Federal investigators have already determined the Bush administration squandered $1 billion on fraudulent disaster aid to individuals after the 2005 storm. Now they are shifting their attention to the multimillion dollar contracts to politically connected firms that critics have long said are a prime area for abuse.

In January, investigators will release the first of several audits examining more than $12 billion in Katrina contracts. The charges range from political favoritism to limited opportunities for small and minority-owned firms, which initially got only 1.5 percent of the total work.

"Based on their track record, it wouldn't surprise me if we saw another billion more in waste," said Clark Kent Ervin, the Homeland Security Department's inspector general from 2003-2004. "I don't think sufficient progress has been made."

He called it inexcusable that the Bush administration would still have so many no-bid contracts. Under pressure last year, Federal Emergency Management Agency director David Paulison pledged to rebid many of the agreements, only to backtrack months later and reopen only a portion.

Investigators are now examining whether some of the agreements which in some cases were extended without warning rather than rebid are still unfairly benefiting large firms.

"It's a combination of laziness, ineptitude and it may well be nefarious," Ervin said.

FEMA spokesman James McIntyre said the agency was working to fix its mistakes by awarding contracts for future disasters through competitive bidding. Paulison has said he welcomes additional oversight but cautioned against investigations that aren't based on "new evidence and allegations."

"As always, FEMA will work with Congress in all aspects to ensure that we are carrying out the agency's responsibilities," McIntyre said.

The Aug. 29, 2005, hurricane swept ashore in southern Louisiana, Mississippi and Alabama, leveling homes and businesses along the Gulf Coast. Its storm surge breached levees in New Orleans, unleashing a flood that left more than 1,300 people dead, hundreds of thousands homeless and tens of billions of dollars worth of damage.

A series of government investigations in the storm's wake faulted the Bush administration for underestimating the threat and failing to prepare by pre-negotiating contracts for basic supplies in what has become the nation's costliest disaster.

Earlier this month, the Government Accountability Office said its initial estimate of $1 billion in disaster aid waste was "likely understated," citing continuing problems in which FEMA doled out tens of millions of dollars in fraudulent housing assistance.

Democrats in Congress called for more accountability. When they take over in January, at least seven committees plan hearings or other oversight from housing to disaster loans on how the $88 billion approved for Katrina relief is being spent.

Among the current investigations:

The propriety of four no-bid contracts together worth $400 million to Shaw Group Inc., Bechtel Group Inc., CH2M Hill Companies Ltd., and Fluor Corp. that were awarded without competition.

The contracts drew immediate criticism because of the companies' extensive political and government ties, prompting a promise last year from Paulison to rebid them. Instead, FEMA rebid only a portion and then extended their contracts once, if not twice to $3.4 billion total so the firms could finish their remaining Katrina work.

The four companies, which have denied that connections played a factor, were among six that also won new contracts after open bidding in August. The latest contracts are worth up to $250 million each for future disaster work.

The propriety of 36 trailer contract awards designated for small and local businesses as part of Paulison's promise to rebid large contracts.

Homeland Security Inspector General Richard Skinner is reviewing whether some small and local businesses were unfairly shut out in favor of winners such as joint venture PRI-DJI. DJI stands for Del-Jen Inc., a subsidiary of Fluor, which has donated more than $930,000 to mostly Republican candidates since 2000.

"It's not what you know, what your expertise is. I don't even believe it's got much to do with price. It's who you know," contends Ken Edmonds, owner of River Parish RV Inc. in Louisiana, a company of 9 people whose application was rejected.

PRI, a minority-owned firm based in San Diego, said it is the "majority partner" with Del-Jen as part of a federal mentoring program offered by the Small Business Administration. The joint venture received four Katrina contracts worth up to $100 million each based on price and "knowledge of work with the federal government," president Frank Loscavio said.

Whether small and minority-owned businesses were unfairly hurt after the Bush administration initially waived competition requirements.

For many weeks after the storm, minority firms received 1.5 percent of the total work less than one-third of the 5 percent normally required because they weren't allowed to bid for many of the emergency contracts.

The National Black Chamber of Commerce called the figure appalling because of the disproportionate number of poor, black people in the stricken Gulf Coast, prompting Sen. Olympia Snowe, R-Maine, and Rep. Donald Manzullo, R-Ill., to request GAO to investigate.

FEMA has since restored many of its competition rules, and the number of contracts given to minority firms is now about 8.8 percent, according to the agency.


On the Net:

A copy of the semiannual report on Katrina spending by the agencies' inspectors general:

http://www.dhs.gov/xoig/assets/katovrsght/OIG pcie sept06.pdf

In recent weeks, immense riches have been rained upon the top bankers and traders. After a year of record profits, investment houses like Goldman Sachs, Lehman Brothers and Morgan Stanley are awarding bonuses as high as $60 million. And a select group of hedge fund managers and private equity executives may be taking home even more.

That is serious money, and luxury goods markets are feeling the impact.

Miller Motorcars in Greenwich, Connecticut, is fielding more requests for the $250,000 Ferrari 599 GTB Fiorano than it can possibly fill.

One real estate broker laments a dearth of listings for two clients trying to spend $20 million on Manhattan properties. Financiers already comfortably settled in multimillion-dollar apartments and town houses are buying $5 million apartments for their children. Vacation homes, usually shopped for in the spring, are hot this winter, including private resorts like the Yellowstone Club in Montana near Yellowstone National Park.

"Last year, everybody bought Ducatis," said one investment banker, referring to the Italian motorcycle. "This year, it's vacations. I'm on my way to St. Barts," he said, en route to the airport. Like most bankers, he spoke on the condition that he not be identified because his company had not authorized him to talk to a reporter.

The 2006 bonus gold rush has re-energized some luxury markets. The Manhattan real estate market, for example, had softened; sales of apartments fell 17 percent in the third quarter of this year from a year earlier, according to Corcoran Group.

Then came bonus day. Last week, Michele Kleier, president of Gumley Haft Kleier, received a call from a hedge fund manager in his late 30s. He had spent $6 million on an apartment two years ago and, with his bonus, wanted to upgrade. His new price range? "Not more than $20 million."

Ed Petrie, a broker at Sotheby's in East Hampton, New York, is fielding two bids for properties between $8 million and $10 million in the exclusive Georgica Pond - properties that have been on the market since last spring.

"The fall was relatively slow, and then suddenly, with news on bonuses, there has been quite a bit of activity," he said.

Many brokers noticed not just the bonus effect but the bonus-anticipation effect. Buyers who sat on the sidelines in 2006 waiting for real estate prices to come down, saw news of outsize bonuses and started signing deals to pre- empt any price increase driven by new Wall Street payouts.

Adding to the spending spree is a rash of young hedge fund analysts, their first big bonus checks in hand, scooping up the $2 million to $3 million starter apartments (most popular features: glass walls, marble bathrooms and kitchens - likely to go unused - with top- flight appliances).

"We love hedge funds; they are our favorite people," Kleier said. "They don't feel like the money is real, and they don't mind spending it - they don't mind going up by $500,000 or $1 million increments."

Hedge fund analysts are not the only ones celebrating bonus season. Private equity firms like Blackstone Group and Kohlberg Kravis Roberts helped fuel a record deal-making year.

Private equity's deal making has trickled down to Wall Street in two ways. For one, the banks served as advisers on the deals and financed them, raking in enormous fees - Kohlberg Kravis is said to pay more than $700 million a year in fees on Wall Street.

But bankers also see a pay effect: top executives insist they must pay up because of the danger that their best deal makers could leave for higher-paying private equity firms or other hedge funds considered more flexible and fun.

Those young, single hedge fund managers are bringing holiday cheer to car dealerships as well. This year, drama surrounds the limited production of the Ferrari 599 GTB Fiorano, a car with 612 horsepower that can go from zero to 60 miles an hour, or about 100 kilometers an hour, in 3.6 seconds.

It is the third time damages in the case have been reduced.

The case - started in 1994 by more than 32,000 fishermen, native Alaskans and property owners - is one of the longest non-criminal ones in US history.

In the original court ruling, Exxon was ordered to pay out $5bn.

Later decisions ordered the lower Alaskan court to set a lower limit for the penalty, but refused to say how much the penalty should be cut by.

However, in the latest 2-1 judgement, Chief Judge Mary Schroeder and Judge Andrew Kleinfeld declared it was "time for this protracted litigation to end."

Compensating

Exxon was not immediately available for comment.

However, the firm has previously argued that it should have to pay no more than $25m in punitive damages in the case as it has spent $3.5bn on cleaning up the affected area and compensating victims of the spill.

David Oesting, the lawyer leading the effort against Exxon Mobil for the Alaskans affected by the spill, said he was considering whether to ask for the case to be reheard by 15 judges or whether to take it to the Supreme Court.

The Exxon Valdez supertanker spilled 11 million gallons of crude oil into Prince William Sound, polluting around 2,000km of coastline. Its captain, Joseph Hazelwood, admitted drinking vodka before boarding the vessel, but was acquitted of operating a ship while intoxicated.

The disaster is estimated to have killed 250,000 seabirds, 2,800 sea otters, 300 harbour seals, 250 bald eagles, up to 22 killer whales, and an unknown number of salmon and herring.

In the closing months of 2006 spam volumes jumped enormously. According to e-mail filtering firm Postini, spam volumes increased by 73% in the three months to December.

"92.6% of all e-mail messages are spam," said Dan Druker, spokesman for Postini. "That's the highest it's ever been."

Other e-mail security specialists have not reported such big leaps in junk mail volumes, but all say that they are seeing more spam than ever before.

Jump in junk

The type of spam being sent has also changed, said Mr Druker. In 2004 only a small percentage of junk mail messages had images in them. Now, said Mr Druker, the figure is 25%.

"A lot of spam is in the form of images and HTML documents that are designed to get beyond the filters," he said.

Filters are good at analysing plain text to spot the tell-tale signs of spam but they struggle if the text is in an image. Techniques are being developed to help them read images but none are widely deployed yet.

Spammers are also turning out more variants of their messages than ever before. This is because tweaking the text in small ways can help to fool the anti-spam filters and get the messages through.

Dave Marcus, security research and communications manager for McAfee's Avert Labs, said some of the other reasons behind the rising tide of junk mail provided a good summary of how the digital underworld had developed in 2006.

To begin with, he said, the software tools that hi-tech criminals use to put together spam runs and craft their messages have in the last 12 months got much easier to find and use.

The bad guys have also got a lot better at managing the platform they use to send junk mail, he said. Increasingly, said Mr Marcus, junk mail is routed through home PCs that have been hijacked by viruses or booby-trapped webpages. Networks of these remotely-controlled computers, or bots, are called botnets.

"80% of spam is shot out through botnets of some form," said Mr Marcus.

Home help

Attackers are also getting better at recruiting PCs to botnets and stopping their owners finding out that their machine has been compromised and is being used to send out junk mail or malware.

The most popular way of recruiting a PC to a botnet is by getting its owner to click on the booby-trapped attachment on an e-mail. In a bid to catch more people out, virus writers are turning out more variants of their creations.

No longer do they just send out millions of copies of the same virus or malicious program. This has led to an explosion in the number of viruses and variants in circulation.

"We are seeing 150-200 new pieces of malware every day," said Mr Marcus.

The creators of the malicious software were pumping out variants, said Mr Marcus, to defeat anti-virus companies by overwhelming them with novelties they have to investigate, analyse and warn their customers about.

Paul King, a senior security advisor for Cisco, said it also showed said how malicious software was becoming more targeted.

Gone, he said, were the days when millions of e-mail addresses got the same virus. Now the viruses and trojans are being customised to catch out as many people in a target organisation as possible.

"There's less focus on what is the top virus," said Mr King, "to be quite honest it does not really matter because the criminals just do what works."

The problem for many organisations was spotting threats that only they are being hit with.

"Those types of threats are not going to be on anyone's radar," he said.

Scientists could not carry out tests on old peseta banknotes before 2002 for fear that they would not withstand the chemicals used in the analysis.

Now, though, armed with resilient modern euro notes, experts collected 20 notes for analysis from each of five cities - Barcelona, Bilbao, Madrid, Valencia and Seville.

From each city they gathered five 10 euro notes, 10 of 20 euros and five of 50 euros.

Only three of notes gathered from each of Madrid and Barcelona were found to carry no trace of cocaine.

Wider issue

Users of the drug usually snort it by rolling up a banknote into the shape of a tube.

But experts said it was difficult to tell which notes had been used for snorting cocaine and which had become contaminated with the drug in other ways, such as in counting machines.

According to El Mundo Spain has just over one billion banknotes in circulation, with estimates suggesting that 142 million have been used directly to snort the drug.

Other countries have been found to have drug problems in the past: a BBC survey in 1999 found that 99% of £5 notes tested in London contained traces of cocaine.

Euro banknotes in Germany appear especially vulnerable: a 2003 survey gave similar results to the Spanish analysis about cocaine traces.

And this month officials in Germany suggested that methamphetamine, or crystal meth, could be causing euros to "corrode" when users snort it through a rolled-up note.