The Japanese government declared an “atomic power emergency” and evacuated thousands of residents living close to a nuclear plant in northern Japan after a major earthquake, but officials said there had been no radiation leak from the facility and that problems with its cooling system were not critical.
Some 3,000 people were told to leave a 2-mile radius around the Fukushima No. 1 plant, operated by Tokyo Electric Power and located in Fukushima Prefecture, after a mechanical failure in the cooling system, government officials said. The plant is designed to shut down safely after an earthquake, but its emergency diesel generators, needed to run water pumps, were not working. American experts on reactors of the Fukushima design said, though, that technicians at the plant would have several hours to restore power before any significant damage resulted.
Japan’s nuclear safety agency said pressure inside one of six boiling water reactors at the Fukushima Daiichi plant had risen to 1.5 times the level considered normal, according to The Associated Press. To reduce the pressure, slightly radioactive vapor would be released, the news agency said, but it was not immediately clear if it was going to be released into the containment building or the atmosphere. The agency said the radioactive element in the vapor would not affect human health. The evacuation was described as precautionary. Near midnight Japan time on Friday, Jiji Press, a Japanese news agency, quoted Trade Ministry officials as saying that the cooling system would be reactivated and should resume normal operations. Japan relies heavily on nuclear power, and it generates just over a third of the country’s total electricity. The facilities are designed to withstand earthquakes, which are common in Japan, but experts have long expressed concerns about safety standards at the plants, particularly about the impact a major quake could have if it hit close to a reactor.
At least two other Japanese nuclear plants also reported trouble, but there was no radiation leak at either of them, government officials said. A number of nuclear reactors around the hardest-hit area of the country were shut down, and Japanese news media said a fifth of the country’s total nuclear generating capacity was offline because of the quake. One major concern is that while operators can quickly shut down a nuclear reactor in an earthquake or another emergency, they cannot allow the cooling systems to stop working. Even after the plant’s chain reaction is stopped, its fuel rods still produce heat. The production of heat drops off sharply over the following hours, but continued cooling is needed, or the water will boil away and the fuel will melt, releasing the uranium fragments inside.
Heat from the nuclear fuel rods must be removed by water in a cooling system, but that requires power to run the pumps and to align the valves in the pipes. So the plant requires a continuous supply of electricity even after the reactor stops generating its own power. An analyst with the World Nuclear Association, a major international nuclear power group, told Reuters that he understood fresh cool water was now being pumped into the cooling system at Fukushima, reducing the threat of a meltdown. “We understand this situation is under control,” the analyst said, adding that he understood that a back-up battery power system had been brought online after about an hour and began pumping water back into the cooling system, where the water level had been falling. Japanese news media quoted officials in Fukushima Prefecture as saying that water levels were 3.4 meters — about 10 feet — above the fuel rods at the No. 2 reactor at the plant. Tokyo Electrical Power officials confirmed that water levels had been falling but said that fuel roads had not been exposed.
Civilian power reactors are designed with emergency diesel generators to assure the ability to continue cooling even during a blackout. Many reactors have two, assuring redundancy; some have three, so that if one must be taken out of service for maintenance, the plant can still keep running. It was not immediately clear how many there are at Fukushima, but the operators reported earlier in the day that they were not working, prompting the evacuation. Fukushima 1, which was designed by General Electric and entered commercial service in 1971, was probably equipped to function for some hours without emergency diesel generators, according to David Lochbaum, who worked at three American reactor complexes that use General Electric technology.
Mr. Lochbaum, who also worked as an instructor for the Nuclear Regulatory Commission on GE reactors, said he did not know the details of Fukushima, but that such reactors were equipped to ride out interruptions in electrical power by using pumps that could be powered by steam, which would still be available in case of electric power failure. Valves can be opened by motors that run off batteries, he said. Older plant designs, of the era of Fukushima, generally have batteries sized to operate for four hours, he said. After four hours, heat production in the core is still substantial but has been reduced, he said. The heat would boil away the cooling water, raising pressure in the reactor vessel, until automatic relief valves opened to let some of the steam out. Then the valves would close and the pressure would start building again.
If the cooling system remains inoperative for many hours, the water would eventually boil away, he said, and the fuel would begin to melt. That is what happened at Three Mile Island, the reactor near Harrisburg, Pa., that suffered a partial core melt in March 1979. In that case the cause was not an earthquake, but mechanical failure, operator error and poor design, government investigators later found. Mr. Lochbaum, who now works for the Union of Concerned Scientists, a group that is very often critical of nuclear safety standards, said that if the cooling water in the vessel was boiling away, the process of boiling enough to expose the fuel would take “hours, not minutes.”
The radioactive steam — which would become far more radioactive as the fuel began to melt — would fill the containment building, he said. That building is designed to be cooled, to keep down steam pressure and leaks. But those pumps require the main sources of power at the plant to function properly.
“If they start melting fuel, the containment integrity is going to the key in terms of what gets out,” Mr. Lochbaum said. “Their focus now has to be on getting back A.C. power” — or the main power supplies for the plant.
Companies in Japan evacuated and closed plants on Friday as they scrambled in the aftermath of a powerful earthquake and tsunami that struck the northeastern part of the country.
As aftershocks continued Friday, many company executives were trying to assess possible damage and determine what the long-term effect on their operations might be. “There are car and semiconductor factories in northern Japan, so there will be some economic impact due to damage to factories,” Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo, told Reuters. Any disruptions in Japan’s exports will inevitably ripple through an economy that has stagnated over the last two decades. Japan’s gross domestic product fell 0.3 percent in the October-December quarter as the end of generous government incentives on environmentally friendly cars resulted in a temporary decline in spending. At an annualized rate, Japan’s economy shrank 1.1 percent in the fourth quarter from the previous quarter.
All Japanese ports were closed, shippers said Friday, though the shutdowns may be precautionary. The country’s major container seaports, most of them south of Tokyo, play a crucial role in Japan’s export-driven economy. Japanese exports — chiefly automobiles, machinery and manufactured goods — rose by almost a quarter in 2010, the first increase in three years, and a lengthy shutdown could create costly delays up and down the global supply chain. Reuters reported that several airports, including Tokyo’s Narita, were closed. Numerous airlines diverted flights away from the affected area, and the airport in the city of Sendai was flooded by a tsunami that followed the quake, according to the Japanese television broadcaster NHK.
The Japanese central bank said on its Web site that it would “do its utmost,” including providing extra liquidity, to ensure financial market stability. Over all though, the real bulk of industrial Japan appeared to have been spared, said an economist in Hong Kong, who had been in touch with his colleagues in Japan but asked not to be identified as he was not authorized by his bank to talk about Japan. “Inevitably there will be microeconomic disruptions, as there were after Kobe and even Chuetsu,” Richard Jerram, chief Asia economist at Macquarie, wrote in a research note, referring to other powerful earthquakes that had hit Japan in recent years. “However, many firms reportedly diversified supply chains in the wake of Kobe, so the impact should be lower.” Most automakers halted production at assembly plants in the affected areas. One worker died and more than 30 were injured when walls and parts of a ceiling crumbled at a Honda Motor research facility in northeastern Tochigi prefecture, The Associated Press said, attributing the report to the company. Production at two Honda plants was halted, but resumed shortly afterward at one.
Nissan Motor halted production at five of its plants in northeastern Japan and in the Yokohama area near Tokyo, The A.P. reported. It said two workers were slightly injured at its Tochigi plant and its technical center in Kanagawa prefecture, near Tokyo. Toyota, headquartered near the southern port of Nagoya, said in a statement that no injuries had been reported at its operations, though a total of four plants in the north and northeast — in Hokkaido, Tohoku and Miyagi — had been shutdown. Other plants, the statement said, were back in operation, but the company was still evaluating possible disruptions to its supply chain. A representative for Sony, headquartered in Tokyo, said the company had shut down its six northern plants — which make Lithium-ion batteries and Blu-Ray parts — and evacuated its employees there. No injuries were reported. Numerous other companies said they were still assessing possible damage; many others could not be reached for comment.
The Associated Press reported that the Cosmo Oil refinery outside of Tokyo was burning out of control with 100-foot flames whipping into the sky. Several nuclear power stations were shut down, according to media reports. Miyagi, the prefecture that is home to Sendai and the areas most affected by the quake, accounts for 1.7 percent of the Japanese population and the same proportion of gross domestic product, while the region of Tohoku as a whole is about 8 percent of G.D.P., Mr. Jerram estimated. Initial reports suggested that Tokyo, the financial center of the country, had not been badly damaged, he added.
The region hit by the tsunami is known for growing rice, and other rice-growing areas around the Pacific Rim may see coastal flooding at a time of already rising world food prices. But Ben Savage, the managing director for rice at Jackson Son & Company in London, one of the world’s oldest rice brokerage houses, said that the tsunami was unlikely to have much of an effect on global rice prices because rice tends to be fairly tolerant of the temporary ingress of salt water into paddies.
A separate concern is that many areas immediately adjacent to the ocean are now used for aquaculture of shrimp and fish and may be damaged, Mr. Savage said. “The biggest problems tend to be infrastructure, roads and rail,” said Janet Hunter, who teaches Japanese economics at the London School of Economics. “Almost everything is going to have to be replaced” that fell in the path of the tsunami. Christopher Gerteis, an expert in contemporary Japan at the School of Oriental and Asian Studies in London, said the region largely depended on local fisheries for their food, and that the cost of reconstruction would include reclaiming the fishing fleet. One of the few things that was immediately clear was that investors were deeply unsettled by the disaster, which took place just as the Japanese economy had begun to gather some steam. However, many economists also caution that economic activity remained feeble, plagued by deflation, high government debt, and an aging population — factors that contributed to the decision by the ratings agency Standard and Poor’s to downgrade Japan’s credit rating earlier this year.
The Japanese stock market had very little time to react to the quake, which occurred shortly before the end of the trading day in Tokyo. The Nikkei 225 index, which had already been lower before the quake, ended down 1.7 percent for the day. Bond futures surged amid the uncertainty, though the yen quickly rebounded after initially dipping against the dollar as news of the quake came out. “The last major earthquake to hit Japan was the Great Hanshin Earthquake which hit Kobe on Jan. 17th 1995,” Geoffrey Yu, a currency analyst at UBS in London, wrote Friday. The quake caused more than $100 billion in damage, but dollar-to-yen index fell over 20 percent in the following three months.
“There is reason to believe this time the reaction would be similar,” Mr. Yu said. He noted that the insurance companies, though clearly implicated by the quake, might receive government backing.
Mr. Yu wrote that when aggregate claims exceed 1 trillion yen, the government takes on a much larger share of the cost, while insurers pay only a fraction. The damages wrought from the quake and its aftermath, he said, were likely to surpass that. He said that damages from the Kobe quake had been mitigated by low levels of coverage at the time, conditions that may well apply in the latest earthquake
RAS LANUF, Libya — The momentum shifted decisively Thursday in an uprising that has shaken Col. Muammar el-Qaddafi’s four decades of rule, as rebels fled from this strategic refinery town under a sustained land, air and sea assault by government forces.
The fighting was a stark illustration of the asymmetry of the conflict, pitting protesters turned rebels against a military with far superior arms and organization and a willingness to prosecute a vicious counterattack against its own people. Usually ebullient rebels acknowledged withdrawing Thursday, even as the fledgling opposition leadership in Benghazi scored diplomatic gains with France’s recognition of it as the legitimate government and senior American officials’ promise to talk with its leaders.
“We are coming,” Colonel Qaddafi’s son, Saif al-Islam, told reporters in Tripoli. Western nations took new steps to isolate the Qaddafi government, but the measures stopped well short of any sort of military intervention and seemed unlikely to be able to reverse the momentum. The cautious response underscored what is at stake in a race against time in the most chaotic and unpredictable of the uprisings to shake the Arab world — whether the opposition can secure more international recognition and a no-flight zone to blunt Colonel Qaddafi’s offensive before rebel lines crumble in the coastal oil towns west of Benghazi. “It’s tough these days,” said Mohammed al-Houni, a 25-year-old fighter at the front. “There is no comparison between our weapons and theirs. They’re trained, they’re organized. They got their training in Russia and I don’t know where. We’re not an army, we’re the people and even if we had weapons, we wouldn’t even know how to use them.”
Only days ago, rebels were boldly promising to march on Surt, Colonel Qaddafi’s hometown, then on to Tripoli, where opposition leaders predicted its residents would rise up. But the week has witnessed a series of setbacks, with a punishing government assault on Zawiyah, near the capital, and a reversal of fortunes in towns near Ras Lanuf, whose refinery makes it a strategic economic prize in a country blessed with vast oil reserves. There was a growing sense among the opposition, echoed by leaders in opposition-held Benghazi and rebels on the front, that they could not single-handedly defeat Colonel Qaddafi’s forces. “We can’t prevail unless there’s a no-fly zone,” said Anis Mabrouk, a 35-year-old fighter. “Give us the cover and we’ll go all the way to Tripoli and kill him.”
That seemed unlikely, though. Even without warplanes, Colonel Qaddafi’s government could still marshal far superior tanks, armor and artillery, along with the finances and organization to prosecute a counteroffensive. Given the disarray, some rebels took pride in their success in holding the lines at Ras Lanuf as long as they had. Soviet-made warplanes struck Brega, more than 100 miles from the front line on the road that resupplies the rebels, as well as several spots on the way to Ras Lanuf.
At noon, a rocket slammed into an unfinished mosque there, sending clouds of dust over dozens of worshipers and incensing fighters who condemned it as a sacrilege. “God is greater than the bombs!” people recalled shouting after the rocket detonated. “God is greater than Muammar el-Qaddafi. God is greater than any criminal!” From the minaret, the mosque’s loudspeaker, unsilenced by the attack, blared the words of the cleric. “When you side with God,” he intoned, “he will support you.” At the same time, a bomb detonated just yards from the hospital, unleashing scenes of chaos. Fighters shot randomly — and ineffectually — into clear skies, sirens howled and two ambulances speeding from the hospital crashed into each other. Doctors and staff evacuated the hospital, leaving behind the body of a civilian who they said was shot in the head by snipers loyal to Colonel Qaddafi’s forces firing from the beach.
“We only die once,” Hweidi Trabulsi shouted, trying to rally his fellow fighters, dressed in a mishmash of berets, camouflage and track suits. But his pleas fell on deaf ears, as rebels scrambled to fall back to a makeshift checkpoint at the edge of town. Scores of trucks fled down the coastal road, barreling past the largely deserted refinery and fighters praying on pieces of cardboard that read, “Fresh vegetables.” Shell casings fell off a pickup bed, as the vehicle lurched ahead. Passing it was a truck with a gun mounted in back, vainly camouflaged with a few branches of a eucalyptus tree. “Everyone is targeted,” said Salem Langhi, an orthopedic surgeon helping with the evacuation. “We have no idea what they’re bombing. Chaotic? Yes, this is chaos.” In Benghazi, Abdel-Hafidh Ghoga, the deputy leader of the Libyan National Council, a kind of government in waiting, said reports of Ras Lanuf’s fall were not accurate. An opposition spokesman, Essam Gheriani, said even if the reports were true, “It’s not a permanent setback.” He contended that the attack on the city was joined by Libyan Navy ships and commercial vessels carrying artillery. The reality of Ras Lanuf’s fate was more ambiguous. Even though rebels pulled back from the city, it did not appear that government forces had actually entered.
As each day passes, anger among the rebels grows at what they have described as inaction on the part of the international community and in particular, the United States. “Obama and Qaddafi are the same!” one fighter, Mohamed Mgaref, shouted at a medical clinic about an hour from the front, as ambulances ferried some of the four dead and dozens wounded in the fighting. More scenes of chaos unfolded there. “Clear the way!” volunteers shouted as ambulances swerved into the clinic’s driveway. At each rumor of an airstrike, people fled for cover. “Spread out,” one man shouted at them. In a rare piece of encouraging news for the opposition, France on Thursday became the first country to recognize the opposition leadership and said it would soon exchange ambassadors with the movement in Benghazi. The move put France ahead of the United States and other European powers seeking ways to support the opposition. France’s stance was viewed as a savvy gesture to show commitment to the uprisings and wave of protests in the Middle East and North Africa after President Nicolas Sarkozy admitted Paris was slow to recognize the strength of the movements in Egypt and Tunisia. It might also position France favorably in future oil deals if the opposition movement somehow manages to expel Colonel Qaddafi and take control of the country.
Libyan officials denounced the move as “illegal and illegitimate.” “All the options will be considered in our response,” Khalid Kaim, the deputy foreign minister, said in a news conference in Tripoli after the decision was announced, including Libya’s withdrawing recognition for France.
The Committee to Protect Journalists said that at least seven journalists in Libya were unaccounted for. The most recent to vanish was Ghaith Abdul-Ahad, a correspondent for The Guardian newspaper, whose disappearance was reported Thursday. Mr. Abdul-Ahad was last known to be on the outskirts of Zawiyah, near Tripoli, scene of some of the heaviest fighting between rebels and Colonel Qaddafi’s forces.
TOKYO — An 8.9-magnitude earthquake struck off the coast of Japan on Friday, the strongest ever recorded in the country and one of the largest anywhere in the last century. The quake churned up a devastating tsunami that swept over cities and farmland in the northern part of the country and set off warnings as far away as the West Coast of the United States and South America.
Japanese police officials said that more than 200 bodies were found in Sendai, a port city in the northeastern part of the country and the closest major city to the epicenter, and the government put the official death toll at more than 300. But with many people still missing there and elsewhere, the death toll is expected to rise. Walls of water whisked away houses and cars in northern Japan, where terrified residents fled the coast. Train service was shut down across central and northern Japan, including Tokyo, and air travel was severely disrupted. A ship carrying more than 100 people was swept away by the tsunami, Kyodo News reported.
The government evacuated thousands of residents in a two-mile radius around a nuclear plant about 170 miles northeast of Tokyo and declared a state of emergency after a backup generator failed, compromising the cooling system. So far, the chief government spokesman, Yukio Edano, said no radiation leaks had been detected. Prime Minister Naoto Kan said the quake and tsunami caused major damage across wide areas. The United States Geological Survey said the quake was the most severe worldwide since an 8.8 quake off the coast of Chile a little more than a year ago that killed more than 400. It was less powerful than the 9.1-magnitude quake that struck off Northern Sumatra in late 2004. That quake spawned a tsunami that killed more than 200,000 people around the Indian Ocean. The survey said that Friday’s quake was centered off the coast of Honshu, the most populous of the Japanese islands, at a point about 230 miles northeast of Tokyo and a depth of about 17 miles below the earth’s surface.
The quake occurred at 2:46 p.m. Tokyo time, and was so powerful that buildings in central Tokyo, designed to withstand major earthquakes, swayed. “This tremor was unlike any I’ve experienced previously, and I’ve lived here for eight years,” said Matt Alt, an American writer and translator living in Tokyo. “It was a sustained rolling that made it impossible to stand, almost like vertigo.” Japanese media reported that there had been more than 70 aftershocks in the hours after the quake. Some of them were of magnitude 6.0 or greater, strong enough to do significant damage on their own. President Obama said the United States “stands ready to help” Japan deal with the aftermath. "Michelle and I send our deepest condolences to the people of Japan,” he said in a statement. He later spoke with Mr. Kan and offered assistance. American military airfields in Japan began accepting civilian flights diverted from airports that suffered damage, American officials said early Friday. A spokesman for the American 7th Fleet in Japan said that Naval Air Field Atsugi had received several commercial passenger planes that could not land at Narita. Officials said that Yokota Air Base also received civilian flights. In addition, three American warships in southeast Asia will be ordered out to sea to reposition themselves in case they are directed to provide assistance, according to a 7th Fleet spokesman.
Officials around the Pacific warned residents of coastal areas to prepare for a possible tsunami, but the initial reports were of minimal to no damage in the first places that the wave reached. Relatively small tsunami waves were reported in Halmahera, Indonesia, but did little harm. Russia, China and Indonesia canceled their warnings after a few hours. Gauges at Midway Island in the Pacific registered a wave amplitude of about five feet, according to Gerard Fryer, a geophysicist with the Pacific Tsunami Warning Center.
On Hawaii, where the tsunami hit at midmorning East Coast time on Friday, initial wave heights were about four feet above normal sea level, said Paul Huang, a seismologist with the West Coast and Alaska Tsunami Warning Center in Palmer, Alaska. Often, though, wave heights increase over time, with the second or third being the highest, he said. The center had predicted wave heights of six feet. Television images showed waves of more than 12 feet roaring inland in Japan. Cars and trucks were still moving on highways as the water rushed toward them. The floodwaters, thick with floating debris shoved inland, pushed aside heavy trucks as if they were toys, in some places carrying blazing buildings toward factories, fields, highways, bridges and homes. The spectacle was all the more remarkable for being carried live on television, even as the waves engulfed flat farmland that offered no resistance. The force of the waves washed away cars on coastal roads and crashed into buildings along the shore.
NHK television transmitted aerial images of columns of flame rising from an oil refinery and flood waters engulfing Sendai airport, where survivors clustered on the roof of the airport building. The runway was partially submerged. The refinery fire sent a plume of thick black smoke from blazing spherical storage tanks. The images showed survivors in a home surrounded by water, waving white sheets from the upper floors of buildings. News reports said the earthquake had forced the Tokyo subways to empty while airports were closed and many residents took to the streets. Initial television coverage from coastal areas showed very few people actually in the water. The initial impact of the wave seemed to have been enormous, tipping two huge cargo vessels on their sides at one port and tearing others from their moorings. Smaller vessels, including what looked like commercial fishing trawlers, were carried inland, smashing into the superstructure of bridges as the waters surged. A senior Japanese official said foreign countries had offered to help and Japan was prepared to seek overseas assistance. Japanese television showed major tsunami damage in northern Japan. Public broadcaster NHK reported that a large ship swept away by the tsunami rammed directly into a breakwater in Kesennuma city in Miyagi prefecture. Video footage also showed buildings on fire in the Odaiba district of Tokyo, The Associated Press reported. “It just seemed to go on and on,” Katherine Wallace, who was in an office building in Tokyo when the quake struck, told the BBC.
A second major earthquake of 7.4 magnitude was reported as aftershocks shook the region. Japanese media reported mobile phone networks were not working. Power blackouts were affecting about 2 million residents around Tokyo alone, the government said. Cell phone service was severely affected across central and northern Japan as residents rushed to call friends and relatives as aftershocks struck. “I never experienced such a strong earthquake in my life,” said Toshiaki Takahashi, 49, an official in the Sendai City office. “I thought it would stop, but it just kept shaking and shaking, and getting stronger.”
The quake occurred in what is called a subduction zone, where one of the Earth’s tectonic plates is sliding beneath another. In this case, the Pacific plate is sliding beneath the North American plate at a rate of about 3 inches a year. The earthquake occurred at a depth of about 15 miles, which while relatively shallow by global standards is about normal for quakes in this zone, said Emily So, an engineer with the United States Geological Survey in Golden, Colo. Ms. So said that according to her agency’s calculations, the quake was of magnitude 8.9. It had been preceded by what seismologists call foreshocks — smaller quakes in the same area. The largest of these was a magnitude 7.2 quake two days before, centered about 25 miles south of the spot where the earthquake struck Friday. In a subduction quake that occurs underwater, as this one did, the sudden movement of a portion of one of the plates can displace enormous amounts of water, triggering a tsunami. As the tsunami waves approach shallow coastal areas, they tend to increase in height. The devastation often comes from a succession of waves, with the first few being relatively small. The waves can propagate across oceans at speeds of 500 miles an hour or greater. With Friday’s quake occurring only about 80 miles offshore, people in the closest coastal areas would not have had much time to evacuate.
Defense Secretary Robert M. Gates was briefed on the disaster during a trip to Brussels. Geoffrey Morrell, the Pentagon press secretary, said there were no reports of damage to American military facilities or naval vessels. At the headquarters of the Navy’s Seventh Fleet in Yokosuka, Japan, sailors were preparing for a potential tsunami. “We’ve issued instructions to our pierside ships in Yokosuka to stand by their lines to be prepared to quickly adjust them as necessary to prevent damage during any resulting tsunami,” said Cmdr. Jeff Davis, the Seventh Fleet spokesman.
The Hang Seng index in Hong Kong and the Straits Times in Singapore slumped after news of the quake, ending about 1.6 percent and 1 percent down, respectively.
WASHINGTON — When the financial system began to crumble more than three years ago, the world rushed to rescue it. Country after country went deeply into debt to keep banks afloat and prevent a deep recession from turning into something worse. It worked. This week was the second anniversary of the nadir of the crisis. Most stock markets around the world are at least 75 percent higher than they were then. Financial stocks, which led the markets down, have also led them up.
At the time, rescuing seemed more important than reforming. The world economy was breaking down because of a lack of financing. Trade flows collapsed, and companies and individuals stopped spending. It seemed clear that halting the slide was critical. But the world has changed since then. The economic recovery in most developed countries is stuttering at best, and governments are struggling with their own finances. It is time for remorse and second-guessing. A surprising citadel of that second-guessing is at the International Monetary Fund, where researchers this week concluded that the rescues “only treated the symptoms of the global financial meltdown.”
The researchers, Stijn Claessens and Ceyla Pazarbasioglu, warned that “a rare opportunity is being thrown away to tackle the underlying causes. Without restructuring financial institutions’ balance sheets and their operations, as well as their assets — loans to over-indebted households and enterprises — the economic recovery will suffer, and the seeds will be sown for the next crisis.” There have been reforms, of course. The Dodd-Frank law in the United States is now being put into effect, albeit by regulators that the new Republican majority in the House of Representatives seems determined to starve of resources to do the job. Banking regulators around the globe have agreed that much more capital is needed by banks, but stricter requirements are coming very slowly out of fear that abrupt changes will reduce bank lending when it is needed the most. More capital is clearly needed, but it may not be nearly enough. “If we ask them for more capital, and they are too big to fail, they can take even more risk” after they raise additional capital, Y. Venugopal Reddy, a former governor of India’s central bank, argued at an economic conference sponsored by the I.M.F. this week. He added that he was worried about institutions that were “too powerful to regulate.”
One of the questions economists were asked to address at the conference was, Does the financial system have social value?
A few years ago, that question would not have been asked at the International Monetary Fund. If it had been, the responses would have been as unanimous as might be expected if a gathering at the Vatican were to consider whether religion was a good thing. Now, there is no such unanimity. It is clear that there are functions of the financial system that must be performed, among them the allocation of capital and the setting of prices. But there is at least a suspicion that a significant part of modern finance has no real value for anyone except the participants.
Adair Turner, the chairman of Britain’s Financial Services Authority, spoke with wonderment of the huge volume of stock trades now made by computers using algorithms to rapidly trade in and out. Some traders, he said, were using what they called “predatory algorithms,” whose sole purpose is to exploit a weakness in some other trader’s algorithm and get it to make an unprofitable trade. “It is quite difficult to work out the social benefit of that,” he said. And of course, there is also the fact that the financial system did not accomplish what it was supposed to do. “At the core of these functions is the ability to find and set the right price, including the extent to which it reflects risk,” Antonio Borges, an I.M.F. official and former vice chairman of Goldman Sachs International, told the conference. “This is not really a question of financial sophistication, of complex products or greedy bankers. It is a question of getting the prices wrong.”
He added, “It is unbelievable how wrong they were.” There is general agreement that many of the assumptions economists and others made before the crisis — about the rationality of markets, about their ability to measure risks and about the proper role of monetary policy — were largely wrong, or at best oversimplified. But there is far less unanimity about what to do about it. International cooperation was impressive in dealing with the immediate crisis. Now it is splintering, and banks are threatening to move operations to areas they deem friendlier to them.
In retrospect, it is clear that the bailouts came with too little pain for those responsible. Bondholders who financed banks that failed largely escaped pain. That was true even in Ireland, where the bailout would have led to a default of government debt had Europe not stepped in. It is still not clear how Ireland will pay its national debt, but the bank bondholders did fine. At the time, of course, there were fears that forcing bondholders to suffer would lead to the collapse of banks that could have survived. Those fears seemed reasonable to me then, and still do.
But little progress has been made in setting up mechanisms to assure that any future crisis can be dealt with in a different way. There is talk of restructuring bank balance sheets to assure that debt is automatically converted to equity just when equity seems to be worth little, but that is unlikely to happen unless regulators force it, and it is far from clear what price investors would demand.
NEW YORK (AP) — Energy prices fell Thursday as economists said the recent surge in fuel prices will eventually hurt the fragile economic recovery.
Here's a breakdown of how energy contracts traded Thursday: On the New York Mercantile Exchange: Crude: lost $1.68 to settle at $102.70 per barrel; Gasoline: dropped less than a penny to settle at $3.0196 per gallon; Heating oil: fell 2.58 cents to settle at $3.0449 per gallon; Natural gas: gave up 10 cents to settle at $3.83 per 1,000 cubic feet. On the ICE futures exchange: Brent crude: lost 51 cents to settle at $115.43 per barrel.
PARIS — The extraordinary charges shook the French business establishment: Renault, the automaker, said in January that three of its employees had been caught trying to sell its electric car secrets overseas. So confident was the company of its case that it fired the three and filed criminal charges. Carlos Ghosn, the chief executive, went on television saying he had seen proof of the men’s guilt.
But the affair appears to have turned from the sensational to the farcical — and now threatens to become a tragedy. Renault is climbing down from its accusations amid doubts about key evidence, creating a possibility that heads will roll amid deep embarrassment in the French establishment. Like BP, which found its corporate image splattered by the Gulf of Mexico oil spill last year, Renault may soon be looking for new people for its executive suite. Finance Minister Christine Lagarde of France has pointedly called on management to “take all the consequences” in the case. The investigation is not over yet, and new evidence could still turn up to implicate the men. But Renault no longer talks of certainty. Patrick Pélata, the chief operating officer, on Wednesday told the French daily Le Figaro that “a certain number of factors lead us to doubt” the previous assertions.
At issue is the evidence on which the charges rest: The Swiss and Liechtenstein bank accounts the men were alleged to have created to channel the wages of spying have not been found, even though a secret source had supposedly provided detailed information. Adding to the mystery, Renault’s own security officials, who — with the aid of a contact in Algeria — carried out the company’s internal investigation after the men were anonymously denounced, have refused to divulge to either French intelligence or the company their source for the account data.
Le Canard Enchaîné, a French satirical weekly, reported Wednesday that the company had paid that source €250,000, or about $345,000, for the initial information, a fact confirmed by the company. Renault said it did not know whom the funds were intended for. Jean Reinhart, a Renault lawyer, said Wednesday on France Inter radio that he expected the investigation to conclude by the end of March. Xavier Thouvenin, a lawyer for one of the accused men, said the latest revelations suggested Renault had fallen for a con artist who played on the company’s fears. “Whoever was behind it got a little greedy,” Mr. Thouvenin said. “He went after three guys who didn’t just lie down. They said, ‘We’re going to fight this till the end; we’re innocent.”’
He added: “Now Renault is claiming they’re the victim, but they’re also basically saying they never had any documents, no evidence. They had nothing. Can you imagine firing someone for something like this and not even checking?” Renault filed a criminal complaint for “organized industrial espionage, corruption, breach of trust, theft and concealment.” At the time, a member of the French Parliament spoke darkly of a “Chinese lead” in the case — drawing a chilly response from Beijing — and called for stronger measures to protect national corporate secrets.
The espionage was supposedly aimed at the company’s electric car program, an area where Renault and its Japanese ally, Nissan Motor, are seeking to establish themselves as the global leader. But there were signs of problems with the case. To begin with, French government officials, who have a major voice in the company because the state still owns 15 percent of its shares, were furious that Renault had not alerted them or the domestic intelligence service to the case until the automaker had already suspended the three men on Jan. 3. Further, intelligence officials expressed doubt that Renault had the resources at its disposal to investigate in just a few months the complex web of international money transfers through offshore financial centers that it claimed to have discovered.
And all of the men strongly protested their innocence, taking their case to the media and filing defamation suits against the unknown party that had accused them. The three are Michel Balthazard, a member of the management committee and a veteran of more than 30 years with Renault; Bertrand Rochette, Mr. Balthazard’s assistant; and Matthieu Tenenbaum, a former deputy director of the electric car program.
Mr. Pélata, No.2 behind Mr. Ghosn, said during an interview last week with Le Figaro that he would resign if the accusations proved to be false. But Mr. Ghosn’s position could also be in jeopardy. Though he is one of the few chief executives of a French company with worldwide name recognition, he is also among the highest paid, and the French government has not been altogether happy with what it sees as Mr. Ghosn’s emphasis on producing overseas. Caroline de Gézelle, a company spokeswoman, said neither Mr. Ghosn nor Mr. Pélata were currently available for interviews. “We’re waiting for the prosecutor to conclude his investigation,” she said. “Justice will be done. If indeed these people are innocent, the company could offer them to be reintegrated. It is too soon to say, there are a lot of possibilities that need to be discussed.”
Mr. Tenenbaum said during an interview in January that he wanted nothing more than to return to his job at Renault. But Mr. Balthazard told Le Figaro this week that the experience had been “horrible.” “I saw from this affair the total lack of confidence management had in me,” Mr. Balthazard added. “And to go back to a place where people all wrote me off as guilty is simply unimaginable. There’s no going back to Renault.”
Lawyers representing the actor Charlie Sheen escalated the war between the actor and Chuck Lorre, the creator of his hit comedy “Two and a Half Men” and Warner Brothers, the studio that produces it, by filing a suit Thursday demanding more than $100 million in damages for first stopping production on episodes planned for this season and then removing him unjustly from the show.
The suit, which was obtained and posted by the celebrity gossip Web site TMZ, is in response to the decision earlier this week to fire Mr. Sheen from the comedy citing both his behavior, which has included drug use and accusations of violent incidents with women, and his comments about Mr. Lorre and Warner executives.
Mr. Sheen’s chief lawyer, Martin D. Singer, filed the suit Thursday in Superior Court in Los Angeles. In it, he goes on the attack especially against Mr. Lorre, saying the producer first stopped production on the series and then forced Warner Brothers to terminate Mr. Sheen’s employment “to serve his own ego and self-interest.”
Despite the fact that Mr. Lorre himself stood to make many more millions of dollars if the show had completed the eight episodes of the show eliminated when production was halted, the suit claims that the producer refused to write and supervise production on those episodes out of an “egotistical desire to punish Mr. Sheen” and because he had better financial arrangements on two other comedies he produces for Warner Brothers.
The suit labels Mr. Lorre “the proverbial 800-pound gorilla” who could make the studio do anything he wished. Warner Brothers declined comment Thursday afternoon, as did Mr. Lorre. The action by Mr. Sheen’s legal team ratchets up one of the most fierce legal battles of recent vintage in Hollywood, and comes at the same time Warner Brothers and CBS, the network that broadcasts “Two and a Half Men,” are known to be seriously planning to continue the comedy – the most popular in television – with a new actor replacing Mr. Sheen.
The suit filed Thursday also includes a novel claim of damages on behalf of the entire cast and crew of the series for lost income due to the decision to shut down production this season, even though Mr. Sheen’s lawyers do not represent – at least at the moment – anyone else on the cast or crew.
To counter the claims Warner made earlier this week that Mr. Sheen had breached the terms of his contract with his behavior and comments, the suit cites Warner’s eagerness to sign Mr. Sheen to a new contract in May of 2010 to a deal for two more years on the series even though at the time he was facing both felony and misdemeanor charges.
The suit alleges that it was only after Mr. Sheen began making disparaging remarks about Mr. Lorre (which included an apparently gratuitous reference to Mr. Lorre as “Chaim Levine,” a Hebrew variant of his real name Charles Levine) that any action was taken. Mr. Sheen was “provoked into criticizing Lorre in response to his harassment and disparagement campaign, which had been going on for years” the suit charges.
As evidence of that campaign, the suit included several comments Mr. Lorre included on what he calls “vanity cards” that appear at the end of each episode. Among these were suggestions directed at himself like “Go to an Al-Anon meeting;” one directed at viewers urging them to “avoid degrading yourself by having meaningless sex with strangers in a futile attempt to fill the emptiness of your soul;” and another asking for the audience to pray for people working on the series: “Feel free to pick whomever you think is most in need.”
BOSTON (AP) — Investors continue to warm up to the stock market. For the second straight month, investors added more than they withdrew from U.S. stock mutual funds.
Industry consultant Strategic Insight said Thursday that investors deposited a net $15 billion into stock mutual funds in February. That's down from $21 billion in January, the biggest monthly surge into stock funds in seven years. Yet the second consecutive month of net deposits suggests investor confidence is back, a couple years after the market meltdown ended. Before January, investors withdrew more than they deposited into stock funds for eight consecutive months.
In February, investors continued buying foreign stock funds as well, adding a net $6 billion. Taxable bond funds attracted $13 billion, while a net $4.5 billion flowed out of tax-free bond funds.
