Op-Ed Columnist
China to the Rescue? Not!
By THOMAS L. FRIEDMAN
Published: December 20, 2008
I had no idea that many of those oil paintings that hang in hotel rooms and starter homes across America are actually produced by just one Chinese village, Dafen, north of Hong Kong. And I had no idea that Dafen’s artist colony — the world’s leading center for mass-produced artwork and knockoffs of masterpieces — had been devastated by the bursting of the U.S. housing bubble. I should have, though.
“American property owners and hotels were usually the biggest consumers of Dafen’s works,” Zhou Xiaohong, deputy head of the Art Industry Association of Dafen, told Hong Kong’s Sunday Morning Post. “The more houses built in the United States, the more walls that needed our paintings. Now our business has frozen following the crash of the Western property market.”
Dafen is just one of a million Chinese and American enterprises that constitute the most important economic engine in the world today — what historian Niall Ferguson calls “Chimerica,” the de facto partnership between Chinese savers and producers and U.S. spenders and borrowers. That 30-year-old partnership is about to undergo a radical restructuring as a result of the current economic crisis, and the global economy will be highly impacted by the outcome.
After all, it was China’s willingness to hold the dollars and Treasury bills it had earned from exporting to America that helped keep U.S. interest rates low, giving Americans the money they needed to keep buying shoes, flat-screen TVs and paintings from China, as well as homes in America. Americans then borrowed against those homes to consume even more — one reason we enjoyed rising wealth without rising incomes.
This division of labor not only nourished our respective economies, but also shaped our politics. It enabled China’s ruling Communist Party to say to its people: “We will guarantee you ever-higher standards of living and in return you will stay out of politics and let us rule.” So China’s leaders could enjoy double-digit growth without political reform. And it enabled successive U.S. administrations, particularly the current one, to tell Americans: “You can have guns and butter — subprime mortgages with nothing down and nothing to pay for two years, ever-higher consumption and two wars, without tax increases!”
It all worked — until it didn’t.
With unemployment now soaring across the U.S., said Stephen Roach, the chairman of Morgan Stanley Asia, Americans — “the most over-extended consumer in world history” —can no longer buy so many Chinese exports. We need to save more, invest more, consume less and throw out most of our credit cards to bail ourselves out of this crisis.
But as that happens, we need China to take our discarded credit cards and distribute them to its own people so they can buy more of what China produces and more imports from the rest of the world. That’s the only way Beijing can sustain the minimum 8 percent growth it needs to maintain the political bargain between China’s leaders and led — not to mention pick up some of the slack in the global economy from America’s slowdown.
However, if I’ve learned one thing here, it’s just how hard doing that will be. China’s whole system and culture nourish saving, not spending, and changing that will require a huge “cultural and structural” shift, said Fred Hu, chairman for Greater China for Goldman Sachs.
In China, for instance, to buy a home you have to put at least 20 percent down, and the average is 40 percent. If you try to walk away from the mortgage, the bank will come after your personal assets. Moreover, China can’t just shift production from the U.S. market to its own consumers. Not many Chinese villagers want to buy $400 tennis shoes or Christmas tree ornaments.
Also, China has no real Social Security, health insurance or unemployment insurance. Without that social safety net, it’s hard to see how Chinese don’t end up saving most of their stimulus. “You open up the newspaper every day and you hear about this factory shutting down or that supplier going belly up,” said Willie Fung, whose company, Top Form International, is the world’s leading bra maker. “You can never be too careful in this financial climate.”
As such, “the world should not have a false hope that China can cushion the global downturn,” by stimulating its domestic demand in a big way, said Frank Gong, head of China research for JPMorgan Chase. “The best thing China can do is keep its own economy stable.”
It’s good advice. China is not going to rescue us or the world economy. We’re going to have to get out of this crisis the old-fashioned way: by digging inside ourselves and getting back to basics — improving U.S. productivity, saving more, studying harder and inventing more stuff to export. The days of phony prosperity — I borrow cheap money from China to build a house and then borrow on that house to buy cheap paintings from China to decorate my walls and everybody is a winner — are over.
Showing posts with label Global Finacial Crisis. Show all posts
Showing posts with label Global Finacial Crisis. Show all posts
Sunday, December 21, 2008
Wednesday, October 22, 2008
Financial World Crisis! This is a great beginning to understanding this SCAM!
The Iceland Syndrome
By Anne Applebaum
Tuesday, October 21, 2008; Page A17
Imagine this scenario: In a medium-size European country -- call it Country X -- the bank regulators hold an ordinary meeting. These being extraordinary times, the regulators discuss the health of various banks, including the country's largest -- call it Bank Y -- which is owned by an even larger Italian financial group. Last spring, Bank Y, which is perfectly healthy, transferred a large sum to its now somewhat-less-healthy Italian parent; since this is nothing unusual, the regulators drop the subject and move on.
The following day, the matter is reported in a marginal, far-right newspaper in somewhat different terms: "A billion dollars transferred to Italy! Country X's hard-earned money going abroad!" Within hours, as if on cue, everyone starts selling shares in Bank Y, whose stock price plunges. So does the rest of Country X's smallish stock market. So does Country X's currency. Within a few more hours, Country X is calling for an international bailout, the IMF is on the phone and the government is wobbling.
Except for that final sentence -- there was no international bailout or call to the International Monetary Fund, and the government is fine -- that is a brief description of something that happened last week to one of Poland's largest banks. A real meeting, followed by an unsubstantiated rumor in a dodgy newspaper, and a bunch of nervous investors started selling. Shares in the bank collapsed by the largest margin in its history; for one ugly day, they dragged down the rest of the Polish stock market and currency as well.
As I say, the story ended there. But it could have gone further, and, indeed, in several other countries it has. A month ago, in the first round of this crisis, panicky rumors brought down banks. Now, with trillions of nervous dollars sloshing around the international markets, panicky rumors are bringing down countries.
The case of Iceland, which in recent weeks has nationalized its three major banks, shut its stock exchange and halted trading in its currency, is by now well known. Less well known is the speed with which the Icelandic disease is spreading. Consider Hungary, once the destination of choice for investors who wanted an Eastern European head office with a 19th-century facade and a pastry shop next door: The currency is in free fall and so is the stock market, flummoxing those previously well-fed investors. (One of them told a Hungarian financial Web site: "I haven't got a clue as to when and how this would end, I'm just staring into empty space.") Or Ukraine, whose central bank governor declared his banking system "normal and reliable" on Monday of last week. By Tuesday of last week, Ukraine had desperately requested " systemic support" from the IMF.
So far, most of these crises have been explained away: The banks of Iceland had debts larger than Iceland's gross domestic product, Hungary's finances were long mismanaged, and Ukraine, whose president just called for the third election in as many years, is badly governed. But the speed with which some of these defaults are happening, coupled with the paranoia inherent in the political culture of small countries, has led many to suspect political manipulation as well.
To put it another way: If you wanted to destabilize a country, wouldn't this be an excellent time to do it? If Country X's stock market can crash after the publication of a single article in an obscure newspaper, think what might happen if someone conducted a systematic campaign against Country X. And if you can imagine this, so can others.
All governments have enemies, internal and external, or at least are faced with elements that do not wish them well: the political opposition, the country next door, the former imperial power. For someone, there will always be the temptation to bring down the government, destabilize the country and thus create political chaos.
Even when there hasn't been political meddling, someone else will suspect that it has occurred, anyway. Here, then, is a prediction: Political instability will follow economic instability like night follows day. Iceland is not alone. Serbia, the Baltic states, Kazakhstan, Indonesia, South Korea and Argentina are all in financial trouble; so, too, are Russia and Brazil.
And here's a final, unpleasant thought: Pakistan. This is a country with 25 percent inflation and a currency in free fall; a country with a jihadist insurgency on its border with Afghanistan, permanent hostility on its border with India, nuclear weapons and a tradition of street demonstrations in response to suspect newspaper articles. Dozens of people, with all kinds of agendas, have an interest in using financial markets to destabilize Pakistan, and Afghanistan along with it. Eventually, one of them will.
applebaumletters@washpost.com
By Anne Applebaum
Tuesday, October 21, 2008; Page A17
Imagine this scenario: In a medium-size European country -- call it Country X -- the bank regulators hold an ordinary meeting. These being extraordinary times, the regulators discuss the health of various banks, including the country's largest -- call it Bank Y -- which is owned by an even larger Italian financial group. Last spring, Bank Y, which is perfectly healthy, transferred a large sum to its now somewhat-less-healthy Italian parent; since this is nothing unusual, the regulators drop the subject and move on.
The following day, the matter is reported in a marginal, far-right newspaper in somewhat different terms: "A billion dollars transferred to Italy! Country X's hard-earned money going abroad!" Within hours, as if on cue, everyone starts selling shares in Bank Y, whose stock price plunges. So does the rest of Country X's smallish stock market. So does Country X's currency. Within a few more hours, Country X is calling for an international bailout, the IMF is on the phone and the government is wobbling.
Except for that final sentence -- there was no international bailout or call to the International Monetary Fund, and the government is fine -- that is a brief description of something that happened last week to one of Poland's largest banks. A real meeting, followed by an unsubstantiated rumor in a dodgy newspaper, and a bunch of nervous investors started selling. Shares in the bank collapsed by the largest margin in its history; for one ugly day, they dragged down the rest of the Polish stock market and currency as well.
As I say, the story ended there. But it could have gone further, and, indeed, in several other countries it has. A month ago, in the first round of this crisis, panicky rumors brought down banks. Now, with trillions of nervous dollars sloshing around the international markets, panicky rumors are bringing down countries.
The case of Iceland, which in recent weeks has nationalized its three major banks, shut its stock exchange and halted trading in its currency, is by now well known. Less well known is the speed with which the Icelandic disease is spreading. Consider Hungary, once the destination of choice for investors who wanted an Eastern European head office with a 19th-century facade and a pastry shop next door: The currency is in free fall and so is the stock market, flummoxing those previously well-fed investors. (One of them told a Hungarian financial Web site: "I haven't got a clue as to when and how this would end, I'm just staring into empty space.") Or Ukraine, whose central bank governor declared his banking system "normal and reliable" on Monday of last week. By Tuesday of last week, Ukraine had desperately requested " systemic support" from the IMF.
So far, most of these crises have been explained away: The banks of Iceland had debts larger than Iceland's gross domestic product, Hungary's finances were long mismanaged, and Ukraine, whose president just called for the third election in as many years, is badly governed. But the speed with which some of these defaults are happening, coupled with the paranoia inherent in the political culture of small countries, has led many to suspect political manipulation as well.
To put it another way: If you wanted to destabilize a country, wouldn't this be an excellent time to do it? If Country X's stock market can crash after the publication of a single article in an obscure newspaper, think what might happen if someone conducted a systematic campaign against Country X. And if you can imagine this, so can others.
All governments have enemies, internal and external, or at least are faced with elements that do not wish them well: the political opposition, the country next door, the former imperial power. For someone, there will always be the temptation to bring down the government, destabilize the country and thus create political chaos.
Even when there hasn't been political meddling, someone else will suspect that it has occurred, anyway. Here, then, is a prediction: Political instability will follow economic instability like night follows day. Iceland is not alone. Serbia, the Baltic states, Kazakhstan, Indonesia, South Korea and Argentina are all in financial trouble; so, too, are Russia and Brazil.
And here's a final, unpleasant thought: Pakistan. This is a country with 25 percent inflation and a currency in free fall; a country with a jihadist insurgency on its border with Afghanistan, permanent hostility on its border with India, nuclear weapons and a tradition of street demonstrations in response to suspect newspaper articles. Dozens of people, with all kinds of agendas, have an interest in using financial markets to destabilize Pakistan, and Afghanistan along with it. Eventually, one of them will.
applebaumletters@washpost.com
Monday, October 20, 2008
McCain Transition Chief Aided Saddam In Lobbying Effort
McCain Transition Chief Aided Saddam In Lobbying Effort
William Timmons, the Washington lobbyist who John McCain has named to head his presidential transition team, aided an influence effort on behalf of Iraqi dictator Saddam Hussein to ease international sanctions against his regime.
The two lobbyists who Timmons worked closely with over a five year period on the lobbying campaign later either pleaded guilty to or were convicted of federal criminal charges that they had acted as unregistered agents of Saddam Hussein's government.
During the same period beginning in 1992, Timmons worked closely with the two lobbyists, Samir Vincent and Tongsun Park, on a previously unreported prospective deal with the Iraqis in which they hoped to be awarded a contract to purchase and resell Iraqi oil. Timmons, Vincent, and Park stood to share at least $45 million if the business deal went through.
Timmons' activities occurred in the years following the first Gulf War, when Washington considered Iraq to be a rogue enemy state and a sponsor of terrorism. His dealings on behalf of the deceased Iraqi leader stand in stark contrast to the views his current employer held at the time.
John McCain strongly supported the 1991 military action against Iraq, and as recently as Sunday described Saddam Hussein as a one-time menace to the region who had "stated categorically that he would acquire weapons of mass destruction, and he would use them wherever he could."
Timmons declined to comment for this story. An office manager who works for him said that he has made it his practice during his public career to never speak to the press. Timmons previously told investigators that he did not know that either Vincent or Park were acting as unregistered agents of Iraq. He also insisted that he did not fully understand just how closely the two men were tied to Saddam's regime while they collaborated.
But testimony and records made public during Park's criminal trial, as well as other information uncovered during a United Nations investigation, suggest just the opposite. Virtually everything Timmons did while working on the lobbying campaign was within days conveyed by Vincent to either one or both of Saddam Hussein's top aides, Tariq Aziz and Nizar Hamdoon. Vincent also testified that he almost always relayed input from the Iraqi aides back to Timmons.
Talking points that Timmons produced for the lobbyists to help ease the sanctions, for example, were reviewed ahead of time by Aziz, Vincent testified in court. Proposals that Timmons himself circulated to U.S. officials as part of the effort were written with the assistance of the Iraqi officials, and were also sent ahead of time with Timmons' approval to Aziz, other records show.
Moreover, there was a major financial incentive at play for Timmons. The multi-million dollar oil deal that he was pursuing with the two other lobbyists would only be possible if their efforts to ease sanctions against Iraq were successful.
Vincent, an Iraqi-born American citizen with whom Timmons worked most closely, pleaded guilty to federal criminal charges in January 2005 that he had acted as an unregistered agent of Saddam Hussein's regime. Tongsun Park, the second lobbyist who Timmons worked closely with, was convicted by a federal jury in July 2006 on charges that he too violated the Foreign Agent Registration Act.
As part of a plea bargain agreement with the Justice Department, Vincent agreed to testify against Park and others in exchange for a reduced prison sentence. He was the government's chief witness against Park during Park's trial. Park was sentenced to five years in prison after his conviction.
A U.N commission headed by former Federal Reserve Chairman Paul Volcker conducted an exhaustive investigation of the oil-for-food program, in which various individuals were found to have paid illegal kickbacks to Saddam Hussein. The findings of the Volcker Commission detail the roles of Vincent, Park and Timmons in trying to ease the sanctions.
* * * * *
Timmons testified that he first introduced Vincent to Tongsun Park and encouraged him to hire Park to work on the deal.
At the time Timmons introduced the two men, Park's notorious background was well known:
In the 1970s, Park had admitted to making hundreds of thousands in payments and illegal campaign contributions to U.S. congressmen on behalf of the South Korean government. Park was indicted on 36 counts by a federal grand jury, but fled to South Korea before he could face trial. All of the charges were later dismissed in exchange for Park providing information about which public officials received funds from the South Korean government.
Perhaps unsurprisingly, not long after Timmons suggested that Vincent hire Park to assist their influence, lobbying, and back-channel diplomatic efforts on behalf of Saddam Hussein's government, much of that effort became increasingly bizarre, corrupt, and - on occasion - illegal.
Vincent testified that Park covertly received millions of dollars from Saddam's government that was supposed to be used to bribe then-U.N. Secretary General Boutros Boutros Ghali to ease international sanctions against Iraq. But both men simply pocketed the money, according to Vincent. (There is no evidence that Boutros Ghali even knew of Iraq's intention to bribe him.)
Investigations by the Justice Department and the Volcker commission disclosed that Park also served as the middleman for a million dollar payment that investigators believed was a bribe for another senior United Nations official. That official in fact admitted receiving the money from Park, but said he did not know that the funds originated with Saddam's regime.
Timmons told federal investigators that he was unaware of these particular activities, and investigators were unable to uncover any evidence to contradict that claim.
Timmons also claimed that he was motivated to push forward with the lobbying campaign with Vincent and Park not only to assist Saddam's regime but also because he believed that his actions would serve U.S. interests, that they would help the people of Iraq obtain needed medicine and food being denied them by sanctions, and would serve to facilitate a rapprochement of relations between Hussein and the U.S. that would be beneficial to both countries.
But there was a financial incentive in play as well. During the same period, Vincent was hard at work obtaining contracts with Iraq to purchase and resell Iraqi oil allowed under international sanctions; Timmons would have stood to benefit financially from those contracts.
Timmons claimed to investigators that any contracts offered to him, Vincent, and Park would be awarded solely on merit, and had nothing to do with their lobbying efforts.
But Vincent told investigators that their work clearly gave them an inside track. And in other instances, in which Timmons was not involved, Vincent profited from lucrative oil-for-food contracts awarded by Iraq as compensation for his effort to buy influence in the U.S. and at the U.N. for Saddam's regime.
At Park's trial, Vincent testified that he, Park, and Timmons stood to make as much as $45 million in profits from one particular oil venture with Saddam's regime had it gone forward. Park testified that he was unsure exactly what percentage of the proceeds each of the three men would have personally received. The deal ultimately fell through.
An investigator who worked on the U.N. investigation of the oil-for-food program told me that Timmons clearly should have or did understand that he was the possible recipient of oil contracts from the Iraqi government because of his lobbying and back channel diplomatic efforts on behalf of Saddam: "He would have to be the most naive person in the world to believe that was not the case," the official told me. "I guess William Timmons is just a natural born oilman. He is either deceiving himself to rationalize what he has done or taking the rest of us for fools."
Between 1997 and 2001, according to the Volcker report, Vincent received five such contracts from Saddam's regime.
In his guilty plea agreement with the Justice Department, Vincent admitted: "I received those allocations because of the work I had done on behalf of the Government of Iraq in helping set up the oil-for-food program."
* * * * *
Samir Vincent was well positioned for the task at hand when he began his influence and back channel diplomacy campaign with the Iraqis; he had been boyhood friends of two of Saddam Hussein's closest advisers, Nizaar Hamdoon and Tariq Aziz.
Hamdoon, who died in 2003, was Saddam's foreign minister, and Tariq Aziz had variously served as Baghdad's ambassador to the United States, ambassador to the United States, and Iraq's deputy prime minister.
But Vincent also sought to enlist the help of a Washington insider or lobbyist if his efforts were to have any chance of success.
His initial plan to purchase Iraqi oil through the American Red Cross faced opposition from the U.S. government. Vincent's partner at the time, an American businessman named John Venners, suggested that they needed "help from some people that he knew very well" who "used to be high up in the government." Venners recommended William Timmons.
As Time magazine's Michael Scherer recently reported, Timmons is "a Washington institution," having worked as a senior aide to every Republican president since Richard Nixon. He also serves as chairman emeritus of Timmons and Company, "a small but influential lobbying firm he founded in 1975 shortly after leaving the White House."
According to Vincent's testimony, Timmons immediately opened doors for the Iraqi-American lobbyist. He talked to then-Deputy Secretary of State Lawrence Eagleburger on Vincent's behalf. He also contacted then-Sen. Bob Dole and John Bolton, then-undersecretary of state for international affairs, to discuss Vincent's plan.
In a meeting with U.N. officials, Vincent pressed his case armed with "talking points" that Timmons had written for him. Before using them, Vincent said that he first sent the talking points to Nizaar Hamdoon and Tariq Aziz, with Timmons' approval.
After the meeting, Vincent traveled all the way to Baghdad to report back to Tariq Aziz what had occurred. Later, he had another meeting with Hamdoon and Aziz at the United Nations mission in New York to plan on next steps. Vincent testified he made formal minutes of that meeting, typed them up, and then traveled to Washington to personally give them to Timmons. This was routine practice as Vincent, Timmons, and the Iraqis worked together.
Timmons himself was apparently loathe to meet with Hamdoon or Aziz personally. But virtually the entire time they worked together, Vincent would relay to Timmons what the Iraqis had to say and vice versa.
After Vincent's first meeting with U.N. officials, Aziz and Hamdoon suggested that something called a "non-paper" be presented the next time Vincent met with the same officials. Non-papers are diplomatic communications in which parties can propose positions in writing, but do not have to fear if they leak to the public or press, because they do not officially represent positions of the government.
At the request of Aziz and Hamdoon, Timmons authored the non-paper which Vincent could rely on for that second meeting. Both Aziz and Hamdoon also reviewed the paper before Vincent used it.
On March 15, 1995, Timmons wrote a memo (which is a matter of public record as an exhibit in the case) advocating that they and the Iraqis should enlist the assistance of U.S. oil companies to make their case.
Timmons once again apparently understood that his audience was the Iraqi government. Vincent testified that Timmons gave him the memo knowing that the document was "supposed to solicit the thoughts of the Iraqi government, if this is something they would seriously consider." Vincent dutifully passed Timmons' memo on to Nizaar Hamdoon, he testified.
Weeks later, in April 1995, Vincent was summoned to Iraq to meet with Saddam Hussein in Baghdad.
As to Timmons' claims that he kept his distance from Vincent and Park and did not know much about what they and the Iraqis were up to, this exchange between a federal prosecutor and Vincent once again suggests otherwise:
Q: And when you returned to the United States, did you tell anyone about your visit with Saddam Hussein?
A: I told Bill Timmons and Tongsun Park.
Q: Why did you tell Bill Timmons about your visit with Saddam?
A: To let him know that we were talking to the leader of Iraq, and in essence we have access and assure him that any messages we were relaying between Iraqi and Tariq Aziz and anyone else, it was being transmitted to the president, Saddam Hussein, in Iraq.
* * * * *
Presciently, Time's Scherer noted that McCain's own staffers had early concerns that appointing Timmons could prove detrimental to the Arizona Senator's presidential ambitions:
His [lobbying] registrations include work on a number of issues that have become flashpoints in the presidential campaign. He has registered to work on bills that deal with the regulations of troubled mortgage lenders Freddie Mac and Fannie Mae, a bill to provide farm subsidies and bills that regulate domestic oil-drilling.
By tapping Timmons, McCain has turned to one of Washington's steadiest and most senior inside players to guide him in the event of a victory -- but also to someone who represents the antithesis of the kind of outside-of-Washington change he has recently been promising. One Republican familiar with the process said the decision to involve Timmons could become a political liability for the campaign's reformist image, especially in the wake of the controversies over the lobbying backgrounds of other McCain staffers, including campaign manager Rick Davis. "It's one more blind spot for Rick Davis and John McCain," the person said.
Timmons' work to relax international sanctions against Iraq, as well as to benefit financially from Saddam Hussein's regime, may be another such flashpoint.
The Volcker report makes clear that when Timmons first got involved with Vincent and the Iraqis, the lure of millions of dollars was at least one incentive. By early 1992, Timmons and his associates were already "pursu[ing] the purchase of sale of Iraqi oil and the exploration by a consortium of companies of the Manjoon field in Iraq," the report said.
According to the report, the venture was dependent on Vincent's belief "that sanctions against Iraq would be lifted immediately and that the Iraqi government might grant a long-term concession to an American oil company."
Later, when Timmons pressed the case even more aggressively that sanctions against Saddam's regime be eased, he, Vincent and Park hoped to profit as well, according to the Volcker report. "Continuing through 1994 and 1995, Mr. Vincent and Mr. Park, along with Mr. Timmons and others, persisted in their efforts to establish a foothold in the Iraqi oil business," the report stated.
At one point, Timmons even boasted to investigators that it was his ideas that later became the basis for the United Nations' oil-for-food program.
Under that program, the United Nations allowed Iraq to sell its oil under U.N. supervision, with the proceeds placed in U.N. escrow accounts to buy food, medicine, and other humanitarian goods for the Iraqi people.
However, a major flaw in the program was that Saddam Hussein's regime was allowed to play a role in the selection of oil companies awarded contracts. Because of lax oversight of the program, Saddam's government was able to demand that foreign oil companies -- including American ones -- provide more than $1.7 billion in kickbacks to his regime.
One of the most outspoken critics in the U.S. Senate of the oil-for-food program was John McCain:
"We need to have a full and complete cooperation on the part of the U.N. about this whole oil-for-food program, which stinks to high heaven," McCain told Fox News in Dec. 2004. "We're talking about billions and billions of dollars here that were diverted for many wrong purposes. And this is an example of corruption.
"And by the way, it's an argument, maybe a small one, but maybe an argument that justifies our action in Iraq. Because clearly the sanctions and the framework of those sanctions was completely eroded."
Additional reporting by Patrick B. Anderson.
William Timmons, the Washington lobbyist who John McCain has named to head his presidential transition team, aided an influence effort on behalf of Iraqi dictator Saddam Hussein to ease international sanctions against his regime.
The two lobbyists who Timmons worked closely with over a five year period on the lobbying campaign later either pleaded guilty to or were convicted of federal criminal charges that they had acted as unregistered agents of Saddam Hussein's government.
During the same period beginning in 1992, Timmons worked closely with the two lobbyists, Samir Vincent and Tongsun Park, on a previously unreported prospective deal with the Iraqis in which they hoped to be awarded a contract to purchase and resell Iraqi oil. Timmons, Vincent, and Park stood to share at least $45 million if the business deal went through.
Timmons' activities occurred in the years following the first Gulf War, when Washington considered Iraq to be a rogue enemy state and a sponsor of terrorism. His dealings on behalf of the deceased Iraqi leader stand in stark contrast to the views his current employer held at the time.
John McCain strongly supported the 1991 military action against Iraq, and as recently as Sunday described Saddam Hussein as a one-time menace to the region who had "stated categorically that he would acquire weapons of mass destruction, and he would use them wherever he could."
Timmons declined to comment for this story. An office manager who works for him said that he has made it his practice during his public career to never speak to the press. Timmons previously told investigators that he did not know that either Vincent or Park were acting as unregistered agents of Iraq. He also insisted that he did not fully understand just how closely the two men were tied to Saddam's regime while they collaborated.
But testimony and records made public during Park's criminal trial, as well as other information uncovered during a United Nations investigation, suggest just the opposite. Virtually everything Timmons did while working on the lobbying campaign was within days conveyed by Vincent to either one or both of Saddam Hussein's top aides, Tariq Aziz and Nizar Hamdoon. Vincent also testified that he almost always relayed input from the Iraqi aides back to Timmons.
Talking points that Timmons produced for the lobbyists to help ease the sanctions, for example, were reviewed ahead of time by Aziz, Vincent testified in court. Proposals that Timmons himself circulated to U.S. officials as part of the effort were written with the assistance of the Iraqi officials, and were also sent ahead of time with Timmons' approval to Aziz, other records show.
Moreover, there was a major financial incentive at play for Timmons. The multi-million dollar oil deal that he was pursuing with the two other lobbyists would only be possible if their efforts to ease sanctions against Iraq were successful.
Vincent, an Iraqi-born American citizen with whom Timmons worked most closely, pleaded guilty to federal criminal charges in January 2005 that he had acted as an unregistered agent of Saddam Hussein's regime. Tongsun Park, the second lobbyist who Timmons worked closely with, was convicted by a federal jury in July 2006 on charges that he too violated the Foreign Agent Registration Act.
As part of a plea bargain agreement with the Justice Department, Vincent agreed to testify against Park and others in exchange for a reduced prison sentence. He was the government's chief witness against Park during Park's trial. Park was sentenced to five years in prison after his conviction.
A U.N commission headed by former Federal Reserve Chairman Paul Volcker conducted an exhaustive investigation of the oil-for-food program, in which various individuals were found to have paid illegal kickbacks to Saddam Hussein. The findings of the Volcker Commission detail the roles of Vincent, Park and Timmons in trying to ease the sanctions.
* * * * *
Timmons testified that he first introduced Vincent to Tongsun Park and encouraged him to hire Park to work on the deal.
At the time Timmons introduced the two men, Park's notorious background was well known:
In the 1970s, Park had admitted to making hundreds of thousands in payments and illegal campaign contributions to U.S. congressmen on behalf of the South Korean government. Park was indicted on 36 counts by a federal grand jury, but fled to South Korea before he could face trial. All of the charges were later dismissed in exchange for Park providing information about which public officials received funds from the South Korean government.
Perhaps unsurprisingly, not long after Timmons suggested that Vincent hire Park to assist their influence, lobbying, and back-channel diplomatic efforts on behalf of Saddam Hussein's government, much of that effort became increasingly bizarre, corrupt, and - on occasion - illegal.
Vincent testified that Park covertly received millions of dollars from Saddam's government that was supposed to be used to bribe then-U.N. Secretary General Boutros Boutros Ghali to ease international sanctions against Iraq. But both men simply pocketed the money, according to Vincent. (There is no evidence that Boutros Ghali even knew of Iraq's intention to bribe him.)
Investigations by the Justice Department and the Volcker commission disclosed that Park also served as the middleman for a million dollar payment that investigators believed was a bribe for another senior United Nations official. That official in fact admitted receiving the money from Park, but said he did not know that the funds originated with Saddam's regime.
Timmons told federal investigators that he was unaware of these particular activities, and investigators were unable to uncover any evidence to contradict that claim.
Timmons also claimed that he was motivated to push forward with the lobbying campaign with Vincent and Park not only to assist Saddam's regime but also because he believed that his actions would serve U.S. interests, that they would help the people of Iraq obtain needed medicine and food being denied them by sanctions, and would serve to facilitate a rapprochement of relations between Hussein and the U.S. that would be beneficial to both countries.
But there was a financial incentive in play as well. During the same period, Vincent was hard at work obtaining contracts with Iraq to purchase and resell Iraqi oil allowed under international sanctions; Timmons would have stood to benefit financially from those contracts.
Timmons claimed to investigators that any contracts offered to him, Vincent, and Park would be awarded solely on merit, and had nothing to do with their lobbying efforts.
But Vincent told investigators that their work clearly gave them an inside track. And in other instances, in which Timmons was not involved, Vincent profited from lucrative oil-for-food contracts awarded by Iraq as compensation for his effort to buy influence in the U.S. and at the U.N. for Saddam's regime.
At Park's trial, Vincent testified that he, Park, and Timmons stood to make as much as $45 million in profits from one particular oil venture with Saddam's regime had it gone forward. Park testified that he was unsure exactly what percentage of the proceeds each of the three men would have personally received. The deal ultimately fell through.
An investigator who worked on the U.N. investigation of the oil-for-food program told me that Timmons clearly should have or did understand that he was the possible recipient of oil contracts from the Iraqi government because of his lobbying and back channel diplomatic efforts on behalf of Saddam: "He would have to be the most naive person in the world to believe that was not the case," the official told me. "I guess William Timmons is just a natural born oilman. He is either deceiving himself to rationalize what he has done or taking the rest of us for fools."
Between 1997 and 2001, according to the Volcker report, Vincent received five such contracts from Saddam's regime.
In his guilty plea agreement with the Justice Department, Vincent admitted: "I received those allocations because of the work I had done on behalf of the Government of Iraq in helping set up the oil-for-food program."
* * * * *
Samir Vincent was well positioned for the task at hand when he began his influence and back channel diplomacy campaign with the Iraqis; he had been boyhood friends of two of Saddam Hussein's closest advisers, Nizaar Hamdoon and Tariq Aziz.
Hamdoon, who died in 2003, was Saddam's foreign minister, and Tariq Aziz had variously served as Baghdad's ambassador to the United States, ambassador to the United States, and Iraq's deputy prime minister.
But Vincent also sought to enlist the help of a Washington insider or lobbyist if his efforts were to have any chance of success.
His initial plan to purchase Iraqi oil through the American Red Cross faced opposition from the U.S. government. Vincent's partner at the time, an American businessman named John Venners, suggested that they needed "help from some people that he knew very well" who "used to be high up in the government." Venners recommended William Timmons.
As Time magazine's Michael Scherer recently reported, Timmons is "a Washington institution," having worked as a senior aide to every Republican president since Richard Nixon. He also serves as chairman emeritus of Timmons and Company, "a small but influential lobbying firm he founded in 1975 shortly after leaving the White House."
According to Vincent's testimony, Timmons immediately opened doors for the Iraqi-American lobbyist. He talked to then-Deputy Secretary of State Lawrence Eagleburger on Vincent's behalf. He also contacted then-Sen. Bob Dole and John Bolton, then-undersecretary of state for international affairs, to discuss Vincent's plan.
In a meeting with U.N. officials, Vincent pressed his case armed with "talking points" that Timmons had written for him. Before using them, Vincent said that he first sent the talking points to Nizaar Hamdoon and Tariq Aziz, with Timmons' approval.
After the meeting, Vincent traveled all the way to Baghdad to report back to Tariq Aziz what had occurred. Later, he had another meeting with Hamdoon and Aziz at the United Nations mission in New York to plan on next steps. Vincent testified he made formal minutes of that meeting, typed them up, and then traveled to Washington to personally give them to Timmons. This was routine practice as Vincent, Timmons, and the Iraqis worked together.
Timmons himself was apparently loathe to meet with Hamdoon or Aziz personally. But virtually the entire time they worked together, Vincent would relay to Timmons what the Iraqis had to say and vice versa.
After Vincent's first meeting with U.N. officials, Aziz and Hamdoon suggested that something called a "non-paper" be presented the next time Vincent met with the same officials. Non-papers are diplomatic communications in which parties can propose positions in writing, but do not have to fear if they leak to the public or press, because they do not officially represent positions of the government.
At the request of Aziz and Hamdoon, Timmons authored the non-paper which Vincent could rely on for that second meeting. Both Aziz and Hamdoon also reviewed the paper before Vincent used it.
On March 15, 1995, Timmons wrote a memo (which is a matter of public record as an exhibit in the case) advocating that they and the Iraqis should enlist the assistance of U.S. oil companies to make their case.
Timmons once again apparently understood that his audience was the Iraqi government. Vincent testified that Timmons gave him the memo knowing that the document was "supposed to solicit the thoughts of the Iraqi government, if this is something they would seriously consider." Vincent dutifully passed Timmons' memo on to Nizaar Hamdoon, he testified.
Weeks later, in April 1995, Vincent was summoned to Iraq to meet with Saddam Hussein in Baghdad.
As to Timmons' claims that he kept his distance from Vincent and Park and did not know much about what they and the Iraqis were up to, this exchange between a federal prosecutor and Vincent once again suggests otherwise:
Q: And when you returned to the United States, did you tell anyone about your visit with Saddam Hussein?
A: I told Bill Timmons and Tongsun Park.
Q: Why did you tell Bill Timmons about your visit with Saddam?
A: To let him know that we were talking to the leader of Iraq, and in essence we have access and assure him that any messages we were relaying between Iraqi and Tariq Aziz and anyone else, it was being transmitted to the president, Saddam Hussein, in Iraq.
* * * * *
Presciently, Time's Scherer noted that McCain's own staffers had early concerns that appointing Timmons could prove detrimental to the Arizona Senator's presidential ambitions:
His [lobbying] registrations include work on a number of issues that have become flashpoints in the presidential campaign. He has registered to work on bills that deal with the regulations of troubled mortgage lenders Freddie Mac and Fannie Mae, a bill to provide farm subsidies and bills that regulate domestic oil-drilling.
By tapping Timmons, McCain has turned to one of Washington's steadiest and most senior inside players to guide him in the event of a victory -- but also to someone who represents the antithesis of the kind of outside-of-Washington change he has recently been promising. One Republican familiar with the process said the decision to involve Timmons could become a political liability for the campaign's reformist image, especially in the wake of the controversies over the lobbying backgrounds of other McCain staffers, including campaign manager Rick Davis. "It's one more blind spot for Rick Davis and John McCain," the person said.
Timmons' work to relax international sanctions against Iraq, as well as to benefit financially from Saddam Hussein's regime, may be another such flashpoint.
The Volcker report makes clear that when Timmons first got involved with Vincent and the Iraqis, the lure of millions of dollars was at least one incentive. By early 1992, Timmons and his associates were already "pursu[ing] the purchase of sale of Iraqi oil and the exploration by a consortium of companies of the Manjoon field in Iraq," the report said.
According to the report, the venture was dependent on Vincent's belief "that sanctions against Iraq would be lifted immediately and that the Iraqi government might grant a long-term concession to an American oil company."
Later, when Timmons pressed the case even more aggressively that sanctions against Saddam's regime be eased, he, Vincent and Park hoped to profit as well, according to the Volcker report. "Continuing through 1994 and 1995, Mr. Vincent and Mr. Park, along with Mr. Timmons and others, persisted in their efforts to establish a foothold in the Iraqi oil business," the report stated.
At one point, Timmons even boasted to investigators that it was his ideas that later became the basis for the United Nations' oil-for-food program.
Under that program, the United Nations allowed Iraq to sell its oil under U.N. supervision, with the proceeds placed in U.N. escrow accounts to buy food, medicine, and other humanitarian goods for the Iraqi people.
However, a major flaw in the program was that Saddam Hussein's regime was allowed to play a role in the selection of oil companies awarded contracts. Because of lax oversight of the program, Saddam's government was able to demand that foreign oil companies -- including American ones -- provide more than $1.7 billion in kickbacks to his regime.
One of the most outspoken critics in the U.S. Senate of the oil-for-food program was John McCain:
"We need to have a full and complete cooperation on the part of the U.N. about this whole oil-for-food program, which stinks to high heaven," McCain told Fox News in Dec. 2004. "We're talking about billions and billions of dollars here that were diverted for many wrong purposes. And this is an example of corruption.
"And by the way, it's an argument, maybe a small one, but maybe an argument that justifies our action in Iraq. Because clearly the sanctions and the framework of those sanctions was completely eroded."
Additional reporting by Patrick B. Anderson.
Sunday, October 12, 2008
'all available tools' ??? Scary...just like 2003!!!
G7 pledges to use 'all available tools' to stabilize markets, but gives no specifics
G7 outlines broad but vague plan to combat crisis
By Greg Robb, MarketWatch
Last update: 8:28 p.m. EDT Oct. 10, 2008Comments: 942WASHINGTON (MarketWatch) -- Treasury Secretary Henry Paulson laid out more details of his radical plans to buy equity in banks Friday, while the Group of Seven finance ministers and central bank governors urged its members to take whatever steps are necessary to restore market confidence.
After their closed-door meeting Friday, the G7 set out a broad "plan of action" to stabilize global financial markets, in a one-page plan that was sweeping in scope but short on specifics.
The plan calls for banks to be recapitalized with public and private funds, but makes no specific mention of another common suggestion: Guaranteeing all interbank debt worldwide.
The G7 meeting came as global stock markets endured another volatile day. Investors around the world scrambled to move their funds into the safest and most liquid investments, such as cash and government bonds, fearing that the seizing up of credit markets could lead to a major recession and the failure of large corporations.
In a press conference, Paulson gave some new details of the emerging plans by the U.S. federal government to inject capital directly into a "broad array" of financial firms.
Paulson said that officials are working on a "standardized program that is open to a broad array of financial institutions."
Paulson said the Treasury is working as quickly as possible to nail down the details and get the recapitalization plan running. He said the government wants to "do it right."
The plan is to attract private capital to complement the government's funds, he said.
Paulson went out of his way to say existing shareholders would be protected, and that the government would only make the purchases through a "broadly available equity program" without any voting power, "except with the market standard terms to protect our rights as investors."
The G7 said that "urgent and exceptional action" is needed to stabilize financial markets.
We will continue to act in line with this solid anchoring of inflation expectations and the necessity, again, to deliver price stability."
The financial and monetary leaders vowed to use all available tools to support systemically important financial institutions and prevent them from failing.
Also on the G7 to-do list were unfreezing credit and money markets, ensuring banks can raise capital from the private sector, ensuring that deposit insurance regimes were robust, and repairing secondary mortgage markets where appropriate.
The actions should be taken in ways that would protect taxpayers and avoid damaging other countries.
Interest rate policy should be used "as necessary and appropriate," the G7 plan said.
It is unclear whether the plan will go far enough to satisfy financial markets, which are suffering from a profound loss of confidence.
Jean-Claude Trichet, the president of the European Central Bank, said that markets needed time to digest the G7 stance.
"My experience of markets is that it takes always a little time for markets to capture all the elements that are associated with the decisions that we are taking, and also with the principles that we are displaying," Trichet said.
"It's normal that there is a maturing process."
At first blush, some analysts were not too impressed.
Robert Brusca, chief economist at FAO Economics, called the statement "fluff - good fluff but fluff."
Vincent Reinhart, a former top staffer at the Federal Reserve Board, said markets had no interest in pledges but wanted to know exactly what the G7 would do before trading resumes Monday.
Reinhart said the financial markets are moving quickly, which makes the gears of international economic policymakers seem to move more slowly.
"I think the finance ministers just failed a test, or at best got a C minus," said Paul Krugman, a Princeton University economics professor and New York Times columnist.
But Sherry Cooper, chief economist at BMO Capital Markets, said she thought the principles expressed by the G7 would reassure markets.
Economists have said they wanted the G7 to agree on measures including sweeping guarantees of bank deposits and interbank lending, as well as direct injections of taxpayer money to recapitalize ailing banks.
"They have to deliver the goods because the markets are just not going to stabilize unless they do," said Brian Hilliard, head of economic research at Societe Generale. "And the goods are government guarantees of deposits."
Ahead of the meeting, Ken Rogoff, a Harvard University professor and former chief economist at the International Monetary Fund, said there needed to be an "overwhelming" G7 statement.
"I think the worst thing to do would be to come out with a very tepid response," he said. "It would be the end of the G7."
"This is really the mother of all financial crises since World War II, and if the G7 leaders can't ... get it together and come out with a very effective statement, it is going to be a sad day indeed," Rogoff said.
With global equity markets plunging, the odds of coordinated action "are increasing by the hour," Hilliard said. "The gravity of the situation is just obvious to everybody."
Greg Robb is a senior reporter for MarketWatch in Washington
G7 outlines broad but vague plan to combat crisis
By Greg Robb, MarketWatch
Last update: 8:28 p.m. EDT Oct. 10, 2008Comments: 942WASHINGTON (MarketWatch) -- Treasury Secretary Henry Paulson laid out more details of his radical plans to buy equity in banks Friday, while the Group of Seven finance ministers and central bank governors urged its members to take whatever steps are necessary to restore market confidence.
After their closed-door meeting Friday, the G7 set out a broad "plan of action" to stabilize global financial markets, in a one-page plan that was sweeping in scope but short on specifics.
The plan calls for banks to be recapitalized with public and private funds, but makes no specific mention of another common suggestion: Guaranteeing all interbank debt worldwide.
The G7 meeting came as global stock markets endured another volatile day. Investors around the world scrambled to move their funds into the safest and most liquid investments, such as cash and government bonds, fearing that the seizing up of credit markets could lead to a major recession and the failure of large corporations.
In a press conference, Paulson gave some new details of the emerging plans by the U.S. federal government to inject capital directly into a "broad array" of financial firms.
Paulson said that officials are working on a "standardized program that is open to a broad array of financial institutions."
Paulson said the Treasury is working as quickly as possible to nail down the details and get the recapitalization plan running. He said the government wants to "do it right."
The plan is to attract private capital to complement the government's funds, he said.
Paulson went out of his way to say existing shareholders would be protected, and that the government would only make the purchases through a "broadly available equity program" without any voting power, "except with the market standard terms to protect our rights as investors."
The G7 said that "urgent and exceptional action" is needed to stabilize financial markets.
We will continue to act in line with this solid anchoring of inflation expectations and the necessity, again, to deliver price stability."
The financial and monetary leaders vowed to use all available tools to support systemically important financial institutions and prevent them from failing.
Also on the G7 to-do list were unfreezing credit and money markets, ensuring banks can raise capital from the private sector, ensuring that deposit insurance regimes were robust, and repairing secondary mortgage markets where appropriate.
The actions should be taken in ways that would protect taxpayers and avoid damaging other countries.
Interest rate policy should be used "as necessary and appropriate," the G7 plan said.
It is unclear whether the plan will go far enough to satisfy financial markets, which are suffering from a profound loss of confidence.
Jean-Claude Trichet, the president of the European Central Bank, said that markets needed time to digest the G7 stance.
"My experience of markets is that it takes always a little time for markets to capture all the elements that are associated with the decisions that we are taking, and also with the principles that we are displaying," Trichet said.
"It's normal that there is a maturing process."
At first blush, some analysts were not too impressed.
Robert Brusca, chief economist at FAO Economics, called the statement "fluff - good fluff but fluff."
Vincent Reinhart, a former top staffer at the Federal Reserve Board, said markets had no interest in pledges but wanted to know exactly what the G7 would do before trading resumes Monday.
Reinhart said the financial markets are moving quickly, which makes the gears of international economic policymakers seem to move more slowly.
"I think the finance ministers just failed a test, or at best got a C minus," said Paul Krugman, a Princeton University economics professor and New York Times columnist.
But Sherry Cooper, chief economist at BMO Capital Markets, said she thought the principles expressed by the G7 would reassure markets.
Economists have said they wanted the G7 to agree on measures including sweeping guarantees of bank deposits and interbank lending, as well as direct injections of taxpayer money to recapitalize ailing banks.
"They have to deliver the goods because the markets are just not going to stabilize unless they do," said Brian Hilliard, head of economic research at Societe Generale. "And the goods are government guarantees of deposits."
Ahead of the meeting, Ken Rogoff, a Harvard University professor and former chief economist at the International Monetary Fund, said there needed to be an "overwhelming" G7 statement.
"I think the worst thing to do would be to come out with a very tepid response," he said. "It would be the end of the G7."
"This is really the mother of all financial crises since World War II, and if the G7 leaders can't ... get it together and come out with a very effective statement, it is going to be a sad day indeed," Rogoff said.
With global equity markets plunging, the odds of coordinated action "are increasing by the hour," Hilliard said. "The gravity of the situation is just obvious to everybody."
Greg Robb is a senior reporter for MarketWatch in Washington
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