Daschle In Distress
Posted 12/23/2005
Security: Ex-Senate leader Tom Daschle now claims Congress never intended to let President Bush look for terrorists here, only in Afghanistan. The World Trade Center was in New York, senator, not Kabul.
On Sept. 14, 2001, as the ruins of the Trade Center still smoldered, the Senate passed a resolution authorizing the president "to use all necessary and appropriate force against those nations, organizations or persons he determines planned, authorized, committed or aided" the Sept. 11 attack on America.
Al-Qaida is one of those organizations, and a prerequisite for using "force" against it is to gather intelligence on it and its activities. Presidential authorizations have been limited to international e-mails and phone calls of those suspected of having contacts with foreign terrorists.
Yet here comes Daschle to claim in the pages of The Washington Post to assert that Congress intended that these powers be used only overseas "where we all understood he wanted authority to act," but not here, where the terrorists planned and executed their atrocity. Come again?
Daschle says that those "who voted in favor of the authorization of force against al-Qaida did not believe they were also voting for warrantless domestic surveillance," despite the history of presidents claiming this authority at least as far back as Jimmy Carter and including Bill Clinton.
Perhaps Daschle should go back and reread the 9-11 commission report. In 1999, the National Security Agency intercepted communications between a man named "Khalid" and a man named "Nawaf." Their conversations indicated "something nefarious might be afoot," according to the report. But in the pre-9-11 world, the NSA did not pursue the matter.
The 9-11 commission concluded that if the NSA had pursued the matter, it would have been able to identify the two men as Nawaf Alhamzi and Khalid Alihdar and track their movements from Asia to the U.S. where they were among the five who hijacked American Airlines Flight 77 and flew it into the Pentagon.
The good senator apparently does not grasp the idea that al-Qaida was and is present in the U.S. It is here, not there, that they did us harm and wish to do us more harm.
But for the grace of God and the courage of the passengers who derailed plans to fly another plane into the Capitol Building, Tom Daschle and much of Congress might not be around to protest the administration's attempt to collect the dots before they connect them.
Daschle and the other civil libertarians were not outraged when the Clintons didn't need the Patriot Act to ship 1,100 confidential FBI files over to the White House. Or when the Clintons repeatedly used the IRS as a political weapon to audit the returns of Clinton accusers Billy Dale, Gennifer Flowers, Elizabeth Ward Gracen and Juanita Broaddrick.
Paula Jones' returns were audited and leaked to the media, where they were dissected in detail. What happened to the privacy rights of Maryland Lt. Gov. Michael Steele, whose private and confidential credit report was obtained by staffers on the Democratic Senatorial Campaign Committee?
More recently The New York Times carried a major expose on child molesters who used the Internet to lure their victims. In the story, the Times said it had obtained copies of online conversations and e-mails between the minors and the adult predators involved.
Apparently domestic spying is OK when it involves Democrats attacking their political enemies or investigating innocent-until-proven guilty sexual predators. (WALK OFF HOME RUN)
Shame on the federal government for using similar tools to keep us alive and free.
Saturday, December 24, 2005
Leadership Lesson
Posted 12/23/2005
Politics: For a time, it seemed that 2005 might go down as the year that broke this presidency. But it ends with George W. Bush playing offense and rising in the polls. Was he "misunderestimated" once again?
The coming year will answer that question, especially when the people elect a new Congress in November. But it's already clear that Bush is not going to make things easy for his enemies in politics and the media. Bush the campaigner, the one who wins elections, is back.
And this is the real George W. Bush, to judge from all that we know of him. Feisty and plain-spoken, he's a leader in the mold of Teddy Roosevelt and Harry Truman. But for much of the year, he was nowhere to be seen or heard.
The public got — and didn't much like — a would-be statesman Bush who disdained polls, sought bipartisan cooperation when none was being offered, spoke little to the people or the press and seemed to spend too much time at the ranch.
He also seemed to believe, mistakenly, that the facts would speak for themselves on issues such as the economy and Iraq. But those who choose the facts that most Americans get to see and hear were not on his side.
As reported, Iraq was another Vietnam. In reality, it was progressing toward democracy and slowly pushing the insurgency toward the political margins. As reported, the economy was sickly. In reality, it was the envy of the world.
Bush's detachment also did him no favors when Hurricane Katrina hit and all levels of government, from local to federal, were caught flat-footed. True to form, the media trained its spotlight almost wholly on the failures of the feds.
No wonder most Americans were telling pollsters a couple of months ago they had soured on the Bush presidency. If we can pinpoint a political bottom, it was probably the failed nomination of Harriet Miers to the Supreme Court.
Miers might have been a good justice; since she never had a hearing, we'll probably never know. But by nominating a political confidante with virtually no public record on legal issues, Bush signaled that he had no stomach for a political battle and little hope that he would win one with a candidate of known conservative views. Among the few who had nice things to say about Miers was the top Senate Democrat, Harry Reid. That was another bad sign.
Early in November, just after that nomination was withdrawn, former Democratic Sen. Tom Daschle said the Bush president was "essentially over." (Daschle, who had Reid's job until he was booted out of office in 2004, knows something about political oblivion.)
By this time, he and other Democrats were salivating over the prospect of winning back both houses of Congress in 2006. They got another boost later in November when most Senate Republicans voted for a resolution more or less urging withdrawal from Iraq.
But about that time, someone at the White House — we'll leave it to readers to guess who — must have decided enough was enough. Bush was suddenly all over the place. He was on the tube giving speeches, talking strategy and answering his critics. He was doing one-on-ones with anchors of all types, including Fox News and PBS. And he sparred with reporters at one of the liveliest press conferences we've seen in some time.
This wasn't just a change of style. The content also changed. Bush finally seemed to accept the fact that he had no common ground with the Democratic Party on the defining issue of his presidency — Iraq. With a few notable exceptions, especially Joe Lieberman, leading Democrats wrote off the mission as Bush's greatest failure and did not want him to prove them wrong.
So the 2006 campaign is in now full swing, and not a minute too soon. On one side, that of the Democrats, it never stopped after 2004. What changed late in 2005 is that Bush finally started fighting back.
He is also teaching a leadership lesson that he had to re-learn in 2005: A president cannot depend on others to give Americans the facts as he sees them. The media and the political opposition (roughly one and the same for Bush) will tell his story their way. Only he can tell it, and make people understand it, his way.
Posted 12/23/2005
Politics: For a time, it seemed that 2005 might go down as the year that broke this presidency. But it ends with George W. Bush playing offense and rising in the polls. Was he "misunderestimated" once again?
The coming year will answer that question, especially when the people elect a new Congress in November. But it's already clear that Bush is not going to make things easy for his enemies in politics and the media. Bush the campaigner, the one who wins elections, is back.
And this is the real George W. Bush, to judge from all that we know of him. Feisty and plain-spoken, he's a leader in the mold of Teddy Roosevelt and Harry Truman. But for much of the year, he was nowhere to be seen or heard.
The public got — and didn't much like — a would-be statesman Bush who disdained polls, sought bipartisan cooperation when none was being offered, spoke little to the people or the press and seemed to spend too much time at the ranch.
He also seemed to believe, mistakenly, that the facts would speak for themselves on issues such as the economy and Iraq. But those who choose the facts that most Americans get to see and hear were not on his side.
As reported, Iraq was another Vietnam. In reality, it was progressing toward democracy and slowly pushing the insurgency toward the political margins. As reported, the economy was sickly. In reality, it was the envy of the world.
Bush's detachment also did him no favors when Hurricane Katrina hit and all levels of government, from local to federal, were caught flat-footed. True to form, the media trained its spotlight almost wholly on the failures of the feds.
No wonder most Americans were telling pollsters a couple of months ago they had soured on the Bush presidency. If we can pinpoint a political bottom, it was probably the failed nomination of Harriet Miers to the Supreme Court.
Miers might have been a good justice; since she never had a hearing, we'll probably never know. But by nominating a political confidante with virtually no public record on legal issues, Bush signaled that he had no stomach for a political battle and little hope that he would win one with a candidate of known conservative views. Among the few who had nice things to say about Miers was the top Senate Democrat, Harry Reid. That was another bad sign.
Early in November, just after that nomination was withdrawn, former Democratic Sen. Tom Daschle said the Bush president was "essentially over." (Daschle, who had Reid's job until he was booted out of office in 2004, knows something about political oblivion.)
By this time, he and other Democrats were salivating over the prospect of winning back both houses of Congress in 2006. They got another boost later in November when most Senate Republicans voted for a resolution more or less urging withdrawal from Iraq.
But about that time, someone at the White House — we'll leave it to readers to guess who — must have decided enough was enough. Bush was suddenly all over the place. He was on the tube giving speeches, talking strategy and answering his critics. He was doing one-on-ones with anchors of all types, including Fox News and PBS. And he sparred with reporters at one of the liveliest press conferences we've seen in some time.
This wasn't just a change of style. The content also changed. Bush finally seemed to accept the fact that he had no common ground with the Democratic Party on the defining issue of his presidency — Iraq. With a few notable exceptions, especially Joe Lieberman, leading Democrats wrote off the mission as Bush's greatest failure and did not want him to prove them wrong.
So the 2006 campaign is in now full swing, and not a minute too soon. On one side, that of the Democrats, it never stopped after 2004. What changed late in 2005 is that Bush finally started fighting back.
He is also teaching a leadership lesson that he had to re-learn in 2005: A president cannot depend on others to give Americans the facts as he sees them. The media and the political opposition (roughly one and the same for Bush) will tell his story their way. Only he can tell it, and make people understand it, his way.
Foreigners May Soon Play a Part in Kuwait Oil
By JAD MOUAWAD
December 24, 2005
KUWAIT CITY, Kuwait, Dec. 16 - Thirty years after foreign oil companies were expelled from Kuwait, the state is close to opening its lucrative oil production business again to outsiders.
The move, expected to be approved by Parliament next month after nearly a decade of debate and delays, means that one of the top producers in the Persian Gulf finally will lift some of the restrictions imposed on foreign operators. The decision is also eagerly anticipated in oil circles because of hopes that the proposal, which would limit foreign operation to selected fields for a 20-year period, could eventually be extended to other fields in the country and possibly elsewhere in the region.
Recent high oil prices have encouraged governments to further tighten the rules governing foreign participation and prompted a new wave of "resource nationalism." Venezuela, Russia and Bolivia each have pushed for greater control, while Britain plans to increase taxes on its production from the North Sea.
At the same time, producers have come under growing pressure over the last year to increase their investments and bring more oil to the market. But while worldwide demand for oil has been rising rapidly, supplies have so far lagged, especially from OPEC nations.
The reopening to foreigners is so politically charged here that the plan, called Project Kuwait, has been mired in squabbles since it was introduced in 1997. As a result of the opposition to bringing in foreign companies - a movement that brought together a band of Islamic and liberal parties in the Kuwaiti Parliament - production growth has stalled in Kuwait, just as global demand has soared in recent years.
Oil was first discovered in Kuwait in 1938 by the British-Iranian Oil Company, which later became British Petroleum, and by Gulf Oil, now part of Chevron. Most of the country's production has since come from a single field, Burgan, which has accounted for 80 percent of Kuwait's total output.
That oil field, the world's second-largest after Ghawar in Saudi Arabia, is now showing signs of fatigue. Kuwaiti officials would like to take the pressure off by pumping more oil from other fields, including four in the north of the country that Project Kuwait would open to foreign companies.
"Our part of the world needs to increase its capacity to meet the projected growth in demand over the coming years," said Nader Sultan, the former chief executive of the Kuwait Petroleum Corporation and a strong backer of the plan. "There is pressure on us to increase our capacity. The question then becomes, Can we do it alone?"
Years of underinvestment in Kuwait have led to slowing output since the 1970's. Kuwait oil officials argue that they need the help of global oil companies to manage the more challenging extraction methods required at the newer oil reservoirs, now that the country's easy oil has been removed.
Last year, Kuwait pumped about 3 percent of the oil produced worldwide, or about 2.5 million barrels a day. The country hopes to raise daily production to four million barrels by 2020. By then, Project Kuwait is expected to account for a third of the country's production.
But at these volumes, Kuwait will also be pumping out 10 million barrels a day of water associated with the oil production process. Officials say the country's state-owned oil company cannot do this without foreign expertise.
There are other nontechnical reasons for the invitation. With oil selling around $60 a barrel, any delay in increasing production means Kuwait will be missing out on the greatest oil boom in three decades and millions of dollars in profits every week. Some also believe that welcoming international oil companies, including some from the United States, would provide additional security for Kuwait, which was invaded by Iraq in 1990 and served as a major staging ground to the American invasion of Iraq in 2003.
Kuwait's constitution bars foreign companies from owning or operating the country's oil resources. So Parliament, which has been fighting the government to gain a larger oversight role in running the country, must conduct a formal vote to allow the government to invite foreign operators back. Foreign companies are currently allowed in Kuwait only as service providers on behalf of Kuwait's oil company, not as operators.
"The step the government wants to take is against the law, and we have to stand against it strongly," said Naser al-Sane, a member of Kuwait's Parliament since 1992, who is part of the Islamic Constitutional Movement. "The constitutional issue is the main one. We're not against foreign investments, but the problem is that you have to stick to the constitution."
Abdulla al-Nibari, a former member of Parliament who helped nationalize the oil industry in 1975 and who opposes Project Kuwait, says he does not believe the country needs to increase its production. Kuwait, he said, can keep using foreign service companies to provide technical assistance without having to bring back any of the major oil companies, which controlled the country's energy for decades.
"I don't buy the argument that the market needs more," Mr. Nibari said. "We produce oil to get money to cover our expense. That's our responsibility. Two million barrels is enough. Our experience is that surplus money is squandered, sometimes embezzled. Oil in the ground is a much better form of savings."
To break the long-standing deadlock, the government has agreed to Parliament's main demands. For example, the oil produced will remain the property of Kuwait; ownership will not be transferred. Also, the contracts will be considered service agreements, not foreign concessions. All of this means that the oil companies will not be allowed to book the reserves from the fields they operate.
While many now expect the government to win approval from Parliament, the ownership issue might prove to be a serious stumbling block for oil companies, which usually want to show oil reserves as assets on their books.
After all, this is the ultimate prize in the Persian Gulf for the oil companies. Five countries - Saudi Arabia, Iran, Iraq, Kuwait and the United Arab Emirates - hold 60 percent of the world's oil reserves, more than 700 billion barrels. But either because of government policies or because of economic sanctions and war, access by foreign companies to these vast reserves has been limited since the 1970's.
To be sure, the Persian Gulf is not completely free of international involvement. The United Arab Emirates brought in Exxon Mobil last year to expand a major production field that was already partly owned by a Japanese company. Qatar recently embarked on a multibillion-dollar program to build natural-gas exporting plants with Exxon Mobil and other foreign oil companies.
But Project Kuwait, experts said, is a big step for the oil world. Kuwait is the fourth-largest holder of oil, with 99 billion barrels of proven reserves, or 8 percent of the world's total, according to BP's Statistical Review of World Energy. The fields covered by Project Kuwait hold about 10 percent of these reserves.
Three groups of international oil companies, led by BP, Chevron and Exxon Mobil, have long been interested in the $8.5 billion project. If Parliament approves the project when it meets on Jan. 23, the government will award the bid on the basis of a single criterion, the minimum fee that each group is willing to take for each barrel they produce.
Throughout the history of oil, there has been a constant struggle between nations that hold the oil fields and consider them their property, and international oil companies, whose dominant role has been slowly eroded in the last century by the rise of nationalism.
But relations between nations and international companies are still evolving. Algeria, for example, nationalized its oil sector in 1971, a decade after gaining its independence from France. In 1991, it allowed foreign oil companies back.
"I see no contradiction in that," said Nordine Ait-Laoussine, who helped engineer both moves, first as head of Sonatrach, the country's state oil company and, two decades later, as Algeria's oil minister.
"What we did in Algeria was always in the interest of the nation," Mr. Ait-Laoussine said. "And in 20 years, the national interest changed."
For Ahmad al-Arbeed, the member of the board of the Kuwait Petroleum Corporation who is in charge of Project Kuwait, there is also a "philosophical aspect to the debate."
"I am a follower of the school that says we should be a good citizen and we should make available the oil that the world needs," he said. "That's the whole objective of having an oil sector in Kuwait."
He added, "Also, if we waited another 20 years, there might be alternatives to oil. It's better for us to produce as quickly as possible and increase our revenue."
Such talk is unlikely to reassure those who argue that involving foreign companies, who have an incentive to maximize production and financial returns, risks squandering the nation's resources.
Mr. Nibari, the veteran politician, recalled that in 1972 British Petroleum and Gulf had planned to raise Kuwait's production to five million barrels a day, accelerating the depletion rate of the Burgan field and increasing the amount of water that is generally pumped out with the oil. The project was eventually shelved when the industry was nationalized.
"The question now will be a question of political stamina and dynamism and whether the government doesn't get sidetracked by other issues," said Mr. Sultan, the former oil executive. "You really have to be focused on this."
The country's oil minister, a member of the ruling al-Sabah family, appeared ready to push for the votes next month.
"It is my understanding that there are always oppositions and supporters - this is democracy," Sheik Ahmad Fahd al-Sabah, Kuwait's oil minister, said in a news conference in Kuwait City. "For me, as a minister, I think I have to make it a priority on the energy side. But, God willing, I am crossing my fingers."
By JAD MOUAWAD
December 24, 2005
KUWAIT CITY, Kuwait, Dec. 16 - Thirty years after foreign oil companies were expelled from Kuwait, the state is close to opening its lucrative oil production business again to outsiders.
The move, expected to be approved by Parliament next month after nearly a decade of debate and delays, means that one of the top producers in the Persian Gulf finally will lift some of the restrictions imposed on foreign operators. The decision is also eagerly anticipated in oil circles because of hopes that the proposal, which would limit foreign operation to selected fields for a 20-year period, could eventually be extended to other fields in the country and possibly elsewhere in the region.
Recent high oil prices have encouraged governments to further tighten the rules governing foreign participation and prompted a new wave of "resource nationalism." Venezuela, Russia and Bolivia each have pushed for greater control, while Britain plans to increase taxes on its production from the North Sea.
At the same time, producers have come under growing pressure over the last year to increase their investments and bring more oil to the market. But while worldwide demand for oil has been rising rapidly, supplies have so far lagged, especially from OPEC nations.
The reopening to foreigners is so politically charged here that the plan, called Project Kuwait, has been mired in squabbles since it was introduced in 1997. As a result of the opposition to bringing in foreign companies - a movement that brought together a band of Islamic and liberal parties in the Kuwaiti Parliament - production growth has stalled in Kuwait, just as global demand has soared in recent years.
Oil was first discovered in Kuwait in 1938 by the British-Iranian Oil Company, which later became British Petroleum, and by Gulf Oil, now part of Chevron. Most of the country's production has since come from a single field, Burgan, which has accounted for 80 percent of Kuwait's total output.
That oil field, the world's second-largest after Ghawar in Saudi Arabia, is now showing signs of fatigue. Kuwaiti officials would like to take the pressure off by pumping more oil from other fields, including four in the north of the country that Project Kuwait would open to foreign companies.
"Our part of the world needs to increase its capacity to meet the projected growth in demand over the coming years," said Nader Sultan, the former chief executive of the Kuwait Petroleum Corporation and a strong backer of the plan. "There is pressure on us to increase our capacity. The question then becomes, Can we do it alone?"
Years of underinvestment in Kuwait have led to slowing output since the 1970's. Kuwait oil officials argue that they need the help of global oil companies to manage the more challenging extraction methods required at the newer oil reservoirs, now that the country's easy oil has been removed.
Last year, Kuwait pumped about 3 percent of the oil produced worldwide, or about 2.5 million barrels a day. The country hopes to raise daily production to four million barrels by 2020. By then, Project Kuwait is expected to account for a third of the country's production.
But at these volumes, Kuwait will also be pumping out 10 million barrels a day of water associated with the oil production process. Officials say the country's state-owned oil company cannot do this without foreign expertise.
There are other nontechnical reasons for the invitation. With oil selling around $60 a barrel, any delay in increasing production means Kuwait will be missing out on the greatest oil boom in three decades and millions of dollars in profits every week. Some also believe that welcoming international oil companies, including some from the United States, would provide additional security for Kuwait, which was invaded by Iraq in 1990 and served as a major staging ground to the American invasion of Iraq in 2003.
Kuwait's constitution bars foreign companies from owning or operating the country's oil resources. So Parliament, which has been fighting the government to gain a larger oversight role in running the country, must conduct a formal vote to allow the government to invite foreign operators back. Foreign companies are currently allowed in Kuwait only as service providers on behalf of Kuwait's oil company, not as operators.
"The step the government wants to take is against the law, and we have to stand against it strongly," said Naser al-Sane, a member of Kuwait's Parliament since 1992, who is part of the Islamic Constitutional Movement. "The constitutional issue is the main one. We're not against foreign investments, but the problem is that you have to stick to the constitution."
Abdulla al-Nibari, a former member of Parliament who helped nationalize the oil industry in 1975 and who opposes Project Kuwait, says he does not believe the country needs to increase its production. Kuwait, he said, can keep using foreign service companies to provide technical assistance without having to bring back any of the major oil companies, which controlled the country's energy for decades.
"I don't buy the argument that the market needs more," Mr. Nibari said. "We produce oil to get money to cover our expense. That's our responsibility. Two million barrels is enough. Our experience is that surplus money is squandered, sometimes embezzled. Oil in the ground is a much better form of savings."
To break the long-standing deadlock, the government has agreed to Parliament's main demands. For example, the oil produced will remain the property of Kuwait; ownership will not be transferred. Also, the contracts will be considered service agreements, not foreign concessions. All of this means that the oil companies will not be allowed to book the reserves from the fields they operate.
While many now expect the government to win approval from Parliament, the ownership issue might prove to be a serious stumbling block for oil companies, which usually want to show oil reserves as assets on their books.
After all, this is the ultimate prize in the Persian Gulf for the oil companies. Five countries - Saudi Arabia, Iran, Iraq, Kuwait and the United Arab Emirates - hold 60 percent of the world's oil reserves, more than 700 billion barrels. But either because of government policies or because of economic sanctions and war, access by foreign companies to these vast reserves has been limited since the 1970's.
To be sure, the Persian Gulf is not completely free of international involvement. The United Arab Emirates brought in Exxon Mobil last year to expand a major production field that was already partly owned by a Japanese company. Qatar recently embarked on a multibillion-dollar program to build natural-gas exporting plants with Exxon Mobil and other foreign oil companies.
But Project Kuwait, experts said, is a big step for the oil world. Kuwait is the fourth-largest holder of oil, with 99 billion barrels of proven reserves, or 8 percent of the world's total, according to BP's Statistical Review of World Energy. The fields covered by Project Kuwait hold about 10 percent of these reserves.
Three groups of international oil companies, led by BP, Chevron and Exxon Mobil, have long been interested in the $8.5 billion project. If Parliament approves the project when it meets on Jan. 23, the government will award the bid on the basis of a single criterion, the minimum fee that each group is willing to take for each barrel they produce.
Throughout the history of oil, there has been a constant struggle between nations that hold the oil fields and consider them their property, and international oil companies, whose dominant role has been slowly eroded in the last century by the rise of nationalism.
But relations between nations and international companies are still evolving. Algeria, for example, nationalized its oil sector in 1971, a decade after gaining its independence from France. In 1991, it allowed foreign oil companies back.
"I see no contradiction in that," said Nordine Ait-Laoussine, who helped engineer both moves, first as head of Sonatrach, the country's state oil company and, two decades later, as Algeria's oil minister.
"What we did in Algeria was always in the interest of the nation," Mr. Ait-Laoussine said. "And in 20 years, the national interest changed."
For Ahmad al-Arbeed, the member of the board of the Kuwait Petroleum Corporation who is in charge of Project Kuwait, there is also a "philosophical aspect to the debate."
"I am a follower of the school that says we should be a good citizen and we should make available the oil that the world needs," he said. "That's the whole objective of having an oil sector in Kuwait."
He added, "Also, if we waited another 20 years, there might be alternatives to oil. It's better for us to produce as quickly as possible and increase our revenue."
Such talk is unlikely to reassure those who argue that involving foreign companies, who have an incentive to maximize production and financial returns, risks squandering the nation's resources.
Mr. Nibari, the veteran politician, recalled that in 1972 British Petroleum and Gulf had planned to raise Kuwait's production to five million barrels a day, accelerating the depletion rate of the Burgan field and increasing the amount of water that is generally pumped out with the oil. The project was eventually shelved when the industry was nationalized.
"The question now will be a question of political stamina and dynamism and whether the government doesn't get sidetracked by other issues," said Mr. Sultan, the former oil executive. "You really have to be focused on this."
The country's oil minister, a member of the ruling al-Sabah family, appeared ready to push for the votes next month.
"It is my understanding that there are always oppositions and supporters - this is democracy," Sheik Ahmad Fahd al-Sabah, Kuwait's oil minister, said in a news conference in Kuwait City. "For me, as a minister, I think I have to make it a priority on the energy side. But, God willing, I am crossing my fingers."
Rumsfeld Serves Dinner to Troops in Iraq
By ROBERT BURNS, AP Military Writer1 hour, 28 minutes ago
In a festively bedecked dining hall, Defense Secretary Donald H. Rumsfeld served Christmas Eve dinner to dozens of U.S. soldiers, then fed them his view — with a mix of optimism, caution and emotion — of why the war that has cost more than 2,150 U.S. lives must be won.
"We will win this war. It's a test of wills, and let there be no doubt that is what it is," he said. Rumsfeld told the troops that "generations before you have persevered and prevailed, and they too were engaged in a test of wills."
"In this fight, the vast majority of Iraqis stand on the side of freedom," he said over the roar of helicopters flying over a regional U.S. military headquarters that once was a palace of Saddam Hussein.
Rumsfeld, winding up a five-day trip that began in Pakistan and included stops in Afghanistan and Jordan, said the battle for Iraq is part of the wider global war on terrorism, which he called "this long war against terrorism and it will be a long war.
Repeating a theme he struck throughout his visit, Rumsfeld cautioned against an early exit from Iraq. He said that giving up would mean allowing terrorists to impose "their dark vision on the rest of the world.
"Let there be no doubt: if the United States were to withdraw from Iraq today the terrorists emboldened by their victory would attack us elsewhere in the region and at home in the United States, he said.
With an emotion that sometimes creeps into his voice when he talks about the human cost of the Iraq war, Rumsfeld said the Christmas season was a time to remember those who have been lost in combat
"You folks have helped liberate some 25 million people for whom hope was never there before," he added.
Before he spoke, Rumsfeld helped serve the soldiers a dinner of rib-eye steak, lobster, crab legs, Cornish game hens and all the seasonal fixings. Grinning widely and wearing a white cooks hat, he worked his tongs as many of the soldiers snapped pictures of him and politely asked for their helpings.
"Steaks the big seller tonight, he declared after the first several dozen soldiers had gone through the line.
It was the second straight year that Rumsfeld served Christmas Eve dinner to troops in Iraq.
Last year it was in Baghdad at a time of hope that the election of an interim government in January would deal a heavy blow to the insurgency, which nonetheless remained resilient and deadly throughout 2005.
On his current visit, Rumsfeld and senior military commanders appeared even more optimistic that Iraqi progress on the political front will soon translate to greater success in neutralizing, if not defeating, the insurgency.
It was clear from Rumsfeld's three-day visit that the U.S. military is shifting its focus from fighting the war to preparing the Iraqis for the day when they will be left to fight it largely on their own.
Lt. Gen. John Vines, commander of Multinational Corps-Iraq, told reporters Saturday in Baghdad that there is no hard assurance that the Iraqis will manage the transition without collapsing into civil war, although he is optimistic. He said it may take 30 days or more before he can judge whether the Iraqis are putting together a truly representative and viable government, based on the constitution that voters approved Oct. 15.
Gen. George Casey, the top U.S. commander in Iraq, said on Friday that he foresees a period of "churn" in the political process. That is why he has decided to keep the 2nd Brigade of the 1st Armored Division at its staging base in Kuwait rather than sending those soldiers home. The brigade originally was scheduled to deploy to Iraq, but Casey put them on hold after reaching Kuwait, as part of a decision announced Friday by Rumsfeld to reduce the number of combat brigades in Iraq next year from 17 to 15.
Before he left Baghdad on Saturday, Rumsfeld said in an interview with Fox News that he had a private dinner Friday with a group of leading Iraqi politicians. He said they had a lively discussion.
"You know people didn't do that here four years ago," he said. "If people expressed themselves they would be killed and put into these mass graves, imprisoned and as a result it created a whole element of fear that prevented people from expressing themselves, the way that these folks were expressing themselves at the dinner."
Daily Times - Site Edition Friday, December 23, 2005 (PAK EDITORIAL)
EDITORIAL: Al Qaeda is more than just Osama Bin Laden...
Donald Rumsfeld, the US secretary of defence, who flew into Islamabad unannounced last Wednesday to visit the quake-hit areas, said that US intelligence had not picked any signal from Osama Bin Laden in nearly a year and it was possible that he was no more in effective command of Al Qaeda. “I think it is interesting that we haven’t heard from him for close to a year. I don’t know what it means, but I suspect in any event if he is alive and functioning that he is spending a major fraction of his time trying to avoid being caught. I have trouble believing he is able to operate sufficiently to be in a position of major command over a worldwide Al Qaeda operation, but I could be wrong. We just don’t know.” However, Mr Rumsfeld stressed that capturing Mr Bin Laden was still a priority for the Bush administration. While no one really knows where Mr Bin Laden might be hiding, there is a general belief that he could be somewhere in the mountains along the Afghan-Pakistani border, an extremely inhospitable terrain. Earlier, the US ambassador to Pakistan, Ryan Crocker, was reported as saying more or less the same.
On the other hand, in a video broadcast earlier this month, Mr Bin Laden’s deputy Ayman al Zawahri, asserted that Mr Bin Laden’s war against the West was only just beginning, implying that he was alive and well and in control of his outfit. The last time anyone heard from Mr Bin Laden was on December 27, 2004, when he sent an audio message urging Iraqis to boycott the January 2005 elections for the Iraqi Transitional Government.
There are two aspects here. One relates to Mr Bin Laden and the struggle he has waged against the West; is he in control of the operations and can he be captured etc? At the operational level, as Mr Rumsfeld mentioned, it is important from the American perspective to capture him and hope that this would demoralise Al Qaeda cadres and its affiliated groups all over the world. But this is only one dimension. The other relates to the question of ideology. Is the ideology synonymous with Mr Bin Laden? If the answer is yes, then capturing Mr Bin Laden becomes urgent because that would be the only way to bury the Al Qaeda threat once and for all. However, if that is not the case — i.e., the ideology is the overhang under which Mr Bin Laden himself operates or that, over time, the ideology has become bigger than Mr Bin Laden — then capturing Mr Bin Laden, while an operational necessity, cannot be expected in and of itself to also result in the eradication of the threat.
We believe, on the basis of what has happened since October 2001 when the US attacked Afghanistan and sent Mr Bin Laden scurrying for cover, that he may have increasingly become ancillary to the problem. In other words, that even if he is no more, the ideology stays alive as do its proponents; indeed, that Mr Bin Laden’s removal from the scene may well whip up more frenzy among some sections of the Muslim population.
What is happening in Iraq is a good example of that; another example is the July 7 and 22 bombings in London. There is an Al Qaeda hand behind insurgency in Iraq but there is no evidence that the struggle is being planned or controlled directly by Mr Bin Laden. Much the same is true of the London bombings. British intelligence reports say the bombers had no linkage with Al Qaeda. This means two things: opposition to US policies may be spreading out; and disgruntled elements may decide to operate on their own regardless of any linkage with Al Qaeda or any logistical or other support from that group.
As things stand, Al Qaeda seems now to have become an ideology and spawned beyond the person of Mr Bin Laden. Any US policy in the “war on terrorism” needs to appreciate this. When former Iraqi president Saddam Hussein was captured from his hideout, there was much jubilation in the US. Mr Rumsfeld and other US officials had also argued that Mr Hussein’s capture would reduce the intensity of the insurgency. But that did not happen; in fact, the insurgency, since then, has only become more intense. This is even truer of Al Qaeda and how it operates. *
SECOND EDITORIAL: ...But while the ratings are up, Mr Bush should feel happy
President George W Bush, facing multiple problems on various fronts, may have something to cheer about since the mid-December polls in Iraq, which saw a 70 percent turnout despite violence in that country. Mr Bush’s four speeches on Iraq seem to have helped him, first, to stem the downslide in his approval ratings and then pick them up from 37 percent last month to 41 percent following the elections in Iraq. His supporters say that he has been able to put the opponents of the war and the rival Democrats on the defensive.
This may be so. But one needs to be cautious about poll ratings. The elections in Iraq were definitely a plus and must count as a victory of sorts for Mr Bush but the violence in that country is far from over and when the assembly meets, fireworks will surely follow. Also, as some experts have warned, democracy in Iraq could deepen the Shia-Sunni and Arab-Kurdish fault-lines. The real test would be to consolidate democracy as the art of association that leads to the cementing of Iraqi nationalism rather than something that could tear the country asunder. However, while the ratings are up, Mr Bush should enjoy them. *
EDITORIAL: Al Qaeda is more than just Osama Bin Laden...
Donald Rumsfeld, the US secretary of defence, who flew into Islamabad unannounced last Wednesday to visit the quake-hit areas, said that US intelligence had not picked any signal from Osama Bin Laden in nearly a year and it was possible that he was no more in effective command of Al Qaeda. “I think it is interesting that we haven’t heard from him for close to a year. I don’t know what it means, but I suspect in any event if he is alive and functioning that he is spending a major fraction of his time trying to avoid being caught. I have trouble believing he is able to operate sufficiently to be in a position of major command over a worldwide Al Qaeda operation, but I could be wrong. We just don’t know.” However, Mr Rumsfeld stressed that capturing Mr Bin Laden was still a priority for the Bush administration. While no one really knows where Mr Bin Laden might be hiding, there is a general belief that he could be somewhere in the mountains along the Afghan-Pakistani border, an extremely inhospitable terrain. Earlier, the US ambassador to Pakistan, Ryan Crocker, was reported as saying more or less the same.
On the other hand, in a video broadcast earlier this month, Mr Bin Laden’s deputy Ayman al Zawahri, asserted that Mr Bin Laden’s war against the West was only just beginning, implying that he was alive and well and in control of his outfit. The last time anyone heard from Mr Bin Laden was on December 27, 2004, when he sent an audio message urging Iraqis to boycott the January 2005 elections for the Iraqi Transitional Government.
There are two aspects here. One relates to Mr Bin Laden and the struggle he has waged against the West; is he in control of the operations and can he be captured etc? At the operational level, as Mr Rumsfeld mentioned, it is important from the American perspective to capture him and hope that this would demoralise Al Qaeda cadres and its affiliated groups all over the world. But this is only one dimension. The other relates to the question of ideology. Is the ideology synonymous with Mr Bin Laden? If the answer is yes, then capturing Mr Bin Laden becomes urgent because that would be the only way to bury the Al Qaeda threat once and for all. However, if that is not the case — i.e., the ideology is the overhang under which Mr Bin Laden himself operates or that, over time, the ideology has become bigger than Mr Bin Laden — then capturing Mr Bin Laden, while an operational necessity, cannot be expected in and of itself to also result in the eradication of the threat.
We believe, on the basis of what has happened since October 2001 when the US attacked Afghanistan and sent Mr Bin Laden scurrying for cover, that he may have increasingly become ancillary to the problem. In other words, that even if he is no more, the ideology stays alive as do its proponents; indeed, that Mr Bin Laden’s removal from the scene may well whip up more frenzy among some sections of the Muslim population.
What is happening in Iraq is a good example of that; another example is the July 7 and 22 bombings in London. There is an Al Qaeda hand behind insurgency in Iraq but there is no evidence that the struggle is being planned or controlled directly by Mr Bin Laden. Much the same is true of the London bombings. British intelligence reports say the bombers had no linkage with Al Qaeda. This means two things: opposition to US policies may be spreading out; and disgruntled elements may decide to operate on their own regardless of any linkage with Al Qaeda or any logistical or other support from that group.
As things stand, Al Qaeda seems now to have become an ideology and spawned beyond the person of Mr Bin Laden. Any US policy in the “war on terrorism” needs to appreciate this. When former Iraqi president Saddam Hussein was captured from his hideout, there was much jubilation in the US. Mr Rumsfeld and other US officials had also argued that Mr Hussein’s capture would reduce the intensity of the insurgency. But that did not happen; in fact, the insurgency, since then, has only become more intense. This is even truer of Al Qaeda and how it operates. *
SECOND EDITORIAL: ...But while the ratings are up, Mr Bush should feel happy
President George W Bush, facing multiple problems on various fronts, may have something to cheer about since the mid-December polls in Iraq, which saw a 70 percent turnout despite violence in that country. Mr Bush’s four speeches on Iraq seem to have helped him, first, to stem the downslide in his approval ratings and then pick them up from 37 percent last month to 41 percent following the elections in Iraq. His supporters say that he has been able to put the opponents of the war and the rival Democrats on the defensive.
This may be so. But one needs to be cautious about poll ratings. The elections in Iraq were definitely a plus and must count as a victory of sorts for Mr Bush but the violence in that country is far from over and when the assembly meets, fireworks will surely follow. Also, as some experts have warned, democracy in Iraq could deepen the Shia-Sunni and Arab-Kurdish fault-lines. The real test would be to consolidate democracy as the art of association that leads to the cementing of Iraqi nationalism rather than something that could tear the country asunder. However, while the ratings are up, Mr Bush should enjoy them. *
Democracy's High Price (
Saturday, December 24, 2005; A16
A YEAR AFTER Ukraine's Orange Revolution, Russia's effort to combat the spread of democracy in Eastern Europe continues unabated. Its latest weapon is natural gas. As the heating season got underway this month, Moscow announced through its state-controlled energy company, Gazprom, that it would more than triple the price it charges Ukraine for gas supplies, to $160 per 1,000 cubic meters. When Ukraine's government sought to negotiate a more gradual increase, Moscow threatened to raise the price further, to more than $200, or cut off supplies as of Jan. 1. Russian President Vladimir Putin chose to trigger this crisis just as Ukraine approaches a crucial parliamentary election on March 26. Thanks to Mr. Putin, soaring energy prices for Ukrainian consumers may be a punishing issue for the former Orange revolutionaries.
Next door in Belarus, pro-Moscow President Alexander Lukashenko has no such worries. He, too, has an election coming up, on March 19; he abruptly scheduled it last week, the day after holding a summit meeting with Mr. Putin. At that meeting, Mr. Putin agreed to hold the price of gas for Belarus steady next year, at $46 per 1,000 cubic meters. Belarus's democratic opposition, which had been preparing for a presidential election in July, was left with one week to register its candidate and just a few more to campaign, without the benefit of mass media, money or the right to free assembly.
Western leaders tended to assume after the Orange Revolution that Ukraine had turned the corner toward democracy and could be expected to follow the path of other former European communist states, such as Poland and Hungary. Belarus, they hoped, might be next: President Bush publicly singled it out as "Europe's last dictatorship," and both Congress and the European Union approved multimillion-dollar programs to support pro-democracy movements. But the attention of Western governments to Eastern Europe has slackened in recent months while Mr. Putin has stayed focused. He has never accepted the Orange Revolution, describing it as a plot by Western intelligence agencies. He has directed much of his foreign and domestic policy in the past year to stopping similar democratic movements in Eurasia while making sure no such cause can arise in Russia.
March could be a landmark in his counterrevolution: first the reelection of Mr. Lukashenko, who can be counted on to use fraud and violence against his opponents; then, one week later, a Ukrainian election that could greatly weaken the pro-democracy parties Mr. Putin unsuccessfully tried to suppress a year ago. That may not be all. An official statement describing Mr. Putin's meeting with Mr. Lukashenko last week promised new steps toward a long-discussed "union" that could eliminate Belarus as an independent state, including the finalization of a union constitution and the adoption by Belarus of the Russian ruble.
Will the West stand up for democracy in Belarus and Ukraine? So far there's not much sign of it. The European Union decided shortly after Mr. Lukashenko's announcement to postpone the launch of a radio service intended to provide uncensored information to Belarusans. Poland's foreign minister, Stefan Meller, spoke with Secretary of State Condoleezza Rice about Ukraine's gas price problems during a visit to Washington this week, but they did not reach agreement on a concrete response. Many in the administration remain unwilling to react to, or even acknowledge, Mr. Putin's aggressive campaign to undermine Mr. Bush's pro-democracy policy. As U.S. lassitude continues, Mr. Putin's price keeps going up.
Saturday, December 24, 2005; A16
A YEAR AFTER Ukraine's Orange Revolution, Russia's effort to combat the spread of democracy in Eastern Europe continues unabated. Its latest weapon is natural gas. As the heating season got underway this month, Moscow announced through its state-controlled energy company, Gazprom, that it would more than triple the price it charges Ukraine for gas supplies, to $160 per 1,000 cubic meters. When Ukraine's government sought to negotiate a more gradual increase, Moscow threatened to raise the price further, to more than $200, or cut off supplies as of Jan. 1. Russian President Vladimir Putin chose to trigger this crisis just as Ukraine approaches a crucial parliamentary election on March 26. Thanks to Mr. Putin, soaring energy prices for Ukrainian consumers may be a punishing issue for the former Orange revolutionaries.
Next door in Belarus, pro-Moscow President Alexander Lukashenko has no such worries. He, too, has an election coming up, on March 19; he abruptly scheduled it last week, the day after holding a summit meeting with Mr. Putin. At that meeting, Mr. Putin agreed to hold the price of gas for Belarus steady next year, at $46 per 1,000 cubic meters. Belarus's democratic opposition, which had been preparing for a presidential election in July, was left with one week to register its candidate and just a few more to campaign, without the benefit of mass media, money or the right to free assembly.
Western leaders tended to assume after the Orange Revolution that Ukraine had turned the corner toward democracy and could be expected to follow the path of other former European communist states, such as Poland and Hungary. Belarus, they hoped, might be next: President Bush publicly singled it out as "Europe's last dictatorship," and both Congress and the European Union approved multimillion-dollar programs to support pro-democracy movements. But the attention of Western governments to Eastern Europe has slackened in recent months while Mr. Putin has stayed focused. He has never accepted the Orange Revolution, describing it as a plot by Western intelligence agencies. He has directed much of his foreign and domestic policy in the past year to stopping similar democratic movements in Eurasia while making sure no such cause can arise in Russia.
March could be a landmark in his counterrevolution: first the reelection of Mr. Lukashenko, who can be counted on to use fraud and violence against his opponents; then, one week later, a Ukrainian election that could greatly weaken the pro-democracy parties Mr. Putin unsuccessfully tried to suppress a year ago. That may not be all. An official statement describing Mr. Putin's meeting with Mr. Lukashenko last week promised new steps toward a long-discussed "union" that could eliminate Belarus as an independent state, including the finalization of a union constitution and the adoption by Belarus of the Russian ruble.
Will the West stand up for democracy in Belarus and Ukraine? So far there's not much sign of it. The European Union decided shortly after Mr. Lukashenko's announcement to postpone the launch of a radio service intended to provide uncensored information to Belarusans. Poland's foreign minister, Stefan Meller, spoke with Secretary of State Condoleezza Rice about Ukraine's gas price problems during a visit to Washington this week, but they did not reach agreement on a concrete response. Many in the administration remain unwilling to react to, or even acknowledge, Mr. Putin's aggressive campaign to undermine Mr. Bush's pro-democracy policy. As U.S. lassitude continues, Mr. Putin's price keeps going up.
Spy Agency Mined Vast Data Trove, Officials Report (NO PROBLEM HERE)
December 24, 2005
By ERIC LICHTBLAU and JAMES RISEN
WASHINGTON, Dec. 23 - The National Security Agency has traced and analyzed large volumes of telephone and Internet communications flowing into and out of the United States as part of the eavesdropping program that President Bush approved after the Sept. 11, 2001, attacks to hunt for evidence of terrorist activity, according to current and former government officials. (ANOTHER CLASSIFIED DISCLOSURE, SO A TOTAL OF FOUR INVESTIGATIONS BETTER BE UNDER WAY. 1 FOR THE CIA BASES, 2 FOR THE DISCLOSURE OF INTERNATIONAL TAPS, 3 FOR THE RADIATION MONITORING DISCLOSURE, 4 FOR THIS DISCLOSURE. I GUESS IT WILL BE BUSY 2006 FOR CONGRESS, IF WE RELLY CARE ABOUT NATIONAL SECURITY)
The volume of information harvested from telecommunication data and voice networks, without court-approved warrants, is much larger than the White House has acknowledged, the officials said. It was collected by tapping directly into some of the American telecommunication system's main arteries, they said.
As part of the program approved by President Bush for domestic surveillance without warrants, the N.S.A. has gained the cooperation of American telecommunications companies to obtain backdoor access to streams of domestic and international communications, the officials said.
The government's collection and analysis of phone and Internet traffic have raised questions among some law enforcement and judicial officials familiar with the program. (SO 'SOME' HAVE CONCERNS? WELL I HAVE CONCERNS ABOUT THE DISCLOSURES BEING DISCLOSED) One issue of concern to the Foreign Intelligence Surveillance Court, which has reviewed some separate warrant applications growing out of the N.S.A.'s surveillance program, is whether the court has legal authority over calls outside the United States that happen to pass through American-based telephonic "switches," according to officials familiar with the matter.
"There was a lot of discussion about the switches" in conversations with the court, a Justice Department official said, referring to the gateways through which much of the communications traffic flows. "You're talking about access to such a vast amount of communications, and the question was, How do you minimize something that's on a switch that's carrying such large volumes of traffic? The court was very, very concerned about that."
Since the disclosure last week of the N.S.A.'s domestic surveillance program, President Bush and his senior aides have stressed that his executive order allowing eavesdropping without warrants was limited to the monitoring of international phone and e-mail communications involving people with known links to Al Qaeda.
(WHAT MORE DO WE NEED TO KNOW???)
What has not been publicly acknowledged is that N.S.A. technicians, besides actually eavesdropping on specific conversations, have combed through large volumes of phone and Internet traffic in search of patterns that might point to terrorism suspects. Some officials describe the program as a large data-mining operation.
The current and former government officials who discussed the program were granted anonymity because it remains classified.
Bush administration officials declined to comment on Friday on the technical aspects of the operation and the N.S.A.'s use of broad searches to look for clues on terrorists. Because the program is highly classified (SO WHOEVER DISCLOSED THIS WOULD BE IN SERIOUS TROUBLE RIGHT???), many details of how the N.S.A. is conducting it remain unknown, and members of Congress who have pressed for a full Congressional inquiry say they are eager to learn more about the program's operational details, as well as its legality.
Officials in the government and the telecommunications industry who have knowledge of parts of the program say the N.S.A. has sought to analyze communications patterns to glean clues from details like who is calling whom, how long a phone call lasts and what time of day it is made, and the origins and destinations of phone calls and e-mail messages. Calls to and from Afghanistan, for instance, are known to have been of particular interest to the N.S.A. since the Sept. 11 attacks, the officials said.
This so-called "pattern analysis" on calls within the United States would, in many circumstances, require a court warrant if the government wanted to trace who calls whom. (LOVE HEDGED WORDING, DON'T YOU?)
The use of similar data-mining operations by the Bush administration in other contexts has raised strong objections, most notably in connection with the Total Information Awareness system, developed by the Pentagon for tracking terror suspects, and the Department of Homeland Security's Capps program for screening airline passengers. Both programs were ultimately scrapped after public outcries over possible threats to privacy and civil liberties. (IT WORKS, SO IT MUST BE SCRAPPED TO SAVE CIVIL LIBERTIES)
But the Bush administration regards the N.S.A.'s ability to trace and analyze large volumes of data as critical to its expanded mission to detect terrorist plots before they can be carried out, officials familiar with the program say. Administration officials maintain that the system set up by Congress in 1978 under the Foreign Intelligence Surveillance Act does not give them the speed and flexibility to respond fully to terrorist threats at home.
A former technology manager at a major telecommunications company said that since the Sept. 11 attacks, the leading companies in the industry have been storing information on calling patterns and giving it to the federal government to aid in tracking possible terrorists.
"All that data is mined with the cooperation of the government and shared with them, and since 9/11, there's been much more active involvement in that area," said the former manager, a telecommunications expert who did not want his name or that of his former company used because of concern about revealing trade secrets.
Such information often proves just as valuable to the government as eavesdropping on the calls themselves, the former manager said.
"If they get content, that's useful to them too, but the real plum is going to be the transaction data and the traffic analysis," he said. "Massive amounts of traffic analysis information - who is calling whom, who is in Osama Bin Laden's circle of family and friends - is used to identify lines of communication that are then given closer scrutiny." (SO BACK THE F*** OFF THESE GUYS)
Several officials said that after President Bush's order authorizing the N.S.A. program, senior government officials arranged with officials of some of the nation's largest telecommunications companies to gain access to switches that act as gateways at the borders between the United States' communications networks and international networks. The identities of the corporations involved could not be determined.
The switches are some of the main arteries for moving voice and some Internet traffic into and out of the United States, and, with the globalization of the telecommunications industry in recent years, many international-to-international calls are also routed through such American switches.
One outside expert on communications privacy who previously worked at the N.S.A. said that to exploit its technological capabilities, the American government had in the last few years been quietly encouraging the telecommunications industry to increase the amount of international traffic that is routed through American-based switches.
The growth of that transit traffic had become a major issue for the intelligence community, officials say, because it had not been fully addressed by 1970's-era laws and regulations governing the N.S.A. Now that foreign calls were being routed through switches on American soil, some judges and law enforcement officials regarded eavesdropping on those calls as a possible violation of those decades-old restrictions, including the Foreign Intelligence Surveillance Act, which requires court-approved warrants for domestic surveillance.
Historically, the American intelligence community has had close relationships with many communications and computer firms and related technical industries. But the N.S.A.'s backdoor access to major telecommunications switches on American soil with the cooperation of major corporations represents a significant expansion of the agency's operational capability, according to current and former government officials.
Phil Karn, a computer engineer and technology expert at a major West Coast telecommunications company, said access to such switches would be significant. "If the government is gaining access to the switches like this, what you're really talking about is the capability of an enormous vacuum operation to sweep up data," he said. (GOOD TIP PHIL)
December 24, 2005
By ERIC LICHTBLAU and JAMES RISEN
WASHINGTON, Dec. 23 - The National Security Agency has traced and analyzed large volumes of telephone and Internet communications flowing into and out of the United States as part of the eavesdropping program that President Bush approved after the Sept. 11, 2001, attacks to hunt for evidence of terrorist activity, according to current and former government officials. (ANOTHER CLASSIFIED DISCLOSURE, SO A TOTAL OF FOUR INVESTIGATIONS BETTER BE UNDER WAY. 1 FOR THE CIA BASES, 2 FOR THE DISCLOSURE OF INTERNATIONAL TAPS, 3 FOR THE RADIATION MONITORING DISCLOSURE, 4 FOR THIS DISCLOSURE. I GUESS IT WILL BE BUSY 2006 FOR CONGRESS, IF WE RELLY CARE ABOUT NATIONAL SECURITY)
The volume of information harvested from telecommunication data and voice networks, without court-approved warrants, is much larger than the White House has acknowledged, the officials said. It was collected by tapping directly into some of the American telecommunication system's main arteries, they said.
As part of the program approved by President Bush for domestic surveillance without warrants, the N.S.A. has gained the cooperation of American telecommunications companies to obtain backdoor access to streams of domestic and international communications, the officials said.
The government's collection and analysis of phone and Internet traffic have raised questions among some law enforcement and judicial officials familiar with the program. (SO 'SOME' HAVE CONCERNS? WELL I HAVE CONCERNS ABOUT THE DISCLOSURES BEING DISCLOSED) One issue of concern to the Foreign Intelligence Surveillance Court, which has reviewed some separate warrant applications growing out of the N.S.A.'s surveillance program, is whether the court has legal authority over calls outside the United States that happen to pass through American-based telephonic "switches," according to officials familiar with the matter.
"There was a lot of discussion about the switches" in conversations with the court, a Justice Department official said, referring to the gateways through which much of the communications traffic flows. "You're talking about access to such a vast amount of communications, and the question was, How do you minimize something that's on a switch that's carrying such large volumes of traffic? The court was very, very concerned about that."
Since the disclosure last week of the N.S.A.'s domestic surveillance program, President Bush and his senior aides have stressed that his executive order allowing eavesdropping without warrants was limited to the monitoring of international phone and e-mail communications involving people with known links to Al Qaeda.
(WHAT MORE DO WE NEED TO KNOW???)
What has not been publicly acknowledged is that N.S.A. technicians, besides actually eavesdropping on specific conversations, have combed through large volumes of phone and Internet traffic in search of patterns that might point to terrorism suspects. Some officials describe the program as a large data-mining operation.
The current and former government officials who discussed the program were granted anonymity because it remains classified.
Bush administration officials declined to comment on Friday on the technical aspects of the operation and the N.S.A.'s use of broad searches to look for clues on terrorists. Because the program is highly classified (SO WHOEVER DISCLOSED THIS WOULD BE IN SERIOUS TROUBLE RIGHT???), many details of how the N.S.A. is conducting it remain unknown, and members of Congress who have pressed for a full Congressional inquiry say they are eager to learn more about the program's operational details, as well as its legality.
Officials in the government and the telecommunications industry who have knowledge of parts of the program say the N.S.A. has sought to analyze communications patterns to glean clues from details like who is calling whom, how long a phone call lasts and what time of day it is made, and the origins and destinations of phone calls and e-mail messages. Calls to and from Afghanistan, for instance, are known to have been of particular interest to the N.S.A. since the Sept. 11 attacks, the officials said.
This so-called "pattern analysis" on calls within the United States would, in many circumstances, require a court warrant if the government wanted to trace who calls whom. (LOVE HEDGED WORDING, DON'T YOU?)
The use of similar data-mining operations by the Bush administration in other contexts has raised strong objections, most notably in connection with the Total Information Awareness system, developed by the Pentagon for tracking terror suspects, and the Department of Homeland Security's Capps program for screening airline passengers. Both programs were ultimately scrapped after public outcries over possible threats to privacy and civil liberties. (IT WORKS, SO IT MUST BE SCRAPPED TO SAVE CIVIL LIBERTIES)
But the Bush administration regards the N.S.A.'s ability to trace and analyze large volumes of data as critical to its expanded mission to detect terrorist plots before they can be carried out, officials familiar with the program say. Administration officials maintain that the system set up by Congress in 1978 under the Foreign Intelligence Surveillance Act does not give them the speed and flexibility to respond fully to terrorist threats at home.
A former technology manager at a major telecommunications company said that since the Sept. 11 attacks, the leading companies in the industry have been storing information on calling patterns and giving it to the federal government to aid in tracking possible terrorists.
"All that data is mined with the cooperation of the government and shared with them, and since 9/11, there's been much more active involvement in that area," said the former manager, a telecommunications expert who did not want his name or that of his former company used because of concern about revealing trade secrets.
Such information often proves just as valuable to the government as eavesdropping on the calls themselves, the former manager said.
"If they get content, that's useful to them too, but the real plum is going to be the transaction data and the traffic analysis," he said. "Massive amounts of traffic analysis information - who is calling whom, who is in Osama Bin Laden's circle of family and friends - is used to identify lines of communication that are then given closer scrutiny." (SO BACK THE F*** OFF THESE GUYS)
Several officials said that after President Bush's order authorizing the N.S.A. program, senior government officials arranged with officials of some of the nation's largest telecommunications companies to gain access to switches that act as gateways at the borders between the United States' communications networks and international networks. The identities of the corporations involved could not be determined.
The switches are some of the main arteries for moving voice and some Internet traffic into and out of the United States, and, with the globalization of the telecommunications industry in recent years, many international-to-international calls are also routed through such American switches.
One outside expert on communications privacy who previously worked at the N.S.A. said that to exploit its technological capabilities, the American government had in the last few years been quietly encouraging the telecommunications industry to increase the amount of international traffic that is routed through American-based switches.
The growth of that transit traffic had become a major issue for the intelligence community, officials say, because it had not been fully addressed by 1970's-era laws and regulations governing the N.S.A. Now that foreign calls were being routed through switches on American soil, some judges and law enforcement officials regarded eavesdropping on those calls as a possible violation of those decades-old restrictions, including the Foreign Intelligence Surveillance Act, which requires court-approved warrants for domestic surveillance.
Historically, the American intelligence community has had close relationships with many communications and computer firms and related technical industries. But the N.S.A.'s backdoor access to major telecommunications switches on American soil with the cooperation of major corporations represents a significant expansion of the agency's operational capability, according to current and former government officials.
Phil Karn, a computer engineer and technology expert at a major West Coast telecommunications company, said access to such switches would be significant. "If the government is gaining access to the switches like this, what you're really talking about is the capability of an enormous vacuum operation to sweep up data," he said. (GOOD TIP PHIL)
Al Qaeda fiend targeted Bush (WELL, I GUESS WE'LL HAVE TO 'TALK' WITH HIM IN SAY EGYPT)
By JAMES GORDON MEEK
Thursday, December 22nd, 2005
WASHINGTON - Before he was captured last spring, Osama Bin Laden's top operational commander was solely focused on killing President Bush and Pakistani President Gen. Pervez Musharaff, the Daily News has learned.
The capture last May of Al Qaeda's No. 3 leader, Abu Faraj Al-Libi, apparently thwarted plots to assassinate the two partners in the global war on terror, said a senior Pakistani official, whose information was corroborated by two senior U.S. counterterrorism officials.
"Al-Libi had one mission: Kill Bush and Musharraf," the Pakistani official told The News. "He wanted to kill Bush in the White House, preferably."
"It was clearly something they wanted to do. There's no question about that. It's the holy grail of jihad," a senior U.S. counterterrorism official confirmed.
Al-Libi organized several failed assassination attempts on Musharraf before he was nabbed, officials have said. But the plot by Al Qaeda's international operations chief to send assassins to the U.S. to kill Bush was only disclosed this week.
The officials asked for anonymity because details of the Bush plot are still highly classified. The officials added that there is little evidence the U.S. mission advanced beyond initial planning by Al-Libi in Pakistan.
Two years before Al-Libi's capture by Pakistani and CIA operatives in Pakistan's mountainous North-West Frontier province, near where many believe Bin Laden is hiding, American officials were informed by Musharraf envoys that the top Al Qaeda thug was bent on assassinating Bush, officials said.
Officials said it was not known if Bin Laden or his deputy, Ayman Al-Zawahiri, personally ordered Al-Libi to hit the U.S. President.
Al-Libi replaced 9/11 attacks mastermind Khalid Shaikh Mohammed, who was captured in Pakistan in March 2003. Al-Libi's aide and successor, Abu Hamza Rabia, was killed this month in Pakistan by a missile fired from an unmanned CIA predator drone, sources said.
By JAMES GORDON MEEK
Thursday, December 22nd, 2005
WASHINGTON - Before he was captured last spring, Osama Bin Laden's top operational commander was solely focused on killing President Bush and Pakistani President Gen. Pervez Musharaff, the Daily News has learned.
The capture last May of Al Qaeda's No. 3 leader, Abu Faraj Al-Libi, apparently thwarted plots to assassinate the two partners in the global war on terror, said a senior Pakistani official, whose information was corroborated by two senior U.S. counterterrorism officials.
"Al-Libi had one mission: Kill Bush and Musharraf," the Pakistani official told The News. "He wanted to kill Bush in the White House, preferably."
"It was clearly something they wanted to do. There's no question about that. It's the holy grail of jihad," a senior U.S. counterterrorism official confirmed.
Al-Libi organized several failed assassination attempts on Musharraf before he was nabbed, officials have said. But the plot by Al Qaeda's international operations chief to send assassins to the U.S. to kill Bush was only disclosed this week.
The officials asked for anonymity because details of the Bush plot are still highly classified. The officials added that there is little evidence the U.S. mission advanced beyond initial planning by Al-Libi in Pakistan.
Two years before Al-Libi's capture by Pakistani and CIA operatives in Pakistan's mountainous North-West Frontier province, near where many believe Bin Laden is hiding, American officials were informed by Musharraf envoys that the top Al Qaeda thug was bent on assassinating Bush, officials said.
Officials said it was not known if Bin Laden or his deputy, Ayman Al-Zawahiri, personally ordered Al-Libi to hit the U.S. President.
Al-Libi replaced 9/11 attacks mastermind Khalid Shaikh Mohammed, who was captured in Pakistan in March 2003. Al-Libi's aide and successor, Abu Hamza Rabia, was killed this month in Pakistan by a missile fired from an unmanned CIA predator drone, sources said.
Japan's population starts shrinking (THE BEGINNING OF THE END)
Wed Dec 21,11:28 PM ET
Japan's population fell for the first time in 2005, the government said, calling it a "turning point" that will force the world's second largest economy to adapt to a rapidly aging society.
With its young people increasingly finding children a burden to their careers and lifestyles, Japan joins Germany and Italy among a club of nations whose populations have started to shrink.
Deaths are likely to outnumber births by about 10,000 this year, the first decline since 1899 when Japan began compiling the data, health ministry figures showed.
"Our country is now standing at a major turning point in terms of population," Health, Labor and Welfare Minister Jiro Kawasaki told a news conference.
"We must take countermeasures against the falling birthrate along with measures to support and foster our future generations," Kawasaki said.
Japan's population stood at 127,687,000 as of October 2004. The health ministry said births were set to fall by 44,000 to 1,067,000 this year, with deaths going up 48,000 to 1,077,000 year-on-year.
"Although there may be some temporary gains in population in the future, it cannot be helped to foresee a further decline in the mid- and long-run," a health ministry official said.
The declining population fuels fears for the pension system as a smaller workforce supports a mass of pensioners.
Historically homogeneous Japan has so far rejected wide-scale immigration, accepting only foreign workers with particular skills.
The latest study shows the population is dropping at a faster pace than thought. Just last week the Cabinet Office forecast the population would start shrinking in 2006 -- itself a revision to a previous estimate that the decline would begin in 2007.
The Cabinet Office predicted that the population will halve to 60 million people by 2100.
Wed Dec 21,11:28 PM ET
Japan's population fell for the first time in 2005, the government said, calling it a "turning point" that will force the world's second largest economy to adapt to a rapidly aging society.
With its young people increasingly finding children a burden to their careers and lifestyles, Japan joins Germany and Italy among a club of nations whose populations have started to shrink.
Deaths are likely to outnumber births by about 10,000 this year, the first decline since 1899 when Japan began compiling the data, health ministry figures showed.
"Our country is now standing at a major turning point in terms of population," Health, Labor and Welfare Minister Jiro Kawasaki told a news conference.
"We must take countermeasures against the falling birthrate along with measures to support and foster our future generations," Kawasaki said.
Japan's population stood at 127,687,000 as of October 2004. The health ministry said births were set to fall by 44,000 to 1,067,000 this year, with deaths going up 48,000 to 1,077,000 year-on-year.
"Although there may be some temporary gains in population in the future, it cannot be helped to foresee a further decline in the mid- and long-run," a health ministry official said.
The declining population fuels fears for the pension system as a smaller workforce supports a mass of pensioners.
Historically homogeneous Japan has so far rejected wide-scale immigration, accepting only foreign workers with particular skills.
The latest study shows the population is dropping at a faster pace than thought. Just last week the Cabinet Office forecast the population would start shrinking in 2006 -- itself a revision to a previous estimate that the decline would begin in 2007.
The Cabinet Office predicted that the population will halve to 60 million people by 2100.
North Koreans Attend Ideology 101 (KIM: WORLD'S BIGGEST TYRANT/AUTOCRAT)
Lectures smuggled out show the regime's efforts to combat the outside influences seeping in, and illustrate the extent of anti-Americanism.
By Barbara Demick
Times Staff Writer
December 24, 2005
SEOUL — Watching foreign movies clouds the mental and ideological health of the people.
Foreign hairstyles and clothing are signs of the "utterly rotten bourgeois lifestyle."
Shaking hands should be avoided in favor of bowing, as it is more hygienic and a part of the national culture.
It might sound like a cross between Miss Manners and a political screed, but this is the advice recently crafted by North Korea's ruling Workers' Party for indoctrination lectures at factories, collective farms and other workplaces.
For decades, North Koreans have been forced to attend such sessions to reinforce the national illusion that they are lucky to live under the wise leadership of first Kim Il Sung, the nation's founder, and now his son, Kim Jong Il, who inherited power after his father's death in 1994.
More than 100 pages of written lectures smuggled out of North Korea this year reveal that the leadership is in a state of near-hysteria about outside influences seeping across the nation's once hermetically sealed borders. The spread of "unusual lifestyles," the lectures warn listeners, could render them "incapable of following revolutionary thoughts and sacrificing their lives" for Kim.
The documents also underscore the extent to which anti-Americanism gives meaning to the country and its people. More than 50 years after the end of the Korean War, the United States is blamed for all of North Korea's woes, from food shortages to the infiltration of foreign culture.
"The bastards' indecent methods are clouding the mental and ideological health of the people," warns one lecture. "If we cannot stop them in time, we will be in the same position as the Iraqis." (FREE? GROWING? WORLD AID FOWING IN? FUTURE LOOKING BETTER EVERYDAY? HOW DREADFUL)
Brian Myers, an expert in North Korean propaganda at South Korea's Injae University, said he detected an air of desperation in the material.
"This is a regime which for half a century claimed to have 100% support of its people. Now they are admitting that its people are succumbing to money madness and the desire for foreign things. Not just a few people but enough that it is a social phenomenon," Myers said.
North Korea takes extraordinary measures to insulate its citizens from knowledge of the outside world. Radios and TVs are preset to government stations; foreign newspapers, magazines, books, films and music are banned.
But in the last several years, trade between North Korea and China has surged, much of it not approved by North Korea's leaders. Along with food and consumer goods, traders smuggle in DVDs, tapes, books and Bibles, radios and mobile phones. Once considered taboo, T-shirts with English lettering are pouring into North Korean markets from Chinese garment factories.
The regime fears not only critical material but depictions of other nations that would make North Koreans realize how poor they are in comparison. (WAIT, ARE THEY LUCKY, HAPPY AND HEALTHY UNDER HEAD NUT JOB KIM JONG IL???)
"The enemies use these videos and specially made materials to beautify the world of imperialism … and to [spread] a fantasy of the free world," one lecture says. North Koreans are urged to steel themselves against such corrupting influences by eating traditional foods, wearing traditional clothing and keeping their hair tidy.
Photocopies of six lectures were given to the Los Angeles Times by Rescue the North Korean People, a human rights group based in Osaka, Japan.
"It shows that the North Koreans cannot protect their borders. They cannot keep foreign material out, so all they can do is try to educate their people to resist," said Lee Young Hwa, the head of the group.
Lee said he obtained the lectures from a disgruntled Workers' Party member. Because the party keeps close tabs on such material and there are no public photocopy facilities in North Korea, the papers were smuggled to China, copied and returned before their absence could be detected, Lee said.
Others who have examined the documents say they are consistent in typeface and style with other Workers' Party documents smuggled out of North Korea.
All of the lectures are dated April 2005, the year Juche 94 in North Korea's calendar, which begins with the birth of Kim Il Sung. (NICE CALENDER KIM, YOU F***ING IDIOT)
The contents largely echo the propaganda of North Korea's official media, which also rail against cultural infiltration. But because the lectures were intended for domestic consumption, the language is less guarded. For example, they use the term nom, which translates roughly as "bastard," to refer to Americans.
The lectures are apparently intended for different audiences — two are for government officials and another is for teens.
Other lectures are part of a party campaign called the Border Residents Political Project, apparently focused on the nation's jagged, 800-mile frontier with China.
The lecturers gripe in particular about Radio Free Asia, a U.S.-funded station that frequently broadcasts stories in Korean that are critical of Kim Jong Il's regime. (WHATEVER AMOUNT OF MONEY IS BEING SPENT, TRIPLE IT. THE MORE KIM DISLIKES IT, THE MORE I LOVE IT) But there is no evidence that the United States is otherwise directly involved in disseminating foreign culture in North Korea. Rather, it seems to be the overpowering tide of globalization that is puncturing the seal around the country.
It is notable, Myers said, that the lectures don't urge people to report wrongdoers to police.
"This is a sign that the country is not as repressive as it used to be," he said. "It is evident that even people in the party realize it is a losing battle to try to stem the influence of foreign culture."
A 19-year-old North Korean from the border city of Musan said she and a friend used to take a boombox to a riverbank along the border, where they could play illegal cassettes of South Korean pop music.
"People my age don't listen to that Kim Il Sung ideology music anymore," said the teen, who defected from North Korea three years ago with her family and is living in Seoul under the name Choi Hwa. Implying that police took bribes to look the other way, she added: "The police will close their eyes because they can't survive on their salary."
Tradition is the weapon against such influences, the lectures say. One, titled "How to Crush the Schemes of the Enemies Who Disseminate Unusual Lifestyles," tells citizens that "we must eradicate the erroneous way of thinking that eating foreign foods enhances your living standards."
In other tips, women are urged to wear modest skirts and blouses or the traditional loose-fitting hanbok. Men and women are advised to pay particular attention to their hair.
The advice parallels a 2004 campaign on the North Korean Central Broadcasting Network warning men not to let their hair grow longer than 2 inches, although older men were permitted an extra four-fifths of an inch for comb-overs.
The TV station warned that collar-length hair on men depleted the brain of oxygen and did not conform to "socialist style." (KIM, ARE YOU FOR REAL???)
The warnings of the party ideologues against foreign culture, though, have an element of "Do as I say, not as I do."
Kim Jong Il himself is so fond of international cuisines that he has flown in chefs from Italy and Japan to Pyongyang, the capital. He has a collection of thousands of foreign films. Visiting aid officials and dignitaries such as former President Carter (who helped broker a now-collapsed 1994 disarmament deal) have carried in movies for the North Korean leader. (JIMMY CARTER, YOU JUST DON'T GET IT DO YOU. HUGGING AUTOCRATS IS CRAZY)
In karaoke bars patronized by the ruling echelon in the North Korean capital, there is a wide, if dated, selection of Western rock 'n' roll.
Foreigners who recently visited the bar at the Potongan Hotel in Pyongyang were surprised to hear, among other offerings, "Everybody Wants to Rule the World" by Tears for Fears and the Beatles' "Back in the USSR."
Lectures smuggled out show the regime's efforts to combat the outside influences seeping in, and illustrate the extent of anti-Americanism.
By Barbara Demick
Times Staff Writer
December 24, 2005
SEOUL — Watching foreign movies clouds the mental and ideological health of the people.
Foreign hairstyles and clothing are signs of the "utterly rotten bourgeois lifestyle."
Shaking hands should be avoided in favor of bowing, as it is more hygienic and a part of the national culture.
It might sound like a cross between Miss Manners and a political screed, but this is the advice recently crafted by North Korea's ruling Workers' Party for indoctrination lectures at factories, collective farms and other workplaces.
For decades, North Koreans have been forced to attend such sessions to reinforce the national illusion that they are lucky to live under the wise leadership of first Kim Il Sung, the nation's founder, and now his son, Kim Jong Il, who inherited power after his father's death in 1994.
More than 100 pages of written lectures smuggled out of North Korea this year reveal that the leadership is in a state of near-hysteria about outside influences seeping across the nation's once hermetically sealed borders. The spread of "unusual lifestyles," the lectures warn listeners, could render them "incapable of following revolutionary thoughts and sacrificing their lives" for Kim.
The documents also underscore the extent to which anti-Americanism gives meaning to the country and its people. More than 50 years after the end of the Korean War, the United States is blamed for all of North Korea's woes, from food shortages to the infiltration of foreign culture.
"The bastards' indecent methods are clouding the mental and ideological health of the people," warns one lecture. "If we cannot stop them in time, we will be in the same position as the Iraqis." (FREE? GROWING? WORLD AID FOWING IN? FUTURE LOOKING BETTER EVERYDAY? HOW DREADFUL)
Brian Myers, an expert in North Korean propaganda at South Korea's Injae University, said he detected an air of desperation in the material.
"This is a regime which for half a century claimed to have 100% support of its people. Now they are admitting that its people are succumbing to money madness and the desire for foreign things. Not just a few people but enough that it is a social phenomenon," Myers said.
North Korea takes extraordinary measures to insulate its citizens from knowledge of the outside world. Radios and TVs are preset to government stations; foreign newspapers, magazines, books, films and music are banned.
But in the last several years, trade between North Korea and China has surged, much of it not approved by North Korea's leaders. Along with food and consumer goods, traders smuggle in DVDs, tapes, books and Bibles, radios and mobile phones. Once considered taboo, T-shirts with English lettering are pouring into North Korean markets from Chinese garment factories.
The regime fears not only critical material but depictions of other nations that would make North Koreans realize how poor they are in comparison. (WAIT, ARE THEY LUCKY, HAPPY AND HEALTHY UNDER HEAD NUT JOB KIM JONG IL???)
"The enemies use these videos and specially made materials to beautify the world of imperialism … and to [spread] a fantasy of the free world," one lecture says. North Koreans are urged to steel themselves against such corrupting influences by eating traditional foods, wearing traditional clothing and keeping their hair tidy.
Photocopies of six lectures were given to the Los Angeles Times by Rescue the North Korean People, a human rights group based in Osaka, Japan.
"It shows that the North Koreans cannot protect their borders. They cannot keep foreign material out, so all they can do is try to educate their people to resist," said Lee Young Hwa, the head of the group.
Lee said he obtained the lectures from a disgruntled Workers' Party member. Because the party keeps close tabs on such material and there are no public photocopy facilities in North Korea, the papers were smuggled to China, copied and returned before their absence could be detected, Lee said.
Others who have examined the documents say they are consistent in typeface and style with other Workers' Party documents smuggled out of North Korea.
All of the lectures are dated April 2005, the year Juche 94 in North Korea's calendar, which begins with the birth of Kim Il Sung. (NICE CALENDER KIM, YOU F***ING IDIOT)
The contents largely echo the propaganda of North Korea's official media, which also rail against cultural infiltration. But because the lectures were intended for domestic consumption, the language is less guarded. For example, they use the term nom, which translates roughly as "bastard," to refer to Americans.
The lectures are apparently intended for different audiences — two are for government officials and another is for teens.
Other lectures are part of a party campaign called the Border Residents Political Project, apparently focused on the nation's jagged, 800-mile frontier with China.
The lecturers gripe in particular about Radio Free Asia, a U.S.-funded station that frequently broadcasts stories in Korean that are critical of Kim Jong Il's regime. (WHATEVER AMOUNT OF MONEY IS BEING SPENT, TRIPLE IT. THE MORE KIM DISLIKES IT, THE MORE I LOVE IT) But there is no evidence that the United States is otherwise directly involved in disseminating foreign culture in North Korea. Rather, it seems to be the overpowering tide of globalization that is puncturing the seal around the country.
It is notable, Myers said, that the lectures don't urge people to report wrongdoers to police.
"This is a sign that the country is not as repressive as it used to be," he said. "It is evident that even people in the party realize it is a losing battle to try to stem the influence of foreign culture."
A 19-year-old North Korean from the border city of Musan said she and a friend used to take a boombox to a riverbank along the border, where they could play illegal cassettes of South Korean pop music.
"People my age don't listen to that Kim Il Sung ideology music anymore," said the teen, who defected from North Korea three years ago with her family and is living in Seoul under the name Choi Hwa. Implying that police took bribes to look the other way, she added: "The police will close their eyes because they can't survive on their salary."
Tradition is the weapon against such influences, the lectures say. One, titled "How to Crush the Schemes of the Enemies Who Disseminate Unusual Lifestyles," tells citizens that "we must eradicate the erroneous way of thinking that eating foreign foods enhances your living standards."
In other tips, women are urged to wear modest skirts and blouses or the traditional loose-fitting hanbok. Men and women are advised to pay particular attention to their hair.
The advice parallels a 2004 campaign on the North Korean Central Broadcasting Network warning men not to let their hair grow longer than 2 inches, although older men were permitted an extra four-fifths of an inch for comb-overs.
The TV station warned that collar-length hair on men depleted the brain of oxygen and did not conform to "socialist style." (KIM, ARE YOU FOR REAL???)
The warnings of the party ideologues against foreign culture, though, have an element of "Do as I say, not as I do."
Kim Jong Il himself is so fond of international cuisines that he has flown in chefs from Italy and Japan to Pyongyang, the capital. He has a collection of thousands of foreign films. Visiting aid officials and dignitaries such as former President Carter (who helped broker a now-collapsed 1994 disarmament deal) have carried in movies for the North Korean leader. (JIMMY CARTER, YOU JUST DON'T GET IT DO YOU. HUGGING AUTOCRATS IS CRAZY)
In karaoke bars patronized by the ruling echelon in the North Korean capital, there is a wide, if dated, selection of Western rock 'n' roll.
Foreigners who recently visited the bar at the Potongan Hotel in Pyongyang were surprised to hear, among other offerings, "Everybody Wants to Rule the World" by Tears for Fears and the Beatles' "Back in the USSR."
Winners and losers in Iraq (SHOULDN'T THEY FIGURE THIS OUT FOR THEMSELVES???)
December 24, 2005
PRESIDENT BUSH IS FOND OF berating opponents of the Iraq war who allegedly claim that Arab nations such as Iraq aren't ready for democracy. The president now needs to explain democracy to Iraq's Sunnis and let them know that in elections like the one held last week, the group with the most votes wins.
Unfortunately for the Sunnis, those were the other guys.
Sunni politicians who claim the election was rigged and should be held anew, or at least that claims of fraud should be investigated by international groups, picked up some support Thursday from secular Shiite groups that also are disappointed with the still-incomplete election returns. It has been clear almost from the time the polls closed that the United Iraqi Alliance, which has close ties to Shiites in theocratic Iran and supports a state governed by Shiite precepts, won the most votes. Preliminary calculations give the United Iraqi Alliance more than 40% of the votes and 110 of the 275 seats in parliament. A Sunni coalition was far behind, with less than 20% of the vote.
The U.S. investment in Iraq's future was dramatized this week by Baghdad visits by Vice President Dick Cheney and Defense Secretary Donald H. Rumsfeld. Also paying visits to Iraq were the prime ministers of Britain, Tony Blair, and Poland, Kazimierz Marcinkiewicz. Bush hailed the strong election turnout by making a rare speech from the Oval Office on Sunday night.
Washington, led by Ambassador Zalmay Khalilzad, needs to urge the government that eventually emerges to think first of Iraq's unity, not revenge. It will be difficult to satisfy all the demands of Iraq's key groups — the majority Shiites, the Sunnis and the Kurds, who predominate in different sections of the country. Iraq could fracture into pieces, especially if Shiites who suffered so much under Saddam Hussein — who favored his fellow Sunnis — look for payback. (COULD, MIGHT, MAY . . .)
A joint statement by nearly three dozen political groups that did poorly in the election, and want the results investigated by the United Nations, the European Union or the Arab League, has the stench of sour grapes. The organizations threatened to boycott Iraq's new legislature if their demand is not met. They should get over it, like the losers of elections in all democratic countries. (LIKE SAY DEOMSCRATS WHO THINK AL GORE WON? AGAIN, DO THIS OR THAT, BUT WHEN IT EFFECTS DEMOCRATS, THE RULES CHANGE) Iraq has its own Independent Electoral Commission, which monitored the balloting and has pledged to look into about 700 complaints, at least 20 of them serious.
Sunnis boycotted the January vote for an interim national assembly, then took part in October's constitutional referendum and last week's balloting. Preliminary calculations indicate that they are likely to get more than 40 seats in parliament, far more than the 17 they now hold. A secular Shiite group headed by the former prime minister, Iyad Allawi, appears to have won 21 seats, though that could increase by the time final results, including expatriate ballots, are certified next month.
Seen in the best light, the differing strengths will encourage political bargaining; the worst view envisions governmental paralysis, especially if the insurgency that has killed so many Iraqis and U.S. soldiers continues.
Most insurgents are Sunnis, and sectarian unhappiness and anger could fuel more violence. The Shiites should reach out to their onetime antagonists and understand it will take a political agreement, not a military victory, to end the insurgency. (DEEP THOUGHTS FROM THE EDITORIAL DESK IN LA)
December 24, 2005
PRESIDENT BUSH IS FOND OF berating opponents of the Iraq war who allegedly claim that Arab nations such as Iraq aren't ready for democracy. The president now needs to explain democracy to Iraq's Sunnis and let them know that in elections like the one held last week, the group with the most votes wins.
Unfortunately for the Sunnis, those were the other guys.
Sunni politicians who claim the election was rigged and should be held anew, or at least that claims of fraud should be investigated by international groups, picked up some support Thursday from secular Shiite groups that also are disappointed with the still-incomplete election returns. It has been clear almost from the time the polls closed that the United Iraqi Alliance, which has close ties to Shiites in theocratic Iran and supports a state governed by Shiite precepts, won the most votes. Preliminary calculations give the United Iraqi Alliance more than 40% of the votes and 110 of the 275 seats in parliament. A Sunni coalition was far behind, with less than 20% of the vote.
The U.S. investment in Iraq's future was dramatized this week by Baghdad visits by Vice President Dick Cheney and Defense Secretary Donald H. Rumsfeld. Also paying visits to Iraq were the prime ministers of Britain, Tony Blair, and Poland, Kazimierz Marcinkiewicz. Bush hailed the strong election turnout by making a rare speech from the Oval Office on Sunday night.
Washington, led by Ambassador Zalmay Khalilzad, needs to urge the government that eventually emerges to think first of Iraq's unity, not revenge. It will be difficult to satisfy all the demands of Iraq's key groups — the majority Shiites, the Sunnis and the Kurds, who predominate in different sections of the country. Iraq could fracture into pieces, especially if Shiites who suffered so much under Saddam Hussein — who favored his fellow Sunnis — look for payback. (COULD, MIGHT, MAY . . .)
A joint statement by nearly three dozen political groups that did poorly in the election, and want the results investigated by the United Nations, the European Union or the Arab League, has the stench of sour grapes. The organizations threatened to boycott Iraq's new legislature if their demand is not met. They should get over it, like the losers of elections in all democratic countries. (LIKE SAY DEOMSCRATS WHO THINK AL GORE WON? AGAIN, DO THIS OR THAT, BUT WHEN IT EFFECTS DEMOCRATS, THE RULES CHANGE) Iraq has its own Independent Electoral Commission, which monitored the balloting and has pledged to look into about 700 complaints, at least 20 of them serious.
Sunnis boycotted the January vote for an interim national assembly, then took part in October's constitutional referendum and last week's balloting. Preliminary calculations indicate that they are likely to get more than 40 seats in parliament, far more than the 17 they now hold. A secular Shiite group headed by the former prime minister, Iyad Allawi, appears to have won 21 seats, though that could increase by the time final results, including expatriate ballots, are certified next month.
Seen in the best light, the differing strengths will encourage political bargaining; the worst view envisions governmental paralysis, especially if the insurgency that has killed so many Iraqis and U.S. soldiers continues.
Most insurgents are Sunnis, and sectarian unhappiness and anger could fuel more violence. The Shiites should reach out to their onetime antagonists and understand it will take a political agreement, not a military victory, to end the insurgency. (DEEP THOUGHTS FROM THE EDITORIAL DESK IN LA)
Rumsfeld Cites Iraqi Troops' Progress as Key Reason for U.S. Military Drawdown
By Borzou Daragahi and Greg Miller
Times Staff Writers
December 24, 2005
BAGHDAD — Iraqi military forces are enjoying newfound success blocking insurgents from entering the country from Syria, U.S. officials said Friday, a key improvement that led to the announcement of the first formal reduction in American troop levels.
Defense Secretary Donald H. Rumsfeld announced the modest drawdown of about 7,000 U.S. troops from brigades that were scheduled to deploy to the war-torn country but will now remain in the United States or be diverted to Kuwait.
The total number of U.S. forces in Iraq has hovered around 160,000 over the last month, reflecting a buildup for last week's parliamentary elections. Rumsfeld's announcement means that by early 2006, the number of American troops in Iraq will drop to about 130,000.
Even though the reduction is slight and will take place nearly three years after the U.S. invasion, it will enable President Bush to claim a measure of progress, perhaps relieving some domestic pressure for a drawdown while holding to Bush's insistence that it be based on conditions on the ground.
It also will give American commanders an opportunity to argue that U.S. troops do not represent a permanent occupation force. However, analysts said it would take a steady pattern of reductions to convince Iraqis the Americans really intend to leave.
Military officials including Rumsfeld, who paid a surprise visit to Iraq this week, praised Iraqi forces for their work during the Dec. 15 parliamentary vote and said they have grown more adept at controlling the porous Syrian border.
"We feel very pleased by the progress of the Iraqi forces and the role they are playing providing security," said Rumsfeld, flanked by Iraqi Prime Minister Ibrahim Jafari, U.S. Ambassador Zalmay Khalilzad and Army Gen. George W. Casey, the top U.S. military official in Iraq.
U.S. officials for months have complained that Syria has not tried to control the border. But Casey said that U.S.-Iraqi operations along Iraq's western border aimed at preventing potential suicide bombers from entering the country had paid off, and that Iraqis were exercising greater control over unruly towns and villages in the border area.
Although insurgent attacks killed four U.S. soldiers in Baghdad over the last two days and 14 Iraqis northeast of the capital on Friday, Casey said the number of suicide attacks had dropped from 60 in June to 26 in November. There have been 16 this month. He said that was evidence that border control efforts were succeeding.
"We had to credibly say they had control over that border before we could offer up some of our guys," he said.
The decision not to deploy the two U.S. brigades also reflected political pressure in Washington, where Bush's approval ratings have been battered for months. (EASY HERE)
In the last month, a concerted effort by the White House to explain its position, coupled with heavy turnout for the Iraqi elections, led to a partial rebound for Bush in national polls. Friday's announcement offers an encouraging signal to military families just days before the Christmas holiday.
Military experts said it was a good time to indicate to Iraqis that U.S. forces would gradually leave, but also noted that the Iraqi reaction would probably be muted.
"There's not going to be dancing in the streets," said Gary Anderson, a retired U.S. Marine colonel who has advised the Defense Department on Iraqi security matters. While insurgents might seek to claim credit for driving U.S. forces out, most Iraqis are unlikely "to pay a lot of attention to this right now, until they see a slow, steady trend over the course of six months."
Anderson said he believed the announcement was the first step in what was likely to be a gradual withdrawal of U.S. forces. More U.S. troops could be pulled out over the coming year from relatively secure regions in the north and south of the country, replaced by Iraqi forces.
"The Sunni Triangle, the harder areas of Baghdad and Al Anbar province are probably going to be the last to see this happen, and that's at least a couple of years away," Anderson said.
Under the plan outlined by Rumsfeld, portions of the 1st Brigade of the 1st Infantry Division would remain at Ft. Riley, Kan. In addition, the 2nd Brigade of the 1st Armored Division, based in Baumholder, Germany, will remain in Kuwait as a backup force. The deployment of both brigades was halted this month. Friday's announcement formalized the change of plans.
Casey has said in recent months that the presence of U.S. and other foreign troops could be fueling the insurgency and undermining the readiness of Iraqi forces.
"In this type of war, more is not necessarily better," he said at a briefing after Rumsfeld spoke. "Less is better because it doesn't feed the notion of occupation or the culture of dependency."
"It doesn't lengthen the time for the Iraqis to be self-reliant. And it doesn't expose coalition forces to risk when there are Iraqi forces who are capable of standing up and doing it, and who want to do it," Casey said.
The move was praised by Democrats, who have criticized the Bush administration for its handling of the war in Iraq and have pushed for a more rapid withdrawal of U.S. troops. (THANK GOODNESS THE DEMS LIKED IT. YOU SEE, EVERYTHING REVOLVES AROUND WHAT THEY WANT, LIKE, FEEL. BECAUSE THEY HAVE WON THE ELECTION . . .)
"This long overdue announcement is good news for our courageous men and women serving in Iraq, for their families, and for the American people," said Rep. Nancy Pelosi (D-San Francisco), the House minority leader. "This reduction is a step in the right direction, which I hope will quickly be followed by others that will result in all U.S. combat forces being redeployed from Iraq next year." (YOU CONTINUE TO BE SO VERY HELPFUL. HOW AE THOSE ANTI-SOLDIER RESOLUTIONS DOING IN CA? WHY NOT ADDRESS THOSE NANCY YOU ___ING IDIOT)
Bush has said that setting troop withdrawal timetables would encourage insurgents to wait out the U.S. presence. (NANCY, A POLICY EXPERT DISAGREES)
Insurgent attacks have remained steady at about 100 a day, U.S. officials said. But Casey said such tallies weren't "necessarily the best way to measure the capabilities of the insurgency."
Losers in the Dec. 15 balloting, including Sunni Arabs and nationalists, took to the streets of several cities Friday alleging vote fraud and demanding a restaging of the elections. Insurgents attacked a checkpoint along the highway between Baghdad and the northern city of Kirkuk, killing 10 people and wounding at least 20.
A suicide bomber killed four people and wounded eight in an explosion at the entrance to a Shiite mosque near the town of Balad Ruz, northeast of the capital.
In the nearby provincial capital, Baqubah, authorities discovered the bodies of three unidentified men in a field. The victims, who were blindfolded, bore gunshot wounds and signs of torture.
Homemade bombs in Samarra have killed five people and injured several over the last two days. An Interior Ministry official was wounded in an assassination attempt in Baghdad.
The four American soldiers were killed in separate roadside bomb attacks in the capital. At least 2,160 U.S. military personnel have died in Iraq since the March 2003 invasion, 50 this month.
Daragahi reported from Baghdad and Miller from Washington. Special correspondents in Baqubah and Samarra contributed to this report.
By Borzou Daragahi and Greg Miller
Times Staff Writers
December 24, 2005
BAGHDAD — Iraqi military forces are enjoying newfound success blocking insurgents from entering the country from Syria, U.S. officials said Friday, a key improvement that led to the announcement of the first formal reduction in American troop levels.
Defense Secretary Donald H. Rumsfeld announced the modest drawdown of about 7,000 U.S. troops from brigades that were scheduled to deploy to the war-torn country but will now remain in the United States or be diverted to Kuwait.
The total number of U.S. forces in Iraq has hovered around 160,000 over the last month, reflecting a buildup for last week's parliamentary elections. Rumsfeld's announcement means that by early 2006, the number of American troops in Iraq will drop to about 130,000.
Even though the reduction is slight and will take place nearly three years after the U.S. invasion, it will enable President Bush to claim a measure of progress, perhaps relieving some domestic pressure for a drawdown while holding to Bush's insistence that it be based on conditions on the ground.
It also will give American commanders an opportunity to argue that U.S. troops do not represent a permanent occupation force. However, analysts said it would take a steady pattern of reductions to convince Iraqis the Americans really intend to leave.
Military officials including Rumsfeld, who paid a surprise visit to Iraq this week, praised Iraqi forces for their work during the Dec. 15 parliamentary vote and said they have grown more adept at controlling the porous Syrian border.
"We feel very pleased by the progress of the Iraqi forces and the role they are playing providing security," said Rumsfeld, flanked by Iraqi Prime Minister Ibrahim Jafari, U.S. Ambassador Zalmay Khalilzad and Army Gen. George W. Casey, the top U.S. military official in Iraq.
U.S. officials for months have complained that Syria has not tried to control the border. But Casey said that U.S.-Iraqi operations along Iraq's western border aimed at preventing potential suicide bombers from entering the country had paid off, and that Iraqis were exercising greater control over unruly towns and villages in the border area.
Although insurgent attacks killed four U.S. soldiers in Baghdad over the last two days and 14 Iraqis northeast of the capital on Friday, Casey said the number of suicide attacks had dropped from 60 in June to 26 in November. There have been 16 this month. He said that was evidence that border control efforts were succeeding.
"We had to credibly say they had control over that border before we could offer up some of our guys," he said.
The decision not to deploy the two U.S. brigades also reflected political pressure in Washington, where Bush's approval ratings have been battered for months. (EASY HERE)
In the last month, a concerted effort by the White House to explain its position, coupled with heavy turnout for the Iraqi elections, led to a partial rebound for Bush in national polls. Friday's announcement offers an encouraging signal to military families just days before the Christmas holiday.
Military experts said it was a good time to indicate to Iraqis that U.S. forces would gradually leave, but also noted that the Iraqi reaction would probably be muted.
"There's not going to be dancing in the streets," said Gary Anderson, a retired U.S. Marine colonel who has advised the Defense Department on Iraqi security matters. While insurgents might seek to claim credit for driving U.S. forces out, most Iraqis are unlikely "to pay a lot of attention to this right now, until they see a slow, steady trend over the course of six months."
Anderson said he believed the announcement was the first step in what was likely to be a gradual withdrawal of U.S. forces. More U.S. troops could be pulled out over the coming year from relatively secure regions in the north and south of the country, replaced by Iraqi forces.
"The Sunni Triangle, the harder areas of Baghdad and Al Anbar province are probably going to be the last to see this happen, and that's at least a couple of years away," Anderson said.
Under the plan outlined by Rumsfeld, portions of the 1st Brigade of the 1st Infantry Division would remain at Ft. Riley, Kan. In addition, the 2nd Brigade of the 1st Armored Division, based in Baumholder, Germany, will remain in Kuwait as a backup force. The deployment of both brigades was halted this month. Friday's announcement formalized the change of plans.
Casey has said in recent months that the presence of U.S. and other foreign troops could be fueling the insurgency and undermining the readiness of Iraqi forces.
"In this type of war, more is not necessarily better," he said at a briefing after Rumsfeld spoke. "Less is better because it doesn't feed the notion of occupation or the culture of dependency."
"It doesn't lengthen the time for the Iraqis to be self-reliant. And it doesn't expose coalition forces to risk when there are Iraqi forces who are capable of standing up and doing it, and who want to do it," Casey said.
The move was praised by Democrats, who have criticized the Bush administration for its handling of the war in Iraq and have pushed for a more rapid withdrawal of U.S. troops. (THANK GOODNESS THE DEMS LIKED IT. YOU SEE, EVERYTHING REVOLVES AROUND WHAT THEY WANT, LIKE, FEEL. BECAUSE THEY HAVE WON THE ELECTION . . .)
"This long overdue announcement is good news for our courageous men and women serving in Iraq, for their families, and for the American people," said Rep. Nancy Pelosi (D-San Francisco), the House minority leader. "This reduction is a step in the right direction, which I hope will quickly be followed by others that will result in all U.S. combat forces being redeployed from Iraq next year." (YOU CONTINUE TO BE SO VERY HELPFUL. HOW AE THOSE ANTI-SOLDIER RESOLUTIONS DOING IN CA? WHY NOT ADDRESS THOSE NANCY YOU ___ING IDIOT)
Bush has said that setting troop withdrawal timetables would encourage insurgents to wait out the U.S. presence. (NANCY, A POLICY EXPERT DISAGREES)
Insurgent attacks have remained steady at about 100 a day, U.S. officials said. But Casey said such tallies weren't "necessarily the best way to measure the capabilities of the insurgency."
Losers in the Dec. 15 balloting, including Sunni Arabs and nationalists, took to the streets of several cities Friday alleging vote fraud and demanding a restaging of the elections. Insurgents attacked a checkpoint along the highway between Baghdad and the northern city of Kirkuk, killing 10 people and wounding at least 20.
A suicide bomber killed four people and wounded eight in an explosion at the entrance to a Shiite mosque near the town of Balad Ruz, northeast of the capital.
In the nearby provincial capital, Baqubah, authorities discovered the bodies of three unidentified men in a field. The victims, who were blindfolded, bore gunshot wounds and signs of torture.
Homemade bombs in Samarra have killed five people and injured several over the last two days. An Interior Ministry official was wounded in an assassination attempt in Baghdad.
The four American soldiers were killed in separate roadside bomb attacks in the capital. At least 2,160 U.S. military personnel have died in Iraq since the March 2003 invasion, 50 this month.
Daragahi reported from Baghdad and Miller from Washington. Special correspondents in Baqubah and Samarra contributed to this report.
From Heckles to Halos (ABOUT TIME)
In dramatic contrast to the Vietnam War era, U.S. service personnel now are being treated to strangers' spontaneous bursts of gratitude.
By Faye Fiore
Times Staff Writer
December 24, 2005
There's a diner called Peggy Sue's about eight miles outside of Barstow, and as hard as Lt. Col. Kenneth Parks tries, he can never seem to pay his bill.
He orders a burger and a chocolate shake. But before he's finished, the waitress informs him the tab has been taken care of by yet another stranger who prefers to remain anonymous but who wants to do something for a soldier in uniform.
Many Americans have conflicted feelings about the Iraq war, but not about the warriors. The gestures of gratitude and generosity that occur with regularity at Peggy Sue's — across Interstate 15 from Ft. Irwin, a military desert training site — have become commonplace across the United States.
A spontaneous standing ovation for a group of soldiers at Los Angeles International Airport. Three $20 bills passed to a serviceman and his family in a grocery store in Georgia. A first-class seat given up to a servicewoman on a plane out of Chicago.
These bursts of goodwill have little to do with the holiday season or with political sentiments about the war. In contrast to the hostile stares that greeted many Vietnam veterans 40 years ago, today's soldiers are being treated as heroes throughout the year, in red states and blue, by peace activists and gung-ho supporters of the Iraq mission. The gestures are often spontaneous, affiliated with no association or cause, and credit is seldom claimed.
"It makes you feel great. It may just be a burger and a shake, but it's the thought behind it," said Parks, 41, who has served two tours in Iraq. Stationed at Ft. Jackson, S.C., he goes to Barstow regularly for training.
"My father went over to Vietnam three times, and he felt like he was not respected," Parks said. "Sometimes he felt like he was not even an American. But I see a big difference. I feel we're appreciated. An airport is about the best place for a soldier to be."
That was Sgt. Baldwin Yen's experience when he landed at LAX on Thanksgiving Day 2004. The pilot asked whether the other passengers would mind letting the soldiers on board exit first so they could get home to their families all the sooner. Not a passenger complained. Still in their combat fatigues, the soldiers were assembled in a corner of the airport when a bystander began to applaud. Soon, people were standing up and clapping in spontaneous tribute as far as Yen could see.
"I was kind of embarrassed," said Yen, 27, of West Hollywood. As an Army reservist who wore his uniform only infrequently until he was called to Iraq, he was unaccustomed to such attention. "I'm a slight, Asian man — 5-feet-9 and 140 pounds. People usually didn't think I looked like the military type. But then all these people were standing up. I was touched and surprised."
This is not a nation at war so much as it is an army at war. Service members and their families mostly bear the weight of the Iraq and Afghanistan missions alone — family separations, career dislocation and danger. Many soldiers are serving third tours, and there is no clear end in sight. (EASY)
For civilians, the chance to directly touch a military member or family can be irresistible, so much so that people break the comfortable anonymity of public places — airports, hotels, supermarkets — to walk up and pat a soldier on the back.
"For probably the first time in American history, civilians are asked to make no sacrifices in a time of war. We don't have a draft. There is no gas rationing the way there was in World War II. There is no increase in taxes; we get tax cuts instead," said Charles Moskos, a leading military sociologist at Northwestern University. "These acts are small ways of showing some recognition, because we're not doing it any other way."
U.S. Army Capt. Alina Martinez was in a grocery store outside Ft. Benning, Ga., with her soldier husband and their 3-year-old daughter last spring. Noticing the haircut, the couple in line ahead asked whether Martinez's husband was in the military. He answered that they both were. The couple thanked them repeatedly for their service and left the store.
Soon afterward, the cashier handed Martinez $60 that the strangers had left for them.
"My husband and I were shocked. He ran out to the parking lot to thank them, but they were gone. The cashier said the couple specifically told her to wait until they had left. They didn't want us to know," Martinez said.
"It wasn't the money; it was the fact that this couple only spoke to us for a couple of minutes, and they were so generous and sincere," she said. "It brought tears to my eyes right in the store."
National sentiment has come a long way since the days when Randall Rigby came home from Vietnam and was instructed by commanding officers to change out of his uniform before going out in public to avoid ridicule. Now a retired Army lieutenant general, Rigby recalled the memory one recent day when he watched a large man give up several inches of legroom in first class to a small female soldier seated in coach.
Although the military takes pride in the family support network it has built, spouses still rely on the kindness of civilians during the strain of separation.
Kristy Cormier traveled to Florida from her home in Georgia so her friend, Jacqui Coffman, could run a 10K race. Both of their husbands were deployed in Iraq, and Cormier found herself in a hotel pool in charge of their combined five children, ranging in age from 7 months to 6 years.
The children began to play with a man splashing around with his twins; Cormier mentioned to him that they probably missed male contact, because their fathers were overseas.
The man "was very generous all morning, catching them in the water…. I must have looked crazy trying to manage them all, and he helped me. It happens often, people thanking us for our service. It's very humbling," said Cormier, 36.
Her husband, Maj. Daniel Cormier, 38, returned days ago from a year in Iraq. He made it home in time for his son's elementary school holiday pageant, where the teacher announced his presence, and the audience applauded.
Charitable and nonprofit organizations, in the tradition of the long-serving USO, have burgeoned since the beginning of the war. There are websites for collecting books to send to deployed troops (www.booksforsoldiers.com), and sites that offer "Take a Soldier to the Movies" packages that include popcorn, candy, a drink and a DVD (www.soldiertomovies.org). Another, (www.fisherhouse.org), tells how to donate air miles to the loved ones of injured soldiers.
Donations have grown steadily. Since it was founded nearly two years ago, the Hero Miles program has delivered nearly 175 million air miles, saving military families an estimated $6 million in travel costs, said Jim Weiskopf, spokesman for the Fisher House Foundation, a Maryland-based charity that supports service members and their families.
Similarly, more than 7,000 DVD packages have been distributed to troops abroad through Operation: Take a Soldier to the Movies. The website was created by Bernie and Kathy Hintzke of West Allis, Wis., a year ago to help support their son and his unit in Iraq.
But the American people have taken charity a step further, bypassing formal groups to help or comfort a soldier or a military family directly.
Celeste Zappala's son, Sgt. Sherwood Baker, 30, was killed in an explosion in Baghdad on April 26, 2004 — the first member of the Pennsylvania Army National Guard to die in combat since 1945.
She still receives packages in the mail from strangers: quilts, religious cards, American flag pins fashioned in the shape of teardrops.
"They come from random places, as far away as Kentucky," said Zappala, 58, who lives in Philadelphia and is an active peace advocate. "People who just see my name on the Internet somewhere will pick up the phone to call and tell me they are sorry for my loss. It's really very dear."
When encountering a soldier, people often give and then move on, without leaving so much as a name. In North Carolina, a stranger in a hunting cap instructed a waiter to bring Capt. Jeremy Broussard, 28, anything he pleased. A couple in Dallas-Fort Worth International Airport handed Spc. Adrian Ocampo, 21, a cellphone to call anyone he wanted.
In the Barstow area, the wave of altruism grips with equal passion at the locals at Peggy Sue's and the high rollers who've stopped by the diner on their way to Las Vegas.
Peggy Sue Gabler, who owns the diner with her husband, Champ, has decided it has something to do with the opportunity to care for a soldier immediately and in person. She still remembers the customer who picked up a bill totaling several hundred dollars for a group of 18 GIs.
"You could pass around a tin can that says 'Aid to soldiers,' and people would let it go by," she said. "But if a soldier orders a Philly steak, people just want to pay for it. To be able to do something right at that moment just makes them feel elated."
In dramatic contrast to the Vietnam War era, U.S. service personnel now are being treated to strangers' spontaneous bursts of gratitude.
By Faye Fiore
Times Staff Writer
December 24, 2005
There's a diner called Peggy Sue's about eight miles outside of Barstow, and as hard as Lt. Col. Kenneth Parks tries, he can never seem to pay his bill.
He orders a burger and a chocolate shake. But before he's finished, the waitress informs him the tab has been taken care of by yet another stranger who prefers to remain anonymous but who wants to do something for a soldier in uniform.
Many Americans have conflicted feelings about the Iraq war, but not about the warriors. The gestures of gratitude and generosity that occur with regularity at Peggy Sue's — across Interstate 15 from Ft. Irwin, a military desert training site — have become commonplace across the United States.
A spontaneous standing ovation for a group of soldiers at Los Angeles International Airport. Three $20 bills passed to a serviceman and his family in a grocery store in Georgia. A first-class seat given up to a servicewoman on a plane out of Chicago.
These bursts of goodwill have little to do with the holiday season or with political sentiments about the war. In contrast to the hostile stares that greeted many Vietnam veterans 40 years ago, today's soldiers are being treated as heroes throughout the year, in red states and blue, by peace activists and gung-ho supporters of the Iraq mission. The gestures are often spontaneous, affiliated with no association or cause, and credit is seldom claimed.
"It makes you feel great. It may just be a burger and a shake, but it's the thought behind it," said Parks, 41, who has served two tours in Iraq. Stationed at Ft. Jackson, S.C., he goes to Barstow regularly for training.
"My father went over to Vietnam three times, and he felt like he was not respected," Parks said. "Sometimes he felt like he was not even an American. But I see a big difference. I feel we're appreciated. An airport is about the best place for a soldier to be."
That was Sgt. Baldwin Yen's experience when he landed at LAX on Thanksgiving Day 2004. The pilot asked whether the other passengers would mind letting the soldiers on board exit first so they could get home to their families all the sooner. Not a passenger complained. Still in their combat fatigues, the soldiers were assembled in a corner of the airport when a bystander began to applaud. Soon, people were standing up and clapping in spontaneous tribute as far as Yen could see.
"I was kind of embarrassed," said Yen, 27, of West Hollywood. As an Army reservist who wore his uniform only infrequently until he was called to Iraq, he was unaccustomed to such attention. "I'm a slight, Asian man — 5-feet-9 and 140 pounds. People usually didn't think I looked like the military type. But then all these people were standing up. I was touched and surprised."
This is not a nation at war so much as it is an army at war. Service members and their families mostly bear the weight of the Iraq and Afghanistan missions alone — family separations, career dislocation and danger. Many soldiers are serving third tours, and there is no clear end in sight. (EASY)
For civilians, the chance to directly touch a military member or family can be irresistible, so much so that people break the comfortable anonymity of public places — airports, hotels, supermarkets — to walk up and pat a soldier on the back.
"For probably the first time in American history, civilians are asked to make no sacrifices in a time of war. We don't have a draft. There is no gas rationing the way there was in World War II. There is no increase in taxes; we get tax cuts instead," said Charles Moskos, a leading military sociologist at Northwestern University. "These acts are small ways of showing some recognition, because we're not doing it any other way."
U.S. Army Capt. Alina Martinez was in a grocery store outside Ft. Benning, Ga., with her soldier husband and their 3-year-old daughter last spring. Noticing the haircut, the couple in line ahead asked whether Martinez's husband was in the military. He answered that they both were. The couple thanked them repeatedly for their service and left the store.
Soon afterward, the cashier handed Martinez $60 that the strangers had left for them.
"My husband and I were shocked. He ran out to the parking lot to thank them, but they were gone. The cashier said the couple specifically told her to wait until they had left. They didn't want us to know," Martinez said.
"It wasn't the money; it was the fact that this couple only spoke to us for a couple of minutes, and they were so generous and sincere," she said. "It brought tears to my eyes right in the store."
National sentiment has come a long way since the days when Randall Rigby came home from Vietnam and was instructed by commanding officers to change out of his uniform before going out in public to avoid ridicule. Now a retired Army lieutenant general, Rigby recalled the memory one recent day when he watched a large man give up several inches of legroom in first class to a small female soldier seated in coach.
Although the military takes pride in the family support network it has built, spouses still rely on the kindness of civilians during the strain of separation.
Kristy Cormier traveled to Florida from her home in Georgia so her friend, Jacqui Coffman, could run a 10K race. Both of their husbands were deployed in Iraq, and Cormier found herself in a hotel pool in charge of their combined five children, ranging in age from 7 months to 6 years.
The children began to play with a man splashing around with his twins; Cormier mentioned to him that they probably missed male contact, because their fathers were overseas.
The man "was very generous all morning, catching them in the water…. I must have looked crazy trying to manage them all, and he helped me. It happens often, people thanking us for our service. It's very humbling," said Cormier, 36.
Her husband, Maj. Daniel Cormier, 38, returned days ago from a year in Iraq. He made it home in time for his son's elementary school holiday pageant, where the teacher announced his presence, and the audience applauded.
Charitable and nonprofit organizations, in the tradition of the long-serving USO, have burgeoned since the beginning of the war. There are websites for collecting books to send to deployed troops (www.booksforsoldiers.com), and sites that offer "Take a Soldier to the Movies" packages that include popcorn, candy, a drink and a DVD (www.soldiertomovies.org). Another, (www.fisherhouse.org), tells how to donate air miles to the loved ones of injured soldiers.
Donations have grown steadily. Since it was founded nearly two years ago, the Hero Miles program has delivered nearly 175 million air miles, saving military families an estimated $6 million in travel costs, said Jim Weiskopf, spokesman for the Fisher House Foundation, a Maryland-based charity that supports service members and their families.
Similarly, more than 7,000 DVD packages have been distributed to troops abroad through Operation: Take a Soldier to the Movies. The website was created by Bernie and Kathy Hintzke of West Allis, Wis., a year ago to help support their son and his unit in Iraq.
But the American people have taken charity a step further, bypassing formal groups to help or comfort a soldier or a military family directly.
Celeste Zappala's son, Sgt. Sherwood Baker, 30, was killed in an explosion in Baghdad on April 26, 2004 — the first member of the Pennsylvania Army National Guard to die in combat since 1945.
She still receives packages in the mail from strangers: quilts, religious cards, American flag pins fashioned in the shape of teardrops.
"They come from random places, as far away as Kentucky," said Zappala, 58, who lives in Philadelphia and is an active peace advocate. "People who just see my name on the Internet somewhere will pick up the phone to call and tell me they are sorry for my loss. It's really very dear."
When encountering a soldier, people often give and then move on, without leaving so much as a name. In North Carolina, a stranger in a hunting cap instructed a waiter to bring Capt. Jeremy Broussard, 28, anything he pleased. A couple in Dallas-Fort Worth International Airport handed Spc. Adrian Ocampo, 21, a cellphone to call anyone he wanted.
In the Barstow area, the wave of altruism grips with equal passion at the locals at Peggy Sue's and the high rollers who've stopped by the diner on their way to Las Vegas.
Peggy Sue Gabler, who owns the diner with her husband, Champ, has decided it has something to do with the opportunity to care for a soldier immediately and in person. She still remembers the customer who picked up a bill totaling several hundred dollars for a group of 18 GIs.
"You could pass around a tin can that says 'Aid to soldiers,' and people would let it go by," she said. "But if a soldier orders a Philly steak, people just want to pay for it. To be able to do something right at that moment just makes them feel elated."
Bush to bring home 7,000 Iraq troops
By Alec Russell in Washington
(Filed: 24/12/2005)
Donald Rumsfeld, the American defence secretary, gave the heartland a much-needed dose of good news yesterday, announcing that combat forces in Iraq will be cut by up to 7,000 early next year. This will be the first reduction in US troop levels since the summer of last year.
Citing "progress" in Iraq's security since last week's election, Mr Rumsfeld said President George W Bush had authorised cuts to bring the force below the level of 138,000 that had prevailed through most of the campaign.
Two army brigades due to be sent to Iraq would no longer be deployed, reducing the number of combat brigades there from 17 to 15 by the spring.
"The adjustment is a recognition of the Iraqi people's progress in assuming added responsibility for their country," Mr Rumsfeld said.
The reduction is on top of the planned withdrawal of some 20,000 troops sent to secure the election and marks what American officials hope will be the beginning of a new and less intense phase in their involvement in Iraq.
The announcement will be greeted with relief at home. It follows increasingly heated calls by Democrats and some Republicans for a timetable for a withdrawal.
Pentagon officials hope this will be the first of many incremental withdrawals over the next year, with the more optimistic scenarios predicting a reduction below 100,000 by next November's mid-term elections.
Mr Rumsfeld flew to Fallujah, a former stronghold of the Iraqi insurgents, to formalise the start of the process. The backdrop was clearly intended to symbolise what the Bush administration believes are tentative signs of improvement on the ground.
"The effect of these adjustments will reduce forces in Iraq by the spring of 2006 below the current high of 160,000 during the election period to below the 138,000 baseline that had existed before the elections," Mr Rumsfeld said in an address to troops at Fallujah. (ISN'T FALLUJAH A NO-GO AREA? I THOUGHT EVERYONE THERE HATED THE US? I THOUGH THERE WAS NO PROGRESS BEING MADE? SOMEONE IS NOT TELLING THE TRUTH)
However, the number of US soldiers training Iraqi security forces would increase.
"Violence in Iraq, unfortunately, will likely continue to fluctuate as terrorists and others try to block Iraq's path to democracy - the path now clearly chosen by the overwhelming majority of the Iraqi people," he said. "Ultimately it will be the continued wise choices by the Iraqi people that will end the violence over time."
In a question and answer session with troops, he said America had no plans to set up a permanent base in Iraq.
He later flew to Amman, the Jordanian capital, to observe the training of Iraqi security forces at a Jordanian special operations centre. The success of the training is crucial to British and American hopes of reducing their deployments.
"The United States and the coalition countries are anxious to turn over the security responsibilities to the Iraqis as soon as we are able to do so," he said.
This was Mr Rumsfeld's 11th visit to Iraq since the invasion in March 2003. He spent last night in Baghdad.
His message mirrored his comments in Afghanistan on Tuesday when he confirmed long-rumoured plans that America would be pulling out up to 3,000 of its 19,000 soldiers there.
Other Nato countries will take over the American duties in Afghanistan. Mr Rumsfeld said the withdrawal would not weaken operations against Taliban loyalists and al-Qa'eda-aligned groups.
Power We Didn't Grant (THE AUTHOR IS A BITTER FORMER US SENATOR WHO GOT BEAT IN HIS LAST ELECTION BECAUSE HE DID NOTHING BUT OBSTRUCT)
By Tom Daschle
Friday, December 23, 2005; A21
In the face of mounting questions about news stories saying that President Bush approved a program to wiretap American citizens without getting warrants, the White House argues that Congress granted it authority for such surveillance in the 2001 legislation authorizing the use of force against al Qaeda. On Tuesday, Vice President Cheney said the president "was granted authority by the Congress to use all means necessary to take on the terrorists, and that's what we've done."
As Senate majority leader at the time, I helped negotiate that law with the White House counsel's office over two harried days. I can state categorically that the subject of warrantless wiretaps of American citizens never came up. I did not and never would have supported giving authority to the president for such wiretaps. I am also confident that the 98 senators who voted in favor of authorization of force against al Qaeda did not believe that they were also voting for warrantless domestic surveillance.
On the evening of Sept. 12, 2001, the White House proposed that Congress authorize the use of military force to "deter and pre-empt any future acts of terrorism or aggression against the United States." Believing the scope of this language was too broad and ill defined, Congress chose instead, on Sept. 14, to authorize "all necessary and appropriate force against those nations, organizations or persons [the president] determines planned, authorized, committed or aided" the attacks of Sept. 11. With this language, Congress denied the president the more expansive authority he sought and insisted that his authority be used specifically against Osama bin Laden and al Qaeda.
Just before the Senate acted on this compromise resolution, the White House sought one last change. Literally minutes before the Senate cast its vote, the administration sought to add the words "in the United States and" after "appropriate force" in the agreed-upon text. This last-minute change would have given the president broad authority to exercise expansive powers not just overseas -- where we all understood he wanted authority to act -- but right here in the United States, potentially against American citizens. I could see no justification for Congress to accede to this extraordinary request for additional authority. I refused.
The shock and rage we all felt in the hours after the attack were still fresh. America was reeling from the first attack on our soil since Pearl Harbor. (REALLY? SO THE FIRST ATTACK ON THE TRADE CENTER IN 1993 AND THE OK CITY BOMBING IN 1995 WERE JUST A WILD THEORY? THIS IS EXACTLY THE TYPE OF THINKING THAT ALLOWED 9-11. THANK GOODNESS YOUR HORRID IDEAS ARE NO LONGER IN THE SENATE) We suspected thousands had been killed, and many who worked in the World Trade Center and the Pentagon were not yet accounted for. Even so, a strong bipartisan majority could not agree to the administration's request for an unprecedented grant of authority.
The Bush administration now argues those powers were inherently contained in the resolution adopted by Congress -- but at the time, the administration clearly felt they weren't or it wouldn't have tried to insert the additional language.
All Americans agree that keeping our nation safe from terrorists demands aggressive and innovative tactics. (SO DEMOCRATS ARE NOT AMERICANS THEN?) This unity was reflected in the near-unanimous support for the original resolution and the Patriot Act in those harrowing days after Sept. 11. (ALL AMERICANS TO NEAR-UNANIMOUS . . .) But there are right and wrong ways to defeat terrorists, and that is a distinction this administration has never seemed to accept. Instead of employing tactics that preserve Americans' freedoms and inspire the faith and confidence of the American people, the White House seems to have chosen methods that can only breed fear and suspicion. (IF WE ONLY TALK TOT HE TERRORISTS AND ASK THEM NICELY TO QUIT OR BRIBE THEM LIKE THE SAUDIS OR APPEASE LIKE THE FRENCH, THEN WE CAN BE FREE!!! THE PRESIDENT'S WAY IS FINE FORMER SENATOR)
If the stories in the media over the past week are accurate, the president has exercised authority that I do not believe is granted to him in the Constitution, and that I know is not granted to him in the law that I helped negotiate with his counsel and that Congress approved in the days after Sept. 11. For that reason, the president should explain the specific legal justification for his authorization of these actions, Congress should fully investigate these actions and the president's justification for them, and the administration should cooperate fully with that investigation. (THANKS FOR YOUR THOUGHTS, FORMER SEANTOR, NOW PLEASE GO BACK TO SOUTH DAKOTA)
In the meantime, if the president believes the current legal architecture of our country is insufficient for the fight against terrorism, he should propose changes to our laws in the light of day. (HE HAS BEFORE, THEN SOME GROUP [THE ALL-AMERICAN GROUP?] VETOES IT AS CIVIL LIBERITIES VIOLATIONS BLAH, BLAH, BLAH . . .)
That is how a great democracy operates. And that is how this great democracy will defeat terrorism.
The writer, a former Democratic senator from South Dakota, was Senate majority leader in 2001-02. He is now distinguished senior fellow at the Center for American Progress. (A LIBERAL NUT JOB TALK SHOP)
By Tom Daschle
Friday, December 23, 2005; A21
In the face of mounting questions about news stories saying that President Bush approved a program to wiretap American citizens without getting warrants, the White House argues that Congress granted it authority for such surveillance in the 2001 legislation authorizing the use of force against al Qaeda. On Tuesday, Vice President Cheney said the president "was granted authority by the Congress to use all means necessary to take on the terrorists, and that's what we've done."
As Senate majority leader at the time, I helped negotiate that law with the White House counsel's office over two harried days. I can state categorically that the subject of warrantless wiretaps of American citizens never came up. I did not and never would have supported giving authority to the president for such wiretaps. I am also confident that the 98 senators who voted in favor of authorization of force against al Qaeda did not believe that they were also voting for warrantless domestic surveillance.
On the evening of Sept. 12, 2001, the White House proposed that Congress authorize the use of military force to "deter and pre-empt any future acts of terrorism or aggression against the United States." Believing the scope of this language was too broad and ill defined, Congress chose instead, on Sept. 14, to authorize "all necessary and appropriate force against those nations, organizations or persons [the president] determines planned, authorized, committed or aided" the attacks of Sept. 11. With this language, Congress denied the president the more expansive authority he sought and insisted that his authority be used specifically against Osama bin Laden and al Qaeda.
Just before the Senate acted on this compromise resolution, the White House sought one last change. Literally minutes before the Senate cast its vote, the administration sought to add the words "in the United States and" after "appropriate force" in the agreed-upon text. This last-minute change would have given the president broad authority to exercise expansive powers not just overseas -- where we all understood he wanted authority to act -- but right here in the United States, potentially against American citizens. I could see no justification for Congress to accede to this extraordinary request for additional authority. I refused.
The shock and rage we all felt in the hours after the attack were still fresh. America was reeling from the first attack on our soil since Pearl Harbor. (REALLY? SO THE FIRST ATTACK ON THE TRADE CENTER IN 1993 AND THE OK CITY BOMBING IN 1995 WERE JUST A WILD THEORY? THIS IS EXACTLY THE TYPE OF THINKING THAT ALLOWED 9-11. THANK GOODNESS YOUR HORRID IDEAS ARE NO LONGER IN THE SENATE) We suspected thousands had been killed, and many who worked in the World Trade Center and the Pentagon were not yet accounted for. Even so, a strong bipartisan majority could not agree to the administration's request for an unprecedented grant of authority.
The Bush administration now argues those powers were inherently contained in the resolution adopted by Congress -- but at the time, the administration clearly felt they weren't or it wouldn't have tried to insert the additional language.
All Americans agree that keeping our nation safe from terrorists demands aggressive and innovative tactics. (SO DEMOCRATS ARE NOT AMERICANS THEN?) This unity was reflected in the near-unanimous support for the original resolution and the Patriot Act in those harrowing days after Sept. 11. (ALL AMERICANS TO NEAR-UNANIMOUS . . .) But there are right and wrong ways to defeat terrorists, and that is a distinction this administration has never seemed to accept. Instead of employing tactics that preserve Americans' freedoms and inspire the faith and confidence of the American people, the White House seems to have chosen methods that can only breed fear and suspicion. (IF WE ONLY TALK TOT HE TERRORISTS AND ASK THEM NICELY TO QUIT OR BRIBE THEM LIKE THE SAUDIS OR APPEASE LIKE THE FRENCH, THEN WE CAN BE FREE!!! THE PRESIDENT'S WAY IS FINE FORMER SENATOR)
If the stories in the media over the past week are accurate, the president has exercised authority that I do not believe is granted to him in the Constitution, and that I know is not granted to him in the law that I helped negotiate with his counsel and that Congress approved in the days after Sept. 11. For that reason, the president should explain the specific legal justification for his authorization of these actions, Congress should fully investigate these actions and the president's justification for them, and the administration should cooperate fully with that investigation. (THANKS FOR YOUR THOUGHTS, FORMER SEANTOR, NOW PLEASE GO BACK TO SOUTH DAKOTA)
In the meantime, if the president believes the current legal architecture of our country is insufficient for the fight against terrorism, he should propose changes to our laws in the light of day. (HE HAS BEFORE, THEN SOME GROUP [THE ALL-AMERICAN GROUP?] VETOES IT AS CIVIL LIBERITIES VIOLATIONS BLAH, BLAH, BLAH . . .)
That is how a great democracy operates. And that is how this great democracy will defeat terrorism.
The writer, a former Democratic senator from South Dakota, was Senate majority leader in 2001-02. He is now distinguished senior fellow at the Center for American Progress. (A LIBERAL NUT JOB TALK SHOP)
Mr. Padilla in Captivity (POOR JOSE, WON'T SOMEBODY PLEASE THINK OF THE POOR TERRORISTS? THANK GOODNESS, THE POST WILL!! ANY TERRORIST IS BETTER THAN THE PRESIDENT, SO SAYTH THE POST, SO SAYTH THE LORD.)
Friday, December 23, 2005; A20
JOSE PADILLA'S treatment at the hands of the federal government has been appalling. For 3 1/2 years, the military has held him -- on President Bush's personal order -- as an "enemy combatant" without filing formal charges. For much of that time, it prevented him from speaking to his lawyers. In response, Mr. Padilla has actively sought what most terrorism suspects dread: indictment and prosecution in federal court, so that he at least can meaningfully defend himself. Last month, with the Supreme Court eyeing the case, the Justice Department at long last obliged.
All of which makes the order issued this week by the U.S. Court of Appeals for the 4th Circuit in Richmond baffling. The court tolerated with equanimity Mr. Padilla's detention and, before that, the detention of another American citizen, Yaser Esam Hamdi. In earlier skirmishes in the enemy-combatant cases, it had blocked efforts by Mr. Hamdi's counsel to gain access to him. Yet the court now explodes in anger at the one step the government has taken to normalize Mr. Padilla's status.
Writing for a divided three-judge panel that only a few months ago affirmed the military's power to detain Mr. Padilla, Judge J. Michael Luttig declared that the indictment, the request to transfer Mr. Padilla and the government's stated willingness to have the prior opinion withdrawn "have given rise to at least an appearance that the purpose of these actions may be to avoid consideration of our decision by the Supreme Court." And he goes so far as to deny the government's motion to transfer Mr. Padilla to civilian custody -- the very move Mr. Padilla has been seeking since he was first whisked out of the civilian justice system.
We sympathize with Judge Luttig's complaints. From the beginning, the government has made tactical concessions that were, to put it delicately, timed felicitously in relation to its litigation needs. Mr. Padilla, we were told, could not be allowed access to counsel without grave risk to the nation -- but suddenly, as his case proceeded on its first trip to the Supreme Court, that risk seemed to melt away, and he was allowed to meet with his lawyer. National security required his continued military detention -- until, with the case possibly heading to the high court again, it turns out that a trial would be okay after all. The court has the right to feel ill used and to express that in strong terms.
Yet to make Mr. Padilla pay for these feelings makes no sense. Mr. Padilla is being held by the military against his will, against the military's will and against the will of the president who ordered him locked up. He cannot defend himself in the civilian justice system as a consequence of an order by the very court system to which he turned in an effort to vindicate his rights as a U.S. citizen.
The order also is dangerous. Indicting Mr. Padilla may well have been, in part, an effort to evade Supreme Court review; if the justices believe that, they may choose to hear the case anyway. But whatever the motive, it is the best thing that has happened in this case since Mr. Padilla was arrested. Indeed, if the desire to avoid an adverse judgment caused cooler heads in the administration to prevail, what is wrong with that? Having a court punish the government for its belated steps back toward regular judicial process will only encourage those within the administration who want to stake out hardline ground and dig in their heels. Mr. Padilla and the military agree that the military should not be holding him any longer. The 4th Circuit has no business second-guessing their judgment. (SO, THE COURTS ARE GREAT FOR EVERYTHING AS LONG AS THEY COME UP WITH THE DECISION THAT THE POST WANTS. YOUR SMUG, OMNIPOTENT EDITORIAL BOARD WOULD BE HAPPIER WITH BUILDINGS EXPLODING THAN HAVING SOURCES AND METHODS EXPLOITED. INVITE PADILLA TO WORK FOR YOU GUYS OR LIVE YOUR BUILDING IF YOU FEEL HE IS SO INNOCENT.)
Friday, December 23, 2005; A20
JOSE PADILLA'S treatment at the hands of the federal government has been appalling. For 3 1/2 years, the military has held him -- on President Bush's personal order -- as an "enemy combatant" without filing formal charges. For much of that time, it prevented him from speaking to his lawyers. In response, Mr. Padilla has actively sought what most terrorism suspects dread: indictment and prosecution in federal court, so that he at least can meaningfully defend himself. Last month, with the Supreme Court eyeing the case, the Justice Department at long last obliged.
All of which makes the order issued this week by the U.S. Court of Appeals for the 4th Circuit in Richmond baffling. The court tolerated with equanimity Mr. Padilla's detention and, before that, the detention of another American citizen, Yaser Esam Hamdi. In earlier skirmishes in the enemy-combatant cases, it had blocked efforts by Mr. Hamdi's counsel to gain access to him. Yet the court now explodes in anger at the one step the government has taken to normalize Mr. Padilla's status.
Writing for a divided three-judge panel that only a few months ago affirmed the military's power to detain Mr. Padilla, Judge J. Michael Luttig declared that the indictment, the request to transfer Mr. Padilla and the government's stated willingness to have the prior opinion withdrawn "have given rise to at least an appearance that the purpose of these actions may be to avoid consideration of our decision by the Supreme Court." And he goes so far as to deny the government's motion to transfer Mr. Padilla to civilian custody -- the very move Mr. Padilla has been seeking since he was first whisked out of the civilian justice system.
We sympathize with Judge Luttig's complaints. From the beginning, the government has made tactical concessions that were, to put it delicately, timed felicitously in relation to its litigation needs. Mr. Padilla, we were told, could not be allowed access to counsel without grave risk to the nation -- but suddenly, as his case proceeded on its first trip to the Supreme Court, that risk seemed to melt away, and he was allowed to meet with his lawyer. National security required his continued military detention -- until, with the case possibly heading to the high court again, it turns out that a trial would be okay after all. The court has the right to feel ill used and to express that in strong terms.
Yet to make Mr. Padilla pay for these feelings makes no sense. Mr. Padilla is being held by the military against his will, against the military's will and against the will of the president who ordered him locked up. He cannot defend himself in the civilian justice system as a consequence of an order by the very court system to which he turned in an effort to vindicate his rights as a U.S. citizen.
The order also is dangerous. Indicting Mr. Padilla may well have been, in part, an effort to evade Supreme Court review; if the justices believe that, they may choose to hear the case anyway. But whatever the motive, it is the best thing that has happened in this case since Mr. Padilla was arrested. Indeed, if the desire to avoid an adverse judgment caused cooler heads in the administration to prevail, what is wrong with that? Having a court punish the government for its belated steps back toward regular judicial process will only encourage those within the administration who want to stake out hardline ground and dig in their heels. Mr. Padilla and the military agree that the military should not be holding him any longer. The 4th Circuit has no business second-guessing their judgment. (SO, THE COURTS ARE GREAT FOR EVERYTHING AS LONG AS THEY COME UP WITH THE DECISION THAT THE POST WANTS. YOUR SMUG, OMNIPOTENT EDITORIAL BOARD WOULD BE HAPPIER WITH BUILDINGS EXPLODING THAN HAVING SOURCES AND METHODS EXPLOITED. INVITE PADILLA TO WORK FOR YOU GUYS OR LIVE YOUR BUILDING IF YOU FEEL HE IS SO INNOCENT.)
Impeachment Nonsense
By Charles Krauthammer
Friday, December 23, 2005; A21
2005 was already the year of the demagogue, having been dominated for months by the endlessly echoed falsehood that the president "lied us into war." But the year ends with yet another round of demagoguery.
Administration critics, political and media, charge that by ordering surveillance on communications of suspected al Qaeda agents in the United States, the president clearly violated the law. Some even suggest that Bush has thereby so trampled the Constitution that impeachment should now be considered. (Barbara Boxer, Jonathan Alter, John Dean and various luminaries of the left have already begun floating the idea.) The braying herds have already concluded, Tenet-like, that the president's actions were slam-dunk illegal. It takes a superior mix of partisanship, animus and ignorance to say that.
Does the president have the constitutional authority to conduct warrantless searches against suspected foreign agents in the United States? George Washington University law professor Orin Kerr (one critic calls him the man who "literally wrote the book on government seizure of electronic evidence") finds "pretty decent arguments" on both sides, but his own conclusion is that Bush's actions were "probably constitutional."
In 1972 the Supreme Court required the president to obtain warrants to eavesdrop on domestic groups but specifically declined to apply this requirement to snooping on foreign agents. Four appeals courts have since upheld presidential authority for such warrantless searches. Not surprisingly, the executive branch has agreed.
True, Congress tried to restrict this presidential authority with the Foreign Intelligence Surveillance Act of 1978. It requires that warrants for wiretapping of enemy agents in the United States be obtained from a secret court. But as John Schmidt, associate attorney general in the Clinton administration, wrote: "Every president since FISA's passage has asserted that he retained inherent power to go beyond the act's terms." Indeed, President Bill Clinton's own deputy attorney general testified to Congress that "the president has inherent authority to conduct warrantless physical searches for foreign intelligence purposes," then noted a few minutes later that "courts have made no distinction between electronic surveillances and physical searches."
Presidents always jealously guard executive authority. And Congress always wants to challenge the scope of that authority. This tug of war is a bipartisan and constant feature of the American system of separation of powers. President Bush's circumvention of FISA is a classic separation-of-powers dispute in the area in which these powers are most in dispute -- war powers.
Consider the War Powers Resolution passed over Richard Nixon's veto in 1973. It restricts, with very specific timetables, the president's authority to use force. Every president since Nixon, Democrat and Republican, has regarded himself not bound by this law, declaring it an unconstitutional invasion of his authority as commander in chief.
Nor will it do to argue that the Clinton administration ultimately accepted the strictures of the FISA law after a revision was passed. So what? For the past three decades, presidents have adhered to the War Powers Resolution for reasons of prudence, to avoid a constitutional fight with Congress. But they all maintained the inherent illegitimacy of the law and the right to ignore it. Similarly, Clinton's acquiescence to FISA in no way binds future executives to renounce Clinton's claim of "inherent authority" to conduct warrantless searches for purposes of foreign intelligence.
Attorney General Alberto Gonzales chose a different justification for these wiretaps: They were covered by the congressional resolution passed shortly after Sept. 11, 2001, authorizing the use of "all necessary and appropriate force" against al Qaeda. Gonzales's interpretation is based on a plurality Supreme Court opinion written by Sandra Day O'Connor that deemed legal the "executive detention" of U.S. citizen and enemy combatant Yaser Esam Hamdi. "Detention" is an obvious element of any authorization to use force. Gonzales argues that so is gathering intelligence about the enemy's plans by intercepting his communications.
I am skeptical of Gonzales's argument -- it implies an almost limitless expansion of the idea of "use of force" -- while the distinguished liberal law professor Cass Sunstein finds it "entirely plausible" (so long as the wiretapping is limited to those reasonably believed to be associated with al Qaeda). Sunstein maintains that "surveillance, including wiretapping, is reasonably believed to be an incident of the use of force" that "standardly occurs during war."
Contrary to the administration, I also believe that as a matter of political prudence and comity with Congress, Bush should have tried to get the law changed rather than circumvent it. This was an error of political judgment. But that does not make it a crime. And only the most brazen and reckless partisan could pretend it is anything approaching a high crime and misdemeanor.
By Charles Krauthammer
Friday, December 23, 2005; A21
2005 was already the year of the demagogue, having been dominated for months by the endlessly echoed falsehood that the president "lied us into war." But the year ends with yet another round of demagoguery.
Administration critics, political and media, charge that by ordering surveillance on communications of suspected al Qaeda agents in the United States, the president clearly violated the law. Some even suggest that Bush has thereby so trampled the Constitution that impeachment should now be considered. (Barbara Boxer, Jonathan Alter, John Dean and various luminaries of the left have already begun floating the idea.) The braying herds have already concluded, Tenet-like, that the president's actions were slam-dunk illegal. It takes a superior mix of partisanship, animus and ignorance to say that.
Does the president have the constitutional authority to conduct warrantless searches against suspected foreign agents in the United States? George Washington University law professor Orin Kerr (one critic calls him the man who "literally wrote the book on government seizure of electronic evidence") finds "pretty decent arguments" on both sides, but his own conclusion is that Bush's actions were "probably constitutional."
In 1972 the Supreme Court required the president to obtain warrants to eavesdrop on domestic groups but specifically declined to apply this requirement to snooping on foreign agents. Four appeals courts have since upheld presidential authority for such warrantless searches. Not surprisingly, the executive branch has agreed.
True, Congress tried to restrict this presidential authority with the Foreign Intelligence Surveillance Act of 1978. It requires that warrants for wiretapping of enemy agents in the United States be obtained from a secret court. But as John Schmidt, associate attorney general in the Clinton administration, wrote: "Every president since FISA's passage has asserted that he retained inherent power to go beyond the act's terms." Indeed, President Bill Clinton's own deputy attorney general testified to Congress that "the president has inherent authority to conduct warrantless physical searches for foreign intelligence purposes," then noted a few minutes later that "courts have made no distinction between electronic surveillances and physical searches."
Presidents always jealously guard executive authority. And Congress always wants to challenge the scope of that authority. This tug of war is a bipartisan and constant feature of the American system of separation of powers. President Bush's circumvention of FISA is a classic separation-of-powers dispute in the area in which these powers are most in dispute -- war powers.
Consider the War Powers Resolution passed over Richard Nixon's veto in 1973. It restricts, with very specific timetables, the president's authority to use force. Every president since Nixon, Democrat and Republican, has regarded himself not bound by this law, declaring it an unconstitutional invasion of his authority as commander in chief.
Nor will it do to argue that the Clinton administration ultimately accepted the strictures of the FISA law after a revision was passed. So what? For the past three decades, presidents have adhered to the War Powers Resolution for reasons of prudence, to avoid a constitutional fight with Congress. But they all maintained the inherent illegitimacy of the law and the right to ignore it. Similarly, Clinton's acquiescence to FISA in no way binds future executives to renounce Clinton's claim of "inherent authority" to conduct warrantless searches for purposes of foreign intelligence.
Attorney General Alberto Gonzales chose a different justification for these wiretaps: They were covered by the congressional resolution passed shortly after Sept. 11, 2001, authorizing the use of "all necessary and appropriate force" against al Qaeda. Gonzales's interpretation is based on a plurality Supreme Court opinion written by Sandra Day O'Connor that deemed legal the "executive detention" of U.S. citizen and enemy combatant Yaser Esam Hamdi. "Detention" is an obvious element of any authorization to use force. Gonzales argues that so is gathering intelligence about the enemy's plans by intercepting his communications.
I am skeptical of Gonzales's argument -- it implies an almost limitless expansion of the idea of "use of force" -- while the distinguished liberal law professor Cass Sunstein finds it "entirely plausible" (so long as the wiretapping is limited to those reasonably believed to be associated with al Qaeda). Sunstein maintains that "surveillance, including wiretapping, is reasonably believed to be an incident of the use of force" that "standardly occurs during war."
Contrary to the administration, I also believe that as a matter of political prudence and comity with Congress, Bush should have tried to get the law changed rather than circumvent it. This was an error of political judgment. But that does not make it a crime. And only the most brazen and reckless partisan could pretend it is anything approaching a high crime and misdemeanor.
Unable to End 'Unlawful' Detention, Judge Says
By Josh White
Washington Post Staff Writer
Friday, December 23, 2005; A04
A federal judge in Washington ruled yesterday that the continued detention of two ethnic Uighurs at the U.S. prison facility at Guantanamo Bay, Cuba, is "unlawful," but he decided he had no authority to order their release.
U.S. District Judge James Robertson criticized the government's detention of Abu Bakker Qassim and Adel Abdu Hakim, who have been jailed at Guantanamo for four years; they have been cleared for release because the government has determined they are not enemy combatants and are not a threat to the United States. But Robertson said his court has "no relief to offer" because the government has not found a country to accept the men and because he does not have authority to let them enter the United States.
Robertson wrote that the government has taken too long to arrange a release for the men, who cannot return to their Chinese homeland because they would likely be tortured or killed there. U.S. authorities have asked about two dozen countries to grant the men political asylum, but none has accepted, in part out of fear of angering China.
The Uighurs -- along with seven other detainees who have been found to be "no longer enemy combatants" -- are in Guantanamo's Camp Iguana, a less-restrictive area of the prison. They were cleared by a combatant status review tribunal about nine months ago, but no solution for their release has been reached. Robertson wrote that their situation is untenable.
"The detention of these petitioners has by now become indefinite," Robertson wrote in a 12-page opinion. "This indefinite imprisonment at Guantanamo Bay is unlawful."
In a hearing last week, Robertson called the cases of the Uighurs (pronounced wee-gurs) a "classic dilemma" and proposed allowing them restricted asylum in the United States. He rejected that concept yesterday, deciding that the executive branch has control over immigration and that such a move "would have national security and diplomatic implications beyond the competence or the authority of this Court."
Robertson believes that his court has nothing to offer such cleared detainees because the Supreme Court, in its landmark 2004 ruling Rasul v. Bush , did not decide what relief might be available to Guantanamo Bay detainees who file habeas corpus petitions, nor what to do with those who are determined to be "no longer enemy combatants."
The judge also lashed out at the military's term for those who pose no threat. "The government's use of the Kafka-esque term 'no longer enemy combatants' deliberately begs the question of whether these petitioners ever were enemy combatants," he wrote, adding that there is nothing that shows the government could fear their return to battle.
Both men were captured as they tried to head toward Pakistan while fleeing Afghanistan in late 2001, allegedly after training for combat with the Taliban. The Uighurs have been in a struggle with the Chinese government over their homeland, and China considers them terrorists. Numerous Uighurs have sought asylum in the United States, and they have a small community in the Washington area.
Yesterday's opinion was moved into the record quickly because the detainees' lawyers feared that pending legislation headed for President Bush's desk could strip their clients of the ability to ask the federal courts for assistance. Language added to the Defense authorization bill, which has been approved by Congress, would restrict Guantanamo detainees' access to U.S. courts.
Military law experts fear that the language, written by Sens. Lindsey O. Graham (R-S.C.) and Carl M. Levin (D-Mich.), could allow the government to hold detainees at Guantanamo indefinitely. Seton Hall law professor Baher Azmy, who represents a Guantanamo detainee, called the legislation "outrageous" and said it could leave detainees with little to no legal protection.
"This frees the government to bring anyone it wants to Guantanamo, which is why they chose it in the first place," Azmy said. "It could end up as a place beyond the law where the executive branch can do whatever it wants to do." (LIKE KEEP TERRORISTS OFF THE BATTLEFIELD. NICE NEUTRAL QUOTE.)
Graham has said he believes suspected foreign terrorists should not have access to U.S. courts, except to have their combatant status reviewed and for limited appeals of military commission verdicts. Graham, instead, advocates more congressional oversight.
"We're not going to turn the war on terror over to the judges," Graham said in a conference call with reporters last week. "If you're an enemy combatant, they will look at your case every year. If there's someone who is there untold years, Congress will get involved."
Robertson, in the Uighurs' case, found he has no option but to allow the detainees to appeal to the U.S. Court of Appeals. Ultimately, the Clinton appointee's ruling leaves the men at Guantanamo indefinitely.
"The question in this case is whether the law gives me the power to do what I believe justice requires," Robertson wrote. "The answer, I believe, is no." (THEN WHY DID YOU TAKE THE CASE STUPID? HAVE YOU HEARD OF STANDING?)
By Josh White
Washington Post Staff Writer
Friday, December 23, 2005; A04
A federal judge in Washington ruled yesterday that the continued detention of two ethnic Uighurs at the U.S. prison facility at Guantanamo Bay, Cuba, is "unlawful," but he decided he had no authority to order their release.
U.S. District Judge James Robertson criticized the government's detention of Abu Bakker Qassim and Adel Abdu Hakim, who have been jailed at Guantanamo for four years; they have been cleared for release because the government has determined they are not enemy combatants and are not a threat to the United States. But Robertson said his court has "no relief to offer" because the government has not found a country to accept the men and because he does not have authority to let them enter the United States.
Robertson wrote that the government has taken too long to arrange a release for the men, who cannot return to their Chinese homeland because they would likely be tortured or killed there. U.S. authorities have asked about two dozen countries to grant the men political asylum, but none has accepted, in part out of fear of angering China.
The Uighurs -- along with seven other detainees who have been found to be "no longer enemy combatants" -- are in Guantanamo's Camp Iguana, a less-restrictive area of the prison. They were cleared by a combatant status review tribunal about nine months ago, but no solution for their release has been reached. Robertson wrote that their situation is untenable.
"The detention of these petitioners has by now become indefinite," Robertson wrote in a 12-page opinion. "This indefinite imprisonment at Guantanamo Bay is unlawful."
In a hearing last week, Robertson called the cases of the Uighurs (pronounced wee-gurs) a "classic dilemma" and proposed allowing them restricted asylum in the United States. He rejected that concept yesterday, deciding that the executive branch has control over immigration and that such a move "would have national security and diplomatic implications beyond the competence or the authority of this Court."
Robertson believes that his court has nothing to offer such cleared detainees because the Supreme Court, in its landmark 2004 ruling Rasul v. Bush , did not decide what relief might be available to Guantanamo Bay detainees who file habeas corpus petitions, nor what to do with those who are determined to be "no longer enemy combatants."
The judge also lashed out at the military's term for those who pose no threat. "The government's use of the Kafka-esque term 'no longer enemy combatants' deliberately begs the question of whether these petitioners ever were enemy combatants," he wrote, adding that there is nothing that shows the government could fear their return to battle.
Both men were captured as they tried to head toward Pakistan while fleeing Afghanistan in late 2001, allegedly after training for combat with the Taliban. The Uighurs have been in a struggle with the Chinese government over their homeland, and China considers them terrorists. Numerous Uighurs have sought asylum in the United States, and they have a small community in the Washington area.
Yesterday's opinion was moved into the record quickly because the detainees' lawyers feared that pending legislation headed for President Bush's desk could strip their clients of the ability to ask the federal courts for assistance. Language added to the Defense authorization bill, which has been approved by Congress, would restrict Guantanamo detainees' access to U.S. courts.
Military law experts fear that the language, written by Sens. Lindsey O. Graham (R-S.C.) and Carl M. Levin (D-Mich.), could allow the government to hold detainees at Guantanamo indefinitely. Seton Hall law professor Baher Azmy, who represents a Guantanamo detainee, called the legislation "outrageous" and said it could leave detainees with little to no legal protection.
"This frees the government to bring anyone it wants to Guantanamo, which is why they chose it in the first place," Azmy said. "It could end up as a place beyond the law where the executive branch can do whatever it wants to do." (LIKE KEEP TERRORISTS OFF THE BATTLEFIELD. NICE NEUTRAL QUOTE.)
Graham has said he believes suspected foreign terrorists should not have access to U.S. courts, except to have their combatant status reviewed and for limited appeals of military commission verdicts. Graham, instead, advocates more congressional oversight.
"We're not going to turn the war on terror over to the judges," Graham said in a conference call with reporters last week. "If you're an enemy combatant, they will look at your case every year. If there's someone who is there untold years, Congress will get involved."
Robertson, in the Uighurs' case, found he has no option but to allow the detainees to appeal to the U.S. Court of Appeals. Ultimately, the Clinton appointee's ruling leaves the men at Guantanamo indefinitely.
"The question in this case is whether the law gives me the power to do what I believe justice requires," Robertson wrote. "The answer, I believe, is no." (THEN WHY DID YOU TAKE THE CASE STUPID? HAVE YOU HEARD OF STANDING?)
Friday, December 23, 2005
GE to Acquire Arden Realty for $3.2 Billion (GE IN REAL ESTATE??? WHAT DO THEY KNOW)
The conglomerate's real estate unit would gain a stronger foothold in the Southland. As part of the deal, Trizec would buy some properties.
By Josh Friedman
Times Staff Writer
December 23, 2005
General Electric Co. agreed Thursday to pay $3.2 billion for Arden Realty Inc., ending months of speculation with a deal that would reshape the market for office space in Southern California.
GE Real Estate, the Fairfield, Conn., conglomerate's real estate investing unit, would pay $45.25 a share in cash and assume Arden's $1.6 billion in debt.
In turn, GE would sell a selection of Arden's major properties in Southern California — including the Howard Hughes Center, Westwood Center and World Savings Center in West Los Angeles, and Arden Towers in San Diego — to Trizec Properties Inc. for $1.6 billion.
Brentwood-based Arden is Southern California's largest office landlord. It owns 192 buildings at 116 properties covering 18.5 million square feet in Los Angeles, Orange, San Diego, Ventura and Kern counties.
The sale, expected to close by May pending approval by Arden's shareholders, would establish a stronger Southern California foothold for GE Real Estate, which has only a few properties in the region.
And it would nearly double the presence in the region for Chicago-based Trizec, whose downtown Los Angeles holdings would be complemented by 13 properties in West L.A. and San Diego.
Arden Chairman Richard S. Ziman, who founded the real estate investment trust in 1991 with President Victor Coleman and took it public in 1996, said a strong real estate market made the sale enticing.
"The timing was there," Ziman said, noting that rents are rising and vacancies falling in the Southland. "The perspective of this management team was that this was the appropriate time to maximize shareholder value."
Based on their latest reported share holdings, Ziman would gross $44.3 million in the deal and Coleman would get $22.3 million.
The deal would leave Maguire Properties Inc., which had been among the bidders for Arden's assets, and Kilroy Realty Corp. as the only major real estate investment trusts focused on Southern California's office market, analysts said, although some expect Santa Monica-based Douglas Emmett to go public in 2006.
Maguire had been considered a contender for some of Arden's assets, but Trizec swooped in "relatively recently" with a strong bid, Ziman said.
Talk of an Arden buyout has swirled for several years, but the rumor mill heated up in September as word of the GE negotiations leaked out. In the three months before Thursday morning's announcement, Arden shares surged 25%.
Some who bought on the rumor sold on the news: The stock slid $1.81, or 4%, on Thursday to $45.18.
Analysts said there was no premium to Wednesday's closing price of $46.99 — indeed, the deal came at a discount — because of the recent run-up.
"It's highly unusual to see a 'take-under,' " said analyst Craig Silvers of Bricks & Mortar Capital. But, he said of Arden, "the company got a fair price for shareholders."
Arden had built a solid portfolio, but its growth prospects were hampered, he said, because its balance sheet was "close to fully levered" — a problem GE Real Estate won't face.
Analyst Jim Sullivan, who follows publicly traded real estate companies for Green Street Advisors in Newport Beach, said recent speculation that Arden could fetch more than $50 a share was extreme.
"This was a good job by the seller," Sullivan said, "and now we'll see how the buyers end up doing."
Investors have been snapping up U.S. office properties at a brisk pace. About $55.5 billion in real estate acquisitions have been announced this year, according to Bloomberg News' data, up 28% from 2004.
With its diverse economy and limited space to build, Southern California is an especially attractive office market, GE and Trizec said.
Trizec, whose slice of the deal includes Howard Hughes Center land that could be developed into residential projects, said the purchase fitted with its focus on higher-end properties.
"These high-quality assets, with strong embedded growth opportunities, will be a great addition to our existing portfolio," Chief Executive Tim Callahan said in a statement. Southern California would become Trizec's top revenue generator, the company said.
For GE, the deal ends a long quest.
Joe Parsons, president of North American equity for GE Real Estate, said he had made overtures to Ziman and Coleman for "a couple of years," but until this summer had always been politely rebuffed.
Parsons said he expected rental revenue in the Southern California area to grow at about twice the national rate over the next several years, compounding in the 3%-to-7% range.
Although GE already has a few properties in the Southland, Parsons called Arden "our entry" into the region.
"We hope to use this platform to help us grow throughout California and the West, places like Phoenix," he said. GE would take a more active approach to the portfolio than Arden has, Parsons said, promising plenty of buying and selling.
He said that the larger buildings appealed to Trizec, which as a public REIT desires stable cash flow, and that GE could adopt "more of a trading strategy to maximize assets" with the other properties — for example, refurbishing and reselling them. REITs are publicly traded investment companies that manage real estate portfolios, often focusing on a segment of the market such as offices, apartments or shopping centers; for tax purposes, they pay out 95% of their profits annually to shareholders through dividends.
Parsons said GE would try to retain as many of Arden's 300 employees as possible.
Ziman said he hadn't thought about his own future — other than hoping to get away to Mexico for a few days over the holidays.
"There's always a life after," he said.
The conglomerate's real estate unit would gain a stronger foothold in the Southland. As part of the deal, Trizec would buy some properties.
By Josh Friedman
Times Staff Writer
December 23, 2005
General Electric Co. agreed Thursday to pay $3.2 billion for Arden Realty Inc., ending months of speculation with a deal that would reshape the market for office space in Southern California.
GE Real Estate, the Fairfield, Conn., conglomerate's real estate investing unit, would pay $45.25 a share in cash and assume Arden's $1.6 billion in debt.
In turn, GE would sell a selection of Arden's major properties in Southern California — including the Howard Hughes Center, Westwood Center and World Savings Center in West Los Angeles, and Arden Towers in San Diego — to Trizec Properties Inc. for $1.6 billion.
Brentwood-based Arden is Southern California's largest office landlord. It owns 192 buildings at 116 properties covering 18.5 million square feet in Los Angeles, Orange, San Diego, Ventura and Kern counties.
The sale, expected to close by May pending approval by Arden's shareholders, would establish a stronger Southern California foothold for GE Real Estate, which has only a few properties in the region.
And it would nearly double the presence in the region for Chicago-based Trizec, whose downtown Los Angeles holdings would be complemented by 13 properties in West L.A. and San Diego.
Arden Chairman Richard S. Ziman, who founded the real estate investment trust in 1991 with President Victor Coleman and took it public in 1996, said a strong real estate market made the sale enticing.
"The timing was there," Ziman said, noting that rents are rising and vacancies falling in the Southland. "The perspective of this management team was that this was the appropriate time to maximize shareholder value."
Based on their latest reported share holdings, Ziman would gross $44.3 million in the deal and Coleman would get $22.3 million.
The deal would leave Maguire Properties Inc., which had been among the bidders for Arden's assets, and Kilroy Realty Corp. as the only major real estate investment trusts focused on Southern California's office market, analysts said, although some expect Santa Monica-based Douglas Emmett to go public in 2006.
Maguire had been considered a contender for some of Arden's assets, but Trizec swooped in "relatively recently" with a strong bid, Ziman said.
Talk of an Arden buyout has swirled for several years, but the rumor mill heated up in September as word of the GE negotiations leaked out. In the three months before Thursday morning's announcement, Arden shares surged 25%.
Some who bought on the rumor sold on the news: The stock slid $1.81, or 4%, on Thursday to $45.18.
Analysts said there was no premium to Wednesday's closing price of $46.99 — indeed, the deal came at a discount — because of the recent run-up.
"It's highly unusual to see a 'take-under,' " said analyst Craig Silvers of Bricks & Mortar Capital. But, he said of Arden, "the company got a fair price for shareholders."
Arden had built a solid portfolio, but its growth prospects were hampered, he said, because its balance sheet was "close to fully levered" — a problem GE Real Estate won't face.
Analyst Jim Sullivan, who follows publicly traded real estate companies for Green Street Advisors in Newport Beach, said recent speculation that Arden could fetch more than $50 a share was extreme.
"This was a good job by the seller," Sullivan said, "and now we'll see how the buyers end up doing."
Investors have been snapping up U.S. office properties at a brisk pace. About $55.5 billion in real estate acquisitions have been announced this year, according to Bloomberg News' data, up 28% from 2004.
With its diverse economy and limited space to build, Southern California is an especially attractive office market, GE and Trizec said.
Trizec, whose slice of the deal includes Howard Hughes Center land that could be developed into residential projects, said the purchase fitted with its focus on higher-end properties.
"These high-quality assets, with strong embedded growth opportunities, will be a great addition to our existing portfolio," Chief Executive Tim Callahan said in a statement. Southern California would become Trizec's top revenue generator, the company said.
For GE, the deal ends a long quest.
Joe Parsons, president of North American equity for GE Real Estate, said he had made overtures to Ziman and Coleman for "a couple of years," but until this summer had always been politely rebuffed.
Parsons said he expected rental revenue in the Southern California area to grow at about twice the national rate over the next several years, compounding in the 3%-to-7% range.
Although GE already has a few properties in the Southland, Parsons called Arden "our entry" into the region.
"We hope to use this platform to help us grow throughout California and the West, places like Phoenix," he said. GE would take a more active approach to the portfolio than Arden has, Parsons said, promising plenty of buying and selling.
He said that the larger buildings appealed to Trizec, which as a public REIT desires stable cash flow, and that GE could adopt "more of a trading strategy to maximize assets" with the other properties — for example, refurbishing and reselling them. REITs are publicly traded investment companies that manage real estate portfolios, often focusing on a segment of the market such as offices, apartments or shopping centers; for tax purposes, they pay out 95% of their profits annually to shareholders through dividends.
Parsons said GE would try to retain as many of Arden's 300 employees as possible.
Ziman said he hadn't thought about his own future — other than hoping to get away to Mexico for a few days over the holidays.
"There's always a life after," he said.
U.N. Hit by a Bolt From the Right
John Bolton is seen as 'brilliant' or as 'a bully.' But the U.S. ambassador is having an impact.
By Maggie Farley
Times Staff Writer
December 23, 2005
UNITED NATIONS — U.S. Ambassador John R. Bolton's mission to overhaul the U.N. is a lot like Hercules' mythical labor to clean a mountain of manure from the Augean stables, joked a friend while introducing him before a recent speech. The difference for Bolton, she said, is that the animals making the mess are still there.
Recounting the story, Bolton leans his head back and laughs. And laughs, until his face turns red.
"She said it. I didn't," he says.
After four months as ambassador, Bolton is still shoveling hard. Most of his fellow diplomats agree that the blunt-spoken envoy is indeed unconventional. Some call him "a bully," and others say he is "brilliant." But opinion is divided about whether he is effective — if he is cleaning up the mess, or adding to it.
"He is having a definite impact," said Ambassador Mihnea Motoc of Romania, a temporary member of the Security Council. "Others wish they could do things the same way."
But Bolton's methods have often put him at odds with the United States' traditional allies here, particularly Britain, which has worked to broker face-saving compromises.
"Strategically, there isn't that much of a difference between the U.S. and the U.K.," British Ambassador Emyr Jones Parry said. "The question is one of tactics. The perturbation it will cause to the U.N. system will only increase the divisions within the U.N. and take our eye off reform."
Just as member states were brushing themselves off from the last collision Bolton precipitated, over an agreement on how to reform the U.N. before the World Summit in September, the U.S. ambassador is setting up a new showdown.
He has threatened to block the world body's budget for 2006-07 unless diplomats commit to "real reform" by the end of 2005, a year that has seen the organization severely damaged by revelations of corruption and mismanagement in the Iraq oil-for-food program, the disclosure of sexual exploitation by peacekeepers and the U.N.'s difficulty in remaking itself.
The budget battle prompted Secretary-General Kofi Annan to cancel a trip this month to Asia and warn that Bolton's gambit could exacerbate the very problems it is meant to solve. (KOFI, REMEMBER OUR TALK ABOUT HOW YOU SHOULD GO **CK YOURSELF?)
"He has an agenda, and he's pursuing it with a conviction that is uncommon here," said Algerian Ambassador Abdallah Baali, who sometimes clashes with Bolton in the Security Council but considers him a friend. "He's doing it his way, which is not the way we do it at the U.N. We are used to a little more compromise."
It was always expected he would be controversial. Bolton came to the post by the political back door: President Bush appointed him during a congressional recess after it became clear that the battle over his confirmation was going to be a long one.
The ambassador clearly relishes a fight. He recalled that when he was applying at law firms for a summer job back when he was a young man, one lawyer told him to rethink his desire to be a litigator, saying that most of his interactions every day would be with people who wanted to "rip your clients' lungs out."
"He asked me, 'Is that really what you want to do?' And I thought about it and I said, 'Yeah, that is exactly what I want to do.' "
Bolton is still comfortably contrarian, standing out among sleekly groomed diplomats with his trademark walrus mustache and mop of once-auburn hair, now graying. (It is not a toupee, as some have wondered.)
The new ambassador wakes up every morning at 4 to prepare for the day's battles. He wants to make sure the U.S. message gets across, and he doesn't do it softly. "I think it's important to say clearly what the U.S. position is…. And I think when you say we hold this position and we hold it strongly, for some people, that is a new experience."
What makes him uncomfortable are the diplomatic niceties. He spends most weekends at his home in Bethesda, Md., not in the U.S. ambassador's residence in the Waldorf Towers, a rambling glorified hotel suite that is anything but homey. Bolton said that one Sunday afternoon, he sat down in the lofty living room to read a book.
For a moment.
"I got so intimidated I actually got up and went to the other room," he said.
At receptions, Bolton hates to schmooze. Instead he is trying to meet all the U.N. ambassadors one at a time and has seen 121 so far. "Sixty-four to go," he said.
He eschews most diplomatic dinner parties because they start at 8 p.m. — too late for his 9 o'clock bedtime. When he does go, he asks the host to change the start time to 7. Some hosts even do. "It's my own social revolution," he said.
But what he is really interested in is what he calls "a revolution of reform."
Since Bolton arrived in August, he has shaken up the 60-year-old institution. His first move was to unravel the carefully negotiated document on U.N. reform in an attempt to force delegates to try to reweave it into what he considered a tighter, more effective treatise. Talks stalled as a result, and a last-minute compromise document secured few of the gains the U.S. was pushing for.
He has floated the idea of a sort of a la carte diplomacy, in which the United States would fund only the U.N. agencies it thought were effective.
This month, he sharply criticized the U.N.'s human rights chief, Louise Arbour, for her statement that the U.S.-declared "war on terrorism" was undermining the global treaty against torture and losing the U.S. its moral high ground. He called her comments "illegitimate and irresponsible."
And now, the budget bomb.
"That's just the way practical politics works," Bolton said in an interview in his spartan office. "There is no one decisive encounter in that conflict, but it could be quite important in the next two weeks to see what happens."
When Bush came to the U.N. for the global summit three months ago, TV boom mikes eavesdropped on him joking with Annan: "How's my boy John doing? Has he blown up the building yet?"
Not yet. But Bolton's budget stratagem may shut the U.N. down temporarily if diplomats can't agree on key changes, including management alterations and new commissions on human rights, by Dec. 31 — or how to keep the money flowing until they do agree.
Some diplomats fear a reprise of the September standoff over reform.
"It is the same thing all over again," a Security Council ambassador said. "If he opens up what has already been negotiated again, he will end up with less than what he started with. And he is causing a lot of damage in the process." (TOUGH S*** DUDE. WE PAY 25%, SO WE ARE GOING TO CALL SOME OF THE TUNES, GOT IT?)
The September debate was Bolton's first test as ambassador. Secretary of State Condoleezza Rice instructed him to make sure that key U.S. goals were included in the pact on U.N. reform to be signed by world leaders, known as the Outcome Document.
Bolton, who was a diplomat at the United Nations in the 1980s, knows well how the world body works, and how to make it not work.
He presented about 700 U.S. amendments to the 37-page document — many of which may have made the plan better but also reopened old disagreements that negotiators thought had been settled.
The haggling over the document continued even as world leaders were arriving at the U.N. to sign it. Desperate to avoid a total failure, Secretariat officials appealed directly to Rice, U.N. and U.S. officials say, for permission to take the negotiations out of diplomats' hands and craft a compromise text. The move infuriated Bolton when he heard about it the next morning. He fought for several last-minute improvements, he said, and refused to publicly endorse the document in the General Assembly.
But the next day in a keynote speech, Bush embraced a key development issue that U.S. negotiators had pointedly kept off the table.
In the General Assembly hall, jaws dropped.
"We all wondered, why the gap? Who messed up?" a European diplomat said. "The U.S. could have gotten much more if it had made the concessions on development that Bush made anyway."
Bolton said that was not the case. "I think we achieved in substance the bulk of the changes we wanted," he said.
The episode seemed to boost his popularity among critics of the organization, but it also dulled his shine within it, despite a few grudging kudos for his chutzpah.
"Bolton has positioned himself well," said one ambassador, who has negotiated with him but didn't want to be named. "If he says, 'Do it my way,' and they do, he wins. If they don't, he still wins, because he can say the U.N. is not worth working with."
Whether a win for Bolton is always a win for the U.S. is unclear. A State Department official confirmed that Bolton's boss, Undersecretary of State for Political Affairs R. Nicholas Burns, and Rice often receive calls trying to exploit well-known divisions in Washington to find a way around Bolton roadblocks.
As the budget deadline nears, the phone lines are burning again as diplomats seek a second opinion.
But Bolton said he was confident there would be a solution by year's end, and the British were busily crafting a compromise proposal.
"With all the creativity in the U.N. and New York, the financial capital of the world, we should be able to come up with something," he said.
"I'm hoping that sweet reason will prevail."
John Bolton is seen as 'brilliant' or as 'a bully.' But the U.S. ambassador is having an impact.
By Maggie Farley
Times Staff Writer
December 23, 2005
UNITED NATIONS — U.S. Ambassador John R. Bolton's mission to overhaul the U.N. is a lot like Hercules' mythical labor to clean a mountain of manure from the Augean stables, joked a friend while introducing him before a recent speech. The difference for Bolton, she said, is that the animals making the mess are still there.
Recounting the story, Bolton leans his head back and laughs. And laughs, until his face turns red.
"She said it. I didn't," he says.
After four months as ambassador, Bolton is still shoveling hard. Most of his fellow diplomats agree that the blunt-spoken envoy is indeed unconventional. Some call him "a bully," and others say he is "brilliant." But opinion is divided about whether he is effective — if he is cleaning up the mess, or adding to it.
"He is having a definite impact," said Ambassador Mihnea Motoc of Romania, a temporary member of the Security Council. "Others wish they could do things the same way."
But Bolton's methods have often put him at odds with the United States' traditional allies here, particularly Britain, which has worked to broker face-saving compromises.
"Strategically, there isn't that much of a difference between the U.S. and the U.K.," British Ambassador Emyr Jones Parry said. "The question is one of tactics. The perturbation it will cause to the U.N. system will only increase the divisions within the U.N. and take our eye off reform."
Just as member states were brushing themselves off from the last collision Bolton precipitated, over an agreement on how to reform the U.N. before the World Summit in September, the U.S. ambassador is setting up a new showdown.
He has threatened to block the world body's budget for 2006-07 unless diplomats commit to "real reform" by the end of 2005, a year that has seen the organization severely damaged by revelations of corruption and mismanagement in the Iraq oil-for-food program, the disclosure of sexual exploitation by peacekeepers and the U.N.'s difficulty in remaking itself.
The budget battle prompted Secretary-General Kofi Annan to cancel a trip this month to Asia and warn that Bolton's gambit could exacerbate the very problems it is meant to solve. (KOFI, REMEMBER OUR TALK ABOUT HOW YOU SHOULD GO **CK YOURSELF?)
"He has an agenda, and he's pursuing it with a conviction that is uncommon here," said Algerian Ambassador Abdallah Baali, who sometimes clashes with Bolton in the Security Council but considers him a friend. "He's doing it his way, which is not the way we do it at the U.N. We are used to a little more compromise."
It was always expected he would be controversial. Bolton came to the post by the political back door: President Bush appointed him during a congressional recess after it became clear that the battle over his confirmation was going to be a long one.
The ambassador clearly relishes a fight. He recalled that when he was applying at law firms for a summer job back when he was a young man, one lawyer told him to rethink his desire to be a litigator, saying that most of his interactions every day would be with people who wanted to "rip your clients' lungs out."
"He asked me, 'Is that really what you want to do?' And I thought about it and I said, 'Yeah, that is exactly what I want to do.' "
Bolton is still comfortably contrarian, standing out among sleekly groomed diplomats with his trademark walrus mustache and mop of once-auburn hair, now graying. (It is not a toupee, as some have wondered.)
The new ambassador wakes up every morning at 4 to prepare for the day's battles. He wants to make sure the U.S. message gets across, and he doesn't do it softly. "I think it's important to say clearly what the U.S. position is…. And I think when you say we hold this position and we hold it strongly, for some people, that is a new experience."
What makes him uncomfortable are the diplomatic niceties. He spends most weekends at his home in Bethesda, Md., not in the U.S. ambassador's residence in the Waldorf Towers, a rambling glorified hotel suite that is anything but homey. Bolton said that one Sunday afternoon, he sat down in the lofty living room to read a book.
For a moment.
"I got so intimidated I actually got up and went to the other room," he said.
At receptions, Bolton hates to schmooze. Instead he is trying to meet all the U.N. ambassadors one at a time and has seen 121 so far. "Sixty-four to go," he said.
He eschews most diplomatic dinner parties because they start at 8 p.m. — too late for his 9 o'clock bedtime. When he does go, he asks the host to change the start time to 7. Some hosts even do. "It's my own social revolution," he said.
But what he is really interested in is what he calls "a revolution of reform."
Since Bolton arrived in August, he has shaken up the 60-year-old institution. His first move was to unravel the carefully negotiated document on U.N. reform in an attempt to force delegates to try to reweave it into what he considered a tighter, more effective treatise. Talks stalled as a result, and a last-minute compromise document secured few of the gains the U.S. was pushing for.
He has floated the idea of a sort of a la carte diplomacy, in which the United States would fund only the U.N. agencies it thought were effective.
This month, he sharply criticized the U.N.'s human rights chief, Louise Arbour, for her statement that the U.S.-declared "war on terrorism" was undermining the global treaty against torture and losing the U.S. its moral high ground. He called her comments "illegitimate and irresponsible."
And now, the budget bomb.
"That's just the way practical politics works," Bolton said in an interview in his spartan office. "There is no one decisive encounter in that conflict, but it could be quite important in the next two weeks to see what happens."
When Bush came to the U.N. for the global summit three months ago, TV boom mikes eavesdropped on him joking with Annan: "How's my boy John doing? Has he blown up the building yet?"
Not yet. But Bolton's budget stratagem may shut the U.N. down temporarily if diplomats can't agree on key changes, including management alterations and new commissions on human rights, by Dec. 31 — or how to keep the money flowing until they do agree.
Some diplomats fear a reprise of the September standoff over reform.
"It is the same thing all over again," a Security Council ambassador said. "If he opens up what has already been negotiated again, he will end up with less than what he started with. And he is causing a lot of damage in the process." (TOUGH S*** DUDE. WE PAY 25%, SO WE ARE GOING TO CALL SOME OF THE TUNES, GOT IT?)
The September debate was Bolton's first test as ambassador. Secretary of State Condoleezza Rice instructed him to make sure that key U.S. goals were included in the pact on U.N. reform to be signed by world leaders, known as the Outcome Document.
Bolton, who was a diplomat at the United Nations in the 1980s, knows well how the world body works, and how to make it not work.
He presented about 700 U.S. amendments to the 37-page document — many of which may have made the plan better but also reopened old disagreements that negotiators thought had been settled.
The haggling over the document continued even as world leaders were arriving at the U.N. to sign it. Desperate to avoid a total failure, Secretariat officials appealed directly to Rice, U.N. and U.S. officials say, for permission to take the negotiations out of diplomats' hands and craft a compromise text. The move infuriated Bolton when he heard about it the next morning. He fought for several last-minute improvements, he said, and refused to publicly endorse the document in the General Assembly.
But the next day in a keynote speech, Bush embraced a key development issue that U.S. negotiators had pointedly kept off the table.
In the General Assembly hall, jaws dropped.
"We all wondered, why the gap? Who messed up?" a European diplomat said. "The U.S. could have gotten much more if it had made the concessions on development that Bush made anyway."
Bolton said that was not the case. "I think we achieved in substance the bulk of the changes we wanted," he said.
The episode seemed to boost his popularity among critics of the organization, but it also dulled his shine within it, despite a few grudging kudos for his chutzpah.
"Bolton has positioned himself well," said one ambassador, who has negotiated with him but didn't want to be named. "If he says, 'Do it my way,' and they do, he wins. If they don't, he still wins, because he can say the U.N. is not worth working with."
Whether a win for Bolton is always a win for the U.S. is unclear. A State Department official confirmed that Bolton's boss, Undersecretary of State for Political Affairs R. Nicholas Burns, and Rice often receive calls trying to exploit well-known divisions in Washington to find a way around Bolton roadblocks.
As the budget deadline nears, the phone lines are burning again as diplomats seek a second opinion.
But Bolton said he was confident there would be a solution by year's end, and the British were busily crafting a compromise proposal.
"With all the creativity in the U.N. and New York, the financial capital of the world, we should be able to come up with something," he said.
"I'm hoping that sweet reason will prevail."
On Leaks, Relying on A Faulty Case Study (DOES THIS STORY MAKE SENSE? NOTE THE BOLDED PART)
Untrue Bin Laden Satellite Phone Story Still Has Currency With Media's Critics
By Glenn Kessler
Washington Post Staff Writer
Friday, December 23, 2005; A03
The allegation that news organizations leaked information about Osama bin Laden's satellite phone, thus shutting down a valuable source of intelligence that might have prevented the Sept. 11, 2001, attacks, has long been a prime case study cited by government officials seeking to impose greater restrictions on the news media.
President Bush drew attention to the case Monday when he twice cited it as a dangerous example of the news media "revealing sources, methods and what we use the information for." Bush was basing his remarks on a conclusion by the Sept. 11 commission, which had labeled it a "leak" that prompted the al Qaeda leader to turn off his phone.
Upon closer examination, the story turned out to be wrong. Bin Laden's use of a satellite phone had already been widely reported by August 1998, and he stopped using it within days of a cruise missile attack on his training camps in Afghanistan.
(WIDELY REPORTED BY WHO???? OH, NOT THE MEDIA RIGHT? NICE TRY GLENN, BUT THIS JUST PROVES THE STORY YOU WORTHLESS **TT**CK)
Yet in recent years, advocates of new laws that would restrict the ability of the news media to report on intelligence matters have repeatedly cited the case of bin Laden's satellite phone as an especially dangerous example of media malfeasance.
In July, Rep, Peter Hoekstra (R-Mich.), chairman of the House intelligence committee, gave a speech titled "Secrets and Leaks: the Costs and Consequences for National Security," in which he highlighted the bin Laden case. "Were it not for a leak, there is a chance we could have brought Osama bin Laden to justice by now and have a better understanding of the al Qaeda operation," said Hoekstra, who is considering legislation to make it easier to prosecute leakers.
A spokesman for Hoekstra did not return a call seeking comment.
Hoekstra has distributed to lawmakers a classified report on leaks compiled by James B. Bruce, vice chairman of the CIA's Foreign Denial and Deception Committee, and a leading advocate of enacting very tough laws on leaks. In 2002, Bruce was quoted as saying that "we've got to do whatever it takes -- if it takes sending SWAT teams into journalists' homes -- to stop these leaks."
Bruce has also repeatedly cited the bin Laden example as he made the case for new laws to stem leaks, such as making journalists and news organizations liable for prosecution if they report classified information or obtain classified documents.
"Important intelligence collection capabilities against Osama bin Laden and al Qaeda were lost in the several year period leading to 9/11," Bruce told the American Bar Association on Nov. 22, 2002, saying the bin Laden case was "just the tip of the iceberg" of how disclosures hurt the campaign against terrorism. He did not cite other examples.
Former deputy defense secretary Paul D. Wolfowitz mentioned bin Laden's phone in September 2002, saying it was an example of how "our intelligence sources and methods have also been devaluated by a pattern of leaks from the executive and legislative branches of government and through a number of well-known espionage cases."
Bruce, who did not respond to an e-mail requesting comment, was a staff member of the 2005 Robb-Silberman Commission on Intelligence Capabilities, which included a classified annex that detailed leaks "that have collectively cost the American people millions of dollars." A source said one of those cases is that of bin Laden's phone.
Several commissioners declined to comment, except to say there were several incidents that showed significant damage to U.S. intelligence.
Thomas S. Blanton, director of the National Security Archive, said the bin Laden case shows that the news media may play less of a role in intelligence failures than is often assumed. "Cruise missiles concentrate the mind a lot more than news clips do," he said. "It is the underlying reality, not the leaks, that does most of the damage."
Untrue Bin Laden Satellite Phone Story Still Has Currency With Media's Critics
By Glenn Kessler
Washington Post Staff Writer
Friday, December 23, 2005; A03
The allegation that news organizations leaked information about Osama bin Laden's satellite phone, thus shutting down a valuable source of intelligence that might have prevented the Sept. 11, 2001, attacks, has long been a prime case study cited by government officials seeking to impose greater restrictions on the news media.
President Bush drew attention to the case Monday when he twice cited it as a dangerous example of the news media "revealing sources, methods and what we use the information for." Bush was basing his remarks on a conclusion by the Sept. 11 commission, which had labeled it a "leak" that prompted the al Qaeda leader to turn off his phone.
Upon closer examination, the story turned out to be wrong. Bin Laden's use of a satellite phone had already been widely reported by August 1998, and he stopped using it within days of a cruise missile attack on his training camps in Afghanistan.
(WIDELY REPORTED BY WHO???? OH, NOT THE MEDIA RIGHT? NICE TRY GLENN, BUT THIS JUST PROVES THE STORY YOU WORTHLESS **TT**CK)
Yet in recent years, advocates of new laws that would restrict the ability of the news media to report on intelligence matters have repeatedly cited the case of bin Laden's satellite phone as an especially dangerous example of media malfeasance.
In July, Rep, Peter Hoekstra (R-Mich.), chairman of the House intelligence committee, gave a speech titled "Secrets and Leaks: the Costs and Consequences for National Security," in which he highlighted the bin Laden case. "Were it not for a leak, there is a chance we could have brought Osama bin Laden to justice by now and have a better understanding of the al Qaeda operation," said Hoekstra, who is considering legislation to make it easier to prosecute leakers.
A spokesman for Hoekstra did not return a call seeking comment.
Hoekstra has distributed to lawmakers a classified report on leaks compiled by James B. Bruce, vice chairman of the CIA's Foreign Denial and Deception Committee, and a leading advocate of enacting very tough laws on leaks. In 2002, Bruce was quoted as saying that "we've got to do whatever it takes -- if it takes sending SWAT teams into journalists' homes -- to stop these leaks."
Bruce has also repeatedly cited the bin Laden example as he made the case for new laws to stem leaks, such as making journalists and news organizations liable for prosecution if they report classified information or obtain classified documents.
"Important intelligence collection capabilities against Osama bin Laden and al Qaeda were lost in the several year period leading to 9/11," Bruce told the American Bar Association on Nov. 22, 2002, saying the bin Laden case was "just the tip of the iceberg" of how disclosures hurt the campaign against terrorism. He did not cite other examples.
Former deputy defense secretary Paul D. Wolfowitz mentioned bin Laden's phone in September 2002, saying it was an example of how "our intelligence sources and methods have also been devaluated by a pattern of leaks from the executive and legislative branches of government and through a number of well-known espionage cases."
Bruce, who did not respond to an e-mail requesting comment, was a staff member of the 2005 Robb-Silberman Commission on Intelligence Capabilities, which included a classified annex that detailed leaks "that have collectively cost the American people millions of dollars." A source said one of those cases is that of bin Laden's phone.
Several commissioners declined to comment, except to say there were several incidents that showed significant damage to U.S. intelligence.
Thomas S. Blanton, director of the National Security Archive, said the bin Laden case shows that the news media may play less of a role in intelligence failures than is often assumed. "Cruise missiles concentrate the mind a lot more than news clips do," he said. "It is the underlying reality, not the leaks, that does most of the damage."
Dorm Clouds (HOW HOT IS THIS HOT BOTTON ISSUE?? DEMS, YOUR CALL. BOY WILL THAT ****BURGER TASTE BAD . . .)
Posted 12/22/2005
Immigration: Some California students have filed suit asking a good question: Why should an illegal alien who crossed the border from Mexico pay in-state rates while citizens who cross the border from Nevada do not?
Americans are beginning to wonder what benefits accrue to U.S. citizens when illegal aliens and their offspring are treated as if they are citizens and even given extra goodies.
A group of out-of-state college students have filed a class-action lawsuit challenging the legality of a California law that allows undocumented students to pay lower in-state tuition rates if they've attended a California high school for at least three years, graduated from one and sign an affidavit that they will seek legal status as soon as it is "feasible."
The difference can be a chunk of change. Under a California law passed in 2002, the child of a U.S. Border Patrol agent from New Mexico would pay nearly $24,000 a year to attend the University of California. That's about $17,000 more than California residents, including those who may have snuck past that very same agent.
California is one of nine states that currently lets undocumented students qualify for in-state rates, and California's largest public universities say they are in compliance with federal law. A similar lawsuit filed in federal court in Kansas against Kansas higher education officials was dismissed, but is being appealed.
The ruling by U.S. District Court Judge Richard D. Rogers this past summer said that the applicable federal statute, 8 U.S.C. Section 1623, which was adopted in 1996, was intended to be enforced by the Department of Homeland Security (DHS), not by states or any other entity, saying essentially the plaintiffs sued the wrong party. But, in his appeal of the ruling, Washington Legal Foundation chief counsel Richard Samp alleges that "DHS has resisted all entreaties to enforce the statute."
At the heart of the Kansas case are the circumstances of Brigette Brennan, a U.S. citizen who grew up in Missouri. While living in Missouri, she graduated from Bishop Mierge High School, which is located in Kansas. She is enrolled as a fifth-year undergraduate student at Kansas University (KU) and has resided in Lawrence, Kan., since she began her studies there.
Despite living in Kansas and having graduated from a Kansas high school, KU has denied her repeated requests to be charged in-state rates. Her appeal contends Kansas officials "are violating her rights under federal law and the U.S. Constitution by charging her higher rates than they charge to illegal aliens who attend KU."
Indeed, the law clearly states that "an alien who is not lawfully present in the United States shall not be eligible on the basis of residence within a State . . . for any post-secondary education benefit unless a citizen or national is eligible for such a benefit."
About 1.7 million illegal minors live in the U.S., according to the Pew Hispanic Center. The Washington Times reports that 3,700 undocumented immigrants are taking advantage of lower in-state tuition in Texas alone. Should they get preference over, say, the children of 9-11 victims?
Break this nation's laws, don't get caught and the taxpaying citizens of America struggling to send their own kids to college — many taking out loans and mortgages — will subsidize your kids' education, taking up the spot that might have gone to the child of a veteran from, say, Operation Iraqi Freedom, who can't afford it because he or she was born in Iowa.
Posted 12/22/2005
Immigration: Some California students have filed suit asking a good question: Why should an illegal alien who crossed the border from Mexico pay in-state rates while citizens who cross the border from Nevada do not?
Americans are beginning to wonder what benefits accrue to U.S. citizens when illegal aliens and their offspring are treated as if they are citizens and even given extra goodies.
A group of out-of-state college students have filed a class-action lawsuit challenging the legality of a California law that allows undocumented students to pay lower in-state tuition rates if they've attended a California high school for at least three years, graduated from one and sign an affidavit that they will seek legal status as soon as it is "feasible."
The difference can be a chunk of change. Under a California law passed in 2002, the child of a U.S. Border Patrol agent from New Mexico would pay nearly $24,000 a year to attend the University of California. That's about $17,000 more than California residents, including those who may have snuck past that very same agent.
California is one of nine states that currently lets undocumented students qualify for in-state rates, and California's largest public universities say they are in compliance with federal law. A similar lawsuit filed in federal court in Kansas against Kansas higher education officials was dismissed, but is being appealed.
The ruling by U.S. District Court Judge Richard D. Rogers this past summer said that the applicable federal statute, 8 U.S.C. Section 1623, which was adopted in 1996, was intended to be enforced by the Department of Homeland Security (DHS), not by states or any other entity, saying essentially the plaintiffs sued the wrong party. But, in his appeal of the ruling, Washington Legal Foundation chief counsel Richard Samp alleges that "DHS has resisted all entreaties to enforce the statute."
At the heart of the Kansas case are the circumstances of Brigette Brennan, a U.S. citizen who grew up in Missouri. While living in Missouri, she graduated from Bishop Mierge High School, which is located in Kansas. She is enrolled as a fifth-year undergraduate student at Kansas University (KU) and has resided in Lawrence, Kan., since she began her studies there.
Despite living in Kansas and having graduated from a Kansas high school, KU has denied her repeated requests to be charged in-state rates. Her appeal contends Kansas officials "are violating her rights under federal law and the U.S. Constitution by charging her higher rates than they charge to illegal aliens who attend KU."
Indeed, the law clearly states that "an alien who is not lawfully present in the United States shall not be eligible on the basis of residence within a State . . . for any post-secondary education benefit unless a citizen or national is eligible for such a benefit."
About 1.7 million illegal minors live in the U.S., according to the Pew Hispanic Center. The Washington Times reports that 3,700 undocumented immigrants are taking advantage of lower in-state tuition in Texas alone. Should they get preference over, say, the children of 9-11 victims?
Break this nation's laws, don't get caught and the taxpaying citizens of America struggling to send their own kids to college — many taking out loans and mortgages — will subsidize your kids' education, taking up the spot that might have gone to the child of a veteran from, say, Operation Iraqi Freedom, who can't afford it because he or she was born in Iowa.
Make It Permanent
Posted 12/22/2005
National Security: Congress was asked to continue protecting America this week, and it said yes. The catch? As of today, it will only do so for six months at most.
That's the amount of time the Senate gave to extend the Patriot Act — a law that has, arguably, prevented further terrorist attacks on the U.S. like 9-11. Not to be outdone in foolishness, the House Thursday approved just a five-week extension.
There's still plenty of time, we suppose, to make it permanent. And we realize this is the kind of maneuvering both parties do all the time. As pundits say, it's just politics.
But for us, the issues at stake are clear. Terrorists might see Congress' vacation from reason as weakness — and therefore as enticement to commit another unspeakable horror against Americans
Let's be absolutely clear: The Patriot Act is a success. We've had no major terror attacks since 9-11. And, despite oft-voiced fears to the contrary, no one we're aware of has been denied his or her rights or due process. No librarians — the poster victims used to sell the idea of wholesale rights violations under the act — have been beaten up by villainous government agents or forced to give up the secrets of the Dewey Decimal System.
That's just one of many myths about the law — so many, in fact, we can't print them all here. But let's take just two.
The first is that the act represents a major departure from past standards of government behavior, a violent ratcheting-up of the government's power to trample individual rights.
In fact, the law requires the government to go to extraordinary lengths to avoid violating rights. That's why the Justice Department in January 2004 conducted a six-month review of the law to make sure no one's rights were abused. A total of 1,266 complaints lodged after the law's passage were reviewed.
Total violations found: zero.
Now, we wouldn't be surprised if a violation occurred at some point. Then again, the exception proves the rule, doesn't it? And in this case, the rule seems to be that the government bends over backward not to violate rights under the Patriot Act.
Then there's the claim that "no proof" exists of how the law works. Of course, because of restrictions in the law itself, the government can't reveal details of successful operations that would prove the law does indeed deter terrorism.
But we know there are cases — as Michael Battle, a former U.S. attorney in New York, noted — where victory has been quite clear. In an op-ed for USA Today last July, Battle recalled how, in 2001, his unit was foiled in its attempts to investigate what he thought might be a terrorist cell in his own state.
It took the Patriot Act — which tore down some of the barriers to sharing information between intelligence and law enforcement — to finish the job. Using the new rules, Battle was able to prove that six men he was investigating had undergone extensive terrorist training in al-Qaida camps. They were real threats.
Today, rather than waiting for a call from Osama bin Laden to commit a new atrocity, the so-called Lackawanna Six sit behind bars. Proof enough?
Posted 12/22/2005
National Security: Congress was asked to continue protecting America this week, and it said yes. The catch? As of today, it will only do so for six months at most.
That's the amount of time the Senate gave to extend the Patriot Act — a law that has, arguably, prevented further terrorist attacks on the U.S. like 9-11. Not to be outdone in foolishness, the House Thursday approved just a five-week extension.
There's still plenty of time, we suppose, to make it permanent. And we realize this is the kind of maneuvering both parties do all the time. As pundits say, it's just politics.
But for us, the issues at stake are clear. Terrorists might see Congress' vacation from reason as weakness — and therefore as enticement to commit another unspeakable horror against Americans
Let's be absolutely clear: The Patriot Act is a success. We've had no major terror attacks since 9-11. And, despite oft-voiced fears to the contrary, no one we're aware of has been denied his or her rights or due process. No librarians — the poster victims used to sell the idea of wholesale rights violations under the act — have been beaten up by villainous government agents or forced to give up the secrets of the Dewey Decimal System.
That's just one of many myths about the law — so many, in fact, we can't print them all here. But let's take just two.
The first is that the act represents a major departure from past standards of government behavior, a violent ratcheting-up of the government's power to trample individual rights.
In fact, the law requires the government to go to extraordinary lengths to avoid violating rights. That's why the Justice Department in January 2004 conducted a six-month review of the law to make sure no one's rights were abused. A total of 1,266 complaints lodged after the law's passage were reviewed.
Total violations found: zero.
Now, we wouldn't be surprised if a violation occurred at some point. Then again, the exception proves the rule, doesn't it? And in this case, the rule seems to be that the government bends over backward not to violate rights under the Patriot Act.
Then there's the claim that "no proof" exists of how the law works. Of course, because of restrictions in the law itself, the government can't reveal details of successful operations that would prove the law does indeed deter terrorism.
But we know there are cases — as Michael Battle, a former U.S. attorney in New York, noted — where victory has been quite clear. In an op-ed for USA Today last July, Battle recalled how, in 2001, his unit was foiled in its attempts to investigate what he thought might be a terrorist cell in his own state.
It took the Patriot Act — which tore down some of the barriers to sharing information between intelligence and law enforcement — to finish the job. Using the new rules, Battle was able to prove that six men he was investigating had undergone extensive terrorist training in al-Qaida camps. They were real threats.
Today, rather than waiting for a call from Osama bin Laden to commit a new atrocity, the so-called Lackawanna Six sit behind bars. Proof enough?
Unwarranted Flak
Posted 12/22/2005
Intelligence: A presidential executive order reads: "The attorney general is authorized to approve electronic surveillance to acquire foreign intelligence without a court order." So wrote Jimmy Carter.
That's right: Warrantless surveillance is neither unprecedented nor illegal. Carter, a president not known for his vigilance in the war on terror, signed Executive Order 12139 on May 23, 1979. Even he recognized that in his role of commander in chief he had extraordinary responsibilities that might require extraordinary tools.
The civil liberties police were largely silent when Carter authorized essentially what President Bush has authorized, which is a far cry from Attorney General Robert Kennedy's decision to wiretap the phone of Martin Luther King.
During the Clinton administration, Deputy Attorney General Jamie Gorelick told the Senate Intelligence Committee on July 14, 1994: "The Department of Justice believes, and the case law supports, that the president has inherent authority to conduct warrantless physical searches for foreign intelligence purposes."
The home of CIA turncoat Aldrich Ames was searched without a warrant. Executive Order 12333, signed by Ronald Reagan in 1981, provides for such warrantless searches directed against "a foreign power or an agent of a foreign power." So when The New York Times claims the Bush administration has instituted "a major shift in American-intelligence gathering practices," it is dead wrong.
In 2002, an opinion issued by the Federal Intelligence Surveillance Court declared that the Foreign Intelligence Surveillance Act upheld the president's warrantless search powers. According to the ruling: "The president did have inherent authority to conduct warrantless searches to obtain foreign intelligence information," and added: "We take for granted that the president does have that authority and, assuming that is so, FISA could not encroach on the president's constitutional power."
Those who accuse Bush of violating the law, and like John Kerry mumble about possible impeachment, haven't read the law. Title 50 of the U.S. Code, Chapter 36, Subchapter I, Section 1802, clearly states: "(T)he President, through the attorney general, may authorize electronic surveillance without a court order under this subchapter to acquire foreign intelligence information for periods of up to one year," under certain conditions.
Surveillance must be directed only at agents of a foreign power - someone who "knowingly engages in sabotage or international terrorism, or activities that are in preparation therefore, for or on behalf of a foreign power." And congressional oversight is required.
House Minority Leader Nancy Pelosi has admitted she was advised of Bush's "decision to provide authority to the National Security Agency to conduct unspecified activities shortly after he made it and have been provided with updates on several occasions."
There's a reason the Constitution entrusts the presidency with national security and protecting the people and this nation from enemies, foreign and domestic. We can't have 535 commanders in chief micro-managing a war, particularly the war on terror, where we are fighting an undefined enemy that doesn't follow the rules of war, and where taking time to file papers with a judge may be a luxury we can't afford.
(I THINK WE'RE DONE HERE . . .)
Posted 12/22/2005
Intelligence: A presidential executive order reads: "The attorney general is authorized to approve electronic surveillance to acquire foreign intelligence without a court order." So wrote Jimmy Carter.
That's right: Warrantless surveillance is neither unprecedented nor illegal. Carter, a president not known for his vigilance in the war on terror, signed Executive Order 12139 on May 23, 1979. Even he recognized that in his role of commander in chief he had extraordinary responsibilities that might require extraordinary tools.
The civil liberties police were largely silent when Carter authorized essentially what President Bush has authorized, which is a far cry from Attorney General Robert Kennedy's decision to wiretap the phone of Martin Luther King.
During the Clinton administration, Deputy Attorney General Jamie Gorelick told the Senate Intelligence Committee on July 14, 1994: "The Department of Justice believes, and the case law supports, that the president has inherent authority to conduct warrantless physical searches for foreign intelligence purposes."
The home of CIA turncoat Aldrich Ames was searched without a warrant. Executive Order 12333, signed by Ronald Reagan in 1981, provides for such warrantless searches directed against "a foreign power or an agent of a foreign power." So when The New York Times claims the Bush administration has instituted "a major shift in American-intelligence gathering practices," it is dead wrong.
In 2002, an opinion issued by the Federal Intelligence Surveillance Court declared that the Foreign Intelligence Surveillance Act upheld the president's warrantless search powers. According to the ruling: "The president did have inherent authority to conduct warrantless searches to obtain foreign intelligence information," and added: "We take for granted that the president does have that authority and, assuming that is so, FISA could not encroach on the president's constitutional power."
Those who accuse Bush of violating the law, and like John Kerry mumble about possible impeachment, haven't read the law. Title 50 of the U.S. Code, Chapter 36, Subchapter I, Section 1802, clearly states: "(T)he President, through the attorney general, may authorize electronic surveillance without a court order under this subchapter to acquire foreign intelligence information for periods of up to one year," under certain conditions.
Surveillance must be directed only at agents of a foreign power - someone who "knowingly engages in sabotage or international terrorism, or activities that are in preparation therefore, for or on behalf of a foreign power." And congressional oversight is required.
House Minority Leader Nancy Pelosi has admitted she was advised of Bush's "decision to provide authority to the National Security Agency to conduct unspecified activities shortly after he made it and have been provided with updates on several occasions."
There's a reason the Constitution entrusts the presidency with national security and protecting the people and this nation from enemies, foreign and domestic. We can't have 535 commanders in chief micro-managing a war, particularly the war on terror, where we are fighting an undefined enemy that doesn't follow the rules of war, and where taking time to file papers with a judge may be a luxury we can't afford.
(I THINK WE'RE DONE HERE . . .)
EXCLUSIVE: Nuclear Monitoring of Muslims Done Without Search Warrants (WHY DO THEY NEED WARRANTS? DO YOU HAVE RIGHT TO POSSESS RADIOACTIVE MATERIAL?)
Posted 12/22/05
By David E. Kaplan
In search of a terrorist nuclear bomb, the federal government since 9/11 has run a far-reaching, top secret program to monitor radiation levels at over a hundred Muslim sites in the Washington, D.C., area, including mosques, homes, businesses, and warehouses, plus similar sites in at least five other cities, U.S. News has learned. In numerous cases, the monitoring required investigators to go on to the property under surveillance, although no search warrants or court orders were ever obtained, according to those with knowledge of the program. Some participants were threatened with loss of their jobs when they questioned the legality of the operation, according to these accounts.
Federal officials familiar with the program maintain that warrants are unneeded for the kind of radiation sampling the operation entails, but some legal scholars disagree. (SO WHAT? THAT DOESN'T MEAN YOU NEED A WARRANT. ARE THEY A JUDGE? NOPE. GAME OVER) News of the program comes in the wake of revelations last week that, after 9/11, the Bush White House approved electronic surveillance of U.S. targets by the National Security Agency without court orders. These and other developments suggest that the federal government's domestic spying programs since 9/11 have been far broader than previously thought. (SO WHAT?)
The nuclear surveillance program began in early 2002 and has been run by the FBI and the Department of Energy's Nuclear Emergency Support Team (NEST). Two individuals, who declined to be named because the program is highly classified, spoke to U.S. News because of their concerns about the legality of the program. (WHEN IS THE LEAK GOING TO BE INVESTIGATED? THEY CONCEDE IT IS HIGHLY CLASSIFIED. YOU JUST BROKE THE LAW. GET READY FOR JAIL OR PRISON) At its peak, they say, the effort involved three vehicles in Washington, D.C., monitoring 120 sites per day, nearly all of them Muslim targets drawn up by the FBI. (OH, SO NOT ALL WERE MUSLIM? HOW THE STORY CHANGES . . . )For some ten months, officials conducted daily monitoring, and they have resumed daily checks during periods of high threat. The program has also operated in at least five other cities when threat levels there have risen: Chicago, Detroit, Las Vegas, New York, and Seattle.
FBI officials expressed concern that discussion of the program would expose sensitive methods used in counterterrorism. (BUT THE US NEWS WAS MORE CONCERNED WITH TARGETING BUSH THAN THE NATIONAL SECURITY OF THE US. THANKS GUYS. ARE WE SAFER TODAY?) Although NEST staffers have demonstrated their techniques on national television as recently as October, U.S. News has omitted details of how the monitoring is conducted. Officials from four different agencies declined to respond on the record about the classified program: the FBI, Energy Department, Justice Department, and National Security Council. "We don't ever comment on deployments," said Bryan Wilkes, a spokesman for DOE's National Nuclear Security Administration, which manages NEST.
In Washington, the sites monitored have included prominent mosques and office buildings in suburban Maryland and Virginia. One source close to the program said that participants "were tasked on a daily and nightly basis," and that FBI and Energy Department officials held regular meetings to update the monitoring list. "The targets were almost all U.S. citizens," says the source. "A lot of us thought it was questionable, but people who complained nearly lost their jobs. We were told it was perfectly legal."
The question of search warrants is controversial, however. To ensure accurate readings, in up to 15 percent of the cases the monitoring needed to take place on private property, sources say, such as on mosque parking lots and private driveways. Government officials familiar with the program insist it is legal; warrants are unneeded for monitoring from public property, they say, as well as from publicly accessible driveways and parking lots. "If a delivery man can access it, so can we," says one.
Georgetown University Professor David Cole, a constitutional law expert, disagrees. Surveillance of public spaces such as mosques or public businesses might well be allowable without a court order, he argues, but not private offices or homes: "They don't need a warrant to drive onto the property -- the issue isn't where they are, but whether they're using a tactic to intrude on privacy. It seems to me that they are, and that they would need a warrant or probable cause." (ARE YOU CRAZY? WHAT CAN THE RADIATION DETECTED DETECT BESIDES RADIATION? YOU ARE F***ING CRAZY, COLE.)
Cole points to a 2001 Supreme Court decision, U.S. vs. Kyllo, which looked at police use -- without a search warrant -- of thermal imaging technology to search for marijuana-growing lamps in a home. The court, in a ruling written by Justice Antonin Scalia, ruled that authorities did in fact need a warrant -- that the heat sensors violated the Fourth Amendment's clause against unreasonable search and seizure. But officials familiar with the FBI/NEST program say the radiation sensors are different and are only sampling the surrounding air. "This kind of program only detects particles in the air, it's non directional," says one knowledgeable official. "It's not a whole lot different from smelling marijuana."
(SHOVE THAT UP YOU A**, COLE. HOPE GEORGETOWN DOESN'T GET 'HOT' COLE, ITS YOU A** IF IT DOES.)
Officials also reject any notion that the program specifically has targeted Muslims. "We categorically do not target places of worship or entitles solely based on ethnicity or religious affiliation," says one. "Our investigations are intelligence driven and based on a criminal predicate."
Among those said to be briefed on the monitoring program were Vice President Richard Cheney; Michael Brown, then-director of the Federal Emergency Management Administration; and Richard Clarke, then a top counterterrorism official at the National Security Council. After 9/11, top officials grew increasingly concerned over the prospect of nuclear terrorism. Just weeks after the World Trade Center attacks, a dubious informant named Dragonfire warned that al Qaeda had smuggled a nuclear device into New York City; NEST teams swept the city and found nothing. But as evidence seized from Afghan camps confirmed al Qaeda's interest in nuclear technology, radiation detectors were temporarily installed along Washington, D.C., highways and the Muslim monitoring program began.
Most staff for the monitoring came from NEST, which draws from nearly 1,000 nuclear scientists and technicians based largely at the country's national laboratories. For 30 years, NEST undercover teams have combed suspected sites looking for radioactive material, using high-tech detection gear fitted onto various aircraft, vehicles, and even backpacks and attaché cases. No dirty bombs or nuclear devices have ever been found - and that includes the post-9/11 program. "There were a lot of false positives, and one or two were alarming," says one source. "But in the end we found nothing." (JUST PERFORMING THIS TASK MEANS THAT THEY TAKE THE THREAT SERIOUSLY, TOO BAD COLE DOESN'T.)
Posted 12/22/05
By David E. Kaplan
In search of a terrorist nuclear bomb, the federal government since 9/11 has run a far-reaching, top secret program to monitor radiation levels at over a hundred Muslim sites in the Washington, D.C., area, including mosques, homes, businesses, and warehouses, plus similar sites in at least five other cities, U.S. News has learned. In numerous cases, the monitoring required investigators to go on to the property under surveillance, although no search warrants or court orders were ever obtained, according to those with knowledge of the program. Some participants were threatened with loss of their jobs when they questioned the legality of the operation, according to these accounts.
Federal officials familiar with the program maintain that warrants are unneeded for the kind of radiation sampling the operation entails, but some legal scholars disagree. (SO WHAT? THAT DOESN'T MEAN YOU NEED A WARRANT. ARE THEY A JUDGE? NOPE. GAME OVER) News of the program comes in the wake of revelations last week that, after 9/11, the Bush White House approved electronic surveillance of U.S. targets by the National Security Agency without court orders. These and other developments suggest that the federal government's domestic spying programs since 9/11 have been far broader than previously thought. (SO WHAT?)
The nuclear surveillance program began in early 2002 and has been run by the FBI and the Department of Energy's Nuclear Emergency Support Team (NEST). Two individuals, who declined to be named because the program is highly classified, spoke to U.S. News because of their concerns about the legality of the program. (WHEN IS THE LEAK GOING TO BE INVESTIGATED? THEY CONCEDE IT IS HIGHLY CLASSIFIED. YOU JUST BROKE THE LAW. GET READY FOR JAIL OR PRISON) At its peak, they say, the effort involved three vehicles in Washington, D.C., monitoring 120 sites per day, nearly all of them Muslim targets drawn up by the FBI. (OH, SO NOT ALL WERE MUSLIM? HOW THE STORY CHANGES . . . )For some ten months, officials conducted daily monitoring, and they have resumed daily checks during periods of high threat. The program has also operated in at least five other cities when threat levels there have risen: Chicago, Detroit, Las Vegas, New York, and Seattle.
FBI officials expressed concern that discussion of the program would expose sensitive methods used in counterterrorism. (BUT THE US NEWS WAS MORE CONCERNED WITH TARGETING BUSH THAN THE NATIONAL SECURITY OF THE US. THANKS GUYS. ARE WE SAFER TODAY?) Although NEST staffers have demonstrated their techniques on national television as recently as October, U.S. News has omitted details of how the monitoring is conducted. Officials from four different agencies declined to respond on the record about the classified program: the FBI, Energy Department, Justice Department, and National Security Council. "We don't ever comment on deployments," said Bryan Wilkes, a spokesman for DOE's National Nuclear Security Administration, which manages NEST.
In Washington, the sites monitored have included prominent mosques and office buildings in suburban Maryland and Virginia. One source close to the program said that participants "were tasked on a daily and nightly basis," and that FBI and Energy Department officials held regular meetings to update the monitoring list. "The targets were almost all U.S. citizens," says the source. "A lot of us thought it was questionable, but people who complained nearly lost their jobs. We were told it was perfectly legal."
The question of search warrants is controversial, however. To ensure accurate readings, in up to 15 percent of the cases the monitoring needed to take place on private property, sources say, such as on mosque parking lots and private driveways. Government officials familiar with the program insist it is legal; warrants are unneeded for monitoring from public property, they say, as well as from publicly accessible driveways and parking lots. "If a delivery man can access it, so can we," says one.
Georgetown University Professor David Cole, a constitutional law expert, disagrees. Surveillance of public spaces such as mosques or public businesses might well be allowable without a court order, he argues, but not private offices or homes: "They don't need a warrant to drive onto the property -- the issue isn't where they are, but whether they're using a tactic to intrude on privacy. It seems to me that they are, and that they would need a warrant or probable cause." (ARE YOU CRAZY? WHAT CAN THE RADIATION DETECTED DETECT BESIDES RADIATION? YOU ARE F***ING CRAZY, COLE.)
Cole points to a 2001 Supreme Court decision, U.S. vs. Kyllo, which looked at police use -- without a search warrant -- of thermal imaging technology to search for marijuana-growing lamps in a home. The court, in a ruling written by Justice Antonin Scalia, ruled that authorities did in fact need a warrant -- that the heat sensors violated the Fourth Amendment's clause against unreasonable search and seizure. But officials familiar with the FBI/NEST program say the radiation sensors are different and are only sampling the surrounding air. "This kind of program only detects particles in the air, it's non directional," says one knowledgeable official. "It's not a whole lot different from smelling marijuana."
(SHOVE THAT UP YOU A**, COLE. HOPE GEORGETOWN DOESN'T GET 'HOT' COLE, ITS YOU A** IF IT DOES.)
Officials also reject any notion that the program specifically has targeted Muslims. "We categorically do not target places of worship or entitles solely based on ethnicity or religious affiliation," says one. "Our investigations are intelligence driven and based on a criminal predicate."
Among those said to be briefed on the monitoring program were Vice President Richard Cheney; Michael Brown, then-director of the Federal Emergency Management Administration; and Richard Clarke, then a top counterterrorism official at the National Security Council. After 9/11, top officials grew increasingly concerned over the prospect of nuclear terrorism. Just weeks after the World Trade Center attacks, a dubious informant named Dragonfire warned that al Qaeda had smuggled a nuclear device into New York City; NEST teams swept the city and found nothing. But as evidence seized from Afghan camps confirmed al Qaeda's interest in nuclear technology, radiation detectors were temporarily installed along Washington, D.C., highways and the Muslim monitoring program began.
Most staff for the monitoring came from NEST, which draws from nearly 1,000 nuclear scientists and technicians based largely at the country's national laboratories. For 30 years, NEST undercover teams have combed suspected sites looking for radioactive material, using high-tech detection gear fitted onto various aircraft, vehicles, and even backpacks and attaché cases. No dirty bombs or nuclear devices have ever been found - and that includes the post-9/11 program. "There were a lot of false positives, and one or two were alarming," says one source. "But in the end we found nothing." (JUST PERFORMING THIS TASK MEANS THAT THEY TAKE THE THREAT SERIOUSLY, TOO BAD COLE DOESN'T.)
US monitored Muslim sites for radiation: report
Fri Dec 23, 2005 3:27 PM ET
WASHINGTON (Reuters) - U.S. officials have secretly monitored radiation levels at Muslim sites, including mosques and private homes, since September 11, 2001 as part of a top secret program searching for nuclear bombs, U.S. News and World Report said on Friday.
The news magazine said in its online edition that the far-reaching program covered more than a hundred sites in the Washington, D.C., area and at least five other cities.
"In numerous cases, the monitoring required investigators to go on to the property under surveillance, although no search warrants or court orders were ever obtained, according to those with knowledge of the program," the magazine said.
The report comes a week after revelations that the Bush administration had authorized eavesdropping on people in the United States. U.S. President George W. Bush has defended that covert program and vowed to continue the practice, saying it was vital to protect the country.
Senior U.S. officials, including FBI Director Robert Mueller, have repeatedly said Islamic militants appeared intent on acquiring weapons of mass destruction for an attack against the United States.
Mueller said in February he was "very concerned with the growing body of sensitive reporting that continues to show al Qaeda's clear intention to obtain and ultimately use some form of chemical, biological, radiological, nuclear or high-energy explosives material in its attacks against America."
An FBI spokesman declined to confirm or deny the U.S. News and World Report article and said, "We can't talk about a classified program."
"The FBI's overriding priority is to prevent, disrupt and defeat terrorist operations in the U.S. All investigations and operations conducted by the FBI are intelligence driven and predicated on specific information about potential criminal acts or terrorist threats, and are conducted in strict conformance with federal law," he added.
The Council on American-Islamic Relations advocacy group said the report, coupled with news of the domestic eavesdropping, "could lead to the perception that we are no longer a nation ruled by law, but instead one in which fear trumps constitutional rights."
"All Americans should be concerned about the apparent trend toward a two-tiered system of justice, with full rights for most citizens, and another diminished set of rights for Muslims," it said in a statement.
Federal officials cited by U.S. News and World Report maintained the program was legal and said warrants were not needed for the kind of radiation sampling it conducted. Officials also rejected any notion that the program specifically targeted Muslims, the magazine said.
According to U.S. News and World Report, the nuclear surveillance program began in early 2002 and has been run by the FBI and the Department of Energy's Nuclear Emergency Support Team.
At its peak, the effort involved three vehicles in the Washington area monitoring 120 sites a day, nearly all of them Muslim targets such as prominent mosques and office buildings selected by the FBI, it said.
The program has also operated in at least five other cities -- namely Chicago, Detroit, Las Vegas, New York, and Seattle -- when threat levels there have risen, it said.
One source quoted by the magazine said the targets were almost all U.S. citizens.
Vice President Dick Cheney was among those briefed on the monitoring program, the publication said.
(SOUNDS GREAT TO ME. KEEP IT UP, SINCE A GROUP OF WHITE, MALE CATHOLICS DID NOT KNOCK DOWN THE TOWERS)
Fri Dec 23, 2005 3:27 PM ET
WASHINGTON (Reuters) - U.S. officials have secretly monitored radiation levels at Muslim sites, including mosques and private homes, since September 11, 2001 as part of a top secret program searching for nuclear bombs, U.S. News and World Report said on Friday.
The news magazine said in its online edition that the far-reaching program covered more than a hundred sites in the Washington, D.C., area and at least five other cities.
"In numerous cases, the monitoring required investigators to go on to the property under surveillance, although no search warrants or court orders were ever obtained, according to those with knowledge of the program," the magazine said.
The report comes a week after revelations that the Bush administration had authorized eavesdropping on people in the United States. U.S. President George W. Bush has defended that covert program and vowed to continue the practice, saying it was vital to protect the country.
Senior U.S. officials, including FBI Director Robert Mueller, have repeatedly said Islamic militants appeared intent on acquiring weapons of mass destruction for an attack against the United States.
Mueller said in February he was "very concerned with the growing body of sensitive reporting that continues to show al Qaeda's clear intention to obtain and ultimately use some form of chemical, biological, radiological, nuclear or high-energy explosives material in its attacks against America."
An FBI spokesman declined to confirm or deny the U.S. News and World Report article and said, "We can't talk about a classified program."
"The FBI's overriding priority is to prevent, disrupt and defeat terrorist operations in the U.S. All investigations and operations conducted by the FBI are intelligence driven and predicated on specific information about potential criminal acts or terrorist threats, and are conducted in strict conformance with federal law," he added.
The Council on American-Islamic Relations advocacy group said the report, coupled with news of the domestic eavesdropping, "could lead to the perception that we are no longer a nation ruled by law, but instead one in which fear trumps constitutional rights."
"All Americans should be concerned about the apparent trend toward a two-tiered system of justice, with full rights for most citizens, and another diminished set of rights for Muslims," it said in a statement.
Federal officials cited by U.S. News and World Report maintained the program was legal and said warrants were not needed for the kind of radiation sampling it conducted. Officials also rejected any notion that the program specifically targeted Muslims, the magazine said.
According to U.S. News and World Report, the nuclear surveillance program began in early 2002 and has been run by the FBI and the Department of Energy's Nuclear Emergency Support Team.
At its peak, the effort involved three vehicles in the Washington area monitoring 120 sites a day, nearly all of them Muslim targets such as prominent mosques and office buildings selected by the FBI, it said.
The program has also operated in at least five other cities -- namely Chicago, Detroit, Las Vegas, New York, and Seattle -- when threat levels there have risen, it said.
One source quoted by the magazine said the targets were almost all U.S. citizens.
Vice President Dick Cheney was among those briefed on the monitoring program, the publication said.
(SOUNDS GREAT TO ME. KEEP IT UP, SINCE A GROUP OF WHITE, MALE CATHOLICS DID NOT KNOCK DOWN THE TOWERS)
Tech IPO Push Could Extend into '06
Colleen Marie O'Connor (colleen.oconnor@sourcemedia.com)
December 19, 2005
Best known for its Roomba floor vacuum, iRobot raised $103.2 million via an IPO led by Morgan Stanley and JPMorgan last month, and that was about as adventurous as many public equity investors got when it came to the tech sector in 2005. Sure, Google's $4 billion-plus follow-on offering garnered plenty of attention, as did Baidu.com's Aug. 5 IPO, in which its stock soared 174% to $122.54 before slipping back to $74.18 recently. But despite their success, none of these deals opened the market to the point where more speculative tech companies could access the public markets.
Jefferies Broadview counts just 38 tech IPOs this year, compared with 62 by Dec. 12 last year. Thomson Financial figures show that tech IPOs raised just $4.4 billion in 2005, slightly more than half of the $9.5 billion raised in 2004, as of Dec. 14.
"Obviously, the number and breadth of technology IPOs was way off from what it was during the bubble," said David Topper, co-head of equity capital markets at JPMorgan. "But we are starting to see a resurgence in interest on the part of investors, certainly, and on the part of technology companies interested in coming to the market."
The rush of year-end activity in the equity markets (see IDD, "Worst, Best of Times for Equities in 2005," 12/12/05) indicates that investors, who traditionally back off at this time of the year to lock in returns, still have their wallets wide open. This is partly because returns have been lackluster-the Nasdaq Composite Index had returned just 4% through Dec. 14-prompting many to try a punt on tech. That leads some to believe the year-end push in the sector could have legs.
A number of tech IPOs filed many months ago appeared about to price last week, though the parade of deals did not get off to the best of starts. Spansion, one of the largest manufacturers of flash technology, lowered the price range on its IPO to $13-14 per share from $16-18. It was expected to raise as much as $548.8 million via Citigroup and CSFB as of press time late Thursday. Spansion filed back on April 13.
South Korea-based Pixelplus, which designs and makes CMOS image sensors for mobile cameras and surveillance systems, was looking to raise as much as $65.2 million via Jefferies Broadview. Buy.com, an online electronics retailer that filed to go public back on Jan. 25, was set to raise as much as $54.6 million via Thomas Weisel. And Goldman Sachs and JPMorgan had Directed Electronics, which makes consumer electronics, including Sirius satellite ratios, on deck to raise as much as $159.8 million last week.
Perhaps inspired by all these year-end hopefuls, Nextest Systems, which provides testing equipment to semiconductor makers, filed on Dec. 5 for an IPO via Merrill Lynch.
Thirst for growth
For the tech IPO market to sustain the heightened activity level of the past few weeks, investors must be willing to open the door to relatively young companies. "We are seeing relatively few technology IPOs in this market, because technology companies are being held to the same standard as companies in other industries in terms of size and scale," said Paul Deninger, chairman of Jefferies Broadview. "Frankly, this worries me. If investors want high growth, they must accept more instability."
That was not the case in 2005, but bankers are hopeful that is changing. Tech companies ramping up to go public in 2006 "will get a fair and objective hearing from investors," said Dan Cummings, co-head of US equity capital markets at Merrill Lynch. Many of the deals his team has done the "spadework" on are preparing to jump into the market as early as the first quarter, he said.
The down-and-out convertible bond market offered an encouraging sign last week when it readily absorbed a $1.4 billion offering from Intel on Dec. 12 via JPMorgan, for instance.
Furthermore, the $11.2 billion in total equity issuance from Dec. 1 thorough Dec. 12 could be an indication that corporate America is preparing to spend more on technology and capital projects in 2006. Thomson Financial figures show that as of Dec. 12, a staggering $10.5 billion of that equity issuance stemmed from the secondary, or follow-on, markets.
"I think you're going to see a busy first quarter of 2006 as valuations are rising," said JPMorgan's Topper. "Companies are looking to expand, and there is a natural need for capital," particularly in the healthcare, technology and financial services sectors.
Equity capital markets professionals must gauge which tech sectors investors will find most appealing. There are plenty of issues in registration in the consumer-focused technology, software, semiconductor and Internet sectors, to name a few.
Among the strong possibilities for a first-quarter IPO is Smart Modular Technologies, which makes memory module subsystems for original equipment manufacturers. It filed for an IPO on Oct. 19, and now Citigroup and JPMorgan need to figure out if investors are interested in anything related to OEMs.
Other names bandied about include Technology Spectrum, a spinout from Level 3 Communications, which filed to raise $115 million on May 13 via Merrill Lynch, and Passave, a designer of "system-on-a-chip" solutions, which initially tried to get out the gate in November but postponed its offering. Passave aims to raise as much as $79.9 million via Merrill Lynch and JPMorgan. Merrill Lynch is also the lead underwriter for A-Max Technology, which filed on Sept. 13 to raise up to $107 million. A-Max is based in China and manufactures and designs MP3s, so it sits somewhat between the tech and consumer electronics sectors.
Another potential IPO issuer in early 2006 is Spark Network, a global provider of online personal ads, which filed to raise up to $75 million via Piper Jaffray back in March. And while it hasn't been on the calendar, even ibuydigital.com, another online retailer of consumer electronics, may sense some hope. The company filed back on Jan. 13 and still has an active registration statement.
Underwriters had no comment on any of the pending deals.
"We're in the healing process, and healing is progressing," said Jefferies's Deninger. "A few more quarters of lackluster returns and investors will say, I think I get why we're not getting any returns-we're not taking any risks.'"
(c) 2005 Investment Dealers' Digest Magazine and SourceMedia, Inc. All Rights Reserved.
Colleen Marie O'Connor (colleen.oconnor@sourcemedia.com)
December 19, 2005
Best known for its Roomba floor vacuum, iRobot raised $103.2 million via an IPO led by Morgan Stanley and JPMorgan last month, and that was about as adventurous as many public equity investors got when it came to the tech sector in 2005. Sure, Google's $4 billion-plus follow-on offering garnered plenty of attention, as did Baidu.com's Aug. 5 IPO, in which its stock soared 174% to $122.54 before slipping back to $74.18 recently. But despite their success, none of these deals opened the market to the point where more speculative tech companies could access the public markets.
Jefferies Broadview counts just 38 tech IPOs this year, compared with 62 by Dec. 12 last year. Thomson Financial figures show that tech IPOs raised just $4.4 billion in 2005, slightly more than half of the $9.5 billion raised in 2004, as of Dec. 14.
"Obviously, the number and breadth of technology IPOs was way off from what it was during the bubble," said David Topper, co-head of equity capital markets at JPMorgan. "But we are starting to see a resurgence in interest on the part of investors, certainly, and on the part of technology companies interested in coming to the market."
The rush of year-end activity in the equity markets (see IDD, "Worst, Best of Times for Equities in 2005," 12/12/05) indicates that investors, who traditionally back off at this time of the year to lock in returns, still have their wallets wide open. This is partly because returns have been lackluster-the Nasdaq Composite Index had returned just 4% through Dec. 14-prompting many to try a punt on tech. That leads some to believe the year-end push in the sector could have legs.
A number of tech IPOs filed many months ago appeared about to price last week, though the parade of deals did not get off to the best of starts. Spansion, one of the largest manufacturers of flash technology, lowered the price range on its IPO to $13-14 per share from $16-18. It was expected to raise as much as $548.8 million via Citigroup and CSFB as of press time late Thursday. Spansion filed back on April 13.
South Korea-based Pixelplus, which designs and makes CMOS image sensors for mobile cameras and surveillance systems, was looking to raise as much as $65.2 million via Jefferies Broadview. Buy.com, an online electronics retailer that filed to go public back on Jan. 25, was set to raise as much as $54.6 million via Thomas Weisel. And Goldman Sachs and JPMorgan had Directed Electronics, which makes consumer electronics, including Sirius satellite ratios, on deck to raise as much as $159.8 million last week.
Perhaps inspired by all these year-end hopefuls, Nextest Systems, which provides testing equipment to semiconductor makers, filed on Dec. 5 for an IPO via Merrill Lynch.
Thirst for growth
For the tech IPO market to sustain the heightened activity level of the past few weeks, investors must be willing to open the door to relatively young companies. "We are seeing relatively few technology IPOs in this market, because technology companies are being held to the same standard as companies in other industries in terms of size and scale," said Paul Deninger, chairman of Jefferies Broadview. "Frankly, this worries me. If investors want high growth, they must accept more instability."
That was not the case in 2005, but bankers are hopeful that is changing. Tech companies ramping up to go public in 2006 "will get a fair and objective hearing from investors," said Dan Cummings, co-head of US equity capital markets at Merrill Lynch. Many of the deals his team has done the "spadework" on are preparing to jump into the market as early as the first quarter, he said.
The down-and-out convertible bond market offered an encouraging sign last week when it readily absorbed a $1.4 billion offering from Intel on Dec. 12 via JPMorgan, for instance.
Furthermore, the $11.2 billion in total equity issuance from Dec. 1 thorough Dec. 12 could be an indication that corporate America is preparing to spend more on technology and capital projects in 2006. Thomson Financial figures show that as of Dec. 12, a staggering $10.5 billion of that equity issuance stemmed from the secondary, or follow-on, markets.
"I think you're going to see a busy first quarter of 2006 as valuations are rising," said JPMorgan's Topper. "Companies are looking to expand, and there is a natural need for capital," particularly in the healthcare, technology and financial services sectors.
Equity capital markets professionals must gauge which tech sectors investors will find most appealing. There are plenty of issues in registration in the consumer-focused technology, software, semiconductor and Internet sectors, to name a few.
Among the strong possibilities for a first-quarter IPO is Smart Modular Technologies, which makes memory module subsystems for original equipment manufacturers. It filed for an IPO on Oct. 19, and now Citigroup and JPMorgan need to figure out if investors are interested in anything related to OEMs.
Other names bandied about include Technology Spectrum, a spinout from Level 3 Communications, which filed to raise $115 million on May 13 via Merrill Lynch, and Passave, a designer of "system-on-a-chip" solutions, which initially tried to get out the gate in November but postponed its offering. Passave aims to raise as much as $79.9 million via Merrill Lynch and JPMorgan. Merrill Lynch is also the lead underwriter for A-Max Technology, which filed on Sept. 13 to raise up to $107 million. A-Max is based in China and manufactures and designs MP3s, so it sits somewhat between the tech and consumer electronics sectors.
Another potential IPO issuer in early 2006 is Spark Network, a global provider of online personal ads, which filed to raise up to $75 million via Piper Jaffray back in March. And while it hasn't been on the calendar, even ibuydigital.com, another online retailer of consumer electronics, may sense some hope. The company filed back on Jan. 13 and still has an active registration statement.
Underwriters had no comment on any of the pending deals.
"We're in the healing process, and healing is progressing," said Jefferies's Deninger. "A few more quarters of lackluster returns and investors will say, I think I get why we're not getting any returns-we're not taking any risks.'"
(c) 2005 Investment Dealers' Digest Magazine and SourceMedia, Inc. All Rights Reserved.
Albertson's Sale Is in Limbo as Board Rejects $9.6 Billion Bid
By ANDREW ROSS SORKIN and TOM ZELLER Jr.
Dec. 22 2005
Albertson's Inc., the giant supermarket chain, terminated talks last night with a consortium of investors that had been the leading bidder in an auction for the company, people involved in the talks said.
The decision came at the 11th hour during a board meeting at which directors were planning to approve the sale of the company for about $9.6 billion in cash and stock.
The consortium included the CVS drugstore chain, SuperValu supermarkets, Cerberus Capital Management, an investment fund, and Kimco Realty, a real estate investment company.
Now, Albertson's is planning to consider several alternatives, said these people, who did not want to be identified because of the continuing discussions. The board may decide to sell some underperforming stores and its drugstore business, these people added. The company could use the proceeds to recapitalize.
It was unclear what drove the board's decision to halt the talks.
The buying group had planned to break Albertson's up into three parts by splitting the supermarket business in two and merging the drugstore business with CVS. A series of acquisitions over the years have helped Albertson's become the second-largest supermarket chain in the country. Its units include American Stores, Shaws, Jewel-Osco, Acme Markets, Sav-on and Osco Drug stores.
Under the deal, the investor group was planning to pay slightly more than $26 a share in cash and stock.
About $20 of the offer was in cash, while the remaining $6 or so was in SuperValu stock, these people said.
Yesterday, shares of Albertson's increased 22 cents, to close at $24.10, rising about 4 percent since the company was put up for auction in September.
The deal would have come after three months of positioning by several groups seeking to use Albertsons 2,300 stores in more than 30 states as leverage in cornering a piece of the fiercely competitive retail food market.
By October, five major bidders had emerged, including the nation's largest supermarket chain Kroger, and three groups of investors, including one led by the equity firm, Kohlberg Kravis Roberts, one by Thomas H. Lee Partners and one by the Yucaipa Companies, which acquired a stake in the Pathmark chain for $150 million earlier this year.
The sale of the chain, which opened its first grocery store in Boise, Idaho, in 1939 and remains based there, had been characterized as a sign of the traditional grocery industry adrift and unwilling to react to the stiff competition posed by discount chains like Wal-Mart and Costco.
Over the last five years, sales at Kroger, Albertsons and Safeway, the country's three largest supermarket chains, have stagnated and profits have been dismal.
At the same time, Wal-Mart has emerged as a dominant force, selling almost twice the amount of food and grocery items as Kroger. Grocery sales at Wal-Mart topped $109 billion last year up from $82 billion in 2002, according to Retail Forward, a research firm in Columbus, Ohio, nearly double the next closest competitor among the traditional supermarket chains, Kroger, which generated $56 billion in sales in 2004.
Another supermarket chain, Winn-Dixie Stores, the 92-year-old chain based in Jacksonville, Fla., filed for bankruptcy protection in February not least because, UBS analysts have noted, close to 92 percent of its stores have a Wal-Mart Supercenter within 20 miles.
By ANDREW ROSS SORKIN and TOM ZELLER Jr.
Dec. 22 2005
Albertson's Inc., the giant supermarket chain, terminated talks last night with a consortium of investors that had been the leading bidder in an auction for the company, people involved in the talks said.
The decision came at the 11th hour during a board meeting at which directors were planning to approve the sale of the company for about $9.6 billion in cash and stock.
The consortium included the CVS drugstore chain, SuperValu supermarkets, Cerberus Capital Management, an investment fund, and Kimco Realty, a real estate investment company.
Now, Albertson's is planning to consider several alternatives, said these people, who did not want to be identified because of the continuing discussions. The board may decide to sell some underperforming stores and its drugstore business, these people added. The company could use the proceeds to recapitalize.
It was unclear what drove the board's decision to halt the talks.
The buying group had planned to break Albertson's up into three parts by splitting the supermarket business in two and merging the drugstore business with CVS. A series of acquisitions over the years have helped Albertson's become the second-largest supermarket chain in the country. Its units include American Stores, Shaws, Jewel-Osco, Acme Markets, Sav-on and Osco Drug stores.
Under the deal, the investor group was planning to pay slightly more than $26 a share in cash and stock.
About $20 of the offer was in cash, while the remaining $6 or so was in SuperValu stock, these people said.
Yesterday, shares of Albertson's increased 22 cents, to close at $24.10, rising about 4 percent since the company was put up for auction in September.
The deal would have come after three months of positioning by several groups seeking to use Albertsons 2,300 stores in more than 30 states as leverage in cornering a piece of the fiercely competitive retail food market.
By October, five major bidders had emerged, including the nation's largest supermarket chain Kroger, and three groups of investors, including one led by the equity firm, Kohlberg Kravis Roberts, one by Thomas H. Lee Partners and one by the Yucaipa Companies, which acquired a stake in the Pathmark chain for $150 million earlier this year.
The sale of the chain, which opened its first grocery store in Boise, Idaho, in 1939 and remains based there, had been characterized as a sign of the traditional grocery industry adrift and unwilling to react to the stiff competition posed by discount chains like Wal-Mart and Costco.
Over the last five years, sales at Kroger, Albertsons and Safeway, the country's three largest supermarket chains, have stagnated and profits have been dismal.
At the same time, Wal-Mart has emerged as a dominant force, selling almost twice the amount of food and grocery items as Kroger. Grocery sales at Wal-Mart topped $109 billion last year up from $82 billion in 2002, according to Retail Forward, a research firm in Columbus, Ohio, nearly double the next closest competitor among the traditional supermarket chains, Kroger, which generated $56 billion in sales in 2004.
Another supermarket chain, Winn-Dixie Stores, the 92-year-old chain based in Jacksonville, Fla., filed for bankruptcy protection in February not least because, UBS analysts have noted, close to 92 percent of its stores have a Wal-Mart Supercenter within 20 miles.
GM's Latest Loss of Traction
Now that Kirk Kerkorian has dumped 12 million shares, average stockholders can only wonder what hope, if any, is left for the auto maker
General Motors (GM ) shareholders keep getting hit with more bad news. Billionaire investor Kirk Kerkorian -- a man many stockholders saw as a white knight who could enforce radical change at the struggling auto maker -- said Dec. 20 that he has sold 12 million shares of his GM stock, dropping his holding from 9.9% to 7.8%.
Kerkorian's move will likely be another big blow to GM's stock. He announced the deal after the market closed, but afterhours trading dropped it even further, to $19.34 a share, a 6% drop for the day.
That likely will be just the beginning of a sell-off as investors interpret Kerkorians' move as a vote of no confidence. "The stock is going to tank," says Maryann N. Keller, a longtime industry watcher. "The only thing holding [it] up was the notion that he had some miracle plan."
HEADING DOWNHILL. The Los Angeles billionaire still owns a big chunk of GM stock. But his latest sale could suggest that he doesn't see a turnaround coming anytime soon. The move comes just a week after GM announced that it couldn't come to a deal to get Kerkorian a seat on its board of directors. "There is a level of concern that GM isn't moving with enough urgency," says Rochdale Securities Research Director Nick Colas.
But it's possible that Kerkorian has another play in the works. If his recent sales, made on Dec. 15 and Dec. 19, cause the stock to plummet further, he could come back and buy more stock on the cheap. Then he could use his even-bigger stake to exert more influence over management, possibly getting board representation. "He still has a big stake," says longtime GM watcher Maryann Keller. "It would be impossible for him to get out of that position [in the stock]."
Even before Kerkorian reduced his stake, there was plenty of bad news hurting the share price. Standard & Poor's again downgraded GM bonds further into junk territory. S&P analyst Scott Sprinzen even said that an eventual bankruptcy -- though not imminent -- isn't out of the question.
GM execs refuse to comment on Kerkorian. But management eschews the notion that it isn't moving fast enough. At a holiday party for media on Dec. 15, Chairman and CEO G. Richard Wagoner Jr. countered that the company's plan to slash 30% of its hourly workforce is plenty big. "Those are, by any measure, significant moves," Wagoner said.
LONG ROAD AHEAD. Still, GM has a long way to go. The company has lost close to $4 billion this year. And it will take a while for Wagoner's plant cuts to make their way to the bottom line. In addition to worrying about GM's financial woes, the market has gotten anxious about GM's market-share loss. Considering GM's plans to cut production in North America -- and Toyota's plans to boost its own global production to more than 9 million vehicles -- the Japanese auto maker could surpass GM as the world's largest car company this year.
There is at least one shred of good news. Ever since its former parts unit Delphi Corp. filed for bankruptcy in October, investors have worried that the company's steep demands for concessions from the United Auto Workers could spark a strike. That would shut GM down quickly, costing it $1.5 billion a week, says UBS analyst Robert Hinchliffe.
Lately, however, Delphi's typically boisterous chairman and CEO, Robert "Steve" Miller, has hushed his rhetoric toward the union and hinted that he is willing to compromise to get a deal. That's a reversal from Miller, who saw himself as a fast-moving outsider who could shake up the Detroit mindset of making incremental changes to fix struggling carmakers and parts firms. He thought taking Delphi into bankruptcy could bring a harsh reality to Detroit.
"A SLAP IN OUR FACE." Miller has no choice but to cut wages and benefits, but he insulted union workers with an initial offer in November that would cut wages 60% to $10 an hour. Even when he offered to nudge up their pay, workers reckoned they would still be sacrificing everything their forebears won in decades of negotiating. He basically gave union leaders a deal that is impossible to sell to their members.
Miller made matters worse when he said that people who cut grass for Delphi shouldn't be paid what others earn in more skilled jobs. He also said that in the future, people should get an education rather than rely on manufacturing as a route to realizing the American dream. Union workers saw Miller's comments as dishonoring the dignity of labor. "We know what he's about and what he intends to do," says Gregg Shotwell, a member of UAW local 2195 in Coopersville, Mich. "We're just getting started."
UAW workers have staged rallies and plan to picket the media preview of the Detroit auto show on Jan. 8, as well as at several Delphi plants and the company's headquarters throughout January. "A lot of what Miller said was a slap in our face," says one UAW local shop committee chairman. "His rhetoric was over and above what we were used to."
LOWER WAGES. At the GM holiday party, UAW Vice-President Richard Shoemaker said that a deal wasn't possible if Miller continued with low-ball offers and hard-line rhetoric. But since then, the tough chairman has decided that friendly talks behind closed doors may be smarter. He even apologized to the UAW for his comment about employees who cut the grass. Says Keller: "He has to keep his mouth shut. He realized he couldn't get a deal."
Delphi said that GM is now involved in the talks. That means that the auto maker could end up helping Delphi restructure by taking workers back into GM plants. That benefits Delphi because the company can hire new workers at $14 an hour, maxing out their pay at $18.50. That's well below the $22 to $32 hourly wage many workers get now. It would also help GM avoid a shutdown just as it is trying to launch its new large SUVs -- something Wagoner hopes will start to rebuild profits.
But Kerkorian is clearly running out of patience. Before the trades, his investment was under water by more than $400 million. After buying his 56 million shares at an average price of $28, he sold 5 million at $22.02 and the other 7 million at $20.21.
With a 7.8% stake, he is still around to pressure Wagoner. And he can't be happy.
Now that Kirk Kerkorian has dumped 12 million shares, average stockholders can only wonder what hope, if any, is left for the auto maker
General Motors (GM ) shareholders keep getting hit with more bad news. Billionaire investor Kirk Kerkorian -- a man many stockholders saw as a white knight who could enforce radical change at the struggling auto maker -- said Dec. 20 that he has sold 12 million shares of his GM stock, dropping his holding from 9.9% to 7.8%.
Kerkorian's move will likely be another big blow to GM's stock. He announced the deal after the market closed, but afterhours trading dropped it even further, to $19.34 a share, a 6% drop for the day.
That likely will be just the beginning of a sell-off as investors interpret Kerkorians' move as a vote of no confidence. "The stock is going to tank," says Maryann N. Keller, a longtime industry watcher. "The only thing holding [it] up was the notion that he had some miracle plan."
HEADING DOWNHILL. The Los Angeles billionaire still owns a big chunk of GM stock. But his latest sale could suggest that he doesn't see a turnaround coming anytime soon. The move comes just a week after GM announced that it couldn't come to a deal to get Kerkorian a seat on its board of directors. "There is a level of concern that GM isn't moving with enough urgency," says Rochdale Securities Research Director Nick Colas.
But it's possible that Kerkorian has another play in the works. If his recent sales, made on Dec. 15 and Dec. 19, cause the stock to plummet further, he could come back and buy more stock on the cheap. Then he could use his even-bigger stake to exert more influence over management, possibly getting board representation. "He still has a big stake," says longtime GM watcher Maryann Keller. "It would be impossible for him to get out of that position [in the stock]."
Even before Kerkorian reduced his stake, there was plenty of bad news hurting the share price. Standard & Poor's again downgraded GM bonds further into junk territory. S&P analyst Scott Sprinzen even said that an eventual bankruptcy -- though not imminent -- isn't out of the question.
GM execs refuse to comment on Kerkorian. But management eschews the notion that it isn't moving fast enough. At a holiday party for media on Dec. 15, Chairman and CEO G. Richard Wagoner Jr. countered that the company's plan to slash 30% of its hourly workforce is plenty big. "Those are, by any measure, significant moves," Wagoner said.
LONG ROAD AHEAD. Still, GM has a long way to go. The company has lost close to $4 billion this year. And it will take a while for Wagoner's plant cuts to make their way to the bottom line. In addition to worrying about GM's financial woes, the market has gotten anxious about GM's market-share loss. Considering GM's plans to cut production in North America -- and Toyota's plans to boost its own global production to more than 9 million vehicles -- the Japanese auto maker could surpass GM as the world's largest car company this year.
There is at least one shred of good news. Ever since its former parts unit Delphi Corp. filed for bankruptcy in October, investors have worried that the company's steep demands for concessions from the United Auto Workers could spark a strike. That would shut GM down quickly, costing it $1.5 billion a week, says UBS analyst Robert Hinchliffe.
Lately, however, Delphi's typically boisterous chairman and CEO, Robert "Steve" Miller, has hushed his rhetoric toward the union and hinted that he is willing to compromise to get a deal. That's a reversal from Miller, who saw himself as a fast-moving outsider who could shake up the Detroit mindset of making incremental changes to fix struggling carmakers and parts firms. He thought taking Delphi into bankruptcy could bring a harsh reality to Detroit.
"A SLAP IN OUR FACE." Miller has no choice but to cut wages and benefits, but he insulted union workers with an initial offer in November that would cut wages 60% to $10 an hour. Even when he offered to nudge up their pay, workers reckoned they would still be sacrificing everything their forebears won in decades of negotiating. He basically gave union leaders a deal that is impossible to sell to their members.
Miller made matters worse when he said that people who cut grass for Delphi shouldn't be paid what others earn in more skilled jobs. He also said that in the future, people should get an education rather than rely on manufacturing as a route to realizing the American dream. Union workers saw Miller's comments as dishonoring the dignity of labor. "We know what he's about and what he intends to do," says Gregg Shotwell, a member of UAW local 2195 in Coopersville, Mich. "We're just getting started."
UAW workers have staged rallies and plan to picket the media preview of the Detroit auto show on Jan. 8, as well as at several Delphi plants and the company's headquarters throughout January. "A lot of what Miller said was a slap in our face," says one UAW local shop committee chairman. "His rhetoric was over and above what we were used to."
LOWER WAGES. At the GM holiday party, UAW Vice-President Richard Shoemaker said that a deal wasn't possible if Miller continued with low-ball offers and hard-line rhetoric. But since then, the tough chairman has decided that friendly talks behind closed doors may be smarter. He even apologized to the UAW for his comment about employees who cut the grass. Says Keller: "He has to keep his mouth shut. He realized he couldn't get a deal."
Delphi said that GM is now involved in the talks. That means that the auto maker could end up helping Delphi restructure by taking workers back into GM plants. That benefits Delphi because the company can hire new workers at $14 an hour, maxing out their pay at $18.50. That's well below the $22 to $32 hourly wage many workers get now. It would also help GM avoid a shutdown just as it is trying to launch its new large SUVs -- something Wagoner hopes will start to rebuild profits.
But Kerkorian is clearly running out of patience. Before the trades, his investment was under water by more than $400 million. After buying his 56 million shares at an average price of $28, he sold 5 million at $22.02 and the other 7 million at $20.21.
With a 7.8% stake, he is still around to pressure Wagoner. And he can't be happy.
Thursday, December 22, 2005
Staying On The Cutting Edge
BY BRIAN DEAGON
INVESTOR'S BUSINESS DAILY
Posted 12/21/2005
When Elon Musk sees a hole unfilled, he'll jump right in. Even if he doesn't know what's below.
While that might frighten most people, Musk insists it's what makes him successful.
It works for him. He's launched three companies, each time entering a field he knew little about. He sold the first two Internet companies, one to Compaq Computer for $341 million and the other to eBay for $1.5 billion, becoming one of the 40 richest people under 40, according to Fortune magazine.
Musk, 34, is just getting started.
Three years ago he invested $100 million of his own cash to start Space Exploration Technology.
SpaceX had its first rocket ready to launch at Kwajalein Atoll in the South Pacific on Monday. But the flight was scrubbed because of electrical problems, with a new date pending. Musk aims to make history by founding the first privately funded company to fire a satellite into orbit. His goal is to make space travel affordable. It's part of a plan that runs deep in his soul — to help humanity become a space-faring civilization.
"I want to be involved with things that change the world," Musk said in a recent IBD interview.
He's where he is because Musk's a dreamer, constantly striving for solutions that no one has tried.
Getting there initially required more down-to-earth pursuits.
As a youth, Musk got hooked on video games in his native South Africa. Dissatisfied by what was available, he crafted his own software code for a video game. At age 12, Musk sold the code for $500 to a gaming magazine.
In 1995, only days into pursuing a doctorate in physics at Stanford University, Musk decided the Internet presented more opportunity than the classroom.
"I believed the Internet would dramatically change the future of humanity in a very positive way," said Musk. "I wanted to be part of that."
Musk saw that newspapers had to find ways to bring content onto the Web. He dropped out of Stanford and launched Zip2 Corp., developing software for news organizations to build their Web sites.
He marketed it directly to publishers, and The New York Times, Hearst and Knight Ridder signed up as users and investors. In 1999, Compaq Computer acquired the company for $341 million. At the time, it was the largest cash transaction for an Internet company.
More Innovation
Musk was far from done with the Web. No sooner was his first company bought than he had another idea that was largely unexplored — Internet banking.
He founded X.com with two ideas in mind. One was to consolidate financial services such as online banking, mortgages and credit cards onto a single Web site. The other was the ability to instantly transfer money from one holder to another.
At the time, Musk took note of a company called Confinity, which had a business called PayPal. It had a software program for the Palm Pilot that let people exchange cash tokens. Recognizing that other ideas could bolster his own, Musk acquired Confinity and changed its name to PayPal.
Soon, the company developed a system whereby money could be transferred via e-mail accounts.
The Internet auction Web site eBay was working on something similar and tried to squish PayPal. But Musk kept PayPal's name out there, keeping it low cost and easier to use than other similar services.
Finally, eBay conceded that game and offered to buy PayPal for $1.5 billion. The offer came shortly after PayPal had raised $70 million in an initial public offering.
Musk rarely wears suits, preferring a casual dress style so he can focus on his work, not his clothes.
But he isn't all work. For fun, Musk likes to drive sports cars or fly one of his three jets — two business aircraft and a Czech-built L-39 trainer.
His approach is laid-back: Musk speaks in soft low tones and doesn't expend energy getting rattled.
Having sold PayPal to eBay and out of work in late 2001, Musk was asked by a friend what problems he wanted to solve. Two came to mind. One was to develop renewable energy. The other was to help humanity become a space-faring civilization.
"I didn't think any individual could do anything about the last problem," Musk said.
Still, he likes to dream big. So he started researching and discovered NASA had no plans to put anyone on Mars soon. He began to mull that goal and came up with the plan for a Mars Oasis.
His idea was to place a miniature experimental greenhouse on Mars, a lander with seeds and dehydrated nutrient gel. The project would serve as inspiration for others to embrace space travel.
"I thought if you could put a small greenhouse on Mars, these green plants growing on a red Mars background would excite the imagination," he said.
Then Musk realized that the cost of getting to Mars was too high. He rethought his approach: Why not lower the cost of access to space?
He poured his money into building SpaceX. He hired technicians, engineers and designers to come up with a workable craft that out-flew anything used before.
They designed Falcon 1, which stands 70 feet tall and could lift light payloads into orbit. Musk says the cost of a SpaceX flight on Falcon 1 is 75% below the going rate of $25 million. A ride on Falcon 1 is priced at $6.7 million.
SpaceX's largest rocket, Falcon 9, stands 174 feet and could put heavy loads into high-level orbit. That's on par with the biggest rockets Lockheed and Boeing have. The first Falcon 9 launch is planned for 2007.
Aiming High
The space launch business is a $4 billion industry. Musk already has contracts lined up through 2010 worth an estimated $200 million. If SpaceX can prove the Falcon is a reliable launch vehicle, many more contracts are expected to follow.
He keeps his sights on making it a profitable concern. Experts say he's on track to making it one.
"The only way to stimulate a commercial space market is to dramatically cut the costs of getting there," said Peter Diamandis, a doctor and entrepreneur who's founded three space commercialization companies. "He is engaged in a long-term fight and will have to prove himself. If Musk can provide the same quality of service to space for 25% of the going price, then we will see a shift in the industry. I'm a big believer in his approach."
BY BRIAN DEAGON
INVESTOR'S BUSINESS DAILY
Posted 12/21/2005
When Elon Musk sees a hole unfilled, he'll jump right in. Even if he doesn't know what's below.
While that might frighten most people, Musk insists it's what makes him successful.
It works for him. He's launched three companies, each time entering a field he knew little about. He sold the first two Internet companies, one to Compaq Computer for $341 million and the other to eBay for $1.5 billion, becoming one of the 40 richest people under 40, according to Fortune magazine.
Musk, 34, is just getting started.
Three years ago he invested $100 million of his own cash to start Space Exploration Technology.
SpaceX had its first rocket ready to launch at Kwajalein Atoll in the South Pacific on Monday. But the flight was scrubbed because of electrical problems, with a new date pending. Musk aims to make history by founding the first privately funded company to fire a satellite into orbit. His goal is to make space travel affordable. It's part of a plan that runs deep in his soul — to help humanity become a space-faring civilization.
"I want to be involved with things that change the world," Musk said in a recent IBD interview.
He's where he is because Musk's a dreamer, constantly striving for solutions that no one has tried.
Getting there initially required more down-to-earth pursuits.
As a youth, Musk got hooked on video games in his native South Africa. Dissatisfied by what was available, he crafted his own software code for a video game. At age 12, Musk sold the code for $500 to a gaming magazine.
In 1995, only days into pursuing a doctorate in physics at Stanford University, Musk decided the Internet presented more opportunity than the classroom.
"I believed the Internet would dramatically change the future of humanity in a very positive way," said Musk. "I wanted to be part of that."
Musk saw that newspapers had to find ways to bring content onto the Web. He dropped out of Stanford and launched Zip2 Corp., developing software for news organizations to build their Web sites.
He marketed it directly to publishers, and The New York Times, Hearst and Knight Ridder signed up as users and investors. In 1999, Compaq Computer acquired the company for $341 million. At the time, it was the largest cash transaction for an Internet company.
More Innovation
Musk was far from done with the Web. No sooner was his first company bought than he had another idea that was largely unexplored — Internet banking.
He founded X.com with two ideas in mind. One was to consolidate financial services such as online banking, mortgages and credit cards onto a single Web site. The other was the ability to instantly transfer money from one holder to another.
At the time, Musk took note of a company called Confinity, which had a business called PayPal. It had a software program for the Palm Pilot that let people exchange cash tokens. Recognizing that other ideas could bolster his own, Musk acquired Confinity and changed its name to PayPal.
Soon, the company developed a system whereby money could be transferred via e-mail accounts.
The Internet auction Web site eBay was working on something similar and tried to squish PayPal. But Musk kept PayPal's name out there, keeping it low cost and easier to use than other similar services.
Finally, eBay conceded that game and offered to buy PayPal for $1.5 billion. The offer came shortly after PayPal had raised $70 million in an initial public offering.
Musk rarely wears suits, preferring a casual dress style so he can focus on his work, not his clothes.
But he isn't all work. For fun, Musk likes to drive sports cars or fly one of his three jets — two business aircraft and a Czech-built L-39 trainer.
His approach is laid-back: Musk speaks in soft low tones and doesn't expend energy getting rattled.
Having sold PayPal to eBay and out of work in late 2001, Musk was asked by a friend what problems he wanted to solve. Two came to mind. One was to develop renewable energy. The other was to help humanity become a space-faring civilization.
"I didn't think any individual could do anything about the last problem," Musk said.
Still, he likes to dream big. So he started researching and discovered NASA had no plans to put anyone on Mars soon. He began to mull that goal and came up with the plan for a Mars Oasis.
His idea was to place a miniature experimental greenhouse on Mars, a lander with seeds and dehydrated nutrient gel. The project would serve as inspiration for others to embrace space travel.
"I thought if you could put a small greenhouse on Mars, these green plants growing on a red Mars background would excite the imagination," he said.
Then Musk realized that the cost of getting to Mars was too high. He rethought his approach: Why not lower the cost of access to space?
He poured his money into building SpaceX. He hired technicians, engineers and designers to come up with a workable craft that out-flew anything used before.
They designed Falcon 1, which stands 70 feet tall and could lift light payloads into orbit. Musk says the cost of a SpaceX flight on Falcon 1 is 75% below the going rate of $25 million. A ride on Falcon 1 is priced at $6.7 million.
SpaceX's largest rocket, Falcon 9, stands 174 feet and could put heavy loads into high-level orbit. That's on par with the biggest rockets Lockheed and Boeing have. The first Falcon 9 launch is planned for 2007.
Aiming High
The space launch business is a $4 billion industry. Musk already has contracts lined up through 2010 worth an estimated $200 million. If SpaceX can prove the Falcon is a reliable launch vehicle, many more contracts are expected to follow.
He keeps his sights on making it a profitable concern. Experts say he's on track to making it one.
"The only way to stimulate a commercial space market is to dramatically cut the costs of getting there," said Peter Diamandis, a doctor and entrepreneur who's founded three space commercialization companies. "He is engaged in a long-term fight and will have to prove himself. If Musk can provide the same quality of service to space for 25% of the going price, then we will see a shift in the industry. I'm a big believer in his approach."
Wary of Dissent, Tunisia Makes War on the Web
Despite Country's Relative Openness, Internet Postings Landing Some Critics in Jail
By Daniel Williams
Washington Post Foreign Service
Thursday, December 22, 2005; A25
TUNIS -- Lawyer Mohammed Abou wrote sharply about politics in a country where criticism of the government is generally dulled. His outlet was the Internet, the only venue available to politically combative Tunisians, provided they can get around electronic censorship.
He attacked the prison system, likening Tunisia's jails to Abu Ghraib, Iraq's notorious American-run penitentiary. He compared Tunisian President Zine Abidine Ben Ali to Israeli Prime Minister Ariel Sharon, a serious affront in the Arab world.
Then the government countered by blocking access to the Web site where Abou's work appeared. Police picked him up at a pharmacy on March 1 and, a month later, a judge sentenced him to three years in jail for defaming Tunisia's judiciary and, through a case suddenly brought against him, for assaulting a female lawyer.
His imprisonment became a cause for human rights activists and undermined the country's carefully cultivated image as a leader of political openness in the Middle East. But the case was not unique. Tunisian security officials are making war on the Internet to prevent critics from using it to launch attacks on the government and Ben Ali, who has been in power for 18 years.
Even as delegates from 175 countries met in Tunis in November for the World Summit on the Information Society, a gathering aimed at spreading information technology around the world, the government kept up its controls. Delegates protested, but to no apparent result.
Government censors routinely block access to content and sites that draw concern. Monitors at public computers keep watch on users to see if they succeed in getting around the obstructions. Writing the wrong thing on the Internet can bring jail time.
"In Tunisia, citizens may be theoretically free to receive and share information, but they are practically prevented from doing so on a number of vital topics by a state that combines sophisticated American technology, harsh laws and informal pressures to limit access," according to the Open Net Initiative, a joint project of the University of Toronto, Harvard University and Cambridge University that seeks to uncover obstacles to Internet use.
The Tunisian government defends its policy on security and public morality grounds. Habib Cherif, the government's human rights coordinator, said restrictions are a defense against terrorism, violence and pornography. As for Abou's criticism, Cherif said "the law forbids slander of the magistrates. Justice must be protected."
"It's the law, and so it is applied," he added. Pressed on whether he, as the government's chief human rights watchdog, agrees with censorship of all such critical commentary, he replied, "Yes. It is appropriate for a country in transition."
Transition is a word often used by Tunisian officials when asked about restrictions on speech. The government prides itself on its relative openness, compared with its neighbors, Algeria, which experienced a vicious civil war in the 1990s, and Libya, which has been under the rule of Moammar Gaddafi for 37 years. Among Middle East countries, Tunisia stands out for its self-declared effort to model itself on European economic and political standards.
But compared with Egypt and Lebanon, countries with vibrant democracy movements, Tunisia looks retrograde. Ben Ali won his latest term in office with 94 percent of the vote against feeble opposition. Headlines from a variety of papers on a recent day featured the same message: lawyers in parliament had praised Ben Ali for his leadership, pursued with "conscience and sacrifice."
The Tunisian police state is readily apparent. At the Tunisian League for Human Rights in Bizerte, a coastal town north of Tunis, police stood vigil one recent day outside the office, scattering only at the arrival of a reporter. They moved a block away, all speaking into walkie-talkies.
When the reporter left, one plainclothesman followed his car to the bus station. The man entered the station, circled the reporter for a while, and left. With the exception of discussions with government officials, every interview conducted for this article attracted similar police surveillance.
"The Internet is a problem for the government, because it can be everywhere," said Ahmed Galai, an official of the Tunisian League. "Even in Tunisia, where we have wall-to-wall police, it is hard to keep up."
The Abou case was one of several Web-related controversies that created a stir before the summit here. Rights groups demanded that the gathering be moved. Opponents of proposals to transfer governance of Internet addresses and other responsibilities away from U.S. control pointed to Tunisia as evidence to support their position. Tunisian democracy activists held a month-long hunger strike calling for press and Internet freedom.
During the summit itself, police beat a French reporter and confiscated videotape from a Belgian television news team, human rights groups said. In a speech to delegates, Swiss Federal President Samuel Schmid declared it was "unacceptable" that governments represented at the summit jailed citizens for using the Internet as a vehicle for criticism. The simultaneous translation of the speech abruptly halted and state television cut off broadcast of the event until Schmid was finished.
Abou, a slender man with a thin moustache, has been active in promoting free speech, prison and judicial reform, and democracy for six years. Several of his articles appeared on tunisnews.net, a Web site blocked in this country. (As with other such sites, the notice "impossible to find the page" pops up when an Internet user in Tunisia tries to call up the site.)
Abou's article comparing Ben Ali to Sharon appeared a day before his arrest. "That's the one that really angered them. Abou crossed the line," said Samia Hammouda, his wife.
The charges against Abou included an accusation lodged in 2002 by a female lawyer who said Abou shoved her to the ground during a meeting. The case had not been heard of until the defamation charges.
Cherif, the government human rights official who is also a magistrate, said Abou was guilty of "insulting" judges. "No one can be allowed to do that," he said.
Abou was not the first Web dissident to be jailed for his writings. Zouhair Yahyaoui, who died of a heart attack in March, for years operated tunezine.com, a political and satirical Web site. In 2002, he had invited readers to vote on whether Tunisia was a republic, kingdom, zoo or prison.
Police arrested Yahyaoui in an Internet cafe. The government prosecuted him for spreading "false news" and unauthorized use of an Internet connection. He was freed in 2003 after serving 18 months of a two-year sentence.
Tunisian authorities sometimes also ban individuals from entering any of the country's 300 authorized cyber offices, known as Publinet.
Abdullah Zouari, who published articles on prohibited Web sites, is confined to the far southern town of Zarzis in internal exile.
In the early 1990s, a court sentenced Zouari to 11 years in prison for belonging to an Islamic party that the government said was plotting a rebellion. His sentence was part of a massive crackdown by Ben Ali on Islamic rivals.
Now he is serving five years in Zarzis. He has also spent nine months in prison for traveling outside the area. Despite such punishments, he has been escorting human rights researchers on visits to families of prisoners. His house in Zarzis is under watch 24 hours a day by police.
The police also follow Zouari wherever he goes. During a recent visit by a reporter, police riding in a pickup truck dutifully tailed Zouari to downtown cafes, up alleys and in front of private houses. Zouari waved at them and they waved back.
When Zouari approached the L'espace Publinet Internet office, the truck was already parked in front of it. The proprietor told him simply, "It's prohibited."
The government justifies its Internet controls by pointing to cases such as the 2004 conviction of eight young men in Zarzis on charges of plotting terrorist acts. They allegedly used the Internet to download information on weaponry and bomb-making. "It's a measure of the irresponsibility of human rights activists that they defend these men," said a senior government official, who spoke on condition of anonymity.
Relatives of the prisoners say that the convicts had visited sites concerning only Iraq and the Palestinians and that they were not plotting violence. Mohammed Guiza, whose son Abdelgaffer was sentenced to 13 years in prison, said the young men were tortured to get confessions, which they retracted in court.
"The government tries to show there are terrorists. Otherwise, why have this dictatorship? It's just a trick to keep Tunisia without democracy," Guiza said.
Despite Country's Relative Openness, Internet Postings Landing Some Critics in Jail
By Daniel Williams
Washington Post Foreign Service
Thursday, December 22, 2005; A25
TUNIS -- Lawyer Mohammed Abou wrote sharply about politics in a country where criticism of the government is generally dulled. His outlet was the Internet, the only venue available to politically combative Tunisians, provided they can get around electronic censorship.
He attacked the prison system, likening Tunisia's jails to Abu Ghraib, Iraq's notorious American-run penitentiary. He compared Tunisian President Zine Abidine Ben Ali to Israeli Prime Minister Ariel Sharon, a serious affront in the Arab world.
Then the government countered by blocking access to the Web site where Abou's work appeared. Police picked him up at a pharmacy on March 1 and, a month later, a judge sentenced him to three years in jail for defaming Tunisia's judiciary and, through a case suddenly brought against him, for assaulting a female lawyer.
His imprisonment became a cause for human rights activists and undermined the country's carefully cultivated image as a leader of political openness in the Middle East. But the case was not unique. Tunisian security officials are making war on the Internet to prevent critics from using it to launch attacks on the government and Ben Ali, who has been in power for 18 years.
Even as delegates from 175 countries met in Tunis in November for the World Summit on the Information Society, a gathering aimed at spreading information technology around the world, the government kept up its controls. Delegates protested, but to no apparent result.
Government censors routinely block access to content and sites that draw concern. Monitors at public computers keep watch on users to see if they succeed in getting around the obstructions. Writing the wrong thing on the Internet can bring jail time.
"In Tunisia, citizens may be theoretically free to receive and share information, but they are practically prevented from doing so on a number of vital topics by a state that combines sophisticated American technology, harsh laws and informal pressures to limit access," according to the Open Net Initiative, a joint project of the University of Toronto, Harvard University and Cambridge University that seeks to uncover obstacles to Internet use.
The Tunisian government defends its policy on security and public morality grounds. Habib Cherif, the government's human rights coordinator, said restrictions are a defense against terrorism, violence and pornography. As for Abou's criticism, Cherif said "the law forbids slander of the magistrates. Justice must be protected."
"It's the law, and so it is applied," he added. Pressed on whether he, as the government's chief human rights watchdog, agrees with censorship of all such critical commentary, he replied, "Yes. It is appropriate for a country in transition."
Transition is a word often used by Tunisian officials when asked about restrictions on speech. The government prides itself on its relative openness, compared with its neighbors, Algeria, which experienced a vicious civil war in the 1990s, and Libya, which has been under the rule of Moammar Gaddafi for 37 years. Among Middle East countries, Tunisia stands out for its self-declared effort to model itself on European economic and political standards.
But compared with Egypt and Lebanon, countries with vibrant democracy movements, Tunisia looks retrograde. Ben Ali won his latest term in office with 94 percent of the vote against feeble opposition. Headlines from a variety of papers on a recent day featured the same message: lawyers in parliament had praised Ben Ali for his leadership, pursued with "conscience and sacrifice."
The Tunisian police state is readily apparent. At the Tunisian League for Human Rights in Bizerte, a coastal town north of Tunis, police stood vigil one recent day outside the office, scattering only at the arrival of a reporter. They moved a block away, all speaking into walkie-talkies.
When the reporter left, one plainclothesman followed his car to the bus station. The man entered the station, circled the reporter for a while, and left. With the exception of discussions with government officials, every interview conducted for this article attracted similar police surveillance.
"The Internet is a problem for the government, because it can be everywhere," said Ahmed Galai, an official of the Tunisian League. "Even in Tunisia, where we have wall-to-wall police, it is hard to keep up."
The Abou case was one of several Web-related controversies that created a stir before the summit here. Rights groups demanded that the gathering be moved. Opponents of proposals to transfer governance of Internet addresses and other responsibilities away from U.S. control pointed to Tunisia as evidence to support their position. Tunisian democracy activists held a month-long hunger strike calling for press and Internet freedom.
During the summit itself, police beat a French reporter and confiscated videotape from a Belgian television news team, human rights groups said. In a speech to delegates, Swiss Federal President Samuel Schmid declared it was "unacceptable" that governments represented at the summit jailed citizens for using the Internet as a vehicle for criticism. The simultaneous translation of the speech abruptly halted and state television cut off broadcast of the event until Schmid was finished.
Abou, a slender man with a thin moustache, has been active in promoting free speech, prison and judicial reform, and democracy for six years. Several of his articles appeared on tunisnews.net, a Web site blocked in this country. (As with other such sites, the notice "impossible to find the page" pops up when an Internet user in Tunisia tries to call up the site.)
Abou's article comparing Ben Ali to Sharon appeared a day before his arrest. "That's the one that really angered them. Abou crossed the line," said Samia Hammouda, his wife.
The charges against Abou included an accusation lodged in 2002 by a female lawyer who said Abou shoved her to the ground during a meeting. The case had not been heard of until the defamation charges.
Cherif, the government human rights official who is also a magistrate, said Abou was guilty of "insulting" judges. "No one can be allowed to do that," he said.
Abou was not the first Web dissident to be jailed for his writings. Zouhair Yahyaoui, who died of a heart attack in March, for years operated tunezine.com, a political and satirical Web site. In 2002, he had invited readers to vote on whether Tunisia was a republic, kingdom, zoo or prison.
Police arrested Yahyaoui in an Internet cafe. The government prosecuted him for spreading "false news" and unauthorized use of an Internet connection. He was freed in 2003 after serving 18 months of a two-year sentence.
Tunisian authorities sometimes also ban individuals from entering any of the country's 300 authorized cyber offices, known as Publinet.
Abdullah Zouari, who published articles on prohibited Web sites, is confined to the far southern town of Zarzis in internal exile.
In the early 1990s, a court sentenced Zouari to 11 years in prison for belonging to an Islamic party that the government said was plotting a rebellion. His sentence was part of a massive crackdown by Ben Ali on Islamic rivals.
Now he is serving five years in Zarzis. He has also spent nine months in prison for traveling outside the area. Despite such punishments, he has been escorting human rights researchers on visits to families of prisoners. His house in Zarzis is under watch 24 hours a day by police.
The police also follow Zouari wherever he goes. During a recent visit by a reporter, police riding in a pickup truck dutifully tailed Zouari to downtown cafes, up alleys and in front of private houses. Zouari waved at them and they waved back.
When Zouari approached the L'espace Publinet Internet office, the truck was already parked in front of it. The proprietor told him simply, "It's prohibited."
The government justifies its Internet controls by pointing to cases such as the 2004 conviction of eight young men in Zarzis on charges of plotting terrorist acts. They allegedly used the Internet to download information on weaponry and bomb-making. "It's a measure of the irresponsibility of human rights activists that they defend these men," said a senior government official, who spoke on condition of anonymity.
Relatives of the prisoners say that the convicts had visited sites concerning only Iraq and the Palestinians and that they were not plotting violence. Mohammed Guiza, whose son Abdelgaffer was sentenced to 13 years in prison, said the young men were tortured to get confessions, which they retracted in court.
"The government tries to show there are terrorists. Otherwise, why have this dictatorship? It's just a trick to keep Tunisia without democracy," Guiza said.
High Noon In NYC
Posted 12/20/2005
Transit Strike: It's been more than two decades since Ronald Reagan fired the air traffic controllers. Unions need to be reminded that the public has its limits.
'It's a form of terrorism, if you ask me." So said Maria Negron, one of the many New Yorkers who had little choice but to walk across the Brooklyn Bridge Tuesday morning as temperatures hovered in the 20s.
Was Negron's label a bit of a stretch? Sure. But her anger was justified. With their illegal strike, New York City's bus and subway workers have declared war on the public and on the economy of a great city.
At this writing, city and state authorities were doing the right things. A judge quickly imposed a $1 million-a-day fine on the union. Borrowing a page from Ed Koch's playbook in the city's last transit strike, Mayor Michael Bloomberg joined commuters on the Brooklyn Bridge.
But the real test of wills may just be starting. The Transport Workers Union is a militant organization with a public-be-damned attitude. It doesn't seem to mind being hated as long as it wins.
The last time it struck, in 1980, then-Mayor Koch famously declared: "We will not let these bastards violate the law and bring the city to its knees."
But the strike still dragged on for 11 days (at least it was April, not December). In the end, the union came away with an expensive contract and subway riders were hit with a fare hike.
The next year, Reagan took on the air traffic controllers union and the outcome was less ambiguous. He told the strikers to return to work or be fired. They thought he was bluffing. He wasn't, and they were out of a job. (LESSON LEARNED)
New York law doesn't provide for action quite that dramatic. But officials do have the power to levy serious fines against striking workers — twice each day's pay — as well as against the union. And the weapon surest to work, if they have it, is backbone. They have to be willing to sit and wait — and refuse to negotiate — until the union gives up.
The nation is watching this story closely, not just because New York City is a media center but also because the issues that led to this strike are national in scope. Like public entities all over the country (and old-line industrial corporations such as General Motors), New York's transit authority is trying to roll back unaffordable pension commitments.
Transit workers now get full retirement benefits at 55, a lavish payout by private-sector standards. Management wants to raise the retirement age to 62 for new employees, and later was willing to keep retirement at 55 if workers agreed to pay more of the pension costs out of their own paychecks. The TWU wants full retirement at 50.
Giving any substantial ground to the TWU on this issue would be a huge mistake, and not just for New Yorkers. Public unions everywhere would be encouraged to dig in their heels against state and local governments. They're already feeling their oats in California, where they have defeated or delayed every reform measure that Gov. Arnold Schwarzenegger has thrown at them.
It's a chilly High Noon in New York City, and the stakes are high.
Posted 12/20/2005
Transit Strike: It's been more than two decades since Ronald Reagan fired the air traffic controllers. Unions need to be reminded that the public has its limits.
'It's a form of terrorism, if you ask me." So said Maria Negron, one of the many New Yorkers who had little choice but to walk across the Brooklyn Bridge Tuesday morning as temperatures hovered in the 20s.
Was Negron's label a bit of a stretch? Sure. But her anger was justified. With their illegal strike, New York City's bus and subway workers have declared war on the public and on the economy of a great city.
At this writing, city and state authorities were doing the right things. A judge quickly imposed a $1 million-a-day fine on the union. Borrowing a page from Ed Koch's playbook in the city's last transit strike, Mayor Michael Bloomberg joined commuters on the Brooklyn Bridge.
But the real test of wills may just be starting. The Transport Workers Union is a militant organization with a public-be-damned attitude. It doesn't seem to mind being hated as long as it wins.
The last time it struck, in 1980, then-Mayor Koch famously declared: "We will not let these bastards violate the law and bring the city to its knees."
But the strike still dragged on for 11 days (at least it was April, not December). In the end, the union came away with an expensive contract and subway riders were hit with a fare hike.
The next year, Reagan took on the air traffic controllers union and the outcome was less ambiguous. He told the strikers to return to work or be fired. They thought he was bluffing. He wasn't, and they were out of a job. (LESSON LEARNED)
New York law doesn't provide for action quite that dramatic. But officials do have the power to levy serious fines against striking workers — twice each day's pay — as well as against the union. And the weapon surest to work, if they have it, is backbone. They have to be willing to sit and wait — and refuse to negotiate — until the union gives up.
The nation is watching this story closely, not just because New York City is a media center but also because the issues that led to this strike are national in scope. Like public entities all over the country (and old-line industrial corporations such as General Motors), New York's transit authority is trying to roll back unaffordable pension commitments.
Transit workers now get full retirement benefits at 55, a lavish payout by private-sector standards. Management wants to raise the retirement age to 62 for new employees, and later was willing to keep retirement at 55 if workers agreed to pay more of the pension costs out of their own paychecks. The TWU wants full retirement at 50.
Giving any substantial ground to the TWU on this issue would be a huge mistake, and not just for New Yorkers. Public unions everywhere would be encouraged to dig in their heels against state and local governments. They're already feeling their oats in California, where they have defeated or delayed every reform measure that Gov. Arnold Schwarzenegger has thrown at them.
It's a chilly High Noon in New York City, and the stakes are high.
Get Back To ANWR, And Beyond
Posted 12/21/2005
Energy: In blocking drilling in the Arctic National Wildlife Refuge, Senate Democrats and GOP renegades have shirked their duty. But ANWR is only the first step to ending our dangerous dependence on foreign energy.
Sen. Ted Stevens, R-Alaska, who represents the state where the drilling would be done, had attached a provision to the massive must-pass defense bill allowing access to oil in a frostbitten, 2,000-acre sliver of land the size of South Carolina. But in a 56-44 vote Wednesday, Republicans failed to secure the 60 needed to defeat a filibuster against the measure.
Stevens, who's fought for ANWR access since the 1980s, promised to continue the fight in the new year. We wish him well. With winter's chill intensifying and Americans disgusted with their fuel bills, opening ANWR is the least Congress can do to show it's serious about long-term energy policy.
"For too long," Chevron CEO David O'Reilly told Congress last month, "Americans have been led to believe they can enjoy low oil and gasoline prices with less exploration and refining."
Also for too long, many of their representatives in Congress have thought that global commodities like oil are immune to the realities of supply and demand, that Big Oil has godlike powers over price and that energy companies used this year's natural disasters to orchestrate huge increases at the pump while raking in obscenely excessive profits.
The ANWR filibuster is only the latest example of a U.S. Senate more interested in impressing the Sierra Club than safeguarding America's economic and national security.
As recently as last month, the Senate slapped the biggest oil companies with two backdoor tax increases — a change in inventory rules and a restriction on the foreign tax credit.— that will cost billions. Granted, these provisions may not survive conference with the House of Representatives on the tax bill. The same can't be said of misconceptions about energy that abound in so many quarters.
The supposedly pro-business House responded to this month's record natural gas prices by giving federal regulators more power over gas-futures trading — again, the baseless assumption being that someone must be gouging somebody.
The real answer to high fuel prices is . . . more domestic sources of fuel. Instead of tightening the regulatory noose on our energy future, Congress should repeal the ban on drilling in promising areas like the eastern Gulf of Mexico, and streamline the permitting and environmental review process.
Punitive taxes like those passed in the Senate have failed before. In 1990, for example, the Congressional Research Service found that windfall taxes of the previous decade deprived the country of $79 billion in investment that could have produced 1.6 billion barrels of oil in the U.S.
Today the stakes are far higher. The demand for oil in Asia is greater, and the competitive bidding for Mideast oil that has already pitted East against West is sure to escalate, driving prices up. Then think about those oil-rich Middle East nations on whose supplies we now overly depend. Will radical Islamo-fascist regimes someday control much or most of that supply?
What's more, 25 years from now half of the world's conventional oil base will have been consumed. Drilling will have to shift to extremely deep waters and remote regions. That means still higher costs. Oil companies will need their profits of today to invest the trillions of dollars necessary for tomorrow's new technologies and infrastructures.
Indeed, after suffering in the 1990s a subpar return on equity below that of the S&P 500 — with little left over to invest — Big Oil invests all its profits and more.
Chevron, for instance, announced this month $14.8 billion in capital and exploratory spending for 2006, a 35% increase over 2005. Since 2002, Chevron has earned $31 billion, but invested $32 billion. So when we tax or regulate to death those big, bad oilmen, we're really only punishing our grandchildren — the energy consumers of the future.
ANWR is only a modest start toward reaching a level of energy self-sufficiency that will fulfill our longer-term economic and national security needs. The efforts needed to reach that goal will take many years of work, investment and political will.
But because of Senate Democrats, and a half-dozen of their posturing Republican friends, once again we can't even begin.
Posted 12/21/2005
Energy: In blocking drilling in the Arctic National Wildlife Refuge, Senate Democrats and GOP renegades have shirked their duty. But ANWR is only the first step to ending our dangerous dependence on foreign energy.
Sen. Ted Stevens, R-Alaska, who represents the state where the drilling would be done, had attached a provision to the massive must-pass defense bill allowing access to oil in a frostbitten, 2,000-acre sliver of land the size of South Carolina. But in a 56-44 vote Wednesday, Republicans failed to secure the 60 needed to defeat a filibuster against the measure.
Stevens, who's fought for ANWR access since the 1980s, promised to continue the fight in the new year. We wish him well. With winter's chill intensifying and Americans disgusted with their fuel bills, opening ANWR is the least Congress can do to show it's serious about long-term energy policy.
"For too long," Chevron CEO David O'Reilly told Congress last month, "Americans have been led to believe they can enjoy low oil and gasoline prices with less exploration and refining."
Also for too long, many of their representatives in Congress have thought that global commodities like oil are immune to the realities of supply and demand, that Big Oil has godlike powers over price and that energy companies used this year's natural disasters to orchestrate huge increases at the pump while raking in obscenely excessive profits.
The ANWR filibuster is only the latest example of a U.S. Senate more interested in impressing the Sierra Club than safeguarding America's economic and national security.
As recently as last month, the Senate slapped the biggest oil companies with two backdoor tax increases — a change in inventory rules and a restriction on the foreign tax credit.— that will cost billions. Granted, these provisions may not survive conference with the House of Representatives on the tax bill. The same can't be said of misconceptions about energy that abound in so many quarters.
The supposedly pro-business House responded to this month's record natural gas prices by giving federal regulators more power over gas-futures trading — again, the baseless assumption being that someone must be gouging somebody.
The real answer to high fuel prices is . . . more domestic sources of fuel. Instead of tightening the regulatory noose on our energy future, Congress should repeal the ban on drilling in promising areas like the eastern Gulf of Mexico, and streamline the permitting and environmental review process.
Punitive taxes like those passed in the Senate have failed before. In 1990, for example, the Congressional Research Service found that windfall taxes of the previous decade deprived the country of $79 billion in investment that could have produced 1.6 billion barrels of oil in the U.S.
Today the stakes are far higher. The demand for oil in Asia is greater, and the competitive bidding for Mideast oil that has already pitted East against West is sure to escalate, driving prices up. Then think about those oil-rich Middle East nations on whose supplies we now overly depend. Will radical Islamo-fascist regimes someday control much or most of that supply?
What's more, 25 years from now half of the world's conventional oil base will have been consumed. Drilling will have to shift to extremely deep waters and remote regions. That means still higher costs. Oil companies will need their profits of today to invest the trillions of dollars necessary for tomorrow's new technologies and infrastructures.
Indeed, after suffering in the 1990s a subpar return on equity below that of the S&P 500 — with little left over to invest — Big Oil invests all its profits and more.
Chevron, for instance, announced this month $14.8 billion in capital and exploratory spending for 2006, a 35% increase over 2005. Since 2002, Chevron has earned $31 billion, but invested $32 billion. So when we tax or regulate to death those big, bad oilmen, we're really only punishing our grandchildren — the energy consumers of the future.
ANWR is only a modest start toward reaching a level of energy self-sufficiency that will fulfill our longer-term economic and national security needs. The efforts needed to reach that goal will take many years of work, investment and political will.
But because of Senate Democrats, and a half-dozen of their posturing Republican friends, once again we can't even begin.
The Globalization Of Freedom
Posted 12/21/2005
Democracy: With the media diet of genocide, civil war and terrorist chaos, you might be surprised to learn the world is freer than ever — and that the trend isn't new.
Indeed, since Ronald Reagan entered office in 1980, the world has gone from being a place largely hostile to political, personal and economic freedom to one now overwhelmingly free or at least "partly" free.
Eighty-nine of the world's 192 nations are now considered "free," according to Freedom House's annual survey of world governments. That's way up from 76 a decade ago, and a mere 40 countries as recently as 1975. In addition, 122 nations now qualify as electoral democracies, up from 119 last year and 76 in 1990.
In fact, the world has more democracies today than at any time in history, despite a steady drumbeat of seemingly horrible news.
"The past year has been notable for terrorist violence, ethnic cleansing, civil conflict, catastrophic natural disasters and geopolitical polarization," noted Arch Puddington, director of research at Freedom House. "That freedom could thrive in this environment is impressive."
Reagan deserves a great deal of credit for setting the trend in motion. He stood up against communist expansionism and, through his steadfastness and moral clarity, was able to ultimately defeat the Soviet Union. That cut loose more than a dozen former Soviet satellites, most of which are free today.
Though he got little credit at the time, Reagan's victory — accomplished with no blood spilled and no shots fired between the two superpowers — was one of the greatest in history.
During Reagan's time and after, country after country and region after region chose freedom and markets over slavery and economic control. Today, 4.13 billion of the world's total population of 6.48 billion live in countries that could be called "free" or "partly free."
What's even more heartening about this is that the trend has extended to a number of countries that many people had thought were all but immune to freedom's sweep.
The peaceful and almost hitch-free parliamentary elections held last week in Iraq are but one example. We were reminded of them again this week, when Vice President Dick Cheney attended the opening of Afghanistan's elected national parliament in Kabul, the nation's first democratic legislative body in more than 2,000 years of history.
The Freedom House report also lauds recent elections in Iraq, Egypt and the Palestinian territories, along with improvements in political rights and civil liberties in Lebanon following the withdrawal of Syrian troops.
President Bush has consistently and repeatedly insisted that freedom's cause is the only truly moral cause of humankind. In this, he is much like Reagan.
That's a big reason the War on Terror is being fought on positive terms. It isn't enough just to kill or marginalize terrorists. We must also create conditions for a more peaceful world by giving those who live in violent countries a reason to refuse arms.
Little by little, the world is becoming a better, more democratic place. It started under Reagan. It's continuing under Bush.
Founding Partner To Leave Thomas H. Lee
Private-Equity Pioneer's Exit
To Launch Rival Investment Fund Comes as Industry Hits Crossroad
By HENNY SENDER
Staff Reporter of THE WALL STREET JOURNAL
December 21, 2005; Page C1
One of the world's largest buyout firms, Thomas H. Lee Partners, is being roiled by the departure of its founding partner, underscoring the pressures and conflicts at private-equity investment companies.
According to people familiar with the situation, 61-year-old Thomas Lee is expected to launch a rival, multibillion-dollar investment fund to compete directly with his old firm.
The move is happening at an important moment in the red-hot investment field that Mr. Lee helped to create. Private-equity investors essentially swoop in with piles of cash to purchase controlling stakes in companies in the hopes of quickly cashing out, often by taking them public. In recent years, they have racked up some of the biggest returns on Wall Street cashing in on the initial public offerings of companies ranging from Celanese Corp. to Warner Music Group.
As a result, they have been able to assemble ever-larger pools of money to invest, ranking them the most important clients of Wall Street and major issuers of debt. Some of the largest private-equity firms control companies that collectively generate revenue that rivals the largest U.S. conglomerates.
The private-equity boom also has had a few busts. In fact, Mr. Lee's final break with the firm comes a little over a year after the firm's $500 million investment in Refco, the commodities-trading company that went public this summer then collapsed several weeks later in a scandal involving allegations of fraud. Executives at Thomas H. Lee Partners defended their decision to invest in Refco and said securities regulations prohibit them from discussing fund matters while the company is in the process of raising new money from investors, as is currently the case. Thomas H. Lee Partners's half-billion-dollar investment in Refco is now being written down to zero in the wake of Refco's troubles.
Mr. Lee has been pulling back from day-to-day operations at the firm for several years. He is expected to announce details of his next steps in coming weeks, according to individuals familiar with his plans.
Mr. Lee is heading out on his own at a time when the now-familiar outsized investment returns may be harder to come by. That is partly due to rising interest rates and increasing competition from rival investors trying to follow the same playbook. In addition, firms are so flush right now with cash to invest that they may not always be able to do adequate research into some of their investments.
The events surrounding Mr. Lee's departure illustrate how volatile the high-stakes business can be. Although both sides deny it, the departure of Mr. Lee appears to be laced with acrimony. It comes at a time when the firm he is leaving is trying to launch its own new $8 billion to $10 billion investment fund. People who know Mr. Lee say he is expected to start his own rival fund that will compete directly with Lee Partners.
Mr. Lee also declined a lucrative severance arrangement that would have given him a share in the firm's profit in exchange for minimal promises, such as a commitment to refrain from launching a bigger fund, a person familiar with the matter said.
In an added wrinkle, Mr. Lee essentially won't be able to take his own name with him when he departs: The company he leaves behind will retain the name Thomas H. Lee Partners. That company will be run by three co-presidents who were named two years ago.
Transitions of power at private-equity firms can be tricky because much of a particular firm's reputation and mystique are tied up with the founders whose names are on the door. In mid-September, for instance, the private-equity giant Kohlberg Kravis Roberts & Co. lost two executives who were being groomed as heirs-apparent but split off to launch their own funds.
A few years ago, it seemed that the parting at Thomas H. Lee Partners would be far more amicable. In 1999, the firm sold 25% of itself for $500 million to Marsh & McLennan Cos.' Putnam Investments, which like Thomas H. Lee Partners is based in Boston. Mr. Lee, who began his eponymous firm in the mid-1970s, signed a noncompete agreement and pledged to stay on for five years, though he gradually removed himself from day-to-day operations and maintained his primary residence in New York City.
Two years ago, he ceded responsibility to the three co-presidents, Anthony DiNovi, Scott Schoen and Scott Sperling, paving the way for what seemed to be a smooth transition. Mr. Lee, however, kept the titles of chief executive and chairman.
The transfer came while the fund was in the middle of investing a $6.1 billion fund. While many other firms had raised similar amounts, they expanded their staff significantly. Thomas H. Lee Partners remained a small, tightly knit firm centered on 11 partners, backed by 20 investment professionals and a back office of about 30. By contrast, many of its peers have expanded their numbers far more aggressively. Texas Pacific Group, for example, has 200 in its core U.S. buyout group, and Blackstone Group employs about 120 people in its U.S. buyout group.
Mr. Sperling, one of the three co-presidents at Thomas H. Lee Partners, has defended his firm's staffing by saying it has more senior partners working on deals in North America than most firms and more continuity.
The firm's current, $6.1 billion fund, which started investing in 2001, has produced a strong track record including deals such as Warner Music Group, TransWestern Publishing and National Waterworks. People familiar with the performance of the fund say that each of these investments returned three to four times the investors' money so far.
(CAN I GET SICK RIGHT NOW?)
The company invested in Refco in the summer of 2004. After Refco's implosion this year, the co-presidents sent a letter to investors defending the Refco stake. The letter noted that the firm spent $10 million and 10 months looking at Refco before investing.
Even with the investment in Refco, the current fund has produced returns of 34% on an annualized basis according to letters to investors. That performance lags behind some of the fund's key competitors, though. For example, Blackstone has about 100% annualized returns in its current fund, while KKR's current fund has about 70%, according to people familiar with each. (ARE YOU KIDDING ME???)
Private-Equity Pioneer's Exit
To Launch Rival Investment Fund Comes as Industry Hits Crossroad
By HENNY SENDER
Staff Reporter of THE WALL STREET JOURNAL
December 21, 2005; Page C1
One of the world's largest buyout firms, Thomas H. Lee Partners, is being roiled by the departure of its founding partner, underscoring the pressures and conflicts at private-equity investment companies.
According to people familiar with the situation, 61-year-old Thomas Lee is expected to launch a rival, multibillion-dollar investment fund to compete directly with his old firm.
The move is happening at an important moment in the red-hot investment field that Mr. Lee helped to create. Private-equity investors essentially swoop in with piles of cash to purchase controlling stakes in companies in the hopes of quickly cashing out, often by taking them public. In recent years, they have racked up some of the biggest returns on Wall Street cashing in on the initial public offerings of companies ranging from Celanese Corp. to Warner Music Group.
As a result, they have been able to assemble ever-larger pools of money to invest, ranking them the most important clients of Wall Street and major issuers of debt. Some of the largest private-equity firms control companies that collectively generate revenue that rivals the largest U.S. conglomerates.
The private-equity boom also has had a few busts. In fact, Mr. Lee's final break with the firm comes a little over a year after the firm's $500 million investment in Refco, the commodities-trading company that went public this summer then collapsed several weeks later in a scandal involving allegations of fraud. Executives at Thomas H. Lee Partners defended their decision to invest in Refco and said securities regulations prohibit them from discussing fund matters while the company is in the process of raising new money from investors, as is currently the case. Thomas H. Lee Partners's half-billion-dollar investment in Refco is now being written down to zero in the wake of Refco's troubles.
Mr. Lee has been pulling back from day-to-day operations at the firm for several years. He is expected to announce details of his next steps in coming weeks, according to individuals familiar with his plans.
Mr. Lee is heading out on his own at a time when the now-familiar outsized investment returns may be harder to come by. That is partly due to rising interest rates and increasing competition from rival investors trying to follow the same playbook. In addition, firms are so flush right now with cash to invest that they may not always be able to do adequate research into some of their investments.
The events surrounding Mr. Lee's departure illustrate how volatile the high-stakes business can be. Although both sides deny it, the departure of Mr. Lee appears to be laced with acrimony. It comes at a time when the firm he is leaving is trying to launch its own new $8 billion to $10 billion investment fund. People who know Mr. Lee say he is expected to start his own rival fund that will compete directly with Lee Partners.
Mr. Lee also declined a lucrative severance arrangement that would have given him a share in the firm's profit in exchange for minimal promises, such as a commitment to refrain from launching a bigger fund, a person familiar with the matter said.
In an added wrinkle, Mr. Lee essentially won't be able to take his own name with him when he departs: The company he leaves behind will retain the name Thomas H. Lee Partners. That company will be run by three co-presidents who were named two years ago.
Transitions of power at private-equity firms can be tricky because much of a particular firm's reputation and mystique are tied up with the founders whose names are on the door. In mid-September, for instance, the private-equity giant Kohlberg Kravis Roberts & Co. lost two executives who were being groomed as heirs-apparent but split off to launch their own funds.
A few years ago, it seemed that the parting at Thomas H. Lee Partners would be far more amicable. In 1999, the firm sold 25% of itself for $500 million to Marsh & McLennan Cos.' Putnam Investments, which like Thomas H. Lee Partners is based in Boston. Mr. Lee, who began his eponymous firm in the mid-1970s, signed a noncompete agreement and pledged to stay on for five years, though he gradually removed himself from day-to-day operations and maintained his primary residence in New York City.
Two years ago, he ceded responsibility to the three co-presidents, Anthony DiNovi, Scott Schoen and Scott Sperling, paving the way for what seemed to be a smooth transition. Mr. Lee, however, kept the titles of chief executive and chairman.
The transfer came while the fund was in the middle of investing a $6.1 billion fund. While many other firms had raised similar amounts, they expanded their staff significantly. Thomas H. Lee Partners remained a small, tightly knit firm centered on 11 partners, backed by 20 investment professionals and a back office of about 30. By contrast, many of its peers have expanded their numbers far more aggressively. Texas Pacific Group, for example, has 200 in its core U.S. buyout group, and Blackstone Group employs about 120 people in its U.S. buyout group.
Mr. Sperling, one of the three co-presidents at Thomas H. Lee Partners, has defended his firm's staffing by saying it has more senior partners working on deals in North America than most firms and more continuity.
The firm's current, $6.1 billion fund, which started investing in 2001, has produced a strong track record including deals such as Warner Music Group, TransWestern Publishing and National Waterworks. People familiar with the performance of the fund say that each of these investments returned three to four times the investors' money so far.
(CAN I GET SICK RIGHT NOW?)
The company invested in Refco in the summer of 2004. After Refco's implosion this year, the co-presidents sent a letter to investors defending the Refco stake. The letter noted that the firm spent $10 million and 10 months looking at Refco before investing.
Even with the investment in Refco, the current fund has produced returns of 34% on an annualized basis according to letters to investors. That performance lags behind some of the fund's key competitors, though. For example, Blackstone has about 100% annualized returns in its current fund, while KKR's current fund has about 70%, according to people familiar with each. (ARE YOU KIDDING ME???)
Iraq's Election Result
Thursday, December 22, 2005; A28
IT DIDN'T TAKE long for Iraq's inspiring election day last week to give way to renewed violence, bitter charges of fraud and threats of even bloodier sectarian conflict in the months ahead. Before turning to those sobering developments, however, it's worth taking note of what happened last Thursday: Nearly 10.9 million Iraqis turned out to vote around the country, up from 9 million in January's election and 9.8 million in the October constitutional referendum. The turnout rate, about 70 percent, was considerably higher than that in any modern American election; it was easily the most democratic poll in the history of the Arab Middle East. Iraqis, if not all of their leaders, have unmistakably chosen to try democracy as a means of constructing a new political order.
The results, however, may make it more difficult to build that order than the Bush administration hoped. The Shiite religious coalition that dominates the present government appears to have obtained a slightly lower percentage of the vote than in January, because of much greater Sunni participation. But it will still have by far the largest block of seats in the new parliament, and perhaps a narrow majority. Kurdish and Sunni parties appear to have won just under 20 percent of the vote each, in keeping with their share of the population. That means Sunni seats in the legislature will more than double compared with the present transitional body.
The big losers were secular and nonsectarian parties, such as that led by former interim prime minister Ayad Allawi. Iraqis "preferred to vote for their ethnic and sectarian identity," as U.S. Ambassador Zalmay Khalilzad put it. The problem with this result, Mr. Khalilzad candidly added, is that "for Iraq to succeed there has to be cross-sectarian and cross-ethnic cooperation."
The opening round of what is likely to be a prolonged post-election power struggle among Sunnis, Shiites and Kurds was discouraging. Sunni leaders and Mr. Allawi charged that they had been robbed of votes, in Baghdad and elsewhere, by Shiite-orchestrated fraud. Though election officials conceded some irregularities, the Sunni complaint appeared driven less by facts than by the arrogant sense of entitlement that continues to infect that community. Unwilling to accept a share of power equal to their proportion of the population, Sunni leaders now threaten another boycott of the political system and an escalation of their war against the government and U.S. forces.
Shiite religious leaders, bolstered by their strong showing, may not be obliged to heed even reasonable Sunni demands in order to name a president and prime minister. The leading Shiite party, the Supreme Council for the Islamic Revolution in Iraq, remains determined to establish a nine-province Shiite ministate in southern Iraq; its leader has hinted at escalating a dirty war against the Sunni resistance spearheaded by the party's own death squads. Kurdish leaders appear willing to collaborate in Iraq's de facto partition so they can establish their own ministate in the north.
Some Shiite leaders, including the Supreme Council's likely candidate for prime minister, Adel Abdul Mahdi, appear open to building a broad government coalition including Sunnis, in the hope of defusing the insurgency. Yet the election results mean that such an accord, requiring deep political concessions by all ethnic and sectarian groups, will be possible only through forceful and skilled U.S. intervention. (FIRST YOU BITCH THAT THE US IS TOO INVOLVED, NOW THERE IS AN ELECTION AND RESULTS, AND THE US SHOULD GET MORE INVOLVED? BE CONSISTENT FOR ONE MONTH, JUST TO SEE WHAT IT IS LIKE. SUNNIS WANT US OUT, FINE, WE'RE GONE. HAVE FUN DEALING WITH THE SHIA, KURDS AND IRANIAN PROXIES WITHOUT ANY REVENUE OF ECONOMY. SHOULD BE OVER IN 2 YEARS FOR YOU.) Mr. Khalilzad seems to understand what must be done: He has spoken out in recent days not only about the need for compromise but also for steps to neutralize the ethnic militias now pushing toward civil war. The next few months are likely to determine whether Iraq tips into that war or toward a national compromise based on democracy. Though it cannot necessarily determine the path Iraqis will take, the Bush administration must use all the leverage it can muster in favor of those who chose democracy.
Thursday, December 22, 2005; A28
IT DIDN'T TAKE long for Iraq's inspiring election day last week to give way to renewed violence, bitter charges of fraud and threats of even bloodier sectarian conflict in the months ahead. Before turning to those sobering developments, however, it's worth taking note of what happened last Thursday: Nearly 10.9 million Iraqis turned out to vote around the country, up from 9 million in January's election and 9.8 million in the October constitutional referendum. The turnout rate, about 70 percent, was considerably higher than that in any modern American election; it was easily the most democratic poll in the history of the Arab Middle East. Iraqis, if not all of their leaders, have unmistakably chosen to try democracy as a means of constructing a new political order.
The results, however, may make it more difficult to build that order than the Bush administration hoped. The Shiite religious coalition that dominates the present government appears to have obtained a slightly lower percentage of the vote than in January, because of much greater Sunni participation. But it will still have by far the largest block of seats in the new parliament, and perhaps a narrow majority. Kurdish and Sunni parties appear to have won just under 20 percent of the vote each, in keeping with their share of the population. That means Sunni seats in the legislature will more than double compared with the present transitional body.
The big losers were secular and nonsectarian parties, such as that led by former interim prime minister Ayad Allawi. Iraqis "preferred to vote for their ethnic and sectarian identity," as U.S. Ambassador Zalmay Khalilzad put it. The problem with this result, Mr. Khalilzad candidly added, is that "for Iraq to succeed there has to be cross-sectarian and cross-ethnic cooperation."
The opening round of what is likely to be a prolonged post-election power struggle among Sunnis, Shiites and Kurds was discouraging. Sunni leaders and Mr. Allawi charged that they had been robbed of votes, in Baghdad and elsewhere, by Shiite-orchestrated fraud. Though election officials conceded some irregularities, the Sunni complaint appeared driven less by facts than by the arrogant sense of entitlement that continues to infect that community. Unwilling to accept a share of power equal to their proportion of the population, Sunni leaders now threaten another boycott of the political system and an escalation of their war against the government and U.S. forces.
Shiite religious leaders, bolstered by their strong showing, may not be obliged to heed even reasonable Sunni demands in order to name a president and prime minister. The leading Shiite party, the Supreme Council for the Islamic Revolution in Iraq, remains determined to establish a nine-province Shiite ministate in southern Iraq; its leader has hinted at escalating a dirty war against the Sunni resistance spearheaded by the party's own death squads. Kurdish leaders appear willing to collaborate in Iraq's de facto partition so they can establish their own ministate in the north.
Some Shiite leaders, including the Supreme Council's likely candidate for prime minister, Adel Abdul Mahdi, appear open to building a broad government coalition including Sunnis, in the hope of defusing the insurgency. Yet the election results mean that such an accord, requiring deep political concessions by all ethnic and sectarian groups, will be possible only through forceful and skilled U.S. intervention. (FIRST YOU BITCH THAT THE US IS TOO INVOLVED, NOW THERE IS AN ELECTION AND RESULTS, AND THE US SHOULD GET MORE INVOLVED? BE CONSISTENT FOR ONE MONTH, JUST TO SEE WHAT IT IS LIKE. SUNNIS WANT US OUT, FINE, WE'RE GONE. HAVE FUN DEALING WITH THE SHIA, KURDS AND IRANIAN PROXIES WITHOUT ANY REVENUE OF ECONOMY. SHOULD BE OVER IN 2 YEARS FOR YOU.) Mr. Khalilzad seems to understand what must be done: He has spoken out in recent days not only about the need for compromise but also for steps to neutralize the ethnic militias now pushing toward civil war. The next few months are likely to determine whether Iraq tips into that war or toward a national compromise based on democracy. Though it cannot necessarily determine the path Iraqis will take, the Bush administration must use all the leverage it can muster in favor of those who chose democracy.
Terrorism, Mideast Key Issues in '06, Annan Says
Reuters
Thursday, December 22, 2005; A21
UNITED NATIONS, Dec. 21 -- Terrorism and Middle East conflicts will be major global issues in 2006, Secretary General Kofi Annan said at a year-end news conference Wednesday. He also lashed out at the media for their coverage of the oil-for-food program. (KOFI THE CORRUPT, WHERE IS YOUR SON? COLLECTING ON MORE UN CONTRACTS? YOU ARE BEYOND DISGUSTING, YOU CORRUPT TALKING HEAD)
Annan said he faces getting tough management reform proposals through the General Assembly and trying to solve the conflict in Sudan's Darfur region and the Democratic Republic of the Congo. (TOO LATE KOFI. JUST LIKE RWANDA, EVERYONE IS DEAD IN SUDAN. WHAT IS THERE TO DO NOW.)
But he said he expects terrorism, weapons of mass destruction and the Middle East -- the slayings in Lebanon, the Israel-Palestinian conflict and the war in Iraq -- to be "a major issue for us."
Annan castigated what he called unfair media coverage of his role and that of his son, Kojo, in the United Nations' now-defunct oil-for-food program in Iraq.
He scolded James Bone of the Times of London for telling him, "Your own version of events don't really make sense."
Annan responded: "I think you're being very cheeky. Listen, James Bone -- you've been behaving like an overgrown schoolboy in this room for many, many months and years. You are an embarrassment to your colleagues and to your profession. Please stop misbehaving and please let's move on to a serious subject." (THE UN CORRUPTION OF BILLIONS OF DOLLARS IS NOT A SERIOUS SUBJECT? JUST LEAVE NOW KOFI YOU WORTHLESS HUNK OF S***. HOW MANY MORE CHILD RAPES ARE THE UN SODLIERS GOING TO COMMIT IN AFRICA BEFORE YOU DO ANYTHING?)
Annan said not enough weight was given to bribes and oil smuggling outside of the $64 billion program, recently documented by a U.N.-established inquiry, headed by former Federal Reserve chairman Paul A. Volcker.
"We all have to be careful, whatever responsibilities we have, not to be fed by people with agendas," Annan said. (YEAH, KOFI, YOU'RE AGENDA FREE.)
Asked again if he bought a Mercedes tax-free for his son with his diplomatic discount, Annan said: "I know you are all obsessed about the car. If you want to know more about it, please address yourself to my son or his lawyer." (YES OR NO KOFI. SOUNDS LIKE A YES BECAUSE THERE WAS NO DENIAL. I AGREE KOFI, LET'S MOVE ON TO A SERIOUS SUBJECT, LIKE PEOPLE DISOBEYING 17 RESOLUTIONS AND NOTHING BEING DONE BY YOUR CORRUPT-O WORKERS.)
"I am neither his spokesman or his lawyer," he said. "The report of Paul Volcker is clear. I am not going to rehash it."
Reuters
Thursday, December 22, 2005; A21
UNITED NATIONS, Dec. 21 -- Terrorism and Middle East conflicts will be major global issues in 2006, Secretary General Kofi Annan said at a year-end news conference Wednesday. He also lashed out at the media for their coverage of the oil-for-food program. (KOFI THE CORRUPT, WHERE IS YOUR SON? COLLECTING ON MORE UN CONTRACTS? YOU ARE BEYOND DISGUSTING, YOU CORRUPT TALKING HEAD)
Annan said he faces getting tough management reform proposals through the General Assembly and trying to solve the conflict in Sudan's Darfur region and the Democratic Republic of the Congo. (TOO LATE KOFI. JUST LIKE RWANDA, EVERYONE IS DEAD IN SUDAN. WHAT IS THERE TO DO NOW.)
But he said he expects terrorism, weapons of mass destruction and the Middle East -- the slayings in Lebanon, the Israel-Palestinian conflict and the war in Iraq -- to be "a major issue for us."
Annan castigated what he called unfair media coverage of his role and that of his son, Kojo, in the United Nations' now-defunct oil-for-food program in Iraq.
He scolded James Bone of the Times of London for telling him, "Your own version of events don't really make sense."
Annan responded: "I think you're being very cheeky. Listen, James Bone -- you've been behaving like an overgrown schoolboy in this room for many, many months and years. You are an embarrassment to your colleagues and to your profession. Please stop misbehaving and please let's move on to a serious subject." (THE UN CORRUPTION OF BILLIONS OF DOLLARS IS NOT A SERIOUS SUBJECT? JUST LEAVE NOW KOFI YOU WORTHLESS HUNK OF S***. HOW MANY MORE CHILD RAPES ARE THE UN SODLIERS GOING TO COMMIT IN AFRICA BEFORE YOU DO ANYTHING?)
Annan said not enough weight was given to bribes and oil smuggling outside of the $64 billion program, recently documented by a U.N.-established inquiry, headed by former Federal Reserve chairman Paul A. Volcker.
"We all have to be careful, whatever responsibilities we have, not to be fed by people with agendas," Annan said. (YEAH, KOFI, YOU'RE AGENDA FREE.)
Asked again if he bought a Mercedes tax-free for his son with his diplomatic discount, Annan said: "I know you are all obsessed about the car. If you want to know more about it, please address yourself to my son or his lawyer." (YES OR NO KOFI. SOUNDS LIKE A YES BECAUSE THERE WAS NO DENIAL. I AGREE KOFI, LET'S MOVE ON TO A SERIOUS SUBJECT, LIKE PEOPLE DISOBEYING 17 RESOLUTIONS AND NOTHING BEING DONE BY YOUR CORRUPT-O WORKERS.)
"I am neither his spokesman or his lawyer," he said. "The report of Paul Volcker is clear. I am not going to rehash it."
Court Bars Transfer of Padilla To Face New Terrorism Charges
By Jerry Markon
Washington Post Staff Writer
Thursday, December 22, 2005; A01
A federal appeals court yesterday refused to authorize the transfer of "enemy combatant" Jose Padilla to face new criminal charges, issuing a strongly worded opinion rebuking the Bush administration and its handling of the high-profile terrorism case.
The same court that had granted the administration wide latitude in holding Padilla without charges or a court appearance now is suggesting that the detention was a mistake. As a result, the U.S. Court of Appeals for the 4th Circuit said prosecutors could not take custody of Padilla from the military and take him to Miami, where he now faces indictment on terrorism charges.
In issuing its denial, the court cited the government's changing rationale for Padilla's detention, questioning why it used one set of arguments before federal judges deciding whether it was legal for the military to hold Padilla and another set before the Miami grand jury.
Padilla, a U.S. citizen who was arrested in Chicago in 2002, initially was accused of plotting to detonate a radiological "dirty bomb," declared an enemy combatant and held for more than three years in Defense Department custody. But in the criminal charges brought last month, the government does not mention the alleged bomb plot or any attack in the United States. (BECAUSE AL CAPONE WAS CAUGHT FOR TAX EVASION, DOES THAT MEAN HE WAS NOT A MOBSTER?)
The government's actions have left "the impression that Padilla may have been held for these years, even if justifiably, by mistake," the court wrote. That impression, the judges said, may hurt the government's "credibility before the courts."
Padilla, a former gang member, has been at the center of a heated battle over governmental powers that arose after the Sept. 11, 2001, terrorist attacks because he was imprisoned so long without the opportunity to challenge his detention.
Justice Department officials now must decide whether to defy the court and take Padilla before a federal judge in Miami. Tasia Scolinos, a department spokeswoman, said the government is "disappointed that the court has denied the unopposed motion to transfer Jose Padilla to the criminal justice system to face the terrorism charges currently pending against him." She said department lawyers are reviewing the order and "will continue to consider all options with respect to pursuing the criminal charges as expeditiously as possible."
In requesting the transfer to Justice Department custody, the government suggested that the 4th Circuit vacate its ruling allowing Padilla to be held as an enemy combatant. But the 4th Circuit yesterday also refused to lift the earlier decision and suggested that the Justice Department request was made to avoid further judicial scrutiny.
The judges said prosecutors had left "an appearance that the government may be attempting to avoid consideration of our decision by the Supreme Court." They said they welcomed Supreme Court intervention because of the "enormous implications" of the Padilla case.
Some lawyers said high court involvement might be inevitable because it would be difficult for the administration to defy an appellate court and transfer Padilla at a time when it faces criticism over a secret domestic spying program and other parts of its counterterrorism efforts. (BECAUSE IT RAINED IN BOSTON, YOU CANNOT EAT SOUP IN CHICAGO . . .)
"They've been kind of beat up lately about the way they've conducted the war on terrorism," said Eric H. Holder Jr., who was deputy attorney general in the Clinton administration. "It's a difficult thing for them now to take another hit from the 4th Circuit, and then do something contrary to what that court says."
Although the Justice Department asked the 4th Circuit for permission to take custody of Padilla, the department maintained that it does not need that permission. Even the 4th Circuit acknowledged yesterday that the issue is "unclear."
Jonathan Freiman, a lawyer for Padilla, said only that the 4th Circuit opinion "speaks loudly for itself."
Legal experts said the decision showed that a previously friendly appellate court was now casting a more skeptical eye toward the Bush administration's terrorism arguments. The Richmond-based 4th Circuit has been the administration's venue of choice for several high-profile terrorism cases. It is widely considered the nation's most conservative appellate court, and the same three-judge panel that issued yesterday's ruling had earlier strongly backed the president's authority to detain Padilla without trial. Both decisions were written by Judge J. Michael Luttig, who was a leading contender to be nominated to the Supreme Court earlier this year.
"Obviously, the court feels very stung by being presented with what it thought to be a serious and heartfelt argument by the administration [to hold Padilla originally], only to learn it would turn on a dime," said Michael Greenberger, director of the Center for Health and Homeland Security at the University of Maryland.
Padilla was arrested at O'Hare International Airport in May 2002 and declared an enemy combatant by President Bush a month later. Padilla has been held in a U.S. naval brig since.
Attorneys for Padilla, joined by a host of civil liberties organizations, blasted the detention as illegal, but the 4th Circuit panel ruled in September that Bush had the authority to detain Padilla and that such power is essential to preventing terrorist strikes.
Last month, Padilla was indicted in Miami on federal charges of being part of a violent terrorism conspiracy rooted in North America but directed at sending money and recruits overseas to "murder, kidnap and maim." The indictment did not mention the dirty bomb or any plot to attack inside the U.S. (SO WHAT?)
By Jerry Markon
Washington Post Staff Writer
Thursday, December 22, 2005; A01
A federal appeals court yesterday refused to authorize the transfer of "enemy combatant" Jose Padilla to face new criminal charges, issuing a strongly worded opinion rebuking the Bush administration and its handling of the high-profile terrorism case.
The same court that had granted the administration wide latitude in holding Padilla without charges or a court appearance now is suggesting that the detention was a mistake. As a result, the U.S. Court of Appeals for the 4th Circuit said prosecutors could not take custody of Padilla from the military and take him to Miami, where he now faces indictment on terrorism charges.
In issuing its denial, the court cited the government's changing rationale for Padilla's detention, questioning why it used one set of arguments before federal judges deciding whether it was legal for the military to hold Padilla and another set before the Miami grand jury.
Padilla, a U.S. citizen who was arrested in Chicago in 2002, initially was accused of plotting to detonate a radiological "dirty bomb," declared an enemy combatant and held for more than three years in Defense Department custody. But in the criminal charges brought last month, the government does not mention the alleged bomb plot or any attack in the United States. (BECAUSE AL CAPONE WAS CAUGHT FOR TAX EVASION, DOES THAT MEAN HE WAS NOT A MOBSTER?)
The government's actions have left "the impression that Padilla may have been held for these years, even if justifiably, by mistake," the court wrote. That impression, the judges said, may hurt the government's "credibility before the courts."
Padilla, a former gang member, has been at the center of a heated battle over governmental powers that arose after the Sept. 11, 2001, terrorist attacks because he was imprisoned so long without the opportunity to challenge his detention.
Justice Department officials now must decide whether to defy the court and take Padilla before a federal judge in Miami. Tasia Scolinos, a department spokeswoman, said the government is "disappointed that the court has denied the unopposed motion to transfer Jose Padilla to the criminal justice system to face the terrorism charges currently pending against him." She said department lawyers are reviewing the order and "will continue to consider all options with respect to pursuing the criminal charges as expeditiously as possible."
In requesting the transfer to Justice Department custody, the government suggested that the 4th Circuit vacate its ruling allowing Padilla to be held as an enemy combatant. But the 4th Circuit yesterday also refused to lift the earlier decision and suggested that the Justice Department request was made to avoid further judicial scrutiny.
The judges said prosecutors had left "an appearance that the government may be attempting to avoid consideration of our decision by the Supreme Court." They said they welcomed Supreme Court intervention because of the "enormous implications" of the Padilla case.
Some lawyers said high court involvement might be inevitable because it would be difficult for the administration to defy an appellate court and transfer Padilla at a time when it faces criticism over a secret domestic spying program and other parts of its counterterrorism efforts. (BECAUSE IT RAINED IN BOSTON, YOU CANNOT EAT SOUP IN CHICAGO . . .)
"They've been kind of beat up lately about the way they've conducted the war on terrorism," said Eric H. Holder Jr., who was deputy attorney general in the Clinton administration. "It's a difficult thing for them now to take another hit from the 4th Circuit, and then do something contrary to what that court says."
Although the Justice Department asked the 4th Circuit for permission to take custody of Padilla, the department maintained that it does not need that permission. Even the 4th Circuit acknowledged yesterday that the issue is "unclear."
Jonathan Freiman, a lawyer for Padilla, said only that the 4th Circuit opinion "speaks loudly for itself."
Legal experts said the decision showed that a previously friendly appellate court was now casting a more skeptical eye toward the Bush administration's terrorism arguments. The Richmond-based 4th Circuit has been the administration's venue of choice for several high-profile terrorism cases. It is widely considered the nation's most conservative appellate court, and the same three-judge panel that issued yesterday's ruling had earlier strongly backed the president's authority to detain Padilla without trial. Both decisions were written by Judge J. Michael Luttig, who was a leading contender to be nominated to the Supreme Court earlier this year.
"Obviously, the court feels very stung by being presented with what it thought to be a serious and heartfelt argument by the administration [to hold Padilla originally], only to learn it would turn on a dime," said Michael Greenberger, director of the Center for Health and Homeland Security at the University of Maryland.
Padilla was arrested at O'Hare International Airport in May 2002 and declared an enemy combatant by President Bush a month later. Padilla has been held in a U.S. naval brig since.
Attorneys for Padilla, joined by a host of civil liberties organizations, blasted the detention as illegal, but the 4th Circuit panel ruled in September that Bush had the authority to detain Padilla and that such power is essential to preventing terrorist strikes.
Last month, Padilla was indicted in Miami on federal charges of being part of a violent terrorism conspiracy rooted in North America but directed at sending money and recruits overseas to "murder, kidnap and maim." The indictment did not mention the dirty bomb or any plot to attack inside the U.S. (SO WHAT?)
New Life for Patriot Act Is No Bush Win
The Senate's six-month extension effectively kills a deal to make key provisions permanent.
By Richard B. Schmitt and Mary Curtius
Times Staff Writers
December 22, 2005
WASHINGTON — In a major setback for the White House on a top domestic priority, the Senate on Wednesday passed a six-month extension of the Patriot Act, due to expire Dec. 31, even though President Bush had demanded that most of the law become permanent.
The move effectively killed a House-Senate compromise that would have made permanent 14 of the 16 provisions of the statute, which gives law enforcement officials sweeping power to track and prosecute suspected terrorists. The House adopted the compromise last week.
But senators from both parties balked, saying the compromise legislation failed to include enough safeguards of civil liberties and privacy. They began filibustering the measure Friday and sustained the filibuster through the end of a tumultuous session Wednesday night, withstanding blistering public attacks by Bush, Atty. Gen. Alberto R. Gonzales and Senate Majority Leader Bill Frist (R-Tenn.), who said that allowing the provisions to expire would put the American people at risk.
Ultimately, the Senate agreed to the six-month extension without opposition.
"We had a pretty broad coalition and it held together," said Sen. John Sununu of New Hampshire, one of four Republicans who joined 43 Democrats on Friday to launch the filibuster.
The Senate Democratic minority seemed delighted by the rare and hard-fought victory over a president who since the attacks of Sept. 11, 2001, has built his presidency around the pursuit of terrorists. (WHO WAS THE VICTORY FOR AND OVER?)
"The White House … couldn't break the filibuster, couldn't break the bipartisan group," said Sen. Russell D. Feingold (D-Wis.), who led the fight against the House-Senate compromise legislation. (ALL DEMS AND 4 REPS= BIPARTISAN. JUST MAKE SURE HIS DEFITION HOLDS, THAT'S ALL)
"It was only the president, the White House and Atty. Gen. Gonzales who wanted to play that game of chicken — and they lost that game," Feingold said. The administration had made it clear, he added, that "it was their way or the highway, but they did not prevail."
Frist, who said Tuesday that he would not agree to a temporary extension, said Wednesday night that he had changed his mind when faced by what he described as a decision by Democrats "to kill the Patriot Act." He said he decided that he wasn't "going to let the Patriot Act die."
In a written statement late Wednesday, Bush said that he appreciated the Senate's work "to keep the existing Patriot Act in law" but that "the work of Congress on the Patriot Act is not finished."
"The act will expire next summer, but the terrorist threat to America will not expire on that schedule," Bush said.
If the House convenes today and agrees to the extension, as expected, and if Bush signs it, as expected, House and Senate negotiators will have six months to come up with a proposal.
"This is the way legislation used to be done when I first came here," said Sen. Patrick J. Leahy of Vermont, the ranking Democrat on the Judiciary Committee, who worked with the committee's chairman, Sen. Arlen Specter (R-Pa.), to negotiate the temporary extension. "There were many good things in this conference report, but not enough. Now we have six months to get it right."
Sen. Charles E. Schumer (D-N.Y.), another Judiciary Committee member, said the turning point came Wednesday morning when a bipartisan majority of senators — 52 — signed a letter urging Frist to support a three-month extension of the expiring measures. The letter touched off intense negotiations and high-level lobbying as the White House sought to persuade Republican senators to support the compromise legislation.
The administration found stiff resistance among the senators, some of whom resented the haste with which the Patriot Act was pushed through Congress by the Republican leadership within weeks of the Sept. 11 attacks.
"We should just extend it and if the White House objects, let them veto it," Sen. Trent Lott (R-Miss.) told reporters Wednesday afternoon. Lott did not sign the letter but indicated that he had little patience with the Senate leadership's insistence that it would never agree to a temporary extension. (THANKS TRENT, HOWIS THAT LEADERSHIP POSITION TREATING YOU? STILL LOVE STROM?)
"You always say what you're not gonna do till you lose, and then you do it," Lott said. "Nobody will remember tomorrow that we said we weren't going to extend it."
Earlier Wednesday, Bush accused senators of engaging in an "inexcusable" obstruction of a law he said the nation could not afford to be without. "The expiration of this law will endanger America and will leave us in a weaker position in the fight against brutal killers," he told reporters in Washington.
But the senators who said the House-Senate compromise did not offer enough safeguards of civil liberties insisted that there was an alternative.
"We have a bipartisan majority of the Senate that says the choice is not one particular version or no Patriot Act, but rather to continue the present Patriot Act," Schumer said Wednesday afternoon.
The Patriot Act was meant to tear down the wall between law enforcement and intelligence agencies that some said hampered detection of the Sept. 11 plot and to give law enforcement new tools to find and prosecute terrorists in the United States. But it has made civil libertarians uneasy because it gives the federal government great leeway to wiretap and search the homes, offices and business records of U.S. citizens with limited judicial review. (WAIT, I THOUGHT THERE WAS NO JUDICIAL REVIEW? KEEP MOVING THE GOAL POSTS!!!)
The Bush administration says the law is a vital tool in its anti-terrorism arsenal and has pushed to make all its provisions — some of which were written to expire at the end of this year — permanent. After the House and the Senate passed different reauthorization proposals, negotiators came up with the compromise that they said struck a balance between the Senate's measure, which required more judicial review, and the House version, which required less. The White House supported the compromise.
But on Friday, hours before the Senate was to consider the compromise, the New York Times reported that in the aftermath of the Sept. 11 attacks, Bush had authorized wiretapping hundreds, perhaps thousands, of Americans without seeking warrants from a secret court that deals with terrorism-related cases. Several senators said the revelation spurred them to vote against the compromise. (NY TIMES LOVES EVERYONE BUT AMERICANS. CONNECT THE DOTS WITHOUT TOOLS TO DO SO, THEN WHEN THE STRIKE OCCURS BLAME THE PRESIDENT FOR NOT 'DOING MORE')
Bush has acknowledged authorizing the wiretaps and has said he has the authority to do so under the Constitution and a 2001 congressional resolution approving the use of force against Al Qaeda and the Taliban, the former regime in Afghanistan.
On the surface, the differences between the HouseSenate compromise and what dissident senators want do not seem huge.
For instance, the Senate version of the so-called library provision, which grants the government broad powers to obtain business records in terrorism investigations, would prevent government fishing expeditions by giving some discretion to a neutral judge to decide whether the requests for records are reasonable.
Opponents of the Senate version, including the Bush administration, said such changes would unnecessarily and dangerously tie the hands of law enforcement. The House version includes somewhat less judicial oversight.
Some outside experts said they were perplexed by the increasingly vituperative debate over changes they considered subtle.
"It is nonsensical," said Michael Greenberger, a former Justice Department official who now heads the Center for Health and Homeland Security at the University of Maryland. "I think they are playing chicken with this thing."
After the agreement on the six-month extension was announced, Sen. Dianne Feinstein (D-Calif.) said she was disappointed that the decision to extend the Patriot Act resulted in a delay in passage of a measure she sponsored to combat methamphetamine production. (ARE YOU REALLY THAT CRAZY DIANNE? SOUNDS LIKE A CALIFORNIA PROBLEM TO ME.)
Her proposal, which was included in the compromise legislation, would have restricted the sale of products containing ingredients used in the manufacture of methamphetamine.
"I am very disappointed combating the scourge of methamphetamine was not included in the compromise on the Patriot Act," she said. (I'M DISAPPOINTED YOU GET RE-ELECTED, BUT WHAT CAN YOU DO?)
"This is a critical bill that has strong support in the Senate. The problem is that it got caught up in very difficult maneuvers at the end of the session. I will continue the fight to get this important legislation passed and am pleased that the Senate leadership has agreed to a vote in January or early February." (WHY IS THIS EVEN IN THE ARTICLE? OH, THIS IS THE LA TIMES. . .)
The Senate's six-month extension effectively kills a deal to make key provisions permanent.
By Richard B. Schmitt and Mary Curtius
Times Staff Writers
December 22, 2005
WASHINGTON — In a major setback for the White House on a top domestic priority, the Senate on Wednesday passed a six-month extension of the Patriot Act, due to expire Dec. 31, even though President Bush had demanded that most of the law become permanent.
The move effectively killed a House-Senate compromise that would have made permanent 14 of the 16 provisions of the statute, which gives law enforcement officials sweeping power to track and prosecute suspected terrorists. The House adopted the compromise last week.
But senators from both parties balked, saying the compromise legislation failed to include enough safeguards of civil liberties and privacy. They began filibustering the measure Friday and sustained the filibuster through the end of a tumultuous session Wednesday night, withstanding blistering public attacks by Bush, Atty. Gen. Alberto R. Gonzales and Senate Majority Leader Bill Frist (R-Tenn.), who said that allowing the provisions to expire would put the American people at risk.
Ultimately, the Senate agreed to the six-month extension without opposition.
"We had a pretty broad coalition and it held together," said Sen. John Sununu of New Hampshire, one of four Republicans who joined 43 Democrats on Friday to launch the filibuster.
The Senate Democratic minority seemed delighted by the rare and hard-fought victory over a president who since the attacks of Sept. 11, 2001, has built his presidency around the pursuit of terrorists. (WHO WAS THE VICTORY FOR AND OVER?)
"The White House … couldn't break the filibuster, couldn't break the bipartisan group," said Sen. Russell D. Feingold (D-Wis.), who led the fight against the House-Senate compromise legislation. (ALL DEMS AND 4 REPS= BIPARTISAN. JUST MAKE SURE HIS DEFITION HOLDS, THAT'S ALL)
"It was only the president, the White House and Atty. Gen. Gonzales who wanted to play that game of chicken — and they lost that game," Feingold said. The administration had made it clear, he added, that "it was their way or the highway, but they did not prevail."
Frist, who said Tuesday that he would not agree to a temporary extension, said Wednesday night that he had changed his mind when faced by what he described as a decision by Democrats "to kill the Patriot Act." He said he decided that he wasn't "going to let the Patriot Act die."
In a written statement late Wednesday, Bush said that he appreciated the Senate's work "to keep the existing Patriot Act in law" but that "the work of Congress on the Patriot Act is not finished."
"The act will expire next summer, but the terrorist threat to America will not expire on that schedule," Bush said.
If the House convenes today and agrees to the extension, as expected, and if Bush signs it, as expected, House and Senate negotiators will have six months to come up with a proposal.
"This is the way legislation used to be done when I first came here," said Sen. Patrick J. Leahy of Vermont, the ranking Democrat on the Judiciary Committee, who worked with the committee's chairman, Sen. Arlen Specter (R-Pa.), to negotiate the temporary extension. "There were many good things in this conference report, but not enough. Now we have six months to get it right."
Sen. Charles E. Schumer (D-N.Y.), another Judiciary Committee member, said the turning point came Wednesday morning when a bipartisan majority of senators — 52 — signed a letter urging Frist to support a three-month extension of the expiring measures. The letter touched off intense negotiations and high-level lobbying as the White House sought to persuade Republican senators to support the compromise legislation.
The administration found stiff resistance among the senators, some of whom resented the haste with which the Patriot Act was pushed through Congress by the Republican leadership within weeks of the Sept. 11 attacks.
"We should just extend it and if the White House objects, let them veto it," Sen. Trent Lott (R-Miss.) told reporters Wednesday afternoon. Lott did not sign the letter but indicated that he had little patience with the Senate leadership's insistence that it would never agree to a temporary extension. (THANKS TRENT, HOWIS THAT LEADERSHIP POSITION TREATING YOU? STILL LOVE STROM?)
"You always say what you're not gonna do till you lose, and then you do it," Lott said. "Nobody will remember tomorrow that we said we weren't going to extend it."
Earlier Wednesday, Bush accused senators of engaging in an "inexcusable" obstruction of a law he said the nation could not afford to be without. "The expiration of this law will endanger America and will leave us in a weaker position in the fight against brutal killers," he told reporters in Washington.
But the senators who said the House-Senate compromise did not offer enough safeguards of civil liberties insisted that there was an alternative.
"We have a bipartisan majority of the Senate that says the choice is not one particular version or no Patriot Act, but rather to continue the present Patriot Act," Schumer said Wednesday afternoon.
The Patriot Act was meant to tear down the wall between law enforcement and intelligence agencies that some said hampered detection of the Sept. 11 plot and to give law enforcement new tools to find and prosecute terrorists in the United States. But it has made civil libertarians uneasy because it gives the federal government great leeway to wiretap and search the homes, offices and business records of U.S. citizens with limited judicial review. (WAIT, I THOUGHT THERE WAS NO JUDICIAL REVIEW? KEEP MOVING THE GOAL POSTS!!!)
The Bush administration says the law is a vital tool in its anti-terrorism arsenal and has pushed to make all its provisions — some of which were written to expire at the end of this year — permanent. After the House and the Senate passed different reauthorization proposals, negotiators came up with the compromise that they said struck a balance between the Senate's measure, which required more judicial review, and the House version, which required less. The White House supported the compromise.
But on Friday, hours before the Senate was to consider the compromise, the New York Times reported that in the aftermath of the Sept. 11 attacks, Bush had authorized wiretapping hundreds, perhaps thousands, of Americans without seeking warrants from a secret court that deals with terrorism-related cases. Several senators said the revelation spurred them to vote against the compromise. (NY TIMES LOVES EVERYONE BUT AMERICANS. CONNECT THE DOTS WITHOUT TOOLS TO DO SO, THEN WHEN THE STRIKE OCCURS BLAME THE PRESIDENT FOR NOT 'DOING MORE')
Bush has acknowledged authorizing the wiretaps and has said he has the authority to do so under the Constitution and a 2001 congressional resolution approving the use of force against Al Qaeda and the Taliban, the former regime in Afghanistan.
On the surface, the differences between the HouseSenate compromise and what dissident senators want do not seem huge.
For instance, the Senate version of the so-called library provision, which grants the government broad powers to obtain business records in terrorism investigations, would prevent government fishing expeditions by giving some discretion to a neutral judge to decide whether the requests for records are reasonable.
Opponents of the Senate version, including the Bush administration, said such changes would unnecessarily and dangerously tie the hands of law enforcement. The House version includes somewhat less judicial oversight.
Some outside experts said they were perplexed by the increasingly vituperative debate over changes they considered subtle.
"It is nonsensical," said Michael Greenberger, a former Justice Department official who now heads the Center for Health and Homeland Security at the University of Maryland. "I think they are playing chicken with this thing."
After the agreement on the six-month extension was announced, Sen. Dianne Feinstein (D-Calif.) said she was disappointed that the decision to extend the Patriot Act resulted in a delay in passage of a measure she sponsored to combat methamphetamine production. (ARE YOU REALLY THAT CRAZY DIANNE? SOUNDS LIKE A CALIFORNIA PROBLEM TO ME.)
Her proposal, which was included in the compromise legislation, would have restricted the sale of products containing ingredients used in the manufacture of methamphetamine.
"I am very disappointed combating the scourge of methamphetamine was not included in the compromise on the Patriot Act," she said. (I'M DISAPPOINTED YOU GET RE-ELECTED, BUT WHAT CAN YOU DO?)
"This is a critical bill that has strong support in the Senate. The problem is that it got caught up in very difficult maneuvers at the end of the session. I will continue the fight to get this important legislation passed and am pleased that the Senate leadership has agreed to a vote in January or early February." (WHY IS THIS EVEN IN THE ARTICLE? OH, THIS IS THE LA TIMES. . .)
Firebrand? He's nuts and he's after nukes
Jonah Goldberg
December 22, 2005
AMONG THE PROUD recipients of Time magazine's fluffy end-of-year "People Who Mattered" feature, is Iranian President Mahmoud Ahmadinejad. Here's how it begins: "He is an unlikely firebrand: the soft-spoken son of a blacksmith who still sometimes drives a 30-year-old Peugeot. But Iran's new President doesn't shrink from controversy. After winning a disputed election, he said…. " Now, before I finish that sentence, let's at least note that so far Time is using the same tone it might use to talk about John McCain, Joe Wilson, George Clooney or some other "soft-spoken" "unlikely firebrand" beloved by the media.
So, does Ahmadinejad have a wacky blog? Did he admit on "Larry King Live" that he voted for Ralph Nader in 2000? What makes him such a charming rogue?
Let's pick up that sentence where we left off and see: "After winning a disputed election," Time reports, "he said he would continue Iran's nuclear program, called the Holocaust a 'myth' and pledged to destroy Israel. Even some of the nation's ruling clerics are nervous about what he will do next." So even some of Iran's terrorism-supporting theocratic dictators are "nervous" about this guy.
What, one wonders, would it take for the editors to get really rough? Perhaps if Ahmadinejad offered a deeply negative review of "Brokeback Mountain"?
Time describes Pope Benedict XVI as perhaps "too polarizing a conservative." But for Ahmadinejad, who declared that a member nation of the U.N. should be "wiped off the map" and that the touchstone moral horror of modernity was nothing but a "myth" … well, let's make sure to bring up that he drives an old Peugeot. That's a crucial fact. If only we could find out what kind of tree he would be if he could be a tree. Maybe next year.
I know what you're thinking, but this isn't a jab at liberal media bias — though we can have that argument if you like. Rather, this points to something deeper: the resurgence of American isolationism.
Few issues are more shrouded in myth and misunderstanding than isolationism. Even as the "come home, America" chorus grows louder on the left, we're still told that isolationism is a right-wing phenomenon. This myth starts with the Republican Party's rejection of the Treaty of Versailles, which didn't really have much to do with isolationism. The Republican Party — the party of Teddy Roosevelt, after all — was full of interventionists and hawks. And the Democratic Party had plenty of isolationists and doves.
In the 1930s, isolationism was respectable across the ideological spectrum. Norman Thomas — the president of the American Socialist Party — was an isolationist. Oswald Garrison Villard (former editor of the Nation), Charles Beard, John Dewey, Bernard Baruch and countless other liberal luminaries were isolationists of varying intensity.
John F. Kennedy sent the isolationist America First Committee $100 while he was at Harvard with the note, "what you are doing is vital." But that was the same JFK who wrote "Why England Slept" — his senior thesis-cum-bestseller on why Britain was unready for war. Kennedy's explanation: The British people were unwilling to face reality. The same was true of the United States in the 1930s. The memory of the horror and stupidity of World War I was fresh enough in Americans' minds — as was the ongoing Depression — that the idea of going to war or even engaging in world affairs just seemed unthinkable. So, we didn't think about it. We used language that made things seem OK.
But the problem, as Kennedy learned, is that evil men and dangerous forces don't take a timeout until we're ready to pay attention. And that's where Iran comes in. Seriously challenging Iran just strikes a lot of people as too much to fit on the American plate right now, so we prefer to call Ahmadinejad an "unlikely firebrand" instead of a murderous fanatic.
But whatever we call him, it won't change the fact that Iran is pursuing nuclear weapons and that Ahmadinejad is a particularly kooky religious fanatic (possibly a member of the Hojjatieh, which seeks to foment global chaos in order to hasten the arrival of the messianic 12th imam).
In response to Ahmadinejad's comments, the world has responded with only slightly more outrage than it would if he'd called for trade barriers on pistachios. It's time to wake up.
Jonah Goldberg
December 22, 2005
AMONG THE PROUD recipients of Time magazine's fluffy end-of-year "People Who Mattered" feature, is Iranian President Mahmoud Ahmadinejad. Here's how it begins: "He is an unlikely firebrand: the soft-spoken son of a blacksmith who still sometimes drives a 30-year-old Peugeot. But Iran's new President doesn't shrink from controversy. After winning a disputed election, he said…. " Now, before I finish that sentence, let's at least note that so far Time is using the same tone it might use to talk about John McCain, Joe Wilson, George Clooney or some other "soft-spoken" "unlikely firebrand" beloved by the media.
So, does Ahmadinejad have a wacky blog? Did he admit on "Larry King Live" that he voted for Ralph Nader in 2000? What makes him such a charming rogue?
Let's pick up that sentence where we left off and see: "After winning a disputed election," Time reports, "he said he would continue Iran's nuclear program, called the Holocaust a 'myth' and pledged to destroy Israel. Even some of the nation's ruling clerics are nervous about what he will do next." So even some of Iran's terrorism-supporting theocratic dictators are "nervous" about this guy.
What, one wonders, would it take for the editors to get really rough? Perhaps if Ahmadinejad offered a deeply negative review of "Brokeback Mountain"?
Time describes Pope Benedict XVI as perhaps "too polarizing a conservative." But for Ahmadinejad, who declared that a member nation of the U.N. should be "wiped off the map" and that the touchstone moral horror of modernity was nothing but a "myth" … well, let's make sure to bring up that he drives an old Peugeot. That's a crucial fact. If only we could find out what kind of tree he would be if he could be a tree. Maybe next year.
I know what you're thinking, but this isn't a jab at liberal media bias — though we can have that argument if you like. Rather, this points to something deeper: the resurgence of American isolationism.
Few issues are more shrouded in myth and misunderstanding than isolationism. Even as the "come home, America" chorus grows louder on the left, we're still told that isolationism is a right-wing phenomenon. This myth starts with the Republican Party's rejection of the Treaty of Versailles, which didn't really have much to do with isolationism. The Republican Party — the party of Teddy Roosevelt, after all — was full of interventionists and hawks. And the Democratic Party had plenty of isolationists and doves.
In the 1930s, isolationism was respectable across the ideological spectrum. Norman Thomas — the president of the American Socialist Party — was an isolationist. Oswald Garrison Villard (former editor of the Nation), Charles Beard, John Dewey, Bernard Baruch and countless other liberal luminaries were isolationists of varying intensity.
John F. Kennedy sent the isolationist America First Committee $100 while he was at Harvard with the note, "what you are doing is vital." But that was the same JFK who wrote "Why England Slept" — his senior thesis-cum-bestseller on why Britain was unready for war. Kennedy's explanation: The British people were unwilling to face reality. The same was true of the United States in the 1930s. The memory of the horror and stupidity of World War I was fresh enough in Americans' minds — as was the ongoing Depression — that the idea of going to war or even engaging in world affairs just seemed unthinkable. So, we didn't think about it. We used language that made things seem OK.
But the problem, as Kennedy learned, is that evil men and dangerous forces don't take a timeout until we're ready to pay attention. And that's where Iran comes in. Seriously challenging Iran just strikes a lot of people as too much to fit on the American plate right now, so we prefer to call Ahmadinejad an "unlikely firebrand" instead of a murderous fanatic.
But whatever we call him, it won't change the fact that Iran is pursuing nuclear weapons and that Ahmadinejad is a particularly kooky religious fanatic (possibly a member of the Hojjatieh, which seeks to foment global chaos in order to hasten the arrival of the messianic 12th imam).
In response to Ahmadinejad's comments, the world has responded with only slightly more outrage than it would if he'd called for trade barriers on pistachios. It's time to wake up.
Arrests reveal Zarqawi network in Europe
By Anton La Guardia, Diplomatic Editor
(Filed: 22/12/2005)
A wave of arrests across Europe has thrown new light on a European terrorist network being developed by Abu Musab al-Zarqawi, the most prominent insurgent in Iraq.
A growing number of terrorism investigations in Britain, Germany, Bosnia, Denmark and most recently Spain and France are linked to the man who has masterminded countless suicide bombings in Iraq, personally beheaded hostages and bombed three hotels in his native Jordan.
Some of the suspected networks appear to be involved only in supporting his operations in Iraq. But counter-terrorism officials are worried that Zarqawi could be planning to use his base in Iraq to start attacking Europe.
Security officials are particularly worried by indications that he wants to recruit white extremists who will be more difficult to detect than Arabs or Asians.
"Zarqawi thinks he is bigger than Iraq," a British source said. "He is spreading his tentacles in Europe. There is a sense that attacks are inevitable.
"Even before the invasion of Iraq, Zarqawi had a network in Europe that provided funds and recruits. The same pipeline will sooner or later pump the other way, from Iraq to Europe."
Although Zarqawi is formally al-Qa'eda's representative in Iraq, he has eclipsed its founder, Osama bin Laden, who has not been seen or heard from for a year.
Donald Rumsfeld, the American defence secretary, suggested yesterday that bin Laden no longer fully controlled his network.
"I suspect, if he is alive and functioning, that he is spending a major fraction of his time trying to avoid being caught," Mr Rumsfeld said.
"I have trouble believing he is able to operate sufficiently to be in a position of major command over a worldwide al-Qa'eda operation. But I could be wrong."
American counter-terrorism officials believe that Zarqawi can now count on allies in 40 countries.
Last month Germany's leading intelligence official, August Henning, said that extremists in Europe increasingly admired Zarqawi and were trying to make contact with his network.
"We are seeing increasing noises in Europe and that causes us great concern," he said.
It emerged this month that a white Belgian woman, Muriel Degauque, had been recruited by groups linked to Zarqawi and blew herself up in an attack on an American convoy in Iraq. Last month Bosnian authorities arrested a Swedish national of Bosnian origin, Mirsad Bektasevic, and a Turkish man, Cesur Abdulkadir, in a Sarajevo flat where they allegedly found bomb-making materials, a suicide vest, weapons and extremist propaganda.
Bektasevic was allegedly an internet recruiter for Zarqawi, and the two men were rumoured to be planning to attack the British embassy in Sarajevo.
The men have not yet been charged but their detention has led to arrests in Britain and Denmark.
In Dusseldorf in October three Jordanians and an Algerian were jailed for up to eight years for a Zarqawi-inspired plot in 2002 to attack Jewish targets in Germany. Judge Ottmar Breidling said: "Abu Musab al-Zarqawi should also have been in the dock."
In France last week Nicolas Sarkozy, the interior minister, said that a sweep of 25 alleged Islamic militants and common criminals had broken up a terrorist network with links to Algerian and Chechen organisations and "indirect relations with al-Zarqawi".
This week Spanish police arrested 15 people in raids across the country. Those detained are suspected of recruiting fighters for Iraq.
By Anton La Guardia, Diplomatic Editor
(Filed: 22/12/2005)
A wave of arrests across Europe has thrown new light on a European terrorist network being developed by Abu Musab al-Zarqawi, the most prominent insurgent in Iraq.
A growing number of terrorism investigations in Britain, Germany, Bosnia, Denmark and most recently Spain and France are linked to the man who has masterminded countless suicide bombings in Iraq, personally beheaded hostages and bombed three hotels in his native Jordan.
Some of the suspected networks appear to be involved only in supporting his operations in Iraq. But counter-terrorism officials are worried that Zarqawi could be planning to use his base in Iraq to start attacking Europe.
Security officials are particularly worried by indications that he wants to recruit white extremists who will be more difficult to detect than Arabs or Asians.
"Zarqawi thinks he is bigger than Iraq," a British source said. "He is spreading his tentacles in Europe. There is a sense that attacks are inevitable.
"Even before the invasion of Iraq, Zarqawi had a network in Europe that provided funds and recruits. The same pipeline will sooner or later pump the other way, from Iraq to Europe."
Although Zarqawi is formally al-Qa'eda's representative in Iraq, he has eclipsed its founder, Osama bin Laden, who has not been seen or heard from for a year.
Donald Rumsfeld, the American defence secretary, suggested yesterday that bin Laden no longer fully controlled his network.
"I suspect, if he is alive and functioning, that he is spending a major fraction of his time trying to avoid being caught," Mr Rumsfeld said.
"I have trouble believing he is able to operate sufficiently to be in a position of major command over a worldwide al-Qa'eda operation. But I could be wrong."
American counter-terrorism officials believe that Zarqawi can now count on allies in 40 countries.
Last month Germany's leading intelligence official, August Henning, said that extremists in Europe increasingly admired Zarqawi and were trying to make contact with his network.
"We are seeing increasing noises in Europe and that causes us great concern," he said.
It emerged this month that a white Belgian woman, Muriel Degauque, had been recruited by groups linked to Zarqawi and blew herself up in an attack on an American convoy in Iraq. Last month Bosnian authorities arrested a Swedish national of Bosnian origin, Mirsad Bektasevic, and a Turkish man, Cesur Abdulkadir, in a Sarajevo flat where they allegedly found bomb-making materials, a suicide vest, weapons and extremist propaganda.
Bektasevic was allegedly an internet recruiter for Zarqawi, and the two men were rumoured to be planning to attack the British embassy in Sarajevo.
The men have not yet been charged but their detention has led to arrests in Britain and Denmark.
In Dusseldorf in October three Jordanians and an Algerian were jailed for up to eight years for a Zarqawi-inspired plot in 2002 to attack Jewish targets in Germany. Judge Ottmar Breidling said: "Abu Musab al-Zarqawi should also have been in the dock."
In France last week Nicolas Sarkozy, the interior minister, said that a sweep of 25 alleged Islamic militants and common criminals had broken up a terrorist network with links to Algerian and Chechen organisations and "indirect relations with al-Zarqawi".
This week Spanish police arrested 15 people in raids across the country. Those detained are suspected of recruiting fighters for Iraq.
'Why are we still living like this if people gave so much money?'
By Philip Sherwell and Marianne Kearney
(Filed: 18/12/2005)
With the ease of a man who has spent his life in the small wooden longboats that ploughed the waters off the island of Sumatra, Mahyudin Jamil runs a trawl line through his hands as he fishes for mackerel and tuna. It is only when he is out at sea that he finds peace.
Yet it was this same sea that he had watched helplessly as it tore apart his life last Boxing Day. Then, he had clung to the sides of his stricken boat while the Asian tsunami destroyed his village, killing his wife and five of his seven children. Despite the horrors of that day, the 45-year-old Indonesian fisherman says: "I feel at home when I am on the water. This is what I've always done and sometimes it seems like nothing's changed. But as soon as I'm back on land, I know that everything has changed."
As he crouches on his haunches in the tent in the squalid refugee camp that has been his home for the last year, Mr Jamil explains that his trust in the ocean has not been destroyed despite the calamity. "What happened then was God's will. We have to accept that," he says calmly.
Mr Jamil originally recounted his story to the Sunday Telegraph a few days after the tsunami, as he searched through the ruins of Monikeun, a fishing village near the main city of Banda Aceh, the epicentre of the disaster. After being tossed around by the towering waves, it had taken him several hours to struggle ashore in his crippled skiff. When he finally did, he found his home flattened. His eldest sons, Badrul, 21, and Romi, 19, were alive because they were visiting relatives away from the coast that morning. He hoped that some miracle might have saved the rest of his family, but he soon realised that the crushing surge of water had killed his wife, Nurbaiti Sulaiman, his two other sons and his three daughters, including two-year-old Roja, the youngest girl on whom he doted. He lost 14 members of his immediate family and dozens of relatives.
In his tent, Mr Jamil has put together a small shrine to his lost family from the few bits of detritus that he salvaged from the ruins of his home. Propped up against a saucer beneath a small plastic tree is a photograph of his wife with three of their children and her sister holding a baby. All are dead. There is another photo of his wife, a small ornament of a mythical creature, a couple of toys and some toiletries. That is all that physically remains of Mr Jamil's old life.
"It's all I could find, but at least there are some memories there and I feel I am paying my respects in some way," he says. "For a week, I looked everywhere for them. I knew they must be dead, but I just wanted to give them a proper burial. But once the army dug the mass graves and the clean-up operation started, I realised it was hopeless. I will always regret that I couldn't bury my wife and my children."
The tsunami, set off by a 9.15-magnitude earthquake beneath the ocean off Sumatra, claimed an estimated 300,000 lives across Asia - about 200,000 in the province of Aceh alone. But, a year on, Mr Jamil is amazed to learn that foreign governments, aid agencies, the United Nations and individual well-wishers pledged billions in aid. "Why are we still living like this if people gave so much money?" he asks. "My sons are in the wooden barracks they have built. It's pretty basic, but they're the lucky ones. So many of us are still here in tents - it's no life."
Oxfam reported last week that, from India to Indonesia, only 20 per cent of the 1.8 million people left homeless on December 26 will have been permanently rehoused by next week's first anniversary. Mr Jamil is living near his former home in a canvas tent that was supplied by the UN last January as part of its emergency response operation. Some 50 other tents are dotted beneath the palm trees, several with families packed into a living space that measures about 9ft by 6ft. The aid agencies have installed toilets and a functioning waste extraction system, but otherwise little has changed since the emergency shelters were put up in the weeks after the catastrophe.
Despite the cramped quarters, Mr Jamil needs one thing even more than a permanent home: a new boat so that he can make his living from the sea again. Yet although billions of pounds have been donated for tsunami relief, he has received no help to buy a boat. To his frustration, thousands of newly-built skiffs - traditional 20ft-long wooden craft with distinctive high scooped bows that carve through the heavy waters - are sitting in the island's boatyards.
Yet, like so many others, Mr Jamil cannot afford to buy one. Relief agencies quickly identified the need to replace Sumatra's devastated fleet after the tsunami and poured funds into interest-free loans for boatbuilders. But there have been problems introducing a similar system of support for the fishermen because of the difficulty in establishing identities and proving whether locals really had lost boats in the disaster.
A new boat would cost Mr Jamil about £700 and he would have to pay a similar sum to kit it out with an outboard motor and fishing equipment. It is money that he does not have so, for now, he must rent a place on another fisherman's boat and hand over the best half of the catch when they return. Even this, he can afford to do only intermittently. "I have no choice," says Mr Jamil. "I want to get on with my life, and my life is the sea. But how can I afford to buy a new boat after I lost everything? I don't want to be a burden, but I just wish that somebody could help us with this.
"I used to have a boat with an outboard engine that meant that I could go further out to fish for yellowfin tuna. They get the best price. Now I have to pay my way on a boat with an inboard engine and we mainly catch mackerel and little reef fish."
When he does set out to sea, Mr Jamil describes how the view of the land from the ocean has been changed forever. The beaches that once gave the coast a picture-postcard beauty have disappeared under water that never fully receded. The new shoreline is an ugly mess of smashed coral, rotting vegetation and the jagged foundations of homes swept away by the waves. Where Mr Jamil's old house stood, the land has turned to sludge and mud. But a choking mesh of crawlers and vines dotted with sweet-smelling lilac flowers has spread across the scarred terrain, giving it a disconcertingly bucolic appearance.
In the mixed scorecard that Oxfam issued last week on the year-long relief effort, the charity noted that, on Sumatra, land that once housed at least 120,000 people has been submerged permanently. There are, however, some signs of rebirth among a scene that had resembled Hiroshima after America dropped the atomic bomb. In Lamjabat, one of the most devastated districts of Banda Aceh, the defiantly-named Rise Up Again cafe is humming by early morning. Young men with mud-splattered trousers and T-shirts wrapped around their heads saunter in and order coffee, a withered woman in a fraying sarong drops off sweets and peanut crackers, and older men pull out their cigarettes.
The cafe has become a social hub for tent dwellers, barracks residents and a small army of builders. "We are open 24 hours. We don't have a door so we can't close," says the owner, Romi, who knows all about rising up again.
In the days after the tsunami, he narrowly cheated death. After being swept two miles inland, he spent five days trapped under rubble, watching those around him die. When he was found, it took eight men to remove the collapsed concrete that he was buried under.
Two days before the anniversary of the tsunami - which took not just his home, but his wife and their two-year-old daughter - he will remarry. This new start, he believes, is also a hopeful omen for Aceh. Next month, Romi and his new wife, with 40 other Lamjabat villagers, hope to move into new brick and concrete houses built by the charity World Vision. For now, he is one of more than 60,000 Acehnese still living in tents. Nearly 250,000 are living with friends and relatives, another 75,000 are in temporary barracks.
In some places along Aceh's beautiful, rugged west coast, new villages are rising from tsunami rubble, flooded rice fields and radically changed coastlines. In Lhokseudu, most of the villagers have returned and have moved into new timber and concrete houses built on land nestling into the hills. Asliati, 29, has opened the village's first petrol outlet beside a snacks and drinks stall, using money that she earned cleaning up the village under an Oxfam cash-for-work scheme. But, elsewhere, the lack of reconstruction is causing anger and frustration. On the front walls of a tumbling white mosque in Teugoh Blangmee, which has yet to be rebuilt, someone has scrawled: "One year after the tsunami, Indonesia still cries."
The Oxfam report details several obstacles to the reconstruction process, including the Indonesian government's initial insistence that certain areas should remain building-free "exclusion zones" in a region where it has faced a 30-year armed insurgency. The scale of destruction and lack of material along Sumatra's remote coast was also a daunting hurdle. Along 500 miles of coast, all the major ports and roads were destroyed, as were the water and sanitation systems, and more than 1,000 towns and villages.
Despite the terrible destruction that it wrought on his homeland and his life, Mr Jamil's love for the sea is clear as soon as he sets foot on the wooden deck of the boat he rents. He has aged markedly in the last year, but now his face lightens and the furrowed brow eases. When he is back in his tent, he has only his memories, the shrine and his recurring dreams of fighting for his life against the killer waves. They are not, he insists, nightmares.
Echoing his words of nearly a year ago, he says: "How could I be frightened of the sea? It's my life and always will be."
By Philip Sherwell and Marianne Kearney
(Filed: 18/12/2005)
With the ease of a man who has spent his life in the small wooden longboats that ploughed the waters off the island of Sumatra, Mahyudin Jamil runs a trawl line through his hands as he fishes for mackerel and tuna. It is only when he is out at sea that he finds peace.
Yet it was this same sea that he had watched helplessly as it tore apart his life last Boxing Day. Then, he had clung to the sides of his stricken boat while the Asian tsunami destroyed his village, killing his wife and five of his seven children. Despite the horrors of that day, the 45-year-old Indonesian fisherman says: "I feel at home when I am on the water. This is what I've always done and sometimes it seems like nothing's changed. But as soon as I'm back on land, I know that everything has changed."
As he crouches on his haunches in the tent in the squalid refugee camp that has been his home for the last year, Mr Jamil explains that his trust in the ocean has not been destroyed despite the calamity. "What happened then was God's will. We have to accept that," he says calmly.
Mr Jamil originally recounted his story to the Sunday Telegraph a few days after the tsunami, as he searched through the ruins of Monikeun, a fishing village near the main city of Banda Aceh, the epicentre of the disaster. After being tossed around by the towering waves, it had taken him several hours to struggle ashore in his crippled skiff. When he finally did, he found his home flattened. His eldest sons, Badrul, 21, and Romi, 19, were alive because they were visiting relatives away from the coast that morning. He hoped that some miracle might have saved the rest of his family, but he soon realised that the crushing surge of water had killed his wife, Nurbaiti Sulaiman, his two other sons and his three daughters, including two-year-old Roja, the youngest girl on whom he doted. He lost 14 members of his immediate family and dozens of relatives.
In his tent, Mr Jamil has put together a small shrine to his lost family from the few bits of detritus that he salvaged from the ruins of his home. Propped up against a saucer beneath a small plastic tree is a photograph of his wife with three of their children and her sister holding a baby. All are dead. There is another photo of his wife, a small ornament of a mythical creature, a couple of toys and some toiletries. That is all that physically remains of Mr Jamil's old life.
"It's all I could find, but at least there are some memories there and I feel I am paying my respects in some way," he says. "For a week, I looked everywhere for them. I knew they must be dead, but I just wanted to give them a proper burial. But once the army dug the mass graves and the clean-up operation started, I realised it was hopeless. I will always regret that I couldn't bury my wife and my children."
The tsunami, set off by a 9.15-magnitude earthquake beneath the ocean off Sumatra, claimed an estimated 300,000 lives across Asia - about 200,000 in the province of Aceh alone. But, a year on, Mr Jamil is amazed to learn that foreign governments, aid agencies, the United Nations and individual well-wishers pledged billions in aid. "Why are we still living like this if people gave so much money?" he asks. "My sons are in the wooden barracks they have built. It's pretty basic, but they're the lucky ones. So many of us are still here in tents - it's no life."
Oxfam reported last week that, from India to Indonesia, only 20 per cent of the 1.8 million people left homeless on December 26 will have been permanently rehoused by next week's first anniversary. Mr Jamil is living near his former home in a canvas tent that was supplied by the UN last January as part of its emergency response operation. Some 50 other tents are dotted beneath the palm trees, several with families packed into a living space that measures about 9ft by 6ft. The aid agencies have installed toilets and a functioning waste extraction system, but otherwise little has changed since the emergency shelters were put up in the weeks after the catastrophe.
Despite the cramped quarters, Mr Jamil needs one thing even more than a permanent home: a new boat so that he can make his living from the sea again. Yet although billions of pounds have been donated for tsunami relief, he has received no help to buy a boat. To his frustration, thousands of newly-built skiffs - traditional 20ft-long wooden craft with distinctive high scooped bows that carve through the heavy waters - are sitting in the island's boatyards.
Yet, like so many others, Mr Jamil cannot afford to buy one. Relief agencies quickly identified the need to replace Sumatra's devastated fleet after the tsunami and poured funds into interest-free loans for boatbuilders. But there have been problems introducing a similar system of support for the fishermen because of the difficulty in establishing identities and proving whether locals really had lost boats in the disaster.
A new boat would cost Mr Jamil about £700 and he would have to pay a similar sum to kit it out with an outboard motor and fishing equipment. It is money that he does not have so, for now, he must rent a place on another fisherman's boat and hand over the best half of the catch when they return. Even this, he can afford to do only intermittently. "I have no choice," says Mr Jamil. "I want to get on with my life, and my life is the sea. But how can I afford to buy a new boat after I lost everything? I don't want to be a burden, but I just wish that somebody could help us with this.
"I used to have a boat with an outboard engine that meant that I could go further out to fish for yellowfin tuna. They get the best price. Now I have to pay my way on a boat with an inboard engine and we mainly catch mackerel and little reef fish."
When he does set out to sea, Mr Jamil describes how the view of the land from the ocean has been changed forever. The beaches that once gave the coast a picture-postcard beauty have disappeared under water that never fully receded. The new shoreline is an ugly mess of smashed coral, rotting vegetation and the jagged foundations of homes swept away by the waves. Where Mr Jamil's old house stood, the land has turned to sludge and mud. But a choking mesh of crawlers and vines dotted with sweet-smelling lilac flowers has spread across the scarred terrain, giving it a disconcertingly bucolic appearance.
In the mixed scorecard that Oxfam issued last week on the year-long relief effort, the charity noted that, on Sumatra, land that once housed at least 120,000 people has been submerged permanently. There are, however, some signs of rebirth among a scene that had resembled Hiroshima after America dropped the atomic bomb. In Lamjabat, one of the most devastated districts of Banda Aceh, the defiantly-named Rise Up Again cafe is humming by early morning. Young men with mud-splattered trousers and T-shirts wrapped around their heads saunter in and order coffee, a withered woman in a fraying sarong drops off sweets and peanut crackers, and older men pull out their cigarettes.
The cafe has become a social hub for tent dwellers, barracks residents and a small army of builders. "We are open 24 hours. We don't have a door so we can't close," says the owner, Romi, who knows all about rising up again.
In the days after the tsunami, he narrowly cheated death. After being swept two miles inland, he spent five days trapped under rubble, watching those around him die. When he was found, it took eight men to remove the collapsed concrete that he was buried under.
Two days before the anniversary of the tsunami - which took not just his home, but his wife and their two-year-old daughter - he will remarry. This new start, he believes, is also a hopeful omen for Aceh. Next month, Romi and his new wife, with 40 other Lamjabat villagers, hope to move into new brick and concrete houses built by the charity World Vision. For now, he is one of more than 60,000 Acehnese still living in tents. Nearly 250,000 are living with friends and relatives, another 75,000 are in temporary barracks.
In some places along Aceh's beautiful, rugged west coast, new villages are rising from tsunami rubble, flooded rice fields and radically changed coastlines. In Lhokseudu, most of the villagers have returned and have moved into new timber and concrete houses built on land nestling into the hills. Asliati, 29, has opened the village's first petrol outlet beside a snacks and drinks stall, using money that she earned cleaning up the village under an Oxfam cash-for-work scheme. But, elsewhere, the lack of reconstruction is causing anger and frustration. On the front walls of a tumbling white mosque in Teugoh Blangmee, which has yet to be rebuilt, someone has scrawled: "One year after the tsunami, Indonesia still cries."
The Oxfam report details several obstacles to the reconstruction process, including the Indonesian government's initial insistence that certain areas should remain building-free "exclusion zones" in a region where it has faced a 30-year armed insurgency. The scale of destruction and lack of material along Sumatra's remote coast was also a daunting hurdle. Along 500 miles of coast, all the major ports and roads were destroyed, as were the water and sanitation systems, and more than 1,000 towns and villages.
Despite the terrible destruction that it wrought on his homeland and his life, Mr Jamil's love for the sea is clear as soon as he sets foot on the wooden deck of the boat he rents. He has aged markedly in the last year, but now his face lightens and the furrowed brow eases. When he is back in his tent, he has only his memories, the shrine and his recurring dreams of fighting for his life against the killer waves. They are not, he insists, nightmares.
Echoing his words of nearly a year ago, he says: "How could I be frightened of the sea? It's my life and always will be."
How good intentions failed tsunami victims (IS ANYONE SURPRISED? UN=MEGA-CORRUPTION ETC)
(Filed: 22/12/2005)
The shortcomings of the post-tsunami aid effort are easy to identify but much more difficult to rectify. Peter Foster reports on the lessons learned.
On a beach in a fishing village on the south Indian coast lies a telling reminder of what happens when aid efforts go wrong.
Ten bright red fishing boats that were intended to rebuild livelihoods wrecked by the tsunami lie idle and unused, all declared unseaworthy by the fishermen they were intended to help.
"They were given from what we call the 'give and go' type of NGO [non-governmental organisation]," says Jesuratinam, the head of a local charity from the nearby town of Nagapattinam. "They mean well but leave a trail of problems behind them."
In this case, the unnamed charity was swindled by an unscrupulous boat-builder.
"The boats were supposed to have five skins of glass-fibre but these have only two," Jesuratinam says. "The charity had no experience in the maritime industry and so could not tell the difference. The boats were not fit to put to sea."
The tsunami-hit shores of the Indian Ocean are littered with examples of good intentions that have proved not to be good enough, from hastily built permanent houses that have no drains, to faulty water tanks, temporary shelters with leaking roofs and fishing boats with engines but no propellers.
The shortcomings are many and easy to identify - any visitor to the tsunami areas of Indonesia and Sri Lanka can see how much still needs to be achieved - but much more difficult to rectify.
In the chaos that always follows a natural disaster, governments, United Nations agencies, international charities and well-meaning individuals all compete with each other, often to the detriment of the overall aid effort.
The Red Cross said in a report this year that in the aftermath of the tsunami, when pledges of money from charities, development banks and governments outstripped need by £2.5 billion, the surplus was the problem.
"At the root of co-ordination problems [in Banda Aceh, Indonesia] was one key factor: too much money," the report said. "Nearly everyone could hire a helicopter or boat."
The result was chaos as aid agencies frequently became embroiled in turf wars that, some are now prepared to admit, harmed the overall aid effort. (WONDERFUL WORK GUYS. YOU ARE SUPPOSED TO BE THE MORALLY SUPERIOR GROUPS? HA HA HA)
Government bureaucracy, corruption and inefficiency also play their part in choking the flow of aid - and not just in developing countries, as America discovered after the flooding of New Orleans.
The sudden influx of cash can also unbalance local economies and create cartels charging "UN prices" - four times the usual rates - for building work and materials, a common problem in Sri Lanka and Indonesia. Speed, but not too much of it, is also vital. In Sri Lanka, for example, only about five per cent of permanent housing has been completed, a level of performance for which the government and big charities have been heavily criticised.
(5%? AFTER A YEAR? OH BOY, CAN I MAKE A PLEDGE???)
The International Federation of the Red Cross, which is involved in the rebuilding of up to 40,000 houses in Sri Lanka, says that the mountain of money gave people unrealistic expectations.
"After a point, it does not matter how much money there is," Patrick Fuller, of the federation, said. "Things take time. Land has to be acquired, legal title determined, planning permission granted and power, water and roads have to be installed.
"I always ask people, 'How long would it take to build a house in Europe or America?' The same difficulties and formalities exist in tsunami areas. The pace of tsunami rebuilding compares favourably with other disasters."
That said, everyone from the UN down recognises that the current arrangements for dealing with disaster are haphazard and unwieldy, as was seen again in what Kofi Annan, the UN secretary-general, called the "weak and tardy" response to the Pakistan earthquake. (NICE WORK THERE KOFI, BUT THE ONLY REGRET IS THE IRAQ WAR)
The "big idea" aimed at improving aid delivery is the creation of a £280 million central emergency fund that the UN hopes will end the hand-to-mouth nature of disaster appeals. (UN IN CHARGE OF A HALF BILLION DOLLARS? NO PROBLEM THERE. SEE OIL FOR FOOD/BLOOD/SADDAM)
While the tsunami victims wallowed in cash, the reality is that last year eight UN "flash appeals" received less than 20 per cent of the money asked for. The consequences were seen in the Niger famine.
The new fund, which is being negotiated at the UN and is due to become operational in February, has been supported by Britain, which became the largest single donor to the fund with a pledge of £40 million a year.
"When a crisis comes, it is to the United Nations that we look," said Hilary Benn, the International Development Secretary.
"The United Nations presses the fire alarm but to get the engine out of the station it has to pass round the hat to put petrol in the tank and water in the hoses."
Not everyone is as convinced as Mr Benn, however. Pledges have barely topped £100 million, a little more than a third of the target, as several leading nations, including America, Canada and France, have yet to contribute.
There is also disagreement among international aid organisations. Oxfam is convinced that the scheme will save lives but Save the Children has "serious concerns" that ploughing more money into the United Nations bureaucracy may make disaster response times slower not faster.
A Save the Children paper said that the emergency fund risked "duplicating the current inadequacies of the [UN] appeal process" and leaving any aid effort bogged down in "internal UN politicking".
One thing that remains certain is that natural disasters will continue to occur and the victims of 2006, wherever they happen to be, will hope to receive help more quickly and efficiently than those of last year.
(Filed: 22/12/2005)
The shortcomings of the post-tsunami aid effort are easy to identify but much more difficult to rectify. Peter Foster reports on the lessons learned.
On a beach in a fishing village on the south Indian coast lies a telling reminder of what happens when aid efforts go wrong.
Ten bright red fishing boats that were intended to rebuild livelihoods wrecked by the tsunami lie idle and unused, all declared unseaworthy by the fishermen they were intended to help.
"They were given from what we call the 'give and go' type of NGO [non-governmental organisation]," says Jesuratinam, the head of a local charity from the nearby town of Nagapattinam. "They mean well but leave a trail of problems behind them."
In this case, the unnamed charity was swindled by an unscrupulous boat-builder.
"The boats were supposed to have five skins of glass-fibre but these have only two," Jesuratinam says. "The charity had no experience in the maritime industry and so could not tell the difference. The boats were not fit to put to sea."
The tsunami-hit shores of the Indian Ocean are littered with examples of good intentions that have proved not to be good enough, from hastily built permanent houses that have no drains, to faulty water tanks, temporary shelters with leaking roofs and fishing boats with engines but no propellers.
The shortcomings are many and easy to identify - any visitor to the tsunami areas of Indonesia and Sri Lanka can see how much still needs to be achieved - but much more difficult to rectify.
In the chaos that always follows a natural disaster, governments, United Nations agencies, international charities and well-meaning individuals all compete with each other, often to the detriment of the overall aid effort.
The Red Cross said in a report this year that in the aftermath of the tsunami, when pledges of money from charities, development banks and governments outstripped need by £2.5 billion, the surplus was the problem.
"At the root of co-ordination problems [in Banda Aceh, Indonesia] was one key factor: too much money," the report said. "Nearly everyone could hire a helicopter or boat."
The result was chaos as aid agencies frequently became embroiled in turf wars that, some are now prepared to admit, harmed the overall aid effort. (WONDERFUL WORK GUYS. YOU ARE SUPPOSED TO BE THE MORALLY SUPERIOR GROUPS? HA HA HA)
Government bureaucracy, corruption and inefficiency also play their part in choking the flow of aid - and not just in developing countries, as America discovered after the flooding of New Orleans.
The sudden influx of cash can also unbalance local economies and create cartels charging "UN prices" - four times the usual rates - for building work and materials, a common problem in Sri Lanka and Indonesia. Speed, but not too much of it, is also vital. In Sri Lanka, for example, only about five per cent of permanent housing has been completed, a level of performance for which the government and big charities have been heavily criticised.
(5%? AFTER A YEAR? OH BOY, CAN I MAKE A PLEDGE???)
The International Federation of the Red Cross, which is involved in the rebuilding of up to 40,000 houses in Sri Lanka, says that the mountain of money gave people unrealistic expectations.
"After a point, it does not matter how much money there is," Patrick Fuller, of the federation, said. "Things take time. Land has to be acquired, legal title determined, planning permission granted and power, water and roads have to be installed.
"I always ask people, 'How long would it take to build a house in Europe or America?' The same difficulties and formalities exist in tsunami areas. The pace of tsunami rebuilding compares favourably with other disasters."
That said, everyone from the UN down recognises that the current arrangements for dealing with disaster are haphazard and unwieldy, as was seen again in what Kofi Annan, the UN secretary-general, called the "weak and tardy" response to the Pakistan earthquake. (NICE WORK THERE KOFI, BUT THE ONLY REGRET IS THE IRAQ WAR)
The "big idea" aimed at improving aid delivery is the creation of a £280 million central emergency fund that the UN hopes will end the hand-to-mouth nature of disaster appeals. (UN IN CHARGE OF A HALF BILLION DOLLARS? NO PROBLEM THERE. SEE OIL FOR FOOD/BLOOD/SADDAM)
While the tsunami victims wallowed in cash, the reality is that last year eight UN "flash appeals" received less than 20 per cent of the money asked for. The consequences were seen in the Niger famine.
The new fund, which is being negotiated at the UN and is due to become operational in February, has been supported by Britain, which became the largest single donor to the fund with a pledge of £40 million a year.
"When a crisis comes, it is to the United Nations that we look," said Hilary Benn, the International Development Secretary.
"The United Nations presses the fire alarm but to get the engine out of the station it has to pass round the hat to put petrol in the tank and water in the hoses."
Not everyone is as convinced as Mr Benn, however. Pledges have barely topped £100 million, a little more than a third of the target, as several leading nations, including America, Canada and France, have yet to contribute.
There is also disagreement among international aid organisations. Oxfam is convinced that the scheme will save lives but Save the Children has "serious concerns" that ploughing more money into the United Nations bureaucracy may make disaster response times slower not faster.
A Save the Children paper said that the emergency fund risked "duplicating the current inadequacies of the [UN] appeal process" and leaving any aid effort bogged down in "internal UN politicking".
One thing that remains certain is that natural disasters will continue to occur and the victims of 2006, wherever they happen to be, will hope to receive help more quickly and efficiently than those of last year.
Wednesday, December 21, 2005
Annan outlines global conflicts; angered at media (BEYOND OUTRAGE AT KOFI)
By Evelyn Leopold2 hours, 15 minutes ago
Terrorism and conflicts across the Middle East will be major global issues in 2006, U.N. Secretary-General Kofi Annan said at a year-end news conference on Wednesday and he also lashed out at the media for its coverage of the oil-for-food program.
Annan said he faced getting tough management reform proposals through the U.N. General Assembly and trying to solve the ongoing conflict in Sudan's Darfur region and the Democratic Republic of the Congo.
But he said he expected terrorism, weapons of mass destruction and the Middle East -- the slayings in Lebanon, the ongoing Israel-Palestinian conflict and the turmoil in Iraq -- to be "a major issue for us."
The usually unruffled U.N. chief castigated what he called unfair media coverage of his role and that of his son's in the now-defunct U.N. oil-for-food humanitarian program in Iraq.
He scolded James Bone of the Times of London for saying, "Your own version of events don't really make sense."
Annan responded: "I think you're being very cheeky. Listen James Bone, you've been behaving like an overgrown schoolboy in this room for many, many months and years. You are an embarrassment to your colleagues and to your profession. Please stop misbehaving and please let's move on to a serious subject."
The president of the U.N. Correspondents Association said that Bone had a right to ask a question.
Annan said not enough weight was given to bribes and oil smuggling outside of the $64 billion program, recently documented by a U.N.-established inquiry, headed by former U.S. Federal Reserve Chairman Paul Volcker.
'WE ALL HAVE TO BE CAREFUL'
"We all have to be careful, whatever responsibilities we have, not to be fed by people with agendas."
Asked again if he bought a Mercedes tax-free for his son, Kojo, with his diplomatic discount, Annan said, "I know you are all obsessed about the car. If you want to know more about it, please address yourself to my son or his lawyer."
"I am neither his spokesman or his lawyer," he said. "The report of Paul Volcker is clear. I am not going to rehash it."
Annan, whose second five-year term ends in December 2006, had some advice for the man or woman who will succeed him.
"They need a thick skin. They need a sense of humor, and they should laugh a lot inside and outside and at themselves ... and be able to reach out and work effectively with leaders across the world," Annan said.
Asked about his regrets, Annan said he was sorry he was not able to avert the war in Iraq in 2003. (NOT STOPPING THE SLAUGHTER IN SUDAN, NOT THE 9-11 ATTACK ON AMERICA, NOT DOING ENOUGH TO STOP TERRORISM, NOT DOING ENOUGH TO STOP NORTH KOREA OR IAN GAIN WEAPONS, PROBLEMS IN CONGO OR ANY OTHER AREA OF AFRICA, OR THE OIL FOR DEATH SCHEME - NOPE: THE REGRET IS THAT HE DIDN'T STOP AMERICA FROM FREEING IRAQ. WHEN CAN WE GET A REAL PERSON IN THE UN INSTEAD OF THESE WORLD GOVERNMENT DRONES)
"If I go back in recent years, one thing I would have liked to see ... is for us to have done everything that we could have done to avoid a war in Iraq that has brought such division within this organization and the international community," Annan said.
"And that is one thing that I must say still haunts me and bothers me that, as an organization, as an international community, we were not able to do." (YOU ARE AMONG THE WORST PEOPLE IN THE WORLD - GETA F***ING GRIP ON PRIORITES INSTEAD OF POSING FOR COCKTAIL PARTIES)
Annan also said he hoped the U.N.'s biennial budget, now in contention, would be adopted by the end of the year, or the world body would face a financial crisis.
He spoke in favor of revamping the 15-member U.N. Security Council, another proposal that has run into resistance from U.N. members, and the necessity to form a new human rights council and abolish the discredited 53-nation U.N. Human Rights Commission in Geneva.
By Evelyn Leopold2 hours, 15 minutes ago
Terrorism and conflicts across the Middle East will be major global issues in 2006, U.N. Secretary-General Kofi Annan said at a year-end news conference on Wednesday and he also lashed out at the media for its coverage of the oil-for-food program.
Annan said he faced getting tough management reform proposals through the U.N. General Assembly and trying to solve the ongoing conflict in Sudan's Darfur region and the Democratic Republic of the Congo.
But he said he expected terrorism, weapons of mass destruction and the Middle East -- the slayings in Lebanon, the ongoing Israel-Palestinian conflict and the turmoil in Iraq -- to be "a major issue for us."
The usually unruffled U.N. chief castigated what he called unfair media coverage of his role and that of his son's in the now-defunct U.N. oil-for-food humanitarian program in Iraq.
He scolded James Bone of the Times of London for saying, "Your own version of events don't really make sense."
Annan responded: "I think you're being very cheeky. Listen James Bone, you've been behaving like an overgrown schoolboy in this room for many, many months and years. You are an embarrassment to your colleagues and to your profession. Please stop misbehaving and please let's move on to a serious subject."
The president of the U.N. Correspondents Association said that Bone had a right to ask a question.
Annan said not enough weight was given to bribes and oil smuggling outside of the $64 billion program, recently documented by a U.N.-established inquiry, headed by former U.S. Federal Reserve Chairman Paul Volcker.
'WE ALL HAVE TO BE CAREFUL'
"We all have to be careful, whatever responsibilities we have, not to be fed by people with agendas."
Asked again if he bought a Mercedes tax-free for his son, Kojo, with his diplomatic discount, Annan said, "I know you are all obsessed about the car. If you want to know more about it, please address yourself to my son or his lawyer."
"I am neither his spokesman or his lawyer," he said. "The report of Paul Volcker is clear. I am not going to rehash it."
Annan, whose second five-year term ends in December 2006, had some advice for the man or woman who will succeed him.
"They need a thick skin. They need a sense of humor, and they should laugh a lot inside and outside and at themselves ... and be able to reach out and work effectively with leaders across the world," Annan said.
Asked about his regrets, Annan said he was sorry he was not able to avert the war in Iraq in 2003. (NOT STOPPING THE SLAUGHTER IN SUDAN, NOT THE 9-11 ATTACK ON AMERICA, NOT DOING ENOUGH TO STOP TERRORISM, NOT DOING ENOUGH TO STOP NORTH KOREA OR IAN GAIN WEAPONS, PROBLEMS IN CONGO OR ANY OTHER AREA OF AFRICA, OR THE OIL FOR DEATH SCHEME - NOPE: THE REGRET IS THAT HE DIDN'T STOP AMERICA FROM FREEING IRAQ. WHEN CAN WE GET A REAL PERSON IN THE UN INSTEAD OF THESE WORLD GOVERNMENT DRONES)
"If I go back in recent years, one thing I would have liked to see ... is for us to have done everything that we could have done to avoid a war in Iraq that has brought such division within this organization and the international community," Annan said.
"And that is one thing that I must say still haunts me and bothers me that, as an organization, as an international community, we were not able to do." (YOU ARE AMONG THE WORST PEOPLE IN THE WORLD - GETA F***ING GRIP ON PRIORITES INSTEAD OF POSING FOR COCKTAIL PARTIES)
Annan also said he hoped the U.N.'s biennial budget, now in contention, would be adopted by the end of the year, or the world body would face a financial crisis.
He spoke in favor of revamping the 15-member U.N. Security Council, another proposal that has run into resistance from U.N. members, and the necessity to form a new human rights council and abolish the discredited 53-nation U.N. Human Rights Commission in Geneva.
The Overstretch Myth (ARTICLE REPLIED TO IN DEC 5 POST)
By David H. Levey and Stuart S. Brown
From Foreign Affairs, March/April 2005
Summary: The United States' current account deficit and foreign debt are not dire threats to its global position, as would-be Cassandras warn. U.S. power is firmly grounded on economic superiority and financial stability that will not end soon.
David H. Levey recently retired after 19 years as Managing Director of Moody's Sovereign Ratings Service. Stuart S. Brown is Professor of Economics and International Relations in the Moynihan Institute of Global Affairs at Syracuse University's Maxwell School of Citizenship and Public Affairs.
Would-be Cassandras have been predicting the imminent downfall of the American imperium ever since its inception. First came Sputnik and "the missile gap," followed by Vietnam, Soviet nuclear parity, and the Japanese economic challenge--a cascade of decline encapsulated by Yale historian Paul Kennedy's 1987 "overstretch" thesis.
The resurgence of U.S. economic and political power in the 1990s momentarily put such fears to rest. But recently, a new threat to the sustainability of U.S. hegemony has emerged: excessive dependence on foreign capital and growing foreign debt. As former Treasury Secretary Lawrence Summers has said, "there is something odd about the world's greatest power being the world's greatest debtor."
The U.S. economy, according to doubters, rests on an unsustainable accumulation of foreign debt. Fueled by government profligacy and low private savings rates, the current account deficit--the difference between what U.S. residents spend abroad and what they earn abroad in a year--now stands at almost six percent of GDP; total net foreign liabilities are approaching a quarter of GDP. Sudden unwillingness by investors abroad to continue adding to their already large dollar assets, in this scenario, would set off a panic, causing the dollar to tank, interest rates to skyrocket, and the U.S. economy to descend into crisis, dragging the rest of the world down with it.
Despite the persistence and pervasiveness of this doomsday prophecy, U.S. hegemony is in reality solidly grounded: it rests on an economy that is continually extending its lead in the innovation and application of new technology, ensuring its continued appeal for foreign central banks and private investors. The dollar's role as the global monetary standard is not threatened, and the risk to U.S. financial stability posed by large foreign liabilities has been exaggerated. To be sure, the economy will at some point have to adjust to a decline in the dollar and a rise in interest rates. But these trends will at worst slow the growth of U.S. consumers' standard of living, not undermine the United States' role as global pacesetter. If anything, the world's appetite for U.S. assets bolsters U.S. predominance rather than undermines it.
PRIME NUMBERS
Discussion of the United States' "net foreign debt" conjures up images of countries such as Argentina, Brazil, and Turkey, evoking the currency collapses and economic crises they have suffered as models for a coming U.S. meltdown. There are key differences, however, between those emerging-market cases and the current condition of the global hegemon. The United States' external liabilities are denominated in its own currency, which remains the global monetary standard, and its economy remains on the frontier of global technological innovation, attracting foreign capital as well as immigrant labor with its rapid growth and the high returns it generates for investors.
The statistic at the center of the foreign debt debate is the net international investment position (NIIP), the value of foreign assets owned by U.S. residents minus the value of U.S. assets owned by nonresidents. Until 1989, the United States was a creditor to the rest of the world; the NIIP peaked at almost 13 percent of GDP in 1980. But chronic current account deficits ever since have given the United States the largest net liabilities in world history. Since foreign claims on the United States ($10.5 trillion) exceed U.S. claims abroad ($7.9 trillion), the NIIP is now negative: -$2.6 trillion at the start of 2004, or -24 percent of GDP.
Unpacking the NIIP gives a better sense of the risk it actually poses. It has two components: direct investment, the value of domestic operations directly controlled by a foreign company; and financial liabilities, the value of stocks, bonds, and bank deposits held overseas. At the start of 2004, foreign direct investment in the United States was $2.4 trillion, while U.S. direct investment abroad was about $2.7 trillion. (Direct investment is relatively stable, changing mostly in response to changes in expected long-term profitability.) Removing direct investment from the equation leaves $5.1 trillion in U.S.-held foreign financial assets versus $8.1 trillion in U.S. financial assets held by foreign investors.
This last figure represents a whopping 74 percent of U.S. GDP--a statistic that would seem to give ample cause for alarm. But considering foreign ownership of U.S. financial assets as a percentage of GDP is less enlightening than comparing it to the total available stock of U.S. financial assets. At the start of 2004, total U.S. securities amounted to $33.4 trillion (some 50 percent of the world total). Foreign investors held more than 38 percent of the $4 trillion in U.S. Treasury bonds, but only 11 percent of the $6.1 trillion in agency bonds (such as those issued by Fannie Mae and Freddie Mac); 23 percent of the $6.5 trillion in corporate bonds; and 11 percent of the $15.5 trillion in equities outstanding. These foreign liabilities are the result of a string of current account deficits that have grown from 1.5 percent of GDP in the mid-1990s to an estimated 5.7 percent of GDP--about $650 billion--in 2004. Economists at the Organization for Economic Cooperation and Development estimate that ongoing deficits of 3 percent of GDP would bring the U.S. NIIP to -40 percent of GDP by 2010, and that it would eventually stabilize at around -63 percent. If the deficit remains at today's level, they foresee the NIIP growing to -50 percent of GDP by 2010 and eventually to -100 percent.
These estimates, however, fail to consider that future dollar depreciation and market adjustments in interest rates and asset prices will likely check the increase of the NIIP. Dollar depreciation against the euro and the yen in 2002 and 2003 kept the NIIP flat despite large current account deficits. The same result is likely for 2004 (final numbers will not be available until the end of June). Thus, although the NIIP will surely continue to grow for many years to come, its increase will be far less dramatic than many economists fear.
FALSE ALARM
The real question is just how much the United States' deteriorating NIIP threatens to undermine the economic foundations of U.S. hegemony. The precise answer depends on whether you explain current account deficits in terms of trade, domestic savings and investment, or the composition of global wealth. In each case, though, the risks are far less dire than they are made out to be. And in many ways, chronic current account deficits reflect strong economic fundamentals rather than fatal structural flaws.
A trade-oriented approach to current account deficits views them as a byproduct of robust economic growth, reinforced by a still overvalued currency and the U.S. economy's powerful structural import bias. In this view, the U.S. has a stubborn current account deficit because it grows faster than its trading partners and spends a disproportionate share of its growing income on imported goods and services.
An alternative perspective takes as its point of departure the accounting identity that equates the current account deficit with the difference between total investment in the United States and U.S. domestic saving. Low domestic saving, according to this view, is to blame for deficits. The fear is that a sudden reluctance by foreigners to continue exporting their excess savings to the United States would choke off the investment needed to sustain economic growth, sending the U.S. economy into crisis.
This explanation becomes less alarming, however, when you consider that both savings and investment are seriously undervalued in U.S. economic accounts. Capital gains on equities, 401(k) plans, and home values are excluded from measurements of personal saving; when they are added, total U.S. domestic saving is around 20 percent of GDP--about the same rate as in other developed economies. The national account also excludes "intangible" investment: spending on knowledge-creating activities such as on-the-job training, new-product development and testing, design and blueprint experimentation, and managerial time spent on workplace organization. Economists at the National Bureau of Economic Research estimate that intangible investment grew rapidly during the 1990s and is now at least as large as physical investment in plant and equipment: more than $1 trillion per year, or 10 percent of GDP. Consequently, the size and growth rate of the U.S. economy have been seriously underestimated. In fact, when tangible and intangible investment are both counted, the apparent (and much decried) increase in consumer spending as a share of GDP turns out to be a statistical artifact.
A third approach to the current account deficit focuses on the growth and composition of global wealth. In this framework, international capital movements drive the current account balance, rather than vice versa. With the United States expected to grow faster than Europe and Japan over the next several decades and wealth growing rapidly in Asia--especially in China and India--it makes sense that foreign investors will continue to flock to U.S. financial markets. This could generate a sequence of U.S. deficits as high as 5 percent of GDP, causing the NIIP to balloon. But such an increase would not mean an end to the foreign appetite for U.S. assets; NIIP ratios that appear dangerously high relative to U.S. GDP would be sustainable because of the rapid growth of global wealth.
U.S. financial markets have stayed strong even as the financing of the U.S. deficit shifts from private investors to foreign central banks (from 2000 to 2003, the official institutional share of investment inflows rose from 4 percent to 30 percent). A large percentage of the $1.3 trillion in Asian governments' foreign exchange reserves is in U.S. assets; central banks now claim about 12 percent of total foreign-owned assets in the United States, including more than $1 trillion in Treasury and agency securities. Official inflows from Asia will likely continue for the foreseeable future, keeping U.S. interest rates from rising too fast and choking off investment.
In a series of recent papers, economists Michael Dooley, David Folkerts-Landau, and Peter Garber maintain that Asian governments--pursuing a "mercantilist" development strategy of undervalued exchange rates to support export-led growth--must continue to finance U.S. imports of their manufactured goods, since the United States is their largest market and a major source of inward direct investment. Only a fundamental transformation in Asia's growth strategy could undermine this mutually advantageous interdependence--an unlikely prospect at least until China absorbs the 300 million peasants expected to move into its industrial and service sectors over the next generation. Even the widely anticipated loosening of China's exchange-rate peg would not alter the imperatives of this overriding structural transformation. Ronald McKinnon of Stanford argues that Asian governments will continue to prevent their currencies from depreciating too much in order to maintain competitiveness, avoid imposing capital losses on domestic holders of dollar assets, and reduce the risk of an economic slowdown that could lead to a deflationary spiral. According to both theories, there should be no breakdown of the current dollar-based regime.
Official Asian capital inflows, moreover, should soon be supplemented by a renewal of private inflows responding to the next stage of the information technology (IT) revolution. Technological revolutions unfold in stages over many decades. The IT revolution had its roots in World War II and has proceeded via the development of the mainframe computer, the integrated circuit, the microprocessor, and the personal computer to culminate in the union of computers and telecommunications that has brought the Internet. The United States--thanks to its openness, its low regulatory burden, its flexible labor and capital markets, a positive environment for new business formation, and a financial market that supports new technology--has dominated every phase of this technological wave. The spread of the IT revolution to additional sectors and new industries thus makes a revival of U.S.-bound private capital flows likely.
A SOFTER LANDING
Whichever perspective on the current account one favors, the United States cannot escape a growing external debt. The "hegemony skeptics" fear such debt will lead to a collapse of the U.S. dollar triggered by a precipitous unloading of U.S. assets. Such a selloff could result--as in emerging-market crises--if investors suddenly conclude that U.S. foreign debt has become unsustainably large. A panicky "capital flight" would ensue, as investors raced for the exits to avoid the falling dollar and plunging stock and bond prices.
But even if such a sharp break occurs--which is less likely than a gradual adjustment of exchange rates and interest rates--market-based adjustments will mitigate the consequences. Responding to a relative price decline in U.S. assets and likely Federal Reserve action to raise interest rates, U.S. investors (arguably accompanied by bargain-hunting foreign investors) would repatriate some of their $4 trillion in foreign holdings in order to buy (now undervalued) assets, tempering the price decline for domestic stocks and bonds. A significant repatriation of funds would thus slow the pace of the dollar decline and the rise in rates. The ensuing recession, combined with the cheaper dollar, would eventually combine to improve the trade balance. Although the period of global rebalancing would be painful for U.S. consumers and workers, it would be even harder on the European and Japanese economies, with their propensity for deflation and stagnation. Such a transitory adjustment would be unpleasant, but it would not undermine the economic foundations of U.S. hegemony. (SO, YOU CAN HURT US; BUT IT WILL LIKELY KILL YOU. YOUR CALL)
The U.S. dollar will remain dominant in global trade, payments, and capital flows, based as it is in a country with safe, well-regulated financial markets. Provided U.S. firms maintain their entrepreneurial edge--and despite much anxiety, there is little reason to expect otherwise--global asset managers will continue to want to hold portfolios rich in U.S. corporate stocks and bonds. Although foreign private demand for U.S. assets will fluctuate--witness the slowdown in purchases that precipitated the decline in the U.S. dollar in 2002 and 2003--rapid growth of world financial wealth will allow the proportion of U.S. assets held by foreigners to increase.
For foreign central banks (as well as commercial financial institutions), U.S. Treasury bonds, government-supported agency bonds, and deposits in highly rated banks will remain, for the foreseeable future, the chief sources of liquid reserve assets. Many analysts have pointed to the euro as a threat to the dollar's status as the world's central reserve currency. (THAT IDEA IS OVER BECAUSE OF THE NO VOTE OF THE FRENCH ON THE NIGHTMARE EU CONSTITUTION.) But the continuing strength of the U.S. economy relative to the European Union's and the structure of European capital markets make such a prospect highly unlikely. On the basis of likely demographic and productivity growth differentials, Adam Posen of the Institute for International Economics estimates that the U.S. economy will be at least 20 percent larger than that of the EU in 2020. The United States will maintain its 22 percent share of world output, but Europe's share will, in the absence of serious structural reforms, shrink by 3 to 5 percent. Moreover, European government bond markets, although larger than the U.S. Treasury market, are divided among five large countries and a host of smaller ones, greatly reducing liquidity, and European corporate bond and equity markets are smaller than their U.S. counterparts. With Asian capital markets still in their infancy, it will be a very long time before the pre-eminence of the dollar and U.S. capital markets is challenged.
At the peak of its global power the United Kingdom was a net creditor, but as it entered the twentieth century, it started losing its economic dominance to Germany and the United States. In contrast, the United States is a large net debtor. But in its case, no plausible challenger to its economic leadership exists, and its share of the global economy will not decline. Focusing exclusively on the NIIP obscures the United States' institutional, technological, and demographic advantages. Such advantages are further bolstered by the underlying complementarities between the U.S. economy and the economies of the developing world--especially those in Asia. The United States continues to reap major gains from what Charles de Gaulle called its "exorbitant privilege," its unique role in providing global liquidity by running chronic external imbalances. The resulting inflow of productivity-enhancing capital has strengthened its underlying economic position. Only one development could upset this optimistic prognosis: an end to the technological dynamism, openness to trade, and flexibility that have powered the U.S. economy. The biggest threat to U.S. hegemony, accordingly, stems not from the sentiments of foreign investors, but from protectionism and isolationism at home. (EVERYONE SEE WHERE THE REAL DANGER IS? CONGRESS!!!)
By David H. Levey and Stuart S. Brown
From Foreign Affairs, March/April 2005
Summary: The United States' current account deficit and foreign debt are not dire threats to its global position, as would-be Cassandras warn. U.S. power is firmly grounded on economic superiority and financial stability that will not end soon.
David H. Levey recently retired after 19 years as Managing Director of Moody's Sovereign Ratings Service. Stuart S. Brown is Professor of Economics and International Relations in the Moynihan Institute of Global Affairs at Syracuse University's Maxwell School of Citizenship and Public Affairs.
Would-be Cassandras have been predicting the imminent downfall of the American imperium ever since its inception. First came Sputnik and "the missile gap," followed by Vietnam, Soviet nuclear parity, and the Japanese economic challenge--a cascade of decline encapsulated by Yale historian Paul Kennedy's 1987 "overstretch" thesis.
The resurgence of U.S. economic and political power in the 1990s momentarily put such fears to rest. But recently, a new threat to the sustainability of U.S. hegemony has emerged: excessive dependence on foreign capital and growing foreign debt. As former Treasury Secretary Lawrence Summers has said, "there is something odd about the world's greatest power being the world's greatest debtor."
The U.S. economy, according to doubters, rests on an unsustainable accumulation of foreign debt. Fueled by government profligacy and low private savings rates, the current account deficit--the difference between what U.S. residents spend abroad and what they earn abroad in a year--now stands at almost six percent of GDP; total net foreign liabilities are approaching a quarter of GDP. Sudden unwillingness by investors abroad to continue adding to their already large dollar assets, in this scenario, would set off a panic, causing the dollar to tank, interest rates to skyrocket, and the U.S. economy to descend into crisis, dragging the rest of the world down with it.
Despite the persistence and pervasiveness of this doomsday prophecy, U.S. hegemony is in reality solidly grounded: it rests on an economy that is continually extending its lead in the innovation and application of new technology, ensuring its continued appeal for foreign central banks and private investors. The dollar's role as the global monetary standard is not threatened, and the risk to U.S. financial stability posed by large foreign liabilities has been exaggerated. To be sure, the economy will at some point have to adjust to a decline in the dollar and a rise in interest rates. But these trends will at worst slow the growth of U.S. consumers' standard of living, not undermine the United States' role as global pacesetter. If anything, the world's appetite for U.S. assets bolsters U.S. predominance rather than undermines it.
PRIME NUMBERS
Discussion of the United States' "net foreign debt" conjures up images of countries such as Argentina, Brazil, and Turkey, evoking the currency collapses and economic crises they have suffered as models for a coming U.S. meltdown. There are key differences, however, between those emerging-market cases and the current condition of the global hegemon. The United States' external liabilities are denominated in its own currency, which remains the global monetary standard, and its economy remains on the frontier of global technological innovation, attracting foreign capital as well as immigrant labor with its rapid growth and the high returns it generates for investors.
The statistic at the center of the foreign debt debate is the net international investment position (NIIP), the value of foreign assets owned by U.S. residents minus the value of U.S. assets owned by nonresidents. Until 1989, the United States was a creditor to the rest of the world; the NIIP peaked at almost 13 percent of GDP in 1980. But chronic current account deficits ever since have given the United States the largest net liabilities in world history. Since foreign claims on the United States ($10.5 trillion) exceed U.S. claims abroad ($7.9 trillion), the NIIP is now negative: -$2.6 trillion at the start of 2004, or -24 percent of GDP.
Unpacking the NIIP gives a better sense of the risk it actually poses. It has two components: direct investment, the value of domestic operations directly controlled by a foreign company; and financial liabilities, the value of stocks, bonds, and bank deposits held overseas. At the start of 2004, foreign direct investment in the United States was $2.4 trillion, while U.S. direct investment abroad was about $2.7 trillion. (Direct investment is relatively stable, changing mostly in response to changes in expected long-term profitability.) Removing direct investment from the equation leaves $5.1 trillion in U.S.-held foreign financial assets versus $8.1 trillion in U.S. financial assets held by foreign investors.
This last figure represents a whopping 74 percent of U.S. GDP--a statistic that would seem to give ample cause for alarm. But considering foreign ownership of U.S. financial assets as a percentage of GDP is less enlightening than comparing it to the total available stock of U.S. financial assets. At the start of 2004, total U.S. securities amounted to $33.4 trillion (some 50 percent of the world total). Foreign investors held more than 38 percent of the $4 trillion in U.S. Treasury bonds, but only 11 percent of the $6.1 trillion in agency bonds (such as those issued by Fannie Mae and Freddie Mac); 23 percent of the $6.5 trillion in corporate bonds; and 11 percent of the $15.5 trillion in equities outstanding. These foreign liabilities are the result of a string of current account deficits that have grown from 1.5 percent of GDP in the mid-1990s to an estimated 5.7 percent of GDP--about $650 billion--in 2004. Economists at the Organization for Economic Cooperation and Development estimate that ongoing deficits of 3 percent of GDP would bring the U.S. NIIP to -40 percent of GDP by 2010, and that it would eventually stabilize at around -63 percent. If the deficit remains at today's level, they foresee the NIIP growing to -50 percent of GDP by 2010 and eventually to -100 percent.
These estimates, however, fail to consider that future dollar depreciation and market adjustments in interest rates and asset prices will likely check the increase of the NIIP. Dollar depreciation against the euro and the yen in 2002 and 2003 kept the NIIP flat despite large current account deficits. The same result is likely for 2004 (final numbers will not be available until the end of June). Thus, although the NIIP will surely continue to grow for many years to come, its increase will be far less dramatic than many economists fear.
FALSE ALARM
The real question is just how much the United States' deteriorating NIIP threatens to undermine the economic foundations of U.S. hegemony. The precise answer depends on whether you explain current account deficits in terms of trade, domestic savings and investment, or the composition of global wealth. In each case, though, the risks are far less dire than they are made out to be. And in many ways, chronic current account deficits reflect strong economic fundamentals rather than fatal structural flaws.
A trade-oriented approach to current account deficits views them as a byproduct of robust economic growth, reinforced by a still overvalued currency and the U.S. economy's powerful structural import bias. In this view, the U.S. has a stubborn current account deficit because it grows faster than its trading partners and spends a disproportionate share of its growing income on imported goods and services.
An alternative perspective takes as its point of departure the accounting identity that equates the current account deficit with the difference between total investment in the United States and U.S. domestic saving. Low domestic saving, according to this view, is to blame for deficits. The fear is that a sudden reluctance by foreigners to continue exporting their excess savings to the United States would choke off the investment needed to sustain economic growth, sending the U.S. economy into crisis.
This explanation becomes less alarming, however, when you consider that both savings and investment are seriously undervalued in U.S. economic accounts. Capital gains on equities, 401(k) plans, and home values are excluded from measurements of personal saving; when they are added, total U.S. domestic saving is around 20 percent of GDP--about the same rate as in other developed economies. The national account also excludes "intangible" investment: spending on knowledge-creating activities such as on-the-job training, new-product development and testing, design and blueprint experimentation, and managerial time spent on workplace organization. Economists at the National Bureau of Economic Research estimate that intangible investment grew rapidly during the 1990s and is now at least as large as physical investment in plant and equipment: more than $1 trillion per year, or 10 percent of GDP. Consequently, the size and growth rate of the U.S. economy have been seriously underestimated. In fact, when tangible and intangible investment are both counted, the apparent (and much decried) increase in consumer spending as a share of GDP turns out to be a statistical artifact.
A third approach to the current account deficit focuses on the growth and composition of global wealth. In this framework, international capital movements drive the current account balance, rather than vice versa. With the United States expected to grow faster than Europe and Japan over the next several decades and wealth growing rapidly in Asia--especially in China and India--it makes sense that foreign investors will continue to flock to U.S. financial markets. This could generate a sequence of U.S. deficits as high as 5 percent of GDP, causing the NIIP to balloon. But such an increase would not mean an end to the foreign appetite for U.S. assets; NIIP ratios that appear dangerously high relative to U.S. GDP would be sustainable because of the rapid growth of global wealth.
U.S. financial markets have stayed strong even as the financing of the U.S. deficit shifts from private investors to foreign central banks (from 2000 to 2003, the official institutional share of investment inflows rose from 4 percent to 30 percent). A large percentage of the $1.3 trillion in Asian governments' foreign exchange reserves is in U.S. assets; central banks now claim about 12 percent of total foreign-owned assets in the United States, including more than $1 trillion in Treasury and agency securities. Official inflows from Asia will likely continue for the foreseeable future, keeping U.S. interest rates from rising too fast and choking off investment.
In a series of recent papers, economists Michael Dooley, David Folkerts-Landau, and Peter Garber maintain that Asian governments--pursuing a "mercantilist" development strategy of undervalued exchange rates to support export-led growth--must continue to finance U.S. imports of their manufactured goods, since the United States is their largest market and a major source of inward direct investment. Only a fundamental transformation in Asia's growth strategy could undermine this mutually advantageous interdependence--an unlikely prospect at least until China absorbs the 300 million peasants expected to move into its industrial and service sectors over the next generation. Even the widely anticipated loosening of China's exchange-rate peg would not alter the imperatives of this overriding structural transformation. Ronald McKinnon of Stanford argues that Asian governments will continue to prevent their currencies from depreciating too much in order to maintain competitiveness, avoid imposing capital losses on domestic holders of dollar assets, and reduce the risk of an economic slowdown that could lead to a deflationary spiral. According to both theories, there should be no breakdown of the current dollar-based regime.
Official Asian capital inflows, moreover, should soon be supplemented by a renewal of private inflows responding to the next stage of the information technology (IT) revolution. Technological revolutions unfold in stages over many decades. The IT revolution had its roots in World War II and has proceeded via the development of the mainframe computer, the integrated circuit, the microprocessor, and the personal computer to culminate in the union of computers and telecommunications that has brought the Internet. The United States--thanks to its openness, its low regulatory burden, its flexible labor and capital markets, a positive environment for new business formation, and a financial market that supports new technology--has dominated every phase of this technological wave. The spread of the IT revolution to additional sectors and new industries thus makes a revival of U.S.-bound private capital flows likely.
A SOFTER LANDING
Whichever perspective on the current account one favors, the United States cannot escape a growing external debt. The "hegemony skeptics" fear such debt will lead to a collapse of the U.S. dollar triggered by a precipitous unloading of U.S. assets. Such a selloff could result--as in emerging-market crises--if investors suddenly conclude that U.S. foreign debt has become unsustainably large. A panicky "capital flight" would ensue, as investors raced for the exits to avoid the falling dollar and plunging stock and bond prices.
But even if such a sharp break occurs--which is less likely than a gradual adjustment of exchange rates and interest rates--market-based adjustments will mitigate the consequences. Responding to a relative price decline in U.S. assets and likely Federal Reserve action to raise interest rates, U.S. investors (arguably accompanied by bargain-hunting foreign investors) would repatriate some of their $4 trillion in foreign holdings in order to buy (now undervalued) assets, tempering the price decline for domestic stocks and bonds. A significant repatriation of funds would thus slow the pace of the dollar decline and the rise in rates. The ensuing recession, combined with the cheaper dollar, would eventually combine to improve the trade balance. Although the period of global rebalancing would be painful for U.S. consumers and workers, it would be even harder on the European and Japanese economies, with their propensity for deflation and stagnation. Such a transitory adjustment would be unpleasant, but it would not undermine the economic foundations of U.S. hegemony. (SO, YOU CAN HURT US; BUT IT WILL LIKELY KILL YOU. YOUR CALL)
The U.S. dollar will remain dominant in global trade, payments, and capital flows, based as it is in a country with safe, well-regulated financial markets. Provided U.S. firms maintain their entrepreneurial edge--and despite much anxiety, there is little reason to expect otherwise--global asset managers will continue to want to hold portfolios rich in U.S. corporate stocks and bonds. Although foreign private demand for U.S. assets will fluctuate--witness the slowdown in purchases that precipitated the decline in the U.S. dollar in 2002 and 2003--rapid growth of world financial wealth will allow the proportion of U.S. assets held by foreigners to increase.
For foreign central banks (as well as commercial financial institutions), U.S. Treasury bonds, government-supported agency bonds, and deposits in highly rated banks will remain, for the foreseeable future, the chief sources of liquid reserve assets. Many analysts have pointed to the euro as a threat to the dollar's status as the world's central reserve currency. (THAT IDEA IS OVER BECAUSE OF THE NO VOTE OF THE FRENCH ON THE NIGHTMARE EU CONSTITUTION.) But the continuing strength of the U.S. economy relative to the European Union's and the structure of European capital markets make such a prospect highly unlikely. On the basis of likely demographic and productivity growth differentials, Adam Posen of the Institute for International Economics estimates that the U.S. economy will be at least 20 percent larger than that of the EU in 2020. The United States will maintain its 22 percent share of world output, but Europe's share will, in the absence of serious structural reforms, shrink by 3 to 5 percent. Moreover, European government bond markets, although larger than the U.S. Treasury market, are divided among five large countries and a host of smaller ones, greatly reducing liquidity, and European corporate bond and equity markets are smaller than their U.S. counterparts. With Asian capital markets still in their infancy, it will be a very long time before the pre-eminence of the dollar and U.S. capital markets is challenged.
At the peak of its global power the United Kingdom was a net creditor, but as it entered the twentieth century, it started losing its economic dominance to Germany and the United States. In contrast, the United States is a large net debtor. But in its case, no plausible challenger to its economic leadership exists, and its share of the global economy will not decline. Focusing exclusively on the NIIP obscures the United States' institutional, technological, and demographic advantages. Such advantages are further bolstered by the underlying complementarities between the U.S. economy and the economies of the developing world--especially those in Asia. The United States continues to reap major gains from what Charles de Gaulle called its "exorbitant privilege," its unique role in providing global liquidity by running chronic external imbalances. The resulting inflow of productivity-enhancing capital has strengthened its underlying economic position. Only one development could upset this optimistic prognosis: an end to the technological dynamism, openness to trade, and flexibility that have powered the U.S. economy. The biggest threat to U.S. hegemony, accordingly, stems not from the sentiments of foreign investors, but from protectionism and isolationism at home. (EVERYONE SEE WHERE THE REAL DANGER IS? CONGRESS!!!)
Of Donuts, Debt, and Deals
Mundane fast-food chains and low-tech directories are getting loads of M&A interest. Why? They're cash cows that also hold the promise of big profits
Business news often is dominated by dramatic tales of dealmaking among high-powered companies in cutting-edge markets like media and technology. In the last few days, Google (GOOG ) has made headlines by pulling ahead of rival Microsoft (MSFT ) in the race to strike a new joint-venture agreement with Time Warner's AOL unit (TWX ) (see BW Online, 12/19/05, " Time Warner: Still Searching for Answers").
Those blockbuster deals obscure the bulk of merger-and-acquisition activity, though. For every Time Warner deal, countless others involve ordinary companies that sell ordinary goods and services. The last few months has seen a bull market in coffee and donuts. France's Pernod Ricard is selling its Dunkin' Donuts group, which includes the Baskin & Robbins ice-cream business, to a consortium of private-equity buyers for $2.4 billion (see BW Online, 12/15/05, "Want Fries With That M&A?").
CLASSIC EQUATION. And Wendy's International (WEN ) wants to sell up to 18% of its Canadian coffee-and-donut franchise, Tim Hortons, to the public. It's under shareholder pressure to spin off the entire unit (see BW Online, 10/13/05, "Tim Hortons' Power Play"). And Bear Stearns Merchant Banking, the private-equity affiliate of investment bank Bear Stearns (BSC ), has acquired a stake in Stuart Weitzman Holdings, the New York-based designer of women's shoes and handbags (see BW Online, 6/29/05, "Bear Sterns Tries on Shoes"). It also bought half of premium-jeans maker Seven For All Mankind.
Acquisitions for seemingly mundane services can be attention-getting. Sandwich-restaurant chain Quiznos is up for sale and could draw as much as $2 billion, reports say. Plus, telecom giant Verizon (VZ ) could get as much as $17 billion for its directories business (see BW Online, 12/6/05, "Yellow Fever, Courtesty of Verizon").
These deals are examples of classic private-equity plays. In each case, the outfit is generating a lot of cash. That's true, even if growth is slow, as is the case with the phone-directory business. Private-equity buyers load up these companies with debt, which can play a crucial role in generating profits for investors.
THANKS TO CONSUMERS. If a private-equity group puts, say, $20 million of its money into a $100 million deal and turns around and sells the business a few years later for $150 million, the investors have turned a $50 million profit on a $20 million investment. That's because the difference between the $20 million in their equity and the value of the $100 million transaction is funded by debt, and lenders don't benefit from the price appreciaton of the company when it's sold. "Many of the deals today are growth LBOs [leveraged buyouts]. The increase in the value of the enterprise accrues to the equity, not the debt," says investment banker Adam Sokoloff, co-head of the financial sponsors group at Jefferies & Co.
Such deals are particularly attractive these days, especially in the restaurant sector. Banks traditionally allow private-equity firms to borrow three times to five times as much operating earnings generated by a target company. But lenders are currently letting them borrow as much as eight times the operating earnings of the companies they buy, Sokoloff says. This increased borrowing ability, or leverage, boosts the total return on the money invested.
Why are banks willing to allow that much leverage? One factor: a robust consumer sector, according to investment banker Jeff Williams of Jeff Williams & Co. Consumer spending has been bolstered by a strong housing market, low inflation and borrowing rates, and healthy increases in spending power.
Even modest increases in rates and a spike in energy prices have failed to hurt the consumer sector. A lot of people are pouring their discretionary income into eating out and shopping for clothes.
HOT-GROWTH PROSPECTS. The margins on some of these consumer businesses can be very high. "The margin on a cup of diner coffee is about 50%. Starbucks margins are off the charts, and that's before you add 75 cents for a shot of vanilla syrup," Williams says. That's why banks are willing to let buyers borrow so much money as part of a transaction.
Some of these companies also boast big growth potential. The Tim Hortons chain "is like a cult" in Canada, Sokoloff says. But it barely has any profile in the U.S. And sandwich chain Quiznos is experiencing dramatic growth in the U.S.
Still, risks abound. Verizon's directory business generates plenty of cash now, but it's subject to enormous technological change as the Internet transforms the industry. For now, it appears that yellow-page ads are still a great tool for local businesses, though.
NO LETUP. As private-equity players clamor for action, the price of target companies is on the rise. The investors can afford to pay higher prices because banks are tolerating so much debt as part of the transaction. And an enormous amount of money is chasing a relatively few good deals.
The party won't end any time soon. Consumers have weathered the threat of rising rates, wobbly house prices, and a spike in energy costs. Given that the Federal Reserve has signaled it may be approaching the end of the tightening cycle, and with energy costs possibly leveling off, it's even possible that consumer spending will strengthen. This means the bull market for ordinary, everyday consumer goods such as donuts and coffee is likely to continue.
Mundane fast-food chains and low-tech directories are getting loads of M&A interest. Why? They're cash cows that also hold the promise of big profits
Business news often is dominated by dramatic tales of dealmaking among high-powered companies in cutting-edge markets like media and technology. In the last few days, Google (GOOG ) has made headlines by pulling ahead of rival Microsoft (MSFT ) in the race to strike a new joint-venture agreement with Time Warner's AOL unit (TWX ) (see BW Online, 12/19/05, " Time Warner: Still Searching for Answers").
Those blockbuster deals obscure the bulk of merger-and-acquisition activity, though. For every Time Warner deal, countless others involve ordinary companies that sell ordinary goods and services. The last few months has seen a bull market in coffee and donuts. France's Pernod Ricard is selling its Dunkin' Donuts group, which includes the Baskin & Robbins ice-cream business, to a consortium of private-equity buyers for $2.4 billion (see BW Online, 12/15/05, "Want Fries With That M&A?").
CLASSIC EQUATION. And Wendy's International (WEN ) wants to sell up to 18% of its Canadian coffee-and-donut franchise, Tim Hortons, to the public. It's under shareholder pressure to spin off the entire unit (see BW Online, 10/13/05, "Tim Hortons' Power Play"). And Bear Stearns Merchant Banking, the private-equity affiliate of investment bank Bear Stearns (BSC ), has acquired a stake in Stuart Weitzman Holdings, the New York-based designer of women's shoes and handbags (see BW Online, 6/29/05, "Bear Sterns Tries on Shoes"). It also bought half of premium-jeans maker Seven For All Mankind.
Acquisitions for seemingly mundane services can be attention-getting. Sandwich-restaurant chain Quiznos is up for sale and could draw as much as $2 billion, reports say. Plus, telecom giant Verizon (VZ ) could get as much as $17 billion for its directories business (see BW Online, 12/6/05, "Yellow Fever, Courtesty of Verizon").
These deals are examples of classic private-equity plays. In each case, the outfit is generating a lot of cash. That's true, even if growth is slow, as is the case with the phone-directory business. Private-equity buyers load up these companies with debt, which can play a crucial role in generating profits for investors.
THANKS TO CONSUMERS. If a private-equity group puts, say, $20 million of its money into a $100 million deal and turns around and sells the business a few years later for $150 million, the investors have turned a $50 million profit on a $20 million investment. That's because the difference between the $20 million in their equity and the value of the $100 million transaction is funded by debt, and lenders don't benefit from the price appreciaton of the company when it's sold. "Many of the deals today are growth LBOs [leveraged buyouts]. The increase in the value of the enterprise accrues to the equity, not the debt," says investment banker Adam Sokoloff, co-head of the financial sponsors group at Jefferies & Co.
Such deals are particularly attractive these days, especially in the restaurant sector. Banks traditionally allow private-equity firms to borrow three times to five times as much operating earnings generated by a target company. But lenders are currently letting them borrow as much as eight times the operating earnings of the companies they buy, Sokoloff says. This increased borrowing ability, or leverage, boosts the total return on the money invested.
Why are banks willing to allow that much leverage? One factor: a robust consumer sector, according to investment banker Jeff Williams of Jeff Williams & Co. Consumer spending has been bolstered by a strong housing market, low inflation and borrowing rates, and healthy increases in spending power.
Even modest increases in rates and a spike in energy prices have failed to hurt the consumer sector. A lot of people are pouring their discretionary income into eating out and shopping for clothes.
HOT-GROWTH PROSPECTS. The margins on some of these consumer businesses can be very high. "The margin on a cup of diner coffee is about 50%. Starbucks margins are off the charts, and that's before you add 75 cents for a shot of vanilla syrup," Williams says. That's why banks are willing to let buyers borrow so much money as part of a transaction.
Some of these companies also boast big growth potential. The Tim Hortons chain "is like a cult" in Canada, Sokoloff says. But it barely has any profile in the U.S. And sandwich chain Quiznos is experiencing dramatic growth in the U.S.
Still, risks abound. Verizon's directory business generates plenty of cash now, but it's subject to enormous technological change as the Internet transforms the industry. For now, it appears that yellow-page ads are still a great tool for local businesses, though.
NO LETUP. As private-equity players clamor for action, the price of target companies is on the rise. The investors can afford to pay higher prices because banks are tolerating so much debt as part of the transaction. And an enormous amount of money is chasing a relatively few good deals.
The party won't end any time soon. Consumers have weathered the threat of rising rates, wobbly house prices, and a spike in energy costs. Given that the Federal Reserve has signaled it may be approaching the end of the tightening cycle, and with energy costs possibly leveling off, it's even possible that consumer spending will strengthen. This means the bull market for ordinary, everyday consumer goods such as donuts and coffee is likely to continue.
The Thunder of Grubel
Richard Morais, 12.26.05
Switzerland's fractious Credit Suisse Group was carried through scandal by its private bank. Now its accident-prone investment bank, CSFB, must prove itself
After Jan. 1 there are no excuses anymore," says Credit Suisse's chief executive, Oswald Grübel, spearing a slab of beef in a private dining room of the Westin Hotel in Shanghai. Even the chinaware in the room seems to tremble as Grübel's basso profundo rolls threateningly across the room: "Managers can no longer blame the other business units, because [from January on] they are all in one bank. That's when you can't pay lip service to [the integrated bank], you actually have to deliver it. Every day."
The new year brings the official opening of Credit Suisse's "one bank" top-to-bottom remake. Long-suffering investors hope this is the dawn of a new era at Switzerland's $45 billion (2005 revenue) mainstay, long plagued by scandals and erratic earnings. The strategy of the press-shy Grübel, in his position just 18 months: Produce above-market returns by making CS's notoriously independent investment bankers, private bankers and asset managers finally work together. At least $6 billion in net income by 2007, Grübel has promised investors.
"Have we been cross-selling between the private bank and the investment bank?" says Richard Thornburgh, the Credit Suisse First Boston veteran now on the executive board of directors. "No. Part of our performance gap was because we are not doing what our competition is doing."
That won't be as easy as it sounds. Credit Suisse has historically been divided not only between its aloof Swiss private bankers and table-thumping American investment bankers but also by the self-serving and powerful cabals within the divisions that were rewarded on their narrow P&L responsibilities. "A bank with a lot of warring fiefdoms," says Simon Adamson, an analyst in London for the independent research house CreditSights.
In 2001, for example, a strutting 34-year-old Master of the Universe walked 40 bond specialists from CSFB over to Barclays Capital. It was during the final days of the piggy era that corresponded with Allen Wheat's rule at the investment bank, and within 24 hours Wheat had most of the fixed-income 40 back at CSFB. Their deal: a percentage of pretax profits, guaranteed for multiple years.
Will the no-nonsense Grübel be able to smack some sense into this playground?
Before we answer that, some history. The $1.1 trillion (assets) Credit Suisse is overshadowed by its much revered and well-run Swiss rival, the $2.1 trillion UBS, and Americans, in particular, tend to know it only for its fabled investment bank. But here's the lesser-known--and perhaps more important--story: Credit Suisse is arguably the world's most successful private bank.
Credit Suisse's private bank, accounting for just under half the group's $4.3 billion net profit last year, pulls in net revenue (fees plus interest income minus interest expense) equal to 1.3% of assets under management, to UBS's 1%. The CS private bank's net income is 0.48% of assets. The Boston Consulting Group says that's well above the 0.3% more typical for offshore private banks, and leagues above the 0.2% produced by the private-client arms of firms like Merrill Lynch. "Credit Suisse has had much better performance vis-Ã -vis UBS, and it shows up in the margins," says Sebastian Dovey, managing partner at Scorpio Partnership, consultant in London for private banks.
Why? CS's private bank, the world's third-largest wealth manager by assets after UBS and Merrill Lynch, has both a reputation for well-timed advice and a flair for creating unusual financial products (see box, opposite). In 1999 CS was, for example, the first to advertise "open architecture" to its private banking customers; only 225 of the 2,500 funds it sells today are CS or affiliated company products. It was also early to create certificates with returns pegged to funds of hedge funds so that private clients with $500,000 to $10 million to invest, not just the ultrawealthy, could trade in alternative investments. Today CS uniquely offers daily liquidity on 400 such hedge fund certificates.
In the words of a Merrill Lynch analyst (whose own firm is, of course, not a disinterested party) CS's reputation as a product innovator attracts clients who are much "younger, more sophisticated, more dynamic, more market-savvy" than the clients found at UBS; as a result they are more likely to turn over their portfolios and create bank income. "Our commissions are not more expensive than our competitors'," confirms Walter Berchtold, head of CS's private banking. "We've just been much better keeping value in-house." The concept, then, is to boast of openness but still keep the shelves well stocked with house products. One innovative item: a five-year commodity-linked bond whose quarterly return is capped at 8% but is guaranteed to pay off at least at par.
Now jump to the end of the 1990s, when the league-topping Credit Suisse First Boston went off the rails. The $11.5 billion Donaldson, Lufkin & Jenrette acquisition in 2000 was disastrously at the market top. Worse still: CSFB was knee-deep in the nastiest scandals of the era, everything from compromised research to new-issue malpractice. Bad boy Frank Quattrone, the bank's tech booster, was eventually found guilty of obstructing justice. (His conviction is on appeal.) CS's $1.1 billion litigation reserve today covers sore spots like Enron. "Risk management was out of control," concedes Walter Kielholz, CS Group's chairman.
To be fair, not all CS's problems of the day came from the investment bank. Managers in Zurich at that time had a mushy notion they were going to create a European-style "bancassurance" and spent $11.1 billion buying Winterthur Insurance in 1997. Another millstone. When Winterthur sold assets to XL Insurance of Bermuda in 2001, the transaction included guarantees. As we go to press, those obligations add up to a $550 million hole in Winterthur's pocket.
So Credit Suisse's market cap fell 76%, to $23 billion, between the summer of 2000 and the fall of 2002. The Swiss bank ended the year with a $3.4 billion loss, and the press publicly speculated about a Credit Suisse demise. Rattled clients pulled their accounts. "We found out how it impacts your business when your reputation is put into question," says Grübel. At its darkest hour, however, CS's low-key private bank delivered a $900 million net profit, the only unit among seven that wasn't hemorrhaging.
CS's board was jolted into action, and Kielholz, the Swiss Re veteran who'd been brought in as chairman, appointed two co-chief executives in 2003. John Mack--of Morgan Stanley fame--was told to save the investment bank; the Credit Suisse warhorse, Grübel, was to clean up the rest. "We had to stop the bleeding," says Kielholz. "At the time I thought that operational improvements were so all-important that I could live with a dual CEO structure for a while."
So "Mack the Knife" cut costs at CSFB and quickly turned a $970 million net loss into an $830 million net profit. But Mack believed, as a next step, the investment bank had to bulk up, and he pushed Zurich to merge with a European competitor; a deal with Deutsche Bank was floated in the press. Kielholz and the board--peering over the tram turnaround in Zurich where both of Switzerland's leading banks have their headquarters--thought they should, instead, emulate UBS's hugely successful "one bank" strategy ahead of another megadeal.
By July 2004 Mack was out, and "Ossie" Grübel was made the sole chief executive. Grübel was born in what became East Germany and orphaned as a baby when both his parents died toward the end of World War II. In 1953 his aging grandmother, seeing the Iron Curtain fall, sent the 10-year-old Grübel to live with his aunt and uncle near Frankfurt. "Growing up with relatives is not something I would recommend," he says dryly. But Grübel's dying grandfather had left him sage advice: "Boy, you have to make some money. Better go to a bank. They always have money."
So banking became Grübel's ticket out. He started at Deutsche Bank in 1960 but in the ensuing decades held key trading and investment banking posts with Credit Suisse in Zurich and London. In the late 1990s Grübel made his name by radically restructuring the way CS's private bank did business. But getting the CS Group to run as an integrated whole is a far more difficult assignment. Even a figure like John Mack has had trouble controlling Credit Suisse's prima donnas. When he needed a face-to-face with Silicon Valley's Quattrone, for example, the New York chief executive had to meet him halfway, in Kansas City, Mo.
And Grübel's rough-edged interpersonal skills--he once famously berated a Financial Times journalist during a press conference--seem in many ways ill suited to tackling such a monumental task. The drooping eyelids, the mournful demeanor suggest more funeral director than worldly banker. But spend time with Grübel and the German's sly wit and intelligence quickly grow on you. "Some have trouble digesting his emotional gaps," says a high-ranking Swiss competitor who used to work with Grübel. "But he has a special management style, and he has always been able to surround himself with very capable people" who are not put off by his abrupt manner.
So, bit by bit, this unlikely character has pulled off a CS first: senior managers singing from the same hymn book. CS's Europe, Middle East and Africa chairman, Michael Philipp, says he came out of retirement because he is a "total believer" in Kielholz and Grübel's vision of an integrated bank; Jeremy Marshall, head of private banking in Britain, boasts he and his investment banking colleagues in London are the "test tube" of how it should work. "I keep on telling Ossie I want Asia Pacific to be the beta site for the ‘one bank' concept," counters Paul Calello, chief executive of CS's Asia Pacific operations. "The one- bank model is most appropriate for this region."
Getting this commitment to the integrated bank to flow all the way down the pyramid is Grübel's next big challenge. Philipp met earlier this year with the bank's French executives to hear their three-year budget plans. That night, at the Bristol Hotel in Paris, he pointedly told these skeptics their ambitions for consolidated selling and cost-cutting were far too modest.
In planning is a bonus scheme for 2006 that will reward star bankers on the group's overall results, not just on their individual performance. "It's absolutely key to align everyone's interests," says the private bank boss, Berchtold. "We can't have a culture where the private banker doesn't call the investment banker because he thinks the guy is going to grab all the revenue." Earlier this year a CSFB banker was parachuted into the private bank to help an Egyptian client who owned a mobile phone company and wanted to get some cash out of his concentrated stock position. The private bankers and investment bankers, working together, used derivatives and debt to extract cash without selling the stock.
Luckily, buoyant markets are coming to Grübel's aid. In the third quarter Credit Suisse reported a 30% increase in net revenue to $12 billion; net income, at $1.4 billion, was up 42%. In December the long-running dispute between XL Insurance and CS's Winterthur Insurance will get settled, which will let Grübel spin off Winterthur Insurance likely in 2006. (The insurance company is currently valued at around $8 billion.) New CS Group accounts that boil down the bank's complicated overlapping units to three simple businesses--private banking, investment banking and asset management--will be presented in the new year, as will a branding exercise officially announcing the "new" CS bank. Investors are coming around: CS's historic discount to UBS has been eliminated; both companies now trade between 13 and 14 times trailing earnings.
If there is resistance to Grübel, it's likely to show up at the investment bank. In July 2004 Grübel replaced the larger-than-life Mack with a politically astute toiler, Brady Dougan. A year ago Dougan announced the investment bank would not try to play every field but would focus on the key areas--new issues, mergers, leveraged finance and derivatives--that could also support the bank's asset-management and private banking arms.
"The one-bank concept is coming at us from everywhere, but there is astonishingly little detail as to what it actually means," counters a CSFB banker in London. "A lot of the investment bankers are here because of First Boston, and if [senior managers] dilute that [draw] too much in their ambition to create one bank, then they risk another wave of departures."
If Dougan is unloved by his bankers 18 months into the job, he can point to some gains: Thomson Financial's rankings for the first nine months of 2005 has CSFB reclaiming the title of the world's biggest new-issue underwriter. (Although it did get ensnared again--in the Refco scandal.) This fall CSFB managed the $8 billion China Construction Bank offering, the largest since 2001.
Elsewhere, however, CSFB's results are less impressive: It's fifth (counting fees on completed deals) in M&A and fifth in junk bond underwriting. The investment bank continues to lose market share under Dougan: CSFB's $1.2 billion in imputed fees for all global debt, equity and equity-related transactions through Sept. 30 has pushed the Swiss bank down to a 5% share of the market and a global ranking of ninth. Dougan has told Grübel the investment bank will deliver $2.3 billion in net income by 2007. "We're on track," he says coolly.
In his Zurich quarters Grübel's bass rumbles expectantly: "We'll know by the middle of next year whether the investment bank can deliver on its promises."
Richard Morais, 12.26.05
Switzerland's fractious Credit Suisse Group was carried through scandal by its private bank. Now its accident-prone investment bank, CSFB, must prove itself
After Jan. 1 there are no excuses anymore," says Credit Suisse's chief executive, Oswald Grübel, spearing a slab of beef in a private dining room of the Westin Hotel in Shanghai. Even the chinaware in the room seems to tremble as Grübel's basso profundo rolls threateningly across the room: "Managers can no longer blame the other business units, because [from January on] they are all in one bank. That's when you can't pay lip service to [the integrated bank], you actually have to deliver it. Every day."
The new year brings the official opening of Credit Suisse's "one bank" top-to-bottom remake. Long-suffering investors hope this is the dawn of a new era at Switzerland's $45 billion (2005 revenue) mainstay, long plagued by scandals and erratic earnings. The strategy of the press-shy Grübel, in his position just 18 months: Produce above-market returns by making CS's notoriously independent investment bankers, private bankers and asset managers finally work together. At least $6 billion in net income by 2007, Grübel has promised investors.
"Have we been cross-selling between the private bank and the investment bank?" says Richard Thornburgh, the Credit Suisse First Boston veteran now on the executive board of directors. "No. Part of our performance gap was because we are not doing what our competition is doing."
That won't be as easy as it sounds. Credit Suisse has historically been divided not only between its aloof Swiss private bankers and table-thumping American investment bankers but also by the self-serving and powerful cabals within the divisions that were rewarded on their narrow P&L responsibilities. "A bank with a lot of warring fiefdoms," says Simon Adamson, an analyst in London for the independent research house CreditSights.
In 2001, for example, a strutting 34-year-old Master of the Universe walked 40 bond specialists from CSFB over to Barclays Capital. It was during the final days of the piggy era that corresponded with Allen Wheat's rule at the investment bank, and within 24 hours Wheat had most of the fixed-income 40 back at CSFB. Their deal: a percentage of pretax profits, guaranteed for multiple years.
Will the no-nonsense Grübel be able to smack some sense into this playground?
Before we answer that, some history. The $1.1 trillion (assets) Credit Suisse is overshadowed by its much revered and well-run Swiss rival, the $2.1 trillion UBS, and Americans, in particular, tend to know it only for its fabled investment bank. But here's the lesser-known--and perhaps more important--story: Credit Suisse is arguably the world's most successful private bank.
Credit Suisse's private bank, accounting for just under half the group's $4.3 billion net profit last year, pulls in net revenue (fees plus interest income minus interest expense) equal to 1.3% of assets under management, to UBS's 1%. The CS private bank's net income is 0.48% of assets. The Boston Consulting Group says that's well above the 0.3% more typical for offshore private banks, and leagues above the 0.2% produced by the private-client arms of firms like Merrill Lynch. "Credit Suisse has had much better performance vis-Ã -vis UBS, and it shows up in the margins," says Sebastian Dovey, managing partner at Scorpio Partnership, consultant in London for private banks.
Why? CS's private bank, the world's third-largest wealth manager by assets after UBS and Merrill Lynch, has both a reputation for well-timed advice and a flair for creating unusual financial products (see box, opposite). In 1999 CS was, for example, the first to advertise "open architecture" to its private banking customers; only 225 of the 2,500 funds it sells today are CS or affiliated company products. It was also early to create certificates with returns pegged to funds of hedge funds so that private clients with $500,000 to $10 million to invest, not just the ultrawealthy, could trade in alternative investments. Today CS uniquely offers daily liquidity on 400 such hedge fund certificates.
In the words of a Merrill Lynch analyst (whose own firm is, of course, not a disinterested party) CS's reputation as a product innovator attracts clients who are much "younger, more sophisticated, more dynamic, more market-savvy" than the clients found at UBS; as a result they are more likely to turn over their portfolios and create bank income. "Our commissions are not more expensive than our competitors'," confirms Walter Berchtold, head of CS's private banking. "We've just been much better keeping value in-house." The concept, then, is to boast of openness but still keep the shelves well stocked with house products. One innovative item: a five-year commodity-linked bond whose quarterly return is capped at 8% but is guaranteed to pay off at least at par.
Now jump to the end of the 1990s, when the league-topping Credit Suisse First Boston went off the rails. The $11.5 billion Donaldson, Lufkin & Jenrette acquisition in 2000 was disastrously at the market top. Worse still: CSFB was knee-deep in the nastiest scandals of the era, everything from compromised research to new-issue malpractice. Bad boy Frank Quattrone, the bank's tech booster, was eventually found guilty of obstructing justice. (His conviction is on appeal.) CS's $1.1 billion litigation reserve today covers sore spots like Enron. "Risk management was out of control," concedes Walter Kielholz, CS Group's chairman.
To be fair, not all CS's problems of the day came from the investment bank. Managers in Zurich at that time had a mushy notion they were going to create a European-style "bancassurance" and spent $11.1 billion buying Winterthur Insurance in 1997. Another millstone. When Winterthur sold assets to XL Insurance of Bermuda in 2001, the transaction included guarantees. As we go to press, those obligations add up to a $550 million hole in Winterthur's pocket.
So Credit Suisse's market cap fell 76%, to $23 billion, between the summer of 2000 and the fall of 2002. The Swiss bank ended the year with a $3.4 billion loss, and the press publicly speculated about a Credit Suisse demise. Rattled clients pulled their accounts. "We found out how it impacts your business when your reputation is put into question," says Grübel. At its darkest hour, however, CS's low-key private bank delivered a $900 million net profit, the only unit among seven that wasn't hemorrhaging.
CS's board was jolted into action, and Kielholz, the Swiss Re veteran who'd been brought in as chairman, appointed two co-chief executives in 2003. John Mack--of Morgan Stanley fame--was told to save the investment bank; the Credit Suisse warhorse, Grübel, was to clean up the rest. "We had to stop the bleeding," says Kielholz. "At the time I thought that operational improvements were so all-important that I could live with a dual CEO structure for a while."
So "Mack the Knife" cut costs at CSFB and quickly turned a $970 million net loss into an $830 million net profit. But Mack believed, as a next step, the investment bank had to bulk up, and he pushed Zurich to merge with a European competitor; a deal with Deutsche Bank was floated in the press. Kielholz and the board--peering over the tram turnaround in Zurich where both of Switzerland's leading banks have their headquarters--thought they should, instead, emulate UBS's hugely successful "one bank" strategy ahead of another megadeal.
By July 2004 Mack was out, and "Ossie" Grübel was made the sole chief executive. Grübel was born in what became East Germany and orphaned as a baby when both his parents died toward the end of World War II. In 1953 his aging grandmother, seeing the Iron Curtain fall, sent the 10-year-old Grübel to live with his aunt and uncle near Frankfurt. "Growing up with relatives is not something I would recommend," he says dryly. But Grübel's dying grandfather had left him sage advice: "Boy, you have to make some money. Better go to a bank. They always have money."
So banking became Grübel's ticket out. He started at Deutsche Bank in 1960 but in the ensuing decades held key trading and investment banking posts with Credit Suisse in Zurich and London. In the late 1990s Grübel made his name by radically restructuring the way CS's private bank did business. But getting the CS Group to run as an integrated whole is a far more difficult assignment. Even a figure like John Mack has had trouble controlling Credit Suisse's prima donnas. When he needed a face-to-face with Silicon Valley's Quattrone, for example, the New York chief executive had to meet him halfway, in Kansas City, Mo.
And Grübel's rough-edged interpersonal skills--he once famously berated a Financial Times journalist during a press conference--seem in many ways ill suited to tackling such a monumental task. The drooping eyelids, the mournful demeanor suggest more funeral director than worldly banker. But spend time with Grübel and the German's sly wit and intelligence quickly grow on you. "Some have trouble digesting his emotional gaps," says a high-ranking Swiss competitor who used to work with Grübel. "But he has a special management style, and he has always been able to surround himself with very capable people" who are not put off by his abrupt manner.
So, bit by bit, this unlikely character has pulled off a CS first: senior managers singing from the same hymn book. CS's Europe, Middle East and Africa chairman, Michael Philipp, says he came out of retirement because he is a "total believer" in Kielholz and Grübel's vision of an integrated bank; Jeremy Marshall, head of private banking in Britain, boasts he and his investment banking colleagues in London are the "test tube" of how it should work. "I keep on telling Ossie I want Asia Pacific to be the beta site for the ‘one bank' concept," counters Paul Calello, chief executive of CS's Asia Pacific operations. "The one- bank model is most appropriate for this region."
Getting this commitment to the integrated bank to flow all the way down the pyramid is Grübel's next big challenge. Philipp met earlier this year with the bank's French executives to hear their three-year budget plans. That night, at the Bristol Hotel in Paris, he pointedly told these skeptics their ambitions for consolidated selling and cost-cutting were far too modest.
In planning is a bonus scheme for 2006 that will reward star bankers on the group's overall results, not just on their individual performance. "It's absolutely key to align everyone's interests," says the private bank boss, Berchtold. "We can't have a culture where the private banker doesn't call the investment banker because he thinks the guy is going to grab all the revenue." Earlier this year a CSFB banker was parachuted into the private bank to help an Egyptian client who owned a mobile phone company and wanted to get some cash out of his concentrated stock position. The private bankers and investment bankers, working together, used derivatives and debt to extract cash without selling the stock.
Luckily, buoyant markets are coming to Grübel's aid. In the third quarter Credit Suisse reported a 30% increase in net revenue to $12 billion; net income, at $1.4 billion, was up 42%. In December the long-running dispute between XL Insurance and CS's Winterthur Insurance will get settled, which will let Grübel spin off Winterthur Insurance likely in 2006. (The insurance company is currently valued at around $8 billion.) New CS Group accounts that boil down the bank's complicated overlapping units to three simple businesses--private banking, investment banking and asset management--will be presented in the new year, as will a branding exercise officially announcing the "new" CS bank. Investors are coming around: CS's historic discount to UBS has been eliminated; both companies now trade between 13 and 14 times trailing earnings.
If there is resistance to Grübel, it's likely to show up at the investment bank. In July 2004 Grübel replaced the larger-than-life Mack with a politically astute toiler, Brady Dougan. A year ago Dougan announced the investment bank would not try to play every field but would focus on the key areas--new issues, mergers, leveraged finance and derivatives--that could also support the bank's asset-management and private banking arms.
"The one-bank concept is coming at us from everywhere, but there is astonishingly little detail as to what it actually means," counters a CSFB banker in London. "A lot of the investment bankers are here because of First Boston, and if [senior managers] dilute that [draw] too much in their ambition to create one bank, then they risk another wave of departures."
If Dougan is unloved by his bankers 18 months into the job, he can point to some gains: Thomson Financial's rankings for the first nine months of 2005 has CSFB reclaiming the title of the world's biggest new-issue underwriter. (Although it did get ensnared again--in the Refco scandal.) This fall CSFB managed the $8 billion China Construction Bank offering, the largest since 2001.
Elsewhere, however, CSFB's results are less impressive: It's fifth (counting fees on completed deals) in M&A and fifth in junk bond underwriting. The investment bank continues to lose market share under Dougan: CSFB's $1.2 billion in imputed fees for all global debt, equity and equity-related transactions through Sept. 30 has pushed the Swiss bank down to a 5% share of the market and a global ranking of ninth. Dougan has told Grübel the investment bank will deliver $2.3 billion in net income by 2007. "We're on track," he says coolly.
In his Zurich quarters Grübel's bass rumbles expectantly: "We'll know by the middle of next year whether the investment bank can deliver on its promises."
Amgen Buys a Potential Blockbuster
The acquisition of Abgenix brings with it a promising cancer drug, one that could transform the combined outfit into an oncology powerhouse
When biotech giant Amgen (AMGN ) announced Dec. 14 that it would buy partner Abgenix (ABGX ) for $2.2 billion in cash, investors gave the deal a thumbs-up. Tiny Abgenix saw its shares soar 48% the following day, to $21.52, and Amgen -- which has been beaten up in the past for making acquisitions -- experienced a 4.8% jump in its stock price, to $80.44.
No doubt, the deal makes sense for the world's largest biotech. Amgen and Abgenix have been working together to develop a drug called Panitumumab, a treatment for colon cancer. The company estimates the product, now in late-stage clinical trials, could be a $2 billion-a-year global blockbuster. The acquisition also gives Amgen a pipeline full of other promising treatments for cancer and inflammatory diseases.
And Amgen will acquire a manufacturing facility, helping it save the $750 million or more it might have cost to boost manufacturing capacity on its own. [Editor's note: Amgen -- one of BusinessWeek's picks in its annual Investment Outlook -- announced the deal after that magazine story went to press (see BW, 12/26/05, "Biotech Bets").
DRUG DEAL. The crown jewel in this acquisition is Panitumumab. The drug is what's known as a fully human monoclonal antibody. It binds to a protein, EFGr, which has been linked to cancer. The binding halts a complex signaling system that causes cancer cells to survive and grow.
In November, Abgenix announced that in its pivotal trial, tumor growth in patients on Panitumumab was 46% lower than it was in a control group of patients. "This dramatically exceeded our expectations," said Dr. Roger Perlmutter, Amgen's executive vice-president for research and development, in a call with analysts following the acquisition announcement. The drug is also being tested on other cancers.
As with any acquisition, the downside is that it will dilute earnings. That raises a question: Is Amgen's stock still the bargain that the majority of the 30 analysts who cover it have been saying it is? Amgen expects the deal to close in 2006 and to reduce earnings-per-share estimates by somewhere between 5 cents and 10 cents in 2006 and 2007.
GROWTH PROSPECTS. Still, none of the analysts immediately downgraded Amgen's stock, and some were declaring the deal a resounding positive. "We like this stock over the long term," says Piper Jaffray analyst Mark Karvosky, who estimates the dilution will amount to only 4 cents a share next year. Neither Karvosky nor his firm own shares of Amgen.
Such enthusiasm is partly driven by valuation. Even with the tempered earnings expectations, many analysts believe Amgen's stock is undervalued, especially compared to the other giant in biotech, Genentech (DNA). Post-deal, Karvosky estimates Amgen will pull in 2006 earnings per share of $3.61 on $14.3 billion in sales.
Long-term growth prospects remain strong, he points out. Amgen is still enjoying double-digit percentage growth in sales of its drugs to treat rheumatoid arthritis, anemia, and infections in patients undergoing chemotherapy. Over the next few years, it could win Food & Drug Administration approval of Panitumumab, as well as another potential hit drug it's developing with Abgenix, Denosumab, which is being tested in patients with osteoporosis, rheumatoid arthritis, and cancer-related bone loss.
RISK AND REWARD. Karvosky believes Amgen's earnings will grow 20% a year, giving it a PEG ratio -- price-earnings divided by growth rate -- of 1.1. Genentech's PEG is a much pricier 2.4.
Even if you assume the worst, Amgen looks fairly reasonable. For example, if you knock a full 10 cents off analysts' average 2006 earnings estimate, resulting in expected earnings of $3.57 a share, and you guess Amgen will grow, say, only 12% a year, you end up with a PEG of just under 2. That's still cheap compared to Genentech (see BW Online, 8/25/05, "Cancer Drugs: Therapy for Stocks?").
That's not to say Amgen is risk-free. Panitumumab will go head-to-head in the market against ImClone's (IMCL ) Erbitux, which has enjoyed a significant head start and has pulled in about $300 million in sales so far this year (see BW Online, 6/9/05, "Erbitux: ImClone Makes Headway"). Amgen's $2 billion sales estimate for Panitumumab could be aggressive.
"A WONDERFUL ACHIEVEMENT." As one analyst in the post-deal call pointed out, when Amgen bought Immunex in 2002 for $10 billion, it predicted that Immunex's drug Enbrel for rheumatoid arthritis would hit $3 billion in sales by 2005. Amgen posted about $1.9 billion in Enbrel sales in the first nine months of the year. Amgen CEO Kevin Sharer admits that the company won't make the original target, but he points out that Enbrel is likely to exceed $3 billion in sales next year.
"That will be a wonderful achievement," he says. What's more, it was through the Immunex deal that Amgen became Abgenix's partner. Back then, neither company really knew whether any of Abgenix's experimental drugs were going to pan out.
"Panitumumab was not part of the economics of that deal," Sharer says, adding that the company has been "pleasantly surprised" by the drug's results and that even if it hits just $1 billion in sales, investors will break even on the deal. Sharer remains confident Panitumumab will hit the $2 billion target, though this time Amgen won't venture a guess as to when that will happen.
LOSING PARTNERS? Another risk is that some of Abgenix's big-pharma partners could pull out of development deals with it if they perceive Amgen as a significant competitor. On Dec. 15, a spokesperson for AstraZeneca (AZN) reportedly commented that it was reviewing its partnership with Abgenix. The British pharmaceutical giant has a deal with Abgenix, giving it access to as many as 36 cancer drugs.
Abgenix has 50 such partnerships all together, including a deal with Pfizer (PFE). How or even if the reshaping of those deals will affect the long-term value of the Amgen/Abgenix partnership is not yet clear.
One fact that is clear is that the Abgenix acquisition brings Amgen closer to achieving one of its biggest goals. It has long been a leader in supportive cancer care -- providing drugs that treat conditions ancillary to cancer, but not the cancers themselves.
Sharer wants to turn Amgen into an oncology powerhouse at all stages of care. And just last year, Amgen bought another partner, Tularik, which is also developing cancer drugs. Abgenix's promising colon cancer drug "represents a key entry point" for Amgen to add cancer therapeutics to its existing line of oncology-support drugs, Sharer said. Now it's up to him to prove to investors that these additions will keep Amgen on its strong growth path.
The acquisition of Abgenix brings with it a promising cancer drug, one that could transform the combined outfit into an oncology powerhouse
When biotech giant Amgen (AMGN ) announced Dec. 14 that it would buy partner Abgenix (ABGX ) for $2.2 billion in cash, investors gave the deal a thumbs-up. Tiny Abgenix saw its shares soar 48% the following day, to $21.52, and Amgen -- which has been beaten up in the past for making acquisitions -- experienced a 4.8% jump in its stock price, to $80.44.
No doubt, the deal makes sense for the world's largest biotech. Amgen and Abgenix have been working together to develop a drug called Panitumumab, a treatment for colon cancer. The company estimates the product, now in late-stage clinical trials, could be a $2 billion-a-year global blockbuster. The acquisition also gives Amgen a pipeline full of other promising treatments for cancer and inflammatory diseases.
And Amgen will acquire a manufacturing facility, helping it save the $750 million or more it might have cost to boost manufacturing capacity on its own. [Editor's note: Amgen -- one of BusinessWeek's picks in its annual Investment Outlook -- announced the deal after that magazine story went to press (see BW, 12/26/05, "Biotech Bets").
DRUG DEAL. The crown jewel in this acquisition is Panitumumab. The drug is what's known as a fully human monoclonal antibody. It binds to a protein, EFGr, which has been linked to cancer. The binding halts a complex signaling system that causes cancer cells to survive and grow.
In November, Abgenix announced that in its pivotal trial, tumor growth in patients on Panitumumab was 46% lower than it was in a control group of patients. "This dramatically exceeded our expectations," said Dr. Roger Perlmutter, Amgen's executive vice-president for research and development, in a call with analysts following the acquisition announcement. The drug is also being tested on other cancers.
As with any acquisition, the downside is that it will dilute earnings. That raises a question: Is Amgen's stock still the bargain that the majority of the 30 analysts who cover it have been saying it is? Amgen expects the deal to close in 2006 and to reduce earnings-per-share estimates by somewhere between 5 cents and 10 cents in 2006 and 2007.
GROWTH PROSPECTS. Still, none of the analysts immediately downgraded Amgen's stock, and some were declaring the deal a resounding positive. "We like this stock over the long term," says Piper Jaffray analyst Mark Karvosky, who estimates the dilution will amount to only 4 cents a share next year. Neither Karvosky nor his firm own shares of Amgen.
Such enthusiasm is partly driven by valuation. Even with the tempered earnings expectations, many analysts believe Amgen's stock is undervalued, especially compared to the other giant in biotech, Genentech (DNA). Post-deal, Karvosky estimates Amgen will pull in 2006 earnings per share of $3.61 on $14.3 billion in sales.
Long-term growth prospects remain strong, he points out. Amgen is still enjoying double-digit percentage growth in sales of its drugs to treat rheumatoid arthritis, anemia, and infections in patients undergoing chemotherapy. Over the next few years, it could win Food & Drug Administration approval of Panitumumab, as well as another potential hit drug it's developing with Abgenix, Denosumab, which is being tested in patients with osteoporosis, rheumatoid arthritis, and cancer-related bone loss.
RISK AND REWARD. Karvosky believes Amgen's earnings will grow 20% a year, giving it a PEG ratio -- price-earnings divided by growth rate -- of 1.1. Genentech's PEG is a much pricier 2.4.
Even if you assume the worst, Amgen looks fairly reasonable. For example, if you knock a full 10 cents off analysts' average 2006 earnings estimate, resulting in expected earnings of $3.57 a share, and you guess Amgen will grow, say, only 12% a year, you end up with a PEG of just under 2. That's still cheap compared to Genentech (see BW Online, 8/25/05, "Cancer Drugs: Therapy for Stocks?").
That's not to say Amgen is risk-free. Panitumumab will go head-to-head in the market against ImClone's (IMCL ) Erbitux, which has enjoyed a significant head start and has pulled in about $300 million in sales so far this year (see BW Online, 6/9/05, "Erbitux: ImClone Makes Headway"). Amgen's $2 billion sales estimate for Panitumumab could be aggressive.
"A WONDERFUL ACHIEVEMENT." As one analyst in the post-deal call pointed out, when Amgen bought Immunex in 2002 for $10 billion, it predicted that Immunex's drug Enbrel for rheumatoid arthritis would hit $3 billion in sales by 2005. Amgen posted about $1.9 billion in Enbrel sales in the first nine months of the year. Amgen CEO Kevin Sharer admits that the company won't make the original target, but he points out that Enbrel is likely to exceed $3 billion in sales next year.
"That will be a wonderful achievement," he says. What's more, it was through the Immunex deal that Amgen became Abgenix's partner. Back then, neither company really knew whether any of Abgenix's experimental drugs were going to pan out.
"Panitumumab was not part of the economics of that deal," Sharer says, adding that the company has been "pleasantly surprised" by the drug's results and that even if it hits just $1 billion in sales, investors will break even on the deal. Sharer remains confident Panitumumab will hit the $2 billion target, though this time Amgen won't venture a guess as to when that will happen.
LOSING PARTNERS? Another risk is that some of Abgenix's big-pharma partners could pull out of development deals with it if they perceive Amgen as a significant competitor. On Dec. 15, a spokesperson for AstraZeneca (AZN) reportedly commented that it was reviewing its partnership with Abgenix. The British pharmaceutical giant has a deal with Abgenix, giving it access to as many as 36 cancer drugs.
Abgenix has 50 such partnerships all together, including a deal with Pfizer (PFE). How or even if the reshaping of those deals will affect the long-term value of the Amgen/Abgenix partnership is not yet clear.
One fact that is clear is that the Abgenix acquisition brings Amgen closer to achieving one of its biggest goals. It has long been a leader in supportive cancer care -- providing drugs that treat conditions ancillary to cancer, but not the cancers themselves.
Sharer wants to turn Amgen into an oncology powerhouse at all stages of care. And just last year, Amgen bought another partner, Tularik, which is also developing cancer drugs. Abgenix's promising colon cancer drug "represents a key entry point" for Amgen to add cancer therapeutics to its existing line of oncology-support drugs, Sharer said. Now it's up to him to prove to investors that these additions will keep Amgen on its strong growth path.
India, Inc.
No longer just an outsourcing hub for low-level jobs, India is luring top American talent and unprecedented new investments by tech giants like Microsoft and Intel.
WEB EXCLUSIVE
By Vibhuti Patel
Newsweek
Updated: 10:42 a.m. ET Dec. 19, 2005
Dec. 14, 2005 - Erik Simonsen got his M.B.A. at New York University, but the 28-year-old decided to go half a world away for his internship. He chose Copal Partners, a small technology company near New Delhi over similar companies on the East Coast and in Silicon Valley. "I was drawn to India because while U.S. markets are stagnating, so much is happening here," he explains. "It's a chance to re-experience the dotcom environment of the 1990s. Companies are growing so quickly here that opportunities to take on responsibility are greater."
Simonsen is at the leading edge of an increasing number of science, business and technology students from elite colleges and universities heading to India, the world's third-largest economy, to get global experience. "Internships have become a big deal in the last five years and India is particularly attractive because of its huge language advantage," says George Day, a professor at the University of Pennsylvania's Wharton School of Business. "We can't just drop students into China—there's a language problem," says Day. "China is the big engine, but India is the place to ride the curve upward.”
Universities are responding to the demand for international experience, particularly in emerging Asian markets. Last summer, Yale president Richard Levin took a 12-member team to set up joint ventures with several Indian universities. The Ivy League school will send 30 interns over this year and expects to send 50 next year. It also has 30 faculty collaboration projects underway in a number of subjects ranging from public health, to management and forestry. And this year, Massachusetts Institute of Technology's India program, funded by the National Science Foundation, flew over 28 Ph.D.s to pursue their research in science and economics. "MIT sends students because it's aware of our globalized world," says coordinator Deepti Nijhawan. "But it's a leap of faith."
As of last week, that leap looked a lot less risky. Within days of each other, tech industry giants Microsoft and Intel announced unprecedented investments in their Indian research and development facilities. On Dec. 7, Microsoft chairman Bill Gates said that he was putting $1.7 billion into the company's operations in India over four years. About half of that amount will go to its research and development center in Hyderabad—Microsoft's largest campus outside its headquarters in Redmond, Wash. "India has emerged as the new mecca for high-technology investments," said Gates at the opening of a sleek new facility in India's IT capital of Bangalore. A few days before Gates's trip, Silicon Valley chip maker Intel's chairman Craig Barrett announced that his company was investing $1.1 billion in India. And in October, Cisco Systems Inc. announced that it would put more than $1 billion into India over three years—its largest non-U.S. investment ever. A good chunk of that money, like Microsoft's investment, is going for the kind of innovative work that attracts world-class grad researchers and engineers, rather than the low-level call center jobs stereotypically outsourced to India.
While research positions with American companies based in India may soon be a draw for American engineers, American students already in India are gathering professional experience with Indian companies. Thirty-year-old Tim Hentzel is an M.B.A. student at the Wharton School of Business who first went to India in 2004 on his school’s three-week "global immersion" program. Infosys, an IT business and consulting services firm traded on the Nasdaq, piqued his interest because "their [106] interns come from all over the world—I needed the international experience." Infosys also appealed to him because their interns work on hands-on projects, are matched to mentors and have easy access to the company's top executives. Of his stint at the company's spa-like campus in Bangalore, Hentzel says, "it's the best decision I made. India's on the cutting edge." He says he put in long hours and made lasting personal and professional contacts because "I had gone to work, not for a safari."
Navi Radjou, an emerging markets expert at Forrester Research, says those professional contacts are the reason that internships like Hentzel's are going to be more than just resume padding for the next generation of ambitious American managers. "If you ask General Electric, they'll tell you that 60 percent of their future revenues are going to be coming from emerging markets like India and China," he says. " If you are a young kid and you want to be top leader the in the future you'd better understand that other 60 percent. It's not just about having our companies trading with other companies, it's getting our people to connect."
M.B.A.s aren't the only ones seeking professional experience in India. Emily Hueske, who is researching mutating proteins in mice for her Ph.D., spent two months at the National Center for Biological Sciences in Bangalore. "Our lab at MIT wanted to do the work that this excellent neuroscience lab is doing; I wanted to go because India's religion, food, culture are so different." She valued meeting Indian families, and the "real" people that casual visitors don't see. "It was the most solid work time I had with a specific goal. The lab is supremely set up—different from MIT because it's more conservationist, there's more recycling."
For Indian-American business and technology students, India's economic rise could be both a professional and personal boon. Samuel Varghese, a married 35-year-old, has an M.B.A. from Duke University. He used to go "home" to India every year to visit family. When it was time to choose an internship, he went to Infosys "primarily because it was a good job opportunity, the company has tremendous growth," but also because "living and working there is different from visiting India." But Navi Radjou at Forrester says that to lure more Indian-American (and American) talent, India will have to improve its crumbling infrastructure. "If you want to build chip manufacturing facilities, you need good electricity, you need good roads to transport the chips. And if you want Indian expats to come back, they need decent schools and houses."
Even intrepid young managers like Simonsen took some time to get used to less-sophisticated living conditions. He was surprised to find that his base of Gurgaon, near Delhi, has "bars, shopping malls and world-class buildings in empty fields with wild dogs and pigs." The constant dust is hard to cope with, and he got sick. "It's welcoming and I'm flexible, but it's a huge change in lifestyle. I miss home comforts and [the] variety of food."
Nonetheless, Simonsen says that the challenges are far outweighed by the chance to move up fast in a national economy that's growing at seven or eight percent a year. He started with Copal Partners as an intern and within a month he was promoted to senior vice president of operations, in charge of IT, recruiting and administration. Simonsen was thrilled. "I'd never have got such responsibility in a U.S. company—Copal has grown 300 percent in manpower in six months. You have doubts from home, but once you're here, it's different."
© 2005 Newsweek, Inc.
No longer just an outsourcing hub for low-level jobs, India is luring top American talent and unprecedented new investments by tech giants like Microsoft and Intel.
WEB EXCLUSIVE
By Vibhuti Patel
Newsweek
Updated: 10:42 a.m. ET Dec. 19, 2005
Dec. 14, 2005 - Erik Simonsen got his M.B.A. at New York University, but the 28-year-old decided to go half a world away for his internship. He chose Copal Partners, a small technology company near New Delhi over similar companies on the East Coast and in Silicon Valley. "I was drawn to India because while U.S. markets are stagnating, so much is happening here," he explains. "It's a chance to re-experience the dotcom environment of the 1990s. Companies are growing so quickly here that opportunities to take on responsibility are greater."
Simonsen is at the leading edge of an increasing number of science, business and technology students from elite colleges and universities heading to India, the world's third-largest economy, to get global experience. "Internships have become a big deal in the last five years and India is particularly attractive because of its huge language advantage," says George Day, a professor at the University of Pennsylvania's Wharton School of Business. "We can't just drop students into China—there's a language problem," says Day. "China is the big engine, but India is the place to ride the curve upward.”
Universities are responding to the demand for international experience, particularly in emerging Asian markets. Last summer, Yale president Richard Levin took a 12-member team to set up joint ventures with several Indian universities. The Ivy League school will send 30 interns over this year and expects to send 50 next year. It also has 30 faculty collaboration projects underway in a number of subjects ranging from public health, to management and forestry. And this year, Massachusetts Institute of Technology's India program, funded by the National Science Foundation, flew over 28 Ph.D.s to pursue their research in science and economics. "MIT sends students because it's aware of our globalized world," says coordinator Deepti Nijhawan. "But it's a leap of faith."
As of last week, that leap looked a lot less risky. Within days of each other, tech industry giants Microsoft and Intel announced unprecedented investments in their Indian research and development facilities. On Dec. 7, Microsoft chairman Bill Gates said that he was putting $1.7 billion into the company's operations in India over four years. About half of that amount will go to its research and development center in Hyderabad—Microsoft's largest campus outside its headquarters in Redmond, Wash. "India has emerged as the new mecca for high-technology investments," said Gates at the opening of a sleek new facility in India's IT capital of Bangalore. A few days before Gates's trip, Silicon Valley chip maker Intel's chairman Craig Barrett announced that his company was investing $1.1 billion in India. And in October, Cisco Systems Inc. announced that it would put more than $1 billion into India over three years—its largest non-U.S. investment ever. A good chunk of that money, like Microsoft's investment, is going for the kind of innovative work that attracts world-class grad researchers and engineers, rather than the low-level call center jobs stereotypically outsourced to India.
While research positions with American companies based in India may soon be a draw for American engineers, American students already in India are gathering professional experience with Indian companies. Thirty-year-old Tim Hentzel is an M.B.A. student at the Wharton School of Business who first went to India in 2004 on his school’s three-week "global immersion" program. Infosys, an IT business and consulting services firm traded on the Nasdaq, piqued his interest because "their [106] interns come from all over the world—I needed the international experience." Infosys also appealed to him because their interns work on hands-on projects, are matched to mentors and have easy access to the company's top executives. Of his stint at the company's spa-like campus in Bangalore, Hentzel says, "it's the best decision I made. India's on the cutting edge." He says he put in long hours and made lasting personal and professional contacts because "I had gone to work, not for a safari."
Navi Radjou, an emerging markets expert at Forrester Research, says those professional contacts are the reason that internships like Hentzel's are going to be more than just resume padding for the next generation of ambitious American managers. "If you ask General Electric, they'll tell you that 60 percent of their future revenues are going to be coming from emerging markets like India and China," he says. " If you are a young kid and you want to be top leader the in the future you'd better understand that other 60 percent. It's not just about having our companies trading with other companies, it's getting our people to connect."
M.B.A.s aren't the only ones seeking professional experience in India. Emily Hueske, who is researching mutating proteins in mice for her Ph.D., spent two months at the National Center for Biological Sciences in Bangalore. "Our lab at MIT wanted to do the work that this excellent neuroscience lab is doing; I wanted to go because India's religion, food, culture are so different." She valued meeting Indian families, and the "real" people that casual visitors don't see. "It was the most solid work time I had with a specific goal. The lab is supremely set up—different from MIT because it's more conservationist, there's more recycling."
For Indian-American business and technology students, India's economic rise could be both a professional and personal boon. Samuel Varghese, a married 35-year-old, has an M.B.A. from Duke University. He used to go "home" to India every year to visit family. When it was time to choose an internship, he went to Infosys "primarily because it was a good job opportunity, the company has tremendous growth," but also because "living and working there is different from visiting India." But Navi Radjou at Forrester says that to lure more Indian-American (and American) talent, India will have to improve its crumbling infrastructure. "If you want to build chip manufacturing facilities, you need good electricity, you need good roads to transport the chips. And if you want Indian expats to come back, they need decent schools and houses."
Even intrepid young managers like Simonsen took some time to get used to less-sophisticated living conditions. He was surprised to find that his base of Gurgaon, near Delhi, has "bars, shopping malls and world-class buildings in empty fields with wild dogs and pigs." The constant dust is hard to cope with, and he got sick. "It's welcoming and I'm flexible, but it's a huge change in lifestyle. I miss home comforts and [the] variety of food."
Nonetheless, Simonsen says that the challenges are far outweighed by the chance to move up fast in a national economy that's growing at seven or eight percent a year. He started with Copal Partners as an intern and within a month he was promoted to senior vice president of operations, in charge of IT, recruiting and administration. Simonsen was thrilled. "I'd never have got such responsibility in a U.S. company—Copal has grown 300 percent in manpower in six months. You have doubts from home, but once you're here, it's different."
© 2005 Newsweek, Inc.
Wall Street duo join forces to take on Spitzer (SPITZER OVER-REACH OR WILL THIS BE HELPFUL TO HIM???)
By Katherine Griffiths in New York
Published: 20 December 2005
A backlash against Eliot Spitzer, New York's attorney general, is growing on Wall Street with two billionaire businessmen who have fallen foul of the combative government lawyer planning to team up to fight litigation he has brought against them.
Hank Greenberg, the former chairman and chief executive of the insurance giant American International Group, and Kenneth Langone, who used to be chairman of the New York Stock Exchange's compensation committee, are considering launching a co-ordinated campaign against Mr Spitzer.
Both high-profile businessmen are being pursued by the crusading attorney general over alleged wrong-doing. Mr Greenberg is accused of accounting fraud, while Mr Langone is being sued for his role in allowing the NYSE's former chairman Dick Grasso to pocket $187m (£106m) in pay.
Mr Greenberg and Mr Langone deny they have done anything wrong and have recently lashed out at Mr Spitzer's tactics, including his use of the media to make damaging allegations about people he is investigating.
After 40 years running AIG, Mr Greenberg was ousted in March amid Mr Spitzer's investigation into accounting irregularities at the insurer. The 80-year-old executive said last week: "For the attorney general to use his office to prosecute, and persecute, people in the press for political gain is wholly against our legal principles. It's outrageous."
Mr Langone, the co-founder of the retailer Home Depot, attacked Mr Spitzer in a similar vein at an event at New York's Waldorf-Astoria last Friday, accusing his antagonist of being driven by "raw ambition for pure political gain". Mr Spitzer is the Democratic candidate to be New York's next governor.
News of an alliance between Mr Greenberg and Mr Langone was reported by the CNBC television network. Both have been busy lining up their powerful connections on Wall Street and in political circles to support their counter-attack on Mr Spitzer as a politically motivated opportunist.
Mr Greenberg is thought to have approached the former New York governor Mario Cuomo. Despite being a Democrat, Mr Cuomo is reportedly helping start a public relations campaign for Mr Greenberg. The two might also use their fortunes to finance an opponent to Mr Spitzer in the gubernatorial election.
By Katherine Griffiths in New York
Published: 20 December 2005
A backlash against Eliot Spitzer, New York's attorney general, is growing on Wall Street with two billionaire businessmen who have fallen foul of the combative government lawyer planning to team up to fight litigation he has brought against them.
Hank Greenberg, the former chairman and chief executive of the insurance giant American International Group, and Kenneth Langone, who used to be chairman of the New York Stock Exchange's compensation committee, are considering launching a co-ordinated campaign against Mr Spitzer.
Both high-profile businessmen are being pursued by the crusading attorney general over alleged wrong-doing. Mr Greenberg is accused of accounting fraud, while Mr Langone is being sued for his role in allowing the NYSE's former chairman Dick Grasso to pocket $187m (£106m) in pay.
Mr Greenberg and Mr Langone deny they have done anything wrong and have recently lashed out at Mr Spitzer's tactics, including his use of the media to make damaging allegations about people he is investigating.
After 40 years running AIG, Mr Greenberg was ousted in March amid Mr Spitzer's investigation into accounting irregularities at the insurer. The 80-year-old executive said last week: "For the attorney general to use his office to prosecute, and persecute, people in the press for political gain is wholly against our legal principles. It's outrageous."
Mr Langone, the co-founder of the retailer Home Depot, attacked Mr Spitzer in a similar vein at an event at New York's Waldorf-Astoria last Friday, accusing his antagonist of being driven by "raw ambition for pure political gain". Mr Spitzer is the Democratic candidate to be New York's next governor.
News of an alliance between Mr Greenberg and Mr Langone was reported by the CNBC television network. Both have been busy lining up their powerful connections on Wall Street and in political circles to support their counter-attack on Mr Spitzer as a politically motivated opportunist.
Mr Greenberg is thought to have approached the former New York governor Mario Cuomo. Despite being a Democrat, Mr Cuomo is reportedly helping start a public relations campaign for Mr Greenberg. The two might also use their fortunes to finance an opponent to Mr Spitzer in the gubernatorial election.
Our Domestic Intelligence Crisis
By Richard A. Posner
Wednesday, December 21, 2005; A31
We've learned that the Defense Department is deeply involved in domestic intelligence (intelligence concerning threats to national security that unfold on U.S. soil). The department's National Security Agency has been conducting, outside the framework of the Foreign Intelligence Surveillance Act, electronic surveillance of U.S. citizens within the United States. Other Pentagon agencies, notably the one known as Counterintelligence Field Activity (CIFA), have, as described in Walter Pincus's recent articles in The Post, been conducting domestic intelligence on a large scale. Although the CIFA's formal mission is to prevent attacks on military installations in the United States, the scale of its activities suggests a broader concern with domestic security. Other Pentagon agencies have gotten into the domestic intelligence act, such as the Information Dominance Center, which developed the Able Danger data-mining program.
These programs are criticized as grave threats to civil liberties. They are not. Their significance is in flagging the existence of gaps in our defenses against terrorism. The Defense Department is rushing to fill those gaps, though there may be better ways.
The collection, mainly through electronic means, of vast amounts of personal data is said to invade privacy. But machine collection and processing of data cannot, as such, invade privacy. Because of their volume, the data are first sifted by computers, which search for names, addresses, phone numbers, etc., that may have intelligence value. This initial sifting, far from invading privacy (a computer is not a sentient being), keeps most private data from being read by any intelligence officer.
The data that make the cut are those that contain clues to possible threats to national security. The only valid ground for forbidding human inspection of such data is fear that they might be used to blackmail or otherwise intimidate the administration's political enemies. That danger is more remote than at any previous period of U.S. history. Because of increased political partisanship, advances in communications technology and more numerous and competitive media, American government has become a sieve. No secrets concerning matters that would interest the public can be kept for long. And the public would be far more interested to learn that public officials were using private information about American citizens for base political ends than to learn that we have been rough with terrorist suspects -- a matter that was quickly exposed despite efforts at concealment.
The Foreign Intelligence Surveillance Act makes it difficult to conduct surveillance of U.S. citizens and lawful permanent residents unless they are suspected of being involved in terrorist or other hostile activities. That is too restrictive. Innocent people, such as unwitting neighbors of terrorists, may, without knowing it, have valuable counterterrorist information. Collecting such information is of a piece with data-mining projects such as Able Danger.
The goal of national security intelligence is to prevent a terrorist attack, not just punish the attacker after it occurs, and the information that enables the detection of an impending attack may be scattered around the world in tiny bits. A much wider, finer-meshed net must be cast than when investigating a specific crime. Many of the relevant bits may be in the e-mails, phone conversations or banking records of U.S. citizens, some innocent, some not so innocent. The government is entitled to those data, but just for the limited purpose of protecting national security.
The Pentagon's rush to fill gaps in domestic intelligence reflects the disarray in this vital yet neglected area of national security. The principal domestic intelligence agency is the FBI, but it is primarily a criminal investigation agency that has been struggling, so far with limited success, to transform itself. It is having trouble keeping its eye on the ball; an FBI official is quoted as having told the Senate that environmental and animal rights militants pose the biggest terrorist threats in the United States. If only that were so.
Most other nations, such as Britain, Canada, France, Germany and Israel, many with longer histories of fighting terrorism than the United States, have a domestic intelligence agency that is separate from its national police force, its counterpart to the FBI. We do not. We also have no official with sole and comprehensive responsibility for domestic intelligence. It is no surprise that gaps in domestic intelligence are being filled by ad hoc initiatives.
We must do better. The terrorist menace, far from receding, grows every day. This is not only because al Qaeda likes to space its attacks, often by many years, but also because weapons of mass destruction are becoming ever more accessible to terrorist groups and individuals.
The writer is a judge on the U.S. Court of Appeals for the 7th Circuit and a senior lecturer in law at the University of Chicago.
By Richard A. Posner
Wednesday, December 21, 2005; A31
We've learned that the Defense Department is deeply involved in domestic intelligence (intelligence concerning threats to national security that unfold on U.S. soil). The department's National Security Agency has been conducting, outside the framework of the Foreign Intelligence Surveillance Act, electronic surveillance of U.S. citizens within the United States. Other Pentagon agencies, notably the one known as Counterintelligence Field Activity (CIFA), have, as described in Walter Pincus's recent articles in The Post, been conducting domestic intelligence on a large scale. Although the CIFA's formal mission is to prevent attacks on military installations in the United States, the scale of its activities suggests a broader concern with domestic security. Other Pentagon agencies have gotten into the domestic intelligence act, such as the Information Dominance Center, which developed the Able Danger data-mining program.
These programs are criticized as grave threats to civil liberties. They are not. Their significance is in flagging the existence of gaps in our defenses against terrorism. The Defense Department is rushing to fill those gaps, though there may be better ways.
The collection, mainly through electronic means, of vast amounts of personal data is said to invade privacy. But machine collection and processing of data cannot, as such, invade privacy. Because of their volume, the data are first sifted by computers, which search for names, addresses, phone numbers, etc., that may have intelligence value. This initial sifting, far from invading privacy (a computer is not a sentient being), keeps most private data from being read by any intelligence officer.
The data that make the cut are those that contain clues to possible threats to national security. The only valid ground for forbidding human inspection of such data is fear that they might be used to blackmail or otherwise intimidate the administration's political enemies. That danger is more remote than at any previous period of U.S. history. Because of increased political partisanship, advances in communications technology and more numerous and competitive media, American government has become a sieve. No secrets concerning matters that would interest the public can be kept for long. And the public would be far more interested to learn that public officials were using private information about American citizens for base political ends than to learn that we have been rough with terrorist suspects -- a matter that was quickly exposed despite efforts at concealment.
The Foreign Intelligence Surveillance Act makes it difficult to conduct surveillance of U.S. citizens and lawful permanent residents unless they are suspected of being involved in terrorist or other hostile activities. That is too restrictive. Innocent people, such as unwitting neighbors of terrorists, may, without knowing it, have valuable counterterrorist information. Collecting such information is of a piece with data-mining projects such as Able Danger.
The goal of national security intelligence is to prevent a terrorist attack, not just punish the attacker after it occurs, and the information that enables the detection of an impending attack may be scattered around the world in tiny bits. A much wider, finer-meshed net must be cast than when investigating a specific crime. Many of the relevant bits may be in the e-mails, phone conversations or banking records of U.S. citizens, some innocent, some not so innocent. The government is entitled to those data, but just for the limited purpose of protecting national security.
The Pentagon's rush to fill gaps in domestic intelligence reflects the disarray in this vital yet neglected area of national security. The principal domestic intelligence agency is the FBI, but it is primarily a criminal investigation agency that has been struggling, so far with limited success, to transform itself. It is having trouble keeping its eye on the ball; an FBI official is quoted as having told the Senate that environmental and animal rights militants pose the biggest terrorist threats in the United States. If only that were so.
Most other nations, such as Britain, Canada, France, Germany and Israel, many with longer histories of fighting terrorism than the United States, have a domestic intelligence agency that is separate from its national police force, its counterpart to the FBI. We do not. We also have no official with sole and comprehensive responsibility for domestic intelligence. It is no surprise that gaps in domestic intelligence are being filled by ad hoc initiatives.
We must do better. The terrorist menace, far from receding, grows every day. This is not only because al Qaeda likes to space its attacks, often by many years, but also because weapons of mass destruction are becoming ever more accessible to terrorist groups and individuals.
The writer is a judge on the U.S. Court of Appeals for the 7th Circuit and a senior lecturer in law at the University of Chicago.
Clash Is Latest Chapter in Bush Effort to Widen Executive Power
By Peter Baker and Jim VandeHei
Washington Post Staff Writers
Wednesday, December 21, 2005; A01
The clash over the secret domestic spying program is one slice of a broader struggle over the power of the presidency that has animated the Bush administration. George W. Bush and Dick Cheney came to office convinced that the authority of the presidency had eroded and have spent the past five years trying to reclaim it.
From shielding energy policy deliberations to setting up military tribunals without court involvement, Bush, with Cheney's encouragement, has taken what scholars call a more expansive view of his role than any commander in chief in decades. With few exceptions, Congress and the courts have largely stayed out of the way, deferential to the argument that a president needs free rein, especially in wartime.
But the disclosure of Bush's eavesdropping program has revived the issue, and Congress appears to be growing restive about surrendering so much of its authority. Democrats and even key Republicans maintain Bush went too far -- and may have even violated the law -- by authorizing the National Security Agency to eavesdrop on U.S. citizens' overseas telephone calls in search of terrorist plots without obtaining warrants from a secret intelligence court. (WITHOUT A TRAIL OR ANYTHING, WE ALREADY KNOW THAT THE PRESIDENT VIOLATED THE LAW. TERRORISTS GET DUE PROCESS, DOES THE PRESIDENT? IT WOULD BE NICE TO THINK SO.)
The vice president entered the fray yesterday, rejecting the criticism and expounding on the philosophy that has driven so many of the administration's actions. "I believe in a strong, robust executive authority, and I think that the world we live in demands it -- and to some extent that we have an obligation as the administration to pass on the offices we hold to our successors in as good of shape as we found them," Cheney said. In wartime, he said, the president "needs to have his constitutional powers unimpaired."
Speaking with reporters traveling with him aboard Air Force Two to Oman, Cheney said the period after the Watergate scandal and Vietnam War proved to be "the nadir of the modern presidency in terms of authority and legitimacy" and harmed the chief executive's ability to lead in a complicated, dangerous era. "But I do think that to some extent now we've been able to restore the legitimate authority of the presidency."
For Cheney, the post-Watergate era was the formative experience shaping his understanding of executive power. As a young White House chief of staff for President Gerald R. Ford, he saw the Oval Office at its weakest point as Congress and the courts asserted themselves. But scholars such as Andrew Rudalevige, author of "The New Imperial Presidency," say the presidency had recovered long before Cheney returned to the White House in 2001. The War Powers Act, the legislative veto, the independent counsel statute and other legacies of the 1970s had all been discarded in one form or another.
"He's living in a time warp," said Bruce Fein, a constitutional lawyer and Reagan administration official. "The great irony is Bush inherited the strongest presidency of anyone since Franklin Roosevelt, and Cheney acts as if he's still under the constraints of 1973 or 1974."
Sen. John E. Sununu (R-N.H.) said: "The vice president may be the only person I know of that believes the executive has somehow lost power over the last 30 years."
The tug over executive power traces back to the early years of the republic, and presidents have traditionally moved to expand their reach during times of war. John Adams, fearing a hostile France, presided over the imprisonment of Republican critics under the Alien and Sedition Acts. Abraham Lincoln suspended habeas corpus during the Civil War. Woodrow Wilson jailed Socialist Eugene V. Debs, who had run against him for president, for protesting the entry into World War I. Franklin D. Roosevelt sent Japanese Americans to internment camps during World War II. And Ronald Reagan circumvented a Cold War congressional ban on providing aid to contra rebels in Nicaragua.
The Bush administration rejects comparisons to such events and says its assertions of authority in response to the Sept. 11, 2001, terrorist attacks have been carefully tailored to meet the needs of a 21st-century war against a nebulous foe. At his news conference Monday, Bush bristled at the notion that he sought "unchecked power" and said he had consulted with Congress extensively.
Yet Bush supporters believe that other branches should take a subsidiary role to the president in safeguarding national security. "The Constitution's intent when we're under attack from outside is to place maximum power in the president," said William P. Barr, who was attorney general under President George H.W. Bush, "and the other branches, and especially the courts, don't act as a check on the president's authority against the enemy."
Even before the NSA surveillance program, the Bush administration has asserted its war-making authority in detaining indefinitely U.S. citizens as enemy combatants, denying prisoners access to lawyers or courts, rejecting in some cases the applicability of the Geneva Conventions, expanding its interrogation techniques to include harsher treatment and establishing secret terrorist prisons in foreign countries.
"The problem is, where do you stop rebalancing the power and go too far in the other direction?" asked David A. Keene, chairman of the American Conservative Union. "I think in some instances [Bush] has gone too far."
Taken alone, the expansion of executive wartime power may seem an obvious outflow of confronting the new threat of global terrorism. But when coupled with the huge expansion of the federal government in general under Bush -- the budget has grown by 33 percent and his administration has broadened the federal role in education and the scope of Medicare -- a growing number of conservatives are expressing concern about the size and reach of government on his watch.
Many conservatives in Congress came to office in the 1980s and 1990s with visions of shrinking government and protecting individual freedoms. The Sept. 11 attacks, however, prompted Republicans to shift their priorities and emphasize fighting terrorism. With both houses of Congress in Republican hands, lawmakers generally have been willing to yield to Bush's views on the balance of power.
"Defending the country is preeminently an executive function," said Rep. Tom Cole (R-Okla.). "He is the commander in chief, and you have to move with speed and dispatch."
At the same time, some believe, Congress has abrogated its duty to provide a check on the White House. Rarely has the Republican Congress used its subpoena power to investigate Bush policies or programs or to force administration officials to explain them. Even when lawmakers are inclined to challenge the White House, they are restricted by secrecy rules in cases such as the NSA program, which was known to only a handful of key members briefed by the administration.
"When you have unified party government, the oversight tends to be very timid," said James A. Thurber, director of the Center for Congressional and Presidential Studies at American University. "It's not just the president pushing for more power. . . . The Congress has not done its job of careful evaluation of giving the president more power post-9/11."
Thurber and others think that may be changing. Led by Sen. John McCain (R-Ariz.), Congress just forced Bush to accept a ban on cruel, inhuman and degrading treatment of prisoners, and a handful of Republican senators have joined Democrats to block the renewal of the USA Patriot Act until more civil liberties protections are built into the law. "Congress needs to do some introspection about whether oversight is serious or basically political," Cole said
Sen. Lindsey O. Graham (S.C.) is one of several Republicans lobbying Bush to use the debate over NSA to work with Congress on striking the right balance of power on security issues. "The question is: Should the administration and Congress sit down and talk about where presidential authority begins and ends and congressional blessing begins and ends?" he said. "I think yes."
By Peter Baker and Jim VandeHei
Washington Post Staff Writers
Wednesday, December 21, 2005; A01
The clash over the secret domestic spying program is one slice of a broader struggle over the power of the presidency that has animated the Bush administration. George W. Bush and Dick Cheney came to office convinced that the authority of the presidency had eroded and have spent the past five years trying to reclaim it.
From shielding energy policy deliberations to setting up military tribunals without court involvement, Bush, with Cheney's encouragement, has taken what scholars call a more expansive view of his role than any commander in chief in decades. With few exceptions, Congress and the courts have largely stayed out of the way, deferential to the argument that a president needs free rein, especially in wartime.
But the disclosure of Bush's eavesdropping program has revived the issue, and Congress appears to be growing restive about surrendering so much of its authority. Democrats and even key Republicans maintain Bush went too far -- and may have even violated the law -- by authorizing the National Security Agency to eavesdrop on U.S. citizens' overseas telephone calls in search of terrorist plots without obtaining warrants from a secret intelligence court. (WITHOUT A TRAIL OR ANYTHING, WE ALREADY KNOW THAT THE PRESIDENT VIOLATED THE LAW. TERRORISTS GET DUE PROCESS, DOES THE PRESIDENT? IT WOULD BE NICE TO THINK SO.)
The vice president entered the fray yesterday, rejecting the criticism and expounding on the philosophy that has driven so many of the administration's actions. "I believe in a strong, robust executive authority, and I think that the world we live in demands it -- and to some extent that we have an obligation as the administration to pass on the offices we hold to our successors in as good of shape as we found them," Cheney said. In wartime, he said, the president "needs to have his constitutional powers unimpaired."
Speaking with reporters traveling with him aboard Air Force Two to Oman, Cheney said the period after the Watergate scandal and Vietnam War proved to be "the nadir of the modern presidency in terms of authority and legitimacy" and harmed the chief executive's ability to lead in a complicated, dangerous era. "But I do think that to some extent now we've been able to restore the legitimate authority of the presidency."
For Cheney, the post-Watergate era was the formative experience shaping his understanding of executive power. As a young White House chief of staff for President Gerald R. Ford, he saw the Oval Office at its weakest point as Congress and the courts asserted themselves. But scholars such as Andrew Rudalevige, author of "The New Imperial Presidency," say the presidency had recovered long before Cheney returned to the White House in 2001. The War Powers Act, the legislative veto, the independent counsel statute and other legacies of the 1970s had all been discarded in one form or another.
"He's living in a time warp," said Bruce Fein, a constitutional lawyer and Reagan administration official. "The great irony is Bush inherited the strongest presidency of anyone since Franklin Roosevelt, and Cheney acts as if he's still under the constraints of 1973 or 1974."
Sen. John E. Sununu (R-N.H.) said: "The vice president may be the only person I know of that believes the executive has somehow lost power over the last 30 years."
The tug over executive power traces back to the early years of the republic, and presidents have traditionally moved to expand their reach during times of war. John Adams, fearing a hostile France, presided over the imprisonment of Republican critics under the Alien and Sedition Acts. Abraham Lincoln suspended habeas corpus during the Civil War. Woodrow Wilson jailed Socialist Eugene V. Debs, who had run against him for president, for protesting the entry into World War I. Franklin D. Roosevelt sent Japanese Americans to internment camps during World War II. And Ronald Reagan circumvented a Cold War congressional ban on providing aid to contra rebels in Nicaragua.
The Bush administration rejects comparisons to such events and says its assertions of authority in response to the Sept. 11, 2001, terrorist attacks have been carefully tailored to meet the needs of a 21st-century war against a nebulous foe. At his news conference Monday, Bush bristled at the notion that he sought "unchecked power" and said he had consulted with Congress extensively.
Yet Bush supporters believe that other branches should take a subsidiary role to the president in safeguarding national security. "The Constitution's intent when we're under attack from outside is to place maximum power in the president," said William P. Barr, who was attorney general under President George H.W. Bush, "and the other branches, and especially the courts, don't act as a check on the president's authority against the enemy."
Even before the NSA surveillance program, the Bush administration has asserted its war-making authority in detaining indefinitely U.S. citizens as enemy combatants, denying prisoners access to lawyers or courts, rejecting in some cases the applicability of the Geneva Conventions, expanding its interrogation techniques to include harsher treatment and establishing secret terrorist prisons in foreign countries.
"The problem is, where do you stop rebalancing the power and go too far in the other direction?" asked David A. Keene, chairman of the American Conservative Union. "I think in some instances [Bush] has gone too far."
Taken alone, the expansion of executive wartime power may seem an obvious outflow of confronting the new threat of global terrorism. But when coupled with the huge expansion of the federal government in general under Bush -- the budget has grown by 33 percent and his administration has broadened the federal role in education and the scope of Medicare -- a growing number of conservatives are expressing concern about the size and reach of government on his watch.
Many conservatives in Congress came to office in the 1980s and 1990s with visions of shrinking government and protecting individual freedoms. The Sept. 11 attacks, however, prompted Republicans to shift their priorities and emphasize fighting terrorism. With both houses of Congress in Republican hands, lawmakers generally have been willing to yield to Bush's views on the balance of power.
"Defending the country is preeminently an executive function," said Rep. Tom Cole (R-Okla.). "He is the commander in chief, and you have to move with speed and dispatch."
At the same time, some believe, Congress has abrogated its duty to provide a check on the White House. Rarely has the Republican Congress used its subpoena power to investigate Bush policies or programs or to force administration officials to explain them. Even when lawmakers are inclined to challenge the White House, they are restricted by secrecy rules in cases such as the NSA program, which was known to only a handful of key members briefed by the administration.
"When you have unified party government, the oversight tends to be very timid," said James A. Thurber, director of the Center for Congressional and Presidential Studies at American University. "It's not just the president pushing for more power. . . . The Congress has not done its job of careful evaluation of giving the president more power post-9/11."
Thurber and others think that may be changing. Led by Sen. John McCain (R-Ariz.), Congress just forced Bush to accept a ban on cruel, inhuman and degrading treatment of prisoners, and a handful of Republican senators have joined Democrats to block the renewal of the USA Patriot Act until more civil liberties protections are built into the law. "Congress needs to do some introspection about whether oversight is serious or basically political," Cole said
Sen. Lindsey O. Graham (S.C.) is one of several Republicans lobbying Bush to use the debate over NSA to work with Congress on striking the right balance of power on security issues. "The question is: Should the administration and Congress sit down and talk about where presidential authority begins and ends and congressional blessing begins and ends?" he said. "I think yes."
'Plame Platoon' is AWOL on new leaks
Highly classified programs have been revealed, which could provide real aid to our enemies. So where's all that outrage now?
Max Boot
December 21, 2005
IT SEEMS like only yesterday that every high-minded politician, pundit and professional activist was in high dudgeon about the threat posed to national security by the revelation that Valerie Plame was a spook. For daring to reveal a CIA operative's name — in wartime, no less! — they wanted someone frog-marched out of the White House in handcuffs, preferably headed for the gallows.
Since then there have been some considerably more serious security breaches. Major media organs have broken news about secret prisons run by the CIA, the interrogation techniques employed therein, and the use of "renditions" to capture suspects, right down to the tail numbers of covert CIA aircraft. They have also reported on a secret National Security Agency program to monitor calls and e-mails from people in the U.S. to suspected terrorists abroad, and about the Pentagon's Counterintelligence Field Activity designed to protect military bases worldwide.
Most of these are highly classified programs whose revelation could provide real aid to our enemies — far more aid than revealing the name of a CIA officer who worked more or less openly at Langley, Va. We don't know what damage the latest leaks may have done, but we do know that past leaks about U.S. successes in tracking cellphones led Al Qaeda leaders to shun those devices.
So I eagerly await the righteous indignation from the Plame Platoon about the spilling of secrets in wartime and its impassioned calls for an independent counsel to prosecute the leakers. And wait … And wait …
I suspect it'll be a long wait because the rule of thumb seems to be that although it's treasonous for pro-Bush partisans to spill secrets that might embarrass an administration critic, it's a public service for anti-Bush partisans to spill secrets that might embarrass the administration. The determination of which secrets are OK to reveal is, of course, to be made not by officials charged with protecting our nation but by journalists charged with selling newspapers.
The New York Times sought to quell such concerns by noting in its big article on the NSA that "some information that administration officials argued could be useful to terrorists has been omitted." Forgive me if I'm not reassured by the implication that other information that might be useful to terrorists had not been omitted.
Aside from the possible harm that these leaks could do to the war on terror, what galls me is the utter lack of context in breathless news accounts. The Washington Post ran a 1,910-word article Sunday titled "Pushing the Limits of Wartime Powers" that had only one brief mention, near the end, of the 9/11 attacks. There was no acknowledgment that this catastrophe revealed major vulnerabilities in our defenses created by post-Watergate reforms that eviscerated domestic intelligence gathering.
For instance, in August 2001, FBI agents in Minneapolis stumbled onto Zacarias Moussaoui, one of the Al Qaeda plotters. The 9/11 commission later concluded that a "maximum U.S. effort to investigate Moussaoui … might have brought investigators to the core of the 9/11 plot." But officials didn't seek a warrant to search his laptop because they lacked "probable cause" under the 1978 Foreign Intelligence Surveillance Act. FISA is the law that Bush is now accused of circumventing.
If Bush really broke the law, that is, of course, wrong. But the president has a strong legal case. (Even liberal legal scholar Cass Sunstein says, "I think the [congressional] authorization of use of military force is probably adequate as an authorization for surveillance.")
The president has an even stronger moral case. Before condemning him, ask yourself why there have been no terrorist attacks on American soil since 2001. Not one. It's hard to know the exact reason we've been spared, but surely part of our good fortune should be attributed to the very measures — the Patriot Act, the NSA surveillance, the renditions, the enhanced interrogation techniques — that are now being pilloried by self-righteous journalists and lawmakers.
Bush has not always gotten the balance between "life" and "liberty" exactly right. He erred by not granting terrorist detainees any recourse to the courts — a mistake fixed by the Supreme Court. But the president has been a lot more right than his most perfervid critics, who seem to think that we can defeat a vicious foe without compromising any peacetime rights and without keeping any secrets.
The way things are going, with Congress refusing to reauthorize the Patriot Act and banning "degrading" interrogation methods, we may soon find out if the civil libertarians are right. Heaven help us if they're not. (AND WHEN THEY ARE WRONG AND LA OR VEGAS GETS ATTACKED, THEY WILL AND BLAME EVERYONE ELSE BUT THEMSELVES. HOW HORRID)
MAX BOOT is a senior fellow at the Council of Foreign Relations.
Highly classified programs have been revealed, which could provide real aid to our enemies. So where's all that outrage now?
Max Boot
December 21, 2005
IT SEEMS like only yesterday that every high-minded politician, pundit and professional activist was in high dudgeon about the threat posed to national security by the revelation that Valerie Plame was a spook. For daring to reveal a CIA operative's name — in wartime, no less! — they wanted someone frog-marched out of the White House in handcuffs, preferably headed for the gallows.
Since then there have been some considerably more serious security breaches. Major media organs have broken news about secret prisons run by the CIA, the interrogation techniques employed therein, and the use of "renditions" to capture suspects, right down to the tail numbers of covert CIA aircraft. They have also reported on a secret National Security Agency program to monitor calls and e-mails from people in the U.S. to suspected terrorists abroad, and about the Pentagon's Counterintelligence Field Activity designed to protect military bases worldwide.
Most of these are highly classified programs whose revelation could provide real aid to our enemies — far more aid than revealing the name of a CIA officer who worked more or less openly at Langley, Va. We don't know what damage the latest leaks may have done, but we do know that past leaks about U.S. successes in tracking cellphones led Al Qaeda leaders to shun those devices.
So I eagerly await the righteous indignation from the Plame Platoon about the spilling of secrets in wartime and its impassioned calls for an independent counsel to prosecute the leakers. And wait … And wait …
I suspect it'll be a long wait because the rule of thumb seems to be that although it's treasonous for pro-Bush partisans to spill secrets that might embarrass an administration critic, it's a public service for anti-Bush partisans to spill secrets that might embarrass the administration. The determination of which secrets are OK to reveal is, of course, to be made not by officials charged with protecting our nation but by journalists charged with selling newspapers.
The New York Times sought to quell such concerns by noting in its big article on the NSA that "some information that administration officials argued could be useful to terrorists has been omitted." Forgive me if I'm not reassured by the implication that other information that might be useful to terrorists had not been omitted.
Aside from the possible harm that these leaks could do to the war on terror, what galls me is the utter lack of context in breathless news accounts. The Washington Post ran a 1,910-word article Sunday titled "Pushing the Limits of Wartime Powers" that had only one brief mention, near the end, of the 9/11 attacks. There was no acknowledgment that this catastrophe revealed major vulnerabilities in our defenses created by post-Watergate reforms that eviscerated domestic intelligence gathering.
For instance, in August 2001, FBI agents in Minneapolis stumbled onto Zacarias Moussaoui, one of the Al Qaeda plotters. The 9/11 commission later concluded that a "maximum U.S. effort to investigate Moussaoui … might have brought investigators to the core of the 9/11 plot." But officials didn't seek a warrant to search his laptop because they lacked "probable cause" under the 1978 Foreign Intelligence Surveillance Act. FISA is the law that Bush is now accused of circumventing.
If Bush really broke the law, that is, of course, wrong. But the president has a strong legal case. (Even liberal legal scholar Cass Sunstein says, "I think the [congressional] authorization of use of military force is probably adequate as an authorization for surveillance.")
The president has an even stronger moral case. Before condemning him, ask yourself why there have been no terrorist attacks on American soil since 2001. Not one. It's hard to know the exact reason we've been spared, but surely part of our good fortune should be attributed to the very measures — the Patriot Act, the NSA surveillance, the renditions, the enhanced interrogation techniques — that are now being pilloried by self-righteous journalists and lawmakers.
Bush has not always gotten the balance between "life" and "liberty" exactly right. He erred by not granting terrorist detainees any recourse to the courts — a mistake fixed by the Supreme Court. But the president has been a lot more right than his most perfervid critics, who seem to think that we can defeat a vicious foe without compromising any peacetime rights and without keeping any secrets.
The way things are going, with Congress refusing to reauthorize the Patriot Act and banning "degrading" interrogation methods, we may soon find out if the civil libertarians are right. Heaven help us if they're not. (AND WHEN THEY ARE WRONG AND LA OR VEGAS GETS ATTACKED, THEY WILL AND BLAME EVERYONE ELSE BUT THEMSELVES. HOW HORRID)
MAX BOOT is a senior fellow at the Council of Foreign Relations.
Enron Ruling Could Harm Liquidity Of Bankruptcy Claims
----Kim Moore
Three industry trade groups have banded together to protest a recent ruling that subordinates claims of Enron debt holders who bought loans from parties the company said committed fraud. The Loan Syndications and Trading Association, theBond Market Association and the International Swaps and Derivatives Association have filed amicus brief to support an appeal that is being filed on behalf of the investors.
Elliot Ganz, executive v.p., president and general counsel of the LSTA said the ruling is "tantamount to saying the claims have no value." Enron claims some of its banks committed fraud in their dealings with the company. Judge Arthur Gonzalez ruled that debt bought from those banks should come below all other loans. Summing up his argument, the judge argued that this would ease the administrative burden on the debtor by allowing him to subordinate claims rather than sue those alleged of wrongdoing to recover losses. He also argued it would prevent wrongdoers from avoiding having their claims subordinated by trading the claims away.
The court showed little sympathy to those who bought Enron bankruptcy claims for value, arguing they should be aware of the risks and uncertainties of buying claims associated with post-petition debtors, including the possibility of claims being subordinated.
Those appealing the decision said it would have been impossible for investors to do the necessary due diligence to determine whether the person they bought claims from was guilty of wrongdoing. "They should be aware of the risks," said Ganz. "But there is no way to determine whether the seller engaged in bad acts. The lawsuit was filed after they bought the loans. It was not a risk they could have avoided even if they did do due diligence."
Loans are not the only instruments affected by the court's decision. In his summary, the judge also said that buyers of bonds or credit default swaps should not be treated differently. Craig Goldblatt, counsel for ISDA, argued that many of those accused of wrongdoing in the Enron bankruptcy are large banks and that it would have been difficult to determine whether they had done anything wrong. "It is absolutely impossible to satisfy yourself that the seller has committed fraud. You can't do due diligence on a major financial institution," said Goldblatt.
The BMA is concerned that the judge's decision will harm the liquidity of bonds of bankrupt companies. "It raises the question of how vulture investors will value these securities," said Marjorie Gross, senior v.p. and regulatory counsel for the BMA. "It will definitely affect what people are willing to pay for bonds of bankrupt companies." She added that many buyers of bonds do not know the identity of the person they are buying from because many transactions are done through dealers.
Gross added that the large number of buyers in the bond market means the ruling would affect a lot of people compared the loan market, which is smaller and less liquid. "The judge should have limited his opinion to loan trading. Bonds are much more liquid than loans. They are more likely to be traded to a large number of smaller institutional investors than loans which are traded to a smaller classification of people," she said.
----Kim Moore
Three industry trade groups have banded together to protest a recent ruling that subordinates claims of Enron debt holders who bought loans from parties the company said committed fraud. The Loan Syndications and Trading Association, theBond Market Association and the International Swaps and Derivatives Association have filed amicus brief to support an appeal that is being filed on behalf of the investors.
Elliot Ganz, executive v.p., president and general counsel of the LSTA said the ruling is "tantamount to saying the claims have no value." Enron claims some of its banks committed fraud in their dealings with the company. Judge Arthur Gonzalez ruled that debt bought from those banks should come below all other loans. Summing up his argument, the judge argued that this would ease the administrative burden on the debtor by allowing him to subordinate claims rather than sue those alleged of wrongdoing to recover losses. He also argued it would prevent wrongdoers from avoiding having their claims subordinated by trading the claims away.
The court showed little sympathy to those who bought Enron bankruptcy claims for value, arguing they should be aware of the risks and uncertainties of buying claims associated with post-petition debtors, including the possibility of claims being subordinated.
Those appealing the decision said it would have been impossible for investors to do the necessary due diligence to determine whether the person they bought claims from was guilty of wrongdoing. "They should be aware of the risks," said Ganz. "But there is no way to determine whether the seller engaged in bad acts. The lawsuit was filed after they bought the loans. It was not a risk they could have avoided even if they did do due diligence."
Loans are not the only instruments affected by the court's decision. In his summary, the judge also said that buyers of bonds or credit default swaps should not be treated differently. Craig Goldblatt, counsel for ISDA, argued that many of those accused of wrongdoing in the Enron bankruptcy are large banks and that it would have been difficult to determine whether they had done anything wrong. "It is absolutely impossible to satisfy yourself that the seller has committed fraud. You can't do due diligence on a major financial institution," said Goldblatt.
The BMA is concerned that the judge's decision will harm the liquidity of bonds of bankrupt companies. "It raises the question of how vulture investors will value these securities," said Marjorie Gross, senior v.p. and regulatory counsel for the BMA. "It will definitely affect what people are willing to pay for bonds of bankrupt companies." She added that many buyers of bonds do not know the identity of the person they are buying from because many transactions are done through dealers.
Gross added that the large number of buyers in the bond market means the ruling would affect a lot of people compared the loan market, which is smaller and less liquid. "The judge should have limited his opinion to loan trading. Bonds are much more liquid than loans. They are more likely to be traded to a large number of smaller institutional investors than loans which are traded to a smaller classification of people," she said.
Shark on Shark
Janet Lewis
December 19, 2005
In early March, Morgan Stanley's global fixed-income group held an executive retreat at Whistler Blackcomb resort in British Columbia. A key discussion point was a conundrum that has only gotten thornier as the months have rolled by: How in the world is an investment bank supposed to deal with hedge funds?
Up and down Wall Street, top executives of the bulge brackets are grappling with the same question. While the hedgies have been around for decades, their influence in the past has waxed and waned. But in the last two years, so much money has poured into hedge funds that assets now total more than $1 trillion; they now have become Wall Street's best and most profitable customers-and maddeningly ubiquitous. Searching for new strategies to boost flagging returns, the hedgies now pop up in every cranny of the financial markets, pushing money into lucrative investment banking profit centers from M&A to credit derivatives.
But ideal though they may be as clients, hedge funds are also becoming ferocious rivals. They have muscled their way onto Street turf in areas such as broking, market making and lending, and are increasingly disintermediating the investment banks. That's not all. In the process they have been-and still are-skimming the top layer of Wall Street's best and brightest, luring the already overpaid with the promise of exponential compensation packages that call to mind the excesses of the dot-com era.
There are no easy answers in this shark-on-shark milieu. Should investment banks compete mercilessly with the hedgies, or should they run headlong after their oh-so-lucrative business? Will hedge funds go on the wane again, as they have in past cycles, or are they now a permanent part of the financial landscape? And if it's the latter, what's the right way to handle them?
"In some respects, hedge funds are now to the brokerage firms what the brokerage firms were to the commercial banks 20 or 30 years ago," says Brad Hintz, a financial institutions analyst at Sanford Bernstein. "They are light on their feet, profitably trading with different parts of the brokerage firm and playing one firm against another."
As Hintz sees it, the rise of the hedge funds has come as a godsend-providing a new source of high-margin revenue to broker-dealers, which have seen the profitability of their institutional equity execution business with long-only funds decline steadily. Indeed, commissions have been pushed so far down that the business isn't economically viable without substantial underwriting fees. Given their investment restrictions and their strict fiduciary responsibilities to get best execution at the lowest possible price, the big long-only funds are less and less appealing to the Street, despite their continuing huge importance as clients.
Enter the hedge funds, which are quite willing to pay fuller commission rates for superior service. Indeed, investment bankers and analysts estimate that the hedgies now account for at least 30% and perhaps as much as 50%, of the Street's equity commissions. Moreover, they are now into absolutely everything, particularly the more exotic products in which the investment banks make their highest margins. Many have very flexible investment styles and are willing at least to consider anything the investment banks have to sell.
John McAvoy, global head of hedge fund coverage at Credit Suisse First Boston, says that his firm's research estimates that hedge funds represent some $25 billion in revenues to Wall Street, as their $1 trillion in assets under management translates to two or three times that in leveraged buying power. "Plus, they tend to turn their portfolios over much more quickly than long-only funds," he says.
Adds Neal Shear, global head of fixed-income and co-head of institutional sales and trading at Morgan Stanley: "They are great clients of the firm, representing a large piece of our revenues." As one of the top three prime brokers, along with Goldman Sachs and Bear Stearns, Morgan Stanley captures more hedge fund revenues than most of its rivals.
"Hedge funds now interact with the whole investment bank-all of the revenue streams and traditional products," says Alex Ehrlich, head of prime brokerage at UBS, which in 2003 recruited Ehrlich from Goldman, where he was co-head of prime brokerage, to start up its business. "They are more flexible than long-only funds, with broader market scope and with more use of leverage. They are customers for anything from short liquidity in emerging markets to UK equity derivatives." Also, he points out that since all hedge funds are run by a maximum of two people, it's easier for the bank to have what he calls the "you and us" conversation about the relationship than it is with a large long-only fund, where dozens of managers can be running different portfolios.
As a result, the investment banks are feverishly wooing hedge funds and competing fiercely for their business. Those that don't already have strong prime brokerage groups are racing to build them up; and the i-banks are all revamping their client coverage and management structures to better serve hedge funds and coordinate their contacts with them. "Their requirements are so diverse that no one group at a firm represents the breadth of the access," says Ehrlich.
Coverage conundrum
The investment banks are adjusting their operations to accommodate the hedge fund presence in other ways as well. On the trading side, for example, their cut-to-the-chase attitude is one big reason for the investment banks' integration of their fixed-income and equities sales/trading groups. "Hedge funds want actionable trading ideas; they don't care which side they come from," says Morgan Stanley's Shear, who recently took over equities sales and trading in addition to running the fixed-income group. "But they don't want too many different people calling them with ideas."
On the deal side, the hedgies have also found a warm embrace. "Advisory services are increasingly focused on serving hedge funds," says Jane Wheeler, head of the financial institutions group at boutique adviser Evercore. As hedge funds push into private equity or become activist investors in companies, investment banks aid them in making acquisitions, pursuing proxy fights, monetizing equity stakes or dealing with bankruptcy situations.
Figuring out how to best coordinate all these different types of activity is tricky. "They operate across markets and up and down the capital structure," says the head of hedge fund relationship management at a US universal bank. "It's challenging from a coverage point of view."
Should there be one group responsible for the relationship, or should each part of the investment bank paddle its own canoe? If relationship management is centralized, should it sit within prime brokerage, the financial institutions group, or the financial enterprise group? Different banks do it differently (see IDD, "Banks Shift the Way They Cover Hedge Funds," 9/12/05). "Banks are figuring out where their strengths lie, and leading with those," says the hedge relationship chief.
Morgan Stanley's Shear says the bank's approach depends on the type of hedge fund. For large funds and those with flexible investment styles, it has "a dedicated group of senior people to call on hedge funds with the best ideas and opportunities." But for those that deal primarily in one or two product areas, the relationship is left to prime brokerage or the heads of those desks.
Phil Duff, CEO of hedge fund FrontPoint, was formerly CFO at Morgan Stanley; he left that firm to go to hedge fund Tiger Management before starting FrontPoint. "The Street still has a hard time getting the right and left hand to know what the other is doing," he says. "Their systems are getting better, but the banks are still largely organized by asset class, not yet by customer type."
Duff says the lack of coordination can be a problem. "If they looked at us more holistically, it would make it more productive to do business with them," he says. Occasionally, hedge funds can take advantage of the poor information flow within the banks. "In my short stint at Tiger, we did sometimes do things like borrowing from the international division of a leading bank and lending back to the domestic unit in the US in the same currency, taking out a spread," he laughs.
The client question
Are the investment banks pursuing hedge fund business at the expense of other clients? Most say the official answer is no. "Obviously, we have to tilt our business model to follow the flows of business, but we know we can't put all our eggs in one basket," says Morgan Stanley's Shear.
But privately, many investment bankers say yes. One bulge-bracket managing director dealing in structured products says that for bankers, "hedge funds are much more fun to deal with" -a sentiment echoed by many in the market. For another thing, many will consider any product or idea, no matter how risky or exotic. And while not all hedge fund managers are ultra-sophisticated, on the whole they understand the complex trading models developed by the banks far better than managers of most long-only funds. "They are much more likely to accept them and to act on the results," says this banker. "There's no question that hedge fund clients will get the first call with a new idea."
CSFB's McAvoy puts it plainly. "The sell-side makes decisions about clients based on net profitability. The trend is that hedge funds are more and more profitable-not only do they pay bigger revenues, but they require less resources to cover than a long-only fund," McAvoy says. "They also make decisions faster. The smartest hedge funds are now the most efficient pricers of risk."
The end result of this new dynamic is all too predictable: Some traditional brokerage clients are becoming resentful. "It's clear that the profitability of the hedge funds has grown so fast that the Street thinks they now are the ones that deserve the first call in the morning," says Sanford Bernstein's Hintz. "We hear all the time that the long-only funds are feeling neglected, as if their girlfriend has abandoned them."
McAvoy is straightforward enough to admit this. "It's probably true that traditional clients are getting less attention and resources than they once did," he says. "But the reality is that hedge fund clients have become more willing to pay more for the Street's finite resources."
Out over their skis'
It may be natural for investment banks to run after hedge fund business, but is it a good idea? For one thing, there is the financial risk, both individually and as a group. The banks all claim to have a very good handle on this-which they probably have, despite the frightening hedge fund disaster scenarios put forward by some observers and analysts. Nonetheless, their systems do have limitations. "The risk management systems are not able to pick up everything for each counterparty relationship across a firm," warns Sanford's Hintz. "They are good, but not perfect."
Hintz is worried that some banks, trying to play catch-up in the prime brokerage business, are promising too much to hedge funds, particularly when it comes to "lock-in" agreements limiting how quickly they can raise the rates at which they will lend to funds, and hence limiting their ability to manage their risk. "This may be leading the more aggressive brokerages further out on the risk spectrum," says Hintz. "Some of them are way out over their skis on this issue."
Then there is the risk to their business models, if they skew too much toward hedge funds and away from other clients. Most investment bankers, however, seem unworried that the hedge fund industry could suddenly shrink-they are convinced that hedge funds are here to stay. "I don't know anyone who thinks hedge funds will disappear," says UBS's Ehrlich.
Indeed, some think they will continue to increase their funds under management, despite the recent slowdown in returns. Even though returns are dropping, estimates continue to predict a doubling in assets over the next four years, though there will be redemptions, and a fund blowup, or two, or three. "But these events won't materially slow the growth of assets at a macro level," says CSFB's McAvoy.
The key, says Morgan Stanley's Shear, is to "scale the business appropriately" and not become overly dependent on the hedge funds. "We want to capture as much business as possible, but realize that they can move on to the next product at any time in search of better returns," he says.
Fierce rivals
On the other side of the investment banking fence is the reverse dynamic: hedge funds as competitors. The most obvious way they compete is against the banks' own proprietary trading desks, which are a bigger and bigger part of revenues for many banks. The cliche on Wall Street these days is that Goldman Sachs is now the world's biggest hedge fund.
One bulge-bracket banker remembers that when his bank was contemplating starting up in prime brokerage, the head of the prop trading desk raised strenuous objections. "His attitude was, why did we want to allocate resources to help the evil enemy trade against us," says the banker. But, of course, he adds, the bank ended up making far more money from prime brokerage than from prop trading.
Then there are hedge funds that are getting into areas such as market making in some types of securities, into lending to low-rated and small companies, and into brokerage, as is the UK's Man Group. "Citadel is now one of the largest market makers in options," says FrontPoint's Duff. "A variety of funds are now significant players in the syndicated loan market."
And of course, as they enter the private equity and M&A arenas, hedgies are often on the other side of transactions from investment banks, even as they remain big trading, lending or prime brokerage customers.
Bankers seem confident they can cope with both the competition and the potential conflicts of interest-it's what they do, after all. "Conflict resolution is a large part of the business today, and we hold ourselves to high standards as we work these things through," says Morgan Stanley's Shear. He explains that the bank adjusts its stance customer by customer, extending more resources to funds that are largely clients and less to those that act more as competitors. "We're more cautious than we were two years ago with some funds," he says.
FrontPoint's Duff, too, is unworried. "On Wall Street, a given party is often at the same time a competitor, a counterparty, a partner and a customer in all different parts of the organization," he says.
But of course, the relationship is complicated by the fact that, as cartoonist Walt Kelly put it in "Pogo": "We have met the enemy and they are us." More, perhaps, than with many other Wall Street clients, relationships with hedge fund managers are very personal, because so many are former colleagues, rivals and friends.
Evercore's Wheeler, who joined the boutique earlier this year from Morgan Stanley, says that hedge funds compete strongly with Wall Street for talent. "When I was at Morgan Stanley, I felt like we lost more people to hedge funds than to other investment banks," she says. She says that extravagant hedge fund compensation-which many bankers say is widely envied on Wall Street-is a source of upward pressure on investment banking pay, and that some prop desks are even beginning to give traders "carry," which is what hedge fund managers call the percentage of the profits they normally take.
In this, too, the relationship reminds Sanford's Hintz of that between investment banks and commercial banks 30 years ago. He foresees a similar outcome. "At some point, the brokerages may see some of the larger hedge funds more as competitors than clients," he says. "Will they end up taking the same action that the commercial banks did with the brokerage firms-pulling back on the financing and support they gave the securities industry, because they didn't want to finance a competitor?"
Hedge Funds Are Everywhere
Hedge funds use many services of investment banks:
* Equities: IPO and secondary issues, private placements, block trades,
portfolio trades, flow trades, equity derivatives
* Fixed income: new issues, secondary trading, derivatives for all products, including sovereign and corporate bonds, municipal bonds, mortgage bonds, all types of structured products and asset-backed securities. Private placements. Credit derivatives. Investment in distressed securities
* Syndicated loan trading
* Foreign exchange and derivatives trading
* Commodities and commodity derivatives trading
* Prime brokerage, including: margin financing, securities lending, capital introduction, clearing services, back office services, modeling and valuation software
* Lending to funds of hedge funds; hedge fund derivatives
* Investment banking/advisory services for private equity investment,
proxy fights, bankruptcy situations, divestment.
* Acquisition finance
* Wealth management services to hedge fund managers
Hedge funds are adversaries of investment banks in:
* Proprietary trading
* Private equity investment
* Lending to companies/distressed lending
* Market making in options, illiquid bonds, syndicated loans
* Reinsurance
* Brokerage
* Bondholder committees in bankruptcies
* Proxy fights
Janet Lewis
December 19, 2005
In early March, Morgan Stanley's global fixed-income group held an executive retreat at Whistler Blackcomb resort in British Columbia. A key discussion point was a conundrum that has only gotten thornier as the months have rolled by: How in the world is an investment bank supposed to deal with hedge funds?
Up and down Wall Street, top executives of the bulge brackets are grappling with the same question. While the hedgies have been around for decades, their influence in the past has waxed and waned. But in the last two years, so much money has poured into hedge funds that assets now total more than $1 trillion; they now have become Wall Street's best and most profitable customers-and maddeningly ubiquitous. Searching for new strategies to boost flagging returns, the hedgies now pop up in every cranny of the financial markets, pushing money into lucrative investment banking profit centers from M&A to credit derivatives.
But ideal though they may be as clients, hedge funds are also becoming ferocious rivals. They have muscled their way onto Street turf in areas such as broking, market making and lending, and are increasingly disintermediating the investment banks. That's not all. In the process they have been-and still are-skimming the top layer of Wall Street's best and brightest, luring the already overpaid with the promise of exponential compensation packages that call to mind the excesses of the dot-com era.
There are no easy answers in this shark-on-shark milieu. Should investment banks compete mercilessly with the hedgies, or should they run headlong after their oh-so-lucrative business? Will hedge funds go on the wane again, as they have in past cycles, or are they now a permanent part of the financial landscape? And if it's the latter, what's the right way to handle them?
"In some respects, hedge funds are now to the brokerage firms what the brokerage firms were to the commercial banks 20 or 30 years ago," says Brad Hintz, a financial institutions analyst at Sanford Bernstein. "They are light on their feet, profitably trading with different parts of the brokerage firm and playing one firm against another."
As Hintz sees it, the rise of the hedge funds has come as a godsend-providing a new source of high-margin revenue to broker-dealers, which have seen the profitability of their institutional equity execution business with long-only funds decline steadily. Indeed, commissions have been pushed so far down that the business isn't economically viable without substantial underwriting fees. Given their investment restrictions and their strict fiduciary responsibilities to get best execution at the lowest possible price, the big long-only funds are less and less appealing to the Street, despite their continuing huge importance as clients.
Enter the hedge funds, which are quite willing to pay fuller commission rates for superior service. Indeed, investment bankers and analysts estimate that the hedgies now account for at least 30% and perhaps as much as 50%, of the Street's equity commissions. Moreover, they are now into absolutely everything, particularly the more exotic products in which the investment banks make their highest margins. Many have very flexible investment styles and are willing at least to consider anything the investment banks have to sell.
John McAvoy, global head of hedge fund coverage at Credit Suisse First Boston, says that his firm's research estimates that hedge funds represent some $25 billion in revenues to Wall Street, as their $1 trillion in assets under management translates to two or three times that in leveraged buying power. "Plus, they tend to turn their portfolios over much more quickly than long-only funds," he says.
Adds Neal Shear, global head of fixed-income and co-head of institutional sales and trading at Morgan Stanley: "They are great clients of the firm, representing a large piece of our revenues." As one of the top three prime brokers, along with Goldman Sachs and Bear Stearns, Morgan Stanley captures more hedge fund revenues than most of its rivals.
"Hedge funds now interact with the whole investment bank-all of the revenue streams and traditional products," says Alex Ehrlich, head of prime brokerage at UBS, which in 2003 recruited Ehrlich from Goldman, where he was co-head of prime brokerage, to start up its business. "They are more flexible than long-only funds, with broader market scope and with more use of leverage. They are customers for anything from short liquidity in emerging markets to UK equity derivatives." Also, he points out that since all hedge funds are run by a maximum of two people, it's easier for the bank to have what he calls the "you and us" conversation about the relationship than it is with a large long-only fund, where dozens of managers can be running different portfolios.
As a result, the investment banks are feverishly wooing hedge funds and competing fiercely for their business. Those that don't already have strong prime brokerage groups are racing to build them up; and the i-banks are all revamping their client coverage and management structures to better serve hedge funds and coordinate their contacts with them. "Their requirements are so diverse that no one group at a firm represents the breadth of the access," says Ehrlich.
Coverage conundrum
The investment banks are adjusting their operations to accommodate the hedge fund presence in other ways as well. On the trading side, for example, their cut-to-the-chase attitude is one big reason for the investment banks' integration of their fixed-income and equities sales/trading groups. "Hedge funds want actionable trading ideas; they don't care which side they come from," says Morgan Stanley's Shear, who recently took over equities sales and trading in addition to running the fixed-income group. "But they don't want too many different people calling them with ideas."
On the deal side, the hedgies have also found a warm embrace. "Advisory services are increasingly focused on serving hedge funds," says Jane Wheeler, head of the financial institutions group at boutique adviser Evercore. As hedge funds push into private equity or become activist investors in companies, investment banks aid them in making acquisitions, pursuing proxy fights, monetizing equity stakes or dealing with bankruptcy situations.
Figuring out how to best coordinate all these different types of activity is tricky. "They operate across markets and up and down the capital structure," says the head of hedge fund relationship management at a US universal bank. "It's challenging from a coverage point of view."
Should there be one group responsible for the relationship, or should each part of the investment bank paddle its own canoe? If relationship management is centralized, should it sit within prime brokerage, the financial institutions group, or the financial enterprise group? Different banks do it differently (see IDD, "Banks Shift the Way They Cover Hedge Funds," 9/12/05). "Banks are figuring out where their strengths lie, and leading with those," says the hedge relationship chief.
Morgan Stanley's Shear says the bank's approach depends on the type of hedge fund. For large funds and those with flexible investment styles, it has "a dedicated group of senior people to call on hedge funds with the best ideas and opportunities." But for those that deal primarily in one or two product areas, the relationship is left to prime brokerage or the heads of those desks.
Phil Duff, CEO of hedge fund FrontPoint, was formerly CFO at Morgan Stanley; he left that firm to go to hedge fund Tiger Management before starting FrontPoint. "The Street still has a hard time getting the right and left hand to know what the other is doing," he says. "Their systems are getting better, but the banks are still largely organized by asset class, not yet by customer type."
Duff says the lack of coordination can be a problem. "If they looked at us more holistically, it would make it more productive to do business with them," he says. Occasionally, hedge funds can take advantage of the poor information flow within the banks. "In my short stint at Tiger, we did sometimes do things like borrowing from the international division of a leading bank and lending back to the domestic unit in the US in the same currency, taking out a spread," he laughs.
The client question
Are the investment banks pursuing hedge fund business at the expense of other clients? Most say the official answer is no. "Obviously, we have to tilt our business model to follow the flows of business, but we know we can't put all our eggs in one basket," says Morgan Stanley's Shear.
But privately, many investment bankers say yes. One bulge-bracket managing director dealing in structured products says that for bankers, "hedge funds are much more fun to deal with" -a sentiment echoed by many in the market. For another thing, many will consider any product or idea, no matter how risky or exotic. And while not all hedge fund managers are ultra-sophisticated, on the whole they understand the complex trading models developed by the banks far better than managers of most long-only funds. "They are much more likely to accept them and to act on the results," says this banker. "There's no question that hedge fund clients will get the first call with a new idea."
CSFB's McAvoy puts it plainly. "The sell-side makes decisions about clients based on net profitability. The trend is that hedge funds are more and more profitable-not only do they pay bigger revenues, but they require less resources to cover than a long-only fund," McAvoy says. "They also make decisions faster. The smartest hedge funds are now the most efficient pricers of risk."
The end result of this new dynamic is all too predictable: Some traditional brokerage clients are becoming resentful. "It's clear that the profitability of the hedge funds has grown so fast that the Street thinks they now are the ones that deserve the first call in the morning," says Sanford Bernstein's Hintz. "We hear all the time that the long-only funds are feeling neglected, as if their girlfriend has abandoned them."
McAvoy is straightforward enough to admit this. "It's probably true that traditional clients are getting less attention and resources than they once did," he says. "But the reality is that hedge fund clients have become more willing to pay more for the Street's finite resources."
Out over their skis'
It may be natural for investment banks to run after hedge fund business, but is it a good idea? For one thing, there is the financial risk, both individually and as a group. The banks all claim to have a very good handle on this-which they probably have, despite the frightening hedge fund disaster scenarios put forward by some observers and analysts. Nonetheless, their systems do have limitations. "The risk management systems are not able to pick up everything for each counterparty relationship across a firm," warns Sanford's Hintz. "They are good, but not perfect."
Hintz is worried that some banks, trying to play catch-up in the prime brokerage business, are promising too much to hedge funds, particularly when it comes to "lock-in" agreements limiting how quickly they can raise the rates at which they will lend to funds, and hence limiting their ability to manage their risk. "This may be leading the more aggressive brokerages further out on the risk spectrum," says Hintz. "Some of them are way out over their skis on this issue."
Then there is the risk to their business models, if they skew too much toward hedge funds and away from other clients. Most investment bankers, however, seem unworried that the hedge fund industry could suddenly shrink-they are convinced that hedge funds are here to stay. "I don't know anyone who thinks hedge funds will disappear," says UBS's Ehrlich.
Indeed, some think they will continue to increase their funds under management, despite the recent slowdown in returns. Even though returns are dropping, estimates continue to predict a doubling in assets over the next four years, though there will be redemptions, and a fund blowup, or two, or three. "But these events won't materially slow the growth of assets at a macro level," says CSFB's McAvoy.
The key, says Morgan Stanley's Shear, is to "scale the business appropriately" and not become overly dependent on the hedge funds. "We want to capture as much business as possible, but realize that they can move on to the next product at any time in search of better returns," he says.
Fierce rivals
On the other side of the investment banking fence is the reverse dynamic: hedge funds as competitors. The most obvious way they compete is against the banks' own proprietary trading desks, which are a bigger and bigger part of revenues for many banks. The cliche on Wall Street these days is that Goldman Sachs is now the world's biggest hedge fund.
One bulge-bracket banker remembers that when his bank was contemplating starting up in prime brokerage, the head of the prop trading desk raised strenuous objections. "His attitude was, why did we want to allocate resources to help the evil enemy trade against us," says the banker. But, of course, he adds, the bank ended up making far more money from prime brokerage than from prop trading.
Then there are hedge funds that are getting into areas such as market making in some types of securities, into lending to low-rated and small companies, and into brokerage, as is the UK's Man Group. "Citadel is now one of the largest market makers in options," says FrontPoint's Duff. "A variety of funds are now significant players in the syndicated loan market."
And of course, as they enter the private equity and M&A arenas, hedgies are often on the other side of transactions from investment banks, even as they remain big trading, lending or prime brokerage customers.
Bankers seem confident they can cope with both the competition and the potential conflicts of interest-it's what they do, after all. "Conflict resolution is a large part of the business today, and we hold ourselves to high standards as we work these things through," says Morgan Stanley's Shear. He explains that the bank adjusts its stance customer by customer, extending more resources to funds that are largely clients and less to those that act more as competitors. "We're more cautious than we were two years ago with some funds," he says.
FrontPoint's Duff, too, is unworried. "On Wall Street, a given party is often at the same time a competitor, a counterparty, a partner and a customer in all different parts of the organization," he says.
But of course, the relationship is complicated by the fact that, as cartoonist Walt Kelly put it in "Pogo": "We have met the enemy and they are us." More, perhaps, than with many other Wall Street clients, relationships with hedge fund managers are very personal, because so many are former colleagues, rivals and friends.
Evercore's Wheeler, who joined the boutique earlier this year from Morgan Stanley, says that hedge funds compete strongly with Wall Street for talent. "When I was at Morgan Stanley, I felt like we lost more people to hedge funds than to other investment banks," she says. She says that extravagant hedge fund compensation-which many bankers say is widely envied on Wall Street-is a source of upward pressure on investment banking pay, and that some prop desks are even beginning to give traders "carry," which is what hedge fund managers call the percentage of the profits they normally take.
In this, too, the relationship reminds Sanford's Hintz of that between investment banks and commercial banks 30 years ago. He foresees a similar outcome. "At some point, the brokerages may see some of the larger hedge funds more as competitors than clients," he says. "Will they end up taking the same action that the commercial banks did with the brokerage firms-pulling back on the financing and support they gave the securities industry, because they didn't want to finance a competitor?"
Hedge Funds Are Everywhere
Hedge funds use many services of investment banks:
* Equities: IPO and secondary issues, private placements, block trades,
portfolio trades, flow trades, equity derivatives
* Fixed income: new issues, secondary trading, derivatives for all products, including sovereign and corporate bonds, municipal bonds, mortgage bonds, all types of structured products and asset-backed securities. Private placements. Credit derivatives. Investment in distressed securities
* Syndicated loan trading
* Foreign exchange and derivatives trading
* Commodities and commodity derivatives trading
* Prime brokerage, including: margin financing, securities lending, capital introduction, clearing services, back office services, modeling and valuation software
* Lending to funds of hedge funds; hedge fund derivatives
* Investment banking/advisory services for private equity investment,
proxy fights, bankruptcy situations, divestment.
* Acquisition finance
* Wealth management services to hedge fund managers
Hedge funds are adversaries of investment banks in:
* Proprietary trading
* Private equity investment
* Lending to companies/distressed lending
* Market making in options, illiquid bonds, syndicated loans
* Reinsurance
* Brokerage
* Bondholder committees in bankruptcies
* Proxy fights
Germany Lets TWA Hijacker Out of Prison (DEUTCHELAND: TOUGH ON TERRORISM?? WRONG!!)
Mohammed Ali Hamadi is back in Lebanon. He spent nearly 19 years behind bars for the murder of a U.S. Seabee during the 1985 ordeal.
By Tony Perry and Christian Retzlaff
Times Staff Writers
December 21, 2005
BERLIN — Germany has freed a Lebanese member of Hezbollah who was serving a life sentence for killing a U.S. Navy diver during the 1985 hijacking of a TWA jet.
The release of Mohammed Ali Hamadi outraged the family of Robert Dean Stethem, who was beaten, shot in the head and dumped on the tarmac of Beirut's airport after he refused the hijackers' demands to denounce his country.
A German Foreign Ministry spokesman told reporters that Hamadi's release was granted by the German parole board and was not connected to the recent release by Iraqi insurgents of German archeologist Susanne Osthoff, who had been held for three weeks.
"There's no connection between the two cases," Martin Jaeger said.
Justice Ministry spokeswoman Eva Schmierer told German media that Hamadi had been imprisoned for nearly 19 years, which she said was not an uncommon amount of time in the case of a life sentence.
"This is something normal that happens every day," she said.
Hamadi was convicted in West Germany in 1989 of Stethem's murder and received the maximum life sentence. The West German government refused an extradition request from the U.S. because Hamadi could have faced the death penalty if tried in the United States. (WE MUST PROTECT THE LIVES OF TERRORISTS!!!!! THE SOPHISTICATION OF EUROPE KNOWS NO LIMITS. MY VOTE: TWO TO THE HEAD)
Hamadi, 41, was flown home to Lebanon last week. State Department spokesman Sean McCormack said Washington would request that he be extradited for trial, but he noted that the U.S. does not have an extradition treaty with Lebanon.
"Regardless of the timeline, we will make every effort to see that this individual stands trial in U.S. court for what he has done," McCormack said.
McCormack said U.S. officials knew of plans to release Hamadi before he was sent to Lebanon. Secretary of State Condoleezza Rice did not personally intervene, he said.
Hamadi was arrested at the Frankfurt Airport in 1987 after explosives were found in his luggage. He confessed to taking part in the 16-day hijacking, but he denied killing Stethem.
The hijackers meant to force Israel to release 300 Shiite Muslim prisoners. Hezbollah, a militant organization and Lebanese political party, is considered a terrorist group by Washington. (JUST WASHINGTON? DOES THE TIMES THINK THEY ARE A TERRORIST GROUP? HAS THE TIMES LOST TOUCH WITH REALITY?)
TWA Flight 847 was commandeered en route from Athens to Rome, and crossed the Mediterranean, landing in Lebanon several times. Israel ultimately released 31 prisoners, and the hijackers freed the plane's eight crew members and 144 passengers. Only Stethem was slain.
News of Hamadi's release broke on the website debbieschlussel.com, which monitors events involving international terrorism.
Stethem's mother, Patricia Stethem of Myrtle Beach, S.C., called on the Bush administration to pressure Lebanon into extraditing Hamadi to the U.S.
"President Bush has said if you're not with us, you're against us, and if you harbor terrorists, then you're a terrorist nation," she said. "It's just too bad they don't back that up with action. I think our government officials have failed us."
Stethem's brother, Kenneth, a retired Navy SEAL, said his brother's actions stood in contrast to that of U.S. officials. "That 23-year-old kid showed more courage when they held a gun to his head than all these officials," he said.
Robert Stethem, a member of the Navy construction battalion known as the Seabees, was on the TWA flight after completing an assignment for the Navy.
He was posthumously awarded a Purple Heart and Bronze Star, and in 1995 a newly commissioned guided-missile destroyer was named for him.
Three other suspected hijackers remain at large.
*
Perry reported from San Diego and Retzlaff from Berlin. A Times staff writer in Washington contributed to this report.
Mohammed Ali Hamadi is back in Lebanon. He spent nearly 19 years behind bars for the murder of a U.S. Seabee during the 1985 ordeal.
By Tony Perry and Christian Retzlaff
Times Staff Writers
December 21, 2005
BERLIN — Germany has freed a Lebanese member of Hezbollah who was serving a life sentence for killing a U.S. Navy diver during the 1985 hijacking of a TWA jet.
The release of Mohammed Ali Hamadi outraged the family of Robert Dean Stethem, who was beaten, shot in the head and dumped on the tarmac of Beirut's airport after he refused the hijackers' demands to denounce his country.
A German Foreign Ministry spokesman told reporters that Hamadi's release was granted by the German parole board and was not connected to the recent release by Iraqi insurgents of German archeologist Susanne Osthoff, who had been held for three weeks.
"There's no connection between the two cases," Martin Jaeger said.
Justice Ministry spokeswoman Eva Schmierer told German media that Hamadi had been imprisoned for nearly 19 years, which she said was not an uncommon amount of time in the case of a life sentence.
"This is something normal that happens every day," she said.
Hamadi was convicted in West Germany in 1989 of Stethem's murder and received the maximum life sentence. The West German government refused an extradition request from the U.S. because Hamadi could have faced the death penalty if tried in the United States. (WE MUST PROTECT THE LIVES OF TERRORISTS!!!!! THE SOPHISTICATION OF EUROPE KNOWS NO LIMITS. MY VOTE: TWO TO THE HEAD)
Hamadi, 41, was flown home to Lebanon last week. State Department spokesman Sean McCormack said Washington would request that he be extradited for trial, but he noted that the U.S. does not have an extradition treaty with Lebanon.
"Regardless of the timeline, we will make every effort to see that this individual stands trial in U.S. court for what he has done," McCormack said.
McCormack said U.S. officials knew of plans to release Hamadi before he was sent to Lebanon. Secretary of State Condoleezza Rice did not personally intervene, he said.
Hamadi was arrested at the Frankfurt Airport in 1987 after explosives were found in his luggage. He confessed to taking part in the 16-day hijacking, but he denied killing Stethem.
The hijackers meant to force Israel to release 300 Shiite Muslim prisoners. Hezbollah, a militant organization and Lebanese political party, is considered a terrorist group by Washington. (JUST WASHINGTON? DOES THE TIMES THINK THEY ARE A TERRORIST GROUP? HAS THE TIMES LOST TOUCH WITH REALITY?)
TWA Flight 847 was commandeered en route from Athens to Rome, and crossed the Mediterranean, landing in Lebanon several times. Israel ultimately released 31 prisoners, and the hijackers freed the plane's eight crew members and 144 passengers. Only Stethem was slain.
News of Hamadi's release broke on the website debbieschlussel.com, which monitors events involving international terrorism.
Stethem's mother, Patricia Stethem of Myrtle Beach, S.C., called on the Bush administration to pressure Lebanon into extraditing Hamadi to the U.S.
"President Bush has said if you're not with us, you're against us, and if you harbor terrorists, then you're a terrorist nation," she said. "It's just too bad they don't back that up with action. I think our government officials have failed us."
Stethem's brother, Kenneth, a retired Navy SEAL, said his brother's actions stood in contrast to that of U.S. officials. "That 23-year-old kid showed more courage when they held a gun to his head than all these officials," he said.
Robert Stethem, a member of the Navy construction battalion known as the Seabees, was on the TWA flight after completing an assignment for the Navy.
He was posthumously awarded a Purple Heart and Bronze Star, and in 1995 a newly commissioned guided-missile destroyer was named for him.
Three other suspected hijackers remain at large.
*
Perry reported from San Diego and Retzlaff from Berlin. A Times staff writer in Washington contributed to this report.
Bush Visits Marines Wounded in Iraq
By DEB RIECHMANN
Associated Press Writer
Dec 21 11:24 AM US/Eastern
BETHESDA, Md. - Since the Iraq war began in 2003, it has become an annual pre- Christmas rite for President Bush to personally comfort wounded soldiers. He continued that tradition Wednesday, going bed-to-bed in an intensive care unit and handing out Purple Hearts to the valiant. Bush was visiting with Marines wounded in Iraq and the medical staff treating them at the National Naval Medical Center here. Before going behind closed doors to spend about two hours with servicemen and women, Bush spoke briefly to medical care givers and troops able to leave their rooms.
He said the troops' sacrifices are serving an important goal.
"What we're seeing today is brave troops and committed citizens who are not only determined to chase down the killers and bring them to justice before they hurt us again, but understand that by spreading freedom and democracy we're battling an ideology of darkness with an ideology of hope, and we're laying that foundation for peace for generations to come," the president said.
"The task at hand is one that requires determination and discipline and great faith in the ideals of human freedom and human liberty. And so coming here today is a chance to not only thank you for being a part of this incredible team of healers, but also being a part of this historic moment."
The president and his wife, Laura, were seeing Marines in the intensive care unit, and awarding Purple Hearts to two of them. On another ward, he was visiting more Marines and their families and giving out three Purple Hearts, White House press secretary Scott McClellan said.
The president makes occasional visits to either the Navy facility or Walter Reed Army Medical Center, nearby in Washington, to talk with soldiers recovering from injuries suffered in Iraq or Afghanistan. The pre-holiday pilgrimage to one of the facilities has become a staple on the president's schedule in each of the past three years.
By DEB RIECHMANN
Associated Press Writer
Dec 21 11:24 AM US/Eastern
BETHESDA, Md. - Since the Iraq war began in 2003, it has become an annual pre- Christmas rite for President Bush to personally comfort wounded soldiers. He continued that tradition Wednesday, going bed-to-bed in an intensive care unit and handing out Purple Hearts to the valiant. Bush was visiting with Marines wounded in Iraq and the medical staff treating them at the National Naval Medical Center here. Before going behind closed doors to spend about two hours with servicemen and women, Bush spoke briefly to medical care givers and troops able to leave their rooms.
He said the troops' sacrifices are serving an important goal.
"What we're seeing today is brave troops and committed citizens who are not only determined to chase down the killers and bring them to justice before they hurt us again, but understand that by spreading freedom and democracy we're battling an ideology of darkness with an ideology of hope, and we're laying that foundation for peace for generations to come," the president said.
"The task at hand is one that requires determination and discipline and great faith in the ideals of human freedom and human liberty. And so coming here today is a chance to not only thank you for being a part of this incredible team of healers, but also being a part of this historic moment."
The president and his wife, Laura, were seeing Marines in the intensive care unit, and awarding Purple Hearts to two of them. On another ward, he was visiting more Marines and their families and giving out three Purple Hearts, White House press secretary Scott McClellan said.
The president makes occasional visits to either the Navy facility or Walter Reed Army Medical Center, nearby in Washington, to talk with soldiers recovering from injuries suffered in Iraq or Afghanistan. The pre-holiday pilgrimage to one of the facilities has become a staple on the president's schedule in each of the past three years.
Dick and Carl's Goblet of Fire
Brett Pulley, 12.26.05
Carl Icahn wants Time Warner Chief Richard Parsons out. Parsons says he is not budging. On a recent afternoon, as corporate raider and billionaire shareholder rebel Carl C. Icahn announced his hiring of Lazard Ltd. to help seize control of the board of Time Warner, Chief Executive Richard D. Parsons sat in his New York office and summed up his current status in four words: "I'm hangin' in here." Usually gregarious and upbeat, Parsons sounded exasperated, his creased brow underscoring his frustration.
Parsons is taking a solid pounding from Icahn these days. Upset by Time Warner's stalled stock price, Icahn plans a proxy fight to field his own slate of candidates for the company's 14 board seats at next spring's annual meeting. If Icahn--who so far has put together a coalition of dissident shareholders representing 3% of Time Warner's 4.6 billion outstanding shares--gains a majority on the board, Parsons will be ousted.
"Parsons is a nice guy, but he is not the guy to run this company," says Icahn. "What you have here is an unnecessary, bloated bureaucracy at the top."
Time Warner Divided
Should Time Warner be broken up? Based on average multiples of cash flow for each business sector, here's one estimate of what the various companies would be worth in the private market if Time Warner were sold as separate units.
Networks (Turner, HBO, WB)
$44.5 billion
Time Inc. Publishing
$11.5 billion
Warner Bros. Films
$16.5 billion
Cable TV
$44.5 billion
AOL
$17 billion
Total Breakup Value
$134 billion
CURRENT MARKET VALUE
$86 BILLION
Source: Gabelli & Co.
Nice guy or not, Parsons is showing no signs of caving in to the blustery Icahn. His plan (if it can be called that) is to ride the company's prevailing good fortunes. While other media and entertainment companies, like Viacom, retrench and abandon ideas of synergy, Parsons resists any talk of breaking up the Time Warner conglomerate.
"We will come back into favor, and when we do, we'll probably make up for lost time," Parsons says. "We just have to wait it out, do the right things and let the market take care of itself. I think some of the clouds will lift over the next 12 to 18 months."
Shortly after becoming chief executive in May 2002, Parsons saw Time Warner shares plunge from $19 to $9.60 as major government investigations of AOL loomed, civil lawsuits mounted and the company's debt teetered toward junk status. But he managed to stabilize the company by settling the investigations and lawsuits, selling Warner's music business for $2.6 billion and agreeing to a $17.5 billion joint acquisition, with Comcast, of Adelphia's cable business. Still, Time Warner's stock remains stuck, trading at around $18.
Enter Icahn, who now believes that the company must be spun off in pieces to unlock value (see box). "If these operations are separated, you can save a fortune. You've got to do a massive restructuring," he says.
Icahn estimates that Time Warner would trade about 50% higher if the company spun off its cable unit, instead of selling a 16% stake, as Parsons plans to do in a public offering. Icahn also wants the company to buy back $20 billion in stock through a so-called Dutch auction tender process, rather than the $12.5 billion worth that Parsons has committed to repurchase over a two-year period.
Parsons gets annoyed when he hears this. "We have done everything that was ever on anybody's list of things that were necessary to unlock the stock, and of course it hasn't happened," he says. "It is frustrating because you'd like your shareholders to see some more tangible measure of progress than they've seen."
He does not, to be sure, favor grand visions of synergistic empires--after all, it was this kind of thinking that led to the disastrous AOL merger. But in the media world, having complementary units can add value. It helps, for example, to own cable systems when you're starting a new cable channel or to know that HBO can provide an additional outlet for films being produced by Warner Bros. And owning programming content is a sure way to beef up your Internet business.
Parsons says he wants to show investors that "we have a different profile than any of the big diversified media companies because we do have some of the Internet superspice in our portfolio--namely, AOL."
So far those arguments are winning, as Icahn's crusade is not causing much of a stir among investors beyond his core group, which includes JANA Partners, SAC Capitol Advisors and Franklin Mutual Advisers.
"We don't have any qualms about the way management is running the business," says Lawrence Haverty, an associate portfolio manager at Gabelli Funds, a division of Gamco Investors, which holds 18 million shares of Time Warner. "You change the board and upset the management and it could be very deleterious to the business."
Another reason Icahn's charges haven't resonated is that Time Warner's stock has a lot of company in the Wall Street doghouse. The media, entertainment and cable sector is depressed by concerns regarding excess means of distribution, digital copying and competition from broadband and satellite. Cable represents 32% of Time Warner's $10 billion in annual free cash flow (cash flow from operations less capital expenditures).
In most of its businesses Time Warner is performing well, and the company is expected to post high single-digit increases in free cash flow for 2005. AOL, which two years ago was such an embarrassment that the moniker was removed from the parent's company's name, is now the prized target of suitors, with MSN and Google currently in competing negotiations to form a partnership. AOL has improved programming and opened its network to nonsubscribers; its advertising revenue is up 39% through Sept. 30.
"We've brought the product a long way," says Michael Kelly, president of AOL Media Networks. But he admits that ad revenue is still not growing as fast as at competitors Yahoo and Google.
Even the sort of great news that once would stimulate entertainment stocks doesn't seem to matter these days. The market ignored the $200 million box office take for Harry Potter and the Goblet of Fire in its first ten days. Cable earnings growth has been up in the double digits for the last five quarters.
Parsons says he's convinced he's "taking the right steps" to increase shareholder value. "I know Carl's not getting any traction," he says. Wall Street thinks he's got maybe six months for the stock to move--and if not, Icahn gains support.
But Parson's frustration is palpable. In the reception area outside Parson's office the composer and recording artist Quincy Jones and two friends greet the Time Warner chief with warm hugs. Parsons needs the love. He has a fight on his hands.
Brett Pulley, 12.26.05
Carl Icahn wants Time Warner Chief Richard Parsons out. Parsons says he is not budging. On a recent afternoon, as corporate raider and billionaire shareholder rebel Carl C. Icahn announced his hiring of Lazard Ltd. to help seize control of the board of Time Warner, Chief Executive Richard D. Parsons sat in his New York office and summed up his current status in four words: "I'm hangin' in here." Usually gregarious and upbeat, Parsons sounded exasperated, his creased brow underscoring his frustration.
Parsons is taking a solid pounding from Icahn these days. Upset by Time Warner's stalled stock price, Icahn plans a proxy fight to field his own slate of candidates for the company's 14 board seats at next spring's annual meeting. If Icahn--who so far has put together a coalition of dissident shareholders representing 3% of Time Warner's 4.6 billion outstanding shares--gains a majority on the board, Parsons will be ousted.
"Parsons is a nice guy, but he is not the guy to run this company," says Icahn. "What you have here is an unnecessary, bloated bureaucracy at the top."
Time Warner Divided
Should Time Warner be broken up? Based on average multiples of cash flow for each business sector, here's one estimate of what the various companies would be worth in the private market if Time Warner were sold as separate units.
Networks (Turner, HBO, WB)
$44.5 billion
Time Inc. Publishing
$11.5 billion
Warner Bros. Films
$16.5 billion
Cable TV
$44.5 billion
AOL
$17 billion
Total Breakup Value
$134 billion
CURRENT MARKET VALUE
$86 BILLION
Source: Gabelli & Co.
Nice guy or not, Parsons is showing no signs of caving in to the blustery Icahn. His plan (if it can be called that) is to ride the company's prevailing good fortunes. While other media and entertainment companies, like Viacom, retrench and abandon ideas of synergy, Parsons resists any talk of breaking up the Time Warner conglomerate.
"We will come back into favor, and when we do, we'll probably make up for lost time," Parsons says. "We just have to wait it out, do the right things and let the market take care of itself. I think some of the clouds will lift over the next 12 to 18 months."
Shortly after becoming chief executive in May 2002, Parsons saw Time Warner shares plunge from $19 to $9.60 as major government investigations of AOL loomed, civil lawsuits mounted and the company's debt teetered toward junk status. But he managed to stabilize the company by settling the investigations and lawsuits, selling Warner's music business for $2.6 billion and agreeing to a $17.5 billion joint acquisition, with Comcast, of Adelphia's cable business. Still, Time Warner's stock remains stuck, trading at around $18.
Enter Icahn, who now believes that the company must be spun off in pieces to unlock value (see box). "If these operations are separated, you can save a fortune. You've got to do a massive restructuring," he says.
Icahn estimates that Time Warner would trade about 50% higher if the company spun off its cable unit, instead of selling a 16% stake, as Parsons plans to do in a public offering. Icahn also wants the company to buy back $20 billion in stock through a so-called Dutch auction tender process, rather than the $12.5 billion worth that Parsons has committed to repurchase over a two-year period.
Parsons gets annoyed when he hears this. "We have done everything that was ever on anybody's list of things that were necessary to unlock the stock, and of course it hasn't happened," he says. "It is frustrating because you'd like your shareholders to see some more tangible measure of progress than they've seen."
He does not, to be sure, favor grand visions of synergistic empires--after all, it was this kind of thinking that led to the disastrous AOL merger. But in the media world, having complementary units can add value. It helps, for example, to own cable systems when you're starting a new cable channel or to know that HBO can provide an additional outlet for films being produced by Warner Bros. And owning programming content is a sure way to beef up your Internet business.
Parsons says he wants to show investors that "we have a different profile than any of the big diversified media companies because we do have some of the Internet superspice in our portfolio--namely, AOL."
So far those arguments are winning, as Icahn's crusade is not causing much of a stir among investors beyond his core group, which includes JANA Partners, SAC Capitol Advisors and Franklin Mutual Advisers.
"We don't have any qualms about the way management is running the business," says Lawrence Haverty, an associate portfolio manager at Gabelli Funds, a division of Gamco Investors, which holds 18 million shares of Time Warner. "You change the board and upset the management and it could be very deleterious to the business."
Another reason Icahn's charges haven't resonated is that Time Warner's stock has a lot of company in the Wall Street doghouse. The media, entertainment and cable sector is depressed by concerns regarding excess means of distribution, digital copying and competition from broadband and satellite. Cable represents 32% of Time Warner's $10 billion in annual free cash flow (cash flow from operations less capital expenditures).
In most of its businesses Time Warner is performing well, and the company is expected to post high single-digit increases in free cash flow for 2005. AOL, which two years ago was such an embarrassment that the moniker was removed from the parent's company's name, is now the prized target of suitors, with MSN and Google currently in competing negotiations to form a partnership. AOL has improved programming and opened its network to nonsubscribers; its advertising revenue is up 39% through Sept. 30.
"We've brought the product a long way," says Michael Kelly, president of AOL Media Networks. But he admits that ad revenue is still not growing as fast as at competitors Yahoo and Google.
Even the sort of great news that once would stimulate entertainment stocks doesn't seem to matter these days. The market ignored the $200 million box office take for Harry Potter and the Goblet of Fire in its first ten days. Cable earnings growth has been up in the double digits for the last five quarters.
Parsons says he's convinced he's "taking the right steps" to increase shareholder value. "I know Carl's not getting any traction," he says. Wall Street thinks he's got maybe six months for the stock to move--and if not, Icahn gains support.
But Parson's frustration is palpable. In the reception area outside Parson's office the composer and recording artist Quincy Jones and two friends greet the Time Warner chief with warm hugs. Parsons needs the love. He has a fight on his hands.
Court backs panel on GE-Honeywell merger
By AOIFE WHITE
AP Business Writer
LUXEMBOURG (AP) -- An EU court ruled Wednesday that the European Commission was right to block General Electric's proposed purchase of Honeywell in 2001, although it criticized regulators for how they made the decision - keeping the bar high for any future ban.
The EU had blocked General Electric's $46 billion purchase of Honeywell International Inc. after it had been cleared by U.S. regulators.
Antitrust lawyers said the decision meant the EU would continue along the more cautious path it has charted in recent years - staying close to the U.S. view that conglomerate deals are rarely an antitrust problem - and use more economic evidence to back up its claims.
The Court of First Instance - the EU's second-highest court - endorsed the Commission's view that the deal would have given the combined company too much power in the market for jet engines for large regional aircraft, engines for corporate jets and the market for small marine gas turbines. In its ruling, the court confirmed that GE was the dominant player in the jet-engine market and the acquisition of Honeywell would have strengthened that position.
The court said the Commission made "manifest errors of assessment" in relying on the theory of conglomerate effects to claim that the purchase would create a company that could squeeze suppliers and control prices. EU judges criticized the theory earlier this year when it said the Commission should not have blocked a merger of packaging giants Tetra and Sidel.
EU regulators concluded that the deal would tie dominant positions in avionics and jet engines together with "complementary products" such as GE's financing arm, and said the deal would force competitors out of the market.
Honeywell and GE - who have no plans to resurrect the deal - claimed the 2001 decision was error-ridden and offered insufficient evidence to support charges that they could shut out rivals by bundling related products together. The court backed some of their claims, but came to the same conclusion as the Commission in saying the merger could harm the market.
EU spokesman Jonathan Todd said the Commission noted the court's criticism and was already reviewing its policy on conglomerate effects, taking the Tetra ruling into account.
"In such complex transactions, it is crucial for the merging parties to come up with adequate remedies for all the competition concerns," he said.
In July, the Commission cleared Procter & Gamble Co.'s $57 billion takeover of Gillette Co. - which it investigated for conglomerate effects - after P&G promised to sell off its SpinBrush battery-operated toothbrush business that competed directly with Gillette's Oral B brand.
Allen & Overy partner Alistair Lindsay said the EU now faces a higher threshold to block a conglomerate deal, making it easier for such mergers - which are rare - to win antitrust clearance.
"If that case (P&G-Gillette) had fallen to be decided at the same time as GE-Honeywell, they probably would have had a lot more hassle then they ended up with," he said.
Lindsay said the court's decision confirmed the Commission's recent push for reform.
"As it is, I think it keeps them reasonably in line with the U.S. because the U.S. agencies are quite cautious about conglomerate charges," he said.
GE counsel Hendrik Bourgeois said the company did not bring the appeal to overturn the prohibition decision, but to get clarity and guidance on the theory of conglomerate effects.
"It seems that the court agrees with our positions ... that the Commission was wrong to predict that the transaction would have had a conglomerate effect based on the financial strength of General Electric, the vertical integration that the transaction would have caused and from bundling," he said.
Honeywell said the ruling showed the Commission's decision was "flawed and incorrect," and the ruling was important for global companies who planned to make new acquisitions.
The EU has taken a far more cautious line on mergers in recent years after the courts overturned three of its decisions to block mergers between travel companies AirTours and First Choice, Tetra and Sidel and electrical equipment makers Schneider and Legrand.
Since 2001, it has blocked only one merger - a tie-up between Portugal's energy and gas suppliers - and now takes more time to explain its concerns to companies, giving them the chance to put forward a solution that eliminates any possibility of antitrust problems.
Catharine Arrowood, a partner at the U.S. law firm Parker Poe, said the problems the Commission had tried to address in the airline market still exist, and that GE had since strengthened its position as a maker and a fixer of large jet engines.
"Airlines have little choice when it comes to equipping commercial jetliners with engines or avionics - these are oligopolistic markets," she said. "There is a serious risk that this will hurt airlines eventually."
The ruling was closely watched because it could also influence an appeal expected next year against the Commission's decision to fine Microsoft Corp. a record 497 million euros ($613 million) in 2004.
Both cases involve the application of leveraging, or using strength in one or more markets to muscle into new ones or lock out competitors by packaging related products together.
Microsoft was found by the EU to be leveraging its dominant Windows operating system into emerging markets for multimedia and server software.
By AOIFE WHITE
AP Business Writer
LUXEMBOURG (AP) -- An EU court ruled Wednesday that the European Commission was right to block General Electric's proposed purchase of Honeywell in 2001, although it criticized regulators for how they made the decision - keeping the bar high for any future ban.
The EU had blocked General Electric's $46 billion purchase of Honeywell International Inc. after it had been cleared by U.S. regulators.
Antitrust lawyers said the decision meant the EU would continue along the more cautious path it has charted in recent years - staying close to the U.S. view that conglomerate deals are rarely an antitrust problem - and use more economic evidence to back up its claims.
The Court of First Instance - the EU's second-highest court - endorsed the Commission's view that the deal would have given the combined company too much power in the market for jet engines for large regional aircraft, engines for corporate jets and the market for small marine gas turbines. In its ruling, the court confirmed that GE was the dominant player in the jet-engine market and the acquisition of Honeywell would have strengthened that position.
The court said the Commission made "manifest errors of assessment" in relying on the theory of conglomerate effects to claim that the purchase would create a company that could squeeze suppliers and control prices. EU judges criticized the theory earlier this year when it said the Commission should not have blocked a merger of packaging giants Tetra and Sidel.
EU regulators concluded that the deal would tie dominant positions in avionics and jet engines together with "complementary products" such as GE's financing arm, and said the deal would force competitors out of the market.
Honeywell and GE - who have no plans to resurrect the deal - claimed the 2001 decision was error-ridden and offered insufficient evidence to support charges that they could shut out rivals by bundling related products together. The court backed some of their claims, but came to the same conclusion as the Commission in saying the merger could harm the market.
EU spokesman Jonathan Todd said the Commission noted the court's criticism and was already reviewing its policy on conglomerate effects, taking the Tetra ruling into account.
"In such complex transactions, it is crucial for the merging parties to come up with adequate remedies for all the competition concerns," he said.
In July, the Commission cleared Procter & Gamble Co.'s $57 billion takeover of Gillette Co. - which it investigated for conglomerate effects - after P&G promised to sell off its SpinBrush battery-operated toothbrush business that competed directly with Gillette's Oral B brand.
Allen & Overy partner Alistair Lindsay said the EU now faces a higher threshold to block a conglomerate deal, making it easier for such mergers - which are rare - to win antitrust clearance.
"If that case (P&G-Gillette) had fallen to be decided at the same time as GE-Honeywell, they probably would have had a lot more hassle then they ended up with," he said.
Lindsay said the court's decision confirmed the Commission's recent push for reform.
"As it is, I think it keeps them reasonably in line with the U.S. because the U.S. agencies are quite cautious about conglomerate charges," he said.
GE counsel Hendrik Bourgeois said the company did not bring the appeal to overturn the prohibition decision, but to get clarity and guidance on the theory of conglomerate effects.
"It seems that the court agrees with our positions ... that the Commission was wrong to predict that the transaction would have had a conglomerate effect based on the financial strength of General Electric, the vertical integration that the transaction would have caused and from bundling," he said.
Honeywell said the ruling showed the Commission's decision was "flawed and incorrect," and the ruling was important for global companies who planned to make new acquisitions.
The EU has taken a far more cautious line on mergers in recent years after the courts overturned three of its decisions to block mergers between travel companies AirTours and First Choice, Tetra and Sidel and electrical equipment makers Schneider and Legrand.
Since 2001, it has blocked only one merger - a tie-up between Portugal's energy and gas suppliers - and now takes more time to explain its concerns to companies, giving them the chance to put forward a solution that eliminates any possibility of antitrust problems.
Catharine Arrowood, a partner at the U.S. law firm Parker Poe, said the problems the Commission had tried to address in the airline market still exist, and that GE had since strengthened its position as a maker and a fixer of large jet engines.
"Airlines have little choice when it comes to equipping commercial jetliners with engines or avionics - these are oligopolistic markets," she said. "There is a serious risk that this will hurt airlines eventually."
The ruling was closely watched because it could also influence an appeal expected next year against the Commission's decision to fine Microsoft Corp. a record 497 million euros ($613 million) in 2004.
Both cases involve the application of leveraging, or using strength in one or more markets to muscle into new ones or lock out competitors by packaging related products together.
Microsoft was found by the EU to be leveraging its dominant Windows operating system into emerging markets for multimedia and server software.
Tuesday, December 20, 2005
December 20, 2005, 11:39 a.m.
On the Whole, Well Done
If a high government official pleaded the authority of the Bible as reverentially as is now routine in citing the authority of the Constitution, he'd be had up for idolatry. One way to vest mystique into the Constitution is to plead its inscrutability, or else suggest that only the high priests of the legal profession are equipped to interpret it. The secretary of state informed Tim Russert no fewer than four times on Meet the Press that she was not a lawyer. The clear purpose of making that point, in that way, was to suggest that the non-anointed can't responsibly interpret the Constitution's provision describing executive duties and prerogatives. That's nonsense, and since Condoleezza Rice is a very smart lady, one had to acknowledge that she simply did not want to argue the meaning of Article Two of the Constitution. She didn't want to be the first secretary of state to pass down word that it's okay for a president to bug your phone because that's what the Constitution says!
Well. All that the Article (II) does say is that the president is to be the commander in chief of the armed forces, that he can order subordinates to account for themselves, and that he can pardon them if they trespass on the law. Conjugate that as you like, but we all know (Tim Russert certainly knows) that you will find lawyers arguing that what the president had most recently done is unconstitutional, and lawyers who will say the opposite. Derivative questions immediately came up. Why didn't Mr. Bush, in exercising the authority he claims inheres in the office, go through the procedurally reassuring step of asking officials of other branches of government for their compliant approval of what he was doing?
The president handled those questions at his press conference on Monday. On the matter of consulting somebody in the court system, he said the reason he hadn't done so was the need for total secrecy. The slightest hint of what he was up to, he said, could have had the effect of undermining the entire enterprise. He gave an example. Evidently, up until a certain point, we were intercepting telephone calls being made by Osama bin Laden. But our success in doing this was brought to Osama’s attention, whereupon he altered his routine, and we never got on to the new means by which, for instance, he was instructing his agents which buildings in New York and Washington to run their airplanes into.
Could the president give an example of how the new interceptions had worked in just such a way, to abort terrorist attacks?
No, the president said. To do any such thing would be immediately to compromise an operation, tipping off an incumbent Osama bin Laden to what we were doing.
But what about a constitutional responsibility to elicit congressional approval of extraordinary applications of the authority of commanders in chief?
Why didn't he tell Congress?
The president loved that question, and several times told the press that he had in fact informed Congressional leaders no less than one dozen times since he began the disputed process. It is of course left for the press to inquire why the legislators who knew about the practice didn't raise their voices to object. Their answer is easily predictable. They did not object for the same reason that the president would not disclose what he was up to publicly: to do so would have been to jeopardize the success of a continuing tactical operation.
Those senators in the know who may now confess themselves as embarrassed by their silence will surely also cite effective executive practice in matters that bear on national security and the prosecution of justice. Why didn’t the president call on a judge to stamp his approval on a proposed phone interception? During the day, historic and extraordinary figures were revealed. Since 1979, the Executive has petitioned the courts to authorize 19,000 telephone interceptions. Permission has been granted in all but five instances. Curiosity understandably turns on which five projected buggings the courts said no to, and how many trysts were saved for the day.
The president pronounced it shameful that the practice he had authorized had been publicly disclosed. Doing this, he said, diminished the kind of operational silence ultra secret operations profit from.
What is a reasonable verdict from a conservative/libertarian on what happened?
1) The president did his job of attempting to out-maneuver the enemy.
2) The press may have overdone its interceptive curiosity, but it performed the function of a free press.
3) The legislative arm yielded to the demands of national security.
4) The courts, acknowledging a natural division of responsibilities, stayed away.
On the Whole, Well Done
If a high government official pleaded the authority of the Bible as reverentially as is now routine in citing the authority of the Constitution, he'd be had up for idolatry. One way to vest mystique into the Constitution is to plead its inscrutability, or else suggest that only the high priests of the legal profession are equipped to interpret it. The secretary of state informed Tim Russert no fewer than four times on Meet the Press that she was not a lawyer. The clear purpose of making that point, in that way, was to suggest that the non-anointed can't responsibly interpret the Constitution's provision describing executive duties and prerogatives. That's nonsense, and since Condoleezza Rice is a very smart lady, one had to acknowledge that she simply did not want to argue the meaning of Article Two of the Constitution. She didn't want to be the first secretary of state to pass down word that it's okay for a president to bug your phone because that's what the Constitution says!
Well. All that the Article (II) does say is that the president is to be the commander in chief of the armed forces, that he can order subordinates to account for themselves, and that he can pardon them if they trespass on the law. Conjugate that as you like, but we all know (Tim Russert certainly knows) that you will find lawyers arguing that what the president had most recently done is unconstitutional, and lawyers who will say the opposite. Derivative questions immediately came up. Why didn't Mr. Bush, in exercising the authority he claims inheres in the office, go through the procedurally reassuring step of asking officials of other branches of government for their compliant approval of what he was doing?
The president handled those questions at his press conference on Monday. On the matter of consulting somebody in the court system, he said the reason he hadn't done so was the need for total secrecy. The slightest hint of what he was up to, he said, could have had the effect of undermining the entire enterprise. He gave an example. Evidently, up until a certain point, we were intercepting telephone calls being made by Osama bin Laden. But our success in doing this was brought to Osama’s attention, whereupon he altered his routine, and we never got on to the new means by which, for instance, he was instructing his agents which buildings in New York and Washington to run their airplanes into.
Could the president give an example of how the new interceptions had worked in just such a way, to abort terrorist attacks?
No, the president said. To do any such thing would be immediately to compromise an operation, tipping off an incumbent Osama bin Laden to what we were doing.
But what about a constitutional responsibility to elicit congressional approval of extraordinary applications of the authority of commanders in chief?
Why didn't he tell Congress?
The president loved that question, and several times told the press that he had in fact informed Congressional leaders no less than one dozen times since he began the disputed process. It is of course left for the press to inquire why the legislators who knew about the practice didn't raise their voices to object. Their answer is easily predictable. They did not object for the same reason that the president would not disclose what he was up to publicly: to do so would have been to jeopardize the success of a continuing tactical operation.
Those senators in the know who may now confess themselves as embarrassed by their silence will surely also cite effective executive practice in matters that bear on national security and the prosecution of justice. Why didn’t the president call on a judge to stamp his approval on a proposed phone interception? During the day, historic and extraordinary figures were revealed. Since 1979, the Executive has petitioned the courts to authorize 19,000 telephone interceptions. Permission has been granted in all but five instances. Curiosity understandably turns on which five projected buggings the courts said no to, and how many trysts were saved for the day.
The president pronounced it shameful that the practice he had authorized had been publicly disclosed. Doing this, he said, diminished the kind of operational silence ultra secret operations profit from.
What is a reasonable verdict from a conservative/libertarian on what happened?
1) The president did his job of attempting to out-maneuver the enemy.
2) The press may have overdone its interceptive curiosity, but it performed the function of a free press.
3) The legislative arm yielded to the demands of national security.
4) The courts, acknowledging a natural division of responsibilities, stayed away.
December 20, 2005, 9:46 a.m.
Clinton Claimed Authority to Order No-Warrant Searches
Does anyone remember that?
In a little-remembered debate from 1994, the Clinton administration argued that the president has "inherent authority" to order physical searches — including break-ins at the homes of U.S. citizens — for foreign intelligence purposes without any warrant or permission from any outside body. Even after the administration ultimately agreed with Congress's decision to place the authority to pre-approve such searches in the Foreign Intelligence Surveillance Act (FISA) court, President Clinton still maintained that he had sufficient authority to order such searches on his own.
"The Department of Justice believes, and the case law supports, that the president has inherent authority to conduct warrantless physical searches for foreign intelligence purposes," Deputy Attorney General Jamie Gorelick testified before the Senate Intelligence Committee on July 14, 1994, "and that the President may, as has been done, delegate this authority to the Attorney General."
"It is important to understand," Gorelick continued, "that the rules and methodology for criminal searches are inconsistent with the collection of foreign intelligence and would unduly frustrate the president in carrying out his foreign intelligence responsibilities."
Executive Order 12333, signed by Ronald Reagan in 1981, provides for such warrantless searches directed against "a foreign power or an agent of a foreign power."
Reporting the day after Gorelick's testimony, the Washington Post's headline — on page A-19 — read, "Administration Backing No-Warrant Spy Searches." The story began, "The Clinton administration, in a little-noticed facet of the debate on intelligence reforms, is seeking congressional authorization for U.S. spies to continue conducting clandestine searches at foreign embassies in Washington and other cities without a federal court order. The administration's quiet lobbying effort is aimed at modifying draft legislation that would require U.S. counterintelligence officials to get a court order before secretly snooping inside the homes or workplaces of suspected foreign agents or foreign powers."
In her testimony, Gorelick made clear that the president believed he had the power to order warrantless searches for the purpose of gathering intelligence, even if there was no reason to believe that the search might uncover evidence of a crime. "Intelligence is often long range, its exact targets are more difficult to identify, and its focus is less precise," Gorelick said. "Information gathering for policy making and prevention, rather than prosecution, are its primary focus."
The debate over warrantless searches came up after the case of CIA spy Aldrich Ames. Authorities had searched Ames's house without a warrant, and the Justice Department feared that Ames's lawyers would challenge the search in court. Meanwhile, Congress began discussing a measure under which the authorization for break-ins would be handled like the authorization for wiretaps, that is, by the FISA court. In her testimony, Gorelick signaled that the administration would go along a congressional decision to place such searches under the court — if, as she testified, it "does not restrict the president's ability to collect foreign intelligence necessary for the national security." In the end, Congress placed the searches under the FISA court, but the Clinton administration did not back down from its contention that the president had the authority to act when necessary.
— Byron York, NR's White House correspondent, is the author of The Vast Left Wing Conspiracy: The Untold Story of How Democratic Operatives, Eccentric Billionaires, Liberal Activists, and Assorted Celebrities Tried to Bring Down a President — and Why They'll Try Even Harder Next Time.
Clinton Claimed Authority to Order No-Warrant Searches
Does anyone remember that?
In a little-remembered debate from 1994, the Clinton administration argued that the president has "inherent authority" to order physical searches — including break-ins at the homes of U.S. citizens — for foreign intelligence purposes without any warrant or permission from any outside body. Even after the administration ultimately agreed with Congress's decision to place the authority to pre-approve such searches in the Foreign Intelligence Surveillance Act (FISA) court, President Clinton still maintained that he had sufficient authority to order such searches on his own.
"The Department of Justice believes, and the case law supports, that the president has inherent authority to conduct warrantless physical searches for foreign intelligence purposes," Deputy Attorney General Jamie Gorelick testified before the Senate Intelligence Committee on July 14, 1994, "and that the President may, as has been done, delegate this authority to the Attorney General."
"It is important to understand," Gorelick continued, "that the rules and methodology for criminal searches are inconsistent with the collection of foreign intelligence and would unduly frustrate the president in carrying out his foreign intelligence responsibilities."
Executive Order 12333, signed by Ronald Reagan in 1981, provides for such warrantless searches directed against "a foreign power or an agent of a foreign power."
Reporting the day after Gorelick's testimony, the Washington Post's headline — on page A-19 — read, "Administration Backing No-Warrant Spy Searches." The story began, "The Clinton administration, in a little-noticed facet of the debate on intelligence reforms, is seeking congressional authorization for U.S. spies to continue conducting clandestine searches at foreign embassies in Washington and other cities without a federal court order. The administration's quiet lobbying effort is aimed at modifying draft legislation that would require U.S. counterintelligence officials to get a court order before secretly snooping inside the homes or workplaces of suspected foreign agents or foreign powers."
In her testimony, Gorelick made clear that the president believed he had the power to order warrantless searches for the purpose of gathering intelligence, even if there was no reason to believe that the search might uncover evidence of a crime. "Intelligence is often long range, its exact targets are more difficult to identify, and its focus is less precise," Gorelick said. "Information gathering for policy making and prevention, rather than prosecution, are its primary focus."
The debate over warrantless searches came up after the case of CIA spy Aldrich Ames. Authorities had searched Ames's house without a warrant, and the Justice Department feared that Ames's lawyers would challenge the search in court. Meanwhile, Congress began discussing a measure under which the authorization for break-ins would be handled like the authorization for wiretaps, that is, by the FISA court. In her testimony, Gorelick signaled that the administration would go along a congressional decision to place such searches under the court — if, as she testified, it "does not restrict the president's ability to collect foreign intelligence necessary for the national security." In the end, Congress placed the searches under the FISA court, but the Clinton administration did not back down from its contention that the president had the authority to act when necessary.
— Byron York, NR's White House correspondent, is the author of The Vast Left Wing Conspiracy: The Untold Story of How Democratic Operatives, Eccentric Billionaires, Liberal Activists, and Assorted Celebrities Tried to Bring Down a President — and Why They'll Try Even Harder Next Time.
M&A: Back with a Vengeance
Deals in 2005 are likely to top $1 trillion. Ready cash, rapid technological change, and private funds make it unlikely we'll see any cooling soon
Dealmakers, it's time to pop the champagne corks a little early this year. It looks like the market for mergers and acquisitions will close out 2005 with its best performance in five years.
With three weeks left to go, the value of U.S. M&A deals is likely to break the trillion-dollar mark for the first time since 2000. To date, there have been 8,115 announced deals worth a combined $948 billion, according to researcher Thomson Financial. That compares with 8,454 deals worth $824 billion in 2004.
Evidence of a resurgent M&A market is mounting daily. The deals are coming at a rapid-fire pace, across all sectors of the business world. The latest bombshell: On Dec. 5, Boston Scientific (BSX ) bid $25 billion for medical-device maker Guidant (GDT ), besting the current $22 billion offer from Johnson & Johnson (JNJ).
KEY SECTORS. Meanwhile, Verizon (VZ ) is looking for buyers for its Yellow Pages business, which could fetch up to $17 billion (see BW Online, 12/06/05, "Yellow Fever, Courtesy of Verizon"). And British cable company NTL (NTLI ) may buy wireless-phone marketing upstart Virgin Mobile (VGMHF ) for $1.4 billion (see BW Online, 12/06/05, "Why NTL Likes Virgin").
It has been this way all year, starting last January when telecom giant SBC's (SBC ) merger talks with AT&T (T ) came into full view. The deal is now complete, and SBC has taken the AT&T name (see BW Online, 10/28/05, "It's All in a Name").
Other huge deals include Oracle's (ORCL ) pending acquisition of Siebel Systems (SEBL ) (see BW Online, 11/17/05, "Oracle Keeps on Making Deals"). Energy and health care have been active, and tech has been on fire. "Without question, the M&A market in the sectors that we follow, primarily related to media and tech, are the strongest we have seen since late '99, early 2000," says Ken Marlin, founder and managing partner of New York-based investment bank Marlin & Associates.
WHY THE RESURGENCE? In historic terms, 2005 won't set a record. The year 2000 saw an astonishing 11,044 deals, worth $1.7 trillion. And 1998 and 1999 were nearly as strong. But those years were anomalous, driven by deregulation and the birth of the Internet as we know and understand it today.
Still, the strength of the current market leads most analysts to believe the climate for consolidation and mergers is likely to remain strong for at least several years, investment bankers say. Plus, it's possible that 2006, and even 2007, could exceed the levels attained in 2005.
M&A activity plunged from 2001 through 2003, as the tech bubble burst, the markets reeled from the September 11 attacks, and overextended companies worked out their debt. Investors were left to lick their wounds. Banks all but stopped lending, and corporations focused on outdoing themselves by seeing which could be the most conservative.
ASIAN INTEREST. But after a long drought, the market is in a period of replenishment. Marlin says the psychology of buyers and sellers has changed. After several years of "looking inward," buyers are ready to take on more risk in search of opportunity and growth. In areas such as telecom and technology, fundamental changes are forcing giants such as News Corp. (NWS ) to make huge investments in the Internet. And sellers are more motivated, now that prices are rising.
The financial environment has changed drastically since the tech bust, too. Several years of poor liquidity and massive debt have given way to a new era of double-digit corporate-earnings growth, low interest rates, and massive amounts of cash. The 375 companies that comprise the Standard & Poor's industrials achieved a record cash position of nearly $640 billion in November, according to S&P analyst Howard Silverblatt.
A lot of that money is going into M&A, he says. Moreover, large companies such as Oracle are using cash to buy back their stock, then using those shares as currency to acquire other companies. That makes M&A more palatable to investors, because the price appreciation isn't subject to taxes, Silverblatt adds.
The M&A market also draws support from a new generation of buyers. Corporations in China, India, and other burgeoning markets are playing a big role in M&A for the first time, and they're just getting started. That's more evidence that this M&A boom may have legs. Earlier this year, China energy giant CNOOC (CEO ) tried to buy Unocal (UCL ). It didn't work but the perception of Chinese capital has changed (see BW, 8/15/05, "What CNOOC Leaves Behind").
NO END IN SIGHT. Add in a third factor: Billions of dollars have accumulated in the coffers of private-equity firms. As good deals become scarcer, private-equity firms use their financial muscle to bid up prices. They're moving beyond their traditional hunting grounds of smaller prey in search of ever larger deals. And banks are allowing private-equity outfits to borrow more money against the equity in the companies they buy, creating the opportunity for more leverage.
Finally, long-anticipated technological revolutions such as broadband and wireless broadband are maturing. Buyers and sellers are in good financial shape, too. "I see no reason why the current boom should end any time soon," Marlin says. This wave may not be as big as the last one, but it's a good bet that M&A activity will keep rolling along into the New Year -- and beyond.
Deals in 2005 are likely to top $1 trillion. Ready cash, rapid technological change, and private funds make it unlikely we'll see any cooling soon
Dealmakers, it's time to pop the champagne corks a little early this year. It looks like the market for mergers and acquisitions will close out 2005 with its best performance in five years.
With three weeks left to go, the value of U.S. M&A deals is likely to break the trillion-dollar mark for the first time since 2000. To date, there have been 8,115 announced deals worth a combined $948 billion, according to researcher Thomson Financial. That compares with 8,454 deals worth $824 billion in 2004.
Evidence of a resurgent M&A market is mounting daily. The deals are coming at a rapid-fire pace, across all sectors of the business world. The latest bombshell: On Dec. 5, Boston Scientific (BSX ) bid $25 billion for medical-device maker Guidant (GDT ), besting the current $22 billion offer from Johnson & Johnson (JNJ).
KEY SECTORS. Meanwhile, Verizon (VZ ) is looking for buyers for its Yellow Pages business, which could fetch up to $17 billion (see BW Online, 12/06/05, "Yellow Fever, Courtesy of Verizon"). And British cable company NTL (NTLI ) may buy wireless-phone marketing upstart Virgin Mobile (VGMHF ) for $1.4 billion (see BW Online, 12/06/05, "Why NTL Likes Virgin").
It has been this way all year, starting last January when telecom giant SBC's (SBC ) merger talks with AT&T (T ) came into full view. The deal is now complete, and SBC has taken the AT&T name (see BW Online, 10/28/05, "It's All in a Name").
Other huge deals include Oracle's (ORCL ) pending acquisition of Siebel Systems (SEBL ) (see BW Online, 11/17/05, "Oracle Keeps on Making Deals"). Energy and health care have been active, and tech has been on fire. "Without question, the M&A market in the sectors that we follow, primarily related to media and tech, are the strongest we have seen since late '99, early 2000," says Ken Marlin, founder and managing partner of New York-based investment bank Marlin & Associates.
WHY THE RESURGENCE? In historic terms, 2005 won't set a record. The year 2000 saw an astonishing 11,044 deals, worth $1.7 trillion. And 1998 and 1999 were nearly as strong. But those years were anomalous, driven by deregulation and the birth of the Internet as we know and understand it today.
Still, the strength of the current market leads most analysts to believe the climate for consolidation and mergers is likely to remain strong for at least several years, investment bankers say. Plus, it's possible that 2006, and even 2007, could exceed the levels attained in 2005.
M&A activity plunged from 2001 through 2003, as the tech bubble burst, the markets reeled from the September 11 attacks, and overextended companies worked out their debt. Investors were left to lick their wounds. Banks all but stopped lending, and corporations focused on outdoing themselves by seeing which could be the most conservative.
ASIAN INTEREST. But after a long drought, the market is in a period of replenishment. Marlin says the psychology of buyers and sellers has changed. After several years of "looking inward," buyers are ready to take on more risk in search of opportunity and growth. In areas such as telecom and technology, fundamental changes are forcing giants such as News Corp. (NWS ) to make huge investments in the Internet. And sellers are more motivated, now that prices are rising.
The financial environment has changed drastically since the tech bust, too. Several years of poor liquidity and massive debt have given way to a new era of double-digit corporate-earnings growth, low interest rates, and massive amounts of cash. The 375 companies that comprise the Standard & Poor's industrials achieved a record cash position of nearly $640 billion in November, according to S&P analyst Howard Silverblatt.
A lot of that money is going into M&A, he says. Moreover, large companies such as Oracle are using cash to buy back their stock, then using those shares as currency to acquire other companies. That makes M&A more palatable to investors, because the price appreciation isn't subject to taxes, Silverblatt adds.
The M&A market also draws support from a new generation of buyers. Corporations in China, India, and other burgeoning markets are playing a big role in M&A for the first time, and they're just getting started. That's more evidence that this M&A boom may have legs. Earlier this year, China energy giant CNOOC (CEO ) tried to buy Unocal (UCL ). It didn't work but the perception of Chinese capital has changed (see BW, 8/15/05, "What CNOOC Leaves Behind").
NO END IN SIGHT. Add in a third factor: Billions of dollars have accumulated in the coffers of private-equity firms. As good deals become scarcer, private-equity firms use their financial muscle to bid up prices. They're moving beyond their traditional hunting grounds of smaller prey in search of ever larger deals. And banks are allowing private-equity outfits to borrow more money against the equity in the companies they buy, creating the opportunity for more leverage.
Finally, long-anticipated technological revolutions such as broadband and wireless broadband are maturing. Buyers and sellers are in good financial shape, too. "I see no reason why the current boom should end any time soon," Marlin says. This wave may not be as big as the last one, but it's a good bet that M&A activity will keep rolling along into the New Year -- and beyond.
How oil shocks affect markets: consider the five most recent scenarios
Roger Kubarych
The five major oil shocks that have rattled the global economy since 1973 also had powerful effects on financial markets. But just as the economic impact of successive oil shocks has become progressively less destructive to growth, so too have the financial market effects become milder. Indeed, the latest surge in oil prices has been largely taken in stride within the financial markets, in contrast to past responses. In part that is because moderately higher crude oil prices no longer have a decisive effect on overall inflationary developments. In part, it is because rightly or wrongly market participants have been conditioned to expect the oil price to retreat after a temporary overshoot. And in part it is because a sharp rise in energy costs has differential effects on different sectors of the economy--some industries do worse, such as automakers, but others do better, such as energy developers. Here is a brief review of how the main financial sectors have responded to successive oil shocks since the big one in 1973.
The Five Shocks
[1] 1973-75: OPEC SQUEEZES THE WEST
The proximate cause was the Yom Kippur War in the fall of 1973, followed by the Arab boycott of countries judged to be supporting Israel against Egypt. But in the background was a long period of OPEC frustration that relatively constant oil prices, against a backdrop of rising global inflation, were resulting in a steady decline in real oil revenues. The geopolitical disturbance provided just the fight degree of cover to slip through a new policy of using its latent market power to push up prices. Over the next year and a half, the price of Saudi light crude oil soared from $2 per barrel to over $13 per barrel. The price subsequently leveled off to trade in a narrow range just under $15 per barrel until the next geopolitical shock in 1979, the Iranian revolution.
FINANCIAL MARKET RESPONSES
Bonds: The U.S. Treasury ten-year constant maturity bond posted a yield of 6.81 percent on October 18, 1973, the day before the oil embargo began. Initially the ten-year yield actually declined, reaching a low of 6.67 percent two months later. Over subsequent months, bond markets gradually sold off as the oil price hike began to be viewed as permanent, with serious inflationary consequences. But the bond market continued to trade in an orderly fashion. There were no sudden, sharp yield spikes. By March 18, 1974, when the oil embargo ended, ten-year Treasuries were up to a yield of just 7.24 percent. However, when prices continued upward even after the end of the embargo, bond yields resumed an upward path, topping 8 percent in the fall of 1974 and rising further to a peak of 8.5 percent a year later. All told, the first oil shock produced a cumulative increase of almost 2 percentage points in long-term U.S. Treasury yields.
Stock markets: The U.S. equity market, as measured by the S&P 500 index, was badly shaken by the events in the Middle East and the Arab oil embargo. From just before its imposition until oil prices began to stabilize in early 1975, average stock prices nearly halved. The value of U.S. equities dropped by 50 percent or $600 billion, about 40 percent of GDP. By comparison, that plunge was only slightly less severe than the collapse of the high tech bubble of 2000-03.
Currencies: The Japanese yen, which had been allowed to appreciate against the U.S. dollar after the 1971 collapse of the Bretton Woods system, weakened significantly in the aftermath of the oil shock. The Japanese economy was viewed as more vulnerable to a contraction in oil supplies. The currency traded at about 265 to the dollar just before the oil embargo. It weakened to about 300 by the middle of 1974 and then fluctuated narrowly around that level until 1977, when the Carter Administration took office with a mandate to deal with the growing Japanese trade surplus.
The German mark followed a similar pattern, but weakened less than the yen and turned up sooner. The deutschemark weakened from about 2.40 just before the embargo to above 2.80 by January 1974. But by the end of 1974 it was already stronger than before the oil shock and it continued to appreciate against the dollar subsequently.
[2] 1979-81: IRANIAN REVOLUTION AND IRAN-IRAQ WAR
Another geopolitical event with immense historic consequences triggered the second major oil shock. Coming into 1979, OPEC decided to exploit its pricing power after a period of restraint by announcing a 15 percent price rise for 1979. But that action was quickly made obsolete by rapidly unfolding events in Iran. Oil production had been declining in that country for some time as social unrest escalated. Market conditions deteriorated even before the Shah was deposed and the American embassy in Tehran was seized by militants in November 1979. The Iranian revolution resulted in the loss of 2 million to 2.5 million barrels of oil per day between November 1978 and June 1979. Later, production almost halted.
Iraq invaded Iran in September 1980. Within weeks the combined production of both countries was only a million barrels per day or 6.5 million barrels per day less than a year before. Worldwide crude oil production was 10 percent lower than in 1979. In the meantime, there was a renewed scramble by numerous countries to build up oil stockpiles. By the time the market peaked in 1980-81, the price of Saudi light crude oil had climbed to just below $40 per barrel, a rise of about $25 per barrel and almost a tripling of the 1978 average price.
FINANCIAL MARKET RESPONSES
Bonds: The second oil shock had a far more profoundly adverse impact on bond markets than the initial one, even though oil price advance was relatively smaller. Yields on ten-year U.S. Treasuries were already moving progressively by the time events began to unfold in Iran late in 1978. By December the yield had pierced the 9 percent level, over 1 percentage point higher than the year before. As oil prices started to escalate in subsequent months, yields traded in a narrow range without a clear upward trend until the second half of the year. The swirl of events over the closing months of the year--the takeover of power by Ayatollah Khomeini, the hostage crisis, and the quick imposition of a freeze on Iranian assets in the United States--led to sharp increases in bond yields. By January 1980, ten-year Treasuries were quoted above 11 percent. Over the next several weeks, as the hostage crisis dragged on with no end in sight, market confidence weakened further. By late February, the yield climbed above 13.5 percent, then a record high. There were subsequent temporary rallies, but the bond market continued under pressure even after oil prices peaked.
Stock markets: It is remarkable, looking back at that turbulent period, that the major stock market indexes in the United States were little affected by the events in the oil and bond markets. To be sure, there were abrupt movements on a few days, but over all the stock market reacted more calmly than the bond market, especially during 1980. The best explanation is that some industries were thought to benefit from higher energy prices. Investors moved money out of investments in sectors thought to be most negatively affected--recall that this was the time of the U.S. government bail-out of Chrysler, so everyone knew that the auto industry was a casualty. But they moved into energy-related stocks and other industries, with no permanent net erosion of equity values.
Currencies: The Iranian revolution came just after the Carter Administration had put in place in November 1978 its elaborate program to defend the dollar. That included drawing on IMF credit lines as well as issuance of the so-called Carter bonds, in which the U.S. Treasury borrowed in currencies other than the dollar. That worked for a while to restore some confidence, and the dollar briefly rallied across the board. Like after the first oil price shock, the yen continued to come under some pressure in the foreign exchange markets as oil prices climbed higher. But the experience of the deutschemark was different. By the end of 1979, as the U.S. rate of inflation began to ratchet higher, the deutschemark was again appreciating strongly. That trend would continue well into 1980.
[3] 1990-91: IRAQ INVADES KUWAIT AND FIRST GULF WAR
The price of crude oil spiked in 1990 with the uncertainty associated with Iraq's invasion of Kuwait and the build-up to Operation Desert Storm, which eventually forced Saddam Hussein to withdraw. The price spike was substantial--within weeks of August 1990, Saudi light crude oil had jumped from about $15 per barrel to over $33 per barrel. But the impact on oil supplies was negligible, not least because Saudi Arabia and other Arab nations were allied with U.S. forces and they made efforts to counteract the price increase. Once it was clear that the United States was committed to expelling Iraq, prices began to slide. And they continued to plummet as the ensuing Gulf War turned out to be shorter, and with fewer casualties, than critics had predicted. Following the war, crude oil prices entered a steady decline until 1994, when inflation-adjusted prices fell to their lowest levels since 1973.
FINANCIAL MARKET RESPONSES
Bonds: The yield on ten-year U.S. Treasuries was trading about 8 percent at the time of the Iraqi invasion. In sharp contrast to the previous oil shocks, the rapid run-up in crude oil prices had only a minimal impact on the bond market in this episode. The yield peaked at just over 9 percent in September and soon fluctuated gradually lower, both during the preparations for Operation Desert Storm and after its successful implementation. Bond market participants were convinced at the time that the oil price spike would not be sustained, in large measure because of Saudi involvement in the war effort. They were right.
Stock markets: In contrast to the bond market, stocks fell back noticeably between the Iraqi invasion and the end of 1990. But they quickly retraced the decline once it was clear that the operation would be successful.
Currencies: The exchange market reaction was entirely different from the first two oil shocks. The deutschemark and the Japanese yen actually strengthened during the run-up in oil prices, and only settled back after hostilities ended and oil prices retreated.
[4] 1996-99: DEMAND-INDUCED PRICE SURGE
In the wake of the Asian financial crisis and a pick-up of Iraqi oil sales under the United Nations oil-for-food program, oil prices plummeted to $10 per barrel in late 1998. Then oil prices began to head sharply higher--but this time, unlike the three previous episodes, without any geopolitical trigger. Rather, global demand began to swell as the high-tech bubble encouraged a big investment boom in North America and Europe and as the Asian economies began to recover. OPEC was either unable or unwilling to match increased demand by raising output. By the middle of 2000, oil prices tripled. It represented an even sharper price advance than during the shock of the Iranian revolution. The eventual peaking in the oil price coincided with President Clinton's decision to sell crude oil from the Strategic Petroleum Reserve, although analysts disagree as to how important that action was in taming the market pressures.
FINANCIAL MARKET RESPONSES
Bonds: Yields on ten-year U.S. Treasuries moved up alongside the rise in oil prices. At the end of 1998, the yield was just above 4.5 percent. By February 1999, it went above 5 percent. By June 1999 it exceeded 6 percent. Thereafter, it fluctuated narrowly just below that level by the time oil prices reached a peak. Naturally, rising oil prices were not the only factor influencing bond market participants. The furious increase in stock prices, especially for high tech companies, was generating huge reallocations of investment funds into stocks and out of bonds. Moreover, economic growth was accelerating. In the United States, the Federal Reserve, concerned about a buildup of inflationary pressures, was progressively tightening monetary policy. European monetary policies were also being tightened. So in a sense, it was a conventional late-cycle boom, with both oil prices and bond yields responding in a classic way.
Stocks: Stock markets largely ignored the crude oil price advance of 1999-2000. The lure of rapidly escalating high tech stocks overshadowed it.
Currencies: The deutschemark and Japanese yen reactions were entirely reversed from past experience. The yen strengthened sharply throughout the oil price advance, while the deutschemark tended to weaken.
[5] 2002-05: IRAQ II AND SURGING OIL DEMAND
Call it a rolling oil price shock or a second demand-induced price spike, the tripling of crude oil prices since early 2002 has had very different--generally more muted and often paradoxical--effects on the financial markets.
FINANCIAL MARKET RESPONSES
Bonds: Bond market participants have shown little of the concern, or sometimes fear, associated with oil price surges of similar magnitude in the previous thirty years. Accordingly, yields have exhibited little of the volatility, and none of the upward tendency, of the four previous episodes. Fed Chairman Greenspan has remarked that the recent bond market behavior is not readily explainable--his word is "conundrum." Part of that conundrum has to do with the absence of heightened inflationary expectations, despite the upward pressure on energy costs, which have yet to feed through into prices generally.
Stocks: While the stock market has rebounded from the depths of the tremendous sell-off of 2000-03, recently investors have expressed great uncertainty about future prospects for corporate earnings. The higher energy costs bother them, even as bond investors are unimpressed.
Currencies: The dollar depreciated sharply from March 2002 until the end of 2004 but has rallied since. The latest oil price surge has been a factor in the Japanese yen market, but not in the market for euros. Other factors are weighing on the European common currency, including political questions raised by defeat of the constitutional referendums in France and the Netherlands.
WHAT NEXT?
Nobody likes to forecast continued increases in oil prices. History suggests that after a tripling in price, market pressures subside and prices slip back. That may well happen this time. But there are several worrisome features of the current situation that support the alternative view that further increases in oil prices are more likely.
First, a number of OPEC producers are operating at full capacity but below their explicit quotas. That means that the only genuine source of incremental supply is Saudi Arabia.
Second, relations between the governments of Saudi Arabia and the United States have deteriorated since the decision by the Bush Administration to use force to remove Saddam Hussein's regime. Continued violence in Iraq validates the concerns of several Saudi officials that regime change would lead to chaos. Thus, Saudi Arabia has little geopolitical incentive to relieve a tight supply-demand balance in global oil markets. They don't need the extra cash just now, either.
Third, the demand side pressures have been permanently intensified by the tremendous economic growth in China. Much of that growth is energy-intensive. New commercial buildings are constructed with modern air-conditioning and computer capabilities. Millions of cars and trucks are being added to the stock of motor vehicles, and that cumulatively lifts fuel demand.
Fourth, other Asian countries are also growing rapidly and the energy intensity of consumption is also on the rise. India will provide another injection of demand over the medium term.
Therefore, rather than a sharp pull-back in energy prices, a more likely scenario is for an irregular up-trend over the remainder of the decade.
BEST POLICY RESPONSE
Demand contraction policies, such as the high-tax environment of Europe and Japan, would have a minimal impact on energy use in the United States. That is because the main determinant of gasoline demand is the fuel efficiency of the installed motor vehicle stock and that can't be changed quickly. Plus, a sudden collapse in consumer purchases of U.S.-built sport-utility vehicles and other light trucks would push the main automakers to the brink of bankruptcy. So the chances of a high-gasoline tax approach being legislated are practically nil.
The Bush Administration has pushed for supply expansion instead. The problem is that the kinds of petroleum discovery and development they have in mind, mostly in environmentally protected areas of Alaska and in a few offshore locations, would yield very small increases to U.S. production. In the meantime, proposals for such activities do little more than unite environmental activists in opposition. And a growing environmental movement would essentially close off the one area where the United States should be rethinking its existing policies: that is, the arena of nuclear energy.
At present there is virtually no political support for redeveloping a nuclear power industry, unlike for example in countries such as France and Japan, which are committed to the nuclear option. It will take a monumental effort to shift U.S. attitudes. And even if this political effort would were successful, a long-shot to say the least, it would take the better part of a decade to design and build new nuclear power plants.
Therefore, about the only thing that can reliably lower oil prices is for a major increase in investment in three areas: new technology to bum coal more efficiently, development of alternative energy sources such as wind and solar, and a burst of innovation in areas such as fuel cells. There is actually a good deal of bipartisan support for each of these options, as indicated in the policy platforms of both the Bush and Kerry campaigns in 2004.
But none of this is going to happen soon. In the meantime, the complacency of the bond market is likely to be tested, and the apprehension of the stock market is likely to increase when oil prices once again rise above past peaks and their inflationary consequences become more apparent.
Roger Kubarych is Senior Economic Adviser with HVB America, Inc.
COPYRIGHT 2005 International Economy Publications, Inc.
Roger Kubarych
The five major oil shocks that have rattled the global economy since 1973 also had powerful effects on financial markets. But just as the economic impact of successive oil shocks has become progressively less destructive to growth, so too have the financial market effects become milder. Indeed, the latest surge in oil prices has been largely taken in stride within the financial markets, in contrast to past responses. In part that is because moderately higher crude oil prices no longer have a decisive effect on overall inflationary developments. In part, it is because rightly or wrongly market participants have been conditioned to expect the oil price to retreat after a temporary overshoot. And in part it is because a sharp rise in energy costs has differential effects on different sectors of the economy--some industries do worse, such as automakers, but others do better, such as energy developers. Here is a brief review of how the main financial sectors have responded to successive oil shocks since the big one in 1973.
The Five Shocks
[1] 1973-75: OPEC SQUEEZES THE WEST
The proximate cause was the Yom Kippur War in the fall of 1973, followed by the Arab boycott of countries judged to be supporting Israel against Egypt. But in the background was a long period of OPEC frustration that relatively constant oil prices, against a backdrop of rising global inflation, were resulting in a steady decline in real oil revenues. The geopolitical disturbance provided just the fight degree of cover to slip through a new policy of using its latent market power to push up prices. Over the next year and a half, the price of Saudi light crude oil soared from $2 per barrel to over $13 per barrel. The price subsequently leveled off to trade in a narrow range just under $15 per barrel until the next geopolitical shock in 1979, the Iranian revolution.
FINANCIAL MARKET RESPONSES
Bonds: The U.S. Treasury ten-year constant maturity bond posted a yield of 6.81 percent on October 18, 1973, the day before the oil embargo began. Initially the ten-year yield actually declined, reaching a low of 6.67 percent two months later. Over subsequent months, bond markets gradually sold off as the oil price hike began to be viewed as permanent, with serious inflationary consequences. But the bond market continued to trade in an orderly fashion. There were no sudden, sharp yield spikes. By March 18, 1974, when the oil embargo ended, ten-year Treasuries were up to a yield of just 7.24 percent. However, when prices continued upward even after the end of the embargo, bond yields resumed an upward path, topping 8 percent in the fall of 1974 and rising further to a peak of 8.5 percent a year later. All told, the first oil shock produced a cumulative increase of almost 2 percentage points in long-term U.S. Treasury yields.
Stock markets: The U.S. equity market, as measured by the S&P 500 index, was badly shaken by the events in the Middle East and the Arab oil embargo. From just before its imposition until oil prices began to stabilize in early 1975, average stock prices nearly halved. The value of U.S. equities dropped by 50 percent or $600 billion, about 40 percent of GDP. By comparison, that plunge was only slightly less severe than the collapse of the high tech bubble of 2000-03.
Currencies: The Japanese yen, which had been allowed to appreciate against the U.S. dollar after the 1971 collapse of the Bretton Woods system, weakened significantly in the aftermath of the oil shock. The Japanese economy was viewed as more vulnerable to a contraction in oil supplies. The currency traded at about 265 to the dollar just before the oil embargo. It weakened to about 300 by the middle of 1974 and then fluctuated narrowly around that level until 1977, when the Carter Administration took office with a mandate to deal with the growing Japanese trade surplus.
The German mark followed a similar pattern, but weakened less than the yen and turned up sooner. The deutschemark weakened from about 2.40 just before the embargo to above 2.80 by January 1974. But by the end of 1974 it was already stronger than before the oil shock and it continued to appreciate against the dollar subsequently.
[2] 1979-81: IRANIAN REVOLUTION AND IRAN-IRAQ WAR
Another geopolitical event with immense historic consequences triggered the second major oil shock. Coming into 1979, OPEC decided to exploit its pricing power after a period of restraint by announcing a 15 percent price rise for 1979. But that action was quickly made obsolete by rapidly unfolding events in Iran. Oil production had been declining in that country for some time as social unrest escalated. Market conditions deteriorated even before the Shah was deposed and the American embassy in Tehran was seized by militants in November 1979. The Iranian revolution resulted in the loss of 2 million to 2.5 million barrels of oil per day between November 1978 and June 1979. Later, production almost halted.
Iraq invaded Iran in September 1980. Within weeks the combined production of both countries was only a million barrels per day or 6.5 million barrels per day less than a year before. Worldwide crude oil production was 10 percent lower than in 1979. In the meantime, there was a renewed scramble by numerous countries to build up oil stockpiles. By the time the market peaked in 1980-81, the price of Saudi light crude oil had climbed to just below $40 per barrel, a rise of about $25 per barrel and almost a tripling of the 1978 average price.
FINANCIAL MARKET RESPONSES
Bonds: The second oil shock had a far more profoundly adverse impact on bond markets than the initial one, even though oil price advance was relatively smaller. Yields on ten-year U.S. Treasuries were already moving progressively by the time events began to unfold in Iran late in 1978. By December the yield had pierced the 9 percent level, over 1 percentage point higher than the year before. As oil prices started to escalate in subsequent months, yields traded in a narrow range without a clear upward trend until the second half of the year. The swirl of events over the closing months of the year--the takeover of power by Ayatollah Khomeini, the hostage crisis, and the quick imposition of a freeze on Iranian assets in the United States--led to sharp increases in bond yields. By January 1980, ten-year Treasuries were quoted above 11 percent. Over the next several weeks, as the hostage crisis dragged on with no end in sight, market confidence weakened further. By late February, the yield climbed above 13.5 percent, then a record high. There were subsequent temporary rallies, but the bond market continued under pressure even after oil prices peaked.
Stock markets: It is remarkable, looking back at that turbulent period, that the major stock market indexes in the United States were little affected by the events in the oil and bond markets. To be sure, there were abrupt movements on a few days, but over all the stock market reacted more calmly than the bond market, especially during 1980. The best explanation is that some industries were thought to benefit from higher energy prices. Investors moved money out of investments in sectors thought to be most negatively affected--recall that this was the time of the U.S. government bail-out of Chrysler, so everyone knew that the auto industry was a casualty. But they moved into energy-related stocks and other industries, with no permanent net erosion of equity values.
Currencies: The Iranian revolution came just after the Carter Administration had put in place in November 1978 its elaborate program to defend the dollar. That included drawing on IMF credit lines as well as issuance of the so-called Carter bonds, in which the U.S. Treasury borrowed in currencies other than the dollar. That worked for a while to restore some confidence, and the dollar briefly rallied across the board. Like after the first oil price shock, the yen continued to come under some pressure in the foreign exchange markets as oil prices climbed higher. But the experience of the deutschemark was different. By the end of 1979, as the U.S. rate of inflation began to ratchet higher, the deutschemark was again appreciating strongly. That trend would continue well into 1980.
[3] 1990-91: IRAQ INVADES KUWAIT AND FIRST GULF WAR
The price of crude oil spiked in 1990 with the uncertainty associated with Iraq's invasion of Kuwait and the build-up to Operation Desert Storm, which eventually forced Saddam Hussein to withdraw. The price spike was substantial--within weeks of August 1990, Saudi light crude oil had jumped from about $15 per barrel to over $33 per barrel. But the impact on oil supplies was negligible, not least because Saudi Arabia and other Arab nations were allied with U.S. forces and they made efforts to counteract the price increase. Once it was clear that the United States was committed to expelling Iraq, prices began to slide. And they continued to plummet as the ensuing Gulf War turned out to be shorter, and with fewer casualties, than critics had predicted. Following the war, crude oil prices entered a steady decline until 1994, when inflation-adjusted prices fell to their lowest levels since 1973.
FINANCIAL MARKET RESPONSES
Bonds: The yield on ten-year U.S. Treasuries was trading about 8 percent at the time of the Iraqi invasion. In sharp contrast to the previous oil shocks, the rapid run-up in crude oil prices had only a minimal impact on the bond market in this episode. The yield peaked at just over 9 percent in September and soon fluctuated gradually lower, both during the preparations for Operation Desert Storm and after its successful implementation. Bond market participants were convinced at the time that the oil price spike would not be sustained, in large measure because of Saudi involvement in the war effort. They were right.
Stock markets: In contrast to the bond market, stocks fell back noticeably between the Iraqi invasion and the end of 1990. But they quickly retraced the decline once it was clear that the operation would be successful.
Currencies: The exchange market reaction was entirely different from the first two oil shocks. The deutschemark and the Japanese yen actually strengthened during the run-up in oil prices, and only settled back after hostilities ended and oil prices retreated.
[4] 1996-99: DEMAND-INDUCED PRICE SURGE
In the wake of the Asian financial crisis and a pick-up of Iraqi oil sales under the United Nations oil-for-food program, oil prices plummeted to $10 per barrel in late 1998. Then oil prices began to head sharply higher--but this time, unlike the three previous episodes, without any geopolitical trigger. Rather, global demand began to swell as the high-tech bubble encouraged a big investment boom in North America and Europe and as the Asian economies began to recover. OPEC was either unable or unwilling to match increased demand by raising output. By the middle of 2000, oil prices tripled. It represented an even sharper price advance than during the shock of the Iranian revolution. The eventual peaking in the oil price coincided with President Clinton's decision to sell crude oil from the Strategic Petroleum Reserve, although analysts disagree as to how important that action was in taming the market pressures.
FINANCIAL MARKET RESPONSES
Bonds: Yields on ten-year U.S. Treasuries moved up alongside the rise in oil prices. At the end of 1998, the yield was just above 4.5 percent. By February 1999, it went above 5 percent. By June 1999 it exceeded 6 percent. Thereafter, it fluctuated narrowly just below that level by the time oil prices reached a peak. Naturally, rising oil prices were not the only factor influencing bond market participants. The furious increase in stock prices, especially for high tech companies, was generating huge reallocations of investment funds into stocks and out of bonds. Moreover, economic growth was accelerating. In the United States, the Federal Reserve, concerned about a buildup of inflationary pressures, was progressively tightening monetary policy. European monetary policies were also being tightened. So in a sense, it was a conventional late-cycle boom, with both oil prices and bond yields responding in a classic way.
Stocks: Stock markets largely ignored the crude oil price advance of 1999-2000. The lure of rapidly escalating high tech stocks overshadowed it.
Currencies: The deutschemark and Japanese yen reactions were entirely reversed from past experience. The yen strengthened sharply throughout the oil price advance, while the deutschemark tended to weaken.
[5] 2002-05: IRAQ II AND SURGING OIL DEMAND
Call it a rolling oil price shock or a second demand-induced price spike, the tripling of crude oil prices since early 2002 has had very different--generally more muted and often paradoxical--effects on the financial markets.
FINANCIAL MARKET RESPONSES
Bonds: Bond market participants have shown little of the concern, or sometimes fear, associated with oil price surges of similar magnitude in the previous thirty years. Accordingly, yields have exhibited little of the volatility, and none of the upward tendency, of the four previous episodes. Fed Chairman Greenspan has remarked that the recent bond market behavior is not readily explainable--his word is "conundrum." Part of that conundrum has to do with the absence of heightened inflationary expectations, despite the upward pressure on energy costs, which have yet to feed through into prices generally.
Stocks: While the stock market has rebounded from the depths of the tremendous sell-off of 2000-03, recently investors have expressed great uncertainty about future prospects for corporate earnings. The higher energy costs bother them, even as bond investors are unimpressed.
Currencies: The dollar depreciated sharply from March 2002 until the end of 2004 but has rallied since. The latest oil price surge has been a factor in the Japanese yen market, but not in the market for euros. Other factors are weighing on the European common currency, including political questions raised by defeat of the constitutional referendums in France and the Netherlands.
WHAT NEXT?
Nobody likes to forecast continued increases in oil prices. History suggests that after a tripling in price, market pressures subside and prices slip back. That may well happen this time. But there are several worrisome features of the current situation that support the alternative view that further increases in oil prices are more likely.
First, a number of OPEC producers are operating at full capacity but below their explicit quotas. That means that the only genuine source of incremental supply is Saudi Arabia.
Second, relations between the governments of Saudi Arabia and the United States have deteriorated since the decision by the Bush Administration to use force to remove Saddam Hussein's regime. Continued violence in Iraq validates the concerns of several Saudi officials that regime change would lead to chaos. Thus, Saudi Arabia has little geopolitical incentive to relieve a tight supply-demand balance in global oil markets. They don't need the extra cash just now, either.
Third, the demand side pressures have been permanently intensified by the tremendous economic growth in China. Much of that growth is energy-intensive. New commercial buildings are constructed with modern air-conditioning and computer capabilities. Millions of cars and trucks are being added to the stock of motor vehicles, and that cumulatively lifts fuel demand.
Fourth, other Asian countries are also growing rapidly and the energy intensity of consumption is also on the rise. India will provide another injection of demand over the medium term.
Therefore, rather than a sharp pull-back in energy prices, a more likely scenario is for an irregular up-trend over the remainder of the decade.
BEST POLICY RESPONSE
Demand contraction policies, such as the high-tax environment of Europe and Japan, would have a minimal impact on energy use in the United States. That is because the main determinant of gasoline demand is the fuel efficiency of the installed motor vehicle stock and that can't be changed quickly. Plus, a sudden collapse in consumer purchases of U.S.-built sport-utility vehicles and other light trucks would push the main automakers to the brink of bankruptcy. So the chances of a high-gasoline tax approach being legislated are practically nil.
The Bush Administration has pushed for supply expansion instead. The problem is that the kinds of petroleum discovery and development they have in mind, mostly in environmentally protected areas of Alaska and in a few offshore locations, would yield very small increases to U.S. production. In the meantime, proposals for such activities do little more than unite environmental activists in opposition. And a growing environmental movement would essentially close off the one area where the United States should be rethinking its existing policies: that is, the arena of nuclear energy.
At present there is virtually no political support for redeveloping a nuclear power industry, unlike for example in countries such as France and Japan, which are committed to the nuclear option. It will take a monumental effort to shift U.S. attitudes. And even if this political effort would were successful, a long-shot to say the least, it would take the better part of a decade to design and build new nuclear power plants.
Therefore, about the only thing that can reliably lower oil prices is for a major increase in investment in three areas: new technology to bum coal more efficiently, development of alternative energy sources such as wind and solar, and a burst of innovation in areas such as fuel cells. There is actually a good deal of bipartisan support for each of these options, as indicated in the policy platforms of both the Bush and Kerry campaigns in 2004.
But none of this is going to happen soon. In the meantime, the complacency of the bond market is likely to be tested, and the apprehension of the stock market is likely to increase when oil prices once again rise above past peaks and their inflationary consequences become more apparent.
Roger Kubarych is Senior Economic Adviser with HVB America, Inc.
COPYRIGHT 2005 International Economy Publications, Inc.
Even Turkeys fly when the winds are strong: ignore the hype about a new Latin American paradigm
Desmond Lachman
Among the more useful lessons that I learned during my six years on Wall Street came from a seasoned, if cynical, Salomon Brothers bond trader. He taught me that when the winds are strong even turkeys fly. He also taught me that the winds seldom stay strong for long and that when the winds die down the birds all too often come crashing down to earth.
If ever the winds have been strong for Latin America, it has to have been over the past two years. Not only did the global economy grow at its fastest pace in the past twenty years but global interest rates declined to their lowest level since the early 1960s. As if that did not provide Latin America with a sufficiently favorable external environment, not only did international commodity prices reach record highs but China emerged on the scene as a major importer of Latin American goods and as a major investor in the region.
In such a benign global environment, it should have come as no surprise that Latin American equity markets would boom to new record highs. It should also have come as no surprise that, in their desperate search for yield, global bond investors would drive down emerging market bond spreads to levels last seen before the 1997 Asian financial crisis. In that quest, these investors have not been particularly discriminating between good and bad Latin American credits.
What does come as a surprise, however, is that many investors now appear to be taking the market's present ebullience as an indication of the emergence of a new paradigm in Latin America. In their view, investment grade for the major Latin American credits is but around the comer. How quickly they seem to have forgotten the Argentine debacle of 2001, which constituted the largest sovereign debt default in history? How little do they seem to remember about Latin America's dismal history over the past hundred years of repeated debt defaults by all of its major countries?
What is also surprising is how little attention Latin American investors seem to be paying to the gathering storm clouds over the global economy. How long do they think that global economic growth can be sustained at its recent pace with international oil prices likely to remain at their currently heady levels? Or how long do they think that international commodity prices will remain well bid in a world in which the Chinese economy slows under the weight of its deep macro-economic imbalances and in which Europe stagnates at a time of internal dissension and policy paralysis?
The optimistic proponents of a new Latin American economic paradigm point to the increased pragmatism of governments in the region. They note that even the center-left governments in Brazil, Chile, and Uruguay have come to realize the importance of sound macro-economic policy and the need for structural reform. In reflection of that realization, they note that certain reforms have been taken to address some of the macro-economic and financial factors that caused previous crises.
The optimists are also quick to point out that today most Latin American economies run significant external current account surpluses and that they have built significant international reserves. These reserves they correctly assert should at least temporarily cushion those countries from any sudden change in market sentiment. In addition, they note that inflation rates have been substantially reduced by increasingly independent central banks and that large primary budget surpluses have now become more the role than the exception in the region. These latter surpluses are helping to stabilize Latin America's erstwhile poor domestic debt dynamics.
While there can be no gainsaying that certain macroeconomic progress has been made over the past few years, one has to ask how long one might expect political conditions in Latin America to be conducive to macro-economic reform. Leaving aside basket case countries like Bolivia and Ecuador, and focusing instead only on the major Latin American countries, how confident can one be that the recent pace of reform will not be reversed let alone be sustained?
The antics of Venezuela's Hugo Chavez hardly provide comfort that Latin America will stay the course of reform. When he is not exporting his Bolivarian revolution to the rest of the continent, Mr. Chavez is either raiding his central bank's international reserves or is irreversibly weakening PDVSA, the state oil company. Nor does Argentina's President Nestor Kirchner provide much hope for a sounder economic future. If he is not resisting reforms to Argentina's still very creaky public finances, he is refusing to increase public utility rates to levels that might encourage the much needed investment in Argentina's energy sector for the country's future growth.
And then there is the question of the many congressional and presidential elections throughout the region in 2006, and in particular the question of those in Mexico and Brazil. Mexico is all but certain to elect the left-leaning mayor of Mexico City, Manuel Obrador, as its president. He is almost certain to run a populist campaign against the current president Vicente Fox's reform program. Meanwhile in Brazil, Lula, who pleasantly surprised most external observers by his dogged commitment to reform in the early years of his presidency, is very likely to be re-elected. However, judging by his current deep political difficulties, he is likely to be a shadow of his former reform self in a second term, not least because he will not have the congressional mandate to continue with his reform agenda.
Any stalling in the reform process would not be of the greatest concern had Latin America taken full advantage of the window that highly favorable external conditions provided it to reduce its traditional vulnerabilities. Sadly this has not been the case. For while certain progress has been made on the reform front, most of Latin America's major economies remain very exposed to any real deterioration in the external environment.
Among the more troubling of Latin America's vulnerabilities derive from the still shaky public finances and high public debt levels of many of its major countries. To be sure, important countries in the region, like Argentina and Brazil, now do run significant primary budget surpluses in a manner unlike the past. However, it is highly questionable whether these surpluses are sufficiently large to allow these countries to avoid the bad debt dynamics from which they previously suffered in the event of any significant deterioration in the external environment. It is not simply that these countries still have relatively high public debt levels. It is also the fact that these countries have looming social security obligations and that, all too often, their public debt is either indexed to short-term interest rates or to the dollar.
A further area of Latin American vulnerability derives from the fragile state of many of the region's banking systems. This fragility is only compounded by the still very high level of short-term domestic and dollar-denominated debt of many countries in the region. As the experience of the 1997 Asian crisis attests, in a world of increased capital mobility, weak banking systems combined with high levels of short-term ind
Desmond Lachman
Among the more useful lessons that I learned during my six years on Wall Street came from a seasoned, if cynical, Salomon Brothers bond trader. He taught me that when the winds are strong even turkeys fly. He also taught me that the winds seldom stay strong for long and that when the winds die down the birds all too often come crashing down to earth.
If ever the winds have been strong for Latin America, it has to have been over the past two years. Not only did the global economy grow at its fastest pace in the past twenty years but global interest rates declined to their lowest level since the early 1960s. As if that did not provide Latin America with a sufficiently favorable external environment, not only did international commodity prices reach record highs but China emerged on the scene as a major importer of Latin American goods and as a major investor in the region.
In such a benign global environment, it should have come as no surprise that Latin American equity markets would boom to new record highs. It should also have come as no surprise that, in their desperate search for yield, global bond investors would drive down emerging market bond spreads to levels last seen before the 1997 Asian financial crisis. In that quest, these investors have not been particularly discriminating between good and bad Latin American credits.
What does come as a surprise, however, is that many investors now appear to be taking the market's present ebullience as an indication of the emergence of a new paradigm in Latin America. In their view, investment grade for the major Latin American credits is but around the comer. How quickly they seem to have forgotten the Argentine debacle of 2001, which constituted the largest sovereign debt default in history? How little do they seem to remember about Latin America's dismal history over the past hundred years of repeated debt defaults by all of its major countries?
What is also surprising is how little attention Latin American investors seem to be paying to the gathering storm clouds over the global economy. How long do they think that global economic growth can be sustained at its recent pace with international oil prices likely to remain at their currently heady levels? Or how long do they think that international commodity prices will remain well bid in a world in which the Chinese economy slows under the weight of its deep macro-economic imbalances and in which Europe stagnates at a time of internal dissension and policy paralysis?
The optimistic proponents of a new Latin American economic paradigm point to the increased pragmatism of governments in the region. They note that even the center-left governments in Brazil, Chile, and Uruguay have come to realize the importance of sound macro-economic policy and the need for structural reform. In reflection of that realization, they note that certain reforms have been taken to address some of the macro-economic and financial factors that caused previous crises.
The optimists are also quick to point out that today most Latin American economies run significant external current account surpluses and that they have built significant international reserves. These reserves they correctly assert should at least temporarily cushion those countries from any sudden change in market sentiment. In addition, they note that inflation rates have been substantially reduced by increasingly independent central banks and that large primary budget surpluses have now become more the role than the exception in the region. These latter surpluses are helping to stabilize Latin America's erstwhile poor domestic debt dynamics.
While there can be no gainsaying that certain macroeconomic progress has been made over the past few years, one has to ask how long one might expect political conditions in Latin America to be conducive to macro-economic reform. Leaving aside basket case countries like Bolivia and Ecuador, and focusing instead only on the major Latin American countries, how confident can one be that the recent pace of reform will not be reversed let alone be sustained?
The antics of Venezuela's Hugo Chavez hardly provide comfort that Latin America will stay the course of reform. When he is not exporting his Bolivarian revolution to the rest of the continent, Mr. Chavez is either raiding his central bank's international reserves or is irreversibly weakening PDVSA, the state oil company. Nor does Argentina's President Nestor Kirchner provide much hope for a sounder economic future. If he is not resisting reforms to Argentina's still very creaky public finances, he is refusing to increase public utility rates to levels that might encourage the much needed investment in Argentina's energy sector for the country's future growth.
And then there is the question of the many congressional and presidential elections throughout the region in 2006, and in particular the question of those in Mexico and Brazil. Mexico is all but certain to elect the left-leaning mayor of Mexico City, Manuel Obrador, as its president. He is almost certain to run a populist campaign against the current president Vicente Fox's reform program. Meanwhile in Brazil, Lula, who pleasantly surprised most external observers by his dogged commitment to reform in the early years of his presidency, is very likely to be re-elected. However, judging by his current deep political difficulties, he is likely to be a shadow of his former reform self in a second term, not least because he will not have the congressional mandate to continue with his reform agenda.
Any stalling in the reform process would not be of the greatest concern had Latin America taken full advantage of the window that highly favorable external conditions provided it to reduce its traditional vulnerabilities. Sadly this has not been the case. For while certain progress has been made on the reform front, most of Latin America's major economies remain very exposed to any real deterioration in the external environment.
Among the more troubling of Latin America's vulnerabilities derive from the still shaky public finances and high public debt levels of many of its major countries. To be sure, important countries in the region, like Argentina and Brazil, now do run significant primary budget surpluses in a manner unlike the past. However, it is highly questionable whether these surpluses are sufficiently large to allow these countries to avoid the bad debt dynamics from which they previously suffered in the event of any significant deterioration in the external environment. It is not simply that these countries still have relatively high public debt levels. It is also the fact that these countries have looming social security obligations and that, all too often, their public debt is either indexed to short-term interest rates or to the dollar.
A further area of Latin American vulnerability derives from the fragile state of many of the region's banking systems. This fragility is only compounded by the still very high level of short-term domestic and dollar-denominated debt of many countries in the region. As the experience of the 1997 Asian crisis attests, in a world of increased capital mobility, weak banking systems combined with high levels of short-term ind