Outrageous: Runaway Taxes

When U.S. companies go into business overseas, it's American workers who get stuck with the bill.

By Michael Crowley

For years now, politicians have been promising to do something about the flight of American jobs overseas. So why does Washington continue to reward companies that invest abroad? That's right, reward. Because our tax code actually encourages companies to do business in places like Mexico, China, and India-which sticks the rest of us with a higher tax bill.

"The U.S. tax code is set up so that if I am a U.S. corporation trying to decide whether to create jobs in Ohio or in Ireland, it will point me toward Ireland," says Martin Sullivan, a contributing editor at Tax Analysts, a nonprofit organization that tracks tax policies worldwide.

The really loony part is that American workers are in effect subsidizing their own job losses.

Don't believe it? Here's how it works: In theory, the government taxes the worldwide earnings of U.S.-based companies. But under the federal tax code, American companies have to pay taxes only on the earnings of their foreign subsidiaries when they bring that money back to the States. But there's no rule saying those companies ever have to bring that money home. As long as they reinvest their foreign earnings abroad, they pay only the host country's (usually lower) tax rate. That's what you'd call a big, fat loophole, and big business finds a loophole like water finds a leak.

Many companies just plow the money they make overseas back into their foreign operations-things like factories that employ hundreds of workers. That means more economic growth for other countries-and less here at home. As a 2006 report by the nonpartisan Congressional Research Service bluntly put it, this scheme is "an incentive for U.S. firms to invest abroad in countries with low tax rates."

We're talking about dollar figures that will make your head spin. According to a 2006 government report, U.S. companies have nearly $500 billion stashed abroad that could be taxed here at home. A recent USA Today examination of Securities and Exchange Commission records discovered that General Electric had $62 billion stowed overseas; Pfizer, $60 billion; and ExxonMobil, $56 billion. A recent Tax Analysts study discovered that in 2004 alone, U.S.-based multinationals shifted nearly $50 billion in income to countries with lower taxes.

The problem is a tax law that was last updated during the Kennedy administration. During the Cold War, the government did have a good reason to encourage investment abroad: We wanted to extend American influence to combat Communism. No one would write the law this way today. But an army of corporate lobbyists are fighting to keep things just as they are. As Robert McIntyre of the Washington-based tax policy group Citizens for Tax Justice says, "There's no benefit to anybody but the companies that do it."

It's hard to pinpoint just how many jobs our tax code ships overseas. But in an article published by Tax Analysts, Martin Sullivan found that U.S.-based multinational companies are creating about one new job overseas for every one they slash here. The issue isn't just jobs, though. Every dollar of taxes that these companies avoid shifts the burden further onto working folks. With loopholes like this, is it any wonder that the share of overall taxes paid by corporations is less than half what it was when Eisenhower was president? And this at a time when CEOs get rich while the wages of average workers stagnate and everyone gets socked with higher health care and energy costs.

So when you think about it, the really loony part is that American workers are in effect subsidizing-through taxes-their own job losses. What's more maddening is that this isn't a secret. It blows up in the news every couple of years during election season, with politicians vowing to close this loophole in an instant. But once the votes are cast, the talk in Washington dies down.

When it comes to overseas earnings, Congress needs to step in and make companies pony up. It could change the law to tax overseas earnings at the same rate as domestic income. That would mean all-out war with powerful lobbyists, who also happen to donate generously to both parties. (Translation: It's not very likely.) Another idea is to lower tax rates across the board for all corporations, making America more competitive abroad and rewarding companies investing here at home-while letting the government reap gains from less tax avoidance. That's not protectionism or big government. It's just applying the law with common sense and fairness.

Defenders of the current situation say that changing the foreign-income law could stunt the economy and drive businesses to relocate more, if not all, of their operations to other countries. But not many American CEOs want to leave their home country altogether-they would rather avoid the unpredictable social and legal factors in foreign countries. Plus, they like living here in the United States. Another claim is that when American companies do well overseas, their profits help them flourish back home, too, creating more jobs everywhere. If people really believe that, then why not just be open about it and create tax credits for investment overseas?

Let's be realistic: Changing the tax code can't stop jobs from going overseas. Profit-minded companies will always seek out places where labor is cheaper, almost regardless of the tax consequences. The huge money a CEO can save by relocating a call center from Indiana to India will often outweigh any other factor. But even though we can't do anything about wages abroad, we can stop Washington from rewarding companies for investing overseas-at the expense of American workers.

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Huge European bank fails

Three European governments stepped in to rescue Dutch-Belgian bank Fortis with an injection of $16.4 billion.

BRUSSELS, Belgium (AP) -- Dutch-Belgian bank and insurance giant Fortis NV was given a 11.2 billion euro ($16.4 billion) lifeline to avert insolvency as part of a wider bailout plan agreed to by Belgium, the Netherlands and Luxembourg, officials said Sunday.

Belgium's Prime Minister Yves Leterme said the bailout shows account holders and investors that Fortis will not be allowed to fall victim to the global credit crisis.

Leterme announced the deal after weekend talks between the three countries, European Union and national banking officials.

The deal will force the bank -- which has headquarters in both Brussels and the Dutch city of Utrecht -- to sell its stake in Dutch bank ABN Amro, which it partially took over last year. Fortis paid 24 billion euros for its share of ABN.

Fortis Chairman Maurice Lippens will be forced to resign and will be replaced by a candidate from outside the company, Leterme said.

"We have taken up our responsibility, we did not abandon" account holders, Leterme told reporters.

Under the bailout, Belgium will invest 4.7 billion euros ($6.88 billion) and the Netherlands 4 billion euros ($5.86 billion) in Fortis' banking operations in the two countries. In return, they each receive 49 percent ownership in those national arms of the bank.

Luxembourg will invest 2.7 billion euros ($3.95 billion) in the bank's Luxembourg operations, also for a 49 percent stake.

The deal, orchestrated by the three neighboring countries and EU Central Bank chief Jean-Claude Trichet, is meant to restore confidence in the bank before the reopening of markets on Monday after a tumultuous week in which Fortis' shares imploded.

Belgian officials also announced Sunday that they planned to offer better guarantees for all retail deposits at Fortis, the country's largest bank and largest private employer.

Fortis named its third chief executive officer in as many months Friday after insolvency fears caused the company's shares to tumble to 5.18 euros ($7.56), their lowest level in more than a decade. The shares have lost more than three-fourths of their value in the past year.

Fortis denies any imminent solvency problems, but it has been in trouble since it took part in a three-bank consortium last year that acquired ABN Amro in a 70 billion euros ($102.5 billion) deal that was the largest takeover in the history of the banking industry.

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Loose Money And the Roots Of the Crisis

By JUDY SHELTON

This is the way the world ends
This is the way the world ends
This is the way the world ends
Not with a bang but a whimper.

-- T.S. Eliot
"The Hollow Men" (1925)

The world is not ending. Despite the wrenching turmoil in global financial markets and morbid allusions to the death throes of capitalism, it ain't over. Not until people quit believing in themselves, not until people quit believing in a better future.

Corbis

But the whimpering is real, and justified, because it hurts to have your world come crashing down. And global financial markets are definitely crashing, even when the impact is momentarily softened through massive injections of artificial money -- "artificial" because the fiat money does not represent a store of genuine value but rather an airy government claim to future wealth yet to be created.

In the aftermath of this financial catastrophe, as we sort out causes and assign blame, with experts offering various solutions -- More regulation! Less complex financial instruments! -- let's not lose sight of the most fundamental component of finance. No credit-default swap, no exotic derivative, can be structured without stipulating the monetary unit of account in which its value is calculated. Money is the medium of exchange -- the measure, the standard, the store of value -- which defines the very substance of the economic contract between buyer and seller. It is the basic element, the atom of financial matter.

It is the money that is broken.

These days, we don't often refer to the validity of the money itself but rather to "monetary policy" and how the Federal Reserve has managed to calibrate the money supply to economic activity over the last two decades. There are plenty of critiques; the most pointed ones blame former Fed chief Alan Greenspan for keeping interest rates too low, too long.

During his 19 years at the monetary helm -- from 1987 to 2006 -- Mr. Greenspan served under four different U.S. presidents. At least one of them, George H.W. Bush, blamed Mr. Greenspan for keeping interest rates too high. The stock market crash that occurred in October 1987, two months after Mr. Greenspan's confirmation under Ronald Reagan, sent the Dow Jones Industrial Average down 508 points (23%). It required huge injections of liquidity, which subsequently needed to be mopped up with tighter monetary policy. "I reappointed him," the elder President Bush said. "And he disappointed me."

President Clinton likewise reappointed Mr. Greenspan -- and soon learned the terms of the trade-off for reduced short-term interest rates: Bring down the fiscal budget deficit. Spurred on by a Republican Congress, it actually happened; the federal budget was balanced in 1998. All too briefly, the Fed's biggest concern was how to carry out future monetary policy if we ran out of government debt securities for open-market operations. The fiscal deficit subsequently ballooned after 2001, due to spending in excess of revenue growth, while interest rates and unemployment -- and inflation, counterintuitively -- remained low. One thing for sure: We will have more than enough government debt securities.

There's a reason for this short diversion into Mr. Greenspan's long watch. While he is readily demonized today -- Italy's finance minister recently characterized him as the man who, after Osama bin Laden, "hurt America the most" -- Mr. Greenspan is also the man who was awarded the Presidential Medal of Freedom and whose honorary titles include Knight Commander of the British Empire and Commander of the French Legion d'honneur.

So how does such an accomplished central banker turn out to be a monetary doofus?

Scapegoats are wonderfully convenient receptacles for our collective disappointment, but that's all. When credit markets seize up, when financial instruments disintegrate, when the dollar fails -- it's not because Alan Greenspan was not sufficiently omniscient. He wasn't, true. But no one ever was. No one ever could be.

If capitalism depends on designating a person of godlike abilities to manage demand and supply for all forms of money and credit -- currency, demand deposits, money-market funds, repurchase agreements, equities, mortgages, corporate debt -- we are as doomed as those wretched citizens who relied on central planning for their economic salvation.

Think of it: Nothing is more vital to capitalism than capital, the financial seed corn dedicated to next year's crop. Yet we, believers in free markets, allow the price of capital, i.e., the interest rate on loanable funds, to be fixed by a central committee in accordance with government objectives. We might as well resurrect Gosplan, the old Soviet State Planning Committee, and ask them to draw up the next five-year plan.

"There are numbers of us, myself included, who strongly believe that we did very well in the 1870 to 1914 period with an international gold standard." It would be easy to dismiss this statement as a quaint relic from Mr. Greenspan's earlier days as an Ayn Rand acolyte; his article on "Gold and Economic Freedom" appears in her 1966 compendium "Capitalism: The Unknown Ideal." But Mr. Greenspan said it, rather emphatically, last October on the Fox Business Network. He was responding to the interviewer's question: "Why do we need a central bank?"

Whatever well-intentioned reasons existed in 1913 for creating the Federal Reserve -- to provide an elastic currency to soften the blow of economic contractions caused by "irrational exuberance" (and that will never be conquered, so long as humans have aspirations) -- one would be hard-pressed to say that the financial fallout from this latest money meltdown will have less damaging consequences for the average person than would have been incurred under a gold standard.

Moreover, the mission of the central bank has been greatly compromised. Can anyone have faith that Fed policy decisions going into the future will deliver more reliable money? Don't we already know in our bones that the cost of this latest financial nightmare will be born by all of us who store the value of our labor and measure our purchasing power in the form of dollars? As John Maynard Keynes, the famous British economist, observed in his "Tract on Monetary Reform," published in 1923:

"It is common to speak as though, when a Government pays its way by inflation, the people of the country avoid taxation. We have seen that this is not so. What is raised by printing notes is just as much taken from the public as is a beer-duty or an income-tax. What a Government spends the public pay for. There is no such thing as an uncovered deficit."

The entire world has been affected by the breakdown of the U.S. financial system, thanks to the globalization of investment capital. But the free flow of capital -- along with free trade -- is a good thing, the best path to global prosperity. The problem is that the role of the dollar as the world's primary reserve currency has been called into serious question, both by allies and adversaries. Writing in the People's Daily, Chinese economist Shi Jianxun laments: "The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."

Let's do exactly that. It is time to take on the task of establishing a new foundation for international economic relations and financial relations -- one dedicated to open markets and based on monetary integrity. Every country is responsible for anchoring its own currency to the universal reserve asset, and every citizen has the right to convert the national currency into the universal reserve asset.

That's how a gold standard works. A bimetallic system, linked to silver and gold, works the same way. In either case the money is fixed to a common anchor -- and thus automatically functions as a common currency to serve the needs of legitimate producers and consumers throughout the world.

How would such an approach cure financial market ills? Nothing can rescue humans from occasionally making bad choices or succumbing to herding instincts. But on the same principle as democracy and free elections, embedded in the aggregate judgment of individuals over time is a wisdom that outperforms the most ostensibly savvy administrator. Sound money would go a long way toward eliminating the distortions that pervert financial decisions and credit allocations. Price signals do matter; if they don't, then free markets don't matter, and capitalism doesn't work. In which case, let government dictate demand and regulate supply.

No, we need to fix the money. Literally.

One of the candidates for president of the United States might issue the call for international monetary reform. Bad timing? The memo that resulted in the 1944 Bretton Woods international monetary agreement was written three weeks after Japan attacked Pearl Harbor. The next global conference need not take place in Bretton Woods, N.H., but rather Paris or Shanghai. Countries should participate on a voluntary basis, no coercion, in full recognition that the goal is to hammer out a new financial order where the validity of the monetary unit of account is not determined by hollow men roaming the marble halls of government central banks.

This is where the new world of sound money begins. This is where the unknown ideal of capitalism takes form.

Ms. Shelton, an economist, is author of "Money Meltdown: Restoring Order to the Global Currency System" (Free Press, 1994).

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Bush had no plan to catch Bin Laden

By Gareth Porter

WASHINGTON - New evidence from former United States officials reveals that Osama bin Laden and other al-Qaeda leaders were able to skip Afghanistan for Pakistan unimpeded in the first weeks after September 11, 2001, as the George W Bush administration failed to plan to block their retreat.

Top administration officials instead gave priority to planning for war with Iraq, leaving the United States with not nearly enough troops or strategic airlift capacity to close the large number of possible exit routes through the Afghanistan-Pakistan border area where Bin Laden escaped in late 2001.

Because it had not been directed to plan for that contingency, the US military was also forced to turn down an offer from then Pakistani president Pervez Musharraf in late November 2001 to send 60,000 troops to intercept the al-Qaeda leaders.

As Northern Alliance troops marched on Kabul with little resistance in November 2001, the Central Intelligence Agency had intelligence that Bin Laden was headed for a cave complex in the Tora Bora Mountains close to the Pakistani border.

The war had ended only days earlier, much more quickly than expected, and United States Central Command (CENTCOM) commander Tommy Franks, responsible for the war in Afghanistan, had no forces in position to block bin Laden's exit.

Franks asked Lieutenant General Paul T Mikolashek, commander of Army Central Command (ARCENT), if his command could provide a blocking force between al-Qaeda and the Pakistani border, according to David W Lamm, who was then commander of ARCENT Kuwait.

Lamm, a retired army colonel, recalled in an interview that there was no way to fulfill the CENTCOM commander's request, because ARCENT had neither the troops nor the strategic lift in Kuwait required to put such a force in place.

"You looked at that request, and you just shook your head," recalled Lamm, now chief of staff of the Near East South Asia Center for Strategic Studies at the National Defense University.

Franks apparently already realized that he would need Pakistani help in blocking the al-Qaeda exit from Tora Bora. Secretary of defense Donald Rumsfeld told a National Security Council meeting that Franks "wants the [Pakistanis] to close the transit points between Afghanistan and Pakistan to seal what's going in and out", according to the National Security Council meeting transcript in Bob Woodward's book Bush at War.

Bush responded that they would need to "press Musharraf to do that".

A few days later, Franks made an unannounced trip to Islamabad to ask Pakistani leader Pervez Musharraf to deploy troops along the Pakistan-Afghan border near Tora Bora.

A deputy to Franks, Lieutenant General Mike DeLong, later claimed that Musharraf had refused Franks's request for regular Pakistani troops to be repositioned from the north to the border near the Tora Bora area. DeLong wrote in his 2004 book Inside Centcom that Musharraf had said he "couldn't do that", because it would spark a "civil war" with a hostile tribal population.

But US ambassador Wendy Chamberlin, who accompanied Franks to the meeting with Musharraf, provided an account of the meeting to this writer that contradicts DeLong's claim.

Chamberlin, now president of the Middle East Institute in Washington, recalled that the Pakistani president told Franks that CENTCOM had vastly underestimated what was required to block bin Laden's exit from Afghanistan. Musharraf said, "Look you are missing the point: there are 150 valleys through which al-Qaeda are going to stream into Pakistan," according to Chamberlin.

Although Musharraf admitted that the Pakistani government had never exercised control over the border area, the former diplomat recalled, he said this was "a good time to begin". The Pakistani president offered to redeploy 60,000 troops to the area from the border with India but said his army would need airlift assistance from the United States.

But the Pakistani redeployment never happened, according to Lamm, because it wasn't logistically feasible. Lamm recalled that it would have required an entire aviation brigade, including hundreds of helicopters, and hundreds of support troops to deliver that many combat troops to the border region - far more than was available.

Lamm said the ARCENT had so few strategic lift resources that it had to use commercial aircraft at one point to move US supplies in and out of Afghanistan.

Even if the helicopters had been available, however, they could not have operated with high effectiveness in the mountainous Afghanistan-Pakistan border region near the Tora Bora caves, according to Lamm, due to a combination of high altitude and extreme weather.

Franks did manage to insert 1,200 marines into Kandahar on November 26 to establish control of the airbase there. They were carried to the base by helicopters from an aircraft carrier that had steamed into the Gulf from the Pacific, according to Lamm.

The marines patrolled roads in the Kandahar area hoping to intercept al-Qaeda officials heading toward Pakistan. But DeLong, now retired, said in an interview that the marines would not have been able to undertake the blocking mission at the border. "It wouldn't have worked - even if we could have gotten them up there," he said. "There weren't enough to police 1,500 kilometers of border."

US troops probably would also have faced armed resistance from the local tribal population in the border region, according to DeLong. The tribesmen in local villages near the border "liked bin Laden", he said "because he had given them millions of dollars".

Had the Bush administration's priority been to capture or kill the al-Qaeda leadership, it would have deployed the necessary ground troops and airlift resources in the theater over a period of months before the offensive in Afghanistan began.

"You could have moved American troops along the Pakistani border before you went into Afghanistan," said Lamm. But that would have meant waiting until spring 2002 to take the offensive against the Taliban, according to Lamm.

The views of Bush's key advisers, however, ruled out any such plan from the start. During the summer of 2001 Rumsfeld refused to develop contingency plans for military action against al-Qaeda in Afghanistan, despite a National Security Presidential Directive that called for such planning, according to the 9-11 Commission report.

Rumsfeld and deputy defense secretary Paul Wolfowitz resisted such planning for Afghanistan because they were hoping that the White House would move quickly on military intervention in Iraq. According to the 9-11 Commission, at four deputies' meetings on Iraq between May 31 and July 26, 2001, Wolfowitz pushed his idea to have US troops seize all the oil fields in southern Iraq.

Even after September 11, Rumsfeld, Wolfowitz and Vice President Dick Cheney continued to resist any military engagement in Afghanistan, because they were hoping for war against Iraq instead.

Bush's top secret order of September 17 for war with Afghanistan also directed the Pentagon to begin planning for an invasion of Iraq, according to journalist James Bamford's book Pretext for War.

Cheney and Rumsfeld pushed for a quick victory in Afghanistan in NSC meetings in October, as recounted by both Woodward and Undersecretary of Defense Douglas Feith. Lost in the eagerness to wrap up the Taliban and get on with the Iraq War was any possibility of preventing Bin Laden's escape to Pakistan.

Gareth Porter is an investigative historian and journalist specializing in US national security policy. The paperback edition of his latest book, Perils of Dominance: Imbalance of Power and the Road to War in Vietnam, was published in 2006.

(Inter Press Service)

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How Not To Panic About The Stock Market

Seeing the greatest single-day drop in the Dow is probably not the kind of history anyone wants to be living through right now. The failure of the bailout bill to pass caused a big freakout in the market, which thought we were going to get a bailout today. But before you click the button to transfer all your investments to 0% return T-bonds (aka I give up on investing), first ask yourself if that's really in line with your long-term investment goals. Secondly, realize that point-wise it might the greatest drop, but it's not the greatest drop percentage-wise. In other words, we've been here, and bounced back, before. If you're decades away from retirement, today's plunge is a buying opportunity. Here are some thoughts about fighting the urge to panic.

If you're older, you can make sure your investment mix is balanced and in-line with your investment plan. For instance, this easy calculator from the Iowa Public Employees Retirement System can you give you some ideas. Just adjust the sliders to correspond with your age, income requirements, etc, though it is of course only a starting point in your research. A recent Vanguard article on the importance of asset allocation is another good place to begin.

The one thing that you can do, regardless of age, if you're investing in any kind of fund is make sure your expense ratios are low. These are the various fees your fund is charging you to invest it. Typically index funds offer the lowest expense ratios. Expense ratios work like the fund earning compound interest on your money, which, after years, can add up to tens of thousands of dollars less in your pocket. (see our post "What Are "Expense Ratios?" and "How Your 401(k) Is Ripping You Off"

If this sounds like the same stuff you always hear, that's because it is. The point of that same old stuff is that you make a solid long-term plan and you stick with it, whether times are good, bad, or apocalyptic. Now, as ever, timing the market is unwise. Dollar-cost-averaging, where you put the same amount every month, is a good way to go. In general, and over time, the stock market rises. And, eventually, Washington will figure out a bailout plan.

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State Considers Advertising on Amber Alerts

by Christine Pelisek

The Schwarzenegger administration is considering advertisements on freeway signs used for Amber Alerts and other emergencies.

The advertisements would be posted on 674 electronic roadside message boards according to the LA Times. The funds raised – estimated at millions - would go towards the financially strapped highway fund.

The Times reported that the plan was introduced by Clear Channel, which stands to make millions if the proposal goes through. Legislation has already been drafted with the involvement of state Sen. George Runner (R-Lancaster), who drafted the bill that brought the Amber Alert system to California. According to the Times, the Schwarzenegger administration “touted the idea” in a letter to the U.S. Transportation Secretary.

The proposal would be up for bid and the winner would replace the state's old emergency message signs with new flashy video screens that would show advertisements when it wasn’t posting Amber Alerts.

The proposal has raised the ire of traffic safety activists who believe that the advertisements would be too distracting to drivers.

"This proposal recklessly ignores issues of traffic safety, visual blight, and the ongoing privatization of public space by allowing our visual environment to be filled with commercial messages," says Dennis Hathaway, president of the Coalition to Ban Billboard Blight. "Those signs were intended to give motorists important information about highway conditions and emergencies, not inducements to buy the latest products and services. No matter how badly the state needs revenue, this is absolutely the wrong way to go about raising it."

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Fed Pumps Further $630 Billion Into Financial System (Update3)

By Scott Lanman and Craig Torres

Sept. 29 (Bloomberg) -- The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

The Fed's expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone.

``Today's blast of term liquidity will settle the funding markets down, and allow trust to slowly be restored between borrowers and lenders,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. On the other hand, ``the Fed's balance sheet is about to explode.''

The MSCI World Index of stocks in 23 developed markets sank 6 percent, the most since its creation in 1970. Credit markets deteriorated further as authorities tried to save more financial institutions from collapse.

European Rescue

European governments have rescued four banks in two days and the Federal Deposit Insurance Corp. said today it helped Citigroup Inc. buy the banking operations of Wachovia Corp. after its shares collapsed. The Standard & Poor's 500 Index fell 3.8 percent and the cost of borrowing dollars for three months rose to the highest since January. The rate for euros hit a record.

``If people think the authorities may give in to fears, they are wrong,'' Financial Stability Forum Chairman Mario Draghi said today in Amsterdam, where the international group of regulators and finance officials is meeting. ``There is willingness and determination on winning the battle to restore confidence and stability.''

Banks and brokers have slowed lending as they struggle to restore their capital after $586 billion in credit losses and writedowns since the mortgage crisis began a year ago. The bankruptcy of Lehman Brothers Holdings Inc. also sparked fears among banks they wouldn't be repaid by counterparties, driving up the cost of short-term loans between banks.

Funding Risk

``By committing to provide a very large quantity of term funding, the Federal Reserve actions should reassure financial market participants that financing will be available against good collateral, lessening concerns about funding and rollover risk,'' the central bank said.

The Bank of England and the ECB will each double the size of their dollar swap facilities with the Fed to as much as $80 billion and $240 billion, respectively. The Swiss National Bank and the Bank of Japan will also double their dollar swap lines, while the central banks in Australia, Norway, Sweden, Denmark and Canada tripled theirs.

All the banks extended their facilities until the end of April 2009.

The Fed is also increasing the size of its three 84-day TAF sales to $75 billion apiece, from $25 billion. That means the Fed will make a total of $225 billion available in 84-day loans. The central bank will keep the sales of 28-day credit at $75 billion.

Special Sales

In addition, the Fed will hold two special TAF sales in November totaling $150 billion so banks can have funding available for one or two weeks over year-end. The exact timing and terms will be determined later, the Fed said. The TAF program began in December, totaling $40 billion.

The bank-rescue plan being debated by Congress today would give the Fed more power over short-term interest rates by providing authority as of Oct. 1 to pay interest on reserves held at the central bank by financial institutions. That would make it easier for the Fed to pump funds into the banking system.

Paying interest on reserves puts a ``floor'' under the traded overnight rate, which would allow a central bank ``to provide liquidity during times of stress'' without affecting the rate, New York Fed economists said in a paper last month.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.netCraig Torres in Washington at ctorres3@bloomberg.net.

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Commentary: Bankruptcy, not bailout, is the right answer

By Jeffrey A. Miron
Special to CNN

Economist Jeffrey Miron says the bailout plan presented to Congress was the wrong solution to the crisis

CAMBRIDGE, Massachusetts (CNN) -- Congress has balked at the Bush administration's proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the "troubled assets" of financial institutions in an attempt to avoid economic meltdown.

This bailout was a terrible idea. Here's why.

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.

Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.

If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.

Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.

Original here

"War on terror" has not weakened al Qaeda: poll

LONDON (Reuters) - People across the world think the U.S.-led "war on terror" has not weakened al Qaeda and many believe it has actually strengthened Osama bin Laden's network, a poll for the BBC World Service said on Monday.

The poll of almost 24,000 citizens found people in 22 out of 23 countries surveyed thought attempts to counter al Qaeda since its September 11, 2001 attacks on the United States had not weakened it.

The predominant view was that neither side was winning, the BBC said.

"Despite its overwhelming military power, America's war against al Qaeda is widely seen as having achieved nothing better than a stalemate and many believe that it has even strengthened al Qaeda," said Steven Kull, director of the Program on International Policy Attitudes, which helped carry out the research.

Kenya -- which experienced deadly al Qaeda attacks on the U.S. embassy in 1998 and on an Israeli-owned hotel in 2002 -- was the only country where a majority thought al Qaeda has been weakened.

In the United States, only 34 percent believed al Qaeda had been made weaker with 26 percent reckoning the "war on terror" had had no effect and 33 percent thinking it had made the militants stronger.

The majority U.S. perception was that neither the United States nor al Qaeda were winning.

More than 40 percent of citizens in France, Mexico, Italy, Australia and Britain believed the "war on terror" had strengthened al Qaeda.

While the majority of people questioned had negative views of al Qaeda, more citizens in Egypt and Pakistan had mixed or positive views of the group than negative feelings.

The poll, conducted by GlobeScan with the Program on International Policy Attitudes at the University of Maryland, involved 23,937 people in 23 countries between July and September 2008.

(Reporting by Michael Holden; Editing by Mark Trevelyan)

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Citigroup buys Wachovia bank assets for $2.2B

Following weeks of speculation about its fate, Wachovia said Monday it would sell its banking assets to rival Citigroup, marking yet another seismic shift in the U.S. banking industry.

By David Ellis, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Citigroup will acquire the banking operations of Wachovia for $2.2 billion in an all-stock deal, following much speculation over the weekend about the fate of the nation's fourth-largest bank.

Citigroup, the nation's largest bank based on assets, also announced it would raise $10 billion through a sale of common stock and that it would slash its quarterly dividend yet again, cutting it in half to 16 cents a share to preserve capital.

As part of the deal, Citigroup will acquire Wachovia's massive deposit network, about $53 billion in the company's debt, as well as more than $300 billion of Wachovia's loan portfolio.

Following completion of the acquisition, Citigroup will have more than $600 billion in deposits in the U.S., about a 9.8% market share. Total deposits worldwide will be $1.3 trillion.

Citigroup said it will absorb up to $42 billion of losses on those loans, while the Federal Deposit Insurance Corporation will be on the hook for anything beyond that.

The FDIC noted that Wachovia did not qualify as a failed bank, unlike Washington Mutual, which collapsed last Thursday, only to be subsequently purchased by JPMorgan Chase (JPM, Fortune 500).

Regulators also stressed that consumers who bank with Wachovia would not experience any interruption in service and that their deposits remained protected.

"Today's action will ensure seamless continuity of service from their bank and full protection for all of their deposits," said FDIC Chairman Sheila Bair.

Citigroup CEO Vikram Pandit called the transaction "extremely attractive" from a strategic perspective, saying it would augment the company's access to funding and liquidity.

Banking regulators, who helped broker the deal following consultations with President Bush, the Federal Reserve and Treasury Secretary Henry Paulson, viewed the deal as necessary to avoid what could have been a painful fallout for both the economy and the already fragile financial system.

"A failure of Wachovia would have posed a systemic risk," Paulson said in a statement.

Wachovia plunges but company isn't completely disappearing

Shares of Wachovia (WB, Fortune 500) were halted when the stock market opened Monday. The stock plunged more than 90% in pre-market trading, to 94 cents a share. Citigroup (C, Fortune 500) shares edged higher in morning trading.

However, Wachovia will remain a publicly traded company -- albeit in much smaller form.

The Charlotte, N.C.-based firm will hold onto its massive brokerage business, which grew substantially following its $6.7 billion acquisition of A.G. Edwards last year. Wachovia also owns the Evergreen investment management division, which had more than $245 billion in assets as of June 30.

Heading into the weekend there was rampant speculation that the Charlotte, N.C.-based Wachovia would be sold to either Citigroup or Wells Fargo (WFC, Fortune 500). Even Spain's Banco Santander (STD) had been mentioned as a possible bidder. By Sunday evening, a bidding war between the two banking giants was underway, The New York Times reported.

There had also been talk in recent weeks that Morgan Stanley (MS, Fortune 500), which recently converted itself into a commercial bank from a stand-alone investment bank, was discussing a possible merger with Wachovia.

Following a string of high-profile collapses of banks in recent weeks including WaMu and the demise of Lehman Brothers, there has been increasing speculation that Wachovia could be the next one to go.

Like many of its peers, Wachovia bet big on the U.S. mortgage market, which prompted it to suffer losses over the past two quarters.

Some analysts have blamed the company's ill-timed 2006 acquisition of the California mortgage lender Golden West Financial Corp. for the company's woes.

Risky move for Citi

At the same time, Citigroup has been no picture of health. The New York City-based financial services giant has posted close to $18 billion in losses over the past three quarters, while taking nearly $50 billion in writedowns on its diverse loan portfolio.

The deal for Wachovia also comes as somewhat of a surprise given recent efforts by Citi's leadership to shrink the company.

Citigroup's Pandit, who was installed as the company's chief executive last December, unveiled plans in May to unload more than $400 billion in assets over the next few years in the hopes of turning the company around.

The deal, which comes ahead of a Congressional vote on a proposed $700 billion bailout for the financial system, marks yet another big shake-up of the nation's banking industry.

In the past two weeks, the sector has undergone a dramatic transformation, including Lehman's bankruptcy, the acquisition of Merrill Lynch by Bank of America (BAC, Fortune 500) and the government takeover of insurer AIG (AIG, Fortune 500).

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Breakthrough Reached in Negotiations on Bailout

Lauren Victoria Burke/Associated Press

Speaker Nancy Pelosi, left, Treasury Secretary Henry M. Paulson Jr., center, and Senator Harry Reid, the majority leader, early Sunday.

By DAVID M. HERSZENHORN and CARL HULSE

WASHINGTON — Congressional leaders and the Bush administration reached a tentative agreement early Sunday on what may become the largest financial bailout in American history, authorizing the Treasury to purchase $700 billion in troubled debt from ailing firms in an extraordinary intervention to prevent widespread economic collapse.

Officials said that Congressional staff members would work through the night to finalize the language of the agreement and draft a bill, and that the bill would be brought to the House floor for a vote on Monday.

The bill includes pay limits for some executives whose firms seek help, aides said. And it requires the government to use its new role as owner of distressed mortgage-backed securities to make more aggressive efforts to prevent home foreclosures.

In some cases, the government would receive an equity stake in companies that seek aid, allowing taxpayers to profit should the rescue plan work and the private firms flourish in the months and years ahead.

The White House also agreed to strict oversight of the program by a Congressional panel and conflict-of-interest rules for firms hired by the Treasury to help run the program.

The administration had initially requested virtually unfettered authority to operate the bailout program. But as they moved toward clinching a deal, both sides appeared to have given up a number of contentious proposals, including a change in the bankruptcy laws sought by some Democrats to give judges the authority to modify the terms of first mortgages.

Congressional leaders and Treasury Secretary Henry M. Paulson Jr. emerged from behind closed doors to announce the tentative agreement at 12:30 a.m. Sunday, after two days of marathon meetings.

“We have made great progress toward a deal, which will work and be effective in the marketplace,” Mr. Paulson said at a news conference in Statuary Hall in the Capitol.

In the final hours of negotiations, Democratic lawmakers, including Representative Rahm Emanuel of Illinois and Senator Kent Conrad of North Dakota, carried pages of the bill by hand, back and forth, from Speaker Nancy Pelosi’s office, where the Democrats were encamped, to Mr. Paulson and other Republicans in the offices of Representative John A. Boehner of Ohio, the House minority leader.

At the same time, a series of phone calls was taking place, including conversations between Ms. Pelosi and President Bush; between Mr. Paulson and the two presidential candidates, Senator John McCain and Senator Barack Obama; and between the candidates and top lawmakers.

“All of this was done in a way to insulate Main Street and everyday Americans from the crisis on Wall Street,” Ms. Pelosi said at the news conference. “We have to commit it to paper so we can formally agree, but I want to congratulate all of the negotiators for the great work they have done.”

In a statement, Tony Fratto, the deputy White House press secretary, said: “We’re pleased with the progress tonight and appreciate the bipartisan effort to stabilize our financial markets and protect our economy.”

A senior administration official who participated in the talks said the deal was effectively done. “I know of no unresolved open issues for principals,” the official said.

In announcing a tentative agreement, lawmakers and the administration achieved their goal of sending a reassuring message ahead of Monday’s opening of the Asian financial markets.

Lawmakers, especially in the House, are also eager to adjourn and return home for the fall campaign season.

Among the last sticking points was an unexpected and bitter fight over how to pay for any losses that taxpayers may experience after distressed debt has been purchased and resold.

Democrats had pushed for a fee on securities transactions, essentially a tax on financial firms, saying it was fitting that they contribute to the cost.

In the end, lawmakers and the administration opted to leave the decision to the next president, who must present a proposal to Congress to pay for any losses.

Officials said they had also agreed to include a proposal by House Republicans that gives the Treasury secretary an additional option of issuing government insurance for troubled financial instruments as a way of reducing the amount of taxpayer money spent up front on the rescue effort.

The Treasury would be required to create the insurance program, officials said, but not necessarily to use it. Mr. Paulson had expressed little interest in that plan, and initial cost projections suggested it would be enormously expensive. But final details were not immediately available.

Saturday’s intense negotiating effort followed a tumultuous week, including a contentious meeting at the White House with President Bush and the two presidential candidates.

That meeting had moments of drama, including a blunt warning by President Bush. “If money isn’t loosened up, this sucker could go down,” he said. It ended with angry recriminations after House Republicans scotched a near-agreement from earlier in the day.

Mr. Paulson scrambled to revive the talks, and they resumed almost immediately. Congressional and Treasury staff then worked all of Friday and through the night, ending in the predawn.

Mr. Paulson and Congressional leaders stepped in at 3 p.m. Saturday and were in direct negotiations for most of the rest of the night. And immediately after the news conference, staff members began efforts to finalize the language.

Even then, their work is hardly over.

Congressional leaders who want the bailout to pass with solid bipartisan support had already begun to anxiously court votes, mindful of the difficulty they could face in a high-stakes election year.

Public opinion polls show the bailout plan to be deeply unpopular. Conservative Republicans have denounced the plan as an affront to free market capitalism, while some liberal Democrats criticize it as a giveaway to Wall Street.

Representative Roy Blunt of Missouri, the chief negotiator for House Republicans, who have been among the most reluctant to support the plan, expressed some satisfaction but did not commit his members’ support.

“We need to look and see where we are on paper tomorrow,” Mr. Blunt said. “We have been talking about how we can make these things work in a way that our conference can come together.”

Representative Barney Frank of Massachusetts, the lead negotiator for the House Democrats, said that there was no expectation of making anyone smile.

“This was never going to be a bill that was going to make people happy,” he said. “No solution to a problem can be more elegant than the problem itself. We are dealing with a very difficult problem.”

“Given the dimensions of the problem, I believe we have done a good job,” he added. “It includes genuine compromises.”

Aides described a tense meeting on Saturday afternoon that included Senator Max Baucus, Democrat of Montana, shouting at Mr. Paulson about executive pay caps.

Outside, stunned tourists visiting the Capitol watched as camera operators shoved one another to get footage of lawmakers talking outside of the meeting room.

At one point, when too much information was leaking out, staff members’ BlackBerrys were confiscated and collected in a trash bin.

While Congressional Republicans sent only their chief negotiators, Mr. Blunt and Senator Judd Gregg of New Hampshire, at least nine Democrats with competing priorities piled into the meeting, surprising the Republicans but apparently not unsettling them.

The centerpiece of the rescue effort remains the plan for the government to buy up to $700 billion in troubled assets from financial firms as a way to free their balance sheets of bad debts and to help restore a healthy flow of credit through the economy.

The money will disbursed in parts, with an initial $250 billion to get the rescue effort under way, followed by another $100 billion upon a report by Mr. Bush to Congress.

The president could then request the balance of $350 billion at any time. If Congress disapproved, it would have to act within 15 days to deny the Treasury the money.

Early in the day, the two presidential nominees were active from the sidelines. Mr. McCain telephoned Congressional Republicans to sound them out, and Mr. Obama got regular updates by phone from Mr. Paulson and top lawmakers.

Some lawmakers have made clear that they will not vote for the bailout plan under virtually any terms. “I didn’t want to be in the negotiations because I object to the basic principles of this,” said Senator Richard C. Shelby of Alabama, the senior Republican on the banking committee, who would normally be his party’s point man.

Pressed about his role, Mr. Shelby replied, “My position is ‘No.’ ”

Officials, including Mr. Bush, stepped up efforts to sell the plan to the American public, which, according to opinion polls, is deeply skeptical.

“The rescue effort we’re negotiating is not aimed at Wall Street; it is aimed at your street,” Mr. Bush said in his weekly radio address. “There is now widespread agreement on the major principles. We must free up the flow of credit to consumers and businesses by reducing the risk posed by troubled assets.”

In a brief speech on the Senate floor, Senator Kent Conrad, Democrat of North Dakota, said: “It’s not just going to be Wall Street. The chairman of the Federal Reserve has told us if the credit lockup continues, three million to four million Americans will lose their jobs in the next six months.”

The ultimate cost of the rescue plan to taxpayers is virtually impossible to know. Because the government would be buying assets of value — potentially worth much more than the government will pay for them — there is even a chance the rescue effort would eventually return a profit.

Some Democrats had sought to direct 20 percent of any such profits to help create affordable housing, but Republicans opposed that and demanded that all profits be returned to the Treasury.

Original here

Congress Reaches a Bailout Deal: 90% of the Suck You Were Expecting

By: Ian Welsh

Clap if you want the banks to live!

So, yeah, according to the NYTimes a bailout deal has indeed be reached. Details are a bit sparse and we'll have to wait till tomorrow to really know exactly what is going on. On top of that, although leaders are all agreed, it's not yet clear that they have the backbench votes to push this thing through. Features that seem to be in the bill are:

700 Billion, but Staggered: It looks like Paulson gets 350 billion to play with, the rest will be released later, presumably in January. Mechanism for release is unclear. I would have preferred just giving him a 150 billion, and the rest to follow after a better bill in the new year, since he said he could make do with 150, but it's still better than giving it all to him, since it would have all been gone, pretty much, by the time the new President was sworn in. Now at least Obama (probably) will get to have his Treasury secretary spend the bulk of it. (update: the release is at the President's discretion, unless Congress votes 2/3 against it. Expect the money to be mostly gone by January).

Full Value of the Bailout Concealed: Looks like they will claim some part of the value of the securities purchased, possibly maturity value, as an asset, so the cost booked will not be 700 billion. Since, in fact, no one knows what the maturity value or default risk of most of this stuff is, this is a fiction (aka. BS.) The practical effect will be that if the 700 billion, or 250 billion is still a "at any time" value, then the Treasury secretary will be able to rotate a ton of money through without raising the debt ceiling that much.

No Change In Bankruptcy Laws: Yes, banks will be helped not to go bankrupt, but if you go bankrupt judges won't be able to allow you to keep your house.

Treasury to help people avoid foreclosures if it owns their mortgages: Not sure what this means and the details are vague. Might be very good, might not. This will depend very much both on the specific language, and on the Treasury Secretary in charge.

According to the NYT, only in some cases do taxpayers get an equity stake. Other sources aren't clear on this. I suspect the original idea that if it was a reverse mortgage the government doesn't get a stake, but if the government directly intervenes it does get a stake is what happened. The reverse auction is needed because no normal investor will pay what the banks need to sell this waste for to survive. So, in all cases, in my opinion, if the government buys the banks crap, the government should get equity. Warren Buffet showed the way, and the government should insist on nothing less than the 10% guaranteed dividend convertible shares he got and they should get an amount equal to the maturity value of whatever securities they buy. If banks don't like it, well, they obviously don't really need the help, do they? (Update: this is incorrect, in all cases the government has to get some sort of stake, in either preffered shares or debt, but non-voting. Price and return are up to the secretary.)

Treasury has the authority to issue insurance. I'm not sure if this is required, or if it's an option Paulson has been given. If required I don't really see how it can work—if the government charges a fair price, it'll bankrupt a bunch of companies. If it doesn't, it will cause a huge run as people cash in their insurance. Not to mention that it puts the government on the hook for the entire financial industry. I suppose you could charge healthy companies more and weak companies less, but I suspect that will go over very badly. And I'm not sure how many companies really are healthy.

If it doesn't pay back in 5 years, Treasury to levy fees on the financial industry to get the money back. Not in itself a bad idea, though the question of interest and inflation is something I'm curious about. (Paying back in money 5 years from now is a great deal if there's no interest). I also wonder if in 5 years an administration will have the guts to do this. And what if both the assets and the financial industry haven't recovered enough to get the money back? If the value hasn't recovered, then that may mean that the plan itself hasn't worked and the financial sector is still filled with walking dead (the Japanese banks, 5 years after their meltdown sure were). This is also a case of spending now and pushing into the future. Congress is trying to give itself every way possible to pretend this isn't costing very much and that it'll all be paid back. We'll see. (Update: looks like this is probably optional. Secretary"can", so it depends on who the Secretary and President are.)

The heart remains the Paulson plan. Buy distressed debt, hold on to it, try and sell it later. You either pay too much, in which case you're not setting a market price, or you pay the right price in which case it's not clear that many institutions can survive. The former will be done, since that's the point of the bailout, and what will happen is simple enough—it will calm the roiling waters for some months, and then it will turn out that 700 billion, or a trillion, or whatever, is not enough. Then Congress and the President will have to decide how much money they are willing to pour into an endless hole.

Concluding Remarks: This is a plan that assumes that the government can buy enough bad debt at above market prices to bail out the banking system. Since as long as the government is willing to spend above market prices (and by market I mean "what other banks would pay for this crap") banks won't sell it to each other, the government has taken on an open ended obligation. If the pile isn't that large, then a trillion or so may be enough. But if the pile is much larger than that, and it is, then the government will have to keep ponying up money over and over again. It won't be limited to the original 700 billion, or trillion, or whatever. It will be an ongoing program that the market will become dependent on. Since the fundamental problems of securitization, over-leverage and declining housing prices haven't been fixed, there's little reason to believe that the government could get to the bottom of the pile, since, in fact, it will still be growing. (Especially as the economy gets worse and housing prices continue to drop. And they will, since this provides no floor price for real estate.)

In short, while this plan is an improvement on the original Paulson plan, which is saying, well, almost nothing. It's still a plan that, at the end of the day, won't work. That doesn't mean we won't see some short term benefits. Throw 700 billion bucks at the economy and the financial sector and it will do something. That's still a ton of money. But it won't fix the problem permanently, it will only patch it for a time and even during that time, things will continue to get worse. (For example, expect this to cause oil inflation.)

It's a bad plan that won't fix the economy or the financial sector. So we'll be revisiting this issue in 6 to 9 months or so when it becomes clear that the problem hasn't been solved, and that not solving it is costing a hell of a lot of money which could have been used to actually fix things.

Original here

Congress Has 43,457,362 Reasons to Help Goldman Sachs

By AVNI PATEL and BRIAN ROSS

Employees of Goldman Sachs are listed as a top contributor to 55 separate members of Congress.

(ABC News Photo Illustration)

Not all their money has gone for mansions and Ferraris.

The embattled Goldman Sachs investment banking firm and its employees have spent more than $43 million dollars on lobbying and campaign contributions to cultivate friends and buy influence in Washington, D.C. since 1989, according to an ABC News analysis of campaign finance records compiled by the Center for Responsive Politics.

As a group, Goldman Sachs bankers have been the country's top political campaign contributors this year and have given $29.5 million in contributions since 1989, according to the Center.

"They are almost in a class by themselves," said Sheila Krumholz, the executive director for the Center for Responsive Politics.

"Their top executives are in a class that is way above the clout and name-dropping that most other American businesses can achieve," says Krumholz.

The firm has been badly shaken by the financial crisis, with management seeking emergency infusions of cash. The bailout legislation, proposed by Treasury Secretary Henry Paulson, reportedly led financier Warren Buffett to put $5 billion into Goldman Sachs because he felt the government would act to solve the financial crisis.

In a statement, Buffet expressed confidence in Goldman Sachs. "It has an unrivaled global franchise," he said, "a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance."

Though he did tell the Wall Street Journal that if the government fails to act that his investment in Goldman would "get killed, and so will all our other investments."

Before becoming Treasury Secretary, Paulson was chairman of Goldman Sachs, earning over $140 million in compensation during his seven years as the firm's top officer, according to company filings. Upon taking office, Paulson divested himself of his 3.23 million Goldman shares, reportedly worth $485 million at the time, to comply with government ethics rules.

A spokesperson for the Treasury Department told ABC News that the department has a long history of bringing the expertise of Wall Street to the office of Secretary.

"The issues Treasury is working on right now involve financial institutions and the economy broadly. It's entirely appropriate for Secretary Paulson to engage in matters that impact the financial markets broadly," said the spokesperson.

Goldman Sachs bankers are also the number one contributors to the Barack Obama presidential campaign, giving $691,930 to his campaign in this cycle, according to the records.

John McCain's campaign has received substantially less from Goldman Sachs employees, $208,395, although they are, as a group, his fourth largest contributor.

In the 2008 election cycle, Goldman Sachs bankers have come up with $4.8 million in contributions to federal candidates, according to the records. 72 per cent of Goldman's money this year has gone to Democratic candidates and the national party, the majority party in Congress.

Employees of Goldman Sachs are listed as a top contributor to 55 separate members of Congress.

In addition to campaign contributions, Goldman Sachs has spent $13.8 million on lobbying expenses since 1998, when Paulson became co-CEO.

"I think they've found it's a small price to pay relative to the profits they could reap if they controlled how Washington affects their industry, and their company specifically," said Krumholz.

In addition to its connection to Paulson, Goldman Sachs has plenty of other former partners who have significant positions of power.

President Clinton's Treasury Secretary, Bob Rubin worked there for 26 years, rising to co-chairman.

New Jersey Governor John Corzine was at Goldman for 24 years, serving as CEO and chairman for five years before running for the US Senate.

The current White House chief of staff, Josh Bolton, is the former executive director of Legal and Government Affairs for Goldman Sachs International in London.

A spokesperson for Goldman Sachs said the firm doesn't have ready access about their employees' donations going back 20 years, but stated that "all Americans have the First Amendment right to participate in the public process, which includes campaign contributions."

The spokesperson said that Goldman's survival was no way tied to the proposed bailout, "Secretary Paulson's plan is pivotal to the nation and its economy."

Original here

Chemical irritant empties Islamic Society of Greater Dayton's mosque

By Kyle Nagel

Staff Writer

DAYTON — Baboucarr Njie was preparing for his prayer session Friday night, Sept. 26, when he heard children in the Islamic Society of Greater Dayton coughing. Soon, Njie himself was overcome with fits of coughing and, like the rest of those in the building, headed for the doors.

"I would stay outside for a minute, then go back in, there were a lot of kids," Njie said. "My throat is still itchy, I need to get some milk."

Njie was one of several affected when a suspected chemical irritant was sprayed into the mosque at 26 Josie St., bringing Dayton police, fire and hazardous material personnel to the building at 9:48 p.m.

Someone "sprayed an irritant into the mosque," Dayton fire District Chief Vince Wiley said, noting that fire investigators believe it was a hand-held spray can.

According to fire dispatch communications, a child reported seeing two men with a white can spraying something into a window. That child was brought to the supervising firefighter at the scene.

Wiley would not discuss that report, but said the investigation has been turned over to police. Police were not commenting.

The 300 or so inside were celebrating the last 10 days of Ramadan with dinner and a prayer session, but the prayer session was interrupted so those suffering from tearing, coughing and shortness of breath could receive treatment.

Wiley said an adult and juvenile were taken to area hospitals and others had their eyes or faces washed on the scene. He did not know how many people were treated at the scene.

Ismail Gula, ISGD secretary, said people were praying during the weekly service when some in the audience began to cough and experience breathing troubles, then left the building. Once outside, several of them called 911, Gula said.

Tarek Sabagh, a member of the ISGD board, wasn't present when the incident occurred.

He said his daughter called and told him to stay away because of the possibility of remaining fumes. Sabagh arrived shortly after and watched from the mosque's steps as members were allowed back inside about 11 p.m. to collect belongings.

"It's very disturbing," Sabagh said. "Something like this has never happened before."

Sabagh said members moved to a Beavercreek school to finish their prayer session as police continued to investigate.

"I don't know if people will have the feeling of trust to come back tomorrow or next week or next month," Sabagh said. "I don't know how people will feel."

Ramadan is the ninth month of the Muslim calendar. During the month, Muslims fast (do not eat) from sunrise to sunset. In the evening and in the morning before the sun comes up, they eat small meals. During this month, they take extra time for family, inner reflection, and spiritual growth.

Contact this reporter at (937) 225-7389 or knagel@DaytonDailyNews.com.

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Brunswick school board to consider creationism teaching

By Ana Ribeiro

Bolivia | The Brunswick County school board is looking for a way for creationism to be taught in the classroom side by side with evolution.

"It's really a disgrace for the state school board to impose evolution on our students without teaching creationism," county school board member Jimmy Hobbs said at Tuesday's meeting. "The law says we can't have Bibles in schools, but we can have evolution, of the atheists."

When asked by a reporter, his fellow board members all said they were in favor of creationism being taught in the classroom.

The topic came up after county resident Joel Fanti told the board he thought it was unfair for evolution to be taught as fact, saying it should be taught as a theory because there's no tangible proof it's true.

"I wasn't here 2 million years ago," Fanti said. "If evolution is so slow, why don't we see anything evolving now?"

The board allowed Fanti to speak longer than he was allowed, and at the end of his speech he volunteered to teach creationism and received applause from the audience. When he walked away, school board Chairwoman Shirley Babson took the podium and said another state had tried to teach evolution and creationism together and failed, and that the school system must teach by the law.

"Evolution is taught because that's what the General Assembly tells us to teach," Babson said, adding that she doesn't agree with it, but that students must learn it to graduate.

In 1997, proponents in the N.C. General Assembly tried to amend the law to say that evolution must be taught as a theory and not as a fact in public schools, but that did not pass. Then at the national level in 2005, a federal judge barred the school system in Dover, Pa., from teaching "intelligent design" - which claims organisms must have been created by a higher power and that it's compatible with evolution - as a violation of the constitutional separation of church and state.

Board attorney Joseph Causey said it might be possible for the board to add creationism to the curriculum if it doesn't replace the teaching of evolution.

Schools' Superintendent Katie McGee said her staff would do research.

Babson said the board must look at the law to see what it says about teaching creationism, but that "if we can do it, I think we ought to do it."

The issue will continue to be discussed at the board's committee meetings on Oct. 21.

Ana Ribeiro: 343-2327

ana.ribeiro@starnewsonline.com

Original here

McCain Has Worst Attendance Record in Washington

For a guy who’s demanding that everybody return to Washington to do their jobs in solving the Wall Street crisis, John McCain isn’t there very often himself.

Of the 100 senators in D.C., John McCain is the lone claimant to the title of “worst attendance.” Of 643 issues that have reached the Senate floor, the Arizona Senator and GOP presidential hopeful has cast votes on just 231 of them. All together, that amounts to a 45.9% job performance.

Now, let’s not be unfair. Running for president is extremely time consuming, and Senators who’ve taken up the task have never been expected to maintain an impeccable attendance record. Barack Obama ranks third on the worst attendance list, although his attendance is a full 15 points higher than McCain’s. At least Obama can honestly claim that he’s been there for more than half of scheduled floor votes.

But look back to the 109^th Congress, when no one could claim that their visits to Capitol Hill were limited by a national campaign. Barack Obama missed just 11 votes out of 645 for the two-year period. That’s a 98.3% record, putting him among the most frequent Senators in attendance. But McCain was still near the bottom of the list, missing 9% of his total votes- that was the fifth worst.

In fact, McCain has been in the bottom ten in attendance in four of the last five sessions of Congress going back 10 years: the 110^th (worst), the 109^th (5^th worst), the 107^th (10^th worst), and the 106^th (worst).

McCain’s sporadic presence in Washington has left a few of his colleagues with raw feelings in the past. During the presidential primary, the Washington Post reported an incident in which McCain returned to the Senate to vote on the Comprehensive Immigration Reform Bill. When Texas Senator John Cornyn raised objections to various provisions of the bill (which McCain supported), the Arizona Senator bristled, calling Cornyn’s concerns “chicken sh*t” and accusing him of trying to sabotage the legislation. Cornyn, not taking kindly to McCain’s eleventh hour appearance, responded, “Wait a second here. I’ve been in here for all these negotiations and you just parachute in here on the last day. You’re out of line.”

McCain fired back: “F*ck you!” he screamed, “I know more about this than anyone else in the room!”

In the past ten years, McCain has missed more votes than any current member of the Senate.