Transcript of Presidential Press Conference for July 15, 2008

Transcript:

THE PRESIDENT: Good morning. It's been a difficult time for many American families who are coping with declining housing values and high gasoline prices. This week my administration took steps to help address both these challenges.

To help address challenges in the housing and financial markets, we announced temporary steps to help stabilize them and increase confidence in Fannie Mae and Freddie Mac. These two enterprises play a central role in our housing finance system, so Treasury Paulson has worked with the Federal Reserve Chairman Bernanke so that the companies and the government regulators -- put the companies and the government regulators on a plan to strengthen these enterprises. We must ensure they can continue providing access to mortgage credit during this time of financial stress.

I appreciate the positive reaction this plan has received from many members of Congress. I urge members to move quickly to enact the plan in its entirety, along with the good oversight legislation that we have recommended for both Fannie Mae and Freddie Mac. This is a part of a -- should be part of the housing package that is moving its way through the Congress. And I hope they move quickly. The newly proposed authorities will be temporary and used only if needed. And as we work to maintain the health of Fannie Mae and Freddie Mac, we'll work to ensure that they remain shareholder-owned companies.

To help address the pressure on gasoline prices my administration took action this week to clear the way for offshore exploration on the Outer Continental Shelf. It's what's called OCS. Congress has restricted access to key parts of the OCS since the early 1980s; I've called on Congress to remove the ban. There was also an executive prohibition on exploration, offshore exploration. So yesterday, I issued a memorandum to lift this executive prohibition. With this action, the executive branch's restrictions have been removed, and this means that the only thing standing between the American people and these vast oil resources is action from the U.S. Congress. Bringing OCS resources online is going to take time, which means that the need for congressional action is urgent. The sooner Congress lifts the ban, the sooner we can get these resources from the ocean floor to refineries, to the gas pump.

Democratic leaders have been delaying action on offshore exploration and now they have an opportunity to show that they finally heard the frustrations of the American people. They should match the action I have taken, repeal the congressional ban and pass legislation to facilitate responsible offshore exploration.

Congress needs also to pass bills to fund our government in a fiscally responsible way. I was disappointed to learn the Democratic leaders in the House postponed committee consideration of the defense appropriations bill, and they did so yesterday. They failed to get a single one of the 12 annual appropriations bills to my desk. In fact, this is the latest that both the House and the Senate have failed to pass any of their annual spending bills in more than two decades.

There are just 26 legislative days left before the end of the fiscal year. This means that to get their fundamental job done, Congress would have to pass a spending bill nearly every other day. This is not a record to be proud of, and I think the American people deserve better.

Our citizens are rightly concerned about the difficulties in the housing markets and high gasoline prices and the failure of the Democratic Congress to address these and other pressing issues. Yet despite the challenges we face, our economy has demonstrated remarkable resilience. While the unemployment rate has risen, it remains at 5.5 percent, which is still low by historical standards. And the economy continued to grow in the first quarter of this year. The growth is slower than we would have liked, but it was growth nonetheless.

We saw the signs of a slowdown early and enacted a bipartisan economic stimulus package. We've now delivered more than $91 billion in tax relief to more than 112 million American households this year. It's going to take some time before we feel the full benefit of the stimulus package, but the early signs are encouraging. Retails sales were up in May and June, and should contribute, and will contribute, to economic growth. In the months ahead we expect more Americans to take advantage of these stimulus payments and inject new energy into our economy.

The bottom line is this: We're going through a tough time, but our economy has continued growing, consumers are spending, businesses are investing, exports continue increasing, and American productivity remains strong. We can have confidence in the long-term foundation of our economy, and I believe we will come through this challenge stronger than ever before.

And now I'll be glad to take some questions from you. Mr. Hunt.

Q Mr. President, are America's banks in trouble? And does the rescue of Freddie Mae and Fannie Mac [sic] make more bailouts inevitable by sending the message that there are some institutions that are too big to fail and that it's okay to take risks?

THE PRESIDENT: First, let me talk about Fannie Mae and Freddie Mac. A lot of people in the country probably don't understand how important they are to the mortgage markets. And it's really important for people to have confidence in the mortgage markets and that there be stability in the mortgage markets. And that's why Secretary Paulson announced the plan this weekend, which says that he needs authorities from the Congress to come up with a line of credit for these institutions, if needed, and that he ought to have the authority to invest capital, if needed.

And so the purpose was to send a clear signal that, one, we understand how important these institutions are to the mortgage markets, and two, to kind of calm nerves. The truth of the matter is, by laying this out, it is -- makes it less likely we'll need to use this kind of authority to begin with, which, by the way, is temporary authority.

As you -- talked about banks. Now, if you're a commercial bank in America and your deposit -- and you have a deposit in a commercial bank in America, your deposit is insured by the federal government up to $100,000. And so, therefore, when you hear nervousness about your bank, you know, people start talking about how nervous they are about your bank's condition -- the depositor must understand that the federal government through the FDIC stands behind the deposit up to $100,000. And therefore, which leads me to say that if you're a depositor, you're in -- you're protected by the federal government.

I happened to witness a bank run in Midland, Texas, one time. I'll never forget the guy standing in the bank lobby saying, your deposits are good. We got you insured. You don't have to worry about it if you got less than $100,000 in the bank. The problem was, people didn't hear. And there's a -- became a nervousness. My hope is, is that people take a deep breath and realize that their deposits are protected by our government.

So these are two different instances -- mortgage markets on the one hand, banking on the other.

Q And banking -- do you think the system is in trouble?

THE PRESIDENT: I think the system basically is sound, I truly do. And I understand there's a lot of nervousness. And -- but the economy is growing, productivity is high, trade is up, people are working. It's not as good as we'd like, but -- and to the extent that we find weakness, we'll move. That's one thing about this administration, we're not afraid of making tough decisions. And I thought the decision that Secretary Paulson recommended on Fannie Mae and Freddie Mac was the right decision.

Matt.

Q Mr. President, you mentioned the latest retail sales, but they actually show a smaller boost than economists had expected from the government rebate -- rebate checks. Given the latest economic data, are you still insisting that the United States is not headed for a recession? And are you willing to consider a second stimulus package if needed?

THE PRESIDENT: Matt, all I can tell you is we grew in the first quarter. I can remember holding a press conference here and that same question came about, assuming that we weren't going to grow. But we showed growth. It's not the growth we'd like; we'd like stronger growth. And there are some things we can do. One is wait for the stimulus package to fully kick in and not raise taxes. If the Democratic leaders had their way in Congress, they would raise taxes, which would be the absolute wrong thing to do.

Secondly, they can pass housing legislation that reforms FHA, as well as Fannie Mae and Freddie Mac. And by the way, a part of that, as I mentioned in my opening statement, a part of that reform will be a strong regulator to help these institutions stay focused on the core mission, which is mortgages.

They can pass energy legislation. I readily concede that, you know, it's not going to produce a barrel of oil tomorrow, but it is going to change the psychology that demand will constantly outstrip supply. As I said in my remarks, it's going to take a while to get these reserves on line. But it won't take a while to send a signal to the world that we're willing to use new technologies to find oil reserves here at home.

And the other thing Congress can do is work on trade legislation. One of the positives in the economy right now is the fact that we're selling more goods overseas, and they need to open up markets to Colombia and South Korea and Panama.

John.

Q Mr. President, just to follow up with Terry's question a little bit. You talked about the mortgage markets and banks. Are there other entities in the economy that are so crucial to the stability and confidence in the economy -- I'm thinking particularly of General Motors, which today is cutting jobs, announcing they're going into the credit market to raise billions of dollars -- are there other entities that are so crucial to stability that require government action to show support for them?

THE PRESIDENT: Government action -- if you're talking about bailing out -- if your question is, should the government bail out private enterprise, the answer is, no, it shouldn't. And by the way, the decisions on Fannie Mae and Freddie Mac -- I hear some say "bailout" -- I don't think it's a bailout. The shareholders still own the company. That's why I said we want this to continue to be a shareholder-owned company.

In this case, there is a feeling that the government will stand behind mortgages through these two entities. And therefore, we felt a special need to step up and say that we are going to provide, if needed, temporary assistance through either debt or capital.

In terms of private enterprises, no, I don't think the government ought to be involved with bailing out companies. I think the government ought to create the conditions so that companies can survive. And I've listed four. And one of the things I'm deeply troubled about is people who feel like it's okay to raise taxes during these times. And it would be a huge mistake to raise taxes right now.

Plante.

Q Mr. President, you just said twice that the -- Fannie Mae and Freddie Mac should remain shareholder-owned companies. If that's the case, because of the implicit government guarantee that they have, or that is understood, and has been understood by the markets, their exposure is higher and their reserves are lower than any normal business's. Should they be privatized altogether and be subject to normal business rules?

THE PRESIDENT: Well, the first step is to make sure that there's confidence and stability in the mortgage markets through the actions that we have taken. Secondly, we strongly believe there ought to be a regulator. That's something -- this is the position I have been advocating for a long time. And the reason why is it's going to be very important for these institutions to focus on their core mission, which is to provide refinancing for the mortgage industry. And hopefully these measures will instill the confidence in the people. And we'll see how things go.

Q But they should still have that public guarantee then?

THE PRESIDENT: You know, there is an implicit guarantee, as you said. They ought to be focusing on the missions they're expected to do. We have advocated reform for a long period of time. But these need to remain private enterprises, and that's what our message is.

Q Mr. President, in February you were asked about Americans facing the prospect of $4 a gallon gasoline and you said you hadn't heard of that at the time. Gas prices --

THE PRESIDENT: Aware of it now.

Q Gas prices are now approaching $5 a gallon in some parts of the country. Offshore oil exploration is obviously a long-term approach. What is the short-term advice for Americans? What can you do now to help them?

THE PRESIDENT: First of all, there is a psychology in the oil market that basically says, supplies are going to stay stagnant while demand rises. And that's reflected somewhat in the price of crude oil. Gasoline prices are reflected -- the amount of a gasoline price at the pump is reflected in the price of crude oil. And therefore, it seems like it makes sense to me to say to the world that we're going to use new technologies to explore for oil and gas in the United States -- offshore oil, ANWR, oil shale projects -- to help change the psychology, to send a clear message that the supplies of oil will increase.

Secondly, obviously good conservation measures matter. I've been reading a lot about how the automobile companies are beginning to adjust -- people -- consumers are beginning to say, wait a minute, I don't want a gas guzzler anymore, I want a smaller car. So the two need to go hand in hand. There is no immediate fix. This took us a while to get in this problem; there is no short-term solution. I think it was in the Rose Garden where I issued this brilliant statement: If I had a magic wand -- but the President doesn't have a magic wand. You just can't say, low gas. It took us a while to get here and we need to have a good strategy to get out of it.

Q But you do have the Strategic Oil Petroleum Reserve. What about opening that?

THE PRESIDENT: The Strategic Oil Petroleum Reserve is for, you know, emergencies. But that doesn't address the fundamental issue. And we need to address the fundamental issue, which I, frankly, have been talking about since I first became President -- which is a combination of using technology to have alternative sources of energy, but at the same time finding oil and gas here at home. And now is the time to get it done. I heard somebody say, well, it's going to take seven years. Well, if we'd have done it seven years ago we'd be having a different conversation today. I'm not suggesting it would have completely created -- you know, changed the dynamics in the world, but it certainly would have been -- we'd have been using more of our own oil and sending less money overseas.

Yes, Ed.

Q Thank you, Mr. President. Good morning.

THE PRESIDENT: Thank you. It is a good morning.

Q It is.

THE PRESIDENT: Every day is a good morning when you get to serve the country.

Q Absolutely. And we know you prize loyalty, so I wonder whether you felt betrayed by Scott McClellan's assessment of the war in Iraq? And moving forward, since there have been positive signs on the ground in Iraq, Senator Obama is about to take a trip there -- what would be your advice to him as he tries to assess the situation on the ground?

THE PRESIDENT: I have had no comment on -- no comment now on Scott's book.

Secondly, I would ask him to listen carefully to Ryan Crocker and General Petraeus. It's -- there's a temptation to let the politics at home get in the way with the considered judgment of the commanders. That's why I strongly rejected an artificial timetable of withdrawal. It's kind of like an arbitrary thing, you know -- "We will decide in the halls of Congress how to conduct our affairs in Iraq based upon polls and politics, and we're going to impose this on people" -- as opposed to listening to our commanders and our diplomats, and listening to the Iraqis, for that matter. The Iraqis have invited us to be there. But they share a goal with us, which is to get our combat troops out, as conditions permit. Matter of fact, that's what we're doing. Return on success has been the strategy of this administration, and our troops are coming home, but based upon success.

And so I would ask whoever goes there, whatever elected official goes there, to listen carefully to what is taking place, and understand that the best way to go forward is to listen to the parties who are actually on the ground. And that's hard to do. I understand for some in Washington there's a lot of pressure; you got these groups out there -- MoveOn.org, you know, banging away on these candidates, and it's hard to kind of divorce yourself from the politics.

And so I'm glad -- I'm glad all the -- a lot of these elected officials are going over there, because they'll get an interesting -- they'll get an interesting insight, something that you don't get from just reading your wonderful newspapers or listening to your TV shows.

John.

THE PRESIDENT: You call them TV shows? Newscasts, yes.

Q Following up on the question about oil, in the past, when oil prices have gone up a lot, they've wound up going down a lot afterward. But I wonder if you're able to say that oil prices in the future are going to come down a lot.

THE PRESIDENT: I can't predict, John. I mean, look, my attitude is, is that unless there is a focused effort -- in the short term -- unless there's a focused effort to bring more supplies to market, there's going to be a lot of upward pressure on price. We got 85 million barrels a day and -- of demand and 86 million barrels of production. And it's just -- it's too narrow a spread, it seems like to me.

Now, I'm encouraged by, you know, the Caspian Basin exploration. I'm encouraged that the Saudis are reinvesting a lot into their older fields. And remember, some of these oil fields get on the decline rate, which requires a lot of investment to keep their production up to previous levels. So one thing we look at is how much money is being reinvested in some of those fields. I'm encouraged by that.

I am discouraged by the fact that some nations subsidize the purchases of product, like gasoline, which, therefore, means that demand may not be causing the market to adjust as rapidly as we'd like. I was heartened by the fact that the Chinese the other day announced that they're going to start reducing some of their subsidies, which all of a sudden you may have some, you know, demand-driven changes in the overall balance.

But, look, if we conserve and find more energy, we will done -- have done our part to address, you know, the global market right now. And the other thing is that this is just a transition period. I mean, all of us want to get away from reliance upon hydrocarbons, but it's not going to happen overnight. One of these days people are going to be using battery technologies in their cars. You've heard me say this a lot. I'm confident it's going to happen. And the throw-away line, of course, is that your car won't have to look like a golf cart.

But the question then becomes, where are we going to get electricity? And that's why I'm a big believer in nuclear power, to be able to make us less dependent on oil and better stewards of the environment. But there is a transition period during the hydrocarbon era, and it hasn't ended yet, as our people now know. Gasoline prices are high.

Again, I don't want to be a "I told you so," but if you go back and look at the strategy we put out early on in this administration, we understood what was coming. We knew the markets were going to be tight. And therefore, we called for additional exploration at home, plus what has been happening, which is an acceleration of new technologies -- including ethanol technologies -- to get us less dependent on crude oil from overseas.

Let's see here, Steven Lee. Steven Lee.

Q Mr. President, thank you. I wonder in light of the Supreme Court's decision if you could tell us what you plan to do with Guantanamo?

THE PRESIDENT: Steven Lee, we're still analyzing -- "we" being the Justice Department -- are still analyzing the effects of the decision, which, as you know, I disagreed with. And secondly, we're working with members of Congress on a way forward. This is a very complicated case; it complicated the situation in Guantanamo.

My view all along has been either send them back home, or give them a chance to have a day in court. I still believe that makes sense. We're just trying to figure out how to do so in light of the Supreme Court ruling.

Eggen.

Q Mr. President, last week China joined Russia in blocking the sanctions -- Mugabe and Zimbabwe. I can't imagine it's pleased you very much. Do you have any reaction to -- particularly the Chinese move? And also, where do you go from here to try to make sure that the regime doesn't --

THE PRESIDENT: You read my reaction right, I was displeased. We spent a lot of time on this subject at the G8, and there was great concern by most of the nations there -- well, with the G8 nations that were there -- about what was taking place in Zimbabwe. And it's, frankly, unacceptable, and it should be unacceptable to a lot of folks.

And so we discussed the need for, you know, U.N. Security Council resolutions. And I was disappointed that the Russians vetoed. I didn't -- I hadn't spent any time with the Chinese leader talking about -- specifically talking about any Security Council resolutions; I had with President Medvedev.

And so I think the thing we need to do now is for us to analyze whether or not we can have some more bilateral sanctions on regime leaders. After all, these sanctions were not against the Zimbabwe people; these were against the people that -- in the Mugabe regime that made the decisions it made. We got the Treasury Department and State Department -- are now working on a potential -- potential U.S. action.

Bret.

Q Thank you, Mr. President. I have a two-part question on the war, in light of increasing violence in Afghanistan. Do you believe current U.S. troop levels in Iraq are hindering efforts to put more U.S. troops into Afghanistan?

And secondly, this morning in his prepared remarks, Senator Obama will say this: "By any measure, our single-minded, open-ended focus on Iraq is not a sound strategy for keeping America safe. In fact, as should have been apparent to President Bush and Senator McCain, the central front in the war on terror is not Iraq and it never was."

THE PRESIDENT: Well, as you know, I'm loathe to respond to a particular presidential candidate, and so I will try not to. My view is, is that the war on terror is being fought out on two simultaneous fronts that are noted -- noticeable to the American people, and on other fronts that aren't. And so the first question that anybody running for President gets: Is this a war? Or is this like law enforcement? Is it a -- does this require full use of U.S. assets in order to protect the American people? As you know, I made the decision that it does require those assets.

Secondly, that these are two very important fronts, both of which are important to the future of the country. And therefore, we got to succeed in both. Thirdly, one front right now is going better than the other, and that's Iraq, where we're succeeding, and our troops are coming home based upon success. And Afghanistan is a tough fight. It's a tough fight because, one, this is a state that had been just ravaged by previous wars, and there wasn't a lot of central government outreach to the people.

Secondly, there is a tough enemy, and they're brutal, and they kill at the drop of a hat in order to affect behavior. It's a little bit reminiscent of what was taking place in Iraq a couple of years ago, where the enemy knows that they can affect the mentality of the American people if they just continue to kill innocent folks. And they have no disregard [sic] for human life. And it's really important we succeed there, as well as in Iraq. We do not want the enemy to have safe haven. Of course -- unless, of course, your attitude is, this isn't a war. So if that's the case, it wouldn't matter whether we succeed or not.

But it is a two-front war. And I say there's other fronts, but there's other fronts where we're taking covert actions, for example.

Go ahead.

Q Should Americans expect a troop surge in Afghanistan?

THE PRESIDENT: We are surging troops in Afghanistan this way, and committed --

Q Even more?

THE PRESIDENT: Well, we'll analyze the situation, of course, make a determination based upon the conditions on the ground. But we did surge troops. We surged troops. France surged troops. I said in Bucharest, we'll add more troops. And then, of course, we got to make sure the strategy works -- you know, have a counter-insurgency strategy that not only provides security but also provides economic follow-up after the security has been enhanced.

The question really facing the country is, will we have the patience and the determination to succeed in these very difficult theaters? And I understand exhaustion and I understand people getting tired and -- but I would hope that whoever follows me understands that we're at war, and now is not the time to give up in the struggle against this enemy; and that while there hasn't been an attack on the homeland, that's not to say people don't want to attack us. And safe havens become very dangerous for the American people, and we've got to deny safe haven, and at the same, win the struggle by advancing democracy.

This is an ideological struggle we're involved in. These people kill for a reason. They want us to leave. They want us to -- you know, not push back. They don't want democracy to succeed. And yet if given a chance, democracy will succeed. And so these two theaters are the big challenge of the time and the war itself is the challenge.

Yes, Roger.

Q Thank you, sir. I want to follow up on Matt's question about a second economic stimulus --

THE PRESIDENT: On whose question?

Q Matt's question about a second economic stimulus package.

THE PRESIDENT: Brilliant question. Now they're going to start quoting you, you know. Congratulations. (Laughter.)

Q Maybe I missed it, but did you rule out one or --

THE PRESIDENT: I said we ought to see how this one, first one works. Let it run its course.

Q Is it too late to consider a second one in your administration?

THE PRESIDENT: You know, we -- we're always open-minded to things, but I -- let's see how this stimulus package works and let us deal with the housing market with a good piece of housing legislation, and the energy issue with good energy legislation, and the trade issue with good trade legislation.

People say, aww, man, you're running out of time, nothing is going to happen. I'll remind people what did happen: We got a good troop funding bill with no strings; got a GI Bill; we got FISA. What can we get done? We can get good housing legislation done. We can get good energy legislation done. We can get trade bills done. I mean, there's plenty of time to get action with the United States Congress, and they need to move quickly. We can get judges approved.

And so I'm -- we'll see what happens up there. I'm confident if they put their mind to it we can get good legislation.

Let's see here -- yes, Mark.

Q Mr. President, understanding what you say about energy supplies being tight and the debate over energy, which has gone on for years and will continue long through the campaign and into the next administration -- one thing nobody debates is that if Americans use less energy the current supply/demand equation would improve. Why have you not sort of called on Americans to drive less and to turn down the thermostat?

THE PRESIDENT: They're smart enough to figure out whether they're going to drive less or not. I mean, you know, it's interesting what the price of gasoline has done, is it caused people to drive less. That's why they want smaller cars, they want to conserve. But the consumer is plenty bright, Mark. The marketplace works.

Secondly, we have worked with Congress to change CAFE standards, and had a mandatory alternative fuel requirement.

So no question about what you just said is right. One way to correct the imbalance is to save, is to conserve. And as you notice my statement yesterday, I talked about good conservation. And people can figure out whether they need to drive more or less; they can balance their own checkbooks.

Q But you don't see the need to ask -- you don't see the value of your calling for a campaign --

THE PRESIDENT: I think people ought to conserve and be wise about how they use gasoline and energy. Absolutely. And there's some easy steps people can take. You know, if they're not in their home, they don't keep their air-conditioning running. There's a lot of things people can do.

But my point to you, Mark, is that, you know, it's a little presumptuous on my part to dictate to consumers how they live their lives. The American people are plenty capable and plenty smart people and they'll make adjustments to their own pocketbooks. That's why I was so much in favor of letting them keep more of their own money. It's a philosophical difference: Should the government spend their money, or should they spend their own money? And I've got faith in the American people.

And as much as I regret that the gasoline prices are high -- and they are -- I also understand that people are going to make adjustments to meet their own needs. And I suspect you'll see, in the whole, Americans using less gasoline. I bet that's going to happen. And in the meantime, technologies will be coming on the market that will enable them to drive and save money, compared to the automobiles they're using before. And as you notice, the automobile industry is beginning to adjust here at home as consumer demand changes. And the great thing about our system, it is the consumer that drives our system; it's the individual American and their collection that end up driving the economy.

Yes, Ann.

Q Could I follow up on a couple of points, please?

THE PRESIDENT: Okay.

Q `You never mention oil companies. Are you confident that American oil producers are tapping all of the sources they have out there, including offshore? And on Iraq, will you sign an interim agreement with Prime Minister Maliki on American operations in Iraq, leaving it to your successor to do a more permanent agreement?

THE PRESIDENT: There are -- let me start with Iraq. We're in the process of working on a strategic framework agreement with the Iraqi government that will talk about cooperation on a variety of fronts -- diplomacy, economics, justice. Part of that agreement is a security agreement, and I believe that -- you know, they want to have an aspirational goal as to how quickly the transition to what we have called overwatch takes place. Overwatch will mean that the U.S. will be in a training mission, logistical support as well as special ops.

In order for our troops to be in a foreign country, there must be an understanding with the government. There must be authorities to operate, as well as protections for our troops. We're in the process of negotiating that, as well. And it needs to be done prior to the year because -- unless, of course, the U.N. mandate is extended. And so there are two aspects to the agreement -- people seem to conflate the two -- and we're working both of them simultaneously.

Let's see here.

Q American oil producers?

THE PRESIDENT: Oh, what was the question again on that?

Q You talked about offshore --

THE PRESIDENT: What about them -- do I think they're investing capital to find more reserves with the price at $140 a barrel? Absolutely. Take an offshore exploration company. First of all, it costs a lot of money to buy the lease, so they tie up capital. Secondly, it takes a lot of money to do the geophysics, to determine what the structure may or may not look like. That ties up capital. Then they put the rig out there. Now, first of all, in a federal offshore lease, if you're not exploring within a set period of time, you lose your bonus; you lose the amount of money that you paid to get the lease in the first place.

And once you explore, your first exploratory, if you happen to find oil or gas, it is -- you'll find yourself in a position where a lot of capital is tied up. And it becomes in your interest, your economic interest, to continue to explore so as to reduce the capital costs of the project on a per-barrel basis. And so I -- I think -- I think they're exploring. And hopefully a lot of people continue to explore so that the supply of oil worldwide increases relative to demand.

Now, people say, what about the speculators? I think you can't help but notice there is some volatility in price in the marketplace, which obviously there are some people in the -- buying and selling on a daily basis. On the other hand, the fundamentals are what's really driving the long-term price of oil, and that is, demand for oil has increased, and supply has not kept up with it. And so part of our strategy in our country has got to be to say, okay, here are some suspected reserves and that we ought to go after them in an environmentally friendly way.

A buddy of mine said, well, what about the reefs? So I'm concerned about the reefs. I'm a fisherman, I like to fish, reefs are important for fisheries. But the technology is such that you can protect the reefs. You don't have to drill on top of a reef. You can drill away from a reef and then have a horizontal hole to help you explore a reservoir.

It's like in Alaska. You know, in the old days, you would have had to have -- if you ever go out to West Texas, you'll see, there's like a rig every 20 acres, depending upon the formation. In Alaska you can have one pad with a lot of horizontal drilling, which enables you to exploit the resources in a way that doesn't damage the environment. These are new technologies that have come to be, and yet we've got an old energy policy that hasn't recognized how the industry has changed. And now is the time to get people to recognize how the industry has changed.

April.

Q Mr. President --

THE PRESIDENT: Yes.

Q Two questions. One on energy and another on Sudan.

THE PRESIDENT: On what?

Q Not energy, I'm sorry, the economy. When, in your guesstimation, will this country see a turnaround as relates to the softening economy? When will it become strong again?

And also, on the Sudan, the Sudanese government is looking to the United Nations for help in this situation with the ICC. And this is a body that they have ignored before. What are your thoughts about what's happening with the Sudan?

THE PRESIDENT: Well, we're not a member of the ICC, so we'll see how that plays out.

My thought on Sudan is, is that the United Nations needs to work with this current government to get those troops in to help save lives -- AU hybrid force. I talked to Williamson, who's the Special Envoy to Sudan, yesterday. There's two aspects to the Sudanese issue. One is the north-south agreement, and he was talking about the need to make sure that there is a clear understanding about how oil revenues will be shared between north and south in a certain part of the border region there, so as to make sure that there is -- that this agreement that Ambassador Danforth negotiated stays intact and stays full.

And the other aspect, obviously, is Darfur. And that's a very, very complex issue. We're trying to make -- we're trying to work with the rebel groups so that they speak more with one voice. We're trying to work with Bashir to make sure he understands that there will be continued sanctions if he doesn't move forward. We're trying to help get this -- AU troops in Africa, throughout Africa into Sudan. And we're working with the French on the issue of Chad.

And it's a complex situation, and sadly enough, innocent people are being displaced and are losing their life. And it's very difficult and unacceptable. And as you know, I made the decision not to unilaterally send troops. Once that decision was made, then we had to reply upon the United Nations. And I brought this issue up at the G8 with our partners there. There's the same sense of consternation and the same sense of frustration that things haven't moved quicker. I talked to Ban Ki-moon about the issue and he told me -- I think he told me that by the end of this year a full complement of AU troops will be there. Then the question is, will the government help expedite the delivery of humanitarian aid?

Anyway, the other question?

Q Yes, the other question --

THE PRESIDENT: When will the economy turn around?

Q Yes.

THE PRESIDENT: I'm not an economist, but I do believe that we're growing. And I can remember this press conference here where people yelling "recession this, recession that" -- as if you're economists. And I'm an optimist. I believe there's a lot of positive things for our economy. But I will tell you it's not growing the way it should and I'm sorry people are paying as high gasoline prices as they are. And all I know is good policy will help expedite a -- will strengthen our economy.

Q Do you think it will change before you leave office?

THE PRESIDENT: I certainly hope it changes tomorrow. But it's -- I'm also realistic to know things don't change on a dime. But nevertheless, the economy is growing. There's obviously financial uncertainty. We've talked about the decisions on the GSEs here. People need to know that if they've got a deposit in a commercial bank the government will make good up to $100,000 worth of their deposit. There's no question it's a time of uncertainty. There's a lot of events taking place at the same time. But we can pass some good law to help expedite the recovery.

One such law is a good piece of housing legislation. The Congress needs to get moving on it. Another such law is to send a signal that we're willing to explore for oil here at home. I fully understand that this is a transition period away from hydrocarbon, but we ought to be wise about how we use our own resources. I think it would be a powerful signal if we announce that we're going to really get after it when it comes to oil shale. There's enormous reserves in the western states. And I think if the world saw that we're willing to put a focused, concerted effort on using new technologies to bring those reserves to bear, which would then relieve some pressure on gasoline prices, it would have an impact.

The other thing is, is that -- I'm sure you know this, April, but we haven't built a refinery, a new refinery in the United States since the early '70s. It makes no sense. And yet you try to get one permitted, it is unbelievably difficult to do. People aren't willing to risk capital if they're deeply concerned about how their capital is going to be tied up in lawsuits or regulations. And we import a lot of gasoline, refined product from overseas.

So there's some things we can do to send signals that it's important that we can get the economy -- take advantage of the positive aspects and get it moving stronger again.

The other thing is trade. It is -- I don't understand the decision on the Colombia free trade market -- free trade agreement. The Congress has given preferential treatment to goods coming out of Colombia through the Andean Trade Preference Act. In other words, Colombia businesses can sell into our country relatively duty free. And yet we don't have the same -- we don't get the same treatment. Now, why does that make sense? It doesn't.

Trade, our trade or exports have helped keep the economy growing, April, as paltry as it may be. Doesn't it make sense for us to continue to open up further opportunities to sell goods? I think it does. I do not understand why it's okay for Colombia to be able to sell into our country close to duty free, and we don't have the same advantage. And secondly, turning our back on somebody like Uribe makes no sense at all. He is a courageous fighter against terrorists. And yet our Congress won't even bring up a free trade agreement with Colombia.

Anyway, it's -- politics is just choking good sense. And the other thing is, is that once we get moving on Colombia, we need to get moving on Panama and South Korea. It's in our country's interest we do that.

Olivier. Olivier.

Q Yes, sir. Can I follow up on --

MS. PERINO: He looks like -- (Laughter.)

Q Following up on Bret Baier's question --

MS. PERINO: -- Olivier. (Laughter.)

THE PRESIDENT: I know who Olivier is. I was just winking at Myers, you know. (Laughter.) Yes, Olivier.

Q Thank you, sir. Following up on Bret Baier's question --

THE PRESIDENT: What was the question, Olivier? I'm 62, I'm having trouble remembering a lot of things.

Q It was about Afghanistan, sir.

THE PRESIDENT: Good, yes.

Q Okay. Afghan President --

THE PRESIDENT: I remember it now.

Q Afghan President Hamid Karzai has blamed Pakistan's intelligence services for a recent terrorist attack in his country, and recent reporting suggests that al Qaeda has regrouped to pre-September 11th levels along the border between Pakistan and Afghanistan. Is President Karzai correct, and do you think the new President -- the new government in Pakistan is willing and is able to fight the terrorists?

THE PRESIDENT: First of all, we'll investigate his charge and we'll work with his service to get to the bottom of his allegation. No question, however, that some extremists are coming out of parts of Pakistan into Afghanistan. And that's troubling to us, it's troubling to Afghanistan, and it should be troubling to Pakistan. We share a common enemy: That would be extremists who use violence to either disrupt democracy or prevent democracy from taking hold.

Al Qaeda is -- they're there. We have hurt al Qaeda hard -- hit them hard, and hurt them in -- around the world, including in Pakistan. And we will continue to keep the pressure on al Qaeda -- with our Pakistan friends.

I certainly hope that the government understands the dangers of extremists moving in their country. I think they do. As a matter of fact, we'll have an opportunity to explore that further on Monday with the Prime Minister of Pakistan. Pakistan is an ally, Pakistan is a friend. And I repeat: All three countries, United States, Pakistan and Afghanistan, share a common enemy.

I remember very well the meeting I had at the White House with President Musharraf and President Karzai. And we talked about the need for cross-border cooperation to prevent dangerous elements from training and coming into Afghanistan, and then, by the way, returning home with a skill level that could be used against the government.

And there was some hopeful progress made. Obviously it's still a tough fight there. And we were heartened by the provincial elections in that part of the world. We will continue to work to help the government, on the one hand, deal with extremists; and on the other hand, have a counter -- effective counterinsurgency kind of strategy that uses aid to foster economic development. And it's a challenge. And the three of us working together can deal with the challenge a lot better than if we don't work together.

Okay, I've enjoyed it. Thank you very much for your time. Appreciate it.

American Energy Policy, Asleep At The Spigot

The New York Times reports:

Just three years ago, with oil trading at a seemingly frothy $66 a barrel, David J. O’Reilly made what many experts considered a risky bet. Outmaneuvering Chinese bidders and ignoring critics who said he overpaid, Mr. O’Reilly, the chief executive of Chevron, forked over $18 billion to buy Unocal, a giant whose riches date back to oil fields made famous in the film “There Will Be Blood.”

For Chevron, the deal proved to be a movie-worthy gusher, helping its profits to soar. And while he has warned about tightening energy supplies for years and looks prescient for buying Unocal, even Mr. O’Reilly says that he still can’t get his head around current oil prices, which closed above $145 a barrel on Thursday, a record.

“We can see how you can get to $100,” he says. “At $140, I just don’t know how to explain it. We’re surprised.”

For the rest of the country, the feeling is more like shock. As gasoline prices climb beyond $4 a gallon, Americans are rethinking what they drive and how and where they live. Entire industries are reeling — airlines and automakers most prominent among them — and gas prices have emerged as an important issue in the presidential campaign.

Ninety percent of Americans, meanwhile, expect the pain at the pump to pose a financial hardship in the next six months, according to a recent Associated Press-Yahoo News poll. Stocks now trade inversely to crude prices, and the Dow Jones industrials are in bear-market territory. Old icons have been written off, with Starbucks boasting nearly twice the market value of General Motors, which some on Wall Street say faces the possibility of bankruptcy.

Outside the thriving oil patch, it makes for a bleak economic picture. But it didn’t have to be this way.

Over the last 25 years, opportunities to head off the current crisis were ignored, missed or deliberately blocked, according to analysts, politicians and veterans of the oil and automobile industries. What’s more, for all the surprise at just how high oil prices have climbed, and fears for the future, this is one crisis we were warned about. Ever since the oil shortages of the 1970s, one report after another has cautioned against America’s oil addiction.

Even as politicians heatedly debate opening new regions to drilling, corralling energy speculators, or starting an Apollo-like effort to find renewable energy supplies, analysts say the real source of the problem is closer to home. In fact, it’s parked in our driveways.

Nearly 70 percent of the 21 million barrels of oil the United States consumes every day goes for transportation, with the bulk of that burned by individual drivers, according to the National Commission on Energy Policy, a bipartisan research group that advises Congress.

So despite the fierce debate over what’s behind the recent spike in prices, no one differs on what’s really responsible for all that underlying demand here for black gold: the automobile, fueled not only by gasoline but also by Americans’ famous propensity for voracious consumption.

To be sure, the American appetite for crude oil is only one reason for the recent price surge. But the country’s dependence on imported oil has only kept growing in recent years, undermining the trade balance and putting an added strain on global supplies.

Although the road to $4 gasoline and increased oil dependence has been paved in places like Detroit, Houston and Riyadh, it runs through Washington as well, where policy makers have let the problem make lengthy pit stops.

“Much of what we’re seeing today could have been prevented or ameliorated had we chosen to act differently,” says Pete V. Domenici, the ranking Republican member of the Senate Energy and Natural Resources Committee and a 36-year veteran of the Senate. “It was a bipartisan failure to act.”

Mike Jackson, the chief executive of AutoNation, the country’s biggest automobile retailer, is even more blunt. “It was totally preventable,” he says, anger creeping into his affable car-salesman’s pitch.

The speed at which gas prices are climbing is forcing a seismic change in long-held American habits, from car-buying to commuting. Last week, Ford Motor reported that S.U.V. sales were down 55 percent from a year ago, while demand for its full-size F-series pickup, a gas guzzler that was the country’s best-selling vehicle for 26 consecutive years, is off 40 percent. The only Ford model to show a sales increase was the midsized Fusion. A Ford spokeswoman says the market shift is “totally unprecedented and faster than anything we’ve ever seen.”

If the latest rise in oil prices isn’t just another spike — like those of the 1970s and 1980s — but is instead a fundamental repricing of the commodity responsible for much of modern American life, the impact of that change will affect everyone from home builders and homeowners in exurbs to corporate leaders, landlords and commuters in cities.

Although Asian consumers have begun emulating America’s love affair with the automobile, with the commercial booms of China and India playing pivotal roles in increased oil demand, the largest energy appetite in the world is still found in the United States. Home to only 4 percent of the world’s population, the nation slurps up about a quarter of the planet’s oil — and Americans’ daily use is nearly twice the combined consumption of the Chinese and Indians, according to an annual energy survey published by BP, the British oil giant.

Indeed, low-priced gasoline has long been part of the American social contract, according to Newt Gingrich, the former House speaker and Republican leader. While in office, Mr. Gingrich battled efforts to modulate demand through tools like increased gas taxes and tighter fuel standards, and he argues that voters won’t support such measures even now.

“They will work if you coerce the entire system and if you pretend the American people are Japanese and Europeans,” Mr. Gingrich says. “Our culture favors driving long distances in powerful vehicles and the car as a social expression.”

In 2002, General Motors workers opposed legislation to increase fuel efficiency standards because they thought it might eliminate the S.U.V.
Perhaps, but on Capitol Hill, members of both parties now say they are furious with Detroit for fighting so hard, and for so long, against higher fuel-efficiency standards.

Though analysts say automakers who shoveled out highly profitable and highly inefficient road hogs like S.U.V.’s and pickups deserve much of the blame, they also criticize legislators who failed to provide an incentive for consumers to switch to fuel-sipping cars. Some politicians are quick to acknowledge the problem.

“We’ve got to fix it or our standard of living will change within a decade,” says Senator Domenici, who is retiring this year. “Oil was too damn cheap, it’s too high now and it’s going even higher. I hope I’m wrong, but the problem is, we can’t catch up soon enough.”

According to energy policy experts, it was in the late 1980s and early 1990s — during the administrations of President George H. W. Bush and Bill Clinton — that things began to go wrong.

Before that point, the country reaped the benefits of the first fuel-economy standards, passed in 1975, known as corporate average fuel economy, or CAFE. Between 1974 and 1989, the efficiency of a typical car sold in the United States almost doubled, to 27.5 miles per gallon from 13.8.

Largely as a result, oil consumption in 1990 totaled 16.9 million barrels, basically on a par with the 17 million barrels consumed in 1980, even as the economy grew substantially. Oil prices were in the middle of a long downward slide that would take them from well above $30 a barrel in 1980 to a low of just under $10 in late 1998 and early 1999, interrupted only by brief spike in 1990 after Iraq’s invasion of Kuwait.

In 1990, Richard H. Bryan, a Nevada Democrat, teamed up in the Senate with Slade Gorton, Republican of Washington, and proposed lifting fuel standards again over the next decade, with a goal of 40 m.p.g. for cars. Amid furious opposition from Detroit, liberal Democrats from automaking states, like Carl Levin of Michigan, joined conservative Republicans like Jesse Helms of North Carolina, who died on Friday, to block new CAFE standards. “It was one of the most frustrating issues in my Senate career,” says Mr. Gorton, who left the Senate in 2001.

Dan Becker, then a lobbyist for the Sierra Club, still remembers his shock when he saw Mr. Levin and Mr. Helms, diametrically opposed on most issues, walk amiably together onto the Senate floor to cast their votes. “This wasn’t East-West, right-left, or North-South,” he says. “But had we passed that bill, we’d be using three million barrels less oil a day now.”

That amount may not sound like much, given total global consumption of 85 million barrels a day, but it’s more than OPEC’s spare capacity now.

Mr. Levin didn’t return calls for comment. But Representative John D. Dingell, the powerful Democrat from Detroit who chairs the House Energy and Commerce Committee, argues — as he did more than a decade ago — that tightening CAFE standards unfairly penalizes domestic automakers while rewarding foreign rivals who make more small cars.

Mr. Dingell, who has defended the automakers fiercely during his 52 years on Capitol Hill, decided to support the stronger CAFE standards last year. But he does not apologize for his longtime stance. “The American auto industry has sold the cars people wanted,” he says. “You’re going to blame the auto industry for that or the American consumer? He likes it sitting in his driveway, he likes it big, he likes it safe.”

A much more effective approach would be to simply raise taxes on gasoline, Mr. Dingell says, because higher prices are the easiest way to change buying habits. Some Europeans agree with this, noting that policy changes engineered through taxation can alter consumer choices without impeding economic growth.

Consumers overseas might not like higher taxes on gasoline, but they’ve adapted, says Jeroen van der Veer, chief executive of Royal Dutch Shell, the European energy giant. “A society can work, can function and can grow even at higher fuel prices,” he says. “It’s a way of life — you get used to it.”

In Mr. van der Veer’s native Holland, for example, gasoline sells for more than $10 a gallon, with $5.57 of that going to taxes. Even in Britain, which has substantial North Sea production, gasoline sells for $8.71 a gallon.

A substantial gas tax increase was considered during the administration of the first President Bush, recalls William K. Reilly, who ran the Environmental Protection Agency at the time. But it was whittled down in 1990 to just 5 cents after Mr. Gingrich and other conservatives in the Republican Party broke with the president.

“This was a stark lesson and people decided the gas tax was the third rail of public policy,” Mr. Reilly says.

Even as Congress idled when it came to tightening CAFE standards or substantially raising levies on gas, the Exxon Valdez oil spill in 1989 made offshore drilling yet another unpalatable option. “That caused a sea change and after that no one had any sympathy for the oil industry,” Mr. Becker says.

In 1990, three months before the effort to raise fuel-efficiency standards failed on Capitol Hill, President Bush issued an executive order making large swaths of the continental shelf off-limits to new exploration. That policy remains in effect today.

Lee Raymond, former chief of Exxon Mobil, says of today’s oil prices: “There is no quick-fix on this. By the time you panic, it is way too late.”
When Senators Charles E. Schumer, a New York Democrat, and Frank H. Murkowski, an Alaska Republican, attempted to put together a grand bargain of opening up more of Alaska in exchange for raising auto efficiency in 1998, the two couldn’t persuade enough members of either party to go along.

“It was a no-action policy,” says Lee R. Raymond, the former chief executive of Exxon Mobil, who has had a ringside seat for most of the energy policy debates of the last 25 years. “By the time there is panic, people need to realize this: There is no quick-fix on this. By the time you panic, it is way too late.”

Still, many analysts argue that increased drilling alone is no panacea. They note that many of the oil giants don’t drill in areas to which they already have access. Exxon, in particular, has been criticized as spending too much to buy back its own stock and not enough on exploration. Chris Welberry, a spokesman for Exxon Mobil, defends the company’s record, saying, “We are investing in our business at record levels — around $25 billion this year.”

In any event, added drilling is unlikely to generate sharply lower prices. A recent study by the federal government’s Energy Information Administration estimated that under the best-case scenario opening up the Arctic National Wildlife Refuge would reduce prices by $1.44 a barrel by 2027. Drilling in broader swaths off the continental United States wouldn’t affect prices until 2030.

On the taxation frontier, President Clinton did manage to get through a small tax increase on gasoline — 4.3 cents — in 1993, but with oil prices hovering between $10 and $20 a barrel for most of the 1990s, conservation ended up on the back burner.

Indeed, President Clinton did propose a broader tax on energy consumption in 1993, but it died quickly when Senate Democrats rebelled, much as House Republicans derailed President Bush’s gas tax in 1990. Still, environmentalists like Mr. Becker remain disappointed with Mr. Clinton for not doing more in his first term when oil prices were low and Detroit was enjoying a recovery in profits after the lean years of the early 1990s.

Congressional Republicans made matters worse in 1995, when they attached a rider to a huge appropriations bill forbidding the National Highway Traffic Safety Administration from spending any money to raise fuel standards. That law, in effect until 2001, made any change in CAFE standards impossible, says Representative Edward J. Markey, a Massachusetts Democrat who has pushed for better fuel efficiency.

As Paul Bledsoe, strategy director of the National Commission on Energy Policy, recalls it, “The 1990s were something of a lost decade for American fuel efficiency.” With oil prices low, consumers began snapping up pickup trucks and sport utility vehicles, which were governed by less stringent fuel economy standards, thanks to a loophole in the original 1975 law. These carried higher sticker prices and profit margins, and both Detroit and foreign automakers were happy to oblige.

Although oil prices remained low through the 1990s, consumption patterns were taking an ominous turn. By 2000, daily demand reached 19.7 million barrels a day — nearly three million more than in 1990, a 17 percent jump in 10 years that wiped out much of the fuel savings that followed the energy crises of the 1970s.

Since then, global consumption has taken off, rising to 85.2 million barrels a day last year from 76.3 million in 2000.

In recent years, Mr. Reilly says that both the White House and Congress have passed up opportunities to call for higher gas taxes and fuel standards in the name of national security, especially after the Sept. 11 attacks. “We could have, but we didn’t,” says Mr. Reilly, who describes himself as a moderate Republican. “It’s part of a long pattern in which Democrats and Republicans have not wanted to wade into this issue.”

By 2001, oil prices were slowly creeping up, but few seemed to notice, perhaps because the march was slow and steady. By 2004, crude was at $37 a barrel and the next year it hit $50. With higher prices for oil, an increase in gas taxes was political poison, but Mr. Markey says support for new fuel standards was reawakening.

Nevertheless, his efforts to pass new fuel economy legislation in 2001, 2003, and 2005 went nowhere amid continued opposition by supporters of the auto industry on both sides of the aisle as well as many conservative Republicans. Although the United States had long ceased to be energy-independent — that era ended just after World War II — Mr. Markey says he believes the memory of plentiful domestic supplies created a different mind-set here than in Europe, where oil was generally scarce.

Other veterans of those battles cite lobbying by the domestic automakers as a main factor in the failure of Mr. Markey’s legislation. “The auto companies didn’t see the handwriting on the wall,” Mr. Schumer says. “The auto companies would go to people and say, ‘If you vote for CAFE standards, the auto plant in your district could shut down.’ They got the message.”

Representative Mike Castle, a Delaware Republican whose district includes plants owned by G.M. and Chrysler, adds that “nothing was ever said directly but it would go through the minds of members that Detroit might respond.”

“Sometimes, things don’t have to be said,” he added.

Susan M. Cischke, group vice president for sustainability, environment and safety engineering at Ford, says the recollections of Mr. Schumer and Mr. Castle are “way over the top — you don’t just pull up or put down auto plants.” Instead, she says, when lobbying on CAFE, “we talked with our friends and indicated what it did with jobs. You want support.”

Oil industry insiders say they remained on the sidelines during Congressional debates over CAFE standards, although legislators from oil states tended to vote against more rigorous rules.

In 2007, with oil at $82 and gas nearing $3, Congress finally approved the first big increase in fuel-efficiency standards in 32 years, requiring the fleet average to reach 35 m.p.g. by 2020. That will save one million barrels a day by 2020, but onetime CAFE opponents like Mr. Castle now say they wish that Congress had acted sooner. Since the 1980s, fuel efficiency has flatlined at 24 m.p.g., while vehicle weight has jumped more than 25 percent and horsepower has nearly doubled. In Europe, on the other hand, fuel efficiency currently stands at 44 m.p.g. and is slated to hit 48 m.p.g. by 2012.

“It’s a shame we’re doing this now instead of 10 or 20 years ago,” says Mr. Castle, who supported the legislation last year. “It was always my hope they would just do it without a mandate.” He adds that while he still opposes drilling in Alaska, “Republicans aren’t all wrong when they talk about increasing supplies of oil. There are opportunities in the Gulf of Mexico.”

Senator Domenici, the senior New Mexico Republican, agrees that it’s time to look at new supplies but is even more critical of Detroit. “They all said to us: ‘Don’t change CAFE. It’ll come when it’s supposed to.’ That’s baloney,” he said.

Until last year’s vote, Mr. Domenici was an opponent of new fuel-efficiency standards, a stance he now regards as a mistake. “We were like everybody else,” he says. “We should have been more active on CAFE sooner.”

With Detroit again seeing profits collapse as sales of big cars plunge, Mr. Domenici says he is worried about the survival of the domestic automakers.

“They talked a good research game,” he says. “But let’s face it, little was being done. They are suffering the consequences and could go broke just like the airlines.”

What Congress didn’t or couldn’t do, the free market is now doing in the form of higher gas prices: forcing Americans into more fuel-efficient cars. Ms. Cischke of Ford says that in the last two months, “We have seen more of a shift in the market than in 20 years of CAFE. People are buying what they need.”

Unfortunately, the shift is happening too fast for a company of Ford’s size. That is among the reasons Wall Street expects Ford to lose more than $2 billion this year.

Congress, meanwhile, in its bid to explain the run-up in fuel prices, is examining the role of speculation and the increased flow of investor money into commodities. Most energy economists emphasize the fundamental issue of supply and demand, rather than market manipulation, but financial factors like the weak dollar are also exacerbating the situation. Stephen P. A. Brown, director of energy economics and microeconomic policy analysis at the Federal Reserve Bank of Dallas, estimates that a little more than 20 percent of the price of oil today can be attributed to the dollar’s fall against the euro and other currencies.

Another financial factor behind the price rise that hasn’t been talked about much on Capitol Hill or elsewhere is reduced hedging by oil companies on futures markets, says Larry Goldstein, a longtime energy analyst. In the past, crude producers would offer buyers a portion of their energy output in future years in order to protect themselves if prices pulled back. But energy companies got burned as prices kept rising during the last two years and have since cut back on selling untapped production — forcing prices for energy futures even higher.

Now, the prospect of a perpetual climb in oil prices has become part of market psychology, which is notoriously hard to change. William H. Brown III, a former Wall Street energy analyst who now consults for hedge funds and financial institutions, says investors have become convinced that the White House and Congress are unlikely to do anything dramatic to bring down prices.

For example, a release of supplies from the Strategic Petroleum Reserve after disruptions in Nigeria or Venezuela might have persuaded the market that Washington was on the case and shaken some complacency out of the market. “I’ve been a little surprised at what has not been done or what has not been talked about to get a handle on the consumer situation,” Mr. Brown says.

Others say that although the push to blame market speculators rather than discuss economic realities is likely to intensify on Capitol Hill as the presidential election draws near, they believe that what the world is confronting is a momentous shift in energy supply and demand.

“Speculation and manipulation are two different things,” says Mr. O’Reilly of Chevron. “Most of where we are is because of fundamentals and concern about the future.”

What Price Vanity? $14 Million For License Plate

No. 1 tag auctioned off for charity

Emirati Saed Abdul Ghaffar al-Khouri (L) speaks on the phone as he poses with the most expensive car number-plate after he won it in an auction in the oil-rich emirate of Abu Dhabi on February 16, 2008. Al-Khouri won the plate after bidding 52.2 milion dirhmas (14.2 million dollars) to become the most expensive single-digit car registration plate in the world.

The AP reports:

A license plate with nothing but the number "1" on it went for a record $14 million at a charity auction Saturday.

Saeed Khouri, a member of a wealthy Abu Dhabi family, wouldn't say how many automobiles he owned or which of them might carry the record-breaking single-digit plate.

"I bought it because it's the best number," said Khouri, whose family made its fortune in real estate. "I bought it because I want to be the best in the world."

The oil-rich UAE began auctioning off vanity license plates last May.

Saeed Khouri, foreground, and others bid on a No. 1 vanity license plate during a charity auction in the Emirati capital of Abu Dhabi on Saturday. Khouri won with a bid of $14 million.

Ordinary automobile license plates issued to drivers here — and even most other vanity series plates — carry both Arabic and Western numerals and script, defining the issuing city and country.

Khouri's plate, however, has only the Western numeral and no letters.

The record sale surpassed the $6.8 million that was paid for an Emirati license plate at an earlier auction with the Western number 5 on it — also without Arabic numerals or letters.

The license plate sits in a display case before the start of the charity auction Saturday in Abu Dhabi.

Proceeds from the auctions, which are held in a lavish hotel here, go to a rehabilitation center for victims of traffic accidents.

On Saturday, 90 license plates were auctioned off in all, raising a total of $24 million. The previous five such events raised more than $50 million.

Single Trader Behind Oil Record

The BBC reports:

The man behind the record rise in oil prices to $100 a barrel was a lone trader, seeking bragging rights and a minute of fame, market watchers say.

A single trader bid up the price by buying a modest lot and then sold it immediately at a loss, they claim.

The New York Mercantile Exchange said that US crude oil futures traded just once in triple figures on Wednesday.

Some analysts questioned the validity of the trade, though their concerns faded as oil set a record on Thursday.

New York light sweet crude climbed to a new high of $100.05 a barrel on Thursday.

Vanity trade

On Wednesday, one floor trader bought 1,000 barrels, the smallest amount permitted, and sold it immediately for $99.40 at a $600 loss, said Stephen Schork, a former floor trader on the New York Mercantile Exchange and the editor of an oil market newsletter.

"They absolutely overpaid," he told Radio Four's Today Programme.

"He paid $600 for the right to tell his grandchildren that he was the first in the world to buy $100 oil."

Most trading in energy futures has shifted away from the trading floor and takes place on electronic platforms.

The NYMEX, along with the Chicago Mercantile Exchange is one of the last bastions of "open outcry", where traders use frantic hand signals to trade securities.

In London, open outcry trading still takes place on the London Metal Exchange, where aluminium, copper and zinc are traded.

The supporters of electronic trading claim that it is faster, cheaper, more efficient for users, and less prone to manipulation by market makers.

The dwindling liquidity on the NYMEX trading floor has led to considerable speculation that the exchange will soon shut down the trading floor to cut costs.

Oil Leaders' Private Debate Televised By Mistake

'Kill the cable, kill the cable,' shouted the security guard as he burst through the double doors into the media room at the Intercontinental Hotel in Riyadh, followed by Saudi police. It was too late.

The Observer reports:

A private meeting of Opec leaders, gathered this weekend in Riyadh for the cartel's third meeting in its 47-year history, had just been broadcast to the world's media for more than half an hour after a technician had mistakenly plugged the TV feed into the wrong socket. The facade of unity that the cartel so carefully cultivates to a world spooked by soaring oil prices was shattered.

Sometimes, such innocent mistakes can have far-reaching economic and political consequences. Commodity and currency traders said this weekend that oil prices would surge again tomorrow - possibly breaking the $101 per barrel record set in the late 1970s - while the already battered dollar would fall further on the back of the unintentional broadcast.
On Friday night, during what the participants thought were private talks, Venezuela's oil minister Venezuela Rafael Ramirez and his Iranian counterpart Gholamhossein Nozari, argued that pricing - and selling - oil using the crippled dollar was damaging the cartel.

They said Opec should formally express its concern about the weakness of the dollar when the cartel makes its official declaration at the close of the summit today. But the Saudis, the world's largest oil producers and de facto head of Opec, vetoed the proposal. Saud al-Faisal, the Saudi foreign minister, warned that even the mere mention to journalists of the fact that leaders were discussing the weak dollar would cause the US currency to plummet.

Unfortunately his words and those of everyone at the meeting were being broadcast via a live television feed to a group of astonished reporters. 'I couldn't believe it,' said one who was there. 'When I realised they didn't know they were being broadcast live, I frantically started taking notes.'

Opec only realised that the leaders' row was being broadcast to the world when the Reuters news agency put out a report of the argument.

The weakness of the dollar is one reason why oil prices are so high, as cartel members seek to compensate for their lower earnings. This means a further drop in the dollar is likely to be accompanied by a rise in oil prices.

Oil Oozes in San Francisco Bay After Ship Hits Golden Gate Bridge

About 58,000 gallons of heavy fuel spilled, threatening wildlife and closing beaches.

Alcatraz is surrounded by oil slicks that leaked from a cargo ship after it bumped the San Francisco -Oakland Bay Bridge

The LA Times reports:

Crews were racing Thursday to mop up 58,000 gallons of fuel that spilled after a cargo ship bumped into the San Francisco-Oakland Bay Bridge.

Spread by the tides, the fuel slick from Wednesday's accident shut down several beaches and threatened shorebirds, seals and other marine mammals that make a home in the bay.

By Thursday afternoon, 26 oil-covered birds had been rescued by wildlife crews, while six birds were found dead. Hundreds more had been caught in the spreading slick, said Steve Edinger, assistant chief for the California Department of Fish and Game.

The slick had also spread outside the bay, as far as Tennessee Point in Marin County, 10 miles north of the Golden Gate.

"This is a significant event," Edinger said. "This is one we're very concerned about."

He said the last major oil spill in the bay occurred in 1996, when 10,000 gallons oozed out of a ship in a repair facility.

Melissa Hauck of the U.S. Coast Guard said eight oil-skimming boats were working to clean up the slick. By late afternoon, 9,500 gallons had been collected, as well as 3 cubic yards of oil in gel or solid form. The spill was of bunker fuel, a viscous fuel used on ships that is heavy and can be difficult to clean up.

Authorities also laid 11,000 feet of log booms around the 810-foot container ship Cosco Busan, which was towed to an anchorage off Candlestick Point in San Francisco after it nudged the Bay Bridge in morning fog. No more fuel was leaking from the vessel, Hauck said.

The ship struck a steel and concrete buttress that protects one of the suspension bridge's massive support towers about 8:30 a.m. Wednesday, gouging the hull on the front port side above the water line. Authorities said the bridge piling was not damaged and that the protective shield would be repaired.

Coast Guard officials said the Cosco Busan was being guided out of the bay by a pilot familiar with the waters when the accident occurred.

The spill in the bay is relatively small. The 1989 Exxon Valdez disaster dumped 11 million gallons of crude oil off Prince William Sound. A spill in 2001 off the Galapagos Islands spread more than 160,000 gallons through the ecologically fragile archipelago.

Still, public officials voiced criticism that the Coast Guard initially underestimated it.

Hours after the accident, Coast Guard officials described the fuel leak as a relatively insignificant 140 gallons. But by Thursday morning, the estimate had skyrocketed to nearly 60,000 gallons.

Sen. Barbara Boxer (D-Calif.) released a letter she wrote Thursday to the head of the Coast Guard, expressing dismay over the delay in accurately assessing the risk as well as questioning the investigation into the cause.

"Many questions remain as to why it took an entire day to determine the gravity of this spill, and whether the Coast Guard took appropriate measures to conduct drug and alcohol tests on the ship's pilot and navigators in a timely fashion," Boxer wrote to Adm. Thad W. Allen.

Coast Guard officials said the investigation was ongoing.

The fuel slick soiled at least nine beaches and parks: Muir Beach, Kirby Cove, Rodeo Beach, Black Sand Beach, Baker Beach, Crissy Field, China Beach, Angel Island and Fort Point.

Thirteen state and federal agencies set up a command center at Fort Mason in San Francisco and were meeting to discuss the mop-up.

Oil slicks create problems for shorebirds by coating their feathers, robbing them of their natural ability to stay warm in the chilly bay water.

"It's sort of like a rip in a wetsuit," Edinger said. "They get cold, they beach themselves and they start preening their feathers. They can ingest oil, and that shuts down their digestive system. They lose energy and the ability to take on water and moisture."

Birds that escape the slick can fall prey to a different peril: They can't find food, become debilitated and may die.

Edinger said most birds being treated were surf scoters, but there were reports of gulls and other shorebirds being affected. He said the next two or three days could see the numbers of imperiled birds jump significantly.

Experts from the Oiled Wildlife Care Network, a UC Davis program, have been called in by Fish and Game.

Frenzy in the Markets as Oil Heads for $100 a Barrel

Crude futures hit record $97.07 as traders fear sharp fall in reserves

The Guardian reports:

The price of oil set yet another record yesterday as low stocks of fuel and further falls in the dollar spurred a frenzied round in the buying of crude.

US light crude futures rose by more than $3 a barrel to break through $97 a barrel to a peak of $97.07, nearly a dollar above the previous high last week. London Brent rose $3 a barrel to a record $93.49. Oil prices have risen by nearly 40% since trading at $70 a barrel as recently as August. "We seem to be seeing a tug of war between people taking profits and those coming in to buy into dips, and they are effectively saying we can go past $100," said Mike Wittner, oil analyst at Société Générale.

If oil moves above $100 a barrel, as many analysts say is likely, it will only have to break through $101.70 to set a new record in real, or inflation-adjusted terms. It last hit that level in today's prices in 1980 in the wake of the Iranian revolution, which cut Middle Eastern oil deliveries sharply.

"Crude oil has shown remarkable resilience, as price corrections continue to be shallow and short-lived," said John Kilduff, of MF Global, adding that he expected crude to rise towards $100 per barrel, "unless recession fears truly begin to take hold, or unless there is a bearish surprise in this week's inventory report".

Dealers said oil markets were also pushed higher by fears that weekly figures due out on Wednesday would show a sharp drop in US oil reserves.

Moreover, the US Energy Information Administration raised its forecast for fourth-quarter world oil demand by 40,000 barrels per day from its previous forecast to 87.45m barrels a day. It also revised lower its projections for US crude stocks at the end of the fourth quarter and the first quarter of 2008, adding to a sense in the market that supplies are tight in a country which consumes a quarter of the world's oil.

The oil producers' cartel, Opec, regularly insists, though, that there is enough oil and the price is being driven higher by panic and speculation.

In a frantic day in the commodities markets, gold prices also set another 28-year high of $821.30 an ounce, within sight of its all-time peak of $850 reached in 1980. Silver, too, hit a 27-year peak of $15.40 an ounce and platinum set a record high of $1,466 an ounce.

Dealers said the key to the rise in all these commodities was the fall to a record low of the dollar in which they are all priced. It set an all-time low yesterday against the euro of $1.4571 and pushed above $2.09 against the pound. Against a trade-weighted basket of currencies, the dollar index tumbled to a low of 75.986.

Foreign exchange dealers have been spooked by the flow of bad news from big American banks, most recently Citigroup, which said its losses relating to the sub-prime mortgage crisis could be $11bn or even more.

"Throughout the banking system, there is a real belief that a lot of US banks haven't come clean yet on what their exposures are to this sub-prime fallout and as a result, the view is that the Fed will have to cut rates again at the December meeting," said Greg Salvaggio, a currency trader at Tempus Consulting.

Analysts said the fall in the dollar would help to cushion British motorists to some extent from the rising cost of oil but the national average prices for petrol and diesel -at around £1 a litre - are already at record highs.

It's Still the Economy, Stupid

In Washington, the big worry for presidential hopefuls is who benefits most from an election-year recession

Jimmy Carter still blames the fierce squeeze on household incomes in 1979 for his loss of the White House to Ronald Reagan in 1980.

In the New Statesman, Alex Brummer writes:

Almost every town of any size in the United States, from the towers of New York through the Great Plains to the burning shoreline of California, has a Merrill Lynch office on the corner. The "retail" stockbroker is an understated but ever-present feature of the American landscape. So imagine the shock to the system when Americans woke up recently to find that this blue-blooded symbol of US capitalism had miscalculated so badly that it was being forced to declare an $8bn loss and reveal that its very existence as an independent financial house was threatened.

US consumers and households are becoming more used to surprises. The earthquake that began in America's trailer parks, where over-enthusiastic "realtors" - the equivalent of our sharp-suited estate agents - persuaded people to buy into the dream of home ownership, irrespective of their incomes, has spread further and wider than anyone could ever have anticipated. It has rocked financial markets around the world, sent America's housing market (along with cars, one of the two great pillars of US growth) grinding to a halt and propelled the construction industry into premature depression.

All attention is focused on the Federal Reserve, America's central bank. Like an outfielder in the World Series, it is seeking to catch the ball and throw it to base to save the game. It is rapidly reducing interest rates and pumping cash into the wholesale money markets, where banks lend to each other, in the hope that it can prevent the real economy of growth and jobs crashing to the ground.

Running the Federal Reserve, in the run up to an American election campaign, is a tricky business as the chairman, the bearded former Princeton academic Ben Bernanke, is learning. Jimmy Carter still blames the fierce squeeze on household incomes in 1979 for his loss of the White House to Ronald Reagan in 1980. George Bush Snr holds a grudge against his fellow Republican Alan Greenspan, the former Fed chairman, for keeping interest rates too high in 1992 and handing the election to Democrat Bill Clinton.

Now, once again, the White House and the economy are hanging in the balance at the same time. As the first tests of strength in Iowa and New Hampshire loom into view at the turn of the year, the big question is can the US avoid an election year recession? The candidates will be monitoring events closely. There will be no presidential or vice-presidential incumbent in the White House to take the blame for economic failure in 2008. But economic uncertainty has almost always favoured the opposition down the decades, dating back to Franklin D Roosevelt's election during the Great Depression.

Failure to halt the economic slide between now and November next year potentially could sound the death knell for the hopes of any Republican nominee (Iraq notwithstanding). This would be true even if it turns out to be the present frontrunner, the social and economic liberal, Rudolph Giuliani.

Commercial turbulence could be the ace in the hole for Democratic frontrunner Hillary Clinton, who in some polls is a commanding 33 percentage points ahead of her nearest competitor, Barack Obama. In large conservative swaths of the country, the Clinton name is still surrounded with dark suspicion and salacious gossip. Yet in the area of economic competence, the Clinton family reputation is unsullied. Bill Clinton's 1992 election slogan - "It is the economy, stupid" - was not just an empty gesture.

As Greenspan recalls in his memoir, The Age of Turbulence, Bill Clinton understood the need to keep budgets close to balance if long-term interest rates were to be kept low and stability and growth maintained.

An endorsement from Greenspan is as good as it gets and Hillary must count on some of the Bill glow reflecting on her in hard economic times.

Repossessions

So how bad is it going to be for the American economy? Clearly, the crisis in the housing market will be key. The ridiculous lending practices of the past few years, particularly in fast-growth southern and western states, is now reaping a bitter harvest. Payments on an estimated 5 per cent of all mortgages and 15 per cent of sub-prime mortgages (the low quality loans to people who can barely afford them) are already delinquent. Whereas in Britain foreclosure and repossession is a relatively calm and careful process, in the US it can be brutal, with the bailiffs ruthlessly seizing assets. RealTrac, which monitors this process, reckons that up to 1.5 million homes will go through the process this year. In parts of the US, notably Florida and the counties east of Los Angeles, the market is already being flooded with repossessed properties. This surplus means that new housebuilding is grinding to a halt as prices in parts of the country plummet. In its just published World Economic Outlook report, the International Monetary Fund notes that "the correction in the US housing sector has now been underway for two years and has been a major drag on activity". It calculates that thus far it has wiped 1 per cent off American growth and reckons that there is much more to come. As well as the direct impact on construction, residential homes are key to consumption. When house prices are stable and rising, the consumer feels more confident and better off - the "wealth effect". Take that away and consumer confidence tumbles.

But in this crisis there is an extra dimension. Because of the way rotten mortgages were packaged up as securities, spread around the financial system and sold on to investors by intermediaries - such as Merrill Lynch - the housing crisis has triggered a credit squeeze. In a country as dependent on borrowing as the US this has a dramatic impact, with the car market among the sectors already affected. Surveys are showing plunging factory output. The IMF warns that against the background of a "more general deterioration in the labour-market conditions or a sustained drop in the stock market, risks of recession have increased".

The better news about an American recession in the present decade, should it occur, is that it will possibly have less of an impact on our own economy and the rest of the world than in the past. One of the key debates currently taking place in Washington and Wall Street is the question of how far the US economy has become "decoupled" from the rest of the world. The theory is that with some 50 per cent of global production now in the emerging market economies, such as China, India and Brazil, the world is far less dependent on the US to keep it growing.

This analysis carefully skirts around the issue of the American consumer who, on some measures, still accounts for up to 17 per cent of worldwide spending. If US households close up shop then the factories that supply them will also suffer.

Credit chaos

This is not all. No country is more dependent on imported oil than the United States. In recent weeks the market price of oil has escalated, reaching $90 a barrel, raising the price of petrol at US pumps and heating fuel prices as the US readies itself for a heavy winter. Higher oil prices act as a tax on the consumer limiting budgets for other products, raising the cost of production for industry and slowing the wheels of commerce. Add to all this uncertainty the weakness of the dollar, the chaos in credit markets and nervousness on Wall Street and you have all the ingredients for financial meltdown.

President George W Bush and his treasury secretary may worry about all of this but they have precious little time and room to manoeuvre. They could seek, for instance, to persuade the Chinese to lower the value of their currency, the renminbi, which would ease pressure on the dollar. They can also take a tougher approach to spending bills sent to them by Congress, in the hope that this will help ease long-term interest rates and constipation in the money markets.

But the real power to change things rests not at the White House, at this late stage of an eight-year presidency, but a few blocks away at the grand headquarters of the Federal Reserve. The present incumbent has already shown an awareness of the potential problems by cutting interest rates sharply by a half point and offering banks all the credit they need to keep the economy moving. Bernanke, thought to have Republican sympathies, will not want to be accused of aiding and abetting a recession in the run-up to next year's presidential election. Nor will he want to take a risk with inflation at a time when commodity prices, led by oil, wheat and steel, are surging globally.

Yet in his hands - like those of his august predecessors Paul Volcker and Greenspan - lies not just the fate of the US and global economies, but potentially the outcome of the 2008 presidential election.

US economy crisis in numbers:

$1.43 value of dollar against the euro on 26 October - an all-time low

4.7% unemployment rate, the highest in over a year

1.5 million number of families who may lose their homes as a result of the crisis

23.3% drop in house sales compared to last year - sales hit a record low

6% average drop in house prices over the past six months, the worst housing slump in 16 years

$2.3bn quarterly loss at Merrill Lynch, the biggest loss in its 93-year history

93% drop in quarterly profits at Bank of America's corporate and investment banking division

Oil Prices: Don't Blame OPEC

Time magazine reports:

Commodity speculators are exploiting geopolitical tensions to put a "fear factor premium" on oil prices, says Qatar's Energy and Oil Minister Abdulla Bin Hamad al-Attiya in an interview with TIME. The blame for high prices — a record $93.53 a barrel on Monday — should not fall on petroleum producers, he says. "How do you blame us?" asked Attiya, who also serves as deputy prime minister of Qatar, a small country of nearly one million people whose per capita income of $66,000 is the world's fifth-highest. "I am an oil producer and cannot tell you the oil price. I have to check with Reuters or Platts to tell you my oil price. I cannot fix my oil price. The international market will tell me."

Attiya says that rising prices are the end result of crises in places like Iraq, Iran, Venezuela and Nigeria, which "create more fears, and speculators are very smart. They jump into the market and take this factor and create it as fear. They try to frighten the world. 'Oh, maybe the oil will be disappear. Oh, maybe there will be a war.' But with all the fears of the world, still the supply is very efficient."

Attiya told TIME that prices would rise further if the Bush Administration ever carries out a military strike on Iran, his Persian Gulf neighbor. "I hope and am confident that we will not see any war between America and Iran, and that all these negotiations will settle things amicably," Attiya said. But in the event of further conflict in the region, such as a threatened U.S. attack on Iran's nuclear installations, Attiya said, "I think there will be a big jump [in oil prices]." War would cause an actual drop in global oil supplies which, he explained, "will create a panic, a shortage in the market."

But that is only in the event of a real war and a cut-off of Iran's and the region's spigots. Right now, says Attiya, there is no actual shortage of fuel. "Why is the price of oil very high? I can confirm to you that there is no relation [to] demand and supply. We don't believe there is any shortage of supply in the whole world. I never saw a long queue in any gas station in the world. If you take the inventories, they are the highest in five years.
"Our main [objective]," he adds, "is not to have any shortage of supply. This is our job. Back in 1997, the oil price dropped very dramatically in dollars. We never complained. It hurt us very bad. It hurt the industry. The industry also went into bankruptcy. We believed at the time it was market driven."

Speaking in his eighth-floor office with panoramic views of Doha's new skyscrapers and the Gulf waters beyond, Attiya said that the failure of industrialized countries to provide more refining capacity in the world had led to some shortages of usable fuel. But he was adamant that the Organization of the Oil Petroleum Exporting Countries, which will hold a major summit in Riyadh, Saudi Arabia, in mid-November, is not responsible for today's soaring prices.

Local conditions and regulations play their part as well. For example, he says, the high cost of gasoline in Europe is due to the hefty tax imposed by governments on consumers there. "Europeans should complain to their governments," he explained. "In 2004, I received a European minister in my office and he was complaining that we should do something. I joked with him, but it was a serious joke. I told him, 'OK, I have an offer for you. I can give you free oil for 25 years, including transportation, including tax. On one condition: we split the gasoline tax in your country 50-50. He looked at me and said, 'Mr. Minster, let's change the subject.' Europe is making more money than OPEC without putting one dollar in investments."

Attiya, whose government is pouring billions of dollars from energy windfalls into vast infrastructure and education projects, spoke on the eve of the 6th Doha Conference on Natural Gas. He outlined Qatar's phenomenal rise within the global energy industry, which has seen the country become the world's largest supplier of liquefied natural gas as well as remaining a major oil producer. LNG production has gone from zero to 32 million tons annually and is expected to hit 77 million tons by 2010. Qatari oil production, meanwhile, has jumped from 350,000 barrels per day in 1995 to nearly 1 million barrels per day now. Although the fear factor has brought huge revenue windfalls, al-Attiya said, Qatar has no wish for further conflict in the region. "In the more than 70 years [of conflict in the Gulf], war is never the solution," he said. "The whole world and I pray to see that."