News & Current Affairs

September 18, 2008

Livni wins Israel party primary

Livni wins Israel party primary

Tzipi Livni after casting her vote on Wednesday

Critics have accused Tzipi Livni of lacking political experience

Israeli Foreign Minister Tzipi Livni has won the leadership of the governing Kadima party, putting her on track to succeed Ehud Olmert as prime minister.

Ms Livni beat Transport Minister Shaul Mofaz by just 431 votes, or 1.1%, the central electoral commission said.

In a victory speech, Ms Livni announced that she wanted to form a new cabinet “as quickly as possible in the face of the serious threats” facing Israel.

She has 42 days to do so, during which time Mr Olmert remains prime minister.

He announced he would step down in July after facing growing pressure over multiple corruption investigations.

The senior Palestinian Authority negotiator, Saeb Erekat, said he hoped the result would lead to a return to stability.

‘Great reverence’

Correspondent in Jerusalem says that for much of Wednesday night, Ms Livni’s supporters in the Kadima party cheered at what they believed had been an emphatic victory, predicted by a series of exit polls on Israeli TV.

KADIMA PRIMARY RESULTS
Tzipi Livni: 43.1% (16,936 votes)
Shaul Mofaz: 42% (16,505)
Meir Sheetrit: 8.4% (3,327)
Avi Dichter: 6.5% (2,563)

Mr Olmert phoned his foreign minister to congratulate her and promise his full co-operation after she appeared on track to win with about 48% of the vote. Then the balloon slowly deflated as the results rolled in, our correspondent says.

According to the final results released by Kadima, Ms Livni won the election with 43.1%, or 16,936 votes. Mr Mofaz, a former defence minister and chief of staff of the Israeli military, came in a close second with 42%, or 16,505 votes.

The two other candidates, cabinet minister Meir Sheetrit and former Shin Bet director Avi Dichter, lagged far behind with 8.4% and 6.5% respectively.

Mr Mofaz’s supporters have warned that they may lodge an appeal against the result. His campaign headquarters has reportedly already demanded the ballot in the southern town of Ashkelon be disqualified.

Supporter of Shaul Mofaz (17 September 2008)

Supporters of Shaul Mofaz said they might appeal against the result

In a victory speech early on Thursday morning, Ms Livni said that she would seek to form a new coalition government “as quickly as possible” and called for party unity.

“All the people who came to vote today expressed what they wish to happen in this country,” she said. “The national responsibility [bestowed] by the public brings me to approach this job with great reverence.”

If she can form a fresh governing coalition within the next six weeks, Ms Livni will become Israel’s first woman prime minister since Golda Meir stepped down in 1974.

Our correspondent says that will be no easy task, and if it were to end in failure, general elections will follow in a further three months.

‘Mrs Clean’

Ms Livni is seen as less hawkish than Mr Mofaz when it comes to the Palestinians and to dealing with Iran’s nuclear ambitions.

WHAT HAPPENS NEXT
Ehud Olmert formally resigns as prime minister and his cabinet resigns with him
President consults parties to pick a Knesset member to form a new cabinet – expected to be the Kadima leader
The MK has 42 days to form a coalition acceptable to parliament
If no coalition is formed, another MK may be asked to try to form a government, or a general election may be called
If a general election is called, it must be held within 90 days
Mr Olmert remains caretaker prime minister until the Knesset approves a new government

Critics say Ms Livni, a former lawyer and Mossad agent, also lacks political experience.

Her supporters say she represents a break with the past. Ms Livni is untainted by the kind of allegations of corruption and bribery that led to Mr Olmert’s resignation and have damaged the reputation of Israeli politics.

“[She] is a good choice as far as Israel’s foreign relations are concerned, but there is still the tension with Iran. I am not so sure how much experience she has for such matters and if she will be able to take the right decisions,” said Shmuel Sandler, professor at the Begin-Sadat Centre for Strategic Studies.

“She looks like ‘Mrs Clean’… but she will still have to form a coalition,” he told the Reuters news agency. “It is very difficult to predict whether she will be a strong prime minister.”

Kadima was formed three years ago when former Prime Minister Ariel Sharon split from the centre-right opposition party, Likud, to draw together support from left and right for his policy of unilateral withdrawals from the Gaza Strip and parts of the West Bank.

But its poll ratings fell after a stroke left Mr Sharon in a coma.

His successor, Mr Olmert, faced strong criticism of his handling of the 2006 Israel-Lebanon war and he was investigated in several corruption scandals.

Polls now suggest Likud could win a potential general election, which would take place if a coalition government cannot be formed in the wake of the Kadima leadership vote.

The Kadima election comes as the US government is continuing its push for an Israeli-Palestinian peace deal before President George W Bush leaves office in January.

Mr Olmert and Palestinian Authority President Mahmoud Abbas held talks on Tuesday. An Israeli spokesman said the two would continue to meet until a new government was sworn in.


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September 17, 2008

Investors edgy as US stocks fall

Investors edgy as US stocks fall

A trader reacts to news in the Philippines

Investors are concerned that financial markets will remain volatile.

US stock markets sank in early trade on fears the bailout of insurance giant AIG would not be enough to dispel the gloom engulfing the financial world.

AIG’s rescue and a potential takeover of UK lender HBOS had earlier boosted confidence in Asia and Europe.

But markets were volatile as nervous investors tried to make sense of the dramatic events that have unfolded in recent days.

The widely watched Dow Jones industrial average was down 1.9% at 10,849.

Top UK mortgage lender HBOS, which has faced heavy selling this week, fell as much as 50% before recovering after it emerged that it was in advanced talks to be taken over by Lloyds TSB.

HBOS shares were down 13% at 160 pence in London, the biggest faller in the FTSE 100, after being the top gainer at one point.

It has been a tumultuous week on financial markets, with significant changes in the financial landscape.

Key events on Wednesday included:

  • Beleaguered HBOS in merger talks with Lloyds TSB after a steep fall in its share price
  • US insurance giant AIG being bailed out by the US government
  • Volatile stock markets as global investors remain nervous
  • Trading on the Russian stock exchange being suspended
  • Barclays snapping up key assets from Lehman Brothers after its bankruptcy

I don’t think anyone has got any or much confidence in market direction for more than a few days
Darren Winder, Cazenove

The FTSE 100 index of top UK shares was down 0.48% at 5,001.4, reversing earlier gains, with some banking shares hard hit.

Shares in Barclays were up 9.8%, Lloyds TSB climbed 7.9% while Royal Bank of Scotland was down 2.6%.

Topsy-turvy trade

Trade is likely to remain rocky amid concern that financial system instability will continue after the dramatic events of the past few days.

“I don’t think anyone has got any or much confidence in market direction for more than a few days,” said Darren Winder, a strategist at Cazenove.

AIG’s bail-out follows the collapse of US investment bank Lehman Brothers, which caused share prices to plummet across the world’s financial markets.

Another investment bank, Merrill Lynch, has been sold off to Bank of America.

France’s Cac 40 share index was down 0.24%, while Germany’s Dax index was 0.64% lower, reversing earlier gains as Wall Street opened.

Russia’s stock exchange suspended trade following steep falls in shares.

Asian shares had a mixed session. Stocks in Tokyo, Taipei, and Seoul all rose, although prices in Hong Kong, Shanghai and Australia lost ground.

Japan’s Nikkei 225 index ended up 1.2% at 11,749.79, having risen by as much as 2.3% earlier in the day. The index had hit a three-year low on Tuesday.

Hong Kong’s Hang Seng index ended down 3.6% at 17,637.19 points.

September 14, 2008

Talks over sale of Lehman resume

Talks over sale of Lehman resume

Lehman Brothers headquarters

Lehman is the fourth largest US investment bank

Negotiations have restarted to find a buyer for troubled US investment bank Lehman Brothers, before a Sunday evening deadline.

Bank of America and UK lender Barclays are said to be the main candidates to buy all or part of the company.

Lehman is up for sale after it reported a $3.9bn (£2.2bn) quarterly loss last week amid concerns over its long term financial viability.

The firm’s share price has plummeted as fears over its future have mounted.

‘Rescue package’

The talks to sell Lehman are being led by senior officials from the US Treasury Department and the Federal Reserve.

Graph

It is understood that the US government wishes to arrange a bailout package under which other US investment banks – such as Citigroup, JPMorgan Chase, Morgan Stanley and Goldman Sachs – would contribute funds to a rescue deal which would see Lehman’s balance sheet cleaned up before its sale.

Although this is expected to cost the banks many millions, the alternative would likely be a sharp fall in their share prices if Lehman was to fail.

A number of sources report that US Treasury Secretary Henry Paulson is determined that no tax payers’ money will be used to help Lehman.

‘Difficult decision’

Former Federal Reserve boss Alan Greenspan said the US government faces “very difficult decisions” over Lehman if it cannot secure a rescue deal that does not involve public funds.

” “They [will then] have to make a very difficult decision as to whether or not they allow it to liquidate or they support it,” he said.

Yet Mr Greenspan said it would be “unsustainable” for the government to bail-out every US bank that got itself into difficulty.

Predicting that Lehman would not be the last to require rescuing, Mr Greenspan added that this would not necessarily pose a problem.

“The ordinary course of financial change has winners and losers,” he said.

Bad mortgage woes

Lehman could be sold off as one company, or else broken up into parts and sold separately.

While the firm got itself into financial difficulty due to extensive bad mortgage debts, its fund management business is in relatively good shape, analysts say.

Neither Bank of America or Barclays have made any comment.

Lehman’s shares lost 80% of their value last week, and its quarterly loss was the largest in its history.

The firm is the fourth-largest US investment bank.

Concerns over the fate of Lehman follow the bail-out last weekend of mortgage giants Freddie Mac and Fannie Mae.

The lenders were thrown into financial difficulty after the collapse of the US sub-prime mortgage market.

September 10, 2008

US budget deficit seen at $438bn

US budget deficit seen at $438bn

People on Fifth Avenue, New York

Economic weakness could presage a recession, the CBO warns

The US budget deficit is expected to reach a record $438bn in 2009, according to estimates from the Congressional Budget Office (CBO).

It also warns the deficit could go higher as the figure does not take into account possible government costs for taking over Fannie Mae and Freddie Mac.

The CBO added the US government will run a deficit of $407bn this year.

During the next fiscal year – starting on 1 October – a “turbulent” economy would cut revenues, the CBO warned.

‘Increase in spending’

The CBO estimate for 2009 does not include the possible costs of rescuing the two stricken giant mortgage firms, which was announced on Sunday.

Its assessment of $438bn would breach the 2004 record of $413bn and far outstrip the $161bn budget shortfall last year.

“The significant expansion in the deficit is the result of a substantial increase in spending and a halt in revenue growth,” the CBO report said.

In 2008, the CBO estimates, federal spending will be 8.3% higher than it was in 2007; at the same time, total revenues will be less than they were in 2007.

‘Past recessions’

At a news conference, CBO director Peter Orszag said it was too soon to say whether the US officially is in a recession.

But he said that the recent rise in unemployment and economic weakness “are consistent with the pattern seen in past recessions, the past few recessions to be precise”.

He also said CBO’s budget estimates did not take into account possible costs related to the US government for taking over Fannie and Freddie.

But he said the cost of the operation should be directly incorporated into the federal budget, which could further swell deficits.

September 7, 2008

US lenders ‘face state takeover’

US lenders ‘face state takeover’

Home repossessed in US

US mortgage giants Freddie Mac and Fannie Mae are set to be put under government control in an attempt to rescue the firms, media reports say.

Treasury Secretary Henry Paulson will outline government plans at a news conference at 1100 (1600 BST).

The move to shore up the shareholder-owned firms, which hold or guarantee half the US mortgage debt, would be the US’s largest ever financial bail-out.

In July, Congress approved a plan aimed

at offering them more liquidity.

This followed huge losses by the two firms as result of a big increase in defaults and repossessions in the US housing market.

‘Management told’

On Saturday, a senior politician, Barney Frank, chairman of the House Financial Services Committee, said US Treasury Secretary Henry Paulson had told him the government would use its powers to ensure the continued and stable functioning of the companies.

The Washington Post, quoting senior administration sources, said the firms would be put under a legal status known as “conservatorship” which would greatly reduce the value of the two companies’ common stock.

BBC Business Editor Robert Peston
This is an event of profound significance for the global economy
BBC Business Editor Robert Peston

Other securities – including company debt and preferred shares – would be guaranteed by the government, the paper added.

The New York Times reported that senior executives at Freddie Mac and Fannie Mae were informed about the plan on Friday.

The Wall Street Journal said it would include changes in the top management.

There would also be quarterly infusions of cash to keep both firms afloat, the papers say. The total cost to taxpayers is not known but could amount to billions of dollars, they add.

The government was being forced to step in because it was dangerous for the US economy for doubts to persist about the two firms’ viability.

Struggling homeowners

HAVE YOUR SAY

Government control over larger portions of the economy can only end badly

TB, US

The two contenders for the US presidency, Barack Obama and John McCain, have been briefed on the takeover by Mr Paulson.

“We’ve got to keep people in their homes,” said the Republican candidate, John McCain.

“There’s got to be restructuring, there’s got to be reorganisation, and there’s got to be some confidence that we’ve stopped this downward spiral,” he added, saying that the takeover of Fannie Mae and Freddie Mac must not benefit executives at the two companies.

The Democratic Party candidate, Barack Obama, said any action should be focused “on whether it will strengthen our economy and help struggling homeowners”.

“We must not allow government intervention to protect investors and speculators who relied on the government to reap massive profits,” he said, adding “we must protect taxpayers, not bail out the shareholders and management of Fannie Mae and Freddie Mac”.

Fragile

On Friday, America’s Mortgage Bankers Association reported that at the end of June, about four million homeowners with a mortgage – representing a record 9% – either were behind in their payments or faced repossession.

In the past year, the financial crisis has taken a heavy toll on both Fannie Mae and Freddie Mac.

The country’s two largest buyers and backers of mortgages lost a combined $3.1bn between April and June.

Both companies say they have the resources to weather the losses, but their shares have fallen sharply on fears that they could go bankrupt as borrowers default.

The rescue plan passed by Congress in July gave the US government the authority to buy shares and offer liquidity to companies to keep them afloat.

Many analysts believe their collapse would be a major shock to the already fragile global financial system.

Together, the two firms own or guarantee about $5.3 trillion worth of home loans – about half the outstanding mortgages in the US.

That is about 25 times as big as the obligations of Northern Rock – which was nationalised by the UK government earlier this year, and twice the size of the UK economy.

August 28, 2008

Hacker loses extradition appeal

Hacker loses extradition appeal

Gary McKinnon

Gary McKinnon could face a long prison sentence

A Briton accused of hacking into secret military computers has lost his appeal against extradition to the US.

Glasgow-born Gary McKinnon was said to be “distraught” after losing the appeal to the European Court of Human Rights. He faces extradition within two weeks.

The unemployed man could face life in jail if convicted of accessing 97 US military and Nasa computers.

The 42-year-old admitted breaking into the computers from his London home but said he sought information on UFOs.

Mr McKinnon asked the European Court of Human Rights in Strasbourg to delay his extradition pending a full appeal to the court against his extradition but his application was refused.

He claimed the extradition would breach his human rights.

‘Absolutely devastated’

His solicitor Karen Todner said this had been her client’s “last chance” and appealed to Home Secretary Jacqui Smith to intervene.

Our client now faces the prospect of prosecution and imprisonment thousands of miles away from his family in a country in which he has never set foot
Solicitor Karen Todner

“He is absolutely devastated by the decision,” she said. “He and his family are distraught.

“They are completely beside themselves. He is terrified by the prospect of going to America.”

She added Mr McKinnon had recently been diagnosed with Asperger syndrome and would ask for the case to be tried in this country.

“The offences for which our client’s extradition is sought were committed on British soil and we maintain that any prosecution ought to be carried out by the appropriate British authorities,” she added.

“Our client now faces the prospect of prosecution and imprisonment thousands of miles away from his family in a country in which he has never set foot.”

Mr McKinnon, from Wood Green, north London, was arrested in 2002 but never charged in the UK.

He first lost his case at the High Court in 2006 before taking it to the highest court in the UK, the House of Lords.

Computer nerd

The US government claims he committed a malicious crime – the biggest military computer hack ever.

The authorities have warned that without his co-operation and a guilty plea the case could be treated as terrorism and he could face a long jail sentence.

The former systems analyst is accused of hacking into the computers with the intention of intimidating the US government.

It alleges that between February 2001 and March 2002, he hacked into dozens of US Army, Navy, Air Force, and Department of Defense computers, as well as 16 Nasa computers.

Prosecutors say he altered and deleted files at a naval air station not long after the 11 September attacks in 2001, rendering critical systems inoperable.

However, Mr McKinnon has said his motives were harmless and innocent. He denies any attempts at sabotage.

He said he wanted to find evidence of UFOs he thought was being held by the US authorities, and to expose what he believed was a cover-up.

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