In a WaMu Settlement With the F.D.I.C., Slapped Wrists

Abstract: WHEN Washington Mutual collapsed in 2008, it was the largest bank failure in American history. So the $64.7 million settlement struck last week by federal banking regulators and three former WaMu executives seems like small potatoes indeed. Worse, most of the money didn’t even come from the former executives’ pockets. Instead, it came from directors’ and officers’ liability insurance policies paid for by the bank. The deal, agreed to by the Federal Deposit Insurance Corporation , requires that the men, among them Kerry Killinger, WaMu’s former chief executive , forgo claims for insurance coverage and some past compensation that they had requested from the bankruptcy court. To anyone familiar with WaMu’s Wild West lending practices — “The Power of Yes” was the bank’s motto — the agreement might seem like yet another example of the minimalist punishment meted out to major players in the credit boom and bust. Here are the particulars: Mr. Killinger paid $275,000 in cash. He also agreed to forfeit claims against his WaMu retirement accounts with a face amount of $7.5 million. These sums are a pittance when set against the $88 million in compensation that Mr. Killinger received from the bank from 2001 to 2007. Stephen Rotella, WaMu’s former president, paid $100,000 in cash and gave up a claim to $11.5 million in compensation. David Schneider, its former home loans president, paid $50,000 and forfeited a claim to $5.8 million. Mr. Rotella and Mr. Schneider were able to hang on to other claims that they have filed in the WaMu bankruptcy: Mr. Rotella retained a retirement account valued at $5.4 million, while Mr. Schneider kept a $1.9 million claim. It is unclear whether WaMu will pay these claims, of course. If it does, the executives will have to pay taxes on them. “Pretty soft,” is how Senator Carl Levin, the Michigan Democrat who heads the Senate’s permanent subcommittee on investigations, characterized the settlement in an interview on Friday. “Washington Mutual Bank epitomizes everything that went wrong with the banking industry and contributed to the financial crisis, so the F.D.I.C. was right to go after the bank’s leadership,” Mr. Levin said in a statement issued on Tuesday. “Former WaMu executives Killinger, Rotella and Schneider are truly the 1 percent: they got bonus upon bonus when the bank did well, but when they led the bank to collapse, insurance and indemnity clauses shielded them from paying any penalty for their wrongdoing.” Officials at the F.D.I.C. said they were pleased with the settlement and that it maximized its recoveries. The $64.7 million will be combined with $125 million that WaMu’s holding company agreed to relinquish to the regulator. Although the settlement probably disappoints anyone hoping executives might be held personally accountable, it does illustrate what regulators are up against when litigating these matters. For starters, the F.D.I.C. faced a time constraint. The insurance policies being tapped by the regulator were declining steadily in value as others making claims against the bank were paid. The F.D.I.C. also had to confront the circular nature of the continuing WaMu bankruptcy and the claims being made against the institution. If the regulator had asked for higher payments from the former executives, the men could have turned around and requested that the bankrupt company pay the amounts under its indemnification policies. If the company did have to cover the F.D.I.C.’s requests, it could reduce the $125 million that WaMu has agreed to give the regulator. Given these risks and the costs of continuing litigation, the F.D.I.C. said, it made sense to complete the $64.7 million deal. Lawyers representing Mr. Killinger and Mr. Schneider did not respond to requests for comment. Mr. Rotella issued this statement through a spokesman: “I believe the facts clearly demonstrate that during my brief tenure at WaMu, my efforts substantially reduced risk and addressed highly challenging business problems that predated my arrival. I continue to strongly dispute the F.D.I.C.’s allegations and regret that we did not have more time to finish restructuring WaMu successfully.” Mr. Levin’s dismay over the settlement probably arises from his deep knowledge of WaMu and its practices. After all, he led the Senate’s 2010 investigation into the origins of the financial crisis, producing a 650-page report on actions taken by WaMu, Goldman Sachs and the credit ratings agencies, among others. Mr. Levin’s office referred the findings to prosecutors for possible follow-up. Not much has happened since. The damning report detailed WaMu’s questionable operations as well as those of its regulator, the Office of Thrift Supervision. That feckless agency was responsible for overseeing three of the biggest disasters in mortgage lending history : Countrywide Bank, IndyMac Bancorp and WaMu. Mercifully, the Dodd-Frank law put an end to the O.T.S., folding it into the Office of the Comptroller of the Currency. ARE the WaMu executives out of the woods? They’re getting close. Last summer, the Justice Department shut down its criminal investigation into WaMu and its officials, concluding that the evidence it had amassed “did not meet the exacting standards for criminal charges in connection with the bank’s failure.” Mr. Levin noted that the O.C.C. could still act against WaMu’s former executives. “There are some real possible enforcement actions they can take to go after civil money penalties,” he said. “They have the ability to go after securities violations for securities WaMu issued that were defective or misleading, unsafe and unsound practices, breach of fiduciary duty, general disregard for banking regulations — there’s still a way to get more accountability.” Asked whether the O.C.C. would pursue such actions, a spokesman declined to comment. Unfortunately, the agency’s history does not suggest that it will act aggressively on this matter. If past is prologue, the accountability deficit that many Americans find so disturbing is likely to grow even larger.

Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)


Feminism a Good Fit for One 'Good Muslim Boy'

Abstract: LONDON — Nazir Afzal’s enemies are a diverse lot. Some are Muslim men like him, men with British passports and roots in Pakistan who can’t get their head around one of their own pointing the finger at forced marriages and honor crimes and “giving racists another stick to beat us with.” Others come from Britain’s far-right fringe and can’t get their head around a Muslim being a chief prosecutor for “their” queen and “their” country. They once wrote a letter to Prime Minister David Cameron, demanding that he fire and deport Mr. Afzal. Mr. Afzal, 51, chuckles. “I was born in Birmingham, England, and I’m not going back there.” One of 13 chief crown prosecutors in Britain, he oversees 100,000 prosecutions a year and manages 800 lawyers and paralegals in the prosecution service’s North West Area, the most populous after London. He was the first minority chief prosecutor ever appointed and remains the most senior Muslim lawyer in the country. Mr. Afzal has prosecuted ordinary thieves, white-collar criminals and hooligans. But this fast-talking man with spiky salt-and-pepper hair and a slightly restless manner is also Britain’s national czar on violence against women. He has perhaps made his biggest mark in aggressively prosecuting crimes against women in minority communities. Before Mr. Afzal came along, few in multicultural Britain talked openly about the 10,000 girls married off against their will every year, let alone the dozen or so murdered each year in the name of family honor. He has helped set up a national hot line for women at risk of forced marriage — something the U.S. government is currently talking to him about — and is working with the Home Office to criminalize the practice (a law is expected next spring). Last year, he prosecuted nine South Asian men for raping and trafficking white girls in the former mill town of Rochdale in a high-profile case that was branded a “wake-up call” by many in the community. Human rights, he says, must always trump cultural rights: “There are problems in minority communities that can’t be taboo.” Being a man, a practicing Muslim and the son of immigrants from the conservative tribal area in northwestern Pakistan might make him an unlikely feminist in the eyes of some. But that’s just what Mr. Afzal calls himself — and his gender, he says, is by far his biggest asset. “I’m not the first person to take up this fight in Britain; I’m just the first man, and that makes it a lot easier,” he said. Women’s rights campaigners have gladly welcomed Mr. Afzal into their sisterhood. Efua Dorkenoo, advocacy director on female genital mutilation for Equality Now, said male allies were “critical” for the success of gender equality campaigns, especially where abuses are cloaked in cultural terms. “When men like Afzal speak up about violence against women, it has much more resonance in Asian and African communities,” Ms. Dorkenoo said. It was in 2004 that Mr. Afzal, a father of four, had his own wake-up call. A group of women came to see him. One told of a girl who had burned herself to death to avoid a forced marriage; she had been 17, the same age as his daughter is now. Another recounted how a woman had been on the run from her family for more than eight years after refusing to marry a man she didn’t know. “I didn’t know this was happening in this country,” Mr. Afzal said. That same year, he organized a conference in London to learn more. Shortly after, he sat down with the police to create a national database of so-called honor crimes. “Before I knew it we had dozens and dozens of cases,” he said. Two years later, he successfully prosecuted the cousin and brother of Samaira Nazir for her murder. She had wanted to marry someone her family objected to. They stabbed her 18 times in front of two infant nieces who were splattered with her blood. It was one of the first occasions that an honor killing entered public consciousness. In 2008, one of Mr. Afzal’s own relatives in Peshawar was killed by her husband’s family for demanding a divorce. But Mr. Afzal’s crusade for women’s rights is even more personal than that. Born a “brown boy” in middle England a year after his parents arrived in 1961, he, too, bears the scars of inequality. He was bullied and beaten at school often. His father, a caterer for the British, told him: “Get used to it.” And he did. “I thought this was how it was, and I put up with it, and I think a lot of women feel the same about the abuse they suffer,” he said. His work on gender equality often intersects with his efforts to be a bridge between white Britons and the South Asian community, particularly after suicide bombers attacked the London transport system on July 7, 2005, killing 52 and injuring nearly 800. Mr. Afzal remembers speaking at London City Hall a few weeks later. The mood in the country was tense, Islamophobia on the rise. Mr. Afzal, then deputy chief prosecutor in London, had been asked to help engage the Muslim community, but his comments on gender-based violence irked some. A man stood up in the audience and said: “Nazir, why are you giving these racists another stick to beat us with?” His response: “The community should carry their own stick.” He has long since stopped using Twitter because the abuse got to be too much. Following last year’s Rochdale case, a police guard was placed outside his house. But Mr. Afzal is not one to lose his spirit. “I’ve done my bit for multifaith engagement,” he likes to point out. “As a good Muslim boy, I’ve been married three times. First to an Irish Catholic, then to an Indian Hindu and then to a British Sikh.”

Great Britain
Female genital mutilation
Women's rights,Feminism
Honor killing
Minorities


Multiplying the Yield of an Oasis

Abstract: LIWA OASIS, ABU DHABI — Georg Koziorowski, a German hydrogeologist, eyes masked by his Ray-Ban sunglasses, points at a white water tank and tries to speak. But the wind, whipping the palm trees and stirring fine sand into pirouettes along the desert highway, carries his voice away. Mr. Koziorowski is in the middle of the Liwa Oasis in Abu Dhabi, about 150 kilometers, or 90 miles, southwest of the glittering coastal capital. This is the edge of the inhospitable Rub al-Khali desert, which stretches across neighboring Saudi Arabia into Oman and Yemen. Surrendering to the sandstorm, Mr. Koziorowski retreats into a silver S.U.V., where he unfolds a map to present his plan for a project that would cost Abu Dhabi hundreds of millions of dollars and, ideally, would never be used. Abu Dhabi has enormous oil reserves, and its sovereign wealth fund invests billions of dollars around the world to buy shares of foreign companies. Lacking natural water supplies, the emirate has invested heavily in desalination plants on the coast of the Gulf; these produce about 800,000 cubic meters, or 210 million gallons, of drinking water every day for its 1.2 million residents. Abu Dhabi may be a desert country, but its daily water consumption per person is higher than that in most places in the world, at about 650 liters, or 170 gallons. In the United States, for example, daily consumption is 300 liters per person, and in many European countries, it is less than half that. The desalinated water is used for golf courses, agriculture and car washes. As much as half is used to water public spaces. But all this conspicuous consumption is based on a shaky foundation: If something — an attack, a natural disaster or a major oil spill in the Gulf — should put the desalination plants out of operation, the emirate’s reserves, now stored in above-ground water tanks, would be exhausted within 48 hours. “That would be a disaster,” said Mohamed Dawoud of the water resources department at the Abu Dhabi Environment Agency, acknowledging the emirate’s weak spot. Should an emergency occur, the plan is to separate Abu Dhabi into different sectors, Mr. Dawoud said. Reserve water supplies would be switched from sector to sector, for six hours each, until they ran out, after two days and nights. To give the emirate a longer lease on emergency life, Mr. Koziorowski and colleagues from GTZ International Services, the business division of GTZ, the German development aid organization, have been working for more than 10 years on a proposal for a gigantic underground water storage project. To add to its problems, Abu Dhabi suffers from increasing salinity and scarcity of groundwater. In some areas, the concentration of salt is now eight times as high as that in seawater. But a team of geologists has found that natural freshwater reservoir formations beneath Liwa Oasis are big enough to hold additional supplies. Any day now, German and emirate officials say, the government is expected to award a contract for a gigantic aquifer storage project. By 2013, at an estimated construction cost of $500 million, an emergency water supply will be built under the desert sands, holding water pumped in from the coastal desalination plants and extending the emirate’s water reserves to 90 days. The tradition of aquifer storage goes back a long way. About 400 years ago, the inhabitants of the Cape Verde Islands let water seep into the ground for later recovery, Mr. Koziorowski said. Projects have also been tested in neighboring member states of the Gulf Cooperation Council. But even if the concept is not new, the scale of the project in the arid environment of Abu Dhabi is unprecedented. Over a period of two years, 26 million cubic meters of desalinated water would be pumped through a pipeline bridging the 100 kilometers from the coast to the oasis. Tanks five meters, or 16 feet, deep, filled with gravel, would allow the water to seep into the ground. “The desalinated water will trickle into the aquifer, which is similar to a sponge, until it hits a layer of silty sands and clay that doesn’t let the water through,” Mr. Koziorowski said. There it will stay until it is needed. GTZ is playing an advisory role in the process. The contract is expected to be awarded to a local company. In an emergency, 16 million cubic meters could be pumped up through hundreds of wells, providing each resident with about 150 liters of drinking water a day over a three-month period. Despite the mammoth costs and effort involved, the hope is that the reserve drawdown would never be called into action, Mr. Koziorowski noted, “because implementation means crisis.” Neighboring countries have been carefully following the progress of what could become a model for the region, for all face similar problems. In fact, when the geologists presented the idea of aquifer storage to the rulers of Abu Dhabi, their first concern was to make sure that Saudi Arabia, next door, could not draw off water from the replenished underground reserves. All the member countries of the Gulf council rely on desalinated water as a main source for domestic supplies. Reserves in Qatar and Bahrain would last no longer than those of Abu Dhabi; Saudi Arabia could cope for three days, Kuwait for five. Yet, even the construction of additional emergency supply capacity may provide only breathing space. Abu Dhabi’s environment agency says the rising salinity of the desert is matched by a similar phenomenon offshore, largely caused by the very plants used to provide fresh water. The Gulf is a closed system with little freshwater inflow. By excessively desalinating seawater, the Gulf states are killing off their main supply. The concentration of salt in Gulf seawater now stands at 45 grams per liter, above the 40-gram level at which desalination works efficiently, Mr. Dawoud said. To meet rising demand, Abu Dhabi plans almost to double its desalination output. Even as the government acts to secure water supplies, it may also be putting them in long-term jeopardy, he said.

Abu Dhabi (United Arab Emirates)
Water
Desalination
Sustainable Living


A Bigger Setting for a Musical Stew

Abstract: Organizers of the Union County MusicFest have always set their sights on family-friendliness, and the free weekend-long event has lured baby boomers, the stroller brigade and everyone in between with artists like Chuck Berry and Dan Zanes. But with its 12th installment, to be held Sept. 12 and 13 at Oak Ridge Park in Clark, the festival may outdo itself: The band They Might Be Giants will play two shows, one for children and the other for adults. Also on the bill this year are Pete Yorn, Kenny Wayne Shepherd, Uncle Kracker, Tommy James and the Shondells, and Third Eye Blind. Those acts, spanning rock, blues, oldies, pop and alternative, account for a vast musical spreading-out. So it only made sense that the festival itself spread out. The Union County manager, George Devanney, said MusicFest outgrew Nomahegan Park in Cranford, where it had been held since its inception in 1998. The site there was about 10 acres, Mr. Devanney said; Oak Ridge Park is about 65. “We’re not using the whole site, but we’re not going to be cramped,” he said. There will be more space not only for the 30 bands, some local, that will play on three stages throughout the weekend and the expected audience of about 50,000 people, but also for nonmusical attractions like Kids Kingdom, a “traveling jubilee” offering laser tag and bungee jumping. There will also be food vendors and carnival rides. Mr. Devanney said a big part of MusicFest was its fund-raising for charities. Last year, $80,000 was raised for cancer charities. This year there will be a two-mile walk-athon and a five-kilometer run on Saturday morning. “What I hope is that people will come walk,” Mr. Devanney said. “Then they can get on a Ferris wheel and go see a good band.” For more information, go to ucmusicfest.com . TAMMY LA GORCE

Union County (NJ)
Baby Boomers
Zanes Dan
Berry Chuck
Music


Asean Inaugurates Human Rights Commission

Abstract: CHA-AM, Thailand — Southeast Asian governments inaugurated their first human rights commission on Friday in what they hailed as a milestone for a region ruled by governments as diverse as the thriving democracy in Indonesia, the hermetic communist regime in Laos and the repressive military dictatorship in Myanmar. But human rights activists called the body toothless and walked out of a meeting here Friday when “civil society” representatives from five countries were rejected by their governments. “The commission has not been designed to be effective and impartial,” said Debbie Stothard, a human rights activist from Malaysia. Establishing credibility for the Intergovernmental Commission on Human Rights, as the body is formally named, was one of several challenges for leaders gathering at this seaside resort south of Bangkok for a three-day summit meeting of the Association of Southeast Asian Nations , or Asean. Poor attendance marred the start of the meeting, when leaders from some of the largest Southeast Asian countries, including Indonesia, the Philippines and Malaysia, did not show up for the opening ceremony Friday, citing reasons ranging from weather disturbances to domestic obligations. They were scheduled to arrive later during the weekend. The meeting, which follows one in April that was canceled when Thai anti-government protesters stormed the summit venue, will address preparedness for natural disasters, the response to future economic crises and free-trade agreements, among other issues. The leaders of several non-Asean members — Australia, China, India, New Zealand and South Korea — were scheduled to join the meeting later during the weekend. In his opening address on Friday, Thailand’s prime minister, Abhisit Vejjajiva, emphasized the achievements of Asean, which was initially set up more than four decades ago partly as a bulwark against communism. In recent years, Asean has adopted a charter for the grouping, signed free trade agreements with other countries in the region and reduced tariff levels to negligible levels — although numerous other barriers to trade still exist between member countries. “What remains is the onus that lies on Asean to prove that it can implement whatever has been agreed, declared, or envisioned,” Mr. Abhisit said, in an apparent response to criticism that the grouping is more talk than substance. The human rights body inaugurated Friday appeared to reinforce that criticism. The job of the commission will be to promote human rights, but it will have no power to investigate governments or impose sanctions. A statement distributed by the Thai government here said the commission would “promote and protect human rights by promoting public awareness and education.” Mr. Abhisit acknowledged concerns that the commission’s scope was too limited but said it was part of an “evolutionary” process. “The issue of human rights is not about condemnation, but about awareness, empowerment and improvement,” Mr. Abhisit said. “We shall not only demonstrate to the world that human rights is a priority but also show them realistic and constructive ways to deal with it.” Yuyun Wahyuningrum, an Indonesian human rights delegate who walked out of the meeting with government representatives Friday, said human rights groups supported the creation of the commission, but were concerned that it was not independent enough. Commissioners were chosen by governments without outside consultation, she said. “The process was very secretive,” she said. Southeast Asia’s human rights record is blemished at best. Myanmar’s military government, which is a member of Asean, is currently detaining more than 2,000 political prisoners including Daw Aung San Suu Kyi, the democracy leader whose party won a landslide election victory in 1990 that the ruling generals ignored. Cambodia’s parliament passed a law on Wednesday that bars demonstrations of more than 200 people. Malaysia’s government detains people it deems threats to domestic security without trial and maintains tight controls on television stations and newspapers. Asean has ambitions to create a single market by 2015 among its 10 member nations, which have a combined population of nearly 600 million people, twice the population of the United States. But its main challenge in recent months has been to tamp down long-running conflicts and disagreements. Relations between Thailand and Cambodia have worsened over a border dispute near an ancient hilltop temple, Preah Vihear . Over the past year, troops in the border area have skirmished several times, leaving seven people dead. Cambodia’s nationalistic and authoritarian prime minister, Hun Sen, regularly delivers diatribes against Thailand and has pointedly offered asylum to Thaksin Shinawatra, the ousted Thai prime minister who is sought by the Thai authorities on outstanding arrest warrants. Soon after arriving at the meeting Friday afternoon Mr. Hun Sen said Mr. Thaksin would be allowed to stay in Cambodia and serve as his economic adviser. “People talk about Aung San Suu Kyi from Myanmar. Why can’t we talk about Thaksin?” he asked. The Cambodian government said Friday it would reject any extradition request from Thailand if Mr. Thaksin moved to Cambodia. The host of the meeting, Thailand, deployed more than 30,000 security personnel for the summit to deter supporters of Mr. Thaksin from disrupting the event. Mr. Thaksin was removed from power in a 2006 military coup. Elsewhere in the region, Indonesia and Malaysia have failed to resolve disputes over territory on Borneo island. Emotionally charged disagreements over the origins of songs, traditional dances and batik cloth-printing techniques have flared in recent months. Territorial disputes also strain relations between the Philippines and Malaysia and Singapore and Malaysia. In the South China Sea, Brunei, Malaysia, Philippines and Vietnam all have claims to areas rich in natural gas deposits.

Far East South and Southeast Asia and Pacific Areas


Epson EX70 Projector Is Powerful but Portable

Abstract: Just like cars, projectors come in all sizes, from HD monsters that take up entire desktops to miniature projectors the size of a pack of cigarettes. The petite $699 Epson EX70 is in the middle. The projector has three internal LCDs and projects 2,000 lumens at a widescreen 1,280-by-800-pixel resolution. It has multiple inputs: standard VGA, composite video, S-video and a high-resolution HDMI slot for both audio and video. It can also act as a display over U.S.B. when using the proper drivers and will show images and presentations stored on an SD card. Most important, however, the projector weighs just six pounds and, at 13 by 10 by 4 inches, is about as big as two stacked laptops. It has full keystone correction to focus the image when projecting at an angle and includes a VGA cable, carrying case and remote control. It also has a built-in speaker. The EX70 has enough power to get you through a business meeting and the resolution to project a late-night gaming marathon. Best of all, it is light and small, making it a perfect midsize companion to your midsize rental car. JOHN BIGGS

Computers and the Internet
Epson
projector


In Fred Goodman’s Book, a Record Industry on the Ropes

Abstract: WHEN I started covering the music industry for Fortune nearly a decade ago, I often heard people gleefully predict that the demise of the big record companies was just around the corner. Thanks to the Internet, my label-hating sources predicted, bands would be able to bond directly with their fans online, bypassing greedy record labels intent on cheapening the product. Supposedly, the results would be less crassly commercial music from acts like New Kids on the Block and more wondrous sounds from bands like Radiohead. Only those with ears of tin wouldn’t wish for that. And I have to admit that I heard this argument so often that I started to believe it. Fast-forward to the present. The recording industry has indeed been decimated by the Internet, as Fred Goodman vividly describes in “Fortune’s Fool: Edgar Bronfman Jr. , Warner Music, and an Industry in Crisis” (Simon & Schuster, 323 pages). “It is the first commercial medium to feel the gale force of cyberspace,” he writes. “The entire business, including the Warner Music Group, has been blown off its foundation.” Is this a good thing? I have had numerous conversations with musicians — both famous and obscure, but all of them doing important work — who lament that they are making much less money now that the major labels are on the ropes. Even Lady Gaga, the most popular singer in the world today, is feeling the pain. Her album sales are a fraction of the numbers that Britney Spears posted in the late 1990s at the height of her career. Mr. Goodman says the major labels have made their share of mistakes, like suing college students to stamp out illegal downloading and sometimes treating artists like chattel. But he worries that if companies like Warner Music can’t rejuvenate themselves in the digital age, we may never see another “Abbey Road.” In “Fortune’s Fool,” Mr. Goodman uses Mr. Bronfman’s career to tell the story of the industry’s implosion and its uncertain future. A contributor to Rolling Stone and author of “ The Mansion on the Hill : Dylan, Young, Geffen, Springsteen and the Head-On Collision of Rock and Commerce,” Mr. Goodman was able to gain extensive access to Mr. Bronfman and many other important industry executives. His book is full of colorful anecdotes and astonishing quotes from his subjects. At times, I wish that Mr. Goodman would have delved more deeply into the cultural implications of Warner Music’s tribulations and spent less time on music industry politics. But for the most part, “Fortune’s Fool” is a great read. Mr. Bronfman is a strangely sympathetic character. The grandson of Samuel Bronfman, who built his liquor empire by selling Canadian whisky to bootleggers during Prohibition, he was anointed by his family to run the Seagram conglomerate in 1995. He raised eyebrows by steering it into the entertainment business, acquiring a movie studio and a record company. In 2000, Mr. Bronfman naïvely engineered the sale of Seagram to Vivendi in a $33 billion stock swap. Soon, Vivendi was embroiled in an accounting scandal. The price of the company’s shares plummeted, and the value of the Bronfman family’s holdings tumbled by $3 billion. And that, many people assumed, was the end of his business career. Yet, six years ago, he orchestrated a comeback as breathtaking as Mariah Carey’s return to the top 10 after her “Glitter” debacle. He and a team of private equity investors bought Warner Music for $2.6 billion, and he became its C.E.O. And he showed that he had a knack for hiring the right executives. His choice for the company’s North American recorded music unit was Lyor Cohen, a former rap music promoter, whom his former clients affectionately nicknamed “Lansky,” after the legendary gangster Meyer Lansky. “Fortune’s Fool” truly takes off when Mr. Goodman brings Mr. Cohen onstage and describes how he clawed his way up from managing tours for emerging rap acts like the Beastie Boys to landing in the executive suite at Warner Music. Together, Mr. Cohen and Mr. Bronfman set out to show that the music industry wasn’t dead yet. They have faced innumerable challenges — the implosion of Tower Records, a generation of young consumers who refuse to pay for digital music, and technology company executives intent on capitalizing on the music industry’s troubles. By the way, these were the same people who told me that music industry executives like Mr. Bronfman were Sith lords and that they themselves were the Jedi. By the end of “Fortune’s Fool,” Warner Music has outperformed most of its peers. But Mr. Goodman fears that the company’s long-term survival remains in question. This is not a hagiography. Mr. Goodman obviously likes Mr. Bronfman and Mr. Cohen, but he also chronicles their missteps and occasionally boorish behavior. Remember those lawsuits against college kids? Mr. Bronfman was a huge supporter of those efforts. In a lengthy epilogue, Mr. Goodman assails members of the “technorati” who urge artists to give their music away online and make up the difference by selling more concert tickets and T-shirts. Fair enough, but I was waiting for a more impassioned defense of the record labels themselves. Sure, they have released mountains of Top 40 schlock. But it paid the bills and enabled them to put out less-profitable music with real cultural value, like jazz, opera and all sorts of esoteric rock ’n’ roll. They can’t afford to do that anymore. Now it’s pretty much all Lady Gaga all the time. No offense to her ladyship, but is that really progress?

Fortune’s Fool: Edgar Bronfman Jr. Warner Music and an Industry in Crisis (Book)


U.S. Will Counter Chinese Arms Buildup

Abstract: BEIJING — The Pentagon is stepping up investments in a range of weapons, jet fighters and technology in response to the Chinese military buildup in the Pacific, Defense Secretary Robert M. Gates said Saturday on the eve of his visit to Beijing. Despite billions of dollars in proposed Pentagon budget cuts that Mr. Gates announced this past week, he said that the Chinese development of its first radar-evading fighter jet, as well as an antiship ballistic missile that could hit American aircraft carriers, had persuaded him to make improvements in American weaponry a priority. “They clearly have potential to put some of our capabilities at risk, and we have to pay attention to them, we have to respond appropriately with our own programs,” Mr. Gates said. At the same time Mr. Gates doused China ’s proud rollout this past week of its new stealth fighter jet, the J-20, saying that even though it was a matter for concern, there “is some question about just how stealthy” it is. Mr. Gates made his comments to reporters before arriving Sunday night in Beijing, where he is on a three-day visit for talks with Chinese generals and President Hu Jintao that are meant to promote a more open and stable relationship between the American and Chinese militaries. It is unclear what effect Mr. Gates’s comments will have on the talks, which are occurring a week before President Hu is to meet with President Obama in Washington. The American weapons that Mr. Gates was referring to included investments in a new long-range nuclear-capable bomber aircraft, which the Pentagon had stopped developing in 2009, as well as a new generation of electronic jammers for the Navy that are designed to thwart a missile from finding and hitting a target. At a Pentagon briefing on Thursday, Mr. Gates said that the jammers would improve the Navy’s ability to “fight and survive” in waters where it is challenged. Mr. Gates was also referring to continued investment in the Joint Strike Fighter, the Pentagon’s newest radar-evading fighter jet. The Pentagon provided no estimate on Saturday of the total cost of the three programs or others meant to counter the Chinese buildup in the Pacific. Although Pentagon officials say that China is a generation or more behind the United States in military technology, Mr. Gates said he has been worried about the Chinese buildup in his four years as defense secretary. And acknowledged that the Pentagon and intelligence agencies had underestimated how quickly the Chinese could act. “We’ve been watching these developments all along,” Mr. Gates said. “I’ve been concerned about the development of the antiship cruise and ballistic missiles ever since I took this job,” he added. “We knew they were working on a stealth aircraft. I think that what we’ve seen is that they may be somewhat further ahead in the development of that aircraft than our intelligence had earlier predicted.” Mr. Gates said he hoped his talks with Chinese leaders would reduce the need for more American weaponry in the Pacific. He also said that if Chinese leaders considered the United States a declining power because of the financial crisis, they were wrong. “I’ve watched this sort of cyclical view of American decline come around two or three times, perhaps most dramatically in the latter half of the 1970s,” Mr. Gates said. “And my general line for those both at home and around the world who think the U.S. is in decline is that history’s dustbins are filled with countries that underestimated the resilience of the United States.”

United States Defense and Military Forces


Belfour Bails Out Toronto in Victory Against Devils

Abstract: TORONTO, Feb. 4 - As far as excuses for early-game jitters go, this one was pretty solid. The Devils arrived in Toronto for their game against the Maple Leafs on Saturday after being scared senseless a night earlier. Following the team's stirring shutout victory against Carolina on Friday, the Devils boarded a chartered MD-80 at Newark Liberty International Airport around midnight for a 45-minute flight to Toronto. But with the plane three-quarters of the way down the runway and still accelerating, the pilot slammed on the emergency brakes, sending the jet fishtailing. "I saw everybody in front of me, and their eyes were going crazy," Devils goalie Martin Brodeur said. "It was a scary five or six seconds. They finally told us there was a mechanical problem and they couldn't get the plane in the air." The Devils wound up checking into an airport hotel about 1:30 a.m., and they boarded another plane early Saturday afternoon. That flight also had its anxious moments, thanks to turbulence, and was met in Toronto by stiff winds that blew the rain sideways. So perhaps it should not be a surprise that the Devils struggled in the early going against the Maple Leafs on Saturday night and lost, 4-2. The Devils could not solve Toronto's 40-year-old goalie, Ed Belfour, who faced 38 shots. By contrast, Brodeur faced just 18. The Maple Leafs scored just 33 seconds into the game. Forward Nik Antropov coasted down the right wing over the Devils' blue line and fired a slap shot at the stomach of Brodeur, who stopped the shot but left the puck sitting near the crease. Antropov's linemate, Alexei Ponikarovsky, corralled the puck and scored the first of his two goals on a backhand shot over Brodeur. After defenseman Tomas Kaberle scored at 9 minutes 59 seconds of the first period on a two-man advantage to give Toronto a 2-0 edge, Ponikarovsky scored his second goal when his pass across the crease deflected off a skate past a startled Brodeur. Devils center Erik Rasmussen said: "We were shellshocked early, but we came back really well. It just took so long to break the bubble, it might have been too late." The Devils broke Belfour's shutout bid, then made it a one-goal game in a 35-second span early in the third period, which the Devils started on the power play. After controlling the puck in Toronto's end, Brian Rafalski swung the puck across the ice to Jamie Langenbrunner, who one-timed a slap shot at Belfour. Brian Gionta tipped in the shot for his 31st goal. Moments later, a Toronto defensive gaffe allowed center John Madden to skate in on Belfour on an odd-man rush. Madden's hard wrist shot beat Belfour on his glove side at 1:03 to make the score 3-2. But Chad Kilger scored a late empty-net goal to seal the victory for the Maple Leafs. Islanders Win in Shootout Behind DiPietro and Satan Miroslav Satan had his seventh career three-goal game and added a shootout goal to help the Islanders defeat the Penguins, 5-4, in Pittsburgh. Satan, the first player in the shootout, slipped a backhander past Pittsburgh goaltender Marc-Andre Fleury. Trent Hunter, the Islanders' next shooter, also scored. But Satan was overshadowed by Rick DiPietro, who capped a 44-save game by stopping Mark Recchi and Michel Ouellet in the shootout. DiPietro, who will be a member of the United States Olympic team in Turin, Italy, also stopped Tomas Surovy on a third-period breakaway and Ric Jackman from point-blank range in overtime. "Pittsburgh really came at us hard, had us scrambling there," DiPietro said. Satan scored the game's first three goals, all on power plays. The Islanders (24-26-3) improved to 6-4-1 under their interim coach, Brad Shaw, and have pulled closer to Toronto in the Eastern Conference playoff race. Pittsburgh (12-32-11) rallied from a two-goal deficit to tie the score, 3-3, on power-play goals by Surovy in the second period and Recchi in the third. Chris Campoli put the Islanders back in front in the third, but Jackman answered to tie the score. Sidney Crosby, the Penguins' star rookie, scored on a two-man advantage in the first period. (AP)

TORONTO MAPLE LEAFS
PITTSBURGH PENGUINS
NEW YORK ISLANDERS
NEW JERSEY DEVILS
HOCKEY ICE


More American Expatriates Give Up Citizenship

Abstract: WASHINGTON — Amid mounting frustration over taxation and banking problems, small but growing numbers of overseas Americans are taking the weighty step of renouncing their citizenship. “What we have seen is a substantial change in mentality among the overseas community in the past two years,” said Jackie Bugnion, director of American Citizens Abroad, an advocacy group based in Geneva. “Before, no one would dare mention to other Americans that they were even thinking of renouncing their U.S. nationality. Now, it is an openly discussed issue.” The Federal Register, the government publication that records such decisions, shows that 502 expatriates gave up their U.S. citizenship or permanent residency status in the last quarter of 2009. That is a tiny portion of the 5.2 million Americans estimated by the State Department to be living abroad. Still, 502 was the largest quarterly figure in years, more than twice the total for all of 2008, and it looms larger, given how agonizing the decision can be. There were 235 renunciations in 2008 and 743 last year. Waiting periods to meet with consular officers to formalize renunciations have grown. Anecdotally, frustrations over tax and banking questions, not political considerations, appear to be the main drivers of the surge. Expat advocates say that as it becomes more difficult for Americans to live and work abroad, it will become harder for American companies to compete. American expats have long complained that the United States is the only industrialized country to tax citizens on income earned abroad, even when they are taxed in their country of residence, though they are allowed to exclude their first $91,400 in foreign-earned income. One Swiss-based business executive, who spoke on the condition of anonymity because of sensitive family issues, said she weighed the decision for 10 years. She had lived abroad for years but had pleasant memories of service in the U.S. Marine Corps. Yet the notion of double taxation — and of future tax obligations for her children, who will receive few U.S. services — finally pushed her to renounce, she said. “I loved my time in the Marines, and the U.S. is still a great country,” she said. “But having lived here 20 years and having to pay and file while seeing other countries’ nationals not having to do that, I just think it’s grossly unfair.” “It’s taxation without representation,” she added. Stringent new banking regulations — aimed both at curbing tax evasion and, under the Patriot Act, preventing money from flowing to terrorist groups — have inadvertently made it harder for some expats to keep bank accounts in the United States and in some cases abroad. Some U.S.-based banks have closed expats’ accounts because of difficulty in certifying that the holders still maintain U.S. addresses, as required by a Patriot Act provision. “It seems the new anti-terrorist rules are having unintended effects,” Daniel Flynn, who lives in Belgium, wrote in a letter quoted by the Americans Abroad Caucus in the U.S. Congress in correspondence with the Treasury Department. “I was born in San Francisco in 1939, served my country as an army officer from 1961 to 1963, have been paying U.S. income taxes for 57 years, since 1952, have continually maintained federal voting residence, and hold a valid American passport.” Mr. Flynn had held an account with a U.S. bank for 44 years. Still, he wrote, “they said that the new anti-terrorism rules required them to close our account because of our address outside the U.S.” Kathleen Rittenhouse, who lives in Canada, wrote that until she encountered a similar problem, “I did not know that the Patriot Act placed me in the same category as terrorists, arms dealers and money launderers.” Andy Sundberg, another director of American Citizens Abroad, said, “These banks are closing our accounts as acts of prudent self-defense.” But the result, he said, is that expats have become “toxic citizens.” The Americans Abroad Caucus, headed by Representative Carolyn B. Maloney, Democrat of New York, and Representative Joe Wilson, Republican of South Carolina, has made repeated entreaties to the Treasury Department. In response, Treasury Secretary Timothy F. Geithner wrote Ms. Maloney on Feb. 24 that “nothing in U.S. financial law and regulation should make it impossible for Americans living abroad to access financial services here in the United States.” But banks, Treasury officials note, are free to ignore that advice. “That Americans living overseas are being denied banking services in U.S. banks, and increasingly in foreign banks, is unacceptable,” Ms. Maloney said in a letter Friday to leaders of the House Financial Services Committee, requesting a hearing on the question. Mr. Wilson, joining her request, said that pleas from expats for relief “continue to come in at a startling rate.” Relinquishing citizenship is relatively simple. The person must appear before a U.S. consular or diplomatic official in a foreign country and sign a renunciation oath. This does not allow a person to escape old tax bills or military obligations. Now, expats’ representatives fear renunciations will become more common. “It is a sad outcome,” Ms. Bugnion said, “but I personally feel that we are now seeing only the tip of the iceberg.”

Americans Abroad
Citizenship
United States Politics and Government
Taxation
Banks and Banking
Terrorism


Honoring Neighbors Killed in Attacks

Abstract: EAST MEADOW THE two 30-foot, semi-transparent, stainless-steel towers, created to resemble those of the World Trade Center, stand in the midst of a fountain alongside the lake here in Eisenhower Park. On the lawn are two pieces of steel several feet long from the trade center wreckage, surrounded by a garden of colorful flowers. On a long stone wall are the names of the 344 Nassau County residents who died on Sept. 11, 2001. Nearby, a plaque honoring those who were killed in New York City, at the Pentagon and in Pennsylvania begins “Our Story” and says that “the events that transpired that day ultimately changed the lives of all Americans.” Today, to commemorate the sixth anniversary of the 9/11 terrorist attacks, Thomas R. Suozzi, the Nassau County executive, is to unveil a $2 million memorial honoring the 344. The memorial, the culmination of five years of planning, was designed by the architects Keith Striga of Valley Stream and Philip Gavosto of Glen Cove. To help build it, more than 500 union members from Long Island trades volunteered time and materials. Ian R. Siegel, president of the Nassau County 9/11 Memorial Foundation, said the half-acre site was chosen so Nassau families could “come and find some solace as they remember their loved ones.” For Margie Miller of Baldwin, whose husband, Joel Miller, died in the attack, the memorial is a great source of comfort. Ms. Miller, the family outreach coordinator for the World Trade Center Family Center at South Nassau Communities Hospital in Oceanside, said that because remains of more than 40 percent of those who died had not been identified, the memorial could help families who “were left without grave sites and have so little.” “This will be a place for us to go, to feel that we are not alone,” she said. “Not only do we remember, but we know that our community remembers, too.” Memorials evoke a wide range of emotions, said Terry Sears, the executive director of Tuesday’s Children, an organization that helps 9/11 families. “Some people express passion for memorials as a source of comfort and another way that nobody can forget what happened on that day,” she said. “But others say that they are yet another reminder of their pain and sorrow.” Two other regional memorials are in the works on Long Island. Construction of a Suffolk County 9/11 memorial, Gardens of Remembrance, will begin next year. It will consist of a 14,400-square-foot walking garden, enclosed by glass panels with the 168 names of the victims of 9/11 who were Suffolk County residents at some point, along with personal details and an image of each face etched into the glass. The memorial, with a $1 million price tag, will be on Veterans Memorial Highway in Hauppauge. A more comprehensive project is planned at Farmingdale State College to honor all 455 Long Islanders who died in the 9/11 attack, as well as those who helped in the rescue and recovery effort. What began as a mission for two retired firefighters to help other first responders find closure grew into a $6 million project. It includes a memorial and a resource and education center with artifacts from ground zero and classrooms for emergency workers to take continuing education courses to maintain their status. The project requires approval from the College Council, an advisory group, and the State University of New York. Robert De Silva, one of the two founding firefighters and president of the Long Island 9/11 Memorial Committee, said: “This is a way to help the people who help the people. Nobody has ever said thank you to this group.”

World Trade Center (NYC)
Monuments and Memorials
Terrorism
Long Island (NY)


Spieth Is Player of Year

Abstract: Jordan Spieth was voted the PGA Tour player of the year on Friday. The tour did not disclose how many votes Spieth received, although he removed any suspense about the award’s winner last week with his four-shot victory in the Tour Championship to win the Fed Ex Cup. Spieth won five tournaments this year, including the Masters and the United States Open. ■ Jim Furyk removed himself from the Presidents Cup, which will begin in South Korea on Thursday, because of a wrist injury. He was replaced on the American team by J. B. Holmes. ■ Jimmy Mullen and Anthony Wall shared a one-stroke lead after the second round of the Alfred Dunhill Links Championship in Scotland. Mullen, who is making his professional debut, added a three-under-par 69 to his opening 64 for an 11-under 133. The tournament is split among three courses, with players alternating among St. Andrews, Kingsbarns and Carnoustie.


Indy Winner for Sale (See Fine Print)

Abstract: The Gooding and Company classic-car auction is usually dominated by post-World War II European sports cars from Ferrari, Porsche and Mercedes-Benz, or prewar classics from the likes of Rolls-Royce and Duesenberg. But at this year’s auction on Jan. 29 in Scottsdale, Ariz., bidders will find an even more unusual item for sale: Lot 47 is the Dallara-Honda racecar driven to victory in the 2014 Indianapolis 500 by Ryan Hunter-Reay. Andretti Autosport, a leading IndyCar team, currently owns the car and is offering it with a catch: The new owner must allow Andretti Autosport to continue racing the car through the 2018 season. After that, the new owner can take delivery of the car. Or what is left of it. Image Hunter-Reay in Andretti Autosport’s car the day after his Indy win. The car could fetch $600,000 to $750,000 or more. Credit Michael Conroy/Associated Press The rough-and-tumble sport of IndyCar racing is generally not too kind to the machines that race in it. Most end up crashed before the projected end of their useful lives. Still, David Gooding, the auction house’s president, said, “The sale of this lot is unprecedented in modern motorsports.” He said the car might fetch $600,000 to $750,000 — or more. After the 2018 IndyCar season, Andretti Autosport is promising to “restore and repair” Hunter-Reay’s car in its period-correct 2014 livery, according to the Gooding auction prospectus. The exception is the Honda race engine, which is owned by the manufacturer. Since the engine is an integral component of the car’s structure, the owner could receive the car in pieces. And the Dallara-Honda is not, nor could it be made to be, street-legal. To assuage the disappointment of having to wait three years to receive the inoperable, engineless, obsolete chassis, Andretti Autosport is throwing in two season-long participant credentials for the IndyCar series races at which the team enters the car through 2018. “The opportunity to auction off our 2014 Indy 500-winning — and still active — racecar and provide the winning bidder with an immersive ownership experience with our team delivers a great way to celebrate an iconic moment in our team’s history as we prepare for the 100th running of the Indianapolis 500,” said Michael Andretti, the chief executive of Andretti Autosport. Andretti and Hunter-Reay are scheduled to attend the auction and present the winning bidder with the bill of sale. An undisclosed reserve price below $600,000 could prevent the sale from being consummated if bids do not exceed that price. An Indy 500-winning car — if it remains intact — is unlikely to be relegated to a dark corner of a garage. It could be expected to end up in the Indianapolis Motor Speedway Museum, which showcases a number of past winning cars, dating to the inaugural 1911 race. The most recent former winner on display is the rebuilt Dallara-Honda that Dan Wheldon won with in 2011. “Ryan Hunter-Reay’s car would always have a place of honor in the Indianapolis Motor Speedway Museum,” said Donald Davidson, the facility’s historian, “assuming its owner wanted to display it here.” Putting the car up for sale will provide revenue for Andretti Autosport’s operations. For the winning bidder, it might seem akin to buying Donald Trump’s jet, then letting Trump fly around the country in it for the next three years. But Ryann Rigsby, an Andretti Autosport spokeswoman, said, “Think of it as having a pony in the race, if you will.” The car’s new owner will not be its sponsor and is not entitled to any signs, naming rights or advertising space on the vehicle. But such requests probably could be accommodated — for the right price. Major sponsorships in IndyCar racing can run into many millions of dollars. “We are, of course, open to this opportunity providing a further relationship with the new chassis owner, should they desire to have a larger one via a sponsorship package,” Rigsby said.

Car Racing
Auction
Indy 500
Cars
Indy Racing League,IndyCar
Andretti Autosport


A Not-So-Powerful Federal Reserve

Abstract: To the Editor: Re “The Fed’s Framers Would Be Shocked” (Hindsight, June 23): Yes, they would be shocked, but not for the reasons stated. Rather than becoming the all-powerful central authority that Americans fear, the Federal Reserve has turned into the whipping boy of the markets and the “money trust” it was created to tame. Listen again to the words of Ben Bernanke, the Fed’s chairman, about its possible course in the face of economic uncertainty: “If things are worse, we will do more. If things are better, we will do less.” That’s hardly the tone of a bully demanding that markets dance to its tune. Immediately after his speech, stocks, bonds and other asset classes that are supposed to move in different directions sank in unison. The temper tantrum at the prospect of a gradual end to easy money makes it harder for the Fed to reverse course. Who wants to be responsible for another meltdown of stock prices? If we fear the Fed’s outsized influence on the economy, we need to recognize the source of the problem: our nation’s central bank is no longer in charge. During the financial crisis, the Fed had to step in and pay for the sins of corporations that claimed to know better. Ultralow interest rates and quantitative easing have reflated asset prices, but the real economy of everyday workers and savers has benefited much less. Now that the Fed wants to leave the stage, the money trust refuses to let it go. LOUIS MONTESANO Manhattan, June 24

US Economy
Federal Reserve
Ben S Bernanke


Veteran Brought Grenades From Iraq to Bronx Home, Officials Say

Abstract: An Iraq war veteran from the Bronx has been charged with stealing two grenades and other weapons from the United States military, the authorities said. The veteran, Anthony Cibelli, 24, arranged in March 2010 for the weapons to be moved from Fort Bragg , in North Carolina, to his home in the Bronx, a criminal complaint says. The complaint was unsealed Thursday in Federal District Court in Manhattan. In December, New York police officers searched Mr. Cibelli’s apartment, and seized a cache of “grenades, firearms and live ammunition,” the police commissioner, Raymond W. Kelly, said in a statement on Thursday. “How the explosives found in the apartment made their way from Iraq to a densely populated Bronx neighborhood is of great concern to us,” Mr. Kelly said. A lawyer for Mr. Cibelli, who was in federal custody, did not respond to phone or e-mail inquiries. According to the complaint, Mr. Cibelli had admitted to law enforcement officers that he had brought the grenades back with him from Iraq, but, in a panic, threw them on the roof outside his bedroom window as officers arrived to search his home. The officers found the grenades on the roof, as well as four firearms, ammunition and what were described as improvised explosive devices in the home. He said he had learned how to build the improvised devices from watching videos, and had no intention of using them for terrorism-related purposes, the complaint said. “Cibelli had a small arsenal in his residence,” Janice K. Fedarcyk, assistant director in charge for the Federal Bureau of Investigation, said in a statement. “Our armed forces are issued weapons like these to carry out their mission, not to become personal property after their service.” Mr. Cibelli, who faces charges of theft of government property and unlicensed transportation of explosives, told officers that he had hidden items in a bag inside a shipping container that was sent to Fort Bragg, then retrieved the items once he returned there, the complaint said. He served tours of duty in Iraq in 2006 and 2008, and was discharged from active duty in 2010.


Britain Investigates Bribery Charges Against EADS Unit in Saudi Deal

Abstract: LONDON — Britain ’s Serious Fraud Office is looking into allegations that a unit of European Aeronautic Defense & Space bribed Saudi Arabian officials to win a multibillion-dollar contract, a person with direct knowledge of the investigation said Tuesday. The fraud office, which investigates complex instances of corruption, is seeking more information about allegations that the EADS unit handed out cars, jewelry and cash to win a £2 billion, or $3.3 billion, contract for upgrading the satellite systems of the Saudi National Guard, said the person, who declined to be identified because the investigation was at an early stage. The allegations were made by Lt. Col. Ian Foxley, a former employee of GPT Special Project Management, which won the contract, The Daily Telegraph newspaper reported. GPT, based in Riyadh, is owned by a British company, Paradigm Services, which in turn is owned by EADS, one of Europe’s largest military contractors and the parent company of Airbus. “Certain allegations have been made and these are being properly investigated,” said Alexander Reinhardt, an EADS spokesman. Sam Jaffa, a spokesman for the fraud office, declined to comment. Mr. Foxley could not be reached for comment. There was no answer at the press office at the Saudi Embassy in London. The allegations came more than a year after BAE Systems, the largest military contractor in Europe and an EADS rival, agreed to pay almost $450 million in penalties in the United States and Britain to settle investigations into possible bribes to win contracts. The investigations, which had dragged on for years, focused on arms deals in Saudi Arabia , the Czech Republic and Hungary. Before pleading guilty as part of the settlement, BAE Systems had repeatedly denied any wrongdoing. The initial investigation by the Serious Fraud Office into the dealings of BAE Systems had caused diplomatic problems between Saudi Arabia and Britain. The British government, then led by Prime Minister Tony Blair, pressured the fraud office into halting the investigation in 2006, arguing that it would damage Britain’s intelligence cooperation with Saudi Arabia in the struggle against Al Qaeda. The halting of the investigation was challenged in court by two advocacy groups. The High Court in Britain ruled in 2008 that dropping the inquiry was unlawful. Britain is currently working on revisions of its bribery law that are expected to take effect this summer. The small changes were supposed to clarify what companies are and are not allowed to do to win business. But some lawyers argued the rules were too unclear on which foreign companies would be subject to the laws. Nicola Clark contributed reporting from Paris.

European Aeronautic Defense and Space Co


Fox Drops Hints About a Murky Future for ‘24’

Abstract: While most of the television world was atwitter about Paula Abdul’s failed contract negotiations last week, Fox Broadcasting fired the opening salvo in another looming contract battle, this one over the future of “24,” which stars Kiefer Sutherland . Kevin Reilly, the president for entertainment at Fox Broadcasting, surprised the producers of “24” on Thursday when, in response to a reporter’s question, he said that Fox had not decided whether “24” would return after its eighth season, which is in production for broadcast beginning in January. “We haven’t made any decision whether it’s back or not,” Mr. Reilly told Abbie Bernstein , a writer for iF Magazine, an online publication. “It’s going to come down to a business decision. It’s not an inexpensive show on the network books, and we also want to finish strong. This is not a show we want to prop up. It will be a whole creative and business discussion and something we’ll have to deal with over the next few months.” While it was no secret that Fox had committed to the show only through the coming season, two senior television executives close to the series said they were nevertheless surprised by Mr. Reilly’s remarks. “I think it’s a sign that the network is ready to play hardball,” said one of the executives, who spoke on the condition of anonymity because, he said, he would like the series to continue. With its heavy action scenes and with Mr. Sutherland earning a reported $13 million each season, “24” is expensive to produce. Fox Broadcasting will want to limit how much it has to pay for the rights to televise the series even though it is produced by 20th Century Fox Television, a sister division of the News Corporation. Already, producers have been told to keep costs down. While Mr. Sutherland shot scenes for the seventh season of “24” in Washington, there are no plans for him to film scenes for the coming season in New York, where the eighth season is set. Instead, New York street scenes will be shot either outside in Los Angeles or on a soundstage using green-screen technology, with backgrounds inserted digitally. EDWARD WYATT

Fox Broadcasting Co
Television
Sutherland Kiefer
Reilly Kevin


Merkel's Opponents Struggle to Find Relevant Issues

Abstract: BERLIN — Bill Clinton may have been the first to use a strategy of “triangulation” to win an election, co-opting policies of his Republican rivals to win a second term as president in 1996. But it is Chancellor Angela Merkel of Germany who seems to have turned the tactic — developed by the controversial Clinton campaign guru Dick Morris — into an art form. With a year to go until Germans go to the polls, the country’s leftist opposition parties are searching desperately for issues to throw at the conservative chancellor, and finding the cupboard alarmingly bare. It has been a great few years for opposition parties elsewhere in Europe. With the euro zone debt crisis raging, incumbents have been booted out of office in France, Italy, Spain and a host of smaller countries, including the bailout victims Greece, Ireland and Portugal. In the Netherlands, the big winner in an election set for Sept. 12 is likely to be a far-left party that until recently was seen as a bit player in Dutch politics. Yet in Germany, the opposition Social Democrats, or S.P.D., who will celebrate their 150th anniversary next year, and their left-leaning allies, the Greens, have watched Ms. Merkel peck away at their programs, turning their most potent positions — on nuclear power, the environment, education, child care and wages — into her own. On the euro crisis, the theme that seems sure to overshadow all others in a German vote set for September 2013, Ms. Merkel has walked a tightrope, appeasing her bailout-averse domestic audience with tough rhetoric while keeping just enough money flowing to Europe’s battered periphery to ensure the euro train does not go off the rails on her watch. The S.P.D., meanwhile, has tied itself in knots as it searches for a euro policy that is at once popular with voters and different from that of Ms. Merkel. After coming out strongly for joint euro zone bond issuance early on in the crisis, the S.P.D. reversed course last spring after realizing that three in four Germans opposed the idea. This summer it recalibrated again, saying a more limited form of debt mutualization was advisable, but only when tied to strict fiscal conditionality — a position so close to Ms. Merkel’s as to be indistinguishable to most Germans. Lately it has taken to attacking the chancellor for not speaking up more forcefully against the European Central Bank’s plans to buy the bonds of struggling euro members — not exactly a vote winner, even in Germany. “The problem is that the S.P.D. has no theme,” said Klaus-Peter Schöppner, head of the Emnid polling group. The S.P.D. kicked off an internal debate on its election platform early last year. In mid-September it will hold a Zukunftskongress, or conference on the future, to debate the policies it intends to take into the campaign. But high-ranking members of the party concede that little of substance will emerge. Instead, the party has decided to play for time in the hope that the euro crisis, domestic economy and political tide turn against Ms. Merkel. “It makes sense to wait this out,” said one senior S.P.D. official who requested anonymity out of reluctance to openly discuss party strategy. “A weakening economy would make the campaign much easier for us. And we could see the euro crisis deepening, forcing more rescues and making it very difficult for Merkel to keep people in her own ranks on board.” The party also plans to wait until after an election in the state of Lower Saxony in January to pick a challenger to Ms. Merkel. The hope is that an S.P.D.-Greens victory in the central German state would give the left vital momentum, showing voters that victory is also achievable at the national level. But even if it comes out on top, finding the right candidate will be tough. The odds-on favorite is Frank-Walter Steinmeier, the respected but colorless former foreign minister who went up against Ms. Merkel in 2009, only to deliver the worst result for the S.P.D. in the postwar era — a meager 23 percent. He is seen as the least bad option among the S.P.D.’s leadership “troika.” The party chairman, Sigmar Gabriel, is a fighter but unpopular and undisciplined. In an interview last week, he all but took himself out of the race, saying he planned to cut back on his working hours to spend more time with his family. A former finance minister, Peer Steinbrück, the third option, may be the one who wants it most. But he is regarded with suspicion by the party’s influential left wing, and the momentum behind his candidacy has faded since he made it clear late last year that he wanted to be the S.P.D.’s frontman. “If the S.P.D. could combine the positives of each of them — Steinmeier’s seriousness, Steinbrück’s financial acumen and Gabriel’s campaigning skills — they’d have a great candidate,” said Peter Loesche, a professor emeritus at Göttingen University. “But more than anything, they need a strategy,” he added. “Waiting until the euro falls apart or the economy collapses doesn’t cut it.” The Greens, who shot to record highs of more than 20 percent in national polls early last year only to fade after Ms. Merkel herself jumped on the anti-nuclear bandwagon following the Fukushima nuclear disaster in Japan, are also engaged in a painfully public dance over who will lead the party into the vote. Once celebrated for their youthful vigor and counterculture credibility, the Greens are now run by 50-somethings in suits, and the upstart Pirate Party is siphoning away young supporters. Richard Hillmer, who heads the polling group Infratest Dimap and advises the S.P.D., says he believes that the party should give up trying to score points against Ms. Merkel on the euro crisis and instead challenge her on other themes — for example, her failure to put in place stronger banking regulations, her ill-planned switch out of nuclear power, and rising inequalities in German society. But even on those issues, Ms. Merkel and her aides are busy triangulating, working quietly on their own plans to neutralize any and all fields of attack.

Merkel Angela
Social Democratic Party (Germany)
Germany
European Sovereign Debt Crisis (2010- )
Green Party (Germany)


Crucial Carbon Dioxide Reading Revised Downward

Abstract: One of the two programs that monitor greenhouse gases said on Monday that it had revised a reading from last week suggesting that carbon dioxide in the air had surpassed the symbolic level of 400 parts per million. The new reading by the National Oceanic and Atmospheric Administration is 399.89 parts per million for the 24 hours that ended at 8 p.m. Eastern Daylight Time on Thursday. However, a second monitoring program run by the Scripps Institution of Oceanography continues to show a level of 400.08 parts per million for the same period — a historic level indicative of the rapid rise in human-produced emissions. Scientists said slight differences between the measurements taken by the two programs are not unusual. The readings are taken at the same place, but the programs use different machines and slightly different analytical protocols. NOAA revised its figure for Thursday downward based on continuing computer analysis that filters out localized spikes in the carbon dioxide level, as well as other data problems, and a spokesman said that the Thursday figure might be revised again, in either direction.


Phillip Hughes, Australian Cricketer, Dies After Being Hit by Ball

Abstract: LONDON — Two days after he was struck by a ball in what was called a freakish accident, an Australian cricketer, Phillip Hughes, died in a Sydney hospital on Thursday, drawing expressions of grief, shock and disbelief from fellow players and sporting figures around the world. Mr. Hughes, 25, had represented Australia in dozens of international matches — in both one-day games and the longer contests called test matches — and was regarded as a player with a bright future after a sometimes-uneven record in the national team. But his death stunned many fans of cricket’s thrilling duel between bowlers and batters in protective pads and helmets, renewing a long-running debate over safety. It is not unusual for the ball to strike players, but fatalities are rare. Cricket is a national sport in Australia, which prides itself on the skill and courage of its players. “The head injury he suffered was catastrophic,” Dr. Tony Grabs, a trauma specialist at St. Vincent’s Hospital in Sydney, told reporters. “Despite extensive surgery,” he said, Mr. Hughes, “did not make very much improvement, and unfortunately, as a consequence of the injury, he died.” Mr. Hughes was playing in a domestic game in Sydney on Tuesday when the ball struck him in a part of the neck that was not protected by his helmet. The force was such that his vertebral artery was pierced, prompting significant bleeding to the brain, news reports said. Physicians induced a coma as they sought to save him. Image Hughes, in 2013, made his debut in international test cricket with Australia in 2009 at age 20. Credit Dan Peled/European Pressphoto Agency Cricket balls resemble baseballs but are heavier and routinely reach speeds of around 90 miles per hour. Bowlers use various techniques, from relatively slow spin bowling, which seeks to outwit batters, to so-called bouncers that are meant to rear up from the ground and hurtle toward the batter’s upper body. In a tally, The Associated Press listed only four deaths since 1870 caused by cricket balls striking batters. Before Mr. Hughes, the most recent was Darryn Randall, 32, in South Africa last year, The A.P. said. “The word tragedy gets used too often in sport, but this freak accident is now real-life tragedy,” said James Sutherland, the chief executive of Cricket Australia, the sport’s governing body in that country. “Without doubt, he was a rising star whose best cricket was in front of him,” he said. As cricket fans mourned, the Australian flag was lowered to half-staff over cricket grounds in Sydney and Melbourne. Several scheduled games were suspended as far afield as Sharjah, in the United Arab Emirates, where Pakistan was playing New Zealand. Cricket stars from Australia, Britain, India, South Africa, Sri Lanka and elsewhere registered shock, while the Australian prime minister, Tony Abbott, said that Mr. Hughes had been “a young man living out his dreams.” “What happened has touched millions of Australians,” he said. “For a young life to be cut short playing our national game seems a shocking aberration.” Image Hughes, of South Australia, was struck behind the left ear, in an area not protected by his helmet, in a match Tuesday. Credit Mark Metcalfe/Getty Images Shane Warne, an Australian sports commentator and former spin bowler, said on Twitter : “Woken to the horrific news about Hughesy ! I cannot describe the sadness I feel for the Hughes family & fellow cricket players, so so sad.” The ball that struck Mr. Hughes had been bowled by Sean Abbott, 22, and some sporting figures extended their sympathy to him. “That ball could have been bowled at any time in any game,” Jonathan Agnew, the British cricket commentator and former player, said on Twitter . “Tragic that it should end like this for the Hughes family, and for Sean Abbott.” The perils of fast bowling are familiar in cricket, and there has been fractious discussion about the dangers facing batters. The death of Mr. Hughes rekindled the debate at a time of increasing concern about the risks of head and brain injuries in other sports, such as football and rugby. When batting, cricket players usually wear helmets with a grille to protect the face and a dome over the skull. But many of them leave the area at the back of the neck exposed. “Helmets have made batsmen feel safe in the belief that they cannot be hurt and made batsmen more carefree and careless,” said Geoffrey Boycott, a former England batter. Image Opposing players, from New South Wales, came to Hughes’s aid. Credit Mark Metcalfe/Getty Images But unless batters “wear a suit of armor, there are always going to be injuries in cricket,” he wrote in The Telegraph . There has also been some questioning about the use of bouncers, which strike players on the upper body or on their helmet, but many commentators said that such aggressive tactics were part of the game for players at the peak of the sport. Mr. Hughes made his debut in international test cricket at the age of 20 when Australia played South Africa in 2009, scoring 100 runs — an accomplishment known as a century — in back-to-back innings in his second match in Durban, South Africa. But he was dropped from the national team later that year, when English bowlers exploited his unorthodox batting techniques to hold down his scores. He made his last appearance in the national team in 2013, but was fighting his way back, with a score of 63 runs. He was set for a recall to the national team when he was hit on Tuesday. Mr. Hughes learned to play cricket on his family’s banana plantation and rocketed to early stardom in Australia before playing in England in 2012. He died batting for South Australia against his former team, New South Wales. “Despite being in and out of the Australian team during his emerging years, Phillip never complained when he was dropped or overlooked,” said Andrew Jones, the chief executive of New South Wales, according to The A.P. “It was typical of Phillip that he was fighting his way back into the national team again with a fine innings for South Australia before suffering a freak accident.”

Cricket
Australia
Phillip Hughes
Fatalities,casualties
Sports injury
Sydney


WexTrust Capital Accused of Fraud

Abstract: The Securities and Exchange Commission charged WexTrust Capital and its affiliates with fraud on Monday, alleging that the company ran a Ponzi scheme that raised at least $255 million by targeting members of the Orthodox Jewish community. The S.E.C. said WexTrust’s principals, Steven Byers and Joseph Shereshevsky, deceived at least 1,196 investors since 2002. The defendants diverted at least $100 million to unauthorized purposes, according to the S.E.C.’s complaint. Mr. Shereshevsky, the agency said, is a convicted felon who pleaded guilty to bank fraud in 2003. He took the lead in soliciting investors through his wide-contacts in the Orthodox Jewish community, the S.E.C. said. The S.E.C. asked for an emergency order to freeze the defendants’ assets and place the WexTrust entities under the control of a receiver to safeguard assets. ”Affinity frauds are especially pernicious because the victims tend to let their guards down in circumstances where they might otherwise proceed with much more caution,” said Andrew M. Calamari, the S.E.C.’s associate director of enforcement. The complaint said WexTrust entities conducted at least 60 securities offerings through private placements and created approximately 150 entities, ostensibly to fund commercial real estate ventures. Instead, the defendants allegedly diverted funds to pay returns to investors in prior offerings or to pay their own expenses. Mr. Shereshevsky and Mr. Byers could not be reached for immediate comment.

Frauds and Swindling
Securities and Commodities Violations
Securities and Exchange Commission


Paul Hamm and Jonathan Horton Named to Olympic Team

Abstract: PHILADELPHIA — When Paul Hamm was named to the United States Olympic gymnastics team Saturday, he stood at the center of the Wachovia Center, the site of the trials, and waved to the cheering crowd. No joy washed over him, as it had when he made his previous two Olympic teams. There were no tears. Because this time, Hamm knew he was only halfway to the Summer Games. “This one doesn’t feel as good at all,” said Hamm, the 2004 Olympic champion in the all-around. “This time, it was bittersweet. There’s still a lot of work left for me if I want to make it to Beijing.” Hamm, 25, broke a bone in his right hand last month at the national championships and must prove July 22 at a training camp that he is ready for Olympic competition. He has several weeks to go before he can truly celebrate. “I’m worried that something could happen, something could go wrong, and I maybe wouldn’t make it,” Hamm said. But Jonathan Horton, the other gymnast who was named to the team Saturday, has no such anxiety. His celebration began the moment his name was announced, although he said it took some time for his accomplishment to sink in. Horton, a 22-year-old from Houston, stood frozen on the floor when his name was called. He finished with the top all-around score in the two-day trials. “I felt like I couldn’t move, maybe because of the shock,” said Horton, who was a senior this year at the University of Oklahoma. “I was like: O.K., what just happened? Why is everyone cheering?” But after 18 years of gymnastics, Horton found himself next to Hamm, his idol and likely teammate in Beijing. All Horton’s work and sacrifice had culminated in this, he said later, before telling the story of how he started in the sport. When he was 4, Horton tagged along with his mother on a shopping trip to Target, then disappeared. His mother found him at the top of a pole at the center of the store, just inches from the ceiling. “I was bear-hugging this pole, and a guy said, ‘Can you get down from there?’ and I just shimmied down,” Horton said. “I was on a gymnastics team within a week.” Horton also had the highest combined scores after they were weighted and combined with his scores from nationals. Scores from nationals were worth 40 percent. There was only one way for gymnasts to guarantee themselves a spot on the team. Based on combined and weighted scores from nationals and trials, they needed to finish in the top two in the all-around, and also needed to finish in the top three in at least three events. “We didn’t have anyone lock onto the team,” said Dennis McIntyre, the men’s program manager. “We thought Jonathan did an amazing job through this whole process, so we looked at his scores and picked him.” On Sunday, the selection committee will announce the remaining four men on the team and up to three alternates, or it will name a training squad of eight or nine gymnasts. It will decide the full team by July 1. So the 13 other gymnasts in the mix have to wait until Sunday to learn their fate. Among them is Justin Spring, whose routine on the high bar elicited wild cheers Saturday. He had several gasp-inducing release moves and seemed to barely have a grip on the bar as he swung his body round and round — sometimes holding on with only one hand. When he came off the competition floor, he greeted his coach, Jon Valdez, and said, “Oh my God!” Later, he said: “Put me on this team. I can prove to you that I’m good enough.” David Durante is among the competitors who said he would retire after these trials if he did not become an Olympian. He hit all of his routines Saturday, ending them with fist pumps or by flexing his biceps. After his last event of trials, the pommel horse, he slapped the horse and pointed to his family in the stands. “It was one that I wanted so bad because I knew it could be my last event ever,” Durante said. “I breathed a sigh of relief after that. I did my best. Now there’s nothing more I can do. It’s up to the selection committee.” Morgan Hamm, Paul Hamm’s twin, is also one of those waiting to hear if he makes the team. He injured his left ankle during his floor routine Thursday and said he was disappointed with his performance at the trials. In weighted and combined scores from nationals and trials, he was second on the high bar and fourth on the floor exercise, the pommel horse and the vault. “I just hope the committee sees that I’m injured and I can do much better,” Morgan Hamm said. “Sure, there’s nothing more I’d want then to go with Paul to Beijing. But that’s not up to me.”

Hamm Paul
Gymnastics
Olympic Games
Horton Jonathan


Military’s Test Vehicle Is Launched, Then Crashes

Abstract: WASHINGTON — The military’s latest test of the fastest aircraft ever built ended Thursday with the hypersonic vehicle crashing into the Pacific Ocean, although officials said they were able to gather “unique data” that will guide the development effort. The goal of the project is to enable the military to carry out what it calls a “prompt global strike.” If successful, the vehicle would hurl a conventional warhead of enormous weight at high speed and with pinpoint accuracy, generating the localized destructive power of a nuclear warhead. The Falcon Hypersonic Technology Vehicle 2 was launched aboard a rocket from Vandenberg Air Force Base, northwest of Los Angeles, early Thursday. The launch vehicle was able to push the Falcon into the desired trajectory. At that point, and after collecting nine minutes of data, the signal to the Falcon was lost, and it apparently crashed into the ocean. A statement from the Defense Advanced Research Projects Agency , which is developing the aircraft, said the launching, separation and initial trajectory achieved by the vehicle could be viewed as important successes, despite the modest flight time. “We know how to boost the aircraft to near space,” said Maj. Chris Schulz, the program manager. “We know how to insert the aircraft into atmospheric hypersonic flight. We do not yet know how to achieve the desired control during the aerodynamic phase of flight. It’s vexing; I’m confident there is a solution. We have to find it.” The goal is an aircraft that can fly at 13,000 miles per hour — enduring temperatures in excess of 3,500 degrees — and that is able to hit targets anywhere in the world in under an hour. Military planners say such a vehicle could carry out missions like taking out a North Korean missile while it is being rolled to the launching pad, or destroying an Iranian nuclear site — all without crossing the nuclear threshold. In theory, it also could be used against a high-value terrorist target if no other weapons or military force were available or could reach the location in time. The first Falcon was launched in April 2010, and likewise sent back nine minutes of data, including more than two minutes at speeds of up to 22 times the speed of sound, before crashing.


Government’s Leap Into Banking Has Its Perils

Abstract: Now that the big five investment banks of America have been shut down, sold off or turned into more staid bank holding companies, there is one big risk-taking banker left: the federal government. The decision this week to put $250 billion in banks in return for shares will make the government a major investor, and owner, in the banking industry. The bold move is one of many that is redefining and enlarging Washington’s role in the country’s banking system. Especially if conditions worsen, further government actions may be deemed necessary to shelter banks, businesses and consumers from the financial turmoil. This fundamental shift at least raises long-term questions about government’s appropriate role in financing and the economy. Will the government inevitably be tempted to guide lending decisions, steering loans to some and not to others? History shows that government intervention in banking systems can carry its own dangers, with money funneled to political favorites instead of an economy’s innovators. The federal government’s initiatives are all carefully cast as emergency measures that will be phased out in months or years. “It’s explicitly temporary, but we don’t really know where this crisis ends yet,” said Robert E. Litan, an economist at the Brookings Institution. “The logic of intervention is that the more ownership the government has, the greater the regulation and management control.” There is a cautionary example, economists say, in today’s troubles. The nation’s two largest mortgage finance companies, Fannie Mae and Freddie Mac, are quasi-governmental institutions. Fannie was created during the depths of the Great Depression , and Freddie in 1970, to help make mortgages more affordable for homeowners. But as the housing bubble grew, the companies came under political pressure to buy riskier loans and loosen their standards, according to former executives and analysts. Last month, the federal government was forced to bail out Fannie and Freddie and pledged up to $200 billion for the rescue. “The Fannie and Freddie experience shows what can go wrong if we have too much government interference,” said Kenneth S. Rogoff, an economist at Harvard and an adviser to the Republican presidential nominee, John McCain. The government’s frenzy of fire-drill policy making in recent weeks has been called “creeping socialism,” but even conservative economists generally applaud the moves as prudent in a time of economic peril. Concerns about government intrusion in the marketplace, they say, can be addressed after the financial storm has passed. “My major concern has been the government not getting sufficiently involved, because financial collapses have been at the heart of the deepest economic contractions over the years,” said Robert E. Hall, an economist and senior fellow at the Hoover Institution, a conservative research group at Stanford. Taking ownership stakes in banks to add needed capital to those depleted institutions, Mr. Hall said, was a crucial step. “We’re on the right track now,” he said. In a speech on Friday, President Bush portrayed the government moves as forceful yet calibrated. The initiatives were “decisive measures aimed at the heart of our financial challenges,” he said. “And they’re big enough and bold enough to work.” But Mr. Bush also said the bank investments would be limited in size, scope and duration. “The government intervention is not a government takeover,” he said. “Its purpose is not to weaken the free market. It is to preserve the free market.” The $250 billion bank investment plan is but one sign of the government’s expanding role. The Federal Reserve, for example, has traditionally been the lender of last resort to banks. Yet the Fed announced this month that it would become the buyer of last resort for commercial paper — short-term financing that many businesses issue to finance their daily operations — acting as a backstop in that $1.6 trillion market. The Federal Deposit Insurance Corporation, as its name suggests, is charged with insuring the savings of bank depositors. The agency not only sharply increased deposit insurance limits, but also said it would guarantee debt issued by banks. The move is an effort to give banks greater confidence to lend to each other and thus get money flowing again. The F.D.I.C. places a ceiling on that guarantee program of $1.5 trillion. In theory, the funds committed for everything from the bailouts of Fannie Mae and Freddie Mac and those of the Wall Street firm Bear Stearns and the insurer American International Group, to the financial rescue package approved by Congress, to providing guarantees to backstop selected financial markets is a very big number indeed: an estimated $5.1 trillion. Still, that unnerving figure — equal to more than a third of the yearly output of the United States economy — is mainly a sign of the urgency that government sees in tackling the financial crisis . It is not a total for what will be spent. The unlimited guarantees to backstop lending markets, for example, are temporary confidence-building steps meant to give financially sound banks the comfort to deal with each other. Other steps, like the bank investments, could well turn a profit if the banking industry’s fortunes improve later. The government moves so far are intended to do two things that are essential to stabilize the banking system and nurture an economic recovery. First, the lending and loan guarantee programs by the Fed, F.D.I.C. and Treasury Department are all meant to get normal lending for businesses and consumers flowing again. Second, the government investments in the banks are intended to steady the banking system by adding capital. Banks have been forced to take big losses as the value of their holdings — mainly complex securities tied to home mortgages — has declined. Bank share prices have fallen precipitously as well. Banks borrow against their assets — shareholders’ equity and holdings — and lend to customers. As their assets fall, the banks have less leeway to lend, and with asset values declining sharply in recent months, there is the risk of insolvency. So the government has put capital in the banks to add financial ballast and halt a downward spiral in asset values and lending activity. Eventually, economists and finance experts say, there will surely be a regulatory overhaul of the banking system to try to prevent this kind of financial crisis from recurring. The current turmoil has its origins in the housing market. The problem developed over years, and many share responsibility: overextended homeowners, overly aggressive mortgage lenders, financial engineers who built exotic securities and bank executives and government regulators who underestimated the risks to the financial system. As long as housing prices kept climbing, fueled by ever-higher levels of debt, the problems were hidden. But in 2006, when prices peaked and began falling, things started to come undone, though slowly at first. Bank regulators and executives generally agreed there would be losses, but they would be widely dispersed and the impact would be limited. The financial system, they insisted, had been made more resilient by deregulation, technological innovation and the globalization of capital flows. That remained the prevailing view even after the government prevented Bear Stearns from going under in March by guaranteeing $29 billion of its bad assets, then brokering a deal to sell Bear off to JPMorgan Chase. But it was the collapse of the investment bank Lehman Brothers in mid-September and its cascading effects across the worldwide financial system that truly changed the thinking everywhere. The complex debt products held by Lehman and others proved to be risk bombs. There was no central exchange, or open marketplace, where the mortgage-backed securities were listed or traded. More banks in the United States and Europe held more of the toxic securities than had been realized. “No one appreciated how great the failure of risk management really was,” said Simon Johnson, a former chief economist of the International Monetary Fund. Shortly afterward, the policy approach shifted from case-by-case bailouts to a more comprehensive approach. After an initial rejection, Congress approved a $700 billion rescue package Oct. 3, giving the Treasury Department and the Fed broad leeway to tackle the problem. At first, the government said it would focus on auctions to buy soured mortgage-backed securities from the banks. But markets plunged the following week, and the government adopted the more emphatic step of taking ownership stakes in banks. Under the plan, the government is seen as a “silent partner” in the banks, without board seats. But analysts expect the government to be more quiet than silent, operating as an adviser that must be consulted. Should the bank sell these mortgage-backed securities for 10 cents on the dollar today or wait a few months and hope to get 40 cents on the dollar? A discrete call to the Treasury or the Fed, analysts say, would seem in order. “I think the government will be a risk manager extraordinaire,” said Mr. Litan of Brookings. “They’re not going to tell banks where to lend. But in high-risk kinds of things, they have the role of saying no, no, not there.”

Treasury Department
Banks and Banking
United States Economy
Economic Conditions and Trends
Subprime Mortgage Crisis