Nobel Economist Says More Stable Currency Needed

Contact: Janet Sassi
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John Forbes Nash Jr., Ph.D. Photo by Ryan Brenizer

More than 200 members of the Fordham community converged upon the Flom Auditorium on Oct. 14 to hear John Forbes Nash Jr., Ph.D., winner of the 1994 Nobel Memorial Prize in Economic Sciences, talk about solutions to the downturn in the national and global economy.

Nash told the audience that such financial crises would be less likely to occur if there was some international monetary standard, such as the gold standard or competition among worldwide currencies, to curb inflation and prevent the rise of mortgage abuses. He expressed some skepticism about a government bailout as a solution.

“I get the impression that the government is not ready to do anything that is really beyond a short-term basis,” said Nash, a senior research mathematician at Princeton. “[But] we need a natural stability of value.”

Nash said that various interest groups that subscribe to Keynesian, or short-term, economic theories have sold the public on the notion that inflation is acceptable or that “bad money is better than good money.” Such a notion, he said, led to the dangerous proliferation of bad mortgage loans—loans made on the gamble that house values would continue to rise and eventually turn a profit.

“A fixed-rate 30-year mortgage would be reasonable under the gold standard,” Nash said. “Now, there are variable rates, and adjustables, and convertibles, and it is very complicated” for homeowners to figure out what they are getting into. In fact, Nash said, nobody really knows the depth of the financial crisis.

Having an internationally oriented money standard would promote better quality currencies and less inflation, he added.

Nash further said that any such new international monetary system should be democratically determined, and cited the recent vote in Sweden not to abandon the Krona for the Euro.

Nash shared the 1994 Nobel Memorial Prize with two other economists for research in game theory, a method of predicting behavior in strategic social situations and a tool now widely used by economists and biologists. His academic notoriety was catapulted into celebrity status in 2001 when he and his wife, Alicia, became the subject of the movie "A Beautiful Mind." The film was nominated for eight Oscars and won four. The movie, part of which was filmed in the basement of Keating Hall, documents Nash’s seminal contributions to game theory and mathematics and his subsequent 25-year struggle with schizophrenia.

The event was also attended by special guest Charles Soludo, Ph.D., governor of the Central Bank of Nigeria.

Dominick Salvatore, Ph.D., Distinguished Professor of Economics, introduced Nash and Saludo to the standing-room-only crowd and concurred with the need for a new international regulatory system more in tune with today’s global economy. “The entire financial sector has to be regulated, but those regulations cannot be specific,” Salvatore said. “Money is fungible. You have to be comprehensive, but general.”

Reform starts at home, Salvatore argued. “We need less exotic derivatives and much more transparency. And the U.S. has to live within its means. We save practically nothing at the individual level . . . we have a huge trade deficit and we are mortgaging our future.”

The event was part of the Distinguished Lecture Series hosted by Fordham’s Center for International Policy Studies.

Founded in 1841, Fordham is the Jesuit University of New York, offering exceptional education distinguished by the Jesuit tradition to approximately 14,700 students in its four undergraduate colleges and its six graduate and professional schools. It has residential campuses in the Bronx and Manhattan, a campus in Westchester, and the Louis Calder Center Biological Field Station in Armonk, N.Y.

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$73 an Hour: Adding It Up

By DAVID LEONHARDT

Seventy-three dollars an hour.

That figure — repeated on television and in newspapers as the average pay of a Big Three autoworker — has become a big symbol in the fight over what should happen to Detroit. To critics, it is a neat encapsulation of everything that’s wrong with bloated car companies and their entitled workers.

To the Big Three’s defenders, meanwhile, the number has become proof positive that autoworkers are being unfairly blamed for Detroit’s decline. “We’ve heard this garbage about 73 bucks an hour,” Senator Bob Casey, a Pennsylvania Democrat, said last week. “It’s a total lie. I think some people have perpetrated that deliberately, in a calculated way, to mislead the American people about what we’re doing here.”

So what is the reality behind the number? Detroit’s defenders are right that the number is basically wrong. Big Three workers aren’t making anything close to $73 an hour (which would translate to about $150,000 a year).

But the defenders are not right to suggest, as many have, that Detroit has solved its wage problem. General Motors, Ford and Chrysler workers make significantly more than their counterparts at Toyota, Honda and Nissan plants in this country. Last year’s concessions by the United Automobile Workers, which mostly apply to new workers, will not change that anytime soon.

And yet the main problem facing Detroit, overwhelmingly, is not the pay gap. That’s unfortunate because fixing the pay gap would be fairly straightforward.

The real problem is that many people don’t want to buy the cars that Detroit makes. Fixing this problem won’t be nearly so easy.

The success of any bailout is probably going to come down to Washington’s willingness to acknowledge as much.

Let’s start with the numbers. The $73-an-hour figure comes from the car companies themselves. As part of their public relations strategy during labor negotiations, the companies put out various charts and reports explaining what they paid their workers. Wall Street analysts have done similar calculations.

The calculations show, accurately enough, that for every hour a unionized worker puts in, one of the Big Three really does spend about $73 on compensation. So the number isn’t made up. But it is the combination of three very different categories.

The first category is simply cash payments, which is what many people imagine when they hear the word “compensation.” It includes wages, overtime and vacation pay, and comes to about $40 an hour. (The numbers vary a bit by company and year. That’s why $73 is sometimes $70 or $77.)

The second category is fringe benefits, like health insurance and pensions. These benefits have real value, even if they don’t show up on a weekly paycheck. At the Big Three, the benefits amount to $15 an hour or so.

Add the two together, and you get the true hourly compensation of Detroit’s unionized work force: roughly $55 an hour. It’s a little more than twice as much as the typical American worker makes, benefits included. The more relevant comparison, though, is probably to Honda’s or Toyota’s (nonunionized) workers. They make in the neighborhood of $45 an hour, and most of the gap stems from their less generous benefits.

The third category is the cost of benefits for retirees. These are essentially fixed costs that have no relation to how many vehicles the companies make. But they are a real cost, so the companies add them into the mix — dividing those costs by the total hours of the current work force, to get a figure of $15 or so — and end up at roughly $70 an hour.

The crucial point, though, is this $15 isn’t mainly a reflection of how generous the retiree benefits are. It’s a reflection of how many retirees there are. The Big Three built up a huge pool of retirees long before Honda and Toyota opened plants in this country. You’d never know this by looking at the graphic behind Wolf Blitzer on CNN last week, contrasting the “$73/hour” pay of Detroit’s workers with the “up to $48/hour” pay of workers at the Japanese companies.

These retirees make up arguably Detroit’s best case for a bailout. The Big Three and the U.A.W. had the bad luck of helping to create the middle class in a country where individual companies — as opposed to all of society — must shoulder much of the burden of paying for retirement.

So here’s a little experiment. Imagine that a Congressional bailout effectively pays for $10 an hour of the retiree benefits. That’s roughly the gap between the Big Three’s retiree costs and those of the Japanese-owned plants in this country. Imagine, also, that the U.A.W. agrees to reduce pay and benefits for current workers to $45 an hour — the same as at Honda and Toyota.

Do you know how much that would reduce the cost of producing a Big Three vehicle? Only about $800.

That’s because labor costs, for all the attention they have been receiving, make up only about 10 percent of the cost of making a vehicle. An extra $800 per vehicle would certainly help Detroit, but the Big Three already often sell their cars for about $2,500 less than equivalent cars from Japanese companies, analysts at the International Motor Vehicle Program say. Even so, many Americans no longer want to own the cars being made by General Motors, Ford and Chrysler.

My own family’s story isn’t especially unusual. For decades, my grandparents bought American and only American. In their apartment, they still have a framed photo of the 1933 Oldsmobile that my grandfather’s family drove when he was a teenager. In the photo, his father stands proudly on the car’s running board.

By the 1970s, though, my grandfather became so sick of the problems with his American cars that he vowed never to buy another one. He hasn’t.

Detroit’s defenders, from top executives on down, insist that they have finally learned their lesson. They say a comeback is just around the corner. But they said the same thing at the start of this decade — and the start of the last one and the one before that. All the while, their market share has kept on falling.

There is good reason to keep G.M. and Chrysler from collapsing in 2009. (Ford is in slightly better shape.) The economy is in the worst recession in a generation. You can think of the Detroit bailout as a relatively cost-effective form of stimulus. It’s often cheaper to keep workers in their jobs than to create new jobs.

But Congress and the Obama administration shouldn’t fool themselves into thinking that they can preserve the Big Three in anything like their current form. Very soon, they need to shrink to a size that reflects the American public’s collective judgment about the quality of their products.

It’s a sad story, in many ways. But it can’t really be undone at this point. If we had wanted to preserve the Big Three, we would have bought more of their cars.

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The Man Who Is Unwinding Lehman Brothers

Marilynn K. Yee/The New York Times

Harvey R. Miller, 75, may be the best-known bankruptcy lawyer in the country — and he is especially busy these days. He is now handling the Lehman Brothers proceeding.

By JONATHAN D. GLATER

THESE days, it’s awfully hard to get on Harvey R. Miller’s calendar.

A 75-year-old lion of the bankruptcy bar, Mr. Miller has been consumed by the largest corporate liquidation in American history: Lehman Brothers, the storied investment bank that set off one of the most harrowing episodes in the financial crisis when it collapsed in mid-September.

Mr. Miller’s workdays begin around 8 in the morning and, if he is lucky, end near 11 at night. This combative, outspoken lawyer says that some days don’t seem to end at all, but merely expand into the next, dissolving into tense meetings and complicated hearings in overheated courtrooms.

Although Mr. Miller has been involved in landmark bankruptcy cases before — including those of Eastern Airlines, R. H. Macy and Global Crossing — Lehman’s is in a class by itself because of volatile markets, continuing government investigations, the involvement of federal regulators and a possible wave of other corporate implosions.

From his perspective as Lehman’s undertaker, Mr. Miller believes that the fallout from the firm’s messy bankruptcy could have been avoided. Regulators could have stepped in, he says, not necessarily to save Lehman, perhaps, but to head off the meltdown that followed. “They totally missed it,” he says. “Look what happened.”

When companies rushed to terminate contracts with Lehman, he says, investor confidence plummeted in just about everything — securities and the markets they trade on, corporate debts and the assets backing them, the power of the government and its readiness to use it. In the days after Lehman filed for bankruptcy, he notes, demand for corporate debt utterly evaporated.

The failure of a Wall Street firm poses its own special risks, because other companies that rely on it — such as counterparties to complex financial contracts known as derivatives — are all financially exposed to its collapse.

That’s why Mr. Miller says it was crucial for the government to head off the wholesale termination by counterparties of all their transactions with Lehman before the firm was forced into bankruptcy. “If the Fed or the Treasury said, ‘Let’s say to Lehman, there’s no bailout, we’re not going to save the company,’ they could have supported an orderly unwinding of all the transactions over a period of months,” he says. “It probably would’ve cost the economy a lot less money.”

THE severity of the economic downturn is leading many analysts to predict a wave of bankruptcies over the next year. And for bankruptcy experts and lawyers who specialize in the trade, all the bad news may be good news for their own business. For one firm in particular, it represents a windfall.

Weil Gotshal & Manges, the firm where Mr. Miller is a partner, is widely believed to be first on a short list to represent General Motors if it seeks bankruptcy protection. Ira M. Millstein, another partner at the firm, has long been a trusted adviser to G.M.’s board.

Weil is also handling bankruptcy filings by Washington Mutual, Pilgrim’s Pride, Sharper Image and others, and Weil lawyers say representatives of other teetering companies are calling all the time.

In addition to advising the American International Group, the insurance giant that needed a huge federal bailout to stave off collapse, Weil is handling 13 bankruptcy filings this year alone.

Still, none of the failures so far compare to Lehman’s. The combined debt of the 13 bankrupt companies represented by Weil totals $684 billion, according to the firm, but a stunning $640 billion is owed by Lehman alone.

Lawyers involved in the case say it has been a brutal sprint, in which any delay can result in billion-dollar losses.

“Events move with the velocity that almost defies comprehension,” Mr. Miller said in mid-September at a hearing at the United States Bankruptcy Court for the Southern District of New York. In one 24-hour period, he pointed out, Lehman lost $1.6 billion when the Chicago Mercantile Exchange closed out all of Lehman’s positions.

Since Lehman filed for bankruptcy protection early in the morning of Sept. 15, the Dow Jones industrial average has fallen more than 18 percent. Investors worldwide have watched helplessly as billions of dollars they sank into stock markets have evaporated. Tens of thousands of people have already lost jobs in sweeping corporate cutbacks, and countless additional jobs are at risk.

With the fate of whole industries — financial services, automaking, airlines, retailers, real estate, media — looking shaky, demand for bankruptcy gurus is likely to remain high for some time.

For Mr. Miller, this moment offers an opportunity, but he does not want for glory, says Sandra E. Mayerson, head of the New York restructuring practice at Holland & Knight. “His reputation was secure without Lehman, but I think he lives for the thrill of his work,” Ms. Mayerson says. “He didn’t need a moment.”

MR. MILLER says there is no place he would rather be than where he is now. Asked why, he pauses an instant, then says he loves the excitement, the risk and the potential reward.

Under Chapter 11 of the federal bankruptcy code, companies receive protection from creditors and an opportunity to reorganize so they can become productive again, preserve jobs and, ideally, eventually pay back their debts.

“If you’re successful, there’s nothing like reorganizing a company,” Mr. Miller says. Although Lehman filed for Chapter 11 protection, the firm is not expected to emerge from proceedings. Even so, he says, there are still advantages to Lehman if its bankruptcy is well-managed. It can produce “a result which benefits people,” he says. In this case, that would mean finding buyers for Lehman’s businesses that were willing to continue employing its workers.

Mr. Miller says the first bankruptcy case he handled by himself involved a small lithograph company that was to be liquidated. Instead, it was able to reorganize. “We had a dinner party, and the look on the employees’ faces whose jobs had been saved, you can’t compare that,” he recalls of that case.

Mr. Miller, tall, gray-haired and well dressed, is one of those hyperarticulate lawyers able to speak in complete paragraphs, offering off-the-cuff, for example, his detailed critique of the government’s response to Lehman’s collapse.

He was born in 1933, and after graduating from Columbia Law School in 1959, joined a small law firm. In 1963, he joined Seligson & Morris, an eight-lawyer firm that also employed Martin Lipton, Leonard Rosen and George Katz, who went on to be co-founders of Wachtell, Lipton, Rosen & Katz.

In 1969, Mr. Millstein brought Mr. Miller aboard at Weil. Mr. Miller created the firm’s finance and restructuring department. Weil bankruptcy lawyers have taken on some of the biggest, messiest cases of their time, representing Continental Airlines, Bethlehem Steel, the Sunbeam Corporation, the Marvel Entertainment Group and Carmike Cinemas. The firm also represented creditors of Donald Trump when the developer’s holdings ran into problems in the early 1990s.

Along the way, Mr. Miller helped to assemble a team of younger lawyers, many of whom are now heavyweights in the bankruptcy bar. Martin J. Bienenstock, who spent 30 years at Weil, mostly alongside Mr. Miller, recalled how intimidating it was for a young lawyer to work with Mr. Miller.

“He seemed to forget long ago what it is like to only have the knowledge of a beginner,” says Mr. Bienenstock, who is building a unit at Dewey & LeBoeuf in New York that specializes in restructuring and corporate governance.

Mr. Miller pushed young lawyers to improve their skills, often having them prepare and make presentations, Mr. Bienenstock says. He says Mr. Miller, who for years has been a lecturer at Columbia Law School, is also a gifted tutor.

The first time he attended a court hearing with Mr. Miller in the late 1970s, Mr. Bienenstock says, “I basically copied down on a legal pad everything Harvey did, from the time he stood up to go to the lectern.”

He says Mr. Miller would tell a bankruptcy judge what he wanted, listen closely to the judge’s response and then try to show that the judge’s own thinking supported doing what Mr. Miller wanted. “To this day, I basically follow that template because it’s so effective,” Mr. Bienenstock says.

In 2002, after 33 years at Weil, Mr. Miller left to join Greenhill & Company, a boutique investment bank started in 1996 by Robert F. Greenhill. In 2004, Greenhill went public, presumably making Mr. Miller an even wealthier man.

At Greenhill, he advised Loral Space and Communications in a Chapter 11 proceeding, and got to know Bernard L. Schwartz, then Loral’s chief executive.

“I developed a very strong respect for his professionalism and the way he approached the issue of restructuring Loral,” says Mr. Schwartz, who now runs BLS Investments in New York. “He spoke with confidence, with knowledge, and he was always constructive.”

Loral emerged from Chapter 11 with its management team intact, as Mr. Schwartz desired. The two men became friends, Mr. Schwartz says, and now meet for lunch at least once a month.

Mr. Miller left Greenhill last year and returned to Weil, a move that generated headlines in trade publications. It is not clear what prompted the move; in a statement at the time, Mr. Miller said that “Weil is where I grew up, and it’s always felt like home to me.”

Lawyers at other firms say the timing of his return now seems a masterstroke, given the amount of bankruptcy work.

Mr. Miller can be decidedly old-school in his approach, says Luc A. Despins, chairman of the restructuring practice at Paul, Hastings, Janofsky & Walker in New York. Mr. Despins recently represented Lehman creditors, and has faced Mr. Miller in other cases.

“There’s a whole generation thing there,” says Mr. Despins, who is 48. “When he goes to court, he has a text that is typed in front of him about what he’s going to say. It is rare to see lawyers of my generation have prepared, typed text. We are more likely to have bullet points scribbled on a legal pad.”

And Mr. Miller seems indefatigable, Mr. Despins says. In the Lehman case, he observes, Mr. Miller “doesn’t flinch.”

“He did all-nighters and all that,” Mr. Despins adds. “It’s pretty incredible.”

But even as lawyers express admiration for Mr. Miller, some also describe him as a hard man to get along with, a man whose temper has sometimes gotten the better of him. In one well-known instance, while representing Eastern Airlines in its reorganization effort nearly 20 years ago, he turned in frustration to a lawyer representing a potential buyer of the company and grabbed him by the collar — while both were in a judge’s chambers.

Mr. Miller said afterward that he regretted the lapse, but the story stuck.

Joel B. Zweibel, a well-known retired bankruptcy lawyer who says he physically restrained Mr. Miller at that meeting, chuckles at the memory. He describes Mr. Miller as a difficult but very worthy opponent.

Mr. Zweibel squared off with Mr. Miller many times over the years, including the Macy’s bankruptcy. He says that while he was able to become good friends with courtroom opponents, Mr. Miller was the exception.

“That was not my experience with Harvey,” Mr. Zweibel says. “The relationship was strictly adversarial.”

People whom Mr. Miller perceives as adversaries outside the courtroom are treated accordingly on the inside.

During court proceedings in the Lehman bankruptcy, Mr. Miller leveled a snide comment at his former partner, Mr. Bienenstock, questioning his comprehension of a proposed deal.

Mr. Miller wanted speedy court approval of a sale of Lehman’s domestic capital markets business to Barclays, the British bank. Mr. Bienenstock was worried that the sale of the subsidiary could block creditors from recovering money the Lehman unit owed them.

“I’m a little bit shocked, having practiced with Mr. Bienenstock for years, that he doesn’t understand an agreement,” Mr. Miller said at a hearing in September.

The presiding judge, James M. Peck, headed off any possible bickering, observing, “Oh, he understands.” (Mr. Bienenstock says he did not respond to Mr. Miller’s comment in light of the judge’s words.)

Mr. Miller, who is so busy that he limited an interview to a 15-minute phone call, describes himself as a zealous advocate, because, he says, that is exactly what his clients want and expect when they hire him. Mr. Miller’s work costs nearly $1,000 an hour, according to a court filing in another case.

“When I represent a client, I represent the client, and I do the best for the client,” no matter who represents the other side, Mr. Miller says. “And I am not into back-scratching.”

RIVALS of Mr. Miller ask if so many companies turn to Weil’s bankruptcy practice because of him or because of ties to other partners at the firm who schmooze and network more readily. For example, Mr. Millstein’s ties to G.M., and in the past to other companies, have been of enormous help to Weil’s practice.

Still, Mr. Miller is probably the best-known bankruptcy lawyer in the country. At an annual conference on distressed investing, his name is on an award given to a professional in the restructuring business.

No corporate meltdown has posed the combination of challenges that the Lehman case does, not just because the company is so large but also because it operates within an intricate financial web in which spooked investors can move money nearly instantaneously.

Lawyers say the case most like Lehman’s is that of Drexel Burnham Lambert, the investment bank that filed for Chapter 11 protection in 1990 after a client, Ivan F. Boesky, paid $100 million to settle charges of insider trading and agreed to testify against the firm and its junk-bond impresario, Michael Milken. Mr. Milken later went to prison for violating federal securities laws.

Regulators accused Drexel of, among other things, insider trading and manipulation of stock prices. Lehman has not been charged with any crimes, but it and some of its employees face investigations of events before the collapse. Drexel, like Lehman, was liquidated, and Drexel also turned to Mr. Miller to help sell its pieces for as much money as could be gotten to satisfy creditors.

Lehman’s fall was tied to derivatives and complex mortgage securities. Blame for Drexel’s collapse was assigned to a newfangled financial tool of the earlier era, the junk bond. Those high-yield, high-risk instruments helped feed mega-takeovers of the ’80s.

But figuring the worth of Drexel’s assets didn’t present the problem it does at Lehman, which holds billions in securities backed by home loans and other assets of uncertain worth. And Drexel’s collapse wasn’t seen as a potential harbinger of financial apocalypse.

In any event, every bankruptcy case is different. The federal bankruptcy code doesn’t come close to covering every twist and turn that arises when companies fail. The best lawyers think creatively in these situations and bring specialized areas of expertise to bear on myriad vagaries of a corporate collapse.

The Weil team working on Lehman’s bankruptcy includes lawyers who are experts in tax, real estate, litigation and mergers and acquisitions, said Lori R. Fife, a partner at the firm.

“I’ve worked pretty much past midnight, every night, and every Saturday and Sunday since Sept. 15,” when Lehman filed for bankruptcy, Ms. Fife said, adding that she had not worked as hard in previous cases, including the huge bankruptcy of WorldCom.

“We have so many transactions going on at the same time, litigations going on,” Ms. Fife says. “It’s overwhelming. I don’t get a lot of sleep.”

Neither, these days, does Mr. Mil- ler.

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Fund Fraud Hits Big Names

By ROBERT FRANK, PETER LATTMAN, DIONNE SEARCEY and AARON LUCCHETTI

New potential victims emerged of Wall Street veteran Bernard Madoff's alleged giant Ponzi scheme, with international banks, hedge funds and wealthy private investors among those sorting out what could amount to tens of billions of dollars in losses.

New York Mets owner Fred Wilpon, GMAC LLC Chairman J. Ezra Merkin and former Philadelphia Eagles owner Norman Braman were among the dozens of seemingly sophisticated investors who placed money on what could prove to be history's largest financial scam.

Giant French bank BNP Paribas, Tokyo-based Nomura Holdings Inc. and Neue Privat Bank in Zurich are also exposed, according to people familiar with the matter.

And at least three funds of hedge funds -- which raise money from investors and farm it out to hedge funds -- may have significant losses. Fairfield Greenwich Group and Tremont Capital Management of New York placed hundreds of millions of their investors' dollars into funds overseen by Mr. Madoff. On Friday, Maxam Capital Management LLC reported a combined loss of $280 million on funds they had invested with Mr. Madoff.

"I'm wiped out," said Sandra Manzke, Maxam's founder and chairman. The Darien, Conn., fund of hedge funds will have to close as a result of the losses, she said.

Mr. Madoff, the founder and primary owner of Bernard L. Madoff Investment Securities LLC in New York, was arrested and charged Thursday. Prosecutors allege that the 70-year-old Mr. Madoff hid losses, paying certain investors returns using principal he received from other investors. Prosecutors and regulators have yet to determine how much has been lost, or the amount in assets still held by Mr. Madoff's business.

The alleged fraud has "swept up some of the most prominent and wealthy Americans, along with many people who thought they were embarking on a comfortable retirement and have now been left destitute," says Brad Friedman, a lawyer at Milberg LLP, which with Seeger Weiss LLP represents more than 30 investors with losses they believe could total more than $1 billion.

In criminal and civil complaints, Mr. Madoff is quoted as saying the losses could amount to $50 billion.

"This is a real tragedy," Mr. Madoff's attorney, Ike Sorkin, said Friday. "We're going to fight through these events and do what we can to minimize the loss."

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Bernard Madoff leaving court after his arrest late Thursday.

Details emerged Friday of how Mr. Madoff ran the alleged scam, fostering a veneer of exclusivity and creating an A-list of investors that became his most powerful marketing tool. From New York and Florida to Minnesota and Texas, the money manager became an insider's choice among well-heeled investors seeking steady returns. By hiring unofficial agents, tapping into elite country clubs and creating "invitation only" policies for investors, he recruited a steady stream of new clients.

During golf-course and cocktail-party banter, Mr. Madoff's name frequently surfaced as a money manager who could consistently deliver high returns. Older, Jewish investors called Mr. Madoff " 'the Jewish bond,' " says Ken Phillips, head of a Boulder, Colo., investment firm. "It paid 8% to 12%, every year, no matter what."

As his reputation grew, Mr. Madoff gained the trust of prominent businessmen, including ex-Eagles owner Mr. Braman, who owns a chain of Florida auto dealers. A voicemail message left with Mr. Braman's office was not immediately returned.

Mets owner Mr. Wilpon, who also owns real-estate investor Sterling Equities, often raved about Mr. Madoff's investment prowess and invested tens of millions of dollars of both his own money and the team's with his company, say financiers who have worked with him. Mr. Madoff handled investments for the Judy & Fred Wilpon Family Foundation, which distributed about $1 million a year in 2005 and 2006 to charities, according to its most recent federal tax returns..

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Associated Press

People flocked to the lobby of Mr. Madoff's office building Friday.

Mets spokesman Jay Horowitz declined to comment Friday. Mr. Wilpon's Sterling Equities said in a statement: "We are shocked by recent events and, like all investors, will continue to monitor the situation."

Mr. Merkin, the chairman of former General Motors Corp. financing arm GMAC, is also a money manager at Ascot Partners LLC in New York. Ascot, which had $1.8 billion under management as of Sept. 30, had substantially all of its assets invested with Mr. Madoff, according to a letter to Mr. Merkin sent to clients Thursday night. Mr. Merkin said as one of the largest investors in Ascot, he believed he had personally "suffered major losses from this catastrophe."

Mr. Merkin could not be reached for comment.

Mr. Madoff tapped social networks in Dallas, Chicago, Boston and Minneapolis. In Minnesota, he attracted investors from Hillcrest Golf Club of St. Paul and Oak Ridge Country Club in Hopkins, investors say. One of them estimated that investors from the two clubs may have invested more than $100 million combined.

One of the largest clusters of Madoff investors was in Florida, where losses could be substantial. Mr. Madoff relied on a network of friends, family and business colleagues to attract investors. According to investors and agents, some of these agents were paid commissions for harvesting investors. Others had separate, lucrative business relationships with Mr. Madoff.

"If you were eating lunch at the club or golfing, everyone was always talking about how Madoff was making them all this money," one investor says. "Everyone wanted to sign up."

Jeff Fischer, a top divorce attorney in Palm Beach, says many of his clients were also Mr. Madoff's clients. "Every big divorce that came through my office had portfolio positions with Madoff," he says.

Two of his investors said that among his clients, Mr. Madoff was considered a money-management legend; they would joke that if Mr. Madoff was a fraud, he'd take down half the world with him.

Richard Spring, a Boca Raton resident and former securities analyst, says he had about $11 million -- or 95% of his net worth -- invested with Mr. Madoff. "That's how much I believed in him," Mr. Spring said.

Inside Wall Street's Madoff Scandal

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Another large-scale scandal rocks Wall Street as Bernard Madoff, a Wall Street titan and investment advisor was arrested for an alleged $50 billion dollar fraud against investors, WSJ's Kelsey Hubbard and Amir Efrati discuss.

Mr. Spring said he was also one of the unofficial agents who connected Mr. Madoff with dozens of investors, from a teacher who put in $50,000 to entrepreneurs and executives who would put in millions. Mr. Spring said Mr. Madoff didn't want people to put in large amounts right away. "Bernie would tell me, 'Let them start small, and if they're happy the first year or two, they can put it more.' "

Mr. Spring says he never was paid a commission, but he received fees from a small investment-research firm that counted Mr. Madoff as a client; he declined to say how much he received. He said investors would always come to him asking to invest with Mr. Madoff. "I never solicited anyone," he says.

Mr. Spring says he never detected signs of impropriety with Mr. Madoff's investing, but he concedes that he may receive some blame from some investors. "I can understand where people who lost money are looking for a scapegoat," he says. "I'm heartbroken that so many people have been hurt so badly."

Mr. Madoff's main go-between in Palm Beach was Robert Jaffe, say several investors. Mr. Jaffe is the son-in-law of Carl Shapiro, the founder and former chairman of apparel company Kay Windsor Inc. and an early investor and close friend of Mr. Madoff's. Mr. Jaffe, a philanthropist in Palm Beach, attracted many investors from the Palm Beach Country Club in Palm Beach, Fla.

A spokeswoman for Mr. Jaffe's family said several family members were investors with Mr. Madoff and were "significantly adversely impacted" by recent events. There are no indications that Mr. Jaffe or Mr. Spring are implicated in the alleged fraud. Mr. Jaffe didn't return messages yesterday.

Other investors stand to lose through their investments with the likes of Fairfield Greenwich Group and Tremont Capital Management, funds of hedge funds that invested their cash with Mr. Madoff.

"Needless to say, our level of anger and dismay over the apparent betrayal by Mr. Madoff and his organization of his 14-year relationship with Tremont is immeasurable," Tremont told clients in a letter Friday.

Fairfield Greenwich said in a statement late Friday that it is trying to assess the extent of potential losses. The firm said that on Nov. 1, it had $7.5 billion in investments connected to Mr. Madoff's firm, slightly more than half of its total assets. Founding partner Jeffrey Tucker said the firm had no indication of any potential wrongdoing. "We are shocked an appalled by this news," he said.

Ms. Manzke, 60, of Maxam Capital Management, said she met Mr. Madoff through investors in the mid-1980s and introduced him to Tremont, where she was then chief executive. That introduction led to Tremont's decision to market Mr. Madoff as a money manager to its own investors, she adds.

In November, she says, Maxam asked to pull $30 million from Mr. Madoff, and he returned the money.

"He was a low-key guy," Ms. Manzke says. "He would say, 'Look, I'm a market-maker, and I don't want anyone to know I'm running money.' It was always for select people. He was always closed, he wasn't taking new money."

Several European investors were also apparent victims. Bramdean Alternatives in the U.K. said it had more than 9% of its portfolio invested in Madoff funds. Geneva-based Banque Benedict Hentsch, a white-glove private bank, said it is exposed for $47.5 million.

BNP Paribas's exposure, the extent of which is not clear, may stem from BNP's lending relationship with a fund of funds that was a big Madoff client, said people familiar with the matter. A BNP spokeswoman declined to comment.

Nomura and Neue Privat Bank, meanwhile, together marketed access to Fairfield Sentry Ltd., a fund overseen by Mr. Madoff and sold through Fairfield Greenwich. The shares offered by Neue Privat and Nomura were leveraged three times -- meaning $3 of borrowed money was added to every $1 of capital invested in order to magnify returns, greatly increasing the potential losses for those investors.

A Nomura spokesman declined to comment. A message left with Neue Privat was not returned.

The federal complaints against Mr. Madoff allege his fraudulent activities came through a secretive private wealth-management wing of Bernard L. Madoff Investment Securities, the investment firm he founded in 1960. On Wall Street, his company was perhaps better known for its operations in market-making -- the business of serving as a middleman between buyers and sellers -- and proprietary trading.

From Ponzi to Madoff

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Read more about previous Ponzi schemes.

Through those higher-profile parts of his operation, Mr. Madoff was a pioneer in trading New York Stock Exchange shares away from the exchange. He is a past chairman of the board of directors of the Nasdaq Stock Market as well as a member of the board of governors of the National Association of Securities Dealers and a member of numerous committees of the organization, according to his firm's Web site.

Mr. Madoff owns a home in Roslyn, N.Y., records show, and an elaborate beachfront home and grounds in Montauk on Long Island.

Mr. Madoff and his wife live in an apartment building on Manhattan's Upper East Side where property records list individual apartments valued at more than $5 million. One property database estimated the 2008 market value of Mr. Madoff's two-floor unit to be roughly $9 million. For years he has served as president of the building's co-op board, according to a tenant.

Tenants say he appeared down-to-earth, friendly and always greeted everyone by their first name.

Colleagues of Mr. Madoff said he was fair to those he dealt with and generous to charities including the Special Olympics. Mr. Madoff treated employees well and loved to take friends and colleagues on his 55-foot fishing boat, called Bull, said Frank Christensen, a retired New York Stock Exchange broker. "I really think very highly of him," said Mr. Christensen. "People make mistakes."

—Matthew Futterman, Jenny Strasburg, David Enrich, and Craig Karmin contributed to this article.

Write to Robert Frank at robert.frank@wsj.com, Peter Lattman at peter.lattman@wsj.com, Dionne Searcey at dionne.searcey@wsj.com and Aaron Lucchetti at aaron.lucchetti@wsj.com

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December layoffs exceed 100k

By Jessica Dickler, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- The second week of December was another brutal one for jobs, as Bank of America and at least 20 other companies announced more massive cuts.

"The recent news does not bode well," said Rich Yamarone, director of economic research at Argus Research. "This is the reason it's going to be the longest recession we've had in post World War II history."

The week got off to a rough start on Monday when Dow Chemical (DOW, Fortune 500) said it would eliminate 5,000 positions and close 20 plants. In addition, Belgian-based brewer Anheuser-Busch InBev said it would reduce 1,400 positions; 3M (MMM, Fortune 500) also reported 1,800 cuts.

On Tuesday Sony (SNE), Danaher Corp. (DHR, Fortune 500), Wyndham Worldwide (WYN), the National Football League and Principal Financial Group (PFG, Fortune 500) announced job cuts totaling another 14,400 positions. Novellus Systems (NVLS) and electronics gaming company EA (ERTS) also announced staff reductions without specifying a number of employees.

On Wednesday, Office Depot (ODP, Fortune 500) unveiled its plan to cut about 2,200 jobs; British mining company Rio Tinto said it would cut 14,000 jobs worldwide; and SKF, a Swedish manufacturer of bearings, revealed plans to lay off 2,500 workers globally.

Thursday was particularly bad, thanks to news that Bank of America (BAC, Fortune 500) plans to slash up to 35,000 jobs over the next three years as it absorbs Merrill Lynch and contends with the deepening recession.

On Friday came the announcement that specialty chemicals maker Chemtura (CEM) will cut about 500 people, or 20% of its staff, because of declining sales. Fairchild Semiconductor (FCS) said it plans to cut about 1,100 jobs worldwide, or about 12% of its work force, to reduce payroll expenses.

All in all, 19 big-name companies announced 81,500 job cuts, according to company reports. That figure is likely larger, however, because it does not reflect layoffs happening at small- and mid-sized businesses.

This follows a slew of bad news the previous week, when AT&T (T, Fortune 500), Credit Suisse Group (CS), DuPont (DD, Fortune 500) and Viacom Inc. (VIA), among others, announced about 34,000 cuts.

Midway through the month, December's job cut total stands at 115,416.

In terms of job losses, December could be even worse than November, when 533,000 jobs were lost, according to the Labor Department. That was the largest monthly loss since December 1974.

"Generally companies like to make their cuts by the end of the year," explained David Wyss, chief economist at Standard & Poor's. As such, he expects there to be many more cuts announced over the rest of the month.

2009 and beyond

Going forward, "the job market will continue to deteriorate for the next couple of months," said Bernard Baumohl, chief economist at the Economic Outlook Group.

Baumohl expects monthly job loses of 550,000 to 600,000, but "it may very well exceed 600,000 too because of the severity and speed this economy is sinking into a recession," he said.

In terms of job losses, 2008 is on pace to be the worst since 1982, according to Bureau of Labor Statistics data. But if Baumohl's 600,000+ prediction is accurate, 2008 could show the greatest number of layoffs since 1945, when the economy shed 2.75 million jobs.

"These job-loss announcements are going to impact the job reports in January, February, March and April," said Lakshman Achuthan, managing director of the Economic Cycle Research Institute, because that's when many of the announced layoffs will actually occur.

Economists say the unemployment rate, which stands at 6.7%, will also rise over the course of next year and into 2010.

Wyss predicts it will be 8.5% by December of next year. Baumohl said the jobless rate will peak close to 10% by the end of next year or early 2010.

"A lot depends on what happens with the auto bailout," Baumohl added. "If that does not come through, then obviously the situation becomes even more dire in terms of layoffs and claims for unemployment insurance."

The Senate failed to pass a $14 billion bailout plan on Thursday, but the White House said it may tap the $700 billion bailout approved by Congress in October to help the auto industry.

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Socialites Face Ruin as Ex-Nasdaq Chairman Says Scheme Was 'One Big Lie'

Some of America’s wealthiest socialites are facing ruin after the arrest of a Wall Street big hitter accused of the largest investor swindle perpetrated by one man.

Shock and panic spread through the country clubs of Palm Beach and Long Island after Bernard Madoff, a trading powerbroker for more than four decades, allegedly confessed to a fraud that will cost his wealthy investors at least $50 billion — perhaps the largest swindle in Wall Street history.

Madoff, 70, a former Nasdaq stock chairman, was apparently turned in by his two sons and arrested on Thursday morning at his Manhattan apartment by the FBI. Andrew Calamari, a senior enforcement official at the U.S. Securities and Exchange Commission, described the scheme as “a stunning fraud that appears to be of epic proportions."

The FBI’s criminal complaint states that when two federal agents arrived at Madoff’s apartment, he told them: “There is no innocent explanation.” The agents say that he told them “he paid investors with money that wasn’t there," that he was “broke” and that he expected to go to jail.

Many of his investors came from the enormously wealthy enclaves of Palm Beach, Florida and Long Island, New York, where people had invested billions in Madoff’s firm for decades. He was a fixture on the Palm Beach social scene, and was a member of some of its most exclusive clubs, including the Palm Beach Country Club and Boca Rio Golf Club, where he drummed up much of his business.

The FBI claims that three senior employees of Madoff’s investment firm turned up at his apartment on Wednesday to ask questions about the company’s solvency. Two of them are believed to be his sons, Andrew and Mark, who have worked for their father for two decades.

MMadoff told them that he was “finished," that he had “absolutely nothing," and that “it’s all just one big lie." He said the investment arm of his firm was “basically a giant Ponzi scheme," and that it had been insolvent for years.

The FBI complaint states that Madoff told his sons that he believed the losses from his scheme could exceed $50 billion. If that is the case, his fraud would be far greater than past Ponzi schemes and easily the greatest swindle blamed on a single individual.

Madoff ran the scheme separately from his main business and his sons had no involvement in it.

Madoff has been charged with a single count of securities fraud. He declined to enter a plea in Manhattan’s U.S. District Court and was released on $10 million bail. He faces up to 20 years in jail and a $5 million fine if convicted.

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Trouble in Toyland: U.S. recession jolts China

Daniel Chan / Reuters

Laid-off factory workers smash an office during a protest at a Kaida toy factory in Dongguan, Guangdong province, in China on Nov. 25 after the company indicated it would not pay them full compensation.

By Kari Huus and Adrienne Mong

msnbc.com and NBC News

For American parents, bargain prices for toys this holiday season qualify as good news: A Barbie fan who rose before dawn for Wal-Mart’s Black Friday sale could secure the coquettish “Barbie Diamond Castle Princess Liana Doll” for $5 — royally marked down from its regular retail price. At Target, a 10-pack of die-cast Hot Wheels cars also went for just $5, while a radio-controlled helicopter cost a mere $15. The price wars were enough to draw consumers out of their bunkers for their first shopping spree in months.

But wrapped up with those cheap toys are ominous economic omens for both sides of the Pacific. The rock-bottom prices show how desperate U.S. retailers are to plump up weak consumer demand — a symptom of the ailing U.S. economy and a serious problem for China, which makes nine of every 10 toys sold in American stores.

Declining U.S. orders already have contributed to the closure of at least 3,600 toy factories since the beginning of 2008, according to the Chinese government, leaving hundreds of thousands of Chinese workers suddenly out of work in this sector alone. Some of the shutdowns have triggered violent protests, a situation that could worsen if the Western recession drags on through 2009, as many economists are predicting.

“Unemployment in China could deprive a lot of people of their lifeline,” says Hu Xindou, an economics professor at the Beijing Institute of Technology. “So it could trigger social instability or even shake the rule of the Communist party.”

Millions of jobs at stake
The toy industry has played a major role in China’s economic surge over the past 30 years. Exports account for as much as 40 percent of China’s gross domestic product, and labor-intensive industries making things like toys, shoes and clothing generate millions of jobs for its rapidly growing workforce.

But Chinese toy makers began feeling the economic squeeze well before the U.S. recession was made official in late November.

U.S. retailers trimmed orders after suffering weak sales in the 2007 holiday season — made worse by recalls of dangerous toys.

The volume of Chinese toys passing through eight major U.S. ports was down 5.9 percent in the first nine months of this year, compared to the same period in 2007, according to economic forecaster IHS Global Insight, which tracks the information for the National Federation of Retailers. Toy traffic through the ports of Los Angeles and Long Beach, Calif., which typically handle more than half of Santa’s incoming booty, declined 10.2 percent, as measured by tonnage.

The draw-down isn’t readily apparent at U.S. shopping malls, where toy shelves appear as packed as ever. And the limited inventories on hand likely won’t become obvious unless a toy emerges as a must-have item — like the Tickle-me-Elmo and Cabbage Patch dolls of past shopping seasons.

Slowdown makes tough time tougher
Behind the scenes, though, the decreased orders are sending shock waves through the Chinese economy.

“A lot of what is happening in China, particularly with respect to toys, is demand driven,” says Erik Autor, international trade counsel for the retailers federation. “Toy (buyers) are ratcheting back orders, reflecting a drop in consumer demand.”

Slowing orders have added to other pressures on China’s toy makers.

China’s new labor contract law, which imposed stricter conditions and compensation for layoffs of temporary workers, took effect in 2007, increasing costs for manufacturers that rely heavily on migrants on production lines, including toy makers and other labor-intensive manufacturers based mainly in southern Guangdong province. The province has become the core of China’s manufacturing sector based on the flow of cheap and abundant labor temporary workers from the country's poor interior. By some estimates there are 150 million migrant workers in Guangdong alone.

Toy makers also were hard hit by the rising price of oil, which surged to more than $140 a barrel in June, and in turn sharply increased the price of plastic.

Industry sources say the toy makers saw profits squeezed to the point where many tried to renegotiate contracts with buyers — especially major U.S. players, such as Wal-Mart and Toys "R" Us. When they discovered the buyers wouldn’t budge on the purchase agreements, many simply decided to close their factories. Some locked the gates and vanished in the dead of night, leaving workers to discover they had no job when they arrived in the morning.

“Over half (of the factories) that have closed had negotiated a price, then when they couldn’t get the retailer to move (on the price), they wouldn’t make it at a loss and closed down,” said Britt Beemer, a retail strategist and founder of Charleston-based America’s Research Group.

Others found ways to cut corners, which is cited as one reason that the problem of Chinese toy safety came to a head last year. Among other things, some Chinese factories started using lead-based paint on their products because it dries faster and thereby speeds production time.

“They were either closing their eyes or closing their doors,” said Michael Zakkour, managing director of China BrightStar, a manufacturing and sourcing consultancy.

To be sure, some of the factories that were shuttered were small shops that employed only a few dozen workers. And the contraction is to some degree a natural consolidation process in an industry that is overbuilt. But big players have clearly been affected as well.

One of the most publicized cases was the abrupt closure of the Smart Union toy company in October in the city of Dongguan, the center of the toy industry. When the factory managers disappeared overnight, leaving 7,000 workers without paychecks or severance, protests erupted, targeting both the government and the publicly traded Hong Kong company. The Dongguan government finally doled out 24 million yuan ($3.5 million) to pay what was owed to the workers and settle the conflict.

“All local officials recognize that they are judged on the basis of their ability to control social unrest,” said Nicholas Lardy, a China expert and senior fellow at the Peterson Institute for International Economics. “It’s in their interest to make sure factories don’t leave town and abscond with back wages.”

In November, toy workers rioted after the Hong Kong-based Kaida Manufacturing Co. laid off 600 employees from its factories in Dongguan and tried to avoid paying compensation required by the new contract law. Local media reported that approximately 1,000 police and security guards were called in to disperse the angry crowd, but company offices were ransacked, cars overturned and at least five people were injured before order was restored. Kaida ultimately agreed to renew contracts with senior employees and offered compensation packages to others.

Reverse migration
The closures have left many migrants with no work, including 23-year-old Wu Yang, who worked at a Taiwanese-owned factory in Dongguan for three years before being laid off four months ago when the operation was shut down. Wu is considering returning to his home in central Henan province, but for now he’s killing time in local bookshops and hoping the situation will turn around.

"Maybe I will go home, but it’s boring there,” Wu said. “And I’ll just gamble all my money away."

Each day, thousands of other migrants in Guangdong and other coastal provinces board trains and buses for their home villages, leaving earlier than normal for the Chinese New Year, which begins Jan. 26. When and if they will return is anyone’s guess.

In the short term, the exodus of unemployed workers eases pressure in Guangdong and other manufacturing centers. Longer term, however, it hurts families living in the poorest parts of China, who receive money from migrant workers. That raises the prospect that the protests and violence in the manufacturing regions could spread to the interior, many China experts say.

“It’s a potentially scary scenario,” said Lawrence Delson, who teaches China business courses at New York University. “If many of these migrant workers go home, what happens to the flow of money back to the inland provinces? … There is a deepening division between the haves and the have-nots … raising the specter of social unrest.”

Mixed message
The Chinese government appears well aware of the threat and has taken action aimed at stimulating its sagging economy.

In November, Beijing announced a massive $586 billion stimulus package. Economists and world leaders praised China for putting together the most ambitious rescue package in the world, worth about 3 percent of its GDP.

Chinese leaders did not provide many details of the package, but indicated that it would include spending on infrastructure, health and education. The central purpose of the package, they said, was to spur consumption in China rather than rely so heavily on exports for growth. At a G20 meeting later that month, China also agreed with other major economies that in grappling with the crisis, all nations should avoid protectionism.

But with pressure mounting to protect jobs in its export sector, Beijing also has instituted policy that is contrary to the spirit of the G20 meeting by increasing tax rebates on thousands of export products — from toys to toasters. The rebates, and an artificially low valuation of China’s currency, essentially give its exports a competitive edge in the world marketplace, threatening to increase trade imbalances that have long caused tension.

Even Chinese officials have expressed concern that the rebate policy, which experts say covers at least 50 percent of China’s exports, could spark retaliation from trade partners, including the United States. Some trade experts warn that could spark a trade war, similar to what happened when the United States put in place high protectionist tariffs in 1930, thereby fueling the Great Depression.

“At the moment, China is the gold standard on the stimulus,” said Lardy, of the Peterson Institute of International Economics. “But I would give them very low marks for this (tax policy.) They are … basically promoting exports at the expense of the rest of the world.”

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Mother 'sold her twins for £9,000 to pay for liposuction operation'

By Mail Foreign Service

Sonia Ringoir, who is accused of selling her newborn twin boys for £9,000 pounds to pay for a liposuction operation

A mother accused of selling her newborn twin boys for £9,000 to pay for a liposuction operation was involved in an online rent-a-womb trade with women desperate to have children, it was claimed today.

Restaurant worker Sonia Ringoir, 31, has been accused by police at Ghent, Belgium with treating her twins in a 'degrading' way and with fraud after a Dutch couple alleged that she had conned them.

Tamara Stegeman said that Ringoir had run sperm 'parties' at her large family home in Lovendegem, a village near Ghent, where she charged £300 a time to be impregnated with her husband's sperm.

She told a Belgian reporter: 'It was like a coffee party. First we drank a cup of coffee and then we went upstairs with a syringe.'

Mrs Stegeman and her husband Gideon, a Dutch couple, said they paid three visits spending a total of £900 in the belief that Ringoir would bear them a baby.

They did not know that she had also made the same promise via the internet to another childless Dutch couple whom she charged a total of £1,800 for five insemination trips.

Ringoir is reported to have operated under the name of Sary Levy, but her identity was revealed by Network, a Dutch TV programme, which tracked her down to her home in the course of an investigation into an online surrogate baby racket between Belgium and Holland.

In the end, Ringoir - who is the mother of five other children aged between three and 13 - handed the twins to a friend and the Dutch couples were left empty-handed. She claims that she did not charge her friend any money.

But her estranged husband Marc Poppe, 48, told a Dutch undercover reporter that she had charged money to fund liposuction, the fat removal procedure.

He said the couple had searched the internet to find a quick way to make the cash.

'It was financially attractive to us. Of course we wouldn't do it for nothing,' he said.

After her marriage break-up, Ringoir now has a new boyfriend, Mitch. In an interview with a Belgian newspaper last week he claimed that her husband had put her under pressure 'to have her body rebuilt'.

'Sonia never had debts before she met Marc,' he added.

Ringoir can't be charged with trading in her babies as this is not a crime under Belgian law. She now faces between one month and five years in jail if convicted.
The case had shocked Belgium and there are now calls by politicians to change the law.

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Shoes thrown at Bush on Iraq trip

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President Bush ducks as the shoes are thrown

A surprise visit by US President George Bush to Iraq has been overshadowed by an incident in which two shoes were thrown at him during a news conference.

An Iraqi journalist was wrestled to the floor by security guards after he called Mr Bush "a dog" and threw his footwear, just missing the president.

The US president has now continued to Afghanistan to inspect troops there.

He arrived before dawn at Bagram air force base, and is due to hold talks with President Hamid Karzai.

Earlier in Baghdad, Mr Bush and Iraqi PM Nouri Maliki signed the new security agreement between their countries.

The pact calls for US troops to leave Iraq in 2011 - eight years after the 2003 invasion that has in part defined the Bush presidency.

If you want the facts, it's a size 10 shoe that he threw US President George W Bush Bush shoe-ing worst Arab insult

Speaking just over five weeks before he hands over power to Barack Obama, Mr Bush also said the war in Iraq was not over and more work remained to be done.

His previously unannounced visit came a day after Defence Secretary Robert Gates told US troops the Iraq mission was in its "endgame".

'Size 10'

In the middle of the news conference with Mr Maliki, Iraqi television journalist Muntadar al-Zaidi stood up and shouted "this is a goodbye kiss from the Iraqi people, dog," before hurling a shoe at Mr Bush which narrowly missed him.

Showing the soles of shoes to someone is a sign of contempt in Arab culture.

Muntadar al-Zaidi was quickly wrestled to the ground and hauled away

With his second shoe, which the president also managed to dodge, Mr Zaidi said: "This is for the widows and orphans and all those killed in Iraq."

Mr Zaidi, a correspondent for Cairo-based al-Baghdadiya TV, was then wrestled to the ground by security personnel and hauled away.

"If you want the facts, it's a size 10 shoe that he threw," Mr Bush joked afterwards.

Al-Baghdadiya's bureau chief told the Associated Press that he had no idea what prompted Mr Zaidi to attack President Bush, although reports say he was once kidnapped by a militia and beaten up.

"I am trying to reach Muntadar since the incident, but in vain," said Fityan Mohammed. "His phone is switched off."

Correspondents said the attack was symbolic. Iraqis threw shoes and used them to beat Saddam Hussein's statue after his overthrow.

'American security'

Mr Bush's first stop upon arriving in Baghdad was the Iraqi presidential palace in the heavily-fortified Green Zone, where he held talks with President Jalal Talabani.

PREVIOUS BUSH VISITS TO IRAQ Nov 2003: Serves Thanksgiving dinner to troops in Baghdad June 2006: Meets new Iraqi Prime Minister Nouri Maliki Sept 2007: Visits Anbar province - former stronghold of Saddam Hussein

"The work hasn't been easy but it's been necessary for American security, Iraqi hope and world peace," Mr Bush said during his talks with Mr Talabani.

The Iraqi president called Mr Bush "a great friend for the Iraqi people, who helped us liberate our country".

The BBC's Humphrey Hawksley, in Baghdad, says the key issue at present is exactly how American troops will withdraw within the next three years and what sort of Iraq they will leave behind.

President Bush said events have been necessary for US security and world peace

The US media has just published details of a US government report saying that post invasion reconstruction of Iraq was crippled by bureaucratic turf wars and an ignorance of the basic elements of Iraqi society.

The report is circulating among US officials in draft form, says the New York Times.

It reveals details of a reconstruction effort that cost more than $100bn (£67bn) and only succeeded in restoring what was destroyed in the invasion and the widespread looting that followed it, the newspaper said.

Troop promises

George Bush says being pelted with shoes could be one of the 'weirdest' moments of his presidency

Mr Bush's visit, unannounced in advance and conducted under tight security, follows the approval last month of a security pact between Washington and Baghdad that calls for US troops to be withdrawn from Iraq by the end of 2011.

US troops are first to withdraw from Iraqi cities, including Baghdad, by June next year.

Defence Secretary Gates said on Saturday that "the process of the drawdown" had begun.

"We are, I believe, in terms of the American commitment, in the endgame here in Iraq," he told US troops at an airbase near Baghdad.

Mr Gates has been picked to stay on as defence secretary by President-elect Barack Obama.

The end in sight for US troops in Iraq?

President Bush leaves the White House in less than six weeks. He said in a recent interview with ABC News that the biggest regret of his presidency was the false intelligence that Iraq had weapons of mass destruction.

Finding these was one of the key justifications for the invasion. None were ever found.

Mr Obama has promised to bring home US combat troops from Iraq in a little over a year from when he takes office in January.

More than 4,200 US troops and tens of thousands of Iraqi civilians and security personnel have been killed since the invasion in 2003.

There are currently about 149,000 US soldiers in Iraq, down from last year's peak of 170,000 after extra troops were poured in to deal with a worsening security situation.

As Mr Bush arrived in Baghdad, Gen David Petraeus, the head of the US Central Command, which includes Iraq, said attacks in the country had dropped from 180 a day in June 2007 to 10 a day now.

In a sign of modest security gains in Iraq, Mr Bush was welcomed with a formal arrival ceremony - a flourish that was not part of his previous three visits.

He arrived in the country on Air Force One, which landed at Baghdad International Airport in the afternoon, after a secretive Saturday night departure from Washington on an 11-hour flight.

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OPEC set to slash oil output as prices crumble

by Ben Perry Ben Perry

AFP/File – File photo shows an employee refueling a vehicle at a Tokyo petrol station. Iran's oil minister said …

LONDON (AFP) – OPEC, the cartel pumping 40 percent of world oil, is this week set to announce plans to slash output in the hope of lifting crude prices weighed down by a recession-fuelled slide in energy demand.

The Organization of Petroleum Exporting Countries on Wednesday convenes in the Mediterranean port city of Oran, Algeria, where it is widely expected to announce plans to cut its oil output quota for a third time since September.

Iran, for one, will be calling for a cut at the meeting, the ISNA news agency reported Sunday.

"Our position in the upcoming OPEC meeting in Algeria is a cut of 1.5 million to two million barrels per day in OPEC's quota output," Iranian Oil Minister Gholam Hossein Nozari was quoted as saying.

Julian Jessop, the chief analyst at consultancy Capital Economics, suggested they would probably get their way. "The cartel is likely to announce further cuts of at least two million barrels," he predicted.

Analysts are forecasting a cut of between one and two million barrels from OPEC's official daily output quota of 27.3 million barrels, excluding Iraq.

"OPEC's actions are not in themselves going to drive prices higher again ... OPEC cut production just as aggressively during the last global downturn in 2001 and 2002, but oil prices did not take off until 2004 when the world economy grew by nearly five percent," said Jessop.

He added: "The fact that oil prices have continued to fall despite OPEC's announcement of cuts in production totalling two million barrels per day over the last two months underlines the impotence of the cartel in the face of rapidly deteriorating demand."

Crude futures have dived by as much as 70 percent since reaching all-time highs of above 147 dollars a barrel only five months ago. Back then, fears of supply disruptions had sent them rocketing.

The ability of OPEC to influence the market will also depend on whether it succeeds with a campaign to convince major non-member producers such as Russia, Mexico and Norway to reduce their output too.

It scored a success last week when Russia said it was ready to join forces with the cartel to stem the plunge in crude prices, but Moscow has not given any detailed plans yet.

Russia ranks alongside Saudi Arabia, de facto leader of the cartel, as the world's largest oil exporter.

OPEC member nations and non-OPEC oil-producing countries are seeing their incomes crumble as crude prices fall further from record heights reached in July.

Ahead of Wednesday's meeting, a number of OPEC ministers have stressed the need for a cut in production. The cartel's president and Algerian energy minister Chakib Khelil on Thursday said the Oran gathering "should result in more cuts to balance supply and demand."

Libya went further, with its OPEC representative Shukri Ghanem stressing that the oil producers group should commit to a "substantial" reduction in output to help support prices.

The International Energy Agency (IEA) on Thursday said it expected global oil demand to fall this year for the first time since 1983.

Commenting on Wednesday's OPEC meeting, it added: "Perceived wisdom focuses on how much the reduction will be rather than whether it will occur."

OPEC has so far agreed on cuts of 2.0 million barrels per day this year but the IEA -- a Paris-based energy policy advisor -- has cast doubt on the willingness of some members of the cartel to reduce their production.

Collins Stewart analyst Gordon Gray meanwhile noted: "The sharp fall in crude prices has been driven in large part by the speed at which demand estimates have been cut, coupled with a high degree of scepticism over OPEC's ability to respond."

Oil prices plunged below 40 dollars a barrel at the start of December to their lowest levels in nearly four years as worse-than-expected jobs data in the United States raised the prospect of severe falls in energy demand.

Prices began 2008 by vaulting above 100 dollars a barrel for the first time, underpinned by strong energy demand in China and fears of supply disruption in major crude exporter Iran.

OPEC comprises Algeria, Angola, Ecuador, Iran, outgoing member Indonesia, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

Iraq is the only member without an output quota owing to persistent unrest in the country.

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