SAN FRANCISCO (Reuters) – California Governor Jerry Brown ordered a hiring freeze on Tuesday across the state's government to help cut costs in the face of a budget gap of at least $25 billion.

The budget deficit of the nation's most populous state is closely tracked in financial markets. California is the biggest issuer of U.S. municipal debt, and is of concern in Washington as some in Congress have discussed crafting legislation to allow states to declare bankruptcy to ease their fiscal woes.

The U.S. economy may be recovering but state and local governments still face weak revenue due to the recession, housing and financial market slumps, hesitant consumer spending and high unemployment.

Brown's order applies to vacant, seasonal, full-time and part-time positions and will save $363 million in operational costs in the next fiscal year beginning in July, Brown's office said.

"The hiring freeze will be in effect until agencies and departments prove that they can achieve these savings," Brown, sworn in last month, said in the statement.

It was the latest move by the 72-year-old Democrat to trim state spending on his own as he seeks approval from lawmakers for his budget plan.

It includes proposals for $12.5 billion in spending cuts and calls on the legislature to put a ballot measure to voters in June to extend tax increases scheduled to expire this year.

Democrats, who control the legislature, are expected to support Brown's cuts to help win Republican votes needed to advance a measure to the ballot.

The tax extensions, spending cuts and other moves would close a budget gap Brown estimated last month in his budget plan at $25.4 billion through mid-2012.

That deficit may swell to more than $27 billion after Brown canceled a plan to sell state buildings and if his proposal for creating a nearly $1 billion reserve survives budget talks with lawmakers.

In addition to the hiring freeze, Brown has ordered sharp reductions in mobile phones for state employees and in the state's vehicle fleet.

To further underscore frugality, Brown recently took a commercial passenger flight -- coach and without entourage -- to Southern California to urge business groups to support a referendum on tax extensions.

(Reporting by Jim Christie; Editing by Xavier Briand)

NEW YORK (Reuters) – A frail Bernard Madoff, facing the rest of his life in prison, said a variety of banks and hedge funds were complicit in and "had to know" about his epic Ponzi scheme before it was uncovered, The New York Times reported.

In his first interview for publication since his December 2008 arrest, Madoff said banks and hedge funds who dealt with his investment advisory firm demonstrated a "willful blindness" toward his activities, and failed to examine discrepancies between his regulatory filings and other information.

"They had to know," Madoff, described as noticeably thinner and dressed in khaki prison clothing, said in a visiting room in the federal prison in Butner, North Carolina. "But the attitude was sort of, 'If you're doing something wrong, we don't want to know.'"

Madoff, 72, is serving a 150-year prison sentence for what prosecutors called his $65 billion Ponzi scheme, which was uncovered in December 2008.

Irving Picard, a court-appointed trustee seeking money for Madoff victims, has filed lawsuits seeking tens of billions of dollars from companies and individuals he believes benefited from or aided in Madoff's Ponzi scheme.

NO EXCUSES

Among the defendants in these cases is JPMorgan Chase & Co, long Madoff's principal banker and described by Picard as "thoroughly complicit" in the Ponzi scheme.

Other defendants include HSBC Holdings Plc, UBS AG, various "feeder funds" that steered money to Madoff, and the owners of the New York Mets baseball team.

A spokesman for Picard did not immediately return a request for comment. Picard declined to comment to the newspaper. He has recovered about $10 billion for victims so far.

Stephen Cutler, JPMorgan's general counsel, at a presentation on Tuesday said Picard "overreached" in his $6.4 billion lawsuit against the bank, and that JPMorgan "did not know about or in any way participate in the fraud."

In the Times interview, conducted in conjunction with a forthcoming book, Madoff acknowledged his guilt and said nothing could excuse his crimes.

He did not assert that any specific bank or hedge fund knew about or was an accomplice in his Ponzi scheme, which Picard said cost investors more than $20 billion.

METS EXECUTIVES DIDN'T KNOW, MADOFF SAYS

But in a December 19 email cited in the Times article, Madoff said he had been providing Picard with "information I knew would be instrumental in recovering assets from those people complicit in the mess I put myself into."

Then, 10 days later, he said "the banks and funds were complicit in one form or another and my information to Picard when he was here established this."

As to Mets principals Fred Wilpon and his brother-in-law Saul Katz, Madoff said: "They knew nothing. They knew nothing."

In the December 19 email, Madoff also said he had not shared his information with federal prosecutors working on criminal cases related to the fraud.

Eight people have been criminally charged. Madoff, his right hand man Frank DiPascali, and an outside accountant have pleaded guilty. Five, all of whom used to work for Madoff, have pleaded not guilty.

Madoff also told the Times he never thought the collapse of his Ponzi scheme would cause the kind of fallout that has befallen his family.

Picard has filed lawsuits against Madoff's wife, Ruth, that could bankrupt her, while Madoff's son Mark committed suicide on December 11, 2010, two years after the Ponzi scheme was revealed.

Madoff said prison officials would not let him attend his son's funeral, saying it could pose a "public safety issue." He later said it would be "cruel" to put his family through what could be a "media circus" were he to attend.

(Reporting by Jonathan Stempel in New York; Additional reporting by Clare Baldwin; Editing by Gary Hill)

MEXICO CITY (Reuters) – Gunmen shot dead a U.S. customs and immigration agent and wounded another on Tuesday in Mexico, where violence between powerful drug cartels and security forces has surged.

The two Immigration and Customs Enforcement (ICE) agents were driving north on Mexico's main highway on official business when they were attacked in broad daylight.

It was not immediately clear why they were targeted.

The U.S. government condemned the attack, which came just over two weeks after Homeland Security Secretary Janet Napolitano warned Mexico's drug cartels not to take their violent tactics across the border.

"Any act of violence against our ICE personnel ... is an attack against all those who serve our nation and put their lives at risk for our safety," Napolitano said in a statement after the agents were shot.

They were shot in the mid-afternoon south of the city of San Luis Potosi, which is roughly half way between Mexico City and Monterrey, the country's business capital where drug-related violence has soared over the past year.

The two agents may have been ambushed after stopping at what appeared to be a military checkpoint, said a Mexican official who declined to be named because he was not authorized to speak about the case.

Mexican drug cartels have been known to set up official-looking checkpoints, and the official said security forces had no checkpoints in the area.

Television footage showed a blue sports utility vehicle with several large bullet holes lying in the median of the highway, which was guarded by heavily armed Mexican federal police.

The U.S. agents were rushed to a hospital where one died of his injuries. The second agent, who was shot in the arm and the leg, remains hospitalized, ICE said.

More than 15,000 people were killed in drug violence in Mexico last year but, despite growing domestic criticism of President Felipe Calderon's army-led strategy, the government has vowed to press on with its campaign to crush the cartels.

The violence has alarmed Washington, which worries that the fighting could spill over the border. It has also prompted some companies to reconsider plans to invest in Mexico.

The United States has provided funds and training to help Mexico in its fight against the cartels and intelligence from U.S. law enforcement sources is credited with helping Mexico kill and capture several cartel leaders in recent years.

FIRST ICE DEATHS

Attacks on Mexican police by drug gangs are common but U.S. government employees are rarely targeted despite Washington's strong support of Calderon.

San Luis Potosi is home to a federal police academy and has not experienced many drug war killings, but gangs have been moving in to use it as a base for trafficking operations to the north.

Monterrey, Guadalajara and other Mexican cities once far from the front lines of the drug war have seen a recent spike in killings.

ICE said the two men were the first of its agents shot in the line of duty in Mexico.

If there is any evidence that drug gangs targeted the two agents, it would mark an escalation in the conflict.

"What we would hope is that there would be an incredibly strong response from the U.S. government ... Otherwise we could have a situation where it's open season on U.S. federal agents at the border," said Steven Camarota of the Center for Immigration Studies in Washington.

Enrique Camarena, an undercover U.S. Drug Enforcement Administration agent, was kidnapped, tortured and murdered while on assignment in Mexico in 1985.

More recently, two U.S. citizens and a Mexican linked to staff at the U.S. consulate in Ciudad Juarez were killed in March last year, prompting the State Department to tighten security at its diplomatic missions in northern Mexico.

(Additional reporting by Krista Hughes, Adriana Barrera and Armando Tovar in Mexico City; Robin Emmott in Monterrey; Tim Gaynor in Phoenix and Jeremy Pelofsky in Washington; Editing by Kieran Murray and Christopher Wilson)