Pull away blanket of secrecy on federal bailout

By LOREN STEFFY Copyright 2008 Houston Chronicle

Two months after the government unfolded the TARP, it and the other federal programs related to the bailout are looking more like a blanket of secrecy.

The Troubled Asset Relief Program, as the $700 billion bailout program approved by Congress is known, was supposed to be conducted with transparency and oversight.

The TARP and other provisions of the federal bailout, however, remain shrouded in uncertainty. TARP, though, is only one piece of the overall bailout. The Federal Reserve and the Treasury have been shoveling huge piles of money into the markets during the past two months through channels that don’t require congressional approval, yet taxpayers have little idea where the money is going or what the government is getting in return.

Not telling

The Fed, for example, refuses to say who received some $2 trillion in emergency loans that have showed up on its balance sheet.

Nor will it disclose the collateral for those loans.

This month, Bloomberg News filed a lawsuit against the Fed, demanding it disclose the information after the central bank denied the news agency’s request under the Freedom of Information Act.

By the end of last week, a group of lawmakers cried for disclosure.

“There cannot be accountability in government and in our financial institutions without transparency,” Sen. John Cornyn, R-Texas, said in a prepared statement. “Many of the financial problems we are facing today are the direct result of too much secrecy and too little accountability.”

‘Pretty sure’

Not everyone in Congress shares Cornyn’s concerns. Asked whether the Fed should reveal the collateral it accepted, Rep. Barney Frank, D-Mass., who heads the House Financial Services Committee, told Bloomberg he’d discussed the matter with Timothy Geithner, head of the New York Fed and a possible candidate for Treasury secretary in the Obama administration.

“I talked to Geithner, and he was pretty sure that they’re OK,” Frank told Bloomberg.

We’ll all no doubt sleep easier knowing that our government has loaned $2 trillion to potentially troubled financial institutions and the guardians of our economy are “pretty sure they’re OK.”

Frank added that revealing the collateral would give people clues as to the value of those assets.

Can’t tell how it’s going

That’s exactly the point.

Without knowing the value and the kind of assets the Fed received from troubled banks, taxpayers can’t determine the effectiveness of the bailout or whether the money is being used properly.

Nor do we have any idea what might happen if the value of the collateral falls. Presumably, at least some of the collateral is distressed mortgage securities — that was, after all, what the bailout was supposed to address — many of which are being downgraded by credit agencies.

The shroud of secrecy extends beyond the emergency loan program.

As I wrote a few weeks ago, the Treasury Department has issued contracts for professional firms hired to manage the bailout. While it disclosed the contracts, it blacked out key terms and in some cases the names of individuals assigned to work on the bailout.

Request filed

Bailoutsleuth.com, a Web site started by Dallas Mavericks basketball team owner Mark Cuban, has filed a Freedom of Information request for missing information from six contracts.

Meanwhile, the Washington Post reported last week that the Treasury hasn’t filled the independent oversight posts required by Congress when it passed the bailout legislation six weeks ago.

The deadline for the first monitoring report passed without it being filed, the Post reported.

Unsettling report

All of which presents us with a disturbing progress report on a our most expensive and extensive financial recovery plan since the Great Depression.

Aside from the banks identified under the TARP program, we don’t know who’s getting the money. We don’t know what, if any, guarantees we’re getting in return. We don’t know the details of the people hired to run it. And no one is protecting our interests.

We need something better than lawmakers being “pretty sure we’re OK.” We need to know. We need disclosure.

We need to find out what’s under the TARP.

Loren Steffy is the Chronicle’s business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy@chron.com . His blog is at http://blogs.chron.com/lorensteffy/ .

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AIG to Pay Millions To Top Workers

By Carol D. Leonnig

Washington Post Staff Writer

American International Group plans to pay out $503 million in deferred compensation to some of its top employees, saying it must tap the funds to keep valuable workers from exiting the troubled insurance giant.

News of the payments to top AIG talent comes as the federal government has just put more money into saving the company from bankruptcy, beefing up the total public commitment to $152 billion. Meanwhile, members of Congress are questioning the company's expenditures -- including lavish business trips to resorts -- during a time when taxpayers are on the hook for the bailout.

AIG's troubles stem from bad bets it made guaranteeing and buying risky mortgage investments. On Monday, the U.S. government announced that it would have to expand its rescue of the company to nearly double the $85 billion loan it first provided in September when AIG was unable to pay billions of dollars in claims.

Treasury officials said earlier this week that they had imposed some of the most stringent limits ever on AIG executives' bonuses and compensation in exchange for the broader bailout.

AIG's plans to crack open its deferred compensation bank for payments early next year is conveyed in a two-sentence paragraph buried inside a quarterly financial report filed with the Securities and Exchange Commission on Monday. But some compensation experts and AIG stakeholders yesterday said they considered the exodus of $503 million in AIG money dubious at a time when the company is drenched in red ink. The company reported losses this week that brought total losses to $37.63 billion for the first nine months of the year.

AIG spokesman Nicholas Ashooh said yesterday that the company is desperately trying to keep top talent from leaving, and that giving them deferred compensation works as a carrot to keep them on board. He said more than 6,000 employees are covered by AIG deferred compensation plans, but declined to name any employees or the number of top executives who will receive the early payouts.

Companies over the past 20 years have increasingly use deferred compensation as a way to attract and retain highly paid executives. Under these plans, top talent can postpone taking some of their large annual salaries for years -- often until a set date -- and can put off being taxed on it. Some wait to take the funds until they retire, when they would presumably be in a lower tax bracket.

Most deferred compensation plans are arranged to encourage employees to stay at a company by holding money back, not paying it out early. Ashooh acknowledged that the company takes a significant risk that employees will leave immediately after they receive their deferred earnings in the first quarter of 2009. But he stressed that the funds are not from the government.

"This is not taxpayers' money they are going to run away with," Ashooh said. "We are trying to take the incentive away for people to leave now, until we have time to get the company running right again."

The issue of taking deferred compensation ahead of schedule arose during the Enron scandal, when top company executives who had reason to know the company was financially ailing quietly demanded that their staff pay them their deferred earnings ahead of schedule.

"If this involves putting the same responsible parties first in line [for AIG money], that is clearly not appropriate," said Lee Wolosky, an attorney for Starr International, the largest shareholder of AIG stock. "Half a billion dollars could clearly be better spent paying back the American taxpayer, rather than rewarding the same executives responsible for AIG's current condition."

Congress has also been complaining about how AIG's top executives are running the company and spending AIG money while taxpayers are bearing the brunt of keeping it afloat. Rep. Henry A. Waxman (D-Calif.), chairman of the House Oversight and Government Reform Committee, has been investigating how AIG has spent taxpayer money and demanded documents specifically on its bonus and compensation plans.

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Report: Citigroup to lay off thousands

NEW YORK, Nov. 15 (UPI) -- Citigroup Inc. (NYSE:C) -- the global financial giant based in the United States -- plans to trim its workforce by 10 percent, CBNC reported Saturday.

Citing a person familiar with the matter, the cable business news channel said the job cuts are intended to return the company to profit and put down growing criticism of Chief Executive Officer Vikram Pandit -- who plans to issue a statement on the matter Monday.

CNBC said the move is aimed at soothing market concerns that Citigroup is not doing what needs to be done to deal with difficulties including deteriorating share prices. Citing people close to the company, the report said the precise dimensions of the job cuts were not known Saturday afternoon but the organization might cut almost 40,000 jobs from its international workforce, estimated at 350,000.

CBNC's source said Pandit will likely announce that the layoffs will take effect in the relatively short term -- perhaps during the next five or six months.

"The object here is for people to take notice," a source told CNBC. "The exact number is still a moving target but it will be dramatic."

Citigroup has reported losses for several quarters, largely due to massive writedowns of bad debt. Its share price has dropped from almost $50 a year ago to a little over $9 Friday.

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Syria's Deadly Bargain

Syrian President Bashar Assad addresses the opening session of the transit Arab Parliamentarian Union in Damascus, Syria, Sunday, Nov. 9, 2008. (AP Photo/Bassem Tellawi)

The Bush administration has quietly authorized U.S. forces to attack Al-Qaeda bases around the Middle East--an escalation in the war on terror that Eli Lake first revealed two weeks ago in The New Republic and that The New York Times reported on this week. One of the administration's most recent targets was Syria, where it struck Al-Qaeda leader Badran Turki Hishan al Mazidih last month.

Though Syrian officials feigned ignorance at Al-Qaeda's encampment within its borders, the reality is that the country not only tolerates the presence of terrorists, but encourages them to use the country as a safe-haven, headquarters, and transit point. Why does Syria continue to harbor terrorists, knowing that it places the country squarely in the crosshairs of the Bush administration? Particularly in light of Syria's historical problems with its own Islamist groups, why would it welcome radicals from across the region? Finding the answer to these questions is crucial in trying to defeat one of the Middle East's most prolific boosters of terrorism.

To better understand Syria's motivations, I visited Abdel Halim Khaddam, Syria's former vice president, in Brussels, where he was leading a meeting of the National Salvation Front (NSF), a Syrian opposition group. Having served under both Hafez al-Assad and his son Bashar, Khaddam is well-acquainted with the strategic and political exigencies driving the regime's support for terror. "Fighting the Americans in Iraq is very dangerous," he tells me. "But it also makes Bashar popular. Under the banner of resistance, anything is popular."

Thus, it seems the first reason Syria backs these militants is because it wins public acclaim. As is the case in many countries across the Arab world, most Syrians distinguish between terror and resistance. They define the former as violence that hurts Syrians and Syrian interests--such as the Muslim Brotherhood's war against the Syrian state in the late 1970s and early '80s, for example. But resistance is the violence that the Syrian regime makes possible at the expense of other states--from Lebanon to Israel to Iraq--strengthening its position as the self-described "capital of Arab resistance."

For instance, when Hezbollah went to war against Israel in the summer of 2006, it hurt not only Israel but the majority of Lebanese, who were not standing with Hezbollah. But Syria's logistical, financial, and political support for the Islamic resistance burnished Assad's credentials at home, while also earning him respect across the region. If other Arab rulers, like Egyptian president Hosni Mubarak and Saudi king Abdullah Al-Saud, were, in Assad's words, "half-men," the Syrian had shown himself to be a citadel of anti-Zionist, anti-Western resistance, the most popular Arab leader after Hezbollah's Hassan Nasrallah.

Support for terror is also a significant element in Syria's attempt to exert power over its neighbors. In addition to hosting groups that target Israel, like Hamas and Hezbollah, Syria has long maintained a broad portfolio of regional terror outfits, from secular organizations like Abdullah Ocalan of the Kurdish Worker's Party (PKK) and Palestinian rivals to Yasser Arafat, to Salafi groups like Shaker al-'Absi's Fatah splinter organization, Fatah al-Islam. And as the recent US attack on Bou Kamal illustrated, Damascus hosts significant Iraqi assets, such as Al-Qaeda in Iraq.

Syria also uses these groups as insurance against the subterfuge of fellow Arab regimes. "Before 1970, Syria was the place where other people interfered," Obeida Nahas, a Muslim Brotherhood representative with the NSF, tells me. Ever since Syrian independence in 1946, coup followed coup, all of them backed or instigated by outside actors, including Iraq, Egypt, Jordan, Israel, and even the U.S. "When Hafez al-Assad came to power," Nahas explains to me, "he made a pre-emptive counter-attack to interfere in other regimes before they could get to Syria."

Nahas's father-in-law, Ali Sadr al-Din al-Bayanouni--the leader of the Syrian Muslim Brotherhood in exile, who spent two decades living in Jordan--is himself an illustration of this strategy. Amman's relationship with the Syrian Muslim Brotherhood is part of a long-standing rivalry, in which the Jordanians back Syrian Islamists like al-Bayanouni as a threat to the Damascus government, and Syria, in turn, supports elements of Jordan's Islamist opposition, like the Islamic Action Front. While this game of chicken seems to risk Islamist blowback, it is a key strategy in Arab balance-of-power politics.

The Syrians have similarly managed their relationship with Saudi Arabia, which has been at an all-time low since the 2005 murder of former Lebanese prime minister and Saudi ally Rafiq al-Hariri, which the Saudis blamed on Damascus. In December 2005, Khaddam made a big splash in the first part of a televised interview on the Saudi-owned Al-Arabiya satellite network charging Bashar with the assassination, but then the Saudi royal family pulled the plug on the second part of the interview. The public rationale in Arab circles is that the Saudi kingdom is not in the habit of bringing down fellow Arab regimes. More likely, however, is that Damascus has an important card to play against the Saudis, who fear that Syria is holding several hundred Saudi fighters in prison; Damascus could embarrass the Saudis by publically announcing the existence of these extremists--or even worse, allow those jihadis to return home to fight the House of Saud.

This kind of leverage is not the only reason Syria keeps its jails stocked with foreign terrorists. According to Ghassan al-Mufleh, an NSF member who spent 12 years in Syrian jails for his Communist activities, this is also one of their primary ways of collecting intelligence, as well as tapping foreign agents to do their bidding abroad and subvert Arab rivals. Since Syria does not require visas from Arabs to enter the country, many terrorists use it as a transit point to places like Iraq, "so if they return from jihad alive and want to head home--Egypt, Saudi Arabia, Morocco--they just say that they were working in Syria," Mufleh tells me. But this free flow also allows the Syrians to detain valuable operatives and "give them a choice--either they can agree to work for the Syrian services or they will be turned into their own home intelligence agency," he says. "It is an easy choice."

Shaker al-'Absi is a case in point. Along with Abu Musab al-Zarqawi, 'Absi was sentenced to death in absentia by the Jordanian authorities for the 2002 murder of U.S. diplomat Laurence Foley in Amman. Syria rejected Jordan's extradition request for 'Absi and allegedly detained him in prison for a few years. He resurfaced last spring in a northern Lebanon refugee camp, leading Fatah al-Islam in its month-long battle with the Lebanese Armed Forces--part of Assad's plan to destabilize the Lebanese government, which the Syrian president describes as hostile to Syrian interests.

Syria's incessant meddling in Lebanon also illustrates a larger motivation for their support of terrorists. Long before the Americans touched down in Iraq, the Assads (father and son) recognized that supporting terror meant Washington would have to include Damascus in any of its regional dealings. For instance, U.S. policymakers have historically felt compelled to engage with Syria in order to secure peace in Jerusalem, since, as American officials euphemistically explain, Syria has the ability to "spoil" the Arab-Israeli peace process by unleashing their Hamas or Hezbollah clients. Thus, according to Khaddam, Colin Powell's efforts in May 2003 to convince Damascus to close its Hamas offices were futile. "The Americans should've known better," he says. "How could Bashar separate himself from Hamas? It's an important card for him, so why would he throw it away?"

But perhaps the most significant driver of Syria's support for terrorism is that it clinches the relationship with their only strategic partner in the region that is not a terrorist group. "Bashar helped the groups in Iraq because there is an arrangement with Iran to undermine the Americans," Khaddam says. He claims that Syria's decision to let Al-Qaeda use their borders to fight the Americans in Iraq is largely at the behest of Tehran: "Iran's ambitions in the region stretch from Afghanistan to the Mediterranean, which is against the interest of the Arabs and the West. Syria's alliance leaves it in the middle of the conflict but there is no way out of the relationship."

Khaddam dismisses the notion prevalent in some U.S. and Israeli circles that it is possible to split Syria from Iran. "Iranian influence is extensive," he says. If there are factions in the Damascus government, it is not about whether Syria should lean towards Iran or the West. "The disagreements are about personal interests and cuts of money, not Iran. Everyone agrees about Iran."

But as Mufleh notes wryly, Assad would do well to learn the lessons of Syrian history: It was his own father's decision to provide jihadis passage through to Afghanistan in the '80s that inadvertently helped defeat his Soviet patron. For all the good reasons to support "resistance," Tehran as well as Damascus may one day be on the receiving end of Islamist terror--a price infinitely higher than last month's U.S. raid on Syrian territory.

By Lee Smith
Reprinted with permission from The New Republic.

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As Finland Builds Another Nuclear Plant, a Remote City Flourishes

The small island of Olkiluoto, where Finland is erecting a nuclear power plant, the island’s third.

By JOHN TAGLIABUE

RAUMA, Finland — The cafe where Paivi Alanko-Rehelma serves coffee and smoked fish stands practically in the shadow of a sprawling building site on the island of Olkiluoto where Finland is erecting a nuclear power plant, the island’s third, and Finland’s fifth in the last 30 years.

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Rauma is about 10 miles from Olkiluoto, a nuclear plant site.

Like many of her neighbors who have grown accustomed to nuclear energy, Ms. Alanko-Rehelma picks no bones with the new reactor. “It’s now safe, it saves nature, it’s cheaper,” she said, pouring a visitor a steaming cup of coffee.

No one is certain when the plant, which has been plagued by construction delays, will be finished. But whenever it does go into operation, the reactor will be a new cog in the works of Finland’s national energy policy, which seeks to diversify the country’s sources of energy and reduce its historical reliance on Russia for cheap electricity.

The plant is also part of a global trend, as nuclear power’s prospects rise amid concerns about the warming effect of carbon dioxide emissions to generate electricity.

The Finns are going first class, building what is called a European Pressurized Reactor, the world’s latest model, which is billed as the safest and most powerful nuclear reactor ever designed. It is the product of a consortium of French and German engineering companies.

It is not as if anyone around this wooded region a three-hour drive northwest of Helsinki is marching in protest, spraying antinuclear graffiti or hampering construction work. To the contrary, the construction of the power plant is producing a modest economic boom.

Take this port city of pastel-colored wooden homes about 10 miles south of Olkiluoto. The nearly 4,000 migrant laborers from more than 30 countries, including Poland and Estonia, working at the new power plant have lifted business in stores in downtown Rauma and made possible the opening last year of two new shopping malls on the edge of town.

Local building contractors have been buoyed by orders to carry out some of the reactor work. Moreover, taxes paid by the migrant workers and French and German engineers who have come to the city bring in more than $2.5 million a year.

“A journalist called recently from Helsinki to ask how much longer we can delay completion of the reactor,” Jaakko Hirvonsalo, managing director of the local chamber of commerce, said with a laugh. “Locally, we’re doing well.”

The delays, however, were no joke; parts of the huge reactor shield, now about 90 feet high, had to be dismantled and rebuilt because of faulty welding and poor cement work. The Finns blame the delays on the French reactor builder, Areva, which subcontracted work to Polish companies to cut costs.

The French and their German partners blame the Finns for the delays, pointing to the glacial pace of construction reviews by the Finnish nuclear safety authority. Wherever the blame truly lies, the reactor’s start-up date has been pushed back by at least two years, to 2011, and the estimated cost increased to nearly $6 billion from an original $3.8 billion.

Now, the French are seeking the help of a Swedish arbitrator to settle their differences with the Finns. As for the delay, “It’s not a race,” said Jacques-Emmanuel Saulnier, a spokesman for Areva in Paris. “Don’t forget, it will operate for 60 years.”

Yet he acknowledged that, in some ways, Olkiluoto was a test, since it was the first attempt to build a pressurized water reactor. “It’s the first of its kind,” he said. “You cannot go into a hangar and make a model to test. And yet you have to have a test.”

Beneath the surface, people in Rauma are weighing the costs and benefits. And not all are happy with the result.

“As long as everything is O.K., it’s O.K., but there are problems and risks,” said Janne Koski, director of the city’s art museum, which sponsors regular exhibitions of art from the Baltic region. Asked whether people ignored the risks because of the benefits, he replied: “That is not exactly so. Of course, many people are working there, at the reactor site. It’s about economy and finance.”

Not that Rauma is in dire need of economic stimulus. The city has a thriving shipbuilding industry and paper mills, and several large wood processing companies, a Finnish specialty, have factories here. Large foreign investments have been attracted in recent years from South Korea and Australia.

Rauma has never had an accident like that at Chernobyl, almost 900 miles to the southeast in Northern Ukraine, but even people who are most comfortable with nuclear reactors acknowledge that they affect the environment.

Ms. Alanko-Rehelma, whose husband operates two fishing boats in the waters around the reactors, said that their cooling systems warm the water near Olkiluoto island.

“That is not good for some kinds of fish,” she said. “But good for others, like trout.”

The only large-scale resistance to nuclear energy in Finland comes from Greenpeace, which cites the hazard of radioactivity and the siphoning of money from investment in alternative carbon-free energy sources, like wind, sun and tides.

“It’s far too risky and hazardous,” Lauri Myllyvirta, a spokesman for Greenpeace, said by phone from Helsinki.

The United Nations lists Rauma as a World Heritage site because of its large stock of charming 17th- and 18th-century wooden homes. The World Heritage designation is meant to help preserve historic sites, though income from tourism remains meager, Mr. Miettinen said.

“It’s mostly Finns, and some from Germany and Italy,” he said. But he did not think it was the cluster of nuclear power plants that was keeping people away. “A great many people think nuclear energy is good for Rauma and its industry,” he said.

The first nuclear reactors at Olkiluoto are now about 30 years old, said Pasi Katajamaki, editor of the local newspaper, Lansi Suomi. “We’re very used to it,” he said. ‘’When you have something near you, you simply grow accustomed to it.”

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