Iran warns U.S. of “quagmire”

Iran warned the United States on Wednesday it would find itself in a “quagmire deeper than Iraq” if it attacked the Islamic state, and Russia stepped up efforts for a diplomatic solution to Tehran’s nuclear row with the West.

The warning by the head of Iran’s elite Revolutionary Guards, a target of new U.S. sanctions announced last week, added to angry rhetoric between the two old foes that has prompted speculation of possible U.S. military action.

U.S. President George W. Bush this month suggested a nuclear-armed Iran could lead to World War Three but the White House said on Tuesday it remained determined to resolve the stand-off peacefully.

“If the enemies show inexperience and want to invade Islamic Iran, they will receive a strong slap from Iran,” Jafari said in comments carried by the semi-official Fars News Agency.

“The enemy knows that if it attacks Iran it, will be trapped in a quagmire deeper than Iraq and Afghanistan, and they will have to withdraw with defeat,” he told a parade in north-central Iran, without mentioning the United States by name.

Major powers are expected to meet in London this week to discuss a possible third round of U.N. sanctions against Iran over its refusal to halt work which it says is aimed at generating electricity but could also be used for making bombs.

Iran, hoping to ward off any further sanctions on its oil-dependent economy, agreed with the U.N. International Atomic Energy Agency (IAEA) in August to clear up suspicions about its past secret nuclear activities.

The United States, saying the deal failed to address the core U.N. demand that Tehran suspend work Washington suspects is aimed at making bombs, is pushing for tougher U.N. sanctions.

Tensions over Iran’s nuclear program are one of the factors that have pushed oil prices to record highs of over $90 a barrel in recent days.

“TRUST”

Russia, a veto-wielding member of the U.N. Security Council, says dialogue rather than punishment or talk of military action offers the best way to ease tension. It says the IAEA process should be given time to run its course.

Speaking after talks with Iranian President Mahmoud Ahmadinejad on Tuesday evening, Russian Foreign Minister Sergei Lavrov said, according to a transcript from his ministry:

“We encouraged the Iranian leadership to undertake further — and preferably more active — work with the IAEA to clear up those questions which have been raised by the agency with regard to the Iranian nuclear program’s past.”

Lavrov, visiting two weeks after a trip to Tehran by President Vladimir Putin, said he “underlined the importance of closing these questions as soon as possible, in order to restore trust in the exclusively peaceful nature of Iran’s activities.”

Ahmadinejad said Iran was “determined” to continue its cooperation with the agency, the ISNA news agency said.

Lavrov’s visit coincided with vital talks in Tehran between officials from Iran and the Vienna-based IAEA on implementing the August agreement, entering their third day on Wednesday.

Agency chief Mohamed ElBaradei will report to the agency’s 35-nation board of governors in mid-November. If Iran has not answered sensitive questions by then, Western powers say they will move to have harsh U.N. sanctions adopted.

In Washington, U.S. officials said they expected the five permanent U.N. Security Council members — the United States, Britain, France, China and Russia — as well as Germany to meet later this week in London to discuss new sanctions.

Britain and France back a tough line on Iran. China, like Russia, has opposed an early move to tighten economic sanctions, saying Iran should be given longer to cooperate with the IAEA.

The U.N. Security Council has already imposed two sets of limited sanctions on Iran for its refusal to halt enrichment, a process to make fuel for nuclear power plants that can also, if refined further, provide material for bombs.

(Additional reporting by Moscow bureau, Ross Colvin in Baghdad, Arshad Mohammed in Washington and by Zahra Hosseinian and Edmund Blair in Tehran)

Reuters | Fredrik Dahl | Wednesday, October 31, 2007

Giuliani Still Working at Firm He Promised to Leave

Ten months into his presidential bid, Rudolph W. Giuliani continues to work part time at the security consulting firm he promised to leave this past spring to focus on his pursuit of the Republican nomination.Giuliani’s continuing involvement with a firm catering to corporate clients makes him unique among Republican contenders. It also complicates the task of separating his firm’s assets from his campaign spending.

Several of the firm’s employees do volunteer work for his campaign. And Giuliani did not decide until mid-June, six months after he entered the race, to bill his campaign for the cost of the security detail traveling with him on campaign trips; before then, the firm paid the expense.

Aides at Giuliani Partners in New York and with his campaign confirmed that he continues working part time at the firm. They declined to answer specific questions about the nature of his efforts, his compensation or the amount of time he spends there.

“Mayor Giuliani spends the majority of his time on the campaign,” Giuliani Partners spokeswoman Sunny Mindel said, declining to be more specific.

Federal election laws prohibit Giuliani’s firm from absorbing costs or providing services that legally should be covered by political donations, campaign experts said.

“This is a lawyer’s nightmare,” said Republican political consultant Scott Reed, who ran the 1996 presidential bid of then-Sen. Robert J. Dole (R-Kan.) but is not aligned with a presidential campaign in this race. “I don’t think the vulnerability is with voters on the level of his commitment to the race. The concern is really about FEC violations and whether anything this corporation does to help him essentially is making a contribution to run for president in the form of staff time, materials, travel billing or security.”

Giuliani’s aides said the firm and the campaign comply with all federal election rules and laws.

Giuliani formed the firm after he left the New York mayor’s office in 2002. He built upon the reputation he earned while helping the city recover from the Sept. 11, 2001, attacks to advise clients across the world on security issues.

The clients have included civic leaders in Mexico City, who sought Giuliani’s expertise on law enforcement strategies; companies that wanted to build a post-Sept. 11 security plan; and those that sought strategic advice on how to win business in the growing homeland security sector.

Giuliani’s firm has grossed more than $100 million since its formation. It has employed many of the same political insiders who worked around Giuliani during his mayoral years, such as former chief of staff Anthony V. Carbonetti, former fire chief Thomas Von Essen and former corporation counsel Michael D. Hess. It also includes former FBI executive Pasquale J. D’Amuro, a highly regarded terrorism expert.

Last year, Giuliani earned about $4.1 million from the firm, according to the presidential campaign financial disclosure report he filed in May.

Because the firm represents many security interests, some of which might have business before the federal government, Giuliani faced questions about his continuing employment there. He announced in April that he planned to leave the firm to concentrate entirely on the campaign.

“I’m largely out of it, and I’m pretty much going to be out of it at some point pretty soon,” he told reporters on April 4 while campaigning in South Carolina.

Six months later, he continues to do some work at the company.

Aides refused to discuss the exact nature of the work, but Hess, in an interview with The Washington Post earlier this year, provided some insight into Giuliani’s role in the firm since he became a candidate.

“When Rudy is here, he is hands-on,” Hess said in late April. “He does discuss all the different matters. When we get a client, sometimes they are people Rudy knows and sometimes others of us know or hear about them. Invariably, a new client will want to meet with Rudy, and this was frequent a while ago, and it has become less frequent as he is going around on his campaigning.”

Hess said Giuliani also tries to attend the firm’s strategic meetings when he is in New York, gatherings that resemble the early-morning staff meetings he held as mayor.

“Over the years since we’ve been here, we do have frequent meetings. They varied with the time Rudy has. Sometimes Rudy is in New York a lot, and sometimes he is here less,” Hess said. “They are reminiscent of staff meetings that we had in City Hall. He was somewhat famous for having the 8 a.m. meeting with about a dozen or 15 commissioners. Likewise, we have staff meetings here.”

During an interview in June with CNBC’s Larry Kudlow, Giuliani said that he was spending no more than 10 percent of his time doing work for the firm while he was campaigning and that he planned to take a leave of absence.

“I would have thought during the general election, but it seems to me nowadays, with all these things moving up, probably sometime during the primaries,” Giuliani said about the timing of his leaving. “But right now I’d say I’m 95 percent campaigning, maybe 5 to 10 percent trying to settle up last-minute things.”

Giuliani has ended another of his more lucrative private ventures — giving paid speeches. The former mayor, popular on the motivational speaking tour, earned about $11 million in speech and book fees last year but stopped giving such speeches in February.

Giuliani falls in the middle of the presidential field when it comes to job commitments. Several candidates have full-time jobs as members of Congress, such as Democratic Sens. Hillary Rodham Clinton (N.Y.) and Barack Obama (Ill.), GOP Sen. John McCain (Ariz.), and Republican Reps. Duncan Hunter (Calif.), Tom Tancredo (Colo.) and Ron Paul (Tex.).

But the two Republicans closest to Giuliani in the polls — former senator Fred D. Thompson (Tenn.) and former Massachusetts governor Mitt Romney — are multimillionaires who have no private-sector jobs.

Reed said if he were managing Giuliani, another multimillionaire, he would have advised the candidate to step aside from his firm as soon as the race started.

“I think it always is wise to close down all of these other efforts . . . so that, one, you give the campaign 100 percent, and two, you don’t give your political enemies possible ammunition,” he said.

One concern among ethics experts is that Giuliani’s continuing affiliation with the firm might create a public perception that clients with business that could be affected by a Giuliani presidency might hire the firm to curry favor.

The firm’s past clients had many connections to government. They include:

¿ Purdue Pharma, which resolved a lengthy Drug Enforcement Administration investigation into the security of its OxyContin painkiller with only a fine, with the Giuliani firm’s help.

¿ A confessed drug smuggler who hired Giuliani to help ensure that his company could do security consulting business with the federal government in the post-Sept. 11 period.

¿ The horse-racing industry, which hired Giuliani’s firm to review the security of its betting systems after a wagering scandal shook public confidence.

¿ BioOne, a company that can do biological cleanups, such as its cleaning of a Florida media building after the 2001 anthrax attacks.

¿ Energy giant Entergy, which hired Giuliani’s firm to help tighten its security.

In addition, Giuliani’s firm created a spinoff called Giuliani Capital Advisors, which advised companies on bankruptcies and expansion in the homeland security marketplace. Giuliani sold that arm of the firm earlier this year.

Research editor Alice Crites contributed to this report.

Washington Post | John Solomon | Tuesday, October 30, 2007

Ron Paul on Leno

Gold Tops $800 for 1st Time Since 1980

NEW YORK (AP) - Gold barreled above $800 an ounce Wednesday for the first time since 1980 as investors cheered the Federal Reserve’s decision to lower its benchmark interest rate by a quarter point.The Fed dropped its federal funds rate to 4.50 percent, as the markets widely anticipated. Lower interest rates tend to undermine the dollar and raise the allure of precious metals as an investment alternative. The dollar stumbled to another low against the euro following the Fed’s decision on Wednesday, helping drive gold higher.

Although the regular trading sessions of most commodities markets were closed before the Fed released its decision, gold prices continued to climb in aftermarket trading. An ounce of gold gained $7.50 to settle at $795.30 an ounce on the New York Mercantile Exchange, then rose to a high of $800.80 ounce in later electronic activity.

Gold last topped $800 an ounce in 1980, when prices reached as high as $875 an ounce in January. Adjusted for inflation, an $800 ounce of gold in 1980 would be worth more than $2,000 today.

While the $800 mark means something less than it did 27 years ago, gold prices have surged roughly $150 an ounce since mid-August and that means consumers could see prices on gold jewelry go up ahead of the holiday season. But some jewelers say gold at $800 an ounce still isn’t high enough to dent demand.

“Last time it was the talk of the town,” said Keith Hurdle, owner of Hurdle’s Jewelry in Boulder, Colo., referring to gold’s last foray above $800. “Not anymore, they don’t even ask. If the piece is in their price range, they’re fine.”

In its statement, the Fed said strains in the financial markets have eased somewhat since the summer’s turmoil. But the central bank also cautioned that an intensifying housing slump could slow the pace of economic growth and warned that increasing energy and commodity prices raise the risks of inflation.

The euro, which hit a high for the fourth straight trading day, bought a record over $1.45 in late trading on Wednesday.

“Gold is a hedge against uncertainty, against currency volatility,” said Carlos Sanchez, precious metals analyst with CPM Group. “It’s a hedge against inflation. All this going on is supportive of higher gold prices.”

December silver jumped 11 cents to close at $14.438 an ounce on the Nymex.

January platinum added $6.70 to end at $1,447.60 an ounce on the Nymex.

Following the Fed’s rate cut, energy prices extended a rally that was begun early in the session after the government posted a surprising draw on crude oil inventories for the second week in a row. Light, sweet crude for December delivery gained $4.15 to settle at $94.53 a barrel on the Nymex, after briefly hitting a record $94.74.

Like gold, oil has approached the inflation-adjusted highs of early Depending on the calculation, a $38 barrel of crude then would fetch $96 to $101 or more today.

The Energy Information Administration reported U.S. stockpiles of crude plunged by 3.9 million barrels in the week ended Oct. 26, compared with analysts’ consensus forecast for a gain of 100,000 barrels. Expectations had ranged between a build of 2 million barrels and a draw of 2.6 million barrels.

Gasoline inventories rose by 1.3 million barrels, while distillate inventories increased by 800,000 barrels. Analysts had expected moderate decreases of both.

Gasoline futures for November rose 8.29 cents to $2.34 a gallon. November heating oil futures added 8.32 cents to $2.5078 a gallon. The November contracts for gas and heating oil expired at the session’s end.

Base metals ended mixed on the London Metal Exchange, with nickel, copper and lead finishing higher while zinc and aluminum prices slipped. Copper for December delivery on the Nymex slipped 0.85 cent to close at $3.473 a pound.

Agriculture futures also ended mixed after a choppy week that has seen prices move in tandem with other markets, including equities.

“We’re down one day, up the next,” said DTN analyst Gary Wilhelmi. “Outside markets are strong influences.”

Wheat for December delivery fell 6 cents to $8.08 a bushel on the Chicago Board of Trade. Soybeans for January picked up 16.5 cents to $10.2575 a bushel, while December corn rose 5.25 cents to $3.755 a bushel.

AP | Laura Villagran | Wednesday, October 31, 2007

Fed Cuts Interest Rate by Quarter Point

WASHINGTON (AP) - The Federal Reserve, confronted with surging oil prices and a slumping housing market, cut a key interest rate by a quarter-point on Wednesday, but signaled that may be all the rate relief the economy needs right now.

The central bank lowered the federal funds rate to 4.5 percent, as had been expected. But while financial markets had hoped for a clear signal that further rate cuts could be forthcoming, the central bank instead signaled that the September and October rate cuts may be it.

While economists are worried that growth will slow dramatically in the current quarter under the impact of a deepening housing slump, a severe credit crisis and record-high oil prices, the Fed sounded a more upbeat tone.

The central bank also expressed continued worries about inflation and said it believed after the two rate cuts, the risks between week growth and higher inflation were roughly balanced.

(AP) In a file photo one of the Federal Reserve buildings is seen Friday, Aug. 17, 2007, in Washington. …
Full Image
“The odds of another rate cut at the December meeting are substantially less than they were before this statement,” said David Jones, chief economist at DMJ Advisors in Denver. Jones said he still expected one more rate cut to deal with a weak economy but that it will most likely come at the Fed’s January meeting.

Wall Street sagged a bit immediately after the announcement, but then quickly regained its footing and was up more than 120 points in late afternoon trading.

In a brief statement explaining the decision, Federal Reserve Chairman Ben Bernanke and his colleagues said that the central bank now judges that “the upside risks to inflation roughly balance the downside risks to growth.”

By stating that risks are now roughly balanced, the Fed was seen as signaling that it judges that further rate cuts may not be necessary.

The Fed’s decision came on a 9-1 vote with Thomas Hoenig, president of the Kansas City regional Fed bank dissenting, arguing that he preferred no change in the funds rate. The Fed had lowered the funds rate by a bolder half-point at its Sept. 18 meeting.

Commenting on the economy, the Fed struck a more positive tone than it did last month when it expressed concerns about the toll the August credit crisis would take on housing and the overall economy.

In the current statement, the Fed said, “Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance.”

The central bank said the pace of the economic expansion “will likely slow in the near term, partly reflecting the intensification of the housing correction.”

The Fed met on the same day the government announced that the overall economy grew at a stronger-than-expected 3.9 percent rate in the July-September quarter. Many economists believe growth will dip to around 2 percent in the current quarter and may slow even further to around 1 percent in the first three months of next year.

On inflation, the central bank said the reading on core inflation, which excludes energy and food, had “improved modestly this year” but expressed worries about what the recent increases in energy prices and other commodities might do to inflation pressures going forward.

The committee said that “some inflation risks remain,” a signal that it will be hesitant to cut rates further because of concerns on inflation.

The Fed had pushed the federal funds rate up a record 17 consecutive times in quarter-point moves over two years. The last increase occurred in June 2006. From that time until last month, the rate was left unchanged as the central bank watched to see whether its credit tightening had the desired effect of slowing the economy enough to lessen inflation pressures.

However, the Fed’s goal of a soft-landing in which growth slows and inflation is contained has been threatened by the most severe housing downturn in more than two decades. Economists are worried that the credit crisis this summer will make home sales and prices fall even further, threatening consumer confidence and causing consumers to cut back on their spending.

Bernanke, who took over as Fed chairman in February 2006 from Alan Greenspan, came under criticism in August when the Fed left rates unchanged and declared that inflation was still the primary threat facing the economy.

But two days after that meeting when a severe credit crunch hit financial markets around the globe, the Fed went into action, providing billions of dollars in cash to the U.S. financial system, slashing the rate at which it makes direct loans to banks and then on Sept. 18 cutting the funds rate by a bigger-than-expected half point.

Lyle Gramley, a former Fed board member and now an economist with Stanford Financial Group, put the chances of a recession at around 40 percent, saying the Fed’s primary concern right now is what is happening in housing and how much of a spillover that will have on the overall economy.

“It is possible that the housing industry will take us over the edge into a recession,” he said, noting that every housing downturn of the past 60 years with the exception of two have triggered recessions.

AP | Martin Crutsinger | Wednesday, October 31, 2007

Iraq bill would lift contractor immunity

The Iraqi government approved a draft law Tuesday to lift immunity for foreign security companies including Blackwater USA, a bid to overturn a decree imposed more than three years ago by the U.S. official who ran the country after the American-led invasion.

The legislation could have a chilling effect on security companies operating in Iraq, though the vast sums they and their guards are paid are likely to weigh more heavily than the possibility of legal jeopardy.

The draft law, expected to be passed overwhelmingly by parliament, is also certain to deepen tensions between the Bush administration and the Iraqi government.

Prime Minister Nouri al-Maliki has promised to push through the legislation amid public outrage over Blackwater’s seemingly unprovoked killing of 17 Iraqis last month as well as a series of other Iraqi civilian deaths allegedly at the hands of foreign contractors.

The U.S. and Iraq were already at loggerheads over Blackwater, which guards American diplomats in Iraq. The problem was compounded by reports that the State Department’s Bureau of Diplomatic Security granted limited immunity to the Blackwater guards involved in the Sept. 16 shooting in west Baghdad’s Nisoor Square.

Because the Iraqi draft law would not be retroactive, any punishment for those shootings would be left to the United States, said Iraqi government spokesman Ali al-Dabbagh. It is unclear what U.S. criminal laws might cover acts in a war zone; civilian contractors cannot be tried in military courts.

A Pentagon official said Tuesday that Defense and State department officials had reached a “general understanding” that the American military command in Baghdad should have more oversight of the U.S. government’s private security contractors in Iraq.

“We need to be more clear” on rules for the use of force and coordination of the movement of the contractors, whether they work for the State Department or the Defense Department, Pentagon press secretary Geoff Morrell said.

On Capitol Hill, Democrats criticized the Bush administration for giving immunity to the bodyguards, calling the move a failure to hold the security contractors responsible for the shooting deaths.

Senate Judiciary Chairman Patrick Leahy, who sits on two Senate panels that oversee the State Department and the Justice Department, called the deal an example of “the amnesty administration.”

Sen. Barack Obama, the Illinois Democrat running for president, demanded to know whether Secretary of State Condoleezza Rice was aware of the immunity offers and agreed with it. In a letter to Rice Tuesday, Obama asked whether the FBI and Justice Department were consulted before limited immunity was offered.

The White House had little to say about the matter Tuesday. President Bush ignored a question on the arrangement shouted after his meeting with the president of Uganda. And his spokeswoman dodged most questions about it at her daily briefing for reporters, referring them to the State Department.

“It is under review,” White House press secretary Dana Perino said. “Anyone who has engaged in criminal behavior will be prosecuted.”

The State Department, whose investigators initially promised to shield the bodyguards’ statements in the criminal inquiry, maintained that any lawbreakers “must be held to account” as a result of the inquiry that has since been taken over by the Justice Department and FBI.

The offer for limited immunity has delayed the government’s criminal inquiry of the shootings and threatens to derail prosecution as investigators seek other evidence from the crime scene now six weeks cold.

The deal would not prevent the Blackwater guards from being prosecuted in U.S. courts. However, prosecutors would have to prove they did not use information gleaned from the bodyguards’ statements - or anything related to them - when seeking criminal charges. Investigators would have to find other credible witnesses or evidence to make their case.

Al-Maliki has demanded that the United States end its relationship with Blackwater within six months and that $8 million in compensation be paid for each victim. Blackwater is the largest private security firm protecting U.S. diplomats in Iraq.

U.S. officials in both Baghdad and Washington have said nothing publicly about al-Maliki’s demands, which he issued on the recommendation of an Iraqi investigative committee that studied the Sept. 16 incident.

The committee found the Blackwater guards opened fire without provocation. The company has said its guards came under fire before using their weapons. No witnesses, however, have been found to corroborate that claim.

An initial incident report by U.S. Central Command, which oversees military operations in Iraq, also indicated “no enemy activity involved.” The report says Blackwater guards were traveling against the flow of traffic through a traffic circle when they “engaged five civilian vehicles with small arms fire” at a distance of 50 yards.

Blackwater spokeswoman Anne Tyrrell declined comment Tuesday on the Iraqi draft law.

The legislation would overturn an immunity order known as Decree 17 that was issued by L. Paul Bremer, who ran the American occupation government until June 2004, al-Dabbagh said.

“It will be sent to the parliament within the coming days to be ratified,” he told The Associated Press.

Al-Dabbagh did not single out Blackwater but said: “According to this law, all security companies will subjected to the Iraqi criminal law and must obey all the country’s legal regulations such as: registration, customs, visas, etc.”

___

Associated Press writers Sinan Salaheddin in Baghdad and Lara Jakes Jordan in Washington contributed to this report.

AP | Steven R. Hurst | Tuesday, October 30, 2007

Congress votes to extend Internet tax ban

WASHINGTON (MarketWatch) — Internet-access taxes and other Web-related levies would remain prohibited through 2014, according to legislation that cleared the House without opposition Tuesday.
While an Internet tax ban has long had wide bipartisan support, the looming expiration date spurred a furious round of last-minute dealmaking that resulted in a seven-year extension of the ban. An existing moratorium is due to expire Thursday.
The House voted 402 to 0 to approve the bill; the Senate cleared the bill late last week by voice vote. The original House version of the bill had extended the moratorium by four years.
“I think it’s a cause for celebration,” said Rep. Anna Eshoo, a California Democrat whose district includes much of Silicon Valley. “We’re coming in right under the wire. … This is going to continue to spur innovation and will advance our goal of broadband for everyone in the United States.”
‘We’re coming in right under the wire.’
- Rep. Anna Eshoo, D-Calif.
Eshoo, who had sponsored a bill calling for a permanent moratorium, was one of only two members to oppose the original version of the House legislation, saying that it didn’t offer strong enough protections against potential Web-related taxes.
Sen. Ron Wyden, D-Ore., said that changes made to the package in the Senate will shield a range of services, including instant messaging and email, as well as related voice- and video-messaging services, personal storage and other video services from taxation.
The final package won applause from the Don’t Tax Our Web Coalition, a group made up of numerous telecommunications firms, technology firms and trade associations.
Although the group had been pressing for a permanent moratorium, the seven-year extension was a welcome result, said Broderick Johnson, a spokesman for the coalition.
“The fact that this is the longest extension that we’ve ever seen plus there are some very important clarifications in the final bill that will help protect the Internet from taxation is a great result,” Johnson added.
The National Governors Association issued a statement welcoming the bill. The group has fought efforts to make the moratorium permanent, saying that it should be revisited periodically to correct any unforeseen consequences.
“The top priority of governors throughout this process was that the legislation be clear in its definition, stay flexible and do no harm to states and citizens,” said Raymond C. Scheppach, NGA executive director.
House Republican leaders applauded the bill, but chided Democratic leaders for refusing to bring a permanent moratorium up for a vote on the House floor.
“The majority leadership’s refusal to even bring this ban up for a vote is telling,” said House Minority Leader John Boehner, R-Ohio.
Senate leaders last week worked out a compromise that lengthened the ban from four years to seven. The package was passed by voice vote and returned to the House.
The moratorium bans taxes on Internet access; double taxation (by two or more states or other entities) of a product or service bought over the Internet; and discriminatory taxes that treat online purchases differently than other types of sales.
A federal moratorium barring states and local governments from imposing taxes on Internet access was first enacted in 1998. It expired in 2003, but was reinstated and extended in 2004.
William L. Watts covers Congress and politics for MarketWatch.

Market Watch | By William L. Watts | Tuesday, October 30, 2007

Chertoff Push Over Licenses Led to a Shift

ALBANY, Oct. 30 - The phone call from a top aide to Michael Chertoff, the secretary of homeland security, came two weeks ago, and the message was clear: The department was concerned that Gov. Eliot Spitzer’s plan to grant driver’s licenses to illegal immigrants would undermine a federal initiative to roll out a new highly secure, nationally recognized license.The prospect of Mr. Chertoff coming out publicly against Mr. Spitzer’s plan caused deep anxiety among Spitzer administration officials, said Michael A. L. Balboni, the governor’s deputy secretary for public safety, who received the call.

The governor and his aides felt they had few options.

The license plan had already set off angry attacks from Republicans and unease among Democratic allies, and had made the governor a target of national groups rallying for tougher immigration policies.

Mr. Spitzer agreed with Mr. Chertoff to a compromise plan on Friday under which the state would offer three levels of driver’s licenses beginning next year, including a limited license that illegal immigrants could obtain but that could not be used to board airplanes or cross borders.

The announcement has done little to quiet the fury Mr. Spitzer set off on Sept. 21 when he declared, without consulting the Legislature, that New York would offer driver’s licenses to the hundreds of thousands of illegal immigrants living in the state, as a way of making the roads safer and bringing them “out of the shadows.”

An examination of five weeks of policy twists, during which Mr. Spitzer alienated allies and emboldened enemies, reveals a governor almost stubbornly certain of himself and disinclined to consult with those who could be helpful in politically selling or smoothing the way for a divisive initiative.

Most lawmakers first heard about the initial policy when the governor announced it, saying, “The D.M.V. is not the I.N.S.”

County clerks who would have to carry out the policy were not consulted. Nor was Mr. Chertoff’s department.

“There’s a very consistent pattern here of not consulting with his friends,” said Assemblyman Richard L. Brodsky, a Westchester Democrat. “I must say, at this point, people don’t understand what the thinking and the planning was.”

Aides to the governor, speaking on condition of anonymity, said they had not foreseen the intensity of opposition the license plan would touch off.

Mr. Spitzer saw it as simply keeping a promise he had made during his campaign last year.

And it was consistent with his desire, after battling the Legislature for a frustrating six months, to govern by exercising the powers of the executive agencies under his control, without legislative interference.

His policy advisers and David J. Swarts, the motor vehicles commissioner, worked quietly on the policy for several months. They presented it to the governor, and then he moved on it.

“We finished, got to a conclusion, said, ‘O.K., now let’s announce it,’” Mr. Spitzer recalled in a recent interview. “It was not a whole lot more than that.”

It did not take long for opponents to make themselves heard. Within a week, county clerks began to rebel. Even New York’s mayor, Michael R. Bloomberg, typically a friendly voice, raised concerns.

Though they acknowledge that they failed to anticipate the reaction fully, Mr. Spitzer and his staff also argue that the issue is so visceral that laying more groundwork might not have made much difference.

“I don’t think it would matter if Lou Dobbs saw us standing next to some police chief,” said one aide to the governor, referring to the CNN anchor, who has been leading an almost nightly crusade against Mr. Spitzer’s policy.

The governor moved to shore up support, enlisting Latino lawmakers and other Democrats to appear with him at press conferences. He also tried to rally them in closed-door meetings before a special legislative session last week.

State Senator Ruben Diaz Sr., a conservative lawmaker from the Bronx, strongly defended the governor, arguing for the policy in emotional language on the Senate floor.

Mr. Diaz took aim at the governor’s chief political rival, Joseph L. Bruno, the Senate majority leader, for first supporting the plan and then reversing himself.

But even as Mr. Diaz and others stood up for Mr. Spitzer, talks had begun with the Department of Homeland Security about revising the plan.

Mr. Balboni, a former Republican senator, said he was initially “not enthused about the idea” of having the state adopt the national Real ID card, which has been opposed by some civil liberties groups and immigration advocates. But he came to believe, he said, that it was a way of getting illegal immigrants into the system.

The Spitzer aides also felt they had gained key concessions on Real ID. They included getting the Department of Homeland Security to forgo forcing states to start using more expensive material for their licenses and to ease the timeline so the state did not need to immediately increase staffing levels at the Department of Motor Vehicles, which would have been costly.

But when the governor’s new plan was announced, he lost support from just about everyone. Those who stood by granting the licenses to illegal immigrants felt betrayed. Those Democrats uneasy with the initial plan wondered if this change would solve the problem.

And opponents of the initial plan either declared victory, or vowed to continue to block Mr. Spitzer from issuing any kind of license to illegal immigrants.

Again, many allies felt they were not given a heads up that the announcement was coming.

“I believed the governor, I trusted him,” said Mr. Diaz. “Bruno has been good to me, but I criticized him. Now I’m going to have to go back to the Senate floor and apologize because the governor decided to turn his back on us and make a deal with Washington.”

Assemblyman José R. Peralta, a Queens Democrat, said, “We went out there to defend undocumented immigrants and individuals who were being targeted as far as not being allowed to get licenses, and we were on the road to doing that until this agreement with the federal government.”

Even Assembly Speaker Sheldon Silver, the Legislature’s top Democrat, and David A. Paterson, the lieutenant governor, were not told that there would be a shift in strategy until late Friday, the night before the governor announced the deal.

To try to smooth some of the anger, Mr. Spitzer invited Mr. Diaz and a half-dozen other lawmakers, most of them Hispanic and defenders of the original plan, to an Upper East Side diner on Sunday morning to explain his decision.

Feelings were frayed, and the meeting grew emotional. At one point, Mr. Spitzer asked Mr. Diaz to lower his voice because they were in a public place.

“You made me make a fool out of myself,” Mr. Diaz told the governor.

Mr. Spitzer and his aides told the lawmakers that they had been reluctant to send word of the new proposal before they completed negotiations with the Bush administration, which took until the end of the day Friday. And they were clearly worried about what Mr. Chertoff would do if they did not go along.

While Mr. Spitzer tries to repair ties with his old allies, his handling of the issue has only made his Republican foes more determined to keep after him. And, given that the new license system is a year off, and legislative approval will likely be necessary to finance part of it, Albany could see many more months of intense argument over the issue.

“I really don’t believe this is the end of the story,” said Senator Eric T. Schneiderman, a Manhattan Democrat.

Nicholas Confessore contributed reporting.

NYT | Danny Hakim | Wednesday, October 31, 2007

U.S. Military Will Oversee Contractors

WASHINGTON, Oct. 30 - All State Department security convoys in Iraq will now fall under military control, the latest step taken by government officials to bring Blackwater Worldwide and other armed contractors under tighter supervision.Secretary of State Condoleezza Rice and Secretary of Defense Robert M. Gates agreed to the measure at a lunch on Tuesday after weeks of tension between their departments over coordination of thousands of gun-carrying contractors operating in the chaos of Iraq.

Mr. Gates appears to have won the bureaucratic tug-of-war, which accelerated after a Sept. 16 shooting in central Baghdad involving guards in a Blackwater convoy who Iraqi investigators say killed 17 Iraqis. Military coordination of contractor convoys will include operations of not only Blackwater, formerly known as Blackwater USA, but also those of dozens of other private firms that guard American diplomats, aid workers and reconstruction crews.

In Iraq, the government approved a draft law to overturn an order imposed by the American occupation authority in 2004 granting the employees of foreign contractors immunity from Iraqi law. Also on Tuesday, the State Department confirmed that some Blackwater employees questioned in connection with the Sept. 16 shooting had been granted a form of immunity in exchange for their statements. However, officials insisted that the immunity was limited and that it did not foreclose the possibility of prosecutions.

Democrats in Congress complained that the State Department appeared to have bungled the Blackwater investigation and said they feared that no one would be held accountable for the Iraqi deaths. “It feels like they’re protecting Blackwater,” said Representative Jan Schakowsky, an Illinois Democrat.

At the Pentagon, Geoff Morrell, the chief spokesman, said the military would assert greater control over contractor training, rules for the use of force, employment standards and movements around Iraq.

He said Mr. Gates and military officers in Iraq insisted on the new measures “so they aren’t blindsided by contractors running in and out of their battle space and potentially causing problems.”

Mr. Morrell and his State Department counterpart, Sean McCormack, said that the details of the new arrangement had not been worked out but that the process was on a fast track and that both agencies hoped to have all issues resolved by Thanksgiving.

The top American commander in Iraq, Gen. David H. Petraeus, will have to approve the arrangement, but he is likely to accept new rules that give his officers greater control over the numerous armed entities operating in his theater.

The State Department has had repeated problems trying to rein in the nearly 845 Blackwater guards in Iraq, who have fired their weapons in 195 incidents since 2005, according to Blackwater’s count, leaving an undetermined number of Iraqis dead. Blackwater and two other security companies, DynCorp International and Triple Canopy, share a multibillion-dollar contract to guard American diplomats and other civilians in Iraq.

But the Defense Department has had its own difficulties controlling its nearly 130,000 contractors, who handle a variety of jobs including interrogations of prisoners and transportation of fuel and ammunition. Auditors have uncovered numerous instances of cost overruns, sloppy work, theft and corruption in the tens of billions of dollars in logistics and reconstruction contracts in Iraq.

But for now, the focus is on a series of measures to bring greater accountability to private security contractors. The State Department has announced several such steps already, including the assignment of agents of the Bureau of Diplomatic Security to accompany all Blackwater convoys, the installation of video cameras in all Blackwater vehicles and the establishment of a multiagency review board to examine all cases involving the use of force.

Ms. Rice and Mr. Gates agreed to tighten the rules for the use of force by armed contractors. Although current rules are quite restrictive and allow force to be used only defensively, the standards have not been enforced and Blackwater guards, in particular, earned a reputation for being quick on the trigger.

Mr. Morrell said the new, more stringent rules would be likely to put the Blackwater guards, and perhaps the people they are responsible for protecting, in greater danger.

“We want everybody operating for the sake of the same mission, O.K., which means, as the secretary has talked about before, invariably State Department contractors are going to have to assume greater risk because we have to operate with the overall mission in mind,” Mr. Morrell said. “And that is winning the hearts and minds, the trust and confidence, of the Iraqi people.”

Congressional Democrats criticized the administration over the immunity issue, saying it underscored the government’s inability to hold contractors accountable. Senator Patrick J. Leahy, the Vermont Democrat who sits on two committees that oversee the State and Justice Departments, said: “In this administration, accountability goes by the boards. That goes equally for misconduct and for incompetence. If you get caught, they will get you immunity. If you get convicted, they will commute your sentence.”

At the State Department, Mr. McCormack said that any lawbreakers “must be held to account” as a result of the inquiry into the Sept. 16 shootings, which has since been taken over by the Justice Department and Federal Bureau of Investigation. He said that if immunity were granted, it would not preclude a criminal prosecution.

Of Ms. Rice, he said, “Her attitude has been since the very beginning that we need to determine the facts and if the facts lead us to the conclusion that there are those who broke rules, laws or regulations, they must be held to account.”

A Justice Department spokesman, Dean Boyd, said in a statement that Blackwater employees could be prosecuted despite the immunity deals, which were not authorized by federal prosecutors. He said that neither the Justice Department nor the F.B.I. could discuss the case, but said “any suggestion that the Blackwater employees in question have been given immunity from federal criminal prosecution is inaccurate.”

Three law enforcement officials confirmed Tuesday that State Department investigators did take statements from Blackwater employees after offering them immunity, though they had no authority to do so.

Immunity is intended to preserve the constitutional right against self-incrimination while still giving investigators the ability to gather evidence. Witnesses granted immunity have no right to remain silent but nothing they say can be used against them.

Law enforcement officials said the Blackwater employees were given a Garrity warning, named after a Supreme Court case, Garrity v. New Jersey. This form of limited immunity does not bar a criminal prosecution but is seldom granted in a case in which a criminal prosecution is likely. It is almost never granted without the approval of federal prosecutors.
NYT | John M. Broder and David Johnston | Wednesday, October 31, 2007

Merrill’s departing chief to get $160m

Merrill Lynch on Tuesday boosted Stan O’Neal’s departure package by almost $90m - taking it to $160m - by letting him retire as chairman and chief executive rather than sacking him.

The company said Mr O’Neal and the board had “both agreed that a change of leadership would best enable Merrill Lynch to move forward”.

Mr O’Neal’s departure follows the company’s admission last week that it had lost almost $8bn on mortgage-backed securities, making him the most senior executive to lose his job as a result of the US subprime mortgage turmoil.

By casting his departure as a retirement, the board allows Mr O’Neal, who was paid $48m last year, to retain deferred compensation in the form of unvested stock worth $90m, giving him a total exit package of about $160m, including other compensation, shares and benefits.

The move threatens to reignite the controversy over the link between pay packages for executives and their performance. But lawyers said Merrill would have found it legally difficult to fire Mr O’Neal “for cause”.

Mike Mayo, analyst at Deutsche Bank, said there needed to be a better link between the interests of shareholders and the incentives of management. “Past compensation of top management was inflated by higher risk whose losses were not realised until this year.”

The bulk of Mr O’Neal’s exit package is linked to the stock price, which has fallen by a third this year. Before Merrill announced the increased losses last week, Mr O’Neal told the board he would step down if it thought his continued presence was a distraction for the company, said one person briefed on the discussions.

Alberto Cribiore, a board member for four years, has been chosen to serve as interim chairman. Mr Cribiore, a former president of Clayton Dubilier & Rice, the private equity firm, will also chair a committee “that will identify and evaluate chief executive candidates from within and outside of the company”.

The top internal candidates are considered to be Greg Fleming, co-president, and Bob McCann, who heads the wealth management operations. Mr Fleming, 44, has been given a slightly enhanced role, taking sole responsibility for all Merrill’s businesses, including risk management. This was previously shared with his co-president Ahmass Fakahany who led global support, finance and human resources. Mr Fakahany, who was close to Mr O’Neal, is not expected to remain with the company longer term. In terms of external candidates, speculation has focused on Larry Fink, head of BlackRock, the asset management company in which Merrill has a 49 per cent stake.

The board has left open the option of splitting the roles of chairman and chief executive, which is rare among top US companies. The board thanked Mr O’Neal for “the contribution he has made leading a major transformation of Merrill Lynch into a global and diversified company with enormous potential ahead of it”.

Mr O’Neal, 55, who spent his childhood in segregated rural Alabama and became the first African American to head a Wall Street bank, said Merrill Lynch had provided him with “opportunities that I never could have imagined growing up”.

Merrill shares closed down almost 3 per cent at $65.56.

FT | David Wighton and Ben White | Tuesday, October 30, 2007

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