The Next Disaster

On The Cover/Top Stories
The Next Disaster
Jesse Bogan, Kerry A. Dolan, Christopher Helman and Nathan Vardi 12.22.08, 12:00 AM ET

The Nov. 4 crash of a Learjet in an upper-class Mexico City neighborhood caused a disproportionate amount of destruction. All eight passengers were killed--including Interior Minister Juan Camilo Mouriño, President Felipe Calderón's right-hand man, and José Luis Santiago Vasconcelos, a leading prosecutor against the powerful drug cartels; seven people on the ground died, too.

Hours after the disaster, rumors shot across the capital city like the discharge of automatic weapons: The crash was the work of drug traffickers showing who was boss in this nation of 110 million souls. A preliminary report found no evidence of explosives and strongly suggested pilot error in turbulent conditions. Still, says Larry N. Holifield, former head of the Mexico City office of the U.S. Drug Enforcement Administration, "people won't believe it was an accident. They think everything down there is a conspiracy because half the time it really is." One witness to the crash believes the worst. "A plane just doesn't fall out of the sky," says Guadalupe Rodríguez, 42, a law firm assistant. "The narcos are saying, 'Here we are--and nobody's going to get rid of us.'"

You can forgive Rodríguez for thinking so. This year, through mid-November, there have been 4,300-plus drug-related deaths in Mexico, compared with 2,500 in 2007. Edgar Millán Gómez, who oversaw the joint efforts of the army and federal police, was assassinated in May in his home in Mexico City. Roberto Velasco Bravo, a federal chief of criminal investigations, was shot in the head a week earlier. The narcotraficantes have infiltrated the highest levels of law enforcement, including, allegedly, Mexico's principal link to Interpol and its former senior drug czar. Mexico, once again, is battling the ever powerful gangs. "It has been a fierce bloodbath," says Felipe González González, president of the Senate public security commission and former governor of the central state of Aguascalientes. "We have more dead than you have in Iraq."

Is Mexico descending into criminal and economic chaos? "Failed state? That is a very irresponsible remark," bristles Arturo Sarukhan, Mexico's ambassador to the U.S. "The challenge of corruption is being taken on. We are rooting out people who have been infiltrated. Look at the role of the Mexican private sector and civil society. Nowhere can you see signs of anything akin to a failed state."

But there is urgent concern north of the border about a potential strategic threat. "We're fixated on Iraq and Afghanistan, but from a homeland security perspective, right here on our border, isn't this more important?" asks Fred Burton, a former State Department counterterrorism official, now a vice president at Stratfor in Austin, Tex.

Washington, D.C. is fretting, too. "The consequences for both our countries in the near future and the not-so-near future could not be greater," says John Walters, director of the White House Office of National Drug Control Policy, a.k.a. the drug czar. "The consequences if President Calderón fails and the institutions of government, at least in the northern part of his country, become controlled by terrorist mafias--well, we worry about ungoverned spaces far away from the U.S., and this is right next door."

No disagreement from Antonio Oscar (Tony) Garza, U.S. ambassador to Mexico. "The focus of the last couple years has clearly been security," he says. In the so-called Mérida initiative, Uncle Sam has committed $1.4 billion in military hardware to help Mexico battle the cartels. But as of late November no significant transfers had yet occurred.

The explosion of narco terror comes alongside a precipitous drop in oil prices and the crushing effects of a deep U.S. recession. The climate of fear is kicking the life out of the economy. The second wave of the global financial crisis is playing out in the developing world--and right on our doorstep. After expanding by 3.2% in 2007 to $900 billion, Mexico's GDP growth will slow to 1.5% this year and tumble to somewhere between zero and 0.7% in 2009, predicts Raúl Feliz, an economist at CIDE, a Mexico City think tank that specializes in economics and politics. While some of that meager expansion will come from government stimulus spending, its hands are tightly tied because state-owned oil monopoly Pemex (Petróleos Mexicanos) contributes 37%--$80 billion in 2008--of federal revenue. Next year analysts expect a plunge in petrodollars. Unemployment will jump from its current 4.1%. Throw in part-time workers, who account for roughly one-third of GDP, and the jobless figure soars to 10%. Feliz expects that number to reach 12% next year.

Credit-rating agencies are taking notice. In November Fitch put Mexican government foreign and local currency debt on "negative outlook" (though the ratings are still investment grade). It said that Mexico's ability to absorb global shocks was limited.

To say nothing of internal shocks. Eighty percent of Mexican exports--$240 billion this year, up 10% from 2007--go to the U.S., where shoppers aren't spending. You can see the effects in Ciudad Juárez, just across the border from El Paso, Tex. Roughly 223,000 people work at 330 companies in the maquiladora sector, assembling auto parts for the likes of Lear and Delphi, set-top boxes for Cisco's Scientific Atlanta unit and medical devices for Johnson & Johnson, among others. But 22,000 people have lost maquiladora jobs this year, most of them since August, says Sandra Luz Montijo-Dubrule, president of the Maquiladora Association of Ciudad Juárez. "Seventy percent of our industry here is U.S.-owned factories. Now that the recession has hit, we don't have the consumers in the U.S.," she laments. Worse: Every maquiladora job supports four other jobs in the city.

Sidebars:
Industry & Unemployment 
Oil
The Drug War
Southern Discomfort

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Drug-related violence pervades all segments of life in Mexico. "The cartels have an extraordinary capacity for corrupting and intimidating," says U.S. Ambassador Garza. The drug lords operate through most of the country (see map). In Ciudad Juárez the body count is 1,100 this year--200 or more of those deaths in August.

The cartels are also taking a big toll on business. "U.S. companies are worried about the safety of their workers," says Maria Luisa O'Connell, president of the Border Trade Alliance in Phoenix, Ariz. "Drugs have become such a big problem." As they have for the business community throughout Mexico. As a result of many high-profile kidnappings and murders, one of the most vibrant businesses in the nation is security--bodyguards and armored vehicles. An executive can shell out as much as $500,000 a year to protect himself and his family, reports Stratfor.

Many Mexicans believe the problem originates in the U.S., and that the cartels could be wiped out tomorrow if gringos wrestled seriously with the demand side of drugs. But the Mexican government realizes what it's up against at home. "The state is fighting against an opponent with no limits on arms or financial resources," says Jorge Gonzalez, a professor of international economics at Trinity University in San Antonio, Tex. and a native of Monterrey, Mexico. Throwing 25,000-plus troops at the U.S. border and other hot spots like the northwestern state of Sinaloa, President Calderón has scored a few headline-grabbing wins. He first targeted the powerful Gulf cartel and its infamous enforcement arm, a group of army deserters known as Los Zetas. In late January special forces arrested Alfredo Beltrán Leyva (El Mochomo, or "Red Ant"), a reputed deputy of Joaquín (El Chapo, "Shorty") Guzmán Loera, Mexico's most wanted man. The last of the five brothers who allegedly ran the Tijuana cartel, Eduardo Arellano Félix, was arrested in October. Most Mexicans, however, believe the cartels are winning the war.

Still, Calderón's assault has disrupted the cartels' business in the U.S. It's reflected in the rising price of cocaine, recently $123 a gram on America's streets, up 27% since early 2007, notes Michael Braun, managing director at Spectre Group International in Alexandria, Va. and recently retired chief of operations at the DEA. Cocaine purity is down 16%.

On the economic front Mexicans like to point out how they are in better shape to weather tough times than they were 14 years ago, when the U.S. and others had to intervene to save the peso. Some of that is true. The federal deficit is down to 0.2% of GDP. Short-term interest rates on government debt, while still high, are 8.3%; inflation is at a manageable 5.8%. Solid companies like Wal-Mart de México (68% owned by the Bentonville, Ark. giant) and América Móvil, the wireless services provider, are still forging ahead with precrisis capital expenditures. There's still hiring going on at the factories in Guadalajara, Chihuahua and Reynosa operated by contract manufacturer Jabil Circuit.PepsiCo recently decided to spend up to $3 billion to expand its snack and drink business.

Mexico's other Nafta partner, Canada, has been investing. Two years ago Bombardier Aerospace, lured by tax breaks and a new university to train people in the industry, opened a wire harness factory in the state of Querétaro. Recently it unveiled a $250 million plan for another factory to make wings and fuselages. Canada's Goldcorp is spending $1.5 billion for a gold, silver, lead and zinc mine in Zacatecas State that will employ 1,000 people. That's on top of the three mines it already operates and the $80 million it's spending to drill for gold.

But these investments hardly make a dent in Mexico's economy. There is plenty of grim news to darken the bright spots. The three leading sectors of the economy--services, industrial and agriculture--are slowing; manufacturing is expected to contract next year (see charts).

One silver lining is that the banking system is well capitalized, at least for now, says Deborah Riner, chief economist for the U.S. Chamber of Commerce in Mexico. As a recent imf report points out, there is little exposure to U.S. subprime assets and no hint yet of a credit crunch. That's because the nation hasn't yet developed an addiction to debt. "In times of crisis, cash is king," says Ricardo Salinas Pliego (net worth: $6.3 billion), who controls TV Azteca, mobile phone provider Iusacell and home electronics retailer Grupo Elektra. Salinas recently spent $41 million buying a 28% stake in the bankrupted chain Circuit City.

Salinas' Banco Azteca makes loans to street vendors, cabdrivers, bricklayers and plumbers--at average annual interest rates of 50%. Vice-Chairman Luis Niño de Rivera indignantly defends the usurious rates, which he claims are the market rates. "There used to be no hope for low-income people who barely had access to credit," he says. "We have changed the history of all these people," as well as allowed them to buy goods and services from Salinas enterprises. With 1,530 branches, Banco Azteca has $4 billion in deposits and $2 billion in loans on its books. Borrowers pay weekly--often handing over small sums to one of Azteca's 5,500 collections officers, who show up on motorcycle. That keeps loan losses down to 5.5%.

Sidebars:
Industry & Unemployment 
Oil
The Drug War 
Southern Discomfort

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Default rates will rise in a degrading economy. Already there are bleak signs in the $85-billion-a-year auto industry. While Toyota North America insists it's sticking to its schedule next year, Ford of Mexico says it will "adjust our plans accordingly." Nissan Mexicana recently halted production for six days at its Aguascalientes plant and canceled a planned third shift in Civac. General Motors has cut 660 of its 13,000 workers, discontinued its line of GMC Kodiak medium-duty trucks in Toluca and slowed production of SUVs and pickups in Guanajuato. "Everyone is worried about the future," says a spokesman. Chrysler Mexico laid off 400 of 6,000 people in October and is culling 20% of its 1,200 white-collar employees. Delphi has 55,000 workers at 48 Mexican plants, down from 65,000 at 54 factories two years ago. The auto parts maker is asking some employees to take a voluntary reduced workweek at 50% pay.

On the other side of the border look for a large drop in remittances from Mexicans living in the U.S. For 2008 they will be down roughly 10% to $21.6 billion. In 2009, predicts Roberto Newell, chief executive of the Mexican Institute of Competitiveness, total remittances may be off by as much as 25% from last year. Of the 11 million Mexicans in the U.S., 60% of them send money home. Perhaps as many as 150,000 will be unemployed by June, says Manuel Orozco, an analyst at the Inter-American Dialogue in Washington. Many more have already been forced out of high-paying construction jobs into jobs paying a lot less. After interviewing migrants, Orozco concludes that 3% to 7% of them will go home next year.

All this pinches the lives of people like Sandra Ruiz Martínez, 36. She lives in a two-room cinder block home that somehow stays pegged to the hillside of Ecatepec, Mexico City's largest suburb, with her seven children and her sister and her sister's two babies. Six years ago Ruiz's husband, an undocumented immigrant, went to San Juan Capistrano, Calif. to find work (and ended up starting a second family). As a cook, he used to send $135 every eight days. Since his hours were cut in August, he's been remitting the same amount every three weeks. Ruiz says she needs $8 a day to run her household. While the government helps pay for high school, she can't juggle finances until the money arrives, and none of her kids has gone past the equivalent of eighth grade. The latest squeeze means no new shoes or clothes for anyone. Still, the tiny house is full of laughter. "Why be broke and sad?" she shrugs. "We try to forget."

It may be a lot harder to forget next year, when some government subsidies disappear. Hit by the double whammy of sinking oil prices and lower production, Pemex's contribution to state coffers could drop 20% or more to $65 billion in 2009. This despite only $18-per-barrel production costs, a $22 discount on today's spot price in Mexico.

Pemex is in sorry shape. From a peak of 3.3 million barrels a day in 2004, output is down to 2.8 million barrels. Unless someone figures out how to halt the decline, Mexico may become a net oil importer by 2015, says Allyson Benton, analyst at Eurasia Group, a political-risk consultancy in Manhattan. Pemex vigorously contests the prediction.

The problem isn't a lack of resources. Exploration and production chief Carlos Morales Gil says Pemex has 14 billion barrels of proved reserves, 30 billion barrels of probable and possible oil and another 54 billion barrels yet to be found. The culprit is Mexico's constitution, which stipulates that all oil and gas reserves are the sole property of the people of Mexico. That bars Pemex from selling stakes in oilfields to foreign companies--depriving Mexico of the risk capital and the talent that Western oil companies are instead sending to colder climates and deeper waters.

The Cantarell field was so big that Mexico could afford to be xenophobic about oil production. It's no longer the gusher it was: Production is down from 2 million barrels a day in 2004 to 1 million today. "It made us think we inherited a guaranteed flow of dollars for the rest of our lives," sighs Morales Gil.

A new law passed by the legislature will help to a degree. While the wording of new contracts must still be painstakingly matched to the constitution, the reforms permit Pemex to develop the technology of foreign oil services companies--finally opening Mexico to deepwater exploration of the Gulf--and to pay them incentives based on Pemex's success. Morales Gil can envision a nonequity partnership to produce Mexico's oil via platforms on the U.S. side of the maritime border, where Royal Dutch Shell, bp andChevron are installing an estimated $6.7 billion spar platform that will be linked to fields as far as 10,000 feet below sea level. "Perhaps in these reservoirs it makes sense to get together with the other guys and plan a joint investment," he muses, but "keep the reserves separate."

Pemex says it must spend $20 billion a year for two decades just to keep output stable. That will be very tough to pull off without outside investment--especially for a company sagging under $100 billion in debt. David Shields, an analyst who has long studied Mexican oil, suggests the government take the liability off Pemex's books by converting it to sovereign debt.

Sidebars:
Industry & Unemployment 
Oil
The Drug War
Southern Discomfort

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But what foreign investor would be eager to buy that debt when the Mexican public markets themselves are pretty spooked these days? "People don't want to put their surnames on a share listing," Mexican stock exchange president, Guillermo Prieto, recently said. "At least six or seven companies have said crime is a reason [for not floating an issue]." The cartels have left particularly grisly marks, including at least 40 decapitations this year. "You have gangs publicizing that they've killed innocent people to enhance their reputation," says Peter Reuter, professor of public policy at the University of Maryland and a Rand Corp. scholar. On Nov. 3 there were 58 drug-related deaths, including four men burned to death in the beach town of Sinaloa de Leyva. On that same day surgeons in a Ciudad Juárez hospital were ordered out of an operating room as hooded men executed a patient who had shown up with a gunshot wound. With so little faith in his own men, Juárez's mayor fired 400 police officers for failing lie detectors and other tests to root out corruption and started to recruit federal troops to the force.

Chronic fear of kidnapping, or worse, is driving more and more Mexicans north to the U.S. Alejandro Junco, proprietor of one of Mexico's largest dailies, El Norte, recently moved his entire family to live in Texas. Pablo Jacobo (Jack) Suneson Bautista, owner of Marti's, a high-end arts and crafts gallery on Guerrero Avenue in Nuevo Laredo, refuses to let his kids come home to work in the business. "No way," he says. "I am just afraid they might be singled out or there might be some kind of kidnapping attempt." No one knows how many Mexicans are fleeing. But Arturo Rolland, a broker at Latin Credit Mortgage & Realty in San Diego, guesses that maybe 100 families a month are moving from Tijuana to the Chula Vista/San Diego area to seek safety. Some because gangsters "are using Facebook and MySpace to track people and their relatives," says a source at the Asociación de Empresarios Mexicanos, an entrepreneurs group in San Antonio.

The narcotraficantes have found opportunity in the U.S., too. If the late Colombian drug lord Pablo Escobar had Miami, then Joaquín Guzmán has Atlanta, which has become the East Coast distribution center of cocaine and other drugs for the Mexican cartels. Atlanta's accessibility to key interstates like I-95 and I-85 make it a perfect hub for moving cocaine and marijuana and taking bulk cash back to Mexico. Atlanta's fast-growing Mexican population, lured largely by the region's building boom, has provided excellent cover and resources for the cartel's U.S. emissaries.

Northwestern Georgia is dotted with drug warehouses and money-counting houses, often set up in empty suburban homes furnished with a few tables and laptops. From there cocaine is moved to New York, Pittsburgh, Washington, D.C., Miami and Chicago. The cash can be counted and inserted within 24 hours in sophisticated hydraulic traps built into tractor trailers for the trip to Texas and the southwestern border. No need for cages or safes--the cash at the money-counting houses is kept in closets, and one Gulf cartel moneyman made it clear that the lives of families in Mexico of anyone messing with the efficiency of his money-moving operation were at stake. "I don't know how much more worried I would have to be," says John C. Killorin, director of the Atlanta High Intensity Drug Trafficking Area.

The Gulf cartel has dug its claws into the Atlanta area, as shown by a federal indictment in September of 34 of its members who authorities say were organized into distribution and transportation cells. The feds say the leader, 20-year-old Edgar Rodríguez-Alejandro, was taking orders from the highest levels of the Gulf cartel in Mexico until he was arrested in May with 12 kilos of cocaine and $7.7 million, a slim fraction of the 16,000 kilos of cocaine and 116 weapons recently seized in the U.S. Two cells of Shorty Guzmán's cartel in Atlanta were tracked and 20 indicted in December 2007.

The cartels are getting hard for Americans to ignore. In July a Rhode Island distributor who owed the Gulf cartel $300,000 was lured to an Atlanta suburb and then jumped by three members of the gang, who held and tortured him. He was rescued by the feds. Says Rodney Benson, the DEA's special agent in charge in Atlanta: "My number one concern is that if we don't impact these organizations there may be increased violence down the road."

What about help from the Mérida plan? "The money is going to the wrong side of the border," contends Congressman Ted Poe (R--Tex.). "With the infiltration of law enforcement and so many corrupt officials in Mexico, we don't want that equipment used against us."

Sidebars:
Industry & Unemployment 
Oil
The Drug War 
Southern Discomfort

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December 9, 2008

Hidden Travels of the Atomic Bomb

By WILLIAM J. BROAD

In 1945, after the atomic destruction of two Japanese cities, J. Robert Oppenheimer expressed foreboding about the spread of nuclear arms.

“They are not too hard to make,” he told his colleagues on the Manhattan Project at Los Alamos, N.M. “They will be universal if people wish to make them universal.”

That sensibility, born where the atomic bomb itself was born, grew into a theory of technological inevitability. Because the laws of physics are universal, the theory went, it was just a matter of time before other bright minds and determined states joined the club. A corollary was that trying to stop proliferation was quite difficult if not futile.

But nothing, it seems, could be further from the truth. In the six decades since Oppenheimer’s warning, the nuclear club has grown to only nine members. What accounts for the slow spread? Can anything be done to reduce it further? Is there a chance for an atomic future that is brighter than the one Oppenheimer foresaw?

Two new books by three atomic insiders hold out hope. The authors shatter myths, throw light on the hidden dynamics of nuclear proliferation and suggest new ways to reduce the threat.

Neither book endorses Oppenheimer’s view that bombs are relatively easy to make. Both document national paths to acquiring nuclear weapons that have been rocky and dependent on the willingness of spies and politicians to divulge state secrets.

Thomas C. Reed, a veteran of the Livermore weapons laboratory in California and a former secretary of the Air Force, and Danny B. Stillman, former director of intelligence at Los Alamos, have teamed up in “The Nuclear Express: A Political History of the Bomb and its Proliferation” to show the importance of moles, scientists with divided loyalties and — most important — the subtle and not so subtle interests of nuclear states.

“Since the birth of the nuclear age,” they write, “no nation has developed a nuclear weapon on its own, although many claim otherwise.”

Among other things, the book details how secretive aid from France and China helped spawn five more nuclear states.

It also names many conflicted scientists, including luminaries like Isidor I. Rabi. The Nobel laureate worked on the Manhattan Project in World War II and later sat on the board of governors of the Weizmann Institute of Science, a birthplace of Israel’s nuclear arms.

Secret cooperation extended to the secluded sites where nations tested their handiwork in thundering blasts. The book says, for instance, that China opened its sprawling desert test site to Pakistan, letting its client test a first bomb there on May 26, 1990.

That alone rewrites atomic history. It casts new light on the reign of Benazir Bhutto as prime minister of Pakistan and helps explain how the country was able to respond so quickly in May 1998 when India conducted five nuclear tests.

“It took only two weeks and three days for the Pakistanis to field and fire a nuclear device of their own,” the book notes.

In another disclosure, the book says China “secretly extended the hospitality of the Lop Nur nuclear test site to the French.”

The authors build their narrative on deep knowledge of the arms and intelligence worlds, including those abroad. Mr. Stillman has toured heavily guarded nuclear sites in China and Russia, and both men have developed close ties with foreign peers.

In their acknowledgments, they thank American cold warriors like Edward Teller as well as two former C.I.A. directors, saying the intelligence experts “guided our searches.”

Robert S. Norris, an atomic historian and author of “Racing for the Bomb,” an account of the Manhattan Project, praised the book for “remarkable disclosures of how nuclear knowledge was shared overtly and covertly with friends and foes.”

The book is technical in places, as when detailing the exotica of nuclear arms. But it reads like a labor of love built on two lifetimes of scientific adventure. It is due out in January from Zenith Press.

Its wide perspective reveals how states quietly shared complex machinery and secrets with one another.

All paths stem from the United States, directly or indirectly. One began with Russian spies that deeply penetrated the Manhattan Project. Stalin was so enamored of the intelligence haul, Mr. Reed and Mr. Stillman note, that his first atom bomb was an exact replica of the weapon the United States had dropped on Nagasaki.

Moscow freely shared its atomic thefts with Mao Zedong, China’s leader. The book says that Klaus Fuchs, a Soviet spy in the Manhattan Project who was eventually caught and, in 1959, released from jail, did likewise. Upon gaining his freedom, the authors say, Fuchs gave the mastermind of Mao’s weapons program a detailed tutorial on the Nagasaki bomb. A half-decade later, China surprised the world with its first blast.

The book, in a main disclosure, discusses how China in 1982 made a policy decision to flood the developing world with atomic know-how. Its identified clients include Algeria, Pakistan and North Korea.

Alarmingly, the authors say one of China’s bombs was created as an “export design” that nearly “anybody could build.” The blueprint for the simple plan has traveled from Pakistan to Libya and, the authors say, Iran. That path is widely assumed among intelligence officials, but Tehran has repeatedly denied the charge.

The book sees a quiet repercussion of China’s proliferation policy in the Algerian desert. Built in secrecy, the reactor there now makes enough plutonium each year to fuel one atom bomb and is ringed by antiaircraft missiles, the book says.

China’s deck also held a wild card: its aid to Pakistan helped A.Q. Khan, a rogue Pakistani metallurgist who sold nuclear gear on the global black market. The authors compare Dr. Khan to “a used-car dealer” happy to sell his complex machinery to suckers who had no idea how hard it was to make fuel for a bomb.

Why did Beijing spread its atomic knowledge so freely? The authors speculate that it either wanted to strengthen the enemies of China’s enemies (for instance, Pakistan as a counterweight to India) or, more chillingly, to encourage nuclear wars or terror in foreign lands from which Beijing would emerge as the “last man standing.”

A lesser pathway involves France. The book says it drew on Manhattan Project veterans and shared intimate details of its bomb program with Israel, with whom it had substantial commercial ties. By 1959, the book says, dozens of Israeli scientists “were observing and participating in” the French program of weapons design.

The book adds that in early 1960, when France detonated its first bomb, doing so in the Algerian desert, “two nations went nuclear.” And it describes how the United States turned a blind eye to Israel’s own atomic developments. It adds that, in the autumn of 1966, Israel conducted a special, non-nuclear test “2,600 feet under the Negev desert.” The next year it built its first bomb.

Israel, in turn, shared its atomic secrets with South Africa. The book discloses that the two states exchanged some key ingredients for the making of atom bombs: tritium to South Africa, uranium to Israel. And the authors agree with military experts who hold that Israel and South Africa in 1979 jointly detonated a nuclear device in the South Atlantic near Prince Edward Island, more than one thousand miles south of Cape Town. Israel needed the test, it says, to develop a neutron bomb.

The authors charge that South Africa at one point targeted Luanda, the capital of neighboring Angola, “for a nuclear strike if peace talks failed.”

South Africa dismantled six nuclear arms in 1990 but retains much expertise. Today, the authors write, “South African technical mercenaries may be more dangerous than the underemployed scientists of the former Soviet Union” because they have no real home in Africa.

“The Bomb: A New History,” due out in January from Ecco Books, an imprint of HarperCollins, plows similar ground less deeply, but looks more widely at proliferation curbs and diplomacy. It is by Stephen M. Younger, the former head of nuclear arms at Los Alamos and former director of the Defense Threat Reduction Agency at the Pentagon.

Dr. Younger disparages what he calls myths suggesting that “all the secrets of nuclear weapons design are available on the Internet.” He writes that France, despite secretive aid, struggled initially to make crude bombs — a point he saw with his own eyes during a tour of a secretive French atomic museum that is closed to the public. That trouble, he says, “suggests we should doubt assertions that the information required to make a nuclear weapon is freely available.”

The two books draw on atomic history to suggest a mix of old and new ways to defuse the proliferation threat. Both see past restraints as fraying and the task as increasingly urgent.

Mr. Reed and Mr. Stillman see politics — not spies or military ambitions — as the primary force in the development and spread of nuclear arms. States repeatedly stole and leaked secrets because they saw such action as in their geopolitical interest.

Beijing continues to be a major threat, they argue. While urging global responses like better intelligence, better inspections and better safeguarding of nuclear materials, they also see generational change in China as a great hope in plugging the atomic leaks.

“We must continue to support human rights within Chinese society, not just as an American export, but because it is the dream of the Tiananmen Square generation,” they write. “In time those youngsters could well prevail, and the world will be a less contentious place.”

Dr. Younger notes how political restraints and global treaties worked for decades to curb atomic proliferation, as did American assurances to its allies. “It is a tribute to American diplomacy,” he writes, “that so many countries that might otherwise have gone nuclear were convinced to remain under the nuclear umbrella of the United States.”

And he, too, emphasizes the importance of political sticks and carrots to halting and perhaps reversing the spread of nuclear arms. Iran, he says, is not fated to go nuclear.

“Sweden, Switzerland, Argentina and Brazil all flirted with nuclear programs, and all decided to abandon them,” he notes. “Nuclear proliferation is not unidirectional — given the right conditions and incentives, it is possible for a nation to give up its nuclear aspirations.”

The take-home message of both books is quite the reverse of Oppenheimer’s grim forecast. But both caution that the situation has reached a delicate stage — with a second age of nuclear proliferation close at hand — and that missteps now could hurt terribly in the future.

Mr. Reed and Mr. Stillman take their title, “The Nuclear Express,” from a 1940 radio dispatch by Edward R. Murrow , who spoke from London as the clouds of war gathered over Europe. He told of people feeling like the express train of civilization was going out of control.

The authors warn of a similar danger today and suggest that only close attention to the atomic past, as well as determined global action, can avoid “the greatest train wreck” in history.

Conoce tus derechos al ser despedido

06:00 08 de diciembre de 2008

CIUDAD DE MÉXICO (CNNExpansión.com) — Los recortes de personal son una posibilidad que debes contemplar dada la actual crisis económica. Aunque estas medidas están pensadas para ahorrarle dinero a la empresa, si eres despedido por una causa ajena a ti, o por decisión del patrón, existen derechos inalienables que debes hacer valer. Uno de los principales es que por ley debes recibir una indemnización constitucional de tres meses de sueldo. “Es importante destacar que el cálculo de estos meses se debe hacer no sobre el salario neto o nominal, sino sobre el salario integrado, que agrupa las prestaciones que por ley se permiten, pero independientes a aquellas que el propio patrón le haya concedido al trabajador” dice en entrevista el abogado laboral y catedrático de la Universidad Panamericana (UP), Uriel Santacruz Martínez. Además, el patrón está obligado por la Ley Federal del Trabajo (LFT) a indemnizarte con el pago de 20 días por año trabajado, la parte proporcional del aguinaldo y la prima de antigüedad, que se calcula en base a 12 días por cada año de servicio prestado. “A esto hay que agregar la prima vacacional, la parte del reparto de utilidades, horas extra pendientes, y los beneficios adicionales que se hayan pactado”, dice en entrevista el procurador general de la Procuraduría Federal de la Defensa del Trabajo (Profedet), Joaquín Blanes Casas. En algunos casos además del salario se dan incentivos, bonos o vales que también deben ser debidamente cubiertos. También tienes derecho a la proporción correspondiente al reparto de utilidades. No permitas abusos “El desconocimiento de los derechos laborales y el contrato ocasionan que a veces los empleados sean tomados por sorpresa, por ello es indispensable que sepan bajo qué términos están laborando para su patrón”, asegura la subdirectora Comercial de la Consultora de RH Mercer, Ana Velázquez. Por ejemplo, los términos de tu liquidación están sujetos a los del contrato individual o colectivo de trabajo que hayas signado al inicio de la relación laboral. Nadie puede obligarte a firmar: si al ser requerido por el área de RH para darte tu liquidación no estás de acuerdo con el cálculo presentado o tienes alguna duda, la recomendación de los expertos laborales es no firmar ningún documento. Debes saber que nadie puede obligarte a firmar nada, así que no cedas a presiones o intimidaciones de la empresa, ya que esta práctica, además de ser ilegal, “está sancionada y puede procederse legalmente contra el patrón o quien resulte responsable”, dice el abogado Uriel Santacruz. Retenerte es ilegal: algunas empresas amenazan al empleado con no dejarlo abandonar la institución a menos que firmen la liquidación. Este caso “constituye un delito grave, ya que se incurre en la privación ilegal de la libertad, que se persigue penalmente”, dice la subdirectora de Mercer. La recomendación es comunicarse con algún familiar para informarle la situación, salir en cuanto sea posible y acudir inmediatamente ante la Junta Federal de Conciliación y Arbitraje, la Junta del DF o la Profedet y denunciarlo. Vigilancia no equivale a acoso: existen compañías en que el despido va acompañado de la vigilancia permanente de algún miembro de seguridad interna para evitar robos a la organización. “Esta práctica se entiende cuando se maneja información confidencial o cuando se tienen antecedentes de que la persona pueda reaccionar de manera violenta, pero no justifica que se acose o intimide a la persona”, asegura Ana Velázquez. “Esta práctica también es ilegal, ya que se están violentando los derechos humanos del trabajador, y también puede procederse contra la empresa”, señala el catedrático de la UP. Calcula y pide asesoría: una encuesta hecha por la consultora Hewitt Associates destaca que el 39% de las empresas mexicanas está planeando algún recorte de personal debido a la crisis. “Bajo esta premisa lo mejor es tener información del contrato para saber los términos en los que la empresa nos liquidaría. Además hay que hacer un cálculo de la indemnización. Es preferible contar con la asesoría de un abogado o un contador”, dice el director de Consultoría en Talento y Organización de Hewitt Associates, Jorge Ponga. Si el cálculo no corresponde a las cifras presentadas por la empresa, es mejor no firmar. Si te obligan a firmar… si la presión ejercida por la empresa hace que firmes los documentos, no todo está perdido. “A pesar de esto el trabajador puede presentarse ante las autoridades laborales y decir que fue víctima de presión, por lo que todavía puede reclamar el pago justo de su indemnización y liquidación”, dice Uriel Santacruz. El lapso para presentar una inconformidad va desde los 30 días hasta los 365, dependiendo de los supuestos previstos por la LFT. Si vas a juicio: un juicio por inconformidad es un proceso largo y tedioso que puede durar mínimo seis meses y hasta más de dos años. “El 70% de los procesos son resueltos en favor del trabajador”, dice el catedrático de la UP. “Aunque la mayoría son ganados por el mismo, si no se tienen los recursos suficientes para sobrevivir este lapso de tiempo, es preferible llegar a un arreglo con la empresa”, dice la directiva de Mercer. En cualquier caso, lo mejor es acudir a un abogado laboral y evitar ser presa de los ‘coyotes’ que sólo buscan aprovecharse de la necesidad del trabajador, recomienda el directivo de Hewitt Associates. Si no tienes contrato: aunque no haya un contrato firmado, tus derechos laborales no cambian y posees los mismos en cualquier caso. “Siempre es preferible tener un contrato, pero si no es así, el trabajador tiene derecho a que se le pague el salario convenido y se le indemnice”, dice el titular de la Profedet. Las pruebas que pueden presentar el trabajador en este caso son recibos, depósitos en cuentas o testimoniales de otros trabajadores. También tiene derecho al pago de la parte proporcional de vacaciones, aguinaldo, prima de utilidades, etc.

Rescate Comer

Prefijo

EVENTORE

Clave Cotización

COMERCI

Fecha

29/10/2008

Razón Social

CONTROLADORA COMERCIAL MEXICANA, S.A.B.  DE C.V.

Lugar

MEXICO DF

Asunto

EVENTO RELEVANTE

Eventos Relevantes

CONTROLADORA COMERCIAL MEXICANA INFORMA SOBRE FINANCIAMIENTOS                                                                                                MÉXICO D.F. A 29 DE OCTUBRE DE 2008, CONTROLADORA COMERCIAL MEXICANA, S.A.B.  DE C.V. (BMV: COMERCI) INFORMA QUE SU SUBSIDIARIA, TIENDAS COMERCIAL MEXICANA, S.A. DE C.V. (TIENDAS), HA OBTENIDO DOS FINANCIAMIENTOS HASTA POR UN MONTO DE $3,327 MILLONES, LOS CUALES SUMADOS A SU FLUJO DE EFECTIVO, LE PERMITIRÁN     SEGUIR CUMPLIENDO SUS COMPROMISOS CON PROVEEDORES.                                                                                                           UNO DE LOS CRÉDITOS ES UN PRÉSTAMO DIRECTO POR $327 MILLONES OTORGADO POR UNA INSTITUCIÓN DE BANCA MÚLTIPLE Y EL OTRO, UNA LÍNEA DE CRÉDITO DE HASTA $3,000 MILLONES OTORGADA POR NACIONAL FINANCIERA, S.N.C. (NAFIN) A UN FIDEICOMISO    PARA EL PAGO A LOS PROVEEDORES DE TIENDAS. AMBOS FINANCIAMIENTOS DEVENGAN     INTERESES A UNA TASA DE TIIE A 28 DÍAS MÁS 5 PUNTOS PORCENTUALES.                                                                                            AL DÍA DE HOY SE HABRÁ DISPUESTO DE LA TOTALIDAD DEL CRÉDITO DIRECTO Y DE     $1,000 MILLONES DE LA LÍNEA OTORGADA POR NAFIN AL FIDEICOMISO. SE PODRÁN       EJERCER ADICIONALMENTE A TRAVÉS DEL FIDEICOMISO, HASTA $2,000 MILLONES POR    PROVEEDORES DE TIENDAS, PARA DESCUENTOS DE FACTURAS A TRAVÉS DEL PROGRAMA DE  CADENAS PRODUCTIVAS (FACTORAJE).                                                                                                                             EL 100% DE LOS RECURSOS OBTENIDOS SERÁ UTILIZADO PARA EL PAGO A PROVEEDORES.                                                                                 CONFORME SE HAN DISPUESTO LOS RECURSOS DE ESTOS FINANCIAMIENTOS, SE HAN       CONSTITUIDO GARANTÍAS SOBRE ACTIVOS DE LAS EMPRESAS INMOBILIARIAS DEL GRUPO A FAVOR DE LAS INSTITUCIONES DE CRÉDITO, CON UN AFORO DE 1.5 VECES.                                                                                            CABE SEÑALAR QUE ESTOS FINANCIAMIENTOS NO FUERON OTORGADOS A CONTROLADORA     COMERCIAL MEXICANA, S.A.B. DE C.V. Y QUE LOS BIENES OTORGADOS EN GARANTÍA NO  SON DE SU PROPIEDAD DIRECTA.                                                                                                                                  ESTA ACCIÓN LE PERMITIRÁ A TIENDAS MANTENER SU OPERACIÓN DE FORMA ÓPTIMA,     PRESERVANDO ASÍ EL VALOR DEL GRUPO, EN BENEFICIO DE TODOS LOS TENEDORES DE    INTERÉS.                                                                                                                                                      COMO YA SE HA INFORMADO, COMERCI SE MANTIENE EN NEGOCIACIÓN PERMANENTE CON SUS ACREEDORES FINANCIEROS Y ESPERA PODER PRESENTAR UN PLAN DE REESTRUCTURA EN LAS PRÓXIMAS SEMANAS.                                                                                                                                            ASIMISMO, REITERA QUE CONTINUARÁ INFORMANDO OPORTUNAMENTE AL MERCADO SOBRE EL DESARROLLO DEL PROCESO DE REESTRUCTURACIÓN FINANCIERA.

 

Greenspan Testimony on Sources of Financial Crisis

Greenspan Testimony on Sources of Financial Crisis

Posted By topeditor On October 23, 2008 @ 8:27 am In Credit Crisis, Fed | 4 Comments

Former Federal Reserve Chairman Alan Greenspan is set to testify today before the House Committee of Government Oversight and Reform. These are his prepared remarks:

Mr. Chairman, Ranking Member Davis, and Members of the Committee:

Thank you for this opportunity to testify before you this morning.

Greenspan

We are in the midst of a once-in-a century credit tsunami. Central banks and governments are being required to take unprecedented measures. You, importantly, represent those on whose behalf economic policy is made, those who are feeling the brunt of the crisis in their workplaces and homes. I hope to address their concerns today.

This morning, I would like to provide my views on the sources of the crisis, what policies can best address the financial crisis going forward, and how I expect the economy to perform in the near and longer term. I also want discuss how my thinking has evolved and what I have learned in this past year.

In 2005, I raised concerns that the protracted period of underpricing of risk, if history was any guide, would have dire consequences. This crisis, however, has turned out to be much broader than anything I could have imagined. It has morphed from one gripped by liquidity restraints to one in which fears of insolvency are now paramount. Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment. Fearful American households are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds, and increased job insecurity. All of this implies a marked retrenchment of consumer spending as households try to divert an increasing part of their incomes to replenish depleted assets, not only in 401Ks, but in the value of their homes as well. Indeed, a necessary condition for this crisis to end is a stabilization of home prices in the U.S. They will stabilize and clarify the level of equity in U.S. homes, the ultimate collateral support for the value of much of the world’s mortgage-backed securities. At a minimum, stabilization of home prices is still many months in the future. But when it arrives, the market freeze should begin to measurably thaw and frightened investors will take tentative steps towards reengagement with risk. Broken market ties among banks, pension, and hedge funds and all types of nonfinancial businesses will become reestablished and our complex global economy will move forward. Between then and now, however, to avoid severe retrenchment, banks and other financial intermediaries will need the support that only the substitution of sovereign credit for private credit can bestow. The $700 billion Troubled Assets Relief Program is adequate to serve that need. Indeed the impact is already being felt. Yield spreads are narrowing.

As I wrote last March: 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. Such counterparty surveillance is a central pillar of our financial markets’ state of balance. If it fails, as occurred this year, market stability is undermined.

What went wrong with global economic policies that had worked so effectively for nearly four decades? The breakdown has been most apparent in the securitization of home mortgages. The evidence strongly suggests that 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. But subprime mortgages pooled and sold as securities became subject to explosive demand from investors around the world. These mortgage backed securities being “subprime” were originally offered at what appeared to be exceptionally high risk-adjusted market interest rates. But with U.S. home prices still rising, delinquency and foreclosure rates were deceptively modest. Losses were minimal. To the most sophisticated investors in the world, they were wrongly viewed as a “steal.”

The consequent surge in global demand for U.S. subprime securities by banks, hedge, and pension funds supported by unrealistically positive rating designations by credit agencies was, in my judgment, the core of the problem. Demand became so aggressive that too many securitizers and lenders believed they were able to create and sell mortgage backed securities so quickly that they never put their shareholders’ capital at risk and hence did not have the incentive to evaluate the credit quality of what they were selling. Pressures on lenders to supply more “paper” collapsed subprime underwriting standards from 2005 forward. Uncritical acceptance of credit ratings by purchasers of these toxic assets has led to huge losses.

It was the failure to properly price such risky assets that precipitated the crisis. In recent decades, a vast risk management and pricing system has evolved, combining the best insights of mathematicians and finance experts supported by major advances in computer and communications technology. A Nobel Prize was awarded for the discovery of the pricing model that underpins much of the advance in derivates markets. This modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria. Had instead the models been fitted more appropriately to historic periods of stress, capital requirements would have been much higher and the financial world would be in far better shape today, in my judgment.

When in August 2007 markets eventually trashed the credit agencies’ rosy ratings, a blanket of uncertainty descended on the investment community. Doubt was indiscriminately cast on the pricing of securities that had any taint of subprime backing. As much as I would prefer it otherwise, in this financial environment I see no choice but to require that all securitizers retain a meaningful part of the securities they issue. This will offset in part market deficiencies stemming from the failures of counterparty surveillance.

There are additional regulatory changes that this breakdown of the central pillar of competitive markets requires in order to return to stability, particularly in the areas of fraud, settlement, and securitization. It is important to remember, however, that whatever regulatory changes are made, they will pale in comparison to the change already evident in today’s markets. Those markets for an indefinite future will be far more restrained than would any currently contemplated new regulatory regime.

The financial landscape that will greet the end of the crisis will be far different from the one that entered it little more than a year ago. Investors, chastened, will be exceptionally cautious. Structured investment vehicles, Alt-A mortgages, and a myriad of other exotic financial instruments are not now, and are unlikely to ever find willing investors. Regrettably, also on that list are subprime mortgages, the market for which has virtually disappeared. Home and small business ownership are vital commitments to a community. We should seek ways to reestablish a more sustainable subprime mortgage market.

This crisis will pass, and America will reemerge with a far sounder financial system.

Buy American. I Am.

By  WARREN E. BUFFETT

Omaha

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

Letter: Andrew Lahde, Lahde Capital Management

October 17, 2008

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list of those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they lookforward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life – where I had to compete for spaces in universities and graduate schools, jobs and assets under management – with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant – marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other addictive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say goodbye and good luck.

All the best,

Andrew Lahde

Tuesdays with Rupert

Since buying The Wall Street Journal, Rupert Murdoch has talked freely with the author about his business, his family, and the future. (There was serious gossip, too.) It’s an unparalleled look at the 77-year-old mogul, transformed by his marriage to Wendi Deng, yet utterly, unapologetically himself.

by MICHAEL WOLFFOctober 2008

For nine months, I’ve been interviewing Rupert Murdoch, in an unlikely spirit of openness precipitated by his great satisfaction in having bought The Wall Street Journal, about journalism, his business, politics, his family, and the future for a new biography. I was warned about his charm by many other journalists—warned not to fall victim to it. So the surprise was his lack of it. He’s without introspection and self-analysis and doesn’t like to talk about the past. What’s more, he mumbles terribly (and with a heavy Aussie accent) and seldom finishes a sentence. For the first three months of our interviews, he never addressed a word to or even looked at my research assistant, Leela de Kretser, who was at each of the sessions, and ignored her questions—perhaps because it’s not necessary to acknowledge a girl, or possibly because it was embarrassing for him that she was, at the time, a pregnant girl. (She had the baby. He eventually warmed up.)

But his odd lack of seductiveness or felicitousness—contributing to his aura of villainy—became after a while alluring in itself. There’s no spin, because he really can’t explain himself. Rather, what you see is what you get. He’s transparent. The nature of the beast is entirely evident.

One morning when Leela and I arrived at Murdoch’s office for another interview session, we found the 77-year-old News Corp. chairman and C.E.O. hunched over the phone reporting out a story. He’d been out the night before and gotten a tip. Now he was trying to nail it down. His side of the conversation was straight reporter stuff: Who could he call? How could he get in touch? Will they confirm? Barked, impatient, just the facts. Here was the old man, in white shirt, singlet visible underneath, doing one of the same basic jobs he’d been doing since he was 22, having inherited theAdelaide News in Australia from his father. And he was good at it. He was parsing each answer. Re-asking the question. Clarifying every point. His notepad going. He knew the trade. Of how many media-company C.E.O.’s could that be said? This wasn’t a destroyer of journalism—this was a practitioner.

On the other hand, he was trying to smear somebody. At the dinner party he’d attended—since his marriage to Wendi Deng, he’s become an unlikely fixture at fashionable tables—he heard that a seniormost Hillary Clinton operative was a partner in an online porn company. He didn’t like the operative, didn’t like—no matter how much he had tried—Hillary Clinton. So it didn’t much matter that the story itself seemed far-fetched and tenth-hand. It was juicy and would slime somebody he thought was … a slime. True, it didn’t pan out—and, to his credit, that was the end of it. Well, sort of. Because he kept recycling it. While it did not end up on the Post’s “Page Six,” it became a staple in Murdoch’s repertoire of whispers and confidences and speculations. Rupert Murdoch doesn’t need to print or broadcast the news to make it … news.

He may be among the biggest gossips in New York. In the months of interviewing him, I found that the most reliable way to hold his interest was to bring him a rich nugget. His entire demeanor would change. He’d instantly light up. He’d go from distracted to absolutely focused. Gossip gives him life (and business opportunities). This, I believe, is how the rumor about Michael Bloomberg’s buying The New York Timesgot legs. I offered it to him as a bit of speculation—conflating two of his favorite subjects, Bloomberg, whom he greatly admires, and the Times, which he does not—that a Bloomberg-Times deal could be possible. He paused, considered, opened his mouth, seemed blissed out for a second, processed this information against his own needs and interests … and then said, “It makes sense. I think I’ll ask him.” And suddenly the rumor was everywhere—he was telling everybody, which made it true. The mayor’s people seemed to like the rumor so much that they began to talk it up themselves. Bloomberg himself seemed to fancy it (offering only a tepid denial) and, Murdoch thinks, could act on it.

He’s a troublemaker—maybe the last troublemaker in the holier-than-thou, ethically straitjacketed news business:

Gary Ginsberg, Murdoch’s chief aide and one of News Corp.’s highest executives—and a former Clinton White House staffer—told his boss that he was planning to go to Paris, in August 2007, for the wedding of his friend Doug Band, Bill Clinton’s chief aide. Band was marrying the handbag designer Lily Raf?i, and the wedding was going to be a party-hearty Clinton affair with supermarket magnate Ron Burkle, real-estate-heir-film-producer Steve Bing, and Bill Clinton himself, Ginsberg reported to Murdoch (Ginsberg too knows that Murdoch likes—needs—gossip). So Murdoch, onto not just a good story but also a way to annoy Ginsberg, secretly called the New York Post editor, Col Allan, and, busting the expense budget, had “Page Six” send a reporter to Paris. Headline (to Ginsberg’s consternation): bill & pals do paris (the city, not the bimbo).

The great fear about Rupert Murdoch, among journalists and proper liberals everywhere, beyond even his tabloidism and his right-wing politics, is that he acknowledges no rules. He does it, without mercy, his way. If you watch him up close, this certainly seems true. He sits in his office and plots and schemes and figures out ways to get (to take) what he wants.

Although he’d agreed with the Bancroft family, Dow Jones’s former owners, to accept a strict structure for protecting The Wall Street Journal’s editorial independence, I watched how blithely he paid no attention to it. It barely figured into his plans or consciousness. Except that he seemed briefly tickled to have figured out that if he merely called his chosen editor, Robert Thomson, the publisher, then he’d have his choice. He was only slightly confounded (and a bit bemused) that it took Journal editor Marcus Brauchli four months to get the message that he was out.

Still, up close, such lack of restraint doesn’t necessarily seem so threatening. It seems, in fact … fun. There’s no artifice. There’s no bureaucracy. There’s no pretense. There’s no corporate this and that—Murdoch’s truly the anti-corporate man. It’s all determination and enthusiasm. It’s all about his passions and the effect he can have. (Of course he was going to replace the Journal’s editor. What was everybody thinking?)

It’s his adventure. Part of the reason so many of the people around him are so loyal—such true believers—is that they’re caught up in it. It’s a grand enterprise.

Though not necessarily such a well-organized or even rational one.

There was the moment, in the car heading out to the airport in the weeks before The Wall Street Journalformally became his, when Merrill Lynch was going into the tank. Its C.E.O., Stan O’Neal, had just been fired. Anticipating events—Merrill’s need for cash, its inevitable sale of assets—Murdoch, for an hour or so, decided he ought to be the presumptive buyer of Merrill’s 20 percent stake in Bloomberg (Murdoch cultivates obsessions, and Bloomberg is one). Soon to have The Wall Street Journal, now soon to have his mitts on Bloomberg, Rupert Murdoch, at least in his own mind, would control worldwide financial information. It’s management by fantasy—even though this one, like so many, was shortly to pass.

Buying The Wall Street Journal was surely an exercise of pure fantasy. To think he could take over a company absolutely controlled by a family that had repeatedly said it would never sell was fantasy. To think it was worth what he was paying for it was fantasy. And yet … now it’s his, and if his shareholders are puzzled and grumpy (News Corp. shares are down by more than 30 percent since he bought Dow Jones), so be it (he’ll ignore them as much as he ignores his other critics). He’s in it for the long haul—even at 77.

He is spending time now in consideration of an even more far-fetched fantasy, The New York Times:he’d really like to own it too. Now, everybody around him continues to tell him that buying theTimes is pretty much impossible. There will be regulatory problems. The Sulzberger family would never … And then there’s the opprobrium of public opinion.

But it’s obviously irresistible to him. I’ve watched him go through the numbers, plot out a merger with the Journal’s backroom operations, and fantasize about the staff’s quitting en masse as soon as he entered the sacred temple. It would be sweet revenge—because the Times for so long has made him the bogeyman and vulgarian. And wonderful to own not just one of America’s most important papers but both (he believes in monopolies). And the realization of his destiny: because the Times represents the ultimate in newspaper proprietorship—when he was 19, he and his father, the most successful newspaper executive in Australia, made a pilgrimage to Hillandale, the Sulzberger family home in Connecticut—and he believes he is the ultimate newspaper proprietor.

And because he loves newspapers—he may be the last person to love newspapers. He thinks the Times,with its soft stories and newsless front page and all its talk of being a news brand instead of a newspaper,has forsaken what a newspaper is.

He’s really not interested in all this talk about newspapers as the basis of new information franchises … blah blah. That’s maybe what they say at News Corp. to gull Wall Street. But Rupert Murdoch wants the physical thing. He pokes the paper, slashes at it—move this, reduce that, enlarge this. It may be the ultimate fantasy, his continuing, contrary belief in newspapers.

A newspaper makes you into something. When he bought The Sun in London in 1969, it turned him into Britain’s greatest tabloid publisher and threat to ritual and propriety. The Wall Street Journal is going to turn him into something else again.

Here’s the headline: Rupert Murdoch is becoming a liberal—sort of.

Or, anyway, his purchase of The W.S.J., and his covetousness of the Times, is also about wanting to trade the illiberal—the belligerent, the vulgar, the loud, the menacing, the unsubtle—for the better-heeled, the more magnanimous, the further nuanced. He’s looking for better company.

This most unsocialized of men is becoming socialized—sort of.

This is, in part, the Wendi transformation. The woman from Shandong Province, 38 years his junior, whom he married after breaking up his 32-year marriage to his second wife, Anna, has brought him into the liberal world. The angry outsider, the anti-elitist, the foe of airs and pretension (“Ole Grumpy,” as he’s known by various of his employees), has become part of the achieving, glamorous, clever, socially promiscuous set. Davos, Cannes, Sun Valley, Barry Diller’s yacht—this is now Rupert Murdoch’s world.

Or it’s his wife’s world, which he’s been drawn into.

It would be hard not to be. The girl whose American adventure starts in the kitchen of a Chinese restaurant before she can speak English and takes her to the Yale School of Management and then into the arms of Rupert Murdoch is a compelling heroine. Her adventure may be as great as his. He’s captivated by her ambition (their pillow talk, one might suspect, is business). You can see this as comic: no fool like an old fool—the shapeless conservative suits become Prada (although still worn with the singlets), his gray hair flaming orange (or sometimes aubergine). But I think that misses the true nature of the change. Of the plot twist. Rupert Murdoch is, characteristically, seizing an opportunity. The Zeitgeist is changing and he’s after it.

All right, he’s not quite a liberal. He remains a militant free-marketeer and is still pro-war (grudgingly, he’s retreated a bit). And there was the moment, one afternoon, when over a glass of his favorite coconut water (meant to increase electrolytes) he was propounding the genetic theory that the basic problem of the Muslim people was that they married their cousins.

And yet, he’s come to like the liberals more than the conservatives. Bono and Tony Blair and the Google guys and Nicole Kidman and David Geffen are his and Wendi’s circle. Facebook’s Mark Zuckerberg and real-estate scion and New York Observer owner Jared Kushner and Ivanka Trump are regular invites to the Murdochs’ for dinner. Liking Wendi’s friends so much better than his own (actually, he really had never had any friends), he finds himself with an increasingly divided temperament.

It’s life with Wendi versus life with Fox. (And, too, it’s The Wall Street Journal—and maybe The New York Times—versus Fox.)

Fox has been his alter ego. For a long time he was in love with the Fox chief, Roger Ailes, because he was even more Murdoch than Murdoch. And yet now the embarrassment can’t be missed—he mumbles even more than usual when called on to justify it; he barely pretends to hide the way he feels about Bill O’Reilly. And while it is not possible that he would give Fox up—because the money is the money; success trumps all—in the larger sense of who he is, he seems to want to hedge his bets.

Just before the New York Democratic primary, when I found myself undecided between Clinton and Obama, I said to Murdoch (a little flirtation, like a little gossip, softens him), “Rupert, I don’t know who to vote for—so I’m going to give you my vote. You choose.”

He paused, considered, nodded his head slowly: “Obama—he’ll sell more papers.”

Even though his daughter Elisabeth and her husband, high-flying P.R. man Matthew Freud, have been raising money for Obama in Notting Hill, in London, where they live, and his wife has been attending fund-raisers for Obama in Los Angeles with David Geffen, this is a leap for Murdoch. Murdoch has traditionally liked politicians to come to him. His historic shift in the 1990s to Tony Blair came after Blair made a pilgrimage to Australia.

Obama, on the other hand, was snubbing Murdoch. Every time he reached out (Murdoch executives tried to get the Kennedys to help smooth the way to an introduction), nothing. The Fox stain was on Murdoch.

It wasn’t until early in the summer that Obama relented and a secret courtesy meeting was arranged. The meeting began with Murdoch sitting down, knee to knee with Obama, at the Waldorf-Astoria. The younger man was deferential—and interested in his story. Obama pursued: What was Murdoch’s relationship with his father? How had he gotten from Adelaide to the top of the world?

Murdoch, for his part, had a simple thought to share with Obama. He had known possibly as many heads of state as anyone living today—had met every American president from Harry Truman on—and this is what he understood: nobody got much time to make an impression. Leadership was about what you did in the first six months.

Then, after he said his piece, Murdoch switched places and let his special guest, Roger Ailes, sit knee to knee with Obama.

Obama lit into Ailes. He said that he didn’t want to waste his time talking to Ailes if Fox was just going to continue to abuse him and his wife, that Fox had relentlessly portrayed him as suspicious, foreign, fearsome—just short of a terrorist.

Ailes, unruffled, said it might not have been this way if Obama had more willingly come on the air instead of so often giving Fox the back of his hand.

A tentative truce, which may or may not have vast historical significance, was at that moment agreed upon.

Iconfess to getting a little misty when Murdoch talks about his children, which he does frequently and naturally (he’s often on the phone with them—this coldest of men making protestations of love).

True, he is often talking about them in some otherworldly, even fantastic dynastic sense—perhaps no other business empire has such an air of royalty about it as News Corp. And yet, at the same time, he seems like any old conscientious dad and ordinarily burdened family man.

For one thing, there is his mother, at 99 an indomitable matriarch—something like the Queen Mum of Australia—at the family estate (which has neither heat nor, apparently, a vacuum cleaner), outside of Melbourne, with the world-famous garden she’s been tending for 80 years, still stewing about the breakup of his second marriage, to Anna. “I remember saying to Rupert, ‘Rupert, you’re going to be very, very lonely and the first desiring female who comes along will snap you up.’ He said, ‘Don’t be ridiculous, Mum, I’m far too old for that.’ That’s exactly what happened. Never mind.” One would not like to face that. (When I visited her, she sat for a three-hour interview full of witty chat and then took me for a wild ride, double-clutching an old golf cart, through her gardens.)

Contrary to the expected outcome in dynastic families, the Murdoch kids have turned out well. They’re diligent achievers. Beyond a few tattoos and piercings and a gossip-column affair (Elisabeth left her husband for Freud), they’re not too rebellious either. And they get along—mostly (though his sons, when they were both on the News Corp. board, sometimes bickered endlessly during meetings). And that’s good because his four oldest children will inherit voting control of one of the most influential companies in the world without any mechanism to break a tie.

There’s Prue, the daughter from his first marriage, a 50-year-old Sydney housewife, the mother of his three oldest grandchildren, who has mostly forgiven him for not considering her—because she was a girl—as dynastic material. Prue, whose husband, Alasdair MacLeod, is a ranking player in the Australian operation, is the child who can most take him to task. (“I’ve said to him, ‘Dad, I understand about dyeing the hair and the age thing’—he never wants to die—‘but just go somewhere proper.’ But he insists on doing it over the sink because he doesn’t want anybody to know. Well, hello! Look in the mirror.”) She is, in a sense, more like his wife than his wives. (Actually, he often mistakes her for one of his sisters.)

There’s Elisabeth, 40, his first child with Anna, who, in his gradually transforming view of women (very gradual), was a candidate for running the company until, mad at him for leaving her mother, she upped and quit in 2000, to his great regret. She now lives in London with Freud and her four children and owns one of the largest independent television-production companies in the world (The Office and Ugly Bettyare her company’s shows).

There’s his first son, Lachlan, 38, whom he had pronounced his heir apparent, whom he openly adores—almost pines after—and who left the company after his father failed to stand up for him against other News Corp. executives. Lachlan, although raised as a New Yorker, has reconstituted himself as an Australian. He owns a cricket team in India and, with Jamie Packer, the son of the late Kerry Packer, one of Murdoch’s epochal enemies in the Australian media wars, tried and failed earlier this year to complete a multi-billion-dollar leveraged buyout of an Australian media company. (Murdoch was obviously pained when I returned from seeing Lachlan in Sydney and knew more about his son’s deal than he did. Pained enough for him to try to pretend he knew—that his son hadn’t excluded him.)

There’s James, of whom he is clearly in some awe. James, who is based in London and who runs News Corp.’s business in Europe and Asia, has become exactly the sort of businessman he himself is not, programmatic, marketing-driven—rather, in fact, a highly intelligent automaton—and is now the favorite to become the C.E.O. of News Corp. (answering, however, to his three siblings, or at least to two of them, to get a majority).

And there are Murdoch’s two youngest children: Grace, aged six, and Chloe, aged five, with whom he lives a Manhattan life of nannies, dogs, play dates, and a father picking up after them.

It’s not just the sense of him as an attentive and concerned father that I find makes me misty, but this further sense he implies, even as he dreams of dynastic succession, of his lack of control over the children and their futures.

If he’s proud of his kids’ separate achievements, he’s desperate to have them back in the business and around him. He openly spins scenarios about how they might be tempted back—stuck with the fact that he’s raised them all well enough that they aren’t particularly dependent on him (and, too, they are savvy enough to have figured out the virtue of distance).

In his divorce from Anna he agreed to make inviolable his four older children’s control and interest in the trust. This agreement became hard to reconcile following the birth of his two younger children, and he petitioned his older children to admit their new siblings to the trust. A long negotiation ensued. He agreed to disburse $150 million to each of his children (with all of the family’s wealth in News Corp. stock, the Murdoch kids have long complained to any News Corp. exec who would listen that they never had much real money to call their own), and, in return, his four older children gave up his ex-wife’s so-called watertight agreement and admitted Grace and Chloe to an equal economic interest in the trust—but not a voting interest. (He was too scared or guilty about this decision to tell his wife directly and, instead, let it slip during an interview in 2006 on Charlie Rose—precipitating, when Wendi watched the interview, a marital battle that is still a legend at News Corp.)

His attitude about this is now curious, or alarming, or crafty. Although his older children happily spell out the terms of the trust, as does Murdoch’s longtime lawyer, Arthur Siskind, Murdoch himself baldly denies that what is, is. All his children will participate equally, he says flatly. This is a broken synapse or his way of dealing with his lack of control or it’s what he’s telling his wife or it’s Murdochian principle that everything can be renegotiated.

His takeover of The Wall Street Journal happened because the family that controlled Dow Jones for nearly a hundred years couldn’t control itself. And while Murdoch both took advantage of the Bancroft family’s weakness and was contemptuous of it (and morbidly fascinated by it), the irony hasn’t passed him by that some variation on this fate will be his family’s, too. (When I asked him in our final interview what he can do to prevent what happened to the Bancrofts from happening to his family, he threw his hands up in the air and said, “Oh, simple, I can’t. All I can do is delay it.”)

There is at News Corp. never a discussion of Murdoch’s exit. It is referred to only as “in 30 or 40 years,” when he is gone—which may have started as an amusing locution, but is now a practiced and even official one. His existential predicament is, in other words, his own.

This is an aspect of his special powers. People at News Corp. really do believe he is near immortal—or they are afraid not to believe (because after him the deluge). And he knows that the world (not just his world but the world he has had such an effect on) exists only as long as he does. Indeed, there may not be newspapers unless he owns them. It’s a world that’s on his shoulders.

It continues to all depend on him.

Michael Wolff is a Vanity Fair contributing editor.