A Place in the Auvergne, Sunday, 21st December 2008

1030

A complex deal ensnares a rural cooperative
By Gretchen Morgenson
Sunday, December 21, 2008
Collateral damage from the credit crisis continues to crop up in the most unlikely places. Consider southern Indiana, where the Hoosier Energy Rural Electric Cooperative, serving 800,000 farm, small-business and residential customers, is under threat.
Unlike many other enterprises today, Hoosier is not in financial distress. It is, in fact, thriving.
What imperils the cooperative is the kind of financial alchemy that has magnified our money mess: an atrociously convoluted deal that Hoosier struck with John Hancock Life Insurance in 2002.
Because part of that deal is now in jeopardy, John Hancock is trying to force a termination payment of $120 million that could push Hoosier into bankruptcy protection.
Problems with the Hoosier-John Hancock transaction are the subject of a lawsuit in a U.S. district court in Indianapolis. David Hamilton, chief judge in the Southern District of Indiana, recently granted Hoosier's request for a preliminary injunction preventing any termination payment from being made until the dispute between the parties could be resolved.
Like most electric cooperatives, Hoosier does not generate significant profits. Any earnings are either kept to offset future losses or returned to members of the cooperative. Its nonprofit status is central to the deal vexing Hoosier today.
The deal was offered to Hoosier as a way for the cooperative to sell tax losses that it couldn't use to a profit-generating company that could. John Hancock was that company. Known as a "sale-in, lease-out"- SILO for short - the arrangement was fashioned by Babcock & Brown, an Australian investment firm.
Detailed in 4,000 pages of fine print, the SILO was a deal only a Wall Street contortionist could love. Its components included a sale and leaseback, two credit-default swaps and a tax shelter similar to those that the Internal Revenue Service has since deemed abusive.
In other words, a trifecta of tortured finance.
The investment bankers and lawyers on the deal made out, of course; they generated $12 million in fees, court filings show.
Here's how the SILO worked: Hoosier leased some assets at one of its power plants to John Hancock for 63 years, beyond the useful life of the assets. John Hancock paid $300 million to Hoosier, which leased the assets back for 30 years, agreeing to make regular payments to Hancock.
Other nonprofit entities, like transit agencies in some large American cities, did similar deals; several U.S. agencies blessed the arrangements when they became popular in the early part of the decade.
Of the $300 million received in the deal, Hoosier kept about $20 million. It deposited the rest with Ambac Assurance, a financial guarantor. Ambac got involved because the transaction required an insurer to enter into two credit-default swaps guaranteeing that the lease payments would be made to John Hancock over the life of the deal. If Hoosier defaulted on its obligations under the contract, Ambac would pay John Hancock an early-termination fee, then demand the same amount from Hoosier.
Since the deal was struck, Hoosier has made all the necessary payments. But problems loomed last June when the credit rating agencies cut Ambac's debt rating to a level that was no longer acceptable under the SILO's terms.
Hoosier had 60 days to find a new insurer with stronger ratings. If it failed, Ambac would have to fork over $120 million to John Hancock, then demand that amount from Hoosier. Because Hoosier has already deposited some money with Ambac, the cooperative would have to pay an estimated $110 million over four years.
When Hoosier was unable to find a replacement insurer within 60 days, John Hancock gave the cooperative additional time. But it lost patience. On Oct. 23, it informed Hoosier that a default had occurred and that the termination payment of $120 million was due in a week.
Oddly, John Hancock's notice of default came even though Hoosier was in final negotiations with Berkshire Hathaway to execute a surety bond to replace the Ambac contract, according to court filings. Hoosier's board had just approved the change when John Hancock pulled the plug.
Hoosier's creditors started to shut down some of the cooperative's lines almost immediately, the company said. And Judge Hamilton wrote that John Hancock's move could force Hoosier into a Chapter 11 bankruptcy filing.
A filing could have other effects - like making the cooperative default on hundreds of millions of dollars of other loans, lines of credit and long-term supply contracts.
On Nov. 25, the judge granted the temporary restraining order.
So why is John Hancock forcing the termination payment issue when a replacement for Ambac seemed imminent?
Hoosier has some thoughts on that. It believes that John Hancock is trying to use Ambac's difficulties to generate a quick $120 million.
"Hoosier has been extremely disappointed that John Hancock is using our nation's credit crisis to try to reap a windfall," said Reed Oslan, a lawyer at Kirkland & Ellis in Chicago representing Hoosier. "Hancock's position has caused severe economic strain at Hoosier, and it will continue to protect itself as necessary."
No, no, no, says Jonathan Chiel, John Hancock's chief counsel. He says his company's actions have nothing to do with trying to snare a windfall. "We only want Hoosier to find a suitable replacement for Ambac," he said, "and we are more than willing to keep the transaction in place under those circumstances."
The company must also look out for its shareholders, Chiel said.
Still, it seems odd that John Hancock is pressing the default even though its deal may run afoul of Internal Revenue, as similar SILOs have. It could be required to pay back taxes and penalties if the IRS ruled against it.
Hoosier is not vulnerable to an adverse IRS ruling on the transaction, other than probably having to repay John Hancock the $20 million or so that it received when the deal was done. Hoosier was careful to ensure that it had no risk or responsibility if the SILO was ruled a sham.
"The IRS will certainly deny the tax benefits that Hancock is claiming," testified Alan Joseph Bankman, an expert witness in the case who is a professor at Stanford Law School. He told the court that Internal Revenue has offered tax amnesty to entities that have struck SILO deals, if they give up future benefits and return 80 percent of deductions taken.
About 80 percent of companies involved in such deals have accepted the IRS's amnesty offer, the judge said in a recent opinion.
But not John Hancock. Its general counsel said the company believes its deal would pass muster with the IRS. It has no interest in unwinding it.
What a web our financier friends have woven around us. Unhappily, it seems that no one can escape its entanglements.

Humanitarian crisis brews in southern Philippines
By Jonathan Adams
Sunday, December 21, 2008
TALAYAN TOWN, Philippines: The 50 soldiers came into Hassan Kalipa's home in broad daylight, looking for rebels. He served them coconuts.
Later that day - Aug. 29 - gunfire erupted a couple of kilometers away from Kalipa's village of Linamunan, in the southern Philippines, which has seen an upsurge in fighting between government forces and rebels from the Moro Islamic Liberation Front in recent months.
The soldiers moved a mortar into the village to fire on the rebels. So, fearful of getting caught in the cross-fire, Kalipa, 31, and other Muslim farmers and their families fled their village.
They ended up in a camp in a public market here, about seven kilometers, or four miles, from Linamunan.
Kalipa and his fellow villagers are among hundreds of thousands of civilians whose lives have been turned upside down by conflict in the southern Philippines.
More than 2,000 are living in tents and thatched huts in the evacuation camp in the predominantly Muslim province of Maguindanao. Kalipa says some of the displaced return to their villages during the day to farm rice, coconut and corn fields, then come back to sleep in the camps.
They will not go back for good until the military leaves - and takes its mortar with it. "We're afraid to go back to our homes," Kalipa said.
The displaced villagers are the human fallout of a political failure: the breakdown in August of the peace process between the government and the Moro Islamic Liberation Front. Four months after talks broke down and violence erupted, the lives of the villagers remain on hold.
As far as such conflicts go, casualties are low - which may explain the relative lack of attention to this troubled corner of Southeast Asia. In a report in late October, the International Crisis Group estimated that more than 200 had died in renewed violence since August, half of them civilians.
The relatively small numbers are due to the nature of this war. The military is playing a cat-and-mouse game with three MILF commanders blamed for attacks on civilian areas in August, with only occasional, brief engagements that often produce no casualties.
But even if casualties are light, a heavy climate of fear has paralyzed entire communities and polarized them along religious lines. The result, say aid workers, rights groups and others, is one of the worst humanitarian situations since all-out war raged on the island of Mindanao in the 1970s.
In a report in late October, Amnesty International accused both sides of human rights abuses. It says that the conflict displaced 610,000 at its peak.
Some 240,000 people have since returned to their homes; the rest are still living in relatives' homes or in primitive evacuation camps. The International Committee of the Red Cross says it has delivered food and aid to nearly 130,000 in 100 such camps.
"While the armed conflict in the Philippines's south is not new, the number of civilians directly affected by this most recent escalation of hostilities has increased dramatically, with no clear end in sight," Amnesty International said in the report. If perpetrators of rights abuses are not brought to justice and violations continue, the group said, "Mindanao may find itself approaching a human rights crisis."
One obstacle to talks is what to do about the three "rogue" commanders. The MILF wants a halt to military operations against the three and an independent investigation into allegations of atrocities. But the government considers them criminals who must face justice.
"They must take control of those people," Hermogenes Esperon, presidential adviser on the peace process, said in an interview at his office in the capital, Manila. "Otherwise, how could we be talking at the negotiating table?"
Still, the government is optimistic about the resumption of talks. It recently named the head of a new negotiating panel and says talks could resume by Christmas. But the MILF poured cold water on that, saying Dec. 14 in a statement on its Web site that the government's recent comments were "empty talk."
Even if the two sides do resume dialogue, the way forward in the peace process is far from clear. After 11 years of on-and-off negotiations, the MILF had accepted a preliminary deal, due to be signed Aug. 5, that would have expanded an autonomous Muslim area and given it greater control over its resources and revenues.
But Christian leaders in Mindanao loudly opposed that deal, fearing some Christian areas could come under Muslim control. They helped persuade the Philippine Supreme Court to issue an injunction against the agreement. The court later ruled the deal unconstitutional, arguing it would have effectively partitioned the Philippines.
Looking back, most analysts and observers put most of the blame for the breakdown on the government. They say it did not sufficiently consult with affected communities ahead of a deal and did not shore up support in Manila for the agreement. The MILF "has reason to feel deeply dismayed about what happened with the court rulings," said a U.S. official who did not want to be quoted by name discussing sensitive peace negotiations.
"The government underestimated the public backlash to the settlement, and they were caught off guard," said Scott Harrison, managing director of Pacific Strategies and Assessments, a risk consultancy. "They felt they could ramrod this through and everyone would just sign on the dotted line. But it raised a firestorm."
In an interview at his Cotabato City home, the MILF spokesman Eid Kabalu blamed President Gloria Macapagal Arroyo's administration for failing to win consensus on the Aug. 5 deal from the legislative and judicial branches. Kabalu said that the rebels want to resume talks but that some now question the administration's sincerity in wanting a deal.
"Many believe a peace deal isn't really possible under this president," he said. But he added that the group would give the government "the benefit of the doubt, to prove we are really for peace."
They may have little choice. Forty years of fighting has shown that there is no military solution to the problem in Mindanao, many specialists say, including Esperon, the government peace adviser, and Abhoud Syed Lingga, director of the Institute of Bangsamoro Studies, a nonprofit nongovernmental research institute in Cotabato City.
"The situation now is moving toward a strategic stalemate," Lingga said in an interview at his office. "There are no good options for both sides except to negotiate a solution."
Back in the evacuation camps, the civilians wait. Aid groups are helping, but conditions are still rough. Kalipa said 11 people had died in his camp in recent weeks, suffering from diarrhea and high fever.
Amigos Maminto, 60, has been displaced for the second time. In the 1970s, as war raged in Mindanao between the military, Muslim rebels, and Christian and Muslim vigilantes, Maminto and many others fled their homes.
Some 35 years later, he has once again fled his home in Linamunan, this time with four of his children and several grandchildren.
"As long as there is no peace deal between the government and MILF, I expect a similar situation in the future," Maminto said. "I fear fighting will happen again."

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Mauritania junta frees president from house arrest
Reuters
Sunday, December 21, 2008
By Hachem Sidi Salem and Vincent Fertey
Mauritania's military junta Sunday freed from house arrest ousted President Sidi Mohamed Ould Cheikh Abdallahi, who vowed to fight to return to the office he lost in a bloodless coup in August.
The generals who overthrew Abdallahi, the first democratically elected president of the west Saharan Islamic state, had said this month they would release him as part of negotiations to head off threatened European Union sanctions.
Former colonial power France, which holds the rotating EU presidency, welcomed the release but reiterated the international community's demand that the ousted president be restored to office. "The solution to the current crisis is a return to constitutional order," it said in a statement.
Mauritania's coup leaders have refused to reinstall Abdallahi, who won multi-party elections last year.
The ousted president was freed after he was driven to the dusty coastal capital by security officers from his hometown of Lemden, 200 km (125 miles) to the south. He later returned to Lemden with friends, supporters said.
In an interview published Sunday by the French newspaper Le Monde, Abdallahi said he considered himself "the legitimate, democratically-elected president."
"I'll push my freedom to the limits the coup leaders put on it. I am firmly resolved to fight to make this coup d'etat fail," he said in the interview, which was conducted shortly before he was freed from house arrest.
Abdallahi told Le Monde he would make political contacts at home and abroad and could try to attend the next summit of African Union leaders at the end of January in Addis Ababa.
His daughter Amal Mint Cheikh Abdallahi said his release "was not a real freedom." "I doubt he'll be allowed to leave the country," she told Reuters.
Abdallahi supporters described the release as an attempt by junta chief General Mohamed Ould Abdel Aziz, who led the August 6 coup, to avoid more sanctions against Mauritania, the world's No. 7 iron ore exporter and an oil producer since 2006.
"The fight today ... is not whether Abdallahi is detained or released ... but his return to the presidential chair," said Jemil Ould Mansour, an Islamist politician and member of the pro-Abdallahi National Front for the Defence of Democracy.
Nouakchott's streets were calm Sunday and there were no demonstrations for or against the ousted president.
TARGETED SANCTIONS
The European Union and the United States, which view Mauritania as a valuable ally in the war against Islamist militant groups in the Sahara, have strongly condemned Abdallahi's overthrow and are pushing for his reinstatement.
On November 21, the EU threatened individually targeted sanctions against Abdel Aziz and members of his military administration if they did not restore constitutional rule.
The EU says it will avoid sanctions that hurt Mauritania's 3 million people and continues to pay Nouakchott more than $100 million a year for fishing rights, underpinning the budget.
Friday, the United States said it would axe trade benefits for Mauritania as of January 1 in response to the coup. Washington has cut back military and non-humanitarian aid since the coup and banned junta members from entering the U.S.
Junta chief Abdel Aziz has promised to hold presidential elections and has announced a process of national consultations starting December 27 to discuss the transition to the polls.
But Abdallahi, though invited, refused to take part. "I'm saying categorically 'No'! If I said yes, that'd be legitimising the coup and accepting the fait accompli," he told Le Monde.
Although there have been some pro-Abdallahi demonstrations, a wide section of Mauritania's political establishment supported the coup. Critics said his government was elitist and did little to shield the population from rising fuel and food prices.
(For full Reuters Africa coverage and to have your say on the top issues, visit: http://africa.reuters.com/)
(Additional reporting by James Regan in Paris; Writing by Pascal Fletcher and Dan Magnowski; editing by Michael Roddy)

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U.S. won't support a Zimbabwe government that includes Mugabe, envoy says
Reuters
Sunday, December 21, 2008
By Spokes Mashiyane
Zimbabwean President Robert Mugabe has reneged on a power-sharing deal and the United States will no longer support a government that includes him, a top U.S. envoy said on Sunday.
U.S. Assistant Secretary of State Jendayi Frazer told reporters in Pretoria Mugabe was "completely out of touch" and was responsible for turning the once prosperous country into a "failed state" where food is scarce and the currency worthless.
Mugabe and opposition leader Morgan Tsvangirai agreed on September 15 to form a unity government, a pact supported at the time by the United States. But that agreement has unravelled due to a fight over control of important ministries.
Since then, Zimbabwe has sunk deeper into crisis. Hyper-inflation means prices double every day, a cholera epidemic has killed more than 1,100 people and the opposition has accused the ruling party of abducting its supporters.
"We feel that Robert Mugabe has reneged on that deal," Frazer said, citing political violence, the spread of cholera, and moves by Mugabe to unilaterally take control of important ministries and posts.
"The power sharing agreement ... needs to be implemented with someone other than Robert Mugabe as president."
Western nations, Zimbabwe's neighbours and investors had hoped a unity government with Tsvangirai as prime minister would wrest enough control from Mugabe to reverse policies they blame for Zimbabwe's economic meltdown, and avert total collapse.
"Today we know better," Frazer said, adding she had been sent by Secretary of State Condoleezza Rice to explain the U.S. shift in policy to other southern African countries.
"OUT OF TOUCH"
While some southern African countries such as Botswana have criticised Mugabe, most African leaders, including neighbour South Africa, have stopped short of calling on him to quit.
Frazer said she had urged Zimbabwe's neighbours to step up the pressure, saying they were protecting him by failing to take a tougher diplomatic line.
But South Africa reiterated on Sunday it had not changed its position and urged the parties to implement the power-sharing deal urgently.
"We believe in that agreement as the way for Zimbabwe to deal with its problems," said Thabo Masebe, a spokesman for South African President Kgalema Motlanthe.
Mozambique's president also called for the quick formation of a coalition government.
Frazer said the United States had been poised to help rescue Zimbabwe's collapsing economy as soon as the deal was implemented, including possible relief on $1.2 billion in debt to international institutions and the easing of sanctions.
"That's off the table now with Robert Mugabe remaining in government," she said.
Western countries including the United States blame Mugabe for Zimbabwe's woes and have intensified calls for him to step down. Rice said this month his departure was well overdue.
Mugabe regularly rails against Western leaders, saying they are using cholera as an excuse to topple him and blaming economic sanctions for the meltdown.
He says Tsvangirai is a western puppet and has vowed he will never "surrender" to attempts to oust him. Tsvangirai says Mugabe is trying to relegate him to a junior partner in the unity government.
There was no immediate comment from Harare on Sunday.
Frazer said she expected "a lot of hot rhetoric" from Mugabe, saying he was "completely out of touch" with the fact 5 million of his people would need food aid by January.
"He has no idea," she said. "He's getting plenty of groceries."
(Additional reporting by MacDonald Dzirutwe in Harare and Charles Mangwiro in Maputo; Writing by Rebecca Harrison in Johannesburg; Editing by Elizabeth Piper)

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Nigeria forces are implicated in the killings of Muslims
By Lydia Polgreen
Sunday, December 21, 2008
DAKAR, Senegal: Government security forces were implicated in the deaths of at least 90 of the hundreds of people killed in religious violence in the central Nigerian city of Jos last month, Human Rights Watch said Saturday.
At least 400 people died when fighting broke out between Muslim and Christian gangs in the city on Nov. 28 and 29 after a dispute about local elections. Each side accused the other of rigging the vote.
Muslims and Christians mingle uneasily in the so-called middle belt region of Nigeria, and tension frequently flares along religious, ethnic and political fault lines.
Initial accounts of the killing in Jos indicated that the gangs had set upon each other's neighborhoods, burning churches, homes, businesses and mosques.
But based on testimony from witnesses interviewed in the aftermath of the violence, Human Rights Watch researchers documented seven shootings in which the police had killed at least 46 men and boys, almost all of them Muslim.
In addition, military troops killed 47 people, also nearly all Muslims, according to the rights group's investigation.
Human Rights Watch is an independent group based in New York.
The regional governor had issued a shoot-to-kill order in the city to quell the violence, which had erupted with sudden ferocity.
Witnesses described seeing police officers hunt down men and kill them at close range, according to the report.
"The duty of the police and the military was to stop the bloodshed generated by this extremely tragic episode of intercommunal violence, not contribute to it," Corinne Dufka, a senior researcher for Human Rights Watch who visited Jos in the days after the killings, said in a statement.
Nigeria is Africa's most populous nation, and its 140 million people are divided almost evenly between Islam and Christianity. Tensions between the religious groups have exploded periodically, often as proxy for deeper divisions over land, power and politics.


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Obama names 4 top science advisers
By Gardiner Harris
Sunday, December 21, 2008
WASHINGTON: In his selection of four top scientific advisers, President-elect Barack Obama has signaled what are likely to be significant changes in policies governing global warming, ocean protections and stem cell research.
"It's time we once again put science at the top of our agenda and worked to restore America's place as the world leader in science and technology," Obama said in a radio address on Saturday, when he announced the appointments.
John Holdren, a physicist and environmental policy professor at Harvard, will serve as the president's science adviser as director of the White House Office of Science and Technology. Jane Lubchenco, a marine biologist from Oregon State University, will lead the National Oceanic and Atmospheric Administration, which overseas ocean and atmospheric studies and performs much of the government's research on global warming.
Holdren will also be a co-chairman the President's Council of Advisers on Science and Technology along with the Nobel Prize-winning cancer research Harold Varmus, a former director of the National Institutes of Health, and Eric Lander, a genomic researcher.
"Whether it's the science to slow global warming; the technology to protect our troops and confront bioterror and weapons of mass destruction; the research to find life-saving cures; or the innovations to remake our industries and create 21st century jobs — today more than ever, science holds the key to our survival as a planet and our security and prosperity as a nation," Obama said.
Like Steven Chu, the energy secretary-designate, Drs. Holdren and Lubchenco advocate mandatory limits on greenhouse gas emissions, which the Bush administration opposed. Both served as president of the American Association for the Advancement of Science. Holdren said last year that the world needed to undertake "a massive effort to slow the pace of global climatic disruption before intolerable consequences become inevitable."
Lubchenco has documented enormous dead zones in oceans that have resulted from climate change and has advocated placing vast ocean areas off-limits to fishing and mineral exploitation. In an e-mail message on Saturday, she wrote: "NOAA will play a central role in addressing pressing challenges of our time — stabilizing the climate, restoring ocean health and coastal vitality. Jobs and a healthy environment go hand in hand — and both are enabled by good science."
Varmus is president of Memorial Sloan-Kettering Cancer Center in New York. Lander is a professor of biology at MIT and helped lead the effort to sequence the human genome.






The man behind the French nuclear power expansion
By Matt GilReuters
Monday, December 22, 2008
PARIS: Pierre Gadonneix, chief executive of Électricité de France, has firmly established the French power giant in the English-speaking world by acquiring half of Constellation Energy's U.S. nuclear plants for his company and taking over British Energy.
With his tenure set to expire in November of next year, the question is, will Gadonneix have the time to persuade the rest of the world to join in a revival of nuclear power?
The French lead the world in civil nuclear power technology, a piece of Gallic savoir-faire little publicized in the United States, and EDF operates the world's largest network of such power stations.
With the $4.5 billion investment in Constellation last week, EDF is betting that its clean European Pressurized Reactor plants can resuscitate an industry largely stalled since the Three Mile Island disaster in 1979, and provide a showcase for the world market.
Listing China, South Africa and Italy as potential markets, Gadonneix told French media recently that the aim of EDF was to "take part as investor, builder and operator in the global rebirth of nuclear energy."
Gadonneix, who was born in New York and holds both French and U.S. citizenship, could be the person to achieve that, as his success in the United States and Britain shows.
"He has pulled off a double coup and it was not easy," said Colette Lewiner, head of utilities at French consultancy Capgemini. "He got his strategy up and running in a satisfactory way."
Despite heading Gaz de France, the state natural gas monopoly, for 17 years, Gadonneix held free market views, which helped him be selected in Sept. 2004 to handle the controversial part-privatization of EDF by then-Prime Minister Dominique de Villepin.
At EDF, where colleagues know Gadonneix as "Gado," the byword for the business leader is "tenacity." His own favorite saying is derived from tennis, his favorite sport: until the second bounce, the ball is still in play.
"Tenacity, yes," said Jacques Mallard, a friend of Gadonneix's who has known him for 35 years. Mallard leads Optim Actif, a French asset management company involved in real estate.
"What some people say - and you see it in the papers sometimes - is that he is not very enterprising, that he lacks daring, but I don't think that is true," Mallard said. "He takes risks, but they are calculated and under control. He knows his limits and goes no further."
Gadonneix's determination to keep the ball in play will be crucial in the months to come, as EDF integrates its new U.S. and British assets while sustaining a €35 billion, or $50.3 billion, European investment plan and pursuing other foreign acquisitions.

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LUKOIL seen to agree loan
Reuters
Sunday, December 21, 2008
By Katya Golubkova and Olga Popova
Russia's LUKOIL has agreed with banks on raising a major loan that will allow it to purchase a significant stake in Spanish energy major Repsol, government and industry sources told Reuters.
"I know that LUKOIL has closed the deal to attract money on Repsol," said a Russian government source, who asked not to be named. He did not give the size of the loan, neither did he say whether it was a foreign or a Russian loan.
A source close to LUKOIL confirmed information about the loan: "Yes we have raised the loan, but haven't closed the deal (to buy into Repsol) yet," he said.
LUKOIL's spokesman denied the company had raised the loan: "It is not true," he said, declining further comment.
LUKOIL has long declined to acknowledge it was in talks over buying a stake of up to 30 percent in Repsol, and last week its chief executive, Vagit Alekperov, said his firm had not agreed a deal.
Minority shareholders in LUKOIL, Russia's No.2 oil producer, have raised concerns about the deal, which could cost over 10 billion euros (9.28 billion pounds), and said they would prefer to see LUKOIL invest in production at home
LUKOIL, Russia's largest private oil producer, has long pursued expansion abroad as a move that would not only help it rival global majors but also give it a bigger diplomatic role in a resurgent and increasingly assertive Russia.
Russian officials have refrained from commenting on the deal, but earlier this month Energy Minister Sergei Shmatko said the government was prepared to give political backing to the bid should LUKOIL ask for it.
Spanish Industry Minister Miguel Sebastian has said LUKOIL's stake in Repsol should be capped.
A second source close to the talks said he believed LUKOIL had dropped plans to buy 30 percent in Repsol and would buy less in order to avoid making a buy-out offer.
"LUKOIL wants to buy at 22 euro (per Repsol share), not at 28 euro as the Spanish want. I have a feeling they want to agree on the price before Christmas," he said.
Sources have told Reuters that LUKOIL is talking to Spanish builder Sacyr Vallehermoso and savings bank La Caixa about buying out their stakes in Repsol. (Additional reporting by Tanya Mosolova and Dmitry Zhdannikov, writing by Dmitry Zhdannikov; editing by Simon Jessop)



François-Xavier Lalanne, sculptor, dies at 81
By William Grimes
Sunday, December 21, 2008
François-Xavier Lalanne, whose menagerie of surrealistic animal sculptures included a cast-iron baboon with a fireplace in its belly, giant turtledoves that doubled as armchairs and a herd of topiary dinosaurs, died Dec. 7 at his home in the village of Ury, south of Paris. He was 81.
The family declined to state the cause of his death, which was confirmed by his wife and partner, Claude.
A painter by training, Lalanne created his own brand of surrealism when, in 1964, he unveiled "Rhinocrétaire," a life-size rhinoceros, whose side folded out into a writing desk. Endlessly inventive, he generated a zoo's worth of animals in the decades that followed: a "landscape fish," designed for the outdoors, with a rectangular hole in the middle that framed the natural scene like a painting; a giant fly, executed in brass, steel and porcelain, which did double duty as a toilet; and, most famous of all, 24 sheep covered in genuine sheepskin. Some of the sheep had faces, while others were shaggy bolsters that stood on sheep legs.
He wanted, he once said, to bring the notion of usefulness to sculpture and to demystify art, which he regarded as a fun house rather than a cathedral. Hence the sheep. "Just the fact that you can squat on it reduces the risk of this inappropriate devotion," he once said.
Lalanne was born in Agen, in southwestern France, and received a Jesuit education. At 18 he moved to Paris and enrolled in the Académie Julian, where he studied drawing, painting and sculpture. After completing military service he rented a studio in Montparnasse, next to that of Constantin Brancusi, who was a decisive influence on his work.
Through Brancusi, Lalanne met artists like Max Ernst, Jean Tinguely, Man Ray and Marcel Duchamp. Just as influential on his art was his brief stint as an attendant at the Louvre, where he worked in the galleries of ancient Egyptian and Assyrian art, surrounded by animal sculptures.
Lalanne managed to find a joke in the situation. "On Tuesdays, when the museum was closed, I couldn't help myself, I just had to saddle up on the statue of the Apis bull," he recalled.
Davy Graham, a British guitarist whose musical fusions, technique and tuning shaped generations of musicians, died Monday at his home in London. He was 68.
His Web site confirmed the death, saying it was caused by a seizure. Graham had been battling lung cancer.
Graham's blend of Celtic music with blues, jazz, spiky syncopations and Eastern modes - he called it folk-Baroque - has been widely influential since the early 1960s, particularly with musicians who sought to revitalize and extend British folk traditions. Among them were the members of Pentangle and Fairport Convention as well as John Martyn, Martin Carthy and the guitarist Jimmy Page of Led Zeppelin.

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Protesters and politicians condemn French mosque fire
Reuters
Sunday, December 21, 2008
LYON: French President Nicolas Sarkozy joined Muslim groups Sunday in condemning attackers who set fire to a mosque in a Lyon suburb, and hundreds gathered outside the building to protest against racism and Islamophobia.
The fire at the mosque in the Lyon suburb of Saint-Priest was started early Saturday before morning prayers and caused damage to the entrance, walls and religious books before being put out.
Sarkozy denounced the "shameful and racist" incident and called for the perpetrators to be found quickly and punished.
Islamic groups and politicians condemned the attack as a "despicable" and "criminal" act.
Organisers of the demonstration said some 3,000 people of different religions gathered outside the mosque, while police said they estimated the number at around 600.
"This mobilisation shows the will of the Muslim community not to accept being treated in this way any longer and to respond each time," Kamel Kabtane, head of Lyon's Grand Mosque, told the demonstrators.
Azzedine Gacci, president of the Muslim regional council, said there had been some 10 "Islamophobic acts" in the last two years and called for a national demonstration by all religions and for Islamophobia to be condemned alongside anti-Semitism and racism.
Police were investigating the fire but had not yet found who was responsible, Interior Minister Michele Alliot-Marie said.
Hundreds of tombstones in the Muslim part of a military cemetery near the northern French town of Arras were damaged earlier this month in the third such attack on the site in less than two years.
(Reporting by Catherine Lagrange; writing by James Regan; editing by Tim Pearce)




Olmert rejects calls for harsh response to Gaza rockets
The Associated Press
Sunday, December 21, 2008
JERUSALEM: Ehud Olmert, the Israeli prime minister, on Sunday brushed aside calls for an immediate large-scale operation in the Hamas-ruled Gaza Strip in response to an escalation of cross-border rocket fire after a truce expired.
Palestinian militants have fired more than 50 makeshift rockets and mortar shells at Israel since a six-month-old Egyptian-brokered cease-fire with Hamas ended Friday.
Over the weekend, one Palestinian militant was killed in an Israeli airstrike and at least one person in southern Israel was wounded by shrapnel from a mortar shell.
Unless Hamas stopped the salvos, the army would have no choice but to take "severe action," said an Israeli cabinet minister, Isaac Herzog, though he did not describe what that might entail.
"It needs to be clear," he said. "A strike in Gaza will come, and it will be hard and painful."
But Olmert, who is leaving his post early next year, suggested a more measured approach for now, underscoring the difficult choices facing the government in the weeks before an election on Feb. 10.
The rocket fire has increased pressure on Olmert and his government to launch a major operation that could result in heavy casualties on both sides, create a severe humanitarian crisis in the Gaza Strip and spark an international outcry.
Likud, a party led by a former prime minister, Benjamin Netanyahu, that is leading in the polls, accused Olmert and his government of failing to protect Israeli civilians bordering the Gaza Strip, which Hamas Islamists seized in June 2007.
"A government doesn't rush to battle," Olmert told his cabinet, "but doesn't avoid it either."
He cautioned fellow ministers and opposition parties against making "bold statements" and indicated that he favored a wait-and-see approach. "Israel will know how to give the proper response at the right time in the right way, responsibly," he said.
Foreign Minister Tzipi Livni, who is in the running to become prime minister in elections, said: "The Hamas government in Gaza must be toppled, the means to do this must be military, economic and diplomatic. Whenever they shoot at Israel, Israel must respond."
A total of 10 salvos from Gaza hit Israel on Sunday, prompting the army to make an airstrike against a rocket launcher and to keep border crossings closed, preventing the passage of humanitarian supplies.
An Israeli airstrike on Saturday killed a militant from Al Aksa Martyrs Brigades, the armed wing of the secular Fatah faction of the Palestinian president, Mahmoud Abbas.
The Islamic Jihad militant group has claimed responsibility for most of the rocket fire.
Civilians on both sides seemed to shrug off the end of the cease-fire, which many in Gaza feel never delivered the expected easing of the Israeli blockade, and many in Israel feel never produced the sought security from Palestinian attacks.
The truce had been eroding since early November when a deadly Israeli raid prompted militants to step up rocket attacks, most of which cause no injuries and little damage.Food and aid for Gaza
The Egyptian Red Crescent said Sunday that it would send five trucks carrying food and medical aid to the Hamas-run Gaza Strip, Reuters reported from Ismailia, Egypt.
Muhammad Orabi, head of the organization in North Sinai, said the trucks were loaded with 40 tons of flour, 20 tons of rice and some medical supplies.
An Egyptian official at the Rafah border crossing with the coastal strip said the Egyptian authorities had agreed with Israel to allow the trucks in on Monday.
A boat carrying international activists delivering medical aid docked in the Gaza Strip on Saturday after sailing from Cyprus despite an Israeli naval blockade of the territory.
Israel patrols the coastal waters around Gaza but has not obstructed the activists from sailing to the enclave.

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Livni and Netanyahu vow to topple Hamas rule
Reuters
Sunday, December 21, 2008
By Adam Entous
The top candidates to become Israel's next prime minister vowed on Sunday to topple Hamas in the Gaza Strip and officials authorised strikes on a wider range of Islamist targets after a six-month-old truce ended in violence.
The threats by Foreign Minister Tzipi Livni and right-wing Likud party chief Benjamin Netanyahu followed a cabinet meeting in which outgoing Prime Minister Ehud Olmert cautioned against rushing into a large-scale ground operation in the Hamas-ruled enclave in response to escalating rocket fire by militants.
Such an operation could result in heavy casualties on both sides, fuel a major humanitarian crisis in the aid-dependent Gaza Strip and spark an international outcry against Israel.
Until now, the Israeli military has carried out limited air strikes against rocket launchers, but defence sources said the air force now had a green light to go after other Hamas targets as well. The sources would not identify what those potential targets might be and when those air strikes might begin.
If elected premier in a Feb 10 election, Livni, who heads the centrist Kadima party, said her government's "strategic objective" would be to "topple the Hamas regime" using military, economic and diplomatic means. She did not set a timetable.
Netanyahu, Livni's main rival for the premiership, called for a more "active policy of attack," accusing the current government of being too "passive."
"In the long-term, we will have to topple the Hamas regime. In the short-term, ... there are a wide range of possibilities, from doing nothing to doing everything, meaning to conquer Gaza," Netanyahu said during a visit to a house in the southern Israeli town of Sderot that was hit by a rocket.
Palestinian militants have fired nearly 60 of the makeshift rockets and mortar shells at Israel since the Egyptian-brokered cease-fire with Hamas ended on Friday, the Israeli army said. Over the weekend, an Israeli air strike killed one militant and at least one person in Israel was injured by a shell shrapnel.
HANIYEH UNFAZED
Ismail Haniyeh, head of Hamas's government in Gaza, brushed aside Israeli threat: "Nothing can finish off our people."
Hamas official Ayman Taha said the Islamist group, which took over the Gaza Strip in June 2007 after routing rival Fatah forces loyal to Palestinian President Mahmoud Abbas, predicted Hamas's rule would outlive Livni's.
Olmert had cautioned his cabinet against making "bold statements" about an operation in the Gaza Strip and suggested that he favoured a wait-and-see approach.
"A government doesn't rush to battle, but doesn't avoid it either," Olmert said. "Israel will know how to give the proper response at the right time in the right way, responsibly."
Underscoring the military challenge facing Israel in the densely-populated Gaza Strip, Defence Minister Ehud Barak said even an incursion involving two-to-three divisions, or more than 20,000 troops, may not be enough to stop rocket fire.
Government ministers promising to topple Hamas "do not know what they are talking about," Barak said.
But pressure on the government to act is mounting.
Yuval Diskin, head of the Shin Bet domestic intelligence agency, told ministers on Sunday that Hamas has longer-range rockets that could strike the city of Beersheva, a major population centre some 40 km (25 miles) from the Gaza Strip.
"It needs to be clear. A strike in Gaza will come, and it will be hard and painful," cabinet minister Isaac Herzog said.
Polls show a tightening race between Livni and Netanyahu to replace Olmert as prime minister, and both candidates have stepped up anti-Hamas sabre-rattling in recent days.
Since the cease-fire ended on Friday, the Islamic Jihad group has claimed responsibility for most of the rocket fire at Israel, which kept border crossings closed, preventing the passage of humanitarian supplies.
The cease-fire had been eroding since early November when a deadly Israeli raid prompted militants to step up rocket attacks, most of which cause no injuries and little damage.
(Additional reporting by Ari Rabinovitch in Jerusalem and Nidal al-Mughrabi in Gaza; Editing by Katie Nguyen)

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Gaza militants hit Israeli house with rocket
Reuters
Sunday, December 21, 2008
SDEROT, Israel: A rocket fired by Palestinian militants in the Hamas-controlled Gaza Strip struck a house in southern Israel on Sunday as cross-border violence escalated after a six-month-old truce expired last week.
No one was injured in the rocket attack in the town of Sderot, which sits about two kilometres from the border with the Gaza Strip, but rescue workers said a man was injured in a nearby community by a mortar that hit the field he was working.
An Egyptian-brokered cease-fire reached in June between Israel and Hamas Islamists who control the Gaza Strip came to an end on Friday, though cross-border violence has been increasing for weeks.
An Israeli air strike killed a Gaza militant on Saturday, and an air strike destroyed a rocket launcher in northern Gaza on Sunday.
The Islamic Jihad militant group has claimed responsibility for most of the rocket fire. An Israeli military spokesman said at least 49 rockets and mortars have been fired from the Gaza Strip at Israel since the truce ended.
(Writing by Ari Rabinovitch; Editing by Jon Boyle)


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Maker of 'Bush shoe' helps Turkey's trade balance
By Sebnem Arsu
Sunday, December 21, 2008
ISTANBUL: When a pair of black leather oxfords hurled at President George W. Bush in Baghdad produced a gasp heard around the world, a Turkish cobbler had a different reaction: They were his shoes.
"We have been producing that specific style, which I personally designed, for 10 years, so I couldn't have missed it, no way," said Ramazan Baydan in Istanbul. "As a shoemaker, you understand."
Although his assertion has been impossible to verify - cobblers from Lebanon, China and Iraq have also staked claims to what is quickly becoming some of the most famous footwear in the world - orders for Baydan's shoes, formerly known as Ducati Model 271 and since renamed "The Bush Shoe," have poured in from around the world.
A new run of 15,000 pairs, destined for Iraq, went into production Thursday, he said. A British distributor has asked to become the Baydan Shoe Co.'s European sales representative, with a first order of 95,000 pairs, and a U.S. company has placed an order for 18,000 pairs. Four distributors are competing to represent the company in Iraq, where Baydan sold 19,000 pairs of this model for about $40 each last year.
Five thousand posters advertising the shoes, on their way to the Middle East and Turkey, proclaim "Goodbye Bush, Welcome Democracy" in Turkish, English and Arabic.
For now, Baydan's customers will have to take his word for it. The journalist who launched the shoes at a news conference a week ago, Muntader al-Zaidi, 29, was wrestled to the ground by guards and has not been seen in public since. Explosives tests by investigators destroyed the offending footwear.
But Baydan insists he recognizes his shoes. Given their light weight, just under 11 ounces each, and clunky design, he said he was amazed by their aerodynamics. Both shoes rocketed squarely at Bush's head and missed only because of deft ducks by the president.
Throwing a shoe at someone is a gross insult in Arab countries, and Bush is widely unpopular in much of the region. But as he enters his last weeks in office, he seems to have gained a small foothold of appreciation here.
Noting the spike in sales, Serkan Turk, Baydan's general manager, said, "Bush served some good purpose to the economy before he left."

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COLUMNIST
Roger Cohen: Two shoes for democracy
Sunday, December 21, 2008
NEW YORK: Of all the questions Barack Obama needs to ask right now, the most important should be addressed to the Secret Service: How the heck did Muntader al-Zaidi get his second shoe off?
Al-Zaidi, of course, is the Iraqi television journalist who expressed his rage at the U.S. occupation of his country by hurling first one shoe, then the other, at President George W. Bush in Baghdad. He's now in detention.
As for his shoes, they're not going to end up on some gilded stand in a dusty museum somewhere in the Arab world. They've apparently been destroyed at a laboratory during a search for explosives. Yes, you read that right.
The shadow of Richard Reid, the would-be shoe-bomber of 2001 whom most regular air travelers would happily submit to protracted torture, extends even to Iraq. One thing's for sure: Al-Zaidi, now a hero in much of the Arab world, won't be short of replacement footwear once he emerges from captivity.
When that will be is anyone's guess. He's apologized to Prime Minister Nuri Kamal al-Maliki. Bush has urged the Iraqis "not to overreact."
One theory is that time enough is needed for the journalist's bruises to fade. One certainty is that the pummeling he got was as intense as the reaction to what he did was slow. A second shoe is one too many. Change the last letter in shoe and you have shot.
These, however, were mere shoes. The throwing of them was offensive - and harmless. Journalists should not throw shoes, even at inept American presidents. Still, with apologies to the late E.M. Forster, I'm tempted to call this incident: "Two Shoes for Democracy."
Bush, when the shoes came his way, was in the Green Zone, the walled four-square-mile home to Western officialdom and the Iraqi government that has about as much in common with the rest of Iraq as Zurich has with Falluja.
For all it reflects of Iraqi life beyond its walls in what is sometimes called the Red Zone, the Green Zone might as well be in Baton Rouge.
This sprawling urban garrison, where U.S. forces moved into Saddam Hussein's Mesopotamian Fascist Republican Palace right after the 2003 invasion, is a monument to failure. As long it exists in the center of Baghdad, Iraqi democracy will be hollow.
It is openness, accessibility and accountability that distinguish democracies from dictatorships. Or it should be. A country governed from a fortress inaccessible to 99 percent of its citizens may be many things, but is not yet a democracy.
Al-Zaidi's gesture broke those barriers, penetrated the hermetic sealing, and brought Red-Zone anger to Green-Zone placidity. In this sense, his was a democratic act.
What it said was: "Tear down these walls." What it summoned was the deaths, exile and arbitrary arrests that U.S. incompetence has inflicted on countless Iraqis - a toll on which al-Zaidi has reported. What it did was thrust Bush, for a moment, out of the comfort zone of his extravagant illusion. Perhaps, for a second, the other shoe dropped.
After the incident, I heard from a U.S. friend now serving in the joint security station in Sadr City, the teeming Shiite district of Baghdad from which al-Zaidi hailed. He wrote: "We did not get a fusillade of shoes thrown over the concrete barriers and razor wire. One college engineering student in Sadr basically said re: the press conference incident: 'Well that's the democracy you brought us, right?"'
Or rather, it was a glimmering of such a democracy. Anyone throwing a shoe at Saddam Hussein would have been executed, along with numerous other members of his family, within hours of such an incident. Iraq is slowly learning the give-and-take of a system where differences are accommodated rather than quashed.
But the process is slow. Recovering from murderous despotism takes a minimum of a generation.
Al-Zaidi's anger was that of a Shiite - at the U.S. occupation and at all the loss. There is fury and fear, too, among Sunnis, whose "awakening" dealt a devastating blow to Al Qaeda in Iraq but whose mistrust of the now-dominant Shiite is visceral. Another of Obama's pressing questions should be: Does my 16-month withdrawal timetable risk reigniting sectarian war?
One thing is certain: Before the United States pulls out its combat troops, the Green Zone must cease to exist. While it's there, it's a sign that Iraqis - all Iraqis - have not yet learned to live together. The district chairman in Sadr City said this to my U.S. friend last week: "The Green Zone needs to be deleted."
That was the message in al-Zaidi's gesture. He's being held for insulting a foreign leader and could face long imprisonment. But the Green Zone is an insult to all Iraqis. Al-Zaidi should be released and an Iraqi-American commission on terminating the Green Zone established at once.
Bush dodged a shoe; he cannot dodge shame.
Readers are invited to comment at my blog: iht.com/passages

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Iraq forces stronger but not standing alone yet
Reuters
Sunday, December 21, 2008
By Missy Ryan and Tim Cocks
Iraq faces a major test next year when its unseasoned forces cast off U.S. military primacy to defend a fragile peace in a country that only recently stood at the brink of sectarian civil war.
Iraqi forces, which have grown seven-fold since 2003, are seen as far more professional and prepared than they once were.
"We're now ready to take over everything, in terms of security," said Hussein Azab, an Iraqi Army major who oversees the Al Hurriya district of Baghdad. "I can't see any reason why we can't patrol the streets by ourselves now."
But many Iraqi officials acknowledge that inadequate equipment, incomplete training and a host of other problems mean they are not yet ready to ensure Iraq does not slide back into the horrific violence that followed the 2003 U.S.-led invasion.
The test for Iraqi forces, who now number around 610,000, occurs as U.S. troops curtail their combat activities under a bilateral security pact that takes effect on January 1, 2009.
U.S. raids and other operations will require Iraqi permission, and U.S. soldiers will need arrest warrants for searches and detentions. U.S. troops are supposed to be confined to training and support roles in Iraqi cities by the middle of next year, and all must be out of the country by end-2011.
Officials from the United States, which has spent some $20 billion (13.3 billion pounds) on Iraq's security forces and justice system since it ousted Saddam Hussein in 2003, describe Iraqi forces in terms that parents reserve for less-than-exceptional children.
"Much better, but not there yet," or "making headway," are common refrains. In some areas, the best U.S. officials hope for in the short run is what they call "Iraqi good enough."
In a recent basic training class in Kut, south of Baghdad, police recruits with close-shorn heads and blue uniforms sat packed in a small classroom as their instructor drilled them on how to avoid becoming yet another police killed on duty: don't eat every day at the same place; vary your route to work.
It is part of a four-week basic training course for police recruits at the centre that lacks proper instructors and basics like fuel and ammunition.
During a visit from Major-General Mike Milano, a senior U.S. advisor to Interior Minister Jawad al-Bolani, Iraqi police trotted out a homemade RPG they use to train recruits -- their proof they are making do with enough support from Baghdad.
AIR SUPPORT, LOGISTICS WEAK POINTS
On Iraqi streets, a frequent sight are skinny Iraqi policemen, holding ageing weapons and protected at best by flimsy and ill-fitting bullet-proof vests.
They are a sharp contrast to U.S. soldiers, rumbling by in state-of-the-art armoured vehicles, draped with sophisticated body armour and night-vision goggles.
Iraqi security entities have long been beset by political intrigue, sectarian rivalries, and corruption. In late 2007, things were so bad that an independent U.S. commission recommended dissolving the entire National Police.
The situation has improved, but U.S. officials say Saddam's fear-infested rule left a corrosive legacy, including a slow-moving bureaucracy, an inability to spend budgeted funds and decision-making concentrated at the top.
If you made a wrong decision under Saddam "you'd be killed or your hand would be cut off," said Lieutenant General Frank Helmick, who heads U.S. and NATO efforts to train Iraqi forces.
Still, Helmick and others say Iraq's military is far more capable now. Iraq now controls security in 13 of 18 provinces and as of October, 107 of 164 Iraqi Army battalions had taken the lead from U.S. forces or were operating independently.
Last spring, Iraqi soldiers gave Prime Minister Nuri al-Maliki a big political boost when they trounced Shi'ite militias in Iraqi-led offensives in Baghdad and southern Basra.
"By the end of 2011, we will be able to fight terror. We will be able to maintain internal security," said Mohammed al-Askari, spokesman for Iraq's Defence Ministry.
(Additional reporting by Khalid al-Ansary; Editing by Michael Christie)

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Targeted Mumbai hotels open with tighter security
The Associated Press
Sunday, December 21, 2008
MUMBAI, India: The blood has been mopped up, the grenade-scarred marble replaced, the bullet holes covered over.
But the reopening Sunday of parts of the iconic Taj Mahal hotel — less than a month after militants stormed the building, spraying staff and guests with gunfire and grenades — comes with more than just a new plaster and paint job. There are new security measures and officials promise a new type of luxury hotel: an "invisible fortress" that can protect guests as well as pamper them.
"We can be hurt, but we will never fall," a defiant Ratan Tata, chairman of Taj owner Tata Group, said as guests checked into Taj tower for the first time since the Nov. 26 attacks.
The Trident portion of the Oberoi hotel complex also reopened on Sunday, though the main areas of both luxury hotels are expected to stay closed for months. But with the holidays approaching, the two landmarks rushed to woo guests back.
Police manned barricades outside the Taj Sunday night while armed, undercover guards kept watch inside. Everyone walking into the lobby was asked for proof of their hotel reservation. Visitors handed their bags over for inspection and walked through metal detectors as their luggage was scanned through X-ray screening machines.
Among those checking in was a Californian who survived the attacks. During the siege, Deepak Dutta, 50, said he spent 24 hours locked in his room — praying — before being rescued.
Dutta said he checked into the very same room Sunday "to show the terrorists that our spirit cannot be shaken."
"The Taj is like a second home to me and the staff members are like my family," he said. "I'm happy that the Taj is back in action."
The majestic Taj Mahal — an icon of Indian pride and a playground for the global elite for over a century — and the sleek, sea-front Oberoi were among 10 sites targeted in the rampage. At the end of the militants' 60-hour standoff with police, 164 people and nine gunmen were dead, including dozens of guests and staff members from the two hotels.
At the Oberoi complex's Trident hotel, a Hindu priest chanted prayers and a Muslim cleric read from the Quran on Sunday. Hotel staff in ivory saris greeted guests with flowers. Candles flickered in the lobby.
A German tourist said she was going ahead with her vacation plans despite the attacks.
"All over the world such things are happening. You can have an accident even at home. Therefore we were not afraid to come to India," she said, only giving her first name, Angelika.
At the Taj Mahal, hotel officials unveiled a memorial for the 31 staff and guests who died in the three-day siege. The Tree of Life is based on a 6-foot- (2-meter-) tall bronze sculpture that originally stood beneath the dome — and survived the siege unharmed.
A pianist played in the lobby, as guests were welcomed with traditional marigold garlands. Some received the red "tilak" dab typically rubbed on forehands during prayer ceremonies. The tower's five restaurants were fully booked, with waiting lists.
"There is still much work to do, but we are all determined to rebuild the Taj brick by brick until it outshines even its former glories," Tata said.
But beyond the cosmetic renovations, R.K. Krishna Kumar said he and his colleagues have set out to reconstruct a hotel for a new age — one capable of withstanding another militant attack while still indulging guests.
"A world-class hotel needs to be an invisible fortress," said Kumar, vice chairman of Indian Hotels Co. Ltd., a subsidiary of Tata Group, the Taj's owner. "There is a new phase as far as the hotel industry is concerned."
Restoration of the entire complex should be done by the first quarter of 2010, he said.
An international security firm is helping upgrade security and hotel staff are working closely with police. The company also has urged the government to create a new, elite terror team within the police corps.
The Mumbai attacks exposed glaring gaps in India's security and intelligence apparatus, and many criticized the government for not being better prepared for the attacks.
"People do not need to worry about security. The state administration and the police would put in all efforts to prevent terror attacks," Maharashtra Chief Minister Ashok Chavan said, according to the Press Trust of India news agency.
Thirty-one people — including a dozen hotel employees — were killed inside the Taj as friends and family looked on.
Staffers who showed up for their 10 p.m. shift on Nov. 26 instead spent that night huddled in the courtyard across from the hotel, trying desperately to guide friends to safety.
"Left. Left. Crawl. Go toward the office," one man said sternly into his phone as the blaze beneath the Taj's historic dome flared up.
A firefighter who removed victims' bodies from the hotel's main kitchen recalled: "The floor was full of blood. It smelled of blood."
All that is gone now.
"You'll see not a trace of what happened," Kumar said. "It's back to business."

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Australia lifts restrictions on ex-Guantánamo inmate
By Raymond Bonner
Sunday, December 21, 2008
SYDNEY: David Hicks became a completely free man at one minute past midnight Sunday morning, for the first time since being picked up by the Americans in Afghanistan seven years ago this month and later becoming the first terrorism suspect to be sentenced by a military commission at Guantánamo Bay, Cuba.
"When he gets out of bed, it will be a new era for him," said his father, Terry Hicks, who was preparing for the first Christmas with his son, now 33, since he went off to Pakistan in 1999.
"It's going to be quite exciting," Terry Hicks said about Christmas with his son, at their home in Adelaide. But given his son's "mental state," he was not planning anything special. "We are just going to try to be as normal as possible," he said by telephone from Adelaide.
Until Sunday morning, David Hicks, who returned home last year on Dec. 29, was under a control order imposed by the police. He was required to be home from 6 p.m. to 6 a.m.; required to report to the police twice a week; prohibited from leaving his home state without police permission; and limited to one e-mail account, one cellphone and one land line.
A high-school dropout, Hicks had become an adventurer in his late teens, skinning kangaroos in the Australian outback and training horses in Japan, and he was planning to ride the Silk Road on horseback. But he fell in first with Lashkar-e-Taiba, which was backed by the Pakistani government at the time. The group is now suspected of planning the attacks on Mumbai last month. He then made his way to Afghanistan, where he fought alongside the Taliban.
Hicks's case was highly politicized. For years, the Australian government did virtually nothing while he was at Guantánamo Bay. Then, under mounting public outcry, the government put pressure on the Bush administration to release Hicks or give him a trial.
Under a plea agreement in March 2007, Hicks pleaded guilty to one count of providing material support for terrorism and was sentenced to nine months in prison, which he was allowed to serve in Australia.
When he was released, the police unexpectedly imposed the control order. The control order expired at midnight Saturday, and the police have said they would not going to renew it.
The end of these restrictions now allows Hicks to turn more of his attention to rehabilitation, his father said.
He said his son now has great difficulty concentrating. He has a part-time job, his father said, but finds it difficult to work more than a couple of days because of the trouble he has retaining information or remembering his tasks for the next day.
Hicks is also now free to speak to the news media, but his father has said he is not yet prepared to do so. "He wants to get himself right first," his father said. "He's got a lot of issues. He wants to be more confident, more assured."

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Extra U.S. troops aim for Afghan "tipping point"
Reuters
Sunday, December 21, 2008
By Jon Hemming
The British army once tried to drive the Taliban from Garmsir in southern Afghanistan with just 17 British, 10 Estonian and 200 Afghan troops. Now the U.S. army wants to pour troops into the area to make lasting gains.
For two years after the British attack, Garmsir went back and forth between Taliban and government control, thousands fled and it was only when more than 2,000 U.S. Marines launched a major operation in April this year that the town was fully captured and relative calm restored.
That is the kind of difference the U.S. army wants to make by sending up to 30,000 extra troops to Afghanistan by summer.
After an initial reinforcement of some 3,000 U.S. troops to the south of Kabul in January, most of the extra deployment will be to the south to bolster British, Canadian and Dutch forces that U.S. Defence Secretary Robert Gates said recently are just "holding their own" in the fight with the resurgent Taliban.
"That's where the toughest fight is," said Adm. Mike Mullen, chairman of the U.S. Joint Chiefs of Staff, announcing the planned reinforcements in the Afghan capital Saturday.
Garmsir is a good example of what the extra U.S. troops may achieve, NATO officials said.
"When we put Marines out there earlier this year ... they found themselves in a pretty tough fight pretty quickly," Mullen said. Fierce clashes ensued for more than a month and hundreds of Taliban were killed before the Marines pulled out and handed security to British forces and the Afghan National Army (ANA).
"As the Marines left down there, there was concern about whether or not we would hold. The Brits and the ANA have held Garmsir," Mullen said.
Garmsir bazaar is now open again, life is returning to the dusty, battle-scarred town and more than $3 million (2 million pounds) has been earmarked for development.
The operation illustrates the "clear, hold and build" strategy employed by U.S. Gen. David Petraeus with success in Iraq.
Petraeus is now in overall command of operations in Afghanistan as well and his ideas are likely to form the core of a review of strategy in Afghanistan to be presented to President-elect Barack Obama.
"TIPPING POINT"
U.S. General David McKiernan, the commander of international troops in Afghanistan, has said he wants the extra forces to reach a "tipping point" against the Taliban.
He no longer wants to launch operations to clear an area unless he has the forces, preferably Afghan, to hold onto it and bring in aid and development.
The trouble is there are not yet enough fully trained and equipped Afghan soldiers and police to provide that sort of security to all of Afghanistan's nearly 400 districts.
The United States is committed to nearly doubling the size of the Afghan army to 134,000 troops in the next three years and is working hard to reform the notoriously corrupt police.
U.S. Ambassador to the United Nations Zalmay Khalilzad told CNN in an interview Sunday that Iraq and Afghanistan were similar in size geographically, but the Iraqi forces numbered a much larger 600,000.
"Until (the Afghans) can do that on their own, there is a need for increased forces that we've agreed to deploy with coalition partners in order to not only be able to clear and area, but also be able to hold and build," he said.
In the meantime, a proposal to "empower local leaders" and arm local militias to secure their own areas, somewhat akin to the "awakening councils" in Iraq, is being hotly debated by international forces and the Afghan government.
Given Afghanistan's complex web of ethnic, tribal and local rivalries, the proposal is fraught with difficulties.
"One of those things you won't hear is arming of the tribes," U.S. Gen. Robert Cone told Reuters this month. "In many districts you have multiple competing tribes, so which tribe are you going to arm, which warlord are you going to re-enable?"
The proposal is for the Afghan government to engage with local elders representing the tribes who will then vouch for individuals to be recruited into a force that will be responsible for security in their area, supervised by the ANA.
"The generals clearly have a strategy now that they want to implement, the question is: will it work?" said one military official who declined to be named.
(Additional reporting by Paul Eckert in Washington)
(Editing by Tim Pearce and Cynthia Osterman)

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U.S. may double size of its force in Afghanistan
The Associated Press
Sunday, December 21, 2008
KABUL: The top U.S. military officer said over the weekend that the Pentagon could double the number of American forces in Afghanistan by next summer to 60,000 - the largest estimate of potential reinforcements ever publicly suggested.
Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, said Saturday that 20,000 to 30,000 additional U.S. troops could be sent to Afghanistan to bolster the 31,000 already there.
This year has been the deadliest for U.S. forces in Afghanistan since the 2001 invasion that intended to overthrow the rule of the Taliban, which had played host to the Al Qaeda leader, Osama bin Laden. Suicide attacks and roadside bombs have become more common, and Taliban fighters have infiltrated wide swaths of countryside and now roam in provinces around Kabul.
U.S. commanders have long requested an additional 20,000 troops to aid Canadian and British forces in two provinces near Kabul and in the south. But the high end of Mullen's range is the largest number any top U.S. military official has said could be sent to Afghanistan.
Mullen said the increase would include combat forces but also aviation, medical and civilian affairs support troops.
"So some 20,000 to 30,000 is the window of overall increase from where we are right now," he said at a news conference at a U.S. base in Kabul. "We certainly have enough forces to be successful in combat, but we haven't had enough forces to hold the territory that we clear."
Over all, there are more than 60,000 foreign troops in Afghanistan. Mullen said any increased U.S. deployment would be directly tied to force levels in Iraq, where U.S. commanders are drawing down troops.
"The Taliban and extremists are more sophisticated and effective," Mullen said. "They haven't won any battles, but they certainly have increased the level of violence, and we're very focused on that. That's why the additional forces are so important - to be able to provide security for the Afghan people so these other areas can be developed."
U.S. officials already have plans to send four ground brigades and an aviation brigade to Afghanistan.
On Sunday, officials said that Afghan and coalition troops found and destroyed 2.5 tons of marijuana in an abandoned school in southern Afghanistan, while coalition troops killed four militants and detained five during an operation elsewhere in the south.
The operation on Saturday targeted a Taliban militant "known to traffic weapons and coordinate roadside bomb attacks," the military said.

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New U.S. spy chief would face fractious agencies
By Mark Mazzetti
Sunday, December 21, 2008
President-elect Barack Obama's expected appointment for director of national intelligence would put Dennis Blair, a retired admiral, in the position of riding herd over 16 often fractious intelligence agencies and streamlining an office many in Congress have criticized as bloated.
Blair, as the nation's spy master, would on some days be the first person to greet Obama in the morning with a dossier of the threats facing the United States.
Obama still has not settled on a candidate to take over the Central Intelligence Agency, members of his transition team said Saturday. That selection has been a particular headache as the president-elect has sought to find a CIA director steeped in terrorism and counter-proliferation but not closely linked to controversial Bush administration policies like the CIA's detention and interrogation program and the National Security Agency's domestic wiretapping.
Transition aides said Blair would help select a CIA director, which could give him an upper hand in the turf battles that still plague the spy community.
In recent months, Mike McConnell, the director of national intelligence, has clashed with the CIA director, Michael Hayden, on personnel matters, particularly over McConnell's insistence on filling top jobs in overseas stations with officers from across the intelligence community, not just the CIA.
The agency since its founding has been in control of the foreign stations. Hayden has argued that the CIA's responsibilities for gathering intelligence using undercover officers makes it best suited to run the overseas posts and work with foreign spy services.
Obama aides said the official announcement of Blair's selection was not expected until next month, after the president-elect returns from a vacation in Hawaii. They said Obama would most likely reveal his CIA choice at the same time.
Blair has a reputation for quickly digesting complex and often conflicting information, although his Navy background raised concerns from some members of Congress about the "militarization" of intelligence at a time when the Pentagon still controls a significant part of the intelligence budget.
McConnell is also a retired admiral. Hayden is a retired Air Force general.
Blair, a native of Maine descended from generations of Navy veterans, graduated from Annapolis in the same year as Admiral Mike Mullen, the chairman of the Joint Chiefs of Staff; Senator Jim Webb of Virginia; and Oliver North, the former Marine colonel who became embroiled in the Iran-Contra scandal.
Blair earned a master's degree at Oxford University, where he was a Rhodes scholar, and speaks Russian.
While at the helm of the U.S. Pacific Command from 1999 to 2002, he won praise for counterterrorism operations he ran against the Abu Sayyaf group in the Philippines, where Navy Seals and CIA operatives worked with the country's army to capture or kill the members of the network in remote parts of the country.
But he also clashed with lawmakers and State Department officials over his efforts to strengthen ties to Indonesia's military, which he saw as an important moderating force in the Muslim nation. Some officials in Washington objected to the Pentagon's dealing with a military with a long track record of human rights abuses.
In 2001, Blair was one of the brightest stars in the military firmament: an admiral with a platinum résumé whom many considered a lock to become the next Joint Chiefs chairman.
But the new defense secretary, Donald Rumsfeld, considered him too outspoken and independent, and thought that he was out of step with parts of President George W. Bush's foreign policy agenda, particularly about the military threat posed by China. Moreover, he was a longtime friend of the Clintons, having studied at Oxford with former President Bill Clinton.
Blair was passed over for the job and eventually retired.



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EDITORIAL
Building a better defense for America
Sunday, December 21, 2008
In recent weeks, we have called for major changes in America's armed forces: more ground forces, less reliance on the Reserves, new equipment and training to replace Cold-War weapons systems and doctrines.
Money will have to be found to pay for all of this, and the Pentagon can no longer be handed a blank check, as happened throughout the Bush years.
Since 2001, basic defense spending has risen by 40 percent in real post-inflation dollars. That is not counting the huge supplemental budgets passed - with little serious review or debate - each year to pay for the wars in Iraq and Afghanistan. Such unquestioned largess has shielded the Pentagon from any real pressure to cut unneeded weapons systems and other wasteful expenses.
As a result, there is plenty of fat in the defense budget. Here is what we think can be cut back or canceled in order to pay for new equipment and other reforms that are truly essential to keep this country safe:
End production of the Air Force's F-22. The F-22 was designed to ensure victory in air-to-air dogfights with the kind of futuristic fighters that the Soviet Union did not last long enough to build. The Air Force should instead rely on its version of the new high-performance F-35 Joint Strike Fighter, which comes into production in 2012 and like the F-22 uses stealth technology to elude enemy radar.
Until then, it can use upgraded versions of the F-16, which can outperform anything now flown by any potential foe. The F-35 will provide a still larger margin of superiority. The net annual savings: about $3 billion.
Cancel the DDG-1000 Zumwalt class destroyer. This is a stealthy blue water combat ship designed to fight the kind of midocean battles no other nation is preparing to wage. The Navy can rely on the existing DDG-51 Arleigh Burke class destroyer, a powerful, well-armed ship that incorporates the advanced Aegis combat system for tracking and destroying multiple air, ship and submarine targets. The Navy has sharply cut back the number of Zumwalts on order from 32 to two.
Cutting the last two could save more than $3 billion a year that should be used to buy more of the littoral combat ships that are really needed. Those ships can move quickly in shallow offshore waters and provide helicopter and other close-in support for far more likely ground combat operations.
Halt production of the Virginia class sub. Ten of these unneeded attack submarines - modeled on the cold-war-era Seawolf, whose mission was to counter Soviet attack and nuclear launch submarines - have already been built. The program is little more than a public works project to keep the Newport News, Virginia, and Groton, Connecticut, naval shipyards in business.
The Navy can extend the operating lives of the existing fleet of Los Angeles class fast-attack nuclear submarines, which can capably perform all needed post-cold-war missions - from launching cruise missiles to countering China's expanding but technologically inferior submarine fleet. Net savings: $2.5 billion.
Pull the plug on the Marine Corps's V-22 Osprey. After 25 years of trying, this futuristic and unnecessary vertical takeoff and landing aircraft has yet to prove reliable or safe. The 80 already built are more than enough. Instead of adding 400 more, the Marine Corps should buy more of the proven H-92 and CH-53 helicopters. Net savings: $2 billion to 2.5 billion.
Halt premature deployment of missile defense. The Pentagon wants to spend roughly $9 billion on ballistic missile defense next year. That includes money to deploy additional interceptors in Alaska and build new installations in central Europe. After spending some $150 billion over the past 25 years, the Pentagon has yet to come up with a national missile defense system reliable enough to provide real security. The existing technology can be easily fooled by launching cheap metal decoys along with an incoming warhead.
We do not minimize the danger from ballistic missiles. We agree there should be continued testing and research on more feasible approaches. Since the most likely threat would come from Iran or North Korea, there should be serious discussions with the Russians about a possible joint missile defense program. (We know the system poses no threat to Russia, but it is time to take away the excuse.) A research program would cost about $5 billion annually, for a net savings of nearly $5 billion.
Negotiate deep cuts in nuclear weapons. Under the 2002 Moscow Treaty, the United States and Russia committed to reduce their strategic nuclear weapons to between 1,700 and 2,200 each by 2012. There has been no discussion of any further cuts. A successor treaty should have significantly lower limits - between 1,000 and 1,400, with a commitment to go lower.
President-elect Barack Obama should also take all ballistic missiles off hair-trigger alert and commit to reducing the nation's absurdly large stock of backup warheads. These steps will make the world safer. It will give Obama a lot more credibility to press others to rein in their nuclear ambitions.
It is hard to say just how much money would be saved with these reductions, but in the long term, the amount would certainly be considerable.
Trim the active-duty Navy and Air Force. The United States enjoys total dominance of the world's seas and skies and will for many years to come. The Army and the Marines have proved too small for the demands of simultaneous ground wars in Afghanistan and Iraq. They are the forces most likely to be called on in future interventions against terrorist groups or to rescue failing states. Reducing the Navy by one carrier group and the Air Force by two air wings would save about $5 billion a year.
Making these cuts will not be politically easy. The services are already talking up remote future threats (most involving a hostile China armed to the teeth with submarines and space-age weapons). Military contractors invoke a different kind of threat: hundreds of thousands of layoffs in a recession-weakened economy. We are all for saving and creating jobs, but not at the cost of diverting finite defense dollars from real and pressing needs - or new programs that will create new jobs.
The cuts above could save $20 billion to $25 billion a year, which could be better used as follows:
Increase the size of the ground force. The current buildup of the Army and the Marine Corps will cost more than $100 billion over the next six years. Trimming the size of the Navy and Air Force, deferring the deployment of unready missile defenses and canceling the Osprey will pay for much of that.
Pay for the Navy's needed littoral combat ships. These ships, which operate in shallow waters to support ground combat, cost about $600 million each. Canceling the DDG-1000 destroyer (more than $3 billion per ship) and the Virginia class submarine (more than $2 billion each) will help provide that needed money.
Resupply the National Guard and the Reserves. At the present rate for replacing weapons left behind or destroyed in Iraq and Afghanistan, the Guard will still be more than 20 percent short of what it needs in 2013. Canceling the F-22 will provide enough money to do better than that years sooner.
Some of these changes would have been made already if the Pentagon procurement system were more responsive to present needs and less captive to service and industry lobbyists. Defense Secretary Robert Gates complains about what he calls "next war-itis," the system's built-in preference for what might be needed in potential future wars over what is clearly needed now. Privately, most of the service chiefs concede that their budgets, which have seen little discipline since Sept. 11, have some margin for cuts.
Congress will need to develop a lot more realism and restraint. Lobbyists pushing costly and unneeded weapons systems find ready allies in lawmakers looking to create or protect federally financed jobs in their districts. Big contractors like Lockheed Martin, Boeing, Northrop Grumman, Raytheon and General Dynamics have become masters at spreading those jobs around to assemble broad Congressional voting blocs. Work on the F-22 has been parceled out to subcontractors in 44 states.
Gates, who will stay on, must make reforming the procurement system a priority. The era of unlimited budgets is over, and Gates needs to make tough calls and stick to them. Congress must give more weight to the nation's overall needs and less to parochial interests.
Fixing the Pentagon's procurement process will require the full backing of Obama. We believe American taxpayers are eager to support changes that would make the country more secure while making more effective use of their money.

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OPINION
The Syrian strategy
By Danielle Pletka
Sunday, December 21, 2008
WASHINGTON: Can Syria be the cornerstone of a new Middle East? Washington is abuzz with talk of a "strategic realignment" that would split Syria from Iran and upend the status quo in the Middle East. This must be a pleasing prospect to the incoming Obama administration: visionary, and in stark contrast to the Bush administration's reflexive hostility to Syria.
But is it a real possibility, or foreign policy alchemy?
On its face, the notion seems crazy. Syria has been nothing but trouble for years - funneling killers into Iraq to oppose coalition forces, assassinating its opponents in Lebanon, arming Hezbollah to attack Israel and starting a nuclear weapons program with help from North Korea.
Nor does Syria's president, Bashar al-Assad, seem cut out for the role of a 21st-century Anwar Sadat. Insecure in his own palace, erratic in his statements and crude in his stewardship, Assad seems more likely to be the victim of a coup than a champion of peace.
Nonetheless, the foreign-policy establishment in Washington has come up with a framework to bring him back into the diplomatic fold.
It would involve returning the American ambassador (who was recalled from Damascus after the 2005 assassination of Lebanon's former prime minister, Rafik Hariri); ratcheting up American involvement in the Syria-Israel peace talks being mediated by Turkey; requesting that Syrian security forces take part in patrols with Iraqi forces along their border; abandoning efforts to pursue a UN tribunal on the Hariri murder; and directly engaging Iran on a new diplomatic track.
These are bold ideas, and the payoff is proportionately exciting: an Israeli withdrawal from the Golan Heights and peace between Syria, Lebanon and Israel. Such a situation would isolate Iran in the region, deprive Hezbollah of its mandate (what would it do if Syria and Lebanon were at peace with the Zionist enemy?) and rob Palestinian rejectionists of their most reliable sponsor, giving them more incentive to negotiate with Israel.
Unfortunately, like most epic foreign policy visions, the reality is more complicated. To begin with, there is the false premise that the Bush administration has indulged in a petty and harsh policy toward Damascus that edged President Assad into a defensive crouch.
Rather, the reverse is true. From the day Colin Powell started at the State Department in 2001, American officials have tried to coax, cajole and, as a last resort, threaten Syria into better behavior; all entreaties have met with rejection.
Equally untrue is the idea that a grand bargain with Damascus is a revolutionary new idea. In fact, President Bill Clinton's first secretary of state, Warren Christopher, traveled more than 20 times to Damascus. More recently, the Iraq Study Group, led by former Secretary of State James Baker and former Congressman Lee Hamilton, recommended that the United States "engage directly" with Syria.
Yet Iran and Syria's ties have only deepened. Indeed, Iran most likely had a role in financing Syria's construction of the illicit North Korean nuclear reactor, remains one of the largest foreign investors in the country and conducts joint training with the Syrian military on advanced Russian-supplied weaponry.
It is not inconceivable that the regime in Damascus might throw its supporters in Tehran under the bus in exchange for prestige, cash and a free hand in Lebanon. But it is unrealistic to expect Assad to dispose of Hezbollah and Hamas in the same way. Assad - broadly disliked at home, a member of a mistrusted Alawite minority, comically inept at managing his country's resources - can maintain his grip on power only as long as he is seen as a vital instrument of Israel's defeat.
Herein lies the fatal flaw of this transformational vision. It assumes that Syria's leaders want Syria to become a normal state, when in fact, it is essential to the regime's survival that it remain a pariah.
Assad and his mafia have made an art of extorting subsistence assistance from the outside world, most recently by holding out prospects for better relations with the West and Israel. But a new Middle East would mean the end of Assad, which is why he will always turn back to Iran, and why the road to peace in the Middle East will never run through Damascus.Danielle Pletka is the vice president for foreign and defense policy studies at the American Enterprise Institute.

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Lebanon's control of Syria border still tenuous
Reuters
Sunday, December 21, 2008
By Alistair Lyon, Special Correspondent
Crossing back and forth from Lebanon into Syria is woven into the daily habits of Hassan Atiyeh and other residents of this remote border valley.
"If I don't go in the morning, I go in the evening," said Atiyeh, 27, a shopkeeper in the dirt-poor village of Knaisseh.
"Anything we have here is from Syria -- gas, diesel, bread. We can't live a moment without the Syrians."
Lebanon and Syria, which have never formally demarcated their frontier, agreed to work on this after forging diplomatic ties in October for the first time in their difficult history.
They have also agreed to cooperate on border security, a hot issue partly because Syria's foes complain that weapons supplies for Hezbollah -- which has re-armed since Israel's 2006 war with the Lebanese Shi'ite group -- still transit Syrian territory.
Lebanon is now tentatively seeking a better grip on its northern frontier with Syria, aided by Germany and other Western donors, but has not done much on its trickier eastern flank.
Little has changed for the 30,000 residents of Wadi Khaled, where 18 villages are sprinkled among sparse wheat fields and pasture in a northeastern pocket of Lebanon bulging into Syria.
"People are very poor. Some have cows, sheep or land, but otherwise there's no work," said Mohammed al-Hajjeh, who runs a small rock-crushing plant in Hnaider beside the shallow Kabir river that flows along Lebanon's northern boundary.
"The Lebanese army blocked the crossings here, but people open them again," he said, peering below his blue woollen cap at an earth barrier obstructing a dirt track to the river.
"The Syrian tractor trailers stop over there and the Lebanese trailers stop here and they transfer the goods."
But the 46-year-old father of 10 said times were hard even for smugglers, who once prospered by trafficking cheap Syrian diesel for sale in Beirut, Tripoli and elsewhere. Subsidy cuts in Syria and a newly introduced subsidy in Lebanon have eroded the price gap that made the trade lucrative.
Yet the lorries laden with Lebanese cement trundling slowly over potholed roads towards Syria, or parked in border villages, show illegal trade in another commodity is still thriving.
MANSIONS AMID POVERTY
And in sharp contrast to the mostly humble dwellings of Wadi Khaled, elaborate villas are also springing up, testifying to the fortunes made by the kingpins of the smuggling business.
"Some people profit, some don't," Hajjeh shrugged.
During Syria's 29-year military presence in Lebanon, which ended in 205, "no concept of border security...was ever implemented," a U.N. assessment team reported in 2007.
Lebanon launched a German-led pilot project to improve security on the northern border after the 2006 war with Israel.
That led to the formation of an 800-strong joint border force combining army, police, customs and intelligence men. Donors provided scanners, vehicles and communications kit.
This force has now established at least a minimal presence in Wadi Khaled and other points along the northern border.
"You can't go any further, beyond here it's Syria," said a soldier at a checkpoint on a lonely farm road near Hnaider.
An earth barricade thrown up by the joint border force blocks a former smuggling route across the Kabir river near a village just east of the official Arida border post.
Syrian security men stand on the opposite bank barely 100 metres away, at the edge of a scruffy village where plastic greenhouses lie among houses and pine trees.
"There is no coordination with the Syrians, we don't even say 'hi'," said one Lebanese army officer, who asked not to be named as he was not authorised to speak to journalists.
Syria has deployed extra forces of its own along its borders with Lebanon in recent months, saying it wants to curb smuggling and counter Islamist militants based there.
Lebanon's new president, interior minister, army commander and security chief have visited Damascus since the political deal defused a violent showdown among Lebanese factions, leading to formation of a national unity government in July.
It is not clear whether effective border cooperation will result. So far Lebanon has made only modest advances.
JUST AS PENETRABLE
"There are, at most, disconnected islands of progress, but there has been no decisive impact on overall border security," a follow-up U.N. assessment mission reported in August.
The report, endorsed by Secretary-General Ban Ki-moon, urged the Beirut government to formulate a strategic plan to define its objectives for the border and how to achieve them.
Without this, donor support may weaken. Britain has already disengaged from a direct role in the northern border project. But Beirut's "unity" government is deeply divided.
A majority anti-Syrian coalition is uneasily yoked with Hezbollah and its allies, many of whom see no need for a major drive for border control or involvement of foreign forces.
"There are no problems between Lebanon and Syria in this regard," retired army general Abbas Nasrallah, a senior official in the pro-Syrian Shi'ite Amal movement, told Reuters.
The Lebanese army could police the border adequately, he argued, especially if it were given modern equipment such as helicopters, night-vision gear and electronic devices.
Hezbollah views international pressure on Lebanon to tighten its hold on the border as part of efforts to weaken it and protect Israel.
The U.N. Security Council Resolution ending the 2006 war called for all Lebanese factions to be disarmed but limited the mandate of U.N. peacekeepers to the south of the country.
"The international community missed an opportunity," wrote former Israeli diplomat Oded Eran for the Washington Institute for Near East Policy. "As a result, Hezbollah has more than doubled its pre-war arsenal of long- and short-range missiles and rockets by way of the porous Syrian-Lebanese border."
In Wadi Khaled, far from Hezbollah's likely arms supply routes, Sunni villagers say they ply the border out of daily necessity and natural ties with relatives in Syria. The same applies to many Shi'ite villages on the eastern frontier.
"Wadi Khaled is very close to Syria and we feel it is one region," said Aisha al-Khatib, 60, pointing out her Syrian daughter-in-law as the family drank tea outside their house.
(Editing by Sara Ledwith)

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Russia said to be starting missile delivery to Iran
Reuters
Sunday, December 21, 2008
TEHRAN: Russia has begun delivering S-300 air defence systems to Iran which could help repel any Israeli and U.S. air strikes on its nuclear sites, the official IRNA news agency reported on Sunday.
"After few years of talks with Russia ... now the S-300 system is being delivered to Iran," IRNA quoted Email Kosari, deputy head of parliament's Foreign Affairs and National Security committee, as saying.
Kosari did not say when the deliveries began. Iran's Foreign Ministry declined to comment on the report. Russia's Foreign Ministry also declined comment, saying it may react on Monday.
The United States, its European allies and Israel say Iran is seeking to build nuclear arms under the cover of a civilian atomic energy programme. Iran denies the charge.
Israel's insistence that Iran must not be allowed to develop an atomic bomb has fuelled speculation that the Jewish state, widely assumed to have the Middle East's only nuclear arsenal, could mount its own pre-emptive strikes.
In October, Russia's Foreign Ministry denied media speculation that Moscow would sell the medium-range S-300 system, adding Moscow had no intention of selling weapons to "troubled regions."
But Russia's RIA news agency last week quoted "confidential sources" as saying that Russia was fulfilling a S-300 contract with Iran.
The most advanced version of the S-300 system can track targets and fire at aircraft 120 km (75 miles) away. It is known in the West as the SA-20.
Russian arms sales and nuclear cooperation with Iran have strained relations with Washington, which says Tehran could use them against their interests in the region and also against its neighbours.
Russia, building Iran's first nuclear power plant in the southern port city of Bushehr, says Tehran does not have the capability to make nuclear weapons.
Kosari said the S-300 system would be used "to reinforce Iran's capability to defend its borders."
"The delivery of this system is a display of good relations between Iran and Russia, which cannot be harmed by Israel," IRNA quoted Kosari as saying.
(Additional reporting by Conor Sweeney in Moscow; Writing by Parisa Hafezi; Editing by Katie Nguyen)

Bush drive for home ownership fueled housing bubble
By Jo Becker, Sheryl Gay Stolberg and Stephen Labaton
Sunday, December 21, 2008
WASHINGTON: "We can put light where there's darkness, and hope where there's despondency in this country. And part of it is working together as a nation to encourage folks to own their own home."
- President George W. Bush, Oct. 15, 2002
The global financial system was teetering on the edge of collapse when Bush and his economics team huddled in the Roosevelt Room of the White House for a briefing that, in the words of one participant, "scared the hell out of everybody."
It was Sept. 18. Lehman Brothers had just gone belly-up, overwhelmed by toxic mortgages. Bank of America had swallowed Merrill Lynch in a hastily arranged sale. Two days earlier, Bush had agreed to pump $85 billion into the failing insurance giant American International Group.
The president listened as Ben Bernanke, chairman of the Federal Reserve, laid out the latest terrifying news: The credit markets, gripped by panic, had frozen overnight, and banks were refusing to lend money.
Then his Treasury secretary, Henry Paulson Jr., told him that to stave off disaster, he would have to sign off on the biggest government bailout in history. Bush, according to several people in the room, paused for a single, stunned moment to take it all in.
"How," he wondered aloud, "did we get here?"
Eight years after arriving in Washington vowing to spread the dream of home ownership, Bush is leaving office, as he himself said recently, "faced with the prospect of a global meltdown" with roots in the housing sector he so ardently championed.
There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk.
But the story of how the United States got here is partly one of Bush's own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.
From his earliest days in office, Bush paired his belief that Americans do best when they own their own homes with his conviction that markets do best when left alone. Bush pushed hard to expand home ownership, especially among minority groups, an initiative that dovetailed with both his ambition to expand Republican appeal and the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.
Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal. And the regulator Bush chose to oversee them - an old school buddy - pronounced the companies sound even as they headed toward insolvency.
As early as 2006, top advisers to Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Bush and his team misdiagnosed the reasons and scope of the downturn. As recently as February, for example, Bush was still calling it a "rough patch."
The result was a series of piecemeal policy prescriptions that lagged behind the escalating crisis.
"There is no question we did not recognize the severity of the problems," said Al Hubbard, Bush's former chief economic adviser, who left the White House in December 2007. "Had we, we would have attacked them."
Looking back, Keith Hennessey, Bush's current chief economic adviser, said he and his colleagues had done the best they could "with the information we had at the time." But Hennessey did say he regretted that the administration had not paid more heed to the dangers of easy lending practices.
And both Paulson and his predecessor, John Snow, say the housing push went too far.
"The Bush administration took a lot of pride that home ownership had reached historic highs," Snow said during an interview. "But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost."
For much of the Bush presidency, the White House was preoccupied by terrorism and war; on the economic front, its pressing concerns were cutting taxes and privatizing Social Security, a government retirement and disability benefits program. The housing market was a bright spot: Ever-rising home values kept the economy humming, as owners drew down on their equity to buy consumer goods and pack their children off to college.
Lawrence Lindsay, Bush's first chief economic adviser, said there was little impetus to raise alarms about the proliferation of easy credit that was helping Bush meet housing goals.
"No one wanted to stop that bubble," Lindsay said. "It would have conflicted with the president's own policies."
Today, millions of Americans are facing foreclosure, home ownership rates are virtually no higher than when Bush took office, Fannie and Freddie are in a government conservatorship, and the bailout cost to taxpayers could run in the trillions of dollars.
As the economy has shed jobs - 533,000 last month alone - and his party has been punished by irate voters, the weakened president has granted his Treasury secretary extraordinary leeway in managing the crisis.
Never once, Paulson said in a recent interview, has Bush overruled him. "I've got a boss," he explained, who "understands that when you're dealing with something as unprecedented and fast-moving as this, we need to have a different operating style."
Paulson and other senior advisers to Bush say the administration has responded well to the turmoil, demonstrating flexibility under difficult circumstances. "There is not any playbook," Paulson said.
The White House issued an unusually extensive, and highly critical, response to The Times article on Sunday, saying that it had shown "gross negligence" in its reporting and that the story "relies on hindsight with blinders on and one eye closed."
"The Times's 'reporting' in this story amounted to finding selected quotes to support a story the reporters fully intended to write from the onset, while disregarding anything that didn't fit their point of view," the statement said.
In recent weeks Bush has shared his views of how the nation came to the brink of economic disaster. He cites corporate greed and market excesses fueled by a flood of foreign cash - "Wall Street got drunk," he has said - and the policies of past administrations. He blames Congress for failing to reform Fannie and Freddie.
Last week, Fox News asked Bush if he was worried about being the Herbert Hoover of the 21st century. "No," Bush replied. "I will be known as somebody who saw a problem and put the chips on the table to prevent the economy from collapsing."A policy gone awry
Darrin West could not believe it. The president of the United States was standing in his living room. It was June 17, 2002, a day West recalls as "the highlight of my life." Bush, in Atlanta to introduce a plan to increase the number of minority homeowners by 5.5 million, was touring Park Place South, a development of starter homes in a neighborhood once marked by blight and crime.
West had patrolled there as a police officer, and now he was the proud owner of a $130,000 town house, bought with an adjustable-rate mortgage and a $20,000 government loan as his down payment - just the sort of creative public-private financing Bush was promoting.
"Part of economic security," Bush declared that day, "is owning your own home."
A lot has changed since then. West, beset by personal problems, has left Atlanta. Unable to sell his home for what he owed, he said, he gave it back to the bank last year. Like other communities across the United States, Park Place South has been hit with a foreclosure crisis affecting at least 10 percent of its 232 homes, according to Masharn Wilson, a developer who led Bush's tour. "I just don't think what he envisioned was actually carried out," she said.
Park Place South is, in microcosm, the story of a well-intentioned policy gone awry. Advocating home ownership is hardly novel; Bill Clinton's administration did it, too. For Bush, it was part of his vision of an "ownership society," in which Americans would rely less on the government for health care, retirement and shelter. It was also good politics, a way to court black and Hispanic voters.
But for much of Bush's tenure, government statistics show, incomes for most families remained relatively stagnant while housing prices skyrocketed. That put home ownership increasingly out of reach for first-time buyers like West.
So Bush had to, in his words, "use the mighty muscle of the federal government" to meet his goal. He proposed affordable housing tax incentives. He insisted that Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending.
Concerned that down payments were a barrier, Bush persuaded Congress to spend as much as $200 million a year to help first-time buyers with down payments and closing costs.
And he pushed to allow first-time buyers to qualify for government insured mortgages with no money down. Republican congressional leaders and some housing advocates balked, arguing that homeowners with no stake in their investments would be more prone to walk away, as West did. Many economic experts, including some in the White House, now share that view.
The president also leaned on mortgage brokers and lenders to devise their own innovations. "Corporate America," he said, "has a responsibility to work to make America a compassionate place."
And corporate America, eyeing a lucrative market, delivered in ways Bush might not have expected, with a proliferation of too-good-to-be-true teaser rates and interest-only loans that were sold to investors in a loosely regulated environment. But Bush populated the financial system's alphabet soup of oversight agencies with people who, like him, wanted fewer rules, not more.Like minds on laissez-faire
The president's first chairman of the Securities and Exchange Commission promised a "kinder, gentler" agency. The second was pushed out amid industry complaints that he was too aggressive. Under its current leader, the agency failed to police the catastrophic decisions that toppled the investment bank Bear Stearns and contributed to the current crisis, according to a recent inspector general's report.
As for Bush's banking regulators, they once brandished a chain saw over a 9,000-page pile of regulations as they promised to ease burdens on the industry. When states tried to use consumer protection laws to crack down on predatory lending, the comptroller of the currency blocked the effort, asserting that states had no authority over national banks.
The administration won that fight at the Supreme Court. But Roy Cooper, North Carolina's attorney general, said, "They took 50 sheriffs off the beat at a time when lending was becoming the Wild West."
The president did push rules aimed at requiring lenders to explain loan terms more clearly. But the White House shelved them in 2004, after industry-friendly members of Congress threatened to block confirmation of his new housing secretary.
In the 2004 election cycle, mortgage bankers and brokers poured nearly $847,000 into Bush's re-election campaign, more than triple their contributions in 2000, according to the nonpartisan Center for Responsive Politics. The administration did not complete the new rules until last month.
Today, administration officials say it is fair to ask whether Bush's ownership push backfired. Paulson said the administration, like others before it, "over-incented housing."
Hennessey put it this way: "I would not say too much emphasis on expanding home ownership. I would say not enough early focus on easy lending practices."
Kitty Bennett contributed reporting.
Rich Addicks/The Atlanta Journal-Constitution
Bush unveiled a plan to increase home ownership by members of American ethnic minorities in a speech in Atlanta in June 2002.

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COLUMNIST

Thomas L. Friedman: China to the rescue?
Sunday, December 21, 2008
HONG KONG: I had no idea that many of those oil paintings that hang in hotel rooms and starter homes across America are actually produced by just one Chinese village, Dafen, north of Hong Kong. And I had no idea that Dafen's artist colony - the world's leading center for mass-produced artwork and knockoffs of masterpieces - had been devastated by the bursting of the U.S. housing bubble. I should have, though.
"American property owners and hotels were usually the biggest consumers of Dafen's works," Zhou Xiaohong, deputy head of the Art Industry Association of Dafen, told Hong Kong's Sunday Morning Post.
"The more houses built in the United States, the more walls that needed our paintings. Now our business has frozen following the crash of the Western property market."
Dafen is just one of a million Chinese and American enterprises that constitute the most important economic engine in the world today - what historian Niall Ferguson calls "Chimerica," the de facto partnership between Chinese savers and producers and U.S. spenders and borrowers. That 30-year-old partnership is about to undergo a radical restructuring as a result of the current economic crisis, and the global economy will be highly impacted by the outcome.
After all, it was China's willingness to hold the dollars and Treasury bills it had earned from exporting to America that helped keep U.S. interest rates low, giving Americans the money they needed to keep buying shoes, flat-screen TVs and paintings from China, as well as homes in America. Americans then borrowed against those homes to consume even more - one reason we enjoyed rising wealth without rising incomes.
This division of labor not only nourished our respective economies, but also shaped our politics. It enabled China's ruling Communist Party to say to its people: "We will guarantee you ever-higher standards of living, and in return you will stay out of politics and let us rule." So China's leaders could enjoy double-digit growth without political reform. And it enabled successive U.S. administrations, particularly the current one, to tell Americans: "You can have guns and butter - subprime mortgages with nothing down and nothing to pay for two years, ever-higher consumption and two wars, without tax increases!"
It all worked - until it didn't.
With unemployment now soaring across the U.S., said Stephen Roach, the chairman of Morgan Stanley Asia, Americans - "the most overextended consumer in world history" - can no longer buy so many Chinese exports. We need to save more, invest more, consume less and throw out most of our credit cards. But as that happens, we need China to take our discarded credit cards and distribute them to its own people so they can buy more of what China produces and more imports from the rest of the world.
That's the only way Beijing can sustain the minimum 8 percent growth it needs to maintain the political bargain between China's leaders and led - not to mention pick up some of the slack in the global economy from America's slowdown.
However, if I've learned one thing here, it's just how hard doing that will be. China's whole system and culture nourish saving, not spending, and changing that will require a huge "cultural and structural" shift, said Fred Hu, chairman for Greater China for Goldman Sachs.
In China, for instance, to buy a home you have to put at least 20 percent down, and the average is 40 percent. If you try to walk away from the mortgage, the bank will come after your personal assets.
Moreover, China can't just shift production from the U.S. market to its own consumers. Not many Chinese villagers want to buy $400 tennis shoes or Christmas tree ornaments.
Also, China has no real Social Security, health insurance or unemployment insurance. Without that social safety net, it's hard to see how Chinese don't end up saving most of their stimulus. "You open up the newspaper every day, and you hear about this factory shutting down or that supplier going belly-up," said Willie Fung, whose company, Top Form International, is the world's leading bra maker. "You can never be too careful in this financial climate."
As such, "the world should not have a false hope that China can cushion the global downturn," by stimulating its domestic demand in a big way, said Frank Gong, head of China research for JPMorgan Chase.
"The best thing China can do is keep its own economy stable."
It's good advice. China is not going to rescue us or the world economy. We're going to have to get out of this crisis the old-fashioned way: by digging inside ourselves and getting back to basics - improving U.S. productivity, saving more, studying harder and inventing more stuff to export. The days of phony prosperity are over.

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Paradise, jolted by the financial crisis
By Fred A. Bernstein
Sunday, December 21, 2008
THE Web site for Molasses Reef — a planned Ritz-Carlton resort in the Turks and Caicos — promises "barefoot luxury" and "island life the way it was meant to be." But these days, the resort buildings, which include a hotel and large villas, stand empty and unfinished.
Lehman Brothers was financing the project. And after the investment bank's demise in September, construction was halted, leaving the developers and their contractors with a host of problems.
Among them was the fate of laborers brought over from China by the Ashtrom Group, an Israeli construction conglomerate. On Oct. 15, about 60 of them followed Ashtrom managers around the island of West Caicos, demanding to be paid. (The standoff ended when Ashtrom paid the workers money owed to them by a subcontractor, an Ashtrom executive told The Associated Press.)
But Jonathan Siegel, the managing partner of the Logwood Hotel Development Company, the partnership that owns Molasses Reef, said he has spent two months dealing with the fallout from the incident. "Of the 400 Chinese workers, everyone has gone home, with the exception of about 50 guys," he said. "Those guys will be off West Caicos by Dec. 31."
His goal now, he said, is to "protect the asset," by which he meant the unfinished buildings. Important tasks, he said, include keeping the interiors dry and even providing air-conditioning in places where mold might form before construction can resume.
Lehman had been bankrolling a number of hotel projects, including two in New York: the Nobu Hotel, partly owned by the actor Robert De Niro and set to rise in Lower Manhattan; and a Shangri-La hotel planned for Midtown. Work on both projects has halted. At Molasses Reef, Logwood had already spent about $200 million of Lehman's money, Siegel said, and construction was about 75 percent complete.
Bjorn Hanson, an associate professor at the Tisch Center for Hospitality, Tourism and Sports Management at New York University, said he believed that of the hotel projects that stopped this year because of the credit crisis, fewer than 10 percent had already broken ground. But, he added, such projects have the potential to create countless disputes — with contractors over unpaid bills, with governments over taxes, with franchisors over fees, and even with neighbors concerned about the dangers posed by unsecured construction sites. (He said he was not familiar with the particular problems at Molasses Reef.)
A newsletter published by the Molasses Reef developer before the Lehman Brothers bankruptcy showed a pair of 52-foot yachts that would shuttle guests to and from the Turks and Caicos island of Providenciales. (Other guests would arrive by private plane or helicopter.) Room rates were expected to start at about $600 a night, and Gray Kunz, a celebrated New York chef, was slated to open three restaurants at the resort.
Indeed, the hotel was going to be called a Ritz-Carlton Reserve. Simon Cooper, the president and chief operating officer of Ritz-Carlton, a division of Marriott International, described that title as denoting "signature, one-of-a-kind boutique resorts located in choice settings, each with a distinctive personality and sense of place."
The resort was to include the hotel and 75 Ritz-Carlton-brand villas, with prices starting at $2.6 million. Lehman was both a part-owner of the project and its main lender, according to Siegel and Karim Alibhai, the founder and principal of the Gencom Group. Gencom, based in Miami, is the controlling partner of Logwood.
Alibhai said Gencom had weathered crises before, but that this was a "very unfortunate situation that no textbook could have prepared us for." He added, a bit ruefully, that "the only lender that ended up going bankrupt, out of all the lenders, is Lehman Brothers."
Lehman had already disbursed about $200 million for construction of the hotel, Siegel said.
"But you don't get all the money at once," he explained. "Each month, you'd put in a draw request for the next $22 million or $18 million or $20 million, and then you'd pay that month's bills."
He said that there were no warning signs before the process came to an abrupt halt three months ago. "The people we were dealing with at Lehman were as surprised as we were," he added. The project quickly went into what he called suspension mode.
Siegel, who divides his time between New York and Turks and Caicos, now has to ensure that the buildings are secured before construction can begin again. "Right now we've got to batten down the hatches," he said. He said he hopes construction will resume in 90 to 180 days, but "that's just an optimistic guy talking."
"Right now," he added, "we have no financing."
Siegel said he was working to determine the fate of the Lehman Brothers loans. "We don't have a 'get out of jail free' card, to pretend we don't owe the money," Siegel said. "Before you can find new money, you have to deal with the bankrupt entity."
Alibhai says he is searching for another bank — possibly one outside the United States — to provide $250 million in replacement funding. That would be used to complete Molasses Reef as well as two other Gencom hotel projects that Lehman was financing: a Ritz-Carlton in Rancho Mirage, California, which is about 70 percent complete, and a Ritz-Carlton in the Bahamas, which had not yet broken ground. According to Siegel, at least $100 million more is required to complete Molasses Reef.
One thing that's clear is that money to salvage the hotel won't come from the Ritz-Carlton Hotel Company, which is based in Chevy Chase, Maryland. "We are a management company and cannot provide the needed funding to complete the project," said Vivian Deuschl, a company spokeswoman, when asked about Molasses Reef.
Still, Siegel said — a bit of optimism in his voice — that Ritz-Carlton could introduce to him a potential investor.
"It's not their role to fix our problems," he said of Ritz-Carlton, "but they have a vested interest in seeing our problems fixed."

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A city that shopped till it dropped
By Brad Stone
Sunday, December 21, 2008
Emeryville, California: As he points to some Uggs boots on display in his shoe store, Jason Wayman looks forlorn.
He used to have trouble keeping this ever-trendy footwear in stock at his store, called Elements, in this small city across the bay from San Francisco. Now, he watches as a steady stream of shoppers still try the boots on, but often leave without buying.
"You can see them doing the calculations in their minds: Will they ever be on sale? Is this an expense I can afford right now?" he said.
The situation would be difficult for any retailer in any community. But the people of Emeryville are feeling the pain of this disappointing holiday shopping season more acutely than most.
A 1.8-square-mile sliver of a city wedged between Berkeley and Oakland, Emeryville is a retail mecca. It is also one of many American cities that hitched its wagon over the last several decades to what seemed like the limitless ability of American shoppers to spend money.
Now that faith in the retail engine is being sorely tested. Consumer spending dropped 7.8 percent in November, according to the U.S. government, and many economists think it will fall further as consumers are buffeted by losses in the stock market, declines in home values and the unsettling fear that they may lose their jobs.
"I would be worried if I were a city father or mother in a town like Emeryville," said Joseph Gyourko, a professor of real estate and finance at the Wharton School of Business of the University of Pennsylvania. "Not all this retail can make it, given the fact that Americans have to cut consumption to restore their savings."
Once a largely abandoned, polluted industrial wasteland, the Emeryville of today is almost all densely developed. Companies like Pixar, Peet's Coffee and Tea, the Chiron unit of Novartis and a host of Internet and biotech start-ups call it home.
That would seem to give the city a degree of shelter from a sharp drop-off in consumer spending — but perhaps not enough. Twenty-five percent of the city's revenue comes from sales taxes collected largely at four large retail centers, including a six-year-old, upscale outdoor promenade, Bay Street Emeryville, home of Elements. The city also has a comprehensive collection of big-box stores, from Best Buy to Home Depot to the huge blue IKEA that hulks prominently over Interstate 80.
Along with declining property taxes and the woes of California's state government, declining sales tax revenue has helped to open up significant deficits in Emervyille's municipal budget. According to California's Board of Equalization, Emeryville's sales tax collections fell 23 percent in the third quarter this year from the same period last year, among the steepest drops in the state.
"We are definitely vulnerable," said Patrick O'Keefe, the city manager, who has proposed new taxes and cuts in spending and government hiring.
Emeryville's woes aren't confined to retail. The downturn has touched all aspects of its economy. The Townhouse Bar and Grill, a 19-year-old restaurant, is located in a former speakeasy — a building that's a souvenir of the wilder Emeryville of the Depression era.
Ellen Hope Rosenberg, the Townhouse's owner, said executives used to fill the restaurant at lunchtime. Now some may have just stopped coming — perhaps, she speculates, as expense accounts dry up. And not a single company has bought out the place for a holiday party. (Last year, five did.)
Like other restaurateurs around the country, Rosenberg has taken emergency precautions: replacing expensive dishes on the menu like filet mignon with lower-price alternatives like top sirloin and cutting back drastically on her staff's hours.
The abrupt decline in consumer and corporate spending raises a disturbing existential question for Emeryville and other communities like it.
Did a city that worked so hard to clean up the mess left by abandoned steel mills and rubber plants ultimately trade one kind of urban blight for another, more modern variety?
RETAILERS and restaurateurs throughout Emeryville tell variations on the same story: An already lackluster year for sales hit the wall in September. On a recent late afternoon, when shoppers would normally be flooding the premium stores along the Bay Street shopping center, designed to look like a quaint urban village, stores like the Gap, Banana Republic, Magnolia Audio and Video, Kay Jewelers and Bath and Body Works were almost eerily quiet.
For Agnes Hsu, owner of Teacake Bake Shop, the biggest problem is not the amount of traffic in her store or the number of shoppers willing to pay for the frosted cupcakes and cookies that have earned her a loyal following. Teacake also depends on supplying treats to birthdays and wedding showers, and that business, she said, "started to flat-line" about the time Lehman Brothers and AIG hit the headlines this fall.
"That's when even the affordable luxuries were hit," she said. "I guess people are just baking their own birthday cakes."
Ron Weller, general manager for Madison Marquette, Bay Street's owner, acknowledges the pain being felt in the retail world. But he said it was too early to judge conclusively the holiday turnout on Bay Street. The promenade, he said, is "holding its own."
"We are busy," he added, "but of course, everyone has everything on sale."
Across town from Bay Street is another Emeryville attraction, the Emerybay Public Market, nestled along the unsightly train tracks that bisect the city. This mall, opened in 1988, includes a movie theater, a Borders bookstore, a smattering of other stores and an inner food court of two dozen ethnic food stalls. For people who run some small businesses there — even the shoeshine man, idly thumbing through his checkbook during lunchtime one day this month — 2008 has been a year to forget.
Denise Russell-Lewis, owner of Jamaica Place, which offers dishes like jerk chicken and curry goat, describes being squeezed between declining sales and increasing costs prompted by higher energy prices. The price of a 50-pound box of parboiled rice, for example, jumped to $20 from $16 earlier this year; a 10-pound box of skinless tilapia rose to $31 from $22. Neither adjusted after the price of oil reversed course, and Russell-Lewis says she is now late on her lease payments.
"In this business we expect fluctuations," she said. "But not at the level we are experiencing. This is more drastic."
Denise Pinkston of TMG Partners, Emerybay's owner and Jamaica Place's landlord, said Emeryville's location at the heart of one of the country's most populous regions meant that the city would almost certainly persevere.
"We might all be making less money, but we'll still be here in three years when the recovery is in full swing," she said.
But for some entrepreneurs, any prospective recovery is too late. The Blue Sky Family Club, a family restaurant and play space with organic pizza and nonelectronic games, opened its doors in September to the worst financial environment since the Depression. It closed less than two months later.
"We got ran over by a tidal wave," said the owner Patrick O'Laughlin, still audibly shaken from the experience a month later. "It's a concept I still believe in. But will I revisit it? Probably not."
IN 1988, Powell Street Plaza became Emeryville's first pure shopping center — a Garden of Eden of sorts for the city's retail resurgence. Residents recall that it sits on land once occupied by a company whose odd assortment of products included gopher poison. Today, the plaza is an island, surrounded by a loud, unpleasant cordon of traffic-jammed streets and highway overpasses.
The shopping center appeared relatively busy on a weekday earlier this month. It boasts one of the most popular Trader Joe's stores in the East Bay, a new Beverages & More and a Starbucks that draws a reliable crowd of morning commuters streaming into Oakland.
But there are also signs of recession-related trouble. A Shoe Pavilion recently departed after the company, which is based in Sherman Oaks, California, announced in October that it was liquidating assets. That empty storefront sits next to a still-vacant lot that once belonged to a Jo-Ann Fabrics & Crafts, which moved this year to a neighboring city. Next door to that is a Circuit City — the electronics retailer that filed for bankruptcy protection last month. Regency Centers, Powell Street's owner, says it is filling its two vacancies.
City boosters acknowledge that dependence on the retail industry is creating some new problems for the city. But they look at the larger picture, and a city that has remade itself from a polluted eyesore into a regional destination.
In a way, over the last 122 years of its existence, this peculiar city of only 9,000 permanent residents has been a microcosm of the evolving American economy at nearly every stage of growth. In the late 19th century, the city was an agricultural hub and a center for handling cattle and processing meat; it became widely known in the region for its foul smell.
During the Depression, Emeryville was jammed with speakeasies, racetracks and brothels and became known as a somewhat lawless center for entertainment. Then, until the 1970s, the city was the industrial cradle of Northern California, full of steel mills and factories, until the heavy industry migrated overseas, leaving polluted lands in its wake.
Most locals take pride in what happened next. Civic leaders banded together and created a redevelopment agency that allowed the city to borrow money for the cleanup through the sale of long-term bonds. Then it basically gave away the land to developers, along with rich tax incentives, and is slowly paying back the debt with the new property tax revenue.
Bay Street Promenade, for example, was built on heavily polluted lands once covered by a paint plant. The huge blue IKEA store opened in 2003 on the former site of Judson Steel, once among the largest steel manufacturers in the Western United States.
Emeryville officials note that the city has a more diversified revenue stream than places like Detroit, the capital of the beleaguered auto industry, or parts of Southern California in the 1980s that were wholly dependent on aerospace and military contractors.
BUT that is of little consolation to area businesses, whose problems are likely to become worse as Emeryville tries to address its new challenges. With new budget holes opening, the City Council has proposed a variety of new taxes, including a levy to raise additional money for the city's parks and take pressure off of other parts of the budget.
City managers are considering other tax increases as well, like raising the charge on the city's lone surviving card room, the Oaks Card Club, whose tax contributions comprise 8 percent of the city annual budget.
Its owner, John Tibbetts, says the recession has affected the gambling industry because people have less to wager with. Business has declined 15 percent from last year, after the card room raised the "drop," or fee per hand, to $4 from $3. Tibbett appeared before city managers last month to argue against increasing the gambling tax and appears to have won the argument, at least for now.
"If the city does need more money, I thought it should be broad-based and not have one individual business singled out," he said.
Emeryville has another possible answer to its fiscal problems: it is pursuing even more retail-oriented development, which would derive new sales and property taxes. The city is cleaning up an undeveloped lot north of Bay Street and planning an expansion of the shopping center — perhaps a Macy's or a Nordstrom, with a high-rise hotel and more condominiums.
That strategy — in effect, betting anew on the curative powers of the American shopper — has some Emeryville residents worried. Members of a small but increasingly vocal group, Residents United for a Livable Emeryville, say the city has given too much power to developers and made too large a bet on the American consumer without extracting benefits for people who call it a permanent home.
"We want jobs that have a future," said Tracy Schroth, one of the group's co-founders, who married a longtime Emeryville resident, Scott Donahue, six years ago. "We want a community that is aesthetically and culturally interesting, as opposed to a big retail center that creates a lot of traffic and noise and has no soul."

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Recession? Time to slash the flower budget
By Nina Reyes
Sunday, December 21, 2008
PITY Lauren Huber, 27, a Baltimore bride-to-be who began planning her wedding 12 months ahead only to see the economic downturn force her to forgo not just the icing on the cake, but the cake itself.
Her fiancé, Ryan Priem, who is 28 and a salesman, saw his income drop, and the couple found themselves spending the $35,000 set aside for their March 2009 wedding on everyday living expenses. They began trimming costs from every aspect of their event.
The big hotel to which they had committed early in the process suddenly seemed unaffordable. So Huber sold her $3,400 Amsale dress on Craigslist and plans to wear a less costly one. She canceled the morning-after brunch, cut a half-hour off the photographer's services and halved the size of the bouquets. Finally, she canceled the cake, as dessert is already included in the dinner she ordered.
"We can do without," she said. "Dessert is tiramisù, so we'll get pictures of us slicing that instead."
She's hardly alone. As the financial condition of the country worsens, the wedding industry, so long considered recession-proof, is seeing fairy-tale weddings stripped of their sprites, their sparkle and everything else that suggests splurge.
Some couples are slashing guest lists to include just immediate family and very dear friends, leaving aunts, cousins and the friends of friends out entirely, and bridal consultants say that they are seeing more couples postponing their events until they can be more certain they will have the money to pay for the wedding they want. Others are ratcheting up plans for quick, simple weddings that allow them to more readily take advantage of a safety net woven from the government and corporate benefits available to married couples.
Still other couples, armed with the skills they learned in a go-go economy, are trying to forcefully renegotiate with vendors to keep some semblance of their ideal wedding.
One bride had put down a deposit and locked into a contract with a site in a town south of Philadelphia, where she and her fiancé live. Given the amount of debt piling up from their graduate school studies, she suddenly thought that the $30,000 to $40,000 she had planned to spend on her wedding seemed ridiculous.
Furthermore, the downturn in the economy left the bridegroom's parents unable to provide as much financial support as the couple had hoped for. And although the wedding venue has been accommodating, it is not willing to make a refund. The bride is now aiming for something in the under-$20,000 range. To get there she has cut the number of people she has invited from 200 to 115, and made her wedding dinner a less costly luncheon, hoping to save another $30 to $40 a person.
"You can negotiate prices with any wedding vendor," said Kristal Joiner, the wedding coordinator at Event Source Northwest in Kirkland, Washington State, a company that has seen plenty of clients seek to do just that recently. But businesses like Joiner's, which specialize in supplying disc jockeys and masters of ceremonies, are also caught in an economic squeeze.
"We understand that people don't have as much money these days," Joiner said. "We can cut back on hours, or we can do a couple less speakers, or we'll throw in an extra hour." However, she added, "We have to charge what we're worth and make money, so it's a little difficult."
The same economic forces that are encouraging couples to trim their expectations may actually be encouraging more of them to marry sooner, if less expensively. Some who earn their livelihoods in the wedding business report that they are seeing more couples opt for hurry-up weddings that will allow them to claim married-filing-jointly status on their income taxes for 2008.
"Whereas last year I did 197 weddings, this year I'm up to 299 weddings," said the Rev. Marie April Gismondi, a nondenominational minister with the Church of Ancient Ways in Babylon, New York "I'd say a lot more of them are those quick-I-want-to-get-married-this-week weddings."
To be sure, a certain number of couples each year schedule their unions to take advantage of the tax break. "December is a kind of funny month," said Sari Venegas-Skalnik, a bridal consultant in Guaynabo, Puerto Rico, who recently has had three couples come to her with plans for weddings on short notice. "We get a lot of last-minute pop-ups. People who say, 'I'm already going on vacation, what do I have to do to get married?' "
But Gismondi, who is also the vice president of the American Association of Wedding Officiants, said she's seeing an unusual spike for some simple economic reasons. One bride, she said, "who was paying $400 and change a month on her health insurance," told her that by marrying she would save nearly $5,000 a year in premium payments.
Getting out of town can have its advantages, too. Susan Alexander Shapiro, the owner of BravoBride (bravobride.com), a Web site for the purchase and sale of new and used wedding items, said that some couples who had planned large formal weddings "now are doing destination weddings because it's cheaper."
"Typically there are fewer guests," she said, and "some places will even offer a 'free wedding' if you stay at their resort, which means they will throw in the cake, Champagne, bridal bouquets and more."
But even those who have not yet felt the sharp bite of the economy's incisors have been chastened.
"They don't want to look ostentatious," said JoAnn Gregoli, a wedding planner who is also the New York metropolitan coordinator for the Association of Bridal Consultants. "They say, 'Make it simple.' You don't want to be there promoting your wealth to people who don't have it."
She pointed out that the industry's woes have created opportunities, too.
"It's a buyer's market if you're still getting married and you have the money," she said.
Andi Vance, a 31-year-old bride-to-be from Chicago, has used the recession to put her priorities in order. She began planning for her September 2009 wedding with a budget in the $15,000 to $25,000 range, but when the economy began to falter, she decided a down payment on a house was more important to her than a dream wedding.
So instead of the $5,000 venue, she booked a cabin for $150 at Malabar Farm, a state park in Lucas, Ohio. She also decided to use flowers from her mother's garden and intends to have a hometown friend take pictures.
She is now searching for a secondhand dress. And in a perfect marriage of technology and parsimony, in lieu of a band she is going to hook up an iPod to a speaker system.
"We'll be able to do it for under $10,000," she said of her event. "Right now, we just need to save money. The wedding is one day. The house is going to last a lot longer than that."

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Extended U.S. benefits are a lifeline for many unemployed Americans
By Michael Luo
Sunday, December 21, 2008
HUDSON, Florida: Rick Rockwell plopped his large frame down in front of his laptop on Thursday morning, next to a foot-wide sheaf of unpaid bills still in their envelopes, lined up like an accordion on his desk. He logged into his bank account to see if his unemployment check had been deposited yet.
His balance, however, remained stuck at $57.17.
"That's amazing to me," Rockwell said. "It still hasn't posted yet."
So Rockwell began another day as a man of the middle class who is now living on an economic precipice.
Rockwell, 56, who estimates he has sent out more than 400 job applications over the last year and gone to just four interviews, is one of the more than 5.4 million people across the country receiving unemployment benefits. And Rockwell is part of arguably the hardest-luck group of all — those who have been out of work for so long that they are depending on a second emergency extension of unemployment insurance that Congress passed and President George W. Bush signed last month.
In the 21 states and the District of Columbia currently with three-month average unemployment rates above 6 percent that means 20 more weeks of what has become an economic lifeline for many in the midst of one of the deepest recessions in the past century. Florida's rate for November was 7.3 percent. (The other states get seven additional weeks.)
For Rockwell, who lost his job in January as a sales manager at a computer store that he and his brother owned, the weekly checks of $275 — the maximum allowed him under Florida law and a little less than half his former take-home pay — have become like a crucial piece in the game Jenga, in which players construct a tower of blocks by removing one at a time from the bottom and moving it to the top. Rockwell is playing a balancing act so he can keep the edifice of his former life from crumbling, paying off certain bills and letting others lapse, so he can stay just ahead of his creditors.
Rockwell has been without benefits for more than a month after he exhausted the first U.S. government extension, which lasted 13 weeks, on top of the 26 weeks he had received from the State of Florida, back in October.
After supporters were unable to get the legislation through Congress before the election, Bush signed the second extension in late November. Florida, like other states, has been rushing to get checks to so-called gap people like Rockwell whose benefits had expired. Advocates estimate there are about 800,000 of them nationwide.
"States are really overwhelmed in terms of responding to claims," said Andrew Stettner of the National Employment Law Project. "They were pushed beyond the brink in terms of doing the second extension."
Florida added 50 staff members to its unemployment insurance division in recent weeks, bringing its total to around 870. It also recently added 345 lines to its phone system for a total of just over 1,000, and has extended its call-in hours.
There are, of course, people who are much worse off than Rockwell; but there are also many who have had much more of a financial cushion to get through this crisis.
Last year, he was making $31,200 a year as sales manager of a small computer store that he had started 15 years ago with his brother, Rodney.
But the rise of big-box stores like Best Buy, along with the recession, combined to drive their store, Comp-U-Save, into the ground.
"All of a sudden, the floor came out from underneath it," said Rodney Rockwell, who closed his old store in October and re-opened under a new name.
The brothers agreed that Rick would leave in January because the store, by that point, was depending mostly on its repair business, which was Rodney's specialty. They also figured that because Rick was younger and had some background managing restaurants, he would be able to find a job relatively easily.
He had a little over $5,000 in his bank account, mostly what was left over from a $40,000 second mortgage he took out on his home four years ago for home repairs that never materialized.
But Rockwell has been succumbing to a slow economic death, which accelerated significantly in the last month as his unemployment benefits lapsed.
His mortgage lender has begun foreclosure proceedings on his modest two-bedroom home, which he bought in 1998 and still owes $117,000 on. He has begun packing to move into his 84-year-old mother's two-bedroom condominium nearby.
He is in danger of losing his red 2005 Mitsubishi Eclipse Spyder convertible, a prized possession that he keeps gleaming in his garage, because he is behind in his payments. He has listed for sale both that car and a 1996 Toyota RAV4, which he owns outright and keeps in the driveway, but he is hoping to keep the Spyder. The only reason he can still drive it at all is because his mother, who is mostly living just on Social Security, paid his car insurance for this month.
He is two months behind on his electric bill. A partial payment by a local church that he went to recently for help helped him stave off losing his power. His water bill is in arrears as well.
Rockwell was settling into his love seat two weeks ago to watch the teenage drama "One Tree Hill" — an afternoon pleasure he developed while sitting around out of work — when he found his cable had been cut off.
Last Wednesday, after returning home from dinner with a reporter, Rockwell found a note on his door from his neighbor that someone had been looking for him.
It turned out to be a collection agency for one of his credit cards. Rockwell has racked up about $15,000 in bills on various cards, reaching his limit on all but one.
In a final indignity, Rockwell wakes up most mornings flat on his back on the ground because the air mattress he now sleeps on, after his waterbed sprang a leak earlier this year, has a hole in it.
Rockwell now spends most of his days hunched in front of his laptop. He spends several hours going through new job postings in the morning and then devotes himself to several Internet marketing schemes promising riches that he has stumbled upon.
Keeping in mind the criticism of those who say expanded unemployment benefits keep people from working, Rockwell conceded he might appear to be too picky in the jobs he would accept. He has mostly ruled out commuting to Tampa, a much larger city an hour away, because of the distance. He has also tried to confine himself to looking for management-level restaurant jobs.
"I'm not going to clean grills, take out the garbage," Rockwell said. "I've done that before, but I feel I'm beyond that."
His home is overflowing with sports memorabilia — autographed posters, baseballs and cards of every sort that he has collected. He has sold off some but is reluctant to part with others at fire-sale prices.
On Thursday, Rockwell spent several hours plowing through job listings and wound up applying — or re-applying, actually — to just two, one for a restaurant manager at an Arby's in nearby New Port Richey and one for a shift supervisor job at a Wendy's in Tampa.
He logged into his bank account again the next day and found to his surprise that his unemployment check had finally been deposited. It is a small reprieve for now.

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More U.S. companies cut matching retirement funds under 401(k) plans
By Mary Williams Walsh and Tara Siegel Bernard
Sunday, December 21, 2008
U.S. companies eager to conserve cash are trimming their contributions to a popular workers' retirement plan, putting a new strain on America's tattered safety net at the very moment when many workers are watching their accounts plummet along with the stock market.
When FedEx slimmed down its pension plan last year, it softened the blow by offering workers enriched contributions to make up for the pension benefits some would lose under the so-called 401(k) plans. But last week, with Americans sending fewer parcels and FedEx's revenue growth at a standstill, the company said it would suspend all of its contributions for at least a year.
"We will have to work more years and retire with less money," said Lee Higham, a 44-year-old senior aircraft mechanic at FedEx, who has worked there for 20 years. "That's what we are up against now."
FedEx is not the only one. Eastman Kodak, Motorola, General Motors and Resorts International are among the companies that have cut matching contributions to their plans since September, when the credit markets froze and companies began looking urgently for cash. More companies are expected to suspend their matching contributions in 2009, according to Watson Wyatt, a benefits consulting firm.
For workers, the loss of a matching contribution heightens the pain of a retirement account balance shriveling away because of the plunging stock markets.
"We are taking a beating," said another FedEx mechanic, Rafael Garcia. "In a year, I lost $60,000 of my 401(k). You can't make that up."
To many retirement policy specialists, the lost contributions are one more sign of America's failure as a society to face up to the graying of the population and the profound economic forces it will unleash.
Traditional pensions are disappearing, and Washington has yet to ensure that Social Security will remain solvent as baby boomers retire and more workers are needed to support each retiree.
The company cutbacks may mean that some employees put less money into their retirement accounts. Even if they do not, the cuts, while temporary, will have a permanent effect by costing many workers years of future compounding on the missed contributions. No one knows how long credit will remain scarce for companies, or whether companies will start making their matching contributions again when credit loosens and business improves.
"We have had a 30-year experiment with requiring workers to be more responsible for saving and investing for their retirement," said Teresa Ghilarducci, a professor of economics at the New School for Social Research. "It has been a grand experiment, and it has failed."
In the typical 401(k) plan, the employer's matching contribution is more than just money for retirement. It also motivates employees to set aside more of their own money for old age. The more that workers save in a 401(k) plan, generally, the more "free money" they can get from their employers under the matching provisions.
Retirement policy specialists said they did not expect employees to react immediately to the loss of this incentive by stopping their own contributions. Study after study has shown that employees procrastinate when it comes to retirement-plan chores, and in this case the inertia may work, unwittingly, in their favor.
Americans, however, are facing extreme household financial pressure. President-elect Barack Obama has said that he would support allowing withdrawals from retirement plans without penalties, which would provide short-term relief but would further undercut American's long-term savings.
Benefits specialists said that if matching contributions continued to dwindle, fewer newly hired workers could be expected to join 401(k) plans. And employees might eventually slow or stop their contributions if the recession dragged on and their own cash ran short.
"The problem is, we are heading into this serious recession, and we don't know how long it will go on for," said Alicia Munnell, director of the Center for Retirement Research at Boston College. "The bottom line is, people will have less money in their 401(k) plans, not just because the financial crisis has decimated their assets, but also because they will not have the employer match for some time."
Currently, most companies that offer 401(k) plans do provide some sort of matching contributions, according to David Wray, president of the Profit Sharing/401(k) Council of America, an association of employers that provide such plans.
The most typical arrangement is for employers to match 50 cents of every dollar their employees set aside in their retirement accounts, up to 6 percent of pay. Sometimes the match is more, sometimes less, and some employers vary it depending on profitability. Over all, the employer's cost usually works out to about 3 percent of payroll.
The latest 401(k) cutbacks underscore workers' vulnerability in an age when companies have been replacing defined-benefit pension plans with the newer 401(k) design. Modern 401(k) plans give workers the power to opt in and out and require them to invest their own money, bearing market risk on their own. That may be appealing when the markets are rising, but it can be terrifying when they fall, as they have recently.
An employer's contributions to a traditional pension plan cannot be switched on and off at will. U.S. government rules set a firm contribution schedule, with deadlines and penalties for companies that fall behind. Employers also get significant tax and accounting benefits from operating a traditional pension plan, so they tend to think long and hard before freezing such a plan to save money when the economy cools.
In a 401(k) plan, by contrast, the employer has much greater freedom to stop making matching contributions when times are tough. The contributions are normally measured as a percentage of payroll, and the savings from any cuts are realized immediately. That greatly simplifies planning and making changes.
"Every percent you cut is a percent of payroll," Munnell said. "It comes down to the choice of laying people off, or cutting back on some fringe benefits."
Many of the latest 401(k) cutbacks are turning up in industries with obvious financial problems, like the auto industry, health care and newspaper publishing. Industries that depend on free-spending consumers, like resorts and casinos, are also seeing cuts. Often when one company in an industry cuts its benefits others will follow, to keep their labor costs competitive.
General Motors and Ford Motor have both suspended their matching contributions to their salaried employees' 401(k) accounts, although their pension plans for unionized workers are unchanged.
Motorola, struggling to stay competitive, stopped contributions to its 401(k) plan this month and froze its pension plan as well. Other recent cuts have occurred at Resorts International, Vail Resorts and Station Casinos.
In addition to stopping their 401(k) matching contributions, companies have been freezing salaries this autumn, shifting more of the cost of health care to their workers, and laying people off.
"These are really hard times and people are losing their jobs, and in some ways, a suspension of a 401(k) match, while bad, is probably one of the lesser evils out there," Munnell said.
In announcing the suspension of the contributions last week, FedEx made clear that its workers in the sorting centers would not be the only ones feeling the pinch. Pay to senior executives is to be cut by 7.5 percent to 10 percent, and the chief executive, Frederick Smith, said he would take a 20 percent pay cut. The cutbacks are projected to save $200 million in the remainder of the 2009 fiscal year and $600 million in the 2010 fiscal year.

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Obama unveils task force to help families
Reuters
Sunday, December 21, 2008
By Paul Eckert
U.S. President-elect Barack Obama unveiled a new task force on Sunday charged with helping struggling working families, as an aide said Obama's economic recovery plan would be expanded to try to save 3 million jobs.
The White House Task Force on Working Families, to be headed by Vice President-elect Joe Biden, would aim to boost education and training and protect incomes and retirement security of middle-class and working families whose plight Obama had made a central issue of his campaign.
Biden's panel of top-level officials and labour, business, and activist representatives would help keep working families "front and centre every day in our work," Obama said in a statement released by his transition office.
Biden said the economy was in worse shape than he and Obama had thought it was.
"President-elect Obama and I know the economic health of working families has eroded, and we intend to turn that around," Biden told ABC's "This Week."
"We've got to begin to stem this bleeding here and begin to stop the loss of jobs in the creation of jobs," he said.
An transition aide said grim forecasts for the economy Obama will inherit when he takes office on January 20 prompted him to raise the job-creation target of his economic recovery plan to 3 million jobs created or saved in the next two years.
Last month, Obama's stated goal had been to protect 2.5 million jobs with a combination of middle-class tax cuts, money for public works programs like the building of roads and mass transit as well as money to bolster health and other social programs.
"There is going to be real significant investment, whether it's $600 billion (400 billion pounds) or more, or $700 billion," Biden said. "It's a number no one thought about a year ago."
The Obama administration could not afford to worry initially about the ballooning national deficit in the face of the most severe recession in the post-war era, he said.
"There is no short run other than keeping the economy from absolutely tanking. That's the only short run," said Biden.
Some Democrats are pressing for a package in the $1 trillion range, though other lawmakers are wary of the discussion of price tags upward of $600 billion.
Republican Rep. Eric Cantor of Virginia told CNN's "Late Edition" that taxpayers must be protected amid a pricey bailout for the auto industry and other potentially costly measures to revive the economy.
"Most American taxpayers are scratching their head wondering when all this bailout stuff is going to end and probably thinking when is my bailout coming," he said.
But Massachusetts Democratic Rep. Barney Frank argued that failure to act "will cost us even more."
"This economy is in the worst shape since the Great Depression and if we do not respond in a very firm way, it gets worse and worse and feeds on itself," he told CNN.
(Additional reporting by Lesley Wroughton in Washington and Ross Colvin in Honolulu; editing by David Wiessler)

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A scheme with no 'off' button
By Catherine Rampell
Sunday, December 21, 2008
So, what's the exit strategy?
Mathematically speaking, Ponzi schemes are doomed. They work by bringing in new investors to pay off old ones. In pure form, there's never any actual business activity; the money just rolls backward from ever-increasing numbers of investors to keep up the appearance of profits. This means the scheme requires an infinite supply of new suckers.
Anyone sophisticated enough to concoct a Ponzi scheme — and con experienced investors and government agents, as the New York financier Bernard Madoff is accused of doing — must also be sophisticated enough to do the math here.
So how can Ponzi perpetrators possibly expect to extricate themselves from their ploys? Based on historical examples relayed by a few biographers, historians and finance experts, the exit strategies seem to fall into four general categories:
CUT AND RUN These Ponzi schemers, a subset of the "Music Man" breed of professional swindler, are the small-time crooks, the snake-oil salesmen. They plan to rip off everyone in River City, hop on a train, change identity, and then start over, from the top, in the next town.
Few big-time Ponzi schemers go this route, however. That's because big Ponzi schemes usually exploit the trust of a tightly knit social network. Madoff is accused of victimizing wealthy Jews. The Foundation for New Era Philanthropy, a Philadelphia-area scheme that collapsed in 1995, preyed largely on Christian religious organizations.
If you're well enough connected to create a large-scale Ponzi scheme, though, you're probably too well-connected to be able to, or perhaps even want to, cut yourself loose. Charles Ponzi himself passed up chances early in the 20th century to sneak back to his Italian homeland unnoticed.
"He was bringing his mother over to Boston, from Rome," says Mitchell Zuckoff, a professor at Boston University who wrote "Ponzi's Scheme: The True Story of a Financial Legend." "He was canceling the honeymoon he'd planned to take to Italy with his new wife. He could have taken the money and run, but instead he chose to put down roots."
TURN (OR RETURN) THE BUSINESS INTO SOMETHING LEGITIMATE This group is likely to have started out with some hope for legitimacy. They solicit seed money for a brilliant investment idea, but the idea falls through. Rather than declare failure, they recruit new investors to pay off the old ones.
The fraud is just temporary, the swindlers tell themselves. They delude themselves into thinking they'll come up with another, better idea some day.
This appears to have been Ponzi's strategy; he had grand plans for international postal arbitrage but couldn't make the logistics work. "He truly thought he could eventually turn around and go legitimate," Zuckoff said.
This exit strategy pretty much always fails because the schemers are looking for the big scalp — and there's never an investment profitable enough to fill that deepening pocket of debt.
NO EXIT These schemers, usually from relatively humble backgrounds, are deeply insecure. They have felt like impostors their whole lives, whether in the country club or on the trading floor, says James Walsh, author of "You Can't Cheat an Honest Man." Expecting exposure for something, sometime, somewhere, they rationalize their fraudulent behavior. They delay the inevitable as long as they can — and live well until they get caught.
GET ELECTED TO PARLIAMENT After scamming millions of Russians in the 1990s, Sergei Mavrodi promised his investors a taxpayer bailout if they elected him to the Duma. Upon election, he received parliamentary immunity from prosecution.
Admittedly, this exit strategy has limited applicability. It didn't even work very long for Mavrodi, who landed in prison when his immunity was revoked.
The details of Madoff's scheme are unclear, though he is accused, in court documents, of having described it as a Ponzi scheme. Some experts guess that, given his business's longevity, he may have hoped to return to legitimacy one day.
Most Ponzi schemes last a year at most, says Utpal Bhattacharya, an Indiana University finance professor. (Ponzi's lasted just nine months.) So it seems likely that Madoff, an investment manager since 1960, started out legitimate or semi-legitimate. People in that position sometimes foolishly think they can hide a one-time loss with new investors' money, and make up for it with a big gamble later.
In other words, Ponzi schemers don't necessarily start out as such, and as sophisticated as they are, they may not consciously recognize that they have created one. They delude themselves into thinking the ploy is just a stopgap measure, an attempt to hide a loss until they can — once again — dream up something brilliant.

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UBS fund said to have invested $1.4 billion with Madoff
Reuters
Sunday, December 21, 2008
GENEVA: A Luxembourg-based fund run by Switzerland's biggest bank UBS invested $1.4 billion (934 million pounds) with Bernard Madoff, the U.S. fund manager accused of running a $50 billion fraud, Swiss weekly NZZ am Sonntag said on Sunday.
UBS declined to comment on the size of fund, which the newspaper called Luxalpha.
Spokesman Christoph Meier told Reuters: "Madoff was not on our recommended list of direct investment options."
However, he noted that UBS, the world's biggest wealth manager, had a number of wealthy clients, family offices and intermediaries who could request the bank to set up funds of funds of their choice.
The Financial Times reported on Saturday that UBS was seeking to absolve itself of any duty to safeguard investor assets in Luxalpha. UBS declined to comment on that report.
Funds managed by Swiss banks have been prominent victims of Madoff, who is accused of running a global Ponzi scheme in which earlier investors are paid off with investments from newer clients.
(Reporting by Jonathan Lynn; Editing by Erica Billingham)

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Ireland to pour billions into 3 main banks
Reuters
Sunday, December 21, 2008
By Kevin Smith and Carmel Crimmins
The Irish government will invest 5.5 billion euros (5.12 billion pounds) in the country's three main lenders, taking majority control of Anglo Irish Bank after a loan scandal there rocked an already beleaguered industry.
Investors have been waiting for months for a bailout plan to match schemes in other countries, but pressure on the government intensified this week after Anglo Irish revealed its chairman had kept shareholders in the dark about 87 million euros (80 billion pounds) worth of loans he had received from the lender.
Its shares slumped to a record low of 19 euro cents and the financial regulator has launched a probe into directors' loans at all major Irish banks.
"This is a new beginning. We have to have proper lending, responsible lending, lending for the real needs of the economy," Finance Minister Brian Lenihan said on Sunday.
Dublin will invest 2 billion euros each in market leaders Bank of Ireland and Allied Irish Banks via preference shares giving 25 percent voting rights over what the government described as "key issues."
The government will be able to intervene in areas such as appointing directors, changes in capital and ownership changes. The banks have also signed up to a credit package designed to boost lending to companies and home buyers.
The injections, in the first quarter of next year, will boost core tier one capital ratios at the two banks to around 8 percent from around 6 percent currently, bringing them into line with international peers.
The package will be paid for from funds set aside during Ireland's "Celtic Tiger" economic boom and originally intended to meet the state's future pension obligations.
Analysts said the deal was attractive for the two main players because it was not as dilutive or as costly as the British 37 billion pound bailout plan unveiled in October.
"It's a substantially better package than the British one as far as the banks and their shareholders are concerned," said Kevin McConnell, head of equity research at Bloxham Stockbrokers.
The government will also underwrite plans by Bank of Ireland and Allied Irish Banks to raise up to 1 billion euros each in additional capital. No details of that capital raising were given.
CONTROVERSIAL MOVE
The government will make an initial investment of 1.5 billion euros in Anglo Irish Bank, giving it 75 percent control of the lender and a fixed annual dividend of 10 percent. Dublin said it would make further capital if required in order to ensure Anglo remained a "sound and viable institution."
Anglo's chairman, chief executive and one non-executive director have already walked the plank over the loan scandal and Lenihan said the rest of the board would be "reconstructed" after an extraordinary general meeting next month to approve the capital increase.
Donal O'Connor, who was appointed this week to replace Sean FitzPatrick as chairman, will remain.
The move to bail out Anglo Irish, a niche lender that has fallen foul of struggling commercial property markets, is controversial following the loan scandal.
"I highly doubt the capacity of that bank to start lending money again," said Leo Varadkar, a spokesman from the main opposition party, Fine Gael.
"I think in the case of Anglo a wind-down operation may have been more appropriate."
But Lenihan stressed that Anglo, a one-time poster boy Ireland's economic revival, had a viable future.
"We believe that with appropriate public direction this bank can survive and can be turned around in time."
In return for the state funding, all three banks will be expected to boost their lending to small and medium-sized businesses by 10 percent next year and increase lending to first-time buyers by 30 percent. There will also be a new code of practice for business lending.
After riding high on the back of a dizzying property boom in the late 1990s and early 2000s, Ireland's banks have seen their share prices haemorrhage as the real estate bubble burst and the global credit crunch hit.
Ireland was one of the first European countries to react to the collapse of Lehman Brothers in September with a radical 485 billion euro scheme to guarantee bank liabilities which infuriated neighbouring countries who were forced to follow suit.
But the government then stayed on the sidelines while other countries recapitalised their banks preferring for lenders to raise their funds privately.
With no deals sealed and the Anglo scandal hitting the headlines last week, Dublin was forced to lay out its own investment plans.
(Additional reporting by Paul Hoskins; editing by Gary Crosse)

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Kuwait's Global says HSBC adviser in debt talks
Reuters
Sunday, December 21, 2008
KUWAIT: Kuwait's Global Investment House , downgraded by two ratings agencies for allegedly not meeting debt obligations, said it named HSBC as an adviser with foreign lenders after meeting with them on Sunday.
Shares in Kuwait's biggest investment bank closed down 8.2 percent on Sunday.
Last week, Global named Commercial Bank of Kuwait as an adviser for its borrowing needs after it said it was in talks with local banks to secure loans worth $1 billion (669 million pounds).
Global said in a statement on Sunday it had added HSBC as an international adviser to help renegotiate its loans with foreign banks and reschedule debt, while CBK is still its local financial adviser.
"The debt restructuring process was formally commenced today (Sunday) following a well-attended meeting in Kuwait with the company's bank lenders. The banks have agreed to form a steering committee to continue discussions with the company and its advisers," Global said in the statement.
"The management of Global is committed to resolving the process as quickly as possible and is confident that this will be achieved to the benefit of all stakeholders."
The investment bank said earlier this month it was in talks with local banks to secure loans worth $1 billion to replace short- and medium-term foreign loans with local loans. It also sold its stake in a Bahraini lender at a loss to secure financing.
Global shares tumbled last week after Fitch Ratings downgraded the firm's long-term Issuer Default Rating to 'C' from 'BBB', citing its "inability to meet an obligation due on December 15 ... due to cash flow problems."
Standard & Poor's Ratings Services lowered its long- and short-term counterparty credit ratings on Global to 'SD/SD' from 'BBB/A-3', following Global's "non-payment of a $200 million syndicated loan due on December 15," the agency said.
On Sunday, Kuwaiti daily al-Rai cited banking sources as saying the company was close to getting a $1 billion syndicated loan from local banks.
Last month, Kuwait said it would set up a bail out fund for investment firms to help them cope with the global financial crisis after the Gulf Arab state was forced to step in and rescue Gulf Bank in October.
The central bank has said it expected some investment firms to run into trouble due to their exposure to global markets since many investments are financed through loans.
Global Investment House is licensed as an investment firm but offers investment bank services such as underwriting issues or managing funds. It buys into firms and then sells them to investment funds.
(Reporting by Rania El Gamal, editing by Maureen Bavdek)

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An inside look at the Siemens bribery factory
By Siri Schubert and T. Christian Miller
Sunday, December 21, 2008
MUNICH: Reinhard Siekaczek was half asleep in bed when his doorbell rang early one morning two years ago.
Still in his pajamas, he peeked out his bedroom window, hurried downstairs and opened the front door. Standing before him in the cool, crisp dark were six German police officers and a prosecutor. They held a warrant for his arrest.
At that moment, Siekaczek, a stout, graying former accountant for Siemens, the German engineering giant, knew his secret life had ended.
"I know what this is about," he told the officers crowded around his door. "I have been expecting you."
To understand how Siemens, one of the world's biggest companies, ended up paying $1.6 billion last week in the largest fine for bribery in modern corporate history, it is worth delving into Siekaczek's unusual journey.
A former midlevel executive at Siemens, he was one of several people who arranged a torrent of payments that eventually streamed to well-placed officials around the globe, from Vietnam to Venezuela and from Italy to Israel, according to interviews with Siekaczek and court records in Germany and the United States.
What is striking about Siekaczek's and prosecutors' accounts of those dealings, which flowed through a web of secret bank accounts and shadowy consultants, is how entrenched corruption had become at a sophisticated company that externally embraced the principles of a transparent global marketplace built on legitimate transactions.
Siekaczek said that from 2002 to 2006, he oversaw an annual bribery budget of about $50 million at Siemens. Company managers and sales staff members used the slush fund to cozy up to corrupt government officials worldwide.
The payments, he said, were vital to maintaining the competitiveness of Siemens outside of Germany, particularly in his subsidiary, which sold telecommunications equipment. "It was about keeping the business unit alive and not jeopardizing thousands of jobs overnight," he said during an interview.
Siemens is hardly the only corporate giant caught in prosecutors' cross hairs.
Three decades after Congress passed a law barring U.S. companies from paying bribes to secure foreign business, law enforcement authorities around the world are bearing down on enterprises like Daimler and Johnson & Johnson, with scores of cases now under investigation.
But the Siemens case is notable for its breadth, the amounts involved, and the raw organizational zeal with which the company deployed bribes to secure contracts. It is also a model of something that was once extremely rare: cross-border cooperation among law enforcement officials.
German prosecutors opened the Siemens case in 2005. The U.S. authorities became involved that year because the company's shares are traded on the New York Stock Exchange.
In its settlement last week with the U.S. Justice Department and the Securities and Exchange Commission, Siemens pleaded guilty to charges that it had violated accounting provisions within the Foreign Corrupt Practices Act, which outlaws bribery abroad.
Although court documents are salted throughout with the word "bribes," the Justice Department allowed Siemens to plead to accounting violations because it cooperated with the investigation and because pleading to bribery violations would have barred Siemens from bidding on contracts in the United States. Siemens does not dispute the U.S. government's account of its actions.
Siekaczek's telecommunications unit spent $5 million in bribes to win a cellphone contract in Bangladesh, paying the son of the then-prime minister and other senior officials, according to court documents. Siekaczek's group also paid $12.7 million to senior officials in Nigeria for government contracts.
In Argentina, a different Siemens subsidiary paid at least $40 million in bribes to win a $1 billion contract to produce national identity cards. In Israel, the company provided $20 million to senior government officials to build power plants. In Venezuela, it was $16 million for metro rail lines. In China, $14 million for medical equipment. And in Iraq, $1.7 million to Saddam Hussein and his cronies.
Afghanistan, Haiti, Iraq, Myanmar and Somalia are the five countries where corporate bribery is most common, according to Transparency International, a nonprofit group. The SEC complaint said Siemens paid its heftiest bribes in China, Russia, Argentina, Israel and Venezuela.
"Crimes of official corruption threaten the integrity of the global marketplace and undermine the rule of law in the host countries," said Lori Weinstein, the Justice Department prosecutor who oversaw the Siemens case.
All told, Siemens will pay more than $2.6 billion: $1.6 billion in fines and fees in Germany and the United States and more than $1 billion for internal investigations and reforms.
The Siemens general counsel, Peter Solmssen, during an interview in Washington, said the company acknowledged that bribes were at the heart of the case. "This is the end of a difficult chapter in the company's history," he said. "We're glad to get it behind us."
Siekaczek, who cooperated with the German authorities after his arrest in 2006, has already been sentenced in Germany to two years of probation and a $150,000 fine.
"I would never have thought I'd go to jail for my company," Siekaczek said. "Sure, we joked about it, but we thought if our actions ever came to light, we'd all go together and there would be enough people to play a game of cards."
Siekaczek is not a stereotype of a white-collar villain. There are no Ferraris in his driveway, or villas in Monaco. With white hair and gold-rimmed glasses, he passes for a kindly grandfather - albeit one who can discuss the advantages of offshore bank accounts as easily as a soccer match.
Siemens began bribing officials long before Siekaczek applied his accounting skills to the task of organizing the payments.
"Bribery was Siemens's business model," said Uwe Dolata, the spokesman for the association of federal criminal investigators in Germany.
Before 1999, bribes were tax deductible as business expenses under the German tax code, and paying off a foreign official was not a criminal offense.
Inside Siemens, bribes were referred to as "NA" - a German abbreviation for the phrase "nützliche Aufwendungen," which means "useful money." Siemens bribed wherever executives felt the money was needed, paying off officials not only in countries known for government corruption, like Nigeria, but also in countries with reputations for transparency, like Norway, according to court records.
In February 1999, Germany joined the international convention banning foreign bribery, a pact signed by most of the world's industrial nations. By 2000, the authorities in Austria and Switzerland had become suspicious of millions of dollars of Siemens payments flowing to offshore bank accounts, according to court records.
Rather than comply with the law, Siemens managers created a "paper program," a toothless internal system that did little to punish wrongdoers, according to court documents.
Siekaczek's unit was one of the most egregious offenders. Court documents show that the telecommunications unit paid more than $800 million of the $1.4 billion in illegal payments that Siemens made from 2001 to 2007. Managers in the telecommunications group decided to deal with the possibility of a crackdown by making its bribery procedures more difficult to detect.
So, on a winter evening in late 2002, five executives from the telecommunications group met for dinner at a traditional Bavarian restaurant in a Munich suburb. Surrounded by dark wood panels and posters celebrating German engineering, the group discussed how to better disguise its payments, while making sure that employees did not pocket the money, Siekaczek said.
To handle the business side of bribery, the executives turned to Siekaczek, a man renowned within the company for his personal honesty, deep company loyalty and experiences in the shadowy world of illegal bribery.
"It had nothing to do with being law-abiding, because we all knew what we did was unlawful," Siekaczek said. "What mattered here was that the person put in charge was stable and wouldn't go astray."
Indeed, he considers his personal probity a point of honor. He describes himself as "the man in the middle," "the banker" or, with tongue in cheek, "the master of disaster." But, he said, he never set up a bribe. Nor did he directly hand over money to a corrupt official.
Siekaczek set things in motion by moving money out of Austria to Liechtenstein and Switzerland, where bank secrecy laws provided greater cover and anonymity. He also reached out to a trustee in Switzerland who set up front companies to conceal money trails from Siemens to offshore accounts in Dubai and the British Virgin Islands.
Each year, Siekaczek said, managers in his unit set aside a budget of about $40 million to $50 million for the payment of bribes. For Greece alone, Siemens budgeted $10 million to $15 million a year. Bribes were as high as 40 percent of the contract cost in especially corrupt countries. Typically, amounts ranged from 5 percent to 6 percent of the value of a contract.
The most common method of bribery Siemens engaged in involved hiring an outside business consultant to help "win" a contract. This was typically a local resident with ties to the country's leaders. Siemens paid a fee to the consultant, who in turn delivered the cash to the ultimate recipient.
Siemens has acknowledged having more than 2,700 business consultant agreements, so-called BCAs, worldwide. Those consultants were at the heart of the bribery scheme, sending millions to government officials.
Siekaczek was painfully aware that what he was doing was illegal. To protect evidence that he did not act alone, he and a colleague began copying documents stored in the basement of the headquarters in Munich that detailed the payments. He eventually stashed about three dozen folders in a hiding spot that he still refuses to disclose.
In 2004, Siemens executives told him that he had to sign a document stating he had followed the company's compliance rules. Reluctantly, he signed, but he quit soon after. He continued to work for the company as a consultant before resigning in 2006. As legal pressure mounted, he began hearing rumors that Siemens was setting him up for a fall.
"It wasn't going to be possible to make me the only one guilty because dozens of people in the business unit were involved," Siekaczek said. "Nobody was going to believe that one person did this on his own."
The police knocked on Siekaczek's door on the morning of Nov. 15, 2006. At almost the same time, about 200 officers were sweeping across Germany, into the Siemens Munich headquarters and the homes of several executives.
In addition to Siekaczek's detailed payment records, investigators secured five terabytes of data from Siemens offices - a mother lode of information that was the equivalent of five million books. Siekaczek turned out to be one of the biggest prizes of the day. After calling his lawyer, he immediately announced that he would cooperate.
U.S. officials began investigating the case shortly after the raids became public. Knowing that it faced steep fines unless it cooperated, Siemens hired a U.S. law firm, Debevoise & Plimpton, to conduct an independent, internal investigation and to work closely with U.S. government investigators.
All told, U.S. investigators and the Debevoise lawyers conducted more than 1,700 interviews in 34 countries. They collected more than 100 million documents, creating special offices in China and Germany just to hold the records from that one investigation. Debevoise and outside auditors racked up 1.5 million billable hours, according to court documents. In corporate filings, Siemens has put the total cost of the internal inquiry - including corporate restructuring - at more than $1 billion.
At the same time, Siemens worked hard to purge the company of senior managers who participated in the bribery schemes and to overhaul company policies. Several senior managers have been arrested. Klaus Kleinfeld, the company's chief executive, resigned in April 2007. He has not been accused of any crime and has denied wrongdoing. He is now head of Alcoa, the aluminum manufacturing giant based in Pittsburgh. Saying that its board fully supported Kleinfeld, Alcoa declined to comment on the SEC action.
Last year, Siemens acknowledged in SEC filings that it had found "significant evidence of collusion" by past corporate officials to "misappropriate funds and abuse authority." In August, Siemens said it planned to recover monetary damages from 11 former board members for activities related to bribery. Negotiations continue between the company and board members, according to a Siemens spokesman.
Earlier this year, Siemens's current chief executive, Peter Löscher, vowed to make Siemens "state of the art" in anticorruption measures. It has increased training and tied management bonuses to compliance with its ethics code.
Siemens still faces legal uncertainties. The Justice Department and German officials said that inquiries continued and that current and former company officials might be prosecuted.
Analysts and legal experts say Siemens is the latest in a string of high-profile cases that are slowly changing attitudes toward corruption.
For his part, Siekaczek is unsure about the legacy of the case. After all, he said, bribery and corruption are still widespread in many countries.
"People will only say about Siemens that they were unlucky and that they broke the 11th Commandment," he said. "The 11th Commandment is: 'Don't get caught."'

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Caroline Kennedy measures up to the job
By Albert R. HuntBloomberg News
Sunday, December 21, 2008
Caroline Kennedy has none of the right credentials to be a United States senator, critics charge; choosing her would be unconscionably trading on her famous name, they say.
Claiming that an impeccable curriculum vitae is essential for the office, these critics have ridiculed her possible appointment as "depressing" or "insulting" or celebrity-driven.
This is nonsense. The daughter of the late President John F. Kennedy is a talented woman who possesses a collegial charm that would serve her well in the Senate. None of the other candidates that Governor David Paterson of New York reportedly is considering to replace Secretary of State-designate Hillary Clinton is as compelling a choice.
Sure, it's trading on a famous name. Where have these Rip van Winkles been? Today's Senate includes the names of Bayh, Dodd, Landrieu, Murkowski, Rockefeller, Dole, Casey, Sununu, Pryor and Kennedy, all political legacies.
In the 1990s, two men named Bush were elected governors of Texas and Florida, running on their father's prominent name.
There are two questions about Kennedy: Is she prepared for the rigors of New York politics, and is she intellectually and temperamentally suited to be a good senator? Upstate New York considers itself a Third World region, desperate and often ignored. Hillary Clinton's political success in the state derived from the huge amount of attention she paid to this area. Can Kennedy quickly learn that the Buffalo Bills are not a barbershop quartet and empathize with heartbreaking stories in Elmira?
She is not a carpetbagger, having spent most of her life in New York City, though mostly in Manhattan.
In Staten Island, there was a farewell party the other day for a departing politician, which, The New York Times reported, was attended by "men with oiled pompadours, women with teased updos and floor-length furs, retirees and grizzled members of a Vietnam veterans' motorcycle club." Geographically, that's only a few miles from Park Avenue; culturally, it's Mars.
Even some close friends worry whether the private Kennedy is ready for this rough-and-tumble world. Presumably she has thought about that in seeking the post. If so, she's capable of conquering these challenges.
This is a woman whose capacity matches her charm. She hasn't held office or paid her political dues but has been the guiding force behind the John F. Kennedy Presidential Library, an author of several scholarly books on privacy as well as best-seller anthologies, and a force in improving the New York school system during Michael Bloomberg's mayoralty.
I serve on the Kennedy Library's Profile in Courage committee with her. It is a bipartisan group of senators, distinguished historians and high-powered social activists. Not one, including her Uncle Teddy, is more influential in internal deliberations than Caroline Kennedy.
She has all the qualities - intellectual curiosity; a friendly, at times pointed, sense of humor; and a deferential manner (she hails her own cabs) - that are the stuff to make a good senator.
Some question whether she has sufficient ego for the U.S. Senate; the other New York senator, Charles Schumer, has enough for both.
All things equal, it's better for politicians to pay their dues. Many don't. In New York, Hillary Clinton and Michael Bloomberg started at the top. The fabled Daniel Patrick Moynihan was uninvolved in electoral politics until winning a Senate seat in 1976, aside from an ill-fated campaign for city council president.
Sometimes it's just obvious that a neophyte candidate brings unique skills: the basketball player Bill Bradley, when he ran for the Senate from New Jersey in 1978, or the former White House aide Rahm Emanuel, with an unusual appreciation of the nexus of politics and policy, when he ran for the House six years ago.
None of the often-mentioned alternatives to Kennedy, including the New York attorney general, Andrew Cuomo, or Representative Gary Ackerman, possess these qualities. Nor on character do they measure up to her.
Moreover, political pedigrees can be overrated. Few paid more dues than Dick Cheney.
One of the most important figures in 20th century public life was Terry Sanford of North Carolina, one of the great governors in modern times. As president of Duke University, he led that institution to international acclaim. He was elected to the Senate in 1986, and never lived up to that renown; he never found comfort in the institution and was defeated for re-election.
In recent weeks, there has been a lot of press attention on Tennessee's junior senator, Bob Corker. The state's senior senator, Lamar Alexander, is a more impressive and formidable figure - a former governor, university president and secretary of education.
Yet as Alexander prepares for a second Senate term, like Sanford, he has yet to find a sweet spot in the chamber.
By contrast, a predecessor of his, Howard Baker, first ran with few credentials. He had been a lawyer, and his claim was that his father was a congressman and his father-in-law, Everett McKinley Dirksen, the Republican leader of the Senate. Trading on family fame, he won in 1966.
Throughout three terms, he became a terrific senator, a majority leader who worked effectively across the aisles. He was later President Ronald Reagan's chief of staff.
An even more dramatic example might be the young man who was elected four years before Baker, and with even fewer credentials. Riding a celebrated family name, he defeated more experienced rivals in both the Democratic primary and the general election.
That was Edward Kennedy in 1962. He has gone on to become one of the most influential senators in the history of the institution.
If she is appointed, neither Caroline Kennedy nor most anyone else today will match her uncle's accomplishments. Whether she stays for two years or 20, she would add value to an institution that has been so enriched by her family.

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Protests over car tariffs spread across Russia
By Clifford J. Levy
Sunday, December 21, 2008
MOSCOW: Small demonstrations occurred in several Russian cities over the weekend against the government's plan to raise tariffs on imported automobiles, and the riot police broke up one protest Sunday in Vladivostok in the East, briefly detaining scores of people, news agencies reported.
While each demonstration drew only a few hundred people, they have turned into perhaps the most visible evidence of discontent with the government over the financial crisis. When the price of oil was high and the Russian economy was soaring, the government enjoyed broad popularity, but the recent downturn has caused a rise in unemployment, a drop in the value of the ruble and growing anxiety among the public.
The government announced the tariffs on imported cars in an effort to protect the beleaguered domestic car industry. But imported cars are highly popular among Russians, causing the protests.
In an apparent sign of the Kremlin's concern over the tariff issue, it dispatched special riot police units to Vladivostok to quell the protest, according to witnesses quoted by news agencies. Other protests had occurred in the city this month over the tariffs.
Amateur video posted online by people who said they were at the demonstration in Vladivostok on Sunday showed riot police officers dragging protesters into vans.
The authorities said they broke up the demonstration against the tariffs because its sponsors had not received official permission.
An Associated Press reporter in Vladivostok said the police officers beat several people, threw them to the ground and kicked them.
Vladimir Litvinov, who heads a local rights group, told The Associated Press that officers behaved "like beasts" and should not have ended the gathering because it was peaceful and not political.
Litvinov said that he supported "a civilized resolution to all the problems," but that he did not support sending "Moscow riot police to break up a gathering in our city," where "they start breaking arms and legs and heads."
"People are very, very angry," he added. "It's hard to predict what might happen now."

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Hundreds of Greek protesters clash with police
Reuters
Sunday, December 21, 2008
By Daniel Flynn and Angeliki Koutantou
Hundreds of Greek youths fought running battles with police in Athens late Saturday as anti-government protests entered a third week since police shot dead a teenager.
Students threw stones and petrol bombs at riot police outside university buildings late into the night after a vigil to mark the December 6 killing of 15-year-old Alexandros Grigoropoulos turned violent.
Police blocked surrounding roads and fired teargas at the youths, who sheltered in the university campus which police are banned from entering. A group of anxious mothers waited outside to escort their children from the building.
"There are more than 600 students and they're running in and out of the university, throwing rocks and Molotov cocktails," said a police official, who asked not to be named. No injuries were reported.
Across the country, hundreds of schools and several university campuses remain occupied by students. In the northern city of Thessaloniki, demonstrators briefly occupied a radio station and a cinema.
The protests, the worst Greece has known in decades, have fed on anger at youth unemployment, government reforms and the global economic crisis.
For most of Saturday, Athens was calm and the streets were busy with Christmas shoppers.
As darkness fell, a group of anarchists rampaged through the upmarket district of Kolonaki, torching two cars and throwing petrol bombs into the office of a company supplying credit data to banks and the finance ministry, police said.
A police official had earlier said the offices belonged to the finance ministry.
Earlier, a march in support of immigrants' rights ended in scuffles with police when demonstrators pelted them with eggs and rubbish outside parliament.
Some protesters tried to set fire to the municipal Christmas tree in the central Syntagma square outside parliament, a replacement for a tree burnt down in earlier demonstrations. Riot police with shields formed a circle round the tree while protesters danced round them holding hands.
Union leaders and students have announced more rallies for the new year.
The protests have caused hundreds of millions of euros in damage, rocking a conservative government that has a one-seat majority and trails the opposition in polls. Some analysts say continued street protests could force early elections.
(Additional reporting by Renee Maltezou; editing by Tim Pearce)

Sharp differences between Cheney and Biden on vice presidential role
By Brian Knowlton
Sunday, December 21, 2008
WASHINGTON: The transition in the vice presidency was in full view Sunday, with the incoming officeholder, Joseph Biden Jr., describing it as something like counselor in chief with no single policy focus, and the departing one, Dick Cheney, saying that if Biden "wants to diminish the office of the vice president, that's obviously his call."
Biden also underscored the vast challenge posed by the worsening economic situation. The new administration's first and most urgent mission when it takes office on Jan. 20, he said, would be to keep the economy "from absolutely tanking."
Amid growing curiosity over how Biden will balance a vow to scale back the powers of his office against a desire to play a vital and central role, he said that President-elect Barack Obama had asked him to oversee a task force dedicated to strengthening the middle class. "We'll look at everything from college affordability to after-school programs," Biden said on the ABC News program "This Week" in his first extensive interview since the election.
But he also said that he had received a commitment from Obama, during a conversation before the election that lasted three and a half hours, to include him in formulating every decision of import.
"I said, 'I want a commitment from you that in every important decision you'll make, every critical decision, economic and political as well as foreign policy, I'll get to be in the room,"' Biden said. And indeed, he said that with every cabinet appointment Obama had decided on, "I've been in the room."
Still, the contrast with Cheney - who is not known to have spent any time on after-school programs during his vice presidency, and who on Sunday vigorously defended the expanded scope of powers he has assumed - could not have been much sharper.
Moreover, while President George W. Bush has struck a decidedly reflective tone in the interviews he has granted as his presidency winds down, Cheney remained unyielding.
The sharp edge of some of his comments might not be terribly surprising; during the election campaign, Biden had criticized Cheney as "probably the most dangerous vice president we've had in American history."
Cheney, appearing on "Fox News Sunday," at one point brushed off Biden's attacks as "campaign rhetoric."
But Cheney pointedly criticized Biden's knowledge, saying that while Biden had taught constitutional law in Delaware and for years served on the Judiciary Committee, "he can't keep straight which article of the Constitution provides for the legislature and which provides for the executive," a reference to a comment by Biden that Article I of the Constitution lays out the powers and responsibilities of the executive branch. In fact, that article primarily deals with the legislative branch.
In Biden's interview, taped before Cheney's aired, he seemed inclined at first to shrug off their differences. But pressed, he did not back down.
Biden said he believed that the recommendations Cheney had given Bush had "been not healthy for our foreign policy, not healthy for our national security, and it has not been consistent with our Constitution."
"His notion of a unitary executive, meaning that in time of war, essentially all power goes to the executive, I think is dead wrong" and had tended "to weaken our standing in world and weaken our security," he said.
Biden said his role would be "to give the president of the United States the best, sagest, most accurate, most insightful advice and recommendations" he can offer.
In other matters, Biden confirmed that the incoming administration planned to observe its promise for a 16-month pullout of most combat troops from Iraq, though some military commanders say that might be difficult. "We will be out of Iraq in the way in which Barack Obama described his position during the campaign," Biden said.
He sidestepped any judgment on whether any members of the Bush administration should face legal action over any detainee abuse either at the Abu Ghraib prison in Iraq or the military prison at Guantánamo Bay, Cuba. That, he said, should be up to the Justice Department.
And while Cheney has suggested that Biden's views might change once he learns the breadth and urgency of threats against the country, Biden took exception. He said that as chairman of the Foreign Relations Committee, he had been one of the eight congressional leaders included in the most sensitive intelligence briefings, and that since the election, he had received presidential-level briefings. "I have learned nothing thus far that would change my view," he said.
Biden also defended plans for a sweeping economic stimulus package that some critics say might be too large. In today's dire situation, he said, "the scope of this package has to be bold, it has to be big. The economy's in much worse shape than we thought it was in."

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Poet chosen for inauguration is aiming for a work that transcends the moment
By Katharine Q. Seelye
Sunday, December 21, 2008
Elizabeth Alexander, who teaches at Yale, was plucked last week from the relatively obscure recesses of contemporary poetry for a moment on the world stage. President-elect Barack Obama has commissioned her to compose and read a poem for his inauguration, making her only the fourth poet in American history to read at one and elevating the art to unaccustomed prominence in the national psyche, at least for a day.
Obama's inauguration, on Jan. 20, calls for an "occasional poem," written to commemorate a specific event. This is not precisely what Alexander does, but she is preparing for the challenge.
"Writing an occasional poem has to attend to the moment itself," she said in an interview, "but what you hope for, as an artist, is to create something that has integrity and life that goes beyond the moment."
To prepare, she has delved into W. H. Auden, particularly his "Musée des Beaux Arts" ("About suffering they were never wrong/The Old Masters"), and the work of Gwendolyn Brooks, the first African-American to win the Pulitzer Prize, for poetry. Auden, she said, "asked very large questions about how we stand in history." And Brooks has had a major influence on her work.
"She should have been the one, were she living, for this," Alexander said of the honor bestowed by Obama. "The Bard of the South Side. She wrote from Obama's neighborhood for so many years." Here she recited Brooks's familiar line: "Conduct your blooming in the noise and whip of the whirlwind."
"Language like that," Alexander said, "has eternal life."
Alexander, 46, is the incoming chairwoman of the African-American studies department at Yale and the mother of two sons, 9 and 10. She writes often of race, gender and class, in both poetry and prose, nurtures young black poets through Cave Canem, a poetry workshop, and has been a friend of Obama for more than a decade.
Asked if she thought that the friendship played a role in her being picked for the inauguration, she said no. The Obamas have many friends and know other poets, she said.
"One of the things we've seen with every choice he's made is that it's based on what he perceives as excellence," Alexander said. "I don't think you would let friendship determine who you chose to do something like this. You can do lots of things to be nice to your friends — you can invite them to an inaugural ball. But I don't think friends have to do each other this kind of favor."
Alexander was born in Harlem, where her father's family was rooted, but grew up in Washington, where she attended Georgetown Day School and Sidwell Friends, then Yale. Politics, she said, was "in the drinking water in my house." Her father, Clifford, was a civil rights adviser to President Lyndon Johnson and was instrumental in the passage of the Voting Rights Act. He was the first black to be named secretary of the army and chairman of the Equal Employment Opportunity Commission.
Her mother, Adele, teaches African-American women's history at George Washington University. Her brother, Mark, teaches at Seton Hall Law School and served as policy director to Bill Bradley's presidential campaign in 2000. An expert in campaign finance, he was a senior adviser to Obama's campaign and is a member of his transition team.
Alexander has been on the faculty of several universities, including the University of Chicago, where she taught creative writing and African-American literature and won the Quantrell Award for excellence in undergraduate teaching. It is there in the 1990s that she met Barack and Michelle Obama.
"We're of the exact same generation," she said. "They are people with whom I have a lot in common."
There was some question about whether Obama would include a poet at all in his inaugural program. There have been only three: Robert Frost in 1961, Maya Angelou in 1993 and Miller Williams in 1997.
Obama has not said publicly why he wanted a poet or why he chose Alexander. But Emmett Beliveau, the executive director of Obama's inaugural committee, said that having a poet shows "the important role that the arts and literature can play in helping to bring our country together" and that Alexander "is an incredibly accomplished author and academic."
Paul Muldoon, a Pulitzer Prize-winning poet who teaches at Princeton and is poetry editor of The New Yorker, said he guessed that Alexander was chosen on "literary merit." He said her work "addresses a wide range of issues with terrific complexity."
And Angelou said that when she heard of Alexander's selection, she smiled. "She seems much like Walt Whitman," she said. "She sings the American song."
Alexander said she believes her poetry "attends to history," including "sometimes thorny and difficult American history," even as it speaks in contemporary moments and landscapes.
And she said Obama is attuned to the value of poetry. "He has said the precise and distilled and mindful language of poetry is perhaps something that can create a moment of meditation for us," she said.
After examining previous inaugural poems, she has decided that hers will be brief. "This is one small piece of many pieces and we know what the centerpiece is," she said, referring to Obama's inaugural address.
"President-elect Obama is extremely efficient with language," she added. "It is tremendously rich and tremendously precise but also never excessive. I really, really admire that. That's a poet's sensibility. I'm going to follow his lead."

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Police raid Iran Nobel Laureate's office
Reuters
Sunday, December 21, 2008
By Parisa Hafezi
Iranian police Sunday raided and closed the office of a watchdog group led by Iran's Nobel peace prize winner Shirin Ebadi ahead of a celebration to mark International Human Rights Day.
Iran's judiciary confirmed the closure of the Human Rights Defenders Centre, saying it was involved in "illegal" activities.
"Tehran prosecutor ordered the closure of the office of Human Rights Defenders Centre because of its illegal activities," the semi-official Mehr news agency reported.
"The centre was acting as a (political) party without having legal permit. It had illegal contacts with local and foreign organizations. It had organised news conferences and seminars."
Ebadi, winner of the 2003 Nobel peace prize, criticised the raid, saying it will not stop human rights activists in Iran.
"The closure of the office without providing a legal warrant is illegal. We will protest against it," Ebadi told Reuters. "It will not deprive us from our rights activities."
Narges Mohammadi, deputy head of the centre, said that dozens of policemen, including plainclothes security agents, entered the office without showing a search warrant.
"A policeman said he was not obliged to show a warrant because he was wearing a police uniform," Mohammadi told Reuters.
The raid came hours before the centre was to hold a celebration of the 60th anniversary of Human Rights Day, which fell on December 10, Mohammadi said.
Ebadi used a United Nations forum in Geneva Wednesday to condemn hardliners in power in some Muslim countries and rulers of the world's last communist states as abusers of human rights.
Ebadi, an outspoken critic of the Islamic Republic's rights record, said Muslim dictatorships used religion to underpin their own power.
The Iranian rights advocate has repeatedly criticised Iran's human rights record, citing what she says was a rising number of political prisoners and the highest number of executions per capita in the world last year.
Over the years, Ebadi's advocacy of human rights has earned her a spell in jail and a stream of threatening letters and telephone calls.
Iran's government rejects accusations that it violates human rights and accuses its Western foes of hypocrisy and double standards.
(Reporting by Parisa Hafezi, Editing by Sami Aboudi)

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Maybe it can't: A trap in Obama's spending plan
By Louis Uchitelle
Sunday, December 21, 2008
As the recession deepens, President-elect Barack Obama is gearing up to spend hundreds of billions of dollars on public investment projects, counting on them to lift the economy, as they have in the past.
But this time that may not happen. Public spending, American style, has worked best in good times, when people have jobs and executives are eager to invest. A new public highway is soon lined — in good times — with stores and malls filled with consumers. A dollar spent by government generates three or four from the private sector.
That symbiosis makes a humming economy hum more, as it did in the 1950s and '60s. But it may not work that way when the American economy is in full retreat, as it was in the 1930s and seems to be today.
As a measure of the current disaster, the Federal Reserve last week lowered interest rates to an unheard-of near-zero percent and offered in effect to give away money if a fearful nation would only spend it. But panicked by investment losses or fearful for their jobs, people tend to hold back. In such circumstances, a new road could be lined not by shopping malls, but by empty, overgrown land.
That is the risk facing Obama's plan. By January, Congress will probably be asked to approve an outlay of more than $700 billion. Spent in one year on construction, research or equipment, it might well offset the contraction at first. But unless it also revived general confidence, the economy could collapse again, once the money was gone.
"If that spending can't get the private sector going, then it is just a make-work maintenance operation," said Stanley Moses, an economist at Hunter College in New York.
History illustrates how tricky it can be to make public spending work as intended. The many dams Franklin D. Roosevelt's administration built generated an abundance of electricity, lowering its cost so that families could afford to operate the appliances then becoming available. The construction itself put money into workers' pockets. But the appliances were too costly for most families during the Depression, and the manufacturers wouldn't extend credit. For all the money spent by the Roosevelt administration, public investment was failing to jump-start a key private-sector industry.
His administration was inventive, however, and found a way around the problem by subsidizing installment purchases. That was when appliance production finally rose. In time, installment plans evolved into consumer loans and charge cards, and that helped make the American consumer economy the envy of the world.
These symbiotic relationships between the public and private sectors — playing off each other in ways hard to anticipate and hard to channel — became an essential ingredient of American prosperity from World War II until the mid-1970s.
"It is not in the nature of a market system to have adequate private investment all of the time," said Robert Pollin, co-director of the Political Economy Research Institute at the University of Massachusetts at Amherst. "So we used public investment to smooth things over and improve the climate for private investment."
That changed. In the 1970s, the public reacted against high taxes and growing budget deficits, and conservatives argued that putting money in private hands would lift the economy more effectively. Public investment tapered off, and was used less as a tool of economic policy as the economy experienced the increasingly sharp ups and downs of the 1980s, 1990s and the new century.
Now, in the opening months of the worst bust since the Great Depression, Obama is expected to seek sustained outlays over at least two years to repair roads, bridges and waterways; to build and repair public schools; to expand the broadband network; to digitize medical information; to advance green technology. An economic adviser says his goal is "to encourage private investment, particularly in areas where we have too little investment today, for example, solar systems and wind power."
But Obama is bucking a deep private-sector funk, a bit like what Roosevelt described in his first Inaugural Address as "fear itself — nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance." Borrowers and lenders have pulled back. Business investment has plummeted. So has consumer spending. "A psychology of bad times is becoming the mindset of the public," says Andrew Kohut, director of the Pew Research Center, a survey operation.
Like Roosevelt's dams, Obama's expenditures will no doubt generate jobs and wages in the construction phase. But in 1937, Roosevelt, thinking that the private sector could sustain itself, pulled back on public spending. Some historians say this was a big reason the economy sank again. .
Obama faces a similar danger. Green-technology spending might spawn a far more efficient solar panel, but investors still might shrink at manufacturing it. What if consumers — having lost equity in their homes and scrimping on cars, vacations, even college tuition — were reluctant to buy and install the panels? "There are so many problems today and no good news, and that is enough to stop the impact of what Mr. Obama does," said Moses of Hunter College.
The president-elect and his advisers recognize this danger. But they — and many others, including some Republicans — see no other choice. "The most important thing the new administration can do at a moment when the collective psyche has been so shattered is to spend money now on tangible things," said Mark Zandi, chief economist at Moody's Economy.com, who advised John McCain's presidential campaign. "People want to see up front a repaired bridge, a new energy technology, a better water system. They want to feel these will have huge benefits down the road, and that might get them spending again."
Whatever the obstacles, Obama's plan would mean giving up the view — widely held since the 1970s by economists, policy makers and business executives — that the private sector, by itself, is the key source of prosperity and full employment, and government spending is inefficient.
Perhaps with that in mind, Obama evoked as an illustration of his plan's breadth not the desperate 1930s, but the prosperous 1950s and '60s. That was when President Dwight Eisenhower and Congress set out to build the Interstate System of highways — a gift to an expanding auto industry and to trucking that also linked the country, encouraging all sorts of other investments.
But there is a big difference between Eisenhower's era and Obama's. By 1950, the Depression's gloom had been banished by the common effort of World War II, followed by immense postwar demand for American production. Road building was just one public investment that set off huge private outlays. The space program stands out; so does military spending, which spurred computer development and created the Internet. And Medicare, born in the 1960s, became intertwined with private medicine.
Such symbiotic successes prompted a French journalist, Jean-Jacques Servan-Schreiber, to issue a warning to Europe in 1968. In "The American Challenge," a best seller, he wrote that "the government official, the industrial manager, the economics professor, the engineer and the scientist have joined forces" to support American economic growth, and that the juggernaut would soon reduce Europe to an American colony.
He was wrong. Europe outpaced the United States in its embrace of public-private symbiosis. And now Obama proposes, in effect, to restore the formula in this country.

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Obama drawing on longtime interest in car industry
By Micheline Maynard
Sunday, December 21, 2008
DETROIT: Barack Obama leveled a stern warning at General Motors and Chrysler after the U.S. government promised them billions of dollars to help them survive: "The auto companies must not squander this chance to reform bad management practices."
Once he becomes president, the bailout announced last week will give Obama a tool to prod the industry to change, but it will also test his resolve as he pushes it in new directions.
Obama, after all, has been thinking out loud about the future of the American automobile industry for years, since well before his presidential campaign began. He co-sponsored two bills in 2006, during his second year as a U.S. senator - one to raise fuel economy standards, and the other to encourage the use of alternative fuels.
His writings and speeches on the auto industry suggest a keen interest in finding ways, including new technology, to improve the fuel efficiency of the cars and trucks that Americans drive.
But with Detroit in a fragile financial state, it is unclear how many compromises Obama will have to make in pursuing his agenda for the auto industry as he juggles other priorities like providing a stimulus program for the broader economy. The United Automobile Workers union, which backed Obama, will want a say in the changes he envisions for the automakers.
Car companies, which take long lead times to develop products, will need sales of big trucks and sport utility vehicles, which may pick up again as gasoline prices fall, to bring in much-needed revenue.
By all accounts, Obama's personal interest in the industry stems from his interest in environmental issues, and he has a ready resource about how the industry operates in Martin Nesbitt, a close friend who worked in financial planning at GM.
Obama delivered his clearest prescription to the automobile industry in May 2007, when he appeared at Cobo Convention Center in Detroit before an audience of 2,000 auto industry executives.
In a speech to the Economic Club of Detroit, Obama said the Big Three had done little to reduce the nation's dependence on foreign oil and needed to improve their vehicles' fuel efficiency.
"The auto industry's refusal to act for so long has left it mired in a predicament for which there is no easy way out," Obama said.
He suggested initiatives similar to the legislation he had introduced in Congress and which he emphasized in his campaign. They included a 4 percent annual increase in the Corporate Average Fuel Economy standards, equal to about one mile per gallon a year, and incentives for the companies to develop more fuel-efficient cars.
Obama said he would provide as much as $3 billion to Detroit auto companies and their suppliers to retool their factories in order to produce smaller, more fuel-efficient vehicles.
In fact, Congress later included up to $25 billion for the companies for that goal. General Motors and Chrysler initially tried to tap that money for their depleted cash reserves, before receiving assistance from the administration of President George W. Bush.
Environmentalists say the speech in Detroit was a sign of commitment to prodding the auto companies to build more fuel-efficient vehicles.
"I think he gets it," said Daniel Becker, director of the Safe Climate Campaign for the Center for Auto Safety, a Washington consumer advocacy group. "The speech at Econ Club was a brave one, but a thoughtful one."
Obama, who received standing ovations at the beginning and conclusion of his speech, said he wanted to be blunt with the Detroit companies on their home turf.
"I'm making this proposal here today because I don't believe in making proposals in California and giving a different speech in Michigan," he said. His goal was "not to destroy the industry, but to help bring it into the 21st century," he said.
In his 2006 book, "The Audacity of Hope," Obama wrote that "fuel-efficient cars and alternative fuels like E85, a fuel formulated with 85 percent ethanol, represent the future of the auto industry. It is a future American car companies can attain if we start making some tough choices now."
He also did not spare the UAW from criticism.
"For years," Obama wrote, "U.S. automakers and the UAW have resisted higher fuel-efficiency standards because retooling costs money, and Detroit is already struggling under huge retiree health-care costs and stiff competition."
Obama said he wanted to help the companies and the union, pointing out that he had introduced legislation calling for automakers to receive assistance meeting health care costs, if they would invest the savings in developing hybrid-electric vehicles - an idea he repeated in his Detroit speech.
But, Obama wrote, "we can't afford to hesitate much longer."
With Detroit in crisis, there is little room for hesitation after he reaches office.
Obama's Treasury Department will have to assess whether the union and the companies have met the requirements of the loans given them by the Bush administration, which legal experts say Obama could easily amend.
But he also has said that he wants to protect American jobs.
Soon after Bush finished announcing the terms of the $17.4 billion in assistance for the auto companies Friday, the UAW union was calling on Obama, for whom it had rallied support in important Midwestern states, to revise it.
The union wanted him to discard a requirement that auto workers agree to wage and benefit concessions that would bring their compensation in line with that paid nonunion workers.
Representative John Dingell Jr., a Michigan Democrat and a longtime union advocate, said: "I strongly urge President-elect Obama to revisit this issue as his first priority upon being sworn in, and to ensure that assistance to the automakers is provided in a way that is fair to working Americans."
Becker, a longtime critic of Detroit environmental policies, said he did not believe that Obama would force companies to submit to drastic measures.
"I don't think they need to be afraid of Obama. He's not going to say 'by next Tuesday, everything has to be 40 miles per gallon,"' Becker said. "But in 10 years? Maybe."Canada gets its own bailout
Moving to pre-empt a possible shift of auto production to the United States, both the Canadian and Ontario governments offered the industry 4 billion Canadian dollars in emergency loans, Ian Austen reported from Ottawa.
"I will not fool you," Prime Minister Stephen Harper said in Toronto on Saturday. "There is obviously money at risk here and there may well be more money at risk going forward." The amount equals about $3.3 billion.
The Canadian auto industry, which exports about 90 percent of its production, accounts for a greater percentage of Canada's manufacturing economy than its parent companies contribute to that of the United States.
Many U.S. and Japanese automakers operate factories in Ontario, as do parts makers that feed plants throughout North America.
A loss of the U.S. manufacturers would be a particularly severe blow to Ontario, which is home to all of the Canadian auto assembly plants. About 400,000 people in Ontario work in the industry, said Dalton McGuinty, the provincial premier.

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OPINION

Never again
By Madeleine K. Albright and William S. Cohen
Sunday, December 21, 2008
Some we see; others remain invisible to us. Some have names and faces; others we do not know. They are the victims of genocide and mass atrocities, their numbers too staggering to count.
This month was the 60th anniversary of the Convention on the Prevention and Punishment of the Crime of Genocide. It has been 20 years since the United States became a party to the treaty. Despite six decades of efforts to prevent and halt systematic campaigns of massacres, forced displacements and mass rapes, such atrocities persist. Why are we still lacking the necessary institutions, policies and strategies?
It is not because the public doesn't care. We have seen a surge in interest in this country, galvanized by the crisis in Darfur and driven in large part by students and faith-based organizations. And it is not because our leaders do not care. Over the years, many champions in Congress and successive administrations have demanded more action to stop genocide.
When we were in the Clinton administration, we experienced firsthand the challenges of responding to such crises, sometimes because the political will was lacking, but more often because the American government simply does not have an established, coherent policy for preventing and responding to mass atrocities.
Moreover, a lack of dedicated resources for prevention and the absence of bureaucratic mechanisms allowing rapid analysis and response have impeded timely action. What is needed is a national blueprint to prevent genocide and mass atrocities.
Barack Obama should demonstrate at the outset of his presidency that preventing genocide is a national priority. No matter how one calculates American interests, national borders today provide little sanctuary from international problems. Left unchecked, genocide will undermine American security.
First, genocide fuels instability - usually in weak, undemocratic, corrupt states. It is in these states that we find terrorist recruitment and training, human trafficking and civil strife.
Second, genocide and mass atrocities have long-lasting consequences that go far beyond the states in which they occur.
Refugees flow into bordering countries and then across the globe. The need for humanitarian aid can quickly exceed the capacities and resources of a generous world. The international community, including the United States, is called on to absorb displaced people and to undertake relief efforts. And the longer we wait to act, the higher the price tag.
Third, America's standing in the world is eroded when we are perceived as bystanders to genocide. Yes, we must understand that preventing mass killings may eventually require military intervention, but this is always at the end of the list of intervention options, not the beginning.
We must learn to recognize the early warning signs of genocide and move quickly to marshal international cooperation, to bring diplomatic and economic pressure to bear against those who violate the norms of civilized behavior.
Success will require that the president summon political will not only during a crisis but before one emerges. This means taking on inertia within the government, investing political capital, doing the heavy lifting of persuasion. It means fending off critics and cynics.
It means taking risks.
We are keenly aware that the incoming president's agenda will be daunting from day one. But preventing genocide and mass atrocities is not an idealistic addition to our core foreign policy agenda. It is a moral and strategic imperative.Madeleine K. Albright, the U.S. secretary of state from 1997 to 2001, and William S. Cohen, the U.S. secretary of defense from 1997 to 2001, are the co-chairmen of the Genocide Prevention Task Force.

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OPINION

Econo-threats
By Charles Duelfer and James Rickards
Sunday, December 21, 2008
The economic crisis has made it painfully obvious that the U.S. economy has become very vulnerable to broken gears in the global financial system. But this is not simply a financial or economic problem - it is a grave national security risk, and the U.S. government must treat it as such. Historically, Washington's national security and financial apparatuses have operated independently. Intelligence analysts have focused on explicit threats posed by weapons and conflicts. Those parts of the government charged with ensuring economic health have a different mind-set, monitoring capital markets where they assume threats are not malicious, but competitive in nature. This needs to change.
For a model, consider the evolution that took place in the 1990s with respect to cyber-threats. While this was initially the preserve of information technology experts and companies, government officials came to recognize the enormous potential threats to the power grid, the Internet and government computer systems.
In terms of economic security, however, a complicating factor is that financial experts and national security officials view risk in very different ways. The meltdown on Wall Street is largely a result of an overriding incentive to see risks as low. The group dynamic among financial houses was to lend more under more precarious conditions - if you didn't, a competitor would.
Conversely, the national security community tends to maximize risk assessments. Aerospace companies sell more weapons if the threat is seen to be increasing. It's all about playing up risk - sometimes too far, as the miscalculation over Iraqi weapons of mass destruction threat showed.
Despite these divergent views of risk, the talents of professionals in the capital markets and national security experts must be combined if America is to identify and respond to financial threats.
For example, while China has behaved appropriately during the global financial crisis, there is no doubt that its enormous reserves give it de facto veto power over some of Washington's interest rate and exchange rate policies. What would we have done if Beijing had responded differently? And the desires of Russia (then fighting in Georgia) were a consideration during the Fannie Mae and Freddie Mac bailouts, because it is one of the largest holders of government agency debt.
Al Qaeda has declared that damage to the American economy is its second-most important goal after mass casualties. Presently, who would warn the White House if foreign entities made a concerted attack on our financial system? Who is charged with detecting such activity?
The Obama administration needs to place a new priority on the national security implications of capital and commodities markets. The National Security Council needs to draw together the powerful talents and tools from segregated agencies to tackle the problem.
U.S. spy agencies alone lack the direction and expertise to provide the real-time market analysis required. It calls for talent more likely found among hedge fund managers and open-market traders. After all, the data does not need to be captured clandestinely - much is readily available from exchanges and other open sources. Quick analysis - with the sorts of quantitative engines traders use, redesigned for national financial security objectives - may be the most critical aspect.
There is a tremendous range of global threat indicators that can be gleaned from careful scrutiny of trading activity. For example, in August 2006 an unexplained decline in certain airline stocks took place shortly before the arrests in Britain of terrorists plotting to blow up trans-Atlantic airliners.
The global financial meltdown is going to give our enemies new ideas to create economic havoc. We don't have much time to plan our response.Charles Duelfer, the former director of the Iraq Survey Group, is the author of the forthcoming "Hide and Seek: The Search for Truth in Iraq." James Rickards was general counsel of the hedge fund Long-Term Capital Management and oversaw its rescue by the Federal Reserve.

Russian push on treason raises fears
By Michael Schwirtz
Sunday, December 21, 2008
MOSCOW: In a country where government critics already feel vulnerable, legislation to expand the definition of treason has inspired a new round of hand-wringing about how far the state will go to rein in dissenters and regulate Russians' contact with foreigners.
Even certain conversations with a foreign reporter could be "considered treason under the new legislation," contends Ernst Chyorny, the leader of a human rights group in Moscow, because they could be seen as "consultative" support to a foreign entity. And that, he says, could land a violator in prison for as long as 20 years.
As with existing law, the legislation would forbid actions considered detrimental to Russian security. But the legislation, if passed, would remove qualifiers that require such actions to be "hostile" and directed against the "external security" of Russia.
In addition, it would prohibit Russians from passing certain information not only to other countries but also to foreign nongovernment groups.
Many of those groups, which the Kremlin often accuses of fronting for spy agencies, have been among the most vocal critics of the government's curtailment of media and civic freedoms and the consolidation of power under Vladimir Putin, the former Russian president who is now prime minister.
Taken together, critics say, the changes could further muddle what they say are already ambiguous espionage laws and perhaps - at worst - presage a return of the Soviet-era practice of prosecuting government critics as traitors. But it remains unclear whether the bill will pass the Parliament in its current form, and, even then, whether and how the government would employ the rules.
Gennady Gudkov, a former intelligence officer who is a deputy chairman of the security committee in the State Duma, or lower house of Parliament, said some elements of the new legislation were unclear and could be amended when the Duma begins deliberating it, perhaps in January.
Government officials have defended the proposed changes, backed by Putin and his allies in the Russian security services, saying they are needed to clarify and update current laws that have failed to keep pace with the law-dodging ingenuity of modern spies, who, officials say, increasingly work through foreign nongovernment organizations.
The government became especially concerned about such groups because it was suspicious of their ties to the protagonists in the so-called "color revolutions" that toppled Kremlin-friendly governments in Georgia and Ukraine.
The new bill accompanies other legislative changes proposed recently that would appear intended to strengthen the control of the authorities as Russia succumbs to the effects of the global financial crisis.
In particular, some see the maneuvers as part of a strategy by Putin, who was an officer in the KGB and then the director of its successor, the FSB, to expand further the authority of his former security service colleagues, who have come to dominate the government since Putin came to power as president in 2000.
"The secret police de facto captured the government a long time ago," said Lev Ponomaryov, who leads the Moscow group For Human Rights. "Now they want to capture it de jure."
More worrisome, critics say, is that it comes on the heels of legislation, which hinges on the signature of the president, Dmitri Medvedev, that eliminates jury trials in treason cases, handing them instead to judges who are beholden to the government for their jobs.
Even the Public Chamber, which includes many Kremlin-appointed civic leaders, has condemned that measure.
"The legislation is motivated by the interests of the security services, which seek to eliminate the need to investigate criminal cases without legal violations as well as the need to prove the guilt of suspects in a real contest with defense attorneys before courts that involve representatives of the people able to hand down not only guilty verdicts but also acquittals," the group said in a statement last week.
People on both sides of the debate over the latest legislation agree that the old laws on treason and espionage were too vague. But critics say the proposals could further endanger those who run afoul of the security services, including employees of nongovernment organizations, journalists and academics - especially scientists.
Scientists have suffered the brunt of what critics have deemed "spy mania" by the security services in recent years, in good part because their work often involves sharing information with foreign colleagues - something that was intensely regulated in the Soviet era.
"Scientists are not able to communicate with one another, because it is unclear how this contact will be interpreted by investigators," said Anna Stavitskaya, a prominent human rights lawyer who has defended several scientists in recent years.
At least a dozen scientists have been charged with espionage, in cases pursued by the security services since Putin came to power. Prominent academics and human rights groups inside Russia and abroad have accused overzealous officers of fabricating evidence and pressuring judges in many of these cases.
In a rare embarrassment for the security services, investigators were forced last year to dismiss a case against two Siberian physicists, the brothers Igor and Oleg Minin, who were accused by the FSB of revealing state secrets in one of their academic works, even though their manuscript had been cleared by their university as containing no classified materials.
Chyorny, whose human rights group has defended scientists at the European Court of Human Rights, said he feared that the new legislation would make it much more difficult to overcome such accusations.

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In Russia, a religious revival brings new life to Orthodox media
By Sophia Kishkovsky
Sunday, December 21, 2008
MOSCOW: By the time of the Bolshevik Revolution in 1917, there were nearly 600 newspapers and magazines throughout Russia devoted to Orthodox subjects. They were all shut down by the Soviet regime by 1918.
Today, in a country that was officially atheist less than two decades ago, there are again hundreds of newspapers, magazines and newsletters covering the world's largest Orthodox church. There are also as many as 3,500 Russian Orthodox Web sites. Some priests are blogging.
This month, when Patriarch Aleksy II died, nearly an entire day of live television coverage was devoted to the funeral, and days before and after were dedicated to documentaries about his life and talk shows discussing his death.
When Sergei Chapnin, a journalist who edits the Moscow Patriarchate's official newspaper, organized the first Russian Orthodox media festival in 2004, a government bureaucrat called to inquire about the event.
"I could tell he thought we would have 50 people or so attending," said Chapnin about the first festival, which brought together 400 journalists. "I said there are about 500 publications with up to 10,000 journalists connected to them. There was silence at the end of the line."
And the Orthodox media, like the church itself, have not always fallen into step with the Kremlin line. The Moscow Patriarchate and most Orthodox media have addressed the war with Georgia over the breakaway region of South Ossetia as a tragic misunderstanding between two countries that share an Orthodox Christian heritage.
Vladimir Legoyda, the editor of Foma, the most influential of the Orthodox glossies, said that Kommersant, a business newspaper, inundated him with phone calls after the patriarch's death.
"That they came to us and are paying very active attention to this theme, this is a change," he said, but adds: "I want to be a realist. I understand that society doesn't change so easily and maybe so quickly."
The revival of Orthodoxy is reflected both as a trend in the secular media and the main topic of a stable of publications that have appeared to discuss religious faith both with newly devout believers and those who are still finding their way in the church.
After 70 years of state-imposed atheism and 20 years that have run the gamut from glasnost to post-Soviet chaos to a revival of Russian pride, Russians have increasingly embraced their Orthodox roots.
Kommersant was the journalistic training ground for Yulia Danilova, editor in chief of Neskuchny Sad, another Orthodox glossy. It has editorial offices in a church located on the grounds of Moscow's Hospital No.1 and is known for its charity work. A colleague from Kommersant who works with her at the magazine is an ordained Russian Orthodox deacon. Another editor used to work for Moskovsky Komsomolets, a Soviet newspaper turned tabloid, and secular glossies, but moved to Neskuchny Sad when those publications began to conflict with her deepening religious faith.
Foma, Legoyda's magazine, is named after the Apostle Thomas, or "doubting Thomas," who needed to touch Jesus's ribs before believing in his resurrection. A large icon of that scene hangs in the conference room at the magazine's office, which looks like the newsroom of a successful college newspaper.
The magazine has a staff of about 30 and a monthly budget of over $100,000 for all of its expenses and projects, which include a Web site and radio program. It is financed mostly by sponsors, with some money coming from advertising and subscriptions.
Foma is the most successful Orthodox glossy, with a print run of 30,000, but it is small compared to secular publications. Chapnin said his newspaper, Tserkovny Vesnik, or The Church Herald, had a print run of about 20,000, the same as Neskuchny Sad printed in November.
Successful diocesan publications might print about 10,000 while others, in the provinces, average about 3,000.
While the magazines are most easily found in churches and religious literature stores, Foma can be found on many newsstands, next to secular papers.
The Orthodox magazines are supported by advertising, which is weighted towards offers of icons and religious literature. And the financial crisis is taking its toll on Orthodox publications as well, requiring some belt-tightening.
Legoyda is also the chairman of the department of international journalism at Moscow State Institute of International Relations, a training ground for future diplomats.
He began going to church as a student in Moscow in the early 1990s, then, as an exchange student in California, he met punk rockers turned Orthodox monks and helped them put out a magazine called "Death to the World" that used the punk esthetic to talk about Orthodox themes.
Back in Russia, Legoyda started to reach out to young people outside the usual church context. He has published a collection of his articles in a book titled "Do Jeans Stand in the Way of Salvation?"
As Orthodoxy has become more ingrained in Russia, Legoyda said Foma had addressed different levels of religious skepticism.
"We were never didactic," he said. "We always said that we have doubts too. But if before someone might have said they doubt the existence of God, now they don't. Instead they wonder if they should go to church."
The popularity of Orthodoxy has created new problems.
"Today a person easily calls himself Orthodox but doesn't change his life," he said. "Orthodoxy, as any religion, means changing your life."
That has especially become an issue in the coverage of celebrities, both in the Orthodox and secular media and prompted debates about the dangers of "Orthodox glossies" and "Orthodox glamour" and the absurd juxtapositions that often arise when secular glossies touch on Orthodoxy.
Foma often features interviews with celebrities who now speak openly about how important religious faith is in their lives.
Danilova, the editor of Neskuchny Sad, says she worries that glossy Orthodox magazines risk reducing religion to an attractive lifestyle.
"There is a danger that people will organize a very nice Orthodox lifestyle and stop at that," she said. "Bake the right pies, have the right braid like in the old days. But this is avoiding the problems of contemporary life."
Neskuchny Sad features many articles about charity, but also addresses other issues of spiritual and general interest from the point of view of Orthodox theology and practice. Recent issues include stories like "What do angels look like?" and "Should Communists be put on trial?"
Orthodoxy turns up in some of the most unexpected places. Nikolai Uskov, editor of the Russian edition of GQ magazine, has an unusual accent among the magazine covers hanging on his wall: an elaborate medieval-looking certificate of honor from Patriarch Aleksy II given to him for his work as editor of the Catholic section of the Orthodox Encyclopedia. It hangs surrounded by GQ covers featuring Jennifer Aniston and Hugh Jackman.
Uskov was a scholar specializing in the history of Christianity and monasticism in early medieval Western Europe before he switched gears and became editor of GQ. But even a glossy magazine editor in Russia, he said, could not escape Orthodoxy, because it had been embraced by the elite.
"The church has become part of public ritual," he said. "Glamorous people must believe, go to church, have icons and go on pilgrimages to places such as Optina Pustyn and Valaam and tell everyone about this," he said referring to two famous Russian Orthodox monasteries.
But Orthodox glossies feature stories that will never be found in GQ.
"Our No.1 subject is veneration of the 'New Martyrs,"' said Legoyda, referring to victims of Bolshevik and Stalinist terror who died for their Orthodox faith and were canonized by the Russian Orthodox Church in 2000. "Just as in the first three centuries of Christianity, people in this country, in Soviet times, were martyred for Christ, except many more were martyred here."
Foma writes about the martyrs in every issue. "This is our sacred treasure," Legoyda said.

East German church recovers stained-glass windows from Russia
By Judy Dempsey
Sunday, December 21, 2008
FRANKFURT AN DER ODER, Germany: This drab Eastern German city, which was almost completely destroyed during the last days of World War II, boasts the most spectacular medieval stained glass windows that any mayor could dream of showing, especially during Christmas festivities.
The windows have finally been returned to their home in the Marienkirche, or Church of Our Lady, after a more than 60-year exile in Russia. At 20 meters tall, or 65 feet, they depict scenes from the Old Testament in fantastically powerful images and strong colors.
In an unusual gesture, the Russian government returned the last of 117 glass panes to Frankfurt an der Oder last month, ending a long diplomatic effort by both the local and the federal government. "It is a further sign of reconciliation and the friendship between our countries," Bernd Neumann, the German culture minister, said during the ceremony marking the windows' return.
These last few windows, once restored, can now be built back into the restored Marienkirche, from where they had been taken by German curators just before 1945, when the 700-year-old church was destroyed as the Red Army advanced. They were brought for safekeeping to the Neue Palais in Potsdam, where Soviet troops confiscated them as booty.
In contrast to the Marienkirche windows, the vast majority of the 2.3 million cultural items that the Red Army took during its advance through Germany in 1945 still remain in Russia, including paintings and libraries, porcelain and sculptures.
Stalin regarded the confiscated art not only as a way to strip Germany of part of its cultural identity but as the price to pay for the unimaginable devastation committed by the German Army in Russia during the war. The Russian government still uses this argument to retain the vast majority of the art.
"The issue of looted art is often treated in the media as one in which it is the Russians who owe a debt," Vladimir Kotenev, the Russian ambassador to Germany, said at the ceremony to celebrate the Marienkirche windows' return. "It is often carelessly, or intentionally, forgotten that during the raids of the Wehrmacht, many Russian museums were systematically plundered."
In April 1998, the Russian Parliament even passed a law declaring that "cultural valuables translocated to the U.S.S.R. after World War II" were the property of the Russian Federation. The only exceptions was property owned by the Roman Catholic Church, Jews or political victims who had suffered under fascism.
Mayor Martin Patzelt of Frankfurt an der Oder said the past was difficult to overcome.
"Russia's unwillingness to return the art shows just how deeply complicated is the relationship between Germany and Russia, even when it comes to art," he said. "I can understand sometimes why Russia has been so reluctant to return the art. It is about the destruction wrought by German troops in Russia during World War II."
Ever since the late 1940s, successive German governments had been trying to persuade the Russian authorities to return the war booty, which the Germans call Beutekunst, or looted art.
"It was almost impossible to find out what had become of these cultural items," said Britta Kaiser-Schuster, project leader of the German-Russian Museums' Dialogue. This independent foundation, established in 2005 and supported by 80 German museums whose art may be held by Russia museums, works with its Russian counterparts in an attempt to examine the storage depots, identify the works of art held there and improve cooperation.
"The only time Moscow agreed to give back any items to museums in any great number was in 1958, but that was to the museums in East Berlin," Kaiser-Schuster said. "Maybe it was because the Soviet Union supported the East German Communist regime's attempts to create its own cultural identity vis-à-vis West Germany. Who knows the real reason?"
In the case of the Marienkirche's windows, it had been assumed that the 117 stained-glass panes had been destroyed, lost or stolen. Sandra Meinung, who is now responsible for restoring the windows, said that during the 1980s the authorities in Frankfurt an der Oder had made several inquiries with few results.
Then in 1991, as the Soviet Union was collapsing and Germany was reunited, a Russian art historian discovered 111 panels packed away in a storage depot belonging to the Hermitage in St. Petersburg. That discovery triggered extensive diplomatic efforts by the Lutheran community in Frankfurt an der Oder.
But the Kremlin was in no rush to return the panels, or indeed any other cultural items. It was not until 2002 that the first of the 111 panes were returned to the Marienkirche - after the Parliament sanctioned their return. German diplomats said it was a gesture by Russian president at the time, Vladimir Putin, who was making his first official visit to Germany.
The remaining six panes were discovered in Zagorsk, an Orthodox monastery just outside Moscow that is under the jurisdiction of the Pushkin Museum. They have now been brought back, too.
But there is one more twist to the story. Despite the beauty of the windows and how they symbolize the immensely complicated relationship between Russia and Germany, they have failed to generate any real pride in the city's cultural and religious inheritance.
On a recent visit to the church, the glorious stained glass windows were hardly visible. Besides the absence of lighting, it was impossible to appreciate the proportions, the color and the powerful images; a makeshift stage was blocking the view of the windows. The rest of the church was being turned into a Christmas market.
Patzelt, the mayor, said the number of parishioners, 5,600 from a population of 61,000, is dwindling, and besides it would cost enormous sums of money to restore the Marienkirche to its former glory. In a city with high unemployment and hit hard by reunification when much of the old state-run enterprises were closed, there are other priorities. "The church is a now a social-cultural center," Patzelt added.
Even on Christmas, the church will remain dark or dimly lit. Only one religious service a year, an ecumenical one, is held in the Marienkirche, on New Year's Eve. "For the past 50 years, services have been held in another church, because the Marienkirche was in ruins for most of that time," Patzelt said. "The Marienkirche's altar and baptismal font were moved to the nearby Getraudenkirche. It is difficult to change things."
Meinung, the expert who is restoring the windows, seems resigned to this status quo. "It should mean so much to the people of Frankfurt an der Oder to have these windows on display again," she said. "It should encourage a sense of pride and identity."

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Bosnia lacks money to clear mines
By William J. KoleThe Associated Press
Sunday, December 21, 2008
SARAJEVO: Muriz Jukic keeps reliving the day last winter when his tractor hit a land mine, unleashing shrapnel that tore out one of his eyes and left him stumbling and screaming.
"I dream about that flash and I wake up soaked in sweat," said Jukic, 43, who was wounded while gathering firewood near his home in Vitinica, a village in northeastern Bosnia and Herzegovina.
Thirteen years after Bosnia's three-year war ended, mines are still claiming scores of victims. A closer look shows the problem is not that officials do not know where most of the explosives are buried, but they just cannot seem to scrape together enough cash to remove them.
Under an international treaty, Bosnia was supposed to be free of mines by next March. Instead, it has quietly obtained another decade to clear 220,000 remaining mines and other unexploded ordnance that pose a hidden menace to schoolchildren, farmers, hunters, hikers and woodsmen.
The authorities in Bosnia and Herzegovina, the most mine-infested nation in Europe, acknowledge the problem. Take all the former front lines where most of the mines lurk, put them end to end and you would have a belt reaching more than a third of the way around the world.
Since the war ended, mines have inured 1,665 people, including 487 fatalities. This year, 19 people were killed and 18 others hurt.
Eliminating the threat "is not the impossible task we once thought it would be," said Sylvie Brigot, executive director of the International Campaign to Ban Land Mines, based in Geneva. "It's possible to get rid of all these mines, provided there's a plan in place so funding is secured."
But a review of documents and interviews with senior officials coordinating the effort found that Bosnia was raising only about a third of the $50 million a year that Prime Minister Nikola Spiric said his impoverished nation needed to rid itself of mines by 2019.
Unlike many other crisis areas worldwide, where soldiers laid the mines and military records detail where they were buried, Bosnia must also grapple with "guerrilla minefields" where records are more sketchy, said Ahdin Orahovac, deputy director of the national Mine Action Center.
A typical record, he said, might indicate that there were three mines near an apple tree. But when officials scout for the spot, what was an orchard is now a forest, "and all we know is that somewhere there are three mines."
"It's the biggest problem in the world," said Orahovac, pointing to a large map covered with clusters of colored dots. Blue marks places that have been cleared. Red marks areas still mined. And there is a lot of red.
Salih Hadzic is among the people working to find the mines. Wearing a flak vest, a helmet with a protective visor and green cotton pants stained with soil, he sweeps a squawking metal detector over a hillside on the outskirts of Sarajevo.
"I have to concentrate; if I let my mind wander, it could be fatal," said Hadzic, who is forbidden to drink alcohol, goes to bed by 10 p.m. and works in painstakingly slow 30-minute intervals with mandatory breaks.
"But when I go home after work," he said, "I know I've conquered another couple of square yards where children can play and no one's going to get hurt or killed."

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Serb veterans from Kosovo war clash with police
The Associated Press
Sunday, December 21, 2008
BELGRADE, Serbia: About 1,000 Serbian veterans of the Kosovo war clashed Sunday with special police who prevented them from marching to the boundary with the breakaway region.
The ex-Yugoslav army reservists blocked a key regional road for several hours demanding back pay for their service in the 1998-99 war in Kosovo.
Serbian police said that six officers were hurt in the clashes and that four protesters were detained. Protest leader Dejan Milosevic reported ten protesters hurt.
The protesters also said they were seeking the release of two veterans imprisoned for war crimes in Kosovo. And Milosevic said the reservists were angered by the formation of Kosovo's armed forces and the naming of a former rebel fighter as the commander on Saturday.
The war in Kosovo erupted in 1998 when ethnic Albanian separatists launched a rebellion against Serbian rule. NATO bombed Serbia for 78 days in 1999 to stop a crackdown by its troops .
Kosovo declared independence from Serbia in February with Western backing. Serbia has refused to recognize the split even though it has had no control over Kosovo since 1999.

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Ceremonies mark 20th anniversary of Lockerbie disaster
The Associated Press
Sunday, December 21, 2008
LONDON: The Scottish town of Lockerbie on Sunday marked the 20th anniversary of the bombing of Pan Am Flight 103, which killed 270 people.
More than 150 people attended a wreath-laying ceremony Sunday at Dryfesdale Cemetery in Lockerbie, which features a memorial stone for those who died. Two churches in the area held services to coincide with the anniversary of the moment the plane came down, just after 1900 GMT on Dec. 21, 1988. Services were also held at Heathrow Airport near London and at Syracuse University in New York and Arlington National Cemetery near Washington.
All 259 people on board the flight from Heathrow to New York were killed when a bomb exploded while the plane flew over Lockerbie. Eleven people on the ground also died.
A Libyan secret service agent, Abdel Basset Ali al-Megrahi, is the sole person to have been convicted of the bombing, but he has won the right to appeal against his January 2001 conviction by successfully convincing judges that a "miscarriage of justice" may have occurred during his trial.
Megrahi, who is suffering from incurable prostate cancer, is due to have his appeal heard next year.
The Lockerbie bombing drove relations between Libya and the West to a breaking point. But the dynamics of the case have changed since Muammar el-Qaddafi engineered a rapprochement with the West in the dangerous times following the attacks of Sept 11, 2001.
Qaddafi, a self-styled revolutionary leader who once seemed to thrive on confrontation, has renounced terrorism and voluntarily dismantled his clandestine program to develop nuclear weapons.
Britain, the United States and Libya are now publicly committed to working together to contain the threat of international terrorism. Libya has paid billions of dollars to the families of Lockerbie victims and has accepted "general responsibility" for the attack.
U.S. officials, and the families involved, said in November that Libya had made the final compensation payments. Since then, Libya has started restoring diplomatic ties with Britain and the United States and United Nations sanctions on Libya have been lifted.
But if much of the political fallout from the Lockerbie air disaster has been resolved, doubts remain about who was behind the explosion 20 years ago Sunday in the skies above Scotland.
Some of the victims' families are still not convinced that Megrahi, 56, is to blame for the bombing of Pan Am Flight 103. The Reverend John Mosey, whose 19-year-old daughter Helga was killed on the flight, attended all but one week of Megrahi's nine-month trial before deciding the Libyan was probably not responsible.
"I came away from the court 85 percent convinced he did not do it, based on the evidence I heard," said Mosey, from Cumbria, England. "He was convicted on circumstantial evidence and not beyond all reasonable doubt."
Mosey is putting his faith in the appeal set to be heard next year - if Megrahi lives that long. The prisoner is suffering from incurable prostate cancer that has spread to other parts of his body, but his lawyer's bid to free him on humanitarian grounds has failed.
Mosey thinks the bombing may have been carried out by a Palestinian organization backed by Syria and Iran, as many believed in the immediate aftermath. He thinks the focus was shifted to Libya - an archenemy of then-President Ronald Reagan - for political reasons.
"Sadly, I believe there is not the political will to catch the real perpetrators and this terrible case will remain unsolved," he said.
Megrahi was granted a new appeal in June 2007, after his lawyers claimed British and U.S. authorities tampered with evidence, disregarded witness statements and steered investigators away from suggestions the bombing was an Iranian-financed plot carried out by Palestinians to avenge the shooting down of a civilian Iranian airliner by U.S. forces several months earlier.
In a statement summarizing its 800-page report, the Scottish Criminal Cases Review Commission said it had found new evidence that led its members to believe "that the applicant may have suffered a miscarriage of justice."
That view is rejected by almost all of the Americans who lost family members in the explosion, said Kara Weipz of Cherry Hill, New Jersey, whose late brother was on board.
"Most people absolutely, unequivocally believe it was al-Megrahi," said Weipz, president of the Victims of Pan Am Flight 103 group. "His guilt was never in doubt."
The Palestinian groups suspected of being involved have steadfastly denied any link to the plot.

**************

New "Chemical Ali" trial begins
Reuters
Sunday, December 21, 2008
HALABJA, Iraq: Hundreds of Iraqi minority Kurds demanded on Sunday the execution of a Saddam-era official known as 'Chemical Ali' for the killing of 5,000 Kurds in a 1988 gas attack.
Ali Hassan al-Majeed, a Sunni Arab who was Saddam's cousin and a member of his inner circle, has already been sentenced to death twice, once in 2007 for his role in killing tens of thousands of Kurds in Saddam's military 'Anfal' campaign.
Majeed and three other high-ranking officials accused of mounting attacks on civilians appeared at Iraq's High Tribunal at the opening of a trial for the March 1988 attack.
Prosecutors described how relatives of 483 plaintiffs were gassed to death in the Kurdish border town of Halabja.
Majeed's second death sentence came this month for his part in crushing a Shi'ite revolt after the 1991 Gulf War.
Disputes within the Shi'ite-led government of Prime Minister Nuri al-Maliki, however, have so far stalled Majeed's execution.
In Halabja, more than 200 km (120 miles) northeast of Baghdad, hundreds of Kurds waved banners and shouted for Majeed and his fellow defendants to be executed.
"We ask the court to execute Chemical Ali and to heal the wounds he caused by gassing our beloved," said Shereen Hassan, a Halabja housewife who took part in the protest.
"I will never rest until I see him hanged," said Peshtwan Qader.
At the time of the massacre, Iraq had been at war with Iran for almost eight years, and Saddam's government alleged Halabja residents were aiding Kurdish militants and siding with Iran.
Fouad Saleh, the town's mayor, urged the Iraqi government to pay victims' families compensation.
Majeed's Halabja trial will be headed by Judge Mohammed al-Uraibi, a Shi'ite jurist who also headed Majeed's first two trials, a court spokesman said.
Also charged in the case are Sultan Hashem, a former defence minister, and two intelligence officers. All the defendants are already facing life sentences or execution.
Majeed has been held in a U.S. detention centre but is due like thousands of other detainees to be handed over to the Iraqi government under a security pact taking effect on January 1. U.S. military officials in Baghdad on Sunday could not immediately confirm whether Majeed was still in their custody.
(Reporting by Sherko Raouf in Halabja and Ahmed Rasheed in Baghdad; Writing by Missy Ryan; Editing by Michael Christie)

Philip Seymour Hoffman: Called to serve on stage and screen
By Lynn Hirschberg
Sunday, December 21, 2008
When he was 12 years old, Philip Seymour Hoffman saw a local production of "All My Sons" near his home in Rochester, New York, and it was, for him, one of those rare, life-altering events where, at an impressionable age, you catch a glimpse of another reality, a world that you never imagined possible.
"I literally thought, I can't believe this exists," Hoffman told me on a gray day in London early in the fall. He was sitting in the fifth row of the audience at Trafalgar Studios in the West End, where he was directing "Riflemind" (a play about an '80s rock band that may or may not reunite after 20 years), dressed in long brown cargo shorts, a stretched-out polo shirt and Converse sneakers without socks. His blond hair, still damp from showering, was standing in soft peaks on his head.
At times, especially when he is in or around or anywhere near a theater, Hoffman, who is 41, can seem like an eager college student - bounding from seat to stage to give direction, laughing at an in-joke regarding a prop that keeps disappearing - but when the conversation shifts to a discussion of his acting in movies like "Capote," for which he deservedly won every award that's been invented, or "Doubt," out this month, he seems to turn inward and ages markedly.
"The drama nerd comes out in me when I'm in a theater," he explained now, as the actors rehearsed. "When I saw 'All My Sons,' I was changed - permanently changed - by that experience. It was like a miracle to me. But that deep kind of love comes at a price: For me, acting is torturous, and it's torturous because you know it's a beautiful thing. I was young once, and I said, That's beautiful and I want that. Wanting it is easy, but trying to be great - well, that's absolutely torturous."
Hoffman turned his attention to the stage, where two actors were rehearsing a sex scene. He jumped out of his seat and ran to the stage. He proceeded to correct the scene. He bent the actress back over a couch and metamorphosed into a desperate character, the former manager of the band, driven by the hope of sudden riches and his lust for the guitar player's wife. He played just enough of the scene and, then, he switched back to being Phil, the regular guy in the baggy shorts. It was stunning.
"I don't know how he does it," Mike Nichols, who has directed Hoffman on the stage ("The Seagull") and in movies ("Charlie Wilson's War"), told me later. "Again and again, he can truly become someone I've not seen before but can still instantly recognize. Sometimes Phil loses some weight, and he may dye his hair but, really, it's just the same Phil, and yet, he's never the same person from part to part. Last year, he did three films - 'The Savages,' 'Charlie Wilson's War' and 'Before the Devil Knows You're Dead' - and in each one he was a distinct and entirely different human.
"It's that humanity that is so striking - when you watch Phil work, his entire constitution seems to change. He may look like Phil, but there's something different in his eyes. And that means he's reconstituted himself from within, willfully rearranging his molecules to become another human being."
From his first roles in movies like "Scent of a Woman," in which he played a villainous prep-school student, to the lovesick Scotty J. in "Boogie Nights," to the passionate and ornery rock critic Lester Bangs in "Almost Famous," Hoffman has imbued all his characters with a combination of the familiar and the unique. It's not easy; it's the sort of acting that requires enormous range, as well as a kind of stubborn determination and a profound lack of vanity.
Hoffman works a lot - he's a very active co-artistic director of the LAByrinth Theater Company, a multicultural collective in New York that specializes in new American plays. LAB mounted five productions last year, thanks in large part to Hoffman's diligent involvement with every aspect of the process, from fund-raising to directing to acting.
In his 17-year-long career, Hoffman has also made more than 40 films, including "Doubt," for which he has been nominated for a Golden Globe as best supporting actor, and "Synecdoche, New York," which was also released this year. He has a movie coming out next spring, "The Boat That Rocked," in which he plays a D.J., and he lent his voice to "Mary and Max," which has just been chosen to open the Sundance Film Festival.
In "Doubt," which was originally a play, Hoffman is a Catholic priest who may or may not have been inappropriate with a young male student. He is suspected and accused by the principal of the parish school, a nun named Sister Aloysius, played by Meryl Streep.
As usual Hoffman struggled with the character. "On every film, you'll have nights where you wake up at 2 in the morning and think, I'm awful in this," he said while the cast of "Riflemind" took a break between the first act and the second. "You see how delicate it is - a little movement to the right or the left, and you're hopelessly hokey."
The film revolves around the question of the priest's culpability, but that is not what mattered to Hoffman. Hoffman plays the priest as a reformer, a man interested in a more philosophical and tolerant approach to religion. Since playing the role, he has been asked repeatedly if Flynn "did it." He won't answer.
"I wouldn't ever say whether the priest is innocent or guilty because I saw 'Doubt' as being about something larger," Hoffman said. "What's so essential about this movie is our desire to be certain about something and say, This is what I believe is right, wrong, black, white. That's it. To feel confident that you can wake up and live your day and be proud instead of living in what's really true, which is the whole mess that the world is. The world is hard, and John is saying that being a human on this earth is a complicated, messy thing."
We met over lunch the next day at a hotel called One Aldwych, which was near the theater. He was wearing khaki pants and a windbreaker, and he was carrying a worn paperback copy of "Othello." He will portray Iago in a new production of the play next year, directed by the avant-garde theater and opera director Peter Sellars. Othello will be played by John Ortiz, Hoffman's friend and a founding member of LAB, which will be affiliated with the production.
When you sit across from him, it is difficult to imagine Hoffman playing anyone as angry and diabolical as Iago. With his pale, lightly freckled skin, blue eyes and solid build, he looks more like an avuncular scholar than a military man (or a priest or ...). His demeanor and appearance are so fundamentally regular that it seems impossible that he has played such a vast array of anything-but-regular characters.
And Hoffman is adept at getting beyond the merely physical embodiment of a role. In his work, Hoffman is willing to be ugly, pimpled, sexually scarred, miserably unhappy, fleshy and naked. He is never hesitant to reveal the soft underbelly - the insecurities, the (perhaps humiliating) desires, the longing.
"I'm much more vain in my life than I am when I'm working," he said as the food arrived. "I wish I looked different as Phil walking around or Phil waking up. I'm going to be 41, and I'll go to the bathroom and get a good glimpse of myself in the mirror, and I'm like, What happened? All youth has left me for good. That fear that makes people crazy will strike me at those moments. But when I'm working, I'm grateful for the way I look. I'm grateful for the fact that I have a body with which I can do what I need to do and I can come off as ... anybody."
The son of a Xerox employee and a lawyer ("My mother is crazy about my career - she goes to the festivals and comes to the play readings"), Hoffman was the second youngest of four kids. He was raised Catholic.
In 1984, when he was nearly 17, Hoffman auditioned and was chosen to attend the New York State Summer School of the Arts, a highly selective program in Saratoga Springs. There, he and Bennett Miller, who directed Hoffman in "Capote," became great friends. Later they were both accepted to New York University.
In 1991, when Hoffman was 24, he was cast in the Al Pacino film "Scent of a Woman" as the prep-school student who betrays his classmate, the lead character. "That's when I first noticed Phil," Nichols said. "He summed up all the ways those boarding-school bullies were scary. There is something deeply ethical about Phil as an actor that was apparent even then - he has the integrity and commitment to represent his characters without any judgment."
Paul Thomas Anderson also admired Hoffman's performance in "Scent of a Woman." He then wrote a part for Hoffman in "Boogie Nights" and, later, in "Magnolia" and cast him in "Punch-Drunk Love." Those supporting roles - a repressed film-crew member in love with a porn star, a saintly hospice nurse, a menacing proprietor of a phone-sex operation - became part of Hoffman's collection of precisely drawn, scene-stealing characters.
"I remember seeing Philip in 'The Talented Mr. Ripley,"' Streep told me. "He played a rich, spoiled snob, and I sat up straight in my seat and said, 'Who is that?' I thought to myself: My God, this actor is fearless. He's done what we all strive for - he's given this awful character the respect he deserves, and he's made him fascinating."
Hoffman's role in "Mr. Ripley" was Freddie Miles, a close friend of the golden-boy protagonist, whom Hoffman played as a somewhat boorish, future captain of industry living in a constant state of plush pleasure.
Unlike Freddie, however, most of Hoffman's characters have been profoundly vulnerable, often disenfranchised misfits. In Todd Solondz's "Happiness," for example, he played Allen, an insecure man who masturbates while making obscene phone calls.
"Around 2004," Bennett Miller said, "Phil was where Truman Capote was in his life before he wrote 'In Cold Blood.' He was respected by everyone, but he hadn't fulfilled his true potential on film."
Capote was a dramatic departure for Hoffman. Not only is he in nearly every frame of the movie, but the man was entirely contradictory - he was charismatic but an outsider; always watchful but loved a party; inordinately talented but competitive to a fault. Capote was seductive, manipulative, insecure, dishonest and ruthless. It intrigued Hoffman that Capote was very successful but a bit lost and, like him, wasn't sure which path to take. Strangely, "Capote" was Hoffman's "In Cold Blood," the project that changed everything.
"Playing Capote took a lot of concentration," Hoffman said now. "I prepared for four and a half months. ... The part required me to be a little unbalanced, and that wasn't really good for my mental health. It was also a technically difficult part. Because I was holding my body in a way it doesn't want to be held and because I was speaking in a voice that my vocal cords did not want to do, I had to stay in character all day. Otherwise, I would give my body the chance to bail on me."
Three months after Hoffman returned from London, on a freezing Friday night in early December, he was standing in front of the Public Theater in the East Village of Manhattan smoking a cigarette. He was there to see an early staging of "Philip Roth in Khartoum," a new play by David Bar Katz that LAByrinth is producing.
In September, "Riflemind" had opened in London to stinging reviews, even if Hoffman's direction was noted with less vitriol. He then returned to New York, where he lives downtown with Mimi O'Donnell and their son, Cooper, and daughter, Tallulah, in time for the birth of their third child - a girl named Willa - in late October. "It's three kids now and I'm very tired," Hoffman said. "I'm a little lost in my brain."
Hoffman has always been attracted to the idea of an artistic community, particularly in the theater, which is part of why he is so attached to LAB. He met Mimi, a costume designer who has recently begun directing, at LAB ("I hired her," Hoffman joked), and the company members are some of his closest friends.
There are few other Academy Award-winning actors who have devoted themselves to the full-time running of a theater company. "It sounds noble, but it's really not," Hoffman said. "I do this because it gives me a home, a place where I can come and work. The movies are great, but they require a different kind of concentration, and then they're over. Theater was my first love, and it's been the biggest influence on my life. The theater is why I got into acting and why I'm still in acting."
Let's hope that Hoffman doesn't give up his film career. "I heard that (Clint) Eastwood is saying that this will be his last film as an actor," Hoffman said. "There's part of me that feels that way during almost every movie. On 'Synecdoche,' I paid a price. I went to the office and punched my card in, and I thought about a lot of things, and some of them involved losing myself. You try to be artful for the film, but it's hard. I'd finish a scene, walk right off the set, go in the bathroom, close the door and just take some breaths to regain my composure. In the end, I'm grateful to feel something so deeply, and I'm also grateful that it's over." He smiled. "And that's my life."
Lynn Hirschberg is editor at large for The New York Times Magazine.

In the face of loss, celebrating ties that bind
By A. O. Scott
Sunday, December 21, 2008
A year ago the big crisis in the film world — which always has to be in some crisis or another — was a glut of movies. Last December my colleagues and I feared we would crack under the strain of winnowing more than 600 releases into lists of 10. Filmmakers and studio executives, meanwhile, worried that so many pictures crowding into theaters would overwhelm the audience and cripple the business.
Now, at the end of 2008, all signs point to a future of scarcity, a bleak and blighted landscape that has already begun to materialize around us. There are fewer companies putting out movies and fewer salaried critics writing about those movies than there were a year ago, and the attrition is sure to continue. But there are not, or not yet, fewer movies demanding attention. This year new films arrived on New York screens at the rate of more than 50 per month. By Dec. 31 the annual tally of film reviews published in The New York Times will once again exceed 600.
The problem, though, is not a surfeit of movies. Honestly, how could there be too many movies? The problem is that too many of them are the wrong movies. The box office may have remained robust, but all year the enterprise of moviemaking and the practice of movie watching have been shadowed by fatigue and irrelevance. This was not entirely the fault of the Hollywood studios and their somewhat beleaguered specialty divisions, which continue to exert a near-monopolistic hold on what is shown in American multiplexes and art houses. It was awfully hard for any scripted spectacle to compete with an election that was at once a hugely consequential political event and a nonstop media bonanza. And no blockbuster could match the slow-motion, real-life disaster epic of a collapsing economy, a horror show that has kept most of us queasy, riveted and in a perpetual state of anxious suspense.
Such unexpected competition from real life, however, serves only to emphasize the shortcomings of mainstream moviemaking, which runs more and more on caution, complacency and the willingness to turn any fresh idea into a marketing formula. I'm not thinking only, or primarily, of the puerile comedies and comic book spectaculars of summer, but rather of the somber and polished dramas that arrive in the waning weeks of the year as a stimulus package for Oscar-campaign publicists.
"Doubt," "The Reader," "Frost/Nixon," "Revolutionary Road" — all of these transplants from stage or page are impeccably acted, exquisitely production-designed excursions into the recent past. And each one is a hermetically sealed melodrama of received thinking, feverishly advancing a set of themes that are the very opposite of provocative. The suburbs are hell on earth. Richard Nixon was a monster. Literature is good for you. Religious authority is bad. The Nazis too. Kate Winslet is hot.
Why argue? And, for all the shouting and finger pointing that goes on in these films, they exist to be admired, not argued about or with. The interesting movie debates of 2008 were incited by the populist entertainments of summertime, "Wall-E" and "The Dark Knight," contrasting allegories pitched at the anxieties of the moment. Curiously enough, the makers of "Wall-E" took it upon themselves to deny that the film was a parable of environmental devastation as well as a disarmingly sweet love story, while some who commented on "The Dark Knight" pushed the allegorical interpretation as far as it would go, reading the film as a cloaked apologia for — unless it was a veiled critique of — President George W. Bush and his policies.
That was perhaps a bit much, but "The Dark Knight" did bring some of the central preoccupations of Bush-era filmmaking to a grim, lustrous apotheosis. For most of the past seven years the actual, political contours of the post-9/11 world have been left mainly to documentarians, while the realm of pop-culture fantasy has bloomed with poisonous flowers of grief, vengeance and dread. Christopher Nolan's second exploration of the Batman mythos was a cartoon opera of good and evil, solemn enough to seem important, but vague enough to avoid the risk of overt topicality.
Its glum, masochistic exploration of terror and vigilantism was artful, but also seemed strategically incoherent, its central moral question — what kind of hero do we need? — posed with more grandiosity than insight. And by year's end the central standoff between a mournful, angry avenger and a figure of pure anarchic malice has taken on the fusty air of cliché. In due course Max Payne and the Punisher came to collect their brutal payback, joining a vigilante army that even managed to conscript poor James Bond, once the avatar of puckish, British political heroism.
But at least he survived, and may recover his sense of humor in time for Bond 23. That makes him one of the lucky few, since the only theme more pervasive than vengeance this year was martyrdom. I would spoil the whole month of December if I listed the movies that end with the main character's embrace of death, frequently in an uncompromising, implicitly self-aggrandizing act of sacrifice.
But somehow all this messianism and overblown superheroism rings false, both within individual films and out here in the rumpled, stressed-out, hopeful, uneasy world where movies live. Who will save us? Whom should we kill? These don't strike me as the most useful questions right now, and they are generally not the kind posed by the films I found most challenging and interesting this year, which in general were less concerned with moral abstractions than with ethical predicaments.
Consider Mike Leigh's "Happy-Go-Lucky" and Kelly Reichardt's "Wendy and Lucy," each one about a woman making her way in an indifferent and sometimes hostile world. Poppy and Wendy are mirror images (Wendy being decidedly unhappy and unlucky), difficult people who challenge the people around them, and the audience, to care. And while neither film has an overtly political message, each implicitly challenges us to think about what how the world as presently organized constrains and limits our impulses toward compassion, generosity and fellow feeling.
These impulses are easily sentimentalized of course. And while I am suspicious of easy affirmation or forced happy endings, I am nonetheless grateful for movies that, in spite of everything, investigate the possibility of hope. The 10 movies listed below are not all expressions of optimism, but they are all about the obligations, responsibilities and accidents that bind people together, within and across formally constituted families and communities. And they are also about the refusal to give up, to give in to darkness or despair. These are movies, as Harvey Milk might put it, about various kinds of "us-es" — about how fragile such connections can be and about how necessary they are. In the year to come we will need more movies like them.
WALL-E The visual sublimity of Andrew Stanton's latest Pixar masterpiece is matched by a depth and sweetness of feeling not seen since the heyday of Charlie Chaplin. I don't know why it seems so fitting that the year's most humane hero should be a robot, or that its most tender love story should involve a romance between two soulful machines.
SILENT LIGHT Another otherwordly love story, this one set in a Mennonite settlement in Mexico. The director, Carlos Reygadas, photographs people and landscapes with a devotion as deep as the spiritual conviction that is his subject. Rarely has a film depicted religious experience with such power and clarity, bringing the audience uncannily, exaltingly close to a state of holiness.
THE SECRET OF THE GRAIN Abdellatif Kechiche's long, warm, bustling couscous epic, set among mainly second-generation North African immigrants in a sagging French port city, is both the best family drama in a year filled with them and the best of a dazzling and diverse crop of French movies released in America in 2008.
MAN ON WIRE Part true-crime story, part elegy, James Marsh's documentary about Philippe Petit's 1974 tightrope dance between the towers of the World Trade Center is like found poetry: beautiful, charming and hauntingly strange.
THE EDGE OF HEAVEN Fatih Akin, a German director of Turkish descent, explores the complicated links between his two homelands in this knotty, moving drama of converging destinies and chance encounters.
HAPPY-GO-LUCKY As Poppy, Sally Hawkins is like a flesh-and-blood, female Wall-E: hard-working, steadfast, compulsive, perhaps slightly annoying and capable, by dint of sheer decency and determination, of saving humanity from its worst impulses.
WENDY AND LUCY This tiny sliver of a story — a girl, traveling to Alaska with her dog, runs into trouble somewhere in Oregon — is heartbreaking and resonant, an intimation of hard times coming and a sad, sober assessment of just how alone each of us may be in facing them.
MILK In Gus Van Sant's accessible, intelligent biography, Harvey Milk, the San Francisco gay rights activist and city supervisor assassinated along with the city's mayor in 1978, is not a martyr or a saint, but rather an excitable, passionate champion of dignity and freedom. Let "Che" fight it out with "W" for a distant second place. This is the best political film of the year.
RACHEL GETTING MARRIED The addiction story may feel a little familiar, but Jonathan Demme's sprawling family-therapy wedding blowout is bracing for the window it offers into a mixed-up, multi-everything America that has existed, up to now, just about everywhere except in our movies and our politics.
CADILLAC RECORDS Joy and pain; rhythm and blues; blacks and Jews. Darnell Martin's group portrait of the Chess Record label is a smart and insightful history lesson, and you can dance to it too.

BOOK REVIEW

Book Reviews: "Songs for the Missing"
Reviewed by Erica Wagner
Sunday, December 21, 2008

Songs for the Missing By Stewart O'Nan 287 pages. Viking. $25.95.
We call it ordinary life. It's low down on the news agenda, for the most part; but hidden on the inside pages of a newspaper there are always, somewhere, single paragraphs that hint at the dread and wonder from which we are built. A house fire, a car accident, a death accidental or intentional. Our eyes pass over the words in an instant; but for those whom the words actually touch, the world shifts forever on its axis.
Over the course of 11 previous works of fiction, Stewart O'Nan has lent the quiet grace of his writing to these lives. "Songs for the Missing" begins in the summer of 2005, with Kim, a small-town Ohio girl, who's just finished her last year of high school and is working a summer job and hanging out with her friends before leaving for college and a whole new start. Kim helps her 15-year-old sister, Lindsay, learn to drive; later, she's pulled over for speeding as she goes to meet her boyfriend, J.P., and they hang out by the river before she heads off to get ready for her afternoon shift at the Conoco. But she doesn't show up for work; in the morning her room hasn't been slept in. She vanishes, it would seem, from the face of the earth. That's Chapter 1. The rest of the novel's generous, thoughtful narrative traces the impact of her disappearance on her family, her friends, her community. This is a novel about loss and healing; a novel that acknowledges the depth of loss and the limits of healing.
Kim's dad, Ed Larsen, sells real estate in a market going down the tubes. Her mother, Fran, works at the local hospital. There's Lindsay and their dog, Cooper. None of them, of course, could have anticipated an event like Kim's disappearance, and part of O'Nan's skill is the way in which he makes circumstances that might otherwise seem predictable (that the police are interested in the case but never quite interested enough, that Lindsay both longs for and resents her vanished sister) feel as unpredictable as if they were happening, in real time, to the reader. This is where fiction like O'Nan's trumps those brief paragraphs of journalistic "reality." The Larsens' shattered universe lives and breathes.
You could call this novel many things. You could call it a mystery. You could call it a thriller. You could even call it a self-help book, for reading it slowly and carefully causes one to consider love and sorrow in a much larger context than simply that of this well-paced tale. O'Nan has a remarkable ability to pinpoint the ways in which hope and suffering are intertwined - and he does this while shifting easily between the viewpoints of his characters, so smoothly that the joints are invisible, yet so clearly that the reader is never lost. Each voice is distinct, and distinctly alive.
Sadness can throw up walls around those who feel it; but O'Nan opens doors to that sorrow. Not only to sadness, but to strange, frightening glimmers of contentment too. When Kim has been gone for more than a year, Ed and Fran go fishing together; fishing is Ed's inner temple, while Fran's has been devoting herself to the search for Kim, updating the Web site, getting nationwide coverage of her daughter's disappearance. The scene when the two of them leave together at dawn to sit in a small boat on the lake in the fog, trying, mostly unsuccessfully, to catch bass, is one of minor redemption. Such moments are rarely noticed in our lives, and they don't have the power to heal any great ills. And yet they have power, all the same

Australian Navy, doctors complete complex rescue of Vendee Globe sailor
The Associated Press
Sunday, December 21, 2008
PERTH, Australia : The Australian Navy and medical officials say the rescue of a French sailor in a round-the-world race was one of the most physically demanding they had ever completed.
French yachtsman Yann Elies was rescued Saturday from his boat 1,200 kilometers (750 miles) south of Perth after breaking his left thighbone during the Vendee Globe round-the-world race on Thursday.
Elies had not had any pain relief for 48 hours until Royal Flying Doctor Service (RFDS) doctor David McIlroy and officers from HMAS Arunta boarded his yacht on Saturday.
RFDS medical director Stephen Langford said Sunday that McIlroy had described the rescue as "probably the most exciting but also most physically demanding rescue he's ever done."
"The thing that's different to this rescue compared to (the rescues of racing sailors) Isabelle Autissier and Tony Bullimore and those guys is that they were effectively ... fully-abled sailors who were being rescued from vessels that had broken," Langford said.
"Whereas in this case you're actually trying to take someone off who is ... seriously injured and are unable to help clamber off the boat themselves and that made it all the more difficult."
British sailor Bullimore was rescued in 1997 and French yachtswoman Autissier in 1999 in two Australian Navy missions in the South Pacific Ocean during round-the-world races.
The Vendee Globe Web site said Elies was diagnosed with a fractured left femur and several broken ribs.
"In those sorts of conditions, really cramped, the boat banging around and he was trying to put in an anesthetic block to block the nerves in the yachtsman's leg to take away some of the pain, and then put some IV fluids in and some other pain relief," Langford said.
"They ... managed to splint his leg and get him in to a rescue stretcher and then had to transfer that stretcher across from the yacht to the inflatable boats with lines on each end. That's a difficult sort of thing."
Local media reported that the Arunta was due to dock in Fremantle south of Perth on Monday.
Fellow competitor Marc Guillemot had changed his course to assist Elies, sailing past his stern to hurl water and medicine aboard his yacht on Friday. Guillemot stayed nearby until the rescue ship arrived.
"It was like a dream. It didn't seem real," Guillemot said. "They took care of that magnificently."
Sam Davies, skippering Roxy, had also left the race to assist Generali, but both he and Guillemot will now resume the competition.
The Vendee, a single-handed race for men and women without any stopovers, set off from Les Sables d'Olonne on Nov. 9.
Thirty Open 60 race boats - high-tech carbon-fiber yachts built to be fast yet tough - began the race, but more than a third of the fleet has been forced to retire less than halfway into the race.
The Vendee takes the fleet around the three great capes - the Cape of Good Hope, Cape Leeuwin and Cape Horn - marking the southern tips of Africa, Australia and South America.

Americans moving around less
By Sam Roberts
Sunday, December 21, 2008
Only about one in 10 Americans moved in the last year - roughly half the proportion that changed residences as recently as four decades ago, census data show.
The monthly Current Population Survey found that fewer than 12 percent of Americans moved since 2007, a decline of nearly a full percentage point compared with the year before. In the 1950s and 1960s, the number of movers hovered near 20 percent.
The number has been declining steadily, and 12 percent is the lowest rate since the Census Bureau began counting people who move in 1940.
An analysis by the Pew Research Center attributes the decline to a number of factors, including the aging of the population (older people are less likely to change residences) and an increase in two-career couples.
The Pew analysis is drawn from census data and a survey, which found that 63 percent of Americans said they had moved to another community at least once in their lives, while 37 percent said they lived in the community where they were born.
According to the census' American Community Survey, New York retained first place in the proportion of residents who were born in the state - more than 81 percent - with those from outside the New York City area generally less mobile.
The top five also included Louisiana, Pennsylvania, Michigan and Ohio, generally Rust Belt states with older populations.
In contrast, fewer than 14 percent of Nevadans and 28 percent of Arizonans were born in those states.
Measuring the percentage of people born in a state who still live there, Texas ranked first, with nearly 76 percent.
Alaska recorded the smallest share of people born in the state and still living there, 28 percent, followed by Wyoming, the Dakotas and Montana.
The telephone survey of 2,260 adults in October found that 57 percent had never moved outside their home state, while 15 percent had lived in four or more states.
About 23 percent say their current home is not where their heart is - typically because they were born someplace else, where they lived longer or their family still resides. About half who identify home as someplace else want to stay put; 40 percent say they would like to return.
Most people who do not move are kept close to home by family ties, the survey found, while most who do move are drawn by better jobs.
The Pew survey found that among all foreign-born adults, including recent arrivals, 38 percent describe home as their country of birth.
Among those who have lived in the United States 20 years or more, 76 percent describe the country as home.

Amsterdam's gay Christmas features Mary in drag
The Associated Press
Sunday, December 21, 2008
AMSTERDAM: This city played host Sunday to a Christmas celebration for its gay community that featured a Nativity tableau with a man in drag playing the part of Mary.
Frank van Dalen, chairman of the advocacy group Pro Gay that organized the event, known as Pink Christmas, said that it sought to raise Amsterdam's profile as a capital for gays.
Van Dalen said the event cost €15,000, or $20,800, and that it had been sponsored by the City Council. He added that he hoped it would become a regular attraction, as is the gay pride parade that brings tens of thousands of visitors to Amsterdam each year.
"Our objective is not to be offensive," he said. "This is about visibility."
Nevertheless, Christians for Truth, an independent religious group, asked the City Council to cancel the event, saying it made a mockery of Christian tenets. "By portraying Joseph and Mary as homosexuals, a twisted human fantasy is being added to the history of the Bible," the group said in a statement.
The Amsterdam City Council did not comment.
Van Dalen cited a report released last month that said homophobia was an ingrained problem in Amsterdam, despite the city's freewheeling reputation. The study, conducted by the University of Amsterdam, reported 67 violent attacks against gays in 2007.
A man who performs under the name of Wendy Mills wore a blonde wig and high-heel black boots Sunday to play the part of Mary, while the actor playing Joseph wore black leather trunks and a silver shawl. The five-person manger scene was staged in the courtyard of a nightclub and visitors were invited to be photographed with the group.Motion against Proposition 8
In a sharp rebuke to supporters of a contested state ballot measure that banned same-sex marriage, the California attorney general has filed a legal opinion with the State Supreme Court arguing that the measure is constitutionally indefensible and should be overturned.
The attorney general, Jerry Brown, had previously hinted of his opposition to the measure, Proposition 8, but made his legal opinion concrete Friday in a brief to the court, which is reviewing the measure.

ALL PHOTOGRAPHS COPYRIGHT IAN WALTHEW 2008

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