PATRIOT PERSPECTIVE
Bailout Basics
By Mark Alexander
“For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac... and the sheer magnitude of these companies and the role they play in the housing market... If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.” —John McCain arguing for passage of the Federal Housing Enterprise Regulatory Reform Act (S. 190) which he co-sponsored in 2005.
While Sen. McCain is being pilloried by his opponent, Barack Hussein Obama, for asserting (correctly) last week that the fundamentals of most U.S. economic sectors are sound, clearly, Sen. McCain has understood for years that irresponsible lending practices for U.S. housing posed “enormous risk... to the housing market, the overall financial system, and the economy as a whole.”
While Obama was out politicking this week, ostensibly itching for a debate that he’d been avoiding all summer, McCain suspended his campaign to work with Republicans in Congress, outlining conditions for an agreement that would both protect the American taxpayer and thwart a meltdown of the U.S. economy. So, “Country First” is not just a campaign slogan...
The enormous risk that Sen. McCain warned of in 2005 has now become a financial crisis of staggering proportions. That crisis can trace its roots to Bill Clinton’s signature on legislation making it easier for minority constituents with bad credit to obtain mortgages. In 1995, he had his Treasury Secretary, Robert Rubin, rewrite the lending rules for the Community Reinvestment Act, opening the flood gates of mortgage lending to unqualified borrowers.
This legislation, in effect, applied affirmative action to the lending industry, which is to say that the current crisis is NOT a “free market failure” but the result of socially engineered financial policy by the central government. The financial markets welcomed their new customers with open arms, fueling a real estate boom across the board.
These so-called “subprime mortgages,” which were offered at variable interest rates, were widely perceived as good investments. Investors used the high-risk instruments to secure assets in other markets fueling profits for investment banks and mortgage lenders. The subprime market thus expanded rapidly and the mortgage instruments were used by other firms as collateral for investments in stocks, commodities and the like.
Unfortunately, no one questioned the pell-mell regulatory system of oversight for these transactions until large cracks appeared in our economy’s foundation, the first being the collapse of Countrywide, the nation’s largest subprime lender. Then banks and mortgage lenders large and small began downsizing, dumping assets and closing their doors. Bear Stearns filed for bankruptcy. Fannie Mae and Freddie Mac, holders of trillions of dollars in mortgages, were bailed out with 200 billion taxpayer dollars. Lehman Brothers filed for bankruptcy, and insurance giant AIG was given an $85-billion taxpayer prop to keep it solvent.
This morning, as Congress is debating whether to implement the Democrat-backed “bailout plan” or the Republican-backed “workout plan,” Washington Mutual Inc. has been seized by the Federal Deposit Insurance Corporation (FDIC) after collapsing under the weight of reams of bad mortgages. WaMu, listing $307 billion in assets, becomes the largest bank failure in U.S. history. The FDIC sold WaMu’s assets for $1.9 billion to JPMorgan Chase & Co., which bought Bear Stearns Cos. earlier this year.
(Congressional Republicans might also consider repeal of Sarbox, the Sarbanes-Oxley Public Company Accounting Reform and Investor Protection Act of 2002, which has maintained a choke hold on financial institutions and is high on the list of proximate causes for the failure of Countrywide and Bear Stearns.)
The serious economic calamity confronting our nation, and the world, is being labeled a “credit crisis.” But we are on the verge of a crisis of cascading confidence in the U.S. economy, which, in the absence of aggressive intervention, could, no, will result in a dramatic recession affecting every sector of the U.S. and, eventually, world economy.
The catastrophe looming just over the horizon is indeed that big, and we must all hope that the solution is big enough to interrupt the domino effect already underway.
The question that must be asked, however, is whether the people’s confidence in their government is sufficient to thwart this cascading effect. Far more often than not, in the inimitable words of Ronald Reagan, “Government is not the solution to our problem. Government is the problem.” Of course, the only institution big enough to address a problem of this magnitude is the government.
Perception v. Reality
Essentially, perception defines value, and the shared confidence in our perception of the value of one major sector of our economy, the housing market, has eroded dramatically.
To understand the notion of perceived value, consider all that paper we call currency. If I walk into a store and pull out one of these pieces of paper with Ben Franklin’s picture handsomely printed upon it, the store proprietor will accept that paper in trade for some of his products or services because he believes it to have intrinsic value (which it once did, when it was backed by hard assets—gold and silver). But make no mistake: The value of that piece of paper is nothing more than it is perceived to be. Thus, if the proprietor’s confidence in that perception becomes diminished, he may begin to think such a piece of paper is worth only half its face value, or perhaps nothing at all.
And if my paper is perceived to have no value, I will not be able to do commerce in this or any other store.
For two decades, our confidence in the perceived value of pieces of paper called mortgages has been growing rapidly, and because the prevailing perception has been that a house will be worth more tomorrow than it is today, financial institutions have aggressively enabled buyers to assume mortgages to purchase houses. (Actually, mortgages are now traded electronically as binary data—value that!)
However, in recent years, confidence in the perceived value of real estate has outpaced reality, as mortgage defaults have trended upward. That realization has resulted in what now has become a precipitous erosion of confidence in the value of real estate, and consequently, housing market values have collapsed in many areas of the country where they were unduly inflated.
While perception can be shaped and molded, reality is finite. The reality, in this case, is that a house and its outstanding mortgage are worth not a nickel more than a buyer is willing to and capable of paying for it.
Thus, the devaluation of mortgages has had an enormous financial impact on institutions that trade in “packaged mortgages,” and consequently, on other institutions that trade with them, and, well you get the picture. The dominos have begun to fall.
Moreover, in an effort to keep their domino standing, because of the potential that any new lending would result in additional foreclosure exposure if the housing market continues to decline, banks have tightened lending in order to preserve the capital necessary to cover the cost of a growing number of foreclosures. This constriction of the money supply extends far beyond the housing markets, as loans for business development and expansion are also drying up.
This combination of events creates the perfect economic storm, and it has dire consequences for all Americans.
Consequences of cascading confidence
Confidence in the perceived value of financial instruments, which are the foundation of our economy, is calculated minute by minute by indices such as Dow Jones, Standard and Poor’s, and other measures of financial markets. These measurements amount to investor confidence indices, polls of investor perception about the strength and stability of the economy. The stability and direction of these indices are a good indication of investor confidence.
If the indices indicate significant instability of investor confidence, that instability can cause the financial markets to collapse in a single day. (See: “Great Depression.”)
Here, it’s important to note that the vast majority of Americans are among the “investor class.” This isn’t just about “the rich.” Whether you trade millions of dollars in securities daily or like cream in your coffee, you are a shareholder in our economy.
Thus, the plan proposed by President George W. Bush and Treasury Secretary Henry Paulson—waiting for majorities in Congress to determine the details—is an effort to stabilize investor confidence by authorizing up to $700 billion in guarantees for institutions holding mortgages. In effect, this will relieve lenders of liability for mortgages considered to be at risk of default—about five percent of all mortgages.
It is hoped that Republicans can succeed in crafting legislation that is more workout than bailout, the former requiring much more market accountability, as proposed by Sen. McCain and former House Speaker Newt Gingrich.
President Bush addressed the nation Wednesday evening with a concise explanation of the current crisis:
“This is an extraordinary period for America’s economy. Over the past few weeks, many Americans have felt anxiety about their finances and their future. I understand their worry and their frustration. We’ve seen triple-digit swings in the stock market. Major financial institutions have teetered on the edge of collapse, and some have failed. As uncertainty has grown, many banks have restricted lending. Credit markets have frozen. And families and businesses have found it harder to borrow money. We’re in the midst of a serious financial crisis... So I’ve proposed that the federal government reduce the risk posed by these troubled assets, and supply urgently needed money so banks and other financial institutions can avoid collapse and resume lending. This rescue effort is not aimed at preserving any individual company or industry—it is aimed at preserving America’s overall economy. It will help American consumers and businesses get credit to meet their daily needs and create jobs. And it will help send a signal to markets around the world that America’s financial system is back on track.”
What about a free-market solution?
I concur, of course, with the principled objections from free-market advocates and hope that free-market solutions will be re-implemented in conjunction with the necessary mortgage backup. If not, the cure may be worse than the disease. After all, it was the suspension of free-market principles that got us into this mess.
But I agree with President Bush’s comments regarding the necessity of intervention: “I’m a strong believer in free enterprise. So my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances. The market is not functioning properly. There’s been a widespread loss of confidence. And major sectors of America’s financial system are at risk of shutting down.”
Further, he is correct in this assessment: “More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically. And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs. Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college. And ultimately, our country could experience a long and painful recession.”
It is worth noting that $700 billion is a bargain compared to the implications for taxpayers if the economy spirals into a severe recession—or worse.
Can any of this colossal expense be recovered?
Fortunately, there are real assets backing up these mortgages—bricks and mortar, and the land upon which the foundations rest—but this is no “deal for taxpayers.”
While much of this mortgage backing may be recovered, as was the case with the savings and loan bailout of 1989, to suggest that the “taxpayers will be paid back” is ludicrous.
Congress is going to serve as the “watchdog” over the dispensing and recovery of these funds? Can you say, “fox in the henhouse”?
Even if Congress sets up a “trust fund” in order to use recovered funds to pay down the debt incurred to back financial institutions, we should consider that “lockbox” to be as safe as the Social Security Trust Fund lockbox. Every dime paid into Social Security has been spent on government programs, leaving that fund with a bunch of IOUs.
No doubt, every dime recovered from the private sector will be treated as revenue to expand government programs, and the debt will be left on the books.
To pay for the bailout, Democrats are sure to demand higher taxes from “the rich Wall Street fat cats who got us into this mess.” While this mess clearly ended on Wall Street, it didn’t start there, but, undeterred, the Democrats will always bank on this observation from George Bernard Shaw: “A government which robs Peter to pay Paul can always depend on the support of Paul.”
And, of course, if the current plan to restore economic confidence does not succeed, you know the Demos have “Plan B.” Don’t ask...
What role have politicians played?
One staple of the Democrats’ political playbook is the use of scare tactics to rally constituencies. Indeed, Obama and other Demos have been dishing out a steady stream of dire economic rhetoric in order to keep their constituents in line. Undoubtedly, all that economic hyperbole has influenced public perception of our economy and confidence in our economy. High on the list of issues President Bush discussed with candidates McCain and Obama Thursday was a request that they (read: “Obama”) cease and desist using the economic problems as political fodder.
It is our hope that the candidates will, indeed, arrive for debate in Oxford, Mississippi, this evening and begin the debate with a unified statement on economic recovery; then Sen. McCain can proceed to eviscerate Obama on foreign policy.
Footnote: There are significant, albeit unspoken, national security implications of a precipitous economic decline in the U.S. Where our economy goes, the world economy follows, and there will be significant national security consequences. For example, if China’s economy contracts more rapidly than at present, keeping pace with U.S. economic decline, the consequences will likely be some significant internal and external “mischief” scripted by the Communist Party. As for India and Pakistan...you get the picture.
Judge slams government tactics in Stevens case
September 29, 2008 - 12:35pm
Associated Press Writers
WASHINGTON (AP) - A federal judge angrily rebuked the Justice Department on Monday for mishandling a witness against Sen. Ted Stevens, a dispute that delayed and initially threatened to derail the case against the Alaska senator.
The dustup didn't yield the mistrial or dismissal that the Republican senator was hoping for but, with Stevens running for re-election during his corruption trial, it reinforces his story line that he is the victim of overzealous prosecutors.
Stevens is charged with lying on Senate financial disclosure forms about more than $250,000 in free home renovations and other gifts he received from VECO Corp., a powerful Alaska oil pipeline contractor.
The witness dispute began this weekend when Robert Williams, the VECO employee who supervised the renovation project, called defense attorneys and said prosecutors had ignored important facts in the case.
Williams said the government's estimates for how much time he spent at the senator's house _ and how much that time was worth _ were overblown, according to court documents.
"That's just ..." defense attorney Robert Cary said in court Monday.
"Problematic," U.S. District Judge Emmet Sullivan said.
"It shocks us," Cary replied.
The value of the renovation is key because Stevens paid $160,000 and says he assumed it covered everything. Prosecutors say the job was so expensive, Stevens must have known his $160,000 wouldn't cover the tab.
Sullivan was livid that prosecutors sent Williams, who was under subpoena to testify in the case, back to Alaska without telling anyone. That raised suspicion among defense attorneys that prosecutors were trying to hide information that could help them.
Williams had been suffering from health problems and prosecutors said they decided they could bring the case without him.
Sullivan was not satisfied.
"Why wasn't I consulted? I'm peeved now. It's a federal subpoena to appear in my court," Sullivan said, his voice rising. "I think the government is treading in some shallow water here. What should the sanction be for that?"
Prosecutor Nicholas Marsh said the government was trying to consider Williams' medical problems, but he struggled to explain why prosecutors didn't tell anyone.
"Certainly looking back on it, we understand where the court's coming from," Marsh said.
Stevens, the longest-serving Senate Republican, is locked in a tight re-election race against Democratic Anchorage Mayor Mark Begich. While Begich is campaigning, Stevens is tethered to a Washington courtroom.
Because defense attorneys have new information from Williams, Sullivan gave them a second chance to cross-examine a VECO bookkeeper whose documents suggested Williams worked long weeks on the senator's house.
Back on the stand, bookkeeper Cheryl Boomershine testified she didn't know what Williams was doing for those hours.
Stevens says that if anything was tacked on to the job, VECO founder Bill Allen did so without telling him. Because the senator's wife handles all his finances, Stevens says there's no way he could have known Allen was adding on work.
Prosecutors had planned to put Allen, their star witness, on the stand Monday. Instead, they listed more than a dozen potential witnesses, including VECO employees, former Stevens staffers and a former Federal Election Commission official.
___
On the Net:
Justice Department documents: http://www.usdoj.gov/criminal/us-v-stevens/
US circles hijacked ship with Sudan-bound weapons
September 29, 2008 - 10:22amAssociated Press Writers
MOGADISHU, Somalia (AP) - U.S. warships and helicopters on Monday surrounded a hijacked cargo ship loaded with Sudan-bound tanks and other arms to keep the weapons from falling "into the wrong hands," an American Navy spokesman said.
Lt. Nathan Christensen, a deputy spokesman for the U.S. Navy's Bahrain-based 5th Fleet, said the shipment of 33 Russian-designed tanks, rifles and ammunition on the Ukrainian-operated Faina was headed for Sudan _ not Kenya as previously claimed by Kenyan officials. The U.N. has imposed an embargo on arms destined for the Sudanese region of Darfur, to be observed by the government, allied paramilitary units known as the janjaweed, and the rebels.
A 5th Fleet statement said the ship was headed for the Kenyan port of Mombassa, but that "additional reports state the cargo was intended for Sudan."
The pirates who seized the ship are demanding a $20 million ransom.
The U.S. fears the armaments onboard the Ukrainian vessel may end up with al-Qaida-linked Islamic insurgents who have been fighting the shaky U.N.-backed Somali transitional government since late 2006.
"We maintain a vigilant watch over the ship and we will remain on station while negotiations between the pirates and the shipping company are going on," Christensen told The Associated Press.
Pirates seized the Faina's Ukrainian, Russian and Latvian crew off Somalia's lawless coast on Thursday as it headed to Kenya and anchored the vessel off Somalia's coast near the central town of Hobyo. One crew member has died.
Christensen did not specify whether the arms were intended for the Khartoum-based Sudanese government, or southern Sudan, which was granted a degree of autonomy under a 2005 peace deal that also guaranteed the oil-rich region a referendum on full independence in 2011.
The administration in southern Sudan and the Sudanese government are not covered by the 2005 arms embargo, provided imported weapons do not end up in Darfur.
Kenyan officials on Monday declined to discuss the destination of the weapons. Ukrainian Defense Ministry spokesman Valentyn Mandriyevsky said the ministry was not dealing in weapons trade and didn't know where the cargo was bound.
A spokesman for Ukraine's arms trader, Ukrspetexport, had no immediate comment.
Western intelligence reports a few days ago said the ultimate destination was Sudan and that Kenya was only the transshipment point, said one Western official, who spoke on condition of anonymity because he was discussing classified material. He said the issue became confused after Kenyan leaders had publicly referred to the tanks as their own.
Christensen said an unspecified number of destroyers and cruisers have joined the San Diego-based USS destroyer Howard within a 10-mile radius of the Faina.
"The safety of the ship's crew and cargo is a paramount concern to us," Christensen said, adding additional warships and helicopters were deployed to prevent the weapons from falling "into the wrong hands."
There have been 24 reported attacks in Somalia this year, according to the International Maritime Bureau's piracy reporting center. Last year, U.S. naval helicopters fired on pirate skiffs tied to a hijacked Japanese tanker carrying 30,000 tons of benzene after they feared that pirates might try to use it as a floating bomb in a middle eastern oil port.
Seizing ships has become an important source of income for pirates in Somalia, which is riven between rival clan-based warlords since they overthrew a socialist dictator in 1991.
___
Associated Press writers Pauline Jelinek in Washington, Yana Sedova in Kiev, Ukraine and Surk in Dubai, United Arab Emirates contributed to this report.
ForagingPictures.com
Pictures of edible plants and mushrooms taken on "Wildman" Steve Brill foraging tours in the NYC area. Can also see pictures in walking tour and season order.
They are Categorized in the following category's
MedicinalInedible
Poisonous
Mushroom, Edible
Mushroom, Inedible
Unclassified
Markets face major crash if US bail-out plan collapses
London shares could lose a fifth of their value and the money market faces collapse unless US politicians succeed with their financial bail-out plan, it has been warned.
A leading investor predicted that the FTSE 100 could drop by as much as 1,000 points on Monday if Treasury Secretary Hank Paulson’s $700bn (£380bn) plan fails. Such a fall would come close to matching the stock market crash of 1987.
The warning came as markets lurched their way to the end of another fraught week amid fears that the White House rescue operation could be derailed in Congress by conservative Republicans.
However, hopes that a deal might be imminent spurred a last-minute rally on Wall Street, with the Dow Jones Industrial Average jumping 121.07, or 1.1pc, to 11,143.13. Financial stocks led the recovery following an early 158-point fall after news filtered out of Washington late on Thursday night that talks on the Paulson plan had broken down at an emergency White House summit.
The collapse of talks prompted the Bank of England to step forward yesterday with an emergency liquidity injection. The central bank has now effectively taken the place of large swathes of the interbank market, lending medium-term funds to banks that now refuse to lend to each other on anything beyond an overnight basis.
The Bank ordered drastic measures to prevent the City’s money markets collapsing, organising a £40bn auction of medium-term funds for Monday. Experts warned that unless the unusually large offering reignites the interbank markets that underpin the entire financial system, the Government may be forced into a US-style bail-out of its own.
One senior money market trader said: “If the US bail-out fails this weekend, I don’t know if there’s any point coming in on Monday.”
The mood in equity markets was hardly more upbeat. Bryan Johnston, investment director at Bell Lawrie, said: “If Paulson’s plan fails we will see a collapse in the markets and taxpayers will effectively pick up the tab. We could also see 1,000-point falls on the FTSE on Monday and we would be out of a job, while the banking system would freeze up.”
The FTSE dropped 108.55 points to 5088.47. With traders heading for safe haven investments, gold prices rose, with an ounce of the precious metal up $21.1 to $897.10. However, oil prices dropped as traders worried that world economic growth could be under threat. Brent crude dropped $3 before settling $1 down at $103.5. Meanwhile, the dollar slipped lower against other currencies.
George W Bush insisted that despite differences over the plan, “there is no disagreement that something substantial must be done”.
He added: “The legislative process is sometimes not very pretty, but we’re going to get a package passed. Republicans and Democrats will come together and pass a substantial rescue plan. Our proposal is a big proposal because we have a big problem. We need to move quickly.”
Gordon Brown, who was in New York yesterday, said: “In the short term, each country is taking action to deal with the fallout of the credit crunch. America deserves support from the rest of the world as it seeks to agree in detail what all parties have agreed in principle.”
Mr Brown and Bank of England Governor Mervyn King have come under increasing pressure to consider implementing further measures to revive money markets. Money market traders said interbank lending for terms of anything other than a day had effectively ceased, with lenders fearing their counterparties could become insolvent imminently.
The Bank co-ordinated its liquidity package with the US Federal Reserve, the European Central Bank and the Swiss National Bank, offering $30bn in cash for a week against eligible collateral.
The European efforts coincided with growing fears that Fortis, the Belgian-Dutch banking giant, faces a liquidity crisis. In response to a collapsing share price, it pledged to speed up a planned €5bn-€10bn (£4bn-8bn) of asset sales and named a new chief executive.
Expectations are rising that Fortis will be taken over either by France’s BNP Paribas or Dutch rival ING. The Belg-ian and Dutch governments have both convened to discuss the options for Fortis.
Financial Crisis: The next decade could be our very own Great Depression
For the first time in as long as I can remember, I find myself on George W. Bush's side. It's rather lonely. By Edmund Conway, Economics Editor
The US President has been wrong about so much during his eight years in office that it is tempting to dismiss his warnings of the impending financial apocalypse as yet more hyperbole - the boy crying wolf.
Unfortunately, this time I suspect he's right. Treasury Secretary Hank Paulson's bail-out is far from perfect, but without it the American and British economies face a crunch the likes of which we can hardly imagine. But how much money would you put on the likelihood of the lamest of lame-duck presidents driving the plan into law?
Not much, if the chaotic negotiations in the White House on Thursday night are anything to go by. As the $700 billion plan to prevent the world's biggest economy slumping into the worst recession in living memory was thrown off the road by a cabal of conservative Republicans, the administration suffered an apparent nervous breakdown. Having survived the invasion of Iraq and Afghanistan and the terrorist attacks in September 2001, it took a financial crisis to bring true chaos to the heart of the free world.
Is this the way the modern economy ends? In a scene of Beckettian farce? If the bail-out does collapse, the consequences are hideous. We are in the early stages of one of the worst world slumps in living memory.
The financial system on which the economy depends has frozen. In the past few weeks, we have seen some of the world's most venerated names in finance collapse. The US government has in effect nationalised Fannie Mae, Freddie Mac and AIG. Lehman Brothers is no more; Merrill Lynch has been eaten by Bank of America, and even Goldman Sachs has had to go cap-in-hand to Warren Buffett.
Bush was half-right: one "sucker" did go down. In the late hours of Thursday, America suffered the biggest bank failure in history, as Washington Mutual was shut down by regulators and the remnants sold to JP Morgan.
History shows that whenever there is a banking crisis, an economic slump, with all that entails - mass redundancies, falling house prices, widespread bankruptcies - invariably follows. The scale of the recession depends on the size of the banking crisis; the past year has brought the biggest systemic financial collapse since the 1930s.
We know this because economists, including Federal Reserve Chairman Ben Bernanke, have spent decades studying the causes and potential solutions for episodes such as the Great Depression. They may not have discovered a vaccine for financial panics. We make the same mistakes over and over again: borrowing too much, convincing ourselves we have minimised our financial risk, forgetting that money must be paid back and that house prices go down as well as up. But the quality of the cure has improved.
The worst thing to do now would be to impose medieval remedies. Back in the 1930s, the depression was cemented not by the Wall Street Crash of 1929, but by the hard-nosed policies of the US politicians, who allowed so many banks to fail that they set off a domino effect that took almost a decade of thrift to recover from. It was the financial equivalent of leeches and blood-letting.
In Britain, we had a comparatively benign 1930s, with not one major bank collapsing and the economy faring far better than the US. This time is different. Two of our biggest mortgage lenders have already had to be rescued. We are as vulnerable as the US - if not more so. Indeed, most likely we are already in recession, and the economy will continue shrinking until at least the latter stages of next year.
Unemployment will rise by almost a million. House prices - already down by a tenth - will fall by the same margin again, probably more. The problem is that the recent lurches in financial markets could make this far worse. In short, unless the Government is prepared for some radical rescue plans, the next decade could quite easily be our very own 1930s.
Which makes it all the more shocking that, so far, the major initiatives announced by the Government and the Bank of England have been tantamount to handing a paracetamol to someone suffering a heart attack. The Bank has pumped billions of liquidity into the market and it injected more cash in yesterday.
However, the lesson from the US is that at some point the Government will probably have to spend a significant chunk of taxpayers' cash to keep the financial system - and hence the wider economy - afloat.
This may involve a similar plan to Paulson's - a toxic waste dump for poisonous investments - or merely an injection of public money into the financial sector. It will be expensive, and the consequence, in the long run, is higher taxes or spending cuts once the economy has recovered. The Government has at least the luxury of learning some snatched lessons from America, though there is no telling how soon our own lifeboat may need to be launched.
In the meantime, the authorities must get the cost of borrowing down, or watch the housing market tumble to new lows. The Bank of England ought to have cut interest rates some months ago, but, better late than never, it should do so at the next possible opportunity. It is time to stop lecturing the patient; it is time to start applying the cure.
Biggest fear: 'The perfectly hidden WMD'
September 29, 2008 - 5:51am
WASHINGTON - Homeland Security officials say security upgrades have shut down many of the nation's vulnerabilities, making it hard to launch a major terror attack inside the United States. However, the State Department's Coordinator for Counterterrorism, Dell Dailey, says that doesn't mean a well disciplined terror group couldn't do it.
"The perfectly hidden weapon of mass destruction is our biggest fear," Dailey says. "Coming at the United States will probably have to be a spectacular effort, very well controlled."
"We view al-Qaida as always wanting to exercise the WMD option against the United States," Dailey says. "They haven't been able to. We don't see any evidence of them having that capability, but we're always worried about it."
U.S. intelligence officials are worried because al-Qaida has been operating in the ungoverned shadows of the world for 20 years. Those officials fear they've been using that cover to try to acquire weapons of mass destruction to use inside the U.S.
According to State Department documents, there are at least six regional safe havens worldwide, spanning more than 27 countries on four continents. A number of them cross national boundaries. Experts say the most dangerous one is in Pakistan, where al-Qaida's base of operations is believed to be.
Dailey says his teams are not just sitting back waiting for an attack.
"In the Federally Administered Tribal Areas (FATA) and Northwest Province area, the U.S., with the Pakistanis, have a $150 million program per year for five years that lends itself to significant economic development and the rules of law and good governance."
It includes military funding for the Pakistani frontier corps.
"It needs to move along and be successful so that the Pakistani people in the FATA area can see goodness taking place with the Pakistani government helping them out," Dailey says.
That approach is based on a U.S. counterterrorism strategy to try and win over the local people in vulnerable areas of the world before groups like al-Qaida can.
But the problem of ungoverned space is only one problem on a list of several. Another problem for the State Department is promoting the U.S. approach of dealing with terrorism as a multi-faceted problem to other countries. Dailey says that is the most daunting part of the mission.
"The toughest challenge is probably for nations to realize that counterterrorism legislation and counterterrorism financial efforts are critical and important in the counterterrorism effort," Dailey says.
He says nations around the world need to give themselves the "evidentiary capability, prosecution capability, judicial capability and the detainment capability to capture them (terrorists), try them and put them in jail so that the country and the people can see that terrorism doesn't succeed."
The State Department's plan for "Defeating the Terrorist Enemy" is to attack all levels of the "Threat Complex" simultaneously. The three levels consist of the following:
- Leaders - Groups such as al-Qaida and associated networks, which provide leadership, resources, inspiration and guidance to extremists.
- Safe Havens - Spaces that provide a secure base for extremist action, including physical space, cyberspace and ideological space.
- Underlying conditions - Local groups, grievances, communal conflicts and societal structures that provide fertile soil in which extremism flourishes and provides the "fuel" for the enemy to exploit. Many of these grievances and conflicts are pre-existing, and resolving them is related to combating terrorism.
Dailey says the overall U.S. strategy appears to have worked.
"I think the United States has shown post 9/11, with its pretty aggressive and successful counterterrorism activities, that in addition to our physical protections and our friendly nations north and south, we do enjoy a physical advantage."
However, Dailey acknowledges another problem is growing.
"Our secondary fear is the terrorists going after our friends, whether it's the Pakistanis, the Algerians or the Turks," he says.
"The effort to come after the United States through host nations, or go after host nations themselves is a real threat because it de-stabilizes our friends. We don't want other countries to become targets because terrorists can not get to the United States."
Cadbury says Chinese-made chocolate have melamine
September 29, 2008 - 9:24amHe declined to give his name because of company policy.
Cadbury said earlier the tests "cast doubt" on the safety of its Chinese-made products but didn't elaborate.
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