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The rules, created in response to growing public anger about the record bonuses the financial industry doled out last year, will apply only to top executives at companies that need “exceptional” assistance in the future. The limits aren’t retroactive, meaning firms that have already taken government money won’t be subject to the restrictions unless they have to come back for more.

The new guidelines are the first salvo in a broader financial-rescue plan Obama plans to announce next week. The president and Congress have had to defend billions in aid to banks that continue to provide generous bonuses and luxury perks while posting record losses. Pay caps may provide the political cover the administration needs to deliver additional infusions of capital into the financial sector that may be necessary.

Some analysts said the new rules wouldn’t have much effect.

Obama, 47, “is not proposing to go back and get that $18.4 billion in bonuses back,” Laura Thatcher, head of law firm Alston & Bird’s executive compensation practice in Atlanta, said of the cash bonuses New York banks paid last year, the sixth- biggest haul in history. “Right now, we have not clamped down” on pay at banks.

Huge Paydays

In addition, some executives may be compensated for the potential reduced salaries with restricted stock grants, which may result in huge paydays after the bank repays the government assistance with interest.

“They’re just allowing companies to defer compensation,” said Graef Crystal, a former compensation consultant and author of “The Crystal Report on Executive Compensation.”

The reaction came after President Barack Obama announced that executives of finance firms receiving government bailouts would have their annual salaries limited to 500,000 dollars, a move aimed at protecting taxpayer interests.

The salary limit is “still a hefty sum to be sure, and the spirit of the order certainly has popular appeal, but it’s a slippery slope when the government puts restrictions on how much an individual can earn in the private sector,” said Patrick O’Hare of the independent research firm Briefing.com.

“Also, the order itself strikes us as a disincentive for financial firms to reach out for aid, which will just prolong the recovery for the sector and the economy.”

Douglas McIntyre at the financial website 24/7 Wall Street said the limits could make it more difficult for troubled banks to retain their best executives.

“Wall Street may keep most of its bankers if they face pay cuts, but it is the top five or 10 percent who make these companies really profitable, and they will soon be on their way to greener pastures if this measure is enacted,” McIntyre said.

Don Lindner, a compensation specialist with the human resources association WorldatWork, said the new restrictions could mean a “huge cut in pay” for many top executives.

“They might leave to find jobs where they are paid more, that’s my concern, that the restrictions are so deep that the leadership won’t stay,” Lindner told AFP.

Still, Lindner said the matter is “a complex issue” and that “just like any other investor, I think the federal government has every reason and responsibility to protect its investment.”

But he argued that the move “may have some consequences,” such as “not being able to get the kind of leadership the organizations need to recover quickly.”

The US Treasury said the measures “are designed to ensure that public funds are directed only toward the public interest in strengthening our economy by stabilizing our financial system and not toward inappropriate private gain.”

The Treasury guidelines “seek to strike the correct balance between the need for strict monitoring and accountability on executive pay and the need for financial institutions to fully function and attract the talent pool that will maximize the chances of financial recovery and taxpayers being paid back on their investments,” the statement added.

The guidelines come as the administration revamps guidelines on a massive 700-billion-dollar rescue plan under the Troubled Asset Relief Program, aimed at stabilizing the financial sector to spark a recovery from deep recession and a credit crunch.

US Chamber of Commerce spokesman Tom Quaadman said that “there should be accountability for the expenditure of taxpayer dollars” but that “policies should not be put in place that harm the ability of companies to turn themselves around.”

“As we see it there is intense competition for talent, and if draconian rules are put into place that talent will go elsewhere, and that will deprive companies of experienced executives at the precise moment they need them,” Quaadman added.

John Wilson, an equity analyst at the brokerage Morgan Keegan, said that despite the protests, Obama’s step is “the logical political move” after the government stepped in to rescue major banks.

Harry Markopolos also assailed the Securities and Exchange Commission in his first appearance before lawmakers. The SEC failed to act despite receiving credible allegations of fraud from Markopolos about Madoff’s operations over a decade.

Because of the agency’s inaction, “I became fearful for the safety of my family,” Markopolos said at the hearing of a House Financial Services subcommittee.

“The SEC is … captive to the industry it regulates and is afraid” to bring big cases against prominent individuals, Markopolos asserted. The agency “roars like a lion and bites like a flea” and “is busy protecting the big financial predators from investors,” he said.

While the SEC is incompetent, the securities industry’s self-policing organization, the Financial Industry Regulatory Authority, is “very corrupt,” Markopolos charged. That organization was headed until December by Mary Schapiro, President Obama’s new SEC chief.

The SEC has been sustaining volleys of criticism from lawmakers and investor advocates over its failure to discover Madoff’s alleged $50 billion fraud, which could be the biggest Ponzi scheme ever, despite the credible allegations brought to it over years. Amid a financial crisis, the SEC is being accused of further eroding investor confidence, and lawmakers of both parties are calling for a shake-up of the agency.

Madoff, a prominent Wall Street figure, was arrested in December after allegedly confessing to bilking investors in what the authorities say was a giant Ponzi scheme, possibly the largest ever. Markopolos’ repeated warnings to SEC staff that Madoff was running a massive pyramid scheme have cast Markopolos as an unheeded prophet in the scandal.

“The SEC was never capable of catching Mr. Madoff. He could have gone to $100 billion” without being discovered, Markopolos testified. “It took me about five minutes to figure out he was a fraud.”

The department will be hosting military training in and around the city between Jan. 27 and Feb. 8.

The training includes the use of military helicopters flying after dark throughout the city.

For our entire lives, most of us have depended on highly centralized systems. Our food comes from a thousand or more miles away. Our savings is shipped into distant financial centers and invested by strangers in enterprises run by strangers. We watch highly scripted news that serves the same spin no matter how many channels we try. We bank at impersonal global banks with criminal records that would make a felon blush and have no idea where our money goes, just that the government guarantees that we will get it back.

Within this centralized system, diversification means having your financial assets deposited into a “one-stop-shop” brokerage account invested in securities representing different global industries, the idea being when one industry is doing poorly, another “countercyclical” industry would be doing well.

But suddenly, we find that we may not be able to trust these centralized systems. Suddenly, traditional portfolio theory no longer addresses our anxiety. This is because we need to shift from diversification within a centralized system to real diversification in a decentralized, possibly “out of control” world.

If you study the investment patterns of families and wealth that has survived through the generations, including through periods of lawlessness and warfare, you come to understand that for those who want to thrive in all economic and political scenarios, diversification has had a far deeper meaning than what is commonly understood in the financial markets today. For the astute strategist, it means not putting all your eggs in one basket in every important aspect of your life. Given what is happening in our world and economy, it’s time to revisit the deeper meaning of diversification.

Diversification means that our assets are invested such that an economic, political, or natural event — particularly a catastrophic event — cannot wipe us out. So, for example, we don’t invest all of our savings in a single financial institution or fund. Investors who lost their life savings in the Madoff scandal were not practicing even the most basic form of financial diversification.

Diversification also means having multiple types of assets and custodians in multiple places. Custodians (i.e., those who hold our assets for us) might be brokerage firms, banks, depositories or our own safe.

Diversification by place means locating our assets in states or countries subject to different legal and political risks. It means denominating our assets in currencies of multiple countries. It means selecting assets subject to different risks of loss due to climate change, weather conditions, social conditions and other uniquely local vicissitudes. Local investment is a great idea, but the people who lived through Katrina can tell you why having all of your eggs in one local basket may not be the best idea.

Diversification means that we don’t have all of our savings in just one type of asset. So we don’t invest in securities only — we also invest in tangibles. If possible, we buy a house without debt, or with debt that can be serviced by one family member’s income, or invest in our home to lower energy and food costs permanently. We also maintain a sufficient inventory of household goods. And it’s a good idea to invest in disaster preparedness if we live in an area that experiences earthquakes, floods, hurricanes, or tornadoes or  is prone to power outages.

Having all your money in one currency or one country is pretty risky – a risk many in the US tend to take. Ask your Jewish friends whose parents got out of Germany in time because they had gold coins or family and assets abroad. Gold coins may hold their value if the dollar collapses, but they can also disappear in a burglary or if you forget where you put them. Digital gold may be a great thing, but if the Internet is not reliable where you are, cold cash may be a good thing. Or if your cash is worthless, a stockpile of food, vitamins and liquor can be priceless. However, food, vitamins and liquor are only good when you are bartering with someone who wants them or is close by. Which takes us back to gold coins or digital gold or some other currencies. So you see, there is no magic bullet – just diversification.

Diversification of life risks is an integral part of all matters related to financial capital. Living things are the source of all wealth. That includes you and me.

Diversification means that we invest in our physical and mental well-being. We invest our time in understanding the toxic chemicals, drugs and other influences that increasingly contribute to poor health and cause us to need so much more funding for more drugs and medical treatments to cure what ails us. One of the greatest – and growing — threats to our financial health is physical illness. The notion that corporate stock investments will create security while one saves money eating unhealthy food is contradictory to the principles of building real wealth.

Diversification means that we invest not just in our own human capital but also in the human capital of other members of our family and those around us. In this way, we are not betting on financial assets alone to see us through. We are investing in each other because it is family, friends and communities that help see us through. An active network of mutually-supportive friends and colleagues is important. For those with sufficient capital and skills, financing the farmers and companies we depend on for our daily bread may not provide much of a return — it may, however, ensure that we have healthy, safe food.

Diversification also applies to the work we do. For most people, our labor is our most important source of financial assets. Skill diversity can mean, for example, that you have a number of skills. If one skill goes out of favor, another will give you the ability to be economically useful. If you have a business that fails, you have the ability to start a new business because you have the experience and diversity of skills to make a business run.

The ability to generate income through your own business or practice is invaluable, particularly when the economic environment makes “W-2” employment more difficult to find. If you are an employee and your company closes, if you have taken care to broaden your skill base, your skills can be valuable commodities for other, different types of employers or employers in other industries or places less affected by a downturn. Better yet, you know how to do many things for yourself, thus offsetting lost income with lower expenses. Look at those who are successful in the current environment: what most of them share is a commitment to life-long learning that translates into a multitude of personal and professional skills.

Diversification is not always easy to achieve. The more resources we have, the easier it is to diversify. The fewer resources we have, the more our diversification focuses on building our human capital and community. Interestingly enough, many of the best opportunities before us are those that can happen when people who have a lot of money and people who don’t have money but have a lot of skills become allies in building greater diversification together. Isolation shrinks our options. Opportunities expand as we organize and collaborate effectively. Hence, it is critical to not assume financial capital can provide sufficient diversification alone and remain isolated from our neighbors and family.

One of my goals for the Solari Report is to explore options we have to strengthen and diversify our human and financial capital and to introduce you to leaders who are taking action to help us do so.

On our next Solari Report, during our “Movers and Shakers Interview,” we will talk with permaculturist Albert Bates (see also: http://www.thegreatchange.com, http://peaksurfer.blogspot.com) about strengthening our communities, including eco-villages and Transition Towns. Albert and I will discuss financial permaculture as well. If the need is growing to shift money out of centralized systems and reinvest in communities, there is an opportunity for those who can help us figure out how to make such investment sound, liquid and profitable. To get you thinking, check out the new video on the first Financial Permacuture Summit.

In “Let’s Go to the Movies,” we will be taking about Avi Lewis and Naomi Klein’s documentary The Take about the economic collapse of Argentina and how workers responded to bring the economy back to life. If you want a birds-eye tour of what can happen when your financial system and currency collapse, here it is.

In “Money & Markets” I will be reviewing recent financial events and discussing indications that more and more people are concerned about a financial coup d’etat these days.

In an interview Tuesday with Politico, Cheney unyieldingly defended the Bush administration’s support for the Guantanamo Bay prison and coercive interrogation of terrorism suspects.

And he asserted that President Obama will either backtrack on his stated intentions to end those policies or put the country at risk in ways more severe than most Americans — and, he charged, many members of Obama’s own team — understand.

“When we get people who are more concerned about reading the rights to an Al Qaeda terrorist than they are with protecting the United States against people who are absolutely committed to do anything they can to kill Americans, then I worry,” Cheney said.

…

Cheney said “the ultimate threat to the country” is “a 9/11-type event where the terrorists are armed with something much more dangerous than an airline ticket and a box cutter – a nuclear weapon or a biological agent of some kind” that is deployed in the middle of an American city.

“That’s the one that would involve the deaths of perhaps hundreds of thousands of people, and the one you have to spend a hell of a lot of time guarding against,” he said.

Senate Judiciary Committee Chairman Stewart Greenleaf said yesterday he would hold a hearing to find ways to help the children and their families. One option is to provide money from the crime victims compensation fund, said Mr. Greenleaf, R-Montgomery.

The hearing, which has not yet been scheduled, is at the request of Republican Sens. Lisa Baker and John Gordner, whose districts include parts of Luzerne County.

They made the request yesterday, the same day a third Luzerne County court official was arrested in the ongoing corruption probe.

Court Administrator William T. Sharkey Sr., 57, of West Hazelton, yesterday agreed to plead guilty to embezzling more than $70,000 in illegal gambling money seized by authorities between June 1998 and June 2008.

Two other county court officials were charged last week with fraud and conspiracy to commit fraud.

Judge Mark A. Ciavarella and former Senior Judge Michael T. Conahan are accused of taking $2.6 million for sending children to two facilities owned by Pittsburgh businessman Greg Zappala.

Judges Ciavarella and Conahan each could face prison terms of up to seven and three months, according to the terms of plea agreements they signed last week.

No charges have been filed against Mr. Zappala, who is the brother of Allegheny County District Attorney Stephen A. Zappala Jr. and son of former state Supreme Court Justice Stephen A. Zappala Sr.

The report, “Emerging Cognitive Neuroscience and Related Technologies,” addresses the question of how emerging neuroscience technologies and an increased understanding of the mind’s functioning will affect police and the military.

“It’s way too early to know which – if any – of these technologies is going to be practical,” study co-author Jonathan Moreno said. “But it’s important for us to get ahead of the curve.”

The use of drugs to enhance or undermine battlefield performance features prominently in the report. While the narcolepsy drug modafinil and the attention deficit disorder drug Ritalin are already thought to be widely used by U.S. soldiers trying to stave off combat fatigue, the report says that more powerful and precisely targeted alertness drugs developed in the coming years will be even more effective. Drugs could also be used to enhance physical performance, such as by increasing physical strength or decreasing the perception of pain.

On the flip side, drugs might be used to attack the minds of opposing troops. “Drugs can be utilized to achieve abnormal, diseased, or disordered psychology,” the report says.

“How can we disrupt the enemy’s motivation to fight? Is there a way to make the enemy obey our commands?”

One method for utilizing such drugs, the authors suggested, might be through the use of “pharmacological landmines,” which deploy weaponized drugs when disturbed.

It’s not only on the battlefield that the military is thinking about deploying drugs. Pharmaceutical products could be used to fool advanced surveillance techniques, the report suggests, such as by using Botox injections to relax the facial muscles of agents who might be monitored by advanced lie-detecting or motivation-reading computers.

Such computer and robotic technologies are themselves of great interest to the report. The authors express optimism about the development of new neuroimaging techniques that can actually scan the motivations, plans and memories of enemy soldiers or even civilians at security checkpoints. Such technologies might also produce a new generation of more accurate lie detectors.

Expressing hope for a way to force information out of interrogated detainees without the stigma of torture, the report says, “It is possible that some day there could be a technique developed to extract information from a prisoner that does not have any lasting side effects.”

One such method might involve transcranial direct current stimulation, which is the firing of electrical pulses into a detainee’s brain to disrupt their neurons and make it hard for them to lie.

Direct human-machine interfaces, or machines controlled directly by a human mind, could allow the deployment of weapons from a distance or even give a soldier entirely new ways of perceiving and processing information.

Blogging for wired.com, Brandon Keim raises questions about the ethics of such technologies.

“What happens when a soldier leaves the service?” he writes. “How might their brains be reshaped by their experience?”

Regarding the scanning of civilians with mind-reading technology, he asks, “Does this mean, for example, that travelers placed on the bloated, mistake-laden watchlist would have their minds scanned, just as their computers will be?”

Hugh Gusterson of George Mason University, a noted critic of military-sponsored social science research, said that ethical concerns will not hold the government back

Mr Brown stumbled slightly over his words at Commons question time, just a week after admitting that Britain was facing a “deep” recession.

As the financial gloom deepens, he told the Tory leader David Cameron today: “We should agree, as a world, on a monetary and fiscal stimulus that will take the world out of depression.”

The comment went unnoticed during rowdy question time exchanges between Mr Cameron and Mr Brown, which centred on protectionism and the Prime Minister’s use of the phrase “British jobs for British workers”. Ironically, the exchange ended with Mr Brown accusing the Tory leader of deliberately “talking Britain down”.

The company plans to launch software called Latitude on Wednesday that lets mobile phone users share their location with close contacts. Google hopes it will help people find each other while out and about and to keep track of loved ones.

“What Google Latitude does is allow you to share that location with friends and family members, and likewise be able to see friends and family members’ locations,” said Steve Lee, product manager for Google Latitude. For example, a girlfriend could use it to see if her boyfriend has arrived at a restaurant and, if not, how far away he is.

To protect privacy, Google specifically requires people to sign up for the service. People can share their precise location, the city they’re in, or nothing at all.

“What we found in testing is that the most common scenario is a symmetrical arrangement, where both people are sharing with each other,” Lee said.

The software spotlights Google’s fixation with mapping and location technology. Location is an important part of navigating the real world, and Google clearly sees its geographic services as a way to establish a more personal connection with customers who today use Google chiefly for the virtual realm of the Internet. And of course money is involved, too: Google hopes its mapping technology will lead to location-based advertising revenue.

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