Wednesday, August 20, 2008

Large U.S. Banks May Fail Amid Recession, Rogoff Says

Large U.S. Banks May Fail Amid Recession, Rogoff Says

By Shamim Adam

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Credit market turmoil has driven the U.S. into a recession and may topple some of the nation's biggest banks, said Kenneth Rogoff, former chief economist at the International Monetary Fund.

‘‘The worst is yet to come in the U.S.,'' Rogoff, a Harvard University professor of economics, said in an interview in Singapore today. ‘‘The financial sector needs to shrink; I don't think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job.''

The U.S. housing slump has triggered about $500 billion in credit market losses for banks globally and led to the collapse and sale of Bear Stearns Cos., the fifth-largest U.S. securities firm. Bonds of regional banks such as National City Corp. and Keycorp are under pressure on expectations of more fallout. Rogoff, 55, said the government should nationalize Fannie Mae and Freddie Mac, the nation's biggest mortgage-finance firms.

Freddie Mac and Fannie Mae ‘‘should have been closed down 10 years ago,'' he said. ‘‘They need to be nationalized, the equity holders should lose all their money. Probably we need to guarantee the bonds, simply because the U.S. has led everyone into believing they would guarantee the bonds.''

Last month, President George W. Bush signed into law a housing bill that provides Treasury Secretary Henry Paulson the power to make equity purchases in Fannie Mae and Freddie Mac. Paulson asked for the authority July 13 after the shares of the firms, which own or guarantee almost half of the $12 trillion of U.S. mortgages, slid to the lowest level in more than 17 years.

Shares Slump

The mortgage lenders have been battered by record delinquencies and rising losses. Fannie Mae fell 14 cents to $6.01 at 4 p.m. in New York Stock Exchange composite trading, its lowest level since May 1989 amid concern the government- chartered companies will fail to raise the capital they need to offset losses. Freddie Mac declined 5 percent to the lowest since January 1991.

Banks repossessed almost three times as many U.S. homes in July as a year earlier and the number of properties at risk of foreclosure jumped 55 percent, according to RealtyTrac Inc., an Irvine, California-based seller of foreclosure data. U.S. builders broke ground on the fewest houses in 17 years last month, according to a IND' ))">Bloomberg News survey.

Rogoff told a conference in Singapore today that the credit crisis is likely to worsen and a large bank may fail, Reuters reported earlier. He was the IMF's chief economist from August 2001 to September 2003.

‘‘Like any shrinking industries, we are going to see the exit of some major players,'' Rogoff told Bloomberg, declining to name the banks he expects to fail. ‘‘We're really going to see a consolidation even among the major investment banks.''

IndyMac Bancorp

IndyMac Bancorp Inc., once the second-largest U.S. independent mortgage lender, filed for bankruptcy protection Aug. 1, three weeks after it was taken over by the Federal Deposit Insurance Corp. amid a run by depositors that left it strapped for cash. Bear Stearns collapsed in March and sold itself to JPMorgan Chase & Co. for $10 a share.

‘‘The only way to put discipline into the system is to allow some companies to go bust,'' Rogoff said. ‘‘You can't just have an industry where they make giant profits or they get bailed out.''

Federal Reserve Chairman Ben S. Bernanke, seeking to allay renewed concerns over the health of the nation's financial system, said on July 8 that the central bank may extend its emergency-loan program for investment banks into next year.

Regulatory Gap

His comments followed calls by Paulson for regulatory changes that would allow financial firms to fail without threatening market stability.

Paulson has identified a legal gap that leaves unspecified how to deal with failures of companies that don't take deposits, such as investment banks. He proposed tightening supervisors' oversight of lenders and dealers while at the same time discourage companies from depending on a government rescue if their bets go wrong.

‘‘We need to create a resolution process that ensures the financial system can withstand the failure of a large complex financial firm,'' Paulson said in a speech in London on July 2.

In the case of commercial banks, the use of taxpayer funds in an emergency requires the approval of two-thirds majorities of the FDIC and Federal Reserve boards, and of the Treasury secretary in consultation with the president.

U.S. Recession

The world's largest economy is already in a recession, and the housing market will continue to deteriorate, Rogoff said. The U.S. slowdown will last into the second half of next year, he said, predicting a faster recovery in Europe and Asia.

The Federal Reserve, which has left its key interest rate at 2 percent after the most aggressive series of rate reductions in two decades, risks raising inflationary pressures, he said.

‘‘Rates are too low,'' Rogoff said. ‘‘They must realize we're going to get inflation if things stay where they are. They need to raise rates but I don't think they are going to because they're way too nervous.''

Financial fears, soaring inflation hit Wall St

Financial fears, soaring inflation hit Wall St

Stocks fell more than 1 percent on Tuesday as financial shares declined on renewed credit worries and a report showed inflation is still a threat to the economy, despite the economic slowdown.

Shares of financial companies were the biggest drag on the Dow and the S&P 500, with Bank of America (BAK.N) and Wells Fargo (WFC.N) sliding about 4 percent each and the KBW index of bank stocks falling 4.1 percent.

Reminding investors that the effects of the housing slump are still far from over, JPMorgan Securities forecast investment bank Lehman Brothers (LEH.N) will take a further $4 billion of write-downs in the third quarter due to losses from mortgage-related investments.

Goldman Sachs added to the gloomy outlook as it downgraded the price target for the stock of American International Group Inc (AIG.N), saying the potential for capital raisings and rating downgrades is increasingly likely for the world's largest insurer.

"We are back to struggling again, in the financial sector particularly," said William Stone, chief investment strategist at PNC Financial in Philadelphia. "Underneath some of that is just concern about the overall global economic slowdown."

The Dow Jones industrial average (.DJI) fell 130.35 points, or 1.14 percent, to 11,349.04, while the Standard & Poor's 500 Index (.SPX) declined 12.01 points, or 0.94 percent, to 1,266.59, after earlier falling more than 1 percent to a session low at 1,263.53. The Nasdaq Composite Index (.IXIC) shed 29.30 points, or 1.21 percent, to 2,387.68.

A much higher-than-expected inflation reading for July also scared some investors who fear the U.S. Federal Reserve might be in an increasingly difficult position to maintain its policy of low interest rates.

The government's Producer Price Index shot up at the fastest annual rate in 27 years in July, while core producer prices, excluding volatile food and energy prices, underwent their fastest rise since November 2006.

"Clearly, there is more resilience in the prices than we thought and I think this is reflecting a pass-through from the strength we had seen in commodity prices," said Anna Piretti, senior economist with BNP Paribas in New York.

She said, however, that the weakness in domestic demand should contain prices going forward.

"Consumers are not likely to make very large ticket purchases when prospects in the labor market are weakening and confidence remains very low."


Shares of AIG plunged 7.3 percent to $20.02 after Goldman Sachs cut its price target on the stock to $23 from $30, while Lehman BrothersJP Morgan Securities. lost 9.9 percent to $13.55 on negative forecast by

Bank of America's shares fell 4.3 percent to $28.02 and Wells Fargo shed 3.9 percent to $27.68.

Shares of home builders also slid following a bleak report on housing starts by the Commerce Department. For the month of July, housing starts dropped 11 percent -- the lowest annual rate in more than 17 years.

Shares of Pulte Homes (PHM.N) , the No. 3 U.S. home builder, declined 2.5 percent to $12.22. The Dow Jones index of home builders' shares dropped 2.6 percent.

On Nasdaq, shares of Staples Inc (SPLS.O) tumbled 4.8 percent to $23.39 after the leading U.S. office supply chain said tough market conditions hurt quarterly results.

Merrill, Wachovia in Danger of Failing: Strategist

Merrill, Wachovia in Danger of Failing: Strategist

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Merrill Lynch, Wachovia and other financial companies are at risk of failure as the cost of raising capital soars at a time when the banks need to pay settlements over auction rate securities, David Kotok, chairman & chief investment officer from Cumberland Advisors, told CNBC Monday.

"I think the financial problem is half way through the cycle … there's another shoe to drop ahead of us and it could be more severe," Kotok told "Worldwide Exchange." (Watch the video at the left to hear Kotok's views on where oil and the dollar are heading.)

The cash companies need to shore up bad investments, "is up to about $50 billion and will probably top $100 billion before it's over," he added.

"Those firms -- Merrill, Wachovia and others -- are going to have to raise that cash," he said. "They are either going to have to get it from the Federal Reserve, through some direct or indirect means, which means more leverage, more Fed balance sheet, more regularly oversight or they're going to have to get it in the capital markets."

"The price in the Federal Reserve is about 2 plus percent, in the capital markets it's four times as high," Kotok said. "If they pay the higher price, there is no profitability for them so their franchises are jeopardised. This is a serious developing issue as we cure years of overleveraging."

The amount of cash written off Merrill Lynch and Wachovia's balance sheets since the onset of the credit crisis still far outweighs the amount of cash they have raised, suggesting the need for fresh capital injections.

"Wachovia is a strong and stable company on solid footing," a spokeswoman for the bank said, referring to the company's statement on Friday that it "does not currently expect that the purchase of ARS under the agreement in principle will have a material effect on capital, liquidity or overall financial results."

Merrill Lynch didn't immediately comment.

Fannie Mae and Freddie Mac are also in jeopardy, Kotok said.

"Were it not for government aid and backing they would have already had to declare bankruptcy. Their portfolios have problems," he said.

"You see one brick at a time in the financial problem area become addressed. Here's Lehman trying to divest real estate holdings in a falling real estate market," he added.

U.S. economy hit by surging inflation

U.S. economy hit by surging inflation

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Wholesale inflation soared in July, leaving U.S. prices rising at the fastest pace in nearly three decades. While recent declines in oil and other commodity prices raise hopes inflation may have peaked, some economists worry about the widespread nature of the July price surge and caution it will take more time for that pressure to ease on Wall Street and Main Street.

The Labor Department reported Tuesday that wholesale prices shot up 1.2 percent in July, pushed higher by rising costs for energy and a variety of other products from motor vehicles to plastic goods.

The increase was more than twice the 0.5 percent gain that economists expected and left prices rising over the past 12 months by 9.8 percent. That marked the biggest annual increase since the 12 months ending in June 1981, a period when the Federal Reserve was driving interest rates to the highest levels since the 1861-1865 U.S. Civil War in an effort to combat a decade-long bout of inflation.

Core prices, which exclude food and energy, rose 0.7 percent last month. That increase was the biggest since November 2006 and more than triple the 0.2 percent rise in core prices that had been expected.

Elsewhere, the Commerce Department reported that construction of new homes and apartments slid to an annual rate of 965,000 units in July, a 17-year low. Builders continued to slash production as they battled slumping sales and soaring mortgage defaults dumping more homes on an already glutted market.

Wall Street tumbled on the gloomy economic news as investors worried the worst housing slump in decades was showing no signs of a rebound and that the Federal Reserve's tool to combat the weakness -- lowering interest rates -- was unlikely to be used given the sharp jump in inflation seen last month in both wholesale and consumer prices.

The Dow Jones industrial average fell 130.84 points to close at 11,348.55 after losing 180 points on Monday. It was the worst two-day performance for the Dow since late June.

Last week, the government reported that consumer prices had jumped by 0.8 percent in July, leaving prices over the past 12 months rising at the fastest pace since 1991.

The steep slump in housing, rising unemployment and a severe credit crisis have worked to offset $92 billion in economic stimulus payments made from April through July intended to keep the economy out of a deep recession. Retail giants Target Corp. and Home Depot Inc. on Tuesday reported that profits sank in the second quarter. Home Depot said it continued to have a downbeat outlook for the year as the housing market shows no signs of recovery.

The July price pressures reflected in part the surge in energy costs that pushed crude-oil and gasoline prices to record highs. Crude-oil prices have fallen by more than $30 per barrel since then, raising hopes that inflation pressures will soon ease.

But the price spikes seen elsewhere in July prompted concerns that the prolonged surge in energy was beginning to show up more broadly throughout the economy, and that while prices may rise quickly, they tend to come back down much more slowly.

"Inflation is way too hot," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania "It took a long time for the surge in commodity prices to seep into the general economy so don't expect one month of commodity price declines to suddenly turn off the inflation pump."

But other economists said they believed the July inflation report could represent the worst for inflation pressures this year if -- and they concede this is a big if -- energy prices continue to decline in coming months.

"A firmer dollar, retreating commodity prices and continued economic weakness should damp inflation by the fall," said Sal Guatieri, an economist at BMO Capital Markets in Toronto, who said he looked for elevated inflation numbers at both the consumer and wholesale levels for another month before they start declining.

Economists saw a silver lining in the continued plunge in housing construction, saying it is needed to help reduce the glut of unsold properties as builders compete with foreclosed homes selling at steep price discounts.

In Crawford, Texas, where President George W. Bush is vacationing, spokesman Tony Fratto said the big jump in July producer prices did not "reflect the recent significant fall in oil prices, which everyone would like to see continue."

The Federal Reserve is caught between a slumping economy, as reflected by the further plunge in housing construction, and the big jump in inflation pressures, which has some Fed officials lobbying for the central bank to start boosting interest rates.

The Fed, which aggressively cut interest rates from last September through April, has held rates unchanged at meetings in June and earlier this month. Richard Fisher, president of the Fed's Dallas regional bank, dissented at both those meetings, arguing the central bank should start raising interest rates to make sure the inflation surge does not become embedded in the economy.

"We cannot afford to gamble away our credibility," Fisher said Tuesday in a speech in Colorado. He warned that the recent burst of inflation could threaten the economy as "a lingering inflationary fever."

Rebecca Braeu, an economist at John Hancock in Boston, said that the big jump in core inflation in the wholesale price report would definitely set off alarm bells at the Fed. But she and other analysts said they did not believe the central bank will start raising rates, especially before the November election, as long as price pressures begin to moderate in upcoming reports.

For July, wholesale energy prices jumped by 3.1 percent following a 6 percent gain in June. That increase reflected big increases in the price of natural gas, home heating oil and liquefied petroleum gas, which offset a 0.2 percent dip in gasoline costs.

Food prices rose by 0.3 percent in July after a 1.5 percent surge in June. Beef prices jumped by 7.4 percent, the biggest increase in nearly four years. Milk prices shot up by 5 percent, the biggest gain in a year, while soft drink prices rose by 2.4 percent, the largest increase in four years.

Excluding energy and food, the 0.7 percent rise in core inflation reflected big gains in the prices of passenger cars and light trucks, pharmaceutical preparations and plastic products.

Stagflation is Here, and It is a Weapon of Mass Destruction

Stagflation is Here, and It is a Weapon of Mass Destruction

By Richard C. Cook

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U.S. wholesale prices in July 2008 grew at the fastest rate since 1981. The cost of materials has risen 9.8 percent in the last twelve months, according to government data. While gasoline prices fell the week of August 18 to $3.74 a gallon, they remain far higher than the $2.40 a gallon of mid-2005. Meanwhile, the price of food at the grocery store continues to climb, while consumer purchasing power remains stagnant.

According to analyst Michael Hodges, average family income adjusted for inflation declined six percent from 1999 to 2005, and the drop has continued since then. With families no longer able to borrow on their shrinking home equity for purchasing power due to the collapse of the housing bubble, they have had to tap into their savings. According to Hodges, “As of summer 2007, savings were a negative 1.3 percent, an all-time low.” (Grandfather Economic Report, August 2008)

The government claimed that GDP grew during the 2nd quarter of 2008—hence no recession—admitting at the same time that the chief driver of growth was the economic stimulus rebates sent by the IRS to taxpayers. The rebates, however, were paid for by more government debt, with a $490 billion federal budget deficit projected for fiscal year 2009 that begins next month.

Whether even the paltry 2nd quarter growth at an annual rate of 1.9 percent was “real” is subject to debate. Since the U.S. began to lose its manufacturing economy, a long-term slide that began after the Vietnam War, all economic growth has been in the services and financial sectors.

The government counts any financial transaction that can be taxed as part of the GDP whether or not it results in the creation of goods and services of tangible value. Bizarrely, a transaction can add to GDP even if it is based on money that has been borrowed and must be repaid with interest in the future.

So this type of debt-based GDP growth can actually be destructive in the long-run. This has happened in the U.S. , where total household, student, business, and government debt will soon be pushing $70 trillion against an annual GDP in 2007 of $13.8 trillion.

The best measure of economic health for working men and women in the producing economy is not GDP but rather M1. This is money available as immediate purchasing power from cash-on-hand, checking accounts, and NOW accounts.

M1 measures what can be bought today without a consumer being required to incur new debt. The amount of money available as M1 has fluctuated in the $1.3-$1.4 trillion range since December 2003. Growth in M1 has essentially been flat.

This means that even moderate inflation can result in erosion of consumer purchasing power. By this measure, the producing economy has been in a mild recession for four-and-a-half years. But according to the M1 Money Stock Forecast of the independent Financial Forecast Center , M1 was projected to fall from June to August of 2008 from 1.3883 trillion to 1.386 trillion.

Thus with inflation now running at close to ten percent, we have entered a period of stagflation potentially worse than the 1970s. And stagflation is nothing less than a weapon of mass destruction aimed at the livelihoods not only of the elderly and those on fixed incomes, but also on students, the unemployed, families, and almost everyone who has a job in the producing economy.

Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared in numerous websites and print magazines. His book on monetary reform, entitled We Hold These Truths: The Hope of Monetary Reform, will soon be published by Tendril Press. He is the author of Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age, called by one reviewer, “the most important spaceflight book of the last twenty years.” His website is Comments or requests to be added to his mailing list may be sent to

GM to make U-turn over sales incentives

GM to make U-turn over sales incentives

By Bernard Simon

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General Motors has backed away from a two-year drive to wean itself off incentives, highlighting the increasing desperation of US carmakers to counter the steep downturn in demand.

The Detroit carmaker is extending to all buyers of its cars the same generous discounts enjoyed by its employees, covering almost all 2008 models and some 2009 models. The offer typically cuts 10-12 per cent off a vehicle’s sticker price.

The promotion, which will run from August 20 to early September, flies in the face of pledges by GM not to repeat employee-prices-for-everyone schemes.

Incentives seldom fail to bring more buyers into car dealerships. However, they cause significant long-term damage to manufacturers by lowering vehicles’ trade-in values and denting the image of their brands.

A GM employee-discount scheme in mid-2005 led to a burst in sales for a few months as prospective buyers brought forward their purchases. But it was followed by a period of severe “payback” in the form of sliding demand for its cars.

However, GM defended the latest promotion on Tuesday, pointing to unexpectedly weak demand. Total US light-vehicle sales slumped to an annualised 12.6m units in July from 15.2m in January.

GM’s sales dived by 27 per cent in the year to July.

“There have been some pretty fundamental shifts in the marketplace,” GM said Tuesday. “It’s to be competitive. You have to do something out there.”

GM reported a second-quarter loss of $15.5bn.

According to, an online pricing service, GM offered an average incentive of $4,214 per vehicle in July, up 15 per cent from June and more than a quarter higher than July 2007.

GM’s Detroit-based rivals, Ford Motor and Chrysler, have also pushed up incentives in recent months. Perks offered by the three big Japanese carmakers, Toyota, Honda and Nissan, have remained roughly flat.

Separately, a consumer index published by the University of Michigan on Tuesday showed that US car buyers were becoming less satisfied with the Detroit manufacturers’ automobiles, even as their satisfaction with Japanese and European nameplates grows.

According to the survey, Americans' overall satisfaction with cars is rising, but rankings fell year-on-year for GM’s Buick, Cadillac and Chevrolet brands, Ford Motor’s Lincoln and Mercury and Chrysler’s Dodge brand. BMW, Honda, Toyota and Toyota’s Lexus luxury brand all improved.

Comcast Will Slow Heavy Web Users' Traffic for Up to 20 Minutes

Comcast Will Slow Heavy Web Users' Traffic for Up to 20 Minutes

By Todd Shields

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Comcast Corp. plans to slow Internet service for heavy users for as long as 20 minutes after regulators ordered the company to devise a new method for managing its Web traffic.

Traffic from targeted customers will be delayed for 10 minutes to 20 minutes regardless of program type, allowing service to other users to keep flowing, Mitch Bowling, Comcast's senior vice president and general manager of online services, said in an interview yesterday. The slowdowns will occur when Comcast's network becomes congested, he said.

The U.S. Federal Communications Commission on Aug. 1 found Comcast had improperly blocked peer-to-peer programs such as BitTorrent that are used to share videos and other files. In an order posted on its Web site today, the FCC gave the Philadelphia-based company 30 days to provide details of its ‘‘unreasonable network management practices'' and show how they would be changed by year-end.

The commission acted ‘‘to protect consumers' access to the Internet,'' FCC Chairman Kevin Martin said in an Aug. 1 interview.

The new system will move away from a focus on applications, Bowling said. Comcast will determine ‘‘in nearly real time'' whether congestion is caused by a heavy user, he said.

‘‘If in fact a person is generating enough packets that they're the ones creating that situation, we will manage that consumer for the overall good of all of our consumers,'' Bowling said.

Comcast, the biggest U.S. cable company, fell 29 cents to $21.20 at 12:52 p.m. New York time in Nasdaq Stock Market trading. The shares had gained 18 percent this year before today.

Managing Traffic

Comcast reported 14.4 million Internet users at the end of the second quarter.

The company has made the decision to use the new system and will fine-tune it further prior to introduction, Bowling said. The company can effectively alleviate congestion if the slowing lasts for ‘‘roughly between, probably, 10 and 20 minutes,'' Bowling said. The user's Internet speed would then return to normal.

‘‘If they continue that, we would have to manage them again,'' Bowling said.

A user being impeded would have Internet speeds equivalent to ‘‘a really good DSL experience,'' Bowling said. DSL, or digital subscriber line, is an Internet service offered by telephone companies.

The Codex Alimentarius Commission "Codex" Gains More Control Of Global Food Supply

The Codex Alimentarius Commission "Codex" Gains More Control Of Global Food Supply

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The Codex Alimentarius Commission (Codex) is the international food standards setting body recognised under the World Trade Organisation Agreements on Sanitary and Phytosanitary Measures (SPS) and Technical Barriers to Trade (TBT) as being the reference point for food standards applied in international trade. Its objectives are protecting the health of consumers and ensuring fair practices in food trade.

Australia’s Codex contact point, Codex Australia, is housed within the Department of Agriculture, Fisheries and Forestry (DAFF). HAL works with staff in Codex Australia and other areas in DAFF to provide input into the development of Codex fruit and vegetable standards. HAL is involved in this process to provide technical assistance to DAFF on the detail of standards in development and because Codex standards are used by inspection agencies in some of our export markets.

The Codex Committee for Fresh Fruit and Vegetables (CCFFV) met in May in Mexico City to progress a number of international standards of interest to Australia. These included apples, tomatoes and bitter cassava and the Standard Layout for all Codex fruit and vegetable standards. Standards for oranges and table grapes have recently been completed and new work proposed for CCFFV includes a revision of the standard for avocados and new work on durian, tree tomato and chilli peppers.

Progress with these standards is slow, partly because there are representatives of over 40 countries with their own perspectives on what the standards should and should not contain, so gaining consensus is often an exhaustive process, and partly because the committee only meets every 18 months, although there can be product-specific working group meetings between sessions.

The following were achievements of note at the recent CCFFV meeting:

* The apple standard has progressed to Step 5 in the Codex 8-Step process on the back of: agreement to include a draft provision for ‘firmness’ in the Minimum Requirements; an appreciation that location, climate and production practices make classifying varieties according to colour very difficult and potentially misleading, so this provision is now open to further debate; a minimum Brix level of 10.5º or 12.0º was not agreed for small apples between 50 and 60 mm diameter but is open to debate; and the section on presentation was deleted while the related section on uniformity were unable to be agreed. Electronic Working Group and physical Working Group meetings are intended to take place to seek agreement to on these issues before the next CCFFV session in October 2009.
* After reaching agreement on the sizing provisions and minor consequential amendments to other parts of the text, the Committee agreed to forward the draft Standard for Tomatoes to the 31st Session of the Codex Alimentarius Commission (CAC) for final adoption (Step 8).
* After agreeing to sections related to the level of cyanogenic glycosides necessary to differentiate bitter from sweet cassava; inclusion of an amendment to indicate that bitter cassava should be fully cooked and that the water used for rinsing and cooking should be discarded after use; and addition of a footnote to indicate that information on preparation practices needs to be provided at point of retail sale for unpackaged bitter cassava, the Committee forwarded the proposed draft Standard for Bitter Cassava to the Codex Alimentarius Commission for final adoption.

For further information and the full report of the CCFFV, please contact For information on Codex Australia, please contact

The Battered American Consumer: Even the Upper-Middle Class Is Feeling Economic Pain

Even the 'comfortable' face the need to alter spending habits

By Kathleen Connell
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Bad news continues to batter the American consumer, from negative home equity to weak retail sales and rising claims for unemployment benefits.

One in 3 homeowners who purchased homes since 2003 now owe more than what the property is worth, according to, an Internet service that values more than 80 million homes. The numbers are even more dismal for those who bought in 2006, with 45 percent now experiencing negative home equity.

Equity holdings by households offer no cushion, falling a stunning 41 percent in value for the first quarter of 2008, according to the Federal Reserve's Flow of Funds Report.

Announcements of Wall Street layoffs, bankruptcies of major US retail outlets, and even the decision by Starbucks to close 600 outlets has agitated Americans regarding their future employment.

Reflecting the collapse in housing and equity values, household net worth has dropped for two consecutive quarters, as consumers increasingly depend on credit cards and consumer loans to maintain their lifestyles.

Growing numbers of economists believe that America is now in a transformational economy, where consumer spending may play a lesser role, as households belatedly recognize the need to "right size" their lifestyles. For many families, comparison shopping has become an essential practice.

The mood of economic unease has encouraged even the wealthiest 10 percent of Americans to reconsider their spending, which in 2006 represented 1 out of every 4 dollars spent. The Harrison Group, a market-research consultancy firm, and American Express Publishing found in a June survey that 80 percent of these higher-income households are now looking closely at spending, up from 68 percent in April.

"Even the upper-middle class -- with disposable incomes of $100,000 ... are fearful for their future and concerned whether they can weather the economic storm, continuing to live the lifestyle they are currently enjoying," says Burr Brown, vice president at Harrison. "They have become savvy consumers, looking for value." The survey found 82 percent now waited for sales before buying preferred-brand products.

One sign of thriftier times: IKEA, the Swedish home-furnishings retailer, has grown from 15 stores in 2003 to 35 stores in 2008, recently opening its first US factory and two distribution centers. "IKEA is broadening its customer spectrum with growing numbers of higher income families," says Joseph Roth, the firm's director of public affairs.

Crystal Clayton and Dan Williams, an engaged couple, both IT professionals from Bowie, Md., are regular customers.

"We get the style without spending the money," says Ms. Clayton, joking, "IKEA allows me to have champagne tastes on a Coca-Cola budget." Dan is pragmatic in explaining his more mass-market shopping behavior. "I like to watch my money so that 10 years from today, we have reached our financial goals," he says. "It's a simple return-on-dollars issue for me."

Smart consumers should accept that the economy's challenges are long term, calling for a major downshift in spending. Current borrowing and debt levels are unsustainable. Recognizing the economy's new challenges, spending less will become a necessity. Consider taking the following steps:

  • Recalculate your net worth, given adverse housing, employment, and investment realities. This can help you avoid overextension based on a too-rosy view. Check out a net-worth calculator at
  • Redefine your long-term financial goals for savings, healthcare, education, and homeownership assuming continued economic volatility -- and keeping in mind rising outlay requirements on many fronts. For more information on specific important topics, visit
  • Set lifestyle priorities, opting for a life with fewer consumer goods. Separate needed purchases from impulse purchases. See discussions and tips at
  • Challenge your friends to join you in "value added" activities -- local and low-cost, or free -- that do not require you to purchase anything. Search at
  • Visit secondhand stores or discount retailers and delight in your new "return on dollars" philosophy.
  • Embrace this downsizing mentality -- it's the new "cool."

Being Stupid, Sounding Strong

Being Stupid, Sounding Strong

By Stephen Crockett

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Editor’s Note: Iran’s recent missile tests and Russia’s hard line in Georgia have underscored a flaw in the neoconservative theory about permanent U.S. military dominance everywhere in the world – at some point regional powers will just say no.

In this guest essay, radio host Stephen Crockett examines how John McCain – having embraced tough-talking neoconservatism – refuses to learn this lesson:

The conflict between the nations of Georgia and Russia, which grew very hot last week, has very long historical roots and has been potentially ready to explode since the collapse of the Soviet Union.

The comments of John McCain on the recent outbreak of war has demonstrated the close connection between “sounding strong” for domestic political considerations and “being stupid” in the execution of American foreign policy.

McCain has a tendency to talk tough and to threaten military consequences far too often for the comfort of many foreign policy experts and American citizens. McCain seems to have the first-response impulse to use force and to send in the troops.

This sometimes is appropriate but often is not the wise or intelligent course of action.

McCain seems to discount the limits of military force in achieving foreign policy objectives and the negative blowback or other unintended consequences of getting involved in military conflicts without carefully studying the facts first.

Basically, McCain’s well-known bad temper marks him as a seemingly dangerously hot-head when it comes to foreign policy. McCain is very opinionated when it comes to many aspects of foreign policy.

When conflict first erupted last week, McCain quickly made harsh comments criticizing Russia. McCain clearly appears to be threatening Russia with economic, diplomatic and, maybe military actions without considering the consequences for the United States.

His comments were not very helpful in persuading Russia to halt military actions. The Russians never respond well to direct public threats or orders from the United States. Intelligent diplomacy requires the very careful use of both carrot and stick measures to achieve the desired results.

When you start “being stupid” in your public rhetoric by “talking tough” before thinking through the situation, you almost always fail to achieve your foreign policy goals.

Our foreign goals in the current Georgia-Russia conflict should be (1) halt the exchange of hostilities, (2) get Russia to withdraw their soldiers from occupied Georgian territory, (3) obtain a solid diplomatic front with our European allies especially NATO members regarding this conflict, (4) guarantee the international border integrity of Georgia, (5) protect the international oil pipelines running through Georgian territory, (6) guarantee the safety of American citizens in the war zones, (7) preserve both democracy in Georgia and a measure of ethnic self-rule in the breakaway provinces within Georgia, (8) avoid outright American military conflict with Russia and (9) avoid a new Cold War between Russia and the United States.

“Taking tough” to “sound strong” in order to win points with the American electorate is a poor way to achieve any of these desired foreign policy goals. McCain was reckless and self-serving in his highly charged rhetoric.

Military action is all but impossible for the American government when it comes to responding to Russian actions in Georgia.

The foreign wars launched by Bush (with the enthusiastic support of McCain) in Iraq and Afghanistan have drained away our military response ability when it comes to real threats to world peace and international emergencies.

McCain, like Bush, seems to be recklessly saber-rattling regarding Iran without having the necessary military forces required to back the threats being made. We need not to make the same mistake in Georgia.

How are we going to pay for more wars?

McCain and Bush have not explained how we are going to pay for the current military conflicts or rebuilding our nearly exhausted military forces, much less launch even more foreign military misadventures.

Economic mismanagement and disastrous trade policies have crippled our national finances and undermined our industrial capacity to fight wars.

Even economic conflict with Russia will have a very negative effect on the American nation. The world needs Russian oil. Disruptions in the oil supply from Russia will create severe hardships on American consumers.

Only the oil companies financing much of McCain’s presidential campaign would profit from such a situation. McCain’s “tough talk” might already be keeping oil prices higher than they would have been if McCain had not made those comments.

The fact that McCain has had a chief foreign policy adviser who was directly employed by the nation of Georgia while working on the McCain campaign demonstrates very poor judgment by Sen. McCain.

His chief foreign policy expert on Georgia was half of a two-man lobbying firm which received around $800,000 from the Georgian government while he was advising McCain.

No adviser to any presidential candidate should be a paid agent of any foreign government. It is no wonder that McCain does not have a balanced, well-informed approach to this subject.

McCain has dangerously injected himself into this touchy foreign policy/military crisis in a very public way. McCain should remember that he is not the President.

Musharraf, Not Bush, Follows Nixon

Musharraf, Not Bush, Follows Nixon

By Ray McGovern

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Most of the fawning corporate media (FCM) coverage of Pakistani President Pervez Musharraf’s resignation Monday was even more bereft of context than usual.

It was as if Musharraf looked out the window and said, “It’s a beautiful day. I think I’ll resign and go fishing.”

Thus the lead in Tuesday’s editorial in the New York Times, once known as the newspaper of record: “In the end, President Pervez Musharraf went, if not quietly, with remarkably little strife.”

Certain words seem to be automatically deleted from the computers of those writing for the Times. Atop the forbidden wordlist sits “impeachment.” And other FCM — the Washington Post, for example — generally follow that lead, still.

Very few newspapers carried the Associated Press item that put the real story up front; i.e., that Musharraf resigned “just days ahead of almost certain impeachment.” In other words, he pulled a Nixon.

How short our memories! Three articles of impeachment were approved by the House Judiciary Committee on July 27, 1974; Nixon resigned less than two weeks later.

But what were those charges, and how do they relate to George W. Bush today?

-- Without lawful cause or excuse [Richard M. Nixon] “failed to produce papers and things as directed by duly authorized subpoenas by the Committee on the Judiciary of the House…and willfully disobeyed such subpoenas…thereby assuming to himself functions and judgments necessary to the exercise of the sole power of impeachment vested in the Constitution in the House of Representatives.”

-- “Endeavoring to cause prospective defendants…to expect favored treatment and consideration in return for their silence or false testimony.”

-- “Endeavoring to misuse the Central Intelligence Agency.”

Fortunately, John Conyers, who now chairs the House Judiciary Committee, was among those approving those three articles of impeachment.

Unfortunately, he seems to have long- as well as short-term memory loss.

He has let the Bush administration diddle him on subpoenas. And even though special prosecutor Patrick Fitzgerald made it quite clear that, because of “Scooter” Libby’s perjury, a “cloud remained over the vice presidency,” Conyers let out not a peep when Bush allowed Libby to avoid prison by commuting his sentence.

What about misusing the CIA? Here too Conyers’ behavior has been nothing short of bizarre.

Again, hardly a peep out of him, though he has been made fully aware of how the Bush administration “twisted” (to use Ambassador Joe Wilson’s word) intelligence to justify an “unnecessary” (to use former presidential spokesman Scott McClellan’s word) war on Iraq.

On Amy Goodman’s “Democracy Now” on Aug. 14, Conyers said he was “the third day into the most critical investigation of the entire Bush administration.” He was referring to author Ron Suskind’s revelations about how the White House misused the CIA.

At the same time, Conyers complained that he is “maybe the most frustrated person attempting to exercise the oversight responsibilities that I have on Judiciary” — a clear reference to how he has let himself be diddled by the White House.

Hey, John. If Pakistan can move forward to impeach a sitting president and force his resignation, why can’t you? You were part of it in 1974. Is being chairman of Judiciary too much for you?

Without any apparent tongue in cheek, Tuesday’s New York Times editorial points a sanctimonious finger at Musharraf’s abuse of power, noting that “the presidency must also be stripped of the special dictatorial powers that Mr. Musharraf seized for himself, including the power to suspend civil liberties.”

The Times notes “President Bush underwrote Mr. Musharraf’s dictatorship, but says nothing of the example Bush himself set — including rigging elections, as Musharraf did.

It is the height of irony that the relatively young democracy of Pakistan has been able to exercise the power of impeachment inherited from the framers of the U.S. Constitution, while the constipated committee captained by Conyers cannot.

Under Pakistan’s constitution, the country has a bicameral legislature with 100 senators and over 300 representatives in the National Assembly. The president is head of state and commander in chief of the armed forces. Sound familiar?

The difference is that the Pakistani legislature has checked Musharraf’s unconstitutional accretion of power by exercising its constitutional power to impeach. In contrast, Conyers has chickened out.

Have you no sense of decency, sir? At long last, have you left no sense of decency?

This is a tale of US expansion not Russian aggression

This is a tale of US expansion not Russian aggression

War in the Caucasus is as much the product of an American imperial drive as local conflicts. It's likely to be a taste of things to come

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The outcome of six grim days of bloodshed in the Caucasus has triggered an outpouring of the most nauseating hypocrisy from western politicians and their captive media. As talking heads thundered against Russian imperialism and brutal disproportionality, US vice-president Dick Cheney, faithfully echoed by Gordon Brown and David Miliband, declared that "Russian aggression must not go unanswered". George Bush denounced Russia for having "invaded a sovereign neighbouring state" and threatening "a democratic government". Such an action, he insisted, "is unacceptable in the 21st century".

Could these by any chance be the leaders of the same governments that in 2003 invaded and occupied - along with Georgia, as luck would have it - the sovereign state of Iraq on a false pretext at the cost of hundreds of thousands of lives? Or even the two governments that blocked a ceasefire in the summer of 2006 as Israel pulverised Lebanon's infrastructure and killed more than a thousand civilians in retaliation for the capture or killing of five soldiers?

You'd be hard put to recall after all the fury over Russian aggression that it was actually Georgia that began the war last Thursday with an all-out attack on South Ossetia to "restore constitutional order" - in other words, rule over an area it has never controlled since the collapse of the Soviet Union. Nor, amid the outrage at Russian bombardments, have there been much more than the briefest references to the atrocities committed by Georgian forces against citizens it claims as its own in South Ossetia's capital Tskhinvali. Several hundred civilians were killed there by Georgian troops last week, along with Russian soldiers operating under a 1990s peace agreement: "I saw a Georgian soldier throw a grenade into a basement full of women and children," one Tskhinvali resident, Saramat Tskhovredov, told reporters on Tuesday.

Might it be because Georgia is what Jim Murphy, Britain's minister for Europe, called a "small beautiful democracy". Well it's certainly small and beautiful, but both the current president, Mikheil Saakashvili, and his predecessor came to power in western-backed coups, the most recent prettified as a "Rose revolution". Saakashvili was then initially rubber-stamped into office with 96% of the vote before establishing what the International Crisis Group recently described as an "increasingly authoritarian" government, violently cracking down on opposition dissent and independent media last November. "Democratic" simply seems to mean "pro-western" in these cases.

The long-running dispute over South Ossetia - as well as Abkhazia, the other contested region of Georgia - is the inevitable consequence of the breakup of the Soviet Union. As in the case of Yugoslavia, minorities who were happy enough to live on either side of an internal boundary that made little difference to their lives feel quite differently when they find themselves on the wrong side of an international state border.

Such problems would be hard enough to settle through negotiation in any circumstances. But add in the tireless US promotion of Georgia as a pro-western, anti-Russian forward base in the region, its efforts to bring Georgia into Nato, the routing of a key Caspian oil pipeline through its territory aimed at weakening Russia's control of energy supplies, and the US-sponsored recognition of the independence of Kosovo - whose status Russia had explicitly linked to that of South Ossetia and Abkhazia - and conflict was only a matter of time.

The CIA has in fact been closely involved in Georgia since the Soviet collapse. But under the Bush administration, Georgia has become a fully fledged US satellite. Georgia's forces are armed and trained by the US and Israel. It has the third-largest military contingent in Iraq - hence the US need to airlift 800 of them back to fight the Russians at the weekend. Saakashvili's links with the neoconservatives in Washington are particularly close: the lobbying firm headed by US Republican candidate John McCain's top foreign policy adviser, Randy Scheunemann, has been paid nearly $900,000 by the Georgian government since 2004.

But underlying the conflict of the past week has also been the Bush administration's wider, explicit determination to enforce US global hegemony and prevent any regional challenge, particularly from a resurgent Russia. That aim was first spelled out when Cheney was defence secretary under Bush's father, but its full impact has only been felt as Russia has begun to recover from the disintegration of the 1990s.

Over the past decade, Nato's relentless eastward expansion has brought the western military alliance hard up against Russia's borders and deep into former Soviet territory. American military bases have spread across eastern Europe and central Asia, as the US has helped install one anti-Russian client government after another through a series of colour-coded revolutions. Now the Bush administration is preparing to site a missile defence system in eastern Europe transparently targeted at Russia.

By any sensible reckoning, this is not a story of Russian aggression, but of US imperial expansion and ever tighter encirclement of Russia by a potentially hostile power. That a stronger Russia has now used the South Ossetian imbroglio to put a check on that expansion should hardly come as a surprise. What is harder to work out is why Saakashvili launched last week's attack and whether he was given any encouragement by his friends in Washington.

If so, it has spectacularly backfired, at savage human cost. And despite Bush's attempts to talk tough yesterday, the war has also exposed the limits of US power in the region. As long as Georgia proper's independence is respected - best protected by opting for neutrality - that should be no bad thing. Unipolar domination of the world has squeezed the space for genuine self-determination and the return of some counterweight has to be welcome. But the process of adjustment also brings huge dangers. If Georgia had been a member of Nato, this week's conflict would have risked a far sharper escalation. That would be even more obvious in the case of Ukraine - which yesterday gave a warning of the potential for future confrontation when its pro-western president threatened to restrict the movement of Russian ships in and out of their Crimean base in Sevastopol. As great power conflict returns, South Ossetia is likely to be only a taste of things to come.

Congressmen Gutierrez and Baca denounce Bush, call on ICE to stop raids

Mr. President, stop your raids on our communities

By Luis Gutierrez and Joe Baca

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As members of Congress, we have traveled to remote corners of the world and had our eyes opened to some of the worst human suffering imaginable—abject poverty, meager wages, poor working conditions, paltry access to legal counsel and a jarring lack of fairness in the courts.

We never imagined that we would witness the same injustices in a small American town just a five-hour drive from Chicago.

During a visit to Postville, Iowa, last weekend, site of the May 12 Immigration and Customs Enforcement raid of the Agriprocessors meatpacking plant, we saw firsthand how a broken Immigration system devastates a small town.

Mothers bound to electronic bracelets were allowed neither to work nor to return to their home countries, leaving them without recourse to pay rent or feed their children. Wives and children—many of them U.S. citizens—were left to wonder where their husbands and fathers had been taken, or where they would go next. To this day, more than half of the wives do not know where their husbands are.

Meanwhile, a 16-year-old boy spoke of working 17-hour shifts, six days a week, without overtime on the kill floor of a meatpacking plant. Women from the slaughterhouse spoke of male supervisors demanding sex in return for decent hours, decent pay and decent treatment on the job. These workers were victimized, only to be herded like animals when ICE swept the plant and left their employers without punishment.

There is no mistaking that these men and women are suffering at the hands of the U.S. government and our president. Our broken Immigration system has paved a way to the objectification of human beings at the expense of our labor laws, U.S. workers' safety and basic family values.

Instead of taking a stand against the outright victimization of workers—many of them minors, and all of them legally entitled to labor protections—the Bush administration decided that meatpackers posed a greater threat to our security than suspected terrorists or physically abusive employers.

Almost two years to the day before the administration sent 900 ICE agents to storm Agriprocessors, President George W. Bush appeared before the American people and declared: "We're a nation of laws, and we must enforce our laws. We're also a nation of immigrants, and we must uphold that tradition, which has strengthened our country in so many ways. These are not contradictory goals. America can be a lawful society and a welcoming society at the same time."

Postville has plainly shown that we are neither of those things. We are not "lawful" when we interrupt investigations spearheaded by our own Department of Labor. We are not lawful when we implement fear tactics and deportation-only policies simply to score cheap political points with conservative pundits. We are not lawful when we railroad men and women through the judicial process, without adequate representation or a full understanding of their rights.

We are certainly not "welcoming" when hardworking mothers and fathers are prohibited from raising their U.S. citizen children in the country of their birth, or when those who work the longest hours at the most undesirable jobs are treated like terrorists, simply for waking up and going to work.

There is no other reasonable response than to demand that Bush remember his words of welcome and his commitment to law, by placing a moratorium on Immigration raids until we have passed effective, comprehensive reform. The nation that we love, respect and serve is better than this. Bush stood before the American people and proclaimed:

"An Immigration reform bill needs to be comprehensive, because all elements of this problem must be addressed together, or none of them will be solved at all."

But headline-grabbing tactics like the Postville raid had nothing to do with comprehensive reform. Bush has forgotten his promise.

No one benefits when taxpayers pay $590,000 a month to jail Postville's detainees. As a society, we fail when our factories are less safe, when the perpetrators go uncharged or when our laws remove infants from nursing mothers and create broken homes for U.S. citizen children.

We can all agree that we need Immigration reform that is tough on enforcement. However, any system which fails to respect the enormous contributions immigrants make to our workforce, that fails to reflect our proud history of welcoming those who seek a better life and that fails to protect all U.S. workers and our homeland, fails the American people.

The Postville raid failed our nation on all three of those levels. Any future raid would be equally and profoundly inexcusable and cause yet another avoidable blight on our history.

Rep. Luis Gutierrez (D-Ill.) is chair of the Congressional Hispanic Caucus' Immigration Task Force and Rep. Joe Baca (D-Calif.) is chair of the caucus.

Shai Agassi's Audacious Plan to Put Electric Cars on the Road

Shai Agassi's Audacious Plan to Put Electric Cars on the Road

By Daniel Roth

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Shai Agassi looks up and down the massive rectangular table in the Ritz-Carlton ballroom and begins to worry. He knows he's out of his league here. For the last day and a half, he's been listening to an elite corps of Israeli and US politicians, businesspeople, and intellectuals debate the state of the world. Agassi is just one of 60 sequestered in a Washington, DC, hotel for a conference run by the Saban Center for Middle East Policy. Among the participants: Bill Clinton, former Israeli prime minister Shimon Peres, Supreme Court justice Stephen Breyer, and two past directors of the CIA.

It's December 2006. Scheduled to speak in a few minutes, Agassi gets nudged by the Israeli minister of education: "Be optimistic," she tells him. "We've got to close with an upbeat tone." Agassi thanks her. Optimism won't be a problem.

At 38, Agassi is the youngest invitee. Just after the dotcom boom, SAP, the world's largest maker of enterprise software, paid $400 million for a small-business software company he started with his father; now he's SAP's head of products and widely presumed to be the next CEO. But he's not here this morning to talk about business software. Instead, his topic will be the world's addiction to fossil fuels. It's a recent passion and the organizers invited him to counterbalance the man speaking now, Daniel Yergin, the famed energy consultant and oil industry analyst. Yergin gives them his latest thinking: Energy independence is unattainable. Oil consumption will continue to rise. Iran will get richer. It's not exactly what this audience wants to hear.

Now it's Agassi's turn. He starts off uncharacteristically nervous, stammering a bit. He's got something different, he says. A new approach. He believes it just might be possible to get the entire world off oil. For good. Point by point, gaining speed as he goes, he shares for the first time in public the ideas that will change his future—and possibly the world's.

Agassi has dark hair, light brown eyes, and a square jaw. He's a careful speaker, holding back until the right moment before delivering his thoughts. He's partial to dramatic pauses, especially if he's about to explain how the future is going to look—something he does all the time. People often think he's kidding, partly because he always has a slight, wry smile. But when the pause ends, what follows—no matter how far-fetched—is never a joke. At his first executive board meeting at SAP, a company that had grown dominant by moving slowly and conservatively, Agassi suggested nearly a dozen heretical ideas. He said SAP should give away its hardware and software for free—just charge for IT support. He said SAP should make its database business open source to undermine Oracle. The other board members laughed: The new kid was a cutup! But they stopped when SAP cofounder Hasso Plattner looked around the table and said, "He's the only guy making sense here."

Agassi's interest in energy is new. In 2005, he joined Young Global Leaders, an invitation-only group for politicians and businesspeople under 40. The four-day induction seminar was held at the Swiss ski resort of Zermatt. Between lectures, YGLs like Skype cofounder Niklas Zennström and NBA star Dikembe Mutombo pledged to find ways to "make the world a better place" by 2020. Agassi's assignment was the environment, and he quickly focused in on climate change.

Most left the event and just poked around in their own industries, looking for small tweaks and improvements. But Agassi wanted something bigger. Back home in Silicon Valley, his day job involved coaxing SAP into the Web 2.0 era. But after Zermatt, his nights were devoted to dinners with energy experts, books on energy policy, and sessions on Wikipedia, learning everything he could about the carbon economy. Getting off oil was the key, he decided. But how? He started by looking at cutting energy usage in the home, then moved to a more tempting target: transportation. Was hydrogen the answer? What about embedding power in the street—like slot cars? Could more be done with biofuels? Agassi kept a running file on his home PC and began working on a series of white papers.

The problem, he decided, was oil-consuming, CO2-spewing cars. The solution was to get rid of them. Not just some, and not just by substituting hybrids or flex fuels. No half measures. The internal combustion engine had to be retired. The future was in electric cars.

This was hardly an original insight; electric cars had been the future for over 100 years. In the late 1800s and early 1900s, the Electric Vehicle Company was the largest automaker in the US, with dealers from Paris to Mexico City. But oil, in the end, supplanted volts on American highways because of one perennial problem: batteries. Car batteries, then and now, are heavy and expensive, don't last long, and take forever to recharge. In five minutes you can fill a car with enough gas to go 300 miles, but five minutes of charging at home gets you only about 8 miles in an electric car. Clever tricks, like adding "range extenders"—gas engines that kick in when a battery dies—end up making the cars too expensive.

Q&A With Israel's Shimon Peres

In early June, Wired's Daniel Roth talked with Israeli president Shimon Peres about Better Place, the greening of Israel, his obsession with Israel's burgeoning solar industry, and the problems that come with turning a vision into a reality. An edited excerpt:

Wired: Was the message of getting off oil something you were concerned about before?

Peres: I thought that the greatest problem of our time was oil. Oil on one hand is polluting the land, and on the other hand it's financing terror. They say jokingly that the Middle East is divided into these kind of countries: the oily countries and the holy countries. We are obviously a holy country. We don't have oil. We don't have water.

Wired: You brought Better Place and Renault together. Did you expect them to form this partnership?

Peres: I never worried about it. My great advantage is that I'm ignorant. My own mentor was David Ben-Gurion. He used to say all experts are experts for things that did happen. There are no experts for things that may happen.

Wired: Before Israel publicly announced its Better Place rollout, I was told that you and Prime Minister Ehud Olmert were going to announce that Israel was going to declare complete energy independence. But the announcement was much more modest. What happened?

Peres: It's not the end of the story. I am now pushing solar energy and introducing the new environmental approach to life. It's foolish: Why should we hang on oil when we can hang on the sun? The sun is much more permanent, more democratic, and there's plenty of it. I'm feeling that our technology will miniaturize the equipment of the solar energy and reduce the cost. So I'm very glad that we started. Israel is going to be a green country. That's our ambition. And our ambition is to do it as soon as possible.

Wired: So can Israel become a clean tech global power?

Peres: Israel, you know, is too small of a country to become a world market and too small a country to become a great world producer, but we have enough scientists per square kilometer to become a world laboratory. And smallness has its own advantages; when you are small you can be really daring, you can be a pilot plant. You cannot, for example, try a car like Shai Agassi's in Texas. It is too large and would be too costly and complicated. Here we can do it on a human scale and eventually extend it and expand it.

Wired: Do you see any "peace dividends" coming out of the clean tech push?

Peres: Oh yes. Ecology forces us to cooperate. Water is not disciplined, the air doesn't ask for visas to fly from one place to another place, and if seas are beginning to die, all partners have to save them. So today the economy is very much a matter of environment, and environment is an independent force that is not committed to borders or rules or conventions. And nature is impatient. You cannot say: I'm going to negotiate pollution for 10 or 20 years. Pollution won't wait for you. Pollution is not a political force; it's a force of nature.

Agassi dealt with the battery issue by simply swatting it away. Previous approaches relied on a traditional manufacturing formula: We make the cars, you buy them. Agassi reimagined the entire automotive ecosystem by proposing a new concept he called the Electric Recharge Grid Operator. It was an unorthodox mashup of the automotive and mobile phone industries. Instead of gas stations on every corner, the ERGO would blanket a country with a network of "smart" charge spots. Drivers could plug in anywhere, anytime, and would subscribe to a specific plan—unlimited miles, a maximum number of miles each month, or pay as you go—all for less than the equivalent cost for gas. They'd buy their car from the operator, who would offer steep discounts, perhaps even give the cars away. The profit would come from selling electricity—the minutes.

There would be plugs in homes, offices, shopping malls. And when customers couldn't wait to "fill up," they'd go to battery exchange stations where they would pull into car-wash-like sheds, and in a few minutes, a hydraulic lift would swap the depleted battery with a fresh one. Drivers wouldn't pay a penny extra: The ERGO would own the battery.

Agassi unveiled the outline of his vision for the crowd at the Saban event: a new kind of infrastructure, with ubiquitous charge stations, that was not only simple and logical but potentially profitable, too. As he talked, he read the body language of the audience—they were leaning forward, they were nodding—and he fed off it, layering on details. A country like Israel, he told them, could get off oil by simply adopting his new business model. No technological breakthroughs were necessary. No new inventions. It was as if he'd discovered a trapdoor beneath both the gasoline industry and the auto industry, a combined $3 trillion market. It sounded easy and unavoidable. Even Daniel Yergin was amazed. Shai Agassi had stolen the show.

A week later, Agassi was in bed when his phone rang. He was asked to hold for Shimon Peres. At first he thought it was a joke.

"Now what?" said the familiar rumbling voice on the other end of the line. Peres said he had been thinking about Agassi's speech since returning to Israel. He wanted to know what Agassi was going to do about it.

"What do you mean?" Agassi asked.

"You spoke so beautifully, you have to make this a reality. Otherwise, it will remain a speech."

After that conversation, Agassi couldn't get Peres' voice out of his head. A few months later, when his boss broke the news that he wouldn't be getting the top job at SAP anytime soon, Agassi shocked just about everyone in the tech world by quitting. And not long after that, in May 2007, he launched Project Better Place, the world's first global electric-car grid operator (he later dropped "Project"). He had no cars, no test site, and no electrical engineering or auto experience. It wasn't even clear that consumers wanted change. They were paying $3 a gallon, painful but bearable.


Electric Avenues

AutoOS, the Better Place operating system, would transform the transportation grid. Here's how.
  • 1
    A special key fob linked to the car indicates the status of the battery. If the logo is throbbing blue, the car is fully charged.
  • 2
    The driver unplugs and heads out. The software analyzes the first few minutes of driving and guesses the destination based on past history: "Work?" it asks. The driver speaks a response and the system determines how much energy is needed for the day.
  • 3
    During the commute, the location-aware system finds and displays three open parking spaces near the office that are equipped with Better Place charging spots.
  • 4
    An automatic arm extends to plug into the car. The spot then communicates with the control center, which anticipates the driver's energy needs so as to allocate power economically. It might, say, limit consumption during expensive peak hours. The driver gets a text: "80 percent charged."
  • 5
    An unexpected meeting comes up. The driver enters a new route, and AutOS determines there is insufficient charge to get there. The driver orders a battery swap.
  • 6
    AutOS finds the most convenient battery-exchange location and books a bay. The old battery gets lowered onto a hydraulic plate, and the car moves forward on a car-wash-style track. In five minutes, a fully charged battery is in place.

Nevertheless, many of Agassi's colleagues from SAP joined him. They realized that what Shai was building was still essentially a software company. He needed a network that allowed cars to tell the grid how much charge they were carrying and how much more they required. The system had to know where the car was so it could tell the driver where to go to "fill up." And it had to electronically negotiate with the local energy utility over when it could and couldn't take power and how much to pay. Few of his colleagues asked to read the business plan before signing on. They were joining the cause, not just the company. "Once you have a mission," Agassi told me over dinner one night last winter, "you can't go back to having a job."

By early summer 2008, Agassi had two countries ready to roll out the plan, a major automaker producing the cars, and $200 million in committed capital. He had launched the fifth-largest startup of all time in less than a year.

After a career spent thinking exclusively about business software, Agassi now thrills to the idea that he's changing the world. "I get to shift multiple markets," he says. "I get to shift economies. It's extremely liberating. I breathe differently."

Israelis like to call Peres, now their president, a visionary, and they mean it as both a compliment and a dig. He sees where things can go but not necessarily how to get there. When I spoke with him, he recognized that Agassi has to deal with the same challenge: "When you translate a dream into reality," he said, "it's never a full implementation. It is easier to dream than to do."

It is mid-May, and Agassi is sitting at the head of a conference table in the Kiryat Atidim high tech office park in northern Tel Aviv. Two dozen Better Place engineers and executives are grabbing platefuls of fresh watermelon and finding seats. About a third have flown in from the company's Palo Alto headquarters; the rest are based here. Agassi knows the Israeli tech community intimately. He was born here to immigrant parents—his dad's family fled from Iraq, his mom's from Morocco—and at 15 he was accepted into the Technion, Israel's MIT. After graduating, he and his father, also a Technion alum, started a series of software companies. They had their pick of talent: The country's density of scientists and engineers is among the highest in the world.

This is the first time that most of these Better Placers have been together in one room. Agassi slumps low in his chair, staring at this morning's first speaker, his little brother, Tal. Better Place is a family affair. Agassi's younger sister, Dafna Barazovsky, also works there, and their father, Reuven, frequently sits in on meetings.

Tal wears a tight-fitting button-down, and as usual his hair is heavily gelled in spikes. At 33, he is Better Place's head of network deployment, overseeing every aspect of the all-important electric grid. Behind him are three gray-and-blue mock-ups of the charging stations. These will be much more than dumb sockets; they have to carry the charge, sure, but they also must withstand being dinged by cars, vandalized by thieves, and subjected to the heat and cold. And they have to communicate with Better Place headquarters to verify that, yes, this is a subscriber and here's how to bill them. The first order of business is to choose a design.

"Put them on the table," Agassi tells his brother, who gently positions the foam models so everyone can vote. The first looks like a giant Pez dispenser, with a skinny trunk leading up to a cantilevered box that houses the charging equipment. The second has a fat base and a skinny body that zigs in the middle, like a svelte E.T. The last one is waist-high, smaller than the others, and resembles a stunted drive-through squawk box. It's the most practical: It can be freestanding or mounted, and it would be the least objectionable to retail centers. It wins unanimous approval. Then, from all around the table, come the real questions. How does the box signal that it's out of service? Where will the 32-amp charging cable go—in the charging spot or in the vehicle? "In America and Australia, it has to be outside the car," declares Ziva Patir, a former vice president of the International Organization for Standardization. Agassi hired her in April, because he not only wants Better Place to adhere to every country's existing regulations, he wants to define the new standards for the coming global electric recharge grid. So the power cords will have to be coiled inside the device and pulled out like a garden hose. But how many hoses? Enough for two cars? Four cars? And if four, won't the box be too small to hold them all? Plus, what if the power outlet on the car is in the back and the driver pulls in facing forward?

Agassi has been listening, saying nothing. But now he reacts. "Our customer goes to park her car," he says. "She pulls in, then she's squeezing between two cars to drag out this big cable and walk it back to her car. She'll be wearing her nice work clothes and getting them dirty." His eyes are closed, his hands resting on his head. "Guys," he says, using a term that always signals his disappointment with the group, "we've just lost half the market. You need to make life simple for people."

Tal stands in the front of the room, slightly stunned. A small-scale Agassi family feud breaks out. Dafna, 37, head of marketing for Better Place's Israel operations, says it's not asking a lot for people to pull into a parking spot a certain way. Their father is sitting up front, but he remains quiet. Tal finally comes up with a response: "We can have a hydraulic arm holding the cable," he says.

That enrages the rest of the room. An arm! The cost of adding an arm to the hundreds of thousands of charge spots they envision will crater the business model, argues someone from the Israeli office. Forget money, someone else says: Redesigning these things will push us way behind on our deadlines. Agassi dismisses the whole idea of an arm. "It'll break in three months," he mutters to himself.

He tries to move the meeting along, but the cable and the connector keep coming up. Each proposed solution creates a new set of problems. ("It's like a fractal," Agassi tells me later of the process, with a hint of pleasure. "But at the end, what you want is a snowflake.") He asks occasional questions, but usually just about how the speaker came to a certain conclusion—it's the thought process more than the answer that seems to intrigue him.

Finally, as Hebrew and English blur into a confusing Esperanto roar, Agassi raises both arms over his head: "One conversation!" he shouts. And then, the pause. He suddenly sees how it's going to work. Maybe the arm isn't so wrong. "This is 'think different,'" he says, invoking Apple, a company that features prominently in the detailed business metaphors he always seems to have at hand. "What do we need to make this happen? Two servos, two degrees of movement for the arm." Pause. "This is the driver experience: He goes into a spot and the spot connects itself. In 2008, we put the cable in the unit, in 2010 we use an arm, in 2012, there's a smart arm that connects automatically. For the home unit, the users get a pull cable for free, or they pay $500 and they get autoconnect. It'll cost $250 to build, and we'll sell it for $500." Agassi has not only come around on the arm, he now thinks it is essential. End of discussion. He even names a company that can build the arm and suggests how to structure the deal.

"Shai's got two big traits," says Aliza Peleg, Better Place's VP of operations. "By the time he's thought of something, to him it's been completed, it's been achieved," she says. "The other trait is that by the time you've understood what he's thinking, he's already somewhere else. You're in catch-up mode 24/7."

For months, Tal and his team have been working with vendors to design and price the charging spots. Now he has to go back and tell them that they need to add arms—and eventually smart arms—and that the redesign has to be ready by their next all-company meeting, in 90 days.

Crazy. That's what people say when they first realize the scope of Agassi's project. He's tilting at electric windmills, fighting a fight that has undone countless well-funded, well-intentioned entrepreneurs before him. In a time when Silicon Valley is all about small—scalable startups like Flickr, Tumblr, and hundreds of other vowel-deprived minicompanies—Agassi is thinking big. Google, Ford, and Exxon Mobil big. His brother tells me that Better Place is going to become one of the biggest companies in the world. When I ask Shai if he's worried about a competitor stealing his idea, he stares at me like I'm an idiot. "The mission is to end oil," he says, "not create a company."

Most startups try out their product on beta testers. Agassi wanted a beta country. A cooperative national government would be willing to modify the tax code or offer other incentives—essential to getting consumers on board quickly. He wasn't selling cars, but really building a network; the bigger the initial base, the stronger the network effect. A small island nation would be ideal, since the range of his car is limited by the range of his charging grid. Fortunately, he already had deep family and business ties to a virtual island—Israel is surrounded by water on one side and by enemies on all others. The farthest a driver can safely go in a straight shot is about 250 miles. Plus, Israel is increasingly queasy about its role as an oil importer. Anything that threatens the livelihoods of hostile Arab oil sheikhs and Iranian mullahs has a special appeal in Agassi's native land.

Agassi got to work convincing the Israeli government in 2007. First he, Peres, and Israeli prime minister Ehud Olmert pressed legislators to change the tax code to make electric vehicles more attractive to consumers. Under the proposed tax scheme, Israel's 78 percent tax on cars would be replaced by a 10 percent tax on zero-emission vehicles and a 72 percent tax on traditional gas-guzzlers. (After four years, the sales tax on electric vehicles will rise sharply.) Agassi argued that the revenue losses—calculated at $700 million over five years—would be insignificant compared to what foreign oil costs the economy. At a Jerusalem press conference in late January, Olmert beamed down at Agassi, who was sitting in the front row: "In order to bring about this dramatic change, sometimes we need a boy like in the fairy tales to say, 'Look, the emperor has no clothes.' We can all see that for ourselves, so how come we haven't said so? And this boy comes along and puts things in motion to bring about change. And the boy in this story—and he really is a boy, practically, but he has achieved more than many adults have—is, of course, Shai Agassi."

He had a country, but he also needed someone to build the cars. At the 2007 World Economic Forum in Davos, Switzerland, when Agassi was still representing SAP, he met Carlos Ghosn, CEO of both Nissan and Renault—related companies that together form the fourth-largest automaker in the world. The two talked in Peres' hotel room. Agassi's timing couldn't have been better. Ghosn was looking for a way to leapfrog his competitors in the clean-vehicle arena. GM was chasing the hydrogen fuel cell, Ford liked biofuels, Toyota had the Prius. Ghosn was especially dismissive of the hybrid approach: "They're like mermaids," he told the Israelis. "When you want a fish you get a woman, and when you want a woman you get a fish." Ghosn's companies didn't have much except a tiny electric Nissan car and plans for a high-powered lithium-ion battery to be developed by Nissan and NEC. At best, he figured, he might be able to sell the vehicles to post offices or other companies that would buy a few dozen and never drive them more than 60 miles. Agassi's plan could open much bigger doors. Still, who was this guy? Ghosn was interested, but it was too early to make any commitment.

Two months later, Agassi quit his job at SAP. Soon he was looking for money and, in early June, he found himself sitting in an office in Tel Aviv's gleaming Millennium Tower, pitching to one of Israel's richest men, Idan Ofer.

Ofer is short and powerfully built; he carries himself like a wrestler ready for his next takedown. Ofer and his family have investments around the world, and much of their money is tied up in shipping. But he'd recently bought the largest oil refinery in Israel and was finalizing a joint venture with Chery Automobile, the massive Chinese auto company. Ofer liked what Better Place could do for Israel, and he thought it could work around the world. Plus, he really liked how it might make his China investment more valuable. Chery could build cars to work on the Better Place infrastructure. China itself could be a market. (Agassi has no deal yet with Chery, but one is being discussed.)

Most Israeli entrepreneurs who tried to get into Ofer's wallet were interested only in becoming big in Israel, then selling out. Ofer was impressed that Agassi's global ambitions surpassed even his own.

"He had the self-image of being an equal to Steve Jobs or Michael Dell or Bill Gates," Ofer says. "Even if this ends up destroying—for lack of a better word—my refinery business, that will be small money compared to what this will be. When you play chess, you give up something to get something else."

After the meeting, Ofer joined Agassi in the elevator. By the time they got to the street, he had committed $100 million. The total would eventually grow to $130 million. Agassi raised another $70 million more from Morgan Stanley and two venture firms, VantagePoint Venture Partners and Maniv Energy Capital.

Once Agassi had $200 million to fund the grid and a government serious about tax breaks, Renault began developing an electric car that would be ready for the market by 2011. Agassi promises that 50 Renault prototypes will be on Israeli roads this winter—and 1,000 stations will be there to recharge them. He's not talking about some three-wheeled, pimped-out golf carts, either, but blend-in-at-the-school-parking-lot cars and SUVs. The sedan will be mid-size, similar to Renault's popular Laguna and Mégane models and able to go from 0 to 60 in a respectable 7.5 seconds. Better Place expects to have close to 100,000 vehicles by the end of 2011. And while these might show up in Israel first, Renault plans for them eventually to be on roads worldwide. "We wouldn't have invested if we thought this was a onetime, one-place story," says Patrick Pélata, Renault's product manager and Ghosn's number two.

4x4 Projects in Kfar Saba, a suburb of Tel Aviv, is the auto equivalent of an Olympic training center. The building, however, doesn't look like much, just a mustard-yellow warehouse on a cluttered industrial side street. And inside, it's just a warren of cars, trucks, and auto parts. But on a lift sits a white Jeep Wrangler that's been outfitted with supersize off-road wheels, like a monster dune buggy. A green Hummer is parked in back, its diesel engine replaced with a high-powered Chevy small-block. And a silver BMW 318i has a shiny new Corvette V-8; touch the gas and the tail whips out, perfect for drifting. The only vehicle that doesn't really fit in is a completely ordinary family sedan, a silver 2005 Renault Mégane—Better Place's first prototype.

Agassi needed some way to test Better Place's all-important software, called AutOS (pronounced "autos"). The system serves as energy monitor, GPS unit, help center, and personal assistant, packed into an onboard PC that will also hold cellular and Wi-Fi chips. As part of the debugging process, Agassi bought the used Mégane and sent it to 4x4 with his car guy, Quin Garcia. The assignment was to convert it into an electric car.

Garcia was just finishing his master's in automotive engineering at Stanford University last year when he heard Agassi give a speech on campus. A few months later, he had a job at Better Place. Garcia's manner is laid-back Northern California until anything related to cars comes up, at which point he turns as intense as everyone else at Better Place.

Garcia reaches into the Mè9gane and pushes a button. Nothing happens. "It needs to be rebooted," he shouts to the owner of the shop. Garcia opens a silver box under the hood and fiddles with some buttons. "Control-Alt-Delete," jokes Better Place executive Barak Hershkovitz.

Hershkovitz oversees AutOS. He is the hard-nosed realist to Agassi's dreamer, the Scotty to his Kirk. That means Hershkovitz, even when he's joking, comes off hangdog—he knows that deadlines are looming.

Hershkovitz was about to start a residency in ophthalmology when he teamed up with Agassi in 1998. He was a brilliant, self-taught programmer, and what started as a bit of moonlighting quickly turned into a full-time job, first at one of the Agassi family companies, then at SAP. He quit soon after Agassi left, and now, with a staff of six, he's building AutOS.

The system reboots, and Garcia taps a blank spot on the dashboard to show where the car's AutOS-powered LCD will go. The garage's owner gets behind the wheel. I take the passenger seat, Garcia and Hershkovitz climb in back, and we head toward the highway. As we accelerate, I'm pinned uncomfortably to my seat. Unlike a traditional engine, an electric motor produces all of its power right away. (Recently, Ofer, whose $130 million investment made him chair of the board, took the prototype for a spin. Garcia and others watched in horror as Ofer's sharp steering, combined with the instant torque, caused an axle to snap.)

I keep waiting for the shift to another gear—the jerk that signals it's time to breathe again. "A normal gas engine spins at 6,000 rpm," Garcia says, noticing my surprise. "This motor can spin up to 12,000 rpm," which means there's no need to change gears. "You don't have the normal car problem where you need first gear to get off the line. We just took the original transmission and stuck it permanently in second."

As we approach a stop sign, the car feels like it's being held back by a rubber band. The tug, Hershkovitz explains, comes from what's called regeneration. "When you take your foot off the pedal, the car has kinetic energy," he says. "The motor starts charging the battery, turning the kinetic energy back to electric energy." He starts running through possible ways to turn the physics into a game: He wants Better Place users to be able to go to a Web site and see which drivers have racked up the most "regen." Maybe they'll win prizes.

Garcia decides to argue the point. "If you're regening, it means you used too much energy in the first place!" Meaning drivers should just take their foot off the accelerator sooner.

"Ah, you are not a computer. It's not like you can calculate how much energy you need to get to that red light," Hershkovitz says.

"Every time you do regen, there's a loss—it's not like you get it all back," protests Garcia. "The perfect driver would cruise around without ever using regen or the brakes. When they came to their destination, they would coast to a stop."

Hershkovitz ignores him. "Come on, let's go," he says as we pull back into the 4x4 shop. He has an appointment with a Japanese team from NEC to talk batteries. I follow him into his rented Mazda5 and find my body relaxing to the familiar shifts and jerks of the internal combustion engine.

The initial deal with Israel was, thanks to Agassi's connections, practically foreordained. The real test would be signing up a second country—a "validator," to use Agassi's term. In March, he got one. Denmark is everything Israel is not: a cold climate (which is hard on batteries), a net exporter of oil, a nation friendly with its neighbors. Agassi had no ties to the government. But he had a business model that proved irresistible to a Danish company called DONG Energy.

For DONG, Denmark's largest utility, Better Place offers an opportunity to solve one of its biggest problems: the economies of wind power. DONG makes a higher portion of energy from wind—18 percent—than any other power company in the world. Danish politicians want to see that figure doubled, which is good and green but completely impractical: Some days the wind blows, and some days it doesn't. Banking wind energy is expensive and inefficient—DONG would have to buy fields of batteries. Rather than lose it, the company ends up giving away excess power to Germany and Sweden. So when DONG CEO Anders Eldrup met with Agassi, he immediately saw that Better Place would not only appeal to his countrymen's environmental leanings, but the cars would also be a cheap, distributed way to store excess wind power. After the partnership was announced, Eldrup went for a haircut and found himself bombarded with questions about Better Place. His longtime barber had never once asked about Eldrup's business. Before the Better Place announcement, the man explained, he'd never really cared.

Better Place did seem to sell itself. That's what Agassi was discovering. The day of the Denmark announcement, he received a text message from an executive at a carmaker outside of the US. (He declines to name the company.)

"What's going on in Denmark?" it read.

Agassi, a bit confused, wrote back that he had just announced country two.

"What's the announcement?"

Agassi typed: "Zero percent tax on our cars, DONG as a partner."

The next day he got another text message: "But there was already 0 percent tax on alternative energy cars in Denmark."

Agassi sent back a long missive explaining that because of Better Place, Denmark was talking about expanding its tax break beyond the current 2012 cutoff date; that DONG was promising that it could supply 100 percent clean energy for all Better Place cars; that he's raising an additional$160 million for Denmark alone; and that Renault intended to supply all the cars Denmark could buy. He finished the message with some barbed advice: "I'll be offering $20,000 cars in a market where you're selling $60,000 cars. How many have you planned to sell in 2011 in Denmark? Because I recommend you take them off your plan."

The next day, Agassi was invited to a meeting with the automaker's CEO.

"I have a strong feeling this is where the industry is going to go," says Rod Lache, an auto analyst at Deutsche Bank. In March, Lache crunched the numbers for his clients on what Better Place might do to their portfolio of auto holdings. He figured a typical driver in the US gets 20 mpg. With gas at $4 per gallon, a driver who clocked 15,000 miles per year would have an annual gas bill of $3,000. The equivalent cost of electricity and battery depreciation—Better Place's cost to fill up its customers' cars, in other words—would be about $1,050. If Agassi had cheaper cars (thanks to tax breaks or incentives) and offered monthly plans that were lower than or equal to what consumers were paying at the pump, this would be phenomenally attractive. "Frankly," Lache wrote, "we are not aware of any reason why [automakers] would not sign up for this."

Early this summer, Daimler CEO Dieter Zetsche told a German newspaper that his company would have an electric Mercedes and an electric Smart car on the market by 2010. When asked about the cost, he said it really depended on whether the batteries came with the car or were leased. No one had thought about separating the battery from the car before Agassi; now CEOs like Zetsche were treating it as standard electric-car business practice. And yes, Zetche confirmed, Daimler is talking to Better Place.

It's a warm mid-March morning in Washington, DC. Agassi has just flown in from San Francisco on the red-eye. He was booked in business class but ended up in coach, sleeping across three seats. His ever-present uniform—dark suit, white shirt—looks slightly rumpled. For years, Agassi has traveled almost constantly, and the irony of fighting planetary destruction while clocking countless hours of carbon-spewing jet travel isn't lost on him. "I have so many sins to pay on my climate bill right now that we hope this works really fast," he says.

If Better Place is to live up to Agassi's revolutionary goal, it will eventually have to win over Americans, the world's largest per-capita polluters. But that won't be easy.

He starts the day off with a speech at a conference organized by a left-leaning think tank. Speaking without notes, Agassi roams the stage, preaching the inevitability of his plan. He has a way of describing things that is never zero-sum; everybody wins in his version of the future, even when he's selling massive disruption.

"For the car companies, we made it simple," he says. "We separated the ownership of the car and the ownership of the battery. See, car companies don't know how to assess the life of the battery. So they go through these complicated programs of testing them for a long period of time. And we told the car company, you know what? Just like you don't sell a car with a card that says 'Here is oil for the life of the car,' you don't sell cars with the batteries for the life of the car, because the battery is crude oil." He explains that his plan alone, once scaled up, could produce a 20 percent drop in the world's CO2 emissions. And he wasn't stopping there. "If we also buy clean generation, we reduce the price of clean electrons so that at the end of 10 years, clean electrons are cheaper than coal-based electrons, and nobody builds another coal plant at that point. That's another 40 percent of CO2 emissions; that's the treaty Tony Blair is now working to get for the world by 2050. I'm telling you, we can get there a decade after we finish the car side. We can get there in 2030—60 percent reduction in our CO2 emissions."

After every speech—or just in the course of everyday business—one or two people ask Agassi for jobs. Michael Granoff, the venture capitalist who was Better Place's earliest investor, now works for Agassi as head of oil independence policies. ("I joke that 29 days a month Shai's my boss, and one day a month"—when Agassi briefs investors—"I'm his," Granoff says.) Today in DC, a young man from the Boston Consulting Group corners Agassi on his way out of the Hilton conference room and hands over his résumé. Granoff, who has organized Agassi's day, waits until the man is out of earshot and reminds Agassi that the same guy made the same request after a speech in Boston. Agassi has a groupie.

Outside the hotel, Granoff and Agassi jump into a hybrid Lexus SUV and head to Capitol Hill for a series of meetings. In the office of a New York House Democrat named Steve Israel, Agassi settles into a leather couch and makes a direct pitch. "Whoever is number 44," meaning the next president, "will transfer $2 trillion to $3 trillion out of the economy"—the amount America will spend on foreign oil in his first term. This is a line Agassi has been testing lately, and Israel seems to bite. "So what do we do?" asks the legislator. Agassi lays it out: He wants tax hikes on gas-powered cars. Israel tells him that will never fly. As Agassi discusses other possible incentives, Israel interrupts him: "We don't make batteries, so aren't we going to swap out foreign-oil dependence for foreign-battery reliance?" It's a strange theory, but Agassi doesn't blink. The conversation suddenly shifts to the best way to set up a battery-manufacturing center in the congressman's Long Island district.

Israel is late for a vote, so everyone hustles off toward the Capitol. As Israel veers away toward the House floor, Agassi enters an elevator followed by Kansas senator Sam Brownback. Granoff, who seems to know everyone in DC, introduces the two and quickly explains Better Place. Brownback asks if he can buy one of Agassi's cars. "One problem: We need the infrastructure first," Agassi says. "That's what we're building."

"All you need is a plug, right? Why would you need an infrastructure?" asks Brownback, who towers over Agassi.

Agassi pulls out his BlackBerry: "We're like AT&T, not Nokia," he says. But the cell phone analogy doesn't click here.

"So you're like a long extension cord?" asks Brownback, and everyone laughs politely. Agassi starts to explain, but the senator steps out. Granoff promises that he'll bring the two men together soon for a more substantial discussion.

The rest of the day proves equally unsatisfying. One senator cancels at the last minute; another offers little but good wishes. In nearly every meeting, insiders ruefully give the same advice. Getting anything like the deal he has in Israel is going to be impossible.

Washington was a bust, but there are other ways to conquer America. Agassi has already been contacted by the mayor of Los Angeles and politicians in Michigan and New York City. San Francisco mayor Gavin Newsom was in Agassi's Young Global Leaders class. "My proposal was about health care or something in San Francisco," Newsom says sheepishly. He traveled to Israel to meet with Better Place in May. But Agassi is wary. For one thing, San Francisco is hardly an island, and as leader of a municipality, Newsom has few tax levers he can pull to make the electric car affordable. That hasn't kept the mayor from combing through statutes for fees the city might lift. "This is the irony: The city is working harder to get their business than the business itself. Shouldn't he be sucking up to San Francisco?" Newsom asks, only half joking.

But there is a natural place to start in the US. The island state, Hawaii, depends on shipped-in oil; a full 14 percent of the state's annual $62 billion gross domestic product goes to oil producers, more than any state in the nation. After Israel announced its Better Place plans in January, Hawaii governor Linda Lingle asked for a meeting.

This spring, Agassi went to Honolulu. The governor ushered him into her grand koa-wood-paneled conference room. She sat at the head of the table, flanked by cabinet members. Agassi showed them how the model worked, how it would roll out, how unstoppable it would be. The governor's people wanted to know why this wasn't just shifting the environmental burden to the electric utility. Agassi said he'd pay a premium to buy energy made only from renewable sources, making it cost-effective for the utility to put in wind farms or solar-powered plants—something Lingle has been pushing for. The tourism and economic development director was impressed, but one thing bothered him: Consumers want choices. "This is Hawaii," he said. "Where are the convertibles?"

At a larger meeting a few weeks later, one of Agassi's lieutenants made the case to dozens of Hawaii's business and political leaders. Like others, Dave Rolf was intrigued. He represents the state's auto dealers, a powerful lobby in the state capitol that's against anything that cuts into car dealer profits. The meeting lasted eight hours, and Rolf left stunned. Not only was this going to happen, he decided, it needed to happen, and Hawaii was the perfect place. He fired off a letter to GM's regional head in California urging the carmaker to pay attention. The auto industry needed to be part of this from the get-go. They needed to be making electric cars. "This is kind of a world-changer," Rolf says.

A few months ago, I stopped by Agassi's Palo Alto headquarters to sit in on a three-day strategy meeting. The company has just moved in, and the walls are still decorated with motivational posters put up by the previous tenant. Empty cubicles are waiting to be filled.

The entire staff is trying to write a mission statement with help from a moderator. He flips through slides on a screen: "Our mission is to transform personal mobility." "Our mission is to break the world's oil addiction (before it breaks us)."

Agassi, in a black leather jacket, a stiff blue-and-white button-down, and faded jeans, stops the moderator. "We still think we're selling to them," he says, after one of his long, drawn-out pauses. "We're not. It's not us to them. It's them to us. You see, people want this to happen; we just happen to be in the way of their getting what they want. We can't give them the car fast enough. That's something we need to capture: 'We're here to serve you,' not 'We're here to sell to you.' We're a facilitator, not the creator. This is going to be a community. We just need to get out of their way. They're going to push for policy, they're going to sell the cars, they're going to be zealots."

I start thinking about the people he has already hooked: mayors, CEOs, investors, statesmen, even car dealers. At one point, Tal had marveled to me about Shai's ability to convince you that the answers to the most challenging problems are easy and obvious. "He tells you the story, and it sounds so simple. Why don't we have it today? Why isn't it here already?"

It's true. Shai Agassi has only one car, no charging stations, and not a single customer—yet everyone who meets him already believes he can see the future.