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Late Edition
Today, cloudy, with a few showers, cool, high 68. Tonight, an evening shower, cloudy,
low 63. Tomorrow, turning brighter and warmer, high 79. Weather map is on Page B8.

VOL. CLVIII . . No. 54,796

© 2009 The New York Times

NEW YORK, SATURDAY, SEPTEMBER 12, 2009


A Year After a Cataclysm, Little Change on Wall St.
Progress Is Slow on Regulatory Overhaul, Posing Risk of Even Bigger Crisis
By ALEX BERENSON

CHANG W. LEE/THE NEW YORK TIMES

Playing taps for those who died on 9/11. One more victim, a man who died of lymphoma
last October, was added this year.

9/11’s Litany of Loss, Joined by One More Name U.S. Will Add Tariffs on Tires Made
in China
By LISA W. FODERARO

Leon Heyward emerged from the subway just as the second plane struck, piercing the
south tower. As others fled, he helped evacuate disabled employees from 42 Broadway,
where he worked for the city’s Department of Consumer Affairs, and when the first
tower fell, he was caught in the churning plume of contaminated dust and smoke. Within
months he started to feel sick. A father of two who prided himself on being fit,
Mr. Heyward found himself overcome with fatigue. He had seizures; his memory slipped.
Once, while working undercover as an inspector, he forgot where he was.

“It was hard seeing him go from being strong and muscular and running around to
watching him sit there,” said his ex-wife, Monique Heyward. Last October, after
developing lymphoma, Mr. Heyward died at age 45 in the Bronx, where he was born and
had formed one of the earliest rap groups. He became, officially, the latest casualty
of the Sept. 11 terror attack, and just after 10 on a gusty, dreary Friday morning,
the name Leon Bernard Heyward was read for the first time at ground zero as the nation
paused again to remember its losses. President Obama, marking his first Sept. 11
in the nation’s highest office, and the first lady, Michelle Obama, observed the
first moment of silence outside the

White House. The president later spoke at the Pentagon, where 184 people died. But
the capital was momentarily startled when miscommunication over a routine Coast Guard
exercise prompted an F.B.I. response and caused Reagan National Airport to briefly
halt departures. [Article, Page A8.] In New York, the intoning of victims’ names
Friday was again the centerpiece of an annual rite that seemed to have retained its
power despite the passage of time, with relatives crying through the rain and some
still struggling to get the words out. In a nod to a new federal designation of Sept.
11 as a National Day of Service and Remembrance, volunteers from organizations Continued
on Page A17

Wall Street lives on. One year after the collapse of Lehman Brothers, the surprise
is not how much has changed in the financial industry, but how little. Backstopped
by huge federal guarantees, the biggest banks have restructured only around the edges.
Employment in the industry has fallen just 8 percent since last September. Only a
handful of big hedge funds have closed. Pay is already returning to precrash levels,
topped by the 30,000 employees of Goldman Sachs, who are on track to earn an average
of $700,000 this year. Nor are major pay cuts likely, according to a report last
week from J.P. Morgan Securities. Executives at most big banks have kept their jobs.
Financial stocks have soared since their winter lows. The Obama administration has
proposed regulatory changes, but even their backers say they face a difficult road
in Congress. For now, banks still sell and trade unregulated derivatives, despite
their role in last fall’s chaos. Radical changes like pay caps or restrictions
on bank size face overwhelming resistance. Even minor changes, like requiring banks
to disclose more about the deriv-

atives they own, are far from certain. Coming on the same weekend as the 11th-hour
bailout of the giant insurer American International Group, and the sale of Merrill
Lynch, Lehman’s failure was the climax of a cataclysmic weekend in the financial
industry. In the days that followed, nearly everyone seemed to agree that Wall Street
was due for fundamental change. Its “heads I win, tails I’m bailed out” model
could not continue. Its eight-figure paydays would end. In fact, though, regulators
and lawmakers have spent most of the last year trying to save the financial industry,
rather than transform it. In the short run, their efforts have succeeded. Citigroup
and other wounded banks have avoided bankruptcy, and the economy has sidestepped
a depression. But the same investors and economists who predicted, and in some cases
profited from, the collapse last fall say the rescue has come at an extraordinary
cost. They warn that if the industry’s systemic risks are not addressed, they could
cause an even bigger crisis — in years, not decades. Next time, they say, the Continued
on Page A13

By EDMUND L. ANDREWS

U.S. to Accept Iran’s Proposal To Hold Talks
By MARK LANDLER and DAVID E. SANGER

WASHINGTON — The Obama administration said Friday that the United States would
accept Iran’s offer to meet, fulfilling President Obama’s pledge to hold unconditional
talks despite the Iranian government’s insistence that it would not negotiate over
the future of its nuclear program. The decision to engage directly with Iran would
put a senior representative of the Obama administration at the bargaining table,
along with emissaries from five other nations, for the first time since Mr. Obama
took office. The decision is bound to raise protests from conservatives who contend
that unconditional talks are naïve, and from human rights groups that say the United
States should not legitimize an Iranian government that appears to have manipulated
its presidential election in June and crushed protests after the vote. In advance
of Friday’s announcement, senior administration officials said that their offer
to negotiate directly with the Iranians, for what could turn into the first substantive
talks since the Iranian Revolution in 1979, was, as a senior official had earlier
put it, a “bona fide offer.” But at the same time, officials said their expectations
were extremely low. They also said their willingness to proceed was based in part
on a recognition that some Continued on Page A7

ULI SEIT FOR THE NEW YORK TIMES

Jeter Passes Gehrig With Hit No. 2,722
Derek Jeter became the Yankees’ career hits leader, passing Lou Gehrig, when he
singled to right in the third inning. Page D1.

WASHINGTON — In a break with the trade policies of his predecessor, President Obama
announced on Friday night that he would impose a 35 percent tariff on automobile
and light-truck tires imported from China. The decision is a major victory for the
United Steelworkers, the union that represents American tire workers. And Mr. Obama
cannot afford to jeopardize his relationship with major unions as he pushes Congress
to overhaul the nation’s health care system. But China is certain to be antagonized
by the decision, made less than two weeks before Mr. Obama will come face to face
with Chinese leaders at a summit meeting in Pittsburgh for the Group of 20 industrialized
and fast-growing emerging nations. The decision signals the first time that the United
States has invoked a special safeguard provision that was part of its agreement to
support China’s entry into the World Trade Organization in 2001. Under that safeguard
provision, American companies or workers harmed by imports from China can ask the
government for protection simply by demonstrating that American producers have suffered
a “market disruption” or a “surge” in imports from China. Unlike more traditional
antidumping cases, the government does not need to determine that a country is competing
unfairly or selling its products at less than their true cost. The International
Trade Commission had already determined Continued on Page B2

Lehman Had to Die, It Seems, So Global Finance Could Live
What if they’d saved Lehman Brothers? What if, a year ago this weekend, the government
and the banking industry had somehow found a way to keep Lehman from filing for bankruptcy?
How might that have changed the course of the financial crisis? TALKING We know,
of course, BUSINESS what did happen; it is seared in our memory. On Monday, Sept.
15, 2008, when the news broke that, despite nonstop efforts that weekend, there would
be no last-minute reprieve for Lehman, à la Bear Stearns, all hell broke loose.
The stock market tanked, dropping more than 500 points that day. The Reserve Primary
Fund, a money market fund that held Lehman bonds, “broke the buck.” Shortly afterward,
the American International Group nearly collapsed, and had to be bailed out with
an extraordinary $85 billion loan from the government. Morgan Stanley was rumored
to be next. Banks all over Europe were teetering. There were even fears about the
stability of mighty Goldman Sachs. On Wall Street — indeed, in financial capitals
all over the Western world — the panic was palpable. Ever since that weekend, most
people, including me, have viewed the decision by Henry Paulson Jr., the Treasury
secretary at the time, and Ben Bernanke, the Federal Reserve chairman, to allow Lehman
to go bust as the single biggest mistake of the crisis. Never mind that the two men
have insisted ever since that they had no other option; surely, they could have created
some options if they’d wanted to. Or so goes the conventional wisdom. Christine
Lagarde, France’s finance minister, for instance, calContinued on Page A3

JOE NOCERA

Company Kept Kabul Contract Despite Record
By GINGER THOMPSON and MARK LANDLER

WASHINGTON — When a security guard at the United States Embassy in Kabul, Afghanistan,
was leaving for breakfast Monday morning, he froze at the sight of a crude poster
of a rat hanging on his door. “Warning!” the poster said in stark, black letters.
“Rats can cost you your job and your family.” The guard was a whistle-blow-

er who had told of security lapses and lewd, drunken bacchanals by fellow workers,
sparking an outcry and enraging Secretary of State Hillary Rodham Clinton. Now he
wonders whether he should have kept his mouth shut. “Threats are still running
rampant here,” he said in a telephone conversation from Kabul, speaking on condition
of anonymity for fear of reprisal. “So even though it looks like State may finally
turn things around, no one’s ready to celebrate yet.” Such skepticism may be
war-

ranted. A review of two years of e-mail messages, letters and memos reveals that
the State Department had long known of the serious problems with ArmorGroup, the
contractor chosen to protect its embassy. The complaints went beyond the lurid pranks
that made headlines, the documents show, and included serious understaffing, bullying
by management, petty corruption and abusive work conditions. In fact, the deficiencies
became Continued on Page A6

TODD HEISLER/THE NEW YORK TIMES

Lehman’s bankruptcy filing in September 2008 caused stocks to plunge and unleashed
the full force of the financial crisis.

INTERNATIONAL A4-8

NATIONAL A9-13

NEW YORK A14-18

ARTS C1-8

THIS WEEKEND

Taliban Aide Held in Pakistan
The Pakistani Army announced the arrest of Muslim Khan, the chief spokesman for the
Taliban in Swat, the troubled area where the military has largely put down an insurgency.
The arrest of Mr. Khan is the first capture of a senior Taliban figure to be officially
announced by the Pakistanis, and it comes after complaints from civilians in Swat
that the top leaders of the Taliban remain at large. PAGE A6

Backing Health Plan, Sort Of
Health care industry lobbyists publicly insist they are squarely behind health care
reform, but the lines dividing friend PAGE A10 from foe are getting blurry.

In Queens, Fighting the Power
Can grass-roots supporters who helped elect Barack Obama use the momentum to shift
the balance of power locally? St. Albans, Queens, where Clyde Vanel, right, is challenging
Councilman Leroy G. Comrie Jr., provides a test case. PAGE A14
EDITORIAL, OP-ED A20-21

A Reprieve for Leibovitz
The photographer Annie Leibovitz has avoided having to give up her homes and her
artistic property to the finance company that lent her $24 million. The deal with
Art Capital Group has given Ms. Leibovitz more time to repay the loan. PAGE C1
BUSINESS DAY B1-7

What’s New, From A to Jay-Z
A look at the new season in theater, film, TV, art and music, including a rap king
ARTS & LEISURE with a new album. Critics narrate previews:
nytimes.com/arts

Warning on Swine Flu Shots
Epidemiologists warned that although the new swine flu vaccine worked better than
expected, it would come too late to PAGE A11 blunt the pandemic’s peak.

Anti-Abortion Protester Killed
A longtime anti-abortion activist was shot to death while staging a protest outside
a Michigan high school, and a PAGE A9 suspect was in custody.

Tips for Novice Home Buyers
Financial planners reject an old real estate adage that first-time home buyers should
stretch financially, and suggest seven guidelines to consider instead. PAGE B1 Your
Money: Ron Lieber.

Bob Herbert

PAGE A21