More saber rattling - this time courtesy of Russia

WASHINGTON (AP) - U.S. fighter planes intercepted two Russian bombers, including one that buzzed an American aircraft carrier in the western Pacific during the weekend, The Associated Press has learned.

A U.S. military official says that one Russian Tupolev 95 flew directly over the aircraft carrier USS Nimitz twice, at a low altitude of about 2,000 feet, while another bomber circled about 58 miles out. The official was speaking on condition of anonymity because the reports on the flights were classified as secret.

The Saturday incident, which never escalated beyond the flyover, comes amid heightened tensions between the United States and Russia over U.S. plans for a missile defense system based in Poland and the Czech Republic.

Such Russian bomber flights were common during the Cold War, but have been rare since.

The bombers were among four Russian Tupolev 95s launched from Ukrainka in the middle of the night, including one that Japanese officials say violated their country's airspace over an uninhabited island south of Tokyo.

U.S. officials tracked and monitored the bombers as two flew south along the Japanese coast, and two others flew farther east, coming closer to the Nimitz and the guided missile cruiser USS Princeton.

As the bombers got about 500 miles out from the U.S. ships, four F/A- 18 fighters were launched from the Nimitz, the official said. The fighters intercepted the Russian bombers about 50 miles south of the Nimitz.

At least two U.S. F/A-18 Hornets trailed the bomber as it came in low over the Nimitz twice, while one or two of the other U.S. fighters followed the second bomber as it circled.

The official said there were no verbal communications between the U.S. and the Russians, and the Pentagon has not heard of any protests being filed by the United States. Historically, diplomatic protests were not filed in such incidents because they were so common during the Cold War era.

This is the first time Russian Tupolevs have flown over or interacted with a U.S. carrier since 2004.

In that incident, a Russian Tupolev flew over the aircraft carrier USS Kitty Hawk in the Sea of Japan on Jan. 29, 2004. Since then, however, relations between the U.S. and Russia have deteriorated to their worst point since the Cold War, largely due to the United States' plans to put a radar system in the Czech Republic and 10 missile defense interceptors in Poland.

The U.S. has defended the plan as necessary to protect its European allies from possible attacks by Iran. But the Kremlin has condemned the proposal, saying it would threaten Russia's security.

"We are being forced to take retaliatory steps," said Russian President Vladimir Putin, who also warned that a new arms race is under way.

Japan, meanwhile, filed a formal protest with the Russian Embassy in Tokyo after Saturday's incident, saying that one of the Russian bombers crossed into Japanese airspace for three minutes. Russia has denied there was an intrusion.

This is saber rattling, nothing more nothing less

Fact is neither country can afford to be at war, the domestic economies are in shambles and this is with oil at $90 a barrel. They are trying to get negotiating leverage, thats all.

Iran is to launch two more rockets into space in the next few months, President Mahmoud Ahmadinejad announced on Monday, after a firing of a rocket earlier this month sparked international concern.

"Two other rockets will be launched so that we can then send a satellite into space," Ahmadinejad said at a rally in Tehran broadcast live on state television.

"We home that Iran's first home-produced satellite will be launched in the summer," he added, reiterating a prediction made by other Iranian officials who said the satellite would be launched in May.

CARACAS, Venezuela (AP) - President Hugo Chavez on Sunday threatened to cut off oil sales to the United States in an "economic war" if Exxon Mobil Corp. wins court judgments to seize billions of dollars in Venezuelan assets.

Exxon Mobil has gone after the assets of state oil company Petroleos de Venezuela SA in U.S., British and Dutch courts as it challenges the nationalization of a multibillion dollar oil project by Chavez's government.

A British court has issued an injunction "freezing" as much as $12 billion in assets.

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Great editorial piece by Andy Kessler on the state of banks

WSJ: What's Next for the Banks

If you want to know what's going to happen to the big banks and investment banks, you've got to go back to early 2003, when the seeds of destruction were planted.

It had been a year or so since a couple of trillion dollars of investor wealth had been wiped out. The Dow was 8000 and dropping, and the stocks of big institutions from Citi to Merrill Lynch to Morgan Stanley were at multiyear lows. Bank lending was down, but no one was really worried. The old "borrow short, lend long and pocket the difference" game had been around for millennia, and banks had weathered worse than this mild economic slowdown.

What was not at all clear was how investment banks were going to make money going forward. Wall Street had piles of capital and no place to go. Stock trading and large parts of bond trading had gone electronic. Decimalization of the stock market wiped out markups. IPOs were down, mergers were down and, gasp, bonuses were way down.

Stocks were out and investors wanted yield -- safe, predictable returns -- but there wasn't much profit in that. Some, especially hedge funds and international investors, insisted on even higher yields than plain old government bonds.

So Wall Street, as it always does, gave investors what they wanted -- excess yield in the form of derivatives, asset-backed, mortgage-backed, collateralized debt obligations (CDOs), basically funky amalgamations of lots of other pieces of paper. Done right, no one but you knew how to value these exotic instruments, so you could mark them up way more than a penny and generate huge fees, profits and bonuses. Win-win.

Low interest rates from the Federal Reserve and a rising housing market meant the subprime flavors of these CDOs took off like wildfire. Merrill Lynch and Bear Stearns and everyone else raced to package up these CDOs with pretty bows and sell them off as high rated goodness to those hungry for yield.

Banks loved it because they could sell off loans, generate fees and go make some more. It wasn't enough. Billion-dollar hedge funds popped up overnight to buy these things, with leverage on leverage to generate even higher returns. Savings & Loan banks were long gone, so by 2006, armies of mortgage brokers, many just online, answered the call to feed the beast with loans.

Until it went on for too long. By 2006, it was a one-way trade. Banks, especially Citigroup and State Street, couldn't resist the sweet siren's call, especially with "borrow short, lend long" in their DNA. Off balance sheet, they set up conduits, so-called SIVs, to use leverage and buy up lots of these subprime CDOs -- $100 billion worth for Citi -- breaking Wall Street's unwritten "sausage" rule that you sell this stuff to clients, but never own it yourself.

Wall Street's unwritten "sausage" rule is that you sell this stuff to clients, but never own it yourself.

SIVs were mostly invisible yet huge money makers, which makes me question how much money the plain old bank was making. Not much, it turns out. And in the end, neither did these SIVs. Others like Merrill Lynch and UBS got caught with inventory of these CDOs, having packaged them but not able to sell them off fast enough. Goldman Sachs smelled spoiled meat and shorted enough of the market to minimize the hit to their capital structure.

When the inevitable blowup came, most holding the toxic sausage required new capital from a government bailout to survive. No not from the Fed, but from the governments of China, Singapore, Abu Dhabi, Kuwait and New Jersey. Without their cash, Citi and Merrill stocks would halve again.

But that's old news. What about going forward? First, no one, and I mean no one, is going to buy a package of loans without knowing what each and every one of them is, what the risk of default is, etc. Rating agencies can no longer be trusted. The good news is that the same computer technology used to create CDOs can easily be extended to offer this needed transparency, loan by loan. But the bad news for investment banks: The packaging game just won't be as profitable.

So who has the strong hand? As always, it's a capital game, whoever accumulates the most will be best positioned for what's next.

Banks? Sure, they're slow and steady, but lending is dull, not that profitable, as we have seen, so growth is limited. While Citigroup fiddles, JP Morgan is the model, as one of the few big banks to not load up on CDOs to enhance earnings. Instead, it has been quietly accumulating billions in hedge fund assets.

Investment banks? Balance sheets are now mostly cleaned up, but outside of Goldman Sachs, management teams are under scrutiny to see who can come up with the right business model away from CDOs. It won't be until that model becomes clear that their stocks can go up enough to raise serious capital to compete. Not all will.

How about hedge funds or private equity? Lots of money will be made buying distressed debt at the bottom of this cycle, but most of it by firms that are small partnerships on a relative basis, and I don't see them gearing up huge sales forces to become big players. But that can be fixed.

My view is that firms that successfully combine banking and investment banking will walk away with the prize, by being able to offer a full range of services to clients -- short-term loans against assets or receivables as well as bonds and equity for long-term projects, the kind of underwriting and trading that requires large amounts of capital. The inevitable consolidation that should have occurred after Glass-Steagall (the 1933 law that separated banks and investment banks) was repealed in 1999 had been on hold while everyone chased easy profits. But now the shakeout is here.

Goldman Sachs will own a bank, maybe even Citigroup (Goldman's $85 billion market capitalization might be able to swallow Citi's $125 billion value) and strip it down to what it needs. JP Morgan should reunite the House of Morgan by merging with Morgan Stanley, and become a full-service powerhouse. But JP Morgan could buy Merrill or Lehman or Bear Stearns instead. Bank of America will merge with who's left. But don't count out others who have done well with capital. Fortress Investment Group, despite a rocky IPO a year ago, has a powerful real estate arm that could own loan origination and servicing and enough assets to buy its way into the banking or investment banking business. Same for the Blackstone Group.

Capital flows a lot more fluidly around the globe these days. Expect consolidation to start now. The real winners on Wall Street will be the ones with huge stockpiles of capital who listen to the market, and who are fleet of foot enough to smell out and deploy their capital creating instruments that global growth companies need, rather than false profits from eating their own sausage.

The Big Five?: Goldman CitiSachs, House of Morgan, Bear of America, Fortress Lehman Lynch and Blackstone Suisse.

Got to ask yourself is Soros short the dollar in a big way? I mean come on George, Moishe is not buying it

U.S. in role of wounded giant at Davos

By Mark Landler

Wednesday, January 23, 2008

DAVOS, Switzerland: The United States has filled various roles at the World Economic Forum over the past decade: dot-com dynamo, benevolent superpower, feared aggressor, and now, wounded giant.

On the first day of this conference, a parade of bankers, economists, and political officials expressed deep fears about the faltering American economy, peppered with blunt criticism of its institutions, chiefly the Federal Reserve, which some accused of sowing the seeds of today's crisis.

George Soros, the financier who made a fortune betting against the pound, went so far Wednesday as to say that the downturn would put an end to the long status of the dollar as the world's default currency.

"The current crisis is not only the bust that follows the housing boom," Soros said. "It's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency."

Signs of a new economic order abounded in this Swiss ski resort: the minister of commerce and industry of India, Kamal Nath, noted that China had overtaken the United States as India's largest trading partner - buttressing his view that India could largely sidestep an American recession.

The head of the National Bank of Kuwait, Ibrahim Dabdoub, said Americans who opposed sovereign wealth funds like the one run by his government needed to come to terms with the new reality.

Completing the role reversal, Nouriel Roubini, an American economist, said, "the United States looks like an emerging market," with large budget deficits and a swooning currency. By contrast, he said, Brazil, an actual emerging market, had done a better job of overhauling its economy.

Roubini, whose frequent predictions of a downturn have made him something of a soothsayer in Davos, predicted the United States would suffer a recession lasting at least a year. He foresees a flood of defaults on car loans and corporate bonds, as well as a prolonged bear market.

"The debate is not whether we're going to have a soft landing or a hard landing," he said. "The question is only how hard the hard landing will be."

Several economists said the Federal Reserve seemed to have lost control of events since the subprime crisis erupted last summer. Some criticized its steep cut in interest rates Tuesday as a knee-jerk reaction to calm the markets rather than a sound response to a deteriorating situation.

"Policy makers are reaching back into the same playbook that got us into this mess in the first place," said Stephen Roach, an economist who recently became the chairman of Morgan Stanley Asia.

By signaling that it is ready to cushion the stock market from the ravages of the credit crisis, Roach argued, the Federal Reserve risks creating conditions for a new round of inflation in asset prices.

The Federal Reserve "made bad judgments," said Joseph Stiglitz, the Nobel Prize-winning economist. "It looked the other way when investment banks packaged bad loans in non-transparent ways."

The rate cut this week, Stiglitz said, would be too little, too late, because monetary policy usually takes between six months and 18 months to be effective, and the United States is in distress now.

For all the talk here about looking at the big picture, the Davos conference is driven by short-term impulses. This week's wild swings on the markets, as well as the Federal Reserve's dramatic response, left people here spooked, perhaps exaggerating the bleakness of the mood.

Not everybody was grim. John Snow, the former Treasury Secretary and chairman of Cerberus Capital Management, said that if the United States slipped into recession, it would be "short and shallow."

"That's been the pattern of recessions in the U.S., and there's a reason for it," he said in an interview. "There is an inherent resilience in the U.S. economy. We're already seeing an adjustment."

Few Americans said the United States would resort to protectionist policies, even though it is an election year. Sovereign wealth funds, they noted, had taken multibillion-dollar stakes in Wall Street giants like Citigroup and Merrill Lynch with hardly a peep of protest in Washington.

"Open investment is a critical driver of the U.S. economy," David McCormick, the undersecretary of the Treasury for international affairs, said. He added that it was legitimate to monitor sovereign wealth funds to make sure they were commercially, not politically, driven.

The debate over decoupling - the once-popular thesis that Europe and Asia will escape the effects of a recession in the United States because they are less reliant on it as a trading partner - was over before it started.

Virtually everyone here agreed that an American downturn would inevitably spill over to Europe and Asia. Roach of Morgan Stanley said China did not have a large enough domestic consumer economy to replace the loss of demand for its exports from U.S. consumers.

Chinese officials agreed. "The Chinese economy is entering quite a delicate stage," said Yu Yongding, an economist at the Chinese Academy of Social Sciences. "We are facing a very bad situation in the U.S."

Only Nath of India said he was confident that his country would not feel a major impact from an American recession. India, he said, was far more driven than China by domestic demand.

At least one expert here professed to see a silver lining in the linkages between the world's major economies.

C. Fred Bergsten, director of the Peterson Institute for International Economics, said the more dynamic economies of China and India would lift the United States out of its downturn, rather than the United States dragging them down. Companies like IBM, General Electric and Caterpillar already depend on these countries to generate a lot of their profits, he said.

Don't Sleep on water as a scarce natural resource

While much attention has been on oil and gas as scare natural resources, water deserves attention as well. this scenario will continue to play out across the country and world.

JACKSONVILLE, Fla. (AP) - North and central Florida aren't feeling very neighborly at the

moment as they battle over water from the St. Johns and Ocklawaha rivers to meet central Florida's exploding population demands.

Central Florida plans to take millions of gallons of water a day out of the rivers, angering north Florida residents and officials who say that could cause grave environmental damage, particularly to the north-flowing St. Johns.

"It is madness. We do not believe there is surplus water in the river," said Neil Armingeon, a St. Johns riverkeeper. The position is a privately funded advocate for the river. "We are not going to stand by and let the St. Johns and Ocklawaha rivers be degraded."

North Florida cities such as Jacksonville, St. Johns County and a river advocacy group all say the plan would destroy the delicate balance of saltwater and freshwater needed to preserve critical biological habitat and submerged vegetation.....

Who the F*&! wants passover brisket from a freak cow?

Europe set for debate rerun on ‘Frankenfoods’

By Andrew Bounds in Brussels, Jeremy Grant in Washington and Clive Cookson in London

Published: January 11 2008 14:09 | Last updated: January 11 2008 19:11

Europe is set for a rerun of the heated debate over genetically modified “Frankenfoods”, after regulators declared on Friday that meat and milk from cloned pigs and cows and their offspring were safe to eat.

The finding comes as GM foods are about to reignite trade friction between the US and European Union, with a deadline set to expire on Friday night by which the EU must comply with a World Trade Organisation ruling to allow imports of GM seeds.

National security interests meet economic interests

Some China firms avoid U.S. technology

transfer licenses

WASHINGTON: Six months ago, the U.S. government quietly eased some restrictions on the export of sensitive technologies to China. The new approach was intended to help U.S. companies increase sales of high-technology equipment to China despite tight curbs on sharing technology that might have military applications.

But now the administration is facing questions from weapons experts about whether some equipment - newly authorized for export to Chinese companies deemed trustworthy by Washington - could instead end up helping China modernize its military. Equally worrisome, the weapons experts say, is the possibility that China could share the technology with Iran or Syria.

The technologies include advanced aircraft engine parts, navigation systems, telecommunications equipment and sophisticated composite materials.

The questions raised about the new policy are in a report to be released soon, possibly this week, by the Wisconsin Project on Nuclear Arms Control, an independent research foundation that opposes the spread of arms technologies.

The government's new approach is part of an overall drive to require licenses for the export of an expanded list of technologies in aircraft engines, lasers, telecommunications, aircraft materials and other fields of interest to China's military.

But while imposing license requirements for the transfer of these technologies, the administration is also validating certain Chinese companies so that they can import these technologies without licenses. Five such companies were designated in October, but as many as a dozen others are in the pipeline for possible future designation.

Mario Mancuso, the under secretary of commerce for security and industry, said the new system was resulting in more effective protections.

"We believe that the system we have set up ensures that we are protecting our national security consistent with our goal of promoting legitimate exports for civilian use," he said during an interview. "We have adopted a consistent, broad-based approach to hedging against helping China's military modernization."

But the Wisconsin Project report, made available to The New York Times, asserts that two nonmilitary Chinese companies designated as trustworthy are in fact high risk because of links to the Chinese government, the Peoples Liberation Army and other Chinese entities accused in the past of ties to Syria and Iran.