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
Copyright BY THE ASSOCIATED PRESS
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
BY PAUL FOY
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.

Suicide Rate in Army at a 26-Year High

Suicide Rate in Army at a 26-Year High
By PAULINE JELINEK
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 clive.crook@gmail.com

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

+21.9%

Binghamton, New York

+19.8%

Salem, Oregon

+16.7%

Farmington, New Mexico

+14%

Allentown, Pennsylvania

+12.8%

House price declines in second quarter

Elmira, New York

-17.9%

Palm Bay, Florida

-15%

Sarasota, Florida

-11.3%

Davenport, Iowa

-11.3%

Daytona Beach, Florida

-8.3%

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

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
CAROL MARIN cmarin@suntimes.com
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."

Bush's cloak-and-stagger folly

Bush's cloak-and-stagger folly
ANDREW GREELEY agreel@aol.com
Copyright by The Chicago Sun-Times
August 15, 2007

The president's comment that the CIA was just guessing is spinless truth, for a change. In fact, the agency knew virtually nothing about what was happening inside of Iraq, and hence described the worst possible case, just as it was unaware that the Soviet Union was falling apart at the end of the Stalinist era. The best intelligence about the Soviets was contained in the books written at the time by the reporters from the Washington Post and the New York Times.
On the basis of these books, I predicted in the early '80s the Soviet Union would fall apart. The social scientist in me could not believe that the corrupt, incompetent society described by Robert Kaiser and Hedrick Smith could survive. In the meantime, the CIA was warning of the increasing power and threat of the Soviets. They could not have been more wrong.

They could have hired the reporters or just read their books. But that would not have helped because the White House in that era wouldn't have believed them.

Tim Weiner in his new history of the CIA, Legacy of Ashes, argues that the agency's mistakes on Iraq are like its other major failures -- they have never had good data on societies about which they are supposed to be advising the government. In recent years, they knew nothing about Iraq. They had to rely on Iraqi defectors (many produced by Vice President Dick Cheney), foreign intelligence units (French and English), and the occasional sociopath like the notorious "Curveball."

The CIA had no hard evidence about weapons of mass destruction. It did not report that uncertainty. But internal and external pressure (from the head of the CIA) forced them to selectively choose evidence. Thus the various CIA reports confirmed what the president and the vice president wanted to do -- protect the United States from terrorists by invading Iraq. It did not report that there wasn't much reason to believe that Iraq had the fearsome weapons. Similarly, when Colin Powell went to the U.N., his arguments, shaped by the CIA, were formed to provide a rationale for war.

Weiner contends that the CIA was not actually lying to the president, not actually telling him that he had a slam dunk. Alas, thousands of Americans and tens of thousands of Iraqis would die. The CIA is an agent of the American government. In the past it has been forced into projects by presidents and highly placed presidential advisers -- Robert Kennedy, Henry Kissinger, Oliver North. Presidents have used the CIA to try to kill many foreign leaders the presidents didn't like. Presidents generally do not want to be bothered by espionage that is hard to gather and by reports that are almost always hedged in uncertainties.

The structures of American government make it impossible for the CIA to flatly tell the president that he was wrong. The vice president had his own information that he thought was better than that of the CIA. No one, not even the hapless Powell, was in a position to say, "we don't have hard evidence to go to war." So now the president is spinning phony success on the road to phony victory. Dead humans have piled up by the thousands.

The nation needs to have a competent and independent intelligence agency, something like the Federal Reserve, which can protect itself from punishment for telling the truth, from telling the president that he is wrong. The Iraq war is the Bay of Pigs fiasco writ large.

Goldman poll hits 5-year low

Goldman poll hits 5-year low
By Lina Saigol in London
Copyright The Financial Times Limited 2007
Published: August 15 2007 03:00 | Last updated: August 15 2007 03:00


Confidence among some of the world's top business leaders has slumped to its lowest level since the third quarter of 2002, suffering from concerns about financial market volatility and mixed US economic data, according to an investment bank's survey.

The Goldman Sachs Confidence Index - which was conducted in the last week of July and the first week of August - is based on chief executives' assessments of business conditions for the coming quarter and regarded as a leading indicator of company sentiment.

The survey shows their outlook for the third quarter of the year has declined dramatically, after buoyant readings in the past few quarters.

The headline reading for the global business outlook for the third quarter stands at 33 - a steep fall from the reading of 57 for the second quarter. A score of 50 marks the dividing line between executives who think conditions are improving and those who feel they are worsening.

However, the collapse of confidence has not yet affected the willingness to do deals and several chief executives in several sectors see the credit crunch as a chance to outbid their private equity rivals as the squeeze forces them to the sidelines.

"There is an enormous amount of uncertainty about the outlook in the near-term, but if the credit shock hurts private equity, it may also provide an opportunity for corporates, especially as deal multiples come down," said Sandra Lawson, a global economist at Goldman Sachs.

This month, Imperial Tobaccooutbid CVC Capital Partners to buy Altadis, the Franco-Spanish tobacco company, after the private equity group was unable to finance its deal. In March, Schering Plough, the US pharmaceuticals group, beat private equity firms in the auction for Organon Biosciences, an Akzo Nobel-owned pharmaceuticals unit.

Tom Cooper, European head of mergers and acquisitions at UBS, said corporate buyers should be best placed to benefit from the correction. "There could be a window of opportunity for investment-grade buyers, in particular. Unlike private equity, strategic buyers can bridge funding gaps with their own paper," he said.

The confidence index also showed little change in the readings for capital spending on factories and equipment - the traditional engine of profit and economic growth.

Although the global reading has fallen from 68 in the second quarter to 57 in the third, US chief executives expected conditions to improve slightly.

US banks refuse to accept subprime collateral

US banks refuse to accept subprime collateral
By Deborah Brewster in New York
Copyright The Financial Times Limited 2007
Published: August 15 2007 03:00 | Last updated: August 15 2007 03:00


US banks caught in the credit market upheaval have started refusing to lend money against hedge funds' subprime credit portfolios.

Hedge funds said several banks in recent days had cut off lending to funds that use credit portfolios, including mortgages, collateralised debt obligations and subprime securities, as collateral. That leaves the highly leveraged funds heavily reliant on their prime brokers for borrowing.

The banks mentioned were Bank of America and Countrywide, although there were believed to be others. Bank of America declined to comment. Countrywide did not return calls.

Hedge fund managers nervous about the reliability of theirlending sources were likely to attempt to reduce their level of borrowings further, said one hedge fund manager not directly affected by the banks' actions.

Several hedge fund managers, who spoke to the Financial Times on condition of anonymity, said funds that were heavy investors in the credit markets and, therefore, often highlyleveraged, were finding they were no longer able to use theirportfolios as collateral to borrow.

One manager said: "My prime broker is my first source of borrowing but I used to get additional financing from other sources. I called my usual banks last week to ask for their terms and they told me there weren't any terms because they weren't lending against my credit portfolio any more. I'm not that happy. I need more than just one lender."

There is no evidence that prime brokers have reduced such lending to their own clients. Yet, prime brokers have recently lifted their requirements for margin lending, contributing to forced selling as funds have to meet margin calls.

Steve Persky, a managing partner at Dalton Investments, said: "The type of investors who are exposed are highly leveraged with CDOs and asset-backed securities. It's a game of musical chairs . . . people have too much debt and are trying to offload it."

"If the prime brokers began to pull back, that would have a huge effect on the hedge fund business," said one hedge fund manager.

Democrats vow pursuit of Rove over scandals

Democrats vow pursuit of Rove over scandals
By Andrew Ward andStephanie Kirchgaessnerin Washington
Copyright The Financial Times Limited 2007
Published: August 15 2007 03:00 | Last updated: August 15 2007 03:00


As Karl Rove prepares to leave the White House, the Democrats have vowed to continue investigating his role in a range of scandals and controversies dogging the Bush administration.

Democratic leaders in the US Congress want to question him about the sacking of several federal prosecutors last year, amid allegations that the White House ordered the purge for political reasons.

The case is the most prominent in a series of inquiries into alleged abuse of power by the administration, with the White House accused of politicising large parts of the federal government.

As chief political adviser to President George W. Bush and bête noire of the Democratic party, Mr Rove had become the prime target of the investigations.

His resignation on Monday was viewed by some as an attempt to ease pressure on the administration by re-moving a key target in the White House. But Mr Rove said his departure was un-likely to end the Democrats' pursuit of his political scalp.

"I'm realistic enough to understand that the subpoenas are going to keep flying my way," he said. "I'm Moby-Dick and we've got three or four members of Congress who are trying to cast themselves in the part of Captain Ahab."

Both the House and Senate judiciary committees declared they would press ahead with their inquiries.

"The need for Karl Rove to explain his role in the firing of the US attorneys does not diminish when he leaves the White House,'' said John Conyers, chairman of the House committee.

Mr Rove was issued with a subpoena last month requiring him to testify to Congress about the firings. But the White House has refused to make him or other senior officials available for testimony, arguing that its internal deliberations are protected by executive privilege.

Mr Rove said he would re-main protected by executive privilege after leaving his post at the end of the month.

Democrats are trying to prove that the White House targeted federal prosecutors deemed unsympathetic to Republican interests, to make room for what one Justice Department e-mail described as "loyal Bushies".

Among the candidates nominated to fill the vacancies was Timothy Griffin, a former aide to Mr Rove and a legal adviser to the Bush campaign during the 2000 presidential election recount.

Mr Rove is the third White House official embroiled in the controversy to have quit this year, following Harriet Miers, the former legal counsel, and Sara Taylor, former political director.

Other cases involving Mr Rove include an inquiry by the House oversight committee into whether White House staff used Republican party e-mail accounts to evade rules on presidential record-keeping. He is also at the centre of an investigation by the same committee into whether the White House broke the law by giving political briefings to federal officials. In addition to the congressional inquiry, the briefings are also under scrutiny by the Office of Special Counsel, a federal investigative body.

Mr Rove denied that his resignation was connected to the inquiries, insisting that he had been considering his future since last summer.

"Anybody who suggests the investigations had something to do with getting me out is putting Congress in the position of being the rooster that believes that crowing loudly brings the sun to come up," he said.

ECB chief fails to reassure markets

ECB chief fails to reassure markets
By Ralph Atkins in Frankfurt, Michael Mackenzie in New York and Paul J Davies in London
Copyright The Financial Times Limited 2007
Published: August 14 2007 08:36 | Last updated: August 15 2007 00:29


Renewed turmoil in global money markets sent stock prices falling around the world on Tuesday as traders ignored a declaration by Jean-Claude Trichet, European Central Bank president, that conditions were returning to normal.

Traders were particularly alarmed by signs that the market for asset-backed commercial paper – which provides $1,500bn in short-term borrowings for big companies – was drying up.

The anxieties were exacerbated by dismal pronouncements from a variety of financial companies. UBS, the giant Swiss bank, issued a profit warning. Sentinel, a little-known US money manager with $1.5bn in assets, told the Commodity Futures Trading Commission it would halt redemptions. Thornburg Mortgage, a US home lender that focuses on wealthy home buyers, delayed payment of its dividend, triggering a 47 per cent plunge in its share price.

Drew Matus, economist at Lehman Brothers, said: “We are in a minefield. No one knows where the mines are planted and we are just trying to stumble through it.”

In an attempt to calm investors, Mr Trichet, speaking before US markets opened, said conditions “have gone progressively back to normal”. The bank is expected to press ahead with another increase in its main interest rate next month. The ECB and central banks pumped funds into the interbank lending markets at the end of last week after investors deserted short-term debt markets, making it much harder to raise short-term funds. The ECB on Tuesday made its fourth intervention since last Thursday. The €7.7bn ($10.4bn) injected was down from €47.67bn on Monday and €95bn put in on Thursday.

The Bank of Japan even attempted to reduce liquidity on Tuesday, draining Y1,600bn ($13.6bn) from the banking system, equivalent to the amount it had poured in over two days beginning on Friday.

In the US, the overnight money market seemed liquid. The Fed Funds rate fell below 4 per cent at one point, significantly below the Federal Reserve’s target of 5.25 per cent, and well below the benchmark three-month London interbank (Libor) rate of 5.53 per cent. The two rates are normally much closer.

Stocks gained in Asia and early in the session in Europe, but the fresh wave of liquidity concerns triggered a new round of selling once Wall Street opened.

By the close in New York, the S&P 500 index was down 1.8 per cent. The FTSE Eurofirst closed down 1.3 per cent and the FTSE 100 was 1.2 per cent lower. Tokyo’s Nikkei 225 Average ended 0.3 per cent higher.

The concerns about asset-backed commercial paper were triggered by news that Coventree, a listed Canadian investment manager that is a heavy user of such funding, was forced to draw on C$700m (US$656m) worth of liquidity facilities from banks.

Additional reporting by Chris Flood in London and John Authers in New York

Financial Times Editorial Comment: Chinese dragon feels the heat

Financial Times Editorial Comment: Chinese dragon feels the heat
Copyright The Financial Times Limited 2007
Published: August 14 2007 17:04 | Last updated: August 14 2007 17:04


Does the Chinese dragon need to take a cold bath? Recent data releases suggest that the risk of overheating is there. China’s inflation rate reached a 10-year high of 5.6 per cent in July, prompting hawkish noises from the central bank. A growing trade surplus also masked strong growth in imports in July, up 27 per cent year on year. Yet the real risks spring from the fact that the Chinese economy looks hopelessly unbalanced.

The inflation spike itself looks manageable. Blame an epidemic in the pig population, and so high pork prices, for some of it. Indeed, leaving aside the admittedly important food sector, inflation is less than 1 per cent a year. The import surge, too, can be partly blamed on high oil prices; oil imports were up 39 per cent year on year in July. It is part of the Chinese problem: so large is the economy these days that everything it imports becomes more expensive while everything it exports becomes cheaper.

As the Chinese economy becomes ever more market-oriented, the old command-and-control tools wielded by the authorities become ever less effective. Interest rates cannot rise without sucking yet more capital into a country drowning in it, while quantitative controls on bank lending have led to all the clumsy distortions one would expect.

Cheap capital, subsidised energy, lax bank lending to state enterprises and – thanks to the largesse of eager local authorities – free land, have all played their part in skewing China’s economy towards capital-intensive industry. This is perverse. China’s prime policy anxiety is jobs for the rural masses and the growing urban underclass, but capital-intensive industries create few such jobs. They also consume scarce natural resources.

All the while, Chinese households are earning derisory income on their savings, and in rural, inland areas poverty remains widespread. The Asian Development Bank was right when it recently fretted about China’s income distribution, the most unequal in Asia alongside Nepal’s.

The policy prescriptions are well known: a more realistic price for energy and for capital; reform of the state enterprise sector and restructuring of the banks; eventual liberalisation of the capital account. Some sort of social safety net is going to be essential, too, if any of that is to work. Simply to read the list, though, is to realise how complex and interconnected China’s policy challenges have become. China’s growth has been, arguably, the biggest economic success story of all time. But the next chapters may contain a twist or two.

China’s toymakers press for tighter controls

China’s toymakers press for tighter controls
By Robin Kwong and Tom Mitchell in Hong Kong
Copyright The Financial Times Limited 2007
Published: August 15 2007 14:15 | Last updated: August 15 2007 14:15


China’s toy industry group has urged manufacturers to sign a public pledge to improve product safety after Mattel issued its second worldwide recall of Chinese-made toys that might contain lead paint.

The recalls by the world’s largest toy company are adding to trade tensions be tween China and the US and hurting the reputation of a country that produces 80 per cent of the world’s toys. But there are signs both government and industry are responding to the pressure.

China’s top government quality watchdog on Wednesday said police had traced the cause of Mattel’s first recall to a batch of leaded yellow pigment sold by a supplier with fake certification that it was lead-free. This caused the paint company to provide contaminated paint to Lee Der Industrial, the manufacturer identified by Mattel during its recall of Fisher Price toys two weeks ago.

Local media in China’s south-eastern Guangdong province on Wednesday reported that police are seeking seven executives from the pigment company after they went on the run. Guangdong police declined to comment.

The call for manufacturers to sign a public pledge came in a bid to restore consumer confidence by the China Chamber of Commerce which encompasses toy companies. The chamber urged manufacturers to “exercise self-discipline” by not accepting overseas orders that pay little and have unclear quality demands. They should also employ full-time quality inspection staff and allow buyers to inspect their plants.

Recent scandals were a result of “the irresponsible behaviour of some individual companies”, the chamber said in its statement, which also warned that “some countries may take advantage of this issue to raise trade barriers”.

Many of China’s toy factories are concentrated in Guangdong province and owned by Hong Kong entrepreneurs. As a result the city’s industry groups have begun scrambling to contain the reputational fallout.

“These incidents have involved major [US] importers and caused significant damage to the image and reputation of the Hong Kong toy industry,” the Federation of Hong Kong Industries said in a statement on Wednesday. One Hong Kong-based toy executive, who asked not to be named, said: “Everyone is very scared and no one is taking any chances. “We are all very worried about quality now.”

Suicide bombers kill 200 in northern Iraq

Suicide bombers kill 200 in northern Iraq
By Andrew England in Cairo and agencies
Copyright The Financial Times Limited 2007
Published: August 14 2007 22:34 | Last updated: August 15 2007 12:08


About 200 people were killed on Tuesday when at least three suicide bombers struck in northern Iraq, according to Iraqi officials.

The attackers targeted members of the ancient Yazidi Kurdish sect in residential areas near the northern town of Sinjar near the Syrian border. Some reports suggested they were driving fuel tankers.

More than 300 people were wounded, according to some, in what would be one of the deadliest attacks since the US invasion of Iraq in 2003.

Abdul-Rahman al-Shimiri, a government official in the area, told AP that at least 30 homes had been destroyed.

The US military said it was too early to say who was responsible, but the scale and apparently coordinated nature meant the attack carried the hallmarks of Sunni Islamist al Qaeda. The United States has condemned the attack as barbaric.

The bombings capped a bloody day in Iraq in which the US reported nine deaths, including five service members killed in a helicopter crash west of Baghdad, and a suicide truck bombing north of the capital killed at least 10 and destroyed a strategic bridge linking Baghdad with Mosul.

The violence came as the Iraqi government struggles to resolve a political crisis and shortly after the US military announced it had, with Iraqi forces, mounted a fresh operation, involving 16,000 troops, against al-Qaeda suspects in Diyala province, north of Baghdad.

There have been warnings that al-Qaeda would increase attacks before General David Petraeus, the US commander in Iraq, and Ryan Crocker, Washington’s envoy to Baghdad, present a report to Congress next month on the success of President George W. Bush’s Iraq strategy.

Iraqi politicians have been holding meetings to try to find a way out of the political crisis sparked when the main Sunni Arab political alliance, the Iraqi Consensus Front, said it was pulling out of the Shia-led government at the start of the month, leading to the resignation of six cabinet members. The next week, several ministers loyal to the Iraqi National List of Iyad Allawi, the former prime minister, said they would boycott cabinet meetings. Both groups said their decisions were caused by the failure of Nouri al-Maliki, the Shia prime minister, to meet their demands.

Hoshyar Zebari, foreign minister, said the talks aimed to re-engage the Sunni Arab parties and try to reach a consensus on key legislation. “The idea is to really try to work together to overcome the government crisis, make it functional.”

Sectarian divisions have plagued the government and the crisis will make it difficult for parliament to pass a series of laws that Washington hopes will smooth sectarian tensions and coax Sunni insurgents to join the political process.

Puerto Rico's Economic Slump Weighs Hard on Consumers Cost of Living Surges As Inflation Helps Tip Island Into Recession

Puerto Rico's Economic Slump Weighs Hard on Consumers Cost of Living Surges As Inflation Helps Tip Island Into Recession
By CONOR DOUGHERTY
Copyright by THE WALL STREET JOURNAL
August 14, 2007; Page A6


SAN JUAN, Puerto Rico -- With her living costs rising, Teresa Cruz has stopped shopping at her favorite stores. Instead of buying clothing at Marshalls, a popular merchant known for selling name-brand clothing at a discount, she now looks for bargains at local thrift shops.

She is also buying less-costly packaged foods instead of fresh fruits and vegetables. "I have to use my money only to pay for necessary [items]," says the 34-year-old telemarketing supervisor, who says it costs $50 to fill up her Kia Sedona with gasoline, up from $30 a few months ago.

The rising cost of food and energy has been a nagging problem for many Americans. Yet even as oil neared $80 a barrel before its recent slide and the cost of milk has surged to a record $3.80 a gallon in the past year, overall inflation in most of the U.S. Has remained subdued. In June, the consumer-price index was up 2.7% from a year ago.

But here in Puerto Rico, the consumer-price index, which includes food and fuel prices, was up 15% in 2006, according to the Puerto Rico Department of Labor and Human Resources. Water and sewer rates have more than doubled over the past two years, and electric bills jumped about 40% last year, according to Standard & Poor's. Economists and the Puerto Rican government say the Labor Department figures overstate inflation by a large margin (the government says it is in the process of revamping its consumer-price index) but they generally agree prices are rising faster here than in the rest of the U.S.

The increases are more painful to Puerto Rican consumers, whose $17,000 median household income is less than half that of U.S. Residents. Those problems, which come as the island's manufacturing segment is hurting and the government is struggling with deficits, have helped push an already troubled economy into recession.

"You hate to use the term 'the perfect storm,' but whenever you get all these different things coming together at the same time there's no other way to describe it," says Miguel Soto-Class, executive director of the Center for the New Economy, a Puerto Rican think tank.

Puerto Rico's gross national product is forecast for a 1.4% decline in the fiscal year ended in June. The overall U.S. Economy grew 2.9% last year, as measured by changes in gross domestic product, and expanded at an annual rate of 3.4% in the second quarter.

Inflation is higher in Puerto Rico partly because of its geography. Located 1,000 miles southeast of Miami in the Caribbean Sea, most of what the island consumes is transported by plane or by boat, adding to the cost. And while Puerto Rico has built natural-gas and coal-fired plants to reduce its dependence on oil, about 67% of its electricity comes from petroleum, compared with 3% for the U.S.

The price run-up comes at the worst possible time. A self-governing commonwealth of the U.S., Puerto Rico's economy is essentially built around two sectors: the government and manufacturing, which combined account for 39% of the territory's jobs and 52% of its GDP. But in recent years, manufacturing has been facing tough competition from international competitors while the government is cutting costs and reducing payrolls as it struggles with debt.

Puerto Rico's manufacturing sector, much of it pharmaceutical makers, was built up with the aid of low taxes and inexpensive labor. But those advantages have recently eroded: Two years ago, the U.S. Completed a decade-long phase-out of a section of the tax code that allowed many U.S. Companies to operate in Puerto Rico without paying federal taxes on profits generated there.

Meanwhile, some lower-cost manufacturers have moved to less costly destinations such as South America and Eastern Europe. These and other challenges caused Puerto Rico's manufacturing sector to lose about 8,400 jobs last year, a 7.3% decline, according to Moody's Economy.Com. The losses were heavier in lower-skill sectors such as textiles, which saw a 16% contraction; chemical and pharmaceutical manufacturing dipped 7%.

Amid these cutbacks, employment has declined and consumer spending has fallen. This has reduced government tax revenue, creating a nasty cycle where the government has trimmed costs but also raised taxes. That has further increased prices, hurting consumers even more. "It was almost a self-inflicted recession," says Horacio Aldrete-Sanchez, director of public-finance ratings for Standard & Poor's Ratings Services, the credit-rating service.

The Commonwealth had a budget deficit of $605 million for fiscal-year 2007 and is projecting a deficit of $260 million next year. To address the gap, the government has cut jobs and introduced its first sales tax, at 5.5%. The average electric bill increased to about $81 last year, from $58 the year earlier, a 40% increase. The government is also cutting costs, dropping workers and delayed almost $100 million in payments to contractors and suppliers.

Security guard Luis Rivera says the financial troubles cost him his job. Mr. Rivera says he was one of many employees let go by Island Security, which had a contract with a San Juan hospital. After he left, city police officers temporarily took over security, but were later replaced by another private company. Mr. Rivera has since gotten a job with a new security company. "The economy gets worse everyday because the government fails too much," he says.

High costs are also tough on business owners such as Tony Larrea. The president of fast-food operator South American Restaurants Corp., Mr. Larrea says the water bill at his restaurants increased 70% over the past year and he now pays an average of 18 cents a kilowatt hour for electricity -- about double the rate in the U.S. "We pay more in electricity than we pay in rent," he says.

With less to spend, consumers have drastically cut back on their car purchases. Car dealers in Puerto Rico sold 117,838 cars last year, a 16% decrease from 2005. Sales are down another 17% this year through June. Carlos Lopez-Lay, chief executive of Bella Group, a Honda distributor in San Juan, says one of the hardest things for dealers to accept is that there just aren't as many customers anymore.

"The market has been reduced," he says. Between layoffs and attrition, Mr. Lopez-Lay has reduced his work force by 42 people, or about 8% of his employees, most in administrative and office jobs.

Denied Medication, AIDS Patient Dies in Custody; Victor Arellano's Fellow Detainees Staged a Protest Over His Treatment

Denied Medication, AIDS Patient Dies in Custody; Victor Arellano's Fellow Detainees Staged a Protest Over His Treatment
By Sandra Hernandez
© 2007 Daily Journal Corporation. All rights reserved.


LOS ANGELES, Aug. 9, 2007 - The handful of prescription drugs Victor Arellano took each morning kept him alive.
But Arellano, in the throes of full-blown AIDS, was denied that medicine when immigration officials locked him up at the San Pedro detention center, other detainees said.

Two months later Arellano, 23, died in custody - too weak to walk to the bathroom alone, but shackled to a hospital bed.
Arellano's family and his fellow detainees said the detention center's staff denied him his critical medication despite repeated requests.

"He called me two weeks before he died and told me he was afraid," said Arellano's mother, Olga. "He kept telling me how frustrated he felt because he wanted to see a doctor. He asked for his medicine but no one listened to him."
Victor came to the United States from Mexico as a child. A transgender person, he was known as Victoria Arellano to his fellow detainees, who routinely referred to him as her.

"She was so sick that if you tried to move her she would scream," said Walter Ayala, another detainee, recalling her final two weeks.

Arellano spent most days in a bunk bed, complaining of debilitating headaches, back pain, nausea and stomach cramps, Ayala said.

"This is the most extreme case I've encountered in my research," said Megan McLemore of Human Rights Watch in New York. She is preparing a report, due out this fall, on HIV/AIDS conditions in U.S. immigration detention centers.

"We have received a lot of complaints from detainees and their advocates," McLemore said. "The complaints are about the delays in getting medication and continuity issues where people get moved around."

Three years ago, doctors at a Los Angeles free clinic said Arellano did not require skilled nursing care and was asymptomatic.

She was prescribed daily doses of bactrim, a prophylactic antibiotic given to HIV patients to prevent pulmonary infections from developing into life-threatening pneumonia. Arellano was later switched to dapasone, another antibiotic.

Arellano was still taking dapasone when she was sent to the San Pedro detention center in May. Medical experts said taking HIV patients off dapasone could produce deadly results.

"The consequences of taking someone off that medication is that within a few weeks a patient may unfortunately develop pneumonia and then not respond to treatment," said Homayoon Khanlou, chief of medicine for AIDS Healthcare Foundation, the largest AIDS clinic in the U.S., based in Los Angeles.

Arellano's mother said doctors at the San Pedro hospital said her son's body was wracked by meningitis and pneumonia.
"We spend millions to ensure every single detainee is screened and has access to medical care," said Marc Raimondi, a spokesman for Immigration and Customs Enforcement, the agency that oversees detention centers.

"A significant percentage of those that come into our care have pre-existing conditions that we provide care for," said Raimondi, who said he could not comment on Arellano's case. "A lot of times our medical care is the first time they receive treatment for illnesses they didn't even know they had."

An estimated 29,000 foreigners are held in U.S. detention centers, a loose network of 400 jails, private facilities and federal detention centers.

The medical system designed to help detainees was unable to keep Arellano alive.

Arellano's final days were spent in a dormitory-style cell built to hold 50 men but often houses as many as 80.

Arellano's care fell to fellow detainees, who soaked their bath towels in water to cool her fever and used a cardboard box as a makeshift trash can to gather her vomit.

"We all asked the guards for help, to take Victoria to the infirmary but no one did anything," said Oscar Santander, a fellow detainee.

"The last week was the worst," Santander said. "She couldn't stand so we took turns taking her to the bathroom. She was vomiting and had terrible diarrhea."

Arellano was taken to the infirmary and on July 13 given drugs to treat nausea and amoxicillin, an antibiotic, according to a prescription signed by Jeff Brinkley, a senior nurse practitioner assigned to the San Pedro detention center.

Medical experts said amoxicillin is not used to treat AIDS-related infections.

"It would not be my drug of choice because it would not cover the problems or infections an HIV person would have, such as a lung infection or meningitis," said the AIDS Healthcare Foundation's Khanlou.

Arellano couldn't keep the drugs down and began vomiting blood, Santander said.

By nightfall, Arellano looked so pale and weak that 80 detainees staged a protest, ignoring an order to get in line for the nightly head count.

The men began chanting "hospital," said Abel Gutierrez, a Mexican detainee.

"She was so sick and they wouldn't do anything," Gutierrez said.

Arellano was taken by ambulance to a San Pedro hospital. Less than 24 hours later, she was back in the detention center, crippled by intense vomiting and bouts of diarrhea.

Arellano was again rushed to the hospital.

This time, Arellano was taken to Little Company of Mary Hospital's intensive care unit, where she died July 20, shackled to a bed with two immigration agents standing guard at the hospital room door.

Raimondi said 62 immigrants, including Arellano, have died in federal immigration custody since 2004, three at the San Pedro center.

In 2000, federal immigration officials adopted medical standards. However, those standards are not legally enforceable, unlike those for inmates in state or federal prisons.

"The fact is there is no legal recourse for immigrants in detention, and that is a major systemic problem," McLemore said. "Both the federal and state prison system have enforceable detention standards, but immigration has nothing like that."
The result, immigration advocates say, are deaths like that of a Barbadian woman who died in 2005 while detained in Virginia after she was denied her medication for high blood pressure.

That same year, Haitian writer Edwidge Danticat's uncle died in a South Florida detention center after he was stopped at the Miami International Airport, where his medications for hypertension and an inflamed prostate were seized.

Immigration officials have denied any wrongdoing and said the deaths were caused by pre-existing conditions.
Legal advocates, however, said medical problems at detention centers are widespread.

"The No. 1 complaint I hear about is the lack of medical care for immigrant detainees," said Tom Jawetz, a staff attorney with the American Civil Liberties Union's national prison project in Washington, D.C. "And typically the complaints come from detainees or lawyers around the country."

In June, the ACLU's national prison project filed a federal lawsuit over medical conditions at the San Diego Correction Facility, a privately run detention center.

The lawsuit came after a detainee died and several others immigrants suffered life-threatening illnesses.

Francisco Castaneda, a Salvadoran immigrant who was held at San Diego and San Pedro, repeatedly asked to be taken to the infirmary when he was at San Pedro last year, according to his lawyer, Conal Doyle.

Castaneda would show guards his bloodstained underwear, hoping to persuade them to let him see a nurse or doctor, Doyle said.

In December, the ACLU's Jawetz sent immigration officials a letter asking San Pedro officials to provide medical treatment, but nothing happened.

Castaneda's health grew worse after a small lesion on his groin was left untreated for 10 months while he was in detention, Doyle said. Castaneda has since been released. His penis was amputated, and he is now battling penile and lymph node cancer, Doyle said.

The ACLU's lawsuit comes too late for Arellano's family, who struggle to understand an unexpected death and the federal government's actions during those final days.

Sitting in her Ventura County apartment, Olga looks at the bags of medication her son took and cries.
She said her greatest comfort has come from Arellano's fellow detainees, who last week pooled their own money and sent the family $245.

"I can only find the strength to talk about this because I want people to know what is going on inside that place," Olga said. "I don't want another family to have to live through this nightmare."

Final reckoning only days away for Musharraf

Final reckoning only days away for Musharraf
By Jo Johnson
Copyright The Financial Times Limited 2007
Published: August 14 2007 03:00 | Last updated: August 14 2007 03:00


Confronted by the gravest crisis of his eight-year rule, Pakistan's President Pervez Musharraf faces an ever-shrinking menu of options. In recent weeks he has spent much of his time shut away in his military camp in Rawalpindi, surrounded by self-interested advisers, increasingly intolerant of criticism and displaying signs, diplomats say, of growing insecurity.

But as the general toys with ideas such as imposing a state of emergency that would suspend elections and extend his rule, the reality is that he has just days left to find a way out of his labyrinth before a constitutional crisis paralyses Pakistan.

If Gen Musharraf proceeds with his plan to seek a new mandate from the existing state and national legislatures - themselves the product of rigged 2002 elections - he is likely to find his ability to govern severely impaired. Challenges to his legitimacy are likely to hit him on two fronts: in the courts, from a judiciary emboldened by the reinstatement of Iftikhar Chaudhry, chief justice; and on the streets, from a newly courageous civil society.

Presidential elections must be held between September 15 and October 15. The constitution forbids a general from holding political office while still serving and also for up to two years after retirement. In December 2003, Gen Musharraf finessed matters by persuading a coalition of Islamic parties to back an amendment exempting him from the restriction, initially for one year. When the December 2004 deadline expired, the exemption was extended until the end of 2007 by a rubber stamp parliament endorsed by the Supreme Court. Today it is a different story.

"This is going to be a battle," says Shafqat Mahmood, a political analyst. "Back then, the Supreme Court was not free. . . If the court now decides to disqualify him from contesting, it could lead to full martial law."

Gen Musharraf acknowledged at the weekend that he had last week come close to declaring a state of emergency, only relenting after a 2am telephone call from Condoleezza Rice, US secretary of state.

Washington is keen for the isolated general to broaden his political base through an alliance with Benazir Bhutto, leader of the Pakistan People's party, and to reduce his dependency on religious parties.

Relations between the government and those religious parties were disrupted by last month's raid on Islamabad's red mosque, which has prompted outrage among Islamists and a surge in suicide attacks.

"With all the suicide attacks, the sense of crisis is very acute now," says Hasan- Askari Rizvi, a Lahore-based security analyst. "[The Islamic parties] want to show that [Gen Musharraf] can no longer count on them as intermediaries with the jihadis or govern effectively without them."

Co-opting Ms Bhutto into government increasingly looks like Gen Musharraf's best chance of securing his political future. The two met in secret in Abu Dhabi late last month, but have yet to agree terms of cohabitation. Under one scenario, Gen Musharraf, in return for the PPP's support in the presidential election, would seek election as a civilian, drop corruption charges against Ms Bhutto, change the law that prevents her from seeking a third term as prime minister and allow her back to campaign for the parliamentary elections.

If Gen Musharraf refuses to put on civvies, a deal will be more complicated. Ms Bhutto is under pressure to insist he step out of uniform, but many believe she might soften.

All bets would be off under an emergency. It still cannot be ruled out: the pro-Musharraf ruling party, the Pakistan Muslim League (Q), a rag-bag of deserters from the PPP and Nawaz Sharif's Pakistan Muslim League (N), has much to lose from a return of the exiled former prime ministers.

An emergency that would derail a deal with Ms Bhutto, head off a challenge to the PML(Q) from Mr Sharif and postpone parliamentary elections for a year therefore has its appeal. It could also appeal to Gen Musharraf's military instincts.

"He's really not a great strategist," says a diplomat in Islamabad. "He's a commando who, when he's in a fix, likes to blast his way out."

The coming weeks will present a new set of challenges, starting with the Supreme Court's imminent hearing of a petition demanding that Mr Sharif, the target of Gen Musharraf's 1999 coup, be immediately permitted the right to return. If that petition is accepted, the temptation to impose an emergency will undoubtedly return.

Ruling party backs president despite doubts over his talks with Bhutto

By Farhan Bokhari in Islamabad

Pakistan's president, General Pervez Musharraf, faces growing calls from within his ruling coalition to reconsider links with Benazir Bhutto, the exiled former premier, as he seeks to consolidate support for his re-election as early as next month.

News that Gen Musharraf met Ms Bhutto in Abu Dhabi last month triggered anxiety among members of the ruling PML(Q) party, who perceived a potential erosion of their power. But its leaders have also been at pains to reinforce their support for a president who has never looked weaker in his eight-year rule.

Chaudhry Shujaat Hussain, the PML(Q) president, is believed to have reassured Gen Musharraf of the party's complete backing.

The president also has the support of the MQM, a big regional party of Urdu-speaking immigrants from India, dominating Karachi, the southern port city.

Altaf Hussain, the MQM's leader, lives in exile in London. But he has carefully built up a party structure that has effectively blocked the rise of its opponents in Pakistan's main commercial centre. At the last count, the 342-member lower house of parliament in Islamabad had 183 pro-government deputies, while the 100-member Senate was estimated to have up to60 pro-government members.

The president's electoral college also consists of the legislatures of the four provinces - Punjab, Sindh, Baluchistan and North West Frontier Province - which are stacked heavily in Gen Musharraf's favour.

Fresh blow to lame-duck Bush

Fresh blow to lame-duck Bush
By Andrew Ward in Washington
Copyright The Financial Times Limited 2007
Published: August 14 2007 03:00 | Last updated: August 14 2007 03:00


Karl Rove was a founding member of the close-knit group of Texan political operatives who helped propel George W. Bush first to the state governorship and then to the White House.

Yesterday, he became the latest of the so-called "Texas Mafia" to leave the Bush administration, after more than six years as one of the most powerful and polar-ising figures in US politics.

Mr Rove's departure at the end of this month completes a radical transformation of the White House staff since Andrew Card was replaced by Josh Bolten as chief of staff last year.

He is the third long-serving Texan adviser to quit the administration since January, when Harriet Miers stepped down as Mr Bush's legal counsel.

Dan Bartlett, who rivalled Mr Rove as Mr Bush's closest and most trusted aide, resigned as White House counsellor in June. Another senior departure came last month when Rob Portman, one of Mr Bush's leading economic advisers, stepped down as budget director.

Political commentators said the exodus was not un-usual for an administration nearing its seventh year. "They have stayed together for longer than most administrations," said Whit Ayres, a Republican strategist.

But the break-up of the original Bush team symbolises the sense of disintegration surrounding his presidency in recent months.

The Democratic takeover of Congress in the mid-term elections, combined with the growing unpopularity of the Iraq war, has turned Mr Bush - who has 17 months of his term remaining - into a lame-duck president.

John Fortier, a research fellow at the American Enterprise Institute, says the Republican defeat last year robbed Mr Rove of his primary role in the administration. "His job was to work with the Republican Congress in pushing forward the Bush agenda. But since the mid-term election, his role has been limited to keeping enough Republicans in line to block Democratic proposals," he said. "Rove's ambitions have always been bigger than that."

Analysts said Mr Rove's departure would increase the importance of Mr Bolten and Ed Gillespie, the veteran strategist and lobbyist who replaced Mr Bartlett as White House counsellor.

"Ed Gillespie is a very fine political mind who is likely to play an enhanced role in White House deliberations," said Mr Ayres. "But there's no way to replace Karl Rove, because his breadth of political and policy experience and his relationship with the president are unmatched."

Mr Rove said he would leave next month for a duck-hunting trip in Texas. He wanted to write a book on the Bush presidency - with the president's approval.

Standing next to Mr Bush yesterday, his voice quivering with emotion, he said he had been weighing his fu-ture for a year. "It's not been an easy decision," he said. "It always seemed there was a better time to leave somewhere out there in the future. But now is the time."

Goldman in $3bn bailout of fund

Goldman in $3bn bailout of fund
By James Mackintosh
Copyright The Financial Times Limited 2007
Published: August 14 2007 03:00 | Last updated: August 14 2007 03:00


Goldman Sachs is to inject $2bn (£993m) of its own money to bail out its Global Equity Opportunities hedge fund in an embarrassing admission that its highly regarded computerised funds malfunctioned last week.

The investment bank has raised a further $1bn from outside investors to support the $3.6bn GEO fund, which lost about $1.5bn when computer models failed to predict market turbulence.

The new investors include Hank Greenberg, former chairman of American International Group, hedge fund Perry Capital and Eli Broad, the US billionaire.

Goldman, the second-largest hedge fund manager, said its computer-driven, or quantitative, funds had been hit by unpredictable price movements as rivals with similar strategies dumped shares to cut their borrowing.

But it said it now saw opportunities in markets and believed most of the reduction in leverage by quantitative hedge funds was complete.

David Viniar, chief financial officer at Goldman, said valuations had got "way out of whack", and denied the bank was rescuing the fund.

"Given the dislocation in the markets we believe this is a good investment opportunity for us and the other investors we have brought in," he said.

The problems at the GEO fund reflect wider difficulties for computer-driven quantitative hedge funds, known as equity market neutral or statistical arbitrage funds, as stock markets oscillated wildly in the past two weeks.

"It has been a great time touse your mind rather than a machine," said a senior executive at one big fund of hedge funds.

Many of the biggest hedge funds have suffered as theircomputer models failed to respond correctly to the swinging markets.

Renaissance Technologies, one of the most respected managers, lost 8.7 per cent in August up to Thursday in its Institutional Equities Fund - before bouncing back on Friday to end the week down 4.9 per cent for the month.

Other big-name funds hit included some run by AQR Capital, Barclays Global Investors, Highbridge Capital Management, controlled by JPMorgan, and DE Shaw, in which Lehman Brothers has a 20 per cent stake, investors said.

But several fund managers said the entire sector had recovered in the past two days, making up a large chunk of their losses.

Goldman's two other big quantitative hedge funds, its flagship Global Alpha and the smaller North American Opportunities fund, have also been hard hit by the failure of their models.

Global Alpha dropped 27 per cent so far this year with MrViniar saying more than half of the loss was last week.

The scale of the losses at Goldman's funds reflect the high level of borrowing the funds had, with one investor putting gearing at eight to 10 times before it began to cut back last week.

Goldman said GEO's gearing now stood at six times and the new investments would reduce that to 3.5 times.

INSTITUTE OF PUERTO RICAN ARTS & CULTURE PRESENTS BARRIO ART FEST 2007 (BAF07

MEDIA ADVISORY MEDIA CONTACT:
August 2007 Jorge Félix
(773) 620-8608 - felixjorge@msn.com


INSTITUTE OF PUERTO RICAN ARTS & CULTURE PRESENTS BARRIO ART FEST 2007 (BAF07)
Humboldt Park’s Arts Educational Festival

Visual artists, performers, writers, filmmakers and educators showcase their work
at a FREE community arts educational exhibit and festival in Humboldt Park.

WHAT: Puerto Rican, Latino and Humboldt Park painters, designers, printmakers, craft makers, musicians, author/poets, actors, video/filmmakers and arts educators will showcase their artwork at Barrio Art Fest 2007 (BAF07). Different to most arts festivals, BAF07 is a multidisciplinary educational art exhibit and festival where artists interact with the public through art workshops, demonstrations, book signing/readings, film screenings and performances. Located in Chicago’s Humboldt Park, visitors can explore art installations, experience live performances, participate in art educational workshops, observe artisans’ craft demonstrations, and enjoy the latest work of media and film artists in the screening room. BAF07 is an arts and cultural experience for all ages through the presentation of the best traditional arts to the most engaging conceptual and experimental art forms. BAF07 is a FREE event for the whole Chicago community.

WHEN: Saturday, August 18, 2007
11 a.m. – 6 p.m.

WHERE: Humboldt Park Field House - 1440 N. Sacramento (Humboldt Blvd) Chicago, IL
FREE parking across the street at the Boathouse 1359 N. Sacramento.
Facilities and parking are wheelchair and handicap accessible.

MORE: BAF07 is presented by the Institute of Puerto Rican Arts & Culture (IPRAC) in collaboration with the Chicago Park District and the Division Street Business Development Association. Sponsored by the City of Chicago Cultural Outreach Program, LISC, Chicago Children’s Museum, Comcast, La Voz de Paseo Boricua Newspaper, ALTAVISTA Graphics, Hoy Newspapers, Dr. Pepper and DejaBlue.

IPRAC is an arts and educational institution devoted to the promotion, integration and advancement of the Puerto Rican arts and culture. IPRAC brings to the community visual arts and exhibition programming that furthers the Puerto Rican arts tradition through curatorial and exhibition programs.

For information call IPRAC’s program office 773-486-8345 or email: FelixJorge@msn.com or JorgeFelix@iprac.org

# # #
BAF07 – add: Page 2 – Artist’s Listing ; Page 3 – Program
BAF07 is an Arts Educational and cultural festival showcasing the work of Puerto Rican, Latino and Humboldt Park artists through art exhibits, performances, workshops, screening and demonstrations.


1. BAF07 ARTISTS
Abraham Santiago-painting
Adam Schlacter-film
Alexis Kent-painting
Alonso Mayo-film
Ana Ubides-pastry art
Andrés Ramírez-film
Anna Fong-fashion design
Army of Juan-performance hip-hop
Association House-art program
Batey Urbano-spoken word
BCA-Lowell Elementary-film
BCA-Pedro Albizu High School-film
Betty García-film
Carlos T. Mock-author
Cecelia Colón-collage
chicagOriginal-breakdancing-skateboard
Cooperative Image Group-media art
Cuca-craft
Daniel López-ceramic
Dennis Avelar-film
Don Ángel de León-"gallito &trompo"
Edgar Torres-ceramic
Eduardo Arocho-poet
Elaine Soloway-author
Elizabeth Negrón-jewelry
Francisco Rosado-drawing sessions
Güiro Orchestra-performance folk
Ivette & Juan Diaz-performance
Jason Martínez-DJ workshop
Joe Caballero-film
John Vergara-mosaic design
José Efraín Rivera-film
José Virola-craft
Josué Pellot-installation
JR Lizardi-photography
Juan Diaz-animation
Judy Veramendi-author & playwright
Julio Flores-kite-making workshop
Koidde-painting & drawing
Leo Negrón-painting & craft
Lolita Colón-doll making
Lucy Gómez-photography
Luis Tubens-poet
Luz Letamendi-photography
Manelick Gutiérrez del Río-art installation
Marcos Medina-silversmith
María I. Cruz Storniolo-painting
Mariana Maldonado--painting
Michael Báez-film
Migdalia Galarza-drawing
Miguel A. Cajigas-craft
Millie Vásquez-jewelry
Moses Pérez-caricature & calligraphy
Nelly Román-art workshop
Nuestro Tambó- "bomba & plena"
Patricia Pérez-painting
Patricia Reyes-fashion & printmaking
Paul Jarrett-film
Pedro A. Pagán-calligraphy
People's Theater-performance
Pocket Circus-performance
Urban Theater- performance
Valerie "Cocoa" Alduen-mosaics
Vanessa Claudio-film
Yorumba-performance Latin jazz

2. BAF07 EXHIBIT OUTDOOR
INSTALLATION - SPACE INTERVENTION - EXPERIMENTAL
Cooperative Image Group-media art
Josué Pellot-art performance
Manelick Gutiérrez del Río-art installation

3. BAF07 STAGE THEATER
Association House-art program
Batey Urbano-spoken word
People's Theater-spoken word
Pocket Circus-clown acrobats
Urban Theater- spoken word


4. BAF07 BOOK READINGS/SIGNING
Abraham Santiago-author “Acappella Street Corner Vocal Groups: A Brief History and Biography of 1960's Singing Groups”

Carlos T Mock-author “Papi Chulo, a Legend, a Novel, and the Puerto Rican Identity”

Eduardo Arocho-poet “Highway Island”

Elaine Soloway-author “The Division Street Princess”

Judy Veramendi-playwright “The empty Chalices”

Luis Tubens-poet “From a rooftop in Logan Square”

5. BAF07 STAGE MUSIC-DANCE
Army of Juan-hip-hop
chicagOriginal-break dancing
Güiro Orchestra-folk traditional
Ivette & Juan Diaz-pop
Jason Martínez-DJ
Nuestro Tambó-"bomba music
Yorumba-Latin jazz

6. BAF07 INTERACTIVE STUDIO
WORKSHOPS – DEMONSTRATIONS - GAMES
Andrés Ramírez-film making
Cecelia Colón-collage
chicagOriginal-skateboarding clinic
Don Ángel de León-"gallito & trompo" games
Elizabeth Negrón-bead jewelry
Francisco Rosado-drawing sessions
Jason Martínez-DJ workshop
Julio Flores-kite making
Lolita Colón-doll making
Luz Letamendi-photo coloring
Marcos Medina-silver jewelry
Moses Pérez-caricature drawing
Nelly Román-art for children
Patricia Pérez-"sol Taíno" sculpture
Patricia Reyes-t-shirt printing


7. BAF07 MOVIE ROOM
“Aerosol” by José Efraín Rivera
"Avocado Project" by BCA-Lowell Elementary
“Baby Express” by Dennis Avelar
"Broken" by David Wendelman
"Green Card" by Alonso Mayo
"Firecracker" by Betty García
"Fresh Paint" by Francisco Rosado
"Fugitivo 51" by Andrés Ramírez
"La Casita Project" by BCA-Pedro Albizu High School
"My Backyard was a Mountain" by Adam Schlacter
“Racket” by Michael Baez
“Stolen Lives” by Paul Jarrett
“Sweet Tooth” by Michael Baez
“United or Divided” by Vanessa Claudio
"Wednesday Afternoon" by Alonso Mayo
“Wind’s Gate” by Juan Diaz
“Wish” by Joe Caballero

8. BAF07 CREDITS
festival coordinator:
Jorge Félix
curators:
Leo Negrón, craft
Jesse Charbonier Rodríguez, film
Jorge Félix, community, contemporary
collaborators:
Enrique Salgado
Nereida Avilés
administration:
Jackie Reyes
graphic design & photography:
Luis Chávez

Talk to the bad men too

Talk to the bad men too
By Chris Dodd
Copyright The Financial Times Limited 2007
Published: August 13 2007 18:57 | Last updated: August 13 2007 18:57


In the 1980s I travelled many times to Nicaragua, where I met President Daniel Ortega. At the height of the cold war, I was subject to criticism in some quarters for meeting a leader with ties to the Soviets. But my goal wasn’t to become friends with the Sandinista president, it was to press him to renounce violence as a political tool and allow the people of Nicaragua to choose their next leader.

Despite opposition from the Reagan administration, Congress voted to restrict US funding of the Contra rebel forces and Mr Ortega later agreed to elections. In 1990 Violeta Cha morro won and Mr Ortega respected the results by stepping down. As a result, Nicaragua today has an imperfect demo cracy but a democracy nonetheless.

At the recent CNN/YouTube Democratic presidential debate, we were all asked whether, as president, we would meet leaders of Syria, Cuba, Venezuela, Iran and North Korea without preconditions. With American security at stake and our reputation in the world in tatters, it was a chance for us to demonstrate how we might use diplomacy to help America lead on the global stage in the 21st century.

But rather than using this opportunity to showcase to the country their diplomatic bona fides, two candidates – senators Barack Obama and Hillary Clinton – have chosen to squabble and make irresponsible statements.

To be sure, there was little disagreement on the stage about the Bush administration’s diplomatic failures. In six years, Mr Bush and Dick Cheney have weakened America by refusing to meet representatives of certain nations, irrespective of their importance to US interests and security.

However, we were not asked whether as president we would try to correct the failed Bush-Cheney course – how could we not? Rather, we were asked how we would use our experience and judgment to plot a new course.

John F. Kennedy famously said that we should never negotiate out of fear, but never fear to negotiate. This was something his one-time rival, Richard Nixon, understood, when he went to China and met Mao Zedong. Reagan also understood this, calling the Soviet Union the “Evil Empire” in one breath and meeting Mikhail Gorbachev in the next. Theirs was a generation that gave us the Marshall plan, Nato, arms control agreements and the UN – institutions that helped ensure 60 years of relative peace and security.

Our leaders created systems and structures for the postwar world because the world’s problems could not have been tackled without inter national co-operation and US leadership. This international architecture strengthened America’s global leadership and enhanced US security.

This administration, on the other hand, is walking away from those institutions, treating diplomacy as if it were a gift to our enemies.

But with due respect to senators Clinton and Obama, on this question they are not only wrong to turn this into a political debate; they are also wrong on the substance. The notion that America should treat these five countries the same is naive at best, irresponsible at worst.

Meeting Iran’s Mahmoud Ahmadi-Nejad would be a mistake; no leader who denies the Holocaust ever took place and actively calls for the destruction of Israel should be rewarded with a face-to-face meeting with a US president – although in a Dodd administration this would not preclude American diplomats from meeting other high level Iran ian officials.

In contrast to Iran, I would be open to meeting other difficult leaders. Indeed, I have already met Fidel Castro and Hugo Chávez as a US senator on the foreign relations committee. I have also met Bashar al-Assad, because engaging with him was – and is – in America’s interest.

What is not in America’s interest is letting the actions of bad actors fester. For all its flaws, Syria should play an important role in stabilising Iraq, and a constructive role in achieving a two-state solution for Israel and the Palestinians. Syria can also enhance Israel’s security by applying pressure on Hamas and Hezbollah while ceasing interference in the political life of Lebanon. Likewise, by engaging with Mr Chávez in Venezuela – to whom we are somehow losing a PR war – we can re-establish US leadership in our own hemisphere and shine a light on the importance of upholding democratic institutions and practices in his country. And while no one likes Kim Jong-il, if we can de nuclearise the Korean peninsula by engaging with him, we should.

Responsible leadership engages with the world. It does not needlessly provoke nuclear powers by declaring in favour of specific military actions, as Senator Obama did recently.

The next president must understand that diplomacy is essential to repairing our nation’s fractured world relationships. He or she must recognise that the choice between coddling tyrannical leaders or going to war with them is a false choice when the US is no longer acting alone. When the US is once again a leading, strong moral voice in the world, it will be the terrorists and the tyrants who are isolated, not the US. And if my colleagues would stop scoring political points in the media for a moment to recognise that, they would probably realise that that is one point on which we all agree.

The writer is a Democratic US senator from Connecticut and presidential candidate

The credit crunch quandary

The credit crunch quandary
By David Hale
Copyright The Financial Times Limited 2007
Published: August 13 2007 18:54 | Last updated: August 13 2007 18:54


The events of the past week demonstrate how far the process of financial globalisation has gone. The European Central Bank injected more than €155bn ($212bn) of liquidity into markets because unemployed workers in Detroit are defaulting on home loans they ob tained during 2006 that did not require any down payment, principal repayment or documentation of income. In the 1980s those defaults would have led to a run on the local bank. In the current decade the loans have been securitised, repackaged in a collateralised debt obligation bond and sold to a hedge fund that bought it on leverage.

The shutdown of several hedge funds has scared the markets. There is no way to predict how many will fail because the markets for securities with subprime loans are illiquid and non-transparent. Hedge funds have valued the securities using models that give them considerable discretion in when to recognise losses. The subprime market began to implode in late 2006 but hedge funds did not recognise any losses on their securities until June. The losses have been so shocking that asset prices have declined sharply even for higher-quality securities.

The subprime debacle resulted from excessive risk-taking by lenders. There was a housing boom in the US from 2001 to 2006. Lenders responded by sharply expanding loans to marginal borrowers. At the peak, six months ago, there were more than $1,300bn of subprime loans or about 13 per cent of the total mortgage stock. This recklessness was encouraged by great demand on Wall Street for low-quality loans to package in CDOs. The rating agencies facilitated the boom by giving high credit scores to securities with loans of dubious quality. The rating agencies collaborated with brokerage firms to produce high-risk securities, as they earned fees from structured finance deals three times higher than on conventional bonds. In the first quarter, structured finance products rose to 46 per cent of Moody’s revenues.

Ben Bernanke, US Federal Reserve chairman, has suggested the losses from the subprime fiasco could be $50bn-$100bn, or less than 1 per cent of US gross domestic product. Such a loss would be modest compared with 2.5 per cent of GDP lost in the savings and loan scandals of the early 1990s. The problem with the Bernanke forecast is that it will require some good luck. The final cost will depend on house prices. The credit crunch could cause house prices to fall by 10 per cent. In this case, the losses on subprime loans could be twice the Bernanke estimate.

As the US residential housing stock market is worth more than $20,000bn, the economy can cope with a $100bn- $200bn loss. The problem for the Fed is the shock waves from recent events. During the past four weeks, interest rates on conventional home loans have increased by 100 basis points and on subprime loans by 300 basis points to 11 per cent. This did not result from monetary policy but from lenders seeking to protect themselves from rapidly deteriorating credit quality. The rise in yields will further depress home sales and cause housing starts to fall further. Residential construction has already declined from 6.2 per cent of GDP in late 2005 to 4 per cent in the second quarter of this year. It could easily decline to 3 per cent by early 2008. Fannie Mae has said it is prepared to help lessen the risk of credit crunch by expanding its balance sheet. The Bush administration is reluctant to let it do so because of the accounting scandals that occurred two years ago, but the Democrats will demand that Fannie Mae increase its lending because it was created to play such a role.

The Fed is in a quandary. It is reluctant to ease because it thinks the US economy can still achieve 2-3 per cent output growth at a time when the core inflation rate is above 2 per cent. There had been no weakness in consumer spending until the second quarter and many analysts blame gas prices, not the slumping housing market. But with mortgage yields rising there is a risk of a prolonged housing downturn. The Chicago futures market is projecting that house prices could fall by 3-4 per cent over the next year. The risk is growing of a 10 per cent drop. There has been no national decline in US house prices since 1933. If they fall by 10 per cent in a presidential election year, the pressure on the Fed to ease could become irresistible. Presidential candidates could appeal for votes by promising to appoint a pro-housing Fed chairman when Mr Bernanke’s term ends in 2009. If he wants a second term, he would then have to let home prices determine monetary policy.

The writer is is an economist and founder of Hale Advisors in Chicago

Learn from the fall of Rome, US warned

Learn from the fall of Rome, US warned
By Jeremy Grant in Washington
Copyright The Financial Times Limited 2007
Published: August 14 2007 00:06 | Last updated: August 14 2007 00:06


The US government is on a ‘burning platform’ of unsustainable policies and practices with fiscal deficits, chronic healthcare underfunding, immigration and overseas military commitments threatening a crisis if action is not taken soon, the country’s top government inspector has warned.

David Walker, comptroller general of the US, issued the unusually downbeat assessment of his country’s future in a report that lays out what he called “chilling long-term simulations”.

These include “dramatic” tax rises, slashed government services and the large-scale dumping by foreign governments of holdings of US debt.

Drawing parallels with the end of the Roman empire, Mr Walker warned there were “striking similarities” between America’s current situation and the factors that brought down Rome, including “declining moral values and political civility at home, an over-confident and over-extended military in foreign lands and fiscal irresponsibility by the central government”.

“Sound familiar?” Mr Walker said. “In my view, it’s time to learn from history and take steps to ensure the American Republic is the first to stand the test of time.”

Mr Walker’s views carry weight because he is a non-partisan figure in charge of the Government Accountability Office, often described as the investigative arm of the US Congress.

While most of its studies are commissioned by legislators, about 10 per cent – such as the one containing his latest warnings – are initiated by the comptroller general himself.

In an interview with the Financial Times, Mr Walker said he had mentioned some of the issues before but now wanted to “turn up the volume”. Some of them were too sensitive for others in government to “have their name associated with”.

“I’m trying to sound an alarm and issue a wake-up call,” he said. “As comptroller general I’ve got an ability to look longer-range and take on issues that others may be hesitant, and in many cases may not be in a position, to take on.

“One of the concerns is obviously we are a great country but we face major sustainability challenges that we are not taking seriously enough,” said Mr Walker, who was appointed during the Clinton administration to the post, which carries a 15-year term.

The fiscal imbalance meant the US was “on a path toward an explosion of debt”.

“With the looming retirement of baby boomers, spiralling healthcare costs, plummeting savings rates and increasing reliance on foreign lenders, we face unprecedented fiscal risks,” said Mr Walker, a former senior executive at PwC auditing firm.

Current US policy on education, energy, the environment, immigration and Iraq also was on an “unsustainable path”.

“Our very prosperity is placing greater demands on our physical infrastructure. Billions of dollars will be needed to modernise everything from highways and airports to water and sewage systems. The recent bridge collapse in Minneapolis was a sobering wake-up call.”

Mr Walker said he would offer to brief the would-be presidential candidates next spring.

“They need to make fiscal responsibility and inter-generational equity one of their top priorities. If they do, I think we have a chance to turn this around but if they don’t, I think the risk of a serious crisis rises considerably”.

US core producer price inflation softens

US core producer price inflation softens
By Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: August 14 2007 15:02 | Last updated: August 14 2007 15:02


The US economy appeared to be gaining strength as global demand for US exports rose to a record high, while the prices of wholesale goods cooled, according to figures which contained positive signals for growth and inflation.

The US trade deficit narrowed unexpectedly by 1.7 per cent to $58.1bn in June from $59.2n, the Commerce Department said on Tuesday. The politically-sensitive imbalance with China grew.

Core producer prices excluding volatile food and fuel prices rose 0.1 per cent, the smallest gain in three months and less than expected.

The cooling in core prices is likely to add to calls from Wall Street for the Federal Reserve to cut interest rates and help alleviate an international credit crisis that has shaken financial markets in recent days.

Policymakers have maintained a hawkish stance on inflation despite mounting risks to growth from a collapse in the subprime mortgage market and an increase in the cost of borrowing for some households and companies.

Over the last 12 months, core producer prices rose 2.3 per cent, compared to economists’ forecast of 2.5 per cent.

But economists said elevated energy costs would remain an important source of inflationary pressure, and overall prices rose 4 per cent from a year ago.

The price of gasoline rose 3.2 per cent, and natural gas costs rose 2.7 per cent.

Prices for raw materials rose 1.2 per cent, following a 0.3 per cent gain in June.

On Wednesday, the Labor Department will publish consumer prices, which are forecast to show core inflation steady at 0.2 per cent, according to a Bloomberg survey.

Economists said a weaker dollar and faster growth in Asia and Europe was also increasing demand for US goods.

Figures showed exports rose 1.5 percent to $134.5bn in June, led by shipments of semiconductors and autos.

The improvement in exports outpaced a rise in imports of 0.5 per cent rise to $192.7bn, the highest ever.

Mattel recalls millions of Chinese-made toys

Mattel recalls millions of Chinese-made toys
© Reuters Limited
Tues Aug 14, 16.29 BST


Mattel Inc., the largest US toy company, recalled millions more Chinese-made toys on Tuesday due to hazards from small, powerful magnets and lead paint, sending its shares down as much as 6 percent.

The toymaker’s second recall this month came as Mattel launched a national advertising campaign to assure consumers it is on top of product safety.

The new recall includes 7.3 million Polly Pocket dolls and accessories with magnets.

The U.S. Consumer Product Safety Commission said there had been reports of three children swallowing more than one magnet and suffering intestinal perforations that required surgery.

When more than one magnet is swallowed, the magnets can attract each other and cause intestinal perforation or blockage, which can be fatal.

Also recalled on Tuesday due to magnet dangers were 1 million Doggie Day Care, 683,000 Barbie and Tanner play sets, and 345,000 Batman and One Piece play sets. No injuries were reported from those items.

About 253,000 Pixar Sarge die-cast toy cars with lead paint were also recalled. No injuries were reported in connection with the toys.

Lead has been linked to health problems in children, including brain damage.

Earlier this month Mattel’s Fisher-Price unit recalled about 1.5 million preschool toys made by China-based contract manufacturer Lida Toy Co. because the paint on the toys might contain excessive amounts of lead. The global recall included products based on popular preschool characters from ”Sesame Street” and ”Dora the Explorer.”

”The safety of children is our primary concern, and we are deeply apologetic to everyone affected,” Mattel Chief Executive Robert Eckert said in a statement on Tuesday. ”Mattel has rigorous procedures, and we will continue to be vigilant and unforgiving in enforcing quality and safety.”

The earlier recall was Mattel’s largest since 1998, when it recalled 10 million Power Wheels vehicles made by Fisher-Price, and the company said it expected to take a $30 million charge from the action.

News of the second recall came as an owner of the Chinese toy factory at the center of the first recall was reported to have committed suicide.

Mattel took out a full-page ad in Tuesday’s Wall Street Journal, New York Times and USA Today, featuring a picture of three children playing together and a letter to ”Fellow Parents” from Eckert.

”Nothing is more important than the safety of our children,” the Mattel CEO wrote. ”Our long record of safety at Mattel is why we’re one of the most trusted names with parents. And I am confident that the actions we are taking now will maintain that trust.”

Mattel shares were down 82 cents, or 3.5 percent, to $22.75 in morning trade on the New York Stock Exchange after falling as low as $22.10 earlier in the session.

Housing woes continue to dog Home Depot

Housing woes continue to dog Home Depot
By Victoria Kim
Copyright The Financial Times Limited 2007
Published: August 14 2007 14:25 | Last updated: August 14 2007 15:01


Home Depot on Tuesday reported weak second-quarter earnings, confirming its earlier outlook, and said it expected grim market conditions to continue into 2008.

Poor sales led the second-largest US retailer to report earnings down 15 per cent to $1.6bn, or 81 cents per share, from $1.9bn or 90 cents per share a year earlier. Sales in stores that were open for at least a year fell by 5.2 per cent.

The worst depression in the housing market in 16 years continues to present a “tough selling environment” for the home improvement retailer, chairman and chief executive Frank Blake said.

“We believe the housing and home improvement markets will remain soft into 2008.”

The company reiterated its outlook of a 12 to 15 per cent fall in earnings in fiscal year 2007.

The Atlanta based company, along with home-builder DR Horton and home appliances retailer Sears, last month issued profit warnings, confirming investors’ fears that the housing market downturn was hurting profits for a range of companies.

Home Depot also appeared to be hit by the credit crunch caused by mortgage market woes, when it announced last week the sale price for its wholesale unit was being renegotiated and might be lowered from $10.3bn. The company announced in June it was selling HD Supply and has been in talks with private equity groups.

The supply unit, which was built through acquisitions by the former chief executive Bob Nardelli before he was ousted in January, generated earnings of $66m or 3 cents per share.

Excluding profits from the unit pending sale, the company’s earnings were $1.5bn or 77 cents per diluted share, above analysts’ expectations at 72 cents per share.

Home Depot shares were down 1.5 per cent at $34.71 in early trade

Wal-Mart cuts full-year earnings forecast

Wal-Mart cuts full-year earnings forecast
By Hal Weitzman in New York
Copyright The Financial Times Limited 2007
Published: August 14 2007 13:42 | Last updated: August 14 2007 15:46


Wal-Mart, the world’s biggest retailer, on Tuesday blamed the US housing slump and high fuel prices for disappointing second-quarter results and a cut in its full-year earnings forecast.

Earnings rose to $3.1bn, or 76 cents per share, on revenues of $93bn. That was up from earnings of $2.08bn, or 50 cents per share, on revenues of $85.43bn a year earlier, when the company had to pay to dispose of its German stores. However, before an extraordinary gain of 4 cents, earnings per share from continuing operations were 72 cents per share – below analysts’ expectations of about 76 cents.

For its third-quarter, Wal-Mart forecast earnings per share of 62-65 cents from continuing operations, while analysts had been expecting about 68 cents. For the full year, the company cut its expected earnings to $3.05-$3.13 per share from continuing operations, down from $3.15-$3.23. Analysts had been expecting about $3.16.

Lee Scott, chief executive, struck a doleful note, saying the results were “not what we expected of ourselves” and that “merchandising is not where it needs to be”.

Mr Scott said Wal-Mart’s customers were facing a range of financial difficulties. “US consumers continue to be under difficult pressure economically,” he said. “It is no secret that many customers are running out of money toward the end of the month.”

Known as “the beast of Bentonville”, after the small Arkansas city where it has its headquarters, Wal-Mart - which has 1.9m employees worldwide - is the largest private employer in the world.

Last month, the company cut prices on 16,000 items by as much as 50 per cent to boost back-to-school sales. But last week, the retailer reported same-store sales growth of 1.9 per cent for July, behind the industry average of 2.6 per cent. Wal-Mart said on Tuesday that although the lower prices attracted shoppers, they also hurt sales margins.

While Wal-Mart expansion plans within the US have often met with opposition from local communities fearful that small retailers will be forced out of business, the retailer’s attempts at international expansion have been patchy. More than one-fifth of its sales come from outside the US, mainly Canada and Mexico. But last year Wal-Mart decided to abandon Germany and South Korea; it has failed to penetrate China and India; and its stores in Japan have been loss-making for several years.

The retailer appears to have turned its back on a strategy of focusing on fashionable merchandise after sluggish sales, instead refocusing on low prices. Last month Claire Watts, executive vice-president of apparel merchandising and a driving force behind the strategy, quit the company.

The controversy surrounding the company is not only related to its plans for new stores. The retailer is facing the US’s biggest-ever biggest sex discrimination class-action lawsuit and another class-action from employees who claim they were locked inside stores after closing time to perform extra work without pay. In May, Human Rights Watch accused Wal-Mart of undermining workers’ rights to form unions.

Wal-Mart’s shares have fallen marginally by 0.02 per cent since the start of 2007, while the share price of Target, the US’s second-biggest discount retailer, has risen by 10.9 per cent since the start of the year.

The retailer registered $345bn in sales for the fiscal year ending on January 31 - 1.9 per cent up on the previous year. Same-store sales rose 2.1 per cent, the lowest figure since 1980.

By mid-morning on Tuesday, Wal-Mart shares were down 4.9 per cent at $43.90.

Why aren't others joining the call for gun control?

Why aren't others joining the call for gun control?
By LAURA WASHINGTON
Copyright by The Chicago Sun-Times
August 13, 2007

It's summertime, and the livin' sure ain't easy. The temps are sizzling and the guns ubiquitous. It's a toxic and combustible mixture. Throw in the preachers, politicians and some cops and a whole lot of guns. Just don't throw in a match.
We anguish over school shootings like the massacres at Virginia Tech and in Red Lake, Colo. Every single day, dozens of shootings take down urbanites across America.

We have become blithely dulled by the headlines. A 10-year-old girl in Englewood shot to death at her own birthday party. During the last academic year, 34 Chicago schoolchildren were lost to gun violence. Early this month, three college students were shot to death in a Newark, N.J., schoolyard.

A few know the clock is ticking and they are doing what they can. Mayor Daley knows. Daley may be the Evil Enemy of Black People to some, but he is doing more than just about anyone to get guns off the streets. He has made gun control a signature issue and has vainly pushed to get anti-gun state legislation through the intractable and juvenile Illinois General Assembly.

The Rev. Jesse Jackson and a Catholic priest, Father Michael Pfleger, the Evil Enemies of White People to some, are awaiting trial for mounting a protest outside Chuck's Gun Shop in south suburban Riverdale.

Now comes a report that nearly half of people murdered in the United States in 2005 were black. Most were ages 17 to 29, according to numbers released last week by the U.S. Justice Department.

While blacks make up about 13 percent of the nation's population, they comprise 49 percent of all murder victims. And the vast majority -- 93 percent -- were killed by African Americans. Most likely wielding firearms.

We have succumbed to what the Brady Center to Prevent Gun Violence calls "a culture of death." We are playing with fire.

The lefties and black radicals whine about the disproportionate number of black men in prison. Yet the jails are not big enough for all the trigger-happy crazies who are out on the street, like the gang-bangers warring over their corner crack franchises. The social justice types should instead aim their ire at the storefront merchants and dealers who push death in the name of the U.S. Constitution and the National Rifle Association.

The guns are aimed at all of us, and there's nowhere to hide. The child caught in the crossfire. The family argument that turns deadly because dad's got a pistol in the drawer. The drug dealer who's packing heat. The road rage that goes too far. The depressed high-schooler looking for revenge in the classroom. It all comes back to too many guns.

Jackson, Pfleger and Daley are doing their part. Where is everyone else?

Where are our elected officials? Where are our presidential wannabes?

During the last presidential election cycle, the Democrats shamelessly pandered to the deer hunters of Pennsylvania and Northern Michigan.

Gun control has rarely been mentioned during the interminable slew of debates in the run-up to the 2008 presidential election. It should be a signature issue.

Gun fever has ravaged our communities. We need a prescription, not a home remedy.

Anti-hate law shifts to debate on gays - Controversy over provision threatens bid to protect more victims, boost federal authority

Anti-hate law shifts to debate on gays - Controversy over provision threatens bid to protect more victims, boost federal authority
By Howard Witt
Copyright © 2007, Chicago Tribune

HOUSTON - Back in April, despite everything he had gone through, it looked as if David Ritcheson was finally going to get a happy ending.

The 18-year-old high school senior from suburban Houston had been savagely assaulted in a 2006 hate crime, apparently targeted because he was Mexican-American, by two youths who tried to carve a swastika into his chest, burned him with cigarettes and kicked a plastic tube from a patio umbrella into his rectum, rupturing his internal organs.

But after 30 surgeries and months in the hospital, Ritcheson had healed enough to testify before Congress in favor of expanding the federal hate crimes law to cover more victims and make it easier for the Justice Department to investigate such cases.

Less than three months later, however, Ritcheson was dead. Still tormented by his ordeal, he committed suicide by jumping from a cruise ship into the Gulf of Mexico on July 1.

And the hate crimes law Ritcheson had pushed for has collided head-on with a controversy that had nothing to do with the teenager: the nation's bitter cultural fight over legal rights for homosexuals. The legislation, passed by the House and pending in the Senate, faces strong opposition from conservatives, some religious leaders and the White House.

Many of the critics are opposed to a provision that would extend the federal hate crimes law, which currently applies to crimes motivated by racial, religious or ethnic bias, to include violent attacks against victims based on their gender identity or sexual orientation, thus creating a new class of specially protected citizens.

"This divides America, by making some groups more important than others," said Rep. Louie Gohmert, a Republican from east Texas. "When you say a transvestite with gender-identity issues is more important than the student victims at Virginia Tech, you don't unite us, you divide us."

Freedom of speech

Conservatives across the country have been struggling for nearly two decades to block the expansion of legal rights for gays, usually on moral or religious grounds. But now the opponents of the proposed hate crimes law are raising a new and novel argument: that the law could muzzle the freedom of conservative religious leaders to speak out against homosexuality.

They contend that a preacher could face criminal liability if a follower were to go out and commit a crime against a gay person after listening to a fiery sermon denouncing homosexuality.

"What I'm talking about is my right to preach what I believe," said Bishop Harry Jackson, pastor of Hope Christian Church in Beltsville, Md., who joined three dozen black pastors to buy a full-page ad in USA Today denouncing the proposed federal hate crimes law. "We preach love and acceptance, but I don't believe the Bible condones gay lifestyles. Yet the way these laws would be invoked would be that whoever is a commander or director of this kind of action can be brought up on the same charges as the actual perpetrator of a crime."

Proponents of the expanded hate crimes law dismiss such concerns as exaggerations and say that nothing in the legislation would infringe on freedom of speech.

"For ministers to say that on Sunday morning they are going to get arrested because they make a speech against homosexuality is an unfair assessment of the law," said Martin Cominsky, Houston regional director of the Anti-Defamation League. "It's not about thought, it's not about speech. The law only comes into bearing against someone who takes a violent action."

On the books now

More than 30 states, including Illinois, have passed hate crime laws that include additional penalties for crimes committed against victims based on their sexual orientation.

Current federal law adds a sentence increase up to life in prison only for violent crimes motivated by racial, religious or xenophobic bias, and it limits the involvement of federal investigators to cases involving victims who were engaged in a federally protected activity, such as voting, when they were attacked.

The bill approved by the House, on a vote of 237-180, and a similar measure pending in the Senate would extend coverage for gay victims and also broaden the circumstances under which state authorities could seek assistance from the FBI and the Justice Department in hate crime investigations.

The latter provision was the reason Ritcheson said he decided to testify before Congress. Ritcheson apparently was targeted because he was Hispanic, not gay, but his case did not qualify for federal intervention because the assault occurred at a private residence.

"Despite the obvious bias motivation of the crime," Ritcheson told a hearing of the House Judiciary Committee, "it is very frustrating to me that neither ... the Justice Department nor the FBI was able to assist in the investigation of my case because the crime did not fit the hate crime laws."

Ritcheson's two assailants were convicted of aggravated sexual assault for the April 2006 attack, which occurred at a back-yard party in the Houston suburb of Spring. One attacker, David Tuck, 18, a skinhead who had previously been arrested in racially motivated assaults, received a life sentence; the second assailant, Keith Turner, 17, was sentenced to 90 years in prison.

But even though there was evidence that Tuck yelled "White power!" during the assault on Ritcheson, Harris County prosecutors opted not to charge the two under Texas' hate crime law, because under the circumstances of the case it would not have offered any additional sentence.

Psychological scars

Ritcheson sounded optimistic about his future during his April testimony, telling the House committee that "my best days still lie ahead of me."

But there were signs that the teenager, who spurned psychological counseling after the attack, remained deeply scarred by his ordeal. Ritcheson told the Houston Chronicle that he continued to feel degraded by the attack and the description of him as the "pipe assault victim."

"I shouldn't care what people think," he said, "but it's like everyone knows I'm 'the kid.' I don't want to be a standout because of what happened."

Civil rights groups say that kind of long-lasting humiliation is felt by many hate crime victims who are targeted because of such deeply personal characteristics as their race, faith or sexual orientation. And it's why proponents say the federal hate crimes law should be expanded to cover attacks against gays.

Bias crimes motivated by the sexual orientation of the victim accounted for 14 percent of the more than 7,100 hate crime incidents recorded by the FBI in 2005, the latest year for which such statistics are available.

"Hate-motivated violence against members of the gay, lesbian and transgender community continues to be a pervasive problem in this country," said Joe Solmonese, president of the Human Rights Campaign, one of the largest gay-rights groups lobbying for the new federal hate crimes law. "But there's nothing in this legislation that says that an individual's freedom of speech would in any way be curtailed."

Michael Marcavage, leader of a conservative Christian anti-gay group called Repent America, remains unconvinced. Marcavage and several followers were arrested in 2004 while staging a protest march outside a Philadelphia gay and lesbian street festival, charged with ethnic intimidation and violating Pennsylvania's hate crimes law.

Although a judge later dismissed the charges and cleared the group of any wrongdoing, Marcavage said he believes the incident foreshadows how zealous prosecutors could wield an expanded federal hate crimes law against religious leaders.

"The lawmakers in Pennsylvania said that the state hate crimes law would not apply to pastors, to people sharing their faith, but here we have an example of exactly that," Marcavage said. "People say these hate crimes laws only apply to violent acts against gays. Well, we committed no violent acts. This is how the abuse happens."

- - -

State laws

Number of states with hate crimes laws that cover attacks motivated by:

*Racial, religious or ethnic bias: 44

*Anti-gay bias: 31

*Transgender/gender identity bias: 10

*Age bias: 12

*Political affiliation bias: 4

Source: Anti-Defamation League

----------

hwitt@tribune.com

What Google can learn from Apple

What Google can learn from Apple
By Richard Waters in San Francisco
Copyright The Financial Times Limited 2007
Published: August 13 2007 03:00 | Last updated: August 13 2007 03:00


Imagine you spotted a market that was just ripe for your company's service. It looks like a goldmine - your chief executive has just declared it the single biggest new opportunity out there. There is just one drawback. The only way you can think of to break into this new market is to try to change the rules of the game for everyone else who already plays there.

This is roughly the position Google finds itself in as it sizes up the mobile internet business. But pushing too hard to change the rules of the gamecould be a mistake.

The cellular world is nothing like the free and open internet where Google now thrives. In many places, network operators decide which mobile services will receive the oxygen of attention, admitting them to their "walled gardens" of favoured services and giving them preferential positions on the "decks", or content menus, that appear in front of users.

By controlling which handsets connect to their networks, they can also block any devices that come pre-loaded with software applications that do not take their fancy. (Translation: if you do not play by the operator's rules - for example, in how advertising revenue is shared - do not expect to reach an audience.)

Meanwhile, handset makers are nothing like the companies that produce personal computers. As vertically integrated hardware/ software companies, they can often seem inconsistent about how much of the mobile pie they want to keep for themselves.

All this explains why Google has started to ape the sort of behaviour you would normally associate with a good old-fashioned monopoly - say, an AT&T or a Microsoft.

Last month it turned up the heat in Washington DC, taking on AT&T and other big US communications companies by trying to influence the rules for an important auction of wireless spectrum. It even went as far as offering to bid at least $4.6bn (£2.3bn) to buy spectrum in order to try to shape the outcome. In this it was at least partially successful, even if it did not get everything it wanted.

Meanwhile, there have been reports all year that Google has been in discussions with handset makers in Asia, prompting speculation that it is developing plans for its own family of Google-branded mobile phones.

If not a shiny piece of Google hardware, how about a range of phones from some of the world's biggest handset makers that run Google software? Building an ecosystem of handset makers for its software is exactly what Microsoft has been attempting. The internet company last week tried to brush off suggestions it has some masterplan in the works, but it is clearly working hard to get wider distribution for its software.

With all this going on, it is not surprising that some outlandish speculation has been doing the rounds. Is Google going to build its own wireless network in the US and take on AT&T at its own game? In its eagerness to break into the mobile market, will it become network operator, handset provider and online service company in one?

The answer to these questions must surely be "no". It is partly a business model issue. If you had gross profit margins of 85 per cent, would you be eager to change your business model that radically?

It is also a matter of good sense. Google relies on breadth of reach: there is no point just getting to a subset of internet users - for its advertising platform to work it needs to get in front of everyone. To set itself up as a rival to an AT&T or a Nokia would risk limiting its reach. It has no choice but to play ball with everyone who is already on the field.

So what exactly has Google been up to with its sharp-elbowed tactics in mobile? The most charitable answer is that it is rocking the boat - hard.

This might well turn out to be a smart strategy. The existing model for the mobile internet business has not worked and is already showing signs of strain. The walls around the walled gardens have been crumbling - more so in Europe than the US, but the failure of operators to generate meaningful revenues from their data services is widely apparent. Flat-rate data-pricing plans are becoming common, again starting in Europe. A more open platform, where users are not charged extra every time they use the service, begins to look much more like the traditional internet. It makes sense for Google to try to nudge the industry faster down this road.

This, though, will only ever be a small part of the answer. Politicking and grand strategising were not the skills that first made Google a world-beater. If it is in search of

a role model, Google should be looking to emulate Apple, not

AT&T or Microsoft.

As Apple's iPhone has shown, true innovation will do more than anything to change the rules of the game in the mobile internet. To become the sole operator to carry the iPhone, AT&T ceded an unusual degree of control of the user experience and applications on the device to Apple. If customers are prepared to line up in the streets to buy your product, you stand a much better chance of calling the shots.

So far, no mobile internet service has achieved anything like this pulling power.

Memo to Google: do not get wrapped up with lobbying and the grand strategies. For the next six months, why not suspend the famous "20 per cent time" that lets all your engineers spend a day a week on their pet projects, and focus all that extra effort instead on building the killer applications of the mobile internet? Now that is something that could really make the world a better place.

Apple ushers in new Mac generation

Apple ushers in new Mac generation
By Kevin Allison
Copyright The Financial Times Limited 2007
Published: August 13 2007 03:00 | Last updated: August 13 2007 03:00


The introduction of the iPhone and the success of the iPod may have led Apple to drop the word computer from its company name, but for Steve Jobs, the Macintosh is as important as ever.

That was the message delivered last week by Apple's co-founder and chief executive as he unveiled the company's latest generation of Macintosh computers before a gaggle of reporters and analysts at Apple's Cupertino, California headquarters.

In a world where customers can browse the internet on an iPhone - Apple's new mobile handset - and upload digital photos and home videos directly to the web, Apple is betting that the future for the personal computer lies in becoming a digital media hub. "Just like the personal computer was originally a productivity software machine, and as that played out the internet came along and it was an internet access machine, we saw the next growth as being the centre of your digital life," Mr Jobs says.

"You take all these pictures - you need to be able to do something with them. You need a digital shoebox."

It is a bet that appears to be paying off. As other PC makers have struggled against fierce price competition and a sluggish US consumer market, Mac sales have been growing at about three times the rate of the broader market over the past four quarters.

With its lowest-priced iMac desktop priced higher than average at $1,199, and with its sleek new designs, Apple is betting that it can continue to grow by targeting the middle and top end of the style-conscious consumer market.

Asked how Apple can continue to compete against rivals offering far less expensive PCs, Mr Jobs scoffs.

"We try to do things at the lowest price we can, but I have to tell you, there is some stuff in our industry that we wouldn't be proud to ship. We can't do it, we can't ship junk," he says. "There's a threshold we can't cross because of who we are. We don't offer stripped-down, lousy products."

While new gadgets such as the iPhone and the iPod have come to dominate Apple's brand image, Macs still account for a majority of Apple's revenues. Last quarter, Apple's Mac revenues were $2.5bn, while sales of iPods totalled $1.6bn, according to company filings.

In spite of its recent growth, Apple remains a niche player in the PC market, largely because it has chosen to ignore the high-volume business customers that account for a majority of PC sales. Recent data from Gartner, the market research group, show that Apple accounted for just under 4 per cent of the overall PC market at the end of the first quarter.

In the consumer market, however, the picture is different. Taking desktops and laptops together, Apple accounted for about 16 per cent of computers sold in retail stores last quarter, according to NPD, the market research firm, up from 13 per cent a year ago. Apple hopes to capitalise on its growing profile in the consumer PC business by continuing to invest in new form factors and software, including Leopard, its new operating system, which is set to ship in October.

That investment was in evidence last week as Mr Jobs demonstrated the new iMac's ability to seamlessly share videos and photos between the web and a growing array of peripheral devices such as the iPod, iPhone, and the Apple TV media player.

"You've seen us bring tremendous investment in new products and software," says Phil Schiller, Apple's head of product marketing.

"We haven't let up one bit in our investment in the Mac. We've been able to make things work together so well. You can have an iPhone without a Mac, but if you have one you can do so much more. It makes the Mac's appeal even greater."

Central banks seek to unblock markets

Central banks seek to unblock markets
Copyright The Financial Times Limited 2007
Published: August 13 2007 03:00 | Last updated: August 13 2007 03:00


Central banks are expected to continue intervening in the money markets today in an effort to unblock the financial system after last week's turmoil.

Investors braced themselves for further turbulence and speculation is mounting that the European Central Bank will seek to arrange a currency swap with the Federal Reserve that would allow it to lend dollars to European banks struggling to meet short-term dollar funding needs.

Billions in dollar-denominated borrowing by European banks comes due in the next few days amid fears that US banks are unwilling to extend short-term credit to some of their European counterparts perceived to be vulnerable to the market turmoil.

One banker said: "The attitude is 'don't show me anything east of a [New York] 212-area code'. If you lend to [those banks], it could be a career-ending experience."

Central bankers made it clear last week that they would step in to ensure funds were available to hold short-term interest rates close to their target levels.

In spite of market speculation that interest rates will soon be cut, they have given no indication that they will need to take such drastic action and see the current crunch partly as a welcome repricing of risk.

The Fed is likely to be sympathetic to an ECB request for a currency swap since it would be seen as a helpful way of dealing with pressure on the overnight federal funds rate caused by European banks' thirst for dollars. It would be the first such arrangement between the world's two biggest central banks since 2001.

Chris Furness, of 4Cast, the economic consultancy, said a swap would be "a market calming measure and would be logical in current situation".

Conditions in the money markets are likely to remain extremely difficult in the coming days as there will be no let-up in the uncertainty over the scale and location of losses in derivatives markets, initially triggered by high default rates in US sub-prime mortgages.

Investors fear that some hedge funds and other institutions will soon have no option but to start a fire sale of their assets to cover losses on their portfolios.

Any rapid liquidation of trading positions would exacerbate the volatility in financial markets.

US markets ended in positive territory on Friday, in spite of huge falls in European equities, after the Fed's interventions to pump in $38bn (£18.8bn) appeared to calm nerves.

Reporting by Krishna Guha in Washington, Michael Mackenzie and Anuj Gangahar in New York and Norma Cohen, Jennifer Hughes and Gillian Tett inLondon

Romney wins Iowa Republican straw poll

Romney wins Iowa Republican straw poll
By Edward Luce in Ames, Iowa
Copyright The Financial Times Limited 2007
Published: August 12 2007 15:43 | Last updated: August 13 2007 00:17


Pots of money aside, one factor above all helped bring victory to Mitt Romney in Saturday’s informal Iowa “straw poll” of Republican presidential candidates – a reputation for competence.

Without directly criticising George W. Bush, who was his classmate at Harvard Business School in the late 1960s, Mr Romney enthused enough Iowan Republicans with his ability “to get things done” at a moment when cynicism towards politicians is close to an all-time high.

“If there has ever been a time that we needed to see change in Washington, it is now,” Mr Romney told supporters after topping the field of 11 candidates with 31.9 per cent of the vote in Iowa’s very unscientific temperature-taking. “We need somebody in Washington who will get the job done, who will get Republicans and Democrats pulling together and actually deal with the problems we have.”

However, a slight shadow was cast over Mr Romney’s Iowa victory by the strong showing of Mike Huckabee, the boisterous former governor of Arkansas, who came second with 18.1 per cent of the vote in spite of having spent less than $200,000 on the straw poll compared with Mr Romney’s estimated $2m to $3m.

But Mr Romney, a former governor of Massachusetts who made his reputation when he took charge of the previously moribund 2002 Winter Olympics in Salt Lake City, Utah, made light of this and of the fact that he had prevailed in a field that did not include his three biggest rivals – Rudy Giuliani, the former mayor of New York, John McCain, the Arizona senator, and Fred Thompson, the former senator and TV star.

Mr Giuliani, who still tops the national polls among Republican contenders, chose to keep his powder dry. Mr McCain, whose campaign is in serious trouble, could afford neither the expenditure nor the possibility of coming second. And Mr Thompson has yet to declare his candidacy officially. “I’m pleased as punch,” said Mr Romney. “The guys who decided not to run here – they would have played if they thought they could have won.”

Having accumulated a personal fortune of almost $300m at Bain Capital, a ­Boston-based venture capital firm, which launched Stap les, the discount stationery stationary chain store, and took a stake in Marriott Hotels in the 1980s, Mr Romney will have little difficulty capitalising on his initial success in Iowa. He will also be helped by having the best organised campaign in the Republican field – the closest counterpart to Hillary Clinton’s near-flawless machine.

At each of his set-piece interactions with voters, Mr Romney seeks to drive home his Washington outsider status and his ability to work with Democrats. Having pushed through a mandatory healthcare insurance bill in strongly liberal Massachusetts last year when he was governor, he also has the credentials to win over independent voters – much as Democratic governors of southern states are thought to have crossover appeal to moderate Republicans.

But the 60-year-old father of five, whose film-star looks recently netted him a ranking in People magazine’s “Most beautiful people in America”, still has daunting hurdles to cross. One of these is his lack of national name recognition. Strategists believe this can be overcome by the publicity and momentum a victory in the Iowa caucus in January would bring. He also leads the polls in New Hampshire, which holds the first primary the same month.

Bigger than that is the issue of Mr Romney’s Mormon faith, which many bible belt evangelicals still view as a cult outside the Christian family. Mr Romney is thought to be preparing a major speech reassuring evangelicals that his theology would not interfere with his presidency.

“It is one thing winning over the church-going conservatives of Iowa,” says John Green at the Pew Forum on Religion and Public Life in Washington. “It is quite another overcoming the doubts of the people in the bible belt.”

Fed’s efforts to calm markets are far from over

Fed’s efforts to calm markets are far from over
By Krishna Guha in Washington
Copyright The Financial Times Limited 2007
Published: August 13 2007 19:44 | Last updated: August 13 2007 19:44


The bright start to trading on Monday will encourage Federal Reserve policymakers to believe they have struck the right balance in response to credit market turmoil: stepping up liquidity support aggressively when the interbank market came under strain at the end of last week, but offering no signal that they are yet resolved it will be necessary to cut interest rates.

But the game is far from over, and there is every possibility that – with further credit bombshells likely to shake markets – the coming days will test the US central bank’s resolve and renew pressure for an easing of monetary policy.

The futures market was on Monday pricing in a significant possibility of an emergency rate cut before the September meeting, a full rate cut at that meeting and two more by August of 2008.

“The markets are certainly pricing in aggressive easing, but the Fed is not outsourcing policy to the markets,” says Larry Meyer, a former Fed governor and chairman of Macroeconomic Advisers.

He says the Fed’s “first line of defence” is liquidity support – and that appears to be succeeding in calming markets for now.

Analytically there is a big difference between the Fed providing injections of cash to support its desired policy rate of 5.25 per cent and cutting that policy rate.

Cutting interest rates would certainly boost markets, but the Fed is not aiming to boost markets, or even stabilise markets at current prices.

What the Fed is trying to do is to provide enough liquidity to allow the market to operate as smoothly as possible while it undertakes the painful process of repricing risk and discovering where the losses from subprime mortgages lie.

The Fed wants to help this process along by ensuring it is never compounded by fears about creditworthy institutions’ ability to access short-term funds.

But it cannot directly address the underlying problems – for instance, by revealing where credit losses lie or validating valuation models used to price complex structured credit products.

Policymakers tend to the view that these will simply take time to resolve by market participants.

Interest rate policy will remain guided by the outlook for the economy and the objective of achieving full employment and price stability in keeping with the dual mandate.

The US central bank will only change rates in response to market developments in so far as they alter its economic forecasts or the risks to those forecasts.

The Fed views these recent developments on three levels. First, it sees a significant liquidity problem – which came to the fore late last week. It ramped up the injection of cash into the short-term money markets on Friday after seeing evidence that creditworthy borrowers were struggling to obtain liquidity from their regular counterparties.

In doing so it was performing the classic lender of last resort function – providing liquidity against fundamentally sound collateral.

Second, it sees a big increase in risk awareness. Policymakers view the repricing of risk – which had been very cheaply priced – mainly as a healthy development.

However, they are concerned about the possibility of a buyers’ strike in which investors stop bidding for complex and opaque credit products that they cannot value.

The third level is the macroeconomy. The Fed would obviously respond if a tightening of financial conditions fed through into incoming economic data on spending, growth and prices.

Now it finds itself in a grey area, trying to assess whether changes in financial conditions are enough to alter forecasts and change rate policy.

It appears most policymakers have not yet seen enough evidence to reach this conclusion. But all are watching to see how the market adjustment plays out.

What matters is how deep the pull-back in the credit markets is, and how protracted it proves to be.

The Fed’s hunch is that the hiatus might prove short-lived, and markets will resume more normal operations reasonably soon.

It does not matter much for the macroeconomy if the market for “jumbo” (big loan) mortgage-backed securities closes for a few days and then reopens.

But if the market for these securities remains closed for long, the risk to demand in the economy mounts.

Moreover, continued turmoil in the credit markets could have disinflationary implications.

So while the Fed is by no means yet resolved to cut rates in September, it is possible events could unfold in ways that deliver that outcome.

Mr Meyer says: “I do not think we will get an inter-meeting move, and there is a lot of time between now and September.”

Finantial Times Editorial Comment: Rove’s tainted legacy/Karl Rove announces resignation/End of the road for the Republicans’ Architect

Finantial Times Editorial Comment: Rove’s tainted legacy
Copyright The Financial Times Limited 2007
Published: August 13 2007 18:29 | Last updated: August 13 2007 18:29


The resignation of Karl Rove will be seen in many quarters as the end of George W. Bush’s administration. With 18 months to go before the next president takes office, the sudden air of finality is a measure of the man’s influence and reputation.

Mr Rove has been Mr Bush’s partner in politics since the president’s Texas days, and Mr Bush himself called Mr Rove “The Architect” after the Republicans captured the White House in 2000. In power, Mr Rove continued in his role of most trusted policy adviser and chief political strategist, helping to secure victory in the 2002 mid-term elections and to defeat John Kerry in 2004. Only as the wheels came off the administration in its second term, and the Republicans went down to defeat in last year’s congressional elections, did Mr Rove’s aura of tactical infallibility begin to fade – and even then more slowly than the president’s dismal poll ratings had long seemed to warrant.

He has been a quintessentially polarising figure. Mr Rove’s friends and foes alike attributed to him remarkable powers of judgment and foresight: his admirers thought him a mighty force for good, his detractors saw him as downright evil. These exaggerated and sometimes hysterical assessments are of a piece with the way the administration itself is judged. Mr Rove was not the monster his enemies thought him to be, nor the beneficent genius his Republican fans perceived. He was a shrewd adviser with an impressive record of winning elections. But he got many things wrong – and in the end the presidency in which he was a junior partner will be judged a failure.

Mr Rove’s distinctive tactical contribution, which also shaped the administration’s substantive record, was to energise the Republicans’ base of committed supporters. Stroke the prejudices of that part of America, play on its fears and demonise its enemies: that was the watchword. It was a bold and in some ways implausible strategy, because it always risked energising the party’s enemies more than its friends. Nonetheless, in three national elections – albeit assisted by weak opponents, and in the tied 2000 election by the Supreme Court – it worked. From the outset, though, it tainted the administration with dishonesty. Mr Bush memorably promised to govern as a moderate, as indeed he should have, given the narrowness of his mandate in 2000. But he did not. The Rove strategy precluded it.

Mr Rove helped secure two White House terms for George W. Bush. By the lights of his profession, he was a success. America is in no mood to thank him for it.





Karl Rove announces resignation
By Andrew Ward in Washington
Copyright The Financial Times Limited 2007
Published: August 13 2007 09:51 | Last updated: August 13 2007 18:29


Karl Rove, architect of President George W. Bush’s two election victories, on Monday resigned after six years as one of the most powerful and influential political advisers ever to have served in the White House.

His departure at the end of this month comes after a torrid year of political setbacks for the Bush presidency and mounting scrutiny of Mr Rove’s role in a series of scandals and controversies surrounding the administration.

Mr Rove is the latest of several senior officials to leave the White House this year as Mr Bush’s second-term agenda has ground to a halt amid resistance from a Democratic-controlled Congress and deepening chaos in Iraq.

Related stories:
Editorial comment: Rove’s tainted legacy
Analysis: End of the road for the Republicans’ Architect
The Texan, nicknamed the “Boy Genius” because of his skills as a political strategist, said he was leaving to spend more time with his family after 14 years of service to Mr Bush in Texas and Washington.

“It's been an exhilarating and eventful time,” he said, standing beside Mr Bush outside the White House on Monday. “Now it seems the right time to start thinking about the next chapter in our family's life.”

Describing Mr Rove as his “dear friend”, Mr Bush said: “We've known each other as youngsters, interested in serving our state. We worked together so we could be in a position to serve this country. And so I thank my friend. I'll be on the road behind you here in a little bit.”

The White House said no decision had been made about whether Mr Rove would be replaced or whether his duties would be reallocated among existing staff. Analysts said his departure would increase the importance of Josh Bolten, chief of staff, and Ed Gillespie, White House counselor.

Mr Gillespie, a veteran Republican strategist and lobbyist, was appointed in June after the resignation of Dan Bartlett, another of Mr Bush’s longest-serving Texan allies.

“Ed Gillespie is a very fine political mind who is likely to play an enhanced role in White House deliberations,” said Whit Ayres, a Republican political strategist. “But there’s no way to replace Karl Rove because his breadth of political and policy experience and his relationship with the president are unmatched.”

Mr Rove has been one of Mr Bush’s closest friends and advisers since his successful run for governor of Texas in 1994. He was the last remaining member of the close-knit group of Texan aides that accompanied Mr Bush to the White House in 2001.

“It's not been an easy decision,” said Mr Rove, adding that he had been considering his future since last summer. “It always seemed there was a better time to leave somewhere out there in the future. But now is the time.”

Other senior aides to have left this year include Harriet Miers, former White House counsel, and Rob Portman, budget director.

The exodus has come amid a slump in Mr Bush's approval ratings to around 30 per cent and a growing sense of crisis within the Republican party about its prospects in next year's presidential and Congressional elections.

John Kerry, the Democratic senator whose defeat in the 2004 presidential election was masterminded by Mr Rove, said: “It's a tragedy that an administration that promised to unite Americans has instead left us more divided than ever before. Without doubt the architect of that political strategy was Karl Rove, who proved the politics of division may win some elections but cannot govern America.”

Patrick Leahy, chairman of the Senate judiciary committee, vowed to continue the investigation into Mr Rove’s role in the controversial firing of several federal prosecutors last year. “Mr Rove's apparent attempts to manipulate elections and push out prosecutors citing bogus claims of voter fraud shows corruption of federal law enforcement for partisan political purposes, and the Senate judiciary committee will continue its investigation into this serious issue,” he said. “There is a cloud over this White House, and a gathering storm.”

Mr Rove was also embroiled – but never indicted for wrongdoing – in the CIA leak case – an investigation into the leaking of a covert CIA agent’s identity as part of the Bush administration’s attempts to make the case for the invasion of Iraq in 2003. Lewis “Scooter” Libby, former chief of staff to vice-president Dick Cheney, was convicted of perjury in connection with the case but had his jail sentence commuted by Mr Bush last month.





End of the road for the Republicans’ Architect
By Edward Luce in Washington
Copyright The Financial Times Limited 2007
Published: August 13 2007 18:34 | Last updated: August 13 2007 18:34


At a White House press conference last November, the day after the Republican Party’s convincing defeat in the mid-term congressional elections, George W. Bush made a double-edged quip about Karl Rove.

When asked who was winning the reading competition the president and his political “boy genius” had apparently embarked upon, Mr Bush said: “I’m losing. Obviously I was working harder in the campaign than he was.”

Last November’s electoral “thumping” – as Mr Bush dubbed it – brought to an end the historic six-year run of Republican triumphs that brought two White House and three congressional victories and the majority of state governorships.

In the eyes of critics, the 2006 defeat also sounded the death knell of “Rovianism” – an electoral strategy that involved polarizing the two parties in order to shore up and enthuse the Republican party’s base.

That approach worked brilliantly in 2002, when for the first time in nearly 70 years a sitting president’s party regained control of the Senate and increased its share of the House of Representatives. It also defeated John Kerry, the Democratic candidate, in 2004 – although by a whisker.

But by 2006 Rovianism was a spent force. On Tuesday, as Mr Rove returns to his home in Texas to write a book, the Republicans face what many are predicting will be as sweeping a defeat in 2008 as the victories Mr Rove engineered during the first half of Mr Bush’s presidency.

For the man whom Mr Bush proclaimed as the “architect” of a Republican realignment that would last a generation, Mr Rove’s departure comes at a low point in his party’s fortunes. What happened to cause its sudden collapse?

Critics of Mr Rove say that his strategy of polarizing the electorate was one of ever-diminishing returns.

By giving Mr Rove as decisive a role in the day-to-day running of the White House as he played in the election campaigns, Mr Bush ensured that policy would be subordinate to politics in his administration.

“Ultimately if you divide and polarize, it is more difficult to govern well, and if you govern badly then you start losing support,” said David Frum, a former speech writer for Mr Bush. “The failure of policy in the Bush administration was a direct result of the success of its politics.”

Rovianism also differed in critical ways from Reaganism, whose success Mr Rove hoped to emulate.

Rather than polarizing the electorate, Ronald Reagan’s approach in the 1980s was to divide the opposition by bringing up so-called “wedge issues”, such as welfare reform or being tough on crime, which would split the Democrats.

In contrast, Mr Rove’s approach simply united the opposition. Rovianism also alienated independents, roughly two-thirds of whom now lean towards the Democratic Party.

“Karl Rove’s idea was that you only need 50 per cent plus one voter in order to govern,” says Cal Jillson, a professor at the Southern Methodist University in Dallas. “He was wrong. That’s about winning elections. To govern is quite a different matter.”

One exception to Mr Rove’s polarizing tendency was his support for a relatively liberal immigration reform, which had more backers in the Democratic Party than among Republicans. But that bill, which was designed to lure the rapidly expanding block of Hispanic voters into the Republican tent, crashed in June – bringing to an end Mr Bush’s last big domestic ambition.

Other signature policies, such as the creation of private Social Security accounts and a market-based reform of America’s expensive health care system, also floundered on the rubble of the profoundly unpopular war in Iraq.

In a speech he gave in June 2006, Mr Rove talked about the creation of a permanent Republican majority and said the Democrats were on the wrong side of history. Mr Rove also reminded Republicans what had happened to the long-running Democratic majority that was supplanted in the 1970s.

He said the Democrats’ demise offered a “cautionary tale of what happens to a dominant party when its thinking becomes ossified, its energy begins to drain and when political power becomes an end in itself rather than a means to achieve the common good.”

A year later Mr Rove’s words offer a good summary of where conventional wisdom lies on the Republican Party.

International Herald Tribune Editorial - Talking to Musharraf before it's too late

International Herald Tribune Editorial - Talking to Musharraf before it's too late
Copyright by International Herald Tribune
Published: August 12, 2007


The U.S. secretary of state, Condoleezza Rice, helped head off what could have been a political cataclysm by calling General Pervez Musharraf at 2 a.m. in Pakistan on Thursday and talking him out of seizing new powers to suspend Parliament, hamstring the courts, curb street demonstrations and guarantee himself a new presidential term.

But the crisis may only have been postponed.

Pakistan's military dictator has worked himself and his friends into a tight corner. The country's geographic location, adjoining Afghanistan, Iran, India and China, makes it one of America's most important allies.

Musharraf's reckless political trajectory is turning him into one of the Bush administration's most dangerous partners.

More than early-morning crisis management will be needed to keep this very difficult situation from turning drastically worse. After eight years of authoritarianism and broken promises, Musharraf has forfeited the support he once enjoyed among ordinary Pakistanis, educated professionals and even fellow military officers.

While he regularly pleads that he is too weak to crush the Taliban and Al Qaeda forces that find ready sanctuary inside his country, he has shown no lack of enthusiasm for lashing out at Pakistan's reawakening civil society. Most Pakistanis now want a return to elected civilian government, even if that means bringing back some of the flawed party leaders the general has tried to banish from political life, like two former prime ministers, Benazir Bhutto and Nawaz Sharif.

If Musharraf tries to cling forcibly to power over growing protests, the most likely beneficiaries are militant minorities, from armed Islamist groups to conspiratorial military nationalists. These extremists stand ready to exploit the resulting tensions to their own advantage. Their political representatives have never attracted majorities when Pakistan has held reasonably fair elections. But if they managed to seize power in a political crisis, they would gain control not only of Pakistan's strategic frontiers, but of its nuclear arsenal and know-how as well.

Telling Musharraf not to seize still more power is not enough.

Washington should tell him to negotiate a rapid return to democracy, before it is too late.

Karl Rove, Adviser to President Bush, to Resign

Karl Rove, Adviser to President Bush, to Resign
By Peter Baker and Debbi Wilgoren
Copyright by The Washington Post
Monday, August 13, 2007; 7:34 AM

Karl Rove, the architect of President Bush's two national campaigns and his most prominent adviser through 6-1/2 tumultuous years in the White House, will resign at month's end and leave politics, a White House spokeswoman said this morning.

Bush plans to make a statement with Rove on the South Lawn this morning before the president departs for his ranch near Crawford, Tex. Rove, who holds the titles of deputy chief of staff and senior adviser, has been talking about finding the right time to depart for a year, colleagues said, and decided he had to either leave now or remain through the end of the presidency.

"Obviously it's a big loss to us," White House spokeswoman Dana M. Perino said this morning. "He's a great colleague, a good friend, and a brilliant mind. He will be greatly missed. But we know he wouldn't be going if he wasn't sure this was the right time to be giving more to his family, his wife Darby and their son. He will continue to be one of the president's greatest friends."

Rove, 56, who escaped indictment in the CIA leak case, has been under scrutiny by the new Democratic Congress for his role in the firings of U.S. attorneys and in a series of political briefings provided to various agencies across government. Citing executive privilege, he defied a subpoena and refused to show up for a congressional hearing just two weeks ago on the allegedly improper use by White House aides of Republican National Committee email accounts. Fellow Bush advisers have said they believe the congressional probes have been aimed in part at driving Rove out.

The White House said his departure was unrelated to the investigations. In an interview published this morning, Rove told Wall Street Journal editorial page editor Paul A. Gigot that he had been interested in leaving last year but did not want to go immediately after the Democrats took over Congress, nor did he want to abandon Bush as he fought for his troop buildup in Iraq and an immigration overhaul.

"I just think it's time," Rove told Gigot in comments confirmed by the White House. The Journal said White House Chief of Staff Joshua B. Bolten told Rove and other senior aides that if they stay past Labor Day, they would be expected to remain through the end of the second term, Jan. 20, 2009.

"There's always something that can keep you here," Rove said, "and as much as I'd like to be here, I've got to do this for the sake of my family."

Rove said he was finished with political consulting and plans to spend much of his time at his house in Ingram, Tex., with his wife, Darby, and near their son, who attends college in San Antonio. He said he plans to write a book about Bush's years in office, a project encouraged by the president, and would like to teach at some point, but has no job lined up for now. He does not plan to work on a presidential campaign nor would he endorse a candidate.

Rove is the latest of a string of high-profile presidential aides to head for the door as the Bush administration enters its final stages. In recent months, presidential counselor Dan Bartlett, budget director Rob Portman, deputy national security advisers J.D. Crouch and Meghan O'Sullivan, political director Sara M. Taylor, strategic initiatives director Peter H. Wehner and a string of other longtime aides have resigned one after the other.

None came close to Rove's stature or influence, however. His departure is the end of an era in modern GOP politics, the conclusion of 14 years that began with advising the son of the last Republican to hold the White House, then guiding that son first to the Texas governor's mansion and, ultimately, to the White House. Along the way, Rove became the most prominent political strategist of his generation and a bete noire for liberals and even a number of conservative critics.

Along with Karen Hughes and Joe Allbaugh, Rove was part of a group known as the"Iron Triangle" who were central to Bush's early political success in Texas, but he was the most enduring of the three. Bush termed him "The Architect" for his role in capturing the White House in 2000 and Rove was similarly credited with midterm Congressional election victories in 2002 and Bush's reelection over Sen. John F. Kerry (D-Mass.) in 2004. The ouster of the Republican Congress in 2006, punctured Rove's long winning streak and empowered his enemies.

Rove's influence extended far beyond the politics of electioneering, deep into policymaking. He helped craft the first-term Bush agenda of tax cuts, which succeeded, and the second-term agenda of Social Security private accounts, which did not. More broadly, he provided the intellectual and historic framework for the Bush presidency and hoped to use it to open a new era of Republican political dominance, a project that today looks potentially crippled by the unpopularity of both the president and the Iraq war.

Rove was investigated for his role in leaking the identity of Valerie Plame, a CIA operative whose husband publicly criticized the administration's handling of prewar intelligence. Although White House spokesman Scott McClellan initially spoke with Rove and publicly denied that Rove had anything to do with the leak, the investigation later determined that he had in fact divulged or confirmed Plame's identity to columnist Robert Novak and Time magazine reporter Matthew Cooper.

Special counsel Patrick J. Fitzgerald brought Rove before the grand jury multiple times and considered charging him in the case but ultimately decided not to. Fitzgerald did indict I. Lewis "Scooter" Libby, Vice President Cheney's chief of staff, who was convicted of perjury and obstruction of justice for lying to investigators, although Bush later commuted his sentence. Libby's attorney asserted at his trial that he was being sacrificed to protect Rove.

Rove told Gigot that he remains confident Bush will recover politically despite his low approval ratings. "He will move back up in the polls," Rove said. And he said Republicans could still retain the White House next year. The Democrats are likely to nominate Sen. Hillary Rodham Clinton (N.Y.), "a tough, tenacious, fatally flawed candidate," he said, but Republicans have "a very good chance" of beating her.

Rove laughed off his own reputation as the svengali of the Bush presidency. "I'm a myth," he said. "There's the Mark of Rove. I read about some of the things I'm supposed to have done and I have to try not to laugh."

Staff writer Howard Schneider contributed to this report.

Karl Rove Karl Rove has been a key player in George W. Bush's political career dating back to the president's 1994 victory in the Texas gubernatorial race.
Age: 56; Born: Dec. 25, 1950.

Education: Attended the University of Utah, the University of Texas at Austin and George Mason University; has taught at the LBJ School of Public Affairs and in the journalism department at the University of Texas at Austin.

Experience: Senior adviser and assistant to President Bush, January 2001-present; chief strategist for Bush's 2000 presidential campaign; president of Karl Rove Company, an Austin-based public affairs firm, 1981-1999; deputy chief of staff to Texas Gov. William Clements, 1981; executive director of the Fund for Limited Government, 1977-78; special assistant to Republican National Committee Chairman George H.W. Bush, 1973-74.

Study of gay brothers may find clues about sexuality

Study of gay brothers may find clues about sexuality
By Robert Mitchum
Copyright © 2007, Chicago Tribune
August 12, 2007


In Gregg Mierow's family, there were six boys, brothers who grew into two groups as they reached maturity: Three are gay, and three are straight.

"It seems innate to me," Mierow, who works in advertising and as a yoga teacher in Chicago, said of his homosexuality. "It doesn't seem like there's any choice involved, and it seemed very clear even when we were very young."

Mierow stumbled upon a chance to help prove that hunch at the Northalsted Market Days festival four years ago. Spotting a banner reading, "Wanted! Gay Men with a Gay Brother," he stopped by the booth and volunteered for what he thought would be little more than a survey.

Instead, Mierow found himself part of the Molecular Genetic Study of Sexual Orientation -- the most extensive study yet to search for a genetic basis for homosexuality -- embarked upon by a team of Chicago researchers from local universities.

The scientists hope that by gathering DNA samples from 1,000 sets of gay brothers like the Mierows they will be able to find genetic linkages smaller studies failed to detect. They'll be recruiting brothers again at the Halsted Street festival this weekend.

The results may ignite controversy, the researchers acknowledge, both by providing ammunition in the raging cultural war over homosexuality and by raising fears about ethically questionable applications like genetic profiling and prenatal testing.

But, they argue, the research is essential to our biological understanding of sexual behavior.

"If there are genetic contributions to sexual orientation, they will not remain hidden forever -- the march of genetic science can't be stopped," said Timothy F. Murphy, bioethicist adviser to the study. "It's not a question of whether we should or should not do this research, it's that we make sure we're prepared to protect people from insidious uses of this science."

Although the question of whether homosexuality is a choice remains a hot topic for pundits, scientists are largely in agreement that sexual orientation is at least partially determined by biology.

Studies that compare identical and fraternal twins for the frequency of a particular behavioral trait have consistently suggested there are both genetic and environmental causes of homosexuality. Identical twins, who share 100 percent of their genes, show a higher chance of both being gay compared with fraternal twins, who typically share the same family environment but only half their genetic code.

Researchers also have found physical traits that correlate with homosexuality, from the relative size of certain brain areas associated with sexual behavior to seemingly irrelevant characteristics like hair whorl direction and finger-length ratios.

Inspired by the accumulating circumstantial evidence of genetic factors, researchers in the early '90s began trying to narrow down the wide expanse of DNA to a few promising regions. By comparing the genetic codes of gay brothers, who also share 50 percent of their genes, a "linkage study" tries to detect areas that show up in both men at a frequency higher than chance, suggesting one or more genes in that region might be linked to sexual orientation.

In 1993, geneticist Dean Hamer announced his group had found such a region on the X chromosome, which males inherit from their mothers. But the number of brother pairs used in the study was small and subsequent studies failed to replicate Hamer's findings, throwing the result into question.

"In complex gene scenarios, people figured out that you need a larger sample size in order to get reasonable statistical power," said Dr. Alan Sanders, a psychiatrist at Evanston Northwestern Healthcare and the leader of the current study.

To increase the chances of finding genetic areas associated with homosexuality, Sanders proposed assembling almost 10 times the sibling pairs of previous studies. The project received funding in 2001 and began recruiting subjects at gay pride festivals, through gay-oriented publications and on the Internet.

So far the Chicago researchers have obtained blood or saliva DNA samples and survey data from more than 600 brother sets, with several hundred other volunteers in the process of submitting one or the other. Sanders hopes to publish his findings from the first wave of DNA samples in a scientific journal sometime next year.

Sanders cautioned a linkage study can single out only regions of the genetic code, not individual genes.

"One of the advantages of linkage studies is that we don't have to know those things ahead of time," Sanders said. "It's a big advantage here because we don't know about the biology of sexual orientation yet, so we can find the genes first and then study the biology."

At this point, the researchers do not know what types of genes they may find; they could be related to hormones, sexual development or a completely unexpected system.

"The genes would probably be doing their work by affecting sexual differentiation of the brain during prenatal life," said J. Michael Bailey, a Northwestern University psychology professor involved with the project. "But what scientists are increasingly appreciating is that genes can affect a trait in ways you could never have guessed."


The hunt for specific genes that affect sexual orientation may take several years, but the implications of this eventual finding are being fiercely debated already.

"I think this kind of research receives a lot more criticism and attention because people often think it has profound implications for social and moral decisions," Bailey said. "This is a controversial area. Even though it fascinates people, it scares people from the research end."

Researchers involved with the project believe finding a genetic linkage will help settle arguments over whether homosexuality is a choice or an innate trait.

"A lot of times people we talk to see this research as providing evidence for something they may [have] already had a notion for, that sexual orientation is influenced by pretty early events out of their control," said Sanders.

Sanders also suggested that as proof of biological predisposition grows, so too does acceptance and tolerance of homosexuals. A Gallup poll conducted in May indicated 42 percent of the surveyed population believe homosexuality is biologically determined -- the highest percentage witnessed in 30 years of polling.

Study volunteer Jason Palmer of Chicago said he hopes evidence of a biological source for homosexuality would change people's opinions on sexual orientation.

"Our strongest opponents are the religious right, many of whom feel that God does not make mistakes," Palmer said. "So if it's a genetic factor and proven, perhaps many of them will find an acceptance for homosexuals."

But some outside observers worry about how proof of a genetic component to homosexuality might be used politically and even medically.

"If you do research on any human behaviors that would allow us either to treat the behavior or to prevent it altogether by prenatal testing, you have got to ask yourself serious questions about societal context in which this type of research takes place," said Udo Schuklenk, a professor of philosophy at Queen's University in Kingston, Ontario.

Critics fear identifying a biological component will lead to prenatal testing and perhaps even treatments for homosexuality. While both Sanders and Bailey expressed doubt about the scientific feasibility or public demand for such applications, Schuklenk suggested they were not considering the worldwide implications.

"I understand why U.S. gays want to know why gay people are gay and understand where they are coming from -- there are legal reasons, and the agenda is progressive within the context of the U.S.," said Schuklenk. "What worries me is that they show a complete disregard of repercussions of research on the international scale, for gay people in societies where civil rights are not as well-protected."

Mierow said he considered the potential negative ramifications when he volunteered for the study but trusted that changing social views on homosexuality will intervene.

"I hope that by the time science gets to the point [of prenatal testing], society would have progressed enough to not have those feelings," Mierow said. "I feel like I have more trust in science. It seems like a lot of the bigotry is coming out of religion."

"People who say that, 'We shouldn't know X because knowing X is dangerous,' to me those are the dangerous people," Bailey added. "They have provided no good evidence that knowing things is risky; ignorance is what messes us up."

For now, these discussions will remain largely theoretical until the results of Sanders' study, as well as others in progress around the country, begin to be released.

As Bailey noted, the results won't just add to knowledge about the roots of homosexuality, they may also answer more general questions about gender and sexuality.

"Knowing what causes sexual orientation is important scientifically," he said. "It's an important aspect of who we are and will provide knowledge about the development of gender, how men and women differ from each other."

-----------

rmitchum@tribune.com

Lutherans ask bishops to keep gay clergy in ministry

Lutherans ask bishops to keep gay clergy in ministry
By Margaret Ramirez
Copyright © 2007, Chicago Tribune
7:26 PM CDT, August 11, 2007

In a historic decision that could shift the future of their church's policy on sexuality, the nation's largest Lutheran denomination Saturday urged its bishops to refrain from disciplining gay ministers who are in committed same-sex relationships.

The resolution came from Chicago's Bishop Paul Landahl on the final day of the Evangelical Lutheran Church of America's national meeting at Navy Pier. After emotional testimony on the biblical interpretation of homosexuality, church leaders passed Landahl's resolution by a vote of 538-431. Saturday's resolution surprised some in the church because it came a day after leaders defeated a measure that would have ended the ban on non-celibate gay clergy.

For church advocates who support inclusion of gays in the church, the resolution was hailed as a partial victory and a step toward full inclusion of homosexuals in the church. But conservative leaders saw the move as contradictory to the church's policy against ordination of gay ministers and predicted the resolution would open the door to chaos in the church.

At a news conference after the resolution passed, ELCA Presiding Bishop Mark Hanson said the new measure expressed a desire to find "some space and place" for how the church might live together.

"I interpret that as a way to reflect this journey of conversation, discussion, decision, seeking to be faithful to the authority of Scripture, the interpretation of our confession and mindful of the very context in which we are engaged in God's mission," he said.

The renewed debate on homosexual clergy in the ELCA stems from the case of Rev. Bradley Schmeling, an Atlanta pastor who was removed from the clergy roster in July after he told his bishop he was in a relationship with a man. The new measure prevents his bishop from seeking further disciplinary action, but does not re-institute Schmeling's status.

"I'm grateful the resolution passed, because now no one else will have to go through what I went through," Schmeling said.

"What I hope we've done is provide some relief for others in the church who now may not face discipline. And they can live with a little less fear and a little more confidence that the church isn't out to get them. Even though we've got a long way to go to get an overall change in the policy, maybe we can take a deep breath and we don't have to be so afraid anymore," he said.

Hanson said it was too early to offer any explanation of how the measure would be interpreted. But he focused on the official words in the resolution, which state: "the assembly prays, urges, and encourages synods, synodical bishops and the presiding bishop to refrain from or demonstrate restraint" in disciplining those who are in a faithful, committed same-gender relationship.

"These are words of counsel," Hanson said. "They are not words that change the standards of the church . . . or the guidelines for discipline. But they reflect the mind of this assembly as it seeks to give counsel to the leaders of this church."

"I would say to all people of this church, those that are disappointed that we didn't take actions to change policies, and those that are fearful we are on the way, we are still engaged. And our best [hope] would be our attempt to listen to those with whom we don't agree," he said.

The 4.8 million-member Evangelical Lutheran Church in America, which is based in Chicago, is the nation's largest Lutheran denomination. The Lutheran Church-Missouri Synod and the Wisconsin Evangelical Lutheran Synod are separate denominations that accept a literal interpretation of the Bible and do not ordain gays.

An ELCA task force is developing a comprehensive statement on sexuality to be released in 2009 that is expected to influence church policy. Another resolution passed Saturday asked the task force to address policies that preclude practicing homosexual people from the rosters of the church.

"The church is on the road to acceptance," said Emily Eastwood, executive director of Lutherans Concerned. "With this decision, the voting members signaled a desire for policy change, but the need for two more years to bring more of the church along."

Conservative leaders in the church, like Rev. Mark Chavez, director of the conservative Word Alone Network, said the disciplinary measure contradicted church policy and provided a loophole for gay clergy to minister. He also expressed concern the measure would lead to widespread lawsuits if a bishop chose to use discipline. He said the new resolution gives bishops permission to ignore the standards and disregard the clear word of God. But Chavez stopped short of saying the measure would split the denomination.

"Any time you start ignoring God's word on matters, you better watch out because you're in dangerous territory," he said.

Jaynan Clark Egland, president of Word Alone Network, said the measure created a double standard for discipline.

"I don't know as a Christian, as a pastor and as a parent, what really would be worse—a church with no biblical standards to govern our ministry or standards we don't intend to enforce. To refrain from discipline in the home is bad parenting, but we're about to do so in the Christ's church."

mramirez@tribune.com

True story - A gay adoption

Friday 8:21 am

Well, it has been less than 24 hours since we found out that we would definitely be receiving two young children into our home to live with us.

For those who need to be brought up to date, Lee and I have wanted children for some time and in the Spring, started foster parenting classes. We knew it would be a long road, and thought that we would have our first child sometime before Christmas. We were very surprised that it happened this week, especially since we had not even gotten our state license (the agency had to do a rush on it, last minute).

So, when we received the call yesterday, I got so emotional that I started crying in the front yard. I pulled myself together and spent the rest of the day running around town getting the house prepared for our new arrivals. How, in a few hours, do you make a house ready for kids that you have never seen or met and who must be terrified at the changes taking place in their life????

Their names are Brandy and Michael. Brandy is 4 and a half years old. She is bright, very well spoken for her age, protective of her brother, loves to color, loves all things pink, likes her hair brushed, and loves costumed jewelry. Her little brother, Michael, is a little over 3 years old. He loves trucks, cars, playing ball, and is very attached to his sister. They both love to get hugs and kisses which Lee and I will be more than happy to provide.

So, last night, we got one more bed, pull-up diapers, all of the shampoos and lotions that little kids' skin needs, a teddy bear, wind up truck, and puppets for Michael and a stuffed Pink Pig, tiara with matching earrings, and art supplies for Brandy. We also made sure we had toys for bath time.

I ran around the house making colorful signs on the doors to help them get used to their surroundings, Lee made sure we have peanut butter and jelly sandwiches (their favorite) and cookies to calm their fears. And I am going to do my best not to cry every time I think about how lucky Lee and I are to have been given this chance to help these two wonderful, loving, children.

We will keep you posted.

Friday 11:17pm

Brandy and Michael have been asleep for a couple of hours now. It was hard getting them to fall asleep tonight, but its understandable. What can I say? These kids are absolutely wonderful. I haven't been so exhausted in years, but I wouldn't trade it for anything. They took to Lee and myself immediately. We know this is the "honeymoon period". We are working to establish a routine and structure so that they know what to expect and are hopefully less likely to challenge us as much. Time will tell. Boy can they eat! We went through almost a whole loaf of bread, 1/2 jar of putter butter and jelly, 4 cookies, chicken, broccoli, tater tots, carrots, and ice cream. We were very lenient considering it was their first day and we want them to feel secure. They each came with a box full of clothes and toys, but most of their toys were broken (1 armed dolls, etc- think land of misfit toys) and their clothes are out of season or soiled. We will get them new things in time. Right now we are working to make them feel safe, secure, and loved, and boy are they loved! They also met the neighbors kids tonight, played in the swimming pool with them, and generally had a good time. It was a very good first day. Good nite.

David and Lee Neubecker

International Herald Tribune Editorial - Getting the rescue right

International Herald Tribune Editorial - Getting the rescue right
Copyright by The International Herald Tribune
Published: August 10, 2007


Help has been way too slow in coming for the estimated 1.7 million people in America who will lose their homes to foreclosure this year and next. A modest bill to bolster funds for state, local and nonprofit agencies that help hard-pressed homeowners renegotiate their mortgages and restructure their debts has been slogging through the Senate since April, and it won't be passed until October at the earliest - if ever.

On the presidential campaign trail, Senator Hillary Clinton recently promised to introduce a similar relief measure - next month.

There has been far less procrastinating, however, when it comes to offering help to investors, bankers and other lenders who are feeling squeezed as the mortgage mess restricts their access to easy money.

Thursday's smackdown in the stock market - like others this year tied to mortgage woes - will likely only intensify lawmakers' desire to ride to the rescue of well-heeled constituents.

Earlier this week, two friends of Wall Street, Senator Christopher Dodd and Senator Charles Schumer, called on federal regulators to ease restrictions so that Fannie Mae and Freddie Mac - the quasi-government mortgage agencies - can buy more mortgages and mortgage-related securities from lenders. That would grease the creaky mortgage-lending process with fresh capital. The White House is considering their proposal.

What is absolutely crucial, however, is that Fannie Mae and Freddie Mac be required to use that enhanced capacity to help homeowners who are in distress.

That means buying only from lenders who commit to using their newfound capital to refinance loans for borrowers now facing default and foreclosure. Otherwise, easing the restrictions could benefit lenders and investors, without reaching the Americans who are in the direst straits.

Many strapped borrowers stuck in subprime loans, with adjustable rates that reset sharply upward, could have qualified for higher-quality loans to begin with. Instead they were steered into the sub-prime variety by brokers who earned bigger fees on dodgier mortgages. Now that the lenders are suddenly in trouble and credit standards have been tightened, those borrowers cannot refinance into higher quality, more affordable loans. They clearly deserve help to keep their homes.

In other instances, borrowers with weak credit ratings, who had no choice a few years ago but to take out sub-prime loans, now have track records of good payments. They should also be allowed to refinance into loans that would allow them to keep their homes.

Policymakers must also acknowledge that even if the limitations are eased on Fannie and Freddie - and the freed-up credit is used to help responsible borrowers trapped in irresponsible loans - there will still be many more struggling homeowners who need help.

As a quid pro quo for freeing up capital via Fannie and Freddie, policymakers and regulators must pressure lenders to do more to restructure needy borrowers' loans. Lenders could extend the low teaser rates that got marginal buyers into their now unaffordable loans, or raise those loan rates gradually rather than in one explosive surge.

And when lawmakers return to Washington in September, they must complete legislation to help states and localities provide the ever-increasing numbers of at-risk borrowers with assistance in modifying their loans. American homeowners need a hand now.

Bush aide: U.S. may need draft

Bush aide: U.S. may need draft
Cop[yright by The Associated Press
July 11, 2007


WASHINGTON - Frequent tours for U.S. forces in Iraq and Afghanistan have stressed the all-volunteer force and made it worth considering a return to a military draft, President Bush's new war adviser said Friday.

"I think it makes sense to certainly consider it," Army Lt. Gen. Douglas Lute said on National Public Radio's "All Things Considered."

"And I can tell you, this has always been an option on the table. But ultimately, this is a policy matter between meeting the demands for the nation's security by one means or another," Lute added in his first interview since he was confirmed by the Senate in June.

President Richard Nixon abolished the draft in 1973. Restoring it, Lute said, would be a "major policy shift," and Bush has made it clear that he doesn't think it's necessary.

"The president's position is that the all-volunteer military meets the needs of the country, and there is no discussion of a draft. Gen. Lute made that point as well," National Security Council spokesman Gordon Johndroe said.

In the interview, Lute also said that "Today, the current means of the all-volunteer force is serving us exceptionally well."

Still, he said the repeated deployments in Iraq and Afghanistan affect not only the troops but their families, who can influence whether a service member decides to stay in the military.

"There's both a personal dimension of this, where this kind of stress plays out across dinner tables and in living room conversations within these families," he said.

If price is right, Daley still betting on casino

If price is right, Daley still betting on casino
By Gary Washburn and Ray Long
Copyright © 2007, Chicago Tribune
August 11, 2007


Mayor Richard Daley may be cool to the current casino proposal in Springfield, but he still wants a gambling palace for Chicago -- if he gets the right deal.

Plans for a Chicago casino that would be tied to a major state funding bill stalled late in the week amid political infighting at the statehouse and a debate about whether the mayor supports the plan.

"Everybody is for the concept, but you have to look at the particulars," Daley said Friday, the latest in a series of noncommittal public comments about the proposal. "It's like a contract, and you start looking at the particulars, and you find out what it is all about."

Daley said a single casino, which some have estimated could produce up to $1 billion in annual revenue, would not generate enough money to fulfill the needs of education, mass transit, bridges, roads and other projects that legislators envision.

"I just want to tell you something. Don't buy the Brooklyn Bridge if someone tries to sell it to you," Daley said.

City Hall sources said the mayor fervently wants a casino, just not the way the legislation is written.

For example, the revenue split is so wide -- with money potentially going to education, schools, construction, mass transit and other projects -- that Chicago could get less than $30 million a year, the sources close to the mayor said.

As host city, Chicago wants a bigger cut of the revenue, possibly in the area of $140 million annually, the mayoral sources said. A portion of that could be used to leverage as much as $1.3 billion for capital, with 60 to 70 percent of the money divided among schools, parks, libraries and museums and the rest for city infrastructure. The rest of that $140 million -- possibly between $50 million and $60 million -- could be used for city operating expenses, the mayoral sources said.

The Daley administration is also skeptical that a casino could start generating money almost immediately. It would take time to plan, license, fund and build such a project -- perhaps several years -- particularly when the fight over the issues surrounding the failed Rosemont casino are taken into consideration, the sources said.

Even if a temporary casino could get up and running, it could take three years or more before the initial amount of money starts coming in, the sources said. It could be twice that long before a full-blown, land-based casino could be operating full out, the sources said. The cost of getting as many as 10 acres of expensive land near downtown, building a parking deck that could handle thousands of cars and constructing a first-class casino would be well over $1 billion, possibly even twice that, depending on the amenities, the sources said.

In Springfield, House Speaker Michael Madigan (D-Chicago) questioned why senators, who have been working with Gov. Rod Blagojevich, would try to craft a bill on their own when Daley has said "if a proposed casino does not meet his specifications, that he wouldn't give the permit for the construction."

"The mayor has said consistently he's not going to issue the permit unless he agrees with it, OK?" Madigan said. "They all know that."

----------



gwashburn@tribune.com

rlong@tribune.com

Banks leap in to add liquidity - By throwing billions into the market, they risk hurting their own inflation

Banks leap in to add liquidity - By throwing billions into the market, they risk hurting their own inflation
By Eoin Callan in Washington and Jamie Chisholm in London
Copyright The Financial Times Limited 2007
Published: August 11 2007 03:00 | Last updated: August 11 2007 03:00


The message from central banks to investors only four days ago was: "Trust us. We've got it all under control." But since then, the tightness in credit markets has developed into a blockage in the overnight flow of money between financial institutions in Europe, the US and Asia.

Central banks have been forced to inject massive doses of liquidity in excess of $100bn into overnight lending markets, in an effort to ensure that the interest rates they set are reflected in real-time borrowing.

The European Central Bank has acted most aggressively, lending €61bn to institutions to tide them over the weekend after injecting €95bn on Thursday. The Federal Reserve said yesterday it was "providing liquidity to facilitate the orderly functioning of financial markets". The New York Fed agreed to accept as collateral more than $30bn of mortgage-backed securities, which are being shunned by investors. The Bank of Japan injected Y1,000bn ($8.5bn).

The goal of the banks is to prevent overnight interest rates rising far above the level they have determined to be conducive to growth and low inflation. In the US, the federal funds rate opened yesterday at 6 per cent, the highest in six years, before the Fed acted to bring it down. The Fed is protecting an interest rate of 5.25 per cent, the ECB a rate of 4 per cent, and the BoJ an overnight target of 0.5 per cent. But all have mused recently on the prospect of raising rates.

By moving to lower rates and calm fears of a credit crunch, the central banks risk undermining the message that they may have to lift the cost of borrowing in the near future to address inflationary pressures and wider macroeconomic factors.

So far, central banks are all trying to tread a line between providing whatever liquidity is needed at current rates on the one hand and changing their interest rate plans on the other.

The ECB faces the most immediate pinch, as it has already signalled that it intends to raise rates next month. "The contradiction of raising rates and supplying emergency liquidity will not be lost on the ECB," says Alan Ruskin, a currency strategist at RBS Greenwich Capital.

"If this crisis of confidence in the money market continues in the run-up to the next ECB meeting, it will make a September rate hike much less of a certainty."

But Amit Kara, a UBS economist, said there was no contradiction in the ECB adding liquidity to the market while at the same time letting investors believe it would raise interest rates in the autumn.

"One is about a short-term lubrication and one is about long-term policy," he said.

There were signs yesterday that while the intervention was having the desired effect, it had not yet restored an equilibrium and might continue next week.

"We haven't seen the end yet. The tightness in money markets is spreading and affecting rates beyond just the overnight rate. The ECB has not extinguished the crisis of confidence," said Lena Komileva, group G7 economist, at Tullet Prebon.

"The irony is that the ECB is doing what they should by injecting liquidity, but by doing so they are underlining for investors that credit problems that arose in the US are causing serious distress in Europe," she said.

But most central bank economists defended the actions of the ECB, Fed and BoJ as prudent. The rush to shore up markets was imperative rather than optional, they said.

The advent of deep and liquid capital markets has been credited by policymakers with giving the current global economic expansion the flexibility needed to adapt to adversity.

"If risk aversion remains high, banks and primary dealers may hoard cash, preventing its flow into the broader financial markets," says Bruce Kasman, chief economist at JP Morgan.

"Under this scenario, the stability of the financial system would be threatened along with the macro-economic outlook," he says.

"The Fed along with other central banks would be quick to respond by adjusting the path of policy they are currently following."

Repo market little known but crucial to the system

Repo market little known but crucial to the system
By Michael Mackenzie in New York
Copyright The Financial Times Limited 2007
Published: August 11 2007 03:00 | Last updated: August 11 2007 03:00


The repurchase, or repo, market is a little-known part of the financial system but it acts as a crucial safety valve in times of stress. It enables the flow of cash between central banks and financial institutions, providing the plumbing that keeps markets functioning smoothly.

This week, as financiers faced higher overnight borrowing costs in the money markets, central banks came to the rescue and flooded the financial system with cash. This was done to keep in line with one another the actual and target overnight borrowing rates, such as the US Federal Reserve's Fed funds rate.

The Fed injects cash into the money market on a daily basis so that the effective rate stays near its present target level of 5.25 per cent. Early yesterday the effective funds rate traded at 6 per cent as banks demanded higher rates to lend to each other, and then fell towards 5.375 per cent after the Fed injected $35bn (€26bn, £17bn) in two separate operations.

This week, money market rates for eurodollar deposits and commercial paper rose well above normal levels. That meant banks, companies, insurers and hedge funds that rely on using short-term funding faced higher costs.

That pressure pushed the Fed funds rate higher, which, if sustained, could imperil the economy.

In the Fed's repo operation, dealers posted mortgage securities as collateral and received cash in return from the Fed. Next week, the dealers and the Fed will reverse the trade. Usually, the Fed does not accept mortgages as collateral for repo transactions but the move signals an attempt by the central bank to alleviate financing fears.

Wall Street dealers are seeking the sanctuary of government bonds and are selling their holdings of riskier assets such as mortgages.

Traders said that if the financing problems continued and the effective funds rate remained above its target level, the Fed was likely to repeat repo operations until the market settled down.

"Central banks can ultimately fix a liquidity crunch by shipping in boatloads of cash and they are effectively doing that," said Alan Ruskin ofRBS Greenwich Capital.

"There is very little doubt that they will come through in the end."

Regulator rebuffs US mortgage giant's offer to ease subprime pain

Regulator rebuffs US mortgage giant's offer to ease subprime pain
By Jeremy Grant in Washington
Copyright The Financial Times Limited 2007
Published: August 11 2007 03:00 | Last updated: August 11 2007 03:00


An offer by Fannie Mae to ease conditions in the deteriorating US mortgage market was knocked back by its regulator on Friday, which said it would not lift a cap on the huge housing lender's portfolio.

The move comes after hectic lobbying by Fannie Mae to have the caps, imposed after recent accounting scandals, lifted to allow it to inject liquidity into the secondary mortgage market.

The issue is becoming a flashpoint between the White House and leading Democrats as both sides grapple with the fallout from the global credit turmoil.

The White House insists that legislation reforming Fannie and its sister lender Freddie Mac - giving a new regulator powers to limit their loan portfolios to guard against systemic risk - must first be passed before any such caps are lifted.

Leading Democrats say worsening conditions in the subprime market mean urgent action is needed to help home borrowers.

Yesterday, Daniel Mudd, Fannie chief executive, said he had asked the Office of Federal Housing Enterprise Oversight to raise its loan portfolio by up to 10 per cent "to help alleviate the ongoing credit crunch in the markets and bring an additional measure of stability".

However, Ofheo rejected the request. James Lockhart, its director, said that the problems in the mortgage market were "concentrated in product areas outside the authorised normal business of the enterprises".

The move will disappoint Christopher Dodd, Senate banking committee chairman, who said worsening mortgage market conditions meant the two lenders must be allowed to extend more credit. "The [Bush] administration can't continue to close their eyes to the scope of the problem and hope it goes away," he said.

But Robert Steel, under-secretary for domestic finance at the Treasury, appeared to welcome Ofheo's decision, saying the lenders "are limited in their ability to provide liquidity outside of the [prime] market".

Republicans ‘caught in a bind’ over Bush

Republicans ‘caught in a bind’ over Bush
By Edward Luce in Ames, Iowa
Copyright The Financial Times Limited 2007
Published: August 10 2007 20:30 | Last updated: August 10 2007 20:30


The small crowd of mostly elderly, white Republicans applauds and laughs at Mitt Romney’s talk. Whether he is condemning birth out of wedlock, illegal immigration or the “bickering, partisan ways of Washington”, the former governor of Massachusetts has struck a chord.

At only one point in his interaction with the Republicans of Hampton, Iowa, does Mr Romney mention George W. Bush – and even then with a double-edged compliment about toppling Saddam Hussein in spite of the ensuing “bad mismanagement” of the situation in Iraq.

The unpopularity of America’s 43rd president – even among diehard churchgoing Republicans of the Midwest – is more than just a background irritant for Republicans vying to succeed him in 2009. Mr Bush is a millstone around their necks.

Unlike the Democratic party, which is significantly outshining its rival in fundraising and in the polls, Republicans have a longstanding culture of deference towards their leader in the White House.

But when their president is sinking in the eyes of the majority, it presents a sharp dilemma. “We are caught in a bind,” says a senior staffer on one of the campaigns. “We cannot attack George Bush because we would be punished for disloyalty by the party base. And we cannot endorse him because that would be suicide. So we tip-toe around.”

For the first time in recent memory, the Democrats have a disciplined field of candidates, while the Republicans are in disarray. Whereas Hillary Clinton maintains a clear frontrunner status over her two main rivals, Barack Obama and John Edwards, the 10-strong Republican field is much more fluid.

In a recent opinion poll in Iowa, fewer than one in five Republicans said they were “very satisfied” with their chosen candidate compared with more than half of all Democrats.

Mr Romney is expected to win another straw poll on Saturday partly because the other two frontrunners – Rudy Giuliani, former mayor of New York, and John McCain, senator for Arizona – have decided not to contest it. But that is unlikely to make the picture clearer. Nor, according to strategists, would the belated entrance of Fred Thompson, former TV star and senator who has been agonising for too long about when to throw his hat into the ring.

“Republicans are used to having an heir apparent – and this time it isn’t going to happen, regardless of when Fred Thomson enters the race,” said Frank Luntz, a leading Republican consultant. “No one is looking for George Bush’s endorsement because that would harm his chances. It is very hard to see what could happen to propel one of them to the forefront.”

Another factor sapping Republican enthusiasm is the lack of a viable candidate who can rally activists behind traditional values, such as opposition to abortion, gay marriage and what Mr Romney calls the cultural “cesspool in which our children swim”.

Although Sam Brownback, the social conservative senator from Kansas, and Mike Huckabee, the former governor of Arkansas and Baptist minister, are contending, neither has lit a fire among the faithful of Iowa.

The same applies to Tommy Thomson, former governor of Wisconsin, Duncan Hunter, a hardline congressman from San Diego, and Tom Tancredo, a firebrand anti-immigrant lawmaker from Colorado.

Some Christian conservatives, such as Richard Land, a leader of the powerful Southern Baptist Convention, which speaks for many evangelicals, who account for a third of Republicans, see the fragmentation of social conservative support as an advantage. “It means candidates are competing for our vote,” said Mr Land. “That keeps values on the frontburner.”

It also means Rudy Giuliani, who is the sole Republican candidate to support a woman’s right to choose as well as gay civil union, can mop up a lot of the base that does not belong to the Christian right. Mr Giuliani is leading in the national polls although he is behind in the critical early primary and caucus states of New Hampshire and Iowa.

Mr Romney belongs to the Mormons, whom Mr Land does not consider to be Christian. “Governor Romney’s faith isn’t a deal breaker,” he says. “But he must make it clear he is running to be commander-in-chief, not pastor-in-chief.”

Financial plumber must stem the panic

Financial plumber must stem the panic
By John Authers
Copyright The Financial Times Limited 2007
Published: August 10 2007 19:31 | Last updated: August 10 2007 19:31


When people start talking about infrastructure, the chances are that it has already gone badly wrong. We simply do not notice if everything is working smoothly.

For example, nobody much cares about computer servers, or about the pipes in their house, until they are confronted with an e-mail outage, or a flood in the kitchen.

At that point it is human nature to get very angry with the people responsible for that infrastructure, whether they be the know-it-all from the IT department, or the local plumber. These often innocent and hard-working people have to spend much of their lives being berated by amateurs who do not appreciate the work they have silently been doing.

The same applies to the financial infrastructure. You can build a good career in banking without ever understanding the intricacies of the interbank lending market, or asset-backed commercial paper, or the activities of the US mortgage finance agencies. If these markets function well, as with e-mail servers or pipes, you will not notice them.

If something goes wrong, however, the result is panic, and extreme anger directed at the regulators and central banks that guard the infrastructure. That has happened this month.

On Friday last week, Jim Cramer, the hedge fund manager and television pundit, created an instant YouTube classic on the CNBC business channel as he berated the Federal Reserve, the US central bank, and Ben Bernanke, its head, and told them to bail out the market.

“Bernanke is being an academic!” he screamed. “It is no time to be an academic . . . He has no idea how bad it is out there. He has no idea!

“My people have been in this game for 25 years. And they are losing their jobs and these firms are going to go out of business, and he’s nuts! They’re nuts! They know nothing! . . . The Fed is asleep!”

His outburst, with which many traders agreed, made compelling television. It also contributed to growing panic, as CNBC is ubiquitous background noise in trading rooms.

The week just ended has seen a huge rally, followed by another panic. The rally was sparked by optimism that the authorities would be there to bail out the market – through cheaper money from central banks and through permitting mortgage agencies to buy up “toxic” mortgage securities that nobody else wanted to buy.

The subsequent collapse came as central banks did indeed intervene, but traders realised that the problems with their infrastructure – the pipes of the financial system – were more severe than they had realised.

With basic infrastructure now called into question, this is without question the scariest market incident since stocks began their long recovery early in 2003. All cosy assumptions have suddenly been called into question.

This gives regulators a problem. Unlike plumbers, they have to contend with moral hazard – the risk that bailing out risk-takers now will encourage excessive risk-taking in the future. It is this “academic” theory that people like Mr Cramer dislike. But it is no less true for that. Central banks should only bail out traders who made bad bets if the financial infrastructure is truly in danger.

As long as the problems created by the US subprime mortgage debacle were restricted to difficulties raising the finance for leveraged buy-outs, they could rightly be regarded as nothing more than knocking the froth off the top of an overvalued market.

Bill Poole, the governor of the St Louis Fed, described by Mr Cramer as “shameful” during his outburst, said last month: “The punishment has been meted out to those who have done misdeeds and made bad judgments. We are getting good evidence that the companies and hedge funds that are being hit are the ones who deserve it.”

But now, the problems have reached the world’s very financial infrastructure. Thursday saw sharp rises in the rate at which banks will lend to each other, a critical flow of funds that creates “give” in the financial system. That prompted the European Central Bank’s historic intervention on Thursday, offering money (at the usual interest rates) to any bank that needed it.

But the problem also spread to the asset-backed commercial paper market – the business of raising short-term financing in return for bonds backed by collateral. This paper is normally regarded as very safe, and in the US its rates vary little from the benchmark Fed funds rate.

On Thursday, corporate paper yields – the rate borrowers would need to pay in order to get financing – suddenly rose to their highest in six years. Continuing the plumbing analogy, this was as though a second major pipe of the world financial system had sprung a leak.

With fear now rampant, the Fed itself intervened three times on Friday, offering funds to banks and saying it would accept mortgage bonds as collateral. This step is more extreme than first appears. The Fed used public money to take risk, in the form of high-quality, but stricken mortgage securities off banks’ hands – at least for the short term. That could create moral hazard. The intervention did calm the money market, but stock markets remained in a state of panic.

That panic remains the regulators’ greatest problem. The plumbing analogy is not perfect. If a homeowner is panicking, that does not make it any harder to fix a leak in the pipes. But if markets are panicking – and they are certainly doing so at present – then that in itself makes it harder, if not impossible, to fix the infrastructure of the financial system.

These are dangerous times indeed.

john.authers@ft.com

UN to boost political role in Iraq

UN to boost political role in Iraq
By Mark Turner at the United Nations
Copyright The Financial Times Limited 2007
Published: August 10 2007 19:54 | Last updated: August 10 2007 19:54


The United Nations Security Council on Friday unanimously adopted an ambitious blueprint to boost the UN’s political role in Iraq, almost exactly four years after a truck bomb destroyed its Baghdad headquarters and killed many of its brightest officials.

As coalition forces seek to pull back, sectarian tensions worsen and the humanitarian situation deteriorates, the decision reflects a hope that the UN can breathe new life into Iraq’s flagging political process.

But UN staff are warning against taking on too much too soon, while the Iraqi government has been at pains to assert its authority, saying any expanded UN role should be at its invitation.

Senior UN officials have played down suggestions the UN is being asked to fill a vacuum as the US-led coalition prepares to withdraw.

Instead, they say, the resolution updates political tasks the UN has already begun to take on, and offers the potential for more formal mediation between Iraq’s internal factions – should they want it – as well as with Iraq’s neighbours, such as Iran, Saudi Arabia and Turkey.

The “ceiling” for UN staff numbers in Iraq will be raised from 65 to 95, but the shift will focus on “quality rather than quantity”. Many details still need to be resolved – including the replacement for Ashraf Qazi, the current UN envoy.

One of the UN’s most sensitive tasks will be in the settlement of disputed internal boundaries, including who administers the contested town of Kirkuk.

One UN official described the situation in the oil-rich town, claimed by Kurds, Arabs and others, as a “vast IED (an improvised explosive device)...sitting on the highway to transition”, as tensions rise ahead of a vote to determine the status of Iraq’s disputed regions.

The UN may help design and administer the poll, scheduled for the end of the year, but officials warn the conditions are not in place, and that going too fast could trigger serious instability.

Qubad Talabani, the Kurdish region’s Washington envoy, said: “There could be some merit to a limited UN involvement now,” but it has “got to be Iraqis that make the decision”.

He added: “The longer we delay in resolving this crisis the more likely tensions are going to rise.”

Baghdad is focusing many of its demands on a scale-up of UN humanitarian assistance.

Margareta Wahlstrom, from the UN’s aid arm Ocha, said there were efforts to increase resource flows through local actors, but any rise in international staff would “happen incredibly slowly”.

Another UN official said: “The Iraqi government wants a more technical, humanitarian engagement. Much of the international community says, ‘Yes, but the principal cause of the disaster is a political one’.”

US to clamp down on illegal migration

US to clamp down on illegal migration
By Andrew Ward in Washington
Copyright The Financial Times Limited 2007
Published: August 10 2007 21:35 | Last updated: August 10 2007 23:55


President George W. Bush’s administration announced a clampdown on illegal immigration on Frirday, six weeks after a more ambitious plan to tackle the problem collapsed in Congress.

The latest measures mainly involve tighter enforcement of existing laws – posing a challenge to the many US employers now reliant on migrant workers.

“The message we are conveying today is pretty simple: we are serious about immigration enforcement,” said Michael Chertoff, the homeland security secretary.

Mr Bush made immigration reform a priority of his second term, backing bipartisan legislation that aimed to strengthen border security while offering a path to citizenship for the estimated 12m illegal immigrants already in the US.

But the bill collapsed in June amid fierce opposition from grassroots Republicans, who accused Mr Bush of offering an amnesty to those who entered the US illegally.

The measures announced on Friday reflected the pressure on Mr Bush to get tough on the highly charged issue of illegal immigration.

The White House acknowledged there was little chance of Congress passing immigration legislation in the foreseeable future. “Until Congress chooses to act, we’re going to be taking some energetic steps of our own,” said Mr Chertoff.

One rule proposed on Friday would mandate employers to sack workers unable to verify their legal status within 90 days. Employers who failed to comply would face possible criminal fines and sanctions. “We’re going to continue to clamp down on employers who knowingly and wilfully violate the laws,” said Mr Chertoff.

Carlos Gutierrez, the commerce secretary, promised to streamline existing visa rules to help industries, such as agriculture and hospitality, that rely on migrant labour. “We will use every available tool to provide America’s farmers, ranchers and small businesses with a legal workforce, to stay in business and keep our economy strong,” he said.

Edward Kennedy, the Democratic senator who helped craft the failed immigration bill, said the proposals were no substitute for comprehensive reform.

“Without strong new laws, the administration’s plan will do little to enhance our security and will hurt millions of immigrant families who are contributing so much to our communities and our economy,” he said.

Chuck Grassley, a Republican senator who opposed the bill, said the measures were not tough enough. “I won’t be happy until I see action that’s more than just a press conference and words on a piece of paper.”

Citigroup faces the $700m music

Citigroup faces the $700m music
By David Wighton in New York
Copyright The Financial Times Limited 2007
Published: August 11 2007 00:18 | Last updated: August 11 2007 00:18


Citigroup has lost more than $700m in credit business in recent weeks, making it one of the biggest casualties of the crisis, according to a person briefed on the situation.

The scale of the losses is not a serious problem for a company that earned more than $20bn last year and bankers believe some Wall Street rivals have lost more.

But it will be acutely embarrassing for Chuck Prince, chairman and chief executive, who has been widely criticised for saying last month that Citi was “still dancing” in the credit markets.

The losses will undermine his efforts to restore investor confidence in the world’s largest financial services company and revive its flagging share price.

They will also be a blow for Tom Maheras, head of Citigroup’s capital markets business, who recently told the Financial Times that its growth had caught up with rivals after three years of under-performance.

The losses were made largely in the structured credit business run by Michael Raynes, hired from Deutsche Bank in London last summer.

They are in addition to those Citi faces from lending commitments to leveraged buy-outs.

Mr Prince told the FT on July 10 that the lending party would end but there was so much liquidity at the time that it would not be disrupted by the turmoil in the US subprime mortgage market.

“When the music stop, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

Citigroup on Friday declined to comment.

Fed pumps $38bn into markets

Fed pumps $38bn into markets
By Krishna Guha in Washington and Michael Mackenzie in New York and Gillian Tett in London
Copyright The Financial Times Limited 2007
Published: August 10 2007 19:10 | Last updated: August 10 2007 19:10


Equity markets fluctuated violently on Friday – with London and continental Europe experiencing their worst one-day falls in four years and Japan tumbling sharply – as the US Federal Reserve and other central banks scrambled to avert a liquidity crunch.

The Fed promised to provide whatever funding was needed to ensure that banks are able to continue lending to each other at its desired interest rate of 5.25 per cent and pumped $38bn into the system in three separate open market operations.

The interbank market has come under extreme strain in recent days, with European banks unable to secure financing for investment vehicles holding US subprime mortgages from their regular investors at the forefront of a scramble for dollar funds.

Friday’s action by the Fed marked the abandonment of its “business as usual” stance. It told dealers it would re-enter the market as often as necessary, and – in a highly unusual move – accepted high-quality mortgage-backed securities as collateral for the entire $38bn of funds. This amounts to the most extensive liquidity support operation undertaken by the US central bank since the 9/11 terrorist attacks and follows similar steps by the European Central Bank and Japanese central bank in the past two days. Among the main central banks, only the Bank of England has declined to inject extra cash into the markets. The emergency moves followed signs of increased market nervousness about banks worldwide, with bank stocks tumbling and interbank lending rates rising amid a rush to amass reserves.

Bruce Kasman, chief economist at JPMorgan, said: “The stress generated by a repricing of credit risk is testing the resiliency of the global financial system.”

John Authers on the stock market liquidity crisis
Across markets, investors tried to rein in their exposure to risky and illiquid assets.

By the close, repeated intervention had pushed the effective Fed funds rate below its 5.25 per cent target, after spiking to 6 per cent early in the day. This appeared to calm US equities: after a turbulent day, the S&P 500 ended in positive territory while the Dow Jones Industrial Average closed down 0.2 per cent.

The FTSE 100 suffered its worst fall for more than four years, dropping 3.7 per cent to 6,038.3. It has been the only leading stock index so far to officially “correct” – having fallen more than 10 per cent from its June peak.

The FTSE Eurofirst also suffered its worst day for four years, falling 3.04 per cent. In Asia, the Nikkei 225 fell 2.4 per cent.

Additional reporting by Robert Orr, Neil Dennis and Paul J Davies in London

Dog Philosophy There is more truth than poetry to these...

Dog Philosophy There is more truth than poetry to these...


The reason a dog has so many friends is that he wags his tail instead of his tongue.
-Anonymous

Don't accept your dog's admiration as conclusive evidence that you are wonderful.
-Ann Landers

If there are no dogs in Heaven, then when I die I want to go where they went.
-Will Rogers


There is no psychiatrist in the world like a puppy licking your face.
-Ben Williams


A dog is the only thing on earth that loves you more than he loves himself.
-Josh Billings

The average dog is a nicer person than the average person.
-Andy Rooney

We give dogs time we can spare, space we can spare and love we can spare.
And in return, dogs give us their all. It's the best deal man has ever made.
-M. Acklam


Dogs love their friends and bite their enemies, quite unlike people,
who are incapable of pure love and always have to mix love and hate.
-Sigmund Freud

I wonder if other dogs think poodles are members of a weird religious cult.
-Rita Rudner

A dog teaches us fidelity, perseverance, & to turn around three times before lying down..
-Robert Benchley

Anybody who doesn't know what soap tastes like never washed a dog.
- Franklin P. Jones

If I have any beliefs about immortality, it is that certain dogs I have known will go to heaven, and very, very few persons.
-James Thurber

If your dog is fat, you aren't getting enough exercise
-Unknown

My dog is worried about the economy because Alpo is up to $3.00 a can. That's almost $21.00 in dog money!
-Joe Weinstein

Ever consider what our dogs must think of us? I mean, here we come from a grocery with the most amazing haul, chicken, pork, half a cow. They must think we're the greatest hunters on earth!
-Anne Tyler

Women and cats will do as they please, and men and dogs should just relax and get used to it.
-Robert A. Heinlein

If you pick up a starving dog and make him prosperous, he will not bite you; that is the principal difference between a dog and a man.
-Mark Twain

You can say any foolish thing to a dog, and the dog will give you a look that says,
'Wow, you're right! I never would've thought of that!'
- Dave Barry

Dogs are not our whole life, but they make our lives whole.
-Roger Caras

If you think dogs can't count, try putting three dog biscuits in your pocket and then give him only two of them.
-Phil Pastoret

My goal in life is to be as good a person as my dog thinks I am.