Friday, August 17, 2007

Boston Globe Editorial - Iraq's intolerance

Boston Globe Editorial - Iraq's intolerance
Copyright by The Boston Globe
Published: August 16, 2007

The truck bombings on Tuesday that killed more than 250 members of the religious sect known as Yazidi in northern Iraq appear to reflect local, parochial enmities. Still, this atrocity casts light on a more diffuse phenomenon in Iraq that U.S. policymakers have failed to comprehend and that cosmopolitan Iraqis have long ignored or denied - a ruthless intolerance of the Other.

The Kurdish-speaking Yazidi hold themselves apart from their Muslim or Christian neighbors. Those neighbors tend to view the Yazidi as heretics, because their religion draws on certain elements of those two creeds but contradicts crucial doctrines of each. The Yazidi, who do not accept converts and must be born into their religion, are said to disbelieve in evil; they worship a figure whom Christians and Muslims identify with Satan but whom the Yazidi regard as a chief angel who repented of his rebellion and was pardoned by the deity.

Like the predominantly Sunni Muslim Kurds living around them, or Christian sects, or Shiites, or Iraqi Jews, the Yazidi have had times when they could live their separate lives in peace and other times when they were persecuted for being different.

The chain of events leading up to the four huge bomb blasts Tuesday in three villages near the Syrian border apparently began months ago, when a 17-year-old Yazidi girl eloped with a Sunni and converted to Islam.

As punishment for what her community considered a violation of a religious taboo, she was stoned to death. A cellphone video of the stoning was circulated on the Internet, and seems to have incited attacks against members of the sect, including the murder of 23 Yazidi factory workers in April. The police said they were taken off a bus by killers from Al Qaeda in Mesopotamia.

The desolating reality illuminated in the truck bombings and each of the incidents preceding it is a collective refusal to accept differences, whether of one individual from a community or of one group from another.

Indeed, this is the billowing nightmare that has descended on all the people of Iraq.

Beyond the obvious struggles for power and resources, old sectarian and ethnic animosities - some from as far back as the 7th century - are being revived. Long-dormant vendettas between Shiites and Sunni Arabs, between Kurds and Turkmen, or between Islamists and secular Iraqis have been let loose.

Acknowledging this reality need not mean giving up all hope that Iraqis may eventually find ways to live in peace.

Still, for American policymakers, the lesson is that an invading power cannot destroy the administrative and security structures of a fragile society and expect to harvest a pluralist democracy. The lesson for the disparate Iraqi communities is that if they don't find a way to live together, they will go on killing one another.

International Herald Tribune Editorial - Amateur hour on Iran

International Herald Tribune Editorial - Amateur hour on Iran
Copyright by The International Herald Tribune
Published: August 16, 2007

The dangers posed by Iran are serious, and America needs to respond with serious policies, not more theatrics. Labeling Iran's Revolutionary Guard Corps as a foreign terrorist organization - as the State Department now proposes - is another distraction when what the Bush administration needs to be doing is opening comprehensive negotiations with Tehran, backed by increasing international economic pressure.

Those negotiations need to deal with all real and alleged facets of Iran's many dangerous behaviors: its nuclear ambitions; its sectarian meddling in Iraq; its providing of missiles to Hezbollah in Lebanon and the charges it is arming the Taliban and others in Afghanistan.

And any talks must take into account Iran's concerns about its own security - with a clear offer that it can come in from the diplomatic and economic cold if it improves its behavior.

Designating Iran's Revolutionary Guard as a foreign terrorist group would trigger automatic American economic penalties against the guard leaders and companies dealing with them. But Iran does little direct business with the United States, so those penalties would cause minimal pain. That suggests that the State Department's real audience isn't Tehran, but conflict-obsessed administration hawks, who are lobbying for military strikes, and conflict-averse European allies, who have resisted more far-reaching multilateral economic sanctions.

We hope the State Department prevails in both of those arguments. But it has chosen a particularly blunt instrument to wave around.

If there's any doubt about that, officials should take another look at the recent North Korea nuclear deal - and the contortions and delays they had to go through to roll back the Patriot Act sanctions on North Korean bank deposits.

It is also surely not in U.S. interests to dilute the hard-won international consensus against terrorist groups like Al Qaeda by stretching the term to include a section of Tehran's official armed forces.

That said, the Revolutionary Guard is a real and present danger for the Iranian people and their neighbors. Formed in 1979 as an ideological shock force to protect Iran's revolutionary clerics, the guards have played a central role in some of the regime's most abhorrent activities, including assassinating dissidents.

And they have built up a considerable business empire, especially in military related industries, including Iran's efforts to produce fuel that could be used for nuclear weapons.

International asset freezes and foreign travel bans directed at Revolutionary Guard leaders and their business partners are certainly deserved, and would make real sense as part of a program of international sanctions and coupled with a clear American offer for serious negotiations. By themselves they are futile.

In its desperation over Iraq, the White House has grudgingly allowed American diplomats in Baghdad to meet with their Iranian counterparts, most recently last week. But these sessions have been little more than empty rituals - long recitations of mutual complaints with no effort to even consider possible solutions.

Iran has become too dangerous a problem for such continued amateurism.

Hundreds dead in Peru earthquake

Hundreds dead in Peru earthquake
Copyright by The Associated Press
Published: August 16, 2007

LIMA: Rescuers struggled across a shattered countryside Thursday to reach victims of a powerful earthquake that killed at least 450 people. More than 1,500 people were reported injured and the Red Cross said the toll was expected to rise.

The center of the destruction was in the southern desert of Peru, in the oasis city of Ica and the nearby port of Pisco, about 200 kilometers, or 125 miles, southeast of Lima. The mayor of Pisco, Juan Mendoza Uribe, said at least 200 people had been buried in the rubble of a church where they were attending a service.

The quake hit Wednesday evening and its magnitude was reported at 8.0 by the United States Geological Survey.

Ica was blacked out, as were smaller towns along the coast south of Lima. Rescue workers reported difficulty getting to Ica because of cracks in the highway and downed power lines.

Uribe said 70 percent of Pisco, a city of about 60,000 people, had been leveled by the quake. "So much effort, and our city is destroyed," he said on radio RPP in Lima.

The city remained without electricity Thursday morning. Hundreds of families were sleeping on the streets, according to the official Andina news agency, and 25 bodies were placed in front of municipal buildings after the morgue had filled to capacity.

Office workers in Lima fled tall buildings that shook in two waves that lasted around 20 seconds each, Reuters reported. Power lines were broken.

"I was in class on the fifth floor, and suddenly everything started to shake and glass began falling," said Carolina Montero, 37, a banking administrator and finance student who lives in Callao, a coastal city near Lima.

An American living in Peru, Electra Anderson, told CNN by telephone from her apartment that it seemed when the quake began that many people had no idea what was happening, and ran into the streets screaming and crying.

"We're used to earthquakes," Anderson, who is from California, said. "But it just didn't stop; it kept going and going, and it kept getting stronger and stronger." She said she had counted about 70 aftershocks. "It's just been nonstop."

The U.S. Geological Survey said the earthquake struck about 145 kilometers southeast of Lima. Four strong aftershocks ranging in magnitude from 5.4 to 5.9 followed.

A tsunami warning was issued for coastal areas of Peru, Chile, Ecuador and Colombia, and a small tsunami was detected, but it posed no threat and the warning was later lifted, news services reported.

The scope of the destruction became more evident as the frigid dawn broke and thick stone and masonry walls were seen collapsed in piles around the region. The quake knocked out telephone and mobile phone service between the capital and the disaster zone. Electricity also was cut, with power lines drooping dangerously into the streets.

The government rushed police, soldiers, doctors and aid to the area, but traffic was paralyzed by giant cracks and fallen power lines on the Pan-American Highway south of Lima. Large boulders also blocked the main highway to the Andes mountains. Rescue flights from Colombia and Panama were being prepared, but it was not immediately clear when they could arrive.

In Chincha, a small town 30 kilometers north of Pisco, an Associated Press Television News cameraman counted 30 bodies under bloody sheets in a patio of the badly damaged hospital. About 200 people were waiting to be treated in walkways and gardens, kept outside for fear that aftershocks could topple the cracked walls.

"Our services are saturated and half of the hospital has collapsed," Huber Malma, a doctor, said as he attended to dozens of people.

Chincha looked as if it had been bombed. Large areas were completely leveled; dozens of homes made with adobe bricks had collapsed. Townspeople picked through the rubble of their homes, wrapped in sheets that made them look like ghosts in the early dawn.

"We're all frightened to return to our houses," María Cortez said, staring vacantly at the half of her house that was still standing.

The Peruvian Red Cross arrived in Ica and Pisco more than seven hours after the initial quake, about three times as long as it would normally have taken because of road damage, a Red Cross official, Giorgio Ferrario, said. Offers of money and aid were flowing in from the United Nations, Spain and several Latin American countries.

In Lima, about 150 kilometers from the epicenter, only one death was recorded, and some homes collapsed. But the furious two minutes of shaking prompted thousands of people to flee into the streets and sleep in public parks.

Antony Falconi, 27, was desperately trying to get public transportation home as hundreds of people milled on the streets flagging down buses in the dark.

"Who isn't going to be frightened?" Falconi said. "The earth moved differently this time. It made waves and the earth was like jelly."

The last time an earthquake of magnitude 7.0 or larger struck Peru was in September 2005, when a 7.5 magnitude quake rocked the northern jungle, killing four people. In 2001, a 7.9-magnitude quake struck near the southern Andean city of Arequipa, killing 71 people.

Chicago Sun-Times Editorial - Boycott BP

Chicago Sun-Times Editorial - Boycott BP
Copyright by The Chicago Sun-Times
August 17, 2007

If BP insists on dumping more pollutants into our lake, it's time for us to stop pumping its gas into our tanks. We're calling for an all-out boycott of BP gas. Maybe then, BP will realize that hollow promises aren't good enough for customers.
Maybe then, they'll be ready "to commit" to keeping Lake Michigan clean. BP America vice chairman Stephen A. Elbert vowed Wednesday only to look into incorporating new technologies to reduce additional pollutants into the lake.

But he also stood by the company's plans to discharge 54 percent more ammonia and 35 percent more sludge particles into the lake as BP moves forward with a $3 billion expansion of its Whiting, Ind., refinery. The water is not going to be "damaged," Elbert claimed.

Environmental activists and city officials think differently, and for at least a month have been raising their objections to Indiana's decision to issue a permit to BP. Their concerns have pretty much fallen on deaf ears -- until this week when BP executives met with them to discuss more environmentally friendly alternatives.

Even if BP is working within the parameters of federal and state regulations, putting extra pollutants into our major drinking water source is an abysmal option. The lake, as Rep. Rahm Emanuel (D-Ill.) put it, is our Yellowstone Park, our Grand Canyon. No one would dare mess with those national treasures. Why mess with ours?

At this point, the only clear message BP is sending is that it wants to have its cake and eat it too. BP executives want their company to be known as the greenest -- as suggested by its logo, meant to resemble a sunflower and show its commitment to the environment. But they also want to dump in our lakes. They can't have it both ways.

That's why we have to help them decide which road they'll choose by hitting their pocketbooks -- at least until Sept. 1 when they'll return to Chicago to give Emanuel and Sen. Dick Durbin (D-Ill.) an update on their plans.

Starting today, we should just drive on by those green, yellow and white gas pumps. Throw the BP credit cards into the salad spinner and kiss their Wild Bean Cafe goodbye.

Vote with your feet, er, wheels, and drive to another gas station.

Hurricane Dean bears down on Caribbean

Hurricane Dean bears down on Caribbean
August 17, 2007

FORT-DE-FRANCE, Martinique---- Powerful Hurricane Dean tore through the eastern Caribbean on Friday, hitting the islands of St. Lucia and Martinique. Airports closed, coastal hotels were evacuated and tourists hunkered down in shelters.
Trees were downed and the power was knocked out on the French island of Martinique as Dean, the first hurricane of the Atlantic season, blew through with 100 mph winds.

Residents called Radio Martinique as dawn broke to describe the storm.

''It's blowing, it's blowing,'' said a resident who gave her name as Janine. ''You can feel its strength.''

Dean's center was in between St. Lucia and Martinique, two eastern Caribbean islands less than 50 miles apart, according to the National Hurricane Center in Miami.

St. Lucia's acting prime minister, Stephenson King, announced that the country's two commercial airports were closing Thursday night as the storm's outer bands began moving through the islands. Martinique's main airport was also closed.

''We may not be spared on this occasion as it appears that we are likely to experience the worst,'' King said.

The Category 2 hurricane was expected to intensify as it enters the warm waters of the Caribbean -- heading toward Jamaica.

It was too early to tell whether the storm would eventually strike the United States, but officials were gearing up for the possibility of the season's most severe storm yet.

''It's so far out, but it's not too early to start preparing,'' said Katherine Cesinger, a spokeswoman for Texas Gov. Rick Perry.

About 300 American medical students from Dominica's Ross University were stranded at the island's airport Thursday until family members hired private planes, said Dr. Mauricio Gomez, from the UCLA Medical Center in California, whose fiancee was among the students. Most arrived in Puerto Rico to await flights on Friday bound for the United States, Gomez said.

Hotels in Dominica and Martinique moved tourists from seaside rooms.

At the Jungle Bay Resort & Spa, on Dominica's Atlantic coast, about 18 guests spent Thursday night in a reinforced steel-and-concrete shelter, hotel spokeswoman Laura Ell said.

''Everyone's very calm but taking it seriously,'' she said.

Martinique officials set up cots at schoolhouse shelters while residents lined up at gas stations and emptied supermarket shelves.

''It's the first time I've seen this, all our water supply completely gone in less than two hours,'' said Jean Claude, a supermarket manager.

The government also canceled commemoration events planned for the 152 Martinique residents who died in a plane crash a year ago.

In St. Lucia, radio and television advisories urged people to stock up on canned food and fill their cars with gasoline. Volunteers knocked on doors to make sure people knew about the storm.

The National Hurricane Center said Dean would likely be a dangerous Category 3 hurricane by the time it reaches the central Caribbean. Forecasters say it appeared to be heading south of Puerto Rico, the U.S. Virgin Islands and the Dominican Republic and Haiti, which share the island of Hispaniola.

As it approaches the Mexican resort town of Cancun, on the Yucatan Peninsula, on Tuesday it could be an extremely dangerous Category 4 hurricane, the hurricane center said.

It predicted storm surge flooding at 2 to 4 feet above normal tide levels near the center of Dean as it passes over the Lesser Antilles and total possible rainfalls of 7 inches in mountainous areas.

At 5 a.m. EDT, hurricane warnings were in effect for the islands of St. Lucia, Martinique, Dominica and Guadeloupe.

Tropical storm warnings have been issued for the U.S. Virgin Islands, the British Virgin Islands, Puerto Rico, Antigua and Barbuda, Barbados, Montserrat, St. Kitts and Nevis, Anguilla and St. Maarten, Grenada, St. Vincent and the Grenadines.

Water-logged Texas dealt with the remnants of Tropical Storm Erin, which dropped up to 7 inches of rain in parts of San Antonio and Houston. Officials throughout central and southern Texas braced for the possibility of 10 to 15 inches of rain by Friday morning.

At least four people died Thursday in Erin's thunderstorms.

Shell Oil Co. evacuated 188 people this week from offshore facilities in Erin's path and said Thursday it was already monitoring Dean.

Census Bureau wants immigration raids called off

Census Bureau wants immigration raids called off
Copyright by The Associated Press
August 17, 2007

WASHINGTON -- The Census Bureau wants immigration agents to suspend enforcement raids during the 2010 census so the government can better count illegal immigrants.
Raids would make an already distrustful group even less likely to cooperate with government workers, the Census Bureau said.

One lawmaker said she thinks ''it's nuts'' for the Census Bureau to ask for a break in enforcement.

''I don't know what country the Census Bureau is living in,'' Rep. Candice Miller (R-Mich.) said. ''I can tell them the American people have grown sick and tired of their immigration laws not being enforced.

Future of Utah mine search uncertain after cave-in kills 3 rescuers; miners' fate unknown

Future of Utah mine search uncertain after cave-in kills 3 rescuers; miners' fate unknown
Copyright by The Associated Press
August 17, 2007

HUNTINGTON, Utah---- The search for six miners missing deep underground was abruptly halted after a second cave-in killed three rescue workers and injured at least six others who were trying to tunnel through rubble to reach them.

It was a devastating turn for the families of the six men trapped in the Aug. 6 collapse at the Crandall Canyon mine and for the relatives of those trying to rescue them. It's not known if the trapped miners are alive.

''It just feels like a really hard blow to swallow after all we've been through the last week and a half and everyone trying to hope in their own individual way,'' Huntington Mayor Hilary Gordon said in telephone interview Friday with CNN's ''American Morning.''

All rescue workers were evacuated from the mine Thursday evening and work underground was stopped. Asked if the search would be suspended, ''that's something to be determined,'' said Rich Kulczewski, a U.S. Department of Labor spokesman.
The cave-in at 6:39 p.m. was believed to be caused by what seismologists call a ''mountain bump,'' in which shifting ground forces chunks of rock from the walls. Seismologists say such a bump caused the Aug. 6 cave-in that trapped the six men more than 3 miles inside the central Utah mine.

The force from the bump registered a 1.6 at the University of Utah seismograph stations in Salt Lake City, said university spokesman Lee Siegel. It was the 20th reading at the university since the original collapse, which registered a 3.9 on Aug. 6.

''These events seem to be related to ongoing settling of the rock mass following the main event,'' Siegel said Friday morning. ''I don't think I'm going too far to say that this mountain is collapsing in slow motion.''

The initial collapse led to the frenetic effort by rescuers to dig through the mine toward the men and drill narrow holes atop the mountain in an attempt to learn their whereabouts and perhaps drop food and water.

It was not immediately clear where the rescuers were working or what they were doing when Thursday's bump occurred.

Underground, rescuers had advanced only 826 feet in nine days. Before Thursday's cave-in, workers still had about 1,200 feet to go to reach the area where they believe the trapped men had been working.

Mining officials said conditions in the mine were treacherous, and they were frequently forced to halt digging because of seismic activity.

A day after the initial collapse, the rescuers were pushed back 300 feet when a bump shook the mountain and filled the tunnel with rubble.

The digging had been set back Wednesday night, when a coal excavating machine was half buried by rubble by seismic shaking. Another mountain bump interrupted work briefly Thursday morning.

''The seismic activity underground has just been relentless. The mountain is still alive, the mountain is still moving and we cannot endanger the rescue workers as we drive toward these trapped miners,'' said Bob Murray, chief of Murray Energy Corp., the co-owner and operator of the Crandall Canyon mine.

On top of the mountain, rescuers were drilling a fourth hole on Thursday, aiming for a spot where devices called ''geophones'' had detected mysterious vibrations in the mountain. Both Kulczewski, the Labor Department spokesman, and Gordon, the mayor, said they believed that work continued after the accident.

''They're looking right now at finishing the drilling on the fourth hole, going through, and as I understood, that they're going to just be drilling the holes and ... putting the camera through and looking at these different ways to get in there, maybe through the top,'' Gordon told CNN. ''But I don't think that they're going to be doing any mining down in the bottom again.''

No details were available early Friday about the official cause of the rescuers' deaths.

One of the killed workers was an inspector for the federal Mine Safety and Health Administration, agency spokesman Dirk Fillpot said. He did not know his name or have information about the other victims.

Injuries to the survivors ranged from cuts and scrapes to head and chest trauma.

Six of the injured were taken to Castleview Hospital in Price. One rescuer died there, one was airlifted to a Provo hospital, and three were treated overnight and released Thursday morning, said Jeff Manley, the hospital's chief executive. A sixth was still being treated, in serious condition with back injuries.

The second dead worker passed away at Utah Valley Regional Medical Center in Provo, hospital spokeswoman Janet Frank said. Another worker there was in serious condition with head trauma but was alert, she said.

The third death was confirmed by Kulczewski, the Labor Department spokesman.

Gov. Jon Huntsman flew to the hospital in Price early Friday and planned to meet with mine safety officials later in the day to discuss the future of the rescue operation.

Huntsman said he did not want underground tunneling to resume, but that the decision rested with the MSHA.

''We're pushing for that to cease right now unless MSHA and others can guarantee that it can continue safely,'' he said. ''Whatever happens, we're going to want to ensure that it is done safely and that may take a little while.

''We as a state don't want any more injuries,'' he added. ''We've had enough.''

Before the latest cave-in, officials said the third of three holes drilled reached an intact chamber with potentially breathable air.

Video images were obscured by water running down that bore hole, but officials said they could see beyond it to an undamaged chamber in the rear of the mine. It yielded no sign the miners had been there.

Murray said it would take at least two days for the latest drill to reach its target, in an area where a seismic listening device detected a ''noise'' or vibration in 1.5-second increments and lasting for five minutes. The drilling began Thursday.

Officials say it's impossible to know what caused the vibrations and clarified the limits of the technology.

The geophone can pinpoint the direction of the source of the disturbance, but it can't tell whether it came from within the mine, the layers of rock above the mine or from the mountain's surface, said MSHA chief Richard Stickler.

The ''noise,'' a term he used a day before, wasn't anything officials could hear, Stickler said. ''Really, it's not sounds but vibrations.''

Officials stressed that the motion picked up by the geophones could be unrelated to the mine, even as they drilled the new hole in an effort to uncover the source of it.

Contributing: AP writers Chris Kahn, Alicia A. Caldwell and Jessica Gresko in Huntington, Ed White in Salt Lake City and Jennifer Talhelm in Washington, D.C.

US treasury defends its stewardship

US treasury defends its stewardship
By Eoin Callan, Jeremy Grant and Krishna Guha in Washington
Copyright The Financial Times Limited 2007
Published: August 17 2007 03:00 | Last updated: August 17 2007 03:00

The US treasury on Thursday defended its oversight of the financial system amid one of the most severe periods of market turbulence in the past decade, but promised fresh steps to restore liquidity to mortgage markets.

The basic infrastructure of US financial markets was coping well and there were no signs of problems in trading or settlement and clearing of transactions, Robert Steel, a senior Treasury official, said in an interview.

The former Goldman Sachs executive acknowledged that the troubles in credit markets would have an impact on economic growth but said this would not derail the economy.

"I think it would be naive to think they will have no effect. But our impression here at treasury is that the effect will be modest," he said.

He defended the move this year to allow banks to take a leading role in surveillance of hedge funds, despite calls for more regulation to manage systemic risks.

"I think that it's times like this that make me feel that our strategy of good disclosure to counterparties and vigilance on the part of regulators and investors are the right [approach] to bring to these dynamics," he said. "My conversations with the prime brokerage industry give me comfort that we are on the right path on this process."

The stress in the mortgage market was in the "subprime and jumbo market", he said, referring to high-risk loans and mortgages amounting to more than $417,000, which are too large to be purchased by government-supported lenders Fannie Mae and Freddie Mac.

"We're working on things now to bring liquidity to those areas," he said, but declined to give specifics.

Jeoff Hall, economist at Thomson Financial, said the treasury had historically been able indirectly to influence demand for securities via its control of government bond issues. It was now likely to re-evaluate plans to curtail supply of some treasury bonds, he said.

Mr Steel said the key difference between the current credit crunch and shocks to the financial system such as that in 1998 was that the US and world economy were very strong. "I think that we are really going through a re-pricing of risk in the markets and it's a bit uncomfortable as we work through it."

Mortgage lender draws on $11.5bn line

Mortgage lender draws on $11.5bn line
By FT reporters
Copyright The Financial Times Limited 2007
Published: August 16 2007 18:49 | Last updated: August 17 2007 06:24

Countrywide Financial, the biggest US mortgage lender, was on Thursday forced to use an $11.5bn credit line from 40 of the world’s largest banks, raising fears that the global liquidity crisis was worsening.

Shares in Countrywide closed 11 per cent lower in New York as the company said it drew down the credit facility to boost its liquidity after the global credit squeeze curbed access to short-term financing from debt markets.

Ratings agencies responded with cuts to Countrywide’s credit rating, leaving the lender on the cusp of junk status.

Late payments and defaults on US mortgages have reached their highest level in more than five years, prompting sharp falls in the value of mortgage-related securities and severe funding problems for lenders.

In a sign of how rapidly the crisis has escalated, Countrywide said as recently as August 2 that it had strong and diverse funding sources, demonstrating the speed with which the crisis has escalated.

Bankers and investors expressed increasing alarm that even large, well-capitalised financial institutions were having difficulty accessing the wholesale markets they use to fund their businesses. Some banks are concerned that, if the liquidity shortage persists, they will have to absorb assets currently financed in the markets on to their balance sheets.

Rebecca Engmann Darst, an analyst at Interactive Brokers, said: “While Fed officials are proceeding as if a calamity has yet to occur in the US subprime mortgage market, it would appear that some in the market believe the calamity is simply yet to be fully appreciated.”

Countrywide’s move came as shares in Northern Rock, one of the UK’s leading mortgage lenders and a pioneer in the European capital markets, fell a further 4.2 per cent on Thursday, adding to a 5.3 per cent loss on Wednesday, as investors concluded the turmoil in the markets would undermine its future growth.

Shares in Rams Home Loans, one of the largest residential home loan providers in Australia, dipped nearly 60 per cent after it said it had failed to refinance hundreds of millions of dollars of short-term debt.

The setback came two days after Rams said its current year profit forecast of A$58.5m was likely to suffer materially owing to tougher credit conditions.

Rams’ funding crisis underlines the risks associated with non-bank home loan providers which have come to light barely three weeks after the group launched on the stock market with a A$885m listing.

Reporting by Anuj Gangahar and Saskia Scholtes in New York, Peter Thal Larsen in London and Peter Smith in Sydney

World’s investors scramble for safety

World’s investors scramble for safety
By Richard Beales in New York and Krishna Guha in Washington
Copyright The Financial Times Limited 2007
Published: August 16 2007 20:45 | Last updated: August 16 2007 22:51

Financial market turmoil spread around the world on Thursday as investors fled Asian and European stocks and risky currency trades and sought the safety of short-term US government debt.

The day began with Asian markets plunging after Wednesday’s late sell-off in the US. Europe followed Asia lower, with the FTSE 100 shedding 4.1 per cent. US stocks, however, rebounded from early losses to close mixed. The S&P 500 index ended 0.3 per cent higher, powered by a late rally in financial stocks.

Michael Mayo, Deutsche Bank analyst, said that US bank and brokerage stocks rose on speculation that the Federal Reserve would cut interest rates in response to credit market turmoil.

Some analysts believe the Federal Reserve could be forced to cut interest rates in spite of its anti-inflation stance. Futures markets are pricing in a quarter-point cut in the Fed funds overnight rate, currently at 5.25 per cent, even before the US central bank’s scheduled meeting on September 18.

William Poole, president of the St Louis Fed, had said on Thursday that only a “calamity” would justify a Federal Reserve interest rate cut before the meeting. He played down the effect of market turmoil on economic growth, telling Bloomberg “no one has called up and said the sky is falling”.

But in a rare move, a spokesperson for the Fed said Mr Poole’s views did not necessarily represent those of the Fed’s interest rate setting committee as a whole.

The fear in the markets sent investors piling into short-term US government debt, sending yields tumbling, particularly early in the New York day. Yields on one-month Treasury bills dipped as low as 2.4 per cent before trading at about 3.1 per cent later, 0.9 percentage points lower on the day.

In another sign of risk aversion, the yen soared as investors unwound carry trades whereby they borrowed in yen and invested in higher yielding currencies. The Japanese currency gained more than 5 per cent against the New Zealand dollar and about 2 per cent against the US dollar.

The Chicago Board Options Exchange’s Vix index, often called a fear gauge, jumped above 37, its highest level in nearly five years, before easing back to about 31 as US stocks recouped losses.

Emerging markets, though, were increasingly caught up in the maelstrom. The MSCI emerging markets index is now almost 20 per cent off its peak set less than a month ago.

“The market turbulence affecting global credit markets has finally spilled over into the emerging markets,” said analysts at Goldman Sachs.

In Canada, banks announced a plan to stabilise that country’s market for asset-backed commercial paper, the short-term debt on which many financial institutions and companies rely.

But more symptoms of the credit crunch emerged, with shares in Countrywide Financial, the US mortgage lender, tumbling again after it drew credit lines to boost its cash position.

Additional reporting by Javier Blas and Robert Orr

Fed cuts discount rate in surprise move

Fed cuts discount rate in surprise move
By Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: August 17 2007 14:27 | Last updated: August 17 2007 14:27

The Federal Reserve took emergency steps to limit the damage to the US economy from the crisis in global credit markets on Friday by cutting the discount rate at which it makes loans to banks.

The central bank cut the rate by half a percentage point to 5.75 per cent, while keeping the main federal funds rate on hold at 5.25 per cent.

The surprise move, which was agreed during an emergency conference call on Thursday night, makes it more likely the Fed will cut its main rate next month and may help ease liquidity in financial markets and limit the blow to financial institutions from the deterioration in assets exposed to the meltdown in the US subprime mortgage sector.

The statement shows that the Fed has abandoned its hawkish bias towards raising rates to combat inflation, and has moved to a neutral stance and is ready to cut interest rates.

In the unexpected announcement, the Fed said: ”Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward.”

The central bank ”is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets”, the statement added.

The move is a reversal for the Fed, which previously played dow the impact on the economy from the crisis building in the high-risk end of the US home loan market.

The cut in the lending rate follows warnings from Wall Street economists that the turbulence in financial markets was hitting banks’ balance sheets and might limit their ability to lend and meet their obligations.

This could resulted in a further tightening of lending conditions and an increase in the cost of borrowing that would begin to have effects on businesses and households seeking credit and the wider economy.

Bruce Kasman, chief economist at JP Morgan, told the Financial Times: “Assets are being transferred back onto the balance sheets of banks and financial institutions, making them more reluctant to lend. They have less capacity to lend and they are uncertain if they can meet their credit obligations.”

Policymakers added: ”Although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably.”

The announcement follows large-scale intervention by the Fed and major central banks to inject liquidity into overnight lending markets, which had seized amid fears about where losses on mortgage-backed securities were hidden in the financial system.

Thursday, August 16, 2007

Suicide Rate in Army at a 26-Year High

Suicide Rate in Army at a 26-Year High
Copyright © 2007, The Associated Press
7:55 AM CDT, August 16, 2007

WASHINGTON - Ninety-nine U.S. soldiers killed themselves last year, the highest rate of suicide in the Army in 26 years, a new report says.

More than one out of four soldiers who committed suicide did so while serving in Iraq or Afghanistan, according to a report scheduled to be released Thursday. Iraq was the most common deployment location for U.S. soldiers who either attempted suicide or committed suicide.

The report, which The Associated Press obtained ahead of its public release, said the 99 confirmed suicides among active duty soldiers compared to 88 in 2005 and was the highest raw number since the 102 suicides reported in 1991, the year of the Persian Gulf War, when there were more soldiers on active duty.

Investigations are still pending on two other deaths and if they are confirmed as suicides, the number for last year would be 101 instead of 99.

In a half million-person Army, last year's suicide toll translates to a rate of 17.3 per 100,000, the highest in the past 26 years, officials report. The rate has fluctuated over those years, with the low being 9.1 per 100,000 in 2001.

Failed personal relationships, legal and financial problems and the stress of their jobs were factors motivating the soldiers to commit suicide, according to the report. It also found a significant relationship between suicide attempts and the number of days deployed in Iraq, Afghanistan or nearby countries where troops were participating in the war effort.

There was "limited evidence" to back the suspicion that repeated deployments are putting more people at risk for suicide, the report said. With the Army stretched thin by years of fighting the two wars, the Pentagon has had to extend normal tours of duty this year to 15 months from 12 and has sent some troops back to the wars several times.

The 99 suicides included 28 soldiers deployed to the Iraq and Afghan campaigns. About twice as many women serving in the wars committed suicide as did women not sent to war, the report said.

The Defense Manpower Data Center, which collects data for the Pentagon, said in late May that 107 suicides had been recorded in the Iraq campaign since its start in March of 2003.

Preliminary numbers for the first half of 2007 indicate the number of suicides could decline across the service but increase among troops serving in the wars, officials said.

The increases for 2006 came as Army officials worked to set up a number new programs and strengthen old ones for providing mental health care to a force strained by the longer-than-expected conflict in Iraq and the global counterterrorism war entering its sixth year.

In a flurry of studies in recent months, officials found that system that might have been adequate for a peacetime military has been overwhelmed by troops coming home from the wars.

Some troop surveys in Iraq have shown that 20 percent of Army soldiers have signs and symptoms of post-traumatic stress, which can cause flashbacks of traumatic combat experiences and other severe reactions. About 35 percent of soldiers are seeking some kind of mental health treatment a year after returning home under a program that screens returning troops for physical and mental health, officials have said.

The Army has sent medical teams annually to the battlefront in Iraq to survey troops, health care providers and chaplains about health, morale and other issues. It has revised training programs, bolstered suicide prevention, is adding some 25 percent more psychiatrists and other mental health professionals to its staff and is in the midst of an extensive program to teach all soldiers how to recognize mental health problems in themselves and their comrades -- and encourage them to seek help.

The Army also has been working to stem the stigma associated with getting therapy for mental problems, after officials found that troops are avoiding counseling out of fear it could harm their careers.

* __

Associated Press reporter Lolita Baldor contributed to this report from Washington.

Bumpy credit ride just beginning

Bumpy credit ride just beginning
By Avinash Persaud
Copyright The Financial Times Limited 2007
Published: August 15 2007 19:19 | Last updated: August 15 2007 19:19

Central bank intervention last Friday to inject liquidity into the global financial system did not mark the beginning of the end of financial market turmoil. It was merely the end of the beginning. Liquidity injections will not deliver lengthy respite. The next phase of market volatility will be more vicious than before, led by downgraded ratings on credit instruments and followed by further dislocation in the credit markets that will spill over to equity markets.

Credit markets are the big brother of equity markets. In the US and Europe, capitalisation of private debt securities is a combined $28,000bn (€21,000bn, £14,000bn), compared with $23,000bn in equity markets. Although rating downgrades will be a consequence of existing anxieties about credit quality, they will have knock-on effects. Substantial parts of the credit markets are priced off these ratings. This presents rating agencies with serious conflicts of interest that will move centre stage when investors start looking for a scapegoat. Rating downgrades will convert risks into losses. Lossmaking credit funds will suffer redemptions, forcing fund managers to dump well-performing parts of their portfolios as well. Loan covenants will require rated entities to inject liquidity on a downgrade. Where central banks are pushed to ease liquidity more aggressively than their inflation objectives may suggest, currencies will weaken. The yen will rebound.

Those who are older than the trading floor average will have seen this before. But what makes this credit cycle more complicated and perhaps more hazardous is the very thing that the former Federal Reserve chairman Alan Greenspan and others argued had made financial systems safer: the securitisation of credit. Securitisation brings benefits. But in these circumstances it will make the down cycle more severe and will transmit systemic risks along untraditional paths that may prove less sensitive to interest rate cuts than in the past.

Before securitisation, whenever the credit cycle turned down a bank’s loan officer could conclude, through his long relationship with the credit or a portfolio of them, that the market was under-pricing that credit. He could use the bank’s balance sheet to hold on to out-of-favour credits until the market stabilised. Banks have since earned fees for securitising credits and selling them on. Now, when credit prices fall and daily risk management systems scream that that risk should be sold, the fund manager with only a passing knowledge of the underlying credit and without a large balance sheet cannot hold on to it.

Over the past 20 years, governments built regulatory systems to avoid credit problems at one bank becoming systemic. These systems succeeded, but only by shifting risks elsewhere. A measure of this failure is that the instances of emergency rate cuts have become no less frequent. Think of 1987, 1989-92, 1995, 1998 and 2001-03. Today, the principal avenues of systemic risk are via investment losses, not bank runs. The example from Japan in the 1980s and emerging Asia in the 1990s is that large and widespread investment losses will lead to big reductions in consumption and investment.

Can lower interest rates temper investor losses? Yes, if the problem is caused by a temporary lack of liquidity; no, if it is caused by a “de-rating” of asset quality, as is occurring today. Cutting interest rates for everyone does not encourage investors to take more care in the future. Each of the emergency rate cuts referred to above spawned an asset bubble.

Higher credit costs will hurt those equity sectors dependent on leverage. Much focus has been on the removal of debt-financed private equity bids for companies. Last year, this was worth $700bn in the US alone. But the effects of higher credit costs run deeper. Some old private equity transactions will be forced to issue equity and share buy-back programmes will be halted. It is tempting to think that emerging equity markets can continue to show high and uncorrelated returns. But it is important to recognise that while many private equity funds are based in the US and northern Europe, they have been big buyers of Asian equities, especially the Chinese and Indian markets.

The crash of 2007-08 need not have occurred. It was the result of poor investment decisions that were supported by the monetary and regulatory background. There is not a great deal that can be done about that today. But in responding to the anguish of this crash, policymakers must try not to lay the foundations for the next one.

The writer is chairman of Intelligence Capital Limited and an emeritus professor at Gresham College, London

The undoing of the Architect’s plansc

The undoing of the Architect’s plans
By Clive Crook
Copyright The Financial Times Limited 2007
Published: August 15 2007 19:12 | Last updated: August 15 2007 19:12

It is difficult to exaggerate the role Karl Rove played for George W. Bush – but, as commentators have proved this week, not impossible. Friends and foes alike give “the Architect”, as the president called him, the credit for the Republicans’ remarkable election victories of 2000, 2002 and 2004 and (a pleasing irony, as far as foes are concerned) much of the blame for the electoral debacle of 2006. In most of what has been written about Mr Rove’s departure and legacy, the president himself gets hardly a look in. Dick Cheney, the man normally said to be running the show, seems to have vanished altogether.

Credit for the Bush administration’s successes (such as they are) and blame for its failures belong with the president. Yes, Mr Rove was an unusually influential adviser – uniquely combining the roles of chief political strategist and domestic policy adviser – and a close friend of the president as well. It is difficult to imagine this White House without him. But he was still just an adviser. One must remember, too, that governments rarely succeed or fail according to whether they have good or bad electoral strategies. What matters is how well they govern and in particular how well they handle, or fail to handle, unexpected events.

Judging the administration’s rise and fall from a strategic point of view leads one to look for internal contradictions. So it is argued, for instance, that Mr Rove’s preference for energising the base of committed Republican supporters carried the seeds of its own failure, either because it made winning the support of moderate independents more difficult, or because it energised the government’s opponents even more. There is some truth to both points – but the question is: why did this approach succeed so well in 2002 and 2004 (both times against the odds, though for different reasons) and fail so abjectly in 2006? The answer is simple. It is not that the strategy’s contradictions were somehow exposed, but that between 2004 and 2006 the White House showed itself, beyond any remaining doubt, to be irredeemably incompetent.

The issues that sank the president’s poll ratings off the chart were the deteriorating war in Iraq and the response to Hurricane Katrina. The war, to be sure, has turned out terribly – based in the first place on false intelligence, then mismanaged woefully throughout. I wonder, though, if that alone might have been survivable politically. Saddam Hussein, after all, was not an imaginary enemy. Voters understand that things go wrong in wars and the American instinct is to rally behind the armed forces and their leaders at such times. What made the question moot was the response to Katrina, a further display of seeming indifference and blithering ineptitude. (Perhaps it would have been handled more cleverly if “the Architect” had not been distracted by the scandal over who leaked the name of Valerie Plame, a former covert CIA agent, to reporters.) In any event, Mr Bush’s endorsement of Michael Brown, the flailing head of the Federal Emergency Management Agency – “Brownie, you’re doing a heck of a job” – made the country reel and was the moment I myself gave up on this president.

These awful, unforgettable instances were mutually reinforcing: anyone inclined, however implausibly, to give the White House the benefit of the doubt on Iraq (“they are doing their best in difficult circumstances”) was mocked by the response to Katrina. And once the idea that the administration was unfit to govern became firmly lodged in enough minds, other big initiatives that the White House wished to pursue were doomed as well, regardless of their merits or their strategic import.

Reform of Social Security, championed in the White House by Mr Rove and once intended as the second term’s domestic-policy centrepiece, was already in trouble before the hurricane, but Katrina sealed its fate. “Trust us to do this right,” was the administration’s message on partial privatisation of pensions: “It’s complicated but we know what we’re doing.” “You must be joking,” was the electorate’s reply. Immigration reform was another of Mr Rove’s grand political projects, aimed at bringing Hispanics inside the Republican tent. It failed for more than one reason, but the fact that the plan was premised on complex new measures to control the border certainly did not help. The country’s mood was: “We’ll believe that when we see it.”

Social Security and immigration show, incidentally, that the political strategy urged by Mr Rove and prosecuted by Mr Bush went far beyond stirring the Republican base into a get-the-vote-out frenzy. The plan was not just to energise the base but to broaden it. Privatising Social Security would create a vast new class of private investors – voters with a stake in corporate America, less susceptible to the Democrats’ traditional pitch. Immigration reform would have given Republicans a claim on the support of America’s fastest-growing demographic group.

Mr Rove was correct: both those initiatives made good sense strategically and still do. In my view, they were desirable on their merits as well, as long as they were done right. That was the problem. Politically challenging as these planned reforms no doubt were, they did not fail because they were bad ideas, or divisive ideas, or because they jarred with other aspects of the Bush-Rove agenda. They failed because too many Americans thought the Bush administration would make a hash of them. Who could disagree?

Send your comments to

Downturn in housing market worsens

Downturn in housing market worsens
By Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: August 16 2007 03:00 | Last updated: August 16 2007 03:00

The outlook for the US housing sector worsened on Wednesday as an index of sentiment among housebuilders fell to its lowest level in more than 16 years and estate agents reported prices falling in a third of US cities.

The crisis in the subprime mortgage market contributed to an 11 per cent fall in sales nationwide in the second quarter, according to the National Association of Realtors. The National Association of Home Builders has only once registered a worse mood than that recorded in its latest monthly survey.

David Seiders, chief economist at the NAHB, said conditions were worsening because "problems in the subprime mortgage sector have spilled over to other components of housing finance, including [more mainstream loans]".

Brian Catalde, president of the association, said: "Builders realise that issues related to mortgage credit cost and availability have become more acute, filtering some prospective buyers out of the market and prompting others to delay their decision to purchase a new home."

A cutback in construction is viewed as necessary by many economists to reduce an oversupply of new homes on the market.

Abiel Reinhart, an analyst at JPMorgan, said: "In response to these problems, builders will almost certainly further reduce starts, cut prices, and offer non-price incentives."

But Michael Feroli, a former Federal Reserve official, said worsening credit conditions could mean that the supply of new homes might need to go "quite a bit lower" than thought.

A further sharp downturn in construction could have a negative impact on consumer sentiment and economic growth.

Wal-Mart, the world's largest retailer, said this week the housing downturn and tightening credit conditions were having an impact on shoppers.

While prices fell slightly nationwide, according to the NAR, many of the big falls were in Florida, where former bubble markets such as Palm Bay and Sarasota saw double-digit declines. The biggest drop was in Elmira, New York, which has been hit by manufacturing job losses and saw house prices drop 17.9 per cent.

Price rises were pronounced in the west, with homes appreciating by 21.9 per cent in Salt Lake City, Utah.

The best and worst markets

House price rises in second quarter

Salt Lake City, Utah


Binghamton, New York


Salem, Oregon


Farmington, New Mexico


Allentown, Pennsylvania


House price declines in second quarter

Elmira, New York


Palm Bay, Florida


Sarasota, Florida


Davenport, Iowa


Daytona Beach, Florida


Source: Natl Assoc of Realtors

Funding fears hit financial shares

Funding fears hit financial shares
By FT reporters
Copyright The Financial Times Limited 2007
Published: August 16 2007 03:00 | Last updated: August 16 2007 03:00

US markets took another late plunge yesterday as worries over the ability of financial firms to fund their activities pushed shares in the biggest US mortgage lender sharply lower.

The yield on short-term Treasury bills tumbled, the latest indication that investors are rushing for safe and liquid assets and that financial market liquidity is still in doubt in spite of central bank intervention since last week. This intensified speculation that the US Federal Reserve would be forced to cut interest rates to restore calm and boost liquidity well before its scheduled meeting next month.

European bank shares were also under pressure amid continuing fears about subprime-related losses and a lack of liquidity in the commercial paper market.

Companies that rely on regular sales of short-term debt in the form of commercial paper have experienced particular difficulties as the usual buyers have proved wary in current market conditions.

Shares in US mortgage lender Countrywide fell 13 per cent to $21.29 after the group was reported to be facing problems selling commercial paper. Its shares are down about 50 per cent this year.

The listed KKR Financial, an affiliate of Kohlberg Kravis Roberts, the US private equity group, tumbled 31 per cent to $10.52 after it said it was facing disruptions in short-term borrowing.

The S&P 500 index fell 1.4 per cent - giving it a loss of 0.8 per cent for the year - with almost all of the decline occurring in the last two hours. That is likely to put pressure on Asian and European markets today. The Dow Jones Industrial Average fell 167.45 to 12,861.47, its lowest close since April 24.

Faced by an apparently continuing liquidity drought, investors raced for the safe haven of three-month Treasury bills.

The implied yield on the bills plummeted from 4.5 per cent to 3.9 per cent yesterday, the sharpest drop since 1989.

William O'Donnell, strategist at UBS, said: "Money market funds have seen massive inflows over the last few weeks in a classic flight to quality."

He said lack of confidence in financing markets had shut down the short-term commercial paper market. "Now the buyers are only interested in Treasury bills."

The Fed lent banks $7.7bn in Treasuries yesterday, the largest amount so far.

Foreign exchange markets also saw intense activity as traders repatriated assets to the US. The yen hit its strongest level against the dollar since March, having risen 6 per cent since June. The dollar has gained 1.4 per cent this week against a trade-weighted basket of major currencies.

The problems at KKR Financial cast a further cloud over KKR's plans to raise $1.25bn in a flotation.

Shares in private equity and hedge fund group Fortress again fell below their February debut price of $18.50, losing 8.6 per cent to a low of $17.56.

By Richard Beales, Saskia Scholtes, Michael Mackenzie, James Politi, John Authers and Anuj Gangahar in New York

New ID rules overwhelm US passport office

New ID rules overwhelm US passport office
By Daniel Dombey in London
Copyright The Financial Times Limited 2007
Published: August 15 2007 22:08 | Last updated: August 15 2007 22:08

US consular staff in London, Mexico City and New Delhi have stepped in to help with a crisis in issuing US passports that some members of Congress have compared to the response to Hurricane Katrina.

People with knowledge of the situation said some of the biggest consulates overseas have been assisting in renewing passports for US residents, although not with issuing first-time passports. The London embassy alone is thought to have processed 12,000 passports for US resident citizens. Such work is normally done at centres within the US.

US officials declined to comment on the use of diplomatic resources overseas to deal with a backlog in issuing millions of passports. The delays have seen hundreds of Americans cancel trips abroad because of the failure to process their passport requests on time.

The White House has announced that it has interrupted all “non-critical” state department training within the US, instead using staff to process passports.

In June, almost 3m people were awaiting passports – a figure the state department aims to reduce to 1m-1.5m by the end of the year. At present, it takes 10-12 weeks to issue a passport, compared with four to six weeks normally.

The state department has admitted it was unprepared for a surge in demand for passports sparked by new regulations requiring US citizens returning by air from Canada, Mexico, the Caribbean and Bermuda to carry passports. Documents such as driver’s licences or birth certificates had previously been deemed sufficient by border officials, as was a verbal declaration of US ­citizenship.

The US is due, next summer, to also demand formal travel documents from travellers arriving from those countries by land and sea.

“It seems that the administration that brought us the response to Hurricane Katrina has now ruined our summer vacation,” said Gary Ackerman, a Democrat from New York, at a hearing last month.

The state department points to higher-than-expected demand. In the first three months of this year, 5.5m people requested passports, a figure that compares with the 12m requests in the whole of 2006 and 10m in 2005. The estimated total for this year is 17m.

“We are looking at approximately 23m applicants in 2008 and as high as 30m by 2010,” said Maura Harty, assistant secretary of state for consular affairs, in testimony before a Senate committee in June. “For many, the passport is becoming something like some form of national ID card.”

Ms Harty links this shift to the publicity campaign that alerted US citizens to the new regulations – themselves passed by Congress in response to the findings of the 9/11 Commission which concluded that: “For terrorists, travel documents are as important as weapons.”

“Before the passage of this law, somebody like me could take a trip to the Caribbean and on the strength of my Staten Island accent and my Gold’s Gym card talk my way back into America,” Ms Harty said. “And you [Congress] rightly realised that wasn’t the way to do business any more.”

But Ileana Ros-Lehtinen, a Republican member of the House of Representatives from Florida, said the growth of demand for passports was not a sufficient defence.

“It’s outrageous, incomprehensible, unconscionable,” she said. “How can we not have foreseen this problem?”

Market insight: US economy left exposed to consumer recession

Market insight: US economy left exposed to consumer recession
By David Rosenberg
Copyright The Financial Times Limited 2007
Published: August 15 2007 17:15 | Last updated: August 15 2007 17:15

No economic expansion has relied more on credit and leverage than the one we have been experiencing since 2001. But it was always a matter of when, not if, this liquidity-driven bull market would run out of steam.

And run out of steam it has. The stresses to the system that started with the subprime mortgage upheaval have expanded not just into junk but also to high-grade corporate debt, to the prime mortgage sector and beyond the US border to hedge funds in Europe and Australia.

The economic impact of these stresses is likely to be far-reaching, with weaker gross domestic product growth, poorer performances by US corporates and a possible consumer recession.

As lenders become more cautious, reduced liquidity should damp economic activity at a time when the US economy already appears vulnerable. Underlying GDP growth has slowed to little more than 2 per cent. Private domestic spending growth is even weaker, at about 1 per cent.

We have stress-tested our model to allow for sharply lower equity prices, wider credit spreads and a further dip in house prices.

These new assumptions change the economic outlook significantly. Real GDP growth will take a notable hit, and we believe that the consensus view of 2.5 per cent to 3 per cent growth for the next few quarters remains too high. We see real GDP growth at 1.5 per cent in 2008, below our prior call for 2.3 per cent and down from an expected 1.8 per cent trend this year.

We could see the first consumer recession in 17 years in the first-half of 2008. The consumer is likely to take the brunt of the impact from the depressed wealth effect that comes from lower home and equity prices. Our worst-case scenario paints a picture of a perfect storm for consumers: a $130bn tax from petrol at $4 per gallon, a combined $3200bn in lost home values and equity portfolios.

We believe that consumer spending growth will average 0.5 per cent in 2008, a significant drop from our prior call of 2.2 per cent. We expect declines in consumer purchases of “big ticket” durable goods through most of 2008, with the weakest parts of the cycle to be felt in the first half of 2008.

Corporations are feeling the pain of tighter credit. We now see operating earnings per share for 2008 at $92 (down from $97 before), which is a 1.1 per cent decline from the $93 tally we expect to see for 2007. This would be the first annual decline since 2001.

Since we forecast industry capacity utilisation rates falling from about 82 per cent now to 77 per cent by the end of 2008, corporate pricing power in general is also expected to recede, although slowing wage growth and range-bound oil prices should prevent margins from collapsing.

In the next few weeks the US Federal Reserve may well turn its attention away from inflation and towards financial market in stability.

In our opinion the Fed will cut interest rates sooner than the consensus and markets currently expect – if econ omic weakness continues and the financial market jitters are sustained. As a result, we have moved our easing call back to October, although this is a close call because the Fed typically does not cut until there is maximum pain.

As was the case in the prior two asset cycles in the early 1990s and just six years ago, we see the cuts being deep, with the funds rate falling to 3.75 per cent by mid-2008. This would continue to spark a rally in bonds. Looking to 2009, we see a classic post-bubble U-shape recovery unfolding as the expected interest rate cuts bump up against the tightening in lending standards. With lags from Fed easing and lower bond yields, as well as a full cleansing of the housing excesses, growth should recover to 2.5 per cent.

But for the meantime we welcome a new economic phase – one where growth slows enough to generate declines in real per capita income and a rising unemployment rate. Looming Fed rate cuts will act as a buffer, but since there is nothing left to reflate, there will be no more easy fixes.

The author is chief North America economist at Merrill Lynch

Gates Foundation adds Iraq to its focus

Gates Foundation adds Iraq to its focus
By Victoria Kim in New York
Copyright The Financial Times Limited 2007
Published: August 15 2007 22:09 | Last updated: August 15 2007 22:09

The Bill and Melinda Gates Foundation is making its first foray into Iraq, funding a new initiative to relocate more than 150 scholars facing threat and persecution.

In a departure from its focus on projects in health and development, the foundation will provide $5m ($3.7m, £2.5m) for a project granting fellowships to Iraqi scholars seeking to continue their work at institutions in other countries.

A further $5m for the project has been approved by the US Congress.

The attempt to help Iraqi academics is the most ambitious project of the Scholar Rescue Fund, an organisation founded in 2002 by Wall Street figures including investors George Soros and Dr Henry Jarecki, Tom Russo, vice-chairman of Lehman Brothers, and Henry Kaufman, former Salomon Brothers economist.

Officers at the fund, which has helped scholars from Iran to Zimbabwe, began to focus on Iraq after violence – such as a bombing outside a Baghdad university this year that killed 70 people – caused the number of applications from there to soar.

Requests for help from Iraqi academics jumped to as many as 40 a week after averaging three or four a month before autumn 2006. So far, the fund has helped 17 Iraqi scholars find work in other countries.

Iraq is “the closest thing that any of us have seen to the Holocaust in terms of attacks to science and learning”, said Allan Goodman, president and chief executive of the non-profit International Institute of Education, which administers the fund.

“It is not even clear who is doing it,” said Dr Jarecki, the fund’s chairman. “No one is being arrested. No one is being punished for harming scholars.”

Mr Goodman, who has overseen the rescue of 140 scholars worldwide since the fund’s inception, said: “Gates is participating in a massive rescue of science and learning.”

Bill and Melinda Gates support the project because “the protection of part of Iraq’s intellectual capital ... will be essential for Iraq’s future development,” a spokeswoman for the foundation said.

Many of the scholars will be relocated to neighbouring Jordan, where some are already living in poverty, in some cases driving taxis rather than teaching.

The fund hopes scholars will eventually be able to continue teaching students in Iraq through long-distance learning programmes, such as televised lectures.

Dr Jarecki said the fund also hopes the project will reintegrate Iraqi scholars into the international academic community after years of isolation under authoritarian rule.

Rating agencies hit by subprime probe

Rating agencies hit by subprime probe
By Tobias Buck in Brussels
Copyright The Financial Times Limited 2007
Published: August 15 2007 22:02 | Last updated: August 16 2007 00:05

The European Commission is to investigate credit ratings agencies amid growing dismay over their slow response to the subprime mortgage crisis.

Officials in Brussels, and many other critics, believe the ratings agencies failed to act quickly enough to warn investors about the risks of investing in securities backed by US subprime mortgages – the sector whose troubles triggered the recent global market volatility.

In the US, Barney Frank, Democrat chairman of the House financial services committee, said he planned to hold hearings on the agencies’ performance next month. He said the agencies had “not done a good job” in the current crisis.

Banks first warned about a potential crisis in subprime last year. But it was only this spring that S&P and Moody’s started downgrading the ratings of mortgage-backed securities on a significant scale.

“If the rating agencies believe this is going to be business as usual, they are very wrong,” one Commission official said.

“The securitised subprime mortgage market would not have grown to the extent that it did without the favourable ratings given by some agencies.”

Charlie McCreevy, EU internal market commissioner, met senior S&P executives last month and expressed his concern about the subprime mortgage sector and the apparently slow reaction of some agencies. He has invited European securities regulators to meet in September to discuss ratings agencies and the problems that have surfaced with regard to rating structured products.

The agencies have changed their methodologies in response to the rapid rise in subprime mortgage payment problems. But they say downgrades follow once evidence has accumulated that mortgages or other assets are underperforming rather than on a speculative basis.

The agencies have previously defended themselves from legal action by maintaining that their ratings are simply opinions, covered in the US by constitutional free speech protections.

The Commission is not committed to any course of action and is likely to await the outcome of a review of the International Organisation of Securities Commissions’ code of conduct, expected by April, before considering new regulation. The Commission adopted a policy paper last year that dismissed the need for new regulation.

But it did warn that “the position of credit rating agencies must not be compromised by the relationships they have with issuers”, highlighting the fact that agencies are paid by issuers, not the users, of their ratings. Another worry relates to how agencies offer consultancy to issuers.

In the US, the Securities and Exchange Commission introduced rules for agencies in June. French watchdog the Autorité des Marchés Financiers this year cited potential conflicts of interest and a lack of transparency.

Additional reporting by Richard Beales in New York, Jeremy Grant in Washington and Paul J Davies in London

Wednesday, August 15, 2007

Newcomers By Numbers

Newcomers By Numbers
By Anna Quindlen
© 2007 Newsweek, Inc.

Aug. 20-27, 2007 issue - Some people talk about immigration in terms of politics, some in terms of history. But the crux of the matter is numbers. The Labor Department says that immigrants make up about 15 percent of the work force. It's estimated that a third of those are undocumented workers, or what those who want to send them back to where they came from call "illegals."

The Pew Hispanic Center estimates that one in four farmhands in the United States is an undocumented immigrant, and that they make up a significant portion of the people who build our houses, clean our office buildings and prepare our food.

All the thundering about policing the border and rounding up those who have slipped over it ignores an inconvenient fact: America has become a nation dependent on the presence of newcomers, both those with green cards and those without. Mayor Michael Bloomberg of New York testified before a Senate committee that they are a linchpin of his city's economy. The current and former chairmen of the Federal Reserve have favored legal accommodations for undocumented workers because of their salutary effect on economic growth—and the downturn that could follow their departure. Business leaders say agriculture, construction, meatpacking and other industries would collapse without them.

Last year the town of Hazleton, Pa., became known for the most draconian immigration laws in the country, laws making English the official city language, levying harsh fines against landlords who rent to undocumented immigrants and revoking the business permit of anyone who employs them. There was a lot of public talk about crime and gangs and very little about hard work in local factories and new businesses along the formerly moribund Wyoming Street. In that atmosphere, those with apartments to let and jobs to fill could be excused if they avoided any supplicant with an accent. Oh, the mayor and his supporters insisted that the laws were meant only to deal with those here illegally, but the net effect was to make all Latinos feel unwelcome.

When the law was struck down by a federal judge, there was rejoicing among Hazleton's immigrants, but some said an exodus had already begun. Longtime residents seemed to think that was just fine. This is part of a great historical continuum—the Germans once derided the Irish, and the Irish trashed the Italians—but it is a shortsighted approach. Economists say immigrants buying starter homes will keep the bottom from falling out of the housing market in the years ahead. Latinos are opening new businesses at a rate three times faster than the national average. If undocumented immigrants were driven out of the work force, there would be a domino effect: prices of things ranging from peaches to plastering would rise. Nursing homes would be understaffed. Hotel rooms wouldn't get cleaned.

Sure, it would be great if everyone were here legally, if the immigration service weren't such a disaster that getting a green card is a life's work. It would be great if other nations had economies robust enough to support their citizens so leaving home wasn't the only answer. But at a certain point public policy means dealing not only with how things ought to be but with how they are. Here's how they are: these people work the jobs we don't want, sometimes two and three jobs at a time. They do it on the cheap, which is tough, so that their children won't have to, which is good. They use services like hospitals and schools, which is a drain on public coffers, and they pay taxes, which contribute to them.

Immigration is never about today, always about tomorrow, an exercise in that thing some native-born Americans seem to have lost the knack for: deferred gratification. It's the young woman in New York City who splits family translation duties with her two siblings. Her parents showed extraordinary courage in leaving all that was familiar and coming to a place where they couldn't even read the street signs. Does it matter if they don't speak English when they have children who aced the SAT verbal section and were educated in the Ivy League? It's the educated man who arrived in the Washington, D.C., area and took a job doing landscaping, then found work as a painter, then was hired to fix up an entire apartment complex by someone who liked his work ethic. He started his own business and wound up employing others. Does it matter that he arrived in this country with no work visa if he is now bolstering the nation's economy?

The city of Hazleton says yes. And if towns like Hazleton, whose aging populations were on the wane before the immigrants arrived, succeed in driving newcomers away, those who remain will find themselves surrounded by empty storefronts, deserted restaurants and houses that will not sell. It's the civic equivalent of starving to death because you don't care for the food. But at least everyone involved can tell themselves their town wasted away while they were speaking English.

Boston Globe Editorial - Kabul's peace conference

Boston Globe Editorial - Kabul's peace conference
Copyright by The Boston Globe
Published: August 14, 2007

A four-day conference of some 600 Afghan and Pakistani tribal leaders that concluded Sunday in Kabul was a belated recognition that a more supple strategy is needed to defend Afghanistan against renewed assaults by the Taliban.

One breakthrough of the peace jirga was that it drew a rare public acknowledgment from President Pervez Musharraf of Pakistan that Taliban militants have been using tribal areas inside Pakistan as safe havens from which to launch attacks into Afghanistan.

Welcome as it is, the admission can hardly make a difference unless Pakistan ends its policy of backing Taliban elements, which it considers a counterforce to Indian influence in the region. Such a change may now be possible, but only as part of a larger set of trade-offs that balance the vital interests of moderate forces in Pakistan and Afghanistan.

A deal of this kind will require compromises that the jirga participants may be ready to make but that the Bush administration - with its propensity to frame complex issues as stark conflicts of good and evil - may not be prepared to accept.

Musharraf highlighted a key compromise when he spoke of isolating the die-hard militants among the Taliban and trying to "win the hearts and minds" of the Pashtun ethnic group from whom the Taliban draw their recruits.

Indeed, the jirga's closing statement said that 50 tribal leaders from both sides of the border would meet regularly to "expedite the ongoing process of dialogue for peace and reconciliation with the opposition." This was a tactful way of describing a strategy to co-opt those Taliban elements who can be won over.

As Musharraf hinted, this strategy presumes that pragmatic elements among the Taliban exist and are supported by a certain portion of the ethnic Pashtun who predominate in Afghanistan and adjacent tribal areas of Pakistan.

Left unsaid was the Pakistani belief that the Pashtun have been deprived of their proper share of power in Afghanistan ever since the Americans routed the Taliban in late 2001, with the help of the non-Pashtun Northern Alliance, which had been backed previously by India, Iran, and Russia.

For such a strategy to work, Musharraf will have to do his part. This does not mean halting all cross-border infiltration - an impossible task - but dismantling the Taliban's command structure. This is something Pakistan's military intelligence is capable of doing. Toward that end, Pakistan must be assured that a post-Taliban Afghanistan will not become a repository of Indian influence, will not deprive the Pashtun of their fair share of power, and will recognize the current border between the two countries.

And it would help if America and its allies generously financed reconstruction projects through the Karzai government and ceased air attacks that kill civilians.

International Herald Tribune Editorial - Rove gets out of town, but Congress needs him back

International Herald Tribune Editorial - Rove gets out of town, but Congress needs him back
Copyright by The International Herald Tribune
Published: August 14, 2007

Karl Rove, the architect of so much that has gone so wrong with the Bush administration, announced on Monday that he is leaving the White House to spend more time with his family. What he didn't say is that by getting out of town he is also hoping to avoid spending any time at all with congressional investigators.

Congress should not oblige.

The American public needs to understand the full story of how this White House - with Rove pulling many of the strings - has spent the last six and a half years improperly and dangerously politicizing the federal government. Rove is already defying one congressional subpoena to testify about the U.S. attorneys scandal. He should be made to respond to that one, and should also be subpoenaed to explain his role in several other cases of crass politicization.

President George W. Bush took a risk when he put someone so focused on politics as a blood sport at the center of his White House. Once he did, he had an obligation to ensure that Rove understood that his job was to promote the interests of the American people - not solely the Republican Party. Instead, Rove used his position and power to relentlessly pursue his declared goal of a permanent Republican majority.

Rove appears to have been deeply involved in the decision to fire nine top federal prosecutors, apparently for either bringing cases that hurt Republicans or refusing to bring cases to punish Democrats.

There is also mounting evidence that he turned nonpartisan agencies into campaign boosters, quite possibly violating federal law. Earlier this month, Attorney General Alberto Gonzales admitted that Justice Department officials attended political briefings at the White House, some led by Rove. Officials at the General Services Administration and Peace Corps, and even six U.S. ambassadors, among others, were also given briefings. Rove has stonewalled the legitimate efforts of Congress to investigate.

Some of his key e-mail messages on the United States attorneys matter appear to have mysteriously disappeared, while others are being withheld with baseless claims of executive privilege. As for defying that Senate subpoena, some subjects might have been protected by privilege, but Rove's refusal to show up at all is outrageous - although totally in keeping with his and his boss' disdain for the separation of powers.

Rove failed his own party, as well as the American people, when he counseled Bush to turn every serious policy debate - Social Security, the war in Iraq, even terrorism - into one more political dogfight.

Today, despite Rove's claims of invincibility, both houses of Congress are back in Democratic hands, Bush's approval ratings are around 30 percent and many Republican presidential candidates are running as fast as they can away from the Bush legacy.

Rove can now contemplate that legacy from his home in Texas. But he should not get too settled in.

Congress needs to use all its power to bring Rove back to Washington to testify - in public and under oath - about how he used his office to put politics above the interests of the American people.

The Rove Legacy

The Rove Legacy
By Peter Baker
Copyright byu The Washington Post
Wednesday, August 15, 2007; Page A03

As he packs his desk just 15 steps from the Oval Office, Karl Rove says he will not join any 2008 presidential campaign. That's just as well because none of the Republican candidates presumably could afford the association even if they wanted his strategic smarts. Besides, none of them is running the campaign quite the way he would. The candidate who seems to be adopting his style and methods the most so far? Hillary Rodham Clinton.

At least that's what Nicolle Wallace thinks. The former Bush White House communications director, who worked closely with Rove, said that Clinton "has almost operationalized the whole idea of turning your weakness into strength, message discipline that is almost pathological -- she does not get off message for any reason -- and never skipping an opportunity to exploit her opponent's weaknesses."

Clinton's campaign manager, Patti Solis Doyle, seems to agree with that assessment, having effectively vowed to run her operation much as Rove did his two successful national campaigns. "She expresses admiration for the way George W. Bush's campaign team controlled its message, and, given her druthers, would run this race no differently," Michelle Cottle writes this month in New York magazine. " 'We are a very disciplined group, and I am very proud of it,' she says with a defiant edge."

Rove and the Clintons have circled each other warily these past eight years, exhibiting a mix of grudging respect and deep bitterness as the central, if competing, political strategists of their era. Rove singled out Hillary Clinton in interviews in the past few days, predicting she will win the Democratic nomination and be a tough opponent in the fall of 2008.

"Any rational observer would have to say that Hillary Clinton is a prohibitive favorite to win the nomination," he told reporters aboard Air Force One on Monday as he and President Bush headed to vacation in Texas. In his weekend interview with the Wall Street Journal's Paul A. Gigot, published Monday, Rove called her "a tough, tenacious, fatally flawed candidate."

The Clintons recognize the skill Rove has brought to politics and admire his craft, if not his ideology. Just days after the November 2004 election, Bill Clinton pulled Rove aside at the dedication of the William J. Clinton Presidential Library in Arkansas. "Hey, you did a marvelous job, it was just marvelous what you did," Clinton told Rove, according to the book "The Way to Win: Taking the White House in 2008," by John F. Harris and Mark Halperin. "I want to get you down to the library. I want to talk politics with you. You just did an incredible job, and I'd like to really get together with you and I think we could have a great conversation."

That's not to say Rove hasn't irritated the Clintons. Hillary Clinton uses him regularly as a foil in fundraising appeals and on the trail. And by last year, Bill Clinton was expressing exasperation rather than admiration. "I am sick of Karl Rove's [manure]," the former president exclaimed to New Yorker magazine's David Remnick. Even then, Remnick wrote, "there was a trace of admiration in the remark, a veteran pol's regard for the way his rival had packaged a radical brand of American conservatism as 'compassionate conservatism' and kept on pushing it long after its sell-by date had passed."

And why not? Harris and Halperin wrote last year that Rove and the Clintons shared some of the same understandings of how politics work, and the two authors even crafted a list they titled "What Hillary Clinton and Karl Rove Know About the Way to Win the White House in 2008." Clinton, they wrote, has "borrowed some strategies" from Rove for dealing with the news media, enemies and anticipated attacks. "Like Karl Rove," they wrote, "Hillary Clinton knows that playing offense is better than playing defense. . . . Hillary Clinton obviously dislikes Bush's policy goals, but she appreciates some of the methods he has used to achieve them."

So, would a Clinton victory next year be a repudiation of Karl Rove politics or the perpetuation of them?

Obama Says He Can Unite U.S. 'More Effectively' Than Clinton

Obama Says He Can Unite U.S. 'More Effectively' Than Clinton
By Dan Balz
Copyright by The Washington Post
Wednesday, August 15, 2007; Page A01

MANCHESTER, N.H., Aug. 14 -- Drawing a sharp contrast with Sen. Hillary Rodham Clinton, his main rival for the Democratic presidential nomination, Sen. Barack Obama said in an interview that he has the capacity she may lack to unify the country and move it out of what he called "ideological gridlock."

"I think it is fair to say that I believe I can bring the country together more effectively than she can," Obama said. "I will add, by the way, that is not entirely a problem of her making. Some of those battles in the '90s that she went through were the result of some pretty unfair attacks on the Clintons. But that history exists, and so, yes, I believe I can bring the country together in a way she cannot do. If I didn't believe that, I wouldn't be running."

Consistently trailing Clinton (N.Y.) in national polls, Obama (Ill.) has sought recently to draw more explicit contrasts between his views and what he has portrayed as the conventional thinking and behavior that have caused problems for the country, especially in the rest of the world. He did that again in the interview Monday afternoon, defending himself against criticism from Clinton and other Democratic rivals for a series of statements on foreign policy and arguing that Clinton's foreign policy views risk continued international perceptions of U.S. arrogance.

But he also made a broader argument that more than a change in parties is needed to fix the country's problems. At one point, Obama said he was not singling out Clinton in saying that he is better able to pull the nation together than any of his challengers, but over the course of the 40-minute interview he volunteered a number of contrasts between his views and Clinton's.

"Her argument is going to be that 'I'm the experienced Washington hand,' and my argument is going to be that we need to change the ways of Washington," he said. "That's going to be a good choice for the American people."

Saying that Bill Clinton's presidency was good for America, he added: "The question is, moving forward, looking towards the future, is it sufficient just to change political parties, or do we need a more fundamental change in how business is done in Washington . . .? Do we need to break out of some of the ideological battles that we fought during the '90s that were really extensions of battles we fought since the '60s?"

Obama never used the term "polarizing" to describe Clinton but made it clear he has studied polls that show that many people have an unfavorable opinion of her. "I don't think there is anybody in this race who's able to bring new people into the process and break out of some of the ideological gridlock that we have as effectively as I can," he said.

Asked for a reaction to Obama's comments, Clinton campaign spokesman Howard Wolfson said by e-mail: "It's unfortunate that Senator Obama is turning away from the politics of hope and employing attack politics instead. That's certainly not going to bring our party -- or our country -- together. It's Senator Clinton who has the strength and the experience to make the change this nation needs."

Obama said he is not concerned about Clinton's lead in national polls. He pointed to Iowa, New Hampshire and South Carolina, where he said local opinion surveys show a far more competitive contest.

Still, he conceded that because many Democrats do not know him as well as they do Clinton, she is drawing more support nationally. "We've got to really fill in the blanks with folks, and that's going to be the challenge," he said. "We're getting to the point now where it's a sprint. With all the calendars moved up, this is going to be a four-month race."

Clinton's rise in national polls has come after she delivered solid performances in candidate debates. Reviews for Obama have been far more mixed, and the senator from Illinois acknowledged that he has yet to master the requirements of multi-candidate forums with strict time limits for answers.

"There's no doubt that the 60-second-format debates, or even 90-second, are tough for me," he said, adding: "Some candidates have mastered that art more than I have."

Obama said he has become a target because Democratic rivals are determined to paint him as too inexperienced to serve as president and commander in chief. Sens. Joseph R. Biden Jr. (Del.) and Christopher J. Dodd (Conn.) have joined Clinton in questioning Obama's experience, but he focused on Clinton's criticism to explain why he is under attack.

"I think it's very clear what their political strategy is," he said of the Clinton campaign. "They want to project Senator Clinton as the seasoned, experienced hand. I don't fault them for that. That's the strategy they're pursuing, and my response is that what the American people need and what the Oval Office needs right now is good judgment. Experience can be a proxy for good judgment, but it isn't always."

He then repeated what he said during a debate in Chicago last week: "All the people who were on that stage in Chicago talking about their experience and criticizing me for the lack of it were the same people who went along and displayed incredibly poor judgment in going along with a war that I think has been a disaster."

Obama said he welcomed the debate that was touched off by comments he made about his willingness to meet with leaders of hostile nations without preconditions, pursuing al-Qaeda terrorists in Pakistan if there were actionable intelligence, and ruling out the use of nuclear weapons in such attacks.

"I'm happy to have that debate about what is the relevant experience you need to lead this country moving forward," he said. "It's not going to be a matter of mouthing the conventional wisdom for points on a résumé. It's really going to have to do with the capacity to inspire confidence in the American people to restore a sense of our values and our ideals."

Obama said he believes that he is on the more solid ground in the foreign policy debate underway and that the back-and-forth has helped make clear the distinctions between him and other candidates, particularly Clinton.

"My sense is, either people aren't paying careful enough attention to what I'm saying or they're simply trying to score political points," he said. "Or there is a substantive argument in which I'm very confident in my position and I think the American people share my position."

He then challenged Clinton for accusing him of being "irresponsible and frankly naive" after he said he was willing to meet with leaders of nations such as Iran, Syria, North Korea, Cuba and Venezuela without preconditions.

"Senator Clinton apparently disagrees with me on this issue of preconditions," he said. "I think she's wrong on that because if we continue to set preconditions for discussions that are hostile to us, I think that's what loses the PR battle worldwide because it implies the United States is the superior power and other states have to give in to our demands before we even deign to meet with them. And that reinforces the sense of the arrogance of U.S. power around the world, which is a source of great damage -- and makes us less safe."

Obama set forth two goals for the coming months. The first is to outline in greater detail the changes he would make in health care, education, energy policy and national security policy. The second, he said, is to show that his career proves he has the judgment and experience to be president. "If we do those two things, I think that this will be a very competitive election, and already in the early states it is," he said.

During the interview, Obama softened his attacks on Washington lobbyists. He and former senator John Edwards (N.C.) take no money from Washington lobbyists, while Clinton does, and both have sharply criticized the power of lobbyists in shaping policies harmful to average Americans.

"The insurance and drug companies can have a seat at the table in our health-care debate; they just can't buy all the chairs," he said. "My argument is not that they are the source of all evil. My argument is that things are out of balance in Washington and that their influence is disproportionate."

A crazy session in Springfield gets even zanier

A crazy session in Springfield gets even zanier
Copyright by The Chicago Sun-Times
August 15, 2007

"When the going gets weird, the weird turn pro."
-- Hunter S. Thompson

Did Hunter Thompson actually KNOW Rod Blagojevich?

The wild-eyed governor of this legislatively crazed state waited until 11:30 p.m. Monday, after late newscasts had signed off and the state's newspapers had been put to bed, to finally announce what he was going to do about the 10 percent pay raises for state officeholders including those legislators with whom he is so furious.

Thirty minutes before the bewitching hour when the bill would have become law without his signature, Blago decided to holster his veto revolver, reign in his "testicular virility" and reverse himself, allowing the pay raises he pledged to block to become law.

If this was his way of salvaging whatever goodwill he still has in his own clinically depressed Democratic Party, I shudder to see the reception waiting for him today when he arrives for Governor Day at the State Fair in Springfield.

Word is his minions were frantically trying to bus in troops to cheer the guv as he arrives, but recruiting reportedly had been a little rocky. Offering free "Blagojevich shirts" didn't seem to be helping. Especially now that the governor is promising to gut public works projects in legislators' districts to pay for a universal health insurance plan that they forcefully opposed.

I've never argued, and never will, that Blago alone wears the jacket for the disaster that is Springfield. But the governor, by doing goofy things like Monday's eleventh-hour decision-making, provoked everyone, including his nemesis, House Speaker Mike Madigan.

And then Tuesday, like a gunslinger at high noon, Blagojevich showed how he can both giveth and taketh away, giving the pay raise with one hand but then taking away by amendatory veto $200 million in treasured "member initiative" grants. That's the $1.3 million each senator and the $650,000 each representative gets to pay for projects -- some fat, but some definitely not -- like pools and parks and firetrucks that legislators annually bestow upon their districts.

Under the Blagojevich plan, that money plus another $300 million in unspecified cuts -- $500 million in all -- will be diverted from the budget so he can provide health insurance for more than half a million uninsured Illinoisans. He portrays it as mammograms over pork, but it honestly isn't that simple.

Senate President Emil Jones, standing with the governor, promises not to call for an override of Blagojevich's plan. Take that, Mike Madigan, they're saying. The whole thing caused a seismic rumble in Springfield on Tuesday, with aftershocks still being felt today. And the fight has only just begun.

Since the governor dropped this latest bomb but refused to answer questions, we lack a lot of important answers. Whose projects will be slashed? Whose won't? Can the governor constitutionally shift money vetoed out of one part of the budget into another? And are the health-care costs he lists realistic?

If it was vendetta time in the state Capitol before, it is now worse 10 times over.

Collegial compromise now might require nothing short of divine intervention. Then again, remember what Hunter Thompson warned about that:

"Call on God, but row away from the rocks."