"Insurer AIG posts $5.3B loss in 4Q"

By DAN SEYMOUR, Associated Press

Last updated: 4:42 a.m., Friday, February 29, 2008

NEW YORK -- American International Group Inc., the largest insurer in the U.S., lost more than $5 billion in the fourth quarter as bad credit ate into its investments, the company said Thursday.

AIG has been thrust to the forefront of the credit crisis gripping financial markets by contracts known as credit default swaps.

These swaps pledge to cover missed payments on $579 billion in debt.

AIG's swap portfolio lost $11.12 billion in value during the fourth quarter because decaying credit quality means the insured debt is less likely to be repaid.

AIG also lost more than $3 billion in its investment portfolio because of "significant, rapid declines" in the value of mortgage debt.

AIG lost $5.29 billion, or $2.08 per share, in the fourth quarter, compared with profit of $3.44 billion, or $1.31 per share, in the fourth quarter of 2006.

For all of 2007, AIG earned $6.2 billion, or $2.39 per share, compared with $14.05 billion, or $5.36 per share, in 2006.

"AIG's results in 2007 were clearly unsatisfactory," AIG's chief executive, Martin J. Sullivan, said in a statement.

"This was a challenging year in which the deterioration of both the U.S. residential mortgage and credit markets significantly affected several of our operations and investments."

Donn Vickrey, an analyst with Gradient Analytics, said AIG's management is under pressure to demonstrate it grasps the risks the company has taken.

The deterioration in the value of the swaps is more than double an estimate the company made just two weeks ago.

At the end of the third quarter, AIG thought the portfolio of swaps had lost $352 million in value.

"They definitely seem to be right in the cross-hairs," Vickrey said.

"They're insuring a lot of the risks that are rapidly becoming problematic."

AIG claims the losses on the portfolio swaps are only on paper because the debt the swaps protect is still stellar -- just the market value of the contracts has fallen.

As long as the insured debt does not go into default, the losses on the swaps will reverse over time, the company said.

The company's general insurance division posted a 22 percent decline in income to $2.02 billion.

The division's mortgage insurance business, United Guaranty, posted a steep loss because flagging home prices have squashed the incentive and means for borrowers to repay home loans.

The life insurance division posted a 51 percent drop in profit, to $1.29 billion, because of bad investments.

"Funding OKed for tech consortium to move headquarters to Albany"

Associated Press

Last updated: 5:02 p.m., Friday, February 29, 2008

ALBANY -- New York's Public Authorities Control Board has approved $300 million over five years for a global computer microchip consortium to move its international headquarters to Albany from Austin, Texas.

A state Budget Division spokesman says the board, which oversees borrowing for certain public authorities' construction and development projects, approved $60 million a year funding on Friday.

International Sematech, a consortium of leading chip manufacturers, has said it will invest another $300 million in an expansion of its research and development program in Albany.

Sematech has had a research facility at the state University at Albany under an earlier five-year agreement with the state providing $160 million.

That agreement expired in 2007.

"Comptroller raps budget proposal"

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

First published: Friday, February 29, 2008

ALBANY -- Comptroller Thomas DiNapoli on Thursday said Gov. Eliot Spitzer's $124.2 billion budget plan relies on billions in uncertain revenues and unwanted new debt and saddles the state with a future of huge budget gaps.

DiNapoli questioned the likelihood of a number of new sources for money, such as a tax on illegal drugs.

He also noted Spitzer is relying on $676 million in proposals the Legislature has rejected in previous years.

"We're in a challenging time in connection with the health of the economy and it's not getting better," he said.

He credited Spitzer for amending his budget downward by $100 million but said he didn't pare enough.

"He certainly went in the right direction," DiNapoli said.

"I think he's being too conservative" about the potential risks to a recession-like period.

DiNapoli didn't bother assessing Spitzer's plan to net $4 billion for an endowment for higher education by leasing a major portion of the state Lottery.

The plan is "too vague for analysis," DiNapoli said.

Lawmakers, expected to adopt a budget by April 1, have been cool to the plan, which Spitzer ties to his goal of hiring 2,000 more college professors.

Further, Assembly Speaker Sheldon Silver and Senate Majority Leader Joseph L. Bruno have shown no interest in going along with Spitzer's plan to raise $900 million by selling parcels planned for the Javits Convention Center's expansion in Manhattan.

Silver doesn't go along with video lottery terminals at Belmont Park, killing another $250 million Spitzer planned for his budget.

And Bruno says he will fight proposed taxes, fees and assessments that total about $1.7 billion.

DiNapoli said debt payments are rising annually, and would increase 24 percent to $67.3 billion over the next five years.

Independent budget watchdogs, such as the Citizens Budget Commission, say the Legislature and Spitzer must be stingier to avoid mid-year shortfalls that could result in cutting programs or breaking funding commitments.

Spitzer spokesman Jeffrey Gordon said DiNapoli's economic analysis closely follows the governor's.

He said Spitzer closed a $4.6 billion budget gap and planned to cut future gaps by $8 billion, but still wants to make the investments and spend as proposed in his budget.

"Residents raise flood worries at state summit - NYC's management of upstate dams and reservoirs questioned"

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

First published: Friday, February 29, 2008

BINGHAMTON -- Some who were slammed by the 2006 floods in the state's Southern Tier remain unconvinced that New York City is doing enough with its upstate system of dams and reservoirs to help keep waters from rising like that again.

Bob Homovich, supervisor of the town of Colchester, Delaware County, had plenty of questions for New York City officials at Thursday's "flood summit" in Binghamton.

There was only one problem -- no one from the city's Department of Environmental Protection was among the dozen state and local officials who talked about flood prevention and protection efforts.

Homovich, whose rural town has had six declared floods in four years, said a New York City plan doesn't go nearly far enough.

Since 2006, the city has planned to release more water from its upstate drinking water reservoirs to leave room for unexpected massive storms.

Up to 10 inches of rain fell over two days in June 2006, swelling creeks and rivers, and spilling out of reservoirs that had little excess capacity.

In the hardest-hit counties -- Broome, Chenango, Delaware, Herkimer, Montgomery, Oneida, Orange, Otsego, Schoharie, Sullivan, Tioga and Ulster -- more than 8,600 homes were destroyed or received significant damage.

Twenty counties were declared federal disaster areas.

"They are not leaving voids that are large enough to make a difference," said Homovich.

A void is open space in the reservoir for more water.

A check on New York City's DEP Web site found that Thursday, the Pepacton Reservoir, upstream of Colchester, was at 100.2 percent of its 140.2-billion-gallon capacity.

"The level should be at 83 percent," said Homovich.

State Deputy Public Safety Secretary Michael Balboni, whose office organized the summit, said New York City officials weren't invited to take part out of fears their presence would be "too controversial."

Several hundred interested local officials did attend the event. It focused on efforts local officials could make to reduce the risk of flooding such as preserving wetlands, streambeds and natural floodplains, and limiting damage by discouraging development in flood-prone areas.

Mark Klotz, director of the Bureau of Water Resources Management for the state Department of Environmental Conservation, said flooding problems were not worsened by New York City's reservoirs, which are spread across parts of eight counties on both sides of the Hudson River -- Delaware, Greene, Schoharie, Sullivan and Ulster in the Catskill region; and Dutchess, Putnam and Westchester east of the Hudson.

Klotz also said the reservoirs were not designed for flood reduction and cannot be drained quickly to react in advance of potential storms.

Long-range weather forecasting is not reliable enough to "warrant the risk of prematurely lowering reservoir levels," he added.

Middleburgh resident Harold Bartholomew, president of Dam Concerned Citizens, which monitors the Gilboa Dam at New York City's Schoharie Reservoir, said he was disappointed by Klotz's remarks.

He said flooding won't stop if the reservoirs hold less water, but it will be lessened.

"It's like someone is sitting on their front porch with a fire extinguisher, and sees their neighbor's house on fire, and says, 'I don't think I want to use the extinguisher.' "

The 2006 floods also hit hard along the Mohawk River, particularly in the villages of Fort Plain and Canajoharie.

Frederick Miller, executive director of the Mohawk Valley Heritage Corridor, said the state needs to consider installing a more modern river flow measurement system to get an early warning when waters start to climb.

"Now we have the canal workers out there taking measurements off of sticks," he said.

He also said the state needs to dredge some of the more shallow sections of the river and look at adding spillways to dams used for the canal, particularly at the Lock 7 dam east of Schenectady.

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

"Economic turmoil batters banks - As profits slide nationwide, financial institutions in Capital Region take steps to insulate themselves"

By CHRIS CHURCHILL, Business writer, Albany, New York Times Union

First published: Friday, February 29, 2008

The mortgage and credit crisis is hammering the nation's banks.

The Federal Deposit Insurance Corp. reported this week that profits during the last three months of 2007 fell to a 16-year low at federally insured banks and thrifts, leading the FDIC to suspect that some financial institutions soon will fail.

Many banks operating in the Capital Region are suffering, too.

A Times Union review of fourth-quarter income statements shows many banks with branches here saw significant profit declines.

KeyBank, the region's largest bank by deposit share, saw fourth-quarter profits fall from $146 million in 2006 to $25 million last year.

Bank of America, with 30 branches here, saw fourth-quarter profits fall from $5.26 billion in 2006 to $268 million in 2007.

"Weakness in the housing sector and the credit squeeze in financial markets made it a very challenging time for many institutions," Sheila Bair, chairman of the FDIC, said in a statement.

"And we can expect these problems to continue in 2008."

The housing market in and around the Capital Region hasn't experienced the dramatic price declines and spiking foreclosure rates seen elsewhere.

So regional banks with limited exposure to the disastrous housing markets in locales such as California and Florida often reported better profits than national banks.

But even regional banks are wary of mortgage and loan problems and are preparing for defaults.

Pittsfield, Mass.-based Legacy Banks, for example, recently set aside $453,000 for loan losses.

Glenville's TrustCo Bancorp decided on a similar move, adding $2.5 million to its loan-loss reserve.

"We don't like what we see out there," said Kevin Timmons, a TrustCo spokesman.

"Clearly, the economy is softening and real estate values are an issue."

Such loan set-asides helped contribute to an 83 percent fourth-quarter profit drop at the 8,533 institutions the FDIC insures.

Things are so bad that Bair said the FDIC is increasing its staff to handle an anticipated increase in bank failures.

Theodore Kovaleff, a banking-industry analyst at Skye Capital in Manhattan, said it's unlikely that any of the institutions operating in the Capital Region will fail.

But that hardly means that Capital Region consumers won't be affected by the banking industry's struggles.

There's evidence banks are increasing the fees they charge to compensate for profit declines.

Bank of America, for example, began charging $3 ATM fees in August.

William Butler, a retired Guilderland resident, recently learned that KeyBank now charges noncustomers $7.50 to cash checks drawn on Key accounts.

He wanted to cash a $550 check from his wife.

"I was kind of astonished," he said.

"I didn't know they did that."

Therese Myers, a Key spokeswoman, said the bank increased the fee from $5 late last year.

"It takes us three times as long to cash a check from someone who is not a client," she said, adding that noncustomers are also responsible for the majority of check fraud cases that Key sees.

The FDIC, in its quarterly report, said many of the industry's financial problems were concentrated with the nation's larger banks.

But there are also signs of widespread problems: The FDIC said the number of "problem" banks and thrifts jumped from 50 at the end of 2006 to 76 at the end of 2007.

Overall, banks recorded $5.8 billion in 2007 fourth-quarter profits.

That compares to $35.2 billion a year earlier.

"I've been looking at an awful lot of red," said Kovaleff, the banking industry analyst.

"It isn't a very pretty color."

Chris Churchill can be reached at 454-5442 or by e-mail at cchurchill@timesunion.com.

"Colonie's big deficit"

Albany, New York Times Union

First published: Friday, February 29, 2008

Awhile ago, it seemed things couldn't get much worse for Colonie.

That was when a financial review by the new Democratic administration concluded the town was about $15 million in the red.

But now things have gotten worse, much worse.

A new report by the state comptroller's office says Colonie is deeper in the hole than anyone previously thought -- to the tune of $18 million.

Thus, an incredible story becomes even more so.

How could this happen in a town with such a rich tax base?

Colonie has been a boomtown for decades, thanks to a steady pace of new commercial and residential development.

With that kind of growth, there is no excuse for a deficit.

Predictably -- and sadly -- some officials from the previous Republican administration are trying to politicize the state audit by suggesting that because Comptroller Thomas DiNapoli is a Democrat, he is out to make Colonie Republicans look bad.

That's insulting.

The comptroller's office allows communities an opportunity to respond to an audit's findings.

That's the time when local officials can defend their fiscal procedures, and many of them often do.

But to charge that an audit was politically motivated is no defense.

It only underscores the fact that there is no defense for Colonie's fiscal morass.

There is no defense, for example, in the face of the comptroller's finding that the town previously relied on borrowing to meet payroll expenses.

That's equivalent to putting groceries on a credit card.

Nor is there any defense for improperly using sales tax revenue to reduce property taxes, as the comptroller found.

That's as indefensible as paying day-to-day expenses with borrowed funds.

Keeping taxes low helps make the town attractive to businesses and homeowners, of course.

But that is still no excuse for resorting to budgetary sleight of hand.

Other findings by the comptroller are just astounding -- spending surplus funds when there was no surplus, for example, and routinely underestimating costs while overestimating revenues.

If there is one area where the town's previous administration could argue, it might be with the $8 million it will cost to close the town landfill, which is a future expense.

But it is also a cost the town will have to bear, and one Colonie should be preparing to pay.

Colonie's new supervisor, Democrat Paula Mahan, says she has already saved $600,000 through spending controls.

That's encouraging, but there is still a long way to go, and a tax increase might well be inevitable.

If that happens, and Republicans try to pin the blame on Democrats, taxpayers will know where the real blame lies.

Comptroller DiNapoli has told them where to look.

THE ISSUE: A comptroller's audit puts Colonie debt at $18 million.

THE STAKES: It's time to stop playing politics and find solutions.

"Firing comes amid job-buying charges - Longtime state employee says false accusation led to dismissal from post"

By RICK KARLIN, Capitol bureau, Albany, New York Times Union

First published: Saturday, March 1, 2008

ALBANY -- A longtime legislative employee has been fired amid allegations of payoffs for low-level jobs in the state Assembly.

Albany County District Attorney David Soares' office confirmed it received a call about the matter, which appears to involve mainly maintenance jobs.

However, since the information has just been received, no determination has been made yet on whether an investigation will be launched.

No one has been charged so far.

On Wednesday, Paul Strait, first deputy director of the Assembly clerk's operation, confirmed that he has been relieved of his $77,984 job.

Strait, 57, has worked for the state since 1975 -- primarily with the Assembly, according to comptroller records.

Strait claims he's been made a scapegoat in the case.

Dan Weiller, spokesman for the Assembly's Democratic majority, said he couldn't discuss specifics of the case since it was a personnel matter.

He could only say that Strait was still on the payroll; Strait, reached at his home in Glenmont, said he was using up unused time before his dismissal takes effect.

Strait said that shortly before he was fired, his bosses asked him if he had taken payoffs, which he says he did not.

Nonetheless, he was told he was being let go.

"I think I have been made a scapegoat for a number of reasons," Strait said.

He said it was no secret that he was unhappy over a recent missed promotion.

"They are making a false accusation."

Strait said the matter seemed to have been sparked by an episode involving Eastern European or Russian immigrants hired in the last two year.

"I got a job for a person."

"I didn't know him," said Strait,

"A friend had asked on behalf of a friend."

But after the worker, whom Strait wouldn't name, was hired, the man offered him an envelope full of cash for his assistance in getting him the job.

Strait said he declined the money.

The maintenance worker, Strait said, has since managed to get jobs for his brother-in-law and son.

Earlier this week, Soares' office received a telephone tip that kickbacks of as much as $7,000 were being solicited for jobs in the Assembly, although there were no specific names of suspects.

The call came from an unidentified attorney.

Investigators at the office have not yet looked into the allegation, said district attorney spokeswoman Heather Orth.

Unlike state agencies, there is no Civil Service or formal merit system for hiring people in the Assembly and Senate.

"The legislative operations in general have been less formal, sort of fiefdoms."

"That's been true for years," remarked E.J. McMahon, director of the Empire Center for New York State Policy.

That informal system, said McMahon, isn't necessarily bad, as long as there are no abuses.

Rick Karlin can be reached at 454-5758 or by e-mail at rkarlin@timesunion.com.

FINANCIAL TIMES

"Buffett warns about insurance sector"

By Francesco Guerrera and Justin Baer

Published: March 2 2008 18:23 | Last updated: March 2 2008 18:23

“I’ve reluctantly discarded the notion of my continuing to manage the portfolio after my death – abandoning my hope to give new meaning to the term ‘thinking outside the box’.”

In his annual letter to shareholders on Friday, ­Warren Buffett resorted to customary self-deprecating humour to tackle two thorny issues: his mortality and the future of Berkshire Hathaway, the $220bn conglomerate he has assembled during 43 years of savvy investing.

And although the billionaire investor had optimistic answers to those questions – he is in rude health and has four candidates to take over as chief investment officer when he dies or steps down – the tone of his latest missive was downbeat.

In between folksy witticisms (“If his IQ was any lower, you would have to water him twice a day”), Mr Buffett commented on companies, politicians and himself.

He reserved some of the strongest language for his own company.

On the first of the 22-page letter, the “Sage of Omaha” predicted tougher times ahead for Berkshire’s “cornerstone”: the $31bn-a-year insurance business.

“That party is over,” he declared.

The recent combination of solid premiums and absence of large natural disasters would not be repeated.

“It’s a certainty that insurance industry profit margins, including ours, will fall significantly in 2008.”

The message to the thousands of investors who hang on his every word was clear:

“Be prepared for lower insurance earnings during the next few years.”

Berkshire’s potential problems, however, pale in comparison with the disastrous choices made by others in financial services.

After years of warning about the dangers lurking in widespread use of ever more complex derivatives, which he famously once dubbed “financial weapons of mass destruction”, Mr Buffett clearly feels vindicated by the financial crisis.

Borrowing a quote from John Stumpf, chief executive of Wells Fargo, a bank in which Berkshire has a 9 per cent stake, he reprimanded Wall Street for inventing “new ways to lose money when the old ways seemed to work just fine.”

Wall Street received the bulk of the Sage’s wrath, but the rest of corporate America was not spared.

He accused US companies of overestimating the expected returns on their pension investments in order, as he put it, to “juice earnings”.

And Mr Buffett had a few wry words of advice for chief executives:

“After decades of pushing the envelope – or worse – in its attempt to report the highest number possible for current earnings, corporate America should ease up.”

Private equity groups have often prevented Mr Buffett from buying good companies at low prices, and the hitherto titans of global capitalism were also a target of the Sage’s wisdom.

He reminded buy-out groups that have walked away from agreed takeovers, and any company looking to sell itself, that “with Berkshire, a deal is a deal”.

Mr Buffett decried the backlash against sovereign wealth funds that have invested in private equity groups and banks.

Such moves were natural given the US’s ballooning debt, large trade deficit and weakening currency, he said, and not a “nefarious plot by foreign governments”.

He also revealed a large holding of Brazilian real, whose value against the greenback has soared in the past five years.

But, perhaps to avoid accusations of being unpatriotic, Mr Buffett said $1.2bn in taxes paid on his $4bn sale of shares in the Chinese oil giant Petrochina had “paid all costs of the US government . . . for about four hours”.

http://www.ft.com/cms/s/0/e0845a02-e87c-11...00779fd2ac.html

"Judge: Nassau's mine restrictions can proceed"

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

Last updated: 3:10 p.m., Tuesday, March 4, 2008

NASSAU -- A Supreme Court judge refused Tuesday to grant a West Sand Lake mining company an injunction to stop the town from passing a Comprehensive Plan that includes tough restrictions on industrial mining.

Town officials and anti-mining forces have been battling Troy Sand and Gravel in the courts since shortly after the mining company filed an December 2003 application to mine graywacke stone on a hilltop south of the intersection of Route 66 and Radley Road.

The company's state mining permit was granted in May 2007.

But it also needs a town permit and variance to proceed with mining operations and town officials turned them down for that permit in August 2006.

The town is working on legislation to ban industrial mining altogether.

To do that, officials have been hammering out a town Comprehensive Plan that includes tough restrictions on industrial mining.

The mining company, arguing the town was in a "race to legislate'' to stop their mine, asked Supreme Court Judge Michael C. Lynch to impose a preliminary injunction stopping the town from proceeding to work on or pass the town-wide planning mandate.

Today, Lynch refused.

"It is acknowledged that the record demonstrates that the town board has demonstrated vigorous opposition to the conduct of mining activity within its borders," Lynch wrote in his decision.

"Notwithstanding that however, there can be little dispute that it may do so."

It was the second recent court setback for the mining company.

In January, TS&G sent out notices to residents surrounding their proposed site on a hill near Pikes Pond that they would be blasting.

Such a notice is mandated by the state permit.

Mining company counsel Andrew Gilchrist said the blasting was not connected to mining activity, but for work on to carve out a road from the site to Route 66.

The town asked Lynch to stop the company from doing any work.

In a Feb. 11 ruling, Lynch sided with the town.

TS&G argued that their state permit and the state Mined Land Reclamation Law trumped any town law or local ordinance.

Lynch disagreed and ordered any work to cease.

TS&G representatives did not immediately return calls for comment.

"Bruno, Silver questioned over private-sector jobs"

Associated Press

Last updated: 6:03 p.m., Monday, March 3, 2008

ALBANY -- The state Legislature's leaders on Monday made headlines over their outside business interests.

Assembly Speaker Sheldon Silver has appointed the head of the law firm where he works to serve on a state committee that recommends top state judges for appointment.

"Arthur Luxenberg is a respected member of the bar, he has an impressive list of legal accomplishments and a long record of community service," said Dan Weiller, spokesman for Silver, a Manhattan Democrat.

Luxenberg's appointment, first reported by the New York Post, is to the judicial screening panel of lawyers that recommend prospective judges to Democratic Gov. Eliot Spitzer, who appoints and nominates judges.

Senate Republican leader Joseph Bruno confirmed this week to New York magazine that he introduced New York unions to the investment company he worked for, but denies any wrongdoing in the arrangement that has long been investigated by the FBI.

Bruno says he worked for the company for about a decade and always made it clear that if the union didn't like the investment company, then no deal should be made.

Bruno, who supports unions in Albany, says he never promised any action as a Senate leader to a union that agreed to work with Wright Investors Service.

New York magazine reported in an extensive profile of Bruno that the state's top Republican was introduced to a Wright Investors Service executive by an unnamed mutual friend.

"I provided the entree," Bruno was quoted in the magazine.

"In that business, the biggest problem is access."

"I provided access."

The magazine reported that if the company wanted to meet with trustees of a union looking to invest its pension, Bruno would make the phone calls.

"My pitch to them was, 'If you like what they have to say, take it to the next level.'"

"'If you don't, say good-bye,'" Bruno was quoted in the magazine.

On Monday, Bruno said his comments were taken out of context and some were inaccurate, a claim the magazine denies.

Bruno had long refused to talk about his role with the company.

And Silver, a lawyer, has long refused to release his list of clients, citing the attorney-client protection afforded in law.

"Cuomo settles appraisal case with Fannie Mae, Freddie Mac"

By VALERIE BAUMAN, Associated Press

Last updated: 4:53 p.m., Monday, March 3, 2008

ALBANY -- New York Attorney General Andrew Cuomo said Monday that prospective home buyers will be protected from fraudulently inflated home prices under a new agreement with government-sponsored lenders Fannie Mae and Freddie Mac.

Cuomo said lenders have pressured appraisers to bump up the listed value of homes, contributing to a national mortgage crisis that is forcing families into foreclosure.

Under the agreement, which ends Cuomo's investigation into the two companies, lenders won't be allowed to use in-house staff for initial appraisals and will be prohibited from using appraisal management companies that they own or control.

Fannie Mae and Freddie Mac purchase nearly 80 percent of all home loans originated in the U.S., Cuomo said in a phone interview.

"We believe the appraisals were often fraudulent because of a conflict of interest and pressure on the appraisers," Cuomo said.

"To us, this issue was a pervasive issue that needed to be solved."

The companies acknowledged no wrongdoing, and said the agreement will benefit everyone.

"We are pleased to work with regulators to do our part to ensure sound, accurate, independent and reliable appraisals," Fannie Mae General Counsel Beth Wilkinson said in a prepared statement.

She said Fannie Mae will make sure appraisals are independent and the valuation placed on a home is accurate under the Home Valuation Protection Code.

The companies will require lenders to conform to the code beginning in 2009.

"It's going to create massive change," said Brian Chappelle, a partner at Potomac Partners in Washington, D.C., a consulting firm to the mortgage industry.

He said mortgage lenders that own appraisal companies -- such as Wells Fargo & Co. and Countrywide Financial Corp. -- may have to spin off those divisions because they would be prohibited from selling mortgages to Fannie and Freddie unless the appraisal work was being done independently.

Fannie Mae and Freddie Mac will also pay $24 million to create an institute that will monitor the code to make sure it's applied appropriately.

The companies acknowledged no wrongdoing, and said the agreement will benefit everyone.

The Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and Freddie Mac, also participated and approved the agreement.

"These initiatives clearly serve the interests of the nation's homebuyers, the housing markets and the broader economy," said Robert Bostrom, Freddie Mac's general counsel.

A nationwide hot line will be set up for consumers who suspect fraudulent appraisals or fraud.

Appraisers who feel pressure to pad valuations can also contact the institute, under the agreement.

The institute will report back to the attorney general and the OFHEO every six months.

Cuomo has been investigating billions of dollars of home loans that Fannie and Freddie bought from banks, including the largest U.S. savings and loan, Washington Mutual Inc.

"I believe consumer confidence should be restored," Cuomo said.

"With these reforms we will have a safer, better evaluation process."

In November, after Cuomo issued the subpoenas to Fannie Mae and Freddie Mac, OFHEO Director James Lockhart accused Cuomo of overstating the risks the two government-sponsored companies faced from faulty home appraisals.

Lockhart objected to Cuomo saying that Fannie and Freddie could no longer afford to continue buying mortgages from Washington Mutual unless they could verify that the loans were based on trustworthy appraisals.

Lockhart, who has often criticized Fannie and Freddie as they have recovered from multibillion-dollar accounting scandals in recent years, said the companies don't have an incentive to knowingly buy mortgages with inflated appraisals.

Unlike other companies that issue mortgage-backed securities, they retain the credit risk on the underlying mortgages by guaranteeing repayment to holders of the securities.

------

AP reporter Marcy Gordon in Washington, D.C., contributed to this report.

------

On the Net: http://www.oag.state.ny.us/

"Nassau wins rulings in bid to block mine - Court refuses to stop town's work on mining restrictions, halts company's work on road"

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

First published: Wednesday, March 5, 2008

NASSAU -- Two recent state Supreme Court rulings have dealt setbacks to a West Sand Lake company's plan to mine hard rock from a hilltop south of the intersection of Route 66 and Radley Road.

On Tuesday, Justice Michael C. Lynch denied a move by Troy Sand and Gravel to stop the town from passing a comprehensive plan that includes tough restrictions on industrial mining.

Town officials and anti-mining forces have been battling Troy Sand and Gravel in the courts since shortly after the mining company filed an December 2003 application to mine graywacke stone, prized by the state for its durability for use in paving highways.

The company's state mining permit was granted in May 2007.

But it also needs a town permit and variance to proceed with mining operations and town officials turned them down for that permit in August 2006.

The town is working on legislation to ban industrial mining altogether.

To do that, officials have been hammering out a town comprehensive plan that includes tough restrictions on industrial mining.

The mining company, arguing the town was in a "race to legislate" to stop their mine, asked Lynch to impose a preliminary injunction stopping the town from proceeding to work on or to pass the townwide planning mandate.

Lynch refused.

"It is acknowledged that the record demonstrates that the town board has demonstrated vigorous opposition to the conduct of mining activity within its borders," Lynch wrote in his decision.

"Notwithstanding that however, there can be little dispute that it may do so."

It was the mining company's second recent setback in state Supreme Court.

In January, TS&G sent out notices to residents surrounding its proposed site on a hill near Pikes Pond that it would be blasting.

Such a notice is mandated by the state permit.

Mining company counsel Andrew Gilchrist said the blasting was not connected to mining activity, but was for work to carve out a road from the site to Route 66.

The town asked Lynch to stop the company from doing any work.

In a Feb. 11 ruling, Lynch sided with the town.

TS&G argued their state permit and the state Mined Land Reclamation Law trumped any town law or local ordinance.

Lynch disagreed and ordered any work to cease.

Town officials praised the ruling.

"The recent Supreme Court decisions are victories for the residents of Nassau," said Town Supervisor David F. Fleming Jr.

"We clearly have a right to defend our residents and protect our community character."

TS&G representatives did not immediately return calls for comment.

Bob Gardinier can be reached at 454-5696 or by e-mail at bgardinier@timesunion.com.

"Outcry after cop abuse claim - Albany officials call for probe after allegations of illegal search surface"

By BRENDAN J. LYONS Senior writer, Albany, New York Times Union

First published: Wednesday, March 5, 2008

ALBANY -- The city's legislative leaders have called for an outside agency to examine the Albany Police Department's handling of a woman's claim she was subjected to a cavity search on a public street two months ago, according to several members of the city's Common Council.

The elected leaders were responding to a Times Union story on Sunday that exposed the woman's allegations about a Dec. 22 traffic stop.

During the stop -- for an alleged routine traffic violation -- three police officers searched her body, purse and car without her consent or any apparent probable cause, she said.

One of the officers also took her cellphone and used it to call someone in her contacts' list, the woman, Lisa Shutter of Ravena, said.

Shutter became dismayed by the way police handled her internal affairs complaint and said she was dissuaded by a police official from going to Albany's Citizens' Police Review Board.

Councilman James Scalzo, chairman of the council's Public Safety Committee, said he is in the process of scheduling meetings to discuss Shutter's case and the department's protocols for reporting complaints to the police review board.

Councilwoman Barbara Smith, the committee's vice chairwoman, said she is deeply concerned by any breakdown in reporting of cases to the review board.

"It's disturbing to me that if indeed the statements of Ms. Shutter are accurate ... if she was discouraged from filing a complaint with the Citizens' Police Review Board," Smith said.

Chief James W. Tuffey and Mayor Jerry Jennings have scheduled a news conference for this afternoon at police headquarters to discuss the department's policies and procedures, training and their handling of internal affairs complaints.

Tuffey said he would be limited in what he can discuss regarding Shutter's allegations because it's an open investigation.

"We're not going to tolerate any misconduct by our police," the mayor said, adding that his administration has encouraged people to bring complaints to the review board.

"I am concerned."

"There's absolutely no reason why someone would not want to report something to the Citizens' Police Review Board."

"There shouldn't be any reluctance on anyone's part."

"I have a lot of confidence in that board."

Tuffey, meanwhile, said he has tried to hold his officers and supervisors accountable for any misconduct or poor decision-making.

"My job is to represent the public and run this police department in an open and honest fashion."

"I'm confident that I've done the job over and above what I've had to do," Tuffey said.

"At the end of the day when guys understand that they can't do things that they want to do, or used to do, it'll change the mind-set."

"I firmly believe the tide is changing from that so-called 'blue wall of silence.' "

The two officers who stopped Shutter are assigned to the Strategic Deployment Unit, a special patrol that is assigned to crack down on street-level crimes.

They pulled over Shutter for failure to use a turn signal but never issued a ticket.

Shutter said she became lost that evening driving through West Hill as she was trying to pick up her best friend's brother, who is on parole.

Shutter was behind the wheel of a rental car and claims the officer told her they pulled her over because she was "a white girl in a rental car."

The officer pressed Shutter about drug use and where she was going.

They dumped the contents of her purse, found an empty wallet and asked her if she'd spent her money on crack cocaine, she said.

Shutter said she panicked at one point under their questioning and told the officer she was picking up her best friend, Mandie Buxton, and not Buxton's brother, because of his parole status.

But Shutter said she had not been drinking, had offered to take a Breathalyzer test and had no drugs on her or in the vehicle.

Shutter said an officer reached into her pants and used his finger to search her vagina for drugs or contraband.

The officers needed her consent or a reasonable suspicion to search Shutter or her car.

Police normally obtain a search warrant before seizing a person's phone.

In her first meeting with internal affairs detectives a few days after the incident, Shutter said she offered to submit to a drug test and a polygraph examination.

They declined the offers, she said.

"Overall, I think that across the board people were appalled by the report in Sunday's paper and certainly geared toward doing doing something about it," said Shawn Morris, president of the Albany Common Council.

Albany County District Attorney David Soares said his office has requested to review the police department's files in the case.

Shutter canceled a follow-up interview with internal affairs three weeks ago after growing suspicious of their motives and on the advice of her attorney, Kevin Luibrand.

A male detective had been assigned to handle Shutter's case, and he had requested twice that she wear the same clothing as the night of the incident to re-enact what happened on the street.

There are at least two female detectives assigned to the internal affairs unit.

Luibrand has handled dozens of cases involving allegations of police misconduct and has represented many police officers who were subjected to internal affairs investigations, he said.

He instructed Shutter to cancel her last interview with internal affairs.

"I advise clients -- whether victims or police officers -- not to speak to internal affairs, not to give them statements and not to cooperate," Luibrand said.

"Internal affairs units do not, in my experience, look out for the victim or even the police officer but instead the command and political structure in the police department."

A member of the city's Citizens' Police Review Board, who spoke on condition of anonymity because only their chairman is authorized to make public statements, said the panel has met twice since December and was never notified about Shutter's case.

In cases involving allegations of excessive force or civil rights violations, the board is empowered to appoint a monitor to the case.

The board also used to receive some transcripts of the interviews conducted by internal affairs during their investigations, "but now they stopped giving us transcripts a couple months ago," the member said.

Councilman Richard Conti, who helped draft the legislation that created the review board, said he wrote the specific language in the law that requires the police department to notify the review board "within two working days" of its receipt of a complaint.

"The intent was the CPRB should be aware of all complaints filed regardless of whether or not they were filed with the CPRB," Conti said.

"If that's not happening, there's some kind of a breakdown here."

J. Lyons can be reached at 454-5547 or by e-mail at blyons@timesunion.com.

"Ex-CEO to seek McNulty's seat - Gary Mittleman, formerly of Plug Power, will run in 21st Congressional District race"

By LAUREN STANFORTH, Staff writer, Albany, New York Times Union

First published: Wednesday, March 5, 2008

Gary Mittleman, former CEO of Latham's Plug Power, will announce Thursday that he'll run as a Democrat for Michael McNulty's 21st Congressional District seat.

Mittleman, 55, of Loudonville is the fifth Democratic candidate to seek to replace McNulty, D-Green Island, who is retiring at year end after 20 years in office.

Mittleman said Tuesday he has the right ideas and the desire to change things.

"I do think it's great that the people of this district will have a real choice when they go to the polling place," Mittleman said.

The other declared Democratic candidates are Tracey Brooks, former regional director for Sen. Hillary Rodham Clinton; Lester Freeman, Albany's Equal Employment Opportunity coordinator; Darius Shahinfar, a former aide to U.S. Rep. Kirsten Gillibrand; and Phil Steck, an Albany County legislator.

No Republicans have declared in the race.

Mittleman, a native of Long Island, came to the Capital Region in 1997 to create Plug Power as a partnership of his company, DTE Energy Co. of Detroit, and Mechanical Technology of Colonie.

Plug Power, which makes fuel cell systems for homes and cars, went public in 1999.

Mittleman left Plug Power in 2000 and has since been involved in various investment ventures.

He will make his formal announcement at 3 p.m. at his campaign headquarters, 255 New Scotland Ave., Albany.

The district covers parts of Fulton, Rensselaer and Saratoga counties, and all of Albany, Montgomery, Schenectady and Schoharie counties.

"New agreement on appraisals will benefit independent firms"

By MARCY GORDON, Associated Press

Last updated: 6:13 p.m., Tuesday, March 4, 2008

WASHINGTON -- A new agreement by Fannie Mae and Freddie Mac to only buy mortgages for which appraisals are made by firms independent from lenders will shake up the industry, analysts said.

The accord announced Monday between the country's two largest mortgage purchasers and New York Attorney General Andrew Cuomo likely will benefit independent appraisal firms and could force lenders that own appraisal operations to sell them off.

Cuomo's office has investigated billions of dollars of home loans that Fannie and Freddie bought from lenders, including the largest U.S. savings and loan, Washington Mutual Inc.

He says that lenders have pressured appraisers to inflate the listed value of homes, contributing to a national mortgage crisis that is forcing families into foreclosure.

With the cost of a home appraisal running about $300-$400, the industry has reaped billions in revenue a year during the housing boom of recent years.

The agreement ends the practice of lenders using their in-house staff for initial home appraisals and prohibits the use of appraisal-management companies owned or controlled by lenders.

Among the lenders that own such companies are Wells Fargo & Co. and Countrywide Financial Corp.

Appraisal-management firms act as intermediaries between lenders and appraisers.

"It's going to create massive change," said Brian Chappelle, a partner at Potomac Partners in Washington, D.C., a consulting firm to the mortgage industry.

"It's going to be a huge boon to independent appraisal firms."

Independent firms that are owned by public companies are LSI, based in Coraopolis, Pa., and owned by Fidelity National Information Services Inc., and Poway, Calif.-based eAppraiseIT, part of First American Corp.

Jeff Schurman, executive director of the Title-Appraisal Vendor Management Association, and Bill Garber, government affairs director at the Appraisal Institute, also see such a reshaping of the appraisal industry landscape.

For the appraisal companies owned by lenders, "it penalizes them because they're captive," Schurman said.

The trade group representing mortgage brokers, which often designate specific appraisers under the current system, protested the agreement and threatened legal action.

The agreement "will increase costs to consumers by removing thousands of small-business competitors from the marketplace," Roy DeLoach, executive vice president of the National Association of Mortgage Brokers, said in a statement.

Shares of Wells Fargo slipped 4 cents to close at $28.83 Tuesday; Countrywide stock fell 24 cents to $5.93.

Shares of Fidelity National declined 21 cents to $40.80 and First American fell 50 cents to $33.

"Advocates call on lawmakers to increase welfare benefits"

By JESSICA M. PASKO, Associated Press

Last updated: 6:13 p.m., Tuesday, March 4, 2008

ALBANY -- Under the state's basic welfare grant, a family of three receives just $291 a month, and advocates say that's insufficient.

Welfare recipients and advocates joined Assembly Social Services Committee Chairman Keith Wright in Albany Tuesday to call on lawmakers to increase the basic welfare grant, which hasn't increased in 18 years.

They'd like to see the basic benefit increased to $475 a month for a family of three.

That amount doesn't include the shelter allowance, which varies by county.

"It's making it more and more difficult for people to help themselves out of poverty," said Chantale Soekhoe, a 20-year-old student at Hunter College, who grew up on welfare.

Education seems like a way out, she said, "but it becomes really difficult when you have to choose between getting something to eat between classes or buying a Metro Card to get home."

More than 500,000 New Yorkers currently receive welfare benefits, although that number has continued to decline in the past 10 years, according to the state Office of Temporary and Disability Assistance.

Wright said the Assembly will include an increase in welfare benefits when it passes its budget resolutions.

Senate Democrats have introduced legislation sponsored by Sen. Velmanette Montgomery that would increase the basic grant by 25 percent.

Advocates such as Mark Dunlea of the Hunger Action Network say opposition from Senate Republicans has blocked efforts to raise welfare benefits.

Mark Hansen, spokesman for Senate Republicans, said he couldn't say yet whether the bill has a chance of being passed this year because they're still in the process of putting together their own budget resolutions.

"Assembly considers higher tax on wealthiest New Yorkers"

By MICHAEL GORMLEY, Associated Press

Last updated: 6:52 p.m., Wednesday, March 5, 2008

ALBANY -- The Assembly's Democratic majority on Wednesday proposed a temporary increase in income tax paid by New Yorkers making more than $1 million a year.

The plan, expected to be in the Assembly's budget proposal next week, would raise $1.5 billion annually, said Dan Weiller, spokesman for Assembly Speaker Sheldon Silver.

The measure would raise the income tax from 6.85 percent to 7.7 percent for New Yorkers making more than $1 million a year.

The first year's revenue would go to the general fund, which the state uses to fund most functions and from which it will need to fill a $4.8 billion deficit.

The second year's revenues would be split between the general fund and transportation needs.

The last three years' revenues would be used for transportation costs, split between the New York City mass transit and the state Department of Transportation, Weiller said.

The proposal was supported in Wednesday's closed-door conference of the Democratic majority.

It evolved from a proposal by the influential Working Families Party, which is associated with the Democrats.

The Working Families Party, however, had sought a graduated tax for New Yorkers making more than $250,000 a year.

The revenue was estimated at $5.1 billion and half would have been devoted to property tax relief, which was expected to entice the Senate's Republican majority to support the idea.

"It's not done," said Dan Cantor, executive director of the Working Families Party.

"There's still time here."

"The Senate at first blush will denounce this idea."

"Then perhaps they will realize they, in fact, favor reducing property taxes and some may be reasonable enough to find the proper way to do it."

Cantor sees his party's plan as providing relief for millions of taxpayers, while asking a very few who can afford it to pay a little more.

But the party also has a barely concealed hammer: Its support or opposition can mean the difference in political races, including Assembly Democratic primaries, close races for the Senate Republicans hoping to keep a slim majority, and a governor low in the polls.

"We'll cross that bridge when we come to it," he said.

"We've had a good alliance with the Assembly, but it's fair to say our people are pretty disappointed."

Senate Republican leader Joseph Bruno and Democratic Gov. Eliot Spitzer, however, had objected to the Working Families Party version of the measure earlier on Wednesday.

"We have no plans to raise the personal income tax."

"None," said Bruno.

"Not one penny in new taxes."

"When you increase taxes, you deprive people of income that they can spend as they please for education, mortgages, to buy homes, cars, refrigerators, TVs, restaurants," Bruno said.

"You affect the whole economy."

"I'm not sure that's a good idea."

Spitzer is calling for no increases in broad-based taxes in his $124 billion budget proposal.

The budget is due by the April 1 start of the fiscal year.

"I have said that we should not raise taxes," Spitzer said.

"That is something that we cannot afford to do."

"We are finally making New York state competitive."

"When I speak to executives and those who make the decisions about where to locate jobs, the idea that we would turn around at this moment and start raising taxes is the wrong way to go."

------

AP Writer Jessica Pasko contributed to this report from Albany.

"AMD aims to bring chip work back home - Company's goal to resume silicon wafer manufacturing in U.S. could aid in closure of Luther Forest deal"

By LARRY RULISON, Business writer, Albany, New York Times Union

First published: Wednesday, March 5, 2008

COLONIE -- Officials at Advanced Micro Devices Inc. hinted Tuesday that one of the reasons the company is considering Saratoga County for a $3.2 billion "chip fab" is because all of its current manufacturing takes place overseas.

AMD, based in Sunnyvale, Calif., once manufactured chips in Austin, Texas, a city that has become a second headquarters for the company.

Now, its only two fabs are in Dresden, Germany.

It subcontracts for additional manufacturing in Asia.

"We want to bring that technology back home again," Terry Caudell, director of wafer manufacturing strategies at AMD, said Tuesday at a breakfast organized by the Center for Economic Growth.

The breakfast was held at the Holiday Inn Albany on Wolf Road in Colonie.

AMD will continue to make chips in Dresden regardless of whether it builds in New York.

The company is upgrading its older fab in Germany to newer technology.

Caudell, who helped AMD build fabs in both Austin and Dresden, was in the Capital Region again this week, along with other AMD executives.

They are moving AMD's newest project through the local regulatory process in the towns of Malta and Stillwater.

If AMD decides to go ahead with Fab 4X, it would acquire about 200 acres at the Luther Forest Technology Campus, located in both Malta and Stillwater.

That decision could come as soon as the end of the year, when AMD hopes to have a building permit in hand from the town of Malta.

Caudell also shed new light on how Fab 4X would operate -- and what its eventual name will be.

AMD, founded in 1969, has traditionally named its fabs with numbers that correspond to the number of years the factory is completed after the company's birth.

Therefore, Fab 4X might be called Fab 42 or Fab 43 depending on whether the facility is completed in 2011 or 2012.

Caudell also said that once AMD makes a decision to move ahead with the project, it would take the company about four to six months to prepare the site and about 18 months to complete the complex.

Fab 4X would have between 500 and 600 of the sophisticated manufacturing "tools" used to etch circuitry onto the 12-inch, or 300-millimeter, silicon wafers that the fab would process.

Caudell said each 300-millimeter wafer holds about 350 microprocessor chips, with about 85 percent being usable.

After the CEG breakfast, he said that AMD's two fabs in Dresden process 45,000 wafers a month, and the first Luther Forest fab would process 35,000.

AMD has plans for up to three.

That means, according to rough calculations done by the Times Union, Fab 4X could make as many as 10.4 million computer chips a month.

A single processor, depending on its power and capabilities, has a wholesale cost of between $50 and $290 on average, according to the AMD Web site.

Some high-end server processors sell for more than $1,000.

Caudell said AMD, which struggled financially last year with more than $3 billion in losses, is still working on a new financial and manufacturing strategy before it decides if Fab 4X fits into those plans.

The company has until the end of July 2009 to make a decision and still be eligible for $1.2 billion in incentives for the project.

AMD makes about half of its chips in Dresden.

The rest are made in foundries, third-party manufacturers, in Asia.

It's possible that AMD could decide to make more of its chips in-house in the future, although the company has never tipped its hand on what type of manufacturing mix it is planning.

"Those are the kinds of decisions within the company that we're looking at," Caudell said.

Many of those in the audience were wondering how the rest of the local economy would benefit from AMD.

Caudell said the creation of Fab 4X, which would employ 1,465 people, would likely bring 1,500 to 4,000 additional jobs outside the plant.

One of those interested in those figures was Jay Niles, mayor of the village of Granville in northern Washington County.

Niles told the Times Union that the Granville area, with its own manufacturing base, could help supply both employees and vendors to AMD.

"We feel poised for this," he said.

Larry Rulison can be reached at 454-5504 or by e-mail at lrulison@timesunion.com.

"Proposal aims to protect subprime borrowers - Spitzer's legislation requires lenders to give notice before taking action, targets foreclosure scams"

By ALAN WECHSLER, Business writer, Albany, New York Times Union

First published: Tuesday, March 4, 2008

ALBANY -- Gov. Eliot Spitzer plans to introduce a bill today intended to help subprime borrowers statewide who are at risk of losing their homes.

The bill would also establish further protection in the law to prevent a similar crisis in the future, according to a description of the bill provided to the Times Union on Monday.

Subprime mortgages are high-cost loans typically given to borrowers who have shaky credit, relatively low incomes or little money for a deposit.

Rising default rates among holders of the loans have rocked the nation's financial institutions, leading to a credit crisis that some believe is pushing the economy toward recession.

Subprime loans frequently have adjustable payment rates.

Some borrowers can pay the introductory rate, but struggle to make the higher payments that come one or two years into the mortgage.

Spitzer's bill would require lenders to send a notice to borrowers at least 60 days before legal action could be taken against a borrower who is behind on his loan.

It would also require a mandatory settlement conference before any action can be taken.

The bill also would target foreclosure "rescue scams," by prohibiting the taking of power of attorney from a homeowner except in very limited situations, prohibiting consultants from performing any services for the homeowner without a written contract and require services to be performed before any payment is made to the consultant.

The bill also includes language that would define and criminalize the act of mortgage fraud and would set a standard of behavior for mortgage brokers to act in a borrower's best interest.

While foreclosure rates in much of the Capital Region and upstate generally are lower than in other parts of the country, areas of Troy and Schenectady have a relatively high number of subprime mortgages in default, according to recent data from the Federal Reserve Bank of New York.

"More fall into spiral of poverty - From poor to working poor: Between 2001 and 2005, 14,000 Capital Region residents fell below poverty line"

By JIMMY VIELKIND, Staff writer, Albany, New York Times Union

First published: Monday, March 3, 2008

TROY -- Terry Behan is used to living in poverty.

The 38-year-old father of three young boys ran away from home at age 15, living hand to mouth and fix to fix on the streets of Troy for the next few years.

He did time, but straightened out when he met Shannon Brayman, the mother of his children.

They doubled up with Brayman's twin sister in a Halfmoon trailer, as Behan and Danny Dunham, his soon-to-be-brother-in-law, worked full-time but still struggled.

The family had made the transition from poor to working poor.

Between 2001 and 2005, 14,000 Capital Region residents fell below the poverty line -- a slow but consistent rise even as median household incomes in the area rose and statewide poverty rates leveled, according to a Times Union analysis of recently released census data.

The apparent cause is the rising cost of necessities and stagnant wages.

In Rensselaer County, 11.5 percent of people live in poverty, including 16.1 percent of children under 18 -- increases of 2.1 and 4 percent from 2001.

Albany and Schenectady counties each reported that 11.9 percent of their residents live in poverty, both more than 2 percent over 2001.

The poverty threshold for a family of four rose $3,067 between 2001 and 2007 to $21,027.

Social service providers say they see those data in the greater numbers of people -- including more and more families -- showing up at food pantries, soup kitchens and even homeless shelters.

There is no single precipitating factor, just a slow squeeze of family budgets as the price of basic necessities -- food, electricity, gasoline -- rose while wages struggled to keep up.

According to federal statistics, energy prices rose 19.6 percent from January 2007 to January 2008.

Transportation costs rose 9 percent while food rose almost 5 percent.

Overall, prices rose 4.3 percent for urban consumers.

"It sort of went under the radar," Diane Reed, program director of Catholic Charities of Rensselaer County, said as she walked through the storeroom of a food pantry in Troy's North Central neighborhood.

In a side room, Reed opened three refrigerators.

The shelves were nearly empty, save for some hamburger, bacon and chicken patties.

Other nonperishable goods that can be stretched over many meals, like peanut butter, were also in short supply.

More people come during the last and first week of each month as food stamp benefits run out, said Joyce Daniels, who has seen the pantry's clientele grow in the six years she has run it.

According to Mark Quandt, director of the Regional Food Bank of Northeastern New York, which provides food to pantries around the region, demand is up and donations are down.

"When costs go up, and something needs to be cut and that often is food," Quandt said.

According to Food Pantries for the Capital District, people sought food assistance 65,758 times from 44 area pantries in 2006.

But more and more of the newcomers are the working poor.

According to a report published by Catholic Charities in January, 71 percent of impoverished families in Albany County had at least one worker; it was 70 percent in Rensselaer County, 59 percent in Schenectady County and 52.6 percent in Saratoga County.

The minimum wage in New York was raised in 2004 over a veto by then-Gov. George Pataki.

It reached $7.15 hourly in January 2007, gradually increasing from $5.15.

The money doesn't go far enough, said Sister Maureen Joyce, head of Catholic Charities in the Albany Roman Catholic Diocese.

"What you have is a batch of people who are working two or three jobs on minimum wage, and they are probably doing worse than they were 10 years ago," she said.

The pinch is felt by everyone: gasoline now costs well over $3 a gallon, but was under $2 in 2004, Joyce said.

The same trend is evident on utility bills.

Most can afford the higher increases, maybe by putting a little less into savings or cutting back on some luxuries, Joyce said.

But many lower-income people don't have that buffer.

Thomas Coates, the director of Catholic Charities' housing services, did the sad math, and said that the "transitional" housing he runs has now become permanent as families who move in are unable to find apartments they can afford.

People who fall behind on their rent are ending up in shelters.

"The increase we've seen is less so because people who have problems or issues -- though those people are there -- but now we're seeing plain old poor people who can't afford to pay their bills."

"And they're working," Coates said.

In the 19-bed St. Charles Lwanga homeless shelter in Albany's South End, 23-year-old Shane Patton was seeking refuge as he tried to save enough money for a security deposit on an acceptable apartment.

"It's tough to find a job where you can sustain yourself," he said, despite his training at Glenmont Job Corps as a computer technician.

He now earns minimum wage working in a restaurant.

"And the housing market is really tough."

"Some of these places are so disgusting you'd rather live in a shelter."

Many service providers are lobbying governments to do more.

Terry Behan just wants a job.

It's tough with a criminal record and just a GED, but he still managed to find employment in Clifton Park at Marshalls.

Danny Dunham worked at Wal-Mart.

Even with two full-time incomes, they still visited pantries and the Salvation Army.

Then they were forced to leave when the trailer they called home was condemned.

Behan had to quit because he had no way to get to work after they moved to Troy.

Now the family is scraping by again.

Brayman can't work because she is disabled.

Behan balances his time scouring the classifieds and collecting bottles.

On a good day, he said, he earns $40 in returns.

"I just want a decent job to take care of my family."

"I want to not have to worry about where I can get diapers," he said, gesturing to Landon, 2, and Cody, 1, as his eldest, 3-year-old Kyle, played nearby.

"I want to take my kids to baseball games ... anything on a bus line."

Jimmy Vielkind can be reached at 454-5043 or by e-mail at jvielkind@timesunion.com.

Several thousand people have fallen into poverty in the Capital Region in recent years, according to Census data.

Here are the numbers, by county, and the change from 2001 to 2005.

Albany County: 33,187, or 11.9 percent of the population

Rensselaer County: 17,165, or 11.5 percent of the population

Saratoga County: 13,361, or 6.4 percent of the population

Schenectady County: 17,044, or 11.9 percent of the population

Statewide: 2.58 million, or 13.9 percent of the population

Number of people added to poverty rolls, 2001 to 2005

Albany County: 6,380, up 23.8 percent

Rensselaer County: 3,553, up 26.1 percent

Saratoga County: 836, up 6.67 percent

Schenectady County: 3,110, up 22.3 percent

"NYSERDA Studies Explore Viability of Carbon Sequestration"

The New York State Energy Research and Development Authority (NYSERDA) today announced a State-funded research program to determine the feasibility of storing carbon dioxide (CO2) emissions—a potent greenhouse gas—in New York geological formations.

The public-private studies will be conducted by NYSERDA, in cooperation with research firms, energy developers, universities, and government agencies.

NYSERDA is investing $1.7 million in this research effort; this funding is leveraged with an additional $2.3 million in cofunding from research partners.

Paul D. Tonko, NYSERDA president and CEO said:

“Carbon capture and sequestration offers tremendous potential in our effort to fight climate change."

"These important studies will put New York at the forefront of carbon sequestration research in the region and will bring us one step closer to commercializing capture and sequestration technologies.”

Carbon dioxide capture and geological sequestration (CCS) is achieved by chemically capturing CO2 at a power plant or other source, before it is emitted to the atmosphere.

The CO2 is then compressed and transported by pipeline to an appropriate site to be injected and stored, or “sequestered,” in geological formations deep underground.

The technologies used and the storage concept are similar to those used in oil and natural gas exploration.

Two NYSERDA co-funded research projects will characterize the geology of two sections of western New York to determine if sequestration is possible there.

A third project will characterize the geology of central New York for CO2 sequestration and assess the potential for enhanced gas recovery in the area—a process that increases natural gas production while also sequestering CO2.

A fourth research project will evaluate gas shale formations for CO2 sequestration and enhanced gas recovery potential throughout the state.

This last project will build on a current NYSERDA contract with the geologists at the New York State Museum, to assess New York’s shale formations for sequestration potential.

NYSERDA and the State Museum have already initiated membership in the U.S. Department of Energy’s Midwest Regional Carbon Sequestration Partnership.

In 2006, NYSERDA began its climate change research program.

Joint research planning with the New York Academy of Science and stakeholders identified near-term and long-term research goals for New York in CCS, including detailed characterization of New York’s geological formations as potential storage sites.

The program will also seek to develop New York’s strategic technical capability by assisting New York State companies and universities to lead in this global effort; to leverage federal and private industry funds for demonstrations; and to assess terrestrial sequestration options (e.g., soil management practices, reforestation).

NYSERDA is also supporting research to advance long-term research goals of storing CO2 in ocean sediments and for CO2 mineralization, a chemical process that reacts CO2 gas with minerals to create a stable solid like calcium carbonate.

Participants and co-funders in the NYSERDA sequestration research effort include:

Advanced Resources International (Arlington, VA);

AES Eastern Energy (Ithaca, NY);

Ansbro (Denver, CO);

Battelle (Columbus, OH);

BQ Energy (Patterson, NY);

Columbia University (New York, NY);

Cornell University (Ithaca, NY);

Covalent Energy (Salt Lake City, UT);

Dresser Rand (Houston, TX);

Ecology & Environment (Lancaster, NY);

Foster Wheeler (Clinton, NJ);

Geomatrix (Amherst, NY);

the Jamestown Board of Public Utilities (Jamestown, NY);

the Lamont-Doherty Earth Observatory (Palisades, NY);

Nornew (Amherst, NY);

the NYS Museum (Albany, NY);

Praxair (Tarrytown, NY);

Process Energy Solutions (Patterson, NY);

Schlumberger Data & Consulting Service (Pittsburgh, PA);

SUNY Buffalo (Buffalo, NY); and

Talisman Energy (Calgary, Alberta).

“These efforts to explore CO2 sequestration are one of several State strategies being pursued by the Spitzer Administration to reduce greenhouse gases,” said Tonko.

Other steps include the Regional Greenhouse Gas Initiative , and the Governor’s “15 x 15” plan to reduce electricity consumption by 15 percent by the year 2015, which is the subject of a current proceeding at the Public Service Commission.

http://www.nyserda.org/Press_Releases/2008...e20081401_3.asp

"Some cautionary notes about CO2 sequestration"

02/24/2008

By Deb Donahue

LARAMIE - Twenty years ago a huge explosion of gas from Lake Nyos in the central Africa Republic of Cameroon killed nearly 1,800 people and untold livestock up to 15 miles away.

The naturally occurring gas was carbon dioxide (CO2).

A year later, the U.S. House Committee on Energy and Commerce decided that, “since CO2 is deadly, CO2 pipelines should have appropriate federal safety regulations.”

Concerns about CO2 today center not on its ability to asphyxiate, as in the Lake Nyos incident, but on its role in global warming.

Many are hopeful that new carbon capture and geological storage technology can reduce CO2 emitted from coal-fired power plants and other industrial sources by 80 percent or more.

Carbon capture and storage involves removing CO2 from fuels, compressing it, and injecting it under pressure deep underground.

Wyoming, the country’s biggest coal-producer, is at the forefront of this effort.

Two interesting bills now before the Legislature address carbon capture and storage.

House Bill 89 establishes that the surface owner also owns below-ground “pore space” in which CO2 might be stored; House Bill 90 charges the Wyoming Dept. of Environmental Quality with regulating “geologic sequestration” of CO2.

However well intentioned, the second measure jumps the gun.

The legal status of sequestered CO2 is a thorny issue that the federal Environmental Protection Agency must address and which it is only now beginning to take on.

Two types of CO2 injection - for experimental purposes and “enhanced oil recovery” - are regulated under the federal Underground Injection Control program to protect drinking water, which the state administers with EPA approval.

No law explicitly permits long-term CO2 storage.

In addition, U.S. Dept. of Transportation rules for pipelines treat CO2 as a hazardous liquid.

HB 90 directs the Wyoming Dept. of Environmental Quality to establish and issue permits to new “sub-classes of wells” within the Underground Injection Control program and to regulate well standards, bonding and monitoring.

Carbon capture and storage technology is already well advanced, but law and policy lag behind.

Last fall, Governor Freudenthal blamed “the absence of a well-thought-out, cogent federal policy” for the difficulties states face in “setting workable rules, regulations and operating practices.”

Although he told a congressional committee that Wyoming “favor(s) a model of federal standards and state implementation” (pointing to the Clean Air Act), he has urged the state legislature to “act now.”

If HB 90 is enacted, Wyoming will be the first to regulate long-term geologic sequestration of CO2.

Whether that law will mesh with EPA’s proposed underground injection rules, due in summer 2008, is the big question.

In the case of conflict, the Constitution dictates that federal law prevails.

Why legislate on a matter that the federal government controls?

HB 90 is brief and couched in the most general terms, leaving the specifics to Dept. of Environmental Quality, so the law will do little to influence EPA rules.

Raising the public profile of this issue is desirable.

But might this bill actually mislead the public?

HB 90 gives no hint that the state may not have complete discretion and ignores the risks of carbon capture and storage.

At concentrations above ten percent CO2 can cause adverse health effects.

The Lake Nyos incident illustrates what happens when CO2 is suddenly released: it blankets the ground and (at concentrations above 25 percent), asphyxiates humans and animals.

CO2 removed from combusted coal contains impurities, some toxic.

CO2 dissolves readily in water, forming carbonic acid, hence the Department of Transportation pipeline requirements.

“Supercritical” CO2, forcefully injected underground in vast quantities, can contaminate aquifers, escape through geologic faults or abandoned wells, and trigger seismic events.

Of greatest concern, say deputy state engineer Harry Labonde and Univ. of Wyoming School of Energy Resources director Mark Northam, is the potential for groundwater contamination.

CO2 dissolves toxic minerals in rock, which can then pollute aquifers.

Northam, a research scientist with a Ph.D. in organic geochemistry, cautioned legislators in a judiciary committee meeting not to proceed too hastily, warning that CO2 storage involves “unbalancing geologic systems that have been in balance for millions of years.”

The “core question,” he says, is where CO2 should be stored.

Few sites are appropriate and safe.

CO2’s unresolved legal status also clouds the viability of carbon storage.

Is the purpose to store a commodity for future use?

The governor has said as much, and one sentence in HB 90 provides for state jurisdiction over “any subsequent extraction … for commercial or industrial purposes.”

Or is the purpose to dispose of a waste product - a pollutant?

Under the law, the distinction matters.

According to the Congressional Research Service, “it is unlikely that the quantities of CO2 captured under a widely implemented CCS policy could all be absorbed in EOR or ECBM [enhanced recovery of coal bed methane] applications."

"In the long run, significant quantities of captured CO2 will have to be disposed as industrial pollution ….”

A crucial question is whether sequestered CO2 might be subject to regulation under the federal Resource Conservation and Recovery Act as a solid, and perhaps a hazardous, waste.

Don’t scoff: the act’s regulations stringently regulate land disposal of hazardous wastes, including in injection wells.

In sum:

• if supercritical CO2 - a dense vapor or fluid contained in pipelines prior to injection - is deemed a “liquid” or “contained gaseous material”, and

• if the sequestered CO2 is deemed to be “discarded,”

the CO2 will be a “solid waste” subject to the Resource Conservation and Recovery Act.

If the stored CO2 (under pressure, soluble in water, able to cause seismic fractures and dissolve toxic constituents in rock) is deemed to pose a hazard, it also will be “hazardous waste.”

Even if EPA doesn’t act, governors can petition the agency to list any substance as a hazardous waste, and citizens can sue to prevent the storage or disposal of any “solid waste” that “may present an imminent and substantial endangerment to health or the environment.”

The large scale of carbon storage, if widely adopted, reinforces the need for federal regulation.

Many potential CO2 storage areas straddle state boundaries, as would some pipelines.

Finally, carbon capture and storage, by appearing to solve the carbon problem, might reduce the public pressure to develop alternative energy sources or to conserve.

This, in turn, would lead to increased consumption of other nonrenewable resources.

The urgent need to curb global warming ought not lead us to adopt strategies with serious long-term risks of their own.

The legal classification of CO2 must be resolved.

Wyoming should wait, and EPA should act - soon.

(Editor's Note: Wednesday, the House passed on first reading HB 89 and HB 90.)

http://wyofile.com/CO2_sequestration_stora...face_owners.htm

The death-knell of the republic had rung as soon as the active power became lodged in the hands of those who sought, not to do justice to all citizens, rich and poor alike, but to stand for one special class and for its interests as opposed to the interests of others.

- Theodore Roosevelt

"Spitzer adviser used to playing hardball - Longtime friend means business where governor's concerned"

By MARC PARRY, Staff writer, Albany, New York Times Union

First published: Thursday, March 6, 2008

ALBANY -- "Puhssscht!"

This is the sound of a middle guard smashing the guy in front of the quarterback.

Lloyd Constantine played middle guard at Williams College.

He litigated like a middle guard as an antitrust lawyer.

Now, nursing a mocha latte at Starbucks, he's making the sound to illustrate what that means:

No artifice.

No finesse.

Just straight hits.

Just -- puhssscht!

He's also inspired other labels: Iconoclastic.

Arrogant.

Gruff.

"I'm very direct," says the hard-to-pigeonhole 60-year-old in the Brooks Brothers suit.

"I speak my mind."

You should care about all this because when his cellphone rings, the person he's often speaking his mind to is his protege, friend and tennis rival: Eliot Spitzer.

It's ringing now.

"Hi, Eliot -- how are you?" Constantine says.

"Yes, sir."

"It was hand-delivered."

Constantine is senior adviser to the governor.

He's a consigliere with carte blanche to attend essentially any meeting.

He's also a policy person who spent months on the administration's examination of this question:

How can SUNY rival the "public Ivies" in states like California and Michigan?

The ideas Constantine supports could shake up a system accustomed to what University at Buffalo President John Simpson called an every-child-gets-a-favor, one-size-fits-all approach to setting policy and dividing money.

Constantine wants flagship campuses.

Superstar academics.

Schools liberated to charge different tuitions.

Some dislike and even loathe his goals.

Spitzer hasn't publicly embraced all of them.

But the state, one scholar said, hasn't seen its governor stress SUNY to this extent since Nelson A. Rockefeller transformed it.

More than a generation later, Constantine argues that pumping money into higher education could pay dividends beyond academics, from improving New York's economy to revitalizing its cities.

"It's not a panacea," he said.

"But it's really our best play."

Whether Spitzer can pull off that play is an open question.

The financial anchor of his long-term plan, a $4 billion endowment from leasing a chunk of the state Lottery, needs legislative approval.

Republican Senate Majority Leader Joseph L. Bruno was noncommital when the Times Union asked him about it recently.

Ronald Canestrari, former head of the Assembly Higher Education Committee, welcomed the focus on SUNY but worried that Spitzer, now promoting his higher education plan, has raised expectations too high.

"If we don't deliver it financially," the Cohoes Democrat said, "then we send a terrible signal throughout the system and to the people of the state."

Constantine delivered in the legal world.

Under Attorney General Robert Abrams, he galvanized state antitrust enforcement.

In private practice, he stitched together a coalition of retailers to sue Visa and MasterCard for trying to monopolize the debit card market.

But he's new to three-men-in-a-room Albany government.

Can he get results for higher education?

Friends praise his willingness to "crawl into the bowels of the record" while other lawyers would leave grunt work to their minions.

He can be a persuasive advocate, one whose speech sounds more Upper West Side than upstate and who sometimes touches your arm to stress a point.

"Generally, when he puts his intellect to something, he has a very successful result," said Pamela Jones Harbour, a Guilderland-raised Constantine protege now on the Federal Trade Commission.

In government, he's charming with people he needs to work with to get things done, said one colleague.

He built a relationship with Sen. Ken LaValle, the Long Island Republican who heads the Senate Higher Education Committee.

But some also say he has little use for those not in power.

He can be icy to people he considers inferior, a colleague said.

He seems to look through them, even.

Coordinating Spitzer's higher education policy, Constantine has shown dedication and directness.

He trekked to all 64 SUNY campuses, down to the tuberculosis-ward-turned-classroom at North Country Community College.

He traveled in his BMW SUV and thought of the trip like a triathlon: I'm gonna do it.

I'm gonna do it in record time.

I'm gonna do all the driving myself.

But after the state of the state speech -- when Spitzer, in words written by Constantine, crowned Buffalo and Stony Brook flagships -- he put down a college president who was yelling at him about that plan.

His advice: "Grow up."

One feeling he does not generally inspire is ambivalence.

The Spitzer-Constantine friendship feeds on the whatever-you-do-I-can-do-better rivalry of two competitors "finding their other," as Constantine put it.

"He's taller," said Constantine.

"I've got more hair."

Constantine was the attorney general's antitrust chief when a Harvard Law student named Eliot Spitzer walked into his office as a summer intern in 1982.

It was, Constantine recalled, "sort of love at first sight."

Over the decades, Constantine worked with Spitzer as a law partner, donated to his campaigns and led his transitions to attorney general and governor.

He also represented Aon Corp. when the insurance brokerage was targeted by Attorney General Spitzer.

When Constantine wrested a $3.4 billion settlement in the Visa and MasterCard case, which made him a fortune, he told the attorney general, "I had a better week than you."

"No you didn't," said Spitzer.

People who know Spitzer know Constantine is "one of those people who comes with the governor," said Lt. Gov. David Paterson.

As to whom the governor trusts, "He's right up there, battling with Silda" -- Spitzer's wife -- "for first place."

Constantine could spend his days playing tennis at his private Chatham court.

Or he could relax at his Manhattan apartment with some fiction by his beloved Philip Roth -- or by his son, Isaac, who just completed his first novel.

He's reached the stage of life where he might spend all his time worrying about his three grown kids.

Avoiding that, he said, was one of the reasons he took the $155,000-a-year job with Spitzer.

He professes a distaste for political work.

But the consequences of politics have become his business.

The senior lawyer has represented the executive chamber through probes into the administration's alleged efforts to tar Bruno over his use of state helicopters.

He prefers policy.

In higher education, he drafted an executive order that created a commission on improving SUNY and CUNY, vetted people Spitzer appointed to the panel, and served as its bridge to the administration.

Now he's proselytizing.

"To some extent the state has treated this as sort of like Lake Wobegon," he says of Garrison Keillor's fictional town in which all kids are above average.

"Better than average."

"Pretty good."

"Not bad."

"OK."

"As opposed to great!"

Greatness, he said, takes "transformative events."

Like paying a $668,000 base salary to University at Albany nanotechnology chief Alain Kaloyeros -- SUNY's Alex Rodriguez.

Constantine jokes about "cloning" Kaloyeros.

As it happens, Kaloyeros walks into Starbucks as he's talking about all this.

The academic, wearing a black collarless shirt unbuttoned at the top, comes over.

Constantine tells the professor his campus looks like "something from the Martian Chronicles."

He also mentions the cloning remark.

"He's a masochist," Kaloyeros says.

Staff writer James M. Odato contributed to this report. Marc Parry can be reached at 454-5057 or by e-mail at mparry@timesunion.com.

INSURANCE NEWS

"Spitzer Took 25G From Wrist-Slap Firm's Man"

The New York Post

July 21, 2005 Thursday

All Editions; Pg. 2

"SPITZER TOOK 25G FROM WRIST-SLAP FIRM'S MAN"

KENNETH LOVETT Post Correspondent

ALBANY - A giant insurer investigated by state Attorney General Eliot Spitzer got what was widely viewed as a slap on the wrist just days after Spitzer pocketed a $25,000 campaign donation from a high-ranking former employee, The Post has learned.

An ex-senior vice president of Aon Corp. - who sources say still consults for the company and spends time at its offices - made the contribution to Spitzer's gubernatorial war chest three days before a settlement with the international insurance broker was announced, records show.

Richard F. Ferrucci, a Long Island resident who worked for Aon from 1993 through late 2003, made the donation on March 1, according to Spitzer's latest campaign fund-raising report.

Spitzer's settlement with Aon was announced March 4.

Under the deal, no Aon execs were forced to resign and the company admitted no wrongdoing after being probed for steering business to companies that in turn paid fees back to Aon.

The firm paid a $190 million fine.

At the time, critics charged that Spitzer went easy on Aon and noted that the deal differed from a similar case of alleged wrongdoing at insurer Marsh & McLennan, in which the attorney general forced the chairman out and three employees were criminally charged.

Though Ferrucci is no longer with Aon, two Aon employees on Long Island said yesterday he still spends time at the company and serves as a consultant.

Spitzer also received $50,000 from attorneys with Constantine Cannon, one of two firms which represented Aon in the settlement talks with the attorney general's office, records show.

Spitzer is a longtime friend of the firm's chairman, Lloyd Constantine, and the two were partners in private practice.

Constantine, who headed up Spitzer's transition team in 1998, has donated $36,000 to Spitzer's campaigns in recent years - including $15,000 since last October when the Aon investigation was in full swing, records show.

Other attorneys from Constantine Cannon have donated an additional $35,600 to Spitzer since October, according to the records.

Constantine, who helps Spitzer raise campaign money, said he believes the attorney general's office actually treated him more harshly to avoid allegations of favoritism during the settlement talks.

"I represented Aon with diligence," he said.

"I don't believe I got any favoritism from the AG's office," he said.

It's the second instance in which Spitzer has taken large donations from lawyers representing companies he's investigating.

The Post reported in April that Spitzer had received $18,500 from members of another of his old law firms that had been hired by AIG - even as the insurance giant was under investigation.

Spitzer's campaign has a policy of not taking donations from employees of companies under investigation, but that does not apply to lawyers representing the firms.

Editor's Note: Lloyd Constantine has done legal work for News Corp., the parent company of The Post.

-----

Follow the money

March 1: Former Aon exec Richard Ferrucci (left) donates $25,000 to Eliot Spitzer’s gubernatorial campaign.

March 4: Settlement with Aon announced.

Critics call it a slap on the wrist.

* Spitzer (right) has received donations of $36,000 from Lloyd Constantine, who represented Aon in the settlement talks, while the investigation was underway.

* Attorneys with the firm Constantine Cannon donated $35,600 to Spitzer.

July 21, 2005

http://www.insurancenewsnet.com/article.as...ws&id=46255

"Former NY assemblyman, labor leader pleads guilty to racketeering"

By LARRY NEUMEISTER, Associated Press

Last updated: 6:42 p.m., Friday, March 7, 2008

NEW YORK -- A seven-term Democratic state assemblyman and ex-president of the nation's largest municipal labor council pleaded guilty Friday to racketeering, admitting he took tens of thousands of dollars in kickbacks and forced union members to hang his Christmas lights.

Brian McLaughlin, 55, confessed in U.S. District Court in Manhattan to accepting the cash and personal services over a decade.

He said he also used union money to pay personal expenses, including car payments and home improvements.

He will be imprisoned between 8 and 10 years as part of a plea deal with the government that will result in many of the other charges being dropped.

His original charges had a potential prison term of 500 years.

Judge Richard J. Sullivan set sentencing for Sept. 12.

As part of a guilty plea, defendants usually spend just a few minutes outlining their crimes.

It took McLaughlin 45 minutes to describe what he did that qualified him to plead guilty to racketeering and making false statements for crimes committed between 1995 and 2005.

The million-member New York City Central Labor Council is an umbrella group of unions that has supported Mayor Michael Bloomberg.

McLaughlin remains free on $250,000 bail, which was established after the government accused him of stealing more than $2.2 million from the state, labor unions and even a Little League fund.

The admissions may result in forfeiture of $2.2 million in illicit proceeds and a residence in Nissequogue, N.Y., near the Hamptons.

The government also accused McLaughlin, who was the highest ranking official of the J Division of Local 3 of International Brotherhood of Electrical Workers, of turning union members into a private work force to help him with errands or projects at home.

Prosecutors said McLaughlin directed union members to take his dog to the doctor, hang Christmas lights, shovel snow, clean out a barn and look for rodents in his basement.

They said McLaughlin lived lavishly, buying his wife an $80,000 Mercedes Benz and renovating his Long Island home in Nissequogue near the Hamptons.

Other money went to pay rent on Albany and Queens residences and to pay off personal credit bills, prosecutors said.

At one point during the court proceeding, McLaughlin described how he and others used for personal expenses money raised between 1999 and 2005 for his campaign expenses.

McLaughlin said he also arranged for others to get no-show jobs and once accepted a nearly $2,300 kickback when someone was paid for work they did not do.

He described how he abused the Electchester Athletic Association Inc., created by residents to finance and operate youth sports programs for children in Queens.

The indictment had said McLaughlin used his position as state assemblyman to direct the allocation of state funds to the athletic association so that children and their families could benefit.

McLaughlin said he defrauded the fund between 1997 and 2006 by creating two bank accounts for the association, one to be used to fund children's athletic and the other to be used for personal use.

He did not specify how much he took from the fund.

Prosecutors have said he and others defrauded the athletic association of more than $95,000.

According to the indictment, McLaughlin solicited donations to the athletic fund with sponsorship forms thanking the contributor and concluding with the message: "A CHILD IN SPORTS STAYS OUT OF THE COURTS!"

"Dinallo defends monolines handling"

By Aline van Duyn, Francesco Guerrera and Ben White in New York

Published: February 21 2008 22:09 | Last updated: February 21 2008 22:09

Eric Dinallo, New York’s insurance regulator, has defended his handling of the bond insurer crisis, saying his decision to call in Wall Street’s top banks last month for talks was an effort to flag up problems and not the heavy-handed intervention portrayed by critics.

Mr Dinallo rebuffed criticism that he was focused on protecting municipal bond issuers at the expense of Wall Street institutions and investors.

“Not doing anything is doing something, it is accepting the status quo,” he said in an interview with the Financial Times.

“I knew this would land on our door if we didn’t get pro-active."

"Then I would have been accused of being asleep at the wheel.”

Mr Dinallo hit out at characterisations of his plans as a ruse to make Wall Street pay for bond insurer losses resulting from their guarantees of risky subprime mortgages, which have left holes in their capital.

Mr Dinallo has been attacked for putting pressure on Wall Street to commit up to $15bn and prevent rating downgrades of Ambac, MBIA and FGIC.

But Mr Dinallo said the liquidity injection was only one of the options discussed at the meeting, adding that his intention was to find a solution that would help all parties.

“The meeting was like Nixon going to China."

"I said at the end of the meeting ‘I am trying to get ahead of the curve and am taking a big risk here.'"

"'I hope you will reward the risk I am taking’."

"Only by rewarding regulators who take these risks will we be able to change the regulatory paradigm.”

He said it was possible banks did not fully appreciate his experience, such as his three years at Morgan Stanley and at the insurance broker Willis, and associated him with his former role at the attorney-general’s office under Eliot Spitzer, governor of New York state.

“I expect people to be judged by their actions, not their reputations,” he said.

“Everything we’re doing is aimed at helping the ratings for the banks, which are policyholders.”

Rating agencies have since cut FGIC’s credit ratings, and Ambac and MBIA will have to come up with a plan soon to avoid cuts from Moody’s Investors Service and Standard & Poor’s.

http://www.ft.com/cms/s/fa50d510-e0ab-11dc...00779fd2ac.html

"Senate Democrats ready to rule? - Questions over minority party's ability to wield power abound"

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

First published: Sunday, March 9, 2008

ALBANY -- Democrats trying to take control of the state Senate are feeling downright cocky.

But many people watching the 30-member Senate minority are feeling anxious.

They wonder if this group is ready for prime time.

Some political analysts expect Republicans to lose control this fall, with a strong presidential candidate at the top of the Democratic ticket likely to induce heavy voter turnout in this overwhelmingly Democratic state.

But that scenario could fall apart.

In 1965, the last time Democrats held the Senate, squabbling over a new majority leader led to a collapse of power.

Dozens of interviews in recent weeks indicate the current crop of Democrats has work to do.

Several lawmakers, lobbyists and Senate employees, many of whom spoke on condition of anonymity, say Minority Leader Malcolm Smith, D-Queens, and his 29 members need to develop talent and overcome a perception that they lack what it takes to get things done.

They fear that Democrats will propose ultraliberal laws and offer legislation that could bankrupt the state.

They warn of an unhealthy one-party rule in state government.

Almost everyone agrees it would change Albany's entire dynamic.

There would be no opposition party in control of one chamber to blame for stalled bills or unpopular laws.

"It'll change the nature of the debate, for the better, for the worse, I don't know," said Clarence Rappleyea, the former Assembly minority leader and part-time lobbyist.

He said Gov. Eliot Spitzer may regret pushing for a Democratic Senate, because one-party rule doesn't necessarily mean peace.

In the Rockefeller years, the Republicans ruled but fights were common, he said.

GOP leaders warn that government will lose its checks and balances.

"Those of you who know how to pray -- pray," said Senate Majority Leader Joseph L. Bruno, 78.

"Not for me, but for you, that things stay Republican."

Bruno's 32-member conference includes several incumbents who will be challenged in re-election bids; at least one isn't running again.

Malcolm Smith is expected to wage battles against 10 or more vulnerable GOP incumbents and for open seats.

"I'm so comfortable with who I am and why I'm here," says Smith, 51.

He says he's ready to take the job from Bruno, whom he says he has considered a friend and tutor.

But unlike Bruno, he said, he won't get into squabbles that impede productivity.

He scoffed at Bruno's depiction of him as a Spitzer pawn.

"It will benefit people in the state," Smith said about a potential majority for Democrats.

"When we disagree, and we have in the past, we will commit to coming to a solution."

"I'm not going to get into a logjam or a freeze and then don't talk to nobody for four months ... and be in the situation we are in now."

Campaign finance overhaul and changes in the Wicks Law to lower contracting costs for local governments and school districts, both of which stalled last year because Senate Republicans walked away from a deal, will happen swiftly, he said.

Also likely: confirmations of Spitzer nominees and support for making Acting State Police Superintendent Preston Felton the superintendent.

Felton was caught up in a travel records scandal that further alienated Spitzer and Bruno.

Yet miscues by Smith and his staff are raising questions.

And Smith's members' priorities -- such as rent control, abortion rights, gay marriage and a legislative pay raise -- are giving Republicans something to run with.

In a floor debate, Sen. Eric Adams, D-Brooklyn, complained about his pay.

His refrain of "show me the money" is likely to end up in GOP ads this fall.

Republicans also got hold of a politically sensitive letter, tied to allies of Spitzer, that suggested Smith's members should ask the IRS to investigate Bruno.

Democrats complained after Smith added the former Albany County Republican Party executive director, Mark Gronich, as a press officer.

And some criticized Smith for hiring a new policy director, Michael Kink, who, as a lobbyist, attacked Democrats, including Assemblywoman Nettie Mayersohn.

"Their research should be a lot better," said Mayersohn, the Democratic district leader for Queens.

Minority Whip Sen. Kevin Parker, D-Brooklyn, says the incidents are isolated and insignificant.

He already has his eye on the Energy Committee chairmanship now that Republican Sen. James Wright of Watertown quit to become a lobbyist.

Democrats' rejoiced after Wright left and a Democrat, Darrel Aubertine, won the seat last month in the overwhelmingly Republican North Country district.

That win essentially brought the Democrats within one seat of a majority.

If Republicans lose another seat, the chamber would stand at 31-31, and Democratic Lt. Gov. David Paterson, as president of the Senate, would have the tie-breaking vote.

Before he took his current post, Paterson was Senate minority leader.

Smith, who has been relatively obscure since taking over for Paterson 16 months ago, has been quietly planning for a transition.

He's been making sure the minority members attend "majority school" -- continuing education classes with academics, consultants and interest groups to raise their knowledge about committees.

He's been conducting retreats to set goals and objectives.

And he's been pushing his members to hold task force hearings statewide.

"We started preparing for it last year," said Smith, a Queens lawmaker since 2000.

"People said the minority was not disciplined, not engaged."

Smith said he's gathering resumes -- a heavier stream of applications as well as campaign dollars have been arriving lately -- but he is working with a smaller budget, $17 million, compared with about $113 million for the GOP.

He's got 113 employees; the GOP employs 562.

He said he wants to retain some of the GOP's people.

"I'm not going to make wholesale changes," he said.

"We've got to keep some institutional knowledge around ... I'm not going to tell 500 people 'you're fired.' "

Some officials think Smith uses favoritism when hiring.

Two of his top officers, Mortimer Lawrence, chief of staff, and Curtis Taylor, communications director, come from the church of the Rev. Floyd Flake, Smith's mentor.

Smith's district office is headed by a church follower and the minority employs Flake's son.

Sons of New York City Democrats Sen. Efrain Gonzalez and Assemblyman Jose Rivera are also on the payroll.

But Sen. Toby Stavisky, whose district abuts Smith's, said no influence of Flake, a former congressman who has helped revitalize parts of Queens, is evident in the conference.

Smith is aware that some of his members want his leadership seat, but says he promotes such ambition and debate, which he calls "productive friction."

He said he expects to remain leader.

Allies say the minority has blossomed under Smith.

Sen. Neil Breslin, D-Bethlehem, said Smith has the backing of the conference and looks forward to a less political era.

"Senate Republicans have operated in an extraordinarily political way in order to maintain the majority," he said.

"Senate Democrats will be able to just do what is right."

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

"NY governor linked to prostitution ring"

By AMY WESTFELDT, Associated Press Writer

10 March 2008

NEW YORK - Gov. Eliot Spitzer has told senior advisers that he had been involved in a prostitution ring, The New York Times reported Monday, citing an anonymous top administration official.

Spitzer, who is married with three daughters, was scheduled to make an announcement Monday afternoon.

Spitzer officials wouldn't immediately comment on the story.

The Times reported that a person with knowledge of the governor's role believes the governor is identified as a client in court papers.

Four people allegedly connected to a high-end prostitution ring called Emperors Club VIP were arrested last week.

The Web site of the Emperors Club VIP displays photographs of scantily clad women with their faces hidden, along with hourly rates depending on whether the prostitutes were rated with one diamond, the lowest ranking, or seven diamonds, the highest.

The most highly ranked prostitutes cost $5,500 an hour, prosecutors said.

Prosecutors said the defendants arranged connections between wealthy men and more than 50 prostitutes in New York, Washington, D.C., Los Angeles, Miami, London and Paris.

The Times reported that the governor's travel records show he was in Washington in mid-February, and that one of the clients arranged to meet with a prostitute on the night of Feb. 13.

The case is being handled by prosecutors in the Public Corruption unit of U.S. Attorney Michael Garcia's office.

Garcia spokeswoman Yusill Scribner said the office had no comment.

Spitzer, 48, built his political legacy on rooting out corruption, including several headline-making battles with Wall Street while serving as attorney general.

He stormed into the governor's office in 2006 with a historic share of the vote, vowing to continue his no-nonsense approach to fixing one of the nation's worst governments.

Time magazine had named him "Crusader of the Year" when he was attorney general and the tabloids proclaimed him "Eliot Ness."

But his stint as governor has been marred by several problems, including an unpopular plan to grant driver's licenses to illegal immigrants and a plot by his aides to smear Spitzer's main Republican nemesis.

Spitzer had been expected to testify to the state Public Integrity Commission he had created to answer for his role in the scandal, in which his aides were accused of misusing state police to compile travel records to embarrass Senate Republican leader Joseph Bruno.

Spitzer had served two terms as attorney general where he pursued criminal and civil cases and cracked down on misconduct and conflicts of interests on Wall Street and in corporate America.

He had previously been a prosecutor in the Manhattan District Attorney's Office, handling organized crime and white-collar crime cases.

His cases as state attorney general included a few criminal prosecutions of prostitution rings and into tourism involving prostitutes.

In 2004, he was part of an investigation of an escort service in New York City that resulted in the arrest of 18 people on charges of promoting prostitution and related charges.
___

Associated Press Writer Mike Gormley contributed to this report from Albany, N.Y.

"Official: NY gov's prostitution involvement caught on wiretap"

By AMY WESTFELDT, Associated Press

Last updated: 4:07 p.m., Monday, March 10, 2008

NEW YORK -- A law enforcement official has told The Associated Press that New York Gov. Eliot Spitzer's involvement in a prostitution ring was caught on a federal wiretap.

The official says Spitzer is identified in court papers as "Client 9," and the wiretap was part of an investigation that opened in the last few months.

The official says the New York governor met last month with at least one woman in a Washington hotel.

The law enforcement official spoke on condition of anonymity because of the ongoing investigation.

"A hard, fast fall for The Sheriff of Wall Street"

By MICHAEL HILL, Associated Press

Last updated: 5:02 p.m., Monday, March 10, 2008

ALBANY -- From Mr. Clean to Client 9, allegations that Gov. Eliot Spitzer was involved in a prostitution ring mark a mortifying fall for a politician whose career was built on ethics.

"Crusader of the Year" proclaimed Time magazine in 2002, when Spitzer was New York's wildly popular attorney general.

Spitzer made his name taking on Wall Street barons and analysts who failed to play fair with everyday investors.

Profiles of Spitzer then were rife with reverential references to his square jaw and his crime-busting predecessor, Eliot Ness.

None of that squares with explosive reports Monday that Spitzer's involvement in a prostitution ring was caught on a federal wiretap.

Law enforcement officials said Spitzer is identified in court papers as Client 9.

"Here's a guy whose entire career has been based on being 'The Sheriff of Wall Street,' 'Mr. Morality,' the guy who is standing firm for ethics in government," said Maurice Carroll, director of Quinnipiac University's Polling Institute.

"For Eliot Spitzer, it's a double surprise because it's his whole public persona."

Spitzer promised to tackle the notorious dysfunction of Albany with the same gusto he took on Wall Street.

He won the New York governor's race in 2006 with a record-setting share of the vote and rumbled into office with his signature mix of aggression and cockiness.

He signed five reform-related executive orders before he was officially sworn in on New Year's Day and was soon making trips to the home districts of lawmakers to denounce them if he felt were in the way of his reform agenda.

Spitzer allegedly described himself as a "steamroller" in a profanity-laced phone call to a Republican legislative leader.

The nickname stuck.

Some saw it as indication of a more arrogant side to Spitzer.

In December 2005, John Whitehead, a former top Wall Street executive, wrote in the Wall Street Journal that Spitzer threatened him in a telephone conversation earlier that year, saying, "I will be coming after you."

"You will pay the price," for publicly criticizing Spitzer's investigation of an ally, AIG insurance magnate Maurice Greenberg.

Spitzer denied threatening Whitehead.

Though Spitzer came into office like gangbusters, he lost steam last summer amid a scandal involving efforts by top aides to governor to embarrass Republican state Senate Majority Leader Joseph Bruno, a chief political rival, over use of state aircraft.

Bruno, who was back on his heels for months in the face of Spitzer's whirlwind, snatched back the offensive.

Spitzer's popularity plummeted even further last year when he proposed making it easier for illegal immigrants to get driver's licenses.

Republicans opposing the unpopular plan were soon joined by Democrats and Spitzer eventually surrendered as polls showed most New Yorkers would be unwilling to re-elect him.

Only recently did Spitzer's poll numbers begin nudging back up.

And this month, the Senate Democrats won a special election in a deep-red Republican district in northern New York with the help of Spitzer's political machine.

It got them within one seat of capturing control of the Senate for the first time in 40 years, one of Spitzer's long-stated goals.

It looked like Spitzer was mounting a modest comeback.

"After Spitzer, first black governor in New York history on deck"

By MICHAEL GORMLEY, Associated Press

Last updated: 6:02 p.m., Monday, March 10, 2008

ALBANY -- Less than two years after he reluctantly ran for lieutenant governor, David Paterson is suddenly in line to be just the eighth black governor in American history, the first in New York.

"He's the next governor, and probably quite soon," said Maurice Carroll, director of Quinnipiac University's Polling Institute and a longtime New York political reporter.

Attention turned to Paterson immediately after word surfaced Monday that Gov. Eliot Spitzer had been linked to a high-priced prostitution ring.

In a brief appearance in front of reporters, Spitzer issued a vague apology and did not mention resignation.

If Spitzer quits, Paterson automatically becomes governor and would complete Spitzer's term, which ends Dec. 31, 2010.

There was no immediate comment from Paterson.

Paterson, the 53-year-old Democrat, legally blind career politician from Harlem is well respected by Republicans and Democrats.

Former New York City Mayor Edward Koch recently called Paterson "very capable, not withstanding his near sightlessness."

"It's never impeded his public actions or his personal actions and he's really overcome it in an extraordinary way."

Paterson's disability has been a non-issue in Albany for more than 20 years as he has memorized lengthy, impassioned speeches without missing a mark.

"He's smart, he's knowledgeable about New York state government and politics and he's a guy who likes to get along with people," Carroll said.

As for what a Gov. Paterson would face, Carroll sees a "fairly placid, amiable time for awhile."

Paterson has enjoyed a good relationship with Spitzer's chief nemesis, Republican Majority Leader Joseph Bruno, despite being the architect behind getting Democrats to within one seat of taking control of the Senate.

In pointed yet often humorous floor debates, a kind of father-son relationship was evident between the Harlem Democrat and the rural, upstate Republican.

Spitzer surprised Paterson with the lieutenant's job offer two years ago, so focused was he on taking control of the Senate and becoming majority leader.

But Carroll doesn't expect Bruno to hold a grudge.

"Bruno is scrappy, but he doesn't go looking for fights," Carroll said.

Paterson would also have an advantage in that he would ascend to the governor's post with most of three years remaining in the term he would fill.

That keeps away the stigma of being a a lame-duck, said Lee Miringoff of the Marist College poll.

"If he becomes governor, he can move forward with what he wants to do as governor and start to set a tone," Miringoff said.

"The state will have been shaken by all these revelations and I think he's someone who is widely respected and he has a lot of experience in the corridors of Albany."

As for Spitzer, he appears dead in the political water.

"The problem Governor Spitzer had is not just today," Miringoff said Monday.

"It's that he has no favorable public opinion to fall back on ... it's not like he was a hugely popular governor who has this problem that people would like to look past."

"He should resign office immediately," said state Assembly Republican leader James Tedisco.

"He has disgraced his office and the entire state of New York," said Tedisco of Schenectady County.

Bruno was less direct.

"I feel very badly for the governor's wife, for his children," said Senate Republican leader Bruno.

"The important thing for the people of New York state is that people in office do the right thing, because there are so many challenges out there and it's important that we govern."

Spitzer can't expect much help even from Democrats in the Legislature, many of whom have had run-ins with Spitzer.

"It's sort of a bipartisan feeling of shock and lot of mouth-dropping," said Democratic Assemblyman John McEneny, as he left a closed-door conference of chamber's Democratic majority.

"I don't think anyone remembers anything like this."

"It's only an accusation, but you don't apologize for accusations."

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AP Writer Valerie Bauman contributed to this report from Albany.

"Fox News Channel erroneously reports Spitzer's resignation"

By DAVID BAUDER, Associated Press

Last updated: 6:52 p.m., Monday, March 10, 2008

NEW YORK -- Fox News Channel erroneously reported early in its coverage Monday of New York Gov. Eliot Spitzer's alleged involvement in a prostitution ring that the governor had resigned.

Shepard Smith reported that Spitzer had announced his resignation during a brief media statement, but the governor had made no mention of the possibility.

"He came in, he resigned and that was it," Smith said.

Smith, who was on location in Mississippi, said he based his report on two sources, including a Fox executive.

He and his guests then began a discussion of what Lt. Gov. David A. Paterson's administration would be like.

A few minutes later, Smith corrected himself, saying, "Excuse me, I'm now told he did not resign in his statement."

Adding to the confusion, Smith then conducted an interview with Alfonse D'Amato, the former Republican senator who said that his sources had told him that Spitzer had resigned.

"That's my understanding, from pretty reliable sources, that the lieutenant governor is ready to step in if he hasn't already," D'Amato said.

Smith read Spitzer's statement, and D'Amato then said his sources were wrong.

"But I don't think he will be able to withstand the incredible pressure," D'Amato said.

Forty-five minutes later, a headline on Fox's screen said: "N.Y. Gov. Eliot Spitzer Expected to Resign Later Today."

About an hour after that, Fox interviewed Jeannine Pirro, a former GOP district attorney from New York's Westchester County.

"Everyone expected him to resign today," Pirro said.

"He didn't."

Fox News Channel spokesman Brian Lewis did not immediately return phone calls about the report.

"NY Gov. Spitzer under pressure to quit over sex case"

By Claudia Parsons Tue Mar 11, 12:49 AM ET

NEW YORK (Reuters) - New York Gov. Eliot Spitzer faces pressure to resign on Tuesday as well as questions about whether he will be prosecuted for any crime after a report linked him to a high-class prostitution ring.

A New York Times report said the man who made his name fighting corruption hired a $1,000-an-hour prostitute and was caught on a federal wiretap at least six times on February 12 and 13 arranging to meet with her at a Washington hotel.

Spitzer, a married 48-year-old Democrat who investigated prostitution as New York's attorney general, apologized for what he described as a "private matter" but said nothing about resigning.

He neither confirmed nor denied the report.

State Republicans called for him to step down.

New York State Assembly Republican Minority Leader James Tedisco said on Monday night he had received a phone call from Lieutenant Governor David A. Paterson to discuss a possible transition of power if Spitzer resigns.

The New York Times said in an editorial Spitzer's insistence it was a "private matter" displayed arrogance.

"He did not just betray his family in a private matter."

"He betrayed the public, and it is hard to see how he will recover from this mess and go on to lead the reformist agenda on which he was elected to office," the paper said.

News of the scandal rocked Wall Street, where power brokers resented Spitzer's high-profile inquiries into financial cases when he was New York state's chief prosecutor.

Spitzer was elected governor with nearly 70 percent of the vote in late 2006 following a stint as state attorney general noted for high-profile investigations into Wall Street.

The Wall Street Journal said Spitzer had shown his lack of restraint in overly aggressive tactics as attorney general, making "extraordinary threats" to entire firms and to those who criticized his pursuit of high-profile Wall Street figures.

"The stupendously deluded belief that the sitting Governor of New York could purchase the services of prostitutes was merely the last act of a man unable to admit either the existence of, or need for, limits," the Journal wrote in an editorial about what it said was almost a Shakespearean fall.

"Governor Spitzer, who made his career by specializing in not just the prosecution, but the ruin, of other men, is himself almost certainly ruined," the paper said.

IF, OR WHEN, HE'LL QUIT

The state capital, Albany, was rife with speculation about if, or more likely when, Spitzer would resign and whether he would be charged with any crime.

Prosecutors rarely bring charges against clients of prostitutes in such cases.

In an online poll on The Daily News web site, 83 percent of respondents said Spitzer should resign.

At the heart of the scandal is a criminal complaint unveiled last week charging four people with running a multi-million dollar prostitution ring dubbed "The Emperors Club."

The New York Times said Spitzer was an individual identified as Client 9 in the court papers filed last week.

Client 9 arranged to meet with "Kristen," a prostitute who charged $1,000 an hour, on February 13 in a Washington hotel and paid $4,300 for services rendered and as a down payment for future engagements, according to the court documents.

Among the charges brought against the four defendants last week was transporting women across state lines for prostitution purposes.

It was not clear if a similar charge might be brought against Spitzer if it were proven he arranged for "Kristen" to travel from New York to Washington to have sex with him.

ABC News reported on its Web site that the probe of the prostitution ring was triggered when a bank told the Internal Revenue Service about suspicious money transfers by Spitzer.

ABC quoted an unidentified Justice Department official as saying Spitzer could be prosecuted under an obscure financial statute, in what would be an irony for a man who used wiretaps to nail major names in finance.

In a interview two years ago, Spitzer, then-attorney general, told ABC News he had some advice for people who break the law.

"Never talk when you can nod, and never nod when you can wink, and never write an e-mail because it's death."

"You're giving prosecutors all the evidence we need," he said.

(Additional reporting by Daniel Trotta, Robert Campbell; editing by Stuart Grudgings)

"Probe into call girl ring started at IRS"

By LARRY NEUMEISTER, Associated Press

Last updated: 1:42 a.m., Tuesday, March 11, 2008

NEW YORK -- The federal investigation into a high-end prostitution ring linked to Gov. Eliot Spitzer apparently began last year as a financial probe by the Internal Revenue Service.

The investigation into the Emperors Club VIP gathered more than 5,000 telephone calls and text messages, and more than 6,000 e-mails, along with bank records, travel and hotel records and surveillance.

But it was unclear whether Spitzer was a target from the start or whether agents came across his name by accident while amassing evidence.

Conversations were recorded about someone identified as "Client 9," including that a prostitute identified as "Kristen" should take a train from New York to Washington for a tryst on the night of Feb. 13, according to an affidavit.

A law enforcement source in Washington who spoke on condition of anonymity told The Associated Press that "Client 9" was Spitzer and that he met with "Kristen" in a Washington hotel room just two hours before Valentine's Day.

Wiretaps enabled government agents to listen as the woman later told a booking agent for the ring that she had secured $4,300 in cash from her client and that she liked him.

Authorities also had statements from a confidential source and an undercover officer.

The prostitution ring first came to light last week when four people with charged with running it.

It was not immediately clear whether Spitzer could face charges.

Federal prosecutors have brought charges against several prostitution rings over the past two decades, but have generally not prosecuted customers.

The public-corruption unit of the U.S. attorney's office got involved after the IRS looked into a complaint of a potential violation of the Bank Secrecy Act, the government's main tool against money laundering.

Financial institutions are required to have anti-money laundering programs, which help the government catch terrorist financiers, drug lords and other criminals.

Financial companies also must report suspicious financial transactions to the government.

Investigators say the Emperors Club, which is based in Brooklyn, made more than $1 million for its operators by selling the services of women whose bodies were displayed, their faces concealed, on a Web site.

The prostitutes were advertised as costing from $1,000 to $5,500 an hour.

Last Thursday, four people were arrested in the probe and charged with conspiracy to violate federal prostitution laws: Mark Brener, 62, and Cecil Suwal, 23, who live together in Cliffside Park, N.J.; Temeka Rachelle Lewis, 32, of Brooklyn; and Tanya Hollander, 36, of Rhinebeck, N.Y.

Brener and Suwal also were charged with conspiracy to launder more than $1 million in illicit proceeds.

Lewis and Hollander were accused of arranging meetings between prostitutes and clients.

Assistant U.S. Attorney Dan Stein said he believed the arrests shut down the ring.

The business promised clients they could pay with a wire transfer that would show up on records as QAT Consulting to make it appear to be a business transaction.

"Client 9" insisted on paying in cash.

"Analysts ask: What was Spitzer thinking?"

By JOCELYN NOVECK, Associated Press

Last updated: 7:52 p.m., Monday, March 10, 2008

NEW YORK -- It's the simplest question in the world, but it was the one repeated over and over Monday after the staggering news broke about Gov. Eliot Spitzer: What in heaven's name was the man thinking?

Yet if the New York governor is proved to have been involved in a prostitution ring, it would hardly be the first time a powerful, brilliant person in public life has done something dizzyingly self-destructive.

Why do otherwise smart, successful people do such risky things?

For psychologists and political analysts who found themselves dissecting the Spitzer story, it was a question of the chicken or the egg: In such situations, does the risky behavior precede the powerful job?

Or does something about being in power cause the behavior?

Many speculated that it was a combination of the two.

"We're all human," said Leon Hoffman, a psychoanalyst in New York.

"These urges are so, so common."

"Whether it's a prostitute or a mistress that one chooses, that's another question."

And yet, Hoffman said, there may be something about the aura of power surrounding a prominent politician that makes him feel potentially immune from consequences.

"There's the psychology of the exception," said Hoffman, former chairman of the American Psychoanalytic Association's public information committee.

"People in power sometimes feel they can do things that us, mere mortals, are forbidden to do."

"There's a sense, as with adolescents, that 'I won't get caught.'"

Political analyst Steven Cohen was wary of trying to draw any conclusions about the corrupting influence of power.

"The problem is we don't know when this behavior started for this person," said Cohen, a professor of public administration at Columbia University.

"Politicians are like the rest of us."

"The fact that they're flawed and do stupid things shouldn't surprise us."

The real question, Cohen said, is whether Spitzer should be held to a different ethical standard.

And his answer is yes.

"This isn't Britney Spears we're talking about."

"This is the governor," Cohen said.

"The bottom line is, he controls the National Guard and the state police."

"He could have people come to arrest you and me tomorrow."

"So his private behavior does become a public issue."

One psychologist who has studied and worked with politicians and their families thinks there is indeed something different about people who reach positions of such prominence.

"In order to be in such a high-profile position, you have to believe that what you are doing is innately right," said Renana Brooks, of Washington, D.C.

"Anything that isn't right, you may blot out."

"You can't be tortured by guilt or indifference."

"It's just virtually impossible to function at this high a level without limiting the amount of introspection you can do."

Spitzer, who has not been charged and has not resigned, was caught on a federal wiretap arranging to meet with a prostitute, according to a law enforcement official who spoke to The Associated Press on condition of anonymity because the investigation is still going on.

The governor, identified in court papers only as "Client 9," met with the woman the day before Valentine's Day, the official said.

According to the complaint he paid $4,300 in cash for that and future trysts, and when discussing payments told an agent:

"Yup, same as in the past, no question about it."

One longtime analyst of New York politics finds it hard to look at Spitzer's predicament without thinking of politicians such as President Clinton in the Monica Lewinsky scandal and New Jersey Gov. James E. McGreevey, who resigned after announcing he had an affair with a male staffer.

"These are really smart guys doing really stupid things -- and doing really stupid things repeatedly," said Doug Muzzio, professor of public affairs at Baruch College.

But the allegations about Spitzer, he said, were the most shocking, if only because there was no public hint of such behavior from the governor, who campaigned as a model of moral rectitude.

"Nobody I've spoken to ... had any inkling of this," Muzzio said.

He said he was torn between believing Spitzer's situation could be a case of a deep-seated compulsion or one of simple hubris.

"It could be both -- they're not mutually exclusive," Muzzio said.

"Now that would be a really fatal cocktail."

"In any case, there's an element of recklessness and risk-taking that is just breathtaking."

Would Spitzer, who knows better than most anyone how law enforcement works, consider the consequences of getting caught?

Analysts say people often don't consciously think about such risks, even highly intelligent people.

Chicago psychoanalyst Mark Smaller believes one can find useful parallels in the case of certain patients, from all walks of life, who exhibit a striking capacity to compartmentalize risky, unethical or even illegal behavior, a process known as the "splitting" of part of the personality.

"They can be otherwise completely law-abiding, sensible, reliable people," Smaller says.

"Often the behavior in question is caused by intense anxiety, stress in the workplace or home, or feeling overwhelmed."

And often, he says, the behavior can involve sex, drugs, or something like shoplifting.

"They compartmentalize to the extent that they don't feel any sense of shame or guilt," Smaller said.

"Until," he adds, "they get caught."

"Another tri-state governor in scandal"

By JOHN CHRISTOFFERSEN, Associated Press

Last updated: 11:23 p.m., Monday, March 10, 2008

NEW HAVEN, Conn. -- A dynamic young governor near the New York media spotlight is suddenly derailed by scandal.

In 2004, it was Connecticut's John Rowland, followed quickly by New Jersey's Jim McGreevey.

On Monday, prostitution allegations against New York Gov. Eliot Spitzer threatened to make him the third governor in the tri-state area to lose his job in shocking, humiliating fashion in less than four years.

"It's troubling," said Gary Rose, politics professor at Sacred Heart University in Fairfield.

"They were all rising stars -- all three of them."

"I think it could cause some voters to really look below the surface."

"You wonder what lies beneath a lot of the imagery."

JOHN ROWLAND

Rowland was the boy wonder of Connecticut politics: At 27 a congressman and at 37 the youngest governor in Connecticut history when he took office in 1995.

Though a Republican in a heavily Democratic state, the charismatic Rowland enjoyed high approval ratings.

But in his third term, a federal investigation against members of his administration brought new and damaging information each week.

He was forced to admit that contractors paid for home improvements at his lakeside cottage and that state employees bought him a hot tub.

Memos revealed that he had accepted Cuban cigars from a state contractor.

Amid impeachment hearings and the federal probe, Rowland finally resigned.

He later served 10 months in prison.

Now 50, Rowland recently landed a job as the economic development coordinator for his hometown of Waterbury.

JAMES McGREEVEY

McGreevey's sudden and spectacular downfall came after an alleged affair with a male aide who McGreevey said tried to blackmail him.

In a nationally televised speech, McGreevey, now 50, acknowledged being "a gay American."

He said he would resign because of his sexual indiscretions, which included putting his lover on the government payroll in a job -- homeland security adviser -- for which he had no qualifications.

The aide, Golan Cipel, denied being gay and said the governor sexually harassed him.

McGreevey and his estranged wife, Dina Matos, are embroiled in a bitter divorce and even have competing tell-all books.

They share custody of their only child, 6-year-old Jacqueline.

McGreevey is enrolled in an Episcopal seminary in New York City and lives in Plainfield, N.J., with a male partner.

ELIOT SPITZER

Spitzer, 48, built his career on fighting corruption.

Formerly an assistant district attorney in Manhattan, Spitzer was New York's attorney general for two terms before overwhelmingly being elected governor in 2006.

Spitzer's hard-charging ways quickly put him at odds with the powerful Republican leader of the state Senate, Joseph Bruno, and his agenda stalled amid political scandal and polls that showed most New Yorkers would not vote for him again as governor.

Two aides were disciplined for using the state police to track the movements of Bruno, Spitzer's chief political rival.

Spitzer's involvement in a prostitution ring was caught on a federal wiretap as part of an investigation opened in recent months, according to a law enforcement official who spoke to The Associated Press on condition of anonymity because of the ongoing inquiry.

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Associated Press writer Angela Delli Santi in Trenton, N.J., contributed to this report.

"Official: Cash triggered Spitzer probe"

By AMY WESTFELDT, Associated Press

Last updated: 8:33 a.m., Tuesday, March 11, 2008

NEW YORK -- A law enforcement official says New York Gov. Eliot Spitzer's role in a prostitution scandal grew out of a public corruption inquiry triggered by his movement of cash to bank accounts operated by the call-girl ring.

The law enforcement source spoke to The Associated Press on condition of anonymity Tuesday because of the sensitivity of the investigation.

The official says Spitzer was the initial target of the investigation and was tracked using court-ordered wiretaps, but possible charges against Spitzer have not been decided.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

NEW YORK (AP) -- Gov. Eliot Spitzer, who took office with the vow "Day One, Everything Changes," started day one of his life after allegations of a prostitution scandal with his outlook so changed that many wondered if he could remain in power.

The first-term Democrat was caught on a federal wiretap arranging to meet a prostitute from a call-girl business, according to a law enforcement official who spoke to The Associated Press on condition of anonymity because the investigation is still going on.

Spitzer allegedly paid for the call girl to take a train from New York to Washington -- a move that opened the transaction up to federal prosecution because she crossed state lines.

The governor has not been charged, and prosecutors would not comment on the case Monday.

A spokesman for Spitzer said the governor has retained a large Manhattan law firm.

There was no word on Spitzer's plans, but Assembly Republican leader James Tedisco said Tuesday he received a call Monday from Lt. Governor David Paterson, who would assume the governor's office if Spitzer resigned.

Tedisco said Paterson raised the possibility of such a scenario by asking if Tedisco, who has been at odds with Spitzer, would be willing to start fresh with him.

"He called me to ask if we would give him the benefit of the doubt, and go forward," Tedisco said.

"I told him we would."

Spitzer was to be in New York City Tuesday, but had no public events scheduled.

At a Manhattan news conference, a glassy-eyed Spitzer, his shellshocked wife Silda at his side, apologized to his family and the people of New York.

"I have acted in a way that violates my obligations to my family and violates my -- or any -- sense of right and wrong," he said.

"I apologize to the public, whom I promised better."

He did not say what he was apologizing for and ignored reporters' shouted questions about whether he would resign -- 14 months after he boldly proclaimed at the start of his term, "Day One, Everything Changes."

Spitzer, the 48-year-old father of three teenage girls, retreated from his Manhattan offices to his Upper East Side home.

Republicans immediately called for him to quit.

"He has to step down."

"No one will stand with him," said Rep. Peter King, a Republican from Long Island.

"I never try to take advantage or gloat over a personal tragedy."

"However, this is different."

"This is a guy who is so self-righteous, and so unforgiving."

Attention turned to the state's lieutenant governor, David Paterson, who automatically becomes governor if Spitzer quits.

There was no immediate comment from Paterson, who would become New York's first black governor.

Spitzer was elected with a historic margin of victory, and took office Jan. 1, 2007, vowing to stamp out corruption in New York government in the same way that he took on Wall Street executives while state attorney general.

In his previous position, Spitzer uncovered crooked practices and self-dealing in the stock brokerage and insurance industries and in corporate board rooms; he went after former New York Stock Exchange chairman Richard Grasso over his $187.5 million compensation package.

Spitzer become known as the "Sheriff of Wall Street."

Time magazine named him "Crusader of the Year," and the tabloids proclaimed him "Eliot Ness."

The square-jawed graduate of Princeton University and Harvard Law was sometimes mentioned as a potential candidate for president.

But he apparently became embroiled last year in a financial probe by the Internal Revenue Service into a high-end prostitution ring.

The investigation into the Emperors Club VIP gathered more than 5,000 telephone calls and text messages, and more than 6,000 e-mails, along with bank records, travel and hotel records and surveillance.

It was unclear whether Spitzer was a target from the start or whether agents came across his name by accident while amassing evidence.

In an affidavit filed in Manhattan federal court last week, Spitzer appeared as "Client 9," according to the law enforcement official.

Client 9 personally made several cell phone calls to Emperors Club VIP to arrange a Feb. 13 tryst at a Washington hotel, the official said.

Client 9 wanted a high-priced prostitute named Kristen to come to Washington on a 5:39 p.m. train from Manhattan.

The door to the hotel room would be left ajar.

Train tickets, cab fare, room service, and the minibar were all on him.

"Yup, same as in the past."

"No question about it," the caller told Kristen's boss, when asked if he would make his payment to the same business as usual, a federal affidavit said.

The client paid $4,300 to Kristen, touted by the escort service as a "petite, pretty brunette," according to court papers.

Carl Tobias, a law professor at the University of Richmond, noted that prostitution customers are often not charged, and said charges against Spitzer might be unlikely.

"Especially if he resigns, he may just be left alone."

"It may be that the public is satisfied by his resignation as governor," Tobias said.

Spitzer's term as governor has been fraught with problems, including an unpopular plan to grant driver's licenses to illegal immigrants and a plot by his aides to smear his main Republican nemesis.

It would not be the first time that a high-profile politician became ensnared in a prostitution scandal.

Sen. David Vitter of Louisiana acknowledged in July that his Washington phone number was among those called several years ago by an escort service.

Scandals also recently derailed neighboring Connecticut Gov. John Rowland and New Jersey's Jim McGreevey.

And Sen. Larry Craig of Idaho pleaded guilty to disorderly conduct after being arrested last June in a Minneapolis airport restroom.

Spitzer's cases as attorney general included a few criminal prosecutions of prostitution rings and tourism involving prostitutes.

In 2004, he took part in an investigation of an escort service in New York City that resulted in the arrest of 18 people on charges of promoting prostitution and related charges.

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Associated Press Writers Larry Neumeister in New York, Michael Gormley in Albany and Devlin Barrett in Washington contributed to this report.

"Pressure mounts on Gov. Spitzer to quit"

By MICHAEL GORMLEY, Associated Press Writer

11 March 2008

ALBANY, N.Y. - With pressure mounting to resign Tuesday over a call-girl scandal, Gov. Eliot Spitzer found himself with few friends and lots of powerful enemies, many of whom regard him as a sanctimonious bully who got what was coming to him.

Republicans began talking impeachment, and few if any fellow Democrats were willing to defend him.

A death watch of sorts began at the state Capitol, where whispers of "What have you heard?" echoed through nearly every hallway of the ornate, 109-year-old building.

While Spitzer and his family remained secluded in their Fifth Avenue apartment, insiders said the governor was still trying to decide how to proceed.

Options included quitting as early as Tuesday afternoon, or waiting to use resignation as a bargaining chip with federal prosecutors to avoid indictment.

Democrats privately floated another option, telling The Associated Press that Spitzer was considering what was almost unthinkable immediately after Monday's bombshell apology: hanging on.

"If the public is fine, he'll stay," said a Democrat who spoke on condition of anonymity because of the sensitivity of the subject.

Still, Spitzer's enemies were emboldened, and some of his friends went from shock to outrage.

"Particularly because of the reform platform on which he was elected governor, his ability to govern the state of New York and execute his duties as governor have been irreparably damaged," said Citizens Union, a good-government group that supported the crusading attorney general for governor in 2006 and provided critical support in his effort to reform Albany.

"It is our strong belief that it is now impossible for him to fulfill his responsibilities as governor."

"Accordingly, Citizens Union urges him to resign as governor."

The scandal erupted Monday, when allegations surfaced that Spitzer, a 48-year-old married man with three teenage daughters, spent thousands of dollars on a call girl named Kristen at a Washington hotel on the night before Valentine's Day.

The case started when banks noticed frequent cash transfers from several accounts and filed suspicious activity reports with the Internal Revenue Service, a law enforcement official told the AP.

The accounts were traced back to Spitzer, prompting public corruption investigators to open an inquiry.

The investigation also found evidence that Spitzer was a repeat customer with the Emperors Club VIP, a high-end call-girl service, the official said.

In court papers, Spitzer was identified only as "Client 9," according to another law enforcement official who also spoke on condition of anonymity because the investigation is still going on.

The governor has not been charged, and prosecutors would not comment on the case.

A Spitzer spokesman said the governor has retained a large New York City law firm.

In Albany, Democratic Lt. Gov. David Paterson, who would become governor if Spitzer resigned, was talking to legislative leaders about a possible transition.

On Wall Street, where Spitzer built his reputation as a crusader against shady practices and overly generous compensation, cheers and laughter erupted Monday from the trading floor when news broke of his potential ruin.

Many in the financial industry had long complained that the man known as "Mr. Clean" and the "Sheriff of Wall Street" was abusive and insulting, that he went after them with holier-than-thou zeal, and that he was just trying to make headlines and advance his political career.

"The irony and the hypocrisy is almost too good to be true," said Bryn Dolan, a fundraiser who works with many Wall Street employees.

"If he had any shame, he would've already resigned."

Reporters, government workers and the public milled around the state Capitol on Tuesday, waiting for any developments.

News vans lined up around the building, and camera operators sat next to their tripods on the front lawn waiting for something to happen.

The official Democratic line was to give Spitzer time to decide.

"On every level — the human level, the governmental level — this is not the time to speculate and guess at the outcome," said Democratic state Assemblyman Richard Brodsky.

"There's too much at stake."

But privately, several Democrats in the Legislature and in the administration said resignation appeared inevitable.

"He's weighing the rest of his life," one Democratic official said sadly.

Meanwhile, the Republicans Spitzer fought with for a year struck harder.

"The trust of the people has been violated and we've become a laughingstock," said state Sen. Martin Golden, a Brooklyn Republican.

"It has the potential ability of throwing us into a major crisis, but we won't let it happen."

Assembly Republican leader James Tedisco warned that if Spitzer did not resign within 48 hours, he would call for impeachment.

But any impeachment would face a difficult road in the Democrat-controlled Assembly, where articles impeachment would require a majority vote to go to a trial.

A trial would be decided by a combined vote of the full Senate, which has a slim GOP majority, and the Court of Appeals.

Tedisco was an early target of Spitzer's abrasive and uncompromising style in Albany.

In a private call, an angry Spitzer once described himself to Tedisco as a "steamroller" — he attached a profanity for emphasis — and warned: "I'll roll over you and anybody else."

There were times, too, when Spitzer visited individual legislative districts to impugn by name lawmakers who defied him, a breach of etiquette even by New York's bare-knuckle standards.

It was a legislative version of the name-calling he used against Wall Street targets for years as attorney general.

So when the news about Spitzer's disgrace hit Wall Street, many were delighted to see him get his comeuppance.

"It's great that he's going to take a fall for what is essentially a minor thing," NYSE employee Greg Longworth said outside Harry's at Hanover Square, a favorite Wall Street drinking hole.

"He was such a stuffed shirt, and it turns out he was doing the same thing."
___

AP writers Valerie Bauman and Michael Virtanen in Albany, and Vinnee Tong in New York contributed to this report.

"Spitzer tripped up on laws he enforced"

By SAMANTHA GROSS and DEVLIN BARRETT, Associated Press

Last updated: 6:23 p.m., Tuesday, March 11, 2008

NEW YORK -- Eliot Spitzer knew how to catch bad guys by following the money.

As attorney general, he once broke up a call-girl ring and locked up 18 people on corruption, money-laundering and prostitution charges.

He ruthlessly investigated the pay packages of Wall Street executives and was so familiar with shady financial maneuvers that he rose to become the top racketeering prosecutor in Manhattan.

But in the end, it appears that Spitzer may have been done in by the same behavior he built a career out of prosecuting.

In fact, it seems he was tripped up by some of the very financial accounting methods he used so successfully against multibillion-dollar Wall Street firms.

For one thing, the governor initially drew the attention of federal investigators because of cash payments to an account operated by a call-girl ring, according to a law enforcement official who spoke on condition of because of the sensitivity of the case.

Banks are required to file Suspicious Activity Reports to the government whenever they observe something they fear may be a crime.

In court papers, Client 9 -- identified by another law enforcement official as Spitzer -- hurried to get more than $4,000 in cash to pay a call girl at a Washington hotel.

That kind of activity, repeated over time, is just the kind of thing that would set off alarm bells with a bank's compliance officer, who is trained to be on the lookout for what is called structuring or "smurfing" -- a pattern of transactions aimed at hiding the nature or purpose of certain money.

Spitzer of all people should have known that, said Miami-based lawyer Gregory Baldwin, credited with coining the term "smurfing" in the 1980s as a federal prosecutor.

"I think he's done enough cases where he's charged money laundering that he would know exactly what kind of information you get from the banks."

"It's such a perfect example of what goes around, comes around," he said.

By the time the scandal broke this week, Spitzer's financial transactions had been monitored, his phone calls had been caught on tape, and his actions had been scrutinized by federal prosecutors.

It could have been straight out of the Spitzer prosecution playbook.

Whether Spitzer thought he was smarter than the feds because of his own professional experience is, for now at least, a matter for psychologists to speculate on.

As New York attorney general, Spitzer was also familiar with how to bust up a prostitution ring.

Spitzer proudly announced on April 8, 2004, that authorities had arrested 18 people on promoting prostitution and related charges -- including money laundering and falsifying business records -- in an investigation of escort services in New York.

"This was a sophisticated and lucrative operation with a multitiered management structure," Spitzer said at the time.

"It was, however, nothing more than a prostitution ring, and now its owners and operators will be held accountable."

In the 2004 probe, investigators used wiretaps and other surveillance to build their case, said Vincent Romano, who defended the man accused of running the ring.

Prosecutors also charged some of the defendants with enterprise corruption -- a charge carrying heavier penalties than simple prostitution.

No charges were brought against the ring's customers, just those accused of working for or running the service.

"It was a big splash."

"They had the perp walk."

"He caused a lot of embarrassment to a lot of people in the case to his benefit."

"What he put their families through at the time, he's probably experiencing now: the level of embarrassment and ridicule," Romano said.

"He's got this overzealous, mean-spirited prosecution, but behind closed doors in another state, he's doing the identical thing that he's accusing others of doing," he added.

"And the other irony of it is that you've made a career off of a wiretap, and your demise is by the same prosecutorial tool."

The investigation that could spell Spitzer's ruin found that Client 9 was apparently a repeat customer with the Emperors Club VIP, a lucrative prostitution service where some call girls pulled in $5,500 an hour.

The governor has not been charged, and prosecutors would not comment on the case.

A person familiar with the investigation told The Associated Press that the probe began with a referral from banks to an Internal Revenue Service office on Long Island about suspicious transactions involving accounts ultimately traced to Spitzer.

The IRS studied the records and then referred the case to federal prosecutors in October.

It was then assigned to the public corruption unit of the federal prosecutor's office in Manhattan.

The precise details of what set off alarm bells for federal authorities are still unclear.

But authorities believe Spitzer may have spent tens of thousands of dollars, apparently transferring only personal funds -- not campaign contributions or state taxpayer dollars -- between accounts to pay for the prostitute service, according to a law enforcement official who spoke on condition of anonymity.

Another official said the amount could be as much as $80,000.

A half-million or so times every year, banks alert the federal government that a suspicious transaction has occurred.

Although the public sometimes thinks it requires a transfer of $10,000 or more to attract attention, banks can label transactions suspicious even if they involve far less money, said Walter Pagano, a former IRS agent who has testified in court on white-collar crime.

Spitzer might have tried to keep his transfers below the $10,000 threshold, underestimating the scrutiny that banks give to lesser amounts.

Spitzer prosecuted cases in New York for two decades before becoming governor.

From 1986 to 1992, he was an assistant district attorney in Manhattan.

While there, he rose to become chief of the labor racketeering unit.

While attorney general, he also went up against two men he accused of using their tour company to promote "sex tourism" in the Philippines and Thailand --first suing them in civil court and then bringing criminal charges.

One defense attorney on the case said it was politically motivated.

"He prosecuted a couple of little guys who were easy targets when he was running for governor," Daniel Hochheiser said.

"The whole situation is marked by irony, hypocrisy and self-righteousness."

------

Associated Press Writer Devlin Barrett contributed to this report from Washington and AP Writer Larry Neumeister contributed from New York.

Spitzer of all people should have known that, said Miami-based lawyer Gregory Baldwin, credited with coining the term "smurfing" in the 1980s as a federal prosecutor.

"I think he's done enough cases where he's charged money laundering that he would know exactly what kind of information you get from the banks."

"It's such a perfect example of what goes around, comes around," he said.

And so

"Officials say Spitzer spent tens of thousands of dollars _ maybe $80,000 _ on call-girl ring"

By MICHAEL GORMLEY, Associated Press

Last updated: 7:42 p.m., Tuesday, March 11, 2008

ALBANY -- With pressure mounting on Gov. Eliot Spitzer to resign over a call-girl scandal, investigators said Tuesday he was clearly a repeat customer who spent tens of thousands of dollars -- perhaps as much as $80,000 -- with the high-priced prostitution service over an extended period of time.

Spitzer and his family, meanwhile, remained secluded in their Fifth Avenue apartment, while Republicans began talking impeachment, and few if any fellow Democrats came forward to defend him.

A death watch of sorts began at the state Capitol, where whispers of "What have you heard?" echoed through nearly every hallway of the ornate, 109-year-old building.

On Monday, when the scandal broke, prosecutors said in court papers that Spitzer had been caught on a wiretap spending $4,300 with the Emperors Club VIP call-girl service, with some of the money going toward a night with a prostitute named Kristen, and the rest to be used as credit toward future trysts.

The papers also suggested that Spitzer had done this before.

Speaking on condition of anonymity, a law enforcement official said Tuesday that Spitzer, in fact, had spent tens of thousands of dollars with the Emperors Club.

Another official said the amount could be as high as $80,000.

But it was not clear over what period of time that was spent.

Still another law enforcement official said investigators found that during the tryst with Kristen on the night before Valentine's Day, Spitzer used two rooms at the Mayflower Hotel in Washington -- one for himself, the other for the prostitute.

Sometime around 10 p.m., Spitzer sneaked away from his security detail and made his way to the room where she was waiting, the official said.

The three officials spoke on condition of anonymity because of the sensitivity of the case.

In the court papers, an Emperors Club employee was quoted as telling Kristen that Client 9 -- Spitzer, according to investigators -- "would ask you to do things that ... you might not think were safe," and Kristen responded by saying:

"I have a way of dealing with that."

"... I'd be, like, listen, dude, you really want the sex?"

A law enforcement official said Tuesdsay the discussion had to do with Spitzer's preference not to wear a condom and the call-girl's insistence that he use one.

Spitzer's vast personal wealth would have made it easy for him to spend thousands of dollars on prostitutes.

The scion of a wealthy Manhattan real estate developer, Spitzer reported $1.9 million in income to the IRS in 2006.

Meanwhile, Albany insiders on Tuesday said the governor was still trying to decide how to proceed.

Options included quitting immediately, or waiting to use resignation as a bargaining chip with federal prosecutors to avoid indictment.

Democrats privately floated another option, telling The Associated Press that Spitzer was considering what was almost unthinkable immediately after Monday's bombshell apology: hanging on.

"If the public is fine, he'll stay," said a Democrat who spoke on condition of anonymity because of the sensitivity of the subject.

Still, Spitzer's many enemies from Albany and Wall Street were emboldened, and some of his friends went from shock to outrage.

"Particularly because of the reform platform on which he was elected governor, his ability to govern the state of New York and execute his duties as governor have been irreparably damaged," said Citizens Union, a good-government group that supported the crusading attorney general for governor in 2006 and provided critical support in his effort to reform Albany.

"It is our strong belief that it is now impossible for him to fulfill his responsibilities as governor."

"Accordingly, Citizens Union urges him to resign as governor."

The case against Spitzer, a 48-year-old married man with three teenage daughters, started when banks noticed frequent cash transfers from several accounts and filed suspicious-activity reports with the Internal Revenue Service, a law enforcement official told the AP.

The accounts were traced back to Spitzer, prompting public corruption investigators to open an inquiry.

The governor has not been charged, and prosecutors would not comment on the case.

Michele Hirshman, Spitzer's former deputy attorney general and now a member of the high-powered New York law firm of Paul, Weiss, Rifkind Wharton & Garrison, has been retained to represent the governor.

In Albany, Democratic Lt. Gov. David Paterson, who would become governor if Spitzer resigned, was talking to legislative leaders about a possible transition.

Reporters, government workers and the public milled around the state Capitol on Tuesday, waiting for any developments.

News vans lined up around the building, and camera operators sat next to their tripods on the front lawn waiting for something to happen.

Assembly Republican leader James Tedisco warned that if Spitzer did not resign within 48 hours, he would call for impeachment.

But any impeachment would face a difficult road in the Democrat-controlled Assembly, where articles impeachment would require a majority vote to go to a trial.

A trial would be decided by a combined vote of the full Senate, which has a slim GOP majority, and the Court of Appeals.

Tedisco was an early target of Spitzer's abrasive and uncompromising style in Albany.

In a private call, an angry Spitzer once described himself to Tedisco as a "steamroller" -- he attached a profanity for emphasis -- and warned: "I'll roll over you and anybody else."

Privately, several Democrats in the Legislature and in the administration said resignation appeared inevitable.

"He's weighing the rest of his life," one Democratic official said sadly.

Late Tuesday, freshman Rep. Kirsten Gillibrand became the first Democratic member of New York's congressional delegation to mention resignation.

"This is very grave and sad news," she said.

"If these serious allegations are true, the governor will have no choice but to resign."

But more than a day after the scandal broke, Sen. Hillary Rodham Clinton and other senior Democrats in the delegation had yet to call on Spitzer to quit.

On Wall Street, where Spitzer built his reputation as a crusader against shady practices and overly generous compensation, cheers and laughter erupted Monday from the trading floor when news broke of his potential ruin.

Many in the financial industry had long complained that the man known as "Mr. Clean" and the "Sheriff of Wall Street" was a sanctimonious bully who was just trying to advance his political career.

Many Wall Streeters were delighted to see him get his comeuppance.

"The irony and the hypocrisy is almost too good to be true," said Bryn Dolan, a fundraiser who works with many Wall Street employees.

"If he had any shame, he would've already resigned."

------

AP writers Valerie Bauman and Michael Virtanen in Albany, and Vinnee Tong in New York contributed to this report.

PRESS RELEASE

Department of Law
120 Broadway
New York, NY 10271

Department of Law
The State Capitol
Albany, NY 12224

For More Information:
(212) 416-8060

For Immediate Release

April 7, 2004

"OPERATORS OF 'ESCORT SERVICES' INDICTED - Authorities Say the Business Was a Front for a Massive Prostitution Ring"

Attorney General Spitzer said today that 18 people associated with popular "escort services" operating in New York City, Long Island, Westchester and New Jersey have been indicted for promoting prostitution and related charges.

The indictments by a Staten Island Grand Jury follow a lengthy investigation of the escort services, which authorities believed were really a front for a massive prostitution ring.

"This was a sophisticated and lucrative operation with a multi-tiered management structure," Spitzer said.

"It was, however, nothing more than a prostitution ring, and now its owners and operators will be held accountable."

New York City Police Commissioner Raymond W. Kelly said:

"These individuals thought they could hide in plain sight by pretending to provide legitimate and legal services without their true practices being discovered."

"The only escort they are getting now is a police escort."

In the first indictment, 16 defendants were charged with enterprise corruption, money laundering, promoting prostitution and falsifying business records.

In the second indictment, two individuals were charged with helping to launder proceeds from the illegal activities.

The charges are the result of an investigation conducted jointly by the Attorney General's Statewide Organized Crime Task Force (OCTF), the New York City Police Department, the Waterfront Commission of New York Harbor, the United States Department of Labor and Federal Bureau of Investigation.

In addition, the Richmond County District Attorney's Office was instrumental in launching the investigation.

The escort services, which advertised under various names, including Personal Touch, Day Dreams, Sweet, Gentlemen's Delight, White Diamonds, Ladies and Britney's, allegedly accepted payment for the prostitution services in cash or, in some cases, by credit card.

The credit card transactions were processed through different merchant accounts, each of which claimed to provide legitimate services to its customers.

The business allegedly operated 24 hours a day, seven days a week, with a staff of approximately eight office managers who supervised and directed the activities of approximately 15 to 20 drivers and 30 to 40 prostitutes each day.

The drivers and prostitutes were dispatched to all five boroughs of New York City, to Nassau, Suffolk and Westchester counties, and into suburban New Jersey, from business offices in Staten Island, Brooklyn and Queens.

As charged in the first indictment, defendant Frank Farella was the owner and boss of the illegal business.

Defendants John Pioppo and Mario Galbo were the upper-level managers responsible for the day-to-day operation of the criminal enterprise.

In this capacity, Pioppo and Galbo supervised the office managers, including defendants Joann Corey, Mildred Scarpa, Angela Altman, April Beiner, Dorothy Bray, Lillian Demalteris, Cynthia Dimele, Debra Gutierrez, Karen Kelly, Cynthia Raiser, Louise Santanastasio, Teresa Vera and Melissa Giandinoto.

The following defendants were charged with Enterprise Corruption, a class B felony which carries a possible penalty of up to 8 1/3 to 25 years, and several counts of Promoting Prostitution in the Third Degree, a class D felony:

Frank Farella, 44, of Staten Island

John Pioppo, 42, of Staten Island

Mario Galbo, 58, of Brooklyn

Joann Corey, 29, of Staten Island

Mildred Scarpa, 61, of Brooklyn

Angela Altman, 26, of Brooklyn

April Beiner, 52, of Brooklyn

Dorothy Bray, 50, of Staten Island

Lillian Demalteris, 43, of Brooklyn

Cynthia Dimele, 20, of Staten Island

Debra Gutierrez, 38, of Brooklyn

Karen Kelly, 39, of Brooklyn

Cynthia Raiser, 27, of Queens

Louise Santanastasio, 35, of Staten Island

Teresa Vera, 21 ,of Staten Island

Melissa Giandinoto, 27, of Brooklyn

Farella and Pioppo also were charged with falsifying business records and money laundering.

In two separate but related indictments, Lester Thompson, 46, of Coram, Long Island, was charged with falsifying business records, and Norman Greenblatt, 67, of Staten Island, was charged with promoting prostitution, falsifying business records and money laundering.

The indictments charge that Farella, Pioppo and Greenblatt falsified applications to open merchant accounts for processing credit card transactions, which applications hid the true nature of the business.

Through these merchant accounts it is alleged that the business laundered millions of dollars from January 1998 through March 2004.

The investigation was led by OCTF's Supervising Investigator Diego Cruz under the direction of Chief Investigator Thomas Mullen.

The matter was presented to the grand jury and will be handled at trial by Assistant Deputy Attorney General Amy Cohn, under the direction of Christopher Prather, Deputy Attorney General in charge of the OCTF.

The charges contained in these Indictments are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

http://www.oag.state.ny.us/press/2004/apr/apr7a_04.html

"Lawyer wants Spitzer suspended from NY bar"

Associated Press

Last updated: 4:43 p.m., Tuesday, March 11, 2008

ALBANY -- A Florida attorney is urging Gov. Eliot Spitzer's immediate suspension as a lawyer in New York following reports he patronized a high-priced prostitution ring.

Jack Thompson, a conservative Republican from Coral Gables, says the Disciplinary Committee for the Appellate Division's First Department should stop Spitzer from practicing law until the matter is resolved.

Alan Friedberg, the committee's chief counsel, declined to comment.

Calls to Spitzer's office and his lawyer were not immediately returned.

Thompson, who says he filed an early disbarment complaint against former President Bill Clinton in Arkansas, notes that Spitzer didn't claim innocence in his apology Monday.

"Spitzer resigning - Governor readies to quit over prostitution scandal as lawyers negotiate with prosecutors; Lt. Gov. Paterson keeps low profile"

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

First published: Wednesday, March 12, 2008

ALBANY -- Gov. Eliot Spitzer holed up in his Manhattan apartment Tuesday and prepared to resign today over a prostitution scandal that has rocked the state, according to a high-ranking aide.

In a strategy used to give his lawyers time to negotiate with federal officials, the aide said, Spitzer needed to hold onto the governorship as leverage to work out a deal involving criminal charges.

Two well-placed sources in the Capitol said Spitzer will likely step down today.

As some Republicans talked of impeachment and some Democrats were studying the process, too, the scandal-scarred Spitzer essentially remained executive an extra day before what most considered to be the inevitable end of his relatively brief tenure.

Expectations were that he would leave it to Lt. Gov. David Paterson to serve the nearly three years left in his term.

Paterson kept a low profile Tuesday and prepared for the prospect of succeeding Spitzer, according to people close to the governor.

Spitzer's lawyer spent most of Tuesday conferring with prosecutors with the U.S. Attorney's Office as the scandal continued to reverberate throughout the media-encircled Capitol a day after word of the scandal broke.

Director of Operations Paul Francis largely ran the government.

Top commissioners tried to rally their agencies.

Yet officials in the Spitzer administration expected their boss to step down today.

The "profound sadness" enveloping the administration, as one Spitzer loyalist described it, followed disclosures on Monday that the governor was caught through wiretaps and financial records as being a patron of high-priced prostitutes.

"I have seen press reports that the governor's resignation is imminent, and that is not true," Senior Adviser Lloyd Constantine told the Times Union Tuesday afternoon as Spitzer lawyer Michele Hirshman was working with the U.S. Attorney's Office, several sources said.

Constantine declined to elaborate.

Paterson stayed out of the public limelight, but his aides took a few questions, including one about his health.

A fainting spell last summer during a flight, the aide said, was checked out by experts who said Paterson is in good health but has a condition that is easily remedied if he stops sleeping with his collar buttoned.

The Harlem Democrat, poised to become New York's first African-American governor, is readying to take over Spitzer's job under provisions of succession in the state constitution.

"He'd be foolish not to," a close aide to Spitzer said.

Republican leaders urged the governor to resign promptly.

Assembly Minority Leader James Tedisco said impeachment proceedings should commence if Spitzer holds the Capitol hostage much longer.

Negotiations for the state budget, due April 1, have all but halted because of the scandal.

Less than 24 hours after the news of Spitzer's alleged participation in a prostitution ring, Tedisco, R-Schenectady, said the governor must step down within 48 hours or he would call for impeachment.

One Democratic assemblyman, who declined to be named, said he was considering the wisdom of forcing the governor out and was carrying the legal procedure for impeachments in his briefcase.

Yet most Democrats expected Assembly Speaker Sheldon Silver to block any such action from his 107-member conference.

"That kind of discussion (is) a bit premature," Silver said.

"All the facts are not out yet ..."

"The governor should have time to reflect and repair the damage he's done to his family."

Impeachment cases must be brought by the Assembly and prosecuted by the full GOP-led Senate, which has almost as many Democrats, allies of Spitzer, as Republicans.

From beyond the Capitol, U.S. Rep. Kirsten Gillibrand, D-Greenport, said Spitzer, who campaigned with her in 2006, should step down if he was indeed involved with a prostitution ring.

"This is very grave and sad news."

"My heart goes out to the governor's family," Gillibrand said in a prepared statement.

"If these serious allegations are true, the governor will have no choice but to resign."

Some supporters spoke on Spitzer's behalf.

Assemblyman Carl E. Heastie, D-Bronx, was among several Democrats who said some lawmakers are unfairly judging Spitzer.

Critics portray him as a hypocrite who made a name for himself partly by prosecuting prostitution rings in 2004.

Now he is accused of hiring high-priced prostitutes, according to federal records and interviews, and some say he would lack credibility if he stayed on.

"It's a wait-and-see; you gotta have compassion for the situation, for his family and the state as a whole," Heastie said.

"I'm not passing any judgment until it plays out; I think that's the fairest thing to do for everyone."

"The business of the state is continuing."

"Not any one person is more important than the business of the state."

However, little legislative business got done.

The Republican-led Senate held back on issuing its budget plan, but planned to pass a resolution today with legislation to follow.

"It's bizarre," said Assemblyman Adam Clayton Powell IV.

"I have never seen anything like this in my 20 years as a politician."
Powell, who recently was charged with driving while intoxicated, said he understands that people can be wrongly charged:

"I will not jump to any conclusions ..."

"He has not been charged with anything."

Spitzer got caught up in the sex ring as a result of a financial investigation started by the IRS, according to a government source, and it became a public corruption case when it was taken up by the FBI and the U.S. Attorney's Office.

The story of Spitzer's alleged sex romps with prostitutes working for Emperors Club VIP is generating attention from Troy to Taipei.

Some 40 news vehicles parked around the Capitol with broadcast teams awaiting news of Spitzer's resignation.

Reporters in the Capitol were being besieged by producers to appear on network, cable and radio shows.

The scandal dominated talk shows, with some hosts and callers questioning Spitzer's State Police security teams for allowing the governor to enter into illegal trysts.

Acting Police Superintendent Preston Felton declined to respond to the attacks.

"I can't get into that, and I think it would be inappropriate to do so at this time."

"We'll never discuss a governor's personal security."

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

THE NEW YORK POST

"HIS PUSHY PLAN TO BE IN DC FOR TRYST"

By DAPHNE RETTER Post Correspondent

March 12, 2008 -- WASHINGTON - Gov. Eliot Spitzer himself sought to testify before a congressional subcommittee that hadn't invited him to appear - possibly to give him an excuse to be away from home and see a hooker, officials revealed yesterday.

When Spitzer did show up before the panel on Feb. 14, the day after he'd been with a prostitute, Rep. Spencer Bachus (R-Alabama) said that the typically unflappable Spitzer "came unglued" under questioning during the hearing.

Bachus, a former prosecutor himself, added that Spitzer also seemed unprepared, making at least one statement that Bachus has since informed the committee was inaccurate.

Now, though, it all makes sense, Bachus said.

"I realize that he may have been a little sleep-deprived," Bachus said with a grin in an interview yesterday.

"When we haven't had a good night's sleep, we can all get a little cranky."

A recording of the hearing shows Spitzer angrily speaking over Bachus as he questioned the governor on New York's efforts to regulate bond insurance.

"Mr. Bachus, Mr. Bachus, you are involved in a finger-pointing exercise," a clearly agitated Spitzer said into the microphones.

At one point in the tense exchange, which was later played on cable news channels, Spitzer flouted the format of the hearing and instead demanded answers from Bachus.

The subcommittee had originally requested the appearance of New York State Insurance Superintendent Eric R. Dinallo as a representative of Spitzer's administration, but the governor requested his own invitation "within a day or two" of the meeting, according to committee aides.

Spitzer's office alerted New York reporters that he would be in Washington less than a day before the 11:30 a.m. congressional hearing.

daphne.retter@nypost.com

http://www.nypost.com/seven/03122008/news/...ryst_101577.htm

"United call for Spitzer to resign - Rensselaer County lawmakers unanimous in request; borrowing for jail expansion also approved"

By KENNETH C. CROWE II, Staff writer, Albany, New York Times Union

First published: Wednesday, March 12, 2008

TROY -- The Rensselaer County Legislature unanimously called on Gov. Eliot Spitzer to resign immediately and continued its bipartisanship Tuesday night by finally approving the bonds needed to finance expansion of the county jail.

The bipartisan efforts by the 11 Republican and six Democratic legislators also extended to approving a Democratic measure to study converting the Hudson and Mount McGregor correctional facilities to regional county use.

Overshadowed by the three unanimous votes was County Executive Kathleen Jimino's annual State of the County address to the county Legislature.

Spitzer's alleged involvement in a prostitution ring caught the attention of the county legislators as it has most state residents since the news broke Monday afternoon.

The legislators want Spitzer to step down to restore the state's image.

"It's just so sad," said Minority Leader Virginia O'Brien, D-East Greenbush.

"I believe the governor will do the right thing."

Majority Leader Robert Mirch, C-Troy, "This is a tragedy."

"This is a human tragedy."

Legislature Chairman Neil Kelleher, R-Troy, said, "Don't do it for us, governor."

"Do it for your family."

The legislators also approved $12.5 million in bonds to proceed with construction of 196 new cells at the 234-cell county jail.

The county will spend $50 million for the overall jail expansion project, which will result in a net gain of 27 beds at the jail once state-approved double bunking of inmates ends.

The Democrats were able to win Republican support for their measure to study reuse of the state correctional facilities at Hudson and Mount McGregor for counties to resolve their jail demands by pursuing a regional solution.

"We believe there is an opportunity here for intergovernmental cooperation that will save taxpayers money and also benefit the local economy," O'Brien said.

Jimino in her address to the county Legislature warned that additional state mandates could fuel a 9 percent increase in county property taxes.

The county executive said her administration continues to push for economic development to expand the county tax base.

She said efforts will be made to attract more tourists to the county in an attempt to generate more sales tax revenues and to increase economic opportunities.

"Poll: New Yorkers want Spitzer to quit"

By MICHAEL GORMLEY, Associated Press

Last updated: 6:32 a.m., Wednesday, March 12, 2008

ALBANY -- Bloggers, commentators and comedians have already weighed in on the prostitution scandal that has imperiled Gov. Eliot Spitzer.

Now New Yorkers are getting a shot and their view is clear: He should resign or be removed from office.

A poll released late Tuesday found that 70 percent of New Yorkers think Spitzer should resign, while 66 percent believe he should be impeached and removed from office if he doesn't.

"It's a big thumbs down," said Lee Miringoff, director of the Marist College Institute for Public Opinion, which conducted the poll.

"It points to just how politically untenable his position is right now."

The poll comes a day after allegations that Spitzer hired a high-priced call girl, vaporizing his straight-arrow persona.

Investigators said Tuesday he was a repeat customer who spent tens of thousands of dollars.

While Spitzer and his family remained huddled in their Manhattan apartment, insiders said the governor was trying to decide how to proceed.

Republicans began talking impeachment, and few if any fellow Democrats came forward to defend him.

The scandal erupted Monday when allegations surfaced that Spitzer, a 48-year-old married man with three teenage daughters, spent thousands of dollars on a call girl named Kristen at a swanky Washington hotel on the night before Valentine's Day.

The case started when banks noticed frequent cash transfers from several accounts and filed suspicious activity reports with the Internal Revenue Service, a law enforcement official told The Associated Press.

The accounts were traced back to Spitzer, leading public corruption investigators to open an inquiry.

A law enforcement official said Tuesday that Spitzer had spent tens of thousands of dollars with the call-girl service Emperors Club VIP.

Another official said the amount could be as high as $80,000.

It was not clear over what period of time that was spent.

Still another law enforcement official said investigators found that during the Washington tryst, Spitzer used two rooms at the Mayflower Hotel -- one for himself, the other for the prostitute.

Sometime around 10 p.m., Spitzer sneaked away from his security detail and made his way to her room, the official said.

The officials spoke to the AP on condition of anonymity because of the sensitivity of the case.

According to an affidavit, a federal judge approved wiretaps on the escort service's telephone in January and February.

FBI agents in Washington had the Mayflower under surveillance when Spitzer was in town, a senior law enforcement official told the AP.

In the court papers, an Emperors Club employee was quoted as telling Kristen that Client 9 -- identified as Spitzer, according to investigators -- might ask to do things "you might not think were safe," and Kristen responded by saying: "I have a way of dealing with that."

A law enforcement official said Tuesday the discussion had to do with Spitzer's preference not to wear a condom.

Meanwhile, Albany insiders said the governor was still weighing his options, including quitting immediately or waiting to use resignation as a bargaining chip with federal prosecutors to avoid indictment.

Democrats privately floated another option, telling the AP that Spitzer was considering what was almost unthinkable immediately after Monday's bombshell apology: hanging on.

"If the public is fine, he'll stay," said a Democrat who spoke on condition of anonymity because of the sensitivity of the subject.

The poll indicated dissension among voters.

Spitzer's approval rating was 30 percent, down from 35 percent in January.

In November 2006, he won office with a historic 69 percent of the vote.

Even if Spitzer resigns, 49 percent of New Yorkers said he should face criminal charges.

The telephone poll conducted Tuesday surveyed 624 registered voters and had a margin of error of plus or minus 4 percentage points.

Spitzer has not been charged, and prosecutors would not comment on the case.

Michele Hirshman, Spitzer's former deputy attorney general and now a member of a high-powered New York law firm, has been retained to represent the governor.

In Albany, legislative leaders said Democratic Lt. Gov. David Paterson, who would become governor if Spitzer resigned, was talking to them about a possible transition.

Paterson's office wouldn't confirm the conversations.

Assembly Republican leader James Tedisco warned that if Spitzer did not resign within 48 hours, he would call for impeachment.

But any impeachment would face a difficult road in the Democratic-controlled Assembly, where articles of impeachment would require a majority vote to go to a trial.

A trial would be decided by a combined vote of the full Senate, which has a slim GOP majority, and the Court of Appeals.

Privately, several Democrats in both the Legislature and in the administration said resignation appeared inevitable.

"He's weighing the rest of his life," one Democratic official said sadly.

Late Tuesday, freshman Rep. Kirsten Gillibrand became the first Democratic member of New York's congressional delegation to mention resignation.

"This is very grave and sad news," she said.

"If these serious allegations are true, the governor will have no choice but to resign."

But more than a day after the scandal broke, Sen. Hillary Rodham Clinton and other senior Democrats in the delegation had yet to call on Spitzer to quit.

On Wall Street, where Spitzer built his reputation as a crusader against shady practices and overly generous compensation, cheers and laughter erupted Monday from the trading floor when news broke of his potential ruin.

"The irony and the hypocrisy is almost too good to be true," said Bryn Dolan, a fundraiser who works with many Wall Street employees.

"If he had any shame, he would've already resigned."

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Associated Press writers Valerie Bauman and Michael Virtanen in Albany, and Vinnee Tong in New York contributed to this report.

"Disgraced Spitzer resigns - Lt. Gov. David Paterson prepares to take state helm Monday"

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

Last updated: 3:47 p.m., Wednesday, March 12, 2008

ALBANY -- A disgraced Gov. Eliot Spitzer announced this morning that he will resign from his post Monday, giving Lt. Gov. David Paterson time to have a smoother transition.

Paterson will become the state's first African-American governor, and the first blind chief executive of any state.

With his wife, Silda, by his side, Spitzer, a former prosecutor caught up in a prostitution scandal, said he had spent his life holding people accountable and had to do the same for himself.

He acknowledged he had let people down and apologied to "every New Yorker and all those who believed in what I tried to stand for."

"I look at my time as Governor with a sense of what might have been," he said.

"I am deeply sorry that I did not live up to what is expected of me," said Spitzer during his brief statement.

The event, called for 11:30 a.m., started about 20 minutes late, and lasted less than two minutes.

One wall of the packed press room in his New York City office was lined with staffers who stood quietly and listened intently as the governor read his resignation, some leaning on each other.

Other than one reporter who shouted, "Governor, did you ever think it would come to this?" as the Spitzer's left the room, the press asked no questions.

Spitzer did not reply.

Spitzer had remained holed up in his New York City apartment Tuesday in a strategy to hold onto his governorship a little longer as leverage for his lawyers to negotiate with federal officials, the aide said.

Michael Garcia, the U.S. Attorney for the Southern District, issued a statement today that no deal has been made.

Senate Majority Leader Joseph Bruno, who has warred openly with Spitzer this year and last, said he took no satisfaction in Spitzer's downfall, and said he was focused on passing a budget by April 1 and governing.

"There is no pleasure in what is going on in this state in anybody's life," he said.

As some Republicans talked of impeachment and some Democrats were studying the process, too, the scandal-scarred Spitzer essentially remained executive an extra day before what most considered to be the inevitable end of his relatively brief tenure.

It will fall to Paterson to serve the nearly three years left in his term.

Paterson has kept a low profile as he prepared for the prospect of succeeding Spitzer, according to people close to the governor.

Spitzer's lawyer spent most of Tuesday conferring with prosecutors with the U.S. Attorney's Office as the scandal continued to reverberate throughout the media-encircled Capitol a day after word of the scandal broke.

Director of Operations Paul Francis largely ran the government.

Top commissioners tried to rally their agencies.

A "profound sadness" enveloping the administration, as one Spitzer loyalist described it, following disclosures on Monday that the governor was caught through wiretaps and financial records as being a patron of high-priced prostitutes.

While Paterson stayed out of the limelight, his aides took a few questions, including one about his health.

A fainting spell last summer during a flight, the aide said, was checked out by experts who said Paterson is in good health but has a condition that is easily remedied if he stops sleeping with his collar buttoned.

Republican leaders on Tuesday had urged the governor to resign promptly.

Assembly Minority Leader James Tedisco said impeachment proceedings should commence if Spitzer held the Capitol hostage for more than 48 hours.

One Democratic assemblyman, who declined to be named, said he was considering the wisdom of forcing the governor out and was carrying the legal procedure for impeachments in his briefcase.

Tomas Dinges of the Stabile Center for Investigative Journalism contributed to this report.

"Spitzer making infamous history as governor"

By MICHAEL VIRTANEN, Associated Press

Last updated: 3:03 p.m., Wednesday, March 12, 2008

ALBANY -- Eliot Spitzer's dizzying fall from power in the grip of a call-girl scandal is unprecedented in the 230 years since George Clinton became the first New York governor.

The nearest likeness is Gov. William Sulzer, who was impeached and removed in 1913 over his campaign records.

But many historians believe Sulzer, a sometimes abrasive reformer like Spitzer, was railroaded by Tammany Hall political bosses.

Spitzer resigned Wednesday after being named as a client of a high-priced prostitution ring.

His plummet from the state's highest office was especially stunning since the former crusading state attorney general was once touted as the next in line among state leaders who enjoyed national influence.

"I don't believe any previous governor was involved in a scandal like this, but I believe most importantly, certainly in the era of strong governors, this is by far the most shocking development we've seen," said Robert Ward, deputy director of the Rockefeller Institute of Government.

Ward reeled off powerful New York governors to whom a pre-scandal Spitzer was often compared: Teddy Roosevelt, Al Smith and Nelson Rockefeller.

"And Eliot Spitzer came in holding the promise of being another Rockefeller in his impact on the state," Ward said.

"Obviously, that did not happen."

Others in that prestigious line include Franklin Roosevelt (four term president), Thomas Dewey (crime-busting U.S. attorney), Charles Evans Hughes (Supreme Court justice) and Mario Cuomo (lofty orator, liberal icon).

Four New York governors have gone on to be president: Both Roosevelts, Martin Van Buren and Grover Cleveland.

Other elected officials have been hurt by sex scandals.

President Clinton denied having sexual relations with former White House intern Monica Lewinsky, only to be forced into a humiliating reversal.

He was impeached by the House and then acquitted in a 1999 Senate trial.

New Jersey Gov. Jim McGreevey resigned after acknowledging an affair with male aide.

Sen. Larry Craig of Idaho pleaded guilty to disorderly conduct after being accused of soliciting sex in a Minneapolis airport men's room.

Craig insisted his actions were misconstrued and he refused to resign.

Spitzer, a Democrat, was elected in 2006 with almost 70 percent of the vote, largely on a strident campaign to reform all that ailed a dysfunctional Albany.

After early successes enacting workers' compensation, budget and ethics reforms, he spent much of 2007 in conflict with Republican lawmakers.

Most of the year, Spitzer was bogged down by a plot hatched by aides to use the state police to track the travels of his political rival in an effort to discredit him.

But Troopergate, as the tabloids dubbed that early scandal, was nothing compared to what unfolded this week.

Democratic Assemblyman John McEneny of Albany, a political historian, agreed that New York has never seen a fall like Spitzer's.

It's more typical for governors here, like Rockefeller, to leave in pursuit of national office or else retire.

He was the last to leave office before his term expired.

Since 1777, the state has had 54 governors, and only Sulzer previously was forced out.

"I think particularly there have been few if any governors that have entered office with the hopes that the people placed in Eliot Spitzer, and you might say that no one started as high and no one, unfortunately, finished so low," Ward said.

Sulzer made a brief comeback.

The year after his removal, he was elected to the Assembly as an independent.

"He ultimately was vindicated by the voters," Ward said.