Tuesday, September 16, 2008

McCain's Son Sat on Troubled Bank's Board

Sen. John McCain's son served until last month on the board audit committee of a Nevada bank that is struggling to survive amid mounting losses and regulatory scrutiny.

Andrew K. McCain, 46, was on the board of Silver State Bancorp for five months before he resigned on July 25 for unspecified "personal reasons," according to a news release issued by the bank at the time.

[Bank] Associated Press

Andy McCain was on the board of Silver State Bancorp for just five months before he resigned on July 25 for 'personal reasons.'

A week after Mr. McCain's departure, the Henderson, Nev., company reported a loss of $62.7 million in the second quarter and said its capital -- the bank's cushion to absorb losses -- had eroded significantly. At the same time, Silver State announced the resignations of its chief executive and chairman.

On Thursday, the bank said in a securities filing that it actually lost $73.2 million in the second quarter. Silver State also said in the filing that its worsening financial condition means there is "uncertainty about the company's ability to continue as a going concern."

There is no evidence that the younger Mr. McCain committed any wrongdoing, or that Sen. McCain, the Republican presidential candidate from Arizona, had any knowledge or involvement in the bank's woes, which partly stemmed from troubled construction and land-development loans.

But with banks across the country struggling amid the credit crunch and the economic slowdown, the Republican presidential candidate's family ties could emerge as an issue on the campaign trail. The younger Mr. McCain's associates had urged him to step down from the board of Silver State, saying it could become a liability in his father's White House bid, according to a person in the local banking industry familiar with the matter.

Mr. McCain's full-time job is chief financial officer of Hensley & Co., the Arizona beer distributor that is owned by Sen. McCain's wife, Cindy. The younger Mr. McCain is also chairman of the Greater Phoenix Chamber of Commerce. A person close to Mr. McCain said he worried about balancing his responsibilities to the bank, Hensley and the chamber. The bank has "got serious problems and they need directors that can devote tons of time," the person said.

Mr. McCain and Sen. McCain's campaign both declined to comment.

Silver State's three-person audit committee was responsible for monitoring the company's overall financial condition and the preparation of its quarterly financial statements.

In recent weeks, federal and state regulators have intensified their scrutiny of the bank's books, according to people familiar with the bank. The bank's customers have been pulling deposits at a rate of about $4 million per day, one person said. A Federal Deposit Insurance Corp. spokesman declined to comment.

Senior bank executives didn't repond to requests for comment.

As of June 30, the bank said 14% of its $1.96 billion in total assets were nonperforming, up from 0.75% six months earlier. A year ago, its shares were trading for more than $18 on the Nasdaq Stock Market. They closed Thursday at 83 cents in Nasdaq 4 p.m. trading. The loss restatement was released after the market close.

Similar woes have dogged other lenders in the region.

Mr. McCain has rarely joined his father at campaign events, but he has attended several in recent days with other family members.

Mr. McCain joined Silver State's board and audit committee in February 2008. In April, Silver State's shareholders elected him to serve a three-year term. He had served since 2006 on the board of Scottsdale, Ariz.-based Choice Bank, which Silver State acquired this spring.

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Lehman Brothers files for Chapter 11 bankruptcy

The Lehman Brothers headquarters building in New York. The no. 4 US investment bank is filing for Chapter 11 bankruptcy.

When Wall Street woke up Monday morning, two more of its storied firms had fallen.

Lehman Brothers filed for Chapter 11 bankruptcy. Its businesses in Britain were already placed in administration, said the administrator, accounting firm PricewaterhouseCoopers, and employees carrying boxes and bags were walking out of Lehman’s London offices.

Bank of America Corp. said it is snapping up Merrill Lynch & Co. Inc. in a US$50 billion all-stock transaction.

The demise of the independent Wall Street institutions came as shock waves from the 14-month-old credit crisis roiled the U.S. financial system six months after the collapse of Bear Stearns.

"Just the psychological impact of this kind of failure is going to be significant."

The world’s largest insurance company, American International Group Inc., also was forced into a restructuring.

And a global consortium of banks, working with government officials in New York, announced a $70 billion pool of funds to lend to troubled financial companies.

The aim, according to participants who spoke to The Associated Press, was to prevent a worldwide panic on stock and other financial exchanges.

Ten banks – Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS – each agreed to provide US$7 billion "to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets.“

The Federal Reserve also chipped in with more largesse in its emergency lending program for investment banks. The central bank announced late Sunday that it was broadening the types of collateral that financial institutions can use to obtain loans from the Fed.

Federal Reserve Chairman Ben Bernanke said the discussions had been aimed at identifying "potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses.“

The European Central Bank, the Bank of England, and the Swiss central bank also made more short-term credit available to banks. European stocks fell sharply, with the FTSE 100 Index off 3.42 percent in London, the CAC-40 down 4.27 percent in Paris, and Germany’s blue-chip DAX 30 falling 3.38 percent. Asian stock markets also tumbled, with India’s Sensex sinking more than 5 percent. Japan and Hong Kong were closed for holidays.

Financial stocks were hard hit and the dollar fell against the pound and the euro.

Futures pegged to the Dow Jones industrial average fell more than 250 points in electronic trading Sunday evening, pointing to a sharply lower open for the blue chip index Monday morning. Asian stock markets also tumbled, with India’s Sensex sinking more than 5 percent. Japan and Hong Kong were closed for holidays.

The stunning weekend developments took place as voters, who rank the economy as their top concern, prepare to elect a new president in seven weeks. It likely will spur a much greater focus by presidential candidates – Republican John McCain and Democrat Barack Obama – and members of Congress on the need for stricter financial regulation.

Samuel Hayes, finance professor emeritus at Harvard Business School, said the Bush administration may get a lot of blame for the situation, which could benefit Obama.

"Just the psychological impact of this kind of failure is going to be significant.“ he said. "It will color people’s feelings about their well-being and the integrity of the financial system.“

Lehman Brothers’ announcement that it is filing for bankruptcy came after all potential buyers walked away. Potential suitors were spooked by the U.S. Treasury’s refusal to provide any takeover aid, as it had done six months ago when Bear Stearns faltered and earlier this month when it seized Fannie Mae and Freddie Mac.

Employees emerging from Lehman’s headquarters near the heart of Times Square Sunday night carried boxes, tote bags and duffel bags, rolling suitcases, framed artwork and spare umbrellas. Many were emblazoned with the Lehman Brothers name.

TV trucks lined Seventh Avenue opposite the building, while barricades at the building’s main entrance attempted to keep workers and onlookers from gumming up the steady flow of pedestrians flowing in and out of Times Square.

Some workers had moist eyes while a few others wept and shared hugs. Most who left the building quietly declined interviews.

People snapped pictures with cameras and their phones. Observers pressed up against a police barricade drew the ire of one man who emerged from the building and shouted: "Are you enjoying watching this? You think this is funny?“ Merrill Lynch, another investment bank laid low by the crisis that was triggered by rising mortgage defaults and plunging home values in the U.S., agreed to be acquired by Bank of America for 0.8595 shares of Bank of America common stock for each Merrill Lynch common share.

That values Merrill at $29 a share, a 70 percent premium over the brokerage’s Friday closing price of $17.05, but well below what Merrill was worth at its peak in early 2007, when its shares traded above $98.

Charlotte, North Carolina-based Bank of America has the most deposits of any U.S. bank, while Merrill Lynch is the world’s largest brokerage. A combination of the two would create a global financial giant to rival Citigroup Inc., the biggest U.S. bank in terms of assets.

Strategically, most industry analysts say it’s a good fit. If the deal goes according to plan, Bank of America will be able to offer Merrill’s retail brokerage services to its huge customer base. There is not a great deal of overlap between the two companies – Bank of America does have an investment bank already, but it has never been terribly strong.

Where there is duplication, however, the combination of the two companies could result in more layoffs. Both Merrill and Bank of America have already cut thousands of investment banking jobs over the past year.

The deal would not come without risks, however. Merrill Lynch, like many of its Wall Street peers, has been struggling with tight credit markets and billions of dollars in assets tied to mortgages that have plunged in value. Merrill has reported four straight quarterly losses.

Bank of America’s own finances are far from robust. As consumer credit deteriorates, the bank has seen its profits decline, and the company is still in the midst of absorbing the embattled mortgage lender Countrywide Financial, which it acquired in January.

Insurer AIG, hit hard by deterioration in the credit markets, said Sunday it is reviewing its operations and discussing possible options with outside parties to improve its business after a week when its stock dropped 45 percent amid concerns about the company’s financial underpinnings.

The Wall Street Journal and The New York Times both reported early Monday on their Web sites that the American International Group is seeking an additional $40 billion in emergency funds – possibly from the Federal Reserve – to help it avoid a credit rating downgrade, which would make it more expensive for AIG to raise money. The insurer has already raised $20 billion in fresh capital this year.

AIG was working with New York Insurance Superintendent Eric Dinallo and a representative of the governor’s office through the weekend to craft a solution that protects policyholders, according to Dinallo’s spokesman David Neustadt.

"It’s clear we’re one step away from a financial meltdown,“ said Nouriel Roubini, chairman of the consulting firm RGE Monitor.

The meetings that began Friday night were a who’s who of financial heavyweights: Treasury Secretary Hank Paulson, Timothy Geithner, president of the New York Fed, Securities and Exchange Commission Chairman Christopher Cox, and a host of CEOs, including Vikram Pandit of Citigroup Inc., Jamie Dimon of JPMorgan Chase & Co., John Mack of Morgan Stanley, Lloyd Blankfein of Goldman Sachs Group Inc., and Merrill Lynch & Co.’s John Thain.

For all their efforts, Lehman appeared ready to file for bankruptcy.

The end of Lehman may not stop the financial crisis that has gripped Wall Street for months, analysts said. More investment banks could disappear soon.

The independent broker-dealers „are going the way of the dodo bird,“ said Bert Ely, an Alexandria, Virginia-based banking consultant.

That’s partly because some of the firms, particularly Merrill, made bad bets on real estate. But several analysts said that investment companies will need the deep pockets of commercial banks to survive the next few years.

On Sunday, there was also an emergency trading session being held at the International Swaps and Derivatives Association to "reduce risk associated with a potential Lehman Brothers Holdings Inc. bankruptcy.“ The ISDA, which arranges trades for derivatives, said it was allowing customers to make trades and unwind positions linked to Lehman.

Roubini said it’s difficult to accurately gauge the health of companies like Merrill because their financial health depends on how they value complex securities. As a result, their finances aren’t very transparent, he said.

That can lead to a loss of confidence in the financial markets, he said, which can overwhelm an investment bank even if it is financially healthy by some measures.

"Once you lose confidence, the fundamentals matter less,“ he said.

The common denominator of the financial crisis, analysts said, is the bursting of the housing bubble. Home prices have dropped on average 25 percent so far. Roubini predicted they could drop another 15 percent.

The crisis has begun to slow the broader economy as banks make fewer loans and consumers have begun cutting spending. Many economists are now forecasting that the economy could slip into recession by the end of this year and early next year.

That, in turn, could cause additional losses for commercial banks on credit cards, auto loans and student loans.

The Fed is widely expected to keep interest rates steady at 2 percent, below inflation, when it meets Tuesday. It was possible, however, that the central bank might decide in coming weeks to cut rates if such a move is seen as needed to calm turbulent financial markets.

The International Monetary Fund predicted earlier this year that total losses from the credit crisis could reach almost $1 trillion. So far, banks have only taken about US$350 billion in losses.

Commercial banks are also starting to feel the pinch. Eleven have closed so far this year, including Pasadena, California-based IndyMac Bank, which had $32 billion in assets and US$19 billion in deposits.

Christopher Whalen, managing director of Institutional Risk Analytics, a research firm, predicts that approximately 110 banks with US$850 billion in assets could close by next July. That’s out of 8,400 federally insured institutions, he said, which together hold US$13 trillion in assets.

Individual customers are starting to get nervous about the financial health of their banks for the first time in generations, he said. Whalen’s firm analyzes the safety and soundness of banks for business clients, but began receiving inquiries from individuals in the past two months for the first time, he said.

"If we don’t get ahead of this, we are going to face a run on the retail banks by election day,“ he said.

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Wall St.’s Turmoil Sends Stocks Reeling

Turmoil in American financial was spreading. A display in London, above, showed the British F.T.S.E index down 2.38 percent. More Photos >


Fearing that the crisis in the financial industry could stun the broader economy, investors drove stocks down almost 5 percent Monday, sending the Dow Jones industrial average and Standard & Poor’s 500-stock index to their lowest levels in two years.

The Dow fell 504.48 points, its biggest one-day point drop since Sept. 17, 2001, the first trading day after the Sept. 11 terrorist attacks.

In the minutes before the opening of the New York Stock Exchange, dozens of traders were clustered around the specialists who oversee trading of American International Group and Bank of America, shouting bids and offers. As the opening bell clanged, dozens of flat-panel monitors around the specialists’ posts pulsed with frantic trading.

With Lehman filing for bankruptcy and A.I.G. in distress, investors were worried that consumers and companies would have difficulty getting loans.

The credit markets, in turmoil for more than a year, showed new distress on Monday. Prices of credit default swaps, used by institutional investors for protection from potential bond defaults, rose sharply.

The prices of Treasury bills and notes soared as investors sought safe places to park their capital. Oil prices dropped sharply on Monday, on concerns that demand for energy would shrink as economies slowed down.

The market volatility was likely to continue for some time, economists and strategists said.

“By my own forecasts, it gets worse before it gets better,” said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.

On Tuesday, Goldman Sachs will report its earnings, and the Federal Reserve will decide whether to change short-term interest rates. On Wednesday, Morgan Stanley reports earnings.

“Markets will remain unusually volatile for a period of time,” said Marc Stern, chief investment officer of Bessemer Trust, which manages about $50 billion. “This isn’t a fun period for most investors.”

Financial companies led the plunge Monday, with Goldman Sachs dropping 19 percent and Citigroup falling 15 percent. But stocks that investors view as particularly sensitive to a slower economy, like those of technology companies and manufacturers, were also punished.

On Monday, the Dow closed at 10,917.51, down 4.4 percent. The S.& P. 500 index of the biggest United States public companies fared even worse, falling 59.00 points, or 4.7 percent, to 1,192.69, its lowest close since October 2005.

The crisis on Wall Street caused by the bursting of the real-estate bubble has now lasted 13 months and has caused far more damage than analysts initially forecast.

In the last two months, the chaos has taken a vicious turn, with investors quick to attack any financial company whose balance sheet appears less than pristine. Three of the five biggest American investment banks have failed or been bought since March, and Fannie Mae and Freddie Mac, the giant mortgage companies, were effectively nationalized earlier this month.

Plunging housing prices have also crimped consumer spending and slowed the overall economy, which has lost 700,000 jobs this year. Even so, investors have generally seemed hopeful that the economy would avoid a full-scale recession. Now that confidence may be fading.

Every major sector of the S.& P. 500 fell Monday, with banks and insurers down 10 percent, energy companies down 7 percent, and technology stocks off 4 percent. Health care and consumer staples companies, which are generally viewed as less tied to the overall health of the economy, fell less than 2 percent.

High-yield — or junk — bonds, which are also sensitive to economic weakness, are also facing a sharp drop in economic activity, said Martin Fridson, chief executive of Fridson Investment Advisors, which manages about $240 million in junk bonds.

So far this year, the default rate on high-yield bonds is about 4 percent, in line with historical averages.

But a gauge of junk bond prices shows the default rate is likely to more than double over the next 12 months, Mr. Fridson said. And new junk bond issues have also dried up, preventing companies from raising capital, Mr. Fridson said.

Meanwhile, the rates at which banks make loans to each other also rose sharply, a sign that financial institutions feel they must hoard their capital rather than risk lending it and potentially losing it.

Mr. Stern of Bessemer said investors are concerned that the wave of Wall Street failures has not yet peaked.

“There’s significant uncertainty about a number of large financial firms, including A.I.G., including Washington Mutual,” he said.

“Until there’s resolution on firms of that size, investors are going to be skittish.” he said.

Still, Mr. Stern said he was cautiously optimistic that housing prices might be bottoming in many areas, setting the stage for an eventual floor for the financial sector and the overall stock market.

Asian Stocks Plunge

Asian stock markets tumbled sharply on Tuesday as investors were rattled by concerns over an expanding global financial crisis.

Japan’s benchmark Nikkei 225 stock index fell 4.8 percent to 11,632.99, falling under than 12,000-point level for the first time since mid-March.

South Korea’s Kospi shed 6.2 percent, and Taiwan’s benchmark was off 4.6 percent. In Australia and New Zealand, important indices fell 2.4 percent and 2.7 percent.

Japan’s central bank issued a statement on Tuesday that it would carefully watch developments and take appropriate measures to stabilize the market.

Following are the results of Monday’s Treasury auction of three- and six-month bills:

Stephanie Clifford contributed reporting.

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Bloody Sunday: Wall Street Is Hit by Financial Tsunami

The U.S. financial system was badly shaken Sunday by the failure of Lehman Brothers , the surprise takeover of Merrill Lynch and big asset sales by major insurer American International Group.

The developments indicate that chief executives on Wall Street and regulators in Washington are accepting that massive triage is necessary in the face of the 13-month old credit crisis and destructive U.S. housing bust.

"The U.S. financial system is finding the tectonic plates underneath its foundation are shifting like they have never shifted before," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey."It's a new financial world on the verge of a complete reorganization."

On Sunday, growing expectations that Lehman [LEH 0.22 0.01 (+4.81%) ] will become Wall Street's most high profile bankruptcy since junk bond specialist Drexel Burnham Lambert collapsed in 1990 sparked a sell-off in U.S. asset prices. Lehman's announced it was filing for bankruptcy midnight Sunday.

Both US stock futures and the dollar plunged in reaction to the turmoil on Wall Street.

Sunday's events signalled a transformation in the power structure on Wall Street with major banking groups like Bank of America [BAC 27.76 1.21 (+4.56%) ], which has agreed to buy Merrill [MER Loading... () ] for $50 billion, and JPMorgan Chase [JPM 38.70 1.70 (+4.59%) ] becoming more dominant.

Once Lehman and Merrill disappear, three of the top five U.S. investment banks would have dissolved or been bought inside six months. Bear Stearns was acquired in a fire sale by JPMorgan in March.

The focus early Sunday was on whether talks between regulators and Wall Street's top bankers would lead to the sale of Lehman, until recently the No. 4 U.S. investment bank.


Those talks faltered when Britain's Barclays, which had appeared to be front-runner to take over Lehman -- excluding its toxic mortgage-related assets -- said it had pulled out of the bidding.

That triggered expectations the investment bank was heading into bankruptcy and prompted a rare emergency trading session to allow Wall Street dealers in the $455 trillion derivatives market to reduce their exposure to the firm.

Within hours of Barclays withdrawal, Merrill agreed to be sold to Bank of America. And AIG [AIG 2.79 -1.97 (-41.39%) ], until recently the world's largest insurer by market value, was expected to sell off assets, including a profitable aircraft leasing arm.There were signs of attempts by banks and regulators to try to prop up market confidence.

To help provide liquidity, the Federal Reserve said it would accept a wider array of securities as collateral at its key borrowing windows.

"The steps we are announcing today, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets," Fed Chairman Ben Bernanke said in a statement.

Banks Set up $70 Billion Borrowing Facility

Ten Wall Street banks have also agreed to set up a collateralized borrowing facility, and committed to fund for $7 billion each.

The banks are Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, and UBS. These banks have said they are committed to fund $7 billion each for a $70 billion collateralized borrowing facility.

The banks add that they are working together to assist in maximizing market liquidity through ongoing trading relationships, dealer credit terms and capital committed to markets. This will also facilitate the orderly resolution of OTC derivatives exposures between Lehman and its counterparties.

All ten banks say they all intend to use expanded federal reserve primary dealers credit facility this week. The banks say their actions reflect "extraordinary market environment".

Merrill, AIG and Washington Mutual [WM 2.21 0.21 (+10.5%) ], the biggest savings and loan institution -- which was the subject of conflicting reports Friday about whether it was in advanced talks for a sale to JPMorgan -- all face similar problems.

They have all held large amounts of real-estate related assets that have fallen sharply in value. Shares of all three lost more than one-third of their value last week. (Pimco's El-Erian discusses the financial fallout in the video).

The perception is that the losses they have disclosed are far from enough, and that they will have difficulty in raising new capital.

One of the catalysts for this weekend's events was the stance of U.S. Treasury Secretary Henry Paulson. He was strongly opposed to using government money in any deal aimed at resolving the Lehman crisis.

The lack of such government guarantees was the main reason Barclays decided to exit the negotiations to buy Lehman, according to a person familiar with the matter.

Emergency Sunday Trading Session

An emergency trading session was set between dealers with Lehman Brothers counterparty risk involved credit, equity, rates, foreign exchange and commodity derivatives, the International Swaps and Derivatives Association said.

"This is an extremely, and I stress extremely, rare event. It also speaks to the more general notion that, in today's highly disrupted financial markets, the unthinkable is thinkable," said Mohamed El-Erian, CEO of Pimco, the world's biggest bond fund.

Market sources said the special session was initiated by the Federal Reserve, with the aim of reducing risk associated with a potential bankruptcy filing by Lehman Brothers.

"Trades are contingent on a bankruptcy filing at or before 11:59 p.m. New York time Sunday," said the statement. "If there is no filing, the trades cease to exist."

The special session "is a way to offset the risk between the remaining large banks and insurance companies and fund managers prior to the markets opening in Asia," said Mark Grant, managing director of structured finance at Southwest Securities, based in Dallas.

Grant is expecting a turbulent session when the U.S. markets reopen for business on Monday.

"The market is going to be spooked. People will be fearful and no one outside a very small group of people knows what Lehman going into liquidation will mean."

Lehman's bankruptcy marks an ignominious end to a once-proud firm, founded by cotton-trading German immigrants 158 years ago. It would also badly tarnish the reputation of CEO Dick Fuld, who has insisted that his firm could work through its problems to survive as an independent entity.

Former Federal Reserve Chairman Alan Greenspan said Sunday he suspected "we will see other major financial firms fail," but added that this did not need to be a problem. "It depends on how it is handled and how the liquidations take place," Greenspan told the ABC program "This Week." "And indeed we shouldn't try to protect every single institution.

The ordinary course of financial change has winners and losers." Hundreds of Lehman employees went into the office on Sunday to clear desks and pack personal belongings, according to an employee.

Many even opted to say their farewells with one last office soiree. "We are having pizza and beer," said one Lehman employee, who declined to be identified.

The news on Sunday was a huge hit to an already wounded financial jobs market, and a dent to New York's claim to be the pre-eminent world financial center.

Headhunters and consultants said the talent-flush U.S. market -- which has shed more than 100,000 financial-sector jobs this year -- must now brace for up to 50,000 more.

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Greenspan: Economy in 'once-in-a-century' crisis

WASHINGTON (CNN) -- The U.S. credit squeeze has brought on a "once-in-a-century" financial crisis that is likely to claim more big firms before it eases, former Federal Reserve chief Alan Greenspan said Sunday.

Greenspan told ABC's "This Week" that the situation "is in the process of outstripping anything I've seen, and it still is not resolved and it still has a way to go."

"Indeed, it will continue to be a corrosive force until the price of homes in the United States stabilizes," Greenspan said. He predicted that would not happen until early 2009, and said the odds of U.S. recession have gone up in recent months.

"I can't believe we could have a once-in-a-century type of financial crisis without a significant impact on the real economy globally, and I think that indeed is what is in the process of occurring," he said.

While recent declines in the prices of oil and food may help avert a recession, he said, "I wouldn't put my money on it."

The financial crunch already has claimed investment bank Bear Stearns, spurred the federal seizure of mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) and left century-old Wall Street institution Lehman Brothers (LEH, Fortune 500) clinging by its fingernails after suffering nearly $7 billion in real estate-related losses.

Federal regulators and Wall Street executives were holding weekend crisis talks aimed at resolving the Lehman situation without further shock to the financial sector.

Greenspan, who left office in 2006, said he expected more failures before the crisis eases. While regulators "shouldn't try to protect every single institution," he said, companies should be kept from failing "in a sharply disruptive manner" to prevent further shocks.

Greenspan's critics say he helped inflate the housing bubble by keeping target short-term rates too low for too long, leading to reckless lending and borrowing in the housing market. But Greenspan has said the problem lay not in the loans themselves, but in their repackaging as securities and sale to investors.

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What they'll do to your tax bill

By Jeanne Sahadi, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- John McCain and Barack Obama have starkly different philosophies about tax policy - how to raise the revenue needed to support government programs, spur growth and ensure economic fairness.

But voters really want to know one thing: How would the presidential candidates' views trickle down to their tax bills? A report released Wednesday by a nonpartisan policy group in Washington, D.C., takes a big first step toward answering that question.

According to the Tax Policy Center's findings, the common assumptions most people make about the plans of McCain, the presumptive Republican nominee, and Obama, the Democrats' pick, are not wildly off-base.

McCain: The average taxpayer in every income group would see a lower tax bill, but high-income taxpayers would benefit more than everyone else.

Obama: High-income taxpayers would pay more in taxes, while everyone else's tax bill would be reduced. Those who benefit the most - in terms of reducing their taxes as a percentage of after-tax income - are in the lowest income groups.

Under both plans, all American taxpayers could pay a price for their tax cuts: a bigger deficit. The Tax Policy Center estimates that over 10 years, McCain's tax proposals could increase the national debt by as much as $4.5 trillion with interest, while Obama's could add as much as $3.3 trillion.

The reason: neither plan would raise the amount of revenue expected under current tax policy - which assumes all the 2001 and 2003 tax cuts expire by 2011. And neither plan would raise enough to cover expected government costs during those 10 years.

"Distributionally, they're markedly different. But in terms of their impact on revenue, the two plans are not terribly different," said Roberton Williams, principal research associate at the Tax Policy Center and the former deputy assistant director for tax analysis at the Congressional Budget Office.

A closer look

In addition to making the 2001 and 2003 tax cuts permanent, McCain says he would double the exemption for dependents, lower the corporate tax rate, make expensing rules more generous for small businesses and lessen the bite of the estate tax and Alternative Minimum tax.

The net result: compared with their tax bill today, taxpayers on average would see their tax bill cut by nearly $1,200. That means their after-tax income would rise by 2%.

But those in the lowest income groups would only see their after-tax income rise by less than 1% (or between $19 and $319). By contrast, the highest-income households - those with incomes of at least $603,000 - would see a boost in after-tax income of 3.4%, or more than $40,000.

Obama's plan would keep the 2001 and 2003 tax cuts in place for everyone except those making more than roughly $250,000, and he would increase the capital gains tax.

Obama would also introduce new tax breaks for lower and middle-income groups. Such breaks include expanding the earned income tax credit, giving those making less than $150,000 a $500 tax credit per person on the first $8,100 in income, giving those making under $75,000 a 50% federal match on the first $1,000 of savings, and exempting seniors making less than $50,000 from having to pay income tax.

Like McCain, Obama would lessen the bite of the estate tax and the Alternative Minimum Tax, but to a lesser degree.

The net result: compared with their tax bill today, taxpayers on average would see their tax bill cut by nearly $160 under Obama's plan. That means their after-tax income would rise by 0.3%.

But those in the lowest-income groups would enjoy the biggest after-tax income rise as a percentage of income - between 2.4% and 5.5% (worth between $567 and $1,042). By contrast, the highest-income households - those with at least $603,000 in income - would see a dramatic decline in their after-tax income - a drop of 8.7%, or $116,000.

The campaigns respond

Jason Furman, a newly appointed senior economic adviser to Obama, said his preliminary response is that the report's findings bear out what Obama's campaign has been saying: that he's for the middle class.

"Middle-class families get tax cuts that are three times larger from Obama than from McCain," Furman said. "And the McCain plan gives nearly one-quarter of its benefits to households making more than $2.8 million annually - the top 0.1%."

Douglas Holtz-Eakin, senior economic adviser to McCain, noted that the report does not take into account the spending reforms - such as eliminating earmarks - that are central to McCain's strategy to support tax relief and help reduce the deficit.

One of the center's co-directors, William Gale, conceded in a conference call that "if McCain succeeds (in achieving his proposed spending cuts), the fiscal cost of his plan does go down."

But spending cuts can be politically difficult to achieve, said Len Burman, the Tax Policy Center's director.

Holtz-Eakin characterized McCain's plan as one geared toward "reshaping federal bureaucracies and protecting taxpayers' money. [His] plan is based on kicking down doors in Washington, and delivering tax dollars back to the American taxpayers who are struggling with record gas prices, soaring food costs and a down economy."

Not the final word

Williams said the Tax Policy Center analysis should be viewed as a work in progress. Researchers plan to update it as they get more information about the plans from the campaigns and if the candidates introduce new tax policies between now and Election Day.

The center will also incorporate the tax elements of McCain's and Obama's health care proposals when they update their findings.

How the candidates' tax plans would affect economic growth is an open question. "It depends on how the deficits are closed," Burman said.

Tax studies have shown that when tax cuts are deficit funded and they're paid for by raising taxes in the future, "the economy is worse off than if you didn't cut at all," Burman said.

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Iran 'sending weapons to Taleban'

By Kate Clark
BBC News, Afghanistan

Taleban fighters in South Waziristan in Pakistan, May 2008
The Taleban have stepped up their insurgency in recent months

Elements in the Iranian state are sending weapons across the border to the Taleban in Afghanistan, a BBC investigation has uncovered.

Taleban members said they had received Iranian-made arms from elements in the Iranian state and from smugglers.

The UK says its troops have intercepted arms which it believes were given by a group within the Iranian state.

The Iranian embassy in Kabul dismissed the allegations, saying Tehran supported the Afghan government.

'It's called Dragon'

Among the Taleban, Iranian-made weapons are greatly sought after in the fight against the government of Hamid Karzai and the Nato and US-led forces deployed to support him.

It's a very dangerous game for Iran, a Shia state, to be supplying Sunni extremists, like the Taleban
Sir Sherard Cowper-Coles,
British ambassador in Kabul

They are considered to be reliable and particularly destructive.

For example, an Iranian-made Kalashnikov rifle can be adapted to fire grenades. It costs $200-$300 more than one made in Pakistan, Russia or China.

Iranian-made weapons, one commander told me, had really improved the Taleban's ability to attack the American military deployed in his area.

"There's a kind of mine called Dragon. Iran is sending it, we have got it," the Taleban commander said.

"It's directional, it destroys. If you lay an ordinary mine, it will cause only minor damage to Humvees or one of their big tanks. But if you lay a Dragon, it will be destroy it completely."

'Limited supply'

The question is - are Iranian weapons only being brought across the border by smugglers for profit or are elements of the Iranian state also donating arms?

The Taleban commander and other sources in the south told me both routes were operating.

The British ambassador in Kabul, Sir Sherard Cowper-Coles, made the same allegation.

"We've seen a limited supply of weapons by a group within the Iranian state, not necessarily with the knowledge of all other agencies of the Iranian state, sending some very dangerous weapons to the Taleban in the south.

"It's a very dangerous game for Iran, a Shia state, to be supplying Sunni extremists, like the Taleban."

Seven years on, the worsening of American-Iranian relations might give some groups within the Iranian state a reason to help the Taleban fight their mutual enemy - the US army deployed in Afghanistan.

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Cheney Turned Down Request To Oversee Katrina Recovery Because ‘He Doesn’t Do Touchy-Feely’

cheneykatrinatour.jpgJust after Hurricane Katrina struck the Gulf Coast in 2005, Vice President Dick Cheney refused President Bush’s request to head up a “cabinet-level task force” aimed at speeding the recovery effort, writes the Washington Post’s Barton Gellman in a still-embargoed section of his new book, “Angler: The Cheney Vice Presidency.”

When asked by Bush if he would “at least go do a fact-finding trip for us,” Cheney responded saying, “That’ll probably be the extent of it”:

Days after the storm had passed, when he finally returned to Washington from Crawford, Bush assembled his senior staff in the Oval Office. He was going to set up a cabinet-level task force, he said.

“I asked Dick if he’d be interested in spearheading this,” Bush announced. “Let’s just say I didn’t get the most positive response.” Bush nodded ironically toward the vice president, putting on a show for the others: Card, Rove, Bartlett, Condi Rice. His expression, the tone of voice, had a hint of edge. Can you believe this guy? […]

“Will you at least go do a fact-finding trip for us?” Bush asked.

“That’ll probably be the extent of it, Mr. President, unless you order otherwise,” Cheney replied.

Gellman writes that White House counselor Dan Bartlett “came to see Cheney’s demurral ‘quite frankly as pretty good judgment.’ Cheney ‘doesn’t do touchy-feely,’ Bartlett said.”

Cheney’s refusal to lend the weight of his office to the Katrina recovery effort is not surprising, as he has a record of underestimating the seriousness of Katrina’s devastation. As the storm hit, Cheney was reluctant to cut his vacation short. In September 2005, Cheney commented dismissively, “I think we are in fact on our way to getting on top of the whole Katrina exercise.”

During his fact-finding trip to the affected region, Cheney was famously insulted on live television. As 2005 came to a close, Cheney scrambled to take advantage of the Katrina tax relief act, which was aimed at spurring Katrina-related increases in charitable donations. When his tax returns were released, however, it appeared that “none of [Cheney’s] charitable contributions actually went to Katrina-related charities.” Since then, Cheney has reportedly “tried to kill proposals to increase…aid for Hurricane Katrina victims.”

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For prosecution of Bush war crimes, planning begins

Stephen C. Webster

On Saturday morning in Andover, Massachusetts, as about 120 activists, adademics, constitutional scholars, public officials and legal experts gathered in the Wyndham hotel, the building suddenly went dark.

Electricity had been cut off just prior to the start of a landmark war crimes conference, the goal of which was to plan the prosecution of Bush Administration officials. The first of its kind conference, already featuring a laundry-list of notable speakers, was suddenly in flux ... If only for a few moments.

"We were already so effective, the government tried to shut us down," said conference organizer Lawrence Velvel, dean of the Massachusetts School of Law at Andover, in an interview with RAW STORY.

"Of course, when I said that at the conference opener, the power had been restored. I was only joking," said Velvel with a slightly nervous laugh. "A fuse box fried, but the local electric company fixed it before we even began."

The 'Bush war crimes conference,' according to its organizers, is a "throwback to the framers of the constitution," which aims to establish "necessary organizational structures" to pursue those guilty of war crimes "to the ends of the Earth."

"The framers didn't trust the federal government either," said Velvel. "And oddly enough, over the years and decades, a strong distrust of government was once a Republican position. It was, at least, in theory. And then Bush came along and there's this, well, my country, love it or leave it in the GOP ... But now, you have people on the other side of the spectrum taking that very position.

"This is a conservative idea, to hold conferences and then take action to take power. Liberalism has been made fun of as mere self expression. I was very impressed by the desire in this group to take action."

"This is not a campaign event," said Professor Christopher Pyle of Mt. Holyoke College, during his speech to the conference. "It is a conference about how to restore governmental accountability in the wake of a criminal administration. It addresses the most serious crisis in our nation’s history -- the claim that the president and his secret agents can get away with torture, kidnapping, and even manslaughter."

The two day affair was divided in half: Speakers on Saturday, and planning on Sunday.

Chief among the academics, legal experts and whistle-blowers speaking in Andover was Vincent Bugliosi, best known for successfully prosecuting Charles Manson and penning the subsequent novel, Helter Skelter. His new book, The Prosecution of George W. Bush for Murder, is currently available at retail.

Watch Bugliosi's opening statement to a July, 2008 House Judiciary Committee hearing on the limits of executive authority:

Other speakers included:

# Phillippe Sands, Professor of Law and Director of the Centre of International Courts and Tribunals at University College, London. He is the author of "Torture Team: Rumsfeld's Memo and the Betrayal of American Values" (Penguin/Palgrave Macmillan), among other works.

# Jordan Paust, Professor of Law at the University of Houston and author of "Beyond The Law."

# Ann Wright, a former U.S. Army colonel and U.S. Foreign Service official who holds a State Department Award for Heroism and who taught the Geneva Conventions and the Law of Land Warfare at the Special Warfare Center at Ft. Bragg, N.C. She is the coauthor of "Dissent: Voices of Conscience."

# Peter Weiss, Vice President of the Center For Constitutional Rights, which was recently involved with war crimes complaints filed in Germany and France against former Defense Secretary Donald Rumsfeld and others.

# Benjamin Davis, Associate Professor at the University of Toledo College of Law and former American Legal Counsel for the Secretariat of the International Court of Arbitration.

# David Lindorff, journalist and co-author with Barbara Olshansky of "The Case for Impeachment: Legal Arguments for Removing President George W. Bush from Office"(St. Martin’s Press).

# Colleen Costello of Human Rights USA.

# Christopher Pyle, a professor at Mt. Holyoke and author of several books on international matters

"We need to revers[e] a fifty-year trend towards unaccountable secret government, which can commit crimes with impunity," said Pyle in a release. "'Sending a clear signal to future Cabinet-level officials that ours is still a government under law, and that they had better obey the criminal law, no matter what their president and his legal lackeys say,' is a matter of overwhelming importance."

While video of the conference was broadcast live via UStream.tv, the footage is currently unavailable on the Internet.

Conference organizers told RAW STORY that a series of DVD's will be offered for sale at cost to interested parties. Online footage of the conference will also be made available Friday, Sept. 19, at a Web site address yet to be announced.

"Later this week we will establish a central committee which will decide which of the many ideas we came up with are practical, and we will begin asking people to undertake particular actions," said Velvel. "Once those first steps are carried out, as I hope it will be, that will be the first major accomplishment of this conference."

The plans, which will be released in a media advisory later this week, considered:

# What international and domestic crimes were committed, which facts show crimes under which laws, and what punishments are possible.

# Which high level Executive officials -- and Federal judges and legislators as well, if any -- are chargeable with crimes.

# Which international tribunals, foreign tribunals and domestic tribunals (if any) can be used and how to begin cases and/or obtain prosecutions before them.

# The possibility of establishing a Chief Prosecutor’s Office such as the one at Nuremburg.

# An examination of cases already brought and their outcomes.

# Creating an umbrella Coordinating Committee with representatives from the increasing number of organizations involved in war crimes cases.

# Creating a Center to keep track of and organize compilations of relevant briefs, articles, books, opinions, and facts, etc., on war crimes and prosecutions of war criminals.

Velvel told RAW STORY that several groups have been established to force some universities to hold hearings on whether faculty members should have their jobs terminated for participating in Bush Administration crimes.

"John Yoo, the author of the infamous 'torture memo' who now works at Berkeley, comes quickly to mind," he added.

"The consensus of attendees is President Bush’s attack on Iraq is a violation of the Charter of the United Nations and that he is culpable for this as well as for torture and abuse of war prisoners held by the U.S. military and the CIA," stated a media advisory.

Other conference cell groups plan to raise up groundswells of support for district attorney candidates who would be willing to investigate or prosecute Bush Administration crimes. Conference attendees also plan to begin seeking disbarment proceedings against lawyers who assisted the administration in war crimes.

Additional measures, details of which were not immediately forthcoming, include utilizing foreign and International courts, and focused actions on state and local levels.

"The idea of using foreign and International courts is not so dissimilar to the time [Donald] Rumsfeld had to flee France to avoid arrest on war crimes charges," said Velvel. "Of course, that was a foreign court, and he just went into Germany and was fine. We were talking more about going to a true International court."

The Bush war crimes conference is in the tradition of Justice Robert H. Jackson, who prosecuted war criminals after World War II, writes Sherwood Ross.

"The common sense of mankind demands that law shall not stop with the punishment of petty crimes by little people," said Justice Jackson. "It must also reach men who possess themselves of great power and make deliberate and concerted use of it to set in motion evils which leave no home in the world untouched."

"Obviously, we want to go beyond self expression," concluded Velvel.

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