Tuesday, February 24, 2009

Indian outsourcers, Microsoft top the list of H-1B users in '08

By Patrick Thibodeau

WASHINGTON, D.C. -- Microsoft Corp. was the top U.S.-based recipient of H-1B visas in 2008, receiving approval for 1,037 visas, slightly more than in 2007. But the largest users of the program remain the major Indian offshore IT services firms -- and their use of H-1Bs appears to be increasing, according to government data.

(See a searchable listing of the companies receiving H-1B visas in 2008.)

The importance of the H-1B visa program to India-based outsourcers is clear from the fiscal 2008 approval list compiled by the U.S. Citizenship and Immigration Service (USCIS). That fiscal year ended Sept. 30.

The H-1B visa program has been one of the most controversial issues in the IT industry. High-tech firms argue that the visas are needed so they can recruit talented graduates from U.S. universities. But opponents say the program is being used to push down wages and enable the offshoring of IT jobs.

The program is currently capped at 65,000 annually, with another 20,000 set aside for advanced-degree graduates of U.S. universities.

In the latest listing of visa holders, Infosys Technologies Ltd. remained the top user, receiving approval for 4,559 -- the same number it got in fiscal 2007. Otherwise, the numbers for other major users varied, with some of the offshore firms showing sizable increases in their use of the program.

In second place after Infosys was Wipro Ltd., which received approval for 2,678 H-1B visas in 2008. The year before, Wipro got 2,567.

Even though Satyam Computer Services Ltd. revealed late last year that it had substantially misreported its financial statements, leading to a scandal that has put its future at risk, it received approval for 1,917 H-1B visas. That's far in excess of the 1,396 it got in fiscal year 2007.

Fourth on the list was Tata Consultancy Services Ltd., which used 1,539 visas last year, almost double the 797 it got in 2007. Microsoft was fifth on the list, winning approval for 1,018 visas, 59 more than it got in 2007. Among other U.S. firms, Google Inc., which publicly complained in a blog post last year about the H-1B system, received 248 visas -- far less than it wanted. And Lehman Brothers Inc., which failed late last year, received 130 visas.

There has been a recent backlash in Congress over the use of the visas. The $787 billion federal stimulus bill it approved earlier this month imposed restrictions on H-1B use by financial services firms that receive bailout funds.

Federal enforcement of visa laws related to the use of H-1Bs may be growing as well. Earlier this month, federal agents said they had arrested 11 people in six states in a crackdown on H-1B visa fraud; unsealed documents showed how the visa process was used to undercut the salaries of U.S. workers.

At one point, Microsoft's H-1B hiring drew the attention of Sen. Charles Grassley (R-Iowa), who last month wrote to the company and urged it to give U.S. workers priority over H-1B visa holders in its plan to layoff 5,000 employees.

The USCIS distributes H-1B visas via a lottery system because applications have been exceeding the visa cap routinely in recent years.

The USCIS will begin taking applications for the next fiscal year on April 1 and will distribute the new visas on Oct. 1, at the start of the 2010 fiscal year.

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Why Can’t Cerberus Foot the Bill?

When General Motors and Chrysler asked Washington for more money last week they took very different approaches. In exchange for an extra $17 billion from taxpayers — on top of the $13 billion it had gotten since December — G.M. said it would reduce costs by shuttering plants, cutting brands and slashing 47,000 jobs, about a fifth of its remaining work force.

For its $5.3 billion — on top of the $4.3 billion it has received since December — Chrysler offered little more than an assurance that it has already cut costs and accomplished most of what it had to do to become a valuable, viable company. It offered to trim production by a paltry 100,000 units — leaving it with capacity to make almost one million vehicles more than it will sell this year — on the questionable assumption that demand, and its market share, will bounce back next year.

Chrysler said the only reason it was back asking for more money so soon was that the car market was worse than it had expected two months ago.

This cavalier approach to the public purse raises a very big question. If Chrysler is really on track for a turnaround and all it needs is some financing to get over a bad patch in sales and debt markets, why doesn’t Cerberus Capital Management, which owns 80 percent of the company, put up the money itself? Why should taxpayers have to take the risk? That’s what private equity funds like Cerberus are supposed to do.

Cerberus and Daimler, which retained a stake in Chrysler, have promised to convert $2 billion in loans to Chrysler into equity, which should help reduce its debt. But Cerberus said giving fresh money would violate its fiduciary duty to investors, breaking company rules limiting how much it can commit to any given investment.

We suspect these rules would be more pliant if Cerberus deemed Chrysler to be a good deal.

It seems the secretive private-equity fund is willing to gamble on Chrysler’s survival with the taxpayer’s dime, but not its own.

Chrysler warns that if it doesn’t get more money from Washington it will have to declare bankruptcy.

Our argument for bailing out Detroit has been based on the notion that the collapse of the American carmakers would devastate an economy already reeling from huge job losses.

The case for saving Chrysler is certainly the weakest. It is the smallest of the Big Three, employing just more than 40,000 hourly workers. As President Obama and his aides consider whether to supply new funds, they should carefully weigh all of the arguments.

We do not minimize the personal suffering of Chrysler’s employees if the company goes under. We urge the White House to carefully analyze how wide the pain would spread. But we are somewhat skeptical about the claim in Chrysler’s brief to the Treasury that allowing it to go into bankruptcy could risk its liquidation, at the cost of hundreds of thousands and perhaps millions of jobs at Chrysler, its dealers and suppliers.

It also said a bankruptcy would cost the government more than this bailout. Given the state of the debt market, it said the government would likely end up providing the bulk of the so-called debtor-in-possession financing — an estimated $24 billion — which allows a company to remain in operation and pay its bills while it gets through an orderly bankruptcy.

Still, there may be other arguments for saying no to Chrysler. It might finally shake G.M., its creditors and the autoworkers’ union out of their complacency, forcing them to reach an agreement to reduce the beleaguered automaker’s liabilities. Saying no might even make Cerberus reconsider and put up some cash of its own.

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U.S. Bubble Collapse to Be Worse Than Japan’s, CLSA’s Wood Says

By Patrick Rial

Feb. 23 (Bloomberg) -- The U.S. is facing a deflationary collapse more severe than the crash that hobbled Japan’s economy in the 1990s, leaving gold as the only defensive play for investors, according to CLSA Ltd.’s Christopher Wood.

The housing recession in the U.S. led to a crisis in the banking system as lenders became saddled with illiquid mortgage assets, souring the securitization industry that helped drive credit growth in recent years. The nation’s retail sales fell 10.5 percent in December as consumers became more pessimistic and scaled back purchases.

“The collapse of securitization is a much more deflationary situation in the U.S. than anything seen in Japan when the bubble collapsed in the early 1990s,” Wood, Institutional Investor’s top-ranked Asia strategist, said at a conference in Tokyo sponsored by CLSA. “What we need in the future is a more fundamentally disciplined system, even at the cost of higher levels of growth.”

Gold may be the safest haven for investors as policy makers accelerate responses to the crisis, devaluing currencies versus hard assets such as gold in the process, said Wood. Gold is likely to more than quadruple from the current level of $986 per ounce currently to $3,500 in 2010, he said.

Wood, who in 2003 predicted the U.S. housing crisis, joined New York University economist Nouriel Roubini in cautioning against investment in Europe due to the rising risk among economies in the eastern and central parts of the continent that carry current account deficits.

Moody’s Investors Service Inc. on Feb. 17 said some of Europe’s largest banks may be downgraded because of loans to eastern Europe, sending shares of lenders tumbling.

“In my view, we will have a full-scale currency collapse in central and eastern Europe,” the strategist said. “This will lead to a growing focus on the huge exposure of the European banks to these distressed economies.”

China and India remain the best bets for equity investors over the long term, Wood said.

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U.S. Stocks Fall, Sending Market to Its Lowest Close Since 1997

By Lynn Thomasson

Feb. 23 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor’s 500 Index to a 12-year low, as concern that the deepening recession will erode earnings offset the government’s pledge to give more capital to banks.

Hewlett-Packard Co. and Intel Corp. slid at least 5.4 percent as Morgan Stanley said technology shares are the most vulnerable among economically sensitive industries. U.S. Steel Corp. helped lead a tumble in steelmakers after UBS AG said the group has raised output too quickly. Bank of America Corp. rose 3.2 percent and Citigroup Inc. climbed 9.7 percent as concern eased that the U.S. government will seize control of the lenders.

The S&P 500 lost 3.5 percent to 743.33, its lowest close since April 1997. The six-day losing streak in the U.S. stock benchmark ranks as its longest since October. The Dow Jones Industrial Average tumbled 250.89 points, or 3.4 percent, to 7,114.78, its lowest since May 1997. The Russell 2000 Index lost 4 percent.

“Many investors simply can’t contemplate any more stock market risk in their portfolios,” said Fritz Meyer, the Denver- based senior market strategist for Invesco Aim, which oversees $357 billion. “Sentiment in the market is very weak and negative.”

Bank of America and Citigroup, each with slides exceeding 68 percent this year, have dragged the S&P 500 to an 18 percent decline in 2009, the worst start to a year on record. The losses came as President Barack Obama and Treasury Secretary Timothy Geithner failed to assuage investor concerns with an $787 billion economic stimulus plan comprised of tax breaks and government spending.

Stress Tests

Financial shares led the market higher at the open, rising as much as 4.6 percent collectively, after U.S. regulators said they will begin examining which banks have enough capital to survive a deeper recession. Banks that need more funds after so- called stress tests and cannot raise the money from private investors will be able to tap taxpayer funds.

Losses of at least 11 percent in shares of Nucor Corp., U.S. Steel Corp. and AK Steel Holding Corp. pushed a group of raw- materials producers in the S&P 500 to a 6.2 percent tumble, the most among 10 industries.

Steelmakers need to limit supply to support a “sustained recovery,” said UBS analyst Andrew Snowdowne in a research report. He cut his rating on ArcelorMittal, the world’s biggest steelmaker, to “neutral” from “buy,” while SSAB Svenskt Staal AB, the largest supplier of high-tensile steel, was reduced to “sell” from “neutral.”

Morgan Stanley strategist Jason Todd advised clients to remain “underweight” technology and raw-materials companies as the global economy continues to deteriorate.

‘Sell the Rally’

“Sell the recent rally,” Todd wrote. “Tech is a momentum sector where generally valuations alone are not enough to drive outperformance if earnings momentum is negative and valuations are just ‘fair.’”

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

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AmEx paying card holders to close their accounts

NEW YORK (Reuters) - American Express Co, battered by mounting credit card losses, is offering $300 to a limited number of U.S. card holders who pay off their balances and close their accounts, the company said on Monday.

"We sent the offer out to a select number of card members," said Molly Faust, a company spokeswoman. "We are looking at different ways that we can manage credit risk based on the costumers overall credit profile."

The company did not say how many card holders would receive the offer and did not disclose the total of their card balances.

Card holders have until the end of February to accept the offer and must close their accounts in March or April. Each card holder will receive a $300 pre-paid American Express card.

American Express, often seen as catering to relatively wealthy customers and companies, has been expanding its credit card business in recent years by reaching out to a wider range of clients.

But that strategy has backfired. The company's earnings tumbled in the fourth quarter as credit losses jumped and debt-burdened consumers slashed spending.

In addition, American Express reported last week that credit card delinquencies rose in January more than analysts expected, as U.S. unemployment increased and the global economy deteriorated.

Like its credit card rivals such as Discover Financial Services, Capital One Financial Corp, JPMorgan Chase & Co and Citigroup Inc, American Express is selectively scaling back the credit lines of some U.S. customers and reducing efforts to gain new customers domestically.

The firm is cutting expenses, aiming to save $1.8 billion in 2009.

American Express shares fell 3 percent to $12.58 in afternoon trading on the New York Stock Exchange. The shares have lost a third of their value this year.

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Does the News Industry Deserve a Bailout?

newspaper media bailout online
Copies of the New York Times are seen for sale in New York City.

One of the oldest newspaper chains, Journal Register, went bankrupt late last week. It had too much debt and too little operating income. The daily newspapers in Philadelphia have also filed for Chapter 11. There have been rumors, almost certainly untrue, that The New York Times (NYT) will run low on funds to pay its debt. In the case of The Times it has valuable assets to sell, but its situation deteriorates each quarter. By most estimates, its second largest property, The Boston Globe, loses $1 million a week.

The obituaries of newspapers and now, magazines have been written by everyone who can hold a pen or type on a keyboard. The internet was supposed to save print. People who would not buy The Globe would read it online. Advertisers would support the migration to the internet by moving their marketing dollars there as well. It has not worked. Internet advertising is doing as poorly as advertising in any other part of the industry. And, the people who were going to read The Globe on the internet are going to MSNBC instead. (See the 50 best inventions of 2008.)

The federal government is handing out over $1.5 trillion to support the economy through the Obama stimulus package, TARP, and the new mortgage assistance program. Among the clear winners in the frenzy to save parts of American industry are financial firms and the car companies. Aid may be extended to auto parts companies and insurance operators. The general rule of thumb is that the sectors of the economy that are considered "strategic" will get the lion's share of funding. Car companies are strategic because they employ so many people. Banks are in this category because the credit system cannot operate efficiently without them.

Since it is almost certain that a large portion of the print news industry will be damaged by the recession and the internet, why is it being bypassed as a bailout candidate? The easy answer is that news will be available on the internet. But, since readers are less likely to be loyal to brands when reading news online than they are with print, that answer does not address the problem. Online newspapers face more competition on the internet than they do as physical products.

The argument that economists would make for the appropriateness of the downfall of print is based on "creative destruction." As one generation of products or services become obsolete it is replaced by another which better fits the current environment. The car industry and the banks in their current incarnations look like they will dodge any application of this principle in the real world.

The case has not been made, and it should be, that the strategic value of the print media comes from the centuries that it has served as a check and balance to the central government both in the United States and elsewhere. The most obvious example of this is the reporting on Watergate done by The Washington Post, but the tradition is longer and deeper than many people remember. William Randolph Hearst may have been one of the most reprehensible publishers in history, but he was instrumental in building a level of public opinion that prevented FDR's plans for The New Deal from usurping the power that appropriately belonged to Congress and the courts. If it had not been for the press, Huey Long might have turned Louisiana into its own nation state.

Politicians have every reason to want to see print media fail. That can be said tongue in cheek, but too many governors and congressmen have lost jobs after newspaper investigations to make the relationship between Fourth Estate and politicians a comfortable one. A neutered press would benefit a number of elected officials. That may be reason enough for them to stay away from providing newspaper and magazines with financial aid. The other obvious reason the government may be against putting capital into media companies is that it could give the appearance of politicians "buying" better treatment by the press. Since Senators have been known to find themselves in compromising conditions, getting a favor from the newspapers now and then might be helpful. Drawing a line between the "state" of the government and the "church" of the press might be impossible.

The coroner's report on the newspaper and magazine industries will read that they died from lack of public interest in the printed word. What should not be left unsaid is that its service to the republic was extraordinary and because of that, it deserved better.

Douglas A. McIntyre

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When Consumers Cut Back: An Object Lesson From Japan

Torin Boyd/Polaris, for The New York Times

Naoko Masaki worries about the future after her husband retires. “We must be ready to fend for ourselves,” she says.


TOKYO — As recession-wary Americans adapt to a new frugality, Japan offers a peek at how thrift can take lasting hold of a consumer society, to disastrous effect.

The economic malaise that plagued Japan from the 1990s until the early 2000s brought stunted wages and depressed stock prices, turning free-spending consumers into misers and making them dead weight on Japan’s economy.

Today, years after the recovery, even well-off Japanese households use old bath water to do laundry, a popular way to save on utility bills. Sales of whiskey, the favorite drink among moneyed Tokyoites in the booming ’80s, have fallen to a fifth of their peak. And the nation is losing interest in cars; sales have fallen by half since 1990.

The Takigasaki family in the Tokyo suburb of Nakano goes further to save a yen or two. Although the family has a comfortable nest egg, Hiroko Takigasaki carefully rations her vegetables. When she goes through too many in a given week, she reverts to her cost-saving standby: cabbage stew.

“You can make almost anything with some cabbage, and perhaps some potato,” says Mrs. Takigasaki, 49, who works part time at a home for people with disabilities.

Her husband has a well-paying job with the electronics giant Fujitsu, but “I don’t know when the ax will drop,” she says. “Really, we need to save much, much more.”

Japan eventually pulled itself out of the Lost Decade of the 1990s, thanks in part to a boom in exports to the United States and China. But even as the economy expanded, shell-shocked consumers refused to spend. Between 2001 and 2007, per-capita consumer spending rose only 0.2 percent.

Now, as exports dry up amid a worldwide collapse in demand, Japan’s economy is in free-fall because it cannot rely on domestic consumption to pick up the slack.

In the last three months of 2008, Japan’s economy shrank at an annualized rate of 12.7 percent, the sharpest decline since the oil shocks of the 1970s.

“Japan is so dependent on exports that when overseas markets slow down, Japan’s economy teeters on collapse,” said Hideo Kumano, an economist at the Dai-ichi Life Research Institute. “On the surface, Japan looked like it had recovered from its Lost Decade of the 1990s. But Japan in fact entered a second Lost Decade — that of lost consumption.”

The Japanese have had some good reasons to scale back spending.

Perhaps most important, the average worker’s paycheck has shrunk in recent years, even after companies rebounded and bolstered their profits.

That discrepancy is the result of aggressive cost-cutting on the part of Japanese exporters like Toyota and Sony. They, like American companies now, have sought to fend off cutthroat competition from companies in emerging economies like South Korea and Taiwan, where labor costs are low.

To better compete, companies slashed jobs and wages, replacing much of their work force with temporary workers who had no job security and fewer benefits. Nontraditional workers now make up more than a third of Japan’s labor force.

Younger people are feeling the brunt of that shift. Some 48 percent of workers age 24 or younger are temps. These workers, who came of age during a tough job market, tend to shun conspicuous consumption.

They tend to be uninterested in cars; a survey last year by the business daily Nikkei found that only 25 percent of Japanese men in their 20s wanted a car, down from 48 percent in 2000, contributing to the slump in sales.

Young Japanese women even seem to be losing their once- insatiable thirst for foreign fashion. Louis Vuitton, for example, reported a 10 percent drop in its sales in Japan in 2008.

“I’m not interested in big spending,” says Risa Masaki, 20, a college student in Tokyo and a neighbor of the Takigasakis. “I just want a humble life.”

Japan’s aging population is not helping consumption. Businesses had hoped that baby boomers — the generation that reaped the benefits of Japan’s postwar breakneck economic growth — would splurge their lifetime savings upon retirement, which began en masse in 2007. But that has not happened at the scale that companies had hoped.

Economists blame this slow spending on widespread distrust of Japan’s pension system, which is buckling under the weight of one of the world’s most rapidly aging societies. That could serve as a warning for the United States, where workers’ 401(k)’s have been ravaged by declining stocks, pensions are disappearing, and the long-term solvency of the Social Security system is in question.

“My husband is retiring in five years, and I’m very concerned,” says Ms. Masaki’s mother, Naoko, 52. She says it is no relief that her husband, a public servant, can expect a hefty retirement package; pension payments could fall, and she has two unmarried children to worry about.

“I want him to find another job, and work as long as he’s able,” Mrs. Masaki says. “We must be ready to fend for ourselves.”

Economic stimulus programs like the one President Obama signed into law last week have been hampered in Japan by deflation, the downward spiral of prices and wages that occurs when consumers hold down spending — in part because they expect goods to be cheaper in the future.

Economists say deflation could interfere with the two trillion yen ($21 billion) in cash handouts that the Japanese government is planning, because consumers might save the extra money on the hunch that it will be more valuable in the future than it is now.

The same fear grips many economists and policymakers in the United States. “Deflation is a real risk facing the economy,” President Obama’s chief economic adviser, Lawrence H. Summers, told reporters this month.

Hiromi Kobayashi, 38, a Tokyo homemaker, has taken to sewing children’s ballet clothes at home to supplement income from her husband’s job at a movie distribution company. The family has not gone on vacation in two years and still watches a cathode-ray tube TV. Mrs. Kobayashi has her eye on a flat-panel TV but is holding off.

“I’m going to find a bargain, then wait until it gets even cheaper,” she says.

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Philadelphia Newspapers Seeking Bankruptcy


The owners of The Philadelphia Inquirer and The Philadelphia Daily News filed for bankruptcy late Sunday night after talks aimed at restructuring their heavy debt load broke down, executives said.

The papers will continue to operate and will remain under local control, said Brian Tierney, publisher of The Inquirer and the leader of a group of local investors who bought the papers in 2006, one of several newspaper deals from that era that have gone bad as the industry’s revenues have plunged.

Philadelphia Newspapers, a subsidiary of Philadelphia Media Holdings, is the entity filed for bankruptcy protection. In a brief interview late on Sunday night, Mr. Tierney said the company would negotiate with its creditors to rework its debt burden.

“Philadelphia Newspapers’ goal is to bring its debt in line with the reality of current economic conditions,” he said.

He signaled that his company’s primary aim in bankruptcy would be to seek concessions from the consortium of banks that hold its debt, not from the papers’ labor unions. “This restructuring is focused solely on our debt, not our operations,” he said.

The company has been negotiating for the better part of a year with the banks, led by Citizens Bank. It had not been in compliance with its debt covenants since mid-2008, and it suspended payment on the debt last fall. Most recently, executives of Philadelphia Media said the original investors offered to put $25 million into the company, but a meeting with the banks on Friday produced no resolution.

The sale of the Philadelphia papers was one of a flurry of deals made in the two years before the recession began, with buyers — many of whom had no background in the field — paying prices for newspapers that were called exorbitant even at the time. Revenue for most newspapers has dropped more than 20 percent since then, leaving the new owners struggling with debt.

The Tribune Company, which was taken private in December 2007 by Sam Zell, a real estate mogul, filed for bankruptcy less than a year later. The Minneapolis Star Tribune, bought in late 2006 by Avista Capital Partners, a private equity firm, filed for bankruptcy last month. (The Journal Register Company, which was not part of the buying spree of a few years ago, filed for bankruptcy on Saturday.)

The McClatchy Company bought the Knight Ridder chain in 2006, and has struggled with the debt from that deal. McClatchy quickly sold some of its papers, including those in Philadelphia and Minneapolis.

Mr. Tierney, a public relations executive, and his partners paid $562 million for the papers, including about $412 million in borrowed money. There remains about $390 million in debt.

Executives say that with debt payments suspended, the papers continue to generate cash flow, in part because of significant cost-cutting. One said that last year, they had earnings before income, taxes, depreciation and amortization of $36 million.

Philadelphia Newspapers is being advised by the investment bank Jeffries. Its bankruptcy lawyers are from Proskauer Rose and Dilworth Paxson.

Over the months of talks with the banks, Philadelphia Media executives have been frustrated by the consortium charging the company for fees paid to the banks’ lawyers and consultants, and for interest penalties — bills that the newspaper group says total $13.4 million. The executives said they had arranged $25 million in debtor-in-possession loans to continue operations.

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U.S. Eyes Large Stake in Citi

Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.

While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup's common stock. Bank executives hope the stake will be closer to 25%, these people said.

Any such move would give federal officials far greater influence over one of the world's largest financial institutions. Citigroup has proposed the plan to its regulators. The Obama administration hasn't indicated if it supports the plan, according to people with knowledge of the talks.

When federal officials began pumping capital into U.S. banks last October, few experts would have predicted that the government would soon be wrestling with the possibility of taking voting control of large financial institutions. The potential move at Citigroup would give the government its biggest ownership of a financial-services company since the September bailout of insurer American International Group Inc., which left taxpayers with an 80% stake.

[Citibank signage] Associated Press

Citibank signage

The talks reflect a growing fear that Citigroup and other big U.S. banks could be overwhelmed by losses amid the recession and housing crisis. Last week, Citigroup's share price fell below $2 to an 18-year low. Bank executives increasingly believe that the government needs to take a larger ownership stake in the institution to stop the slide.

Under the scenario being considered, a substantial chunk of the $45 billion in preferred shares held by the government would convert into common stock, people familiar with the matter said. The government obtained those shares, equivalent to a 7.8% stake, in return for pumping capital into Citigroup.

The move wouldn't cost taxpayers additional money, but other Citigroup shareholders would see their stock diluted. A larger ownership stake by the government could fuel speculation that other troubled banks will line up for similar agreements.

Bank of America Corp. said Sunday that it isn't discussing a larger ownership stake for the government. "There are no talks right now over that issue," said Bank of America spokesman Robert Stickler. "We see no reason to do that. We believe the goal of public policy should be to attract private capital into the bank, not to discourage it."

Shareholders' Fears

Citigroup's low share price already reflects, at least in part, a fear among shareholders that their stakes might be further diluted. A government move to take a big stake could backfire, potentially spurring investors to flee other banks, even healthier ones.

There's no universal agreement on what constitutes nationalization of a bank. In the U.K., the government already owns 43% of Lloyds Banking Group PLC, and last week moved to increase its ownership of Royal Bank of Scotland Group PLC to 70% from 58%. Those two banks have been classified as "public-sector entities," and as much as £1.5 trillion ($2.136 trillion) of their liabilities have been moved over to the country's balance sheet.

The White House has knocked down recent speculation that the government is preparing to nationalize several large U.S. banks.

The U.S.'s intentions with Citigroup remain unclear. For instance, it's not yet known whether the government would seek a stronger hand in the New York company's management or day-to-day operations.

As part of the plan, Citigroup officials hope to persuade private investors that have bought preferred shares -- such as the Government of Singapore Investment Corp., Abu Dhabi Investment Authority and Kuwait Investment Authority -- to follow the government's lead in converting some of those stakes into common stock, according to people familiar with the matter. That would further bolster an obscure but increasingly pivotal measure of banks' capital known as "tangible common equity," or TCE.

The TCE measurement, one of several gauges of a bank's financial strength, gives weight to common shares -- thus the interest in converting preferred shares to common stock.

Details of the rescue remain in flux. Key questions, such as the price at which the government will convert its preferred stock into common shares, haven't been resolved.

And it's possible that other options will emerge to stabilize the company. For example, the Obama administration could decide to sit tight until the results of several new "stress tests" on major banks -- broad examinations of financial health now being mandated -- are known in a couple months, one official said.

If the deal gets nailed down, it will be Washington's third effort to aid Citigroup since last fall. In October, the Treasury Department put a total of $125 billion into eight giant financial institutions, including $25 billion to Citigroup, in exchange for preferred shares and warrants to buy stock.

Then, shortly before Thanksgiving, the government agreed to infuse another $20 billion into Citigroup as its stock tumbled. It also agreed to protect the banking company against most losses on a $301 billion pool of assets.

Among the question marks looming over the current discussions is the future of Citigroup Chief Executive Vikram Pandit and the company's board.

Pandit's Future

In November, as part of the sweeping rescue, federal officials privately discussed the possibility of replacing Mr. Pandit, who became CEO in December 2007. But the government decided not to remove him, in large part due to a dearth of qualified replacements. Still, top government officials warned Mr. Pandit that a third trip to the taxpayer trough would probably cost him his job.

However, since the latest talks don't involve the possibility of Citigroup receiving additional government capital, it isn't clear whether Mr. Pandit's job is on the line. A Citigroup spokeswoman declined to comment.

Federal officials have been pushing Citigroup executives and the board's lead independent director, Richard Parsons, to shake up the 15-member board. Already, three directors, including former Treasury Secretary Robert Rubin, have announced plans to step down this spring.

There are at least two catalysts for the recent talks with the government.

First, Citigroup's shares have fallen to historic lows. That doesn't pose a direct threat to the company's stability. But if it spooks customers into pulling their business, that could push the bank toward a dangerous downward spiral.

Second, bank regulators this week will start performing their battery of stress tests at the nation's largest banks as part of the Obama administration's industry-bailout plan. As part of those tests, the Federal Reserve is expected to dwell on the TCE measurement as a gauge of bank health, according to people familiar with the matter.

The crisis is triggering a deep re-examination of the way bank health is measured in the U.S. financial system. This complex exercise boils down to calculating various ratios of capital to a bank's total assets.

Until recently, TCE -- essentially a gauge of what common shareholders would get if an institution were dissolved -- has been one of the less prominent ways to measure a bank's vigor. TCE is also among the most conservative measures of financial health.

Bankers and regulators generally prefer to use what is known as "Tier 1" ratio of a bank's capital adequacy. It takes into account equity other than common stock. By Tier 1 measurements, most big banks, including Citigroup, appear healthy. Citigroup's Tier 1 ratio is 11.8%, well above the level needed to be classified as well-capitalized.

By contrast, most banks' TCE ratios indicate severe weakness. Citigroup's TCE ratio stood at about 1.5% of assets at Dec. 31, well below the 3% level that investors regard as safe.

The regulators' new focus on TCE represents an important shift. The government's recent injections into hundreds of institutions were predicated on the idea that Tier 1 was key. Because the investments weren't in the form of common stock, they didn't affect the companies' TCE ratios.

—Dan Fitzpatrick, Deborah Solomon and Damian Paletta contributed to this article.

Write to David Enrich at david.enrich@wsj.com and Monica Langley at monica.langley@wsj.com

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Nigerian Accused in Scheme to Swindle Citibank


Swindles in which someone overseas seeks access to a person’s bank account are so well known that most potential victims can spot them in seconds.

But one man found success by tweaking the formula, prosecutors say: Rather than trying to dupe an account holder into giving up information, he duped the bank. And instead of swindling a person, he tried to rob a country — of $27 million.

To carry out the elaborate scheme, prosecutors in New York said on Friday, the man, identified as Paul Gabriel Amos, 37, a Nigerian citizen who lived in Singapore, worked with others to create official-looking documents that instructed Citibank to wire the money in two dozen transactions to accounts that Mr. Amos and the others controlled around the world.

The money came from a Citibank account in New York held by the National Bank of Ethiopia, that country’s central bank. Prosecutors said the conspirators, contacted by Citibank to verify the transactions, posed as Ethiopian bank officials and approved the transfers.

Mr. Amos was arrested last month as he tried to enter the United States through Los Angeles, a prosecutor, Marcus A. Asner, said in Federal District Court in Manhattan.

Mr. Amos, who was charged with one count of conspiracy to commit bank and wire fraud, told a federal magistrate judge, “I’m not guilty, sir.” The judge, Andrew J. Peck, ordered him detained pending a further hearing. If convicted, he could face up to 30 years in prison, prosecutors said.

The fraud was uncovered after several banks where the conspirators held accounts returned money to Citibank, saying they had been unable to process the transactions, and an official of the National Bank of Ethiopia said that it did not recognize the transactions, according to a complaint signed by an F.B.I. agent, Bryan Trebelhorn.

A Citigroup spokeswoman said: “We have worked closely with law enforcement throughout the investigation and are pleased it has resulted in this arrest. Citi constantly reviews and upgrades its physical, electronic and procedural safeguards to detect, prevent and mitigate theft.”

A spokesman for the Ethiopian Embassy in Washington said, “We are aware of this unfortunate story.” He said the embassy was not involved in the legal proceedings, and declined further comment. Officials at the National Bank of Ethiopia could not be reached by phone for comment.

Prosecutors said the scheme began in September, when Citibank received a package with documents purportedly signed by officials of the Ethiopian bank instructing Citibank to accept instructions by fax. There was also a list of officials who could be called to confirm such requests. The signatures of the officials appeared to match those in Citibank’s records and were accepted by Citibank, the complaint says.

In October, Citibank received two dozen faxed requests for money to be wired, and it transferred $27 million to accounts controlled by the conspirators in Japan, South Korea, Australia, China, Cyprus and the United States, the complaint says.

Citibank called the officials whose names and numbers it had been given to verify the transactions, prosecutors said. The numbers turned out to be for cellphones in Nigeria, South Africa and Britain used by the conspirators.

Citibank, in its investigation, later determined the package of documents had come via courier from Lagos, Nigeria, rather than from the offices of the National Bank of Ethiopia, in Addis Ababa.

Citibank has credited back the lost funds to the National Bank of Ethiopia, said one person who was briefed about the situation.

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Postmaster's pay to be probed


REWARDED: Postmaster General John E. Potter received a compensation package totaling more than $800,000 for fiscal 2008. (Allison Shelley/The Washington Times)

REWARDED: Postmaster General John E. Potter received a compensation package totaling more than $800,000 for fiscal 2008. (Allison Shelley/The Washington ...

Congress will hold a hearing next month into why Postmaster General John E. Potter has gotten a nearly 40 percent pay raise since 2006 and was awarded a six-figure incentive bonus last year, even as the U.S. Postal Service faces a multibillion-dollar shortfall that threatens a day of mail delivery.

REWARDED: Postmaster General John E. Potter received a compensation package totaling more than $800,000 for fiscal 2008. (Allison Shelley/The Washington Times)

"Last year, the Postal Service took a loss of nearly $3 billion and recommended that the public take austere cuts in service to allow it to operate, including cutting a day of mail delivery and raising the price of stamps," Rep. Stephen F. Lynch, Massachusetts Democrat, said Friday.

"All things considered, I think most postal customers feel that the huge increase in pay for Mr. Potter is incongruent with the post office's recent performance. I assure you that our subcommittee will look into this matter at a hearing in March," said Mr. Lynch, chairman of the House Oversight and Government Reform subcommittee that oversees the Postal Service.

On Tuesday, The Washington Times reported that Mr. Potter had received nearly 40 percent in pay raises since 2006 and about $135,000 in incentive bonuses last year. For fiscal 2008, including increases to the value of his two pensions, Mr. Potter's entire compensation package totaled more than $800,000, according to Postal Service financial records.

The subcommittee on the federal work force, Postal Service and the District of Columbia will take up the issue at a hearing set for March 25. In addition to executive compensation, members will review the Postal Service's economic troubles and competitiveness, officials said.

Rep. Jason Chaffetz of Utah, the subcommittee's ranking Republican, said he, too, questions the timing of the big pay packages, given the Postal Service's financial woes.

"On the surface it just doesn't smell right," Mr. Chaffetz said. "Rewarding people for performance is acceptable, but things kind of seem to be going in the wrong direction. I'm looking forward to that hearing."

The Postal Service's board of governors informed the Postal Regulatory Commission about Mr. Potter's compensation in an annual financial filing in December. Six weeks later, Mr. Potter testified before Congress that the Postal Service's worsening finances could prompt officials to cut a day of mail delivery. The Postal Service also recently announced a pending 2-cent increase in the price of stamps.

Mr. Potter said the Postal Service's losses occurred despite cutting more than $2 billion and setting records for on-time delivery. He blamed the financial problems on a weakening economy, required health plan payments and increased use of electronic mail as a means of communication.

Among other top postal officials, Deputy Postmaster Patrick Donahoe got $600,026 in total compensation, more than half of which was an increase to the value of his retirement annuities. His base salary was $238,654.

Postal officials defend the pay packages, saying their counterparts in private industry earn far more money. The chief executive of FedEx, for example, earned more than $10 million last year, according to Securities and Exchange Commission filings.

Gerald J. McKiernan, a spokesman for the Postal Service, said Friday that postal officials briefed the subcommittee last year. He said additional briefings on the compensation of top postal officials took place last week.

"It's an educational process," he said of the briefings. "We're prepared for the hearing."

Postal officials also note that outside reviews have recommended increased compensation for postal executives.

Under federal rules, the postmaster's pay is capped so he cannot earn more than 20 percent above the salary of the vice president of the United States. But the board of governors, which oversees the Postal Service, can pay additional money to Mr. Potter as long as it's deferred until later years, according to the board.

For example, the board gave Mr. Potter a "pay for performance" award of $18,300 last year as well as a performance incentive award of $116,741. Both bonuses came on top of Mr. Potter's $263,575 salary. Mr. Potter won't be paid the incentive award money until after he leaves the Postal Service, records show.

In awarding the incentive awards, the board of governors noted that it "considered Mr. Potter's effective leadership during the difficult economic challenges of 2008, his implementation of a number of process improvements that led to record service levels at a lower cost, the steps he took that strategically positioned the Postal Service to maintain its viability for the future, and his achievement of personal goals."

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Bailout lament: What about me?

Many who played by rules see unfairness

'What about people like me who are playing by the rules, who got a mortgage we could afford? Maybe I'm too old school, but you sign on the bottom line, and you're responsible for it.' - Brian Carpenter, who bought his Woburn home in 1980
"What about people like me who are playing by the rules, who got a mortgage we could afford? Maybe I'm too old school, but you sign on the bottom line, and you're responsible for it." - Brian Carpenter, who bought his Woburn home in 1980 (Globe Staff Photo / Evan Richman)
By Robert Gavin and Jenifer B. McKim

Brian Carpenter bought his Woburn home in 1980, and 29 years later, he has never missed a mortgage payment. It wasn't always easy. With three kids, it meant driving old cars, clipping coupons, and brown-bagging it to work.

Now, he sees the federal government committing nearly $1 trillion to bail out banks and struggling homeowners, and nearly $800 billion to offset economic damage caused by reckless lending and borrowing. What's in it for him? Probably $13-a-week, the middle-class tax cut in the stimulus bill.

"What about people like me who are playing by the rules, who got a mortgage we could afford?" said Carpenter, 52, who programs building management systems for MIT Lincoln Laboratory. "Maybe I'm too old school, but you sign on the bottom line, and you're responsible for it."

Carpenter is among the vast majority of Americans who work, pay mort gages, borrow responsibly, and now find themselves facing the bill to bail out those who didn't. Over the years they lived within their means. Now they're asking: What for?

The anger underscores the dangers government faces in private sector rescues. While such interventions aim to benefit everyone by preventing severe damage to the economy, they also risk encouraging irresponsible behavior in the future. Economists call this "moral hazard."

In other words, if homeowners believe the government will lower their payments if they fall behind, they won't have as much incentive to keep paying mortgage bills on time.

"We're telling individuals, 'Go ahead, buy a bigger house than you think you can afford because the government is going to bail you out,' " said Dan Mitchell, economist at the Cato Institute, a libertarian think tank in Washington. "If you're responsible, if you do the right thing, then you feel like a sucker."

The spending on bailouts and stimulus works out to the equivalent of $11,000 for each of the nation's approximately 160 million tax filers. The total costs, however, are expected to decline when the government sells its bank stakes after the system stabilizes. But most Americans, 67 percent, don't expect this spending to improve their financial positions, according to a CNN/Opinion Research Corp. poll conducted last week.

Randy Schmid, 50, of Worcester, is one of them. A self-employed consultant, Schmid and his wife Dominika are renters. They looked into buying a home a few years ago. They hoped to find a house they could afford on a single income, so if one of them lost work, they could still meet their obligations. They didn't.

"If we would have lived beyond our means," he said, "we would have gotten a handout."

At one level, the massive government intervention is aimed only at certain segments of the population. For example, 93 percent of homeowners are up-to-date on their mortgages. Obama's $275 billion housing plan unveiled last week aims to help as many as 9 million homeowners who are facing foreclosure or struggling to pay their mortgage. More than 140 million Americans are working, compared with about 12 million unemployed. The $787 billion stimulus signed into law last week extends unemployment benefits and subsidizes healthcare coverage for the unemployed.

But the hope is that this targeted intervention will stabilize, then lift the economy as a whole. Many economists say foreclosures and unemployment will soar without massive government spending. The economy has slipped into a downward cycle of tightening credit, falling spending, and shrinking demand, resulting in rising layoffs and foreclosures that begin the cycle again.

Nariman Behravesh, chief economist at IHS Global Insight in Lexington, agreed that it is unfair that people who made good decisions pay for those who didn't. But the costs would be much higher without government help to boost demand, create jobs, and stabilize the housing market.

"When you get a situation where the economy is in a free fall, the governments role is to fix the system," Behravesh said. "What's in it for everyone is this great recession doesn't morph into the Great Depression, version 2.0."

At its worst, nearly 1 in 2 first mortgages were in default during the Great Depression and 1 in 4 workers were jobless. Double-digit unemployment rates lasted for more than a decade. The current US unemployment rate is 7.6 percent.

Not all people in trouble now acted irresponsibly. Some just had bad timing.

Leigh Bigger, a case worker with state Department of Youth Services, thought she was helping herself and the neighborhood when she bought a Brockton three-decker for $357,000 in 2004 and kicked out the drug dealer on the first floor.

But when she tried to refinance her adjustable-rate mortgage a year later, her lender decided a three-decker represented too big a risk and balked at giving her a fixed-rate loan. She got one eventually, but at an 8 percent rate that increased her payments to $3,800 a month from $2,800. She then had trouble filling her rental units, and couldn't keep up the mortgage.

She's been trying, without success, to negotiate a lower interest rate with her lender.

"I'm a Christian, God-believing person, whatever happens in my situation, I am going to be OK," said Bigger, 45. "Overall, we do need a sacrifice and bailout to help people. Somehow we have to help people who are keeping neighborhoods intact."

Representative Barney Frank, the Newton Democrat who chairs the House Financial Services Committee, said he understands people's frustrations and expects Congress to pass laws that would prevent errors and abuses that sparked the crisis.

In the meantime, Frank said, government must act to stop the housing slide, which continues to undermine home values, banks, consumer spending and the broader economy.

"You are not going to get us out of this hole until you can deal with this," Frank said. "If enough people do things unwisely and they create a systemic risk, if you say tough, they take the rest of us with them."

Jane Cummings, a 34-year-old software engineer from Hamilton, also has mixed feelings. She said she believes the government needed to do something to help the economy. But she added, "I don't think they should be bailing out people who aren't making good financial decisions. It's not fair, but I think we might have to bite the bullet."

Many others take a harsher view, objecting to the idea of taxpayer money going to help people who borrowed and spent without regard to consequences. "I don't appreciate paying for someone else's mortgage," said Ashling Gowell, 38, a stay-at-home mother who lives in southeastern Massachusetts. "I almost feel its bailing out someone who overspent on their credit card."

Certainly, said Steve Pratt, who co-owns a small healthcare consulting firm, there are people who deserve help, such as those who lost jobs and are struggling to pay mortgages. Unfortunately, said Pratt, 49, of Braintree, the bailouts reward people who were greedy, stupid, or both.

"They're not differentiating the people really in need from the people who took on too much debt and pushed it to the limits of what they could pay," Pratt said. "Personal responsibility got lost. Now, we're all going to pay."

Globe correspondent Julie Balise contributed to this report. Robert Gavin can be reached at rgavin@globe.com and Jenifer B. McKim can be reached at jmckim@globe.com.

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AP INVESTIGATION: Army charity hoards millions

By JEFF DONN, AP National Writer

Army Community Services financial educator Yolanda Davis, center, talks with AP – Army Community Services financial educator Yolanda Davis, center, talks with Pvt. Terrence Nicholas and …

FORT BLISS, Texas – As soldiers stream home from Iraq and Afghanistan, the biggest charity inside the U.S. military has been stockpiling tens of millions of dollars meant to help put returning fighters back on their feet, an Associated Press investigation shows.

Between 2003 and 2007 — as many military families dealt with long war deployments and increased numbers of home foreclosures — Army Emergency Relief grew into a $345 million behemoth. During those years, the charity packed away $117 million into its own reserves while spending just $64 million on direct aid, according to an AP analysis of its tax records.

Tax-exempt and legally separate from the military, AER projects a facade of independence but really operates under close Army control. The massive nonprofit — funded predominantly by troops — allows superiors to squeeze soldiers for contributions; forces struggling soldiers to repay loans — sometimes delaying transfers and promotions; and too often violates its own rules by rewarding donors, such as giving free passes from physical training, the AP found.

Founded in 1942, AER eases cash emergencies of active-duty soldiers and retirees and provides college scholarships for their families. Its emergency aid covers mortgage payments and food, car repairs, medical bills, travel to family funerals, and the like.

Instead of giving money away, though, the Army charity lent out 91 percent of its emergency aid during the period 2003-2007. For accounting purposes, the loans, dispensed interest-free, are counted as expenses only when they are not paid back.

During that same five-year period, the smaller Navy and Air Force charities both put far more of their own resources into aid than reserves. The Air Force charity kept $24 million in reserves while dispensing $56 million in total aid, which includes grants, scholarships and loans not repaid. The Navy charity put $32 million into reserves and gave out $49 million in total aid.

AER executives defend their operation, insisting they need to keep sizable reserves to be ready for future catastrophes.

"Look at the stock market," said retired Col. Dennis Spiegel, AER's deputy director for administration. Without the large reserve, he added, "We'd be in very serious trouble."

But smaller civilian charities for service members and veterans say they are swamped by the desperate needs of recent years, with requests far outstripping ability to respond.

While independent on paper, Army Emergency Relief is housed, staffed and controlled by the U.S. Army.

That's not illegal per se. Eric Smith, a spokesman for the Internal Revenue Service, said the agency can't offer an opinion on a particular charity's activities. But Marcus Owens, former head of IRS charity oversight, said charities like AER can legally partner closely with a government agency.

However, he said, problems sometimes arise when their missions diverge. "There's a bit of a tension when a government organization is operating closely with a charity," he said.

Most charity watchdogs view 1-to-3 years of reserves as prudent, with more than that considered hoarding. Yet the American Institute of Philanthropy says AER holds enough reserves to last about 12 years at its current level of aid.

Daniel Borochoff, president of the American Institute of Philanthropy, said that AER collects money "very efficiently. What the shame is, is they're not doing more with it."

National administrators say they've tried to loosen the purse strings. The most recent yearly figures do show a tilt by AER toward increased giving.

Still, Borochoff's organization, which grades charities, gives the Army charity an "F" because of the hoarding.

The AP findings include:

• Superior officers come calling when AER loans aren't repaid on time. Soldiers can be fined or demoted for missing loan payments. They must clear their loans before transferring or leaving the service.

• Promotions can be delayed or canceled if loans are not repaid.

• Despite strict rules against coercion, the Army uses pushy tactics to extract supposedly voluntary contributions, with superiors using language like: "How much can we count on from you?"

• The Army sometimes offers rewards for contributions, though incentives are banned by program rules. It sometimes excuses contributors from physical training — another clear violation.

• AER screens every request for aid, peering into the personal finances of its troops, essentially making the Army a soldier's boss and loan officer.

"If I ask a private for something ... chances are everyone's going to do it. Why? Because I'm a lieutenant," says Iraq war veteran Tom Tarantino, otherwise an AER backer. "It can almost be construed as mandatory."

Neither the Army nor Sgt. Major of the Army Kenneth Preston, an AER board member, responded to repeated requests for comment on the military's relationship with AER.

AER pays just 21 staffers, all working at its headquarters at Army Human Resources Command in Alexandria, Va. AER's other 300 or so employees at 90 Army sites worldwide are civilians paid by the Army. Also, the Army gives AER office space for free.

AER's treasurer, Ret. Col. Andrew Cohen, acknowledged in an interview that "the Army runs the program in the field." Army officers dominate its corporate board too.

Charities linked to other services operate along more traditional nonprofit lines. The Air Force Aid Society sprinkles its board with members from outside the military to foster broad views. The Navy-Marine Corps Relief Society pays 225 employees and, instead of relying on Navy personnel for other chores, deploys a corps of about 3,400 volunteers, including some from outside the military.

Army regulations say AER "is, in effect, the U.S. Army's own emergency financial assistance organization." Under Army regulations, officers must recommend whether their soldiers deserve aid. Company commanders and first sergeants can approve up to $1,000 in loans on their own say-so. Officers also are charged with making sure their troops repay AER loans.

"If you have an outstanding bill, you're warned about paying that off just to finish your tour of duty ... because it will be brought to your leadership and it will be dealt with," says Jon Nakaishi, of Tracy, Calif., an Army National Guard veteran of the Iraq war who took out a $900 AER loan to help feed his wife and children between paychecks.

In his case, he was sent home with an injury and never fully repaid his loan.

The Army also exercises its leverage in raising contributions from soldiers. It reaches out only to troops and veterans in annual campaigns organized by Army personnel.

For those on active duty, AER organizes appeals along the chain of command. Low-ranking personnel are typically solicited by a superior who knows them personally.

Spiegel, the AER administrator, said he's unaware of specific violations but added: "I spent 29 years in the Army, I know how ... first sergeants operate. Some of them do strong-arm."

Army regulations ban base passes, training holidays, relief from guard duty, award plaques and "all other incentives or rewards" for contributions to AER. But the AP uncovered evidence of many violations.

Before leaving active duty in 2006, Philip Aubart, who then went to Reserve Officer Training Corps at Dartmouth College, admits he gave to AER partly to be excused from push-ups, sit-ups and running the next day. For those who didn't contribute the minimum monthly allotment, the calisthenics became, in effect, a punishment.

"That enticed lots and lots of guys to give," he noted. He says he gave in two annual campaigns and was allowed to skip physical training the following days.

Others spoke of prizes like pizza parties and honorary flags given to top cooperating units.

Make no mistake: AER, a normally uncontroversial fixture of Army life, has helped millions of soldiers and families. Last year alone, AER handed out about $5.5 million in emergency grants, $65 million in loans, and $12 million in scholarships. Despite the extra demands for soldiers busy fighting two wars, AER's management says it hasn't felt a need to boost giving in recent years.

But the AP encountered considerable criticism about AER's hoarding of its treasure chest.

Jack Tilley, a retired sergeant major of the Army on AER's board from 2000 to 2004, said he was surprised by AP's findings, especially during wartime.

"I think they could give more. In fact, that's why that's there," said Tilley, who co-founded another charity that helps families of Mideast war veterans, the American Freedom Foundation.

What does AER do with its retained wealth? Mostly, it accumulates stocks and bonds.

AER ended 2007 with a $296 million portfolio; last year's tanking market cut that to $214 million, by the estimate of its treasurer.

Sylvia Kidd, an AER board member in the 1990s, says she feels that the charity does much good work but guards its relief funds too jealously. "You hear things, and you think, "`They got all this money, and they should certainly be able to take care of this,'" she said. She now works for a smaller independent charity, the Association of the United States Army, providing emergency aid to some military families that AER won't help.

Though AER keeps a $25 million line of bank credit to respond to a world economic crisis, its board has decided to lop off a third of its scholarship money this year. "We're not happy about it," Spiegel says.

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Long-Standing Conflict Ends As Israel Returns Lawn Mower To Palestine

JERUSALEM—Decades of ethnic tension ceased instantaneously Monday when Israeli prime minister Ehud Olmert and Palestinian president Mahmoud Abbas shook hands over a comprehensive agreement to return a faded green lawn mower first borrowed by Israel in 1949.

Enlarge Image Mideast Conflict

The Israeli prime minister apologizes for not refilling the tank first.

The historic accord, whose sole term was the long-awaited return of the hotly contested lawn-care device, was signed amid cheers and applause from representatives of both nations. Celebrations were reported across the Middle East, as Jews and Muslims came together by the thousands to rejoice in the streets.

The return of the disputed item brings an end to half a century of violence and bloodshed in the borrowed-lawn-mower-torn region.

"With the return of the mower to the cherished homeland, the healing process can finally begin," Abbas told a cheering crowd of more than 100,000 Israelis and Palestinians who gathered at the border to watch a lawn mower handover many thought would never take place in their lifetimes. "Now, I call on all Palestinians to cease all aggression toward our neighbors, so that we may live harmoniously alongside them while finally getting started on a lawn that has been badly in need of cutting for three generations."

Enlarge Image Mideast Conflict Map

The lawn mower, a rusty two-stroke 1943 Lawn Boy, holds a value that is largely symbolic and, due to its poor condition, has not actually been used by Israeli Self-Groundskeeping Forces since 1989. It reportedly starts only after repeated yanking on its pull-cord, requires liberal sprays of starter fluid, belches thick acrid smoke, must be laboriously pushed due to a faulty drive roller, and has no accompanying grass-clipping collection bag. But geopolitical experts agree that it is the principle of the lawn mower, more than the machine itself, that has led to 60 years of airstrikes, rocket launcher attacks, and suicide bombings, with countless dead and tragically poor yard maintenance on both sides.

"A loaner is a loaner, whether it's a rusted-out hunk of junk or not," said Dr. Sayid Al-Habib, a noted Palestinian diplomat. "Sure, it leaks oil, and yes, we were probably going to throw it out anyway, but that is not the point. When you borrow something, you return it."

The mower was originally lent to Chaim Weizmann, the first president of Israel, in November 1949 as a good-faith gesture by Palestinians seeking to reach out to the people who had appropriated 80 percent of their land and wished to cut the grass growing there. However, when the mower had not been returned by the next spring, and Palestine's own lawn began to get out of control, social unrest grew along with it.

"The conflict had gone on for so long that many of us had forgotten what we were fighting about in the first place," Israeli spokesman Mark Regev, flanked by cheerful members of the now-defunct Palestinian Islamic Jihad, told reporters at press conference in downtown Jerusalem. "Though at first Israel had every intention of returning the mower, some hard-liners in the Knesset objected to doing so until Palestine returned our hedge clippers. Then there was the matter of several extension cords which were borrowed without asking by various pan-Arab power blocs. Soon, as you all know, the situation spiraled out of control."

"But now everything is totally fine," he added.

By the late 1950s, the lawn mower had become a central point of dispute between the two groups. In 1964, Daoud Mikhail founded the Palestinian Lawnmower Organization around the central tenet of the "right of return" of the mower from Israel. When Israel refused to recognize the PLO, frustrated Palestinians resorted to chopping off the branches of Israeli trees that extended over Palestinian lawns. In response, Israel razed 40,000 acres of olive groves, beginning a cycle of escalating violence that would include Palestinian suicide bombings, Israeli bulldozing of Palestine's lawn, the erection of a much larger fence between the two nations' properties, and the 1973 Yom Kippur War.

The dispute also resulted in the 2003 death of an American pro-Palestinian activist who laid down in front of the lawn mower as an Israeli Army edger-trimmer squad cut disputed grass. Refusing to move when ordered, he was tragically mulched.

"Now that Israel has finally returned this mower, we look forward to friendly relations between our two nations for all time," Palestinian negotiator Saeb Erekat said at the United Nations Monday. "We will immediately return the disputed Israeli Frisbee that landed on our roof decades ago, invite the Israelis to join the Palestinian Neighborhood Organization, and act in concert with them to demand the return of the basketball stolen by Syria in 1979."

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100,000 Protest in Dublin Over Irish Economy

Lisa Derrick

Over 100,000 people marched in Dublin, Ireland Saturday to protest the government's handling of inflations, job loss and economy. The march was organized by Irish Congress of Trade Unions (Ictu), and many of the demonstrators were protesting plans to impose a pension levy on public sector workers.

The government said the levy was


and reflected

the reality that we are not in a position to continue to meet the public service pay bill in the circumstances of declining revenue.

Sally-Anne Kinahan, Ictu's secretary general, told the BBC:

Our priority is about ensuring that people are looked after, the interests of people are looked after, not the interests of big business or the wealthy

The Itcu is offering a ten-point plan which is

not perfect but that it was the best offer that it [the Government] would get

said Ictu general secretary David Begg. Additionally Begg called for the nationalization of the banks and said that

if the taxpayer was taking responsibility for the cost of the €300 million in loans for the ten members of the so-called “golden circle” who were involved in investing in Anglo Irish Bank that the people were entitled to know their identities at the very least.

Also marching were working from the private sector where the economic crisis has been deeply felt. Delegations from Waterford Crystal and SR Technics, two especially hard hit companies, led the march which began in Parnell Street and moved to Merrion Square.

A collapsing real estate market and a huge downturn in construction have helped fuel Ireland's recession, along with worldwide market downturns.

The president of Ictu, Patricia McKeown called for action at the ballot box where power can be most felt:

If our Government and the elected politicians are not prepared here and now to pledge that they will act now and act on our behalf and act on the proposals we have placed before them then you must be prepared to deny them even a single vote and to send that message out loud and clear.

In a statement issued this morning, the Government said there was a considerable amount in Ictu's Plan for National Recovery that was "entirely consistent" with its own agenda--and then went on to discuss how necessary pension cuts were, a completely inconsistent point to the trade unions' stance.

One demonstrator told the BBC:

I've worked all my life, I've never broke the law, never walked out on strike. Instead I've went to work and done my job. I've a mortgage to pay, I've children to put through school, and now I'm being told I have to take cutback, after cutback, after cutback.

Ireland's employment figure--based on people receiving benefits--rose to 326,000 last month, the highest number since record keeping began in 1967. The country, once one of the fastest growing economies in the European Union, officially fell into recession in 2008.

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Boy, 11, accused of killing father's pregnant girlfriend

(CNN) -- An 11-year-old boy is facing adult charges in the shooting death of his father's pregnant girlfriend, authorities said Saturday.

Police say Kenzie Marie Houk's daughter found her shot to death in her bed on Friday.

Police say Kenzie Marie Houk's daughter found her shot to death in her bed on Friday.

Police say the boy shot Kenzie Marie Houk, who was eight months pregnant, once at point-blank range in her farmhouse in western Pennsylvania.

The boy, whose name was withheld by CNN because he is a juvenile, was charged with one count each of criminal homicide and homicide of an unborn child in the death of Houk, 26, Lawrence County District Attorney John Bongivengo told CNN.

Houk's 4-year-old daughter found her in her bed Friday, according to police. The child alerted landscapers working near the home, who then called authorities.

"This is something that you wouldn't even think of in your worst nightmare, that you'd have to charge an 11-year-old with homicide," Bongivengo said, according to CNN affiliate WTAE. "It's heinous, the whole situation."

Under Pennsylvania law, anyone over the age of 10 accused of murder or homicide is charged as an adult. If convicted, the boy faces a maximum sentence of life in prison, Bongivengo said.

Authorities said the boy is the son of the victim's live-in boyfriend at the home in Wampum, about 35 miles northwest of Pittsburgh.

"At this point, we don't believe it's accidental," Bongivengo said.

The weapon was a youth model 20-gauge shotgun, designed for use by children, that belonged to the boy, according to investigators.

Bongivengo told reporters the household has no history of child abuse, but that an investigation is ongoing.

Calls to the boy's public defender, Dennis Elisco, went unanswered Saturday.

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