Monday:
WTOP asked Dennis Ross, Obama's foreign policy and national security advisor, and Randy Scheunemann, McCain's director of foreign policy and national security for McCain, what major national security challenges the next president will face.Ross: The challenges from the standpoint of what are those challenges that are imposed on you. We are fighting two wars right now. We are in Iraq; we are in Afghanistan. Afghanistan and Pakistan are linked because of the sanctuaries in Pakistan. Those impose themselves on a president whoever is elected.But there are other profound challenges internationally from a national security standpoint that will be very daunting. The Iranian nuclear program threatens to change the Middle East as we know it. It will change the landscape strategically not only in the Middle East, but the whole non-proliferation question would be affected.There is the question of the rising power of China. There is Russia becoming more assertive, at least from their standpoint, that they need to have not only a particular relationship with the countries that are in what they call 'the near abroad' but they think they are entitled to have influence.There is a whole question of climate change which needs to be viewed not only in terms of global warming but it needs to be viewed in terms of its national security dimensions. And by this I mean dependency on oil, the use of oil. It builds the capabilities of countries like Iran, like Russia, like Venezuela. Gives them greater leverage on the world stage then they would have otherwise.So, there is an array of national security challenges some that are obvious some that may be less so but all which are daunting that will confront the next president.Scheunemann: The next president is going to have an unprecedented array of foreign policy, national security challenges when he comes into office Jan. 20 of 2009. From Sen. McCain's point of view, he has been very clear in saying that the number one national security challenge we face is the transcendent threat of our time: radical Islamic extremism. And of course would be in its most dangerous and most virulent form should radical Islamic extremist movements obtain weapons of mass destruction.Other major foreign policy challenges include the two ongoing wars in Iraq and Afghanistan and Sen. McCain placed a very high priority in winning both of them. His opponent, Sen. Obama, seems to think that we need to lose in Iraq to win in Afghanistan. Sen. McCain has a fundamentally different view.Other challenges include Iran's ambitions to seek nuclear weapons, the status of the North Korean nuclear program, which is on an enormous mature level unfortunately than the Iranian program and also the challenge posed by dependence on foreign oil and what some countries that benefit from those oil revenues choose to do with them and a resurgent Russia being a principle example in the latter category.
Tuesday
WTOP asked Dennis Ross, Obama's foreign policy and national security advisor, and Randy Scheunemann, McCain's director of foreign policy and national security for McCain, their candidates solutions to the national security concerns that face the U.S.Scheunemann: These are not problems that lend themselves easily to a cookie-cutter solution. What you have to look at is getting our country mobilized to do the right things in the course of countering radical Islamic extremism, that means undertaking defensive measures as we have done with the Homeland Security, but also means taking the fight directly to the terrorists and their supporters and we've been fighting Al Qaeda in Iraq. It's important to finish the job. We've made tremendous progress in the search strategy advocated by Senator McCain in 2007, but the job is not yet done. And the most dangerous thing we can do in Iraq is leave the job unfinished and allow a safe heaven for the Al Qaeda terrorist that we've been fighting there for five years now.It's also important to finish the job in Afghanistan and border regions of Pakistan where we believe that Osama bin Laden and other senior Al Qaeda leaders are taken refuge. What has to be done is a coordinating effort working with both governments in Afghanistan and Pakistan to counter the extremists.What are your solutions to the wars in Iraq and Afghanistan?Scheunemann: What Sen. McCain has said is the only acceptable outcome. The only acceptable access strategy in the case of Iraq is victory. Sen. Obama talks about withdrawal, he doesn't talk about victory, and that is one of the clear defining differences between the two candidates in terms of foreign policy.Sen. McCain envisions an Iraq that has a representative government that is able to defend itself, is an ally in the war on terror and opposes no thread to its neighbors. They are well on the way to becoming that, but they are not there yet, and they still require continued American assistance in the eyes of our senior military commanders including Gen. Petraeus. Gen. Odierno has been responsible for the dramatic turn around over the last 19 months or so in Iraq.How would you handle Iran's nuclear program?Scheunemann: It's an exceptionally dangerous situation because you've got a leadership in Iran that is publicly committed itself to extinguishing another member state of the United Nations, Israel, and should they acquire nuclear weapons they would have, unfortunately, the possible means to achieve their stated goals.But the problem isn't just a problem for Israel, it's what happens in the region. Other nations would likely pursue nuclear weapons on their own, and inspire a nuclear arms race in the Middle East is about the most dangerous outcome you can see. So it's imperative that Sen. McCain has said to undertake effective diplomacy and increased sanctions, financial, economic and political sanctions who dissuade the Iranian leadership from their current course.North Korea?Scheunemann: North Korea unfortunately is now a nuclear weapon state. North Korea has violated every agreement and promise it has made to the United States and the international community going back to the 1994 framework agreement that was negotiated by the Clinton Administration. The only time the North Koreans have gotten serious is when they have had significant financial pressures put on them. That's why they came back to negotiating table.Sen. McCain does not support the recent decision of the Bush Administration to ease sanctions on North Korea based on a set of promises. What Sen. McCain has said he would do is work first and foremost with the Democratic allies in the region that are closest to the thread -- that means South Korea and Japan -- and get a common position with their Democratic allies rather than negotiating directly with Pyongyang and going back and having to sell, try to sell the agreement to our reluctant allies.And Russia?Scheunemann: Russia is a situation where you've got a country that is a wash in oil revenues and has been increasingly assertive in undermining a sovereignty of its neighbors, most dramatically with the August invasion in Georgia, but has also used energy as a weapon to cut-off supplies to Ukraine for example and Sen. McCain has been warning about the disturbing direction in Russian policy in many years. Both the lack of freedoms internally in Russia, which has an effect on all of the Russian people, and their ability or inability to express political opposition in the government.Sen. McCain has said we need to have a common trans-atlantic policy working first and foremost with our European allies and understand first that Russia doesn't depose a threat. Second is that we need to have a common policy to counter. It doesn't mean that we can't have a useful relationship with Russia and areas of cooperation, particularly in arms control for example. But Sen. McCain believes we need to be realistic in dealing with Russia rather than with the idealized version of Russia that some hope exists some day.What are your solutions for those national security challenges?Ross: Let me start with radical Islam first. Again, there are two different types of radical Islam: There are the al-Qaeda types -- they believe in violence. You only can defeat them through a combination, an application of violence. In the case of the Iranian, Hezbollah and Hamas -- they are different because they have also a political agenda, a social agenda.We are not going to discredit the radical Islam of which ever stripe from outside. You have to discredit them from the inside. The key to success is how you identify with those within the region who for no reason see Hezbollah, Hamas, the Iranians or al-Qaeda as a threat to them and a threat to their future. In Iraq, we've seen an envy problem, we've seen a backlash and we saw the awakening councils basically fight al-Qaeda. One of the way you discredit and one of the ways you build alternatives is by having local alternatives. You can't do it outside.I can tell you in the West Bank, I actually worked very actively with a large number of Palestinian non-governmental organizations who are competing on a local level now with Hamas and the West bank. They are not doing it because I want it or someone else wants it, they are doing it because they see their own future, their own salvation being at stake.So part of our challenge is in the first instance. Who are our natural partners? Not because they will agree with us in everything, but because they agree with us on the fundamentals. And then what can we do to help empower them? What can we do to help that ensure that they are seen as successful? We need them to be seen as delivering services. We need them to be seen as being as non-corrupt. We need them to be seen as being the embodiment of social justice.We will compete very effectively in the world of hearts and minds and in discrediting ultimately that radicalism is. If we have those local, regional, national and natural partners that we can be working with to help empower. Now that applies to some of the wars. I mean, it applies in places like Pakistan for example.If you look at the Federal Administrative Tribal Areas, what is known as the FATA, there was an election when the parliamentary election produced a real change. They also produced a change in terms of who people voted for in those areas. A party called the ANP defeated the religious party that was there. Those religious parties identify with the Taliban in the way the ANP does not. There needs to be a comprehensive strategy to deal with the FATA area that has a military component, an intelligence component, but also an economic social component. Groups like the ANP, if they can be empowered, they could look a lot like the awakening councils.So part of your strategy has to be, not only military, but has to take into a account: What's your broader developmental approach? How do you empower these local groups who will be your natural partners who can be, in the end, much more effective then we can be? So I think that's part of the answer for Pakistan.And in Afghanistan, you do have to have a comprehensive approach. You have to make the Afghan government, and they obviously have to be willing to do it themselves, but they have to become much more effective in governance than they've been. They have to fight corruption in ways that they haven't fought corruption.Militarily, we have to do more to actually defeat the Taliban, one of the reasons we need more forces you are hearing it from everybody now. It happens that Sen. Obama, months before anybody else was calling for an increase in troops there, because he understood the military problem that we are facing there. But it can't be only a military problem. He mentioned that you have a drug-based economy. You are going to have to create alternatives for that. We are going to have to find ways for Afghan farmers to have a livelihood other than growing poppies. So you have to have a comprehensive approach that again is military, social, economic, developmental.It has to take into account with what you are doing with Pakistan, and not only with the Federal Administrative Tribal Areas, but how you are going to work with Pakistan to help ensure that the government there becomes more effective, that it builds its own credibility and it'll become more effective on security as well.In Iraq, I think the surge has helped to produce an improvement, a clear improvement in the security situation. It hasn't, at this juncture, created the political underpinnings that can sustain it. The surge was always designed as a means to an end. It was never an end in itself. It was supposed to create a secure enough environment so that you would force a new political compact in Iraq. It has created a new security environment, but we've not yet seen the kind of real political changes that would give you confidence that you now have a sort of political understanding so that would sustain stability within Iraq.The fact that there has been an election law passed is a good thing we have to see. Is the Iraqi government actually going to pay the awakening councils? We've been paying them. There is more than 100,000 members in the awakening councils, the sons of Iraq and we pay the ranks and files $300 a month, we pay the commanders $450 a month. They are supposed to be integrated into the police and security forces, at least 20 percent. That hasn't happened. The rest was supposed to be integrated into the government. That hasn't happened. Starting this week, the government is supposed to start paying them in place of us. If that does happen, that's a good step.The idea that you would use withdrawal to get the Iraqis to accelerate the process of political change has been an idea that Sen. Obama has had for some time. And the fact is it makes sense because we've always needed what I would call a political surge to match the military surge. You need it both to interact, but you need it with all the surrounding countries as well.Now I say that for additional reasons. None of Iraq's neighbors -- certainly not the Saudis, not the Jordanians, not the Turks, not the Syrians, not Kuwait, and not Iran -- want to see a vacuum in Iraq. A vacuum in Iraq would mean that they'll all have to compete in an endless way that is very expensive. So they have a stake in stability there, less they find that they are in an endless competition with each other. We need to think about how we would work with all of them. We need to think about the values certainly with those with whom we are very friendly. And again coordinating very closely.How would our withdrawal from Iraq, how would it affect what the next steps are there? What are the steps that they prepare to take? So there is an internal dimension, a domestic dimension to how withdrawal plays out and how you do it. There is a regional dimension to it and that has to be part of an approach that governs how you think about withdrawal.With the Russians, I think we have to recognize that they want to play a major role on the world stage. When there was a Soviet Union, one of their former leaders, when he was a leader of the government, (Alexei) Kosygin and his view was: There is no issue anywhere in the world that can be settled above the Soviet Union. And it's pretty clear that Vladimir Putin would like to reestablish Russia on the world's stage. He also wants Russia to be one of the five financial centers in the world by 2020. And he can't get there if he begins to cut Russia off from the world.If they are going to act the way they did in Georgia, they going to find that they lose. There has been a dramatic loss in investment in Russia since they went into Georgia. Putin felt the need to publicly say, this was before our financial meltdown here, a couple of weeks ago, because of the sub-prime crisis, the credit crisis, there has been a loss of investment after the Russians went into Georgia.So there is a consequence when they engage in that kind of behavior. We have to shape a policy towards Russia that helps to highlight what the clear limits are when they engage in behavior that is unacceptable. We have to show that they don't succeed in their objective, which is one of the reasons you do invest in Georgia to show that they don't achieve what they want in Georgia.But we also have to realize that there are areas where we have common interests with them. We have a common interest in loose nukes. We have what should be a common interest in Iran not going nuclear. Now we‘ll find out whether they are prepared to act on such a common interest or not. But we need to explore in those areas where there seems to be a common interest. Whether they are prepared to act in a responsible way. What they need to know is if they want to play a role on the world's stage, they have responsibility to go with it. If they don't fulfill that responsibility, they won't play that role.
Wednesday:
WTOP asked Dennis Ross, Obama's foreign policy and national security advisor, and Randy Scheunemann, McCain's director of foreign policy and national security for McCain, what the candidates would do differently from the current administration.
Ross: Let's start with one issue in particular and that's Iran. The Bush policy towards Iran has failed. We have to be clear on that. Iran was not a nuclear power when the Bush administration came in in 2001. They couldn't convert uranium ore to uranium gas. They certainly didn't have centrifuges that they could have used to enrich the uranium gas. Now they've stockpiled probably almost 500 kilos of low enriched uranium. It means they are a nuclear power today. And they are moving. They are not a nuclear weapons state yet, but they are a nuclear power. If we stay on the same path we are on, they will become a nuclear weapon state. Something has to be changed. The Bush administration wasn't prepared to use engagement with Iran because they saw somehow engagement was a reward. Engagement isn't a reward. You use engagement for a device to make it easier to build pressure on Iran. Many in Europe, and Europe is still providing credit-guarantees to Iran and to its companies that do business in Iran. Germany has still some 1,700 companies that are doing business in Iran. If you want to raise the costs to Iran so that they see that they are losing more than they gain by going nuclear. You have to bring it home to them that the economic lifeline from the outside world is going to be cut. Pretty hard to demonstrate that when their biggest rating-partners are in Europe and Europe, even though they have gone along with some sanctions , are still not cutting off commerce and investment in Iran.
Now, one of the reasons is the Europeans held back. There are really two reasons they fall back: One reason is because they feared that if they increased the pressure, it would be a slippery-slope to confrontation in war. And by not engaging, you help to create that impression that if you did this pressure, that would have been the result. If we are talking to the Iranians at the same time, what it shows is pressure can makes your talks effective. This pressure can help ensure that there is an alternative to the use of force. This pressure is what makes it easier for others to go along because they don't see it as a prelude to the use of force. So engagement with Iran needs to be seen and put into a proper context. The current approach has failed. We need a different approach if we want to change Iranian behavior. We need to engage, we need to engage in a way that transforms our policy from what it has been. Our policy under the Bush administration has been weak sticks and weak carrots -- no surprise that hasn't work. We need strong sticks and strong carrots. Strong sticks are easier to get others to go along with, precisely because you are engaging. The engagement itself shows the Iranians at the same time, there is a pathway out. Why do you have to have both? If it is only strong sticks, the Iranians are going to believe this is about regime change. In which case they have a huge stake in going nuclear. If it is only about strong carrots and inducements, there is no combination of inducements that are worth as much to the Iranians as having nuclear weapons. You need both. You need to concentrate their mind with a strong pressure of sticks. You need to then show them that there is a way out from which they can benefit if they are prepared to take it. That would be a big change from the current administration's approach.
Scheunemann: : Well, many things. Senator McCain has differed with this administration on many foreign policy issues. From 2003 to 2007, a principle difference was on the conduct of the war on Iraq. Where this administration unfortunately was willing to sit by and let the situation in Iraq deteriorate without taking effective action to counter it until at long last, they embraced strategy that Senator McCain has advocated since 2003 of putting in additional forces and moving to classical counter-insurgency strategy, but there are many others as well. First and foremost, I think, would be in how we deal with other countries and in particular with our allies, both existing treaty allies as well as countries that are emerging and having greater strategic relations with the United States like India or Brazil, for example. Senator McCain has spent years traveling the world and meeting with foreign leaders and understanding our views, and he believes first and foremost to be a good ally, you need to be a good listener. And that sometimes you must be willing to be persuaded by your allies and so I think the importance, the central way that Senator McCain would approach diplomacy is through a prism of working with our allies. All of the challenges that we've been discussing, we cannot, the United States, no matter how powerful we are, deal with alone. We are much better, we are much more suited and we will be much more effective in achieving our goals if we work with our allies. And that is something the Bush administration has not done frankly a very good job. There are other areas. Senator McCain has long said that we need to take effective global action on the issue of climate change, something the Bush administration for many years hasn't even seen as a real problem. Senator McCain has been very outspoken in the need to close Guantanamo and make sure that we treat detainees under our control humanely and consistent with the Geneva Convention and with other international obligations we have. He's had great differences with the Bush administration on those issues and ultimately prevailed in getting legislation passed that ensured that we do in fact treat detainees humanly.
Thursday:
WTOP asked Dennis Ross, Obama's foreign policy and national security advisor, what his approach would be if was in a position to be a decision-maker in a new administration.
Ross: The key to a new approach would be the following: Use engagement as a way of drawing others in. I wrote a book on state-craft. And the essence of state-craft is identifying clear objectives, framing those objectives in a way that others will accept and having others accept those objective is important because our means by ourselves may not be sufficient. If you look at all the issues we've been talking about: if it is terror, if it is proliferation, if it is climate change, even if it is the worse we are talking about, if it is contenting with radical Islamists - we can't solve those problems on our own. So we have to be able to present our objectives in a way that the rest of the world is likely to find compelling so that they accept it. So we are able to mobilize others whose means can be added to ours so we can become much more effective. So you start by being very clear in your objectives, presenting them in a way that others will accept, identifying those who have the means to be of the greatest health. An example: China could have a huge impact on Iran if they are also to go along with some of the pressures because the Chinese are seen by the Iranians as a kind of safety-valve as an alternative to the Europeans. The Europeans see the Chinese as someone who fills in whenever they begin to cut back their economic ties. And the Saudis have an enormous financial clout and the Chinese have a huge stake in Saudi Arabia. And Saudi-Arabia doesn't want Iran to go nuclear because they are right next to them. And as the Saudis using their financial clout to get the Chinese realize that they have to make a choice between Saudi Arabia and Iran that would have a huge impact on the ability to be successful there.
This is a lot like the three-way NBA, or baseball or football trade where you have more parties involved because the interest of the others, which may be different from the principle parties, but they could all benefit from it?
Ross: The point is to realize it: how do you get a variety of different actors who may have converging interests to act in converging ways? I would say to be fair: the Bush Administration, when it comes to counter-terror and intelligence has been able to work effectively with others internationally because that sort of failed. And when it comes to the specific, immediate counter-terror, counter-joint intelligence kinds of efforts. You need to apply that same model on how you compete with radical Islamists more generally, how you are going to stop Iran from going nuclear or even how you begin to define limits in a way that the Russians would begin to accept. So, you know, the key is where there are converging interests? How do you translate converging interests into converging behaviors? We haven't done that very well over the last few yearsm partly because I come back to what I've said: We have not been able to present our objectives in a way that most of the rest of the world finds us being acceptable. If they don't accept our objectives, they are not going to join with us.
And a new administration, an Obama-Administration would do what to change that, say the first year?
Ross: Well, I think across the board, I think there will be not just a focus on homeland security where there needs to be, but I think there will be a really heavy focus on the issue of loose nukes because that's one of those over the horizon threats that could materialize unfortunately much too quickly and with catastrophic consequences. So I think, loose nukes, but also the battle for hearts and minds. Because the battle for hearts and minds gets to the whole question of the universe of terrorists that you are having to content with. We need to be able to begin to reduce the appeal of those who play upon anger and alienation. We need to be more effective in terms of dealing with, or promoting at least with those who are their competitors. We want many of those who are reformers, especially in the area I know, that's the broader Middle East, they have been very good at offering words and very poor at offering programs and services. We need to work with them more effective. I would also say the issue that obviously I have personally identified with for a long time: I would work on the Israeli issues as well because it is one of those issues that effects that kind of climate in which a lot of the competition takes place. But everything we do has to be governed by a sense of practicality. One problem we've had, I think we've had, over the last 8 years is that we had an administration that has often had transformational objectives that it applied minimalist means to. So there has been a huge gap between our objectives and our means and that has damaged our credibility. More importantly, it has damaged the image of our effectiveness. It is hard to get others to join with you when they think that you are ineffective. We have to re-establish an image of being effectual.
http://wtop.com/?nid=213&sid=1505217
Jury starts deliberations in Border agent trial
October 30, 2008 - 10:30pm< By ARTHUR H. ROTSTEIN
Associated Press Writer
TUCSON, Ariz. (AP) - A federal jury has ended its first day of deliberations in the trial of a U.S. Border Patrol agent accused of fatally shooting an illegal immigrant near the Arizona-Mexico border.
Jurors in the second trial of Nicholas Corbett are scheduled to resume deliberations Friday.
Corbett is charged with second-degree murder, manslaughter and negligent homicide in the death of Francisco Javier Dominguez Rivera, of Mexico. Jurors can convict on only one charge.
Dominguez was shot dead in January 2007 during an attempt to cross the border with his two brothers and a brother's girlfriend.
Prosecutors say Dominguez was killed while surrendering.
Corbett's lawyer says Dominguez was trying to hit Corbett with a rock.
http://www.wtop.com/?nid=104&sid=1435553
Mexican gang member wanted for stabbing caught in Phoenix
Friday, October 31, 2008
U.S. Marshals Service
PHOENIX -– The U.S. Marshals Service in collaboration with Immigration and Customs Enforcement- Detention and Removal Operations (ICE-DRO) arrested International Fugitive Jesus Gastelum. Gastelum was wanted in Culiacan, Sinaloa, Mexico, on homicide charges.
It is alleged that Gastelum, a known gang member in Mexico, and three other associates members stabbed a man to death in 1994 in Costa Rica, Sinaloa, Mexico. After the three other men were arrested, Gastelum fled to the United States. The three men stated that Gastelum was the individual who actually did the stabbing. Authorities in Mexico contacted the U.S. Marshals' Mexican Investigative Liaison (MIL) Unit located in Phoenix for assistance in locating and apprehending the alleged murderer.
After weeks of gathering intelligence it was determined that Gastelum was now using the assumed name of Jorge Gonzales. Deputy U.S. Marshals (DUSMS), assisted by ICE-DRO observed Gastelum departing his residence and conducted a traffic stop. Upon questioning by DUSMS, Gastelum provided false identification for Jorge Gonzales. Gastelum was arrested and immediately placed into ICE custody. He will be returned to Mexican authorities pending immigration administrative proceedings.
http://www.azfamily.com/news/homepagetopstory/stories/phoenix-local-news-103108-fugitive-captured.169b5ba32.html
Loss in confidence in banks causes huge shifts in deposits
Amid unrelenting economic turmoil, investors are pulling billions of dollars out of the plunging stock market. They're also withdrawing money en masse from banks perceived as troubled and putting it into others deemed in better shape. And, in a sign of just how nervous Americans have become, some have even started to hoard cash outside of banks.
"People are panicked, and they want something as close to the mattress as they can find," says Mark Zandi, chief economist at Moody's Economy.com. "What we're experiencing now is something we have not seen since the Depression era."
This whirlwind migration of funds is shoring up the balance sheets of comparatively healthy institutions. The problem is, it's also weakening the financial condition of more stable institutions — making them vulnerable merger targets — and tipping troubled ones into insolvency.
Complicating matters, the government's injection of up to $700 billion in the financial system has stoked confidence in some institutions while breeding uncertainty about the survival of others that aren't getting this financial lifeline.
David Walerstein, of Brooklyn, N.Y., says he's moving a chunk of his money to a local bank because he can't get a straight answer from his midsize institution about its financial condition."There are hundreds of chaps like myself and my missus who have worked all our lives, been fairly respectable citizens, who have money in banks and are anxious about it," says Walerstein, 82. "I want to know if that money is safe."
The government has urged consumers to remain calm and is hoping that new increases in deposit insurance limits — to $250,000 for most bank accounts — will stem the panic.
Yet many consumers remain wary. Some are diversifying their money among multiple banks. Others are poring over complex financial statements to determine whether their bank will be the next to fail. In recent months, Veribanc, a bank-rating company in Woonsocket, R.I., has gotten "hundreds of requests" for information from consumers worried their banks will fail, says President Michael Heller.
Nearly one in three consumers in a recent Nielsen Claritas survey said they were concerned about their personal savings accounts. More, though, were worried about the financial markets or their retirement accounts than their bank accounts.
Of the 3,000 consumers polled, one in five said they were likely to move at least some of their funds to another institution in the near future, with nearly one in 10 likely to move all their money.
The withdrawals reflect consumers' widespread distrust of financial institutions and of government actions, analysts say. And until banks and the government regain investors' trust, withdrawals will continue.
"The movement of money has enormous implications for our economy, for individual companies and their viability," says Mary Beth Sullivan, managing partner at Capital Performance Group, a financial industry consultant. "It says something about the American consumer and about confidence."
Boon for some banks
The financial upheaval is benefiting large banks and community banks most, says economist Zandi: "The losers are the midsized institutions, who can't operate in as many markets as the big guys and don't cater to the niches as much as the small guys."
JPMorgan Chase, (JPM) considered one of the healthier players, saw its deposits jump 9% from the second to the third quarter to $969 billion. Including the deposits of Washington Mutual, which it recently acquired, deposits jumped 34%.
By contrast, midsize banks such as Sovereign have seen deposits plunge in recent months, raising concerns about their viability. Last month, Sovereign agreed to sell itself to Santander.
As the financial meltdown spreads globally, consumers are also taking refuge in community banks, long known for their personal service and hand holding.
Coda Hale, 27, a software engineer for Wesabe, a website aimed at helping consumers manage their money, moved his savings from Washington Mutual to Mechanics Bank, in Richmond, Calif., in mid-September. Small banks, he says, "are less focused on creating these bizarre derivatives."
An October survey by the Independent Community Bankers of America, a trade group, reveals that 70% of community banks saw an uptick in deposits in the past year. More than a quarter of the banks surveyed saw deposits grow by at least 11%.
"I don't think we've had this kind of movement of money since at least the Great Depression," says Cam Fine, chief executive of the Independent Community Bankers of America. "It's historic."
Even during the savings and loan crisis of the 1980s, consumers weren't as panicked — and prone to moving money — as today, says James Chessen, chief economist of the American Bankers Association, a trade group.
In a market ruled by investor fear, banks of all sizes worry that they could be the next victim of the downturn.
"A rumor festers into fact, and people react accordingly," says Scott Talbott, senior vice president of the Financial Services Roundtable, which represents large banks.
Indeed, the cascade of rumors — and news — about banks can nudge even the most steadfast consumers to take their money and run.
Ngan Adams, 34, opened a checking account at Partners Federal Credit Union the week that Lehman Bros. declared bankruptcy and she heard rumors that Washington Mutual might be next. Adams says she likes that the credit union is "very conservative. I thought I should put my money in an institution that has the same ethics."
Similarly, the troubles at Pasadena-based IndyMac, which was closed by the FDIC in July, contributed to a pickup in business at Wescom Credit Union, also based in Pasadena, says Wescom Chief Executive Darren Williams.
Overall, bank deposits are rising — by more than $158 billion from August to September — as investors yank money out of stocks, bonds and other investments and put it in banks.
In September, investors withdrew $56.2 billion from stock funds, according to the Investment Company Institute, a trade group for investment firms. It was the fourth consecutive month that stock funds lost money.
Corporate bonds and muni bonds are also losing money in the "broadest market downturn that we've seen since the 1970s," says Brian Reid, chief economist of the investment group.
Robert Cantwell, 57, pulled hundreds of thousands of dollars — his entire investment portfolio — from the stock market last year when he heard loan defaults could cripple bank earnings.
"We decided," says Cantwell, of Flower Mound, Texas, "that this was the time to sit out the market." Cantwell put his money into bank CDs instead.
Stock market woes, however, aren't benefiting all financial institutions.
A recent survey by the Credit Union National Association found that a fourth of credit unions have had above-average growth in deposits the last six weeks, but 40% said deposits were growing at a weaker rate than a year earlier.
Bill Hampel, the trade group's chief economist, attributes the slowdown to confusion over whether credit union accounts are federally insured. Most credit union deposits are federally insured for up to $250,000. But because credit unions are insured by the National Credit Union Administration, not the FDIC, that message is sometimes lost on consumers, credit union officials say.
Diversifying bank portfolios
The government's temporary boost in deposit insurance has given more consumers confidence to keep their money at one institution. But despite such protection, some consumers still seek out multiple banks, banks and analysts say.
"We are definitely seeing some customers trying to rationalize and diversify their portfolio," says Gary Perlin, CFO of Capital One. "There is more consumer uncertainty in this environment than we've seen in a long time."
Lingering fear about the safety of bank funds may also be a factor, says Sullivan, of Capital Performance: "Having a lot of your eggs in a single basket has felt like an unsafe thing to do lately, no matter what the government says."
Still, as long as funds are federally insured, depositors should not worry about losing their money, says Stephen Brobeck, executive director of Consumer Federation of America, an advocacy group: "There's no way the government won't meet its federal deposit insurance guarantees."
FDIC spokesman David Barr says the agency has a "flawless track record" of protecting consumers' life savings. "In our 75-year history, not a single customer has ever lost a penny of insured funds as a result of a bank failure," Barr notes.
These assurances provide little comfort to Walerstein, of Brooklyn. He says the collapse of the mortgage market, along with the use of taxpayer money to prop up the financial system, has made it hard for him to trust the government.
"If there's a major run (on the banks), I worry that there's a lot of us that will be out in the cold," Walerstein says.
In Decatur, Ind., Joe Obringer, 43, says he's taken a chunk of money out of banks and is holding onto it until the markets calm down, in case he can't get access to his money. "All we've got left is our savings," Obringer says.
"If we lose that, because we've got family to support, that would be tough."
http://www.usatoday.com/money/industries/banking/2008-11-02-banks-safe-deposits_N.htm
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