Humane Society sues retailers, designers over fur

WASHINGTON (AP) - The Humane Society of the United States filed a lawsuit Monday against six major retailers and fashion designers alleging they falsely advertise and label fur garments.

The suit claims that Dillard's, Lord & Taylor, Macy's, Neiman Marcus, Saks Fifth Avenue and designer Andrew Marc misrepresent fur products by labeling and marketing them as "faux fur," when they are not; or by advertising and labeling products as common raccoon, fox or rabbit fur, when they are really made from raccoon dog, a canine species from Asia.

The complaint also alleges that the retailers are in violation of the federal Fur Products Labeling Act and Federal Trade Commission Act, which prohibit mislabeling of fur products.

Rebecca Judd, senior attorney with the Humane Society, said the group is seeking a court order to halt to what she called deceptive business practices by retailers.

"We filed this after we tried now for several years to have the fur industry stop their widespread false advertising and labeling," Judd said.

She added the group wants to alert consumers, especially those concerned about animal welfare, that fur garments are "best left out of the shopping bag."

Representatives from Macy's and Neiman Marcus said they don't comment on pending litigation. Dillard's, Lord & Taylor and Andrew Marc did not return telephone calls for comment. A representative from Saks could not be immediately reached by The Associated Press after calls seeking comment.

Judd said the suit was filed in D.C. under its Consumer Protection Procedures Act because the Humane Society focused much of its investigation in the Washington region. All the retailers named in the suit have stores in the area. Andrew Marc sells his brands online and in retail stores around Washington.

Since it began investigating in 2005, Judd said the Humane Society has sent dozens of letters to retailers — including those named in Monday's suit — informing them of their findings.

Some companies, including Calvin Klein and Tommy Hilfiger stopped selling fur products, Judd said. Others, such as rap artist Sean "Diddy" Combs, quit producing coats from his Sean John line that had raccoon dog fur; and rapper Jay-Z pulled coats with raccoon dog from his Rocawear label.

Raccoon dogs resemble oversized, fluffy raccoons and aren't kept as pets. According to the suit, more than 1.5 million of them are being raised for their fur in China, and have been documented to be skinned alive. Importing raccoon dog fur isn't illegal.

The Humane Society never received a "written commitment to stop selling mislabeled fur" from the six defendants after alerting them to the group's findings, Judd said.

The defendants are also among more than 20 companies named in two legal petitions the Humane Society filed earlier this year and in 2007 with the Federal Trade Commission, which enforces the federal fur labeling act.

In the petitions, the animal rights group ask the commission to fine the high-end retailers and designers of clothing that contains mislabeled fur. The group also would like inventories seized and, possibly, charges filed.

In 2007, Charles Jayson, chief executive of Andrew Marc, disputed the Humane Society and insisted in a statement that all fur on his coats labeled as raccoon contains "only farm-bred raccoon fur from Finland, and our items labeled 'faux fur' are a 100 percent synthetic fabric."

Mislabeling fur is a misdemeanor punishable by up to a $5,000 fine or a year in prison. Fur valued at less than $150 doesn't have to be labeled.

The petitions are still pending.

The Humane Society said it began investigating mislabeled fur claims after the society got a tip from someone who bought a coat with trim labeled as faux fur that felt real. At the time, teams bought coats from popular retailers and then had the coats tested by mass spectrometry, which measures the mass and sequence of proteins.

The society said most of the fur came from China.

Charity convicted in terrorism financing trial

DALLAS (AP) - A Muslim charity and five of its former leaders were convicted Monday of funneling millions of dollars to the Palestinian militant group Hamas, finally handing the government a signature victory in its fight against terrorism funding.

U.S. District Judge Jorge A. Solis announced the guilty verdicts on all 108 counts on the eighth day of deliberations in the retrial of the Holy Land Foundation for Relief and Development, once the nation's largest Muslim charity. It was the biggest terrorism financing case since the attacks of Sept. 11.

"Money is the lifeblood of terrorists, plain and simple," U.S. Attorney Richard Roper said. "The jury's decision attacks terrorism at its core."

The convictions follow the collapse of Holy Land's first trial last year and defeats in other cases the government tried to build. President George W. Bush had personally announced the freezing of Holy Land's assets in 2001, calling the action "another step in the war on terrorism."

After Monday's verdict, family members showed little visible reaction until the jury left. Several women sobbed loudly.

"My dad's not a criminal!" one nearly inconsolable woman said loudly. Court personnel told the family to calm her down, and as family members rushed her out of the courtroom, she said, "They treated him like an animal."

Ghassan Elashi, Holy Land's former chairman, and Shukri Abu-Baker, the chief executive, were convicted of a combined 69 counts, including supporting a specially designated terrorist, money laundering and tax fraud.

Mufid Abdulqader and Abdulrahman Odeh were convicted of three counts of conspiracy, and Mohammed El-Mezain was convicted of one count of conspiracy to support a terrorist organization. Holy Land itself was convicted of all 32 counts.

"I feel heartbroken that a group of my fellow Americans fell for the prosecution's fear-mongering theory," Elashi's daughter, Noor, said outside the courthouse late Monday. "This is truly a low point for the United States of America, but this is not over."

She said that she was proud of her father and that he was "paying the price" for saving lives.

"My dad was persecuted for his political beliefs," she said. "It's as pure and simple as that."

Attorneys for the defendants said an appeal is planned.

A sentencing date hasn't been scheduled, but the punishments could be steep. Supporting a terrorist organization carries a maximum 15-year sentence on each count; money laundering carries a maximum 20 years on each conviction.

Solis ordered the Holy Land leaders detained, citing the long prison terms they may face and their ties to the Middle East.

Holy Land was accused of giving more than $12 million to support Hamas. The seven-week retrial ran about as long as the original, which ended in October 2007 when a judge declared a mistrial on most charges.

Holy Land wasn't accused of violence. Rather, the government said the Richardson, Texas-based charity financed schools, hospitals and social welfare programs controlled by Hamas in areas ravaged by the Israeli-Palestinian conflict.

The U.S. designated Hamas a terrorist organization in 1995 and again in 1997, making contributions to the group illegal. Government officials raided Holy Land's headquarters in December 2001 and shut it down.

Prosecutors labeled Holy Land's benefactors — called zakat committees — as terrorist recruiting pools. The charities, the government argued, spread Hamas' violent ideology and generated loyalty and support among Palestinians.

It was a "womb to the tomb" cycle, prosecutor Barry Jonas told jurors during closing arguments last week.

Holy Land supporters told a different story. They accused the government of politicizing the case as part of its war on terrorism, while attorneys for the foundation said Holy Land's mission was philanthropy and providing much-needed aid to the Middle East.

They reminded jurors that none of the zakat committees are designated by the U.S. as terrorist fronts, and that Holy Land also donated to causes elsewhere, including helping victims of the Oklahoma City bombing in 1995.

"No one here is engaging in acts of terrorism," Theresa Duncan, attorney for Baker, said during closing arguments.

A chaotic courtroom scene ended last year's original trial, which lasted nearly two months and kept jurors deliberating for 19 days. But they deadlocked on many counts, and when a judge polled the panel about other verdicts, some disavowed their vote.

The confusing finish led U.S. District Judge A. Joe Fish to declare a mistrial, and leaders of the defunct charity rushed outside to celebrate.

Observers last year panned the government for presenting a bloated case too complicated for jurors to follow. Prosecutors responded this year by dropping nearly 60 charges in the trial and tightening their narrative to jurors, even offering a kind of road map to help the panel follow the money.

But nearly 15 boxes of evidence wheeled into court on a flatbed still impressed the size of the case, as did the more than one hour that Solis needed to read aloud the indictment.

Two other high-profile terror-financing trials in Chicago and Florida ended without convictions on the major counts.

Wal-Mart to cut $3 off overcharged items in Calif.

SAN DIEGO (AP) - Wal-Mart Stores Inc. will knock $3 off the price of any item when a California customer is overcharged because of a problem with its price-scanners, authorities said Monday.

California Attorney General Jerry Brown announced the move in a settlement with the retailer after authorities found pricing errors throughout the state.

Investigators found 164 stores in 30 counties made scanning errors, the attorney general's office said. On average, customers who were overcharged paid an extra $8.40 at the checkout.

Examples included customers who overpaid $1 for sports bras and Kellogg's Special K cereal, $2 for woven shirts and $5.16 for a Journey compact disc, the attorney general's office said.

The investigation began in December 2005 amid allegations that Wal-Mart stores in California were charging prices higher than those advertised on store shelves and signs.

Greg Rossiter, a spokesman for Bentonville, Ark.-based Wal-Mart, said the company strives for 100 percent accuracy.

"If we find price discrepancies, we are committed to making things right for our customers," he said.

To settle the lawsuit filed in San Diego Superior Court, Wal-Mart agreed that when an employee becomes aware that a customer is charged above the currently listed price for an item, Wal-Mart will give the customer a $3 price-cut on the item, the attorney general's office said. If the item is less than $3.00, the customer will get it for free.

Wal-Mart also agreed to pay $1.4 million in restitution, civil penalties and reimbursement for investigative costs.

Jury gets case of woman accused of MySpace hoax

LOS ANGELES (AP) - A federal jury was given the case Monday of a Missouri mother accused of conspiring with her daughter and an assistant to harass a 13-year-old girl on the Internet, allegedly precipitating the teen's suicide.

"Lori Drew decided to humiliate a child," U.S. Attorney Thomas O'Brien said. "The only way she could harm this pretty little girl was with a computer. She chose to use a computer to hurt a little girl, and for four weeks she enjoyed it."

Drew, 49, listened to the argument impassively. Her lawyer, Dean Steward, said jurors must remember she is not charged with homicide in the death of Megan Meier, who hanged herself after receiving a message that the world would be better off without her.

"If you hadn't heard the indictment read to you, you'd think this was a homicide case," he said. "And it's not a homicide case. This, ladies and gentlemen, is a computer case, and that's what you need to decide."

The defense attorney insisted the only question is whether Drew violated the terms-of-service agreement of the MySpace social networking site. He said that Drew, her young daughter Sarah and assistant Ashley Grills never read the seven-page agreement.

"Nobody reads these things, nobody," he said. "... How can you violate something when you haven't even read it? End of case. The case is over."

Drew has pleaded not guilty to conspiracy and accessing computers without authorization. She could be sentenced to as many as 20 years in prison if convicted of all counts. The jury was scheduled to begin deliberations Tuesday.

Assistant U.S. Attorney Mark Krause, in closing arguments, said Drew was responsible for devising the plan to invent an imaginary boy called Josh Evans who would communicate online with Megan, the daughter of a neighbor and once Sarah's best friend. Prosecutors say Drew wanted to find out whether Megan was spreading rumors about Sarah.

The prosecution showed the jury the photo that was used on the fake MySpace profile — a bare-chested boy with tousled brown hair.

Krause said Drew told her daughter and the then-18-year-old Grills what to write, to make the messages "flirty."

In so doing, he said, she violated the MySpace rules.

"The rules are fairly simple," he said. "You don't lie. You don't pretend to be someone else. You don't use the site to harass others. They harassed Megan Meier."

Krause also said Drew was warned by others that what she was doing was wrong, and Grills herself told Drew it might be illegal.

"She knew she was violating the rules and yet she told these two kids to keep doing it," he said.

Both prosecutors made references to testimony that Megan had been under treatment for depression, and Sarah, in testimony before final arguments, said she was aware Megan had been taking medication and seeing a psychiatrist.

"The defendant knew that she was dealing with a troubled little girl who was extremely fragile, and yet she did it anyway," Krause said.

"It went beyond a simple prank," said Krause, "to get her so hooked on this young man that she would be crushed when she found out he didn't exist."

Steward, in his response, said Drew had little to do with the content of the messages and was actually out of her home on the day of the final message, which was sent just before the suicide. He also said the message, which was quoted through out the trial, has never been found but was actually sent via AOL, not the MySpace site.

"My client, Lori Drew, was not home when all the electronic nastiness was going on," he said.

Steward also attacked Grills, the prosecution's star witness, as untrustworthy because she testified under a grant of immunity.

"Grills, bless her heart, is pathetic," he said. "Grills is a sad character who carries a lot of guilt."

He also blamed Megan's mother, Tina Meier, for allowing her daughter to continue the MySpace conversation with the invented Josh Evans after she learned it was going on. He faulted her for allowing Megan to register on MySpace and for not watching closely enough.

O'Brien reminded jurors how the tragedy began. He said Grills received a message from Megan suggesting Drew's daughter was ugly and a lesbian, leading Drew to concoct the plan.

"She could have walked four doors down and told Megan's mother to knock it off," he said.

Obama's tax hike for the rich may be delayed

WASHINGTON (AP) - An economic crisis, rising joblessness and a credit squeeze can make a president-elect refine his words. Today's word is "repeal." During his presidential campaign, Barack Obama promised to repeal President George W. Bush's tax cuts for the wealthy ahead of their scheduled expiration in 2011.

It was part of how Obama would pay for an overall net tax cut aimed at low- and middle-income taxpayers, and an effort to bring what he called "fairness" to the tax system.

No one is talking tax hikes now.

Over the weekend, Obama said he has charged his new economic team with devising a plan that would create or preserve 2.5 million jobs over two years. He said the plan would include broad spending plans as well as the middle- and low-income tax cuts he described during the campaign.

Aides later said the plan would not include any of the tax increases Obama, as a candidate, had said he would impose on taxpayers who make more than $250,000.

Asked Monday when those hikes might go into effect, Obama said, "Whether that's done through repeal, or whether that's done because the Bush tax cuts are not renewed, is something that my economic team will be providing me a recommendation on."

If repealed early, Obama's tax increase on the rich would have generated significant revenue, but not enough to compensate for the cost of his tax cuts. An analysis by the Tax Policy Center, based on January 2008 income projections, estimated that the increases would result in about $43 billion in revenue in 2009 and $45 billion in 2010. Those numbers would be smaller now, as the economy has lowered expected incomes.

Obama's economic advisers say he will not propose any tax increases in the economic plan he unveils in January. It is to be focused entirely on job creation and economic recovery.

Colombia to help irate pyramid scheme investors

BOGOTA, Colombia (AP) - Colombia's government readied emergency measures Sunday to appease irate investors who lost tens of millions of dollars in the collapse of pyramid schemes that caused riots, scores of arrests and two deaths.

President Alvaro Uribe vowed to help poor investors regain their savings, but said Saturday that wealthier clients should have known better and will "have to take some blows to the chest."

He said the government could also boost prison time for people who collect deposits without authorization, now punishable with six years in jail.

Thousands of Colombians, many of them poor people who do not have accounts at formal banks, had invested with unlicensed companies that offered monthly returns as high as 150 percent.

One outlet, known as Proyecciones DRFE, collapsed Wednesday on news that its owner, Carlos Alfredo Suarez, had left the country and wouldn't repay clients.

The company was thought to have lost 600 billion pesos ($270 million), having collected 400 billion pesos ($181 million) in the first nine months of the year alone in just four cities, Colombia's banking regulator said.

Furious investors stormed and looted local branches in rioting that left 13 towns under police curfew and two men dead: a security guard and a bystander who tried to calm the crowds.

The owner's whereabouts are unknown, but a man who identified himself as Suarez spoke by telephone to Bogota's RCN radio Sunday, denying the company had any links to drug traffickers, paramilitaries or guerrillas in southwestern Colombia, where it was based.

The company had counted 6 million depositors, including high-ranking political and military officials and entertainers, he said without disclosing any names.

The man declined to say how the company could offer monthly interest payments of 70 to 150 percent, but observers called the operation a pyramid scheme, which uses later investors' cash to pay off those who invest first. Such schemes collapse when the incoming cash flow can no longer cover payments to a growing pool of investors.

The man said the company's acronym stood for "Direct, Fast, Easy and Effective" in Spanish. Government officials earlier said it was "Easy Money Fast Cash."

Police have seized 92.4 billion pesos ($42 million) in cash from 68 of its offices and arrested 52 employees, according to deputy national police chief Gen. Rafael Parra. The government may use the seized cash to reimburse poor investors, Uribe said.

Authorities have been criticized for failing to stamp out mushrooming pyramid schemes that offered suspiciously high interest rates in at least 240 offices. They say they tried to act against some companies, but were slowed by weak laws and legal maneuvering.

Colombia's top banking regulator Cesar Prado resigned Friday and Uribe on Saturday said he regretted that authorities had not acted sooner.

Uribe urged operators of other pyramid schemes to immediately return investors' cash or face charges, and he asked governors and mayors to report similar businesses in their regions.

Savings held in Colombia's 425 formal financial institutions are safe and unaffected by the scams, Prado told Bogota's El Tiempo newspaper in an interview published Sunday.

Experts: Supplier woes put auto industry in danger

NEW YORK (AP) - The financial woes of U.S. automakers have grabbed Washington's attention, but similar problems at auto suppliers have the potential to set off a cataclysmic chain of events in the industry if key parts makers run out of cash and fail.

As with the automakers, auto suppliers' sales have tumbled this year because of the steep drop in demand for new vehicles.

That has forced suppliers to burn through their cash reserves and slash their costs to stay in business, said Craig Fitzgerald, an automotive analyst with Southfield, Mich.-based Plante & Moran PLLP, which advises about 400 small and midsize auto suppliers.

Meanwhile, banks and other credit providers have become dead-set against lending to any company in the faltering automotive industry, making it difficult and expensive for suppliers to get needed financing.

But if the companies at the bottom of the supply chain don't find a way to recapitalize, Fitzgerald warned, numerous bankruptcies and liquidations among the small companies will set off a string of parts shortages that could reach all the way to the vehicle assembly line.

The resulting disruptions could negate any help the government might give General Motors Corp., Ford Motor Co. and Chrysler LLC.

"Either they deal with the liquidity issues at the lower tier, or these problems have the potential to just devastate the Detroit OEMs and the other automakers," Fitzgerald said, referring to so-called original equipment manufacturers GM, Ford and Chrysler. "It's an issue equal to what's going on at the Big Three, they just don't have the heft, so it doesn't get quite the play."

In most cases, auto suppliers have their own suppliers, who in turn receive their parts from other companies, meaning that many automotive components pass through a chain of several companies before they're sold to an automaker.

"The fragility of the whole thing is very much like a house of cards," said Bob Viswanathan, an assistant professor of operations management at the University at Buffalo School of Management. "Everybody knows that the finance markets are so interconnected, but the auto industry is worse."

Tom Wiethorn, co-owner of Craig Assembly, said orders for his St. Clair, Mich., company's hose connectors — used in radiators that end up in GM and Ford vehicles — have fallen significantly in recent months.

As a result the company, which has $12 million in annual sales, has cut its work force by 20 percent to about 60 people and is worried that it could end up violating its debt agreements.

"This is very serious," said Wiethorn, who also serves as a manufacturing representative setting up contracts for other auto suppliers. "Some of the suppliers I know are teetering on bankruptcy."

The Motor & Equipment Manufacturers Association is hoping to win a piece of a proposed rescue package that would use $25 billion of the $700 billion financial industry bailout to help GM, Ford and Chrysler.

"We are all connected by some very thin threads and if any piece of the chain from the manufacturers to the small suppliers fails, the whole thing could fail," said Ann Wilson, the association's vice president of government affairs.

Top Republicans, however, have said the Wall Street money should not be used for the auto industry and would only postpone its demise. Sen. Richard Shelby of Alabama on Sunday called the industry "a dinosaur."

Yet even foreign automakers that build cars and trucks in the United States could be affected. Companies like Toyota Motor Corp., Nissan Motor Co. and Honda Motor Co., with plants scattered throughout the South and Midwest, get their parts from the vast, multilayered network of U.S. suppliers that employs about 800,000 people.

Dave Andrea, vice president of industry analysis and economics for the Original Equipment Suppliers Association, a division of the Motor & Equipment Manufacturers Association, said that's why lawmakers need to be looking at the U.S. auto industry as a whole.

"We need to be talking about this at the U.S. level, not talking about the Detroit Three and then putting the other automakers in another bucket," he said. "If we have major failures of suppliers, the foreign automakers are going to be affected as well."

Automakers generally only have a one- to two-shift supply of some key parts, Andrea said, making them very susceptible to supply chain disruptions.

The nearly 3-month-long strike at American Axle and Manufacturing Holdings Inc. this spring crippled truck production at GM, showing how fast a parts shortage can shut down assembly lines.

GM's production cuts led to millions in lost sales at other suppliers such as Lear Corp., Superior Industries International Inc. and Magna International Inc.

Andrea noted that automakers have contingency plans for sourcing their parts should one of their suppliers shut down. But those plans can come with hefty hidden costs, such as the expense of importing parts from overseas, he said.

"It's really the logistics part you don't see," Andrea said. "And those are the kinds of costs the industry can't bear in these troubled times."

Iceland agrees to guarantee some deposits

REYKJAVIK, Iceland (AP) - Iceland's prime minister has offered government guarantees on Icesave savings deposits in Iceland and Holland of nearly 21,000 euros ($26,600) on each account.

Prime Minister Geir H. Haarde said Sunday the next step will be for Iceland to hold talks with the United Kingdom and other EU countries on how the payments will be made.

It was not immediately clear how the deposits would be covered. The total amount is estimated to be about 600 billion Icelandic kronar, or about 3.5 billion euros. Haarde said he hoped other countries would help cover the costs, and that additional funds could be raised by selling off the bank's assets.

Relations between London and Reykjavik plummeted last month after Britain used anti-terrorist legislation to freeze the assets of collapsing Icelandic banks in a bid to protect British savers' deposits.

The savings of about 230,000 British depositors' money vanished when Icesave's parent bank, Landsbanki went into receivership in October.

No bonus this year for Goldman Sachs CEO Blankfein

NEW YORK (AP) - Goldman Sachs Group Inc. CEO Lloyd Blankfein and six other top executives at the bank will not be receiving cash or stock bonuses for 2008, a spokesman said Sunday.

The decision was made by the seven executives themselves, said spokesman Lucas Van Praag, and approved Sunday by the Wall Street firm's compensation committee. The executives made the decision "because they think it's the right thing to do," Van Praag said.

The seven executives include Blankfein; Presidents and Co-Chief Operating Officers Jon Winkelried and Gary Cohn; Vice Chairmen John Weinberg, J. Michael Evans and Michael Sherwood; and Chief Financial Officer David Viniar.

They will receive no cash bonuses, no stock, and no options for 2008 — just their salaries, the spokesman said. Companies typically release compensation figures for top executives in the spring as part of their annual proxy statements.

Last year, Blankfein received total compensation of $54.0 million, according to calculations by The Associated Press — making him the 6th highest paid CEO at a Standard & Poor's 500 company in 2007. His salary that year was $600,000.

Goldman Sachs, like other financial institutions, has been struggling this year with the soaring mortgage defaults and the seize-up of the credit markets.

Goldman and Morgan Stanley were the only major U.S. investment banks left standing after the buyout of Bear Stearns Cos. by JPMorgan Chase & Co., the bankruptcy of Lehman Brothers Holdings Inc. and Merrill Lynch & Co.'s sale to Bank of America Corp.

Shortly after Lehman's collapse, Goldman and Morgan Stanley became bank holding companies — a move that subjects them to more oversight from the Federal Reserve, but that also gives them permanent and wider access to the central bank's lending programs.

Goldman's shares closed Friday at $66.73, down $3.26, and are down 69 percent since the start of the year. The firm is in the midst of cutting about 3,200 employees, or about 10 percent, of its staff worldwide.

Japan slides into recession, 1st time since 2001

TOKYO (AP) - Japan's economy slid into a recession for the first time since 2001, the government said Monday, as companies sharply cut back on spending in the third quarter amid the unfolding global financial crisis.

The world's second-largest economy contracted at an annual pace of 0.4 percent in the July-September period after a declining an annualized 3.7 percent in the second quarter. That means Japan, along with the 15-nation euro-zone, is now technically in a recession, defined as two straight quarters of contraction.

The result was worse than expected. Economists surveyed by Kyodo News agency had predicted an annualized 0.1 percent rise in the third quarter.

Japan's Economy Minister Kaoru Yosano said following the data's release that "the economy is in a recessionary phase," according to Kyodo.

But the worst may be yet to come in the wake of the global financial crisis, especially with dramatic declines in demand from consumers overseas for Japan's autos and electronics gadgets. Hurt also by a strengthening yen, a growing number of exporters big and small are slashing their profit, sales and spending projections for the full fiscal year through March.

Toyota Motor Corp., for example, has cut net profit full-year profit forecast to 550 billion yen ($5.5 billion) — about a third of last year's earnings.

Compared to the previous quarter, gross domestic product shrank 0.1 percent, the Cabinet Office said. Business investment — a main driver of Japan's six-year economic recovery since 2002 — dropped 1.7 percent from the previous quarter.

"As the global economy is expected to slow down for the time being, downward movements (in Japan) are expected to continue," Yosano said, according to Kyodo.

Since taking office in late September, Japanese Prime Minister Taro Aso has unveiled two economic stimulus packages in an effort to cushion the blow. His latest 27 trillion-yen ($275.7 billion) proposal includes expanded credits for small businesses and a total 2 trillion yen ($20.4 billion) in cash disbursements to households.

At its last meeting, the Bank of Japan cut its key interest rate for the first time in more than seven years, lowering it to 0.3 percent, joining central banks around the world in trimming borrowing costs.

In its semiannual outlook report, the central bank slashed its projection for economic growth to just 0.1 percent for the year through March, compared with a 1.2 percent gain it projected in July. It said both exports and domestic private demand have weakened.

The deteriorating conditions also recently led Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo, to downgrade his outlook on the Japanese economy.

"We are now looking for a severe recession, similar to that during Japan's own financial market crisis in 1997 to 1998, and to the current US recession, in terms of depth of real GDP contraction," he said in a report.

Monday's data showed that net exports sapped 0.2 percentage point from growth, as the high cost of importing fuel eclipsed a slight increase in outbound shipments. Imports rose 1.9 percent, while exports grew 0.7 percent.

Private consumption, which accounts for more than half of inflation-adjusted GDP, increased 0.3 percent from the previous quarter. However, the rebound in consumer demand is unlikely to last, economists say.

Financial overhaul added to Obama's to-do list

WASHINGTON (AP) - Barack Obama isn't president yet, but his must-do list just got longer.

The newest addition to the lengthy list of tasks after taking office: helping oversee the overhaul of the world's financial regulatory system. That is one of the assignments to the president-elect from current global leaders after their weekend summit, where they pledged action to avoid a repeat of the financial mess that has caused worldwide economic chaos.

"Obama has a tall order," said Morris Goldstein, a senior fellow at the Peterson Institute for International Economics who spent years working at the International Monetary Fund, the world's financial firefighter.

"He has a lot of things he has to do quickly in a number of areas and doesn't have a lot of time to think about them," Goldstein said in an interview Sunday.

That will put a lot of pressure on Obama. He did not participate in the emergency two-day summit that concluded Saturday, instead sending representatives to meet with leaders on the sidelines.

After taking the oath of office Jan. 20, Obama will have to figure out in short order how far his administration is willing to go in revamping oversight of financial companies and products, in the United States and abroad, and nailing down the crucial details.

"Obama has an incredible mountain to climb in the way of the economic and financial situation," said Richard Yamarone, economist at Argus Research.

President George W. Bush hosted the summit, where nearly two dozen foreign leaders endorsed broad goals to fend off any future calamities and to revive the global economy.

It will be up to finance ministers to flesh out the details to put such changes in place by the end of March. Leaders plan to hold the next summit by April 30 — just months into Obama's term.

"I think this puts Obama and a new administration in a very difficult position," said Steven Schrage, a former Bush administration trade official now at the Center for Strategic and International Studies.

"It's really going to be up to the next administration to figure, do they breathe life into this? Does this go forward? Do they take it in a different direction?"

All the while, the new president will be under immense pressure to bring relief to millions of Americans who have watched jobs disappear, nest eggs shrink, home values plunge, foreclosures zoom upward and banks — along with storied Wall Street firms — laid low by the financial and economic crises.

"Make no mistake: This is the greatest economic challenge of our times," Obama said Saturday in the weekly Democratic radio address. "And while the road ahead will be long and the work will be hard, I know that we can steer ourselves out of this crisis."

The president-elect himself did not weigh in after the summit about whether he agreed with the thrust of the leaders' broad goals. But he indicated the global gathering was a good idea because "our global economic crisis requires a coordinated global response," he said Saturday.

Translating the leaders' sweeping principles into specific actions will be difficult. "That's the rub. That's where you really see the differences across countries in what you want to do," Goldstein said. "In the coming months, we'll see to what extent Obama's agenda will conflict with the Europeans."

Leaders pledged to make the global financial system more accountable to investors and less vulnerable to risky investing. But there are sure to be differences of opinion on exactly how to accomplish that, which could impede progress at the next summit in the spring.

To provide relief from the current woes, the leaders supported the benefits of enacting government spending plans to stimulate their economies. But they stopped short of a commitment for all to act at the same time, as some Europeans had favored.

The Bush administration has reacted coolly to the idea of a second U.S. stimulus plan.

For Wall Street, the leaders' talk about ways to provide relief probably will be of more importance than efforts to prevent another financial fiasco, experts said. Even without new concrete commitments for government spending, tax cuts or interest rate reductions, the fact that leaders came together to address the crisis and did not let it become a blame game should help bolster some confidence on Wall Street, according to Goldstein, Yamarone and others.

Commerce Secretary Carlos Gutierrez, appearing on CNN's "Late Edition" on Sunday, warned against the making any new financial rules of the road too restrictive.

"There is an inclination, when you get into problems like this to go to an extreme, to over-regulate, to think that we're going to have a worldwide compensation system. How is that going to be done? I think we have to be careful, we have to find a balance and we can't over regulate so that five years from now we're trying to claw our way back because we overdid it," he said.

And former Sen. Phil Gramm, R-Texas, who championed deregulation during his years on Capitol Hill, said in an interview published Sunday: "There is this idea afloat that if you had more regulation you would have fewer mistakes. I don't see any evidence in our history or anybody else's to substantiate it."

Gramm told The New York Times, "The markets have worked better than you might have thought."

Democrats want Bush to help ailing automakers

WASHINGTON (AP) - Democratic leaders in Congress asked the Bush administration on Saturday to provide more aid to the struggling auto industry, which is bleeding cash and jobs as sales have dropped to their lowest level in a quarter-century.

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid said in a letter to Treasury Secretary Henry Paulson that the administration should consider expanding the $700 billion bailout to include car companies.

"A healthy automobile manufacturing sector is essential to the restoration of financial market stability, the overall health of our economy, and the livelihood of the automobile sector's work force," they wrote. "The economic downturn and the crisis in our financial markets further imperiled our domestic automobile industry and its work force."

There was no immediate comment from the Bush administration about the request to broaden the $700 billion financial industry bailout so automakers could get a share.

Automakers already want an additional $50 billion in loans from Congress to help them survive tough economic conditions and pay for health care obligations for retirees. The companies are seeking the loans as part of an economic aid plan that is now more likely to come together early next year rather than in a postelection session of Congress this month.

Top executives of General Motors, Ford, Chrysler LLC and the president of the United Auto Workers met with congressional leaders Thursday to discuss the loans. The money would be on top of the $25 billion in loans that Congress passed in September to help retool auto plants to build more fuel-efficient vehicles.

"We left the meetings convinced that our nation's automobile industry — the heart of our manufacturing sector — and the jobs of tens of thousands of American workers are at risk," Pelosi, D-Calif., and Reid, D-Nev., said in their letter to Paulson.

Automakers want the new loans included in an economic aid plan that is now more likely to come together early next year rather than in a postelection session of Congress this month. If Congress approved more loans, it would come with strings attached. Potential protections include limits on executive compensation, awarding the government preferred stock in the companies and a suspension of dividend payments to investors.

GM, the nation's largest automaker, warned Friday that it may run out of money by the end of the year after piling up billions in third-quarter losses and burning through cash at an alarming rate. GM's chairman and chief executive, Rick Wagoner, said the company will take every action possible to avoid bankruptcy. GM has planned more job cuts, including another 5,500 salaried and factory workers, but company officials warn that those measures alone would not be enough and that federal aid was essential.

Ford, which recently announced it would slash more than 2,000 white collar jobs, also has seen a rapid decline in its cash supply. But it is in better shape because the company borrowed billions of dollars in 2007 by mortgaging its factories. The company said it had enough cash to make it through 2009.

"We must safeguard the interests of American taxpayers, protect the hundreds of thousands of automobile workers and retirees, stop the erosion of our manufacturing base, and bolster our economy," the Democratic leaders in Congress wrote.

President-elect Obama said Friday his transition team would explore policy options to help the auto industry. Obama's economic transition team includes two allies of the U.S. auto industry — Michigan Gov. Jennifer Granholm and former Rep. David Bonior, D-Mich.

Latvian government takes over major bank

RIGA, Latvia (AP) - Latvia's government has decided to take over the nation's No. 2 financial institution after the bank ran into a liquidity crisis, an official said Sunday.

The government decided late Saturday to take a 51 percent stake in Parex Bank, the Baltic state's second largest bank by total assets, based on data that indicated the bank was headed toward insolvency, said Krists Leiskalns, press adviser to Prime Minister Ivars Godmanis.

On Saturday, Godmanis explained that Parex was functional but in need of liquidity. He also said the government had faced a choice of either taking control of the bank or allowing it to enter bankruptcy.

"It is important to act now before the situation became too bad," said Leiskalns, adding that Parex was too big to allow it to fail.

He said it wasn't necessary to rescue any of Latvia's other 25 banks at the moment, but he didn't exclude the possibility in the future.

The government bought the majority stake in Parex for 2 lats ($3.70). Another 34 percent stake in the bank will be held as collateral by the state-owned Hipoteku Bank.

News of the nationalization was another blow to Latvia's deteriorating economy. On Friday, the country's statistics office announced that gross domestic fell 4.2 percent year-on-year in the third quarter. By contrast, third-quarter annual growth in 2007 was 10.9 percent.

Latvia's economy has entered a period of deep recession after three years of stellar growth, when it led all EU members in gross domestic product growth.

Parex Bank was unique in both Latvia and the Baltic states in that it was homegrown. Founders Valery Kargin and Viktor Krasovitsky established the bank in 1992, one year after Latvia split from the Soviet Union and achieved independence.

A majority of the banking industry in the Baltic states of Estonia, Latvia and Lithuania are owned by Scandinavian financial institutions.

INSIDE WASHINGTON: Auditors go easy on contractors

WASHINGTON (AP) - Instead of seeing red, Pentagon audit managers saw business as usual after being told that a major military contractor failed to open all its books for review.

At a meeting of Defense Contract Audit Agency staff in California last May, auditor Acacia Rodriguez used a 24-page PowerPoint briefing to describe how she and her co-workers struggled with the Bechtel Group's "chronic failure" to provide the financial records required to prove tax dollars were being spent properly.

"Mtn View, we have a problem!!!" said one of Rodriguez's briefing charts, a shorthand reference to the audit agency's branch office in Mountain View, outside San Francisco.

If her bosses were upset over the contractor's foot-dragging, they didn't show it, according to an auditor who attended the meeting, which included Christopher Andrezze, director of the agency's Western region.

Five days later, the agency issued a report rating Bechtel's internal accounting procedures as "adequate," a passing grade that meant defense auditors could ease up on the company. The report made no mention of the records delays.

DCAA is the first line of defense for the public in policing billions of dollars in defense contracts awarded by the government's top-spending department. In theory, the audit agency has extensive powers, including withholding payments and issuing subpoenas, to force contractors to provide the necessary information.

The reality is quite different.

The Bechtel episode illustrates how tolerant the agency can be when defense contractors slow the government's access to paper records and databases. There is no way to know how often DCAA withholds payments because it does not keep track. And it has not used its subpoena power in 20 years.

"We have been basically on the trust system for years," said the auditor who attended the May meeting. "It did not work on Wall Street and it is not working for federal contracts," said the two-decade veteran of the agency who spoke on condition of anonymity because DCAA employees are not allowed to publicly discuss their work.

Negotiation, not confrontation, is the usual method for prying hard-to-get data loose from companies that make weapons or support troops in Iraq and Afghanistan. But the numbers show that approach is too cozy when the need for tough oversight is greater than ever.

In 2007 alone, DCAA performed nearly 34,000 audits covering $391 billion in contractor costs. Of that total, auditors challenged $4.6 billion, or 1.2 percent, as lacking necessary documentation. The question is, how much more could they have caught?

"I start salivating thinking about how much money is involved and the savings that are potentially there," Sen. Claire McCaskill, D-Mo., said at a congressional hearing in September.

Compared with other federal oversight organizations, such as the Government Accountability Office, DCAA's return on investment is weak. For every dollar GAO spends, it saves taxpayers $94. At DCAA, the ratio is $5 saved for every one spent.

DCAA officials declined to be interviewed for this story. In an e-mailed response to questions, Pentagon spokesman Darryn James said contractor delays and refusals to provide records are not extensive problems.

He acknowledged there are times when contractors have to be reminded to provide information. Records disputes are handled at the lowest possible level by the nearly 3,500 defense auditors in the U.S. and overseas, James said. Officials at the agency's headquarters at Fort Belvoir, Va., have had to step in just four times since 2003, he said. All four disagreements were settled without going to court.

"It should be considered a success that DCAA has been able to get the information it needs without having to resort to subpoena authority," James said.

James described the Bechtel situation as an unusual case that was resolved after the agency and the company worked out a way to answer auditor requests for records more promptly.

But an e-mail exchange between DCAA employees in early 2006 indicates the problems with Bechtel were long-standing. "This is the slowest responding (contractor) that I've been at," reads the message from early 2006, provided to The Associated Press on the condition that the employees not be named. "You would be unnerved to know that some of my data request (sic) here have been outstanding for more than six months!!!"

Based in San Francisco, Bechtel is an engineering and construction company that has won just under $10 billion in Defense Department work since 2000, according to FedSpending.org, a Web site created by the public-interest group OMB Watch to track government contracts.

Bechtel spokesman Francis Canavan said the company has a "long record" of working with DCAA. He said there have been occasional delays in locating older records. "We're not aware of any findings that these delays adversely impacted the audits," Canavan said.

Bechtel is not the only trouble spot, according to internal agency documents.

_In September, two auditors traded e-mail complaints about Raytheon, one of the largest U.S. manufacturers of military weapons. "It is not possible to do quality audits under such an environment," one message said. "It is an endless battle," a second said. Raytheon did not respond to a request for comment from the AP.

_Northrop Grumman, which did more than $20 billion in business with the Pentagon in 2007, has refused to give DCAA access to minutes from meetings of the audit committee that reports to the company's board of directors, according to an internal DCAA memo dated Oct. 29. Randy Belote, a Northrop Grumman spokesman, declined comment, saying the issue "is part of an ongoing legal review within the company."

DCAA, formed in 1965, has long been viewed as a bulwark against waste and fraud. Its reputation took a hit this summer after an investigation by the GAO found that supervisors improperly influenced audits to favor contractors. Auditors also were pressured to close audits early in order to meet productivity goals, the GAO report said.

The report mentioned records access problems only in passing. Boeing, a defense giant, did not give auditors the necessary detail to trace costs on a $1 billion space-launch contract, it said. Boeing spokesman Joe Tedino said the company did nothing improper.

"In the end, contractors are getting away with murder" because they know auditors are pushed to complete audits quickly, Diem Thi Le, a senior auditor at DCAA, said at a Sept. 10 congressional hearing on the GAO report. In November 2005, Le reported allegations of misconduct by managers. Her complaints led to the GAO inquiry.

DCAA Director April Stephenson told lawmakers the agency is taking the report seriously and addressing the shortcomings.

The fault isn't all DCAA's, procurement experts say. The agency doesn't always press contractors hard because its actions may not be backed up at the top levels of the Defense Department.

That's especially true for high-profile contracts supporting operations in Iraq and Afghanistan. In one example, department officials overruled auditors who objected to nearly $1 billion in payments to KBR, the Houston-based contractor that supplies U.S. troops with food and housing.

"DCAA finds few friends," said Richard C. Loeb, an adjunct professor of government contract law at the University of Baltimore Law School. "Their work is not appreciated the way it should be."

China announces $586 billion stimulus plan

BEIJING (AP) - China announced a $586 billion stimulus package Sunday in its biggest move to stop the global financial crisis from hitting the world's fourth-largest economy.

A statement on the government's Web site said China's Cabinet had approved a plan to invest the amount in infrastructure and social welfare by the end of 2010.

Some of the money will come from the private sector. The statement did not say how much of the spending is on new projects and how much is for ventures already in the pipeline that will be speeded up.

China's export-driven economy is starting to feel the impact of the economic slowdown in the United States and Europe, and the government has already cut key interest rates three times in less than two months in a bid to spur economic expansion.

Economic growth slowed to 9 percent in the third quarter, the lowest level in five years and a sharp decline from last year's 11.9 percent. That is considered dangerously slow for a government that needs to create jobs for millions of new workers who enter the economy every year and to satisfy a public that has come to expect steadily rising incomes.

Exports have been growing at an annual rate of more than 20 percent but analysts expect that may fall as low as zero in coming months as global demand weakens.

The statement said the Cabinet, at a meeting chaired by Premier Wen Jiabao, had "decided to adopt active fiscal policy and moderately easy monetary policies." It did not give details.

The statement said the spending would focus on 10 areas. They included picking up the pace of spending on low-cost housing — an urgent need in many parts of the country — as well as increased spending on rural infrastructure.

Money will also be poured into new railways, roads and airports. Spending on health and education will be increased, as well as on environmental protection and high technology.

Spending on rebuilding disaster areas, such as Sichuan province where 70,000 people were killed and millions left homeless by a massive earthquake in May, will also be sped up. That includes $2.93 billion planned for next year that will be moved up to the fourth quarter of this year.

The statement, without giving details, said rural and urban incomes would be increased.

Credit limits for commercial banks will also be removed to channel more lending to priority projects and rural development, it said.

As well, reform of the value-added tax system will cut taxes by $17.5 billion for enterprises, the statement said.

The plan was announced before President Hu Jintao goes to Washington to push Western leaders to give poorer countries a bigger role in global financial institutions at a Nov. 15 summit of the Group of 20 major economies on the financial crisis.