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Can the cycle of poverty be broken?
By Tina Rosenberg
Saturday, December 20, 2008
PASO DE COYUTLA, Mexico: Forty-nine years ago, the anthropologist Oscar Lewis published a book called "Five Families: Mexican Case Studies in the Culture of Poverty," detailing a single day in these families' lives. One family, headed by Jesús Sánchez, a food buyer for a restaurant, continued to tell its story in a second Lewis book, the widely read "Children of Sánchez."
Lewis singled out elements of a culture that, he argued, keep those socialized in it mired in poverty: machismo, authoritarianism, marginalization from organized civic life, high rates of abandonment of illegitimate children, alcoholism, disdain for education, fatalism, passivity, inability to defer gratification and a time orientation fixed firmly on the present.
Lewis was a man of the left. He saw the culture of poverty as a defense mechanism adapted by the poor in response to capitalist inequality. Then Edward Banfield, a conservative political scientist, introduced the notion that the culture of poverty was immutable; in his 1970 book, "The Unheavenly City," he argued that poverty was a product of the poor's lack of future-orientation, and that nothing government could feasibly do would change that orientation or stop parents from transmitting it to their children.
Persistent poverty has since retreated from the political debate. But outside the headlines there has been a gentle evolution in thinking about its causes and potential cures. The most interesting development in that evolution is coming once again from Mexico, this time from the grandchildren of the children of Sánchez.
We do not know exactly where Jesús Sánchez was born, but it was a village in Veracruz and it easily could have been Paso de Coyutla, a village of 134 families in the mountains along the San Marcos River. Until just a decade ago, Paso de Coyutla was one of the most marginalized places in Mexico, a place where men scratched out a living farming ever-more-subdivided patches of corn, joined by their children who left school too early, robbed of a future by the need to work.
There, on a recent trip, I met Irma Solís, 37, and Pedro Hernández, 43, a couple that has four children. Their grandparents were poor, their parents are poor and they are poor. Hernández, a stocky man with thick, graying hair and a mustache, raises corn; Solís gathers the husks to sell for wrapping tamales. Early this year, Hernández had to borrow $1,000 at a crippling 20 percent monthly interest rate to buy seeds and fertilizer. When I arrived in July, he had just harvested and sold the crop - but earlier than he would have liked, because he could no longer afford the interest. He made just enough to repay the debt.
In Paso de Coyutla, it seemed that the culture of poverty was indeed immutable. There was every reason to think that life would be exactly the same for Solís and Hernández's four children. But it may not be. Today their oldest daughter, Maleny, who is 17, is finishing high school and wants to be a teacher. Her 13-year-old sister, Maria Fernanda, wants to be a nurse. Two younger brothers also plan to stay in school. Maleny's bus takes up to 20 children from Paso de Coyutla to her high school every day.
The change did not come gradually. The town has transformed itself in the past decade, a result of a deceptively simple government program called Oportunidades; in 1997, Paso de Coyutla became one of the first places in Mexico to enroll. The program gives the poor cash, but unlike traditional welfare programs, it conditions the receipt of that cash on activities designed to break the culture of poverty and keep the poor from transmitting that culture to their children.
Until recently, for example, children like Maleny did not go to high school. Though Maleny's school is public, families often prefer not to pay the fees they're assessed or to pay for school supplies, food and transportation. More important, if she were not in school, she, too, could be working in the fields. Such work is especially common among girls, as their education has been widely derided as a waste of money in rural Mexico: Why educate someone who is just going to get married?
Now Maleny goes to school because her mother is enrolled in Oportunidades. Solís gets $61 a month from the Mexican government on the condition that Maleny goes and maintains good attendance. If she worked in the fields and earned a typical salary, she would be paid $7.40 for an eight-hour day. Such grants start for students at about age 8, increase for each year of school and are higher for girls, which gives families added incentive to send them.
Solís also receives money for the family's food - again, subject to certain requirements. She gets a $27-a-month basic food grant if she takes her family to regular preventive health checkups at Paso de Coyutla's clinic, which provides vaccinations, Pap smears and the like. She must also attend a monthly workshop on a health topic, like purifying drinking water. In total, the grants the family receives for food and the oldest three children's educations come to almost as much as Hernández earns farming.
Five million families are enrolled in the program nationwide - a quarter of all households, including virtually every Mexican family at risk for hunger. Seventy-three of the 134 families in Paso de Coyutla are enrolled today. Oportunidades is now the de facto welfare system in Mexico, and it is the first time modern Mexico has had an effective anti-poverty program.
The elegant idea behind the program - give the poor money that will allow them to be less poor today, but condition it on behaviors that will give their children a better start in life - is called conditional cash transfers, and the World Bank and Inter-American Development Bank promote it heavily. At least 30 countries have now adopted Oportunidades, most of them in Latin America, but not all: Countries now using or experimenting with some form of conditional payments include Turkey, Cambodia and Bangladesh.
In the mid-1990s, Mexico's anti-poverty programs were a failure. A third of the population lived in extreme poverty, which meant their income did not even pay for food. Mexico's help for the poor was dispensed mainly in the form of subsidies on milk, tortillas and bread - a program that was inefficient, badly targeted and corrupt.
In 1994, the Mexican peso crashed, and the next year the economy contracted by more than 6 percent. President Ernesto Zedillo asked Santiago Levy, an under secretary in the Finance Ministry, for new ideas on how to protect the poor.
Levy, who had been a professor of economics at Boston University, had concluded that food subsidies were an inefficient way to give money to the poor. So why not just directly give them cash? He set up an experiment in two small cities in Campeche State and found that people preferred getting cash to buying subsidized food and were willing to meet conditions. Armed with his data, he won approval to start the program gradually, beginning in the most marginalized villages, like Paso de Coyutla.
Surveys show that 70 percent of Oportunidades payments is spent on food - mostly fruit, vegetables and meat. Much of the rest goes to children's shoes and clothing and home improvements. The program is also designed to combat the typical afflictions of Latin American social programs. Local political leaders have no influence and so cannot use the payments to extort political support. Oportunidades staff members do not handle money - local banks hand out the envelopes of cash, and recipients are encouraged to open bank accounts to receive direct transfers.
Since Oportunidades has virtually no infrastructure, it is relatively inexpensive, costing Mexico about $3.8 billion annually. Salvador Escobedo, Oportunidades' director, boasts that 97 percent of the budget goes directly to beneficiaries.
The program does have its problems. For one thing, Oportunidades is less effective in urban areas than in the countryside. This may be because it is newer in cities, and the supply of schools and clinics lags behind the increased demand. Even in the countryside, I met with some students who had classes with as many as 42 children, and I saw some clinics with half-day waits for appointments.
Yet in general, Oportunidades is, in many respects, an astonishing success. In 1994, before the peso crisis, 21.2 percent of Mexicans lived in extreme poverty. In 1996, just after the crash, 37.4 percent did. But that figure had dropped to 13.8 percent by 2006. Mexico's economic growth during the decade averaged an unspectacular 3 percent, which would not by itself have produced such gains for the poor. In Mexico today, rates of malnutrition, anemia and stunted growth have dropped, as have incidences of childhood and adult illnesses.
But the most pronounced effects have been in education. Children in the program drop out less frequently, repeat fewer grades and stay in school longer. In some rural areas, the percentage of children entering middle school has risen 42 percent. High-school enrollment in some rural areas has increased 85 percent.
The women of Paso de Coyutla describe themselves as different people than they were 10 years ago. In large part, they have come to believe in their own capacity to take care of their families, they believe they are part of a group, they organize to improve the village, they invest all they can in their children's futures.
Before Oportunidades started, a major objection was that it could increase domestic violence. Many poor, rural Mexicans are machista, and it's easy to imagine that they would be provoked by Oportunidades, which requires women to leave the house to attend workshops, get their money and go to the clinic. Some of the workshops are about women's rights or self-esteem. Women also get their own money and control how it is spent.
Among the most macho was Solís's own husband. "He was very angry in the beginning of the program," she said. "He'd come pull me out of a meeting, yelling: 'Your child fell down and hurt himself! See what happens when you abandon your house!"'
Pedro Hernández cheerfully pled guilty. "I didn't accept it at first," he said. "If the clothes were hanging on the line and it started to rain, I wouldn't take them down - I'd go pull her out of a workshop. Or I'd complain my food was cold. I didn't want to heat it up myself."
What changed him was a burst appendix two years ago. Because of Oportunidades, the family received priority at a public hospital, where the operation cost $100, not the $3,000 the private hospital wanted. "I realized that it helps," he said. "We have food, shoes, school supplies; the kids have education. We have fewer problems."
Oportunidades is only an anti-poverty program, just one part of a solution that includes creating better jobs. But if Mexico can do that, it will have access to a work force that, because of Oportunidades, has acquired more of the good health and education necessary to take advantage of those jobs.
By Tina Rosenberg
Saturday, December 20, 2008
PASO DE COYUTLA, Mexico: Forty-nine years ago, the anthropologist Oscar Lewis published a book called "Five Families: Mexican Case Studies in the Culture of Poverty," detailing a single day in these families' lives. One family, headed by Jesús Sánchez, a food buyer for a restaurant, continued to tell its story in a second Lewis book, the widely read "Children of Sánchez."
Lewis singled out elements of a culture that, he argued, keep those socialized in it mired in poverty: machismo, authoritarianism, marginalization from organized civic life, high rates of abandonment of illegitimate children, alcoholism, disdain for education, fatalism, passivity, inability to defer gratification and a time orientation fixed firmly on the present.
Lewis was a man of the left. He saw the culture of poverty as a defense mechanism adapted by the poor in response to capitalist inequality. Then Edward Banfield, a conservative political scientist, introduced the notion that the culture of poverty was immutable; in his 1970 book, "The Unheavenly City," he argued that poverty was a product of the poor's lack of future-orientation, and that nothing government could feasibly do would change that orientation or stop parents from transmitting it to their children.
Persistent poverty has since retreated from the political debate. But outside the headlines there has been a gentle evolution in thinking about its causes and potential cures. The most interesting development in that evolution is coming once again from Mexico, this time from the grandchildren of the children of Sánchez.
We do not know exactly where Jesús Sánchez was born, but it was a village in Veracruz and it easily could have been Paso de Coyutla, a village of 134 families in the mountains along the San Marcos River. Until just a decade ago, Paso de Coyutla was one of the most marginalized places in Mexico, a place where men scratched out a living farming ever-more-subdivided patches of corn, joined by their children who left school too early, robbed of a future by the need to work.
There, on a recent trip, I met Irma Solís, 37, and Pedro Hernández, 43, a couple that has four children. Their grandparents were poor, their parents are poor and they are poor. Hernández, a stocky man with thick, graying hair and a mustache, raises corn; Solís gathers the husks to sell for wrapping tamales. Early this year, Hernández had to borrow $1,000 at a crippling 20 percent monthly interest rate to buy seeds and fertilizer. When I arrived in July, he had just harvested and sold the crop - but earlier than he would have liked, because he could no longer afford the interest. He made just enough to repay the debt.
In Paso de Coyutla, it seemed that the culture of poverty was indeed immutable. There was every reason to think that life would be exactly the same for Solís and Hernández's four children. But it may not be. Today their oldest daughter, Maleny, who is 17, is finishing high school and wants to be a teacher. Her 13-year-old sister, Maria Fernanda, wants to be a nurse. Two younger brothers also plan to stay in school. Maleny's bus takes up to 20 children from Paso de Coyutla to her high school every day.
The change did not come gradually. The town has transformed itself in the past decade, a result of a deceptively simple government program called Oportunidades; in 1997, Paso de Coyutla became one of the first places in Mexico to enroll. The program gives the poor cash, but unlike traditional welfare programs, it conditions the receipt of that cash on activities designed to break the culture of poverty and keep the poor from transmitting that culture to their children.
Until recently, for example, children like Maleny did not go to high school. Though Maleny's school is public, families often prefer not to pay the fees they're assessed or to pay for school supplies, food and transportation. More important, if she were not in school, she, too, could be working in the fields. Such work is especially common among girls, as their education has been widely derided as a waste of money in rural Mexico: Why educate someone who is just going to get married?
Now Maleny goes to school because her mother is enrolled in Oportunidades. Solís gets $61 a month from the Mexican government on the condition that Maleny goes and maintains good attendance. If she worked in the fields and earned a typical salary, she would be paid $7.40 for an eight-hour day. Such grants start for students at about age 8, increase for each year of school and are higher for girls, which gives families added incentive to send them.
Solís also receives money for the family's food - again, subject to certain requirements. She gets a $27-a-month basic food grant if she takes her family to regular preventive health checkups at Paso de Coyutla's clinic, which provides vaccinations, Pap smears and the like. She must also attend a monthly workshop on a health topic, like purifying drinking water. In total, the grants the family receives for food and the oldest three children's educations come to almost as much as Hernández earns farming.
Five million families are enrolled in the program nationwide - a quarter of all households, including virtually every Mexican family at risk for hunger. Seventy-three of the 134 families in Paso de Coyutla are enrolled today. Oportunidades is now the de facto welfare system in Mexico, and it is the first time modern Mexico has had an effective anti-poverty program.
The elegant idea behind the program - give the poor money that will allow them to be less poor today, but condition it on behaviors that will give their children a better start in life - is called conditional cash transfers, and the World Bank and Inter-American Development Bank promote it heavily. At least 30 countries have now adopted Oportunidades, most of them in Latin America, but not all: Countries now using or experimenting with some form of conditional payments include Turkey, Cambodia and Bangladesh.
In the mid-1990s, Mexico's anti-poverty programs were a failure. A third of the population lived in extreme poverty, which meant their income did not even pay for food. Mexico's help for the poor was dispensed mainly in the form of subsidies on milk, tortillas and bread - a program that was inefficient, badly targeted and corrupt.
In 1994, the Mexican peso crashed, and the next year the economy contracted by more than 6 percent. President Ernesto Zedillo asked Santiago Levy, an under secretary in the Finance Ministry, for new ideas on how to protect the poor.
Levy, who had been a professor of economics at Boston University, had concluded that food subsidies were an inefficient way to give money to the poor. So why not just directly give them cash? He set up an experiment in two small cities in Campeche State and found that people preferred getting cash to buying subsidized food and were willing to meet conditions. Armed with his data, he won approval to start the program gradually, beginning in the most marginalized villages, like Paso de Coyutla.
Surveys show that 70 percent of Oportunidades payments is spent on food - mostly fruit, vegetables and meat. Much of the rest goes to children's shoes and clothing and home improvements. The program is also designed to combat the typical afflictions of Latin American social programs. Local political leaders have no influence and so cannot use the payments to extort political support. Oportunidades staff members do not handle money - local banks hand out the envelopes of cash, and recipients are encouraged to open bank accounts to receive direct transfers.
Since Oportunidades has virtually no infrastructure, it is relatively inexpensive, costing Mexico about $3.8 billion annually. Salvador Escobedo, Oportunidades' director, boasts that 97 percent of the budget goes directly to beneficiaries.
The program does have its problems. For one thing, Oportunidades is less effective in urban areas than in the countryside. This may be because it is newer in cities, and the supply of schools and clinics lags behind the increased demand. Even in the countryside, I met with some students who had classes with as many as 42 children, and I saw some clinics with half-day waits for appointments.
Yet in general, Oportunidades is, in many respects, an astonishing success. In 1994, before the peso crisis, 21.2 percent of Mexicans lived in extreme poverty. In 1996, just after the crash, 37.4 percent did. But that figure had dropped to 13.8 percent by 2006. Mexico's economic growth during the decade averaged an unspectacular 3 percent, which would not by itself have produced such gains for the poor. In Mexico today, rates of malnutrition, anemia and stunted growth have dropped, as have incidences of childhood and adult illnesses.
But the most pronounced effects have been in education. Children in the program drop out less frequently, repeat fewer grades and stay in school longer. In some rural areas, the percentage of children entering middle school has risen 42 percent. High-school enrollment in some rural areas has increased 85 percent.
The women of Paso de Coyutla describe themselves as different people than they were 10 years ago. In large part, they have come to believe in their own capacity to take care of their families, they believe they are part of a group, they organize to improve the village, they invest all they can in their children's futures.
Before Oportunidades started, a major objection was that it could increase domestic violence. Many poor, rural Mexicans are machista, and it's easy to imagine that they would be provoked by Oportunidades, which requires women to leave the house to attend workshops, get their money and go to the clinic. Some of the workshops are about women's rights or self-esteem. Women also get their own money and control how it is spent.
Among the most macho was Solís's own husband. "He was very angry in the beginning of the program," she said. "He'd come pull me out of a meeting, yelling: 'Your child fell down and hurt himself! See what happens when you abandon your house!"'
Pedro Hernández cheerfully pled guilty. "I didn't accept it at first," he said. "If the clothes were hanging on the line and it started to rain, I wouldn't take them down - I'd go pull her out of a workshop. Or I'd complain my food was cold. I didn't want to heat it up myself."
What changed him was a burst appendix two years ago. Because of Oportunidades, the family received priority at a public hospital, where the operation cost $100, not the $3,000 the private hospital wanted. "I realized that it helps," he said. "We have food, shoes, school supplies; the kids have education. We have fewer problems."
Oportunidades is only an anti-poverty program, just one part of a solution that includes creating better jobs. But if Mexico can do that, it will have access to a work force that, because of Oportunidades, has acquired more of the good health and education necessary to take advantage of those jobs.
Big 3 remain in trouble
By Micheline Maynard
Saturday, December 20, 2008
DETROIT: With a lifeline from the White House, General Motors and Chrysler will survive for the next few months while they revamp.
But will they thrive again?
The plans from the car companies offer little in terms of fresh ideas. Instead, they are focused more on slow-selling models, persuading GM's debt holders to accept stock and getting union wages more in line with those paid by foreign brands in the United States.
Such moves are certainly necessary in the short term, but no company can keep cutting its way to prosperity. Even President-elect Barack Obama said Friday that Detroit automakers should not "squander the chance" to change their management practices.
To be sure, it takes years and enormous investments to develop new vehicles, and much of Detroit's focus throughout this decade has been on shedding workers and closing plants in response to its shrinking market share.
But the Detroit carmakers also have to find some new hits, just as they did in the 1990s with the SUVs, minivans and pickups that helped them - along with a national policy that encouraged the cheap gas that fueled the big and profitable vehicles - earn billions.
After the spike in gas prices this year, and continuing volatility in oil prices, the car companies' next great hope will be in fuel-efficient vehicles that they can sell in the hundreds of thousands, not just as niche models, and earn a profit from them.
Brian Johnson, an analyst with Barclays Capital, said the auto companies' challenges came down to four C's: cash, cost reduction, cars and culture.
The cash and cost reduction will come through the federal aid and the revamping plans they submitted in return for the help. "But they quite obviously need to get a different management culture that's capable of getting consumers to pay close to the same price of a Honda or a Toyota," Johnson said. "That's been the challenge for a decade."
In fact, Detroit still depends heavily on pickups and SUVs, as well as crossover vehicles, which are sport utilities built on car underpinnings.
Through November, light trucks made up 58 percent of GM's sales; they account for 63.5 percent of Ford's sales and 72.2 percent for Chrysler.
In fact, Toyota has sold more Camry models alone this year than Chrysler has sold of all its cars, according to Motorintelligence.com, a firm that follows industry statistics.
The Detroit companies say their sales mix will change soon. GM has pinned its future on the Chevrolet Volt, a plug-in electric car due two years from now, and another small Chevrolet, the Cruze, aimed at many of the same customers who have bought Toyota Corollas the last 40 years.
Though it has continued work on the Volt, it suspended work on the Cruze, and delayed building a new engine plant in Flint, Mich., needed for both cars, while it waited to see the outcome of the bailout bid.
Ford, which did not seek federal assistance because its cash reserves are stronger, is about to introduce a hybrid-electric version of its Fusion, a family sedan.
Chrysler discontinued its only hybrid model earlier this fall. It is relying on Nissan of Japan to develop its small cars.
And, at a briefing for journalists this week, Chrysler showed future models that included more new Jeeps, including an electric one, new pickups and muscle cars, according to Jalopnik.com, a Web site that follows the industry (and whose term for the crisis in Detroit - "carpocalypse" - is catching on in the industry).
"GM and Ford both have game plans," said Ray Wert III, the Web site's editor in chief. "Chrysler's is mired in the last decade, and not ready for the next one."
Chrysler's dependence on light trucks is a holdover from years when Americans could rely on cheap gas, which has returned because of a weakening global economy.
But the mix of vehicles will become a more critical issue as the industry approaches 2020, the year when its fleet of vehicles will have to be able to achieve an average fuel economy of 35 miles per gallon.
It is a level that European and Japanese carmakers already have to achieve at home, for the most part, to provide cars to consumers who have long paid high gas prices. GM and Ford also build popular fuel-efficient cars abroad, but they are more expensive than what American consumers are used to paying for small cars.
Falling gas prices are good news for Detroit in the short term, as consumers may warm again to the idea of buying SUVs and pickups, which would provide much-needed revenue to the Detroit companies.
But GM and Chrysler can no longer rely so heavily on those vehicles for their future - particularly the future that Obama appears to have in mind for them while he keeps an eye on their progress to become viable business.
That may mean pushing the market in a direction that not all car buyers want.
"For the American consumer, the drive to fuel economy revolves around the price of gasoline," said Ron Pinelli, president of Motorintelligence.com. "When gas is cheap, they don't want to spend the money to get a car that's fuel-efficient."
By Micheline Maynard
Saturday, December 20, 2008
DETROIT: With a lifeline from the White House, General Motors and Chrysler will survive for the next few months while they revamp.
But will they thrive again?
The plans from the car companies offer little in terms of fresh ideas. Instead, they are focused more on slow-selling models, persuading GM's debt holders to accept stock and getting union wages more in line with those paid by foreign brands in the United States.
Such moves are certainly necessary in the short term, but no company can keep cutting its way to prosperity. Even President-elect Barack Obama said Friday that Detroit automakers should not "squander the chance" to change their management practices.
To be sure, it takes years and enormous investments to develop new vehicles, and much of Detroit's focus throughout this decade has been on shedding workers and closing plants in response to its shrinking market share.
But the Detroit carmakers also have to find some new hits, just as they did in the 1990s with the SUVs, minivans and pickups that helped them - along with a national policy that encouraged the cheap gas that fueled the big and profitable vehicles - earn billions.
After the spike in gas prices this year, and continuing volatility in oil prices, the car companies' next great hope will be in fuel-efficient vehicles that they can sell in the hundreds of thousands, not just as niche models, and earn a profit from them.
Brian Johnson, an analyst with Barclays Capital, said the auto companies' challenges came down to four C's: cash, cost reduction, cars and culture.
The cash and cost reduction will come through the federal aid and the revamping plans they submitted in return for the help. "But they quite obviously need to get a different management culture that's capable of getting consumers to pay close to the same price of a Honda or a Toyota," Johnson said. "That's been the challenge for a decade."
In fact, Detroit still depends heavily on pickups and SUVs, as well as crossover vehicles, which are sport utilities built on car underpinnings.
Through November, light trucks made up 58 percent of GM's sales; they account for 63.5 percent of Ford's sales and 72.2 percent for Chrysler.
In fact, Toyota has sold more Camry models alone this year than Chrysler has sold of all its cars, according to Motorintelligence.com, a firm that follows industry statistics.
The Detroit companies say their sales mix will change soon. GM has pinned its future on the Chevrolet Volt, a plug-in electric car due two years from now, and another small Chevrolet, the Cruze, aimed at many of the same customers who have bought Toyota Corollas the last 40 years.
Though it has continued work on the Volt, it suspended work on the Cruze, and delayed building a new engine plant in Flint, Mich., needed for both cars, while it waited to see the outcome of the bailout bid.
Ford, which did not seek federal assistance because its cash reserves are stronger, is about to introduce a hybrid-electric version of its Fusion, a family sedan.
Chrysler discontinued its only hybrid model earlier this fall. It is relying on Nissan of Japan to develop its small cars.
And, at a briefing for journalists this week, Chrysler showed future models that included more new Jeeps, including an electric one, new pickups and muscle cars, according to Jalopnik.com, a Web site that follows the industry (and whose term for the crisis in Detroit - "carpocalypse" - is catching on in the industry).
"GM and Ford both have game plans," said Ray Wert III, the Web site's editor in chief. "Chrysler's is mired in the last decade, and not ready for the next one."
Chrysler's dependence on light trucks is a holdover from years when Americans could rely on cheap gas, which has returned because of a weakening global economy.
But the mix of vehicles will become a more critical issue as the industry approaches 2020, the year when its fleet of vehicles will have to be able to achieve an average fuel economy of 35 miles per gallon.
It is a level that European and Japanese carmakers already have to achieve at home, for the most part, to provide cars to consumers who have long paid high gas prices. GM and Ford also build popular fuel-efficient cars abroad, but they are more expensive than what American consumers are used to paying for small cars.
Falling gas prices are good news for Detroit in the short term, as consumers may warm again to the idea of buying SUVs and pickups, which would provide much-needed revenue to the Detroit companies.
But GM and Chrysler can no longer rely so heavily on those vehicles for their future - particularly the future that Obama appears to have in mind for them while he keeps an eye on their progress to become viable business.
That may mean pushing the market in a direction that not all car buyers want.
"For the American consumer, the drive to fuel economy revolves around the price of gasoline," said Ron Pinelli, president of Motorintelligence.com. "When gas is cheap, they don't want to spend the money to get a car that's fuel-efficient."
*********************
Gunmen attack vessels in Nigeria and kidnap Russians
Reuters
Saturday, December 20, 2008
By Randy Fabi
Gunmen in speedboats attacked three oil services ships and kidnapped at least two Russians in separate incidents in Nigeria's Niger Delta, private security and industry sources said on Saturday.
The Falcon Crest and Falcon Wings were attacked late on Friday off the coast of southern Nigeria's Akwa Ibom state near crude oil facilities operated by Canada's Addax Petroleum.
A Filipino captain on one of the vessels was killed, one security source said. The gunmen were believed to have fled to nearby Cameroonian waters.
No group has claimed responsibility.
Akwa Ibom, which shares a border with Cameroon, has seen an increase in piracy and kidnappings in the past few months.
Nigeria handed over the nearby oil-rich Bakassi peninsula to Cameroon four months ago, angering many Nigerians whose families have since resettled in Akwa Ibom.
Militants in the area have objected to the August 14 transfer, which complied with a World Court ruling.
Friday's attacks took place in the offshore area known as OML 123, referring to the 370 sq-km licence area controlled by Addax. Six similar incidents occurred earlier this year, the most recent two weeks ago, a security source said.
Addax and police officials were not immediately available for comment.
A third ship, operated by Nigerian oil company Monipulo, was attacked by pirates early on Saturday near the Abana offshore oilfields, located close to the Nigeria-Cameroon border.
Gunmen in speedboats also attacked a housing compound and kidnapped two Russians working for an aluminium company in the port town of Ikot Abasi in Akwa Ibom early on Saturday, security sources said.
The two Russians worked for Nigeria's sole aluminium smelter plant ALSCON, which is owned by the world's largest aluminium producer Russia's United Company RUSAL. The Russian firm confirmed its workers were kidnapped.
Piracy is common in the Gulf of Guinea off Nigeria's Atlantic coast while attacks on oil industry facilities and kidnappings for ransom are frequent in the creeks of the Niger Delta, home to Africa's biggest oil and gas industry.
The militants say they are fighting for a fairer share of the region's natural resources. Criminal gangs also fund themselves through the theft of crude oil and ransoms.
Hundreds of foreigners have been seized in the region since early 2006, most of whom have been released unharmed.
The insecurity has cut Nigeria's oil output, which averages around 2 million barrels per day, by a fifth over the past three years.
(Additional reporting by Austin Ekeinde in Port Harcourt and Amie Ferris-Rotman in Moscow; Editing by Michael Roddy)
Reuters
Saturday, December 20, 2008
By Randy Fabi
Gunmen in speedboats attacked three oil services ships and kidnapped at least two Russians in separate incidents in Nigeria's Niger Delta, private security and industry sources said on Saturday.
The Falcon Crest and Falcon Wings were attacked late on Friday off the coast of southern Nigeria's Akwa Ibom state near crude oil facilities operated by Canada's Addax Petroleum.
A Filipino captain on one of the vessels was killed, one security source said. The gunmen were believed to have fled to nearby Cameroonian waters.
No group has claimed responsibility.
Akwa Ibom, which shares a border with Cameroon, has seen an increase in piracy and kidnappings in the past few months.
Nigeria handed over the nearby oil-rich Bakassi peninsula to Cameroon four months ago, angering many Nigerians whose families have since resettled in Akwa Ibom.
Militants in the area have objected to the August 14 transfer, which complied with a World Court ruling.
Friday's attacks took place in the offshore area known as OML 123, referring to the 370 sq-km licence area controlled by Addax. Six similar incidents occurred earlier this year, the most recent two weeks ago, a security source said.
Addax and police officials were not immediately available for comment.
A third ship, operated by Nigerian oil company Monipulo, was attacked by pirates early on Saturday near the Abana offshore oilfields, located close to the Nigeria-Cameroon border.
Gunmen in speedboats also attacked a housing compound and kidnapped two Russians working for an aluminium company in the port town of Ikot Abasi in Akwa Ibom early on Saturday, security sources said.
The two Russians worked for Nigeria's sole aluminium smelter plant ALSCON, which is owned by the world's largest aluminium producer Russia's United Company RUSAL. The Russian firm confirmed its workers were kidnapped.
Piracy is common in the Gulf of Guinea off Nigeria's Atlantic coast while attacks on oil industry facilities and kidnappings for ransom are frequent in the creeks of the Niger Delta, home to Africa's biggest oil and gas industry.
The militants say they are fighting for a fairer share of the region's natural resources. Criminal gangs also fund themselves through the theft of crude oil and ransoms.
Hundreds of foreigners have been seized in the region since early 2006, most of whom have been released unharmed.
The insecurity has cut Nigeria's oil output, which averages around 2 million barrels per day, by a fifth over the past three years.
(Additional reporting by Austin Ekeinde in Port Harcourt and Amie Ferris-Rotman in Moscow; Editing by Michael Roddy)
SocGen said to end year healthy
Reuters
Saturday, December 20, 2008
PARIS: French bank Societe Generale will end the year in a healthy state despite a rogue trading scandal and the financial crisis, Chief Executive Frederic Oudea told the i-Tele television channel on Saturday.
The CEO described 2008, which saw the collapse of U.S. investment bank Lehman Brothers in the largest U.S. bankruptcy case in history, as a year of rupture.
SocGen began the year by revealing it had fallen victim to the world's worst rogue trading scandal when it unveiled 4.9 billion euros (£4.6 billion) of losses it said were caused by unauthorised trades by junior trader Jerome Kerviel.
However, it said it escaped with negligible exposure to the alleged $50 billion fraud by Wall Street broker Bernard Madoff that came to light this month.
"I don't see anything comparable to Lehman (happening in 2009)," Oudea said. "I think the world has learnt the lesson from Lehman."
SocGen saw its net profit drop 84 percent in the third quarter, with non-recurring items from Lehman and other writedowns related to the market slump having a pretax impact of 1.2 billion euros.
"Societe Generale is healthy at this end of year," Oudea told i-Tele. "It was able to show just how it was capable of managing - efficiently, it seems to me - such a shock," referring to the rogue trading scandal.
Looking ahead to early next year, Oudea added that the main issue for people's confidence would be jobs rather than spending power.
(Reporting by James Regan; Editing by Victoria Main)
Reuters
Saturday, December 20, 2008
PARIS: French bank Societe Generale will end the year in a healthy state despite a rogue trading scandal and the financial crisis, Chief Executive Frederic Oudea told the i-Tele television channel on Saturday.
The CEO described 2008, which saw the collapse of U.S. investment bank Lehman Brothers in the largest U.S. bankruptcy case in history, as a year of rupture.
SocGen began the year by revealing it had fallen victim to the world's worst rogue trading scandal when it unveiled 4.9 billion euros (£4.6 billion) of losses it said were caused by unauthorised trades by junior trader Jerome Kerviel.
However, it said it escaped with negligible exposure to the alleged $50 billion fraud by Wall Street broker Bernard Madoff that came to light this month.
"I don't see anything comparable to Lehman (happening in 2009)," Oudea said. "I think the world has learnt the lesson from Lehman."
SocGen saw its net profit drop 84 percent in the third quarter, with non-recurring items from Lehman and other writedowns related to the market slump having a pretax impact of 1.2 billion euros.
"Societe Generale is healthy at this end of year," Oudea told i-Tele. "It was able to show just how it was capable of managing - efficiently, it seems to me - such a shock," referring to the rogue trading scandal.
Looking ahead to early next year, Oudea added that the main issue for people's confidence would be jobs rather than spending power.
(Reporting by James Regan; Editing by Victoria Main)
Congo warlord has wide ambitions
By Lydia Polgreen
Saturday, December 20, 2008
BUNAGANA, Congo: At the entrance to this bustling border town is a most unusual sight: a speed limit sign. In fresh red, white and blue paint, it is a rare manifestation of order in a nation better known for chaos.
The seemingly innocuous signpost is emblematic of the growing might and wider ambitions of Laurent Nkunda, the renegade Congolese general and warlord who now holds part of Congo's future in his grip.
"I am fighting for the destiny of this country," said Nkunda, offering up the orderly streets and neatly terraced farms of the surrounding countryside as evidence of what Congo might be like if he ran things. "What we want is to restore the dignity of this country and these people."
But beneath the veneer lies a ruthlessness of a piece with Congo's unbroken history of brutality. With a military campaign in October and November that was met with a feeble response from both the Congolese government and UN peacekeeping forces here in eastern Congo, Nkunda has pushed the nation to its most dangerous precipice in years. Many here fear a new regional war or that an alliance of convenience between Nkunda and other enemies of the president could lead to the ouster of Congo's first democratically elected government in four decades.
That Nkunda, who is suspected of committing a litany human rights violations, could be a leading figure in such a move is a chilling thought for many Congolese. A recent journey through territory he controls revealed a host of contradictions between the image he puts forward and reality, including evidence of mass killings, the extraction of onerous payments from residents, illegal profiteering from the mineral trade and the conscription of child soldiers.
Nkunda's campaign began as a local insurgency aimed at redressing the grievances of a small Tutsi minority that felt threatened by the lingering aftershocks of the Rwandan genocide. But it has grown into a rebellion with a broad set of aims that include the removal of President Joseph Kabila, who was elected in 2006 after more than 40 years of tyranny and war in this country.
"We have national ambitions," Nkunda declared, a hint of triumph in his voice. "We are talking about Congo."
Some of this talk may be grandiose bluster from a man fond of referring to himself in the third person and who prefers to be photographed holding a scepter capped by a silver-plated eagle's head. Nkunda is despised by many in eastern Congo for his brutal tactics. He is also widely perceived as a proxy for Rwanda, a country whose meddling Congolese citizens largely detest. The general claims he does not want to replace Kabila, merely to sit down and have direct talks.
But Nkunda's forceful new challenge poses grave risks for Kabila, who is weaker than ever. The national army was routed on the battlefield, retreating virtually without a fight, pillaging and raping as it went.
The country's once fast-growing economy is in shambles as the prices of minerals have plummeted in the global recession, and Kabila is increasingly unpopular.
In the face of Kabila's plummeting stature, Nkunda has cultivated an image as a disciplined crusader bent on bringing order to the country. He dresses in sharp uniforms or flowing, immaculate white robes. He has claimed to be an evangelical minister, and at times wears a pin that reads, "Rebels for Christ."
Nkunda and his top commanders say their fighters have a commitment to discipline as well: Drunkenness, looting and rape are offenses punishable by imprisonment and possibly death, according to senior rebel officers.
But in 2002, when Nkunda was a commander in a different rebel group, he participated in the mass killing of 160 mutineers in the city of Kisangani, human rights groups say. According to Human Rights Watch, "Forces under Nkunda's command bound, gagged, and executed twenty-eight persons and then put their bodies in bags weighted with stones and threw them off a Kisangani bridge."
Two years later, Nkunda's men took the city of Bukavu, and days of killing and rape followed, investigators say. Since 2005, when he formed his own rebel group, known as the National Congress for the Defense of the People, or CNDP, his forces have carried out a number of massacres, according to human rights investigators, most recently at Kiwanja, in early November, where 150 people were executed.
In Nkunda territory, the general says, civilians are never harmed and live without fear of violence or looting. His men offer up the endless, Eden-like valleys around this town as proof. Terraced into rows as tidy as seats in an amphitheater, the land bespeaks a kind of ordered plenty.
But farmers here say they are forced to hand over a precious portion of their harvest to feed the fighters: 45 pounds of beans or grain, and as much as $20 a season in taxes, an enormous sum in a place where most people live on far less than a dollar a day.
Nkunda said his rebellion is not motivated, like so many others fighting here, by plunder of Congo's natural resources.
"I am not here for minerals," he said. Indeed, there are almost no mines in the areas under his control, and Nkunda has avoided getting directly involved in mining, fearing the taint of blood minerals that has stained virtually every group fighting here, including Congo's own army.
But his fighters collect taxes on virtually every commercial vehicle and bushel of crops that come out of territory they control, according to residents and a U.N. report released last week. They even take a cut of the $300 permits sold to tourists wishing to see Congo's rare mountain gorillas.
"The money goes to the rebels," said one of the park rangers who monitors the animals. "None of it comes to us."
Nkunda's men also profit from Congo's minerals. Thousands of tons of tin ore, coltan and other minerals pass through the border crossing here to Uganda, headed to Kenya's Indian Ocean port, and the rebels take a slice of the taxes collected here, U.N. officials say.
Nkunda denied this, saying his men sent all taxes to the government.
According to rebel officials, in Nkunda territory children are never made to wield Kalashnikovs and kill. But boys like Eric, who is now 16 but says he has been fighting with armed groups since he was kidnapped by Hutu militiamen at the age of 9, say Nkunda's rebellion forces hundreds of children to fight.
Nkunda seems to have little trouble drawing new recruits, because each man is issued a uniform, a gun and training, unlike Congolese soldiers, who can go months without salaries. Some fighters are drawn to the rebels for ethnic reasons, but many others simply want to fight on the side that wins. His force is more disciplined, Nkunda says, because they are fighting for a cause they believe in.
Nkunda seems determined to play the role of statesman in waiting, receiving visiting diplomats and emissaries like a chief of state. He rejects the legitimacy of the Kabila government, so the U.N. appointed the former president of Nigeria, Olusegun Obasanjo, to cajole Nkunda back to the negotiating table.
"What is democracy?" Nkunda mused, worrying his scepter, which has grown brassy over the years as his rebellion has flourished. "Democracy is not elections. Democracy is legitimacy. And legitimacy comes from what you are doing to your people."
Nkunda is all but certain to face an arrest warrant from the International Criminal Court for atrocities committed during his years fighting here, human rights investigators say, most recently in Kiwanja, where his men executed civilians and torched camps that housed 30,000 displaced people.
"Nkunda destroyed my life," said Anorite Zawadi, 27, whose 8-year-old daughter disappeared when Nkunda's troops razed the camp in which her family lived. The girl has not been seen since.
"He has no mercy on us," she continued. "He brings only death and sorrow."
By Lydia Polgreen
Saturday, December 20, 2008
BUNAGANA, Congo: At the entrance to this bustling border town is a most unusual sight: a speed limit sign. In fresh red, white and blue paint, it is a rare manifestation of order in a nation better known for chaos.
The seemingly innocuous signpost is emblematic of the growing might and wider ambitions of Laurent Nkunda, the renegade Congolese general and warlord who now holds part of Congo's future in his grip.
"I am fighting for the destiny of this country," said Nkunda, offering up the orderly streets and neatly terraced farms of the surrounding countryside as evidence of what Congo might be like if he ran things. "What we want is to restore the dignity of this country and these people."
But beneath the veneer lies a ruthlessness of a piece with Congo's unbroken history of brutality. With a military campaign in October and November that was met with a feeble response from both the Congolese government and UN peacekeeping forces here in eastern Congo, Nkunda has pushed the nation to its most dangerous precipice in years. Many here fear a new regional war or that an alliance of convenience between Nkunda and other enemies of the president could lead to the ouster of Congo's first democratically elected government in four decades.
That Nkunda, who is suspected of committing a litany human rights violations, could be a leading figure in such a move is a chilling thought for many Congolese. A recent journey through territory he controls revealed a host of contradictions between the image he puts forward and reality, including evidence of mass killings, the extraction of onerous payments from residents, illegal profiteering from the mineral trade and the conscription of child soldiers.
Nkunda's campaign began as a local insurgency aimed at redressing the grievances of a small Tutsi minority that felt threatened by the lingering aftershocks of the Rwandan genocide. But it has grown into a rebellion with a broad set of aims that include the removal of President Joseph Kabila, who was elected in 2006 after more than 40 years of tyranny and war in this country.
"We have national ambitions," Nkunda declared, a hint of triumph in his voice. "We are talking about Congo."
Some of this talk may be grandiose bluster from a man fond of referring to himself in the third person and who prefers to be photographed holding a scepter capped by a silver-plated eagle's head. Nkunda is despised by many in eastern Congo for his brutal tactics. He is also widely perceived as a proxy for Rwanda, a country whose meddling Congolese citizens largely detest. The general claims he does not want to replace Kabila, merely to sit down and have direct talks.
But Nkunda's forceful new challenge poses grave risks for Kabila, who is weaker than ever. The national army was routed on the battlefield, retreating virtually without a fight, pillaging and raping as it went.
The country's once fast-growing economy is in shambles as the prices of minerals have plummeted in the global recession, and Kabila is increasingly unpopular.
In the face of Kabila's plummeting stature, Nkunda has cultivated an image as a disciplined crusader bent on bringing order to the country. He dresses in sharp uniforms or flowing, immaculate white robes. He has claimed to be an evangelical minister, and at times wears a pin that reads, "Rebels for Christ."
Nkunda and his top commanders say their fighters have a commitment to discipline as well: Drunkenness, looting and rape are offenses punishable by imprisonment and possibly death, according to senior rebel officers.
But in 2002, when Nkunda was a commander in a different rebel group, he participated in the mass killing of 160 mutineers in the city of Kisangani, human rights groups say. According to Human Rights Watch, "Forces under Nkunda's command bound, gagged, and executed twenty-eight persons and then put their bodies in bags weighted with stones and threw them off a Kisangani bridge."
Two years later, Nkunda's men took the city of Bukavu, and days of killing and rape followed, investigators say. Since 2005, when he formed his own rebel group, known as the National Congress for the Defense of the People, or CNDP, his forces have carried out a number of massacres, according to human rights investigators, most recently at Kiwanja, in early November, where 150 people were executed.
In Nkunda territory, the general says, civilians are never harmed and live without fear of violence or looting. His men offer up the endless, Eden-like valleys around this town as proof. Terraced into rows as tidy as seats in an amphitheater, the land bespeaks a kind of ordered plenty.
But farmers here say they are forced to hand over a precious portion of their harvest to feed the fighters: 45 pounds of beans or grain, and as much as $20 a season in taxes, an enormous sum in a place where most people live on far less than a dollar a day.
Nkunda said his rebellion is not motivated, like so many others fighting here, by plunder of Congo's natural resources.
"I am not here for minerals," he said. Indeed, there are almost no mines in the areas under his control, and Nkunda has avoided getting directly involved in mining, fearing the taint of blood minerals that has stained virtually every group fighting here, including Congo's own army.
But his fighters collect taxes on virtually every commercial vehicle and bushel of crops that come out of territory they control, according to residents and a U.N. report released last week. They even take a cut of the $300 permits sold to tourists wishing to see Congo's rare mountain gorillas.
"The money goes to the rebels," said one of the park rangers who monitors the animals. "None of it comes to us."
Nkunda's men also profit from Congo's minerals. Thousands of tons of tin ore, coltan and other minerals pass through the border crossing here to Uganda, headed to Kenya's Indian Ocean port, and the rebels take a slice of the taxes collected here, U.N. officials say.
Nkunda denied this, saying his men sent all taxes to the government.
According to rebel officials, in Nkunda territory children are never made to wield Kalashnikovs and kill. But boys like Eric, who is now 16 but says he has been fighting with armed groups since he was kidnapped by Hutu militiamen at the age of 9, say Nkunda's rebellion forces hundreds of children to fight.
Nkunda seems to have little trouble drawing new recruits, because each man is issued a uniform, a gun and training, unlike Congolese soldiers, who can go months without salaries. Some fighters are drawn to the rebels for ethnic reasons, but many others simply want to fight on the side that wins. His force is more disciplined, Nkunda says, because they are fighting for a cause they believe in.
Nkunda seems determined to play the role of statesman in waiting, receiving visiting diplomats and emissaries like a chief of state. He rejects the legitimacy of the Kabila government, so the U.N. appointed the former president of Nigeria, Olusegun Obasanjo, to cajole Nkunda back to the negotiating table.
"What is democracy?" Nkunda mused, worrying his scepter, which has grown brassy over the years as his rebellion has flourished. "Democracy is not elections. Democracy is legitimacy. And legitimacy comes from what you are doing to your people."
Nkunda is all but certain to face an arrest warrant from the International Criminal Court for atrocities committed during his years fighting here, human rights investigators say, most recently in Kiwanja, where his men executed civilians and torched camps that housed 30,000 displaced people.
"Nkunda destroyed my life," said Anorite Zawadi, 27, whose 8-year-old daughter disappeared when Nkunda's troops razed the camp in which her family lived. The girl has not been seen since.
"He has no mercy on us," she continued. "He brings only death and sorrow."
*******************
Tuareg rebels kill 14 in Mali raid
Reuters
Saturday, December 20, 2008
BAMAKO: Tuareg rebels killed at least 14 soldiers in an attack on an army post close to Mali's border with Mauritania on Saturday, Malian military sources said, testing a five-month cease-fire in the African gold producer.
Gunmen in more than 20 four-wheel-drive vehicles raided the post at Nampala, some 400 km (250 miles) northeast of the capital Bamako before dawn, one source said.
"It is carnage, there are 14 soldiers killed including the chief of the post, 15 others injured, and it appears that hostages were taken," a second military source said, citing a provisional death toll.
The first source said fighters under the command of Tuareg insurgent chief Ibrahima Bahanga carried out the attack.
"We think they are rebel chief Bahanga's men," he said.
In July, Algeria brokered a cease-fire between Mali's government and the Tuareg rebels. For more than a year Tuareg fighters have attacked army posts and convoys to press for greater rights for their people in the largely desert West African country.
But doubts remain about the participation of Bahanga, a veteran rebel chieftain seen as something of a rogue element in the Malian Tuareg insurgency.
(Reporting by Tiemoko Diallo; Writing by Daniel Magnowski; Editing by Katie Nguyen)
Reuters
Saturday, December 20, 2008
BAMAKO: Tuareg rebels killed at least 14 soldiers in an attack on an army post close to Mali's border with Mauritania on Saturday, Malian military sources said, testing a five-month cease-fire in the African gold producer.
Gunmen in more than 20 four-wheel-drive vehicles raided the post at Nampala, some 400 km (250 miles) northeast of the capital Bamako before dawn, one source said.
"It is carnage, there are 14 soldiers killed including the chief of the post, 15 others injured, and it appears that hostages were taken," a second military source said, citing a provisional death toll.
The first source said fighters under the command of Tuareg insurgent chief Ibrahima Bahanga carried out the attack.
"We think they are rebel chief Bahanga's men," he said.
In July, Algeria brokered a cease-fire between Mali's government and the Tuareg rebels. For more than a year Tuareg fighters have attacked army posts and convoys to press for greater rights for their people in the largely desert West African country.
But doubts remain about the participation of Bahanga, a veteran rebel chieftain seen as something of a rogue element in the Malian Tuareg insurgency.
(Reporting by Tiemoko Diallo; Writing by Daniel Magnowski; Editing by Katie Nguyen)
WITNESS - Basra family meeting shocks Iraqi-Briton
Reuters
Sunday, December 21, 2008
Mohammed Abbas is a Baghdad-based correspondent for Reuters. He was born in Basra, Iraq, but emigrated with his parents to Britain when he was one year old in 1980. In the following story, he describes his experience returning to Basra and meeting family for the first time.
By Mohammed Abbas
My family in Britain argues with the neighbours about noise, but for my cousins in Iraq, one of a host of less trivial grievances was their neighbours' hospitality to cross-dressing al Qaeda fighters.
I met cousins, aunts and uncles for the first time on a recent trip to Basra in Iraq's Shi'ite south, which I had left 28 years ago to live in Britain. Some cousins looked like me and were about the same age, but our lives had been very different.
Basra was once the front line in Iraq's war with Iran and my Shi'ite aunt and her five children fled in the 1980s and went to live in western Anbar province, a mostly Sunni region.
My aunt told me the people there were very welcoming, until the sectarian blood-letting started shortly after the U.S.-led invasion of Iraq in 2003.
A stream of what looked like women in all-enveloping black robes, or abayas, would come to their neighbours' door, then lift their veils to reveal bearded al Qaeda fighters.
The Sunni Islamist group and other Sunni insurgents, many smuggled in from neighbouring countries, came to rule Anbar at the height of the anti-U.S. insurgency.
My cousins would have to let al Qaeda members into their homes and pretend to be Sunnis, and with a $700 "donation" in their pocket, the al Qaeda types would pretend to believe them.
The neighbours' son went on to blow himself up in a botched suicide bombing, and his mother distributed sweets to celebrate his "martyrdom."
Eventually the sectarian hatred was so bad there were calls from mosque minarets for Sunnis to kill Shi'ites, and insurgents would come to my aunt's door asking for her sons. So the family fled again, back to Basra.
MORBID SAFARI
For another aunt, a Sunni, Basra was no refuge. Her husband's brother was kidnapped and held for ransom. He was returned severely beaten.
Until a government crackdown last March, the oil-rich and mostly Shi'ite city was largely run by militias and armed gangs.
Despite the sectarian violence, my mixed-sect family in Basra all got along. Many families in Iraq contain both Sunnis and Shi'ites, belying media representations of two mutually exclusive groups out for each other's blood.
But on the six-hour drive down from Baghdad, my hope that Basra would be the green city of palm trees and canals described to me by my parents gradually faded.
Besides the Iran-Iraq war, the city had been through two Gulf wars and sanctions since my parents left to study in Britain in 1980. They were against Saddam Hussein, and had decided not to return.
I was less than 1 year old when I left Basra. Although I had no memories of the city, I had patched together an image from what I was told were comparable scenes on family trips to the Middle East. My mother had taken the best of the region and created Basra in my head.
My first sight of it as an adult were the slums on its outskirts, which were swimming in filthy pools of rainwater.
The sides of the road were piled with rubbish, including a dead horse, dead dogs, dead buffalo, dead cats, dead sheep and one nearly dead camel -- a morbid safari of Iraqi fauna.
Basra had once been described as the "Venice of the Middle East." With a lot of imagination -- and while holding your nose -- you can get an idea of the rubbish-strewn city's past.
Bridges criss-cross numerous canals, but the water is filthy. There are some palm trees, but many were destroyed during the war with Iran. There is the Shatt al-Arab waterway, with its corniche, but it too is full of rubbish and rusty sunken ships. One of Saddam's yachts lies grounded on its side.
HIP AND SWINGING
As elsewhere in Iraq, the people of Basra dress conservatively, the women in veils and most men in the drab largely Chinese-made clothing that has flooded the country.
Flicking through an aunt's photo album, I was shocked to see how hip Basra once was. In the sixties and seventies it had a reputation as a swinging cosmopolitan city.
My Shi'ite aunt, who was stooped and wore an abaya, had once with her beehive hairstyle, thick eyeliner and A-line dress looked like British singer Amy Winehouse. Her late husband looked like a member of the U.S. band the Blues Brothers.
My grandmother, now virtually toothless, veiled and in constant prayer, was stunning in a little red dress with matching handbag and pumps.
More recent photos showed more conservative clothing, as Iraq descended into war and chaos under Saddam and later fell under the sway of religious parties.
My family in Basra did not begrudge my life of relative comfort and safety in Britain, and were glad I had not gone through what they had.
One evening my Sunni aunt took me to where my parents once lived, in the old part of Basra. For once, it was just as my parents had described.
A full moon illuminated grand villas with arched doors and windows. Wooden intricately carved balconies leaned over a narrow canal below.
It was beautiful, and I didn't have to hold my nose.
(Editing by Michael Christie and Sara Ledwith)
Reuters
Sunday, December 21, 2008
Mohammed Abbas is a Baghdad-based correspondent for Reuters. He was born in Basra, Iraq, but emigrated with his parents to Britain when he was one year old in 1980. In the following story, he describes his experience returning to Basra and meeting family for the first time.
By Mohammed Abbas
My family in Britain argues with the neighbours about noise, but for my cousins in Iraq, one of a host of less trivial grievances was their neighbours' hospitality to cross-dressing al Qaeda fighters.
I met cousins, aunts and uncles for the first time on a recent trip to Basra in Iraq's Shi'ite south, which I had left 28 years ago to live in Britain. Some cousins looked like me and were about the same age, but our lives had been very different.
Basra was once the front line in Iraq's war with Iran and my Shi'ite aunt and her five children fled in the 1980s and went to live in western Anbar province, a mostly Sunni region.
My aunt told me the people there were very welcoming, until the sectarian blood-letting started shortly after the U.S.-led invasion of Iraq in 2003.
A stream of what looked like women in all-enveloping black robes, or abayas, would come to their neighbours' door, then lift their veils to reveal bearded al Qaeda fighters.
The Sunni Islamist group and other Sunni insurgents, many smuggled in from neighbouring countries, came to rule Anbar at the height of the anti-U.S. insurgency.
My cousins would have to let al Qaeda members into their homes and pretend to be Sunnis, and with a $700 "donation" in their pocket, the al Qaeda types would pretend to believe them.
The neighbours' son went on to blow himself up in a botched suicide bombing, and his mother distributed sweets to celebrate his "martyrdom."
Eventually the sectarian hatred was so bad there were calls from mosque minarets for Sunnis to kill Shi'ites, and insurgents would come to my aunt's door asking for her sons. So the family fled again, back to Basra.
MORBID SAFARI
For another aunt, a Sunni, Basra was no refuge. Her husband's brother was kidnapped and held for ransom. He was returned severely beaten.
Until a government crackdown last March, the oil-rich and mostly Shi'ite city was largely run by militias and armed gangs.
Despite the sectarian violence, my mixed-sect family in Basra all got along. Many families in Iraq contain both Sunnis and Shi'ites, belying media representations of two mutually exclusive groups out for each other's blood.
But on the six-hour drive down from Baghdad, my hope that Basra would be the green city of palm trees and canals described to me by my parents gradually faded.
Besides the Iran-Iraq war, the city had been through two Gulf wars and sanctions since my parents left to study in Britain in 1980. They were against Saddam Hussein, and had decided not to return.
I was less than 1 year old when I left Basra. Although I had no memories of the city, I had patched together an image from what I was told were comparable scenes on family trips to the Middle East. My mother had taken the best of the region and created Basra in my head.
My first sight of it as an adult were the slums on its outskirts, which were swimming in filthy pools of rainwater.
The sides of the road were piled with rubbish, including a dead horse, dead dogs, dead buffalo, dead cats, dead sheep and one nearly dead camel -- a morbid safari of Iraqi fauna.
Basra had once been described as the "Venice of the Middle East." With a lot of imagination -- and while holding your nose -- you can get an idea of the rubbish-strewn city's past.
Bridges criss-cross numerous canals, but the water is filthy. There are some palm trees, but many were destroyed during the war with Iran. There is the Shatt al-Arab waterway, with its corniche, but it too is full of rubbish and rusty sunken ships. One of Saddam's yachts lies grounded on its side.
HIP AND SWINGING
As elsewhere in Iraq, the people of Basra dress conservatively, the women in veils and most men in the drab largely Chinese-made clothing that has flooded the country.
Flicking through an aunt's photo album, I was shocked to see how hip Basra once was. In the sixties and seventies it had a reputation as a swinging cosmopolitan city.
My Shi'ite aunt, who was stooped and wore an abaya, had once with her beehive hairstyle, thick eyeliner and A-line dress looked like British singer Amy Winehouse. Her late husband looked like a member of the U.S. band the Blues Brothers.
My grandmother, now virtually toothless, veiled and in constant prayer, was stunning in a little red dress with matching handbag and pumps.
More recent photos showed more conservative clothing, as Iraq descended into war and chaos under Saddam and later fell under the sway of religious parties.
My family in Basra did not begrudge my life of relative comfort and safety in Britain, and were glad I had not gone through what they had.
One evening my Sunni aunt took me to where my parents once lived, in the old part of Basra. For once, it was just as my parents had described.
A full moon illuminated grand villas with arched doors and windows. Wooden intricately carved balconies leaned over a narrow canal below.
It was beautiful, and I didn't have to hold my nose.
(Editing by Michael Christie and Sara Ledwith)
*****************
Abuse of prescription drugs rises among Iraqi soldiers
By Mudhafer Al-Husaini and Erica Goode
Sunday, December 21, 2008
BAGHDAD: For an Iraqi Army soldier patrolling Baghdad's unpredictable streets, each 12-hour shift is an exercise in terror and uncertainty.
So Ahmed Qasim pops a small white tablet called Artane to help him through his duties.
"For me, it helps me to get the job done," he said. "I can't bear working without taking Artane. It makes me happy and high, but I still can control myself."
The abuse of prescription drugs, widely available in Iraq on the black market and through private pharmacies, has significantly increased since 2003, doctors and other health specialists say, nourished by the stresses of the war and the lack of strict government regulation.
Dealers do a brisk business in tranquilizers, painkillers and other drugs, specialists say, and drug abuse is a problem in the prisons and among Iraqis who live in poor neighborhoods or who are unemployed.
But in recent years, Iraqi soldiers and police officers have also turned to drugs to ease the stresses of their jobs. In particular, they are abusing artane, a medication that is used to treat Parkinson's disease and that can have euphoric effects when used in high doses.
"They believe that this Artane allows them to become courageous, to become brave," said one doctor, who spoke on the condition of anonymity because he was not authorized to speak publicly. about the issue.
"They take it so that there is no anxiety, no fear," he said, "so they can break down doors and enter houses with no shame."
No clear evidence exists that the misuse of prescription drugs has a significant effect on how soldiers and police officers perform their duties. Nor are any figures available on how widespread drug abuse is in the security forces or whether most of those who use the drugs do so daily.
But Qasim, 26, estimated that one out of three soldiers in his army unit take Artane or other drugs while on duty. Jalal Ammar, 45, an Iraqi police officer, said "probably 30 percent" of the police officers he worked with used Artane and other medications. Dr. Amir al-Haidari, the manager of drug addiction programs for the Ministry of Health of Iraq, said that alcohol abuse was once a bigger problem than prescription drug abuse, "but after the American invasion of Iraq, alcohol became limited because of the security situation and religious restraints."
Now, he said, "the long duties, the suicide attacks and the killing are all factors that drive the security forces members toward Artane and other drugs."
Dr. Haidari added that the Health Ministry had begun a campaign to close private pharmacies that sell drugs illegally and to place more restrictions on prescriptions. He said the problem was no worse in the security forces than among civilians.
The ministry, Dr. Haidari said, is also trying to open more treatment centers for addicts. Only one hospital in Iraq, Ibn Rushid psychiatric hospital in central Baghdad, has a ward devoted to treating alcohol and drug abuse.
General Ahmed al-Khafaji, an official at the Interior Ministry concerned with police affairs, denied that drug abuse was a significant issue among Iraqi police officers.
"We don't accept any kind of addiction within the security forces or our troops from the police," he said, adding that any police officer who was found to abuse drugs "will be dismissed from our ministry forever."
Major General Qassim Atta of the Iraqi military said that the soldiers in Baghdad "have very good mental health and high spirits."
Asked about the abuse of prescription drugs, he said, "Maybe there are some negative points here and there, but you cannot generalize based on such cases."
On the street, Artane, Valium and other drugs are known by nicknames, including "the capsule," "the eyebrow" and "the cross." Ammar said that when police officers talked among themselves about the drugs, they referred to them as "appetizers" or "takeout."
Drug use is forbidden in the Iraqi security forces, but Qasim said that soldiers took drugs discreetly and that "everyone in the army knows about it."
Still, he said, "you can't take them clearly in front of the officers."
Qais, the owner of a private drugstore who would give only his first name because his activities are illegal, says that he sells Artane and other drugs without prescriptions and that he has been arrested three times. However, he has used bribes to avoid prosecution, he said.
"I don't deal with strangers unless they come through my known network," he said. "I have some people who distribute the drugs, and they are well-trusted people. I have other customers who take large amounts of drugs, and they come in from time to time or I deliver it to them in specific locations."
Because of the stigma attached to drug addiction, many addicts do not seek treatment, doctors said. When soldiers or police officers do go to Ibn Rushid for help, they arrive in civilian clothes and are often reluctant to reveal their military status.
One patient who sought treatment at the hospital for Artane addiction in the spring told a doctor that he was in the army, but he became visibly alarmed when a visitor began asking him more questions about his job.
In a rare study of drug addiction, conducted at Ibn Rushid several years ago, the researchers, Dr. Amir Hussein and Dr. Shalan al-Abbudi, found that cases of prescription drug abuse had increased substantially from 2002 to 2004. In 2004, 58.4 percent of the patients admitted to the addiction unit were there for prescription drug abuse, compared with 27 percent in 2002. Cases of alcoholism dropped to 40.8 percent in 2004 from 73 percent in 2002.
Artane was by far the most popular drug abused by the addicts, the study found, with Valium a close second. Other drugs included Ativan and Mogadon, also tranquilizers, Somadril, a muscle relaxant drug in the same class as Artane, and codeine cough syrup.
Unlike some tranquilizers and drugs like cocaine or heroin, Artane does not produce physical addiction. but can produce psychological dependence. But the drug's label warns that alcohol, barbiturates or narcotics can intensify its effects.
Psychiatrists familiar with Artane abuse say that addicts vary in how frequently they use the drug, sometimes taking it only when they are under stress.
Keith Humphreys, a professor of psychiatry at Stanford University School of Medicine who specializes in drug addiction and advises Iraqi psychiatrists on mental health treatment, said that widespread Artane abuse was almost unheard of elsewhere.
"It's been very strange for me having worked in the field 20 years in the U.S. and never having seen an Artane addict," Dr. Humphreys said, "yet that is almost always the first kind of case Iraqi colleagues ask me how to treat."
Nazar Amin, a psychiatrist at Sulaimaniya University in the northern Kurdish region of Iraq who has studied Artane abuse, said that it began before the war between Iraq and Iran, when some athletes started using the drug in training.
But Artane abuse increased during the war and became common in prisons, where relatives or guards smuggled it to inmates.
"As far as I know, the addiction is mostly psychological rather than physical," Dr. Amin said.
A 25-year-old police officer in Baghdad said he began taking Artane and Valium two years ago "to escape the bitter reality" and continued to use the drugs.
The police officer, who spoke on the condition of anonymity for fear of repercussions from his superiors, says he often uses Artane for night shifts, while guarding the police station or "going on a mission in the scary and dark streets of Baghdad after midnight."
He has seen "so many explosions and picked up so many corpses, including those of my colleagues," he said. "Anyone would collapse under such high stress."
"We don't commit suicide," he said, "and that's why we resort to Artane and other drugs."
By Mudhafer Al-Husaini and Erica Goode
Sunday, December 21, 2008
BAGHDAD: For an Iraqi Army soldier patrolling Baghdad's unpredictable streets, each 12-hour shift is an exercise in terror and uncertainty.
So Ahmed Qasim pops a small white tablet called Artane to help him through his duties.
"For me, it helps me to get the job done," he said. "I can't bear working without taking Artane. It makes me happy and high, but I still can control myself."
The abuse of prescription drugs, widely available in Iraq on the black market and through private pharmacies, has significantly increased since 2003, doctors and other health specialists say, nourished by the stresses of the war and the lack of strict government regulation.
Dealers do a brisk business in tranquilizers, painkillers and other drugs, specialists say, and drug abuse is a problem in the prisons and among Iraqis who live in poor neighborhoods or who are unemployed.
But in recent years, Iraqi soldiers and police officers have also turned to drugs to ease the stresses of their jobs. In particular, they are abusing artane, a medication that is used to treat Parkinson's disease and that can have euphoric effects when used in high doses.
"They believe that this Artane allows them to become courageous, to become brave," said one doctor, who spoke on the condition of anonymity because he was not authorized to speak publicly. about the issue.
"They take it so that there is no anxiety, no fear," he said, "so they can break down doors and enter houses with no shame."
No clear evidence exists that the misuse of prescription drugs has a significant effect on how soldiers and police officers perform their duties. Nor are any figures available on how widespread drug abuse is in the security forces or whether most of those who use the drugs do so daily.
But Qasim, 26, estimated that one out of three soldiers in his army unit take Artane or other drugs while on duty. Jalal Ammar, 45, an Iraqi police officer, said "probably 30 percent" of the police officers he worked with used Artane and other medications. Dr. Amir al-Haidari, the manager of drug addiction programs for the Ministry of Health of Iraq, said that alcohol abuse was once a bigger problem than prescription drug abuse, "but after the American invasion of Iraq, alcohol became limited because of the security situation and religious restraints."
Now, he said, "the long duties, the suicide attacks and the killing are all factors that drive the security forces members toward Artane and other drugs."
Dr. Haidari added that the Health Ministry had begun a campaign to close private pharmacies that sell drugs illegally and to place more restrictions on prescriptions. He said the problem was no worse in the security forces than among civilians.
The ministry, Dr. Haidari said, is also trying to open more treatment centers for addicts. Only one hospital in Iraq, Ibn Rushid psychiatric hospital in central Baghdad, has a ward devoted to treating alcohol and drug abuse.
General Ahmed al-Khafaji, an official at the Interior Ministry concerned with police affairs, denied that drug abuse was a significant issue among Iraqi police officers.
"We don't accept any kind of addiction within the security forces or our troops from the police," he said, adding that any police officer who was found to abuse drugs "will be dismissed from our ministry forever."
Major General Qassim Atta of the Iraqi military said that the soldiers in Baghdad "have very good mental health and high spirits."
Asked about the abuse of prescription drugs, he said, "Maybe there are some negative points here and there, but you cannot generalize based on such cases."
On the street, Artane, Valium and other drugs are known by nicknames, including "the capsule," "the eyebrow" and "the cross." Ammar said that when police officers talked among themselves about the drugs, they referred to them as "appetizers" or "takeout."
Drug use is forbidden in the Iraqi security forces, but Qasim said that soldiers took drugs discreetly and that "everyone in the army knows about it."
Still, he said, "you can't take them clearly in front of the officers."
Qais, the owner of a private drugstore who would give only his first name because his activities are illegal, says that he sells Artane and other drugs without prescriptions and that he has been arrested three times. However, he has used bribes to avoid prosecution, he said.
"I don't deal with strangers unless they come through my known network," he said. "I have some people who distribute the drugs, and they are well-trusted people. I have other customers who take large amounts of drugs, and they come in from time to time or I deliver it to them in specific locations."
Because of the stigma attached to drug addiction, many addicts do not seek treatment, doctors said. When soldiers or police officers do go to Ibn Rushid for help, they arrive in civilian clothes and are often reluctant to reveal their military status.
One patient who sought treatment at the hospital for Artane addiction in the spring told a doctor that he was in the army, but he became visibly alarmed when a visitor began asking him more questions about his job.
In a rare study of drug addiction, conducted at Ibn Rushid several years ago, the researchers, Dr. Amir Hussein and Dr. Shalan al-Abbudi, found that cases of prescription drug abuse had increased substantially from 2002 to 2004. In 2004, 58.4 percent of the patients admitted to the addiction unit were there for prescription drug abuse, compared with 27 percent in 2002. Cases of alcoholism dropped to 40.8 percent in 2004 from 73 percent in 2002.
Artane was by far the most popular drug abused by the addicts, the study found, with Valium a close second. Other drugs included Ativan and Mogadon, also tranquilizers, Somadril, a muscle relaxant drug in the same class as Artane, and codeine cough syrup.
Unlike some tranquilizers and drugs like cocaine or heroin, Artane does not produce physical addiction. but can produce psychological dependence. But the drug's label warns that alcohol, barbiturates or narcotics can intensify its effects.
Psychiatrists familiar with Artane abuse say that addicts vary in how frequently they use the drug, sometimes taking it only when they are under stress.
Keith Humphreys, a professor of psychiatry at Stanford University School of Medicine who specializes in drug addiction and advises Iraqi psychiatrists on mental health treatment, said that widespread Artane abuse was almost unheard of elsewhere.
"It's been very strange for me having worked in the field 20 years in the U.S. and never having seen an Artane addict," Dr. Humphreys said, "yet that is almost always the first kind of case Iraqi colleagues ask me how to treat."
Nazar Amin, a psychiatrist at Sulaimaniya University in the northern Kurdish region of Iraq who has studied Artane abuse, said that it began before the war between Iraq and Iran, when some athletes started using the drug in training.
But Artane abuse increased during the war and became common in prisons, where relatives or guards smuggled it to inmates.
"As far as I know, the addiction is mostly psychological rather than physical," Dr. Amin said.
A 25-year-old police officer in Baghdad said he began taking Artane and Valium two years ago "to escape the bitter reality" and continued to use the drugs.
The police officer, who spoke on the condition of anonymity for fear of repercussions from his superiors, says he often uses Artane for night shifts, while guarding the police station or "going on a mission in the scary and dark streets of Baghdad after midnight."
He has seen "so many explosions and picked up so many corpses, including those of my colleagues," he said. "Anyone would collapse under such high stress."
"We don't commit suicide," he said, "and that's why we resort to Artane and other drugs."
*****************
Iraq to release officers held in security crackdown
By Campbell Robertson and Tareq Maher
Saturday, December 20, 2008
BAGHDAD: All 24 Interior Ministry officers who were arrested in a security crackdown will be released, according to the interior minister, who publicly condemned his own government's investigation, calling the accusations false and motivated purely by politics.
The minister, Jawad al-Bolani, in a series of interviews and at a news conference on Friday, insisted on the innocence of the officials detained on charges of aiding terrorism and having inappropriate ties with political parties, including Al Awda, an illegal party that is a descendant of Saddam Hussein's Baath Party.
"It's because of the competition of the provincial elections," Bolani, who arrived in the country Friday after a week away, said of the arrests in an interview. "It's just electoral propaganda, and that's playing with fire."
In his forceful rejection of the charges, Bolani was careful not to mention names and was not specific in explaining how these arrests could benefit anyone specifically in the run-up to the crucial provincial elections next month. But it seemed, at least temporarily, to be a serious blow to Prime Minister Nuri Kamal al-Maliki, given the crackdown's close association with him.
It also seemed to raise the temperature of Iraqi politics, possibly fueling a rivalry between Bolani and Maliki, both prominent Shiite politicians, in a way that could damage either or both of them. Attempts to reach the prime minister's spokesman were unsuccessful.
News of the arrests has already led to an angry response from other Iraqi political leaders, particularly those in rival parties to Dawa, Maliki's party, who were angered by what they saw as a largely politically driven operation to intimidate rivals near the elections.
The Ministry of the Interior, which controls Iraq's internal security, including its police forces, has a history of being affiliated with members of the Islamic Supreme Council of Iraq, a powerful Shiite party that is a rival to Dawa, and some officers were members of the Baath Party before the U.S. invasion.
Maliki set up the committee overseeing the investigations, said General Ahmed Abu Raqeef, one of the five security officials on the committee. And though officials have offered conflicting accounts, some reported that it was a security force that reports directly to Maliki that carried out the arrests.
The committee itself ordered the release, the Interior Minister said. It was unclear about the state of the detained officials from other security agencies, like the Ministry of Defense, who have been arrested. The seriousness of the accusations rattled many leaders in Baghdad, where rumors of coups and political plotting are epidemic. The anxiety remained even as officials played down the most significant of the charges.
Bolani's move in seeking to free the detainees could prove a breakthrough moment for him. Politically ambitious, Bolani has not been seen previously as a major political player but has been working to expand his secular Iraqi Constitutional Party.
An adviser to Bolani who was not authorized to speak publicly said that he and the prime minister had disagreed when arrests were ordered two months ago.
But even on Friday, as he insisted that the arrests be reversed, Bolani sought to avoid a head-on confrontation with Maliki. Asked about Maliki's involvement in the operation, Bolani simply said: "Maliki is always on the side of justice." He said he had not talked to Maliki but planned to do so in the coming days.
But he had strong words for the forces that ordered up and carried out the arrest.
"The information provided by the security sides is supposed to be accurate," Bolani said. "They are supposed to responsible for their information and to be sure before moving to the next step. To be frank, this operation lacks professionalism, especially on the issue of the arrests."
He said he had been aware of the investigation but discounted it until he discovered that the charges included affiliation with Baath-related parties and a plot to target the ministry building in a terrorist operation - allegations he suggested were too serious for the men accused.
Among those who had been under investigation, Bolani said, were an official who has been in the hospital awaiting his surgery, a man who has already been in prison for months, and a man who works in the archives department taking care of files. Many of them, including one of the generals detained, worked in the traffic directorate.
"When and how are they going to occupy the ministry?" he asked. "Our officers are kept from their families and their kids because of insurgents and Qaida and militias and even their kids can't be normal like other kids. Is this their reward after five years of sacrifices?"
Again, Bolani did not mention names but an aide said that the charges were drawn up by the Ministry of National Security.
Bolani's sudden declaration of the detainees' innocence seemed at first to make an already murky series of events even less clear.
While officials on Thursday publicly rebutted rumors that had been circulating earlier in the week that the officials who had been detained were in the very early stages of planning a coup, the spokesman for the Interior Ministry, Abdul Karim Khalaf, said that they had been held on charges of being associated with Al Awda, a descendant of the Baath Party, a serious charge in itself.
Bolani said that Khalaf had only been speaking from the information he had been provided in the charges, which, he said, came from secret informants.
"These charges are part of political targeting of the Ministry of Interior," Bolani said. "I expect other plots and conspiracies against the Ministry of Interior in the coming days."
Suadad al-Salhy contributed reporting.
By Campbell Robertson and Tareq Maher
Saturday, December 20, 2008
BAGHDAD: All 24 Interior Ministry officers who were arrested in a security crackdown will be released, according to the interior minister, who publicly condemned his own government's investigation, calling the accusations false and motivated purely by politics.
The minister, Jawad al-Bolani, in a series of interviews and at a news conference on Friday, insisted on the innocence of the officials detained on charges of aiding terrorism and having inappropriate ties with political parties, including Al Awda, an illegal party that is a descendant of Saddam Hussein's Baath Party.
"It's because of the competition of the provincial elections," Bolani, who arrived in the country Friday after a week away, said of the arrests in an interview. "It's just electoral propaganda, and that's playing with fire."
In his forceful rejection of the charges, Bolani was careful not to mention names and was not specific in explaining how these arrests could benefit anyone specifically in the run-up to the crucial provincial elections next month. But it seemed, at least temporarily, to be a serious blow to Prime Minister Nuri Kamal al-Maliki, given the crackdown's close association with him.
It also seemed to raise the temperature of Iraqi politics, possibly fueling a rivalry between Bolani and Maliki, both prominent Shiite politicians, in a way that could damage either or both of them. Attempts to reach the prime minister's spokesman were unsuccessful.
News of the arrests has already led to an angry response from other Iraqi political leaders, particularly those in rival parties to Dawa, Maliki's party, who were angered by what they saw as a largely politically driven operation to intimidate rivals near the elections.
The Ministry of the Interior, which controls Iraq's internal security, including its police forces, has a history of being affiliated with members of the Islamic Supreme Council of Iraq, a powerful Shiite party that is a rival to Dawa, and some officers were members of the Baath Party before the U.S. invasion.
Maliki set up the committee overseeing the investigations, said General Ahmed Abu Raqeef, one of the five security officials on the committee. And though officials have offered conflicting accounts, some reported that it was a security force that reports directly to Maliki that carried out the arrests.
The committee itself ordered the release, the Interior Minister said. It was unclear about the state of the detained officials from other security agencies, like the Ministry of Defense, who have been arrested. The seriousness of the accusations rattled many leaders in Baghdad, where rumors of coups and political plotting are epidemic. The anxiety remained even as officials played down the most significant of the charges.
Bolani's move in seeking to free the detainees could prove a breakthrough moment for him. Politically ambitious, Bolani has not been seen previously as a major political player but has been working to expand his secular Iraqi Constitutional Party.
An adviser to Bolani who was not authorized to speak publicly said that he and the prime minister had disagreed when arrests were ordered two months ago.
But even on Friday, as he insisted that the arrests be reversed, Bolani sought to avoid a head-on confrontation with Maliki. Asked about Maliki's involvement in the operation, Bolani simply said: "Maliki is always on the side of justice." He said he had not talked to Maliki but planned to do so in the coming days.
But he had strong words for the forces that ordered up and carried out the arrest.
"The information provided by the security sides is supposed to be accurate," Bolani said. "They are supposed to responsible for their information and to be sure before moving to the next step. To be frank, this operation lacks professionalism, especially on the issue of the arrests."
He said he had been aware of the investigation but discounted it until he discovered that the charges included affiliation with Baath-related parties and a plot to target the ministry building in a terrorist operation - allegations he suggested were too serious for the men accused.
Among those who had been under investigation, Bolani said, were an official who has been in the hospital awaiting his surgery, a man who has already been in prison for months, and a man who works in the archives department taking care of files. Many of them, including one of the generals detained, worked in the traffic directorate.
"When and how are they going to occupy the ministry?" he asked. "Our officers are kept from their families and their kids because of insurgents and Qaida and militias and even their kids can't be normal like other kids. Is this their reward after five years of sacrifices?"
Again, Bolani did not mention names but an aide said that the charges were drawn up by the Ministry of National Security.
Bolani's sudden declaration of the detainees' innocence seemed at first to make an already murky series of events even less clear.
While officials on Thursday publicly rebutted rumors that had been circulating earlier in the week that the officials who had been detained were in the very early stages of planning a coup, the spokesman for the Interior Ministry, Abdul Karim Khalaf, said that they had been held on charges of being associated with Al Awda, a descendant of the Baath Party, a serious charge in itself.
Bolani said that Khalaf had only been speaking from the information he had been provided in the charges, which, he said, came from secret informants.
"These charges are part of political targeting of the Ministry of Interior," Bolani said. "I expect other plots and conspiracies against the Ministry of Interior in the coming days."
Suadad al-Salhy contributed reporting.
*********************
Ambush raises unsettling questions in Afghanistan
By Kirk Semple
Sunday, December 21, 2008
KABUL, Afghanistan: It was one of the most humiliating attacks the Afghan security forces had ever suffered. On Nov. 27, Taliban insurgents ambushed a supply convoy in the northwest province of Badghis, killing nine Afghan soldiers and five police officers, wounding 27 men, capturing 20 others, destroying at least 19 vehicles and stealing five, Afghan officials said.
The Afghan authorities quickly learned that the man suspected of having orchestrated the attack, Maulavi Ghulam Dastagir, had only weeks before been in police custody on charges of aiding the Taliban.
Dastagir had been personally released by President Hamid Karzai after assurances from a delegation of tribal elders that he would live a peaceful life, officials said this month.
The ambush, and the presidential pardon that allowed the insurgent to go free, have become the subject of a governmental inquest and the source of profound embarrassment for the Afghan government.
The case has also underscored the vulnerabilities of the Afghan security forces as the Taliban have multiplied their presence around the country and, in only the past few years, have gained strength in regions that were once relatively peaceful, like the northwest. Developing the Afghan security forces is a cornerstone of the American-led effort to defeat the insurgents.
"This is an important subject for everybody because we haven't had these sorts of casualties before," said General Zaher Azimi, the spokesman for the Ministry of Defense.
Karzai has publicly said little, if anything, about the case. His spokesman, Humayun Hamidzada, acknowledged in an interview last week that the president had released Dastagir from detention in September after a meeting with a delegation of tribal elders and politicians from Badghis who appealed for his freedom.
From time to time, Karzai issues pardons for detainees, though these orders often happen without publicity. In traditional Afghan society, problems are often resolved through quiet discussions among tribal elders and other community leaders.
"They thought he was a good person and not an enemy of the state," Hamidzada said. "Based on their advice, he decided to release him."
"Many people are taken into custody illegally and are lumped with the Taliban and others," he added. "They're not all Taliban, they're not all terrorists."
The spokesman said it was not yet certain whether Dastagir had led the ambush, though General Azimi, the Defense Ministry spokesman, said the evidence indicated that he "played the main role."
Reached by telephone late Saturday, Dastagir laughed when asked whether he had been involved in the ambush. "Definitely!" he exclaimed, and laughed again. "I am a jihadist, I will continue my jihad," he declared. "My morale is very high."
The Taliban insurgency, which is based in Afghanistan's southern and southeastern provinces, along the border with Pakistan, has steadily expanded to other parts of the country, particularly in the west and northwest.
In the past three years, the size of the Taliban presence in Badghis, a mountainous and sparsely populated province on the border with Turkmenistan, has multiplied from almost nothing to a force that numbers in the high hundreds, if not more, and that has cowed local officials and has come to dominate large areas of territory, provincial officials said.
This growth, residents and local officials say, has been relatively unchecked by Afghan and international security forces.
The insurgency has also become increasingly tenacious in the neighboring provinces of Herat and Faryab. In the telephone interview on Saturday, Dastagir, who said he was speaking from Badghis, vowed to solidify the Taliban's foothold in those provinces and press the insurgency's campaign farther. "We will infiltrate the other provinces in the north," he said.
Several officials said Karzai's release of Dastagir was a major setback in the struggle to roll back the Taliban presence in Badghis.
"The Afghan and foreign security forces don't have a strategy for security in Badghis," said Qari Dawlat Khan, the leader of the provincial council.
The autopsy of the ambush also revealed flaws in military planning and intelligence gathering, including fundamental problems in the command of the unit that been attacked, the Afghan National Army's 207th Corps, Afghan officials said.
Before the Badghis ambush, the unit had suffered significant losses in several insurgent attacks in the past two years in Badghis and the western provinces of Farah and Herat, and the performance of the unit's commander was under review, officials said.
The convoy's mission was to carry supplies for the police from Qala-i-Nau, the provincial capital, to Balamorghab, a Taliban stronghold about 70 miles away along poor roads, officials said.
On Nov. 26, about 200 Afghan soldiers and police officers set out from Qala-i-Nau, spent the night in the village of Mangan, near the border, then resumed driving early the next morning.
As the road passed through a gorge near Balamorghab, insurgents hiding on the bluffs above opened fire with small arms and rocket-propelled grenades, officials said. The initial volleys blew up an oil tank-truck that was positioned toward the head of the convoy, blocking the road and dividing the forward vehicles in the convoy from the others.
The ensuing battle lasted several hours, ending only after four helicopters, two from the Afghan army and two from the international forces, arrived with Afghan commandos to help repel the insurgents.
Azimi, the Defense Ministry spokesman, said the attack was "totally unexpected," in part because the commanders had taken the tribal elders at their word and believed that the local Taliban fighters would not initiate any attacks after the release of Dastagir.
Since the attack, the government's top security officials have been called to testify before Parliament twice. Muhammad Eqbal Safi, a member of Parliament and the chairman of the lower house's military committee, said the officials' explanations about the security forces' lack of readiness "did not convince us."
A high-level official in the Afghan intelligence service, the National Directorate of Security, informed Parliament last week that intelligence officials had warned military and police officials of a possible Taliban ambush in late-November, Safi said.
Mohammad Yaqub, a lawmaker from Badghis, who was not in the delegation that visited Karzai, said it was commonly believed that there were several hundred, and possibly thousands, of Taliban fighters in the province. The convoy, he said, "was like handing food to the enemy."
Rangeen Mushkwani, a senator from Badghis who attended the elders' meeting with Karzai, said the Taliban ordered the delegation to plead for Dastagir's release. "These people did not come by their own choice," Mushkwani said. "They were forced to come."
Mushkwani said that he attended the meeting only to protect his relatives in Badghis. "Because my relatives, my cousins, my family members are living under the authority of the Taliban, I couldn't say that I wasn't going," he said.
According to Hamidzada, Karzai's spokesman, the president has requested the names of the delegation's members. If the investigation determines that Dastagir was responsible for the ambush, he said, the government would hold the elders responsible.
"Karzai took a political gamble and released him," Yaqub, the lawmaker from Badghis, said of Dastagir. The president, he added, was "deceived."
By Kirk Semple
Sunday, December 21, 2008
KABUL, Afghanistan: It was one of the most humiliating attacks the Afghan security forces had ever suffered. On Nov. 27, Taliban insurgents ambushed a supply convoy in the northwest province of Badghis, killing nine Afghan soldiers and five police officers, wounding 27 men, capturing 20 others, destroying at least 19 vehicles and stealing five, Afghan officials said.
The Afghan authorities quickly learned that the man suspected of having orchestrated the attack, Maulavi Ghulam Dastagir, had only weeks before been in police custody on charges of aiding the Taliban.
Dastagir had been personally released by President Hamid Karzai after assurances from a delegation of tribal elders that he would live a peaceful life, officials said this month.
The ambush, and the presidential pardon that allowed the insurgent to go free, have become the subject of a governmental inquest and the source of profound embarrassment for the Afghan government.
The case has also underscored the vulnerabilities of the Afghan security forces as the Taliban have multiplied their presence around the country and, in only the past few years, have gained strength in regions that were once relatively peaceful, like the northwest. Developing the Afghan security forces is a cornerstone of the American-led effort to defeat the insurgents.
"This is an important subject for everybody because we haven't had these sorts of casualties before," said General Zaher Azimi, the spokesman for the Ministry of Defense.
Karzai has publicly said little, if anything, about the case. His spokesman, Humayun Hamidzada, acknowledged in an interview last week that the president had released Dastagir from detention in September after a meeting with a delegation of tribal elders and politicians from Badghis who appealed for his freedom.
From time to time, Karzai issues pardons for detainees, though these orders often happen without publicity. In traditional Afghan society, problems are often resolved through quiet discussions among tribal elders and other community leaders.
"They thought he was a good person and not an enemy of the state," Hamidzada said. "Based on their advice, he decided to release him."
"Many people are taken into custody illegally and are lumped with the Taliban and others," he added. "They're not all Taliban, they're not all terrorists."
The spokesman said it was not yet certain whether Dastagir had led the ambush, though General Azimi, the Defense Ministry spokesman, said the evidence indicated that he "played the main role."
Reached by telephone late Saturday, Dastagir laughed when asked whether he had been involved in the ambush. "Definitely!" he exclaimed, and laughed again. "I am a jihadist, I will continue my jihad," he declared. "My morale is very high."
The Taliban insurgency, which is based in Afghanistan's southern and southeastern provinces, along the border with Pakistan, has steadily expanded to other parts of the country, particularly in the west and northwest.
In the past three years, the size of the Taliban presence in Badghis, a mountainous and sparsely populated province on the border with Turkmenistan, has multiplied from almost nothing to a force that numbers in the high hundreds, if not more, and that has cowed local officials and has come to dominate large areas of territory, provincial officials said.
This growth, residents and local officials say, has been relatively unchecked by Afghan and international security forces.
The insurgency has also become increasingly tenacious in the neighboring provinces of Herat and Faryab. In the telephone interview on Saturday, Dastagir, who said he was speaking from Badghis, vowed to solidify the Taliban's foothold in those provinces and press the insurgency's campaign farther. "We will infiltrate the other provinces in the north," he said.
Several officials said Karzai's release of Dastagir was a major setback in the struggle to roll back the Taliban presence in Badghis.
"The Afghan and foreign security forces don't have a strategy for security in Badghis," said Qari Dawlat Khan, the leader of the provincial council.
The autopsy of the ambush also revealed flaws in military planning and intelligence gathering, including fundamental problems in the command of the unit that been attacked, the Afghan National Army's 207th Corps, Afghan officials said.
Before the Badghis ambush, the unit had suffered significant losses in several insurgent attacks in the past two years in Badghis and the western provinces of Farah and Herat, and the performance of the unit's commander was under review, officials said.
The convoy's mission was to carry supplies for the police from Qala-i-Nau, the provincial capital, to Balamorghab, a Taliban stronghold about 70 miles away along poor roads, officials said.
On Nov. 26, about 200 Afghan soldiers and police officers set out from Qala-i-Nau, spent the night in the village of Mangan, near the border, then resumed driving early the next morning.
As the road passed through a gorge near Balamorghab, insurgents hiding on the bluffs above opened fire with small arms and rocket-propelled grenades, officials said. The initial volleys blew up an oil tank-truck that was positioned toward the head of the convoy, blocking the road and dividing the forward vehicles in the convoy from the others.
The ensuing battle lasted several hours, ending only after four helicopters, two from the Afghan army and two from the international forces, arrived with Afghan commandos to help repel the insurgents.
Azimi, the Defense Ministry spokesman, said the attack was "totally unexpected," in part because the commanders had taken the tribal elders at their word and believed that the local Taliban fighters would not initiate any attacks after the release of Dastagir.
Since the attack, the government's top security officials have been called to testify before Parliament twice. Muhammad Eqbal Safi, a member of Parliament and the chairman of the lower house's military committee, said the officials' explanations about the security forces' lack of readiness "did not convince us."
A high-level official in the Afghan intelligence service, the National Directorate of Security, informed Parliament last week that intelligence officials had warned military and police officials of a possible Taliban ambush in late-November, Safi said.
Mohammad Yaqub, a lawmaker from Badghis, who was not in the delegation that visited Karzai, said it was commonly believed that there were several hundred, and possibly thousands, of Taliban fighters in the province. The convoy, he said, "was like handing food to the enemy."
Rangeen Mushkwani, a senator from Badghis who attended the elders' meeting with Karzai, said the Taliban ordered the delegation to plead for Dastagir's release. "These people did not come by their own choice," Mushkwani said. "They were forced to come."
Mushkwani said that he attended the meeting only to protect his relatives in Badghis. "Because my relatives, my cousins, my family members are living under the authority of the Taliban, I couldn't say that I wasn't going," he said.
According to Hamidzada, Karzai's spokesman, the president has requested the names of the delegation's members. If the investigation determines that Dastagir was responsible for the ambush, he said, the government would hold the elders responsible.
"Karzai took a political gamble and released him," Yaqub, the lawmaker from Badghis, said of Dastagir. The president, he added, was "deceived."
**********************
Militants kill three Pakistanis supplying NATO
Reuters
Saturday, December 20, 2008
By Ibrahim Shinwari
Pakistani Taliban militants killed three truckers returning after taking fuel to Western forces in Afghanistan, officials said on Saturday, the latest in a growing spate of attacks on NATO supplies.
In a new tactic in fighting against NATO and U.S. troops in Afghanistan, militants have launched a string of attacks aimed at chocking off supplies through the Khyber Pass, the main route for supplies in Pakistan's North West Frontier Province.
Militants have destroyed more than 300 trucks laden with food and military goods in attacks on depots on the outskirts of the northwestern city of Peshawar this month, forcing NATO to look for alternative routes.
The latest attack occurred on Friday night when militants fired rocket-propelled grenades at oil-tankers in the Landi Kotal area of the Khyber region, when they were coming back from the Afghan border.
"Two drivers died on the spot while the third succumbed to his injuries today," said Khyal Hussain, a government official in Khyber.
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.
The upsurge in attacks has exposed the vulnerability of NATO supplies and forced the alliance to look for alternatives routes, including through Central Asia into northern Afghanistan.
There are two routes into landlocked Afghanistan from the Pakistani port of Karachi, one through the Khyber Pass and the other through the town of Chaman to the southwest, leading to the Afghan city of Kandahar.
Supplies have been disrupted by the violence but some have been getting through from depots on the outskirts of Peshawar, through the Khyber Pass to the border at Torkham
The main truckers' association that handles the bulk of NATO supplies between Karachi and Peshawar said this month its members would no longer transport supplies because of the violence.
But an association official said on Saturday some of its members were going back because they needed the income.
"While security remains our paramount concern, this is our livelihood and we have to do something to get things going," Nadeem Akhtar, general secretary of the Karachi Goods Carrier Association, told Reuters.
About 60 trucks crossed the border on Saturday, according to Jehangir Afridi, a government security official in Khyber.
About 5,000 Islamist party supporters rallied in Peshawar on Thursday to call on the government to block supplies for Western forces in response to U.S. missile strikes on al Qaeda and Taliban targets in Pakistan.
(Additional reporting by Imtiaz Shah in Karachi; Writing by Augustine Anthony; Editing by Robert Birsel and Dean Yates)
Reuters
Saturday, December 20, 2008
By Ibrahim Shinwari
Pakistani Taliban militants killed three truckers returning after taking fuel to Western forces in Afghanistan, officials said on Saturday, the latest in a growing spate of attacks on NATO supplies.
In a new tactic in fighting against NATO and U.S. troops in Afghanistan, militants have launched a string of attacks aimed at chocking off supplies through the Khyber Pass, the main route for supplies in Pakistan's North West Frontier Province.
Militants have destroyed more than 300 trucks laden with food and military goods in attacks on depots on the outskirts of the northwestern city of Peshawar this month, forcing NATO to look for alternative routes.
The latest attack occurred on Friday night when militants fired rocket-propelled grenades at oil-tankers in the Landi Kotal area of the Khyber region, when they were coming back from the Afghan border.
"Two drivers died on the spot while the third succumbed to his injuries today," said Khyal Hussain, a government official in Khyber.
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.
The upsurge in attacks has exposed the vulnerability of NATO supplies and forced the alliance to look for alternatives routes, including through Central Asia into northern Afghanistan.
There are two routes into landlocked Afghanistan from the Pakistani port of Karachi, one through the Khyber Pass and the other through the town of Chaman to the southwest, leading to the Afghan city of Kandahar.
Supplies have been disrupted by the violence but some have been getting through from depots on the outskirts of Peshawar, through the Khyber Pass to the border at Torkham
The main truckers' association that handles the bulk of NATO supplies between Karachi and Peshawar said this month its members would no longer transport supplies because of the violence.
But an association official said on Saturday some of its members were going back because they needed the income.
"While security remains our paramount concern, this is our livelihood and we have to do something to get things going," Nadeem Akhtar, general secretary of the Karachi Goods Carrier Association, told Reuters.
About 60 trucks crossed the border on Saturday, according to Jehangir Afridi, a government security official in Khyber.
About 5,000 Islamist party supporters rallied in Peshawar on Thursday to call on the government to block supplies for Western forces in response to U.S. missile strikes on al Qaeda and Taliban targets in Pakistan.
(Additional reporting by Imtiaz Shah in Karachi; Writing by Augustine Anthony; Editing by Robert Birsel and Dean Yates)
**********************
Up to 30,000 new U.S. troops in Afghanistan by summer
Reuters
Saturday, December 20, 2008
By Golnar Motevalli
The United States is aiming to send 20,000 to 30,000 extra troops to Afghanistan by the beginning of next summer, the chairman of the U.S. Joint Chiefs of Staff said on Saturday.
Washington is already sending some 3,000 extra troops in January and another 2,800 by spring, but officials previously have said the number would be made up to 20,000 in the next 12 to 18 months, once approved by the U.S. administration.
"Some 20 to 30,000 is the window of overall increase from where we are right now. I don't have an exact number," Admiral Mike Mullen told reporters in Kabul.
"We've agreed on the requirement and so it's really clear to me we're going to fill that requirement so it's not a matter of if, but when," he said.
"We're looking to get them here in the spring, but certainly by the beginning of summer at the latest."
U.S. Army General David McKiernan, the commander of international forces in Afghanistan, has asked for the extra troops to combat a growing Taliban insurgency in the east and south of Afghanistan.
U.S. President-elect Barack Obama has pledged a renewed focus on Afghanistan, where U.S.-led forces toppled the Taliban government in late 2001 after the September 11 attacks.
The United States now has some 31,000 troops in Afghanistan.
After the January deployment, most of the reinforcements are to be sent to southern Afghanistan to bolster mainly British, Canadian and Dutch troops who have suffered heavy casualties in the last two years fighting in the Taliban heartland.
"That's where the toughest fight is," Mullen said. "When we get additional troops here, I think the violence level is going to go up. The fight will be tougher."
He said beefing up U.S. forces in Afghanistan was linked to winding down in Iraq.
"Available forces are directly tied to forces in Iraq. As we look to the possibility of reducing forces in Iraq over the course of the next year, the availability of forces to come here in Afghanistan will increase," Mullen said.
INDIA-PAKISTAN
Mullen said the attacks by Islamist militants in Mumbai last month showed the need to reduce Indian tensions with Pakistan and that would help bring stability to Afghanistan.
"That's another big piece of the strategy, what I would call regional focus to include Pakistan, Afghanistan and India ... leadership in all three of those countries to figure out a way to decrease tensions, not increase tensions," Mullen said.
He said the late arrival of winter this year had meant there were still significant flows of militants from the tribal belt along the Pakistani side of the border, but better cooperation with the Pakistani military was nevertheless helping.
"We're not there, we still have a long way to go but we've actually made a lot of progress," Mullen said.
Mullen said the Afghan government was not as strong as he had anticipated and engaging with tribal areas in remote parts of Afghanistan could be central to future operations.
"We may have overstated the focus on the ability of the central government to have the kind of impact that we wanted given the history here in Afghanistan," Mullen said.
Mullen also said at the same time, more must be done to boost economic development in Afghanistan, one of the world's poorest countries, and to make the Afghan government more effective.
"No amount of troops, no amount of time will provide a solution here without development," he said.
(Editing by Ralph Boulton)
Reuters
Saturday, December 20, 2008
By Golnar Motevalli
The United States is aiming to send 20,000 to 30,000 extra troops to Afghanistan by the beginning of next summer, the chairman of the U.S. Joint Chiefs of Staff said on Saturday.
Washington is already sending some 3,000 extra troops in January and another 2,800 by spring, but officials previously have said the number would be made up to 20,000 in the next 12 to 18 months, once approved by the U.S. administration.
"Some 20 to 30,000 is the window of overall increase from where we are right now. I don't have an exact number," Admiral Mike Mullen told reporters in Kabul.
"We've agreed on the requirement and so it's really clear to me we're going to fill that requirement so it's not a matter of if, but when," he said.
"We're looking to get them here in the spring, but certainly by the beginning of summer at the latest."
U.S. Army General David McKiernan, the commander of international forces in Afghanistan, has asked for the extra troops to combat a growing Taliban insurgency in the east and south of Afghanistan.
U.S. President-elect Barack Obama has pledged a renewed focus on Afghanistan, where U.S.-led forces toppled the Taliban government in late 2001 after the September 11 attacks.
The United States now has some 31,000 troops in Afghanistan.
After the January deployment, most of the reinforcements are to be sent to southern Afghanistan to bolster mainly British, Canadian and Dutch troops who have suffered heavy casualties in the last two years fighting in the Taliban heartland.
"That's where the toughest fight is," Mullen said. "When we get additional troops here, I think the violence level is going to go up. The fight will be tougher."
He said beefing up U.S. forces in Afghanistan was linked to winding down in Iraq.
"Available forces are directly tied to forces in Iraq. As we look to the possibility of reducing forces in Iraq over the course of the next year, the availability of forces to come here in Afghanistan will increase," Mullen said.
INDIA-PAKISTAN
Mullen said the attacks by Islamist militants in Mumbai last month showed the need to reduce Indian tensions with Pakistan and that would help bring stability to Afghanistan.
"That's another big piece of the strategy, what I would call regional focus to include Pakistan, Afghanistan and India ... leadership in all three of those countries to figure out a way to decrease tensions, not increase tensions," Mullen said.
He said the late arrival of winter this year had meant there were still significant flows of militants from the tribal belt along the Pakistani side of the border, but better cooperation with the Pakistani military was nevertheless helping.
"We're not there, we still have a long way to go but we've actually made a lot of progress," Mullen said.
Mullen said the Afghan government was not as strong as he had anticipated and engaging with tribal areas in remote parts of Afghanistan could be central to future operations.
"We may have overstated the focus on the ability of the central government to have the kind of impact that we wanted given the history here in Afghanistan," Mullen said.
Mullen also said at the same time, more must be done to boost economic development in Afghanistan, one of the world's poorest countries, and to make the Afghan government more effective.
"No amount of troops, no amount of time will provide a solution here without development," he said.
(Editing by Ralph Boulton)
*********************
India bans Goa beach parties in wake of Mumbai blast
Reuters
Saturday, December 20, 2008
NEW DELHI: Authorities in India's tourist destination of Goa have banned Christmas and New Year parties on its beaches, following security threats after the Mumbai attacks, a top police officer said on Saturday.
"No party will be allowed in the open on any beach of Goa between December 23 and January 5," Kishan Kumar, the Inspector General of Police told Reuters on Saturday.
"Obviously there is a security threat, but we cannot say anything more specific at the moment," he said by telephone from Goa.
At least 179 people were killed in Mumbai last month in a militant attack, which India says was carried out by Islamist militants from Pakistan.
India has tightened security around the country, especially in coastal areas following the Mumbai attacks, in which militants used a sea route to reach India.
Thousands of tourists travel to Goa every month to visit its beaches, also famous for night-long parties.
"Tourism is a lifeline of Goa, this decision will seriously affect tourism," Vikram Varma, a lawyer in Goa, said.
"After all, Christmas is just round the corner."
(Reporting by Bappa Majumdar; Editing by Ralph Boulton)
Reuters
Saturday, December 20, 2008
NEW DELHI: Authorities in India's tourist destination of Goa have banned Christmas and New Year parties on its beaches, following security threats after the Mumbai attacks, a top police officer said on Saturday.
"No party will be allowed in the open on any beach of Goa between December 23 and January 5," Kishan Kumar, the Inspector General of Police told Reuters on Saturday.
"Obviously there is a security threat, but we cannot say anything more specific at the moment," he said by telephone from Goa.
At least 179 people were killed in Mumbai last month in a militant attack, which India says was carried out by Islamist militants from Pakistan.
India has tightened security around the country, especially in coastal areas following the Mumbai attacks, in which militants used a sea route to reach India.
Thousands of tourists travel to Goa every month to visit its beaches, also famous for night-long parties.
"Tourism is a lifeline of Goa, this decision will seriously affect tourism," Vikram Varma, a lawyer in Goa, said.
"After all, Christmas is just round the corner."
(Reporting by Bappa Majumdar; Editing by Ralph Boulton)
***********************
Palestinian leader Abbas visits Russia's Chechnya
Reuters
Sunday, December 21, 2008
GROZNY, Russia: Palestinian President Mahmoud Abbas arrived on Sunday in Grozny, capital of Russia's troubled region of Chechnya.
Chechen President Ramzan Kadyrov welcomed Abbas at the airport to take him to his residence along a road decorated with photos of their previous meetings.
Kadyrov is seen by Chechens as dedicated to the revival of the Muslim religion and has met several influential Muslim leaders from Arab states.
"We feel at home here. We thank the Almighty that we came to the Chechen Republic," Abbas told journalists through an interpreter.
Kadyrov, a former rebel who now declares loyalty to the Kremlin, held talks with Abbas during the haj pilgrimage to Mecca in Saudi Arabia earlier this month.
Chechnya, on Russia's southern border, is now relatively peaceful after two wars fought by separatist rebels and Islamist militants against Moscow's rule starting in 1994.
Some analysts say that, in return for quelling rebel attacks, the Kremlin has let Kadyrov enforce some Islamic rules, such as requiring women working in government offices to wear headscarves and long skirts, and imposing periodic alcohol bans.
A Kremlin spokesman in Moscow said Abbas would stay in Russia until December 22, when he was due to hold talks with President Dmitry Medvedev.
(Reporting by Amie Ferris-Rotman and Oleg Shchedrov; Editing by Kevin Liffey)
Reuters
Sunday, December 21, 2008
GROZNY, Russia: Palestinian President Mahmoud Abbas arrived on Sunday in Grozny, capital of Russia's troubled region of Chechnya.
Chechen President Ramzan Kadyrov welcomed Abbas at the airport to take him to his residence along a road decorated with photos of their previous meetings.
Kadyrov is seen by Chechens as dedicated to the revival of the Muslim religion and has met several influential Muslim leaders from Arab states.
"We feel at home here. We thank the Almighty that we came to the Chechen Republic," Abbas told journalists through an interpreter.
Kadyrov, a former rebel who now declares loyalty to the Kremlin, held talks with Abbas during the haj pilgrimage to Mecca in Saudi Arabia earlier this month.
Chechnya, on Russia's southern border, is now relatively peaceful after two wars fought by separatist rebels and Islamist militants against Moscow's rule starting in 1994.
Some analysts say that, in return for quelling rebel attacks, the Kremlin has let Kadyrov enforce some Islamic rules, such as requiring women working in government offices to wear headscarves and long skirts, and imposing periodic alcohol bans.
A Kremlin spokesman in Moscow said Abbas would stay in Russia until December 22, when he was due to hold talks with President Dmitry Medvedev.
(Reporting by Amie Ferris-Rotman and Oleg Shchedrov; Editing by Kevin Liffey)
*****************
Israeli air strike kills Gaza militant
Reuters
Saturday, December 20, 2008
By Nidal al-Mughrabi
An Israeli air strike killed a Palestinian militant in the Gaza Strip on Saturday, a day after the end of a six-month-old cease-fire between Israel and the Hamas rulers of the enclave, the army and Palestinians said.
An Israeli military official said the air strike targeted a group of militants firing rockets towards Israel.
Palestinian medics said a militant was killed and another was wounded when a missile exploded in the northern town of Beit Lahiya. The attack came hours after two rockets fired from Gaza landed in Israel, causing no damage or injuries, the army said.
Al-Aqsa Martyrs' Brigades, the armed wing of Palestinian President Mahmoud Abbas's Fatah faction, said the militants belonged to its ranks. It identified the man killed in the air strike as Ali Hijazi, 25.
Shortly after the air strike, Hamas said its militants had fired six mortar shells at an Israeli army post near the southern Gaza Strip. The army confirmed the attack, which it said caused no damage or injuries.
Hamas declared the end of the Egyptian-brokered cease-fire with the Jewish state in the Gaza Strip on Thursday, raising the prospect of an escalation in cross-border fighting.
Armed Islamist factions in Gaza went on alert on Friday and warned Israel not to attack the coastal enclave.
Under the truce, brokered by Egypt in June, Palestinian militants would halt rocket fire in return for Israel gradually easing its blockade of the Gaza Strip to allow in more aid.
But the cease-fire has been eroded almost daily since early November after a deadly Israeli army raid into Gaza prompted showers of largely ineffective rockets into Israel.
Egypt said on Friday it had not been asked to repair the truce.
(Writing by Joseph Nasr; Editing by Katie Nguyen)
Reuters
Saturday, December 20, 2008
By Nidal al-Mughrabi
An Israeli air strike killed a Palestinian militant in the Gaza Strip on Saturday, a day after the end of a six-month-old cease-fire between Israel and the Hamas rulers of the enclave, the army and Palestinians said.
An Israeli military official said the air strike targeted a group of militants firing rockets towards Israel.
Palestinian medics said a militant was killed and another was wounded when a missile exploded in the northern town of Beit Lahiya. The attack came hours after two rockets fired from Gaza landed in Israel, causing no damage or injuries, the army said.
Al-Aqsa Martyrs' Brigades, the armed wing of Palestinian President Mahmoud Abbas's Fatah faction, said the militants belonged to its ranks. It identified the man killed in the air strike as Ali Hijazi, 25.
Shortly after the air strike, Hamas said its militants had fired six mortar shells at an Israeli army post near the southern Gaza Strip. The army confirmed the attack, which it said caused no damage or injuries.
Hamas declared the end of the Egyptian-brokered cease-fire with the Jewish state in the Gaza Strip on Thursday, raising the prospect of an escalation in cross-border fighting.
Armed Islamist factions in Gaza went on alert on Friday and warned Israel not to attack the coastal enclave.
Under the truce, brokered by Egypt in June, Palestinian militants would halt rocket fire in return for Israel gradually easing its blockade of the Gaza Strip to allow in more aid.
But the cease-fire has been eroded almost daily since early November after a deadly Israeli army raid into Gaza prompted showers of largely ineffective rockets into Israel.
Egypt said on Friday it had not been asked to repair the truce.
(Writing by Joseph Nasr; Editing by Katie Nguyen)
The world wasn't big enough for this Ponzi scheme
By Diana Henriques
Saturday, December 20, 2008
By the end, the world itself was too small to support the vast Ponzi scheme constructed by Bernard Madoff.
Initially, he tapped local money pulled in from country clubs and charity dinners, where investors sought him out to plead with him to manage their savings so they could start reaping the steady, solid returns their envied friends were getting.
Then, he and his promoters set sights on Europe, again framing the investments as memberships in a select club. A Swiss hedge fund manager, Michel Dominice, still remembers the pitch he got a few years ago from a salesman in Geneva. "He told me the fund was closed, that it was something I couldn't buy," Dominice said. "But he told me he might have a way to get me in. It was weird."
Madoff's agents next cut a cash-gathering swath through the Gulf, then Southeast Asia. Finally, they were hurtling with undignified speed toward China, with invitations to invest that were more desperate, less exclusive. One Beijing business executive who was approached said it seemed the Madoff funds were being pitched "to anyone who would listen."
The juggernaut began to sputter this fall as investors, rattled by the financial crisis and reaching for cash, started taking money out faster than Madoff could bring fresh cash in the door. He was arrested on Dec. 11 at his New York apartment and charged with securities fraud, turned in the night before by his sons after he told them his entire business was "a giant Ponzi scheme."
The case is still viewed more with mystery than clarity. But whatever else Madoff's game was, it was certainly this: The first worldwide Ponzi scheme - a fraud that lasted longer, reached wider and cut deeper than any similar scheme in history, entirely eclipsing the puny regional ambitions of Charles Ponzi, the Boston swindler who gave his name to the scheme nearly a century ago.
"Absolutely - there has been nothing like this, nothing that we could call truly global," said Mitchell Zuckoff, author of "Ponzi's Scheme: The True Story of a Financial Legend," who is a professor at Boston University.
These classic schemes typically prey on local trust, he added. "So this says what we increasingly know to be true about the world: The barriers have come down; money knows no borders, no limits," he said.
While many of the known victims of Bernard L. Madoff Investment Securities are prominent Jewish executives and organizations - Jeffrey Katzenberg, Yeshiva University, the Elie Wiesel Foundation and charities set up by the publisher Mortimer Zuckerman and the Hollywood director Steven Spielberg - it now appears that anyone with money was a potential target. Indeed, at one point, the Abu Dhabi Investment Authority, a large sovereign wealth fund in the Middle East, had entrusted some $400 million to Madoff's firm.
Regulators say Madoff himself estimated that $50 billion in personal and institutional wealth from around the world was gone. It vanished from the estates of the North Shore of Long Island, New York, from the beachfront suites of Palm Beach, Florida, from the exclusive enclaves of Europe. Before it evaporated, it helped finance Madoff's coddled lifestyle, with a Manhattan apartment; a beachfront mansion in the Hamptons; a small villa overlooking Cap d'Antibes on the French Riviera; a Mayfair office in London; yachts in New York, Florida and the Mediterranean.
Just as the scheme transcended national borders, it left local regulators far behind. Its lies were translated into a half-dozen languages. Its larceny was denominated in a half-dozen currencies. Its warning signals were missed by enforcement agencies around the globe. And its victims are scattered from Abu Dhabi to Zurich.
Indeed, while the most visible pain may be local - an important charity forced to close, an esteemed university embarrassed, a fabric of community trust shredded - the clearest lesson is universal: When money goes global, fraud does too.Bernie who?
In 1960, as Wall Street was just shaking off its postwar lethargy and starting to buzz again, Bernie Madoff set up his small trading firm. His plan was to make a business out of trading lesser-known over-the-counter stocks on the fringes of the traditional stock market. He was just 22, a graduate of Hofstra, a small university in the suburbs of New York.
By 1989, Madoff 's firm was handling more than 5 percent of the trading volume on the New York Stock Exchange. Financial World ranked him among the highest paid people on Wall Street - along with two far more famous financiers, the junk bond king Michael Milken and the international investor George Soros.
In 1990, Madoff became the nonexecutive chairman of the Nasdaq market, which at the time was operated as a committee of the National Association of Securities Dealers.
His rise on Wall Street was built on his belief in a visionary notion that seemed bizarre to many at the time: That stocks could be traded by people who never saw each other but were connected only by electronics.
In the mid-1970s, he had spent over $250,000 to upgrade the computer equipment at the Cincinnati Stock Exchange, where he began offering to buy and sell stocks that were listed on the Big Board. The exchange, in effect, was transformed into the first all-electronic computerized stock exchange.
"He was one of the early innovators," said Michael Ocrant, a journalist who has been a longtime skeptic about Madoff's investing success. "He was known to promote the idea that trading would be going electronic - and that turned out to be true."
Unlike some prominent Wall Street figures who built their fortunes during the heady 1980s and '90s, Madoff never became a household name among American investors. But in the clubby world of Jewish philanthropy in the New York area, his increasing wealth and growing reputation among market insiders added polish to his personal prestige.
He became a generous donor, then a courted board member and, finally, the money manager of choice for many prominent regional charities.
A spokeswoman for the New York Community Trust, Ani Hurwitz, recalled a Long Island couple who asked the trust in 1994 to invest their proposed $20 million fund with Madoff. "We have an investment committee that oversees all investments, and they couldn't get anything out of him, no information, nothing," Hurwitz said. "So we told the donors we wouldn't do it."
But many charities did entrust their money to Madoff, to their eventual grief. The North Shore-Long Island Jewish Health System, for instance, reported that it had lost $5.7 million on an investment with Madoff that was made at the donor's behest. (That donor has pledged to cover the loss for the hospital system, its spokesman said.)
Other groups saw the handsome returns on those initial investments and put more of their money into Madoff's firm, their leaders said. "Look, for years we made money," one said.
Most successful business executives intertwine their personal and professional lives. But those two strands of Madoff's life were practically inseparable. He sometimes used his yacht, Bull, as a floating entertainment center for clients. He used his support of organizations like the Public Theater in New York and the Special Olympics to build a network of trust that began to stretch wider and deeper into the Jewish community.
Through friends, the Madoff network reached well beyond New York. At Oak Ridge Country Club, in Hopkins, Minnesota, known for a prosperous Jewish membership, many who belonged were introduced to the Madoff firm by one of his friends, Mike Engler.
The quiet message became familiar in similar pockets of Jewish wealth and trust: "I know Bernie. I can get you in." Engler died in 1994, but many Oak Ridge members remained clients of Madoff. One elderly member, who said he was too embarrassed to be named, said he had lost tens of millions of dollars, and had friends who had been "completely wiped out."
Dozens of now-outraged Madoff investors recall that special lure - the sense that they were being allowed into an inner circle, one that was not available to just anyone. A lawyer would call a client, saying: "I'm setting up a fund for Bernie Madoff. Do you want in?" Or an accountant at a golf club might tell his partner for the day: "I can make an introduction. Let me know." Deals were struck in steakhouses and at charity events, sometimes by Madoff himself, but with increasing frequency by friends acting on his behalf.
"In a social setting - that's where it always happened," said Jerry Reisman, a lawyer from Garden City, one of the New York suburbs on Long Island, who knew Madoff socially. "Country clubs, golf courses, locker rooms. Recommendations, word-of-mouth. That's how it was done."
With his wife, Ruth Madoff, a nutritionist and cookbook editor, they were considered affable and charming people. "They stood out," Reisman said. "Success, philanthropy, esteem - and, if you were lucky enough to be with him as an investor, money.
"That was the most important thing; he was looked on as someone who could make you money. Really make you money."The go-betweens
By the mid-1990s, as Madoff's wealth and social standing grew, he had moved far beyond the days when golf-club buddies were setting up side deals to invest with him through their lawyers and accountants. Some of the most prominent figures in the world of Jewish entrepreneurship began to court Bernie Madoff - and, through them, he reached a new orbit of wealth.
He could not have had a more effective recruiter than Jacob Ezra Merkin, a lion of Wall Street who was also president of the Fifth Avenue Synagogue in New York.
Philanthropies embraced Merkin. He headed the investment committee for the UJA-Federation of New York for 10 years and was on the boards of Yeshiva University, Carnegie Hall and other organizations. He became the chairman of GMAC, the finance arm that General Motors spun off.
Installed in these lofty positions of trust, Ezra Merkin seemed to be a Wall Street wise man who could be trusted completely to manage other people's money. One vehicle through which he did that was a fund called Ascot Partners.
It was one of an unknown number of deals that prominent financial figures set up in recent years and marketed to investors, who thought they were tapping into the acumen of some Wall Street titan, like Merkin.
As it turned out, their money wound up in the same place - in Bernie Madoff's hands.
These conduits began to steer billions of dollars into the Madoff operation. They operated below the financial radar until Madoff's scheme collapsed, when investors suddenly got letters from the sponsoring titan disclosing that all or most of their money was probably gone.
Ascot itself attracted $1.8 billion in investments, almost all of which was entrusted to Madoff. New York Law School put $3 million into Ascot two years ago and has initiated a lawsuit in federal court that accuses Merkin of abdicating his duties to the partnership.
Zuckerman, the billionaire owner of The Daily News in New York, rebuked Merkin in a televised interview, saying he had been misled about what Merkin had done with some $30 million from Zuckerman's charitable foundation.
Behind a wall of lawyers, Merkin did not take calls since sending out a "Dear Limited Partner" letter on Dec. 11. In the letter, he noted that he, too, was one of Madoff's victims and had suffered big losses alongside his investors.
Another conduit was the Fairfield Greenwich Group, started in 1983 by Walter Noel. A courtly native of Tennessee, Noel had spent time at larger firms, notably at Chemical Bank, where he started its international private banking practice, before setting out on his own.
The Noel family had access to prestigious social circles. Noel's wife, Monica, was part of the prominent Haegler family of Rio de Janeiro and Zurich, and their daughters married into international families that provided additional connections for the firm.
In 1989, Noel merged his business with a small brokerage firm whose general partner was Jeffrey Tucker, a longtime New Yorker who had a law degree from Brooklyn Law School and a résumé that included eight years with the enforcement division of the U.S. Securities and Exchange Commission.
Again and again, this pedigreed experience was emphasized by Fairfield as it built itself into a fund of funds, investing in other hedge funds. It boasted to its prospects that its investigation of investment options was "deeper and broader" than those of most firms because of Tucker's experience in the regulatory ranks.
Though he is not nearly as prominent as the Noels, who move in the forefront of Connecticut society, Tucker benefited just as much from Fairfield's success. Indeed, last year he led a coalition of thoroughbred racing interests that sought to bid for New York State's horse-racing franchise.
It was Tucker who introduced Fairfield to Madoff. In the early 1990s, Fairfield began placing money with him, according to George Ball, the former president of E.F. Hutton and Prudential-Bache chief executive who knows Noel socially.
That began a long partnership that helped the Fairfield firm earn enviably steady returns, even in down markets - and that lifted Madoff into a global orbit, one that soon extended his reach into some of the most fabled banking centers of Europe.
If the wealthy Jewish world he occupied was his launch pad, the wealthy promoters he cultivated at Fairfield Greenwich were his booster rocket.
Fairfield Sentry was one of several feeder funds that became portals through which money from wealthy foreign investors would flow into Madoff's hands - collecting those exclusive, steady returns that had made him the toast of Palm Beach and the North Shore so many years before.
The Sentry fund quickly became Fairfield's signature product, and it boasted of stellar returns. In marketing materials, Fairfield trumpeted Sentry's 11 percent annual return over the past 15 years, with only 13 losing months. It was a track record that grew increasingly attractive as markets grew more volatile in recent years.
Though Fairfield Greenwich has its headquarters in New York and its founder, Noel, operated from his hometown, Greenwich, Connecticut, a wealthy New York suburb, a recent report showed that foreign investors provided 95 percent of its managed assets - with 68 percent in Europe, 6 percent in Asia, and 4 percent in the Middle East.
Friends and associates say that Noel's sons-in-law spent much of their time marketing the firm's funds in either their home countries or regions where they had their own family connections.
Madoff's higher profile in the highly competitive world of hedge fund management intensified the skepticism about his remarkably consistent returns. There were a scattering of inconclusive regulatory investigations - efforts so unavailing that the chairman of the Securities and Exchange Commission in Washington has ordered an internal investigation to determine how the agency could have missed so many red flags and ignored so many credible complaints over the years.
But foreign regulators were not any quicker to notice Madoff's oddities - or the rapidly expanding pool of money entrusted to the various feeder funds he serviced.
Madoff wasn't well known on the social circuit in Switzerland. Instead, Swiss money managers would go to him, visiting his offices in New York. Indeed, seeing Madoff there was a bit like visiting the Wizard of Oz: Despite his unerring success in generating smooth returns, he seemed quite ordinary, lacking the flamboyance of other well-heeled money managers.
"He did not look like a huge spender, seemed like a family man," said one veteran Geneva banker, whose firm had money with Madoff but insisted on anonymity because of the likelihood of lawsuits from angry clients. "He talked about the markets."
The only thing that struck the Swiss banker as odd was the bull memorabilia strewn about his office. "It seemed strange for a guy to have all these bulls, little sculptures, paintings of bulls," he recalled. "I've seen offices with bears. This was bulls."
But the aura of exclusivity was the constant, he said. "This was the usual spiel: 'It's impossible to get in, but we can get you some if you're nice.' He made it look difficult to get into."
What began as a quietly coveted investment opportunity for the lucky few in the Jewish country clubs of Long Island became, in its final burst of growth, a thoroughly global financial product whose roots were obscured behind legions of well-dressed, multilingual sales representatives in the financial capitals of Europe.
Indeed, often with the assistance of feeder funds, Madoff was now in a position to seek and procure money from Arab investors, too. The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, with assets estimated earlier this year to be to be approaching $700 billion, wound up in the same boat as Jewish charities in New York: caught in the collapse of Bernie Madoff.
In early 2005, the Abu Dhabi Investment Authority had invested approximately $400 million with Madoff, by way of Fairfield Sentry, according to a confidential Fairfield report from 2007. By now Fairfield Sentry had more than $7 billion invested with Madoff and was his largest investor - and now, it says, his largest victim.
The Abu Dhabi Investment Authority, in turn, was one of Fairfield Sentry's largest investors. Even after it took two significant redemptions from the fund, in April 2005 and 2006, its stake the following year of $132 million comprised 2 percent of the fund's assets under management.
The 2007 report lists Philip Toub, one of Noel's sons-in-law, as the firm's agent with the Abu Dhabi Investment Authority investors. Toub, a partner in Fairfield Greenwich Group, is married to Alix Noel and is the son of Said Toub, a wealthy shipping executive from Switzerland.
Other investors for whom Toub is listed as the agent include the Public Institute for Social Security, apparently a reference to the Kuwaiti government agency; the National Bank of Kuwait; and Safra National Bank of New York, controlled by the Safra family of Brazil.
And Fairfield was finding new fields for Madoff to cultivate. In 2004, the firm turned its eyes to Asia, forming a partnership with Lion Capital of Singapore to create Lion Fairfield Capital Management, a joint venture meant to introduce Asian investors to the firm.
"Many investors believe that Asia holds the best global opportunities for hedge funds over the next two to five years, as compared to the U.S. and Europe," Richard Landsberger, a Fairfield partner and director of Lion Fairfield, told HedgeWorld in 2006.
Yet it appears that Sentry remained Fairfield's chief focus in this new vineyard. Among the institutions that had invested in the fund are Korea Life Insurance, with $30 million to $50 million; Taiwanese Insurance Cathay Life, with about $12 million; and Samsung Investment & Securities, with about $6.3 million.
As it moved into Asia, Fairfield set up another feeder fund, Stellar Absolute Returns, incorporated in Singapore and meant to funnel investors' capital into Sentry. According to data from Bloomberg News, Stellar borrowed $3 for every $1 of investor money it received, in an effort to extract higher returns.
Last year, Jeffrey Tucker went to Asia to educate potential investors in Beijing and Thailand about hedge funds, seeking to allay their concerns about previous blow-ups in the industry like Long-Term Capital Management, a Connecticut hedge fund that was bailed out under the supervision of the Federal Reserve Bank of New York in 1998 when its exotic derivative investments brought it to the brink of a costly collapse.
"China is moving slowly as the reformers become familiar with what we do," Tucker told HedgeWorld in November 2007. "It's the same thing in Thailand. There are misunderstandings about hedge funds."
By Diana Henriques
Saturday, December 20, 2008
By the end, the world itself was too small to support the vast Ponzi scheme constructed by Bernard Madoff.
Initially, he tapped local money pulled in from country clubs and charity dinners, where investors sought him out to plead with him to manage their savings so they could start reaping the steady, solid returns their envied friends were getting.
Then, he and his promoters set sights on Europe, again framing the investments as memberships in a select club. A Swiss hedge fund manager, Michel Dominice, still remembers the pitch he got a few years ago from a salesman in Geneva. "He told me the fund was closed, that it was something I couldn't buy," Dominice said. "But he told me he might have a way to get me in. It was weird."
Madoff's agents next cut a cash-gathering swath through the Gulf, then Southeast Asia. Finally, they were hurtling with undignified speed toward China, with invitations to invest that were more desperate, less exclusive. One Beijing business executive who was approached said it seemed the Madoff funds were being pitched "to anyone who would listen."
The juggernaut began to sputter this fall as investors, rattled by the financial crisis and reaching for cash, started taking money out faster than Madoff could bring fresh cash in the door. He was arrested on Dec. 11 at his New York apartment and charged with securities fraud, turned in the night before by his sons after he told them his entire business was "a giant Ponzi scheme."
The case is still viewed more with mystery than clarity. But whatever else Madoff's game was, it was certainly this: The first worldwide Ponzi scheme - a fraud that lasted longer, reached wider and cut deeper than any similar scheme in history, entirely eclipsing the puny regional ambitions of Charles Ponzi, the Boston swindler who gave his name to the scheme nearly a century ago.
"Absolutely - there has been nothing like this, nothing that we could call truly global," said Mitchell Zuckoff, author of "Ponzi's Scheme: The True Story of a Financial Legend," who is a professor at Boston University.
These classic schemes typically prey on local trust, he added. "So this says what we increasingly know to be true about the world: The barriers have come down; money knows no borders, no limits," he said.
While many of the known victims of Bernard L. Madoff Investment Securities are prominent Jewish executives and organizations - Jeffrey Katzenberg, Yeshiva University, the Elie Wiesel Foundation and charities set up by the publisher Mortimer Zuckerman and the Hollywood director Steven Spielberg - it now appears that anyone with money was a potential target. Indeed, at one point, the Abu Dhabi Investment Authority, a large sovereign wealth fund in the Middle East, had entrusted some $400 million to Madoff's firm.
Regulators say Madoff himself estimated that $50 billion in personal and institutional wealth from around the world was gone. It vanished from the estates of the North Shore of Long Island, New York, from the beachfront suites of Palm Beach, Florida, from the exclusive enclaves of Europe. Before it evaporated, it helped finance Madoff's coddled lifestyle, with a Manhattan apartment; a beachfront mansion in the Hamptons; a small villa overlooking Cap d'Antibes on the French Riviera; a Mayfair office in London; yachts in New York, Florida and the Mediterranean.
Just as the scheme transcended national borders, it left local regulators far behind. Its lies were translated into a half-dozen languages. Its larceny was denominated in a half-dozen currencies. Its warning signals were missed by enforcement agencies around the globe. And its victims are scattered from Abu Dhabi to Zurich.
Indeed, while the most visible pain may be local - an important charity forced to close, an esteemed university embarrassed, a fabric of community trust shredded - the clearest lesson is universal: When money goes global, fraud does too.Bernie who?
In 1960, as Wall Street was just shaking off its postwar lethargy and starting to buzz again, Bernie Madoff set up his small trading firm. His plan was to make a business out of trading lesser-known over-the-counter stocks on the fringes of the traditional stock market. He was just 22, a graduate of Hofstra, a small university in the suburbs of New York.
By 1989, Madoff 's firm was handling more than 5 percent of the trading volume on the New York Stock Exchange. Financial World ranked him among the highest paid people on Wall Street - along with two far more famous financiers, the junk bond king Michael Milken and the international investor George Soros.
In 1990, Madoff became the nonexecutive chairman of the Nasdaq market, which at the time was operated as a committee of the National Association of Securities Dealers.
His rise on Wall Street was built on his belief in a visionary notion that seemed bizarre to many at the time: That stocks could be traded by people who never saw each other but were connected only by electronics.
In the mid-1970s, he had spent over $250,000 to upgrade the computer equipment at the Cincinnati Stock Exchange, where he began offering to buy and sell stocks that were listed on the Big Board. The exchange, in effect, was transformed into the first all-electronic computerized stock exchange.
"He was one of the early innovators," said Michael Ocrant, a journalist who has been a longtime skeptic about Madoff's investing success. "He was known to promote the idea that trading would be going electronic - and that turned out to be true."
Unlike some prominent Wall Street figures who built their fortunes during the heady 1980s and '90s, Madoff never became a household name among American investors. But in the clubby world of Jewish philanthropy in the New York area, his increasing wealth and growing reputation among market insiders added polish to his personal prestige.
He became a generous donor, then a courted board member and, finally, the money manager of choice for many prominent regional charities.
A spokeswoman for the New York Community Trust, Ani Hurwitz, recalled a Long Island couple who asked the trust in 1994 to invest their proposed $20 million fund with Madoff. "We have an investment committee that oversees all investments, and they couldn't get anything out of him, no information, nothing," Hurwitz said. "So we told the donors we wouldn't do it."
But many charities did entrust their money to Madoff, to their eventual grief. The North Shore-Long Island Jewish Health System, for instance, reported that it had lost $5.7 million on an investment with Madoff that was made at the donor's behest. (That donor has pledged to cover the loss for the hospital system, its spokesman said.)
Other groups saw the handsome returns on those initial investments and put more of their money into Madoff's firm, their leaders said. "Look, for years we made money," one said.
Most successful business executives intertwine their personal and professional lives. But those two strands of Madoff's life were practically inseparable. He sometimes used his yacht, Bull, as a floating entertainment center for clients. He used his support of organizations like the Public Theater in New York and the Special Olympics to build a network of trust that began to stretch wider and deeper into the Jewish community.
Through friends, the Madoff network reached well beyond New York. At Oak Ridge Country Club, in Hopkins, Minnesota, known for a prosperous Jewish membership, many who belonged were introduced to the Madoff firm by one of his friends, Mike Engler.
The quiet message became familiar in similar pockets of Jewish wealth and trust: "I know Bernie. I can get you in." Engler died in 1994, but many Oak Ridge members remained clients of Madoff. One elderly member, who said he was too embarrassed to be named, said he had lost tens of millions of dollars, and had friends who had been "completely wiped out."
Dozens of now-outraged Madoff investors recall that special lure - the sense that they were being allowed into an inner circle, one that was not available to just anyone. A lawyer would call a client, saying: "I'm setting up a fund for Bernie Madoff. Do you want in?" Or an accountant at a golf club might tell his partner for the day: "I can make an introduction. Let me know." Deals were struck in steakhouses and at charity events, sometimes by Madoff himself, but with increasing frequency by friends acting on his behalf.
"In a social setting - that's where it always happened," said Jerry Reisman, a lawyer from Garden City, one of the New York suburbs on Long Island, who knew Madoff socially. "Country clubs, golf courses, locker rooms. Recommendations, word-of-mouth. That's how it was done."
With his wife, Ruth Madoff, a nutritionist and cookbook editor, they were considered affable and charming people. "They stood out," Reisman said. "Success, philanthropy, esteem - and, if you were lucky enough to be with him as an investor, money.
"That was the most important thing; he was looked on as someone who could make you money. Really make you money."The go-betweens
By the mid-1990s, as Madoff's wealth and social standing grew, he had moved far beyond the days when golf-club buddies were setting up side deals to invest with him through their lawyers and accountants. Some of the most prominent figures in the world of Jewish entrepreneurship began to court Bernie Madoff - and, through them, he reached a new orbit of wealth.
He could not have had a more effective recruiter than Jacob Ezra Merkin, a lion of Wall Street who was also president of the Fifth Avenue Synagogue in New York.
Philanthropies embraced Merkin. He headed the investment committee for the UJA-Federation of New York for 10 years and was on the boards of Yeshiva University, Carnegie Hall and other organizations. He became the chairman of GMAC, the finance arm that General Motors spun off.
Installed in these lofty positions of trust, Ezra Merkin seemed to be a Wall Street wise man who could be trusted completely to manage other people's money. One vehicle through which he did that was a fund called Ascot Partners.
It was one of an unknown number of deals that prominent financial figures set up in recent years and marketed to investors, who thought they were tapping into the acumen of some Wall Street titan, like Merkin.
As it turned out, their money wound up in the same place - in Bernie Madoff's hands.
These conduits began to steer billions of dollars into the Madoff operation. They operated below the financial radar until Madoff's scheme collapsed, when investors suddenly got letters from the sponsoring titan disclosing that all or most of their money was probably gone.
Ascot itself attracted $1.8 billion in investments, almost all of which was entrusted to Madoff. New York Law School put $3 million into Ascot two years ago and has initiated a lawsuit in federal court that accuses Merkin of abdicating his duties to the partnership.
Zuckerman, the billionaire owner of The Daily News in New York, rebuked Merkin in a televised interview, saying he had been misled about what Merkin had done with some $30 million from Zuckerman's charitable foundation.
Behind a wall of lawyers, Merkin did not take calls since sending out a "Dear Limited Partner" letter on Dec. 11. In the letter, he noted that he, too, was one of Madoff's victims and had suffered big losses alongside his investors.
Another conduit was the Fairfield Greenwich Group, started in 1983 by Walter Noel. A courtly native of Tennessee, Noel had spent time at larger firms, notably at Chemical Bank, where he started its international private banking practice, before setting out on his own.
The Noel family had access to prestigious social circles. Noel's wife, Monica, was part of the prominent Haegler family of Rio de Janeiro and Zurich, and their daughters married into international families that provided additional connections for the firm.
In 1989, Noel merged his business with a small brokerage firm whose general partner was Jeffrey Tucker, a longtime New Yorker who had a law degree from Brooklyn Law School and a résumé that included eight years with the enforcement division of the U.S. Securities and Exchange Commission.
Again and again, this pedigreed experience was emphasized by Fairfield as it built itself into a fund of funds, investing in other hedge funds. It boasted to its prospects that its investigation of investment options was "deeper and broader" than those of most firms because of Tucker's experience in the regulatory ranks.
Though he is not nearly as prominent as the Noels, who move in the forefront of Connecticut society, Tucker benefited just as much from Fairfield's success. Indeed, last year he led a coalition of thoroughbred racing interests that sought to bid for New York State's horse-racing franchise.
It was Tucker who introduced Fairfield to Madoff. In the early 1990s, Fairfield began placing money with him, according to George Ball, the former president of E.F. Hutton and Prudential-Bache chief executive who knows Noel socially.
That began a long partnership that helped the Fairfield firm earn enviably steady returns, even in down markets - and that lifted Madoff into a global orbit, one that soon extended his reach into some of the most fabled banking centers of Europe.
If the wealthy Jewish world he occupied was his launch pad, the wealthy promoters he cultivated at Fairfield Greenwich were his booster rocket.
Fairfield Sentry was one of several feeder funds that became portals through which money from wealthy foreign investors would flow into Madoff's hands - collecting those exclusive, steady returns that had made him the toast of Palm Beach and the North Shore so many years before.
The Sentry fund quickly became Fairfield's signature product, and it boasted of stellar returns. In marketing materials, Fairfield trumpeted Sentry's 11 percent annual return over the past 15 years, with only 13 losing months. It was a track record that grew increasingly attractive as markets grew more volatile in recent years.
Though Fairfield Greenwich has its headquarters in New York and its founder, Noel, operated from his hometown, Greenwich, Connecticut, a wealthy New York suburb, a recent report showed that foreign investors provided 95 percent of its managed assets - with 68 percent in Europe, 6 percent in Asia, and 4 percent in the Middle East.
Friends and associates say that Noel's sons-in-law spent much of their time marketing the firm's funds in either their home countries or regions where they had their own family connections.
Madoff's higher profile in the highly competitive world of hedge fund management intensified the skepticism about his remarkably consistent returns. There were a scattering of inconclusive regulatory investigations - efforts so unavailing that the chairman of the Securities and Exchange Commission in Washington has ordered an internal investigation to determine how the agency could have missed so many red flags and ignored so many credible complaints over the years.
But foreign regulators were not any quicker to notice Madoff's oddities - or the rapidly expanding pool of money entrusted to the various feeder funds he serviced.
Madoff wasn't well known on the social circuit in Switzerland. Instead, Swiss money managers would go to him, visiting his offices in New York. Indeed, seeing Madoff there was a bit like visiting the Wizard of Oz: Despite his unerring success in generating smooth returns, he seemed quite ordinary, lacking the flamboyance of other well-heeled money managers.
"He did not look like a huge spender, seemed like a family man," said one veteran Geneva banker, whose firm had money with Madoff but insisted on anonymity because of the likelihood of lawsuits from angry clients. "He talked about the markets."
The only thing that struck the Swiss banker as odd was the bull memorabilia strewn about his office. "It seemed strange for a guy to have all these bulls, little sculptures, paintings of bulls," he recalled. "I've seen offices with bears. This was bulls."
But the aura of exclusivity was the constant, he said. "This was the usual spiel: 'It's impossible to get in, but we can get you some if you're nice.' He made it look difficult to get into."
What began as a quietly coveted investment opportunity for the lucky few in the Jewish country clubs of Long Island became, in its final burst of growth, a thoroughly global financial product whose roots were obscured behind legions of well-dressed, multilingual sales representatives in the financial capitals of Europe.
Indeed, often with the assistance of feeder funds, Madoff was now in a position to seek and procure money from Arab investors, too. The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, with assets estimated earlier this year to be to be approaching $700 billion, wound up in the same boat as Jewish charities in New York: caught in the collapse of Bernie Madoff.
In early 2005, the Abu Dhabi Investment Authority had invested approximately $400 million with Madoff, by way of Fairfield Sentry, according to a confidential Fairfield report from 2007. By now Fairfield Sentry had more than $7 billion invested with Madoff and was his largest investor - and now, it says, his largest victim.
The Abu Dhabi Investment Authority, in turn, was one of Fairfield Sentry's largest investors. Even after it took two significant redemptions from the fund, in April 2005 and 2006, its stake the following year of $132 million comprised 2 percent of the fund's assets under management.
The 2007 report lists Philip Toub, one of Noel's sons-in-law, as the firm's agent with the Abu Dhabi Investment Authority investors. Toub, a partner in Fairfield Greenwich Group, is married to Alix Noel and is the son of Said Toub, a wealthy shipping executive from Switzerland.
Other investors for whom Toub is listed as the agent include the Public Institute for Social Security, apparently a reference to the Kuwaiti government agency; the National Bank of Kuwait; and Safra National Bank of New York, controlled by the Safra family of Brazil.
And Fairfield was finding new fields for Madoff to cultivate. In 2004, the firm turned its eyes to Asia, forming a partnership with Lion Capital of Singapore to create Lion Fairfield Capital Management, a joint venture meant to introduce Asian investors to the firm.
"Many investors believe that Asia holds the best global opportunities for hedge funds over the next two to five years, as compared to the U.S. and Europe," Richard Landsberger, a Fairfield partner and director of Lion Fairfield, told HedgeWorld in 2006.
Yet it appears that Sentry remained Fairfield's chief focus in this new vineyard. Among the institutions that had invested in the fund are Korea Life Insurance, with $30 million to $50 million; Taiwanese Insurance Cathay Life, with about $12 million; and Samsung Investment & Securities, with about $6.3 million.
As it moved into Asia, Fairfield set up another feeder fund, Stellar Absolute Returns, incorporated in Singapore and meant to funnel investors' capital into Sentry. According to data from Bloomberg News, Stellar borrowed $3 for every $1 of investor money it received, in an effort to extract higher returns.
Last year, Jeffrey Tucker went to Asia to educate potential investors in Beijing and Thailand about hedge funds, seeking to allay their concerns about previous blow-ups in the industry like Long-Term Capital Management, a Connecticut hedge fund that was bailed out under the supervision of the Federal Reserve Bank of New York in 1998 when its exotic derivative investments brought it to the brink of a costly collapse.
"China is moving slowly as the reformers become familiar with what we do," Tucker told HedgeWorld in November 2007. "It's the same thing in Thailand. There are misunderstandings about hedge funds."
*****************
Charity that trusted Madoff closes
By Geraldine Fabrikant
Saturday, December 20, 2008
NEW YORK: The Madoff scandal is proving so big that even some large charities will not recover. One of the leading U.S. philanthropies, the Picower Foundation, announced Friday that it was shutting down.
The foundation has given $268 million to groups like the Picower Institute for Learning and Memory at the Massachusetts Institute of Technology, Human Rights First, the New York Public Library and the Children's Health Fund since it was established in 1989 by Barbara Picower and her husband, the investor Jeffry M. Picower, in Palm Beach, Fla.
Listed previously at $1 billion, the foundation's assets were managed by Bernard L. Madoff, Barbara Picower said in a statement, and his "act of fraud has had a devastating impact on tens of thousands of lives as well as numerous philanthropic foundations and nonprofit organizations."
The foundation, listed as the 71st-largest in the nation by the Council on Foundations, is far larger than the JEHT Foundation, funded by Jeanne Levy-Church, which earlier this week announced it would close. It was created in 2002 to promote justice, equality and human dignity and tolerance. Other smaller foundations that were dependent on Madoff funds have also said they would shut their doors.
Picower's statement said that the foundation had provided support for a wide array of organizations. Last year its beneficiaries included the City Parks Foundation and the School District of Palm Beach County as well as the Jewish Outreach Institute and the Metropolitan Museum of Art.
Between 2004 and 2007, it gave away about $70 million. In 2002, it made a $50 million grant to build and staff a center for brain research at MIT. At the time it was the biggest gift from a private foundation to that university. That gift has been fully funded.
The foundation's collapse adds to other losses in the world of philanthropy since the economy soured. The Starr Foundation, which had been funded with stock in American International Group, has lost at least $1 billion, or one-third of its value, as AIG's shares plunged on its government rescue.
William Zabel, of Schulte Roth & Zabel, which is representing the Picower Foundation, called the scandal "sad and devastating to the Picowers and the world of finance." The foundation's 2007 tax filings list many investments, approximately two-thirds of them equities, including Johnson & Johnson, Caterpillar and AT&T. About one-third of the assets were reported as U.S. Treasuries. The investments were virtually entirely handled by Madoff, Zabel said.
Jeffry Picower appears to have made a fortune in a 2004 deal struck by Cardinal Health to acquire Alaris Medical Systems for $1.6 billion. Picower owned 65 percent of Alaris.
He was said to have been friends with Madoff for 30 years. But he has brushed up against other financiers whose conduct caused him losses. In 1990, Picower recovered some of the money he had invested in Ivan Boesky's biggest arbitrage fund. Boesky pleaded guilty to securities fraud charges in 1986.
By Geraldine Fabrikant
Saturday, December 20, 2008
NEW YORK: The Madoff scandal is proving so big that even some large charities will not recover. One of the leading U.S. philanthropies, the Picower Foundation, announced Friday that it was shutting down.
The foundation has given $268 million to groups like the Picower Institute for Learning and Memory at the Massachusetts Institute of Technology, Human Rights First, the New York Public Library and the Children's Health Fund since it was established in 1989 by Barbara Picower and her husband, the investor Jeffry M. Picower, in Palm Beach, Fla.
Listed previously at $1 billion, the foundation's assets were managed by Bernard L. Madoff, Barbara Picower said in a statement, and his "act of fraud has had a devastating impact on tens of thousands of lives as well as numerous philanthropic foundations and nonprofit organizations."
The foundation, listed as the 71st-largest in the nation by the Council on Foundations, is far larger than the JEHT Foundation, funded by Jeanne Levy-Church, which earlier this week announced it would close. It was created in 2002 to promote justice, equality and human dignity and tolerance. Other smaller foundations that were dependent on Madoff funds have also said they would shut their doors.
Picower's statement said that the foundation had provided support for a wide array of organizations. Last year its beneficiaries included the City Parks Foundation and the School District of Palm Beach County as well as the Jewish Outreach Institute and the Metropolitan Museum of Art.
Between 2004 and 2007, it gave away about $70 million. In 2002, it made a $50 million grant to build and staff a center for brain research at MIT. At the time it was the biggest gift from a private foundation to that university. That gift has been fully funded.
The foundation's collapse adds to other losses in the world of philanthropy since the economy soured. The Starr Foundation, which had been funded with stock in American International Group, has lost at least $1 billion, or one-third of its value, as AIG's shares plunged on its government rescue.
William Zabel, of Schulte Roth & Zabel, which is representing the Picower Foundation, called the scandal "sad and devastating to the Picowers and the world of finance." The foundation's 2007 tax filings list many investments, approximately two-thirds of them equities, including Johnson & Johnson, Caterpillar and AT&T. About one-third of the assets were reported as U.S. Treasuries. The investments were virtually entirely handled by Madoff, Zabel said.
Jeffry Picower appears to have made a fortune in a 2004 deal struck by Cardinal Health to acquire Alaris Medical Systems for $1.6 billion. Picower owned 65 percent of Alaris.
He was said to have been friends with Madoff for 30 years. But he has brushed up against other financiers whose conduct caused him losses. In 1990, Picower recovered some of the money he had invested in Ivan Boesky's biggest arbitrage fund. Boesky pleaded guilty to securities fraud charges in 1986.
*****************
Regulator to probe banks after Anglo Irish scandal
Reuters
Saturday, December 20, 2008
By Carmel Crimmins and Jonathan Saul
Ireland's financial regulator will review the treatment of directors' loans at major lenders amid mounting anger on Saturday that shareholders were kept in the dark about director borrowings at Anglo Irish Bank .
Anglo's chairman Sean FitzPatrick and chief executive David Drumm resigned within hours of each other this week after FitzPatrick said he had transferred loans of around 87 million euros (81 million pounds) that he had received from the bank to another bank before each year-end over a period of eight years.
Due to this transfer, the loans, which FitzPatrick said he received on commercial terms, did not appear in annual accounts available to shareholders.
Anglo also said total director loans amounted to 150 million euros at the end of September.
Ireland's financial regulator, whose chief executive Patrick Neary has faced calls to resign following the revelations, said on Saturday it would probe directors' loans at all banks and building societies covered by a 400-billion-euro government guarantee programme.
The Irish Financial Services Regulatory Authority became aware of the loans at Anglo Irish in January but its board said on Saturday it was only notified about them on Wednesday.
The regulator said it would be reviewing its own response to the directors' loans at Anglo Irish.
Staff from the regulator have been placed full-time in all of the covered banks and building societies -- Allied Irish Banks , Bank of Ireland , Anglo Irish Bank, Irish Life and Permanent , Irish Nationwide Building Society and the Educational Building Society.
"There is a degree of anger out there among ordinary people at what has occurred at Anglo and that is why we do need real accountability," John Gormley, a government minister and head of the Green Party, told national broadcaster RTE.
"There would appear to have been a certain amount of complacency in relation to this matter."
The government has vowed to support Anglo Irish, whose market value has plummeted to just 266 million euros from a height of around 13 billion euros in 2007, but investors and senior politicians have questioned whether taxpayers should bail out the niche commercial lender.
"The reason that we are putting in state capital is to get confidence and lending going again. If Anglo is not going to be a lender for the foreseeable future that's not a great place to put our capital," said Richard Bruton, finance spokesman for the main opposition party, Fine Gael.
"We need to put our scarce cash into banks that have a long-term future."
A spokeswoman for Anglo Irish Bank declined to respond to Bruton's comments.
"SHAMEFUL EPISODE"
The Irish Times newspaper said the government was set to inject 3 billion euros into Anglo Irish and become a majority shareholder. The finance ministry and Anglo Irish declined to comment on the report, which did not cite any sources.
In an editorial, the newspaper also questioned the merit of bailing out Anglo following what it described as a "shameful episode."
The government has promised to invest 10 billion euros to recapitalise the Irish banking sector, which has seen billions wiped off its market value amid a global credit crunch and a rapidly deteriorating local economy.
Anglo Irish, which is heavily exposed to a struggling commercial property sector, has been the worst affected stock.
Ireland was among the first countries to respond to the financial crisis with a two-year guarantee of bank liabilities worth 440 billion euros but it has not nationalised or bailed out any banks and they have not raised equity themselves.
The government has said it expects to deliver definite proposals by early January on a recapitalisation plan that will be made in tandem with private investment.
The regulator has said it would undertake an urgent review of events surrounding directors' loans in Anglo Irish Bank and will report its findings in three weeks.
FitzPatrick said while the transfer of the loans did not breach banking or legal regulations, it was "inappropriate."
(Writing by Carmel Crimmins, editing by Michael Roddy)
Reuters
Saturday, December 20, 2008
By Carmel Crimmins and Jonathan Saul
Ireland's financial regulator will review the treatment of directors' loans at major lenders amid mounting anger on Saturday that shareholders were kept in the dark about director borrowings at Anglo Irish Bank .
Anglo's chairman Sean FitzPatrick and chief executive David Drumm resigned within hours of each other this week after FitzPatrick said he had transferred loans of around 87 million euros (81 million pounds) that he had received from the bank to another bank before each year-end over a period of eight years.
Due to this transfer, the loans, which FitzPatrick said he received on commercial terms, did not appear in annual accounts available to shareholders.
Anglo also said total director loans amounted to 150 million euros at the end of September.
Ireland's financial regulator, whose chief executive Patrick Neary has faced calls to resign following the revelations, said on Saturday it would probe directors' loans at all banks and building societies covered by a 400-billion-euro government guarantee programme.
The Irish Financial Services Regulatory Authority became aware of the loans at Anglo Irish in January but its board said on Saturday it was only notified about them on Wednesday.
The regulator said it would be reviewing its own response to the directors' loans at Anglo Irish.
Staff from the regulator have been placed full-time in all of the covered banks and building societies -- Allied Irish Banks , Bank of Ireland , Anglo Irish Bank, Irish Life and Permanent , Irish Nationwide Building Society and the Educational Building Society.
"There is a degree of anger out there among ordinary people at what has occurred at Anglo and that is why we do need real accountability," John Gormley, a government minister and head of the Green Party, told national broadcaster RTE.
"There would appear to have been a certain amount of complacency in relation to this matter."
The government has vowed to support Anglo Irish, whose market value has plummeted to just 266 million euros from a height of around 13 billion euros in 2007, but investors and senior politicians have questioned whether taxpayers should bail out the niche commercial lender.
"The reason that we are putting in state capital is to get confidence and lending going again. If Anglo is not going to be a lender for the foreseeable future that's not a great place to put our capital," said Richard Bruton, finance spokesman for the main opposition party, Fine Gael.
"We need to put our scarce cash into banks that have a long-term future."
A spokeswoman for Anglo Irish Bank declined to respond to Bruton's comments.
"SHAMEFUL EPISODE"
The Irish Times newspaper said the government was set to inject 3 billion euros into Anglo Irish and become a majority shareholder. The finance ministry and Anglo Irish declined to comment on the report, which did not cite any sources.
In an editorial, the newspaper also questioned the merit of bailing out Anglo following what it described as a "shameful episode."
The government has promised to invest 10 billion euros to recapitalise the Irish banking sector, which has seen billions wiped off its market value amid a global credit crunch and a rapidly deteriorating local economy.
Anglo Irish, which is heavily exposed to a struggling commercial property sector, has been the worst affected stock.
Ireland was among the first countries to respond to the financial crisis with a two-year guarantee of bank liabilities worth 440 billion euros but it has not nationalised or bailed out any banks and they have not raised equity themselves.
The government has said it expects to deliver definite proposals by early January on a recapitalisation plan that will be made in tandem with private investment.
The regulator has said it would undertake an urgent review of events surrounding directors' loans in Anglo Irish Bank and will report its findings in three weeks.
FitzPatrick said while the transfer of the loans did not breach banking or legal regulations, it was "inappropriate."
(Writing by Carmel Crimmins, editing by Michael Roddy)
*****************
Publisher opens inquiry into article on Wyeth drug
By Duff Wilson
Saturday, December 20, 2008
The medical publisher Elsevier said Friday that it would investigate a U.S. senator's recent allegation that one of its journals published an article on hormone replacement therapy that was improperly ghostwritten by a drug company promoting the product.
The senator, Charles Grassley, Republican of Iowa, had raised questions about the May 2003 "Editors' Choice" article in The American Journal of Obstetrics and Gynecology, published by Elsevier, which is part of the Dutch-British publishing giant Reed Elsevier.
The article, signed by Dr. John Eden, an associate professor at the University of New South Wales, was among articles Grassley has cited that were favorable to drugs made by the pharmaceutical company Wyeth.
Grassley, a member of the Senate Finance Committee who is investigating drug companies' influence on doctors, contends that Wyeth commissioned the articles and had them ghostwritten by a medical writing firm. Only after the articles were conceived and under way did the firm line up doctors to put their names on them, Grassley contends.
"The charges made by Senator Grassley's office with regard to the article published in 2003 by Dr. Eden are a significant concern to The Journal and Elsevier," Glen Campbell, senior vice president for Elsevier's U.S. Health Sciences Journals unit, said in a statement. "As with any charge of misconduct or inappropriate publishing acts, The Journal has launched its own investigation into the claims of ghostwriting and undisclosed financial support."
The journal article, published more than a year after a landmark U.S. government study linked Prempro, a Wyeth hormone product, to breast cancer in women, said there was "no definitive evidence" the hormones caused breast cancer.
Eden's article did not mention any involvement by Wyeth or DesignWrite, the medical writing company hired by Wyeth. He acknowledged the contributions of two people for "editorial assistance" but did not disclose that they worked for DesignWrite. The standard industry guidelines for medical journals require the authors to identify all significant contributors.
Eden said in an interview by e-mail that he stood by the article's contents but declined to elaborate. "I cannot comment as these matters are before the Senate," he said. "I am also aware of ongoing lawsuits around these matters."
In a statement Friday, Wyeth said the academic authors had not been paid by Wyeth and had "substantive editorial control" of the articles.
Grassley said in a statement that he appreciated the publishing company's response and would continue his own investigation.
By Duff Wilson
Saturday, December 20, 2008
The medical publisher Elsevier said Friday that it would investigate a U.S. senator's recent allegation that one of its journals published an article on hormone replacement therapy that was improperly ghostwritten by a drug company promoting the product.
The senator, Charles Grassley, Republican of Iowa, had raised questions about the May 2003 "Editors' Choice" article in The American Journal of Obstetrics and Gynecology, published by Elsevier, which is part of the Dutch-British publishing giant Reed Elsevier.
The article, signed by Dr. John Eden, an associate professor at the University of New South Wales, was among articles Grassley has cited that were favorable to drugs made by the pharmaceutical company Wyeth.
Grassley, a member of the Senate Finance Committee who is investigating drug companies' influence on doctors, contends that Wyeth commissioned the articles and had them ghostwritten by a medical writing firm. Only after the articles were conceived and under way did the firm line up doctors to put their names on them, Grassley contends.
"The charges made by Senator Grassley's office with regard to the article published in 2003 by Dr. Eden are a significant concern to The Journal and Elsevier," Glen Campbell, senior vice president for Elsevier's U.S. Health Sciences Journals unit, said in a statement. "As with any charge of misconduct or inappropriate publishing acts, The Journal has launched its own investigation into the claims of ghostwriting and undisclosed financial support."
The journal article, published more than a year after a landmark U.S. government study linked Prempro, a Wyeth hormone product, to breast cancer in women, said there was "no definitive evidence" the hormones caused breast cancer.
Eden's article did not mention any involvement by Wyeth or DesignWrite, the medical writing company hired by Wyeth. He acknowledged the contributions of two people for "editorial assistance" but did not disclose that they worked for DesignWrite. The standard industry guidelines for medical journals require the authors to identify all significant contributors.
Eden said in an interview by e-mail that he stood by the article's contents but declined to elaborate. "I cannot comment as these matters are before the Senate," he said. "I am also aware of ongoing lawsuits around these matters."
In a statement Friday, Wyeth said the academic authors had not been paid by Wyeth and had "substantive editorial control" of the articles.
Grassley said in a statement that he appreciated the publishing company's response and would continue his own investigation.
*******************
Barclays said to see 1-2 years of tight credit
Reuters
Saturday, December 20, 2008
LONDON: Bank lending will take 1-2 years to return to normal, and asset prices need as much as 18 months to stabilise, Barclays Chief Executive John Varley said in an interview released on Saturday.
Varley told BBC television that banks were still lending, but there needed to be a reduction in the overall amount of debt in the economy.
"I think that we will see the process of reduced borrowing play out over at least the course of the next 12 months ... maybe 24 months," he said.
"That is a painful process, it's a process through which the world absolutely has to go," he said.
"As soon as asset prices stabilise, then we will see the financial economy recover. And when will that occur? That will occur some time over the course of the next 18 months," he said.
In a separate interview with Sky News earlier in the week, Varley said that he expected British house prices to fall a total of 30 percent from the peak values set in summer 2007.
(Reporting by David Milliken, editing by Mike Peacock)
Reuters
Saturday, December 20, 2008
LONDON: Bank lending will take 1-2 years to return to normal, and asset prices need as much as 18 months to stabilise, Barclays Chief Executive John Varley said in an interview released on Saturday.
Varley told BBC television that banks were still lending, but there needed to be a reduction in the overall amount of debt in the economy.
"I think that we will see the process of reduced borrowing play out over at least the course of the next 12 months ... maybe 24 months," he said.
"That is a painful process, it's a process through which the world absolutely has to go," he said.
"As soon as asset prices stabilise, then we will see the financial economy recover. And when will that occur? That will occur some time over the course of the next 18 months," he said.
In a separate interview with Sky News earlier in the week, Varley said that he expected British house prices to fall a total of 30 percent from the peak values set in summer 2007.
(Reporting by David Milliken, editing by Mike Peacock)
*******************
Japan proposes record budget to bolster economy
The Associated Press
Saturday, December 20, 2008
TOKYO: Japan unveiled a budget proposal Saturday that, if approved, will push spending to record levels as the government scrambles to battle an ever-deepening recession.
The Finance Ministry's draft budget suggested a spending increase of 6.6 percent to 88.5 trillion yen ($990.9 billion) for the next fiscal year — the biggest ever figure in an initial proposal.
The world's second-largest economy fell into a recession in the third quarter, and the signs since then point toward more misery ahead. The latest outlook by the Cabinet Office projects Japan's economy to shrink this fiscal year and manage only flat growth the following year.
The budget proposal said general spending will rise to 51.7 trillion yen ($578.9 billion) in the year starting April, even though tax revenue is projected to fall 13.9 percent to 46.1 trillion yen ($516.2 billion).
As a result, Japan will see its primary budget deficit jump to more than 13 trillion yen ($145.6 billion) from 5 trillion yen ($56 billion) this year, and will boost bond issuances by 31.3 percent to cover the revenue shortfall.
The draft budget is scheduled for Cabinet approval on Wednesday and will likely be submitted to parliament in January.
The expansion is likely to derail Tokyo's efforts to slim down toward its goal of balancing the budget by 2011. But Prime Minister Taro Aso, facing plummeting popularity ratings, has made it clear that this is no time for fiscal discipline.
On Friday the central bank cut its key interest rate to 0.1 percent, joining the U.S. Federal Reserve in pushing borrowing costs close to zero. And in its gloomiest assessment this year, the Bank of Japan cited the harsh impact of tumbling exports, weakening domestic demand, job losses and growing credit crunch.
"Under these circumstances economic conditions have been deteriorating and are likely to increase in severity for the immediate future," it said in its statement.
The prime minister has responded by introducing a slew of fiscal stimulus measures, including a 27 trillion yen ($302.3 billion) package in October and a 43 trillion yen ($481.5 billion) plan earlier this month.
The Cabinet on Saturday approved a 4.79 trillion yen ($53.6 billion) supplementary budget for this fiscal year through March to fund some of the stimulus steps. Among Aso's measures are expanded credits for small businesses, lower highway tolls and a cash payout to every household to spur spending.
Still, it may not be enough to trigger a turnaround for Aso and his Liberal Democratic Party, which looks increasingly likely to lose its decades-long grip on political power.
The embattled Aso has repeatedly come under fire for verbal gaffes and a lack of leadership through the global economic crisis. His approval rating has plunged to about 20 percent in the three months since taking office.
The Associated Press
Saturday, December 20, 2008
TOKYO: Japan unveiled a budget proposal Saturday that, if approved, will push spending to record levels as the government scrambles to battle an ever-deepening recession.
The Finance Ministry's draft budget suggested a spending increase of 6.6 percent to 88.5 trillion yen ($990.9 billion) for the next fiscal year — the biggest ever figure in an initial proposal.
The world's second-largest economy fell into a recession in the third quarter, and the signs since then point toward more misery ahead. The latest outlook by the Cabinet Office projects Japan's economy to shrink this fiscal year and manage only flat growth the following year.
The budget proposal said general spending will rise to 51.7 trillion yen ($578.9 billion) in the year starting April, even though tax revenue is projected to fall 13.9 percent to 46.1 trillion yen ($516.2 billion).
As a result, Japan will see its primary budget deficit jump to more than 13 trillion yen ($145.6 billion) from 5 trillion yen ($56 billion) this year, and will boost bond issuances by 31.3 percent to cover the revenue shortfall.
The draft budget is scheduled for Cabinet approval on Wednesday and will likely be submitted to parliament in January.
The expansion is likely to derail Tokyo's efforts to slim down toward its goal of balancing the budget by 2011. But Prime Minister Taro Aso, facing plummeting popularity ratings, has made it clear that this is no time for fiscal discipline.
On Friday the central bank cut its key interest rate to 0.1 percent, joining the U.S. Federal Reserve in pushing borrowing costs close to zero. And in its gloomiest assessment this year, the Bank of Japan cited the harsh impact of tumbling exports, weakening domestic demand, job losses and growing credit crunch.
"Under these circumstances economic conditions have been deteriorating and are likely to increase in severity for the immediate future," it said in its statement.
The prime minister has responded by introducing a slew of fiscal stimulus measures, including a 27 trillion yen ($302.3 billion) package in October and a 43 trillion yen ($481.5 billion) plan earlier this month.
The Cabinet on Saturday approved a 4.79 trillion yen ($53.6 billion) supplementary budget for this fiscal year through March to fund some of the stimulus steps. Among Aso's measures are expanded credits for small businesses, lower highway tolls and a cash payout to every household to spur spending.
Still, it may not be enough to trigger a turnaround for Aso and his Liberal Democratic Party, which looks increasingly likely to lose its decades-long grip on political power.
The embattled Aso has repeatedly come under fire for verbal gaffes and a lack of leadership through the global economic crisis. His approval rating has plunged to about 20 percent in the three months since taking office.
*******************
Regulator saved India from bank bubble
By Joe Nocera
Saturday, December 20, 2008
MUMBAI: "What has taken a number of us by surprise is the lack of adequate supervision and regulation," Rana Kapoor was saying the other day. "This was despite the fact that Enron had happened and you passed Sarbanes-Oxley. We don't understand it. Maybe it's because we sit in a more controlled economy but..." He smiled sweetly as his voice trailed off, as if to take the sting off his comments. But they stung nonetheless.
Kapoor is an Indian banker, a former longtime Bank of America executive with a Rutgers MBA who, along with his business partner and brother-in-law, Ashok Kapur, was granted government permission four years ago to start a private bank, which they called Yes Bank. In the United States, Yes Bank is the kind of name a go-go banker might give to, say, a high-flying mortgage lender in the middle of a bubble. (You can even imagine the slogan: "Yes is part of our name!") But Yes Bank is not exactly the Washington Mutual of India. One news release it hands out to reporters who come calling is an excerpt from a 2007 survey by The Financial Express: "No. 1 on Credit Quality amongst 56 Banks in India," reads the headline.
I arrived in Mumbai three weeks after the terrorist attacks that killed 200 people - including, tragically, Yes Bank's co-founder Kapur, who had served as the company's nonexecutive chairman and was gunned down while having dinner at the Oberoi hotel. (His wife and two dinner companions miraculously escaped).
My hope in traveling to Mumbai was to learn about the current state of Indian business in the wake of both the credit crisis and the attacks. But in my first few days in this grand, sprawling, chaotic city, what I mainly heard, especially talking to bankers, was about America, not India. How could we have brought so much trouble on ourselves, and the rest of the world, by acting in such an obviously foolhardy manner? Didn't we understand that you can't lend money to people who lack the means to pay it back? The questions were asked with a sense of bewilderment - and an occasional hint of scorn. Like most Americans, I didn't have any good answers. It was a bubble, I would respond with a sheepish shrug, as if that were an adequate explanation. It isn't, of course.
"In India, we never had anything close to the subprime loan," said Chandra Kochhar, the chief financial officer of India's largest private bank, Icici. (A few days after I spoke to her, Kochhar was named the bank's new chief executive, in a move that had long been anticipated.) "All lending to individuals is based on their income. That is a big difference between your banking system and ours." She continued: "Indian banks are not levered like American banks. Capital ratios are 12 and 13 percent, instead of 7 or 8 percent. All those exotic structures like CDO and securitizations are a very tiny part of our banking system. So a lot of the temptations didn't exist."
And when I went to see Deepak Parekh, the chief executive of HDFC, which was founded in 1977 as the country's first specialized mortgage bank, practically the first words out of his mouth were these: "We don't do interest-only or subprime loans. When the bubble was going on, we did not change any of our policies. We did not change any of our systems. We did not change our thought process. We never gave more money to a borrower because the value of the house had gone up. Citibank has a few home equity loans, but most banks in India don't make those kinds of loans. Our nonperforming loans are less than 1 percent."
Yet two years ago, the Indian real estate market - commercial and residential alike - was every bit as frothy as the U.S. market. High-rises were being slapped up on spec. Housing developments were sprouting up everywhere. And there was plenty of money flowing into India, mainly from private equity and hedge funds, to fuel the commercial real estate bubble in particular. Goldman Sachs, Carlyle, Blackstone, Citibank - they were all here, throwing money at developers. So why did the Indian banks stay on the sidelines and avoid most of the pain that has been suffered by the big American banks?
Part of the reason is cultural. Indians are simply not as comfortable with credit as Americans. "A lot of Indians, when you push them, will say that if you spend more than you earn you will get in trouble," an Indian consultant told me. "Americans spent more than they earned."
Parekh said, "Savings are important. Joint families exist. When one son moves out, the family helps them. So you don't borrow so much from the bank." Even mortgage loans tend to have down payments in India that are a third of the purchase price, a far cry from the United States, where 20 percent is the new norm. (Let's not even think about what they used to be.)
But there was also another factor, perhaps the most of important of all. India had a bank regulator who was the anti-Greenspan. His name was Dr. V.Y. Reddy, and he was the governor of the Reserve Bank of India. Seventy percent of the banking system in India is nationalized, so a strong regulator is critical, since any banking scandal amounts to a national political scandal as well. And in the irascible Reddy, who took office in 2003 and stepped down this past September, it had exactly the right man in the right job at the right time.
"He basically believed that if bankers were given the opportunity to sin, they would sin," said one banker who asked not to be named because, well, there's not much percentage in getting on the wrong side of the Reserve Bank of India. For all the bankers' talk about their higher lending standards, the truth is that Reddy made them even more stringent during the bubble.
Unlike Alan Greenspan, who didn't believe it was his job to even point out bubbles, much less try to deflate them, Reddy saw his job as making sure Indian banks did not get too caught up in the bubble mentality. About two years ago, he started sensing that real estate, in particular, had entered bubble territory. One of the first moves he made was to ban the use of bank loans for the purchase of raw land, which was skyrocketing. Only when the developer was about to commence building could the bank get involved - and then only to make construction loans. (Guess who wound up financing the land purchases? U.S. private equity and hedge funds, of course!)
Then, as securitizations and derivatives gained increasing prominence in the world's financial system, the Reserve Bank of India sharply curtailed their use in the country. When Reddy saw U.S. banks setting up off-balance-sheet vehicles to hide debt, he essentially banned them in India. As a result, banks in India wound up holding onto the loans they made to customers. On the one hand, this meant they made fewer loans than their U.S. counterparts because they couldn't sell off the loans to Wall Street in securitizations. On the other hand, it meant they still had the incentive - as U.S. banks did not - to see those loans paid back.
Seeing inflation on the horizon, Reddy pushed interest rates up to more than 20 percent, which of course dampened the housing frenzy. He increased risk weightings on commercial buildings and shopping mall construction, doubling the amount of capital banks were required to hold in reserve in case things went awry. He made banks put aside extra capital for every loan they made. In effect, Reddy was creating liquidity even before there was a global liquidity crisis.
Did India's bankers stand up to applaud Reddy as he was making these moves? Of course not. They were naturally furious, just as American bankers would have been if Greenspan had been more active. Their regulator was holding them back, constraining their growth! Parekh told me that while he had been saying for some time that Indian real estate was in bubble territory, he was still unhappy with the rules imposed by Reddy. "We were critical of the central bank," he said. "We thought these were harsh measures."
"For a while we were wondering if we were missing out on something," said Kochhar of Icici. Banks in the United States seemed to have come up with some magical new formula for making money: make loans that required no down payment and little in the way of verification - and post instant, short-term, profits.
As Luis Miranda, who runs a private equity firm devoted to developing India's infrastructure, put it: "We kept wondering if they had figured out something that we were too dense to figure out. It looked like they were smart and we were stupid." Instead, India was the smart one, and we were the stupid ones.
Kochhar said that the underlying risks of having "a majority of loans not owned by the people who originated them" was not apparent during the bubble. Now that those risks have been made painfully clear, every banker in India realizes that Reddy did the right thing by limiting securitizations. "At times like this, you tend to appreciate what he did more than we did at the time," said Kapoor.
Parekh added, "He saved us."
As the credit crisis has spread these past months, no Indian banks have come close to failing the way so many U.S. and European financial institutions have. None have required the kind of emergency injections of capital that Western banks have needed. None have had the huge write-downs that were par for the course in the West. As the bubble has burst, which lenders have taken the hit? Why, the private equity and hedge fund lenders who had been so eager to finance land development. Us, in others words, rather than them. Why is that not a surprise?
When I asked Kapoor for his take on what had happened in the United States, he replied: "We recognize it as a problem of plenty. It was perpetuated by greedy bankers, whether investment bankers or commercial bankers. The greed to make money is the impression it has made here. Anytime they wanted a loan, people just dipped into their home ATM. It was like money was on call."
So it was. And our regulators, unlike theirs, just stood by and let it happen. The next time we're moving into bubble territory, perhaps we can take a page from Reddy's book - sometimes it's better to apply the brakes too early than too late. Or, as was the case with Greenspan, not at all.
None of this is to say that the global credit crisis hasn't affected India. It certainly has. I'll be back after the holidays with more columns from India, including how Sept. 15 - the day Lehman Brothers defaulted - changed everything, even here, on the other side of the world.
By Joe Nocera
Saturday, December 20, 2008
MUMBAI: "What has taken a number of us by surprise is the lack of adequate supervision and regulation," Rana Kapoor was saying the other day. "This was despite the fact that Enron had happened and you passed Sarbanes-Oxley. We don't understand it. Maybe it's because we sit in a more controlled economy but..." He smiled sweetly as his voice trailed off, as if to take the sting off his comments. But they stung nonetheless.
Kapoor is an Indian banker, a former longtime Bank of America executive with a Rutgers MBA who, along with his business partner and brother-in-law, Ashok Kapur, was granted government permission four years ago to start a private bank, which they called Yes Bank. In the United States, Yes Bank is the kind of name a go-go banker might give to, say, a high-flying mortgage lender in the middle of a bubble. (You can even imagine the slogan: "Yes is part of our name!") But Yes Bank is not exactly the Washington Mutual of India. One news release it hands out to reporters who come calling is an excerpt from a 2007 survey by The Financial Express: "No. 1 on Credit Quality amongst 56 Banks in India," reads the headline.
I arrived in Mumbai three weeks after the terrorist attacks that killed 200 people - including, tragically, Yes Bank's co-founder Kapur, who had served as the company's nonexecutive chairman and was gunned down while having dinner at the Oberoi hotel. (His wife and two dinner companions miraculously escaped).
My hope in traveling to Mumbai was to learn about the current state of Indian business in the wake of both the credit crisis and the attacks. But in my first few days in this grand, sprawling, chaotic city, what I mainly heard, especially talking to bankers, was about America, not India. How could we have brought so much trouble on ourselves, and the rest of the world, by acting in such an obviously foolhardy manner? Didn't we understand that you can't lend money to people who lack the means to pay it back? The questions were asked with a sense of bewilderment - and an occasional hint of scorn. Like most Americans, I didn't have any good answers. It was a bubble, I would respond with a sheepish shrug, as if that were an adequate explanation. It isn't, of course.
"In India, we never had anything close to the subprime loan," said Chandra Kochhar, the chief financial officer of India's largest private bank, Icici. (A few days after I spoke to her, Kochhar was named the bank's new chief executive, in a move that had long been anticipated.) "All lending to individuals is based on their income. That is a big difference between your banking system and ours." She continued: "Indian banks are not levered like American banks. Capital ratios are 12 and 13 percent, instead of 7 or 8 percent. All those exotic structures like CDO and securitizations are a very tiny part of our banking system. So a lot of the temptations didn't exist."
And when I went to see Deepak Parekh, the chief executive of HDFC, which was founded in 1977 as the country's first specialized mortgage bank, practically the first words out of his mouth were these: "We don't do interest-only or subprime loans. When the bubble was going on, we did not change any of our policies. We did not change any of our systems. We did not change our thought process. We never gave more money to a borrower because the value of the house had gone up. Citibank has a few home equity loans, but most banks in India don't make those kinds of loans. Our nonperforming loans are less than 1 percent."
Yet two years ago, the Indian real estate market - commercial and residential alike - was every bit as frothy as the U.S. market. High-rises were being slapped up on spec. Housing developments were sprouting up everywhere. And there was plenty of money flowing into India, mainly from private equity and hedge funds, to fuel the commercial real estate bubble in particular. Goldman Sachs, Carlyle, Blackstone, Citibank - they were all here, throwing money at developers. So why did the Indian banks stay on the sidelines and avoid most of the pain that has been suffered by the big American banks?
Part of the reason is cultural. Indians are simply not as comfortable with credit as Americans. "A lot of Indians, when you push them, will say that if you spend more than you earn you will get in trouble," an Indian consultant told me. "Americans spent more than they earned."
Parekh said, "Savings are important. Joint families exist. When one son moves out, the family helps them. So you don't borrow so much from the bank." Even mortgage loans tend to have down payments in India that are a third of the purchase price, a far cry from the United States, where 20 percent is the new norm. (Let's not even think about what they used to be.)
But there was also another factor, perhaps the most of important of all. India had a bank regulator who was the anti-Greenspan. His name was Dr. V.Y. Reddy, and he was the governor of the Reserve Bank of India. Seventy percent of the banking system in India is nationalized, so a strong regulator is critical, since any banking scandal amounts to a national political scandal as well. And in the irascible Reddy, who took office in 2003 and stepped down this past September, it had exactly the right man in the right job at the right time.
"He basically believed that if bankers were given the opportunity to sin, they would sin," said one banker who asked not to be named because, well, there's not much percentage in getting on the wrong side of the Reserve Bank of India. For all the bankers' talk about their higher lending standards, the truth is that Reddy made them even more stringent during the bubble.
Unlike Alan Greenspan, who didn't believe it was his job to even point out bubbles, much less try to deflate them, Reddy saw his job as making sure Indian banks did not get too caught up in the bubble mentality. About two years ago, he started sensing that real estate, in particular, had entered bubble territory. One of the first moves he made was to ban the use of bank loans for the purchase of raw land, which was skyrocketing. Only when the developer was about to commence building could the bank get involved - and then only to make construction loans. (Guess who wound up financing the land purchases? U.S. private equity and hedge funds, of course!)
Then, as securitizations and derivatives gained increasing prominence in the world's financial system, the Reserve Bank of India sharply curtailed their use in the country. When Reddy saw U.S. banks setting up off-balance-sheet vehicles to hide debt, he essentially banned them in India. As a result, banks in India wound up holding onto the loans they made to customers. On the one hand, this meant they made fewer loans than their U.S. counterparts because they couldn't sell off the loans to Wall Street in securitizations. On the other hand, it meant they still had the incentive - as U.S. banks did not - to see those loans paid back.
Seeing inflation on the horizon, Reddy pushed interest rates up to more than 20 percent, which of course dampened the housing frenzy. He increased risk weightings on commercial buildings and shopping mall construction, doubling the amount of capital banks were required to hold in reserve in case things went awry. He made banks put aside extra capital for every loan they made. In effect, Reddy was creating liquidity even before there was a global liquidity crisis.
Did India's bankers stand up to applaud Reddy as he was making these moves? Of course not. They were naturally furious, just as American bankers would have been if Greenspan had been more active. Their regulator was holding them back, constraining their growth! Parekh told me that while he had been saying for some time that Indian real estate was in bubble territory, he was still unhappy with the rules imposed by Reddy. "We were critical of the central bank," he said. "We thought these were harsh measures."
"For a while we were wondering if we were missing out on something," said Kochhar of Icici. Banks in the United States seemed to have come up with some magical new formula for making money: make loans that required no down payment and little in the way of verification - and post instant, short-term, profits.
As Luis Miranda, who runs a private equity firm devoted to developing India's infrastructure, put it: "We kept wondering if they had figured out something that we were too dense to figure out. It looked like they were smart and we were stupid." Instead, India was the smart one, and we were the stupid ones.
Kochhar said that the underlying risks of having "a majority of loans not owned by the people who originated them" was not apparent during the bubble. Now that those risks have been made painfully clear, every banker in India realizes that Reddy did the right thing by limiting securitizations. "At times like this, you tend to appreciate what he did more than we did at the time," said Kapoor.
Parekh added, "He saved us."
As the credit crisis has spread these past months, no Indian banks have come close to failing the way so many U.S. and European financial institutions have. None have required the kind of emergency injections of capital that Western banks have needed. None have had the huge write-downs that were par for the course in the West. As the bubble has burst, which lenders have taken the hit? Why, the private equity and hedge fund lenders who had been so eager to finance land development. Us, in others words, rather than them. Why is that not a surprise?
When I asked Kapoor for his take on what had happened in the United States, he replied: "We recognize it as a problem of plenty. It was perpetuated by greedy bankers, whether investment bankers or commercial bankers. The greed to make money is the impression it has made here. Anytime they wanted a loan, people just dipped into their home ATM. It was like money was on call."
So it was. And our regulators, unlike theirs, just stood by and let it happen. The next time we're moving into bubble territory, perhaps we can take a page from Reddy's book - sometimes it's better to apply the brakes too early than too late. Or, as was the case with Greenspan, not at all.
None of this is to say that the global credit crisis hasn't affected India. It certainly has. I'll be back after the holidays with more columns from India, including how Sept. 15 - the day Lehman Brothers defaulted - changed everything, even here, on the other side of the world.
Obama to tilt toward domestic issues
By Peter Baker
Saturday, December 20, 2008
WASHINGTON: As he assembles his governing team, President-elect Barack Obama has launched a significant reorganization of the White House designed to focus more attention on critical domestic issues that he thinks have been underemphasized in recent years.
By creating high-powered offices within the West Wing to coordinate health care, housing and energy initiatives, Obama has signaled a shift in priorities from President George W. Bush, who spent much of his tenure fashioning a new national security apparatus in a time of war and terrorist threat.
In fact, Obama's transition team is considering whether to undo some of what Bush did in terms of security structures within the White House. Transition officials said they were thinking about whether to fold the White House Homeland Security Council created by Bush into the National Security Council. They said they might reassign responsibility for coordinating the wars in Afghanistan and Iraq back to the national security adviser instead of a separate "war czar."
While Obama's advisers said he would still make national security one of his central priorities regardless of how he reorganized the White House, they said the focus on other areas reflected the challenges of the moment. With the economy in crisis and climate change on the rise, they said, Obama cannot afford to keep the same organizational structure as his predecessor.
"After eight years of a White House that had only a sporadic interest in the domestic front, Obama has made clear that he's going to be attacking domestic problems on all cylinders," said Bruce Reed, head of President Bill Clinton's Domestic Policy Council and now president of the Democratic Leadership Council.
At the same time, the collective moves represent an increasing concentration of decision-making in the White House at the expense of the cabinet, a trend that has accelerated under presidents of both parties in recent years. And they suggest a willingness by Obama to tolerate, and even encourage, competing power centers within his own administration.
Every new president puts his stamp on the White House to suit his priorities and the imperatives of his era, sometimes making changes that survive only his administration and sometimes permanently altering the structure of power. The National Security Council was created under Harry S. Truman. The White House drug control office was created under Ronald Reagan. The National Economic Council was created by Clinton.
Obama is building new offices to coordinate his plans to expand health care, promote clean energy and revive the housing market. His choices to fill those posts also suggest how much influence they will have. He named a former Senate majority leader, Tom Daschle, as health care czar, and a former director of the Environmental Protection Agency, Carol Browner, as energy czar.
Moreover, he effectively bolstered the clout of the National Economic Council by installing a former Treasury secretary, Lawrence Summers, to lead it.
What remains unclear is how these prominent White House officials will share responsibility with the relevant department and agency heads. Summers once led the Treasury Department, but that job now falls to Timothy Geithner, who used to work for him during the Clinton administration. Browner likewise once led the EPA, but now a former subordinate, Lisa Jackson, will direct the agency.
Daschle, a streetwise veteran of Washington, opted to avoid that sort of dichotomy by insisting on taking the White House job in addition to his nomination as secretary of health and human services. He will straddle the divide between White House and cabinet the way Henry Kissinger did when he was national security adviser and secretary of state in the 1970s.
By Peter Baker
Saturday, December 20, 2008
WASHINGTON: As he assembles his governing team, President-elect Barack Obama has launched a significant reorganization of the White House designed to focus more attention on critical domestic issues that he thinks have been underemphasized in recent years.
By creating high-powered offices within the West Wing to coordinate health care, housing and energy initiatives, Obama has signaled a shift in priorities from President George W. Bush, who spent much of his tenure fashioning a new national security apparatus in a time of war and terrorist threat.
In fact, Obama's transition team is considering whether to undo some of what Bush did in terms of security structures within the White House. Transition officials said they were thinking about whether to fold the White House Homeland Security Council created by Bush into the National Security Council. They said they might reassign responsibility for coordinating the wars in Afghanistan and Iraq back to the national security adviser instead of a separate "war czar."
While Obama's advisers said he would still make national security one of his central priorities regardless of how he reorganized the White House, they said the focus on other areas reflected the challenges of the moment. With the economy in crisis and climate change on the rise, they said, Obama cannot afford to keep the same organizational structure as his predecessor.
"After eight years of a White House that had only a sporadic interest in the domestic front, Obama has made clear that he's going to be attacking domestic problems on all cylinders," said Bruce Reed, head of President Bill Clinton's Domestic Policy Council and now president of the Democratic Leadership Council.
At the same time, the collective moves represent an increasing concentration of decision-making in the White House at the expense of the cabinet, a trend that has accelerated under presidents of both parties in recent years. And they suggest a willingness by Obama to tolerate, and even encourage, competing power centers within his own administration.
Every new president puts his stamp on the White House to suit his priorities and the imperatives of his era, sometimes making changes that survive only his administration and sometimes permanently altering the structure of power. The National Security Council was created under Harry S. Truman. The White House drug control office was created under Ronald Reagan. The National Economic Council was created by Clinton.
Obama is building new offices to coordinate his plans to expand health care, promote clean energy and revive the housing market. His choices to fill those posts also suggest how much influence they will have. He named a former Senate majority leader, Tom Daschle, as health care czar, and a former director of the Environmental Protection Agency, Carol Browner, as energy czar.
Moreover, he effectively bolstered the clout of the National Economic Council by installing a former Treasury secretary, Lawrence Summers, to lead it.
What remains unclear is how these prominent White House officials will share responsibility with the relevant department and agency heads. Summers once led the Treasury Department, but that job now falls to Timothy Geithner, who used to work for him during the Clinton administration. Browner likewise once led the EPA, but now a former subordinate, Lisa Jackson, will direct the agency.
Daschle, a streetwise veteran of Washington, opted to avoid that sort of dichotomy by insisting on taking the White House job in addition to his nomination as secretary of health and human services. He will straddle the divide between White House and cabinet the way Henry Kissinger did when he was national security adviser and secretary of state in the 1970s.
Five dead and 18 missing in Pakistan mall collapse
Reuters
Saturday, December 20, 2008
RAWALPINDI, Pakistan: A burning shopping centre collapsed in the Pakistani city of Rawalpindi on Saturday, killing five people and trapping about 18, a city official said.
The four-storey centre housing about 400 shops in one of the city's main commercial areas caught fire Friday night and burnt for hours. The blaze was nearly under control when part of the building collapsed.
"According to our information, five people have been killed and some 18 others, including four rescuers, are trapped under the debris," city official Haseeb Athar told reporters.
Police said seven people had been pulled alive from the rubble.
The cause of the fire was not known but stocks of garments and leather goods in many of the shops were believed to have fuelled the blaze.
(Reporting by Augustine Anthony; Editing by Kevin Liffey)
Reuters
Saturday, December 20, 2008
RAWALPINDI, Pakistan: A burning shopping centre collapsed in the Pakistani city of Rawalpindi on Saturday, killing five people and trapping about 18, a city official said.
The four-storey centre housing about 400 shops in one of the city's main commercial areas caught fire Friday night and burnt for hours. The blaze was nearly under control when part of the building collapsed.
"According to our information, five people have been killed and some 18 others, including four rescuers, are trapped under the debris," city official Haseeb Athar told reporters.
Police said seven people had been pulled alive from the rubble.
The cause of the fire was not known but stocks of garments and leather goods in many of the shops were believed to have fuelled the blaze.
(Reporting by Augustine Anthony; Editing by Kevin Liffey)
China blocks access to sister site of IHT
By Keith Bradsher
Saturday, December 20, 2008
HONG KONG: The Chinese authorities have begun blocking access from mainland China to the Web site of The New York Times even while lifting some of the restrictions they had recently imposed on the Web sites of other media outlets.
When computer users in cities like Beijing, Shanghai and Guangzhou tried to connect on Friday morning to the site, nytimes.com, they received a message that the site was not available; some users were cut off on Thursday as early as 8 p.m. The blocking was still in effect on Saturday morning. The International Herald Tribune is the global edition of The New York Times.
The Chinese-language Web sites of the BBC, Voice of America and Asiaweek, all of which had been blocked earlier in the week, were accessible by Friday. The Web site of Ming Pao, a Hong Kong newspaper, was blocked earlier in the week and still restricted on Friday.
Chinese officials had few explanations for the restriction on The Times's site. "Concerning your particular question, we're not really familiar with the details," said a spokesman for the Ministry of Foreign Affairs in Beijing who declined to give his name. "Web site maintenance is not within the job purview of the Foreign Ministry."
Tang Rui, an official with the government's International Press Center in Beijing, said he also had no specific information. "It might be a technical problem," he said, declining to elaborate.
A spokeswoman for The Times, Catherine Mathis, said there did not appear to be a technical issue.
Access to the Web site was not restricted Friday in Hong Kong, which Britain returned to Chinese rule in 1997 but which still allows freedom of speech, including on the Internet. Internet users in Japan and the United States were also not experiencing difficulties on Friday in viewing the site.
Rebecca MacKinnon, a researcher at Hong Kong University who specializes in China's Internet controls, said the reasons for the restrictions were mysterious. "All anybody can offer is speculation," she said.
In the months leading up to the Olympic Games in Beijing in August, during the Games and immediately after, the Chinese government temporarily unblocked access to some Web sites and eased curbs on the ability of foreign correspondents to travel within China. It has not tightened the travel restrictions since then.
By Keith Bradsher
Saturday, December 20, 2008
HONG KONG: The Chinese authorities have begun blocking access from mainland China to the Web site of The New York Times even while lifting some of the restrictions they had recently imposed on the Web sites of other media outlets.
When computer users in cities like Beijing, Shanghai and Guangzhou tried to connect on Friday morning to the site, nytimes.com, they received a message that the site was not available; some users were cut off on Thursday as early as 8 p.m. The blocking was still in effect on Saturday morning. The International Herald Tribune is the global edition of The New York Times.
The Chinese-language Web sites of the BBC, Voice of America and Asiaweek, all of which had been blocked earlier in the week, were accessible by Friday. The Web site of Ming Pao, a Hong Kong newspaper, was blocked earlier in the week and still restricted on Friday.
Chinese officials had few explanations for the restriction on The Times's site. "Concerning your particular question, we're not really familiar with the details," said a spokesman for the Ministry of Foreign Affairs in Beijing who declined to give his name. "Web site maintenance is not within the job purview of the Foreign Ministry."
Tang Rui, an official with the government's International Press Center in Beijing, said he also had no specific information. "It might be a technical problem," he said, declining to elaborate.
A spokeswoman for The Times, Catherine Mathis, said there did not appear to be a technical issue.
Access to the Web site was not restricted Friday in Hong Kong, which Britain returned to Chinese rule in 1997 but which still allows freedom of speech, including on the Internet. Internet users in Japan and the United States were also not experiencing difficulties on Friday in viewing the site.
Rebecca MacKinnon, a researcher at Hong Kong University who specializes in China's Internet controls, said the reasons for the restrictions were mysterious. "All anybody can offer is speculation," she said.
In the months leading up to the Olympic Games in Beijing in August, during the Games and immediately after, the Chinese government temporarily unblocked access to some Web sites and eased curbs on the ability of foreign correspondents to travel within China. It has not tightened the travel restrictions since then.
ALL PHOTOGRAPHS COPYRIGHT IAN WALTHEW 2008
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