Go to Original
By Christine Harper and Bradley Keoun
The U.S. government may step in to rescue Citigroup Inc. after a crisis in confidence erased half the bank’s stock-market value in three days, according to investors and analysts.
Citigroup’s $2 trillion of assets dwarfs companies such as American International Group Inc. that got support from the U.S. government this year. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September.
“Citi is in the category of ‘too big to fail,’” said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. “There is a commitment from this administration and the next to do what it takes to save Citi.”
One option is for the Federal Reserve and U.S. Treasury to create a special vehicle to purchase bad assets from Citi. The Fed has already erected several such funds, such as the Commercial Paper Funding Facility, to provide liquidity to the financial system. Typically, the Treasury would provide some first-loss equity or insurance fee, such as $50 billion provided to the CPFF, to protect the central bank and give the fiscal authority a stake.
The arrangement allows the Fed to leverage the money provided by the Treasury with loans, enabling the purchase of assets worth a multiple of the money. Funding the purchases with loans makes them less onerous to the U.S. budget.
Working Relationship
“That is the working relationship they have settled into with the Fed providing $1 trillion of the funding and the Treasury providing the equity tranche,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.
Citigroup management and some board members discussed “several options” for the company in a series of phone conversations with Paulson and New York Federal Reserve Bank President Timothy Geithner yesterday, the New York Times reported today, citing unidentified people involved in the talks.
Among those options were the possible replacement of Chief Executive Officer Vikram Pandit, a public endorsement of Citigroup by the government or a new financial lifeline, the Times said. No decisions had been taken as of late yesterday, it said.
‘Regulatory Intervention’
While Citigroup executives say the company has adequate capital and liquidity to ride out the crisis, its tumbling share price may shake the confidence of creditors, clients and rating companies. A similar scenario played out at Lehman, when Chief Executive Officer Richard Fuld declared the firm was “on the right track” five days before the firm went bankrupt.
“The market may be implying some sort of regulatory intervention,” Jason Goldberg, a former Lehman analyst who now works at Barclays Capital in New York, wrote in a note to clients yesterday. “In situations where the government has stepped in, the equity holders have not fared well.”
Pandit told employees yesterday that he doesn’t plan to break up the company, aiming to reassure workers as the stock resumed its skid. Citigroup shares dropped 94 cents, or 20 percent, to $3.77 in New York trading, giving the company a market value of about $21 billion. The stock pared its loss after the close of official trading, fetching $4.07 as of 4:35 p.m.
Pandit, Crittenden
Pandit and Chief Financial Officer Gary Crittenden, speaking on a worldwide conference call yesterday, also said they don’t expect to sell the Smith Barney brokerage unit, according to two people who listened to the call and declined to be identified because it wasn’t open to the public.
The call came as Citigroup’s board, led by Chairman Win Bischoff and independent director Richard Parsons, prepared to meet yesterday at the bank’s headquarters in New York, said a person familiar with the company’s plans who declined to be identified because the deliberations are private. Bischoff, interviewed at a conference in Portugal yesterday, declined to comment on any potential changes to the board.
“Providing stability” and “securing the future” are the themes of a new print advertisement that Citigroup plans to start running tomorrow in major markets in the U.S. and overseas. “Now, more than ever, you can feel confident that Citi never sleeps,” the ad reads.
No. 5 By Value
Once the biggest U.S. bank, with a market value of $274 billion at the end of 2006, Citigroup has now slipped to No. 5 behind Minneapolis-based U.S. Bancorp. A plan by 51-year-old Pandit this week to cut costs by shedding 52,000 jobs and an endorsement by billionaire Saudi investor Prince Alwaleed bin Talal didn’t assuage shareholders’ concern that bad loans and securities writedowns may extend a yearlong run of net losses totaling $20 billion.
“To be consistent with the last few government interventions, I don’t think Citigroup’s going to be allowed to fail,” said William Fitzpatrick, an analyst at Optique Capital Management Inc. in Milwaukee, which oversees about $1 billion and doesn’t own Citigroup shares. “This company’s too intertwined with the rest of the financial system to allow any further deterioration.”
Citigroup spokesman Michael Hanretta declined to comment. On the call yesterday with employees, Pandit said the company’s capital and liquidity are strong.
Including a $25 billion capital injection from the U.S. Treasury under the $700 billion Troubled Asset Relief Program, the company has at least $50 billion of capital above the amount required by regulators to qualify as “well capitalized.” Capital is the cushion banks must keep to absorb losses and protect depositors.
‘Special Case’
Deutsche Bank AG analyst Mike Mayo wrote in a report yesterday that the bank’s $25 billion of reserves, when combined with other resources, “should be enough to cover estimated cumulative losses of $50 billion on loans.’” Mayo rates the stock “hold” and has a $9 price target.
“With Citi being as big as they are, the government will make a special case and step in and find another reason to dispose of more TARP funds,” said Matt McCormick, a portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati, which manages about $2.9 billion and doesn’t own Citigroup stock or debt.
Pandit was appointed last December to succeed Charles O. “Chuck” Prince, who was ousted as mortgage-bond writedowns saddled the bank with a record fourth-quarter loss of almost $10 billion. Prince was the handpicked successor of former Chairman and CEO Sanford “Sandy” Weill, who built the company through a series of acquisitions over 17 years before stepping down in 2003.
Deposits Said Safe
Bischoff, 67, was Citigroup’s top executive in Europe until he was named chairman when Pandit became CEO.
Bank employees have been telling customers their deposits are safe, and so far corporate clients haven’t moved their money elsewhere, said three people familiar with the matter who declined to be identified because they weren’t authorized to speak publicly about the accounts.
Crittenden, 50, has told colleagues it would be unwise to make hasty decisions to dispose of good businesses to satisfy investor demands for a show of action, one person familiar with the matter said.
Saturday, November 22, 2008
Geithner Is Said to Be Obama’s Pick for U.S. Treasury Secretary
Go to Original
By Rich Miller
President-elect Barack Obama picked Timothy Geithner, head of the Federal Reserve Bank of New York, to be his Treasury secretary, with Lawrence Summers getting a senior White House role, a Democratic aide said.
Summers, former President Bill Clinton’s last Treasury chief, would be positioned to succeed Ben S. Bernanke as Fed chairman in 2010. Obama is likely to announce his economic team on Nov. 24, the aide said on condition of anonymity.
Geithner is a veteran who has helped lead the effort to end the deepest financial crisis in seven decades and at the same time has spent most of his career outside the public eye. The top task of the new team will be assembling Obama’s pledged stimulus package to buttress an economy that may be in its worst recession in a quarter century.
Obama is assembling “very strong people, very qualified people,” said Allen Sinai, chief economist at Decision Economics in New York. “But the reality of the problems of the economy, the financial markets, our banking system both domestically and globally, and the long list of problems we have to deal with as a society, that is very daunting.”
Geithner, 47, has helped oversee some of the biggest decisions so far in the crisis, as head of the U.S. central bank’s main liaison with Wall Street. Those include the government’s takeover of American International Group Inc., the Fed’s Bear Stearns Cos. rescue, and decision to let Lehman Brothers Holdings Inc. fail in September.
Top Spokesman
Both Geithner and Summers are veterans of managing financial turmoil, working together on the Asian financial crisis of 1997-98 and staving off a Mexican default earlier that decade. Even with that background, Geithner would be taking on an unfamiliar role: the government’s chief economic spokesman.
“He certainly has relevant experience,” said Alex Pollock, resident fellow at the American Enterprise Institute in Washington and former president of the Chicago Federal Home Loan Bank. “The whole public part of the job, the political part of Treasury secretary, will, I expect, be a challenge.”
Investors gave Obama’s pick a vote of confidence, sending the U.S. stock market’s benchmark index rallying from an 11-year low. The Standard & Poor’s 500 Index jumped 6.3 percent to 800.03 at the close in New York. The gauge is still heading for its biggest annual decline since 1931.
“Tim is held in high regard in financial circles and has been a thoughtful and effective leader throughout the recent financial turmoil,” said Robert Nichols, head of the Financial Services Forum in Washington and a former Treasury spokesman in the Bush administration.
Richardson for Commerce
Obama is also likely to nominate New Mexico Governor Bill Richardson as Commerce secretary, the Democratic aide said. Richardson was Clinton’s Energy secretary and former ambassador to the United Nations.
Geithner served as a Treasury undersecretary for international affairs under Summers, 53, and has been at the helm of the New York Fed since November 2003. Summers, who was Treasury chief from 1999 to 2001, and was once named top economist under 40, would be a contender to follow Bernanke, who was appointed by President George W. Bush and whose term ends in January 2010.
“He’s certainly on the short list, and perhaps on the top” for Fed chief, said Vincent Reinhart, former director of the Fed’s Division of Monetary Affairs who is now at the AEI in Washington.
Summers is now a professor at Harvard University, after previously serving as president of the Cambridge, Massachusetts institution. He spurred controversy while at Harvard over remarks about the number of women in scientific jobs.
Volcker Candidacy
Summers, along with former Fed Chairman Paul Volcker, were cited as candidates for the Treasury job by people close to the Obama camp earlier this month.
Kevin Warsh, a Fed Board governor, is a leading contender to succeed Geithner at the New York Fed, a U.S. official said on condition of anonymity.
Warsh, 38, previously worked at Morgan Stanley, later joining the Bush White House as an economic-policy adviser. He has been a link for the Fed board with securities firms during the crisis, drawing on his Wall Street contacts and experience.
Obama’s nominations would need to be confirmed by the Senate after he takes office on Jan. 20. Bush’s Treasury secretary, Henry Paulson, has pledged to work with his successor during the transition.
Auto Industry
Among the new team’s other top tasks may be devising a response to calls from General Motors Corp., Ford Motor Co. and Chrysler LLC for government aid to prevent their collapse, and overseeing an overhaul of U.S. financial regulations.
Jacob Lew, the White House budget director under Clinton from 1998 to 2001, will be named to the position of National Economic Council director, a person familiar with the transition team said. Lew, 53, served under Clinton from 1998 to 2001 and is currently chief operating officer at Citigroup Inc.’s alternative investments unit. The NEC, which was created by Clinton, is designed to coordinate economic policymaking.
Peter Orszag, the head of the Congressional Budget Office, has been offered Lew’s old job as head of the White House Office of Management and Budget, a congressional aide and a party official said earlier this week.
The decision to let Lehman fail in September has been faulted by observers including University of California at Berkeley professor Barry Eichengreen for triggering a renewed bout of turmoil that hammered credit markets.
Lehman Decision
Paulson, who led the decision to let Lehman go, and Bernanke have defended the move, saying the investment bank lacked sufficiently solid collateral to qualify for government aid, at a time when the $700 billion financial rescue plan had yet to be enacted.
Geithner is no stranger to Washington or the Treasury. Before taking over the New York Fed in 2003, he spent most of the previous 18 years working in the nation’s capital, first at Kissinger Associates, then at the Treasury and finally at the International Monetary Fund.
Over that time, Geithner earned what his one-time mentor Summers called a “doctorate in financial policy.” He also developed a skill-set his supporters say makes him well suited for his new job: calmness under pressure, an ability to see many sides of a problem and a sense of the politically possible.
“During the Mexico crisis, some of us would occasionally be emotional about something,” said Jeffrey Shafer, who served with Geithner at the Treasury from 1993 to 1997 and who is now Vice Chairman of Global Banking for Citigroup in New York. “Tim was the calm guy in the room who made sure we looked at all sides of the issue.”
Asian Experience
Geithner, who has studied Japanese and Chinese and has a Master of Arts in international economics from Johns Hopkins University, also played a key role in the Treasury’s dealings with the Finance Ministry in Tokyo. He was less inclined to intervene in currency markets than some other officials at the time, according to Shafer.
Born in New York, Geithner has lived in Africa, India, Thailand, China and Japan. He graduated from Dartmouth College in 1983 with a bachelor’s degree in government and Asian studies. He and his wife, Carole Sonnenfeld Geithner, have two children.
Dino Kos, a former New York Fed official, described Geithner as a “pragmatist, not an ideologue” who has a good sense of the political dynamics in Washington and the need to keep lawmakers in the loop about what’s going on. That’s been especially important in the current crisis as the Fed has taken extraordinary actions to limit the financial fallout, including its rescue of AIG in September.
Briefing Lawmakers
“If you’re going to push the envelope -- as the Fed has been doing -- you need to keep legislators informed about what you’re doing and why you’re doing it,” said Kos, who’s now a managing director at Portales Partners in New York.
Summers, an adviser to Obama during the campaign, earlier this week urged a fiscal stimulus package big enough to spur the economy for the next two to three years.
The U.S. economy shrank at an annual rate of 0.3 percent in the third quarter, and economists surveyed by Bloomberg News anticipate the longest contraction since 1974-75.
The next Treasury secretary will have unprecedented powers, in charge of overseeing a $700 billion rescue program that was enacted last month and designed to prevent a financial collapse. Paulson has allocated $250 billion to buying stakes in banks, and used another $40 billion for AIG.
Budget Deficit
Geithner would also inherit a record budget deficit. The bond dealers that advise the Treasury this month forecast a $988 billion shortfall for the financial year ending in September 2009. Paulson this week said the government will issue $1.5 trillion of debt.
Summers said Nov. 17 at a forum in Washington with Paulson and former Treasury Secretary Robert Rubin that ballooning debt isn’t a major issue for now because there’s “excess demand” for Treasuries rather than excess supply, as investors flock to government debt as a haven.
“The next secretary is going to have to be a crisis manager and plan for the future,” Rubin, who preceded Summers at the Treasury, said in an interview before yesterday’s news. “He’ll have to operate on two fronts at the same time.”
As president of the New York Fed, Geithner has enjoyed a special status at the central bank. He is vice chairman of the Federal Open Market Committee that convenes regularly to decide on interest rates. He votes at every FOMC meeting, unlike the presidents of the Fed’s other 11 member banks.
Gravitas Question
When Geithner was first tapped to take over the New York Fed five years ago, it was bit of a surprise. The boyish-looking technocrat lacked the stature of some of his predecessors -- including E. Gerald Corrigan, now with Goldman Sachs, and Volcker, who ran the New York Fed before becoming chairman of the Federal Reserve Board in 1979.
“He was very young and he speaks very softly,” said Blackstone Group LP co-founder Peter G. Peterson, who headed the search team that chose Geithner. “The question was, ‘Does he have the gravitas, the strength and the personality to make the tough decisions?’” The answer, he added, turned out to be yes.
Derivatives Market
Geithner spotted potential problems in the more than $47 trillion credit-derivatives market early on in his tenure at the New York Fed and began pressing banks in 2005 to reduce trading backlogs that could prove dangerous should a crisis hit.
He also warned that year that Fannie Mae and Freddie Mac needed more capital to offset the risks that they were taking in the mortgage market. They’ve since been taken over by the government after being ruled insolvent by their regulator. Paulson said yesterday it will be up to the Obama administration to decide the future of the two companies, which account for more than half of U.S. home-loan financing.
Some experts, including monetary economist Anna Schwartz, have condemned the Fed for putting $29 billion of its balance sheet on the line to back the takeover of Bear Stearns by JPMorgan Chase & Co. in March. Geithner in particular has been singled out, amid accusations that his time at the Treasury made him more prone to government interference in the economy.
In his new position as Obama’s Treasury secretary, it will be up to Geithner to spell out the administration’s financial and economic policies to the public. It’s not a role he is used to playing.
“Moving into that office would involve an adjustment to being more in the public eye, to being the guy on the firing line,” Kos said.
By Rich Miller
President-elect Barack Obama picked Timothy Geithner, head of the Federal Reserve Bank of New York, to be his Treasury secretary, with Lawrence Summers getting a senior White House role, a Democratic aide said.
Summers, former President Bill Clinton’s last Treasury chief, would be positioned to succeed Ben S. Bernanke as Fed chairman in 2010. Obama is likely to announce his economic team on Nov. 24, the aide said on condition of anonymity.
Geithner is a veteran who has helped lead the effort to end the deepest financial crisis in seven decades and at the same time has spent most of his career outside the public eye. The top task of the new team will be assembling Obama’s pledged stimulus package to buttress an economy that may be in its worst recession in a quarter century.
Obama is assembling “very strong people, very qualified people,” said Allen Sinai, chief economist at Decision Economics in New York. “But the reality of the problems of the economy, the financial markets, our banking system both domestically and globally, and the long list of problems we have to deal with as a society, that is very daunting.”
Geithner, 47, has helped oversee some of the biggest decisions so far in the crisis, as head of the U.S. central bank’s main liaison with Wall Street. Those include the government’s takeover of American International Group Inc., the Fed’s Bear Stearns Cos. rescue, and decision to let Lehman Brothers Holdings Inc. fail in September.
Top Spokesman
Both Geithner and Summers are veterans of managing financial turmoil, working together on the Asian financial crisis of 1997-98 and staving off a Mexican default earlier that decade. Even with that background, Geithner would be taking on an unfamiliar role: the government’s chief economic spokesman.
“He certainly has relevant experience,” said Alex Pollock, resident fellow at the American Enterprise Institute in Washington and former president of the Chicago Federal Home Loan Bank. “The whole public part of the job, the political part of Treasury secretary, will, I expect, be a challenge.”
Investors gave Obama’s pick a vote of confidence, sending the U.S. stock market’s benchmark index rallying from an 11-year low. The Standard & Poor’s 500 Index jumped 6.3 percent to 800.03 at the close in New York. The gauge is still heading for its biggest annual decline since 1931.
“Tim is held in high regard in financial circles and has been a thoughtful and effective leader throughout the recent financial turmoil,” said Robert Nichols, head of the Financial Services Forum in Washington and a former Treasury spokesman in the Bush administration.
Richardson for Commerce
Obama is also likely to nominate New Mexico Governor Bill Richardson as Commerce secretary, the Democratic aide said. Richardson was Clinton’s Energy secretary and former ambassador to the United Nations.
Geithner served as a Treasury undersecretary for international affairs under Summers, 53, and has been at the helm of the New York Fed since November 2003. Summers, who was Treasury chief from 1999 to 2001, and was once named top economist under 40, would be a contender to follow Bernanke, who was appointed by President George W. Bush and whose term ends in January 2010.
“He’s certainly on the short list, and perhaps on the top” for Fed chief, said Vincent Reinhart, former director of the Fed’s Division of Monetary Affairs who is now at the AEI in Washington.
Summers is now a professor at Harvard University, after previously serving as president of the Cambridge, Massachusetts institution. He spurred controversy while at Harvard over remarks about the number of women in scientific jobs.
Volcker Candidacy
Summers, along with former Fed Chairman Paul Volcker, were cited as candidates for the Treasury job by people close to the Obama camp earlier this month.
Kevin Warsh, a Fed Board governor, is a leading contender to succeed Geithner at the New York Fed, a U.S. official said on condition of anonymity.
Warsh, 38, previously worked at Morgan Stanley, later joining the Bush White House as an economic-policy adviser. He has been a link for the Fed board with securities firms during the crisis, drawing on his Wall Street contacts and experience.
Obama’s nominations would need to be confirmed by the Senate after he takes office on Jan. 20. Bush’s Treasury secretary, Henry Paulson, has pledged to work with his successor during the transition.
Auto Industry
Among the new team’s other top tasks may be devising a response to calls from General Motors Corp., Ford Motor Co. and Chrysler LLC for government aid to prevent their collapse, and overseeing an overhaul of U.S. financial regulations.
Jacob Lew, the White House budget director under Clinton from 1998 to 2001, will be named to the position of National Economic Council director, a person familiar with the transition team said. Lew, 53, served under Clinton from 1998 to 2001 and is currently chief operating officer at Citigroup Inc.’s alternative investments unit. The NEC, which was created by Clinton, is designed to coordinate economic policymaking.
Peter Orszag, the head of the Congressional Budget Office, has been offered Lew’s old job as head of the White House Office of Management and Budget, a congressional aide and a party official said earlier this week.
The decision to let Lehman fail in September has been faulted by observers including University of California at Berkeley professor Barry Eichengreen for triggering a renewed bout of turmoil that hammered credit markets.
Lehman Decision
Paulson, who led the decision to let Lehman go, and Bernanke have defended the move, saying the investment bank lacked sufficiently solid collateral to qualify for government aid, at a time when the $700 billion financial rescue plan had yet to be enacted.
Geithner is no stranger to Washington or the Treasury. Before taking over the New York Fed in 2003, he spent most of the previous 18 years working in the nation’s capital, first at Kissinger Associates, then at the Treasury and finally at the International Monetary Fund.
Over that time, Geithner earned what his one-time mentor Summers called a “doctorate in financial policy.” He also developed a skill-set his supporters say makes him well suited for his new job: calmness under pressure, an ability to see many sides of a problem and a sense of the politically possible.
“During the Mexico crisis, some of us would occasionally be emotional about something,” said Jeffrey Shafer, who served with Geithner at the Treasury from 1993 to 1997 and who is now Vice Chairman of Global Banking for Citigroup in New York. “Tim was the calm guy in the room who made sure we looked at all sides of the issue.”
Asian Experience
Geithner, who has studied Japanese and Chinese and has a Master of Arts in international economics from Johns Hopkins University, also played a key role in the Treasury’s dealings with the Finance Ministry in Tokyo. He was less inclined to intervene in currency markets than some other officials at the time, according to Shafer.
Born in New York, Geithner has lived in Africa, India, Thailand, China and Japan. He graduated from Dartmouth College in 1983 with a bachelor’s degree in government and Asian studies. He and his wife, Carole Sonnenfeld Geithner, have two children.
Dino Kos, a former New York Fed official, described Geithner as a “pragmatist, not an ideologue” who has a good sense of the political dynamics in Washington and the need to keep lawmakers in the loop about what’s going on. That’s been especially important in the current crisis as the Fed has taken extraordinary actions to limit the financial fallout, including its rescue of AIG in September.
Briefing Lawmakers
“If you’re going to push the envelope -- as the Fed has been doing -- you need to keep legislators informed about what you’re doing and why you’re doing it,” said Kos, who’s now a managing director at Portales Partners in New York.
Summers, an adviser to Obama during the campaign, earlier this week urged a fiscal stimulus package big enough to spur the economy for the next two to three years.
The U.S. economy shrank at an annual rate of 0.3 percent in the third quarter, and economists surveyed by Bloomberg News anticipate the longest contraction since 1974-75.
The next Treasury secretary will have unprecedented powers, in charge of overseeing a $700 billion rescue program that was enacted last month and designed to prevent a financial collapse. Paulson has allocated $250 billion to buying stakes in banks, and used another $40 billion for AIG.
Budget Deficit
Geithner would also inherit a record budget deficit. The bond dealers that advise the Treasury this month forecast a $988 billion shortfall for the financial year ending in September 2009. Paulson this week said the government will issue $1.5 trillion of debt.
Summers said Nov. 17 at a forum in Washington with Paulson and former Treasury Secretary Robert Rubin that ballooning debt isn’t a major issue for now because there’s “excess demand” for Treasuries rather than excess supply, as investors flock to government debt as a haven.
“The next secretary is going to have to be a crisis manager and plan for the future,” Rubin, who preceded Summers at the Treasury, said in an interview before yesterday’s news. “He’ll have to operate on two fronts at the same time.”
As president of the New York Fed, Geithner has enjoyed a special status at the central bank. He is vice chairman of the Federal Open Market Committee that convenes regularly to decide on interest rates. He votes at every FOMC meeting, unlike the presidents of the Fed’s other 11 member banks.
Gravitas Question
When Geithner was first tapped to take over the New York Fed five years ago, it was bit of a surprise. The boyish-looking technocrat lacked the stature of some of his predecessors -- including E. Gerald Corrigan, now with Goldman Sachs, and Volcker, who ran the New York Fed before becoming chairman of the Federal Reserve Board in 1979.
“He was very young and he speaks very softly,” said Blackstone Group LP co-founder Peter G. Peterson, who headed the search team that chose Geithner. “The question was, ‘Does he have the gravitas, the strength and the personality to make the tough decisions?’” The answer, he added, turned out to be yes.
Derivatives Market
Geithner spotted potential problems in the more than $47 trillion credit-derivatives market early on in his tenure at the New York Fed and began pressing banks in 2005 to reduce trading backlogs that could prove dangerous should a crisis hit.
He also warned that year that Fannie Mae and Freddie Mac needed more capital to offset the risks that they were taking in the mortgage market. They’ve since been taken over by the government after being ruled insolvent by their regulator. Paulson said yesterday it will be up to the Obama administration to decide the future of the two companies, which account for more than half of U.S. home-loan financing.
Some experts, including monetary economist Anna Schwartz, have condemned the Fed for putting $29 billion of its balance sheet on the line to back the takeover of Bear Stearns by JPMorgan Chase & Co. in March. Geithner in particular has been singled out, amid accusations that his time at the Treasury made him more prone to government interference in the economy.
In his new position as Obama’s Treasury secretary, it will be up to Geithner to spell out the administration’s financial and economic policies to the public. It’s not a role he is used to playing.
“Moving into that office would involve an adjustment to being more in the public eye, to being the guy on the firing line,” Kos said.
US power 'to decline by 2025'
Go to Original
US economic and political power is set to decline over the next two decades and the world will grow more dangerous as the battle for scarce resources intensifies, a report by US intelligence agencies has predicted.
The current global financial crisis is the beginning of a weakening of the US dollar to the point where it becomes "first among equals", said the National Intelligence Council's (NIC) Global Trends 2025 report published on Thursday.
One of the main conclusions of the report is that "the unipolar world is over, [or] certainly will be by 2025", said Thomas Fingar, the NIC's deputy director, at a press conference in Washington DC.
China and India were likely to join the US at the top of a multipolar world and compete for influence, the report added.
Russia's future was less certain, but Iran, Turkey and Indonesia were also seen by the report as gaining power.
"The world of the near future will be subject to an increased likelihood of conflict over scarce resources, including food and water, and will be haunted by the persistence of rogue states and terrorist groups with greater access to nuclear weapons," said the report.
"Widening gaps in birth rates and wealth-to-poverty ratios, and the uneven impact of climate change, could further exacerbate tensions."
Nuclear risk
The reports are produced every five years and based on a global survey of experts by US intelligence analysts.
This year's was more pessimistic about US status than on previous occasions.
It also highlighted the risk of a nuclear arms race in the Middle East where a number of countries have considered developing or acquiring technologies that would be useful to make nuclear weapons.
"Over the next 15-20 years, reactions to the decisions Iran makes about its nuclear programme could cause a number of regional states to intensify these efforts and consider actively pursuing nuclear weapons," the report said.
It also said some African and South Asian states could wither away altogether and that criminal gangs could take over at least one state in central Europe.
The document also predicted that conflicts of food and water resources could increase but that new technology could help develop a replacement for oil-based technologies.
"Types of conflict we have not seen for a while - such as over resources - could reemerge," it said.
Global wealth was seen as shifting from the West to the energy-rich Gulf states and Russia, and to Asia, the rising centre of manufacturing and some service industries.
Global disparities between the rich and poor would grow, the report said, leaving Africa vulnerable to increased instability.
Iraq record
Rahul Mahajan, a political analyst and author, told Al Jazeera the report was too pessimistic in some areas.
"It seems very pessimistic about the future political prospects of countries in the Third World. It seems to pay little or no attention to indigenous or self-generated prospects for democratisation and greater representation."
Mahajan also said the report was "ridiculously optimistic" about the development of an alternative to oil as a fuel source.
"Its important to remember this is the same group of 16 intelligence agencies that got the Iraq WMD [weapons of mass destruction] analysis so strikingly wrong."
US economic and political power is set to decline over the next two decades and the world will grow more dangerous as the battle for scarce resources intensifies, a report by US intelligence agencies has predicted.
The current global financial crisis is the beginning of a weakening of the US dollar to the point where it becomes "first among equals", said the National Intelligence Council's (NIC) Global Trends 2025 report published on Thursday.
One of the main conclusions of the report is that "the unipolar world is over, [or] certainly will be by 2025", said Thomas Fingar, the NIC's deputy director, at a press conference in Washington DC.
China and India were likely to join the US at the top of a multipolar world and compete for influence, the report added.
Russia's future was less certain, but Iran, Turkey and Indonesia were also seen by the report as gaining power.
"The world of the near future will be subject to an increased likelihood of conflict over scarce resources, including food and water, and will be haunted by the persistence of rogue states and terrorist groups with greater access to nuclear weapons," said the report.
"Widening gaps in birth rates and wealth-to-poverty ratios, and the uneven impact of climate change, could further exacerbate tensions."
Nuclear risk
The reports are produced every five years and based on a global survey of experts by US intelligence analysts.
This year's was more pessimistic about US status than on previous occasions.
It also highlighted the risk of a nuclear arms race in the Middle East where a number of countries have considered developing or acquiring technologies that would be useful to make nuclear weapons.
"Over the next 15-20 years, reactions to the decisions Iran makes about its nuclear programme could cause a number of regional states to intensify these efforts and consider actively pursuing nuclear weapons," the report said.
It also said some African and South Asian states could wither away altogether and that criminal gangs could take over at least one state in central Europe.
The document also predicted that conflicts of food and water resources could increase but that new technology could help develop a replacement for oil-based technologies.
"Types of conflict we have not seen for a while - such as over resources - could reemerge," it said.
Global wealth was seen as shifting from the West to the energy-rich Gulf states and Russia, and to Asia, the rising centre of manufacturing and some service industries.
Global disparities between the rich and poor would grow, the report said, leaving Africa vulnerable to increased instability.
Iraq record
Rahul Mahajan, a political analyst and author, told Al Jazeera the report was too pessimistic in some areas.
"It seems very pessimistic about the future political prospects of countries in the Third World. It seems to pay little or no attention to indigenous or self-generated prospects for democratisation and greater representation."
Mahajan also said the report was "ridiculously optimistic" about the development of an alternative to oil as a fuel source.
"Its important to remember this is the same group of 16 intelligence agencies that got the Iraq WMD [weapons of mass destruction] analysis so strikingly wrong."
Israel continues starvation of Gazans despite UN pleas
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In what the UN has described as collective punishment, the Israeli blockade of the Gaza Strip continues.
Notwithstanding 56% of the 1.5 million Gazan population consists of children, Israel has shut down access to the region refusing to allow desperately needed food trucks to reach their destination.
UN food agencies in Gaza that have had their food supply cut by the Israeli blockade say they are facing a "humanitarian catastrophe."
World media continues to ignore the desperate situation, Israel however has contributed to that by barring journalists from entering Gaza, a move condemned earlier this week by the Foreign Press Association. The UN appears to be a lone voice in trying to engineer some relief.
Karen AbuZayd, commissioner-general of the United Nations Relief and Works Agency, said the human toll of this month's sealing of Gaza's goods crossings was the gravest in eight years.
"It's been closed for so much longer than ever before and we have nothing in our warehouses. It will be a catastrophe if this persists, a disaster," said AbuZayd, whose agency is the largest aid body providing services to Palestinian refugees.
"They are not just under occupation, they are under siege, it's a word I don't usually use, they are completely closed off," she added.
United Nations Secretary-General Ban Ki-moon, who issued a statement saying he supported statements by the Gazan office, telephoned Israeli Prime Minister Ehud Olmert on Tuesday urging him to provide access for UN food trucks. Olmert said he would look into the situation on an urgent basis.
By Friday Ban had received no word back from Olmert, so he bypassed him and telephoned Israeli Foreign Minister Tzipi Livni to stress the urgency of the situation. Livni however rebuffed the UN Secretary-General's plea saying the world should be condemning Palestinian rocket attacks.
"Whoever thinks that a situation of them firing at us, while everything continues as usual, can exist is mistaken," her office said in a statement. "The international community must be more decisive in making itself heard, and in using its influence, in the face of these attacks."
Israeli human rights organization Gisha in a letter to the Israeli army on Thursday from its attorney Yadin Elam said the closure of crossings, "is done with the illegal intention of inflicting pressure on the civilian population in an attempt to affect the behavior of militants and political elements. The closure of the crossings is therefore in violation of the absolute prohibition in International Law against collective punishment." THe UN also this week described the Israeli crackdown as collective punishment.
The blockade is now putting Gaza at breaking point which many believe is the objective of the Jewish nation. A ceasefire, between Hamas and Israel, which had largely held until November 4, was broken when the Israeli army entered Gaza and carried out a raid which killed five militants. Rocket fire into Israel followed, and since then the Israeli army has stepped up activities and closed off more access points. A further 12 Palestinian militants have died. There have been no casualties on the Israeli side as most of the 140 rockets fired into the country have failed to hit any tangible targets.
In addition to preventing access for food supplies Israel has refused to allow European Union-funded fuel supplies into Gaza, starving the power generation plant of fuel which has caused widespread blackouts up to 16 hours a day. Water facilities, including access to clean drinking water, and the treatment of raw sewage continue is also being severely disrupted by fuel shortages. Fifty to sixty million liters of untreated and partially treated sewage are being dumped into the Gaza Strip Mediterranean Sea daily, posing a public health risk.
On Thursday the Associated Press, Reuters, CNN, the BBC and other major news organizations wrote a joint letter to Olmert, protesting the ban on journalists entering Gaza to cover events there. "We are gravely concerned about the prolonged and unprecedented denial of access to the Gaza Strip for the international media," the letter said.
"We would welcome an assurance that access to Gaza for international journalists will be restored immediately in the spirit of Israel's long-standing commitment to a free press."
The letter has been ignored.
In what the UN has described as collective punishment, the Israeli blockade of the Gaza Strip continues.
Notwithstanding 56% of the 1.5 million Gazan population consists of children, Israel has shut down access to the region refusing to allow desperately needed food trucks to reach their destination.
UN food agencies in Gaza that have had their food supply cut by the Israeli blockade say they are facing a "humanitarian catastrophe."
World media continues to ignore the desperate situation, Israel however has contributed to that by barring journalists from entering Gaza, a move condemned earlier this week by the Foreign Press Association. The UN appears to be a lone voice in trying to engineer some relief.
Karen AbuZayd, commissioner-general of the United Nations Relief and Works Agency, said the human toll of this month's sealing of Gaza's goods crossings was the gravest in eight years.
"It's been closed for so much longer than ever before and we have nothing in our warehouses. It will be a catastrophe if this persists, a disaster," said AbuZayd, whose agency is the largest aid body providing services to Palestinian refugees.
"They are not just under occupation, they are under siege, it's a word I don't usually use, they are completely closed off," she added.
United Nations Secretary-General Ban Ki-moon, who issued a statement saying he supported statements by the Gazan office, telephoned Israeli Prime Minister Ehud Olmert on Tuesday urging him to provide access for UN food trucks. Olmert said he would look into the situation on an urgent basis.
By Friday Ban had received no word back from Olmert, so he bypassed him and telephoned Israeli Foreign Minister Tzipi Livni to stress the urgency of the situation. Livni however rebuffed the UN Secretary-General's plea saying the world should be condemning Palestinian rocket attacks.
"Whoever thinks that a situation of them firing at us, while everything continues as usual, can exist is mistaken," her office said in a statement. "The international community must be more decisive in making itself heard, and in using its influence, in the face of these attacks."
Israeli human rights organization Gisha in a letter to the Israeli army on Thursday from its attorney Yadin Elam said the closure of crossings, "is done with the illegal intention of inflicting pressure on the civilian population in an attempt to affect the behavior of militants and political elements. The closure of the crossings is therefore in violation of the absolute prohibition in International Law against collective punishment." THe UN also this week described the Israeli crackdown as collective punishment.
The blockade is now putting Gaza at breaking point which many believe is the objective of the Jewish nation. A ceasefire, between Hamas and Israel, which had largely held until November 4, was broken when the Israeli army entered Gaza and carried out a raid which killed five militants. Rocket fire into Israel followed, and since then the Israeli army has stepped up activities and closed off more access points. A further 12 Palestinian militants have died. There have been no casualties on the Israeli side as most of the 140 rockets fired into the country have failed to hit any tangible targets.
In addition to preventing access for food supplies Israel has refused to allow European Union-funded fuel supplies into Gaza, starving the power generation plant of fuel which has caused widespread blackouts up to 16 hours a day. Water facilities, including access to clean drinking water, and the treatment of raw sewage continue is also being severely disrupted by fuel shortages. Fifty to sixty million liters of untreated and partially treated sewage are being dumped into the Gaza Strip Mediterranean Sea daily, posing a public health risk.
On Thursday the Associated Press, Reuters, CNN, the BBC and other major news organizations wrote a joint letter to Olmert, protesting the ban on journalists entering Gaza to cover events there. "We are gravely concerned about the prolonged and unprecedented denial of access to the Gaza Strip for the international media," the letter said.
"We would welcome an assurance that access to Gaza for international journalists will be restored immediately in the spirit of Israel's long-standing commitment to a free press."
The letter has been ignored.
Former Marine outlines secret dossiers
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By Rick Rogers
Muslims, Arabs not targeted, FBI says
Two years after his arrest, a former Marine gunnery sergeant is talking about the FBI, CIA and U.S. Immigration and Customs Enforcement files he stole from Camp Pendleton for a civilian agency.
In interviews with The San Diego Union-Tribune, Gary Maziarz, 39, said “dozens of files” he gave the Los Angeles Terrorism Early Warning Group while serving as an intelligence specialist at the base were dossiers on Muslims and Arabs living in Southern California.
This marks the first time Maziarz has spoken to the media about the files since pleading guilty in July 2007 to mishandling classified material and stealing government property.
He agreed to the interviews despite signing a plea agreement with the government limiting his comments on the security breach, which might involve a decade's worth of intelligence culled from domestic and foreign sources. The deal also requires him to testify if called on.
“Most of the (monitored) people were from Los Angeles. The ties they had to San Diego were, like, maybe they had a house down here or a relative or came down to visit or went on vacation here,” said Maziarz, who splits his time between North County and Arizona as he looks for work and tries to move on with his life.
Many of the stolen files centered on the meeting spots of “people of interest,” including places of worship, businesses and travel plans, he said.
Maziarz's case could have repercussions well beyond Camp Pendleton.
The existence of CIA, FBI and Immigration and Customs Enforcement documents profiling specific minority and religious groups in the United States could undermine contentions by the FBI, the primary federal agency for domestic security, that no programs target upstanding Muslims and Arabs.
“The FBI does not monitor the lawful activities of individuals in the United States, nor does the FBI have a surveillance program to monitor constitutionally protected activities of houses of worship,” FBI spokesman Darrell Foxworth said in an e-mail.
Maziarz's arrest in October 2006 sparked multiple investigations, including those by the FBI and the Naval Criminal Investigative Service. Federal agents testifying at his trial said the files found in his possession could not be shared legally with civilian law enforcement.
Essentially, Maziarz said, he used computer networks at Camp Pendleton to tap into classified information that he then passed along to a higher-ranking Marine or one of that person's subordinates. Maziarz and federal investigative documents have identified that individual as reserve Col. Larry Richards, the base's former intelligence chief and co-founder of the Los Angeles Terrorism Early Warning Group.
Maziarz said he and others broke national-security protocols out of concern that FBI officials were not sharing anti-terrorism intelligence with local law enforcement or were doing it slowly because of bureaucracy. There was a feeling that lack of cooperation prevented aggressive efforts to prevent future terrorist attacks.
The Los Angeles Terrorism Early Warning Group is composed of two dozen local, state and federal agencies, including the Los Angeles Police Department, the Los Angeles County Sheriff's Department, the Secret Service and the FBI.
The Union-Tribune first reported on the Maziarz case in October 2007, after it obtained unclassified records from his court-martial.
Maziarz originally was charged with stealing Iraq war souvenirs from a base armory. That investigation evolved into the document-theft case.
He received a 26-month jail sentence. He was released in July after serving less than two years in Camp Pendleton's brig.
In accepting Maziarz's guilty plea, Marine judge Lt. Col. Jeffrey Meeks avoided revealing specific contents of the stolen files. Two federal agents attended the plea-agreement sessions to make sure classified details stayed secret.
While sitting recently at a café in Carlsbad, Maziarz explained how officials from the Los Angeles counter-terrorism group used him for years to steal highly sensitive FBI, CIA and immigration files to track and foil terrorist operations.
He was more tight-lipped about classified files known as TIGER documents.
TIGER, or the Topologically Integrated Geographic Encoding and Referencing system, is a database developed at the U.S. Census Bureau. It can be customized to identify special demographic centers, such as areas where certain ethnic groups live.
The Union-Tribune asked FBI officials whether any of the files Maziarz stole were were related to this system. They did not respond.
Days after the newspaper made its TIGER inquiry to the bureau, Maziarz said, federal investigators gave him a lie-detector test to see whether he had talked to the media.
Maziarz's claims about profiling have raised concerns among some Islamic, Arab-American and civil-liberty groups. The organizations' leaders said his statements underscore their longtime contention that government agencies are violating Americans' privacy rights with little to no congressional oversight.
The Maziarz case could be “hugely important,” said David Blair-Loy, legal director for the American Civil Liberties Union of San Diego & Imperial Counties.
In July, the ACLU filed Freedom of Information Act requests with the Defense Department, the FBI, the Naval Criminal Investigative Service, the National Security Agency and the U.S. Northern Command to flesh out its understanding of the government's domestic surveillance activities.
“What was in these documents (that Maziarz took) is precisely the question we have been asking. What has the government been doing and who authorized it?” Blair-Loy said.
On the criminal-justice front, the document-theft case involving Maziarz has moved slowly and unexpectedly.
On July 18, the Marine Corps brought charges against Gunnery Sgt. Eric Froboese and Master Sgt. Reinaldo Pagan in connection with it. Pagan is accused of dereliction of duty and violation of orders. Froboese is facing charges of dereliction of duty, orders violations, conspiracy and wrongful transmission of classified information.
Before they were charged, neither of the enlisted Marines had been mentioned in court records related to the Maziarz trial. Maziarz said he is angry that no Marine officer has faced the same legal scrutiny.
“I don't think the government is interested in really finding out the truth . . . because the implications are too vast and involve too many senior people for them to really pursue it,” he said.
More than 30 interviews with FBI and naval investigators, spanning hundreds of hours over the past two years, have convinced Maziarz that prosecutors plan to pin the national-security breach on those considered least culpable and most vulnerable: the enlisted men.
“If Pagan is getting charged with dereliction of duty, then why not General Conway?” Maziarz said.
He was referring to Gen. James Conway, the commandant of the Marine Corps. Conway served as commanding general of the Camp Pendleton-based 1st Marine Expeditionary Force when Maziarz worked in the intelligence unit and Richards ran it.
A statement from Conway's office said in part: “Generally speaking, a subordinate who is accused of violating a commander's orders . . . and has done so without the knowledge or consent of that commander is not really in a position to place any portion of the blame for their own actions upon the commander.”
Federal agents have warned Maziarz that he could be put back behind bars if he violates his plea agreement. While he is cautious, Maziarz said his intention is to set the record straight.
“I have a pretty good memory,” Maziarz said, “and that's what bothers a lot of people.”
By Rick Rogers
Muslims, Arabs not targeted, FBI says
Two years after his arrest, a former Marine gunnery sergeant is talking about the FBI, CIA and U.S. Immigration and Customs Enforcement files he stole from Camp Pendleton for a civilian agency.
In interviews with The San Diego Union-Tribune, Gary Maziarz, 39, said “dozens of files” he gave the Los Angeles Terrorism Early Warning Group while serving as an intelligence specialist at the base were dossiers on Muslims and Arabs living in Southern California.
This marks the first time Maziarz has spoken to the media about the files since pleading guilty in July 2007 to mishandling classified material and stealing government property.
He agreed to the interviews despite signing a plea agreement with the government limiting his comments on the security breach, which might involve a decade's worth of intelligence culled from domestic and foreign sources. The deal also requires him to testify if called on.
“Most of the (monitored) people were from Los Angeles. The ties they had to San Diego were, like, maybe they had a house down here or a relative or came down to visit or went on vacation here,” said Maziarz, who splits his time between North County and Arizona as he looks for work and tries to move on with his life.
Many of the stolen files centered on the meeting spots of “people of interest,” including places of worship, businesses and travel plans, he said.
Maziarz's case could have repercussions well beyond Camp Pendleton.
The existence of CIA, FBI and Immigration and Customs Enforcement documents profiling specific minority and religious groups in the United States could undermine contentions by the FBI, the primary federal agency for domestic security, that no programs target upstanding Muslims and Arabs.
“The FBI does not monitor the lawful activities of individuals in the United States, nor does the FBI have a surveillance program to monitor constitutionally protected activities of houses of worship,” FBI spokesman Darrell Foxworth said in an e-mail.
Maziarz's arrest in October 2006 sparked multiple investigations, including those by the FBI and the Naval Criminal Investigative Service. Federal agents testifying at his trial said the files found in his possession could not be shared legally with civilian law enforcement.
Essentially, Maziarz said, he used computer networks at Camp Pendleton to tap into classified information that he then passed along to a higher-ranking Marine or one of that person's subordinates. Maziarz and federal investigative documents have identified that individual as reserve Col. Larry Richards, the base's former intelligence chief and co-founder of the Los Angeles Terrorism Early Warning Group.
Maziarz said he and others broke national-security protocols out of concern that FBI officials were not sharing anti-terrorism intelligence with local law enforcement or were doing it slowly because of bureaucracy. There was a feeling that lack of cooperation prevented aggressive efforts to prevent future terrorist attacks.
The Los Angeles Terrorism Early Warning Group is composed of two dozen local, state and federal agencies, including the Los Angeles Police Department, the Los Angeles County Sheriff's Department, the Secret Service and the FBI.
The Union-Tribune first reported on the Maziarz case in October 2007, after it obtained unclassified records from his court-martial.
Maziarz originally was charged with stealing Iraq war souvenirs from a base armory. That investigation evolved into the document-theft case.
He received a 26-month jail sentence. He was released in July after serving less than two years in Camp Pendleton's brig.
In accepting Maziarz's guilty plea, Marine judge Lt. Col. Jeffrey Meeks avoided revealing specific contents of the stolen files. Two federal agents attended the plea-agreement sessions to make sure classified details stayed secret.
While sitting recently at a café in Carlsbad, Maziarz explained how officials from the Los Angeles counter-terrorism group used him for years to steal highly sensitive FBI, CIA and immigration files to track and foil terrorist operations.
He was more tight-lipped about classified files known as TIGER documents.
TIGER, or the Topologically Integrated Geographic Encoding and Referencing system, is a database developed at the U.S. Census Bureau. It can be customized to identify special demographic centers, such as areas where certain ethnic groups live.
The Union-Tribune asked FBI officials whether any of the files Maziarz stole were were related to this system. They did not respond.
Days after the newspaper made its TIGER inquiry to the bureau, Maziarz said, federal investigators gave him a lie-detector test to see whether he had talked to the media.
Maziarz's claims about profiling have raised concerns among some Islamic, Arab-American and civil-liberty groups. The organizations' leaders said his statements underscore their longtime contention that government agencies are violating Americans' privacy rights with little to no congressional oversight.
The Maziarz case could be “hugely important,” said David Blair-Loy, legal director for the American Civil Liberties Union of San Diego & Imperial Counties.
In July, the ACLU filed Freedom of Information Act requests with the Defense Department, the FBI, the Naval Criminal Investigative Service, the National Security Agency and the U.S. Northern Command to flesh out its understanding of the government's domestic surveillance activities.
“What was in these documents (that Maziarz took) is precisely the question we have been asking. What has the government been doing and who authorized it?” Blair-Loy said.
On the criminal-justice front, the document-theft case involving Maziarz has moved slowly and unexpectedly.
On July 18, the Marine Corps brought charges against Gunnery Sgt. Eric Froboese and Master Sgt. Reinaldo Pagan in connection with it. Pagan is accused of dereliction of duty and violation of orders. Froboese is facing charges of dereliction of duty, orders violations, conspiracy and wrongful transmission of classified information.
Before they were charged, neither of the enlisted Marines had been mentioned in court records related to the Maziarz trial. Maziarz said he is angry that no Marine officer has faced the same legal scrutiny.
“I don't think the government is interested in really finding out the truth . . . because the implications are too vast and involve too many senior people for them to really pursue it,” he said.
More than 30 interviews with FBI and naval investigators, spanning hundreds of hours over the past two years, have convinced Maziarz that prosecutors plan to pin the national-security breach on those considered least culpable and most vulnerable: the enlisted men.
“If Pagan is getting charged with dereliction of duty, then why not General Conway?” Maziarz said.
He was referring to Gen. James Conway, the commandant of the Marine Corps. Conway served as commanding general of the Camp Pendleton-based 1st Marine Expeditionary Force when Maziarz worked in the intelligence unit and Richards ran it.
A statement from Conway's office said in part: “Generally speaking, a subordinate who is accused of violating a commander's orders . . . and has done so without the knowledge or consent of that commander is not really in a position to place any portion of the blame for their own actions upon the commander.”
Federal agents have warned Maziarz that he could be put back behind bars if he violates his plea agreement. While he is cautious, Maziarz said his intention is to set the record straight.
“I have a pretty good memory,” Maziarz said, “and that's what bothers a lot of people.”
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