11-11-08

 11-11-08Merced Sun-StarMerced's County Bank sues to regain loan moneyThe 142-house development stands empty except for a few model homes...SCOTT JASONhttp://www.mercedsunstar.com/167/story/541043.htmlCounty Bank's bid to collect a $9 million construction loan it made to a local developer may be headed for trial.The local financial institution made a loan last year to finance Paseo, a Merced subdivision that fizzled as the housing market collapsed.County Bank filed a lawsuit in June asking a judge to award it $8.3 million, lawsuit costs and that the property be sold -- with the bank as a possible buyer.Don Drummond, the developer's San Francisco-based attorney, argued that the bank prematurely canceled the loan, dooming the project. Without cash, Merced Paseo LLC had to lay off its staff and stop marketing the project.Last year Merced Paseo, an offshoot of Summerton Homes, proposed a 142-home subdivision at G Street and Bellevue Road. The 17-acre neighborhood promised urban living in an agricultural area. Its homes would be taller and smaller with a retro-cottage design.The neighborhood's driveways are paved, the streets have names and wiring sprouts from the ground. The only parts missing are the homes. Six model houses, surrounded by a fence, show a neighborhood frozen in a credit crunch.The subdivision got under way just as the market began to turn. Home sales and foreclosures were beginning to trade places.A hearing on whether the bank, if successful in its case, can seize the personal assets of Todd Bender, the head of Merced Paseo, is scheduled for next week.County Bank spokesman Thomas Smith said he can't comment on current court cases. Drummond also declined to elaborate on his defendant's side. "We're in litigation. We're duking it out," he said. "May the best man win."Smith, in an earlier interview, noted that developers were making millions just a few years ago and may have sheltered their assets as the market crashed.David Zacharias, who guaranteed the loan, has settled with the bank. Attorney Michael Warda didn't return phone calls for details on the agreement. Nothing about it had been filed with the court as of Monday.This marks the first time County Bank has had to take a developer to court to collect a construction loan. It's come close in other situations, but always renegotiated the credit line.County Bank, if it ends up owning the project, could hold onto it until the market improves, sell it at a discount or develop it.COMMENTSTo ooooboy; That's a great concept you have there. It's the victims fault. "Let the buyer be ware!" If the other guy is crooked enough to put one over on you, too bad, sucker! "Trust me, I'm in the business,this is the way the Big Boys do it," they say. "Ha-Ha!" Then the blade comes down on your neck and they pull theirs out just in time. But of course, they're "in the business"! :: 11/11/08 10:05am – MyTown-----The rest of the story.... Todd Bender is President of Summerton & Paseo. He is the son-in-law of Warren Wainwright. He has the money, but everything is hidden under separte company names. Did you know he also owns the Pomenade at Yoemite & Parsons? He also owns the Greystone Business Park on Yosemite Ave. :: 11/11/08 9:16am – jackmann-----spdmrcht - Why would home owners file a class action lawsuit against developers & loan companies? Perhaps they should sue their grade school teachers for not teaching them basic arithmetic...had they known a little math they would know not to purchase a home that costs 10x their annual earnings. :: 11/11/08 9:01am – ooooboy-----my prior post was removedI guess you can't make a comment about County Bank loan underwriting and risk management in these parts. :: 11/11/08 8:22am – monkeyinwrench-----Another Merced problem. :: 11/11/08 8:04am – yousha-----Well if Mr. Zacharias settled with the the bank, didn't he pay off the rest of the 9 Mil.? If not, why not? I think the Feds. need to get in on this.Since the the Feds are bailing every body out of everything lately with our Tax $$$$. This is only one of a bunch of developers that need Looked at.Also has all the Folks that lost there homes got together and filed a Class Action Lawsuit against the Developers and Loan Company's? :: 11/11/08 2:01am - spdmrchtObservations on G Street...Carolyn Goings Merced resident Carolyn Goings wrote this letter to the city of Merced.http://www.mercedsunstar.com/177/v-print/story/541044.htmlThere are very few people in Merced who think that there should not be a grade crossing at G Street and the BNSF Railroad.However, we are very upset that the city staff apparently has known since August of the impending nature of a $9 million "windfall" from the state for construction of such a grade separation, but no citizen input was solicited until Oct. 23.Resistance to this project by affected residents is influenced by the already exiting heavy traffic problems on East 26th, East South Bear Creek, Glen Avenue and Santa Fe Avenue. Also, since 1923, the 52-acre established Ragsdale subdivision has maintained a stable and predictable residential value. It is a worry for us to try to assess the impact on our home values of increasing traffic and closed and restricted driveway access.We think that we ought to have been brought on board from the earliest onset of engineering planning. The public deserves the opportunity to provide fully informed comments. The council, the engineers and the city consultants stood to gain by hearing and understanding the positions of all parties interested in this sweeping and long-lived decision that will impact Merced and a significantly large area of the city.The engineers' cavalier attitude as they drew road plans to remove driveway access to homes, to remove traditional street access to G Street, to remove business visibility from G Street and, most egregious of all, to design a subway in what is a serious flood zone as is recognized by FEMA and the Army Corps of Engineers. Citizens should have had an early opportunity to hear and be heard.An overcrossing could have greater functionality and improved visual appeal over a flood-prone subway and should have been an option presented to the public.It is true that railroad height requirements would require that the project area extend farther along G Street but would it also have been possible to reduce the impact on so many driveways and businesses?The engineer-like response that flooding will be "rare" is unacceptable to those of us who use G Street and to those whose driveway access has been erased. What will be the impact of the road construction, short and long-term on the flood pattern in adjacent properties?Contrary to some statements, noise in the area around the grade separation will be increased -- not decreased.The word from city staff was that the railroad plans to construct a third track along their right-of-way to support increased train traffic. Plus, after construction is completed, vehicle traffic on G Street will be greatly increased due to the substantial residential growth in east and northeast Merced as well as making G Street a preferred route across town.The city has promised for close to 50 years to build the Parsons Avenue Bear Creek Bridge and thereby develop additional access across town and to Highway 99. This bridge should be put on a fast track to construction.In addition, Merced does not need a repeat of the engineering fiasco that resulted in the joke that is the intersection at 13th and V streets which took nearly three years to build and caused business disasters at Home Depot, the Perko's restaurant and Office Max.We need a quality, competent contractor like C.C. Meyers, the fellow who rebuilt the Interstate 580 MacArthur, Maze interchange after the fuel tanker caused destructive damage there. He did that fabulous job under budget and in less than estimated time.The City Council is requested to consider:Because of increased noise on G Street: Consider a "no engine braking on trains" within the city limits ordinance be enacted now.Because there may be some sort of restricted detour during construction: Consider signage routing truck and out of town bus companies to the Bradley overcrossing, M and R streets. (This includes the numerous California Department of Corrections prisoner transport buses from Jamestown to Highway 99.)Because there will be a severe increase of traffic on 26th Street even after construction is complete: Consider installing a traffic signal at 26th Street and 4th Avenue. A signal would at least give residents along 26th Street and the avenues an opportunity to safely access what will become an even more densely traveled thoroughfare.Because there is a construction delay and very little benefit to be gained by spending $2.5 to $3 million for construction of the temporary detour that was suggested by the engineers at the meeting on Oct. 23, set that money aside as seed money for the long promised Parsons/Bear Creek Bridge.Because of the likelihood of periodic flooding: Consider that specific engineering attention be given to the problem of flooding in the subway as well as in adjacent property. (Note that Fresno's Shaw Avenue undercrossing which was used as an example by staff does flood.)Because it is needed and has been long promised, consider leaning on Caltrans to expedite expansion and upgrade of the Bradley overcrossing by building a parallel structure so that the existing bridge will continue to be usable during that upgrade.Modesto BeeLooking like 2nd loss for road taxMeasure S needs a 'yes' on about three-quarters of the remaining ballots...Tim Moranhttp://www.modbee.com/local/story/494640.htmlThe margin is tantalizingly close, but the underlying math shows that the odds for passage of the Stanislaus County road tax are steep despite about 10,350 ballots left to be examined.Measure S, the half-cent sales tax for transportation in Stanislaus County, needs 66.67 percent of the Nov. 4 vote to pass. After 28,679 additional vote-by-mail ballots were counted Friday, Measure S has 65.96 percent, just 0.71 percent short.The ballot numbers are more daunting than that, however. The count Friday leaves Measure S 1,046 votes short. But when the remaining 10,350 provisional ballots, military and damaged ballots to be counted are included, Measure S needs 7,655 more votes, a daunting hurdle.That means the uncounted ballots would have to break almost 74 percent in favor of Measure S for it to prevail. The numbers are approximate because some of the remaining ballots may be declared invalid and not counted."It seems highly improbable at this point," admitted Paul Van Konynenburg, Yes on S co-chairman. "It's not looking good. We are going to wait until everything is counted."The Measure S campaign will be looking at the 1 percent hand tally the election office conducts to make sure there aren't mistakes in the ballot counting, Van Konynenburg said. Then proponents will have to decide whether they want to ask for a recount."It's close, and that's one option that's available," Van Konynenburg said.Measure S is the county's second attempt to pass a sales tax. Measure K was defeated in 2006. Transportation planners revised the proposal to try to win over new voters for Measure S. The duration of the tax was reduced from 30 years to 20, and cities got a bigger share of the expected tax revenue.A third try isn't likely for at least four years, Van Konynenburg said...4 districts approve road tax measuresSuccess in renewing may be due to what past levies achieved...Garth Stapleyhttp://www.modbee.com/local/story/494740.htmlSuccess still breeds success for transportation taxes across California, even with a bruising economy.Last week, voters in four districts accustomed to higher sales taxes embraced similar new taxes for transportation, according to unofficial returns. Two counties without -- Stanislaus and Monterey -- did not, although supporters in Stanislaus County are holding out for a miracle.The trend builds on historic success rates for so-called self-help counties, whose voters over the years have been far more likely to renew taxes when they've seen what the old taxes can do.While voters across the United States were electing a new president, those in Imperial and Santa Barbara counties were handing landslide victories for new transportation taxes, by 83.5 percent and 78.8 percent, respectively. Sonoma, Marin and Los Angeles voters also approved transportation taxes, although by lesser margins.A similar vote in Santa Clara County is losing by a whisker -- 0.19 percent short of the required 66.67 percent, according to unofficial returns, with thousands of ballots yet to count. That's much closer than the cliffhanger in Stanislaus County, where supporters must overcome a 0.71 percent deficit as counting nears an end."My mom raised me to be an optimistic person," said Jennie Hwang Loft, Santa Clara Valley Transportation Authority spokeswoman.A new regulation requiring manual tallies for some ballots in close races could apply in Santa Clara. The rule applies when unofficial margins announced on election night are within 0.5 percent; Stanislaus County's would not qualify because Meas- ure S at that point was losing by 0.79 percent.No such hope remains in Monterey County, where voters roundly rejected a transportation tax for the third time in 10 years, this time by more than 4 percentage points. That county, like Stanislaus, has never been a self-help county.As of the last posting late Friday, Measure S had closed to within 0.71 percent of the two-thirds standard for success. That represents some 1,046 votes.Advocates for Tulare County's Measure R know what it's like to wait through a nail-biter. The first of several postings on election night in 2006 showed the tax losing by a hair, but it gained strength in subsequent tallies and was a mere 34 votes ahead when supporters finally went home.Two weeks of counting passed before they could celebrate, having prevailed by 353 votes."We felt like we'd won, but we had to wait it out," recalled Dave Harrald, now chairman of the citizens oversight committee for Measure R.Sacramento BeeDeal on San Joaquin River legislation...The Associated Presshttp://www.sacbee.com/114/story/1388744.htmlWASHINGTON -- Congress finally appears to be on track to sign off on a deal to restore the San Joaquin River and bring back water and salmon to a now-dry stretch.Federal legislation needed to implement the legal settlement has been hung up for two years over concerns from various parties.But Senator Dianne Feinstein tells The Associated Press she has a final deal with all the parties, including water users and environmentalists, that could get through the House and Senate during a lame-duck session of Congress expected to begin next week. High corn prices add to Pacific Ethanol loss...Dale Kasler and Jim Downinghttp://www.sacbee.com/103/story/1386955.htmlWith the ethanol industry still facing difficult market conditions, Sacramento's Pacific Ethanol Inc. reported a $54.9 million quarterly loss Monday.About half the loss was a non-cash expense, the write-down of its investment in a mothballed plant in the Imperial Valley. But the company experienced significant cash losses, too. The main culprit was wild fluctuations in the price of ethanol and the chief ingredient used to make it, corn. Similar problems have bedeviled others in the industry.During the third quarter, Pacific Ethanol sold more ethanol at higher prices than a year ago. But the hefty increase in revenue was overwhelmed by high corn prices, said Chief Financial Officer Joseph Hansen. Corn soared well above $6 a bushel during the quarter, the company said. The immediate road ahead isn't easier. The price of corn has recently plunged, but so has ethanol, a fuel additive, which tends to fall with the price of gasoline, said investment analyst Joseph Gomes of Oppenheimer & Co. in New York.Ethanol prices have fallen from an average of $2.45 a gallon during the third quarter to about $1.80."Another difficult quarter," Gomes said. "It's a difficult industry to be in right now."Another potential "headwind" for Pacific Ethanol, he said, is a $30 million loan that it might have trouble repaying.But Neil Koehler, the company's president and chief executive, said Pacific Ethanol is in discussions with the lender to restructure the loan. The lender, Lyles United of Fresno, is Pacific Ethanol's building contractor and a shareholder."They believe in us and believe in the business," Koehler said.Gomes said Pacific Ethanol is like a lot of ethanol producers, struggling to hang on as the federal government steps up its mandates requiring the use of biofuels. Nationwide use of ethanol, as mandated by the U.S. government, will jump 17 percent next year and 14 percent in 2010.At the same time, some of Pacific Ethanol's rivals appear to be falling by the wayside, which could take some supply out of the market. A major ethanol producer, VeraSun Energy of Sioux Falls, S.D., filed for Chapter 11 bankruptcy protection in late October.Market conditions could "tighten considerably over the next 12 months," Koehler said.And over the long haul, President-elect Barack Obama's commitment to ethanol and other renewable fuels will help the company, he said."The new Obama administration, we believe, will continue to support the rapid growth of the biofuels industry," he said.Yet corn prices could shoot back up, in part because high fertilizer costs might keep crop acreage down. "We're sort of in a no-man's-land," said Joel Karlin, market analyst at major San Joaquin Valley grain broker Western Milling.For now, Pacific Ethanol is attempting to conserve cash. Koehler said Pacific Ethanol, which recently completed construction of its newest facility, in Stockton, is throttling back production companywide by about 10 percent until profit margins improve.All ethanol producers have faltered over the past two years, as a supply boom led to a price decline. Then came the record-high price of corn.With profit margins shrinking, Pacific Ethanol suspended construction last December on its Imperial Valley plant. It also endured a cash crunch in March, caused in part by construction cost overruns, and had to raise $40 million through a private stock sale.The latest results show its problems haven't ended. The quarterly loss of $54.9 million came to 98 cents a share and compared with a $4.8 million loss a year earlier. Revenue increased to $184 million from $118.1 million.The big problem was its cost of corn, which jumped 54 percent to an average of $6.99 a bushel during the quarter.The company chose not to make extensive use of hedging instruments that would have locked in the price of corn. Hansen defended the move, noting that VeraSun locked in the price of corn at high prices – and filed for bankruptcy protection when the price collapsed, leaving it saddled with costly raw materials.Pacific Ethanol shares, which have lost 90 percent of their value over the past year, closed Monday at 91 cents, down 17 cents, on the Nasdaq market. However, it picked up 10 cents a share in after-hours trading. California Progress Report Time Seeping Out For Drainage Debacle? State Regulators Give 90 Days to Act on Half-Century Old Environmental Problem...Traci Sheehan, Executive Director, Planning and Conservation League…- 11-10-08http://www.californiaprogressreport.com/2008/11/time_seeping_ou.htmlFifty years after the Westlands Water District began irrigating drainage-impaired lands in the San Joaquin Valley, causing massive accumulation of toxic selenium and other salts in the soils and drainage water, the Central Valley Regional Water Quality Control Board (Board) has taken action to address the ongoing pollution problem. In a letter last week, the Board gave the water district 90 days to file for a waste discharge permit and present a plan for cleaning up the soils that have been building up salts and toxins for decades. While federal officials knew that providing water to Westlands from the Delta and Northern California would aggravate the naturally occurring salt-loading problems on the west side of the San Joaquin Valley, the Federal Bureau of Reclamation pushed forward with the irrigation project. As a result, the Westlands area is one of the largest, most heavily subsidized, and profitable agribusiness regions in the world as well as one of California's worst environmental legacies. The hard clay soils on the west side of the San Joaquin Valley are naturally impermeable, preventing water and salts from seeping into the earth. In many places in the area, the water table is no more than five feet from the surface of the ground. Toxics and salts from the imported irrigation water mix with the groundwater, compromising crop root systems - a problem people in the business refer to as "drainage impairment." The Board's letter reminds Westlands that discharging toxic laden water is a violation of laws protecting the state's surface and groundwater. We're pleased to see the Board treating the drainage situation as a serious problem and hope their actions mark a turning point in efforts to clean up the area.Traci Sheehan is the Executive Director of the Planning and Conservation League, a statewide, nonprofit lobbying organization. For more than thirty years, PCL has fought to develop a body of environmental laws in California that is the best in the United States. PCL staff review virtually every environmental bill that comes before the California Legislature each year. It has testified in support or opposition of thousands of bills to strengthen California's environmental laws and fight off rollbacks of environmental protections.#  San Francisco ChronicleSonoma County sued in gravel pit excavation...Jane Kayhttp://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/11/11/BAFT141RP2.DTLFarmers and residents fed up with decades of gravel mining along the Russian River have sued Sonoma County, asking a judge to halt excavation of a huge pit near Healdsburg.The lawsuit, filed Thursday in Sonoma County Superior Court against the Sonoma County Board of Supervisors and Syar Industries, charges that the Napa gravel company is threatening the county's most valuable natural resource - its groundwater.Gravel mining also removes from use valuable streamside farmland, the suit said.The suit asks that a three-year permit the county granted Syar last month be placed on hold while the county conducts a full environmental review of possible damage to an enormous aquifer that lies in the alluvial gravels of the middle reach of the Russian River.Plaintiffs include the Westside Association to Save Agriculture, North Coast Rivers Alliance, Russian Riverkeeper and several individuals. The suit doesn't deal with removing gravel in the river.Dennis Hill, 58, who grows wine grapes on family land near Healdsburg, said, "Even when I was a kid, there was digging." His parents fought the gravel mining, too. The activity has "left huge lakes along the river," he said.Syar officials were not available for comment on the suit Monday.After public hearings and debate, the county Board of Supervisors voted 3-2 to grant the permit for a 28-acre pit up to 90 feet deep. The pit lies downstream of the confluence of the Russian River and Dry Creek, west of Highway 101. The Sonoma County Planning Commission had denied the permit request in April.In approving the measure, the board changed a decade-old policy that promised to end nearly all streamside gravel mining by 2006. The original policy had been adopted to preserve rich farmland and laid out restrictions on interim mining, including the size and number of pits and their distance from the river.Supervisor Paul Kelley, who voted for the permit, said the project "wasn't adding any more land to be mined. It was finishing an area that had already started to get mined. We needed to make sure reclamation would occur on the site."Instead of giving Syar the five years to finish the job that the company had requested, the board approved a permit extension for three years. The board also required reclamation of the pit.The county had completed an environmental review, said Jeff Brax, deputy county counsel. The board asked for independent scientific evaluation, which showed that Syar's former pits hadn't reduced groundwater levels by more than 1 foot on adjacent properties, he said.But Stephan Volker, an attorney for the plaintiffs, said the pit is only one-third dug and could be restored to its original state and used for agriculture.The environmental review completed by the county was inadequate, he said. His experts sharply criticized the methodology and data on which the county had relied.Studies show that removing deep gravel beds that lie on the river's streamside terraces above the aquifer can seal the soils and affect the groundwater levels, Volker said.The gravels and fine sediments along the river make up "a natural system and act like a sponge. When the river runs high, it recharges the groundwater. When the river runs low, the groundwater recharges the river," Volker said.Gravel mines cause a barrier that blocks the flow of groundwater, he said, which sometimes causes problems for grape growers.Fine varietals require a low water table in the late summer and fall. If the water table remains high because groundwater flow toward the river is blocked by the pits, soil in the root zone remains saturated, preventing proper maturation of the grapes, Volker said.California governor tours superlaser system...MICHELLE LOCKEhttp://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2008/11/11/national/a032604S40.DTL&hw=livermore+lab&sn=002&sc=965Gov. Arnold Schwarzenegger, who often played futuristic heroes in his movie career, came face-to-face with the world's largest laser system.The governor went to the Lawrence Livermore nuclear weapons lab in Northern California on Monday and examined its $3.5 billion superlaser, known as the National Ignition Facility.Work on the stadium-sized project is expected to be completed next year, and scientists said Monday they believe the laser could hold the key to a new source of energy.It is designed to focus 192 lasers at a single target the size of a pencil eraser to create a huge release of energy known as fusion ignition."This laser has many exciting applications," an enthusiastic Schwarzenegger said after reviewing the facility. "What's most exciting about it is the potential to revolutionize our energy future."If successful, the National Ignition Facility will simulate the pressures and heat of a nuclear explosion, meaning scientists can study the performance and readiness of nuclear weapons without detonating a nuclear device.Tests to determine whether fusion ignition can be achieved are expected to start about a year from now. If it works, scientists say it's possible the technology could be used to generate clean energy.However, scientists note it will be some time before they know whether the superlaser itself will work and experiments to see if it can create fusion energy are at least two years away. Lab officials say their goal is to have a demonstration project running by 2020.Speaking to reporters after touring the lab, Schwarzenegger poked fun at his big screen exploits, saying lab officials had briefed him on some highly classified information but warned them that if he shared that information, "I would ... have to terminate you."Contra Costa TimesNew clean energy initiative unveiled at Livermore lab...Suzanne Bohanhttp://www.contracostatimes.com/localnews/ci_10951822?nclick_check=1LIVERMORE — The allure of a carbon-free energy technology that would use nuclear waste as fuel and render fossil-fuel power plants obsolete drew Gov. Arnold Schwarzenegger on Monday to his first tour of Lawrence Livermore Laboratory. Schwarzenegger was joined by former Secretary of State George Schultz during his late-morning visit to a powerful laser facility here that will begin testing a long-held dream of generating electricity in abundance using radioactive waste from nuclear reactors and decommissioned nuclear weapons. "What's most exciting about (the laser technology) is the potential to revolutionize our energy future," said Schwarzenegger, speaking to reporters in the lobby of the National Ignition Facility. "If successful, this new endeavor would produce endless megawatts of carbon-free power," he said. While the technology is decades from widespread use and faces critical technical hurdles, scientists at the event expressed optimism that the obstacles would prove surmountable. The dream rests on the $3.5 billion laser complex successfully using 192 beams converging on one spot to drive microscopic reactions, during anticipated fusion experiments in 2010 or 2011. In spring 2009, the facility will officially open and begin initial testing. It's the only one of its kind nationwide. A similar center is under construction in France, but it's several years behind in development. "The physics look pretty good," said a laboratory spokesman. "I'm 99 percent confident we can prove that laser fusion works." The technology, commonly called by its acronym, "LIFE," is based on using laser beams to fuse together two hydrogen isotopes, creating a heat-generating helium atom and neutron by-products. Scientists liken it to creating a mini-star, since the sun operates in a similar fusion of hydrogen into helium. It's impossible for a nuclear meltdown to occur because there is not enough energy to start a nuclear chain reaction, the lab spokesman said.The fusion-generated neutrons will "burn to a nuclear crisp" radioactive waste wrapped in a sphere around the helium core, according to a laboratory fact sheet. Both heat from the fusion and burning of the nuclear material will be used to drive steam turbines for electrical generation.If the technology proves feasible, by 2020 Lawrence Livermore Laboratory estimates it will have a pilot project running, and by 2030 a demonstration commercial power plant using LIFE technology, or laser inertial confinement fusion-fission energy. But to reach that 2020 pilot project goal, engineers need to clear hurdles that include pulsing the laser 10 to 20 times per second. Currently, it needs to cool down a few hours between uses. Scientists expect to surmount that problem by using more heat-resistant laser materials and using techniques to cool the laser. Another obstacle is developing structures that will hold up to the extreme environment of a laser fusion power generator and engineers are developing steels and other materials to do that. Nor would the technology end the issue of shipping nuclear waste, since the material would need to be transported from temporary storage facilities that house nuclear plant waste. But if those technical hurdles are overcome, and at least five laser fusion power plants are built annually starting in 2030, by 2100 they would provide at least one-third of U.S. electricity demands, according to a lab projection. "This fusion energy that we're talking about, which creates no greenhouse gasses, I can't wait for this to become a reality," said Edward Moses, principal associate director of the National Ignition Facility. Since the 1950s, scientists have envisioned using the technique to generate electricity, but lacked the high-power lasers and other technologies.In past experiments, the fusion of hydrogen atoms never lasted more than a few microseconds, said the lab spokesman. "It's never been done on any kind of sustained basis in which you get more energy out than you put in." Scientists say the technology would also be far more efficient than current nuclear power plants. Currently, less than 1 percent of the energy bound up in nuclear rods is extracted. The LIFE fusion-fission technology would extract more than 99 percent of the fuel's energy content. And nuclear rods from power plants, which typically are used 30 years for that purpose, would have another 50 years of use in LIFE energy generation. Burning nuclear waste to generate energy would ease concerns about nuclear proliferation by transforming the waste into material too radioactive for use in weapons. "It's too hot to handle," the lab spokesman said. If the new technology proves effective, by 2035 no new nuclear plants would be built, the laboratory predicted. The electrical generation system would also draw down stockpiles of nuclear waste, such that "we would be able to generate enormous amounts of new energy and still leave the Yucca Mountain Repository nearly empty," according to a background sheet on the technology. The Yucca Mountain site is the proposed federal storage facility in Nevada for nuclear waste. What is LIFE technology?It stands for "laser inertial confinement fusion-fission energy." First envisioned in the 1950s, it was impossible to achieve due to technical limitations. But with the planned opening of the National Ignition Facility in 2009 in Livermore, scientists have a shot at generating clean electrical energy using fusion. If it proves feasible, LIFE technology will also use nuclear waste to produce carbon-free energy. Scientists liken the technology to creating a miniature star, since it would work by fusing two hydrogen isotopes to create helium, neutrons and heat -- similar to the way the sun works. Mercury NewsMajor land deal protects 486 acres of Santa Cruz County wetlands...Paul Rogershttp://www.mercurynews.com/news/ci_10950756?nclick_check=1The largest privately owned wetlands area in Santa Cruz County — a sprawling mix of marshes, willow trees and bulrushes thick with mallard ducks, egrets and other wildlife — will be protected under a unique agreement announced Monday that pairs farmers and environmentalists.Under the deal, the Land Trust of Santa Cruz County will pay $14.5 million to acquire 486 acres west of Highway 1 in Watsonville.Much of the land is owned by Vincent Tai, a developer with offices in San Francisco and Hawaii. It was at the center of a bitter controversy that began in 1995 after Tai proposed building 1,800 homes, a golf course and retail shops there, sparking lawsuits from environmental groups and an eventual voter-approved measure that limited new development on Pajaro Valley's rich farmland."These lands have a big impact on water quality and water supply. They are important for migratory waterfowl. Now they'll have permanent protection," said Terry Corwin, executive director of the nonprofit Land Trust of Santa Cruz County.The uplands portion of the property is currently being farmed by four farmers who have leased the ground to grow strawberries, cauliflower, lettuce and broccoli.In an unusual twist, the farmers will pay to help restore and expand the property's wetlands. Corwin said unlike in many other such deals, the land trust will not resell or give the property to a government agency, but rather will continue to own it, and will collect the rent that the farmers have been paying to Tai. After expenses, that money, about $100,000 a year, will go to help expand the wetlands areas and to reduce soil erosion. The land remains on the tax rolls, farming can continue, and the wildlife restoration efforts receive a regular stream of money at a time when state and federal funds for such restoration are declining, she said."It's a sustainable model that we're really excited about," Corwin said.Jess Brown, executive director for the Santa Cruz County Farm Bureau, said he hopes the agreement can be a model for other deals. "This is a great idea," he said. "It ensures that farming will continue and the sloughs will be restored. It's really a win-win situation. You need farming for the economic part of the valley, and it is important to keep the sloughs as pristine as possible."The Pajaro River flows from southern Santa Clara County and San Benito County through Watsonville to the ocean, bypassing some of the richest farmland in California.The river's name, which means "bird" in Spanish, dates back to 1769, when a Spanish expedition led by Capt. Gaspar de Portola wandered through the area from San Diego, en route to discovering San Francisco Bay, and stumbled upon a deserted Indian village where a bird with a six-foot wingspan was prominently displayed. Nobody knows exactly why the stuffed bird, which may have been a condor, was there. But the region bears the name "Pajaro Valley" to this day. At that time, the valley contained six major freshwater slough systems that teemed with elk, grizzly bears and thick flocks of ducks and geese. As the town of Watsonville grew up, development and farming gradually filled in most of those wetlands, leaving only perhaps 30 percent today, by some estimates.The property sits west of Highway 1 near Harkins Slough Road, just south of Pajaro Valley High School. Already, the state, federal government and county own about 449 acres of wetlands adjacent to the site of Monday's purchase. With the new deal, the total preserved area will reach about 935 acres, an area nearly the size of Golden Gate Park in San Francisco.The plan is to gradually expand the size of the wetlands areas that flood in the winter, while leaving the farming, much of which is organic, on the hillsides."There's excellent potential for restoration in the areas that are inundated," said Jeannine DeWald, a biologist with the state Department of Fish and Game. "The seed bank is there. We might have to plant some willows and other plants, but it wants to come back to wetlands." The property, which is actually four parcels, contains several endangered species, including the California red-legged frog. Other sensitive species, such as the burrowing owl, brown pelican, peregrine falcon and steelhead trout, are expected to benefit from the project, DeWald said.Funding came from a variety of sources. The California Coastal Conservancy last week awarded the project $6.5 million from Proposition 84, a state water bond approved by voters in 2006. The Nature Conservancy has committed $1.5 million, and the state Wildlife Conservation Board is expected to grant $5.5 million next week, also from state bond funding. The land trust is working to raise an additional $500,000 in private donations, Corwin said.Santa Cruz SentinelKey link in Watsonville's wetland system slated for protection...Kurtis Alexanderhttp://www.santacruzsentinel.com/ci_10954279Nearly 500 acres of South County sloughs are expected to come under the ownership of a local land trust, guaranteeing that the wetlands west of Highway 1, once eyed for housing by developers, will be spared.The Land Trust of Santa Cruz County was awarded a $6.5 million state grant this month, allowing the conservation group to move ahead with a $15 million purchase of six rural parcels just south of Pajaro Valley High School."This project has it all," said Terry Corwin, executive director of the land trust. "Wetlands are being lost and farmlands are being lost, and this protects both."The 485 acres at issue includes three fingers of the expansive Watsonville Slough, which snakes around the city of Watsonville and serves as a filter for agricultural and residential runoff, controls city floodwaters and provides safe haven to a number of rare birds, fish and amphibians.Much of the land, which can be seen from Highway 1, is now used to grow strawberries.Land trust officials say, after the sale, they will continue to lease the land for agriculture, mostly for organic farming, while working to maintain the health of the more ecologically sensitive areas.The purchase, which the land trust expects to complete early next year, will complete a link of several adjacent properties already safeguarded by state and federal agencies and create a more than 900-acre block of protected land. "It's a keystone property for the whole Watsonville Slough complex," said Mark Silberstein, a biologist and executive director of the Elkhorn Slough Foundation.Silberstein identifies the Watsonville Slough as among the largest coastal freshwater marshlands in California and, with more than 90 percent of the state's wetlands already lost to development, says the local slough's preservation is vital.In 2002, Watsonville voters passed Measure U, creating an urban growth line that protects wetlands west of the city. Some of the provisions, though, were designed to sunset in 25 years. "With this property owned by the land trust, that's now unlikely to happen," said county Supervisor Ellen Pirie, who praised the pending acquisition.The property is now in the hands of three private landowners.In addition to the recent $6.5 million from the California Coastal Conservancy, the land trust expects to fund the purchase of the land with grants from the Wildlife Conservation Board, the Nature Conservancy and the U.S. Fish and Wildlife Service.The land trust is also hoping to raise $500,000 from the public."Now's a great time to protect land because prices are lower," said Stephen Slade of the land trust, "but everybody's got fundraising problems."The nearly 500 acres marks the fifth acquisition the land trust has pursued in the past two years.For information on the pending acquisition and the land trust's fundraising campaign, visit www.landtrustsantacruz.org.Invasion of the red fire ants to California...CASSANDRA BROOKShttp://www.santacruzsentinel.com/localnews/ci_10954275The rainy season is upon us, driving loathsome Argentine ants into the homes of Central California residents. But these ants are tame compared to the new critter that's invaded California: red fire ants. People won't complain about the Argentine ant once the fire ant arrives, said Deborah Gordon, ant expert and professor at Stanford University. Fire ants originate in the warm, moist regions of Brazil. In the 1930s, they rode a ship to Montgomery, Ala., and their U.S. invasion began. They spread across the Southeast toward Texas and arrived in the Central Valley of California in 1997. By 1998, they infested large parts of residential Orange County, according to Steve Lyle of the California Department of Food and Agriculture."We think it's pretty likely they will make it up here in five years," said Gordon in reference to north-central California. "And everybody's thinking the fire ants will like golf courses because they like open areas." Lyle's predictions indicate otherwise. "The red imported fire ant may not do well in Santa Cruz because of the cooler temperatures," he said. Yet the ants were found as far north as Sacramento a few years ago. "We subsequently eradicated the ants," said Lyle. "And we believe they were brought there from out of state."Red fire ants are incredibly aggressive. They out-compete most native ants and will sting anything or anyone that disturbs their nests, causing large painful welts. "Their aggressive nature has the potential to destroy farmland, injure agricultural workers, and kill livestock and poultry," according to the California Department of Food and Agriculture. "In the state of Texas alone, more than $580 million is spent each year just to control -- not eradicate -- red imported fire ants." Since 1998, the state has pursued an aggressive eradication program to eliminate the red fire ant from California. They also established a quarantine, which restricts the movement of soil and nursery products from areas with red fire ant invasions, including Orange County and parts of Los Angeles and Riverside counties. How the fire ants came to invade Southern California is unclear, but may have been through nursery plants, according to Lyle. Or they may have hitchhiked on honey bee hive pallets sent to pollinate California almond orchards every spring.They nest in soil and form large mounds. They are also attracted to electricity and will chew through and destroy wiring. The ants are reddish brown and slightly larger than the common light brown Argentine ant. Any resident who suspects they have a red fire ant nest should notify their local County Agricultural Commissioner's Office.Air tests show another big drop in chromium 6 in Davenport air...Shanna McCordhttp://www.santacruzsentinel.com/localnews/ci_10954265An analysis of air samples in Davenport was returned this week that showed significant drops of the cancer-causing chromium 6.Air tests conducted Oct. 22-27 came back from the state Air Resources Control Board laboratory in Sacramento with "non-detect" measurements of the carcinogenic found in cement dust emitted from the nearby Cemex, Ed Kendig of the Monterey Bay Unified Air Pollution Control District. This is the third batch of safe air samples taken by the Monterey Bay Unified Air Pollution Control District since the agency discovered excessive amounts of chromium 6 in the Davenport air this summer.However, the recent reduction in chromium 6 doesn't mean Cemex is in the clear, and air monitoring is expected to continue in Davenport indefinitely. "It's encouraging to see these test results," Kendig said. "They have obviously taken a strain measures to reduce in their fugitive dust control measures. But when they get the plant in full operation again is when we'll see the truth of it."Unsafe levels of chromium 6 were detected in tests done in June to August, a time when the cement factory was running at full capacity, including operating the kiln to produce cement and loading product into trucks and train cars for delivery to customers.The kiln -- a large 3,500-degree oven that heats rock, limestone and other raw materials to make cement -- has been shut down for the past two months due to little demand for cement in the marketplace. The most recent air tests have been done while the kiln has been out of operation and minimal truck loading has been under way.Cemex officials say the chromium 6 was produced from mill scale and steel slag, two common materials for making cement that are high in chromium content, that can easily turn into chromium 6 when heated at extreme temperatures. When operations resume, company officials say those materials will be replaced with iron ore, a more expensive non-chromium material for cement production.The cement plant hasn't set a date for starting operations again.Of the 12 air samples taken Oct. 22-27, the Oct. 23 sample showed elevated levels of chromium 6. Air district officials won't say how much was detected until the analysis is double-checked and validated by the state Air Resources Control Board, which is expected to happen by the end of the week.Kendig said it's possible the air sample was influenced by unusual weather on Oct. 23."It was a really warm day with offshore winds," Kendig said. "If the elevated numbers are validated, we've got some investigating to do to find out what happened."Fred Yukic, a Santa Cruz resident who pulled his two third-graders out of Pacific Elementary School after the chromium 6 was found, said the latest results are reassuring, but not enough to bring his children back to the Davenport school."In my mind, I couldn't see how I could let them breathe the air. It didn't make sense to me," Yukic said. "If I didn't have to expose them, why would I?"San Diego Union-TribuneSHORT TAKES: REGIONAL EDITIONhttp://www.signonsandiego.com/news/metro/20081111-9999-1m11b2briefs.htmlCity Council approves water conservation rulesSAN DIEGO: New water conservation measures designed to change the habits of all residential and business customers in San Diego were unanimously approved yesterday by the City Council. The measures include permanent, year-round prohibitions against water waste and other rules that would take effect if the region's water situation worsens. Outdoor watering schedules, bans on using ornamental fountains and curtailing new water connections are part of the plan. Contentious elements include customer-by-customer water allocations. The city Water Department is expected to submit details of that strategy to the council within three months. San Diego and water agencies countywide are encouraging voluntary conservation. Water leaders anticipate mandates will be needed unless the winter brings heavy snow to the Sierra Nevada and Rocky Mountains. –M.L.UCSD, a 'Tree Campus,' plans to plant some moreLA JOLLA: UC San Diego plans to celebrate its designation as a Tree Campus USA with an environmentally friendly event. The university will mark the recognition, given for environmental initiatives such as a tree-planting campaign during Earth Week, by planting 100 trees tomorrow to replace trees killed by recent droughts. The Arbor Day Foundation launched the Tree Campus USA program this year. Of the 80 or so colleges that applied, UC San Diego and eight others across the country were given the designation. To be considered, colleges must have a clearly defined forest-management program and commit to keeping their campuses green. For more information about the program or to apply to become a Tree Campus USA, go to arborday.org/programs/treecampususa. –A.C.Washington PostThe Southwest in the Anthropocene...Comelia Dean, Dot Earthhttp://dotearth.blogs.nytimes.com/2008/11/11/the-soutwest-and-the-athropocene/?pagemode=printNear Taos, New Mexico. (Credit: Rick Scibelli Jr. for The New York Times) Until recently, natural landscapes varied as droughts came and went, warm years were followed by cold years and so on. Now, though, the actions of people have widened the parameters of this natural change, with potentially troubling results in places like the Southwest.That’s what William deBuys, an author and conservationist who has spent decades working in and writing about the region, says in the current issue of Rangelands, a publication of the Society for Range Management. (You can download a pdf of his essay here.)In particular he is talking about the mountains and rangelands of New Mexico. Always shaped by fire, lately they have been shaped by fire suppression. Always modified by grazing elk and other animals, now they are threatened by overgrazing of livestock. Always vulnerable to drought, now they are stricken by drought and heat together. And the heat is not the heat of a normal warm year, it is the heat of human-induced climate change, he says.“Say hello to the Anthropocene,” he writes, using a relatively recent coinage for the geological time we live in. Not the Holocene — the name earth scientists give to the era that began about 11,000 years ago, when the last glaciers of the last Ice Age made their last retreat — but the Anthropocene, the new era when people’s actions alter conditions on Earth.Mr. deBuys compares the landscape today with the conditions of 1903, when a government naturalist named Vernon O. Bailey surveyed the area and its high-altitude forests, or the drought years of the 1950s, when Tony Hillerman, the writer whose novels brought the arid landscape to life, recorded the effects of what was regarded then as a pretty severe dry spell.Mr. Hillerman, who died last month, was a reporter for The Santa Fe New Mexican then, and what he wrote in 1957 about bark beetles stripping “a vast area of Northern New Mexico of its pinon and ponderosa pine” might have been written in the recent drought of 2002-2003. But the landscape changes of the 1950s came more slowly. The recent drought occurred “significantly faster” and with significantly greater mortality not just among trees, but shrubs and grasses as well, Mr. deBuys writes.“The key variable was temperature,” he says. Though the 1950s drought were drier, the drought of 2002-2003 was hotter. “Nightmarish scenarios follow from these data,” he goes on, “multiyear drought punctuated by intense heat waves leading to rapid ecosystem diebacks that in turn trigger other nonlinear processes of erosion and fire. Where might such cycles of change lead?”As new information accumulates, it is becoming harder and harder to answer that question, Mr. deBuys concludes. Like investors reading the warnings in a stock prospectus, he says, land and water managers must now realize that “past performance is no guarantee of future results.”It’s a new era, he concludes, adding, “Fasten your seat belts.”Drilling, Public Lands and President Bush’s Legacy...William H. Meadows, President, The Wilderness Society, Washington, Nov. 7, 2008 http://www.nytimes.com/2008/11/11/opinion/lweb11drill.html?sq=endangered%20species&st=cse&scp=2&pagewanted=printTo the Editor:We share your concern that the campaign to facilitate oil and gas drilling in Utah’s canyonlands is only one item on a long to-do list as time runs out on the Bush administration (“Another Parting Gift,” editorial, Nov. 7). Political appointees are scrambling to permit drilling at many special places in the Rockies and in Alaska, to allow guns in virtually all national parks and national wildlife refuges, to authorize commercial development in pristine national forests, to approve excessive use of snowmobiles inside Yellowstone, to weaken the Endangered Species Act, and to run power lines and pipelines alongside national parks. At stake are many of the public lands that each generation of Americans hands down to the next. During his years in the White House, a president is supposed to act as a steward of these natural treasures. Yes, some development is appropriate, but this administration, with Vice President Dick Cheney apparently still fully engaged, has failed to provide the necessary balance. As the president puts the finishing touches on his legacy, we urge him to heed this Kenyan proverb: Treat the world well. It was not given to you by your parents. It was lent to you by your children.Gov't wants to change course of forest experiments...JEFF BARNARD, The Associated Presshttp://www.washingtonpost.com/wp-dyn/content/article/2008/11/11/AR2008111100232_pf.htmlDURHAM, N.C. -- For more than a decade, the federal government has spent millions of dollars pumping elevated levels of carbon dioxide into small groups of trees to test how forests will respond to global warming in the next 50 years.Some scientists believe they are on the cusp of receiving key results from the time-consuming experiments.The U.S. Department of Energy, however, which is funding the project, has told the scientists to chop down the trees, collect the data and move on to new research. That plan has upset some researchers who have spent years trying to understand how forests may help stave off global warming, and who want to keep the project going for at least a couple of more years."There has been an investment in these experiments and it's a shame we are going to walk away from that investment," said William Chameides, an atmospheric scientist at Duke University, where one of the experimental forests is located. "There is no question that ultimately we want to cut the trees down and analyze the soil. The question is whether now is the time to do it."Ronald Neilson, a U.S. Forest Service bio-climatologist in Corvallis, Ore., said the experiments should continue because they still have potential to answer key questions about how rainfall and fertility affect how much carbon a forest will store long-term _ essential to understanding how forests may soften the blow of climate change.But the Energy Department, following the advice of a specially convened panel of experts, believes that chopping down the trees and digging up the soil will allow the first real measurements of how much carbon the leaves, branches, trunks and roots have been storing, said J. Michael Kuperberg, a program manager with the agency.Ending the experiments will also allow the funding to be devoted to new research that will look at the effects of higher temperatures, changes in rainfall, and variations in soil fertility, Kuperberg said."What we are trying to do here is balance the time to get optimal results out of the existing experiment with our desire for a new generation of experiments that we feel is more likely to realistically represent future climate scenarios," Kuperberg said.Some scientists, though, believe ending the long-term research may be a mistake."If we stop these experiments now, it could cost many years to get back to this point, time we may not have," Kevin Lee Griffin, associate professor of environmental sciences at Columbia University, wrote in an e-mail.The research program, Free Air CO2 Enrichment (FACE), consists of rings of tall white plastic pipes with holes along their length that emit once-liquified carbon dioxide in carefully metered doses. The loblolly pines planted in 1994 at Duke in North Carolina are located behind gates several miles from campus.There are also experiments at Oak Ridge National Laboratory in Tennessee and the Harshaw Experimental Forest in Wisconsin. The carbon dioxide levels around the trees are about 50 percent higher than current levels _ the amount expected 40 to 50 years from now.The Department of Energy's Office of Biological & Environmental Research has informed those managing the experiments that their current research will be phased out by 2011. They are to get the definitive measurements on how tree growth, which represents stored carbon, was influenced, and should design new experiments to get rolling by 2012.The panel found that the current experiments had a useful life of 10 to 12 years, and in a few more years the results would become invalid, in part because the trees were nearly taller than the pipes delivering the carbon dioxide.Results so far indicate that elevated levels of carbon dioxide make forests grow more quickly, said Ram Oren, associate professor of ecology at Duke University's Nicholas School of the Environment and Earth Sciences and principal investigator on the experiments there.But unless forests are on fertile ground _ hard to come by because of development _ growth will be in leaves, needles, and fine roots, which die off and decompose in a year or two, releasing the carbon dioxide back to the atmosphere, Oren said.The Duke experiment recently began looking at fertility, and a couple of more years will give them better data on how forests react differently to drought and plentiful rainfall, he said."To stop an experiment that cost $55 million, $10 million before it reaches its real conclusion makes no sense to me," Oren said.Rich Norby, who oversees the tree experiment at Oak Ridge, said he had thought it had run its course, but emerging trends indicate the new wood growth from increased carbon dioxide tapers off due to limitations of nitrogen _ fertilizer _ in the soil."This comes up in all sorts of long-term experiments _ when is the right time to say, `Enough,'" Norby said. "There's no good answer to that."Stocks Fall on Gloomy Housing and Spending Reports...Renae Merlehttp://www.washingtonpost.com/wp-dyn/content/article/2008/11/11/AR2008111100951_pf.htmlStocks fell today as corporate balance sheets continued to show weakness in two critical parts of the economy: housing and consumer spending.But fresh moves announced by the government this afternoon to limit home foreclosures lifted the market from its intraday lows. With the new program, mortgage companies would modify mortgages for borrowers at risk of foreclosure in order to help people stay in their homes.By 3:20 p.m., the Dow, which had fallen more than 250 points, was down 1.3 percent, or 111 points. The Standard & Poor's 500-stock index was down 1.6 percent, or 14 points. The tech-heavy Nasdaq was down 1.3 percent, or 22 points.Trading is expected to be light because of the Veterans Day holiday, which also means no economic data will be released today. But investors have been driven in recent days by concerns about the gloomy economic outlook outlined in recent earnings reports. "In the absence of economic news, these data points continue to show weakness in consumer spending, which is not surprising," said Christopher Versace, portfolio manager for Agile Capital Management, a Reston-based hedge fund.The Dow was being led down for a second day by General Motors. The Detroit automaker's stock was down 11.6 percent by 3:30 p.m., as officials in Washington debate another bailout of the auto sector.Starbucks was down 1.9 percent after reporting a 97 percent drop in net income after the markets closed yesterday. That was a weaker-than-expected earnings report.Toll Brothers stock fell 1.7 percent this morning after the luxury home builder reported a 41 percent decline in revenue. But by the afternoon, it was up 0.8 percent. The company declined to make revenue forecasts for the next year because of the market uncertainty.The housing market had shown preliminary signs of stability, but that was upended by the recent financial crisis, Robert I. Toll, chairman and chief executive, said in a statement. "Results of this crisis -- accelerating fears of job losses, a large decline in consumer spending, a significant capital crunch, increased credit market disruption and plummeting stock market values -- all contributed to drive our cancellations," he said.Meanwhile, crude oil prices dipped below $60 a barrel for the first time in a year. Prices fell 4 percent to $59 a barrel. Analysts have estimated that after peaking at $147 a barrel in July, crude oil could fall to $50 a barrel as financial turmoil saps demand for fuel.Overseas markets were also down. After surging yesterday when China announced a more than $500 billion economic stimulus package, the Shanghai Composite Index was down 1.6 percent and the Nikkei in Japan fell 3 percent. European stocks took deeper losses. The Dax in Germany and Paris's CAC 40 were down more than 4 percent at closing. The FTSE in London fell 3.6 percent.Fannie, AIG Struggling After Federal TakeoverFirms Report Massive Losses, Cite Shortcomings of Rescue...Zachary A. Goldfarbhttp://www.washingtonpost.com/wp-dyn/content/article/2008/11/10/AR2008111003266_pf.htmlTwo months after the government began taking over ailing financial companies, the two largest efforts have failed to go as planned, with the firms complaining that federal officials set overly strict terms and took other unhelpful rescue measures.Fannie Mae yesterday reported a $29 billion loss for the three months ended Sept. 30 and warned that the mission it was given by the government, to help revive the mortgage market, could be compromised unless the Treasury Department takes new steps to support the company. Fannie Mae chief executive Herbert M. Allison has approached the Treasury about providing more help, but Treasury Secretary Henry M. Paulson Jr. has demurred, according to three sources familiar with the discussions.The insurance giant American International Group, meanwhile, reported a $24.5 billion quarterly loss yesterday as the government agreed to offer it a more generous lifeline in the form of a new, $152 billion loan on easier terms. The government extended an $85 billion loan to AIG in September followed by $38 billion more in October, but the company has been eating away at it at an accelerating pace.The struggles of these two largely nationalized companies underscore the government's difficulty in intervening in private markets in a way that both protects taxpayers and ensures that the rescue efforts succeed. The government's experience in addressing the financial troubles at Fannie Mae and AIG offers a cautionary tale at a time when Washington is debating whether to extend the federal umbrella to Detroit automakers and other beleaguered firms. Before September, it had been a generation since the government took over a private company out of concern that its failure could endanger the U.S. economy.At both Fannie Mae and AIG, the reported losses largely reflected poor decisions by the companies before the government intervened.But the willingness of the government to revise the rescue package for AIG and not, so far, for Fannie Mae reflects what's happened since. AIG has continued to hemorrhage despite the government's involvement. Fannie Mae has not. But while the government takeover has largely stabilized Fannie Mae, the federal actions have made it difficult for the company to expand its purchases of home loans, in turn undercutting its mission to boost the mortgage market.The government took a controlling stake in both AIG and Fannie Mae, along with Freddie Mac, when the Treasury bailed them out and imposed stiff terms on the help, sending a signal to the market that the Treasury would intervene only at a big cost to shareholders.In AIG's case, those terms, including relatively high interest rates, proved too tight as the company experienced far greater losses than the government had anticipated. To make interest payments on the loan, AIG had to borrow more money from other government sources, and the company's finances risked spiraling out of control. The plan announced yesterday expands the current AIG program to $152 billion. It also restructures it to make it easier for AIG to repay taxpayers and provides $40 billion in direct government investment.In Fannie Mae's case, the government offered in September to extend loans and make direct investments in the District-based company to allay concerns that it would collapse. But the conditions attached to those potential sources of capital made it difficult for Fannie Mae to tap them, in turn limiting its ability to pump money into the mortgage market.Yesterday, Fannie Mae went public with its concerns about this federal assistance. It warned that it "may prove insufficient" to allow the company to routinely pay off its loans or "continue to fulfill our mission of providing liquidity to the mortgage market at appropriate levels."Fannie Mae's reported loss of $29 billion, or $13 a share, was the single biggest loss for any U.S. company this year. It compared with a loss of $1.4 billion, or $1.56 a share, in the third quarter of 2007. More than two thirds of the loss resulted from writing down the value of deferred tax assets, which are credits that can be applied against income taxes.The company added that its difficulties had been further compounded by government actions after the takeover that made the task of supporting the housing market even tougher.In October, the government announced a series of steps to protect loans made to banks and big corporations. These loans to private banks, the company reported, may have become "more attractive investments" than loans to Fannie Mae, historically one of the safest investments. Although investors have long assumed that the government stands behind Fannie Mae, this guarantee is no longer as strong as those now explicitly provided to some other financial companies.Fannie Mae uses loans to buy up mortgages and mortgage bonds. "The U.S. government does not guarantee, directly or indirectly, our securities or other obligations," the company said.As the financial markets took a sharp turn for the worse in October, the government introduced a variety of protections for financial institutions. The Treasury Department, Fannie Mae and its regulator, the Federal Housing Finance Agency, initiated a series of discussions about what else the government could do to support the mortgage market.Fannie Mae had begun taking steps to make home loans more affordable, such as buying more mortgage bonds to put money into the market and eliminating fees it charged to insure loans. But the company was having trouble raising affordable, long-term funding in the debt markets -- the money it uses to buy mortgages. As a result, mortgage rates were rising. That was the opposite of what government officials intended when they took over Fannie Mae and Freddie Mac.The government could provide more support for Fannie Mae by buying the company's debt or making it easier for the company to get loans or capital directly from the Treasury.But Paulson wasn't interested in renegotiating the terms of the department's agreement with Fannie Mae, according to sources who spoke on condition of anonymity because they were not authorized to disclose the discussions."We have occasional discussions with [Fannie Mae and Freddie Mac] and FHFA as we monitor the mortgage market and look to address the housing correction," said Treasury spokeswoman Michele Davis. "We have received no recommendations from Fannie Mae."Peter J. Wallison, a former Treasury official and a fellow at the American Enterprise Institute, said the government was being foolhardy in failing to do more for Fannie Mae. "What is the reluctance on the part of Treasury to put money into Fannie and Freddie? We know they're going to lose money. So what?" he said. "Their objective is to help the housing market."Some financial experts have suggested that the government go even further and fully nationalize firms like Fannie Mae and Freddie Mac, allowing them to borrow at the same low rates the U.S. government can.In contrast to Fannie Mae, AIG won a new relief package after the initial bailout aggravated the company's difficulties.AIG, which has recorded $43 billion in losses on home mortgages, was facing bankruptcy in September when the government stepped in. To raise capital to pay back the government's initial loan, the chief executive appointed by the Treasury, Edward M. Liddy, planned to sell off some AIG subsidiaries, such as life insurance and airplane-leasing firms.But the falling stock market made that difficult by depressing the value of the company's shares. Meanwhile, the freeze in credit markets made it even harder for AIG to remain liquid and pay off debts. AIG was forced to put up billions of dollars to cover derivatives it had sold to investors."It was obvious to me from Day One that the terms of that arrangement were really quite punitive in terms of the interest rate and the commitment fee and the shortness of it," Liddy said in a Bloomberg Television interview yesterday. "I started really about a week after I got here trying to renegotiate."Under the new plan, the government will inject $40 billion into AIG, a move similar to what it has done with U.S. banks. In addition, the government will help unload $52.5 billion in troubled assets on AIG's books while reducing the amount of the original loan and cutting its interest rate."In September, when AIG had to be rescued, we did not have authority to purchase equity," said Davis, the Treasury spokeswoman. If the Treasury's financial bailout program had already been created, she added, "we would have purchased equity at that time."Government Announces New Program for At-Risk Mortgages...Zachary A. Goldfarb, Renae Merle and David Chohttp://www.washingtonpost.com/wp-dyn/content/article/2008/11/11/AR2008111101178_pf.htmlThe government and mortgage industry -- including federally run mortgage finance giants Fannie Mae and Freddie Mac -- today announced a streamlined system for modifying the mortgages of hundreds of thousands of borrowers to avoid foreclosure.Under the program, Fannie Mae, Freddie Mac and other companies would move to modify mortgages for borrowers who are more than 90 days late on paying their loans and fit within certain formulas. That contrasts with the current system, where modifications are addressed on a case-by-case basis.The goal of the new program would be for borrowers' annual mortgage payment to equal 38 percent of annual income, the model used successfully by the government with IndyMac in California. The companies would do that by extending the loan term, reducing the interest rate and, if necessary, delaying payment on a part of the principal of the loan. If a borrower is able to meet payments for three months, the change becomes permanent."Foreclosures have increased 150 percent in the past two years," said James B. Lockhart III, director of the Federal Housing Finance Agency, at an afternoon news conference today. "We need to stop this downward spiral."Joining Lockhart at the news conference was Neel Kashkari, the interim assistant Treasury secretary for financial stability; Faith Schwartz, head of the Hope Now alliance of financial institutions that have agreed to take measures to reduce foreclosures; and Michael Heid, a senior mortgage executive at Wells Fargo."We are experiencing a necessary housing correction, and the sooner we work through it, the sooner housing can again contribute to our economic growth," Kashkari said.Housing advocacy groups have been critical of Fannie Mae and Freddie Mac's willingness to take big steps to redo mortgages. But the Treasury Department, the FHFA and the new executives that the government have installed have pushed to do more. The companies have been testing "mass modification" programs for some time.Fannie Mae and Freddie Mac own or guarantee a majority of the nation's mortgages. They would mainly be able to adjust those mortgages they own.Soon after the news conference, Federal Deposit Insurance Corp. Chairman Sheila Bair said the federal government needs to do even more for homeowners."This is a step in the right direction but falls short of what is needed to achieve wide-scale modifications of distressed mortgages, particularly those held in private securitization trusts," Bair said in a statement.She said she was pleased that the program announced today draws upon the FDIC's metrics used with IndyMac, the failed bank that was taken over by the FDIC. But she said "there are questions that remain about implementation," such as whether the payment increases will be capped for the entire term of the loan.The government program announced today doesn't go as far as Citigroup, which made its own announcement today that it will target at-risk borrowers current on their loans. The Citigroup plan could affect 500,000 at-risk borrowers in regions facing rising unemployment rates and steep declines in home values.The program being announced today "is an important step forward for the industry," said Schwartz. "We have all worked hard to look at ways to streamline the process, to reach borrowers at risk and to add to the already substantial efforts that are already underway."Citigroup's plan will attempt to modify the terms before the borrower becomes delinquent. "With the unemployment rate rising and rising, more and more borrowers are getting into financial distress because of loss of income," said Sanjiv Das, chief executive of CitiMortgage. "It is a problem the country will face for some time to come, so it is very important to reach out to borrowers before they become delinquent."Unlike other modification programs, Citigroup officials said, their program will focus not on whether homeowners have subprime or other risky loans, but instead on whether they are at risk of falling behind because they live in an area with high unemployment or declining home prices. Borrowers could be eligible for an interest rate as low as 3 percent or could have their terms stretched to 40 years to make the payments more affordable. If neither of those options works, Citigroup will consider deferring interest payments on a portion of the principal.Like many loan-modification efforts, Citigroup's program is limited to loans that it owns. The bank must separately obtain permission from investors, who own 4 million loans serviced by the bank, to include those borrowers in the program. "We are in active discussions with investors. We have had a good response from them," Das said.The housing market has been at the center of the financial meltdown. Today, home builder Toll Brothers released bleak quarterly earnings and its chief executive, Robert I. Toll, urged that the government's plans to right the economy must include more to get the housing sector back on track."We believe the government's efforts must concentrate on stopping the decline in home prices. . . . Congress has allocated hundreds of billions of dollars to reset mortgages, help people who are in foreclosure and protect those who have been the victims of rapacious lending practices. We believe all of these goals are very worthy. However, we believe that, if home prices are not stabilized, these efforts will be for naught, more mortgages will go under, and the taxpayers' money will have been wasted."Major banks are testing loan-modification programs in the face of political pressure to do more to help struggling homeowners. J.P. Morgan Chase said recently said that it will begin modifying mortgages under a program that could keep 400,000 families in their homes. Bank of America plans to modify an estimated 400,000 subprime loans held by Countrywide Financial, which it recently acquired.New York TimesA Town Drowns in Debt as Home Values Plunge...David Streitfeld http://www.nytimes.com/2008/11/11/business/11home.html?_r=1&oref=slogin&ref=business&pagewanted=printMOUNTAIN HOUSE, Calif. — This town, 59 feet above sea level, is the most underwater community in America.Because of plunging home values, almost 90 percent of homeowners here owe more on their mortgages than their houses are worth, according to figures released Monday. That is the highest percentage in the country. The average homeowner in Mountain House is “underwater,” as it is known, by $122,000.A visit to the area over the last couple of days shows how the nationwide housing crisis is contributing to a broad slowdown of the American economy, as families who feel burdened by high mortgages are pulling back on their spending.Jerry Martinez, a general contractor, and his wife, Marcie, an accounts clerk, are among the struggling owners in Mountain House. Burdened with credit card debt and a house losing value by the day, they are learning the necessity of self-denial for themselves and their three children.No more family bowling night. No more dinners at Chili’s or Applebee’s. No more going to the movies. “We make decent money, but it takes a tremendous amount to pay the mortgage,” Mr. Martinez, 33, said. First American CoreLogic, a real estate data company, has calculated that 7.6 million properties in the country were underwater as of Sept. 30, while another 2.1 million were in striking distance. That is nearly a quarter of all homes with mortgages. The 20 hardest-hit ZIP codes are all in four states: California, Florida, Nevada and Arizona.“Most people pay very little attention to what their equity stake is if they can make the mortgage,” said First American’s chief economist, Mark Fleming. “They think it’s a bummer if the value has gone down, but they are rooted in their house.”And yet the magnitude of the current declines has little precedent. “When my house is valued at 50 percent less than it was, does this begin to challenge the way I’m going to behave?” he said.Mountain House, a planned community set among the fields and pastures of the Central Valley about 60 miles east of San Francisco, provides a discomfiting answer.The cutbacks by the Martinezes and their neighbors are reflected in a modest strip of about a dozen stores in nearby Tracy. Three are empty while a fourth has only a temporary tenant. Some of those that remain say they are just hanging on.“Before summer, things were O.K. Not now,” said My Phan of Hailey Nails and Spa. “Customers say they cannot afford to do their nails.” She estimated her business had fallen by half.At Cribs, Kids and Teens, Jason Heinemann says his business is also down 50 percent. He opened the store in early 2006; last month was his worst ever. “Grandparents are big buyers of kids’ furniture, but when their 401(k)’s are dropping $10,000 and $20,000 a week, they don’t come in,” he said.Mr. Heinemann laid off his one employee, a contribution to an unemployment rate in San Joaquin County that has surpassed 10 percent. He dropped his advertising in the local newspaper and luxury magazines.As Mr. Heinemann’s sales sink, he is tightening his own belt. “I used to be a big spender,” he said. “We’re setting a budget for Christmas.” In the window of another tenant, Wells Fargo Home Mortgage, a placard shows two happy homeowners holding a sign saying, “Someday we’ll owe a lot less than we thought.”Someday, maybe, but not now. First American has been refining its figures on underwater mortgages, formally known as negative equity. The data company evaluated 42 million residential properties with mortgages. (Though Maine, Mississippi, North Dakota, South Dakota, Vermont, West Virginia and Wyoming were excluded because of insufficient data, none of those states have been central to the mortgage crisis.) A computer model was used to calculate current values, using comparable sales. More than 10 million homes do not have mortgages.The figures rank the 20 ZIP codes that are furthest underwater. The 95391 ZIP code, which includes all of Mountain House and some properties outside it, has the unwelcome distinction of being first in the country.Out of 1,856 mortgages in the ZIP code, First American calculates that nearly 90 percent are underwater. Only 209 owners owe less on their mortgages than the homes are worth. The first homes in Mountain House were sold in 2003, just as the real estate boom began to go into overdrive. Its relative proximity to San Francisco drew many who traded a longer commuting trip for a bigger place.The Martinezes bought their house in early 2005 for $630,000. It is now worth about $420,000. They have an interest-only mortgage, a popular loan during the boom that allows owners to forgo principal payments for a time. But these loans eventually become unmanageable. In 2015, Mr. Martinez said, his monthly payments will be $12,000 a month. He laughed and shook his head at the absurdity of it.They fear the future, so they stay home. They rent movies. They play board games. (But not Monopoly — with its real estate theme, it reminds them too much of real life.) “It’s a vicious circle,” Mr. Martinez said. The economy is faltering because he and millions of others are not spending. This killed his career in home remodeling this year, and threatens his current work as a contractor on commercial properties.For the moment, the family is just trying to hold on. But Mr. Martinez acknowledges that it has entered his mind to turn his house back over to the bank. “By next June, if things aren’t better, I’m walking,” Mr. Martinez said. Many in Mountain House have already taken that option. Banks took over 101 properties in the 95391 ZIP code in the third quarter, according to DataQuick Information Systems.Even relatively recent arrivals are feeling a pinch.Kenny Rogers, a data security specialist, moved into Mountain House last year, buying a foreclosed property on Prosperity Street for $380,000. But the decline in values has been so fierce that he too is underwater. He has cut his DVD buying from 50 a month to perhaps one, and is waiting until the Christmas sales to buy a high-definition television. He does not indulge much anymore in his hobbies of scuba diving and flying. “Best to wait for a better price, or do without,” Mr. Rogers, 52, said. People deciding to do without are hurting a second mall close to Mountain House. There is a shuttered Linens ’n Things, part of a chain that went bankrupt. Another empty storefront used to be a Fashion Bug. Soccer World could not make it. Shoe Pavilion is festooned with going-out-of-business signs. Chris and Janet Ackerson can survey this carnage from their own store with a certain equanimity. Their business, a member of the Vino 100 chain of wine outlets, is doing well. The store opened at the beginning of the year, so long-term trends are not clear. But sales did not plunge in the last few months as they did for so many other retailers. Four more people joined the store’s wine club last weekend.“My house is underwater, so I’m not doing too much impulse shopping or any renovation. But I’m not cutting back on this,” said Ray Lopez, a database administrator, as he placed a $24 petite sirah on the counter. “Life’s too short.”CNN MoneyToll Brothers: More housing support neededhttp://dailybriefing.blogs.fortune.cnn.com/2008/11/11/toll-brothers-wants-feds-to-support-housing-market/Toll Brothers (TOL) is sounding another alarm on the economy. The Horsham, Pa., luxury homebuilder posted a 41% decline in revenue for the fourth quarter ended last month. Net signed contracts dropped 27%  from a year ago, as the bottom fell out of the market in October.CEO Robert Toll said that as late as September, the company was on track to post a flat quarter in terms of contract signings. But that trend, which Toll had pointed to in its third-quarter earnings call as an early and modest sign of stability after a three year housing slump was “upended by the past month’s financial crisis,” the company said. As a result, Toll said it won’t offer any financial guidance for 2009.Now, with Washington handing out multibillion-dollar goodies to the finance industry, the company’s focus is turning to how to break the cycle of slowing economic growth and falling house prices. Toll is among those who want to see the feds take more action to shore up the housing market.“Congress has allocated hundreds of billions of dollars to reset mortgages, help people who are in foreclosure, and protect those who have been the victims of rapacious lending practices,” Toll said in Tuesday’s press release. “We believe all of these goals are very worthy.“However, we believe that, if home prices are not stabilized, these efforts will be for naught, more mortgages will go under, and the taxpayers’ money will have been wasted,” Toll added. “We urge Congress to stimulate demand by reducing mortgage rates and fees and by providing incentives such as a buyer tax credit for the purchase of all types of homes. We believe these initiatives would offer the greatest benefit for the taxpayer’s dollar.”Of course, as the National Association of Homebuilders will be sure to tell you, the Housing and Economic Recovery Act of 2008 authorizes a $7,500 tax credit for some people buying their first houses between April 9, 2008, and July 1, 2009. But the call for lower mortgage rates and fees tracks with a proposal that some observers are making about dramatically expanding the role of Fannie Mae and Freddie Mac in providing low-cost financing to first-time homebuyers. The question now is what approaches the new administration might embrace.Financial TimesGrowing credit crisis claims more US victims...Francesco Guerrera and Jonathan Birchall in New York...11-10-08http://us.ft.com/ftgateway/superpage.ft?news_id=fto111020081832441413&referrer_id=yahoofinanceThe credit storm swept through Wall Street and Main Street with renewed virulence on Monday as AIG and Fannie Mae reported huge losses, a leading US retailer filed for bankruptcy and multinationals such as DHL cut thousands of jobs.The bad news from both the financial and corporate sectors underlined the broadening of a crisis that claimed its first victims among banks and insurers but has now spread through the global economy.Robert Zoellick, president of the World Bank, was set to announce on Tuesday a big increase in financial support for developing countries caught up in the credit crisis. The move comes ahead of this weekend’s G20 summit on the world economy, which will bring together leaders from leading industrialised and developing nations. The S&P 500 index on Monday fell 1.3 per cent as investors reacted to the poor performance of sectors ranging from insurance to logistics, and the announcement that the US electronics retailer Circuit City had filed for bankruptcy protection. The retreat in stock prices came despite a 10 per cent jump in the shares of AIG, which confirmed details of a new $150bn government bail-out package. News of the federal rescue, which comes less than two months after the Federal Reserve lent AIG $85bn to prevent its collapse, overshadowed the insurer’s announcement of a $24.5bn third-quarter loss. AIG’s ailing financial health prior to the government intervention was highlighted by a $7.5bn quarterly writedown in its troubled financial services unit. The company has recorded more than $31bn of credit-related writedowns since the crisis began. Fannie Mae, the mortgage finance group that was nationalised in September, on Monday added to the gloom, reporting a record $29bn quarterly loss. The company warned that it might require further government funds to avoid a collapse. Circuit City became the largest US chain store to fall victim to the current crisis, as it filed for Chapter 11 protection. A week ago, it said it would close a fifth of its more than 700 stores, with the loss of some 7,000 jobs.DHL, the logistics group, announced 9,500 job cuts and is scrapping its express package delivery business within the US.Nortel, the Canadian maker of telecommunications equipment, was also downbeat, reporting its largest quarterly loss since 2001 and revealing 1,300 job cuts. The company said the cost cuts should save $400m a year and would help cushion the blow of dwindling orders. The GuardianThe high priests of the bubble economyIf Barack Obama really wants things to change, he shouldn't be seeking economic advice from Clinton-era officials...Dean Baker...11-10-08http://www.guardian.co.uk/commentisfree/cifamerica/2008/nov/10/obama-white-house-useconomyThose following the meeting of Barack Obama's economic advisory committee could not have been very reassured by the presence of Robert Rubin and Larry Summers, both former Treasury secretaries in the Clinton administration. Along with former Federal Reserve Board chairman Alan Greenspan, Rubin and Summers compose the high priesthood of the bubble economy. Their policy of one-sided financial deregulation is responsible for the current economic catastrophe. It is important to separate Clinton-era mythology from the real economic record. In the mythology, Clinton's decision to raise taxes and cut spending led to an investment boom. This boom led to a surge in productivity growth. Soaring productivity growth led to the low unemployment of the late 1990s and wage gains for workers at all points along the wage distribution.At the end of the administration, there was a huge surplus, and we set target dates for paying off the national debt. The moral of the myth is that all good things came from deficit reduction. The reality was quite different. There was nothing resembling an investment boom until the dot-com bubble at the end of the decade funnelled vast sums of capital into crazy internet schemes. There was a surge in productivity growth beginning in 1995, but this preceded any substantial upturn in investment. Clinton had the good fortune to be sitting in the White House at the point where the economy finally enjoyed the long-predicted dividend from the information technology revolution.Rather than investment driving growth during the Clinton boom, the main source of demand growth was consumption. Consumption soared during the Clinton years because the stock market bubble created $10tn of wealth. Stockholders consumed based on their bubble wealth, pushing the saving rate to record lows, and the consumption share of GDP to a record high.The other key part of the story is the high dollar policy initiated by Rubin when he took over as Treasury secretary. In the first years of the Clinton administration, the dollar actually fell in value against other currencies. This is the predicted result of the deficit reduction. Lower deficits are supposed to lead to lower interest rates, which will in turn lower the value of the dollar. A lowered dollar value will reduce the trade deficit, by making US exports cheaper to foreigners and imports more expensive for people living in the US. The falling dollar and lower trade deficit is supposed to be one of the main dividends of deficit reduction. In fact, the lower dollar and lower trade deficit were often touted by economists as the primary benefit of deficit reduction until they decided to change their story to fit the Clinton mythology. The high dollar of the late 1990s reversed this logic. The dollar was pushed upward by a combination of Treasury cheerleading, worldwide financial instability beginning with the East Asian financial crisis and the irrational exuberance propelling the stock bubble, which also infected foreign investors. In the short-run, the over-valued dollar led to cheap imports and lower inflation. It incidentally all also led to the loss of millions of manufacturing jobs, putting downward pressure on the wages of non-college educated workers.Like the stock bubble, the high dollar is also unsustainable as a long-run policy. It led to a large and growing trade deficit. This deficit eventually forced a decline in the value of the dollar, although the process has been temporarily reversed by the current financial crisis. Rather than handing George Bush a booming economy, Clinton handed over an economy that was propelled by an unsustainable stock bubble and distorted by a hugely over-valued dollar. The 2001 recession was relatively short, but the economy continued to shed jobs for almost two years after the recession ended. Because President Bush refused to abandon the high dollar policy, the only tool available to boost the economy was the housing bubble. In addition to the growth created directly by the housing sector, the wealth created by this bubble led to an even sharper decline in saving than the stock bubble.Of course, the housing bubble is now in the process of deflating. The resulting tidal wave of bad debt has created the greatest financial crisis since the second world war. With the loss of $8tn in housing wealth, consumption has seized up, throwing the economy into a severe recession. While the Bush administration must take responsibility for the current crisis (they have been in power the last eight years), the stage was set during the Clinton years. The Clinton team set the economy on the path of one-sided financial deregulation and bubble driven growth that brought us where we are today. (The deregulation was one-sided, because they did not take away the "too big to fail" security blanket of the Wall Street big boys.) For this reason, it was very discouraging to see top Clinton administration officials standing centre stage at Obama's meeting on the economy. This is not change, and certainly not policies that we can believe in.