The World Health Organization (WHO) has raised its alert level over swine flu from three to four - two steps short of declaring a full pandemic.
WHO Assistant Director General Dr Keiji Fukuda said it signalled a "significant step towards pandemic influenza", but added "we are not there yet".
Mexico earlier said it believed 149 people had now died from the swine flu outbreak - only 20 cases are confirmed.
Other, milder, cases are confirmed in the US, Canada, Spain and Britain.
The WHO's decision to raise the alert level to four came after an emergency meeting of experts, brought forward by a day because of concerns over the outbreak.
WHO PANDEMIC ALERT PHASES
Phase 1: No viruses circulating among animals causing infections in humans
Phase 2: Animal influenza virus causes infection in humans, and is considered potential pandemic threat
Phase 3: Influenza causes sporadic cases in people, but no significant human-to-human transmission
Phase 4: Verified human-to-human transmission able to cause community-level outbreaks. Significant increase in risk of a pandemic
Phase 5: Human-to-human transmission in at least two countries. Strong signal pandemic imminent
Phase 6: Virus spreads to another country in a different region. Global pandemic under way
Life at centre of the outbreak
Swine flu: Your experiences
In pictures: Swine flu
Level four means the virus is showing a sustained ability to pass from human to human, and is able to cause community-level outbreaks.
"What this can really be interpreted as is a significant step towards pandemic influenza. But also, it is a phase that says we are not there yet," Mr Fukuda said.
"In other words, at this time we think we have taken a step in that direction, but a pandemic is not considered inevitable."
He said the virus had become too widespread to make containment a feasible option, and said countries must focus on trying to put measures in place to protect the population.
He also stressed that the experts did not recommend closing borders or restricting travel. "With the virus being widespread... closing borders or restricting travel really has very little effects in stopping the movement of this virus," he said.
The first batches of a swine flu vaccine could be ready between four to six months, but it will take several more months to produce large quantities of it, Mr Fukuda said.
Health experts say the virus comes from the same strain that causes seasonal outbreaks in humans. But they say this newly-detected version contains genetic material from versions of flu which usually affect pigs and birds.
Mexico deaths
Earlier, Mexico's Health Minister Jose Angel Cordova said the suspected death toll from swine flu had now risen from just over 100 to 149. Of that number, 20 have been confirmed as swine flu.
All of those who had died were aged between 20 and 50, he said. Infections among young healthy adults was a characteristic of past pandemics.
"We're in the decisive moment of the crisis, the number [of deaths] will continue rising," Mr Codova told a news conference.
He said nearly 2,000 people had been hospitalised since the first case of swine flu was reported on 13 April, but half had now been allowed home.
Schools nationwide are to remain closed until 6 May as the country attempts to grapple with the outbreak.
As Mr Cordova spoke, Mexico City - where the outbreak is centred - was rocked by a 5.6-magnitude earthquake. It shook tall buildings and led to evacuations, but there have been no reports of damage or injuries.
SWINE FLU
Swine flu is a respiratory disease thought to spread through coughing and sneezing
Symptoms mimic those of normal flu
Good hygiene like using a tissue and washing hands thoroughly can help reduce transmission
Swine flu cases confirmed in UK
Q&A: What is swine flu?
'I couldn't get out of bed'
In almost all swine flu cases outside Mexico, people have been only mildly ill and have made a full recovery.
In the US, a further 20 cases of swine flu were confirmed in New York. Cases have also been reported in Ohio, Kansas, Texas and California, bringing the total across the country to more than 40.
It is thought that only person in the US had been hospitalised as a result of contracting the virus, and all had recovered.
Dr Richard Besser, acting director of the US Centers of Disease Control and Prevention (CDC), has warned that a new US travel advisory is being prepared suggesting "non-essential travel to Mexico be avoided".
Earlier, US Secretary of State Hillary Clinton and EU Health Commissioner Androulla Vassiliou separately urged caution for those considering travelling to Mexico.
In Canada, six cases have been recorded at opposite ends of the country, in British Columbia and in Nova Scotia.
SPREAD OF VIRUS
Mexico: 26 confirmed cases (Mexico puts suspected deaths at 149)
United States: 40 confirmed cases
Canada: 6 confirmed cases
Spain: 1 confirmed case
UK: Scotland says tests confirm 2 cases
Israel, Brazil, Guatemala, Peru, Australia and New Zealand: Suspected cases being tested
Swine flu officially arrived in Europe on Monday, when tests confirmed that a young man in Spain and two people in Scotland - all of whom had recently returned from Mexico - had the virus. They were said to be recovering well.
Tests are also being carried out on individuals or groups in New Zealand, Australia, Brazil and Israel who fell ill following travel to Mexico.
A number of countries in Asia, Latin America and Europe have begun screening airport passengers for symptoms, while Germany's biggest tour operator has suspended trips to Mexico.
Several countries have banned imports of raw pork and pork products from Mexico and parts of the US, although experts say there is no evidence to link exposure to pork with infection.
Shares in airlines have fallen sharply on fears about the economic impact of the outbreak.
Monday, April 27, 2009
Taliban suspends talks with Pak, won't lay down arms
Taliban on Monday suspended talks with the Pakistani government on the Swat deal to protest against the military operations in Dir, adjoining Swat Valley, in which so far 30 militants and an army officer have been killed.
As the Pakistani forces intensified the operations for second day on Monday, Tehrik-e-Nifaz-e-Shariah Muhammadi spokesman Izzat Khan told reporters that no peace talks would be held with the government unless the security forces halted the operations.
Taliban spokesman Muslim Khan also said the militants will not lay down their arms at any cost.
The Swat peace deal stipulated that the militants would lay down their arms once the demand for enforcing Islamic Sharia law in the once Pakistan's famous tourist resort was implemented.
The security forces continued shelling militant hideouts at several places in Dir district.
Interior Ministry chief Rehman Malik said security forces had killed at least 30 militants during the operations, which was launched in retaliation to efforts by the Taliban to extend their influence outside Swat.
The Taliban confirmed that commander Maulvi Shahid was among the militants killed on Sunday.
Gunship helicopters targeted militant hideouts, killing and injuring a number of them.
Two personnel of the paramilitary Frontier Corps were also killed and a Major was among five personnel injured in an ambush in Maidan, the hometown of TNSM chief Sufi Muhammad.
Army helicopters airlifted Frontier Corps troops to strategic hilltops in Dir while armoured personnel carriers were seen moving towards the area.
An indefinite curfew was imposed in Lal Qila, Islampura, Kal Kot and several other areas in Dir considered to be strongholds of the Taliban.
Security forces on Sunday took control of Lal Qila after clearing the key area of militants.
Reports from Swat on Monday morning morning said the Taliban had occupied a telephone exchange in Bahrain town.
Security forces arrested four militants with heavy weapons at Khwazakhela in Swat.
Militants in Dir have also taken up positions on hilltops to resist the security forces.
The Inter-Services Public Relations said the operation in Dir was launched on the request of the North West Frontier Province government to rid the area of militants who were threatening peace in the area.
The situation in Maidan, the hometown of Sufi Muhammad, worsened after district police chief Khurshid Khan and local mayor Alamzeb Khan were killed and scores of people were kidnapped in the past few weeks.
As the Pakistani forces intensified the operations for second day on Monday, Tehrik-e-Nifaz-e-Shariah Muhammadi spokesman Izzat Khan told reporters that no peace talks would be held with the government unless the security forces halted the operations.
Taliban spokesman Muslim Khan also said the militants will not lay down their arms at any cost.
The Swat peace deal stipulated that the militants would lay down their arms once the demand for enforcing Islamic Sharia law in the once Pakistan's famous tourist resort was implemented.
The security forces continued shelling militant hideouts at several places in Dir district.
Interior Ministry chief Rehman Malik said security forces had killed at least 30 militants during the operations, which was launched in retaliation to efforts by the Taliban to extend their influence outside Swat.
The Taliban confirmed that commander Maulvi Shahid was among the militants killed on Sunday.
Gunship helicopters targeted militant hideouts, killing and injuring a number of them.
Two personnel of the paramilitary Frontier Corps were also killed and a Major was among five personnel injured in an ambush in Maidan, the hometown of TNSM chief Sufi Muhammad.
Army helicopters airlifted Frontier Corps troops to strategic hilltops in Dir while armoured personnel carriers were seen moving towards the area.
An indefinite curfew was imposed in Lal Qila, Islampura, Kal Kot and several other areas in Dir considered to be strongholds of the Taliban.
Security forces on Sunday took control of Lal Qila after clearing the key area of militants.
Reports from Swat on Monday morning morning said the Taliban had occupied a telephone exchange in Bahrain town.
Security forces arrested four militants with heavy weapons at Khwazakhela in Swat.
Militants in Dir have also taken up positions on hilltops to resist the security forces.
The Inter-Services Public Relations said the operation in Dir was launched on the request of the North West Frontier Province government to rid the area of militants who were threatening peace in the area.
The situation in Maidan, the hometown of Sufi Muhammad, worsened after district police chief Khurshid Khan and local mayor Alamzeb Khan were killed and scores of people were kidnapped in the past few weeks.
Mamata campaigns jointly with Sonia, Pran
Congress and Trinamool Congress are campaigning together for the Lok Sabha elections in West Bengal with Sonia Gandhi and Mamata Banerjee sharing the dais after almost 10 years.
Assailing West Bengal's Left Front government for "running a dictatorship", the Congress President expressed concern at the Communist rulers' failure to "improve the lot of the minorities" and the poor.
In a stinging attack on the Left during an election meeting in a remote area of Murshidabad district, she described as a "matter of shame" the state government's inability to provide job cards to hundreds of thousands of poor people under the National Rural Employment Guarantee Act (NREGA).
Referring to the violent incidents in Nandigram and Singur, she said: "These people (the Left) call themselves messiahs and sympathisers of the poor and working classes. We all know how peasants of Nandigram and Singur became victims of violence in their bid to protect their own land. Our Congress party activities had lathis (sticks) rained on them for trying to give a voice to the people."
Addressing the meeting for Minister for External Affairs Pranab Mukherjee, who is contesting from the district's Jangipur constituency, Sonia Gandhi charged the Left Front with running a dictatorship in the name of democracy.
Murshidabad is the only Muslim majority district in the state. Sonia Gandhi gave an account of the welfare schemes launched by the United Progressive Alliance (UPA) Government at the Centre for the minorities, and pilloried the LF for "not doing much" in this regard.
"In West Bengal, what is the social and economic position of the minorities? It is a cause for grave concern. During the long years of Communist Party of India-Marxist (CPI-M) rule, I have a feeling nothing much has been done for minorities," she said, during her 12-minute speech in Hindi.
She said despite the Centre sending thousands of crores for welfare schemes to the state, the Left Front rulers had only used the money for benefit of their party activists.
"Ask the state government why funds allocated by the Centre for welfare schemes are not reaching the people. Had it been given to the people and had this government's intention been good, then there would not have been so many poor people in the state, particularly in this area," she said.
"Instead of implementing the central schemes with honesty to benefit the people, they used it to benefit their leaders. Despite being in power for 32 years, they have failed to bring electricity to all the rural areas."
Referring to the Left parties's withdrawal of support to the UPA Government on the India-US civilian nuclear deal, Sonia Gandhi said: "We had signed the deal only to bring electricity to your homes".
She said the peasants were not getting a remunerative price for paddy here, due to the apathy of the state government, while industrial activities had stopped in the last decade.
Expressing happiness at the alliance with Trinamool Congress, she said: "I am happy that Mamata is again with us," and appealed to the people to vote on polling day and not remain in their houses "out of fear".
Assailing West Bengal's Left Front government for "running a dictatorship", the Congress President expressed concern at the Communist rulers' failure to "improve the lot of the minorities" and the poor.
In a stinging attack on the Left during an election meeting in a remote area of Murshidabad district, she described as a "matter of shame" the state government's inability to provide job cards to hundreds of thousands of poor people under the National Rural Employment Guarantee Act (NREGA).
Referring to the violent incidents in Nandigram and Singur, she said: "These people (the Left) call themselves messiahs and sympathisers of the poor and working classes. We all know how peasants of Nandigram and Singur became victims of violence in their bid to protect their own land. Our Congress party activities had lathis (sticks) rained on them for trying to give a voice to the people."
Addressing the meeting for Minister for External Affairs Pranab Mukherjee, who is contesting from the district's Jangipur constituency, Sonia Gandhi charged the Left Front with running a dictatorship in the name of democracy.
Murshidabad is the only Muslim majority district in the state. Sonia Gandhi gave an account of the welfare schemes launched by the United Progressive Alliance (UPA) Government at the Centre for the minorities, and pilloried the LF for "not doing much" in this regard.
"In West Bengal, what is the social and economic position of the minorities? It is a cause for grave concern. During the long years of Communist Party of India-Marxist (CPI-M) rule, I have a feeling nothing much has been done for minorities," she said, during her 12-minute speech in Hindi.
She said despite the Centre sending thousands of crores for welfare schemes to the state, the Left Front rulers had only used the money for benefit of their party activists.
"Ask the state government why funds allocated by the Centre for welfare schemes are not reaching the people. Had it been given to the people and had this government's intention been good, then there would not have been so many poor people in the state, particularly in this area," she said.
"Instead of implementing the central schemes with honesty to benefit the people, they used it to benefit their leaders. Despite being in power for 32 years, they have failed to bring electricity to all the rural areas."
Referring to the Left parties's withdrawal of support to the UPA Government on the India-US civilian nuclear deal, Sonia Gandhi said: "We had signed the deal only to bring electricity to your homes".
She said the peasants were not getting a remunerative price for paddy here, due to the apathy of the state government, while industrial activities had stopped in the last decade.
Expressing happiness at the alliance with Trinamool Congress, she said: "I am happy that Mamata is again with us," and appealed to the people to vote on polling day and not remain in their houses "out of fear".
Lanka Tamils vandalise India embassy in London
Sri Lankan Tamil protesters smashed windows of the Indian High Commission and forced their way inside the building during a demonstration on Monday.
The High Commission has sought adequate protection from the British Government.
British police arrested five Sri Lankan Tamils after several demonstrators broke into the Indian High Commission in the middle of the protest outside the building in central London.
A spokesperson for the High Commission said the protest began when a crowd of about 100 to 150 protesters gathered outside India House at 0815 hrs (local time), their numbers swelling to over a thousand later.
The demonstration over the current civil war in Sri Lanka became violent when a few of the protesters forced their way into the building when its door was opened to allow a staff member in.
"The crowd outside have shattered some of the glass windows of the High Commission's premises with heavy objects. Police and security agencies are on duty outside the premises. No one in the High Commission has been injured," the spokesperson said.
She said the British Foreign Office had been informed about the incident, "along with the High Commission's concerns about the security situation and their need for adequate security measures."
The High Commission has sought adequate protection from the British Government.
British police arrested five Sri Lankan Tamils after several demonstrators broke into the Indian High Commission in the middle of the protest outside the building in central London.
A spokesperson for the High Commission said the protest began when a crowd of about 100 to 150 protesters gathered outside India House at 0815 hrs (local time), their numbers swelling to over a thousand later.
The demonstration over the current civil war in Sri Lanka became violent when a few of the protesters forced their way into the building when its door was opened to allow a staff member in.
"The crowd outside have shattered some of the glass windows of the High Commission's premises with heavy objects. Police and security agencies are on duty outside the premises. No one in the High Commission has been injured," the spokesperson said.
She said the British Foreign Office had been informed about the incident, "along with the High Commission's concerns about the security situation and their need for adequate security measures."
Probe Narendra Modi's role in Gujarat riots: SC
The Supreme Court on Monday asked a special probe panel formed by it to look into the allegations that Gujarat Chief Minister Narendra Modi along with over 50 other politicians and government officials had aided and abetted statewide communal riots in 2002.
A bench of Justices Arijit Pasayat and Asok Kumar Ganguly directed the panel headed by former Central Bureau of Investigation (CBI) director R K Raghavan to particularly look into the allegations that Modi was involved in the killing of an MP in Ahmedabad's Gulbarga Society arson case.
The panel was asked to file its report within three months.
A bench of Justices Arijit Pasayat and Asok Kumar Ganguly directed the panel headed by former Central Bureau of Investigation (CBI) director R K Raghavan to particularly look into the allegations that Modi was involved in the killing of an MP in Ahmedabad's Gulbarga Society arson case.
The panel was asked to file its report within three months.
Pakistan president pulls out of press conference with Gordon Brown
Deepening divisions between Pakistan and Britain were exposed today when President Asif Ali Zardari pulled out of a planned press conference with Gordon Brown.
Downing Street played down talk of a snub, insisting it was happy that the Pakistan prime minister, Yusuf Raza Gilani, took part in the press conference instead.
"It is entirely appropriate that he has a press conference with his counterpart," a No 10 spokesman said. However, on his last visit to Pakistan in December, Brown and Zardari did stage a joint press conference.
Zardari and Brown met for a private meeting after the press conference. But his absence from the press conference comes as the Pakistanis chide British officials for overly hasty conduct after the arrest of 11 Pakistani students a fortnight ago. The Home Office refused to share any information about the arrests with Pakistan.
At the press conference, Brown defended the arrests.
"I think we have got to recognise that we have both got problems that are affecting both the security of our citizens and the sentiments in our country, with terrorist plots that have been planned and some people are trying to execute. We want to work together with Pakistan to deal with these issues and to tackle terrorism at its roots."
Brown flew into Islamabad after a whistlestop visit to Kabul and Helmand province in Afghanistan.
The Pakistani press had predicted that the prime minister would receive short shrift from Pakistani officials after the prime minister's condemnation of 11 Pakistani nationals who were arrested on terror charges in the UK.
At the time, Brown said UK intelligence services had foiled a "very big plot" before all were released without charge. Senior Pakistani defence officials have said the British authorities failed to consult them adequately, and greater cooperation would have avoided "embarrassing mistakes" for the British government.
In the days after the arrest of the Pakistani students, the government maintained its criticism of Pakistan with the immigration minister, Phil Woolas, saying that the allocation of student visas to young Pakistanis – between 2004 and 2008, 42,000 were issued – was the "biggest loophole in British border controls".
A memorandum of understanding had been presented to the Pakistanis under which the UK government was to have the right to deport any Pakistani on the grounds that he or she had become a threat to national security without having to follow due process.
In an interview with the Guardian on Saturday, the Pakistani deputy high commissioner, Asif Durrani, said he regarded constant British briefing that Pakistan was a hot bed of terrorism to be "vindictive" and "slurs".
Today Brown repeated his assertion last made on his December visit four months ago that three-quarters of Islamic terror threats originate in the border region between the UK and Pakistan
Downing Street played down talk of a snub, insisting it was happy that the Pakistan prime minister, Yusuf Raza Gilani, took part in the press conference instead.
"It is entirely appropriate that he has a press conference with his counterpart," a No 10 spokesman said. However, on his last visit to Pakistan in December, Brown and Zardari did stage a joint press conference.
Zardari and Brown met for a private meeting after the press conference. But his absence from the press conference comes as the Pakistanis chide British officials for overly hasty conduct after the arrest of 11 Pakistani students a fortnight ago. The Home Office refused to share any information about the arrests with Pakistan.
At the press conference, Brown defended the arrests.
"I think we have got to recognise that we have both got problems that are affecting both the security of our citizens and the sentiments in our country, with terrorist plots that have been planned and some people are trying to execute. We want to work together with Pakistan to deal with these issues and to tackle terrorism at its roots."
Brown flew into Islamabad after a whistlestop visit to Kabul and Helmand province in Afghanistan.
The Pakistani press had predicted that the prime minister would receive short shrift from Pakistani officials after the prime minister's condemnation of 11 Pakistani nationals who were arrested on terror charges in the UK.
At the time, Brown said UK intelligence services had foiled a "very big plot" before all were released without charge. Senior Pakistani defence officials have said the British authorities failed to consult them adequately, and greater cooperation would have avoided "embarrassing mistakes" for the British government.
In the days after the arrest of the Pakistani students, the government maintained its criticism of Pakistan with the immigration minister, Phil Woolas, saying that the allocation of student visas to young Pakistanis – between 2004 and 2008, 42,000 were issued – was the "biggest loophole in British border controls".
A memorandum of understanding had been presented to the Pakistanis under which the UK government was to have the right to deport any Pakistani on the grounds that he or she had become a threat to national security without having to follow due process.
In an interview with the Guardian on Saturday, the Pakistani deputy high commissioner, Asif Durrani, said he regarded constant British briefing that Pakistan was a hot bed of terrorism to be "vindictive" and "slurs".
Today Brown repeated his assertion last made on his December visit four months ago that three-quarters of Islamic terror threats originate in the border region between the UK and Pakistan
U.S. toxic-asset plan stirs fears
The Obama administration's impending effort to buy about $1 trillion in toxic assets in partnership with private investors -- aimed at solving the most intractable part of the credit crisis -- is now generating widespread fear that it is vulnerable to manipulation and carries sharp risks for taxpayers.
The program represents the biggest gamble yet in the federal bailout, but its still-hazy details have prompted bankers, economists, federal investigators and politicians to question whether it will solve the financial crisis. More than 400 written comments were recently submitted to the Treasury Department, many of them sharply negative.
The program is trying to create an artificial market for assets that have no known value, something that has never been done before on this scale. The only way to accomplish that is for the government to accept a mountain of risk.
In the process, critics fear that the banking system could be further damaged and the program subjected to a boom in fraud.
Nobel Prize-winning economist Joseph Stiglitz of Columbia University said the program violated so many laws of economics that it was little more than an "empty box."
The toxic assets are a multitrillion-dollar collection of mortgage loans, commercial loans and a variety of complex debt securities, in which many borrowers have stopped making payments and the value of the underlying properties have tumbled. There is so much uncertainty about the value of those loans -- held both by banks and by big institutional investors -- that they have become a black hole in the financial system.
Critics say the government's effort to engineer a solution is creating risks similar to the ones that created the financial crisis in the first place.
"We are repeating all the mistakes that the mortgage guys made," Stiglitz said. "In the worst case, the national debt goes up by $1 trillion."
Supporters of the program say that the economy would face bigger risks if nothing is done to solve the problem. The program, they say, represents a bold move by the government to unfreeze the financial markets. In the process, taxpayers could reap multibillion-dollar profits from the partnerships.
Indeed, when the program was unveiled one month ago, it was met by such euphoria that the Dow Jones industrial average shot up 500 points in a day.
The program, called the Public-Private Investment Program, is still being formed and basic answers about how it will work are being hammered out by officials at the Treasury Department, the Federal Deposit Insurance Corp. and the Federal Reserve.
The goal of the program is to create a market for the toxic assets that are now clogging the system. They sit on balance sheets, tying up funds and obscuring the condition of financial institutions.
The loans and debt securities are not worthless. In some cases, individual loans within complex bundles have not gone bad. And even in the cases of loans that have gone bad, the underlying homes or other assets still have some value. But because nobody knows how to value these loans and debt securities, nobody is willing to trade them.
If the program can help set prices for those assets and create markets for their sale, banks will more quickly regain healthy balance sheets and financial markets that trade in debt securities will regain their footing.
The government hopes to jump-start a market. Private investors would be enticed to join and, by competing against one another, finally set a price for the assets.
The Bush administration last fall had planned to simply buy all the toxic assets on its own, but there were concerns that it would end up overpaying and it didn't have enough money. With private investors involved, there is the hope that their competition and desire for profit will ensure that prices aren't set too high.
The government does not have to buy every bad asset, Treasury officials said, but simply get enough activity going so that buyers and sellers could begin to set prices on their own.
There are two separate pieces to the program -- one operated by the FDIC to auction bundles of troubled bank loans and another operated by the Treasury Department to buy securities without auctions from hedge funds, investment firms and others.
The money to operate these programs is coming from the $750-billion Troubled Asset Relief Program that was enacted last fall, along with additional lending by the Federal Reserve.
Under the Treasury plan, five so-called fund managers would raise a pool of private money, matched equally by the government. Then, the Fed would double that pool with loans or loan guarantees. Thus, the government would be putting up 75% of all the money.
The fund managers would negotiate to buy the toxic securities based on an analysis of the investments and a bit of educated guessing.
The FDIC program would rely on even more government-backed debt. A variety of partnership funds would be created with private investors kicking in 7.5% of the money and the government providing a matching 7.5%. The government would then provide the remaining 85% in loans or loan guarantees.
The partnerships would bid against one another in an auction.
Although the two plans address different parts of the credit crisis and use different methods, critics see many of the same vulnerabilities.
Stiglitz, along with others, believes the market will be far from perfect. Since the government is putting in so much more money, it would lead private investors to take on riskier investments. And the burden of that increased risk would fall almost entirely on the government, even though the government would share only half the potential profit.
The FDIC has said that if it faces too many defaults, it may have to assess new fees -- which are already increasing -- on the entire banking industry, a scary prospect for smaller banks.
Although the FDIC has downplayed the risk of such defaults, other experts are not so sure.
"We are in an economic climate that is still filled with a tremendous amount of uncertainty," said Rodney K. Brown, the president of the California Bankers Assn.
Brown said if the Treasury plan tanks and the FDIC has to increase insurance fees, it could saddle many small banks with losses.
Small banks are worried about such potential fees, said Jerry Cavanaugh, counsel to the Community Bankers Assn. of Illinois.
"These megabanks are receiving the lion's share of the Treasury loot, while community banks are called upon to restore the FDIC's financial position through increased premiums and special assessments."
Then, there is the criminal problem. The potential for manipulation, price fixing, collusion and other forms of fraud were outlined recently by special inspector general Neil Barofsky, who released a lengthy report that cited serious problems with the program. Barofsky said that collusion between investors or banks could result in kickbacks among bidders or sellers. For example, a bank could create a phony subsidiary to bid up the value of its own troubled loans. Or a network of banks could conspire to bid up one another's assets, kicking back profits to one another.
Other experts are not so sure the entire program will even help banks.
If banks have to sell troubled loans at too low a price, it could force them to take additional losses. Aaron Deer, a bank analyst at financial research firm Sandler O'Neill & Partners, said one potential risk was that low prices for loans at one bank could force other banks to mark down the value of similar loans that they had no intention of selling. On the other hand, if the loans are offered at too high a price, private investors will see no profit.
"We are hoping to hit somewhere in the middle," FDIC spokesman Andrew Williams said.
Scott Talbott, chief lobbyist for the Financial Services Roundtable, which represents large financial institutions, said that though his group supports the program, its biggest challenge would be determining prices for the assets. He predicted a reluctance to participate if that is not clarified.
Pressure for major changes in the program is growing.
"We expect that Treasury, the Fed, the FDIC and other regulators will take their concerns into account and incorporate any additional necessary taxpayer protections as they refine these programs," Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, said in a statement Friday.
The program represents the biggest gamble yet in the federal bailout, but its still-hazy details have prompted bankers, economists, federal investigators and politicians to question whether it will solve the financial crisis. More than 400 written comments were recently submitted to the Treasury Department, many of them sharply negative.
The program is trying to create an artificial market for assets that have no known value, something that has never been done before on this scale. The only way to accomplish that is for the government to accept a mountain of risk.
In the process, critics fear that the banking system could be further damaged and the program subjected to a boom in fraud.
Nobel Prize-winning economist Joseph Stiglitz of Columbia University said the program violated so many laws of economics that it was little more than an "empty box."
The toxic assets are a multitrillion-dollar collection of mortgage loans, commercial loans and a variety of complex debt securities, in which many borrowers have stopped making payments and the value of the underlying properties have tumbled. There is so much uncertainty about the value of those loans -- held both by banks and by big institutional investors -- that they have become a black hole in the financial system.
Critics say the government's effort to engineer a solution is creating risks similar to the ones that created the financial crisis in the first place.
"We are repeating all the mistakes that the mortgage guys made," Stiglitz said. "In the worst case, the national debt goes up by $1 trillion."
Supporters of the program say that the economy would face bigger risks if nothing is done to solve the problem. The program, they say, represents a bold move by the government to unfreeze the financial markets. In the process, taxpayers could reap multibillion-dollar profits from the partnerships.
Indeed, when the program was unveiled one month ago, it was met by such euphoria that the Dow Jones industrial average shot up 500 points in a day.
The program, called the Public-Private Investment Program, is still being formed and basic answers about how it will work are being hammered out by officials at the Treasury Department, the Federal Deposit Insurance Corp. and the Federal Reserve.
The goal of the program is to create a market for the toxic assets that are now clogging the system. They sit on balance sheets, tying up funds and obscuring the condition of financial institutions.
The loans and debt securities are not worthless. In some cases, individual loans within complex bundles have not gone bad. And even in the cases of loans that have gone bad, the underlying homes or other assets still have some value. But because nobody knows how to value these loans and debt securities, nobody is willing to trade them.
If the program can help set prices for those assets and create markets for their sale, banks will more quickly regain healthy balance sheets and financial markets that trade in debt securities will regain their footing.
The government hopes to jump-start a market. Private investors would be enticed to join and, by competing against one another, finally set a price for the assets.
The Bush administration last fall had planned to simply buy all the toxic assets on its own, but there were concerns that it would end up overpaying and it didn't have enough money. With private investors involved, there is the hope that their competition and desire for profit will ensure that prices aren't set too high.
The government does not have to buy every bad asset, Treasury officials said, but simply get enough activity going so that buyers and sellers could begin to set prices on their own.
There are two separate pieces to the program -- one operated by the FDIC to auction bundles of troubled bank loans and another operated by the Treasury Department to buy securities without auctions from hedge funds, investment firms and others.
The money to operate these programs is coming from the $750-billion Troubled Asset Relief Program that was enacted last fall, along with additional lending by the Federal Reserve.
Under the Treasury plan, five so-called fund managers would raise a pool of private money, matched equally by the government. Then, the Fed would double that pool with loans or loan guarantees. Thus, the government would be putting up 75% of all the money.
The fund managers would negotiate to buy the toxic securities based on an analysis of the investments and a bit of educated guessing.
The FDIC program would rely on even more government-backed debt. A variety of partnership funds would be created with private investors kicking in 7.5% of the money and the government providing a matching 7.5%. The government would then provide the remaining 85% in loans or loan guarantees.
The partnerships would bid against one another in an auction.
Although the two plans address different parts of the credit crisis and use different methods, critics see many of the same vulnerabilities.
Stiglitz, along with others, believes the market will be far from perfect. Since the government is putting in so much more money, it would lead private investors to take on riskier investments. And the burden of that increased risk would fall almost entirely on the government, even though the government would share only half the potential profit.
The FDIC has said that if it faces too many defaults, it may have to assess new fees -- which are already increasing -- on the entire banking industry, a scary prospect for smaller banks.
Although the FDIC has downplayed the risk of such defaults, other experts are not so sure.
"We are in an economic climate that is still filled with a tremendous amount of uncertainty," said Rodney K. Brown, the president of the California Bankers Assn.
Brown said if the Treasury plan tanks and the FDIC has to increase insurance fees, it could saddle many small banks with losses.
Small banks are worried about such potential fees, said Jerry Cavanaugh, counsel to the Community Bankers Assn. of Illinois.
"These megabanks are receiving the lion's share of the Treasury loot, while community banks are called upon to restore the FDIC's financial position through increased premiums and special assessments."
Then, there is the criminal problem. The potential for manipulation, price fixing, collusion and other forms of fraud were outlined recently by special inspector general Neil Barofsky, who released a lengthy report that cited serious problems with the program. Barofsky said that collusion between investors or banks could result in kickbacks among bidders or sellers. For example, a bank could create a phony subsidiary to bid up the value of its own troubled loans. Or a network of banks could conspire to bid up one another's assets, kicking back profits to one another.
Other experts are not so sure the entire program will even help banks.
If banks have to sell troubled loans at too low a price, it could force them to take additional losses. Aaron Deer, a bank analyst at financial research firm Sandler O'Neill & Partners, said one potential risk was that low prices for loans at one bank could force other banks to mark down the value of similar loans that they had no intention of selling. On the other hand, if the loans are offered at too high a price, private investors will see no profit.
"We are hoping to hit somewhere in the middle," FDIC spokesman Andrew Williams said.
Scott Talbott, chief lobbyist for the Financial Services Roundtable, which represents large financial institutions, said that though his group supports the program, its biggest challenge would be determining prices for the assets. He predicted a reluctance to participate if that is not clarified.
Pressure for major changes in the program is growing.
"We expect that Treasury, the Fed, the FDIC and other regulators will take their concerns into account and incorporate any additional necessary taxpayer protections as they refine these programs," Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, said in a statement Friday.
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