Monday, September 22, 2008

Exclusive: Foreign banks may get help


In a change from the original proposal sent to Capitol Hill, foreign-based banks with big U.S. operations could qualify for the Treasury Department’s mortgage bailout, according to the fine print of an administration statement Saturday night.

The theory, according to a participant in the negotiations, is that if the goal is to solve a liquidity crisis, it makes no sense to exclude banks that do a lot of lending in the United States.

Treasury Secretary Henry Paulson confirmed the change on ABC's "This Week," telling George Stephanopoulos that coverage of foreign-based banks is "a distinction without a difference to the American people."

"If a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution," Paulson said.

"That's a distinction without a difference to the American people. The key here is protecting the system. ... We have a global financial system, and we are talking very aggressively with other countries around the world and encouraging them to do similar things, and I believe a number of them will. But, remember, this is about protecting the American people and protecting the taxpayers. and the American people don't care who owns the financial institution. If the financial institution in this country has problems, it'll have the same impact whether it's the U.S. or foreign."

The legislative outline that went to Capitol Hill at 1:30 a.m. Saturday had said that an eligible financial institution had to have “its headquarters in the United States.” That would exclude foreign-based institutions with big U.S. operations, such as Barclays, Credit Suisse, Deutsche Bank, HSBC, Royal Bank of Scotland and UBS.

But a Treasury “Fact Sheet” released at 7:15 Saturday night sought to give the administration more flexibility, with an expanded definition that could include all of those banks: “Participating financial institutions must have significant operations in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets.”

The major change in the suggested eligibility requirements is the biggest change that Treasury publicly made after a day of briefings and conversations with Capitol Hill, and is likely the first of many.

Aspects of the $700 billion, two-year proposal that are still under negotiation include what, if anything, will be added to the administration’s simple but sweeping proposal. And the parliamentary route, such as what committees or hearings might be involved, has not been finalized.

House Financial Services Committee Chairman Barney Frank (D-Mass.) has a hearing scheduled for Wednesday that is likely to focus on the proposal.

Under what congressional officials called a likely scenario, the measure could go to the House floor on Thursday, with passage expected the same day.

The Senate could take the package up as soon as Friday and send it to President Bush for his signature, although the Senate schedule is less predictable and had not been determined.

Officials expect passage by huge margins in both chambers because Paulson and Federal Reserve Chairman Ben Bernanke have told congressional leaders the country’s financial stability depends on it.

House Democrats plan to insist on adding protections for homeowners facing foreclosure. They also want to add a measure to help homeowners facing bankruptcy and an executive compensation restriction designed to prevent golden parachutes for the heads of troubled institutions.

Sen. Barack Obama (D-Ill.), who was supportive of the bailout concept in a statement released Friday, believes that “whatever gets done in Congress has to protect Main Street,” senior adviser Stephanie Cutter said on MSNBC on Saturday.

On “Fox News Sunday,” Paulson told Chris Wallace that he would resist the Democrats' desired limits on executive compensation.

"If we design it so it's punitive and institutions aren't going to participate, this won't work the way we need it to work," Paulson said. "Let's talk executive salaries: There have been excesses there. I agree with the American people. Pay should be for performance, not for failure. We've got work to do in that regard. We need to do that work. But we need this system to work. And so reforms need to come afterwards. My whole objective with the plan we have is to give us the maximum ability to make it work.”

And the secretary told NBC’s Tom Brokaw on “Meet the Press” that he doesn’t want new regulations simultaneously: “That's not doable to do that immediately. But we very much need new regulations.”

Senate Banking Committee Chairman Chris Dodd (D-Conn.) told Stephanopoulos on ABC: “If we’re going to spend taxpayer money to get rid of bad debt in these places, what is the reciprocal obligation … from the firms? … I think there’s going to be a strong interest to deal with the Main Street aspects.”

Appearing with him, House Republican Leader John A. Boehner of Ohio retorted: “We’ve already dealt with that, when we had the housing bill last summer. I didn’t vote for it, because it’s $300 billion bailout for scam artists and speculators and others around the housing industry. But there are a lot of tools in there to help the Federal Housing Administration deal with the foreclosure problem that’s out there. We need to rise above partisan politics … and deal with this as adults.”

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Forget Wall Street. What about the rest of us?

Posted by Justin Fox

Ethan Harris, the chief U.S. economist at bankrupt Lehman Brothers, says it's been "the most tumultuous two weeks of my personal and professional life." Even on Friday, with the tumult settled somewhat by Barclays' purchase of Lehman's core business and Hank Paulson's plans to purchase the American financial system, things were still kind of weird: A Japanese TV crew was filming Harris as we talked on the phone. And next week, as Barclays takes over at Lehman, he gets to find out--or at least start to find out--if he still has a job.

For Harris and everybody else on Wall Street, the gravity of this financial near-meltdown is pretty clear. It understandably all remains something of a puzzle to a lot of other people. The New York Times reported that members of Congress were stunned into silence by the dire picture painted by Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke of what would happen if they didn't create an agency to take bad debts off bank balance sheets. The picture? Financial breakdown, with banks ceasing to lend and the economy grinding to a halt.

That's clearly really bad. But what will the economy look like if Congress does approve a workable bailout plan, and the worst-case scenarios are averted?

Well, probably still pretty bad. "By the time we’re done here this is going to be equivalent to the big recessions of the past," says Harris. "Similar to the recessions of 1974 and 1982." That's a lot better than a rerun of the Great Depression. But it still means big-time job losses, and lots of painful retrenchment for consumers and business.

This is not, yet, a unanimously held opinion. There is even still some debate over whether this even is a recession. But I'm thinking that's going to fade away soon. "All my cousins already know we’re in a recession," says Bob Barbera, chief economist at ITG and, coincidentally, a former Lehman chief economist. "You need a Ph.D in economics to have a debate about it." Barbera thinks that, "in the fullness of time," it will be apparent that the recession began in autumn 2007.

Barbera also believes this recession will end early next year, which is a nice thought. But what comes afterward probably won't feel so great either. "I’d be very surprised to see a strong recovery in the economy," says Harris. "The consumer was being spurred along by two big booms, housing and the stock market, and this expansion of debt." No more. "You’ve got a much more conservative consumer in the next decade," he says.

This is what the aftermath of an epic credit bubble looks like. For the financial sector, never very good at retrenching in an orderly fashion, it's a time fraught with risk of collapse. But even if collapse is averted, the bubble still has to deflate. And it is deflating: Household debt, which grew at double-digit rates from 2002 through 2006, rose at just a 1.4% pace in the second quarter, according to data released Thursday by the Federal Reserve. This is, for the long-run financial health of Americans, a good thing. It just means there won't be much economic fun anytime soon.

"I think there is something fundamentally positive about the U.S. economy," Harris says. "Great technology, a great educational system, an entrepreneurial spirit. But those things don’t really matter that much over the next couple of years."

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12th bank failure of the year announced

Regulators close down Ameribank Inc., a West Virginia-based-bank with total assets of $115 million.

By Catherine Clifford, staff writer

NEW YORK ( -- Ameribank Inc. was shut down on Friday by the Office of the Thrift Supervision, making it the 12th bank this year to go under.

The Northfork, West Virginia bank had total assets of $115 million and total deposits of $102 million, according to a statement on the Federal Deposit Insurance Corporation Web site.

The FDIC was named receiver and announced that it entered into purchase and assumption agreements with Pioneer Community Bank, Inc., Iaeger, West Virginia, and the Citizens Savings Bank, Martins Ferry, Ohio, to take over all of Ameribank's deposits.

Ameribank has five branches located in West Virginia and three branches located in Ohio. Branches in West Virginia will reopen on Monday and Ohio branches will reopen on Saturday.

All customer accounts were automatically transferred to the two new banks and the full amount of their deposits will automatically be insured, the FDIC said.

Customers of the banks can still access their money over the weekend by writing checks or using ATM or debit cards, according to the statement by the FDIC.

A year of bank failures

This year 12 banks have been forced to close their doors. In July IndyMac was closed down marking the largest collapse of an FDIC-insured institution since 1984. The Pasadena, Calif.-based bank failed because it backed risky home loans. With the special Alt-A home loan that IndyMac offered, a home buyer had to show little evidence of income and assets.

When IndyMac was shut down, it had assets of $32 billion and deposits of $19 billion. While the FDIC protected most of IndyMac customer's assets, some customers lost some of their deposits.

The FDIC insures the assets held by the 8,451 institutions with a total of $13.4 trillion.

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Man dies in government cancer drug trial

By Jon Swaine

Gary Foster, 27, was repeatedly given twice the amount of chemotherapy drugs he should have been prescribed.

He was due to be married this month.

Reports have said his death was caused by an error in the setting up of the trial on the computer system at University College London Hospital (UCLH).

A second patient was affected by the same mistake, but survived.

When the MRC suspected patients had been given overdoses, instead of calling the hospital immediately it wrote a letter - which a nurse at UCLH failed to open until two days after Mr Foster had died.

Mr Foster's mother Colleen said: "Gary was slowly poisoned to death.

"We just thought Gary was getting tired because of the chemotherapy."

The incident raises fresh questions about the safety of medical testing in Britain.

Two years ago six men almost died in the so-called "elephant man" case at Northwick Park Hospital, North London.

Their bodies swelled horrifically after they were given the experimental drug TGN1412.

UCLH has been forced to suspend the trial, called TE23, which tests whether a combination of five drugs is better at treating testicular cancer than the standard treatment of three drugs.

It has, however, being continued at other UK hospitals.

Mr Foster, a graphic designer, had just been diagnosed with testicular cancer.

He was told he had a 60 per cent chance of survival.

The disease has a 95 per cent survival rate when caught early.

Mr Foster was told about the TE23 trial and told that if he was accepted on to it, his chances of survival would increase.

His fiancée, Paula Collins, 35, told The Sunday Times: "When Gary became involved in the trial, we thought it was fantastic news because we thought Gary's chance of survival would be greater and the care would be better.

"The trial sister said: 'Good news, Gary, you have been selected for the trial.' At UCLH they said, 'Don't worry, testicular cancer is curable. We will monitor Gary for 10 years – you don't have to worry.' They made us feel so confident."

Mr Foster received the drugs during visits to UCLH between June and September 2007. On seven occasions, he received 30,000 units of bleomycin - of one of the five drugs - instead of 15,000.

A third patient died at a different hospital after receiving an overdose of the same drug due to an error by a nurse or doctor. However the Medical Research Council (MRC), the government body which ran the trial, said the drug was not the direct cause of his death.

An inquest heard Mr Foster began to show signs of deterioration after taking the drugs.

Eventually he developed a dry cough, a symptom of damage to his lungs that had been caused by the overdose of bleomycin. The lung damage was eventually fatal.

The inquest heard the cough should have been recognised by doctors and nurses as a warning sign. However, he was given a final dose.

Miss Collins said: "We had dreams and lots of plans together. Gary also had his own ambitions. We were supposed to be getting married. He was such a lovely person. He was so well liked and had so many friends."

"We do need trials but there need to be more controls," Collins added.

"I would encourage other people thinking about taking part in trials to proceed with caution. I would hate to think of anyone else going through what we have gone through."

"Checks should have been carried out. It is incomprehensible that they were dealing with the most dangerous medicines and they were so blasé. It was so slapdash."

Mrs Foster said: "An overdose gives the impression that it was a one-off. It was seven times.

"Every week my poor Gary was going into hospital, we thought he was getting better but, actually, he was being slowly poisoned and poisoned to death."

In a statement, UCLH said: "We would like to reiterate our deepest sympathy and condolences to the family and friends of Mr Foster."

It said it has introduced measures to make medical tests safer.

The MRC said it had reviewed its trial procedures as a result of Mr Foster's death and subsequently introduced additional checks.

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Evangelist's compound raided in child porn case

FOUKE, Arkansas (AP) -- FBI agents and state police raided an evangelist's headquarters Saturday as part of a child pornography investigation and said they planned to remove several children from the complex, run by a man previously accused of child abuse.

The raid at the Tony Alamo Christian Ministries south of Texarkana started an hour before sunset. Armed guards regularly patrol the ministry headquarters, but there was apparently no resistance as agents moved in.

"I have not heard of any shots fired," State Police spokesman Bill Sadler said.

U.S. Attorney Bob Balfe said before the raid that he expected an arrest warrant to be issued for Alamo. It wasn't known whether he was present during the raid.

Shortly after the raid began, a sport-utility vehicle hauling a trailer backed up to the ministry building's front door. FBI vehicles blocked off a dead-end road.

A Fouke School District bus also pulled up near 12 unmarked vans, SUVs and sedans parked alongside the low-slung ministry headquarters along U.S. 71 just inside the city limits of tiny Fouke.

Sadler said a search would be conducted at the compound headquarters and at Alamo's home nearby.

A helicopter circled, and onlookers stopped along the two-lane highway to watch the raid.

Alamo's church is in a single-story building that looks like a strip mall. A white cross stands atop the structure, with a small steeple to the right side.

Alamo was once accused in California of directing the beating of a church member's 11-year-old son. In 1994, he was sentenced to six years in prison on tax evasion charges filed in Memphis, Tennessee.

The judge in the tax case ordered him held pending sentencing after prosecutors argued that the evangelist was a flight risk and a polygamist who preyed on married women and girls in his congregation. U.S. District Judge Jon McCalla said he was concerned over "the very great control Mr. Alamo has over a number of people."

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Al Qaeda Suspected Of Pakistan's Marriott Bombing


ISLAMABAD (Reuters) - A suicide bomb attack that killed 53 people at the Marriott Hotel in Pakistan's capital bore the hallmarks of an operation by al Qaeda or an affiliate, Pakistani and U.S. intelligence officials said on Sunday.

Teams combing the burnt shell of the hotel found more charred bodies after the blast on Saturday evening ignited a blaze that swept through the hotel, part of a U.S.-based chain and a favorite haunt of diplomats and wealthy Pakistanis.

Internal security in nuclear-armed Pakistan, a country vital to the war against al Qaeda and other Islamist militant groups, has deteriorated alarmingly over the past two years.

"The sophistication of the blast shows it's the work of al Qaeda," a Pakistani intelligence officer told Reuters.

Four foreigners were killed including the Czech ambassador, his Vietnamese partner and two members of the U.S. armed forces assigned to the U.S. embassy. Denmark's security service said one of their staff, attached to the Danish mission in the capital, was missing, presumed dead.

An American State Department employee was also missing, a spokesman said.

The Interior Ministry said 266 people were wounded, 11 of them foreigners, after the bomber blew up a truck packed with 600 kg (1,320 lb) of explosives including artillery shells, mortar bombs and shrapnel.

Pakistan's army is in the midst of an offensive against al Qaeda and Taliban fighters in the Bajaur region on the Afghan border. The United States has intensified attacks on militants on the Pakistani side of the border, alienating many Pakistanis.

Militants have launched bomb attacks, most on security forces in the northwest, in retaliation. Security analysts said the militants wanted to show they could strike anywhere unless the government changed its policies.

"(It) underscores the ability of these groups to really challenge the authority of the state in the heart of the capital," said Riffat Hussein, a professor of defense studies.

An al Qaeda video, released to mark the seventh anniversary of the Sept 11, 2001, attacks in the United States, included a call for militants in Pakistan to step up their fight.


"They want to destabilize the country. They want to destabilize democracy. They want to destroy the country economically," Prime Minister Yousaf Raza Gilani told reporters.

A civilian government led by Gilani was sworn in six months ago after nine years of rule by former army chief and firm U.S. ally Pervez Musharraf. It is also facing an economy on the verge of collapse.

The attack will be a big blow for foreign investment and will lead to further weakening of the rupee which is already trading at a record low, dealers and analysts said.

The attack was staged hours after new President Asif Ali Zardari, widower of assassinated former prime minister Benazir Bhutto, made his first address to parliament, a few hundred meters from the hotel, calling for terrorism to be rooted out.

Zardari called the bombing cowardly.

"This is an epidemic, a cancer in Pakistan which we will root out," he said in a televised address.

Army chief General Ashfaq Kayani said the army stood with the nation in its resolve to defeat the forces of extremism and terrorism.


Saturday's attack was the worst in the capital.

The blast left a crater 24 feet deep and 59 feet

wide, ministry official Rehman Malik told a news conference.

Malik showed security camera footage from the front of the hotel, which had been bombed twice before, showing a truck trying unsuccessfully to force its way through security barriers.

A small blast could be seen going off in the truck cab, apparently as the bomber blew himself up with a grenade, which started a fire. Minutes, later, after a guard tried to put out the fire with an extinguisher, the truck blew up.

Flames and smoke poured out of the 290-room, five-storey hotel located in a high security zone. Dozens of cars were destroyed and windows shattered hundreds of meters away.

Survivors said hotel security men had warned guests to move to the back of the building shortly before the bomb went off.

Most people managed to flee from the fire before it spread but a Reuters photographer saw a body lying on a top floor balcony on Sunday morning.

Malik suggested the investigation would end up pointing to al Qaeda and Taliban militants based in the Federally Administered Tribal Areas (FATA) on the Afghan border

"In previous attacks, all roads led to FATA," he said.

The United States was ready to assist with the investigation if requested, said U.S. embassy spokesman Lou Fintor.

Some Islamabad-based expatriates were considering leaving, after shrugging off smaller blasts in the city.

"I'll be speaking to my boss tomorrow," said Steve, a Briton working in Islamabad who did not want to give his full name.

Zardari, who won a presidential election this month, left for the United States on Sunday and is scheduled to meet President George W. Bush in New York on Tuesday before the U.N. General Assembly.

(Additional reporting by Robert Birsel, Zeeshan Haider, Kamran Haider, Augustine Anthony and Sahar Ahmed; Writing by Simon Cameron-Moore; editing by Matthew Jones/Keith Weir)

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