North Korea
Kim Jong Ill or Kim Jong Well?
Fresh speculation about the Dear Leader’s health
RUMOURS have swirled that Kim Jong Il, North Korea’s dictator, is gravely ill. The 66-year-old, officials said in Seoul, had suffered a “collapse”. South Korea’s president, Lee Myung-bak, was worried enough to call an emergency meeting with senior aides. An anonymous American intelligence official in Washington might have been at the bedside: Mr Kim, she told reporters, was probably half-paralysed following a stroke. (Mysteriously, South Korean spooks later reported he was recovering from surgery.) On Wednesday September 10th North Korean diplomat denied the claims as “nefarious machinations”, noting that the Western press had a habit of telling lies (unlike the snow-pure Pyongyang Times).
He is half-right. The Western press has recently shown lurid interest in the theory of a Japanese professor that a double has been standing in for Mr Kim, who has in fact been the Dear Departed since 2003. For years rumours have erupted about Mr Kim’s health following prolonged public absences. Each time, he has eventually waddled back into view. The last scare was in May 2007, when he stopped appearing in public, and diabetes or heart problems were blamed. A team of German heart surgeons, sworn to secrecy, was flown to Pyongyang. Yet they may have operated on any member of the elite, not specifically on Mr Kim. At any rate, by the time of an October summit with South Korea’s then president, Roh Moo-hyun, Mr Kim looked hale enough—by the standards of a man with a podgy, grey demeanour.
Perhaps something is up this time. Neither hide nor tousled hair of Mr Kim has been seen since August 14th. His absence was conspicuous at the huge celebrations marking the 60th anniversary of North Korea’s founding. They included a vast militia parade on Tuesday. Mr Kim became head of the armed forces in 1991, three years before the death of his father, Kim Il Sung, and the world’s first communist dynastic succession. Until now, Mr Kim appears not to have missed a single military parade. A foreign medical team, this time Chinese, is now back in the capital.
Some analysts have blamed Mr Kim’s health for recent setbacks in the “six-party process” meant to wean the regime off its nuclear weapons in return for aid and security guarantees. The current phase of the talks has to do with a proper accounting of the North’s nuclear programmes, in return for which America will drop North Korea from its blacklist of state sponsors of terrorism. Yet the information that North Korea has so far produced is underwhelming: it fails to cover details of existing plutonium weapons, a possible programme for enriching uranium, and proliferation activities in the Middle East.
North Korea is indignant at demands for intrusive inspections: it insists that America drop it from the blacklist before agreeing to a verification protocol. In August it stopped disabling its main nuclear facility at Yongbyon and even threatens to undo the dismantling. North Korea has also suddenly put on hold a recent agreement to launch an official investigation into the fate of Japanese citizens kidnapped during the 1970s and 1980s and taken to the North. One Western diplomat, present at a weekend meeting in Beijing between envoys from America, Japan, China and South Korea, says these four parties are “at a loss over where to go next”.
Yet for North Korea, intransigence is the norm. Its negotiating style is marked by bluster, foot-dragging, blackmail and brinkmanship. Indeed, the same diplomat notes that the North’s recent actions have been “tactically cautious”: for instance, there is no sign that Yongbyon’s dismantlement is about to be fully reversed. In their talks over abductions, the Japanese think their counterparts acted entirely rationally—from a North Korean perspective. One senior Japanese official with long dealings says that North Korean diplomats do nothing without directions from the highest level. The Dear Leader, then, if he is ill, appears to be making clear decisions.
Still, speculation turns naturally to Mr Kim’s succession plan, for if he has one, he has not disclosed it. His possible heirs are little known, and include three sons and his brother-in-law. None has devoted the years spent by Mr Kim in preparing to take over. His eldest son was caught trying to enter Japan in 2001 on his way to Tokyo Disneyland; he subsequently lived and gambled in Macau. Of the other sons, both in their 20s, one is known only for his obsession with Eric Clapton, a rock star. Perhaps Mr Kim, a family man, intends that none of his relatives should be around on the day when international prosecutors come calling on the leaders of a regime that has starved, tortured or worked to death in prison camps many hundreds of thousands of its own people.
Commentary by Margaret Carlson
Sept. 11 (Bloomberg) -- By this time, you know more about Alaska Governor Sarah Palin than John McCain did when he picked her as his running mate, which isn't to say you've gotten answers to the big questions.
As I headed out to see Palin yesterday in Virginia, I wanted to sort out how much of what McCain said about his vice presidential choice in the first blush of new love was true.
For instance, the colorful detail that Palin sold the state's private jet on EBay isn't exactly so. A broker disposed of it, so she keeps the sentiment by saying she ``put it'' on EBay. She's still claiming she said, ``Thanks, but no thanks'' to the ``Bridge to Nowhere,'' when it's been shown she loved the project until she saw it wasn't going anywhere.
In any event, are you really a frugal steward of the taxpayer's money if you charge a per diem for you and your family for 312 days out of the year when you're at home in Wasilla?
As for the earmark-seekers that McCain vows to name and shame when he vetoes legislation with pork in it? She used to be one of those people and hired a lobbyist associated with Jack Abramoff to land money for such undertakings, some of which McCain, in a former life, ridiculed.
Palin is an action figure akin to Jesse Ventura with a high body count. She dismissed two law-enforcement officials -- one of whom coincidentally wouldn't fire Palin's former brother-in-law, who was locked in a custody fight with her sister, and another for allegedly wanting to close bars in Wasilla at 2 a.m. instead of 5 a.m.
There was her top legislative director, whom she praised publicly to high heaven but got rid of for ``poor job performance'' after she learned he was having an affair with a married friend of hers.
Banning Books
As for the town librarian being fired, the official story is that Palin did call to ask how you would go about banning books if you wanted to do such a thing, a purely hypothetical inquiry. And yes, the librarian was reluctant to ban books and yes she was terminated but supposedly for some other undisclosed reason. Anyway, she eventually got her job back.
Palin, who said parents of special-needs children would have an advocate in the White House, cut funds for the Special Olympics, Catholic Charities and Covenant House. It would be good to know what she favors that parents need.
But for the moment, for all the facts matter, Palin could have laid the caissons for the Bridge to Nowhere and burned books in the town square. To the huge audience in Virginia, she hung the moon and the stars. Crowds and celebrity were on the list of Obama's flaws until Palin started attracting the first and became the latter. Now McCain doesn't leave home without her.
Just Like Them
The 20 people I asked said they supported Palin because she's just like them. I wouldn't want a vice president just like me. I'd prefer someone who graduated close to the top of the class from a respected university, tested intellectually in any number of jobs, with a cogent philosophy about what government should do and with a lucid plan to do it.
But for many, being a mother of five, a frontierswoman who can field dress a moose and run over the good old boys in Juneau like a pit bull, is more important. Some might think a pregnant woman bypassing hospitals and traveling 22 hours to a clinic after her water broke is unwise if not reckless. But for others it's one more example of just how spunky Palin is.
According to recent polls, a lot of undecided voters prefer spunk to, say, health care. Obama wants to expand coverage and lower costs. McCain wants to give tax credits for buying insurance and to tax as income health benefits an employee gets through an employer. It takes a powerful amount of spunk to overcome that difference.
Mommy Wars
Women are driving the new numbers. Palin has reignited the Mommy Wars and the family values fault line, with some feminists and conservatives switching sides.
Some feminists huff about how a mother with a Down syndrome baby and a pregnant teenager can throw herself into being a heartbeat away from a president who's 72 years old. Conservatives are all for letting mothers decide on balancing career and children, and cheering on Palin's Mr. Mom even though he's away for months at a time working on the North Slope and training for the Iron Dog snowmobile competition.
But that's not the only switching of hats. Conservatives have long damned teenage pregnancies as the result of a fraying moral fiber induced by the loose sexual mores of liberals, Hollywood and welfare mothers.
Now when teen pregnancy comes to a Christian family, it's ``beautiful.'' Conservatives have argued that pregnant students be banned from school activities or any honors on the grounds that not censuring them conveyed tacit approval to others.
Between Shame, Celebration
Surely it conveys approval to parade the as-yet-unmarried couple on stage at a national convention. There must be a middle ground between shame and celebration.
Since the convention, the campaign has dissolved into a carnival of personality politics. You would think that after putting the class clown into the Oval Office over the class nerd, with the inevitable results, we might want to forget about who we would prefer to have a beer with and concentrate on who is going to save the country from financial meltdown and war: Will it be the party that got us there or someone else?
Maybe shooting a moose has something to do with being the leader of the Free World. Maybe McCain thinks Palin is ready to step in on Day Two. It's also likely picking her was, as Karl Rove said, ``not a governing decision but a campaign decision.''
As the argument flares over whether ``lipstick on a pig'' is a sexist comment or one of the world's most shopworn cliches, the question is no longer whether Palin will be put out to campaign alone but whether her sidekick McCain will.
Commentary by Michael Lewis
Sept. 11 (Bloomberg)-- To see the mental state of financial markets at the moment you need only to sit at a computer with an Internet connection and watch investors respond to journalism.
On Tuesday morning Bloomberg News quoted an unidentified person inside Lehman Brothers Holdings Inc. saying his firm had tried and failed to raise capital from the Korean Development Bank. This report came on the heels of an earlier one in which a named person who regulated the Korean Development Bank denied such a thing had happened -- but no matter.
A few minutes after Bloomberg News posted the piece, it was the most-read news of the day, and Lehman's shares went into a free fall. Fifteen minutes later they had lost almost half their value.
What's interesting, among other things, is the total lack of reflection in the markets. Who had heard of the Korean Development Bank? Who knew what it did, or whether the people inside it were shrewd assessors of subprime-mortgage portfolios?
Basically no one, I'd guess. And yet a single report from an unnamed person inside Lehman that some Koreans had considered, and then passed on, investing in the firm was enough to cause the shares to crash.
And all that had really happened was that KDB proved it may have finally grasped what should be for Asians a cardinal investment principle: Never buy anything an American investment banker is selling.
Lehman Doomed
What one can see from this event is that Lehman Brothers is doomed. It's doomed, in part, because it still owns all sorts of crappy assets at inflated prices.
It holds tens of billions of dollars in subprime-related assets of the sort Merrill Lynch & Co. in July disgorged at 22 cents on the dollar. But that's probably just the beginning.
There's no happy reason they haven't explained in detail their exposure to credit-default swaps. No one -- not its big investors, not the analysts and journalists who cover it, not even, perhaps, the Korean Development Bank -- has had a clear view of its assets and liabilities.
This opacity was once a huge advantage: the people outside assumed the best. It's now an even bigger disadvantage: people outside assume the worst.
But Lehman is doomed for another reason: People are enjoying its failure. The pleasure and interest the markets now take in seeing it fail now exceeds their pleasure and interest in seeing it survive.
Interest in Failure
This is one of the many unintended little side effects of the government bailout of Bear Stearns Cos.: to greatly reduce the interest of the people who do business with Lehman Brothers in the survival of Lehman Brothers.
All those people whose affairs are intertwined with Lehman might have pressured them to handle their problems more briskly and intelligently -- and might also be trying to keep it afloat. The U.S. government has made it possible for them to instead stand back and watch with some detachment and even pleasure as Lehman collapses.
After all, the Federal Reserve will give them their money back, re-insure their credit defaults, take another pile of these distressed assets out of the market. And when the dust settles they can go in and poach Lehman's business and its smarter employees.
The Bear Stearns bailout was supposed to prevent the crisis from rippling through Wall Street. Obviously it hasn't done that. It's merely thrown the crisis into slow motion and prolonged the agony.
And it's given the Korean Development Bank whole new powers.
Sept. 11 (Bloomberg) -- Richard Fuld's plan to keep Lehman Brothers Holdings Inc. afloat depends on whether the chief executive officer can sell a business that he'd rather keep to a buyer who may not be able to pay for it.
Lehman told investors yesterday it will auction off a 55 percent stake in its asset-management unit, which oversees $277 billion, including funds run by Neuberger Berman LLC. Private-equity firms KKR & Co. LP, Bain Capital LLC and Hellman & Friedman LLC may make bids valuing the unit at about $5 billion, according to two people familiar with the negotiations. That's about 60 percent more than Lehman's market capitalization after the stock fell today as much as 47 percent.
Losses of $6.7 billion in the past two quarters and an almost 90 percent drop in Lehman's stock since the start of the year forced Fuld to put the division up for sale after prices for fund companies dropped to the lowest since 2002. The lack of financing for leveraged buyouts will make it harder for the New York-based securities firm to pull off a deal.
``Fuld doesn't want to let it go,'' said Bruce Foerster, a former Lehman executive who is president of South Beach Capital Markets in Miami. ``He went out of his way to buy it and he knows it's a good asset.''
Financing Concerns
An LBO of the fund unit will test the buyer's ability to finance a takeover as investment banks remain skittish about committing debt to new deals. Blackstone Group LP President Tony James said Sept. 9 that financing for deals worth more than $5 billion was difficult to arrange. The value of announced private-equity deals worldwide has dropped 70 percent to $193 billion in 2008 from a year earlier, according to data compiled by Bloomberg.
``Unless it's a fire sale, where do they get leverage to get their return?'' said Geoff Bobroff, a mutual-fund consultant in East Greenwich, Rhode Island. ``I don't think there is any one who will lend them that kind of money in today's market.''
Lehman didn't name potential bidders for the unit in a statement or conference call with investors yesterday. The Lehman sale doesn't include the firm's holdings in hedge funds such as GLG Partners Inc. and the institutional brokerage inside the unit. Officials at the private-equity firms and Lehman declined to comment.
Lehman's asset-management unit earned $361 million on $2.3 billion of revenue this year through August, according to a Sanford Bernstein research note at that time. The report valued the unit at $7 billion, including the hedge-fund stakes.
Ratings Cut Looms
Even a successful sale may not be enough to satisfy credit- rating companies. Moody's Investors Service said it was reviewing its ratings for Lehman, and may lower them if the firm fails to reach a ``strategic arrangement.''
``A strategic transaction with a stronger financial partner would likely add support to the ratings,'' analyst Blaine Frantz said in a Moody's statement yesterday.
Lehman fell $2.95 to $4.30 at 10:39 a.m. in New York Stock Exchange trading after four analysts cut their recommendations because of the possible ratings change. The stock dropped as low as $3.88 earlier in the day.
Private-equity firms including Carlyle Group and Blackstone decided against making offers for the unit, according to people familiar with the process who declined to be identified because the talks were confidential.
KKR, Bain, Hellman
KKR, the private-equity firm led by Henry Kravis and George Roberts, plans to convert to a public company listed on the New York Stock Exchange by the end of the year in a transaction that may give it a market value of as much as $15 billion.
A deal for the asset-management firm might bolster its case to investors that it can expand beyond LBOs. The firm earlier this year hired William Sonneborn from TCW Group to head its asset-management efforts.
``That would help the rationale for KKR going public in these markets,'' said Jackson Turner, an analyst with Argus Research in New York who follows publicly traded private-equity firms including Blackstone. ``KKR's motivation is stronger because acquiring Neuberger Berman would put to rest doubts about why they chose to go public.''
Bain, founded in 1984, manages more than $78 billion in assets. The firm's investments include Clear Channel Communications Inc. and HD Supply Inc., as well as the Weather Channel, which it bought earlier this year with NBC Universal and Blackstone for about $3.5 billion, among the biggest LBOs of 2008.
Hellman & Friedman, founded by Warren Hellman in 1984, has invested in fund managers including Grosvenor Capital Management LP. Hellman also helped create Farallon Capital Management LLC, the San Francisco-based alternative asset manager founded by Thomas Steyer.
Revenue Decline
In the case of Lehman, the would-be buyers may overcome the debt-market conditions by offering a cheap price to a seller under increasing pressure to act. They may also find a group of managers eager to escape the speculation surrounding Lehman and ready to make their way at an independent firm.
Revenue in the investment-management unit dropped 21 percent in the third quarter, half the 43 percent decline in investment banking, Lehman said yesterday when it outlined its preliminary results.
Chief Financial Officer Ian Lowitt told investors on a conference call Lehman expected to gain at least $3 billion as a result of the goodwill associated with the sale.
`Under Stress'
Lehman bought Neuberger in 2003 for $2.6 billion. The investment-management division, which also includes separate accounts for wealthy investors and private-equity funds, had revenue of $634 million in third quarter, down from $802 million from the same period a year earlier.
Fuld, 62, is seeking to salvage some of the unit's profits by keeping a minority stake. The CEO personally called bankers at rival securities firms in recent weeks to ensure they would continue to trade with Lehman and extend the firm credit, the Wall Street Journal reported, citing people familiar with the calls.
``You have a seller who's under stress,'' said Eric Weber, a managing director of New York-based Freeman & Co., a financial-services consulting firm. ``In this scenario, Lehman gets some of its capital, some cash to shore up its capital base and still have a seat at the table.''
Lehman reported a $3.9 billion third-quarter loss yesterday, the largest in its 158-year history. In addition to the asset-management sale, Lehman plans to spin off commercial real-estate holdings and cut the dividend to boost capital in attempt to regain investors' confidence.
Layoffs Possible
The firm may have to cut as many as 8,000 of its 24,000 jobs to continue operating as an independent company, the New York Post reported today, citing estimates by unidentified people.
Private-equity firms are attracted to traditional asset managers for their steady income streams and revenue.
TPG Inc. earlier this year bought the mutual-fund unit of American Airlines parent AMR Corp. for $480 million. Madison Dearborn Partners LLC last year agreed to buy Nuveen Investments Inc. for $5.75 billion, the largest LBO of an asset manager.
Private-equity companies invested in 33 asset managers from Aug. 1 of last year, when LBOs started to dwindle, to June of this year, a 10 percent gain from the same period a year earlier, according to Jefferies Putnam Lovell, a unit of New York-based Jefferies Group Inc. In the same period, private- equity deals across all industries fell 12 percent to 2,188, data compiled by Bloomberg show.
Valuations Fall
Part of the attraction is the relative cheapness of asset managers, as measured by the ratio of stock prices to earnings. A basket of 50 companies worldwide traded at an average of 11 times earnings in the second quarter, meaning investors were willing to pay $11 for each $1 of operating profit. That's down from 17.7 times in the second quarter of 2003, according to Putnam Lovell. The valuation for the group hasn't been lower since 2002, according to the research.
With a deal the size of Lehman's business, a private-equity buyer might model the transaction on those of rival investment banks including Merrill Lynch & Co., which provided some financing to buyers of its assets including Lone Star Funds, Freeman's Weber said. That would limit the amount of money a buyout shop would need to borrow, he said.
Sept. 11 (Bloomberg) -- John McCain's plan to revive the U.S. nuclear power industry with 45 new reactors may cost $315 billion, with taxpayers bearing much of the financial risk.
The Republican presidential nominee wants the plants built in time to help the U.S. meet a 29 percent increase in electricity demand by 2030. Industry estimates put their cost at $7 billion each. Barack Obama, McCain's Democratic opponent, is less specific about his plans, saying he wants to ``find ways to safely harness nuclear power.''
Global warming and the rising cost of fossil fuels have boosted chances that atomic energy will supply more U.S. electricity. Public concerns remain about reactor safety and disposing of waste that stays hazardous for millennia. Investment bankers, citing the industry's cost overruns in the 1980s, say they won't finance its long-sought ``nuclear renaissance'' without federal backing.
``Loan guarantees get reactors built, simply put,'' said Kevin Book, senior vice president and energy specialist at the Friedman, Billings, Ramsey & Co. investment banking firm in Arlington, Virginia.
No new nuclear plants have opened in the U.S. since 1996. The 1979 scare at Three Mile Island in Pennsylvania and the 1986 explosion at Chernobyl in the former Soviet Union damped support for the technology.
Congress in December authorized $18.5 billion in guarantees that cover as much as 80 percent of nuclear plant construction costs -- enough to fund three typical reactors. Three power companies have already applied for the aid.
`Large Obstacle'
Constellation Energy Group Inc. of Baltimore was the first, on July 31. Its vice chairman, Michael Wallace, said in an interview that while the company hasn't decided whether to build a new reactor, securing loan guarantees is ``the last large obstacle in our path.''
Dominion Resources Inc. in Richmond, Virginia, also applied, as did a joint venture between Princeton, New Jersey-based NRG Energy Inc. and Toshiba Corp. of Tokyo. Chicago's Exelon Corp. will ask for the guarantees by month's end, said Thomas O'Neill, the company's vice president of new plant development.
A building boom would benefit developers of nuclear plants, including Paris-based Areva SA; Toshiba's Westinghouse Electric Co. subsidiary in Monroeville, Pennsylvania; and GE-Hitachi Nuclear Energy, a joint venture of General Electric Co., in Fairfield, Connecticut, and Tokyo's Hitachi Ltd.
The Nuclear Energy Institute, a trade group in Washington, says it will ask the next president to expand and extend the loan guarantee program.
Default Rate
The guarantees under the program, which is set to expire next year, require no upfront public spending.
Taxpayers are on the hook only if borrowers default. A 2003 Congressional Budget Office report said the default rate on nuclear construction debts might be as high as 50 percent, in part because of the projects' high costs.
``The nuclear industry has been aggressively going after taxpayer-backed loan guarantees because nuclear technology cannot stand on its own two feet in the marketplace,'' said Allison Fisher, an energy policy analyst for the nonprofit consumer group Public Citizen in Washington.
The Energy Information Administration estimated last year that adding nuclear power capacity would cost $2,143 a kilowatt before financing and inflation. That compared with $1,434 to $2,302 for clean-coal technologies.
Over the past year, the expense has more than doubled to $5,000 a kilowatt, or $7 billion for a typical reactor, utility filings and company statements show. The increase in part reflects rising prices for commodities such as steel and cement.
Uranium Prices Drop
At the same time, uranium prices have dropped. The Standard & Poor's Global Nuclear Energy Index has lost about a third of its value since November.
Arizona Senator McCain called for the 45 reactors by 2030 during a June campaign appearance, citing ``the ultimate goal of 100 new plants.'' The 104 U.S. reactors now operating produce 20 percent of the country's electricity.
Senator Obama, an Illinois Democrat, qualifies his support.
``It is unlikely that we can meet our aggressive climate goals if we eliminate nuclear power as an option,'' his energy plan states. ``However, before an expansion of nuclear power is considered, key issues must be addressed, including security of nuclear fuel and waste, waste storage and proliferation.''
Industry officials say they are encouraged.
``We've told them we think we can move ahead because these conditions can be met,'' said David Brown, vice president of federal affairs at Exelon, which operates 11 reactors in Illinois and six in the mid-Atlantic region, including the surviving Three Mile Island unit.
Exelon in Texas
Exelon is developing a new site in Victoria County in southeast Texas. Since that ``merchant'' plant would sell its power in the marketplace, it wouldn't be subject to state rate regulation. That means the company can't ask a public utility commission to recapture construction costs from customers.
That's the same reason why Constellation's Wallace says his plans for a new reactor in Maryland hinge on federal guarantees.
``Commercial banks, not having experienced new nuclear plant licensing in 30 years -- and with all the uncertainties inherent in the process in the U.S. -- are just not willing'' to provide financing without the supports, he said.
Through its Unistar Nuclear Energy LLC joint venture with the Paris-based utility Electricite de France, the company is developing a merchant power plant in Lusby, Maryland, 56 miles (90 kilometers) west of Washington.
``For the plants that are not regulated, the loan guarantees are essential,'' says Morgan Stanley executive director Caren Byrd, a nuclear finance specialist.
Sept. 11 (Bloomberg) -- Barack Obama and John McCain will put their presidential ambitions on hold today to make an unprecedented joint appearance at a commemoration marking the seventh anniversary of the worst terrorist attack on U.S. soil.
With no speeches and little fanfare, the two candidates will walk together down a ramp into the pit where the World Trade Center towers once loomed over lower Manhattan and lay a wreath at Ground Zero for the Sept. 11 attacks.
In the seven years since the terrorist strike that killed almost 3,000 people in New York, at the Pentagon and in Pennsylvania, Sept. 11 has been a tool and a trap for U.S. politicians. Yet the day itself has remained sacred.
``Both parties have used it for their own political benefits, but it is risky,'' said Trent Duffy, a former aide to President George W. Bush and a partner at the Washington communications firm HDMK. The candidates ``realize that the best statesmanship, and hence the best political move, is to not play politics on 9/11.''
Keeping up the non-partisan spirit of the commemoration, McCain and Obama later will make back-to-back appearances at a televised forum on civic engagement sponsored by Columbia University. The subject is one of the few on which the candidates generally agree.
Commemorations
Bush today observed a moment of silence at the White House and then went to the Pentagon to dedicate a memorial to the victims there. McCain, before heading to New York, attended a service in rural Shanksville, Pennsylvania, where United Air Lines Flight 93 crashed after passengers overpowered terrorists steering the plane toward Washington.
This is only the second presidential campaign since 9/11 and the first year that the Democratic and Republican candidates will appear at Ground Zero on the anniversary.
City officials urged the candidates not speak at Ground Zero to avoid even the appearance of politics.
``This is an American issue, and this is an American tragedy, and we should not politicize that, and we've been very successful in keeping it from being politicized over the years,'' New York Mayor Michael Bloomberg said yesterday. The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.
Day of Unity
David Paine, a New York public relations executive who created a public-service organization called MyGoodDeed.org after the attacks, said he and co-founder Jay Winuk, whose brother perished in the attack, sent both candidates letters last month asking them to suspend formal campaigning on the anniversary date.
Setting politics aside for the day ``is appropriate because when 9/11 happened, we were all unified and the last thing people thought about was whether you're from a red state or a blue state,'' Paine said.
Still, Sept. 11 often is an undercurrent in the political debate.
Bush came under fire from some victims' families in 2004 for an advertisement that included video of firefighters carrying a flag-draped stretcher through the rubble of the World Trade Center and footage of a fireman's funeral.
His opponent that year, Democratic Senator John Kerry of Massachusetts, aided by a firefighters union, argued that Bush shortchanged the budget for emergency personnel who would be the first to respond to another terrorist attack.
This year has been no exception.
Terrorism Debate
The two campaigns engaged in a back and forth debate over terrorism earlier this year after McCain's top national security adviser charged Obama with having a ``Sept. 10 mindset.''
``The other side likes to use 9/11 as a political bludgeon, well, let's talk about 9/11,'' Obama, an Illinois senator, said June 18, responding to the Republican charges. ``The people who were responsible for murdering 3,000 Americans on 9/11 have not been brought to justice.''
In the days leading up to the seventh anniversary, the candidates have taken a more conciliatory tone, directing their criticism at the Bush administration. Both said Bush should have done more to keep the nation focused.
``The American people did what they should've done, which is to rally around the president in this moment of crisis,'' Obama, 47, told MSNBC's Keith Olbermann this week. ``That opportunity was squandered by the president, who talked about going shopping instead of pulling together to get serious about energy independence and to get serious about pulling the country together to meet our long-term challenges.''
Service
``One of the biggest mistakes we ever made after 9/11, we told Americans go shopping or take a trip,'' Arizona Senator McCain, 72, said on CBS's ``Face the Nation.'' ``We should have said, OK, you're going to be part of a large group of Americans, the majority of Americans who are going to serve the country.''
Today's suspension of campaigning comes during a particularly tense week of sparring. McCain's campaign accused Obama of making a sexist insult against vice presidential nominee Sarah Palin, the governor of Alaska, by saying the Republicans are putting ``lipstick on a pig'' with their policy proposals. Obama retorted that McCain's supporters were using ``lies and phony outrage'' to win the election.
The candidates are using their trips to New York for some politicking. Obama taped an appearance on NBC's ``Late Show'' yesterday afternoon and today will have his first face-to-face meeting with former President Bill Clinton. McCain will make the rounds on daytime television, taping appearances tomorrow on ABC's `The View'' and the syndicated Rachael Ray show.
The truce won't last beyond the day.
The solemn nature of Sept. 11 is something ``every campaign gets and my guess is they're all very sensitive about,'' said Democratic strategist Chris Kofinis. ``The hits will probably roar back on the 12th.''
Sept. 11 (Bloomberg) -- The dollar rose to one-year high against the euro on signs global growth is slowing and the yen strengthened on speculation investors will sell higher-yielding assets funded by loans in Japan.
The yen appreciated to the highest level against the euro since August 2006 as concern Lehman Brothers Holdings Inc. will collapse encouraged investors to pare carry trades. New Zealand's currency dropped to two-year lows against the dollar and the yen as the Reserve Bank reduced borrowing costs more than most economists forecast.
``Risk aversion is feeding into the dollar rally right now,'' said Mike Moran, a senior currency strategist at Standard Chartered Plc in New York. ``Investors are increasingly concerned about the backdrop for the rest of the world in the next three, six months.''
The U.S. currency climbed 0.6 percent to $1.3916 per euro at 10:34 a.m. in New York, from $1.3998 yesterday, after touching $1.3882, the strongest level since Sept. 18, 2007. The dollar may gain to $1.30 per euro in six months, Moran said. The yen advanced 1.8 percent to 148.08 per euro, from 150.75, after touching 147.54, the strongest in more than two years. The yen gained 1.2 percent to 106.38 per dollar, from 107.70.
The ICE's Dollar Index touched 80.375 today, the highest level since September 2007, when the Federal Reserve began cutting its target lending rate from 5.25 percent to 2 percent to stave off a recession. The index, a gauge measuring the dollar against the currencies of six U.S. trading partners, reached a low of 70.698 on March 17.
Yen's Gains
The yen gained against all of the other major currencies on speculation investors will reduce trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's currency rose 3.5 percent to 58.14 versus the Brazilian real and 2.7 percent to 12.77 against the South African rand. Japan's target lending rate of 0.5 percent compares with 13.75 percent in Brazil and 12 percent in South Africa.
Lehman plunged 41 percent, extending its slide in the past year to 92 percent, after three analysts downgraded the stock. The Standard & Poor's 500 Index sank 1.5 percent.
``Investors in Japan are in risk-aversion mode, so they're buying the yen,'' said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG.
The New Zealand dollar, known as the kiwi, fell as much as 2.7 percent to 64.38 U.S. cents, the lowest since September 2006, and 3.7 percent to 68.99 yen, the weakest since May 2006. The Reserve Bank cut its official cash rate by a half-percentage point to 7.5 percent, saying the economy is in a recession and inflation will slow.
Yen vs. Euro
The yen gained for a fourth day against the euro after implied volatility on one-month euro options versus the yen rose to 16.94 percent, the highest since March 18.
The Australian dollar dropped to the lowest against the U.S. currency since August 2007 on tumbling prices of raw materials, which account for about 60 percent of the nation's exports. The Aussie fell as much as 1.4 percent to 79.01 U.S. cents and dropped 2.2 percent to 84.44 against the yen.
Platinum for immediate delivery fell as much as 4.2 percent to $1,130.65 an ounce in London, the lowest since Jan. 12, 2007, while gold dropped 1.3 percent to $742.40 an ounce.
The dollar has gained 13 percent since touching the all- time low of $1.6038 per euro set on July 15 as the European economy slowed and crude oil dropped more than 30 percent from its peak of $147.27.
ECB Rate Outlook
The ECB will cut its main refinancing rate by a quarter- percentage point to 4 percent during the first three months of next year, according to Bloomberg surveys of economists.
The European Commission said yesterday the euro region's economy will probably stagnate this quarter after shrinking the previous three months for the first time since the currency's debut in 1999. It cut its 2008 growth forecast to 1.3 percent, from 1.7 percent. By contrast, the median in a Bloomberg News survey of economists was for U.S. growth of 1.7 percent.
Industrial output in the 15 nations that use the euro probably fell 0.2 percent in July after a decline by the same amount in June, according to the median forecast of 31 economists surveyed by Bloomberg News. The report from the European Union's statistics office is due tomorrow.
Sept. 11 (Bloomberg) -- U.S. stocks tumbled, sending the Standard & Poor's 500 Index to the lowest level since November 2005, on growing concern a collapse of Lehman Brothers Holdings Inc. will trigger a new round of bank failures.
Lehman plunged 41 percent, extending its slide over the past year to 92 percent, after four analysts downgraded the stock on concern the securities firm's credit rating may be cut. Washington Mutual Inc., the biggest U.S. savings and loan, sank 19 percent to a 22-year low on expectations it will have to raise capital to cover $19 billion in losses. Financial shares in the S&P 500 extended their 2008 decline to 30 percent as a group.
``If Lehman goes, attention will focus very quickly on who's next,'' said Matthew Kaufler, a fund manager at Rochester, New York-based Clover Capital Management Inc., which oversees $2.8 billion. ``Collapses like Lehman's undermine confidence, undermine credit, and ultimately undermine the efficient financing of the broader economy.''
The S&P 500 sank 14.48, or 1.2 percent, to 1,217.56 at 10:31 a.m. in New York after dropping to as low as 1,211.54. The Dow Jones Industrial Average decreased 130.84, or 1.2 percent, to 11,138.08 and the Nasdaq Composite Index fell 17.21, or 0.8 percent, to 2,211.49. More than five stocks retreated for each that rose on the New York Stock Exchange.
Concern that Lehman won't survive follows the government seizure of mortgage-finance companies Fannie Mae and Freddie Mac over the weekend and comes six months after the Federal Reserve brokered JPMorgan Chase & Co.'s takeover of Bear Stearns & Co., a Lehman rival that faced failure on bad bets tied to mortgage bonds.
`Bear Case' for Lehman
Banks are being closed at the fastest pace in 14 years and regulators have publicly ordered dozens of institutions to shore up capital or restrict their business. California lender IndyMac Bancorp Inc., which had $32 billion in assets, was closed July 11 in the third-largest bank seizure.
Lehman declined $2.96 to $4.29. The shares were downgraded to ``hold'' from ``buy'' at Citigroup Inc., which cited a possible cut in the credit rating and deteriorating capital. Lehman's initiatives to boost investor confidence by announcing plans to sell assets and slash its dividend ``fell short of what was necessary to lessen the bear case on the stock,'' Goldman analysts including New York-based William Tanona said in a note to clients.
`A Sham'
Lehman's plan to shore up its balance sheet ``appear to be a sham,'' Ladenburg Thalmann & Co. analyst Dick Bove said in a note to clients.
Lehman led financial companies in the S&P 500 to a 3.5 percent drop, paring the group's rebound from a nine-year low on July 15 to 17 percent.
Washington Mutual fell 19 percent to $1.87, the lowest since February 1986. Merrill Lynch & Co., the third-biggest U.S. securities firm, slid 18 percent to $19.15, the lowest since October 1998. American International Group Inc., the largest U.S. insurer, fell 9 percent to $15.85, the lowest since January 1995 and the biggest decline in the Dow average.
``People are at the edge of their seats,'' Laszlo Birinyi, who oversees more than $350 million as president of Birinyi Associates Inc. in Westport, Connecticut, told Bloomberg Television. ``It seems to be waiting for the other shoe to drop but this is like a centipede that has a hundred shoes and it just doesn't seem to ever want to end.''
The cost to bondholders of default protection on Lehman's obligations soared. Credit-default swaps on Lehman climbed 195 basis points to a record 775, according to broker Phoenix Partners Group prices at 8:25 a.m. in New York. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
Energy Slump
Southwestern Energy Co. and Range Resources Corp. led a drop in fuel producers as crude oil and natural gas prices fell for a third day. Southwestern fell $1.26 to $29.43. Range Resources declined $1.49 to $39.98.
Crude oil for October delivery sank as much as 1.2 percent to $101.43 on the New York Mercantile Exchange as the dollar rose to a one-year high against the euro, reducing the appeal of commodities as a hedge.
New York Times Co. rose 8.6 percent to $15.16, its biggest gain since Jan. 28. Mexican billionaire Carlos Slim and his family acquired a 6.4 percent stake in the newspaper publisher, according to a regulatory filing today.
Botox For Migraines
Allergan Inc. rose 10 percent to $60 for the biggest gain in the S&P 500. The maker of wrinkle-smoothing treatment Botox said clinical trials showed Botox was effective in treating chronic migraines.
Stocks also declined after jobless claims and the trade deficit topped estimates.
First-time jobless claims fell to 445,000 in the week ended Sept. 6 from a revised 451,000 the prior week that was more than initially reported. Economists surveyed by Bloomberg had forecast 440,000 new claims. The number of people staying on rolls rose 122,000 to 3.525 million, the highest since October 2003.
The U.S. trade deficit widened more than forecast in July as oil imports soared to a record, overshadowing gains in exports. The gap grew 5.7 percent to $62.2 billion, the largest in 16 months, from a revised $58.8 billion in June that was bigger than previously estimated, the Commerce Department said. Total imports and exports were the highest ever.
U.S. stocks advanced yesterday as investors snapped up energy shares trading at their cheapest level in 18 months, while better-than-forecast earnings at FedEx Corp. buoyed industrial companies.
The S&P 500 is poised for its first annual decline since 2002 as more than $500 billion in credit losses and asset writedowns at financial firms worldwide and slowing economic growth damp the outlook for earnings.
Wednesday, September 10, 2008
Obama Can't Win
Against Palin
Of all the advantages Gov. Sarah Palin has brought to the GOP ticket, the most important may be that she has gotten into Barack Obama's head. How else to explain Sen. Obama's decision to go one-on-one against "Sarah Barracuda," captain of the Wasilla High state basketball champs?
It's a matchup he'll lose. If Mr. Obama wants to win, he needs to remember he's running against John McCain for president, not Mrs. Palin for vice president.
![[Obama Can't Win Against Palin]](http://s.wsj.net/public/resources/images/OB-CH522_oj_rov_D_20080910210653.jpg) |
| AP |
Michael Dukakis spent the last months of the 1988 campaign calling his opponent's running mate, Dan Quayle, a risky choice and even ran a TV ad blasting Mr. Quayle. The Bush/Quayle ticket carried 40 states.
Adlai Stevenson spent the fall of 1952 bashing Dwight Eisenhower's running mate, Richard Nixon, calling him "the kind of politician who would cut down a redwood tree, and then mount the stump and make a speech for conservation." The Republican ticket carried 39 of 48 states.
If Mr. Obama keeps attacking Mrs. Palin, he could suffer the fate of his Democratic predecessors. These assaults highlight his own tissue-thin résumé, waste precious time better spent reassuring voters he is up for the job, and diminish him -- not her.
Consider Mr. Obama's response to CNN's Anderson Cooper, who asked him about Republican claims that Mrs. Palin beats him on executive experience. Mr. Obama responded by comparing Wasilla's 50 city workers with his campaign's 2,500 employees and dismissed its budget of about $12 million a year by saying "we have a budget of about three times that just for the month." He claimed his campaign "made clear" his "ability to manage large systems and to execute."
Of course, this ignores the fact that Mrs. Palin is now governor. She manages an $11 billion operating budget, a $1.7 billion capital expenditure budget, and nearly 29,000 full- and part-time state employees. In two years as governor, she's vetoed over $499 million from Alaska's capital budget -- more money than Mr. Obama is likely to spend on his entire campaign.
And Mr. Obama is not running his campaign's day-to-day operation. His manager, David Plouffe, assisted by others, makes the decisions about the $335 million the campaign has spent. Even if Mr. Obama is his own campaign manager, does that qualify him for president?
A debate between Mr. Obama and Mrs. Palin over executive experience also isn't smart politics for Democrats. As Mr. Obama talks down Mrs. Palin's record, voters may start comparing backgrounds. He won't come off well.
Then there was Mr. Obama's blast Saturday about Mrs. Palin's record on earmarks. He went at her personally, saying, "you been taking all these earmarks when it is convenient and then suddenly you are the champion anti-earmark person."
It's true. Mrs. Palin did seek earmarks as Wasilla's mayor. But as governor, she ratcheted down the state's requests for federal dollars, telling the legislature last year Alaska "cannot and must not rely so heavily on federal government earmarks." Her budget chief directed state agencies to reduce earmark requests to only "the most compelling needs" with "a strong national purpose," explaining to reporters "we really want to skinny it down."
Mr. Obama has again started a debate he can't win. As senator, he has requested nearly $936 million in earmarks, ratcheting up his requests each year he's been in the Senate. If voters dislike earmarks -- and they do -- they may conclude Mrs. Palin cut them, while Mr. Obama grabs for more each year.
Mr. Obama may also pay a price for his "lipstick on a pig" comment. The last time the word "lipstick" showed up in this campaign was during Mrs. Palin's memorable ad-lib in her acceptance speech. Mr. Obama says he didn't mean to aim the comment at Mrs. Palin, but he deserves all the negative flashback he gets from the snarky aside.
Sen. Joe Biden has now joined the attack on Mrs. Palin, saying this week that her views on issues show she's "obviously a backwards step for women." This is a mistake. Mr. Obama is already finding it difficult to win over independent women and Hillary Clinton voters. If it looks like he's going out of his way to attack Mrs. Palin, these voters may conclude it's because he has a problem with strong women.
In Denver two weeks ago, Mr. Obama said, "If you don't have a record to run on, then you paint your opponent as someone people should run from." That's what he's trying to do, only the object of his painting is Sarah Palin, not John McCain.
In Mrs. Palin, Mr. Obama faces a political phenomenon who has altered the election's dynamics. Americans have rarely seen someone who immediately connects with large numbers of voters at such a visceral level. Mrs. Palin may be the first vice presidential candidate since Lyndon B. Johnson to change an election's outcome. If Mr. Obama keeps attacking her, the odds of Gov. Palin becoming Vice President Palin increase significantly.
Mr. Rove is a former senior adviser and deputy chief of staff to President George W. Bush.
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