Friday, February 13, 2009

A Proposal to Shore Up Banks With Pension Funds

A Proposal to Shore Up Banks With Pension Funds

By MARY WILLIAMS WALSH

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Financial institutions in the United States probably need hundreds of billions of dollars in additional assistance, and one congressman wants to harness state and local pension funds to help them.

Rather than rely more heavily on the Treasury, which has already put $350 billion in the nation’s banks, Representative Gary L. Ackerman sees an opportunity in the trillions of dollars in public pension funds. Most of the funds suffered giant losses last year in the market turmoil. But they do not need all of their assets immediately, because their time horizon for paying benefits is decades long.

Mr. Ackerman, Democrat of New York, is sponsoring legislation that would allow public pension funds to pool some of their money and use it to create a sole-purpose entity that would buy $50 billion to $250 billion worth of preferred stock in America’s banks. That would strengthen the banks’ balance sheets and, Mr. Ackerman hopes, get them lending again.

“Some of us are getting tired of writing checks with public money” and seeing no results, Mr. Ackerman said. He said pension fund officials who had heard about the measure so far were eager to participate.

Since the nation’s banks are shaky, and pension funds cannot afford more investment losses, Mr. Ackerman’s measure also calls for the Treasury to guarantee the funds’ principal, plus an annual return of about 8.5 percent.

This guarantee would solve one of the biggest problems now facing most public pension funds: They need to achieve average annual investment returns of 8 percent, and in today’s markets, they cannot do so with the types of securities they are required to invest in.

Plan rules generally limit the amount of market risk the plans can take on. At the moment, risk-free assets like Treasury bills are paying next to nothing. The benchmark 10-year Treasury is yielding just under 3 percent.

If public pension funds had to adjust their numbers to reflect the bleak state of the stock and bond markets, many would no longer be viable. Even if they lowered their investment-return assumptions by three percentage points — to 5 percent, which is the rate of return the Treasury has been promised on its bank investments — their business models would no longer make sense.

The models typically call for two-thirds of the cost of the benefits promised to retirees to be covered by investment gains. At 5 percent a year, on average, the investments will not generate enough cash.

Getting the plans back into balance would then mean pumping in lots of cash, which presumably would come from taxpayers in the states and municipalities that sponsor the plans. Local governments would be hard-pressed to come up with extra money in this downturn.

A federally guaranteed return of 8.5 percent, meanwhile, would avoid such misery, and give the public pension funds a new lease on life. There would, of course, be considerable risk that the banks would not be able to generate those returns, in which case the federal government would be on the hook, as it would for any loss of the funds’ principal, under the proposal.

Mr. Ackerman, a member of the House Financial Services Committee, has been circulating a draft bill and assessing support. The bank investment program would be available only to public pension funds, not pension funds sponsored by companies. The corporate plans are covered by federal funding rules and as a result tend to be stronger.

Some public plans have made mistakes during the boom years. The state of New Jersey, for instance, used its pension fund to balance the state budget for a number of years and parted with hundreds of millions of dollars, something a corporation would not be allowed to do.

The state of Illinois has a pension model that assumes the benefits will never be entirely funded instead of covered over 30 years, as is generally required. In Pennsylvania, the state legislature passed a law in the 1980s allowing local governments to contribute smaller amounts than what is actuarially required to meet their obligations.

Mr. Ackerman and his advisers acknowledged that some public pension funds had made missteps, but said there was not time to tighten up the whole sector’s practices before starting a bank bailout. There are about 2,700 public pension funds in the United States.

“Sometimes, you have to do things to benefit people who didn’t behave so well,” Mr. Ackerman said, explaining that the need to keep public pension funds afloat and promote bank lending were too urgent to wait.

How such a plan would work with the Treasury’s newest assistance package for banks, set to be unveiled Tuesday, was not clear.

Poll: Most Want Inquiry Into Anti-Terror Tactics

Poll: Most want inquiry into anti-terror tactics

By Jill Lawrence

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Even as Americans struggle with two wars and an economy in tatters, a USA TODAY/Gallup Poll finds majorities in favor of investigating some of the thorniest unfinished business from the Bush administration: Whether its tactics in the "war on terror" broke the law.

Close to two-thirds of those surveyed said there should be investigations into allegations that the Bush team used torture to interrogate terrorism suspects and its program of wiretapping U.S. citizens without getting warrants. Almost four in 10 favor criminal investigations and about a quarter want investigations without criminal charges. One-third said they want nothing to be done.

Even more people want action on alleged attempts by the Bush team to use the Justice Department for political purposes. Four in 10 favored a criminal probe, three in 10 an independent panel, and 25% neither.

The ACLU and other groups are pressing for inquiries into whether the Bush administration violated U.S. and international bans on torture and the constitutional right to privacy. House Judiciary Chairman John Conyers and his Senate counterpart, Patrick Leahy, have proposed commissions to investigate.

Asked Monday about Leahy's plan, President Obama said he would look at it. He added, "my general orientation is to say, let's get it right moving forward." Obama and Attorney General Eric Holder have declined to rule out prosecutions. Leon Panetta, named to head the CIA, said this month that CIA officers would not be prosecuted for harsh interrogations authorized by the Bush White House.

Leahy, D-Vt., this week proposed a "truth commission" to assemble facts. He said the panel could offer immunity from prosecution for everything but perjury. "We need to get to the bottom of what happened and why," he said.

Conyers, D-Mich., has called for a panel that would gather facts and make recommendations, and could possibly lead to prosecutions. "This isn't payback," he said. "We are getting things straightened out for the future."

The Republican viewpoint was summed up recently by Sen. Arlen Specter, R-Pa. "If every administration started to re-examine what every prior administration did, there would be no end to it," he said. "This is not Latin America."

The politics of any investigation would be delicate. "You'd need people who haven't made up their minds," says Tom Kean, a Republican who co-chaired the 9/11 Commission.

FBI Sees Bailout Fraud Cases Coming

FBI expects number of major financial bailout fraud cases to rise

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Investigations will focus on big-name companies and the cases are likely to be similar in scope and complexity to that of failed energy giant Enron, Deputy Director John Pistole tells a Senate panel. By Josh Meyer

7:50 PM PST, February 11, 2009

Reporting from Washington — Despite an expected wave of fraud in the trillion-dollar bailout that aims to stop the ongoing financial meltdown, federal law enforcement officials told Congress on Wednesday that they have nowhere near the level of resources to combat it.

Top FBI and Justice Department officials said they believed mortgage fraud and other types of corporate criminal behavior has contributed to the economic tailspin. And they said they already have more than 2,300 open investigations into suspected illegal financial activity -- including 38 probes specifically linked to the crisis.

Those investigations are already straining the resources of the FBI and the Justice Department, FBI Deputy Director John Pistole and Acting Assistant Atty. Gen. Rita Glavin said in testimony before the Senate Judiciary Committee.

But the problems will worsen exponentially as the economy plunges, and as the Obama administration and Congress spend more than $1 trillion in various bailout and stimulus packages in an effort to forestall foreclosures, corporate bankruptcies and a prolonged economic depression, they said.

Pistole said he expected the number of major investigations to rise into the many hundreds, focusing on big-name companies that "everybody knows about," and to be similar in scope and complexity to the massive probe of energy company Enron Corp. after its collapse in 2001.

In the meantime, the wholesale redeployment of federal agents and prosecutors to counter-terrorism work after the Sept. 11, 2001, attacks has depleted the ranks of financial specialists needed to investigate such cases and bring perpetrators to trial, Pistole said.

The FBI has only 240 agents working on mortgage fraud cases, a fraction of the agents working on the savings and loan failures in the 1980s, Pistole said, adding that the current crisis "obviously dwarfs" the previous one.

The sheer volume of cases is so overwhelming, he said, that agents can focus only on those "systematically trying to defraud the system," including lawyers, brokers and real estate professionals.

Pistole noted that former FBI Assistant Director Chris Swecker warned Congress in 2004 about the looming crisis posed by fraudulent mortgage practices.

The FBI is now doing a "complete scrub" to find ways of redeploying agents to work on financial fraud cases, and is trying to hire and train more people capable of conducting such complex and long-term investigations, Pistole said.

In the meantime, "We need the bodies there," Pistole said. "It is a huge problem that we look forward to addressing as robustly and as aggressively as we can."

Neil Barofsky, the inspector general of the government's financial rescue package, told the panel that making an example of some high-profile lawbreakers is the best use of the government's limited resources.

"They have the most to lose, they're the most likely to flip, and they make the best examples," Barofsky said.

Three senators on the Senate Judiciary Committee, which oversees the Justice Department and the FBI, have sponsored legislation to provide federal authorities with additional funds and some stronger laws to go after mortgage cheats and other financial scammers.

One of them, Chairman Patrick J. Leahy (D-Vt.), told the FBI and Justice Department officials that he wanted to see people prosecuted and sent to jail.

In an interview after the hearing, Leahy said he was dismayed to learn how few FBI agents were being deployed to investigate financial fraud cases, but that his committee would "make sure there are enough people out there to start catching and prosecuting people."

"They will be more aggressive in the future, I can assure you," Leahy said. "This committee is going to keep the pressure on."

US jobless benefit rolls hit record high

US jobless benefit rolls hit record high

By Barry Grey

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Figures on initial US jobless benefit claims released Thursday show that the American and global economy is continuing its spiral downward toward full-scale depression, inflicting growing social misery on working people in the US and around the world.

The Labor Department reported that, for the second week in a row, more than 600,000 US workers filed new claims for unemployment benefits last week, bringing the total number of continuing claims—those drawn by workers collecting benefits for more than one week—to a record high of 4,810,000. Continuing claims have risen by more than 2 million over the past year, reaching the highest level since the government began keeping track in 1967.

Initial claims for jobless benefits totaled 623,000, slightly less than the upwardly revised figure of 631,000 for the previous week. The latest weekly figure was significantly higher than analysts’ expectations of 610,000 claims. New jobless claims have nearly doubled from a year ago.

The four-week average of claims jumped 24,000 to 607,500, the highest total since November 1982, when the US was in its most severe recession since the 1930s.

An additional 1.5 million people are receiving benefits under an extended unemployment compensation program approved by Congress last year, bringing the total number of jobless pay recipients to 6.3 million.

Last week the Labor Department reported that US payrolls shrank by 598,000 in January, bringing the total net job loss since the recession began in December of 2007 to 3.6 million. Nearly half of that total has come in the last three months alone, and the jobless claim statistics for February show that the hemorrhaging of jobs is accelerating.

The official unemployment rate for January was a 16-year high of 7.6 percent. But that figure, which excludes laid-off workers who have stopped looking for work and those seeking full-time employment who are forced to work part-time, vastly underestimates the actual number of unemployed workers.

Moreover, as the Washington Post reported on Thursday, employers and state agencies are challenging the right of laid-off workers to receive government jobless benefits at a record rate. The Post cited a study of Labor Department data conducted by the Urban Institute showing that the claims of more than a quarter of those applying for jobless benefits are being contested by employers or state authorities. The article noted that court rulings since the 1980s have made it easier for employers to block laid-off employees from receiving benefits.

The jobless claims data was released in the midst of a rising wave of mass job cut announcements in the US and internationally, as well as economic reports showing an accelerating decline in industrial production in the US, Europe and Japan and a severe contraction in world trade.

Over the past several days, major corporations in the US and around the world have announced job cuts, including the Japanese consumer electronics firm Pioneer (10,000), the French car maker Peugeot Citroën (12,000), the Japanese car maker Nissan (20,000), General Motors (10,000), the US auto supplier BorgWarner (4,500), the Swiss Banking giant UBS (1,500-2,000), Estée Lauder (2,000), Fed Ex (900), Wal-Mart (700-800), the US software company Compuware (250), Foster Architecture (300), Putnam Investments (260) and US Airways (233).

In addition, General Motors announced it was offering early retirement packages to 22,000 hourly workers, Nike said it was considering up to 1,400 layoffs, and Starbucks issued pink slips to 1,000 employees as part of a previously announced cut of up to 7,000 jobs.

Besides a layoff of 10,000 salaried workers, General Motors announced pay cuts for the remaining employees and reductions in health benefits and insurance coverage for salaried retirees, joining a growing list of companies that are imposing cuts in pay and benefits on their workers.

The global dimensions of the crisis were underscored by a report on industrial production in the Eurozone countries released Thursday by Eurostat, the European Union’s statistical office, showing a record decline of 2.6 percent in December on top of a 2.2 percent fall in November. For all of 2008, industrial production in the Eurozone countries fell 12 percent, the steepest annual drop since the euro was launched in 1999.

On Friday, figures on gross domestic product (GDP) in the Eurozone are to be released, and analysts anticipate they will show a contraction in the fourth quarter of 2008 of 1.3 percent or more, including a 2 percent decline in Germany, Europe’s largest economy, largely the result of plummeting global demand for German exports.

On Thursday, the Spanish government officially announced that the country had fallen into its first recession in 15 years, its GDP having fallen 1 percent in the final quarter of 2008. Some 3.3 million Spanish people are unemployed, more than 14 percent of the workforce.

Over the weekend, Dominique Strauss-Kahn, managing director of the International Monetary Fund, summed up the economic situation by saying the world’s advanced economies—the US, Western Europe and Japan—are “already in depression.” He said the IMF might slash its global growth forecasts further and added that the “worst cannot be ruled out.”

Strauss-Kahn’s grim assessment was borne out by US trade figures released Wednesday by the Commerce Department. They showed that both imports and exports are falling dramatically, reflecting a steep and rapid decline in global trade.

The US trade deficit in December shrank for the third consecutive month, bringing the trade gap for all of 2008 to $677.1 billion, the second straight yearly decline. However, this is anything but a sign of economic health.

US exports fell for the fifth consecutive month as shipments of goods and services fell 6 percent from November to $133.8 billion, more than 20 percent below the recent peak in July 2008. US imports also fell in December by 5.5 percent to $173.7 billion and are down more than 24 percent since July.

“Our exports are going down, our imports are going down, and so are the rest of the world’s,” said Nigel Gault, chief United States economist at HIS Global Insight. “And they’re going down very, very fast.” He added, “Trade is plunging. For a precedent, you’d have to go back to the Depression.”

The Wall Street Journal reported Wednesday that container volume at the Port of Los Angeles, the busiest US container port, fell 15.8 percent in December from a year ago, the worst month since 1995. Economists say the reduced trade volumes point to a likely downward revision of the US’ fourth quarter annualized GDP growth figure, currently reported to be minus 3.8 percent.

The impact of the deepening global recession on trade is particularly acute in Asia. China reported Wednesday that its exports in January fell 17.5 percent from the same month last year. In December, Taiwan’s exports sank 42 percent, Japan’s fell 35 percent and South Korea’s were down 17 percent.

Other US figures released this week add to the grim picture of an economy approaching free fall.

The Commerce Department reported Thursday that US businesses cut inventories by the most in seven years during December, to adjust supplies in accordance with slumping demand. Inventories decreased by 1.3 percent, far worse than the 0.9 percent decline analysts had expected.

The Commerce Department also reported, unexpectedly, that US retail sales rose in January by 1.0 percent, the first increase in seven months. However, sales for December were revised downward by 0.3 percent to minus 3.0 percent, and sales for November were likewise downwardly revised 0.3 percent to 2.4 percent. Year over year, sales in January were 9.7 percent below January 2008.

The wave of US home foreclosures continues unabated. RealtyTrac reported Thursday that foreclosure filings exceeded 250,000 for the 10th straight month in January. A total of 274,399 properties received a default or auction notice or were seized by banks, the California-based seller of default data said.

There was a 10 percent drop in foreclosures as compared to December, but that was largely the result of temporary moratoria put in place by the government-owned mortgage finance firms Fannie Mae and Freddie Mac and a number of state governments. This only sets the stage for a further spurt of foreclosures, as more homeowners lose their jobs and their savings. More people have been falling behind on payments and RealtyTrac forecasts an additional 3 million foreclosures in 2009.

In the face of this mounting economic and social catastrophe, the Obama administration’s hodgepodge of tax cuts and wholly inadequate relief measures and spending programs will have little effect. The Wall Street Journal reported that the forecasting firm Macroeconomic Advisers on Wednesday said GDP, even with the Obama “stimulus” program, will likely decline at a 4.9 percent annual rate in the first three months of this year.

Goldman Sachs economists said their forecast for the unemployment rate—9 percent by the fourth quarter of 2009—may be reached sooner. “Double-digit unemployment could well be reality sometime next year,” said Goldman Sachs economist Ed McKelvey.

Cut the Military Budget by Barney Frank

Cut the Military Budget--II

by Barney Frank

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I am a great believer in freedom of expression and am proud of those times when I have been one of a few members of Congress to oppose censorship. I still hold close to an absolutist position, but I have been tempted recently to make an exception, not by banning speech but by requiring it. I would be very happy if there was some way to make it a misdemeanor for people to talk about reducing the budget deficit without including a recommendation that we substantially cut military spending.

Sadly, self-described centrist and even liberal organizations often talk about the need to curtail deficits by cutting Social Security, Medicare, Medicaid and other programs that have a benign social purpose, but they fail to talk about one area where substantial budget reductions would have the doubly beneficial effect of cutting the deficit and diminishing expenditures that often do more harm than good. Obviously people should be concerned about the $700 billion Congress voted for this past fall to deal with the credit crisis. But even if none of that money were to be paid back--and most of it will be--it would involve a smaller drain on taxpayer dollars than the Iraq War will have cost us by the time it is concluded, and it is roughly equivalent to the $651 billion we will spend on all defense in this fiscal year.

When I am challenged by people--not all of them conservative--who tell me that they agree, for example, that we should enact comprehensive universal healthcare but wonder how to pay for it, my answer is that I do not know immediately where to get the funding but I know whom I should ask. I was in Congress on September 10, 2001, and I know there was no money in the budget at that time for a war in Iraq. So my answer is that I will go to the people who found the money for that war and ask them if they could find some for healthcare.

It is particularly inexplicable that so many self-styled moderates ignore the extraordinary increase in military spending. After all, George W. Bush himself has acknowledged its importance. As the December 20 Wall Street Journal notes, "The president remains adamant his budget troubles were the result of a ramp-up in defense spending." Bush then ends this rare burst of intellectual honesty by blaming all this "ramp-up" on the need to fight the war in Iraq.

Current plans call for us not only to spend hundreds of billions more in Iraq but to continue to spend even more over the next few years producing new weapons that might have been useful against the Soviet Union. Many of these weapons are technological marvels, but they have a central flaw: no conceivable enemy. It ought to be a requirement in spending all this money for a weapon that there be some need for it. In some cases we are developing weapons--in part because of nothing more than momentum--that lack not only a current military need but even a plausible use in any foreseeable future.

It is possible to debate how strong America should be militarily in relation to the rest of the world. But that is not a debate that needs to be entered into to reduce the military budget by a large amount. If, beginning one year from now, we were to cut military spending by 25 percent from its projected levels, we would still be immeasurably stronger than any combination of nations with whom we might be engaged.

Implicitly, some advocates of continued largesse for the Pentagon concede that the case cannot be made fully in terms of our need to be safe from physical attack. Ironically--even hypocritically, since many of those who make the case are in other contexts anti-government spending conservatives--they argue for a kind of weaponized Keynesianism that says military spending is important because it provides jobs and boosts the economy. Spending on military hardware does produce some jobs, but it is one of the most inefficient ways to deploy public funds to stimulate the economy. When I asked him years ago what he thought about military spending as stimulus, Alan Greenspan, to his credit, noted that from an economic standpoint military spending was like insurance: if necessary to meet its primary need, it had to be done, but it was not good for the economy; and to the extent that it could be reduced, the economy would benefit.

The math is compelling: if we do not make reductions approximating 25 percent of the military budget starting fairly soon, it will be impossible to continue to fund an adequate level of domestic activity even with a repeal of Bush's tax cuts for the very wealthy.

I am working with a variety of thoughtful analysts to show how we can make very substantial cuts in the military budget without in any way diminishing the security we need. I do not think it will be hard to make it clear to Americans that their well-being is far more endangered by a proposal for substantial reductions in Medicare, Social Security or other important domestic areas than it would be by canceling weapons systems that have no justification from any threat we are likely to face.

So those organizations, editorial boards and individuals who talk about the need for fiscal responsibility should be challenged to begin with the area where our spending has been the most irresponsible and has produced the least good for the dollars expended--our military budget. Both parties have for too long indulged the implicit notion that military spending is somehow irrelevant to reducing the deficit and have resisted applying to military spending the standards of efficiency that are applied to other programs. If we do not reduce the military budget, either we accustom ourselves to unending and increasing budget deficits, or we do severe harm to our ability to improve the quality of our lives through sensible public policy.

Hackers clone passports in drive-by RFID heist

Hackers clone passports in drive-by RFID heist

By Iain Thomson

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A British hacker has shown how easy it is to clone US passport cards that use RFID by conducting a drive-by test on the streets of San Francisco.

Chris Paget, director of research and development at Seattle-based IOActive, used a US$250 Motorola RFID reader and an antenna mounted in a car’s side window and drove for 20 minutes around San Francisco, with a colleague videoing the demonstration.

During the demonstration he picked up the details of two US passport cards, which are fitted with RFID chips and can be used instead of traditional passports for travel to Canada, Mexico and the Caribbean.

“I personally believe that RFID is very unsuitable for tagging people,” he said.

“I don’t believe we should have any kind of identity document with RFID tags in them. My ultimate goal here would be, my dream for this research, would be to see the entire Western Hemisphere Travel Initiative be scrapped.”

Using the data gleaned it would be relatively simple to make cloned passport cards he said. Real passport cards also support a ‘kill code’ (which can wipe the card’s data) and a ‘lock code’ that prevents the tag’s data being changed.

However he believes these are not currently being used and even if they were the radio interrogation is done in plain text so is relatively easy for a hacker to collect and analyse.

The ease with which the passport cards were picked up is even more worrying considering that less than a million have been issued to date.

Paget is a renowned ‘white hat’ ethical hacker and has made the study of the security failings of RFID something of a speciality.

In 2007 he was due to present a paper on the security failings of RFID at the Black Hat security conference in Washington but was forced to abandon the plans after an RFID company threatened him with legal action.

He points out that RFID tags are increasingly being used in physical security systems such as building access cards and the technology needs significant security adding before it could be considered safe for commercial use.

US Congress reintroduces 'state secrets' bill

US Congress reintroduces 'state secrets' bill

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Members of the US Congress re-introduced bipartisan "state secrets" legislation on Wednesday, aimed at protecting executive privilege while ensuring judicial review.

The introduction of the bill comes as Obama administration lawyers on Monday urged a federal appeals court in San Francisco to continue the policy of the previous White House and invoke state secrets privilege in a case about CIA clandestine detentions and rendition.

"The State Secrets Protection Act will help guide the courts to balance the government's interests in secrecy with accountability and the rights of citizens to seek judicial redress," Patrick Leahy, Chairman of the Senate Judiciary Committee, said in a statement.

Five other senators, including Republican Arlen Specter, joined in proposing the bill first introduced in the previous Congress to address challenges to the constitutionality of several Bush administration national security programs including rendition, interrogation programs and warrantless wiretapping.

Five members of the House -- Republicans and Democrats -- put forward the same initiative, which they said in a statement "would curb abuse of the privilege while providing protection for valid state secrets."

The administration's assertion of the state secrets privilege in the San Francisco case -- a lawsuit by terrorism suspects detained by US agents in foreign countries and taken to secret detention facilities elsewhere -- highlights the continued debate over what secret operations should be allowed into the public eye.

Democratic Representative Jerrold Nadler said a balance must be struck between protecting civil liberties and protecting valid state secrets, and that "over-broad claims of secrecy" must not be used as justification to dismiss entire cases.

"The administration's decision this week to adopt its predecessor's argument that the state secret privilege requires the outright dismissal of a case challenging rendition to torture was a step in the wrong direction and a reminder that legislation is required to ensure meaningful review of the state secret privilege," he said in a statement.

Investigation: Merrill gave 696 execs million dollar bonuses

Merrill bonuses made 696 millionaires: probe

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Merrill Lynch quietly paid out at least one million dollars bonus each to about 700 top executive even when the investment house was bleeding with losses last year, a probe has revealed.

They were part of 3.6 billion dollars in the firm's bonus payments in December before the announcement of its fourth quarterly losses and takeover by Bank of America, the investigation by the New York state Attorney General's office showed.

"696 individuals received bonuses of one million dollars or more," New York Attorney General Andrew Cuomo said of the Merrill scandal in a letter to a lawmaker heading the House of Representatives financial services committee.

Cuomo said "these payments and their curious timing raise serious questions as to whether the Merrill Lynch and Bank of America boards of directors were derelict in their duties and violated their fiduciary obligations," according to a copy of the letter.

Bank of America said recently it was aware of the amounts and timing of the bonuses even though previous reports had suggested the top bank was surprised by the payout.

Cuomo said in his letter to Democratic lawmaker Barney Frank that his office was also examining whether senior officials at both companies "violated their own fiduciary obligations to shareholders.

"If they did, this raises additional serious issues with regard to the inappropriate use of taxpayer funds," he said.

"Merrill Lynch's decision to secretly and prematurely award approximately 3.6 billion dollars in bonuses, and Bank of America's apparent complicity in it, raise serious and disturbing questions," he said.

Shareholders and experts had expressed concern over Merrill's 15.3 billion fourth-quarter loss, which caused Bank of America to request a second round of government bailout on January 16.

Bank of America's shareholders voted to approve Merrill's takeover on December 5.

Former Merrill Lynch chief executive John Thain, Bank of America chief administrative officer J. Steele Alphin and other top executives have been summoned to provide testimony in the probe.

"One disturbing question that must be answered is whether Merrill Lynch and Bank of America timed the bonuses in such a way as to force taxpayers to pay for them through the deal funding," Cuomo said.

Cuomo said the Merrill Lynch bonus payment was "nothing short of staggering."

While more than 39,000 Merrill employees received bonuses from the pool, the vast majority of these funds were "disproportionately distributed to a small number of individuals."

"Indeed, Merrill chose to make millionaires out of a select group of 700 employees."

Domenici's Records Subpoenaed in Firings Probe

Ex-lawmaker's records subpoenaed in firings probe

By PETE YOST

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A federal grand jury has subpoenaed records of former Sen. Pete Domenici, and prosecutors are preparing to interview an ex-aide to former White House political adviser Karl Rove in an investigation of politically tinged firings of U.S. attorneys.

The moves are the clearest sign yet that the criminal inquiry, which began in September, is likely to continue for many months.

Career federal prosecutor Nora R. Dannehy is looking into whether former Attorney General Alberto Gonzales, other Bush administration officials or Republicans in Congress should face criminal charges in the dismissals.

Some White House officials, including Rove as well as Domenici, R-N.M., the retired senator's former chief of staff and others refused to be interviewed in an earlier joint inquiry by the Justice Department's inspector general and the department's Office of Professional Responsibility.

Rove has said he will cooperate with Dannehy's investigation.

Tom Carson, a spokesman for Dannehy, declined to comment.

The earlier Justice Department inquiry concluded that despite Bush administration denials, political considerations played a part in the firings of as many as four federal prosecutors. Nine U.S. attorneys in all were fired in 2006.

The interview with Scott Jennings, former White House deputy director of political affairs, was expected to occur Thursday at Justice Department offices in Washington, according to Jennings' attorney, Mark Paoletta of Washington.

The grand jury subpoena for some of Domenici's records was confirmed by two private attorneys who spoke on condition of anonymity because they were not representing the former senator. Domenici's attorney, K. Lee Blalack, declined to comment about what he described as Ms. Dannehy's review.

Dropping a subpoena on Domenici may have at least as much to do with the conduct of Justice Department officials as about Domenici, who retired from the Senate this year.

Domenici made three phone calls to Gonzales in 2005 and 2006 and one to Deputy Attorney General Paul McNulty in October 2006 complaining about the performance of U.S. Attorney David Iglesias, one of those fired for what the Justice Department's inspector general said were political reasons.

In a February 2007 briefing for the Senate Judiciary Committee, McNulty did not mention Domenici's phone calls, nor were they listed on a chart prepared for the briefing at the Justice Department.

Two weeks later, Iglesias became the first person to publicly refer to Domenici possibly having had a role in removing Iglesias from his job, saying at a news conference that two members of Congress pressured him to bring an indictment in a public corruption case before Election Day in November 2006. In response to Iglesias' statements, Domenici and Rep. Heather Wilson, R-N.M., confirmed they had telephoned Iglesias but denied that they pressured him in any way.

Jennings also had a role in the Iglesias controversy. He was on the receiving end of complaints from Republicans in New Mexico that Iglesias had failed to prosecute voter fraud in a state that President George W. Bush narrowly lost in the 2000 presidential election.

In the earlier Justice Department inquiry, Jennings told investigators that shortly after joining the White House in early 2005, he heard criticism of Iglesias' performance from Domenici's chief of staff.

Jennings said the chief of staff, Steve Bell, periodically told him that he was unhappy with Iglesias' response to voter fraud complaints and other issues and that the White House should replace him. Jennings said he passed along that information to his immediate superiors, who, like Jennings, worked for Rove.

Jennings' attorney, Paoletta, said Wednesday that "in her efforts to gather all of the facts, the special prosecutor asked to interview Scott. Scott is happy to cooperate to the best of his ability, as he has done with all probes to date. It is my understanding that Scott is not a target in this investigation."

Jennings also was involved in discussions that led to one of Rove's aides, Tim Griffin, becoming U.S. attorney in Little Rock, Ark. He replaced H.E. "Bud" Cummins. The two U.S. senators from Arkansas had expressed reservations about Griffin.

Cummins was one of the U.S. attorneys targeted for removal on a list that Gonzales' chief of staff, Kyle Sampson, supplied to the White House in March 2005. Cummins' name remained on every removal list throughout the drawn-out decisionmaking process that concluded in December 2006, the month that eight of the nine firings took place.

On the Net:

Justice Department inspector general's report on firing of U.S. attorneys:

US Supreme Court undermines constitutional protection against unreasonable searches and seizures

US Supreme Court undermines constitutional protection against unreasonable searches and seizures

By John Burton

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With decisions in two key cases last month, the Supreme Court continued its decades-long offensive against the Bill of Rights. The court poked more gaping holes into established precedents that recognize and enforce the Fourth Amendment's prohibition against "unreasonable searches and seizures" by barring the use of illegally obtained evidence in court and allowing victims of police misconduct to prosecute federal civil rights lawsuits for money damages.

The British government's arbitrary deprivations of liberty and invasions of personal privacy are well established to be among the primary causes of the American Revolution. The founders' objections to them are embodied in the Fourth Amendment's injunction that, "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause."

The primary judicial mechanism enforcing the Fourth Amendment is the "exclusionary rule," the constitutional doctrine requiring judges to bar evidence seized without warrant or probable cause. The Supreme Court first applied the exclusionary rule in federal criminal prosecutions almost 100 years ago. About fifty years later, while under the leadership of Chief Justice Earl Warren (1953-1969), the Supreme Court decided Mapp v. Ohio, holding that state courts, like federal courts, must exclude evidence seized illegally.

In the half-century since Mapp, there have been thousands of court decisions on motions by criminal defendants to suppress evidence obtained by police officers in violation of the Constitution. The result is an extensive body of state and federal legal precedents that set various limits on the power of police to arrest people and search their homes, business and automobiles.

Because of its prominent role in expanding individual privacy, however, the exclusionary rule has been under relentless attack by those who seek to minimize or remove altogether such legal restrictions in order to increase the repressive apparatus of federal, state and local government.

Among them is the current Chief Justice of the United States, John G. Roberts, Jr. While an associate counsel to President Ronald Reagan in 1983, Roberts lobbied for a "campaign to amend or abolish the exclusionary rule." Despite his authoritarian positions on this and other fundamental constitutional issues, Roberts was confirmed in 2005 with key support from Senate Democrats to head the Supreme Court for the rest of his life. Then age 50, Roberts became the youngest chief justice since John Marshall took the bench in 1801 at the age of 45.

Roberts joined right-wing Associate Justices Antonin Scalia and Clarence Thomas, who had expressed their opposition to the exclusionary rule in several dissents. Joining this reactionary bloc in 2006 was Associate Justice Samuel A. Alito, Jr. During his confirmation hearings, a 1985 job application to the Reagan administration's Department of Justice surfaced in which Alito claimed his legal career was "motivated in large part by disagreement with Warren Court decisions, particularly in the area of criminal procedure," i.e., the exclusionary rule. Alito, then 55, too, was confirmed to a lifetime appointment despite the Senate Democrats having sufficient numbers to block the nomination with a filibuster.

In one of his first decisions as a Supreme Court justice, Alito joined with Roberts, Scalia, Thomas and Associate Justice Anthony Kennedy to form a majority in Hudson v. Michigan, a case that ruled by a 5 to 4 vote that the exclusionary rule does not apply to evidence seized when police ignore the constitutionally required "knock notice" when serving a search warrant on someone's home.

Scalia's majority opinion expressly rejected the Mapp precedent that "all evidence obtained by searches and seizures in violation of the Constitution is, by that same authority, inadmissible" and articulated a rationale that would eliminate the exclusionary rule altogether.

"We cannot assume that exclusion in this context is necessary deterrence simply because we found that it was necessary deterrence in different contexts and long ago. That would be forcing the public today to pay for the sins and inadequacies of a legal regime that existed almost half a century ago," Scalia wrote. He claimed that "the increasing professionalism of police forces," along with the "the slow but steady expansion of private federal civil rights cases arising from alleged police misconduct" has made the exclusionary rule no longer necessary to enforce constitutional rights.

It does not take a constitutional scholar to point out the obvious, that any "increasing professionalism of police forces" over the last fifty years was due to Mapp and other Warren-era court decisions "in the area of criminal procedure" such as Miranda v. Arizona.

The first of the two decisions last month was Herring v. United States. The Supreme Court ruled 5 to 4 that under certain circumstances evidence seized illegally by police can nevertheless be used in criminal prosecutions if the police department was merely "negligent" in violating the Constitution and its unconstitutional conduct "attenuated" from the seizure itself.

The Herring decision arose from the 2004 arrest of Bennie Dean Herring for possession of drugs and a weapon. While picking up his truck from a sheriff's impound lot, an investigator searched for outstanding warrants. The investigator was misinformed by a clerk for a neighboring county that Herring had a warrant for failing to appear in court. The warrant had been recalled five months earlier, but had been left in the county system.

Roberts, writing for the same five-justice majority that decided Hudson, argued that the case could be resolved simply on the basis that no Fourth Amendment violation occurred, because the arresting officer reasonably believed there to be a valid warrant. Going beyond this argument, however, Roberts assumed the Constitution was violated in order to launch a frontal assault on the exclusionary rule itself.

"The fact that a Fourth Amendment violation occurred—i.e., that a search or arrest was unreasonable—does not necessarily mean that the exclusionary rule applies," Roberts wrote. Making up new legal principles on the spot, Roberts claimed, "The exclusionary rule is not an individual right and applies only where it results in appreciable deterrence."

Even deterring police misconduct is insufficient to invoke the exclusionary rule, at least according to Roberts. "The benefits of deterrence must outweigh the costs," so it does not "apply in every circumstance in which it might provide marginal deterrence." This is an exception broad enough to swallow the rule altogether.

Finally, Roberts derided the dissent of Associate Justice Ruth Bader Ginsburg, which was joined by Associate Justices John Paul Stevens, Stephen Breyer and David Souter. Ginsburg pointed to the Supreme Court's legacy of "a more majestic conception of the exclusionary rule" than that of the current majority.

Also last month, the Supreme Court decided Pearson v. Callahan, one of the "private federal civil rights cases arising from alleged police misconduct," which, at least according to Scalia's opinion in Hudson, are making the exclusionary rule no longer necessary for the enforcement of the Fourth Amendment.

This case involved a criminal informant allowed into a home ostensibly to purchase narcotics. Police then charged in behind him without a search warrant, making the absurd claim that the occupant's consent to the informant's entry also constituted consent to their entry.

The occupant sued for money damages, claiming the officers violated the Fourth Amendment's warrant clause.

The Supreme Court ruled unanimously that the judicial doctrine of "qualified immunity" protected the officers, regardless of whether they violated the Fourth Amendment, because, supposedly, "It was not clearly established at the time of the search that their conduct was unconstitutional."

In no other area of the law are wrongdoers entitled to so brazenly argue that they should not be held responsible for their actions because they did not know their conduct violated the law.

Underlying these profoundly anti-democratic decisions are the rapidly increasing social tensions arising from shrinking wages, plummeting employment rates, the dismantling of social services and outright looting of the public weal by the financial aristocracy. The Supreme Court is deliberately removing legal impediments to police repression to lay a ground-work for the most brutal police reactions to the rapidly approaching social explosion.

Congress on bended knee before Wall Street executives

Congress on bended knee before Wall Street executives

By Jerry White

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Chief executive officers from the eight largest banks in the US, which have collectively received $125 billion in bailout money, appeared before the House Financial Services Committee Tuesday. The hearing was a demonstration of the utter prostration of both the Democratic and Republican politicians before America's financial elite.

Appearing before the congressional committee were Lloyd Blankfein (Goldman Sachs); James Dimon (JPMorgan Chase); Robert Kelly (Bank of New York Mellon);

Ken Lewis (Bank of America); Ronald Logue (State Street Corporation); John Mack (Morgan Stanley); Vikram Pandit (Citigroup) and John Stumpf (Wells Fargo). Collectively they have received hundreds of millions in individual compensation over the last few years, while their institutions precipitated the worst financial meltdown since the Great Depression.

Far from conducting a serious investigation into these activities, the congressmen treated the executives with deference. They stressed that there would be no recriminations, but Congress would work with the bankers to restore confidence in the financial system. The witnesses were not put under oath or compelled to reveal any damaging or incriminating evidence. Instead, for the most part they were asked politely if they had learned their lessons and were ready to act more prudently.

This obeisance to the financial aristocracy was summed up in the opening remarks of committee chairman Barney Frank. The Massachusetts Democrat, himself a recipient of millions in campaign funds from Wall Street, acknowledged that there was widespread public anger against the banks and acknowledged that the overwhelming majority of the people wanted to "junk" the present financial system and build a new one. However, the "time and effort" made such a proposal "impractical," Frank insisted.

In order to get the financial system working again, he said, "we are going to have to work within the ‘existing institutions.'" He made it clear that there would be no substantive change in the operations or leading personnel of the tattered financial institutions, let alone any challenge to the wealth and prerogatives of those responsible for the worst crisis in 70 years.

Frank then hit at the political "dilemma" that he said the government faced. By funneling more public money into the banking system, he said, the same banking executives responsible for the crisis would be seen as the beneficiaries. This would only generate more public opposition, not only to Wall Street but to the government itself.

Indeed, the insistence of the financial elite in looting the public treasury, even if it means the bankruptcy of the country, has put the government in an extremely difficult position. However, given the complete subservience of the government to the financial aristocracy, and its unquestionable defense of the capitalist system, the politicians were reduced to begging the bankers to clean up their acts and do the public relations work necessary to get through the next installment of public money.

"I urge you going forward to be ungrudgingly cooperative," Frank pleaded. "There has to be a sense of the American people that you understand their anger...and that you're willing to make some sacrifices to get this working."

What followed was political theater in which the executives explained that they weren't really withholding credit but had issued billions in new loans to consumers, students and small businesses. They made these claims even as report after report has documented the virtual drying up of credit. The banks have used public assets to pay out dividends to wealthy bondholders and finance multi-billion dollar mergers that have resulted in the destruction of thousands of jobs.

The executives issued obligatory apologies for past "mistakes" and "errors," pledged greater "accountability" and "transparency" and even said they would institute a three-week moratorium on foreclosures until the Treasury Department's new bailout kicked in. Announcing that he would work without bonuses, John Mack, the CEO of Morgan Stanley, declared, "I know that American people are outraged about compensation packages," although he did not offer to give back any of the $56 million he pocketed over the last five years.

A few Democrats on the finance committee joined the act, railing against excess bonuses, taxpayer-funded travel junkets, private jets and the millions of dollars in fees charged by the banks to process their own bailout money. The posturing was aimed at deflecting criticism from the Democrats who, like the Republicans, are widely perceived as shills for the Wall Street banks. As one Democratic congressman complained to the bankers, "your industry and ours are suffering from a credibility gap with the American people."

In the course of the hearing it was revealed that Merrill Lynch, with the complicity of its new owner, Bank of America, had used accounting tricks to issue $3.6 billion in executive bonuses even as the bank was receiving taxpayer money. Bank of America's executive quickly dodged any responsibility and the matter was dropped.

Another Democratic congressman complained that the American people had been "screwed out of $78 billion," citing a report issued last Friday by the congressional panel set up to oversee the first $700 billion bailout. The report revealed that Bush administration officials overpaid for banks' "troubled assets." The congressman lamely asked, "Will you recommend to your boards that additional shares be given to the government?" The bankers met the question with silence.

Constantly in the background of the hearing was a fear that the banks and government were inciting a potential explosion as millions of working people were losing their jobs and homes, taking pay cuts and facing the prospect of destitution, while the financial elite on Wall Street is looting the US Treasury.

Several congressmen read letters from their constituents. One expressed what millions think of the banking executives: "Put them all in jail, which is where I would be if I robbed a financial institution."

Despite their vocal contrition, the Wall Street executives were intransigent on their demands for more bailout money. On the most important issue—the sale of the trillions of dollars in virtually worthless mortgage-backed assets held by these insituttions—the banking executives made it absolutely clear they would not sell them at the current market prices and were waiting for the Obama administration's new bailout to make any sale far more lucrative.

Abandoning their supposed commitment to the "free market," the executives insisted the value of their assets should be pegged, not at the market value, but at some supposedly "fair value" that was far above their present price. In an attempt to justify this position, Citigroup's Vikram Pandit declared, "We have a duty to our shareholders; if [the assets] are marked so far below the lifetime value we can't do it." However, if you get the funding flowing, he said, "then you will get a real bid."

Wall Street reacted with disappointment to US Treasury Secretary Timothy Geithner's unveiling of the Obama administration's new bailout proposals on Tuesday. Behind this reaction was disquiet that the proposals—though entirely geared to the interests of Wall Street—did not include a more explicit plan for the purchasing of these "toxic" assets. The details of this new transfer of wealth to the Wall Street banks are currently being worked out behind the scenes.

Peanut company president refuses to answer questions from Congress

Peanut company president refuses to answer questions from Congress

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The owner of a peanut company pleaded the fifth amendment and refused to testify before Congress today after it was disclosed he urged workers to ship products tainted with salmonella.

While speaking before a House subcommittee hearing Stewart Parnell, owner of Peanut Corporation of America, said: "Mr Chairman and members of the committee, on advice of my counsel, I respectively decline to answer your questions based on the protections afforded me under the US Constitution."

Parnell was told to leave the hearing after repeating the statement several times. The House subcommittee's hearing was on the outbreak of salmonella that is reportedly linked to the deaths of nine people. Parnell's company has been blamed for causing the outbreak.

After Parnell's refusal to testify, panel members heard from a lab worker who said the company found salmonella at the plant in 2006.

Emails obtained by investigators revealed Parnell was concerned about the cost of testing for the bacteria was too high.

"We need to discuss this," he wrote in an email to the plant manager. "The time lapse, beside the cost is costing us huge $$$$$$ and causing obviously a huge lapse in time from the time we pick up peanuts until the time we can invoice."

When the outbreak started in January, Parnell sent messages to the Food and Drug administration saying his workers "desperately at least need to turn the raw peanuts on our floor into money".

Indicting Baseball Players, But Not DOJ Officials for False Testimony to Congress?

Charging Baseball Players but Not DOJ Officials for False Testimony to Congress: Statement of J. Gerald Hebert, Campaign Legal Center Executive Director

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Today's charge against major league baseball star Miguel Tejada speaks volumes about the skewed law enforcement priorities within the Justice Department.

At the outset, let me make clear that I am not stating that Miguel Tejada should not be charged. Rather, I find it shocking that the Department would elevate the prosecution of a major league baseball player for lying to congressional investigators about steroid use above the prosecution of a former Justice Department official who was found to have given false testimony to Congress about politicized and illegal hiring practices within the agency.

A recently released report from DOJ's Inspector General found that Acting Assistant Attorney General Bradley Schlozman gave false testimony to the Senate Judiciary Committee (both in his oral testimony and in written supplemental testimony) regarding his partisan misuse of his office and his violations of the Civil Service Reform Act.

Page 64 of the report states unambiguously that, "Schlozman made false statements about whether he considered political and ideological affiliations when he gave sworn testimony to the Senate Judiciary Committee and in his written responses to supplemental questions from the Committee." The IG report further notes that Schlozman "made false statements to Congress" and referred the matter to the US Attorney's office for prosecution. Inexplicably, the U.S. Attorney's office for the District of Columbia declined prosecution of Schlozman. The same U.S. Attorney 's office now announces that it has decided to pursue charges against a professional baseball player.

Baseball may be the national pastime, but the Department of Justice is the nation's law enforcement agency. Federal prosecutors know that knowingly making false statements under oath to Congress, especially when that testimony comes in the context of a public corruption hearing, is a most serious crime. That the IG concluded that Mr. Schlozman was found to have done it both orally and in writing makes the decision not to prosecute him even more incomprehensible. If public officials can provide false testimony investigating corruption with impunity, how worthwhile is Congress's oversight authority?

Anyone who is a baseball fan is deeply saddened by the steroid scandals that have engulfed the game. As a career prosecutor in the Justice Department for over twenty years, I am surprised that DOJ sees making false statements to congressional investigators as a prosecutable offense, but making false statements to Congress is not. Fortunately, during his confirmation hearings, Attorney General Holder promised to re-examine the decision not to prosecute Schlozman.

Scientists Heartened at Prospect of End to Stem Cell Ban

Scientists Heartened at Prospect of End to Stem Cell Ban

Move by Obama expected to kick-start efforts to unlock therapeutic potential

By Amanda Gardner

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Researchers are rejoicing over President Barack Obama's anticipated lifting of the eight-year ban on embryonic stem cell research imposed by his predecessor, President George W. Bush.

The anticipation moved one step closer to reality Thursday, with media reports that Obama gave House Democrats at a closed-door Virginia retreat a "guarantee" that he would sign an executive order overturning Bush's policy.

"It's going to remove an embarrassment for American science," said Dr. Darwin Prockop, director of the Texas A&M Health Science Center College of Medicine Institute for Regenerative Medicine at Scott & White Hospital in Temple. "It's a statement that we're going to again believe in science."

Yet those same experts are aware that the sobering state of the economy could impose its own restrictions on this type of research.

"This clearly is a very important part of our medical future," said Paul Sanberg, distinguished professor of neurosurgery and director of the University of South Florida Center of Excellence for Aging and Brain Repair in Tampa. "[But] to clear the path for this without giving additional money to the National Institutes of Health will be disappointing. I hope the stimulus package also includes an increase in embryonic stem cell funding."

Sanberg also expressed concern that any monies redirected to stem cell research could divert funds from other critical avenues of research. "If it's a normal competitive process, it will take money away from other programs," he said.

Stem cell research received a big boost in January, when the U.S. Food and Drug Administration approved the first-ever human trial using embryonic stem cells as a medical treatment.

Geron Corp., a California-based biotech company, was given the OK to implant embryonic stem cells in eight to 10 paraplegic patients who can use their arms but can't walk.

In 2001, then-president Bush limited federal funding for stem cell research only to human embryonic stem cell lines that already existed.

The decision prompted some scientists to worry that the United States would fall behind other countries in the drive to unlock the potential of stem cell research.

Embryonic stem cells are the most basic human cells, believed to be capable of growing into any type of cell in the body. Working as a sort of repair system for the body, they can theoretically divide without limit to replenish other cells. The scientific hope is that stem cells may, at some point in the future, become capable of treating a variety of diseases and conditions, such as Parkinson's disease, diabetes, heart disease and spinal cord injuries, according to the U.S. National Institutes of Health.

National polls continue to find that the majority of Americans favors embryonic stem cell research, although some surveys have found that that support has declined somewhat in recent years.

Many people object to the use of embryonic stem cells, contending that the research requires the destruction of potential life, because the cells must be extracted from human embryos.

The stem cells being used in the recently approved Geron trial were obtained from one of the Bush administration's approved stem cell lines. And no federal funds were used in the development of this treatment.

Since the restrictions on embryonic stem cell research took effect, many research institutions have redirected their focus to other types of stem cells. Prockop's institution, for instance, deals only with adult stem cells.

Adult stem cells can give rise to all the specialized types of cells found in tissue from which they originated, such as skin. But, scientists don't agree on whether adult stem cells may yield cell types other than those of the tissue from which they originate, according to the National Institutes of Health.

Prockop said embryonic stem cells "are mainly of interest as a research tool and a biological experimental system. Their use in patients in spite of that recent approval for Geron is really very questionable because of the potential for tumors."

Still, the anticipated lessening of restrictions by the Obama administration may help funnel more private money into stem cell research, the experts said.

"This should give more general acceptance to stem cell research, because now, there won't be this stigma associated with it as much," Sanberg said.

And, perhaps, a new federal policy would spur organizations such as the American Heart Association -- which currently does not fund research involving human embryonic stem cells or stem cells derived from fetal tissue -- to channel funds into this line of research, Sanberg added. (The heart association said it "recognizes the value of all types of stem cell research and supports federal funding of this research.")

Still, Sanberg pointed out, some ethical issues surrounding stem cell research and its application will remain.

For instance, he said, "There still needs to be some oversight on the uses of stem cells and cloning."

More information

To learn more about stem cells, visit the U.S. National Institutes of Health.

Farms See Big Crop of Workers

Farms see big crop of workers

Growers, once hurting for laborers, are benefiting from a migration as jobs in food service and construction dry up.

By Jerry Hirsch

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What a difference a bad economy makes. The collapse of the construction industry and a slump in the restaurant and food service sector have sent thousands of people back to looking for work on California farms, which not so long ago were hurting for workers.

"We have had no trouble getting workers for the winter vegetable harvest," said Jon Vessey, who farms 7,000 acres near El Centro. "There is a bigger supply of labor this year than last year or the year before."

Labor experts, union officials and farmers themselves say they are seeing this happening across the state.

Before the recession, Vessey's operation was a prime example of a growing shortage of agricultural workers in the state's coastal plains and inland valleys, which had seen farmworkers leave by the thousands for better jobs in the city.

Three years ago, things were so bad that Vessey posted openings for 300 temporary workers at the state Employment Development Department in Calexico, near the Mexican border.

One person showed up, and he lasted just half a day working the fields.

At the time, farm interests held up Vessey's experience as evidence of how badly the nation needed both a guest-worker program and a way for illegal immigrants to gain legal status.

Whether there was a true shortage is still a matter of debate. The lack of workers could have been the result of a reluctance by farmers to raise wages enough to persuade people to do farm work, said Phil Martin, a UC Davis farm labor economist.

"You can't talk about need or shortage without talking about wages," Martin said.

Farmers and agribusiness interests generally say they can't afford to pay much more than the minimum wage because of international competition, Martin said.

"So what happens is that people move on to higher-paying jobs," he said. "Farm labor is a job, not a career. When people have other options, they get out of farm work. Construction is a frequent first step up the job ladder."

The lack of workers a few years ago was most acute in border areas such as the Imperial Valley and Yuma, Ariz.

"That had a lot to do with the Border Patrol ramping up sharply. If you were illegal and got across with false documents, you would get away from the border area very quickly," Martin said.

Even so, farming continued in those regions, he said. "I don't think a lack of labor ever prevented people from planting crops if they thought there was a market for what they were producing."

The recession has ended the debate for now.

"A lot of people who lost their jobs have come back into farming from the construction industry and food service," said Tom Nassif, chief executive of Irvine-based Western Growers Assn., whose members farm and pack about 90% of the produce and nuts grown in California.

California's jobless rate rose to 9.3% in December, and construction was one of the industries hardest hit, according to the state EDD.

Construction jobs fell 10.8%, or almost 93,000 jobs, from December 2007. During the same period, agriculture employment rose by 2,000 jobs, or 0.5%.

In the restaurant industry, the need for servers, cooks and dishwashers has declined as many chains are reporting year-over-year sales declines of 5% in restaurants open a year or more. As they get laid off, some of these workers head back to the farm.

Farmers also need fewer workers this year, Vessey said. And that has helped reverse the shortage.

"There are less planted vegetables than we have had in the past," he said. "Farmers have cut back because of the recession and because of the drought." Growers are reluctant to plant if they aren't sure they will have enough water to grow their crops, he said.

Other farmers also report an adequate supply of workers. Bart Fisher is in the middle of harvesting about 1,500 acres of broccoli and iceberg lettuce in eastern Riverside County and said he had enough workers.

Farther north, in Yolo and Sutter counties, Charlie Hoppin is turning away workers.

"I feel bad I can't hire more," Hoppin said, adding that there was a good supply of equipment operators who had lost jobs grading housing developments and in other construction projects.

"We are also finding that the people who are working for us are more stable. There are fewer absences, and they work hard and are reliable," said Hoppin, who farms about 3,000 acres of melons, rice, wheat and corn.

The environment is far different from three years ago, when California farmers unsuccessfully lobbied Congress to pass an immigration bill that included a guest-worker program for farm labor and a way for the illegal immigrants already in the industry to gain citizenship.

At the time, growers in the winter farm belt of California and Arizona said they could fill only half the 50,000 field hand positions needed to gather the region's ripening produce.

Many farmers still believe that Congress needs to pass an immigration reform bill that addresses their concerns.

"The underlying problem remains unresolved, especially for Mexican citizens who work here," Fisher said.

Organizers for the United Farm Workers of America union also report a plentiful supply of workers on farms now. The problem is that they are not documented, said Maria Machuca, the union's spokeswoman.

"What is the point of bringing more people here to do work when there are already people here, able and willing" to do farm work? she said. "They just don't have documentation."

The farmworkers union objected to the push last month by farm groups to get the outgoing Bush administration to change the rules of the current guest worker, or H-2A, program. The changes were approved just before the change in administrations.

The new rules relax the process growers use to prove they tried to obtain documented workers.

The union is pushing for the AgJOBS bill, proposed legislation also supported by farm interests, which Congress has previously debated but never passed. It would provide a way for undocumented workers to gain legal status as long as they continue to work in agriculture for a time.

Vessey said he was frustrated with how agriculture gets tarnished for its reliance on undocumented workers while other industries in boom times are just as reliant on the same workforce.

"They just refuse to talk about it," Vessey said. "We still have a predominantly illegal workforce, and we want a legal workforce. We can get that through immigration reform."

Bush-Era Offshore Drilling Plan Is Set Aside

Bush-era offshore drilling plan shelved

Obama team eyes renewables, seeks more input on Atlantic, Pacific coasts

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The Obama administration on Tuesday overturned another Bush-era energy policy, setting aside a draft plan to allow drilling off the Atlantic and Pacific coasts.

"To establish an orderly process that allows us to make wise decisions based on sound information, we need to set aside" the plan "and create our own timeline," Interior Secretary Ken Salazar announced in a statement.

Alleging that the Bush administration "had torpedoed" offshore renewable energy in favor of oil and natural gas, Salazar said he was extending the public comment period by 6 months.

"The additional time we are providing will give states, stakeholders, and affected communities the opportunity to provide input on the future of our offshore areas," he said.

Salazar also ordered Interior Department experts to compile a report on the Outer Continental Shelf's energy potential — not just oil and gas, but also renewables like wind and wave energy.

"In the biggest area that the Bush administration’s draft OCS plan proposes for oil and gas drilling — the Atlantic seaboard, from Maine to Florida — our data on available resources is very thin, and what little we have is twenty to thirty years old," he said. "We shouldn't make decisions to sell off taxpayer resources based on old information."

The Interior Department oversees 1.75 billion acres on the Outer Continental Shelf, an area that's about three fourths the size of the entire United States.

Environmentalists and some tourism-dependent coastal states oppose the drilling, citing the potential for spills and urging an emphasis on renewable energy instead. Energy companies counter that drilling has become safer over the years and that royalties from any finds would be in the billions of dollars.

"I intend to issue a final rulemaking ... in the coming months, so that potential developers know the rules of the road," Salazar said. "This rulemaking will allow us to move from the 'oil and gas only' approach of the previous administration to the comprehensive energy plan that we need."

"We need a new, comprehensive energy plan that takes us to the new energy frontier and secures our energy independence," he added. "We must embrace President Obama's vision of energy independence for the sake of our national security, our economic security, and our environmental security."

Moratorium ended last year
The Bush administration had authorized the Interior Department to open areas off both coasts to oil and gas drilling during a five-year period. That move came after a moratorium on drilling there expired last year. Offshore drilling is already allowed in the Gulf of Mexico.

Both Obama and Salazar have said that expanding offshore oil drilling should be worked out with Congress as part of a broad energy blueprint, and not independent action by the Interior Department.

The move comes a week after the Interior Department shelved energy leases on 130,000 acres near two national parks and other federally protected lands in Utah.

In Congress, Democrats have long wanted to rewrite the rules on royalties from offshore drilling, arguing that energy companies have been paying too little.

Rep. Ed Markey, D-Mass., praised the move as an end to "drill first and ask questions later".

"The tide has turned back towards reason and a comprehensive energy plan for our country that sees promise in the winds and the tides, not just in drills and rigs," added Markey, who chairs the select committee on energy independence and global warming.

But House Republicans last week urged Obama not to close areas off the Atlantic and Pacific coastlines.

"We respectfully urge that you allow the five-year offshore drilling plan to continue because it is vital to our economy," the lawmakers, led by House Republican leader John Boehner, said in a letter. "Our country needs to remain on the path to American energy independence, and we believe this is a critical and achievable goal."

Jack Gerard, president of the American Petroleum Institute, which represents the large oil companies, said Salazar's announcement "means that development of our offshore resources could be stalled indefinitely."

31 lease sales were proposed
The preliminary plan drawn up by the Bush administration would have authorized 31 energy exploration lease sales between 2010 and 2015 for tracts along the East Coast and off the coasts of Alaska and California.

The Republican lawmakers cited a study that concluded the untapped offshore oil and gas reserves would create more than 160,000 jobs by 2030 and provide the government with $1.7 trillion in royalties on the oil and gas drilled.

Congress last year failed to renew the long-standing moratorium on oil and gas exploration across 85 percent of the nation's Outer Continental Shelf, leaving all waters potentially open to drilling.

Then, four days before leaving office, officials in the Bush administration issued the draft plan, which called for energy leases in areas that until recently had been off limits for a quarter century.

The Interior Department estimates — using 30-year-old studies — that the offshore waters lifted from drilling bans last year contain at least 18 billion barrels of oil, about half of it off California.