1990s, the Studley report showed.
Like Anderson Kill, many tenants say time is in their favor. Kintetsu International, a travel agency with 54 employees in New York, was prepared to leave its longtime quarters at 1325 Avenue of the Americas when its lease expired in 2009 because its landlord, the Paramount Group, planned to more than double the rent to over $90 a square foot, said Bill Sarcona, the assistant general manager. After Lehman Brothers fell, however, Paramount slashed its asking rent, and Kintetsu successfully pushed for a one-year extension with a rent increase of only 5 percent.
The travel agency will begin searching for a better deal this summer. "No one seems to expect the market to turn around until the second or third quarter of 2009," Sarcona said. "That's when we're assuming the market will bottom out."
Some tenants are grabbing opportunities, however. Pryor Cashman, an entertainment law firm, was spared the expense of designing and furnishing new space when it decided to move into 100,000 square feet at 7 Times Square that had been occupied by Heller Ehrman, a law firm that dissolved in October.
In the past, a new tenant would routinely rip out a predecessor's décor, no matter how suitable it was, but tenants today try to avoid wasting money, said Mary Ann Tighe, the regional chief executive of CB Richard Ellis, the firm that represented both parties in the Pryor Cashman deal. "First and foremost, tenants are interested in capital preservation," she said.
Brokers predict that sublease space will flood the market in the coming months, further depressing rents. About 13 million square feet of sublease space is available now — more than double the amount of a year ago — but still a relatively modest percentage of the city's office market of more than 400 million square feet.
To compete with sublease space that is already in move-in condition, many landlords will find themselves creating offices before they sign up the tenants, Warshauer said. "That's Landlord 101 for bad times," he said. "When the going gets rough, cut up the space and prebuild it."
Offering prebuilt space — as well as reducing the rent, giving more months of free rent and providing a larger refurbishing allowance — helped Capstone Equities lease several spaces adding up to about 179,000 square feet at 14 Wall Street since September, said Josh Zamir, the managing principal. "We'll do anything to get a deal done," Zamir said. He said most of his leases are for 10 years, but added, "We would do a short-term lease if the tenant wanted it."
Some landlords are so eager to fill space that they offering up to a year's free rent to tenants who are willing to make a longer commitment, Colp-Haber said. "This is a fantastic time to lock in a long-term lease," she said.
With many New York building owners facing enormous financial difficulties — Real Capital Analytics, a New York research company, recently estimated that at least $12 billion worth of commercial property in the area is already or potentially in trouble — companies seeking space are asking questions about the creditworthiness of a prospective landlord, several brokers said.
"Tenants today are very concerned with who their landlord is going to be," Konsker, of Cushman & Wakefield, said. He added that tenants also have to be concerned about the financial stability of the company that is subletting space. A bankruptcy filing can nullify a lease, leaving the subtenant hanging.
At the same time, landlords are looking more closely at the creditworthiness of their tenants, said William Rudin, president of the Rudin Management Company. This week, Verizon leased 50,000 square feet at 560 Lexington Avenue, doubling its presence in the Rudin-owned Midtown building. "We're happy we're signing a lease with an A-rated tenant," Rudin said. "The tenants should be looking at who the owner is, and we as owners should be looking at who the tenants are."
UBS sells Bank of China stake
Wednesday, December 31, 2008
By Emma Thomasson
Straitened Swiss bank UBS AG said on Wednesday it had sold its stake in Bank of China at a discount to institutional investors and would book a gain of a "few hundred million dollars" in the fourth quarter.
UBS is struggling to repair its balance sheet after massive investments into risky U.S. assets forced it to make nearly $49 billion (33.7 billion pounds) of writedowns, more than any other European bank.
Bank of China spokesman Wang Zhaowen said the sale would have no impact on the bank's financial status and operations.
UBS said it offloaded about 3.4 billion Bank of China H-shares through a discounted placing.
The world's biggest wealth manager paid $500 million for a 1.6 percent stake in China's second-largest lender in 2005 before it went public in 2006. Foreign investors who took bigger stakes at the time included Royal Bank of Scotland and Temasek Holdings .
Philip Higson, UBS head of investor relations, said the shares were sold at a discount to Bank of China's closing price on Tuesday, but declined to say by how much.
Dow Jones news agency said UBS sold the shares to 15 investors at a 12 percent discount, raising $835 million, citing people familiar with the situation.
UBS said it had made a gain on the sale of "a few hundred million dollars" which it would book in the fourth quarter although it would only have a marginal positive impact on the bank's Tier I ratio, a key measure of financial strength.
UBS posted a small third quarter profit, mainly due to tax credits and a revaluation of its own debt, but warned it could take a multi-billion hit in the final quarter of 2008.
UBS's Higson said the weakening dollar and the level of market volatility would have a much bigger impact on the bank's Tier I ratio in the quarter than the Bank of China stake sale.
Bank of China shares closed trading down 3.2 percent at 2.120 Hong Kong dollars compared with a 1.1 percent firmer benchmark Hang Seng Index .
UBS said it remained committed to its business relationship with Bank of China and to its businesses in China as a whole. Bank of China's Wang said the stake sale would not harm cooperation with UBS.
There has been growing investor concern that RBS, Bank of America , Citigroup and other western banks could unload their holdings in Chinese lenders in order to shore up their books amid the deepening global crisis.
But Bank of China said on Wednesday its other major foreign investors -- including its largest foreign shareholder RBS -- had no plans to sell their stakes after the UBS move.
Hong Kong's Apple Daily said earlier this month that Bank of America, which owns 19.13 percent of China Construction Bank , aims to trim its stake in the Chinese lender worth up to $3 billion. The report was later denied by the U.S. bank.
There has also been talk that Citigroup , damaged by the crisis, may consider selling its shares in Shanghai Pudong Development Bank after a lock-up period expires this month.
(Additional reporting by Xie Heng in Beijing; Editing by David Cowell)
Merrill Vice Chairman may leave in January
Wednesday, December 31, 2008
NEW YORK: Merrill Lynch's Vice Chairman Jeffrey Edwards will leave the bank in January, Bloomberg reported on Tuesday, citing an internal memo.
President Greg Fleming announced in the memo that Edwards, 47, is leaving to pursue other interests, Bloomberg reported.
Edwards has worked at the bank for 22 years.
A Merrill spokeswoman could not immediately be reached.
(Reporting by Elinor Comlay; Editing by Bernard Orr)
Citigroup's top executives to forgo '08 bonuses
By Eric Dash and Louise Story
Thursday, January 1, 2009
Wall Street is hitting its bankers where it hurts — in the wallet.
Citigroup's chief executive and chairman said on Wednesday that they would forgo their bonuses for 2008 and slash the amounts paid to other senior bankers, joining a growing list of financial executives who are passing up some pay.
In a memo to bank employees, Vikram Pandit, Citigroup's chief executive, said that he and Winfried Bischoff, the bank's chairman, would not take year-end rewards.
"The harsh realities of 2008, primarily our earnings results, mean that our bonus pool is dramatically lower than last year," Pandit wrote about a year in which the bank has so far announced more than $10 billion in losses. "The most senior leaders should be affected the most."
But Pandit's remarks may strike some as several weeks late, if not a few million dollars short. Citigroup, one of the biggest recipients of taxpayer money, has taken in $45 billion in capital from the government's bailout funds.
Nearly every chief executive on Wall Street has indicated that he will decline a 2008 bonus, with Kenneth Lewis of Bank of America and John Stumpf of Wells Fargo being the holdouts so far.
Other banks have clamped down on pay even more than Citigroup under pressure from Congress, regulators and investors. Wachovia, for example, said it was slashing compensation not just in the executive suite, but all the way down through its ranks as its merger with Wells Fargo neared completion on the last night of the year.
"What's different about this year versus last year is that the U.S. taxpayer is part of the equation, so how things appear is important," said Rakesh Khurana, a professor at Harvard Business School.
On Wall Street, compensation is always a hot button. But now the tension is heightened: pay too much and risk a political backlash; pay too little and risk losing talented employees. The prospect of losing workers to hedge funds and private equity firms has helped drive up pay in the industry in past years.
"The argument is always made about this excessive compensation, that it's necessary to keep these people," said Richard Cellini, a senior vice president at Integrity Interactive, a consulting firm in Waltham, Massachusetts. "That will now be tested, and I'm not sure if there's anywhere for them to go."
The government provided few guidelines about Wall Street compensation when it injected billions of dollars into banks late last year, and only described limits on pay to the highest-ranking executives. That gave the banks great discretion over the size and form of bonuses for traders, midlevel executives and others.
Many banks, like Citigroup, are making the biggest reductions to their senior executives' pay. Bonuses at the top of Citigroup will be down at least 40 percent for 10 members of its senior leadership team, according to a corporate filing released on Wednesday. Robert Rubin, an influential Citigroup board member and senior adviser to its leadership team, also turned down his 2008 bonus.
But other banks have taken more aggressive actions. Credit Suisse, Morgan Stanley and UBS have extended so-called clawback agreements to cover all employees, allowing the banks to recover a portion of bonuses if they are later shown to have been based on flawed bets. Citigroup's new clawback policy applies only to its executives.
Pandit said that Citigroup would continue to pay the bulk of its employees well as long as they performed.
"Meritocracy requires differentiation in pay," Pandit said.
That is in stark contrast to the 2008 pay plan at Wachovia, where bonuses were drastically slashed for the rank and file. Many of Wachovia's senior executives, though, could still reap riches from the bank's shotgun merger with Wells Fargo.
In a conference call on Dec. 19, Tim Sloan, a Wells Fargo executive who will head the global markets and investment banking unit, told a group of Wachovia bankers that they would not receive big bonuses. Instead, their allocated bonus money will be returned to shareholders.
He also said there would be no retention packages, according to a Wachovia employee who listened to the call. A Wells Fargo spokeswoman declined to comment.
"I know that's very painful to hear, but that's the reality," Sloan told the employees, as recounted by the participant. "It just would have been irresponsible to the company's shareholders to do anything else."
But some employees complained that the rules were being changed late in the game. One employee who identified himself as a third-year vice president said the bank's decision was putting its employees in "financial extremis" and, in some cases, at risk of not making their mortgage payments.
Wachovia's senior executives — including Robert Steel, who served as chief executive for just a few months — will not take home a discretionary bonus for 2008. Of course, that is not to say that all of them will wind up empty-handed.
According to corporate filings, 10 of Wachovia's senior executives are eligible to receive up to $98.2 million in severance payouts upon the completion of the merger with Wells Fargo.
Christy Phillips-Brown, a Wachovia spokeswoman, said that the payouts were "contractual obligations" and could turn out to be less if four Wachovia executives who accepted positions remain at Wells Fargo. Steel, who already announced his departure, will not receive any severance pay.
Investment bankers face uncertain landscape
Thursday, January 1, 2009
NEW YORK: For investment bankers who arrange the sale of stocks and bonds, 2008 was a year to forget, and the new year may not bring instant relief.
As mounting asset write-downs and loan losses turned into a worldwide credit crisis, total securities underwriting slid 38 percent to $4.71 trillion, a six-year low, from $7.6 trillion in 2007. The number of new issues fell 41 percent. Reported fees dropped 17 percent to $13.4 billion.
Problems worsened as the year went on: Volume in the fourth quarter totaled $678.8 billion, down 52 percent from a year earlier and 15 percent from the third quarter.
"There was clearly an avoidance of risk," said Bruce Thompson, head of global capital markets at Bank of America. "In the fourth quarter, there was an evolution from what had been concern about markets to concern about the overall economy."
Some asset classes fared particularly poorly in the fourth quarter. In the United States, issuance volume slid 95 percent in mortgage-backed securities, 96 percent in junk bonds and 97 percent in asset-backed securities, according to Thomson Reuters data. U.S. commercial mortgage securities issuance fell to zero.
Overall issuance would have been even lower, but for tens of billions of dollars in debt issued by financial companies with the backing of the Federal Deposit Insurance Corp.
"There were a whole lot of issuers who could not get money out of the investment-grade corporate bond market at any price - specifically issuers whose businesses were deemed to be very cyclical," said Nigel Cree, head of syndication for North America at Deutsche Bank.
JPMorgan Chase was the world's largest underwriter in 2008 as measured by issuance volume, helped by its acquisition of Bear Stearns, according to Thomson Reuters data released Wednesday. That ended an eight-year run at the top for Citigroup, but Citigroup still edged out JPMorgan for the top spot in reported fees.
JPMorgan handled $455.1 billion worth of new issue volume for the year. Barclays was next with $401.3 billion, reflecting its purchase of much of Lehman Brothers, followed by Citigroup with $309 billion. In the fourth quarter, JPMorgan also ranked first, followed by Goldman Sachs and Citigroup.
In fees, Citigroup reported $1.67 billion in 2008, followed by JPMorgan and Merrill. Bank of America, Goldman and JPMorgan led in the fourth quarter, when overall fees fell 52 percent.
Issuance sputtered in the worst financial crisis in decades, with even the most optimistic forecasters saying economies were not likely to recover before mid-2009. Financial carnage like the Lehman bankruptcy, the government takeovers of the mortgage giants Fannie Mae and Freddie Mac, the $152 billion bailout of the insurer American International Group and the sales of Merrill and Wachovia led nervous investors to reduce debt and shun securities they perceived as carrying credit risk.
Investors flocked to the relative safety of U.S. Treasury securities amid a flood of redemptions from mutual funds and hedge funds. Demand for some riskier securities, like collateralized debt obligations, all but vanished.
Major U.S. stock indexes lost two-fifths of their value during the year, and losses even piled up in fixed income. Through Tuesday, total returns in 2008 were minus 27 percent on junk bonds and minus 21 percent on asset-backed debt, and even safer corporate bonds and municipal bonds left investors in the red, according to Merrill data. Treasury securities, in contrast, were up 14.9 percent.
More problems could lie ahead as investors stay wary about risk. "Sales could still be tough in the first half of the year," said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan.
Major credit rating agencies have said the U.S. junk bond default rate could reach double digits in 2009. Consumers are spending less, and tight credit markets are making it hard for companies to refinance existing debt or fund day-to-day needs.
Meanwhile, low stock prices and high market volatility may leave many companies loath to issue shares or go public.
Thompson of Bank of America expects issuance in 2009 to rise. "Companies have pent-up demand for issuance because of their inability to raise capital," he said.
No more free goodies for U.S. doctors
By Natasha Singer
Wednesday, December 31, 2008
To Lehman Brothers, the retailer Linens 'n Things and the blank VHS tape, add another American institution that expired in 2008: drug company trinkets.
Starting Thursday, the pharmaceutical industry has agreed to a voluntary moratorium on the kind of branded goodies - Viagra pens, Zoloft soap dispensers, Lipitor mugs - that were meant to foster good will and, some would say, encourage doctors to prescribe more of the drugs.
No longer will Merck furnish doctors with purplish adhesive bandages advertising Gardasil, a vaccine against the human papillomavirus. Banished, too, are black T-shirts from Allergan adorned with rhinestones that spell out B-O-T-O-X. So are pens advertising the Sepracor sleep drug Lunesta, in whose barrel floats the brand's mascot, a somnolent moth.
Some skeptics deride the voluntary ban as a superficial measure that does nothing to curb the far larger amounts drug companies spend each year on various other efforts to influence physicians.
But proponents welcome it as a step toward ending the barrage of drug brands and logos that surround, and may subliminally influence, doctors and patients.
"It's not just the pens - it's the paper on the exam table, the tongue depressor, the stethoscope tags, medical calipers that might be used to interpret an EKG, penlights," said Dr. Robert Goodman, a physician in internal medicine at Montefiore Medical Center in New York City.
In 1999, Goodman started, No Free Lunch, a nonprofit group that encourages doctors to reject drug company giveaways. "Practically anything you can put a name on is branded in a doctor's office, short of branding, like a Nascar driver, on the doctor's white coat," Goodman said.
The new voluntary industry guidelines try to counter the impression that gifts to doctors are intended to unduly influence medicine. The code, drawn up by Pharmaceutical Research and Manufacturers of America, an industry group in Washington, bars drug companies from giving doctors branded pens, staplers, flash drives, paperweights, calculators and the like.
The guidelines also reiterate the group's 2002 code, which prohibited more expensive goods and services like tickets to professional sports games and junkets to resorts. And it asks companies that finance medical courses, conferences or scholarships to leave the selection of study material and scholarship recipients to outside program coordinators.
Diane Bieri, the executive vice president of Pharmaceutical Research and Manufacturers of America, said the updated guidelines were not an admission that gifts could influence doctors' prescribing habits. Instead, she said, they were meant to emphasize the educational nature of the relationship between industry and doctors.
"We have never said and would never say that a pharmaceutical pen or notebook has influenced any prescription," Bieri said.
But some critics said the code did not go far enough to address the influence of drug marketing on the practice of medicine. The guidelines, for example, still permit drug makers to underwrite free lunches for doctors and their staffs or to sponsor dinners for doctors at restaurants, as long as the meals are accompanied by educational presentations.
"Pens or no pens, their influence is not going to be diminished," said Dr. Larry M. Greenbaum, a rheumatologist in Greenwood, Indiana. He has made a point of collecting ballpoint pens advertising formerly heavily promoted medications, like the painkiller Vioxx, that were later withdrawn after reports of dangerous side effects.
Last year, besides giving away nearly $16 billion in free drug samples to doctors, pharmaceutical companies spent more than $6 billion on "detailing" - an industry term for the sales activities of drug representatives including office visits to doctors, meal-time presentations and branded pens and other handouts, according to IMS Health, a health care information company.
The industry code also permits drug makers to pay doctors as consultants "based on fair market value" - which critics say means that companies can continue to pay individual doctors tens of thousands of dollars or more a year.
While some doctors applaud the gift ban, others seem offended by the insinuation that a ballpoint pen could turn their heads. "It seems goofy to us; we like getting our pens," Dr. Susan B. Hurson, an obstetrician and gynecologist in Washington, said in a telephone interview.
Hurson said she paid no attention to the logos on the pens she carried around in her doctor's coat. Prompted by a reporter's question, she pulled out a handful of pens from her pocket and read off the drugs advertised: Clindesse, a cream for vaginal infection; Halo, a system for detecting breast cancer, and Evamist, an estrogen spray. "It's hard for me to believe it influences what you prescribe."
But Dr. Phillip Freeman, a psychiatrist in Boston, said that physicians who contended that the giveaways were benign might be suffering from denial.
"The need to deny influence is damaging to the soul," Freeman said. He suggested that doctors would feel less conflicted if they simply wore drug company patches on their white coats.
Unemployment a social time bomb for Spain
Thursday, January 1, 2009
By Sonya Dowsett
Tensions mounting between native job-seekers and immigrants competing for a declining pool of work in Spain will intensify in 2009 as generous benefits for those laid off reach the end of their fixed terms.
Unemployment at 12.8 percent in November, a 12-year high and by far the highest rate in the European Union, could reach 20 percent of the workforce in 2010 as a slump in construction spreads into the wider economy, economists say.
That is a level not seen since the 1990s and as Spain heads for its deepest recession in 50 years it may trigger social unrest like that of the 1980s, when high unemployment and low wages led to country-wide demonstrations and violent strikes.
Spain makes payouts of up to 70 percent of salaries for up to two years, depending on how long workers have been paying into the social security system.
With nearly 3 million unemployed, many of those laid off during 2008 will come to the end of dole payouts next year and will struggle to make ends meet in a depressed labour market with no sign of paid work.
"This coming year, a lot of people will stop receiving the dole," said Sandalio Gomez, professor of labour relations at business school IESE. "We could end up with social unrest as people take to the streets to demonstrate."
The make-up of Spain's workforce has changed drastically with the arrival of nearly 5 million immigrants boosting the population by 15 percent over the past decade.
Desperate Spaniards who have lost jobs in construction are taking up work they formerly shunned, from cleaning bars to fruit-picking, displacing immigrants who struggle to find alternative work.
Thousands of Andalusians applied to pick olives for this year's harvest from December to January, according to an Andalusian job agency, leaving the previous workforce of African immigrants without employment.
Despite offers from local authorities to pay their coach fares back to Africa, immigrants are sleeping rough or in homeless shelters in a situation described by one charity as a genuine social problem. Another flashpoint in the southern region could be February's strawberry harvest in Huelva, on the border with Portugal, where migrants traditionally find work.
Felix Veliz, a Madrid-based former construction sector worker from Ecuador who worked for Corman, which installed safety equipment in building sites, says many of his colleagues were forced to sleep rough when the company filed for administration in September.
The 49-year old who came to Spain nearly 10 years ago cannot claim dole or seek other work, as under Spanish law he is still tied to his former company while it files for administration.
"All we want is that the judge and the labour authorities reach a decision as soon as possible so we can claim dole or get a job with another company," he told Reuters at a commercial court in Madrid where he and fellow former employees have put in a plea to break their ties with the company.
"This is like a charity case now."
Married with two adult children, he said he used to earn up to 1,300 euros (1,289 pounds) per month. His mortgage now costs 1,300 euros per month.
"They started docking our salaries in May," he said, his hands thrust into the pockets of a blue corduroy jacket in the cold December wind outside the wrought iron doors of the court.
"In July the company stopped paying altogether. That's nearly six months, up to now. We are living off loans from friends and family."
Ripples from a crumbling construction sector are spreading out into the wider economy, bringing down peripheral businesses like air-conditioning installers and tile manufacturers.
The number of Spanish companies entering administration in the third quarter nearly quadrupled from the year-ago period, according to the National Statistics Institute.
"It's the domino effect from the construction sector," said Jose Luis Corell Badia, a Valencia-based lawyer and head of corporate restructuring at Ernst & Young Abogados. "I don't see light at the end of the tunnel. It's job destruction."
Cristina Ballesteros, a 29-year old former secretary for the vice-president of a multinational cement company, said competition for work is such that potential employers ask her if she plans to have children, even though it is illegal to do so.
She lives with her boyfriend but has taken to saying she is single to improve her chances.
"I share a rented flat, but if it was not for that I'd be back living with my mother," she said.
"I studied to be a secretary: it's not a degree, it's a two-year diploma, but now I find there are many employers who want you to have a degree to do a secretary's job. People accept it, because they have no choice. They are asking for more and more, when it's really not necessary."
Outside the Madrid commercial court, others are fighting to receive payments to which they are entitled. Rafael Pliego, 54, was recently fired from his job as a security guard and has already signed up for dole but not yet received his cheque.
"I have an illness and they told me I couldn't continue working and they fired me. It happened on October 30. I had only been working with them for five months," he said.
"I carry on looking for work, of course. I had the bad luck to get sick, and this happened."
Spain's government ran the second highest surplus in the euro zone in 2007, equal to 2.2 percent of GDP, but the public accounts are sinking into the red as tax income falls and the number of people claiming unemployment benefit rises.
The central government budget deficit leapt to 14 billion euros in the first 11 months of 2008 -- equivalent to 1.28 percent of GDP. The central government deficit is part of Spain's wider public sector budget, which includes the social security system, regional and municipal accounts.
Social security payouts alone in 2009 will double to 3.0 percent of gross domestic product, according to FUNCAS savings bank consultancy.
"It's grown this year at an incredible rate," said FUNCAS analyst Angel Laborda.
FUNCAS forecasts for the budget deficit in 2009 and 2010 are already obsolete, he said, and will probably come in at around 6 percent of GDP in 2009 and 7.5 percent in 2010.
That would shatter a European Union limit of 3 percent of GDP.
Prime Minister Jose Luis Rodriguez Zapatero said on Saturday the country would start to see the first shoots of economic recovery within the coming year.
"The first signs of economic recovery, in the government's opinion, will be in the second part, towards the end of 2009. We will be at a point when confidence starts to recover," he said in an interview broadcast on his party's Web site.
But Vicente Balmaseda, 36, who lost his job as a conference stand designer six months ago and has been studying to improve his chances as he looks for fresh work, is pessimistic.
"I've sent around 200 resumes, every day I send them. At best I've had three or four interviews. I've only had one direct interview with a company, the rest were with agencies.
"It's getting me down. The job market in Spain is bad across all sectors. From what they say on the TV, it's only going to get worse next year."
(Additional reporting by Ben Harding and Judy MacInnes; Editing by Sara Ledwith)
Rising desperation as China's exports drop
By Keith Bradsher
Thursday, January 1, 2009
HONG KONG: At the docks here, the stacks of shipping containers that used to loom above the highway overpass are gone. Logistics managers say they negotiate deeper discounts every week on ships that are leaving half empty.
In nearby Guangdong Province, so many factories are closing without paying employees that some workers are resigning pre-emptively and demanding immediate pay before their employers go bankrupt.
In Sichuan and other interior provinces, municipal officials are desperately searching for ways to provide jobs for millions of out-of-work migrant laborers whose families no longer need them for farming.
Those are the effects of millions of Americans' cutting their spending.
American retailers, after suffering a dismal holiday shopping season, are delaying payment for Chinese goods 90 or even 120 days after shipping, in contrast to the usual 30 to 45 days, requiring their suppliers to try to borrow more money to cover the difference. Some Chinese suppliers who cannot raise the money - many already operate on thin margins - are going out of business.
At the same time, retailers are demanding that exporters show that they have strong balance sheets and will not go bankrupt before completing orders. Exporters, worried the retailers will fail before paying for their purchases, are reluctant to let goods be loaded onto ships. And banks, for the same reason, have cut back on guaranteeing retailers' payments to exporters.
"Trade finance is collapsing," said Victor Fung, the chairman of the Li & Fung Group, the giant supply chain management company that connects factories in China with retailers in the United States and Europe. "We've got orders we can't ship right now."
Fung estimates that 10,000 of the 60,000 factories in China owned by Hong Kong interests have closed or will close in the coming months.
Other business leaders say that the toll may be even higher and that factory closings are an even bigger problem among mainland Chinese businesses because these tend to be smaller and more poorly capitalized than those owned by Hong Kong businesses.
Government statistics show that Chinese exports slipped 2.2 percent in November when calculated in dollars, after seven years of rapid growth. But dollar figures do not come close to capturing the real depth of the downturn.
Convert the export figures into China's own currency, a much better measure of the effect on the Chinese economy, and exports plunged 9.6 percent in November. Factor in inflation over the past year and the plunge was 11.4 percent.
Indications are that the December data will be even worse.
Consumer electronics manufacturers have been hit the hardest, according to customs data. "No one has any money anymore, so demand for our mini hi-fi systems has declined a lot," said Lion Yuan, the sales manager at Shenzhen Yidashi Electronics, where exports have dropped 30 percent in a year.
In the past two weeks, Chinese officials have announced a series of measures to help exporters. State banks are being directed to lend more to them, particularly to small and midsize exporters.
Government research funds are being set up. The head of the government of Hong Kong, Donald Tsang, plans to seek legislative approval by late January for the government to guarantee banks' issuance of $12.9 billion worth of letters of credit for exports.
Particularly noteworthy have been the Chinese government's steps to help labor-intensive sectors like garment production, one of the industries China has been trying to move away from in an effort to climb the ladder of economic development, moving to more skilled work that pays higher wages. But now China has become reluctant to yield the bottom rungs of the ladder to countries with even lower wages, like Vietnam, Indonesia and Bangladesh.
China has been restoring export tax rebates for its textile sector, for instance, which it had been phasing out. Municipal governments have also stopped raising the minimum wage, which doubled over the past two years in some cities, peaking at $146 a month in Shenzhen, which abuts Hong Kong.
"China will resort to tariff and trade policies to facilitate export of labor-intensive and core technology-supported industries," Li Yizhong, the minister of industry and information technology, said at a conference Dec. 19.
Increased export incentives by China have the potential to create a trade issue for the incoming U.S. administration of Barack Obama, particularly regarding textiles.
U.S. quotas on the import of a wide range of Chinese garments expired Thursday. Even before the Chinese began announcing their latest programs for exporters, the United States filed a legal challenge Dec. 19 at the World Trade Organization, accusing China of having already provided illegal subsidies to exporters in a long list of industries as part of a program of trying to build recognizable export brands.
China denied Dec. 23 that there were any illegal subsidies, saying that many countries tried to help exporters and that its actions were no different.
In a letter to the National Council of Textile Organizations on Oct. 24, Obama stopped short of promising any protection from Chinese imports, but he said he favored close monitoring of them. "China must change its policies, including its foreign exchange policies, so that it relies less on exports and more on domestic demand for its growth," he wrote.
But shifting toward a greater reliance on domestic demand is not easy. Chinese households have one of the world's highest savings rates. And the Chinese social safety net is in tatters, with families receiving scant government help with education costs, medical care and retirement: The average hospital stay costs the equivalent of two years' wages for the average Chinese worker.
Important bureaucratic obstacles also exist. Chinese factories are allowed to import equipment while paying little or no duty, provided that the equipment will be used only to produce goods for export.
Obtaining approval to switch the same equipment to making goods for the domestic market can take two years and require the payment of much of the import duties previously avoided, a payment many factories cannot afford.
China's measures to help exporters are starting to cause concern in other Asian countries that compete with it, and raise the risk of a protectionist reaction against China. Indonesia, one of the largest Asian markets, imposed a series of administrative measures Thursday that were meant to reduce smuggling but will have the practical effect of making it harder to import Chinese goods.
In Indonesia, the third most populous country in Asia after China and India, the government is already acting to limit imports of garments, electronics, shoes, toys and food - five large categories in which Indonesian producers are struggling to compete with China.
Starting this year, importers of these products will have to be registered with the government, use only five designated ports for their shipments, arrange for detailed inspections of goods before they are loaded on ships or planes bound for Indonesia and then have every single container exhaustively inspected on arrival by Indonesia's notoriously slow customs bureaucracy. The plan, intended to comply with WTO rules, was adopted after heavy lobbying by Indonesian manufacturers and labor unions.
Boediono, the governor of the central bank of Indonesia, who uses only one name, said that Indonesia would be watching China's policies, but he added that he hoped Indonesia could stay competitive. At less than $120 a month, industrial wages in export zones near Jakarta, the Indonesian capital, are slightly below those in coastal regions of China.
"I'm not sure they can compete with us again by moving down the ladder," Boediono said, "because I think they have already moved up the ladder."
New Belgian PM seeks quick economic measures
Wednesday, December 31, 2008
By Philip Blenkinsop
New Belgian Prime Minister Herman Van Rompuy urged parliament on Wednesday to pass bills to revive an economy heading into recession and to resolve a political dispute that threatens to pull the country apart.
"The year that ends today has been marked by the most serious global financial crisis since the 1930s," he said in a declaration before a vote of confidence due on Friday.
"Domestically it has been a year of uncertainty, partly due to political moments of crisis and the consequences of the financial crisis," he continued in the Belgian equivalent of a state of the union address.
Van Rompuy, 61, became Belgium's third premier in a year on Tuesday, succeeding Yves Leterme whose government collapsed on December 19 over the stalled bailout of stricken bank Fortis and asset sale to France's BNP Paribas.
Belgium is expected to have entered a recession in the fourth quarter, faces a lingering bank crisis and is beset by a dispute over devolution that has seen it lurch from one political crisis to another since the June 2007 election.
Leterme's government proposed earlier this month pumping 2 billion euros (1.94 billion pounds) into the economy next year, part of a 200 billion euro EU-wide stimulus package.
"The previous government proposed such a plan. It must be enacted as soon as possible," Van Rompuy told lawmakers.
"It is clear that in the coming weeks and months the government will take new initiatives to cope with the challenges that the crisis poses for the economy and employment."
Van Rompuy also pressed bickering parties to settle a dispute over whether the regions should have greater autonomy.
The majority Dutch-speakers want more powers for Flanders over the labour market and justice, but French-speakers fear further devolution will hit their less vibrant economy and risks breaking the 178-year-old country in two.
The prime minister first wants results from a committee looking into the thorny issue of electoral boundaries around Brussels and demanded changes implemented from next summer.
Van Rompuy's sole mention of the Fortis debacle was to call for an investigation into alleged meddling in a court's decision to freeze the Fortis bailout to be non-partisan.
(Editing by Charles Dick)
Sydney plans big New Year fling to see in gloomy 09
Wednesday, December 31, 2008
SYDNEY: Sydney will defy predictions of a gloomy 2009 with its biggest ever New Year party and midnight fireworks display Wednesday, watched by an expected 1.5 million revellers on the glittering harbour and surrounds.
The theme for the celebrations will be "Creation" and the centrepiece a pyrotechnic storm over Australia's biggest city, with firework simulations of lightning, thunder and rain, all linked to Aboriginal creation myths.
"(It's) looking at what's happened before, where we're going as a nation," creative director Rhoda Roberts said.
About 120,000 firework shells and shooting comets will be exploded in the $3.45 million (2.39 million pound) display to be launched from barges, buildings and the Sydney Harbour Bridge.
The party, one of the first to kick off New Year celebrations around the world, comes against economist warnings that up to one million Australians will be unemployed by the end of 2009 as joblessness spikes from 4.4 percent to near 8 percent.
Melbourne, Australia's second-biggest city, was also seeking to defy the rocky economic outlook and rival Sydney with a $3.2 million sell-out "oak of love" dance party attracting 40,000 revellers dressed in white to an indoor arena.
Acting Prime Minister Julia Gillard said she would not be joining the main celebrations as the centre-left government looked ahead to dealing with the fallout of the financial crisis and protecting jobs in 2009.
(Reporting by Rob Taylor, editing by Dean Yates)
A better 2009 for global investors?
By David Jolly
Thursday, January 1, 2009
PARIS: After a catastrophic year for global markets, dazed investors are emerging from their shelters to ask if 2009 will be any better. The consensus among professionals? Don't expect the big rebound that usually follows a sharp downturn.
Stocks lost 42 percent of their value in 2008, as represented by the MSCI world index, erasing more than $29 trillion in value and all of the gains made since 2003. Just about the only assets to prosper were government bonds of developed countries and gold, where prices rose as investors ran for cover.
The year began with a shock, but only a previously lonely group of bears predicted the disaster to come. When Société Générale lost €4.9 billion, or about $6.8 billion, in January on the unauthorized positions taken by a low-level trader, it seemed the year might already have its biggest financial news.
But that loss would prove trivial compared with what happened afterward. The bad news never seemed to let up: Bear Stearns in the spring, then after a bit of a summer lull, the Lehman Brothers bankruptcy in mid-September, the takeover of Merrill Lynch, the bailout of American International Group, the collapse of Bernard Madoff's business, General Motors. The names say it all for one of the most dramatic years in financial history.
Many economists held out hope through the first half of the year that because of a "decoupling" caused by the rise of China and India and the growing might of the European Union, the rest of the world would escape the fallout of the Made-in-America subprime mortgage crisis.
That hope - ultimately dashed - was never reflected in the markets. Even as the economic data from Brussels and Beijing looked better than that from Washington, stocks in Europe and Asia were falling, and falling faster than their American counterparts, partly because panicked dollar-based investors were repatriating their overseas investments. By the end of the year the global economic picture was almost uniformly bad.
The Dow Jones Euro Stoxx 600 index, a measure of the broad European market, finished the year down 46 percent. The MSCI Asia-Pacific index fell 43 percent. U.S. stocks were not much better, with the Dow Jones industrial average falling 33.8 percent, its worst year since 1931, while the broader Standard & Poor's 500-stock index fell 38.5 percent.
The last four months of 2008 stand out as truly awful. Bank lending all but halted, and markets went into a tailspin that ended only when governments agreed to spend trillions of dollars bailing out the global financial system.
If the news from the developed world sounded bad, it was even worse for many emerging markets. The Shanghai composite index fell 65.4 percent, the Russian RTS index fell 72 percent and the Sensex 30 in Mumbai fell 52.4 percent.
Looking for someplace comparatively safe? You would have needed the foresight to put your money into Bangladesh, where the main Dhaka stock index lost only 7.4 percent last year, or Venezuela, down the same amount.
The events of the past year helped to remind stock investors that equities are just one part of the overall picture. Indeed, their importance was dwarfed by a handful of other markets, including credit default swaps, that had barely been on most investors' radar before the storm broke, not to mention the dreaded mortgage-backed securities game. What happens in those other markets will help to determine where stocks go.
Investors hoping that 2009 will be better point out that 2008 was marked by two major phenomena unlikely to be repeated: the near-collapse of the world financial system along with the subsequent de facto government takeover of many banks, and the extraordinary bubble in commodities prices that burst in the second half of the year.
Oil prices peaked on July 11 at more than $147 a barrel. Today, crude is trading slightly above $44 after falling to less than $40 a barrel.
The collapse of commodities prices helped to upend economies from Russia to Australia.
With credit markets thawing a bit but still operating far from normally, economies around the world are still deteriorating.
Where will the first signs of growth emerge? Some analysts predict that the U.S. economy, which fell into recession in December 2007 and is poised to receive a stimulus package from Washington of as much as $1 trillion over the next two years, might actually start to lead the world out of the downturn sometime in the second half of the year.
But the continuing deterioration in the U.S. housing market, the struggles of the auto industry and layoffs almost everywhere serve as a reminder that the outlook for 2009 remains grim.
The International Monetary Fund forecasts that developed economies will contract slightly in 2009, while overall world output will grow only 2.2 percent. The fund defines a global recession as growth below 3 percent, because it is far too weak to keep up with the demands of a growing population in emerging markets for jobs.
At the same time, deleveraging - the winnowing down of banks' troubled balance sheets - continues to crimp lending. Consumer confidence in the United States and Europe has fallen to record lows.
Nouriel Roubini, one of the few economists to call the 2008 market disaster correctly, argued in a recent commentary that in 2009, global recession "will morph into a stag-deflation, a deadly combination of economic stagnation/recession and deflation."
A shrinking economic pie is bad for stocks because corporate profits tend to fall, making equities appear more expensive. Analysts say corporate profit forecasts are probably still too high to reflect accurately the dimming economic prospects of 2009.
Still, Julian Chillingworth, chief investment officer at Rathbone Unit Trust Management in London, said that investors were sitting on unusually large cash reserves, "so if the news is bad, but not devastatingly bad, then you might well see a rally." Unfortunately, he added, any rally will likely turn out to be a "false dawn" until the economic picture begins to clear up.
"The real bottom in most bear markets is when you go from capitulation" - when most investors simply give up hope - "to disinterest," he said. "We haven't quite gotten there yet."
Philippe Gijsels, senior equity strategist at Fortis Global Markets in Brussels, predicted that 2009 would be "the year of the big shakeout, a year of financial Darwinism, where the weak get weaker and the strong get stronger."
Many retailers, banks, commodity producers and pharmaceuticals companies ended 2008 barely hanging on, Gijsels said, making them ripe for acquisition. "The people with the cash and the balance sheet strength will be able to do what they want."
In the long run, consolidation will help to create the conditions for the next bull market, he said, because it will mean that capital is being redirected to its most efficient uses.
Gijsels said it was possible that the market could begin to stabilize by late 2009 if there was clear evidence that the financial crisis was ending and there were signs that the U.S. housing market crash was nearing an end.
If there is any hope for improvement, it is in the nearly unanimous mood of pessimism. Chillingworth said it was possible that "we're all too depressed and the U.S. could kick into gear much faster than anyone now anticipates."
But "no one is factoring that possibility into their calculations at the moment."
A bad year to own stocks
By Vikas Bajaj
Thursday, January 1, 2009
NEW YORK: There was almost no place to hide from the crash of 2008.
When the New York Stock Exchange bell rang out the year Wednesday, it tolled for virtually anyone with money in the stock market.
The final, grim tally only confirmed what investors had known for months: It was a very bad year to own stocks, any stocks, anywhere - indeed, one of the worst ever.
On Wall Street, the Dow Jones industrial average plunged 4,488.43 points, or 33.8 percent, its most punishing loss since 1931.
Blue chips like Bank of America, Citigroup and Alcoa lost more than 65 percent of their value. The broader Standard & Poor's 500-stock index sank 38.5 percent, almost exactly matching its decline in 1937.
All told, about $7 trillion of shareholders' wealth - the gains of the last six years - was wiped out in a year of violent market swings. And that is just in the United States.
The U.S. market was far from the worst hit in 2008. Stocks fell 55 percent to 72 percent in the so-called BRIC economies - Brazil, Russia, India and China - that were darlings of the late, great boom. Stocks in developed European and Asian markets also fell sharply, though less than their emerging-market counterparts. Many commodities like oil and copper crashed.
What is striking is not just the magnitude of the declines, staggering as they are, but also their breadth. All but two of the 30 Dow industrials, Wal-Mart and McDonald's, fell by more than 10 percent. Almost no industry was spared as the crisis that first emerged in the subprime mortgage market metastasized and the economy sank into what could be a long recession.
As the new year dawns, Wall Street is looking to Washington, to which the balance of financial power has tipped in recent months. Analysts and investors are focusing on what the incoming administration of Barack Obama and the Federal Reserve will do to revive the economy and the financial system.
It is a remarkable turnabout from the mid-1990s, when Wall Street traders helped drive economic policy. Back then, bond investors flexed their financial muscle and urged the Clinton administration and a Republican Congress to reduce the U.S. budget deficit.
These days, the market in ultra-safe U.S. Treasury securities seems like a refuge, even as the deficit balloons from the cost of bailing out banks, insurers and the Detroit auto companies. Many investors, having lost in stocks and other investments, are buying up Treasuries that offer little or no return. They are content simply to get their money back.
"The only willing risk taker is the government," said William Gross, the chief investment officer of the Pacific Investment Management, or Pimco, the giant bond trading firm. The epicenter of the financial world, he added, "is no longer New York, it's Washington."
Like many money managers, Gross is a conservative - he describes himself as a "Reagan fan from way back" - who generally prefers limited government involvement in the markets. But he and others say that the government's sweeping intervention into private industry and in the markets, though sometimes flawed, is necessary to prevent a collapse of the financial system. They are hoping that policy makers do even more to stimulate the economy and revive moribund financial markets.
Given the damage in the markets, however, policy makers face daunting challenges.
"When we have bear markets, they usually take twice as long to get down this far," said Robert Doll, vice chairman of the BlackRock investment firm.
The markets have become extremely volatile, especially since Lehman Brothers sank into bankruptcy in September. Since then, the S&P has moved more than 5 percent in either direction on 18 days. There were only 17 such days in the previous 53 years, according to calculations by Howard Silverblatt, an index analyst at S&P.
Diversification - the idea that it is unwise to put all your eggs in one basket - did not pay off for investors in 2008, casting doubt over this cornerstone of modern investing.
Losses in the credit markets, which are at the heart of this financial crisis, appear small relative to the devastation in other markets. The International Monetary Fund estimated in October that banks and other investors would suffer $1.4 trillion in losses on loans and securities, a loss of just 6 percent. Financial institutions globally have already reported $1 trillion in write-downs, according to Bloomberg.
The IMF's estimate, however, does not count losses on derivatives, those complex instruments that derive their value from other assets. Losses on these instruments could outstrip those in the cash markets because they are much bigger than their underlying assets.
A spokeswoman for the IMF said the fund's estimates did not include those losses because they were transfers of wealth from one party of a transaction to another. For example, when the insurer American International Group loses $1 billion on a credit-default swap, a type of derivative, it makes payments to customers like investment banks.
These complex financial instruments will pose one of the biggest challenges to policy makers in the year ahead. Many investors have lost confidence in banks, insurers and other financial intermediaries, in part because they do not know whether these companies are valuing opaque instruments properly. Some firms may be carrying enough toxic sludge to sink them, while others may be relatively unscathed.
"Until those assets can be removed from the balance sheets of the bank, or until the owners get a better understanding of what these assets are worth, we will have uncertainty," said Douglas Peta, an independent market analyst.
A broader focus for policy makers will be reviving the economy. Most financial and political analysts expect the Obama administration to enact a stimulus package that could approach $1 trillion. Many analysts say such an effort will help revive the economy, but not immediately.
Thomas Lee, the chief equity strategist at JPMorgan Chase, said a recovery early in the year could give way to another sell-off before the stock market finally bottoms later in the year.
Lee said his forecast reflected "how unconventional the current recession is." Unlike in the past, policy makers cannot rely on consumers to push the economy ahead by borrowing and spending, he said.
"This is a recession where households are net debtors," he said. "They have lost money on houses and equities. That has rarely happened, at least since the 1950s."
Much glamour at the ball, but fewer debutantes
By Lisa W. Foderaro
Wednesday, December 31, 2008
You had to look hard amid the four-foot floral sculptures and the Vera Wang originals to see signs of the economy's collapse at the International Debutante Ball at the Waldorf-Astoria on Monday night.
There was the daughter of the Duchesse de Magenta, Pélagie de Mac Mahon, a willowy 18-year-old with chestnut hair who is the great-great-great-granddaughter of the president of the French Republic in the 1870s. And there were the two sisters from Hong Kong, daughters of a heart surgeon and a jewelry designer, who stayed not two nights but two weeks at the Waldorf, passing the days on the lookout for designer dresses.
Champagne flowed. Men in tails waltzed and fox-trotted with debutantes in designer gowns to music by the 12-piece Lester Lanin Orchestra, a fixture at the ball almost since its inception in 1954. And before midnight, the young debutantes, each flanked by a civilian and military escort, ascended the stage for a deep curtsy.
But the experienced hands, including mothers like the duchesse who made their own debuts in society in this very ballroom, could see the subtle difference in the spaces between tables. There were fewer debutantes, 47, this year than the 58 at the last biennial ball in 2006, and far fewer guests — 662 instead of 976.
The director of the ball, Margaret Hedberg, brushed off the $14,000 cost of a table —"Watches cost more," she said — although she acknowledged that perhaps the deepening recession accounted for the smaller crowd.
"People are not going overboard," said Hedberg, who came out in 1963 and is the niece of the ball's founder, Beatrice Dinsmore Joyce. "They're not taking three or four tables and inviting everybody's friends' friends. It's a little more conservative that way."
Some parents recognized the disconnect between the opulence inside the hotel's gilded doors and the mood beyond them; others took comfort in the fact that the event raises hundreds of thousands of dollars for charity, mainly the Soldiers', Sailors', Marines', Coast Guard and Airmen's Club, a hotel in New York for military members and their families.
Roxanna Armstrong Himelrick of Scottsdale, Arizona, who was introduced at the 1976 ball, said that when she remarried in the fall, she chose to elope rather than have a lavish celebration, in part so she could afford the ultimate coming-out party for her 18-year-old daughter, Brittany Blair Mack.
"Everybody said you shouldn't do it because of the economy," Armstrong Himelrick said about attending the ball. "It is extravagant. But I felt it was important for my daughter, and things might get worse. This might be her last chance."
Steeped in tradition, the ball is one of the most exclusive debutante galas in the country, and this year it included young women from 11 states and from England, France, Germany, Greece and Hong Kong.
The biggest contingent was from Texas, 10 women who had perfected their signature curtsy, the "Texas dip," which drew gusts of applause from the crowd. The most recognizable name in the pale pink program, which featured full-page black-and-white portraits of the evening's stars, was a Huffington — Christina Sophia Huffington, daughter of Arianna, the founder of The Huffington Post Web site, and Michael, the oil heir and former California congressman.
One of the debutantes, Anne Moody, who grew up in Jacksonville, Florida, and is a freshman at New York University, said she would not be heading back to her dorm room after the ball because her parents kept an apartment in the Pierre Hotel.
"I love it," Moody, 18, said as she emerged from the hour-and-a-half receiving line, wearing Vera Wang's Audrey gown and Mikimoto pearls. "I'm networking."
The ball, which began at 7:30 p.m. and stretched past 2 a.m. on Tuesday, was by no means the only chance for the women to meet and greet one another or the many young men orbiting them.
On Sunday, there was a mother-daughter brunch at a catering spot off Fifth Avenue. That was followed by a party for 325 guests in the Grand Ballroom of the Plaza Hotel. And a final reception at the University Club on Tuesday allowed the debutantes to "get all together and exchange e-mails," Hedberg said. "And then there are a lot of things going on that I don't know about."
These days, the gala seems less about unveiling marriageable young women than it once did, and more about having a swell party for a rarefied segment of society.
"It's not the 19th century, where it was being brought out on the marriage market," said Suzanne Tufts of Forest Hills, Queens, whose daughter, Abigail, a freshman at Dickinson College, was among the guests of honor. "It really is stepping onto an international forum."
Tufts, a consultant for nonprofit organizations, said she took pleasure in watching her daughter, a serious athlete, dance in a dress from Bergdorf Goodman with delicate white bows on the skirt. "I'm used to seeing her in sweats and spandex," Tufts said. "So kid gloves and satin is a nice contrast."
Tufts noted that the event raised money for charity, adding, "The planning was done a year ago, so you don't renege on your support."
Hedberg was keenly aware that the ball might seem out of step with the times, but she too pointed out that most of the women learned that they were chosen as debutantes long before the financial crisis hit. "They made their plans and sent their checks," she said. "And I really can't cancel it in September or October because I signed so many contracts in February with the orchestra and florist and hotel. We all didn't quite see what was happening."
And if all those little edible gold leaves adorning the chocolate boxes that contained plump raspberries for dessert seemed a little excessive, Hedberg found a sunny side in the spillover effects. "There are a lot of people who make those dresses and are happy that these gals bought them," she said. "There are a lot of waiters working tonight, so it's doing something for the economy. Plus, it's for charity. So we ought to have some good feelings about that. We can't beat ourselves up about it."
Looking back on past recessions, she said, "We got through '87 and '93, and life does have a way of going on.
"I don't mean it in a flippant way, but romance and having fun and looking pretty — I hope that doesn't go away."

Cuban-Americans mark revolution's anniversary wearily
By Damien Cave
Wednesday, December 31, 2008
HIALEAH, Florida: Four months after they appeared in the waters between Havana and Miami, the four dead men remain nameless. At a morgue in the Florida Keys, they lie on stretchers stacked like bunk beds, their bodies chewed by sharks, their faces too putrified to be recognized.
The police suspect they were Cuban rafters. Nilda Garcia thinks one of them might be her son — and the thought makes her weep. Fourteen years after she left Cuba on her own makeshift boat, she finds herself wondering once again: When will it end?
"How many mothers are going through this?" she said in an interview at her daughter's apartment here as she awaits DNA results on the bodies. "How many more are crying for their losses? How many young people have drowned in this sea? How many?"
Fifty years ago Wednesday, many Cubans cheered when Fidel Castro seized power in Havana, and even now the revolution attracts many fans — as evidenced by the Canadian tour agencies advertising trips "to celebrate five decades of resilience."
But the bodies speak to a different legacy. Here in South Florida, where roughly 850,000 Cubans have settled over the years, repeated waves of painful exile and family separation define the Castro era. The revolution never met their hopeful expectations, the island they love has slipped into decay, and for many, this week's golden anniversary provides little more than a flashback to traumas, old and new.
"It pounds in everybody's conscience every day," said Ramon Saul Sanchez, 54, the founder of Movimiento Democracia, a Cuban-American group known for using boats to stage protests. "Fifty years is something very hard to accept."
Some Cubans remain defiant. Huber Matos, a former revolutionary leader who came to Miami after Castro sent him to jail in 1959 for suggesting that the Cuban government included too many Communists, said that the anniversary inspired him to keep pushing for change. "When you think of what you have to do, you can't be sad," said the 90-year-old former soldier. "To continue working, that's the key."
But for many, the revolution's 50th anniversary has inspired a period of reflection. Cubans across Florida say they are mourning privately, or trying to forget, and formal commemorations are being kept to a minimum. If Miami in the 1980s was a place of militants, where "Havana vanities come to dust," as Joan Didion famously wrote, today it is also a home to newer arrivals who ask: Must the pain go on?
A poll released this month by Florida International University shows that 55 percent of Cubans in Florida favor lifting the United States embargo against Cuba, up from 42 percent a year ago. It is the first time a clear majority has held that position since the survey began in 1991.
Even among those who support the 46-year-old embargo, like Senator Mel Martinez, a Republican, continued damage to families has become a more prominent concern.
"This is an ongoing tragedy," said Martinez, who left Cuba at age 15 and spent four years without his parents. "How many people today are still being separated? How many people in Cuba are making plans to leave?"
Garcia was a "balsera," one of the 38,000 rafters who fled Cuba in 1994. She said she left her suburb of Havana because her daughter needed medical care she could not get in Cuba for a brain tumor. Her son, Osmani, stayed. He was 20 at the time, a speaker of English and French, who became an independent journalist.
His work often put him at odds with the Castro regime. In one dispatch, published on Oct. 26, 2007, he condemned Cuba's foreign minister, Felipe Pérez Roque, for mischaracterizing comments from President George W. Bush.
"I will not take the time to point out all the lies told by Felipe Pérez Roque at this press conference, but I will say there was a worried look on his face and those of his cohorts," he wrote, in an article posted online. "It almost seems that they too are realizing there is little time left to the Castro dictatorship and that change is very near."
Instead, over the next year, political pressure on Garcia increased. In June, according to a report in a Cuban online forum, he was arrested and interrogated by state officials. Two months later, his mother said he was filmed by a Cuban television reporter at a protest against the government, scaring him enough to flee.
His relatives said that on the night of Aug. 15, he climbed aboard a boat with no motor and seven or eight other people, pushing off from an area near Havana with hopes of reaching Florida within a few days.
The pace mattered; the sea was churning. By early Monday morning, Tropical Storm Fay had moved through Cuba into the Florida Straits, bringing nearly a foot of rain, swells of several feet and winds that would strengthen to 60 miles per hour.
Garcia, 64, a home health aide with a slight limp from a dog bite, said she was not sure if her son had known the storm was coming. Even if he did, she said, "He was desperate and needed to go."
She said her son had done all he could to change Cuba from the inside. "How can Cubans confront the government, with rocks and sticks?" Garcia said. "Everyone has nothing, and the people are afraid."
She found out about the bodies from the news. The first one, tagged 0107 in morgue records, appeared in the waters off Craig Key just after 5 p.m. on Aug. 21. A fisherman called the Coast Guard, and two Monroe County police officers pulled him from the teal-blue sea. Three others followed, appearing offshore over the next 24 hours in a line heading north.
Detective Terry Smith, one of the lead detectives investigating the case with the Monroe County Sheriff's Department, said the locations and currents suggested the bodies had probably spent several days in the water, drifting from somewhere to the south, though the Coast Guard's computer analyses were not definitive.
Their identities have been even harder to determine. Hunt Scheuerman, the medical examiner for Monroe County, which covers the Keys, said that all four bodies were naked and gnarled, with only three defining characteristics. Body 0107 wore a ring with a Celtic cross and green stone on the fourth finger of his left hand; 0109 arrived with a white sock and blue Lotto running shoe on his right foot; and 0110 had a tattoo on the inside of his lip that said "Raquel."
Garcia said the ring sounds similar to one she gave Osmani, but the ring in the morgue is yellow, suggesting gold, and the ring she gave her son was silver.
She said she hoped her son was at the American military base in Guantánamo, where she was processed before coming to the United States. And initially it seemed possible. The Coast Guard stopped a boat near the Bahamas with eight or nine Cuban rafters a few days after Aug. 15. But it must have been another group, Detective Smith said; Garcia's name could not be found on the Coast Guard's list of repatriated refugees.
At least two other Cuban families in Miami are in a similar position. In emotional phone calls, they have told Detective Smith about relatives who left Cuba on Aug. 15 in a boat, never to be heard from again. "What if the four we received are not any of their relatives?" he said, discussing what haunts him most. DNA may be the only way to know for sure. In September, Detective Smith swabbed Garcia's mouth and sent the sample to the Federal Bureau of Investigation for a comparison with the bodies. For the other two families, the DNA must be collected from closer female relatives, who live in Cuba.
Sanchez, of Movimiento Democracia, has been trying to arrange for secure samples from the island. "There are hundreds, probably thousands of Cubans who think they lost relatives in the high seas," he said. But so far, he has received little help from either the Cuban or American governments.
And so the cycle continues. According to Coast Guard statistics, 10,489 Cubans have been interdicted at sea since the beginning of 2005, more than double the 4,223 who were caught in the previous four years. A report in May from the University of Miami's Institute of Cuban and Cuban-American Studies found that 131,000 Cubans have settled in the United States permanently over the last four years, and its title predicts more of the same: "Not Going Away," it says. "Cuban Mass Migration to Florida."
Garcia said she just wants an end to the 50-year pattern; the uncertainty, tears and tales of woe.
Three months after her DNA reached the FBI, she is still waiting for answers. Conversations about her son are drenched with tears and she is never far from a photograph that shows him staring straight ahead, with a stern face, a few wrinkles and thick, dark hair.
It looks like a passport picture — of a man who may have only reached a Florida morgue.
Cuba to mark 50 years of revolution amid worries
Wednesday, December 31, 2008
By Jeff Franks
Against a backdrop of economic gloom and the frail health of former leader Fidel Castro, Cuba will mark on Thursday the 50th anniversary of the revolution that turned the island into a communist state and Cold War hot spot at the doorstep of the United States.
President Raul Castro will speak in the eastern city of Santiago de Cuba from the same balcony where his older brother, Fidel Castro, proclaimed victory after dictator Fulgencio Batista fled the country in the early morning hours of January 1, 1959.
The elder Castro, 82, in semi-seclusion since July 2006 after surgery for an undisclosed intestinal ailment, will not attend, officials said.
Due to his absence and the economic difficulties plaguing Cuba, what had been expected to be a major celebration of the revolution's longevity will be a no-frills event in a tree-shaded square with room for about only 3,000 people, the officials said.
Concerts are planned throughout the country, with the major one in Havana where popular Cuban band Los Van Van will play at the Anti-Imperialist Tribunal in front of the U.S. Interests Section.
The Interests Section was the embassy for the United States until it broke off diplomatic relations in January 1961 after U.S.-owned properties were nationalized by Fidel Castro.
Officials have said this was not a time for lavish celebration because Cuba is struggling from the effects of three hurricanes this year that caused $10 billion in damages, as well as the global financial crisis.
Government leaders gave a gloomy assessment of the economy last week, telling the National Assembly the country's trade and budget deficits had ballooned due to rising import costs and falling prices for exports.
Raul Castro called for more belt-tightening and an end to handouts he said discouraged people from working.
"The victory of the 1st of January did not mark the end of the struggle, but the start of a new stage," he said. "There has not been a minute of respite during the past half century."
Should he not show up, Fidel Castro's absence will raise new speculation about his condition, to which many believe Cuba's future is closely linked.
Although he has not been seen in public for 2-1/2 years, he still has a behind-the-scenes presence in the government and a public voice via opinion columns he writes regularly.
He remains a world figure who made his name thumbing his nose at the United States, just 90 miles (145 km) away, and forging close ties with its Cold War enemy, the Soviet Union.
Many Cubans believe that as long as Fidel Castro is alive, his more pragmatic brother will not be able to reform the Cuban economy or political system in a meaningful way.
Others doubt Raul Castro wants to make many changes and that early reforms he implemented, such as opening computer and cell phone sales to Cubans, were meant chiefly to gain favour with Cubans sceptical he could fill his brother's shoes.
Cuba's revolution arrives at its 50th anniversary in a time of transition.
Fidel Castro is on the sidelines after ruling Cuba for 49 years and his archenemy, the United States, may be on the verge of change in its Cuba policy.
President-elect Barack Obama, who replaces President George W. Bush on January 20, has said he wants to ease the 46-year-old U.S. trade embargo towards Cuba, is open to talks with Cuban leaders and will consider steps towards normalizing relations.
Both Castros have warily said talks were possible.
Changes are not just occurring at the top.
In Cuba, people, especially the young, clamour increasingly for an end to five decades of economic hardship and see improved U.S.-Cuba relations as a way out.
In the United States, a recent poll showed that for the first time a majority of Cuban-Americans in Miami, centre of the Cuban exile world and anti-Castro sentiment, favour ending the embargo.
As Raul Castro told the National Assembly, "We are living in a radically different period of history."
(Editing by Peter Cooney)

Blagojevich's first pick for Senate seat turned it down
By Monica Davey and Sharon Otterman
Wednesday, December 31, 2008
CHICAGO: A day after Governor Rod Blagojevich of Illinois appointed Roland Burris to fill President-elect Barack Obama's former Senate seat, new details emerged about how the governor worked behind closed doors to make the appointment, and the United States attorney prosecuting Blagojevich on corruption charges sought a 90-day extension to bring an indictment against him.
At a Tuesday news conference here, Blagojevich breezily introduced Burris, a former Illinois attorney general, as the "next United States senator from Illinois." But United States Representative Danny Davis, who like Burris is a longtime fixture of the Illinois Democratic Party and an African-American, said he was offered the seat in a meeting with an emissary of the governor last Wednesday, and turned it down on Friday.
"Given all the revelations and all the controversy, I would not be able to take it from the governor," Davis, who has represented a Chicago district in Congress since 1996, said in an interview. "I felt that if I was to take the appointment, I would spend so much of my time deflecting and defending the position that it would take away my real reason for being involved in politics and political life — to find solutions to problems."
Blagojevich appointed Burris in defiance of Senate leaders in Washington and a galaxy of political leaders here. The decision set off efforts to block the move by state legislators, the secretary of state, and, most significantly, Democratic leaders in the United States Senate who said they would not seat anyone Blagojevich chose.
The choice of Burris also immediately injected the issue of race into the appointment process, which may very well have been part of the governor's calculation. And it put political leaders in Washington and here in an awkward position of having to choose between accepting an appointee of the disgraced governor or denying a respected black candidate a place in the United States Senate.
Representative Bobby Rush, Democrat of Illinois, pointed out at the news conference on Tuesday that there were no blacks in the Senate, adding that he did not believe any senator "wants to go on record to deny one African-American from being seated in the U.S. Senate."
Rush, a former Black Panther whom Obama once ran against for Congress, appeared Wednesday on the CBS's "Early Show" to underscore what he said was the importance of having an African-American in the Senate.
"You know, the recent history of our nation has shown us that sometimes there can be individuals and there can be situations where schoolchildren — where you have officials standing in the doorway of school children." Rush said." He added that he was sure that senators "don't want to see themselves placed in the same position."
The 71-year-old Burris, who appeared beside Blagojevich at Tuesday's conference and said he was "honored" to have been appointed, told an interviewer on MSNBC on Wednesday that he "is prepared to go to work tomorrow." The Democratic caucus in Washington, he said, "will have to face the issue" of seating him, indicating that he planned to show up in Washington for the start of the congressional session on Jan. 6.
"Why won't they seat me?" said Burris, who is seen by many here as an elder statesman in Democratic politics. "I was legally and constitutionally appointed. Why won't they seat me because the governor has legal problems? You know, that's apples and oranges."
His staff, in e-mail messages, has already begun to refer to him as "the Senator."
Blagojevich, a two-term Democrat, was arrested on Dec. 9, and is accused in a web of corruption that prosecutors say included efforts to get a high-paying job or cabinet post or money in exchange for Obama's Senate seat. He also faces an impeachment inquiry in the Illinois house. The governor has denied any wrongdoing.
In a motion filed in federal court on Wednesday, the federal prosecutor in Chicago, Patrick Fitzgerald, asked for more time in presenting an indictment against Blagojevich because "multiple witnesses" have come forward in recent weeks and investigators have to review "thousands of intercepted phone calls."
Federal prosecutors normally have 30 days to file an indictment against a defendant. Under that deadline, the indictment would have to be returned by Jan. 7; the extension would give prosecutors until April 7.
Since the day of the governor's arrest, state and national Democrats have urged him not to even try to appoint a new senator, and Blagojevich's own lawyer has said that he would not. But Blagojevich said Tuesday that he was compelled to do so by state law.
"As governor I am required to make this appointment," Blagojevich said.
Later, he said, "To not fill the vacancy would be to deprive the people of Illinois of two United States senators, to deprive the people of Illinois of their appropriate voice and votes in the United States Senate."
The Senate Democratic caucus, which controls the chamber, issued a statement on Tuesday saying that no one appointed by the governor could be an effective representative, and that Burris would not be seated. It is not clear, however, whether the caucus can bar a qualified appointee, and the issue may be headed to court.
President-elect Obama, on vacation in Hawaii, was surprised by the news of the appointment, his aides said, issued a statement condemning the move.
"Roland Burris is a good man and a fine public servant, but the Senate Democrats made it clear weeks ago that they cannot accept an appointment made by a governor who is accused of selling this very Senate seat," Obama said. "I agree with their decision, and it is extremely disappointing that Governor Blagojevich has chosen to ignore it."
Around the state, elected officials, many exasperated after three weeks of topsy-turvy political drama, responded with fury to the appointment.
"This provocative action is an insult to the people of Illinois," said Pat Quinn, the lieutenant governor and a fellow Democrat, who added that the governor had defied the desires of an entire state.
Jim Durkin, a Republican state representative who sits on a committee that is conducting an impeachment inquiry into the governor, said, "This process is so tainted, it stinks beyond belief."
He said he intended to request that Burris be summoned before the committee to discuss how the appointment came about. " Burris left Illinois government with a good reputation, which will be significantly tarnished if he accepts this appointment," Durkin said.
Burris, a soft-spoken, never flowery speechmaker, seemed an unlikely person to be in this moment. Having been elected as state comptroller nearly three decades ago and later as attorney general, he left public office after a series of bids for governor (including a primary race against Blagojevich in 2002, in which Obama had endorsed Burris). His political career seemed to be over, and he went to work as a consultant at a firm that was formed in 2002, Burris & Lebed Consulting, and also as a lawyer.
Though Burris and Blagojevich are politicians of vastly different styles, they have had a political relationship in recent years. After the 2002 primary for governor, Burris encouraged Obama to endorse Blagojevich, and Burris served at one point as the vice chairman of the governor's transition team.
Burris and his consulting firm (which has held, he said, at least one state contract) have made contributions to Blagojevich's campaign fund, too: more than $9,000 in cash and in-kind contributions from his consulting firm and at least $4,500 from Burris personally, state records show. In June of this year, the records show, Burris gave the campaign $1,000.
Asked how long Burris and Blagojevich had been in discussions about the seat, Burris said that he talked to the governor about it only a few days ago, on Sunday night, "when he asked if he were to appoint me, would I accept, and my answer was yes."
But Burris had made it clear in recent weeks that he was interested in the job. Though his name had not been mentioned as someone being considered by the governor weeks ago, and though he is not someone believed to be mentioned in the conversations prosecutors recorded of Blagojevich's apparent negotiations over the seat, Burris had expressed his interest shortly after Election Day, and had told reporters that he had the support of a half-dozen black ministers here.
Not long after Blagojevich's arrest, Burris held a news conference to note his interest in bringing "some sanity and help to the people of this state." That day, he said he would only hold the seat for the two remaining years in Obama's term, a promise he seemed to back away from a bit on Tuesday.
Burris, who had said after Blagojevich's arrest that he was "appalled" by the evidence against the governor, offered no such remarks on Tuesday.
Asked whether Blagojevich should resign, Burris said quietly: "I have no comment on what the governor's circumstance is. And as a former attorney general of this state, I know and I think most of you all know, that in this legal process, you're innocent until you're proven guilty."
The announcement renewed calls among Republican state lawmakers for a special election to fill Obama's seat. State lawmakers had considered that option, but Democrats, who control the House and the Senate, had dropped the idea. An election, which Democrats complained was too expensive, would mean Republicans would have an opportunity to win the seat.
Most legislators had assumed, it seemed, that Blagojevich would not try to fill the post now, and Democrats had hoped that he would be impeached and that his most likely replacement, Quinn could fill the post.
While senators in Washington weighed their options, it was uncertain how efforts here to block the appointment would proceed. Jesse White, the Illinois secretary of state, said he would refuse to sign paperwork that Blagojevich must present to the Senate offering Burris's appointment. Still, after White's lawyers scanned the legal precedents on the question, there appeared to be no statutory requirement that White's signature be included, his spokesman said, so the move seemed likely to be mostly symbolic.
For Kennedy, self-promotion is unfamiliar
By Nicholas Confessore and Jeremy W. Peters
Wednesday, December 31, 2008
In her bid to be appointed the next senator from New York, Caroline Kennedy has zigzagged across the state and talked with dozens of officials and community leaders. She has aired views on topics from the Iraq war to the auto industry bailout and submitted to a round of press interviews.
But after a lifetime of being wooed by others — to speak at events, to write books, to lend her aura of celebrity and glamour to this or that cause — it seems clear that Kennedy is still finding her stride in what is, for her, a kind of reverse challenge: selling herself.
Interviews with more than a dozen people who have met or spoken with her in recent weeks reveal a fairly uniform portrait of the private Kennedy in her first turn as a very public woman. Most described her as courteous but reticent, unfailingly gracious but not exactly passionate.
Randi Weingarten, president of the United Federation of Teachers, who has known Kennedy for years and had lunch with her this month, said Kennedy was smart, shy and reserved. Keith Wright, a Democratic state assemblyman from Harlem who spoke with Kennedy on the phone a few days before Christmas, said she had yet to light a fire among potential backers.
"I don't know many people who are ready to go 'Rah! Rah! She's our candidate,' " he said.
And while Kennedy has declared herself "a Kennedy Democrat," she is still learning, it appears, how to handle the expectations and adulation that come with her name.
When Kennedy visited the Democratic headquarters in Rochester recently, local officials ushered her eagerly into a conference area known as the Kennedy Room, decorated with pictures of her father, her mother, her younger brother, and Kennedy herself as a little girl. Kennedy, while polite, did not appear particularly moved.
"She never responded to the pictures," recalled Robert Duffy, the mayor of Rochester and the meeting's host. "She looked and perhaps nodded. She never said a word about it."
Few of those interviewed described Kennedy's performance over the last two weeks as somehow disqualifying. But it appears to have eroded any sense — real or created — that her selection for the job by Governor David Paterson is inevitable. And many described her approach as striking for someone who is not only seeking a high office, but one held by Hillary Rodham Clinton, who in her own first bid for the Senate never left New Yorkers wondering how badly she wanted the job, and how hard she was willing to work to get it.
"She has a lot of work to do, and she has a big hill to climb," said Representative Nita Lowey, a Westchester County Democrat who is among those officials advising the governor on the Senate appointment. "She has to convince Governor Paterson that she is the best qualified to advocate for New York in these tough economic times. She has to be an articulate spokesperson, a strong fighter."
Representative Joseph Crowley, leader of the Queens Democratic organization — whose holiday party Kennedy attended on Dec. 18 — said he expected to sit down with Kennedy soon. But he said he was troubled by her media interviews last weekend.
"She's raised flags," Crowley said. "The recent flubs have been damaging. I don't think they're fatal."
Her supporters say that if Kennedy seems less than fervent in her pursuit of the Senate seat, it is out of deference to Paterson, who has discouraged open lobbying for the job. They note that a traditional campaign — the chicken dinner and county fair route — is not an option. For Kennedy to be more aggressive would only fuel criticism that she has acted presumptuously, they say, especially because she is under far more scrutiny than any other candidate for the job, including those who have been lobbying behind the scenes as energetically as Kennedy.
"I think she is reticent because she knows this is Governor Paterson's appointment and I don't think she would do anything to make her uncomfortable with him," said Representative Louise Slaughter, a Democrat from upstate New York who has endorsed Kennedy. "I think she is acting with perfect decorum, given the fact that she really only needs to please one person." ( Slaughter, who was at the meeting in Rochester, recalled Kennedy's reaction to the conference room pictures as gracious but brief. "She said 'Oh, that's very nice.' ")
Others pointed out that Kennedy was also laboring under a colossal weight of expectations. Some people seem to expect her to be more, well, Kennedyesque — gregarious and extroverted. But Kennedy's own political style seems to have more in common with that of Daniel Patrick Moynihan, who once held Clinton's seat: cerebral, restrained, wry.
In an age when flamboyant displays of warmth and empathy seem almost like an obligatory feature of campaigning, Kennedy simply seems to prefer keeping her feelings to herself.
"She's never been aggressive," said Maura Moynihan, a friend and college classmate of Kennedy's and the daughter of the senator. "She's never been an egomaniac. She's never pushed her way before the cameras."
"Caroline," she added, "has never had to sell herself, but she has spent her whole life trying to help other people. She is a person of extraordinary integrity."
In some of her meetings, Kennedy has displayed a playfulness that is still more familiar to her close friends than to the public. Byron Brown, the mayor of Buffalo, said that when they met recently in his city hall office, he asked if it was O.K. if he called her Caroline. Her response, Brown said, made for a kind of "Sarah Palin-Joe Biden moment."
"Is it O.K. if I call you Byron?" Kennedy responded, recalling the vice presidential debate earlier this year.
Assemblyman Vito Lopez, a Brooklyn Democrat, who had lunch with Kennedy in Williamsburg recently, described her as having "somewhat of an aura about her."
"When you look at her, there's just something about her," he said. "She's not jumping out at you, but when we sat down we talked for 40 minutes. And she was a very talkative, very knowledgeable person."
Michael Fishman, the president of Local 32BJ of the influential service employees' union in New York, said that even if Kennedy did not appear to be burning with ambition, he was more concerned with whether she would stand with labor on issues like collective bargaining and health care.
"I wouldn't say passion," Fishman said in describing her. "What comes across to me is quiet strength and commitment. She had to have some steel in her spine to do this. That's what you want."
To some extent, the mixed reaction to Kennedy may reflect these officials' own ties and interests. Weingarten, for example, is herself a contender for the Senate job, while Lopez endorsed Kennedy shortly after meeting with her. Likewise, if Paterson appointed another top contender for the job — Attorney General Andrew Cuomo — the Legislature would select a new attorney general, who would then be heavily indebted to the Assembly speaker, Sheldon Silver.
Silver, who has been openly antagonistic to Kennedy's bid, said, "She clearly hasn't shown herself to have the chutzpa of a Chuck Schumer to go out there and advocate for New York in the way in which he has clearly been effective."
"There's no question," he added, "she's not used to the political system."
Kennedy's whirlwind introduction has raised some doubts about her temperament and political hunger. One person who discussed the Senate job with Kennedy, and who spoke on the condition of anonymity in fear of retribution from her supporters, said that she did not convey a thirst for the job, adding, "It was hard to discern if she wants this or if she's doing this out of a sense of duty."
Lobbyist sues New York Times, citing report of McCain ties
By David Johnston
Wednesday, December 31, 2008
WASHINGTON: A Washington lobbyist sued The New York Times and several of its reporters and editors Tuesday, charging that the newspaper had falsely created an impression that she had engaged in an improper romantic relationship with Senator John McCain.
The suit, filed in the Federal District Court in Richmond, Virginia, said that a front-page article on Feb. 21 "falsely communicated" that the lobbyist, Vicki Iseman, and McCain "had an illicit 'romantic' and unethical relationship in breach of the public trust in 1999." At that time, Iseman was representing clients before the Senate Commerce, Science and Transportation Committee, then headed by McCain.
"Ms. Iseman did not engage in any behavior toward him that was anything other than professional and appropriate," said the suit, which seeks damages of $27 million.
The article, published at a time when McCain had clawed his way back from early setbacks to emerge as the all but certain Republican presidential nominee, examined his stated efforts to maintain high ethical standards even as he sometimes edged close to potential conflicts of interest. With its focus on the details of his Washington life behind the scenes, it provoked immediate debate and angry protest.
The article did not directly say that Iseman and McCain had had a romantic relationship. But it did say several aides of his had been "convinced" that he had grown too close to Iseman and that he might be damaged if the relationship became known.
The article quoted Iseman and McCain as denying that they had ever had a romantic relationship or engaged in any inappropriate behavior.
Abbe Serphos, a spokeswoman for The Times, said in a statement: "We fully stand behind the article. We continue to believe it to be true and accurate, and that we will prevail. As we said at the time, it was an important piece that raised questions about a presidential contender and the perception that he had been engaged in conflicts of interest."
The defendants in the suit are The New York Times Company; Bill Keller, the paper's executive editor; Dean Baquet, its Washington bureau chief; Jim Rutenberg, Stephen Labaton and David Kirkpatrick, all Times reporters; and Marilyn Thompson, then a reporter for the paper.
W. Coleman Allen Jr. of Richmond and Rodney Smolla of the Washington and Lee University School of Law, who are representing Iseman, declined to comment on the suit.
Madoff complying with assets disclosure deadline
Wednesday, December 31, 2008
By Grant McCool
Accused swindler Bernard Madoff was complying with a court-ordered deadline to tell U.S. regulators how much money he has left, as lawmakers prepared to take their first close look at the alleged scheme that duped investors worldwide.
A lawyer for the 70-year-old investment adviser, who is under house arrest in his Manhattan apartment and subject to electronic monitoring, said a list of assets, liabilities and property would be sent by the Wednesday deadline to the U.S. Securities and Exchange Commission under a December 18 court order.
"That material will be filed today," said Madoff's attorney, Ira Lee Sorkin. "It will be done pursuant to the court order. It will get there on time."
Sorkin declined further comment, and a spokesman for the SEC declined to comment.
The regulator is not required to immediately publicly file such disclosures with the courts. The information becomes part of an investigation into how Bernard L. Madoff Investment Securities LLC was run and how some $50 billion (34.2 billion pounds) in losses can be recovered by investors.
Investors include wealthy society in the Americas and in Europe, banks, celebrities and charities all over the world in what could be Wall Street's biggest fraud. Madoff confessed to his sons that he ran a Ponzi scheme for years, in which early investors are paid off with the money of new clients, according to court documents.
Madoff, a former chairman of the Nasdaq stock market, was also criminally charged on December 11 by U.S. prosecutors in New York, but he has not appeared in court to formally answer the charges.
A U.S. lawmaker said Wednesday the internal watchdog at the SEC will testify Monday at a hearing in Washington on how it failed to detect the purported fraud. (ID:nN31376507]
Critics claim the SEC missed warning signs and failed to uncover the scandal until Madoff's sons went to authorities three weeks ago. According to court papers, Madoff said it was "all his fault". No one else has been charged.
SEC Chairman Christopher Cox has asked the agency's inspector general, David Kotz, to probe its conduct in the case.
Kotz will testify at a U.S. House Financial Services committee hearing. It will help lawmakers who are planning "the most substantial rewrite" of laws regulating the U.S. financial markets since the Great Depression, said Rep. Paul Kanjorski, a Pennsylvania Democrat and chairman of the subcommittee on capital markets.
Also appearing will be Harry Markopolos, the former chief investment officer at Rampart Investment Management who said he repeatedly tried to get the SEC to investigate Madoff, and Stephen Harbeck, president of the Securities Investor Protection Corp. The nonprofit SIPC was created by Congress in 1970 to maintain reserves to help investors at failed brokerage firms.
The SIPC has said it expects it will take several years to find the money in remote locations and sort through investor losses from the alleged fraud. Its money can be used to satisfy claims of each customer up to a maximum of $500,000. The figure includes a maximum of up to $100,000 on claims for cash.
The court-appointed trustee of the firm, which is being liquidated, is looking into the sale of the trading operation. Madoff ran the investment advisory business separately and was 'cryptic' about it, according to court papers.
The wide scope of Madoff's business continued to reverberate with word that Austria's financial regulator will soon step in to run Vienna-based Bank Medici, in what would be the first known case where a government had to step in to help a bank cope in the wake of the Madoff scandal.
A source with direct knowledge of the matter said Wednesday the regulator would appoint a supervisor to the bank's management in the coming days. With a supervisor in place, the bank cannot take important decisions without state consent.
A spokeswoman for the bank said it would welcome such a step and cooperate with authorities.
(Additional reporting by Karey Wutkowski and Julie Vorman in Washington and Douwe Miedema and Sylvia Westall in London; editing by Jeffrey Benkoe)
Madoff investigation moves offshore
By Lynnley Browning
Wednesday, December 31, 2008
Investigations into the trader Bernard Madoff are expanding into offshore tax havens.
U.S. federal prosecutors are beginning to consider what role offshore fund operations might have played in the $50 billion fraud that Madoff is accused of orchestrating.
Of particular interest is whether Madoff and some of his investors used funds based in offshore tax havens to evade U.S. taxes, according to a person briefed on the investigation.
Also under scrutiny is whether certain charities that invested with Madoff had improperly allowed their donors to shift money offshore and whether foreign banks had withheld U.S. taxes on Madoff accounts, as required by the IRS, according to this person, who was given anonymity because of the delicate nature of the investigation.
Madoff was arrested Dec. 11 at his New York apartment and charged with securities fraud.
The authorities have characterized the fraud as a worldwide Ponzi scheme - perhaps the largest ever - which depends on new investments to pay off earlier investors.
On Tuesday, the trustee in charge of Madoff's investment firm won court approval to use $28.1 million from the firm's accounts to pay its liquidation costs.
Although the inquiries into the role of offshore funds were at an early stage, it was hardly surprising that such funds were coming under scrutiny.
Offshore entities played major roles at Bayou Management, a Connecticut hedge fund that collapsed in scandal in 2005, as well as at Enron, which used nearly 900 offshore entities, mostly in the Cayman Islands, to conceal bogus trades and accounting fraud.
"You're going to be trying to identify all the vehicles for the fraud, and, drawing on past experience, the use of offshore accounts and entities would certainly be vehicles," said David Kelley, a former federal prosecutor in New York who is now a partner at the law firm Cahill, Gordon & Reindel.
Nearly all hedge funds, including funds of funds, operate affiliates and partnerships offshore. Such havens offer low tax rates and light regulation. Offshore havens also help fund managers to defer or avoid U.S. taxes on their personal profits by channeling the earnings through offshore affiliates.
Fred Abrams, a lawyer and offshore fraud specialist based in New York, said that large-scale investment swindles often involved the use of offshore nominees, or agents, with legal power over an investor's foreign bank accounts. Another feature, he said, was the use of multiple jurisdictions to carry out trades. "With this, it's possible to transfer enormous sums of money and perhaps do it under the radar," he said.
At least a dozen offshore entities were involved with Madoff's firm, according to several regulatory filings. They include funds linked to the Fairfield Greenwich Group, a fund of funds that lost $7.4 billion of its investors' money after entrusting it to Madoff.
Other offshore entities involved are affiliated with Tremont Group Holdings, which had $3.3 billion invested, and several Swiss banks, including Union Bancaire Privée and Banc Benedict Hentsch & Cie.
U.S. lawmakers to question SEC watchdog about Madoff
Wednesday, December 31, 2008
By Karey Wutkowski
The internal watchdog at the U.S. Securities and Exchange Commission will testify Monday at a hearing by U.S. lawmakers who want to know how the investor protection agency failed to detect the alleged $50 billion (34 billion pound) fraud by Wall Street financier Bernard Madoff.
Members of the U.S. House Financial Services committee will take their first close look at the alleged Ponzi scheme that has touched everyone from bearish "Dr. Doom" economist Henry Kaufman to actor Kevin Bacon, both of whom invested with Madoff.
Madoff, a former Wall Street fund manager, is accused by federal prosecutors of running a $50 billion scam that ensnared wealthy investors, banks and charities around the world.
He faces a Wednesday deadline to tell the SEC how much he is worth and where his money and other assets are. In general, the SEC is not required to immediately publicly file such disclosures with the courts.
Critics say the SEC missed warning signs and failed to uncover the scandal until Madoff's sons went to authorities and told them Madoff had confessed to the fraud. SEC Chairman Christopher Cox recently asked inspector general David Kotz to probe the agency's conduct in the case.
Kotz will testify at the hearing, which will help lawmakers planning "the most substantial rewrite" of laws regulating the U.S. financial markets since the Great Depression, said Rep. Paul Kanjorski, a Pennsylvania Democrat and chairman of the subcommittee on capital markets.
Also appearing will be Harry Markopolos, the former chief investment officer at Rampart Investment Management who said he repeatedly tried to get the SEC to investigate Madoff, and Stephen Harbeck, president of the Securities Investor Protection Corp. The nonprofit SIPC was created by Congress in 1970 to maintain reserves to help investors at failed brokerage firms.
SIPC has said it expects it will take several years to find the money in remote locations and sort through investor losses from the alleged fraud.
The witness list also includes Allan Goldstein, a retiree and investor with Bernard L. Madoff Investment Securities; Tamar Frankel, a law professor at Boston University, and Leon Metzger, a hedge fund expert who has taught at Yale University.
(Reporting by Karey Wutkowski and Julie Vorman; Editing by Brian Moss and John Wallace)
Connecticut bank is drawn into Madoff scandal
By Diana B. Henriques
Thursday, January 1, 2009
Lawyers in Florida say they are investigating the role that a Connecticut bank may have played in steering money to Bernard Madoff, the Wall Street trader accused of operating a $50 billion Ponzi scheme.
According to the lawyers, their clients believed for more than a decade that they had an account at the Westport National Bank, a division of Connecticut Community Bank in Westport, from which they had received statements for many years. Early last week, they learned their money had actually been entrusted to Madoff, the lawyers said.
A number of wealthy investors and institutions have already filed lawsuits complaining that money they put into prominent hedge funds or private partnerships had actually been passed along to Madoff without their knowledge.
But this time, that complaint is being made against a federally regulated bank, which is subject to much more rigorous oversight than the other investment vehicles through which money has flowed to Madoff.
The bank disputes the allegation. It said on Wednesday night that its only role had been to maintain "a custodial account for a number of individuals and entities" who invested with Madoff. It did not say how many customers were affected, or how much money was involved.
"As custodian, Westport National Bank served in a ministerial capacity only," said its president, Richard Cummings Jr., in a statement. The bank gave no investment advice to its custodial customers and did not invest any of its own money with Madoff, the statement concluded.
Madoff, the founder of Bernard L. Madoff Investment Securities, was arrested on Dec. 11 and charged with a single count of securities fraud.
On Wednesday he provided a report on his personal assets and liabilities to the Securities and Exchange Commission, which would not disclose the report.
According to court documents, Madoff was arrested after telling two senior executives at his firm — later confirmed to have been his two sons — that the investment advisory business he had run for years was "a lie" and "a giant Ponzi scheme" whose losses could run as high as $50 billion.
Since then, a growing roster of prominent charities, schools and celebrities have reported losing money they had knowingly entrusted to Madoff.
But other investors caught up in the scandal have said they actually thought they were investing with someone else — in this case, Westport National Bank.
The lawyers handling the Florida investigation said their clients are a middle-aged professional couple in South Florida who had dealt with Westport National since at least 1996. They had been solicited to open an account at the bank by a promoter, whom the lawyers also declined to name.
The couple told their lawyers that they had always believed their money was being held and invested by the bank. They received regular statements from the bank showing deductions for "custodial fees" and "record-keeping fees" that totaled 4 percent a year, according to Adam Rabin, a partner at McCabe Rabin in West Palm Beach.
Craig Stein, his co-counsel and a partner in Stein, Stein & Pinsky in Boca Raton, said that a bank statement from January 2005 showed that the custodial fee had been paid through the sale of "5.3 shares of BLM," while the record-keeping fee, paid to the promoter, had required the sale of "31.26 shares of BLM."
Madoff's firm does not have any publicly traded shares, and the couple thought these transactions involved investments the bank had made on their behalf, Stein said.
"The couple told us that they had seen the terrible news about the Madoff victims and said 'Oh, those poor people,' " he added. "They had no idea that they were among those victims."
Then, a few days after Madoff's arrest, the couple came home to find a Federal Express envelope at their door. It contained a letter from Westport National Bank, a copy of which was provided to The New York Times.
The letter, dated Dec. 12, opened: "Dear Custodial Services Customer." It stated that the couple had given "full discretionary authority" over their custodial account at the bank to the Madoff firm.
"You may have learned of the recent allegations involving Bernard Madoff and his firm," the letter continued.
It then asked the couple to notify the bank if they wanted it to request that Madoff's firm "return assets of yours to the bank."
The bank is one of five divisions of Connecticut Community Bank, formed in 2004 by the merger of Greenwich Bank & Trust Company and Westport National.
It is supervised by the Office of the Controller of the Currency. A spokesman for the agency said it did not disclose details of bank examinations. In 2005, other public records showed that the bank's parent, Connecticut Community Bank, had assets of $252 million. State records show that it had about $370 million in assets earlier this year.
Was whole economy a Ponzi scheme?
By James SaftReuters
Thursday, January 1, 2009
LONDON: It was perhaps inevitable that we ended 2008, the year we learned we were up the creek, with a great financial scandal: the Madoff Ponzi case.
What is even more remarkable is the way in which the alleged fleecing of wealthy people and charities - investors who should have known better or employed people who did - of many billions of dollars serves as a mirror for the broader culture. It shows how we went wrong and where we are left, now that we realize our errors.
The main difference really is that the purported victims, or enablers, or co-fantasists of the trader Bernard Madoff say they found out their wealth was illusory all of a sudden, whereas for most people in the English-speaking world, this is happening little by little.
Madoff, for those of you just waking after a long winter's nap, is accused of defrauding investors in funds that he promised would deliver a suspiciously steady 12 percent or so a year in good times or bad of as much as $50 billion. The authorities say he has confessed to running a pretty simple Ponzi operation: paying out "earnings" to those who demanded them using new commitments of cash from those who wanted in. And of course, given that the man could "make" heady sums with no risk in all markets, the cash flowed in and the redemption calls were, for a long time, manageable.
Madoff has not appeared in court to answer the charges formally. But that there was one man, or a man with confederates perhaps, who was willing to engage in a harebrained fraud that was mathematically doomed to failure would not be that surprising, sadly. That an army of either rich, sophisticated investors or their highly paid advisers played along and believed that they were growing rich is far more interesting.
One point, highlighted by Tim Lee of the consultancy pi Economics in Stamford, Connecticut, is that the $50 billion headline figure is about as inflated as California real estate prices were a year ago. That $50 billion is likely to turn out to be not the amount lost but the amount people wrongly thought they had. It is likely that the actual strategy followed by Madoff could return little more than Treasury notes minus fees; in other words he could make for you what you could get for yourself with no help but then pay himself handsomely for the gymnastics.
That implies that a lot - for long-time investors, the vast majority - of the "money" invested and now "lost" with Madoff was about as notional as a credit default swap contract with a man you met outside the bus station downtown. Much of the money never existed, other than on the attractive and no-doubt glossy statements sent by Madoff.
It was simply what people would have had if he had been a genie.
And it is in this way that we are all Ponzi limited partners: We too thought our retirement funds and houses were growing miraculously, though ours was an illusion fueled by debt rather than fraud, and we too made plans based on those asset values that now stand in ruins.
"The financial system as a whole has had the characteristics of a Ponzi scheme if we look at it fundamentally," said Lee, who was very early in warning about deflation.
"By this I mean that we should think about the true value of assets as being derived from the future flow of goods and services that the assets can lay claim to or produce. If market prices of financial and real estate assets rise a lot but there is no increase in the ability of the economy to provide goods and services in the future, then the apparent increase in wealth is illusory."
That means that savings must rise, and expectations about the kind of growth and income that capital can safely command must fall. The process of everyone's figuring that out over the next year or so will be a continued hole in the side of the stock market and, despite the risks inherent in Treasury securities because of quantitative easing and fiscal stimulus, a boon to holders of government debt.
There are a lot of individuals, pension funds and nonprofits out there that have penciled in benchmarks for returns on assets that are probably too high for the coming cycle, irrespective of the losses of 2008, and I am talking about people thinking of a modest 8 percent.
Those people and institutions will be forced to take steps to right that, and this time not by searching for risk or yield but by saving more and cutting back on expenditure.
This will cascade through the economy, and until the savings are replenished and productively deployed, higher government spending will be a balm on a burn, at best.
Billionaire is accused of a second killing in Brazil
The Associated Press
Thursday, January 1, 2009
For the second time in a month, the authorities have asked for a murder indictment against the co-founder of Brazil's No. 2 airline, a police spokeswoman said Wednesday.
The suspect, Nenê Constantino, 78, has now been accused by the police of ordering the killings of two men in a 2001 land dispute near Brasília.
The gunmen have not been caught. A judge is to decide whether to indict Constantino in the cases.
Constantino, one of Brazil's wealthiest and most influential business figures, has a fortune estimated at more than $1 billion.
A former long-haul trucker who started a bus company in the 1950s that became one of the country's biggest, he established the budget airline Gol Linhas Aéreas Inteligentes SA with his sons.
It began flying in 2001.
After the police asked for the first murder indictment, in connection with one of the killings, Constantino vehemently denied wrongdoing.

Indonesia official acquitted in killing
By Peter Gelling
Wednesday, December 31, 2008
An Indonesian court cleared a former deputy intelligence chief of any wrongdoing in connection with the murder of Indonesia's most celebrated human rights campaigner Wednesday, a decision that will likely bring renewed attention to the country's dubious justice system as well as its poor human rights record.
Hundreds of Indonesians took to the streets after the court announced its decision to free the intelligence officer, Muchdi Purwoprandjono, who is also a former Indonesian Army major general. The demonstrators called on Indonesian President Susilo Bambang Yudhoyono to follow through with a promise he made to bring to justice those responsible for the high-profile murder of the campaigner, Munir Said Thalib, in 2004.
Mr. Munir was poisoned with arsenic while traveling to the Netherlands on a commercial flight aboard state-carrier Garuda in 2004. Earlier this year, an off-duty Garuda pilot, Pollycarpus Budihari Priyanto, who jockeyed to sit next to Mr. Munir during the flight, was sentenced to 20 years in prison for the murder.
Analysts, however, have long suspected that Indonesia's intelligence agency ordered the killing. Phone records discovered during the initial investigation showed that Mr. Pollycarpus had telephoned General Muchdi dozens of times leading up to the murder.
The case has been considered by the international community as a test of how successful Indonesia has been in instituting reforms since the fall of Suharto, the country's former authoritarian ruler, in 1998.
Domestically, the case has also served as a challenge for Mr. Yudhoyono, who swept into office during Indonesia's first direct elections on promises to clean up a corrupt government and military. Mr. Yudhoyono, also a former general, is up for re-election next year.
General Muchdi would have been the first high-level military or intelligence official to go to jail for serious human rights abuses. But human rights activists said the case is now another example of the culture of impunity enjoyed by military personnel.
Analysts said they had concerns about the trial's procedures. Several witnesses contradicted their original statements, tried to withdraw statements altogether, or just simply failed to appear in court, seriously hampering prosecutors.
"If Indonesia is to move beyond its authoritarian past, the justice system must show that generals are not above the law," said Matt Easton, an analyst with Human Rights Watch. "Investigators, prosecutors, and the courts must be ready to go where the evidence and the law lead them."
News agencies reported that Mr. Munir's widow, Suciwati, was visibly distressed after the verdict Wednesday, saying, "This is a painful thing." She has campaigned vigorously to have the officials responsible for ordering the murder jailed. She accused at least one of the judges responsible of being corrupt and said he lacked credibility, noting that several high-profile corruption suspects have gone free after his rulings, including Tommy Suharto, son of the late president, who was accused of embezzling millions.
"I have not only lost a husband," she told reporters after the verdict. "But also an understanding of justice."
Zimbabwe court keeps activists in custody
Wednesday, December 31, 2008
By MacDonald Dzirutwe
A Zimbabwean court ruled on Wednesday that a leading human rights campaigner and 15 other activists should remain in custody pending a remand hearing in a case that has deepened doubts over a power-sharing deal.
Jestina Mukoko, head of a local rights group, and the other activists have been charged with recruiting or trying to recruit people to undergo military training to topple President Robert Mugabe's government.
"The accused cannot be released at this stage, this is a proper case for (a) remand hearing," said Magistrate Mishrod Guvamombe. The activists will appear in court next Monday for a bail hearing.
Their arrests have fuelled political tensions in Zimbabwe, where a protracted deadlock on cabinet posts under a September power-sharing deal has dashed hopes that a new leadership would move to tackle an economic crisis.
Opposition Movement for Democratic Change (MDC) leader Morgan Tsvangirai has threatened to pull his party out of negotiations over the issue.
Two activists facing lesser charges were ordered to be released in line with a High Court ruling last week but state prosecutors said they would appeal the decision.
Thirteen of the activists who will remain in custody are MDC members. Two are colleagues of Mukoko, a former state television broadcaster who has emerged as one of Mugabe's toughest and most influential critics.
She was taken away at gunpoint at dawn in Harare on December 3 by a group of plainclothes men who stormed her house and identified themselves as policemen.
A High Court judge last week declared the detention of Mukoko and her eight co-accused unlawful and ordered their immediate release, but the government appealed.
Tsvangirai won the first round of voting in March elections, but fell short of the majority needed to become president, triggering a run-off which Mugabe won after the MDC leader pulled out, citing violent attacks on his supporters.
In their affidavits, the activists say they were severely beaten on the soles of their feet and that they have several scars on their body. They also said they were beaten with fists and blunt objects.
Lawyers have accused the state of appealing the High Court order that they be released to a private hospital to make sure their wounds heal while in custody. Prosecutors say they were unaware of alleged torture.
A High Court judge will rule on Friday on contempt of court charges filed against the police for refusing to release the activists.
A cholera outbreak has heightened the humanitarian crisis in Zimbabwe and stepped up pressure on Mugabe from Western and some African leaders who have called on him to step down.
The rate of cholera infections and deaths in Zimbabwe shows no signs of slowing, the World Health Organisation (WHO) said on Tuesday.
It said 1,608 people had died of the disease -- which could be treated relatively easily if Zimbabwe's public sanitation and health systems had not broken down so catastrophically -- out of 30,365 reported cases.
(Reporting by MacDonald Dzirutwe)

Russia aside, Georgia chief is pressed at home
By Ellen Barry
Wednesday, December 31, 2008
GOMARDULI, Georgia: On the eve of his 41st birthday recently, President Mikheil Saakashvili was racing around western Georgia shaking hands. He told a group of miners that his "heart hurt" when he saw their city suffer, and promised to build a ski resort in the village of Gomarduli, posing with a gold-toothed grandmother who giggled in his embrace like a naughty schoolgirl.
The day felt curiously like a presidential campaign, and Saakashvili was relaxed and happy. "I never said anything about Russia, and they never asked about it," he said later. He reeled off grandiose plans, like a two-year campaign to teach English to "every Georgian in every remote village." This was the old Misha, as he is known — the dazzler, the wunderkind.
It has become harder to spot that man in Tbilisi, the capital city. As winter bears down on Georgia, Saakashvili has found himself on the defensive. In August, he ordered an attack on separatists in South Ossetia, one of two territories — Abkhazia is the other — where Georgia and Russia had been locked in a 15-year standoff. Georgian forces were quickly routed, and Russia seized both territories.
Saakashvili has cast the attack as a necessary response to a Russian invasion, but no evidence has emerged to verify the claim, and critics have said he acted rashly.
Russian leaders have made it brutally clear that they want him out; at home, political challengers are demanding early elections that they believe could topple Saakashvili. And Georgians, who swelled with loyalty after the war, are facing a steep economic downturn that could upend the political order.
"What is the future for Saakashvili?" said Sozar Subari, Georgia's ombudsman for human rights and a longtime critic of the president. "He started the war, he lost the war, he lost the territories. There is a crisis. There is no investment in Georgia. The situation is getting worse and worse. If there is no change, he will leave Georgia as the president who lost everything."
Saakashvili has spent months disputing such appraisals, and says he is confident that he enjoys the support of the Georgian people. For all his political adroitness, Saakashvili generally reacts to criticism with visceral anger. He compares skeptics about his account of the war to apologists for Nazi Germany, "the same people who thought Poland started the Second World War," as he put it.
"There was preparation of war, they wanted war, they invaded us, then they occupied our territories," he said. "If people just prefer not to see it, not to hear it, it's their choice."
Just 36 when he became president in 2004, Saakashvili set out to become a historic figure: A model he has often cited is David the Builder, a 12th-century king who drove the Turks out of Georgia and is worshiped as a saint.
Saakashvili won his first election with 97 percent of the vote and, buoyed by passion and adrenaline, pressed to amend Georgia's Constitution, granting himself extraordinary power. His advocates say this was the only way to wrench a corrupt post-Soviet state into the modern age; critics say he created an autocracy, surrounding himself with a clique of loyalists. Either way, no comparable figure has yet emerged from Georgia's fractured opposition. Saakashvili called this "very sad."
"If I had been in the opposition, I would have destroyed this government in three months," especially given the economic crisis, he said. Asked how, his answer was almost teasing: "I know how to do it," he said, "but I don't want to teach them how to do it."
Saakashvili thinks, talks, and moves at a high rate of speed. When he decides that an event has ended, his aides often break into a full run, lest they be stranded, panting, in his wake. His appetite is legend: On a 45-minute flight, he ordered three cups of tea, a glass of wine, a cognac, and gave a stewardess a genial hard time for not stocking up on cheese.
He is easily bored. For reading material on the same flight, he had a glossy magazine, a biography of Marshal Henri Philippe Pétain, the disgraced French general; architectural plans for a cargo airport which he had sketched himself when 20 submissions fell short ("I hate to confess it," he said); and a Georgian newspaper, which he glanced through and put aside.
"Every Georgian newspaper hates me; what's the difference?" he said. "If you can find me one that likes me, I'll read it all the time."
From the beginning, Saakashvili's presidency has been marked by audacious gestures. Months after his swearing-in, he dismissed all 13,000 of Georgia's GAI — the Soviet-era traffic police notorious for low-level corruption — replacing them with 1,600 officers modeled on American state troopers. He also promised to reclaim South Ossetia and Abkhazia, stoking Georgian nationalism and inflaming tensions with Moscow.
Western observers were impressed by the reforms and charmed by Tbilisi's new political elite, who had infused a failing state with hope and glamour.
"It felt as if 'Ocean's Eleven' had been given custody of the republic," Mark Leonard, a British foreign policy expert, wrote in The New Statesman. "A cabal of beautiful young people dashing around changing the country from top to bottom."
The Western allies' faith was shaken in November of 2007, when opposition leaders rallied tens of thousands of protesters against Saakashvili's government. Riot police officers attacked protesters with tear gas and rubber bullets, and the government declared a state of emergency, forcing two opposition television stations off the air. Under criticism from his Western allies, Saakashvili said he had acted to stop a Russian plot.
He survived the crisis by calling for early presidential elections to "renew his mandate," as he put it, and won with 53 percent of the vote.
The August war has brought Saakashvili back into damage-control mode. The West rallied around him when columns of Russian tanks poured into South Ossetia and Abkhazia. But increasingly, observers blame Saakashvili for escalating the low-level conflict that preceded the attack, while acknowledging that in the days before it began, Georgian villages had come under fire from separatist positions.
Saakashvili has vigorously disputed these critiques — in particular, a Nov. 7 New York Times report that quoted independent observers in the war zone as questioning Georgia's account of the conflict's origins. In an interview, he said Russia was so well-prepared that its forces immediately took control of Abkhazia, hundreds of miles away from the fighting in South Ossetia.
He recalled a conversation he had with Senator John McCain, the Republican nominee for president, after Georgia released intercepted telephone messages that showed Russian armor moving into Georgia early on Aug. 7.
"I said, 'This proves we didn't start the war.' " Saakashvili said. "He said, 'You know, I'm military. I know tanks don't fly, especially Russian ones. I don't need proof.' "
The change in American administrations injects further uncertainty for Saakashvili, who enjoys warm personal friendships with both President George W. Bush and Senator McCain. Saakashvili said he has no worries about continued support from the United States, which has pledged $1 billion in aid and will sign a strategic cooperation treaty with Georgia this week.
But key questions remain, among them: Will the United States re-equip Georgia's battered military, at a cost its defense minister estimated at $8 billion to $9 billion?
And as he copes with sporadic violence and internal dissent, Saakashvili is also under close scrutiny from European capitals. Early this month, several NATO members balked at granting Georgia and Ukraine a Membership Action Plan, in part over fears of that Saakashvili could be drawn into renewed conflict with Russia.
"Georgia has a lot of problems, and one of them is how people perceive Saakashvili," said Sarah Mendelson, a Russia specialist at the Center for Strategic and International Studies in Washington. "He's the elected president and ultimately this is all up to Georgians. But I hear some people say, 'You need to get rid of him, or get him under wraps.' "
Ronald Asmus, executive director of the Transatlantic Center at the German Marshall Fund, said Saakashvili must commit to institution-building, and swallow the presence of Russian troops in Georgia.
"The advice of people like me is: To whatever degree possible, forget about the Russians," he said. "Accelerate reform and regain the moral high ground you had, and lost." In the past, he said, Saakashvili's team has committed to that path, "but it's hard for them to stick to it."
The advice is not casual. In his response to the state of emergency in November 2007 and the war, Asmus said, Saakashvili has "arguably made two big mistakes," even as the Russians were searching for a way to bring him down.
"Most politicians don't get to make two big mistakes and survive," he said. "I don't know how many political lives he has left."
And so, at the age of 41, Saakashvili is faced with the strange task of downsizing himself: scaling down his passion, impatience and even his power. Answering questions in the airy white interior of his presidential retreat, he seemed keenly aware of this: If there is a flaw with his government, he said, it is that "it's based on personality, more or less, and it should be based on institutions."
He said he had tormented himself over whether he had made a mistake ordering the attack on Tskhinvali, the capital of South Ossetia, asking himself the question "a thousand times" in the early days.
"Every night when I am not angry with myself is lost," he said.
Last week, he announced a constitutional amendment that would lessen the president's power over Parliament. Lately, he said, he's less attracted to the model of David the Builder, and more to George Washington, who, he said, "could have been a king, but instead chose to give up power, and become a democracy."
"It's something I'm thinking about more and more," he said. "George Washington."
No one hurt in bombing in Spain's Basque area
The Associated Press
Wednesday, December 31, 2008
MADRID, Spain: A car bomb exploded Wednesday outside a regional television station in northern Spain following a warning call from the armed separatist group ETA, police said.
The blast caused significant damage and one person suffered an ear injury, television broadcaster EITB, which managed to stay on air despite the explosion at its headquarters in central Bilbao city, said in its early afternoon news report.
"They have tried to silence one of this country's media outlets," EITB director Bingen Zupiria told reporters outside the building later.
Police said the bomb exploded shortly after 11 a.m. (1000 GMT). The building had been evacuated and the area cordoned off to traffic following a warning call to a fire department about an hour earlier.
Spain's state-run television station broadcast footage showing the explosion. After a flash of fire, the blast blew out dozens of windows on the glass facade of the six-story building. Then a large plume of thick smoke rose up and partially obscured the damaged structure.
The attack came less than a month after the fatal shooting of a Basque businessman Dec. 3, for which ETA was blamed.
ETA has killed more than 825 people since 1968 in its campaign for Basque independence. The group declared a cease-fire in March 2006 that led to peace talks. But it broke the truce with a car bomb Dec. 30, 2006, at Madrid's Barajas airport, killing two people.
"ETA can attack but it will lose all the battles," Prime Minister Jose Luis Rodriguez Zapatero said Wednesday. "The only thing it will achieve will be to put the terrorists in jail quicker."
Police in Bilbao said agents followed tips from the caller Wednesday and found the owner of the vehicle used in the attack tied to a tree in some woods just outside the city.
"This is an attack against all Basque society because this is public television paid for by people's taxes," Antonio Basagoiti, head of the regional chapter of the conservative opposition Popular Party, told reporters.
"ETA wants to pressure us in to accepting what they want: independence, socialism, backwardness and a return to the Stone Age," Basagoiti said.
With a population of just under 1 million, Bilbao is the Basque region's main city and home to one of the Guggenheim Museums.
The caller gave no reason for the attack but Basque regional government spokeswoman Miren Azkarate said, "EITB has been an ETA target for a long time."
Several other media outlets are housed in the building, including a bureau of El Mundo newspaper.
Although most of ETA's victims in the past have been security force members, the group has regularly targeted political parties, bank, businesses, public transport, as well as the media.
"There's no point in reading anything special into this attack," EITB editor Inigo Herze told Spain's CNN+ television channel. "ETA attacks anyone that doesn't believe in what it believes in."
ETA has suffered a wave of arrests of its suspected members in recent months in France and Spain. Suspected leader, Aitzol Iriondo, was arrested in southern France on Dec. 8, three weeks after his alleged predecessor, Mikel de Garikoitz Aspiazu, alias Txeroki, was caught in the neighboring country.
AP reporter Harold Heckle contributed to this report from Madrid
China reiterates no room for Taiwan sovereignty
Wednesday, December 31, 2008
By Lucy Hornby
Chinese President Hu Jintao said on Wednesday he understood Taiwan's desire to take part in "international activities" but stressed he would not tolerate any move that suggested sovereign independence from the mainland.
In a policy speech, Hu called for a pragmatic approach to the political relationship to ease concerns over military tension across the strait.
"As long as the 'one China' principle is recognised by both sides.... we can discuss anything," Hu said.
If Taiwan's opposition Democratic Progressive Party gives up "splittist activities" and "changes its attitude," it would elicit a "positive response," he said.
China has claimed sovereignty over self-ruled Taiwan since the end of the Chinese civil war in 1949 and has vowed to bring the island under mainland rule, by force if necessary.
Just this week, Taiwan said it would increase foreign aid next year, competing with China on largesse as the global economic crisis leave impoverished allies more desperate for help.
With about 170 diplomatic allies to Taiwan's 23, China has continually blocked the island's bid to join the United Nations or affiliated organisations.
But relations across the Taiwan Strait, in recent years one of the hottest flashpoints in Asia, have improved since China-friendly Taiwan President Ma Ying-jeou took office in May, prompting a goodwill gift to the island of two giant pandas just last week.
"We understand the Taiwan people's feelings on participating in international activities, and we attach great importance to related issues on this," Hu told a gathering of the Communist Party elite at the Great Hall of the People.
"...We can have realistic negotiations to reach a reasonable approach for the issue of Taiwan participating in the activities of international organisations on the premise of not causing one China, one Taiwan."
Thursday marks the 30th anniversary of a major announcement by China that it would stop shelling the Taiwan-held island of Kinmen, or Quemoy, and that its policy towards Taiwan would shift from "liberation" through military invasion to "peaceful reunification."
It is also the 30th anniversary of the United States switching diplomatic recognition from Taiwan to China, recognising "one China," though it remains Taiwan's biggest ally and arms supplier.
(Additional reporting by Benjamin Kang Lim and Beijing newsroom; Editing by Nick Macfie and Valerie Lee)

Czech Republic faces challenges with EU presidency
The Associated Press
Wednesday, December 31, 2008
PRAGUE, Czech Republic: On Thursday, the Czechs take over the European Union's six-month rotating presidency from EU heavyweight France, whose dynamic president, Nicolas Sarkozy, has taken vigorous action on tackling Europe's economic woes.
The Czech Republic, only the second post-communist EU newcomer to take the bloc's helm, will face the daunting task of implementing a $258 billion European economic stimulus package approved by EU leaders under the French presidency.
The nation of about 10 million people bordering Germany and Poland is also the last EU member to vote on the stalled Lisbon Treaty — a blueprint for reforming the EU that supporters say is essential for it to work effectively.
The project has been on hold since Irish voters rejected it in June. The Czech Parliament postponed its vote after the Irish rebuff — and has yet to schedule a new ballot even though Ireland has agreed to hold a new referendum.
The most prominent Czech critic of the treaty is the nation's president, Vaclav Klaus, who openly says "a well functioning, bureaucratic EU is not my goal."
Klaus has even said he won't allow the EU flag to fly over Prague Castle, his official seat, during the Czech presidency because the country "is not an EU province."
His views are shared by some lawmakers from the conservative Civic Democratic Party of Prime Minister Mirek Topolanek.
Topolanek said he wants Parliament to ratify the treaty. But his party is threatening to block ratification unless lawmakers first approve a deal allowing the United States to base part of a missile defense system on Czech soil.
The governing coalition does not have a majority in Parliament's lower house and the opposition fiercely rejects the missile defense plan. Opposition leaders threaten a no-confidence vote if the coalition fails to approve the EU charter by February.
Minister for European Affairs Alexandr Vondra said political infighting will not affect the country's ability to effectively lead the bloc. "We are rational people. So don't expect any kind of a mess here."
A staunch U.S. ally, the Czech Republic has set ties with the new U.S. administration high on its foreign policy agenda; it hopes to invite Barack Obama to Prague for his first visit to Europe as president.
The Czechs are awaiting word from Obama's team on the missile defense deal brokered under President George W. Bush. The shield is backed by NATO, but some European leaders, including Sarkozy, have recently questioned it.
The shield, which would also be based in Poland, has angered Russia and could overshadow planned EU-Russia talks during the Czech presidency.
Russia is already pressuring the incoming U.S. administration to scrap the plans and has threatened to deploy missiles near the Polish border.
Writing the Web's future in numerous languages
By Daniel Sorid
Wednesday, December 31, 2008
The next chapter of the World Wide Web will not be written in English alone. Asia already has twice as many Internet users as North America, and by 2012 it will have three times as many. Already, more than half of the search queries on Google come from outside the United States.
The globalization of the Web has inspired entrepreneurs like Ram Prakash Hanumanthappa, an engineer from outside Bangalore, India. Ram Prakash learned English as a teenager, but he still prefers to express himself to friends and family members in his native Kannada. But using Kannada on the Web involves computer keyboard maps that even Ram Prakash finds challenging to learn.
So in 2006 he developed Quillpad, an online service for typing in 10 South Asian languages. Users spell out words of local languages phonetically in Roman letters, and Quillpad's predictive engine converts them into local-language script. Bloggers and authors rave about the service, which has attracted interest from the cellphone maker Nokia and the attention of Google Inc., which has since introduced its own transliteration tool.
Ram Prakash said Western technology companies have misunderstood the linguistic landscape of India, where English is spoken proficiently by only about a tenth of the population and even many college-educated Indians prefer the contours of their native tongues for everyday speech. "You've got to give them an opportunity to express themselves correctly, rather than make a fool out of themselves and forcing them to use English," he said.
Only there is a shortage of non-English content and applications. So, American technology giants are spending hundreds of millions of dollars each year to build and develop foreign-language Web sites and services — before local companies like Quillpad beat them to the punch and the profits.
"Gone are the days in which you can launch a Web site in English and assume that readers from around the globe are going to look to you simply because of the content you're providing," said Zia Daniell Wigder, a senior analyst at JupiterResearch, an online research company based in New York.
Nowhere are the obstacles, or the potential rewards, more apparent than in India, whose online population Jupiter says is poised to become the third-largest in the world after China and the United States by 2012. Indians may speak one language to their boss, another to their spouse and a third to a parent. In casual speech, words can be drawn from a grab bag of tongues.
In the last two years, Yahoo and Google have introduced more than a dozen services to encourage India's Web users to search, blog, chat and learn in their mother tongues. Microsoft has built its Windows Live bundle of online consumer services in seven Indian languages. Facebook has enlisted hundreds of volunteers to translate its social networking site into Hindi and other regional languages, and Wikipedia now has more entries in Indian local languages than in Korean.
Google's search service has lagged behind the local competition in China, and that has made providing locally flavored services a priority for the company in India. Google's initiatives in India are aimed at opening the country's historically slow-growing personal computer market, and at developing expertise that Google will be able to apply to building services for emerging markets worldwide.
"India is a microcosm of the world," said Prasad Bhaarat Ram, Google India's head of research and development. "Having 22 languages creates a new level of complexity in which you can't take the same approach that you would if you had one predominant language and applied it 22 times."
Global businesses are spending hundreds of millions of dollars a year working their way down a list of languages into which to translate their Web sites, said Donald DePalma, the chief research officer of Common Sense Advisory, a consulting business in Lowell, Massachusetts, that specializes in localizing Web sites.
India — with relatively undeveloped e-commerce and online advertising markets — is actually lower on the list than Russia, Brazil and South Korea, DePalma said.
Ram of Google acknowledged that the company's local-language initiatives in India did not yet generate significant revenue.
But the investments, DePalma said, are smart. "They're potentially creating the Indian advertising market," he said.
English simply will not suffice for connecting with India's growing online market, a lesson already learned by Western television producers and consumer products makers, said Rama Bijapurkar, a marketing consultant and the author of "Winning in the Indian Market: Understanding the Transformation of Consumer India."
"If you want to reach a billion people, or even half a billion people, and you want to bond with them, then you have no choice but to do multiple languages," she said.
Even among the largely English-speaking base of around 50 million Web users in India today, nearly three-quarters prefer to read in a local language, according to a survey by JuxtConsult, an Indian market research company. Many cannot find the content they are seeking. "There is a huge shortage of local language content," said Sanjay Tiwari, the chief executive of JuxtConsult.
A Microsoft initiative, Project Bhasha, coordinates the efforts of Indian academics, local businesses and solo software developers to expand computing in regional languages. The project's Web site, which counts thousands of registered members, refers to language as "one of the main contributors to the digital divide" in India.
The company is also seeing growing demand from Indian government agencies and companies creating online public services in local languages.
"As many of these companies want to push their services into rural India or tier-two towns or smaller towns, then it becomes essential they communicate with their customers in the local language," said Pradeep Parappil, a Microsoft program manager.
The project's Web site,, offers user-edited glossaries in local languages for technology terms and words with slang meanings in social networking, like "nudge" and "wink." ("Bhasha" is the Hindi word for "language.")
Last December, Yahoo and Jagran Group, a large Hindi newspaper publisher, started, a portal in the Hindi language, the native tongue of 420 million Indians.
Yahoo, which also offers e-mail and other content in several Indian languages, says that has surpassed its expectations for user traffic.
"Localization is the key to success in countries like India," said Gopal Krishna, who oversees consumer services at Yahoo India.
Google recently introduced news aggregation sites in Hindi and three major South Indian languages, and a transliteration tool for writing in five Indian languages. Its search engine operates in nine Indian languages, and can translate search results from the English Web into Hindi and back.
Google engineers are also plugging away on voice recognition, translation, transliteration and digital text reading that it plans to apply to other developing countries.
Ram Prakash of Quillpad said he was inspired when friends at Google told him they had compared Quillpad with Google's transliteration tool. He said that he believed the use of local languages on the Web would soar even as more Indians strived to learn English.
"That's why we say English is not enough," Ram Prakash said, repeating the slogan of Quillpad. "People want to look forward, and they want to learn English. That is all right, but English is not enough for all their needs."

As German neighborhood changes, raunchy shadow lingers
By Nicholas Kulish
Wednesday, December 31, 2008
HAMBURG, Germany: Asking for a copy of the St. Pauli Nachrichten at a newsstand in this North German port city is a bit of a gamble. You may get a flashy new publication with tips on where to find fashionable VIP lounges, but you are more likely to be handed a truly raunchy pornographic magazine with an unusually august pedigree.
The rather generic name St. Pauli Nachrichten, which means St. Pauli News, is both hallowed and debased in the history of German media. It is a tale of one historic neighborhood, two magazines with the same title and the long shadow of the original version.
Founded in 1968, the first St. Pauli Nachrichten was a provocative mix of satire, sex and left-wing politics. It was representative of the anything-goes attitude in the infamous red-light district that sprang up outside the old city walls here, which still draws tourists and locals alike to its strip clubs and soccer pubs by the tens of thousands each weekend to the Reeperbahn, Germany's version of Bourbon Street.
Yet by the same token, the St. Pauli Nachrichten's recent reincarnation as a lifestyle magazine — the first issue was published in November — is just the latest sign of a neighborhood rapidly going upscale, a phenomenon that local activists say is driving out working-class families and aging revolutionaries.
The original publication became legendary for biting articles by Stefan Aust, who went on to become the top editor of Germany's leading newsmagazine, Der Spiegel. At its peak, the St. Pauli Nachrichten sold over a million copies per issue. It was that heritage — and success — that Jens de Buhr, publisher of the new version, said he wanted to build upon when he founded his magazine.
The only problem was that the old version had not disappeared, it had just devolved into a blue magazine with service advertisements aimed at lonely gentlemen and none of the original political commentary or satire. But instead of looking for another title, De Buhr agreed to pay the old magazine $355 per issue to let him also use the name. The girlie magazine simply added the words "the original" to the cover and kept publishing randy photographs.
At a St. Pauli Italian restaurant called Cuneo, where late-night planning meetings for the new magazine had taken place, De Buhr, 45, said this week that people in the industry were placing bets as to how spectacular the magazine's failure would be in a difficult economy that had seen several big German magazines fold.
De Buhr, whose company, JDB Media, puts out a magazine about new DVD releases as well as publications for corporations like T-Mobile and Peugeot, pushed ahead anyway, printing 100,000 copies of the first issue as a trial balloon.
But the magazine sold out, and De Buhr ordered 30,000 more copies of the maiden issue, so it would stay on newsstands until the second appeared in March, after which the magazine will appear every other month.
His lifestyle magazine walks the line between sexy and pornographic, as in studiously tasteful photographs of nude women — black and white, of course — recreating famous paintings in contemporary settings. Compared with the original's harsh political satire, which included jokes about hijacking airplanes, the articles about flirting in the new one seem merely cheeky rather than revolutionary.
The first issue even included a column by the Rev. Sieghard Wilm, pastor at the St. Pauli Church. Wilm, who wrote about discussing sins and the Ten Commandments in a local bar, said he thought the magazine was a good idea but would benefit from focusing more on the community. "People want to be anchored in something local as a counterweight to globalization," he said.
The neighborhood's appeal was always more about sex than politics, symbolized by the Herbertstrasse, a street where a sign warns that women are not allowed, except of course for the scantily clad prostitutes sitting in the storefront windows of bordellos.
Soldiers and sailors spread the names St. Pauli and Reeperbahn far and wide, while music fans remember it as the place where the Beatles worked on their sound at establishments like the Star Club, now defunct, on the famous street Grosse Freiheit, whose name means great freedom.
The chaotic old neighborhood looks downright orderly from the bar on the 20th floor of the Empire Riverside Hotel, featured as a spot for celebrity sightings in the premiere issue of the latest iteration of the St. Pauli Nachrichten. Yet the hotel is just down the street from where left-wing squatters in the 1980s waged a long fight to hold on to the abandoned buildings they had occupied.
This past April, neighborhood groups organized what they described as a street festival against gentrification here called "It's Raining Caviar."
"At some point the neighborhood begins to lose its soul," said Christian Homfeldt, who tends to the small Sankt Pauli Museum, which sells books and postcards and tries to preserve something of the history of the district by maintaining an archive of documents about the area.
Homfeldt bemoaned the impending opening of a Versace store nearby. "The brand alone could drive up rents in the area by at least 10 percent," he said. He and other neighborhood activists said they feared that as a result St. Pauli could lose the artists and small, locally run cafes that made it unique, beyond the flashing neon lights of the striptease clubs.
On a recent Saturday night, the streets were packed with revelers spilling out of bars and nightclubs. Prostitutes in moon boots and ski jackets worked the street corners, directing their approaches to men walking alone. Prostitution is legal in Germany, but the more belligerent among the drunks spend the night on a short wooden bed in the basement of the Davidwache police station on the Reeperbahn, a fully functioning police station that is also a red-brick historic landmark, nearly a century old.
It is out of this mix of the sordid and the swanky that the new magazine has made its identity. "Most lifestyle magazines have no home, they're just synthetic," said De Buhr, the publisher of the new St. Pauli Nachrichten. "We say very strongly that we have a home port, where you find the erotically dressed bartender who you can go out to the bar and meet afterward."

Sale of CDs continue decline in 2008
By Ben Sisario
Thursday, January 1, 2009
Sales of recorded music fell sharply in the United States in 2008, as consumers continued to migrate away from CDs, large retailers reduced floor space for music and the recession dampened consumer spending during the critical year-end holiday shopping period.
Total album sales, including CDs and full-album downloads, were 428 million, a 14 percent drop from 2007, according to data from Nielsen SoundScan. Since the industry's peak in 2000, album sales have declined 45 percent, although digital music purchases continue to grow at a rapid rate.
The year's biggest seller was Lil Wayne's album "Tha Carter III," which sold 2.87 million copies, followed by Coldplay's "Viva la Vida or Death and All His Friends," with 2.14 million. "Fearless," the second album by the 19-year-old country star Taylor Swift, was third, with 2.11 million.
Swift also scored the sixth-highest seller this year, for her self-titled debut, released in 2006, which sold 1.6 million copies in 2008.
The music industry has grown accustomed to dismal sales numbers, and this year even the good news comes with disappointment. "Tha Carter III" is the first release in SoundScan's 17-year history to top the year-end list with sales of less than three million.
Sales of digital music continued to soar last year. Just over a billion songs were downloaded, a 27 percent increase from 2007, and some record companies say they are finally beginning to wring significant profit from music on Web sites like YouTube and MySpace.
But analysts say that despite the growth and promise of digital music - in 2003 just 19 million songs were purchased as downloads - the money made online is still far from enough to make up for losses in physical sales.
"As the digital side grows, you get a different business model, with more revenue streams," said Michael McGuire, an analyst with Gartner, a market research firm. "But do we get back to where the revenue that the labels see is going to be fully replacing the CD in the next four to five years? No."
Gartner recently issued a report urging record companies to put their primary focus on downloads.
Record companies counter that album sales alone do not give a full picture of the complex new economics of the industry. Rio Caraeff, the executive vice president of eLabs, the digital division of Universal Music Group, said other income, like the fees collected when users stream a video online, had become an essential revenue. Twenty percent of Rihanna's income, he said, has come from the sale of ring tones.
"We don't focus anymore on total album sales or the sale of any one particular product as the metric of revenue or success," Caraeff said. "We look at the total consolidated revenue from dozens of revenue lines behind a given artist or project, which include digital sales, the physical business, mobile sales and licensing income."
Even as most of the industry pushes for greater online sales, two of the biggest albums of the year were by artists who have been vocal opponents of downloading. Kid Rock's "Rock n Roll Jesus" reached No.4 with just over two million sales, and AC/DC's "Black Ice," sold through an exclusive deal with Wal-Mart, was No.5 with 1.92 million.
Neither act sells its music through Apple's iTunes, the dominant online seller. AC/DC has said that selling individual tracks breaks up the continuity of a full album. But à la carte downloads are also far less lucrative than full CDs.
At least one sector of the music industry has continued to enjoy robust success: the concert business. Ticket sales in North America in 2008 rose at least 7 percent, to $4.2 billion, according to Pollstar, the touring-industry trade magazine. But in keeping with the trend of recent years, slightly fewer tickets were sold for more money: Attendance for the top 100 tours dropped 3 percent, but the average ticket price climbed 8 percent, to $66.90.
The record industry has been eager to share in touring's bull market, and many of the major labels' new contracts are for so-called 360 deals, which give the company a much wider share in an artist's income, from touring to merchandising to product endorsements. But those types of contract are still far from the norm.
Despite the growth of online music sales, CDs remain by far the most popular format, although that hold is slipping; 361 million CDs were sold in 2008, down almost 20 percent from the previous year. About 84 percent of all album purchases were CDs, down from 90 percent the year before.
And since CDs remain the record industry's biggest profit engine, many analysts worry that the industry will be particularly vulnerable to inventory reductions at retail stores. Big-box stores like Wal-Mart and Best Buy account for up to 65 percent of all retail purchases, and many of those stores are sharply reducing the floor space allotted to music, said Richard Greenfield, a media analyst at Pali Research in New York.
"CDs no longer drive somebody into a store on Tuesday," Greenfield said, referring to the day new CDs usually go on sale. "So the big risk for 2009 is that you will see even more rapid contraction of floor space, as CDs really go out of sight, out of mind for the consumer."
1. Lil Wayne, "Tha Carter III" (Cash Money/Universal Motown); 2.87 million
2. Coldplay, "Viva la Vida or Death and All His Friends" (Capitol); 2.14 million
3. Taylor Swift, "Fearless" (Big Machine); 2.11 million
4. Kid Rock, "Rock n Roll Jesus" (Atlantic); 2.02 million
5. AC/DC, "Black Ice" (Columbia); 1.92 million
6. Taylor Swift, "Taylor Swift" (Big Machine); 1.6 million
7. Metallica, "Death Magnetic" (Warner Brothers); 1.57 million
8. T.I., "Paper Trail" (Grand Hustle/Atlantic); 1.52 million
9. Jack Johnson, "Sleep Through the Static" (Brushfire/Universal); 1.49 million
10. Beyoncé, "I Am ... Sasha Fierce" (Music World/Columbia); 1.46 million
Source: Nielsen SoundScan
Asian-American paper in U.S. to halt publication
The Associated Press
Thursday, January 1, 2009
SAN FRANCISCO: AsianWeek, the long-running English-language Asian-American newspaper, will stop publication in 2009 in the face of declining readership and advertising revenue and a softening economy, said its editor and publisher, Ted Fang.
The paper's last regular issue was scheduled for Friday, but special editions may be considered, Fang said Wednesday.
"There is a huge potential in the Asian-American market," Fang said. "But we're facing the difficulties and the reality of the newspaper environment and the economic environment."
"It's a big blow," said David Lee, who teaches political science at San Francisco State University and heads the Chinese-American Voters Education Committee. "It was an important resource for bringing people together."
The San Francisco-based paper, established in 1979, had a circulation of 60,000 and served as a platform for issues that affected Asian-Americans. It was host to health campaigns to fight hepatitis B, which disproportionately affects Asians, as well as debates on immigration issues and voter registration drives, Lee said.
The newspaper took a blow in 2007, when it published an opinion piece by a contributor titled, "Why I Hate Blacks." Fang later issued an apology, and fired the contributor.

Dozens die in nightclub fire in Bangkok
The Associated Press
Wednesday, December 31, 2008
BANGKOK, Thailand: At least 59 people, including a number of foreigners, died when a fire swept through a high-class nightclub jammed with as many as 1,000 New Year's revelers in the Thai capital, police at the scene said Thursday.
Police officers said about 130 others were injured when the blaze broke out shortly after midnight at the Santika Club in an entertainment area of Bangkok. Local press reports said 200 sustained injuries.
The officers, who declined to be named because they were not authorized to speak to the press, said the club was packed with about 1,000 celebrants. Rescue workers said they believed other bodies were still inside the blaze-gutted building.
Police Gen. Jongrak Jutanont said at least 59 persons perished and that among the injured were nationals of Australia, Nepal, Japan and the Netherlands. Officials could not immediately provide more specific information.
Earlier, Police Maj. Gen. Chokchai Deeprasertwit said the fire may have been caused by firecrackers brought into the club by guests or sparks flying from a New Year's pyrotechnics countdown on the nightclub stage.
The club was promoting the New Year's party as "Goodbye Santika" night because the pub owner was planning to move to a new location since the lease on the site could not be extended.
The Web site of The Nation newspaper quoted one party-goer, Somchai Frendi, as saying the blaze was caused by "special effects" fireworks to usher in the New Year. The fireworks ignited the second floor ceiling, which was made largely of inflammable, sound-proofing material, he said.
The report also quoted a club worker as saying that explosions were heard shortly after the New Year countdown ended and someone shouted, "Fire!"
Chokchai said death came through burns, smoke inhalation and injuries during the stampede to escape from the club, which had only one main door for entry and exit.
A firefighter at the scene, Watcharapong Sri-saard, said another door at the rear of the building was known only to the staff while an Associated Press reporter saw a small, third door at one side of the building.
The firefighter said a number of staircases inside the club as well as bars across the second-floor windows also made escape difficult.
The rescue workers said most of the bodies were found in the basement of the club, which attracts a well-heeled crowd of Thais and foreigners. The corpses, placed in white body bags, were laid out in rows in the parking lot in front of the club which was strewn with shoes of the victims.
A video provided to AP Television News by one of the rescue workers showed bloodied, bruised and burned victims being dragged out of the burning club or managing to run through the door or shattered windows. Flames were racing through the entire building during the rescue operation and the roof of the concrete building later collapsed.
An Associated Press reporter who peered inside the still-burning building said everything in sight had been burned to a crisp.
Police and rescue workers said the rescue operation was delayed because of heavy New Year's traffic in the Ekamai entertainment district and the large number of cars parked at the club.
"Bodies, some of them probably alive, were falling off the stretchers as the rescue workers rushed them away. The flames were glowing through the broken glass windows. A part of the building had already collapsed," said Andrew Jones, who arrived at the scene shortly after the fire erupted.
Jones, a teacher in Bangkok from Salt Ash, England, entered the club briefly, seeing corpses charred beyond recognition inside and people fleeing with burns over 90 percent of their bodies.
The ceiling over the front entrance to the club collapsed moments after he got out of the building, he said.
One local Web site about the entertainment scene in Bangkok described the club as attracting "an affluent Thai student crowd, with Euro models and Westerners also popping in" with a "whisky-sipping crowd all focused on a large stage."
Another site says that the high ceiling and a cross in the main room makes one feel "like walking into a church."
Associated Press writer Christopher Blake contributed to this report

A resolution that may stick: Spending less in '09
By Ken Belson
Thursday, January 1, 2009
Jolene Siana, a writer in Brooklyn, New York, plans to spend time with friends at their homes rather than in wine bars, bringing a $12 bottle rather than blowing $12 on a glass. Nelson Murphy, a hospital maintenance worker in New York, is determined that 2009 will be the year he finally gives up smoking — it is bad for his health, and, at $9 a pack, his wallet.
And Felicia Jackson, 23, is promising herself a healthier lifestyle — physically and financially. She will take peanut butter and jelly sandwiches to work instead of frequenting McDonald's for lunch (and sometimes breakfast), and walk to the subway instead of hopping in a town car.
"It's $5 each way, so that's $50 a week," said Jackson, who lives in Brooklyn and works in Manhattan. "I'm going to make a tighter budget this year with the economy the way it is."
The resolutions may sound the same, but in this New Year of Recession, the reasons driving them are different. Who can afford to pay $100 a month for a gym membership that goes unused? Walking more sounds a lot like saving on gas. Appreciating the little things is about maybe not having big fancy things around.
The annual Marist College end-of-year resolution poll showed that 12 percent of Americans nationwide are vowing to spend less, the third most popular response after losing weight (20 percent) and quitting smoking (16 percent). Economic pressures are so heavy that "spend less money — save more" replaced "be a better person," which dropped to seventh place in the survey of 1,003 people nationwide during the second week of December.
"When you ask about New Year's resolutions, it's usually a fun thing, part of the holiday nostalgia," said Lee Miringoff, the director of the Marist College Institute for Public Opinion. "So when you're getting the answers that we're getting, it suggests that there's a lot of serious concerns that are overwhelming the typical tradition. It's a little bit more of a sobering time for people."
New Year's resolutions are at least as old as calendars. More than four millennia ago, the Babylonians had an 11-day new year festival and started anew by returning borrowed farm equipment. The Romans honored the god Janus — who looked backward and forward — by designating January as the start of the year. They reflected on the past year while promising to do better in the new one.
But interviews around New York this week found that the typical year-end hopefulness about fresh starts and brighter days ahead is largely being overshadowed by fear that the economically calamitous 2008 could become an even rougher 2009. In dozens of conversations with people boarding trains at Grand Central Terminal, eating lunch in Bryant Park, shopping at Atlantic Center in Prospect Heights or walking through Union Square, worries about dollars and cents seeped into otherwise predictable promises to shed pounds and spend more time with friends and family.
Take Siana, who is 39, works as a waitress at a private dining club and in 2005 published a memoir of her troubled youth ("Go Ask Ogre: Letters From a Deathrock Cutter"). When asked about her goals for 2009, she first professed a desire to live healthier by using microwave ovens less, eating more organic food and taking more walks. But then she said she would be eating out less often as well. More than two dozen co-workers were recently laid off, she said, which has made her anxious about her job security.
So for socializing in 2009, Siana plans to opt for dive bars, not wine bars — or, better yet, gatherings at someone's apartment. Sushi dinners will be less frequent, too.
"I'll be cooking more instead of eating out, and cutting down on entertainment," she said while munching on a vegetable sandwich outside a Subway store in Atlantic Terminal.
Chris Walling, 26, a financial analyst, wants to break the cycle of losing weight in the winter only to gain it back when the weather warms and his tendency to fall off the wagon of twice-weekly workouts at the gym. "I'm paying the money, so I might as well go," he said of his gym membership. ( Walling also resolved to get a "really cool girlfriend," which could definitely have a negative effect on his finances.)
Kevin Cooper, 22, a glassblower from New London, Connecticut, said he intended to commute more by bicycle to his studio in Stonington, a two-hour ride that would not only help him keep his trim frame intact, but also reduce wear and tear on his car.
"It's mostly to stay in shape," he said, while hawking his vases at an arts show in Grand Central Terminal. "But there's also the mileage on the car and the gas."
Some people are setting goals that take advantage of the bad news. Ali Boddy, 30, a salesman for T-Mobile, is banking on home prices falling further so he will be able to afford a house on Long Island, perhaps in Deer Park, North Babylon or Northport. Homes there, he said, are half the price of what he would pay in Flushing, where he lives now with his in-laws.
Katie West, 14, who was visiting New York with her family this week from their home near Syracuse, also seems to have gotten the austerity bug.
"I want to save more than $100," Katie said as she watched the holiday light show on the cavernous ceiling of Grand Central. "I get $20 allowance a week. Normally I spend the whole thing."
She said she did not know yet what she would do with the money.

At least 59 die in Bangkok fire
By Seth Mydans
Thursday, January 1, 2009
BANGKOK: A fire at a high-end Bangkok nightclub killed at least 59 people and injured more than 200 shortly after midnight Thursday as revelers were celebrating the new year, the police said.
Nightclub workers said fireworks had been set off around the midnight countdown, but the cause of the fire has not been determined, according to Lieutenant Sutin Pongkhamphan, the police officer in charge of the case.
He said 54 people died at the scene at the popular club, the Santika, and that five more died at hospitals. An additional 212 people were injured, 21 severely.
Police Major Akaluk Siriyodsophon, the officer in charge of the local precinct station, said 39 bodies had been identified by Thursday afternoon — 38 Thais and one Singaporean. He said the deaths were about equally divided between men and women.
Of the injured, the police said, 35 were foreigners, including people from Australia, Britain, Korea, Singapore and the United States.
Forensic work continued Thursday evening, police officials said. Scores of bodies were laid out on the street in white sheets in front of the blackened nightclub. Sirens sounded throughout the night in the crowded streets of central Bangkok.
"We were all dancing and suddenly there was a big flame that came out of the front of the stage and everybody was running away," Oh Benjamas, a partygoer, told Reuters. "People started running for the doors and breaking the windows."
Most of the deaths and injuries were caused by a stampede in the three-story club, which has one main exit and was packed with about 1,000 people, Sutin said. Other deaths came from burns and smoke inhalation. "The fire spread very quickly because there was a lot of fuel in the club, like alcohol, foam and balloons," he said.
One employee said that explosions were heard shortly after the New Year countdown, according to The Nation newspaper Web site. "After the explosions, someone shouted, 'Fire!'" the employee said. He said the fire had started on the top floor and spread quickly, sending smoke through the building and causing panic.
The New Year's Eve party was advertised as "Bad Boy Party" on the club's Web site. It also called the party "Goodbye Santika," apparently because the owner was planning to move to a new location.
The Santika, in the city's Ekamai district, is popular with the local Thai and foreign jet set. "It attracts an affluent Thai student crowd, with Euro models and Westerners also popping in," according to one Thai entertainment Web site.
In the words of another site: "Beautiful music. Beautiful lights. Beautiful babes. Beautiful dudes. Beautiful. Beautiful. Beautiful." The Web site adds: "This is a place to go and display yourself. You wanna be seen? You can't go wrong with this place."

FTSE registers worst annual loss
Wednesday, December 31, 2008
By Dominic Lau
The FTSE 100 index closed out 2008 on Wednesday with its biggest annual fall since its launch in 1984, sent reeling by the global credit crisis and looming worldwide recession.
The benchmark registered its third straight daily rise, closing up 41.49 points, or 0.9 percent, at 4,434.17 in thin trade in a shortened New Year's Eve session.
But in the year it shed 31.3 percent compared with a 3.8 percent gain in 2007.
The FTSE 100 fared better than Germany's DAX, down 40.4 percent for the year, and France's CAC, off about 42 percent.
Defensive drugmakers were among the top-weighted gainers, with GlaxoSmithKline, AstraZeneca and Shire putting on between 0.4 and 2.2 percent.
The FTSE 350 pharmaceuticals and biotechnology index was the best performer among the FTSE 350 sub-sectors, up 8 percent in 2008. The industrial metals index was at the bottom, down nearly 84 percent this year.
"The main concern (for 2009) is that actions taken by governments up to now may not alleviate the credit problem for companies," said Tim Whitehead, head of portfolio services at Redmayne-Bentley.
"If the problem has not been adequately addressed, then any initial optimism could wane and we could have a more difficult second half in 2009."
Whitehead said there was a chance the markets may have factored in most of the bad news and he saw support for the FTSE 100 at around 3,800.
"Hopefully, the actions taken by governments with interest rates and other measures will help in the first half of next year," he said.
Banks, at the epicentre of the financial storm, rose with HSBC up 2 percent, Standard Chartered gaining 4.9 percent and Barclays putting on 3 percent.
Lloyds TSB, however, dipped 0.4 percent. The Financial Times said Lloyds had signalled its determination to see off demands from the trustees of the HBOS pension scheme for greater security for retirement benefits once its acquisition of the mortgage lender is completed.
HBOS advanced 0.9 percent and was the biggest FTSE 100 faller in 2008, losing 90 percent.
Shares in market heavyweight Vodafone rose 2.1 percent, bringing their full-year loss to 27.5 percent, after Credit Suisse set a "trading buy" recommendation on the stock, saying sterling weakness has left earnings guidance and consensus beatable for mobile phone operator.
Oil producers were mixed, with weaker crude prices. Royal Dutch Shell, BG Group, Cairn Energy and Tullow Oil were down between 0.3 and 2.2 percent. But BP rose 1.2 percent.
The FTSE 350 oil and gas producers index lost 16 percent for the year but still outpaced the banks index, down 56.8 percent, and the mining index, down 55.7 percent.
Randgold Resources, promoted to the FTSE 100 two weeks ago, was the top gainer among the blue chips in 2008, up 62 percent. The stock was down 1.5 percent on Wednesday.
Among mining shares, BHP Billiton, Antofagasta and Rio Tinto advanced 0.9-2.9 percent.
But Vedanta Resources, Kazakhmys and Eurasian Natural Resources were in the red.
Pound puts in last minute spurt to end ugly year
Wednesday, December 31, 2008
By Veronica Brown
The pound rose in holiday-thinned trade on Wednesday, but was set for its worst yearly performance against the euro since the single currency's inception almost a decade ago as a bleak economic outlook hobbled sentiment.
Worries about rising unemployment, deteriorating public finances and aggressive rate cuts have pummelled the pound in recent months.
The 26-year highs hit just over a year ago above the psychologically-key $2 (1.37 pound) mark are a dim and distant memory.
Sterling's near-27 percent slide against the dollar over the year to date would be the sharpest since the gold standard monetary system was abolished in 1971.
The euro, having hit a succession of record highs versus the pound this week, retreated roughly 2 percent by 12:51 p.m. to 95.44 pence but stayed in sight of Tuesday's record highs just a few pence shy of parity.
Moves on Wednesday were sharpened by thin liquidity, dealers said. Analysts said further pound losses were almost inevitable.
"Most of the bad news is already priced in to sterling, and this suggests the euro/sterling move has been a bit overdone. But the overall backdrop is still negative for sterling," said David Powell, G10 currency strategist at Bank of America in London.
"The UK has much larger imbalances than the euro zone in terms of its current account deficit. Also its greater dependence on the financial sector and the higher level of consumer indebtedness suggest the economic recovery in the UK will lag that of the euro zone," he added.
Against the dollar, the pound rose 1 percent to $1.4577 on last-minute adjustments in some short positions in the UK currency. The pair hit 6-1/2 year lows the previous day at $1.4380.
This year's sharp falls against the currencies of the UK's main trading partners brought the pound to successive historic lows on a trade-weighted basis, according to daily records kept by the Bank of England going back to 1990.
On Wednesday, trade-weighted sterling was at 74.6, having slipped to 73.3 in the previous session.
The euro has soared by over 30 percent against the pound this year, jumping roughly 16 percent so far this month alone.
Lower interest rates compared with the euro zone have become the latest reason to sell sterling against the euro.
The Bank of England has slashed rates by three points since October to 2 percent, leaving them lower than the 2.5 percent in the euro zone, with more cuts expected in 2009.
Markets have fully priced in a cut in rates to 1.5 percent when the Bank meets on January 8, while indicating the possibility of a bigger reduction.
"Further reductions will be seen during the early part of 2009 as the race to zero continues," said James Hughes, market analyst at CMC Markets in London in a note to clients.
Yields on 10-year government bonds have fallen faster than their counterparts in the euro zone, pushing the spread between the two to its narrowest in around six years according to Reuters charts.
Economists forecast a sharp contraction for the economy next year and fear high government debt levels will limit room for additional stimulus measures to temper recession.
But some strategists see room for the euro to suffer as the impact of the financial crisis becomes clearer in the currency bloc.
"There are just so many issues within the euro zone that no-one wants to talk about. It definitely should not be a strong euro story," said UBS strategist Geoffrey Yu in London.
(Additional reporting by Eric Burroughs in Hong Kong and Jessica Mortimer in London)
(Reporting by Veronica Brown; Editing by Ron Askew)


1,600+ retailers expected to go bust in 2009
Thursday, January 1, 2009
LONDON: The downturn in consumer spending will drive over 1,600 retailers out of business in 2009, triggering thousands of job losses and leaving more than one in ten shops empty, a report said Thursday.
Market researchers Experian said trading conditions for survivors would be the worst for at least 30 years and there would be knock-on effects at suppliers, manufacturers and service providers.
"There is no doubt that the impact on retail will resonate through the entire economy," said Jonathan de Mello, Director of Retail Consultancy at Experian.
Retailers are slashing prices as indebted shoppers curb spending amid rising unemployment, sliding house prices and fears of a deep recession.
Experian said big discounts had lured some consumers back into stores, with shopper numbers leaping 12.8 percent in the last week of December. But that was not enough to prevent a 3.1 percent drop in footfall for the month as a whole.
"The last minute surge in shoppers came as a relief to retailers but for most it was not nearly enough," de Mello said.
"The boost in numbers was driven by massive unprecedented discounting all at the expense of retailer margins."
Some retailers have not survived, with sweets-to-DVDs chain Woolworths and furniture group MFI falling into administration, a form of creditor protection, in the run-up to Christmas and several smaller companies following suit in recent days.
Experian said 1,137 non-food retailers went out of business in the year ended December, up 21.2 percent on the year, and forecast 440 more would become insolvent over the next four months and the total for 2009 as a whole would be about 1,400.
Some 194 food retailers failed in 2008, up 10.9 percent, and Experian predicted that number would rise to about 230 in 2009.
"The collapses we've seen so far are just the tip of the iceberg," de Mello said.
"At the moment there is too much space in the market and not enough demand. Many retailers are either making no margin or losing money. We anticipate that January will be the toughest for 30 years."
Experian said the vacancy level on shopping streets was around 7 percent, but with a flurry of businesses recently going into administration that would rise to about 10 percent -- "a figure which is likely to increase as more retailers go into administration in January."
"This large scale retail business failure is expected to have a significant impact on high street returns, affecting everything from investors' yields on rents to revenues to local authorities," it said.
"This is not to forget the devastating impact on people's jobs and livelihoods," de Mello. "Britain is still a nation of shop keepers and the retail sector is one of the UK's largest employers."
(Reporting by Mark Potter; Editing by Mike Nesbit)
Pepsi and Beckham end relationship
Wednesday, December 31, 2008
CHICAGO: PepsiCo Incon Wednesday said it is ending the soft drink and snack maker's endorsement relationship with football star David Beckham after 10 years in a move described as mutual by both sides.
"We wish David well with the many projects he is pursuing and look forward to the possibility of partnering together with him again someday," the company said in a statement.
Beckham, who plays for the Major League Soccer (MLS) team Los Angeles Galaxy but is on loan to AC Milan in Italy, said he had nothing but good memories of his years pitching Pepsi.
"I hope everyone who has seen the work Pepsi and I have done together enjoyed it as much as I enjoyed making it and, who knows, there may yet be another chapter in this long relationship," he said in a statement provided by Pepsi.
The U.S. recession has hurt the sports world, causing the National Football League and National Basketball Association to cut jobs, Major League Baseball to freeze budgets and Arena Football League to cancel its 2009 season.
Corporate sponsors and advertisers have not been spared either with many reducing spending.
General Motors Corp has slashed promotional spending, including the decision to stop airing ads during the NFL's popular Super Bowl championship game next year. The struggling automaker also said about a month ago it would end its endorsement deal a year early with popular pro golfer Tiger Woods at the end of December.
Terms of Beckham's deal were not disclosed, but the Daily Mail newspaper said the contract had been worth 2 million pounds a year. Beckham touted Pepsi in commercials over the years dressed as a cowboy, a surfer and a gladiator.
In October, Pepsi, which makes Pepsi-Cola drinks, Frito-Lay snacks and Quaker foods, posted a weaker-than-expected third-quarter profit and cut its full-year outlook as the economic slowdown has hurt beverage sales, especially of bottled water.
It also said then that it would cut 3,300 jobs, or about 1.8 percent of its work force, as part of a plan to save more than $1.2 billion (823 million pounds) over three years.
In past years, other Pepsi celebrity pitchmen have included pop stars Michael Jackson and Britney Spears.
(Reporting by Ben Klayman)


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