The Information That Might Just Save Your Life

Dear Friends,

Attention!!! Please spread the word to as many people as possible.

I have come across some information that I find really disturbing. Please let me know your thoughts on it. I found the need to share it with you because many innocent lives will be lost if we don't expose it.

This email is specially for my friends in Medical Profession & Journalism. I hope you will take note of the content of the email and do your own investigation on the matter. Many of the mainstream press are intentionally blocking this news as you know who owns them. Please get the awareness out and wake the people up.

****************************************
>>> SARS Virus Found In SARS Vaccine <<<
****************************************

In case you're new to this, let me just advise you that the Aids Virus, Ebola Virus, Cancer Virus, SARS Virus were all created in the labs. Here is the earlier post to get you up to speed.

==> http://internet-empire.com/blog/?p=8

Here comes the main story. It is believed that a group of Evil Conspiracists are trying to launch a major Biological Warfare on innocent people all over the world. Let me give you a little insight of what SARS is all about. The H5N1 virus is not an airborne virus don't last for a long time.

In order to make SARs an epidemic, they are two ways of doing it.

Evil Strategy 1
Infect the SARs Vaccines with H5N1 viruses. Next, infect poultry and birds to cause panic. Those who take precautionary measures by taking the SARs vaccine are then infected with SARs. Since SARs does not survive long in the air, this is the best option. When infected with SARs, your blood will flood your lungs and you die of internal bleeding.

See this article on how homeless people in Poland died in Bird Flu Vaccine Trial.
==> http://www.telegraph.co.uk/news/worldnews/europe/poland/2235676/Homeless-people-die-after-bird-flu-vaccine-trial-in-Poland.html

==> http://pet.taragana.net/archive/unauthorized-bird-flu-vaccine-trial-killed-21-homeless-people/

==> http://www.redorbit.com/news/health/1462159/homeless_die_in_poland_of_birdflu_vaccine/

==> http://www.godlikeproductions.com/forum1/message743164/pg1

==> http://atonhunter.newsvine.com/_news/2008/07/03/1636429-homeless-people-die-after-bird-flu-vaccine-trial-in-poland

==> http://www.freerepublic.com/focus/f-news/2040078/posts

==> http://www.pharmaceuticalsinsight.com/file/66701/homeless-people-die-following-bird-flu-vaccine-trial.html


I'm not kidding. Scared now? This is just the beginning.

Some more...
==> http://www.sott.net/articles/show/177271-Baxter-Sent-Bird-Flu-Virus-to-European-Labs-by-Error

==> http://www.bloomberg.com/apps/news?pid=20601124&sid=aTo3LbhcA75I&refer=home


Evil Strategy 2

A little on history. In 1918 there was also a Flu Pandemic that killed 50 Million people worldwide. It's called the '1918 Flu' or more commonly called 'Spanish Flu'. Victims of the Spanish Flu were buried all the way at the Arctic. Guess what the Evil Perpetrators are doing all they can by digging up all the dead Spanish Flu victims with the aim of creating a more killer Flu virus, by mixing Spanish Flu and Airborne virus with H5N1.

Trust me my dearest friends, when I knew this, tears come falling from my eyes. I don't know why I'm feeling so emotionally drained. Everyday when I wake up and think of how sheepish people are believing all the B*S* the mainstream media has been brainwashing you, I really feel sad. Just like the Matrix, we are just being harnessed for our energy. We're just like mice on the Threadmill and playthings of the Elite that controls the world.

The fact is, everybody is so preoccupied with making ends meet that they don't even know their purpose on Earth. I'm kind of sad that Alan Ooi has decided to end his life so early when he could have probably contributed to my cause. Nevertheless, I respect his decision and hope he has found his peace.

See this article.
==> http://news.bbc.co.uk/2/hi/health/6271833.stm

==> http://www.cdc.gov/ncidod/eid/vol12no01/05-0979.htm

==> http://en.wikipedia.org/wiki/1918_flu_pandemic


WAKE UP!!!!
WAKE UP YOUR FAMILY!!!!
WAKE UP YOUR FRIENDS!!!!

Let me bring you onto the journey of the Abyss as there's no turning back from now.

Vaccine Killing People (3 Videos)
==> http://www.youtube.com/watch?v=ROZXOKejcpc (Part 1)
==> http://www.youtube.com/watch?v=kZUMuZtREi4 (Part 2)
==> http://www.youtube.com/watch?v=nEa-gifvPuk (Part 3)

Horrors of Vaccinations Exposed! (4 Videos)
This video was deleted in YouTube. Thank God I'm one IT Expert and managed to still download it using some Stealth Technique. You can download it here now.
==> http://www.worldconspiracies.org/download/horrors-of-vaccination-exposed.zip

----------------------------------------------------

My friends, you could do a couple of things here. Delete this email and act as if nothing is happening. Forget about what is said here and continue living in your wonderland.

Or...Do humanity a favour and spread this information. Show your courage by emailing every friend in your mailing list and give the Evil Conspiracist your middle finger. It's time humanity hit back.


We're almost up to a point when nothing could be done to prevent the New World Order. I still have not given that hope yet.

If you do not receive any further emails from me again, just pray for me.


P.S. - I beg of you to spread the word. Have courage my friends.

P.P.S. - Do not dwell on stocks. The whole world will come to a standstill very soon. The people behind the New World Order is going to make a fake scenario of the recession coming to an end by artificially creating a mirage that the worst is over. You have been warned. The moment the investors swarm into the market is the time that SARS will start haunting nations. Many countries have stock up millions of vaccine doses and I plead the government & medical professionals of all nations to not assume the Vaccines as 'real vaccines' as there's a chance of them being intentionally infected.

P.P.P.S. - Go Google the following. "New World Order", "Illuminati", "End Game", "Bilderberg", "Council of Foreign Affairs", "Trilateral Commission", "Bohemian Grove", "Depleted Uranium", "Chem Trail", "911 Inside Job".

P.P.P.P.S. - People you can researched on are "Alex Jones", "David Icke". There are many people trying to bring them down with baseless accusations.

P.P.P.P.P.S. - I am asking you to believe anything I say. Please research it and judge the truth for yourself.

Final Movie ==> http://video.google.com/videoplay?docid=1070329053600562261

P.P.P.P.P.P.S. ==> Be prepared when the world comes to a stand still and the only way to make your income will be via the Internet because there will no longer be good paying jobs.


Regards,

Edmund Ng
CEO, President
www.Internet-Empire.com

Risk-taker Ho Ching has no regrets

SINGAPORE (Reuters) - Ho Ching, wife of Singapore Prime Minister Lee Hsien Loong, will step down as chief executive of Temasek, ending a 5-year term which saw the state investment agency expand aggressively beyond Singapore.

It was also involved in controversies around the region.

Ho, 55, joined Temasek as a director in January 2002 and became CEO two years later. She will be replaced by Chip Goodyear, former chief of global miner BHP Billiton, in October.

One of Ho's colleagues once said it was her willingness to take risks, not her family ties, that won her the top job at Temasek, with a mandate to shake up Singapore's state investor, which had assets under management of S$185 billion ($123 billion) at end-March 2008.

That penchant for risk-taking came to the fore in 2007 with Temasek's surprise 2.1 billion pound ($3.1 billion) investment in British bank Barclays Plc (BARC.L: Quote, Profile, Research), which was locked in a costly bidding war for Dutch rival ABN AMRO in what would be the world's biggest bank takeover.

Barclays' share price has sunk to a little over 1 pound from more than 7 pounds when Temasek bought its shares 18 months ago.

The investment was one of many big deals engineered by Ho, who keeps a low profile despite her prominence in financial circles and as a member by marriage of Singapore's first family.

Since taking the helm at Temasek, Ho has stepped up the fund's diversification beyond its small home market. Her goal: a portfolio split with about a third invested in Singapore, a third elsewhere in Asia, and the rest in developed economies.

But while Temasek is regarded as the Asian standard-bearer among increasingly prominent sovereign funds, its large size and government links have provoked opposition to its investments in nearby Thailand and Indonesia.

In 2006, a Temasek-led $3.8 billion investment in Thai telecoms firm Shin Corp SHIN.BK, then owned by the family of former Thai Prime Minister Thaksin Shinawatra, triggered a prolonged political crisis in Bangkok that led to Thaksin's ouster in a bloodless coup.

Shin has since lost about two-thirds of its market value.

Temasek's investment in Indonesia's PT Indosat (ISAT.JK: Quote, Profile, Research) has also come under attack, in part because Temasek-linked companies are big investors in the country's telecoms sector. Temasek says it is not involved in any anti-competitive business practices.

Temasek is nursing losses from high profile investments in Merrill Lynch and Barclays as it looked to expand outside Asia, but came up against a global financial crisis.

"These are turbulent times and I'm sure she must have had a stressful time this year," said David Cohen, economist at Action Economics.

Temasek's $5 billion plus investment in Merrill alone has resulted in a loss of more than $2 billion.

Temasek Chairman S. Dhanabalan said Ho's decision to step down was not linked to performance, and it was too early to determine if investments made in the last two years would lose out in the long-term.

Ho tends to avoid the media and has made few comments on Shin. When she addressed a Morgan Stanley conference in November 2006, with the Shin deal in the limelight, the bank told the media not to ask questions.

Ho began her career at Singapore's Ministry of Defense, where she met her husband, the eldest son of former Prime Minister Lee Kuan Yew.

While Lee took up a variety of cabinet positions, Ho moved to state-owned Singapore Technologies in 1987, running a mix of defense, technology, property and stockbroking firms which she restructured, divesting some units and listing others.

When Dhanabalan, a former cabinet minister, asked Ho to head Temasek, he told local media she was "the best person for the job," and the appointment had "nothing to do" with her being Lee's wife.

Asked on Friday if she had any regrets as her departure was announced, Ho replied: "No. I think if you want to run life with regret, you will end up doing very little."

Congress Is Divided Over Competing Stimulus Bills

WASHINGTON — The Senate agreement on a roughly $827 billion economic stimulus bill sets up tough negotiations with the House, primarily over tens of billions of dollars in aid to states and local governments, tax provisions, and education, health and renewable energy programs.

Congress is racing to try to finalize the legislation this week.

The price tag for the Senate plan is now only slightly more than the $820 billion cost of the measure adopted by the House. Both plans are intended to blunt the recession with a combination of tax cuts and government spending on public works and other programs to create more than three million jobs.

But the competing bills now reflect substantially different approaches. The House puts greater emphasis on helping states and localities avoid wide-scale cuts in services and layoffs of public employees. The Senate cut $40 billion of that aid from its bill, which is expected to be approved Tuesday.

The Senate plan, reached in an agreement late Friday between Democrats and three moderate Republicans, focuses somewhat more heavily on tax cuts, provides far less generous health care subsidies for the unemployed and lowers a proposed increase in food stamps.

To help allay Republican concerns about the cost, the Senate proposal even scales back President Obama’s signature middle-class tax cut. The Senate plan also creates new tax incentives to encourage Americans to buy homes and cars within the next year.

Republican opponents continued to rail against the stimulus plan on the Senate floor on Saturday, though it appeared they would not have the votes to stop it.

The negotiations in Congress will test whether Democrats, who say they won a mandate in November to pursue their goals, are willing to give up some favored long-term policy initiatives to win over more Republican votes.

The talks will also test whether any but the most moderate Republicans will be willing to support the Obama administration, or whether they will simply recoil in an opposition stance.

Speaker Nancy Pelosi, who was in Williamsburg, Va., on a retreat with her fellow House Democrats on Friday, called the emerging Senate cuts to the stimulus program “very damaging” and said she was “very much opposed to them.” But after the Senate reached a deal, Ms. Pelosi expressed resolve to complete the legislation in the days ahead.

Mr. Obama, who has made the economic recovery effort the centerpiece of his agenda, is expected to take a stronger hand in the negotiations and will embark on an aggressive public lobbying campaign.

He will hold a meeting in Indiana on Monday, followed by a formal White House news conference, the first of his term, in prime time on Monday night. He will pitch the plan again on Tuesday in Florida and on Wednesday in Virginia.

In his weekly radio and Internet address on Saturday, the president praised the Senate deal and urged quick passage of a final bill.

“The time for action is now,” Mr. Obama said. “If we don’t move swiftly to put this plan in motion, our economic crisis could become a national catastrophe.”

Also on Monday, Treasury Secretary Timothy F. Geithner is expected to announce the broad outlines of a rescue plan for the financial industry. The administration hopes that the announcement will quiet some critics in Congress who say not enough is being done for the housing sector.

After Senate Democrats reached their deal with moderate Republicans on Friday, Republicans who are more conservative refused to put the legislative process on a fast track.

Senator David Vitter, Republican of Louisiana, insisted that the deal required careful deliberation and said he would spend the weekend reviewing it, even though it was all but certain that he would not support the measure.

As a result, the Senate met for a rare Saturday session, and Republicans delivered some of their harshest criticism of Mr. Obama since he took office, suggesting that he was pressing Congress to act irresponsibly by warning of imminent catastrophe.

“In discussing with the American people his approach to the stimulus of our economy, he has first really used some dangerous words,” said Senator Jon Kyl of Arizona, the No. 2 Republican. Mr. Kyl added, “It seems to me that the president is rather casually throwing out some careless language.”

The majority leader, Senator Harry Reid of Nevada, said Congress would move quickly to get the bill into conference, in hopes of sending the bill to the White House by the week’s end.

‘Put This Plan in Motion,’ Obama Urges Lawmakers

WASHINGTON — President Obama urged Congress on Saturday to swiftly resolve its differences in the sweeping economic recovery measure and “put this plan in motion” to bring fiscal relief and new jobs to all corners of the country.

“Legislation of such magnitude deserves the scrutiny that it’s received over the last month, and it will receive more in the days to come,” Mr. Obama said. “But we can’t afford to make ‘perfect’ the enemy of the absolutely necessary.”

In his weekly radio and Internet address, Mr. Obama tempered the sharp criticism that he has aimed in recent days at Republicans who have criticized the legislation as riddled with spending that will not create jobs. He praised the agreement reached late Friday by a coalition of Senate Democrats and moderate Republicans.

“Democrats and Republicans came together in the Senate and responded appropriately to the urgency this moment demands,” Mr. Obama said. “In the midst of our greatest economic crisis since the Great Depression, the American people were hoping that Congress would begin to confront the great challenges we face. That was, after all, what last November’s election was all about.”

The president’s sales pitch, though, is far from over. Even as the Senate prepares to vote on the bill in the coming days, sharp differences remain with the House over the scope of the recovery package. The White House is already working to bridge the gap so the legislation can be ready for Mr. Obama’s signature in the next week to 10 days.

“Americans across this country are struggling, and they are watching to see if we’re equal to the task before us,” Mr. Obama said. “Let’s show them that we are. And let’s do whatever it takes to keep the promise of America alive in our time.”

As Mr. Obama and his family made their first weekend trip to the presidential retreat at Camp David, his advisers worked to build more support for the economic recovery plan. A handful of Republicans have already signed on, but aides said they hoped to attract more to create the image of a stronger bipartisan bill.

In the address, Mr. Obama pointed to specific states that would benefit from the economic plan, which his economists have projected would save or create more than 3 million jobs over the next two years. In Maine, he said, 16,000 jobs would be saved or created, and nearly 80,000 in Indiana, “almost all of them in the private sector.”

“That’s what is at stake with this plan: putting Americans back to work,” he said.

The reference to Maine, which he has been making throughout the week, is aimed at the state’s two Republican senators, Olympia J. Snowe and Susan Collins, whose votes are important. The president is traveling to Indiana on Monday to hold his first town-hall-style meeting as president, where he will try to build broader support for the program.

In Florida, where Mr. Obama is scheduled to visit on Tuesday, 485 schools would be upgraded, he said, which the administration says would create a cascade of new jobs. And in Ohio, he said, 4.5 million workers would receive tax relief of up to $1,000.

“The American people know that our challenges are great,” Mr. Obama said Saturday. “They don’t expect Democratic solutions or Republican solutions — they expect American solutions.”

In Florida, Despair and Foreclosures

LEHIGH ACRES, Fla. — Desperation has moved into this once-middle-class exurb of Fort Myers, where hammers used to pound.

Its straight-ahead stare was hidden amid the chatter of 221 families waiting for free bread at Faith Lutheran Church on a recent Friday morning; and it appeared a block away a few days earlier, as laid-off construction workers in flannel shirts scavenged through trash bags at a home foreclosure, grabbing wires, CDs, anything that could be sold.

“I knew it was coming,” said Gloria Chilson, 56, the former owner of the house, as she watched strangers pick through her belongings. “You take what you can; you try not to care.”

Welcome to the American dream in high reverse. Lehigh Acres is one of countless sprawling exurbs that the housing boom drastically reshaped, and now the bust is testing whether the experience of shared struggle will pull people together or tear them apart.

The changes in these mostly unincorporated areas outside cities like Charlotte, N.C., Las Vegas and Sacramento have been swift and vivid. Their best economic times have been immediately followed by their worst, as they have generally been the last to crest and the first to crash.

In Lehigh Acres, homes are selling at 80 percent off their peak prices. Only two years after there were more jobs than people to work them, fast-food restaurants are laying people off or closing. Crime is up, school enrollment is down, and one in four residents received food stamps in December, nearly a fourfold increase since 2006.

President Obama is scheduled to visit Fort Myers on Tuesday to promote his economic stimulus plan. But residents here tend to view it as the equivalent of an herbal remedy — it can’t hurt but it probably won’t heal. Instead, in church groups and offices, people call for “industry” and repeat one telling question: “What do we want to be when we grow up?”

“That’s one of the things we struggle with: What is our identity?” said Joseph Whalen, 37, president of the Lehigh Acres Chamber of Commerce. “We don’t want to be the bedroom community of southwest Florida; we don’t want to be the foreclosure capital.”

A Legacy of the ’50s

Lehigh Acres, like much of Florida and many suburbs nationwide, was born with speculation in its DNA.

The area got its start in the 1950s when a Chicago pest control baron, Lee Ratner, and several partners bought thousands of acres of farmland and plotted about 100,000 lots. With Fort Myers, 15 miles to the west, developers left little room for schools, parks or even businesses.

What they sold was sun and quiet living.

“They used to bring 20 busloads a day,” said Bob Elliott, a former salesman for Mr. Ratner’s company who struck out on his own in 1982. “We had 300 customers, seven days a week.”

By 2000, the lots had been sold, but most stayed empty. Only about 30,000 people were living in an area roughly four times the size of Manhattan. The builders really started to arrive in 2004, setting up model homes on Lee Boulevard next to Mr. Elliott’s office with the faded wooden sign that said “$50 lots.”

Bill Spikowski, a city planning consultant in Fort Myers, said that because Lehigh Acres had so many parcels and few restrictions on what could be built, smaller companies battled for customers. From 2004 to the end of 2006, developers completed 13,183 units in Lehigh Acres — nearly doubling the total stock of 15,216 that existed in 2000, according to Lee County figures.

Residents remember the boom for its noise, with dump trucks lining the streets and power tools heard in nearly every neighborhood. Housing prices doubled, then tripled, and jobs were plentiful, nearly all of them tied to real estate.

Signs of trouble were ignored. “Sometimes houses would sell three or four times in a few months, and no one would move in,” Mr. Elliott said.

Then in 2007, it all went quiet. Houses stopped selling. Foreclosures multiplied. The median home price in the Fort Myers area dropped to $215,200 in December 2007, from a peak of $322,300 in December 2005. It had fallen to $106,900 two months ago.

Work disappeared with the profits. According to the federal Bureau of Labor Statistics, Lee County lost a higher percentage of jobs (8.8 percent) from June 2007 to June 2008 than any other county in the nation. Unemployment in the county rose to 9.8 percent in November, from 3.5 percent in March 2007.

In Japan, New Jobless May Lack Safety Net

OITA, Japan — Koji Hirano said his “mind went blank” with disbelief when he and other workers at a Canon digital camera factory in this southern city were suddenly called into a cafeteria in late October and told they were being laid off.

The shock turned to fear when they were also ordered to vacate their employer-provided apartments, a common job benefit here. With no savings from his monthly take-home pay of as little as $700, he said, he faced certain homelessness.

“They were going to kick us out into the winter cold to die,” said Mr. Hirano, 47.

The current economic crisis has spread joblessness and distress across the world, and Japan has been no exception — with output plunging at historic rates, the unemployment rate leapt to 4.4 percent in December from 3.9 percent the month before. But what has proved more shocking has been the fact that so many of those laid off have been so vulnerable, with hundreds and perhaps thousands finding themselves cast into the streets.

Mr. Hirano and the others laid off by Canon are part of a new subclass of Japanese workers created during a decade of American-style deregulation. As short-term employees they have none of the rights of so-called salarymen or even the factory workers for Japan’s legions of small manufacturers.

To make matters worse, they can expect little in the way of unemployment or welfare benefits. In Japan, a country with little experience of widespread unemployment until recently, there is an inadequate safety net for laid-off workers.

According to the Labor Ministry, about 131,000 layoffs have been announced since October. Of those, only about 6,000 were culled from the majority of Japanese workers who hold traditional full-time jobs, which are still often held for life. The overwhelming majority — some 125,000, the ministry says — are so-called nonregular workers, who are sent by staffing agencies or hired on short-term contracts with lower pay, fewer benefits and none of the legal protections against layoffs of regular full-time employees.

Mr. Hirano and other former temporary workers at Canon were allowed to stay in their apartments for a few extra months after a public outcry reached all the way to the prime minister. But others have not been so lucky. Over the New Year holiday some 500 disgruntled former temporary workers made homeless by layoffs built an impromptu tent city in a Tokyo park adjacent to the Labor Ministry.

As never before, the global downturn has driven home how a decade of economic transformation has eroded Japan’s gentler version of capitalism, in which companies once laid off employees only as a last resort.

“This recession has opened the nation’s eyes to its growing social inequalities,” said Masahiro Abe, a professor at Dokkyo University who specializes in labor relations. “There is a whole population of workers who are outside the traditional support net.”

Until a decade ago, nonregular workers accounted for less than a quarter of Japan’s total work force, and included subcontractors and others outside the lifetime employment system as well as students or homemakers working part-time jobs at restaurants or convenience stores.

But the number of nonregular workers took off after an easing of labor laws in 1999 and again in 2004 allowed temporary workers to work on factory lines and in other jobs once largely restricted to full-time workers. During Japan’s economic recovery in this decade, companies added millions of less expensive temporary employees while continuing to reduce overall numbers of full-time staff.

Today, 34.5 percent of Japan’s 55.3 million workers are nonregular employees, including many primary breadwinners for households, according to the Internal Affairs Ministry.

Under the nation’s traditional company-centered social welfare system, created after World War II, companies were expected to look after employees until retirement and beyond, serving as the main conduit for pensions and other benefits, and keeping jobless rosters empty by not laying off workers.

From Bad to Worse, but Far From the Worst

BECAUSE Topic A in every newspaper and television show is the economy, may I offer a bit of analysis of what is happening, how bad it is and isn’t, and what a cure might be?

We have a major financial crisis. The banking system is in a state of peril not seen since the early 1930s. But by many other metrics, as bad as the economy may be, it’s not remotely like the Great Depression.

Unemployment now is 7.6 percent. In 1933, it was roughly 25 percent. That was more than double the rate in 1982, our worst recession since — which was still far worse, so far, than what we have now. Our current situation will probably become worse in terms of unemployment, but we are not back in the bad old days yet.

More painful in some of those past years, we also had high inflation — far higher than we have had recently. Inflation is now virtually nil. In 1980, the unemployment rate reached 7.8 percent, and the inflation rate gusted to almost 15 percent.

There was a period from the mid-1970s to the early ’80s when the “misery index” — inflation plus unemployment — was often above 15 percent and sometimes above 20 percent. Today, that misery index would hover at about 8 percent, depending on how one calculated inflation (as the core rate without food and oil products, or as the “headline rate” with them).

This is not to deny that real people are suffering now. The lot of the involuntarily unemployed is deeply grim.

But the main crisis now is not unemployment, at least not yet. It is about the lending institutions of this country. The financial entities of this great nation — both banks and less regulated or unregulated entities — took wild, spectacular, immoral risks with credit.

It turned out that shrewd speculators could take advantage of those mistakes when the credit bubble burst and make extraordinary sums of money, all the while terrifying markets and making the crisis worse. It also turned out that the blunder of blunders was made by allowing Lehman to fail, essentially causing a cerebral hemorrhage in the world’s financial brain.

That’s where we are now. Banks are in extremis from the bad credit decisions they made and mistakes the Treasury made. The effects have rippled out into the broader economy as businesses that were denied access to credit by panicked lenders have had to lay off workers. Some have been unable to stay in business anyway, and a full-blown recession is here. Now it’s been revealed that as bad as the credit losses of banks and other entities were first thought, they are actually worse.

Today, the lenders’ problem is that their losses have been so great as to impair their capital. They are in a state of fear that if they lend money again, those loans will go bad as well. They are too traumatized and wounded to lend. For some banks, to lend might be to die.

What is the solution? With the greatest respect to President Obama, it is not necessarily to hire men and women to build more wind-power windmills, or “21st-century classrooms.” These plans may have merit in and of themselves. But they do not get at the central problem: credit. The International Monetary Fund just issued an opinion to the same effect: that the United States economy and the world economy will not revive until the credit crisis is resolved.

The solution is to lend the banks more federal money. They have had huge losses and need huge amounts of help. Yes, they will do stupid, immoral, evil things with some of the money. They are humans and that’s what humans do. We’re sloppy and often dishonest.

We went through something a bit like this in the early 1990s, when the results of staggering mismanagement pulverized savings and loan institutions. The government acted swiftly and sensibly under Bush 41. The Resolution Trust Corporation assumed bad loans of the S.& L.’s and sold them to bidders, and we went on with the nation’s business. In the end, the government made money on many of the assets, then “toxic,” that it bought.

WHY not do the same thing now — buy the bad assets of the banks and take them off the banks’ books? That was the original plan of the Troubled Asset Relief Program, and it was a good plan. Yes, there will be colossal valuation issues. Yes, there will be fortunes made because government bought too high and sold too low. That’s what happens in life. Again, life is sloppy.

But if the crisis is really an economic Pearl Harbor, as Warren E. Buffett says, we have to behave as if it’s war. There is a lot of waste in fighting a war. But it is far better to waste money than to lose the war. We have to get money into the banks by buying their assets, taking them off the books and reliquefying the banks and other lending institutions. As I have been suggesting for a while now, we should also start making guarantees on bank loans, absent fraud, and make sure the banks have no excuse not to lend.

That will keep businesses going. That will use the power and money-creation magic of the Federal Reserve to thaw the frozen rivers of commerce, to paraphrase Franklin Roosevelt. That will put the private sector’s ingenuity to work. In the end, the government might even make money off some of those toxic loans, the way the R.T.C. did.

Again, I do not doubt that much of what Mr. Obama now proposes has merit for reasons having little to do with the economic situation. But right now, this minute, we are in a financial-monetary crisis. It is begging for a financial-monetary solution, not mammoth public works, which might be useful down the road. Let’s start on the credit issues yesterday.

Deal reached on $827bn US stimulus package

US President Barack Obama on Saturday called on senators to complete passage of the $827bn stimulus package that was struck behind close doors late on Friday. US Senate Democrats agreed to cut their hopes for a larger economic stimulus package and support a compromise that would give Mr Obama an important but narrow victory.

In his weekly radio and YouTube address to the nation, Mr Obama said he was pleased that the bipartisan compromise, which may only result in the switched votes of three Republican senators, out of a total of 41, ended a turbulent week on a ”positive note”.

But he urged the upper chamber to accelerate its vote. It now seems likely that Congress will be unable to finalise a bill before the White House’s deadline of February 13. “Americans across the country are struggling and they’re watching to see if we’re equal to the task before us,” said the US president. “Let’s do whatever it takes to keep the promise of America alive in our time.”

Democrats said a vote on passage of the measure – drafted by leaders of a group of moderate lawmakers from both parties – and closely watched overseas as a sign of US commitment to help revive the world economy, would be held on Tuesday.

”We are pleased the process is moving forward and we are closer to getting Americans a plan to create millions of jobs and get people back to work,” said White House spokesman Robert Gibbs.

The tentative agreement followed news that the US economy lost a half-million jobs for the third month running in January, bringing the unemployment rate to the highest level since in 1992 and increasing the pressure for government action to stimulate the economy.

Official figures released on Friday showed that non-farm payrolls dropped by 598,000 last month, while the unemployment rate – 4.4 per cent before the credit crisis – jumped to 7.6 per cent, its highest level since 1992.

The figures were somewhat worse even than the dire outcome that the markets had expected. Economists had predicted a 525,000 fall in employment and a rise in the unemployment rate from 7.2 per cent to 7.5 per cent.

A revised Senate package will need to be reconciled with the House plan and then be reconfirmed by each house of Congress before being sent to the White House for signing.

Mr Obama on Friday seized on the dire news about the American jobs news market to criticise foot-dragging in the Senate. “It is inexcusable and irresponsible to get bogged down in distraction and delay while millions of Americans are being put out of work,” he said.

The US economy has now shed 3.6m jobs since the recession began in December 2007, out of a total of some 135m, with half the decline occurring during the past three months, according to the labour statistics office.

Economists said the figures showed that the US economy was sinking at least as quickly as in the worst recessions since the second world war. “Even allowing for the bigger population now, the decline is now as severe as the worst of the decline in the mid-1970s,” said Paul Ashworth, senior US economist at Capital Economics.

“With initial jobless claims still edging higher, February could be even worse.”

The president spoke as he announced the staffing of an economic advisory panel, which will include top leaders from business and the labour movement as well as former top regulatory officials and financial experts.

Mr Obama has been struggling to regain the political initiative on combating the economic downturn, amid rising concern in the White House that the Republicans have scored important victories in the public relations war over the stimulus bill.

“The bill that has emerged from Congress is not perfect,” Mr Obama said. But “it is the right size, it has the right scope and it has the right priorities”, he said.

With investors having anticipated a dire jobs report, financial markets reacted calmly to the payrolls data, and stocks rallied in expectation of the stimulus bill being agreed. The S&P 500 advanced 2.7 per cent, led by financial stocks such as Bank of America, which rose nearly 27 per cent.

Goodyear to head Temasek

Temasek Holdings named Charles “Chip” Goodyear, the former head of mining group BHP Billiton, as its new chief executive to replace Ho Ching, the wife of Singapore’s prime minister, in a surprise transition at the high-profile sovereign wealth fund on Friday.

Mr Goodyear’s appointment heralds a possible change of investment emphasis for the S$185bn (US$124bn) fund towards natural resources rather than financial services, a sector in which Temasek has recently made massive paper losses in banks, such as Merrill Lynch.

The move underscores the internationalisation of Temasek’s senior ranks, about 40 per cent of whom are non-Singaporean.

According to Temasek’s most recent annual report, two-thirds of its portfolio is in the financial and telecoms sectors – with just 5 per cent in natural resources.

Asian dealmakers in regular contact with Temasek say it is studying a number of investment proposals in the belief that the current market turmoil provides an opportunity to buy undervalued assets.

Mr Goodyear said that, having only joined the Temasek board this week, it was premature to comment on any changes he might introduce. He had a background in mergers and acquisitions as an investment banker with Kidder Peabody before joining BHP in 1999.

S. Dhanabalan, Temasek chairman, insisted that Ms Ho’s departure was not due to Temasek’s troubled investment record over the past year.

Ms Ho told the Financial Times that Temasek had been discussing succession planning as early as 2005 and the board had agreed that she would step down when Mr Goodyear could assume the post.

She added that her appointment in 2002 was made on the condition that she would remain for at least 10 years to carry out necessary reforms to the once-sleepy state holding company.

Mr Dhanabalan said the decision to replace Ms Ho coincided with a review of Temasek’s “long-term plans under various scenarios prompted by the economic downturn”.

The board had decided that “if we are to bring in new leadership, it would be as good a time as any to involve a new leader in this review”.

Ms Ho oversaw Temasek’s rapid expansion from being a Singapore-focused investment group to one that aggressively bought assets across Asia and leading developed economies.

Only a third of its portfolio is now held in Singaporean companies, including majority stakes in the country’s dominant airline and telecoms companies.

Ms Ho’s departure could help deflect domestic criticism of the government as Singapore confronts its worst post-war recession, since her status as the premier’s wife closely identified Temasek with the city-state’s long-ruling People’s Action party.

Temasek, set up by the government in 1974, has always said its investment decisions were made without state involvement.

Mr Goodyear will succeed Ms Ho on October 1.

UBS to report historic loss

ZURICH - SWITZERLAND'S largest bank, UBS, is expected to announce the biggest loss in the country's history when it releases on Tuesday its results for 2008, a year that saw the national icon tarnished by the subprime crisis.

But if there is a silver lining for the bank, which has been the target of a huge state rescue package, it lies in the fact that analysts say UBS has now hit bottom after its stock price fell 82 per cent since the summer of 2007.

For that reason, the loss of nearly 20 billion Swiss francs (S$25 billion) the bank is expected to announce for 2008 on Tuesday should not surprise markets, analysts say.

'The bank has already publicised its problems to a large degree and the fall in the stock price should not be so large,' said a trader in Zurich.

Last November, UBS posted a net profit of 296 million Swiss francs for the third quarter following a year of losses, but warned that a renewed loss was looming for the following quarter.

The numbers expected to be unveiled Tuesday are staggering, reflecting the fact that UBS was one of the banks hardest hit by the US subprime loan crisis.

Its annual net loss is believed to be between 14.1 and 19.4 billion Swiss francs, according to estimates from Swiss financial news agency AWP.

The loss for the fourth quarter alone is expected to be between 5.9 billion and 7.5 billion Swiss francs for the bank, which has already written down about 46.9 billion dollars' worth of assets.

'The fourth quarter was clearly difficult for UBS,' a Deutsche Bank commentary said, adding however that removing 'toxic' non-liquid assets with help from the Swiss central bank along with restructuring efforts meant 'UBS has passed the worst'.

Customer confidence in the bank has in turn taken a hit, posing a major problem for UBS, which has hemorrhaged capital as a result. Customers pulled some 83.6 billion Swiss francs from the bank in the third quarter.

Under a rescue plan unveiled in October, the Swiss government injected 6.0 billion francs in new capital to UBS and lent US$54 billion (S$80 billion) to the bank to transfer its non-liquid assets into a separate fund.

The massive spread of so-called 'toxic' assets - mainly linked to financial instruments now worth very little because of the US home-loan crisis - throughout the global banking system is at the core of the crisis since it broke in August of 2007.

The bank also said in January that it would slash more jobs from its trading unit, adding to 9,000 job reductions already announced over the past year. -- AFP

The Big Fix

The economy will recover. It won’t recover anytime soon. It is likely to get significantly worse over the course of 2009, no matter what President Obama and Congress do. And resolving the financial crisis will require both aggressiveness and creativity. In fact, the main lesson from other crises of the past century is that governments tend to err on the side of too much caution — of taking the punch bowl away before the party has truly started up again. “The mistake the United States made during the Depression and the Japanese made during the ’90s was too much start-stop in their policies,” said Timothy Geithner, Obama’s choice for Treasury secretary, when I went to visit him in his transition office a few weeks ago. Japan announced stimulus measures even as it was cutting other government spending. Franklin Roosevelt flirted with fiscal discipline midway through the New Deal, and the country slipped back into decline.

Geithner arguably made a similar miscalculation himself last year as a top Federal Reserve official who was part of a team that allowed Lehman Brothers to fail. But he insisted that the Obama administration had learned history’s lesson. “We’re just not going to make that mistake,” Geithner said. “We’re not going to do that. We’ll keep at it until it’s done, whatever it takes.”

Once governments finally decide to use the enormous resources at their disposal, they have typically been able to shock an economy back to life. They can put to work the people, money and equipment sitting idle, until the private sector is willing to begin using them again. The prescription developed almost a century ago by John Maynard Keynes does appear to work.

But while Washington has been preoccupied with stimulus and bailouts, another, equally important issue has received far less attention — and the resolution of it is far more uncertain. What will happen once the paddles have been applied and the economy’s heart starts beating again? How should the new American economy be remade? Above all, how fast will it grow?

That last question may sound abstract, even technical, compared with the current crisis. Yet the consequences of a country’s growth rate are not abstract at all. Slow growth makes almost all problems worse. Fast growth helps solve them. As Paul Romer, an economist at Stanford University, has said, the choices that determine a country’s growth rate “dwarf all other economic-policy concerns.”

Growth is the only way for a government to pay off its debts in a relatively quick and painless fashion, allowing tax revenues to increase without tax rates having to rise. That is essentially what happened in the years after World War II. When the war ended, the federal government’s debt equaled 120 percent of the gross domestic product (more than twice as high as its likely level by the end of next year). The rapid economic growth of the 1950s and ’60s — more than 4 percent a year, compared with 2.5 percent in this decade — quickly whittled that debt away. Over the coming 25 years, if growth could be lifted by just one-tenth of a percentage point a year, the extra tax revenue would completely pay for an $800 billion stimulus package.

Yet there are real concerns that the United States’ economy won’t grow enough to pay off its debts easily and ensure rising living standards, as happened in the postwar decades. The fraternity of growth experts in the economics profession predicts that the economy, on its current path, will grow more slowly in the next couple of decades than over the past couple. They are concerned in part because two of the economy’s most powerful recent engines have been exposed as a mirage: the explosion in consumer debt and spending, which lifted short-term growth at the expense of future growth, and the great Wall Street boom, which depended partly on activities that had very little real value.

Richard Freeman, a Harvard economist, argues that our bubble economy had something in common with the old Soviet economy. The Soviet Union’s growth was artificially raised by massive industrial output that ended up having little use. Ours was artificially raised by mortgage-backed securities, collateralized debt obligations and even the occasional Ponzi scheme.

Where will new, real sources of growth come from? Wall Street is not likely to cure the nation’s economic problems. Neither, obviously, is Detroit. Nor is Silicon Valley, at least not by itself. Well before the housing bubble burst, the big productivity gains brought about by the 1990s technology boom seemed to be petering out, which suggests that the Internet may not be able to fuel decades of economic growth in the way that the industrial inventions of the early 20th century did. Annual economic growth in the current decade, even excluding the dismal contributions that 2008 and 2009 will make to the average, has been the slowest of any decade since the 1930s.

So for the first time in more than 70 years, the epicenter of the American economy can be placed outside of California or New York or the industrial Midwest. It can be placed in Washington. Washington won’t merely be given the task of pulling the economy out of the immediate crisis. It will also have to figure out how to put the American economy on a more sustainable path — to help it achieve fast, broadly shared growth and do so without the benefit of a bubble. Obama said as much in his inauguration speech when he pledged to overhaul Washington’s approach to education, health care, science and infrastructure, all in an effort to “lay a new foundation for growth.”

For centuries, people have worried that economic growth had limits — that the only way for one group to prosper was at the expense of another. The pessimists, from Malthus and the Luddites and on, have been proved wrong again and again. Growth is not finite. But it is also not inevitable. It requires a strategy.

II. THE UPSIDE OF A DOWNTURN

TWO WEEKS AFTER THE ELECTION, Rahm Emanuel, Obama’s chief of staff, appeared before an audience of business executives and laid out an idea that Lawrence H. Summers, Obama’s top economic adviser, later described to me as Rahm’s Doctrine. “You never want a serious crisis to go to waste,” Emanuel said. “What I mean by that is that it’s an opportunity to do things you could not do before.”

In part, the idea is standard political maneuvering. Obama had an ambitious agenda — on health care, energy and taxes — before the economy took a turn for the worse in the fall, and he has an interest in connecting the financial crisis to his pre-existing plans. “Things we had postponed for too long, that were long term, are now immediate and must be dealt with,” Emanuel said in November. Of course, the existence of the crisis doesn’t force the Obama administration to deal with education or health care. But the fact that the economy appears to be mired in its worst recession in a generation may well allow the administration to confront problems that have festered for years. That’s the crux of the doctrine.

The counterargument is hardly trivial — namely, that the financial crisis is so serious that the administration shouldn’t distract itself with other matters. That is a risk, as is the additional piling on of debt for investments that might not bear fruit for a long while. But Obama may not have the luxury of trying to deal with the problems separately. This crisis may be his one chance to begin transforming the economy and avoid future crises.

In the early 1980s, an economist named Mancur Olson developed a theory that could fairly be called the academic version of Rahm’s Doctrine. Olson, a University of Maryland professor who died in 1998, is one of those academics little known to the public but famous among his peers. His seminal work, “The Rise and Decline of Nations,” published in 1982, helped explain how stable, affluent societies tend to get in trouble. The book turns out to be a surprisingly useful guide to the current crisis.

In Olson’s telling, successful countries give rise to interest groups that accumulate more and more influence over time. Eventually, the groups become powerful enough to win government favors, in the form of new laws or friendly regulators. These favors allow the groups to benefit at the expense of everyone else; not only do they end up with a larger piece of the economy’s pie, but they do so in a way that keeps the pie from growing as much as it otherwise would. Trade barriers and tariffs are the classic example. They help the domestic manufacturer of a product at the expense of millions of consumers, who must pay high prices and choose from a limited selection of goods.

Olson’s book was short but sprawling, touching on everything from the Great Depression to the caste system in India. His primary case study was Great Britain in the decades after World War II. As an economic and military giant for more than two centuries, it had accumulated one of history’s great collections of interest groups — miners, financial traders and farmers, among others. These interest groups had so shackled Great Britain’s economy by the 1970s that its high unemployment and slow growth came to be known as “British disease.”

Dumb and Dumber 2.0

In his recent book, “The Venturesome Economy,” the Columbia University business professor Amar Bhidé offers a perspective on American innovation and prosperity that is remarkably optimistic, given the temper of the times. Among his data-driven findings: American consumers have long shown an “exceptional willingness” to buy, for instance, technology products before their utility is clear. Such “venturesome consumers” help spur companies and entrepreneurs to take the risks that lead to innovation because they know there is a market willing to take a roughly analogous risk that the next new thing will turn out to have been worth buying. “It isn’t even just a few leading-edge users,” Bhidé told me. “The venturesomeness is much more broad-based.”

Consumers seem risk-averse and hunkered down at the moment, and spending on the nonutilitarian is getting a bad reputation. But before you consign the venturesome consumer to the remainder bin of history, consider the surprisingly vibrant market for iPhone applications — the downloadable mini-programs that can be added to Apple’s famous mobile device. Many are free, but plenty are not, costing a dollar or two. (Apple takes a 30 percent cut of paid-application sales.) Functionality varies greatly as well, and it’s curious to note that one of the breakout hits has been a 99-cent item called iFart Mobile, from InfoMedia Inc. As you can pretty much deduce from the name, it enables your $200 to $300 mobile device to emit a variety of noises simulating flatulence. This 21st-century whoopee cushion hit No. 1 on the paid-application chart shortly before Christmas, stayed there for three weeks and remained in the Top 10 until mid-January. It has been purchased more than 350,000 times.

The obvious question, which could forgivably take the form of a plaintive howl, is why? Joel Comm, InfoMedia’s founder and a self-styled social-media guru with a book called “Twitter Power,” due out this month, gives some credit to what he calls his “direct publicity” to blogs, particularly TechCrunch. “That set it off,” he deadpanned. But he also says that the application’s success wasn’t just about marketing. “I would beg to differ on it being useless,” he replied to a perhaps-dismissive question. After suggesting that iFart might be used to prevent someone from stealing your phone or even to thwart a terrorist, he conceded that it’s simply a novelty — and noted that flatulence humor has many precedents. (“A man may break a word with you, sir; and words are but wind; ay, and break it in your face, so he break it not behind.” William Shakespeare, “The Comedy of Errors.”) And for a mere 99 cents, he argued, what venturesome consumer wouldn’t give it a try? Especially an American one. While the application has been sold in 60 countries, Americans have been the main customers.

This brings us back to Bhidé — whom I probably owe a public apology for dragging his serious research into this particular context. But Apple’s application story is on some level an extraordinary illustration of the willingness of consumers to give new things a whirl. The iPhone itself made its debut in the United States, where people stood in line to buy a product purely on faith that it would prove to be cool, useful or both. The application store didn’t exist back then, but it has since become one of the iPhone’s great attractions: Apple recently announced that there have been more than 500 million downloads of the more than 15,000 applications that have been made available since last summer. Some ­— like applications that turn the phone into a voice recorder — clearly add functionality. Many are games. But more than a few seem utterly utility-free: Another big seller, Koi Pond, simply makes your screen look like a watery, fish-filled environment.

Of course, utility is ultimately determined by consumers. Bhidé says Americans have always displayed venturesomeness and, even in grim economic stretches — like the early 1980s, when personal computers took off — have been motivated both by potential productivity enhancers and by entertainment. Clearly applications offer both rationales. And the combination of low prices and easy accessibility makes them a logical outlet in a fearful economy. “Even in bad times, people are looking for something to improve their lives,” Bhidé said. “If it isn’t the $400,000 house, it’s going to be something else.” And if that something happens to seem pretty dubious, or even flat-out dumb — well, perhaps that’s venturesomeness for you.

The Political Suspicions of 9/11

A coming episode of the acclaimed FX drama “Rescue Me” will tackle what may sound like a far-fetched plot line: that the attacks of Sept. 11 were an “inside job.” The actor who espouses the theories on camera, it turns out, also subscribes to them in real life.

Claims that Al Qaeda terrorists were not solely responsible for the attacks have a lively following on the Internet, including on YouTube, but the second episode of “Rescue Me’s” fifth season, starting in April, may represent the first fictional presentation of 9/11 conspiracy theories by a mainstream media company (FX is operated by the News Corporation).

“They’re not discussed a lot in the press,” Daniel Sunjata, the actor who plays Franco Rivera on “Rescue Me,” told reporters at a television press tour last month. He predicted that the episode would be “socio-politically provocative.”

In the episode, Mr. Sunjata’s character delivers a two-minute monologue for a French journalist describing a “neoconservative government effort” to control the world’s oil, drastically increase military spending and “change the definition of pre-emptive attack.” To put it into action, he continues, “what you need is a new Pearl Harbor. That’s what they said they needed.”

Mr. Sunjata surprised some of the TV reporters when he said that he “absolutely, 100 percent” supports the assertion that “9/11 was an inside job.”

The alternative theories “seem to me to make a lot more sense than the ones that are popularly espoused,” he said, calling it admirable that the conversation was allowed within “Rescue Me.”

Peter Tolan, an executive producer, said Mr. Sunjata is “well read” and has “done a lot of research.”

“Look, obviously not all of us buy in,” he told reporters. “But we went: ‘Wow, that’s interesting, and he’s passionate about it. Let’s use that.’ ”

Sept. 11 has been a touchstone for the series, which is set in a New York City firehouse. Denis Leary, who plays the lead character, said Mr. Sunjata’s character creates a rift among the fictional firefighters. Similar scenes have played out in actual firehouses in New York, he said, “where some of the younger members don’t even have to completely buy into the theory of 9/11 being an inside job, but want to discuss it.” BRIAN STELTER

Joblessness Jumps Sharply Among China’s Migrants

BEIJING — China’s government offered a telling indicator Monday of the slowdown in its once-galloping economy, announcing that more than one in seven rural migrant workers had been laid off or are unable to find work, twice as many as estimated just five weeks ago.

The new statistics followed a hint on Sunday by Prime Minister Wen Jiabao that the government might have to expand a recently announced $585 billion stimulus plan to deal “preemptively” with growing economic problems.

About 20 million out of China’s total estimated 130 million migrant workers — whose cheap labor underpins China’s manufacturing sector — have been forced to return to rural areas because of lack of work, according to a survey conducted by the Agriculture Ministry that was cited at a briefing.

In late December, employment officials estimated that at least 10 million migrant workers had lost their jobs in the third quarter of 2008 as waves of factories and businesses shut their doors.

The specter of millions more unemployed clearly has the Chinese government worried. The government has not released annual figures on social unrest — what it terms “mass incidents” — for several years, but foreign media reports suggest growing protests as unemployment spreads. A January article in Outlook Weekly, a magazine published by the government news agency Xinhua, predicted a record year for mass protests. “It is fair to say that the Chinese government takes very seriously the issue of employment of migrant workers,” said Chen Xiwen, a senior rural planning official who released the joblessness estimate at Monday’s briefing. “Guaranteeing employment and livelihood is to guarantee social stability,” he said.

Mr. Chen advised government officials to actively intervene to head off protests, rather than “shy away from coming out and let public security departments and police go to the front lines.” The military called upon its forces Sunday to exercise strict obedience to command in the face of challenges to social stability.

In a joint report issued Sunday, China’s cabinet and the Communist Party’s Central Committee warned 2009 will be “possibly the toughest year” since the Asian economic bubble burst in the late 1990s for economic growth and rural development, according to Xinhua. The report promised increased government aid to rural areas, including expanded subsidies to farmers, greater access to loans and more funding from Beijing for rural development projects.

Mr. Wen told The Financial Times on Sunday that China might enhance its $585 billion stimulus plan, announced only three months ago. It aimed to pump up economic activity enough to ensure 8 percent overall growth this year. China has pegged 8 percent growth as the minimal level desired to absorb surplus labor and ensure social stability.

“We may take further new, timely and decisive measures. All these measures have to be taken preemptively before an economic retreat,” Mr. Wen said in the interview.

Statistics suggest the retreat is already well under way. Growth slumped to 6.8 percent in the last quarter of 2008. Its annual rate of 9 percent for all of 2008, while still rapid compared to that of more developed economies, was the lowest in seven years.

Big Risks for U.S. in Trying to Value Bad Bank Assets

As the Obama administration prepares its strategy to rescue the nation’s banks by buying or guaranteeing troubled assets on their books, it confronts one central problem: How should they be valued?

Not just billions, but hundreds of billions of taxpayer dollars are at stake.

The Treasury secretary, Timothy F. Geithner, is expected to announce details of the new plan within weeks. Administration and Congressional officials say it will give the government flexibility to buy some bad assets and guarantee others in an effort to have a broad impact but still tailor the aid for different institutions.

But getting this right will not be easy. The wild variations on the value of many bad bank assets can be seen by looking at one mortgage-backed bond recently analyzed by a division of Standard & Poor’s, the credit rating agency.

The financial institution that owns the bond calculates the value at 97 cents on the dollar, or a mere 3 percent loss. But S.& P. estimates it is worth 87 cents, based on the current loan-default rate, and could be worth 53 cents under a bleaker situation that contemplates a doubling of defaults. But even that might be optimistic, because the bond traded recently for just 38 cents on the dollar, reflecting the even gloomier outlook of investors.

The bond analyzed by S.& P. is just one of thousands that the government might buy or guarantee should it go forward with setting up a “bad bank” that would acquire $1 trillion or more of toxic assets from banks.

The idea is that, free from the burden of carrying these bad assets, banks would start lending again and bolster the faltering economy. The bad bank set up by the government would, over time, sell the assets and recover some or most of what it had paid.

While the government is considering several approaches to helping the banks, including more capital injections, buying or insuring toxic assets is likely to be a centerpiece. Determining the right price for these assets is crucial to success. Placing too low a value would force institutions selling and others holding similar investments to register crushing losses that could deplete their capital and make it harder for them to increase lending.

But inflated values would bail out the companies, their shareholders and executives at the expense of taxpayers, who would swallow the losses if the government could not recoup what it had paid.

Some critics of the plan warn that the government should not buy the assets, because banks will try to get too high a price and leave taxpayers holding the bag.

“To date, the banks have stuck their heads in the sand,” said Lynn E. Turner, a former chief accountant for the Securities and Exchange Commission, “and demanded that they be paid the price of good apples for bad apples.”

But many believe that, given the depth of the problem and the fact that it keeps getting worse, the government has little choice.

Finance experts from Wall Street and academia are advising the administration on other options. To sidestep the thorny valuation problem, some have suggested that the bad bank acquire only assets that have already been marked down significantly and guarantee other assets, but officials would have just as difficult a task in determining how much to charge for insuring risky assets.

Economists predict that the cost of the program will most likely exceed the $350 billion remaining in the $700 billion Troubled Assets Relief Program that Congress approved in October.

They say the Obama administration may need upwards of $1 trillion in additional aid for banks — on top of the more than $800 billion the administration is seeking in an economic stimulus measure moving through Congress.

Many in Washington question whether the rescue has achieved its goal of stabilizing the financial markets. A report by the General Accountability Office on Friday concluded that whether the bailout program had been effective might never be known.

“While the package helped avoid a financial collapse, many are frustrated by the results — and rightfully so,” President Obama said in his weekly address on Saturday. “Too often taxpayer dollars have been spent without transparency or accountability. Banks have been extended a hand, but homeowners, students, and small businesses that need loans have been left to fend on their own.”

Mr. Obama and many lawmakers have expressed anger that banks that received the first batch of aid money do not appear to have increased their lending significantly, even as some firms have spent billions on bonuses, corporate jets and other perks. In two weeks the House will hold a hearing to ask chief executives of the eight largest banks about their spending controls.

Putin Turns Down Michael Dell’s Aid Offer

Perhaps Vladimir Putin is more of a Mac man.

After a speech Wednesday at the World Economic Forum in Davos, Mr. Putin, Russia’s prime minister, took some questions from Davos attendees. Michael Dell, the founder and chief executive of Dell, posed the first query. He asked how technology companies could help Russia make the best use of its talent and technology. Mr. Putin appeared less than impressed with the question.

“You see, the trick is that we don’t need any help,” Mr. Putin said, according to a video of the event on YouTube. “We are not invalids. We do not have limited capacity.”

Reports from the event suggest that the audience was taken aback by Mr. Putin’s aggressive remarks. The version of the event on YouTube, however, seems to put things in a less caustic light. (The reports also have Mr. Putin saying Russia does not have “limited mental capacity” rather than just “limited capacity” in an infrastructure sense, as the translation seems to imply.)

Mr. Putin appeared set on defending Russia as an advanced nation and not a developing country in need of aid. He celebrated the broad use of computers and Internet access at Russian schools and boasted about Russian software developers.

“Our programmers are some of the best in the world,” Mr. Putin said. “No one would contest that here –- not even our Indian colleagues.”

To that point, companies such as Sun Microsystems and Intel have long tapped Russia for help on some of their most sophisticated software projects. Freelance criminal software programmers are also known worldwide for their ability building malware.

In the video clip floating about, Mr. Dell did not have a chance to follow up on his original question, and Dell’s corporate public relations staff declined to comment on the matter.

Mr. Dell may have set himself up for a spirited response by prefacing his question with a jab at Mr. Putin’s politics.

“Mister Prime Minister, you spoke of the dangers of excessive government involvement, and I found myself really struck by that comment and surprised to hear that comment,” Mr. Dell said. “Six months ago, I would have never imagined hearing that comment from yourself, but I have to say I completely agree with you.”

Net Income Fell in Quarter for AT&T

AT&T, the telecommunications giant, reported on Wednesday that its fourth-quarter profit fell from a year ago but the figures were clouded by changes to the way it accounts for sales of the iPhone.

The company said net income for the fourth quarter was $2.4 billion or 41 cents a share, compared to $3.1 billion, or 51 cents a share, in the period a year earlier.

However, about a nickel of that difference was the up-front fee that AT&T pays for each iPhone it sells, rather than spreading that cost over time. AT&T started to install that accounting change this summer with the release of Apple’s latest iPhone model.

More broadly, AT&T reported mixed financial results for the fourth quarter. The company benefited by continued growth in the wireless business, and faced declines in the landline business.

Revenue for the fourth quarter was $31.1 billion up slightly from $30.4 billion in the quarter a year ago.

Excluding one-time charges, the company had a profit of 64 cents a share. On that basis, a consensus of Wall Street analysts had projected the company would earn 65 cents a share.

For the year, the company earned $12.9 billion, or $2.16 a share, up from $11.95 billion, or $1.94 a share, for 2007. Revenue rose 4.3 percent to $124 billion.

In the wireless side of its business, AT&T said it added 2.1 million subscribers in the quarter, compared with 2.7 million in the quarter a year ago, a drop in part attributable to the fact that most Americans already have phones and service plans.

But AT&T saw the revenue that it earned from each subscriber grow to $59.59, up from $57.35 a year ago. The growth came largely from increasing use of data.

On the landline side of the business, the company lost 1.56 million access lines in the fourth quarter and 6 million overall in 2008. Those figures are consistent with long-term trends as consumers and business move away from landlines and toward wireless products and services.

AT&T continued to see increased growth of its U-verse television service, which gained 264,000 subscribers in the fourth quarter compared with an increase of 105,000 a year ago. The company gained 236,000 broadband customers in the fourth quarter, down from 396,000 a year ago — a fall that is in part attributable to the challenging economy.

Ed Snyder, an industry analyst with Charter Equity Research, said the performance was more-or-less inline with Wall Street’s expectations.

“The wireline business was weak but the wireless business was a little better than expected,” he said. “No big surprises.”

Hurt by Weak Film Sales, Kodak Trims Work Force

ROCHESTER (AP) — The Eastman Kodak Company said Thursday it was cutting 3,500 to 4,500 jobs, or 14 percent to 18 percent of its work force, as it posted a fourth-quarter loss of $137 million on plunging sales of both digital and film-based photography products. Its stock tumbled nearly 30 percent.

Kodak, a 129-year-old manufacturer, said it lost 51 cents a share in the fourth quarter. That compares with a year-ago profit of $215 million, or 75 cents a share.

Sales slumped 24 percent to $2.43 billion, from $3.22 billion a year ago. The company had a sharp slowdown in demand for digital cameras and inkjet printers, lower royalties from patents and unfavorable foreign exchange rates.

Revenue from digital products dropped 23 percent to $1.78 billion, and traditional film-based revenue fell 27 percent to $652 million.

Excluding revamping charges and one-time items the loss came to $21 million, or 8 cents a share. Analysts surveyed by Thomson Reuters expected, on average, a profit of 21 cents a share and sales of $2.81 billion.

“There was a point when Kodak had too many people. Now it’s going the other way,” said Ulysses Yannas, a broker for Buckman, Buckman & Reid in New York. “I don’t see that there’s any fat left, which says that when and if this thing turns around, you’re going to have a wild ride.”

The latest cuts that Kodak aims to complete in 2009 could trim its ranks to 19,900, a level not reached since the 1930s Depression era. Its payroll peaked at 145,300 in 1988.

“The second half of 2008 will go down in history as one of the most challenging periods we have seen in decades,” Kodak’s chief executive, Antonio M. Perez, said in a statement.

Kodak’s shares dropped $2.08, to close at $4.99 in Thursday trading.

In all of 2008, Kodak earned $339 million, or $1.20 a share, down 50 percent from $676 million, or $2.35 a share, in 2007. Sales fell 9 percent to $9.42 billion, from $10.3 billion.

At Reader’s Digest, Layoffs Are Part of ‘Recession Plan’

As publishers reel from the recession and a plunge in advertising, the Reader’s Digest Association said Thursday that it would lay off close to 300 people, about 8 percent of its work force, as well as put employees on unpaid furloughs and suspend contributions to their 401(k) plans.

The company said it was not closing any of its United States magazines or other businesses, but trimming all of its operations in 79 countries. In addition to publishing domestic magazines like the flagship Reader’s Digest and Every Day With Rachael Ray, it has dozens of magazines overseas and popular Web sites like Allrecipes.com, and produces dozens of books annually.

It recently started a new magazine and membership organization, Purpose Driven Connection, in partnership with the Rev. Rick Warren, the popular author and minister.

“We have announced a comprehensive ‘recession plan,’ which is our internal roadmap for dealing with the extraordinary effects of this recession on consumer spending,” Mary G. Berner, the president and chief executive, said in a statement. “We hope and expect that most of these moves will be temporary.”

Ripplewood Holdings, a private equity firm, bought Reader’s Digest Association less than two years ago in a deal that greatly increased its debt burden. The new management has been more aggressive about marketing new products, selling ads and trimming costs.

The company said it was eliminating the equivalent of 280 full-time jobs, out of 3,500 worldwide. It employs about 1,300 people in the United States.

It said it would impose unpaid time off “where permitted by laws and agreements,” both this year and in 2010, to avoid further layoffs. It did not disclose the duration of the furloughs, or say how many employees would be affected.

Richest 400 Earned on Average 263 Million in 2006.

The income of the 400 wealthiest Americans swelled in 2006, soaring nearly 23 percent from the previous year, to an average of $263 million, according to data released Thursday by the Internal Revenue Service. Since 1996, this group has nearly doubled its share of all income earned in the United States.

The top 400 paid just more than $18 billion in federal income taxes in 2006, or an average of $45 million, on a record $105 billion in total income — the lowest effective tax rate in the 15 years since the agency began releasing such data.

That compares with nearly $1 trillion paid by all other individual taxpayers in 2006.

The gains for the richest took place amid a booming economy, in which hedge funds and private equity firms blossomed and the subprime lending machine went into high gear.

The rising wealth of the nation’s richest taxpayers will most likely intensify debate among tax and policy analysts about the equitability of the tax code, which analysts say favors the ultrawealthy.

Tax cuts enacted by the Bush administration that benefit the wealthy are set to expire by 2011.

“Until recently, we had a financial system that rewarded investors, and we have a tax system that does as well,” said Robert S. McIntyre, the director of Citizens for Tax Justice.

Now wealthy people, he said, pay income tax rates well below those of working-class citizens because of a myriad of tax breaks. A lower capital gains tax, now at 15 percent, down from 28 percent in 1997, benefits investors with big portfolios.

The average adjusted gross income in 2006 of more than $263 million for the top 400 taxpayers compared with an average of $214 million in 2005. It was three and a half times what they earned in 1996, which was $74 million.

And their average tax rate continued to a 15-year low of 17 percent.

But their contribution to federal coffers rose slightly, to nearly 1.8 percent of total contributions by all individual taxpayers. About 130 million taxpayers file returns each year.

The growth in income came primarily from dividends and interest income, not rising salaries and wages. Capital gains income jumped to 63 percent of the adjusted gross income of the richest 400, up from 58 percent in the previous year.

As a percentage of their income, salaries and wages fell to 7.4 percent of their total income, down from more than 12.5 percent just two years earlier. But taxable interest as a percentage of their income rose to nearly 7.8 percent, the highest level since the dot-com boom era of 1995.

The higher income also came from a sharp rise in claims for foreign tax credits, typically through privately owned entities. Such claims rose in 2006 to an average $2.5 million from $1.7 million the year earlier, and quadruple the level in 1996.

More than half, or nearly 54 percent, of all the itemized deductions taken by the wealthiest were related to their charitable contributions, a figure roughly unchanged since 1996.

And while the top 400 wealthiest earned more deductions from their charitable contributions, such gifts still account for just 5.19 percent of all itemized charitable contributions by all taxpayers.

2 Banks to Send Madoff Trustee $535 Million

The Bank of New York Mellon Corporation and JPMorgan Chase & Company have agreed to transfer about $535 million to the trustee liquidating the brokerage of Bernard L. Madoff, the man accused of engineering a global Ponzi scheme, according to court documents filed Thursday.

In the filings in United States Bankruptcy Court in New York, the trustee and the banks asked a judge to approve the transfers at a hearing on Feb. 4.

The move is part of the trustee’s effort under the Securities Investor Protection Act to gather assets to be returned to defrauded investors.

Bank of New York Mellon would send a wire transfer of about $301.4 million, and JP Morgan Chase would send about $233.5 million to the court-appointed trustee by Feb. 6, the documents said. The accounts are held by Mr. Madoff’s brokerage company.

A New York lawyer, Irving H. Picard, is the trustee overseeing the liquidation of Bernard L. Madoff Investment Securities, which collapsed after Mr. Madoff was arrested and charged last month with securities fraud.

Mr. Madoff, a former chairman of the Nasdaq stock market, is under house arrest and 24-hour surveillance in his luxury Manhattan apartment as criminal and civil authorities investigate his global operations, which are said to have lost $50 billion.

Eli Lilly, Reporting a Loss, Cites Imclone Acquisition

Eli Lilly reported flat fourth-quarter sales Thursday and said earnings fell on charges related to its acquisition late last year of ImClone Systems, the biotechnology company.

The company posted a loss of $3.63 billion, or $3.31 a share, in contrast to a profit of $854.4 million, or 78 cents a share, in the period a year earlier.

Excluding one-time items like the $4.73 billion charge related to its acquisition of ImClone, Lilly earned $1.07 a share, slightly better than the $1.05 expected by analysts.

Global sales of $5.21 billion were little changed from a year earlier and were below analysts’ average forecast of $5.39 billion, according to Reuters Estimates. Sales would have risen 3 percent if not for the stronger dollar, which lowers the value of overseas sales.

Sales of the schizophrenia drug Zyprexa, the company’s biggest product, fell 10 percent, to $1.15 billion on continuing lower demand in the United States. Sales also declined overseas, where the product previously had shown strength.

Zyprexa has been hurt by generic competition in Germany and Canada and concerns that the pill causes weight gains that can increase the risk of diabetes.

The drug is expected to face generic competition in the United States in October 2011.

Lilly hopes an experimental blood clot preventer called prasugrel will soon by approved by the Food and Drug Administration and produce blockbuster sales that can help offset expected plunging sales of Zyprexa.

A federal advisory panel of doctors will review prasugrel, which has decreased the risk of blood clots in clinical trials but raised the risk of dangerous bleeding, next week. The agency has delayed a decision on the medicine twice.

Fourth-quarter sales of Cymbalta, a depression drug, rose 15 percent, to $721 million, and sales of a cancer drug, Alimta, rose 31 percent, to $319 million.

Shares of Lilly, which is based in Indianapolis, fell $1.12, to $37.97.

Shares in Sony, Nintendo and Toshiba Fall After Warnings on Outlook

HONG KONG — Shares in the Japanese electronics giants Toshiba and Nintendo plunged on Friday after the companies warned late on Thursday of disappointing earnings ahead.

The problems facing Japanese companies were highlighted after a government report early Friday showed a record decline in industrial production last month.

Toshiba, Nintendo, Sony and NEC Electronics, some of the biggest names in consumer electronics and technology, all reported disappointing results and gloomy outlooks on Thursday, further proof that the slowdown had expanded well beyond big-ticket items like cars and houses, and revealing the extent of consumer pessimism around the globe.

Toshiba, whose products span chips to household appliances, said it now expected a record net loss of 280 billion yen ($3.13 billion) for the business year ending in March, rather than the 70 billion yen profit it had forecast in September, setting off a decline of 14.8 percent in its share price on Friday.

Toshiba lost 121.1 billion yen in the last three months of 2008 and said it would halve capital spending, to 230 billion yen.

“Demand does not seem to be getting any better from the fourth quarter on,” Naofumi Hara, senior vice president at Sony, told a news conference, according to Reuters.

As the global economic downturn drags on, ordinary consumers everywhere, scared by mounting job losses and the stock market rout last year, have slowed spending to a trickle. Companies, too, have cut back investments on anything from factory machinery and research to photocopiers, computers, information technology upgrades and business travel.

As a result, companies in virtually every sector of the economy, from the software giant SAP to automakers around the world, have had to lay off workers, further depressing consumers’ confidence.

Government data on Friday showed Japanese industrial production fell a record 9.6 percent in December, underscoring the point that Japan’s recession deepened much more rapidly than most observers had expected during the last three months of 2008.

Analysts are skeptical that a recovery will come any time soon.

“Given the current severe market conditions, Toshiba’s expectation of the time it will need to recover its profitability and financial profile may prove overly optimistic,” Kazusada Hirose, a senior analyst at the ratings agency Moody’s wrote on Thursday after downgrading the company.

Adding to the gloom Thursday, the games maker Nintendo cut its outlook, setting off a 12.4 percent plunge in its shares on Friday.

Although Nintendo remains one of the few Japanese consumer electronics giants to still expect a handsome profit for the current business year, its popular Wii game console has turned out not to be as recession-proof as many analysts had thought. Nintendo now expects profits of only 230 billion yen, rather than 345 billion yen, for the current business year.

NEC Electronics, which makes chips, warned of a full-year net loss of 65 billion on Thursday and announced job cuts.

And Sony, the sprawling consumer electronics company behind the Walkman, PlayStation 3 game console and Bravia TV sets, last week issued its second profit warning in three months. The company now expects a net loss of 150 billion yen, rather than a profit of 150 billion yen, for the year through March.

Quarterly results announced by Sony on Thursday revealed that the bulk of the bleeding stems from the electronics division. That includes Sony’s television brands, which are suffering both from collapsing demand and fierce price pressure as competition from other manufacturers heats up.

Sony shares, which fell sharply after last week’s profit warning, slid another 5 percent on Friday.

The announcements, along with the latest economic data, underscore the depth of Japan’s recession in the last three months of last year.

Japanese companies have been racing to cut output and lower costs, and more job cut announcements and profit warnings are expected to become a familiar feature of the current earnings season. NEC Electronics and Toshiba between them announced on Thursday that they were shedding 5,200 temporary staff, adding to the thousands of job cuts already announced by Sony and other Japanese companies.

Disney’s TV Unit Will Cut 400 Jobs

The television division of the Walt Disney Company announced Thursday that it would eliminate about 400 jobs from its work force of 6,500 to 7,000, as part of a cost-cutting effort to deal with what it called a weakening economy.

The job cuts will affect all the departments of the Disney-ABC Television Group, as the division is called. Disney-ABC did not release any specific breakdown of the job cuts, though one ABC News executive said that 37 news jobs were included in the reductions.

No ABC executives would offer any other details of the layoffs on the record, but one senior executive said that although 400 jobs were being eliminated, only 200 active workers will be laid off. The other 200 jobs had been vacant and will not be filled, the executive said.

The announcement comes one day after another Disney TV division, the cable sports channel ESPN, announced it would eliminate 200 jobs within the next year. ESPN did not rule out layoffs but said the goal was to reach that number by attrition.

Both Anne Sweeney, the president of the Disney-ABC Television Group, and George Bodenheimer, the ESPN chief executive, cited worsening economic conditions for the job contractions. Mr. Bodenheimer also said he was freezing the salaries of the channel’s top executives.

In a memo to ABC employees, Ms. Sweeney said, “After months of making hard decisions across our businesses to help us adjust to a weakening economy, we’re now faced with the harsh reality of having to eliminate jobs in some areas.”

Ford Reports a Record $14.6 Billion Loss for 2008

DETROIT — After closing the books on a $14.6 billion loss in 2008 — the worst annual result in its 105-year history — Ford Motor Company said Thursday that it would draw the last $10.1 billion from its lines of credit to add to its cash hoard so that it could survive the increasingly bleak vehicle market.

Ford’s chief executive, Alan R. Mulally, said the company, which tapped credit markets to build its cash reserves well before the economy soured, remained determined to finance its operations without the federal aid that was extended to its crosstown rivals, General Motors and Chrysler.

“I think there’s more awareness than ever that Ford is on a very different path,” Mr. Mulally said in an interview.

He added that it had become a marketing advantage for Ford with consumers shopping for an American car. “Our dealers have told us that people know that Ford is in a better place,” Mr. Mulally said.

Ford joined G.M. and Chrysler in December in asking Washington for a combined $34 billion in loans, but has since backed away from seeking its portion of the request. G.M. and Chrysler, however, needed $17.4 billion in emergency loans from the Treasury Department to avoid filing for bankruptcy.

Both G.M. and Chrysler must deliver plans to government officials by Feb. 17 to show they are pursuing the drastic restructuring actions that were required of them as a condition of receiving the federal loans.

Ford’s miserable sales in 2008 worsened sharply in the fourth quarter, with nearly $6 billion of the total $14.6 billion loss coming in the fourth quarter. It was a year in which Ford’s revenue declined almost 20 percent, and its cash reserves declined by $21 billion.

The automaker ended 2008 with $13.4 billion in available cash, which it will augment by tapping into its credit lines for another $10.1 billion.

Ford’s financial health owes considerably to its decision in late 2006 to mortgage its assets and arrange long-term borrowing before the credit markets dried up.

Now, with more than $23 billion in hand, Ford can keep spending billions of dollars on new products during what promises to be another tough year for vehicle sales around the world.

Ford said Thursday that it expects the United States market to total 11.5 million to 12.5 million vehicles in 2009. Last year, industry sales fell 18 percent, to 13.2 million vehicles.

The company is also forecasting lower sales in the already depressed regions of Europe and South America, and little if any growth in Asia.

Still, Mr. Mulally reiterated his pledge that Ford would break even or become profitable by 2011.

To achieve that, Ford will continue its cost-cutting efforts, which have reduced its global employment by more than 40,000 workers in the last three years.

The company said it would reduce its structural costs by $4 billion in the coming year, primarily through cutting salaried personnel and streamlining its global manufacturing and engineering operations.

By 2010, Ford expects that 40 percent of its vehicles sold in North America will have platforms shared with its European operations. “And we expect there will be complete alignment by 2013,” Mr. Mulally said.

More of Ford’s future products will be smaller, more fuel-efficient cars. The company will introduce several important products this year, including a redesigned Taurus sedan and a new hybrid gas-electric version of the Fusion midsize car.

Yet, by most accounts, Ford will be introducing its newest models in a market that appears to be getting worse by the month.

Auto sales plummeted 35 percent in the fourth quarter of last year, and analysts are predicting another sizable drop for January.

Industry sales in January could fall to as low as 730,000 vehicles — an 18 percent decrease from December and a 30 percent decline from the same month last year, according to the auto-buying Web site Edmunds.com.

Ford and other automakers have cut their production substantially in recent months to match the drop in demand.

Scaling back production until the economy recovers is critical to Ford’s overall goals of conserving cash and avoiding the need to seek government assistance.

“Nothing is more important than matching our production to the real demand,” Mr. Mulally said.

Although Ford is not facing a government directive to cut its labor costs and reorganize its long-term debt load, the company is working toward that end in the same manner as G.M. and Chrysler.

Mr. Mulally said Ford expected to match any concessions that G.M. and Chrysler were able to negotiate from the United Automobile Workers union and their lenders.

“We are having ongoing conversations with all our stakeholders,” he said. “We will not be disadvantaged.”

Six Errors on the Path to the Financial Crisis

WHAT’S a nice economy like ours doing in a place like this? As the country descends into what is likely to be its worst postwar recession, Americans are distressed, bewildered and asking serious questions: Didn’t we learn how to avoid such catastrophes decades ago? Has American-style capitalism failed us so badly that it needs a radical overhaul?

The answers, I believe, are yes and no. Our capitalist system did not condemn us to this fate. Instead, it was largely a series of avoidable — yes, avoidable — human errors. Recognizing and understanding these errors will help us fix the system so that it doesn’t malfunction so badly again. And we can do so without ending capitalism as we know it.

My list of errors has six whoppers, in chronologically order. I omit mistakes that became clear only in hindsight, limiting myself to those where prominent voices advocated a different course at the time. Had these six choices been different, I believe the inevitable bursting of the housing bubble would have caused far less harm.

WILD DERIVATIVES In 1998, when Brooksley E. Born, then chairwoman of the Commodity Futures Trading Commission, sought to extend its regulatory reach into the derivatives world, top officials of the Treasury Department, the Federal Reserve and the Securities and Exchange Commission squelched the idea. While her specific plan may not have been ideal, does anyone doubt that the financial turmoil would have been less severe if derivatives trading had acquired a zookeeper a decade ago?

SKY-HIGH LEVERAGE The second error came in 2004, when the S.E.C. let securities firms raise their leverage sharply. Before then, leverage of 12 to 1 was typical; afterward, it shot up to more like 33 to 1. What were the S.E.C. and the heads of the firms thinking? Remember, under 33-to-1 leverage, a mere 3 percent decline in asset values wipes out a company. Had leverage stayed at 12 to 1, these firms wouldn’t have grown as big or been as fragile.

A SUBPRIME SURGE The next error came in stages, from 2004 to 2007, as subprime lending grew from a small corner of the mortgage market into a large, dangerous one. Lending standards fell disgracefully, and dubious transactions became common.

Why wasn’t this insanity stopped? There are two answers, and each holds a lesson. One is that bank regulators were asleep at the switch. Entranced by laissez faire-y tales, they ignored warnings from those like Edward M. Gramlich, then a Fed governor, who saw the problem brewing years before the fall.

The other answer is that many of the worst subprime mortgages originated outside the banking system, beyond the reach of any federal regulator. That regulatory hole needs to be plugged.

FIDDLING ON FORECLOSURES The government’s continuing failure to do anything large and serious to limit foreclosures is tragic. The broad contours of the foreclosure tsunami were clear more than a year ago — and people like Representative Barney Frank, Democrat of Massachusetts, and Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation, were sounding alarms.

Yet the Treasury and Congress fiddled while homes burned. Why? Free-market ideology, denial and an unwillingness to commit taxpayer funds all played roles. Sadly, the problem should now be much smaller than it is.

LETTING LEHMAN GO The next whopper came in September, when Lehman Brothers, unlike Bear Stearns before it, was allowed to fail. Perhaps it was a case of misjudgment by officials who deemed Lehman neither too big nor too entangled — with other financial institutions — to fail. Or perhaps they wanted to make an offering to the moral-hazard gods. Regardless, everything fell apart after Lehman.

People in the market often say they can make money under any set of rules, as long as they know what they are. Coming just six months after Bear’s rescue, the Lehman decision tossed the presumed rule book out the window. If Bear was too big to fail, how could Lehman, at twice its size, not be? If Bear was too entangled to fail, why was Lehman not?

After Lehman went over the cliff, no financial institution seemed safe. So lending froze, and the economy sank like a stone. It was a colossal error, and many people said so at the time.

TARP’S DETOUR The final major error is mismanagement of the Troubled Asset Relief Program, the $700 billion bailout fund. As I wrote here last month, decisions of Henry M. Paulson Jr., the former Treasury secretary, about using the TARP’s first $350 billion were an inconsistent mess. Instead of pursuing the TARP’s intended purposes, he used most of the funds to inject capital into banks — which he did poorly.

To illustrate what might have been, consider Fed programs to buy commercial paper and mortgage-backed securities. These facilities do roughly what TARP was supposed to do: buy troubled assets. And they have breathed some life into those moribund markets. The lesson for the new Treasury secretary is clear: use TARP money to buy troubled assets and to mitigate foreclosures.

Six fateful decisions — all made the wrong way. Imagine what the world would be like now if the housing bubble burst but those six things were different: if derivatives were traded on organized exchanges, if leverage were far lower, if subprime lending were smaller and done responsibly, if strong actions to limit foreclosures were taken right away, if Lehman were not allowed to fail, and if the TARP funds were used as directed.

All of this was possible. And if history had gone that way, I believe that the financial world and the economy would look far less grim than they do today.

For this litany of errors, many people in authority owe millions of Americans an apology. Richard A. Clarke, former national security adviser, set a good example when he told the commission investigating the 9/11 attacks that he wanted victims’ families “to know why we failed and what I think we need to do to ensure that nothing like that ever happens again.” I’m waiting for similar words from our financial leaders, both public and private.

Deep in Debt, and Now Deep in Worry

NOT long ago, a woman in California called me for advice. She is divorced, with two children, and has a series of interlocking financial problems.

She lives in a lovely home in a stylish inland enclave. It has an interest-only mortgage of about $2.2 million that requires a payment of $12,000 a month, very roughly. It was last appraised at $2.7 million, but who knows if it’s now worth anything remotely close to that price.

The woman, whom I’ve known since she was a teenager, has no job or other remunerative employment. She has a former husband, an entrepreneur whose business has suffered recently. He pays her $20,000 a month, of which roughly half is alimony and half child support. The alimony is scheduled to stop this summer.

She has a wealthy beau who pays her credit card bills and other incidentals, but she is thinking of telling him she is through with him. She has no savings and has refinanced her home repeatedly, always adding to indebtedness and then putting the money into a shop she owns that has never come close to earning a dime. Now she is up all night worrying about money. “Terrified,” as she put it. She wanted me to tell her what to do.

What could I say? I did the best I could, but I had to tell her that she was on very thin ice.

Ever since, I’ve been thinking of the troubles of this sweet woman, consumed with worry about money.

These gloomy thoughts have been compounded by the holiday newsletters I have been getting from old pals and classmates. I have been getting them for about 45 years. This season, for the first time I can recall, the talk in the newsletters is not the usual tales of world-beating triumph by genius children, but of jobs lost, homes in jeopardy, children whose jobs have vanished and who are on the road looking for work.

And all of this is compounded again because my handsome son, age 21, a student, has just married a lovely young woman, 20. You may have seen on television the pudgy, aging face of their sole means of support.

I have been pondering what advice to give them about money. What I keep coming up with is this: Do not act like typical Americans. Do not fail to save. Do not get yourself in debt up to your eyeballs. Work and take pride and honor from your work. Learn a useful skill that Americans really need, like law or plumbing or medicine or nursing. Do not expect your old Ma and Pa to always be there to take care of you. I absolutely guarantee that we will not be. Learn to be self-sufficient through your own contributions, as the saying goes.

This advice has served me well. It was propounded to me by my late father, who often said, “Be prudent.”

MY work as a freelance writer in Hollywood some time ago prepared me for extreme uncertainty. This is the most insecure existence imaginable. It mandates saving, ingenuity and nonstop work and creativity. Freelancers never have a day off. Never. They know that they can go months without a check. They absolutely have to save. They have to have five different levels of fall-back plans and financial escape hatches.

I am well past that now. Decades past. (I hope.) But the habits of thought linger, at least a bit.

I wish I could teach that work ethic to those close to me. I wish I could teach them that money is a scarce good, worth fighting for and protecting. But I very much fear that my son, more up-to-date than I am in almost every way, is more of a modern-day American than I am. To hustle and scuffle for a deal is something he cannot even imagine. To not be able to eat at any restaurant he feels like eating at is just not on his wavelength. Of course, that’s my fault. (I have learned that everything bad that happens anywhere is my fault.) And I hope to be able to leave him well enough provided for to ease his eventual transition into some form of self-sufficiency.

But I keep thinking of my friend in California, and what a perfect specimen of what we have become that she has become. I keep lecturing my son, as Pop lectured me, to learn prudence. I keep lecturing myself to learn it; I am far from a small player in the extravagance game.

Maybe, upon second thought, I did not learn well about prudence. Then I think that maybe it’s too late for far too many of us. The age when money was a free good, available in unlimited quantities just for signing a note, may well be over. What the heck will we do when we have to start acting like mature adults? How will we cope with limits? With reality?

America, a nation of free-spending Peter Pans. Where are our moms and dads when we need them? It’s their fault.

JPMorgan Exited Madoff-Linked Funds Last FallJPMorgan Exited Madoff-Linked Funds Last Fall

JPMorgan Chase says that its potential losses related to Bernard L. Madoff, the man accused of engineering an immense global Ponzi scheme, are “pretty close to zero.” But what some angry European investors want to know is when the bank cut its exposure to Mr. Madoff — and why.

As early as 2006, the bank had started offering investors a way to leverage their bets on the future performance of two hedge funds that invested with Mr. Madoff. To protect itself from the resulting risk, the bank put $250 million of its own money into those funds.

But the bank suddenly began pulling its millions out of those funds in early autumn, months before Mr. Madoff was arrested, according to accounts from Europe and New York that were subsequently confirmed by the bank. The bank did not notify investors of its move, and several of them are furious that it protected itself but left them holding notes that the bank itself now says are probably worthless.

A spokeswoman, Kristin Lemkau, said the bank withdrew from the Madoff-linked funds last fall after “a wide-ranging review of our hedge fund exposure.” Ms. Lemkau acknowledged, however, that the bank also “became concerned about the lack of transparency to some questions we posed as part of our review.”

Investors were not alerted to the move because, under sales agreements, the issues did not meet the threshold necessary to permit the bank to restructure the notes, she said. Under those circumstances, she added, “we did not have the right to disclose our concerns.”

That doesn’t satisfy some investors. As they see it, they were the first people who should have been alerted to the bank’s concerns. “Instead, we continued to pay our fees to the bank and remained the only ones exposed to the risks that JPMorgan did not want to assume,” said the chief asset manager of an Italian investment firm, who declined to be identified because of potential litigation.

The tale began several years ago when a unit of JPMorgan Chase in London issued a series of complex derivatives that gave investors a way to triple their bets on the Fairfield funds, whose solid consistency mirrored the track record that had quietly — and ruinously — drawn investors to Mr. Madoff for decades.

Leveraged notes issued by big banks like JPMorgan Chase and Nomura became conduits through which fresh money flowed from institutional investors into the Fairfield Sentry and the euro-based Fairfield Sigma funds, both run by the Fairfield Greenwich Group — and, in turn, into Mr. Madoff’s hands.

The arrangement worked like this: Investors put up cash to buy the notes from the bank. In return, the bank promised to pay them up to three times the future earnings of the Fairfield funds. When the notes matured in five years, assuming the funds did well, these investors would get more than if they had invested in the funds directly. The bank collected just under 2 percent in fees, investors said.

And because the bank had to hedge its entire risk, it put up to three times the face amount of the notes into the Fairfield funds. Thus, Fairfield Greenwich got more cash to manage than it otherwise would have, increasing its own fee income. To reward note-holders for making that possible, Fairfield paid them a so-called rebate of a fifth to a third of a percentage point a year, according to documentation of those transactions.

The first sign of trouble came in early October, when Fairfield Greenwich notified investors that it would no longer pay them rebates.

The reason, according to the Italian asset manager, was that JPMorgan Chase had “suddenly cashed out” of the Fairfield funds. “The official explanation was that there had been a strategic decision to get out of all hedge funds,” the asset manager said. “The Fairfield official was quite upset.”

Several other European money managers said they were told the same thing.

A spokesman for Fairfield Greenwich declined to comment on the bank’s actions last fall, citing restrictions imposed by the beleaguered firm’s lawyers.

Given the turbulent times, the Italian asset manager said he thought the bank urgently needed to raise cash. That seemed the only way to explain why the bank would pull out of a fund that was up 5 percent when other major market indexes were down 30 percent, he added.

A source close to JPMorgan Chase, however, recalled bank officials saying that the bank’s “due-diligence people had too many doubts” about the performance of the underlying funds.

What Red Ink? Wall Street Paid Hefty Bonuses

By almost any measure, 2008 was a complete disaster for Wall Street — except, that is, when the bonuses arrived.

Despite crippling losses, multibillion-dollar bailouts and the passing of some of the most prominent names in the business, employees at financial companies in New York, the now-diminished world capital of capital, collected an estimated $18.4 billion in bonuses for the year.

That was the sixth-largest haul on record, according to a report released Wednesday by the New York State comptroller.

While the payouts paled next to the riches of recent years, Wall Street workers still took home about as much as they did in 2004, when the Dow Jones industrial average was flying above 10,000, on its way to a record high.

Some bankers took home millions last year even as their employers lost billions.

The comptroller’s estimate, a closely watched guidepost of the annual December-January bonus season, is based largely on personal income tax collections. It excludes stock option awards that could push the figures even higher.

The state comptroller, Thomas P. DiNapoli, said it was unclear if banks had used taxpayer money for the bonuses, a possibility that strikes corporate governance experts, and indeed many ordinary Americans, as outrageous. He urged the Obama administration to examine the issue closely.

“The issue of transparency is a significant one, and there needs to be an accounting about whether there was any taxpayer money used to pay bonuses or to pay for corporate jets or dividends or anything else,” Mr. DiNapoli said in an interview.

Granted, New York’s bankers and brokers are far poorer than they were in 2006, when record deals, and the record profits they generated, ushered in an era of Wall Street hyperwealth. All told, bonuses fell 44 percent last year, from $32.9 billion in 2007, the largest decline in dollar terms on record.

But the size of that downturn partly reflected the lofty heights to which bonuses had soared during the bull market. At many banks, those payouts were based on profits that turned out to be ephemeral. Throughout the financial industry, years of earnings have vanished in the flames of the credit crisis.

According to Mr. DiNapoli, the brokerage units of New York financial companies lost more than $35 billion in 2008, triple their losses in 2007. The pain is unlikely to end there, and Wall Street is betting that the Obama administration will move swiftly to buy some of banks’ troubled assets to encourage reluctant banks to make loans.

Many corporate governance experts, investors and lawmakers question why financial companies that have accepted taxpayer money paid any bonuses at all. Financial industry executives argue that they need to pay their best workers well in order to keep them, but with many banks cutting jobs, job options are dwindling, even for stars.

Lucian A. Bebchuk, a professor at Harvard Law School and expert on executive compensation, called the 2008 bonus figure “disconcerting.” Bonuses, he said, are meant to reward good performance and retain employees. But Wall Street disbursed billions despite staggering losses and a shrinking job market.

“This was neither the sixth-best year in terms of aggregate profits, nor was it the sixth-most-difficult year in terms of retaining employees,” Professor Bebchuk said.

Echoing Mr. DiNapoli, Professor Bebchuk said he was concerned that banks might be using taxpayer money to subsidize bonuses or dividends to stockholders. “What the government has been trying to do is shore up capital, and any diversion of capital out of banks, whether in the form of dividends or large payments to employees, really undermines what we are trying to do,” he said.

Jesse M. Brill, a lawyer and expert on executive compensation, said government bailout programs like the Troubled Asset Relief Program, or TARP, should be made more transparent.

“We are all flying in the dark,” Mr. Brill said. “Companies can simply say they are trying to do their best to comply with compensation limits without providing any of the details that the public is entitled to.”

Bonuses paid by one troubled Wall Street firm, Merrill Lynch, have come under particular scrutiny during the last week.

Andrew M. Cuomo, the New York attorney general, has issued subpoenas to John A. Thain, Merrill’s former chief executive, and to an executive at Bank of America, which recently acquired Merrill, asking for information about Merrill’s decision to pay $4 billion to $5 billion in bonuses despite new, gaping losses that forced Bank of America to seek a second financial lifeline from Washington.

A Treasury department official said that in the coming weeks, the department would take action to further ensure taxpayer money is not used to pay bonuses.

Even though Wall Street spent billions on bonuses, New York firms squeezed rank-and-file executives harder than many companies in other fields. Outside the financial industry, many corporate executives received fatter bonuses in 2008, even as the economy lost 2.6 million jobs. According to data from Equilar, a compensation research firm, the average performance-based bonuses for top executives, other than the chief executive, at 132 companies with revenues of more than $1 billion increased by 14 percent, to $265,594, in the 2008 fiscal year.

For New York State and New York City, however, the leaner times on Wall Street will hurt, Mr. DiNapoli said.

Mr. DiNapoli said the average Wall Street bonus declined 36.7 percent, to $112,000. That is smaller than the overall 44 percent decline because the money was spread among a smaller pool following thousands of job losses.

The comptroller said the reduction in bonuses would cost New York State nearly $1 billion in income tax revenue and cost New York City $275 million.

3 Airlines End Tough Year With Deep Losses

Three big airlines — Continental, JetBlue and US Airways — each reported deeper fourth-quarter losses on Thursday amid pessimism over the near-term outlook for air travel.

The results essentially completed a dismal set of fourth-quarter reports for the industry, which has suffered whiplash in the last year, first from record fuel prices that peaked during the summer, then from the sour economy.

Airlines began cutting flights, routes and aircraft in the fourth quarter, in reaction to jet fuel prices that at one point in 2008 were nearly double what they paid in 2007. Carriers thought the retrenchment, which is expected to continue this year, would allow them to charge higher ticket prices.

But passengers balked at paying more, and companies pulled back on business travel in the wake of the economic slump. Now, lots of carriers are instituting fare sales in hopes of winning back travelers.

“You have an operating backdrop that rivals any we’ve seen in our industry for the past few years,” Lawrence W. Kellner, the chief executive of Continental Airlines, told analysts during a conference call.

Continental lost $266 million, or $2.33 a share, compared with $32 million, or 33 cents a share, in the 2007 quarter. The 2008 result included a one-time charge of $169 million to pay for retirement costs for pilots, and to reflect losses on fuel hedging contracts, an issue that also has affected other airlines.

Many carriers lock in the price of fuel in advance, a strategy that can protect them when prices rise. But when the cost of jet fuel drops, airlines have to take charges to account for the difference between the hedge price and the going rate.

Revenue at Continental was $3.5 billion, down 1.5 percent.

Continental noted a significant shift in its international flights from first-class to coach travel. Several companies have banned first-class business travel as a cost-cutting move. “Our international business is pretty solid,” Mr. Kellner said. “It’s just not as profitable as it used to be.”

Continental shares dropped 10.6 percent, to $14.51.

US Airways, which was in the news earlier this month when one of its planes made an emergency landing in the Hudson River, said it lost $541 million, or $4.74 a share, compared with a $79 million loss, or 87 cents a share in the 2007 quarter.

Revenue at US Airways was $2.76 billion, essentially flat with 2007. The airline took a special charge of $234 million that included its impact from fuel hedging contracts.

US Airways shares fell 11.37 percent, to $6.47.

JetBlue Airways said it lost $49 million, before taxes, in the fourth quarter compared with a pretax loss of $3 million in 2007. The 2008 results included a one-time charge of $53 million to revalue auction-rate securities.

JetBlue said its results were preliminary and would be completed after it determined the tax implications of its special charge. Its revenue was $811 million, up nearly 10 percent.

It shares fell 2.74 percent, or 18 cents, to $6.38.

JetBlue, which has grown rapidly since it began flying in 2000, said it expected to reduce its flights by 2 percent in 2009. But the airline announced plans to start service from Kennedy International Airport to Los Angeles International Airport, and said it would add service to Jamaica.

David Barger, the chief executive of JetBlue, told analysts that voting among its pilots would end Tuesday on whether they would join a new union, the JetBlue Pilots Association.

The group is independent of the nation’s biggest pilots’ union, the Air Line Pilots Association.

Financial Crisis Dims Hopes for Giant Cross-Border Banks in Europe

FRANKFURT — Only a few years ago, the future of European banking was said to belong to European champions, big border-straddling banks that would compete with the American giants.

Instead, European integration has been replaced by Balkanization.

Because of the financial crisis, banks are retrenching and refocusing on their home markets, all but abandoning ambitions of banking on a Continental scale — or bigger. Strings-attached government rescue plans and basic business logic are driving the change.

So instead of strategies for global conquest, Martin Blessing, the chief executive of Commerzbank, is concentrating on ways to keep credit flowing to the small and medium-size businesses that form the backbone of the German economy.

“We will see a domestic refocusing of banking but not because everyone is turning nationalist or because one or the other governments take stakes,” he said during a recent interview at his office in the bank’s stunning Norman Foster-designed office tower here. “Banks are going to look at where their franchise is strongest.”

These new realities could end up hurting Eastern Europe most. After communism, privatization led to an extended gold rush for Western bankers. Now those investors are having to decide whether to continue lending at home — in France or Austria — or in Poland, the Czech Republic or Hungary. In the global financial crisis, with the health of many banks dependent on the good will of their home governments, the choice is not hard. The thinking at the heart of cross-border expansion in Europe was always straightforward: Europe needed banks that could achieve economies of scale and have the global reach, global clients and global influence to compete with American titans.

Operating on that basis, a handful of European banks moved to grow and consolidate. In 2004, Banco Santander of Spain bought Abbey National of Britain. A year later, Italy’s UniCredit swallowed the bank HVB Group of Germany. In early 2007, Royal Bank of Scotland led a consortium that snapped up ABN Amro of the Netherlands for 70 billion euros, or $92 billion at current exchange rates.

That deal is already coming undone, with the implosion last year of Fortis, one of Royal Bank’s partners.

More broadly, nationalist impulses are on the move across the Continent, with many politicians arguing — as some Democrats are in the United States — that if the government is going to bail out banks, then taxpayers should get some ownership and some say in how they operate.

For example, Gordon Brown, the British prime minister, has said he wants to stay out of the operating side of the banks Britain has bailed out. But his government is under heavy pressure to help small businesses at home, and the documents that created the new British vehicle for investing in banks, United Kingdom Financial Investments, cite domestic lending as its priority.

French and German governments have also injected cash into their banks, both with the goal of keeping money flowing to businesses inside their borders.

Daniel Gros, director of the Center for European Policy Studies in Brussels, called the developments the Balkanization of European finance.

“Whenever governments get into the share capital of banks, even in a small way, of course they think nationally,” Mr. Gros said.

For instance, few banks expanded more rapidly in Germany over the last decade than Royal Bank of Scotland. The British financier muscled onto Continental turf with attractive financing packages for German manufacturers. Today, Royal Bank is majority-owned by the British government after losses in 2008 from £7 billion to £8 billion, or $9.2 billion to $10.5 billion.

According to two senior German executives, Royal Bank is now playing tough with German clients, calling in loans as the bank retrenches in favor of its British business. The executives, who asked not to be identified, because they were not authorized to publicly discuss confidential negotiations, said Royal Bank had demanded that its clients on the Continent sell assets, despite the catastrophic state of financial markets, so the bank could recover its cash quickly, perhaps to lend in Britain.

Most recently, Royal Bank was a major creditor of Adolf Merckle, the German billionaire who killed himself when it became clear the banks — with Royal Bank in the lead, the executives said — would insist on the sale of his prized possession, the generic drug maker Ratiopharm.

Christine Kortyka, a Royal Bank spokeswoman in Germany, denied the bank was retrenching. “We are an international bank with international clients and we will continue to serve them where they need us,” she said.

Mr. Blessing, who took over at Commerzbank just in time to sell a 25 percent stake to the German government to stabilize its finances and complete a major acquisition, does not dispute that governments are angling for national advantage.

Commerzbank styles itself the bank of Germany’s Mittelstand, as this country’s small and midsize companies are known.

Mr. Blessing says he is comfortable with focusing on serving the Mittelstand, because that has always been the bank’s core mission. .

As part of the deal for a cash infusion, the German government received the right to veto major decisions by the bank. That means it can ward off any acquisition from abroad — or any effort at a European expansion.

Latest Reports Indicate Economy Is Getting Worse

Thursday brought a hat trick of grim economic news: New-home sales fell to their slowest pace on record, businesses cut their orders and jobless claims continued to rise.

Taken together, the three reports released by the government painted a picture of an economy that continued to slide as falling consumer spending and rising unemployment amplified the effects of a yearlong recession.

The Commerce Department reported that American businesses ordered fewer durable goods like computers, construction equipment and vehicles in December, cutting the prospects for growth as companies braced for a difficult 2009.

Orders of durable goods fell 2.6 percent last month, to $176.8 billion. It was the fifth consecutive month of declines, after a 3.7 percent drop in November as the country slipped deeper into a recession now nearly 13 months old.

Excluding transportation, new orders of durable goods orders fell 3.6 percent. Excluding orders for military equipment, durable goods fell 4.9 percent.

For all of 2008, orders fell 5.7 percent, a decline topped only by a 10.7 percent drop in 2001.

“This is pretty much what you expect when the economy is in the process of shrinking and businesses don’t see any need to purchase any capital goods,” said Bernard Baumohl, managing director of the Economic Outlook Group. “Even if you did want to increase your capital investments, it’s going to be difficult to get the capital to purchase this.”

Orders for computers and electronic goods dropped by 7.2 percent in December, and factory orders for metals, machinery, transportation equipment and communications equipment slumped as businesses cut their outlooks.

Shipment of goods also fell for a fifth month, declining 0.7 percent.

“The data show clear declines in sectors as diverse as cars, computers, metals and machinery,” Ian C. Shepherdson, chief United States economist at High Frequency Economics, wrote in a note. “The industrial recession is deep and broad, and there’s no prospect of any easing of the downward pressure anytime soon.”

As businesses struggled, the problems of the housing market continued to multiply. The Commerce Department reported that sales of new single-family homes in December fell 14.7 percent to an annual rate of 331,000, a record low.

In all, 482,000 new homes were sold last year as housing prices tumbled and credit dried up. That figure was 37.8 percent lower than the 776,000 homes sold a year earlier.

Also on Thursday, the Labor Department reported that first-time unemployment claims rose to a seasonally adjusted 588,000 for the week that ended Jan. 24, up 3,000 from a revised 585,000 for the week before.

Employers had long resisted making mass layoffs as the economy cooled, seeking instead to cut costs through shorter work weeks, pay cuts and hiring freezes, but they are now cutting jobs by the thousands.

The national unemployment rate has risen to 7.2 percent since the economy slipped into recession last December, and the jobless rates in Michigan and Rhode Island have already reached 10 percent. Some economists expect that the national unemployment rate will rise to 9 percent before the economy gets back on track.

Markets Reverse a Rally on Signs of Long Slump

Caution returned to Wall Street on Thursday as unemployment claims reached a record high and new home sales hit a record low — two glaring signs that the economy was still in a deep slump.

The major stock indexes gave back all of Wednesday’s gains, and then some.

The Dow Jones industrial average sank 226.44 points, or 2.7 percent, to 8,149.01. The Standard & Poor’s 500-stock index fell 3.3 percent, or 28.95 points, to 845.14. The Nasdaq also dropped more than 3 percent, to close at 1,507.84. Stocks had soared Wednesday on hopes that the government would take bad debt off banks’ books.

Investors took a step back Thursday after getting some harsh reminders that it might be a while before the recession, already in its 14th month, ended.

The Labor Department said the number of people continuing to receive unemployment benefits reached a seasonally adjusted 4.78 million the week that ended Jan. 17, the highest level on records that go back to 1967. As a proportion of the work force, that was the highest level since August 1983.

Companies across a variety of industries have been slashing their payrolls by the thousands.

Eastman Kodak said it would cut 3,500 to 4,500 jobs after weak sales. Its shares fell $2.08, or 29 percent, to $4.99, after it reported a $137 million fourth-quarter loss on a big drop in sales of both digital and film-based photography products.

After the markets closed on Wednesday, Allstate reported a loss of $1.13 billion for the fourth quarter and said it would cut 1,000 jobs. On Thursday, shares of Allstate fell $6.14, or 20.7 percent, to $23.50.

“It seems like we’ve gotten through the financial crisis. Now we’re dealing with global synchronized recession,” said Brian Battle, vice president for trading at Performance Trust Capital Partners in Chicago.

As more people lose their jobs, fewer of them are buying new homes. The Commerce Department said home sales plunged 14.7 percent to an adjusted annual rate of 331,000 in December.

Earlier this week, the National Association of Realtors said existing home sales posted an unexpected increase last month, but the sales were mostly of foreclosed homes.

“This all began as a housing crisis, and clearly, the housing crisis continues,” said Nathan Rowader, director of investments at Forward Management. “Bad housing numbers are not going to encourage anyone to be buying stock.”

The Commerce Department also said orders to factories for big-ticket manufactured goods fell for the fifth consecutive month in December.

Still, some in all fourth-quarter results were positive. Colgate-Palmolive said its earnings rose nearly 20 percent, partly as a result of higher prices and new products. Shares of Colgate-Palmolive rose $1.37, or 2.2 percent, to $65.22.

Many corporate results, however, were grim.

Qualcomm fell $1.69, or 4.6 percent, to $35.13 after reporting a steep drop in its earnings and slashing its forecast. The company, one of the world’s largest suppliers of chips for mobile phones, has seen demand fall as customers trim inventories.

The number of stocks falling outpaced advancers by 5 to 1 on the New York Stock Exchange. Trading volume came to 1.44 billion shares.

The dollar was mixed against other major currencies, while gold prices rose.

Bond prices sank Thursday. The Treasury’s 10-year note fell 1 23/32, to 107 18/32. The yield, which moves in the opposite direction from the price, rose to 2.86 percent from 2.67 percent late Wednesday.

In trading early Friday in Asia, stocks fell for the first day in four after the government reported a decline in factory output.

Chill of Salary Freezes Reaches Top Law Firms

LARGE law firms have long been known for lock-step salary increases and annual bonuses. But the recession and other economic pressures are changing that, with many firms deciding to freeze salaries and rethink bonuses.

In mid-December, the legal profession was taken aback when Latham & Watkins, considered a market leader, announced that it would keep 2009 associate salaries at their 2008 levels. At least 20 large firms nationwide have since done the same.

Although many associates are angry about the freezes, others are relieved, said David Lat, founding editor of AboveTheLaw.com, a blog about law firms and the profession.

“There is this sense that firms didn’t act prudently during the boom and now they are getting religion, and that it’s better late than never,” Mr. Lat said. “Many associates we have spoken to think the freeze probably saved jobs.”

For decades, when top-tier firms raised starting salaries, other firms would follow suit, in order to compete for the best talent.

“Lawyers are very conservative and tradition-bound,” Mr. Lat said. “There is a certain security in knowing what you are doing now is what others are doing and what has been done in the past. With salary freezes, you are seeing a sort of reverse ratcheting. If one firm sees a competitor lowering salaries, they feel it’s safe to lower salaries, too.”

Salaries of associates, as opposed to non-equity partners, appear to have been the most affected by freezes. (The pay of equity partners is closely tied to a firm’s profitability.)

Law is one of the few professions in which a 25-year-old with little experience can make a six-figure salary. Top law firms generally pay their new associates $140,000 to $160,000 a year.

Of course, not every lawyer’s starting salary is that high. According to the National Association for Law Placement, 16 percent of the class of 2007 law school graduates employed full time make $160,000 or more, while 38 percent make $55,000 or less.

Top-tier firms have been watching one another’s compensation moves since 1968, when the New York firm Cravath, Swaine & Moore raised first-year salaries to $15,000, well above what any other firm was paying at the time, said William D. Henderson, an associate professor at the Michael Maurer School of Law at Indiana University, who studies the legal labor market. “It was a watershed moment for the industry, akin to a shot heard round the world,” he said.

Starting salaries rose gradually through the 1990s, and in 2000, those at top firms jumped to $125,000, according to the association. Firms that did not meet that increase were perceived as second-rate, Professor Henderson said. “But today the thinking is, ‘If we meet the market, it may threaten our franchise.’ It’s too dangerous now,” he said.

Although the recent spate of salary freezes is a response to the recession, law firms have been facing other economic issues. For several years, corporate clients have complained about high billing rates, especially for relatively inexperienced junior lawyers.

In 2008, revenue and profits fell at many firms, and some managing partners at those firms are now rethinking their business model, Professor Henderson said.

Guy Halgren, chairman of Sheppard Mullin Richter & Hampton, which announced a salary freeze earlier this month, said the firm had been moving for the last few years toward a more merit-based advancement system. .

“We already do some of that — part of our bonus system is merit-based and it’s been like that for many years,” he said. “This has been happening in the profession slowly, but I think it will accelerate in the next year or two. We’ve been thinking about going to more merit-based incentives.”

This month, Morgan, Lewis & Bockius sent a memo to its associates announcing that 2009 bonuses would be merit-based, rather than hours-based.

Ralph Baxter, chairman of Orrick, Herrington & Sutcliffe, which announced salary freezes in late December, said his firm began reassessing its business model long before the economic crisis. In the last two years, the focus has been on operating more efficiently and at a lower cost to clients. Last year, Orrick announced that in addition to having partner-track associates, it would add substantial numbers of lawyers not working toward partnership, and a significant number of staff members who are not lawyers at all.

“This was born of our focus on adapting to a changed world, one in which our clients are facing greater and greater pressure to control their costs,” Mr. Baxter said.

The criteria for promotion toward partnership is not based just on hours billed, he said. “The criteria have changed over time,” he said. “Today you need a greater capacity to build personal relationships and far more entrepreneurial skill.”

MR. LAT says the focus on efficiency and cost control represents a change in the way law firms view themselves. “Law is becoming more of a business, and you will see more of an emphasis on results than in the past,” he said. “I think some breakdown in the lock-step mentality might actually stick. Firms are recognizing that on a certain level, it makes sense to pay people in a way that reflects their performance.”

A return to the days when starting salaries at top firms were under $150,000 is unlikely, however. A legal education is still expensive, and firms at the top of the rankings — those that traditionally drive salary increases — will continue to compete for graduates of leading law schools. “Clients want the best talent,” Mr. Halgren said. “Law firms like ours have to recruit and retain that top legal talent, and we need to pay competitively to do that.”

Global Worries Over U.S. Stimulus Spending

DAVOS, Switzerland — Even as Congress looks for ways to expand President Obama’s $819 billion stimulus package, the rest of the world is wondering how Washington will pay for it all.

Few people attending the World Economic Forum question the need to kick-start America’s economy, the world’s largest, with a package that could reach $1 trillion over two years. But the long-term fallout from increased borrowing by the United Stated government, and its potential to drive up inflation and interest rates around the world, seems to getting more attention here than in Washington.

“The U.S. needs to show some proof they have a plan to get out of the fiscal problem,” said Ernesto Zedillo, the former Mexican president who helped steer his country through a financial crisis in 1994. “We, as developing countries, need to know we won’t be crowded out of the capital markets, which is already happening.”

Mr. Zedillo said that Washington, unlike most other countries, had the option of simply printing more money, because the dollar was a reserve currency for the rest of the world.

Over the long run, that could force long-term interest rates higher and drive down the value of the dollar, undermining the benefits that come with its special status.

Until now, most fears about surging government debt have focused on borrowing by European countries like Spain, Greece and especially Britain, which is also in the midst of a sizable bank bailout. That recently forced the British pound to a 23-year low against the dollar.

While the dollar’s status as refuge in a time of turmoil should prevent that kind of sell-off for now, a number of financial specialists warned that if fundamental factors like the lack of American savings and bloated budget deficits did not change, the dollar could eventually fall sharply .

“There aren’t that many safe havens,” said Alan S. Blinder, a Princeton economist who is a former vice chairman of the Federal Reserve in Washington, explaining why the dollar’s status as a reserve currency is unlikely to be threatened.

Instead, it is the dollar’s long-term value against other currencies that is vulnerable. “At some point, there may be so much Treasury debt, that investors may start wondering if they are overloaded in dollar assets,” Mr. Blinder said.

While the focus in Washington has been on putting together a stimulus package that will attract broader political support when it comes up for a vote in the Senate, here in Davos the talk has been about the coming avalanche of Treasury debt needed to pay for the plan on top of the bailout measures approved last fall, like the $700 billion Troubled Asset Relief Program, or TARP.

The stimulus was approved Wednesday by the House without Republican support, and could grow larger — mostly likely with additional tax cuts — to attract a bipartisan coalition.

American officials maintain they are aware of the challenge. A top White House adviser, Valerie Jarrett, promised in Davos on Thursday that once the stimulus plan achieved its intended affect, the United States would “restore fiscal responsibility and return to a sustainable economic path.”

To be sure, Congress and the White House will ultimately need to refill the government’s coffers, but how they might do that is barely on the radar screen in Washington at this point.

“Even before Obama walked through the White House door, there were plans for $1 trillion of new debt,” said Niall Ferguson, a Harvard historian who has studied borrowing and its impact on national power. He now estimates that some $2.2 trillion in new government debt will be issued this year, assuming the stimulus plan is approved.

“You either crowd out other borrowers or you print money,” Mr. Ferguson added. “There is no way you can have $2.2 trillion in borrowing without influencing interest rates or inflation in the long-term.”

Mr. Ferguson was particularly struck by the new borrowing because the roots of the current crisis lay in an excess of American debt at all levels, from homeowners to Wall Street banks.

“This is a crisis of excessive debt, which reached 355 percent of American gross domestic product,” he said. “It cannot be solved with more debt.”

While Mr. Ferguson is a skeptic of the Keynesian thinking behind President Obama’s plan — rather than borrowing and spending to stimulate the economy, he favors corporate tax cuts — even supporters of the plan like Mr. Zedillo and Stephen Roach of Morgan Stanley have called on the White House to quickly address how it will pay for the spending in the long-term.

“It’s huge,” Mr. Roach, the chairman of Morgan Stanley Asia, said. “President Obama has now laid out a scenario of multiyear, trillion-dollar deficits.”

The stimulus is widely expected to pass, but once it does, Mr. Roach said the focus would shift to “who foots the bill and what is the exit strategy. We don’t have the answer to either question.”

Mr. Zedillo, who remembers how Mexico was forced to tighten its belt when it received billions from Washington to keep its economy from collapsing in 1994, was even more blunt.

“People are not stupid,” Mr. Zedillo said. “They see the huge deficit, the huge spending, and wonder what comes next.”

n His Way Out, Blagojevich Makes a Day of It

CHICAGO — As the nine-seat airplane raced through the skies on Thursday somewhere between Springfield and here, an onboard telephone began to ring.

Rod R. Blagojevich, the soon-to-be ex-governor of Illinois, instructed his aides not to answer. It might be the news, he said, that he had been removed from office and that he no longer controlled the state’s thousands of employees or even, especially pertinent, the state-owned airplane taking him home.

“I’ll tell you what,” Mr. Blagojevich said, laughing, as the phone went on ringing. “I’m not jumping out. Not for those people, no way. I don’t like heights.”

So went Mr. Blagojevich’s final day as governor of Illinois. Six years ago, he had been elected on a message of reform, but on Thursday — a few hours after his plane, with a silhouette of Lincoln near its nose, landed — the State Senate unanimously voted him out of office. It was the first time that an Illinois governor had been convicted in an impeachment trial.

Through the day, Mr. Blagojevich was, by turns, furious over the methods of the trial, morose as he said goodbye to the cooks from the Governor’s Mansion and brimming with an odd gallows humor long before the lawmakers cast their votes. All the while, his assistant packed his belongings into cardboard boxes — among them, family photographs, a bust of Lincoln and a statue of Elvis.

“I’m still governor for now, and I say you take the afternoon off!” he cheerily told employees, many of them tearful. At another point, he pondered the more practical consequences of losing his job. “I wonder if we’ll have to hitchhike home,” he said. “Maybe we could take the bus.”

In the end, he left the Capitol in Springfield through a secret basement corridor full of grunting, clanking pipes, bare walls and puddles.

Mr. Blagojevich, who was arrested Dec. 9 on corruption charges, including an accusation that he tried to sell the Senate seat vacated by President Obama, had first refused to take part in his impeachment trial. Instead, as senators met in Springfield this week, he set forth on a campaign of appearances on national television talk shows to proclaim his innocence. Then, on Wednesday, he announced that he wished to make a “closing argument” in the trial he had mocked on show after show.

So on Thursday, he set off on a six-hour trip from his home on this city’s North Side to the Capitol and back again, allowing a reporter and a photographer for The New York Times to accompany him at the newspaper’s expense.

At moments during the day, Mr. Blagojevich reflected on what was ahead, most immediately how best to pay his mortgage come March 1 without his $177,000-a-year salary. He spoke of the guilt he felt toward his family for entering a political life, the “personal Greek tragedy” that he said he saw as his circumstances, and, all the while, his love of his job. His biggest error, he said, was the friends he had picked.

“I come out of the alleys of Chicago politics,” said Mr. Blagojevich, 52, who entered Democratic politics in 1992, first as a state representative, then a United States representative. “That’s a tough place. The politics there is not motivated by idealism or high purpose. It’s nuts and bolts, and you scratch my back, I’ll scratch yours. I came up that way.”

Mr. Blagojevich, who began the morning tracked by news helicopters following his sport utility vehicle’s every turn en route to the airport, said he lately had been trying to remember how to be a regular person. Not long ago he made the state troopers who drove him let him take the wheel; he had last driven six years ago. He said he tried to sneak out through a neighbor’s back fence for a jog without his security team, wanting to know what it felt like.

In Springfield, as he waited to speak to the State Senate, Mr. Blagojevich sat in silence in his chandeliered office not far from the impeachment hearing room, nervously jiggling a leg and jotting changes to the speech he had written overnight in longhand on graph paper. He repeatedly called his wife, Patti. He carried his black hairbrush (the one he is known for insisting be available at all times) to his private bathroom behind a heavy wooden door. Minutes before he was to appear on the Senate floor, Mr. Blagojevich stood up and told an aide: “Let’s go home. Screw it. It won’t matter.” Then he walked out and made his speech.

Obama Calls Wall Street Bonuses ‘Shameful’

WASHINGTON — President Obama branded Wall Street bankers “shameful” on Thursday for giving themselves nearly $20 billion in bonuses as the economy was deteriorating and the government was spending billions to bail out some of the nation’s most prominent financial institutions.

“There will be time for them to make profits, and there will be time for them to get bonuses,” Mr. Obama said during an appearance in the Oval Office with Treasury Secretary Timothy F. Geithner. “Now’s not that time. And that’s a message that I intend to send directly to them, I expect Secretary Geithner to send to them.”

It was a pointed — if calculated — flash of anger from the president, who frequently railed against excesses in executive compensation on the campaign trail. He struck his populist tone as he confronted the possibility of having to ask Congress for additional large sums of money, beyond the $700 billion already authorized, to prop up the financial system, even as he pushes Congress to move quickly on a separate economic stimulus package that could cost taxpayers as much as $900 billion.

This week alone, American companies reported as many as 65,000 job cuts, and public anger is rising over reports of profligate spending by banks and investment firms that are receiving help from the $700 billion bailout fund. About half of that money is still available, but the new administration has yet to announce how it will use it, and many analysts think it will take far more to stabilize the banking system.

Should Mr. Obama have to go to Congress to seek more money for the bailout fund to avert the failure of more banks, he would most likely encounter opposition within both parties and demands for tighter restrictions on pay for executives of institutions that receive government assistance.

Mr. Geithner has already signaled a willingness to impose stricter compensation limits as part of a revamped approach to dealing with the banking crisis, but with his strong words on Thursday, Mr. Obama seemed intent on reassuring Congress and the public that he would step up the pressure on bankers before granting them additional assistance.

Mr. Obama was reacting to a report by the New York State comptroller that found financial executives had received an estimated $18.4 billion in bonuses for 2008, less than for the previous several years but the same level of bonuses as they received in 2004, when times were flush.

“That is the height of irresponsibility,” Mr. Obama said. “It is shameful. And part of what we’re going to need is for the folks on Wall Street who are asking for help to show some restraint and show some discipline and show some sense of responsibility.”

The Obama administration and lawmakers have begun to consider ways to control executive pay; the bailout fund, known as the Troubled Asset Relief Program, or TARP, would be the main vehicle for exerting such control. The administration of former President George W. Bush issued guidelines last October to try to control executive pay at companies receiving government help, but so far they have done little to curb large salaries.

During his confirmation hearings, Mr. Geithner said the administration is preparing rules that would require executives at companies receiving taxpayer money to agree that any compensation above a certain amount — he did not specify how much — be “paid in restricted stock or similar form” that could not be liquidated or sold until the government had been repaid.

Some lawmakers, meanwhile, have said they are considering so-called “clawback” provisions that could be invoked by the government to take back bonuses and executive pay from officials at companies that encountered problems.

In the meantime, public outrage is already forcing some companies to rein in their lavish spending. John A. Thain, the former Merrill Lynch executive who was forced out of Bank of America, said this week he would reimburse Bank of America for an expensive renovation of his office that included an $87,000 area rug and $35,000 commode.

But it took the urging of the Obama administration to force Citigroup, which received an infusion of taxpayer funds last year, to abandon plans to buy a $50 million corporate jet. On Thursday, Mr. Obama made reference to the jet, without singling out Citigroup by name; his remarks came one day after the president met at the White House with business leaders, including Richard D. Parsons, the new chairman of Citigroup.

On Capitol Hill, Senator Christopher J. Dodd of Connecticut, the chairman of the Senate Banking Committee, issued his own warning on Thursday, saying companies would be summoned to testify if taxpayer money was involved.

“Whether it was used directly or indirectly, this infuriates the American people and rightly so,” Mr. Dodd said. “So I say to anyone else who does it, if you do it, I’m going to bring you before the committee.”

There is also political pressure to rein in pay in industries beyond banks and investment firms. The pressure reflects the substantial disparities between pay increases for senior executives, the low rate of wage growth for workers and the frequent disconnect between compensation and the long-term strategic success or failure of corporations.

Mr. Obama’s message on Thursday was reinforced by Vice President Joseph R. Biden Jr., who pledged in an interview with CNBC and The New York Times that the government would spend the remaining $350 billion of the troubled assets money “wisely and prudently and transparently.”

Mr. Biden said that he, like the president, was outraged by reports of large bonuses going to Wall Street executives.

“I’d like to throw these guys in the brig,” he said. “They’re thinking the same old thing that got us here, greed. They’re thinking, ‘Take care of me.’ ”

Obama slams Wall Street over bonuses

President Barack Obama lashed out on Thursday at “shameful” Wall Street executives for claiming billions of dollars in bonuses while their stricken institutions asked taxpayers for support.

Mr Obama was responding to a report showing that financial sector employees received $18.4bn (£12.9bn) in bonuses last year, amid dire financial crisis. The figure was down 44 per cent from 2007 but was still the sixth largest payout in history.

Mr Obama described the bonuses as the “height of irresponsibility”, and made clear that additional government support for the industry would be subject to tough conditions on pay and other perks.

“Part of what we’re going to need is for the folks on Wall Street who are asking for help to show some restraint,” he said. “There will be time for them to make profits, and there will be time for them to get bonuses. Now is not that time.”

The White House is working on plans for the second $350bn tranche of funds available through the troubled asset relief programme as well as additional measures to clean up “toxic assets”.

Mr Obama is under pressure to adopt a tough line against Wall Street amid mounting public anger over how the first $350bn of bail-out funds was used.

The president recently chided Merrill Lynch, which has received taxpayer support, for spending more than $1m renovating the office of John Thain, its former chief executive, and his administration pressured Citigroup to cancel its order for a $50bn corporate jet.

“We shouldn’t have to do that, because they should know better,” he said yesterday, referring to Citigroup.

“The American people understand that we’ve got a big hole that we’ve got to dig ourselves out of, but they don’t like the idea that people are digging a bigger hole even as they’re being asked to fill it up.”

Bankers reacted to the president’s remarks with a mixture of anger and resignation.

“Attacking Wall Street is like fishing out of a barrel at the moment,” said one financial executive. “Obama is in the middle of a tough political battle to get the stimulus plan approved. He has to say these things.”

Mr Obama’s proposals for tougher oversight of Wall Street received backing on Thursday from a congressional panel charged with overseeing the government response to the crisis.

The Congressional Oversight Panel said policymakers and the financial industry ignored multiple warning signs that a crisis was brewing and called for tighter regulations to prevent it happening again.

In a draft report released on Thursday, the panel recommended greater supervision of financial institutions deemed “too big to fail” and limits on leverage throughout the sector.

Sweden offers lessons for US toxic clean up

Lars Thunell, head of the World Bank’s International Finance Corporation, is one of the few people in the world who has actually run a so-called “bad bank” – Securum – formed by Sweden to absorb toxic assets during its banking crisis in the 1990s.

He says the US can learn general lessons from Sweden but differences in the nature of the two financial sectors and the assets involved mean the US cannot import it wholesale.

“To get the system running again you have to get uncertainty out of the system, and the way to do that is, one way or another, to ringfence the bad assets,” Mr Thunell says. “At the same time you have to recapitalise the remaining good bank.”

He says: “The mindset of people involved in the good bank and bad bank should be very different . . . One is in run-off, the other should be extending credit to the economy.”

Mr Thunell says banks need to be dealt with “on a case-by-case basis” but with “clear rules of the game”. Sweden categorised its banks according to their capital ratios.

He says the whole process is much easier if – as with Sweden’s Nordbanken – the restructuring takes place in temporary government ownership. “This way, you don’t have to worry about the price at which assets are transferred to the bad bank.”

Securum simply bought all the assets from Nordbanken at face value and then wrote everything down, Mr Thunell says. “We then got capital in an amount equivalent to the writedown, plus operating expenses from the government.”

But since most US banks remain above regulatory capital minimums, he says, the US government will have to deal with private shareholders.

“It was easier for us because we were dealing with industrial loans, or real estate loans, for which we could actually identify each piece of real estate. We could estimate a fair value based on its yield in a normal market.”

The problem now, he says, is that “it is very hard to identify the underlying assets and know what the final losses are likely to be. In some ways it is more like an insurance crisis.”

Because Securum understood the assets well, he says, it could accelerate the run-off by selling assets quickly. A US bad bank, he says, may have to hold assets longer.

Moreover, at the time when Sweden did its banking sector clean-up it had only five banks, plus savings unions.

“You can scale up this model. But it needs to be adapted,” he says.

Trichet warns on capital hoarding

Jean-Claude Trichet gave a stark warning to financial markets on Thursday to stop putting pressure on banks to hold more capital, insisting that such views were exacerbating the global recession.

The president of the European Central Bank criticised the prevailing view among investors that banks should hoard funds, insisting that the view was contrary to those of the European authorities. Such ideas did nothing to contain the deepening recession, he said, and also provided non-financial companies with incentives to postpone investment.

Mr Trichet’s comments at the World Economic Forum in Davos, came as leading bankers and policymakers also warned on Thursday that the wave of bank bail-outs in Europe and the US could usher in a new era of financial protectionism that could lead to a deeper global economic slump.

Asked by Josef Ackermann, chief executive of Deutsche Bank, whether the markets were right to press banks to hold more capital, the ECB president insisted three times that “what the markets are suggesting is not appropriate”.

It was “very important as far as the authorities are concerned”, he added, that the route forward was “not in line with the ideas that [banks] should now augment capital ratios”.

In the turmoil that followed the collapse of Lehman Brothers last September, investors have increasingly punished those banks with relatively low capital ratios, thereby encouraging them to hoard capital rather than expand their loan books.

Mr Trichet said it was now up to companies and markets to do their bit by resuming normal business practices and regain some of their lost confidence. Private companies were becoming too short-termist in their outlook and fear of investment, he said and “have to get back to a normal horizon of investment”.

Mr Trichet’s message of support for bank lending and business investment came at a time of increasing political pressure on banks to shrink their business overseas while maintaining lending to domestic consumers and companies, which has contributed to a sharp drop in international capital flows.

Bankers warned on Thursday that this trend was a creeping form of protectionism that could plunge the world into a deeper economic slump.

“One lesson we must learn is that we can not turn the clock back (in finance),” said Stephen Green, chairman of HSBC, the global bank which has extensive operations in Asia.

“If we do, the casualties will be emerging markets which depend on international capital movements.”

Singapore Air cuts flights to US, Europe, India

SINGAPORE, Jan 28 (Reuters) - Singapore Airlines (SIAL.SI) said on Wednesday it will reduce the number of flights connecting the city-state to parts of the United States, Europe, India and Thailand.

The frequency of flights will be reduced from Singapore to New Delhi, Hyderabad and Mumbai in India, while some flights to Bangkok and London will be suspended.

The frequency of all-business flights from Singapore to the U.S. will also be reduced, but flights to Kuwait and Cairo will be increased.

Caterpillar to slash 20,000 jobs

NEW YORK (AFP) - - US construction equipment giant Caterpillar announced Monday that it intends to cut about 20,000 jobs worldwide to cope with plunging sales amid a sharp economic slowdown.
ADVERTISEMENT

The layoffs, equivalent to about 18 percent of its workforce, came even as the company chalked up its sixth consecutive year of record sales and revenues in 2008.

Some 4,000 production and 7,500 administrative staff as well as about 8,000 contract staff will be among those to be downsized, the company said as it reported 2008 fourth-quarter profit dropped 32 percent to 661 million dollars.

"Fourth-quarter profit was disappointing, particularly in light of record fourth-quarter sales and revenues and a significant favorable tax adjustment," Caterpillar chief executive Jim Owens said in a statement.

The company's fourth-quarter sales and revenues was six percent higher from the same period in 2007 to 12.92 billion dollars.

Its whole year sales and revenues hit a record high of 51.32 billion dollars for 2008, up 14 percent from 2007.

"While 2008 was our sixth consecutive year of record sales and revenues, it was an extraordinarily challenging year," Owens said.

"It is now clear that we need to sharply lower our production and costs, and aggressive actions were triggered in December," he said.

Caterpillar, a top manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines, said its 2009 expectations had "deteriorated" amid uncertainty following a deepening US recession.

"We have initiated actions which will remove about 20,000 workers from our business and every indirect spend dollar will be heavily scrutinized," the company said.

The cuts would be accompanied by substantial reductions in overtime and freeze on hiring and salaries for administrative staff, it said.

The company forecast 2009 sales and revenues to be in "a range of plus or minus 10 percent" from 40 billion dollars.

India cuts growth forecast

MUMBAI - INDIA'S central bank cut its growth forecast on Tuesday to 7 per cent - down from a prior estimate of 7.5 to 8.0 per cent - and warned of a deep, protracted global downturn, but left key interest rates unchanged.

Industrial production and consumer demand have slowed, business confidence is deteriorating, and the fiscal deficit is sharply up, the bank said.

Growth in the service sector, a key segment of India's economy, is also slowing. After 14 quarters of double-digit growth, India's service sector posted just 9.6 per cent growth during the July-September quarter, the bank said.

Reserve Bank of India Governor D. Subbarao said growth would likely become even more 'challenging' next fiscal year.

'The global crisis will dent India's growth trajectory as investments and exports slow. Clearly, there is a period of painful adjustment ahead of us,' he said in the bank's quarterly policy review statement.

'However, once the global economy begins to recover, India's turnaround will be sharper and swifter, backed by our strong fundamentals and the untapped growth potential,' he said.

Mr Subbarao also noted that the global slowdown clearly shows that emerging economies remain closely linked to developed markets.

'Contrary to the expectation of decoupling, which was a commonly held view even till recently, the crisis has spread to the emerging economies too,' he said.

India has already taken aggressive measures to boost growth, since September announcing two fiscal stimulus packages and pumping 3.9 trillion rupees (S$1.19 trillion) into the financial system.

Last quarter, the bank cut the repo rate - at which the central bank makes short-term loans to commercial banks - from 9 to 5.5 per cent, and the reverse repo - the rate at which it borrows from commercial banks - rate from 6 to 4 per cent, both historic lows. But economic growth has continued to slow.

Over the last five years, India's economic growth averaged 8.8 per cent a year. Gross domestic product growth from April to September was 7.8 per cent, down from 9.3 per cent for the same period the prior year.

The bank urged commercial banks to pass on easing credit to consumers more swiftly, noting that a few banks have yet to lower lending rates.

Despite the central bank's aggressive rate cuts - and a 4 percentage point cut in the cash reserve ratio, or the amount of cash commercial banks must keep on hand - commercial banks, fearful of rising bad loans, have reduced their rates to consumers by just 1.5 to 2 percentage points, according to Citigroup.

'There is room for banks to further reduce their lending rates,' Mr Subbarao told reporters.

India's fiscal deficit surged 83.3 per cent from April to November, after falling 11.0 per cent the same period the prior year.

Reduced tax collection and stimulus spending is expected to put even more strain on the budget, potentially pushing the fiscal deficit from 2.5 to at least 5.9 per cent of GDP, the bank said.

Counting the cost of oil subsidies, the deficit could hit 8 per cent of GDP, the bank said.

India's most-watched inflation indicator, the wholesale price index, has fallen by more than half since August, hitting 5.6 per cent as of Jan 10, due largely to falling commodities prices.

The bank predicted inflation would fall still further, to 3 per cent by March.

Consumer prices have fared less well, thanks to persistently high food costs, the bank said. Consumer price inflation is still in the double digits, the bank warned.

KVS Manian, head of retail liabilities at Kotak Mahindra Bank in Mumbai, said given the worrisome fiscal deficit - which he said totals 10 per cent of GDP, counting states' debts - India has little room to boost spending to stimulate growth. The reserve bank, he said, is thus trying to use monetary policy cautiously.

'They want to be cautious about releasing all their ammunition too quickly,' he said.

Mr Subbarao also said banks had relatively low exposure to beleaguered outsourcing giant Satyam Computer Services Ltd. and related companies. Satyam has been scrambling to pay employees and hold on to customers since its founder confessed to a US$1 billion fraud on Jan.7.

'There is no systemic threat to the banking system or individual banks,' he said.

The investigation into banks' role in the scandal is ongoing, he said. So far, he added, 'we have not seen any major irregularity.' -- AP

Corning cuts 3,500 jobs

ROCHESTER (New York) - CORNING Inc. said on Tuesday it is cutting 3,500 jobs, or 13 per cent of its payroll, as demand slumps for glass used in flat-screen televisions and computers.

The specialty glass and ceramics maker, the world's largest maker of liquid crystal display glass, announced the cutbacks as its fourth-quarter profit plunged 65 per cent to US$249 million (S$374.2 million), or 16 cents a share, from US$717 million, or 45 cents a share, a year earlier.

Excluding one-time items, its profit of 13 cents a share came in well below Wall Street's forecast of 20 cents a share.

Sales fell 31 per cent to $1.08 billion from $1.58 billion, below US$1.16 billion in sales forecast by analysts polled by Thomson Reuters.

In December, the company withdrew all guidance for the October-December period because of volatility in the LCD market. It previously said earnings would fall below an earlier projection of 20 cents to 28 cents a share on sales between US$1.1 billion and US$1.2 billion.

The cutbacks at Corning, which employs 27,000 people, will result in first-quarter restructuring charges of US$115 million to US$165 million before taxes as well as fourth-quarter charges of US$22 million. The move will bring annualized savings of US$150 million to US$200 million, it said.

About 1,500 of the 3,500 jobs being eliminated are salaried employees. The company also is cutting more than 1,400 temporary jobs.

The restructuring program will include a selective early retirement program and consolidation of manufacturing plants.

The 157-year-old company is based in the city of Corning in rural western New York.

In premarket trading, Corning's shares fell 65 cents, or 6.5 per cent, to $9.30. -- AP

World tourism to fall 2%

MADRID - WORLD tourism will stagnate in 2009 with numbers dropping by up to two percent as the economic downturn bites, the United Nations' tourism agency said on Tuesday.

The World Tourism Organisation (WTO) 'expects 2009 international tourism to be in a range of zero to two percent decline,' according to a statement released by its Madrid headquarters.

'Along with the Americas, Europe will be the most affected region in terms of overall tourism results as most of its source markets are already in or entering into recession,' the statement said.

The two percent prediction 'could be widened,' said Taleb Rifai, the organisation's deputy secretary general.

'We expect the results to be geographically mixed,' he said. 'We expect the Americas to do slightly better than Europe, but not as good as Africa, the Middle East or Asia regions.'

The forecasts mark a sharp change from 2008, when tourist arrivals worldwide rose to 924 million, a two percent increase from the previous year.

But signs of a downturn became clear as the year progressed, said John Kester, director of market studies.

'Around the middle of the year, we noticed a sharp change in trends,' said Mr Kester.

In the first six months of 2008, arrivals grew by five per cent before decreasing by one percent in the second half when the global financial crisis, unemployment and recession became major concerns, he said.

'We have witnessed a sharp drop in confidence in the sector,' said Kester.

The last time tourist arrivals shrank over the course of a year was 2003, which saw a 1.4 per cent decrease, according to the organisation.

Mr Geoffrey Lipman, a spokesman for the organisation, predicted the tourism industry could rebound 'in four years'.

The organisation does not yet have 2008 numbers in a country-by-country breakdown. In 2007, France was at the top of the list, followed by Spain. -- AFP

Fiat, unions fear job cuts

ROME - SOME 60,000 jobs could be lost in Italy's auto sector unless the government comes to its rescue, union leaders and Fiat's chief executive said.

The government is to open talks this week on possible aid for the auto sector, which has been hit hard by the global economic crisis.

'Without a government intervention, the risk that 60,000 workers in the auto sector will have to stay at home is real,' Fiat CEO Sergio Marchionne was quoted as saying in Italian daily La Repubblica and other newspapers on Tuesday.

'We are asking for an intervention for the entire auto sector,' Mr Marchionne said, speaking during a meeting in Turin on Monday.

'It's not a matter of helping Fiat but of aiding an important sector and the whole economy with it.'

Earlier on Monday, the same figure had been given by Bruno Vitali of the Fim-Cisl union.

Italy's auto industry employs 275,000 people overall, according to figures released by the Italian Association of the Automotive Industry.

Last week Fiat, Italy's largest private-sector employer, reported a 70 per cent drop in fourth quarter profit. The company blamed the result on a slump in demand for its cars as the economic slowdown hit its key western European and south American markets.

Fiat also said it expects demand to drop a further 20 percent in 2009.

Talks between government, unions and industry officials are set to open on Wednesday. -- AP

Immediate cash boost needed

JRIYADH - JAPAN'S former prime minister Shinzo Abe on Tuesday urged leading nations to inject cash into their economies to stimulate the global economy and also warned against rising protectionism.

'An extraordinary economic situation requires an extraordinary response,' Mr Abe told the Global Competitiveness Forum in the Saudi capital. 'Major economies must immediately make fiscal injections to stimulate the economy.'

Mr Abe, premier from 2006 to 2007 and now a special government envoy, cited Japan's experience during a long downturn in the 1990s as evidence for the need for increased government spending to overcome the world financial crisis.

He said this was also necessary to fend off protectionist moves by countries seeking to shore up their economies.

'We should not yield to the temptation of protectionism, but take financial action to stimulate the economy,' he said.

He added that Japan needed to stimulate domestic demand to help the world recover growth.

'It is important for our country to lead the world with a will to be the first to get out of this depression by launching bold countermeasures one after another, with a sense of alacrity.' -- AFP

Trust in business plummet

BOSTON - TRUST in business plummeted worldwide last year, as the global economic crisis sent financial institutions pleading for government support, leaving average people to question industry's ability to bring prosperity, according to a survey released on Tuesday.

Some 62 per cent of informed adults aged 25 to 64 told the Edelman Trust Barometer that they trusted businesses less than they had a year ago, with respondents in the United States and Western Europe more suspicious than those in emerging economies.

The biggest drops came in Ireland, where 83 per cent of respondents said they had lost trust in business; in Japan, where 79 per cent grew more wary; and in the United States, where 77 per cent became more suspicious.

Trust evaporated as the world's most severe economic crisis since the Great Depression caused millions to lose their jobs and wiped out billions of dollars of invested capital.

'This is not 2001-2003; this is not limited to the dot-com New Economy concept companies ... This is General Motors; this is your big bank,' said Richard Edelman, president and chief executive of US public relations firm Edelman, which commissioned the survey. 'It's affected you in the pocketbook and also it's been the mainstays of the economy.'

Last year a downturn that started with investors losing confidence in obscure securities from the US mortgage market snowballed, pushing Wall Street banks including Lehman Brothers Holdings Inc to their knees and even bringing the North Atlantic nation of Iceland to the brink of bankruptcy.

In the United States, just 38 per cent of respondents aged 35 to 64 said they trusted business, down from 58 per cent a year earlier and the lowest rating in the survey's 10-year history. The reading is lower even than results in the wake of the dot-com bust and collapse of Enron Corp.

While the survey has been conducted for 10 years, this is the first time questioners have specifically asked whether their trust in business had declined over the past year. The survey has grown to include more countries and a wider age range of respondents over its history.

Suspicious eye towards banks, carmakers

Americans were least trusting of the auto and banking industries - both of which last year turned to Washington for billions of dollars to tide them through financial crises.

The US government has already paid out more than US$270 billion (S$404 billion) through its Troubled Asset Relief Program to prop up financial institutions including Bank of America Corp, Citigroup and American International Group, and has made multibillion-dollar loans to automakers General Motors Corp and Chrysler LLC.

Respondents in emerging economies were the least likely to say they had their confidence in business shaken.

Just 21 per cent of Brazilians said they had lost confidence in business last year, while 32 per cent of Indonesians grew more doubtful and 49 per cent of Indians and Russians reported a loss of faith in business.

'In the developing world the consensus would be: 'Business has brought us prosperity,' and I think America would be in that camp until this year, until Madoff and Lehman Brothers,' said Edelman, referring to the disgraced money manager who is accused of running a US$50 billion fraud. 'America has now moved into the realm of business skeptics.'

Still, unease with business could spread to the developing world as large corporate scandals begin to erupt there, he noted, saying: 'I wonder if we did the study today in India how optimistic they would be after Satyam.'

The founder of Satyam Computer Services Ltd, India's No. 4 software services exporter, resigned earlier this month after admitting to falsifying profits for years.

The telephone poll of 4,475 people in 20 countries was conducted from Nov 5 through Dec 14. Polling was limited to 'informed adults' - defined as those with college educations and top-quartile household income who followed business and public policy news. -- THOMSON REUTERS

Retail sales forecast to fall

NEW YORK - US RETAILERS had a rough 2008, but this year will likely be even scarier, according to a sales forecast released on Tuesday from the world's largest retail trade organisation.

Retailers are expected to record a 0.5 per cent drop in revenue in 2009, the first annual decline in three decades and perhaps much longer, according to a National Retail Federation forecast released on Tuesday.

That's well below the modest 1.4 per cent gain they recorded for 2008.

Massive layoffs, slumping home prices and tight credit are keeping shoppers tightfisted.

The NRF estimated that retail sales for the first half of 2009 will fall 2.5 per cent. Then, they'll show a 1.1 per cent decline in the third quarter and rebound to a 3.6 per cent increase in the fourth quarter, aided by an anticipated government economic stimulus.

Another factor that should help sales figures for late 2009 is that sales were so dismal in the fourth quarter of 2008 - declining 1.7 per cent, according to Rosalind Wells, NRF's chief economist.

For November and December combined, sales fell 2.8 per cent, well below the association's forecast of a 2.2 per cent gain.

'Most of the consumer behavior we saw in 2008 will continue well into this year,' said Ms Wells. She said she's never seen an annual decline in the 30-plus years she has tracked retail sales. She started with NRF in 1995 but had previously worked as J.C. Penney's chief economist from 1978 to 1988.

NRF's retail sales figures exclude business from automobile sales, gas stations and restaurants.

One of the key challenges for the retail industry is the massive layoffs across all sectors that appear to be accelerating, Wells said.

'Employment is one of the foremost criteria we look for, which in turns means income,' Ms Wells said. 'Without a good employment trend, it is very hard to have confident shoppers to go out and spend. Right now, employment numbers have been terrible, and more layoffs are to come.'

Several big names in corporate America announced layoffs on Monday.

Pharmaceutical giant Pfizer Inc., which is buying rival drug maker Wyeth in a US$68 billion (S$102 billion) deal, and Sprint Nextel Corp., the country's third-largest wireless provider, each plan to slash 8,000 jobs. Home Depot Inc., the biggest home improvement retailer in the US, is shedding 7,000 jobs, and General Motors Corp. said it will cut 2,000 jobs at plants in Michigan and Ohio due to weak sales.

Caterpillar Inc., the world's largest maker of mining and construction equipment, announced 5,000 new layoffs on top of several earlier actions.

Ms Wells said she felt somewhat encouraged by data released Monday by the National Association of Realtors showing an unexpected increase in sales of existing homes helped by booming sales of bargain-basement foreclosures in California and Florida. But she said housing must improve substantially before the economy can start to pick up.

The NRF predictions are being released on the same day the New York-based private research group The Conference Board is slated to announce its January index on consumer sentiment, which economists expect will remain near all-time lows.

The reading is expected to be up slightly, at 39, from 38 in December, which marked the lowest point since at least 1967, when the index began.

In January a year ago, consumer confidence was at 87.3.

The index is compiled from a survey of 5,000 US households and will be released at 10 am EST (11pm Singapore time). -- AP

Row delays stimulus budget

TOKYO - JAPAN'S ruling and opposition parties bickered over a US$5.4 billion (S$8.09 billion) extra budget to fund government stimulus plans on Tuesday, in another sign of deadlock in parliament amid a deepening recession.

Prime Minister Taro Aso, his approval rating below 20 per cent, wants to quickly enact budget bills, but faces a divided parliament. He had hoped to pass the bills on Monday.

Opposition parties, eyeing the prospect of victory in an election due by October this year, have used their control of the upper house to delay bills.

The row also delayed a policy speech to parliament by Mr Aso, as ruling and opposition lawmakers spent the day discussing clashing versions of the extra budget approved by parliament's two chambers.

The Democrats, the main opposition party, want to force an early election but with voter support flagging, Mr Aso is reluctant face a poll that could end more than five decades of almost unbroken rule by his Liberal Democratic Party (LDP).

The opposition objects to an unpopular plan for 2 trillion yen in payouts to individuals, saying the money could better spent elsewhere, and is demanding its removal from an 4.79 trillion yen (S$80 billion) extra budget for the current fiscal year to March 31.

Many in the LDP also oppose the payouts. A former cabinet minister quit the party over the plan and other policy differences in a sign of the LDP's fraying unity.

'To extend debate due to opposition to the payouts is unacceptable,' Hiroyuki Hosoda, LDP secretary-general, told reporters.

'They have agreed to other parts of the budget and so having made that clear, it should be fine to pass the budget.'

The government also wants to start parliamentary debate on a record 88.5 trillion yen budget for the next fiscal year, but opposition parties are against debating two budgets in parallel.

Although surveys show that a hefty majority of voters are opposed to the payouts, the opposition risks sparking a backlash if it delays too long given the worsening economy.

'At a time when the economy and employment situation is worsening, for the Democrats to vainly refuse debate or extend debate will not win the support of public opinion,' the Nikkei business daily said in an editorial. -- REUTERS

Dividends cut at record pace

NEW YORK - DIVIDENDS are being cut at the fastest pace in at least 50 years, and many of the reductions are coming from US companies investors have been relying on to provide income during the recession.

Already this year, seven companies in the Standard & Poor's 500 index have decreased their dividends, removing some US$12 billion (S$18 billion) from shareholders' pockets in the coming months. On Monday, Pfizer became the latest blue-chip company to do so.

These cuts serve up another hit to shareholders who have already been battered by the steep declines in the stock market. That is especially true of retirees, who tend to be attracted to so-called 'widows and orphans' stocks that provide them with a steady cash flow.

If the trend continues, this will be the worst year for dividend cuts since 1958, when annual payments fell by 8.4 per cent, according to new research from S&P.

'It is easy to say this is going to be the worst in 50 years, but the bigger question is whether it is going to be much worse than that,' said Mr Howard Silverblatt, senior index analyst at S&P.

That's not to say that companies shouldn't cut their dividends if they can't afford to pay them. The financial industry, for example, has been most active in slashing payouts because it had to - companies need to cut costs and those that have gotten federal aid also have faced pressure from the US government to reduce their dividends.

Of the seven S&P 500 companies that have said they will cut dividends in 2009, six are in the financial industry and all reduced their payouts by at least 50 per cent, according to the S&P research.

The largest decrease has come from Bank of America, which said earlier this month it would slash its dividend from $1.28 a share annually down to 4 cents a share. That wiped out $6.2 billion in yearly payouts to investors.

The Charlotte, North Carolina-based company disclosed its dividend cut as part of a deal with the government to inject another $20 billion into the ailing bank to help it absorb losses from its recent acquisition of investment bank Merrill Lynch. In total, Bank of America has received $45 billion in federal aid.

Only one financial company, Hudson City Bancorp Inc., has raised its dividend this year, from an annual rate of 52 cents to 56 cents.

Ten other companies in industries from retailing to energy have raised their payouts, too, but all by a tiny margin. In total, those increases equal about $200 million annually.

Companies in other industries haven't been able to escape the financial and economic malaise either. Their profitability and cash flows are under pressure, and they look to preserve cash by slashing their dividends.

'Over the longer-term, cutting a dividend might actually be seen as something positive' for the health of the company, said Mr Paul Davis, a portfolio manager at Charles Schwab & Co. Inc.

But dividend cuts can surprise income-seeking investors who have increasingly turned to higher-yielding shares in sectors presumed to be safer than financials.

Pfizer's announcement on Monday that it would knock its annual dividend down to 64 cents a share from $1.28 a share caught many investors off guard, said Michael Krensavage, who runs Krensavage Asset Management and owns Pfizer shares.

That came as part of the news Pfizer was acquiring rival drugmaker Wyeth for $68 billion in a cash-and-stock deal that will solidify Pfizer as the world's largest pharmaceutical company.

Pfizer had long been a reliable dividend payer, raising its dividend annually for more than 40 years until December when it announced its quarterly payment would be flat when it made its next quarterly payout. But it still paid out the third-most in annual dividends among S&P 500 companies, trailing just General Electric and AT&T Inc.

Pfizer will drop to No. 7 when the Wyeth deal closes, with total payouts of about US$5 billion, according to S&P's Silverblatt.

Pfizer chief financial officer Frank D'Amelio said during a conference call with analysts that the dividend cut was done in part to 'redeploy capital' and assist in financing the transaction with Wyeth.

Dividend-seeking investors may want to take note of Pfizer's action when analyzing their own income-generating portfolios, said Mr Josh Peters, editor of Morningstar DividendInvestor.

One rule of thumb that Peters employs is to look at the dividend yield - the annual dividend per share divided by the price per share - to see how it ranks with its sector's peers. That shows how much a company pays out each year in dividends relative to its share price.

Pfizer's nearly 8 per cent yield had put it well ahead of its rivals including Johnson & Johnson and Abbott Laboratories, which had dividend yields closer to about 3 percent - right about where Pfizer will be going forward.

Silverblatt has been looking for companies with estimates of earnings per share for 2009 that won't cover what they've promised in dividends. Of the companies in the S&P 500 that pay dividends, some 16 percent of them are what Silverblatt deems as 'under stress.' -- AP

Fed eyes new crisis tools

WASHINGTON - FEDERAL Reserve policymakers open a two-day meeting on Tuesday in search of new tools to stimulate lending and revive an economy that has so far failed to respond to its zero-interest rate policy.

The two-day meeting of the Federal Open Market Committee is being held six weeks after the central bank slashed its base lending rate to a range of zero to 0.25 per cent and predicted 'exceptionally low' rates to persist 'for some time.' Sacha Tihanyi, analyst at Scotia Capital, said the market expects some additional help from the Fed.

'With rates going nowhere for some time, the market's focus will be on whether the Fed will be looking to buy government (or corporate) securities in the near future. This is a highly controversial step and some see this as somewhat of a high-risk policy but on the other hand, it is one of the few avenues the Fed has left open to it with regard to further easing monetary conditions.'

Despite the zero rate policy, Fed chairman Ben Bernanke and others have repeatedly said the central bank is not out of ammunition to fight the crisis.

Mr Bernanke said earlier this month the Fed still has 'powerful tools' at its disposal to counter a crisis that began with a US real estate meltdown and spread to the global financial sector, resulting in a credit squeeze and slump that has affected consumer spending, manufacturing and the broad economy.

'The only sure thing is that the Fed won't cut rates,' said Mr John Gencher at BMO Capital Markets.

'What it likely will do is reaffirm the commitment to keep rates exceptionally low for a while and will employ all available tools to increase credit for businesses and households.'

The Fed 'has already done a lot and will continue to do a lot' in addition to moving on interest rates, said Mr Nariman Behravesh, chief economist at IHS Global Insight.

The central bank has already offered exceptional aid to banks and other firms, and has been buying up mortgage-backed bonds and commercial paper to help unfreeze credit in those areas.

Analysts say this has helped somewhat but that credit markets remain under stress, with lenders and consumers skittish about taking on new risks.

'The big thing they could do is so-called quantitative easing, which would be directly going in and buying government bonds. The reason they would do that would be to lower mortgage rates,' Mr Behravesh said. 'I will look for some kind of signal on this.'

Mr Adolfo Laurenti, senior economist at Mesirow Financial, said the Fed has to walk a fine line in communicating its policy moves and its economic outlook.

Mr Laurenti said he does not expect the Fed to acknowledge the use of quantitative easing, a move used by Japan that focused on the quantity of money in the financial system.

'I think part of the problem is that if you look back at what Japan did in the 1990s it did not work very well,' Mr Laurenti said.

'The Fed wants to mark a difference between what Japan did and what they want to accomplish.'

Mr Laurenti said the Fed will make a major effort to shore up confidence, helping the nation weather what appears to be a deep recession that may ease in the second half of 2009.

He said the gross domestic product figures set to be released Friday will show a fourth-quarter economic picture 'that will look awful' with a decline at a pace of as much as six per cent. The outlook remains grim for the 2009 first and second quarters.

'I think they need to acknowledge the fact that the economy is weak and will continue to deteriorate until the second half and at the same time they need to manage expectations,' he said.

'How to prepare expectations without sounding alarmist is a very tough balance. They will be parsing every single word, to make the point without contributing to the depressed climate.' -- AFP

News Corp cuts jobs

NEW YORK - NEWS Corp's Fox Interactive Media digital division, which includes the popular social networking site MySpace, is laying off about 5 per cent of its workforce, or about 100 people, to cut costs, the Wall Street Journal reported on Monday.

The cuts, which began over the last month, include all groups from MySpace to photo-sharing site Photobucket to mobile, the Journal said, citing a person familiar with the situation.

A Fox Interactive Media spokesman confirmed to the Journal that several of the groups within the division were eliminating jobs.

As far as MySpace was concerned, spokesman Dani Dudeck said the group was still hiring.

'We are constantly aligning our business and resources to focus on the core strategic initiatives of MySpace. We currently have open positions, are actively hiring in areas including but not limited to MySpace Music, Business Development, and other product initiatives,' she said in a statement.

'We expect to have more MySpace employees at the end of this fiscal year than we currently have.'

In December, MySpace CEO Chris Dewolfe was upbeat about prospects for the social networking business. 'Our revenue and profits are significant and they continue to grow in spite of the poor economy,' he told the Reuters Media Summit by video conference from Los Angeles.

'We haven't really seen any impact, other than we think we could have grown even more than we have,' he said then, pointing to an 18 per cent year-on-year growth in revenue last quarter.

MySpace is the world's biggest social networking site. It lets people set up home pages featuring their writings, videos and other ways of expressing their personality and sharing things they like, such as music. The site is free, and supported by advertising.

News Corp reports earnings next week, and could show FIM profits being further eroded by spending initiatives.

Total revenue at the division increased 17 per cent in the fiscal first quarter, but was down from 23 per cent growth in the prior quarter, the Journal reported. -- THOMSON REUTERS

S.Korea sets aside US$2.9b aid

SEOUL - SOUTH Korea has set aside around $2.9 billion (S$4.34 billion) in emergency state funds that can be tapped to help the economy shake off its worst crisis in a decade, officials said on Tuesday.

The government has allocated four trillion won in reserve funds for this year, compared to 2.4 trillion won last year, the ministry of strategy and finance said.

It is the largest amount allocated to state emergency funds in six years.

'In the case of emergency, the government could tap the funds immediately without the need to seek a supplementary budget,' a ministry official told Yonhap news agency.

The government has announced extra spending and tax cuts worth billions of dollars to try to prop up the economy, and is also frontloading this year's budget spending in the first half as much as possible.

Last week, President Lee Myung Bak replaced his finance minister and other key economic officials in an effort to better cope with the slump.

Asia's fourth largest economy shrank 5.6 per cent quarter-on-quarter in the period October to December compared with a 0.5 percent expansion in the third quarter.

It was the worst showing since the first quarter of 1998.

Year-on-year the economy shrank 3.4 per cent in the fourth quarter compared with 3.8 per cent growth in the third.

The annualised figure showed the biggest fall since the fourth quarter of 1998, when it contracted six percent.

For the whole of 2008 South Korea's economy grew 2.5 per cent, sharply down from a five per cent expansion in 2007.

The government's forecast for this year is for two percent growth but some think-tanks and investment banks are forecasting an outright recession. -- AFP

Debt or depression?

PARIS - GOVERNMENTS' bold moves to spend their way out of recession are swelling their already big debt burdens, economists warn, but in the short-term, some may have no choice but to go deeper into the hole.

Seized by the financial and economic crisis that spread worldwide last year, the United States and European governments have moved to pour in money with massive rescue packages.

Economic stimulus measures in the United States have so far pushed its public debt to between 65 and 70 per cent of gross domestic product (GDP).

In early 2008, after the devastating US credit crisis erupted, former US president George W. Bush launched a stimulus package of 168 billion dollars (S$251.6 billion). As the trouble deepened late last year, he agreed a $700 billion (S$1 trillion) bailout for the country's banks.

Now the new US President, Barack Obama, plans another massive package of $825 billion in tax cuts and investments.

'Mr Obama needs to make his plan bigger,' wrote the Nobel Prize-winning economist Paul Krugman in the New York Times, however.

'My advice to the Obama team is to scrap the business tax cuts, and, more important, to deal with the threat of doing too little by doing more.'

The United States 'have the means to borrow more,' said Mr Marcos Poplawski-Ribeiro, an economist at France's CEPII economic research institute.

'The question is whether that's advisable. Whether the benefit of greater indebtedness is worth the effort.'

German authorities last week wrapped up a 50-billion-euro stimulus package, including a huge increase in public spending and tax cuts. Last year it launched a 480-billion-euro rescue for its stricken banks.

France unveiled its own 26-billion-euro stimulus effort in December and Britain on Monday unveiled a second multi-billion-pound bank rescue package aimed at kick-starting its stalled economy.

These measures in Europe however 'will not be sufficient to bring growth back to its level before the crisis', said Mr Poplawski-Ribeiro. And these countries 'have no more money to spend', he said.

Heavy borrowing by European governments has sparked concern that strains on bond markets could break up the bloc, prompting vigorous denials by European officials.

Concerns about weaker countries in the eurozone have driven to record levels the spread, or difference, between interest rates on debt issued by high-deficit member states compared to a key reference point, low-risk German government bonds.

The higher interest that indebted countries pay reflects the higher risk of default by these members.

Officials have been compelled to deny talk that this strain could tear the eurozone apart, while also insisting on the need for governments to keep deficits and debt under control.

Amid concern over anti-recession borrowing by governments, Portugal on Wednesday became the third country in the eurozone, after Spain and Greece, to have its sovereign debt rating lowered by the agency Standard and Poor's.

The ratings agency has also warned that Ireland is in the danger zone. A downgrade puts up the cost of borrowing for a government needing to fund a budget deficit.

'There are speculators who are playing on the possibility that the eurozone will fall apart,' said Mr Elie Cohen, research director at France's scientific research centre CNRS. 'That's absurd because it's in no one's interests to see countries leave the euro.'

One of Europe's problems, however, is the lack of a 'collective plan to help weak countries whose capacity to go into debt will be hindered,' Mr Cohen added.

He insisted Europe has room to go deeper in debt, but added: 'After the crisis, states will have to launch a policy of massive debt reduction.' -- AFP

Honda cuts output by 50,000

TOKYO - HONDA Motor Co said on Tuesday it is cutting production in Japan and North America by an additional 50,000 vehicles amid a severe slump in global sales.

Japan's No. 2 automaker said output in North America will fall by 29,000 units, affecting Honda's three plants in the region - Ontario, Canada; Marysville/East Liberty, Ohio; and Lincoln, Alabama.

Due to the production cuts, Honda's overall output in North America will drop by 12 per cent to 1.26 million units in the current fiscal year ending March 31.

'Amid a severe economic slowdown, our sales remained sluggish'.

We have to adjust our production accordingly. We have yet to see a recovery in the auto market,' Honda spokesman Yasuko Matsuura said.

The Ontario plant makes the popular Civic, while the Ohio and Alabama factories roll out the Accord sedan and Odyssey minivan.

Honda will also cut domestic production by a further 21,000 units. As a result, Honda's output in Japan will now stand at 1.15 million units, down 12 per cent year-on-year.

Like other Japanese automakers, Honda is being battered by the plunge in global auto demand after the US financial crisis struck last year.

It quit Formula One racing in December to focus on its core business of making and selling cars.

But the company's plants are being idled to curb production and reduce inventory amid a global downturn. Honda is putting 4,300 contract staff out of work in Japan by the end of April.

Honda did not disclose full-time workforce in North America.

Honda employs 185,000 full-time people around the world. -- AP

Iceland's govt collapses

REYKJAVIK (Iceland) - ICELAND'S coalition government collapsed on Monday after an unprecedented wave of public dissent, plunging the island nation into political turmoil as it seeks to rebuild an economy shattered by the global financial crisis.

Prime Minister Geir Haarde resigned and disbanded the government he's led since 2006. Mr Haarde was unwilling to meet the demands of his coalition partner, the Social Democratic Alliance Party, which insisted on choosing a new prime minister in exchange for keeping the coalition intact.

'I really regret that we could not continue with this coalition, I believe that that would have been the best result,' Mr Haarde told reporters.

Iceland has been mired in crisis since October, when the country's banks collapsed under the weight of debts amassed during years of rapid expansion.

Thousands of angry citizens have joined noisy protests against the government's handling of the economy, clattering pots and kitchen utensils in what some commentators called the 'Saucepan Revolution'.

The value of the country's krona currency has plummeted, hitting many Icelanders who took out special loans denoted in foreign currencies for new homes and cars during the boom years.

In addition, Iceland must repay billions of dollars to Europeans who held accounts with subsidiaries of collapsed Icelandic banks.

Mr Haarde's government has nationalized banks and negotiated about $10 billion (S$15 billion) in bailout loans from the International Monetary Fund and individual countries.

Mr Haarde - a fiscal conservative with degrees from the University of Minnesota, Brandeis and Johns Hopkins - is suffering from cancer and has announced he would not seek another term. He called early elections last week, following the mass protests by Icelanders upset at soaring unemployment and rising prices.

Though largely peaceful, the protests have seen Reykjavik's tiny parliament building doused in paint and eggs hurled at Mr Haarde's limousine. Last Thursday, police used tear gas to quell a protest for the first time since 1949.

Mr Haarde said last week that he wouldn't lead his Independence Party into the new elections because he plans to seek treatment in the Netherlands for his cancer.

Following discussions with Mr Haarde, Iceland's figurehead President Olafur Ragnar Grimsson said he would hold talks with Iceland's four other main political parties late Monday before asking one of the organisations to form an interim government.

On Tuesday, he's likely to ask Foreign Minister Ingibjorg Gisladottir, head of the Social Democratic Alliance, to govern with smaller opposition parties until new elections are held.

Ms Gisladottir said she wouldn't agree to take part in a national government composed of all five major political parties.

'We should have a result no later than tomorrow (Tuesday) morning,' Mr Steingrimur Sigfusson, chairman of the opposition Left-Green movement told RUV television.

'The only real possibility is a minority government.'

Ms Gisladottir said on Monday she won't seek to personally replace Haarde as Iceland's leader. She instead proposed her party's popular Social Affairs Minister Johanna Sigurdardottir.

The restoration of trust in the government is critical, said Iceland's Environment Minister Thorunn Sveinbjarnardottir, an alliance member.

'What is needed straight away is to try to restore trust between the political establishment and the general public,' Mr Sveinbjarnardottir told The Associated Press. 'What we need is for the general public to believe that the politicians are working in their interests.'

Both the demonstrators and the alliance seek the ouster of Central Bank Gov David Oddsson, who has served for 13 years.

Mr Sveinbjarnardottir said Mr Oddsson's ouster should be accompanied by the tightening of regulations in the country's financial industry.

'We need a certain amount of cleansing to be the first steps,' she said.

At a rally on Monday outside Parliament, protester Svginn Rumar Hauksson said demonstrations won't end yet.

'The protests will continue until it becomes clear that things are really changing,' he said. -- AP

Fannie Mae may need US$16b

WASHINGTON - MORTGAGE finance company Fannie Mae says it's likely to need up to $16 billion (S$23.9 billion) from the government as conditions in the US housing market continue to deteriorate.

Fannie Mae's need for $11 billion to $16 billion in taxpayer aid comes after sibling company Freddie Mac disclosed last week that it's likely to need as much as $35 billion in federal support on top of the $13.8 billion it received last year.

Fannie, which has yet to receive any government aid, is still preparing its fourth-quarter financial statements and says the actual amount needed 'may differ materially from this estimate'.

Fannie and Freddie were seized by federal regulators last fall.

An agreement with the Treasury Department allows the government to invest up to $100 billion in each company. -- AP

GM cuts 2,000 US jobs

CHICAGO - GENERAL Motors announced plans on Monday to cut 2,000 jobs at two US plants as it slashes production in the wake of a sharp drop in demand and amid a deepening recession.

The cuts come as the cash-strapped automaker prepares to submit a long-term viability plan in exchange for obtaining billions in loans from the US government.

GM's US sales fell 23 per cent in 2008 while total industry sales fell 18 percent in the steepest annual decline in 29 years to levels not seen since 1992.

The largest US automaker slashed production by 21 per cent in the fourth quarter of 2008 and cut its first quarter production forecast by 53 per cent.

'Although we are bringing all our plants in North America back on line in the first quarter, many of those will have additional downtime in the first and second quarter,' GM spokesman Susan Waun said.

The job cuts will come through the elimination of a shift at an Ohio sport utility plant and a Michigan car factory, Ms Waun said.

Nine of the automaker's 15 US plants and one plant in Canada will face weekly shutdowns but the breadth of the production cuts has not yet been determined, Ms Waun said.

'This is all done to align our production with market demand and we're obviously monitoring it very closely these days.' The shifts will be eliminated in March and April.

GM had 62,000 hourly and 29,500 salaried workers at the end of 2008.

That is down dramatically from 105,000 hourly and 36,000 salaried workers in 2005, when GM began posting staggering losses which reached $72 billion (S$108 billion) through the third quarter of last year. -- AFP

NUH sued over transplant op

A MAN who gained a kidney but lost his wife following a 2005 organ transplant has sued two doctors and the hospital where the surgery was performed.

Mr Surender Singh, a 38-year-old father of three, claims that specialists from The National University Hospital (NUH) botched the relatively routine procedure, causing his wife to bleed to death internally.

He is seeking unspecified damages and money to support the couple's children, among other things.

The NUH and the two specialists who conducted the transplant are denying the claims and have engaged lawyers from heavyweight firms Allen & Gledhill as well as Rajah & Tann.

Mr Singh, through lawyer S Pallaniappan of Straits Law Corporation asked last week for hearing dates next month.

SIA cuts 4 single-class flights

SINGAPORE Airlines' non-stop, business-class- only flights to the United States have become the latest casualties of a global downturn in travel.

A drop-off in passengers has prompted the carrier to axe four of the 14 such services it offers to Los Angeles and New York weekly.

From Feb 17 to March 25, there will be no flights on Tuesdays and Wednesdays. What happens after will be subject to review, the airline told The Straits Times.

According to some travellers, the 100-seat Airbus 340-500s used on the routes were flying with over 70 per cent of their seats empty on some days.

Details of the Singapore-US flight cuts come more than a week after it was revealed that SIA is cutting 214 other flights, mainly regional services, until the end of March. This follows a marked downturn in global travel sparked by the financial crisis.

According to the latest data compiled by the International Air Transport Association (Iata), demand for first- and business-class seats fell 12 per cent last November, compared with the same month in 2007. Overall demand fell 5 per cent during the same time.

Can stimulus save Asia?

GOVERNMENTS across Asia have pledged a combined $700 billion in stimulus spending and central banks have slashed interest rates to spur growth and cushion the blow of plunging export demand from the West.

Will the moves stave off a lengthy regional recession? Much depends on how Asian consumers and businesses respond to the stimulus measures - which range from construction projects in China to create jobs to cash handouts and loan guarantees in Singapore.

Some analysts say Asia could be the first region to recover from the global crisis later this year because its financial systems are on sounder footing than those in the West, allowing consumers and companies to better take advantage of the public spending and lower rates.

Banks haven't needed massive bailouts, and consumer and bank debt levels are lower than in the US, meaning people and businesses may be more willing to borrow, lend and spend.

'Asia faces fewer structural problems than elsewhere in the world, and the policy easing has a better chance of working here than in the US' said Mr Richard Urwin, who helps manage more than $10 billion (S$15 billion) of stocks, bonds and other investments, including Asian assets, for BlackRock Inc in London.

'It's sensible to expect some gap opening up this year between what's happening in the US and what's happening in this region.'

Still, stimulating domestic demand can only go so far for much of Asia, and a sustainable recovery ultimately hinges on exports. News last week of sharply slowing growth in China, a contraction in South Korea's economy and a record 35 per cent drop in Japanese exports in December only served to emphasize the region's dependence on the rest of the world.

Some economists expect US and European export demand to stabilize by the second half of the year, but if it doesn't, any emerging Asian recovery will almost certainly be scuttled.

'The infrastructure spending does help to provide a short-term boost to the Chinese economy,' said Mr Tai Hui, head of Southeast Asia economic research for Standard Chartered Bank in Singapore. 'But it's taking a big knock in its export sector right now.'

The outlook is overwhelmingly bleak. This year's slowdown will likely rival the 1997-1998 debt crisis as Asia's worst downturn in more than 50 years. Already, economies in Japan, South Korea, Singapore and New Zealand are shrinking.

Asian exports are in a free-fall. Vietnam's exports plunged 24 percent and Singapore's slid 21 per cent. China's exports dropped in November and December for the first time in seven years.

Some of the region's biggest brand names are sliding into the red. Japan's Sony Corp is cutting jobs and projecting its first annual net loss in 14 years. South Korea's Samsung Electronics last week reported its first ever quarterly loss.

China, the world's third-largest economy behind the US and Japan, has led the policy response, announcing in November it would spend $585 billion, mostly on infrastructure development. It's also reducing sales and property taxes. It has lowered its benchmark one-year lending rate five times since September.

But getting Chinese consumers to spend more is a challenge. Many families still feel compelled to save up to 50 per cent of their incomes to pay for health care, education and other necessities.

Beijing has promised to create a social safety net to reduce such burdens.

In Singapore, the government is taking steps to dissuade companies from laying off workers. Last week, it said it plans to subsidise 12 per cent of the first $1,670 of each employee's monthly wages, hike cash handouts to low-income workers by 50 per cent, and increase public sector hiring.

The government will also assume 80 per cent of the risk on private bank loans of up to $3.34 million to help spark lending and investment.

In South Korea, the government is spending $10.2 billion to build and repair roads, railways and ports, tax cuts and other measures to aid ailing business. In a package that still needs parliamentary approval, Japan plans to boost payments to parents who give birth, reduce the unemployment insurance premium and lower taxes.

Taiwan, Malaysia, Australia and India have also announced plans for extra spending. And a collapse in oil prices has eased inflation, giving central bankers room to slash rates.

Japan's central bank, which has cut its benchmark interest rate to 0.1 per cent, expects the economy to contract 2 per cent for the fiscal year through March 2010, but hopes for a recovery to emerge by late this year.

'We're seeing the most powerful, most synchronized fiscal easing Asia has ever seen, and in time, it should generate strong domestic demand and a recovery,' said Mr Robert Prior-Wandesforde, co-head of Asian economic research at HSBC in Singapore.

'In contrast to the West, money isn't going toward bailing out financial institutions, it's being pumped directly into the economy,' he said.

While analysts say it's too soon to see the full impact of the measures, China - a major engine of regional growth - is seeing some early, modestly positive signs. Banks loans are rising. In December, industrial production grew 5.9 percent and retail sales rose 17.4 per cent - both up slightly from the previous month.

Still, with news of job cuts around the region almost every day - and more likely - a jump in unemployment will sap consumer spending and undermine governments' attempts to spur growth.

'They're trying to stimulate the consumer here in the region, but that's going to be difficult if unemployment rises,' said Mr Stephen Corry, head of investment strategy for Merrill Lynch in Hong Kong. 'The economy really hangs on the consumer because the export picture is so bleak.' -- AP

ING cuts 7,000 jobs

AMSTERDAM (Netherlands) - BANK and insurer ING Group NV said on Monday it will book a large fourth quarter loss, cut 7,000 jobs and change its CEO. It also said the Dutch government will assume the risk for most of euro27.7 billion (S$53.7 billion) in troubled US mortgage-backed securities ING owns.

In a statement published on Monday, the company estimated its 'underlying net result', - an unaudited and nonstandard measure - will be a loss of euro3.3 billion when it reports earnings on Feb 18.

Under the complex deal with the Dutch state, the government will assume 80 per cent of both risk and payments from the portfolio.

Analysts say that will bring the state euro400 million of interest payments per year - depending on how many of the securities wind up in default.

The securities are based on 'Alt-A' mortgages that are a step below prime mortgages. They were often made with limited or no documentation of assets or income, leading to the nickname 'liar loans', and many borrowers are defaulting.

Analysts say the current market value of these securities is roughly two-thirds of face value. ING's deal with the state assumes they are worth 90 per cent.

'It seems as if the conditions of the TARP-like agreement with the Dutch state are rather favorable,' Analyst Ton Gietman of Petercam Securities said. TARP is the US government program to buy troubled assets from banks.

Mr Gietman said ING's fourth quarter earnings were worse than expected but the deal with the state would reduce uncertainty surrounding the company.

Shares rose 13 per cent to euro5.96 in early trading in Amsterdam as solvency fears eased.

For ING, the benefits of the deal include further deleveraging of its balance sheet. It said its Tier-1 ratio - the measure commonly used to rate a bank's strength - will improve to 9.5 per cent from 9.1 per cent.

That ratio was boosted from 6.5 per cent to 8 per cent in October, when ING received a euro10 billion investment lifeline from the Dutch state.

ING said Monday's deal frees up resources so that it can lend euro25 billion in the Netherlands, of which euro10 billion will be eligible for state guarantees under a program introduced by the government last year.

ING said in the fourth quarter 'market conditions deteriorated sharply, making it the worst quarter for equity and credit markets in over half a century'.

It suffered euro2 billion in impairments and losses on stocks, bonds and real estate.

Provisions against bad loans rose by euro600 million. It didn't give details of the performance of its insurance arm.

The job cuts represent 5 per cent of the company's total work force.

The company said CEO Michel Tilmant's abrupt departure should be seen 'in light of the extraordinary developments over the past few months'.

The company nominated its own supervisory board chairman, Jan Hommen, as Tilmant's replacement, pending approval at the company's annual meeting on April 27.

Mr Hommen is a former chief financial officer of Royal Philips Electronics NV who left the company after being passed over for the chief executive job in 2005. He is also a former CFO of Alcoa, the Aluminum Company of America.

'Naturally, I am disappointed with our results in this extremely tough environment,' Mr Hommen said on a conference call.

He said he regretted the job cuts but 'with the continuing challenging outlook, we feel it is important to take additional action to decrease our risks and expenses'. -- AP

Siemens 1Q net profit down 81%

FRANKFURT (Germany) - INDUSTRIAL conglomerate Siemens AG said on Tuesday its fiscal first-quarter net profit fell, largely due to one-time effects stemming from the sale of its VDO Automotive business last year.

The Munich-based maker of products ranging from trains to light bulbs said net profit for the quarter from October through December fell more than 80 percent, to euro1.23 billion (S$2.42 billion) from euro6.475 billion a year ago. The sale of VDO and other assets contributed euro5.4 billion to income last year.

First-quarter revenues rose 7 percent to euro19.6 billion, from euro18.4 billion a year ago, while the company's order book for the period fell 8 per cent to euro22.2 billion.

The company said it was sticking to its target for reaching total sector profit of between euro8 billion and euro8.5 billion in 2009.

'Siemens got off to a good start in fiscal 2009, including better order development than most of our competitors in the first quarter,' the company's Chief Executive Peter Loescher said in a statement.

'Revenue increased strongly. Total Sectors profit clearly exceeded the prior-year level. Therefore we are sticking to our 2009 targets, even though reaching them has become more ambitious. While we are closely monitoring market conditions on a quarterly basis, we are progressing through the year strong, confident and focused,' Mr Loescher said. -- AP

Crisis hits defence budgets

LONDON - THE global slowdown will stretch defence budgets worldwide, notably complicating the task of new US President Barack Obama as he switches foreign policy focus, a top thinktank said on Tuesday.

As Mr Obama moves to pull troops from Iraq and bolster forces in Afghanistan he will face continuing tensions with Nato allies, themselves also tightening belts at home, said the International Institute for Strategic Studies (IISS).

Elsewhere, the thinktank's 'Military Balance 2009' noted Russia's bolstering of its military stance around the world, as national pride in the country's military forces swells in the wake of Russia's conflict with Georgia last year.

Mr Obama, who has moved quickly to reverse a series of his predecessor's policies since taking office last week, will find his administration constrained more than ever by the bottom line and domestic priorities.

'The Pentagon... will have to consider (its military priorities) in the context of an economic crisis that will inevitably call into question the level of defence spending,' the publication's editor James Hackett wrote.

'The effects of the banking crisis... will have an impact on defence establishments around the world.... Nations that have spent considerable sums on foreign operations... will find future military budgets pressured by the need to spend more on other domestic priorities,' it added.

While the Iraq surge had been a success, 'tensions remain over burden-sharing in Afghanistan,' it noted, saying NATO has 'increasing problems forging a common understanding of objectives for its mission in Afghanistan.'

The United States has been the main supporter of Afghanistan since it led an invasion that drove the hardline Taleban from government in Kabul in 2001, but Washington has long battled to drum up military support from its allies.

About 32,000 US troops are currently deployed in Afghanistan to fight Taleban-led insurgents. Up to 30,000 more are expected to arrive over the coming year, but Mr Obama is also expected to press his European allies to more troops too.

The IISS also noted that Al-Qaeda elements along the Pakistan-Afghanistan border, in particular, 'increased their activity in Pakistan while continuing to support the insurgency in Afghanistan.'

In Russia meanwhile pride in its armed forces, which collapsed after the Cold War, 'is being restored, not only by a more prominent international posture and the victory in Georgia, but also by a raised profile at home.'

'The continuing expansion of US and Nato activities into Russia's traditional sphere of interest is a driving force behind its current military posture,' it noted.

'Certain of these activities are viewed as a direct threat by Moscow.'

Elsewhere in the study, IISS noted that former US president George W. Bush's 'surge' in troops stationed in Iraq 'undoubtedly worked in terms of dramatically reducing civilian casualties and pausing Iraq's previously relentless descent into civil war.'

It added, though, that 'despite the improvements there was little sign ...that this 'window of opportunity', conceived to allow Iraq's politicians to move towards national reconciliation, had resulted in such progress and, as a result, questions have been raised about the longevity of its effects.'

So Iraq is not going to go away as a problem any time soon, and could yet swallow more huge sums of money at a time when cash is short for military operations around the world.

'While the long-term consequences of the banking crisis on public finances are not yet clear, how governments move to balance these competing priorities will be of prime importance in the year ahead,' wrote the IISS. -- AFP

UK pensions deficit at $424.4b

LONDON - BRITAIN'S private sector pension schemes recorded a deficit of nearly 200 billion pounds (S$424.4 billion) at the end of last year, as the global financial crisis took its toll on the value of pension funds, official data showed on Tuesday.

The Office for National Statistics said the funding position of defined benefit pension schemes showed a deficit of 194.5 billion pounds in December 2008. That compares with a surplus of 130.4 billion pounds in June 2007 before the onset of the credit crunch.

'In 2008 falling equity markets and bond yields led to a worsening of the funding position,' the ONS said.

The ONS reported marked changes in the types of investments made by pension funds.

In 2007, 61 per cent of pension fund assets were in corporate securities, compared with over 70 per cent for most of the 1990s.

Within that total, the proportion of UK corporate securities assets held by pension funds fell to 58 per cent in 2007 from around 75 per cent in the 1990s. In 2007, pensions invested 42 per cent of funds in foreign corporate securities. -- THOMSON REUTERS

NEC Tokin to shed 9,450 jobs

TOKYO - JAPANESE electronics maker NEC Tokin announced on Tuesday that it would shed about 9,450 jobs worldwide due to the economic crisis.

The electronic component manufacturer said it would axe about 450 domestic posts and 9,000 jobs overseas, joining a wave of global layoffs. -- AFP

Let's get back to basics

Han Ming Wen
Guest Writer

One need not be a rocket scientist to join the dots to reveal the master plan. First change the finance laws, then formulate almost impregnable secrecy laws, thereafter offer tax reliefs and incentives, and finally build casinos. And voila! Billions of overseas funds (much of it tax evasion and illicit monies) start pouring into our banks.
To the many who benefit from such money the move is a brilliant masterstroke that other countries are too slow to catch on to. Perhaps.

But lest we forget, unscrupulous financial dealings have already eaten up a 158-year old institution (Lehman Brothers), reduced the world’s biggest bank to a 'me too' when it comes to bailouts (Citigroup), crippled England’s largest financial institution (Barclays), and brought the USA and Europe to its knees.

Soon it will be Asia's turn, Singapore included. The 'R' word may yet be transformed to the 'D' word.

To soften the impact the USA has announced plans to spend billions of dollars to create as many as 3 million jobs. This will be achieved through the building and improvements of infrastructure. China has announced a $586 billion stimulus package focusing on infrastructure investments. Spain once the engine of jobs creation in Europe, has announced that of monthly mortgage repayments will be halved to put more money into people's pockets. England and Japan have also announced their own softening measures.
This financial fiasco exposed the inherent defects of the current capitalist system. In its place, will come 21st century reforms. This will most likely be in the form of a back-to-basics platform, that is, emphasis will be on the real economy, good-old fashioned factors of production.

In other words, the real world.

What will then become of financial centers, tax havens, money laundromats of the world?
Aiming to become a glamorous financial centre with all the glitz and razzmatazz is risky business. In Singapore, its worse -- its being done at our expense.
We were like a teenage kid, dazzled by the material world but too naive to understand how the real game was being played behind the scenes. We saw how "financial centres" got rich and we wanted the easy-money too.

We, too, need to get back to basics. One way we can do this is to, like the teenager, go back to school. We can become a significant society that prides itself on education by creating a university city right here in Singapore.

But to achieve that, we need an open society and universities here need to be fully autonomous unlike the current ones (yes, James Cook University included). The benefits will be two fold: the economic dollars are big and, more importantly, Singapore will be able to develop brain power for the future.

At the moment, what we are doing is pouring in cash to foster something that resembles an education centre but not quite. Sure, the hardware -- nice buildings, hi-tech equipment, and air-conditioned classrooms -- is all there. But without freedom of expression and academia we're kidding ourselves in wanting to compete with the top schools in the West.

We need to spend more on education. For a population of 4 million, we should have more universities. Spend more on education welfare, take care of the local population and they will take care of the country.

Also, we were once a shopping paradise. Tourists came from all over because they loved to shop here. But the inflated cost of doing business here destroyed that important sector of our economy. Cut the excesses in the country -- much of it hidden -- and cost would plummet. With the current infrastructure, we will be the shopping center of Asia once more.

Bring in the shopping crowd and the white elephants will be filled up too. The overflow of businesses into hotels, entertainment, restaurants, public transport, and small businesses would be a very good thing. Nothing high tech, but it keeps people employed and in business.

And at least we can be good at what we do unlike in high-tech or bio-tech where we will always be, at best, third-rate given our authoritarian political system. In the process, billions of dollars of tax payers' money are poured in, and the industries then quietly fade away.

We have the advantage of our geographical location to become a shopping mecca. This can never be taken away. To ignore the importance and significance of this factor is foolhardy.

This has become even more important in light of the fact that we are no longer competitive in manufacturing and services. Our neighbors are now increasingly becoming English-speaking too, making them more attractive to multinationals.

It is time to spread the bread and butter around. Becoming a dubious centre of high-stakes finance in Asia only accumulates (risky) wealth for a select few. Getting back-to-basics and make money through hardwork and enterprise benefits the majority. It is the way to go.

Corning cuts 3,500 jobs as 4Q profit slumps

ROCHESTER, N.Y. (AP) -- Corning Inc. said Tuesday it is cutting 3,500 jobs, or 13 percent of its payroll, as demand slumps for glass used in flat-screen televisions and computers.

The specialty glass and ceramics company, the world's largest maker of liquid-crystal-display glass, announced the cutbacks as its fourth-quarter profit plunged 65 percent to $249 million, or 16 cents a share, from $717 million, or 45 cents a share, a year earlier.

Excluding one-time items, its profit of 13 cents a share came in well below Wall Street's forecast of 20 cents a share.

Sales slumped 31 percent to $1.08 billion from $1.58 billion, below $1.16 billion in sales forecast by analysts polled by Thomson Reuters.

The company also cautioned that per-share profits before one-time items will likely be canceled out in the first quarter. Sales will fall below fourth-quarter levels as projected LCD glass volumes slump 20 percent to 25 percent, it said.

Shares of Corning fell 7 cents to $9.88 in morning trading - near the low mark of its 52-week range of $7.36 to $28.07.

In December, the company withdrew all guidance for the October-December period because of volatility in the LCD market. An earlier projection called for profit of 20 cents to 28 cents a share on sales of $1.1 billion to $1.2 billion.

"We're not in denial about the recession and started taking quick action in quarter four and are continuing to do so in quarter one to get our cost structure in line with the sales level," Chief Financial Officer James Flaws said in a conference call with analysts.

The cutbacks at Corning, which employs 27,000 people, will result in first-quarter restructuring charges of $115 million to $165 million before taxes as well as fourth-quarter charges of $22 million. The move will bring annualized savings of $150 million to $200 million, it said.

About 1,500 of the 3,500 jobs being eliminated are salaried employees. The company also is cutting more than 1,400 temporary jobs. The restructuring program will include a selective early retirement program and consolidation of manufacturing plants.

The 157-year-old company is based in the city of Corning in rural western New York. About 640 of its 5,000 employees in the Corning region will be laid off, it said.

Sales in its display technologies segment fell 50 percent to $390 million from $774 million a year ago. Aside from a drop in retail sales, panel makers have slowed their purchase orders to try to reduce a buildup in inventories as prices fall, the company said.

Market research firm iSuppli Corp., based in El Segundo, Calif., estimates about 102 million LCD-TVs were shipped worldwide in 2008, up from 78.5 million in 2007. In North America, shipments were expected to grow to 29.5 million in 2008 and edge up to 30.1 million this year.

"There's always this oversupply-undersupply cycle in the LCD business, and this time the down cycle just happened to coincide with the recession," said analyst Paul Gagnon. "It's driven a lot of pessimism, but long-term we still see this as a product with growth potential, even in mature markets" such as the United States.

The abrupt slowdown in LCD-TV sales, its biggest business by far, serves as a nagging reminder for Corning that relying on one colossal cash cow product leaves it vulnerable to severe cyclical swings. The dot-com bust in 2001 came close to sinking a company with lopsided investments in fiber optics.

Corning is striving to expand beyond a heavy focus on display glass. Among its high-wager hopefuls are mercury filters for coal plants, green lasers to equip cell phones with projectors and silicon bonded to glass to extend battery life for handheld electronics.

Sales in Corning's telecommunications unit fell 6 percent to $405 million from $430 million on weakened optical fiber sales for private networks. Environmental technologies sales fell 32 percent to $128 million from $189 million, hurt by weaker auto-pollution filter sales.

For all of 2008, Corning earned $5.26 billion, or $3.32 a share, up from $2.15 billion, or $1.34 a share, in 2007. Sales edged up to $5.95 billion from $5.86 billion the previous year.

Delta reports $1.4B 4Q loss; Shares plunge

ATLANTA (AP) -- Delta Air Lines Inc., the world's biggest carrier, said Tuesday it lost $1.4 billion in the final three months of 2008 as it recorded a massive charge related to employee stock awards and wasn't able to fully benefit from the decline in oil prices because of bad bets on fuel hedges. Delta shares fell nearly 18 percent in early trading.

The results, when one-time items are excluded, fell short of Wall Street expectations.

The airline operator also projected that 2009 consolidated passenger unit revenue would be down 4 percent. It reiterated its previously announced plans to cut systemwide capacity 6 percent to 8 percent this year.

The Atlanta-based carrier's net loss in the fourth quarter was equivalent to $2.11 a share for the October-December period, compared to a loss of $70 million, or 18 cents a share, for the same period a year earlier. The loss in the latest quarter included a $904 million charge related to employee equity awards.

Delta had said that when it completed its acquisition of Northwest Airlines, it would issue a nearly 13.4 percent equity stake in the combined airline to employees.

Excluding special items, Delta said it lost $340 million, or 50 cents a share. Analysts surveyed by Thomson Reuters, who generally exclude one-time items from their estimates, expected a loss of 34 cents a share. Delta said the analyst estimates did not factor in a 12 cents per share loss related to the non-cash impact of purchase accounting.

UBS analyst Kevin Crissey said he was focusing on Delta's expected present and future performance rather than its performance in the fourth quarter of last year.

"We were much more concerned with guidance given the noise from the merger in the fourth quarter," Crissey wrote in a research note.

He said Delta's 2009 consolidated passenger unit revenue projection is worse than what his firm had been expecting.

Revenue rose 43 percent to $6.7 billion in the fourth quarter, compared to $4.7 billion a year earlier, as Delta completed its acquisition of Northwest on Oct. 29, during the latest fourth quarter.

Delta said it had a total net loss of $607 million in the fourth quarter related to fuel hedges. After locking in prices that looked reasonable earlier in 2008, some airlines finished the year paying substantially more than market price for a portion of their fuel.

For all of 2008, Delta said it lost $8.9 billion, or $19.08 a share, compared to a profit of $1.6 billion in 2007. The company did not provide a per-share figure for the 2007 profit because it was in bankruptcy during the first four months of that year. Twelve-month revenue rose to $22.7 billion, compared to $19.2 billion for the prior year.

Analysts expect Delta to post another loss for the first quarter of this year, which began Jan. 1, but to start turning a profit after that. With the economy uncertain at best, a spike in fuel prices or a significant further drop in demand could change those projections.

Delta, like other airlines, has been trying to preserve cash to help weather the economic downturn. It also has reduced capacity and cut jobs.

Delta said earlier this month that it expects about 2,000 employees to accept the company's latest round of severance offers that were made due to its plans to reduce systemwide capacity in 2009. The actual total won't be known until after the window for employees to accept the offers ends on Jan. 31.

Delta said Tuesday it ended the fourth quarter with $6.1 billion in total liquidity and cash collateral posted with hedge counterparties.

Delta Air Lines Inc. operates Delta, Northwest Airlines, Comair, Mesaba Airlines and Compass Airlines.

"I want to thank my 85,000 Delta colleagues for their outstanding achievements in 2008 - a year where we not only faced the severe challenges brought on by over $2 billion in increased fuel costs and the onset of a global recession, but also closed our merger with Northwest and began a smooth integration process," Richard Anderson, Delta's chief executive officer, said in a statement.

He added, "Despite the difficult economic environment, we expect to be solidly profitable in 2009 driven by lower fuel costs, capacity discipline, and merger synergies. Delta people have a great track record for achieving their goals, and I am confident that 2009 will be another successful year."

Delta shares fell $1.75, or 17.7 percent, to $8.18 in early trading Tuesday.

Geithner announces new lobbying rules for bailout

WASHINGTON (AP) -- Treasury Secretary Timothy Geithner, in his first full day on the job, announced new rules Tuesday to limit special-interest influence on the government's $700 billion financial rescue program.

The new rules are designed to crack down on lobbyist influence over the rescue program and make sure that political clout in not a factor in awarding rescue money.

Obama administration officials said they go farther than the lobbying rules imposed by the Bush administration and are designed to ensure that bailout money is distributed with the goal of promoting the health and stability of the financial system.

"American taxpayers deserve to know that their money is spent in the most effective way to stabilize the financial system," Geithner said in a statement. "Today's actions reaffirm our commitment toward that goal."

Treasury's new rules restrict the contact officials can have with lobbyists in connection with applications for funds from the bailout program. The new restrictions are modeled on the limits that are imposed on political lobbying of Treasury Department officials on tax matters.

In making required reports to Congress on the operation of the $700 billion rescue program, officials will have to certify that each investment decision was based only on objective criteria and the facts of each case.

The rescue program will be required to publish a detailed description of the review process conducted in making the awards, and no bank will be considered for an award unless it was recommended for the assistance by the firm's primary regulator.

The new rules come in the wake of fresh lobbying reports filed with the government showing some big banks stepped up their lobbying efforts late last year even as they received billions of dollars from the bailout program.

The outgoing Bush administration committed the first $350 billion of the rescue fund in ways that left many lawmakers fuming about a lack of accountability and transparency in the program. While lawmakers failed in an effort to block release of the second $350 billion, the Obama administration said it would institute a number of reforms.

Along with the new lobbying rules, the administration has pledged to better track lending patterns by financial institutions to ensure that they are using the government assistance to increase lending. The Obama administration also has sought to limit executive compensation at institutions receiving government support and prevent shareholders at those companies from benefiting at taxpayers' expense.

Besides unveiling the new lobbying rules, Geithner scheduled a busy first full day as the nation's 75th treasury secretary. He was expected to meet with senior Treasury staff on initiatives to reform the current financial regulatory structure, something the administration has promised to address quickly in an effort to prevent another financial crisis.

The staff meetings also were scheduled to focus on efforts to overhaul the financial rescue program. The new administration has pledged to devote at least $50 billion of the second $350 billion toward helping people avoid losing their homes because of mortgage foreclosures.

Geithner also was scheduled to participate in the president's daily economic briefing, which the administration initiated after Obama took office. It is modeled after the president's daily security briefing.

Shortly after Geithner won Senate confirmation Monday, President Barack Obama came to the Treasury Department to participate in a swearing-in ceremony and to project a sense of urgency on the part of the new administration in combatting the country's deepening economic troubles.

"We cannot lose a day, because every day the economic picture is darkening, here and across the globe," Obama told the audience assembled in Treasury's ornate Cash Room.

The Senate voted 60-34 to put Geithner in charge of the administration's economic team. Those who opposed the nomination said they could not accept Geithner's explanation that his failure to pay $34,023 in self-employment taxes from 2001 to 2004 when he worked at the International Monetary Fund was an unintentional error.

"Nominees for positions that do not oversee tax reporting and collection have been forced to withdraw their nomination for more minor offenses," said Sen. Mike Enzi, R-Wyo., noting that Geithner will oversee the Internal Revenue Service. "The fact that we're in a global economic crisis is not a reason to overlook these errors."

However, Geithner's supporters said he had paid the back taxes plus interest and that Obama deserved to have someone of Geithner's skills in financial crisis management leading the new administration's efforts.

Geithner, 47, served as undersecretary of the treasury for international affairs during the Clinton administration and was selected to be president of the New York Federal Reserve Bank six years ago. In that position, he has been a key player in the government's response to collapsing financial institutions and the housing and credit markets since last summer.

Oil near $45 as OPEC cuts weighed against demand

LONDON (AP) -- Oil prices fell toward $45 a barrel Tuesday as traders weighed waning demand in global markets against OPEC countries' compliance with agreed production cuts.

Light, sweet crude for March delivery was down $0.45 to $45.28 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Europe. The contract fell 74 cents Monday to settle at $45.73.

The Organization of Petroleum Exporting Countries has announced 4.2 million barrels a day in production cuts since September in an attempt to stabilize oil prices, which have fallen almost 70 percent since peaking at nearly $150 a barrel in July.

Monday's lower settlement price belied a surge earlier in the day that saw oil rise to $48.60 "against a backdrop of reports that imply OPEC compliance, at around 70 percent, is higher than many market participants took into account," said analysts at JBC Energy in Vienna, Austria. They added that they expected compliance "to eventually reach 75 percent."

"Traders are hoarding oil now in the hope of a recovery in the price in perhaps one month's time if OPEC has complied with production cuts," said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne.

There has been skepticism OPEC member nations will comply with the promised cuts and doubts that the cuts, even if fully implemented, are big enough to offset the collapse in demand for crude. OPEC controls about 40 percent of world crude supplies.

"OPEC has been notorious in the past for not complying with promised output cuts so there is a bit of caution," said Pervan.

Economic concerns remain the other major preoccupation for the oil market. Stock markets fell in Europe Tuesday and more bad economic news came in the form of a closely watched index that showed home prices in the U.S. dropped by the sharpest annual rate on record in November. The Standard & Poor's/Case-Shiller 20-city housing index released Tuesday tumbled by a record 18.2 percent from November 2007, the largest decline since its inception in 2000.

"It's a continuous theme. Economic data has continued to disappoint, and people fear weaker demand in the future," said Nimit Khamar, a research analyst at Sucden Financial Research in London. "Things aren't improving as fast as people hoped, which is why oil prices are not allowed to rally despite efforts from OPEC.

"Unless OPEC are allowed to cut supply over the next four to five months, weaker demand is going to mean prices will remain subdued," Khamar added.

U.S. earnings results this week are expected to confirm the dire state of the world's largest economy and No. 1 consumer of crude. Hundreds of companies will issue reports, including Procter & Gamble Co., Kimberly-Clark Corp. and Starbucks Corp.

Earnings season also is getting into full swing in Japan, the world's second-largest economy, with Sony Corp. and Honda Motor Co. scheduled to release results later this week.

The likelihood of a prolonged recession in the U.S. that would further reduce demand for crude was underscored by the White House. The American economy will "get worse before it gets better," Vice President Joe Biden said Sunday.

"From a logical point of view, there is no reason for spot Nymex crude oil to trade above $40," analyst and trader Stephen Schork wrote in his daily publication, The Schork Report. "OPEC is cutting production because no one is buying their oil. And, given the dire global economic outlook ... that is not about to change."

Ritterbusch said in the near term prices are likely to swing between the mid-$30 range on the down side and the mid-$50 to low-$60 range on the high side.

In other Nymex trading, gasoline futures were unchanged at $1.58 a gallon while natural gas rose 6.0 cents to $4.55 per 1,000 cubic feet. Heating oil fell 0.25 cents to $1.42 a gallon.

In London, the March Brent contract fell 75 cents to $46.21 on the ICE Futures exchange.

Consumer confidence darkens further in January

NEW YORK (AP) -- Americans' mood about the economy darkened further in January, sending a widely watched barometer of consumer sentiment to a new low, a private research group said Tuesday, as people worry about their jobs and watch their retirement funds dwindle.

The Conference Board said its Consumer Confidence Index edged down to 37.7 from a revised 38.6 in December, lower than the reading of 39 that economists surveyed by Thomson Reuters had expected. In recent months the index has hit its lowest troughs since it began in 1967, and is hovering at less than half its level of January 2007, when it was 87.3.

"It appears that consumers have begun the new year with the same degree of pessimism that they exhibited in the final months of 2008," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement. "Looking ahead, consumers remain quite pessimistic about the state of the economy and about their earnings."

The Present Situation Index, which measures how shoppers feel now about the economy, declined slightly to 29.9 from 30.2 last month. The Expectations Index,which measures shoppers' outlook over the next six months, decreased to 43.0 from 44.2.

Franco added that until she sees considerable improvement in shoppers' outlook for the economy, she can't say that "the worst of times are behind us."

The downbeat report prompted Wall Street to give up an early advance. The Dow Jones industrial average was down 17 points at 8,098 after being up as much as 85 points.

Economists closely watch consumer confidence since consumer spending accounts for more than two-thirds of economic activity. But the latest signs of a nervous consumer spur fresh alarm about the economy and the health of the retail industry, which is struggling with the most severe spending retrenchment in decades.

Stores limped through the weakest holiday period since at least 1969, according to the International Council of Shopping Centers. And retail sales appear to be only deteriorating in January as shoppers continue to be whipsawed by massive layoffs across all sectors of the economy. The unemployment rate, now at a 16-year high of 7.2 percent, could hit 10 percent or higher later this year or early next year, according to some analysts' projections.

Several big companies announced layoffs Monday, sending thousands more to the unemployment lines.

Drugmaker Pfizer Inc., which is buying Wyeth in a $68 billion deal, and Sprint Nextel Corp., the country's third-largest wireless provider, each plan to slash 8,000 jobs. Home Depot Inc. is shedding 7,000 jobs, and General Motors Corp. said it will cut 2,000 more jobs. Caterpillar Inc., the world's largest maker of mining and construction equipment, announced 5,000 new layoffs on top of several earlier actions.

Meanwhile, a report on home prices released Tuesday offered more bad news about the slumping housing market. The Standard & Poor's/Case-Shiller 20-city housing index showed home prices dropped by 18.2 percent in November, the sharpest annual rate on record.

The Consumer Confidence survey - derived from responses received through Jan. 21 of a representative sample of 5,000 U.S. households - showed that consumers' overall assessment of current conditions remain pessimistic. Those saying that business conditions are "bad" increased to 47.9 percent from 45.8 percent, while those saying they are "good" declined to 6.4 percent from 7.7 percent last month.

Consumers' short-term outlook also remains gloomy. Those expecting business conditions to worsen over the next six months decreased slightly to 31.1 percent from 32.9 percent, while those anticipating conditions to improve was little changed at 13.3 percent in January, compared with 13.4 percent in December.

S&P: Home values post 18.2 pct annual drop in Nov.

NEW YORK (AP) -- Home prices tumbled by the sharpest annual rate on record in November as the deepening housing slump and national recession spared no region, according to a closely watched index released Tuesday.

But the silver lining might be that more families can finally buy a home for the first time in years. Falling home prices coupled with lower interest rates have shaved hundreds of dollars off monthly mortgage payments, and that is luring buyers back into the market, new data this week showed.

The Standard & Poor's/Case-Shiller 20-city housing index tumbled by a record 18.2 percent from November 2007, the largest decline since its inception in 2000. The 10-city index dropped 19.1 percent, tied with October for the biggest drop in its 21-year history.

Both indices have recorded year-over-year declines for 23 straight months. Prices are at levels not seen since February 2004.

But the numbers may not be as ugly at second glance, according to Patrick Newport, an economist with IHS Global Insight.

"If you adjust for inflation, they're not record declines," Newport said. "Home prices are still dropping at about a 20-percent clip, but it's not as bad as it's been in last six months."

But the recession and sweeping job losses don't bode well for a near-term turnaround in housing prices. Newport estimates prices will drop another 10 percent to 15 percent this year.

In fact, Americans' mood about the economy darkened further in January, sending a widely watched barometer of consumer sentiment to a new low, the Conference Board said Tuesday.

When it comes to real estate prices, the cities suffering the most are the ones that had the biggest housing bubbles. Phoenix, Las Vegas and San Francisco all clocked in annual price declines of more than 30 percent in November, according to Case-Shiller.

And December figures probably won't look much better.

The National Association of Realtors said Monday the median home price fell a record 15 percent last month to $175,400, down from $207,000 a year ago. That led to a surprising jump in sales from November's level.

With current interest rates and a 10 percent down payment, anyone who buys a median-priced home now would save $254 a month compared with the median price and interest rate of a year ago.

The Realtors' home affordability index in November showed its best reading since 1993.

"I bet when they incorporate December's numbers," Newport said, "it will show housing is as affordable as it was in 1973."

DuPont posts 4Q loss, lowers 2009 forecast

DOVER, Del. (AP) -- Chemical maker DuPont Co. reported a $629 million loss for the fourth-quarter, reflecting lower sales and a hefty restructuring charge, and cut its earnings forecast for 2009 due to the recession and flagging demand from its industrial customers.

Its shares fell 63 cents, or 2.7 percent, to $22.55 in morning trading.

The Wilmington-based company said Tuesday its loss amounted to 70 cents per share, compared with a profit of $545 million, or 60 cents per share, a year ago.

Excluding a charge of $380 million, or 42 cents per share, from a previously announced restructuring program, the fourth quarter loss was $249 million, or 28 cents per share. Analysts surveyed by Thomson Reuters, on average, expected a smaller loss of 24 cents a share. The analyst estimates typically exclude one-time items.

Net sales in the quarter dropped 17 percent to $5.8 billion from $6.98 billion, as the company reported double-digit volume decreases in all regions and a 20 percent decline in overall volume. Higher prices in all regions and across all business segments were more than offset by volume declines and negative currency effects.

It said declines in consumer spending, construction and motor vehicle sales led to sharp drop in demand and a steep decline in global industrial production.

Full year 2008 earnings were $2 billion, or $2.20 per share, down from $2.9 billion, or $3.22 per share, in 2007.

Citing weak industrial economic conditions, the company revised its full-year earnings estimate for 2009 to a range of $2 to $2.50 per share, down from its previous guidance of $2.25 to $2.75 per share.

Last month, the company announced that it was cutting 2,500 jobs, and that it planned to release 4,000 contractors by the end of 2008, with additional contractor reductions expected this year. DuPont also said it would implement work schedule reductions and redeploy more than 400 employees on projects to reduce working capital and operating costs.

"DuPont enters 2009 addressing challenging economic conditions head-on," said Chief Executive Officer Ellen Kullman. "We are intensely focused on productivity, while generating earnings and cash... We do not underestimate the difficulties presented by the current environment."

For the final quarter of 2008, volume dropped 22 percent in the United States and 20 percent in the Asia Pacific region, with 19 percent declines in Europe and the Canada-Latin America region.

Among the company's business segments, sales in the performance materials unit were off 30 percent to $1.2 billion as volume dropped by almost a third amid weak global demand. A significant increase in dollar pricing, along with seed market share gains in Latin America, helped limit the drop in sales in the agriculture and nutrition unit to 2 percent, with sales totaling $1.2 billion.

The company said it expects global economic conditions for first quarter of 2009 to be similar to those in the fourth quarter, with very weak demand in most key markets, excluding agriculture. DuPont said it expects to continue "an appropriate level of spending" for high-growth, high-margin businesses, including seed products and photovoltaics.

"We are acutely focused on executing with a sense of urgency across the company," said Kullman, adding that the company will deliver about $730 million in fixed cost reductions and about $1 billion in reduced working capital for 2009.

Weak consumer confidence stalls gain in stocks

NEW YORK (AP) -- Another drop in consumer confidence deflated Wall Street's budding optimism about the economy Tuesday, forcing stocks to give up an early advance.

The major indexes were little changed after the Conference Board said its Consumer Confidence Index in January slipped to its lowest level since the reading's inception in 1967. The market was rising earlier after big companies like United States Steel Corp. and American Express Co. managed to post profits in a difficult recession.

But the report indicated that consumers, who have already cut back drastically, are likely to remain reluctant to spend in the coming months. The index from the private research group slipped to 37.7 in January from a revised 38.6 in December.

Profit reports from U.S. Steel and American Express as well as chip-maker Texas Instruments Inc. and movie-rental company Netflix Inc. did give the market some support. Even modest earnings were a welcome reminder for investors that some companies are still able to make money despite the worst recession in decades.

U.S. Steel, the largest U.S.-based steel producer, said its fourth-quarter earnings jumped as an acquisition boosted results. Meanwhile, American Express reported profits fell 79 percent in the final three months of 2008. But the numbers weren't as weak as some investors had feared.

Texas Instruments said its earnings fell 86 percent and that it would slash 3,400 jobs as the maker of chips for cell phones and other products tries to cut costs. Wall Street applauded the company's move to reduce expenses.

Netflix said its fourth-quarter profit jumped 45 percent on strong subscriber growth.

But there were some earnings disappointments.

Verizon Communications Inc. said its earnings rose 15 percent in the fourth quarter as the telecommunications company added wireless and broadband subscribers. But revenue fell short of Wall Street's forecast and investors worried about profit margins.

Chemicals maker DuPont Co. said it swung to a fourth-quarter loss because of a hefty restructuring charge.

Dave Rovelli, managing director of trading at brokerage Canaccord Adams, said investors appeared relieved by the U.S. Steel numbers because the company's results could signal the overall economy isn't as weak as some investors believed. Demand for raw materials like steel is examined as an early indicator of economic activity.

In midmorning trading, the Dow Jones industrial average rose 7.09, or 0.09 percent, to 8,123.12 after being up 85.

Broader stock indicators also showed modest gains. The Standard & Poor's 500 index rose 2.82, or 0.34 percent, to 839.39, and the Nasdaq composite index rose 7.07, or 0.47 percent, to 1,496.53.

EX-MERRILL BOSS THAIN TRIES TO REPAIR HIS IMAGE

Disgraced ex-Merrill Lynch chief John Thain went on a p.r. blitzkrieg yesterday defending a reputation in tatters since he was ousted Thursday by Bank of America boss Ken Lewis.

In what is turning into a Wall Street version of "he said, he said," Thain sent a memo to Merrill Lynch employees and made a TV appearance in a bid to reverse some of the damage done by his inglorious dismissal last week.

Meanwhile, BofA spent yesterday putting out its own spin on events.

Lewis, during a 15-minute meeting Thursday, asked Thain to resign following reports that Merrill had pushed through up to $4 billion in bonus payments and after Merrill revealed a $15 billion fourth-quarter loss that was said to have caught the BofA chief by surprise.

The losses forced BofA to go hat in hand to ask Uncle Sam for $20 billion in rescue funds and secure a $118 billion backstop on securities that Merrill created.

That same day came reports that Thain spent $1.2 million renovating his office at Merrill, which was already well in the throes of the credit crisis that led to the axing of Thain's predecessor, Stan O'Neal.

Thain's offensive began with a memo refuting charges that he pushed through the bonuses days before BofA completed its acquisition of Merrill, saying that bonuses "were all determined together with Bank of America."

He later appeared on CNBC, saying that he was "surprised" that he had been asked to leave after just 20 days with the combined company. He added that losses at Merrill were due to "market deterioration" on assets Merrill was trying to unload.

Lewis through a spokesman flatly denied that he rubber-stamped Thain's bonus payments at Merrill.

"John Thain and the Merrill Lynch compensation committee made the decision on the amount and timing of the year-end compensation at Merrill Lynch," said the spokesman, Scott Silvestri. "We had no legal right to challenge it."

Nevertheless, observers told The Post that even though the bonuses went through before the BofA-Merrill deal closed Jan. 1, it was hard to believe Lewis couldn't nix the payments if he had wanted to.

Sources told The Post that Lewis in fact was not blindsided by Merrill's losses, and axed him after questioning his "effectiveness as a leader and manager."

Thain also argued on CNBC that the lavish office renovation was done during a "different economic environment and a very different outlook for Merrill."

"With 20/20 hindsight, it was a mistake," he said. "And, as I said, I'm sorry that we, that I did that. And I'm willing and I - and I intend to fully - reimburse the company."

The CNBC interview depicted a humble Thain who found himself many times during the interview correcting himself in mid-sentence, changing "we" to "I" as he described his side of events at Merrill.

MORE THAN 78,000 GET LAYOFF NOTICES ACROSS ALL SECTORS

As far as showing up for work on a Monday goes, yesterday was about the worst.

In one of the worst-single days ever for widespread layoffs, more than 78,000 workers yesterday got pink-slip notices at global public companies, cutting across almost every business sector - from bankers and engineers to amusement-park workers and sales clerks.

Among the hardest hit was Caterpillar, which announced it was axing 20,000 due to the global slowdown for heavy equipment, Home Depot, which is slashing 7,000 jobs from the shutdown of its Expo home-decorating business, and Sprint Nextel, which will reduce its payroll by 8,000, or 15 percent, to save $1.2 billion.

"We haven't seen this much activity in one day, affecting such a diversity of industries and of such scale," said James Pedderson, a spokesman at Challenger Gray & Christmas, which tracks company layoffs. "The job cuts in the 2001 and 2002 tech bubble were huge, but didn't affect sectors as broadly as this."

He said the worst month for job cuts was in January 2002, when 248,475 jobs were lost, mostly in the tech industry and financial services.

Nevertheless, in this month alone - just 16 business days in - at least 150,500 people have been targeted for layoffs, said Challenger. That means unemployment lines are likely to get longer as US jobless claims, already at a 26-year high, continue to rise.

In other squeezes, the $68 billion defensive merger of pharmaceutical giants Pfizer Inc. and Wyeth will shutter five factories and eliminate 19,000 jobs, or 15 percent, of the combined companies' payroll.

General Motors, which has already slashed tens of thousands of jobs, said yesterday it would eliminate another 2,000 jobs by closing shifts in Michigan and Ohio plants.

While the job outlook turned more grim, at least one new opportunity arose that didn't exist before - a mass national job hunt for more tax collectors and auditors, with starting pay at around $45,000.

Just days after President Barack Obama took office with promises to create more jobs, the Internal Revenue Service issued its surprise call for "hundreds" of new IRS officers, reflecting the government's need for more tax revenue ahead.

MADOFF MAY HAVE CHEATED BEFORE HE SWINDLED

BERNIE Madoff was a cheat before he became a crook.

The now infamous alleged perpetrator of a $50 billion Ponzi scheme apparently honed his skills by using his position as head of the little-known Cincinnati Stock Exchange to cheat traders who were doing business on the much-bigger NYSE.

Two former seat holders on the New York Stock Exchange asked me to get this story out: Madoff would use his position on the Cincy - and perhaps even later with Nasdaq - to get advanced warnings of trades that were about to be executed on the NYSE.

Then Madoff would put in his own order on the Cincinnati exchange as a principle "below the bid side on the NYSE or above the offer side."

"He'd immediately turn around and sell the stock he just traded on the Cincy exchange for an automatic profit in New York," says one source, who had the misfortune of getting stung numerous times by Madoff.

When traders in New York complained, Madoff or his goons would claim that they had done their trades first and that the profit was legitimate.

In essence, the seat holders allege, Madoff was front running trades that were being handled in New York - meaning that he knew ahead of time that his orders would be profitable because he could see what was about to happen on the bigger exchange.

"He was a cheater," said one of the sources, who said nobody ever won a complaint they filed against Madoff because of his status at the Cincy, which became the first all-electronic trading system in the country.

The high-tech nature of Madoff's exchange, the seat holders say, is precisely what gave Madoff the ability to cheat.

"Every day there would be 20 complaints. Nobody ever did anything about it," my source says. Things changed for Madoff in 2000 when the NYSE started trading stocks in pennies instead of fractions. Then, my sources claim, Madoff couldn't squeeze his bogus trades in between the ones being legitimately executed on the NYSE.

With his opportunities to cheat his competitors reduced, the NYSE traders surmise that Madoff needed a new business model, which he stole from an early 20th Century guy named Charles Ponzi - the originator of the modern-day pyramid scheme.

Authorities are still trying to figure out how Madoff pulled off what seems to be the biggest con in history.

Agape World Scam

By Grant McCool

NEW YORK (Reuters) - Authorities on Monday arrested the chief executive of a private New York financing firm on suspicion of running a purported Ponzi scheme that attracted $400 million in investments, U.S. law enforcement officials said.

Nicholas Cosmo, head of Agape World Inc on New York's Long Island, was said to provide commercial bridge loans, but was instead operating a traditional Ponzi scheme in which early investors are paid with the money of new clients, officials said.

"Nicholas Cosmo took the advice of an attorney and complied with an arrest warrant," said Al Weissmann, spokesman for the U.S. Postal Inspection Service, which is investigating Agape World and Cosmo along with the FBI.

Another law enforcement official, said agents had visited Cosmo's office on Monday expecting to arrest him, but he was not there.

He complied with the warrant on Monday night and was expected to appear in magistrate's court on Tuesday in Central Islip on Long Island, FBI and USPIS officials said.

The amount of money, while large, pales compared with the purported $50 billion fraud masterminded by investment manager Bernard Madoff. Law enforcement officials said they expect to uncover more Ponzi schemes following the sharp decline of the U.S. financial industry.

Agape World Inc, a private firm with its office in Hauppauge, New York was not registered with the U.S. Securities and Exchange Commission.

"Some of the early investors made money but as this scheme started to crumble, the later investors did not see a penny," a law enforcement official said of the firm.

Cosmo was convicted of a federal charge of felony fraud and swindle in 1999 and sentenced to 21 months in prison. He was released in August 2000, according to the U.S. Bureau of Prisons.

According to the firm's website www.agapeworldinc.net/ it has made commercial bridge loans, construction loans, acquisition loans and financing for properties nationwide with capital obtained from private sources since 1999.

Projects in New York, California, Texas and South Carolina are among those listed as recipients of its loans in the past two years.

INVESTORS RAISED CONCERNS

Investors had been raising concerns about Agape long before the financial crisis unearthed the recent rash of Ponzi schemes, seeking advice and intelligence on Internet investment chat boards such as www.scamvictimsunited.com and www.fatwallet.com.

"Has anyone invested with Agape World Inc? They provide bridge loans and offer investors 13-14% returns? When my brother was telling me about it, it sounded kinda fishy and risky," reads a March 2, 2008 website posting.

"The pictures on their website would make you believe that they funded the San Francisco Bay Bridge, the Taipei 101 Tower, and the Tower of Babylon, and the Baghdad Railroad," reads another post.

JUST PLANE DESPICABLE

Beleaguered Citigroup is upgrading its mile-high club with a brand-new $50 million corporate jet - only this time, it's the taxpayers who are getting screwed.

Even though the bank's stock is as cheap as a gallon of gas and it's burning through a $45 billion taxpayer-funded rescue, the airhead execs pushed through the purchase of a new Dassault Falcon 7X, according to a source familiar with the deal.

The French-made luxury jet seats up to 12 in a plush interior with leather seats, sofas and a customizable entertainment center, according to Dassault's sales literature. It can cruise 5,950 miles before refueling and has a top speed of 559 mph.

There are just nine of these top-of-the-line models in the United States, with Dassault's European factory churning out three to four 7Xs a month.

Citigroup decided to get its new wings two years ago, when the financial-services giant was flush with cash, but it still intends to take possession of the jet this year despite its current woes, the source said.

"Why should I help you when what you write will be used to the detriment of our company?" replied Bill McNamee, head of CitiFlight Inc., the subsidiary that manages Citigroup's corporate fleet, when asked to comment about the new 7X.

"What relevance does it have but to hurt my company?"

It's not uncommon for large companies to pay a deposit on a new plane then cancel the order before delivery, according to a source in the corporate aviation business.

Citigroup execs are also quietly trying to unload two of their older Dassault 900EXs.

Those jets, nearly 10 years old, are worth an estimated $27 million each. They were still listed for sale yesterday on the Web site of Citigroup's aviation broker, Aviation Professionals.

A company representative said she would not comment on "brokering both sides of the deal" when asked about the incoming Falcon 7X.

The Dassaults are part of CitiFlight's Gulf Sierra fleet, which includes the two Falcon 900EXs, tail numbers N399GS and N588GS, currently for sale. FAA records show Citigroup reserved a new tail number, N488GS, possibly for the incoming 7X on Nov. 10 last year.

A woman answering the phone at CitiFlight's private hangar in White Plains said she was "not authorized to release information" about the new jet.

Dassault's US sales office declined to comment.

Citigroup spokesman Stephen Cohen declined to comment.

Israel withdraws its troops from Gaza

Israel said today that it had pulled all its ground forces out of the Gaza Strip, the densely-populated Palestinian territory where it has waged three weeks of intensive war.

The announcement came 13 hours after Barack Obama was inaugurated as US President, and appeared to be an attempt to smooth Israel's relations with the new leader of its powerful ally.

The guns largely fell silent on Sunday when Israel announced a unilateral ceasefire, followed several hours later by Hamas, Gaza's Islamist rulers.

Troop withdrawals began soon after, but Israel's soldiers have not stood down and remain on the fringes of Gaza ready to respond if Hamas militants fire more rockets at southern Israel's urban areas.

“As of this morning, the last of the Israel Defence Forces (IDF) soldiers have left the Gaza Strip and the forces have deployed outside of Gaza and are prepared for any occurrences,” a spokesman for the IDF said.

Israel is still waiting for a clear signal from President Obama on his attitude to its actions in Gaza. President Bush, his predecessor, indicated that he saw the Gaza onslaught as part of Israel’s right to defend itself against rocket fire, and the US blocked international moves to censure Israel.

Since the offensive began on December 27, around 1,300 Palestinians have been killed including at least 700 civilians, and 5,000 have been wounded. Tens of thousands were made homeless as bombardment reduced one sixth of Gaza's buildings to rubble.

The United Nations estimates the cost of Israel's war as some $2 billion for reconstruction of Gaza's infrastructure, and $330 million in emergency food and medical aid.

Ban Ki-moon, the UN Secretary-General, toured Gaza’s rubble-strewn streets yesterday and described the destruction he witnessed as "heartbreaking".

Ten Israeli soldiers died in the conflict, including four hit by friendly fire from their own colleagues, and three civilians were hit by Hamas rocket fire. About 50 Israelis were wounded.

Efforts to ship aid into Gaza through Israel will be complicated because Western governments refuse to deal with Hamas, dubbing it a terrorist organisation for its refusal to renounce terrorism or recognise the peace process. In addition, Israel has imposed a blockade on building materials, which it claims can be used to make weapons.

Hamas held what it termed victory rallies in the Gaza Strip yesterday, but the turnout was comparatively low and the speeches had a hollow ring. Many Palestinians returned to their homes only to find they had been flattened.

“We’ve won the war. But we’ve lost everything,” said Nabil Sultan, standing by a pile of smashed concrete that used to be his house.

In his inaugural speech, Mr Obama promised to reach out to Muslims worldwide and “seek a new way forward, based on mutual interest and mutual respect”.

He is expected soon to name a Middle East envoy, possibly former Senator George Mitchell, who has already been involved in efforts to broke Israeli-Palestinian peace on behalf of both the Clinton and Bush administrations.

Shimon Peres, Israel's figurehead president, hailed Mr Obama’s election as a change of historic significance. “What can be expected of the new president is a winning team to really rout violence from the Middle East and move the peace process forward,” said Mr Peres.

Immediate diplomatic steps were likely to focus on turning the Gaza truce into a long-term ceasefire. More comprehensive efforts towards Israeli-Palestinian peace are likely to be postponed until after Israel's general election on February 19, when a more hardline, right wing government is expected to be elected.

Hamas has said it was continuing talks in Cairo over Egypt’s proposal for a deal that would guarantee the reopening of Gaza border crossings, including a terminal on the Egyptian frontier that had served as the territory’s main exit to the outside world.

Barack Obama halts Guantanamo trials

Hours after being sworn in as US President, Barack Obama has called for a halt to Guantanamo war crimes tribunals, a move which will begin the long awaited process of dismantling the prison itself.

His request for a 120-day suspension of all 21 pending tribunals will bring to a halt the case against Khalid Sheikh Mohammed, the self-proclaimed 9/11 mastermind and four co-defendants who faced the death penalty if convicted.

Military judges are expected to rule on Mr Obama's request to halt the trials today at the US naval base.

The request by Mr Obama was widely anticipated - he had already vowed to close down the prison and its controversial military commission trial system.

"In order to permit the newly inaugurated president and his administration time to review the military commission process, generally, and the cases currently pending before the military commissions, specifically, the secretary of defense has, by order of the president directed the chief prosecutor to seek continuances of 120 days in all pending case," prosecutor Clay Trivett said, in the written request to the judges.

The request said that freezing the trials until May 20 would give the new administration time to evaluate the cases and decide what forum best suits any future prosecution.

About 245 foreign captives are still held at the detention centre that opened in January 2002. The Bush administration had said it planned to try 80 prisoners on war crimes charges, but only three cases have been completed.

Defence lawyers had complained that the tribunals allowed hearsay evidence and coerced testimony, and were the subject of so much political interference that fairness was impossible.

Barack Obama’s promise to America

American weather websites have a wonderful phrase to describe the temperature once the wind chill has been taken into account. They call it the Real Feel. And the Real Feel of the extraordinary gathering in Washington yesterday was of a people coming in from the cold. Black people, people of colour, call them what you will, it was every American’s celebration, but it was a celebration for African-Americans more than most. A majority of the people present were black and, of them, a majority of their ancestors had come to this country in chains. “I get choked just to look at him,” Velda Howell, 50, from Chicago, said. “He only has to stand there, he doesn’t even have to say anything.”

Mrs Howell and her friends have a right to be emotional, and when a television camera came by, there was the predictable cheering and waving, but pride was much more evident than partying. “You think about what your ancestors went through, and it does weigh on you, it does cause you anguish,” Mrs Howell said. “I feel like I really am part of this country now. Part of the Constitution. Before, I just felt like I existed. I am still coming to terms with it.”

When Michelle Obama said last year, during her husband’s campaign, that it was the first time that she had felt proud to be American, it was seen as a gaffe and she retracted it swiftly, but it undeniably described how Mrs Howell and many others feel.

Ranged around a horseshoe-shaped hotel bar on 14th Street in central DC, their faces tilted up to the television screens and aglow with rapturous pride, perhaps 100 people watched in reverential near-silence, punctuated by loud amens, some “all rights” – and laughter whenever George Bush came on the screen. When President Obama thanked President Bush for his service to his country, the bar exploded with hoots of derision. As the screen split to include footage of people watching in Memphis, in Los Angeles, in Chicago, yelps of appreciation went up.

It was a mixed bunch in the bar, some residents, some people, myself included, ducking in at the last moment, frustrated in their efforts to get close to a Jumbotron screen. Much has been made of the Ring of Steel but the security was not heavy-handed: an occasional whoop of a siren, one or two amplified instructions to stick to the sidewalk, an occasional overheard request. “I need you to open your outer garment sir, I need to see right around your waistline.”

The headgear in the hotel bar tells the story. Large, well-groomed, mature ladies, their mink and sable and sealskin hats on their laps, took the front-row stools. “This is gonna be beautiful,” one said to her neighbour, settling in with 15 minutes to go. Aretha Franklin came on to sing My Country ’Tis of Thee. “Go on, baby,” one lady called at the screen. “Ain’t no big thing.” The ladies sang along with Aretha. Later they would dismount their bar stools for The Star-Spangled Banner and stand up straight. One or two put their hands over their hearts.

Farther from the bar stood younger college kids in the ubiquitous Peruvian woolly hats with earflaps. They, as did most people, closed their eyes and mouthed along during the Lord’s Prayer. Behind them stood the chefs, out from the hotel kitchens in their whites and caps. Behind them, one or two ruddy-faced men in Stetsons. Off to one side were the cool guys with diamond-studded trilbys. “It is the first time I have felt involved in the political process,” Tyrone Kennard, a salesman, from Philadelphia, said. “I am proud and happy to be an American. If he fails, let him fail. I am happy just to see the day.” Mr Kennard then tried to sell me some T-shirts. “You want to take some back to London, England, I got some in my hotel, the JW Marriott on Pennsylvania Avenue. We can close the deal right now.”

Mrs Howell had driven from Chicago on Sunday. “Took 12 hours, got a busted tyre outside of Columbus, Ohio, got that fixed, slept in the car.” With her was her son, Justin, 20. “We came into town on the metro at 7am,” Justin said. “Maybe 3,000 people, nobody moving, and then one guy called out, ‘Yes we can’ and the whole subway station started to chant it and everybody started moving again.”

Most people chose to walk. A river of people surging towards the Mall, diverting around the checkpoints at the White House, buying their “I Was There” T-shirts and their funnel cake and hot chocolate from street vendors, having their picture taken with the cardboard Obama cutout outside a gift shop, moving on. The streets were full before dawn. People found their own way to pass the cold hours that followed. Some were wrapped up on the pavement and appeared to sleep. Some played Scrabble, others cards. One enormous man read a magazine calledMuscular Development, its cover urging readers to “Get huge! Jack up Now! Anabolics 2009”. Other groups, on a bank next to the iced-over pool in front of the Lincoln Memorial simply huddled together for warmth, groups of 10 or 12 youngsters stacked in a pile as if they had just finished a sub-zero game of Twister, friends discussing their next move in a tightening jobs market.

Mothers urged their children to keep their hats on, honey. Soldiers, ranged every few yards along the Mall, stamped their booted feet. The DC police, breath steaming through the slits in their ski masks, did the same. The grey plastic walkway laid over the grass was superfluous, the ground was frozen solid. Everywhere people talked on their mobiles, giving running commentaries to family who had not made the trip from St Louis or Sacramento, trying futilely to meet up with friends. “I’m on K and 17th! It’s backed right up, where are you?”

The crowd was sober. Sober as in not inebriated; sober, too, as in serious, purposeful. And it is those qualities that they like in Obama. “Barack and Michelle are cool people,” Mrs Howell said, “but they are respectful people. Michelle is younger than me but I consider her a role model, the way she carries herself, the way she is with her children and her husband, the way he is with her. They take a pride in themselves, they always dress appropriate.” Mrs Howell is concerned by colleagues who wear sneakers to work. She thinks the well-educated, well-spoken, family-oriented, churchgoing Obamas can stop the rot.

After the speech, there was an exodus from the bar, down towards the Mall to catch a glimpse of the motorcade. Ooohs and aaahs and riotous applause followed its progress to the White House. “McCain was right,” said someone behind me. “We’ve elected a rock star.” No, they have elected a President, and yesterday when he descended his presidential limousine to cover the last few blocks of Pennsylvania Avenue on foot, the screams of pleasure showed how delighted they are with their choice.

JBJ - The Embattled Warrior

As a law student in the 1980’s, I was imbued with idealism and a pretty strong sense of justice and how governments should behave in a liberal democracy. I lapped up what my lecturers taught. But before I could even complete my law degree, I discovered that Singapore was not made in the image and likeness of Western democracies.

In 1986, the government decided that it was not happy with the way the Law Society had conducted itself i.e. having Francis Seow as its President, and actively campaigning against restrictions on the foreign press. So it decided to amend the Legal Profession Act to place conditions on who could run for office in the Society. Select Committee proceedings were held and televised. One by one, the lawyers in the Law Society Council were grilled on national television about how they were not fit to hold office. One was even quizzed about her connections with the Workers’ Party. Detentions under the Internal Security Act of alleged Marxist conspirators followed soon after. Exactly what did the rule of law mean in Singapore? As a young law student, I was perplexed, and in need of answers.

At about the same time, Joshua Benjamin Jeyaretnam, or JBJ as we know him, was fighting huge personal battles. He was the incumbent MP in Anson constituency, having won the by-election in 1981 and been re-elected in 1984. News broke about him being convicted of an offence involving a donor’s cheque to him; he was seen clutching his Bible as he entered Queenstown Remand Prison to serve a prison sentence. Consequently, JBJ was also disqualified from law practice. He appealed against his disqualification to the Privy Council in London, our highest appeal court then. In the course of their judgment, the Law Lords in London observed that JBJ’s conviction was wrong and that he had suffered a “grievous injustice”. This was basically brushed aside by the authorities. JBJ’s disqualification from law practice and from standing for elections for 5 years remained. Within a few months, the government abolished legal appeals to London in disciplinary cases involving lawyers, specifically citing JBJ’s appeal!

Nearly 10 years later, campaigning began for the General Elections held in Jan 1997. Tang Liang Hong had teamed up with JBJ to contest Cheng San GRC. The atmosphere was meteoric, with the ruling party marshalling its full arsenal to label Tang a Chinese chauvinist. As I think back now, Tang’s shouts of “Merdeka” at a lunch time rally at UOB Plaza still ring in my ears to this day. So high, it seems, were the stakes at GE 1997. On New Year’s Day 1997, on the eve of Polling Day, JBJ stood at the WP rally stage at Yio Chu Kang stadium and said that he had with him Tang’s police reports against “Goh Chok Tong and his people”. For that statement, 8 legal suits were commenced in the High Court against JBJ. Deeply troubled and upset, I wrote to JBJ enclosing a donation. Thus we became friends.

Occasionally, I visited him in his law office. As he was representing Tang in legal suits as well, JBJ’s office was full of piles and piles of legal documents and affidavits filed. It is not an exaggeration to say that one had to tip toe through the piles in order to move around. JBJ would be busy drafting replies with the help of his lone secretary, Mrs Chiu. It gave the David and Goliath story new meaning.

As the months passed, JBJ had to pay all sorts of damages, or face bankruptcy. In early 1999, I remember receiving a work bonus. With all my heart, I gave it to him, hoping it would somehow forestall what was to befall him. I know of many others who made contributions. Indeed, JBJ seemed to be regularly saddled with big amounts to pay, at one point about half a million. What were our contributions in the deep pit of defamation damages?

Around that time, 3 polytechnic lecturers decided to make a short film on JBJ, to be aired at a local film festival. JBJ invited me to lunch with him and then to go to the launch of the film. When we arrived at the launch venue, we discovered to our surprise that the film had been delisted from the programme, because it had not been passed by the Board of Film Censors. The lecturers were not at the launch, and JBJ told me he could not contact them for many days. Later, there were reports that they were being investigated for an offence under an obscure section of the Films Act. That section continues to haunt Singaporeans today, but probably not for much longer, as the People’s Action Party has indicated that they have already made political films videos about themselves which they will be showing once the law is amended!

Around the year 2000, I invited JBJ to a small birthday party at my family home. Several friends and my family were there. As with most of my family occasions, alcohol was always available for merry-making. Though JBJ was a whiskey man, he whispered to me that as it was Holy Week (in the Christian calendar, the days preceding Good Friday), he did not “mean to be sanctimonious” but would not want to drink. As I recall, a clergyman among my friends assured him that his salvation would not hinge on that evening alone…and thus was he persuaded.

After he became a bankrupt in 2001, he resigned from the Workers’ Party. I joined the Party in Nov 2001 when Mr Low Thia Khiang was Secretary-General. Because of this, I believe JBJ was not happy with me and we thus became somewhat estranged. In the last few years, our dealings were minimal and formal. But when he started the Reform Party, the Workers’ Party leadership turned up in force at the Reform Party’s inaugural dinner in July 2008. Despite whatever differences, we could not forget his contributions to the continuity of the Party and his leadership through various crises.

I could not say that I knew JBJ well. But from what I knew, he was a God-fearing man who stuck to his guns and moved many by the deep sacrifices he made for the sake of his beliefs. Did he pay too high a price? If he were alive, I believe his answer would have been an emphatic: “No!”

Dr Chee congratulates President Obama

An occasion of great moment has come upon America this 20th day of January 2009. It is a day summoned by history to what is good and noble as you are inaugurated President of the United States.

My colleagues and I at the Singapore Democratic Party, extend to you our heartfelt congratulations.

We are especially encouraged by what you said on Human Rights Day in December last year:: “When the United States stands up for human rights, by example at home and by effort abroad, we align ourselves with men and women around the world who struggle for the right to speak their minds, to choose their leaders, and to be treated with dignity and respect.”

Alas here in Asia there are altogether too many men and women who still labour under authoritarian regimes and dictatorships.

Mdm Aung San Suu Kyi and her fellow servants of democracy in Burma continue to languish in dark cells simply for daring to dream of freedom. The military government needs to know that with new leadership in the United States, it cannot be repression-as-usual. Change, urgent change must come to Burma, a country that civility has so cruelly forsaken.

In my country, Singapore, the repression is no less severe -- its ugly form made only less grotesque by an English-speaking regime that cleverly uses terms like the "rule of law" and "good governance" to cover up what is effectively a dictatorship.

How else can you describe a government that prohibits public speech and peaceful assembly, completely controls the media, continues to detain its citizens without trial, and manipulates elections?

My party colleagues and fellow human rights advocates have been arrested and prosecuted for taking part in peaceful protests. In March last year 18 of us stood outside our Parliament and protested against the rising cost of living in Singapore. For that we were dragged away by the police and charged for taking part in an illegal procession and assembly. The trial is on-going.

I face multiple charges for speaking in public and conducting protests. I've already been imprisoned seven times. I've been sued for defamation by government leaders and made a bankrupt. As a result I've been banned from standing for elections and barred from travelling overseas. I've been jailed twice for contempt of court.

But don't get me wrong. I'm not complaining. And neither are my associates. We fight for justice and freedom with gladness in our hearts.

But even as I make this video, the Singapore government is already crafting yet more laws to make it even more difficult for the public to conduct protests.

I understand that the United States' relations with Singapore is one based on pragmatism. We are a strong military ally and valuable trading partner. What I don't understand is how a democratic Singapore that respects the rights of its people, undermines this relationship. In fact, a Singapore that practices the rule of law is very much in the interests of the US, both long-term and short.

It is my sincere hope that your administration's foreign policy will be as enlightened as you. I have every confidence that under the leadership of Secretary of State Hillary Clinton, the US will pay more attention to the human rights abuses of the Singapore government and take positive steps to help Singapore join the Community of Democracies.

Before your entry into politics you were a community organiser and civil rights lawyer. Because of this you understand what it is like to be under the crushing weight of poverty.

In Singapore we have a significant layer of the underclass. Like many, I am sure you are shocked to hear that the poor in Singapore are not a small minority. People living in cardboard boxes, stealing scraps of leftovers in public eating places, and the rummaging through dumpsters for something to sell is not an uncommon sight in Singapore.

The tragedy is they suffer in silence for they have no rights and no avenue speak their pain.

But while they suffer, our Prime Minister pays himself a salary that is six times yours. This income disparity did not come about because of the free-market system. It came about because of deliberate policy-making designed to attract the world's wealth to this country, legitimate or otherwise. This is why Singapore has become a tax haven, one that benefits only the rich and super-rich in this country but leaves much of the rest of society neglected.

Like you I have young children whom I love dearly. Like yours I want mine to grow up in a society that places rights before riches, people before profits, a society that values justice and one that is free as it is strong.

It is my hope that the universality of human rights and your leadership will help make the world a better place for your children and mine.

Again, I want to take this opportunity to congratulate you on this most special of days. The load that you bear is heavy and the responsibility you shoulder immense. But I have no doubt that the confidence that your fellow citizens have placed in you will be fully vindicated.

Under your leadership, I look forward to a world that is freer, more democratic, and more just.

Thank you and God Bless.

From earning six figures to hoping for $7 an hour

AURORA, Colorado (CNN) -- In her best year as a mortgage broker, Laura Glick says she made "six figures." This week she was one of more than 1,200 people attending a job fair and applying for one of 150 jobs paying between $7 and $12 an hour at a new Kohl's department store in a Denver, Colorado, suburb.

She has been out of work for seven months and never thought it would take her this long to find a job. It's not the kind of job she thought she would be applying for, but she has a case of the jitters just the same.

"Your heart starts to race, and you get nervous even though it is not some big job like you used to have," she said. "I'll take anything at this point."

Glick is not alone. Many other people have lost their jobs in this tough economy.

A record number of jobless claims was set last month, when first-time claims hit a 26-year high of 589,000 claims in one week. Last week's claims also broke the half-million mark, 524,000, according to a new government report cited on CNNMoney.com.

Glick, 29, has been living on about $1400 a month in unemployment benefits, barely enough to cover her rent and health insurance. To get by she has stopped eating out, given up cigarettes and has stopped taking her pets to the vet for regular checkups.

"Its feels very degrading, some of the places I'm applying," Glick said. "It's really difficult, and its hard to stay positive, but that's the only way you're going to get something is staying positive. And I'm hoping everything happens for a reason and the doors that have been closed are going to be the ones that lead to open ones." Watch could you be an entrepreneur »

Job seekers have been pouring into a hotel ballroom all week for one of the prized jobs. They fill out paperwork and then are taken up to a hotel room in groups of ten or so. The beds have been removed from the room, and they sit in a circle while store managers holding clipboards ask questions. Most are told they will hear back within three weeks.

But some get word right away.

"Hey guess what. I got the job," exclaimed Rebecca Erickson, speaking to her mother on her cell phone. When the other applicants filed out the managers asked her to stay behind and offered her a job. She was so excited she forgot to ask how much the job pays.

"It's only part-time, but I'll take it. There's always room for advancement, and with it being a new store opening you never know, a full-time position may open up," she said.

Erickson, a 31-year old single mother of three, has been unemployed for about two months and has been supporting her family on about $1400 a month in unemployment benefits and food stamps.

"It's awesome; It's great; I love it," she said. "To know that I got a job and they have had over a thousand applications come in for this job, and to know that I am the one to get it is just awesome."

A store opening such as this one is rare. With unemployment at 7.2 percent nationwide and retail sales down for six straight months, there are more going-out-of-business signs than grand-opening signs.

Most of the applicants came alone, but a set of identical twins came here as a team.

"Where ever he goes, I go," said Jeri Hines, here with his brother Jerell. The 23-year-olds seem to always have a smile on their faces and insist on working together. They have spent the past year doing odd jobs such as raking leaves and shoveling snow while working on a comic book.

"Its about a girl running around looking for treasure," Jerell said.

As the Hines twins make their way up to the interview room, their strategy is simple.

"Be really energetic and be sure they know everything they can about you," Jerell Hines said

On the way out their smiles are still in place, they flash a thumbs up sign and in unison call out, "Keep your fingers crossed."
Reply With Quote

Rob Convict's Organs B4 Execution

Spore state media has sunk to new lows as it publish a piece from one of it's writers, Andy Ho, suggesting that convicts on death row should have all their organs harvested before their execution by allowing prison officials to administer large doses of anaesthetics to render them "brain dead".

It's the cycle of life, but not as we know it. A Singaporean triad known as the "One-Eyed Dragon" is hanged after being convicted of murdering a nightclub boss and his kidney is donated to a local retail magnate who was so desperate for a transplant that he illegally tried to buy a kidney off an Indonesian man last year.
While Tang Wee Sung, whose family founded the up-market department store Tangs (Singapore's answer to Selfridges), has not confirmed that he received a kidney from the executed gangster, the Straits Times and other local publications reported that before he was hanged, the "One-Eyed Dragon" specified that Tang be given one of his kidneys.

With Tang remaining silent on where his new kidney came from, bloggers are speculating as to its origins and how he managed to secure it.
It's a story so fantastical that you could not make it up. Yet, at its heart lies a serious issue and one that has been the subject of much public debate in Singapore, after a number of high-profile organ trading cases came to light last year (including the one involving Tang).

With one of the most rapidly-ageing populations in the world, the Singapore government's response to the severe shortage of transplantable organs has been to legalise the payment of compensation to organ donors. This move is intended to allow altruistic donors to be compensated for their medical expenses and loss of earnings and is not meant to operate as an inducement.

However, with the upper limit for compensation still to be set, critics have pointed out that while S$50,000 (or £23,000 - which some observers believe would be a reasonable limit) may be viewed as just compensation by a Singaporean professional who has to take months of work, the same amount would be an inducement to many less well-off people both within Singapore and from neighbouring countries such as Malaysian and Indonesia.

While the discussion about whether or not to move to a free market in organs rumbles on, in the latest bizarre twist to the debate, Andy Ho, a senior journalist at the Straits Times, suggests today that Singapore should routinely "harvest" organs from convicts who are sentenced to death (something that the Chinese prison authorities have been accused of doing in the past, although they were supposedly doing it to line their own pockets rather than help society).

Ho goes on to explain how hanging is not conducive to organ donation because the body is deprived of oxygen, damaging vital organs such as the heart and the liver and making them unusable for transplant. Similarly, he points out that the drugs administered by lethal injection are designed to destroy the vital organs one-by-one and that the gas chamber and electric chair also render most organs untransplantable.
That leads him to suggest another option, which sounds like some dark, modern-day equivalent of being "hung, drawn and quartered". "Capital punishment by organ removal under anaesthesia", as he puts it, would allow all the organs to be removed in good working order but, presumably, doctors would face just a few ethical issues if they became executioners as well.

Ho's solution to this quandary? Get the prison staff to administer anaesthetics to the death-row inmate in such a large dose that they are rendered "brain dead" and then let the transplant team move in. An innovative suggestion, perhaps, but I'm not sure how many doctors would be keen to get involved.
And since Singapore's ageing hangman Darshan Singh has reportedly been unable to find anyone willing to replace him, the prison service may struggle to find any executioners as well.

President Barrack Obama Inaugural Address

My fellow citizens:

I stand here today humbled by the task before us, grateful for the trust you have bestowed, mindful of the sacrifices borne by our ancestors. I thank President Bush for his service to our nation, as well as the generosity and cooperation he has shown throughout this transition.

Forty-four Americans have now taken the presidential oath. The words have been spoken during rising tides of prosperity and the still waters of peace. Yet, every so often the oath is taken amidst gathering clouds and raging storms. At these moments, America has carried on not simply because of the skill or vision of those in high office, but because We the People have remained faithful to the ideals of our forbearers, and true to our founding documents.

So it has been. So it must be with this generation of Americans.

That we are in the midst of crisis is now well understood. Our nation is at war, against a far-reaching network of violence and hatred. Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet.

These are the indicators of crisis, subject to data and statistics. Less measurable but no less profound is a sapping of confidence across our land - a nagging fear that America's decline is inevitable, and that the next generation must lower its sights.

Today I say to you that the challenges we face are real. They are serious and they are many.

They will not be met easily or in a short span of time. But know this, America - they will be met. On this day, we gather because we have chosen hope over fear, unity of purpose over conflict and discord.

On this day, we come to proclaim an end to the petty grievances and false promises, the recriminations and worn out dogmas, that for far too long have strangled our politics.

We remain a young nation, but in the words of Scripture, the time has come to set aside childish things. The time has come to reaffirm our enduring spirit; to choose our better history; to carry forward that precious gift, that noble idea, passed on from generation to generation: the God-given promise that all are equal, all are free, and all deserve a chance to pursue their full measure of happiness.

In reaffirming the greatness of our nation, we understand that greatness is never a given. It must be earned. Our journey has never been one of short-cuts or settling for less. It has not been the path for the faint-hearted - for those who prefer leisure over work, or seek only the pleasures of riches and fame. Rather, it has been the risk-takers, the doers, the makers of things - some celebrated but more often men and women obscure in their labor, who have carried us up the long, rugged path towards prosperity and freedom.

For us, they packed up their few worldly possessions and traveled across oceans in search of a new life.

For us, they toiled in sweatshops and settled the West; endured the lash of the whip and plowed the hard earth.

For us, they fought and died, in places like Concord and Gettysburg; Normandy and Khe Sahn. Time and again these men and women struggled and sacrificed and worked till their hands were raw so that we might live a better life. They saw America as bigger than the sum of our individual ambitions; greater than all the differences of birth or wealth or faction.

This is the journey we continue today. We remain the most prosperous, powerful nation on Earth. Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity remains undiminished. But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions - that time has surely passed. Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America.

For everywhere we look, there is work to be done. The state of the economy calls for action, bold and swift, and we will act - not only to create new jobs, but to lay a new foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. We will restore science to its rightful place, and wield technology's wonders to raise health care's quality and lower its cost. We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age. All this we can do. And all this we will do.

Now, there are some who question the scale of our ambitions - who suggest that our system cannot tolerate too many big plans. Their memories are short. For they have forgotten what this country has already done; what free men and women can achieve when imagination is joined to common purpose, and necessity to courage.

What the cynics fail to understand is that the ground has shifted beneath them - that the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works - whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified. Where the answer is yes, we intend to move forward. Where the answer is no, programs will end. And those of us who manage the public's dollars will be held to account - to spend wisely, reform bad habits, and do our business in the light of day - because only then can we restore the vital trust between a people and their government.

Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control - and that a nation cannot prosper long when it favors only the prosperous. The success of our economy has always depended not just on the size of our Gross Domestic Product, but on the reach of our prosperity; on our ability to extend opportunity to every willing heart - not out of charity, but because it is the surest route to our common good.

As for our common defense, we reject as false the choice between our safety and our ideals. Our Founding Fathers, faced with perils we can scarcely imagine, drafted a charter to assure the rule of law and the rights of man, a charter expanded by the blood of generations. Those ideals still light the world, and we will not give them up for expedience's sake. And so to all other peoples and governments who are watching today, from the grandest capitals to the small village where my father was born: know that America is a friend of each nation and every man, woman, and child who seeks a future of peace and dignity, and that we are ready to lead once more.

Recall that earlier generations faced down fascism and communism not just with missiles and tanks, but with sturdy alliances and enduring convictions. They understood that our power alone cannot protect us, nor does it entitle us to do as we please. Instead, they knew that our power grows through its prudent use; our security emanates from the justness of our cause, the force of our example, the tempering qualities of humility and restraint.

We are the keepers of this legacy. Guided by these principles once more, we can meet those new threats that demand even greater effort - even greater cooperation and understanding between nations. We will begin to responsibly leave Iraq to its people, and forge a hard-earned peace in Afghanistan. With old friends and former foes, we will work tirelessly to lessen the nuclear threat, and roll back the specter of a warming planet. We will not apologize for our way of life, nor will we waver in its defense, and for those who seek to advance their aims by inducing terror and slaughtering innocents, we say to you now that our spirit is stronger and cannot be broken; you cannot outlast us, and we will defeat you.

For we know that our patchwork heritage is a strength, not a weakness. We are a nation of Christians and Muslims, Jews and Hindus - and non-believers. We are shaped by every language and culture, drawn from every end of this Earth; and because we have tasted the bitter swill of civil war and segregation, and emerged from that dark chapter stronger and more united, we cannot help but believe that the old hatreds shall someday pass; that the lines of tribe shall soon dissolve; that as the world grows smaller, our common humanity shall reveal itself; and that America must play its role in ushering in a new era of peace.

To the Muslim world, we seek a new way forward, based on mutual interest and mutual respect.

To those leaders around the globe who seek to sow conflict, or blame their society's ills on the West - know that your people will judge you on what you can build, not what you destroy. To those who cling to power through corruption and deceit and the silencing of dissent, know that you are on the wrong side of history; but that we will extend a hand if you are willing to unclench your fist.