Tech Companies, Long Insulated, Now Feel Slump

ASHLEE VANCE
NYT, November 15, 2008

The technology industry, which resisted the economy’s growing weakness over the last year as customers kept buying laptops and iPhones, has finally succumbed to the slowdown.

In the span of just a few weeks, orders for both business and consumer tech products have collapsed, and technology companies have begun laying off workers. The plunge is so severe that some executives are comparing it with the dot-com bust in 2000, when hundreds of companies disappeared and Silicon Valley lost nearly a fifth of its jobs.

October “was like turning a switch,” said Robert Barbera, chief economist at the Investment Technology Group, a research and trading firm. “Everything pretty much shut down.”

After industry leaders like Intel and Nokia warned of slowing sales this week, investors aggressively sold technology stocks. On Friday, the Nasdaq composite index, which is full of technology names, fell 5 percent. Advanced Micro Devices and eBay both dropped more than 10 percent.

Tech companies directly account for about 4 percent of the nation’s employment. And globally, companies and governments spend about $1.75 trillion on technology a year, according to Forrester Research. But the industry’s importance to the world economy is larger than its size might suggest. Technology has fueled many of the productivity gains of the last two decades. And about half of the capital spending by corporations goes toward technology products, according to Moody’s Economy.com.

As struggling businesses cut back on spending of all kinds, a slowdown in tech proved inevitable.

During the dot-com crash, technology companies were victims of Internet hype that they helped create. Once the enthusiasm faded, so did the boom-era sales on software and infrastructure equipment.

However, consumer enthusiasm for products like video games, wireless phones and high-definition televisions helped the industry recover.

This time around, the tech sector finds itself at the mercy of a double-barreled slump in both corporate and consumer spending caused by the housing decline and the economic crisis on Wall Street. Technology companies are also feeling the effect of frozen credit markets as business and government customers struggle to finance computer and software purchases that can run to millions of dollars.

“We have never seen anything like this in history,” said William T. Coleman III, a Silicon Valley veteran who founded the software maker BEA Systems and is now chief executive at a start-up called Cassatt.

Best Buy, the leading electronics retailer, declared this week that “rapid, seismic changes in consumer behavior” had fostered the worst conditions in its 42-year history, and its main rival, Circuit City Stores, filed for bankruptcy protection. Nokia, the world’s largest maker of cellphones, predicted Friday that global sales of handsets would fall in 2009, which would be only the second decline ever.

Technology giants like Intel, which makes chips for personal computers and servers, and Cisco Systems, which makes network equipment, warned that revenue was plummeting at rates last seen in 2001.

Dozens of start-ups, like the messaging service Twitter and the electric carmaker Tesla Motors, have been cutting staff members as they prepare for a slow economy.

And on Friday, Sun Microsystems, a leading maker of computers used by financial services companies, announced that it would lay off as many as 6,000 employees, or 18 percent of its work force.

The turnaround has been as sudden as it is severe. Until late September, a number of large technology companies maintained an optimistic stance, despite the obvious distress in the global economy.

Cisco was the first large technology company to reveal its sales data from October, noting a 9 percent fall in sales compared with the same month last year. On Nov. 5, Cisco, which is based in San Jose, cautioned that because of a “completely different environment,” revenue in its current quarter could plummet as much as 10 percent — a major reversal from the 7 percent growth that Wall Street had been expecting.

Intel, the world’s largest chip maker, followed this week, warning that sales in the fourth quarter could fall as much as 19 percent compared with the same period last year.

Even Google, an advertising juggernaut that many analysts said they believed would weather a downturn better than other companies, is now feeling the impact.

About eight weeks ago, the company’s chief executive, Eric E. Schmidt, told reporters, “My guess is that the drama is in New York and not here.” A month later, Google surprised Wall Street when it reported strong financial results for the quarter that ended Sept. 30, sending its shares up 10 percent.

But Google’s stock has dropped 16 percent since, as the same analysts who were upbeat about its results have since cut their revenue and profit forecasts. This week, its shares dipped below $300 for the first time in three years, well below their $742 peak. And the company, known for its torrid hiring and free-spending on employee perks, has begun the most serious belt-tightening in its 10-year history.

“We don’t know as managers how long the crisis goes,” Mr. Schmidt said last week.

For all the gloom, the tech industry is still far healthier than Wall Street. Unlike the banks, many technology companies are flush with cash. Cisco has close to $27 billion; Google, $14 billion; and Apple, $24 billion. It is likely that some of these funds will go toward acquiring struggling competitors. “The guys that aren’t as strong will be good pickings,” Mr. Coleman said.

Powered by technology, Silicon Valley has stood out as a bright spot for jobs in the United States, with employment growing at about 2 percent a year while national employment slowed. Through 2007, the region continued to add 20,000 jobs, although that positive trend has started to change.

“With this now having become a worldwide event, it’s clear that the job losses will come,” said Stephen Levy, director of the Center for Continuing Study of the California Economy.

Given the unpredictability of the current economy, the industry’s past experience will only go so far, said Chris Cornell, an economist with Economy.com. “It would be a tragic mistake for C.E.O.’s who did a great job fighting the last recession to think the same tactics will work this time,” he said.

Miguel Helft contributed reporting.

SOMETHING OF A MIRACLE - Obama has to redefine the US to itself, and to the world

Westminster gleanings
Anabel Loyd
The Telegraph, 17 November

The tension of Election Day in Washington, when 92 per cent of the district of Columbia voted for Barack Obama but still dared not expect victory, vanished in a collective sigh of relief when he was declared president-elect at 11pm. The euphoria began on the next breath and with unseasonably warm, damp weather rotting the residual grimacing Halloween pumpkins, Washington has a spring in its step, heedless of continuing market falls or the soldiers in fatigues and desert boots pouring in and out of the Pentagon. The opposition has gone to ground; the Grand Old Party is engaged in post mortems; the president has invited his successor and his family to the White House; African Americans have seen a second coming and it belongs to them. We forget that 40 years ago, an eyeblink in history, within the memory of most of the current population here, they could not vote. The shame and the residual cruelty of hundreds of years of slavery are still very close at hand.

Expectations are so high. The world has watched Obama win and believes that if an African American can become president of the United States of America, anything is possible. Whatever happens, Obama has transformed the US. On Wednesday morning, two African American women on the subway, one bouncing with sleepless joy, decked out in Obama tee shirt, cap, backpack and badges, agreed that his mixed-race status was important, his ability to straddle and perhaps now finally remove the barriers between two worlds. Others have suggested that his non-slave ancestry gave him a confidence and impetus that no descendant of slavery, still carrying the wounds five generations on, could have achieved. For non-Americans, it took the television shots of Jesse Jackson weeping as he watched the new president-elect to remind us of that heritage.

The less-charitable have suggested that his emotion was for himself and for a presidential bid that never was, but whatever passing regrets, that crowd in Chicago was living the moment. They were rewarded by a speech of remarkable statesmanship and gravitas, even in celebration, from a man of stature, power and serenity, already confident of his ability to lead. The typhoon of hope anticipating this election, now heralding the inauguration of the new president, is worth the laying aside of contemporary British scepticism — the urge to undermine pedestals, especially those stood on by American icons, to blow in the wind of change with the rest of the world.

What now? In an instant this week, things have appeared to get better, but staggering responsibility rests on a man with unique global status and power, but apparently little experience. He is a man who has four short years before he has to fight again the same battles, when, whatever the successes, the clarity of a message of change will be obfuscated by the inevitable compromises and failures of office, the slowing of campaign urgency in the face of government bureaucracy.

An Obama activist — expert on public policy and federalism, former member of the Clinton administration, and senior Fulbright scholar to India — dismissed my concerns over the style-versus-substance issues we are familiar with in the UK, with an explication of the machine led by and supporting the president-elect. Most of his path to the White House has been well out of the standard political limelight, but rooted in principles of community organizing learnt during years of local politics in Chicago. It is his understanding of the need for inclusiveness and community-building that has been the scaffolding for a decentralized campaign spearheaded by cutting-edge IT programmes and providers to bring the message into people’s homes. This has resonated with first-time voters to bring them into a vast community of hope, empowered by its involvement in the process of the election and the sense of its own ability to make change, demonstrated by the long patient lines of voters on November 4. This was democracy. Its result has revived America’s reputation as the land of opportunity.

Every campaign-helper received an email of thanks from the president-elect by Wednesday morning. During the campaign, they have been made to feel constantly in touch with their candidate. Countless blogs, groups, messages-boards, have kept people in the loop, part of something new, exciting, where they were essential for success. The secret of Obama’s stratospheric funding too has been in the desire to be part of this new community. People have gone on giving whatever they can manage. It is probable that the giving will begin again when it is needed, and that fears of the vast sums required to run a re-election campaign starting, on recent history, in not much more than a couple of years may be unwarranted as the community finds new resources. The sums of money spent on a campaign are beyond the imagination of poorer parts of the world. By 2012, we will know if they are well spent. Obama spoke on the night of November 4 of the time needed to make changes — if he can continue to communicate clearly the slow processes of government and be seen to be moving forward, he will hold his community together.

Once upon a time, Tony Blair preached community in the UK. He failed first by reverting to domineering leadership as he gathered all the strings of government in his hands and played puppet-master to his colleagues and, by inference, to the country. Ultimately, he failed on the back of his divisive support for President Bush in the wars that have shattered international reputations and remain at the bottom of the poisoned chalice inherited by Obama. In Washington, everyone wants peace, but the domestic and world economic situation has risen like oil to the surface, and even the current ecstasy is tinged with the sobriety of job losses and failing companies as markets continue to fall. There is little sense of the usual relaxation or the hidden infighting over appointments of the period of transition between presidential administrations. Clear decisions are already being made on roles, previously agreed in case of victory, and the president-elect is up and running and deeply involved in building new economic plans.

Concerns exist that his decision-making process may be too collegial and therefore too slow. Obama is on a knife-edge between the need to change processes of policy-making and implementation from the top-down, centralized approach initiated in the Clinton years to lay a path for the worst efforts of George W. Bush, and the importance of a fast forward decisiveness on both domestic and foreign issues. For now, he is on the case, and may achieve a balance that holds fast to consensus as the watchword whilst understanding the need for the aggression and, to quote the Washington Post, “sharp-edged approach to politics” of his new chief of staff, Rahm Emanuel. A veteran of the Clinton administration, Emanuel adds a level of continuity, experience and rigorousness of policy to the new team with what is likely to be an essential core of steel. Meanwhile, the transition website continues to build the sense of the importance of popular and individual involvement in the processes of the next administration with its opening message, “It’s your America, share your ideas.”

There are suggestions that Franklin D. Roosevelt is Obama’s role model, but, however appalling the Great Depression, Roosevelt in 1932 had far fewer balls to juggle at once, only later making the international decisions that brought the US into World War II. The new president and his secretary of state have instantly to involve themselves in the wars of their predecessors, to start the long processes of withdrawal and extrication, and attempt to play peace-maker without playing god. Opposition, quiet for now, will rear its head at the first signs of weakness or failure, and the whole world will be watching. At the same time, the president has to deal with the global economic, energy and environment issues so disastrously handled by the Bush administration. At home, campaign promises made ahead of vital and immediate measures towards economic salvage mean tax changes and, vital to the poor, health as well as education policy reforms. The new president has to redefine the US to itself and to the world. He has to maintain the hope as the wheels of government and international relations grind slow. We may have seen something of a miracle this month. They are saying in Washington, too, that the quality of the new administration will be remarkable as people hungry for change rush to accept badly paid jobs to be part of Obama’s new world. Another miracle perhaps.

So, can he do it? Well, time will tell. But, for the moment, I’ll go with the hope. Yes, he can.

BEYOND THE MILESTONE - Unless Obama’s victory heralds changes, it will remain a symbol

Postscript
Githa Hariharan
The Telegraph, November 16

There has been a flood of reaction to Barack Obama’s triumph in the presidential elections, and it will probably be a good while before this unruly flood abates. But soon after the news was confirmed, there was a recurring reaction that neatly combined disbelief, amazement and sheer gratitude in a single and simple sentence. “I never thought I would see this day.” This spontaneous reaction was heard over and over again in America. The statement, so heartfelt that it almost sounds raw-skinned, could be understood as saying one of three things. It could be an indication of the relief so many feel at the passing of the eight torturous years of a particularly vicious government. It’s a relief that allows for some hope that “unilateral” decisions will make way for some “multilateral” attempts at decision-making. In other words, there may be hope that the American government will learn to speak to more people and hear more people — both in America and elsewhere.

The reaction could be amazement that a more “international” person — a man of a more heterogeneous background in terms of race, nationality and life experience — is actually going to the White House. In which case, it may be possible to hope that at least some of the insular and jingoistic baggage of the past can be left behind. Perhaps more than lip service will be paid to the fact that contemporary America is, more than ever, a nation of immigrants. And if this can happen, there may even be an acknowledgement that the “American way of life” — something so often anxiously defended by conservatives as if it is an old museum piece that must be preserved in cotton wool — is actually a dynamic, debatable idea.

But most of all, the reaction is gratitude for witnessing a milestone in African-American history. At this point, anyway, very few people would dilute this gratitude by carping about whether Obama is “black enough”. Nor can this reaction be mistrusted as either “merely emotional” or as “overemphasizing race”. It’s impossible to forget that this election victory has happened in a country where white did mean master and black did mean slave. There’s no getting away from this history, or its legacy. In fact, there is no need to go all the way back to the years of slavery. Just the last 50-odd years would do to get a sense of the distance travelled, and the pain suffered en route. It hasn’t been that long since racial discrimination and racial stereotypes were not only real, they were also legal.

Not all that long ago, in 1955, in Montgomery, Alabama, a member of the National Association for the Advancement of Colored People, Rosa Parks, was arrested for refusing to give up her bus seat to a white passenger. The subsequent bus boycott organized by the black community in Montgomery lasted for more than a year till the buses were desegregated. Parks, an icon of the civil rights movement, died three years too early to witness the milestone of 2008 — she died at the age of 92 in 2005.

A year before Parks’s gesture to affirm black rights, the 1954 landmark case, Brown versus Board of Education of Topeka, Kansas, resulted in a unanimous judgment from the supreme court. The court ruled that segregation in public schools was unconstitutional, overturning the 1896 Plessy versus Ferguson judgment that sanctioned “separate but equal” segregation of the races. The 1954 ruling stated that “separate educational facilities are inherently unequal”. It paved the way for large-scale desegregation — a process fraught with difficulty, and a process, many would argue, that is yet to be fully achieved in 2008.

Again, it was only four decades back, 44 years to be precise, that Lyndon B. Johnson signed the most sweeping civil rights legislation to prohibit discrimination of all kinds based on race, colour, religion or national origin. Asserting that civil rights laws alone are not enough to remedy discrimination, President Johnson issued Executive Order 11246, which enforced affirmative action for the first time. It required government contractors to “take affirmative action” toward prospective minority employees in all aspects of hiring and employment.

But while laws and executive orders are important, neither can bridge that wide and frustrating gap between sanctioned equality and flesh-and-blood inequality. In 1964, the same year President Johnson signed the Civil Rights Act, the bodies of three civil rights workers — two white, one black — were found in an earthen dam, six weeks into a federal investigation. The civil rights workers were men in their early twenties, working to register black voters in Mississippi. When they went to investigate the burning of a black church, they were arrested by the police on speeding charges, and incarcerated for several hours. Then they were released after dark into the hands of the Ku Klux Klan, who murdered them. The sad tailpiece of this already tragic story is that it was only as recently as 2005 — on the 41st anniversary of the Mississippi civil rights murders of 1964 — that the ringleader, Edgar Ray Killen, was convicted of manslaughter.

It is true that the 2008 electoral verdict in America is not as much about race as it is about a rejection of the Bush years, and what they have done to both America and other parts of the world. But in embracing the idea of change, the American electorate has come upon a powerful milestone for equality.

Despite greed, warmongering and the seduction of empire, America and Americans have travelled a long and difficult road towards this milestone. Now that a black man will soon move into the White House, will the ground realities really change? Will the mainstream political voices address the racial and economic disadvantage eating into the lives of the common Americans more directly? Will they find alternative strategies to the military bullying abroad? Will there be real attempts to shift attitudes and dispel stereotypes — not only about African-Americans, but also Arabs, Muslims, foreigners?

For now, there is a terrible temptation to romanticize Obama as the new and wondrous knight of utopia. There is an equally strong temptation to air the mothballed liberal voices in America, let them have their say, or sing and celebrate for a happy, if brief, intermission. The intermission is brief because a milestone is only a signpost. Its rhetoric may be moving; it may be cathartic. But it has to lead to something, and something substantial enough to make the milestone meaningful. Otherwise, it is only a fragile symbol in a museum. In his address at the Democratic National Convention, in San Francisco in 1984, Jesse Jackson referred to “the call of conscience, redemption, expansion, healing and unity”. “Leadership,” he said, “must heed the call of conscience, redemption, expansion, healing and unity, for they are the key to achieving our mission.” If the possibilities the milestone of 2008 suggest are not to be squandered, the call of conscience may demand that at least some of the policies and practices of the Bush years will have to be put in reverse gear as soon as possible.

World Leaders Vow Joint Push to Aid Economy

MARK LANDLER
NYT, November 16, 2008

WASHINGTON — Facing the gravest economic crisis in decades, the leaders of 20 countries agreed Saturday to work together to revive their economies, but they put off thornier decisions about how to overhaul financial regulations until next year, providing a serious early challenge for the Obama administration.

Though the countries’ stimulus packages were cast as ambitious steps, they mainly reflected measures that the countries were already undertaking to respond to the crisis. What remains to be seen is whether, working with a new White House, the leaders will cast aside their political and economic differences to embrace more radical changes, including far-reaching but fiercely debated proposals to overhaul regulation.

The group planned its next meeting for April 30, 101 days after President-elect Barack Obama is sworn into office.

Mr. Obama, who sent emissaries but did not attend at the meeting, will find common ground with the leaders in his support of a further stimulus program in the United States — something President Bush opposes. The group called for more fiscal measures to cushion the blow of a downturn that is hitting rich and poor countries.

Two senior advisers for Mr. Obama, Madeleine K. Albright and James A. Leach, met privately with leaders on the sidelines. And Mr. Obama addressed the meeting only obliquely on Saturday in his first radio address as president-elect, in which he expressed appreciation that Mr. Bush “has initiated this process, because our global economic crisis requires a coordinated global response.”

Meeting here, in the capital of the country where the crisis began, the extraordinary gathering of leaders from the Group of 20, representing wealthy countries and major emerging economies, began what participants said would be a broad reform of the institutions that have governed global markets since World War II.

In a five-page communiqué that mixed general principles with specific steps, the G-20 pledged a new effort to bolster supervision of banks and credit-rating agencies, scrutinize executive pay and tighten controls on complex derivatives, which deepened the recent market turmoil.

“Our nations agree that we must make the financial markets more transparent and accountable,” President Bush said. He warned that “a meeting is not going to solve the world’s problems,” and described the talks as the beginning of a process that would carry over to the next administration.

With dueling press briefings and statements through the weekend, it was clear that bridging ideological gaps among nations afflicted with different versions of the economic contagion would provide the new president and other world leaders with a daunting challenge.

There is also a more basic philosophical divide across the Atlantic: Europeans in general favor more state control over markets, even to the point of granting regulators cross-border authority, while the United States stresses the primacy of national regulators. President Nicolas Sarkozy of France, who called on Mr. Bush to organize the meeting, alluded to those differences, saying the negotiations, even on general principles, had been challenging.

Mr. Sarkozy said: “I am a friend of the United States of America, but if you ask, was it easy? No, it wasn’t easy.” He added that he did not fly to Washington “simply for the pleasure of traveling.”

He said the Americans had made concessions even by agreeing to discuss issues like regulatory coordination and executive pay. The communiqué, however, suggested there were concessions on both sides.

Prodded by Mr. Bush, who earlier in the week gave an impassioned defense of capitalism, the leaders reaffirmed their commitment to free markets and trade. But they also clearly laid blame for the crisis at the doorstep of the United States, saying “some advanced countries” had taken inadequate steps to prevent a buildup of dangerous risks.

The meeting set out a road map for overhauling regulations in a wide range of areas, and assigned the work to groups of experts. At the next meeting, which Mr. Sarkozy proposed to hold in London, the leaders will debate specific proposals developed by those groups.

Among those measures is a European proposal to set up so-called colleges of supervisors, which would meet regularly to share information about global banks with operations in many countries.

Another idea is to expand the membership of the Financial Stability Forum, an influential group of finance ministers and central bankers from industrialized countries, to include emerging markets like Brazil and China.

Still, for all the talk of action and history-making change, some experts said the outcome was disappointing.

“This is plain-vanilla stuff they could have agreed on without holding a meeting,” said Simon Johnson, an economist at the Massachusetts Institute of Technology and a former chief economist of the International Monetary Fund. “What’s new, except that this is the G-20 instead of the G-7?”

Despite broad support for economic stimulus, the leaders were not able to agree on a coordinated global effort. The Bush administration, which does not favor a further stimulus, resisted that idea. And the proposal for colleges of supervisors fell short of an international regulatory agency favored by the French. The Bush administration opposes any regulatory agency with cross-border authority.

The statement did not single out hedge funds as needing regulation, which Germany has long advocated. German diplomats said they were satisfied that the issue would be addressed later. “There shall be no blind spots,” said the German chancellor, Angela Merkel.

Despite playing up the role of the International Monetary Fund as a vehicle for helping developing countries in crisis, the leaders did not call for an expansion in the fund’s lending resources.

Collectively, the leaders here represented countries that account for 85 percent of the world’s economy. But the guest list was more remarkable for what it said about the shifting landscape of power. With the United States and Europe struggling economically and consumed by efforts to stabilize their banks, China, Japan and Saudi Arabia emerged as the likeliest candidates to help distressed countries.

In one of the few concrete commitments, the Japanese prime minister, Taro Aso, pledged to increase lending to the I.M.F. by up to $100 billion, and he encouraged other cash-rich countries to do the same. On Saturday, the fund added Pakistan to its list of countries receiving emergency funds. Pakistan said it had agreed to a loan of $7.6 billion to prevent a default by its government.

Some leaders were simply eager to be heard. “Emerging market countries were not the cause of this crisis, but they are amongst its most affected victims,” the prime minister of India, Manmohan Singh, said.

The leaders convened in the colonnaded great hall of the National Building Museum, a 19th-century building that served as headquarters for the United States Pension Fund after the Civil War. It was also the place Senator Hillary Rodham Clinton used to end her presidential campaign last June.

Mr. Bush, accompanied by his Treasury secretary, Henry M. Paulson Jr., sat between Brazil’s president, Luiz Inácio Lula da Silva, who chairs the Group of 20, and Prime Minister Aso.

Afterward, Mr. Bush acknowledged that expanding the group from the customary seven or eight industrialized powers to 20 nations raised the risk that nothing substantive would get done.

But Mr. Bush said the meeting had been surprisingly substantive, and he seemed enthusiastic about one of the more arcane proposals: a clearinghouse for the $33 trillion market in credit default swaps.

These derivatives, which act as a form of insurance against the failure of an underlying asset, have been blamed for exacerbating the recent market upheaval. A clearinghouse would back trades in credit default swaps and absorb losses if a dealer in these securities failed.

Mr. Bush said he felt compelled to act because “if you don’t take decisive measures, then it’s conceivable that our country could go into a depression greater than the Great Depressions.”

When Mr. Sarkozy first proposed the meeting, some predicted it would be dominated by finger-pointing. Now, some critics said the communiqué did not go far enough in assigning blame for the crisis.

“Anyone looking for the G-20 to issue a mea culpa on the global financial crisis will be sadly disappointed,” said Kenneth S. Rogoff, a professor of economics at Harvard. The leaders “curiously downplay the huge culpability of the political leadership in the U.S. and Europe.”

With Mr. Bush’s imminent departure, however, there seemed to be little appetite to pile on the United States.

With Congress likely to consider a stimulus package in the coming weeks or in January, Mr. Johnson of M.I.T. said Mr. Obama might be able to go to the next summit meeting with strong evidence of American action.

“The U.S., despite having broken all the china, may end up playing a decisive role in fixing this situation,” he said.

Steven Lee Myers, David D. Kirkpatrick and Sheryl Gay Stolberg contributed reporting.

Studs Terkel’s Legacy: A Vivid Window on the Great Depression

ADAM COHEN
NYT, November 8, 2008

After the great crash of 1929, the Wells-Grand Hotel in Chicago began losing guests. The ones who remained had more time for idle pastimes. “The decks of cards were wearing out more quickly” and “the black and red squares of the checkerboard were becoming indistinguishable.”

Those are the recollections of Studs Terkel, from his classic oral history of the Great Depression, “Hard Times.” I found myself re-reading the book this week because of the confluence of two unhappy events: the economic downturn and the death of Mr. Terkel on Oct. 31. He was 96.

I knew Mr. Terkel a bit — enough to appreciate his gentle nature, his deep interest in people of all sorts and his drive to reform the world. As I turned the pages of “Hard Times,” I was struck by the remarkable fit between historian and subject.

In Mr. Terkel’s wide-ranging interviews, the horrors of the Depression come through vividly. A manual laborer on the San Francisco waterfront recalled that when a sugar refinery offered four jobs to a crowd massed at the gates, “a thousand men would fight like a pack of Alaskan dogs” over them.

Dorothy Day, the Catholic social activist, told Mr. Terkel that in 1933 and 1934, “there were so many evictions on the East Side, you couldn’t walk down the streets without seeing furniture on the sidewalk.” An African-American hobo, Louis Banks, said that when he rode on top of boxcars, there was a railroad policeman who wouldn’t ask him to get off the train; he would just shoot.

Rich people also suffered in the Depression, and though they generally had more resources to fall back on, Mr. Terkel documented their woes with the same care he devoted to the hardest hit. Diana Morgan, a young woman from a wealthy Southern family, spoke of returning home from college and finding no cook or cleaning woman. The telephone had been disconnected. “And this was when I realized that the world was falling apart,” Ms. Morgan said.

Mr. Terkel noted the heavy psychological toll the Depression took on Americans. “The suddenly idle hands blamed themselves, rather than society,” he recalled. “No matter that others suffered the same fate, the inner voice whispered, ‘I’m a failure.’ ”

Radicalism swept the land, several of Mr. Terkel’s interview subjects recalled. “People were talkin’ revolution all over the place,” Joe Morrison, a steel worker, said. “You met guys ridin’ the freight trains and so forth, talkin’ about what they’d like to do with a machine gun.” In the Farm Belt, farmers frequently resorted to violence, including the near-lynching of an Iowa judge considered too willing to grant foreclosures.

Mr. Terkel, who worked for the Work Progress Administration’s Federal Writers’ Project, was highly sympathetic to the New Deal. The book contains a whole section of New Dealers reminiscing, including the economist Joe Marcus, who recalled the satisfaction of being part of Roosevelt’s crusade. “Laws could be changed,” Mr. Marcus said. “So could the conditions of people.”

Jane Yoder of Evanston, Ill., told Mr. Terkel how miraculous it was when her father, an unemployed blacksmith, found a W.P.A. job. “This was a godsend,” she said. “It meant food, you know. Survival, just survival.”

“Hard Times” does not romanticize the Depression, but at least a few of Mr. Terkel’s subjects managed to find silver linings. E.Y. Harburg was a young businessman whose company went bust after the crash. His friend Ira Gershwin told him to get a pencil and a rhyming dictionary and get to work. “When I lost my possessions, I found my creativity,” Mr. Harburg said. “I felt I was being born for the first time.”

He later wrote “Brother, Can You Spare a Dime?,” the Depression victim’s anthem, and the lyrics to songs in “The Wizard of Oz.”

“Hard Times” ends with an interview with Virginia Durr, a grand old Alabama woman I knew years ago when I lived in the state. Mrs. Durr, who fought the poll tax and bailed out Rosa Parks when she was arrested before the Montgomery Bus Boycott, was raised in genteel, sheltered circumstances. The Depression transported her.

“It was the first time I had seen the other side of the tracks,” Mrs. Durr told her good friend Mr. Terkel. “The rickets, the pellagra — it shook me up. I saw the world as it really was.”

She seems to have been speaking for Mr. Terkel, who also came of age in the 1930s. His lifelong empathy for the disenfranchised was rooted in the troubled era recalled so vividly in “Hard Times.”

The Obama Agenda

PAUL KRUGMAN
NYT, November 7, 2008

Tuesday, Nov. 4, 2008, is a date that will live in fame (the opposite of infamy) forever. If the election of our first African-American president didn’t stir you, if it didn’t leave you teary-eyed and proud of your country, there’s something wrong with you.

But will the election also mark a turning point in the actual substance of policy? Can Barack Obama really usher in a new era of progressive policies? Yes, he can.

Right now, many commentators are urging Mr. Obama to think small. Some make the case on political grounds: America, they say, is still a conservative country, and voters will punish Democrats if they move to the left. Others say that the financial and economic crisis leaves no room for action on, say, health care reform.

Let’s hope that Mr. Obama has the good sense to ignore this advice.

About the political argument: Anyone who doubts that we’ve had a major political realignment should look at what’s happened to Congress. After the 2004 election, there were many declarations that we’d entered a long-term, perhaps permanent era of Republican dominance. Since then, Democrats have won back-to-back victories, picking up at least 12 Senate seats and more than 50 House seats. They now have bigger majorities in both houses than the G.O.P. ever achieved in its 12-year reign.

Bear in mind, also, that this year’s presidential election was a clear referendum on political philosophies — and the progressive philosophy won.

Maybe the best way to highlight the importance of that fact is to contrast this year’s campaign with what happened four years ago. In 2004, President Bush concealed his real agenda. He basically ran as the nation’s defender against gay married terrorists, leaving even his supporters nonplussed when he announced, soon after the election was over, that his first priority was Social Security privatization. That wasn’t what people thought they had been voting for, and the privatization campaign quickly devolved from juggernaut to farce.

This year, however, Mr. Obama ran on a platform of guaranteed health care and tax breaks for the middle class, paid for with higher taxes on the affluent. John McCain denounced his opponent as a socialist and a “redistributor,” but America voted for him anyway. That’s a real mandate.

What about the argument that the economic crisis will make a progressive agenda unaffordable?

Well, there’s no question that fighting the crisis will cost a lot of money. Rescuing the financial system will probably require large outlays beyond the funds already disbursed. And on top of that, we badly need a program of increased government spending to support output and employment. Could next year’s federal budget deficit reach $1 trillion? Yes.

But standard textbook economics says that it’s O.K., in fact appropriate, to run temporary deficits in the face of a depressed economy. Meanwhile, one or two years of red ink, while it would add modestly to future federal interest expenses, shouldn’t stand in the way of a health care plan that, even if quickly enacted into law, probably wouldn’t take effect until 2011.

Beyond that, the response to the economic crisis is, in itself, a chance to advance the progressive agenda.

Now, the Obama administration shouldn’t emulate the Bush administration’s habit of turning anything and everything into an argument for its preferred policies. (Recession? The economy needs help — let’s cut taxes on rich people! Recovery? Tax cuts for rich people work — let’s do some more!)

But it would be fair for the new administration to point out how conservative ideology, the belief that greed is always good, helped create this crisis. What F.D.R. said in his second inaugural address — “We have always known that heedless self-interest was bad morals; we know now that it is bad economics” — has never rung truer.

And right now happens to be one of those times when the converse is also true, and good morals are good economics. Helping the neediest in a time of crisis, through expanded health and unemployment benefits, is the morally right thing to do; it’s also a far more effective form of economic stimulus than cutting the capital gains tax. Providing aid to beleaguered state and local governments, so that they can sustain essential public services, is important for those who depend on those services; it’s also a way to avoid job losses and limit the depth of the economy’s slump.

So a serious progressive agenda — call it a new New Deal — isn’t just economically possible, it’s exactly what the economy needs.

The bottom line, then, is that Barack Obama shouldn’t listen to the people trying to scare him into being a do-nothing president. He has the political mandate; he has good economics on his side. You might say that the only thing he has to fear is fear itself.

Change I Can Believe In

DAVID BROOKS
NYT, November 7, 2008

I have dreams. I may seem like a boring pundit whose most exotic fantasies involve G.A.O. reports, but deep down, I have dreams. And right now I’m dreaming of the successful presidency this country needs. I’m dreaming of an administration led by Barack Obama, but which stretches beyond the normal Democratic base. It makes time for moderate voters, suburban voters, rural voters and even people who voted for the other guy.

The administration of my dreams understands where the country is today. Its members know that, as Andrew Kohut of the Pew Research Center put it on “The NewsHour,” “This was an election where the middle asserted itself.” There was “no sign” of a “movement to the left.”

Only 17 percent of Americans trust the government to do the right thing most or all of the time, according to an October New York Times/CBS News poll. So the members of my dream Obama administration understand that they cannot impose an ideological program the country does not accept. New presidents in 1932 and 1964 could presuppose a basic level of trust in government. But today, as Bill Galston of the Brookings Institution observes, the new president is going to have to build that trust deliberately and step by step.

Walking into the Obama White House of my dreams will be like walking into the Gates Foundation. The people there will be ostentatiously pragmatic and data-driven. They’ll hunt good ideas like venture capitalists. They’ll have no faith in all-powerful bureaucrats issuing edicts from the center. Instead, they’ll use that language of decentralized networks, bottom-up reform and scalable innovation.

They will actually believe in that stuff Obama says about postpartisan politics. That means there won’t just be a few token liberal Republicans in marginal jobs. There will be people like Robert Gates at Defense and Ray LaHood, Stuart Butler, Diane Ravitch, Douglas Holtz-Eakin and Jim Talent at other important jobs.

The Obama administration of my dreams will insist that Congressional Democrats reinstate bipartisan conference committees. They’ll invite G.O.P. leaders to the White House for real meetings and then re-invite them, even if they give hostile press conferences on the White House driveway.

They’ll do things conservatives disagree with, but they’ll also show that they’re not toadies of the liberal interest groups. They’ll insist on merit pay and preserving No Child Left Behind’s accountability standards, no matter what the teachers’ unions say. They’ll postpone contentious fights on things like card check legislation.

Most of all, they’ll take significant action on the problems facing the country without causing a mass freak-out among voters to the right of Nancy Pelosi.

They’ll do this by explaining to the American people that there are two stages to their domestic policy thinking, the short-term and the long-term.

The short-term strategy will have two goals: to mitigate the pain of the recession and the change the culture of Washington. The first step will be to complete the round of stimulus packages that are sure to come.

Then they’ll take up two ideas that already have bipartisan support: middle-class tax relief and an energy package. The current economic and energy crisis is an opportunity to do what was not done in similar circumstances in 1974 — transform this country’s energy supply. A comprehensive bill — encompassing everything from off-shore drilling to green technologies — would stimulate the economy and nurture new political coalitions.

When the recession shows signs of bottoming out, then my dream administration would begin phase two. The long-term strategy would be about restoring fiscal balances and reforming fundamental institutions.

By this time, the budget deficit could be zooming past $1.5 trillion a year. The U.S. will be borrowing oceans of money from abroad. My dream administration will show that it understands that the remedy for a culture of debt is not more long-term debt. It will side with those who worry that long-term deficits could lead to ruinous interest-rate hikes.

My dream administration will announce a Budget Rebalancing Initiative. Somebody like Representative Jim Cooper would go through the budget and take out the programs and tax expenditures that don’t work. “If we have no spending cuts, then we’re saying government is perfect. Nobody believes that,” Cooper says.

Having built bipartisan relationships, having shown some fiscal toughness, having seen the economy through the tough times, my dream administration will then be in a position to take up health care reform, tax reform, education reform and a long-range infrastructure initiative. These reforms may have to start slow and on the cheap. But real reform would be imaginable since politics as we know it would be transformed.

Is it all just a dream? I hope not. In any case, please be quiet and let me have my moment.

An Eternal Revolution

By ORLANDO PATTERSON
NYT, November 7, 2008

BARACK OBAMA’S victory marks the end of another magnificent chapter in America’s experience of democracy. But rather than being seen as a radical transition, it is best viewed as part of an ever-evolving process that began with the election of George Washington in 1789. To interpret it as a foundational change, ushering something new and unknown, is to diminish the past, to unduly singularize Mr. Obama’s achievement and to raise unrealistic expectations about his presidency.

Mr. Obama owes his victory, first, to his gift of leadership and personality: the hybrid cool of his charisma, his cathartic power to mine unity from difference. But his triumph depended on voters, first prone to see his candidacy as exotic, to recognize it as something that could (and would) only happen here. That they did stems in large part from the founding fathers’ clear vision of the ideal makeup of a democracy: an inclusive electorate, political participation and political power sharing.

This was a vision that terrified as much as it fascinated the conservative men who were often amazed at what they had signed on to in 1787: a revolutionary “charter of power granted by liberty,” in James Madison’s nervously triumphalist prose. So they promptly ensured that it would only very slowly threaten the political hegemony of older white men.

Three groups, in particular, were excluded from the process: blacks, women and the young. The history of American democracy can be read in good part as the struggle of all three to become fully included in the process. The 2008 campaign was remarkable in the way all three groups worked together to realize, finally and fully, the ambivalent vision of the founders.

Most important to the Obama victory was the long struggle of black Americans to be incorporated in the public sphere. That entailed not just the dismantlement of Jim Crow but the election of black officers at all levels of the political system. The sheer presence of significant numbers of blacks in positions of political authority was as much the cause as the consequence of the profound change in white political attitudes. Colin Powell’s flirtation with a presidential run was a critical point in this shift in white attitude, effectively priming the nation for the possibility of a black candidate. But so too were the appointments of blacks such as Secretary of State Condoleezza Rice and former Commerce Secretary Ron Brown.

And while disdained by most social scientists, the cultural dimension of black public incorporation also prepared the way: a white population that venerates Will Smith, Oprah Winfrey and Michael Jordan, its youth steeped in hip-hop, has already gone a long way toward accepting a black leader in the highest office of the public sphere, even if whites are reluctant to do the same in their segregated private lives.

Of equal importance in explaining Senator Obama’s triumph, however, are American women. This campaign was, in a remarkable way, a condensed re-enactment of the entire intertwined struggle of blacks and women for political inclusion. White women first rejected their confinement to the role of virtuous motherhood in the private sphere of the early Republic by championing the very public struggle for the abolition of slavery. In much the same way, the modern second wave of feminism was facilitated by, and partly modeled on the black civil rights movement.

Black achievement has always presaged female advancement, not always from the noblest of motives: if blacks could vote, enjoy protection from discrimination and run for office, so should women. Hillary Clinton’s forceful campaign, however important, pales in comparison with this historic American tendency in explaining why a female president is now a near certainty and not long off.

But women have always repaid the debt. A quiet but momentous change took place in the 1980s that was just as important as the civil rights movement in explaining Barack Obama’s victory: the epochal shift in the voting behavior of women who, for the first time since enfranchisement, voted in greater numbers, and more progressively, than men. In raw demographic terms, the most important factor in explaining the Obama victory was women voting by a 13 percent margin in his favor, while men were almost evenly split. President Obama would neglect this base of support at his peril.

Finally, there is the much discussed resurgence in the youth vote. Here, again, change is best viewed as a critical moment in a pre-existing process. American youths have long voted at distressingly low levels, although the turnout of eligible voters between 18 and 29 surged moderately between 2000 and 2004, from 36 to 47 percent. While Tuesday’s exit polls are showing only an incremental change in this rate, Mr. Obama had a powerful impact on youth activism, deploying young Americans in voter mobilization ground operations and in the game-changing use of the Internet for voter outreach and campaign finance.

Young voters went 2-to-1 in Mr. Obama’s favor on Tuesday. Their advocacy in the Iowa caucuses was likely the decisive factor in his all-important victory there. The most lasting effect of all this may be a permanent shift of the youth vote toward the Democratic Party, although one can certainly expect the Republicans, who made successful efforts on campuses in the Ronald Reagan years, to mount a challenge.It appears, too, that the intense bonding of younger Americans with the youthful Mr. Obama initiates the transmission of power from baby boomers, who have for so long consumed the nation’s assets and attention, to a younger generation from whom so much has already been taken, in social security and resources.

To view the election of Barack Obama as notable only as an example of breaking through a racial barrier is to misunderstand the greater flow of our ever-more-inclusive democracy. America has, at last, delivered, in creating the most sublime example of democratic governance since its invention in Greece 25 centuries ago.

Orlando Patterson is a professor of sociology at Harvard and the author of “The Ordeal of Integration.”

Fed’s Action Stems Sell-Off in World Markets

EDMUND L. ANDREWS
NYT, January 23

WASHINGTON — The Federal Reserve, confronted by deepening panic in global financial markets about a possible recession in the United States, struck back on Tuesday morning with the biggest one-day reduction of interest rates on record and at least temporarily stopped a vertigo-inducing plunge in stock prices.

The unexpected decision came after a rare, hastily called policy meeting by videoconference on Monday evening, and it reduced the Fed’s benchmark overnight lending rate by three-quarters of a percentage point, to 3.5 percent.

The Fed’s move was prompted in part by turmoil in global markets on Monday, a holiday in the United States. Shortly after lunch that day, the Fed chairman, Ben S. Bernanke, canceled a planned trip to New York and started organizing the impromptu meeting of the Fed officials who decide interest rate policy. The Treasury secretary, Henry M. Paulson Jr., watching the same market turmoil, was anxious enough that he called President Bush at the White House.

In a statement accompanying the Fed’s decision, which was announced about an hour before the stock market opened for trading, officials hinted that they might reduce rates yet again at their scheduled meeting next Tuesday and Wednesday.

The magnitude of the Fed’s rate cut helped reverse what began as a horrendous day in the stock markets. European and Asian stock prices had already plunged for the second consecutive day, and the Dow Jones industrial average fell 464 points — about 5 percent — as soon as markets opened in New York.

By the close of trading Tuesday, stock prices, after gyrating wildly, had clawed much of their way back. Shares of banks and insurers of mortgage-backed securities, which had been battered in recent days, were among the day’s biggest gainers. Asian markets seemed to calm Wednesday morning with most exchanges opening higher.

“Wall Street is incredibly jittery,” said Len Blum, a partner at Westwood Capital, an investment bank in New York. “They don’t know how to react to it. The last time they did a rate cut in between meetings was after Sept. 11, 2001.”

The Fed’s move came as Mr. Bush and Congressional leaders pledged to work together on a bipartisan measure to jolt the economy with about $145 billion in tax rebates, tax breaks for businesses and possibly additional payments to low-income people.

“I believe we can find common ground to get something done that’s big enough and effective enough,” Mr. Bush told reporters. Senator Harry Reid of Nevada, the Senate majority leader, said he hoped Congress could pass a bill before the recess for Washington’s Birthday on Feb. 18.

Still, it was a nerve-racking day on Wall Street, with the Dow ending down 128 points, or about 1 percent. Even after the rebound, the major market indexes are down about 10 percent so far in January and even further off their recent highs in October. The Nasdaq composite index, which mostly reflects technology stocks, is off 18.3 percent.

Economists said it remained far from clear that the United States would avoid a recession, either because the Fed and the Bush administration had moved too slowly or because the economy’s woes were too acute to solve quickly and painlessly.

“This is unique in the modern history of the Fed,” said Vincent Reinhart, a resident scholar at the American Enterprise Institute who was director of the Fed’s division of monetary affairs from 2001 to 2007.

Even so, it may not be enough to head off a downturn: changes in interest rates usually work with a lag time of at least six to nine months, and many economists say that a recession may already have begun.

Citigroup, citing the severely depressed housing market, the credit squeeze and high energy prices, predicted on Tuesday that the economy was about to start shrinking and would barely eke out any growth for all of 2008.

“Academic definitions aside, we’ll call that a recession,” wrote Steven Wieting, a Citigroup economist.

Fed officials stopped well short of such gloom and doom, but they made it clear they had been alarmed by both worsening data in the United States and the worldwide stock panic that began on Monday.

“Broader financial market conditions have continued to deteriorate,” the central bank said, noting that credit conditions have continued to tighten for many businesses and households, that the housing market continues to spiral downward and that job creation has slowed.

“Appreciable downside risks to growth remain,” the central bank said, its most forceful acknowledgment yet that the United States economy is on the brink of a recession as a result of the triple punch from the severe downturn in housing, the fallout from soured mortgages and the added blow of high oil prices.

The move represented a dramatic shift for Mr. Bernanke, who took over as Fed chairman two years ago. Mr. Bernanke, a former professor of economics at Princeton, had resisted calls for a big rescue effort by the Fed and favored a less personalized approach to monetary policy than his predecessor, Alan Greenspan.

But when Mr. Bernanke called policy makers together for an emergency meeting on Monday night, with regional Fed presidents participating over secure videoconference lines, he embarked on the boldest policy move in years.

This was only the fifth time that the Federal Reserve had reduced the overnight federal funds rate outside of its regularly scheduled policy meetings. It did so in October 1998, during Russia’s financial collapse, two more times in early 2001 as the economy was sliding into a recession and once more after the terrorist attacks on Sept. 11, 2001.

This was also the central bank’s biggest one-day cut in the federal funds rate, which is its target for the overnight rate at which banks lend their reserves to each other. Until Tuesday’s reduction of three-quarters of a percentage point, the biggest individual cuts were by half a point.

The only comparable rate cuts were in 1982 and 1984, when the central bank, which was following different procedures, reduced the overnight rate by more than one percentage point over the span of several weeks.

Fed officials clearly hoped that a bold and decisive act would calm investors and restore confidence in credit markets, where fears about soaring defaults on subprime mortgages have increasingly forced banks to curtail their lending in other areas.

But while investors did react with relief, the Fed’s move also seemed to validate the fears that the economy is closer to a recession than policy makers had thought.

On Wall Street, many if not most analysts had assumed that the central bank would reduce overnight rates by half a percentage point at the next policy meeting. But with the meeting only one week away, few investors expected the Fed to cut rates before then — a move that could easily be seen as panicky behavior.

The Fed move carries other risks. Reducing the interest rate could push up the inflation rate, even as it bolsters consumer spending.

In a speech this month, Mr. Bernanke strongly hinted that the Fed would reduce rates again at the policy meeting scheduled for next week. Mr. Bernanke had clearly not expected to move before the meeting.

But the Fed chairman became notably more worried by late last week. Most of the incoming economic data pointed toward a slowdown. On top of rising unemployment in December and depressed holiday sales at many major retailers, there were signs of a worsening credit squeeze, new declines in housing starts and worries about the companies that insure mortgage-backed securities.

Mr. Bernanke and other Fed officials contend they do not make decisions in order to calm financial markets. But analysts say they became alarmed about last week’s stock market plunge and Mr. Bernanke was even more alarmed by the huge drops Monday in foreign stock markets like Frankfurt, London and Hong Kong.

The drop in foreign stock prices undermined one of the last bright spots for the American economy — the prospect that a strong global economy, combined with a cheap American dollar, would spur enough export growth to offset a weakness at home.

The growing sense of crisis added urgency to efforts by Mr. Bush and Congressional leaders to bury their political animosities and agree on a short-term fiscal- stimulus package.

A spokesman for Mr. Paulson said that he had been busy reaching out to Congressional leaders all last week and that the market declines of the last few days had not by themselves forced him to quicken the pace.

Mr. Bush and Congressional leaders have both talked about a package that would inject about $150 billion in additional money into the economy. That would equal about 1 percent of the nation’s economic output, which economists and Fed officials said could make a difference if the money gets into people’s hands quickly enough.

But even if Congress passes such a measure by mid-February, which would require Republicans and Democrats to suppress their animosities and their contrasting economic approaches, the earliest that tax rebates would actually reach people would probably be this summer. At that point, it would help soften the blow but a recession might have already been under way for months.

Ultimately, it is the Federal Reserve that has the most power to avert or soften a recession. But its power is finite, and its primary tool — lower interest rates — takes time to work.

“Monetary policy works with a lag,” said Mr. Reinhart, the former top Fed official. “There’s nothing the Fed can do to prevent a recession if it is coming in the first half of this year.”

Steven R. Weisman and Carl Hulse contributed reporting.

Feeling Misled on Home Price, Buyers Sue Agent

DAVID STREITFELD
NYT, January 22

CARLSBAD, Calif. — Marty Ummel feels she paid too much for her house. So do millions of other people who bought at the peak of the housing boom.

What makes Ms. Ummel different is that she is suing her agent, saying it was all his fault.

Ms. Ummel claims that the agent hid the information that similar homes in the neighborhood were selling for less because he feared she would back out and he would lose his $30,000 commission.

Real estate lawyers and brokers say the case, which goes to trial in North County Superior Court on Monday, is likely to be the first of many in which regretful or resentful buyers seek redress from the agents who found them a home and arranged its purchase.

“When your house appreciates $100,000 in the first six months, you’re not quite as concerned that maybe the valuation was $25,000 or $50,000 off,” said Clifford Horner of the law firm Horner & Singer. “But when your house goes down, you ask: ‘Who might have led me astray here?’ ”

Agents representing buyers rarely had the opportunity to make mistakes during the last real estate boom, in the late 1980s, because the job hardly existed then. For decades, residential transactions almost always involved brokers who, whatever assistance they gave the buyer, legally represented only the seller.

The long boom that began in the late 1990s put an end to that one-sided world. As prices spiked, buyer’s agents and brokers became popular as sounding boards, advisers and negotiators. The National Association of Realtors estimates they are now involved in two-thirds of all residential purchases.

That makes this the first housing collapse in which large numbers of buyers had a real estate professional explicitly looking after their interests. The Ummel case poses the question: In a relationship built on trust, where promises are rarely written down and where — as in this case — there is no signed contract, what are the exact obligations of these representatives in guiding their clients through a sizzling market?

“Agents have a lot of fiduciary duties, but they don’t make money unless they close the sale,” said Joel Ruben, a real estate lawyer in Manhattan Beach, Calif. “In an inflated market, there are built-in temptations to cut corners.”

The defendant in the Ummel case is Mike Little, a veteran agent with ReMax Associates. He will argue that Marty Ummel, who brought the case with her husband, Vernon, is trying to shift the blame for the couple’s own failures of research and due diligence.

“They simply didn’t do what is expected of a knowledgeable, sophisticated buyer, and are now looking for someone other than themselves to take responsibility,” Roger Holtsclaw, an agent who was hired by Mr. Little as an expert witness, said in a court deposition.

Ms. Ummel is 60; Mr. Ummel, 71. With retirement on the horizon, they decided in late 2004 to move from the San Francisco Bay area to San Diego, where they would be near their grown children.

Since they were not making the move for job reasons, they decided to take their time and focus on finding a house that was a good value. In a boom, that is no simple task for buyer or agent.

It is clear the Ummels did not rush into a decision: They dismissed one agent and canceled deals on two houses before Mr. Little found them a prospect on a cul-de-sac in a five-year-old luxury development. A deal was struck with the owner, herself a real estate agent, for $1.2 million.

Mr. Little also worked as a mortgage broker. The Ummels say he encouraged them to get their loan through him. Mr. Little ordered an appraisal of the house but did not respond to the couple’s requests to see it, the suit charges.

A few days after the couple moved in, in August 2005, they got a flier on their door from another realty agent. It showed a house up the street had just sold for $105,000 less than theirs, even though it was the same size.

Then they finally got their appraisal, which told them the house up the street was not only cheaper but had a pool. Another flier in early October mentioned a house down the street that was the same size and closed the same day as the Ummels’ but went for $175,000 less.

The Ummels accuse Mr. Little not only of withholding information but of exaggerating the virtues of their house to push them into a deal.

Ms. Ummel said in her deposition that Mr. Little had told them “many times that it was a very good buy.”

“And you believed that?” asked David Bright, the lawyer who represents both Mr. Little and ReMax Associates, which was also named in the suit.

“Yes, we trusted Mike Little,” Ms. Ummel replied.

Mr. Horner, the lawyer, said valuation is a tricky area for brokers.

“Brokers aren’t appraisers,” said Mr. Horner, one of the writers of a guide to suing brokers. “They have no obligation to opine about value. But once they do, it becomes a gray area whether it’s puffery or a misstatement of a known fact.”

Most people who made a bad real estate deal might wince and move on, but people who know Ms. Ummel describe her as unusually determined. She spent a year picketing ReMax offices on weekends.

Mr. Ummel, an administrator at Dominican University, gave her his permission to pursue the case, on one condition: “Don’t tell me how much the legal fees are.” So far, the bills come to $75,000, more than Ms. Ummel’s annual salary as a fund-raiser at California State University in San Marcos.

“I do not think I’m obsessive-compulsive, but I am 114 pounds of absolute perseverance,” Ms. Ummel said.

That persistence has put the Ummels at the forefront of a developing legal question. When buyers have sued their agents in the past, the cases focused on problems with the property itself, often alleging failure by the broker to disclose a known hazard or maintenance issue. After reviewing litigation records for the last five years, the National Association of Realtors could find no cases that revolved solely around the question of valuation.

Ms. Ummel’s original suit included the appraiser, who was accused of skewing his report to make the Ummel’s house seem worth the purchase price, and the mortgage broker. Modest settlements have been reached with both.

In a brief phone interview, Mr. Little called the case “ridiculous,” adding: “The lady’s a nut job. I didn’t do anything wrong.”

Mr. Little said that contrary to Ms. Ummel’s claims, the suit was motivated mainly by the declining market. “When people see their home values and assets declining, they always feel there’s someone to blame,” he said. “This is a dangerous time for all of us in the industry.”

The agent declined several requests to expand on his remarks. His lawyer declined to be interviewed. So did Geoff Mountain, a co-owner of ReMax Associates, which owns the office that the Ummels were dealing with.

Both sides have hired appraisers who have combed the surrounding development. Mr. Little’s appraiser concluded the four-bedroom, 3.5-bath house was worth $1,150,000 to $1.2 million in the summer of 2005. The Ummels’ appraiser said it was worth $1,050,000.

The outlines of Mr. Little’s defense can be seen in his lawyer’s lengthy deposition of the Ummels. Even in a relatively new development, Mr. Bright said, no two houses and no two deals can be seen as identical. For instance, a pool does not necessarily add value because “some buyers like it, some don’t.”

Mr. Little never showed the Ummels the house down the street because the backyard could be viewed from other houses, the lawyer said, and the couple had said they valued their privacy. Ms. Ummel disputes saying this.

The agent who left the flier that led to the case, Margaret Hokkanen, is sympathetic to Mr. Little.

“People are responsible for their own decisions,” said Ms. Hokkanen, who has been subpoenaed as a defense witness.

Her husband and partner, John Hokkanen, is more ambivalent.

“We have seen so much misrepresentation over the last five years,” he said. “So I appreciate where these buyers might be coming from: ‘I’m a lowly consumer, you’re certified by the state of California, you didn’t do X, you didn’t do Y, and I got hurt.’ ”

The Ummels may be on the leading edge of the law, but they are unlikely to be alone for long. With the market falling, many homeowners owe more on their mortgages than their houses are worth. And many of those deals involved brokers who are required to carry professional liability insurance, presenting a tempting target for angry buyers.

“If you put someone into a property at the top of the market, you look really bad if it goes down,” said K. P. Dean Harper, a real estate lawyer in Walnut Creek, Calif. “There are a lot of letters going out from lawyers to real estate agents saying, ‘My client would never have purchased if you had properly evaluated the market conditions and the value of the property.’ ”

Overseas Investors Buy Aggressively in U.S.

PETER S. GOODMAN and LOUISE STORY
NYT, January 20, 2008

Last May, a Saudi Arabian conglomerate bought a Massachusetts plastics maker. In November, a French company established a new factory in Adrian, Mich., adding 189 automotive jobs to an area accustomed to layoffs. In December, a British company bought a New Jersey maker of cough syrup.

For much of the world, the United States is now on sale at discount prices. With credit tight, unemployment growing and worries mounting about a potential recession, American business and government leaders are courting foreign money to keep the economy growing. Foreign investors are buying aggressively, taking advantage of American duress and a weak dollar to snap up what many see as bargains, while making inroads to the world’s largest market.

Last year, foreign investors poured a record $414 billion into securing stakes in American companies, factories and other properties through private deals and purchases of publicly traded stock, according to Thomson Financial, a research firm. That was up 90 percent from the previous year and more than double the average for the last decade. It amounted to more than one-fourth of all announced deals for the year, Thomson said.

During the first two weeks of this year, foreign businesses agreed to invest another $22.6 billion for stakes in American companies — more than half the value of all announced deals. If a recession now unfolds and the dollar drops further, the pace could accelerate, economists say.

The surge of foreign money has injected fresh tension into a running debate about America’s place in the global economy. It has supplied state governors with a new development strategy — attracting foreign money. And it has reinvigorated sometimes jingoistic worries about foreigners securing control of America’s fortunes, a narrative last heard in the 1980s as Americans bought up Hondas and Rockefeller Center landed in Japanese hands.

With a growing share of investment coming from so-called sovereign wealth funds — vast pools of money controlled by governments from China to the Middle East — lawmakers and regulators are calling for greater scrutiny to ensure that foreign countries do not gain influence over the financial system or military-related technology. On the presidential campaign trail, the Democratic candidates have begun to focus on these foreign funds, calling for international rules that would make them more transparent.

Debate is swirling in Washington about the best way to stimulate a flagging economy. Despite divided opinion about the merits, foreign investment may be preventing deeper troubles by infusing hard-luck companies with cash and keeping some in business.

The most conspicuous beneficiaries are Wall Street banks like Merrill Lynch, Citigroup and Morgan Stanley, which have sold stakes to government-controlled funds in Asia and the Middle East to compensate for calamitous losses on mortgage markets. Beneath the headlines, a more profound shift is under way: Foreign entities last year captured stakes in American companies in businesses as diverse as real estate, steel-making, energy and baby food.

The influx is the result of a confluence of factors that have made the United States both reliant on the largesse of foreigners and an alluring place for opportunistic investors. With American banks reeling from the housing downturn and loath to lend, businesses are hungry for cash.

The weak dollar has made American companies and properties cheaper in global terms, particularly for European and Canadian buyers. Even as Americans confront the prospect of a recession, economic growth remains strong worldwide, endowing oil producers like Saudi Arabia and Russia and export powers like China and Germany with abundant cash.

As the German company ThyssenKrupp Stainless broke ground in November on what is to be a $3.7 billion stainless steel plant in Calvert, Ala., its executives spoke effusively about the low cost of production in the United States and the chance to reach many millions of customers — particularly because of the North American Free Trade Agreement, which allows goods to flow into Mexico and Canada free of duty.

“The Nafta stainless steel market has great potential, and we’re committed to significantly expanding our business in this growth region,” said the company’s chairman, Jürgen H. Fechter, according to a statement.

Foreign giants like Toyota Motor and Sony have been sinking capital into American plants. Investment in the American subsidiaries of foreign companies grew to $43.3 billion last year from $39.2 billion the previous year, according to the research and consulting firm OCO Monitor.

“This is a vote of confidence in the American economy, the American marketplace and the American worker,” the deputy Treasury secretary, Robert M. Kimmitt, said. “These investments keep Americans employed and keep balance sheets strong.”

Five million Americans now work for foreign companies set up in the United States, Mr. Kimmitt said, and those jobs pay 30 percent more than similar work at domestic companies. Nearly a third of such jobs are in manufacturing, which explains why Rust Belt states have been wooing foreign investment.

“We’ve lost 400,000 manufacturing jobs,” said Michigan’s governor, Jennifer M. Granholm, a Democrat, who has traveled three times to Europe and twice to Japan in pursuit of investment since taking office in 2003. “I’ve got to get jobs for our people.”

Some labor unions see the acceleration of foreign takeovers as the latest indignity wrought by globalization.

“It’s the culmination of a series of fool’s errands,” said Leo W. Gerard, international president of the United Steelworkers. “We’ve hollowed out our industrial base and run up this massive trade deficit, and now the countries that have built the deficits are coming back to buy up our assets. It’s like spitting in your face.”

Other labor groups take a more pragmatic view.

“We need investment and we need to create good jobs,” said Thea Lee, policy director for the A.F.L.-C.I.O. in Washington. “We’re not in the position to be too choosy about where that investment comes from. But it does bring home the consequences of flawed trade policies over many, many years that we’re in this position of being dependent.”

At the center of concern is the growing influence of sovereign wealth funds, which invested $21.5 billion in American companies last year, according to Thomson. Analysts say they could skew markets by investing to improve the fortunes of their national companies or to pursue political goals.

“This is a phenomenon that could be called the growth of state capitalism as opposed to market capitalism,” said Jeffrey E. Garten, a trade expert at the Yale School of Management. “The United States has not ever been on the receiving end of this before.”

Perhaps emblematic of national ambivalence, in an appearance on CNBC last week, the voluble market analyst Jim Cramer spoke in menacing terms about the growing role of state investment funds from the Middle East and China.

“Do we want the communists to own the banks, or the terrorists?” Mr. Cramer asked. “I’ll take any of it, I guess, because we’re so desperate.”

Proponents of investment from overseas note that finance from sovereign wealth funds is a mere trickle of the overall flow from abroad. Indeed, the bulk comes from Europe, Canada and Japan. Just as Americans have scattered investments around the world in pursuit of profit — with holdings of foreign stock and debt exceeding $6 trillion in 2006, according to the Treasury Department — foreigners are looking to the United States, with their capital generating economic activity, proponents say.

If fear of foreign money now inspires Americans to erect new barriers, that would damage the economy, said Todd M. Malan, president of the Organization for International Investment, a Washington lobbying group financed by foreign companies.

“The policy choices on the negative side would have enormous economic implications that would make the current situation look like a bubble bath,” he said.

Tensions spawned by foreign investment hark back to the 1980s, when Japan snapped up prominent American businesses like Columbia Pictures, and some intoned that the American way of life was under assault. The new wave of foreign money is washing in at an even more important time, analysts say.

The United States has lost more than three million manufacturing jobs since 2001, with foreign trade often taking the blame. Foreign-made goods now account for roughly one-third of all wares consumed in the United States, roughly tripling their share over the last quarter-century. The soaring price of oil and a widening trade deficit underscore how the American economy is increasingly vulnerable to decisions made far away.

In 2005, Congressional opposition scuttled a bid by the state-owned Chinese energy company Cnooc to buy the American oil company Unocal. The following year, furor on Capitol Hill prevented DP World, a company based in the United Arab Emirates, from buying several major American ports.

No such outcry has greeted the purchase of stakes in major Wall Street banks by state investment funds in the United Arab Emirates, Kuwait, China, Singapore and South Korea. This is largely because the banks sold passive slices and ceded no formal control, which would have set off a federal review of the national security implications. But the silence also reflects the imperative that these enormous institutions swiftly secure cash.

“It would be good if these companies didn’t need all this capital and better if the capital was available in the United States,” said Senator Charles E. Schumer, Democrat of New York, who was a vocal opponent of the DP World deal. “But given the situation that these institutions find themselves in and the fact that there’s a pretty strong credit squeeze, there’s only two choices: Have foreign companies invest in these firms or have massive layoffs.”

In years past, particularly when Japanese money washed in, many foreign purchases proved not to be so prudent in the end. This time, with the dollar weak and troubled American companies in a poor bargaining position, the prices really do seem cheap, some economists say.

“They’re buying financial assets at well under book value,” said Gary C. Hufbauer, a trade expert at the Peterson Institute for International Economics.

Trade experts assume tensions will rise as developing countries — which tend to have more state companies — continue to expand their share of investment in the United States.

Canada still spends the most money buying stakes in American companies — more than $65 billion in 2007, according to Thomson. But other countries’ purchases are growing rapidly. South Korea’s investments swelled to more than $10.4 billion last year from just $5.4 million in 2000. Russia went to $572 million from $60 million in that span; India to $3.3 billion from $364 million.

But even if political tension increases, so will the flow of foreign money, some analysts say, for the simple reason that businesses need it.

“The forces sucking in this capital are much bigger than the political forces,” said Mr. Garten, the Yale trade expert. “If there is a big controversy, it will be between Washington on the one hand and corporate America on the other. In that contest, the financiers and the businessmen are going to win, as they always do.”

KIDNAPPED BY THE USA

Faizan Mustafa
The Statesman, 9 December

WE may find it morally repugnant that a nation even in 21st century may legally kidnap citizens of other countries for trial even for ordinary crimes. Yet this is the harsh reality in America which no longer attaches much significance to morality, ethics, sovereignty of other nations and above all the rights of the accused.

The United States of America, the so-called “most civilized country in the world” and the self-appointed champion of human rights throughout the globe has now openly admitted in a British court that it can “kidnap” citizens of any country in the world, including British citizens, if they are wanted for crimes in the United States.

A senior lawyer for the American government has told the Court of Appeal in London that kidnapping foreign citizens is permissible under American law because the US Supreme Court has not held it illegal. This may shock the conscience of traditional criminal law lawyers. The American government’s view emerged during a hearing involving Stanley Tollman, a former director of Chelsea football club and a friend of Baroness Thatcher, and his wife Beatrice. The Tollmans, who control the Red Carnation hotel group and are residents of London, are wanted in America for bank fraud and tax evasion. They have been fighting extradition through the British courts.

The admission will alarm the entire business community in Britain after the case of the so-called NatWest Three, the bankers who were extradited to America on fraud charges. More than a dozen other British executives, including senior managers of British Airways and BAE Systems, are presently under investigation by the US authorities and could face criminal charges in America.

Prior to this explicit and candid admission, it was generally assumed that US law permitted kidnapping only in the “extraordinary rendition” of terrorist suspects.

It is now official that America viewed extradition as just one way of getting foreign suspects back to face trial. Rendition, or kidnapping, dates back to the 19th century bounty hunting. The United States continues to believe it is still legitimate and perfectly legal to kidnap an accused from any part in the world.

The American government believes that extradition requests, whether based on treaties or customary international law, are quite often cumbersome and ineffective. It feels that several countries are often either unable or unwilling to arrest and extradite indicted criminals. The existence of such non-cooperative states effectively creates safe havens for international fugitives.

The USA tries to justify such abductions on the basis of earlier cases. On May 11, 1960, Israeli agents abducted Adolf Eichmann, a Nazi war criminal notorious for his role in Hitler's 'final solution', from Argentina and flew him to Israel. In February 1963, Argoud, a leader of a military revolt against President De Gaulle was kidnapped from Munich. In 1964, Egyptian agents tried to kidnap Mordecai Luk, an alleged double agent for Egypt and Israel, by shipping him in a trunk to Egypt.

Kidnapping of fugitives is thus a long-standing practice which the United States follows in preference to extradition. On June 21, 1989, the Department of Justice ruled that the President has constitutional authority to direct the Federal Bureau of Investigation to abduct a fugitive from a foreign country even if those actions violate international law. In 1989, American military forces abducted General Manuel Noriega from Panama to face drug-dealing charges. The US DEA agents offered former Mexican police officers a $50,000 reward to abduct Dr Humberto Alvarez-Machain who was wanted by the United States law enforcement for helping drug lords torture a DEA agent. On April 3, 1990, the former Mexican police officers abducted Dr Machain and delivered him to the United States. On July 15, 1993, in Nigeria, FBI agents abducted Omar Mohammed Ali Rezaq, a Palestinian, who was wanted for killing an American and injuring another during the hijacking of an Egyptian airline.

This policy has raised a series of moral, judicial, and political issues, provoking investigations by the European Union investigations. A June 2006 report from the Council of Europe estimated that 100 people had been kidnapped by the CIA on EU territory and rendered to other countries, often after having transited through secret detention centers (“black sites”) used by the CIA in cooperation with other governments. According to the European Parliament report of February 2007, CIA has conducted 1,245 flights, many of them to destinations where suspects could face torture, in violation of Article 3 of the United Nations Convention Against Torture. A large majority of the European Union Parliament endorsed the report’s conclusion that many member states tolerated illegal actions of the CIA and criticised several European governments and intelligence agencies for their unwillingness to cooperate with the investigation.

The the kidnapping or abduction of an individual by US agents within the jurisdiction of other sovereign states and without their consent violates the sovereignty and territorial integrity of such states. Moreover, a state-sponsored abduction is also contrary to the UN Charter, which prohibits one state from using force against another except in self-defence.

In the infamous case of Alvarez-Machain, on the basis of which the recent assertion on the right to kidnap was made in the British court, the unfortunate doctor (accused) was spotted in the kitchen of an isolated Mexican ranch, washing his hypodermic needles. In the living room, Enrique Camarena, an American drug enforcement agent, was being tortured to death by the traffickers from the Gaudalaraja Drug Cartel in 1985. The doctor’s needles, when examined, contained traces of pain-reliever. Put two and two together, said the American authorities: the doctor was plainly injecting the man tokeep him alive and prolong his agony.

On that hunch, was Dr Humberto Alvarez ~ Machain kidnapped from his surgery centre in Gaudalaraja five years later. The doctor was brought to Texas and the Drug Enforcement Administration paid $ 20,000 plus expenses to some of those involved in the kidnapping.

Two lower federal courts held that the abduction of the accused doctors violated international law, and that since the treaty is the supreme law of the land, its violation vitiated the jurisdiction of the court. However, the apex court upheld the jurisdiction of the US Court to try the accused even though his presence in the US was the result of abduction.

It is shocking that the USA is using legal rendition as a method of dealing with foreign defendants. Extraordinary rendition is a wholly extra-legal process that differs in its nature and usage as a tool in the America- led so called “war on terror”. This new method of rendition includes a form where suspects are taken into US custody but delivered to a third-party state, often without ever being on American soil, and without involving the rendering country's judiciary. The CIA was granted such a permission to use rendition in a presidential directive signed by Clinton in 1995, and the practice has been expanded considerably since 9/11.

The first well-known rendition case involved the Achille Lauro hijackers in 1985. While in international air space they were forced by the United States navy fighter planes to land at the Naval Air Station Sigonella, an Italian military base in Sicily used by NATO. This was an attempt to place them within the judicial reach of US government for transport to and trial in the United States.

Since the start of the “war on terror”, the United States has rendered hundreds of people suspected by it of being terrorists - or of aiding and abetting terrorist organisations ~ to third-party states such as Egypt, Jordan, Syria, Morocco, and Uzbekistan. Such “ghost detainees” are kept outside judicial oversight, often without ever entering United States’ territory, and may or may not ultimately be devolved to the custody of the United States.

There no doubt in the minds of civil libertians that such a procedure is nothing but “torture by proxy”. As a matter of fact, the CIA is rendering suspects to other countries in order to avoid US laws that still offer scope for due process and prohibit torture. This practice has rightly been termed as “torture flights”.

The United States, however, defends this abhorrent practice on the ground that culturally-informed and native-language interrogations are more successful in gaining information from suspects. In a number of cases, this procedure was used on innocent people. For instance, Khalid El-Masri and Maher Arar on whom the procedure was applied were later found to be innocent. The USA merely termed such instances as “erroneous rendition.”

Though one may appreciate America’s concerns in apprehending and punishing the guilty particularly those who are involved in the terrorist activities, yet the kidnapping of those accused of ordinary crimes has no moral, ethical or legal justification and clearly reflects the big brotherly attitude. This makes a mockery of the most fundamental principle of international law and the UN Charter ~ sovereign equality of all states. Even for such serious offences like war crimes, genocide or terrorist activities, it would be a better proposition if the UN Security Council considers creation of a permanent international police force as opposed to relying on private international bounty-hunters or kidnapping by one powerful state.

Falling Dollar Adds to Investor Woes

WSJ, November 11
GREGORY ZUCKERMAN and CRAIG KARMIN

The dollar tumbled last week and took the stock market with it.

The weak greenback was just one more thing for stock investors to fret about. The combined weight of their concerns has knocked the Dow Jones Industrial Average down 7.9% from its record close just over a month ago.

As the housing meltdown drags on, losses on mortgage-related securities continue to mushroom, including news last week of write-downs by American International Group, Morgan Stanley and Wachovia. Disappointing October retail sales stoked concerns that consumer spending is being impacted by the housing downturn as well as by near-record oil prices. Federal Reserve Chairman Ben Bernanke Thursday said Fed policy makers see economic growth slowing "noticeably" in the current quarter.

Meanwhile, the tumbling dollar could make some overseas investors reluctant to hold U.S. securities and could make it tougher for the Fed to cut interest rates further.

Painful Week

Buffeted by one concern after another, the Dow industrials last week declined 4.1%, trimming their year-to-date advance to 4.7%. The technology-heavy Nasdaq Composite Index, recently the better performer, saw a steeper 6.5% drop. So far in 2007, the Nasdaq is still up 8.8%.

Stocks will likely continue to be bumpy. And while shares have often done well in the final months of the year, investors shouldn't get their hopes up this year. "Given the uncertainty surrounding the banks, the market probably needs either a big drop in oil prices or an additional Fed easing to see a repeat of the fourth-quarter rally we've seen over the last four years," says Jason Trennert, chief investment strategist and managing partner at Strategas Research Partners, a research firm in New York.

A Slowing Economy

Corporate profits reported so far for the third quarter are down about 2.4% from a year ago, according to Thomson Financial. While most economists don't predict a recession, or downturn in economic activity, a marked slowdown seems to be emerging as the most likely scenario.

"The economy faces a protracted period of subpar growth rather than a recession," says Martin Barnes, managing editor of The Bank Credit Analyst, a Montreal-based publication. "The biggest risk to our view is that the contagion from housing to consumer spending [proves to be] greater than we expected."

Mr. Bernanke said last week that the Fed expects the economy to remain "sluggish during the first part of next year" and then strengthen.

One concern is that growing troubles for financial companies could spur them to curb their lending, putting a crimp on the economy. Deep writedowns and losses at Citigroup, Merrill Lynch and other financial heavyweights in recent weeks underscored how these companies had too much exposure to the subprime mortgage market. Now, investors are concerned about the potential for more markdowns ahead.

Dollar Woes

Last week, the U.S. currency suffered one of its worst weeks in years, plummeting to a record low versus the euro and touching its weakest level against the Canadian dollar in more than five decades. Lower U.S. interest rates have contributed to making the dollar less attractive to overseas investors.

Despite the powerful sell-off -- one that some analysts are starting to say looks overdone -- few traders or investors expect much of a relief rally for the dollar anytime soon. That's because the currency has become so unloved.

"Market psychology regarding the dollar is deteriorating rapidly," Morgan Stanley currency analyst Stephen Jen wrote in a recent report.

A steady decline in the dollar isn't necessarily a bad thing for the U.S. economy. A weaker currency makes American products more competitive abroad, and overseas profits have been rising for many large U.S. firms.

But if the dollar falls too far or too quickly, it can cause problems: U.S. assets look less attractive to foreign investors, and foreign goods become more expensive, which could lead to inflation.

The dollar weakness could also put the Fed in a bind. The Fed may be inclined to cut rates further to help revive a slowing economy and ease credit concerns. But lower rates would only make the dollar less attractive to foreigners and cause it to fall more.

Analysts see further dollar declines through year end.

Looking at Stocks

At this juncture, some market watchers say many areas of the U.S. stock market look attractive -- but only as long as the U.S. steers clear of recession. The Standard & Poor's 500-stock index now trades at about 16 times its expected earnings for this year, a reasonable price. And the yield on the key 10-year Treasury note has slid to 4.2% from over 5% this summer, making stocks more attractive by comparison.

Analysts say it's too early to buy beaten-down financial shares, partly because it is not yet clear how much the assets they're holding are worth. Instead, it's best to focus on stocks that continue to generate strong earnings and are in sectors that are less impacted by housing woes.

For instance, some analysts say Nike (NKE) should be helped by global excitement about the 2008 Olympics, and they say the shoe and apparel company is doing a good job making inroads against competitors like Timberland and Under Armour. Nike is expected to grow profits 18% in the next year, and trades at a price/earnings multiple of about 18.

The company is growing profits at more than a 20% clip in Asia, which may be able to keep Nike's earnings flowing even as the U.S. continues to slow, some say.

Write to Gregory Zuckerman at gregory.zuckerman@wsj.com and Craig Karmin at craig.karmin@wsj.com