DealBook: 3 Men Arrested in Rate-Rigging Inquiry

10:24 a.m. | Updated LONDON – British authorities made the first arrests in the global investigation into interest-rate manipulation, an inquiry that has ensnared the world’s biggest banks.

The Serious Fraud Office of Britain said on Tuesday that it had arrested three people in connection with rate rigging. The three men, who are aged between 33 and 47 and are British citizens, were taken into custody by police in early morning raids at their houses on the outskirts of London.

One of the people is Thomas Hayes, a 33-year-old former trader at Citigroup and UBS, according to people with knowledge of the matter. At least one of the other two men worked for R P Martin, a British brokerage firm that previously surfaced in the Canadian investigation into rate manipulation, another person briefed on the matter said.

British criminal authorities typically make arrests at the early stages of an inquiry, and the actions do not necessarily mean the individuals will be charged with any wrongdoing. A Citigroup spokeswoman declined to comment. A UBS spokesman declined to comment. A lawyer for Mr. Hayes could not immediately be identified.

The arrests mark a new phase of the sprawling rate-rigging inquiry.

Regulators around the world are investigating more than a dozen big banks that help set benchmarks like the London interbank offered rate, or Libor. Such benchmark rates are used to determine the borrowing costs for trillions of dollars of financial products, including credit cards, student loans and mortgages.

In June, the British bank Barclays agreed to pay $450 million to settle charges that some of its traders attempted to manipulate Libor to bolster profits. Authorities also accused Barclays of submitting low rates to deflect concerns about its health during the financial crisis. The scandal prompted the resignations of top bank officials, including the chief executive, Robert E. Diamond Jr.

Libor Explained

Regulators are now pursuing a number of criminal and civil cases.

The Royal Bank of Scotland is talks with authorities. The bank said it would likely disclose fines before its next earnings report in February.

The Swiss bank UBS is close to finalizing a settlement deal with American and British authorities. The bank is expected to pay more than $450 million to settle claims that some employees reported false rates to increase its profit. When American authorities announce their case against UBS in the coming days, Mr. Hayes is expected to figure prominently, one of the officials said.

Mr. Hayes built his reputation as a trader at UBS. He worked at the Swiss bank from about 2006 to 2009, before departing for Citigroup.

But his career at Citi was short-lived. In 2010, the bank suspended him after he approached a London trading desk about improperly influencing the Yen-denominated Libor rates, a person briefed on the matter said. He was fired in September 2010, and the bank reported his suspected actions to authorities.

UBS also implicated Mr. Hayes to authorities, according to another person briefed on the matter. The Swiss bank discovered that Mr. Hayes worked with traders at other banks to influence rates, according to officials and court documents.

Mr. Hayes emerged in court documents this year filed by Canadian authorities. The documents — collected by Canada’s Competition Bureau, the country’s anti-trust authority – highlight an alleged scheme in which Mr. Hayes and other traders colluded to push Yen Libor rates up and down. The Canadian investigation, which spans conduct from 2007 to 2010, also referenced traders at JPMorgan Chase HSBC, Deutsche Bank and the Royal Bank of Scotland.

The traders, the documents said, at times corresponded via instant messages on Bloomberg machines. While the flurry of activity took place outside Canada, the trading affected financial contracts in the country that were pegged to Yen Libor.

“Traders at participants banks communicated with each other their desire to see a higher or lower Yen Libor to aid their trading positions,” the Canadian documents said.

The traders also relied on middlemen at brokerage firms “to use their influence” on other banks that set Libor, according to the documents. The brokers included employees at R P Martin, a person briefed on the matter said.

Under British law, Mr. Hayes and the other men can be held for 24 hours. The authorities can then apply for an extension if they need more time for questioning.

The Serious Fraud Office started a criminal investigation into Libor manipulation in July, in response to the furor over the rate-rigging scandal at Barclays. The criminal investigations by the British authorities and their counterparts at the Justice Department parallel similar civil inquiries by international authorities, including the Commodity Futures Trading Commission and the Financial Services Authority, the British regulator.

The arrests come as the agency tries to repair it reputation. In April, the new director of the Serious Fraud Office, David Green, pledged overhaul the office after a series of mistakes by the organization.

Legal professionals say the appointment is a step toward rejuvenating the agency, which has lacked significant firepower to police London’s financial services section. The Serious Fraud Office has been given extra resources by the British government to pursue a criminal investigation related to Libor.

“The S.F.O. works incredibly slowly,” said a defense lawyer representing individuals implicated in the Libor inquiry, who spoke on the condition of anonymity because of the ongoing investigation. “It’s not surprising that people have been arrested. But how long it will take to lead to criminal charges is another matter.”

Azam Ahmed contributed reporting.

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Chávez Put Party Unity Before Another Cancer Surgery

LA PAZ, Bolivia — President Hugo Chávez of Venezuela has flown repeatedly to Cuba this year for cancer treatments, but the flight that took him back to Caracas on Friday may have been the most meaningful of all.

Mr. Chávez postponed emergency cancer surgery to return home, meet with his inner circle and announce on television on Saturday, for the first time, that he had picked the man he wanted to lead his socialist revolution when he is gone — something he seemed to suggest might come sooner than his millions of followers would hope.

He flew to Cuba again on Monday to prepare for surgery, news agencies reported. 

Mr. Chávez could well recover and remain a potent force, but on Saturday night he seemed intent on smoothing over factions within his party and solidifying support for the man he chose to succeed him, Vice President Nicolás Maduro.

Mr. Chávez, 58, spoke the word “unity” several times during Saturday’s somber, symbolically weighted appearance. To his left sat Mr. Maduro, and behind both of them viewers could see a bust of Mr. Chávez’s hero, the South American independence leader Simón Bolívar (who never realized his dream of unifying a fractious continent).

Mr. Chávez, a charismatic and polarizing leader who has crafted his own brand of socialist revolution in this oil-rich country, has been vague about the nature of his illness since it was first disclosed in June last year. Since then, he has had at least two operations, chemotherapy and radiation treatment. Yet he said on Saturday that doctors had once again found malignant cells, necessitating a new operation.

The fact that he chose to go home to put his political house in order and clear up the long-unresolved line of succession — rather than write about it on Twitter or report it by calling in to a government television show, as he so often has done with lesser policy decisions during his many medical absences — suggests that his doctors have told him that the news is not good.

“This is a huge passing of the torch,” said Javier Corrales, a political science professor at Amherst College.

Even if Mr. Chávez makes a strong recovery after his surgery, Mr. Corrales said, “there’s no question we are in the transition stage, and that’s always incredibly uncertain.”

Mr. Chávez, who has been president for nearly 14 years, was re-elected in October to another six years. His new term is to begin on Jan. 10.

But if he dies or cannot continue to govern before then, the Constitution states that the vice president, Mr. Maduro, would become president and finish out the last days of the current term.

If Mr. Chávez is unable to begin his new term, or if he leaves office within the first four years, then new elections would be called, according to the Constitution.

In that case, Mr. Chávez said on Saturday that he wanted Mr. Maduro to be his party’s candidate, and he asked his supporters to elect him.

“I ask it from my heart,” he said.

New elections could open the way for a new run by Henrique Capriles Radonski, a young state governor who opposed Mr. Chávez in October. Mr. Capriles received 44 percent of the vote and 6.5 million votes, far more than any previous candidate against Mr. Chávez.

But Mr. Capriles is now running a difficult race for re-election as governor of Miranda, which includes part of Caracas, the captial, and one of the country’s most populous states. The election is on Sunday.

He is being challenged by a former vice president, Elías Jaua, and the government and Mr. Chávez’s socialist party have made it a priority to defeat Mr. Capriles, hoping that it will weaken him politically and remove him as a threat.

“If Capriles loses, there will be a battle in the opposition, a struggle for power, and the leaders will call for a change,” said Luis Vicente León, a pollster close to the opposition.

Some polls taken earlier this year showed that Mr. Capriles could beat Mr. Maduro if they ran against each other.

But Mr. León said conditions had changed with Mr. Chávez’s endorsement of Mr. Maduro. If Mr. Chávez were to die or become too ill to continue in office, it could give Mr. Maduro’s candidacy an emotional boost, he said.

But Mr. Maduro, 50, will have difficulties of his own in having to rein in factions within Mr. Chávez’s party. That could include the military and former military officers to whom Mr. Chávez has given a major role in his government.

For the time being, Venezuelans can look forward to more uncertainty.

The country has been obsessed with Mr. Chávez’s illness since it was first revealed. It has been the source of endless speculation and conspiracy theories. Some people even insist that he is not sick and has invented the illness to throw his opponents off guard. His fiercest opponents see his cancer as a sign of hope that his days as president are numbered; his supporters insist that he will recover, and they condemn such grim speculation as necrophilia.

But the last announcement of his need for another surgery, coupled with his call to rally behind Mr. Maduro, takes the nervous focus on Mr. Chávez’s cancer and what it means for the country’s future to a new level.

Several hundred supporters of Mr. Chávez congregated on Sunday in Bolívar Plaza in central Caracas in what was an uncharacteristically subdued gathering, by the standards of his followers. But also on display was their quasi-religious connection with the president — and the refusal among many to acknowledge his mortality.

“He is going to overcome this difficult time,” said Israel Pérez, 32, a law student. “He will be with us forever.”

Nonetheless, would he support Mr. Maduro as Mr. Chávez’s replacement?

“Venezuelans would support any proposal the president asks them to,” Mr. Pérez said.

Andrew Rosati contributed reporting from Caracas, Venezuela.

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RIM teases BlackBerry 10 launch with image of first BB10 smartphone

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AP Source: NHL cancels games through Dec. 30

NEW YORK (AP) — A person familiar with the decision says the NHL has canceled all games through Dec. 30.

The person spoke on condition of anonymity because the official announcement isn't expected to be made until later Monday afternoon. There had already been 422 regular-season games lost because of the ongoing lockout, and the latest cuts will claim 104 more. The NHL also has canceled the New Year's Day Winter Classic and the All-Star game.

The cancellation of just 16 more days of the season could perhaps signal there is hope of a deal to begin play in early January. Negotiations between the league and the players' association broke off last week, but NHL deputy commissioner Bill Daly said on Sunday that the sides are trying to restart talks this week.

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A Breakthrough Against Leukemia Using Altered T-Cells

PHILIPSBURG, Pa. — Emma Whitehead has been bounding around the house lately, practicing somersaults and rugby-style tumbles that make her parents wince.

It is hard to believe, but last spring Emma, then 6, was near death from leukemia. She had relapsed twice after chemotherapy, and doctors had run out of options.

Desperate to save her, her parents sought an experimental treatment at the Children’s Hospital of Philadelphia, one that had never before been tried in a child, or in anyone with the type of leukemia Emma had. The experiment, in April, used a disabled form of the virus that causes AIDS to reprogram Emma’s immune system genetically to kill cancer cells.

The treatment very nearly killed her. But she emerged from it cancer-free, and about seven months later is still in complete remission. She is the first child and one of the first humans ever in whom new techniques have achieved a long-sought goal — giving a patient’s own immune system the lasting ability to fight cancer.

Emma had been ill with acute lymphoblastic leukemia since 2010, when she was 5, said her parents, Kari and Tom. She is their only child.

She is among just a dozen patients with advanced leukemia to have received the experimental treatment, which was developed at the University of Pennsylvania. Similar approaches are also being tried at other centers, including the National Cancer Institute and Memorial Sloan-Kettering Cancer Center in New York.

“Our goal is to have a cure, but we can’t say that word,” said Dr. Carl June, who leads the research team at the University of Pennsylvania. He hopes the new treatment will eventually replace bone-marrow transplantation, an even more arduous, risky and expensive procedure that is now the last hope when other treatments fail in leukemia and related diseases.

Three adults with chronic leukemia treated at the University of Pennsylvania have also had complete remissions, with no signs of disease; two of them have been well for more than two years, said Dr. David Porter. Four adults improved but did not have full remissions, and one was treated too recently to evaluate. A child improved and then relapsed. In two adults, the treatment did not work at all. The Pennsylvania researchers were presenting their results on Sunday and Monday in Atlanta at a meeting of the American Society of Hematology.

Despite the mixed results, cancer experts not involved with the research say it has tremendous promise, because even in this early phase of testing it has worked in seemingly hopeless cases. “I think this is a major breakthrough,” said Dr. Ivan Borrello, a cancer expert and associate professor of medicine at the Johns Hopkins University School of Medicine.

Dr. John Wagner, the director of pediatric blood and marrow transplantation at the University of Minnesota, called the Pennsylvania results “phenomenal” and said they were “what we’ve all been working and hoping for but not seeing to this extent.”

A major drug company, Novartis, is betting on the Pennsylvania team and has committed $20 million to building a research center on the university’s campus to bring the treatment to market.

Hervé Hoppenot, the president of Novartis Oncology, called the research “fantastic” and said it had the potential — if the early results held up — to revolutionize the treatment of leukemia and related blood cancers. Researchers say the same approach, reprogramming the patient’s immune system, may also eventually be used against tumors like breast and prostate cancer.

To perform the treatment, doctors remove millions of the patient’s T-cells — a type of white blood cell — and insert new genes that enable the T-cells to kill cancer cells. The technique employs a disabled form of H.I.V. because it is very good at carrying genetic material into T-cells. The new genes program the T-cells to attack B-cells, a normal part of the immune system that turn malignant in leukemia.

The altered T-cells — called chimeric antigen receptor cells — are then dripped back into the patient’s veins, and if all goes well they multiply and start destroying the cancer.

The T-cells home in on a protein called CD-19 that is found on the surface of most B-cells, whether they are healthy or malignant.

A sign that the treatment is working is that the patient becomes terribly ill, with raging fevers and chills — a reaction that oncologists call “shake and bake,” Dr. June said. Its medical name is cytokine-release syndrome, or cytokine storm, referring to the natural chemicals that pour out of cells in the immune system as they are being activated, causing fevers and other symptoms. The storm can also flood the lungs and cause perilous drops in blood pressure — effects that nearly killed Emma.

Steroids sometimes ease the reaction, but they did not help Emma. Her temperature hit 105. She wound up on a ventilator, unconscious and swollen almost beyond recognition, surrounded by friends and family who had come to say goodbye.

But at the 11th hour, a battery of blood tests gave the researchers a clue as to what might help save Emma: her level of one of the cytokines, interleukin-6 or IL-6, had shot up a thousandfold. Doctors had never seen such a spike before and thought it might be what was making her so sick.

Dr. June knew that a drug could lower IL-6 — his daughter takes it for rheumatoid arthritis. It had never been used for a crisis like Emma’s, but there was little to lose. Her oncologist, Dr. Stephan A. Grupp, ordered the drug. The response, he said, was “amazing.”

Within hours, Emma began to stabilize. She woke up a week later, on May 2, the day she turned 7; the intensive-care staff sang “Happy Birthday.”

Since then, the research team has used the same drug, tocilizumab, in several other patients.

In patients with lasting remissions after the treatment, the altered T-cells persist in the bloodstream, though in smaller numbers than when they were fighting the disease. Some patients have had the cells for years.

Dr. Michel Sadelain, who conducts similar studies at the Sloan-Kettering Institute, said: “These T-cells are living drugs. With a pill, you take it, it’s eliminated from your body and you have to take it again.” But T-cells, he said, “could potentially be given only once, maybe only once or twice or three times.”

The Pennsylvania researchers said they were surprised to find any big drug company interested in their work, because a new batch of T-cells must be created for each patient — a far cry from the familiar commercial strategy of developing products like Viagra or cholesterol medicines, in which millions of people take the same drug.

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Fed Likely to Sustain Bond-Buying Program to Stimulate Growth

WASHINGTON — The Federal Reserve is widely expected to announce on Wednesday that it will continue buying Treasury securities to stimulate growth in the new year.

The Fed’s public declaration in September that it would buy bonds until the outlook for the labor market “improved substantially” has cleared away much of the uncertainty and controversy that usually precedes such announcements.

The economic recovery remains lackluster and millions are looking for work. But while some analysts question the central bank’s ability to improve the situation, few doubt that the Fed, under its chairman, Ben S. Bernanke, is determined to keep trying.

Indeed, while Fed officials continue to warn that a failure to avert scheduled tax increases and spending cuts next year would overwhelm their efforts and plunge the economy back into recession, they have also said that even if Congress and the White House negotiate a compromise, the Fed’s efforts would continue.

“I am not prepared to say we are remotely close to substantial improvement on the employment front,” Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta, said in a recent speech. “I expect that continued aggressive use of balance sheet monetary tools will be appropriate and justified by economic conditions for some time, even if fiscal cliff issues are properly addressed.”

The remarks were particularly significant because Mr. Lockhart is among the moderate members of the Federal Open Market Committee whose support Mr. Bernanke invested months in winning before starting the new policy.

With the direction of policy clearly set, debate has turned to the details. The Fed, whose policy-making committee is meeting on Tuesday and Wednesday, still must determine what to buy and how much to spend, and officials continue to debate the best way to describe when the agency is likely to stop buying.

In making those decisions, the Fed must balance its conviction that buying bonds reduces borrowing costs for businesses and consumers against concerns the purchases might disrupt financial markets or inhibit its control of inflation.

Analysts say the immediate answer is likely to be more of the same. The Fed currently buys $40 billion of mortgage-backed securities and $45 billion of Treasury securities a month. Officials highlighted that $85 billion figure in September, and have indicated since that it remained their rough target.

“It would be odd for them to disappoint the expectations that they have created themselves,” Kris Dawsey of Goldman Sachs wrote in a note to clients predicting that the Fed would maintain both the dollar amount and the division. Other analysts have suggested the Fed might slightly decrease the total amount of purchases, to $80 billion, or increase the share of mortgage securities.

The Fed is unlikely to announce a new timetable this week, analysts said. The committee has said that it does not plan to raise interest rates before the middle of 2015, and that it will stop buying bonds before it starts raising rates.

Many officials on the 12-member committee — perhaps even the majority — would prefer to substitute economic objectives for guidance set by the calendar. The Fed’s ability to reduce borrowing costs derives in part from persuading investors that interest rates will remain low. Telling investors how the economic situation must change in order to warrant a change in policy could be more convincing, and therefore more potent, than simply publishing an estimated endpoint, these officials say.

But an account of the committee’s previous meeting, in late October, showed that officials remained divided about which economic objectives to use.

The most vocal proponent of focusing on economic goals, Charles L. Evans, president of the Federal Reserve Bank of Chicago, said last month that the Fed should declare its intent to keep short-term interest rates near zero until the unemployment rate fell below 6.5 percent, provided that the rate of inflation did not exceed 2.5 percent.

“I believe we have the ability to go even further in reassuring financial markets and the general public that policy will stay appropriately accommodative,” Mr. Evans said in advocating the change during a speech in Toronto.

Other officials have misgivings about placing such emphasis on any single economic indicator, or on the unemployment rate in particular.

The discussions are moving slowly, in part because it is not clear the changes being contemplated would have significant benefits. The targets the Fed is considering closely resemble its own past practice, meaning the new thresholds would tend to reinforce rather than shift expectations.

Lou Crandall, chief economist at the research firm Wrightson ICAP, noted in a recent analysis that the unemployment rate exceeded 7 percent in the mid-1980s and again in the early 1990s, and in both cases the Fed waited until the rate fell well into the 6 percent range before it began to raise interest rates.

The relative complacency of Fed officials also reflects their judgment that the mortgage-bond purchases announced in September are working. Average interest rates on 30-year mortgages are at the lowest levels on record, averaging 3.35 percent in November, according to Freddie Mac’s regular survey.

“This is solid evidence that our policy has been and continues to be effective — though it is certainly not all-powerful in current circumstances,” William C. Dudley, president of the Federal Reserve Bank of New York, said last week.

To continue the companion purchases of Treasury securities, the Fed will need to change its approach. It is now buying long-term securities with proceeds from the sale of short-term securities, but it is running out of inventory to sell.

The most likely alternative is to create money by crediting the accounts of banks that sell bonds to the Fed, the same method now being used to buy mortgage bonds and also to finance earlier rounds of the Fed’s so-called quantitative easing.

The Fed has repeatedly overestimated the health of the economy and the impact of its efforts. This time, officials have promised to maintain their efforts even as the economy shows signs of improvement. But they are once again sounding notes of cautious optimism about the coming year — if Washington does not interfere.

A budget deal reducing deficits in the long term, Mr. Bernanke said in November, “could help make the new year a very good one for the American economy.”

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Changes to Agriculture Highlight Cuba’s Problems

HAVANA — Cuba’s liveliest experiment with capitalism unfolds every night in a dirt lot on the edge of the capital, where Truman-era trucks lugging fresh produce meet up with hundreds of buyers on creaking bicycle carts clutching wads of cash.

“This place, it feeds all of Havana,” said Misael Toledo, 37, who owns three small food stores in the city. “Before, you could only buy or sell in the markets of Fidel.”

The agriculture exchange, which sprang up last year after the Cuban government legalized a broader range of small businesses, is a vivid sign of both how much the country has changed, and of all the political and practical limitations that continue to hold it back.

President Raúl Castro has made agriculture priority No. 1 in his attempt to remake the country. He used his first major presidential address in 2007 to zero in on farming, describing weeds conquering fallow fields and the need to ensure that “anyone who wants can drink a glass of milk.”

No other industry has seen as much liberalization, with a steady rollout of incentives for farmers. And Mr. Castro has been explicit about his reasoning: increasing efficiency and food production to replace imports that cost Cuba hundreds of millions of dollars a year is a matter “of national security.”

Yet at this point, by most measures, the project has failed. Because of waste, poor management, policy constraints, transportation limits, theft and other problems, overall efficiency has dropped: many Cubans are actually seeing less food at private markets. That is the case despite an increase in the number of farmers and production gains for certain items. A recent study from the University of Havana showed that market prices jumped by nearly 20 percent in 2011 alone. And food imports increased to an estimated $1.7 billion last year, up from $1.4 billion in 2006.

“It’s the first instance of Cuba’s leader not being able to get done what he said he would,” said Jorge I. Domínguez, vice provost for international affairs at Harvard, who left Cuba as a boy. “The published statistical results are really very discouraging.”

A major cause: poor transportation, as trucks are in short supply, and the aging ones that exist often break down.

In 2009, hundreds of tons of tomatoes, part of a bumper crop that year, rotted because of a lack of transportation by the government agency charged with bringing food to processing centers.

“It’s worse when it rains,” said Javier González, 27, a farmer in Artemisa Province who described often seeing crops wilt and rot because they were not picked up.

Behind him were the 33 fertile, rent-free acres he had been granted as part of a program Mr. Castro introduced in 2008 to encourage rural residents to work the land. After clearing it himself and planting a variety of crops, Mr. Gonzalez said, he was doing relatively well and earned more last year than his father, who is a doctor, did.

But Cuba’s inefficiencies gnawed at him. Smart, strong, and ambitious, he had expansion plans in mind, even as in his hand he held a wrench. He was repairing a tractor part meant to be grading land. It was broken. Again.

The 1980s Soviet model tractor he bought from another farmer was as about good as it gets in Cuba. The Cuban government maintains a monopoly on selling anything new, and there simply is not enough of anything — fertilizer, or sometimes even machetes — to go around.

Government economists are aware of the problem. “If you give people land and no resources, it doesn’t matter what happens on the land,” said Joaquin Infante of the Havana-based Cuban National Association of Economists.

But Mr. Castro has refused to allow what many farmers and experts see as an obvious solution to the shortages of transportation and equipment: Let people import supplies on their own. “It’s about control,” said Philip Peters, a Cuba analyst with the Lexington Institute, a Virginia-based research group.

Other analysts agree, noting that though the agricultural reforms have gone farther than other changes — like those that allow for self-employment — they remain constrained by politics.

“The government is not ready to let go,” said Ted Henken, a Latin American studies professor at Baruch College. “They are sending the message that they want to let go, or are trying to let go, but what they have is still a mechanism of control.”

For many farmers, that explains why land leases last for 10 years with a chance to renew, not indefinitely or the 99 years offered to foreign developers. It is also why many farmers say they will not build homes on the land they lease, despite a concession this year to allow doing so.

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Marquez knocks out Pacquiao in 6th round

LAS VEGAS (AP) — No need for Juan Manuel Marquez to impress the judges. No need for the referee to count to 10.

Marquez took care of all of his business Saturday night with a thunderous right hand that left Manny Pacquiao face first on the canvas with his remarkable career in question.

Unable to win a decision in their first three fights, Marquez won the old-fashioned way with a huge right hand that put Pacquiao down for the second time in the fight at 2:59 of the sixth round.

Referee Kenny Bayless never bothered to count as Marquez leaped into his handlers' arms in celebration and Pacquiao's wife broke into tears at ringside.

"I threw a perfect punch," Marquez said. "I knew Manny could knock me out at any time."

It was a stunning end to a thrilling fight, the fourth one in the last eight years between the two men. It could also be the end of the Filipino's career, though he said in the ring afterward he would like to fight Marquez for a fifth time.

"If you give us a chance, we'll fight again," Pacquiao said. "I was just starting to feel confident and then I got careless."

Pacquiao had been down in the third round but knocked Marquez down in the fifth and the two were exchanging heavy blows in the sixth round before Marquez threw a right hand that flattened Pacquiao face down on the canvas.

"I thought I was getting him in the last couple of rounds but I got hit by a strong punch," Pacquiao said. "I never expected that punch."

Pacquiao was down for about two minutes before his handlers managed to get him up as Marquez celebrated and the sold-out crowd at the MGM erupted.

After being helped to his corner, Pacquiao sat on a stool, blew his nose and stared vacantly ahead as his handlers cut his gloves off. It was a stunning end to a furious fight, and Pacquiao was later taken to a hospital for precautionary examination.

"We always worked on that punch," Marquez said. "We knew he was going to come out aggressive so we had a fight plan that was more technical. We were able to capitalize on it."

Marquez had vowed to finally beat Pacquiao after losing two close fights and settling for a draw in the first fight. But after Pacquiao knocked him down in the fifth round and was landing big left hands, it looked like it would be Pacquiao's night.

The two came out for the sixth round and the pace was just as relentless. Both were landing big punches and both were brawling when suddenly as the round came to close Marquez shot out a right hand that landed flush to the jaw of Pacquiao, who crumpled to the canvas in a heap.

"I felt he was coming to knock me out the last three rounds and I knew he was going to be wide open," Marquez said.

It was the second loss in a row for Pacquiao, who dropped a decision to Timothy Bradley in June and who had vowed to regain his prominence in the ring.

Pacquiao was aggressive from the opening bell, but paid the price in the third round when he got caught by a Marquez right hand that put him down. Pacquiao got back up and seemingly took control of the fight, dropping Marquez in the fifth round and landing the bigger punches until he was dropped.

"I got hit by a punch I didn't see," Pacquiao said.

Pacquiao, who earned more than $20 million for the fight, was ahead 47-46 on all three scorecards after the fifth round.

There was no title at stake in the 147-pound fight, but that didn't stop 16,348 fans from filling the MGM Grand Arena and roaring in unison from the opening bell as the two fighters went after each other.

Ringside punching stats underscored the ferocity of the bout, showing Pacquiao landing 94 of 256 punches to 52 of 246 for Marquez. But it was the one big right hand from Marquez that counted more than anything, knocking Pacquiao out for the first time in a career that goes back 17 years.

"He was in charge," Pacquiao's trainer, Freddie Roach said. "He just got a little too careless and got hit with a punch he didn't see."

Promoter Bob Arum immediately said he could see a fifth fight between the two boxers, and a dazed Pacquiao seemed to agree.

"Why not?" he said.

Pacquiao weighed the class limit of 147 pounds, but it was Marquez who looked like the stronger fighter entering the ring after having bulked up with the help of a strength conditioner, though he weighed in at 143 pounds. In their earlier fights, Pacquiao had been the bigger puncher, knocking Marquez down a total of four times, but on this night it was Marquez who had the biggest punch.

The stunning knockout was the first real loss by Pacquiao in seven years. He lost a close decision to Bradley in his last fight, but most ringside observers believed he had won it fairly convincingly.

Marquez improved to 55-6-1 with 40 knockouts, while Pacquiao fell to 54-5-2.

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New Taxes to Take Effect to Fund Health Care Law

WASHINGTON — For more than a year, politicians have been fighting over whether to raise taxes on high-income people. They rarely mention that affluent Americans will soon be hit with new taxes adopted as part of the 2010 health care law.

The new levies, which take effect in January, include an increase in the payroll tax on wages and a tax on investment income, including interest, dividends and capital gains. The Obama administration proposed rules to enforce both last week.

Affluent people are much more likely than low-income people to have health insurance, and now they will, in effect, help pay for coverage for many lower-income families. Among the most affluent fifth of households, those affected will see tax increases averaging $6,000 next year, economists estimate.

To help finance Medicare, employees and employers each now pay a hospital insurance tax equal to 1.45 percent on all wages. Starting in January, the health care law will require workers to pay an additional tax equal to 0.9 percent of any wages over $200,000 for single taxpayers and $250,000 for married couples filing jointly.

The new taxes on wages and investment income are expected to raise $318 billion over 10 years, or about half of all the new revenue collected under the health care law.

Ruth M. Wimer, a tax lawyer at McDermott Will & Emery, said the taxes came with “a shockingly inequitable marriage penalty.” If a single man and a single woman each earn $200,000, she said, neither would owe any additional Medicare payroll tax. But, she said, if they are married, they would owe $1,350. The extra tax is 0.9 percent of their earnings over the $250,000 threshold.

Since the creation of Social Security in the 1930s, payroll taxes have been levied on the wages of each worker as an individual. The new Medicare payroll is different. It will be imposed on the combined earnings of a married couple.

Employers are required to withhold Social Security and Medicare payroll taxes from wages paid to employees. But employers do not necessarily know how much a worker’s spouse earns and may not withhold enough to cover a couple’s Medicare tax liability. Indeed, the new rules say employers may disregard a spouse’s earnings in calculating how much to withhold.

Workers may thus owe more than the amounts withheld by their employers and may have to make up the difference when they file tax returns in April 2014. If they expect to owe additional tax, the government says, they should make estimated tax payments, starting in April 2013, or ask their employers to increase the amount withheld from each paycheck.

In the Affordable Care Act, the new tax on investment income is called an “unearned income Medicare contribution.” However, the law does not provide for the money to be deposited in a specific trust fund. It is added to the government’s general tax revenues and can be used for education, law enforcement, farm subsidies or other purposes.

Donald B. Marron Jr., the director of the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, said the burden of this tax would be borne by the most affluent taxpayers, with about 85 percent of the revenue coming from 1 percent of taxpayers. By contrast, the biggest potential beneficiaries of the law include people with modest incomes who will receive Medicaid coverage or federal subsidies to buy private insurance.

Wealthy people and their tax advisers are already looking for ways to minimize the impact of the investment tax — for example, by selling stocks and bonds this year to avoid the higher tax rates in 2013.

The new 3.8 percent tax applies to the net investment income of certain high-income taxpayers, those with modified adjusted gross incomes above $200,000 for single taxpayers and $250,000 for couples filing jointly.

David J. Kautter, the director of the Kogod Tax Center at American University, offered this example. In 2013, John earns $160,000, and his wife, Jane, earns $200,000. They have some investments, earn $5,000 in dividends and sell some long-held stock for a gain of $40,000, so their investment income is $45,000. They owe 3.8 percent of that amount, or $1,710, in the new investment tax. And they owe $990 in additional payroll tax.

The new tax on unearned income would come on top of other tax increases that might occur automatically next year if President Obama and Congress cannot reach an agreement in talks on the federal deficit and debt. If Congress does nothing, the tax rate on long-term capital gains, now 15 percent, will rise to 20 percent in January. Dividends will be treated as ordinary income and taxed at a maximum rate of 39.6 percent, up from the current 15 percent rate for most dividends.

Under another provision of the health care law, consumers may find it more difficult to obtain a tax break for medical expenses.

Taxpayers now can take an itemized deduction for unreimbursed medical expenses, to the extent that they exceed 7.5 percent of adjusted gross income. The health care law will increase the threshold for most taxpayers to 10 percent next year. The increase is delayed to 2017 for people 65 and older.

In addition, workers face a new $2,500 limit on the amount they can contribute to flexible spending accounts used to pay medical expenses. Such accounts can benefit workers by allowing them to pay out-of-pocket expenses with pretax money.

Taken together, this provision and the change in the medical expense deduction are expected to raise more than $40 billion of revenue over 10 years.

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Changes to Agriculture Highlight Cuba’s Problems

HAVANA — Cuba’s liveliest experiment with capitalism unfolds every night in a dirt lot on the edge of the capital, where Truman-era trucks lugging fresh produce meet up with hundreds of buyers on creaking bicycle carts clutching wads of cash.

“This place, it feeds all of Havana,” said Misael Toledo, 37, who owns three small food stores in the city. “Before, you could only buy or sell in the markets of Fidel.”

The agriculture exchange, which sprang up last year after the Cuban government legalized a broader range of small businesses, is a vivid sign of both how much the country has changed, and of all the political and practical limitations that continue to hold it back.

President Raúl Castro has made agriculture priority No. 1 in his attempt to remake the country. He used his first major presidential address in 2007 to zero in on farming, describing weeds conquering fallow fields and the need to ensure that “anyone who wants can drink a glass of milk.”

No other industry has seen as much liberalization, with a steady rollout of incentives for farmers. And Mr. Castro has been explicit about his reasoning: increasing efficiency and food production to replace imports that cost Cuba hundreds of millions of dollars a year is a matter “of national security.”

Yet at this point, by most measures, the project has failed. Because of waste, poor management, policy constraints, transportation limits, theft and other problems, overall efficiency has dropped: many Cubans are actually seeing less food at private markets. That is the case despite an increase in the number of farmers and production gains for certain items. A recent study from the University of Havana showed that market prices jumped by nearly 20 percent in 2011 alone. And food imports increased to an estimated $1.7 billion last year, up from $1.4 billion in 2006.

“It’s the first instance of Cuba’s leader not being able to get done what he said he would,” said Jorge I. Domínguez, vice provost for international affairs at Harvard, who left Cuba as a boy. “The published statistical results are really very discouraging.”

A major cause: poor transportation, as trucks are in short supply, and the aging ones that exist often break down.

In 2009, hundreds of tons of tomatoes, part of a bumper crop that year, rotted because of a lack of transportation by the government agency charged with bringing food to processing centers.

“It’s worse when it rains,” said Javier González, 27, a farmer in Artemisa Province who described often seeing crops wilt and rot because they were not picked up.

Behind him were the 33 fertile, rent-free acres he had been granted as part of a program Mr. Castro introduced in 2008 to encourage rural residents to work the land. After clearing it himself and planting a variety of crops, Mr. Gonzalez said, he was doing relatively well and earned more last year than his father, who is a doctor, did.

But Cuba’s inefficiencies gnawed at him. Smart, strong, and ambitious, he had expansion plans in mind, even as in his hand he held a wrench. He was repairing a tractor part meant to be grading land. It was broken. Again.

The 1980s Soviet model tractor he bought from another farmer was as about good as it gets in Cuba. The Cuban government maintains a monopoly on selling anything new, and there simply is not enough of anything — fertilizer, or sometimes even machetes — to go around.

Government economists are aware of the problem. “If you give people land and no resources, it doesn’t matter what happens on the land,” said Joaquin Infante of the Havana-based Cuban National Association of Economists.

But Mr. Castro has refused to allow what many farmers and experts see as an obvious solution to the shortages of transportation and equipment: Let people import supplies on their own. “It’s about control,” said Philip Peters, a Cuba analyst with the Lexington Institute, a Virginia-based research group.

Other analysts agree, noting that though the agricultural reforms have gone farther than other changes — like those that allow for self-employment — they remain constrained by politics.

“The government is not ready to let go,” said Ted Henken, a Latin American studies professor at Baruch College. “They are sending the message that they want to let go, or are trying to let go, but what they have is still a mechanism of control.”

For many farmers, that explains why land leases last for 10 years with a chance to renew, not indefinitely or the 99 years offered to foreign developers. It is also why many farmers say they will not build homes on the land they lease, despite a concession this year to allow doing so.

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