July 2009

House votes to clamp limits on Wall Street bonuses (AP)

WASHINGTON – Bowing to populist anger, the House voted Friday to prohibit pay and bonus packages that encourage bankers and traders to take risks so big they could bring down the entire economy.
Passage of the bill on a 237-185 vote followed the disclosure a day earlier that nine of the nation's biggest banks, which are receiving billions of dollars in federal bailout aid, paid individual bonuses of $1 million or more to nearly 5,000 employees.
"This is not the government taking over the corporate sector," Rep. Melvin Watt, D-N.C, said of the House action. "It is a statement by the American people that it is time for us to straighten up the ship."
Aware of voter outrage about the bonuses, Republicans were reluctant in Friday's debate to push back, even though they voted overwhelmingly against the bill. They said severe restrictions should apply only to banks that accept government aid.
The legislation's ban on risky compensation would apply to any firm with more than $1 billion in assets, including bank holding companies, broker-dealers, credit unions, investment advisers and mortgage buyers Fannie Mae and Freddie Mac.
The White House and Senate Democrats haven't fully embraced the measure, leaving its prospects uncertain. The Senate Banking Committee planned to take up the proposal in the fall as part of a broader bill overhauling financial regulations.
"Obviously it has some important things that we think need to become law, and we'll take a look at the full bill," White House spokesman Robert Gibbs said Friday.
Treasury Secretary Timothy Geithner called it a "positive step" toward increasing accountability.
The legislation includes President Barack Obama's suggestion that shareholders get a nonbinding vote on compensation packages. It also would prohibit members of compensation committees from having financial ties to the company and its executives, as Obama wanted.
But House Democrats added a provision that would require regulators to issue new guidelines prohibiting pay packages that encourage "inappropriate risks" that could "threaten the safety and soundness" of the institution or "have serious adverse effects on economic conditions or financial stability."
Rep. Barney Frank, chairman of the House Financial Services Committee, said the extra regulation would ensure that bankers and traders who take big risks and lose on them don't continue to get rewarded anyway.
Without such restraint, "the company loses money and the economy may suffer, but the decision makers do not," said Frank, D-Mass.
Corporate pay became a hot-button issue for the public and Congress this spring when American International Group Inc. paid $165 million in bonuses to its employees after accepting $182 billion as a federal bailout. Among the employees in line for the rewards were those who worked in the financial products division, which underwrote the risky credit derivative contracts that nearly destroyed the company.
The House angrily responded by voting to tax away the bonuses, but momentum behind that legislation waned as Obama warned against vilifying Wall Street and investors who were crucial to restoring the economy.
Then, New York Attorney General Andrew Cuomo reported this week that large bailed-out banks, including Bank of America Corp., Merrill Lynch & Co., JPMorgan Chase & Co. and Goldman Sachs Group Inc., had awarded about 4,800 million-dollar-plus bonuses.
Citigroup, which is now one-third owned by the government after taking $45 billion in federal money, gave 738 of its employees bonuses of at least $1 million, even after it lost $18.7 billion during the year, Cuomo's office said.
Because the new legislation would apply to all financial firms, even if they did not receive bailout money, the effect will be to force "institutions who did not contribute to the crisis to pay for the mistakes of others," said Rep. Michael Castle, R-Del.
Rep. Jeb Hensarling, R-Texas, said a better solution would be to terminate the $700 billion bank bailout program established last year.

"If you quit bailing out risky behavior, Mr. Chairman, you'll receive less risky behavior," said Hensarling, R-Texas.

Republicans also cast the proposal as too liberal even for Obama.

Frank snapped back: "We are not taking orders from the Obama administration."

Also on Friday, a group of 11 bipartisan senators pressed Federal Reserve Chairman Ben Bernanke to name the financial institutions that have received emergency assistance from the Fed and disclose how much help each received.

The Federal Reserve has invoked its emergency powers to provide assistance to some banks but has not disclosed the details out of concern that the information might cause a run on the institutions.

The senators, led by North Dakota Democrat Byron Dorgan and Iowa Republican Chuck Grassley, said the information should be released now that banks are reporting profits and paying back the bailout money.

Corazon Aquino, Philippines president, dead at 76 (AP)

MANILA, Philippines – Former President Corazon Aquino, who swept away a dictator with a "people power" revolt and then sustained democracy by fighting off seven coup attempts in six years, died on Saturday, her son said. She was 76.
The uprising she led in 1986 ended the repressive 20-year regime of Ferdinand Marcos and inspired nonviolent protests across the globe, including those that ended Communist rule in eastern Europe.
But she struggled in office to meet high public expectations. Her land redistribution program fell short of ending economic domination by the landed elite, including her own family. Her leadership, especially in social and economic reform, was often indecisive, leaving many of her closest allies disillusioned by the end of her term.
Still, the bespectacled, smiling woman in her trademark yellow dress remained beloved in the Philippines, where she was affectionately referred to as "Tita (Auntie) Cory."
"She was headstrong and single-minded in one goal, and that was to remove all vestiges of an entrenched dictatorship," Raul C. Pangalangan, former dean of the Law School at the University of the Philippines, said earlier this month. "We all owe her in a big way."
Her son, Sen. Benigno "Noynoy" Aquino III, said she died at 3:18 a.m. Saturday (1918 GMT Friday).
Aquino was diagnosed with advanced colon cancer last year and confined to a Manila hospital for more than a month. Her son said the cancer had spread to other organs and she was too weak to continue her chemotherapy.
For the past month, supporters have been holding daily prayers for Aquino in churches in Manila and throughout the country. Requiem Masses were scheduled for later Saturday, and yellow ribbons were tied on trees around her neighborhood in Quezon city.
President Gloria Macapagal Arroyo, who is on an official visit to the United States, remembered Aquino as a "national treasure" who helped lead "a revolution to restore democracy and the rule of law to our nation at a time of great peril.
"She picked up the standard from the fallen warrior Ninoy and helped lead our nation to a brighter day," Arroyo said, referring to Aquino' husband, opposition leader Benigno "Ninoy" Aquino Jr., who was assassinated in 1983.
She said the Philippines will observe 10 days of national mourning. The Armed Forces of the Philippines said it would accord full military honors during Aquino's wake, including gun salutes and lowering flags to half-staff.
TV stations on Saturday ran footage of Aquino's years in power together with prayers while her former aides and supporters offered condolences.
"Today our country has lost a mother," said former President Joseph Estrada, calling Aquino "a woman of both strength and graciousness."
Even the exiled Communist Party founder Jose Maria Sison, whom Aquino freed from jail in 1986, paid tribute from the Netherlands.
Aquino's unlikely rise began in 1983 after her husband was gunned down on the tarmac of Manila's international airport as he returned from exile in the United States to challenge Marcos, his longtime adversary.
The killing enraged many Filipinos and unleashed a broad-based opposition movement that thrust Aquino into the role of national leader.
"I don't know anything about the presidency," she declared in 1985, a year before she agreed to run against Marcos, uniting the fractious opposition, the business community, and later the armed forces to drive the dictator out.
Maria Corazon Cojuangco was born on Jan. 25, 1933, into a wealthy, politically powerful family in Paniqui, about 75 miles (120 kilometers) north of Manila.

She attended private school in Manila and earned a degree in French from the College of Mount St. Vincent in New York. In 1954 she married Ninoy Aquino, the fiercely ambitious scion of another political family. He rose from provincial governor to senator and finally opposition leader.

Marcos, elected president in 1965, declared martial law in 1972 to avoid term limits. He abolished the Congress and jailed Aquino's husband and thousands of opponents, journalists and activists without charges. Aquino became her husband's political stand-in, confidant, message carrier and spokeswoman.

A military tribunal sentenced her husband to death for alleged links to communist rebels but, under pressure from U.S. President Jimmy Carter, Marcos allowed him to leave in May 1980 for heart surgery in the U.S.

It was the start of a three-year exile. With her husband at Harvard University holding court with fellow exiles, academics, journalists and visitors from Manila, Aquino was the quiet homemaker, raising their five children and serving tea. Away from the hurly-burly of Philippine politics, she described the period as the best of their marriage.

The halcyon days ended when her husband decided to return to regroup the opposition. While she and the children remained in Boston, he flew to Manila, where he was shot as he descended the stairs from the plane.

The government blamed a suspected communist rebel, but subsequent investigations pointed to a soldier who was escorting him from the plane on Aug. 21, 1983.

Aquino heard of the assassination in a phone call from a Japanese journalist. She recalled gathering the children and, as a deeply religious woman, praying for strength.

"During Ninoy's incarceration and before my presidency, I used to ask why it had always to be us to make the sacrifice," she said in a 2007 interview with The Philippine Star newspaper. "And then, when Ninoy died, I would say, 'Why does it have to be me now?' It seemed like we were always the sacrificial lamb."

She returned to the Philippines three days later. One week after that, she led the largest funeral procession Manila had seen. Crowd estimates ranged as high as 2 million.

With public opposition mounting against Marcos, he stunned the nation in November 1985 by calling a snap election in a bid to shore up his mandate. The opposition, including then Manila Archbishop Cardinal Jaime L. Sin, urged Aquino to run.

After a fierce campaign, the vote was held on Feb. 7, 1986. The National Assembly declared Marcos the winner, but journalists, foreign observers and church leaders alleged massive fraud.

With the result in dispute, a group of military officers mutinied against Marcos on Feb. 22 and holed up with a small force in a military camp in Manila.

Over the following three days, hundreds of thousands of Filipinos responded to a call by the Roman Catholic Church to jam the broad highway in front of the camp to prevent an attack by Marcos forces.

On the third day, against the advice of her security detail, Aquino appeared at the rally alongside the mutineers, led by Defense Minister Juan Ponce Enrile and Lt. Gen. Fidel Ramos, the military vice chief of staff and Marcos' cousin.

From a makeshift platform, she declared: "For the first time in the history of the world, a civilian population has been called to defend the military."

The military chiefs pledged their loyalty to Aquino and charged that Marcos had won the election by fraud.

U.S. President Ronald Reagan, a longtime supporter of Marcos, called on him to resign. "Attempts to prolong the life of the present regime by violence are futile," the White House said. American officials offered to fly Marcos out of the Philippines.

On Feb. 25, Marcos and his family went to the U.S.-run Clark Air Base outside Manila and flew to Hawaii, where he died three years later.

The same day, Aquino was sworn in as the Philippines' first female leader.

Over time, the euphoria fizzled as the public became impatient and Aquino more defensive as she struggled to navigate treacherous political waters and build alliances to push her agenda.

"People used to compare me to the ideal president, but he doesn't exist and never existed. He has never lived," she said in the 2007 Philippine Star interview.

The right attacked her for making overtures to communist rebels and the left, for protecting the interests of wealthy landowners.

Aquino signed an agrarian reform bill that virtually exempted large plantations like her family's sugar plantation from being distributed to landless farmers.

When farmers protested outside the Malacanang Presidential Palace on Jan. 22, 1987, troops opened fire, killing 13 and wounding 100.

The bloodshed scuttled talks with communist rebels, who had galvanized opposition to Marcos but weren't satisfied with Aquino either.

As recently as 2004, at least seven workers were killed in clashes with police and soldiers at the family's plantation, Hacienda Luisita, over its refusal to distribute its land.

Aquino also attempted to negotiate with Muslim separatists in the southern Philippines, but made little progress.

Behind the public image of the frail, vulnerable widow, Aquino was an iron-willed woman who dismissed criticism as the carping of jealous rivals. She knew she had to act tough to earn respect in the Philippines' macho culture.

"When I am just with a few close friends, I tell them, 'OK, you don't like me? Look at the alternatives,' and that shuts them up," she told America's NBC television in a 1987 interview.

Her term was punctuated by repeated coup attempts — most staged by the same clique of officers who had risen up against Marcos and felt they had been denied their fair share of power. The most serious attempt came in December 1989 when only a flyover by U.S. jets prevented mutinous troops from toppling her.

Leery of damaging relations with the United States, Aquino tried in vain to block a historic Senate vote to force the U.S. out of its two major bases in the Philippines.

In the end, the U.S. Air Force pulled out of Clark Air Base in 1991 after the eruption of Mount Pinatubo forced its evacuation and left it heavily damaged. The last American vessel left Subic Bay Naval Base in November 1992.

After stepping down in 1992, Aquino remained active in social and political causes.

Until diagnosed with colon cancer in March 2008, she joined rallies calling for the resignation of President Arroyo over allegations of vote-rigging and corruption.

She kept her distance from another famous widow, flamboyant former first lady Imelda Marcos, who was allowed to return to the Philippines in 1991.

Marcos has called Aquino a usurper and dictator, though she later led prayers for Aquino in July 2009 when the latter was hospitalized. The two never made peace.

___

Associated Press writers Jim Gomez and Oliver Teves contributed to this report.

Regulators shut banks in Fla., NJ, Ohio, Okla. (AP)

WASHINGTON – Regulators on Friday shut down banks in Florida, New Jersey, Ohio and Oklahoma, boosting to 68 the number of federally insured banks to fail this year amid the pressures of the weak economy and mounting loan defaults.
The Federal Deposit Insurance Corp. was appointed receiver of the four banks.
The agency shut down Integrity Bank of Jupiter, Fla., with $119 million in assets and $102 million in deposits, and First BankAmericano, based in Elizabeth, N.J., with $166 million in assets and $157 million in deposits.
Also closed were Peoples Community Bank, West Chester, Ohio, with $705.8 million in assets and $598.2 million in deposits, and First State Bank of Altus, in Altus, Okla., with $103.4 million in assets and $98.2 million in deposits.
First State Bank of Altus was closed Friday by the Oklahoma State Banking Department, which appointed the FDIC as receiver. Herring Bank, based in Amarillo, Texas, is assuming the deposits and about $64.4 million of the assets of First State Bank of Altus and the FDIC will retain the remaining assets for eventual sale. The failed bank's branches will reopen Saturday as offices of Herring Bank.
The FDIC said that Stonegate Bank, based in Fort Lauderdale, Fla., had agreed to assume all the deposits and about $52 million of the assets of Integrity Bank. The agency will retain the remaining assets for eventual sale. Integrity Bank's sole office in Jupiter will reopen Monday as a branch of Stonegate Bank.
Crown Bank, based in Brick, N.J., has agreed to assume the assets and deposits of First BankAmericano. The failed bank's six branches will reopen Saturday as offices of Crown Bank.
Peoples Community Bank was the largest of the four. First National Bank, based in Hamilton, Ohio, is buying the assets and deposits of the failed bank. In addition, the FDIC and First Financial Bank entered into a loss-sharing agreement covering $657.6 million of the assets of Peoples Community Bank. Its 19 branches will reopen Monday as offices of First Financial Bank.
The 68 bank failures nationwide this year compare with 25 last year and three in 2007.
The FDIC estimates that the cost to the deposit insurance fund from the failure of Integrity Bank will be around $46 million, that of First BankAmericano $15 million, Peoples Community Bank $129.5 million and First State Bank of Altus $25.2 million.
As the economy has soured — with unemployment rising, home prices tumbling and loan defaults soaring — bank failures have cascaded and sapped billions out of the deposit insurance fund. It now stands at its lowest level since 1993, $13 billion as of the first quarter.
While losses on home mortgages may be leveling off, delinquencies on commercial real estate loans remain a hot spot of potential trouble, FDIC officials say. If the recession deepens, defaults on the high-risk loans could spike. Many regional banks hold large numbers of them.
The number of banks on the FDIC's list of problem institutions leaped to 305 in the first quarter — the highest number since 1994 during the savings and loan crisis — from 252 in the fourth quarter. The FDIC expects U.S. bank failures to cost the insurance fund around $70 billion through 2013.
The May closing of struggling Florida thrift BankUnited FSB is expected to cost the insurance fund $4.9 billion, the second-largest hit since the financial crisis began. The costliest was the July 2008 seizure of big California lender IndyMac Bank, on which the insurance fund is estimated to have lost $10.7 billion.
The largest U.S. bank failure ever also came last year: Seattle-based thrift Washington Mutual Inc. fell in September, with about $307 billion in assets. It was acquired by JPMorgan Chase & Co. for $1.9 billion in a deal brokered by the FDIC.

Former Philippine leader Aquino passes away (AFP)

MANILA (AFP) –
Former Philippine leader and democracy icon Corazon Aquino died Saturday of cardiac arrest after battling colon cancer for more than a year, her son announced. She was 76.

"Our mother peacefully passed away at 3.18 am, August 1, 2009 of cardio-respiratory arrest," Senator Benigno Aquino Jr, said in a statement outside the Makati Medical Centre in Manila, where his mother had been hospitalised.

"She would have wanted us to thank each and every one of you for all the prayers and the continuous love and support," he said.

"It was her wish for all of us to pray for one another and for the country," Aquino said.

A close family friend, Boy Abunda, said funeral arrangements would be announced later in the day. He said Aquino had been surrounded by members of her immediate family when she passed away.

Presidential spokesman Cerge Remonde the government had declared a week-long period of national mourning and would give Aquino a state funeral.

Aquino, the widow of assassinated opposition leader Benigno "Ninoy" Aquino, was propelled into the spotlight in 1986, when she headed a massive "people power" movement that toppled late dictator Ferdinand Marcos.

A former housewife who reluctantly became president, she went on to restore democracy in the Philippines and rewrite the country's constitution.

Until March last year, when she withdrew from public life after being diagnosed with colon cancer, she had been active in street protests denouncing corruption in the government.

More than a month ago, she was rushed into emergency medical care after she lost appetite and her weight fell dramatically.

A spokeswoman for the family earlier said Aquino had given up all medical intervention, including chemotherapy, and would leave her fate to God.

Just a few days ago, Benigno Aquino said his mother's cancer had spread to her liver.

House Passes Executive Compensation Bill (CQPolitics.com)

The House Friday passed legislation to expand regulatory oversight of executive compensation and give shareholders a bigger say over what corporate executives are paid.

Lawmakers voted 237-185 to pass the bill.

The measure would give shareholders a nonbinding vote on executive compensation plans and would allow federal regulators to restrict incentive-based compensation practices deemed to threaten the health of larger financial institutions.

It would require a separate nonbinding shareholder vote on any "golden parachute" packages for executives who leave a company in the event of a merger or acquisition. And it would require the Securities and Exchange Commission to issue independence standards for compensation consultants, which advise a company's board of directors on executive pay.

House Financial Services Chairman Barney Frank, D- Mass., the bill's sponsor, said it takes aim at "this practice where people are given bonuses if the gamble pays off, but don't lose anything if it doesn't."

"There's widespread consensus that this incentivizes risks," Frank added.

But Republicans argued that the bill gives regulators too much power to reach into business decisions. "This bill continues the Democrat majority's tendency to ... create a government bureaucracy to make decisions better left to private citizens and private corporations," said Spencer Bachus of Alabama, the ranking Republican on the Financial Services panel.

It is the first major piece of the Obama administration's plan to overhaul financial markets to make significant progress in Congress. Other pieces of the overhaul, including plans to set up a financial consumer protection agency and to beef up regulation of derivatives, may prove more difficult to move, given opposition from Republicans and industry.

The House plans to move the remaining pieces of the overhaul in the fall. But in the Senate, Banking Committee Chairman Christopher J. Dodd, D-Conn., has said he wants to act on the overhaul as a single package. That means the executive pay piece will have to wait until the Senate begins to move on the entire overhaul.

Lawmakers eye clunkers program extension (Reuters)

WASHINGTON (Reuters) –
Legislation that would add $2 billion to a cash-for-clunkers program aimed at spurring U.S. automobile sales could move quickly through the U.S. Congress, Michigan Senator Debbie Stabenow said on Friday.

Speaking to reporters, Stabenow and fellow Democrat Carl Levin said a vote could come as early as Friday in the House of Representatives to extend the popular program that was recently enacted. The House is scheduled to recess later in the day for its annual August vacation.

The government's $1 billion cash-for-clunkers program ran out of money after an unexpected avalanche of business exhausted its funds, the Obama administration said late Thursday. The program was part of a congressional effort to help domestic automakers, especially General Motors Corp and Chrysler, which briefly went bankrupt earlier this year.

Stabenow added that she was in talks with Senate Democratic leaders to move the extension quickly through the Senate, but did not yet know when that might happen.

The White House supports and helped draft the legislation, which would use money from an energy loan guarantee program included in the economic stimulus package enacted in February, Stabenow and Levin said.

President Barack Obama's economic team, along with officials from the Transportation Department and Office of Management and Budget, were working with Congress to find more money for the clunkers program, a White House spokesman said.

A House Democratic aide, who asked not to be identified, said leaders were trying to get an agreement with Republicans to bring the measure onto the House floor on Friday. While the bill as introduced would provide $2 billion, that amount "could change," the aide said without providing specifics.

Stabenow cautioned that some Republicans were likely to oppose additional money for the popular cash-for-clunkers program.

Rep. Jeb Hensarling, a senior Republican on the House Financial Services Committee, issued a statement criticizing the cash-for-clunkers program as an "example of the government picking winners and losers" in an economic crisis that affected a broad number of industries and markets.

(Reporting by Richard Cowan, Writing by Julie Vorman, Editing by Phil Berlowitz)

Turkish commandos capture 7 pirates off Somalia (AP)

ANKARA, Turkey – Turkey's military says navy commandos aboard a frigate have captured seven pirates in the Gulf of Aden off Somalia's coast.
The military says the commandos aboard the frigate, part of a NATO force patrolling the seas, raided the skiff Friday upon a request to block it before it could attack a ship. The military did not provide details on what ship the pirates allegedly planned to attack.
It says a navy helicopter aboard the frigate also took part in the operation.
Turkish navy commandos had captured five other pirates in a similar operation in the Gulf of Aden a week ago.

Washington Post reports profit; ad revenue falls (Reuters)

NEW YORK (Reuters) –
The Washington Post Co swung to a quarterly profit and revenue rose in the second quarter because of its education and cable television units, while advertising revenue at its namesake newspaper fell 20 percent.

Second-quarter net income was $11.4 million, or $1.30 per share, compared with a loss of $2.7 million, or 31 cents a share, a year ago.

Revenue rose 2 percent to $1.13 billion. Newspaper publishing unit revenue fell 14 percent to $168.8 million, and print ad revenue at the Post fell 20 percent to $80 million.

The company reported several charges, including $35.2 million after taxes for buyouts at The Washington Post.

(Reporting by Robert MacMillan; editing by John Wallace)

UK court rejects hacker's bid to avoid extradition (AP)

LONDON – Britain's High Court on Friday rejected an autistic British man's bid to avoid extradition to the United States to face trial for hacking into military computers.
Gary McKinnon has fought a long legal battle to avoid being extradited to the U.S. after he was charged with breaking into 97 computers belonging to NASA, the U.S. Department of Defense and several branches of the U.S. military soon after the Sept. 11, 2001, terrorist attacks.
The High Court rejected his appeals Friday and ruled that he should face extradition. Judge Stanley Burnton said in his 41-page ruling that extradition was "a lawful and proportionate response to his offending."
McKinnon's lawyer Karen Todner called the ruling "hugely disappointing," and urged Home Secretary Alan Johnson to intervene.
"We have 28 days to review the judgment and will continue to explore every legal avenue until we achieve a just and proper result," she said. Todner said she plans to appeal the High Court decision, possibly taking the case to Britain's new Supreme Court and the European courts.
McKinnon's lawyers and 40 lawmakers have written to President Barack Obama asking him to prevent the extradition.
McKinnon's family and supporters have argued he should not be extradited because he has Asperger's syndrome, a form of autism, and could be at risk of psychosis or suicide if he is sent to the U.S.
Earlier this year McKinnon offered to plead guilty to a criminal charge in Britain to avoid facing a U.S. trial.
The Crown Prosecution Service ruled, however, that the case was best prosecuted in the United States, leading his attorney Edward Fitzgerald to argue that the service had failed to take account of humanitarian factors.
McKinnon's lawyers had asked the High Court to overturn the prosecutors' decision, as well as the British government's decision to extradite him — requests dismissed in Friday's ruling.
The judge, Burnton, said the case should be dealt with "as expeditiously as possible," and that McKinnon could face extradition in September.

U.S. unsure on success of Pakistan's Swat offensive (Reuters)

WASHINGTON (Reuters) –
It is unclear if Pakistan's offensive in Swat has killed off Taliban insurgents or simply scattered them, a senior U.S. official said on Wednesday, adding a note of caution to U.S. praise for the effort.

After being accused by the United States of "abdicating" to a Taliban insurgency that has heightened concerns about nuclear-armed Pakistan's stability, the Pakistani government launched an offensive in Swat in late April and says it has since killed 1,800 militants.

Independent estimates are not available and critics say few guerrilla leaders have been eliminated, making it possible for the insurgents to regroup.

"We don't know exactly to what extent the Pakistani army dispersed or destroyed the enemy," Richard Holbrooke, the U.S. special representative for Afghanistan and Pakistan, told reporters after returning from a trip to the two countries.

"The test of this operation is, of course, when the refugees return. Can they go home? Are they safe? And we're just going to have to wait and see," he added.

Security forces are nearing the end of an operation launched close to three months ago in the Swat valley and the nearby districts of Buner and Lower Dir, but they still face pockets of resistance in some areas.

Close to 2 million people were displaced by the fighting, and authorities have started helping many of them return home.

Holbrooke praised Islamabad for shifting troops from its eastern border, where they face Pakistan's traditional enemy India, and sending them to the western border, where the United States has long wanted greater Pakistani involvement to try to stabilize neighboring Afghanistan and to destroy al Qaeda.

Speaking as she met Pakistani Foreign Minister Shah Mehmood Qureshi in Phuket, Thailand, on Thursday, Secretary of State Hillary Clinton, as is typical of U.S. officials, had little but praise for Pakistan's efforts.

"I must say ... that the progress that your government is making in this effort, of the significant return of people back to their homes because of the success of the government policy and military action, has been encouraging and impressive," Clinton said as she met Qureshi at an Asia-Pacific gathering.

(Reporting by Arshad Mohammed; editing by Mohammad Zargham)