First family reflects on eight years in office

(CNN) -- As President George W. Bush prepares for his last week in office, he and First Lady Laura Bush spent time Tuesday talking with CNN's Larry King.

In a wide-ranging interview, the First Family reflects on the past eight years of the presidency, including 9/11 and the war on terror.

They also discussed what awaits President-elect Barack Obama and his family when he takes office on January 20. The following is an edited version of the interview.

Larry King: Are you going to miss it, Laura?

Laura Bush: I am going to miss it. I'm going to miss this beautiful house and all the people that work here. We're going to miss the people especially.

King: Are you anxious to go, Mr. President?

George Bush: I don't know if it's the right word. I'm not sure exactly what I'm going to feel like on January 21. I've been, you know, I've had security briefings -- intelligence briefings nearly every morning for the last eight years. I'll wake up and not have a briefing and realize the responsibility is not on my shoulders anymore.

King: Are there ambivalent feelings?

George Bush: No. I don't think you can be ambivalent. I've been looking forward to the inauguration of Barack Obama. I'll have a front row seat in what is an historic moment for the country.

King: Do you like him?

George Bush: Yes, I do like him, and you'd like him, too.

King: But he was so critical of you. Do you take that personally or you don't?

Laura Bush: I did.

King: Were you angry at it?

Laura Bush: Yes, sort of. George didn't even really know about it because he didn't watch it that much, I don't think.

George Bush: When you make big decisions and tough calls, you're going to get criticized. During the course of this presidency, of course, I've been disappointed at times by the silly name-calling that goes on in Washington.

It's really not necessary that it happened. But I've done my best, though, to make sure I didn't bring the presidency down to that level.

King: How do you feel personally when you see the ratings and the polls that have you at 25, 30 percent?

George Bush: I don't give a darn. I feel the same way as when they had me at 90-plus.

King: Do you ever get the feeling -- and everyone has some doubts about some things -- that, you know, if I was wrong, if Iraq was wrong, then (the troops) died in vain and I sent them?

George Bush: I don't think Iraq was wrong.

King: No, but do you ever have a moment of feeling where it was wrong?

George Bush: I was worried Iraq was going to fail, not Iraq was wrong. That's why I put 30,000 troops in when a lot of people were saying, "Get out." The surges worked. A young democracy in the heart of the Middle East has taken hold, and, obviously, there's more work to be done.

King: Reagan once asked this, so we'll ask it, are we better off today than we were eight years ago?

George Bush: One thing is for certain today, we understand the real dangers that we face. Eight years ago, it looked like the world was peaceful and everything was just fine in the economy. Then, we had a recession, then we had an attack and now we've had this financial meltdown.

Everything looked like, on the international front that, you know, radicalism might be, you know, a problem over there, but not here. So one thing is for certain, there's a lot of clarity now on the threats we face.

King: Do you worry?

Laura Bush: Sure, I worry. I worried most right after September 11th. I mean for a long time, I worried a lot. I worried about another attack. I worried about the safety and the security of Americans. I mean everyone did. I think there isn't anybody that lives in the United States that didn't worry for a long time.

I think we've forgotten what it was like when we all worried and when a lot of people had anxiety, most people, probably that had watched television that day or had seen what happened.

I mean I think that's because we are more secure today, people are not as worried and they've sort of forgotten what it was like when -- when everyone woke up worried.

King: 9/11, what did it do to you?

George Bush: It made me realize my most important responsibility is to protect the country from attack.

King: It changed you?

George Bush: Yes, it changed me. It changed the country, too. I still have images of those days vivid in my mind. I told the American people I wouldn't tire and I wouldn't falter and I haven't.

King: Are we ever, ever going to find (Osama) bin Laden?

George Bush: Yes, of course. Absolutely. We have a lot of people looking for him, a lot of assets out there. He can't run forever. Just like the people who allegedly were involved in the East African bombings, a couple of them were brought to justice recently.

King: Did we ever come close?

George Bush: I don't know. I can't answer that.

King: You don't know.

George Bush: I really don't know. I'm not trying to hide anything.

King: You had two girls in the White House. What advice would you give Mrs. Obama on having two girls in the White House?

Laura Bush: Well, I would tell her this is a wonderful and grand home. It is a very nice home for a family, and we know that both from having been the children of a president ourselves, and then of course from having Barbara and Jenna here.

Barbara and Jenna took Sasha and Malia on a tour of the White House, showed them all the fun, you know, great things to do. This is a terrific house for hide-and-seek. They showed them how to slide down the ramp from the Solarium. I think those little girls will have a wonderful time living here.

King: Upon reflection, two more things: was Katrina the lowest point beyond foreign entanglements and 9/11.

George Bush: I think being called a racist because of Katrina was a low point. I can remember people saying George Bush is a racist because of the response, when, in fact, the truth of the matter is the response was pretty darn quick, if you think about the fact that the Coast Guard and a lot of brave kids were pulling 30,000 people off of roofs as soon as the storm passed, as soon as they found people on those roofs.

King: But a lot of mistakes happened too.

George Bush: Well, yes, at all levels of government, absolutely.

King: Do you think those mistakes, that we learned from them?

George Bush: No question. That's a good thing about government. By the way, we have had eight hurricanes, major hurricanes, and seven and a half were dealt with the way everybody expected them to be dealt with. The Mississippi part of Katrina was dealt with well, even though it was a really horrible hurricane.

King: I know you will be talking Thursday. Anything you want to say?

Laura Bush: Well, I wanted to say I am very grateful for the opportunities I have had because George is president. I have met wonderful people all over our country. I appreciate all of their prayers and all of their support and all of the millions of people who have thanked me. I appreciate that a lot.

George Bush: I want to say it has been a huge honor to be president. I have enjoyed it. I've been amazed at the character of the American people.

Julius Genachowski to Be Nominee for F.C.C. Chairman

WASHINGTON—President-elect Barack Obama intends to nominate Julius Genachowski, an adviser on technology issues and a longtime friend, to become the next chairman of the Federal Communications Commission, advisers to Mr. Obama said.

Mr. Genachowski, 46, played a leading role in the Obama campaign’s highly successful online strategy and was a major fundraiser for the campaign. He and Mr. Obama both attended Columbia, though they were in different classes. They became friendly at Harvard Law School, where they both served in top positions at the Harvard Law Review . They have also been basketball buddies.

During the campaign Mr. Genachowski shaped many of Mr. Obama’s telecommunications and technology policies. He advocated an open Internet in the debate over so-called net neutrality, and media ownership rules that promoted a diversity of voices on the airwaves.

While it is difficult to predict what direction Mr. Genachowski will take the commission, an analysis by Stifel Nicolaus, an investment firm, said that it expected that “the regulatory initiative is likely to shift” away from some from incumbent — like the large telephone companies — to new entrants and other “nontraditional telecom and media players” including such companies as Google, Yahoo and eBay.

It speculated that Mr. Genachowski would seek to spur competition among the wireless carriers as a counterbalance to the dominance of the telephone and cable companies. And it said that Mr. Genachowski is unlikely to be as aggressive in his approach to regulating the cable industry as the current chairman, Kevin J. Martin, has been.

Mr. Martin has not set a departure date, although he is widely expected to step down soon. If he leaves before Mr. Genachowski’s confirmation, then Mr. Obama is expected to name one of the two remaining Democratic commissioners — Michael J. Copps or Jonathan S. Adelstein — as interim chairman.

People involved in the transition said that Mr. Genachowski was a top candidate for both F.C.C. chairman and a new White House position overseeing technology issues that has not yet been fully defined.

If confirmed, one of his first challenges at the commission would be the conversion to digital television. The Obama transition team has asked Congress to delay the conversion, set for Feb. 17, because millions of viewers have been unable to obtain coupons to pay for converter boxes that would enable their sets to receive signals once broadcasters drop their analog signal. (The conversion would not effect viewers who subscribed to cable or satellite services.)

Over the last decade, the chairman of the F.C.C. has played a more expansive role in regulating the economy, particularly with the rise of the Internet and wireless communications. Now, as the new administration plans to make the expansion of broadband and Internet services a significant part of its stimulus package, Mr. Genachowski, with his close ties to Mr. Obama, could have a larger role in shaping economic policy than many of his predecessors.

Mr. Genachowski, the son of Eastern European Jews who fled during the Holocaust, is married to the documentary filmmaker Rachel Goslins, whose latest film, “Bama Girl,” documents the 2005 homecoming queen contest at the University of Alabama.

Upon graduating from law school, he clerked for Judge Abner J. Mikva of the United States Court of Appeals. Mr. Obama had turned down a clerkship with Judge Mikva. Mr. Genachowski later clerked for Supreme Court Justices William J. Brennan Jr. and David H. Souter.

He was chief counsel to Reed Hundt, an F.C.C. chairman during the Clinton administration. He then worked for eight years as a senior executive at the IAC/Interactive Corporation, run by Barry Diller. He also founded an investment and advisory firm for digital media companies and co-founded the country’s first commercial “green” bank.

Will Yahoo CEO move pave way for Microhoo?

While it's not certain that the appointment of Carol Bartz will ensure a Yahoo-Microsoft deal happens, one thing is clear: nothing was going to happen until Yahoo picked its new chief executive.

With reports that Yahoo is going to name the former Autodesk chief to fill Jerry Yang's spot, discussion logically shifts to whether the long-anticipated Microsoft-Yahoo search deal will now come to fruition.

Microsoft CEO Steve Ballmer has repeatedly said that he remains interested in a search partnership, but noted in an interview last week that it was hard to gauge where things were at with Yahoo amid its CEO search.

"No way to handicap it," he said, when asked how likely a search deal was. "I think at this stage, it's probably fair to say I'm not even sure Yahoo would handicap it."

Although it is always tough to gauge where Yahoo's board is, clearly in Bartz, Yahoo would be getting someone who knows what it is like to partner with Microsoft. (To see Bartz talking about Microsoft and other topics, check out this CNET video package.)

Some analysts have suggested that perhaps the biggest upside to Bartz's appointment would be that it makes a Microsoft deal more likely.

"Yahoo needed a CEO who buys a likely search deal with Microsoft at a philosophical level," Collins Stewart analyst Sandeep Aggarwal said in an interview with CNET News. "Carol likely fits that requirement."

All Things D's Kara Swisher reports that Microsoft has a search deal proposal practically ready to hand over to Yahoo. Swisher said a deal could even be ready in time for Yahoo's earnings report on January 27.

I'm still trying to get confirmation on that front.

Update: No word from Microsoft, but Yahoo's board is apparently aiming to keep its door open.

"It depends on their offer," said a source familiar with the board's thinking. "If they were to come to (Yahoo) with an offer of $33 a share, (the company) would be stupid if to say 'no' now."

Microsoft starts testing Office 14

Microsoft said Tuesday that it has begun early outside testing of some of the server products that will make up the next version of Office.

The software maker did not offer details or say when a test version of the software, code-named Office 14, will be made more broadly available.

"Today Microsoft provided a select group of customers early access to an Alpha version of Office server technologies," the software maker said in a statement. "However, Microsoft is not disclosing information about the timing for a Beta version at this time."

Microsoft has also begun testing for the next version of Exchange, code-named E14.

Google Woos Allies With Apps Reseller Program

Google is offering support, training, and tools for sales, marketing, reporting, and customer integration, while allowing resellers to manage billing and the customer relationship.

Having overthrown the old business model for selling software and made incumbents fearful along the way, Google could use more allies in its crusade to move computing off premises and into the cloud.

On Wednesday, the company's fan club is set to grow. That's when Google plans to expand its friend list to include 50 new resellers of its online applications.

The occasion is the commencement of Google (NSDQ: GOOG)'s reseller program for Google Apps. Aspiring resellers can apply online. If accepted, they'll be able to buy Google Apps Premier Edition for 20% off the $50-per-year price and offer it to their customers for a profit, starting in March.

Google is offering support, training, and tools for sales, marketing, reporting, and customer integration, while allowing resellers to manage billing and the customer relationship.

In conjunction with the launch of its reseller program, Google is capping the free Google Apps standard edition at 50 users per organization, though existing businesses with more than 50 standard edition users, along with educational and nonprofit accounts, will remain unaffected by this change.

"This is the beginning of what is likely to be a foray into building more of a partner ecosystem for Google," said Jim Murphy, research director at AMR Research. "Relative to companies like Microsoft, they're way behind in that area. Of course they would be. They're still in the early stages of entering the enterprise market."

Google's goal is not just an external sales force. It wants to support partners who will develop value-added services and make cloud computing more appealing for businesses.

"As these resellers move up the value chain and build more solutions, you'll see more opportunities being created," said Paul Slakey, director of enterprise channel sales at Google.

Slakey suggested that Google App Engine might be one way that its partners develop custom business services, but adds that there's no reason other cloud platforms like Amazon Web Services couldn't be used.

Tony Safoian, president of IT firm SADA Systems, said his company has been providing services around Google Apps for about two years. Not only is Google gaining traction among enterprises, he said, but the economic pressure is assisting Google's ascent.

"The state of the economy is accelerating the process," he said. "We feel all organizations will have a significant part of their infrastructure in the cloud. It's just a question of who goes first and when."

Google claims that more than a million businesses are using Google Apps and that more than 3,000 businesses are signing up daily.

Rishi Chandra, senior product manager for Google Apps, acknowledged that while some businesses remain reticent about cloud computing, the issue he's more frequently confronted with is education. "Customers are asking the question now about this new opportunity in the cloud," he said. "We see growing awareness about cloud computing in general."

Murphy is less willing to characterize the cloud as a done deal. As he sees it, mistrust remains. "It's hard to bank on anything in the cloud," he said. "With Google at least it's easy to trust the viability of the company."

Toyota sees U.S. inventory in line by May

DETROIT (Reuters) - Toyota Motor Corp said on Tuesday that the production cuts announced so far would bring its U.S. inventory of unsold cars and trucks in line with demand by May but more reductions may be needed if demand falls further.

"I can't rule out any further production cuts because it'll all depend on where the market heads," Toyota's U.S. marketing head, Jim Lentz, said in an interview at the North American International Auto Show.

"But right now we're confident that by spring we'll be in good shape," he said.

The Japanese automaker, which saw its U.S. sales fall 15 percent last year, said in early December it was cutting North American production of its best-selling cars, including the Camry and Corolla sedans, in response to rising inventories and a slump in sales.

The automaker also suspended work on its new plant in Mississippi, which was slated to produce its popular Prius hybrid car beginning in 2010.

Inventories have built up at Toyota, which is known for running a lean and cost-efficient production system where parts are delivered just in time to be installed in vehicles on the assembly line.

Measured by the number of sales needed to clear inventory, Toyota's unsold stock of vehicles had doubled from 45 days a year ago to near 90 days for some vehicles, before production was scaled back.

Lentz said the construction of the factory in Mississippi, which is about 90 percent complete, would be finished but the facility would not be equipped for production.

Asked if Toyota plans to review the viability of the project, he said, "It's too early to tell."

Toyota, along with its rivals, has been stung by the collapse in demand for cars and trucks in the United States, a downturn that accelerated in October and November amid tightening credit and deepening consumer uncertainty.

Indications are that U.S. auto sales in the first quarter would be similar to the fourth quarter of 2008, but demand could see a gradual recovery later this year along with any uptick in the economy, Lentz said.

Lentz said the U.S. economic recovery, when it happens, would likely be strong.

"I think some type of U-shaped (recovery) is the most likely scenario," he said.

"Once consumer confidence starts to return, once the credit markets open up, we could see a fairly robust recovery in the auto industry," Lentz said. "The question is when does that take place."

New Yahoo CEO lacks Web and deal-making chops

SAN FRANCISCO (Reuters) - Yahoo's (YHOO.O) new CEO is a straight-shooting, tough-talking technology veteran but she is seen lacking two qualifications investors hoped for most: deal-making savvy and Web business know-how.

Carol Bartz was appointed to the top job at Yahoo on Tuesday after a two-month search, and brings with her a strong track record of revenue growth at software company Autodesk Inc (ADSK.O), where she was chief executive from 1992 to 2006 and still remains executive chairman.

Bartz, however, does not have an established reputation as a deal-maker and Yahoo investors regarded her appointment sceptically, with shares of the Internet search and advertising company dropping more than 3 percent during the trading day.

"People respect her. She is direct and focussed, but not mean-spirited like a 'Chainsaw Al' type of person," said Needham & Co analyst Richard Davis, who covered Autodesk when Bartz was at its helm.

She is credited with increasing Autodesk's revenue from $285 million (£195.5 million) to $1.5 billion during her 14-year tenure, as well as diversifying its business. Bartz, 60, built the company by buying small and medium-sized businesses, including a $444 million buyout of Discreet Logic in 1999.

"She seems to me to be more of a builder than a buyer-and-flipper," Davis said. "I'm sure that plenty of people wanted to buy Autodesk over the years."

Analysts lauded her for being a dextrous, capable and committed executive, but said that without any experience in the Internet sector, she would likely find it daunting to turn around Yahoo, which is a distant second to Google Inc (GOOG.O) in the search advertising market.

Bartz will be under immediate pressure from investors, who have seen the value of their shares nosedive in the past year, to re-open talks with Microsoft Corp (MSFT.O) and secure a sale of the company at a healthy premium. The software maker has shown no interest in reviving its $47.5 billion takeover bid.

Bartz herself welcomed the challenge during her first conference call as Yahoo CEO, saying she wouldn't have accepted the offer if she didn't think a turnaround was possible.

"I just see this company as a company with enormous assets that frankly could use a little management, and I love leading, love managing, love making decisions," she said.

She added that she would address questions of whether Yahoo should look for a search partnership, divest assets and find new ways to cut costs later, after she had spent some time understanding the company.

DEAL OR NO DEAL

Collins Stewart analyst Sandeep Aggrawal said Microsoft could see Bartz's appointment as an opportunity to make a fresh proposal for Yahoo.

"Yahoo probably needed a CEO who was going to favour this deal," Aggrawal said. "We were never really sure whether Jerry Yang wanted to do this (Microsoft search) deal or not."

Yahoo co-founder Jerry Yang agreed to step down from his CEO post in November after drawing investor ire for failing to strike a deal with Microsoft.

Although Bartz was mum on Microsoft on her first day, some analysts wondered if her appointment itself was a message to the market that Yahoo wants a CEO who can focus on the company's growth strategy rather than sale.

"The selection of Bartz is a declarative statement for Yahoo, that 'we are not for sale'," said Neil Sims, a managing director at executive search firm Boyden's technology practice group. "She doesn't have the M&A dealmaker profile you'd expect Yahoo to select if (selling) was their overt intention."

Analysts also wondered whether Bartz's lack of media industry experience would be a stumbling block when it comes to transforming Yahoo.

"The Yahoo brand is very muddled and complicated and confusing," said Sims, who has done executive search work for Yahoo. "The company is a cobbled-together association of fiefdoms, and within those business units and predecessor companies are strong personalities with agendas."

Bartz's lack of industry insight could make managing the company that much tougher, he added.

But Bartz refuted the notion that it would be tough for her to run Yahoo's online media properties because most of her experience is in the technology industry.

"I didn't know CAD (computer-aided design) when I joined Autodesk, I didn't know hardware when I joined Sun," she said. "I am a technology person, I am a market-driven person, I love customers. So I suspect I have a little brainpower to learn what it takes to understand media."

Hillary Clinton promises new approach to diplomacy

Reporting from Washington -- Secretary of State-designate Hillary Rodham Clinton on Tuesday promised a new diplomacy that would give America "more partners and fewer adversaries" and signaled her intention to reach out to Iran and continue the uphill struggle for Middle East peace.

At a five-hour Senate confirmation hearing, Sen. Clinton said she and President-elect Barack Obama would overhaul the approach of the Bush administration with a rejuvenated emphasis on diplomatic engagement, alliance-building and development.

Banks in Need of Even More Bailout Money

WASHINGTON — Even before word came on Tuesday that Citigroup might split into pieces to shore up its finances, an unpleasant message was moving through Congress and President-elect Barack Obama’s transition team: the banks need more taxpayer money.

In all likelihood, a lot more money.

Mr. Obama seems to know it; a week before his swearing-in, he is lobbying Congress to release the other half of the financial industry bailout fund. Democratic leaders in Congress seem to know it, too; they are urging their rank and file to act quickly to release the rescue money. And Ben S. Bernanke, the chairman of the Federal Reserve, certainly knows it.

On Tuesday, Mr. Bernanke publicly made the case that one of the most unpopular and most scorned programs in Washington — the $700 billion bailout program — needs to pour hundreds of billions more into the very banks and financial institutions that already received federal money and caused much of the credit crisis in the first place.

The most glaring example that the banking system needs even more help is Citigroup. Though it already has received $45 billion from the Treasury, it is in such dire straits that it is breaking itself into parts.

Like many banks, Citi is finding that its finances keep deteriorating as the economy continues to weaken.

Even some of the bailout program’s harshest critics acknowledge that things most likely would be even worse without it, and that the bailout had accomplished its most important goal, which was to prevent a complete collapse of the financial system.

Since last September, no major banks have failed and the credit markets have thawed somewhat.

But analysts said the problems are still acute, if less apparent on the surface. Banks have received $200 billion in fresh capital from the Treasury since last fall and have borrowed hundreds of billions of dollars more from the Fed. But in the meantime, the economy fell into a severe downturn last fall that is likely to continue until at least this summer.

Industry analysts estimate rising unemployment and business failures will lead to another $500 billion to $750 billion of losses in coming months. That could bring total losses from the credit crisis to $1.5 trillion to $1.8 trillion, twice as high as earlier estimates.

Citigroup is not alone. JPMorgan Chase, Bank of America, Wells Fargo and most other big banks all expect enormous losses as millions of consumers default on their mortgages, credit cards and automobile loans. Other losses are expected on loans made to commercial real estate developers, small businesses and for highly leveraged corporate buyout deals.

Mr. Bernanke bluntly warned on Tuesday that the government would probably have to infuse more money into financial institutions in the months ahead.

“More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets,” Mr. Bernanke said in a speech to the London School of Economics.

Mr. Bernanke, tacitly acknowledging the unpopularity of the bailout program, said the public was “understandably concerned” about pouring hundreds of billions of taxpayer dollars into financial companies — especially when other industries were getting the cold shoulder.

But, he insisted, there was no escape. “This disparate treatment, unappealing as it is, appears unavoidable,” Mr. Bernanke said. “Our economic system is critically dependent on the free flow of credit.”

Mr. Obama and his economic team have assured Congress that they would use a sizable chunk of the new money from the Troubled Asset Relief Program to help distressed homeowners refinance mortgages and escape foreclosure. That would be a big shift from the Bush administration, which refused to use TARP for reducing foreclosures.

Lawrence H. Summers, Mr. Obama’s choice to head the White House National Economic Council, assured Democratic lawmakers in writing on Monday that the administration would use some of the money to help reduce foreclosures.

But Mr. Bernanke appears to be warning Mr. Obama and Congressional Democrats that most of the remaining $350 billion — and possibly more — has to go to shoring up banks if they are to resume lending at normal levels.

During the first three quarters of 2008, banks were able to raise enough capital to offset more than their hundreds of billions in losses by tapping the giant government bailout fund as well as some early private investors.

But that was only a stopgap.

“The capital raises finally caught up with the losses,” said Michael Zeltkevic, a partner at Oliver Wyman, a consulting firm specializing in the finance industry. “It doesn’t make the situation better, but at least we caught up.”

The new tidal wave of losses stems from the worsening economy and rising unemployment, and analysts say it will take several quarters before it peaks.

Regulators require banks to keep a healthy cushion of capital. But this time around, the banks are struggling to plug their deepening holes. Private investors are scarce. For all but a small group of healthy banks, bankers and analysts say, the government may be the only investor left.

“Most banks are going to be in a defensive posture,” said Christopher Whalen, a managing partner with Institutional Risk Analytics. “You are probably not going to see the industry expand its overall balance sheet until 2010 or 2011.”

Mr. Obama’s economic team is planning a broad overhaul of the program to impose more accountability and more restrictions on executives at companies that receive government money.

Policy makers are also looking at reviving the original idea of TARP — have Treasury buy up unsalable mortgage-backed securities from financial entities.

Henry M. Paulson Jr., the Treasury secretary, had dropped the idea, concluding it would be more efficient to inject capital directly into banks by buying preferred shares.

Mr. Bernanke revived the idea, along with several other approaches, in his speech in London. So did Donald L. Kohn, vice chairman of the Federal Reserve, in a hearing on Tuesday before the House Financial Services Committee. He suggested the Treasury could buy the unwanted securities directly, or set up special banks to buy them.

Some analysts, even those who agree that the government needs to prop up the banking system with more taxpayer money, were skeptical about TARP.

Adam S. Posen, deputy director of the Peterson Institute for International Economics, said that the Bush administration had been right to inject capital into banks but wrong in not pushing banks hard enough to fix their problems or accounting.

“The problem isn’t that we’ve wasted money,” Mr. Posen said. “The problem is that we’ve put too few conditions on the banks.”

Guantanamo Detainee Was Tortured

A Bush administration official responsible for reviewing practices at Guantanamo Bay says the U.S. military tortured a Saudi national who allegedly planned to participate in the Sept. 11, 2001, attacks, the Washington Post reported.

"We tortured [Mohammed al-]Qahtani," Susan J. Crawford told the Post. "His treatment met the legal definition of torture. And that's why I did not refer the case" for prosecution.

Crawford is the first senior Bush administration official who investigates Guantanamo dealings to publicly say a detainee was tortured.

"The techniques they used were all authorized, but the manner in which they applied them was overly aggressive and too persistent. . . . You think of torture, you think of some horrendous physical act done to an individual," she told the Post. "This was not any one particular act; this was just a combination of things that had a medical impact on him, that hurt his health. It was abusive and uncalled for."

Interrogation techniques used on Qahtani included sustained isolation, sleep deprivation, nudity and prolonged exposure to cold. He was hospitalized twice.

Qahtani, allegedly planning to be the plot's 20th hijacker, was interrogated from November 2002 to January 2003 after being captured in Afghanistan.

"There's no doubt in my mind he would've been on one of those planes had he gained access to the country in August 2001," Crawford said of Qahtani, who remains detained at Guantanamo.

Pentagon spokesman Geoff Morrell said in an e-mail to the Post that investigations into detention operations "concluded the interrogation methods used at GTMO, including the special techniques used on Qahtani in 2002, were lawful."

Israel Says Hamas Is Damaged, Not Destroyed

TEL AVIV — Despite heavy air and ground assaults, Israel has yet to cripple the military wing of Hamas or destroy the group’s ability to launch rockets, Israeli intelligence officials said on Tuesday, suggesting that Israel’s main goals in the conflict remain unfulfilled even after more than two weeks of war.

The comments reflected a view among some Israeli officials that any lasting solution to the conflict would require either a breakthrough diplomatic accord that heavily restricts Hamas’s military abilities or a deeper ground assault into urban areas of Gaza, known here as a possible “Phase Three” of the war.

As the conflict entered its 19th day on Wednesday, three rockets fired from south Lebanon landed outside the town of Kiryat Shmona in northern Israel, but caused no casualties, the Israeli authorities said. The Israeli military said it fired back. It was not immediately clear who fired the rockets into Israel. A similar incident last week raised concerns briefly that a second front had opened in the war. But Hezbollah, the militant Shiite group which fought a war with Israel in 2006, quickly sought to assure the Lebanese government that it was not responsible.

In Gaza, the Israeli intelligence officials said, there were some signs that the military assault had undermined Hamas’s political cohesion, and that Hamas’s leaders in hiding inside Gaza were more eager for a cease-fire than group leaders in exile. They described this assessment as based on hard intelligence, presumably telephone intercepts.

A senior Egyptian official in Cairo said separately on Tuesday that representatives of Hamas had disagreed openly when participating in continuing Egyptian efforts to broker a cease-fire.

Inside Gaza, the military wing of Hamas has been hit “to a certain extent” with “a few hundred” Hamas fighters killed during the ground offensive that began midway through the war, the intelligence officials said. They spoke on condition of anonymity in return for discussing internal assessments of the conflict. Hamas is still able to launch 20 to 30 rockets a day, including 5 to 10 missiles of ranges longer than 20 kilometers, or about 12 miles, down by a third from the start of the war, the officials said.

Greater damage has been done to Hamas’s capacity to run Gaza, with a large number of government buildings destroyed over the course of the operation, they said.

The Israeli Army’s chief of staff, Lt. Gen. Gabi Ashkenazi, speaking to Parliament on Tuesday, said that “we have achieved a lot in hitting Hamas and its infrastructure, its rule and its armed wing, but there is still work ahead.”

In Egypt, efforts to broker a cease-fire were complicated by bickering inside Hamas, the Egyptian official said. The official said that Hamas representatives in Gaza were eager for a cease-fire, but were being blocked because political decisions were being made by the group’s leadership in Damascus, Syria.

“Hamas is in a very difficult position,” the Egyptian official said. “On the ground, their militants are not doing as good a job, not matching their rhetoric. But politically, they have been totally taken over by their sponsors.

“The guys inside are holding their ground, but they don’t want to continue the confrontation,” the official said. Egypt talks to Hamas but is not eager to see the radical Islamic group succeed in running a small statelet next door.

Israeli officials said they were delaying any expansion of the war until the negotiations succeeded or failed. But journalists and photographers along the Israeli border with Gaza said they saw large numbers of Israeli reservists moving into the territory, suggesting preparation for an intensified phase of the conflict.

On the eve of a visit to the region, which began in Cairo on Wednesday, the United Nations secretary general, Ban Ki-moon, demanded an immediate halt to the fighting in accordance with a Security Council resolution.

“Too many people have died,” Mr. Ban said, while Gazans are facing a humanitarian disaster. United Nations officials have said that three-hour daily humanitarian lulls are insufficient to provide enough food, medicine and other essentials to civilians. Israel said that 102 trucks carrying aid entered Gaza on Tuesday, with a total of 1,028 since the war began.

John Ging, director of operations in Gaza for the United Nations Refugee and Works Agency, who has been highly critical of the Israeli military action, said by video link that the fighting was extracting an unacceptably high toll on civilians.

“Tragically, the horror continues overnight,” he said. “Nineteen children killed and 52 injured last night. I would hope that would motivate those who can help.”

Israeli officials say their primary aim in the operation is to stop Hamas from firing rockets from Gaza into Israeli cities.
Hamas is capable of building rockets with an advanced propellant that can go up to 18 miles, the intelligence officials said, using chemicals and parts smuggled in from Egypt. Hamas also is using 122-millimeter rockets that are Chinese-made and supplied by Iran that can go almost 25 miles, they said.

But they assessed the probability that Hamas now has rockets capable of going farther than 25 miles as “very low.”

On Tuesday, Hamas fired 11 rockets and six mortar shells into Israel, the Israeli Army said.

General Ashkenazi said that Israeli aircraft had carried out more than 2,300 strikes since the offensive began on Dec. 27.

In Tuesday’s fighting, 18 Palestinian fighters and seven civilians were killed, part of the 971 Palestinians who have died, according to Gaza’s Hamas-run Health Ministry. Those figures are not thought to include many of the fighters killed since the ground war began.

Thirteen Israelis have died, including 10 soldiers. The Israeli military said one Israeli officer was critically wounded and two Israeli soldiers suffered light wounds in fighting overnight. They were hurt, the military said, after a bomb exploded in a booby-trapped house that they were searching.

General Ashkenazi said that Hamas fighters were using suicide bombers, sometimes women and sometimes dressed as Israeli soldiers, to try to get close to Israeli troops and kill them. One Israeli soldier was killed last week by a Hamas suicide bomber, the Israeli intelligence officials said. The method of the attack that caused the death had not been disclosed before.

Moussa Abu Marzouk, the exiled deputy to the Hamas political chief Khaled Meshal, told Al Jazeera television on Tuesday that while the organization had “serious reservations” about the Egyptian cease-fire plan, he believed that it might be accepted if changes were made.

“If the initiative is accepted, it will be in accordance with the position set out by Hamas at the start, namely an Israeli withdrawal, a cease-fire and the opening of the crossing points” between Gaza, Israel and Egypt, he said.

The leader of Israel’s opposition Likud Party, Benjamin Nentanyahu, said Tuesday that ultimately Hamas would have to be removed from Gaza and if the government chose to do so in this war, he would support it.

“At the end of the day there will be no escape from toppling Hamas rule,” he said at a meeting with the Foreign Press Association, adding that “Israel can not tolerate an Iranian base right next to its cities.”

Rockets from Lebanon hit Israel -emergency services

JERUSALEM, Jan 14 (Reuters) - Three rockets fired from Lebanon hit northern Israel on Wednesday, causing no casualties, emergency services said, in the second such attack since Israeli forces launched their Gaza offensive.

There was no immediate claim of responsibility. Israel responded with artillery fire into south Lebanon, witnesses said.

"Three rockets fired into Israel landed outside the city of Kiryat Shmona," police spokesman Micky Rosenfeld said.

A fire brigade spokesman in northern Israel said the rockets landed in fields and no one was hurt.

Security sources in Lebanon said five rockets were fired but two fell short of the Israeli border.

Last Thursday, three rockets that Israeli officials said were launched by Palestinian guerrillas in Lebanon in solidarity with Palestinians in the Gaza Strip slammed into northern Israel, wounding two people.

That attack briefly raised fears that guerrillas in Lebanon might open a second front against Israel, which launched an offensive against Hamas militants in the Gaza Strip on Dec. 27.

But Israeli cabinet ministers said last week's rocket strike appeared to be an isolated incident. (Writing by Jeffrey Heller, Editing by Allyn Fisher-Ilan)

Worried EU states fly to Moscow, Kiev over gas dispute

MOSCOW/KIEV (Reuters) - Russia and Ukraine face another day of sparring over gas supplies on Wednesday and two European Union states launched fresh diplomacy to end a dispute that has left their economies without Russian gas for one week.

Russia began pumping gas meant for Europe via Ukraine on Tuesday, but the EU said little or no gas was flowing to countries suffering urgent energy shortages.

Russia accused Ukraine of shutting off gas to Europe, but Kiev said there was not enough pressure in the pipeline system.

The crisis has disrupted supplies to some 18 countries at the height of winter, shutting down dozens of factories in southeast Europe.

Two of the worst hit EU states, Bulgaria and Slovakia, sent their prime ministers to Moscow and Kiev in a fresh effort to get gas supplies restored.

Slovakian Prime Minister Robert Fico, who was in Kiev on Wednesday for talks with Ukrainian Prime Minister Yulia Tymoshenko, said the country had 11 days of gas reserves left.

"After 12 days, we will be obliged to resort to measures never seen in our history. May I simply ask how long this will go on?" he told Tymoshenko.

But Tymoshenko said her country could do little to help. "Ukraine does not have sufficient gas. We do not have our own supplies," she told Fico.

Fico is due in Moscow later to meet Russian Prime Minister Vladimir Putin alongside Bulgarian Prime Minister Sergei Stanishev and Moldovan Prime Minister Zinaida Greceanii.

Stanishev is under pressure to secure supplies for his country of 7.6 million people as limited domestic reserves are dwindling and anger among Bulgarians is mounting against his Socialist-led government.

Slovakia, which has a population of 5.4 million and gets almost all its gas from Russia, declared a state of emergency on January 6, under which gas deliveries to large clients were reduced. About 1,000 companies were forced to shut or cut production.

A deal brokered by the EU, which gets a quarter of its gas from Russia, had been intended to get supplies moving on Tuesday, with international monitors in place to ensure that Ukraine was not siphoning off any gas, as Moscow has alleged.

Russian state-controlled gas monopoly Gazprom declared force majeure on gas exports to Europe on Tuesday, meaning circumstances beyond its control prevented it from meeting its obligations to clients.

Gazprom is demanding Kiev hand over $614 million for unpaid gas bills and pay $450 per 1,000 cubic meters of gas in 2009. That is similar to rates paid by EU customers but a big rise on last year's price of $179.5.

Analysts in Kiev say Ukraine, saddled with debt and hard hit by the global slowdown, cannot afford that price.

POOR RELATIONS

The row, which has dented the reputation of both Moscow and Kiev as energy suppliers, also reflects their poor political relations. Moscow is vehemently opposed to moves by Ukraine's pro-Western leadership to join the U.S.-led NATO alliance.

The European Commission said Europe needed the gas urgently and an aide to Commission President Jose Manuel Barroso said on Tuesday that he had expressed disappointment over the low volumes pumped by Russia in a telephone conversation with Putin.

Gazprom's Deputy CEO Alexander Medvedev accused the United States of pulling the strings. "It looks like ... they (Ukraine) are dancing to the music which is being orchestrated not in Kiev but outside the country," he said.

State Department spokesman Sean McCormack rejected the charge as "totally without foundation."

Ukraine's economy -- based on steel and chemical exports -- has been hit hard by the global slowdown and its hryvnia currency has experienced sharp falls.

Pakistan dismisses Indian data as 'not evidence'

ISLAMABAD, Pakistan (AP) — Pakistan's prime minister has downplayed the significance of an Indian dossier on the Mumbai attacks, saying it only contained information and "not evidence," state media reported.

Yousuf Raza Gilani's remarks late Tuesday before Parliament were likely to anger New Delhi, which says the dossier provides evidence that Pakistani militants staged the November slaughter of 164 people. India specifically blames Lashkar-e-Taiba, a militant group believed to have links to Pakistani intelligence.

Pakistan only recently acknowledged that the only surviving Mumbai gunman was Pakistani, but it insists none of its state agencies played a role in the attacks. Under international pressure, Pakistan has detained some suspects allegedly linked to the attacks, while repeatedly calling on India to provide evidence to allow legal prosecutions.

"All that has been received from India is some information. I say information because these are not evidence," Gilani said, according to the Associated Press of Pakistan.

The dossier, handed over on Jan. 5, includes transcripts of phone calls allegedly made during the siege by the attackers and their handlers in Pakistan. Previously, India had given Pakistan a letter from the lone surviving gunman, Mohammed Ajmal Kasab, that reportedly said he and the nine other gunmen were Pakistani.

In his statement, Gilani said Pakistan was continuing to examine the dossier.

He also urged "pragmatic cooperation" between the two nuclear-armed neighbors, who have already fought three wars since gaining independence from Britain in 1947.

On Wednesday, gunmen riding on a motorcycle fired on a vehicle carrying police officers near the southwestern Pakistani city of Quetta in Pakistan's southwest Baluchistan province, killing four, said Mohammed Ishtiaq, an area police chief. Police were still investigating the motive for the shooting.

Baluchistan has long been the scene of a low-level insurgency, with militant groups seeking greater regional autonomy and a larger share of revenue from its natural resources.

In a separate incident there Wednesday, a roadside bomb critically wounded seven paramilitary troops in Dera Bugti district, some 310 miles (500 kilometers) east of Quetta, said Muhammad Ashfaq, a senior police official.

Sarbaz Baluch, a purported spokesman for the Baluch Republican Army, one of the main militant groups in the province, said the group staged the attack out of revenge after a large portrait of a slain nationalist Baluchi leader was removed from the area.

He claimed that four troops were killed and six wounded.

Alcoa racks up $1.2 billion loss for quarter

Alcoa said it lost $1.2 billion, or $1.49 a share. In the year-earlier period, the aluminum giant earned $632 million, or 75 cents a share. Sales fell to $5.7 billion, from $7 billion.

Aluminum prices dropped 35% from a year ago, Alcoa (AA:

alcoa inc com

News , chart , profile , more

Last: 10.06-0.75-6.94%
4:00pm 01/12/2009
Delayed quote data

Add to portfolio
Analyst
Create alert

Insider
Discuss
Financials

Sponsored by:

AA 10.06, -0.75, -6.9%) said. Weak demand and excess supply has caused aluminum prices to fall 56% from July highs.

For 2009, Alcoa projects global aluminum consumption will slide 2% to 36 million metric tons as China's dramatic consumption rate slows on top of cuts in North America and Europe. Consumption slipped 3% last year, chief executive officer Klaus Kleinfeld said.

He added that inventories at Alcoa customers and distributors were "very low."

Last week, Alcoa laid out a restructuring plan to conserve cash as it waits for aluminum demand to rebound. It plans to cut more than 15,000 jobs, close plants, curb aluminum output and slash capital expenditures by 50%. It also intends to sell four consumer-related business units that lost a combined $105 million in 2008 after taxes.

Alcoa shares have lost 68% in value over the past year, making it one of the worst performers among the 30 components that make up the Dow Jones Industrial Average.

With aluminum prices weak and inventories growing, there are concerns Alcoa may have to scale back its annual 68-cent dividend or cut production more.

"It's a real question if they maintain the dividend," said Brian Hicks, portfolio manager at U.S. Global Investors' Global Resources Fund (PSPFX:

US Glbl:Global Res

News , chart , profile , more

Last: 5.21-0.27-4.93%
6:06pm 01/12/2009
Delayed quote data

Add to portfolio
Analyst
Create alert

Insider
Discuss
Financials

Sponsored by:

PSPFX 5.21, -0.27, -4.9%) , which does not own Alcoa shares. "Management is desperately trying to keep the dividend."

Investors have been betting big against Alcoa. The short interest in Alcoa shares is at its highest level since 1998 and five times its average level over that 10-year time period. Short sellers are investors who bet a stock will drop over time, rather than gain in value.

Deutsche Bank took a more bearish stance ahead of Monday afternoon's earnings report. The broker cut Alcoa shares to sell, from hold, and shaved its price target to $8 from $10.

In trading Monday, Alcoa shares closed at $10.06, a decline of 7%.

Dollar and yen rise as global equities slide

The dollar index ($DXY:

US Dollar Index Future - Spot Price

News , chart , profile , more

Last: 83.61+0.60+0.72%
6:34am 01/13/2009
Delayed quote data

Add to portfolio
Analyst
Create alert

Insider
Discuss
Financials

Sponsored by:

$DXY 83.61, +0.60, +0.7%) , which measures the greenback against a basket of six major counterparts, traded at 83.536, up from 83.105 in late North American trading on Monday.

"The greenback will tend to do better in an environment where global growth worries are increasing," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange.

He cited the Federal Reserve's "extremely proactive approach that has jam-packed the global financial system full of dollar liquidity."

Over the longer term, 2009 could prove volatile as markets assess the contrasting approaches taken by central banks in response to the financial crisis, Gallo said.

Asian stock markets sustained a broad-based sell-off Tuesday, and European stocks recently extended losses. Oil and mining firms led the way lower on worries the global slowdown will apply further pressure on commodity prices. See Asia Markets. Read Europe Markets.

Weak equities prompted investors to shift away from higher-yielding currencies, with repatriation benefiting the dollar and, in particular, the yen.

Also, a warning Monday from Standard & Poor's that it might downgrade Spain's sovereign credit rating from AAA status continued to cast a shadow over the euro as financial markets await the European Central Bank's meeting Thursday on euro-zone interest rates, strategists said.

Last Friday, S&P did the same for its credit ratings on Greece. It also cut the outlook on Ireland's rating to negative from stable. See full story on S&P's Spain rating.

Skepticism ensnares euro

Currency markets were skeptical of the euro "at the start of 2009, and the credit headlines on the European governments only reinforces this euro-skeptic market attitude," wrote strategists at KBC Bank in Brussels.

Looking out over the longer term, "we continue to have serious doubts on the chances of a protracted dollar rebound," but short-term momentum is increasingly negative for euro/U.S. dollar, they said.

Against this backdrop, the euro slipped to $1.3310 from $1.3373 on Monday. The single currency also fell to 118.55 yen, down from 119.09 yen.

The yen traded little changed against the dollar, with the U.S. unit buying 89.04 yen.

The British pound was under pressure against both the dollar and the euro, with foreign-exchange traders playing off the British Retail Consortium's monthly survey that showed that U.K. retailers endured the worst December in at least 14 years. See full story.

The pound fell to $1.4630, down 1.2%. The euro rose to 90.82 pence, up 0.8% on the day.

Also Tuesday, the New Zealand dollar came under heavy pressure after S&P cut the country's foreign-currency rating outlook to negative from stable.

S&P confirmed New Zealand's foreign-currency rating at AA+ and its local-currency rating at AAA, the two highest ratings, news reports said.

The U.S. dollar rallied 3.9% against the New Zealand currency to trade at NZ$1.8028 in recent action.

Mineral extractors, banks drive London lower

The U.K. FTSE 100 index (UK:UKX: news , chart , profile ) fell 2.1%, or 91.78 points, to 4,334.41. Other European shares fell and U.S. stock futures were pointing to a lower open on Wall Street. See Europe Markets. See Indications.

"Prices are increasingly factoring in the significant slowdown," noted William Davies, head of European equities at Threadneedle.

Mineral extractors fell sharply in London, with Rio Tinto (RTP:

rio tinto plc sponsored adr

News , chart , profile , more

Last: 92.44-7.67-7.66%
4:00pm 01/12/2009
Delayed quote data

Add to portfolio
Analyst
Create alert

Insider
Discuss
Financials

Sponsored by:

RTP 92.44, -7.67, -7.7%) (UK:RIO: news , chart , profile ) shares down 6.2%, Xstrata (UK:XTA: news , chart , profile ) shares down 6% and Lonmin (UK:LMI: news , chart , profile ) shares down 7.3%.

Data out Tuesday showed that China's export growth contracted in December at its fastest pace in almost a decade.

December shipments fell 2.8% to $111.16 billion from a year earlier, its biggest contraction since April 1999 and following a 2.2% narrowing in November, data released by the General Administration of Customs showed Tuesday. See full story.

"Poor Chinese numbers are likely to pressure commodities and possibly equities," Dariusz Kowalczyk, chief investment strategist at SJS Securities, said. See Asia Markets.

Additionally, Rio Tinto announced further production cuts, suspending work on its $229 million underground development at the Northparkes copper and gold mine in New South Wales in Australia due to declining copper prices.

Copper futures fell another 6 cents to $1.43 a pound in Tuesday's electronic trading session, while oil futures fell $1.17 to $36.42 a barrel.

U.S. aluminum giant Alcoa (AA:

alcoa inc com

News , chart , profile , more

Last: 10.06-0.75-6.94%
4:00pm 01/12/2009
Delayed quote data

Add to portfolio
Analyst
Create alert

Insider
Discuss
Financials

Sponsored by:

AA 10.06, -0.75, -6.9%) , which detailed production cuts last week, said late Monday that it lost $1.2 billion, or $1.49 a share, in the fourth quarter of 2008. In the year-earlier period, the aluminum giant earned $632 million, or 75 cents a share. Sales fell to $5.7 billion, from $7 billion. See full story.

Banks under pressure

Banks fell, with the sector unable to build on a strong session on Monday. Shares of Royal Bank of Scotland (UK:RBS: news , chart , profile ) (RBS:

royal bk scotland group plc spons adr 20 ord

News , chart , profile , more

Last: 16.70+0.54+3.34%
4:00pm 01/12/2009
Delayed quote data

Add to portfolio
Analyst
Create alert

Insider
Discuss
Financials

Sponsored by:

RBS 16.70, +0.54, +3.3%) dropped 7.6%, while Barclays (UK:BARC: news , chart , profile ) shares fell 12.1%..

RBS may face losses of 2.3 billion pounds, or $3.5 billion, on its exposure to the bankrupt Lyondell Chemical stake. It's also going to sell its Bank of China stake, reports said on Tuesday.

"I am still underweight banks and I think that we haven't yet seen the next wave of bad debt problems arising from normal loans to normal people who are losing their jobs and finding it difficult to make mortgage payments and credit card payments," said Andrew Lynch, portfolio manager at Schroder Investment Management.

"From that perspective, I think that banks could continue to struggle for some time just because they face a difficult headwind of more writedowns to come," he added.

Hedge fund manager Man Group (UK:EMG: news , chart , profile ) shares fell 3.2% after it was downgraded to sell from hold by Citigroup, as the broker sees a high risk of profit taking at Man's key AHL fund.

Tesco sales up

However, shares of supermarket group Tesco (UK:TSCO: news , chart , profile ) advanced 2.4% as the company reported a 2.5% rise in U.K. comparable sales in the seven weeks to Jan. 10.

"This growth is against the background of challenging trading conditions in all of our markets caused by the global economic slowdown," the firm said. See full story.

Homebuilder Taylor Wimpey (UK:TW: news , chart , profile ) , down 14%, also flagged up difficult market conditions when it updated investors.

"We remain of the view that there will not be a recovery in the U.K. housing market in the short term," it said.

Taylor Wimpey's net private reservations for the second half of 2008 averaged around 137 per week, down from 225 at the same point last year. Average selling prices dropped to 171,000 pounds for 2008, compared to 188,000 pounds in 2007, reflecting ongoing pricing pressure and a higher proportion of affordable completions.

Discussions with debt providers relating to the refinancing of existing debt facilities continue on a constructive basis, the firm added.

Shares of Arriva (UK:ARI: news , chart , profile ) fell 3% after it was cut to conviction sell from buy at Goldman Sachs, with the broker saying the U.K. bus and rail operator is expensive vs. peers, its balance sheet no longer looks strong, a likely rise in pension deficit will also hurt its balance sheet and higher unemployment across Europe will affect its three divisions.

Pub chain J.D. Wetherspoon (UK:JDW: news , chart , profile ) fell 6.3%. It was downgraded to sell from hold by Deutsche Bank, with the broker saying it has the biggest refinancing hurdles to overcome in the pubs sector.

"If it has to hack into the group cost base to help with the refinancing, it may delay any recovery coming out of the recession," the broker said.

By Sarah Turner, MarketWatch