Wednesday, December 17, 2008
NEW YORK -- Faced with one of the bleakest financial pictures in memory, New York Gov. David Paterson on Tuesday released a $121 billion proposed budget that would hit the entertainment industry and consumers in the pocketbook.
The budget would tax digital downloads such as iTunes movies, TV shows and music and would end sales-tax exemptions on movie tickets, cable TV, satellite TV and radio, and entertainment and sporting events. All have been exempt from the state's sales tax.
But things quickly have reached crisis level in the Empire State: There's a $1.7 billion shortfall in the current budget and a deficit of nearly $14 billion for the next year. Most of that can be blamed on the economic crisis, which has reduced revenue the state receives from Wall Street.
"With the financial-services industry in the midst of an unprecedented crisis, we must fundamentally re-evaluate what our state can afford to spend," Paterson said.
Entertainment-related cuts are a small portion of the austerity and cutbacks announced Tuesday. It was not immediately clear whether the proposed budget would affect film and TV tax credits handed out by the state. New York state offers tax credits for film, TV and commercial production, investment-tax credits and sales-tax exemptions for film production activities and expenses.
New York City has its own tax credit, administered through the Mayor's Office of Film, Theatre and Broadcasting.
"New York City's 5% tax credit for qualified productions that shoot the majority of their project in the five boroughs is currently effective through 2011 and remains in place," MOFTB commissioner Katherine Oliver said.
The state office did not respond immediately to calls seeking comment.
But the state, facing a crushing budget deficit and a bleak outlook for jobs and tax revenue, would get needed revenue from entertainment-industry sales. One major new tax would come from closing what the state calls a "digital property taxation loophole."
"A book, song, album or movie would be subject to sales tax no matter if it was bought at a bricks-and-mortar store or downloaded online," according to Paterson's budget. The move is expected to bring in $15 million in 2009-10 and $20 million in 2010-11.
But that's small potatoes compared with other proposed new taxes. State taxes on cable and satellite TV and satellite radio would bring in $136 million in 2009-10 and $180 million in 2010-11. New York would be the 24th state to tax those services.
Entertainment spending taxes would raise $53 million in 2009-10 and $70 million in 2010-11, according to the budget. Thirty-one other states tax movies and musical events, but the National Association of Theatre Owners came out against New York's proposed levy.
"The best way to kill an economic recovery is heavy taxation, especially on things that remain affordable and popular in hard times like movie tickets," NATO vp Kendrick Macdowell said.
It is unclear what the tax rates would be, but they are likely to be hammered out by the state legislature and signed by Paterson by March 1, to take effect April 1.
For historic preservationists in Boston, the recession has brought some temporary relief. They had gotten riled up after Boston Mayor Thomas M. Menino said he hoped to move City Hall to a new site on the south waterfront.
He predicted last year that the move could take place in about four years. But now, with the recession tightening its grip on the nation's economy, Mayor Menino says he is reconsidering that timing. "I think it's further off," he says.
Mayor Menino says he is rethinking whether to spend about $2 million for engineering studies on the potential new City Hall site. "I can't consciously move ahead on a major project like this at this time. I have to think about my schools, think about my parks, my public works," he says.
The current concrete City Hall was built in the 1960s. It is loved by some who admire its brutalist architectural style and mocked by others. Last month, it earned a top spot on a list of world's ugliest buildings on the travel Web site virtualtourist.com. In 2006, when the capital markets were awash in investors chasing real-estate deals, the mayor hoped to fetch as much as $300 million for the property, which enjoys a prime location across from historic Faneuil Hall on the edge of the financial district.
Boston's City Hall will stay in its current home, for now, as recession has led local officials to reconsider priorities.
But any property sale in Beantown and beyond is facing stiff headwinds these days. Deals are getting done but values are dropping, and the dollar volume of office sales priced at $5 million or more in Boston's central business district is expected to fall to about $870 million this year, from about $7 billion last year, according to Real Capital Analytics, a New York-based real-estate research firm. Even the city's iconic John Hancock Tower has yet to secure the joint-venture investor that its cash-strapped owners, New York-based Broadway Partners, are seeking.
The economy of the Boston region -- an area that is home to about 5.7 million people that benefits from a mix of employers that includes universities, health-care, technology and finance companies -- is under growing pressure. Unemployment rose to 4.6% in October from 3.6% in the year-earlier period, though it remains well below the nation's October unemployment rate of 6.1%, according to the Labor Department.
Boston's role as a financial hub is a particular risk for the downtown office market; a flurry of job-cut announcements have recently come from the likes of Boston-based State Street Corp. and other financial companies. Financial-services companies occupy about 42% of the estimated 51 million square feet of office space in the city's downtown submarkets, according to real-estate services firm Jones Lang LaSalle.
Boston's metrowide office and retail rents already are declining, and the apartment and warehouse rents are poised to decline over the next 12 months, according the Boston-based Property & Portfolio Research Inc., a real-estate research firm. Mayor Menino last week unveiled a $40 million loan program aimed at jump-starting development as a rising number of real-estate projects have stalled.
A new City Hall would provide an additional anchor to the South Boston waterfront. The formerly industrial area has enjoyed improved access thanks to the "Big Dig" roadway project and it has drawn development in recent years. The Institute of Contemporary Art museum has opened there, along with hotels and several office buildings and the city plans call for some 20 million square feet of additional development to be built there, according to Kairos Shen, Boston's chief planner.
The weakening economy has given new ammunition to critics of the south waterfront City Hall plan. Michael Flaherty, a Boston city councilor-at-large, says even in good economic times the city would do better focusing on improving existing infrastructure.
For his part, the mayor says he still believes moving City Hall to city-owned property on the waterfront makes sense over the long term. It would ensure the south waterfront doesn't become an enclave only for the rich, he says.
He maintains it would create more city revenue by selling the current City Hall property and putting it back on the tax rolls. Despite frozen credit markets, the mayor remains bullish that a sale of City Hall could easily fetch the $300 million or more.
"It's one of those landmark sites for the city," Mayor Menino says. "Even now the market would take it right away."
Write to Maura Webber Sadovi at email@example.com
The US Federal Reserve has slashed its key interest rate from 1% to a range of between zero and 0.25% as it battles the country's recession.
In its statement, the Federal Reserve warned that "the outlook for economic activity has weakened further".
It predicted that rates would stay at the current exceptionally low levels "for some time".
It added that it was considering ways it could spend money on supporting the economy and credit markets.
Analysts said that the key rate is now virtually zero.
"Whether it's zero or 0.25% actually does not make a huge difference," said Holger Schmieding at Bank of America.
FROM THE TODAY PROGRAMME
He added that the more important factor is what policymakers plan to do now that they cannot cut interest rates any further.
The Federal Reserve is already injecting billions of dollars into the banking system as well as buying debt based on home loans.
The Federal Reserve stressed that it was already planning to buy large quantities of additional debt based on mortgages and is considering whether it would be a good idea to buy long-term US government bonds.
The strategy of a central bank buying government bonds mirrors the so-called quantitative easing carried out by the Japanese government when it was fighting deflation in the late 1990s and early 2000s.
Deflation becomes more of a risk as interest rates approach zero.
It is a serious problem for an economy because people postpone making any large purchases as they believe prices are going to fall, which stifles economic activity even further.
Quantitative easing is, "just another word for the central bank injecting so much money into the system that a good deal of it is passed onto households and businesses at a reasonably low interest rate," Mr Schmieding explained.
The rate has been cut drastically by the Federal Reserve from the 5.25% where it stood in September 2007.
It is the lowest the central bank's key rate - the target rate for banks to charge to lend to each other overnight - has been since records began in 1954.
The decision received a lukewarm initial reception from the stock market, with the Dow Jones Industrial Average rising from 8,684 just before the decision to 8,740 about half an hour after it, which is a rise of just 56 points.
But once the news had been digested, the Dow Jones closed up 360.4 points, or 4.2% at 8,924.9.
"You've seen the dollar weaken because it was a larger than expected cut - the dollar is falling against all major currencies," said Matt Esteve at Tempus Consulting in Washington.
"On one side, we effectively have a zero interest rate in the US - on the other side, the Fed has sent a sign that they are ready to use all tools to help the US economy out of recession."
Earlier in the day, official data confirmed that the threat of inflation is receding, as consumer prices fell a record 1.7% in November.
President-elect Barack Obama said in a speech on Tuesday that his administration would also be doing its bit to stimulate the economy because the central bank could no longer use its main tool.
"We are running out of the traditional ammunition that is used in a recession, which is to lower interest rates," he said.
"That's why the economic recovery plan is so absolutely critical."
He has undertaken to create at least 2.5 million jobs by 2011 as well as launching a programme of improvements to the country's infrastructure.
As January 20 nears, Barack Obama's ambitions for spending on the likes of roads, bridges and jobless benefits keep growing. The latest leak puts the "stimulus" at $1 trillion over a couple of years, and the political class is embracing it as a miracle cure.
Not to spoil the party, but this is not a new idea. Keynesian "pump-priming" in a recession has often been tried, and as an economic stimulus it is overrated. The money that the government spends has to come from somewhere, which means from the private economy in higher taxes or borrowing. The public works are usually less productive than the foregone private investment.
In the Age of Obama, we seem fated to re-explain these eternal lessons. So for today we thought we'd recount the history of the last major country that tried to spend its way to "stimulus" -- Japan during its "lost decade" of the 1990s. In 1992, Japanese Prime Minister Kiichi Miyazawa faced falling property prices and a stock market that had sunk 60% in three years. Mr. Miyazawa's Liberal Democratic Party won re-election promising that Japan would spend its way to becoming a "lifestyle superpower." The country embarked on a great Keynesian experiment:
August 1992: 10.7 trillion yen ($85 billion). Japan passed its largest-ever stimulus package to that time, with 8.6 trillion yen earmarked for public works, 1.2 trillion to expand loan quotas for small- and medium-sized businesses and 900 billion for the Japan Development Bank. The package passed in December, but investment kept falling and unemployment rose. By the end of the year, Japan's debt-to-GDP ratio was 68.6%.
April 1993: 13.2 trillion yen. At exchange rates of the day, this was a whopping $117 billion giveaway, again mostly for public works and small businesses. Tokyo erupted into domestic politicking over election practices, the economy went sideways, and the government fell. New Prime Minister Morihiro Hosokawa floated tax cuts, deregulation and decentralization to spur growth. But as the economy worsened -- inflation-adjusted GNP shrank 0.5% in the April to June quarter -- the political drumbeat for handouts increased.
September 1993: 6.2 trillion yen. Mr. Hosokawa announced a compromise "smaller" stimulus of $59 billion, along with minor deregulation. He dropped plans for an income-tax cut. The stimulus included 2.9 trillion yen in low-interest home financing, one trillion yen for "social infrastructure," and another trillion for business. The economy didn't respond. By the end of the year, Japan's debt-to-GDP reached 74.7%.
Is any of this beginning to sound familiar? There's more.
February 1994: 15.3 trillion yen. This stimulus included 5.8 trillion in income-tax cuts, 7.2 trillion in public investment, 1.5 trillion for small business and employment-support, 500 billion for land purchases and 230 billion for agricultural modernization. The income tax cut was temporary, effective only for 1994. The economy stagnated and Prime Minister Hosokawa resigned amid a corruption scandal. By the end of the year, debt-to-GDP was 80.2%.
September 1995: 14.2 trillion yen. The Socialist government of Tomiichi Murayama, with a wobbly coalition, rolled out a $137 billion whopper, with 4.6 trillion in public works, 3.2 trillion for government land purchases, 1.3 trillion in business loans, and more. Mr. Murayama resigned in early 1996, and in June Prime Minister Ryutaro Hashimoto agreed to raise consumption taxes to 5% from 3%, starting in April 1997, to reduce the fiscal deficit.
In 1994 and 1995, Japan spent 3.1% and 2.9% of its annual GDP, and (helped by central bank easing) the economy did respond with modest growth for about two years. Debt-to-GDP hit 87.6%.
April 1998: 16.7 trillion yen. When growth starting slowing again, the re-elected LDP turned to old medicine: 7.7 trillion yen for public works. The $128 billion grab-bag also included 2.3 trillion for the disposal of bad loans. The government announced four trillion yen in (again) temporary income-tax cuts, spread over two years. Mr. Hashimoto resigned in July after voters registered their discontent at the polls.
November 1998: 23.9 trillion yen. Desperate to get the economy moving, Prime Minister Keizo Obuchi rolled out the country's largest-ever stimulus, valued at $195 billion. The giveaway included 8.1 trillion yen in social public works, 5.9 trillion for business loans, one trillion for job-creation programs, 700 billion in cash handouts to 35 million households, and more. By the end of the year, debt-to-GDP hit 114.3%.
November 1999: 18 trillion yen. In a "last push," Mr. Obuchi's government spent 7.4 trillion yen to prop up businesses, 6.8 trillion yen for social infrastructure projects like telecommunications and environmental projects, and two trillion yen for housing loans, among other things. Debt-to-GDP reached 128.3%.
Japan's economy grow anemically over that decade, but as the nearby chart shows, its national debt exploded. Only in this decade, with a monetary reflation and Prime Minister Junichiro Koizumi's decision to privatize state assets and force banks to acknowledge their bad debts, did the economy recover. Yet recent governments have rolled back Mr. Koizumi's reforms and returned to their spending habits. But Japan does have better roads.
Now we're told that a similar spending program -- a new New Deal -- will revive the U.S. economy. How do you say "good luck" in Japanese?
Last Thursday night, as General Motors and Chrysler representatives huddled with Senate leaders trying, in vain, to hammer out a financial-aid deal, a representative for another big automaker sat in an adjacent room. That's just where Ford wanted to be, near enough to have a voice but far enough removed to escape the "cram down" of equity, as Republican Senator Bob Corker of Tennessee called the shareholder dilution that the Senate leaders were crafting. While the White House is now figuring out the best way to rush billions in much-needed bridge loans to the automakers, one thing seems almost certain: Ford Motor Co. will make sure that any deal leaves the Ford family's four-generation grip on the company intact.
Alan Mulally, Ford CEO, has made it clear to Congress and the media that unlike GM and Chrysler, Ford is not seeking a bridge loan to get through the current economic crisis. Instead, Ford asked for a backup line of credit that could be used if the economic downturn continues for an extended period. "We are more balanced. We are more efficient. We are more global, and we are more focused. In short, we are on the right path to become a profitable, growing company," Mulally said during his congressional testimony earlier this month. (See TIME's top 10 financial collapses of 2008.)
But Ford's go-it-alone strategy reflects more than just confidence in its own viability. Observers around Detroit suggest that the Ford family's continuing control of the company has surely influenced the decision to not seek federal assistance. "Any dilution of equity has to be an issue for the family, and also the loss of dividends," says Brad Coulter, a specialist in bankruptcy and loan workouts with O'Keefe & Associates of Bloomfield Hills, Mich. (Any dividend payment would likely need the approval of a new "car czar," which the White House might appoint if it moves to provide aid.) Alan Baum, an analyst who follows the industry for the Planning Edge in Birmingham, Mich., agrees that the Ford family's control of the auto giant was an issue. "Sure it was," he says. Ford spokesman Oscar Suris denies that Ford's decision not to seek federal assistance was influenced by such concerns. (See the 50 worst cars of all time.)
Should the White House provide funds from the Wall Street–bailout fund (known as TARP) for a bridge loan, Ford would likely gain some access to credit. Ford would also stand to benefit from United Auto Workers wage and benefit concessions in the Senate negotiations, which the White House might look to duplicate as part of any assistance agreement. If GM and Chrysler wind up in bankruptcy court early next year — a distinct possibility, even if a bridge loan materializes; it is also something the Bush Administration might push on the two automakers as a condition for any assistance now — Ford would be the only one of the Big Three to escape the court's restrictions, and the only one whose retail image would not be tarnished by bankruptcy. Its market appeal, too, might even be strengthened should Ford be the only one of the Big Three not to get taxpayer money.
Not that Ford's finances aren't stressed. Instead, its biggest advantage over its beleaguered rivals is that it benefited greatly from a decision to mortgage all its assets more than two years ago, raising more than $19 billion in cash and $11 billion in credit lines. Even the company's famous blue oval logo was pledged as collateral for what Mulally has described as "the world's biggest mortgage." That cash gives Ford, and the Ford family, the leeway to play the crisis differently than its Detroit neighbors.
The Ford family currently owns less than 3% of the company's common shares, but it exerts control through its Class B stock, which is reserved for family members and has been ever since the company first went public in its landmark IPO back in 1956. The family shored up its control in 2000 through another well-timed transaction, which gave the company's shareholders a onetime dividend of $20 per share in cash or new stock of equal value. The payout amounted to about $10 billion in cash dividends, but it also shored up the Ford family stake in the company via a distribution of additional B shares, which have 16 votes to every one vote for ordinary common shares.
Two big pension funds, TIAA-CREF and the California Public Employees' Retirement System, did criticize the 2000 plan, asserting that the structure of Ford's proposal unfairly enhanced the voting rights of class B shareholders at the expense of stockholders. Nevertheless, Ford's voting shareholders quickly approved the transaction.
Long-term family-owned automakers also appear to have a competitive advantage over their publicly traded counterparts, which are under intense pressure to show positive quarterly results. Some of the world's most stable automakers — Germany's BMW, France's Peugot and Japan's Toyota and Honda — all operate under corporate structures in which the founding family has a significant stake. The companies, which often need years to nurture new products, new technology and new markets, seem to benefit from the longer term outlook that comes with family control.
And throughout the tortured Detroit bailout saga, that fact alone may be putting a small smile on the face of Ford's family members.
GEORGE TOWN, CAYMAN ISLANDS—Amid the bleak backdrop of imminent economic collapse, worried observers got some good news last October when executives from the nation's top 10 failing companies celebrated the historic $700 billion government bailout with an ultra- extravagant $800 billion party aimed at restoring confidence and bolstering their resolve.
"It's never ideal for private corporations to rely on public funding, but we would not have been able to survive another week without letting loose and throwing this massive bash," Merrill Lynch CEO John Thain said aboard his newly purchased $22 million yacht, the Excelsior. "We can only hope it's not a case of too little too late."
Three thousand guests were reportedly flown on 750 separate private jets to the Caribbean, where they commemorated the last-minute financial aid package—which saved their companies from the subprime mortgage crisis that has left thousands of Americans without homes—with 4-tons of Beluga caviar, $250,000 bottles of vintage Dom Pérignon served over precious gems, a 36-hour fireworks display, an additional loan of $200 billion to cover the costs of the gala, and a private concert for each attendee with rock legend Rod Stewart.
Held October 4–7 on all three of the Cayman Islands, the historic economic-stimulus celebration, spokespeople said, sent an important signal to the world that Wall Street was weathering the crisis in style.
"I'm glad we were all humble enough to recognize that we couldn't do this on our own," said AIG CEO Edward Liddy, sitting in a hot tub filled with Cristal and seven dozen endangered-quail eggs. "Having come so close to disaster, it is crucial that I eat these 24-karat-gold-leaf-wrapped chocolate truffles to boost stockholder morale and show all the critics and naysayers that we are carrying on just as we always have."
"Do not worry, America," Liddy added. "It's business as usual at AIG."
In a sign of the new era of financial responsibility ushered in by the bailout, the CEOs estimated that they came in a full $100 billion under the party's projected $900 billion budget—a windfall they immediately reinvested in their companies' ailing executive-Christmas-bonus divisions.
NEW YORK (CNNMoney.com) -- American homeowners will collectively lose more than $2 trillion in home value by the end of 2008, according to a report released Monday.
The real estate Web site Zillow.com calculated that home values have dropped 8.4% year-over-year during the first three quarters of 2008, compared with the same period of 2007.
Some 11.7 million Americans are now "underwater," owing more on their mortgage balances than their homes are worth.
Zillow collects home values and analyzes home price trends in 163 markets; all but 30 registered price drops over the nine months ended Sept. 30, compared with the same nine-month period of 2007.
"This year marked the acceleration of the market correction, and is likely to end with the eighth consecutive quarter of declines in home values," said Stan Humphries, Zillow's vice president of data and analytics. "Homeowners in most areas we cover are struggling with foreclosures pouring into the market, large amounts of negative equity and dropping home values."
One piece of good news is that in some, although not all, of the markets hardest hit by the downturn, such as San Francisco, San Diego and Punta Gorda, Fla., home values are not falling as steeply as they were.
Offsetting that cause for optimism, however, are growing economic problems, especially increased job losses.
"When we look for a turnaround, we look for two or three consecutive quarters [of smaller price declines]," he said. "We also want to see sales numbers pick up, inventories go down and improvements in foreclosure figures. Foreclosures really muddy the picture."
The foreclosure picture is not likely to clear up in the coming months, according to Humphries. He expects to see more foreclosed, vacant homes added to already bulging inventories, sending prices spiraling down and putting more mortgage borrowers deeper underwater.
Most of the subprime loans that will fail have already done so, but there are other toxic mortgage products whose default rates probably have not yet peaked. The number of option ARMs that fail, for instance, will continue to increase over the next few years according to Humphries. These loans allow homeowners to make minimum payments, which cause the loan principle to balloon. There are also lots of "liar loans" loans, which were issued without checking a borrower's assets or income, that are still going bad.
Zillow's home value statistics closely track the foreclosure crisis; price declines are steepest in areas that have been hit hardest by foreclosures.
The worst performing market in the nation was Stockton, Calif. The average home price there plunged 32.3% year-over-year to $210,179 in the first three quarters of 2008. Almost as bad were nearby Merced, down 31.2% to $167,282, and Modesto, was was off 30.4% to $197,368 in the same time period.
Humphries expressed surprise that these areas are still performed so poorly.
"I would have thought that they would have produced some more positive trends by now," he said, "but we are seeing no slowdown."The best performing metropolitan area was Jacksonville N.C., where home values rose 4.9% year-over-year to $139,261 in the first three quarters of the year. Winston-Salem, N.C., also registered a gain, of 4.1% to $136,854. Anderson, S.C., prices climbed 3.5% to $101,816 and State College, Pa., went up by 3.4% to $206,995.
Delta Air Lines is expected to begin offering Wi-Fi service to its passengers on Tuesday, according to a report in The Washington Post.
The wireless service, which will enable passengers to connect to the Internet via Wi-Fi-enabled laptops, PDAs, or smartphones, will cost $9.95 on flights of three hours or less, and $12.95 on flights of more than three hours. The airline is partnering with Aircell, which also supplies in-flight Wi-Fi technology to other carriers, such as American Airlines and Virgin America.
The service will be available initially on shuttle flights between Washington's Reagan National, New York's LaGuardia, and Boston's Logan airports, according to the report.
The Atlanta-based airline plans to eventually outfit its domestic fleet of 330 aircraft with Wi-Fi, which amounts to about 60 percent of Delta's seats flown every day.
Virgin America rolled out its Gogo Inflight Internet service to passengers on a single Wi-Fi-enabled plane on November 24. By the second quarter of 2009, the company expects to offer Wi-Fi on its entire fleet of planes.
Several other airlines, including American Airlines and JetBlue, have announced similar in-flight Wi-Fi plans.
Airlines have been talking about offering in-flight broadband for years. But so far, the service hasn't really caught on. Boeing first offered a service called Connexion, which debuted in 2004 on a few international carriers, including Lufthansa, SAS, All Nippon Airways, Japan Airlines, and Singapore Airlines.
Boeing then canceled the service in 2006, when it was unable to find business among domestic airlines. A big problem with Connexion was that the entire system was bulky and weighed around 400 pounds, making it nearly impossible for it to be used on smaller domestic planes.
CNET News' Marguerite Reardon contributed to this report.
You’re stressed and scared, and not in any mental state to make decisions. Take a few minutes to collect yourself and relax as much as possible. Take slow, deep breaths. In the coming days and weeks you’ll have to make a slew of decisions regarding your health care and personal finances, and you’ll need to stay calm.
Whether security is waiting to walk you out the door or you have time to clean out your desk, grab the paperwork related to your employer-issued benefits. Carefully read over the fine print on your contract and the terms of your health-insurance plan. Then ask someone from human resources:
- Am I entitled to a severance package?
- When exactly will my health benefits expire? (Some health plans expire on the day you are laid off; others might continue until the end of the month.)
- Is there any room for negotiation? (You may be able to exchange severance pay for extended health benefits.)
- Do you have any advice for me? (A sympathetic HR employee can be your best ally.)
If your health benefits haven’t expired yet, make doctor’s and dentist’s appointments for you and your family. Refill prescriptions. Try to squeeze in as much health care as you can before the expiration date, because it will almost certainly be more expensive once you lose your employer-provided insurance. If your doc is booked, explain your situation and ask to be notified about cancellations. Sounding desperate can’t hurt.
Plan to spend down your flexible spending account (FSA), if you have one, on new glasses, cold medicine, acupuncture—on whatever you can, so your former employer doesn't get to keep your hard-earned savings. Unlike health savings accounts (HSAs), which are portable from job to job and roll over, FSAs are always administered by your employer and must be spent by the end of the company’s “plan year” (plus a 2 ½-month grace period).
Enroll in your spouse’s employer-sponsored plan, if you can. Under the Health Insurance Portability and Accountability Act (HIPAA), you and your dependents can do this ASAP, without waiting until the next enrollment period. Here's the catch: You must request this so-called special enrollment within 30 days of losing your previous health benefits.
If you're single or can’t get covered by your spouse, sign up for a COBRA extension. Under the Consolidated Omnibus Budget Reconciliation Act, you and your family have the right to extend your current health plan for up to 18 months after you are laid off. (If your former employer has fewer than 20 employees, you may not be eligible for a COBRA plan.) You will have to pay for 100% of the coverage rather than sharing the cost with your employer, but it is still usually cheaper than buying an equivalent policy on your own.
Keep an eye on the mail. After your employer notifies the insurer that you’ve been terminated, the insurer must inform you of your COBRA rights in writing within 14 days. Once this notice is sent by your insurer—not once you receive it—the clock starts ticking: You have 60 days to enroll in the plan. (If your existing coverage expires after the notice is sent, you have 60 days from the expiration date.)
And we really mean 62 days. Under HIPAA, if you go without health insurance for 63 days or more, you will be subject to a preexisting-condition exclusion. When you enroll in a new health plan, the insurer can exclude from coverage any health condition—cancer, heart disease, diabetes—for which you received treatment in the six months leading up to your enrollment. This exclusion period can last for up to 12 months (or 18 months if you join the health plan late), but you can offset it by producing your certificate of creditable coverage, which you remembered to ask for on day 1. If you can prove that you’ve had continuous health insurance for more than 12 months without a gap of 63 days or more, the new health plan will not be able to impose a preexisting-condition exclusion.
In an AP interview yesterday, Secretary of State Condoleezza Rice spoke highly of U.S. reconstruction efforts in Iraq, stating, “We’ve done a lot of work to get these [reconstruction] structures right, and I think they finally are” — a day after a scathing government report detailed massive waste and poor planning in U.S. reconstruction efforts. When asked about the abuse, Rice claimed that U.S. dollars have emerged unscathed:
Q: But the cost in terms of lives and in terms of the money and the abuse of money – (inaudible) was money wasted, there was money that was siphoned off, corruption and that kind of thing, you’re —
RICE: Not of American money. Not American money. I don’t think that you will find that anybody is arguing that there was corruption in the American programs.
Throughout the U.S. occupation of Iraq, billions in tax dollars have been lost due to corruption and incompetence. Some of the most egregious losses have been via “American programs”:
– The Coalition Provisional Authority delivered 363 tons of cash on an airplane, totaling $12 billion, to Iraq “without assurance the monies were properly used or accounted for.”
– The State Dept spent $36.4 million dollars on weapons and equipment that could not be accounted for because “invoices were vague and there was no backup documentation“.
– Top contractor KBR came under fire last year from government investigators for overpricing its contract by $2 billion, which, for example, included overstating labor costs by 51 percent.
The use of private contractors, a major source of the corruption, has skyrocketed under Bush. The government has spent $85 billion on contracts in Iraq and other countries in the first four years of the war. “Taxpayers have been bled dry with massive misuse of public dollars,” observed Sen. Byron Dorgan (D-ND), who has spearheaded investigations into waste, fraud, and abuse in Iraq.
Thus far, some $50 billion in taxpayer dollars have been spent on the reconstruction of Iraq, which anti-corruption watchdog Transparency International listed as the third-most corrupt nation in the world.
Abdulla plotted to set off car bombs in busy spots in London and Glasgow
An NHS doctor from Iraq convicted of plotting to commit mass murder has been sentenced to at least 32 years in jail.
Bilal Abdulla, 29, was found guilty at Woolwich Crown Court of conspiracy to murder by planning car bomb attacks in 2007, with accomplice Kafeel Ahmed.
Car bombs were left outside a nightclub and in a street in London's West End on 29 June, but failed to detonate.
A day later a burning Jeep filled with gas canisters was driven into Glasgow Airport. Ahmed died from his injuries.
Abdulla was found guilty of conspiracy to murder and conspiracy to cause explosions.
Mr Justice Mackay sentencing said Abdulla was a "religious extremist and a bigot" who held the most extreme form of Islamist views.
You were both undeterred and immediately put the second attack into effect, which had probably been designed as the grand finale of your conspiracy
Mr Justice Mackay
The judge told him: "All of the evidence makes you a very dangerous man, you pose a high risk of serious harm to the British public in your present state of mind.
"That fact plus the circumstances of the offences themselves means that the only possible sentence on each of these two counts is a life sentence."
A third man, Jordanian NHS doctor Mohammed Asha, was cleared of any involvement but now faces deportation.
His lawyers said Dr Asha, who remains in custody, would fight to stay in the UK so he can resume his medical career.
Home Secretary Jacqui Smith said Abdulla's conviction underlined the "serious and sustained threat" from terrorism facing the UK.
The London attacks happened outside Tiger Tiger in Haymarket and in nearby Cockspur Street. Abdulla and Ahmed then launched a suicide attack at Glasgow Airport.
In each case it was good fortune alone that there had been no loss of innocent life, prosecutors said.
Speaking about the London attacks, the judge said: "Your murderous intent was best shown by the obstructing of the safety mechanisms on two of the cylinders and by the 800-plus nails in one car and 1,000 in the second, designed to do nothing else but constitute a deadly form of shrapnel to maim, injure and kill."
He added: "You were both undeterred and immediately put the second attack into effect, which had probably been designed as the grand finale of your conspiracy."
Abdulla, who was born in the UK, admitted in court that he was "a terrorist" as defined by English law.
He went on to say he believed the British government and Army could equally be accused of terrorism for their actions in Iraq.
But he added he had wanted to frighten people rather than murder them.
During the nine-week trial, Dr Asha admitted knowing Abdulla and Ahmed but denied any knowledge of their attacks.
The 28-year-old neurologist, cleared on Tuesday of plotting to murder and cause explosions, is said to be disappointed not to have walked free after his acquittal.
After Abdulla was sentenced, Dr Asha said in a statement read by his lawyer Tayab Ali that the accusations had "obliterated" his life and that of his family.
He said they had been living under a "heavy cloud of the most serious allegations possible" and that justice was not being done.
Dr Asha reiterated his innocence and said he would fight deportation.
Dr Asha was served with deportation papers after his highly skilled migrant programme visa expired while he was on remand.
At the time of his arrest on 30 June last year on the M6 motorway in Cheshire, Dr Asha had been working for the University Hospital of North Staffordshire, in Stoke-on-Trent.
He was living in Sunningdale Grove, in Newcastle-under-Lyme, with his wife and two-year-old daughter.
He had been due to go on holiday in Jordan with his family in mid-July last year, before taking up a post in neurosurgery at Coventry's Walsgrave Hospital.
Jurors heard Dr Asha was a strictly observant Muslim with a very bright future in neurology.
One colleague told the court he would not be surprised if Dr Asha became Britain's top neurologist.Consultant neurosurgeon Rupert Price said he gave Dr Asha a glowing reference, the best he had ever written.
WASHINGTON — The White House has prepared more than a dozen contingency plans to help guide President-elect Barack Obama if an international crisis erupts in the opening days of his administration, part of an elaborate operation devised to smooth the first transition of power since Sept. 11, 2001.
The memorandums envision a variety of volatile possibilities, like a North Korean nuclear explosion, a cyberattack on American computer systems, a terrorist strike on United States facilities overseas or a fresh outbreak of instability in the Middle East, according to people briefed on them. Each then outlines options for Mr. Obama to consider.
The contingency planning goes beyond what other administrations have done, with President Bush and Mr. Obama vowing to work in tandem to ensure a more efficient transition in a time of war and terrorist threat. The commission that investigated the Sept. 11 attacks, noting problems during the handover from President Bill Clinton to Mr. Bush, called for a better process “since a catastrophic attack could occur with little or no notice,” as its report put it.
“This is very unusual,” said Roger Cressey, a former Clinton White House counterterrorism official who was held over under Mr. Bush. “We certainly did not do that. When the transition happened from Clinton to Bush, remember it was a totally different world. You had some documents given that gave them a flavor of where things were at. But now you’ve got two wars in Iraq and Afghanistan and a hot war against Al Qaeda.”
In addition to the White House contingency memorandums, the Department of Homeland Security said it had given crisis training to nearly 100 career officials who may fill in while Mr. Obama’s appointees await Senate confirmation. Starting before the election, those career workers have conducted exercises alongside departing political appointees to test their responses.
The administration has invited members of the Obama agency review teams to observe some of those so-called tabletop exercises between now and the inauguration, on Jan. 20. The Bush team has also invited Obama transition officials to attend a “national level exercise” set for Jan. 12 and 13 that may play out what would happen if the top leadership of the nation were wiped out in a single stroke, officials said.
At the same time, senior counterterrorism officials plan to hold personal briefings for their counterparts on the biggest threats they see. And the White House has drafted as many as three dozen other long-term policy memorandums outlining various pressing issues that will confront the new team and how Mr. Bush’s aides see the status of each of these issues as his presidency comes to a close.
The White House said the flurry of briefings and memorandums was meant to be helpful to the incoming administration, not an attempt to dictate to it, and members of the Obama team said they were taking it in that light.
“It’s a good-faith effort to provide potential information on some hot spots and some ideas about what they can do,” said Gordon D. Johndroe, a White House spokesman. “We just want to provide them, especially in the first few weeks, the basis for which they can have some information to make their decisions.”
The contingency plans, he said, provide the new president a variety of possible responses to certain situations rather than a specific course of action. “It’s a menu of contingencies and potential options,” he said. “It’s not exhaustive, and it’s not exclusive, and it’s not prescriptive, as if to say, ‘These are the only things you can do.’ ”
Mr. Bush said Tuesday that a top priority in his final days in office is to help Mr. Obama get ready to govern. “We care about him,” he said in an interview with CNN. “We want him to be successful, and we want the transition to work.”
A spokeswoman for Mr. Obama’s office said she had no comment. But other Democrats working with the transition said they appreciated the Bush team’s efforts. “This doesn’t absolve the Bush administration of some of their judgments they’ve made over the years, but this is the right thing to do,” said a Democrat close to the transition who did not want to be named to avoid alienating the team. “This is when enlightened self-interest works.”
Mr. Cressey, who has been a critic of Mr. Bush’s national security policy, said: “I give them a lot of points for doing this. There could be zero down time for the new team coming in.”
The attention to national security in this postelection interim period stems in part from the recognition that terrorists have struck during moments of flux in national leadership before. Al Qaeda’s first attack on the World Trade Center in 1993 came weeks after Mr. Clinton was sworn in. A series of bombings on a Madrid commuter train system in 2004 came three days before national elections. And an attack on a Glasgow airport in 2007 came days after Prime Minister Gordon Brown took office in Britain.
Here in the United States, the Department of Homeland Security declared the fall election and transition a period of heightened alert because of the concern. Under the authority granted by intelligence legislation Mr. Bush signed in 2004, the government has processed security clearances for Obama transition officials earlier than ever before and Mr. Obama has named his top nominees faster than any other modern president-elect.
Beyond terrorism, Mr. Obama could face an early unexpected international test on any number of fronts, as his running mate, Joseph R. Biden Jr., predicted on the campaign trail. During the transition between the administrations of the first President Bush and Mr. Clinton, a humanitarian crisis in Somalia prompted Mr. Bush to send United States troops to intervene.
While Mr. Obama’s national security résumé is relatively thin, many members of his national security team come with deep experience. He is keeping Defense Secretary Robert M. Gates and has tapped Gen. James L. Jones, a retired NATO supreme commander, as national security adviser.
Yet returning Clinton veterans have not been in government since Sept. 11. There was no Department of Homeland Security then, no director of national intelligence. The world has changed, and so have the structures to cope with it.
And there are things that cannot be put in a briefing or memorandum. James Jay Carafano, a national security expert at the Heritage Foundation, said much of the apparatus of government would know what to do in the event of a crisis. The real test for Mr. Obama will be projecting leadership.
“For a president thinking about crisis management,” Mr. Carafano said, “the most important thing is not decision making, it’s public relations.”
BAGHDAD: The Iraqi television reporter who threw his shoes at President George W. Bush at a news conference appeared before a judge Tuesday and admitted "aggression against a president," a judicial spokesman said.
The television reporter, Muntader al-Zaidi, became an instant sensation when he called Bush a "dog" at a news conference with Prime Minister Nuri Kamal al-Maliki on Sunday and tried to hit him with both of his shoes.
"Zaidi was brought today before the investigating judge in the presence of a defense lawyer and a prosecutor," said Abdul Satar Birqadr, a spokesman for Iraq's High Judicial Council. "He admits the action he carried out."
The court decided to keep Zaidi in custody. After the judge has completed his investigation the court may send him for trial under a clause in the Iraqi penal code that makes it an offense to attempt to murder Iraqi or foreign presidents. The sentence for such a crime could be up to 15 years in prison, Birqadr said.
Dheyaa Saadi, head of the Union of Lawyers in Iraq and one of its most high-profile attorneys, said that he had volunteered to defend Zaidi.
"I will introduce myself as his lawyer and demand the case be closed and Muntader be released because he did not commit a crime," said Saadi.
At a news conference with Bush and Maliki on Sunday evening in Baghdad's Green Zone, Zaidi, a reporter for Al Baghdadia, a satellite television network, rose from his seat and threw one of his shoes at Bush's head. He shouted: "This is a gift from the Iraqis. This is the farewell kiss, you dog!"
Bush ducked and the shoe missed him. Zaidi then threw his other shoe, shouting, "This is from the widows, the orphans and those who were killed in Iraq!" The shoe hit the wall behind Bush.
According to The Associated Press, Al Baghdadia reported that Zaidi had been "seriously injured" during his detention and called on the government to allow lawyers and the Iraqi Red Crescent to visit him. Later, however, one of his brothers said that he had spoken by telephone with Zaidi, who told him, "Thank God, I am in good health," The AP reported.
British troops are to leave Iraq by the end of July next year, Gordon Brown has said after talks with Iraqi PM Nouri Maliki in Baghdad.
Military operations will end by 31 May and the remaining 4,100 service personnel will leave within two months.
Several hundred trainers will remain, some working with the Iraqi navy.
UK PM Mr Brown, who held talks with Mr Maliki before heading to Basra, said he was proud of British troops adding: "We leave Iraq a better place".
The withdrawal announcement came after at least 18 people were killed and dozens wounded in a twin bomb attack in Baghdad on Wednesday.
Mr Brown said he would give further details on UK troops in Iraq in a statement to the House of Commons on Thursday.
BBC diplomatic correspondent Paul Adams said the announcement ended months of speculation.
Mr Brown told the BBC: "I feel that the task that we set out to do is being done and that's why we can take a decision to bring most of our forces home."
At a joint press conference, Mr Maliki confirmed that the agreement included a provision for the Iraqi government to request an extension of the British military presence.
However, both leaders indicated it was not expected to be used.
Mr Brown said people had been given an "economic stake in the future of Iraq" and said: "I am proud of the contribution British forces have made. They are the pride of Britain and the best in the world."
In their joint statement, the leaders said the role played by the UK combat forces was "drawing to a close" but the partnership between Britain and Iraq would "continue to take on new dimensions" and be strengthened.
The withdrawal of UK troops is expected to start in the spring although Mr Brown suggested the biggest withdrawals would take place in the summer.
Chief of the Defence Staff Air Chief Marshal Sir Jock Stirrup played down suggestions troops would be transferred to Afghanistan.
He said: "We cannot just have a one-to-one transfer from Iraq to Afghanistan. "The net result must be a reduction in our operational tempo because the forces have been overstretched for too long."
But he added they would have to look at the "requirement on the ground".
In Basra Mr Brown visited British troops and laid a wreath in memory of the 178 British servicemen and women who have been killed in Iraq since the 2003 invasion.
Responding to the announcement, shadow defence secretary Liam Fox said it showed "renewed confidence" in the Iraqi government's ability to maintain security.
But he questioned the timing of the announcement saying the government's policy had previously been to say troops would leave "when circumstances allowed on the ground".
"I don't know why the government would have changed their mind and given such a specific commitment to dates.
"I'm sure that it's complete coincidence that it's done on the same day that we've got horrendous unemployment figures."
The Conservatives have reiterated their calls for a public inquiry into the causes and conduct of the Iraq war.
At prime minister's questions, shadow foreign secretary William Hague said: "The learning of lessons that may be relevant to Afghanistan and elsewhere can no longer be delayed."
Harriet Harman, standing in for Mr Brown at PMQs, replied that the government had made clear there would be no full inquiry while troops were still in Iraq.
"We have to respect the fact that our fighting forces are still in Iraq. There is no delay," she said.
Liberal Democrat leader Nick Clegg said it was a "huge relief" that the end was "at last in sight".
"There must be a fully independent public inquiry into how this was allowed to happen. The time when Brown has been able to hide behind our troops' ongoing presence in the country is coming to an end," he said.
"The death and injury of hundreds of British troops and hundreds of thousands of Iraqi civilians in this futile war cannot simply be swept under the carpet."The SNP and Plaid Cymru also called for ministers to set out a timetable for a public inquiry into the war.
- Stay-at-home mum tries to buy mobile phone
- Vodafone refuses, says she needs real job
- It's like a return to the 50s, she says
STAFF at a major telco company refused to sell a mobile phone to a stay-at-home mum because she didn't have a real job.
Lyndal Fair, 36, a mother of three, said she was shocked and embarrassed when staff at a Vodafone store told her they didn't sell phones to full-time mums.
Staff instead suggested she ask her husband to buy the phone for her under his own name.
"I really felt like a second-class citizen for the first time since becoming a mum," Ms Fair said. "I couldn't believe it. It was like being back in the '50s.
"For anyone to suggest that being a mum isn't a real job is just ridiculous. I thought we'd gone past this sort of outdated way of thinking. Obviously the message hasn't got through at Vodafone."
Ms Fair is a full-time homemaker for husband Michael and their three children - Hannah, 8, Nicholas, 6, and Gabrielle, 3.
She was lucky to be able to stay home to care for their children because Mr Fair earned a good wage as an industrial electrician.
"Being a mum is a full-time job and it's a very hard job - the hardest job you can have - because if you get it wrong, the ramifications for everyone are enormous," Ms Fair said.
She tried to buy the mobile phone on Monday at a Vodafone shop in Geelong's Bay City Plaza.
"They asked for my details - my home number, my work number - and I told them I don't have a separate work number because I'm a mum. That's when she said 'We have a problem'," Ms Fair said.
Staff told her it was a regular occurrence and they had sent away another mum empty-handed only days before.
"They said their computers just don't allow it," she said.
"It's just terrible. You cop it as a mum if you work because you're not at home with your children, and if you do stay home you get hit with nonsense like this."
Ms Fair said she was also angry because the phone she wanted - a BlackBerry Storm - was available only through Vodafone.
Her husband also blasted the telco.
"It's a bit rude. I can assure them, my wife does have a real job and she works very hard. It's very disappointing that they're treating any woman like this," Mr Fair said.
Vodafone spokesman Greg Spears yesterday confirmed the no-housewives rule and said getting a man to buy the phone instead was the quickest fix.
The policy was meant to stop people signing up for phones they couldn't afford and unfortunately didn't take into account that many stay-at-home mums weren't short of cash.
"It's not an ideal situation. We're trying to fix it," Mr Spears said.
Eva Cox, of the Women's Electoral Lobby, said the company should be ashamed. She called on women to boycott Vodafone until it changed the policy.
"They need to be careful that Vodafone don't get a black ban after this, or a pink ban, if you want to call it that," Ms Cox said.
SAINT DENIS DE LA REUNION, France (Reuters) - French first lady Carla Bruni-Sarkozy is suing a fashion chain for selling bags emblazoned with nude images of her in the latest legal action over the presidential couple's image.
At a court hearing on Monday in the French Indian Ocean island of Reunion, Bruni-Sarkozy's lawyer said the former model was demanding 125,000 euros ($168,300) in damages from local chain Pardon which sold the bags there for a few days.
"This little-known company is using the image of a famous person in a shocking way ... for media attention," Gesche Le Fur told the court in the island's capital, Saint Denis.
Bruni-Sarkozy, 40, rose to fame as a model before becoming a pop singer. Public interest in her has surged since her whirlwind romance with President Nicolas Sarkozy, whom she married in February less than three months after they met.
The couple have repeatedly gone to court over image issues, attracting criticism that they are too focused on trivial matters.
The founder and manager of the Pardon chain, which sells clothing and fashion accessories in Reunion but does not trade in mainland France, told the court he had withdrawn the bags from stores at the weekend.
Bruni-Sarkozy's lawyer said the damages demanded were based on what the first lady's image would be worth at current modelling rates, although she specified that her client no longer wished to market her image as a model.The bags showed a picture of Bruni-Sarkozy taken in 1993, during her modelling days. It shows her standing in a pigeon-toed pose, covering her private parts with her hands. An original print of the black-and-white photo by Michel Comte fetched $91,000 at an auction in New York in April.
The bags were on sale last week for 3 euros each. Customers were given a free bag if they spent more than five euros.
The court is expected to deliver its ruling on Thursday.
Sarkozy himself went to court in October demanding a ban on sales of a voodoo doll representing him, sold with a manual encouraging buyers to stick pins in it. An appeals court said the doll was an "offence against the personal dignity" of Sarkozy, but it would be disproportionate to ban it.
The doll court case was widely ridiculed in the French media. Sarkozy was accused of double standards by critics who recalled that, in the name of freedom of expression, he had sided with a French newspaper that printed cartoons of the Prophet Mohammad that caused worldwide uproar in 2006.
The Sarkozys also sued Irish airline Ryanair over an advert featuring Carla musing that thanks to cheap flights, her Italian relatives would be able to attend her wedding to Sarkozy.
A French court ordered Ryanair to pay symbolic damages of one euro to Sarkozy and 60,000 euros to his wife.
Le Trung, 33, has shown off his creation in YouTube videos, showing how she reacts to pain and even slaps him away if he abuses her.
News reports have dubbed Aiko the android the perfect wife, who will never nag. But Mr Le believes the technology could have numerous benefits and says his hobby is no stranger than other people's.
"Some people spend too much time in bars... I just spend my time building robots," said the robotics enthusiast from Toronto, Canada. "I do still go out."
Aiko, a female android made of silicon and electronics, is able to recognise faces and objects, interact with people using knowledge of more than 13,000 phrases in English and Japanese and tell people whether to take an umbrella if it's raining.
If Mr Le's project goes to plan, Aiko will also gather some more unusual skills – such as cleaning people's ears.
"If I lie my head down on Aiko lap, have her clean my ears with a Q-tip," Mr Le lists as one of his goals on the project's website.
At the moment, Aiko can also read the newspaper, learn the layout of buildings and offer directions to people, feed patients their food or medication and respond angrily if someone tries to hurt her.
But the most controversial feature of Aiko, weighing 32kg and measuring 152cm tall with a bust size of 82cm, has proven to be her anatomically correct body.
Mr Le said he didn't design Aiko for sexual purposes, but it was one possible use of the technology.
"In theory, yes it's capable of that and whether people want to use it like that, it's up to them," he said.
"I designed Aiko to be as human as possible, that's why I designed it like that."
Mr Le said while most people thought lifelike robots were strange at the moment, in the future every household would have one.
"Right now people see robots as if they're just like in the movies," he said.
"So when they see films like I Robot it makes them scared robots might take over the world or cause a lot of job loss.
"My android wasn't designed like that. It was designed to interact with people.
"In the future everybody will have one in their house – but now people aren't used to it yet."
Aiko has attitude
Mr Le has documented each major step of Aiko's development in YouTube videos and images posted to his website.
In one video, Mr Le demonstrates Aiko's ability to feed patients. The inventor asks the robot to feed him and it responds by grasping a biscuit and aiming for his mouth.
Mr Le then starts bobbing his head from left to right while Aiko's hand follows him.
"Stop moving around," the robot says sternly.
Mr Le continues to weave and duck, before Aiko gives up in frustration.
"Screw this, you can feed yourself," it says.
In another video, taken during Aiko's first public appearance at the Ontario Science Centre last November, Mr Le squeezes the robot's breast.
"I do not like it when you touch my breasts," Aiko says, while swatting the inventor away with her right arm.
Mr Le wrote Aiko's software – dubbed Biometric Robot Artificial Intelligence Neural System, or BRAINS – using C# and Basic and hopes to license the system to other robot developers in the future.
The current version of Aiko's body has moving parts at the mouth, neck, shoulders, elbows, wrists and hands.
The robot's hands have five movable fingers and can also be controlled by a human wearing sensor pads on the forearm to detect muscle movement.
Mr Le, who has spent more than $CA20,000 ($24,000) on the project so far, hopes to upgrade Aiko to include engines in the body, hips, knee and ankles and to teach it to walk.
The commander of Zimbabwe's air force has been wounded in what officials are calling an assassination attempt.
Perence Shiri, 53, a close ally of President Mugabe, seen as one of the most feared military leaders, was shot in the arm and is said to be stable.
The opposition MDC says he was one of the masterminds of violence against its supporters during this year's election.
Its spokesman said the attack was aimed at justifying a military crackdown and eventual declaration of an emergency.
The incident comes as pressure grows on Zimbabwe to allow international mediation in its political crisis.
The crisis is compounded by a cholera epidemic which has left hundreds dead.
On Monday, at the UN Security Council's first discussions on Zimbabwe since July, Secretary General Ban Ki-Moon said the world was witnessing a failure of the leadership in Zimbabwe to address the crisis.
After disputed presidential elections in March, President Robert Mugabe's Zanu-PF party and the opposition Movement for Democratic Change (MDC) agreed to form a power-sharing government.
But implementation of that agreement, reached in September, has been dogged by disagreements over whose supporters would get key ministries.
Correspondents say this is the first time such a senior government figure has been the target of a violent attack for many years.
"This is a very, very unusual incident, because Zimbabwe does not have a history of assassinations," the assistant editor of the state-run Herald newspaper, Caesar Zaye, told the BBC World Service's World Today programme.
Air Marshal Shiri was ambushed on Saturday evening while driving to his farm, state media said.
Police said he was accosted by unknown people who shot at his car.
When he heard the gunshots, he got out thinking it was a puncture and was shot. He is now said to be recovering in hospital.
Officials said the incident was one of a series of attacks aimed at destabilising the country.
"The attack on Air Marshal Shiri appears to be a build-up of terror attacks targeting high-profile persons, government officials, government establishments and public transportation systems," the Chronicle newspaper quoted Home Affairs Minister Kembo Mohadi as saying.
There were several bomb blasts around Harare last year which caused little damage. The courts have acquitted several opposition activists accused of staging the attacks.
Mr Zaye said the alleged assassination attempt was "an attempt to bring a security angle into the crisis".
However, other sources suggest the cause was either a feud within the ruling Zanu-PF party or an attempted robbery.
On Monday, Zimbabwe's government said it had "compelling evidence" that neighbouring Botswana was hosting military training camps for opposition groups intent on bringing about regime change.
Botswana denied the charges, and said Harare had failed to provide any tangible evidence to back up its allegations.
Air Marshal Shiri, who is also Mr Mugabe's cousin and a loyal supporter since he came to power, sits on the Joint Operations Command which advises the president on military matters.
The opposition Movement for Democratic Change said the JOC was behind the violent attacks on its supporters ahead of June's presidential run-off - allegations the military strongly denied.Air Marshal Shiri was commander of the Fifth Brigade, blamed for the killing of 20,000 people in Zimbabwe's south-western Matabeleland region during the 1980s.
NEW YORK (MarketWatch) -- Investors lost trillions of dollars and U.S. stocks prices plunged to 11-year lows. Overseas markets suffered even worse declines.
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