Teen to Apple: Never say never - AT&T's exclusive contract for iPhone didn't sit well with hacker intent on breaking lock

Teen to Apple: Never say never - AT&T's exclusive contract for iPhone didn't sit well with hacker intent on breaking lock
By Eric Benderoff and Jon Van
Copyright © 2007, Chicago Tribune
August 25, 2007

Why would anyone pick up a sleek, beautiful new $500 iPhone and take a soldering gun to it?

You could almost say Apple Inc. issued a dare.

Hackers got credit for another victory Friday, as news spread that a New Jersey teenager broke into his iPhone and reconfigured it so the machine could make calls via a wireless carrier other than AT&T.

The iPhone, available since late June, is supposed to work only with AT&T, which has a five-year exclusive contract. But limiting the touchscreen phone to a single carrier immediately was seen by many tech-savvy tinkerers as an invitation to assert their control over the device.

Hacking, of course, has a long history in the digital age. On top of that, many cell phone aficionados are rankled by the idea that they often can't choose which carrier to provide service for a cool new phone.

So it's no surprise that 17-year-old George Hotz's accomplishment in making his iPhone run on T-Mobile's network joins a host of claims by other hackers manipulating the Apple device.

YouTube is filled with videos of people who appear to have created their own iPhone by using Apple's software on other mobile gadgets, including a T-Mobile Wing smart phone, a Sprint PPC-6800 and Microsoft Corp.'s Zune music player.

Technology analyst Rob Enderle said others already have unlocked the iPhone by getting it to work with a competing carrier: "We should have downloadable applications for these things in a week."

To do what Hotz accomplished takes plenty of skill -- and time. Hotz said he spent 500 hours on the project.

"He's been tinkering with it all summer," his father, also named George Hotz, said. "It shows it can be done, but it's not an easy task."

In a video on YouTube, the bushy haired Hotz shows his iPhone running on T-Mobile's wireless network before he makes a call to a landline phone in his bedroom. Then, he removes the T-Mobile SIM card he inserted into the phone as additional evidence.

Also in the video, Hotz said he worked with other hackers to complete the task. On Thursday, he published a 10-step guide on his blog, http://iphonejtag .blogspot.com, but acknowledged they may be challenging.

Technology blog Engadget on Friday reported successfully unlocking an iPhone using a different method that required no tinkering with the hardware, according to The Associated Press. The software was supplied by an anonymous group of hackers that apparently plans to charge for it.

Representatives from Apple and AT&T would not comment on the hacked iPhone, although one representative questioned the validity of Hotz's hack.

The hack is being seen as an interesting but harmless accomplishment, said Martin Dunsby, chief executive with Vollee Inc., a maker of games for mobile devices.

But Jeff Kohler, a wireless executive at Bathgate Capital Partners in Denver, said, "From an AT&T standpoint, on a marketing level, those people [at AT&T] have to be disappointed. There is the potential to lose the exclusivity and branding that goes with the iPhone."

Dunsby said the hack will have no "business impact. But the message this sends is that subscribers want innovation and flexibility in their platform."

Indeed, when Apple announced it had an exclusive agreement with AT&T to carry the iPhone, many mobile phone fans were excited because the phone would run on a GSM network, meaning perhaps a SIM card from another carrier would work.

But Apple, in an unprecedented move, locked the SIM card into the phone so users would not be able to insert a card from T-Mobile or a European carrier to make the iPhone work. Buyers of GSM phones made by Nokia and Motorola, for example, can easily open the back of the phone and slip in a SIM card for another wireless carrier.

"The message [the hack] sends to the communications industry is that innovation is important, but being in a closed environment isn't a good thing," Dunsby said.

He added, though, that most people won't see the benefit of doing a hack as complicated as the one Hotz achieved.

According to interviews, Hotz said he used soldering tools and software to hack the iPhone. He said the two iPhones he hacked, one of which he's put up for bid on eBay, have all their features intact except the visual voice-mail function.

Hotz's sudden popularity was noticed by major television networks Friday. He was picked up by a limousine for a trip to New York City for an interview with NBC, ABC and other broadcasters, his father said.

On Saturday, he heads to college to start his freshman year.

"It's great he got it done in time," the elder Hotz said. "He can enjoy this moment of glory."

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ebenderoff@tribune.com

jvan@tribune.com

Hillary haters' sharpen their swords

Hillary haters' sharpen their swords
By Jill Zuckman
Copyright © 2007, Chicago Tribune
August 26, 2007


DALLAS — Richard Collins, a wealthy Texas philanthropist, businessman and political aficionado, heaps praise on the woman he has set out to destroy, Sen. Hillary Clinton (D-N.Y.).

"She looks like a winner," said Collins, sitting in his high-rise office with sweeping views of the city. "She's run a good campaign, very consistent, no mistakes."

But make no mistake about it: Collins is just one in a vast army of professional "Hillary haters" who are banking on Clinton becoming the Democratic nominee. Like the Swift Boat Veterans for Truth in the 2004 election who denigrated John Kerry's military service in Vietnam, Collins and others are searching for just the thing that will crystallize the way voters think and feel about her.

And not in a good way.

Armed with new technologies and fueled by animus, they are bent on preventing "four more years" of Clintonism. Every old charge, it seems, is being repackaged and sold as new. Every rumor is given a new, blog-stoked currency.

The rise of the Internet has meant that more people are getting their message out without the expense of paper, postage or manpower. Anyone with a computer can weigh in on the political debate and alter a candidate's course, and Clinton opponents have started early.

With his affable demeanor and sixth-generation Texas twang, Collins, 60, is the force behind StopHerNow.com, a humorous and snarky Web site, as well as an independent expenditure group dedicated to stopping Clinton's march to the White House.

His efforts have included flying a StopHerNow.com banner over the site of the South Carolina Democratic debate, as well as a cartoon called "The Hillary Show," a "Jetsons"-like satire that portrays Clinton as a mean and unforgiving talk show host.

"This is not personal," said Collins, a Republican who has donated money to Sen. John McCain (R-Ariz.) and former New York Mayor Rudolph Giuliani. "It's about her policies. We think they would be wrong for the country."


A magnet for criticism

Not every Democratic presidential candidate, however, draws such venomous opposition. Ever since she uttered those famous words about staying home, baking cookies and holding teas rather than fulfilling her professional goals, Clinton has been a magnet for passionate criticism.

This fall, Citizens United, a conservative organization that claims half a million members, will release a documentary film about the life and times of Hillary Clinton. It's being made with the help of Dick Morris, the fired former adviser to Bill Clinton who has turned criticizing both Clintons into a crusade.

"I think once people see this film, I don't know how she would be able to get their vote," said David Bossie, the group's chairman and president, who worked as the chief investigator for the House committee investigating the Clinton-era Whitewater scandals before he was fired too.

Other "Hillary haters" have less money but no less wrath for the senator from New York.

Robert Morrow, a self-employed securities trader who works from home in Austin, describes himself as one of the nation's premier experts on Hillary and Bill Clinton. He said he has bought every book ever written about the Clintons, and he draws on them for the reams of information he e-mails to journalists and political activists detailing allegations of rape, sexual assault and physical violence, which Clinton's campaign dismisses as baseless.

"You've got to believe there's going to be a thousand people like me in the general election exposing the Clintons' track record of violating people and criminality," said Morrow, who calls the former First Couple "sociopaths and thugs."

Clinton says she knows the attacks will come and that she's uniquely qualified in knowing how to fight back.

"I've been through it and I understand their tactics," Clinton told voters last week at a house party in Concord, N.H. "And I have been subjected to them for 15 years and I have survived them. And there is something to be said for that."

'Unhinged' over the Clintons
Some Democratic strategists say the political right's obsession with both Clintons is far more intense than it ever was toward Kerry, the Democratic nominee in 2004, or Michael Dukakis, the candidate in 1988.

"There's clearly a sliver of the right wing in the country that's unhinged over both of the Clintons. Their hatred is simply pathological," said Jim Jordan, who is advising Sen. Christopher Dodd's presidential bid. "I'm sure some of these kooks look back at the Clinton White House as the good ol' days — they were energized and relevant then."

What is unclear is whether voters are numb to the charges that Clinton's legion of detractors offer, or whether those charges will help reinforce negative feelings.

oward Wolfson, Clinton's communications director, argues that voters have almost become immune. "For most Americans, not only has the page turned, but the book is closed on that kind of thing," he said.

John Pitney Jr., a political science professor at Claremont McKenna College, believes anti-Hillary Clinton groups will face a steep battle undermining Clinton the same way they harmed Kerry.

"If there's one thing Hillary Clinton knows about politics, it's that she has some enemies," Pitney said. "You're not going to catch her off guard. The question is whether they can persuade anybody beyond their Republican base."

Even Paul Weyrich, the conservative activist, wonders whether the attacks will work.

"Assuming she gets the nomination, the question for the general election is: Do these people contribute to the dialogue or do they turn people off," he said. "I haven't made up my mind yet."

Turning people off is exactly what Collins is trying to avoid with his StopHerNow.com efforts. "What we're trying to do with our site is define Hillary with humor," he said.

For example, Collins has three rules to guide the writing on his site: Chelsea Clinton is off-limits; no gay-bashing allowed; and Bill Clinton's womanizing is OK, but no naming names.

He says he believes the key to undoing Clinton's candidacy lies with exposing her true character. For example, his Web site has sharply criticized Clinton for not releasing documents relating to her time as first lady.

"She's hiding something. This is classic Clinton sleaze," said Collins, who describes himself as a mainstream Republican and says he has Democratic friends who don't like her either. "This sort of thing is the defining character issue that will cause her to lose."

He admires the work of a renegade staffer for Sen. Barack Obama (D-Ill.) who spoofed an Apple Computer television ad by depicting Clinton as an Orwellian, dictatorial figure speaking in a monotone to a hall full of robotic humans. When a female athlete tosses a hammer at the screen, destroying Clinton's image, this line appears: "On Jan. 14th, the Democratic primary will begin. And you will see why 2008 isn't going to be like '1984.' "

The ad was watched more than a million times on YouTube. And that's what Collins is hoping to replicate.

"The goal is to do something that everybody will watch," he said.

Currently, his site gets about 3,000 hits a day, and his overall budget for the cycle could reach as high as $4 million. He has spent about $400,000 so far—most of that his own money—building StopHerNow.com and hiring staff, including actors to do the voice-overs for "The Hillary Show" cartoons.


The architect of StopHerNow

Those cartoons are frequently conceived by Arthur Finkelstein, the reclusive Republican political consultant who became famous for constantly defining Democrats as liberals. He originally started StopHerNow.com and still calls the animator to dictate ideas for new scripts. Collins calls him "an old friend" and says Finkelstein advises him on several things, including Clinton.

A site managing editor based in Ohio, Kevin Holtsberry, is working to beef up the content, tapping into his relationships with conservative bloggers. He said they are trying to get the truth out about Clinton.

"She's going to try to redefine herself as a nice, charming, friendly, centrist-type person, competent, the kind of person who can get things done," he said. "Our job is to bring out the past and her real history."

Collins heads two foundations, both of which give away money, primarily for historic preservation and education efforts. One of the foundations has given about $4 million toward private school vouchers.

But politics is his passion, and he's proud that his mother was the first woman to serve on the Dallas City Council and that his uncle was once a member of Congress. His grandfather, he said, was a "kingmaker" when it came to Texas politics, and his great-grandfather was once a member of the state Senate.

His hoped-for contribution? Stopping Clinton.

jzuckman@tribune.com

The next credit crunch? - As home loan market tightens, mounting credit card debt could spur new crisis

The next credit crunch? - As home loan market tightens, mounting credit card debt could spur new crisis
By Susan Chandler
Copyright © 2007, Chicago Tribune
August 26, 2007



Now that the easy money in home mortgages is all but over, consumers may soon be caught in a financial squeeze with their credit cards.

That's the worry among some economists and credit counselors as home lending has shifted abruptly into low gear this summer. That leaves homeowners owing big sums to Visa or MasterCard without an important escape hatch—the ability to pay down the plastic by dashing off a check from their home equity line of credit or rolling the debt into a new, bigger mortgage.

"You're not going to be able to get that mortgage loan. You'll be stuck with the higher interest credit card debt," warns Carl Steidtmann, chief economist with Deloitte Research. "We will have to live within our means. I know it's a troubling phenomenon. But we're not going to be able to spend at levels well above our income levels."

Home mortgages have become much harder to get this summer as a wave of overleveraged homeowners, many of them with adjustable-rate loans, have defaulted on their home loans. As foreclosures soared, numerous lenders had difficulty raising new capital, and some have closed up shop. Others have tightened their requirements on borrowers and bumped up interest rates, which could decrease how much money a prospective buyer can borrow.

Mortgage debt and credit cards have become closely linked in recent years as interest rates hit post-war lows, and consumers were barraged with offers to use their home equity to pay off their high-cost credit cards. It was billed as a clean slate, but many homeowners went out and ran up new balances.


No shame in debt

It's not just a problem for the working poor, credit counselors say. Many middle- and upper-class households have come to view credit card debt as a reality of modern life.

"The psychology about carrying credit card debt has changed. What used to be a shame is just an additional way to buy stuff, and stuff is the operative word here," said Catherine Williams, vice president of financial literacy at Consumer Credit Counseling Service of Greater Chicago.

Freda Price, a divorced mother of two in Bethlehem, Pa., is trying to get her credit card debt under control. Five years ago, Price had a $49,000 mortgage and no significant credit card balances. But she now is struggling with $100,000 in mortgage and credit card balances because she has refinanced and used the cards to pay for attorneys in a long-running dispute over child custody with her ex-husband.

Price is close to hitting the maximum borrowing limit on her four credit cards, which are consuming about $300 a month in minimum payments. She finds herself charging gas and groceries on the cards, which she doesn't like.

"The sad thing is I never had any of this debt before," she said. "I have to pay the minimum because I can't afford much more."

Price's credit cards also are preventing her from saving for retirement. She is contributing only 1 percent to her 401(k) plan even though her insurance company employer matches up to 3 percent.

"I'm just between a rock and a hard place. I pack my lunch. I get the newspaper at the house. We don't go out to eat. We don't do much of anything," said Price, 51. "I was always very thrifty, but I don't know where else to cut."

Those who have given up the fight are showing up in the offices of bankruptcy attorneys such as Melvin Kaplan of Chicago. Kaplan's business was off by about 70 percent last year after the new bankruptcy law was passed. But within the last few months, "the phone is ringing off the hook," he said.

"It's brought about by credit cards and foreclosures," Kaplan said. "The credit cards have increased their minimum payments. They have all these teaser rates. They send out these checks and say, 'Use them.' But the first day you're late, you're paying 28 percent."

A credit card crunch could develop even faster if homeowners use those handy cash-advance checks attached to their monthly bill to catch up on delinquent mortgage payments.

Those advances, which may carry 3 percent transaction fees as well as interest rates of 20 percent-plus, will quickly increase the homeowner's financial distress. More than $900 billion in adjustable-rate mortgages are due to reset from next month through December 2008, which means lots of homeowners will be scrambling to come up with extra cash.

"This just scares the daylights out of me," said Williams. "This is a call to consumers to rein in their discretionary spending. Your home was never intended to finance your tennis shoes or allow you to carry an $800 designer bag."

Plastic for basics

Credit cards should be used to pay for only durable items such as appliances and possibly furniture, she said. Consumable items such as groceries and gas should be paid for with cash or a debit card. Never pay your mortgage with a credit card. If you are at the end of your financial rope, consider taking a loan against your 401(k) plan at work, Williams suggested.

Yet there is growing evidence that plenty of consumers are paying for basics with plastic. Discount chain Target Corp. reported its profit from credit cards rose 34 percent in the second quarter, although same-store sales rose by only 4.9 percent.

The credit card industry doesn't seem particularly concerned. It points to the fact that credit card delinquencies were relatively unchanged in the fourth quarter of 2006, at 4.56 percent of accounts, and bad-debt write-offs by card issuers are at a decade low.

Experts also take comfort in the fact that outstanding credit card balances have grown at a relatively modest 6.9 percent annual average over the past 10 years and haven't been in the double digits since 2000, according to the Nilson Report, a California credit card newsletter.

But that doesn't account for the fact that many consumers were rolling their credit card debt into their homes. No one knows precisely what that figure is, but Nilson Report publisher David Robertson estimates it might have added $288 billion to the $880 billion in outstanding credit card debt at the end of 2006. That would mean credit card debt had increased by about 225 percent in the past decade.

Even so, Diane Swonk, chief economist at Mesirow Financial in Chicago, isn't worried.

"Much of the shakeout in credit quality occurred in the 1990s," she said last week. "It's really amazing not to see the default rate for credit cards track mortgage defaults, but that isn't happening."

Not yet.

Ironically, credit card companies often do best right before the industry is about to tank. That's because consumers who are stretched are making only minimum payments and racking up heaps of interest on their unpaid balances, trying to keep all their financial balls in the air. But things can worsen quickly when an unexpected expense arises or their adjustable-rate mortgage payment increases. When people hit a wall, they begin missing payments or not paying anything at all. They eventually may find themselves seeking the advice of bankruptcy attorneys.


Average income shrinking

It would be easy to blame the free-spending ways of consumers for the mess their finances are in. High-priced Louis Vuitton handbags have been adopted by the masses, along with iPods, plasma-screen TVs and sleek mobile phones. Americans have closets jammed with clothes, and they eat out much more frequently. The U.S. savings rate was negative last year.

But the overconsumption explanation may be too one-dimensional.

Americans earned a smaller average income in 2005 than in 2000, the fifth consecutive year of decline, the government reported recently. That occurred even as the cost of health care increased for many U.S. workers, and the burden for funding retirement continued to shift onto their shoulders.

Meanwhile, median home prices in the U.S. have increased from $119,600 in 2000 to $213,900 in 2005, a 79 percent increase, boosted in part by middle-class families that have paid premiums to purchase homes near good schools.

"The real problem lies in the basics: Median-earning families simply don't have enough money to pay the mortgage, buy health insurance, pay for transportation and day care and still put groceries on the table," said Elizabeth Warren, a Harvard law professor and author of "The Two-Income Trap."

"Others can make it day to day, but when a child gets sick or the transmission falls out of the car or there's a cutback in overtime, their cushion is so small that they can't manage even the smallest mismatch between expenses and income.

"Families have been making up the shortfall with credit and someday, perhaps someday very soon, the credit music will stop."

schandler@tribune.com

Financial Times Editorial Comment:The camera lies

Financial Times Editorial Comment:The camera lies
Copyright The Financial Times Limited 2007
Published: August 24 2007 19:53 | Last updated: August 24 2007 19:53


The aphorism “the camera never lies” was never true. Yet photography’s mendacious capabilities have been amplified by the capabilities of image editing software such as Photoshop.

This month, the French magazine Paris Match published photographs of a bare-chested President Nicolas Sarkozy that appeared to have been “improved”. Courtesy of some unknown digital artist, Mr Sarkozy lost his love handles (les poignées d’amour, if you were wondering), thus appearing just that tiny bit more like his muscular counterpart, Vladimir Putin, and a little less like the Michelin Man.

Come to think of it, who can now be so confident that the Russian president’s impressive pectorals – recently on display on a fishing expedition – belong to him and not to Arnold Schwarzenegger? Russian television did, after all, seem to embellish the footage of the submarine voyage under the North Pole with footage from Titanic.

Mr Sarkozy’s mysterious weight loss is controversial less for what it was than for what it exemplified: a cosy relationship with Arnaud Lagardère, the owner of Paris Match.

Yet such alterations, large and small, have been part of photography for decades. Some are subtle but insidious, such as the darkening of O.J. Simpson’s skin in a police mug shot used for the cover of Time magazine. Others have been outright malicious – such as a convincing fake showing John Kerry, then a US presidential hopeful, and Jane Fonda sharing the platform at an antiwar rally in the 1970s. Readers are now more sceptical and forensic tools are being developed to detect fakes.

But there is a broader issue here. Newspapers and magazines will always filter the way their readers perceive reality. If it is not digital manipulation, it is the choice of photograph, the use of quotations, even the decision to report or to remain silent. Readers place their trust in the press. Some will violate that trust and others will do their best to respect it. That was true long before Photoshop.

Financial Times Editorial Comment: Markets need a bit more backbone

Financial Times Editorial Comment: Markets need a bit more backbone
Copyright The Financial Times Limited 2007
Published: August 24 2007 18:05 | Last updated: August 24 2007 18:05


The credit market has stubbed its toe. It hurts, and market players are hopping around cursing and swearing, but so far the noise is out of proportion to the actual damage done. A few subprime lenders in the US have gone bust, but no highly rated bonds have defaulted, and the price of most risky assets is still unusually high. It may seem counter-intuitive, but the market could do with something a little more lingering and painful: a nasty toothache, only cured by an unpleasant trip to the dentist.

Though there is less sense of crisis, money market conditions are still far from normal. Three-month US Treasury bills, for example, still yield far less than the 5.25 per cent base rate. It is still hard to trade or value bonds backed by assets such as mortgages or credit card receivables and, as a result, confidence in the creditworthiness of banks and financing vehicles such as conduits has not been restored.

Central banks need to get the markets moving, and to do so, may have to inject liquidity at maturities such as three months, as well as overnight. But they should do so at penalty rates. There have been excesses in the market over the past few years, deals done at prices that barely reflect the risks involved. These deals may well require surgery, rather than just being patched up with cheap money.

During the recent turmoil, the bonds and loans of highly indebted companies have been volatile, and few such companies can borrow more at present. That makes sense. Companies sponsored by private equity, in particular, were borrowing on outrageously good terms.

Other areas of the market, however, have barely been touched. In emerging markets, for example, Mexico is only paying about 1 per cent more than the US Treasury for medium-term debt, and Colombia is only paying a further 1 per cent on top of that. That is for loans in US dollars, and seems optimistic.

Equities, which have rebounded this week, are little scathed by the debt market kerfuffle. The US is roughly 5 per cent off its level a month ago, the UK has fallen by 6 per cent, and most European exchanges are similar. The Chinese market has been hitting new highs. When adjusted for the economic cycle, stocks still look expensive, with the US market valued at more than 1.8 times its historical average according to estimates prepared by researchers Smithers & Co.

If money markets are disrupted for a month or two there will be harm to the real economy, and central banks need to respond to that. On the other hand, they need to avoid a market bail-out that encourages the kind of relentless risk-taking that has pushed asset markets to today’s precipitous levels. For healthy investment returns in the long run, and to avoid a bigger crash in the future, investors need to feel some pain rather than calling for the nearest ambulance.

US credit turmoil hits London property

US credit turmoil hits London property
By Jim Pickard and Chris Giles in London
Copyright The Financial Times Limited 2007
Published: August 24 2007 21:53 | Last updated: August 24 2007 21:53


Fears are growing that the fallout from the US subprime mortgage meltdown will hit house prices in central London, one of the world’s hottest high-end property markets.

Prices for “prime” homes in the most expensive streets of the capital have risen about 50 per cent in the past two years as a financial services boom has enriched bankers and other professionals in the City of London.

But the global market turmoil unleashed by the US subprime collapse is threatening activity levels at banks in the City, and London property agents are warning that high-end residential prices could suffer as result.

“If there is a downturn in City profits and employment levels, you couldn’t be surprised if central London prices fall,” said Liam Bailey, head of research at Knight Frank, the property consultancy.

The importance of the City to the economy was underlined as official figures showed business services contributed over half the economic growth in the second quarter of the year.

Mr Bailey said there had long been a correlation between the health of the City and London residential prices. The prime London market suffered badly in 2002 and 2003 after prices of technology and telecommunications shares crashed.

John Young of Humberts, a London estate agent, said the recent “uneasiness” in the City had prompted several deals to fall through. Tracy Kellett, founder of BDI Home Finders in London, a buying agent, said some sellers were dropping prices.

David Forbes, a director of agents Savills said it was too early to call the market.

Charles Ellingworth of Property Vision, an adviser to home buyers, said City “tremors” had a “huge impact” on buyers’ confidence. “We are not seeing panic yet but the closest comparison we have is that this feels remarkably like August 1998.”

But in a word of well-deserved caution, given the strength of the rebound after the 1998 financial crisis, he added: “For three months, we didn’t do a deal then suddenly in November it all came back to life and we had the two busiest months ever.”

Additional reporting by Steve Lodge

International Herald Tribune Editorial - White House shell game

International Herald Tribune Editorial - White House shell game
Copyright by The International Herald Tribune
Published: August 24, 2007


The Bush administration's obsession with secrecy took another absurd turn this week. The administration is claiming that the White House Office of Administration is not covered by the Freedom of Information Act, even though there are some compelling reasons to think it is. Like the fact that the office has its own FOIA officer. And it responded to 65 FOIA requests last year. And the White House's Web site, as of Thursday, insisted the office is covered by FOIA.

The fight over the Office of Administration's status is part of a larger battle over access to an estimated 5 million e-mail messages that have mysteriously disappeared from White House computers. The missing messages are important evidence in the scandal over the firing of nine U.S. attorneys, apparently because they refused to use their positions to help Republicans win elections. The Office of Administration seems to know a lot about when and how those messages disappeared, but it does not want to tell the public.

What exactly does the administration want to hide? It is certainly acting as if the e-mail messages would confirm suspicions that the White House coordinated the prosecutors' firings and that it may have broken laws. It is hard to believe the administration's constant refrain that there is nothing to the prosecutor scandal when it is working so hard to avoid letting the facts about it get out.

Fortunately, the White House does not have the final say on the Office of Administration. It made its absurd arguments to a federal judge who can restore some logic to the situation by ruling that the Freedom of Information Act applies, and the data must be turned over.

International Herald Tribune Editorial - The problem isn't Maliki

International Herald Tribune Editorial - The problem isn't Maliki
Copyright by The International Herald Tribune
Published: August 24, 2007


Blaming the prime minister of Iraq, rather than the president of the United States, for the failure of U.S. policy, is cynical politics, pure and simple. It is neither fair nor helpful in figuring out how to end America's biggest foreign policy fiasco since Vietnam.

Prime Minister Nuri Kamal al-Maliki has been catastrophic for Iraq ever since he took over from the equally disastrous Ibrahim al-Jaafari more than a year ago. America helped engineer Jaafari's removal, only to get Maliki. That tells you something important about whether this is more than a matter of personalities. Jaafari, as it happens, was Iraq's first democratically chosen leader under the U.S.-sponsored Constitution.

Continuing in the Jaafari tradition, Maliki's government has fashioned Iraqi security forces into an instrument of Shiite domination and revenge, trying to steer U.S. troops away from Shiite militia strongholds and leaving Sunni Arab civilians unprotected from sectarian terrorism. His government's deep sectarian urges have also been evident in the failure to enact legislation to fairly share oil revenues and the persistence of rules that bar much of the Sunni middle class from professional employment.

The problem is not Maliki's narrow-mindedness or incompetence. He is the logical product of the system the United States created, one that deliberately empowered the long-persecuted Shiite majority and deliberately marginalized the long-dominant Sunni Arab minority. It was all but sure to produce someone very like Maliki, a sectarian Shiite far more interested in settling scores than in reconciling all Iraqis to share power in a unified and peaceful democracy.

That distinction is enormously significant, since President George W. Bush's current troop buildup is supposed to buy, at the cost of American lives, a period of relative calm for Iraqi politicians to bring about national reconciliation. How much calm it has brought is the subject of debate. But just about everyone in Washington now agrees that Maliki has made little effort to advance national unity.

The most recent intelligence report on Iraq concludes that Maliki's government is unable to govern and will become "more precarious" over the next six months to a year. That is why there can be no serious argument for buying still more time at the cost of still more American lives and an even greater cost for Iraqis.

When it comes to fighting Al Qaeda in Iraq, Washington and Baghdad are often at cross-purposes. In the western province of Al Anbar, the American military has registered some gains by enlisting local Iraqi Sunnis to fight against foreign-led Al Qaeda formations. That strategy depends on the sense of Iraqi nationhood among local Sunnis. But the Maliki government prefers to concentrate on fortifying Shiite political power and exploiting the immense oil reserves of southeast Iraq. It is hard to imagine any Shiite government acting very differently.

Washington's failure to face these unpleasant realities opens the door to strange and dangerous fantasies, like Bush's surreal take on the Vietnam war. The real lesson of Vietnam for Iraq is clear enough. America lost that war because a succession of changes in South Vietnamese leadership, many of them inspired by Washington, never produced an effective government in Saigon.

The short-term sequels of American withdrawal from Indochina were brutal, as the immediate sequels of America's withdrawal from Iraq will surely be. But the American people rightly concluded that with no way to win a military victory, there could be no justification for allowing thousands more U.S. troops to die in Vietnam. Those deaths would not have changed the sequels to the war, just as more American deaths will not change the sequel to the war in Iraq. Once the war in Southeast Asia was over, America's domestic divisions healed, its battered armed forces were rebuilt and the nation was much better positioned to deal with the relentless challenges of global leadership.

If Bush took the time to study the real lessons of Vietnam, he would not be so eager to lead America still deeper into the 21st century quagmire he has created in Iraq. Following his path will not rectify the mistakes of Vietnam, it will simply repeat them.

Boston Globe Editorial - Coal's heavy cost

Boston Globe Editorial - Coal's heavy cost
Copyright by The Boston Globe
Published: August 23, 2007


Late in his presidency, George W. Bush finally brought himself to lament America's addiction to oil. But neither he nor leading Democratic politicians have ever rallied the United States to break its addiction to a more lethal form of energy: coal, which supplies half the nation's electricity.

This month, an accident in Utah entombed six miners. Three more died trying to rescue them. Four days after the first accident, three coal miners plunged down a shaft to their deaths in an Indiana mine. In China, which has the world's worst coal-mining fatality record, 181 miners are trapped in a flooded mine shaft with little hope of survival. More than 2,000 Chinese coal miners have died in accidents this year.

Then there are the respiratory conditions, including asthma, that are made worse by the sulfur dioxide, nitrogen oxide, and fine particulates emitted in coal's combustion. Coal-burning power plants are also the principal man-made source of the nerve-system poison mercury. Its buildup in many species of fish has caused the U.S. Food and Drug Administration to advise women of child-bearing age to limit consumption of that otherwise healthful source of protein. Despite such warnings, women in the United States face a 10-to-15 percent risk of bearing children with mercury levels high enough to slow their mental development.

In Appalachia, mining by mountaintop removal is changing the face of the earth. Coal burning is changing the climate of the earth.

Of all the fossil fuels, coal emits the most carbon dioxide, the most common greenhouse gas. Forty percent of America's total of carbon dioxide comes from coal burning, mostly to produce electricity. Gasifying coal before burning it makes it possible to capture and store carbon dioxide emissions, but the process raises the cost of the electricity produced and has yet to be tested at full scale. In the meantime, utilities in the United States and elsewhere continue to build coal-fired plants without controls on carbon dioxide. Last year alone, China built more than 90 major coal-fired power plants.
Today in Opinion

Legislation passed by the U.S. House that would force utilities to start getting more of their power from renewable sources faces an uncertain future in the Senate.

The United States cannot wean itself from coal overnight. But as Congress and all Americans chart the nation's energy future, coal's environmental costs, especially its contribution to global warming, have to be factored into the equation. So do those accidents in Utah, Indiana, and China.

In comparison to coal, no other energy solution - not wind, solar, nuclear, biomass or natural gas - takes as heavy a toll in lives and environmental destruction.

International Herald Tribune Editorial - The CIA report

International Herald Tribune Editorial - The CIA report
Copyright by The International Herald Tribune
Published: August 23, 2007


The CIA inspector general's report on the agency's failures before Sept. 11 was devastating - but not because it showed that America's spies missed the rise of Al Qaeda. George Tenet, then the director of central intelligence, rang the Qaeda alarm. He sent a memo to the entire intelligence community saying that he wanted no effort spared in the "war" with Osama bin Laden. He took on the president's closest advisers to agitate for a strike on a Qaeda base in Afghanistan.

The disturbing thing was that this all happened under President Bill Clinton. When George W. Bush won the White House, Tenet seems to have shifted his priorities. The CIA chief suddenly seemed consumed with hanging on to his job (through such innovative anti-terrorism measures as naming the CIA's headquarters in Langley, Virgina, for Bush's father).

The Bush team was so busy in 2001 trying to upend America's global relationships according to a neo-conservative agenda that the then national security adviser, Condoleezza Rice, did not see any urgency in reports that Al Qaeda was determined to strike in the United States. Tenet later helped hype the "slam dunk" intelligence that Bush used to justify diverting the military from the war of necessity against Al Qaeda in Afghanistan to the war of choice in Iraq.

Another disturbing aspect of the report released this week was its date, June 2005, which neatly sums up Bush's policies on transparency and accountability - he doesn't believe in either. Perhaps it's not surprising that the report wasn't released in 2005. Bush had just given Tenet the Presidential Medal of Freedom for his "pivotal" role in fighting Al Qaeda.

But it's distressing that the CIA director, General Michael Hayden, still says that he would not have released the report if the Democratic-led Congress had not required it. Like his predecessor, Porter Goss, who also quashed the report, Hayden does not seem to have much confidence in the American people.

"It will, at a minimum, consume time and attention revisiting ground that is already well plowed," he said, adding that the inspector general's office cannot do its work unless it is hush-hush.

We could not disagree more. The recommendations of the inspector general were tepid - a panel should decide whether senior leaders should be called to account on relatively narrow issues - and the administration has already refused to comply. But more broadly, the obsession with secrecy and refusal to accept public scrutiny have made a tragic mess of national security policy.

Americans still don't have the full story of how Bush hustled them into a war in which United States soldiers are trapped without hope of victory. Congress has rushed to pass profoundly dangerous changes to the constitutional fabric - the Patriot Act, the Military Commissions Act of 2006, recent changes to the Foreign Intelligence Surveillance Act - without real deliberation.

The good news is that Senator Jay Rockefeller, Democrat of West Virginia, now runs the Senate Intelligence Committee, and he forced the release of this report. He also is pushing the committee to finally finish its investigation into the creation of the myth of Iraqi weapons of mass destruction.

This is not about plowing old ground. Ignoring the mistakes of the past dooms a nation to repeat them. Just look at the comparison Bush drew Wednesday between Iraq and Vietnam. The only lesson he found in the nation's last foreign quagmire of a war was that it ended too quickly.

U.S. confirms telecoms' role in eavesdroppin

U.S. confirms telecoms' role in eavesdropping
By Eric Lichtblau
Copyright by The International Herald Tribune
Published: August 23, 2007


WASHINGTON: The Bush administration has confirmed for the first time that American telecommunications companies played a key role in the National Security Agency's domestic eavesdropping program after asserting for nearly two years that any role played by the companies was a "state secret."

The acknowledgment came in an interview that Mike McConnell, the director of national intelligence, conducted with The El Paso Times last week in which he discussed a number of sensitive issues that the administration has long insisted were classified and has refused to discuss publicly.

He made the remarks in an apparent effort to explain the broadened wiretapping authority that the administration gained from Congress earlier this month in legislation that Democrats are already threatening to revise.

McConnell's office refused to say whether the topics he disclosed, including the role of the telecommunication companies and the number of Americans intercepted through court-approved warrants, had been declassified prior to the interview.

McConnell asserted in the interview, a transcript of which the newspaper released Wednesday, that the public debate surrounding the congressional legislation this month will harm national security by giving terrorists information they can use against the United States.

"Part of this is a classified world. The fact that we're doing it this way means that some Americans are going to die," he said in the Aug. 14 interview.

In acknowledging the role of the telecommunications companies in the program, McConnell said that "under the president's program, the terrorist surveillance program, the private sector had assisted us. Because if you're going to get access you've got to have a partner."

AT&T and several major carriers are now being sued over their alleged role, and McConnell said those lawsuits were a driving force in the administration's efforts to include immunity for telecommunication partners in this month's wiretapping legislation.

"Now if you play out the suits at the value they're claimed, it would bankrupt these companies. So my position was we have to provide liability protection to these private-sector entities," he said.

The measure that Congress passed did not include the immunity protection that the administration had sought.

But McConnell's discussion of the issue is sure to figure in the case now on appeal in a U.S. federal court in San Francisco. In a hearing last week, the appellate judges looked skeptically at the administration's claims that the lawsuits should be thrown out because of a "state secrets" privilege. Lawyers for the government have refused to confirm whether the companies were involved in the surveillance program.

McConnell also sought to rebut claims that the legislation approved by Congress amounted to, in his words, "massive data-mining." The security agency's interception of communications, he said, is "surgical," and he said the number of court warrants approved for interceptions involving people inside the United States totaled "100 or less."

A special court approves more than 2,000 surveillance warrants a year, but officials have never been willing to spell out how many involved Americans.

BP says it won't increase pollution - Move follows outcry sparked by Tribune report, but pledge not to dump more in lake is not legally binding

BP says it won't increase pollution - Move follows outcry sparked by Tribune report, but pledge not to dump more in lake is not legally binding
By Michael Hawthorne
Copyright © 2007, Chicago Tribune
11:47 PM CDT, August 23, 2007


BP backed down Thursday from its plans to dump more pollution into Lake Michigan, but critics want the oil giant to ensure its promises are legally binding.

Responding to a month of unrelenting criticism from politicians and the public, BP pledged it will not invoke provisions of a new permit that allows the largest oil refinery in the Midwest to release significantly more ammonia and suspended solids into the lake.

BP, which promotes itself as environmentally friendly, said it would abide by more stringent limits in its previous permit as the company moves forward with a $3.8 billion expansion of its Whiting, Ind., refinery, the nation's fourth largest.

Indiana regulators on Thursday refused to commit to making BP's new pledge legally binding. But the decision is a victory for opponents who argued the permit undercut decades of efforts to clean up Lake Michigan, a magnet for sport fishing and the source of drinking water for Chicago and scores of other communities.

Bob Malone, chairman of BP America, flew to Chicago to deliver the news personally to Mayor Richard Daley, one of several politicians who said the company's initial plans were unacceptable to the public.

Malone vowed BP would search more thoroughly for alternatives to keep pollution out of the lake. He also threatened to scuttle the expansion project if an acceptable solution could not be found, though a company spokesman later said that was unlikely.

"Ongoing regional opposition to any increase in discharge permit limits for Lake Michigan creates an unacceptable level of business risk for this $3.8 billion investment," Malone said in a statement. "We are going to work hard to make this project succeed."

City officials gave BP a report last week listing technologies in use at other refineries that dramatically reduce ammonia and solids pollution. The report, prepared by Tetra Tech Inc., a leading engineering firm, concluded that BP could upgrade the Whiting refinery's water treatment plant for less than $40 million.


Political pressure
"We are pleased they have made some changes, but we are still going to work with them," Daley said after a 45-minute meeting with Malone at City Hall.

At the behest of U.S. Reps. Judy Biggert (R-Ill.) and Pete Visclosky (D-Ind.), BP is paying Argonne National Laboratory and Purdue University's Calumet Water Institute to evaluate more aggressive treatment technologies.

When BP secured its new water permit, federal and state regulators agreed there was not anything the company could do to keep more pollution out of Lake Michigan. Based largely on what BP told them, regulators concluded there is not enough room at the 1,400-acre refinery for the necessary equipment, according to public documents.

The permit allows BP to put an average of 1,584 pounds of ammonia and 4,925 pounds of suspended solids into the lake every day. The amount of solids, tiny sludge particles that pass through water treatment filters, is the maximum allowed under federal guidelines.

Citing past performance, company officials said the refinery likely would release less pollution than that. But critics said the permit sets a bad precedent, noting that the permit allowed 54 percent more ammonia and 35 percent more solids to be discharged.

As recently as Wednesday, BP had justified the additional pollution by noting the expansion would create 2,000 construction jobs and 80 permanent jobs. Shortly after a hearing before an Indiana legislative committee, though, the company signaled that it would relent to public pressure and change its plans.

"The public is ahead of all of us," said U.S. Rep. Rahm Emanuel (D-Ill.), who had been planning a campaign to get BP's top investors involved in the opposition. "They don't want more pollution in their lake."

Few complained about the permit while it was under consideration earlier this year, something critics said could be attributed to paltry outreach by BP and Indiana regulators. But following a Tribune story about the project in mid-July, opponents gathered more than 100,000 petition signatures, and a bipartisan group of politicians and celebrities urged BP to back off.

Among the opposition, Illinois Gov. Rod Blagojevich threatened to sue Indiana, U.S. Rep. Mark Kirk (R-Ill.) prepared legislation that would strip BP of lucrative tax breaks, and U.S. Sen. Dick Durbin (D-Ill.) and Emanuel dipped into their campaign funds to buy radio ads asking people to sign an online petition.

The U.S. House of Representatives last month voted 387-26 to approve a non-binding resolution urging Indiana regulators to reconsider the permit. And U.S. Sen. Barack Obama (D-Ill.) and Emanuel called for congressional hearings into how the permit squares with provisions in the Clean Water Act.

Opponents even enlisted Eddie Vedder, the lead singer of Pearl Jam, who called for a BP boycott with a "Don't go BP Amoco" protest song at Lollapalooza earlier this month.

"BP is hearing loud and clear that they need to do something different," said Cameron Davis, president of the Alliance for the Great Lakes, an environmental group that formally appealed the permit. "The public doesn't want business as usual."

The company's request to dump more chemicals into the lake runs counter to a provision in the Clean Water Act that prohibits any downgrade in water quality, even if discharge limits are met.

To get around that rule, Indiana regulators allowed BP to install equipment that dilutes its wastewater with clean lake water about 200 feet offshore. BP is the first company in Indiana allowed to use such a "mixing zone" in Lake Michigan, according to state records. Federal regulators increasingly have frowned on the method, which they describe in public documents as a threat to human health and to fish and wildlife.

Permit unchanged
Neither BP nor Indiana officials would commit Thursday to adjusting the permit to legally lower the acceptable amount of ammonia and suspended solids released into the lake. Both the company and the state also said there will be no changes to another provision in the permit that exempts BP from tough limits on mercury pollution until 2012.

Scott Dean, a BP spokesman, said it would be up to the Indiana Department of Environmental Management to alter the permit. But state officials said the company would first have to request the changes.

"The permit as issued is in effect," said Jane Jankowski, a spokeswoman for Indiana Gov. Mitch Daniels. "If the company seeks a modification, it could be subject to change like any other permit."

mhawthorne@tribune.com

Why the Republican era may be ending

Why the Republican era may be ending
By Edward Luce in Washington
Copyright The Financial Times Limited 2007
Published: August 23 2007 19:31 | Last updated: August 23 2007 19:31


At the state agricultural fair in Iowa this month, Republican presidential   candidates competed with newborn piglets for the attention of thousands of passers-by. The squealing piglets won hands down.

Whether they were munching pork on a stick, visiting the life-size cow made of butter or grilling meat in photo-ops, most of the candidates were given the cold shoulder.

The Republican party gets a similar reception across America these days. Barack Obama, the 45-year-old Democratic candidate, has attracted crowds of up to 25,000. Mitt Romney, the leading Republican candidate in Iowa, could barely muster 40 listeners when he spoke from the Des Moines Register soapbox at the annual fair.

Whether judged by their anaemic showing in the opinion polls, the unpopularity of George W. Bush or in-fighting among social conservatives, the Republicans face a bleak electoral horizon in 2008. Many observers – including some Republicans – go so far as to pronounce the end of the party’s period of electoral dominance, which dates from Ronald Reagan’s presidential victory in 1980 or possibly back to 1968, when Richard Nixon was first elected to the White House.

They argue that the era of what political scientists call Republican realignment ended when the party was defeated in mid-term congressional elections last year and that the funeral will be held in 2008.

Most of the evidence looks bad for the Republicans. In opinion polls, 50 per cent of Americans identify with the Democratic party against 35 per cent for the Republicans. In campaign finance, congressional Democrats are raising twice as much as their Republican rivals. Likewise, the Democratic presidential candidates have raised $100m (£50m, €74m) more than their Republican counterparts since January.

But these are just numbers. The more abiding problem is structural. Although in intensity and duration the Republican realignment did not rival the party’s ascendancy in the generation that followed the civil war, or the Democratic hegemony that emerged from the Great Depression, it qualifies as a period of dominance.

Only once since 1964 has a Democratic presidential candidate won more than 50 per cent of the popular vote (Jimmy Carter in 1976, who was swept out four years later). In contrast, Republicans have won more than half the vote in six presidential elections in the last 40 years.

According to Kevin Philips, author of the seminal 1969 book The Emerging Republican Majority, which correctly forecast the Republican party’s takeover of the southern states after President Lyndon Johnson’s support for black civil rights, the latest period of Republican ascendancy ran out several years ago.

“If Bill Clinton had been a more effective president after 1992 and Al Gore had been a better candidate in 2000 then we would now be dating the Republican era as lasting from 1968 to 1992,” said Mr Philips in an interview. “The trends that sustained the Republican realignment have run their course.”

Of these, the most important was the Republican takeover of the south in the 1970s and 1980s which, when added to Republican dominance of most of the heartlands, reduced the Democrats to a regional party of the north-east and north-west.

Last year’s election reversed that picture, shrinking the Republican congressional showing primarily to the south and sweeping out what remained of the more moderate “Rockefeller Republicans” (the party’s liberal wing) in the north-east.

“We look dangerously close to being a regional party – with the south and then parts of the south-west and Midwest,” says Vin Weber, a former congressman who now heads Mr Romney’s campaign policy team. “Our challenge has to be to win elections from the centre again.” Perhaps most troublesome for Republicans, Democrats last year stormed their strongholds in much of the west – the most rapidly growing American states, which include Arizona, New Mexico and Colorado. Not coincidentally, the Democrats have chosen to hold next year’s presidential convention in Denver, Colorado. for the Republicans to retain the White House or regain control of the Senate.

In his recent memoirs, Bill Clinton said that Al Gore lost the 2000 election because of his opposition to guns. The Democrats appear to have learnt that lesson. In a Senate vote following Hurricane Katrina in 2005, many Democrats, including Mr Obama although not Mrs Clinton, voted to permit residents (in this case of New Orleans) to keep their firearms during a state of emergency. That would have been unthinkable 10 years ago.

Likewise, the Democratic party fielded many pro-gun candidates in the 2006 Senate races, including Jim Webb in Virginia, who was a Reaganite in his younger days. “The second amendment [upholding the right to bear arms] is in its strongest condition in many decades,” says Wayne LaPierre, head of the National Rifle Association, in an interview. “One of the biggest reasons for this is that Democrats have recognised there is much to lose by opposing it.”

The Democratic party has also neutralised some of its vulnerabilities on issues that matter to religious voters, such as abortion, gay marriage and secularism. In 2004 John Kerry, the Democratic presidential candidate, won just 22 per cent of the white evangelical vote, according to exit polls, compared with the 33 per cent Bill Clinton won in the 1990s. If Mr Kerry had sustained Mr Clinton’s share he would have won the state of Ohio and would now be in the White House instead of Mr Bush.

More encouragingly for Democrats, the Christian coalition looks like it is fragmenting. Not only are evangelicals and Catholics unable to unite behind one Republican candidate, but the movement as a whole appears to be losing steam. Some evangelicals are now more interested in global warming than abortion. Other Christian groups have lost leaders to death or scandal and do not seem able to find replacements.

On many of the “values issues” that have traditionally benefited Republicans, the tide seems to be going the Democratic way. “If you look at the attitude of Americans then the younger the demographic, the larger the support for gay civil union or the woman’s right to choose,” says Tom Schaller, a political scientist at the university of Maryland. “On embryonic stem cell research, which is probably the biggest values issue of the day, Americans of all age groups are in favour.”

Likewise, Republican candidates are finding it hard to ignite enthusiasm among their supporters with traditional rallying cries of fiscal conservatism, low taxes and strong defence. Partly this is because of Mr Bush’s record of big government conservatism, which has inflated America’s national debt on hefty new spending programmes – not all of them related to national security – without addressing America’s looming deficits for Social Security and healthcare.

Chris Edwards, an expert on tax and budget issues at the Cato Institute, the libertarian think-tank, says Republicans need to demonstrate substance behind their fiscal rhetoric given that they are labouring under Mr Bush’s shadow.

Most of the Republican presidential candidates claim to be “Reagan Republicans”. But, so far, Mr Edwards has seen little evidence of genuinely Reaganite policies on the campaign trail. “Reagan gave specific details of the departments and programmes he wanted to close,” he says. “Today’s candidates compare themselves to Reagan but they don’t want to take the tough decisions he made.”

The burden of the Iraq war is even harder for Republicans to escape. Because of the ardent pro-war sentiments of a significant rump of the party base, none of the candidates can afford to distance themselves too much from Mr Bush’s military surge in Iraq during the party primary elections. That will make it much harder for whichever Republican wins the nomination to tack back to the centre during the general election campaign.

Some Republicans see signs that Mr Bush’s surge may be yielding results. But given the state of public opinion, which has moved decisively against the war in the last two years, it will be very hard for that argument to sustain force on the ground in the presidential campaigns.

“What you will probably see is the Republican nominee becoming much more critical of Mr Bush when the primaries are over,” says an adviser to one of the Republican campaigns. “At the moment there is a delicate balancing act but it won’t last much beyond February.”

The departure at the end of this month of Karl Rove, Mr Bush’s electoral “boy genius” who is returning to his home in Texas, also brings into sharp relief the failures of the party’s recent attempts to extend the gains of the Nixon and Reagan era to create a permanent Republican majority. To many Republicans that aspiration now looks like hubris.

Mr Rove’s strategy of enthusing the Republican base helped the party to achieve its historic mid-term congressional victory in 2002, which was extended in 2004. But the same base now looks despondent and fragmented. Much of the Rove magic, including the micro-targeting of voters and “get out the vote” effort that sprung from it, have been copied by the Democrats.

“Karl Rove pioneered techniques in Texas and then on the national stage that took the Democrats by surprise,” says Jim Lindsay, a political scientist at the University of Texas in Dallas. “But techniques only give you a temporary advantage, which already appears to have faded.”

The other piece of Mr Rove’s strategy was to expand the Republican base by targeting America’s fastest-rising demographic segments – the Hispanic community and retiring babyboomers. Mr Rove’s logic was impeccable. But the execution proved faulty.

Mr Bush won 40 per cent of the Hispanic vote in 2004. But that share fell to just 29 per cent in the 2006 congressional elections following a backlash by conservative Republicans against liberal immigration reform, which is now also consuming the Republican presidential campaign.

Likewise, Mr Rove’s dreams of setting up private Social Security accounts to give Americans control over their retirement savings came to naught and frightened many senior citizens. “Both Hispanics and senior citizens are moving in the Democratic direction,” says Mr Lindsay.

What can a Republican presidential hopeful do to overcome these disadvantages? Some Republican optimists are pinning their hopes on a slip-up by the Democrats, perhaps by overreaching in their opposition to the Iraq war or by nominating the wrong presidential candidate. They point out that the Republicans lost the 2006 election because of Mr Bush’s unpopularity and because of the party’s reputation for corruption on Capitol Hill. But the Democrats did not win it, they claim.

But even if many Republican woes can be ascribed to the administration’s unpopularity rather than to a deeper malaise, Mr Bush will still be in the White House next year. Only partly in jest, Mr Philips offers the following advice. “Republicans should sit down and stick pins into voodoo dolls of Mr Bush,” he says. “If someone genuinely charismatic comes along and breaks out of the box then Republican fortunes could change. At the moment that is hard to see.”

DEMOCRATS CAUTION AGAINST COMPLACENCY

Michael Dukakis, the losing 1988 presidential candidate, might be an unlikely adviser to Democratic 2008 hopefuls. But in a speech posted on YouTube this week, the former Massachusetts governor struck a chord with the growing number of Democrats who are worried their party may be getting too complacent about its prospects of winning next year.

Criticising unnamed Democratic colleagues for focusing only on states they believe they can win – the so-called “red-state, blue-state” division between Republicans and Democrats – Mr Dukakis argued that much of America was in fact purple. Democratic candidates should aim higher.

“Quite frankly our colleagues nationally just don’t get it,” said Mr Dukakis. “We have to have a 50-state campaign. Oklahoma is now Democratic, Colorado is now Democratic – we’re making gains in Utah, I kid you not.” Failure to organise more ambitiously, he implied, would leave the Democratic nominee vulnerable to events.

“Some crazy guy will blow up a building with three weeks to go [to polling day], and then we’ll be back in Bush-land again,” he said. “You know what’s going to happen – ‘national security, Democrats are weak on defence’ – we know the way they play the game.”

Diplomatic or not, many took Mr Dukakis’s remarks as a wake-up call for those assuming a new era of Democratic dominance is set to replace the fading Republican one. A more likely scenario, say political analysts, is that America is entering a period where neither party is likely to predominate at the national level for long even if the Democrats have far better prospects in the near future. “My view is that we’re entering a political limbo-land where everything is open to contest,” says Tom Schaller at the University of Maryland.

Those who worry about the Democratic party’s ability to shoot itself in the foot worry most about its political tactics over the Iraq war. Although the war is deeply unpopular with the American public and although that sentiment contributed to the Democratic congressional victory last November, much the same could have been said about the Vietnam war in the early 1970s.

A Democrat-controlled Congress helped force the US military withdrawal from Vietnam in 1973. Yet the party was punished for years afterwards by the electorate for the perception that it was unpatriotic and prone to disrespecting – and, on the leftist fringes, even burning – the American flag.

Many fear that the party could once again be overreaching itself in preparation for next month’s congressional testimony by David Petraeus, the US military commander in Iraq, who will give a progress report on Mr Bush’s “new way forward” in Iraq.

In an uncomfortable echo of the bitter rhetoric of the Vietnam era, Harry Reid, the Democratic Senate majority leader, was accused by Republicans earlier this year of hoisting “the white flag of surrender” when he pronounced that the war in Iraq was already lost – a remark that proved hard to qualify.

This week, many Democrats attacked Brian Baird, a fellow Democratic lawmaker representing a district in the state of Washington, after he returned from a fact-finding visit to Iraq. “There is no question that the political situation in Iraq is still a challenge,” Mr Baird said. “But it is my belief that discussion of premature withdrawal makes it more difficult for the political situation to resolve itself constructively.”

The second Democratic vulnerability could be in its choice of presidential candidate. Such is her lead in the polls, most Democrats assume that Hillary Clinton will probably take the nomination early next year. Many have praised Mrs Clinton’s tightly run and well-funded campaign.

But there are also concerns about the possibility of a backlash against political dynasty. If Mrs Clinton became president in 2009, that would raise the prospect of a Bush or a Clinton in the White House for 32 unbroken years (including George Bush senior’s eight-year stint as vice-president) – and 36 years if she were re-elected.

Some Republicans – including, many suspect, Karl Rove – are hoping that Mrs Clinton becomes the Democratic nominee, as they believe this would improve Republican prospects. The former first lady’s unfavourable ratings – the proportion of Americans expressing a negative view – are stubbornly higher than for other Democratic candidates. Equally, however, Mrs Clinton inspires intense loyalty in those who support her.

It may be that Mrs Clinton sails through the nomination and then wins the general election next year. But a lot would depend on her opponent. The same would hold for any Democratic nominee. “The point is that American politics is wide open again,” says Jim Lindsay of the University of Texas. “It is hard to see any permanent majorities on the horizon.”

Subprime worries hit Bank of China shares

Subprime worries hit Bank of China shares
© Reuters Limited
Aug 24 03:58:29


Shares in Bank of China and its subsidiary BOC Hong Kong slid on Friday amid worries that higher-than-expected exposure to sub-prime mortgages would eat into their earnings.

Bank of China shares extended opening losses and were down 6.11 per cent at HK$3.84, while BOC Hong Kong slid 4.2 per cent to HK$18.74. The Hang Seng Index was down 1.21 per cent.

UBS and Morgan Stanley both cut their ratings on BOC Hong Kong, the city’s second-biggest lender, citing concerns over its sub-prime exposure.

State-controlled Bank of China said late on Thursday that it held US$8.965bn in U.S. subprime mortgage-backed bonds and US$682mn in collateralised debt obligations at the end of June.

A meltdown in the U.S. subprime mortgage market has triggered a global credit squeeze and roiled markets over the past several weeks.

Bank of China, which posted a forecast-beating 52 per cent rise in first-half net profit, said it had set aside provisions of 388mn yuan and 758mn yuan, respectively, to account for potential losses.

”The size of the subprime exposure is bigger than expected,” said a banking analyst who declined to be named.

Rival Industrial and Commercial Bank of China, the world’s largest lender by market value, revealed on Thursday that it holds US$1.23bn in mortgage-backed securities, accounting for 4.32 per cent of its foreign exchange investment portfolio.

The state-controlled bank said it had incurred no loss on the portfolio, which accounts for 0.0012 per cent of its total assets.

ICBC shares were down 2 per cent on Friday morning.

Bank of China’s subprime bonds account for 3.51 per cent of Bank of China’s securities portfolio, while the CDOs account for 0.27 per cent of the total.

Morgan Stanley and UBS on Friday downgraded BOC Hong Kong by one notch to equal-weight and neutral, respectively, saying the stock was likely to be weighed down by its investment in sub-prime mortgages.

BOC Hong Kong disclosed it has US$1.6bn invested in sub-prime mortgage related asset-backed securities, Morgan Stanley said.

”We expect some losses ahead,” it said.

UBS also said the bank’s trading income was disappointing. It cut its price target for the bank to HK$20.80 per share from HK$21.70.

BOC Hong Kong on Thursday reported a 5.3 per cent rise in interim net profit to HK$7.47bn.

But Steve Cheng, associate director at Shenyin Wanguo, said the selling pressure on Bank of China would soon pass.

”The policy favouring the bank in the individual qualified domestic institutional investor scheme will attract buyers but some people may sell off China financials because of BOC. But to see the actual impact (of its exposure), we’ll have to wait,” he said.

Bank of China said it would begin accepting applications from mainland individuals next week interested in investing in Hong Kong-listed securities for the first time under a government pilot programme.

Its branch in the northern port city of Tianjin has been designated the initial gateway for the programme, which will be expanded nationwide and is expected to prop up Chinese stocks listed in Hong Kong over the longer term.

US intelligence is gloomy over Iraq

US intelligence is gloomy over Iraq
By Demetri Sevastopulo in Washington
Copyright The Financial Times Limited 2007
Published: August 24 2007 03:00 | Last updated: August 24 2007 03:00


The Iraqi government will continue to ‘struggle’ to achieve political reconciliation over the next year despite prospects for a moderately better security environment, according to a new US intelligence report.

The director of national intelligence yesterday re-leased the latest national intelligence estimate on Iraq, which said the US surge had helped ‘check for now’ the steep escalation in violence that gripped Iraq last year.

But the NIE concluded the Iraqi government would have difficulty implementing the political reconciliation that is considered key to bringing long-term stability to Iraq.

‘We assess, to the extent that coalition forces continue to conduct robust counter-insurgency operations and mentor and support the Iraqi security forces, that Iraq's security will continue to improve modestly during the next six to 12 months,’ said the report.

‘But . . . levels of insurgency and sectarian violence will remain high and the Iraqi government will -continue to struggle to achieve national-level political reconciliation and improved governance.’

The report comes as US politicians grow increasingly impatient with the government of Nouri al-Maliki, the Iraqi prime minister.

Carl Levin, the Michigan Democrat who heads the Senate armed services committee, this week called for the ousting of Mr Maliki.

‘Political and security trajectories in Iraq continue to be driven primarily by Shia insecurity about retaining political dominance, widespread Sunni unwillingness to accept a diminished political status, factional rivalries with the sectarian communities resulting in armed conflict, and the actions of extremists such as AQI (al-Qaeda in Iraq) and elements of the Sadrist Jaish al-Madhi militia that try to fuel sectarian violence,’ the NIE concluded.

The intelligence assessment found that while tribal Sunni sheiks working with US forces had reduced the capabilities of AQI, that co-operation had not translated into wider support for the Shia-dominated Iraq government.

The last NIE on Iraq, released in February,concluded that the term ‘civil war’ applied to parts of the conflict, and warned that the Iraqi government would be hard-pressed to achieve reconciliation given the country's sectarian divides.

The report released yesterday said that ‘developments in Iraq are unfolding more rapidly and with greater complexity’ than wasenvisioned in the February NIE.

The NIE also assessed that ‘the Iraqi government will become more precarious over the next six to 12 months because of criticism by other members of the major Shia coalition . . Grand Ayatollah Sistani, and other Sunni and Kurdish parties’.

Sunni 'killed'

By Steve Negus, Iraq correspondent

Al-Qaeda-linked fighters attacked a Sunni village in Diyala on Thursday, killing 15 people, police and witnesses quoted by agencies said. The reports said that 10 attackers were killed in the fighting in the village of Ibrahim al-Yahya, which began when militants detonated a bomb at the house of a local anti-al-Qaeda tribal sheikh, killing him and a member of his family.

Pressure growing to ease subprime crisis

Pressure growing to ease subprime crisis
By Jeremy Grant in Washington
Copyright The Financial Times Limited 2007
Published: August 24 2007 03:33 | Last updated: August 24 2007 03:33


The growing political importance of the subprime mortgage crisis was underscored on Thursday when Chris Dodd, Senate banking committee chairman, called on the Bush administration to speed up efforts that could allow the Federal Housing Administration to help.

The FHA is a 1930s-era agency that is the largest mortgage insurer in the world. The Treasury is already working with the Department of Housing and Urban Development (HUD) on measures that could allow the FHA to help more subprime borrowers with refinancings.

This would help the many borrowers who are in the autumn facing a switch in their payments at low introductory, or “teaser”, rates to more expensive rates.

Mr Dodd has for weeks been urging the administration – without success – to ease problems in the mortgage market by agreeing to lift caps on the mortgage portfolios of Fannie Mae and Freddie Mac, the two big “government-sponsored” lenders, which buy mortgages and package them into securities.

By now urging faster action on FHA reform – an issue that has the administration’s support – Mr Dodd has highlighted how some Democrats appear to be taking as much political advantage of the issue as they can.

Bill Gross, a prominent US fund manager, has also attracted attention by calling on the Bush administration to do more to help struggling borrowers.

In a letter to Henry Paulson, Treasury secretary, and Alphonso Jackson, his counterpart at HUD, Mr Dodd welcomed statements by Mr Paulson that many families caught up in the subprime crisis had been victimised by “bad lending practices”. He said: “I understand that the staff of [the two departments] are discussing ways to use the FHA single-family insurance programme to help borrowers escape these mortgages by refinancing them into more affordable FHA loans. I want to urge you to move expeditiously in this direction by making any administrative changes to the programme that are needed to achieve this worthy goal.”

By contrast, efforts by top Democrats such as Mr Dodd to persuade the Bush administration to allow higher caps on Fannie and Freddie’s mortgage portfolios have so far fallen on deaf ears.

Federal Financial Analytics, a Washington-based consultancy, said it believed it was “looking more and more likely that the administration will give the GSEs some leeway on their portfolios, although not the general increase Fannie has been seeking”.

Sentinel makes Chapter 11 filing - Clients sue over discount asset sale

Sentinel makes Chapter 11 filing - Clients sue over discount asset sale
By Becky Yerak and Robert Manor
Copyright © 2007, Chicago Tribune
August 18, 2007


Sentinel Management Group Inc. filed for Chapter 11 bankruptcy Friday, less than a week after the Northbrook-based cash-management firm halted redemptions from investors because of market volatility.

Its list of creditors with the 20 largest unsecured claims includes four Chicago-area firms: SMW Trading Co., Jump Trading LLC, Fortis Clearing Americas and Stone Capital Group Inc.

Chapter 11 allows a business to operate as it reorganizes its finances through a court-approved plan.

According to the filing, Sentinel has between 200 and 1,000 creditors and assets and liabilities of more than $100 million.

Numerous other local creditors listed include Alaron Clearing LLC, the Chicago Bears, the Chicago Tribune and Levy Restaurants.

"The purpose of the filing is to give the company the protections of Chapter 11 so they can continue to serve the interests of their customers," said Ronald Barliant, the attorney representing Sentinel.

The bankruptcy filing came as clients began hitting Sentinel with lawsuits, accusing it of selling assets too cheaply and without approval. On Thursday it was revealed that Sentinel had sold hundreds of millions of dollars in assets to giant Chicago hedge fund Citadel Investment Group.

Penson GHCO, the futures-clearing subsidiary of publicly traded Penson Worldwide Inc. of Dallas, filed suit late Friday afternoon in Cook County Circuit Court against both Sentinel and Citadel Investment Group, claiming that Sentinel sold assets to Citadel at discounts of up to 30 percent of face value.

Penson Worldwide, which went public in May 2006, said it would suffer an after-tax loss of $6.5 million if Sentinel's sale of certain assets isn't reversed.

Sentinel declined to comment Friday, and a Citadel spokeswoman could not be reached.

Earlier Friday, Penson said in a statement Sentinel sold some of its assets without approval and in breach of contract.

"To liquidate such a portfolio at such a discount to market value constitutes, among other things, a reckless disregard of industry fair practice," Penson President Daniel Son said in a statement Friday, calling it a "hastily arranged sale of Sentinel's assets at unfair prices."

Futures brokers said they used Sentinel to temporarily stash client money. Before the portfolio sale to Citadel it managed $1.6 billion and mostly served futures brokers, futures hedge funds, rich individuals and institutions.

Sentinel promised to obtain the best interest possible consistent with safety and to make money readily available.

On Monday, however, the company halted redemptions, citing instability in credit markets.

Also Friday afternoon, a U.S. district judge blocked the sale of some of the $312 million in Sentinel assets to Citadel, granting a temporary restraining order that applied only to Farr Financial Inc. and Velocity Futures.

The two Sentinel clients argued before U.S. District Judge Ronald Guzman that they would suffer if the sale of Sentinel's assets were allowed to go through at the discount Citadel expected to pay.

Guzman's order remains in effect until Aug. 31. The order prevents Sentinel from transferring or selling any interests Farr or Velocity placed with Sentinel.

"We think this transaction is closed," said Steven Roeder, a lawyer representing Citadel.

In an interview afterward, Roeder said the Farr and Velocity assets account for a "very small" portion of the sale.

After the hearing, Robert Trizna, a lawyer representing Farr, said his client has been kept in the dark for days.

"The next week or two will be very interesting as we discover what went on," Trizna said. "What did Citadel know and when did it know it?"

Citadel had bought $312 million in securities from Sentinel this week, less than the approximately $500 million originally thought to have changed hands.

Lawyers representing Sentinel clients have complained that Sentinel could have gotten a better price.

"It is disgraceful," said Jeff Barclay, who represents futures brokers. "This is a terrible transaction."

Lawyer Jeffrey Schulman, who represents some non-broker clients of Sentinel, said he knows nothing beyond two letters sent by Sentinel. Sentinel's "Web site is down and phone calls go nowhere," he said.

Meanwhile, the fate of an unknown number of Sentinel's clients remains in limbo.

"We know nothing," said one futures broker. "Nobody will talk with us."

The broker said his firm had more than $10 million on deposit with Sentinel. On Tuesday, as news of Sentinel's problems spread, he directed that the assets in his account be transferred to another institution.

"The answer we got is 'We never have done that,'" he said.

On Wednesday, Sentinel wasn't answering the phone, so the firm dispatched a worker to Sentinel's Northbrook office.

"He was turned away at the door," the broker said.

----------

byerak@tribune.com rmanor@tribune.com

Top Republican says bring troops home

Top Republican says bring troops home
By Demetri Sevastopulo in Washington
Copyright The Financial Times Limited 2007
Published: August 23 2007 18:16 | Last updated: August 24 2007 01:37


John Warner, the most influential Republican senator on military affairs, on Thursday called on President George W. Bush to bring some troops home from Iraq by Christmas to send a “sharp and clear message” to the Iraqi government.

“The Iraqi government under the leadership of prime minister [Nouri al-] Maliki have let our troops down,” he said.

Mr Warner, who has just returned from an Iraq visit, spoke hours after the Director of National Intelligence released the latest National Intelligence Estimate on the country, which concluded that the Baghdad government would continue to “struggle” to achieve political reconciliation.

He said Mr Bush should send a clear message that the US was serious about wanting the Iraqi government to take more responsibility for the future of the country. “I think no clearer form of [message] than if the president were to announce on [September] the 15th that, in consultation with our senior military commanders, he’s decided to initiate the first step in a withdrawal of our forces,” said Mr Warner.

“I say to the president, respectfully, pick whatever number you wish...5,000 could begin to redeploy and be home to their families and loved ones no later than Christmas of this year.”

When Mr Warner last year said the situation in Iraq was “going sideways”, it spurred other Republicans to distance themselves from White House policy.

“If George W. Bush has lost John Warner, then he is in deep, deep trouble,” said Larry Sabato, a political science professor at the University of Virginia. “It is [also] a very important moment for the Republicans.”

Gordon Johndroe, a White House spokesman, said the administration would “wait until Ambassador Crocker and General Petraeus return from Baghdad and make their report”.

Mr Warner said the NIE had confirmed his view that the Iraqi government was not succeeding in achieving the political reconciliation considered crucial for the long-term stability of Iraq.

The NIE, which represents the views of the whole US intelligence community, said “levels of insurgency and sectarian violence will remain high and the Iraqi government will continue to struggle to achieve national-level political reconciliation and improved governance”.

The NIE concluded that the US surge had helped “check for now” the steep escalation in violence that gripped Iraq last year.

The report comes as US politicians grow impatient with the Iraq government.

Mr Bush showed his frustration this week when he refused to endorse Mr Maliki. Carl Levin, the Michigan Democrat, this week called for the dismissal of Mr Maliki.

The NIE concluded that “political and security trajectories” in Iraq continue to be driven by, among other factors, Shia insecurity, widespread Sunni unwillingness to accept a diminished political status, factional rivalries and al-Qaeda actions.

Nervous columnist issues big disclaimer By Garrison Keillor

Nervous columnist issues big disclaimer By Garrison Keillor
Copyright © 2007, Chicago Tribune
August 22, 2007


They put Jose Padilla away for having filled out an application form to attend an Al Qaeda training camp, a milestone in criminal-conspiracy law that makes me wonder about you readers and what you might do that some ambitious prosecutor could trace back to something I wrote 16 months ago.

I'm serious. Here we are, consorting on the page, in the old conspiracy between Author and Unnamed Others, my hand on your shoulder, whispering stuff, speaking freely -- including things I may not have thought through a-l-l-o-f-t-h-e-l-e-g-a-l-i-m-p-l-i-c-a-t-i-o-n-s-o-f -- so let me just say this: I accept no liability for whatever you may or may not do after reading my column. It has nothing to do with me. Zero. Zilch.

You readers know me and I don't know you. This now makes me nervous. We are invisibly linked through words I have written, and yet the meaning of those words, as determined by a jury of 12 men and women good and true, could be far, far from what I intended and as I sit there at the defense table in the Miami courtroom, smelling the musky cologne of your idiot attorney, looking past him at you, you wretched cretin, as the linguistics expert for the State, a tall bunheaded woman with a doctorate in literary deconstruction, testifies that the subtext of my column in question was a command that you plant an explosive device in the heel of your cowboy boot and try to run through airport security hollering "I'm a-comin', Mama!"

I know people who went to prison for protesting the war in Vietnam and it is nothing to be taken lightly. It can mess with a person's mind and not every mind survives the message. You would like to imagine that you would be heroic like Nelson Mandela or Voltaire, but I am not looking for opportunities to be heroic. I am 65, thank you very much, and very, very uninterested in spending time in prison. My plan is to moulder gently in my own home and read the books I wrote term papers about as an English major and dandle my grandkids and at some point write a heart-warming memoir about my years in broadcasting.

So whatever weirdness you are plotting, stop it right now. Put those liquids or gels away. Stop going to the airport and asking strangers to carry packages aboard the aircraft. Stop offering to pack their bags for them. Whatever suspicious things you are doing, stop it right now. Don't look away as if I were talking to somebody else. I am talking to YOU. Yes. You.

I don't know you. I never knew you. I never asked you to read this column. Isn't that right?

If so, sign here: _________.

DATE: _____.

Anybody who does not sign is hereby assumed not to be a reader of this column and therefore no responsibility of mine. Tell your lawyer to go bark up some other tree.

Back when I was a child, thanks to my rigorous upbringing that included stories about Boys From Good Homes Who Fell In With Bad Company, I assumed that I would wind up in a federal penitentiary, and that is why I didn't go into engineering or medicine or law, professions that give you some definite criminal capabilities. Instead I went into the paragraph profession, but now that conspiracy has become such a useful all-purpose tool for prosecutors, I feel rather exposed. What if I had written years ago that the World Trade Center was ugly, which it was, and I wish it didn't exist, and what if that paragraph had been found paper-clipped to the Al Qaeda application?

Ever since that dreadful September day, the current vice president has been obsessed with the idea that someone somewhere must be prevented from doing the horrible thing they may or may not be about to do and if the Constitution and common law and common sense must be crunched underfoot in order to prevent that, then so be it. Where there is smoke, there is fire. This, however, is rough on smokers, if the Fire Department is called out whenever someone exhales. And that's what happened to Mr. Padilla. He lit up a stogie and was nailed for contemplating arson. God forgive us our zealous cruelty.

----------

Garrison Keillor is an author and host of "A Prairie Home Companion." E-mail: oldscout@prairiehome.us

International Herald Tribune Editorial - Stacking the electoral deck

International Herald Tribune Editorial - Stacking the electoral deck
Copyright by The International Herald Tribune
Published: August 22, 2007


America's Electoral College should be abolished, but there is a right way to do it and a wrong way. A prominent Republican lawyer in California is doing it the wrong way, promoting a sneaky initiative that, in the name of Electoral College reform, would rig elections in a way that would make it difficult for a Democrat to be elected president, no matter how the popular vote comes out. If the initiative passes, it would do serious damage to American democracy.

California currently gives all 55 of its electoral votes - the biggest electoral college prize in the nation - to the candidate who wins the statewide popular vote. Virtually all states use this winner-take-all method. The California initiative, which could go to a vote in June, would instead give the 2008 presidential candidates one electoral vote for every congressional district that they win, with an additional two electoral votes going to whoever got the most votes statewide. (Democrats appear, rightly, to have backed off from plans to try just as anti-democratic a trick in North Carolina.)

The net result of the California initiative would be that if the Democratic candidate wins in that state next year, which is very likely, the Republican candidate might still walk away with 20 or more of the state's electoral votes. The initiative, backed by a shadowy group called Californians for Equal Representation, is being promoted as an effort to more accurately reflect the choices of the state's voters, and to force candidates to pay more attention to California, which is usually not in play in presidential elections. It is actually a power grab on behalf of Republicans.

The Electoral College should be done away with, but in the meantime, any reforms should improve the system, not make it worse.

If California abandons its winner-take-all rule while red states like Texas do not, it will be hard for a Democratic nominee to assemble an Electoral College majority, even if he or she wins a sizable majority of the popular vote. That appears to be just what the backers of the California idea have in mind.

If voters understand that the initiative is essentially an elaborate dirty trick posing as reform, they are likely to vote against it. But judging by the misleading name of their organization, the initiative's backers want to fool the public into thinking the change would make elections more fair. They are planning on putting it to a vote in June 2008, an election when there will be few other things on the ballot, and turnout is expected to be extremely low.

This bad-faith initiative is yet another example of the ways in which referenda can be used for mischief and a reminder of why they are a bad way to resolve complex public-policy issues.

Opponents of the initiative have announced that they are sponsoring their own, rival initiative, which would commit California to a national plan that aims to ensure that the winner of the national popular vote becomes president. That idea makes much more sense.

Leading Republicans, including Governor Arnold Schwarzenegger, have been silent about the initiative to split California's electoral votes, but they should be speaking out against it.

The fight isn't about Republicans vs. Democrats. It is about whether to twist the nation's system of electing presidents to give one party an unfair advantage. No principled elected official, or voter, of either party should support that.

Lehman to shut down subprime unit

Lehman to shut down subprime unit
By Ben White and Victoria Kim in New York
Copyright The Financial Times Limited 2007
Published: August 22 2007 19:46 | Last updated: August 23 2007 00:47


Lehman Brothers intends to shut down its subprime mortgage unit, BNC Mortgage, shedding 1,200 jobs and, at least temporarily, leaving a business that has been highly profitable across Wall Street in recent years.

Lehman’s decision raises questions about whether other investment banks that acquired subprime lenders in recent months will have to close them or take big losses. Merrill Lynch paid $1.3bn for First Franklin and other subprime businesses last September and Morgan Stanley paid $706m for Saxon Capital in December.

Thorold Barker on why the US hous­ing mar ket has not seen the last of its strug gles
Questions were raised at the time about the price of each deal, which were made as cracks in the subprime market were appearing. Bank executives replied that the platforms were flexible and could be scaled down if business were to decline.

Lehman will take a charge against earnings of about $52m (£26m) to dispose of BNC; most of it in the third quarter. The charge is small compared with those of other groups that have left the subprime business, but the larger question is impact on future earnings as Lehman ceases to package subprime mortgages into securities for sale to investors.

Lehman shares are down about 24 per cent this year. Shares in Bear Stearns, another player in mortgage securitisation, have fallen about 29 per cent. Lehman shares rose 2 per cent on Wednesday.

Lehman will continue to originate mortgages by its Aurora Loan Services platform that focuses on Alt-A mortgages, which are closer to meeting prime mortgage standards. If the subprime business improves, Lehman will be able to issue subprime loans through Aurora.

Lehman reports third-quarter earnings next month. It may offer further details of exposure to the subprime market to dispel rumours that have plagued it and other banks. Lehman had said subprime activities accounted for less than 3 per cent of revenues in recent quarters.

Lehman’s action on Wednesday came as Accredited Home Lenders, a subprime lender, and HSBC announced combined losses of more than 2,000 jobs.

Accredited Home Lenders said it would cut 1,600 jobs, more than 60 per cent of its workforce, to boost liquidity after private equity group Lone Star backed out of its $400m purchase of the company. HSBC said it would cut 600 jobs.

Bush warns of Iraqi ‘killing fields’/Observers puzzle over Vietnam comparison

Bush warns of Iraqi ‘killing fields’
By Edward Luce in Washington
Copyright The Financial Times Limited 2007
Published: August 22 2007 14:31 | Last updated: August 22 2007 18:12


George W. Bush on Wednesday said the consequences of a US withdrawal from Iraq could echo the “killing fields” genocide that destroyed Cambodia after the US pulled out from Vietnam in the mid-1970s.

In a speech signalling Mr Bush is in no mood to compromise with his Iraq war critics, the US president threw down the gauntlet in advance of Democratic plans next month to revive a congressional vote setting a deadline for withdrawal of most of the 160,000 US troops in Iraq.

Much of Mr Bush’s speech, which was delivered in Kansas City to the US Veterans of Foreign Wars, focused on the history of the US occupation of Japan and Germany after the second world war and on the aftermath of the US military pull-out from Indochina.

“The price of America’s withdrawal from Vietnam was paid by millions of innocent citizens whose agonies would add to our vocabulary new terms like “boat people”, “re-education camps” and “killing fields”, Mr Bush said. “Iraq is a central front in the war on terror. Withdrawal without getting the job done would be a disaster.”

The US president, who appeared to be in ebullient spirits, also reprised his controversial linking of democracy to religious values. “We are still in the early hours of the current ideological struggle,” he said. “Our world will never be safe until the people of the Middle East know the freedom that our Creator intended for all.”

Wednesday’s speech, which offered a strong echo of the neoconservative agenda that characterised Mr Bush’s first term, was greeted with derision by many of Mr Bush’s critics. In a statement, Hillary Clinton, the Democratic presidential frontrunner, said: “We need to stop refereeing the war and start getting out now.”

Anthony Cordesman, a leading Iraq analyst at the Centre for Strategic and International Studies in Washington, said: “Mr Bush preaches to the choir without noticing that the choir is getting smaller every time. The American people needed to hear about prospects on the ground in Iraq. Instead we got a history lesson that would have embarrassed a first year undergraduate.”

Lawrence Korb, a Vietnam war veteran and now senior fellow at the liberal Center for American Progress, said: “If President Bush had served in Vietnam he would have been more cautious about expecting we would be greeted as liberators in Iraq. Had we remained bogged down in Vietnam when there was no military solution we would not have been able to win the Cold War.”

Mr Bush’s speech comes less than a month before David Petraeus, the US general in charge in Iraq, and Ryan Crocker, the US ambassador in Baghdad, report to Congress on the progress achieved by the “new way forward in Iraq” that Mr Bush unveiled in January.

Mr Bush has argued for more time to assess the progress of the 30,000 troop “surge” that was only completed in mid-June. But a growing number of Republican lawmakers, most of whose seats are vulnerable in next year’s elections, have expressed impatience with the slow pace of political reform in Baghdad.

On Wednesday, Freedom Watch, a Republican group that is run by Ari Fleischer, who was Mr Bush’s first presidential spokesman, launched a $15m television campaign focused on the districts of Republican and Democratic lawmakers who are wavering.

Its targets, which include moderate Republican senators, such as Olympia Snowe of Maine and Arlen Specter of Pennsylvania, are mostly the same as those targeted by a $12m media campaign by Americans Against Escalation in Iraq, an anti-war group.

“These ads are squeezing from the right the very same Republicans who are feeling the heat from their constituents back home for their support for Bush’s failed war policy,” said Moira Mack, spokeswoman for the group.


Observers puzzle over Vietnam comparison
By Edward Luce in Washington
Copyright The Financial Times Limited 2007
Published: August 24 2007 16:25 | Last updated: August 24 2007 16:25


President George W. Bush’s speech this week suggesting that the US should exorcise the ghosts of Vietnam by staying the course in Iraq was partly aimed at winning over wavering Republican lawmakers.

It marked the opening salvo in what could be the stormiest phase of the Iraq war debate; next month Congress is likely to consider a deadline for withdrawal after it hears a progress report on Mr Bush’s 30,000-troop surge.

Few believe the Democratic majority can muster the two-thirds margin needed to override Mr Bush’s veto on laws passed by Congress, which he has used twice before this year to kill less stringent resolutions.

But what remains of the president’s public standing is likely to suffer further damage if a large number of Republicans cross over to the Democratic side. Among the targets of Mr Bush’s speech was John Warner, the octogenarian senator from Virginia, who was secretary of the navy in the Nixon administration when it pulled US troops out of Vietnam in 1973.

On Thursday Mr Warner added his voice to the chorus questioning Mr Bush’s sense of history. “I read it very carefully,” said Mr Warner. “I feel that there are no parallels, really. It’s a different type of situation.”

Others, such as Ted Kennedy, the Democratic senator for Massachusetts, who described the Iraq war as “Bush’s Vietnam”, were more blunt. But most observers said they were puzzled as to why Mr Bush would link America’s most humiliating modern episode to his own immediate fortunes in Iraq.

In the speech Mr Bush likened the consequences of a rapid US withdrawal from Iraq to the genocide that Pol Pot wrought on Cambodia after 1975 and the re-education camps the Vietnamese communists set up for former collaborators with the Americans.

In what was perhaps the most history-laden speech of his presidency, Mr Bush also associated the US project in Iraq with its occupation and democratisation of Japan after 1945 and its defence of the Korean peninsula against the Chinese-backed communist uprising in 1950.

His central theme was to identify a universal yearning for freedom to which the US plays handmaiden, in a narrative beginning with the world wars and concluding with Iraq. “I recognise that history cannot predict the future with any certainty,” he said. “But history does remind us that there are lessons applicable to our time.”

So far the reception has been harsh. “Most people in America see Vietnam as a mistake and will wonder: ‘Does President Bush mean we should still be in Vietnam? Don’t we have good relations with Vietnam now?’ ” said Charlie Cook, a leading political analyst. “You could hold a five-day symposium of the best brains and they still wouldn’t figure out what Mr Bush could gain from remind- ing people of Vietnam.”

However, Zbigniew Brzezinski, who was national security adviser in the Carter administration and a tough critic of Mr Bush, said he saw a political logic in Mr Bush’s parallel. “Americans have accepted that the war in Iraq is unwinnable,” he said.

“But that doesn’t mean they want to see images of helicopters taking off from the Green Zone and troops abandoning tanks and equipment as they retreat. Bush was appealing to America’s desire to avoid another Vietnam-style humiliation, however wrong-headed his underlying analysis.”

Former officials say Mr Bush was also pitching for a better place in history than contemporary observers are according him. The US president has referred on several previous occasions to Harry Truman, who left office in 1952 a deeply unpopular figure but whom later generations reappraised as one of America’s most far-sighted presidents.

“President Bush has no intention of withdrawing from Iraq unless the situation has drastically improved,” said a former speechwriter to Mr Bush. “He still believes future generations will look back on the Iraq war as a historic turning point that planted democracy in the Middle East. In that he is unshakeable.”

The US president has staked out ground before only to give way when expediency dictated. Mr Bush insisted that the US was winning the war in Iraq right up until the Republican party’s defeat in mid-term elections last November. The following day he sacked Donald Rumsfeld, the secretary of defence, and ordered a review of the war.

But with just 16 months left in office and the US military dangerously overstretched, Mr Bush has almost no scope to launch another overhaul of America’s military strategy in Iraq. His options are to sustain the existing troop surge for as long as he can, or order a gradual drawdown.

“By linking Iraq to Vietnam Mr Bush has unconsciously admitted what a massive failure this war has been,” said Mr Brzezinski. “It is doubtful his speech will sway many people.”

The Short View: Countrywide crunch/Bank of America to invest $2bn in mortgage giant/BofA elaborates on Countrywide

The Short View: Countrywide crunch
By John Authers, Investment Editor
Copyright The Financial Times Limited 2007
Published: August 23 2007 18:05 | Last updated: August 23 2007 18:05


Will the money market crisis of the past two weeks come to be known as the Countrywide Crunch? For days, confidence in the largest US mortgage lender ebbed and flowed in line with confidence in money markets.

Originating 17 per cent of all mortgages in the US, mostly not in the troubled subprime sector, and relying on money markets for its funding, it made sense for the company’s fortunes to preoccupy markets.

Thus Countrywide shares and Treasury bills moved almost in alignment. News that it had failed to raise funds by means of commercial paper last Thursday morning raised fears the liquidity crunch could bring down the company. Its shares fell 40 per cent in hours.

The yield on the three-month T-bill also fell 50 basis points in hours, as investors fled anything that might have mortgages for collateral.

That prompted many to reckon – it appears correctly – the Federal Reserve had no choice but to act. Countrywide stock, and T-bill yields, bounced on Thursday afternoon, and again after the Fed announced it was cutting its discount rate on Friday morning. Countrywide was up 60 per cent from its low point, four trading hours earlier.

Then confidence ebbed again. Countrywide stock fell back as T-bill yields collapsed. But on Tuesday and Wednesday, we saw a return of confidence to both, assisted by handling from the central banks.

But the response to Bank of America’s vote of confidence, late on Wednesday, when it said it would buy a $2bn stake in Countrywide, suggests fears are more widely spread. Even with such uncertainty removed, markets failed to rally.

Countrywide drifted lower. And ominously, three-month T-bill yields stayed more than 25 basis points below their level when the Fed cut the discount rate, and a stunning 175 bps below the Fed Funds rate.

That shows even without fears of a Countrywide collapse, the market remains desperate for a cut in the Fed Funds rate.



Bank of America to invest $2bn in mortgage giant
By Ben White in New York
Copyright The Financial Times Limited 2007
Published: August 23 2007 00:11 | Last updated: August 23 2007 00:51


Bank of America, the second-largest US bank, plans to invest $2bn in Countrywide Financial, the troubled mortgage lender.

The move came after the Financial Times first reported in January that BofA, which is eager to expand its mortgage business to match its breadth in credit cards, was in talks with Countrywide about a possible acquisition or joint venture.

BofA will take the stake in the form of preferred shares that can be converted into common stock at $18 per share. The $2bn stake would represent about 16 per cent of Countrywide’s $12.6bn market value.

At the time talks were first reported, analysts said a deal would make sense because it would allow BofA to expand its mortgage business while giving Countrywide added financial muscle to withstand the current housing downturn.

The announcement last week by the US’s biggest mortgage lender that it would tap into an $11.5bn credit line from 40 of the world’s largest banks to boost liquidity caused concern among investors and regulators.

Countrywide turned to its banks after losing access to the commercial paper market amid the global credit squeeze. Ratings agencies responded with cuts to Countrywide’s credit rating.

Countrywide’s troubles helped spur the US Federal Reserve’s cut on the rate it charges banks for loans.

Countrywide shares have fallen more than 50 per cent since February and closed on Wednesday at $21.82. The decline has come amid a surge in defaults by US mortgage borrowers. Countrywide shares rose nearly 19 per cent in after-hours trading.

Countrywide took out full-page advertisements in US publications on Monday saying it was “a well-capitalised federal savings bank with more than $100bn in assets” and that “the future is bright”. The move failed to stop the slide in the lender’s share price.

Countrywide has about $60bn in consumer deposits in its bank unit and has said that it would use those deposits to fund loans.

In a statement, Kenneth D. Lewis, Bank of America chairman and chief executive, said: “We believe that in the current turmoil the stock market has been underestimating the value in Countrywide’s operations and assets...This investment reflects our confidence in their business and recognizes the importance of the company in providing home financing across the country.

“We hope this investment will be a step toward a return to more normal liquidity in the mortgage markets. Countrywide has a strong mortgage origination business and it services the mortgages of one in seven American households.”

BofA elaborates on Countrywide
By Ben White in New York
Copyright The Financial Times Limited 2007
Published: August 24 2007 01:13 | Last updated: August 24 2007 07:08


Bank of America has the right to match any buy-out offer for Countrywide Financial, according to a filing made as part of BofA’s $2bn preferred share investment in the troubled mortgage lender.

However, BofA cannot make any attempt to acquire more shares in Countrywide or buy the company outright unless such a move comes in response to a competing offer, the filing said.

In an interview on CNBC on Thursday, Angelo Mozilo, Countrywide chief executive, said he had not considered selling all of Countrywide to BofA. However, he acknowledged holding talks with BofA earlier this year about a joint venture.

On Wednesday BofA said it would pay $2bn for preferred shares in Countrywide, paying an annual dividend of 7.25 per cent.

The shares are convertible to common voting stock at $18 per share and would amount to a 16 per cent stake in Countrywide, which saw its share price slide after it lost access to one of its traditional sources of liquidity, the commercial paper market. Countrywide, the largest US mortgage lender, last week was forced to tap its $11.5bn in bank credit lines, driving its shares down further and sparking rumours that it might be forced into bankruptcy. Mr Mozilo on Thursday dismissed those rumours as baseless and called BofA’s investment a “great endorsement” of the company.

Mr Mozilo added that he did not believe the credit market situation was improving and that he continues to believe housing woes will drag the US economy into recession.

”I’ve seen this movie before, and the ending of the movie always ends up in some form of recession,” he said. ”I can see the economy slowing down substantially enough to give the regulators, the Fed some pause in what’s going to happen next.”

Countrywide shares initially spiked on BofA’s investment.

But they declined following Mr Mozilo’s remarks about the credit markets and the economy and after analysts noted the very generous terms BofA received for its investment. Countrywide shares closed up 0.92 per cent at $22.02 in New York, close to where they were before BofA’s investment.

Also in the filing yesterday, Countrywide said BofA has the right to name two directors to the company’s board if Countrywide fails to pay dividends on the preferred shares for six quarters.

ECB move to inject funds lifts markets

ECB move to inject funds lifts markets
Ralph Atkins in Frankfurt, Krishna Guha in Washington and James Politi and John Authers in New York
Copyright The Financial Times Limited 2007
Published: August 22 2007 18:54 | Last updated: August 23 2007 00:00


Investor fears about the credit markets showed signs of easing on Wednesday after European central bankers injected more funds into the financial system and four big US banks lined up behind the Federal Reserve’s efforts to ease the liquidity crunch.

Global equities rallied and safe-haven US government securities continued a sell-off after the European Central Bank said it would add €40bn ($54bn) into the three-month money market, where interest rates have shot higher during the recent turmoil.

The ECB strongly signalled that its monetary policy would not be blown off course, and that it would also raise its main interest rate again next month.

Its move was followed by news that Citigroup, JPMorgan Chase, Bank of America and Wachovia had each borrowed $500m from the Fed under new terms offered last Friday. People close to the banks said they were mainly borrowing on behalf of clients who were hurt by the liquidity crisis but could offer “prime” collateral.

Still, the banks were keen to point out that the scale of the borrowing at the Fed’s discount window was relatively small and largely symbolic. In a statement, JPMorgan, BofA and Wachovia said they had “substantial liquidity and the capacity to borrow money elsewhere on more favourable terms” but were trying to encourage other banks to take advantage of the lower discount rate. Citigroup said it was “pleased to inject liquidity into the financial system during times of market stress and to support creditworthy clients”.

Fed policymakers viewed the move by the four banks as positive, but said the success of the discount window operation should be measured by its calming effect on markets, not the volume of actual lending.

When the Fed cut the discount rate last Friday, it wanted banks to act as intermediaries for investment banks, hedge funds and others who might have good collateral but were unable to deal directly with the Fed.

On money markets, yields on one-month Treasury bills rose 79 basis points to 3.11 per cent, while the yield three-month paper closed up 6bp at 3.66 per cent. However, yields remained below the level they reached last Thursday when a dramatic “flight to quality” preceded the Fed’s decision to lower the discount rate.

European shares rose 1.6 per cent while Asian shares showed strong gains, except for Tokyo, which was flat. The S&P500 rose 1.2 per cent.

By offering three-month loans, the ECB is providing banks with funding for a longer duration. “This eases what has been a crucial pressure point in the system,” said Tim Bond, head of global asset allocation at Barclays Capital.

The ECB said its monetary policy stance remained as set out on August 2 by Jean-Claude Trichet, ECB president, who hinted strongly that its main interest rate would rise by a quarter percentage point to 4.25 per cent next month.

However, Mr Trichet deliberately left open the possibility of a change of mind, especially if market turmoil continued.

Older Americans having more sex than you think - Survey offers eye-opening peek into seniors' sexuality

Older Americans having more sex than you think - Survey offers eye-opening peek into seniors' sexuality
BY JIM RITTER Health Reporter/jritter@suntimes.com
Copyright by The Chicago Sun Times
August 23, 2007

You're never too old to have sex.

University of Chicago researchers report more than half of people ages 65 to 74 are sexually active. And one in four ages 75 to 85 are still at it.

"Sexually active" was defined as having sexual contact -- whether or not intercourse or orgasm occurred -- at least once in the previous 12 months.

Jack and Elizabeth Menager pose at their home in Los Angeles. An unprecedented study of sex and seniors finds that many older people are surprisingly frisky - willing to do, and talk about, intimate acts that would make their grandchildren blush.


"Sexually active" was defined as having sexual contact -- whether or not intercourse or orgasm occurred -- at least once in the previous 12 months.

The findings should "counter the myth that older people aren't sexually active or don't care about sexuality," said Dr. Stacy Lindau, lead author of the study published in the New England Journal of Medicine.

Researchers interviewed 3,005 adults ages 57 to 85. It was one of the most comprehensive surveys done on the sex lives of older Americans.

"It's shocking that we haven't had this information until now," Lindau said.

Not surprisingly, sexual activity declined with advancing age. But even among adults 75 to 85 who are still sexually active, 54 percent have sex at least two or three times a month -- and 23 percent do it at least once a week.

Elderly women have less sex than men, probably because they're more likely to be widowed.

About half of respondents reported at least one bothersome sexual problem, and nearly a third have at least two problems.

The most common problems in men: impotence (37 percent), lack of interest (28 percent) and climaxing too quickly (28 percent).

2-hour interviews
Women's biggest problems: lack of interest (43 percent), difficulty with lubrication (39 percent) and inability to climax (34 percent).
Nevertheless, only 38 percent of men and 22 percent of women have discussed sex with their doctor since age 50.

"Until recently, older adults tended to keep quiet about their sexuality because younger people assumed that they were not and should not be sexually active," Dr. John Bancroft of Indiana University's Kinsey Institute wrote in an accompanying editorial. "Now the pendulum has swung."

Researchers conducted two-hour, face-to-face interviews, usually in respondents' homes. Spouses generally did not listen in.

Only 2 percent to 7 percent declined to answer questions about sexual activity or problems.

"Participants were more likely to refuse questions about income than they were about sex," Lindau said.

Temporary gay street opens in Rome

Temporary gay street opens in Rome
Copyright by The Assocuated Press
August 21, 2007

ROME, ITALY (AP) - Rome marked the opening of its first “Gay Street” with flags, banners and protests amid a row over a homosexual couple who claimed they were detained by police for kissing near the Colosseum.

Campaigners welcomed a 325-yard zone in the center of the city - filled with shops and bars - as an area where gays can “feel at ease,” after days of heated debate in predominantly Roman Catholic Italy over the kissing incident.

The two men were detained briefly for what the police said were lewd acts in public - a crime that can carry a sentence of up to two years in jail.

“This will be an area where people can feel at ease, and it is also meant to be a bridge between the citizens and the homosexual community,” activist Fabrizio Marrazzo, the Rome leader of Italy’s Arcigay gay rights movement, said.

Police said the two were not just kissing and would have behaved the same way if it had been a heterosexual couple.

Right-wingers have protested the City Hall’s decision to close the area to traffic for three nights a week through Sept. 8.

“Nobody wants to condemn those who practice a different sexuality, but to dedicate a street only to gays and lesbians I think it’s a sort of useless and marginalizing project,” right wing politician Piergiorgio Benvenuti was quoted as saying by the daily Il Giornale.

Gay rights came into the spotlight in Italy when the government recently proposed a bill aimed at granting legal rights to unmarried and same-sex couples.

The legislation sparked controversy and angered the Vatican, which under Pope Benedict XVI has been conducting a fierce campaign to protect traditional marriage between a man and a woman. The bill requires parliamentary approval.

Moving In Together - A Legal Checklist

Moving In Together - A Legal Checklist
By Roger McCaffrey-Boss
Copyright by Gay Chicago Magazine and Roger McCaffrey-Boss
August 21, 2007


Q: My partner and I are planning on buying a house together and combining our finances. What kinds of things should we be thinking about to protect our relationship?

A: Agreements do not have to be drafted and executed every time two people decide to live together or to help each other financially, but when decisions are made that involve long periods of time and serious financial commitments, you should document your intentions.

Partnership/living together agreements. LGBT couples should reach an agreement that covers the economic aspects of the couple’s life. Their assets, their present and future earnings, children, inheritances, expectations and hopes of each member regarding their own and each other’s property. Such an agreement should specifically state who owns what individually, what is owned collectively and whether joint property is owned by all parties in equal shares or in shares proportional to their economic contributions.

Who pays what proportion of the common expenses - housing, food, laundry, phone and electric, etc. And what happens to the house in case of a split.

Durable powers of attorney for property and healthcare power of attorney. A power of attorney can be used by one individual (the “principal”) to grant another (the “agent”) the right to act on her or his behalf. You can use a durable power of attorney to authorize your partner to make business, financial or medical decisions for you (e.g., selling your car, cashing your paycheck, or authorizing surgical procedures) if you are ever disabled.

Having a healthcare power of attorney requires healthcare providers (doctors and hospitals etc.) to follow the directions of your domestic partner. This document prevents the nondisabled partner from being frozen out of medical treatment decisions or being denied the right to visit their lover in a hospital or nursing home.

Guardian. You can use the same powers to designate your lover to be the guardian of your person and estate (property) if you are ever adjudicated in a court proceeding to be a disabled person.

Funeral directions. In Illinois, it is the Disposition of Remains Act that allows you to sign an Appointment of Agent to Control Disposition of Remains. That document and the healthcare power of attorney empowers your LGBT partner to make burial and funeral arraignments upon your death. Without such authority, the funeral director would have to obtain written consent from a blood relative.

Wills. Wills declare who should have your property (everything you own) when you die. All states have laws declaring how your property will be distributed if you do not have a will. These laws generally provide that all your property goes to your spouse; if you have no spouse, then to parents; if you have no parents, then to siblings, etc. Thus you must leave a will if you want to have any control over what is given to whom, specifically if you want your partner or lover to inherit from you.

This is a good beginning to protect your relationship.

Roger McCaffrey-Boss is a graduate of Hamline University School of Law, St. Paul, Minnesota, and is a member of the Chicago Bar Association. You can e-mail him at RVMLAWYER@aol.com. He suggests that you consult your own lawyer for any specific questions regarding the issues raised in this column.

Book Review - Papi Chulo: A Legend, A Novel and the Puerto Rican Identity by Carlos T. Mock, MD

Book Review - Papi Chulo: A Legend, A Novel and the Puerto Rican Identity by Carlos T. Mock, MD
by Review by Tracy Baim
Copyright by Windy City Times
2007-08-22

http://www.windycitymediagroup.com/gay/lesbian/news/ARTICLE.php?AID=15845


Floricanto Press, 248 pages, $24.95


Chicagoan Carlos T. Mock is a political voyeur. He writes frequently on blogs and in newspaper columns about a wide range of gay and mainstream topics, and he has a special interest in Latino gay issues. He has written about his Puerto Rican identity in Borrowing Time: A Latino Sexual Odyssey, and published The Mosaic Virus, a novel about an AIDS-like virus and the Catholic Church.

Mock’s newest work, Papi Chulo, is similar to The Mosaic Virus in that it takes historical facts and massages them into a work of fiction, this time about the island of Puerto Rico and its fractured identity. Mock’s love of his native land is evident throughout Papi Chulo. His own hopes and dreams for his people ebb and flow with the tragic tides of history. He is cynical about political leaders and passionate about the people, some who are clearly modeled after inspiring heroes in his own life.

Mock’s background in medicine is also evident in Papi Chulo. One of the primary characters, María Rexach, becomes a pioneer in women’s health and the right to choose abortion. Born in 1900, we follow the path of both María’s own life and the life of her nation as it comes under control of the United States, and fights for its own life for more than a century.

We meet the real and imagined political leaders of the last century as they squabble and sometimes succeed in bringing rights to the island. We see how identity issues plague generations of people, as some move to the mainland and lose touch with their home, and as islanders dismiss them as not true Puerto Ricans. Puerto Ricans born on the mainland have an especially hard time with identity issues.

The novel is not a “gay novel” in the typical sense. However, it does include gay characters, and the sensitivities of the book are informed by an author who is both pro-choice and out.

There is a risk in creating an alternative universe, where some facts remain and others are altered to fit the vision of what the author wants to occur. The real people may be upset, but Mock clearly states at the beginning of the book that this is a work of fiction, even though some facts are real. Incidents of revolutionary violence ( to push for independence from the U.S. ) , political intrigue, funding of the Contras or even the Stonewall Riots of 1969 are used as backdrops for a multi-layered story about the potential of a people and the dreams of a nation.

Mock’s own antipathy for self-interested leaders is clear throughout the novel, but he uses the stories of individuals like María, her friend Clara Rodriguez, her children, her friends and others to show the pain through the eyes of people, making the history more accessible and the imagined reality all the more desired. As Mock would attest, if novelists ran the world, it would be a whole lot better place.

Gay Man Arrested in Sting Seeks Damages

Gay Man Arrested in Sting Seeks Damages
by Amy Wooten
Copyright by The Windy City Times
2007-08-22


A local gay man arrested last year during a prostitution sting operation recently filed suit, seeking damages as a result of being unlawfully seized, maliciously prosecuted and defamed by several Chicago police officers.

The suit, filed in U.S. District Court for the Northern District of Illinois, cites several Chicago police officers for depriving Dion Contreras of his rights during the sting. According to the suit, Contreras was not soliciting the arresting officer for sex, but was arrested anyway. The suit also states that that police allegedly falsified police reports and then faxed them to Contreras’ employer.

According to the suit, in June 2006, a police officer dressed as a civilian in an unmarked car pulled over to speak with Contreras, who was walking down the street past a gay bar in Boystown.

The officer allegedly said to Contreras, “I’ll give you $20 for a blowjob.”

The suit states that Contreras made it clear to the officer that he was not selling his body, but that he offered to perform the sexual act for free.

The officer was part of a sting operation called “Operation Angelo.”

The suit alleges that although the officer knew that Contreras was not a prostitute, he signaled for other officers to make an arrest.

“What makes this case particularly egregious is that there was clearly a conscious choice by these officers to violate Mr. Contreras’ civil rights,” said Contreras’ attorney Jon Erickson. “Because he needed high arrest numbers, the arresting officer chose to manufacture charges and then falsify police reports.”

Contreras was charged with prostitution and possession of a controlled substance ( cocaine ) . The prostitution charge was dropped in August 2006, and the drug possession charge was dropped in November 2006.

The suit states that the charges against Contreras were forwarded to his job, and the officers allegedly gave false information in phone interviews with his employer. Contreras, who worked as a criminal specialist for the Illinois Criminal Justice Information Authority, was placed on leave and then suspended.

“There is no set of circumstances that can justify faxing an arrest report to an arrestee’s employer,” Erickson said. “It is illegal and can only demonstrate a willful and wanton attempt to defame and cause harm to my client.”

DuPage Fundraiser Stirs Controversy

DuPage Fundraiser Stirs Controversy
by Andrew Davis
Copyright by The Windy City Times
2007-08-22


An Aug. 25 DuPage Democratic fundraiser featuring State Rep. Paul Froehlich has raised the ire of one local community leader who feels that the official’s political stances are at odds with being a Democrat.
A Glendale Heights parade and DuPage Democratic fundraiser will be held in Bloomingdale. The fact that the latter event will feature Froehlich—who recently defected from the Republican to the Democratic Party—stuns Terry Cosgrove, president and executive director of the Chicago-based pro-abortion group Personal PAC.

In an e-mail to Windy City Times, Cosgrove said that “Rep. Paul Froehlich’s opposition to legal abortion, even in cases of rape and incest; opposition to embryonic stem-cell research; and support of pharmacists who refuse to fill prescriptions for birth control and HIV drugs for ‘moral’ reasons should be offensive to anyone with a sense of decency. His reward for aligning himself with religious extremists has been the glowing endorsement of every right-wing organization in Illinois. His positions on these issues were repulsive when he was a Republican and now they are just as repulsive since he has become a Democrat.”

( Indeed, a Nov. 2006 Illinois Citizens for Life sheet listing political candidates’ stances showed that Froehlich was “fully pro-life.” In addition, a Culture Campaign Voting Guide—dated the same month—revealed, among other things, that Froehlich also supported a state marriage amendment “that would define marriage as between one man and one woman.” )

When asked by Windy City Times about his positions, Froehlich’s answers fell in line with Cosgrove’s claims. Regarding abortion, he said that he is pro-life. Concerning gay rights, he said that he is against same-sex marriage, but would like to see the civil union bill, adding “I think that [ gay ] people should get basic rights regarding visitation in hospitals and financial benefits.” ( He also said that he is supports the environment, immigrant rights and labor. )

Froehlich said that he is progressive on many issues but that being all the way to the left in his area is political suicide. “I guess I’m a hybrid,” he said. “If somebody wants someone who’s 100 percent progressive, that’s not me—but someone who’s 100 percent progressive might have trouble winning, at least in the short term. I’m the only Democrat in the House who represents DuPage County. Some of these issues are not clear partisan issues; some would say that Tom Cross is more pro-choice than [ Democratic House Speaker ] Mike Madigan.”

Incidentally, Froehlich cited several reasons for his party defection, including that he “wasn’t getting along with too many Republicans, both locally and in Springfield” and that he “was already voting with Democrats on many issues.” He also said that his district “prefers to be run by moderate Democrats. Melissa Bean carries my district comfortably.”

Windy City Times contacted several members of the DuPage Democrats, but none had responded by the press deadline.

Animal-Rights Group Targets Rodeo

Animal-Rights Group Targets Rodeo
by Amy Wooten
Copyright by Windy City Times
2007-08-22


An animal-rights organization founded and headed by a gay man is calling on the local LGBT community to boycott the upcoming Windy City Rodeo.
Windy City Rodeo is an annual gay rodeo created by the Illinois Gay Rodeo Association ( ILGRA ) . Mercy for Animals is calling on the gay community to boycott the event. The organization says that rodeos—gay or straight—harm and exploit animals. ILGRA says that these claims are untrue, and members are saddened that these attacks are coming from within the community.

“Quite simply, rodeos, like hate crimes, are unacceptable forms of violence against the vulnerable that the gay community should work diligently to end,” said Mercy for Animals founder and executive director Nathan Runkle, who cited an instance witnessed by a staff member a number of years back at a Minnesota gay rodeo event, where a steer was injured and killed.

According to Runkle, rodeos force animals to perform against their will and are inherently cruel. “In fact, nearly all animals exploited in rodeo events endure the stress of transport, the inherent cruelty of the rodeo events, and then have their throats slit at slaughterhouses when they are no longer useful,” Runkle said.

The 2007 Windy City Rodeo will take place Aug. 24-26 in Crete, Ill. The event raises funds for local organizations.

ILGRA is a member of the International Gay Rodeo Association ( IGRA ) , an organization that comprises 28 associations from the United States and Canada. IGRA has a uniform set of rules demanding the humane treatment of animals. IGRA claims its rules have been greatly modified from straight rodeo rules.

“We do not do the cruel and heinous things that organizations like this would like you to believe,” ILGRA trustee and president emeritus Ed Barry said in a letter sent to Windy City Times. “Our position is unique to the world of rodeo and we are very proud of our pro animal, safety and competitor position.”

Under these rules, contestants found guilty of cruelty towards animals are penalized. The least severe punishment is immediate disqualification from further competition.

According to Windy City Rodeo Co-Director Anthony Adamowski, ILGRA has used the same livestock contractor for many years due to his professionalism and the quality of his animals. “On occasion, animals ( like human rodeo competitors ) can get injured,” Adamowski said. “When that happens, the animal is immediately pulled from competition and tended to by our on-site veterinarian.”

Adamowski said that there has not been an instance at a Windy City Rodeo where a participant had to be penalized for cruelty toward the animals. “I’ve gone back through our rodeo review file for the past several years and have found no instances in which a competitor was disqualified from the rodeo due to allegations of animal mistreatment,” he said. “Nor could I find any instances in which an arena official, volunteer, and/or members of the stock contractor’s staff was reprimanded for animal cruelty.”

Among other things, the IGRA Rodeo Rules include bylaws that prohibit the use of lame, sick, sore or undersized stock; and they enforce the release of animals in danger of injury. IGRA’s Statement on Animal Welfare can be found at www.igra.com/welfare.htm .

Albania's sworn 'virgins' - Women give up sex to live as men

Albania's sworn 'virgins' - Women give up sex to live as men
By Joshua Zumbrun
Copyright by The Washington Post
August 22, 2007


WASHINGTON - When the Albanian journalist and author Elvira Dones was traveling in the mountains of northern Albania, she asked for directions from someone she thought was a man walking his mule through a village, rifle on shoulder.

After the exchange, her guide whispered, "That is one of them."

Dones had just met an adherent of an ancient northern Albanian tradition in which women take an oath of lifelong virginity in exchange for the right to live as men. The process is not surgical. Rather, sworn virgins cut their hair and wear baggy men's clothes and take up manly livelihoods as shepherds or truck drivers or even political leaders. And those around them treat them as men.

The idea that a woman would need to forsake love and live as a man to control her own fate seems primitive to modern eyes. But perhaps, in the context of a culture before feminism, it can be seen as progressive. The existence of sworn virgins reveals a cultural belief, however inchoate, that a biological woman can do all the work of a man.

"Why live like a man?" one virgin, Lule Ivanaj, asks herself rhetorically in an English-subtitled documentary that Dones (pronounced DOH-nez) made on the women for Swiss television called "Sworn Virgins." Ivanaj looks like a man in his 50s, with short hair, thick arms and a wide metal watchband on one wrist. "Because I value my freedom. I suppose I was ahead of my time."

Dones, 47, learned about sworn virgins 25 years ago from her university classmates in Albania's capital, Tirana. The practice has existed at least since the 15th Century, when the region's traditions were first codified, according to Dones. The sworn virgins came into being for emergencies: If the family patriarch died and there was no other man to carry on, a provision was needed so that a woman could run her family.

When Dones was in college, the country was under the control of communist dictator Enver Hoxha, who ruled for more than 40 years until his death in 1985. Dones had the itch to tell the sworn virgins' story, but the communist regime tightly controlled the media, and travel to the north was not allowed.

In 1988, Dones -- then a journalist for state-run television -- defected, in part because of frustration with her country's government. She moved to the Italian-language region of Switzerland, where she worked for Swiss TV and wrote novels.

Three years ago, she moved to suburban Rockville, Md., where she continues to write and make documentaries for Swiss television. She is a popular novelist in Italy and Albania; her most recent is about a 34-year-old woman named Hana who comes to regret her decision to live as a sworn virgin.

Dones had read up on the tradition, which has been documented by historians and sociologists. But until recently she had never met a sworn virgin, except for that brief encounter while filming a documentary on another topic.

"I was happy with the novel, but I wanted to see them," Dones says. "I was obsessed by them."

So last year Dones traveled to meet with them. Only 30 to 40 sworn virgins remain in Albania, Dones says, with perhaps a few in the neighboring mountains of Kosovo, Serbia and Montenegro. Dones interviewed 12, from twentysomethings to elderly women. The documentary debuted on Swiss television this year and has been accepted into the Baltimore Women's Film Festival, to be held Oct. 13-14. It also is available through Dones Media, the U.S.-based production company Dones co-owns with Swiss television.

In the mountains of northern Albania, throughout modern history, women have had very few rights. They cannot vote in local elections; they cannot buy land; there are many jobs they are not permitted to hold; they cannot even enter many establishments. An ancient set of laws called the Kanun still helps govern the region. The Kanun says, "A woman is a sack made to endure."

Other traditional practices of the north were repressed by the communists, but leaders in Tirana simply never cared if a woman in the impoverished and remote mountains wanted to dress and labor as a man.

Some women took the oath if the family patriarch died. Others swore the oath out of a fierce streak of independence, and still others because it was the only way to avoid an arranged marriage without disgracing the selected groom's family. The oath is traditionally sworn in front of a town's elders, though some women take the oath privately.

One virgin whom Dones interviews in the documentary, Shkurtan Hasanpapaj, once served as the local secretary of the Communist Party, the top office in her region. She was in charge of all the men, and though they knew the reality of her anatomy, her authority was unquestioned.

Asked if she would have felt restricted in a marriage, the virgin Ivanaj responds: "Absolutely! More like squashed than restricted. ... Even when there's love and harmony, only men have the right to decide. I want total equity or nothing."

"I wanted to tell their stories and respect the way they told their stories," Dones says. "I found an extreme sense of beauty in them. They are not bitter. They carry the stories with such dignity. ... They are so comfortable with their role."

The virgins in Dones' documentary acknowledge their many sacrifices. They may enjoy the rights of men, but they are denied their womanhood. They will never experience the pleasures of having a lifelong partner or bearing children.

Sanie Vatoci, 50, who took the oath as a teenager when her father died, has slowly come to regret her life as a solitary truck driver.

"While looking at other couples, reading books, watching movies -- I began to wonder: Why don't I have a partner? Why am I acting like a man?" Vatoci says. "There must have been a man out there for me."

It's easy now for people to come down from the mountains. Travel is no longer restricted. The city beckons. And just as many members of the new generation leave their ancestral homelands for a modern life, modern life slowly trickles back into the mountains. The choice between being a woman and having the rights of men is no longer absolute.

"I asked the young girls of the region what they think of the sworn virgins," Dones says. "They said they respect them, but they would never follow their path. Not now."

Past-due loans at thrifts rise 50% - S&Ls not big players in risky mortgages

Past-due loans at thrifts rise 50% - S&Ls not big players in risky mortgages
Copyright © 2007, Chicago Tribune and The Associated Press
August 22, 2007


WASHINGTON - Mortgage defaults are slamming the savings and loan industry, though federal regulators said Tuesday that thrifts should be able to weather the housing market downturn.

Troubled assets, loans that are 90 or more days past due, jumped to $14.2 billion in the second quarter, up 50 percent from the same quarter last year, the Office of Thrift Supervision said.

That's the highest level of troubled loans at the agency since 1993, with most of the problems in home mortgages, OTS officials said.

The numbers are particularly attention-getting considering that thrifts, which take in savings deposits and make mortgage loans, are not big players in the subprime mortgage sector of loans made to borrowers with riskier credit, where current credit problems began.

The level of delinquencies is still about one third as high as in 1989 through 1991, when the commercial real estate market faced a severe downturn.

Troubled assets rose to 0.95 percent of total assets in the second quarter for the 836 federally regulated thrifts, up from 0.62 percent in the second quarter of 2006 and 0.8 percent in the first quarter of this year.

About 4 percent of thrifts' total assets are in subprime loans, agency officials said. Still, officials said thrifts have adequate financial cushions and will emerge from the housing downturn.

"We have well-managed institutions and management understands that business cycles change," said Scott Polakoff, the OTS' chief operating officer.

Mortgage delinquencies and home foreclosures have skyrocketed this year, causing layoffs at banks and mortgage lenders, such as Countrywide Financial Corp. and Capital One Financial Corp.

Delinquencies rose to 1.26 percent of single-family mortgages in the second quarter from 0.8 percent in the year ago-quarter. Foreclosure filings rose 9 percent from June to July and surged 93 percent over the same period last year, research firm RealtyTrac said Tuesday.

Housing market turmoil is contributing to a broader drop in the availability of credit, as banks pull back from riskier loans.

The thrifts reported net income of $3.84 billion in the second quarter, down nearly 9 percent from $4.21 billion in the year-earlier quarter.

Total single-family mortgage originations rose by nearly 17 percent, to $173.3 billion, driven by an increase in borrowers refinancing adjustable-rate loans to fixed-rate loans.

Refinancing made up 48 percent of thrifts' mortgage loans in the second quarter, up from 31 percent in the same quarter a year ago.

Bankruptcy trustee takes control at Sentinel/Sentinel repays some clients - But many customers haven't seen a dime

Bankruptcy trustee takes control at Sentinel
By Jeremy Grant in Washington
Copyright The Financial Times Limited 2007
Published: August 23 2007 22:57 | Last updated: August 24 2007 00:00


The fate of hedge funds and investors with funds tied up in collapsed US investment management firm Sentinel was allowed to be placed in the hands of an independent bankruptcy trustee on Thursday night, amid continuing unease over the way certain creditors of the firm were treated.

The collapse of the Chicago-based firm caused ripples in global credit markets.

It has become a test of the ability of the two main financial regulators – the Securities and Exchange Commission and Commodity Futures Trading Commission – to work together in tackling a financial crisis involving an entity that is overseen by both.

Some investors with funds at Sentinel have complained that other funds holders, mostly futures brokers, were compensated for their losses before them, as futures regulators rushed to head off any disruption to the futures industry.

A bankruptcy judge in Chicago granted Sentinel’s request that its affairs be handed to a trustee, yet to be named, so that its accounts could be clarified before any further disbursement of funds was possible to creditors.

Sentinel was this week hit with an SEC lawsuit alleging that it fraudulently moved $460m of clients’ funds to its own “house” account.

On Wednesday, Paris-based hedge fund Capital Fund Management said that it could lose up to 10 per cent of its assets as a result of the alleged fraud, including as much as 27 per cent at its Discus Master Fund.

Arthur Hahn, a Chicago-based lawyer at Katten Muchin, whose firm is acting for Discus, told the Financial Times: “On behalf of Discus and a number of other claimants we’ve pushed very strongly for the appointment of an independent trustee who will give us a clear accounting and hopefully distribute assets as quickly as possible.”

The CFTC and the National Futures Association appear to have moved rapidly to ensure that the futures brokers associated with so-called “seg one” account were compensated, consistent with their regulatory mandate in the futures business.

The terms refers to segregated accounts that must be held separately from a fund manager’s own “house” account. Charley Cooper, the CFTC’s chief of staff, told the Financial Times: “The system worked. And of primary importance, the integrity of customer segregated funds was maintained.”

Separately, Roel Campos, who resigned this month as one of the SEC’s five commissioners, is set to join the law firm Cooley Godward Kronish next month.






Sentinel repays some clients - But many customers haven't seen a dime
By Robert Manor and Becky Yerak
Copyright © 2007, Chicago Tribune
August 22, 2007

A lucky few customers of Sentinel Management Group, which filed for bankruptcy protection Friday, appear to have lost no money. And 20 or more others got much of their money back Tuesday.

But many customers -- perhaps totaling 120 -- haven't seen a dime, and almost certainly will not be made whole, top executives of the National Futures Association said Tuesday.

The NFA is an industry self-regulatory group that oversees Sentinel, a cash-management firm that acted as a bank of sorts for commodity futures traders and others.

The NFA officials said Sentinel repaid some of its customers before seeking bankruptcy protection from creditors and arranged to partly pay off more clients Tuesday.

At the beginning of last week, Northbrook-based Sentinel, which claimed to manage $1.6 billion, announced it would not allow any withdrawals.

Sentinel, led by Chief Executive and President Eric Bloom, claimed in a letter to clients that shaky financial markets had forced it to block investors' access to their money. The Securities and Exchange Commission said this week that Sentinel defrauded its customers by misappropriating their assets and pledging them as collateral for loans.

Bloom could not be reached for comment, and Sentinel has declined to comment since its troubles became public.

Daniel Roth, president of the NFA, said his organization made it clear to Bloom Aug. 14 that Sentinel had to act decisively.

"We told him to resolve this situation quickly," Roth said.

The big concern, Roth said, was to get money back to futures brokers in an account called Seg 1. Seg is short for segregation. An industry rule says that futures brokers must segregate their customers' money from brokers' money.

So the assets in Seg 1 belonged to brokers' clients, not the brokers, and in the fast-moving world of futures trading, customers need immediate access to their money.

By Aug. 15, Roth said, Sentinel had paid $100 million to four of its futures broker clients who had accounts containing nothing but cash.

That left about 20 futures brokers in the Seg 1 account who had top-rated corporate and government securities at Sentinel.

Roth said Bloom was hoping to get 90 cents on the dollar in Sentinel's quick deal to sell the assets in Seg 1 to Citadel Investment Group, the Chicago hedge fund. But some of the assets could not be sold, Roth said, and the Citadel deal brought in enough to repay the brokers at just 75 cents on the dollar.

The Bank of New York Mellon, which held the proceeds from the Citadel sale, distributed about $300 million to those futures brokers Tuesday.

'No big firms have failed'

As a result, the NFA had met its goal of extracting as much cash as it could, as quickly as it could, so that futures brokers could avoid insolvency.

"No firms have failed," Roth said.

Seg 1 brokers had no reason to break out the champagne after taking a 25 percent loss, although they may get a little more money as time goes on.

"The clients of Sentinel got money," said Robert Trizna, a Chicago lawyer who is representing Farr Financial. "One could classify that as some form of relief."

The 120 clients who are expected to fare the worst were in an account called Seg 3. It held assets for hedge funds, endowments, well-to-do individuals and even included personal assets of futures brokers.

Daniel Driscoll, the NFA's chief operating officer, said Sentinel told those in the Seg 3 account that their assets totaled $700 million.

But investigators have found that the Seg 3 account has just $96 million in it.

Not enough to make whole

"It doesn't add up anywhere near $700 million," Driscoll said. He said some other money may be available to Seg 3 customers, but not nearly enough to make them whole.

"Based on what we have seen now, it would appear to be less than 50 cents on the dollar," Driscoll said.

In bankruptcy court proceedings this week, a lawyer for investment fund Discus Master Limited noted that Sentinel owed his client $400 million.

"On behalf of Discus and a number of other clients, we're working closely with regulators and debtor's counsel to find out where the money is and to retrieve it as quickly as possible," Arthur Hahn, lawyer for Discus, said in an interview Tuesday.

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byerak@tribune.com

rmanor@tribune.com

Boom shifts to foreclosures - U.S. activity nearly doubles in year; experts cite variety of factors

Boom shifts to foreclosures - U.S. activity nearly doubles in year; experts cite variety of factors
By Mary Umberger
Copyright © 2007, Chicago Tribune
August 22, 2007


The shriveling subprime mortgage market may be getting the lion's share of the blame, but industry experts say chaos in subprime lending is not the only factor in the financial squeeze that has pushed national foreclosure activity up 93 percent from a year ago.

RealtyTrac, a foreclosure data firm in Irvine, Calif., reported Tuesday that the nation saw about 179,600 homes in some stage of foreclosure last month, one for every 693 U.S. households.

And though the Chicago area saw a slight month-to-month decline in July, foreclosures for the first half of the year are up 42 percent here from a year earlier, according to Rick Sharga, a RealtyTrac spokesman.

The firm said many property owners with adjustable-rate mortgages who were seeing their payments rise were shut out of refinancing into better rates because of the subprime lending crisis.

"Interest rates are just one of the culprits," said Marki Lemons, a Chicago real estate agent who specializes in preforeclosure sales. She said it is one of a trio of factors she sees regularly.

Taxes are another. "We're in a city that has an abundance of new development, and people aren't fully assessing what their taxes will adjust to in 12 to 18 months -- in some cases it's double what they thought they were getting.

Assessments are a third. "And we have a large percentage of condos, and people are seeing increases in monthly assessments and special assessments. In some of those cases they have doubled, also."

The situation has grown so serious that consumer-advocacy groups in California, where RealtyTrac said foreclosures were running at three times last year's pace, on Tuesday called for the state to declare a moratorium on foreclosures. They say consumers have been victimized by predatory lending or otherwise are facing a mortgage-induced squeeze that threatens to put thousands out of their homes.

"A moratorium doesn't really fix the situation," said Lynnette Briggs, a counselor for the DuPage Homeownership Center in Wheaton. "You can postpone the foreclosure but the steam just keeps building.

"What we need in order to recover are more refinancing options and more loan-modification options."

Illinois' 5,530 homes in foreclosure in July put the state 15th in the nation, RealtyTrac said. Of those, 4,652 were in the Chicago area.

That works out to one of every 930 households in Illinois, according to RealtyTrac. In Nevada, the No. 1 state for foreclosures, it's one per 199 households.

The firm said 43 states saw year-over-year increases, with five -- California, Florida, Michigan, Ohio and Georgia -- making up more than half the total.

California and Florida suffer from high foreclosure rates because rapid appreciation led buyers to borrow huge amounts of money, while the economy in Michigan and Ohio has been weak. Many Georgia homeowners relied on subprime mortgages, and the region also saw a significant number of mortgage fraud cases.

RealtyTrac saw one small glimmer locally.

"Actually, Chicago had a good second quarter relative to the rest of the country," said Sharga. "Chicago's foreclosure activity was down 6 percent in the second quarter compared to the first quarter, while the rest of the country was going up.

"But that dropping-back by 6 percent is a number that's still almost twice last year's first-quarter number," he said.

Nonetheless, real estate professionals say the pain is widespread.

Hudson & Marshall of Texas, an auction firm that specializes in foreclosure properties, conducted a sale last week of 190 Chicago-area homes attended by hundreds of bidders.

"When we were in Chicago for an auction last fall there were about 25 homes auctioned," said Crystal Wright, a spokesman for Hudson & Marshall.

"Last year activity was creeping along, and now I would say it's almost a bulldozer effect across the country," she said. Recently the firm conducted foreclosure auctions for 200 homes in Southern California and 400 in Northern California.

Real estate agent Lemons said banks are now offering "short" sales, whereas in a balanced market they were mum about the possibility. "They're willing to take less than what's owed to them, to get it off their books. I'd say on average they're willing to go down about 20 percent."

South Holland real estate agent Daryl Russell said the wave of foreclosures is not the investment bonanza that some clients envision because loans have dried up for them, too.

"There are more foreclosures, but the buyers aren't as plentiful, and I attribute it directly to subprime mortgages," said Russell.

"I had three deals that were about to close lately, and none of them happened" because lenders changed their minds, he said.

"I'm talking about people with 740 credit scores who six months ago could have bought two properties," Russell said.

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mumberger@tribune.com

Poll: Many Americans close the book on reading - Literary enclaves abound, but 27% of respondents disdained all books in past year

Poll: Many Americans close the book on reading - Literary enclaves abound, but 27% of respondents disdained all books in past year
By Alan Fram
Copyright © 2007, Chicago Tribune and The Associated Press
August 22, 2007


WASHINGTON - There it sits on your nightstand, that book you've meant to read for who knows how long but haven't yet cracked open.

You are not alone.

One in four adults say they read no books at all in the past year, according to an Associated Press-Ipsos poll released Tuesday. Of those who did read, women and seniors were most avid. Religious works and popular fiction were the top choices.

When asked, "Have you read any books in the past year, or haven't you had a chance to read a book in the past year?" the typical person claimed to have read four books; half read more and half read fewer. (Excluding those who hadn't read any, the usual number read was seven.)

"I just get sleepy when I read," said Richard Bustos of Dallas.

Bustos, a 34-year-old project manager for a telecommunications company, said he hadn't read any books in the last year and would rather spend time in his back-yard pool.

Such a remark is reflected in book sales, which have been flat in recent years. Analysts attribute the listlessness to competition from the Internet and other media, the unsteady economy and a well-established industry with limited opportunities for expansion.

Who are the 27 percent of people who hadn't read a single book in the past year? Nearly a third of men and a quarter of women fit that category. They tend to be older, less educated, lower income, minorities, from rural areas and less religious.

At the same time, book enthusiasts abound. Many respondents said they can't do without.

"I go into another world when I read," said Charlotte Fuller, 64, a retired nurse from Seminole, Fla., who said she read 70 books in the last year.

Among those who had read books, the median figure -- half reading more, half fewer -- was nine books for women and five for men. The figures also indicated that those with college degrees read the most, and people age 50 and up read more than those who are younger.

The Aug. 6-8 phone poll of 1,003 adults cites a margin of sampling error of plus or minus 3 percentage points.

- - -

America's bookworms

Who some of them are:

*People from the West and Midwest are more likely to have read at least one book in the past year.

*Southerners who read tend to read more books than people from other regions.

*Whites read more than blacks and Hispanics.

*Those who never attend religious services read nearly twice as many books as those who attend frequently.

*Democrats and liberals typically read slightly more books than Republicans and conservatives.

What people read:

64% -- The Bible and religious works.

About 50% -- Popular fiction, histories, biographies and mysteries.

21% -- Romance novels.

Less than 5% -- All other types, including politics, poetry and classical literature.

Source: Associated Press-Ipsos

Dems look to Bean on how to win in GOP-leaning area

Dems look to Bean on how to win in GOP-leaning area
By Jim Tankersley
Copyright © 2007, Chicago Tribune
August 22, 2007


WASHINGTON - Melissa Bean's welcome-to-Congress present in 2005 was a headline in a Capitol Hill newspaper declaring her the Republicans' No. 1 target in the next election cycle.

Two years, a $12 million campaign and a 7-point victory later, her sophomore greeting was decidedly different: a line of newly elected Democrats from GOP-leaning districts, eager to learn Bean's secrets of electoral success.

Bean, a self-styled pro-business Democrat from a slice of Chicago's north and northwest suburbs long dominated by the GOP, has become an archetype for many of the congressional rookies whose victories delivered control of the House to Democrats last fall -- and whose fortunes in 2008 will determine whether the new majority lasts another two years.

Democratic colleagues -- and several Republicans in Illinois and nationally -- attribute Bean's victory last year and Republicans' inability to recruit a well-known challenger against her this year to a combination of fundraising prowess, attention to district issues and a centrist voting record.

"She's a real role model for someone like myself, running in a Republican-leaning district," said Rep. Gabrielle Giffords (D-Ariz.), a freshman who holds a top spot on the National Republican Congressional Committee's target list for 2008.

National Republicans insist Bean remains a top target and is "highly vulnerable" next year, particularly if wealthy businessman Steve Greenberg wins the GOP primary to face her. They say Congress' low approval ratings, along with a Republican turnout boost from the presidential election, will hurt Bean and the 60 other House Democrats from districts President Bush carried in 2000 and 2004.

"Lessons of the past for vulnerable Democrats do not apply to 2008," said Ken Spain, an NRCC spokesman.

National political trends didn't apply to Bean, a business consultant and mother of two, when she upset longtime Rep. Philip Crane in 2004. Only one other Democratic House candidate unseated a GOP incumbent that year. Republicans called Bean a fluke and put her atop their electoral hit lists.

In Congress, Bean preached fiscal discipline and courted business leaders for support and campaign cash. She bucked the Democratic line and angered organized labor leaders by voting for free-trade deals.

She also brought staffers to town halls to field complaints about government services and focused on her office's Web site after replacing a congressman who didn't have an e-mail address.

High-profile Republicans passed on challenging her. Her eventual GOP opponent, David McSweeney, poured millions into his campaign and outspent Bean by nearly $1 million. The NRCC kicked in at least $2.4 million more. Bean won 51 percent of the vote, McSweeney took 44 percent and a third-party candidate snagged the remainder.

Other Democrats followed suit across the country, winning seats long held by Republicans in areas where Bush cruised in his presidential victories. Bean mentored some of them, including Giffords, during the campaign.

'If she can do it, I can too'

"There's no question," Bean said in a recent interview, "that some of the candidates who ran in the last cycle said, 'If she can do it, I can too.'"

Later she added, "I'm glad to share what's working."

When the victors arrived to form the new Democratic majority in Congress, several turned to Bean again.

Giffords said Bean emphasized the importance of "voting your district" over the party line, which for Giffords meant voting with Republicans on several get-tough-on-illegal-immigrants measures. (The NRCC has criticized her on other immigration votes.)

Rep. Ron Klein (D-Fla.), who beat veteran Rep. Clay Shaw last year, said he follows Bean's advice "closely" on how to win re-election: "She works very hard. She really dogs issues, prepares herself well, understands how her district thinks about it and then makes a good judgment."

Bean's approach has won fans among business groups that traditionally lean Republican -- the U.S. Chamber of Commerce co-hosted a fundraiser for her in Chicago last month -- and the respect of several elected Republicans in her district. State Sen. Pamela Althoff praised Bean's "immediate grasp and responsiveness to" McHenry County's transportation needs and said she could not think of an issue on which to criticize the congresswoman.

Still, the Democratic Congressional Campaign Committee has kept Bean on its list of endangered incumbents for 2008. The NRCC has hammered her on immigration, health care and tax votes, and it predicts that a well-funded challenger such as Greenberg could make the next election Bean's toughest yet.

Tough re-election expected

Bean is raising money as though she expects another tough race. She banked $552,000 last quarter and more than $1 million for the election cycle so far, up slightly from the same point two years ago.

Perhaps ironically, Democratic strategists say Bean's proteges could take some of the heat off her this time. With so many freshmen Democrats running in Republican-leaning -- and cheaper for advertising -- districts, the national GOP could be tempted to spend its dollars elsewhere.

Republicans, meanwhile, have to worry about at least three other seats they hold in Illinois this year: the Democratic-leaning district held by Rep. Mark Kirk and two seats being vacated by Reps. Dennis Hastert and Ray LaHood. Both those seats traditionally lean Republican, but Democrats say they're inspired to try for them.

"In a sense, it's the Melissa Bean century now," said Eric Adelstein, a veteran Illinois Democratic political consultant. She won her 2004 race, "and now people say, why not? Maybe we can win in some of these places. The numbers show it's possible."

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jtankersley@tribune.com

Study: Hypertension under-diagnosed in kids

Study: Hypertension under-diagnosed in kids
By Deborah L. Shelton
Copyright © 2007, Chicago Tribune
3:59 PM CDT, August 21, 2007


Pediatric records suggest doctors fail to diagnose high blood pressure in most children and teenagers who have it, an oversight that could have devastating health consequences once they become adults, researchers reported today.

The study, published in this week's Journal of the American Medical Association, found that among children whose blood pressure readings indicated hypertension, only 26 percent had the diagnosis documented in their electronic medical records.

If the findings are extrapolated nationwide, as many as 1.5 million children and teens could have undiagnosed high blood pressure, said Dr. David C. Kaelber, a pediatrician at Boston Children's Hospital and a study co-author. That compares with about 500,000 children who have been correctly diagnosed.

"I expected to find some under-diagnosis, but it was the magnitude of the under-diagnosis that was most striking," Kaelber said. He said the study was "a wake-up call for providers as well as parents that we need to become much more educated and careful about looking at blood pressure in children."

The new study adds to recent research suggesting that high blood pressure is becoming more common in children and adolescents in the U.S., paralleling the nation's obesity epidemic.

The latest findings were sobering but not surprising, said Dr. Stephen Daniels, chairman of pediatrics at University of Colorado School of Medicine and pediatrician-in-chief at The Children's Hospital at Denver. "Even in adults, it's clear that hypertension isn't recognized as often as it should be," he said.

Blood pressure refers to the force exerted on artery walls as blood flows through the body. Untreated hypertension usually does not cause life-threatening problems in children because the damaging effects occur over time, but it has been linked to heart attacks, strokes and kidney failure in adults.

Normal blood pressure for adults is a systolic pressure below 120 and a diastolic pressure of 80 as measured in millimeters of mercury. Systolic pressure between 120 and 139 or a diastolic pressure between 80 and 89 means prehypertension, or slightly elevated blood pressure that often leads to full-blown hypertension.

Identifying the condition in children, however, is far more complicated. Guidelines developed by medical experts define hypertension as blood pressure at or higher than the 95th percentile for age, sex and height during three office visits. Prehypertension is defined as average blood pressure at or higher than the 90th percentile for age, sex and height, or a reading of more than 120 over 80.

That's where it gets sticky. For example, the 95th blood pressure percentile for a 15-year-old girl in the 75th percentile of height is 129 over 84, but the 95th percentile for an 8-year-old boy in the 10th percentile of height is 112 over 76. Although tables are available to help clinicians determine whether blood pressure is abnormal, they don't always use them.

The JAMA study examined the records of more than 14,000 pediatric patients, ages 3 to 18, who were seen at least three times during routine checkups between June 1991 and September 2006 in outpatient clinics at a large medical center in the Cleveland area.

Medical records indicated that 507 of the children had hypertension, 3.6 percent of the total. But only 26 percent of them had a documented diagnosis. Of the 485 children with prehypertension, only 11 percent of the cases were documented.

Older and taller children with hypertension were more likely to be identified, the authors said, because they are more likely to have readings above 120 over 80, the normal blood pressure for adults.

Hypertension in children has been correlated with low birth-weight, excess weight and a family history of high blood pressure. If not identified and addressed early, either with lifestyle changes or medication, the chance of preventable organ failure in adulthood is greatly increased, the authors said.

"We are seeing more and more kids who are going to be diagnosed with hypertension, just as we are seeing more and more kids diagnosed with diabetes. This is a serious public health issue," said Evanston pediatrician Dr. Irwin Benuck, who also practices at Children's Memorial Hospital in Chicago. "We need to teach our kids to eat healthy and exercise and not be couch potatoes like so many are."

The solution likely will be multifaceted, experts said. Parents should ask about their children's blood pressure and learn what the readings mean. Greater education of pediatricians and other clinicians about high blood pressure in children also would help, as would wider use of electronic medical records and computerized information systems, they said.

dshelton@tribune.com

Motorola's new Q phone hits store

Motorola's new Q phone hits store
By Mike Hughlett
Copyright © 2007, Chicago Tribune
10:50 AM CDT, August 22, 2007

The next generation of Motorola's Q smartphone went on sale online Wednesday through Verizon Wireless, and will be available in Verizon Wireless's retail outlets -- including those in Circuit City -- on Aug. 29.

The Q9m, as it's dubbed, costs $300 after a $50 mail-in rebate and a two-year wireless plan with Verizon.

The original Q, in May 2006, was Schaumburg-based Motorola's first smart phone featuring a full typewriter keyboard. The new Q has improved battery life and runs on Windows Mobile 6.0.

It also features what Motorola says is an improved keyboard -- i.e. one less condusive to finger slippage. The Verizon Q is optimized for music, featuring two stereo speakers and a dedicated user interface for Verizon's V Cast music service. Motorola is hoping the new Q will help boost its struggling mobile phone division.

mhughlett@tribune.com

Report: LaSalle Bank sale could cost 10,500 jobs in Chicago area

Report: LaSalle Bank sale could cost 10,500 jobs in Chicago area
By Barbara Rose
Copyright © 2007, Chicago Tribune
11:00 AM CDT, August 22, 2007


A report analyzing the likely impact of Bank of America's acquisition of LaSalle Bank Corp. estimates that more than 10,500 jobs in the Chicago area will be lost over a two-year period, resulting in more than $780 million in lost wages.

The report, released today was prepared by research firm Anderson Economic Group LLC and commissioned by a coalition of labor and community groups that hopes to persuade Bank of America to retain area jobs.

The $21 billion bank deal is expected to close early in the fourth quarter.

A Bank of America spokesman said no staffing decisions have been made and "specifics on jobs would be premature as the analysis is ongoing."

"Once the transition is complete I think you're going to find a stronger company that will contribute to the growth of the economy and be a strong partner to the communities we serve," he said.

Among the sponsors of the study are Service Employees International Union Local One and the Woodstock Institute, an economic development policy and research group.

LaSalle Bank Corp. employs about 15,000 people nationwide and operates LaSalle Bank, headquarted in Chicago, and LaSalle Bank Midwest, headquartered in Troy, Mich.

The study assumes that North Carolina-based Bank of America will eliminate LaSalle Bank's headquarters jobs, laying off staffers or transferring their positions to North Carolina, while keeping most branch positions.

Some laid-off employees will start businesses, creating job growth; others will find jobs at firms that are expanding, the study states. It estimates the net number of jobs lost at more than 4,000.

"Over time, as the job losses ripple through the econmy, we estimate an additional 6,500 to 6,700 jobs will be lost as the economy contracts due the direct job losses," the study states.

State and local governments will collect about $16 million less in tax revenue in 2008 and $32 million less in 2009 due to the earnings losses, the study states.

berose@tribune.com

White House Manual Details How to Deal With Protesters

White House Manual Details How to Deal With Protesters
By Peter Baker
Copyright by The Washington Post
Wednesday, August 22, 2007; Page A02


Among other things, any event must be open only to those with tickets tightly controlled by organizers. Those entering must be screened in case they are hiding secret signs. Any anti-Bush demonstrators who manage to get in anyway should be shouted down by "rally squads" stationed in strategic locations. And if that does not work, they should be thrown out.

But that does not mean the White House is against dissent -- just so long as the president does not see it. In fact, the manual outlines a specific system for those who disagree with the president to voice their views. It directs the White House advance staff to ask local police "to designate a protest area where demonstrators can be placed, preferably not in the view of the event site or motorcade route."

The "Presidential Advance Manual," dated October 2002 with the stamp "Sensitive -- Do Not Copy," was released under subpoena to the American Civil Liberties Union as part of a lawsuit filed on behalf of two people arrested for refusing to cover their anti-Bush T-shirts at a Fourth of July speech at the West Virginia State Capitol in 2004. The techniques described have become familiar over the 6 1/2 years of Bush's presidency, but the manual makes it clear how organized the anti-protest policy really is.

The lawsuit was filed by Jeffery and Nicole Rank, who attended the Charleston event wearing shirts with the word "Bush" crossed out on the front; the back of his shirt said "Regime Change Starts at Home," while hers said "Love America, Hate Bush." Members of the White House event staff told them to cover their shirts or leave, according to the lawsuit. They refused and were arrested, handcuffed and briefly jailed before local authorities dropped the charges and apologized. The federal government settled the First Amendment case last week for $80,000, but with no admission of wrongdoing.

The manual demonstrates "that the White House has a policy of excluding and/or attempting to squelch dissenting viewpoints from presidential events," said ACLU lawyer Jonathan Miller. "Individuals should have the right to express their opinion to the president, even if it's not a favorable one."

White House spokesman Tony Fratto said that he could not discuss the manual because it is an issue in two other lawsuits.

The manual offers advance staffers and volunteers who help set up presidential events guidelines for assembling crowds. Those invited into a VIP section on or near the stage, for instance, must be " extremely supportive of the Administration," it says. While the Secret Service screens audiences only for possible threats, the manual says, volunteers should examine people before they reach security checkpoints and look out for signs. Make sure to look for "folded cloth signs," it advises.

To counter any demonstrators who do get in, advance teams are told to create "rally squads" of volunteers with large hand-held signs, placards or banners with "favorable messages." Squads should be placed in strategic locations and "at least one squad should be 'roaming' throughout the perimeter of the event to look for potential problems," the manual says.

"These squads should be instructed always to look for demonstrators," it says. "The rally squad's task is to use their signs and banners as shields between the demonstrators and the main press platform. If the demonstrators are yelling, rally squads can begin and lead supportive chants to drown out the protestors (USA!, USA!, USA!). As a last resort, security should remove the demonstrators from the event site."

Advance teams are advised not to worry if protesters are not visible to the president or cameras: "If it is determined that the media will not see or hear them and that they pose no potential disruption to the event, they can be ignored. On the other hand, if the group is carrying signs, trying to shout down the President, or has the potential to cause some greater disruption to the event, action needs to be taken immediately to minimize the demonstrator's effect."

The manual adds in bold type: "Remember -- avoid physical contact with demonstrators! Most often, the demonstrators want a physical confrontation. Do not fall into their trap!" And it suggests that advance staff should "decide if the solution would cause more negative publicity than if the demonstrators were simply left alone."

The staff at the West Virginia event may have missed that line.

International Herald Tribune Editorial -Losing patience

International Herald Tribune Editorial -Losing patience
Copyright by The International Herald Tribune
Published: August 21, 2007


Dirk Kempthorne's arrival in Washington as secretary of the interior raised hope that he would moderate the Bush administration's aggressive search for oil and gas in some of America's most environmentally sensitive lands. This has not happened. The Bureau of Land Management seems to be moving as recklessly as it did under Kempthorne's predecessor, Gale Norton, and even the administration's natural allies have finally had enough.

Last Friday, the Theodore Roosevelt Conservation Partnership sued the Interior Department to protest the recent authorization of 2,000 new oil and gas wells, along with 1,000 miles of roads and another 1,000 miles of pipeline in a wildlife-rich area of Wyoming known as the Atlantic Rim. The suit accuses the bureau of multiple violations of federal law, including the requirement that it fully assess less destructive alternatives.

This is the partnership's first lawsuit against the government, and one it did not undertake lightly - in part because the hunters and anglers who make up the bulk of its membership tend to be largely Republican.

What drove the partnership into court was the administration's reckless disregard for the law. If that does not get Kempthorne's attention, nothing will.

International Herald Tribune Editorial - The nanny state?

International Herald Tribune Editorial - The nanny state?
Copyright by The International Herald Tribune
Published: August 21, 2007


You would think Americans were living in the lap of the Nanny State. One of the most puzzling facts of the current political debate is how much traction Republicans still get from their calls to cut taxes and public spending, and how timorous Democrats are in arguing against them.

The United States has long had one of the most meager tax takes in the industrial world. America's social spending - on programs ranging from Medicare and Social Security to food stamps - is almost the stingiest among industrial nations. Among the 30 industrialized countries grouped in the Organization for Economic Cooperation and Development, only four - Turkey, Mexico, South Korea and Ireland - spend less on social programs as a share of their economy.

Long a moral outrage, this tightfisted approach to public needs is becoming an economic handicap. Shortchanging public health impairs America's competitiveness. If the United States is to reap the rewards of globalization, the government must provide a much more robust safety net - to ensure public support for an open economy and protect vulnerable workers.

The OECD's definition of social spending includes programs to help people overcome such challenges as old age, poverty and unemployment. It excludes most education and the tax deduction for mortgage interest, which in the U.S. benefits the well-to-do more than others.

The United States has long preferred financing some social goals with tax breaks, such as the deduction for company-provided health insurance or credits for dependent care. After adding in these breaks America still comes out sixth from the bottom in total social spending.

Abdicating responsibilities does not make them go away, it just pushes them onto the individual or the private sector, which often can't cope with the burden. That's most evident in companies' withdrawal of health benefits. In this country, according to an OECD study, unemployment benefits replace, on average, 14 percent of workers' lost earnings. Of the 20 richest countries in the organization, only Japan's are lower.

For American workers, and voters, to accept the increased competition brought on by globalization, the public sector would have to provide much better social insurance than that.

China raising interest rates in bid to cool inflation

China raising interest rates in bid to cool inflation
By David Lague
Copyright by THe International Herald Tribune
Published: August 21, 2007


BEIJING: China announced Tuesday that it would raise interest rates for a fourth time this year in an effort to contain its racing economy and rein in soaring consumer prices.

The People's Bank of China, the central bank, said on its Web site that the benchmark one-year lending rate would rise 18 basis points to 7.02 percent as of Wednesday, and the rate for deposits would rise 27 basis points to 3.6 percent.

Analysts said that the rate increase was also aimed at cooling the Chinese stock market which has so far escaped the turmoil that the U.S. subprime mortgage crisis has unleashed on global financial markets.

In the aftermath of the U.S. Federal Reserve's move Friday to cut its discount rate to steady financial markets, China's decision demonstrates how the world's fastest growing major economy sometimes appears to be insulated from global economic forces.

"China is now counteracting the U.S. cycle," said Connie Leung, chief economist at ERA Economic Research Analysis, a research and advisory business in Hong Kong. "China is one of the few markets in the world to be raising rates rather than holding or cutting rates."

The ruling Communist Party fears that rising prices fueled by an overheated economy could hurt millions of poor Chinese, particularly in rural areas where economic hardship or dissatisfaction with the government can often lead to protests and unrest.

But the authorities must avoid too sharp a slowdown because rapid economic growth is needed to provide jobs for millions of surplus rural workers.

Leung and other analysts expect China to raise rates further before the end of the year, perhaps more than once, as part of a sustained campaign to bring growth under control.

In addition to raising rates, the central bank, six times this year, has ordered lenders to increase the amount of funds they must hold in reserve in an effort to tighten the supply of credit.

Many economists had expected China to raise rates further after official statistics showed that inflation jumped to 5.6 percent in July, the biggest monthly increase since 1997, mainly due to steep increases in the cost of food including pork and other household goods.

The official target for inflation for 2007 is 3 percent. The Chinese economy expanded at 11.9 percent in the second quarter compared to the same period last year, the fastest growth in more than 12 years as exports and investment continue to boom.

In July, China's trade surplus jumped 67 percent from a year earlier to $24 billion. Fixed asset investment in urban China increased 26.6 percent during the first seven months of the year.

But, China's top economic planning agency and price monitor, the National Development and Reform Commission, said the country was not in danger of entering a period of "full-scale" inflation, the official China Daily newspaper reported Tuesday.

The paper reported that the NDRC had analyzed rising prices and found that they were limited to a narrow ranger of consumer goods.

With limited options for investment outside bank deposits, millions of Chinese savers have turned to the stock market in recent years, driving a surge in share prices that has seen the benchmark Shanghai Composite Index rise 80 percent this year following a 130 percent increase last year.

The flow of savings to the stock market has accelerated as inflation outpaced interest paid on deposits.

Chicago Sun-Times Editorial - No predators in the pulpit - Church should have kept sex offenders away from kids

Chicago Sun-Times Editorial - No predators in the pulpit - Church should have kept sex offenders away from kids
Copyright by The Chicago Sun-Times
August 22, 2007


Convicted child sex offenders certainly should be able to seek redemption at a church. But when they're elevated to the pulpit and given access to impressionable youth -- as was the case at a Romeoville church -- the state needs stricter laws that keep these "religious" child molesters from having contact with children.

Currently, state law restricts convicted pedophiles from working or volunteering in schools and places that cater exclusively to children, but not churches.

This week, the Sun-Times reported that Romeoville's First Baptist Church placed one sex offender in a key leadership position -- and invited another. Such disregard for congregants' safety shows how lackadaisical some houses of worship can be, compromising common sense and safety.

Had convicted sex offender Jeff Hannah, one of the church's preachers, been lurking near playgrounds and schools, he could have been nabbed by authorities. More difficult to monitor were his sporadic interactions with minors at the southwest suburban church.

The church's leaders knew Hannah was a convicted sex offender when they hired him, despite warnings by officials at a church in Lake County, where Hannah was convicted in 1996 of sexually molesting four teens. Church members might have been concerned for Hannah's salvation, but they didn't have to exalt the molester to the pulpit, giving him a revered position within the church and authority over children.

Hannah, in turn, boldly recruited his pal Bryan Buckley, another church sex offender, whom he'd met in prison, to lead an upcoming music celebration. Buckley was convicted in 1997 of sexually assaulting a 14-year-old girl while serving as a youth pastor in St. Charles.

Child molesters may be forgiven in the eyes of God, but the state of Illinois isn't so forgiving. State law requires that convicted pedophiles keep at least 500 feet from children for the rest of their lives -- if they were sentenced after 1999. Sadly, the law may not apply to Hannah or Buckley. Attorney General Lisa Madigan's office admitted Tuesday that the law isn't so clear when child molesters are employed at places where there are adults and children -- like churches. Still Madigan's office says it routinely re-examines the law for loopholes. We hope Madigan looks at this one.

Neither Hannah nor Buckley has been arrested for sex offenses since their convictions. That doesn't mean children at First Baptist were never in danger. Stacks of studies -- including behavioral analyses at the FBI -- show that sexual predators are never unshackled by their urges.

Incidentally, many of First Baptist's congregation left the church earlier this year, angry that their minister, the Rev. Charles Hamby, a divorced man, decided to remarry -- an act considered adultery by some conservative Christians. There are only 20 active adult members remaining, but the church advertises youth programs.

If church members were that disturbed by a minister's second marriage -- something allowed by law -- how much more disturbed should they have been to know their church had hired a man convicted of committing unlawful acts with minors?

Both Hamby and preacher Hannah stepped down after they were questioned by the Sun-Times last week. The flock will decide the church's fate within the next few days.

Forgiveness and understanding are essential church tenets. But those values should not outweigh the safety of children.

America risks the fate of the Roman republic

America risks the fate of the Roman republic
By David Walker
Copyright The Financial Times Limited 2007
Published: August 22 2007 03:00 | Last updated: August 22 2007 03:00


The US is a great nation, possibly the greatest of all time. Yet to keep America great, policymakers must learn certain lessons from history, notably the downfall of the Roman republic.

The world has changed dramatically in recent years. The US is currently the sole superpower on earth but that exclusive status is likely to be short-lived. While the US is number one in many things, from the size of its economy to military might, it faces several big sustainability challenges.

America's fiscal, healthcare, education, energy, environment, immigration and Iraq policies are in need of review and revision. Timely action is needed because Washington's historical crisis-management approach to dealing with hard public policy choices is no longer prudent.

From a fiscal perspective, a few vital statistics underline the problems. First, while short-term federal deficits are coming down, they are still too high given the impending retirement of the "baby boomers" and the fact that the cost of the global war on terrorism accounts for just a fraction of US operating deficits. In fiscal 2006 the war cost was about $100bn compared with a total operating deficit of about $434bn.

Second, the nation's total liabilities and unfunded commitments for pension and health programmes for the elderly (Social Security and Medicare, respectively) have mushroomed from about $20,000bn to about $50,000bn in the six-year period ending in fiscal 2006, driven largely by the passage of the Medicare prescription drug benefit and the failure to impose planned Medicare cost controls.

Furthermore, many believe that the assumptions for long-term health cost increases used to calculate these Medicare numbers are too optimistic. Despite these sobering facts, some members of Congress are trying covertly to eliminate the current provision designed to control Medicare spending as part of unrelated legislation pending in Congress. When will common sense come to Washington?

The US has faced big challenges in the past and it has always risen to them. However, we must not take comfort in our nation's current superpower status and past success. For a lessonin what we should avoid, we must learn from history. In this regard, the Roman republic fell for a number of reasons and three in particular resonate today.

First, there has been a decline in moral values and political civility at home. Examples include the devaluation of life, greater self-centredness by individuals and increased partisanship and ideological divides in Congress.

Second, we now have an overextended military around the world. While the US military is unmatched as to its capabilities, it is under stress and stretched very thin.

Last, there is fiscal irresponsibility by the central government. Our debt ratios are set to increase dramatically when the baby boomers retire.

What type of actions are needed?

First, the next president should make the issue of "fiscal responsibility and intergenerational equity" one of his/her top priorities. This includes reformingSocial Security, healthcare and our tax systems. Tax reform should aim to improve the simplicity, credibility and equity of the system.

It is also vital that a few courageous and credible champions emerge in both houses of Congress and from both parties to work with the new president to make long-overdue reforms happen.

While it is highly unlikely that big reforms will occur during the balance of the Bush administration, some meaningful progress can and should be made before January 2009. Elected officials should work to pass tough budget controls to help slow our fiscal bleeding. They should also work with the Government Accountability Office to enhance transparency regarding our longer-range fiscal challenges, targeting current financial reporting practices and budgeting processes. Last, they should create a capable, credible and bipartisan commission to set the stage for significant reforms in 2009.

These actions would enhance our chances for meaningful reform. They would also improve respect for and confidence in elected officials, whose approval levels hover near historical lows. As George Washington once said, we should avoid "ungenerously throwing upon posterity the burdens that we ourselves ought to bear". US elected officials should heed these words, learn from history and start making tough choices to ensure that the US is the first republic to stand the test of time.

The writer is comptroller general of the United States and head of the USGovernment Accountability Office

Financial Times Editorial Comment: History will judge who lost Iraq

Financial Times Editorial Comment: History will judge who lost Iraq
Copyright The Financial Times Limited 2007
Published: August 21 2007 19:24 | Last updated: August 21 2007 19:24


It has been some time since the complacent official narrative about Britain’s involvement in Iraq has passed muster – not only with its sceptical citizens but also with its troops. Nearly a year ago, the British army’s chief of staff said the UK’s military presence in southern Iraq “exacerbates the security problems”. Now, officials and strategists in Washington have concluded that the British army has been defeated in southern Iraq and have started to express alarm that Gordon Brown will try to consolidate his new premiership by heading for the exit.

Britain’s political cover was always prized by the Bush administration but, as Donald Rumsfeld, the former defence secretary, made humil iatingly clear, its military contribution was considered optional. So what is the balance sheet?

To begin with, south Iraq was never Britain’s to lose. The Rumsfeld Pentagon’s incompetence probably lost Iraq in the anarchy triggered immediately after the fall of Baghdad. The southern provinces were spared that chaos, but only because the Shia clerical hierarchy led by Ayatollah Ali al-Sistani compelled restraint. It held the ring until the political process – a new constitution and representative elections – delivered Iraq to its Shia majority. Unlike the Sunni centre and west, where Ba’athists, Sunni supremacists and jihadis launched a lethal insurgency against the Anglo-American occupation, the south was relatively quiescent. That deceptive calm has been torn to pieces by the intra-Shia jostle for power between three rival clerical dynasties and their armed allies.

The Sadr dynasty, now headed by the young radical Moqtada al-Sadr and his Mahdi army, wants to be the Shia leadership of a united Iraq. The Hakim dynasty, with its Iran-trained, US-backed Badr militia, wants power in Baghdad but alongside an oil-rich Shia-stan in south Iraq. The Basra-based Fadhila (Virtue) party wants local hegemony but federal control of the oil ministry. This April, US troops took the field alongside Badr against Sadr. They, as well as the British, are now seen as just another militia.

British forces, of course, while trumpeting their “softly, softly” engagement of the locals, were relying heavily on local militias from the outset; the US took longer to reach that position. Both forces are now staring at defeat. The remaining question is how to organise withdrawal in the way least damaging to Iraq and in a way that might – just – compel Iraqi leaders to compromise instead of pursuing winner-takes-all policies. That is the urgent debate; the judgment of history will take care of who lost Iraq.

Beijing claims success for clean air drive

Beijing claims success for clean air drive
By Richard McGregor in Beijing
Copyright The Financial Times Limited 2007
Published: August 21 2007 15:39 | Last updated: August 21 2007 15:39


Beijing’s removal of up to 1.3m cars off the road in recent days in a test run of measures to ensure clean air at the 2008 Olympics was declared a success by city officials, who said major pollutants from autos dropped by up to 20 per cent.

The city reduced the number of cars on the road by about a third over four days starting last Friday, by designating alternate dates on which vehicles with odd-and-even number plates could be driven.

“The results indicate the measures we took during the four days had a good impact,” said Du Shaozhong, a spokesman for the city environmental bureau.

“'The tests have made it very clear that we are capable of providing good air quality by the time of the 2008 Olympic Games.”

The results announced by the government were at odds with the appearance of the air in Beijing during the test period, which was thick and hazy, with the near horizon shrouded in smog, as it often is in the Chinese capital.

According to the benchmark used by the city, the air quality rated a ‘two’, or ‘fairly good’, on a scale of one to five, with five being the worst.

The still and humid conditions over the test period made “emission diffusion” difficult, officials said, and without the removal of the cars, the air would have been worse.

Air pollution was a major issue in the lead-up to the Los Angeles, Atlanta and Seoul Olympics, and the IOC has said events could be delayed if the pollution in Beijing is too severe.

Although Beijing’s surging car numbers, now expanding at a rate of about 1,000 a day, are often blamed for the city’s poor air, there are numerous other factors both in and outside the city.

The city’s largest industrial complex, Capital Iron & Steel, for many years the city’s largest polluter, has been mostly closed and shifted into neighbouring Hebei province.

But Hebei can contribute up to 70 per cent of particulate matter in Beijing’s air with a sustained southerly wind, according to a recent paper in the publication Atmospheric Environment.

Industry, cars and a string of new coal-fired power stations in surrounding cities and provinces are all major contributors to Beijing’s air pollution.

“Controlling only local sources in Beijing will not be sufficient to attain the air quality goal set for the Beijing Olympics,” the paper said.

Among the many ideas under discussion to keep the air clear is a plan to switch part of the electricity grid to use wind-power from nearby Inner Mongolia, while shutting down some coal-fired stations.

This might help clear the air and also give the games an environmental lustre, a theme organisers are keen to promote.

China plays down product fears at home/Toymakers face further attack over labour conditions

China plays down product fears at home
By Geoff Dyer in Shanghai
Copyright The Financial Times Limited 2007
Published: August 21 2007 23:12 | Last updated: August 21 2007 23:12


In most countries, prime-time Monday night television is dominated by sitcoms. For Chinese viewers this week, Monday meant not light entertainment but a crash course in manufacturing Christmas decorations, plastic straws and green tea.

The 90-minute special was part of a week-long series of programmes on product safety put together by state broadcasters in an effort to shore up confidence among domestic consumers about products that are made in the country.

The documentaries, which have been given the collective title “Believe in Made in China”, reflect the growing anxiety among China’s leaders that a deluge of stories in overseas media about faulty Chinese goods has begun to have a political impact at home, despite restrictions on mainland reporting of the scandals.

“There is a grudging acknowledgement that some of this stuff has leaked back in through the internet,” said Russell Leigh Moses, a Beijing-based academic. “The programmes are an attempt by the government to convince people that they are on the job.”

Chinese exports such as toys, toothpaste and seafood have suffered a series of recalls in recent months, raising broad questions about the regulation of manufacturing in China. The export problems follow a series of scandals at home over the last three years, which have involved fake baby powder and poisonous antibiotics.

Although formal opinion polls are rare in China, an internet poll conducted earlier this year by Xinhua news agency indicated that product safety – and especially food quality – was becoming a pressing concern. Nearly 92 per cent of the 3,000 respondents said they were worried about food safety and 78 per cent said they thought regulation of food safety was poor.

Research conducted by consultants AT Kearney also concluded that Chinese consumers were increasingly focused on food safety, the result of both media attention and rising affluence. While in 2005, 73 per cent of consumers surveyed said food safety was “highly important”, that figure rose to 93 per cent this year.

“Over the last two years the population has become much more aware of safety issues,” said Zhang Bing, a consultant in the company’s Shanghai office.

Analysts say they do not expect product safety to be the sort of issue that will galvanise middle-class political activism. However, they argue it could damage the government’s reputation for administrative effectiveness.

Monday night’s programme traced the source of a number of products made in China, including a large chunk of the world’s Christmas decorations, which are sold in the eastern city of Yiwu in Zhejiang province. Michael O’Sullivan, secretary-general of the European Chamber of Commerce, told viewers that “in general goods made in China are dependable”.

The programme on Sunday evening took a more defensive tone, as government officials suggested that the scandals were being whipped up by overseas governments worried about China’s economic success.

Li Changjiang, head of the government’s product safety watchdog, said Chinese exports were being “demonised” even though the vast majority met international standards. “As globalisation progresses, Chinese products have more and more of the world market, which is causing some other countries to take note,” he said.

The host of the programme showed the studio audience two products that had been recalled in the US because they used lead paint, and informed them that only minor details were affected – the eyebrows on a toy doll and the red stop sign of a train set. “It’s exaggerated,” Mr Li said of the risks from the toys.

The broadcast underlined that, while parts of the government have been trying to convince international audiences that the safety issue is being taken seriously, other officials have sought to deflect blame on to foreign media and governments.

“The default position of government officials is usually either to crackdown or to deny, and that is what these guys are doing,” said Mr Leigh Moses.



Toymakers face further attack over labour conditions
By Andrew Taylor in London

Chinese toymakers supplying international companies on Tuesday came under fresh attack over product safety and workers’ rights.

Working conditions at toy manufacturers supplying customers such as Disney and Hasbro of the US and Bandai of Japan were described as “devastatingly brutal” by China Labor Watch, a New York-based workers’ rights organisation.

It accused multinational companies of turning “a blind eye to safety” and ignoring labour conditions in supplier factories.

Chinese exports are facing increasing scrutiny abroad. Concerns have been raised over the safety of a number of products including toys, food, textiles and toothpaste. Mattel last week said it was recalling 18.2m toys because of hazards such as use of lead paint.

China Labor Watch said multinationals should pay suppliers a reasonable price for their products to ensure that workers were paid and treated properly. They should also publish the results of factory audits.

IMF warns of risk to global growth

IMF warns of risk to global growth
By Krishna Guha in Washington
Copyright The Financial Times Limited 2007
Published: August 22 2007 00:37 | Last updated: August 22 2007 00:37



Turmoil in the financial markets will affect growth worldwide, John Lipsky, the number two official at the International Monetary Fund, said on Tuesday.

In the first interview by a senior IMF official since the market turmoil intensified, Mr Lipsky, a former senior banker at JPMorgan, told the Financial Times: “This undoubtedly will dampen economic growth.”

He said that emerging markets had so far withstood the challenge well, but added: “It is far too optimistic to assume there will be no impact.”

Mr Lipsky, first deputy managing director, said that in addition to the possible spillover effects on trade of weaker growth in the US, other economies would be directly affected. “I would expect it to have some impact . . . in a globalised world,” he said. “A number of the financial institutions that have been affected most strikingly have not been US-based.”

Mr Lipsky said that it remained unclear how large the impact of the market turmoil would be. “Whether the dampening is substantial or moderate, whether it is temporary or more extended, remains to be seen.”

The world economy, he said, had entered this market turbulence in good shape, with strong growth momentum, a large part of which came from emerging market economies.

Mr Lipsky said that problems in emerging markets as a whole – as opposed to individual economies – had tended to follow instability in developed markets.

However, emerging markets were “almost universally” better equipped to deal with these strains. Their economic performance was strong, the structure of their financial systems had improved and their policies were better.

“It would be foolish to assume that they will be immune from some serious strains in developed markets,” he said. “But their ability to withstand these strains may be better than in the past.”

Mr Lipsky warned there would be no quick end to the turmoil because of uncertainty as to how much damage it would do to growth.

“This will create a feedback loop that means it will . . . take some time for markets to restore a normal amount of volatility.”

Mr Lipsky said that the market crisis had three main components: first, a repricing of credit risk; second, a testing of the newer parts of the asset-backed securities market – in particular collateralised debt obligations and collateralised loan obligations (derivatives backed by pools of credits) that have not yet been tested under strain; third, increased fear of counterparty risk, caused by inadequate transparency on the part of banks as to the extent of their true contingent liabilities.

“Lack of transparency can create doubts that translate into market volatility,” he said. “We are finding that in some cases regulated financial institutions are carrying off-balance-sheet risks that have indirect implications for those institutions.”

Mr Lipsky said this had caused uncertainty about what risks a counterparty institution might be bearing and, in turn, contributed to the drying up of liquidity in parts of the markets.

He said “lessons would be learned and actions taken” by global regulators.

However, while many market participants appeared to have lost confidence in their counterparties, Mr Lipsky said the risk transfer mechanism through bilateral derivative contracts seemed to be working so far. “There have been no counterparty failures,” he said. “There have been traditional failures by people who made a bad investment.”

If there were counterparty failures, he said “that would create greater strains in the market”.

The senior IMF official added that one big difference between the current episode and the financial crisis in 1998 was that, in 1998, the risk transfer mechanisms that came under strain had been designed to transfer interest-rate risk, whereas the mechanisms being tested now were designed to transfer credit risk.

Mr Lipsky said it was not the IMF’s job to judge whether credit rating agencies had done their job well. However, he added: “The basic issue is that, in the end, professional investors bear the ultimate responsibility for risk assessment and management in a securitised market. It is not realistic to expect third parties to take that responsibility.”

● Russia has nominated Josef Tosovsky, a former Czech central banker, to head the IMF, board sources said on Tuesday, Reuters reports from Washington.

The Russian move pits Mr Tosovsky against Dominique Strauss-Kahn, the former French finance minister, who is the European Union’s choice.

US spies turn to MySpace and Facebook for networking advice

US spies turn to MySpace and Facebook for networking advice
By Demetri Sevastopulo in Washington
Copyright The Financial Times Limited 2007
Published: August 21 2007 20:29 | Last updated: August 21 2007 20:29


Spies and teenagers normally have little in common but that is about to change as America’s intelligence agencies prepare to launch “A-Space”, an internal communications tool modelled on the popular social networking sites, Facebook and MySpace.

The Director of National Intelligence will open the site to the entire intelligence community in December. The move is the latest part of an ongoing effort to transform the analytical business following the failure to detect the 9/11 terrorist attacks or find weapons of mass destruction in Iraq.

Thomas Fingar, the deputy director of national intelligence for analysis, believes the common workspace – a kind of “MySpace for analysts” – will generate better analysis by breaking down firewalls across the traditionally stove-piped intelligence community. He says the technology can also help process increasing amounts of information where the number of analysts is limited.

“Burying the same number of analysts in ever higher piles of hay would no more increase the number of needles,” says Mr Fingar.

Underscoring the power of social-networking sites, the Central Intelligence Agency recently used Facebook to help boost applications for the national clandestine service. The move sparked concerns that the CIA was monitoring members, which the agency denies.

”Earlier this year, the CIA used Facebook - an excellent peer-to-peer marketing tool - to advertise employment opportunities with the agency,” said George Little, a CIA spokesman. “This effort, part of a much broader campaign leveraging traditional and new advertising media, was used strictly for informational purposes.”

The DNI has also built an internal collaborative site called Intellipedia, modelled on Wikipedia, the online encyclopedia. It has also created a version of http://del.icio.us, the social book-marking site, for members of the intelligence community. Another tool that has been developed is a national intelligence library, which can be accessed from A-Space.

While MySpace and Facebook have spread like wildfire, particularly among the younger generations of internet users, members of the intelligence community are divided. Mike Wertheimer, the senior DNI official for analytic transformation and technology, illustrates the dilemma with an example from an internal blog thread last year.

A female employee who had arranged a high-school reunion on MySpace asked why the community had not created a similar tool. That prompted a response that she wasn’t thinking big enough. But Mr Wertheimer says two other people immediately jumped in with concerns about a “counter-intelligence nightmare” that could cost US lives.

“That is very typical within the intelligence community of the approach to social networking tools,” says Mr Wertheimer. “The positive value is…not easily quantified. The negative, the risk for people under cover… is drawn out so starkly, even though it is speculative, that they tend to carry the day.”

But he says the intelligence community needs to consider that not sharing information can also cost lives, a lesson learned from the 9/11 attacks.

“We are willing to experiment in ways that we have never experimented before,” he adds. “It breaks a lot of traditional senses that people’s lives are at risk, and how can you take any step that increases that risk.”

Mr Wertheimer says A-Space will initially be voluntary to assuage worries of spies concerned about blowing their cover. The DNI wants some foreign intelligence services to participate in A-Space, but there has been some resistance.

“I would say in the entire community, the folks most virulently against sharing the information are the foreign partners,” says Mr Wertheimer, who says the also want access to the intelligence library.

“They ask ‘well can we have access?’,” says Mr Wertheimer. “I ask them back if you want access, what services are you willing to create for the library, what data are you willing to put in it, have you thought through your risk/profit scenario? They kind of stand back because that is not normally how we talk to them. It is a new day.”

A-Space will be equipped with web-based email and software that recommends areas of interest to the user just like Amazon suggests books to its customers. The site will also allow users to create and modify documents, and determine user privileges, in a similar fashion to Google Documents.

Mr Wertheimer says the new infrastructures should help break down some of the physical communications problems in the intelligence community.

“I am unable to send email, and even make secure phone calls, to a good portion of the Intel community from my desktop because of firewalls,” he says.

In September, the DNI and the Intelligence and National Security Alliance, a public-private intelligence group, will hold a conference to enlist support and ideas from the private sector and academia.

“We have gotten to the stage where we want to open this up, tap more ideas, stimulate some competition to help us here,” says Mr Fingar.

Mike McConnell, the director of national intelligence, invited the chief executives of Facebook and MySpace to participate, but so far Mark Zuckerburg, the CEO of Facebook, has declined. A Facebook spokeswoman said the decision was purely because of scheduling conflicts.

Email the reporter: demetri.sevastopulo@ft.com

CIA details errors it made before Sept 11

CIA details errors it made before Sept 11
© The New York Times Company
August 22, 2007


The 19-page report, prepared by the agency’s inspector general, also says 50 to 60 CIA officers knew of intelligence reports in 2000 that two of the Sept. 11 hijackers, Nawaf al-Hamzi and Khalid al-Mihdhar, may have been in the United States. But none of those officers thought to notify the Federal Bureau of Investigation about the potential domestic threat, the report says, evidence of what it calls a systemic failure.

The inspector general recommended that several top agency officials, including former director George J. Tenet, be held accountable for their failure to put in place a strategy to dismantle Al Qaeda in the years before Sept. 11, 2001. Gen. Michael V. Hayden, the current CIA director, and his predecessor, Porter J. Goss, have declined to seek disciplinary action against Mr. Tenet and others named in the report.

The outlines of the report have been known since shortly after it was completed in 2005, but it had never been made public, and its release reignited a debate about whether the CIA should have done more before the attacks and whether Mr. Tenet and other officials should be held accountable.

Mr. Tenet called many of the report’s conclusions “flat wrong,” and General Hayden noted that many of those criticized in the review by the agency’s inspector general had criticized the “focus, methodology and conclusions” of the report.

Until Tuesday, the report had been kept under wraps by the spy agency, which opposed a public airing of its failures before the Sept. 11 attacks. The summary of the report was released at the insistence of Congress, over General Hayden’s objections, under the terms of a law passed this summer.

The dispute surrounding the report’s release suggests the depth of anger that remains, nearly six years later, over where blame should be assigned for the intelligence failures surrounding Sept. 11. Among the lawmakers who voiced renewed anger at the CIA’s decision not to discipline anyone was Representative Rush D. Holt, Democrat of New Jersey, who is a member of the House intelligence committee.

“Accountability is a concept the American people understand,” Mr. Holt said in a statement, adding, “I am stunned that General Hayden still does not get that message.”

Many of the report’s findings about bureaucratic breakdowns that allowed the 19 hijackers to elude the authorities and carry out the attacks have been documented elsewhere, principally by the Sept. 11 commission, but this report by John L. Helgerson, the CIA inspector, was the first to recommend that top agency officials face a disciplinary review.

The full report by the inspector general, totaling several hundred pages, remains classified. As spelled out in the executive summary that was released on Tuesday, the report found neither “a single point of failure” nor a “silver bullet” that would have allowed the CIA to prevent the Sept. 11 attacks. It found that no agency employee violated the law and that none of their errors amounted to misconduct.

But the report did conclude that CIA resources devoted to counterterrorism had been mismanaged, and that some had been redirected away from Al Qaeda toward other parts of the agency’s clandestine service. It cited “failures to implement and manage important processes, to follow through with operations, and to properly share and analyze critical data.”

The report does not cite the names of the officials who it says “did not discharge their responsibilities in a satisfactory manner,” but it identifies some of them by title. Besides Mr. Tenet, the report criticizes James L. Pavitt, the CIA’s former deputy director for operations; J. Cofer Black, the former director of the agency’s Counterterrorist Center; and other top officials.

Mr. Tenet resigned from the agency in June 2004.

The recommendation that the agency establish an “accountability board” to determine possible disciplinary action was rejected in October 2005 by Mr. Goss, who was the CIA director and who argued that that punishing top officials “would send the wrong message to our junior officers about taking risks.”

The report cited the CIA’s failure to pass intelligence about Mr. Mihdhar and Mr. Hamzi to other agencies as potentially significant. The CIA had identified the men in January 2000 when they visited Malaysia but never notified the State Department to put them on the terrorist watch list.

The report also said that some 50 to 60 CIA officials knew of the intelligence about the two men, a higher number than had been previously reported and that persistent surveillance of them “had the potential to yield information on flight training, financing and links to others who were complicit in the 9/11 attacks.”

In a memoir published this year, Mr. Tenet cited the CIA’s efforts against Al Qaeda as one of the successes of his tenure and portrayed the agency as having been bold in sounding alarms about it in the summer of 2001. In his statement on Tuesday, Mr. Tenet outlined a further defense, that the CIA’s counterterrorism efforts were embodied in “a robust plan, marked by extraordinary effort and dedication” long before Sept. 11, 2001.

But the report released Tuesday included new details about what it calls a strained relationship between the CIA under Mr. Tenet and the National Security Agency, which was then led by General Hayden. It said the standoff had prevented CIA officials from gaining access to transcripts of intercepted communications between terrorism suspects, and criticized Mr. Tenet as not interceding to resolve these turf battles.

In describing the period before Sept. 11, the report said the CIA had carried out “no comprehensive analysis that put into context the threats received in the spring and summer of 2001.” It said the principal responsibility for Mr. Mohammed, who became the terrorist mastermind, had been assigned to a branch of the agency responsible for bringing terror suspects to justice, not to the one responsible for assessing threats.

As a result, it said, too little attention had been paid to accusations that Mr. Mohammed was “sending terrorists to the United States to engage in activities on behalf of bin Laden.”

In a note to agency employees on Tuesday, General Hayden made it clear that he continued to oppose the report’s release. “It will, at a minimum, consume time and attention revisiting ground that is already well plowed,” he said.

But Philip D. Zelikow, the executive director of the Sept. 11 commission, praised the report and said it was broadly consistent with his panel’s findings.

Financial Times Editorial Comment: US housing market

Financial Times Editorial Comment: US housing market
Copyright The Financial Times Limited 2007
Published: August 22 2007 12:27 | Last updated: August 22 2007 12:27


The US housing market was already struggling. According to the S&P/Case-Shiller index, the price of single family homes fell 2.8 per cent in the year to May. Recent dislocations in the credit market are likely to accentuate the pain. Most obviously, the turmoil in subprime and other riskier mortgage lending has underlined that a significant number of home buyers – who helped drive up or at least support prices in recent years – should simply not have been in the market.

According to Inside Mortgage Finance, subprime and Alt-A loans accounted for about one third of mortgage lending last year. Those markets have now seized up, amid rising defaults and uncertainty over the value of structured products that were created from the loans and sold on to investors. Jumbo loans, of more than $417,000, accounted for another 16 per cent. That market is not closed, but faces serious short-term problems. Admittedly, some subprime and Alt-A borrowers might be able to access mortgage finance in other ways – perhaps by putting up more equity to qualify for a prime loan or going through government-sponsored channels. But, unless there is a radical improvement in sentiment, a significant number of potential buyers will simply disappear from the market. That could put further downward pressure on previously overexuberant prices which are now are being undermined in some areas by high levels of unsold inventory.

Meanwhile, a large chunk of adjustable subprime mortgages are poised to reset to a higher interest rate later this year, potentially triggering more defaults and distressed sales in certain areas. Much of the speculative buying that powered hot markets has disappeared. And even interest rates on prime mortgages have risen in recent months, despite a fall in Treasury yields.

If the Federal Reserve cuts interest rates in response to credit market problems, the housing market might get some respite. But the most likely outcome is that prices will remain under pressure.

Financial Times Editorial Comment: Do not cut rates

Financial Times Editorial Comment: Do not cut rates
Copyright The Financial Times Limited 2007
Published: August 21 2007 19:20 | Last updated: August 21 2007 19:20


Credit fuels the modern economy, and if the dislocation in the money markets lasts another month or two, investment, consumption and growth in the real economy will suffer. Central banks must restore confidence, but rather than cut interest rates they should extend liquidity operations to longer matur ities, more collateral and possibly even different counterparties.

Liquidity injections by the Federal Reserve and European Central Bank have brought down overnight interest rates, but longer-term borrowing is still unusually expensive, while US Treasury bills have been trading at panic levels of below 3 per cent. It is hard to borrow using collateral not issued or guaranteed by a government. Central bank intervention has not worked so far.

This is not a recession panic, as in 1998, when the Long-Term Capital Management crisis coincided with weak economic data.

Nor is it a panic caused by serious credit losses. Defaults on US subprime mortgages are miles off a level at which triple-A bonds backed by them would suffer losses. When they do trade, the prices can be reasonable: as part of its acquisition by Kaupthing last week, the Dutch bank NIBC sold its subprime portfolio for 78 cents on the dollar.

The problem is that the bonds do not trade – the crisis is one of liquidity – and that has spread to short-term debt sold by investment vehicles that may be exposed.

The futures market expects the Fed to cut interest rates aggressively, but unless the Fed expects harm to the real economy, that policy makes little sense. It is indiscriminate and so creates moral hazard in the markets, but there is also a good chance it would not work.

The Fed has already pushed its main funds rate down well below its 5.25 per cent target, but the problem is not overnight liquidity at banks, it is perceived credit risk on three-month commercial paper. Giving cheaper money to banks might or might not change that perception.

The lenders of last resort need to find ways to get money through the traditional banking system to the markets where the trouble is. They can do so by agreeing to lend against more securities (the Bank of Canada is already accepting commercial paper); by lending for a few months rather than overnight; and possibly by dealing with off-balance-sheet vehicles directly.

There should be no handouts – lending should be at penalty interest rates – but what is needed to jump-start the credit markets is more targeted liquidity. Central banks should not crack and cut their policy rates while they have more suitable tools in the box.

Real Estate - Toll Brothers earnings drop by 85%

Real Estate - Toll Brothers earnings drop by 85%
By Daniel Pimlott in New York
Copyright The Financial Times Limited 2007
Published: August 22 2007 11:42 | Last updated: August 22 2007 11:42


Toll Brothers’ chief executive on Wednesday said the company was seeing the highest rate of cancellations on orders for its luxury homes for more than 20 years, as he revealed third quarter earnings had fallen 85 per cent.

“During this downturn, we have experienced a much higher rate of cancellations than at any time in our twenty-one-year history as a public company,” said Robert Toll, who set up the company in 1967.

He also warned that the global credit crunch which has hit financial markets in recent weeks could further exacerbate the weakness in US housing by making it more difficult for home buyers to secure mortgages.

“Tightening credit standards will likely shrink the pool of potential home buyers,” he said. “Mortgage market liquidity issues and higher borrowing rates may impede some customers from closing, while others may find it more difficult to sell their existing homes.”

Home builders have been hit by the fall-out from rising defaults on subprime mortgages, which are loans to people with sketchy credit histories. More stringent requirements for loans, higher interest rates and falling interest in buying houses have compounded the problems for the housing industry.

Toll said that at the moment its customers were not experiencing problems in getting “Jumbo” loans, which are loans for over $417,000. However, in recent weeks many lenders have raised rates for larger and more secure loans, which had previously been considered safe from the troubles hitting the market for subprime mortgages.

“”What we have seen in the past month is an acceptance of the fact that the problems go beyond subprime and into Alt A and Jumbo loans,” said Greg Gieber, an analyst at AG Edwards. “The housing market has gone from worse to worser.”

The company said that it would not issue earnings guidance for its fourth quarter, or confirm any previous guidance, “given the numerous uncertainties surrounding sales paces, the mortgage markets, market direction and the potential for and size of future impairments”.

Net earnings were $27m, or 16 cents per share, compared with $175m, or $1.07 per share in the same period last year. The results included a charge of $89m as the company was forced to write down the value of land it owns.

Analysts had on average expected earnings of 5 cents per share, according to Reuters Estimates. Shares in Toll jumped $1.20 or 5.7 per cent to $ 22.30 by midmorning.

A fortnight ago Toll said its quarterly revenue had fallen 21 per cent to $1.21bn in the third quarter and orders for new homes had fallen 31 per cent to $727.1m.

The company also previously revealed that prospective home buyers signing contracts had cancelled their orders at a rate of 23.8 per cent, compared with 18.9 per cent in the third quarter last year.

Mr Toll said that building fewer homes was the key to recovery in the housing markets. “Last week’s very low housing starts data implied that this is beginning to occur,” he said. “Once equilibrium is achieved, we believe home prices will firm and customers, who are waiting on the sidelines, will have the confidence to enter the market.’’

Iraq helicopter crash kills 14 US soldiers

Iraq helicopter crash kills 14 US soldiers
Copyright The Financial Times Limited 2007 and Reuters
August 22, 10:35 BST
Published: August 22 2007 14:31 | Last updated: August 22 2007 14:31


A helicopter crash in northern Iraq on Wednesday killed 14 US soldiers, the US military said, the worst incident of its kind in more than two years.

Also in northern Iraq, at least 20 people were killed when a suicide bomber rammed a fuel tanker into the gates outside a police station in the oil city of Baiji, 180 km (110 miles) north of Baghdad. Another 40 people were wounded.

The police had just moved into new headquarters, situated among shops and houses, after a similar attack on its old building in June killed 27 people.

A US military statement said initial indications suggested the Black Hawk helicopter had suffered mechanical failure, the second incident of its kind in eight days.

”There were no indications of hostile fire,” it said.

”Two UH-60 Black Hawk helicopters were on a night operation when one of the aircraft crashed. That helicopter had been carrying four crew members and 10 passengers,” it said.

The exact location of the crash was not immediately clear.

The losses take to 3,721 the number of US military killed in Iraq since the 2003 invasion to topple Saddam Hussein. A total of 63 have died so far in August.

The latest crash was the worst since January 2005, when 31 service personnel were killed when a Marine transport helicopter was downed.

The Brookings Institution’s Iraq Index says 67 US helicopters have been downed since May 2003, 36 of them by hostile fire.

Five Americans were killed when a military transport helicopter crashed during a maintenance test flight west of Baghdad on Aug. 14.

The US military has launched a nationwide offensive targeting Sunni Islamist al Qaeda fighters and Shi’ite militias to thwart an expected increase in attacks ahead of a key report on Iraq being presented to the US Congress.

US ambassador Ryan Crocker and General David Petraeus, commander of US forces in Iraq, are due to deliver the report in September. It is widely seen as a watershed that could trigger a change in US policy in Iraq.

Washington says the offensive is meant to buy time for Iraq’s fractured Shi’ite-led government to reconcile Iraq’s Shi’ite majority and minority Sunni Arabs, who are locked in a bitter sectarian conflict that has killed tens of thousands.

Pressure is growing on US President George W. Bush to show results in the unpopular war or start bringing US troops home, but Crocker on Tuesday described the Iraqi government’s progress towards national reconcliation as ”extremely disappointing”.

Iraqi PM hits back at US criticism

Iraqi PM hits back at US criticism
© Reuters Limited
Wednesday August 22 2007 - 1303 BST


DAMASCUS, Aug 22 (Reuters) - Iraqi Prime Minister Nuri al-Maliki hit back at U.S. criticism of his government on Wednesday, saying nobody had the right to set timetables for progress.

The U.S. ambassador to Baghdad said on Tuesday Iraq had made ”extremely disappointing” progress towards reconciling its warring sects, while President George W. Bush said there was ”a certain level of frustration with the leadership in general”.

Responding to a question about U.S. criticism, Maliki said: ”The Iraqi government was elected by the Iraqi people and nobody (has the right to) put timetables ... on it,” referring to conditions set by Washington for his government to achieve political reconciliation among Iraqi groups.

He was speaking at a news conference in Damascus, where he held talks on Tuesday with President Bashar al-Assad.

”Maybe this person who made a statement yesterday is upset by the nature of our visit to Syria,” Maliki said. He did not make clear if he was referring to U.S. ambassador Ryan Crocker or Bush.

”These statements do not concern us a lot. What concerns us is our democratic experiment and adhering to the constitution. We will find many around the world who will support us in our endeavour.”

Carl Levin, chairman of the U.S. Senate Armed Services Committee, on Monday urged that Maliki’s government be voted out of power because it has been unable to reach compromises on policy issues.

”The statements by some American officials and legislators are irresponsible,” Maliki said.

Thousands of Civil Union Postcards to Illinois Legislators

For Immediate Release Contact: Rick Garcia
August 22, 2007 312-560-0405

Thousands of Civil Union Postcards to Illinois Legislators

CHICAGO -- Equality Illinois and PFLAG volunteers used Halsted Marketdays as a backdrop to collect postcards from supporters of a bill pending in the Illinois General Assembly that would recognize same-sex couples and give them some of the rights and benefits of marriage.

Over two-thousand pro-civil union postcards were signed by voters from 91 of Illinois' 118 legislative districts during the August 18 weekend on North Halsted Street in Chicago.

Equality Illinois has sorted the cards and addressed them to the appropriate legislators. The postcards will be delivered to the legislators during constituent visits.

"Legislators do listen to their constituents," said Rick Garcia, political director of Equality Illinois. "These postcards are a powerful tool in demonstrating support for recognizing and protecting same-sex couples and in securing the necessary votes for the civil union bill."

(Lambda Legal also used the street fair to gather over one-thousand signatures in support of the legislation.)

"The last handful of votes is very hard to get. You have to be right on the issue, have statewide support, corporate support and the support of thousands of families and individuals in every corner of the State," said State Representative Greg Harris (D-Ravenswood) sponsor of the civil union bill. "We are building that groundswell across Illinois and soon will be able to enact this legislation to protect all Illinois families."

The Illinois Religious Freedom and Civil Union Act (HB1826) passed the Illinois House Rules Committee, the Human Services Committee, and awaits a vote by the full Illinois House of Representatives. If passed, the bill will recognize same-sex couples in Illinois and will convey some of the rights, responsibilities and privileges of marriage. The bill also affirms religious institutions' right to solemnize or not solemnize such unions.

Does being bilingual help delay the onset of Alzheimer's disease?

Does being bilingual help delay the onset of Alzheimer's disease?
By JUDY FOREMAN
Copyright by The The Boston Globe
August 20, 2007

It may, according to recent research by psychologist Ellen Bialystok, a scientist at York University and the Rotman Research Institute of Baycrest Hospital in Toronto.

Three years ago, Bialystok's team showed that people who had been bilingual all their lives did better at paying attention and doing the kind of intellectual tasks that the prefrontal cortex of the brain (directly behind the forehead) is responsible for: planning, being able to tune out distractions, and making judgments.

That led Bialystok to wonder whether bilingualism might protect against Alzheimer's disease. Bilingualism has been shown to boost the power of the prefrontal cortex because, in order to speak one language, the speaker must activity inhibit, or tune out, the other language.

In a study published February in the journal Neuropsychologia, she looked at the hospital records of people who had visited Baycrest's memory clinic, two-thirds of whom had Alzheimer's and one-third, other kinds of dementia.

Roughly half were "perfect bilinguals," she said, meaning that they had been speaking at least two languages every day for 50 years or more, typically English plus Polish, Russian or Yiddish. The rest were monolingual.

"What we found is that all else being equal -- education, occupational skills, marital status, money, etc." -- the age of onset of dementia was on average 71 for the monolinguals and 75 for the bilinguals, she said. "That difference is huge," she said. "The neurologist on the team was astonished."

It doesn't appear that learning a second language in midlife carries the same benefit. Bialystok is studying that now, and so far, is finding "that there is a much diminished effect for later bilinguals."

She's gone, do you want rest gone too? - Little difference between Arellano, other 12 million illegal immigrants

She's gone, do you want rest gone too? - Little difference between Arellano, other 12 million illegal immigrants
BY MARK BROWN
Copyright by The Chicago Sun Times
August 21, 2007

In the end, Elvira Arellano asked for it. I'll grant you that. By making a run for Los Angeles, Arellano left federal immigration officials little choice but to grab her and deport her to Mexico -- bringing an end to her yearlong act of defiance since taking sanctuary in a Division Street church.

What puzzles me is all the people who seem to be cheering this outcome. I'm not.

If you're of the opinion that Arellano deserved to be sent back to Mexico, then it logically follows that you want all 12 million illegals to return there with her.

Do you?

I realize that's precisely what a certain segment of the population does want, but it seems there are people who would normally be more open-minded in their attitudes who are drawing some distinction between Arellano and the rest of the illegal immigrant population.

Maybe they don't understand: There's no real difference. Elvira Arellano's situation is very typical.

She tried to sneak into the country. She got caught. She tried again and made it. She obtained fake IDs to get a job. She made a life here. She had a child. All this puts her in the mainstream of the illegal immigrant community.

It's only then that her story diverges somewhat from the rest, mainly because Arellano's job was doing janitorial work at O'Hare Airport. In the post-9/11 wave of security consciousness, she was swept up in a raid ostensibly aimed at making the airport safe from terrorists. When officials discovered that Arellano was using somebody else's Social Security number, she was criminally prosecuted.

Fake IDs a problem, face crack down
OK, we can't have workers taking other people's Social Security numbers, potentially messing up their lives.

But how do you think the other 12 million are supporting themselves?

If they are working in any industry where they are required to provide documentation, then they are using a false Social Security number, just like Arellano. That's probably most of them, only they haven't been so unfortunate as to be criminally prosecuted. The rest are probably working for cash, and how is that better?

Are these immigrants taking false Social Security numbers in an effort to steal somebody else's identity, use their credit? No, they're trying to work and support themselves. In most cases, they've probably used their own name, address and date of birth.

If they're lucky or smart or obtained their fake ID from somebody who is smart, then they are using a Social Security number that hasn't yet been assigned to another individual or belonged to someone who has died. That way they don't expose themselves to identity theft charges.

If we were to give them a legal means to work, most would take advantage of it. But we can't agree politically on how to do that.

Knowing all this, employers have been hiring illegal immigrants anyway. If you look around you, it would appear there is a demand for their services.

But I guess we're about to find out. The federal government is in the process of cracking down on fake Social Security numbers, and by late next month, a whole lot of illegal immigrants are going to be out of work, the consequence of which is unknown.

Took guts to stay and fight
The other distinguishing aspect to Arellano's story is that when she was ordered to leave, she didn't quietly comply, nor did she slip off into the masses and relocate someplace else in the U.S. She chose to stay and fight it out publicly, making herself the human face of this bitter dispute. That took guts.

As a nation, however, we seem to like it better when Mexicans stay out of sight.

I believe a lot of people don't like Arellano simply because they find her "uppity."

Yes, I use the word advisedly, aware of its historical connotations. (And no, Arellano never should have compared herself to Rosa Parks. It was presumptuous.)

Then there are those who are irritated because Arellano has put her 8-year-old son out front in the controversy. I didn't care for that much either.

But I can understand why she did it. People need to see there are families involved in these situations, young children included.

Because he was born here, Arellano's son is a U.S. citizen. He's entitled to stay here. If we say he can stay but his mother has to go back to Mexico, what kind of a choice is that for a young boy?

The anti-immigration crowd says one down, 12 million to go.

I hope the rest of you think it through.

Despite deportation, activist in spotlight of reform efforts/Arellano, son will live separately/Arellano: Return to U.S. unlikely/Arellano to LA

Despite deportation, activist in spotlight of reform efforts - Arellano a celebrity for those pushing for immigration law change
By Antonio Olivo and Oscar Avila, Tribune staff reporters: Antonio Olivo reported from Tijuana, Mexico. Oscar Avila reported from Mexico City
Copyright © 2007, Chicago Tribune
August 22, 2007


TIJUANA, Mexico - Elvira Arellano has become a celebrity, with Mexican TV camera crews and news photographers following her Tuesday as if she were an actress in a hit soap opera instead of one of the thousands of recently deported illegal immigrants here.

After U.S. immigration authorities arrested her in Los Angeles on Sunday and escorted her to the border, she moved into in a dim apartment. But during short walks for food or toothpaste, between a stream of media interviews, her star power shined: "The people approach me and say: `Welcome to Mexico. Here you are in your home,'" she said.

"On the streets, everybody recognizes me," marveled Arellano, who lived for years in Chicago in obscurity, and spent most of the last year holed up in a Northwest Side church.

Mexican authorities and activists wasted no time in trying to capitalize on Arellano's new cachet, scrambling to align themselves with Arellano and gently suggesting what the newest chapter in her life should look like.

On Wednesday, Arellano, 32, plans to travel to Mexico City, where on Thursday she plans to stand with a group of Mexican congressmen to denounce the U.S. Congress for not passing more lenient immigration reforms.

Plans are also under way for Arellano to headline a Sept. 12 rally near Tijuana's border with California, an appearance meant to coincide with a demonstration planned in Washington. Before she was arrested, Arellano had hoped to culminate her cross-country trip with a prayer and fast vigil on that day on the National Mall.

Once those events are finished, Arellano said she intends to keep fighting for immigration reforms in the U.S. But she said she is still unsure whether her 8-year-old son, Saul, a U.S. citizen now back on that side of the border, will rejoin her in Mexico or stay with friends in Chicago to attend school. Saul's father has been out of the picture since before the child was born.

She seemed a little dazzled by the transition from her year in refuge at Adalberto United Methodist Church in Humboldt Park, to her quick dash to Los Angeles to campaign for "mixed-status" families like hers, to her newfound celebrity in Mexico.

"My thoughts are still a little confused," Arellano said in a rare quiet moment, as she stared out her window across a smog-choked street at a sign advertising English classes.

Others, however, were formulating an agenda for her.

Rosario Ibarra, a prominent human-rights activist in Mexico City, suggested that Arellano use her celebrity to chastise the Mexican government for not providing enough economic opportunities to keep its people in the country.

Raul Rios, a Mexican congressman from Arellano's home state of Michoacan, suggested she should push Mexican consulates in the U.S. to do more to help undocumented immigrants. "We should start by fixing our own house," Rios said, adding he helped to create a nonpartisan coalition on immigration issues to work with Arellano.

"Elvira is an example, not just for those who live in the United States but for immigrants all over the world," said Jose Jacques, a Mexican congressman from California. "I think she can convert herself into an icon for a struggle that is even more global, that addresses the root causes of migration."

Arellano said she plans to think things over during an upcoming trip to Michoacan, where she'll also look for a new school for Saul. While he has said he wants to live in Chicago, she said she's hoping her son will miss her enough to change his mind.

"I'm trying to respect his wishes," Arellano said, adding that he may still be traumatized by her arrest. "I don't want him to think that I'm forcing him to come here."



aolivo@tribune.com

oavila@tribune.com


Arellano, son will live separately - BACK IN MEXICO | Activist vows 'to continue fighting'
Copyright by The Associated Press
August 21, 2007

TIJUANA, Mexico -- Elvira Arellano was reunited here with her 8-year-old son Monday, but the illegal immigrant and activist said the boy will return to Chicago to live with his godmother and begin third grade.

''We've all been living together. He knows his mom is OK. He's going to be sad sometimes,'' said Emma Lozano, the godmother and an activist in her own right.

Lozano drove 8-year-old Saul from Los Angeles to Tijuana, where Elvira Arellano is staying with a friend after being deported from the United States to Mexico.

Elvira Arellano, 32, took refuge for a year in a church in Chicago's Humboldt Park neighborhood to avoid being separated from her U.S.-born son.

In that time, she became an activist and a national symbol for illegal immigrant parents as she defied her deportation order and spoke out from her sanctuary. She left the Adalberto United Methodist Church last week. Arellano had just spoken at a Los Angeles rally when she was arrested Sunday and deported, said the Rev. Walter Coleman, pastor of Adalberto United Methodist.

''They were in a hurry to deport me because they saw that I was threatening to mobilize and organize the people to fight for legalization,'' Arellano said in Spanish outside the Tijuana apartment building where she was staying. ''I have a fighting spirit and I'm going to continue fighting.''

Saul may tour U.S.
Arellano said she may return to her home in the Mexican state of Michoacan and then return to Tijuana in September for a demonstration coinciding with planned immigration protests in the United States.

Lozano said Arellano's son may tour the U.S. to promote immigrant rights. The boy declined to talk to a reporter.

Chris Bergin, Arellano's immigration attorney, said Arellano had signed a power of attorney document giving Lozano authority to make legal decisions for Saul.

The Illinois Department of Children and Family Services said it did not foresee any intervention because there was no record of prior contact with the Arellano family.

"Private custody arrangements happen every day," said a spokesman. "There's always an understanding with those kinds of things."

Mexican authorities did not know the identity or whereabouts of the boy's father, said Luis Cabrera, Mexico's consul general in San Diego.

Opponents of illegal immigration said Arellano's arrest was overdue, and a U.S. immigration official said she had been a criminal fugitive.

Mexican authorities said the deportation highlighted a need to overhaul U.S. immigration laws.

''It's tragic when a mother is separated from her son,'' Cabrera said.

She's no martyr: feds
Jim Hayes, director of ICE in Los Angeles, said ''proper perspective'' should be placed on the woman's case. Using a false identity -- as in the case of Arellano, who was convicted of using someone else's Social Security number -- can be a threat to national security, he said.

''We don't think she's a martyr,'' Hayes said. ''She was a criminal fugitive who is in violation of the law.''

Arellano arrived in Washington state illegally in 1997. She soon was deported to Mexico, but returned and moved to Illinois in 2000, taking a job cleaning planes at O'Hare Airport.

She was arrested in 2002 at O'Hare and convicted of working under a false Social Security number. She was to surrender to authorities a year ago but instead sought refuge at the church.

Immigration activists said they will continue Arellano's plan to go to Washington, D.C., and take part in a prayer meeting and rally for immigration reform on Sept. 12. They also called for a national boycott on that date.

The sentiment was echoed outside an ICE office in Chicago on Monday.

''Her voice will not be silenced,'' activist Jacobita Alonzo told a crowd of about 50 supporters.

Arellano: Return to U.S. unlikely - 'The only thing I can do is stay in Mexico,' deported illegal immigrant says
By Antonio Olivo
Copyright © 2007, Chicago Tribune
1:22 PM CDT, August 20, 2007


SAN DIEGO — Deported immigration activist Elvira Arellano said today that she will continue her fight for immigration reform, but she acknowledged she has little chance of returning to the United States.

"The only thing I can do is stay in Mexico," she told the Tribune in a telephone interview from Tijuana, Mexico, where she ended up after federal authorities handed her over to Mexican officials Sunday night.

Earlier, immigration officials confirmed that Arellano had been deported after her arrest on a downtown Los Angeles street Sunday afternoon after leaving her yearlong refuge in a Chicago church.

In today's interview, Arellano recounted how she tried to plead her case with U.S. Immigration and Customs Enforcement officials one more time after her arrest, pointing out that private bills had been introduced by U.S. Reps. Bobby Rush and Luis Gutierrez, both Chicago Democrats, aimed at keeping her in the United States.

The officials refused to discuss the matter, she said. She quoted them as saying, "No, no, no."

"They were angry with me for everything I have done," she said.

She was processed at the immigration staging facility in Santa Ana, Calif., with officials taking her photograph and fingerprints, and then transporting her 100 miles to the border crossing at San Ysidro, Calif. There, she walked through a metal turnstile and was greeted by Mexican officials in Tijuana, according to a statement issued by immigration officials.

Rev. Walter Coleman, pastor of Adalberto United Methodist Church in Chicago, who accompanied Arellano to Los Angeles, said this morning that Arellano was staying with a relative in Tijuana.

"She is in good spirits," he said. "She is ready to continue the struggle against the separation of families from the other side of the border."

Federal officials said Arellano's 8-year-old son, Saul, was left, at Arellano's request, with Coleman and other traveling companions.

Immigration officers arrested Arellano, 32, shortly after 2 p.m. Sunday Los Angeles time as she and her supporters were leaving a downtown church. She had sought sanctuary at the church after slipping unnoticed out of the Chicago church where she had avoided deportation since August 2006.

Glenn Triveline, a Chicago field office director for immigration, said today that authorities did not arrest Arellano in Chicago because they were concerned about the safety of officers.

"We had reason to believe that there was going to be a lot of people in there, in the church, there to protect her," he said.

Los Angeles was different from Chicago, he said, because she was outside.

"It was just that she was outside in an area where we could facilitate the arrest," he said.

In Chicago this morning, more than 50 Arellano supporters demonstrated outside immigration offices at 536 S. Clark St., carrying signs reading "Stop the Raids" and "Stop Enforcing Racist Laws."

Via speakerphone, Chicago activist Emma Lozano, who was with Arellano in Los Angeles, spoke to the demonstrators.

"Her spirits are high," Lozano told the crowd, adding that federal officials sought "to silence her and clip her wings."

Planning continued for a major demonstration Sept. 12 on the Mall in Washington to highlight the plight of illegal immigrants, Lozano said. Calling it "A Day Without Immigrants," Lozano said the protest would revolve around a national boycott in which immigrants would be called on to stay away from their jobs and classrooms and refrain from making any purchases.

After demonstrating outside the Chicago immigration offices, the protesters moved on to the Kluczynski Federal Building, 230 S. Dearborn St., where five of them went up to the local office of Sen. Barack Obama (D-Ill.) to urge him to introduce a private bill to provide a humanitarian visa for Arellano.

Tribune reporter Monique Garcia and Tribune photographer Abel Uribe contributed to this report.

aolivo@tribune.com

Immigrant activist moves to L.A. church - Arellano arrives from Chicago, opts not to attend rally
By Antonio Olivo
Copyright © 2007, Chicago Tribune
August 19, 2007


LOS ANGELES - In a tentative start to a planned a cross-country journey to galvanize support for new federal immigration reforms, Elvira Arellano appeared in Los Angeles on Saturday, days after leaving the Chicago church where she has sought sanctuary for the last year to avoid deportation.

At the last minute, though, the 32-year-old illegal Mexican immigrant ditched plans to speak at an immigration rally and instead stayed inside a downtown Los Angeles church, holding several news conferences throughout the day.

As Arellano urged supporters to press Congress to pass reforms friendly to the nation's estimated 12 million illegal immigrants, her 8-year-old son, Saul, spoke on her behalf at the modestly attended rally in front of Los Angeles City Hall.

Saul, who is a U.S. citizen and has spent the last year with his mother in a Humboldt Park church, arrived in Los Angeles separately Friday. His mother, who says she had not set foot outside the Chicago church in the last year, left the sanctuary quietly and unnoticed Thursday and arrived in Los Angeles on Saturday morning.

Drawing loud applause from supporters and scowls from a small group of counter-protesters, Saul Arellano pleaded with demonstrators to "tell President Bush to stop the raids and deportations so my mom and other families can stay here."

A few blocks away, his mother spoke from Our Lady Queen of Angels Church.

"More than anything, we bring a message of unity," Arellano said, addressing reporters at the church, which is among more than a dozen nationwide that have served as sanctuaries for illegal immigrants who have been ordered out of the country.

"I couldn't just stay there with my arms folded and watch all this affecting our families," Arellano said, referring to recent national movements she says make it hard for immigrants, such as stepped-up workplace raids and harsher penalties for hiring illegal workers

On Sunday, Arellano intends to visit other illegal immigrants who have avoided deportation inside another church in the Los Angeles area. She declined to comment further on plans beyond that but has said she will be in Washington Sept. 12 to participate in an eight-hour prayer and fast vigil on the National Mall.

Arellano chose to start her public tour in California, she said, because the state is home to House Majority Leader Nancy Pelosi and U.S. Rep. Zoe Lofren, who leads a House committee on immigration.

Arellano had planned to speak at Saturday's immigration rally but feared arrest and overexposure, and wanted to avoid harm from critics. Poor planning of an event that barely drew 500 demonstrators on a warm cloudless day also played a part.

She first sought refuge inside the Aldalberto United Methodist Church in Chicago last August, when she was scheduled to report to federal authorities for deportation.

Arellano, who has entered the country illegally twice, was arrested in 2002 during a federal immigration sweep at O'Hare International Airport, where she worked cleaning airplanes. She has said she wants to be able to raise her son in the United States.

U.S. Immigration Customs and Enforcement officials said they were aware Arellano had left Chicago but declined to comment further, referring to a statement that labels her as a government fugitive and says all such arrests are prioritized.

- - -

A year in sanctuary

Aug. 15, 2006: Elvira Arellano seeks sanctuary in a Humboldt Park church with her son, Saul, to avoid being deported to Mexico.

Sept. 29: Federal judge rejects her bid to stay in U.S.

Oct. 2: Saul travels to Washington to request a meeting with President Bush.

Nov. 14: Saul pleads mother's case to Mexico's Congress.

Saturday: Arellano seeks sanctuary in an Los Angeles church as her son speaks at an immigration march taking place nearby.



aolivo@tribune.com

Boston Globe Editorial - Musharraf's choices

Boston Globe Editorial - Musharraf's choices
Copyright by The Boston Globe
Published: August 20, 2007


President Pervez Musharraf of Pakistan faces daunting obstacles in his quest for another five-year term. Because the Bush administration has backed Musharraf as a pragmatic partner in a dangerous region, the United States has a stake in the choices Musharraf will make and may be tempted to weigh in on his side. But the United States would best serve its own and Pakistan's interests by supporting the rules of the democratic game, not any particular party or candidate.

Musharraf has hardly been an ideal ally. As a recent national intelligence estimate warned, Al Qaeda has been able to regroup within Pakistan. And as illustrated by recent protests against Musharraf's failed effort to suspend the chief justice of Pakistan's Supreme Court, Musharraf has alienated precisely those sectors of Pakistani society that ought to be most favorable to the values Washington preaches: rule of law, independent judiciary, and civil liberties.

Yet even Benazir Bhutto, the exiled former prime minister and leader of a key opposition party, justifies her recent efforts to negotiate a deal for political cooperation with Musharraf by acknowledging his moderation.

"We have problems with General Musharraf because he's a coup leader," she told the Council on Foreign Relations in New York last week. "But on the other hand, General Musharraf says and has committed himself to Pakistan following a moderate path."

Assistant Secretary of State Richard Boucher, in Islamabad for talks with Musharraf, was properly discreet in saying that the general and Bhutto would "make their own choices based on their own calculations." Offstage, though, the administration has been urging Musharraf to make a deal with Bhutto; she would be allowed to return and lead her Pakistan People's Party in general elections later this year, and, presumably, she would then support his re-election.

Musharraf needs all the political help he can get. He has incurred hostility not only among lawyers and the secular parties but also from Islamist groups. And unless he institutes emergency rule - as Secretary of State Condoleezza Rice advised him not to do recently - his bid for another presidential term will almost certainly depend on decisions of the Supreme Court and its reinstated chief justice, Iftikhar Muhammad Chaudhry.

That court will be asked to decide whether Musharraf can run while still chief of the army; whether Pakistan's Constitution bars him from seeking what may be considered a third term; and whether he can seek election by the current Parliament, as he wants, or must wait until the new Legislature is chosen this autumn. These are questions that should be resolved by an independent judiciary. The United States should clearly oppose any fresh attempt by Musharraf to circumvent the laws of his country or the workings of democracy.

International Herald Tribune Editorial - The good war, still to be won

International Herald Tribune Editorial - The good war, still to be won
Copyright by The International Herald Tribune
Published: August 20, 2007


We will never know just how much better the fight in Afghanistan might be going if it had been managed more competently over the past six years. But there can be little doubt that U.S. forces - and the Kabul government - would be in far stronger positions than they are today.

How different things might be if the Bush administration had not diverted needed troops and dollars into the misguided invasion of Iraq, nor wasted years discouraging needed NATO military assistance, nor pulled its punches rather than pressuring a Pakistani dictator with, at best, mixed feelings toward the Taliban.

The battle against Al Qaeda and its Taliban allies is still winnable, and it is vital to American security. But victory will require a smarter strategy and a lot more attention and resources.

In the first months after Al Qaeda's Sept. 11 attacks, the world, the Afghan people and Washington's most important allies were all on America's side. Now, a resurgent Taliban army operates from Pakistani sanctuaries. It wins Afghan hearts and minds every time an errant U.S. airstrike kills innocent civilians, and it gains even more whenever an aid-starved Afghan government fails to deliver on its promises of better governance, economic development and physical security.

America has never had enough troops in Afghanistan, not in 2001, when Osama bin Laden was on the run in the caves of Tora Bora, and not today, when much of the country is still without effective authority. Too few ground troops have meant too much reliance on airstrikes, leading to too many innocent civilian casualties.

Since the Iraq buildup began in 2002, it has drawn away the resources that could have turned the tide in Afghanistan, including the military's best special operations and counterinsurgency units.

Afghanistan, larger and more populous than Iraq, now has 23,500 U.S. troops. Iraq has about 160,000.

The pattern with development aid has been similar. In 2002, President George W. Bush vowed not to repeat his father's mistake of leaving Afghans to rebuild on their own after the 1989 Soviet withdrawal. He broke that vow. In proportion to its population, Afghanistan has received less U.S. development assistance than Bosnia, Kosovo or Haiti. After years of pleas from U.S. ambassadors, total aid is set to increase sharply this year. But with much of the money going to security-related areas like military training and drug eradication, the amount left for rebuilding - and to provide alternatives to working for warlords or traffickers - is grossly insufficient.

Viewing Sept. 11 as an attack on a member state, NATO offered to send troops to fight alongside Americans in Afghanistan. The Bush administration first declined the offer, then accepted help on peacekeeping in Kabul and relatively secure areas of northern Afghanistan - shunting NATO away from combat areas. That finally changed in 2005, when Washington had to admit that it did not have enough troops to control the embattled south. By then, the fight had become far more difficult.

Washington's mistakes have made Iraq a new staging area for international terrorism. The borderlands of Afghanistan and Pakistan are still home to Al Qaeda's most important bases and most dangerous leaders. Victory there will now be harder than it needed to be. But it is no less necessary.

Immigration could prove to be the magic word in elections

Immigration could prove to be the magic word in elections
By Michael Tackett
Copyright © 2007, Chicago Tribune
August 19, 2007

Beyond Washington's infamous Beltway, miles from where the climbers meet each day to conduct the nation's business, there is a land of unbridled growth. Row upon row of three-car garages meet big-box store blandness and high-tech religion in a big-box church. And the people who live there are among the most coveted voters in the country.

In Virginia's Prince William and Loudoun Counties, once the sticks and now the seemingly desirable exurbs of your nation's capital, elections can be won and lost. For Republicans, victory is a matter of running up huge numbers; for Democrats it is a matter of keeping the margins close or, in a very good year, actually winning.

The area's importance was evident last fall when Jim Webb, a Republican war hero turned anti-war Democrat, ousted the incumbent U.S. senator, Republican George Allen. It was no small feat, given that Allen had been hailed as the second coming of Ronald Reagan. By running so well in just these two counties, Webb secured victory.

Now these exurbs are sending another powerful signal, one that might affect who sits in the White House in January 2009. The current refried wisdom in Washington is that Republicans are near clueless, with little chance of keeping the White House and even less chance of regaining a majority in Congress.

But in the subdivisions of places like Prince William and Loudoun Counties, there is hope for the recently defeated. And it comes in an unlikely form. Not as support for Rudolph Giuliani, John McCain or Mitt Romney; and not out of contempt for Hillary Clinton either.

No, it comes in the form of county proposals to cut off benefits for illegal immigrants. Just last month, both counties passed harsh measures that would deny almost any public service to an undocumented immigrant and impose tough penalties on employers who hire them, stoking a sentiment that could actually have as much impact on the presidential race as any other domestic issue.

Officials complained of the drain on the county treasury caused by the number of "illegals" who were using public services such as hospitals and schools. They didn't complain that the burgeoning construction industry also seemed to use the same workers as a source of cheaper labor.

And one has to wonder whether all of those great public servants are also doing their own landscaping, cutting their own grass or painting their own homes.

There were signs of this even in the 2006 campaign, perhaps most notably when a Republican candidate for Congress from the Dubuque, Iowa, area, taped his first campaign commercial on the Mexican border and talked about the dangers illegal immigration represented.

The issue seems most potent, in fact, in areas where illegal immigrants are relatively new and relatively scarce. That hasn't stopped Republican candidates for president from embracing any number of ideas that would deliver stern punishment. The one candidate who seems to understand the complexities, McCain, was essentially booed when he talked with some warmth and nuance about Latinos and Native Americans in his home state of Arizona.

President Bush made immigration "reform" a top priority for his administration, but ultimately, he could not persuade enough Republicans to go along with him, and reform went to the back of the line.

The failure of that legislation might actually be the best thing that could happen for the Republican nominee in 2008.

According to estimates by the Federation for American Immigration Reform, which supports restrictive policies like the ones in Prince William and Loudoun Counties, more than 171 state and local immigration bills have become law in 41 states just this year. More than 1,200 additional pieces of legislation that target illegal immigration are being drafted and considered.

A federal judge recently issued a permanent injunction against one such ordinance in Hazleton, Pa., a city with the cheery civic motto of "the toughest place on illegal immigrants in America." Ever vigilant, however, the city is vowing an appeal, all the way to the Supreme Court if necessary.

At this point in the 2004 presidential election cycle, few were talking about how much impact gay marriage -- essentially a non-issue in the White House race -- would shape the outcome. More than one expert, though, has said that without the gay-marriage measures on the ballot, George W. Bush would not have won a second term.

Now, some top Democratic officials believe that these seemingly local immigration initiatives could do the same thing in 2008.

So while the high profile of the campaign will focus on the war, the economy, trade and education, the lower road might be the one where operatives are targeting key states with this campaign's version of gay marriage.

No one ever said it was high-minded. It's the nativist strategy in the global age. And it could work.

----------

mtackett@tribune.com

Home foreclosures up sharply in July, nearly double last year

Home foreclosures up sharply in July, nearly double last year
By ALEX VEIGA
Copyright © 2007, The Associated Press
8:03 AM CDT, August 21, 2007


LOS ANGELES - Foreclosure filings rose 9 percent from June to July and surged 93 percent over the same period last year, with Nevada, Georgia and Michigan accounting for the highest foreclosure rates nationwide, a research firm said Tuesday.

The filings include default notices, auction sale notices and bank repossessions. The figures are the latest measure of the ailing housing market, which has seen defaults and foreclosures soar as financially strapped borrowers have failed to make payments or find buyers.

In all, 179,599 foreclosure filings were reported during July, up from 92,845 in the year-ago month, according to Irvine-based RealtyTrac Inc.

A total of 164,644 foreclosure filings were reported in June.

The national foreclosure rate in July was one filing for every 693 households, the firm said.

"While 43 states experienced year-over-year increases in foreclosure activity, just five states -- California, Florida, Michigan, Ohio and Georgia -- accounted for more than half of the nation's total foreclosure filings," said RealtyTrac Chief Executive James J. Saccacio.

Nevada posted the highest foreclosure rate: one filing for every 199 households, or more than three times the national average. It reported 5,116 filings during the month, an increase of 8 percent from June.

Georgia's foreclosure rate was more than twice the national average, with one filing for every 299 households. The state reported 12,602 foreclosure filings, up 75 percent from June.

Michigan reported 13,979 filings in July, a 39 percent spike from June.

California, Florida, and Ohio were among the states with the highest number of foreclosure filings in July, the firm said.

California cities continued to dominate top metropolitan foreclosure rates.

The state reported 39,013 foreclosure filings last month, the most by any single state, but the number of filings rose less than 1 percent from June's total.

The state's foreclosure rate was one filing for every 333 households, RealtyTrac said.

Florida's foreclosure filings fell 9 percent between June and July to 19,179. The July figure represents a 78 percent jump from a year ago.

RealtyTrac did not say if a single property received more than one notice. The company did not break out the exact property count.

In recent months, the mortgage industry has been battered by rising defaults and foreclosures, primarily driven by borrowers with subprime loans and adjustable rate mortgages.

Lagging home sales and flat or decreasing home prices have made it more difficult for homeowners who fall behind on payments to sell their homes and clear the debt, spurring the rise in foreclosure activity.

Shareholders approve Tribune sale

Shareholders approve Tribune sale
Chuck Berman, Chicago Tribune, August 21, 2007
By James P. Miller
Copyright © 2007, Chicago Tribune
11:47 AM CDT, August 21, 2007


Tribune Co. shareholders this morning formally approved the company's $8.2 billion plan to be taken private, with 97 percent of the shares voted cast in favor of the $34-a-share buyout led by a group that includes Chicago real-estate mogul Sam Zell.

The Chicago media holding company had tentatively agreed to the complex plan earlier this year, and the first phase, in which about half the company's shares were bought back at the $34 price, has already been completed.

Before the company can consummate the second, final leg of the deal however, shareholders had to provide their formal approval. That was the purpose of the special stockholder meeting hosted today in the neo-Gothic building that houses both the Chicago Tribune and Tribune Co.'s corporate headquarters.

Shareholder approval has largely been treated as a given, in view of the fact that the newspaper industry's fortunes have continued to decline since Zell's group first proferred the bid Tribune directors approved. Tribune's earnings continue to erode, under pressure from the Internet and other forces pinching profits at all newspapers.

Because of those worsening newspaper-industry conditions and because credit has grown costlier and harder to find since the deal was unveiled, Wall Street is far from convinced the deal will go through, at least at the $34 price offered.

From that perspective, the ringing endorsement the stockholders provided this morning is less important than the questions of whether the funding stays in place.

Tribune stock last week fell below $26 a share, providing evidence that the stock market thinks that a lower price will emerge for the second half of the buyout or that the proposed buyout could be derailed.

Those fears were apparent at the meeting, where shareholders asked Tribune officials questions about how likely the deal was to proceed as planned.

Chief Executive Dennis FitzSimons said the buyout accord has a "tightly written" clause governing any pullout by the financing group, a claused s based on adverse developments in the newspaper industry as a whole, rather than at Tribune.

Because of that, FitzSimons told the audience at Tuesday's brief session, "we don't anticipate, nor do our financing sources anticipate, an invocation of that clause."

FitzSimons reiterated that Tribune expects the deal to close in the fourth quarter, pending approval by federal regulators, and he added that Tribune's isn't planning to shed any newspaper assets as part of the buyout.

Tribune shares, which strengthened Monday, were up an additional 3.2 percent late Tuesday morning, trading on the New York Stock Exchange up 87 cents, at $27.89, in an indication that investor confidence in a deal is strengthening.

Tribune has borrowed $7 billion to finance the first step of the transaction, and buy back shares; it had to commit to repaying $1.5 billion of that borrowing within two years in order to secure the loan.

Now that shareholders have cleared the deal, Tribune needs to borrow an additional $4.2 billion to effect the transaction, which gains significant tax advantages because it makes use of an employee stock ownership plan.

jpmiller@tribune.com

Ex-Gov. Ryan's guilty verdict stands despite jury controvers

Ex-Gov. Ryan's guilty verdict stands despite jury controversy
By Michael Higgins
Copyright © 2007, Chicago Tribune
10:51 AM CDT, August 21, 2007


In a crushing legal blow to former Gov. George Ryan, a federal appellate court this morning affirmed his sweeping fraud and corruption convictions, ruling that Ryan received a fair trial last year despite a series of juror controversies.

The decision by the 7th U.S. Circuit Court of Appeals clears the way for Ryan to begin serving a 6.5-year prison term that he received last year after a historic six-month trial. But his lawyers could try to forestall that with a further appeal.

In a 2-1 decision, the three-judge appellate panel found that U.S. District Judge Rebecca Pallmeyer acted within her authority when she replaced two jurors during deliberations after the Tribune revealed they had failed to disclose information about their criminal backgrounds.

"We conclude that the district court handled most problems that arose in an acceptable manner, and that whatever error remained was harmless," Judge Diane Wood wrote for the panel. "We therefore affirm the convictions."

Ryan was convicted in April 2006 on charges that as secretary of state and governor, he doled out sweetheart deals to co-defendant Lawrence Warner and other friends and used state resources and employees for political gain.

Warner's conviction was also affirmed today.

Ryan and Warner, who was sentenced to almost 3.5 years in prison, had been allowed to remain free while their appeal was pending.

The court's ruling means Ryan's legal options are dwindling.

He can ask the full 7th Circuit—a group of 11 judges—to review the three-judge panel's decision. If the court declines, he can appeal to the U.S. Supreme Court, but the nation's highest court accepts very few cases.

Get ready for the next big China effect

Get ready for the next big China effect
By Stephen Green
Copyright The Financial Times Limited 2007
Published: August 21 2007 03:00 | Last updated: August 21 2007 03:00


As global markets freeze, fret and fall, there is an island of bullish sentiment way out east. Welcome to China's stock market, 75 per cent up on the year, which is building historical highs on an almost daily basis while the rest of the world watches America's subprime troubles and sells off.

China's market has come a long way in a short time. From kerb trading on the back streets of Shanghai in 1984, the market's official capitalisation is now $2,700bn (£1,360bn). It has been one of the world's best-performing markets over the past 12 months. Average prices are some 50 times historical earnings, with a number of companies having price/earnings ratios of more than 1,000. Risk aversion? There is no easy Mandarin translation.

One is tempted to write this bullish sentiment off as unsustainable exuberance that will fade once fundamentals reassert themselves. The truth is more complicated. Massive liquidity - and wealth - have been accumulated in China over the past two decades and it is currently locked up in mainland equities and real estate. In less than five years that wealth is going to flood out of the country, causing huge tremors in overseas asset markets.

The future did not always look thus. During 2002-04 China's stock market looked sick, crippled by slow profit growth, hundreds of scandals and -concerns over the huge overhang of state-owned shares, which investors worried might one day flood the market. The Shanghai composite briefly fell below 1,000 and many thought its pulse would stop soon afterwards. In recent days, however, the index has exceeded 4,800; 5,000 looks reachable and some boosters are looking for 8,000 before the Beijing Olympics kicks off in August 2008.

To some this looks like a bubble. In May, Beijing hit the market with a series of measures, including an increase in the trading tax, to damp sentiment and prevent a bigger bubble. But those half-hearted measures were no match for corporate profit growth, low interest rates and all that liquidity.

Today's boom has its roots in China's financial history. Even before 2004, the amount of money sloshing around China's economy (and stored under beds) was massive relative to the scale of goods and services produced. By 2004 the ratio of M2, the broad indicator of money supply, to gross domestic product had reached 160 per cent, much higher than in most other economies. China had got to this point by stimulating its economy in slow times, by either massive bank lending or budgetary stimulus packages. In recent years, more liquidity has been imported via huge trade surpluses (running at $20bn a month), plus foreign investment and "hot" money inflows.

The People's Bank of China, the central bank, has kept much of this liquidity at bay via sterilisation operations, but pressures are immense and interest rates remain suppressed. In 2003, these funds began to slosh into property and then, in mid-2006, into equities, monetising them. But this will change in the next three to five years as China's wealth gets more adventurous and starts to travel. Many routes for taking out funds have been opened up already. The mainland's high-net-worth investors are active in the H-share market in Hong Kong and QDII, the scheme where retail investors give their money to banks to manage offshore, is becoming more popular. The all-but-certain appreciation of the renminbi keeps the wealth locked up at home.

But given a 5 per cent or so appreciation each year, the renminbi will soon become more fairly valued. China's household and corporate wealth becoming footloose presages an important change. We are all familiar with one of the effects of a globalising China: the relative price of labour falls, meaning cheaper "stuff". The second-round effect will be very different. As China's wealth globalises, the relative price of assets bought by private China is going to rise. Residential land in Hong Kong and Vancouver, farmland in Africa and natural resources in Asia will bear the first brunt of these outflows. The second wave could be companies with big and successful operations in China itself, where local consumers are witnessing the successful growth of many global companies themselves.

The "China price" will no longer be the cheapest world price for a commodity. It will be the hefty premium paid for assets in which private China has invested. Do not think about the Shanghai stock exchange as an anomaly. Think about it as the future.

The writer is Standard Chartered Bank's senior economist in Shanghai, and author of China's Stock Market (Profile Books, 2003)

Brown mulls the costs of withdrawal

Brown mulls the costs of withdrawal
By Alex Barker and Stephen Fidler
Copyright The Financial Times Limited 2007
Published: August 21 2007 03:00 | Last updated: August 21 2007 03:00


What to do with the rump of British troops still stationed in Iraq is one of the thorniest political dilemmas facing Gordon Brown as he settles into Downing Street.

Deciding how and when to withdraw from the deeply unpopular war could set the tone for both his first election as prime minister - which some speculate could come as early as this year - and relations with Britain's closest ally. National interests, military tactics and the demands of domestic politics are far from aligned.

Although Mr Brown's eagerness to exit Iraq is widely assumed, no decision has been made public. Standing beside George W. Bush at Camp David last month, Mr Brown stressed there were "duties to discharge and responsibilities to keep" in Iraq. The prime minister will explain how he plans to do this more fully in a statement to MPs in October.

While a timeline is unlikely - ministers have argued setting a date would put soldiers' lives at risk - military officials are preparing for the possibility of a pull-out in the near future. "We're on the course we were always on," says one Whitehall official. "We always said we would draw down and hand over control when the Iraqis were ready. We are not staying there forever. Basra was always going to be the hardest part."

In domestic terms, Mr Brown must balance the need to defuse growing public discontent over Iraq with the need to shore up support for a "long war" in Afghanistan. Polls show a clear majority of Britons support a speedy withdrawal from Iraq, even if it is left unstable. As the withdrawal decision nears, explaining casualties becomes harder.

Tony Blair, who took Britain to war and reduced the presence in Iraq during his time as prime minister, absorbed some of this political fallout.

However an extended commitment, or messy withdrawal, is likely to ratchet up criticism of Mr Brown.

The Conservatives, who supported the invasion, have yet to call for a pull-out. This leaves Menzies Campbell, the Liberal Democrat leader, to apply the political pressure, at least in the House of Commons. He argues Mr Brown must "listen to his generals" and set a target date for withdrawal.

But the manner of the exit, rather than the decision itself, is likely to pose the biggest test. Anti-British militias in Basra can be expected to seek to exploit any pull-out by stepping up attacks. Leaving southern Iraq also requires addressing a series of practical issues that could be politically explosive, such as the fate of Iraqis who worked for UK forces in Iraq and the scores of people interned by the British.

Run out of town - How the British army lost Basra

Run out of town - How the British army lost Basra
By Stephen Fidler
Copyright The Financial Times Limited 2007
Published: August 21 2007 03:00 | Last updated: August 21 2007 03:00


In the immediate aftermath of the invasion of Iraq in 2003, British troops were regularly shown on UK television walking around Basra wearing berets. There was a sharp contrast with the way nervy, heavily protected US troops were throwing their weight around in Baghdad.

The message received by the British public was that this softly-softly approach would - thanks to experience in Northern Ireland and elsewhere - succeed in a peacekeeping mission where the Americans' heavy-handed tactics would fail.

It was a view held almost universally in the British army. "British military guys can be totally insufferable about this," says one retired US general who advises the Bush administration on Iraq.

The four provinces comprising the UK's sector in south-eastern Iraq were also regarded as relatively friendly. The Shia majority in the region had largely -welcomed the toppling ofSaddam Hussein's Sunni regime and British forces did not confront the Sunni insurgency faced by the Americans in central Iraq.

But the days of soft hats and handing sweets to children are now long gone. Casualties being suffered by UK troops in Iraq are now coming at a higher rate than at any time since the March 2003 invasion. UK troops are expected to pull out of Saddam's former palace in Basra, where a battlegroup of about 700 men has been under consistent fire, within weeks. The numbers of UK troops in Iraq will then fall from about 5,500 to 5,000, with a large majority of them based at just one location - Basra airport.

With such a small force, soldiers are being used essentially to protect themselves. Their objective, says Nick Clissitt, a retired brigadier who served in Iraq, appears to be largely to provide a symbolic show of support for Washington and the Iraqi government. "And that's pretty expensive and it's not sustainable," he says.

Officially, the British government says its approach continues to be that of handing over responsibility to Iraqi security forces as they become ready. Troops are still training members of the Iraqi army's 10th division and other forces, contributing to the protection of supply lines from Kuwait to Baghdad and elsewhere and carrying out targeted security operations, often in support of Iraqi forces, the Ministry of Defence says. But while the government's public statements give the impression of a job done, the reality of what UK troops are preparing to leave behind is different.

A report from the International Crisis Group, a non-government group working to prevent conflict, said in June that "relentless attacks against British forces in effect [have] driven them off the streets and into increasingly secluded compounds". It went on: "Basra's residents and militiamen view this not as an orderly withdrawal but rather as an ignominious defeat. Today, the city is controlled by militias, seemingly more powerful and unconstrained than before."

That point was driven home yesterday as Muhammad Ali al Hassani, governor of Muthanna province, next to Basra, was killed by a roadside bomb, becoming the second southern provincial governor to be assassinated in two weeks. British forces handed over Muthanna to Iraqi control in July 2006. Now hunkered down in defensive positions in Basra, they have lost the ability to reverse the downward spiral in the south.

Anthony Cordesman, a specialist on the Middle East and military affairs at the Center for Strategic and International Studies in Washington, wrote in a report on February: "The British decisively lost the south - which produces over 90 per cent of government revenues and 70 per cent of Iraq's proven oil reserves - more than two years ago."

Privately, many serving and retired British officers who have been through Iraq have been saying similar things for some time, though some dispute the terminology. "To speak of defeat is too simplistic. But we are living with the consequences of past decisions and actions - that's a reality - and there is no point in saying that everything in the garden is rosy, because it isn't," says a recently retired British general.

One conclusion is almost universally drawn: British troops suffered from being the junior partner in a coalition whose senior partner comprehensively failed in its post-war planning.

Clare Short, Britain's international development secretary until she resigned less than two months after the start of the war, says the government's post-war planning was linked to that of the US state department and contemplated an internationally supported reconstruction effort. This approach was scrapped, she says, after the January 2003 presidential directive from George W. Bush that put the responsibility for the war's aftermath in the hands of the Pentagon.

The UK hurriedly put together what it called the Iraq Planning Unit, under the auspices of the Foreign Office and led by a civil servant, Dominick Chilcott. This was set up in February, the month before the invasion of Iraq. Yet the British government's approach was often incoherent, reflecting in part what some observers say was its ambivalence towards the invasion and the lack of popular support for the venture.

Any successful strategy needs three legs, says Brig Clissitt: a political-diplomatic part, an economic component and the military-security element. If progress is not being made on the diplomatic and economic fronts, security starts to fall apart.

Andrew Alderson, a banker whose book Bankrolling Basra describes his experience as a Territorial Army officer put in charge of rebuilding the south's economy, says that the London government did not have an integrated strategy that would have provided a chance for success. "We had a half-hearted approach from the get-go," he says.

A senior officer serving at the time reinforces the message: "There was no clear idea about what we were trying to achieve and certainly no resources being put aside to do it."

Several serving and retired officers have told the FT thatMs Short prevented funds from her department going to reconstruction in Iraq, a charge she denies, calling it an "urban myth like the tarantulas in the yucca plants at Marks and Spencer".

Nonetheless, it is clear that people involved in reconstruction were told that there was no British money available for it, and any financing would have to come from the US. Ms Short says, as far as she was aware, that the money allocated by the UK Treasury for reconstruction in Iraq was "virtually none".

Brig Clissitt says the Americans "were calling the shots because they were paying the money". One British army commander, who asked not to be identified because he is still serving, says: "We were just not willing to put our money where our mouths were." In a reference to Paul "Jerry" Bremer, who arrived in Baghdad in May 2003 as head of the ruling Coalition Provisional Authority, he says: "What we should have done was to take over the south-east of Iraq and run all the operation ourselves, telling Jerry Bremer that it wasn't his operation. That should have included aid."

One reason the UK did not want its own zone of influence in the south was because that may have been seen as preordaining the break-up of Iraq into three parts. But in any case, soon after the invasion the security situation began to deteriorate, making it harder and harder for reconstruction projects to go ahead. One reason for this, some observers say, was the rapid drawdown of British troops, which led to a security vacuum.

Some 45,000 troops took part in the invasion of March 2003. By May, there were 26,000 UK troops in the south-east and by July the number had fallen to just 9,000. Asked in February why the drawdown had been so rapid, General Sir Mike Jackson, the former head of the British army, told the FT that "you can't sustain" such a large force in theatre for long periods of time.

The reason behind that is the country's shrinking military. At just under 100,000 men and women, Britain's regular army is now smaller than at any time since the early 1840s. It would fit into Manchester's two Premier League football stadiums, while the 24,000 spare seats would seat three-quarters of the country's heavily worked reserve force, the Territorial Army, itself smaller than at any time since it was formed in 1908.

The inability to secure law and order in southern Iraq weakened support for the UK forces, and legitimised support for Islamist militias operating in the area. According to Michael Knights and Ed Williams of The Washington Institute for Near EastPolicy: "Without an improve- ment in security, the coalition could expect its reconstruction efforts to fail and even greater public resentment to build."

The actions of UK troops also had on occasions inflamed local sentiment, the two men said in a report on the British experience in southern Iraq. In Maysan province, one of the four for which the UK had responsibility, UK forces upset locals by their efforts to collect heavy weapons. Elsewhere, house searches for explosives using dogs caused considerable anger.

"Despite their reputation for 'community soldiering', British soldiers had crossed local red lines without knowing it," the two authors concluded. They "did not know enough about the cultural environment [they] were operating in".

Over time, British tactics developed. In Maysan, the UK forces were expected to act as "the biggest tribe in the province", Mr Knights and Mr Williams said. Sometimes their actions undermined the institutions the coalition was supposed to be building, including what one general termed "the pragmatic use of militias" and a focus on boosting the raw numbers of police recruits in an effort to meet targets.

One reason why British counterinsurgency policies had succeeded elsewhere in the world was because UK forces operated alongside capable local allies. In Iraq, there were none and by 2005, local security forces - in particular the police - were seen by British officers in Basra as part of the problem rather than part of the solution.

By then, short-term fixes were in order because there was an assumption that UK forces would not be there much longer. "Myopic policies highlighted the belief, from Whitehall down to the British headquarters in Basra, that British forces would soon be leaving Iraq," they said.

In fact, several senior British officers said, the assumption made when the government agreed in 2005 to send UK troops to support Nato in Afghanistan was that the Iraq mission would quickly be wound down.

This assumption proved wrong. Yet while there were tactical errors, there were tactical military successes and some potential failures avoided. British and US sources say the UK refused an American request to send troops into the violent Anbar province in central Iraq in 2004, for which they were assumed to be well suited, in part because British public opinion would not tolerate the rate of casualties sustained by US forces.

However, the military component is only a part of the failure. "The problem is that the Iraq insurgency is seen in terms of military operations but, when you read any field manual, the success of the operation is ultimately dependent on the political structure," says Mr Cordesman of CSIS.

It was not the fault of the British forces, he says, but they were operating against the background of a struggle for power among three Shia Islamist political groupings. Factions of the Supreme Council for the Islamic Revolution in Iraq and of militias attached to the firebrand cleric Moqtada al-Sadr dominated the region. In the 2005 elections, they, the Dawa party and other Islamists secured 38 out of 41 seats in the Basra provincial elections and 35 out of 41 in Maysan.

These elections meant finally that the British mission couldn't succeed in military terms. "The political context under which British forces could achieve stability became virtually impossible," he says.

"A soft approach to the population when you are talking about counterinsurgency is one thing, but it doesn't work when you [are up against] a large and dedicated military force," he says. The model that worked in Northern Ireland would not work in southern Iraq because of the thousands of militiamen who were challenging UK forces: "There were several hundred activists in Northern Ireland - that was not what you had in southern Iraq."

Interviewed by BBC Radio on August 10, Air Chief Marshall Sir Jock Stirrup rejected the suggestion of a British defeat. "Our mission was to get the place and the people to a state where the Iraqis could run that part of the country if they chose and we are very nearly there. Our mission wasn't to make the place look like somewhere green and peaceful because that was never going to be achievable in that time-scale and in any event the Iraqis can fulfil that aspiration."

Indeed, it may be that no foreign force could have succeeded in southern Iraq. It may also be, as some military analysts insist, that the Shia south did not have the same strategic significance as the Sunni heartlands where American forces were battling a fully-fledged insurgency.

Nonetheless, the picture painted of Britain's Iraq experience is of too small a force, too rapidly drawn down, of British government parsimony and lack of internal co-ordination that compounded the errors of planning made by Washington.

Fed and Wall Street farther apart on the credit crunch

Fed and Wall Street farther apart on the credit crunch
By John Dizard
Copyright The Financial Times Limited 2007
Published: August 21 2007 03:00 | Last updated: August 21 2007 03:00


The disconnect between Washington and Wall Street thinking about the credit crunch has narrowed somewhat in the past few days. The Wall Streeters had been missing the point when they tried in recent weeks to get through to the fundamentalist Fed governors about the systemic risks of the credit seize-up. In the absence of strong leadership, the Federal Reserve staff and board have been driven by the dictates of academic-bureaucratic politics. That means that admissions of fallibility have been more of a problem for them than the consequences for the real economy of their sticking to inadequate econometric models.

Don't make the mistake of thinking this is anything but a bear market rally in risk. Investors still face a risk of spreading asset deflation. There are not yet enough cash-dispensing central bank helicopters.

At times such as this, it has been worthwhile to listen to the most fawning courtiers among opinion writers in the Washington newspapers. From them, unfiltered by any knowledge or judgment, you get what has been the straight Fed party line on the credit crunch. In an environment teetering on catastrophic asset deflation (look at the decline in the gold price), until the past

couple of days Fed people were still pushing a particular model of inflation-targeting as their guide, while behind-the-scenes factions squabble over the ideal level for the target. Now, I am told, the Washington Fed people know how bad things are. The question is what mechanisms they can use to react without unintentionally invoking other demons. It is not clear they have enough skilled former market operators in house to devise a good enough plan. Incredibly, the Bush administration has a competent team at the top of the Treasury. Henry Paulson, the Treasury secretary, for all his reassuring comments, does know what is going on. But even he cannot tell the governors what to do.

Chairman Ben Bernanke's quiver does have a usable back-up theory, which you can find in his academic work on the Depression. This is based, as we have noted before, on what he has termed the cost of credit intermediation, or the institutional barriers to liquidity, finding its way in a crisis to the right borrowers. Mr Bernanke is more an academic department chairman than a dictator and he has to create among colleagues a consensus on the appropriate theoretical construct.

"Wall Street", to the degree it has a consensus, does not want to create moral hazard by supporting the price of unsound assets or by ensuring that hedge fund managers and proprietary traders get their bonuses - or even keep their second houses. It does not want to accelerate inflation by monetising bad paper. But it does believe the deleveraging process could get out of hand quickly. The illiquidity developing in commercial paper is an ominous warning.

Many on the Street are assuming that Fannie Mae and Freddie Mac, two of the government-sponsored enterprises, and their regulators will abandon their prudential limits and rescue housing finance. Along with their allies on the congressional banking committees, they think that the problems could be managed if Fannie and Freddie's caps on lending were removed and "good" mortgages were bought in securitised, carload lots. The default risk posed by resets on adjustable rate mortgages would be avoided by F&F,inter alia, exchanging ARMs for fixed-rate mortgages and funding them out with the GSEs' government-supported paper.

The problem is that the Greenspan Fed and its allies in the government avoided what might have become a systemic crisis with the GSEs earlier this decade. They did that by imposing those funding caps, and limiting the GSEs' fixed-rate asset exposure. Otherwise, this crisis might have come a year or two ago in the form of a crunch in the interest rate swaptions market. This would have been caused by the enormous hedging requirements of the GSEs, driven by the need to keep the duration of assets and liabilities matched on thin capital bases. The Fed would probably have had to become the interest rate derivatives counterparty of last resort, a role for which it was ill-prepared.

The real issue has been the excess liquidity created by the central banks through a decade of ever-more ambitious crisis management. The risks created by those "solutions" were not identified, let alone measured, by their econometric models. Now they have to conduct a credit triage by supporting sound and essential borrowers, so we can get something closer to the mythical soft landing. The inflationary risks of massive liquidity provision later can only be reduced, not eliminated, by selective direct purchases of good paper, directly or indirectly, by the Fed. My bet would be that they do just that. Already, we've seen the discount rate cut as well as the preferential purchase of mortgage-backed agency paper over Treasuries in their open market operations. This is necessary but probably not sufficient. The question is how long the Fed delays taking more direct action and, therefore, how much more inflationary risk will be introduced.

China allows direct offshore investments

China allows direct offshore investments
By Jamil Anderlini in Beijing
Copyright The Financial Times Limited 2007
Published: August 21 2007 03:00 | Last updated: August 21 2007 03:00

China's capital markets on Monday took a significant step towards integration with the rest of the world when Beijing announced it would allow individuals directly to buy securities offshore for the first time.

Investors will be able to open accounts at Bank of China branches across the country to trade securities listed in Hong Kong, whose markets, unlike the mainland's, are integrated with the global economy.

China's State Administration of Foreign Exchange (Safe) also said these investments, under a pilot scheme awaiting final approval, would be exempt from a $50,000 (€37,000, £25,000) limit on the amount of foreign currency Chinese citizens could buy or sell every year.

It said it hoped this opening of the capital account would relieve upward pressure on the renminbi while giving citizens more investment options. "This is an important action for widening the channels for foreign exchange to leave the country and promoting basic equilibrium in the international balance of payments," Safe said.

China's huge and growing trade surplus creates pressure on its currency to appreciate, but the government operates a managed exchange rate regime to prevent the renminbi from rising too quickly and hurting exporters.

While the change will enable Chinese citizens to invest directly in all Hong Kong traded securities, investors are expected to focus on Chinese companies, which trade at an average 50 per cent discount to the mainland.

With no restrictions on the amount of foreign currency individuals can buy to invest, Hong Kong's H-share index, which covers mainland Chinese companies listed in the territory, rose almost 9 per cent yesterday to 11,964 points.

"The impact of Chinese money on the Hong Kong market could increase dramatically," said Vincent Chan, an analyst with Credit Suisse in Hong Kong. "It will fundamentally change the dynamics of the Hong Kong market if this policy is adopted fully."

Although China has had a stock market since 1990, its infrastructure has trailed that of the western world in a number of ways, including the maintenance of curbs on investors owning shares overseas and on foreigners buying domestic stocks. Encouraging funds to flow offshore will alleviate some of the pressure.

"Markets are still not fully fungible because foreigners can't invest directly in the Chinese market and there is no mechanism for shorting stocks [trading in borrowed securities], but these new rules are a big step towards that goal," said Jerry Lou, equity strategist at Morgan Stanley.

Chinese individuals were recently allowed to invest in foreign securities indirectly, through structured products offered by large banks, insurers and fund managers which are themselves constrained by what they can invest in.

Once it secures final approval from the China Banking Regulatory Commission, the programme is due to be expanded toother banks and offshore markets.

Initially, however, investors will have to invest through Bank of China, which must conduct all trades through its branch in the northern city of Tianjin's Binhai special economic zone, which enjoys particular favour with the central government.

Rate cuts seen as T-bills continue to fall

Rate cuts seen as T-bills continue to fall
By Krishna Guha in Washington
Copyright The Financial Times Limited 2007
Published: August 21 2007 02:13 | Last updated: August 21 2007 02:13


The dramatic decline in the yield on short-term Treasury bills on Monday further strengthened market expectations that the Federal Reserve will soon embark on an aggressive series of interest rate cuts.

By the close of trading the market was pricing in roughly one-and-a-half quarter-point cuts by the Fed’s next scheduled policy meeting on September 18, and three quarter-point cuts by the end of this year.

Traders said the market was pricing in a significant probability that the Fed would cut rates before the September meeting, though it is very difficult to estimate this precisely.

That all adds up to a perfectly plausible scenario. But there remains considerable uncertainty as to what the Fed will actually do.

Fed officials are watching the action in the T-bill market carefully but are likely to view it as, at least in part, the mechanical result of a process they already knew was under way.

Investors have started to pull billions of dollars out of risky investments, including some hedge funds, and as funds liquidate assets to meet redemption requests, the cash needs to be put somewhere. At present, it is piling into the T-bill market, where the supply of securities – in the short term – is fixed, pushing down yields.

This pressure will probably continue for several weeks as the backlog of redemption requests is cleared.

The more unsettling aspect is the added pressure from asset-allocation shifts within the $2,700bn money market fund sector, with “enhanced” funds trying to increase the share of pure government debt in their portfolios.

On the face of it, the market appears quite sure what the money market woes and dysfunction elsewhere in the credit markets mean for interest rates. But it would be wrong to infer from this a high degree of certainty as to where rates are heading.

Traders and policymakers alike believe that the interest rate futures market is being used by investors to hedge positions taken in other markets.

It may not, therefore, give a true picture even of investors true expectation of the future rate path.

Policymakers, meanwhile, are still marking to market their own estimates of what the turmoil means for the economy. For now many still see the impact as being mostly one of increased downside risks to growth, with smaller revisions to the base case forecast for growth.

In all likelihood the tightening of credit conditions will push the Fed to ease by between a quarter point and a half point this year, to leave overall financial conditions as they were before the turmoil began.

More radical scenarios, though, tend to assume that the Fed will have to take additional action to unblock the financial system, and prevent more extreme spillovers to the economy.

Much depends on how long the market turmoil continues – a judgment the Fed has no great informational advantage in making.

Policymakers will remain flexible in their thinking. But they cannot afford to ignore what the market is pricing in, even if this is distorted by hedging. The pricing in of assumed rate cuts has reduced interest rates along the government yield curve, providing an important counterweight to tightening of credit conditions.

The last thing the Fed wants to do now is to kick away that counterweight by questioning the rate cut assumptions.

For now – while policymakers remain deeply uncertain – they are acquiescing in market expectations. If markets remain fragile, they will find it difficult to break away from that stance.

Capital One and Thornburg lose $1.8bn

Capital One and Thornburg lose $1.8bn
By Ben White in New York
Copyright The Financial Times Limited 2007
Published: August 20 2007 23:15 | Last updated: August 20 2007 23:15


The US mortgage meltdown continued to spread on Monday as two big lenders announced expected losses of a combined $1.8bn.

Capital One Financial, one of the largest US credit card providers, said it would close its wholesale home lending unit, GreenPoint Mortgage, and take an after-tax charge of $860m, most of it coming this year.

Capital One said it would reduce its 2007 earnings guidance by $2.15 to $5.00 per share and would eliminate 1,900 jobs.

Meanwhile, Thornburg Mortgage, which provides big mortgages on expensive properties, said it would record a $930m third quarter loss on the sale of mortgage-backed bonds.

In an internal memo, Rich Fairbank, Capital One chief executive, said the company’s decision to close GreenPoint came in response to “unprecedented disruption in the secondary mortgage markets”.

GreenPoint specialised in providing loans to subprime borrowers and so-called “Alt-A”, or near prime borrowers. GreenPoint would then sell those mortgages on to investors.

However, defaults among subprime borrowers have soared in recent months and the appetite among investors for securities backed by mortgages has plunged.

”The reductions in demand and pricing in the secondary mortgage markets make it difficult to operate our wholesale mortgage banking business profitably,” said Gary Perlin, Capital One’s chief financial officer, in a statement.

He added, ”Beyond that, Capital One’s other businesses are supported by ample liquidity and funding including deep access to deposits, a ‘stockpile’ of subordinated credit card funding in place that allows approximately $9bn of AAA credit card funding going forward, and a $25bn portfolio of highly liquid securities.”

Capital One, based in McLean, Virginia, acquired GreenPoint as part of its 2006 purchase of North Fork, the New York bank. GreenPoint was known to offer “no doc” mortgages that provided credit even if borrowers did not provide documentation of their ability to pay.

The move by Capital One and the announcement from Thornburg come after Countrywide, the largest US mortgage lender, last week said it would tap into an $11.5bn credit line to fund operations after the global credit squeeze curtailed its ability to raise funds in the debt market.

But on Monday Countrywide, which employs more than 61,500 across the US, took out full page advertisements in the New York Times and other newspapers saying it was “well capitalised”. These came after some reports suggested the lender had begun to lay workers off.

Partly in response to Countrywide, the US Federal Reserve said it was cutting in half the interest rate penalty on its discount window, allowing banks to borrow directly from the Fed against a wide range of collateral, including most mortgages, at only 50 basis points above the federal funds rate.

The Short View: Money market

The Short View: Money market
By John Authers, Investment Editor
Copyright The Financial Times Limited 2007
Published: August 20 2007 19:43 | Last updated: August 20 2007 19:43


The stock market has got the US Federal Reserve’s message. The money market has not. Unfortunately, the message was intended for the money market.

Stocks “bounced” after the Fed’s Friday decision to cut its discount rate, making it easier for banks to borrow. This was not surprising. Historically, the discount rate – governing the rate at which the Fed lends to banks – has moved less frequently than the Fed Funds rate, which covers the rate at which banks lend to each other.

When it does shift, academics such as Robert Johnson of the CFA Institute point out, it has a strong effect on stocks, because it is seen as an unambiguous indicator of future monetary policy. Stocks like rate cuts.

But the Fed was not aiming to bail out stocks. Rather it was prompted to act by extreme conditions in the money market.

Companies faced acute difficulties raising finance with asset-backed commercial paper, a key way to raise short-term funds. Loss of confidence in collateral, in the wake of the subprime debacle, prompted investors to fly to quality. On Thursday, the three-month Treasury bill yield fell more than 50 basis points, as investors piled in to the world’s safest and most liquid securities.

This was such an extreme event that the market bet that the Fed would be forced to react. Hence the rally.

But the three-month Treasury-bill yield fell on Friday, showing a continued flight to quality. On Monday morning, the T-bill yield fell more than 120bp, to 2.53 per cent. Usually it stays close to the Fed Funds rate, which stayed at 5.25 per cent.

This is the sharpest move in T-bills in decades, dwarfing anything from the tech bubble, or even the Black Monday crash of October 1987. Then, investors fled stocks and piled into T-bills.

This time, shares are rising. Despite the Fed’s move, the loss of confidence in asset-backed loans and bonds appears greater than the loss of confidence in stocks in October 1987.

WestLB chief highlights credit worries

WestLB chief highlights credit worries
© Reuters Limited
September 21, 10.28 BST


The turmoil in the US subprime mortgage market is making it difficult for German banks to get credit lines from their foreign partners, the chief executive of state-backed lender WestLB said late on Monday.

Underlining the severity of the impact of US subprime woes on German banks following the near-collapse of lender IKB this month, Alexander Stuhlmann said the sector was in a ”not uncritical situation” overall.

He said German banks’ rescue of small-company lender IKB had raised the impression abroad that the entire German banking sector was facing problems.

IKB last month unveiled a shock profit warning after running into problems with its investments linked to the market for risky mortgages in the United States.

A consortium of German banks forged a €3.5bn ($4.7bn) rescue of IKB but the problems sent shockwaves through the credit markets as investors speculated that other German and European banks would be affected.

Since then, fellow state bank SachsenLB has also run into subprime-related problems and had to be propped up by fellow banks with a €17.3bn credit line.

WestLB itself has said it has over €1.2bn in overall US subprime exposure, but Stuhlmann said the Duesseldorf-based bank could cover all its risks from its own liquidity. ”We are not in a situation like IKB,” he said.

WestLB, whose previous CEO, Thomas Fischer, left after a trading scandal, is moving towards a merger with a new partner.

The state of North Rhine-Westphalia (NRW) wants to sell its stake of around 38 per cent in the lender and plans to bring in an investment bank as adviser in September.

The two NRW savings bank associations that hold the remainder of WestLB favour a merger with state bank LBBW.

Stuhlmann said the situation was critical when the owners were so far apart in their thinking on the future of the bank, with one group clear on what it wanted and the other still checking options.

WestLB’s owners are to meet on Friday to discuss the issue.

Stuhlmann himself has said that WestLB and LBBW would fit well together.

A merger between WestLB and HSH Nordbank was not on the agenda, from the owners’ point of view, he added.

He said earlier talk that WestLB and SachsenLB might play a leading role in a consolidation of regional state-backed lenders was ”currently not very persuasive.”

Wal-Mart beats Amazon in download race

Wal-Mart beats Amazon in download race
By Jonathan Birchall in New York
Copyright The Financial Times Limited 2007
Published: August 21 2007 15:55 | Last updated: August 21 2007 15:55


Wal-Mart, the largest US retailer, on Tuesday announced the launch of a music download service that sells songs from EMI and Universal Music Group without the digital rights management (DRM) copy protection that limits the kinds of device on which they can be played.

The move, which comes as Amazon is planning a similar service, marks a potential challenge to the digitial dominance of Apple’s iTunes, since it offers music that can be played both on Apple’s iPod devices and on less popular but cheaper MP3 players.

Wal-Mart is selling DRM-free music on its website from EMI and Universal at 94 cents per track, and $9.22 per album by artists including the Rolling Stones and Nelly. Apple’s iTunes sits sells single songs for 99 cents.

The retailer has operated a standard MP3 download service at 88 cents a track for over two years, but the service has not achieved significant traction.

Wal-Mart’s move is expected to be followed imminently by Amazon, the largest online retailer. Both retailers already operate video download services on their websites, but their move into music downloading has been delayed by the debate with music studios over the implications of the DRM-free system.

Earlier this year, Britain’s EMI Group said it would make its entire digital catalogue available through Apple’s iTunes online music store without digital rights management (DRM) protection. Vivendi’s Universal Music Group said earlier this month it would offer thousands of its recordings online without DRM in a six month trial.

Sony BMG and Warner Music are also exploring a similar strategy. But they are still concerned that selling copyable MP3s could increase piracy or cut into their burgeoning sales of music to mobile phone users.

Amazon did not release pricing information for the music service but did say that it would be ”competitive”.

iTunes has maintained its 80 per cent share of the legal online music market in spite of competition from a variety of companies, including Microsoft, which last year released its Zune player.

Paulson says no quick fix for credit problems

Paulson says no quick fix for credit problems
By FT reporters and agencies
Copyright The Financial Times Limited 2007
Published: August 21 2007 15:39 | Last updated: August 21 2007 16:43


Wall Street stocks were lower by mid-morning on Tuesday, after Henry Paulson, the US Treasury secretary, said he saw no quick solution to problems in the credit markets.

“Credit is being repriced, reassessed across our capital markets,” Mr Paulson told CNBC television.

”As the Fed addresses liquidity this makes it possible, this makes it easier, for the market to focus on risk and pricing risk. This will play out over time and liquidity will return to normal when the market has a better understanding, investors have a better understanding, of the risk-return trade off.”

Mr Paulson said the overall strength of the economy was sound, but added: ”Economic growth will be less than it ordinarily would have been.”

Mr Paulson and Ben Bernanke, Federal Reserve Chairman, met Christopher Dodd, Senate Banking Committee Chairman, on Tuesday morning to discuss market turbulence and what can be done to stabilise the economy.

Mr Dodd said that he had urged Mr Bernanke to use “all of the tools at his disposal here to keep our markets working”.

The Democratic senator for Connecticut who is seeking his party’s presidential nomination also said that he asked the Bush administration to lift portfolio caps for state-backed mortgage giants Freddie Mac and Fannie Mae, but that Mr Paulson had said that such a move was unlikely at the moment.

Mr Dodd said allowing the two companies to expand their mortgage portfolios would help bring stability to housing markets.

Last week the Fed cut its overnight discount rate by 50 basis points. While that initially gave markets a boost, the rally ran out of steam on Monday, with the S&P 500 index closing marginally lower for the day.

Fed fails to calm money markets

Fed fails to calm money markets
By Krishna Guha in Washington and Francesco Guerrera and Saskia Scholtes in New York
Copyright The Financial Times Limited 2007
Published: August 20 2007 14:52 | Last updated: August 21 2007 00:32


Money market investors staged a dramatic flight to safety on Monday, knocking down yields on short-term US government debt, as top Treasury and Federal Reserve officials continued behind-the-scenes efforts to maintain confidence in the credit markets.

The yield on the one-month Treasury bill fell 160 basis points to 1.34 per cent in early trading, while the yield on three-month Treasury bills tumbled to 2.51 per cent at one point, 123 basis points below Friday's close - a sharper fall than during the October 1987 stock market crash.

The one-month Treasury bill later recovered to close down 62 basis points on the day at 2.33 per cent, while the three-month bill finished 3.09 per cent down, a fall of 66 basis points on the day.

The scramble to obtain government paper, at almost any price, is a sign of extreme risk aversion and suggests that the Federal Reserve's actions on Friday have yet to stabilise the credit markets. This, in turn, is encouraging speculation that the Fed will have to cut interest rates soon.

“We had clients asking to be pulled out of money market funds and wanting to get into Treasuries,” said Henley Smith, fixed-income manager at Castleton Partners. “People are buying T-bills because you know exactly what’s in it.”

Separately, it emerged that Deutsche Bank had taken advantage of new loan terms offered by the Fed to banks on Friday to ease the current credit squeeze.

There was also unease in Europe, where companies continued to face problems raising funds in the asset-backed commercial paper market - a key source of funding for financial companies. Data from Dealogic showed companies failed to refinance more than 80 per cent of ABCP paper that matured on Monday.

This has created financing problems at two German banks and if the trend goes on it could hurt other financial institutions.

Top Treasury and Federal Reserve officials on Monday continued their efforts to restore confidence in the markets. Hank Paulson, US Treasury secretary, and senior Fed officials have called large institutional investors and banks in an attempt to restore confidence.

One large institutional investor said he had been called by a senior Fed official seeking to “explain” Friday's decision to lower the discount rate and argue that market conditions were improving.

Policymakers on Monday denied having specifically asked investors to buy into the market, but acknowledged they had encouraged them to consider the “signals” their actions sent.

Deutsche Bank's decision to borrow from the “discount window” came on Friday, just hours after the Fed decided to lower the rate on these loans.

Additional reporting by Gillian Tett

International Herald Tribune Editorial - Market turmoil and threats to the broader economy

International Herald Tribune Editorial - Market turmoil and threats to the broader economy
Copyright by The International Herald Tribune
Published: August 19, 2007


There are good reasons to hope - and believe - that the Federal Reserve will ably manage the turmoil in the financial markets. Its surprise lending rate cut on Friday and earlier infusions of cash into the banking system show that it is committed to crisis management.

But the Fed's moves also show that it believes the markets' problems have become a threat to the broader economy. For that reason, calming the markets should be seen as only a necessary first step toward addressing much bigger issues - issues that President George W. Bush and his aides continue to deny.

The real work - that of leaders, not managers - is to understand how the economy became so vulnerable to current global market instability, and to articulate an agenda for reducing those underlying weaknesses. There is no return to "normal" that would not be the same as sticking one's head back in the sand.

The bare facts are that the United States - heavily indebted - needs to attract some $800 billion a year from abroad, either by borrowing the money or by selling American assets. No serious analyst believes that an imbalance of that magnitude is sustainable.

In fact, the erosive effects are already evident. Debt must be repaid by sending money abroad, leaving less to invest domestically.

Selling off American assets means reduced investment returns to Americans. And that's if things go smoothly. Ever present is the risk that the vital foreign inflows will wane, with severe repercussions on interest rates and the dollar.

So far, however, the Bush administration has shown no awareness that the current market turmoil is layered on top of deeper vulnerabilities that demand attention. It cannot even see that the current market upheaval calls for new policies. In an interview this week in The Wall Street Journal, the Treasury secretary, Henry Paulson, said that the credit crunch tied to risky mortgage-related investments was "inevitable." But the credit squeeze is not the work of an invisible hand. It stems from a markets-above-all ideology espoused at the highest levels of government, and resulting regulatory failures in the face of excessive risk taking.

Despite the current turmoil's clear roots in unbridled risk, Paulson told The Journal, "there is nothing, in my judgment, that we should be doing to restrain risk taking." He should tell that to the hundreds of thousands of people who will endure foreclosure because of reckless lending, which spawned the risky investments now roiling the markets.

In Paulson's world, and Bush's, excess and its ruinous consequences are the natural result of market activity, which is itself sacrosanct. So it will fall to Congress and the presidential candidates to put the truly pressing issues on the agenda. The United States badly needs progressive, pro-market leaders who will advance a legal and regulatory framework to reduce excesses in lending and derivatives and to monitor opaque market actors, like hedge funds and private equity firms. The goal must be to avert or at least mitigate crises that otherwise do damage far beyond the immediate investors.

And to succeed, the country must first stop digging the hole it is in. That will require federal budget discipline, especially health care reform and higher taxes.

It will also require higher private savings. And all of that will require leaders who will level with Americans about the depth of the country's economic problems, including its vulnerability to global turbulence, and the sacrifices it will take to address them.

The credit compass offers no direction

The credit compass offers no direction
By Gillian Tett
Copyright The Financial Times Limited 2007
Published: August 20 2007 03:00 | Last updated: August 20 2007 03:00


This summer a gruesome new guessing game is afoot: spotting where the subprime bodies lie. For as the financial world reels from the current credit storm, the list of companies that are potentially affected by the turmoil is widening well beyond the usual suspects.

True, some hedge funds have blown up. I daresay more will soon follow: Moody's credit rating agency, for example, warned last week that it now sees a 50-50 chance of an implosion at a big fund soon.

But do not be fooled into thinking that this summer's turmoil is a direct replay of the events of August 1998 - or, at least not in the sense that it can be blamed on the dénouement of just one big victim (as with Long Term Capital Management in 1998).

This time round, by contrast, the losses are potentially widely scattered about. There are rumours, for example, that some bank proprietary trading desks are nursing pain. Some specialist debt vehicles, such as collateralised debt managers, have probably taken hits too. So have investment units that are partly attached to banks, conduits or specialised investment vehicles. On Friday night, for example, Germany staged its second bank rescue in as many weeks when SachsenLB was sunk by problems in a conduit, echoing earlier woes at IKB.

However, as the rumour mill goes into overdrive another category of companies is also being scrutinised - the so-called monoline insurers, or those financial companies such as MBIA or Ambac that insure securities (meaning that they guarantee the punctual repayment of a bond's principle and interest if the issuer defaults.) In normal, quieter times these companies receive very little attention, since they inhabit a particularly slow-moving, obscure niche of the financial jungle. But the sector is a veritable behemoth: though Ambac and MBIA first sprang up in the 1970's to insure American municipal bonds, they have since moved into the structured finance world, covering tranches of collateralised debt obligations (CDOs), for example. As a result, the sector insured $3,300bn (£1,665bn) worth of paper last year.

The monolines have always prided themselves on operating in an ultra-conservative manner, and that has hitherto enabled them to produce steady earnings, and maintain the all-important AAA credit rating. But what investors have now suddenly remembered this summer is that as the monolines have moved into the CDO world, they have also started handling securities related to - yes, you guessed it - subprime debt.

The monolines vehemently deny this will cause them any problems. After all, subprime assets represent just a tiny part of their book (reportedly less than 4 per cent of exposures). But this does not placate some observers, who note that even small losses could hurt their model since monolines typically use high leverage (insuring, for example, assets that are 150 times the value of their capital base). Thus, the share price of the monolines has recently tumbled, exacerbated by the fact that some hedge funds, such as Pershing

Square, are gleefully shorting the sector.

Personally, I have no way of telling whether these concerns are poppycock or not. But that very uncertainty is the biggest issue of all. For what is most pernicious about the current credit storm is that the climate of confusion is so high that nobody quite knows what to believe anymore - in respect to the monolines, or anything else. The reason for this uncertainty, as this paper has repeatedly noted in recent days, is that this decade's frenetic financial innovation has scattered subprime losses around the financial system to a degree never seen before.

In theory, this structural change should not have surprised anybody: after all, it has occurred over a number of years. But it is one thing to know something exists in theory; it is quite another to confront the practical implications. As investors and credit officers confront this new risk-dispersed world, many are behaving as if they have lost their credit compass.

After all, nobody quite trusts the published accounts of financial institutions to offer much guide to subprime pain anymore; nor do bankers' statements carry much credibility either. Just look at the case of SachsenLB and IKB: there were no signs of serious subprime contamination in their published accounts, and both banks declared themselves healthy just before the crunch.

Thus, in this disorientated climate, banks are cutting off other banks and investors are shunning entire asset classes - sometimes to a completely irrational degree. No wonder the monolines are suffering under the curse of subprime contamination too.

Presumably this panic will eventually die down, as investors slowly adjust to this new risk-dispersed financial world. Credit officers, in other words, will find a new compass. At some point we may even discover where those subprime bodies truly lie. But don't bet on that happening soon - or particularly smoothly. Thus for the foreseeable future, the monoline insurers have a nasty investor relations challenge on their hands. The only possible comfort is that in this respect, the monolines now find themselves in a very large financial club.

A (sub)prime argument for more regulation

A (sub)prime argument for more regulation
By Barney Frank
Copyright The Financial Times Limited 2007
Published: August 20 2007 03:00 | Last updated: August 20 2007 03:00


Reality has broken into our economic programming, with an important message: the subprime crisis demonstrates the serious negative economic and social consequences that result from too little regulation.

In the debate between those who believe in essentially unregulated markets and others who hold that reasonable regulation diminishes market excesses without inhibiting their basic function, the subprime situation unfortunately provides ammunition for the latter view.

The epidemic of mortgage foreclosures is the result of a powerful negative synergy stemming from the large increase in mortgages originated by unregulated entities, and an essentially uncontrolled secondary market into which those originators sold their products. Until recently, the great bulk of residential mortgages were originated by deposit-taking institutions closely supervised by federal and state regulators. If these entities had continued to be the overwhelming source of mortgage originations, we would not be dealing with the subprime crisis.

It is the unregulated sector of the mortgage industry that has disproportionately contributed to the large number of imprudently made loans. A major reason that these originators could make such loans is that soon after they did so, they sold them into the secondary market, which left them free of any financial responsibility. By contrast, entities that make loans and retain ownership of them have a financial stake in the ability of borrowers to pay them off. This analysis yields several recommendations for public policy.

First, all mortgage originators must be subject to reasonable regulation substantively similar to those that apply to depository institutions. This means some form of licensing and the proscription of loans that should not be made because there is no reasonable prospect of their being repaid. Some states have already moved in this direction but others have not, so Congress must act. To those who argue that we should let the borrowers suffer the consequences of their mistakes, there is a two-fold answer. Many loans were accompanied by fraud, deception, inadequate information and other failures of responsible marketing. Additionally, inappropriate subprime loans have not been randomly geographically distributed. They are concentrated in some neighbourhoods, and this has a wholly undesirable and unjustified impact on the majority of homeowners in those neighbourhoods who are keeping up their mortgage payments. Having a foreclosed, vacant home next to your home or four doors down leads to a deterioration of your neighbourhood and the value of your property.

Effective enforcement of any lending standards means that those who package and sell those loans into the secondary market must also have some responsibility. Setting clear guidelines, which securitisers must follow to guard against being vehicles for unsound loans, can be done in a way that enhances the attractiveness of the secondary market to investors and serves as a safe harbour against liability.

Of course, we will be told by some that putting any restrictions on the ability of servicers to package and sell will prevent the market from functioning. (Connoisseurs of the argument that any regulation of a securities market will bring about its demise are urged to turn to the debates over the establishment of the Securities and Exchange Commission in the 1930s.)

These considerations are also relevant to the current debate over the supervision of Fannie Mae and Freddie Mac. The outstanding issue is the insistence by the Bush administration that Fannie's and Freddie's portfolios should be reduced in favour of increased reliance on the secondary market. But loans held in their portfolios are more amenable to the flexible workouts that are important in diminishing the current foreclosure problem, and Fannie's and Freddie's ability to serve as refinancers for existing mortgage holders who are seeking relief from abusive loans would be substantially diminished if they could sell these only into the secondary market.

That brings me to one of the silver linings. Those of us who have a serious aversion to clichés can take comfort that in this debate over regulation for the secondary market, we are unlikely to hear anyone invoke that tritest of conservative arguments, "If it ain't broke, don't fix it."

There are two further public policy debates on which this crisis sheds light. Congressional Republicans have ended most federal programmes in which the federal government collaborates with the private sector to construct affordable rental housing, and have instead held out home ownership as the only valid answer to those seeking decent housing, even for those whose economic circumstances and the high cost of housing in their areas make this economically unsustainable. One goal of the Democrats is to return to public/private partnerships to construct subsidised rental housing, which will remove one of the push factors contributing to the current crisis.

Further, we must now address the questions raised by the instability in the financial markets triggered by the subprime problem. It is clear that updated regulation is required to deal with innovations in the mortgage business. There have been even more profound changes in the broader financial markets. Private and public sector policymakers must also askwhether current regulatory frameworks are adequate to dealing with them.

The writer is chairman of the House Financial Services Committee and is a Democratic congressman from Massachusetts

Money markets driving drama

Money markets driving drama
By Saskia Scholtes in New York
Copyright The Financial Times Limited 2007
Published: August 20 2007 03:00 | Last updated: August 20 2007 03:00


Money market investors are emerging as drivers of the latest global financial drama, roiling credit markets and hurting corporate borrowers by shunning commercial paper and piling into short-term US government debt.

Yields on short-term Treasury bills last week made their biggest two-day fall since the "Black Monday" stock market crash of October 1987, as spooked commercial paper investors sought to put money in the safest and most liquid short-term assets.

Friday's extraordinary conditions in money and bond markets led the US Federal Reserve to intervene, making direct loans available to cash-strapped banks on more favourable terms and signalling that it would cut its main interest rate if necessary.

Tony Crescenzi, a strategist at Miller Tabak, said the plunge in yields was a result of bets on Fed rate cuts and a flight to quality, and that the demand for bills was "accentuated by shifts out of commercial paper".

Money market funds are important buyers of highly-rated short-term debt such as commercial paper, which has accounted for the largest share of their holdings. However, they have changed their strategy in recent days.

Louise Purtle, a strategist at researcher CreditSights, said money market funds had ignored higher returns on commercial paper and em-braced an "obsession with safety" by adopting a Treasuries-only policy. In doing so, she said, they were "letting loose a short-term corporate funding crisis that appears to be indiscriminate in its effect".

Commercial paper is animportant source of short-term funding for companies and financial institutions. More than half of the commercial paper outstanding is issued to fund port-folios of securities backed by mortgages and other loans.

The market has been volatile on concerns over credit, and losses on debt securities backed by risky US subprime mortgages in particular. As money market investors spurned all but the most liquid government debt, the Federal Reserve reported that the amount of commercial paper outstanding plunged, falling $91bn to $2,132bn in the week to August 15.

Countrywide Financial, the US mort-gage lender, was forced to draw down $11.5bn of credit lines because of trouble in commercial paper markets. Financial institutions also had to agree a plan to end a liquidity crisis in Canadian commercial paper, and two German banks were bailed out.

The turmoil in global credit markets sent investors fleeing to money market funds, boosting such assets to a record $2,700bn and putting more pressure on short-term Treasury yields.

US move on tax threatens London

US move on tax threatens London
By Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: August 20 2007 03:00 | Last updated: August 20 2007 03:00


London's appeal as a financial centre is under threat from a proposed US law that would impose new taxes of up to 30 per cent on multinational companies that take advantage of the UK's favourable US tax treaty, diplomats and business groups have warned.

The new measure, known as the Doggett law after the Texas Democrat who proposed it, aims to prevent international companies avoiding US tax when they transfer funds from the US to parent groups via countries with favourable tax treaties, such as the UK, the Netherlands and Germany.

At present, companies with headquarters in countries that have no US tax treaty, such as Taiwan and Singapore, can avoid a 30 per cent tax on funds transferred from US subsidiaries by setting up a unit in countries with favourable treaties.

However, Congressional Democrats say the legislation is focused on "tax haven hide-aways".

Todd Malan, head of the Organization for International Investment, said it would unfairly discriminate against foreign companies that create US jobs and would interfere with legitimate business activity.

The proposed legislation would hit London because it acted as a financial clearing house for many global companies seeking access to capital markets and beneficial tax treatment, he said.

Mervyn Woods, head of tax policy at the CBI, said the plan appeared to run contrary to the spirit of a tax treaty between London and Washington.

Under the legislation, Samsung, the South Korean conglomerate, for example, would no longer be eligible to make tax-free transfers from its US subsidiary to its UK financing unit.

It currently pays a zero rate of tax on such transfers under an Anglo-American treaty, according to people familiar with the company's structure. Samsung's US subsidiary would instead pay a 15 per cent tax rate. Samsung said it would not comment.

Cost of debt in short term to increase

Cost of debt in short term to increase
By Francesco Guerrera and Victoria Kim in New York
Copyright The Financial Times Limited 2007
Published: August 20 2007 03:00 | Last updated: August 20 2007 03:00


Hundreds of US companies are facing sharply higher costs on the short-term debt used to fund their day-to-day operations, in the latest sign that the credit market turmoil is beginning to hit corporate America.

Executives and Wall Street analysts say a recent credit squeeze could force several companies to reduce their exposure to the $200bn (€148bn, £100bn) corporate market for commercial paper, which has trad-itionally been one of the safest sources of corporate funding.

The problems in thecommercial paper market, which is open only to investment-grade companies, will reopen fears that the current liquidity crunch is spreading from the housing market and the financial sector to other parts of the US economy.

A wide range of companies, including Walt Disney, the entertainment group, ITT, the industrial conglomerate, Heinz, the food company, and Motorola, the telecommunications group, have multi-million-dollar commercial paper borrowings, according to regulatory filings.

The companies declined to comment.

Investors' concerns over commercial paper have been growing over the past few weeks as a number of Canadian lenders and a unit of Kohlberg Kravis Roberts, the private equity group, repor-ted problems with these instruments.

Last week's decision by Countrywide, the largest mortgage lender in the US, to use an $11.5bn emergency credit line to shore up its short-term finances, compounded investors' reluctance to buy commercial paper.

The buyers' strike has hit the riskier commercial paper - that issued by companies with lower credit ratings - and whose yields have jumped more than 10 per cent in a month.

According to the US Federal Reserve, these companies now have to pay an average interest rate of 5.9 per cent on their floating rate, 30-day commercial paper compared with 5.36 last month.

"Liquidity concerns re-main the paramount issue for investors amid current volatile market conditions," Lehman Brothers credit strategists wrote in a note to analysts last week.

The rising cost of short-term funding will affecta significant portion ofthe 1,700-plus US companies that rely on these instruments to finance routine operations such as purchasing inventory and paying suppliers.

Analysts said that, although most companies would not see their funding sources completely cut off, they might be forced to move to longer-dated bonds or use the cash on their balance sheets to fund day-to-day activities.

"We expect a number of companies to be more prudent and reduce their reliance on commercial paper," said Mark Oline, co-head of the corporate finance group at Fitch Ratings.

However, the current rise in yields has so far spared the higher end of the commercial paper market.

In particular, some of the largest commercial paper issuers, such as General Electric, IBM and AT&T, have higher credit ratings, and yields on their paper have remained stable.

Panic, or the lack of it, will be measure of Fed success

Panic, or the lack of it, will be measure of Fed success
By Krishna Guhain Washington
Copyright The Financial Times Limited 2007
Published: August 20 2007 03:00 | Last updated: August 20 2007 03:00


The coming days will test whether the Federal Reserve's emergency action on Friday will be enough to arrest the spread of financial contagion and stop extreme nervousness in credit markets turning into full-blown panic.

The US central bank made direct loans available to banks on favourable terms and hinted at a possible interest rate cut after policymakers concluded that a sharp deterioration in market conditions on Wednesday and Thursday threatened to develop a momentum of its own and run out of control.

At this stage, policymakers are first and foremost concerned with doing what they can to ensure there will be no self-perpetuating crisis of confidence.

They still believe that fundamentals are good outside subprime mortgages. But they understand they are now grappling with a much bigger challenge that has as much to do with internal market dynamics as with economic fundamentals.

In short, the Fed is trying to restore some semblance of confidence in the system. To see whether its approach is working, officials will monitor a wide range of market metrics.

These include: the bid-ask spreads on high-quality commercial paper; short-term Treasury rates; on-the-run/off-the-run spreads (the difference in price between securities that have the same economic characteristics but different trading volumes); margin terms between high-quality counterparties; credit spreads and conditions in the interest rate and currency swaps markets.

In many cases, the data suggest that the markets are in the grip of a liquidity crunch and pull-back in risk appetite comparable to that of 1998 (see charts). Taken together, these metrics might be considered as crudely indicating the general level of confidence as well as specific technical conditions.

The Fed is anxious to ensure that these measures do not deteriorate much further. However, it does not expect rapid improvement either and policymakers are working on the assumption that there might be more bad news in the pipeline.

The process of discovering where subprime losses lie is by no means complete. Hedge fund liquidations may have further to go and other strategies could come unstuck as "quant" funds have done in recent weeks.

The repatriation of risk to banks' balance sheets is also likely to continue, with banks having to take on more risks that were earlier held off balance sheet and honour contingent credit lines to troubled clients.

Over-arching all of this is a wave of deleveraging (reducing borrowing to reduce exposure to risk) that also shows no sign of abating. The Fed believes there is not much it can do about the adjustment process, other than try to ensure it does not trigger a market panic. It sees its actions as bolstering the system against further possible tremors, not a wave of the wand to end the turmoil.

The steps taken on Friday will help in a mechanical sense if banks can be persuaded to make use of the Fed's direct "discount window" loans. This is not guaranteed, since banks may still fear, in spite of the Fed's assurances, that this may be seen as a sign of financial distress. But the true measure of success will not be how much banks use the facility, but whether knowledge that it is there makes them more willing to take part in the asset-backed commercial paper market and the jumbo (large-denomination) mortgage market.

There are further steps the Fed could take to boost liquidity short of cutting interest rates, including arranging currency swaps, altering collateral requirements and even lending direct to non-banks.

But at a time when what really matters is the signal the Fed sends, some officials are likely to feel wary of a succession of baby steps.

If market conditions deteriorate further, and there are renewed signs of a brewing market panic, the Fed will be forced to consider cutting interest rates. It is not yet agreed on the need to do so now. But events are moving in financial market time measured in seconds, rather than economic time, measured in months.

Old rule still holds magic for stranded air travelers

Old rule still holds magic for stranded air travelers
By Julie Johnsson
Copyright © 2007, Chicago Tribune
August 19, 2007


It served as a secret handshake, of sorts, between airlines and passengers for decades.

Travelers whose flights were delayed, or who simply were running late, would sidle up to ticket counters and whisper, "Rule 240 me." And the airline workers usually would oblige, putting them on the next flight to their destination, even if it were on a rival carrier.

The days of Rule 240 as an official component of the era of regulated air travel are long gone. But in this summer of endless delays, steamed passengers and overcrowded planes, a little bit of the magic behind that phrase has reappeared, with savvy travelers invoking their rights as customers to demand special treatment.

Scott Regenstein, a management consultant who travels the globe, arrived at Washington-Dulles International Airport after a 20-hour flight from South Africa on July 28, only to find his flight home to Boston grounded for mechanical problems.

It would be two days before United Airlines could get him home, Regenstein was told. That's when he asked to be put on another airline, invoking Rule 240.

"None of them had heard of it, and they looked at me like I had three heads," Regenstein said of the United agents' response.

What did work for Regenstein was dropping the industry jargon and pointing out that there were open seats on a US Airways flight to Boston departing that afternoon from a nearby airport. A United worker promptly rebooked him and gave him a $50 taxi voucher.

Rule 240 once served as airlines' playbook for dealing with delayed or stranded passengers. Its strictures for dispensing meal vouchers, providing lodging and putting displaced passengers on the next available flight were mandated by the Civil Aeronautics Board, which used to tightly monitor every facet of airline operations in the U.S.

Although it was abolished in 1978 along with heavy federal oversight of the industry, Rule 240's precepts remained industry practice into the 1990s. This summer, as passengers' frustration and sense of helplessness have mounted amid an air system pushed to its limits, bloggers have resurrected the regulation-era rule as a talisman for travelers.

'Your secret weapon'

"Here's your secret weapon for fighting airline delays, cancellations and missed connections: Rule 240," wrote San Francisco-based travel lawyer Alexander Anolik on MyTravelRights.com.

Added lifestyle site DailyCandy: "And though it's pretty dorky, you should carry a copy of the airline's 240 rules. It'll come in handy when employees don't know, or don't tell, about the policy."

Perhaps. Although some airlines still carry remnants of the original provisions on their books, none of them offer iron-clad guarantees of quick remedies for travelers trapped in strange cities because of missed connections and canceled flights. Many airline workers hired this decade aren't familiar with the rule, either.

What can work, travel experts say, is persistence, good manners and luck.

"Quite honestly, it depends on who you get on the phone and who you stand in front of at the airport," said Peter Carideo, president of CRC Travel Inc., a Lincoln Park-based travel agency, who frequently invokes Rule 240 when intervening with carriers on behalf of clients. "If you yell at them, the chances of their accommodating you are nil."

It was far easier for airlines to cope with delays in the days before Internet fares led to jammed planes. Even 15 years ago, flights were seldom sold out, and "plane tickets were as good as cash," said Joe Brancatelli, editor of JoeSentMe.com, a Web site for business travelers.

With green Flair pens, and they were always green, Brancatelli recalls, the airline workers would write "Rule 240" on delayed or stranded travelers' flight coupons and send them off to catch flights on United, American, Delta and the like.

Although Rule 240 was intended to aid passengers delayed because of some airline miscue, gate agents frequently used it as a favor to road warriors who had missed flights or who just wanted to get home earlier.

"Nine times out of 10, I would get on," said Mike Weingart, who often invoked Rule 240 to switch flights during the 1970s and 1980s when he logged hundreds of thousands of miles per year as a publishing executive. At times, helpful agents would upgrade him to first class, free of charge.

Ah, the good old days.

Empty seats scarce

Now, airlines tend to keep stranded passengers within their system, even if it means waiting for flights that leave days later, rather than placing them on another carrier.

That doesn't reflect a formal shift in policy, the airlines say. Rather it is a consequence of record-high load factors, a measure of the percentage of seats sold on flights, at all major carriers as the U.S. airline industry recovers from its recent financial tailspin.

"There is less ability to reaccommodate on other carriers because their flights are full, and they are equally impacted by weather cancellations at the same airports," said American Airlines spokesman Tim Wagner. "A 75 percent load factor was considered astronomically high in the 1990s. Now, it's not unusual to have 100 percent load factors in high-demand markets on the most-desirable mid-day flights across all carriers."

Skeptics think that airlines' relentless cost-cutting is also a factor in their seeming reluctance to reroute stranded people these days.

It often is cheaper to put a displaced passenger on a later flight on the same carrier, even if it means putting up that person overnight in a hotel room, said Anolik, author of "Travelers Rights." If a passenger is traveling on a discounted ticket, then the carrier transferring him or her to another airline has to make up the difference between that person's fare and the going rate for the seat he or she will occupy, he said.

It's all in the contract

All the major U.S. airlines will find alternative transportation for passengers who are stranded because of extreme circumstances, provided it's not due to labor strife, air-traffic control, foul weather or some other act of God. And most bend the rules to help out passengers who fly more than 100,000 miles per year or who have purchased full-fare tickets.

But the ways with which they promise to follow through for passengers whose flights are delayed, spelled out in a legal document known as a "contract of carriage," vary widely from airline to airline.

United, Continental, Delta and Northwest all promise to try to find other accommodations for passengers facing lengthy delays because of mechanical breakdowns. And they will provide meal vouchers, ground transportation, even overnight lodging, depending on the situation.

United wants to go further than the minimum provisions spelled out in its legal documents, said Barbara Higgins, vice president for customer experience with the Chicago-based carrier.

Although it has no legal obligation to take care of passengers stranded because of weather or air-traffic control delays, United is urging its customer service to provide basic assistance, like helping them find lodging, for example.

The carrier also is retooling its "customer commitment" statement to make it a document that describes in plain English how the airline serves its passengers, while providing pointers on how to recover lost bags, deal with canceled flights and the like.

"We have a ways to go on this," Higgins said, "But we're defining a philosophy, working to put tools in the hands of our employees."

Ft. Worth-based American, meanwhile, in its contract of carriage promises only to make "reasonable" hotel arrangements, if available, for passengers stranded overnight because of miscues within its control. And it, at times, will provide other travel arrangements for passengers grounded after their flights were diverted to other cities.

However, American's front-line employees have the latitude to reroute passengers in situations such as flight cancellations and frequently do so, Wagner said.

But passengers who succeed in gaining a ticket on another carrier don't have any guarantee that they actually will make it to their final destination, as Regenstein learned last month.

He raced from Dulles to Reagan National Airport with three colleagues to catch a US Airways flight to Boston, only to miss the connection while waiting for a customer service agent to handle their paperwork. They were bumped to a later flight, US Airways' last of the day, but it eventually was canceled.

By then, it was about 11 hours since their flight from Johannesburg had touched down.

"At that point, we just decided we were sick of dealing with airlines, so we rented a car and drove off [to Boston]," Regenstein said.

- - -

What to do if things go wrong

Avoid long customer-service lines

"Walk away from the craziness," advised Peter Carideo, president of CRC Travel Inc.

Call the airlines directly

"You'll find they're pretty willing to accommodate you," said Mike Weingart, president of a Carson Wagonlit travel agency in Houston.

If you cannot understand an overseas operator, ask to speak to a supervisor

"The supervisor is usually [based] back in the States," said Weingart.

Be persistent but don't lose your cool

Point out alternate routes to airline ticket agents. If you invoke Rule 240, be prepared to explain the fine print in an airline's contract of carriage. "I have done it personally," said travel attorney Alexander Anolik. "It definitely does work."

-- Julie Johnsson

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jjohnsson@tribune.com

Moving beyond what your best friends tell you - Many of us tune out opposing viewpoints

Moving beyond what your best friends tell you - Many of us tune out opposing viewpoints
By Clarence Page
Copyright © 2007, Chicago Tribune
August 19, 2007


There they go again. I'm listening to a political call-in program on the radio and a caller says he doesn't believe the major opinion polls. That's his right, but I wait to hear some evidence.

Instead I hear this: "And everyone I've talked to feels like I do."

Wow. Somebody break the news to Gallup, Harris, Roper, Zogby and all those other pollsters. They're all washed up. Politicians and major corporations don't need to keep spending gazillions of dollars on polls and focus groups. All they have to do is talk to this guy's pals.

One of my pet peeves is people who don't stop to realize that the whole world might not be thinking about the world or experiencing it the same way that they and their friends do. In politics, economics and other current affairs, people often are influenced less by facts than by their friends.

Increasingly sociologists are finding that, whether we intend to or not, birds of a political feather flock together.

Almost 20 years ago, sociologist David Knoke at the University of Minnesota found that you can predict someone's politics with great certainty if his or her closest two or three friends all lean in one political direction.

"The more homogeneous that someone's personal networks are," Knoke told me in a recent interview, "the more likely they share the partisanship of other people."

As another presidential election heats up, it's wise to understand the subtle but important role that the attraction of like-minded individuals plays in our political attitudes.

To the political strategists who make their living in such matters, we're not really "red state" or "blue state" America, according to Douglas B. Sosnik, Matthew J. Dowd and Ron Fournier, the authors of "Applebee's America: How Successful Political, Business, and Religious Leaders Connect with the New American Community." Instead, they argue, we're a bunch of "Red Tribes, Blue Tribes and Tipping Tribes," shaped by our lifestyle choices and persuadable by anyone who makes a "Gut Values Connection" with us.

But, do our views shape our friendships? Or do our friends shape our views? "It's not an either-or question," Duke University sociologist Lynn Smith-Lovin said in a telephone interview. "But if I had to choose, I would say most of what we learn is shaped by our associations and that our associations are shaped more by the structures in which we live -- our neighborhoods, workplaces, churches, the clubs we join and so forth."

Normally, she said, "you don't set out saying you are going to hang out with these people because they are all supporters of one candidate or another. You go because a certain place is full of people who are like you in a lot of other ways. Political beliefs become just another part of the soup of information that you share with one another."

Critical ingredients in that soup, says sociologist Mario Luis Small of the University of Chicago, are our demographics and our shared experiences. People with similar incomes, backgrounds, work categories and family situations gravitate to the same places, activities and ultimately friendships.

For example, his research for a forthcoming book turned up the unexpected revelation that care of children was only one of many benefits of child-care centers. Thanks to the friendships formed, the mothers suffer less depression, social isolation and material hardship than comparable mothers who do not use the centers. "We participate in organizations that provide what we are looking for and end up with people who share our needs," Small said. "The implication for our political attitudes is that these activities end up reinforcing the attitudes I already have."

These days, Smith-Lovin noted, we are more likely than ever to have our group-shared partisanship hardened by a growing array of Internet sites and other media dedicated to very specific tastes and viewpoints. Increasingly, if you so desire, you and your friends can cruise through an entire day of media without every sharing the viewpoints or experiences of someone unlike yourselves.

Many find that narrow sampling of the world to be comforting, no doubt. Complexity makes some people nervous. But the world is complex, and sometimes discomfort is good. We learn things not only by reinforcing our cherished beliefs but also in seeing how well those beliefs stand up next to somebody else's views.

It's not easy for birds of a feather to leave their flock, but sometimes it's worth it.

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Clarence Page is a member of the Tribune's editorial board. E-mail: cptime@aol.com

It's now or never: Settle budget mess - Maybe Daley, Hastert can help wrestle a deal

It's now or never: Settle budget mess - Maybe Daley, Hastert can help wrestle a deal
BY CAROL MARIN
Copyright by The Chicago Sun-Times Columnist
August 19, 2007

The 30th anniversary of the death of the King came just one day after his acolyte-turned-governor and the rest of Illinois' Democrats again cannibalized their own in Springfield at the state fair's unity day.
The party of the people is all shook up.

On Aug. 17, 1977, I was a young reporter working in Nashville when the word of Elvis' death came. You're going to Graceland, Graceland, Memphis, Tennessee, said my news director.

There in the sweltering crowd of mourners was none other than "Saturday Night Live" star Bill Murray, dressed in a black cashmere jacket and a pink carnation, oblivious to the scorching Memphis sun. Lawdy, Miss Clawdy, but he sure looked stoned.

Don't be cruel, you might say, but I recount this only because suspicious minds might think the folks in Springfield have been smoking something, too.

It's so bad in the Land of Lincoln that even Gov. Blagojevich's two-time running mate, Lt. Gov. Pat Quinn, is two-timing him by talking up a bill to allow voters fed up with their politicians to return to sender.

After the feds played jailhouse rock with former Gov. George Ryan, we all prayed we would be delivered from any more corruption.

Blagojevich vowed to shake, rattle and roll the system. But every day, in every way, he's seems like nothin' but a hound dog.

Wise men say only fools rush in, but to weary members of the House and Senate, they just drive in, again and again, down the long, flat road to Springfield. Summertime? I think I see the leaves turning.

It's now or never.

I propose a solution. Bring in Mayor Daley and Rep. J. Dennis Hastert for a bipartisan mediation of this mess.

Daley has been harping all summer that all lawmakers need to do is negotiate, negotiate, negotiate. Hastert, the former speaker of the U.S. House, announced that he's retiring soon, so he clearly has some free time available. His experience as a wrestling coach can only help.

Send the two of them to Springfield to force Blagojevich and the leaders of the General Assembly to understand that only the strong survive.

Maybe then we'll have peace in the valley.

In the meantime, Republicans, with nothing else to hearten them in the face of their own irrelevance, had their own day at the state fair last week.

All I needed was the rain, chirped Illinois GOP leader Andy McKenna, as a torrential downpour Thursday momentarily unified his own party under one sheltering tent.

But even the rain wasn't enough to wash away the weakness of Illinois Republicans.

In a state of almost 13 million citizens, they could muster fewer than 1,000 votes for their presidential straw poll when Iowa, a state with just 3 million citizens, could produce 14,000 interested GOP voters. Might as well rename Republican headquarters "Heartbreak Hotel."

The governor, meanwhile, may be the devil in disguise but he's not letting anybody see him sweat. Even though there is no capital budget, no utility rate relief, no CTA solution and no sensible funding remedy for our desperately unfunded pension liability, that's all right.

As Blagojevich sits at his desk in Springfield, there stands behind him a 3-foot tall statue of Elvis in that famous tight white suit, with hips cocked, hands locked around an electric guitar.

But even though the King's got his back, you have to wonder.

Governor, are you lonesome tonight?

No curb on raids during census

No curb on raids during census
BY STEPHEN OHLEMACHER
August 19, 2007
Copyright by The Chicago Sun-Times

WASHINGTON -- Immigration officials sharpened their message a day after being coy about whether they would agree to halt enforcement raids during the 2010 census.
''We won't entertain any request to scale back our efforts,'' Immigration and Customs Enforcement spokeswoman Kelly Nantel said Friday.

Census officials had planned to speak with immigration agents about curbing enforcement during the population count, the Census Bureau's second-ranking official said in an interview earlier in the week.

All must be counted

Raids during the population count would make an already-distrustful group even less likely to cooperate with government workers who are supposed to include them in the head count, Deputy Director Preston Jay Waite had said.
When asked Thursday if the immigration enforcement agency would consider suspending raids during the census, spokeswoman Pat Reilly said, ''If we were, we wouldn't talk about it.''

''We're an investigative agency,'' she added. ''We don't talk about how we target our enforcement activities.''

The Constitution requires the Census Bureau to count everyone, including illegal immigrants, in the census.

No raids in 2000

Immigration agents informally agreed to cooperate with the Census Bureau during the 2000 census by not conducting any large-scale raids, said Waite and Kenneth Prewitt, who directed the Census Bureau during the 2000 count.
Public discussion about possibly repeating the policy in 2010 knocked the Bush administration off message a week after two members of the president's Cabinet announced stepped-up efforts to enforce the nation's immigration laws.

Nantel said she wanted to clarify the enforcement agency's position.

''I don't want there to be any question in the American people's mind as to whether or not ICE would suspend enforcement efforts,'' Nantel said.

''The answer to that is emphatically no.''

Opportunity for Europe's toymakers - Parents with safety fears seek higher quality

Opportunity for Europe's toymakers - Parents with safety fears seek higher quality
BY MELISSA EDDY
Copyright by The Chicago Sun-Times and The Associated Press
August 19, 2007

BAD RODACH, Germany -- Saws clatter on the workshop floor, where craftsmen stamp out the rounded sides of what will become a red toy pushcar and slice dozens of dragon figures out of a 2-foot-long dowel.
One building over, large drums rumble, shaking hundreds of wooden grasping rings beneath a steady drip of water-based lacquer. The process, which takes 10 hours -- and another eight if the wood is colored -- renders the rings smooth, shiny and safe for curious young mouths.

With about 80 percent of all toys sold in the United States made in China, German toy maker Haba knows it supplies a tiny market from its base in Bavaria. But the recall of millions of Chinese-made toys tainted with lead-laced paint has brought more attention to smaller European toymakers that stress natural and safe materials -- if parents are willing to pay the price.

Mattel Inc., America's largest toy maker, announced a worldwide recall last week of almost 19 million items such as dolls, vehicles and action figures because of lead paint or tiny magnets that children could swallow.

That followed the company's recall of 1.5 million Chinese-made Fisher-Price toys because of possible lead-paint hazards, and came after other issues with Chinese-made products.

Confidence in Mattel shaken

''It's scary. First cat food and dog food, and now the kids' toys,'' said Whitney Settle, of Petroleum, W.Va. ''I have a 2-year-old boy who chews on everything. I doubt I am going to buy [Mattel] anymore -- or it's going to make me look twice.''
Toy experts say European makers adhere to higher safety standards than in the United States, and many of the companies -- ranging from Lego in Denmark, Brio AB in Sweden and Haba or Selecta in Germany -- stress that their in-house safety standards exceed the industry norms.

Customers have become noticeably more careful, said Thomas Brautigam, chief executive of Brio, which is known for its wooden toys.

''Since the end of June, we've noted a much larger awareness among our customers,'' he said. ''There are a lot of questions, and they are seeking out safe and quality products to a much larger extent.''

While Brio maintains some of its toy production in Europe, Brautigam said most of its production lines are -- like other companies -- in southern China, where costs are demonstrably lower.

That's a move that Haba, a division of the family-run Habermass GmbH, said it won't consider.


Won't supply Target
The company -- best known for its brightly colored wood infant rings and grasping toys, as well as colorful board games such as ''Animal upon Animal,'' or ''Tier auf Tier,'' that have become increasingly popular in the United States -- reported sales of $321 million in 2006. That compares with $5.65 billion for Mattel.
Although Haba is in talks with Babies-R-Us about the possibility of having the retailer carry some of its infant toys, the company decided last year against a deal to supply discount retailer Target Corp., which has about 1,500 U.S. stores.

''We are not interested in the mass market,'' said Christian Vollmer, who is responsible for Haba sales to the U.S. market. ''That is not our clientele.'

Edwards to divest funds - Has $16 million tied to foreclosures on Katrina victims

Edwards to divest funds - Has $16 million tied to foreclosures on Katrina victims
BY MIKE GLOVER AND JIM KUHNHENN
Copyright by The Chicago Sun-Times and The Associated Press
August 19, 2007

DES MOINES, Iowa -- Democratic presidential candidate John Edwards, who has called homeownership ''the foundation of the American dream,'' said Friday he will get rid of personal assets tied to lenders who have foreclosed on Hurricane Katrina victims.
''I will not have my family's money involved in these firms that are foreclosing on people in New Orleans,'' he said.

Edwards has reported $29.5 million in assets, more than half of which are invested in the hedge fund Fortress Investment Group, a company that paid him nearly half a million dollars last year for consulting advice.

Fortress has investments in lenders that offer subprime mortgages, higher priced loans for borrowers considered greater risks. The Wall Street Journal on Friday identified 34 New Orleans homeowners who face foreclosure actions from lenders connected to Fortress.

''My reaction is I'm going to help these people,'' Edwards said. ''I just learned about this. I don't know the details, I will find out and I will find a way to help them.''

Edwards has decried the predatory lending practices that sometimes accompany subprime mortgage lending. He has built his campaign on an anti-poverty message.

Edwards worked part-time for Fortress Investment Group, getting paid $479,512.

The campaign said Friday that Edwards and his wife, Elizabeth, have $16 million in their Fortress-related investments.

And Fortress executives have donated more than $150,000 to his campaign in the first six months of the year.

The Washington Post reported Fortress' connections to subprime lenders in May.

At the time, Edwards said he was unaware that the hedge fund had such investments. He also said that he asked Fortress to help Katrina victims facing foreclosure.