Sunday, October 26, 2008

Companies start competing for bailout money

By MARTIN CRUTSINGER

WASHINGTON (AP) - The bailout is now the hottest lobbying game in town.

Insurers, automakers and American subsidiaries of foreign banks all want the Treasury Department to cut them a piece of the largest government rescue in U.S. history.

The betting is that many with their hands out will be successful, especially with financial markets in a stomach-churning dive and predictions the economy is about to tumble into a deep recession.

These groups argue that the credit squeeze is so severe and the risks to the economy so dire that their industries need financial support as well.

The Treasury is considering requests from a variety of industries, but has not decided whether to expand the program, officials said Saturday.

Lobbying efforts are intensifying.

The Financial Services Roundtable wrote Treasury officials on Friday requesting that the initiative to buy $250 billion in bank stock grow to cover insurers, auto companies, securities dealers and U.S. subsidiaries of foreign companies, including banks. The Treasury's plan is intended to bolster banks' tattered balance sheets and get them to resume making loans.

As the Treasury now interprets it, these additional groups would not participate in the bank stock program. They could receive help from a separate part of the $700 billion rescue that will buy bad assets from financial institutions.

Steve Bartlett, the president of the Roundtable, urged the Treasury to broaden the definition of those eligible for the stock purchase program.

"The institutions that are excluded play a vital role in the U.S. economy by providing liquidity to the market," Bartlett wrote Neel Kashkari, the Treasury Department official running the bailout program.

Referring to U.S. subsidiaries of foreign companies, Bartlett said, "This is a global crisis and to not recognize the U.S. firms controlled by foreign banks or companies would create further impediment to the market's recovery."

A financial industry official said Treasury Secretary Henry Paulson met over the past week with various groups, including hedge fund managers, that were petitioning for assistance. The official spoke on condition of anonymity because the Treasury has not made a decision.

Some insurers technically would be eligible for stock purchases now if they own subsidiaries that are savings and loan institutions regulated by the Office of Thrift Supervision.

Last month, American International Group, the country's largest insurance company, received an $85 billion loan from the Federal Reserve. Since then, it has gotten further support in an effort to withstand the biggest upheavals on Wall Street since the Great Depression.

Complicating the government's decision-making is that the Bush administration will not be in charge after Jan. 20. Paulson, who has said he has no intention of staying on the job, has pledged to consult with both campaigns on his bailout actions.

Democrat Barack Obama's presidential campaign said Friday it supported the effort by the auto industry to get money from the $250 billion made available for stock purchases. That would be in addition to $25 billion recently approved by Congress for low-interest loans to help the struggling industry retool and build fuel efficient vehicles.

The debate over expanding the bailout comes as the Treasury is rushing to get money out the door to the primary recipients: banks that sharply curtailed lending after suffering billions of dollars of losses on mortgage-related assets as home foreclosures soared in the housing slump.

Lawmakers are pressuring the Treasury to do more in the foreclosure area, as well.

Sheila Bair, head of the Federal Deposit Insurance Corp., told Congress about efforts to provide government-backed loan guarantees for mortgages that are reworked to help homeowners in danger of default. That would give banks an incentive to speed up refinancing efforts because the government would back part of the reworked loan.

The Treasury also is moving ahead to get bank stock purchases approved. It announced on Oct. 14 that it was spending $125 billion to buy stock in nine of the largest financial institutions. An announcement was expected Friday about a second round involving 20 to 22 other banks.

But it was decided each bank would announce its own agreements with the Treasury, out of concern that excluded banks could suffer a stock sell-off from disappointed investors.

PNC Financial Services Group Inc. (PNC) announced Friday it was acquiring National City Corp. (NCC) for $5.58 billion, in what was the first instance of a bank using fresh investments from the bailout program to make an acquisition. PNC said it had received $7.7 billion in cash through selling stock to the government under the program.

Frank envisions post-election stimulus from Democrats

NEW BEDFORD — After the November election, Democrats will push for a second economic stimulus package that includes money for the states' stalled infrastructure projects, along with help paying for healthcare expenses, food stamps and extended unemployment benefits, U.S. Rep. Barney Frank said Thursday.

In a meeting with the editorial board of The Standard-Times, Rep. Frank, D-Mass., also called for a 25 percent cut in military spending, saying the Pentagon has to start choosing from its many weapons programs, and that upper-income taxpayers are going to see an increase in what they are asked to pay.

The military cuts also mean getting out of Iraq sooner, he said.

"The people of Iraq want us out, and we want to stay over their objection," he said. "It's extraordinary." The Maliki government in Iraq "can't sell (the withdrawal deal with the U.S.) because it sounds like we're going to stay too long."

"I was teasing (U.S. Rep.) Jack Murtha (a key supporter of military budgets) and I said to him, 'For the first time, somebody else has got a bill that's almost as big as yours.' We don't need all these fancy new weapons. I think there needs to be additional review."

Rep. Frank called on President Bush to appoint a senior official to guide the economic stimulus packages through the transition to the Barack Obama or John McCain administration when it takes office in January.

And he said that if the Democrats can't find an adequate agreement on a stimulus package in the lame-duck Congress, they would rather wait until the new Congress takes over — likely with many more Democrats, if polling results bear fruit in the November voting.

The new package, he said, will be aimed at easing fears about lending and investing. "The psychological problem is even worse than the real problem," he said.

"There is money to lend and projects worth borrowing money to do. But people are afraid to lend. That's what we're trying to unfreeze."

States have many infrastructure projects — bridges, highways, etc. — that have been shut down because of a cash-flow problems, he said. So it is not the case that a stimulus will take months or years to wait for design and approval, since projects are already in progress or ready to go.

Also, he said, "we'll increase the federal share of medical care so states won't have to lay off people." Unemployment insurance benefits won't increase, he said, but the period of collecting them will, and eligibility requirements might be relaxed.

And, ultimately, there will be tax increases on the upper brackets. "We'll have to raise taxes ultimately. Not now, but eventually," he said.

Report: Iranian president has fallen ill

TEHRAN, Iran (AP) - Iranian President Mahmoud Ahmadinejad has fallen ill due to exhaustion brought on by his heavy workload, a close associate has told the Iranian state news agency.

The announcement comes as doubts have surfaced over whether Ahmadinejad, who faces strong criticism from opponents, will seek re-election next year.

Parliament member Mohammad Ismail Kowsari, an ally of the president, said late Saturday that Ahmadinejad was feeling under the weather because of the strain of his position, according to the news agency, IRNA. ....

Ball State Univ recreating 'War of the Worlds' broadcast

(Compiler's note: On a lighter note... rca)

MUNCIE, Ind. - Ball State University is preparing to recreate Orson Welles' 1938 broadcast of "The War of the Worlds" that sparked panic among some listeners who thought Earth was being invaded by aliens.

Indiana Public Radio General Manager Marcus Jackman said the re-enactment on Thursday night, 70 years after Welles' broadcast, will be a treat for attentive, creative listeners.

He's expecting a much more positive response than that incited by the original broadcast.

With the state of today's technology, organizers said it's safe to assume no one will be fooled by the actors' performance into thinking that Martians are invading the Earth.

"There will be a neat nostalgic payoff," he said. "But I doubt people will be panicking."

Mike Gerhard, a Ball State professor of telecommunications, will lead a pre-broadcast discussion about Welles' broadcast version of H.G. Wells' science fiction tale, and the fear it sparked. Another professor will make a presentation on Welles and his career.

The new production, a partnership between Indiana Public Radio and Ball State's telecommunications department, will be a live studio broadcast in Pruis Hall that will simultaneously air over local radio waves.

The audience in Pruis Hall will be able to see the mechanics in creating the music and sound effects, including the staff's pre-show preparations.

"When there's a live show, there's often some moments of terror right before the show. Well, the audience gets to see all of that unfold," said Nancy Carlson, an associate professor of telecommunications at Ball State.

Among some of the sound props are a cylinder that simulates siren noises and a signal generator that amplifies sounds.

Director Brian Boswell had some early trouble trying to find all the "bells and whistles" for the production. After some research and flea market shopping, he found authentic pieces that he keeps in his "box of sounds."

"Some sound effects were easier to do back then because they were available," he said.

On the Net:

Online audio streaming of the "The War of the Worlds": www.bsu.edu/ipr

------

Information from: The Herald Bulletin, http://www.theheraldbulletin.com

Nouriel Roubini: I fear the worst is yet to come

(Compiler's note: Must read. rca) baout

When this man predicted a global financial crisis more than a year ago, people laughed. Not any more...As stock markets headed off a cliff again last week, closely followed by currencies, and as meltdown threatened entire countries such as Hungary and Iceland, one voice was in demand above all others to steer us through the gloom: that of Dr Doom.

For years Dr Doom toiled in relative obscurity as a New York University economics professor under his alias, Nouriel Roubini. But after making a series of uncannily accurate predictions about the global meltdown, Roubini has become the prophet of his age, jetting around the world dispensing his advice and latest prognostications to politicians and businessmen desperate to know what happens next – and for any answer to the crisis.

While the economic sun was shining, most other economists scoffed at Roubini and his predictions of imminent disaster. They dismissed his warnings that the sub-prime mortgage disaster would trigger a financial meltdown. They could not quite believe his view that the US mortgage giants Fannie Mae and Freddie Mac would collapse, and that the investment banks would be crushed as the world headed for a long recession.

Yet all these predictions and more came true. Few are laughing now.

What does Roubini think is going to happen next? Rather worryingly, in London last Thursday he predicted that hundreds of hedge funds will go bust and stock markets may soon have to shut – perhaps for as long as a week – in order to stem the panic selling now sweeping the world.

What happened? The next day trading was briefly stopped in New York and Moscow.

Dubbed Dr Doom for his gloomy views, this lugubrious disciple of the “dismal science” is now the world’s most in-demand economist. He reckons he is getting about four hours’ sleep a night. Last week he was in Budapest, London, Madrid and New York. Next week he will address Congress in Washington. Do not expect any good news.

Contacted in Madrid on Friday, Roubini said the world economy was “at a breaking point”. He believes the stock markets are now “essentially in free fall” and “we are reaching the point of sheer panic”.

For all his recent predictive success, his critics still urge calm. They charge he is a professional doom-monger who was banging on about recession for years as the economy boomed. Roubini is stung by such charges, dismissing them as “pathetic”.

He takes no pleasure in bad news, he says, but he makes his standpoint clear: “Frankly I was right.” A combative, complex man, he is fond of the word “frankly”, which may be appropriate for someone so used to delivering bad news.

Born in Istanbul 49 years ago, he comes from a family of Iranian Jews. They moved to Tehran, then to Tel Aviv and finally to Italy, where he grew up and attended college, graduating summa cum laude in economics from Bocconi University before taking a PhD in international economics at Harvard.

Fluent in English, Italian, Hebrew, and Persian, Roubini has one of those “international man of mystery” accents: think Henry Kissinger without the bonhomie. Single, he lives in a loft in Manhattan’s trendy Tribeca, an area popularised by Robert De Niro, and collects contemporary art.

Despite his slightly mad-professor look, he is at pains to make clear he is normal. “I’m not a geek,” said Roubini, who sounds rather concerned that people might think he is. “I mean it frankly. I’m not a geek.”

He is, however, ferociously bright. When he left Harvard, he moved quickly, holding various positions at the Treasury department, rising to become an economic adviser to Bill Clinton in the late 1990s. Then his profile seemed to plateau. His doubts about the economic outlook seemed out of tune with the times, especially when a few years ago he began predicting a meltdown in the financial markets through his blog, hosted on RGEmonitor. com, the website of his advisory company.

But it was a meeting of the International Monetary Fund (IMF) in September 2006 that earned him his nickname Dr Doom.

Roubini told an audience of fellow economists that a generational crisis was coming. A once-in-a-lifetime housing bust would lay waste to the US economy as oil prices soared, consumers stopped shopping and the country went into a deep recession.

The collapse of the mortgage market would trigger a global meltdown, as trillions of dollars of mortgage-backed securities unravelled. The shockwaves would destroy banks and other big financial institutions such as Fannie Mae and Freddie Mac, America’s largest home loan lenders.

“I think perhaps we will need a stiff drink after that,” the moderator said. Members of the audience laughed.

Economics is not called the dismal science for nothing. While the public might be impressed by Nostradamus-like predictions, economists want figures and equations. Anirvan Banerji, economist with the New York-based Economic Cycle Research Institute, summed up the feeling of many of those at the IMF meeting when he delivered his response to Roubini’s talk.

Banerji questioned Roubini’s assumptions, said they were not based on mathematical models and dismissed his hunches as those of a Cassandra. At first, indeed, it seemed Roubini was wrong. Meltdown did not happen. Even by the end of 2007, the financial and economic outlook was grim but not disastrous.

Then, in February 2008, Roubini posted an entry on his blog headlined: “The rising risk of a systemic financial meltdown: the twelve steps to financial disaster”.

It detailed how the housing market collapse would lead to huge losses for the financial system, particularly in the vehicles used to securitise loans. It warned that “ a national bank” might go bust, and that, as trouble deepened, investment banks and hedge funds might collapse.

Even Roubini was taken aback at how quickly this scenario unfolded. The following month the US investment bank Bear Stearns went under. Since then, the pace and scale of the disaster has accelerated and, as Roubini predicted, the banking sector has been destroyed, Freddie and Fannie have collapsed, stock markets have gone mad and the economy has entered a frightening recession.

Roubini says he was able to predict the catastrophe so accurately because of his “holistic” approach to the crisis and his ability to work outside traditional economic disciplines. A long-time student of financial crises, he looked at the history and politics of past crises as well as the economic models.

These crises don’t come out of nowhere,” he said. “Usually they arrive because of a systematic increase in a variety of asset and credit bubbles, macro-economic policies and other vulnerabilities. If you combine them, you may not get the timing right but you get an indication that you are closer to a tipping point.”

Others who claimed the economy would escape a recession had been swept up in “a critical euphoria and mania, an irrational exuberance”, he said. And many financial pundits, he believes, were just talking up their own vested interests. “I might be right or wrong, but I have never traded, bought or sold a single security in my life. I am trying to be as objective as I can.”

What does his objectivity tell him now? No end is yet in sight to the crisis.

“Every time there has been a severe crisis in the last six months, people have said this is the catastrophic event that signals the bottom. They said it after Bear Stearns, after Fannie and Freddie, after AIG [the giant US insurer that had to be rescued], and after [the $700 billion bailout plan]. Each time they have called the bottom, and the bottom has not been reached.”

Across the world, governments have taken more and more aggressive actions to stop the panic. However, Roubini believes investors appear to have lost confidence in governments’ ability to sort out the mess.

The announcement of the US government’s $700 billion bailout, Gordon Brown’s grand bank rescue plan and the coordinated response of governments around the world has done little to calm the situation. “It’s been a slaughter, day after day after day,” said Roubini. “Markets are dysfunctional; they are totally unhinged.” Economic fundamentals no longer apply, he believes.

“Even using the nuclear option of guaranteeing everything, providing unlimited liquidity, nationalising the banks, making clear that nobody of importance is going to be allowed to fail, even that has not helped. We are reaching a breaking point, frankly.

He believes governments will have to come up with an even bigger international rescue, and that the US is facing “multi-year economic stagnation”.

Given such cataclysmic talk, some experts fear his new-found influence may be a bad thing in such troubled times. One senior Wall Street figure said: “He is clearly very bright and thoughtful when he is not shooting from the hip.”

He said he found some of Roubini’s comments “slapdash and silly”. “Sometimes the rigour of his analysis seems to be missing,” he said.

Banerji still has problems with Roubini’s prescient IMF speech. “He has been very accurate in terms of what would happen,” he said. But Roubini was predicting an “imminent” recession by the start of 2007 and he was wrong. “He hurt his credibility by being so pessimistic long before it was appropriate.”

Banerji said on average the US economy had grown for five years before hitting a bad patch. “Roubini started predicting a recession four years ago and saying it was imminent. He kept changing his justification: first the trade deficit, the current account deficit, then the oil price spike, then the housing downturn and so on. But the recession actually did not arrive,” he said.

“If you are an investor or a businessman and you took him seriously four years ago, what on earth would happen to you? You would be in a foetal position for years. This is why the timing is critical. It’s not enough to know what will happen in some point in the distant future.”

Roubini says the argument about content and timing is irrelevant. “People who have been totally blinded and wrong accusing me of getting the timing wrong, it’s just a joke,” he said. “It’s a bit pathetic, frankly. I was not making generic statements. I have made very specific predictions and I have been right all along.” Maybe so, but he does not sound too happy about it, frankly.

US special forces launch rare attack inside Syria

By ALBERT AJI

DAMASCUS, Syria (AP) - U.S. military helicopters launched an extremely rare attack Sunday on Syrian territory close to the border with Iraq, killing eight people in a strike the government in Damascus condemned as "serious aggression."

A U.S. military official said the raid by special forces targeted the foreign fighter network that travels through Syria into Iraq. The Americans have been unable to shut the network down in the area because Syria was out of the military's reach.

"We are taking matters into our own hands," the official told The Associated Press on condition of anonymity because of the political sensitivity of cross-border raids.

The attack came just days after the commander of U.S. forces in western Iraq said American troops were redoubling efforts to secure the Syrian border, which he called an "uncontrolled" gateway for fighters entering Iraq.

A Syrian government statement said the helicopters attacked the Sukkariyeh Farm near the town of Abu Kamal, five miles inside the Syrian border. Four helicopters attacked a civilian building under construction shortly before sundown and fired on workers inside, the statement said.

The government said civilians were among the dead, including four children.

A resident of the nearby village of Hwijeh said some of the helicopters landed and troops exited the aircraft and fired on a building. He said the aircraft flew along the Euphrates River into the area of farms and several brick factories. The witness spoke on condition of anonymity because of the sensitivity of the information,

Syria's Foreign Ministry said it summoned the charges d'affaires of the United States and Iraq to protest against the strike.

"Syria condemns this aggression and holds the American forces responsible for this aggression and all its repercussions. Syria also calls on the Iraqi government to shoulder its responsibilities and launch and immediate investigation into this serious violation and prevent the use of Iraqi territory for aggression against Syria," the government statement said.

The area targeted is near the Iraqi border city of Qaim, which had been a major crossing point for fighters, weapons and money coming into Iraq to fuel the Sunni insurgency.

Iraqi travelers making their way home across the border reported hearing many explosions, said Farhan al-Mahalawi, mayor of Qaim.

On Thursday, U.S. Maj. Gen. John Kelly said Iraq's western borders with Saudi Arabia and Jordan were fairly tight as a result of good policing by security forces in those countries but that Syria was a "different story."

"The Syrian side is, I guess, uncontrolled by their side," Kelly said. "We still have a certain level of foreign fighter movement."

He added that the U.S. was helping construct a sand berm and ditches along the border.

"There hasn't been much, in the way of a physical barrier, along that border for years," Kelly said.

The foreign fighters network sends militants from North Africa and elsewhere in the Middle East to Syria, where elements of the Syrian military are in league with al-Qaida and loyalists of Saddam Hussein's Baath party, the U.S. military official said.

He said that while American forces have had considerable success, with Iraqi help, in shutting down the "rat lines" in Iraq, and with foreign government help in North Africa, the Syrian node has been out of reach.

"The one piece of the puzzle we have not been showing success on is the nexus in Syria," the official said.

The White House in August approved similar special forces raids from Afghanistan across the border of Pakistan to target al-Qaida and Taliban operatives. At least one has been carried out.

The flow of foreign fighters into Iraq has been cut to an estimated 20 a month, a senior U.S. military intelligence official told the Associated Press in July. That's a 50 percent decline from six months ago, and just a fifth of the estimated 100 foreign fighters who were infiltrating Iraq a year ago, according to the official.

Ninety percent of the foreign fighters enter through Syria, according to U.S. intelligence. Foreigners are some of the most deadly fighters in Iraq, trained in bomb-making and with small-arms expertise and more likely to be willing suicide bombers than Iraqis.

Foreign fighters toting cash have been al-Qaida in Iraq's chief source of income. They contributed more than 70 percent of operating budgets in one sector in Iraq, according to documents captured in September 2007 on the Syrian border. Most of the fighters were conveyed through professional smuggling networks, according to the report.

Iraqi insurgents seized Qaim in April 2005, forcing U.S. Marines to recapture the town the following month in heavy fighting. The area became secure only after Sunni tribes in Anbar turned against al-Qaida in late 2006 and joined forces with the Americans.

Syrian Foreign Minister Walid al-Moallem accused the United States earlier this year of not giving his country the equipment needed to prevent foreign fighters from crossing into Iraq. He said Washington feared Syria could use such equipment against Israel.

Though Syria has long been viewed by the U.S. as a destabilizing country in the Middle East, in recent months, Damascus has been trying to change its image and end years of global seclusion.

Its president, Bashar Assad, has pursued indirect peace talks with Israel, mediated by Turkey, and says he wants direct talks next year. Syria also has agreed to establish diplomatic ties with Lebanon, a country it used to dominate both politically and militarily, and has worked harder at stemming the flow of militants into Iraq.

The U.S. military in Baghdad did not immediately respond to a request for comment after Sunday's raid.

_____

Associated Press reporter Pamela Hess in Washington and Sam F. Ghattas in Beirut contributed to this report.

Russell has new ad in PA: “Dear Mr. Murtha”

William Russell may provide one of the bright points for the GOP in nine days, as his quest to unseat John “King of Pork” Murtha looks less like a long shot and more like a reality. He has a new ad for voters in Murtha’s district, and it’s a winner — even if it pulls one particular punch:

You could also call this a Dear John letter, a missive ending a long relationship. However, I find one omission puzzling. Why not hit Murtha for calling his constituents “racists” and “rednecks”? I suspect those comments would also find their way into a Dear John letter from voters in Murtha’s district, and they may not be as polite as the message Russell created for this ad.

Then again, when breaking up with someone, you don’t necessarily want them to go away mad. You just want them to …go away.

Want to help Murtha go away, mad or otherwise? You know what to do.

(Compiler's note: Go Bill!!!!!)

Greenspan "shocked" at credit system breakdown

By Mark Felsenthal

WASHINGTON (Reuters) - Former Federal Reserve Chairman Alan Greenspan told Congress on Thursday he is "shocked" at the breakdown in U.S. credit markets and said he was "partially" wrong to resist regulation of some securities.

Despite concerns he had in 2005 that risks were being underestimated by investors, "this crisis, however, has turned out to be much broader than anything I could have imagined," Greenspan said in remarks prepared for delivery to the House of Representatives Committee on Oversight and Government Reform.

"Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity -- myself especially -- are in a state of shocked disbelief," said Greenspan, who stepped down from the Fed in 2006.

With a general election looming November 4, U.S. lawmakers were sharply divided along political lines in either blaming regulators or bickering for failure to prevent the crisis that has gripped financial markets around the world.

"The reasons why we set up your agencies and gave you budget authority to hire people is so you can see problems developing before they become a crisis," Committee Chairman Henry Waxman, a California Democrat, told a panel that included Securities and Exchange Commission Chairman Christopher Cox and former U.S. Treasury Secretary John Snow.

"To say you just didn't see it, that just doesn't satisfy me," Waxman said.

Republicans, for their part, singled out government sponsored mortgage finance agencies Fannie Mae and Freddie Mac for their role in unsettling financial markets and faulted Congress, which has been led by the Democrats since 2006, for failing to pass measures to rein them in sooner.

They angrily protested a decision not to hold a hearing on the mortgage finance firms, which the government took over in September to restore financial health, until two weeks after the election.

"PARTIALLY" WRONG

Greenspan softened his longstanding opposition to many forms of financial market regulation, acknowledging in an exchange with Waxman that he was "partially" wrong in his belief that some trading instruments, specifically credit default swaps, did not need oversight.

Waxman cited a series of public statements by Greenspan saying the market could handle regulation of derivatives without government intervention.

"My question is simple: Were you wrong?" Waxman asked.

Greenspan said he was "partially" wrong in the case of credit default swaps, complex trading instruments meant to act as insurance against default for bond buyers.

While Greenspan was once hailed as one of the most accomplished central bankers in U.S. history, the low interest rates during his final years at the Fed have been blamed for fueling the housing bubble and eventual crash that touched off the current financial crisis.

His strong advocacy for limited regulation of financial markets has also been called into question as a result of the crisis.

The former Fed chair said that a securitization system that stimulated appetite for loans made to borrowers with spotty credit histories, was at the heart of the breakdown of credit markets.

"Without the excess demand from securitizers, subprime mortgage originations -- undeniably the original source of crisis -- would have been far smaller and defaults, accordingly, far fewer," he said.

A surge in demand for U.S. subprime securities, supported by unrealistically positive ratings by credit agencies, was the core of the problem, he added.

Greenspan proposed that that securitizers be required to retain "a meaningful part" of securities they issued. He said that regulatory reform will be necessary in the areas of fraud, settlement, and securitization to re-establish financial stability.

He backed the recently approved $700 billion bailout package, saying that without it, banks and other financial institutions would likely face a serious reduction in credit.

"DOG AND PONY SHOW"

Lawmakers from both parties also took advantage of the packed hearing room to take some political potshots. Democrats assailed gaps in rules and oversight while Republicans faulted Fannie Mae and Freddie Mac for exacerbating credit market strains.

"For too long, the prevailing attitude in Washington has been that the market always knows best," said Committee Chairman Waxman, a Democrat.

Republicans circulated an October 20 letter asking for a government investigation of alleged fraud and mismanagement at the mortgage firms.

"This is a nice dog and pony show and maybe it's theater, but people want someone held accountable, they want someone to go to jail," said Rep. John Mica, a Florida Republican.

But Greenspan told lawmakers that regulators could not predict the future or make perfect decisions.

"It's a very difficult problem with respect to supervision and regulation," he said. "We cannot expect perfection in any area where forecasting is required. We have to do our best but cannot expect infallibility or omniscience," he added.

(Additional reporting by Kim Dixon)

(Reporting by Mark Felsenthal; Editing by Gary Crosse)

Ron Paul: 'Monetary system is fraudulent'

CNN) -- Former presidential candidate Ron Paul was interviewed Friday morning by CNN anchor John Roberts on "American Morning."
Rep. Ron Paul says that what really needs regulating is the  Federal Reserve.

Rep. Ron Paul says that what really needs regulating is the Federal Reserve.

Paul, a Republican from Texas, spoke from his home in Clute, Texas. The topic of the discussion was the current economic crisis and the Capitol Hill testimony Thursday of former Fed chief Alan Greenspan.

John Roberts, CNN anchor: Up there on the Hill, Alan Greenspan was basically saying, "Oops, I missed this one, sorry about it," but he was optimistic for the future. Congressman Paul, do you even listen to him anymore?

Rep. Ron Paul: I have to because somebody like you might ask me a question about him.

No, I don't really listen in the sense that I'm going to get a lot of new information. I used to listen to him when he was writing back in the '60s because he agreed with free market economics and no respect for the Federal Reserve.

Lately, though, I mean, he's been part of -- and right now he's really gotten bad because what he was saying yesterday was that the only place where he might have made a mistake is he didn't advocate more regulations.

Well, if you're a true free market person it isn't the lack of regulations. Trying to regulate and improve on the conditions that the government creates. I mean we created this problem. The Federal Reserve created this. The Community Reinvestment Act created it. The FDIC created it. Fannie Mae and Freddie Mac created it.

It was all seen there but now he says if we could have only had more regulations ...

Roberts: Right.

Paul: ... we could have salvaged this clogged system.

Roberts: Well, you believe that markets can be or should be self-regulating?

Paul: Well, to a degree, but the government does have a responsibility to deal with fraud, but the monetary system is fraudulent. Instead of perpetuating fraud in the monetary system they should be dealing with real fraud.

But just regulating prices -- that's what they're doing now, they're trying to regulate prices and set prices for these assets that hasn't -- have no value. So, no, that's not the kind of regulation we want, but there is certainly a role for regulations.

We should be regulating the Federal Reserve system is what we really ought to be regulating.

Roberts: Well, regardless of what we talk about this morning, the Dow is going to go off a cliff again today so let me turn to politics if I could.

A lot of people have said, particularly because of the economy, this is a bad year to be a Republican. John McCain behind in the national polls, seems to be behind in the battleground states as well. He's got a long and difficult road if he hopes to win the Oval Office.

If Republicans really take a beating, Congressman Paul, on November the 4th, where does that leave the Republican brand?

Paul: Well, I think they're in big trouble, but I think I mentioned that a year or so ago, that they've sort of lost their way. No, it's going to be a lot worse, but you have to say that the markets aren't being reassured about the obvious victory that's going to occur.

Then they said, "Oh, my, you know, we're going to have Obama and a Democratic Congress stronger than ever so things are going to get a lot better." They haven't discounted that yet.

The country is in a mess regardless, but I think the Republican Party really in a mess because ...

Roberts: I mean, I mean how ...

Paul: ... they'll probably lose a fair amount of seats again.

Roberts: How bad a blow could it be and how long might it take the party to rebuild?

Paul: You know, I was first elected -- I first ran in 1974, and I think there were about 145 members of Congress, Republicans, then. It took 20 years. So that is the case. But, you know, I think it's secondary to what the Congress is doing.

If both parties have bad ideas, it doesn't matter a whole lot. Right now ...

Roberts: And I wanted to ask you about ...

Paul: ... I think both parties follow those ideas.

Roberts: You're on the ballot in a couple of states. You're on the ballot in Louisiana. You're also on the ballot in Montana, and in Montana you were polling 4 percent there.

That's exactly the difference between Senator McCain and Barack Obama with Barack Obama on top. I mean you could be the spoiler here and take Montana away from Senator McCain, and I know that some Republicans, friendly to you, say hey, get off the ballot in Montana. You tried, you couldn't.

How are you going to feel if because of you McCain loses Montana?

Paul: Well, I think it will be a pretty far stretch if McCain loses the election that they're going to blame me. I haven't been campaigning in Montana. People who are supporting out there are spontaneous. They're enthusiastic. They don't like either candidate.

So I don't think the person whose name they picked is the one that does the spoiling. I think there's something else that is wrong. Maybe it's the flawed policies of both candidates.

Roberts: Congressman Paul, it's always good to see you. Thanks for joining us this morning. We'll check back with you again soon.

Paul: Thank you. Good to be with you.

Laser beam spy camera joins war on terrorism

By Jason Lewis

A laser that can scan a crowd and identify people who have been handling explosives is being secretly tested at British airports and railway stations.

The device - no bigger than a shoe box - could also be used by police and MI5 surveillance teams to identify Islamic terrorists outside mosques or community centres.

The laser can pick out suspects in large crowds and highlight explosive residue on their clothing and luggage.

It could also be used to guard against terrorists targeting the 2012 Olympics in London.

The Explosive Residue Detection system can be covertly attached to CCTV systems and automatically highlights people who may have been handling explosives or who recently fired a weapon.

Professor John Tyrer, of Loughborough University, who helped to develop the equipment, said: 'When you handle an explosive, the chemicals -such as Semtex and TNT - leave traces. With this technology we are able to see this telltale residue and identify possible suspects.

'Using laser technology we can see the explosives on people's clothes, on their hands or on items like backpacks such as those used by the July 7 London bombers.'

He added: 'This equipment could be carried by surveillance teams or could be set up to monitor a street, a railway, airport terminal or national stadium.'

When the equipment scans a crowd, it alerts an operator when explosive particles are detected. The system uses a combination of lasers and the latest camera technology to produce images showing the suspect and highlighting the explosive traces.

Once explosive residue is detected, the system automatically alerts the operator. It does not need to be constantly monitored.

Unlike sniffer dogs detecting particles in the air, the system can be operated just a few metres from a target without anyone knowing they are being monitored.

Prof Tyrer said the laser system would also pick up people who had legitimate reasons for handling explosives, such as police officers and firearms experts.

The team cannot say where their new equipment has been installed, revealing only that 'its operational uses have been recognised and would include airports, train stations, underground systems and ports, and would prove useful to police forces, forensic services and the military'.