THE NEW YORK POST

"ELIOT'S ENFORCER - STRONG-ARMING INSURERS ON WTC CLAIMS"

February 11, 2008 -- Gov. Spitzer says he wants to make nice to financial firms - brokers, insurers, investment banks.

The very companies he targeted with a vengeance as attorney general.

Does he mean it?

Read on.

Last month, Spitzer chaired the first meeting of an obscure panel he set up to lighten the regulatory load on these businesses.

His avowed goal: "keeping New York the financial capital of the world."

Yet who'd he tap to head the panel?

One of the purported brains behind many of his attacks as AG on the financial industry, now-State Insurance Superintendent Eric Dinallo.

Dinallo is often credited with "rediscovering" the Martin Act - a (until then) little-used 1921 law that gives the AG considerable regulatory and prosecutorial muscle over financial firms.

It was reportedly Dinallo's idea for Spitzer to probe "abuses by investment advisers."

Dinallo and Spitzer, of course, have new goals now that they're no longer enforcement agents.

Plus, Spitzer is a Big Government Big Spender, addicted to tax revenues from industries like finance.

So you'd think the last thing they'd want to do is scare away these firms with probes and burdensome regulation.

But at least some in the industry see them as sticking to their old ways.

Those impressions come from some of the lawyers for World Trade Center insurers who worked with Dinallo to resolve remaining 9/11 claims.

The biggest sticking point in those claims - whether the attacks counted as one "occurrence" or two - had already been resolved.

But in 2006, when then-Gov. Pataki and other officials struck a new financial deal for WTC reconstruction, they neglected to clear it with the insurers, who ultimately were to provide most of the cash.

Oops.

The insurers raised new concerns - and fears of more delays at Ground Zero.

Pols raced to bash them preemptively.

"These insurance companies," Mayor Mike warned, will "pay up one way or another, whether they do it because it's right, or they do it because they have to."

Enter Spitzer-Dinallo.

Within months of taking office, the new governor suddenly announced that all loose ends with insurers had been tied off.

Nearly six years after 9/11, rebuilding would proceed.

Spitzer was hailed for persuading the firms to do what was right; behind the headlines, Insurance Superintendent Dinallo was the man who had made it all happen.

But a court transcript portrays the Spitzer-Dinallo powers of persuasion in a somewhat different light.

"The insurers right now are bearing the brunt of the pressure from Mr. Dinallo," Harvey Kurzweil, a lawyer for one of the firms, complains to US District Judge Harold Baer.

"I don't care to speculate as to why that is the case, but it is the case."

Baer appears perplexed by Dinallo:

"There must be some motivation that I am missing," Baer says.

Kurzweil says Dinallo "hammered us . . . about the head and shoulders with a sledgehammer" in an attempt to resolve the issue in favor of WTC leaseholder Larry Silverstein.

Another lawyer, John Massopust, also hints vaguely about Dinallo's threats; a third, Jane Stevens, spells it out point-blank: The superintendent, she says, threatened to "launch an investigation into everyone's claim practices."

In other words, if the insurers didn't go along, Spitzer's muscle man could virtually shut them down by drowning them in probes, an exec from one firm says.

Worse, he was threatening to "throw us in jail" - because if you probe every claim, eventually you might find something on which to hang a criminal charge.

Dinallo denies that he threatened to jail anyone or to paralyze their operations, noting that he lacks "criminal-prosecution authority."

He also insists that he was "even-handed" in applying pressure.

And he makes no apologies for his toughness:

"I thought the city and state needed to close the book" on WTC insurance claims.

Dinallo doesn't deny threatening to probe "everyone's claim practices."

Rather, he suggests that it would have been appropriate for him to do so, if he found the insurers acted "unreasonably."

A lawyer for Silverstein, Marc Wolinsky, backed that, noting that Silverstein's folks complained about the insurers' behavior and that Dinallo would have been obligated to investigate to establish a "pattern" of bad-faith claims-handling.

Still, if allegations of threats by Spitzer or an aide sound familiar, they should: The gov's folks have a long record of such accusations.

Kurzweil also hints about why firms didn't fight back: Dinallo is the state's "primary regulator," he says.

"We are certainly not anxious to antagonize him."

"We will be living with him for the next four years."

Nor has fear of the superintendent vanished now that the case has been resolved.

Apparently, some insurers are still battling with the Port Authority over other claims - amounting to some $1.5 billion - and at least one of them wonders whether Dinallo will resort to his old tricks.

And what do corporate types think of New York's "regulatory environment"?

Well, few will criticize Spitzer publicly.

But privately, one calls New York "Uganda" - suggesting a climate where playing ball with the gov comes ahead of the rule of law.

Maybe Dinallo, Spitzer and the rest will change, will warm to these firms, on whose revenue they depend so much to fund their $124 billion budget.

But a recent report by The Post's Fredric U. Dicker is hardly encouraging: Just last month, Spitzer and an aide "privately threatened" the Business Council, Dicker says, after it crossed him.

A source told Dicker that Spitzer had an explosive phone conversation with Business Council President Kenneth Adams.

Such reports, again, are hard to confirm on the record.

But if they're true, Spitzer sure has a funny way of cozying up to folks whose money he is going to need.

abrodsky@nypost.com

http://www.nypost.com/seven/02112008/posto...0661.htm?page=0

THE NEW YORK TIMES

"New York Legislators Pushing to Raise Their Pay"

By DANNY HAKIM and TRYMAINE LEE

Published: February 10, 2008

ALBANY — New York legislators are looking for a raise of as much as 22 percent, saying the $79,500 base salaries they earn are not enough.

Assembly Minority Leader James N. Tedisco says the time is wrong for a raise.

But an examination of state records shows that most make considerably more than their base salary.

With extra pay for chairmanships and other posts, they earn just over $90,000, on average, for what is widely considered a part-time job; the Legislature is in regular session for 63 days a year.

And more than a third earn more from outside employment, often as lawyers in their hometowns, but they are not required to disclose how much or from what clients.

The lawmakers also have enviable health insurance and pension plans.

They get $154 per diem when they travel to Albany.

Some also spend from their campaign accounts on meals and other expenses.

Any increase in pay must be approved by the Assembly and the Senate, and then signed by the governor.

Last month, Assembly Speaker Sheldon Silver told members of his Democratic caucus that Gov. Eliot Spitzer had agreed to back an increase in pay for lawmakers, along with raises for judges and commissioners.

Since then, the speaker and the governor have been cagey about the topic, but have not denied discussing what would be the legislators’ first pay increase since 1999.

The speaker has been seeking a raise of more than 20 percent, but it remains unclear what proposal is on the table.

The governor, who has been politically weakened by a difficult first year in office, is no longer seeking to extract legislative support of his campaign finance overhaul in exchange for his backing of the raises, as he did last year.

But according to a top administration official, Mr. Spitzer expects to see the Legislature sign off on some of his major budget proposals before he agrees to the raise.

For his part, Mr. Silver declared last month, “I’m proud to say I support it.”

“There are many legislators who work very hard, work extremely long hours, and it’s not just the days of session here in Albany,” he added.

“I think many of their constituents know they’re available to them almost on a 24-hour basis responding to their needs.”

Mr. Silver’s pride went only so far.

Frustrated by an onslaught of questions about the matter last month, he asked a gaggle of reporters, “Isn’t there anything else going on in the state you want to talk about?”

The Assembly’s minority leader, James N. Tedisco, a Republican from Schenectady, had a different view, saying “it really defies logic” to consider a raise when the state faces a $4.4 billion deficit.

“It’s the last thing on our conference’s mind,” he said.

Assembly Republicans, however, have little in the way of tangible political power — with only 42 of 150 members, they don’t even have enough people to block an override of a veto.

Assembly Democrats are pushing most vociferously for the raise because they make less, on average, than their Republican counterparts.

With more than 100 members, dozens of them earn only the base salary of $79,500.

Lawmakers can earn bonuses, known as “lulus,” for various leadership posts, but there are not enough posts to go around among Assembly Democrats.

Added to that, many of them live in New York City, where $79,500 buys less than it does upstate.

“Your job takes over your life,” said Assemblyman Harvey Weisenberg, a Democrat from Nassau County who makes $101,500 as a lawmaker and $9,000 to $10,000 moonlighting as a lifeguard.

“You’re a public servant and you work to help people, and the pay is just ridiculous."

"Not to have a respectable pay, if you compare salaries to people in other fields, you find that legislators are way behind.”

Senator Eric Adams, a Democrat from Brooklyn, said, “I sit down at the kitchen table like everyone else and I wonder how I’m going to pay for the oil and gas and for college.”

Mr. Adams raised eyebrows in December when, during a debate on raises, he thundered a line from the film “Jerry Maguire” on the Senate floor: “Show me the money!"

"Show me the money!”

Not only do lawmakers return for a few special sessions, Mr. Adams said, but “when I get off that train and I’m back in my district, I’m not going home, I’m going to a block association meeting and a community board meeting.”

How does their pay stack up?

Members of the New York City Council have salaries of $112,500, far more than state lawmakers.

On the other hand, New York legislators are the third-highest paid in the nation, ranking behind only California and Michigan.

Perks?

They get free dental insurance, according to the Department of Civil Service, and most are enrolled in the Empire health insurance plan for state employees, in which the state pays 90 percent of the premium.

And after 20 years, they can retire with a pension equivalent to 30 percent of the average of their highest three years of salary.

Over all, the highest paid members are Mr. Silver and the Senate majority leader, Joseph L. Bruno, the state’s top Republican; both are paid $121,000.

Both also have outside business interests, which are little known.

Mr. Silver is of counsel at Weitz & Luxenberg, a large personal-injury law firm.

His spokesman, Dan Weiller, said Mr. Silver “limits his legal work to represent only individuals in personal injury cases, none of which are against the State of New York.”

For well over a year, federal investigators have been investigating Mr. Bruno’s outside business interests.

He held a second salaried job for more than a decade, at a Connecticut investment firm, Wright Investors’ Service.

After a New York Times report late last year disclosed that the firm was managing money for a number of New York unions that lobby Senate Republicans, Mr. Bruno and the firm severed their relationship, but would not provide details of Mr. Bruno’s role.

The Senate passed a pay bill last year, but may be loath to move on one in an election year.

Unlike the Assembly Democrats, the Senate Republicans hold only a narrow majority.

The last pay bill was passed in an election year, but after the election.

“If the governor sends a bill up, we’ll make our judgments,” Mr. Bruno said in a recent radio interview.

“Right now, it’s not on our agenda.”

http://www.nytimes.com/2008/02/10/nyregion...runo&st=nyt

THE NEW YORK DAILY NEWS DAILY POLITICS BLOG:

AND AS WE CONTINUE TO TRACK THE PASSAGE OF THE TOXINS AND POISONS OF THE FINANCIAL DISEASE KNOWN VARIOUSLY AS "WALL STREET FEVER" OR "EXCESSIVE SHERIFF-ITIS" OR A RAMPANT RUN OF "ELIOT SPITZER'S GALLOPING TROTS" THROUGHOUT THE FINANCIAL MARKETS OF THE WORLD ...

Courtesy of EB and the New York Daily News, of course ...

By way of a quick review, on January 18, 2008, Governor Eliot Spitzer hosted the first formal meeting of HIS Commission to Modernize the Regulation of Financial Services in New York State, to make New York State's regulation of the financial services industry here FASTER and LOOSER than anywhere else in the world ....

According to his PRESS RELEASE, after the meeting, Governor Spitzer was joined by, among others, Martin J. Sullivan, President and Chief Executive Officer, AIG at a press conference to discuss the work of the commission and how principles-guided regulation will lead to a focus on outcomes rather than process.

According to Spitzer, the principles he is proposing for New York guide the regulator to focus on outcomes, rather than the rules in and of themselves.

According to "ex-SHERIFF OF WALL STREET" Spitzer, examinations of financial services companies should focus on what is important and what really makes a difference.

And in Spitzer's PRESS RELEASE, Martin J. Sullivan, President and CEO of American International Group, Inc., said:

“We are grateful for the opportunity to participate in this important and promising initiative."

"We look forward to helping ensure that the commission achieves its goal of streamlining the regulation of New York’s financial services sector in a way that enhances the industry’s ability to compete globally and better serve its customers.”

http://www.ny.gov/governor/press/0118081.html

In the meantime, to bring this on-going breaking story up to date, we have:

"Long-term Treasurys rise on CDO worries"

By LESLIE WINES, Associated Press

Last updated: 5:52 p.m., Monday, February 11, 2008

NEW YORK -- Long-term Treasury prices rose Monday after news of problems at American International Group Inc. again raised concerns about risky low-quality debt.

The insurer said it will make more information public about the methods it used to value the complicated debt pools known as collateralized debt obligations, or CDOs.

These assets are a major concern to investors because CDOs contain some subprime debt instruments that are likely to default and it is widely suspected their current prices do not reflect that liability.

The subprime crisis was also discussed at length over the weekend at a meeting of the Group of Seven finance ministers in Tokyo.

After the global economic summit, German Finance Minister Peer Steinbruck said the group fears that losses on securities due to subprime exposure in time will total $400 billion.

The finance chiefs also expressed concern that it is still unknown where much of the subprime pain will emerge, as collateralized debt obligations were sold to institutional and government investors around the world.

And subprime debt is not the only risky asset class that investors are worried about.

In recent sessions there also have been concerns about a possible wave of defaults on the low-rated corporate loans that were used to finance a leveraged buyout boom in 2006 and 2007.

Investors suspect that banks will try to sell off these leveraged loans at bargain rates to get them off their books soon.

Posted by John Galt on February 12, 2008 7:27 AM

http://www.nydailynews.com/blogs/dailypoli...he-day-189.html

THE NEW YORK DAILY NEWS DAILY POLITICS BLOG:

AND AT THE SAME TIME THAT NEW YORK STATE GOVERNOR ELIOT "BAM BAM" SPITZER IS TRYING TO GUT THE REGULATIONS WHICH GOVERN THE FINANCIAL SERVICES INDUSTRY HERE IN NEW YORK TO MAKE WALL STREET THE "FASTEST AND LOOSEST" FINANCIAL CENTER IN THE WORLD, WHERE ANYTHING GOES, SO LONG AS YOU HAVE THE "ARM" OF THE "SHERIFF" WRAPPED FIRMLY AROUND YOUR SHOULDER ...

WE HAVE AN ALTERNATE VIEW COMING FROM THE FEDERAL GOVERNMENT IN AMERICA AS FOLLOWS ....

Sooo ....

IS ANOTHER "CLASH OF THE TITANS" BETWEEN ELIOT SPITZER AND THE UNITED STATES GOVERNMENT IMMINENT HERE?

Stay tuned to this channel and see for yourselves ...

And so ...

FINANCIAL TIMES

"Monolines rescue efforts might be in vain"

By Aline van Duyn in New York

Published: February 7 2008 21:21 | Last updated: February 7 2008 21:21

MBIA, the world’s biggest bond insurer, has started the process of selling just over 50m of new shares, hoping this will raise $750m in fresh capital.

Once completed, the share issue could give MBIA enough funds to withstand further potential losses related to guarantees it has given on mortgage-backed securities in order to maintain its top triple-A credit rating.

Or it could not.

Unfortunately, the question of whether the extra capital will be enough is close to impossible to answer with any certainty.

“The company does not know, the ratings agencies do not know and banks with exposure to MBIA do not know how much extra capital is needed to protect the triple-A rating,” says a banker involved in capital-raising efforts.

“And no one knows this about any of the other bond insurers either.”

The uncertainty hanging over the fate of bond insurers such as MBIA, Ambac, FGIC and others has incr­eased in the past week.

“With the rating agencies moving the mark further out with the passing of each month, we believe there is still the risk that MBIA could be downgraded by one or more rating agencies,” says Tamara Kravec, analyst at Bank of America.

What happens if MBIA and its peers are downgraded?

Some banks will have to take further writedowns related to their exposure to risky mortgage loans.

Already such writedowns have exceeded $125bn on a global basis, and fears that the financial sector might have further troubles to absorb is hampering the performance of the stock market and leading to concerns of a recession in the US.

The banks with the biggest exposures to Ambac, MBIA and ACA (a smaller bond insurer already on the brink of insolvency) are Merrill Lynch, Citigroup and UBS, according to research by Oppenheimer.

The fund manager estimates the exposures to range from $7.4bn to $11.8bn for Merrill, $6.5bn to $10.3bn for Citi and $5.4bn to $8.7bn for UBS.

Congressman Paul Kanjorski, chairman of the subcommittee on capital markets, says he is convinced “of the real need to reform the oversight” of the bond insurance sector.

“Problems created by unrest in the bond insurance markets go to the heart of our economy and the very vitality of municipal fin­ance,” he says.

But an increase in regulatory oversight might come too late.

What really matters is trying to figure out where the subprime problems end.

“No one knows when the subprime mess is going to hit bottom."

"And until it does, no rating of any bond insurer is safe,” says Donald Light, senior analyst with Celent, a financial research and consulting firm.

“This drama will continue well into the second half of this year.”

http://www.ft.com/cms/s/85c6b744-d5b8-11dc...00779fd2ac.html

Posted by John Galt on February 12, 2008 7:48 AM

http://www.nydailynews.com/blogs/dailypoli...he-day-189.html

THE NEW YORK DAILY NEWS DAILY POLITICS BLOG:

February 14, 2008

"Spitzer Warns Of 'Financial Tsunami'"

Here is a copy of the testimony on bond insurance that Gov. Eliot Spitzer is scheduled to deliver at 11:30 a.m. before the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.

He's accompanied by state Insurance Superintendent Eric Dinallo.

UPDATE: In case you're inclined to watch Spitzer deliver his testimony, it will be streamed live here.

Reuters has the story, but here are some excerpts from the speech, during which Spitzer's wonkish is prominently displayed:

"...let’s be clear, the problems of the bond insurers are spreading and threaten serious problems well beyond the financial markets."

"The problems in this market will affect many average Americans."

"It will affect the cost of college loans."

"It will affect museum budgets."

"It will affect state and local taxes."

(Snip)

"There is a general tightening of credit, which means less money available for companies to borrow so they can expand and consumers to borrow so they can buy homes, cars, appliances and other goods".

"This comes at a time when the economy is already weak."

"In sum, if we do not take effective action, this could be a financial tsunami that causes substantial damage throughout our economy."

(Snip)

"Clearly, we would not be here today if the mortgage brokers and lenders and appraisers had maintained reasonable standards."

"But we would also not be here today if the relevant regulators had stopped these bad lending practices."

By Elizabeth Benjamin on February 14, 2008 9:36 AM

Comments

ELIOT "STEAMPIPE" SPITZER SAYS: "Clearly, we would not be here today if the mortgage brokers and lenders and appraisers had maintained reasonable standards"

JOHN GALT LAUGHS RIGHT OUT LOUD IN RETURN: YEAH, RIGHT, "STEAMPIPE" ...

Tell it just like it really is, there, dude .....

CLEARLY, FOLKS ...

WE REALLY WOULD NOT BE HERE TODAY AT ALL IF THE APPRAISERS HAD MAINTAINED REASONABLE STANDARDS .....

BUT THEY DID NOT ...

And so ...

TELL US WHY, Eliot ....

Please, tell us why ....

And I can do that for Eliot ....

By pointing to this following set of facts about CORRUPTION IN THE LAND APPRAISAL PROCESS IN NYS which Eliot defended in federal District Court for the Northern District of New York in Albany in 2005 in Matter of Paul R. Plante, P.E. v. KATHLEEN JIMINO, Renss. Co. Exec. et. al., to wit:

III. FACTS:

On May 22, 2001, Jeffey Pelletier was issued a sewage system construction permit by the County of Rensselaer.

On July 7 (2001), Plante conducted an investigation of defendants Aiken (engineer) and McGrath’s “deliberate falsification of inspection data and fraudulent submissions” resulting in the issuance of the Pelletier permit.

During Plante’s investigation, Pelletier assaulted him.

On August 9 (2001), defendant Reiter (Rensselaer County Director of Veterans’ Services) warned Plante to “back off” the Pelletier investigation because he (Pelletier) was a “protected person” in the county.

On August 17 (2001), defendant Jimino (Rensselaer County Executive) allegedly phoned Plante threatening to harm him if he did not stop his investigation.

Thereafter, he claims that Jimino conspired with Cybulski (County Director of Community Services) to obtain a fraudulent involuntary commitment order and a medical certification from Samaritan Hospital.

end quotes

There is a vivid portrait of WHY appraisers in NYS on Eliot Spitzer's watch as NYS AG were NOT maintaining REASONABLE STANDARDS ....

BECAUSE ELIOT SPITZER WAS ENCOURAGING THEM NOT TO ....

BY PROTECTING THEM WHEN THEY DIDN'T ...

AND HAD BEEN CAUGHT RED-HANDED AT IT BY A NYS LICENSED PROFESSIONAL ENGINEER WHO HAD DOCUMENTED THE FACTS AND WAS SET TO BRING THE MATTER BEFORE THE PROPER AUTHORITIES ...

ELIOT SPITZER WAS FOR FAST AND LOOSE IN NEW YORK STATE WHEN IT CAME TO APPRAISALS ....

And now ....

Those chickens are coming home to roost here in New York State ....

And it is going to be quite the show ....

Better than anything in the movies ....

Or on TV ....

This is a MADE-FOR-THE-INTERNET-DOCU-DRAMA unfolding before our eyes in here ....

And Eliot Spitzer is right smack dab in the middle of it ....

Up tp his elbows in it, in fact ....

MR. DIRTY?

Or JOE CLEAN?

You decide ....

And so ...

Posted by John Galt on February 14, 2008 4:56 PM

http://www.nydailynews.com/blogs/dailypoli...ancial-tsu.html

"Cuomo to sue major health insurers"

By MICHAEL GORMLEY, Associated Press

Last updated: 1:32 p.m., Wednesday, February 13, 2008

ALBANY -- New York Attorney General Andrew Cuomo on Wednesday said he will sue Ingenix, its parent UnitedHealth Group and three subsidiaries, saying the insurers are defrauding consumers by manipulating how much doctors and hospitals are reimbursed.

Cuomo also sent 16 subpoenas to insurance companies including Aetna Inc., Cigna Corp. and Empire Blue Cross Blue Shield, the state's largest health insurer.

The case contends that insurance companies are underpaying consumers who use out-of-plan physicians.

No company or individual has been charged with wrongdoing.

Cuomo said he wants to end what he claims is a fraudulent practice and also to seek restitution for customers.

"I believe it involves a fraud in the hundreds of millions of dollars and affects thousands and thousands of families," Cuomo said.

"That's what this investigation is about today."

The practice, which includes conflicts of interest, have gone on for nearly a decade, he said.

"We will continue to cooperate fully," UnitedHealth Group said in a statement.

Cuomo's investigation focused on the "reasonable and customary" rate that UnitedHealth used, but which investigators claim was kept artificially low, resulting in profit for the company and unnecessary cost for consumers.

"When insurers like United create convoluted and dishonest systems for determining the rate of reimbursement, real people get stuck with excessive bills and are less likely to seek the care they need," Cuomo said.

Investigators claim UnitedHealth manipulated data and even lied about reimbursement rates, which it said were based on national research.

In its statement, UnitedHealth defended the data.

"The reference data is rigorously developed, geographically specific, comprehensive and organized using a transparent methodology that is very common in the health care industry," the company stated.

"We believe these reference tools add substantial value to the health care system by providing all participants -- providers, payers and consumers -- with a long-standing transparent, consistent, and neutral line of sight into the health care market, its costs and performance."

Dr. Nancy H. Nielsen, of the American Medical Association, disagreed.

"UnitedHealth Group and other health insurers have shortchanged tens of millions of patients who agreed to pay higher premiums for access to their choice of physicians from outside a health insurer's network," Nielsen said in a prepared statement.

"At issue could be billions of dollars that health insurers have pocketed by paying treatment costs at less than what was promised."

"Lawmakers blast Spitzer's $15 charge on auto insurance"

By MICHAEL GORMLEY, Associated Press

Last updated: 5:33 p.m., Wednesday, February 13, 2008

ALBANY -- A proposal to charge New Yorkers a $15 fee on their auto insurance faced a road block Wednesday in the state Legislature.

Gov. Eliot Spitzer's proposal would help pay for bridge maintenance and repairs that lawmakers agree are overdue.

But Senate Transportation Committee Chairman Thomas Libous and Assemblyman Richard Brodsky told Spitzer's transportation commissioner at a budget hearing that the fee is unfair and unnecessary.

Libous, a Broome County Republican, questioned charging the fee while the administration raids what is supposed to be a fund dedicated for bridge repair.

The state has for years diverted as much as $750 million annually from the Dedicated Highway and Bridge Trust Fund for maintenance and repair, using the money instead to cover unrelated budget costs such as for snow and ice removal.

"We have a real problem with that," Libous said.

Brodsky, a Westchester Democrat, argues the fee doesn't distinguish between owners of luxury and economy cars and is another hit for middle class families in a budget that claims no tax increases.

"Hummers pay the same as Chevrolets," Brodsky said.

"It's just another fee attacking the middle class and poor people instead of asking everyone to share the burden."

State Transportation Commissioner Astrid Glynn defends the fee as essential to maintain the state's aging network of bridges, many of which are 50 years or older.

Much of the fee would go toward a $140 million fund to fix and maintain bridges this year, she said.

"The new program is intended to improve bridge safety and longevity by funding preventive and corrective maintenance on both state and locally owned bridges so that bridges in reasonably good shape remain so," she said.

Libous released data last year that showed 2,206 of the state's 7,604 bridges were rated deficient last year, a consistent number over the last three years.

He also said more than 1,000 of the bridges were built between 1910 and 1936.

"New regulations, more inspectors to protect against dam failures"

Associated Press

Last updated: 5:33 p.m., Wednesday, February 13, 2008

ALBANY -- The state Department of Environmental Conservation has proposed new dam regulations that would require owners of the 5,000 dams in New York to keep detailed design and modification records, as well as operation, maintenance and emergency action plans available for state inspection.

Citing a high-profile dam failure and some dangerous deficiencies found the past few years, the agency said it has increased dam safety staff statewide from three to 20, and the proposal clarifies that its enforcement authority applies even to smaller dams.

"These regulations finally address a legislative mandate to improve dam safety that dates to 1999 and which brings New York's regulations to a level consistent with other states," DEC Commissioner Pete Grannis said Wednesday.

For larger dams, owners will have to schedule inspections by a professional engineer at least every 10 years to determine if their classification remains accurate.

The DEC said its staff has completed inspections the past few years of all 389 high hazard dams, those whose failure would pose a serious threat to downstream communities.

In July 2005, about 200 homes in a northern New York village were evacuated after a recently rebuilt dam crumbled.

It was at the south end of the mile-long Hadlock Pond in Fort Ann, about 55 miles north of Albany.

The same year, emergency repairs began on an aging dam just north of the Catskills that serves New York City's drinking water supply to protect 2,500 upstate households and businesses.

They would have been in the path of some 20 billion gallons of water if the 80-year-old Gilboa Dam failed.

The $24 million project, finished in 2006, included installing 80 anchoring cables to pin the dam to the bedrock.

A $315 million reconstruction project is scheduled to start this year.

The DEC is taking public comments until May 17 on its proposal and scheduled three hearings.

--------

On the Net: http://www.dec.ny.gov/regulations/propregulations.html

"GOP chief seeks probe of donation - Chairman asks action against Democrats who got funds from Canadian drug plan vendor"

By PAUL NELSON, Staff writer, Albany, New York Times Union

First published: Thursday, February 14, 2008

SCHENECTADY -- County Republican Chairman Tom Buchanan wants a federal probe into what he says is an unlawful donation Democrats received last year from the Canadian drug company that provides prescription drugs to county workers.

"This is straight out of the Schenectady Democratic playbook, to hit up people that do business with the county for substantial contributions and funnel the county business back to the same company," said Buchanan, who branded it an example of "pay to play."

The term refers to a practice in which public officials award lucrative, in some cases no-bid government contracts and grant other favors to individuals.

Buchanan, an attorney, contends the $5,000 donation violates the McCain-Feingold Law, which bars local, state or national committees from accepting campaign contributions from foreign companies.

As a result, he is demanding the county Democrats return the money CanaRx Services Inc. of Ontario, Canada, gave Oct. 22, and said he believes the party also should be penalized for taking the money.

State financial disclosure records show that on Oct. 22, CanaRx made the donation to the county Democratic committee.

"I would expect that they would be fined and sanctioned by the Federal Election Commission," he said.

"This is a Canadian drug deal that went bad."

Democratic County Chairman Brian Quail issued a statement late Wednesday afternoon reacting to the allegation.

"When Tom Buchanan attacks the Schenectady Democrats for what at worst was an oversight -- when we are investigating -- he is the guy in the glass house throwing stones," Quail said.

He said the county Republican Party has failed to keep its financial disclosure forms up to date.

Since being launched in 2004, some 1,200 families have enrolled in the county's drug package offered through CanaRx, and the county is saving over $100,000 a month, county spokeswoman Theresa Cassiack said Wednesday.

Paul Nelson can be reached at 454-5347 or by e-mail at pnelson@timesunion.com.

"Treasurys lower on Bernanke comments"

By LESLIE WINES, Associated Press

Last updated: 5:43 p.m., Thursday, February 14, 2008

NEW YORK -- Long-term Treasurys sold off for a third straight session Thursday after the latest weekly unemployment benefits tally suggested some stabilization in a worrisome labor market.

Signs of economic improvement do not as a rule benefit the Treasury market, which generally performs best when investors are nervous about the economic outlook and want secure goverment-guaranteed assets.

On Thursday, the Labor Department said first-time jobless claims dropped for a second week in a row.

Claims for the week to Feb. 9 fell 9,000 to 348,000.

Although weekly jobless claims data is volatile, investors were heartened by the latest figures as they followed recent news that the economy gave up jobs in January.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, questioned the market's cheery interpretation of the data, noting that the four-week moving average for the claims actually rose last week.

"We expect claims to continue grinding higher in the wake of the clear downturn in business sentiment," Shepherdson said.

The benchmark 10-year Treasury note fell 25/32 to 97 12/32 with a yield of 3.82 percent, up from 3.73 percent late Wednesday, according to BGCantor Market Data.

Prices and yields move in opposite directions.

The 30-year long bond dropped 1 19/32 to 95 17/32 with a yield of 4.65 percent, up from 4.55 percent.

The 2-year note closed unchanged at 100 13/32 with a 1.91 percent yield, unchanged from late Wednesday.

Long-term yields were unchanged in after hours trade.

At 5:30 p.m. Eastern time, the 10-year yield remained 3.82 percent and the 30-year yield was still 4.65 percent, but the 2-year yield inched down to 1.90 percent.

The 3-month rate rose to 2.29 percent from 2.27 percent late Thursday as the discount rate ticked up to 2.24 percent from 2.22 percent.

The selling pressure was heaviest on longer-term bonds because they are the most sensitive to inflationary pressures.

Positive economic data suggests an improving economy could set off higher inflation over the long haul.

By contrast, short-term notes were little changed, benefiting from anticipated rate cuts in the near future.

Short-term notes are the most sensitive to rate expectations.

Federal Reserve Chairman Ben Bernanke on Thursday made remarks to lawmakers viewed as confirming that the Fed remains in rate-cutting mode.

Bernanke's testimony to the Senate Banking Committee gave a temporary boost to the bond market, although government bonds remained in negative territory.

Treasury investors would like to see cheaper money.

The Fed chief's basic message appeared to be that the Fed, which cut the overnight Fed funds rate by a full 1.25 percentage points in January, has done its best to stimulate a sagging economy and fractured credit markets, but is willing to do even more.

New York State Insurance Superintendent Eric Dinallo also appeared on Capitol Hill Thursday.

He argued in favor of splitting troubled bond insurers MBIA Inc. and Ambac Financial Group Inc. into two parts.

That would separate the high-risk subprime assets they backed from the healthier municipal bond instruments.

Dinallo has led a coalition of government officials and top banks that is seeking financing for hard-hit bond insurers.

Also on Thursday another troubled bond insurer, FGIC Corp., had its "AAA" rating cut two notches to "A3" by Moody's Investors Service.

The insurer failed to raise enough capital to pay for an unexpected spike in claims on subprime debt.

FGIC needed about $4 billion to maintain the "AAA" rating.

"Undersheriff admits misconduct in office, gets 21-month sentence"

By BEN DOBBIN, Associated Press

Last updated: 12:34 p.m., Thursday, February 14, 2008

ROCHESTER, N.Y. -- A former police official pleaded guilty to a variety of theft and official misconduct charges -- including trying to pin crimes on residents who criticized him -- in a scandal that rocked the sheriff's department in rural Seneca County.

James Larson, 47, who resigned as the department's undersheriff in March 2006 a few months after misconduct complaints surfaced, drew a 21-month jail sentence Wednesday in Waterloo, the county seat, after apologizing and accepting responsibility for his conduct.

Former Sheriff Leo Connolly is awaiting trial this summer on official misconduct charges that he too targeted his Internet critics with "selective enforcement" and offered a sheriff's deputy overtime pay to carry out his orders.

Four of his deputies were also implicated.

Larson, a father of two, pleaded guilty to two felony counts of criminal possession of stolen property and four misdemeanor counts of petit larceny and official misconduct dating back to January 2005.

He was jailed in neighboring Ontario County.

"This was very shocking, egregious conduct for anybody, let alone the No. 2 law enforcement officer in the county."

"It was very brazen," prosecutor R. Michael Tantillo said in an interview.

If convicted, Larson could have been sentenced to 15 months to four years in prison.

Among the accusations Larson admitted were stealing a colleague's shotgun as well as more than $1,000 worth of sheriff's office property.

He switched four tires from a patrol car onto his own vehicle and carried out a paying job for a lakeside homeowner while on duty, Tantillo said.

In addition, Larson directed two sheriff's deputies to target two people who posted political attacks on him and the sheriff on a popular Web site in western New York's Finger Lakes region.

The deputies were told to pursue "enforcement of traffic infractions or anything they could find," the prosecutor said.

Nobody was ever ticketed or arrested, however, because the deputies didn't follow those orders.

Connolly, who took over as sheriff of Seneca County in 2004, took a personal leave after he was charged last August and did not seek re-election in the fall.

If convicted, he could get a maximum 28 months to seven years in prison.

"Vernon Downs reopens after legislative deal"

Associated Press

Last updated: 11:12 a.m., Thursday, February 14, 2008

VERNON, N.Y. -- Vernon Downs is back in business after state lawmakers agreed to provide about $70 million in additional revenue to help struggling horse racing tracks across New York.

The harness track just east of Syracuse reopened Thursday morning, a day after an agreement in the state Legislature that gives Vernon about $5.1 million a year in additional revenue.

The track's principal owner, Jeff Gural, closed the track Monday, putting more than 200 employees out of work.

He said the gaming facility was losing too much money.

"Probe details clumsy policy - Inspector general's report shows ex-aide to Spitzer acted ineptly, but not illegally, in bid to change PSC board"

By JAMES M. ODATO, Capitol bureau, Albany, New York Times Union

First published: Friday, February 15, 2008

ALBANY -- Gov. Eliot Spitzer's former energy secretary was obnoxious and a poor manager, but he did not break the law in his push to dislodge a Pataki-era appointee from the Public Service Commission while ushering in a proposed new chairwoman, an inspector general's report has concluded.

The 130-page report, released Thursday by Inspector General Kristine Hamann, comes almost 10 months after PSC Commissioner Cheryl Buley complained about the conduct of Steven Mitnick, who resigned in August.

It essentially clears Mitnick of Buley's assertions.

But it blames him for giving Spitzer's nominee for PSC chairwoman, Energy East lobbyist Angela Beddoe, premature power to act as if she was the boss of the agency that regulated her employer, even as she continued in her private-sector job.

Hamann's report drew immediate criticism from Senate Republicans, who noted she was appointed by Spitzer and therefore lacked the independence to conduct such a probe.

The report referred the names of three commission staffers to the Public Integrity Commission.

According to the report, they allowed themselves to be interviewed for promotions by Beddoe at the same time as they held duties regulating Energy East, resulting in the appearance of a conflict of interest.

Those people included Eleanor Stein, an administrative law judge, whom Beddoe proposed to promote to general counsel.

Further, Beddoe was allowed to review personnel files of staffers as she planned reassignments, demotions and discharges.

She may have considered some of these people hostile to Energy East or herself, the report suggests, including Jaclyn Brilling, the agency's ethics officer, who had raised ethics questions about Beddoe.

Another staffer had filed a criticism of Energy East's newspaper advertising, which had blasted actions of the PSC.

During a public PSC meeting in April, Buley alleged Mitnick intimidated her and threatened her job.

She said Mitnick had tried to push her to delay a vote on whether the agency should probe Consolidated Edison's handling of the 2006 Queens blackout.

Mitnick, according to Hamann's report, "proved a poor fit for the position."

But he had a right to try to get Buley to leave the commission, Hamann said, and did not overstep ethics boundaries in handling her.

Buley made statements that could not be verified, the inspector general said.

Further, the other PSC commissioners questioned her credibility on the issue of the delay, particularly since Spitzer wanted ConEd investigated.

The probe did find merit in related complaints last May that Mitnick wrongly placed PSC staff in a corner because Beddoe had his blessing to act as an interim chairwoman without having accepted the post and quitting her utility job.

That led to Beddoe sitting down with top staffers to discuss their promotions and seeing documents marked confidential, plans for upcoming commission meetings and personnel records.

Robert Freeman, director of the state Committee on Open Government, said the materials Beddoe saw may have actually been public documents.

Pay information and disciplinary references are not confidential, for instance, but Social Security numbers are, and such details were not in files she reviewed.

Mitnick issued a statement saying he had been vindicated.

Buley said she wants to move forward as a commissioner, a post that pays $109,900, through 2012.

She said there were some inaccuracies in the report, but preferred not to dwell on them.

The investigators drew testimony from officials who said Buley was angling for another job, including a return to the state Racing and Wagering Board -- where she sat before Pataki appointed her to the PSC -- in order to increase her salary and lighten her workload.

She used lobbyist James Crane to get the word to Mitnick, according to testimony from Mitnick and Crane.

Senate Investigations Committee Chairman George Winner, R-Elmira, said he was dissatisfied with the report and questioned Hamann's independence from Spitzer.

"Inspector General Hamann's conclusions run the risk of giving a stamp of approval to a culture of coercion, intimidation and threats within the highest levels of New York government," Winner said in a statement.

Hamann's spokesman, Stephen Del Giacco, said "a fair reading ... will show we conducted a thorough and objective investigation."

He added the inspector general received total cooperation from all parties and agencies and did not share the report or any drafts with the governor's office until Thursday.

Odato can be reached at 454-5083 or by e-mail at jodato@timesunion.com.

"Stephentown official indicted"

By BOB GARDINIER, Staff writer, Albany, New York Times Union

Last updated: 12:44 p.m., Friday, February 15, 2008

TROY -- The Stephentown town highway superintendent was indicted this morning on 44 felony counts for allegedly purchasing gravel for the town from an illegal mine and submitting false documents to cover it up.

Following an investigation by the state Attorney General, a grand jury on Friday handed up the indictment that accuses Neil Gardner, a Republican, of 22 felony counts of first-degree offering a false instrument for filing, 10 felony counts of first-degree falsifying business records, 12 felony counts of second-degree criminal possession of a forged instrument, and one count of operating a mine without a permit, a state Department of Environmental Conservation violation.

Gardner's Troy attorney, Stephen Pechenik, could not be immediately reached for comment though he has said the mine was not illegal, that town officials were well aware of where the gravel came from and that his client was being criticized by state officials only for not making the voucher more specific.

Gardner, 52, the town's highway chief for more than 20 years, won another term in November with 55 percent of the vote a day.

Voters returned him to office the day after he was first arrested.

In October 2006, state investigators took records from the town clerk's office, Gardner's office and from Russ Freeman of Russ Freeman Excavating Inc. in Nassau, which regularly performed work for the Stephentown Highway Department.

Town Supervisor Michael Angley has said that a problem became apparent in 2005 when a North Stephentown landowner came to a Town Board meeting complaining that he was not paid for gravel the town and Freeman mined from a pit on his land.

The state later told the town that the mine was not permitted.

The indictment, delivered to Rensselaer County Court Judge Patrick McGrath, alleges that Gardner manipulated town records in November 2005 to make it look like the gravel came from a legally operated mine run by West Sand Lake-based Troy Sand and Gravel.

Freeman pleaded guilty in town court in October to one count of second-degree offering a false instrument for filing and was fined $1,000 fine.

He died of cancer in December.

Gardner's arraignment is pending.

"FGIC expected to split operations"

By MICHAEL GORMLEY, Associated Press

Last updated: 5:23 p.m., Friday, February 15, 2008

ALBANY -- New York regulators are eager to consider splitting Financial Guaranty Insurance Co.'s core bond insurance businesses to protect municipal credit ratings against costly downgrades and stem troubles in the debt markets.

In a statement Friday, FGIC said would like to organize a new domestic financial guarantee insurer in New York to "provide support for public finance obligations previously insured by FGIC."

Analysts said other bond insurers are likely to make similar moves to split their exposure to riskier financial instruments.

"Other bond insurers will be tempted to follow suit, especially the ones that have already been downgraded by at least one ratings agency," said Donald Light, a senior analyst at Celent of Boston, a financial research and consulting firm.

State Insurance Superintendent Eric Dinallo, who has spoken sympathetically about FGIC's need for a split of its municipal insurance business, said he hopes that won't happen to other mortgage insurers.

He said talks are going well with the other bond insurers, including MBIA Inc. and Ambac Financial Group Inc.

"There's a lot of interest and they're just going to have to figure out how to economically execute on it," he said.

"But I think there's a much higher degree of optimism on those two companies."

Dinallo said rating agencies have given bond insurers a week or two to strike a deal.

Bond insurers have struggled in recent months as ratings agencies have worried the companies would not have enough capital to cover a potential spike in claims.

Ratings agencies are worried rising delinquencies and defaults on mortgages will lead to an increase in defaults among bonds backed by the troubled loans.

That in turn would force insurers to pay out claims.

Bond insurers pay principal and interest when issuers fail to make payments.

A ratings downgrade would make it more expensive for cities and towns to borrow money.

On Thursday, FGIC's critical financial strength rating was cut by Moody's to "A3" from "AAA."

Bond insurers essentially need a "AAA" rating to book new business.

Moody's said FGIC needs access to $9 billion to maintain the "AAA" rating, but the company currently has access to just $5 billion.

Standard and Poor's and Fitch Ratings had previously downgraded FGIC.

In its statement Friday, FGIC said it has been exploring various capital raising and other initiatives over the past several months.

"After careful consideration, the company has informed the New York state Insurance Department that it would like to begin the process of organizing a new domestic financial guarantee insurer in New York," the statement said.

"Once licensed, this new insurer would be used to provide support for public finance obligations previously insured by FGIC and to write new business to serve the municipal markets," the company said.

Dinallo said Friday that "without capital infusions this probably is the necessary outcome" for FGIC.

"That's sort of the endgame if we can't get capital infusions into these companies," he said.

Dinallo said word that FGIC may split its businesses stops the clock on any more downgrades.

He said a decision on whether the split will be allowed will take weeks because of the complexity of creating the application and then reviewing it.

A day after he and other state officials testified at a congressional hearing on the bond insurers, Dinallo said the message from Congress was, "If you can solve it, solve it, but don't let the municipalities downgrade."

The insurance department has been working in recent months with bond insurers and banks to figure out ways to help the insurers maintain their "AAA" ratings and ensure their viability.

"I think it's just important that we demonstrate, or the company at least tries to demonstrate, there is a plan, that we have the capacity to save the ratings on the municipal side of the books," Dinallo said.

"We want a private side solution that injects capital into these companies ... but failing that, we can't let the municipalities downgrade."

------

Associated Press Writer Michael Hill in Albany and Business Writer Stephen Bernard in New York City contributed to this report.

"Treasurys higher on weak manufacturing"

By LESLIE WINES, Associated Press

Last updated: 5:52 p.m., Friday, February 15, 2008

NEW YORK -- Long-term Treasury prices rose Friday after the New York Federal Reserve reported that manufacturing in its region contracted this month.

Another gauge showed that nationwide consumer confidence skidded to a 16-year low.

The news sent the yield on the rate-sensitive two year note briefly down to its weakest level in four years.

Prices and yields move in opposite directions.

The New York Fed's Empire State index of factory activity plunged almost 21 points to a negative 11.7 reading, the weakest level in almost three years.

Readings below zero show shrinkage.

February also marked the fourth straight decline for the index.

Economists had expected a much healthier reading of 5.75, according to Thomson/IFR.

The report helps build a case that the economy is on the brink of recession, although a recession requires two consecutive quarters of contraction and can only be declared in hindsight.

Separately, the Reuters/University of Michigan's consumer sentiment index dropped to 69.6 this month, its worst level since 1992 and down sharply from 78.4 in January.

Although the news triggered a strong reaction in the bond market, some economists caution that consumer cash flow is a more tangible metric than sentiment readings.

Although the data has negative portents for the economy, it is helpful to the Treasury market, as investors generally turn to government-backed bonds when they are worried about the economy.

In addition, the report puts extra pressure on the Fed to continue cutting interest rates.

The central bank cut the overnight Fed funds rate by 1.25 percentage points in January.

Fixed-income investors want to see more rate cuts to rejuvenate ailing debt markets.

The benchmark 10-year Treasury note rose 9/32 to 97 24/32 with a yield of 3.77 percent, down from 3.82 percent late Thursday, according to BGCantor Market Data.

The 30-year long bond gained 25/32 to 96 24/32 with a yield of 4.58 percent, down from 4.65 percent the day before.

However, there was some selling pressure on short-term notes.

The 2-year note fell 3/32 to 100 12/32 with a 1.92 percent yield, up from 1.90 percent late Thursday.

Immediately after the sentiment report the 2-year yield touched 1.82 percent, its worst level since 2004.

After hours trade had no impact on yields.

At 5:30 p.m. Eastern the 10-year yield remained 3.77 percent, the 30-year yield was still 4.58 percent and the 2-year yield stood at 1.92 percent.

The yield on the 3-month note fell to 2.21 percent from 2.27 percent on Thursday, as the discount rate dropped to 2.16 percent from 2.24 percent.

In other data news, the Fed said industrial output rose modestly last month, due to strength in the utility sector.

Industrial production increased 0.1 percent in January, in line with December's rise and analysts' expectations.

Separately, the Labor Department reported that U.S. import prices rose 1.7 percent in January, as oil prices jumped.

In December, prices slipped 0.2 percent.

Demand for Treasurys Thursday also was stoked by a complex barrage of negative developments elsewhere in the credit markets.

Since the subprime issue first surfaced last summer, Treasurys have been the asset of choice for investors spooked by the unraveling of normally stalwart forms of debt assets.

This week saw turmoil in the market for short-term auction-rate munis when bidders could not be found for weekly notes offered by a number of top-rated local government issuers.

There also are mounting problems in the leveraged loan market, as well as some ongoing weakness in corporate short-term commercial paper.

"In 25 years of working in this business, I don't believe I have seen more market disruption from so many different sources," said Kevin Giddis, managing director of fixed-income trading at Morgan Keegan.

The unusual degree of queasiness about debt issued by highly reliable companies and municipalities is linked to worries about bond insurers that unwisely backed subprime debt.

There are concerns that they may not be able to shore up enough capital to withstand an expected avalanche of defaults.

One of the wobbly bond insurers, FGIC Co., agreed to be split into two separate entities.

One would house its structured finance business where its troubled subprime assets are sheltered.

The other would contain the municipal bonds that FGIC backs which normally are considered desirable.

"Bond insurer FGIC expected to seek OK from NY regulators to split into 2 companies"

By MICHAEL GORMLEY, Associated Press

Last updated: 12:32 p.m., Friday, February 15, 2008

ALBANY -- Bond insurer Financial Guaranty Insurance Co. is expected to apply to the New York State Insurance Department to separate into two companies, splitting its municipal bond business from its insurance on riskier financial instruments, the regulator said.

"Congress was clear, almost directional on that," state Insurance Superintendent Eric Dinallo told The Associated Press on Friday, a day after he and other state officials testified at a congressional hearing on the troubled bond insurance industry.

He said the message from Congress was, "If you can solve it, solve it, but don't let the municipalities downgrade."

A ratings downgrade would make it more expensive for cities and towns to borrow money.

FGIC has yet to submit any details about exactly how it would split the company, but the department is expecting a formal application soon, said David Neustadt, a spokesman for the insurance department.

A call and an email to FGIC for comment was not immediately returned.

The insurance department has been working in recent months with bond insurers and banks to figure out ways to help the insurers maintain their "AAA" ratings and ensure their viability.

"I think it's just important that we demonstrate, or the company at least tries to demonstrate, there is a plan, that we have the capacity to save the ratings on the municipal side of the books," Dinallo said.

"We want a private side solution that injects capital into these companies ... but failing that, we can't let the municipalities downgrade."

The company's application would be welcomed by state regulators.

"They have to present a plan we find acceptable, but obviously -- generally speaking -- we think it's an appropriate direction," said Neustadt.

Bond insurers have struggled in recent months as ratings agencies have worried the companies would not have enough spare capital to cover a potential spike in claims.

Ratings agencies are worried rising delinquencies and defaults among mortgages will lead to an increase in defaults among bonds backed by the troubled loans.

That in turn would force insurers to pay out claims.

Bond insurers pay principal and interest when issuers fail to make payments.

A review of the FGIC plan will be expedited once it is received, Neustadt said.

"Right on cue, after New York Gov. Eliot Spitzer talked to Congress yesterday about a 'good bank-bad bank' solution to the bond insurance crisis, FGIC announced that it is going to request that the New York State Insurance Department allow it to split into two companies," said Donald Light, a senior analyst at Celent of Boston, a financial research and consulting firm.

"Other bond insurers will be tempted to follow suit, especially the ones that have already been downgraded by at least one ratings agency."

On Thursday, FGIC had its critical financial strength rating cut by Moody's to "A3" from "AAA."

Bond insurers essentially need a "AAA" rating to book new business.

To maintain its top-caliber rating, Moody's said FGIC needs to be able to access $9 billion.

The company only has access to $5 billion, Moody's said.

Both Standard and Poor's and Fitch Ratings already downgraded FGIC.

Fitch has also downgraded Ambac Financial Group Inc. and Security Capital Assurance Ltd., while Standard & Poor's has downgraded SCA.

Moody's also lowered its ratings for SCA.

------

Associated Press Business Writer Stephen Bernard contributed to this report from New York City.

"Upstate town official charged with running illegal mine"

Associated Press

Last updated: 2:12 p.m., Friday, February 15, 2008

ALBANY -- The highway superintendent for an upstate town has been charged with operating an illegal mine and falsifying records to conceal the source of sand and gravel used in local projects.

State Attorney General Andrew Cuomo on Friday announced a multiple-count indictment against 52-year-old Neil Gardner, head of the highway department in Stephentown, in Rensselaer County 23 miles east of Albany.

Cuomo says Gardner operated the mine without the proper state permit and forged documents to keep town and state officials from finding out about the mine.

Gardner is accused of illegally removing thousands of cubic yards of sand and gravel from a rural property near the Massachusetts line.

"Increased attention on sales of land - Park agency uses records, mapping software to find illegal subdivisions"

By BRIAN NEARING, Staff writer, Albany, New York Times Union

First published: Sunday, February 17, 2008

ALBANY -- Chopping up the Adirondacks into illegal lots for sale might now be harder than in the past.

Up to now, the first time the Adirondack Park Agency learned about land that could not be legally developed -- usually because acreage was too small or encroached on wetlands -- normally came when a new owner, often an innocent victim, arrived looking for a building permit.

Sometimes land had been illegally subdivided two, three or more times before the agency caught on.

At six million acres spread across remote mountains and forests in a dozen counties, the park was simply too large for investigators to easily learn when land changed hands.

But a new approach may change all that.

Investigators who this year combined state land sale records with computerized mapping software sniffed out 55 suspected illegal land subdivisions, nearly a third of all subdivisions in the park last year.

"We hope that we now will find out about these subdivisions much quicker, before the person who did it has time to sell it," said agency spokesman Keith McKeever.

"This way, we can find out about this activity before construction or roads are built and before significant environmental impacts."

The agency can assess fines on violators and can force subdivisions to be undone, he said.

Last year, the agency hired two enforcement officers whose only duty is to find subdivision violations.

Word of the effort, which relies on a property sales database kept by the state Office of Real Property Services, is already spreading throughout the park, with some landowners calling the agency to learn if their lots were created legally, McKeever said.

"Most of the ones we have documented over the years have been small, two- or three-lot subdivisions that crept under everyone's radar until the APA got another request for a permit on the same property or a neighbor got mad and blew the whistle," said John Sheehan, a spokesman for The Adirondack Council.

"The reason for this is obvious.

Major subdivisions are created with the help of an attorney who will generally advise his clients to obtain all the needed permits before attempting to sell lots.

The larger the subdivision, the more likely it is to follow the rules, if only to avoid losing huge sums by being sued later," said Sheehan.

One of the largest examples was in Hadley, Saratoga County, when the Hunt Lake Land Company added six lots to an approved 31-lot subdivision.

The APA ended up approving the extra lots.

Agency Chairman Curtis Stiles said when illegal subdivisions are caught early significant environmental impacts and harm to future purchasers can be avoided, while costs to fix the problem can be minimized.

A park advocacy group applauded the effort.

"This has been a problem for a long time, which has left the APA in the unenviable position of who to fine or whether to even impose a fine," said John Sheehan, a spokesman for the Adirondack Council.

"It usually meant the agency legalized the illegal activity by papering (permitting) around it."

The problem is so common that about 600 cases of the agency's 1,200-case backlog, some of which stretch back years, involve illegal subdivisions.

Many of those cases were closed without being resolved because original sellers cannot be located.

"Historically, it has been difficult to be caught doing this and it is generally met with a mild penalty," said Sheehan.

McKeever was not able to provide figures on past fines for illegal subdivisions.

"Unless the APA has a tool to identify these cases and take action early on, then the only way to get this problem under control was to treat violators very harshly, and the agency has been reluctant to do this, given that the current owner usually didn't cause the violation," Sheehan said.

Brian Nearing can be reached at 454-5094 or by e-mail at bnearing@timesunion.com.

FORTUNE

"THE MYSTERY OF THE $890 BILLION INSURER - MBIA guarantees the safety of bonds that fund everything from the Eurotunnel to commercial aircraft to cities across America. A relentless short-seller charges that its business model isn't sound. Can he be right?"

By BETHANY MCLEAN

May 16, 2005

(FORTUNE Magazine) – HEDGE FUND MANAGERS are a secretive breed, especially when they're shorting a stock.

That's partly because many people still seem to feel that there's something almost unpatriotic about making money when a stock declines in value.

So it raised some eyebrows, back in 2002, when a guy named Bill Ackman took on a company called MBIA in a very public way.

First he shorted the company's securities, and then he issued a press release with a link to the website for the fund he ran, Gotham Partners, where he posted a 66-page analysis questioning almost every aspect of MBIA's business.

MBIA is not a household name, and by some measures it is small.

It employs just 623 people and its market value is less than $8 billion.

Yet MBIA is a subterranean powerhouse.

It guarantees interest and principal payments totaling $890 billion on bonds that fund everything from the Eurotunnel to the city of Minneapolis to trusts backed by royalties from DreamWorks movies.

As MBIA's chairman, Jay Brown, says, MBIA "touches a lot of things."

Certainly, it touches a lot of investors.

Major banks, pension funds, and moms and pops all own bonds that are seen as some of the safest investments in the world simply because they are insured by MBIA--carrying what it calls its "Good Housekeeping seal of approval."

The key to MBIA is that the credit-rating agencies--such as Standard & Poor's--give its insurance arm the rare and coveted rating of triple A.

That means that MBIA is judged to be one of a handful of the most financially sound companies in America, up there with Exxon Mobil and GE.

When MBIA insures, or in industry lingo "wraps," a bond, it gives that bond the attributes--mainly a lower interest rate--of a triple-A-rated bond.

In other words, what MBIA sells is its triple-A rating.

As CEO Gary Dunton wrote in his 2004 letter to shareholders, "MBIA's true constant--our North Star, if you will--is our commitment to protecting our triple-A ratings."

And it was precisely MBIA's triple-A rating that Ackman was publicly calling into question.

The initial response to his report was a swift and brutal backfire.

At MBIA's request, Eliot Spitzer's office launched an investigation of Gotham over possible market manipulation.

That alone led many on Wall Street to dismiss Ackman's allegations--when a short-seller is questioned by the state attorney general's staff, whatever credibility he has tends to vanish.

But today the tables have turned.

In March, MBIA announced that it would restate its earnings for the past six years to correct the accounting for a transaction that Ackman had identified as a "loss- deferral, earnings-smoothing device" in his initial report.

Then, later that month, MBIA announced that it had received subpoenas covering a range of issues from both the SEC and--yes--Spitzer's office.

Ackman, a persistent 39-year-old who has accumulated 40 boxes of MBIA-related documents in his office, is still convinced that MBIA engages in risky practices that endanger not only its own investors but also the global capital markets--if the company were to lose its triple-A rating, what would happen to the price of the billions in bonds it insures?

MBIA, of course, has a different story.

To hear its executives tell the tale, it is a good company that has been unfairly targeted by short-sellers.

They also say that MBIA is being swept along by the wave of regulatory attention that has struck the insurance industry lately.

And Brown observes that the subpoenas "could be nothing."

"A lot of times you send a lot of documents off and you never hear back from anyone."

The questions surrounding MBIA are critical ones not just for the millions of investors who own MBIA-guaranteed bonds but also for everyone who wonders whether the watchdogs of our financial system--the analysts, the accountants, and most critically in this case, the credit-rating agencies--can be trusted.

Most of those people are on MBIA's side.

The key is that few believe that MBIA's rating is at risk, because the agencies are--so far--affirming their triple A's.

To believe Ackman is right, you have to believe all those people are wrong.

It's almost impossible.

Almost.

Yet Ackman has already been proven right on one count.

And because the standard is supposed to be so high for MBIA, Ackman doesn't have to be right about everything to be right that the company doesn't deserve its triple A.

On that front, some agree.

"A triple A implies a bulletproof credit, that come hell or high water a company can easily satisfy its obligations on a timely basis," says analyst Sean Egan, a managing director of the independent credit-rating agency Egan-Jones.

He, like Ackman, does not think MBIA meets that standard.

Others have had their faith shaken by MBIA's earnings restatement.

"We believe that a breach of trust has occurred to such a degree that it may be difficult for shareholders to rely on management's statements going forward," proxy advisory firm Glass Lewis wrote in a recent report.

It recommended that investors withhold their votes for Brown and Dunton as board members.

For a company whose business model is built on trust, votes of no confidence are an ominous development.

AT FIRST GLANCE, MBIA's business is both elegant and simple.

The core idea is that a municipality--say, Kansas City--will be willing to pay a small premium to have its bonds insured, because the triple-A rating will lower its interest cost.

As long as the premium MBIA charges is less than what the client is saving in interest costs, it can market its product as a way for issuers to save money.

MBIA is often paid its premium up front, which it then recognizes as revenue over the life of the insurance.

That means that a substantial portion of future years' earnings are already in the bank.

Analysts often cite MBIA's smooth, predictable earnings as a reason to own the stock.

Bond insurance has proved to be wildly popular--and profitable.

MBIA was founded by a group of insurers in 1974, and today about half the municipal bond market is insured; MBIA is the market leader with about 18%.

In addition, over the past 15 years, MBIA has begun to insure what are known as structured finance deals--such as trusts backed by manufactured-housing loans and airplanes.

Last year MBIA's insurance operations reported just under $2 billion in revenues and $804 million in net income, meaning that its net margin was a stunning 40%.

(Like all insurance companies, MBIA is structured as a publicly traded holding company with an insurance company subsidiary. MBIA Insurance Corp., which has that all-important triple-A rating, provides almost all of MBIA Inc.'s earnings.)

Look beneath the surface of this business, though, and you find the potential for important conflicts of interest.

The credit-rating agencies--Standard & Poors, Moody's, and Fitch--are often referred to as the industry's "de facto regulators" because they control that triple-A rating.

But agencies are paid for the ratings they issue.

That means they are paid by the bond insurers and also by the issuers of debt--which might not bother to get a rating at all if it weren't a requirement for obtaining insurance.

These two streams of money are sizable.

A former S&P executive says that when he was involved in that agency's municipal finance division, fees from bond insurance accounted for roughly 50% of revenues.

Furthermore, both MBIA's former CFO, Neil Budnick, and its current CFO, Nick Ferreri, are agency veterans.

Debra Perry, who became an MBIA board member last spring, was a senior Moody's executive.

The rating agencies point out that they are always paid by issuers, and they say they can manage any conflicts inherent in that arrangement.

S&P also says most issuers would pay to get a rating whether or not the insurer required it.

To outsiders, there is another aspect of the business that is truly through the looking glass.

Unlike other insurers, which expect to suffer some level of losses, MBIA prides itself on "no-loss underwriting."

In other words, the company never intends to actually have to pay a claim.

MBIA says that, with rare exceptions, it insures only debt that is deemed relatively safe, or "investment grade," by the rating agencies, though some issues get downgraded after the initial guarantee.

Today the company says that 98% of the debt it guarantees is investment grade.

MBIA has had occasional losses, but if they were to become a regular, sizable occurrence, that could threaten its triple-A rating and blow a hole in its business model.

At MBIA's conference for its investors in March, Gary Dunton presented what he calls "my favorite slide."

It shows that over MBIA's three decades in business, the company has guaranteed more than $1.8 trillion of debt service and suffered only $586 million in losses, or about 0.03%.

To many investors, this is all the proof they need that MBIA can come very close to its promise of zero losses.

But it also raises a question.

Given how important that track record is, what measures has the company taken to preserve it?

BILL ACKMAN--who declined to be photographed, but who is otherwise anything buy shy--first became interested in MBIA back in the late spring of 2002.

He was talking to a dealer of credit-default swaps, which enable buyers and sellers to place a bet on the likelihood that a company will default on its bonds.

He asked if the guy could think of any companies that were rated triple A but shouldn't be.

The dealer told him that he had never understood the bond guarantors like MBIA.

How, the dealer asked, could a company that was leveraged 139 to one--at the time, MBIA had $764 billion of outstanding guarantees and just $5.5 billion of equity--be a triple A company?

Ackman flipped open MBIA's 2001 annual report and read the letter that then-CEO Brown had written to shareholders.

The first thing that caught his attention was a comment Brown made about how MBIA had "expanded the disclosures" on $8.6 billion of debt in off-balance-sheet special-purpose vehicles--the kinds of financial instruments that had become notorious in the Enron debacle.

Ackman couldn't find any previous disclosure of MBIA's SPVs.

SPVs are complex creatures, but here's a crude model of how one might work: The SPV raises money by issuing debt.

It takes those funds and lends them out to, say, a credit card company, which in turn gives the SPV its receivables.

If cardholders continue to pay their bills, the bondholders will get their money.

In MBIA's case, the insurance company also issues a guarantee, promising that if, say, the cardholders stop paying, it will step in.

Separately, it guarantees bondholders that they will be paid.

In a commonsense way the second guarantee seems duplicative, but it contains the potential for risk: What if the holders of a particular bond can demand payment right away, but the credit-card holders--or MBIA in their place--are scheduled to pay their bills over time?

Because the owners of the debt are guaranteed payment, they don't have to care what assets the SPV owns.

MBIA itself deems the contents "confidential."

In the post-Enron climate, Ackman had two concerns: First, he didn't see how MBIA would be able to avoid putting the SPV debt on its balance sheet.

And second, he wondered whether MBIA was using the SPVs to lend money to troubled entities that had issued bonds it had guaranteed--thereby helping them avoid defaulting and preserving its crucial "no-loss" promise.

By picking apart other companies' filings, Ackman was able to identify some $4 billion of assets that were or had been in the SPVs.

Many were, indeed, lines of credit to troubled companies that also had other debt that was guaranteed by MBIA.

An example was American Business Financial, which declared bankruptcy in early 2005.

That company had deals like securitized home equity loans that were guaranteed by MBIA.

To Ackman, that was a red flag.

But he couldn't prove that MBIA had loaned American Business Financial--or any other company--funds to avoid a default.

MBIA denies that it did.

It also says that each deal is structured so that bondholders can't demand payment early and trigger a large payment for which MBIA is on the hook.

As Ackman dug further, he saw more signs that worried him, including a strange deal MBIA had done back in 1998 after a hospital it insured had gone bankrupt.

On July 17, 2002, he placed a bet against MBIA using credit-default swaps that would pay off in the event of MBIA's bankruptcy.

On July 24 he shorted the stock.

Then he released his report.

The first page noted his short position.

The rating agencies responded by reiterating their triple-A ratings.

Other Wall Street analysts also voiced their support.

But Alice Schroeder, a well-respected analyst then at Morgan Stanley, downgraded the stock to "underweight."

Morgan Stanley soon dropped coverage of MBIA.

Egan-Jones, which does not accept payments from companies it rates, and which has a good track record--it issued warnings about Enron and WorldCom long before the major rating agencies did--released a report that rated MBIA several notches below triple A.

MBIA, for its part, issued a press release just over half an hour after Ackman posted his report in which Brown called his analysis "patently false" and warned investors to "carefully consider the credibility of any negative report issued by a hedge fund that would directly benefit from a decline in MBIA's share price."

And after that ... nothing really happened for nearly two years.

By late 2003, MBIA's stock, which hit a low of $35 earlier that year, had reached $60.

Both Dunton and Brown had provisions in their employment contracts that gave them big paydays if the stock stayed above $60 for ten consecutive trading days.

On Jan. 26, 2004, over $30 million of options and restricted stock for the two men vested.

In December the New York State Insurance Department allowed MBIA's insurance arm to pay a $375 million dividend to the holding company.

Those dollars belong to policyholders, so by allowing the money to leave, the NYSID is also showing its faith in MBIA.

All this is a big part of why many observers don't even feel as though they need to read or understand Ackman's report to know that he was wrong.

THERE ARE a few more reasons people find it easy to dismiss Ackman's concerns.

You'll often hear that he's a short-seller who has an economic interest in seeing MBIA fail.

(You'll rarely hear that the company's supporters have an economic interest in seeing it succeed.)

Then, Gotham Partners had its own problems with a large private investment it had made, and the fund began to liquidate right after Ackman issued the MBIA report.

Negative stories about Gotham began appearing everywhere.

Wasn't Gotham trying to bail itself out by issuing reports touting its positions in stocks like MBIA?

More bad press came when MBIA requested that Spitzer's office investigate the hedge fund.

MBIA alleged that Gotham and a cabal of other funds were manipulating the market by spreading rumors about its business.

Ackman says that in early 2003 he spent six days in depositions at the New York State attorney general's office, and more than $2 million in legal fees.

But no charges were ever filed, and although the AG's office, as is its policy, won't comment on the Gotham investigation, it is a safe bet that it is closed.

After all that, most people would have thrown in the towel.

Not Bill Ackman.

At a charity dinner, he introduced himself to Sam Di Piazza, CEO of PricewaterhouseCoopers, MBIA's accountants, and later sent him the report.

He cornered the CEO of S&P at the Harvard Club, and he hounded Moody's CEO by e-mail to read his report.

He says he got no response.

Ackman has since started a new fund, Pershing Square.

He says it now has more than $600 million under management and was up over 50% last year.

He is again shorting MBIA's stock, and as before, he has bet against MBIA in the credit derivatives market.

AT MBIA'S headquarters in Armonk, N.Y., the two words you'll hear over and over again are "transparent" and "conservative."

Brown describes the culture as "nerdy," and indeed, the offices are well-appointed but not at all luxurious.

MBIA executives are zealous about their mission and venomous about their critics.

Says Dunton:

"Think about what we do."

"We build infrastructure around the world."

"We enable countries to build markets."

"We do good."

"I don't know why anyone would question the legitimacy of this business."

He adds, "My mom says there are evil people out there."

MBIA's executives are particularly outraged about Ackman's allegations regarding the special-purpose vehicles.

MBIA executives insist that it is categorically untrue that they paper over trouble, and say they are simply a way to provide an additional service--access to capital--to the company's clients.

Dunton notes that the rating agencies review every deal that goes into the SPVs and maintains that "there is not a single non--investment grade credit" in any of these vehicles.

MBIA points out that even if a company whose assets it has guaranteed is troubled, that doesn't mean the assets themselves are in trouble.

In other words, just because, say, a credit-card company goes bankrupt, that doesn't mean cardholders will stop paying their bills.

MBIA says it hasn't taken any losses in its SPVs and doesn't expect to.

But there's no way for an outsider to judge--and skeptics like Ackman distrust "black boxes" whose contents are known only to company executives and the rating agencies.

As Ackman expected, MBIA consolidated the SPVs on its balance sheet after the Enron scandal drew attention to such financial instruments.

Today, when you look at MBIA's balance sheet, you see $7 billion in SPV assets and $6.4 billion in SPV debt (MBIA itself owns the remaining $600 million).

But because MBIA guarantees payment on the assets, the rating agencies don't include this debt when they look at MBIA's finances.

After all, as long as the assets are paying, the debt is covered.

This is critical, because under the rating agencies' own guidelines, MBIA's holding company's debt cannot exceed roughly 15% to 20% of its capital or the insurer could lose its triple-A rating.

If the SPV debt were counted, the ratio would be way over that limit.

Ackman and others say it simply defies economic common sense to say that the SPV debt--which after all is on MBIA's corporate balance sheet, and which the insurance company guarantees--doesn't belong to it.

"We think it should be considered MBIA's debt," says Egan of Egan-Jones.

MBIA at times is oddly cagey about the fact that it guarantees the debt in its SPVs.

On its most recent earnings conference call, a questioner asked if the SPV debt had "any recourse" to MBIA.

In response, Dunton said:

"That's nonrecourse debt...."

"It's got only the assets to look at for recovery."

But because MBIA's insurance arm guarantees the debt, this is not true.

MBIA says now that Dunton misspoke, and that when he said the debt was nonrecourse he was referring to the holding company.

IN AUTUMN 2004, very suddenly, MBIA's world changed.

MBIA announced that it had received subpoenas from both Spitzer's office and the SEC over a hospital deal that had gone sour--the very one Ackman had noted in his report.

The hospital chain in question was called the Allegheny Health, Education, and Research Foundation, or AHERF.

When it went bankrupt in the summer of 1998, MBIA, which insured AHERF's debt, was on the hook for over $300 million.

This was the biggest loss any bond insurer had ever suffered.

In the fall of 1998, MBIA took a highly unusual step: It entered into "retroactive reinsurance" agreements with three reinsurers.

Converium gave MBIA $70 million, and AXA Re and Munich Re each provided $50 million.

In exchange for that combined $170 million, MBIA agreed to give the reinsurers $296 million of premiums on some $45 billion of business it had guaranteed.

This type of deal --reinsuring for a loss that has already taken place--is, believe it or not, permitted by accounting rules, as long as the reinsurers are taking on actual risk.

Supposedly they were, and so MBIA executives wrote in the 1998 annual report to shareholders that "our loss reserves, our earnings, and our triple-A ratings were unaffected" by the AHERF bankruptcy, and that "we are fiercely proud of our near-perfect record of no losses."

Later, when questions were raised about this transaction, MBIA insisted that the deal had been fully vetted.

But on March 8 the company made an abrupt about-face and acknowledged that there was "likely" an oral agreement by an unnamed MBIA executive or executives committing MBIA to ultimately assume all but a sliver of risk on the business that was supposedly transferred to Converium.

In other words, even under accounting rules, that money shouldn't have been booked as earnings.

Although the company has restated its earnings for the past six years, reducing profits by $57 million because of the Converium slice of the transaction, it has not restated the other parts of the deal.

Much of what happened is still shrouded in secrecy.

Ongoing probes--including a criminal investigation launched by the U.S. Attorney's Office for the Southern District of New York --may provide answers.

In the wake of the AHERF transaction, then-CEO David Elliott stepped down, and Jay Brown, a board member at the time, took his place.

Gary Dunton became president.

Both say that they had nothing to do with the AHERF deal; Neil Budnick, who became CFO that fall, makes a point of saying that he "didn't sign the 1998 financials."

MBIA says that if any oral agreement was made, it was done by an executive who has since left the company.

MBIA has another odd deal in its past.

Another huge chunk--some $114 million--of the $586 million in losses MBIA has declared have come from a company called Capital Asset, which purchased tax liens.

MBIA bought roughly 50% of the company in 1996 and took a majority position in late 1998.

MBIA immediately tried to sell the company; then, in 1999, it wrote down the value of Capital Asset by $102 million.

Then MBIA refinanced the tax liens via securitizations.

MBIA guaranteed the deals, and in 2004 it was still taking losses on them.

The question is, why did MBIA increase its stake in Capital Asset in 1998?

At the time, an MBIA spokesman told the press, "MBIA thinks the business ... has even more promise in the future."

In an interview with FORTUNE in March, Brown said that Capital Asset was a "fraudulent shop," and that MBIA made its purchase to "take control of the problem."

It's not clear what happened at Capital Asset, but one person familiar with the company says that MBIA knew it had a big problem.

This person suspects that MBIA bought its second stake and refinanced the tax liens to delay taking losses.

MBIA denies doing so.

Its attorney says the idea that MBIA "viewed or could have viewed [Capital Asset] as a 'fraudulent shop' is simply wrong and not supported by the record."

Brown now says his earlier declaration was a "emotional statement" that has been "taken out of context."

It's true that the entire bond insurance industry tries to avoid losses.

And MBIA is proud of what it calls "surveillance" and "remediation."

For every time MBIA does take a loss, "there are hundreds that we find a way" to avoid a hit, says Brown.

That may range from MBIA's own collection agents calling nonpaying credit card holders to what the head of this division, Mitch Sonkin, calls "moral suasion."

Brown even says that MBIA likes to do business with companies that need it.

"When you're trying to fix something, you want to be the big guy in the room," he says.

Adds Dunton: "We provide you with access to low-cost capital, so if there's a problem, fix it."

"I wouldn't say it, but that's an unspoken rule in the industry."

But among its peers MBIA has a reputation for aggressiveness, and this raises questions: Is there such a thing as inappropriate pressure?

When will the company admit that a deal has gone bad?

And just how much do the rating agencies really know?

In Grady County, Okla., MBIA insures $12.7 million of $17.6 million in debt that was used to build a jail.

In late 2004 the jail, struggling to make interest payments, said it would lay off staff.

And so, in what state officials say was an apparent attempt to get Oklahoma's government to take over the jail's debt--which it is in no way obligated to do--MBIA for a period stopped doing business in Oklahoma.

"It's easy to say now that the deal was too risky, but MBIA made a bad judgment, and they should not expect us to step in and bail them out," says James Joseph, Oklahoma's state bond advisor.

As yet, there is no resolution to the jail's crisis, and Grady County sheriff Kieran McMullen says that the jail is looking for a way to make the bond payment due in May.

But MBIA has not yet taken a reserve.

MBIA also seemed reluctant to warn investors that it had a problem with $73 million of debt that belonged to the Fort Worth Osteopathic Hospital.

As early as 2003, the hospital was unable to meet certain terms of its debt agreement, and in mid-2004 it missed a payment.

But the first warning of trouble any outsider would have gotten came in late September, when Moody's, which until that point had rated the hospital's bonds investment grade, downgraded the noninsured bonds to junk.

And it wasn't until Oct. 7--just one day before Fort Worth Osteopathic announced that it was shutting its doors--that MBIA said it would take a $50 million reserve.

MBIA says that this was "consistent with its loss-reserving methodology."

MBIA also says it can collect another $22 million from a "sale or liquidation of the hospital's assets," which is why it reserved just $50 million instead of the full $73 million.

But in early 2005 the hospital was sold for less than $8 million.

MBIA says it can recover the rest from sales of real estate and other assets.

Fort Worth also makes you wonder how closely the rating agencies scrutinize MBIA's existing deals.

Brown, who claims that the agencies regularly review some 98% of transactions, says that this is why MBIA is not a black box.

"I don't care who you mention, Citigroup, Bank of America--they don't have anyone looking over their shoulder at every single transaction," he says.

But if that's the case, how did Moody's miss the problems at Fort Worth Osteopathic?

A Moody's spokesperson told Dow Jones that "we know as much as Fort Worth Osteopathic Hospital and MBIA were willing to disclose."

"It comes down to an honor system as to how much these guys share."

A former senior agency employee says the agencies simply don't have the manpower to regularly review deals.

"It's a lie that the rating agencies look at every transaction," he says.

The agencies all say they devote significant resources to regular surveillance.

Moody's says the idea that MBIA doesn't regularly reveal information is "inaccurate."

A problem deal like Fort Worth Osteopathic also raises an issue that has been hovering over MBIA since Ackman identified it in his initial report.

Are the company's tiny reserves really an adequate reflection of the risk in its portfolio?

MBIA has $693 million in net reserves, $401 million of which are already dedicated to cover known losses on specific deals like AHERF.

MBIA says its policy is to book a so-called case reserve only when it knows for certain it has a loss, and when that loss "can be reasonably estimated."

The remaining $292 million are "unallocated" reserves, or money set aside to cover potential losses that have not yet been identified.

MBIA has arrived at this figure by setting aside 12% of the premium it is scheduled to earn.

In other words, it assumes an 88% gross profit margin each year.

On the face of it, 12% may sound like a large number, but remember, MBIA's premium is just a sliver, perhaps 20 basis points, of the total value of its insurance.

For example, if MBIA insured a $1,000 deal, and it earned 20 basis points, or $2, as a premium, then over the life of the deal it would put away just 12% of $2, or 24 cents, as reserves.

The heart of the matter, though, may not be so much the actual level of reserves, but the fact that in bond insurance there is discretion in how companies determine both revenues and reserves.

As MBIA's filings note, determining reserves is an "inherently uncertain process involving numerous estimates and subjective judgments by management."

As for revenues, when the company collects an up-front premium, its policy is to recognize a greater percentage of that in the early years of a deal.

Changing this methodology "would materially affect the company's financial results," notes MBIA's financial statements.

Indeed, the way in which MBIA records revenues and expenses like reserves are precisely why it has that 40% net margin.

The SEC has asked the Financial Accounting Standards Board to rule on the reserving question for the entire industry.

MBIA executives say they are not concerned.

"Our reserving is as perfectly disclosed as I know how to disclose it," says Brown.

MBIA's latest financial report says that the company "cannot currently assess how the ... ultimate resolution of this issue will impact its loss-reserving policy or the effect it might have on recognizing premium revenue."

Ackman and MBIA's other critics argue that the company's reserves are too small and that it recognizes revenue too quickly.

In other words, they contend, MBIA's accounting makes its business look more profitable than it actually is.

MBIA says it is comfortable with its reporting.

IT WASN'T UNTIL March 30 that the debate over MBIA exploded into the mainstream of business news.

That was the day MBIA announced that it had received a series of subpoenas from both Spitzer's office and the SEC.

This time the subpoenas weren't limited to AHERF.

They requested documents relating to, among other things, MBIA's accounting for advisory fees and its reserving methodology.

There isn't a smoking gun in the subpoenas, but they raise more questions about MBIA's claim that it is "conservative."

Take the advisory fees.

From 2000 through 2004, MBIA has recognized $219.5 million of advisory fees, a portion of which are paid up front instead of being recognized over the life of a guarantee, as the premiums are.

That means higher revenue today but lower revenue tomorrow.

MBIA earns such fees when, for example, it provides advice on a complicated transaction, although according to Budnick, it is paid only if the transaction is completed.

MBIA says PricewaterhouseCoopers has signed off on its accounting.

"There is a very specific set of guidelines we follow on advisory fees, and it has been approved," says Brown.

But MBIA's competitors don't recognize fees in a similar manner.

Its largest competitor, Ambac, says it recognizes all but a minuscule amount of fees over the life of a guarantee.

Another competitor, Financial Security Assurance, even said in its financial filings, "Some industry peers receive so-called structuring or advisory fees ... and earn such fees upon receipt."

FSA says it recognizes all but a tiny sliver of fees over the life of the transaction.

After the subpoenas were issued, two firms came out with negative reports on MBIA.

One was Egan-Jones, which downgraded MBIA's credit another notch.

The other was Standard & Poor's equity division, which slapped a "strong sell" rating on MBIA's stock.

"We are concerned that weakness in the company's fundamentals ... could be exacerbated by uncertainties raised by these subpoenas," wrote the analyst.

The rating agencies still rate MBIA triple A, although they say they are monitoring the situation.

Back in 2002, after Gotham's original report, then--Morgan Stanley analyst Alice Schroeder wrote, "We would not expect rating agencies to do an immediate 180-degree turn as a result of a report such as Gotham's, for several reasons: their deliberate process, the potential impact on issuers and markets of downgrades, and the hurdle of reversing a long-standing point of view."

"In addition, the rating agencies are an explicit participant in the guarantor's business model and in effect are now in the awkward position of passing judgment on themselves."

The rating agencies say they would downgrade MBIA if it deserved it.

It is clear that for MBIA, the consequences of losing its triple A would be severe.

Its stock price would probably fall sharply, because after all, what MBIA sells is its triple A: Without the rating, much of its new business would dry up.

As Moody's itself once noted in a report, that could be the start of a vicious circle.

"It may well be that the additional negative impact on the firm's future franchise value from the downgrade itself could cause Moody's to downgrade the company by an extra rating notch."

In fact, the company's defenders cite this as a reason for their confidence: Because MBIA's triple-A rating is so critical to its franchise, its executives would never endanger that.

Or so goes the logic.

What is unknown is the impact a downgrade might have on the capital markets.

Some of the billions that MBIA insures would be repriced to reflect the fact that it would no longer have a triple-A rating, but it's unclear whether the reverberations of that repricing would be big or small.

It's worth hoping we don't have to find out.

FEEDBACK bmclean@fortunemail.com

http://money.cnn.com/magazines/fortune/for...60164/index.htm

"Struggle for Senate starts early - Republicans face stiff challenges this year for control of upper house"

By IRENE JAY LIU, Capitol bureau, Albany, New York Times Union

First published: Tuesday, February 19, 2008

ALBANY -- If a race for one seat in the North Country is any indication, this year's battle for control of the state Senate will be a long, bitter fight across New York.

In next Tuesday's special election to succeed Watertown Republican James Wright, the two assemblymen vying for the seat have so far spent over $1.2 million mostly from contributions by the state Republican and Democratic parties.

In what is poised to be the second-most expensive state Senate contest ever -- the most expensive state Senate election in history cost over $5 million -- Democrat Darrel Aubertine of Cape Vincent is opposed by Republican Will Barclay of Pulaski.

Barclay's father, H. Douglas Barclay, represented the heavily GOP 48th District from 1965 to 1984.

By last count, Republicans outnumber Democrats 78,454 to 46,824 with 34,665 unaffiliated voters.

Barclay and Aubertine each lead in different internal campaign polls, officials of each party say.

The stakes are high: Republicans hold a one-seat majority in the Senate since Wright, 59, retired after 15 years.

By stepping down in January, he made sure that the special election would not take place on Super Tuesday when the presidential primary drew a huge Democratic turnout.

If the Democrats gain a majority in November, when every seat in the state Legislature is up for grabs, the party would control the Senate and the Assembly and the governor's, comptroller's and attorney general's offices, at least until 2010, when voters will once again decide on all those jobs.

Republicans have held the Senate majority for seven decades, except for an 11-month period in 1965.

In recent years, the Democrats' statewide enrollment edge over Republicans has increased to 5.4 million voters to 3 million.

"The tide is moving against Republican control of the Senate," said Douglas Muzzio, political science professor at Baruch College in Manhattan.

This year's presidential race will undoubtedly affect state and local campaigns.

To what extent is unclear.

On Super Tuesday, when Hillary Rodham Clinton defeated Barack Obama by a 57-40 percent margin, nearly 1.8 million Democrats voted, 32 percent of the party's enrollment.

For the GOP ballot, 20 percent voted.

"We saw record-breaking turnout across every demographic and geography," said state Democratic Party spokesman Jonathan Rosen.

The primary turnout bodes well for Democrats in November, he said.

While Rudolph Giuliani's departure from the race for president could lower GOP turnout in November, Republicans believe that having John McCain at the top of the ticket will help them maintain the state Senate majority, said GOP spokesman Matthew Walter.

Whatever coattails come with the presidential election, observers such as Muzzio said Senate races will be run, and won, on a local level.

"You've got septuagenarians and octogenarians running the Senate," Muzzio said.

"They are in districts that are majority (Democratic) or trending that way."

Senate contests fitting this profile are heating up the earliest: Queens Republican Sens. Serphin Maltese and Frank Padavan already have Democratic contenders lining up.

In both those districts, Democrats outnumber Republicans by more than 2-1, and have for decades, yet both senators have held on term after term.

Padavan easily won in 2006, but political newcomer Albert Baldeo came within 800 votes of beating Maltese.

A key part of the Republicans' strategy is to regain seats lost over the past two years.

In Westchester, Republicans are seeking to oust Sen. Andrea Stewart-Cousins, who won a razor-thin victory in 2006 over nine-term incumbent Nick Spano.

On Long Island, Republicans plan to run hard against Sen. Craig Johnson, who replaced Republican Michael Balboni when he became Gov. Eliot Spitzer's homeland security chief.

Last year, with his approval ratings high, the governor angered Senate Republicans by injecting himself into Johnson's race.

Now, with his poll numbers down and his efforts to work better with the Legislature, Spitzer hasn't been involved publicly in next week's special election.

Statewide, Republican campaigns will focus on their opponents' voting records, in some cases faulting them for voting for last year's budget, which the GOP contends hurt local hospitals and schools.

The party plans to focus on local needs, according to Walter.

That strategy can favor incumbents with seniority and track records as well as the clout to sprinkle state money around their districts.

Walter said Stewart-Cousins and Johnson, among other Democrats, are being targeted because they "take positions that are out of step with their constituents' needs" like advocating for driver's licenses for illegal immigrants and "asking for (legislative) pay raises by shouting 'show me the money.' "

Muzzio advises GOP candidates to "go to their favorite house of worship and light candles ... and make these elections as local as possible."

"Talk about the power of the incumbent."

Jay Liu can be reached at 454-5081 or by e-mail at iliu@timesunion.com.

CONTESTS TO WATCH

3rd Distict

Incumbent: Caesar Trunzo, R-Brentwood

Challenger: Jimmy Dahroug

By the numbers: Democrat Dahroug has run against Trunzo twice before.

Trunzo won in 2006 with 53 percent of the vote and Working Families Party support.

7th District

Incumbent: Craig Johnson, D-Port Washington

Challenger: None declared

By the numbers: Johnson won special election in February to replace Republican Michael Balboni, who become Gov. Eliot Spitzer's homeland security chief.

Republicans have targeted this as a seat to reclaim.

11th District:

Incumbent: Frank Padavan, R-Bellerose

Challenger: City Councilman James Gennaro, D-Fresh Meadows, a member is widely expected to run.

By the numbers: Padavan, an 18-term incumbent, won with 56 percent of the in 2006, despite Democratic 83,950 to 32,360 enrollment edge.

15th District:

Incumbent: Serphin Maltese, R-Middle Village

Challenger: City Councilman Joseph Addabbo, D-Howard Beach, or Albert Baldeo.

By the numbers: Democrat Baldeo came within 800 votes of defeating Maltese in 2006.

23rd District:

Incumbent: Diane Savino, D-Staten Island

Challenger: None declared.

By the numbers: Savino had no opponent in this overwhelming Democratic district, but Republicans say they are targeting it.

34rd District:

Incumbent: Jeffrey Klein, D-Bronx

Challenger: None declared.

By the numbers: Two-term incumbent Klein won with 61 percent of the vote in 2006.

Longtime GOP Sen. Guy Velella quit in 2004 after his bribery conviction.

35th District:

Incumbent: Andrea Stewart-Cousins, D-Yonkers

Challenger: Nicholas Spano is considering.

By the numbers: In 2006, Stewart-Cousins unseated Spano, 51-49 percent.

48th District:

Contenders: Democrat Darrel Aubertine and Republican Will Barclay running to replace James Wright, R-Watertown, in Feb. 26 special election

By the numbers: Win by Aubertine would erase the Republican's one-seat majority.

Each party has contributed more than $600,000 in the campaign.

49th District:

Incumbent: David Valesky, D-Oneida

Challenger: None declared.

By the numbers: Enrollment is almost even, with 61,831 Democrats to 61,561 Republicans.

Valesky beat Republican Jeff Brown in 2006, 59-41 percent.

56th District:

Incumbent: Joseph Robach, R-Greece

Challengers: Brighton Supervisor Sandra Frankel has entered the race.

Fellow Democrats Richard Dollinger and Willa Powell are mentioned as possible candidates.

By the numbers: Dollinger resigned as Brighton Town Justice for a possible run for the seat he held from 1993 to 2002.

Robach beat Powell 66-34 percent in 2006.

District enrollment is 76,225 Democrats and 45,123 Republicans.

"Regulators' subprime mortgage cases"

Associated Press

Last updated: 3:02 p.m., Monday, February 18, 2008

State regulators and cities that have filed cases or disclosed investigations targeting Wall Street firms' roles in the subprime mortgage market:

-- New York Attorney General Andrew Cuomo has accused a major real estate appraisal company of colluding with Washington Mutual Inc., the nation's largest savings and loan company, to inflate the values of homes nationwide, contributing to the subprime troubles.

Cuomo also has issued subpoenas to Fannie Mae and Freddie Mac, seeking information about potential conflicts involving loans the government-sponsored lenders bought from banks.

And Cuomo and Connecticut Attorney General Richard Blumenthal are investigating whether banks properly disclosed risks of mortgages that were bundled into securities sold to investors.

-- Ohio Attorney General Marc Dann has accused 10 mortgage lenders and appraisal companies of pressuring appraisers to inflate home values.

Dann also has sued Freddie Mac, accusing it of defrauding Ohio's public employee pension fund by investing in subprime home loans.

Dann also is considering a broader case against Wall Street banks, lawyers and bond-rating agencies.

-- Massachusetts' top securities regulator, Secretary of State William Galvin, has accused a unit of investment bank Bear Stearns Cos. of failing to disclose to investors a conflict of interest in its trading with two Bear Stearns-managed hedge funds.

The funds collapsed after making bad bets in subprime-linked investments.

And last month, Galvin subpoenaed municipal bond insurers MBIA Inc. and Ambac Financial Group Inc., seeking information on how much the firms disclosed to cities and towns about their exposure to mortgage-related investments.

On Feb. 1, Galvin accused Merrill Lynch & Co. of fraud and misrepresentation, a day after the firm agreed to reimburse the city of Springfield, Mass., $13.9 million in a dispute over a subprime-related investment that soured.

Galvin alleges Merrill Lynch made unsuitably risky investments on behalf of Springfield without permission.

-- Attorneys general in Illinois and Florida are investigating mortgage lender Countrywide Financial Corp.

-- The city of Cleveland in January sued 21 banks and claimed their subprime lending practices have left behind abandoned homes, creating a public nuisance that hurts property values and tax collections.

Two days earlier, Baltimore sued Wells Fargo, alleging the bank intentionally sold high-interest mortgages more to blacks than to whites in violation of federal law.

------

Source: Associated Press research

"Wall Street faces fury over subprimes"

By MARK JEWELL, Associated Press

Last updated: 3:02 p.m., Monday, February 18, 2008

BOSTON -- Regulators are trying to punish Wall Street for mortgage finance practices that expanded home ownership and spread risk among a host of new players -- but also may have duped borrowers and investors who supplied cash to fuel a housing boom that's turned bust.

A handful of state securities regulators and a couple foreclosure-blighted cities have fired the opening shots with lawsuits trying to prove that investment banks and big lenders are guilty of more than just bad business decisions and failing to foresee looming mortgage troubles.

Some regulators say greed and fraud underlie much of the subprime mortgage mess that has spread across the broader housing market, triggering a spike in foreclosures.

Aside from the civil cases, the FBI is looking at possible criminal action, focusing on what Wall Street firms knew about the risks of mortgage securities backed by subprime loans, and whether they hid risks from investors.

Observers don't expect the financial penalties that regulators extract in the civil cases to be massive.

But the cases could turn up evidence that forces Wall Street to defend itself amid growing talk of government help to ease subprime-related financial strains on bond insurers.

Revelations of bad behavior turned up by the government also could spur private investors to file even more lawsuits than the hundreds they've already brought to recover losses.

"This could get a lot nastier, for many reasons," said John Akula, a business law lecturer at the Massachusetts Institute of Technology's Sloan School of Management.

"Prolonged close scrutiny often turns up all kinds of dubious practices that in normal times are under the radar."

"If the government sponsors any kind of bailout with public funds, this may be coupled with an aggressive prosecutorial agenda in support of efforts to get private parties to kick in."

Although the foreclosure-blighted cities of Cleveland and Baltimore have sued seeking to recover damages from mortgage lenders, most of the cases filed so far are from regulators alleging violations of state securities laws.

Attorneys general in New York and Ohio are targeting alleged systematic inflation of home appraisals by major lenders and appraisal firms.

Litigation in Massachusetts and other states seeks to demonstrate that investment banks failed to disclose risks to investors who bought mortgage-related securities and weren't up front about conflicts of interest across their far-flung financial operations, including trading of subprime investments.

"Over the years, the relationship between lender and borrower and a particular piece of property has been severed," said Massachusetts Secretary of State William Galvin.

"It's clear that it's become a runaway train."

Gone are the days when most borrowers simply got loans from the neighborhood bank, which used to hold the bulk of mortgage risk.

Now that risk is spread further -- mortgages are bundled together and sold to investors.

Behind the scenes, credit-rating agencies offer advice on whether the investments are secure.

Until recently, cash from Wall Street banks and investors extended growing amounts of credit to low- and middle-income Americans enticed to enter a market when home prices appeared headed nowhere but up.

Lenders wrote $625 billion in subprime mortgages in 2005, nearly four times the total in 2001.

The boom brought in big fees to mortgage brokers, lenders, banks and ratings agencies.

But now that prices are dropping, those players are hurting.

Global banks have ousted executives and have written off nearly $150 billion since mortgage securities began collapsing last summer.

Given the losses, "It's doubtful some of these entities will repeat their performance," Galvin said.

"But I think there needs to be an understanding of how we got where we are, whether that is through regulatory action, or through Congress."

States have responded by tightening rules governing how lenders and brokers arrange mortgages and are compensated.

But lawsuits and administrative complaints are the main tools regulators use to seek fines against companies accused of wrongdoing, or to set examples to deter bad behavior.

"What they can't enforce through regulation, they will try to accomplish through suing," said David Bizar, a Hartford, Conn.-based attorney with the firm McCarter & English who defends against subprime mortgage lawsuits brought by consumers and regulators.

Already, the number of subprime-related cases filed in federal courts is outpacing the rate of litigation that emerged from the savings and loan meltdown in the late 1980s and early '90s, according to a study released Thursday.

The 278 subprime cases filed in federal courts in 2007 already equals half of the total 559 S&L cases handled over multiple years, according to the findings from Navigant Consulting Inc.

Criminal action also could be looming.

The FBI said last month it was investigating 14 companies for possible accounting fraud, insider trading or other violations that could result in criminal charges.

The FBI didn't identify companies but said the probe involves firms across the financial services industry.

The FBI is working with the Securities and Exchange Commission, which has civil enforcement powers.

The SEC said in January that it had about three dozen active investigations under way.

In the rush to sue big business, there's plenty of blame to go around in the subprime meltdown, said Bizar, the lawyer who has represented lenders in subprime cases.

Those include everyone from investors buying mortgage-related investments without understanding the risks, to credit-rating agencies that failed to alert investors to lenders' precarious positions as mortgage delinquencies spiked.

But the mess can be blamed more on unrealistic expectations than fraud, he said.

"You had a lot of people reaching to get into homes they couldn't afford, on the theory that it would go up in value," Bizar said.

FORBES

"Credit Crunch - What To Do About Wall Street"

Liz Moyer, 02.14.08, 3:05 PM ET

So who's to blame for the subprime mess?

Banks?

Investors?

Regulators?

Ratings agencies?

The epicenter of all this finger-pointing: Capitol Hill Thursday, as lawmakers, regulators, and executives gathered to debate how to deal with the crisis gripping the credit markets, particularly the perilous state of the mortgage bond industry.

New York Governor Eliot Spitzer, in testimony to the House of Representatives finance committee, laid the blame at the feet of federal regulators and ratings agencies, who failed to stop the growth of the subprime mortgage bubble before it got out of control.

And he said a swift resolution to the severe capital pressures the bond insurers are facing is necessary to stop a "tsunami" of problems in the financial markets.

Gov. Spitzer said he hoped a private effort by Wall Street banks to inject capital into some of the hardest-hit bond insurers could get done in the next three to five business days.

If not, regulators would have to resort to the "good bank, bad bank" split of the bond insurers, as proposed Tuesday by Berkshire Hathaway's Warren Buffett.

"The clock is ticking," Gov. Spitzer said.

"We will be forced to act."

The crisis in the credit markets has raised all sorts of questions about who was minding the store while the mortgage bubble grew out of control.

Ratings agencies, investment banks, mortgage lenders, and yield-starved hedge funds have taken some of the blame for creating the speculative bubble, and federal regulators are also taking the heat for failing to stop them.

At a separate hearing Thursday morning in the Senate, Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, and Securities and Exchange Commission Chairman Christopher Cox testified on the effects of the crisis on the economy and the efforts to fix the problems.

Senator Jack Reed, D-R.I., directly asked Bernanke if the Fed is conducting a review of the regulatory lapses that allowed the current economic situation to develop.

Bernanke punted, saying that the central bank will issue a "principles-based" report in April to make sure any problems identified don't occur again.

Rep. Michael Capuano of Massachusetts said in the House committee hearing Thursday, "the word regulation has become a swear word here in Washington."

"Good bank, bad bank" is a throwback to the Depression era--and to the savings-and-loan crisis of the late 1980s.

In each of those scenarios, the government rode in and split a company into two separate entities, taking on the bad assets to preserve the good business.

Buffett proposed the opposite: He would re-insure $800 million worth of municipal bonds backed by the three biggest bond insurers, but not take on any of the firms' exposure to credit derivatives, which have plummeted in value.

Forcing bond insurers to hold exposure to credit derivatives while ceding good liabilities like municipal bond insurance would swamp their already over-leveraged capital bases, but save municipal bond investors, taxpayers and local governments from further losses, Spitzer said.

"Municipal investors cannot be allowed to suffer from problems caused by another sector of the market," he said.

There is more than $2.6 trillion in municipal debt outstanding, about half of it backed by insurance from the companies that are now under great stress, including Ambac Financial Group (nyse: ABK) and MBIA (nyse: MBE), whose executives are to speak at an afternoon panel before the committee later Thursday.

For the fourth quarter of 2007, MBIA announced losses of $814 million, $200 million of which is not yet associated with specific transactions, as well as $3.4 billion in “market-to-market” losses.

The company says it has learned several valuable lessons from the recent bond insurance fiasco.

For one thing, start-ups and historically solid loan originators are equally susceptible to market pressures that may alter their business practices.

Second, that time-honored adage: Don’t put all your risk in one basket.

Ambac Chairman and CEO Michael Callen is looking for a cue from the feds as the industry recovers.

“During times of declining confidence in capital markets, its is critical for regulators, government agencies and those in positions of power to project confidence,” he said in his prepared testimony.

Washington and Wall Street have bristled at the thought of a bail-out for the bond insurers, though they have also been wary of leaving the municipal bond market exposed to the capital-constrained bond insurers, who face losing their triple-A credit ratings--those who haven't lost them already, that is.

Without a triple-A rating to secure the insurance, municipalities would have a harder time raising money and would have to pay more to do so.

And investors are fleeing the sector in droves.

Auctions for some bonds are failing, jacking up the prices for many issuers.

As one example, the Port Authority of New York and New Jersey is now paying more than 20% after the failure of its auction this week.

Before that, it was paying 4%.

New York insurance regulator Eric Dinallo is set to testify this afternoon about his efforts to coordinate a Wall Street solution to the crisis in the bond insurers, including the good bank, bad bank idea, which most admit is the least palatable of the available options.

"There are billions of dollars at stake," Dinallo says in his written testimony.

"There is no agreement on--and indeed, no way to know with certainty--just how big the losses from the subprime market will be."

http://www.forbes.com/2008/02/14/washingto...artner=yahootix

"Saratoga Springs mayor posts bail in builder's case"

By DENNIS YUSKO, Albany, New York Times Union

Last updated: 1:46 p.m., Tuesday, February 19, 2008

SARATOGA SPRINGS - A high-end Saratoga County builder accused of bilking two property owners, including horse trainer H. James Bond, was recently bailed out of county jail by Mayor Scott Johnson, court officials confirmed today.

Johnson, a retired attorney who took office in January, posted $15,000 on Friday to free James McLagan, a 55-year-old home builder accused of four counts of felony grand larceny in two cases in Saratoga Springs and Stillwater, a town court clerk said.

The $15,000 was set by Stillwater Town Judge Ralph Peluso for McLagan's case in Stillwater, where the Mechanicville man is charged with two counts of grand larceny for allegedly taking a $158,000 down payment to build Bond's horse farm on County Route 75, but not doing most of the work, court officials said.

Separately, Saratoga Springs police arrested McLagan last month and accused him of two counts of felony grand larceny.

McLagan accepted a $58,000 deposit from Richard Jones and Deborah Otto-Jones to build their home at lot 41 Washington Crossings, but only a foundation was laid, according to court records.

McLagan, who is represented by Troy attorney E. Stewart Jones, has pleaded not guilty.

Johnson also reportedly paid the $1,000 cash bail in the city case, though city court records did not contain that information today, and the mayor did not return phone calls.

Johnson recently told Channel 13 News that he was acting as a private citizen when he put up the $16,000, and questioned whether his involvement in the case was newsworthy.

"Ugly, expensive special election for Senate seat seen as pivotal"

By WILLIAM KATES, Associated Press

Last updated: 12:53 p.m., Tuesday, February 19, 2008

SYRACUSE, N.Y. -- A nasty and expensive campaign to win a rural upstate Senate seat traditionally held by Republicans could signal whether the GOP will keep its four decade-long grip on the Senate.

The race for New York's 48th Senate District between Democrat Darrel Aubertine and Republican Will Barclay has been marked by stinging personal attacks and negative ads, a lawsuit over who gets the Independence Party line, and big money.

Each candidate has raised close to $1 million ahead of Tuesday's special election to represent the district that runs along eastern Lake Ontario and includes Oswego and Jefferson counties, and parts of St. Lawrence County.

"It may be a bellwether for what's to come in traditional Republican territories in upstate New York for the fall election," said Robert Spitzer, a political science professor at the State University of New York at Cortland.

"There's a lot on the line."

"(Senate Majority Leader) Joe Bruno knows he is going to face an uphill battle to keep control of the Senate this year."

Aubertine is a dairy farmer from Cape Vincent, first elected to the Assembly in 2002.

Barclay, too, was elected in 2002 from the adjacent Assembly district.

His father, H. Douglas Barclay, served in the New York Senate from 1965 to 1984.

Former Sen. Jim Wright retired in January after 15 years to take a consulting job.

His departure leaves the Republicans with a 32-29 edge in the Senate, where they have held power since the mid-1960s.

Democrats control the Assembly and the governor's mansion and have chipped away at Republicans in the Senate over the past decade.

The GOP lost a seat in a special election on Long Island last year when Craig Johnson was elected as the first Democrat from the 7th Senate District in a century.

Besides losing another seat, an Aubertine win could prompt more GOP senators to retire.

"Every senate election is a tightrope walk now," said Maurice Carroll, director of Quinnipiac University's Polling Institute.

"They only have to lose two and they're gone -- and when they go, they may never get back."

Enrollment favors Barclay: As of Nov. 1, there were 78,454 registered Republicans in the district, compared to 46,824 Democrats.

The region also has a long history as a GOP stronghold, so it was assumed the seat was safe, said Jeff Stonecash, who teaches political science at Syracuse University's Maxwell School.

Aubertine, with the backing of the state party and some of its heavyweights, including U.S. Sen. Charles Schumer, has made the race a toss-up.

Campaign records showed Aubertine had raised $953,742 through mid-February, including about $855,000 from the state Democratic Committee.

Barclay reported raising $879,180 over that time, including about $800,000 from the Senate Republican Campaign Committee, controlled by Bruno.

Issues -- the region's loss of jobs, education, taxes -- became secondary almost immediately as the two candidates traded charges and countercharges.

In one recent attack, Barclay accused Aubertine of paying $70 to $100 a day to get people to work on his campaign on behalf of the Working Families Party, which had endorsed Aubertine.

In response, Aubertine supporters noted the state Correctional Officers & Police Benevolent Association paid workers $150 and reimbursed them for mileage to attend a Barclay rally in Watertown in January.

The union endorsed Barclay.

The campaign reached an ugly point when Aubertine ran a television spot in which a fishing guide criticized the Barclay family's decision to control fishing rights on a one-mile stretch of the popular Salmon River.

After the ad, the guide publicly apologized to Barclay's family and said he had never fished the river with his grandfather, explaining he had read from a script.

Aubertine awkwardly admitted the narrative was intended to represent a "compilation" of local fishermen's complaints.

But his campaign then claimed that Barclay operatives pressured the fishing guide, who was subsequently arrested for drunk driving after having drinks with a Republican county lawmaker.

Early in the campaign, Barclay worked to tie Aubertine to Eliot Spitzer, especially the governor's ill-fated proposal to allow illegal immigrants to obtain driver's licenses.

Barclay portrayed his opponent as beholden to downstate interests.

Aubertine tried to link Barclay with the outsourcing of many of the region's manufacturing jobs -- a sore point in a region that regularly suffers some of the state's highest unemployment rates.

The two candidates took each other to court over who would get the Independence Party line.

A judge ruled the line would be left blank.

Even without the extra line, though, the Democrats have an opportunity, said Stonecash.

"Conditions are not good for the Republican Party in this state right now," he said.

"Iraq is unpopular."

"George Bush is unpopular."

"The national Republican Party has moved more conservative ... and it doesn't sell well upstate."

A wild card in Tuesday's election might be the district's nearly 35,000 independents -- about one in every five voters.

"The question is whether they will show up and vote," Stonecash said.

"Historically, independents don't vote as often as partisans do."

"If one side or the other can get those voters out, then it might be a factor."

THE NEW YORK POST

"THERE HE BLOWS AGAIN: SPITZ RANTS AT QUINN"

By FRANKIE EDOZIEN

February 19, 2008 -- Gov. Spitzer and his top aides unleashed a verbal assault on Council Speaker Christine Quinn and her staff over a disagreement about the Javits Center, The Post has learned.

Sources said Quinn's aides reached out to Spitzer's office to report that she would oppose his sale of portions of land adjacent to the Javits Center during her State of the City speech last week - and were berated as "f- - -ing idiots" by Spitzer's aides.

Spitzer himself then called Quinn.

"He was angry and screaming," one source said of Spitzer's conduct during a phone call to Quinn.

In her State of the City speech later, Quinn (D-Manhattan) told a roomful of city powerbrokers that "until we, as a city, decide to officially give up on the Javits expansion, I will fight any shortsighted effort to sell those two adjacent properties."

Sources said that night, Spitzer called Quinn again and lambasted her.

"It was a very tense conversation but she stood her ground," one Quinn aide said.

Spitzer and Quinn met last Friday and the problems were smoothed over.

Spitzer's communications director, Christine Anderson, yesterday called the allegations against the governor "inaccurate and irresponsible."

Quinn's chief spokesman Jamie McShane said, "We don't divulge private conversations in the press," but he added that the two "had a very productive meeting on Friday."

Frederic U. Dicker contributed to this report.

frankie.edozien@nypost.com

http://www.nypost.com/seven/02192008/news/...t_qui_98260.htm

"Saratoga County will alter water line plans - At odds with YMCA over easement in Saratoga Springs, authority opts not to go to court"

By LEIGH HORNBECK, Staff writer, Albany, New York Times Union

First published: Tuesday, February 19, 2008

BALLSTON SPA -- The Saratoga County Water Authority will choose a different course for its water line rather than go to court with the YMCA, Chairman Jack Lawler said Monday.

The water authority has spent $507,000 to buy all but 24 of 174 temporary and permanent easements it needs to build the water line from Moreau to Malta.

The cost includes the price of wetlands the authority bought as part of its agreement with the U.S. Army Corps of Engineers.

Eight of the remaining easements are on land owned by commercial property owners, including the YMCA and CP Rail.

If the authority cannot reach agreements with the land owners, it has said it will take the land by eminent domain and a court will determine the value of the property.

Lawler said talks with CP Rail are going well, but negotiations with the YMCA over the easement for land on West Avenue in Saratoga Springs are at a standstill.

"The offers are far apart," Lawler said, adding that engineers on the project are at work on an alternate path for the water line, rather than go through YMCA property.

Lawler said he doesn't yet know where the new easement could be.

Neither Lawler nor Michael Toohey, chairman of the YMCA board of trustees, would say what the offers were, but Toohey said the authority's offer was a fifth of the actual value of the land in question.

"We're a nonprofit, and we have an obligation to do what's right for the charity," Toohey said.

"What they offered was ludicrously low, and I told them that."

Toohey also said the YMCA boards do not expect to be paid top dollar for the easement and are willing to negotiate if an offer was "ballpark close."

He said he based his offer on the sale prices of three nearby properties on West Avenue.

"Why would we pick a fight with the water authority?" Toohey said.

Lawler said he is more optimistic about negotiations with CP Rail.

At its last meeting, the water authority hired an independent appraiser to look at the parcels the water line would pass through.

CP Rail did not respond to a request for comment.

"We used the same formula for everyone, and the majority of owners have accepted our offer," Lawler said.

Hornbeck can be reached at 454-5352 or by e-mail at lhornbeck@timesunion.com.

"Pact eases banking rules - New York joins New Jersey, Pennsylvania to cut oversight on state-chartered banks"

By CHRIS CHURCHILL, Business writer, Albany, New York Times Union

First published: Tuesday, February 19, 2008

The New York banking department has negotiated a unique pact with two neighboring states in an attempt to ease the regulatory burden on state-chartered banks that expand across borders.

The agreement with Pennsylvania and New Jersey means a bank operating in more than one of the three states will face oversight only from its home state.

The deal is expected to be finalized and announced later this month, said Jackie McCormack, spokeswoman for the banking department.

State-chartered banks operating in multiple states have long complained that they face a greater regulatory burden than federally chartered banks, which answer only to the Office of the Comptroller of the Currency.

Reporting to regulators in several states requires a major investment of time and resources, bankers say.

And that investment has played a role in leading some larger banks, including HSBC and JPMorgan Chase & Co., to abandon their New York charters, leading to fears about the viability of the state-chartered banking system.

Michael Smith, president of the New York Bankers Association, which has long pushed for the pact, says the move is an attempt to respond to the trend away from the state system.

Smith estimated the agreement would affect only about 10 banks, mostly in central New York and the New York City metropolitan area.

But it could increase the number of New York banks that expand across state lines, he said.

The agreement with New Jersey and Pennsylvania could be a precursor of other pacts, as McCormick said the banking department intends to explore similar moves with other neighboring states.

"Mayor defends bailing out builder - Saratoga Springs' Johnson posted bond for family friend accused of bilking property owners"

By DENNIS YUSKO, Staff writer, Albany, New York Times Union

First published: Wednesday, February 20, 2008

SARATOGA SPRINGS -- Mayor Scott Johnson on Tuesday defended his decision to post $16,000 bail for a Saratoga County builder accused of bilking property owners.

But thoroughbred horse trainer H. James Bond, an alleged victim in one of the felony grand larceny cases, said Johnson's bailout of James McLagan, a 55-year-old home builder from Mechanicville, could prove embarrassing to the first-term Republican when all the facts come out.

"I think he'll have egg on his face," said Bond, who races horses at Saratoga Race Course and across the country.

Bond hired McLagan in 2006 to build a home on the Bond family's horse farm on County Route 75 in Stillwater.

But McLagan took a $158,000 down payment and provided only minimal work, Bond said in an interview.

Follow-up efforts to have the job done were ignored until State Police were contacted, Bond said.

He said he provided documentation of the alleged fraud to State Police.

McLagan was charged with two counts of grand larceny in the Stillwater case, a Town Court clerk said.

Separately, Saratoga Springs police charged McLagan last month with two counts of grand larceny stemming from a transaction in which McLagan allegedly accepted a $57,650 deposit from Richard Jones and Deborah Otto-Jones to build their home at lot 41 Washington Crossings but only laid a foundation, city court records say.

McLagan, represented by attorney E. Stewart Jones, has pleaded not guilty to all charges.

Johnson, a retired attorney who took office last month, freed McLagan on Friday by paying $15,000 bail in the Stillwater case and $1,000 bail in the city case.

He said Tuesday that he came to the rescue of the home builder to help the McLagan family through a difficult time, and he doesn't regret it.

"It made no sense to not unite the McLagan family at this time," Johnson said.

"My son and the McLagan boys are very good friends."

The case, he said, will ultimately "be decided in a court of law and not the court of public opinion."

Johnson could not say why McLagan could not afford his own bail.

McLagan's city-based company, J. McLagan Builders, has worked in the region for nearly 20 years, and designs and constructs one-of-a-kind custom homes, its Web site states.

Jones, McLagan's attorney, called the charges against his client baseless and premature.

"There never was any intent not to complete these jobs" or pay back the money, Jones said.

McLagan is due back in City Court on Thursday and in Stillwater court on March 12, Jones said.

Bond finished building his home at Song Hill Farm with the help of subcontractors.

He has no idea what happened to the $158,000 he says he paid McLagan.

Acting city Democratic Chairman Lou Schneider declined to comment.

But city GOP Chairman John Herrick said Johnson wasn't judging McLagan's guilt or innocence when the mayor reached into his private bank account.

"I think you have to admire Scott for what he did," Herrick said.

Dennis Yusko can be reached at 454-5353 or by e-mail at dyusko@timesunion.com.

"State panel urges removal of Fulton County judge"

First published: Wednesday, February 20, 2008

ALBANY -- A "mean-spirited" judge from Fulton County should be removed from the bench for repeatedly depriving litigants of basic legal rights, a state commission said Tuesday.

David F. Jung, a Family Court judge in the county since 1990, repeatedly imposed jail sentences on litigants who could not make it to court because they were incarcerated, in custody or otherwise unable to appear, the state Commission on Judicial Conduct found.

Jung also decided child custody decisions in the absence of litigants -- never taking action to see if they had waived their right to appear or be heard, the commission found.

In a ruling citing several examples during 2005 and 2006, the commission called Jung a "mean-spirited, insensitive jurist ... more concerned with fiscal matters than with protecting the basic rights of every litigant."

The commission's findings stated that Jung changed his procedures only after "sharp criticism" by the Appellate Division of state Supreme Court.

Still, the commission said, his conduct "suggests an insensitivity to the importance of ensuring that every litigant is accorded all the protections provided by law."

Jung has 30 days to appeal the decision to the state Court of Appeals.

-- Robert Gavin

"IDA jobs boom or bust? - Employment figures clash in reports provided by two interest groups"

By CHRIS CHURCHILL, Business writer, Albany, New York Times Union

First published: Wednesday, February 20, 2008

How many jobs do tax breaks for developers create?

Depends on whom you ask.

Last May, New York Jobs with Justice, a permanent coalition of community, labor, religious and student organizations, released research showing that developers receiving tax breaks from industrial development agencies failed to meet their job-creation estimates.

The developers promised their projects would create 217,000 jobs statewide in 2005 -- but actually created just 79,000.

But a study released Tuesday tells a contrasting tale.

The New York State Economic Development Council-sponsored research says the tax-aided projects in 2005 created a whopping 309,504 jobs.

One report, then, paints the industrial development agencies as a failure.

The other says they are a smashing success.

The discrepancy leaves a key question: Whom to believe?

And the debate seems to show just how hard it is to determine the agencies' effectiveness.

The release of Tuesday's report comes as debate over industrial development agencies and public authorities is alive in the Legislature, especially as a law allowing IDAs to aid nonprofit groups and public construction projects expired at the start of the month.

The Assembly has already passed a bill that would dramatically remake the way the agencies operate.

But State Senate Majority Leader Joseph L. Bruno has promised that the Senate will not pass the law in its current form.

New York has a complex network of about 700 public authorities and development agencies.

Some, such as the Thruway authority, are widely known and operate statewide.

Most, though, are local and operate in relative obscurity.

Critics say the agencies are unaccountable to the public, eager to give tax breaks to undeserving projects and overly free from oversight.

But others, including many in the business community, insist the agencies often known as IDAs are a key economic development tool.

IDA proponents say the tax breaks they offer are essential as New York seeks to lure and keep companies that could easily move elsewhere.

Brian McMahon, president of the development council, concedes that IDAs -- and the laws that created them -- are far from perfect.

"But that's the system we have," he said.

"And by and large, it works."

McMahon said his group commissioned Tuesday's report, compiled by the Rochester-based Center for Governmental Research, in response to the measly job creation numbers found in the report from New York Jobs with Justice.

He said his report is based on a much more thorough and comprehensive analysis.

Yet Carrie Brunk, director of New York Jobs with Justice, said the development council's report seems to be based on data that aren't publicly available, making it difficult to assess its accuracy or determine why its numbers are so different than from what her group found.

She said the council, which she described as a pro-IDA lobbying group, went directly to the agencies for its data.

"I would be very surprised if their analysis is accurate," she said.

The IDA bill passed by the Assembly is sponsored by Assemblyman Sam Hoyt, D-Buffalo.

His bill requires developers to pay union-scale wages to construction workers -- a proposal business groups heatedly oppose.

Hoyt said leaders in the Assembly and the Senate, along with the administration of Gov. Eliot Spitzer, are making progress as they attempt to craft a compromise IDA law.

"Are we close to resolving the matter?"

"No," Hoyt said.

"But we're closer that we were a week ago or two weeks ago."

Chris Churchill can be reached at 454-5442 or by e-mail at cchurchill@timesunion.com.

"Bruno chases cold cash in warm weather - Senate GOP leader hosts fundraiser at Donald Trump's home in Florida"

By JAMES M. ODATO, Capitol bureau, Albany, New York Times Union

First published: Thursday, February 21, 2008

ALBANY -- As Senate staffers and political operatives work the wintry counties of the contested 48th Senate District, Senate Majority Leader Joseph L. Bruno and a top aide collected campaign cash and planned some golf in Palm Beach, Fla., Wednesday.

For the third year running, Bruno raised funds at Mar-A-Lago, Donald Trump's seaside estate.

Bruno's trip, which normally includes several rounds of golf, comes as Trump proposes to join with developer Louis Cappelli on a $700 million project to transform the Concord Hotel near Monticello into a major destination.

Cappelli has said the project he proposes with Empire Resorts, owner of Monticello Raceway, will seek state financial resources and regulatory approvals from the Division of Lottery and the Racing and Wagering Board.

The project includes moving more than 1,500 video lottery terminals and the Monticello harness track to the renovated Concord site a few miles away.

Trump and Cappelli and lobbyists for Empire Resorts, including James Crane of Albany, all of whom are generous donors to both parties, were expected to attend Bruno's fundraising event if their schedules permitted.

Bruno and aide John McArdle planned to host attendees who pay $2,000 per person and $3,000 per couple to the Senate Republican Campaign Committee, the Senate Republican political organization said.

The GOP committee needs cash as it spends hundreds of thousands of dollars attempting to get Assemblyman Will Barclay, R-Pulaski, elected next week to the 48th District seat vacated by Sen. James Wright, R-Watertown.

Barclay opposes Democratic Assemblyman Darrel Aubertine of Cape Vincent for the two-year seat.

Already, a combined $1.3 million has been spent by both parties on the race to represent a district that includes all or parts of Jefferson, St. Lawrence and Oswego counties.

The GOP also will be tapping its resources for races across the state in November as it attempts to hold onto or increase its slim advantage over Democrats to keep control of the Senate.

Tens of millions of dollars may be necessary for what could become the most expensive Senate elections ever this November.

"It's huge, for two reasons," said pollster John Zogby about the GOP fundraising.

"The first reason is everything is more expensive; the second reason is they're fighting for their majority life."

"They can't afford to have news articles suggesting they don't have as much money as the Democrats or that fundraising is down."

Zogby International conducted a poll for the Watertown Daily News last week that found Aubertine leading Barclay 40.3 percent to 37.6 percent, with a 4.5 percent margin of error in Tuesday's special election.

James M. Odato can be reached at at 454-5083 or by e-mail at jodato@timesunion.com.

THE NEW YORK SUN

"Police Lawyers, Spitzer Aides Met Before Troopergate Report"

By JACOB GERSHMAN, Staff Reporter of the Sun

February 22, 2008

Days before Attorney General Cuomo released a report alleging that the Spitzer administration and the state police coordinated a political hit on the Republican Senate majority leader, Joseph Bruno, two top state police lawyers met for three hours with two senior aides to the governor, according to records.

On July 18, the state police's chief counsel, Glen Valle, and deputy counsel, Darren O'Connor, met at the executive chamber with Peter Pope and Sean Maloney, two Spitzer aides who were deputized as special counsels during Mr. Cuomo's investigation.

Executive chamber records show that Messrs. Valle and O'Connor signed in at 2:12 p.m. and departed at 5:06 p.m.

Sources say Mr. Cuomo's report was nearly complete by then and that the governor's office, police officials, and the attorney general's office were engaged in a series of tense negotiations about what charges the report would contain and what disciplinary measures the administration would accept.

On July 23, Mr. Cuomo's office published the report, which claimed that two aides to the governor, the communications director, Darren Dopp, and the governor's liaison to the state police, William Howard, sought to discredit Mr. Bruno by gathering and publicizing records from the police about his use of the state air fleet and police vehicles during fund-raising trips to New York City.

The governor apologized and suspended Mr. Dopp, who left the administration to take a job in the private sector.

Mr. Spitzer has since insisted that his administration did nothing improper.

The attorney general's office concluded that the Spitzer administration did not commit a criminal offense, but allegations by Senate Republicans that the governor's office had stonewalled investigators sparked further inquiries by the Commission on Public Integrity, the Albany County district attorney, and a Senate investigative committee.

Sources say the commission and the district attorney, David Soares, are examining whether Messrs. Pope and Maloney and the governor's counsel, David Nocenti, pressured Mr. Dopp not to talk to Mr. Cuomo's investigators but instead to sign a two-paragraph statement denying criminal wrongdoing and acknowledging misjudgments.

In discussions with investigators for Mr. Soares and the integrity commission, Mr. Dopp has claimed that Messrs. Pope and Maloney warned him that Mr. Cuomo could not be trusted and that the attorney general aimed to charge several administration officials with criminal misconduct unless he cooperated, a source said.

Spokesmen for the state police and the governor's office declined to comment about the meeting.

http://www.nysun.com/article/71677

"Spitzer: No state income tax on federal rebate payments"

Associated Press

Last updated: 1:13 p.m., Thursday, February 21, 2008

ALBANY -- New Yorkers won't have to pay state income taxes on the upcoming rebate payments from the federal economic stimulus package.

The IRS will begin sending the rebate payments to qualifying taxpayers in early May after the current tax season ends.

Gov. Eliot Spitzer says New Yorker residents will keep the full amount of the rebates and won't be taxed on that income on their 2008 state tax returns.

To get the rebate payments, taxpayers must file a 2007 federal tax return, even if they don't owe federal income taxes.

New Yorkers won't be required to file a 2007 state tax return if they filed a federal tax return solely to get the rebate, according to Spitzer's announcement Thursday.

"Town official answers charges - Stephentown highway superintendent pleads not guilty in gravel case"

By DAVID FILKINS, Staff writer, Albany, New York Times Union

First published: Friday, February 22, 2008

TROY -- Stephentown Highway Superintendent Neil Gardner pleaded not guilty Thursday to 44 felony charges alleging he bought gravel from an illegal mine and tried to cover it up.

Gardner, 52, said state prosecutors offered to let him off with a misdemeanor, but he refused because he would have lost his job if he pleaded guilty.

"They told me it would have been minor, like stealing a pack of bubble gum," Gardner said before his arraignment by Rensselaer County Court Judge Robert Jacon.

"The problem is, I didn't do anything like steal a pack of bubble gum."

Steve Cohen, a spokesman from the attorney general's office, declined to confirm whether Gardner was offered a plea deal, but said, "We stand by the case we indicted."

"We believe it is inappropriate to discuss what is or is not offered prior to indictment."

"The case has now been indicted and Gardner faces charges of very serious felony offenses."

A grand jury indicted Gardner last week on charges of first-degree offering a false instrument for filing, first-degree falsifying business records and second-degree criminal possession of a forged instrument.

He is also charged with one count of operating a mine without a permit, a misdemeanor.

The indictment, the result of a state Department of Environmental Conservation investigation, accuses Gardner of falsifying documents filed with the town to conceal that thousands of cubic yards of sand and gravel were being removed from a mine without a permit on property on Route 22 owned by Anthony Cormier.

Gardner's attorney, Tom Spargo, would not outline their defense strategy, but said, "No crimes were committed, which is why we're going to proceed before the judge and a jury if necessary."

Gardner's former lawyer, Stephen Pechenick, had previously said the mine was not illegal, that town officials were well aware of where the gravel came from and that Gardner was being criticized by state officials for not making the vouchers more specific.

In October 2006, state investigators took records from the offices of the town clerk, Gardner and Russ Freeman of Russ Freeman Excavating Inc. in Nassau, which regularly performed work for the Stephentown Highway Department.

The problem first became apparent in 2005 when Cormier came to a series of Town Board meetings complaining he had not been paid for gravel mined from a pit on his land.

The state later told the town that the mine had no permit, prompting the state investigation.

Gardner is accused of manipulating town records in November 2005 to make it look like the gravel came from a legally operated mine run by Troy Sand and Gravel of West Sand Lake.

Freeman pleaded guilty in Town Court in October to second-degree offering a false instrument for filing and was fined $1,000.

He died of cancer in December.

Gardner, a Republican and the town highway chief for more than 20 years, won another term in November with 55 percent of the vote a day after he was first charged in the case.

He said the indictment will not affect his job status.

"I was at a board meeting the other day and I received a standing ovation," Gardner said.

"I'm going to continue doing my job."

David Filkins can be reached at 454-5456 or by e-mail at dfilkins@timesunion.com.

BINGHAMTON PRESS & SUN-BULLETIN

NEWS

Posted Thursday February 21, 2008

"Spitzer's favorability rating keeps dropping, poll shows"

By Joseph Spector, Albany Bureau

ALBANY -- Gov. Eliot Spitzer's favorability rating among New Yorkers continued to sag in a new poll Wednesday, with only 41 percent of voters having a favorable opinion of the first-term governor.

The Siena College Research Institute poll found that the Democratic governor's favorability rating dipped from 44 percent just a month ago.

Still, the rating is statistically the same as January because Wednesday's poll had a margin of error of 3.9 percentage points.

Thirty-three percent of voters gave Spitzer a positive job-approval rating, compared to 65 percent who rate his performance as negative.

It is virtually unchanged from January's 32 percent job rating.

Twenty-five percent of voters would re-elect Spitzer in 2010, while 50 percent would prefer "someone else."

The poor numbers for the governor were consistent in both upstate and in the New York City-area, the poll found, while the fallout has been greatest with Democrats, African Americans and Hispanics, said Siena poll spokesman Steven Greenberg.

Fifty-eight percent of voters said the state is no better since Spitzer took office in January 2007.

Twenty-two percent said things have gotten worse.

"For New Yorkers, the (Spitzer campaign) slogan 'Everything Changes on Day One' is a long-forgotten memory," Greenberg said.

On the state budget, 32 percent of voters said they would prefer raising taxes rather than cutting health care or education spending.

Yet nearly 30 percent were undecided.

"The governor has never governed by polls and continues to believe that a tax increase on New Yorkers would be entirely inappropriate in this current economic climate," said Spitzer spokesman Errol Cockfield.

The state faces a roughly $4.6 billion budget gap in the 2008-09 fiscal year, which starts April 1.

Spitzer has proposed a series of new fees and cuts to health care to close the deficit.

But Spitzer's troubles began well before this budget cycle.

After winning election with a convincing 69 percent of the vote and a pledge to fix a dysfunctional state government, Spitzer has been mired in political squabbles and scandals.

He battled with legislators over his policies and remains embroiled in a flap over whether aides were compiling travel documents to damage the governor's Republican foe, Senate Majority Leader Joseph Bruno.

Spitzer's popularity dropped further after he sought in September to give drivers' licenses to illegal immigrants, a plan he later abandoned.

Yet Spitzer has hoped to start his second year with better results and has tried to strike a conciliatory tone with the Legislature.

But some critics said they are still waiting for a new climate in Albany.

"It's sad," said Assemblyman Bill Reilich, R-Greece, Monroe County.

"We need so much change, and we hear a lot of people make promises that they are going to change and there's going to be a 'Day One' and I don't see anything has changed."

http://www.pressconnects.com/apps/pbcs.dll.../802210342/1006

WASHINGTON POST

"Wall Street Bank Run"

By David Ignatius

Thursday, February 21, 2008; Page A15

It doesn't look like an old-fashioned bank run because it involves the biggest financial institutions trading paper assets so complicated that even top executives don't fully understand the transactions.

But that's what it is -- a spreading fear among financial institutions that their brethren can't be trusted to honor their obligations.

Frightened financiers are pulling back from credit markets -- going on strike, if you will -- to escape the unraveling daisy chain of securitized assets and promissory notes that binds the global financial system.

As each financier tries to protect against the next one's mistakes, the whole system begins to sag.

That's what we're seeing now, as credit market troubles spread from bundles of subprime residential mortgages to bundles of other kinds of debt -- from student loans to retailers' receivables to municipal bonds.

Investors are nervous because they aren't sure how to value these bundles of securitized assets.

So buyers stay away, prices fall further, and the damage spreads.

The public, fortunately, doesn't understand how bad the situation is.

If it did, we might have a real panic on our hands.

And there would be more pressure for bad policies -- ones that try to freeze the damage, rather than letting prices fall to levels where buyers will return and the markets will clear.

Hillary Clinton's proposed moratorium on home foreclosures, in that respect, is one of the truly bad ideas of our time.

It would make the situation worse by increasing even more the illiquidity and inflexibility of the housing market.

The answer to Wall Street's bank run may be a version of what saved Main Street banks during the Great Depression.

President Franklin Roosevelt created the Federal Deposit Insurance Corporation in 1933 to reassure the public that there was an insurer of last resort for the banks -- and that people's money was safe even if they couldn't see it or touch it or put it under a mattress.

Rep. Barney Frank and other congressional experts are weighing different approaches to this problem of how to backstop the markets without Clinton's misguided moratorium.

These markets are now so complicated that most of us can't begin to understand the details.

So I asked the chief financial officer of a leading concern to walk me through what has been happening.

The problem, he said, is that financial institutions are required to "mark to market" their tradable assets (which is a fancy term for setting a value) even when there isn't a functioning market.

In many cases dealers can do little more than guess at the value -- and other investors down the line know it.

To explain how this happened, the CFO took a simple example of residential mortgages.

As financial engineering improved in the 1990s, these individual loans were gathered into bundles -- 10,000 home loans of $100,000 each, let's say -- and turned into a $1 billion security that could be traded in ways the individual mortgages never could.

But that wasn't enough.

The financiers realized they could boost their profits by carving the $1 billion package into different slices, with different risk levels.

In that way, a pool of B-rated mortgage assets could generate a slice that was rated AAA, because it was judged the slice most likely to be repaid.

But what happened when the real estate market confounded recent history and began to turn down?

People holding the paper could no longer be sure if or when their particular slice would be repaid.

The traditional accounting approach -- of estimating the projected cash flow and then discounting for the risk -- didn't work.

With 10,000 disparate mortgages underlying the paper, both the rate of cash payments and the risk of default were impossible to predict.

So the pyramid began to wobble.

The hubris in this system was Wall Street's confidence that it could value paper securities that had been sliced and diced so many times that they no longer had solid connections to their underlying assets.

The nation's leading financier, Warren Buffett, had warned years before that "derivatives," whose value was balanced loosely on the real assets underneath, were the equivalent of "financial weapons of mass destruction."

But in the rush for profits, nobody listened.

I've saved the worst for last.

Do you want to know who is bailing out America's biggest banks and financial institutions from the consequences of their folly -- by acting as the lender of last resort and controller of the system?

Why, it's the sovereign wealth funds, owned by such nations as China and the Persian Gulf oil producers.

The new titans are coming to the rescue, if that's the right word for their mortgage on America's future.

The writer is co-host ofPostGlobal, an online discussion of international issues. His e-mail address isdavidignatius@washpost.com.

http://www.washingtonpost.com/wp-dyn/conte...8022002270.html

"Analysis: Clinton's troubles appear in rear view mirror in NY"

By MICHAEL GORMLEY, Associated Press

Last updated: 10:32 a.m., Saturday, February 23, 2008

ALBANY -- In the classic political novel "The Last Hurrah," veteran politician Frank Skeffington watched the early returns in a neighborhood he had carried comfortably for decades and saw his undoing.

It was "so small as to be almost negligible -- yet it stopped him ... it might -- just possibly -- be dangerous," the 1956 novel put it.

Sen. Hillary Rodham Clinton is facing such moments now in her campaign for president.

And those that might just possibly be dangerous for her can be traced back to New York, her adopted state that always figured to be a sure thing.

In October, during a televised debate, the front-running Clinton stumbled when asked if she supported Gov. Eliot Spitzer's hotly contested plan to make it easier for illegal immigrants to get driver's licenses.

Her non-answer -- the first campaign misstep by the seemingly inevitable Democratic nominee -- was the hit of talk radio and blogs for days.

Her Democratic opponents pounced at the opportunity to question her candor, integrity and electability.

Back then, Illinois Sen. Barack Obama said Clinton "really exposed this fault line ... Sen. Clinton left us wondering where she stood on every single hard question from Iran to Social Security to driver's licenses for undocumented workers."

"That clearly created an opening for her opponents," said Steven Greenberg of the Siena Research Institute poll.

"It enabled them to talk about her not being willing to take hard-and-fast positions on difficult issues and it gave her opponents a specific example people could understand."

Earlier this month, as Obama caught -- then passed -- Clinton, two Hispanic legislators from New York barely contained their suspicion and anger when Clinton's campaign manager, a Hispanic woman, stepped down from the flagging campaign.

It was a threat to Clinton's base, which was already losing the black vote to Obama, that had long been a sure thing.

"It will be very troubling to many if somehow we later find that she left her post under pressure because of the recent primary losses" and was "the one to take the blame and resign from her post instead of others involved with your campaign, including former President Clinton, who have caused serious problems and embarrassing situations," state Democratic Sen. Ruben Diaz Jr. of the Bronx wrote in a Feb. 11 letter to Clinton.

And this week, numbers inside the Siena Research Institute poll beyond the horse race headlines show more reasons for concern.

While Clinton is viewed more favorably on most issues over Obama and Republican Sen. John McCain by New Yorkers who elected her twice to the U.S. Senate, she loses big for "honesty."

New Yorkers prefer Obama over Clinton 59 percent to 22 percent in the honesty category and favor McCain 53 percent to 31 percent.

"That's something that should scare her and her team," Greenberg said.

And after eight years of the Republican Bush administration, a war-weary country facing a possible recession sees far less inspiration in Clinton than in Obama.

Siena found 62 percent of New Yorkers were more inspired by Obama compared with 26 percent for Clinton.

Thursday's New York Post front page carried a smiling photo of Obama looking down at a close-up of a graying Clinton, pensive and a bit wrinkled, under the headline: "Last Roll of the Dice."

But Clinton has been down before, from early political obituaries written before her Super Tuesday wins, from the Monica Lewinsky scandal in the White House days, and her husband's loss of the Arkansas governor's mansion.

Her next critical comeback would begin with the Texas and Ohio primaries March 4.

These primary seasons, for both parties, are controlled more by their extreme factions than in general elections in November.

And Democrats like to see their party as a big tent.

They just tend to kick each other around inside it until they get down to the business of trying to beat a Republican.

And that's the race for which the more centrist Clinton may be best suited.

"There's nothing in the poll that points me in this direction, but I think anybody who ignores or underrates the political skills of Hillary and Bill Clinton and their team does so at their own peril," Greenberg said.

"They have proven for the last two decades to be incredibly adept and I think, while it's clear that Obama has momentum and the lead, I think it's far from over."

------

Michael Gormley is the Albany, N.Y., capitol editor for The Associated Press. He can be reached by e-mail at mgormley(at)ap.org.

"Aid overhaul would boost villages - Comptroller calls state revenue formula outdated, proposes increased funding for smaller municipalities"

By KENNETH C. CROWE II, Staff writer, Albany, New York Times Union

First published: Sunday, February 24, 2008

Finances are always a talking point during village elections in communities where there's often little room to expand the tax base and costly infrastructure needs to satisfy.

That's why some village officials fully support a recent report by state Comptroller Thomas P. DiNapoli calling for an overhaul of state aid to local governments.

"The terms city, town and village have more to do with history than present day governmental functions," DiNapoli said in announcing the report.

"The current formula for state aid ignores the reality that many villages and towns have surpassed cities in size and provide similar services."

During the state's fiscal crisis in the early 1990s, revenue sharing -- aid the state sends to municipalities -- was deeply cut, while any increases were targeted mostly to cities, DiNapoli said.

The decades-old revenue-sharing formula needs to change to get villages and towns more money, though not at the expense of cities, DiNapoli said.

Waterford Mayor J. Bert Mahoney said he couldn't agree more with DiNapoli's findings.

"Villages have all the same infrastructure challenges and problems that cities do."

"We're a mini-city," said Mahoney.

The comptroller's report cited Waterford (population 2,200) as an urban village that could see its aid jump by 62 percent from $70,191 to $113,616 under a proposed formula change.

That's an extra $43,425 a year.

Mahoney said his village could use that to expand its infrastructure improvements, especially in the village's north end.

"We could do quite a bit more with that money; much more infrastructure," Mahoney said.

Mahoney is running for a sixth term in next month's elections.

He said his ability to find funding sources to undertake projects in the village has helped his entire slate to run unopposed.

About 7 percent of the people in the four-county Capital Region live in the 23 villages.

Residents will go to the polls in 14 of the villages Tuesday, March 18, to elect mayors, trustees or justices.

The other nine aren't voting this March.

Only Hoosick Falls, Ravena, Round Lake and Schaghticoke have contested races.

The other 10 have uncontested elections.

"We've got a lot of good things going on in our village."

"They can see results."

"They can see changes," Mahoney said about why he doesn't have an opponent.

Kenneth C. Crowe II can be reached at 454-5084 or by e-mail at kcrowe@timesunion.com.

Village elections at a glance

Here's how the March 18 village elections shape up:

ALBANY COUNTY

Altamont: No elections next month.

Colonie: Mayor Frank Leak is unopposed as he seeks four-year term.

Trustees Michael J. Aidala and John L. Murphy are unopposed for four-year terms.

All are independents.

Green Island: Elections in November.

Menands: No elections next month.

Ravena: Four people seek the two four-year trustee seats: Independence Party candidates William Bailey, incumbent, and Bruce Roberts; Republican-People's Choice candidates Richard Filkins and Anthony Robbins. Harold Warner III, Republican- Independence-People's Choice candidate, is unopposed for the 4-year justice seat.

Voorheesville: No elections next month.

SARATOGA COUNTY

Ballston Spa: No elections next month.

In 2009, two trustees and the justice will be up for election.

Corinth: Mayor Brad Winslow is running unopposed for re-election; trustees Leigh Lescault and Pauline Densmore are also unopposed.

All are 4-year terms.

Galway: Republican Trustee Ann Best is unopposed for a third two-year term.

Round Lake: Incumbent Mayor Dixie Lee Sacks is challenged by Lawrence Ruggles for the two-year job.

Incumbents Thomas Bergin and Christopher Nellissen and challenger Caroline Woerner seek the pair of two-year trustee terms.

Schuylerville: One trustee seat was vacated by a resignation.

Green Party candidate Roger Sherman, who is not related to Mayor John Sherman, is running to fill the three-year unexpired term.

South Glens Falls: One seat was vacated by a resignation.

Frank Jones was appointed June 1 and seeks a one-year term.

Stillwater: No village elections next month.

Victory: No village elections until 2009 when the mayor and one trustee seat will be up for re-election.

Waterford: Mayor J. Bert Mahoney unopposed.

Four Republican trustee incumbents Russ VanDervoort, Raymond Rocque, Ben Kelts and Edward Pascucci are unopposed.

SCHENECTADY COUNTY

Delanson: No elections next month.

Scotia: Two trustee seats up in November.

RENSSELAER COUNTY

Castleton-on-Hudson: Marianne Carner unopposed for two-year mayor's seat.

Trustees Karen Fagen and Joseph McInerney unopposed for two-year terms.

Trustee Cheryl Mannion for one-year term.

East Nassau: Trustee Mitchell Levinn running unopposed for re-election.

Gloria Boudreau running unopposed for seat held by Michael Perman.

Both are two-year terms.

Hoosick Falls: Five candidates seek three two-year seats: Trustee Benjamin Patten III, Trustee Ann Marie Bornt, Michael Hickey, Trustee Robert Downing and Larry LeBarron.

Two candidates for a single one-year term: Matt Monahan and Jonathan Laubacker.

Nassau: Trustee Charles Collins running unopposed for four-year term.

Schaghticoke: Four candidates seek two four-year trustee seats: Trustee Sidney Jones, Citizen Party; Trustee Jennifer Fennelly, United Party; David J. Smith, Freedom Party; Charles E. Waldron, a former mayor, Independent party.

Valley Falls: Incumbent trustees Brian Backstrom and Gilles Vautrin unopposed for two-year terms.

Report on revenue

A state comptroller's office report issued this month says if certain villages had been treated like smaller urban cities in 2007-08, they would have gotten a total of $10 million more than what they actually got that year.

The agency looked at average yearly increases in state revenue sharing from 1995-96 to 2005-06 for certain cities and what comparable increases would have been for villages in smaller urban centers.

Here's how much extra some local villages would have gotten; the increases range from 58 to 62 percent more:

Scotia: $44,700

Waterford: $43,400

Ballston Spa: $26,800

Green Island: $23,900

South Glens Falls: $20,500

Hoosick Falls: $19,600

Corinth: $14,500

Castleton-on-Hudson: $9,000

Schuylerville: $6,800

Nassau: $6,400

Source: 21st Century State Aid Formulas: Revenue Sharing, NYS Comptroller's Office

"Who'll stop the flood? Experts say measure can help"

By MICHAEL HILL, Associated Press

Last updated: 1:02 p.m., Sunday, February 24, 2008

ALBANY -- New York has endured nine floods since 2004 that were declared federal disasters -- including a deluge that ripped a crater through a highway north of Binghamton and another that scattered buildings and cars in the Catskills.

The spate of severe flooding has been so damaging and costly -- more than $500 million spent for response and repairs -- that the state will hold a flooding "summit" in flood-prone Binghamton on Thursday.

Among the questions that will be raised at the summit is this:

Is there anything the government can do to ease the damage caused by flooding?

Experts say there are indeed steps that public officials can take, though they caution there are no "silver bullets" and that many solutions are costly or politically complex.

"There's no simple answer," said James Curatolo, watershed coordinator for Upper Susquehanna Coalition, "and there's got to be a lot of little answers."

Flooding is common around New York, though the last few years have been especially harsh, particularly in the Southern Tier and around the Catskills.

Most severe was a historic flood in June 2006 that swept away homes and cars from Binghamton to the Mohawk Valley and cut a chasm across Interstate 88.

Four people died.

Last June, a flash flood strong enough to rip homes from their foundations washed through the Catskills.

Witnesses described a rushing wall of water.

Four people were swept away; three bodies have been recovered.

"The last few years seem to be pretty bad years," said Jim Tierney, assistant commissioner for water resources at the state Department of Environmental Conservation.

Tierney is working with communities in New York to figure out ways to mitigate the "peak flow" of water during heavy rains.

Tierney and other experts said the old solution of straightening out streams with riprap or constructing concrete sluices tends to just shoot the water -- and the flooding problem -- elsewhere.

Better to utilize dry wells or catchment ponds that can hold excess water, they say.

Catchment ponds are especially useful next to commercial developments the feature acres of parking lots, Tierney said.

"You put pavement all over the place and it rains, then a stream that used to get a maybe a thousand cubic feet per second during a high-precipitation event gets two or three or five thousand cubic feet per second," he said.

"That water moving through the stream rips the stream apart ... and starts to flood things."

Wetlands also play an important role in flood control, acting like sponges for surface water during heavy rains, Curatolo said.

Gary Firda, a surface water specialist with the U.S. Geological Survey in Troy, said flood-control reservoirs also work, mentioning Whitney Point Lake on the Otselic River north of Binghamton and Mount Morris Dam on the Genesee River, south of Rochester.

One of the larger water bodies in the state, Great Sacandaga Lake in the southern Adirondacks, was created to control flooding downstream along the Sacandaga and Hudson rivers.

But Firda notes that big public works reservoirs might be more difficult to build given stringent environmental reviews and the problem of purchasing the necessary land.

"I think it would be very difficult," Firda said.

A number of experts stressed that tinkering with nature can only be part of the solution.

If homes are getting flooded out, they note, it often makes sense for people to move beyond flood plains to higher ground.

The federal government has already been trying to encourage this, to mixed reviews, through a property buyout program for victims of Hurricane Katrina.

"You can't live everywhere," Curatolo said.

"You can't always live in the flood plain."

"Silver: Major issues need to be considered with property tax cap"

Associated Press

Last updated: 3:32 p.m., Monday, February 25, 2008

ALBANY -- Assembly Speaker Sheldon Silver said Monday that he has some serious concerns about the effort to cap local property taxes.

The Manhattan Democrat said local governments squeezed by a tax cap will still have rising expenses to meet.

And, he says, if the state is to help localities pick up the slack, it shouldn't come at the expense of the state's own priorities, including education.

Silver's comments come as a panel created by Democratic Gov. Eliot Spitzer seeks ways to reduce some of the nation's highest local school and government taxes.

Spitzer says he expects the panel to recommend a cap because local school spending grows too fast even with increased state school aid.

Silver's Democrat-led Assembly would have to approve any local tax cap.

Spitzer's tax panel has heard an earful in its first two meetings about how cutting costs hurts school kids, the elderly, and others who benefits from public services.

Panel chairman Thomas Suozzi, the Nassau County executive, has noted that it will be difficult to balance the need for property tax relief and the demand by schools and their interest groups for more spending.

The panel continues to meet statewide and is months from a final recommendation.

"Housing sales still stumbling - Single-family homes sold locally drop 20% from last year, a sign of slowing overall economy"

By CHRIS CHURCHILL, Business writer, Albany, New York Times Union

First published: Tuesday, February 26, 2008

The new year did not bring a new housing market.

Both Capital Region and national numbers released Monday show steep drops in the number of homes sold, continuing a trend seen at the end of 2007 and providing new evidence of a staggering overall economy.

Locally, a Realtors association reported a 20 percent drop from a year earlier in the number of closed single-family home sales, and recorded its worst January sales numbers in at least five years.

Overall, the National Association of Realtors said sales of single-family homes and condominiums were at their slowest pace since 1999.

The association also said sales were weak in most of the country, save the Midwest, and said the national median sales price fell for the fifth straight month.

Such price declines were not recorded here, although the January median sales price was flat or down in every county in the metropolitan area except Saratoga County, which saw a hard-to-explain four percent price jump.

James Ader, chief executive of Greater Capital Association of Realtors Inc., offered no prediction on when the market would strengthen:

"We don't know when the market will start to be more active," he said, "nor do we have a crystal ball which will forecast housing values."

Lawrence Yun, chief economist for the national Realtors' association, predicted the housing market "may be on the verge of bottoming out" and linked the decline in sales and values to the disappearance of so-called subprime loans from the marketplace.

Subprime loans, typically given to borrowers with shaky credit histories, are blamed for rising foreclosure rates and an ongoing credit crunch that has roiled the nation's financial institutions.

But the loans are also credited with boosting housing sales in recent years and raising home-ownership rates to record levels.

Yun said he expects housing demand to increase because Congress, as part of the economic stimulus bill, is raising the caps on the size of loans that can be backed by Fannie Mae, Freddie Mac and the Federal Housing Administration.

In the Capital Region, while Rensselaer County was the only one to experience an increase in the number of closed sales, Albany County took the biggest hit.

The number of closed sales there fell a whopping 36 percent, and the median sale priced declined one percent, to $203,500.

Saratoga County recorded the area's only median sale price increase -- a four-percent climb to $250,000 -- even though the overall number of sales in the county fell by 18 percent.

Real estate agents here said higher-priced homes, perhaps not surprisingly, are the most difficult to sell.

Homes in the middle of the market, priced from $150,000 to $200,000, are still selling with speed, they said.

Valerie Elston's experience backs the Realtors' claim: She sold her house on Rapple Drive in Colonie, priced at $174,000, after less than two months on the market.

"It wasn't that difficult," she said, adding:

"I still get calls every single day, a couple of times a day."

Judy Bryan, an agent in Averill Park, said there are too few of those homes available.

"The inventory is not great," she said.

"The available houses are in the high 200s or 300s, or they're under $150,000 and need a lot of work."

Realtor Miguel Berger, owner of TechValley Homes Real Estate, said he sees evidence that the Capital Region real estate market is improving.

He attended open houses over the weekend, he said, that were visited by as many as 40 potential buyers.

TechValley, he said, "had the best January in the company's history."

"If that's an indication of where the local market is, then it's doing great."

But the numbers released Monday suggest that experience is not typical.

Pending sales -- those that haven't yet been completed and an indicator of future closed sales -- were down dramatically in nearly every county, including 34 percent in Albany County and 29 percent in Schenectady County.

Many of those pending sales will never close, making the outlook for the near term even gloomier.

Still, Marie Bettini, GCAR's president, said in a statement that the big decline in the number of closed sales in January is "the statistic that will jump out from this report."

"And that," she said, "is certainly an important figure as we recognize the importance of real estate transfers to the region's economy."

Churchill can be reached at 454-5442 or by e-mail at cchurchill@timesunion.com. For sale

Closed single-family home sales fell in January in much of the metropolitan area, compared to the year before.

Median sale prices, meanwhile, were flat or down everywhere but Saratoga County.

Jan. closed sales Median Sale Price

Albany County: 112 (DOWN ARROW) -36% $203,500 (DOWN ARROW) -1%

Rensselaer County: 75 (UP ARROW) +9% $180,000 (NO ARROW) 0%

Saratoga County: 131 (DOWN ARROW) -18% $250,000 (UP ARROW) +4%

Schenectady County: 76 (DOWN ARROW) -11% $165,500 (NO ARROW) 0%

Schoharie County: 17 (DOWN ARROW) -15% $112,700 (DOWN ARROW) -6%

Source: Greater Capital Association of Realtors Inc.

"Confidence plunges, inflation rate soars"

By MARTIN CRUTSINGER, Associated Press

Last updated: 6:33 p.m., Tuesday, February 26, 2008

WASHINGTON -- In more bad economic news, consumer confidence and home prices posted sharp declines while higher costs for such basics as food, energy and medicine left wholesale inflation rising at a pace unseen since late 1981.

The new reports Tuesday documented the latest in a series of blows to the economy as a prolonged housing downturn has pushed the country close to a recession.

The 1 percent January jump in wholesale prices was led by a surge in the prices of energy, food and prescription drugs and followed a report last week that consumer prices had risen by a bigger-than-expected 0.4 percent because of price pressures in the same areas.

Over the past 12 months, wholesale prices rose by 7.4 percent, the largest yearly gain since late 1981.

Analysts warned consumers to brace for more bad inflation news with crude oil prices rising to records above $100 per barrel and with more evidence that the prolonged jump in energy prices is starting to break out into more widespread price problems.

Meanwhile, the New York-based Conference Board reported that its confidence index fell to 75.0 in February, down from a revised January reading of 87.3.

The drop was far below what analysts had forecast and put the index at its lowest level since February 2003, a period that reflected anxiety in the leadup to the Iraq war.

A third report showed that home prices, measured by the S&P/Case-Shiller Index, dropped by 8.9 percent in the fourth quarter of last year, compared with the same period in 2006, the steepest decline in the 20-year history of the index.

"Home prices across the nation and in most metro areas are significantly lower than where they were a year ago," said Yale University professor Robert Shiller, one of the index's creators.

"Wherever you look, things look bleak."

Analysts said rising inflation, slumping home prices, a turbulent stock market and an economy flirting with a recession were all combining to rattle consumers' nerves.

"There is no evidence that the recent collapse in consumer confidence is going to turn around any time soon," said Brian Bethune, senior economist at Global Insight.

He said the drop in confidence will lead to a cutback in consumer spending that will trigger a brief recession in the first half of this year.

And he cautioned that "severe negative dynamics" at present could make the forecast of a mild recession too optimistic.

However, Wall Street was able to shake off the spate of bad economic news Tuesday, focusing instead on an announcement by IBM of a $15 billion stock buyback program designed to boost its 2008 earnings.

The Dow Jones industrial average rose 114.70 points to close at 12,684.92.

Private economists predicted further declines in housing prices in the months ahead as the two-year housing slump continues with no signs of a turnaround.

The demand for homes is being constrained by tighter lending standards imposed by financial institutions suffering multibillion-dollar losses from soaring mortgage foreclosures.

Those foreclosures are dumping more homes back onto an already glutted market.

RealtyTrac Inc., based in Irvine, Calif., reported that the number of homes facing foreclosure climbed 57 percent in January from the previous year and more lenders are being forced to take possession of homes they can't unload at auctions.

The Bush administration insisted that the recently passed $168 billion economic stimulus bill, which will provide rebate checks to millions of families and tax breaks to encourage business investment, should stabilize the economy.

White House press secretary Dana Perino said President Bush had been briefed on all the economic figures released Tuesday and was closely following developments.

"We're in a softening period," she said.

"And the question is, how soft is it going to be and how steep is the downturn going to be?"

Federal Reserve Chairman Ben Bernanke is scheduled to deliver the central bank's twice-a-year economic report to Congress on Wednesday, testimony that will be closely followed to see whether the uptick in inflation will divert the Fed from what became in January an aggressive rate-cutting campaign to combat a possible recession.

The combination of weak growth and rising inflation raises the threat of a return of "stagflation," the economic curse of the 1970s in which economic growth stagnates at the same time that inflation continues racing ahead.

The Fed can't fight both at the same time.

It can either cut interest rates to spur growth or raise rates to combat inflation.

Fed Vice Chairman Donald Kohn, in a speech Tuesday, said the Fed remained concerned about the weak economy, signaling the possibility of further rate cuts.

While noting recent "disappointing" news on inflation, he said, "I do not expect the recent elevated inflation rates to persist," in part because the slowing economy should ease pressure on wages.

The 1 percent jump in wholesale prices in January followed a 0.3 percent decline in December and a 2.6 percent spike in November.

The wholesale report said energy prices jumped 1.5 percent, as gasoline prices rose by 2.9 percent and the cost of home heating oil soared by 8.5 percent.

Food costs jumped by 1.7 percent, the biggest monthly increase in three years.

Core wholesale inflation, which excludes food and energy, posted a 0.4 percent increase, the biggest increase in 11 months and double what analysts had expected.

This gain was led by a 1.5 percent spike in the cost of prescription and nonprescription drugs as well as higher costs for books, autos and plastic products.

THE DAILY ORANGE

"Gov. Eliot Spitzer sparks the wrong kind of change"

Vinny Napolitano

Issue date: 2/27/08 Section: Opinion

"On Day 1, Everything Changes."

New York Gov. Eliot Spitzer echoed these words non-stop on the campaign trail in 2006.

Now, with his first year as governor behind him, Spitzer can honestly say he truly did bring change.

However, it's not change he should be too proud of.

For starters, Spitzer's promise to change the state's budget problem did not turn out quite the way New Yorkers expected.

Spitzer increased overall government size by approximately 15 percent, according to The New York Post.

He made the state's Medicaid plan the most expensive in the nation for taxpayers, added an estimated $2 billion to the yearly deficit and presided over New York's transformation into the state with the most jobs lost in the year 2007.

Change?

Absolutely.

Fiscally responsible change?

Not so much.

And how can anyone forget the driver's license fiasco?

Spitzer issued an executive order in September that would allow illegal aliens to receive driver's licenses regardless of the fact they were, well, illegal residents.

A political firestorm ensued, with members of both parties attacking Spitzer as a Siena poll showed 72 percent of New Yorkers opposed the plan.

Ultimately, he abandoned his policy, but the damage had been done.

Change?

You know it.

Legal change?

Not in the United States.

However, none of this slowed down Dr. Change Love, with more unpopular policies creeping through the system in 2008 as we speak.

The governor wants to pass a new bill that would make abortion a "civil right," forcing all OB-GYN's to perform abortions, including doctors at Catholic and other religious medical centers.

ProLife or ProChoice, this proposal should be offensive to any American who believes in freedom.

This bill represents governmental tyranny to the highest degree, stepping on the rights of doctors to deny certain procedures and the rights of religious organizations to say "no."

Change?

Definitely.

Change for a freer society?

Not in the slightest degree.

Spitzer's also pushing for tax increases from "sins" and online purchases.

He has proposed raising the tax on flavored malt liquor - such as Mike's Hard Lemonade or Smirnoff Ice - and taxes on these drinks would increase from $0.11 a gallon to $2.43 per gallon.

He also wants a "sin tax" increase for little cigars ($1.23 more per pack), cigarettes (proposed $3.00 per pack tax) and illegal drugs (priced according to street value, with the bill sent to dealers).

Spitzer even wants to place sales taxes on purchases from online retailers like Amazon.com, which will effectively harm New York shoppers, college students included.

After all, they sometimes rely on online venders for cheaper textbook prices.

All of these taxes will ultimately hurt the middle and lower-class taxpayers and small businesses the most.

Change?

You bet.

But change will be all that's left in your wallet.

In short, there is no denying Spitzer brought change, but every single modification has been for the worst (and the 65 percent of New Yorkers who rated his performance as governor negatively in last week's Siena poll agree).

In the future, voters should be more careful about who they cast their ballots in favor of when dealing with such important executive offices.

You never know what the hollow campaign word "change" will really mean in practice.

Vinny Napolitano is a political science, American history and political philosophy major. He is the executive director of the College Republicans. His columns appear every Wednesday. He can be reached at vsnapoli@syr.edu.

http://media.www.dailyorange.com/media/sto...e-3236991.shtml

"Senate says there's more to spend; Assembly predicts recession"

By MICHAEL GORMLEY, Associated Press

Last updated: 5:04 p.m., Tuesday, February 26, 2008

ALBANY -- The Republican-led Senate says there's slightly more money to work with than projected in the governor's state budget proposal, while the Democrat-led Assembly predicts a recession and $615 million less to spend.

And so begins the annual budget dance that will determine how much New Yorkers will pay into, and get from, their state government.

The Senate Republicans predicted Tuesday there will be $99 million more in revenue than Democratic Gov. Eliot Spitzer included in his $124 billion budget proposal.

"The additional revenue forecast by the Senate, along with other revenue sources and avails (available revenue), will help us re-prioritize the governor's budget," said Senate Majority Leader Joseph Bruno.

Specifically, the Senate's GOP majority wants to increase funding for local property tax relief, increase aid for suburban schools -- especially on Long Island -- that get smaller increases than poor districts under Spitzer's plan, and take a hand in deciding where $1 billion in capital spending will be spent during this election year.

The Assembly Democrats' forecast predicts a mild and short recession.

"New York and other parts of the nation are in the midst of a significant economic slowdown that is being felt by everyone from low-income wage earners to small business owners to the largest financial service firms," said Assembly Speaker Sheldon Silver.

The Assembly's Democratic majority will try to reverse Spitzer's slight reduction of some state school aid increases.

Silver also wants to help thousands of New Yorkers keep their homes despite being caught by poor judgment or predatory lenders in the national subprime mortgage crisis.

Spitzer's $124 billion budget would increase spending by 4.8 percent -- twice the inflation rate -- and fill a $4.7 billion deficit for the fiscal year beginning April 1.

Staff members for Spitzer, Bruno and Silver begin meeting Wednesday to develop a consensus on projected revenues to spend in the coming fiscal year.

That consensus is due March 1.

"Special Senate election could be omen for NY's power balance"

By WILLIAM KATES, Associated Press

Last updated: 9:22 a.m., Tuesday, February 26, 2008

SYRACUSE, N.Y. -- The ballot in Tuesday's special election for the state Senate's 48th District carries the names of Democrat Darrel Aubertine and Republican Will Barclay but the race is just as much a face-off between Gov. Eliot Spitzer and Senate Majority Leader Joseph Bruno.

Aubertine is a dairy farmer from Cape Vincent, first elected to the 118th Assembly in 2002.

Barclay was elected the same year in the adjacent 124th Assembly district.

His father, H. Douglas Barclay, served in the New York Senate from 1965 to 1984.

In a race that grew nasty, the two men sought to replace Republican Sen. Jim Wright, who retired in January after 15 years to take a consulting job.

Wright's departure left the Republicans with a 32-29 edge in the Senate, where they have held power since the mid-1960s.

It's a margin of control that has been eroding steadily over the past decade.

A loss here, where Republicans usually win, carries an ominous overtone for Bruno and the GOP, who face yielding total control of state government to the Democrats, already in command of the Assembly and the governor's mansion.

Spitzer made it clear early in his term that we wanted a Democratically controlled Senate and he worked to win a special election last year on Long Island.

Polls and political observers described the race as virtually dead even going into Tuesday's vote.

Each candidate will likely spend more than $1.3 million on the campaign, which barely lasted six weeks, making it the second most expensive Senate election in state history.

Most of the money came from the state parties or the party leadership -- only about 1 percent of each candidates' total contributions have come from inside the district.

The candidates spent most of that money on negative television ads attacking each other both politically and personally.

Meanwhile, both the Republican and Democratic leadership have loaned key political operatives to the campaigns.

No Democrat has held the North Country seat for at least a century and enrollment would appear to favor Barclay -- 78,454 Republicans to 46,824 Democrats but there are also 35,000 independent voters.

But Aubertine is a Democrat who has been elected three times in his district, a traditionally Republican territory.

Polls showed him with a strong lead in his home turf of Jefferson and St. Lawrence counties.

The two candidates took each other to court over who would get the Independence Party line.

A judge initially ruled the line would be left blank but the state Court of Appeals on Monday awarded the line to Barclay.

A snowstorm forecast for Tuesday also could keep away all but the most passionate voters.

"Comptroller: NY's debt costs could increase by nearly 50 percent"

By VALERIE BAUMAN, Associated Press

Last updated: 4:33 p.m., Thursday, February 28, 2008

ALBANY -- New York's debt payments would increase by nearly 50 percent in the next five years if Gov. Eliot Spitzer's proposed budget passes, state Comptroller Thomas DiNapoli said Thursday.

Spitzer and the Legislature "need to look at the spending patterns that we get locked into, because we see revenue growth going down and spending going up," DiNapoli said.

"At some point something has to give."

State funded debt would increase 24 percent to $67.3 billion over the five years, according to the report.

While Spitzer's proposal closes a $4.6 billion budget gap for the current fiscal year and reins in spending increases, DiNapoli says the plan will commit New York to future spending that would be impossible to keep up with.

Lawmakers would have to close a $7.5 billion budget gap in the next five years.

That means New York taxpayers could accumulate in five years almost as much in debt as the total amount of the state budget this year and the equivalent of buying 67 new Yankee Stadiums at a billion dollars each.

"We're facing very uncertain economic times," DiNapoli said in a written statement.

"If things continue to decline in the financial industry, New York will get hit even harder."

"The governor made some difficult choices, but there will have to be more."

"We should only spend within the parameters of what the state can afford."

Spitzer spokesman Jeffrey Gordon said the administration believes the levels of debt are within normal bounds for the state.

"The executive budget made many tough choices to close a $4.6 billion budget gap, and to dramatically reduce outyear gaps by nearly $8 billion," Gordon said in a written statement.

"Gov. Spitzer identified significant and wide-ranging spending reductions that allowed for targeted investments needed to build our economy for the future, while maintaining manageable levels of debt and use nonrecurring resources."

The governor has prioritized keeping state spending increases within the expected growth of personal income, and the comptroller's report commended him for that.

But officials in the comptroller's office said some of his methods put the state at risk for dramatic debt increases in future years.

Some of Spitzer's plans for boosting the budget would create more than $2.7 billion in risk for New York.

Banking on income from taxes on illegal drugs and the conversion of nonprofits to for-profit status is too chancy, according to the report.

Spitzer is also counting on $677 million in funding through proposals that had been rejected by legislators in previous years.

"These are proposals ... the executive will make proposals to the Legislature, and if they choose not to accept our proposals then they would have to reduce spending or find additional revenues," Gordon said.

"There are some proposals that were rejected in previous years, but we think they are more likely to be adopted this year because of the fiscal circumstances."

DiNapoli also said the governor's plan to privatize portions of the lottery was too vague for his office to evaluate until Spitzer reveals the specifics.

------

On the Net: Find the comptroller's report at http://www.osc.state.ny.us/reports/budget/...udget022708.pdf.

"Community, state officials hold summit to get ahead of flooding"

By WILLIAM KATES, Associated Press

Last updated: 1:33 p.m., Thursday, February 28, 2008

BINGHAMTON, N.Y. -- Instead of waiting for Mother Nature's next strike, state and local officials gathered Thursday to discuss ways to be ready for future floods.

"We can't stop horrible weather."

"We can't stop flooding."

"But we can lessen it."

"We can make the recovery time shorter."

"We are here looking for new ideas," said Michael Balboni, the state's deputy secretary for public safety.

"We want to make sure we have all the capabilities we can put in place."

More than 200 local officials and first-responders attended the state's first flooding summit, which was held in Binghamton, the scene of devastating floods in 2004, 2005 and 2006.

The meeting was held at the Binghamton Regency hotel, which sits on the banks of the Susquehanna River and sustained $1 million in damage during the June 2006 flood.

Over the last four years, nine floods in New York resulted in major federal disaster declarations.

The cost of these events was staggering, with nearly $600 million spent for emergency response and repairs to public infrastructure alone.

The flood in June 2006 swept away homes and cars from Binghamton to the Mohawk Valley and cut a chasm across Interstate 88.

Four people died.

Last June, a flash flood strong enough to rip homes from their foundations washed through the Catskills.

Witnesses described a rushing wall of water.

Four people were swept away.

"So many people look at flooding as a local event, but when you consider it impacts Interstate 88, the New York Thruway, the state canal system ... it's not just a local event, it becomes a state event," Balboni said.

"We need to have more focus."

"Flooding occurs, the water recedes, people get assistance, they get back to their lives and they move on."

"We need to change the dynamics."

"We just can't keep going from disaster to disaster."

"We need to come up with a longer-term, comprehensive strategy," he said.

And different strategies.

For many years, officials believed building higher flood walls and straightening out waterways would reduce flooding problems.

But those approaches only exacerbated flooding for communities downstream, said Chip McElwee, the district manager of the Broome County Soil and Water Conservation District.

"We have to think in terms of land use patterns that don't amplify the effects of flooding," said Jim Tierney, assistant commissioner for water resources at the state Department of Environmental Conservation.

Panelists at the summit said communities need to make greater efforts to preserve open space and wetlands, which act like sponges and can absorb some of the overflow.

They also need to limit further construction in flood plains, even if it means rejecting some developments or imposing moratoriums.

"And where they can, communities may even want to think about moving people out of flood plains who are living there now," said Tierney.

"Essentially, we are putting people at risk."

Instead of major "silver bullet" flood control projects, communities need to explore "silver BB" projects on local streams that, while small in scope, can have a significant effect on the amount of water that ends up in the state's major rivers, Tierney said.

Updating flood maps -- many of which haven't been revised in decades -- should be another top priority, said McElwee.

When Binghamton area officials were dealing with the June 2006 flood, they found many maps did not show recent housing developments and building construction, said Sen. Tom Libous of Binghamton.

Among the other areas discussed were watershed management issues such as stream maintenance, stream bank stabilization and permitting and coordination of reservoir operating plans.

There was also discussion of improved river and stream monitoring systems and alert notification.

To start the summit, Balboni announced that the State Emergency Management Office would provide $650,000 in grants to local communities for flood mitigation projects, including raising public awareness.

"People need to understand what it means to live by a stream, to live by a river, to live in a flood plain," Balboni said.

"Schumer seeks promises from upstate NY power company deal"

Associated Press

Last updated: 2:43 p.m., Thursday, February 28, 2008

WASHINGTON -- Sen. Charles Schumer sought assurances Thursday that a Spanish firm's planned purchase of an upstate power company won't jack up bills for customers.

Iberdrola SA is trying to win state regulators' approval for a $4.6 billion acquisition of the regional utility Energy East Corp.

The deal would affect 3 million customers from upstate New York to Maine and would put Rochester Electric and Gas Corp. and New York State Electric & Gas Corp. under foreign ownership.

Schumer said he was worried customers in New York might face higher bills and service problems akin to those that followed the 2002 acquisition of Syracuse-based Niagara Mohawk Corp. by the British firm National Grid.

The state's Public Service Commission is still weighing whether to approve the Iberdrola deal.

"The parties and the PSC have to remember that rate-payers are the most important part of this deal," said the Democratic senator.

Schumer wants the company to create a separate fund to protect customers from price spikes, a fund he said could hold hundreds of millions of dollars and could be tapped when fuel prices rise.

The senator said any sale should also come with penalties for the company if they fail to meet service standards, an increase in wind power development, and a pledge to rebuild a coal-burning power station in the Rochester area as a cleaner, natural gas plant.