Latino Sexual Oddysey

Craigslist

2007-09-01T09:04:00.000-07:00

Craigslist
By Richard Kim
Copyright by The Nation and Richard Kim
August 31, 2007

One way or another, Larry Craig is a goner. Facing intense pressure from Republican party chiefs and the embarrassment of having audio of his arrest broadcast on national TV, Craig is expected to resign shortly. If he doesn't, the RNC is prepared to call for his head and launch an ethics investigation.

Personally, I'm hoping Craig digs in and forces the issue. I'd love to see Mitt Romney elaborate on what he finds so "disgusting" about "I'm not gay" Craig, or Mitch McConnell explain why admitted john David Vitter is still in the Senate or why crook Ted Stevens hasn't been stripped of his committee assignments. The mutually assured destruction of the party of piety and hypocrisy is the best-case scenario one could hope for here.

Not that it doesn't come with a certain amount of collateral damage. Since Roll Call broke the Craig story, mainstream media--from Slate's Explainer to the Washington Post--have seemingly "discovered" the strange mating rituals of male public sex. A Sacramento CBS news duo even took it upon themselves to reenact the scene, complete with toe-tapping and prop bathroom stall divider. "Sexperts" have been called upon to parse the difference between a tap-tap-tap that signals sexual interest and a tap-tap-tap that indicates a difficult bowel movement. Websites like cruisingforsex.com, which lists places where men meet for the former kind of toe-tapping, have had the most unlikely visitors from Newsweek.

Welcome America! Welcome to the world--not just of underground gay sex--but of law enforcement. The Minneapolis airport police have been slouching here for quite some time. Apparently, since May of this year, they've made 41 arrests like Craig's in an elaborate sting operation. Not to be outdone, the head of the Atlanta International Airport police boasted that they've arrested 45 men (take that Minneapolis!), including "a couple college professors" and "the CEO of a bank" (but alas, no Senators) in a similar sweep. As Doug Ireland reports over at Gay City News, Michigan police have them all beat; the Triangle Foundation reports "a caseload of 770 arrests in four months."

I didn't stress this in my last post on Craig--because I didn't think I'd have to--but such dragnets are not only motivated by homophobia, but are practically, if not technically, police entrapment. They're a legacy of a pre-Lawrence legal order that criminalized sodomy, and they endure to this day because gay sex, even and perhaps especially the suggestion of its solicitation, is still seen as violation of the norms of public life.

Heterosexuals routinely use public space and the internet to solicit sex from each other; sometimes this sex is among perfect strangers or in public (or quasi-public) itself. Unless they involve minors, none of these practices are the subject of undercover busts. Instead they're romanticized (teenage makeout sites), tolerated as nuisances (bad pickup lines, whistles, Lindsay Lohan) or generally treated as vital, sexy aspects of modern social life and economy.

Just once I'd like to see the script flipped. Why don't the Minneapolis police post undercover female cops at airport bars who gesture provocatively towards the bathroom and then arrest any man who follows? Using newfound, post-9/11 surveillance powers, law enforcement should determine the identities of everyone who posts details of their sexcapades on www.milehighclub.com. These are dangerous, lewd heterosexuals who have admitted to having had actual sex--not in the airport--but on the airplane! Baby-faced, 21 Jump Street-type cops should be assigned to every high school to offer blowjobs to jocks underneath the bleachers. Anyone who shows up at the designated coordinates should be arrested. Depending on the jurisdiction, some arrestees may even get their names permanently listed on sex offender registries! The entire city of Myrtle Beach should be staked out for the month of March. And don't even get me started on the subject of Craigslist.

These scenarios may seem outlandish and as long as we live in a straight world, they will never come to pass. But all the tools for their enforcement are already upon us. As Jack Dwyer points out in his excellent anatomy of police surveillance in a post-9/11 New York, the NYPD routinely uses undercover operatives to monitor gatherings as benign as bicycle rides and memorials. These techniques are rightly decried as infringements on the rights of citizens to use the public sphere to express themselves. When that expression is explicitly political, the left reflexively leaps to the fray. But when it comes in the form of someone like Larry Craig, we seem somewhat adrift (see the Slate editors). But nothing Craig did--he solicited, but did not have, sex in public--should be illegal. In fact, absent his hypocrisy, nothing he did should be objectionable either.

Iowa Gay Marriage Applications Halted

2007-09-01T08:51:00.000-07:00

Iowa Gay Marriage Applications Halted
By DAVID PITT
Copyright © 2007, The Associated Press
7:07 PM CDT, August 31, 2007

DES MOINES, Iowa - Same-sex marriage was legal here for less than 24 hours before the county won a stay of a judge's order on Friday, a tiny window of opportunity that allowed two men to make history but left dozens of other couples disappointed after a frantic rush to the altar.

At 2 p.m. Thursday, Judge Robert Hanson ordered Polk County officials to accept marriage license requests from same-sex couples, but he granted the stay at about 12:30 p.m. Friday. By then 27 same-sex couples had filed applications, but only Sean Fritz and Tim McQuillan of Ames had made it official by getting married and returning the signed license to the courthouse in time.

In the front yard of the Rev. Mark Stringer, pastor of the First Unitarian Church of Des Moines, they become the only same-sex couple wed in the U.S. outside of Massachusetts, where some 8,000 such couples have tied the knot.

Stringer concluded the ceremony by saying, "This is a legal document and you are married." The men then kissed and hugged.

"This is it. We're married. I love you," Fritz told McQuillan after the ceremony.

No more same-sex weddings will be recognized, and no more applications will be accepted, pending Polk County's appeal of Hanson's ruling to the Iowa Supreme Court, County Attorney John Sarcone said.

Hanson's order had applied only to the county, but because any Iowa couple could apply for a license, people from across the state rushed to Des Moines, only to see fluorescent green signs explaining the stay and adding, "Sorry for the inconvenience."

Lytishya Borglum and partner, Danielle Borglum, drove 2 1/2 hours from Cedar Falls, along with their 13-month-old daughter, Berlyn. They planned to apply in Polk County and told their pastor in Cedar Falls to be ready to marry them when they returned.

"(We) plan to take the application home and pray that things change. Even though it is a setback, it is a step in the right direction," Lytishya Borglum said.

She said they would like to get legal status to gain more rights but added, "As far as we're concerned, our marriage is between us and God. We've been married for three years -- if you ask us."

Accepting marriage licenses from same-sex couples has been illegal under a 1998 state law that permitted only a man and a woman to marry.

Hanson, ruling in a case filed by six same-sex couples who were denied marriage licenses in 2005, declared the law unconstitutional Thursday. He ruled that the marriage laws "must be read and applied in a gender neutral manner so as to permit same-sex couples to enter into a civil marriage."

The marriage license approval process normally takes three business days, but Fritz and McQuillan took advantage of a loophole that allows couples to skip the waiting period if they pay $5 and get a judge to sign a waiver.

Other couples, even those who got an early start Friday, were out of luck. Katy Farlow and Larissa Boeck, students at Iowa State University, said they got to the county recorder's office at 5 a.m., then sat in lawn chairs and ate snacks until the office opened at 7:30 a.m. They got their application in but didn't get their license.

"This might be our only chance," Farlow said. "We already knew we were spending the rest of our lives together."

Hanson granted the stay after Sarcone filed a motion saying his ruling should be put on hold because lifting the ban was far reaching and would likely be overturned by the Iowa Supreme Court.

Hanson wrote that Sarcone's arguments "do indeed constitute good cause for the issuance of the requested stay."

Plaintiff's attorney Dennis Johnson had argued that the county's appeal probably would not succeed and disputed its contention that a reversal would throw any licenses issued into legal doubt.

He said a marriage license is valid until one or both of the spouses seek to have it dissolved or one dies, "regardless of changes in the law that may occur after the couple marries."

The Iowa Supreme Court can refer the case to the Iowa Court of Appeals, consider the matter itself or decide not to hear the case. The flurry of activity in the courts prompted a quick response from some lawmakers. House Republican leader Christopher Rants called on Democrats, who hold a majority of seats in the Legislature, to respond.

"The Democrats should call a special session immediately to take up such issues and to introduce a marriage amendment for Iowa's constitution," he said in a statement. "House Democrats need to start leading or get out of the way."

Language defining marriage as being between a man and a woman has been written into the constitutions of 27 states, according the National Conference of State Legislatures. Most other states have laws to the same effect; Iowa's was approved overwhelmingly by the Legislature in 1998.

Gov. Chet Culver on Thursday issued a statement stating his opposition to gay marriage and said he would wait for the court process to play out before considering any push for legislative action.

"While some Iowans may disagree on this issue, I personally believe marriage is between a man and a woman," Culver said.

Gay marriage is legal in Massachusetts, and nine other states have approved spousal rights in some form for same-sex couples.

* __

Associated Press writers Henry C. Jackson, Amy Lorentzen and Nafeesa Syeed contributed to this report.

Obama leads with corporate crowd - Clinton can play hometown card, too, but it has done little to help her so far

2007-09-01T08:48:00.000-07:00

Obama leads with corporate crowd - Clinton can play hometown card, too, but it has done little to help her so far
By Susan Chandler
Copyright © 2007, Chicago Tribune
September 2, 2007

The typical Midwestern business leader is a rock-ribbed Republican who favors socially moderate policies but strongly opposes more regulation and higher taxes. That makes it somewhat of a surprise that Barack Obama, a Democrat from Chicago's South Side, appears to be winning their hearts and wallets.

Hundreds of Chicago executives, lawyers and investment bankers have written checks to Obama, according to a Tribune analysis of campaign contributions during the first six months of this year. Most aren't hedging their political bets by giving money to New York Sen. Hillary Rodham Clinton, the Democratic Party's front-runner in national polls—so far anyway.

Obama's allies in corner offices run the industry gamut from Exelon Chief Executive John Rowe to Madison Dearborn Chairman John Canning to Baxter International CEO Robert Parkinson.The Obama camp also is being supported by Brenda Barnes, the CEO of Sara Lee Corp.; William Osborn, the head of Northern Trust Corp.; and Michael Krasny, founder of CDW Corp.

The Tribune analysis found that among CEOs of the Chicago area's 50 largest publicly traded companies, 10 made personal contributions directly to Obama totaling a little more than $29,000. Clinton's tally: zero.

The aggregate numbers are fairly small because federal election laws limit individuals to $2,300 in donations for the party primaries and another $2,300 for the presidential election. If a candidate ends up not winning the nomination, he or she must return the contributions related to general election.

Clinton still has plenty of time to catch up, her supporters point out. Serious fundraising kicks into gear again after Labor Day.

Among Republican contenders, former Massachusetts Gov. Mitt Romney was favored by a handful of Chicago CEOs—including Miles White at Abbott Laboratories, Judson Green at Navteq and Patrick Moore of Smurfit-Stone Container Corp.—who gave him a total of about $8,000. Arizona Sen. John McCain came in second, and former New York Mayor Rudolph Giuliani came in third.

The top executives at Chicago's 50 largest private companies were more Republican than their public-company peers, with fewer than 10 contributing to any presidential hopeful in the first half. Of those that did, four gave money to Romney, including Craig Duchossois of Duchossois Industries Inc. and William Wirtz of the Wirtz Corp., who also donated a smaller amount to McCain.

One Chicago company that has the bases pretty well covered is Equity Residential Properties Trust, the giant apartment landlord. CEO David Neithercut gave money to Obama and Dodd, while Chairman Sam Zell backed Giuliani and McCain. (Zell is a director of Tribune Co., which owns this newspaper.)

Obama's fundraising lead among business types is reflected among Illinois residents in general.

Through the first half of the year, Obama received $7.7 million in campaign contributions, according to the latest amended filings available from the Federal Election Commission.

Clinton raised less than one-quarter of that—$1.8 million.

No Republican presidential candidate has even broken the seven-figure mark in Illinois. McCain, whose campaign has stalled from lack of money nationally, has raised more than $735,000. Romney has gathered $623,000, and Giuliani rounds out the top three with $575,000, according to the election commission.

As disappointing as that is for the Republican Party, it has got to be a bigger disappointment for the Clinton campaign.

Clinton has claimed hometown status here because she grew up in suburban Park Ridge. Illinois also was a big contributor to her husband's two successful runs for president, and now the state is holding its primary in February, early enough to sway the choice of a presidential nominee.

Clinton's campaign leaders are putting the best spin on the situation. They say they haven't tried very hard in Illinois, choosing instead to target other states. They also say fundraising here picked up quite a bit in the second quarter.

"Obviously to see this kind of support in Illinois has been a pleasant surprise," said Clinton spokesman Blake Zeff. "Each time Hillary has come to Chicago, the reception has been extremely warm, and for that we are very grateful."

Clinton picked up an important endorsement this summer from prominent Republican donor Terrence Duffy, the head of the Chicago Mercantile Exchange. Duffy praised her for crossing party lines and combining leadership with "pragmatic problem-solving skills."

Clinton's distant second in Illinois fundraising could be hard to overcome, said political consultant Eric Adelstein.

"The better [Obama] does the more of a hindrance on her fundraising in this state it becomes," said Adelstein, who is not working for either candidate. "He has got a real lock on Illinois at this point."

James Tyree, CEO of Mesirow Financial, believes he is an example of why Obama has come on so strong in so short a time.

"I'm really not often active in these types of things, but in this case, I think Barack is such a unique talent, I think he can win. I think he is level-headed and balanced, unlike many of the other folks who are throwing their hat in the ring."

Tyree says he has not contributed to the Clinton campaign. "Barack has all my support, and I'm asking all my friends around the country to support him."

Kenneth Janda, an emeritus political science professor at Northwestern University, says Obama's fundraising success is two-pronged. Obama is tapping "new sources" who probably wouldn't have contributed to the presidential race at all, Janda says. Others simply want to make sure they have access to him whether he ends up as the presidential nominee or remains one of the state's two U.S. senators.

"That's the critical factor. They want to be on-board," Janda said. Contributing to both Obama and Clinton would be a "pretty transparent" attempt to hedge one's bets and won't have the same payoff with the eventual winner, he added.

Still some high-profile business people are contributing to both Democratic front-runners.

John Bryan, the former CEO of Sara Lee Corp., has donated to Obama and Clinton. So did William Daley, the Midwest chairman of JPMorgan Chase & Co. and the mayor's brother. Bill Daley didn't stop there: He also gave money to the presidential campaigns of former North Carolina Sen. John Edwards and Connecticut Sen. Christopher Dodd.

Some share within party
Another person spreading his money around is William Brandt, the turnaround specialist who has hosted several big fundraising dinners for former President Bill Clinton and is a close friend and adviser of Hillary Clinton's.

Brandt has contributed the maximum amount—$4,600 for the presidential primary and general election—to Clinton and Obama. He also has contributed to the primary campaign of Edwards, who is running third in the polls.

Brandt said he is doing it because he wants to encourage vigorous debate among a strong field of candidates. "I'm one of those Democrats who think we have an embarrassment of riches. I want them to be heard for as long as possible. I think the clash of ideas helps and sharpens both Barack and Hillary."

Yet there's no question who he wants to see in the Oval Office in 2008. "With our kids dying in Iraq, who do you want to be pulling the levers of power? It's got to be Hillary," Brandt said.

Brandt is willing to shoulder some of the blame for Clinton's slow start in Illinois. He says he advised her to focus elsewhere so as not to test the loyalties of local contributors. Brandt also predicts Clinton will catch up in Illinois before the primaries begin early next year.

She took a step in that direction June 25 with a fundraiser at the Palmer House Hilton attended by 600 people, including Yusef Jackson and Ernie Banks. The dinner was a sellout and raised more than $1 million, twice what organizers had hoped.

The summer is a slow period because many people are on vacation, so Brandt doesn't expect another big surge until after Labor Day.

For Clinton, New York and California continue to lead in her fundraising efforts. Illinois ranks eighth for her. The Land of Lincoln comes in second for Obama, trailing only California, a more populous state. New York ranks third for Obama.

Obama backers not surprised
Obama advisers John Rogers, CEO and founder of Ariel Capital Management, and Valerie Jarrett, CEO of Habitat Co., say Obama's fundraising success here should come as no surprise.

"I get calls all the time from people who want to be involved, write checks, volunteer. I've been involved in politics for 25 years, and I've never seen anything like it," said Rogers, who heads one of the country's largest minority-owned investment firms. "People just believe in him and like him personally."

It is more than just charisma, says Jarrett, who chaired Obama's finance committee during his Senate race. Despite his liberal policies such as universal health-care coverage, he is trusted by the local executives and entrepreneurs because they have seen him operate up close.

"The business community here knows him and what kind of elected official he has been. His fundraising numbers demonstrate complete confidence in his candidacy," she said.

The Clinton-Obama race has revealed some fault lines in Chicago's wealthiest family—the Pritzker clan. Real estate executive Penny Pritzker is heading up national fundraising for Obama, while her brother, venture capitalist J.C. Pritzker, is the national chairman of Citizens for Hillary, an initiative designed to garner votes and contributions from the grass-roots level.

However, campaign records show that most Pritzkers and many members of the billionaire Crown family are backing Obama rather than Clinton.

A number of Chicago business leaders are hedging their bets in a different way—they gave money to Obama and McCain.

Public relations magnate Daniel Edelman did, and so did Krasny, Rowe and Osborn. Canning found a different straddle—Obama and Romney.

But with McCain running short of cash and trailing in the polls, he appears increasingly unlikely to be the Republican candidate, political experts say. That leaves Chicago's business community with a big bet on Obama, one they hope will pay off if he becomes the first Illinois politician to occupy the Oval Office since Abraham Lincoln.

schandler@tribune.com

More Than 1,800 Iraqis Killed in August

2007-09-01T08:46:00.000-07:00

More Than 1,800 Iraqis Killed in August
By DAVID RISING
Copyright © 2007, The Associated Press
7:57 AM CDT, September 1, 2007

BAGHDAD - Civilian deaths rose slightly in August as a huge suicide attack in the north two weeks ago offset security gains elsewhere, making it the second deadliest month for Iraqis since the U.S. troop buildup began, according to figures compiled Saturday by The Associated Press.

U.S. deaths remained well below figures from last winter when the U.S began dispatching 30,000 additional troops to Iraq.

At least 1,809 civilians were killed in the month, compared to 1,760 in July, based on figures compiled by the AP from official Iraqi reports. That brings to 27,564 the number of Iraqi civilians killed since AP began collecting data on April 28, 2005.

The August total included 520 people killed in quadruple suicide bombings on Yazidi communities near the Syrian border. The horrific attacks made Aug. 14 the single deadliest day since the war began in March 2003.

Eighty-five coalition troops -- 81 American and four British -- died in August, down from 88 the month before, including 79 Americans. The average rate of 2.74 coalition deaths per day was the second lowest since the surge began, and down from a peak of 4.23 per day in May.

May also saw the highest number of civilian deaths since the start of the year, with 1,901.

U.S. officials have maintained that violence is declining in Iraq in the run-up to a series of reports to Congress this month that will decide the course of the U.S. military presence here.

The top U.S. commander, Gen. David Petraeus, was quoted Friday as saying the troop increase has sharply reduced sectarian killings in Baghdad. Petraeus is expected to make the same point when he reports to Congress in about two weeks.

"If you look at Baghdad, which is hugely important because it is the center of everything in Iraq, you can see the density plot on ethno-sectarian deaths," the Australian newspaper quoted him as saying during an interview in the Iraqi capital.

"It's a bit macabre but some areas were literally on fire with hundreds of bodies every week and a total of 2,100 in the month of December '06, Iraq-wide. It is still much too high but we think in August in Baghdad it will be as little as one quarter of what it was," the newspaper quoted Petraeus, who gave no specific figures.

American hopes brightened this week when the most powerful Shiite militia leader, Muqtada al-Sadr, ordered a halt to attacks by his Mahdi Army for up to six months to reorganize and purge it of unruly factions that the U.S. maintains are armed and trained by Iran.

"If implemented, Sadr's order holds the prospect of allowing coalition and Iraqi security forces to intensify their focus on al-Qaida-Iraq and on protecting the Iraqi population," the U.S. military said in a statement Saturday.

The statement said an end to Mahdi Army violence "would also be an important step in helping Iraqi authorities focus greater attention on achieving the political and economic solutions necessary for progress and less on dealing with criminal activity, sectarian violence, kidnappings, assassinations, and attacks on Iraqi and coalition forces."

The government-run newspaper Sabah published a front-page editorial Saturday praising al-Sadr's declaration as "a correct decision" and urged other militia leaders to follow suit.

Despite those comments, U.S. and Iraqi forces have not let up on raids against extremists in Shiite areas.

Before daybreak Saturday, Iraqi and American forces raided Sadr City, the Baghdad stronghold of the Mahdi Army. Several cars were demolished during the operation by U.S. tanks, according to a police officer speaking on condition of anonymity and Associated Press Television News video from the scene showed several crushed cars on the street.

The U.S. military said American troops and Iraqi police were involved in the raid and searched two houses, detaining three suspects. On the way back to base the group was attacked with a roadside bomb but suffered no injuries, Spc. Emily Greene said in an e-mailed statement. There was no mention of the crushed cars or other collateral damage.

Leaflets scattered around Sadr City urged people to report on Shiite militants who are cooperating with the Iranians, providing a cell phone number and an e-mail address.

"The criminal Iraqis who work with the Iranian Revolutionary Guards are toys under Persian control," read one of the leaflets, which pictured a puppet dancing on strings. "Iranian Revolutionary Guards are interfering in Iraq's affairs while Iraqis are dying."

Armed Shiite groups are locked in a struggle for power in Shiite areas of the capital and in the Shiite heartland of the south, which includes major religious shrines and vast oil wealth. Control of the shrines offers not only prestige but access to huge sums of money donated by Shiites from around the world.

As part of that power struggle, gunmen on a motorcycle assassinated Muslim al-Batat, an aide to the country's top Shiite cleric, Grand Ayatollah Ali al-Sistani, police said. The attack occurred in Basra, where numerous militias are competing for power.

International Herald Tribune Editorial - Diana

2007-09-01T08:44:00.000-07:00

International Herald Tribune Editorial - Diana
Copyright by The International Herald Tribune
Published: August 31, 2007

Has it been 10 years already since Diana died? The best evidence isn't the calendar. It's the photographs of the Princess of Wales, staring out at us from the newsstands and TV. They remind us how distant the near-past can seem, how sensitive we are to the nuances of the present.

That, perhaps, is one of the ways to tell Diana's story - a shimmering wisp of the present who chose to be wedded to an institution that embodied the past. Except that there is something too simple, too allegorical in that telling, and in nearly every telling of her story. The fact is that she was an imperfect human being, like all of us, who married into a family of imperfect beings. She died in an accident that was as tragic as any accident in which a young mother dies.

It isn't clear what the global outpouring of grief that followed Diana's death really said about her life. It was, perhaps, the emotional counterpoint to her royal wedding. If fate wasn't going to round out her days in some appropriate way then it was up to the rest of us to provide the mythic touch that was missing. And so we did.

Nearly all the blanks in Diana's life have now been filled in, for better or worse. The only thing that remains open-ended is the reaction to her death. From a decade's distance, there is something a little incommensurate in that great global throb of grief. The temptation is to search Diana's nature, her character, her actions, for the source of it.

Perhaps the answer is no more complicated than this: The world is filled with so much to grieve over that grief itself seems incommensurate and indulgent. It is no slight to that young woman to say that in her death we recognized something our grief was good for.

International Herald Tribune Editorial - More realism, less spin

2007-09-01T08:43:00.000-07:00

International Herald Tribune Editorial - More realism, less spin
Copyright by The International Herald Tribune
Published: August 31, 2007

A new report from the U.S. Congress' investigative arm provides a powerful fresh dose of nonpartisan realism about Iraq. With a crucial debate on Iraq set for next month, the report should be read by members of Congress who may be wavering over withdrawing American troops.

The Government Accountability Office, in a draft assessment reported Thursday, determined that Iraq has failed to meet 15 out of 18 benchmarks for political and military progress mandated by Congress. Laws on constitutional reform, oil and permitting former Baathists back into the government have not been enacted. Among other failings, there has been unsatisfactory progress toward deploying three Iraqi brigades in Baghdad and reducing the level of sectarian violence.

Earlier this year, President George W. Bush ordered a massive buildup of American troops in Iraq in a desperate attempt to salvage his failed strategy and stave off congressional moves to bring the forces home. He argued that he was buying a period of relative calm for Iraqi politicians to achieve national reconciliation.

The top American officials in Iraq, Army Gen. David Petraeus and Ambassador Ryan Crocker, are to present their assessments at congressional hearings in mid-September. Their findings, and a White House report due Sept. 15, are seen as a potential trigger for a change in Iraq strategy. Two things, however, are already clear. Iraq's leaders have neither the intention nor the ability to take advantage of calm, relative or otherwise. And a change in strategy seems the farthest thing from Bush's mind.

Bush has invoked Vietnam to argue against leaving Iraq. That argument is specious, but there is a chilling similarity between the two U.S. foreign policy disasters. In Vietnam, as in Iraq, American presidents and military leaders went to great lengths to pretend that victory was at hand when nothing could be farther from the truth.

Lay the blame on Wall Street and Main Street

2007-09-01T08:39:00.001-07:00

Lay the blame on Wall Street and Main Street
By John Authers
Copyright The Financial Times Limited 2007
Published: September 1 2007 03:00 | Last updated: September 1 2007 03:00

We all stand in the shoes of US mortgage-holders now. The financial system, we now know, relies on them. In recent weeks, a string of European banks has discovered that they had lent to US borrowers, as investment-grade securities they held turned out to be contaminated by bad US subprime mortgage bonds.

With the risk of US mortgage defaults now dispersed globally, not just Americans but everyone else in the developed world has an interest in averting an escalation in US defaults.

There is also a global search for culprits. Alas it turns out that almost nobody is blameless.

The importance of US housing is hard to overstate. For at least a year now, a central risk on investors' radar screens has been that falling house prices would force US consumers to spend less. That could cut global demand. Housing data this week was that US house prices were falling and the overhang of unsold properties was rising.

Further, the credit crunch in world financial markets and the slumping US housing market might easily reinforce each other.

Tighter credit conditions make it harder to obtain a mortgage, and hence reduce the demand for housing. But the recent popularity of variable loans, known in the US as adjustable-rate mortgages (ARMs), could also increase the borrowing costs for those who already hold a house.

That could raise defaults still higher while pushing house prices down - tightening the credit crunch and deepening the impact on the economy.

The loss of confidence in mortgage-backed bonds means that the increase in ARMs could be substantial - maybe as much as 2.5 percentage points. For borrowers who were stretched in the first place, and who only borrowed on the basis of generously low initial "teaser" rates, that could be critical.

Anthony Sanders, an economist at Arizona State University, suggests that a total of $500bn in variable mortgages is due to "reset" this year, with another $450bn next year.

The problem originated with "subprime" borrowers - who have poor credit histories - but now it is affecting the "prime" market as well.

He says that loans for investment properties, such as summer houses, are experiencing unprecedented defaults. Delinquencies in popular vacation states, such as Arizona and Florida, are running at unprecedented levels.

The blame does not all belong with Wall Street or with regulators. Rather, much of it belongs to old-fashioned human fallibility. Otherwise highly-intelligent and rational people lose their grasp of reality when the subject is house prices.

Robert Shiller - the Yale University economist famous for his 2000 book Irrational Exuberance, which predicted that the tech bubble would burst - has written a chapter on housing for the second edition of the book. He believes the same factors are at work.

He shows that house prices have detached themselves from underlying rental values. Moreover, he suggests that house prices are more prone even than stock prices to irrational exuberance.

On housing, buyers get their information from widely-dispersed anecdotal evidence, biased towards "success stories". They also tend to look at the return on housing investment in terms of the raw profit made on the sale. They do not take the costs of renovations or mortgage interest into account, let alone inflation.

Nobody treats stocks this way. Share price performance is quoted in percentage terms. Indices are well publicised. So, understanding of their performance is relatively rational.

Memories are short, too. The current housing boom in the UK has taken place barely 15 years after the disaster of the early 1990s, when many homeowners were stranded in their houses by negative equity.

So Wall Street and Main Street share in the blame for the debacle. Sadly, the same applies to the central banks now charged with getting everyone else out of this mess.

The Bank of England egged on house price inflation in the UK with what now looks like a badly judged rate cut back in August 2005. The housing market had been calming before that cut.

Worse, the last two chairmen of the Federal Reserve actively cheered on the irrational exuberance in US housing.

Alan Greenspan, who stood down last year, gave ARMs a warm endorsement, and said that fixed-rate mortgages "effectively charge homeowners high fees for protection against rising interest rates and for the right to refinance". Those fees now look as though they would have been worth paying.

As for his successor Ben Bernanke, in 2005 he said that the US had "never had a decline in housing prices on a nationwide basis", and that rising house prices "largely reflect strong economic fundamentals", not a bubble.

In combination, then, they sent out a message to Americans not to protect against higher rates, and not to worry about the risk of falling house prices.

With hindsight, that was not good advice.

john.authers@ft.com

Hedge Funds face their worst month in seven years

2007-09-01T08:35:00.000-07:00

Hedge Funds face their worst month in seven years
By James Mackintosh
Copyright The Financial Times Limited 2007
Published: September 1 2007 03:00 | Last updated: September 1 2007 03:00

August looks to be the worst month for hedge funds in seven years and is close to being the worst since 1998 as almost all hedge strategies have failed to perform.

The average hedge fund was down 3.2 per cent with one trading day left in the month, according to Chicago-based Hedge Fund Research, after a sharp recovery from a far worse position in the past two weeks. This is the worst since November 2000, when hedge funds were knocked back 3.5 per cent in a month.

"A manager who is flat in August looks like a hero at this point," said Yannis Procopis, deputy chief investment officer at CMA, a $2.6bn (£1.3bn) fund of hedge funds.

Poor performance at hedge funds frequently leads investors to pull their money, which can prompt a spiral of decline in markets as highly geared funds are forced to sell investments to meet the redemptions. But it remains unclear how much is being withdrawn, with many investors apparently sticking with their holdings in the hope of a turnround.

Hedge funds - mainly offshore investment vehicles designed to make money whatever markets do - suffered as concerns about US subprime mortgages caused wild swings in stock markets.

But after a disastrous start to the month, when many computer-driven quantitative equity funds plummeted 30 per cent or more, the sector has staged a strong comeback, recovering sharply in the past two weeks.

Equity long-short hedge funds - the biggest sector - were hit badly in August, with many funds down 10 per cent by mid-month, along with Japan specialists and quantitative equity, known as statistical arbitrage.

"Japan seems to have been an absolute blood-bath, along with quant," said the head of one large London fund.

Also hit hard were merger arbitrage and event-driven strategies, which aim to make money by betting on takeover deals.

Those down include the biggest names in the industry, among them major funds from Goldman Sachs, Highbridge, DE Shaw, Tudor, Lansdowne, Atticus, Blackstone and Caxton. But a handful of big-name funds escaped the mess, with Brevan Howard up and some of Marshall Wace's largest funds recovering from significant losses to enter positive territory.

Hedge funds and advisers say that so far investors have not panicked, and they do not expect industry-wide redemptions.

"Some people have taken money off the table in some of the event-driven strategies, but it is only small amounts," said Sean Capstick, co-head of capital introduction for Deutsche Bank.

Financial Times Editorial Comment: Subprime loans – subprime solutions

2007-09-01T08:30:00.000-07:00

Financial Times Editorial Comment: Subprime loans – subprime solutions
Copyright by The Financial Times
Copyright The Financial Times Limited 2007
Published: August 31 2007 18:11 | Last updated: August 31 2007 18:11

The US subprime loan crisis has turned into a morality play. Subprime borrowers – people with bad credit who took out high-priced mortgages to buy homes beyond their means – are cast as hapless victims. Subprime lenders (and the investors who bought their securitised loans on Wall Street) are portrayed as Shylocks preying on the American poor. Now the whole crew is looking to the government to step in, and spare them the consequences of their financial alchemy. Washington should resist.

President George W. Bush on Friday announced some modest measures to help truly needy borrowers, but he ruled out a bailout for the merely greedy (whether borrowers or investors). Unfortunately, Congress will probably not stop there. Millions of Americans could still be about to lose their homes, and millions more will lose money in the markets. That is the kind of crisis politicians cannot resist meddling with.

Presidential candidates are marketing their own solutions: Barack Obama has proposed a fund financed by fines on “irresponsible” lending (whatever that is). The powerful House financial services committee will hold hearings next week that could lead to legislation within weeks. The chairman of the committee, Democratic congressman Barney Frank, has made clear that he thinks the subprime crisis proves US financial markets are under-regulated. He favours everything from new underwriting standards to a new right to sue everyone from brokers that sold the loans, to banks that originated them, to investors that bought them in the secondary markets.

The result could be a stifling new web of rules and liabilities that will choke off lending to the people that subprime loans were originally meant to serve: those who need a modest home, but cannot get a normal mortgage because of credit problems.

That would be a shame: Congress should be careful not to over-react. US markets are already burdened with ligitation risk; the last thing they need is more liability.

Much can be done to save Americans from themselves: mortgage loans should be more transparent, so borrowers know how much they really owe. Borrowers can be educated to make good decisions about their mortgage (life’s most important financial decision).

But if Congress loads on too much litigation risk, mortgage finance for non-ideal borrowers will simply dry up. More regulation and liability is probably inevitable: but those who have done due diligence on their loan should be exempted. Not every subprime loan is a scam.

There is no sense in adding the huge cost of litigation to a problem that is already cripplingly costly. The market has learnt its lesson; do not lend to people who cannot pay. It is hard to see how the legislators can improve on that.

Market vultures await more blood

2007-09-01T08:27:00.000-07:00

Market vultures await more blood
By John Authers
Copyright The Financial Times Limited 2007
Published: August 31 2007 18:40 | Last updated: August 31 2007 18:40

World markets have been in crisis for weeks. That should mean rich pickings for someone. One of the oldest, but truest, aphorisms in investment is that you should “buy when there’s blood in the streets”.

There is speculation that the legendary investor Warren Buffett, who is sitting on a huge cash pile, is about to start spending it. And hedge funds started buying up stricken subprime lenders earlier this year, to a flurry of publicity. But the history of those deals is problematic.

For example Lone Star, a private equity group, on Friday offered to buy Accredited Home Lenders, troubled by bad subprime debts for months, for about $225m. But this was only after it pulled out of a planned $400m purchase announced earlier this year. The message for other circling vultures is that there may not yet be enough blood in the streets.

Another deal hailed as a masterstroke, Bank of America’s purchase of a $2bn stake in Countrywide, the biggest US mortgage lender, also needs to be proven. Countrywide’s stock has drifted down since the deal was announced. The market is still unconvinced either that Countrywide is a bargain, or that the BofA investment will be enough to propel the company back to safety.

Value investors, such as Mr Buffett, are not gamblers. Part of their creed is that by buying cheap they buy a “margin of safety”. Even if a company goes bust, for example, they want to know that its break-up value is bigger than the price at which they buy.

At first glance, it looks as though financial stocks represent a good value opportunity. They are usually valued by their multiple of book value (the total value of the assets on their books, minus their liabilities). On this basis, they are their cheapest in more than a decade.

But there is no margin of safety in financial stocks. The low multiple to book value is not – as would usually be the case – because of pessimism about future earnings prospects.

Rather, it is because nobody quite believes the current stated book values. With subprime defaults running high, and with financial services groups around the world discovering they cannot put a value on assets they had thought were safe, many may have to mark down the assets on their balance sheets. That generates uncertainty and it does not offer much margin of safety.

But if the bargain-hunters are not yet finding opportunities to make money, others are. Sadly, they are betting on things to get worse.

They can do this with great comfort, because the market’s previous ridiculously low estimate of risk allowed them to place their bets at what now seem to be insanely cheap prices. Bargains were to be found when the credit market was at its peak – but it is now too late to get in and profit to the same extent.

One of the most successful investors to bet on a credit crunch was Jim Melcher, who has run Balestra Capital, a small New York hedge fund, for almost a decade. It has doubled so far this year. He did this by exploiting the complex new debt instruments that are now exploding in the faces of their inventors.

For example, he bought credit default swaps (CDSs) against a range of 30 collateralised debt obligations (CDOs) that were rated AA. Translated into English, he bought insurance against default by packages of loans that were not the highest quality, but were not junk either.

The cost to him, the effective premium, was 0.6 per cent per year. This was the most he could possibly lose from the strategy. The potential profit, if all the bonds issued by the CDOs were to default, was 100 per cent. He now expects to make this on about 20 of the CDOs for which he bought protection. “I’ve never seen a cheaper play to make where you could take less risk with more return than I was offered in this market,” he says. That was a classic value investor’s investment – tiny risks to the downside, with potentially huge profits. He is not waiting for the CDOs to go to zero and has taken profits on a third of these bets. In one case this involved taking $7m for an investment that had cost about $50,000 some months earlier.

Other bets also took advantage of new esoteric instruments and paid off handsomely. He sold short the ABX index of subprime mortgage bonds, a manoeuvre that made money when the price of these bonds shot down.

He also sold short high-yield, or “junk” bonds while buying Treasury bonds. That paid off when there was a sharp increase in the extra yield that junk companies had to pay. And he bought the Japanese yen, which has risen during the market mayhem.

The risk was that someone on the other side of the transactions had to pay up. These counterparties are usually investment banks and Mr Melcher thought some might go under. As insurance he bought “put” options – giving the right to sell stock for a given price – in investment banks. These were cheap because they were “out of the money” – meaning that they conferred the right to sell for a price far below the price at which the companies were trading.

That trade also proved lucrative, as the fall in investment banks’ share prices has pushed up the price of the options. Even his insurance policy is making money.

The true bargains, then, were when the credit market was at its peak. There will be chances to pick up undervalued securities when this crisis has played itself out. But for now, the discouraging news is that value investors remain on the sidelines – while Mr Melcher is still betting on things to get worse.

The writer is FT investment editor

Cheney the survivor without challengers

2007-09-01T08:24:00.001-07:00

Cheney the survivor without challengers
By Andrew Ward and Edward Luce
Copyright The Financial Times Limited 2007
Published: September 1 2007 03:00 | Last updated: September 1 2007 03:00

Dick Cheney once jokingly referred to himself as Darth Vader - such was his dark reputation with the mainstream US media. With the departure of Karl Rove on Friday, George W. Bush's electoral mastermind, the US vice-president is seen as "the last man standing" in the administration.

Yet far from being the increasingly isolated figure that he is often portrayed, Mr Cheney wields influence that has arguably never been greater. Among the close circle of trusted advisors that Mr Bush has relied on since coming to the White House, only Mr Cheney remains.

The others - the so-called "Texas mafia" that included Harriet Miers, the former counsel, Dan Barlett, director of communications, Karen Hughes, a senior advisor, Alberto Gonzales, the outgoing attorney-general and Mr Rove - have all left.

It was this informal coterie that would retreat with Mr Bush to his private quarters after formal White House meetings and take the hard decisions. "These were the people Bush trusted and where he could say anything," said a former Cheney aide. "Cheney will now be unchallenged."

Of the inner circle, Mr Rove was probably the only one with equal weight to the vice-president - although they did not always see eye to eye. Mr Rove's principal agenda has been to expand the Republican party'selectoral base to create a "permanent majority". Mr Cheney's has been to expand the executive powers that he believes were illegitimately taken from the White House after Watergate in the 1970s.

Often they were chasing two different rabbits. It is Mr Cheney who looks farlikelier to accomplish his agenda. "There is no one left who can now out-argue the vice-president," says Jule-anna Glover, another former Cheney aide.

The fact that the White House has no candidaterunning in 2008 further increases Mr Cheney's room for manoeuvre, particularly given Mr Rove's departure. "Rove was first and foremost a political animal," says Stephen Hayes, Mr Cheney's biographer. "He looked at how policies could benefit the Republicans. Cheney's attitude is: 'Politics be damned. This is the right thing to do. Now someone else go sell it to the American public and our allies'."

Nor, as some have suggested, does Mr Gonzales' departure necessarily weaken the vice-president's hand. "In terms of the formulation of arguments, Gonzales was never much of a player," said John Bolton, a former ally of Mr Cheney in the Bush administration and a former UN ambassador, now at the American Enterprise Institute in Washingon. "David Addington [a senior Cheney aide] was the main theoretician of executive privilege and he is still there."

The first significant test of Mr Cheney's influence in the post-Rove era will come within the next few weeks, when Mr Bush picks a nominee to replace Mr Gonzales as attorney-general. People close to the White House say Mr Cheney wants a conservative nominee who will defend the expansion ofpresidential power he has championed over the past six years.

But Mr Bush is under pressure from others in the administration to choose an independent figure who would stand up to the White House. Bruce Fein, a former senior law officer in the Reagan administration, says the identity of Mr Gonzales' replacement will determine "whether the Cheneyexecutive privilege agenda will continue to prevail".

Mr Cheney, who has declined several requests for interviews, has focused his vice-presidency on reversing the constraints placed on executive power following Watergate and the Vietnam war. It was this philosophy that led to the launchof a controversial domestic eavesdropping programme after the September 11 2001terrorist attacks, the opening of the GuantánamoBay detention centre and the blurring of US policy towards torture. Perhaps the clearest evidence of Mr Cheney's overriding influence is the deadlock over the future of Guantánamo.

The vice-president is the only high-profile administration official still arguing for the detention centre to be kept open. Yet his views have so far trumped the growing consensus elsewhere in the administration about the need to work towards closing the facility.

"Cheney's most important goal is to establish beyond this presidency the White House's pre-eminent and in some respects exclusive role to make war, determine what war is and who is a combatant," says Mr Fein. "That will be his legacy."

While Mr Cheney has lost some ground to foreign policy moderates, those who know him well insist he will continue to push for tougher action to prevent Iran acquiring nuclear weapons. "He should not be underestimated on this point," says a former senior administration official.

"Cheney has argued for military action against Iran before and he will likely do so again. If the current round of UN resolutions fail to get Iran to change course, then Cheney's argument will gather strength through 2008."

Mr Bolton says on foreign policy the Bush administration will retain its strongest freedom of action. "People tend to forget that we do not have a parliamentary system - the powers of the executive do not depend on whocontrols the legislature or on the state of public opinion," he says. "We have aseparation of powers. This is especially true of foreignpolicy."

Bernanke fuels hope of interest rate cuts

2007-09-01T08:21:00.000-07:00

Bernanke fuels hope of interest rate cuts
By Krishna Guha in Jackson Hole and Andrew Ward in Washington
Copyright The Financial Times Limited 2007
Published: August 31 2007 15:10 | Last updated: September 1 2007 00:35

Ben Bernanke said on Friday the Federal Reserve would act as needed to ease the impact of recent market turmoil on the economy, in a speech widely interpreted as opening the door to possible interest rate cuts.

Most analysts viewed the remarks as a sign that the Fed is virtually certain to lower rates at its September 18 policy meeting, although the Fed chairman, who said the effects of market turmoil remained uncertain, did not make any commitment to do so.

In his most detailed remarks on the liquidity crisis since it began to intensify some three weeks ago, Mr Bernanke made it clear the central bank would not cut rates merely to bail out investors. He said: “It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions.”

But he added that developments in financial markets “can have broad economic effects felt by many outside the markets”.

The Fed would “act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in markets”, Mr Bernanke told central bankers at their annual retreat in Jackson Hole, Wyoming.

Mr Bernanke’s remarks came as President George W. Bush announced measures to help struggling homeowners refinance mortgages through an expansion of the Federal Housing Administration and tax changes.

But Mr Bush insisted there would be no government bail-out to solve the subprime mortgage crisis.

Investors were cheered by the two speeches, with the S&P 500 index closing up 1.1 per cent to 1,473.99.

A key measure of the cost of insuring against defaults on the credit markets cheapened significantly, in a sign that confidence may be returning. The CDX index of credit derivatives moved to 69.5 basis points, down from 73bp on Thursday.

But banks still faced higher financing costs in the money markets, as the key three-month Libor rate reached a new high of 5.62125 per cent – its highest level since the beginning of the credit crunch and its highest since 2001.

Meanwhile, investors’ flight to the relative safety of Treasury bonds appeared to have abated, with the yield on the two-year bond rising 4bp to 4.15 per cent.

Many in the market who had been pricing in a cut in interest rates were buoyed by the fact that Mr Bernanke gave no hint that he would not do so. “It was his duty today to dissuade the markets if he felt the markets were incorrect in their assumptions,” said Tony Crescenzi, strategist at Miller Tabak.

Mr Bernanke said recent data suggested the economy grew at a “moderate pace” this summer, but they may not be a good guide to how the economy will perform as the effects of the financial turmoil bite.

The GOP's crowded closet

2007-08-31T12:42:00.000-07:00

The GOP's crowded closet
By Joe Conason
The party's culture of concealment has led to embarrassment and personal destruction. Isn't it about time for the right to cure its homophobia?

Copyright by Salon.com
http://www.salon.com/opinion/conason/2007/08/31/gay_republicans/index.html?source=email

Aug. 31, 2007 | "Is everybody gay?"

That was the cry of the lovelorn schoolteacher in the classic 1997 film "In and Out," after her diffident fiancé reveals his true orientation (and dumps her for Tom Selleck). Ten years later, more than a few discombobulated Republicans must be muttering the same question, despite the fervent denial of Sen. Larry "Wide Stance" Craig that he is, indeed, gay. As one embarrassing episode follows another, with almost predictable regularity, perhaps it is time for Republicans and conservatives to ask themselves an obvious question: What makes the Republican Party -- and the conservative movement more generally -- so attractive to closeted homosexual men?

Somewhere in the textbooks of psychosexual pathology there may be a straightforward answer, so to speak. Does the party draw closeted men because they can hide behind Republican homophobia? Or does the party promote homophobia as a political ruse while closeted men run the show? Whatever the answer, the result is routine humiliation and personal destruction. Even worse, the party's culture of concealment encourages right-wing gay-bashing, such as Tucker Carlson's grotesque boast that he and another adolescent thug beat up a gay man who "bothered" him in a bathroom years ago.

Telling such manly tales may relieve the insecurities of Republicans who must contemplate the ever-mounting archive of homosexual history in their party's ample closet. But only Republicans who are truly in denial can ignore the long parade now led by the reluctant Craig -- a conga line of right-leaning queens that dates all the way back to the late Roy Cohn, Joe McCarthy's infamous henchman and an intimate friend of the Reagans'. Perhaps, like Cohn, today's closeted Republicans believe that they aren't really gay at all, except for a few minutes in bed (or in the men's room).

No matter how Cohn deluded himself about his sexuality, however, he was among the founders of modern conservatism, along with late fundraiser and activist Marvin Liebman, who finally came out and denounced the homophobia of the right several years before his death. Both of them lived to witness the conservative resurgence of the Reagan era, led by the likes of Terry Dolan, who operated the National Conservative Political Action Committee from deep within his lifelong closet, attacking "the growing homosexual movement" until not long before he died of AIDS, and Arthur Finkelstein, the renowned Republican political consultant who worked for the NCPAC and dozens of Republican senators, often emphasizing their opposition to gay rights and in particular to gay marriage -- at least until three years ago, when Finkelstein married his male partner in their home state of Massachusetts.

Hypocritical as Finkelstein may be in his mercenary way, at least he is no longer living a lie, having been outed more than a decade ago in the pages of Boston Magazine. Over the past few years, the frequency of outing on the Republican side of the aisle has intensified.

On the first day of the party's New York convention in 2004, the closet doors were flung open again when Rep. Ed Schrock, a Republican from Pat Robertson's home district in Virginia, was forced to drop his bid for reelection. The outing Web site BlogActive.com exposed the secret homosexual life of the 63-year-old retired career Navy officer, Vietnam veteran and member of the House Armed Services Committee.

Hiding in the next Republican closet to be aired out was Jim West, then mayor of Spokane, Wash., an important politician in the Northwest with a strong reputation for opposing gay rights and advocating the removal of gay teachers from schools and daycare centers. In 2005, the Spokane Spokesman-Review revealed that West had been leading a double life, trolling for male sexual partners on the Internet and allegedly abusing two teenage boys who came under his care as a Boy Scout leader. These gamy stories led to West's ouster as mayor by the end of the year. (He died of cancer several months later.)

Then in 2006 came the stunning Mark Foley scandal, which featured the curious "Don't ask, don't tell" behavior of the Republican congressional leadership when confronted with evidence that the Florida representative was pursuing teenage male pages. The Republicans seemed to hope that they could conceal Foley's creepy behavior toward the boys in their care until after the midterm elections. Thanks to Lane Hudson, the gay rights activist who disclosed Foley's misconduct to the media, that scheme backfired badly. The reverberations amplified perceptions of the Republican Congress as decadent and self-serving, leading to the midterm debacle that returned control of Capitol Hill to the Democrats.

The November 2006 election results had scarcely been confirmed when a former male prostitute named Mike Jones convincingly accused right-wing evangelical preacher Ted Haggard of joining him in narcotics-fueled sex romps. Following the familiar cycle of denial and confession, Haggard stepped down as the head of his Colorado Springs, Colo., church and as president of the National Association of Evangelicals, a position he had not hesitated to use on behalf of Republican candidates, notably including George W. Bush. Until his downfall, Haggard had participated in a weekly telephone conference with Bush and other evangelical leaders. The White House and his former comrades on the religious right sought to downplay Haggard's influence after his confession to "sexual immorality."

Around that same time, Michael Rogers of BlogActive.com -- the gay blogger who outed Schrock in 2004 -- posted the first allegations concerning Larry Craig's misbehavior in men's rooms around the country. Having learned about Craig many months earlier from men who reported their encounters with him, Rogers had been warning as early as January 2006 that he was planning to out a senator. His initial reports on Craig attracted the attention of the Idaho media, which nevertheless held back the story until the senator's arrest in a Minnesota men's room and misdemeanor plea became public.

The Craig scandal overshadowed still another embarrassing saga from the closets of the red states. During the first week of August, Glenn Murphy, a Republican county chairman from Indiana, mysteriously stepped down as president of the Young Republican National Federation. In a letter to the nation's Young Republican leaders, he claimed that he was obliged to resign because of a pending major business opportunity. That explanation seemed unlikely in light of news concerning an investigation of Murphy for sexually molesting another man after a party. That young gentleman, a guest in a house where Murphy was staying, awoke the next morning to find the chairman's mouth on his genitalia.

Murphy's star may no longer rise, but his tale is a portent for the future. So long as Republicans promote homophobia, the party's closets will be crowded.

After death, they depart? Widows face deportation

2007-08-31T09:46:00.001-07:00

After death, they depart? Widows face deportation
Copyright by The Associated Press
August 31, 2007

SAN FRANCISCO -- Jacqueline Coats' husband drowned after he dove into a Pacific Ocean riptide to rescue two boys. Now the immigrant from Kenya might be forced to leave the United States because he died before filing her residency application.
She is among more than 80 foreign-born widows across the nation who face possible deportation because their husbands died before immigration paperwork was approved. Some attorneys want to challenge the government's policy of rejecting green card requests if an immigrant's American spouse dies before the application is processed. At least one lawyer plans to file a class-action lawsuit.

A group of California state lawmakers filed a bill in January asking the Legislature to grant Coats legal status, but similar measures for other immigrants have seldom passed. The government has also generally denied applications for permanent residence for surviving spouses of U.S. citizens if the death occurs during the first two years of marriage.

Thompson to run for president

2007-08-31T09:44:00.001-07:00

Thompson to run for president
Copyright by The Associated Press
August 31, 2007

DES MOINES, Iowa -- Republican Fred Thompson will officially launch his presidential bid Sept. 6.
''I believe that there are millions of Americans who know that our security and prosperity are at risk if we don't address the challenges of our time; the global threat of terrorism; taxes and spending that will bankrupt future generations, and a government that can't seem to get the most basic responsibilities right for its citizens,'' the former Tennessee senator and ''Law & Order'' actor said in a statement Thursday.

Thompson, 65, is vying to be seen as the most consistent mainstream conservative in the race.

Thompson brings to the eight-man GOP field a right-leaning Senate voting record with a few digressions from GOP orthodoxy and a healthy dose of Hollywood star power.

Earlier this year, Thompson saw his popularity soar in polls when he acknowledged he was considering a run.

Hillary tells Letterman: Bill looked into being her veep

2007-08-31T09:43:00.001-07:00

Hillary tells Letterman: Bill looked into being her veep
Copyright by The Associated Press
August 31, 2007

NEW YORK -- Hillary Rodham Clinton has already had to forgo one potential running mate -- her husband.

Asked by talk-show host David Letterman if Bill Clinton could serve as her vice president should she be elected to the White House, the former first lady acknowledged that he could not.

''Believe me,'' she joked, ''he looked into that.''

She also remarked that if the Constitution didn't forbid a president from a third term, ''he might be running.''

Such easy banter marked Clinton's seventh appearance on ''The Late Show,'' which was celebrating its 14th anniversary on CBS. She first appeared on Feb. 14, 1994, when Letterman's mother, Dorothy, interviewed her briefly from the Winter Olympics in Norway.

On Thursday's show, Clinton recounted a summer in Alaska during which she donned boots and an apron to gut salmon with a spoon.

''Best preparation for being in Washington that you can possibly imagine,'' she joked.

Clinton talked shop, too, discussing the need for campaign finance reform, how to pull troops out of Iraq and the importance of caring for wounded veterans. She said that while resistance to a female commander in chief has diminished, it hasn't disappeared.

''I think it's not so much that people don't think a woman can do the job, it's just that we've never done it before,'' she said. ''I'm not running because I'm a woman; I'm running because I think I'm the best-qualified and experienced person who can do the job. But I know that it's a big deal that I might be the first woman president.''

Clinton also read a ''Top Ten List'' of tongue-in-cheek campaign promises, including No. 3: ''We will finally have a president who doesn't mind pulling over and asking for directions.''

International Herald Tribune Editorial - Dishonesty about Abu Ghraib

2007-08-31T09:38:00.000-07:00

International Herald Tribune Editorial - Dishonesty about Abu Ghraib
Copyright by The International Herald Tribune
Published: August 30, 2007

We would have been hard pressed to think of a more sadly suitable coda to the Bush administration's mishandling of the Abu Ghraib nightmare than Tuesday's verdict in the court-martial of the only officer to be tried for the abuse, sexual assault and torture of prisoners that occurred there in 2003.

The verdict was a remix of the denial of reality and avoidance of accountability that the government has used all along to avoid the bitter truth behind Abu Ghraib: The abuses grew out of President George W. Bush's decision to ignore the Geneva Conventions and American law in handling prisoners after Sept. 11, 2001.

The man on trial, Lieutenant Colonel Steven Jordan, was not a career officer. He was one of a multitude of reservists pressed into Iraq duty, many of them for jobs beyond their experience or abilities. A military jury of nine colonels and a brigadier general decided that he was not to blame for the failure to train or supervise the Abu Ghraib jailers and acquitted him on all charges related to the abuse. He was convicted only of disobeying an order to keep silent about Abu Ghraib.

Our purpose is not to second-guess the verdict. Rather, we fear that this and the other Abu Ghraib trials have served no larger purpose than punishing 11 low-ranking soldiers. Not one officer has been punished beyond a reprimand, and there has been even less accountability at higher levels. Bush, Vice President Dick Cheney, former Defense Secretary Donald Rumsfeld and other top officials have claimed that the abuses at Abu Ghraib were the disconnected acts of a small number of sociopaths. It's clear that is not true.

Abusive interrogations, many of them amounting to torture, were first developed for Guantánamo Bay, Cuba, after Bush declared that international and American law did not protect members of Taliban or Al Qaeda, or any other foreigner he chose to designate as an "unlawful enemy combatant." Once the signal was sent that prisoners in the "war on terror" were not entitled to decent treatment, cynical lawyers conjured up perverse legal arguments to ensure that the jailers' bosses would not be prosecuted for abusing them. The techniques and attitudes developed in Guantánamo Bay were exported to Afghanistan, and then to Iraq.

Pentagon officials say they have learned the bitter lessons of Abu Ghraib. Their civilian bosses clearly have not. The Military Commissions Act of 2006 did not provide adequate protection to military prisoners, and it gave the CIA carte blanche to run overseas prisons to which anonymous men are sent for indefinite detention and abuse. In July, Bush issued an executive order reaffirming his policy of ignoring the Geneva Conventions when he chooses.

The need to be honest about Abu Ghraib and to correct the abuses at military and CIA prisons is not only about upholding the law and American values. It is about the safety of American soldiers. Every abuse the United States visits on detainees increases the risk of American soldiers being abused in foreign prisons. If humanity and law are not reasons enough to end the detainee abuse, then it should be done for the cause that Bush invokes daily: supporting the troops.

International Herald Tribune Editorial - No time for threats

2007-08-31T09:37:00.001-07:00

International Herald Tribune Editorial - No time for threats
Copyright by The International Herald Tribune
Published: August 30, 2007

President Nicolas Sarkozy of France made the wrong gesture at the wrong time by brandishing the possible use of force against Iran's nuclear weapons program in his first major foreign policy address. The United States and its allies need to be stepping up their efforts to resolve the serious dangers posed by Iran through comprehensive negotiations and increased international economic pressure, not by talking about military action.

Sarkozy, who has previously said that France would not join Washington in military action against Iran, did not exactly endorse an attack on Iran's nuclear facilities in Monday's speech. He asserted that a nuclear-armed Iran would be "unacceptable" and reaffirmed support for the diplomatic initiative by the United States, France and other world powers. That initiative involves the imposition of UN-mandated sanctions against Iran while offering significant political and economic benefits if Iran stops enriching uranium. It is a deal Tehran so far has refused.

What's scary is that his comments may reflect his understanding of where U.S. policy is headed. Far closer to Washington than his predecessor, Sarkozy just spent time with President George W. Bush on vacation in Maine. His remarks, reflecting his blunt, no-nuance style, will be read as a warning to Tehran and to countries reluctant to increase the penalties for Iran's nuclear ambitions. The message: If the diplomatic initiative fails, Iran will have nuclear weapons or there will be military action to prevent it. Bush added to the bullying Wednesday by suggesting the nuclear threat from Iran was a justification for keeping American troops in Iraq.

Unvarnished comments like Sarkozy's are likely to backfire in Iran, stoking nationalist sentiment to the advantage of hard-line leaders, like President Mahmoud Ahmadinejad, who stand up to the West and resist compromise. They may also be read by Bush administration hawks as a sign of growing European acceptance of the military option.

France has shown impressive diplomatic resolve and should be cashing that in for further diplomatic pressure on Iran. Sarkozy should not give Bush any excuse to lessen the diplomatic push.

The chance of persuading Tehran to forsake nuclear weapons at this point may be slim. But the international community has at least one more opportunity to intensify sanctions. Over the past few years, the United States, Britain, France and Germany have made remarkable strides in forging an international consensus opposed to Iran's nuclear weapons program. But for that to translate into effective sanctions, the UN Security Council must remain united.

Tehran made a deal this month with UN inspectors to resolve questions over its nuclear program that is just another pretense of addressing international concerns. China and Russia, the main obstructionists on the Security Council, will try to use that deal as another excuse to resist tougher sanctions. The United States and its allies must creatively push for the maximum sanctions possible. This is the time for robust diplomacy, not threats.

First Gay Couple Legally Married in Iowa

2007-08-31T09:31:00.001-07:00

First Gay Couple Legally Married in Iowa
By HENRY C. JACKSON
Copyright © 2007, The Associated Press
11:07 AM CDT, August 31, 2007

DES MOINES, Iowa - A minister married two men outside his Iowa home Friday morning, sealing the state's first legal same-sex wedding. Less than 24 hours earlier, a judge had thrown out Iowa's ban on gay marriage.

The Rev. Mark Stringer declared college students Sean Fritz and Tim McQuillan legally wed.

"This is it. We're married. I love you," Fritz told McQuillan after the ceremony on the front lawn of the Unitarian minister's home in Des Moines.

On Thursday, Polk County Judge Robert Hanson ruled that Iowa's 1998 Defense of Marriage Act, which allowed marriage only between a man and a woman, violated the constitutional rights of due process and equal protection of six gay couples who had sued.

The ruling cleared the way for gay couples across the state to apply for marriage licenses in Polk County, and more than a dozen had by Friday morning.

The window of opportunity could be narrow, though.

County attorney John Sarcone promised a quick appeal, and he immediately asked Hanson for a stay that would prevent gays and lesbians from getting marriage licenses until the appeal was resolved. A hearing on the stay request is likely next week, said Camilla Taylor, an attorney with Lambda Legal, a New York-based gay rights organization.

In the meantime, the applications began rolling in.

The marriage license approval process normally takes three business days, but couples can pay a $5 fee and get a judge to sign a waiver allowing them to skip the waiting period.

That's what Iowa State University students Fritz and McQuillan did.

"We're both in our undergrad programs and we thought maybe we'd put it off until applying at graduate school, but when this opportunity came up we thought maybe we wouldn't get the opportunity again," Fritz said. "Maybe the chance won't come again."

Friday morning, with the waiver and marriage license in hand, Stringer married the two men, concluding the ceremony by saying, "This is a legal document and you are married."

The two students then kissed and hugged.

The Short View Fed Rates and Commercial Paper By John Authers

2007-08-31T09:17:00.000-07:00

The Short View Fed Rates and Commercial Paper By John Authers
Copyright The Financial Times Limited 2007
Published: August 31 2007 03:00 | Last updated: August 31 2007 03:00

The market expects Ben Bernanke to do his duty. The message to the US Federal Reserve could not be clearer. Traders expect a cut in the Fed Funds rate.

But the Fed chairman and his colleagues face a deep dilemma as they meet in Jackson Hole today. Those very expectations provide a strong reason for them to resist the calls.

The expectations can be seen in the renewed flight to the safety of the shortest dated Treasury securities, which seldom vary far from the Fed's target Fed Funds rate. Yields on 3-month T-bills are at 3.6 per cent. The Fed Funds rate is 5.25 per cent. Futures imply that, in two months, Fed Funds will be down to 4.75 per cent.

There are good reasons for a cut. One of the three specific reasons for setting up the Fed, listed in the Federal Reserve Act of 1913, was to "afford means of rediscounting commercial paper" - extending short-term loans.

Banks have acute problems with commercial paper, the short- term debt that underpins many transactions. The amount they have raised this way has fallen $250bn (£124bn) in three weeks.

Since the New Deal, the Fed has also had to pursue "full employment". Early indicators suggest that unemployment is rising. Initial US jobless claims have risen five weeks in a row. That also could justify a cut.

The problem for the Fed is that expectations seem to reflect a cocksure certainty that a "Bernanke Put" is in force. A "put" option allows you to sell for a fixed price: the phrase refers to the belief that the Fed will cut to bail out the stock market if share prices fall.

The surge in Fed Funds futures immediately followed the drop in US financials' share prices.

This is no coincidence. The market assumes that distress for financial institutions guarantees rate cuts in its wake. This implies no downside for taking stupid risks and is toxic for the Fed's credibility.

The Fed governors may need that fresh mountain air.

Financial Times Editorial Comment: The scramble for power in Pakistan

2007-08-31T09:15:00.001-07:00

Financial Times Editorial Comment: The scramble for power in Pakistan
Copyright The Financial Times Limited 2007
Published: August 30 2007 19:48 | Last updated: August 30 2007 19:48

The logjam created by the current, lingering episode of military rule in Pakistan looks as though it is finally breaking up. A supreme court decision last week authorised the return of Nawaz Sharif, the exiled prime minister deposed in 1999 by General Pervez Musharraf. Benazir Bhutto, a rival former premier-in-exile, is meanwhile close to cutting a deal with the regime to enable her return, to Pakistan and to office. Ms Bhutto’s part of the bargain is to back Gen Musharraf’s continuing as president, but not as army chief of staff.

There is, in all this fevered manoeuvring, a great deal of venal opportunism, as well as an outbreak of pots calling kettles black. All concerned have reached this juncture as the result of a popular backlash against dictatorship in the streets of Pakistan that has forced supine institutions such as the judiciary and parliament to respond.

Therein lies the best and most realistic hope for rescuing Pakistan from a slide into failed statehood, marked by the spread of jihadi extremism under military tutelage.

Gen Musharraf is part of the problem, not the solution, which, furthermore, requires an open contest rather than the stitch-up he is negotiating with Ms Bhutto. Even if he surrenders his army command, if he is selected for a new term as president by the outgoing parliament – with a pro-regime majority from rigged polls in 2002 – he will have no legitimacy and neither will she.

Mr Sharif may actually hold the stronger position in this scramble home from banishment. But he and Ms Bhutto, having both twice made a mess of governing Pakistan, need to show more than a neo-feudal sense of entitlement and an ability to temporise with jihadis and generals if either is to lead Pakistan out of encroaching chaos.

The first need is for new national and provincial assemblies, freely elected. If they select Mr – not General – Musharraf as president, so be it. But they must also reform the constitution to reinstate the powers of parliament and the prime minister absorbed by the general-as-president, as well as the independence of the judiciary. That is already being vigorously asserted by the supreme court, which is the proper body to decide on Ms Bhutto’s return – not Gen Musharraf.

The struggle against Islamist extremism needs the democratic reinvigoration of Pakistan’s institutions. Rule by the generals may look neater. But by parasitically monopolising scarce resources, licensing jihadism in Kashmir and Afghanistan and clinging on to power, they are assisting in the Talibanisition of Pakistan.

Basra to Helmand: from the frying pan into the fire

2007-08-31T09:12:00.001-07:00

Basra to Helmand: from the frying pan into the fire
By Philip Stephens
Copyright The Financial Times Limited 2007
Published: August 31 2007 03:00 | Last updated: August 31 2007 03:00

Britain's government has a problem. It wants to get out of Iraq without reneging on its international obligations or rupturing its relationship with Washington. The answer, some think, is simple. Withdraw the troops from Basra and redeploy them in the fight against the Taliban in southern Afghanistan.

George W. Bush would still be miffed. But the US president is isolated now even among Republicans. By sending reinforcements to Afghanistan, Gordon Brown would avoid the charge of shirking Britain's responsibilities. Better still, the prime minister would leave behind an unpopular, and hopeless, war to strengthen Britain's contribution to a conflict that can still be won.

That, anyway, is the theory. Sounds neat? In some respects it is. Most obviously, the much-reduced British force in Basra cannot quell the bitter struggle between rival Shia groups in southern Iraq. Iraqi government forces likewise are no match for the local militias. For all their skill and courage, the remaining 5,500 British soldiers, soon to be confined to a single base at Basra airport, struggle to defend themselves.

It is clear too that their 7,000 comrades in Afghanistan's Helmand province are in sore need of reinforcement. Nato is fighting a high intensity war against a resurgent Taliban. Most members of the Nato-led International Security Assistance Force baulk at sending forces to the south. The Americans aside, that leaves the burden with the British and Canadians.

Britain's over-stretched army lacks the resources to fight on two fronts. As casualties mount - running at a higher rate now in Afghanistan than Iraq - its commanders want Mr Brown to choose his war.

Politics draws the same conclusion. Iraq belongs to Mr Bush and the departed Tony Blair. Afghanistan is in a different category. The Taliban provided the safe haven from which al-Qaeda planned the atrocities of September 11, 2001. The west's intervention in support of Hamid Karzai's government has the vital legitimacy that flows from the backing of the United Nations.

Thus Menzies Campbell, who as leader of the Liberal Democrats has been one of the most consistent and trenchant opponents of the Iraq war, backs further deployments to Afghanistan. If Iraq is a bad war, Afghanistan is a good one.

As it happens, Islamist extremism in that part of the world also has a particular relevance to Britain. As David Miliband, Mr Brown's foreign secretary, said the other day, most of the domestic terror plots in Britain can be traced back one way or another to the Pashtun tribal lands straddling Pakistan and Afghanistan.

At this point seemingly impeccable logic collides with dismal reality. It is one thing to say that Britain can do little more in Iraq. That the war in Afghanistan is "winnable" is a much more debatable proposition. The answer depends on, among other things, the definition, never spelt out, of what constitutes victory.

A reasonable assumption would be that winning means the establishment of a stable state with the political structures and the security capabilities to deal with violent Islamism. Not a shiny new democracy on the western model - Afghanistan's tribal roots run too deep - but a moderately pluralistic society operating under the rule of law and with a functioning economy.

By that yardstick, Nato and its allies are losing. Tactical military successes against jihadi fighters in southern Afghanistan have been just that - tactical. The strategic advantage lies with the Islamists. The Taliban has a chilling adage: its enemies have watches. It has time.

A measure of the west's failure came this week with the latest UN figures on Afghanistan's opium production. Concentrated in the south, and nurtured by the Taliban, this year's crop rose by 34 per cent. On the UN's estimate Afghanistan is now the source of more than nine-tenths of the world's heroin. Opium accounts for more than half of Aghanistan's economic output and more than three-quarters of its exports. The Taliban takes a large slice of the profits.

The explosion in poppy cultivation speaks to a longer litany of strategic errors since 2001. Washington started out well enough. The initial victory of the Northern Alliance was followed by a determined effort to hand over the country to an Afghan government. At the Bonn conference, the US actively engaged Afghanistan's neighbours - notably Iran and Russia - to underwrite stability. Security, it was promised, would be underpinned by massive economic reconstruction.

Hubris replaced common sense once the Bush administration decided to invade Iraq. Little effort was made to establish security south of Kabul, aid flows were reduced to a trickle and civilian reconstruction was neglected. Iran was cast into darkness as part of the axis of evil. Little wonder the Taliban and its allies regrouped.

There is more, though, to the west's failure than the Bush administration's arrogance and incompetence. I have often heard European politicians describe Afghanistan as an existential test of Nato's, and thus of the west's, resolve in the fight against violent Islamism. They are right.

What is missing is the shared strategic analysis and resolve to turn tactical victories into long-term advantage. That would mean admitting that the war is rooted as much in the tribal and religious politics of Pakistan as in Afghanistan; or that final resolution will depend as much on settlement of the half-century-old dispute over Kashmir as on military victories in Helmand.

All this is too complicated, too long-term, too hard to explain to impatient voters. The west's politicians know that they cannot afford to lose to the Taliban, but are not prepared to ask for the sacrifices needed to win. They talk of victory but will not admit the price in blood and treasure. Nato's forces are thus hamstrung by theological wrangling over the alliance's mission. Civilian aid is a fraction of what it needs to be. And while the west looks impatiently at its watch, the Taliban can afford to bide its time.

So Mr Brown should think hard before being seduced by seemingly neat solutions. As it happens, I do not think he is about to announce a sudden exit from Iraq. The prime minister will seek an orderly withdrawal from Basra. Before he despatches these brave soldiers to Helmand, though, Mr Brown must think hard about their mission. Without clear strategic purpose, the west is destined to discover that legitimate wars can also be lost. It would be more than a pity if, two or three years hence, we are witnessing another ignominious retreat.

Blow as two ‘Muni WiFi’ schemes fail

2007-08-31T09:09:00.000-07:00

Blow as two ‘Muni WiFi’ schemes fail
By Chris Nuttall in San Francisco
Copyright The Financial Times Limited 2007
Published: August 31 2007 02:07 | Last updated: August 31 2007 02:07

The “Muni WiFi” movement has been dealt a double blow with the collapse of its San Francisco and Chicago schemes to provide blanket wireless coverage.

The San Francisco scheme – which fell apart on Wednesday night after Earthlink, the internet service provider, said it was pulling out of a contract to build the city’s WiFi network – was one of the most high-profile in the country because of the involvement of Google. The internet company was planning to subsidise a free-access option for users in exchange for including advertising in the service.

Separately, Chicago shelved its plans to provide WiFi coverage over the city’s 228 square miles, saying it would require significant public financing, and that demand was declining.

Muni WiFi has become a victim of flawed business plans, slow user adoption, technology problems and political delays. Alternative technologies have also been emerging – Chicago will be one of the first US cities to benefit from a wireless WiMax service being launched by the carrier Sprint Nextel. WiMax offers broadband internet speeds over long distances.

Both San Francisco and Chicago rejected proposals by Earthlink that they become “anchor tenants” of a WiFi network – providing a guaranteed income for the provider by paying for city services such as wireless video surveillance.

In San Francisco’s case, the city said its departments did not have services that could take advantage of the network.

Earthlink, a pioneer of Muni WiFi in cities such as Philadelphia and Anaheim, has realised that its original business model – bearing the whole cost of building out the infrastructure and then charging users for access – is unprofitable.

The failure of Muni WiFi to live up to expectations contributed to the company’s announcement of 900 job losses this week, almost half its workforce.

Other cities, such as Corpus Christi in Texas and Lompoc in California, have taken on the responsibility of building the networks themselves. Lompoc suffered coverage problems – it found wireless signals struggled to penetrate the walls of homes – and discovered only a few hundred of its 40,000 inhabitants were willing to pay a subscription fee.

The sums have also not added up for “digital inclusion” – ambitious plans to provide free or low-cost access to those on low incomes.

Google seemed to suggest on Thursday that it was still interested in providing free access, but with a new partner. “We hope that the city will be able to reach an agreement that will enable all San Franciscans to enjoy a free WiFi network,” a spokesperson said.

Call for rules to curb predatory lending

2007-08-31T09:08:00.001-07:00

Call for rules to curb predatory lending
By Jeremy Grant in Washington
Copyright The Financial Times Limited 2007
Published: August 30 2007 21:15 | Last updated: August 30 2007 23:34

This week, organisers of the forthcoming Five Star Default Servicing conference in Texas trumpeted the event with a promise to “quiet the swarm of negative headlines” about their industry.

DS News – which focuses on what it proudly calls the “rich landscape of default servicing” – pledged to show how lenders were not “out to foreclose on homeowners”.

Small wonder some in the mortgage lending industry are feeling defensive.

With millions of Americans braced for a wave of foreclosures on their homes as a result of the subprime mortgage crisis, politicians in Washington have been pointing the finger of blame at the “unfair and deceptive” mortgage lending practices that many say are responsible for homeowners’ woes.

About 20 per cent of subprime mortgages taken out in 2005 and last year will end in the loss of the home to foreclosure – representing more than 1m lost homes, according to the non-profit Center for Responsible Lending.

Barack Obama, the Democratic presidential hopeful, proposed this week that “irresponsible” lenders be fined and the proceeds used to help people refinance. He also urged tighter regulation to prevent future problems.

Yet Mr Obama’s proposals highlight a double dilemma: how far should any bail-out of distressed borrowers go, and how would the federal government enforce any new rules given fragmentation in the way the mortgage industry is regulated?

Karen Shaw Petrou, managing partner at consultancy Federal Financial Analytics, says: “The big problem is determining which borrowers facing foreclosure were the victims, and who were the speculators with speculative [mortgage] structures who were just caught in a downturn. If every borrower facing foreclosure is rescued, then no borrowers in future will take care to get a prudent mortgage.”

Echoing the Bush administration’s more hands-off approach, Ben Bernanke, Federal Reserve chairman, this week suggested that Congress consider allowing the Federal Housing Administration – which insures home loans – to work with the private sector in helping some borrowers to refinance.

On the regulatory front, the last time Washington tackled predatory mortgage lending was in 1994, when Congress passed the Home Ownership and Equity Protection Act (Hoepa).

The Fed is considering proposing additional rules under Hoepa this year, including those that could deal with pre-payment penalties, seen by critics as among the most egregious practices.

But Randall Kroszner, a Fed governor, has pointed out that crafting new rules under an “unfair and deceptive” standard is hard. “Rules must have broad enough coverage to encompass a wide variety of circumstances so they are not easily circumvented. At the same time, rules with broad prohibitions could limit consumers’ financing options.”

As Mr Bernanke has acknowledged, enforcement of any new rules also would be tricky.

While Hoepa applies to all lenders, enforcement is handled by an alphabet soup of authorities each with some oversight of the US mortgage industry: the Federal Trade Commission, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation, to name three that cover bank lenders. States have their own powers too.

Arguably more problematic, the vast army of non-bank mortgage lenders that has proliferated in recent years is subject to Hoepa rules – yet federal authorities have no power to enforce them, because such brokers and lenders are regulated in their home states.

Gilbert Schwartz, a lawyer with Schwartz & Ballen in Washington, does not believe the answer is federal oversight. “You can’t send people around to every small broker to keep on top of what the fringes of the industry may be doing,” he says.

Deborah Goldstein, the Center for Responsible Lending’s executive vice-president, says the secondary mortgage market has a role to police itself in addition to any tightening of rules on abusive practices. But the CLR still believes the mortgage crisis is in part due to the “unintended consequences of under-regulation” at the time of Hoepa, and urges “substantial regulatory reform”.

Impatient at lack of action in Washington, North Carolina this week struck out on its own, approving a law to limit the ability of mortgage brokers to charge pre-payment penalties.

Next week all eyes will be on the House financial services committee, where Barney Frank will chair a hearing into predatory lending practices.

His committee is also drafting a bill dealing with the problem.

Lunch with the FT: Barney Frank

2007-08-31T09:06:00.000-07:00

Lunch with the FT: Barney Frank
By Jeremy Grant
Copyright by the Financial Times 2007
Published: August 31 2007 13:19 | Last updated: August 31 2007 13:19

When I contact Barney Frank’s staff to arrange to meet the US congressman, I expect the suggested venue to be a familiar lunch spot for the politically powerful in Washington DC. Instead, I receive an e-mail with driving directions to a location 50 miles south of Boston.

So here I am in Sagres, a restaurant in Fall River. The waiters keep up a lively Portuguese patter with diners as they move from table to table. There is no sign of Frank. But there are plenty that I am not in Washington. His staff had said he’d like to have lunch in his constituency, near Boston. I hadn’t figured on a Portuguese place miles away. This could be lunchtime in Lisbon, I’m thinking. Or Frank’s idea of a practical joke. Before I have time to decide, the congressman for the 4th District of Massachusetts arrives, sits down and introduces me to the waiter who’s been explaining the menu to me in English. “This is a journalist from the Financial Times – they’re doing restaurant reviews now,” he jokes.

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Frank doesn’t do small talk. He can often be brusque. But he is witty, so much so that he was recently voted funniest member of Congress by the Washingtonian magazine. Yet what really makes the 67-year-old a standout in American politics is that he is a left-leaning liberal who also espouses the free market. A Harvard-trained lawyer, he is equally at home fighting for workers’ rights to organise unions and to promote affordable housing as he is debating regulation of hedge funds or deconstructing the reasons behind the current credit-market turmoil.

As we study the menu, he homes in on the issue that consumes him most: inequality. After adjusting for inflation, the median American household is earning less than it was in 2000. In some polls, three quarters of Americans say they are either worse off – or no better off – than they were six years ago. Productivity is up, but wages have stagnated. “You’ve got this problem where the increased wealth of the last few years, particularly since Bush came in, it’s just been wholly inequitably distributed. And the average citizen says: ‘I’m getting screwed.’ Enough of it now,” he says.

The so-called “middle-class squeeze” is propelling economic issues to the forefront of the 2008 presidential election. As Democrats grapple with how to forge a united front on it, Frank has acquired, through his chairmanship of the House financial services committee, a powerful pulpit from which to shape the debate.

I ask Frank to tell me about Fall River. It becomes clear why he has picked this spot for lunch. Once a booming 19th-century textile town that was home to more immigrants than any other city in the US, it is part of his constituency. Quaker Fabric, a local textile maker, has just announced 800 layoffs. He is here to see what he can do.

We order. Frank picks a hearty Portuguese soup of peas, carrots, cabbage, white beans and noodles, followed by the Shrimp Mozambique – his usual. He knows this cuisine, having been to the Azores a dozen times. Fall River is home to 300,000 Portuguese, most former Azoreans. I go for a similar shrimp starter, then feijoada, a stew consisting of three different Portuguese sausages, cabbage, beef and red beans. He declines wine – “I can’t, I’m going to be working all day” – but after I order a half bottle of red, he agrees to a glass.

Before we get into inequality, I’m curious about one thing. Frank was the first US congressman voluntarily to declare his homosexuality. It has not always been an easy ride since then. In 1990, the House censured him after a scandal in which it emerged that a male escort he’d struck up a relationship with had been operating a prostitution ring from the basement of Frank’s house. He admitted having a relationship with the man, but denied knowledge of his basement activities.

I ask if there have been any problems being the only openly gay man in the House. “No, but I thought there would be.I guess that’s why I’d been on the [Democratic party] leadership track but [former House Speaker] Tip O’Neill did say to me when I told him: ‘Oh, I’m so sad, I thought you were going to be the first Jewish Speaker.’ Interesting that he’d say ‘Jewish’. Tip came from that era.”

It wouldn’t have occurred to him to think of you as the first gay Speaker then, I venture. “Right. I wouldn’t have been, by the way, the first gay Speaker. There were at least two others in the 20th century.” I ask who. He tells me – off the record.

Frank has used his wit and force of intellect to get by. In May, he demonstrated his ability to take on social conservatives as the chamber voted on legislation to allow federal authorities to prosecute hate crimes targeting people because of their sexual orientation. Urging legislators to support the bill in the face of critics who said it would threaten the right to express moral opposition to homosexuality, Frank’s response was classic: “If this bill passes people will still be able to call me a fag. Although if they’re in the banking business, I wouldn’t recommend it.”

He says he has found that by being openly gay in politics the public does appreciate and understand authenticity. “What happens with many American politicians is that they are advised by consultants that they have to change and they have to conform to this stereotype, this persona. Because otherwise you can’t win. And what happens is you become less appealing than you otherwise would be. Al Gore the post-presidential candidate is more like the real Al Gore than Al Gore the candidate.”

As for Barack Obama, the Democratic presidential candidate who portrays himself as a Washington outsider, Frank says he is trying to “become the new version of authenticity”. “But it seems a very laboured authenticity. And you don’t get authenticity by saying: ‘I am authentic.’ It’s one of those things that, once you say it, it’s gone.”

Our food arrives. The feijoada is served, steaming hot, in a steel pot. Frank immediately gets to work on his shrimp. I switch the conversation back to inequality. A statistic I’d seen that week struck me as interesting: just over half the earned income in the US goes to 20 per cent of the population. “And it’s worse than any time since 1929,” Frank picks up. Not only has productivity growth failed to translate into wage growth, government has failed to “retard the increase in inequality” by investing in training colleges. Americans’ ability to access healthcare is still linked to employment.

Frank’s central premise is that “displaced economic anger” in the middle class is why the Bush administration recently failed to pass landmark immigration reform. It has also led to angst over the effects of globalisation. “What I want to say to the business community is this: I agree with you that some of these things are good. They are being held up by an anger that cannot be fixed by things that are intrinsic to these issues themselves; you have got to fix the economic context in which they happen. You have to allow unions to be recognised – that’s been my take with private equity; they need to recognise the service employees and hotel workers. You’ve got to allow unions and you’ve got to stop demonising government so that government can resume the provision of services.”

For a long time the Republicans were able to stave off a debate about inequality by deriding it as class warfare, Frank says, so engaged with his subject that he is speaking as rapidly as he is chewing. That’s no longer the case because of rising anger over outsized pay packages for chief executives. “People have connected the dots,” Frank says. “Compensation of the top three officials in the 1,500 biggest corporations has about doubled as a percentage of profits – from 4.3 [per cent] to 9.2 [per cent]. You’re talking about macroeconomically significant numbers. When they gave [former Home Depot CEO Robert] Nardelli $210m [in severance pay], at the same time they announced they were going to buff up the stores by putting $350m into them. We’re talking about comparable numbers here. It’s now finally come together in a very angry public that says it’s unequal, it’s unfair, you’re getting way too much.”

His solution? A new compact between Democrats and business and conservatives that he sums up thus: “Help us with equity and we can help you with growth.”

Coffee arrives. I suggest that could be hard to stitch together, as much as the business community likes what they see in Barney Frank. He recognises this, and adds that you “can’t do anything without the presidency”. “Here’s what I’m hoping: if you get a Democratic presidency and a Democratic Congress – not a sure thing – then we’d come up with this package. I am hoping that we can prepare the way so that when we offer it they will be accepting of it.”

I suggest that if this strategy works, the Democrats would recapture the political and economic middle ground for a very long time. “And the middle’s huge now,” Frank agrees.

I ask for the bill, reminding him that by tradition the FT pays. “No, no, can’t. Ethics rules. Can’t do it,” he jumps in, waving his hand over the bill and pointing out that especially if the FT’s parent company, Pearson, has a lobbyist in Washington, he cannot be bought lunch. We split it.

Frank starts to rise from the table. His driver has been sitting at the back of the restaurant behind me and has signalled to Frank that it is time for a phone interview with The Boston Globe. They want to ask him about the job losses at Quaker Fabric.

The next day I go online to see how the paper covered the factory closure. Quaker is described as having “at first prospered under free trade agreements”, but the company buckled under a flood of cheap imports from China. Frank is quoted saying the closure is another example of the unfairness of current economic and trade policies. “These working-class people are bearing the brunt of a policy of globalisation that benefits the few and damages the many.”

If Barney Frank’s message isn’t clear by now, I reflect as I leave the restaurant for the drive back to Boston, it should be.

Jeremy Grant is the FT’s US financial correspondent.

Department of Justice unit reviews Gonzales testimony

2007-08-31T08:30:00.001-07:00

Department of Justice unit reviews Gonzales testimony
By Stephanie Kirchgaessner in Washington
Copyright The Financial Times Limited 2007
Published: August 31 2007 02:02 | Last updated: August 31 2007 02:02

The justice department’s inspector-general is investigating Alberto Gonzales’ testimony before Congress on a terrorist wiretapping surveillance programme and the sacking of several US attorneys-general.

Glenn Fine, who serves as an independent watchdog at the Department of Justice, stopped short of saying he was investigating whether Mr Gonzales, who announced his resignation as US attorney-general this week, committed perjury, but he wrote in a letter to Senator Patrick Leahy that he was investigating “most of the subjects addressed by the attorney-general’s testimony” that have come under scrutiny by lawmakers.

Mr Gonzales offered accounts in sworn testimony before Congress of the Bush administration’s terrorist surveillance programme that appeared to conflict with testimony by the chief of the FBI and the former deputy attorney-general. His truthfulness has also been called into question by lawmakers following his testimony into the circumstances surrounding the firing of nine US attorneys-general.

While Mr Gonzales testified in February that neither James Comey, the former deputy attorney-general, nor other officials had concerns about the terror spying programme, other officials indicated in stark detail that there were deep disputes over the programme.

The attorney-general has since said that the disputed activities were separate from the aspects of the programme he had testified about. Mr Gonzales also testified he had not been involved in deliberations about which US attorneys should be fired, even though documents later showed he had attended a meeting in which the dismissals were approved.

Mr Fine said those issues, as well as the use of national security letters that allowed the FBI to obtain personal information, including telephone, banking, and e-mail records, were being investigated. Mr Fine found in a previous investigation that the White House had misused its authority and improperly obtained personal information about people in the US on hundreds of occasions by using the letters.

Until Thursday it was only known that Mr Fine was investigating the US attorney issue. Mr Leahy, the Democratic chairman of the judiciary committee, said the subjects under investigation had eroded the public’s trust and undermined morale within the justice system “from the top ranks to the cop on the beat”.

“The current attorney-general is leaving, but these questions remain. It is appropriate that the inspector-general will examine whether the attorney-general was honest with this and other congressional committees,” he said.

GE pays price for credit crunch

2007-08-31T08:27:00.001-07:00

GE pays price for credit crunch
By David Oakley in London
Copyright The Financial Times Limited 2007
Published: August 31 2007 00:01 | Last updated: August 31 2007 00:01

General Electric, the world’s biggest corporate borrower, on Thursday highlighted the sea-change in the markets since the summer’s turmoil when it paid much higher interest rates to raise debt.

The world’s second-biggest company by market value, and a benchmark for other companies looking to issue, will have to pay an extra €7.2m a year to borrow about €1.9bn as investors demanded much higher premiums in the post-liquidity crunch climate.

The deal, the first significant corporate bond issue in the European markets since July, is a warning sign to other lower rated issuers as September, traditionally a heavy month for raising debt, approaches.

Other issuers forced to pay higher interest rate charges recently have included Deutsche Bank, Citigroup and Comcast, the US cable operator.

GE Capital Corp, GE’s financing arm, is rated Aa1 by Moody’s and AA+ by Standard & Poor’s, the second-highest level on the investment grade scale.

If GECC has to pay higher debt charges, then lower rated issuers, especially those in the junk-grade arena, could face serious difficulties as they seek to refinance.

The uncertainty forced the high-yield market to shut down in Europe this month.

Not a single deal was attempted, according to Dealogic, while in the US only $2bn (€1.46bn) was raised in high-yield bonds.

Robert Whichello, head of European debt markets at BNP Paribas, said: “The world has fundamentally changed. It is a much tougher credit market, particularly for lower rated issuers.”

Dominic White, a fund manager at Morley Fund Management, agreed: “It is a buyers’ market now. The pendulum has certainly shifted in the favour of investors.”

However, bankers and corporate finance directors drew positive conclusions from the deal and praised GECC for pushing ahead in an uncertain market.

GECC priced €1.5bn and £600m (€890m) in 60-year subordinated bonds to yield 100 basis points over mid-swap rates – the pricing reference point for European bond issues.

The company priced a bond structured in the same way in September 2006 at 62 basis points over mid-swaps, which means it had to pay an extra 0.38 percentage points in today’s market.

US inflation slows in July

2007-08-31T08:25:00.000-07:00

US inflation slows in July
By Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: August 31 2007 15:30 | Last updated: August 31 2007 15:30

US inflation cooled last month, giving the Federal Reserve more scope to cut interest rates in response to the crisis in credit markets.

Fed Chairman Ben Bernanke made clear in a speech on Friday that the central bank is alarmed by threat to the US economy from extreme market turbulence and tightening lending conditions.

Investors are betting on a rate cut when the Fed meets next month, but the 53-year-old chairman is keen to be seen to be responding to economic conditions and not be bailing out Wall Street.

The slowdown in underlying inflation will make it easier for him to justify cutting rates, which can stimulate price rises and encourage investors to take risks in the hope the Fed will step in if things turn sour.

Peter Kretzmer, an economist at the Bank of America, said: ”With the federal open market committee recently acknowledging increased downside risks to the economy, the positive news on the core inflation front will be welcome at the Fed.”

The fresh government figures showed that core inflation - excluding food and energy costs rose 0.1 per cent in July, less than the 0.2 percent gain projected by economists and recorded the previous month.

This put the annual rate of core inflation at 1.9 per cent, according to the Fed’s favoured measure.

There were also positive signs for the economy as consumer spending rose more than forecast in July, a sign that households were adding to economic growth at the start of the third quarter, before the credit crunch.

Personal spending rose 0.4 per cent following a 0.2 per cent gain in June that was bigger than initially estimated, the Commerce Department said.

Mr Kretzmer said: ”These data suggest a relatively favorable economic backdrop for consumers in July, prior to the most recent bout of financial market turmoil.”

Bernanke offers no signal on rate cut/Jackson Hole speech likely to emphasise steps taken to protect economy

2007-08-31T08:22:00.000-07:00

Bernanke offers no signal on rate cut
By Krishna Guha in Jackson Hole
Copyright The Financial Times Limited 2007
Published: August 31 2007 15:10 | Last updated: August 31 2007 16:20

Ben Bernanke offered no clear signal that the Federal Reserve is poised to cut interest rates in a speech to central bankers on Friday, even as he reaffirmed its commitment to take into account the likely effects of financial market turmoil on the economy.

The Fed chairman made it clear that there would be no rate cuts simply to bail out investors, declaring “it is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions.”

But he also said that developments in financial markets “can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account.”

The overall tone of the Fed chief’s remarks, at the opening session of its annual retreat in Jackson Hole Wyoming, suggested that the US central bank remains quite uncertain about the likely future path of interest rates.

This stands in contrast to the apparently high degree of certainty in the markets that the Fed will soon embark on a series of rate cuts.

President George W. Bush, in a speech later in the morning, echoed Mr Bernanke in saying that “speculators” could not expect to be bailed out. But he also proposed ways of helping homeowners escape defaulting on their subprime mortgages using modifications in the tax code. He also outlined reforms which might help avoid a repeat of the subprime fiasco.

In his speech, Mr Bernanke described the spillover effects from the turbulence in the markets in terms of risks or possible effects rather than certain consequences.

He made it clear that the magnitude of these effects would depend in large part on how long the current market dysfunction continues.

“If current conditions persist, the demand for homes could weaken further, with possible implications for the broader economy,” he said.

However, the Fed chairman did emphasise that well-functioning financial markets are “essential for a prosperous economy.”

He said recent economic data suggested that the economy grew at a “moderate pace” into the summer, but said that in the light of recent financial market developments, this data may not be a good guide to future economic performance.

He said the Fed would put particular weight on the most timely indicators, and on its contacts with the business community.

Mr Bernanke said the stock of unsold new homes in the US remains “quite elevated” and further declines in homebuilding are “likely.”

He said the Fed was “following closely” developments in financial markets that could put further pressure on the housing market.

Mr Bernanke said borrowers currently “face noticeably tighter terms and standards for all but comforming mortgages [mortgages that are eligible for purchase by Fannie Mae and Freddie Mac].”

The Fed chairman said “financial stress” has “not been confined to mortgage markets.”

He said banks have “become more protective of their liquidity and balance sheet capacity” as they have been obliged to take some risk assets back onto their balance sheets and honour credit lines pledged to back up commercial paper programmes.

Mr Bernanke said “global financial losses have far exceeded even the most pessimistic projections of credit losses” on subprime loans.

He said this likely reflects in part the fear that weakness in US housing will restrain US growth. But he added that ”other factors” were at work too. “Investor uncertainty has increased significantly as the difficulty of evaluating the risks of structured products that can be opaque or have complex payoffs has become more evident,” he said.

He said some repricing of risk was probably “healthy.” But he said this had “interacted with heightened concerns about credit risks and uncertainty about how to evaluate those risks to create significant market stress.”

As in past episodes of financial turmoil, he said, uncertainty about possible forced sales by investors with large borrowings have made other investors “hesitant” about taking advantage of possible buying opportunities.

Mr Bernanke said the subprime mortgage crisis was in large part the result of the ”failure of investors to provide adequate oversight of originators and to ensure that originators incentives were properly aligned.”

He said there would be no return to the days when banks kept all home loans on their books, rather than selling them on to investors.

But he said “clearly the originate-to-distribute model will be modified – is already being modified – to provide stronger protection for investors and better incentives for originators.”

Jackson Hole speech likely to emphasise steps taken to protect economy
By Eoin Callan
Copyright The Financial Times Limited 2007
Published: August 31 2007 03:00 | Last updated: August 31 2007 03:00

Ben Bernanke is likely to use a speech in Jackson Hole today to underscore the emergency steps the Federal Reserve has taken to keep financial markets liquid, writes Eoin Callan.

The moves started two weeks ago with a statement that policymakers detected an increase in risks to growth and would act to avoid adverse consequences for the economy.

The Fed made a 50 basis point cut in the discount rate on its loans to banks, taken to the tune of more than $2bn (€1.5bn, £1bn) by Bank of America, Citigroup, JPMorgan, Wachovia and Deutsche Bank.

It also helped unfreeze some parts of the credit markets by accepting as collateral securities backed by subprime mortgages and asset-backed commercial paper.

The Fed then approved exemptions for some very large banking institutions so they could allocate reserve funds to their more exposed dealer-broker arms.

There have also been less publicised changes to the System Open Market Account securities lending programme, increasing the supply of Treasury bonds sought by nervous investors.

Subject: URGENT::::::: US Postal Service Issues Recall

2007-08-31T04:05:00.001-07:00

Subject: URGENT::::::: US Postal Service Issues Recall
Date: Tue, 28 Aug 2007 19:50:34 +0000

US Postal Service Issues Recall
The US Postal Service has issued a recall of a stamp they created
with a picture of President George Bush to honor his achievements
while serving as the president of our nation.
The problem was discovered when claims had been
made that the stamp was not sticking to envelopes, and that mail
which had been sent using the "Bush" postage was not being
delivered. President Bush demanded a full investigation into the allegations.
A special Postal Service Investigation team was formed and
after several months and many dollars spent, made the following findings:
The stamp was manufactured properly.
There was nothing wrong with the adhesive.
People were just spitti ng on the wrong side

Anti-gay group accuses hotel of bias - Inn defends cancellation of banquet room

2007-08-30T14:18:00.000-07:00

Anti-gay group accuses hotel of bias - Inn defends cancellation of banquet room
BY TIM WALDORF Naperville Sun
Copyright by The Chicago Sun-Times
August 30, 2007

The Naperville Holiday Inn Select has turned down business from Americans for Truth.
Now the ultra-conservative, Naperville-based national organization dedicated to "confronting the homosexual activist agenda" is accusing the hotel company of illegal anti-Christian, anti-conservative discrimination.

Peter LaBarbera, executive director of Americans for Truth, said his organization had placed a $750 deposit with the hotel to reserve a banquet room for its annual fund-raiser Oct. 6.

But the hotel canceled the arrangement, LaBarbera said, after he was "naive enough" to acknowledge that the event might draw protests by "homosexual activists."

Holiday Inn Select General Manager Dennis Igoe called LaBarbera's allegations of discrimination "ludicrous."

"We took a look at what we had at the hotel on the same evening. We had a wedding in the other ballroom," Igoe said. "For the safety and security of all of our employees and guests, we decided that it is not a function that we wanted to have, based upon the potential of having a protest."

LaBarbera said his group has booked a different venue in Lombard for the fund-raiser and changed the date to Oct. 5.

Marriage Equality Win in Midwest!/Lambda Legal: Making the Case for Equality

2007-08-30T14:13:00.001-07:00

Marriage Equality Win in Midwest!

Plaintiff couples in Lambda Legal's Iowa marriage lawsuit: Varnum v. Brien

Nearly two years after six same-sex couples were denied marriage licenses by Polk County Recorder Timothy Brien, an Iowa district court ruled that it is "unconstitutional and invalid" to deny same-sex couples the right to marry.

This is the first marriage case launched in the American Midwest and shows that fairness and equality for all are valued across our nation. The decision brings to life the Iowa Constitution's promise of equality for same-sex couples and their families.

This case now moves forward, and the Iowa Supreme Court will ultimately have the final decision.

Camilla Taylor
Senior Staff Attorney
Arguing Varnum v. Brien
"This decision recognizes that our clients and thousands of other same-sex couples and their families across Iowa are devoted to each other and want the protections and responsibilities that only marriage can provide so that they can take care of each other."
Background:

Lambda Legal filed this lawsuit on behalf of six same-sex couples seeking the right to marry in Iowa. We argue that under the equal protection and due process guarantees of the Iowa Constitution it is unlawful to bar same-sex couples from marrying. The couples in this case have been together between five and more than 17 years. Three of the couples are raising children, others are planning families, and all want the responsibilities of marriage and the protections only marriage can provide.

History:
December 2005 Lambda Legal files marriage lawsuit in Iowa district court for Polk County; case will ultimately be decided by the Iowa Supreme Court.
April 2006 Twenty-six state legislators represented by an antigay legal organization move to intervene in the case as defendants.
August 2006 Court denies legislators' application, ruling that none of the legislators had interests in the case sufficient for intervention.
August 2006 Plaintiffs move to amend their petition in order to add three of their children as parties, among other amendments.
September 2006 Defendant resisted plaintiffs' motion to add the children as parties.
November 2006 Defendant moves for summary judgment.
December 2006 Court grants plaintiffs' motion to amend, including plaintiffs' motion to add three of their children as parties.
January 2007 Plaintiffs file resistance to defendant's motion for summary judgment and cross-moved for summary judgment as well. Plaintiffs also file affidavits from leading child development and other experts who explain the need for marriage rights for same-sex couples. In support of plaintiffs' summary judgment motion, Iowa faith leaders, scholars and religious groups file friend-of-the-court brief as does the Iowa Civil Liberties Union on behalf of a group of Iowa historians and law professors.
March 2007 Defendant files reply brief.
April 2007 Plaintiffs file reply brief.
May 2007 Summary judgment hearing.
August 2007 Victory! The Iowa District Court for Polk County rules in favor of equality!

James L. Bennett,
Midwest Regional Director
Lambda Legal
11 East Adams, Suite 1008
Chicago, IL 60603
312.663.4413 x31
http://www.lambdalegal.org

Lambda Legal: Making the Case for Equality

What a great day for Iowa — and for our communities! An Iowa court has ruled that it is unconstitutional to deny six same-sex couples in Lambda Legal’s lawsuit the right to marry.

Read the full text of the decision.

Today’s decision brings to life the promise of equality in Iowa’s constitution for same-sex couples and their families. All people deserve to be treated fairly by their government and the decision makes that principle clear.

Lambda Legal originally filed the marriage lawsuit in December 2005. Today’s decision comes after a hearing in May where both sides made arguments before the court.

This time it’s an IOWIN...
Join the Summer of Equality!

Make A Gift
We’re happy that our argument prevailed in court, but we are happy most of all for the couples and families in this case — and for all of the same-sex couples across Iowa who want to get married just as their neighbors do. We thank our co-counsel Dennis Johnson of Dorsey and Whitney and our partners at One Iowa for working steadfastly with us on this case. And we thank all of you for your continued support.

As we head into Labor Day weekend, the official close of summer, this victory wraps up Lambda Legal’s “Summer of Equality ” with a big bang!

But the fight is far from over. We are already preparing the next step as the case moves forward — ultimately the Iowa Supreme Court will have the final word.

Thank you and have a wonderful holiday weekend.

All best,

Kevin Cathcart
Executive Director
Lambda Legal

A November deadline for Mideast peace

2007-08-30T09:09:00.000-07:00

A November deadline for Mideast peace
By Roger Cohen
Copyright by The International Herald Tribune
Published: August 29, 2007

WASHINGTON: The sources of global frustration with the Bush administration have been many and varied, but its refusal over several years to bring serious attention to the Israel-Palestine conflict has ranked high. To dream some path led from Baghdad to Jerusalem was always upside-down foolishness.

So President George W. Bush's discovery last month that "Iraq is not the only pivotal matter in the Middle East" was encouraging, as was his virtual abandonment of the turgid negotiating formula known as the "road map." The Bush end game, like Clinton's, is going to see a push for a resolution of the mother of all conflicts.

The upper echelons of the State Department are suddenly full of talk of "a supreme effort" for Israeli-Palestinian peace. The bold convocation of a conference in the United States in November demonstrates that an empty focus on the incremental has been replaced by a thrust for the finish line: Palestinian statehood next year, or at least a detailed framework for that state.

Is this just a hopeless lunge for the history books from a lame-duck administration undone by Iraq? Bush, his swagger gone, is weak. Ehud Olmert, the unpopular Israeli prime minister, may be even weaker. The Palestinians are split, the region radicalized by Iran rising and Iraq fissuring.

But low expectations can be a diplomat's ally. It may seem foolish to speak of exhaustion in a conflict whose capacity for regeneration since 1948 has been boundless. Yet that is what a senior U.S. official found recently in the region, alongside a conviction that "it's time to change the Israeli-Arab equation."

In fact that equation has already changed. The Palestinian national movement and global jihadism are distinct, but to the extent the former has permeated the latter it has redoubled the determination of Palestinian pragmatists like President Mahmoud Abbas and his prime minister, Salam Fayyad, to deliver. Regular Abbas-Olmert meetings in recent weeks are one sign of this.

Another shift has been caused by Iran's growing influence - in Shiite-dominated Iraq, in Lebanon through Hezbollah, and in Gaza through Hamas. This has made Sunni states, including Saudi Arabia, fearful. Israel is Iran's enemy. The enemy of an enemy begins to look like a friend.

"Most, if not all the Sunni countries, see Iran as disturbing, unhelpful and violent," R. Nicholas Burns, the under secretary of state for political affairs, told me. "It's a hard question whether they now see Iran as more dangerous than Israel. But most of these states understand that Israel is not a threat to them while Iran might be."

To coax Gulf countries to reach out to Israel - a Saudi presence at the November conference alongside Israel is a major U.S. strategic aim - the United States is readying a multi-billion dollar military aid package for them. It needs congressional approval, which will not come easily.

The administration believes the package is critical. "It says to the Iranians and Syrians that the United States is the major power in the Middle East and will continue to be and is not going away," Burns said. "It also says we take care of our friends, making sure they are strong, building up their conventional deterrence to Iran."

Strong words that indicate a gamble. Unlike Clinton in 2000, who tried to coax Yasser Arafat to compromise and hoped Middle Eastern states would follow, the Bush administration is trying to capitalize on unease in Sunni countries to get them to lead the way for the Abbas-Fayyad peace-now push.

The other side of this approach is confrontation with Tehran. Burns argues there is no choice so long as Iran will not suspend the enrichment of uranium and sponsoring of terrorists.

The price, however, will be Iranian use of surrogates to attempt to sink in blood any Israeli-Palestinian progress. I would quietly and unconditionally expand existing contacts with Iran in Baghdad to cover all issues. What is the downside to that?

A political contest of immense importance has begun. The United States must deliver by November or its conference will be an empty farce that feeds the sophisticated Iranian propaganda machine.

Delivering means a Saudi presence. It also means enough progress on territorial compromise and the principles to govern the thorniest issues - Jerusalem and refugees - for Palestinians in Gaza to wonder if they may be missing the statehood express.

The Bush administration contributed to the Palestinian hopelessness on which Hamas thrived. It can only undo that damage by ushering in hope.

Readers are invited to comment at my blog: www.iht.com/passages

International Herald Tribune Editorial - Worse health coverage

2007-08-30T09:07:00.000-07:00

International Herald Tribune Editorial - Worse health coverage
Copyright by The International Herald Tribune
Published: August 29, 2007

The Census Bureau's report on the state of American health insurance was as disturbing as its statistics on poverty and income.

The bureau reported a large increase in the number of Americans who lack health insurance, data that ought to send an unmistakable message to Washington: Vigorous action is needed to reverse this alarming and intractable trend.

The number of uninsured Americans has been rising inexorably over the past six years as soaring health care costs have driven up premiums, employers have scaled back or eliminated health benefits and hard-pressed families have found themselves unable to purchase insurance at a reasonable price.

Last year, the number of uninsured Americans increased by a daunting 2.2 million, to 47.0 million in 2006 from 44.8 million in 2005. That scotched any hope that the faltering economic recovery would help alleviate the problem.

The main reason for the upsurge in uninsured Americans is that employment-based coverage continued to deteriorate. Indeed, the number of full-time workers without health insurance rose to 22.0 million in 2006 from 20.8 million in 2005, presumably because either the employers or the workers or both found it too costly.

Sadly, the one area where the nation had made progress - reducing the number of uninsured children - took a turn for the worse. The number of uninsured children under 18 dropped steadily and significantly from 1999 to 2004, thanks largely to an expansion in coverage of low-income children under two programs operated jointly by the states and the federal government, Medicaid and the State Children's Health Insurance Program.

Then last year the number of uninsured children jumped more than 600,000 to reach 8.6 million. The main reason, advocacy groups say, is that access and funding for the low-income programs became tighter while employer coverage for dependents eroded.

The challenge to the White House and Congress seems clear. The upward trend in the number of uninsured needs to be reversed because many studies have shown that people who lack health insurance tend to forgo needed care until they become much sicker and go to expensive emergency rooms for treatment. That harms their health and drives up everyone's health care costs.

The most immediate need is to reauthorize and expand the expiring State Children's Health Insurance Program. It has already brought health coverage to millions of young Americans. It should be reinvigorated to bring coverage to many millions more.

International Herald Tribune Editorial - A sobering census report

2007-08-30T09:05:00.000-07:00

International Herald Tribune Editorial - A sobering census report
Copyright by The International Herald Tribune
Published: August 29, 2007

The economic party is winding down and most working Americans never even got near the punch bowl.

The Census Bureau reported Tuesday that median household income rose 0.7 percent last year - it's second annual increase in a row- to $48,201. The share of households living in poverty fell to 12.3 percent from 12.6 percent in 2005.

This seems like welcome news, but a deeper look at the belated improvement in these numbers - more than five years after the end of the last recession - underscores how the gains from economic growth have failed to benefit most of the population.

The median household income last year was still about $1,000 less than in 2000, before the onset of the last recession. In 2006, 36.5 million Americans were living in poverty - 5 million more than six years before, when the poverty rate fell to 11.3 percent.

What is perhaps most disturbing is that it appears this is as good as it's going to get. Sputtering under the weight of the credit crisis and the associated drop in the housing market, the economic expansion that started in 2001 looks like it might enter history with the dubious distinction of being the only sustained expansion on record in which the incomes of typical American households never reached the peak of the previous cycle.

It seems that ordinary working families are going to have to wait - at the very minimum - until the next cycle to make up the losses they suffered in this one. There's no guarantee they will.

The gains against poverty last year were remarkably narrow. The poverty rate declined among the elderly, but it remained unchanged for people under 65. Analyzed by race, only Hispanics saw poverty decline on average while other groups experienced no gains. The fortunes of middle-class, working Americans also appear less upbeat on closer consideration of the data. Indeed, earnings of men and women working full time actually fell more than 1 percent last year.

This suggests that when household incomes rose, it was because more members of the household went to work, not because anybody got a bigger paycheck. The median income of working-age households, those headed by somebody younger than 65, remained more than 2 percent lower than in 2001, the year of the recession.

Overall, the new data on incomes and poverty mesh consistently with the pattern of the last five years, in which the spoils of the nation's economic growth have flowed almost exclusively to the wealthy and the extremely wealthy, leaving little for everybody else.

Standard measures of inequality did not increase last year, according to the new census data. But over a longer period, the trend becomes crystal clear: The only group for which earnings in 2006 exceeded those of 2000 were the households in the top 5 percent of the earnings distribution. For everybody else, they were lower.

This stilted distribution of rewards underscores how economic growth alone has been insufficient to provide better living standards for most American families. What are needed are policies to help spread benefits broadly - be it more progressive taxation, or policies to strengthen public education and increase access to affordable health care. Unfortunately, these policies are unlikely to come from the current White House. This administration prefers tax cuts for the lucky ones in the top 5 percent.

Nokia takes on the iPhone

2007-08-30T09:03:00.000-07:00

Nokia takes on the iPhone
By Eric Pfanner
Copyright by THe International Herald Tribune
Published: August 29, 2007

LONDON: In the same converted 19th-century fish market where Apple three years ago announced the European introduction of its iTunes music store, Nokia said Wednesday that it would soon introduce its own digital music service, along with an easier-to-use, Apple-style mobile interface and an Apple-style touch screen handset.

The Nokia Music Store, scheduled to open later this year, would let users download songs from the Internet to their computers or directly to mobile phones, over wireless networks, which is a feat that Apple's recently released iPhone cannot do.

Analysts said the move heightened the rivalry between Nokia and Apple at the high end of the mobile phone business. "It was obviously going straight at Apple," said Seamus McAteer, senior analyst at M:Metrics, a research firm.

While Nokia executives chose suits and ties rather than the black mock turtlenecks and blue jeans favored by Steve Jobs, the Apple chief executive, they acknowledged that Nokia was not above imitating its new competitor.

"I don't know what is copying and what is original but if there is something good in the world, we copy it with pride," said Anssi Vanjoki, head of the Nokia multimedia division, which makes the company's high-end handsets, when asked about similarities between the iPhone, iTunes and the new devices and services announced by Nokia.

In offering wireless downloads, the Nokia Music Store goes beyond the current capabilities of Apple's iTunes, which requires users to download songs to their personal computers before transferring them to an iPod music player or an iPhone.

The Nokia store, which the company said would be made available first in key European markets, could put pressure on Apple to develop a similar service, analysts said.

The music store also potentially puts Nokia into conflict with operators of mobile networks, many of which have developed music services of their own.

But analysts say that outside of Asia, mobile-phone services like music have been relatively slow to take off, despite the tens of billions of euros that network operators have poured into the technology to enable them.

"Now Nokia is saying, 'You guys had your chance to run music stores, or whatever, and it didn't work, so now we're going to give consumers what they want,' " said Paul Jackson, an analyst at Forrester Research.

In addition to the music store, Nokia said it would revive a game platform called N-Gage, with a number of video game publishers agreeing to supply games to download. The company said it would make all of its mobile content and Internet services available under the brand Ovi, which means "door" in Finnish.

Nokia, which is based in Finland, showed pictures and video clips of the interface that would allow users to navigate through the various Ovi services. Analysts said it appeared to resemble the interfaces for the iPod, iPhone and iTunes, whose simplicity has been seen as a key selling point.

But analysts said they were frustrated by a lack of detail about the Ovi offerings.

"It's a bit of an empty shell for now," said Mark Newman, chief research officer at Informa Telecoms and Media.

On Wednesday, Nokia introduced several phone models with increased storage capacity for music and other media content, and said it would introduce the touch screen phone next year.

While Nokia clearly has one eye on Apple, analysts said network operators might more directly feel its move into services, and that could affect relationships with device manufacturers.

Orange, which is part of France Telecom, for example, has a partnership with the phone maker Sony Ericsson, under which its Walkman-branded phones send users to the Orange music store at the touch of a button. Apple, meanwhile, has signed an exclusive iPhone distribution agreement with AT&T in the United States and is reportedly pursuing similar arrangements for the pending introduction of the phone in Europe.

Analysts said mobile operators who agreed to carry certain Nokia multimedia phones might try to demand that the company disable features that overlap with the carriers' own services.

Yet Nokia has a strong negotiating position, analysts added, because it sells about 400 million phones a year - more than one-third of the global market - so the network operators may not be able to drop a popular handset from their lineups.

Despite all the jockeying for position, the appeal of mobile download services remains uncertain. Even in the leading European market for mobile music, Britain, fewer than 3 percent of cellular subscribers downloaded songs wirelessly in January, according to M:Metrics. About 12 percent of subscribers, meanwhile, listened to music that had been transferred to their phones from PCs.

"How to get them to switch over to something like the Nokia music store remains unclear," said Martin Garner, an analyst at Ovum.

Nokia said it would price music downloads at €1 per song, or €10 per album, in the same range as many existing mobile music services as well as iTunes. In addition, users would have to pay for the use of phone networks for the download, though many operators are starting to offer monthly flat-fee packages.

Say it's so, senator - Gay activists scoff at Craig's 'I'm not gay' speech

2007-08-30T08:59:00.000-07:00

Say it's so, senator - Gay activists scoff at Craig's 'I'm not gay' speech
BY DAVID CRARY
Copyright by The Chicago Sun-Times
August 30, 2007

NEW YORK -- Sen. Larry Craig's ''I'm not gay'' declaration met with disdain Wednesday from gay activists, many of whom knew for nearly a year -- long before his recent arrest -- of allegations that the conservative Idaho Republican solicited sex from men in public bathrooms.

They view his case as a prime example of hypocrisy -- a man who furtively engaged in same-sex liaisons while consistently opposing gay-rights measures as a politician.

''He may very well not think of himself as being gay, and these are just urges that he has,'' said Matt Foreman of the National Gay and Lesbian Task Force. ''It's the tragedy of homophobia. People create these walls that separate themselves from who they really are.''

» Click to enlarge image
Idaho's Republican Senator Larry Craig speaks to the media Tuesday in Boise.
(AP)

Detailed accusations against Craig had been available since last year through an Internet-based activist who had a hand in outing several Republican politicians, including former Rep. Mark Foley, the focus of a House page scandal.

The activist, Mike Rogers, went public last October with allegations that Craig engaged in sexual encounters with at least three men, including one who said he had sex with Craig twice at Washington's Union Station.

The Idaho Statesman went even further back into Craig's life, talking to other men who claimed they were solicited by him.

It also mentioned a scandal in 1982, in which a male page reported having sex with three congressmen, and Craig -- although not named by the youth -- issued a statement denying any wrongdoing.

Rogers noted that some politicians, when confronted with evidence about same-sex encounters, have acknowledged their homosexuality -- such as Rep. Barney Frank (D-Mass.) and the late Rep. Gerry Studds (D-Mass.).

Others persist in denial, and Rogers contends they are fair game for exposure if they vote against gay-rights causes.

''I'd love for Larry Craig to come out and be honest with the people of Idaho and run as a Senate candidate and see if the Republican Party is the big tent they claim to be,'' Rogers said.

Craig's political support was eroding by the hour Wednesday as fellow Republicans in Congress called for him to resign and party leaders pushed him unceremoniously from senior posts.

The White House expressed disappointment, and Senators John McCain (R-Ariz.) and Norm Coleman (R-Minn.) both joined calls for Craig to resign.

''My opinion is that when you plead guilty to a crime, you shouldn't serve. That's not a moral stand. That's not a holier-than-thou. It's just a factual situation," McCain said. AP

Allies want him to quit -- Democrat sees gain

WASHINGTON -- Idaho Sen. Larry Craig's political support eroded by the hour on Wednesday as fellow Republicans in Congress called for him to resign and party leaders pushed him unceremoniously from senior committee posts.

The White House expressed disappointment, too -- and nary a word of support for the 62-year-old lawmaker, who pleaded guilty earlier this month to a charge stemming from an undercover police operation in an airport men's room.

Craig ''represents the Republican Party,'' said Rep. Pete Hoekstra of Michigan, the first in a lengthening list of GOP members of Congress to urge a resignation.

The senator's spokesman declined comment. ''They have a right to express themselves,'' said Sidney Smith.

Craig said Tuesday he had committed no wrongdoing and shouldn't have pleaded guilty.

But Sens. John McCain of Arizona and Norm Coleman of Minnesota joined Hoekstra in urging Craig to step down, as did Rep. Jeff Miller of Florida -- and others.

''My opinion is that when you plead guilty to a crime, you shouldn't serve. That's not a moral stand. That's not a holier-than-thou. It's just a factual situation," McCain said.

For the most part, Democrats studiously avoided involvement with an unfolding Republican scandal.

''We at least ought to hear his side of the story,'' said Sen. Christopher Dodd of Connecticut, like McCain a presidential contender.

Rep. Jim Clyburn (D-S.C.) said his party stood to gain. ''All of these people who [are] holier than thou are now under investigations. ... I think the Republican Party will find itself in a great peril next year,'' he said.

FAA hastens checks of Boeing 737s - Worries grow about loose parts in wings

2007-08-30T08:56:00.000-07:00

FAA hastens checks of Boeing 737s - Worries grow about loose parts in wings
Copyright © 2007, Chicago Tribune
August 30, 2007

WASHINGTON - Newer Boeing Co. 737 jets must be inspected sooner than first ordered because a problem with loose parts might be more widespread than originally believed, U.S. regulators told eight airlines.

Tuesday night the Federal Aviation Administration shortened to 10 days from 24 the time airlines have to check the 737 wings. Officials have said that loose wing parts could have caused a fire that destroyed a China Airlines plane this month.

The order, which covers 783 Boeing 737s operated by U.S. carriers, was changed after two additional reports of parts coming off wings' main slat tracks, which allow parts on the front of the wings to slide back and forth, FAA spokesman Les Dorr said Wednesday. He didn't know which carrier or carriers found the loose parts.

Slats slide out from the front edge of the wings during takeoff and landing to help stabilize the aircraft, along with flaps that extend from the wings' rear edge.

"We're fully in support of that call and we've been working closely with the FAA on this," said Jim Proulx, a spokesman for Chicago-based Boeing. "We will continue to work with the FAA and the airlines."

The Aug. 20 fire on a China Airlines Boeing 737-800A probably was caused by a loose wing-slat bolt that punctured a fuel tank, trade publication Air Transport World reported last week, citing Japanese safety investigators. All 165 passengers and crew members escaped the fire, which began after the plane landed in Okinawa, Japan.

Boeing 737 models covered by the FAA inspection order are operated by Southwest Airlines Co., AMR Corp.'s American Airlines, Delta Air Lines Inc., Continental Airlines Inc., AirTran Holdings Inc., Alaska Air Group Inc., ATA Holdings Corp. and Aloha Airlines.

Representatives of Southwest, Continental, American, Delta and AirTran said they would meet the new inspection deadline.

Southwest, which has more than a third of the planes covered by the FAA order, finished inspections Tuesday night and found no loose parts, spokeswoman Beth Harbin said. Flight schedules weren't affected, she said. Southwest has 280 of the targeted 737s.

Continental will be "fully compliant" with the FAA's new deadline for inspections of the 153 planes the carrier is reviewing, said spokeswoman Julie King. Continental hasn't found any problems in inspections completed so far, she said.

American completed 19 of 77 inspections and isn't disclosing results, spokesman John Hotard said. The reviews haven't affected service, he said.

Delta Air Lines will finish the inspections of its 71 737-800s ahead of the 10-day requirement without any schedule disruptions, spokeswoman Betsy Talton said.

AirTran, based in Orlando, also will meet the FAA deadline "well in advance," spokesman Dave Hirschman said. AirTran has 50 737s.

Operators of the Boeing 737-600s, -700s, -700Cs, -800s, -900s and -900ERs must verify that the wing parts are properly assembled, Dorr said. If they are, the operators can wait 24 days to use a torque wrench to tighten nuts and bolts, he said.

Before the order was revised, operators had 24 days to inspect and tighten the bolts.

Sears profit drops 40% on lower sale

2007-08-30T08:54:00.000-07:00

Sears profit drops 40% on lower sales
By James P. Miller
Copyright © 2007, Chicago Tribune
8:15 AM CDT, August 30, 2007

Sears Holdings Corp. reported fiscal second-quarter earnings that were down 40 percent, reflecting softer results from the Chicago retail company's Kmart and domestic Sears operations.

For the quarter ended Aug. 4, Sears had net income of $176 million, or $1.17 a diluted share, off from the year-ago period's $294 million, or $1.88 a share.

The year-ago quarter got some help from a net $22 million special gain that boosted per-share earnings by 14 cents; excluding that gain, per-share earnings last year would have been $1.74.

The earnings were roughly in line with guidance Sears had recently provided. Still, Chief Executive Officer Aylwin Lewis said the company is "disappointed with our second quarter results."

Profit margins came under pressure because sales declined 4 percent to $12.24 billion from $12.79 billion, he noted, and because Sears increased its promotional pricing to move product off the shelves.

"In response," Aylwin said, Sears will be "enhancing our marketing message to more clearly articulate the advantages of our products and services."

Sears noted that in its U.S. Sears stores, sales at stores open at least twelve months (known as "comparable-store sales) declined 4.3 percent, in part because the falloff in the U.S. housing market has hurt sales of the retailer's key appliance segment.

At the parent company's Kmart unit, comparable-store sales dropped 3.8 percent. Sales at the company's Sears Canada unit improved, however.

Sears noted that it spent a hefty $1.5 billion to buy back 9.6 million shares during the latest quarter. It also noted that, as the company disclosed on Aug. 13, directors have approved the expenditure of an additional $1.5 billion to repurchase more shares. As of Aug. 24, Sears said it had $1.4 billion remaining under that authorization.

Altria to split up Philip Morris

2007-08-30T08:47:00.000-07:00

Altria to split up Philip Morris
By Christopher Bowe in New York
Copyright The Financial Times Limited 2007
Published: August 29 2007 16:24 | Last updated: August 30 2007 00:25

Altria Group on Wednesday said it would split the international and domestic operations of Philip Morris, the world’s biggest cigarette maker, into separate public companies in a long-anticipated move.

The fast-growing international unit, Philip Morris International, will be spun off to shareholders, severing it from Philip Morris USA, which is suffering from falling US cigarette consumption. The spin-off is set for next year after a unanimous board vote. Timing will be given on January 30.

Louis Camilleri, Altria chief executive, will become chief executive of PMI, whose operations are based in Lausanne, Switzerland, but with a small headquarters office retained in New York. Altria will in effect become PMUSA, led by Michael Szymanczyk, and it will retain its 28.6 per cent stake in the brewer SABMiller.

The move will complete the break-up of the Altria conglomerate, highlighted by the closure of the New York headquarters, cutting about 400 parent company jobs with an estimated $250m in cost savings.

Altria has restructured, including a spin-off in March of Kraft, its US food unit, to boost value for shareholders as the US tobacco litigation threat receded.

The last step marking a milestone in the global tobacco industry was to restructure Philip Morris, which makes Marlboro, one of the world’s most recognisable brands, and PMUSA’s and PMI’s increasingly different business agendas. Mr Camilleri said: “I am convinced that this transaction will enhance growth at both Altria and Philip Morris International.”

A standalone PMI would be a fast-growing global contender. It has a 15.4 per cent share of the international cigarette market, but only 5 per cent of its profits come from emerging markets, which make up 60 per cent of international cigarette consumption. Its balance sheet would be strong and its stock would be robust currency to participate in rapid industry consolidation.

PMI, which accounts for almost three-quarters of the cigarette makers’ total revenue, has made recent acquisitions in Indonesia and Pakistan and eyed fast-growing Asian and eastern European cigarette markets.

Bonnie Herzog, analyst at Citigroup, said: “It’s at this point that we expect the beast to be unleashed...and shareholders will be rewarded.”

Separating PMI and PMUSA is likely to cheer Wall Street as it will free both groups to become more efficient. Altria shares were up by just over 1 per cent at $69.80 at the close.

Lehman Brothers and Centerview Partners advised Altria.

Columnist: Justice is not blind obedience

2007-08-30T08:45:00.000-07:00

Columnist: Justice is not blind obedience
By Clive Crook
Copyright The Financial Times Limited 2007
Published: August 29 2007 19:27 | Last updated: August 29 2007 19:27

Alberto Gonzales is assured of his place in history. When he at last steps down as US attorney-general next month, it will be as the most reviled and ridiculed holder of that office in recent memory. With Democrats cheering his departure and Republicans sighing with relief, it may seem outlandish to say that the full measure of his failure is insufficiently acknowledged, but this is true.

Mr Gonzales was President George W. Bush’s principal legal facilitator in a string of ill-conceived efforts to abridge civil liberties and undermine the country’s constitutional checks and balances. Those efforts have drawn furious criticism. But less attention is paid to what the administration has in fact achieved: not so much a tyranny in the making as a paralysing legal vacuum. Six years after the attacks of 2001, the US has no real consensus and no well-formed legal policy on fighting the “war on terror”.

The heavy political loading of that term is itself part of the Bush-Gonzales legacy. The administration’s critics deplore the idea of a “war on terror”. They argue that it misdirects the government’s priorities and supports infringements of liberty and other wartime exigencies that are simply not justified – and Mr Gonzales did all he could to prove them right. The correct legal framework for dealing with a post-9/11 world is, in the view of these critics, much the same as it was pre-9/11. The ordinary criminal law suffices.

Opposing that, the administration made no attempt to weigh what it saw as the urgent new demands of national security against constitutional liberties and protections. If this is a war, it is apparently one without limits. To fight it, the White House has repeatedly pressed for extraordinary powers – to torture and indefinitely to detain terrorist suspects, to wiretap without warrants, to shield itself from judicial or congressional scrutiny, and more. In some ways (on torture, for example) it has sought powers that previous governments did not seek even during the second world war, or during the cold war with the Soviet Union, when the possibility of nuclear conflagration was real.

The debate in the US oscillates between these two polar positions: that any new infringement of liberty is an outrage; and that no infringement is too costly in view of the risks that the country now confronts. The law, which one would hope to find occupying a considered middle ground, is in disarray.

In June, for instance, in only one of many such setbacks for the White House, a federal appeals panel ruled against the administration’s attempt to deny judicial review to a suspected al-Qaeda member who has been held in a military prison for four years. The panel rejected the administration’s position unanimously, but two of the three judges went further and said that suspected terrorists could not be held for more than a week without being charged. The prisoner, they said, was not an enemy combatant, as the administration had claimed, because he was neither formally affiliated with an army at war with the US, nor captured on a battlefield. In other words, he was just an ordinary civilian and the ordinary rules should apply. (The Justice Department has asked the full court to revisit the case.)

It is harder to say which is scarier: the existing law (on the panel’s majority interpretation), which so ties the hands of investigators, or the administration’s position, which is that people who might possibly be terrorists can be indefinitely “disappeared”. Other countries have found a middle way that recognises, on one hand, both the extraordinary threat that modern terrorism can pose and the difficulty of securing evidence as promptly as would be expected in an ordinary criminal case, and, on the other, the need for judicial scrutiny. Moderately extended periods of detention without charge, subject to judicial review, seem to balance those factors reasonably. Incredibly, six years after 9/11 the US still needs a new law to settle the point.

The administration has failed to offer calm, centrist leadership on the issue. Congress has failed too, showing little appetite of its own for clarity or good policy. The change from Republican to Democratic control last November appears to have made little difference. Especially striking is the fact that few Americans are even discussing how the balance should be struck. Arguments over what is legal or illegal, constitutional or unconstitutional, rage endlessly. Almost no attempt is made to find agreement, suited to these dangerous times, on changing the law so that it is prudent and just.

The blame lies mainly with the administration – and, inside the administration, with Mr Gonzales, latterly its most senior legal officer. Instead of leading the search for compromise, the government’s chief lawyer applied himself to the president’s drive for virtually unrestrained authority to override laws on torture, on detentions, on warrantless surveillance and the rest, all in the name of the “war on terror”. In my view, the US is indeed at war with al-Qaeda. I have no quarrel with that term. But there are limits to what it justifies. By failing to recognise them – by failing to tolerate, let alone invite, discussion on the point – Mr Bush and his obedient attorney-general have blocked the legal reform that the US so badly needs.

Send your comments to clive.crook@gmail.com

Iraq ‘meets only 3 out of 18 US goals’

2007-08-30T08:39:00.000-07:00

Iraq ‘meets only 3 out of 18 US goals’
© Reuters Limited
Aug 30, 05:57 GMT

Iraq has met only three out of 18 goals set by Washington for political and security progress, according to a draft of a key report being prepared for Congress, The Washington Post reported on Thursday.

The findings by the Government Accountability Office (GAO), the investigative arm of Congress, are at odds with a more positive assessment the White House gave in July that Iraq had met eight out of 18 benchmarks, the newspaper said.

The report, which the Post described as ”strikingly negative”, is due to be delivered to Congress on Tuesday, ahead of a pivotal report on Iraq by the U.S. military commander in Iraq, Gen. David Petraeus, and ambassador Ryan Crocker due by September 15.

”While the Baghdad security plan was intended to reduce sectarian violence, U.S. agencies differ on whether such violence has been reduced,” the draft obtained by the Post said.

U.S. President George W. Bush, under growing pressure to show progress in the unpopular four-year-old war or start bringing U.S. troops home, is urging Congress to give his ”surge” strategy of adding troops in Baghdad more time.

Asked about the draft, White House spokesman Gordon Johndroe told the Post: ”General Petraeus and Ambassador Crocker are there on the ground every day in Iraq, and it’s important to wait to hear what they have to say.”

”While we’ve all seen progress in some areas, especially on the security front, it’s not surprising the GAO would make this assessment, given the difficult congressionally mandated measurement they had to follow,” Johndroe said.

Legislation signed by Bush in May imposed a stricter standard on the GAO, requiring a success or fail judgment on whether each benchmark has been met, the Post said.

The draft judged that only one of eight political benchmarks had been met, while two security goals were achieved, the Post said. It found that two further benchmarks -- the formation of governmental regions and the allocation and expenditure of $10 billion for reconstruction -- had only been ”partially met.”

The Post reported the GAO draft says that while there have been fewer attacks against U.S. forces in Iraq under the new security plan in recent months, the number of attacks against Iraqi civilians remains unchanged.

H&R Block subprime sale may collapse

2007-08-30T08:38:00.001-07:00

H&R Block subprime sale may collapse
By Daniel Pimlott in New York
Copyright The Financial Times Limited 2007
Published: August 30 2007 14:37 | Last updated: August 30 2007 14:37

H&R Block, the US tax preparer, on Thursday said that the sale of its subprime lending unit to a private equity firm may fall through as it reported a loss in its first quarter.

In April H&R Block agreed to sell Option One, which provides subprime loans, to an affiliate of Cerberus Capital Management for $300m less than its tangible assets at the close of the deal, which were roughly $800m at the end of April.

Now the company has warned that it has been forced to re-enter negotiations with the private equity firm over the terms of the sale, because “certain closing conditions of this agreement currently are not being met”.

H&R Block said that while it “hopes to conclude these negotiations soon, the company cannot be sure that it will be able to do so” and warned that “there can be no assurance [the deal] will close.”

The parts of the deal currently under discussion include the condition that Option One would have $2bn in loans funded within 60 days of the deal closing and $8bn minimum in warehouse lines. H&R Block may now also divest or wind down Option One’s remaining mortgage origination business.

The company said it should know by December 31 whether the deal will go through. H&R Block said in a conference call with analysts that it plans to exit the mortgage business.

H&R Block made a net loss of $303m, or 93 cents per share, against a loss of $131m, or 41 cents per share, a year ago. Revenues rose 11 per cent to $381m.

Loss from discontinued operations, which includes the results at Option One as well as two other smaller mortgage businesse, was $192.8m

In the Option One business, the company said that it had tightened its underwriting criteria so that loans it makes offer clear access to the secondary market for mortgages and limit the company’s capital commitments.

Demand for mortgage backed securities has plummeted in recent weeks as investors steer clear of exposure to the deepening housing slump.

”Given the unprecedented disruption in the credit markets, in August we took action to limit any more exposure to non-prime mortgage originations by stopping all but Fannie Mae and Freddie Mac-eligible loans,” said Mark Ernst, chairman and chief executive.

Shares in H&R Block dropped 85 cents or 4.4 per cent to $18.65 in pre-market trade.

Fed injects $10bn of temporary reserves

2007-08-30T08:36:00.000-07:00

Fed injects $10bn of temporary reserves
By Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: August 30 2007 14:26 | Last updated: August 30 2007 14:26

The Federal Reserve said on Thursday it had injected $10bn of temporary reserves into the financial system after lending rates climbed above the central bank’s target.

The Fed extended the 14-day loans in return for collateral that included $5.2bn of mortgage-backed securities, which have triggered the recent seizures in global credit markets.

The loans were seen as showing that the central bank remained vigilant in defending its target interest rates and improving liquidity for financial institutions as part of a broad effort that includes emergency measures.

Investors continue to bet that the Fed will go beyond the confidence-building measures of the last two weeks and cut its main interest rate when policymakers meet formally on September 18.

The Fed issued an ad hoc statement at the height of the credit crunch in mid-August that said it detected an appreciable increase in risks to growth and was prepared to act to avoid adverse consequences for the US economy.

Fed Chairman Ben Bernanke is expected to reiterate this message when he addresses a gathering of central bankers in Jackson Hole, Wyoming, on Friday.

Government figures showed that the economy entered the turbulent third quarter on a stronger note than initially thought.

Gross domestic product grew by an annual rate of 4 per cent in the second quarter as business investment helped offset a deteriorating housing sector.

Economists, however said this pace of growth was unlikely to be sustained has tighter lending conditions began to squeeze business expenditure. The Fed has also recently pared back its internal growth forecasts for this year and next.

The growth estimate was in line with Wall Street economists’ forecasts and outstripped the first quarter’s anaemic 0.6 per cent rate of expansion.

Inflation in core prices – excluding food and energy costs – cooled to a rate of 1.3 per cent from 2.4 per cent in the first quarter, the lowest since the second quarter of 2003.

Freddie Mac posts 45% fall in profit/Freddie Mac profits plunge on mortgage loss

2007-08-30T08:35:00.000-07:00

Freddie Mac posts 45% fall in profit
By Saskia Scholtes in New York
Copyright The Financial Times Limited 2007
Published: August 31 2007 03:00 | Last updated: August 31 2007 03:00

Freddie Mac, one of two US government-sponsored home mortgage lenders, posted a 45 per cent plunge in second quarter profits yesterday, as it took a $320m loss on its mortgage portfolio.

The company reported net income of $764m, or $1.02 a share, compared with $1.4bn a year earlier.

The decline reflected higher than expected credit losses on mortgages originated in 2006 and 2007, which Freddie Mac attributed to a jump in fore-closures amid the "deteriorating housing environment". The $320m credit loss was up from $179m in the first quarter of 2007, and five times the $63m of credit losses that the company declared for the second quarter of 2006.

The company's shares had fallen 5.03 per cent to $60.07 by the close in New York.

Freddie Mac's chairman and chief executive Richard Syron said: "On the credit front we are seeing weakening, but we are well positioned relative to the overall marketplace to weather the ongoing disruptions in the mortgage markets."

The agencies do not lend directly to home buyers, but rather operate in the secondary market, buying mortgages that fit their lending criteria and often repackaging them into mortgage-backed securities. These agency MBS instruments are still seen as relatively safe in a market that has been rocked by the subprime mortgage turmoil.

Late mortgage payments and defaults have surged across the US in recent months, particularly among borrowers that took outprivate-label, or non-agency, subprime mortgages. The problems have resulted in a swathe of bankruptcies for such lenders, and a ripple effect of losses for investors around the globe. Freddie's results show that mortgage lenders with more stringent underwriting standards are also beginning to suffer from the housing downturn.

However, many analysts see the government-sponsored agencies - Freddie Mac and Fannie Mae - as uniquely positioned to make longer-term gains from the US housing downturn, as they are less exposed to the most problematic subprime mortgage loans.

Freddie Mac profits plunge on mortgage loss
By Anuj Gangahar in New York
Copyright The Financial Times Limited 2007
Published: August 30 2007 14:49 | Last updated: August 30 2007 14:49

Freddie Mac, the US home mortgage lender, on Thursday reported a 45 per cent plunge in second-quarter profits as it was hit by a $320m loss on new mortgages.

The company reported net income of $764m, or $1.02 a share, compared with $1.4bn a year earlier, missing analysts’ expectations.

The disappointing figures come amid continuing weakness in the housing market, and the spread of problems orginating in the US subprime mortgage market to other areas of capital markets in the US and overseas.

Several hedge funds and money market funds have recently been hit by the effects of the subprime crisis.

Foreclosures and delinquencies have surged across the US in recent months, particularly among homeowners who took out subprime mortgages.

And a steady stream of mortgage lenders have filed for bankruptcy in recent weeks, darkening investor sentiment and fuelling nervousness.

Total revenue rose 4.8 per cent to $2.26bn, ahead of Wall Street estimates.

In June, Freddie Mac returned to quarterly reporting for the first time since an accounting scadal in 2003 forced it to restate $5bn in earnings.

The $320m loss largely reflects ”credit deterioration on 2006 and 2007 loan originations” due to higher foreclosures and slowing home price increases, the company said.

Freddie Mac’s chairman and chief executive Richard Syron, said: ”On the credit front we are seeing weakening, but we are well positioned relative to the overall marketplace to weather the ongoing disruptions in the mortgage markets and emerge as an even stronger player.”

Equality Illinois and Harris pushing for civil unions votes

2007-08-29T19:29:00.000-07:00

Equality Illinois and Harris pushing for civil unions votes
By Matt Simonette
Copyright by The Chicago Free Press
August 27, 2007

Equality Illinois last week announced that it collected over 2,000 postcards during Northalsted Market Days registering support for HB1826, the Illinois Religious Freedom and Civil Union Act, which would allow civil unions for same-sex couples in Illinois.

The postcards, which Equality Illinois distributed in conjunction with PFLAG, were signed by voters from 91 of 118 legislative districts in the state and are being forwarded to state legislators.

Equality Illinois political director Rick Garcia said Northalsted Market Days was an obvious time to collect signatures.

“We had a captive audience there. The crowd was mostly gay, but most of the other people there would be supportive,” Garcia said. He added, “Legislators do listen. While it’s not as effective as a handwritten letter, a hand-signed postcard is a pretty powerful thing.”

Garcia said one upside to the legislative impasse in Springfield is that it has afforded more time to raise awareness over HB1826.

The bill’s sponsor, Rep. Greg Harris (D-Chicago), agreed, saying, “We have a lot of time to talk to people about this. That’s one silver lining in a very dark cloud.”

Harris said the process has come down to educating and convincing those legislators who don’t yet understand what the bill entails.

“The first votes are easy—those are your true believers. Then you have to get votes from people who are on the fence. But with the last handful of votes, each vote is difficult,” Harris said.

“You never know what is going the ingredient that pushes them into the ‘plus’ column. You have to work every single angle,” he added.

Blagojevich slashes funding for AIDS, meth treatment and more

2007-08-29T19:26:00.000-07:00

Blagojevich slashes funding for AIDS, meth treatment and more
By Gary Barlow
Copyright by Chicago Free Press
August 28, 2007

AIDS prevention programs, mental health agencies and other healthcare services were among the victims last week as Gov. Rod Blagojevich moved with a vengeance against Democrats in the Illinois House of Representatives.

The governor cut more than a million dollars of HIV/AIDS prevention funding in the state’s $59-billion budget, apparently targeting the HIV/AIDS prevention grants only because they were sponsored by House Democrats.

“It’s all a matter of politics,” said Eric Nelson, of Better Existence with HIV. “If you’re a House Republican, all your funding requests are worthwhile. If you’re a House Democrat, all your requests are pork.”

Nelson’s agency, which provides HIV prevention and other AIDS-related services, lost $70,000 in prevention funds.

Altogether, Blagojevich vetoed some $143 million in legislative initiatives and $463 million overall from the budget overwhelmingly passed by both the House and the Senate. The governor, as has been his practice, refused to answer questions from the press when he announced the cuts, but his spokespersons characterized the items vetoed as “wasteful” or costing more than the state could afford.

But House Democrats saw virtually all of their initiatives vetoed, while House Republicans, a group of legislators the governor is trying to woo, saw almost all their initiatives spared. For example, the governor approved $500,000 for a bike trail in Romeoville, but vetoed a $500,000 grant for HIV prevention backed by Democratic Rep. Sara Feigenholtz, who represents the heavily gay Lakeview neighborhood in Chicago.

“We’ve got a lot of issues to start dealing with,” Feigenholtz said. “I wish that everybody instead of considering retaliation would consider working together.”

Other cuts by Blagojevich included $154,500 for Bonaventure House, two $50,000 grants for Vital Bridges, $70,000 for Chicago House, $50,000 for the HIV/AIDS ministry at Englewood United Methodist Church, $25,000 for the House of James and $100,000 for Howard Brown Health Center. All those items were sponsored by House Democrats.

“I’m disappointed because the people who are going to be hurt by these cuts are people in non-traditional communities that this would have allowed us to reach,” said Howard Brown President Michael Cook. “I’m very sad about it and I don’t understand it.”

Chicago House CEO Stan Sloan said the grant his agency lost would have allowed for expansion of a highly praised program that helps people living with AIDS return to the workplace.

“Ultimately it would be getting people off disability and it would be a win for the state,” Sloan said. “He’s being pennywise and pound-foolish.”

Other cuts were equally surprising. Blagojevich, for example, slashed $7.5 million in funds for the developmentally disabled, but left intact a 3.5-percent raise for himself and other state officeholders. The governor vetoed a $200,000 grant to keep a methamphetamine treatment program running in Vermilion County, which by some measures has the state’s worst meth problem.

“It’s a shame to me that the politics of all this has to be played out on the backs of the least vulnerable people in Illinois,” said Rep. Greg Harris (D-Chicago), who saw every initiative he sponsored in his district to fight AIDS, assist public schools and aid seniors wiped out by the governor’s pen.

“Right now there are no programs in place that are reaching out to some of these hard-to-reach populations,” Harris said.

Blagojevich has criticized Democrats, particularly in the House, ever since he proposed a new $7.6-billion tax earlier this year to fund a healthcare plan he said would bring coverage to most uninsured Illinoisans. But the governor’s tax plan was roundly rejected by legislators and business leaders. The Senate never brought it to a vote and the House rejected it unanimously. Since that House vote, Blagojevich has repeatedly expressed contempt for House Speaker Mike Madigan (D-Chicago) and other House Democrats.

After weeks of trying and failing to negotiate a state budget with Blagojevich, legislative leaders passed one on their own by veto-proof margins in both houses. A few days later, however, Sen. President Emil Jones (D-Chicago) broke his promise to other legislative leaders and said he would block the Senate from voting to override Blagojevich’s vetoes.

The governor said his $463 million in line-item vetoes frees up enough funds to put his healthcare plans in place. But while Blagojevich can veto items in the budget, he cannot reallocate most of those funds without the OK of the Legislature’s Joint Committee on Administrative Rules. Blagojevich left intact most of the legislative initiatives of that committee’s members, a move that even its members condemned as “blatantly political.”

“It’s so transparent what the governor’s doing, what his motives are. I don’t think I've ever seen anything quite so political,” Sen. Bradley Burzynski (R-Clare), a member of the committee, told the Associated Press.

The irony, Feigenholtz said, is that legislators, including herself, were getting set to pass the governor’s scaled-down healthcare plan after dealing with the budget.

“We were ready,” she said.

But following Blagojevich’s actions last week, despite the support for healthcare expansion on the part of Feigenholtz, Harris and other Democrats in the Legislature, the level of cooperation needed to accomplish it seems farther away than ever.

“I don’t think anyone will respond to these kinds of threats,” Harris said.

He and Feigenholtz expect the House to go ahead with a vote to override the governor’s cuts, and healthcare providers are urging people to press their state senators to convince Jones to allow them to vote on an override.

“Oh, yes—I think we’ll reach out to senators,” Nelson said. “We’re all just amazed at what the rationale is for this.”

Officials at the AIDS Foundation of Chicago, which has been a stalwart Blagojevich supporter, said they would also pressure the Senate to act.

“It’s frustrating,” said AFC’s John Peller. “What’s unfortunate about this situation is that the state’s budget has been framed as a Catch 22 between expanding healthcare and funding HIV/AIDS programs. We need both.”

Home prices fall most in 20 years

2007-08-29T12:14:00.001-07:00

Home prices fall most in 20 years
Copyright © 2007, Chicago Tribune
August 29, 2007

NEW YORK - U.S. home prices fell 3.2 percent in the second quarter, the steepest rate of decline since Standard & Poor's began its nationwide housing index in 1987, the research group said Tuesday.

The decline in home prices around the nation shows no evidence of a market recovery anytime soon, one of the architects of the index said.

Robert Shiller, chief economist at MacroMarkets LLC, said the decline of the residential real estate market "shows no signs of slowing down."

The report came a day after the National Association of Realtors said sales of existing homes dropped for a fifth straight month in July while the number of unsold homes shot up to a record level.

The S&P/Case-Schiller quarterly index tracks price trends among existing single-family homes across the nation compared with a year earlier.

The report also showed that prices in June in 20 U.S. metropolitan areas fell 3.5 percent from a year before. The decline compares with a 2.9 percent year-over-year drop in May.

After five years of rapidly rising home prices the market stalled last year, with prices holding steady or falling as sales slowed. Since then lenders have made it more difficult for some people to get mortgages by tightening standards just as foreclosures rise and some who borrowed at adjustable rates are facing higher payments they cannot meet. Problems have spread from those with poor credit repayment histories to more creditworthy borrowers.

"Given the tightening in underwriting standards and the credit freeze, it's going to be very difficult for buyers to purchase homes," said Mark Zandi, chief economist for Moody's Economy.com.

Fifteen of the cities surveyed for S&P's 20-city index showed a year-over-year decline in prices in June.

Prices in Boston dropped in June at a slower rate than they did in May, continuing a trend that started at the beginning of the year. In April 2006 Boston was the first metropolitan area to show a year-over-year decline, so any turnaround there could be an early sign of recovery.

Detroit led the cities with the biggest price declines, with an 11 percent drop from June 2006. Other cities with falling prices included Tampa, San Diego and Washington, which all recorded drops of at least 7 percent.

Seattle and Charlotte were on the small list of cities where prices rose in the same period.

Prices in Chicago edged down 0.7 percent.

'Fed in denial' jars stocks - Focus on inflation triggers sell-off

2007-08-29T12:12:00.000-07:00

'Fed in denial' jars stocks - Focus on inflation triggers sell-off
Bill Barnhart
Copyright © 2007, Chicago Tribune
August 29, 2007

Stocks fell hard Tuesday, as the latest statement by the Federal Reserve prompted a rush of complaints from normally even-tempered and conservative market analysts.

The spark to the afternoon sell-off was the release of minutes of the Fed's Aug. 7 meeting, at which the central bank, in a nine-page summary, acknowledged the risks of an economic slowdown, but stuck by its view that "the risk that inflation would fail to moderate as expected continued to outweigh other policy concerns."

"Either they misrepresented the facts as they were or they have a heavily biased preference to deal with inflation above everything else and almost to the neglect of everything else," said veteran Fed watcher David Resler, chief economist at Nomura Securities International.

The Dow Jones industrial average tumbled 280.28 points, or 2.1 percent, to 13,041.85. The move, added to Monday's 56-point drop, wiped out last week's 300-point gain. All 30 stocks in the Dow fell. Broader market indexes posted bigger percentage losses.

Treasury securities rallied strongly, as investors sought safe harbor from stock market volatility. The yield on 10-year Treasury notes has dropped to 4.52 percent Tuesday from 5 percent in mid-July.

"We had our biggest problems after the Fed minutes were released," said Jack Ablin, chief investment officer for Harris Private Bank. "What took the biggest hit after Merrill Lynch downgraded its investment ratings on Citigroup, Lehman Brothers and Bear Stearns, three of the giant Wall Street financial firms holding billions of dollars in troubled loans earmarked for mergers and acquisitions.

The KBW index of 24 commercial bank stocks lost more than 3 percent. The Standard & Poor's index of major investment banking stocks dropped more than 4 percent.

"This is a Wall Street event that is turning into a Main Street event," said Jerry Webman, senior investment officer and chief economist at Oppenheimer Funds. "As the financial markets shake, consumer confidence is faltering."

Indeed, Tuesday's stock market's decline began with a monthly report showing consumer confidence at the lowest level of the year in August, though the reading was higher than in August 2006.

Quick to assign blame

Commentators were quick to pin Tuesday's stock market troubles on Ben Bernanke, the Federal Reserve chairman, who is in his 18th month at the helm of the Fed and is facing the first crisis of his tenure.

"You've got a new Fed chairman with his own personality and his own biases," said Ablin. "This is unchartered territory. It's like an election when you don't know what the new administration is going to do."

What the Fed has done in recent weeks is stick to its long-standing vigilance against inflation, though the central bank acknowledges that a general rise in prices in the economy has been moderating for some time.

Asleep at the switch?

Meanwhile, a historic slump in the housing market, rare declines in house prices and a global credit crunch affecting many industries have threatened to reverse this year's economic growth.

The minutes of the Fed's Aug. 7 interest-rate policy committee meeting contained no shocking disclosures. As usual, the result of the meeting was published in a brief statement by the committee on that day. But the more lengthy analysis in the minutes, released Tuesday, aggravated experts' fears that the Fed might be asleep at the switch.

Minutes called baffling

"My skepticism about whether the Fed was on the ball increased exponentially on Aug. 7," Resler said. "Then, upon reading the minutes, I'm even more baffled."

Having failed to adequately present the evidence of threats to the economy three weeks ago, the Fed might feel obliged to stand by its assessment, he said. If the Fed moderated its inflation vigilance, "it will be seen not as a reaction based on a changed economic outlook but a reaction to market circumstances."

In fact, recent trading in futures contracts based on the federal funds rate, the rate banks charge one another for overnight loans, suggested that traders had become less convinced that the Fed would cut the benchmark rate at its next policy meeting, scheduled for Sept. 18.

"You combine economic deterioration with a Fed that might be digging in their heels, and that creates frustration," said Ablin.

Bernanke is scheduled to speak about housing and the economy Friday at an annual meeting of Fed officials at Jackson Hole, Wyo. Analysts do not expect the Fed chief to reveal his next move.

"I don't expect him to reveal anything," Resler said, adding, "Frankly, he has done a good job. He's been a better communicator than his predecessor [Alan Greenspan], but the Fed had dropped the ball in the last month."

Still, the stock market has been relatively calm compared with the credit market, Resler said. Major indexes still have not suffered a 10 percent decline, based on closing prices.

"The only way to attract the man-on-the-street's attention or the media's attention is if the stock market gets hammered, but the credit markets have been close to dysfunctional throughout the last couple of weeks," said Resler. "That dysfunctional market is going to matter a great deal more to the economy that what's going on in the stock market."

Webman said the instability will subside when well-capitalized investors, who do not use debt to invest, sense bargains. But "if fear overtakes prudent risk-taking, than many economies will be in for a rough time," he said.

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bbarnhart@tribune.com

more in /business

Poverty rate dips; more are uninsured - Health-care coverage absent for 47 million

2007-08-29T12:05:00.000-07:00

Poverty rate dips; more are uninsured - Health-care coverage absent for 47 million
By William Neikirk and Judith Graham
Copyright © 2007, Chicago Tribune
August 29, 2007

WASHINGTON — Poverty diminished slightly in America last year, the Census Bureau said Tuesday, but the nation's health-insurance woes worsened as another 2.2 million people, including 700,000 children, joined the ranks of the uninsured.

The bureau's report gave a mixed picture of national economic health, suggesting the economic recovery eased poverty and helped boost incomes modestly last year.

But the figures showed health care remains a huge national issue that will play a major role in the presidential race and also when Congress returns from its summer break to take up an expansion of a children's health-care program.

The poverty rate fell to 12.3 percent in 2006 from 12.6 percent in 2005, reducing the number of the officially poor by nearly a half-million people, to 36.5 million. Of the 490,000 who escaped the ranks of the poor last year, 210,000 were 65 and older, according to the bureau. Critics said the poverty decline was disappointing because the economy has been growing since 2001.

The report said that "real," or inflation-adjusted median household income increased by 0.7 percent to $48,200 in 2006, though census officials said it has yet to reach the inflation-adjusted peak of $49,200 recorded in 1999, when the economy was booming. Median income is the point at which half earn more and half make less.

Meanwhile, the inflation-adjusted median earnings of men and women employed full time declined in 2006 for the second straight year. Household income rose because there were more full-time workers per household, suggesting that more people were working longer hours to make ends meet.

According to the report, the number of people without health insurance jumped to 47 million last year from 44.8 million in 2005. The main reason was that more employers reduced health-care coverage, according to the report.

President Bush hailed the report in a statement, saying it showed "more of our citizens are doing better in this economy, with continued rising incomes and more Americans pulling themselves out of poverty."

But the president acknowledged the data "shows that challenges remain in reducing the number of uninsured Americans. Containing costs and making health insurance more affordable is the best way to reverse this long-term trend." He touted his plan to provide tax incentives to help more Americans obtain health insurance.

Political response quick

The report proved to be a presidential candidate's gold mine. "In the richest nation on Earth, it is a moral outrage that 1 in 10 Americans families live in poverty and 47 million Americans do not have health care," said Sen. Barack Obama (D-Ill.), who has called for universal health-care coverage and stronger anti-poverty programs.

Former Sen. John Edwards of North Carolina has made reducing poverty a centerpiece of his campaign for the Democratic nomination, but it is not as prominent in other campaigns. Health care, however, is seen as a premier issue in the 2008 presidential race, and Tuesday's report gave the candidates plenty of new ammunition, though doubts remain about the political will to get it done.

Front-running Sen. Hillary Clinton (D-N.Y.) said the rise in the number of uninsured "demonstrates the urgent need to cover every American," which she and other Democratic candidates have pledged to do. Republicans also favor greater health-care coverage, but through less government intervention and more private incentives.

The sharp drop in health-care coverage for children could provide a catalyst for action by Congress when it returns from vacation.

The House and Senate have passed bills to expand the State Children's Health Insurance Program (SCHIP), but Bush has threatened a veto if either passes, arguing that the legislation goes too far.

Advocacy groups, calling on Congress to act, promised to step up their lobbying pressure.

"Action is desperately needed," said Dr. Joseph Heyman, a board member of the American Medical Association. Added spokesman Drew Nannis of AARP: "Forty-seven million people lacking health-insurance is unacceptable. … This nation needs more than stump speeches."

Illinois Gov. Rod Blagojevich urged Bush to reconsider his position on the SCHIP bills.

"The census numbers confirm what we already know — SCHIP funds need to be increased," the governor said. "Earlier this month, both the U.S. House and the Senate took important steps toward expanding health care for children by approving bills that provide substantial new dollars to states to expand coverage to additional low-income children. In Illinois alone, SCHIP has helped to provide health care for more than 316,000 children."

The children's health legislation in Congress is widely seen as a precursor of the debate over national health care. Bush has called the Democratic approach too expensive and too broad, but political momentum is building for passage of Democratic-sponsored legislation.

Risa Lavizzo-Mourey, president of the Robert Wood Johnson Foundation, called for bipartisan cooperation to pass the bill.

Sen. Charles Grassley (R-Iowa), ranking Republican on the Senate Finance Committee, said the census report "should motivate the House and the Senate to reauthorize SCHIP this fall." Without an extension, the program would expire on Sept. 30.

Earlier this year, several states, including Illinois, appeared ready to break the impasse over national health care, but so far it hasn't happened. Blagojevich's ambitious health-care plan went down to defeat in the legislature.

California Gov. Arnold Schwarzenegger's plan for statewide coverage is up in the air with only a few weeks left in the legislative session. Pennsylvania and Wisconsin are contemplating reforms, but in both cases, as throughout the nation, debate rages over how to finance broader coverage. Massachusetts' universal coverage plan went into effect this summer, but the insurance plan costs have been higher than expected, raising doubts about its workability.

Census Bureau officials noted that median household income rose for a second straight year in 2006, but Robert Greenstein, head of the Center on Budget and Policy Priorities, an advocacy group, called the rise disappointing so late in the recovery.

Working families lose ground
Jared Bernstein, an economist at the Economic Policy Institute, said despite the income increase, many working families are falling behind.

For example, in 1987, the wealthiest one-fifth of Americans earned 46.2 percent of all income, and that percentage rose to 50.5 percent in 2006. By contrast, the lowest fifth of the population in income earned 3.8 percent of all income in 1987. Last year, this lowest quintile earned 3.4 percent of all income.

Looking at the poverty figures, Republicans on the House Ways and Means Committee said they are misleading because they don't count funds that the poor receive from food stamps, Medicare, Medicaid, public housing, and employer-provided fringe benefits.

The 12.3 percent poverty rate last year is relatively low by historical standards, though it dropped below 12 percent in 1999, 2000 and 2001. In 1993, the first year of the Clinton administration, the poverty rate stood at 15.1 percent. The poverty level is the measure used to help decide eligibility for federal programs for the needy. The official poverty threshold for a family with two children last year was $20,444.

wneikirk@tribune.com

jegraham@tribune.com

Idaho Senator Asserts: 'I Never Have Been Gay' - GOP Leadership Seeks Ethics Inquiry

2007-08-29T08:23:00.000-07:00

Idaho Senator Asserts: 'I Never Have Been Gay' - GOP Leadership Seeks Ethics Inquiry
By Paul Kane
Copyright by The Wshington Post
Wednesday, August 29, 2007; Page A01

Senate Republican leaders called for an ethics investigation of Sen. Larry E. Craig (R-Idaho) yesterday as he dug in for a legal and political fight to save his congressional career after acknowledging that he had pleaded guilty to disorderly-conduct charges stemming from an incident with an undercover police officer in an airport men's room.

Craig denied doing anything wrong and said he had "overreacted" in pleading guilty after his June 11 arrest at Minneapolis-St. Paul International Airport. He said that he is "not gay" and vowed to continue to serve in the Senate.

"While I was not involved in any inappropriate conduct at the Minneapolis airport or anywhere else, I chose to plead guilty to a lesser charge in the hope of making it go away," Craig, 62, told reporters in Boise, Idaho.

He said that he has retained a lawyer to review his guilty plea, though earlier this month he signed court papers declaring that he had read the police report of the incident and understood the nature of the crime and he paid a $500 fine. Legal experts said that would make any challenge difficult.

Craig said yesterday that he pleaded guilty because his hometown newspaper, the Idaho Statesman of Boise, had been conducting an eight-month investigation into his sexual orientation. He said he hoped that quietly resolving the case -- without telling any of his family members, friends, staffers or colleagues -- would settle the matter without bringing it to light for what he called the newspaper's "witch hunt."

"Let me be clear: I am not gay. I never have been gay," he said.

Senate Republican leaders issued a rare joint statement minutes before Craig's news conference, complaining that none of them had been told of his legal troubles until yesterday. The senators asked the ethics committee to investigate the matter, vowing to consider other punitive sanctions.

"This is a serious matter. Due to the reported and disputed circumstances, and the legal resolution of this serious case, we will recommend that Senator Craig's incident be reported to the Senate Ethics Committee for its review. In the meantime, leadership is examining other aspects of the case to determine if additional action is required," Minority Leader Mitch McConnell (Ky.), Minority Whip Trent Lott (Miss.) and three other elected leaders said.

The only GOP leader not on the statement is Sen. John Cornyn (Tex.); he is the vice chairman of the ethics panel, to which Craig's case is being referred.

In his statement, Craig repeatedly apologized to his family, friends, staff and constituents, but not to Senate colleagues.

Yesterday, former Massachusetts governor Mitt Romney (R), whose Idaho presidential campaign Craig headed until the charges came to light, compared Craig's behavior to President Bill Clinton's encounter with a White House intern and to the case of Mark Foley (R-Fla.), who resigned from the House of Representatives last year in a scandal involving male pages.

"I think it reminds us of the fact that people who are elected to public office continue to disappoint, and they somehow think that if they vote the right way on issues of significance or they can speak a good game, that we'll just forgive and forget," Romney said on CNBC's "Kudlow & Company." "We've seen disappointment in the White House, we've seen it in the Senate, we've seen it in Congress. And frankly, it's disgusting."

Craig was once a rising star in the GOP. In the early 1990s, he chaired the informal Steering Committee, a group of conservatives who pushed a right-wing agenda because they were leery of their moderate Republican elders.

In 1996, Craig was elected Republican Policy Committee chairman, the No. 4 leadership post. He held it through 2002, when he lost a bid against McConnell to claim the Republican whip's post, the No. 2 leadership spot. Like most fellow Republicans, Craig has opposed gay rights, voting in favor of a federal ban on same-sex marriage several times in recent years.

Craig is now fighting a multi-front battle -- first and foremost, a long-shot bid to undo his guilty plea and the likely ethics probe, while trying to shore up support among constituents should he decide to seek a fourth six-year term in 2008. He said he will announce his decision next month.

Craig was arrested at the airport while changing flights on his way to Washington. Police said that they were investigating complaints of sexual encounters by men in a restroom at the airport, and that an undercover officer was in a restroom stall when Craig sat in the stall next to him. The officer said in his arrest report that Craig began tapping his right foot, touched his right foot to the left foot of the officer and brushed his hand beneath the partition between them. The senator was then arrested.

Craig said yesterday that he agreed to plead guilty because of the pressure he felt from the newspaper's investigation. "I overreacted in Minneapolis, because of the stress of the Idaho Statesman's investigation and the rumors it has fueled around Idaho," Craig said in his statement. He took no questions from reporters.

The paper reported on rumors -- fueled by a gay activist's report last fall that was based on anonymous sources -- that Craig had engaged in restroom sexual encounters with other men, including an unnamed man the Statesman quoted in its report as saying he had sex with Craig in a restroom at Washington's Union Station. In an interview with the newspaper in May, which was published yesterday, Craig denied having had gay sexual encounters and specifically denied restroom encounters.

"I'm going to have to leave it up to other people to weigh the care we took. I'm a bit disappointed" with Craig's complaints, said Vicki Gowler, the paper's top editor. "We were quite responsible, and we took great care with the story."

In his guilty plea, according to court records, Craig acknowledged engaging in physical "conduct which I knew or should have known tended to arouse alarm or resentment of others." Criminal defense lawyers said it could be difficult for Craig to have the case reopened.

Successful motions to withdraw guilty pleas usually meet a high threshold, such as showing that the person was misled into entering the plea, that his constitutional rights were violated or that there was wrongdoing by prosecutors, said Minneapolis lawyer Peter B. Wold.

But Craig's written plea detailed the charges related to the airport incident and specified that he knew that the judge could not accept a guilty plea from a person who felt he was innocent, and that he was making no claim of innocence.

If successful in overturning his plea, Craig will probably face a public trial, Wold said.

Staff writers Robert Barnes and Howard Kurtz contributed to this report.

International Herald Tribune Editorial - What looks like a bailout?

2007-08-29T08:14:00.001-07:00

International Herald Tribune Editorial - What looks like a bailout?
Copyright by The International Herald Tribune
Published: August 28, 2007

A recurring question in the recent turmoil in the financial markets has been whether the U.S. Federal Reserve would bail out the banks, non-bank lenders and investors who are complicit in the excesses that sparked the credit crisis. Events have overtaken the debate. The bailout is well under way.

Earlier this month, as the credit squeeze tightened and the Fed began to inject extra billions of dollars into the banking system, the injections were viewed as standard operating procedure.

By mid-month, when the Fed cut the lending rate it charges federally insured banks to borrow directly from the Fed, the move was viewed more as a way to calm the markets than to grease their wheels, mainly because it was of no direct use to non-bank lenders reeling from the credit crunch - like Countrywide, the nation's largest mortgage lender.

But by Aug. 20, one business day after cutting the lending rate, the Fed allowed Bank of America and Citigroup's Citibank to breach the regulatory cap on the size of loans they're permitted to make to their brokerage affiliates. Using the brokerages as conduits, the banks will be able to easily funnel substantial sums of money to their clients, like the ailing non-bank lenders.

The cap on loans to an affiliate is a tenet of prudent banking. So waiving it, even temporarily, is a significant escalation of the Fed's rescue efforts. Under normal circumstances, a bank is limited to lending any one affiliate an amount equal to 10 percent of the bank's regulatory capital. Fed documents released last Friday disclosed that the banks would be allowed to lend up to $25 billion apiece, or about 30 percent of their capital.

Compromising the cap to that extent attests to the Fed's belief that a bailout is necessary to avert greater harm to the financial system and the broader economy.

But even if the Fed succeeds in managing the crisis, its actions stir questions anew about the longer-term sustainability of the debt-fueled state of the American economy. And they are yet another reminder that even as officials are quick to try to counter threats from Wall Street, they have yet to make any real progress toward heading off the coming wave of foreclosures, which could rock the markets as early as this fall and create a social crisis on top of a financial one.

Bailouts are tolerable only if the help they provide is in the broad public interest, and if they're followed by punishing wrongdoers and imposing new rules and procedures that help to ensure that the same problems will not happen again. The Fed is playing out its role in the bailout, but the Bush administration and the U.S. Congress have yet to step up to theirs.

International Herald Tribune Editorial - Exit Gonzales

2007-08-29T08:11:00.000-07:00

International Herald Tribune Editorial - Exit Gonzales
Copyright by The International Herald Tribune
Published: August 28, 2007

Attorney General Alberto Gonzales has finally done something important to advance the cause of justice. He has resigned. But his departure alone cannot remove the dark cloud that hangs over the Justice Department. President George W. Bush needs to choose a new attorney general of unquestioned integrity who would work to make the department worthy of its name again. Congress needs to continue to investigate the many scandals Gonzales leaves behind.

When Gonzales was appointed, it seemed doubtful that he would be able to put aside his years as Bush's personal lawyer, which stretched back to the Texas governor's office, and represent the interests of the American people. He never did. In many ways, Gonzales turned out to be the ultimate "loyal Bushie" - a term his Justice Department chief of staff used to describe what his department was looking for in its top prosecutors.

It was just that kind of craven politics - the desire to co-opt the power of the government to win elections - that was the driving force in Gonzales's Justice Department. Dedicated and capable U.S. attorneys were fired for insisting on doing their jobs with integrity - for refusing to put people in jail, or shield them from prosecution, simply to help Republicans win elections.

When Gonzales testified before Congress, his misstatements and memory lapses were so frequent that it was hard to believe they were not intentional. He told Congress many things about the prosecutors' firings that were contradicted by his top aides and by documents. His testimony about the Bush administration's warrantless domestic surveillance program also ran counter to many credible sources, including the account of the director of the F.B.I.

There was a more basic problem with Gonzales's tenure: he did not stand up for the Constitution and the rule of law, as an attorney general must. This administration has illegally spied on Americans, detained suspects indefinitely as "enemy combatants," run roughshod over the Geneva Conventions, violated prohibitions on injecting politics into government and defied Congressional subpoenas. In each case, Gonzales gave every indication of being on the side of the lawbreakers, not the law.

Gonzales signed off on the administration's repugnant, and disastrous, torture policy when he was the White House counsel. He later helped stampede Congress into passing the Military Commissions Act of 2006, which endorsed illegal C.I.A. prisons where detainees may be tortured and established kangaroo courts in Guantánamo Bay, Cuba, to keep detained foreigners in custody essentially for life. He helped cover up and perpetuate Bush's illegal wiretapping programs, both in the counsel's job and as attorney general. The F.B.I. under his stewardship abused powers it was given after the 9/11 terrorist attacks in the name of enhanced national security.

The next attorney general will have two critical tasks. First, he or she should appoint a credible, independent investigator to look into the prosecutors' firings make clear that the investigation will be permitted to follow the facts where they lead.

Second, the next attorney general will have to fix a badly broken department. Many of the top positions are now empty, vacated by aides to Gonzales who came under Congressional scrutiny. They need to be replaced with qualified, nonpolitical professionals.

Gonzales, for all of his undeniable deficiencies, merely reflected the principles of this administration. His resignation is a necessary but hardly sufficient step in restoring the nation's commitment to the rule of law.
Terms of Use

Chicago Sun-Times Editorial - Failed flood of promises - Bush's inaction leaves New Orleans mired

2007-08-29T08:08:00.000-07:00

Chicago Sun-Times Editorial - Failed flood of promises - Bush's inaction leaves New Orleans mired
Copyright by The Chicago Sun-Times
August 29, 2007

Dear President Bush, don't be afraid to roll up your sleeves and get your hands dirty when you address New Orleans today. You might be shocked by what you don't see.
Hurricane Katrina slammed into the Big Easy two years ago today, wiped out whole neighborhoods, killed 1,800 in the region and threatened the spirit of a city that made its mark by its improvised music -- and its laid-back way of life.

But much of that has changed.

Federal spending on Gulf Coast repairs has exceeded $114 billion, and we hear you're seeking an additional $7.6 billion to restore New Orleans' mangled levee system. That's pocket change compared to the more than $500 billion we've spent so far on Iraq. If you can rebuild a nation, surely you can rebuild a single city.

Perhaps you should take a cue from Sen. Barack Obama, who suggested creating a national catastrophic insurance reserve to assist affected homeowners.

We aren't blaming you for local corruption that has slowed progress, but two years ago, you said you'd take control.

"When the federal government fails to meet such an obligation, I, as President, am responsible for the problem, and for the solution," you said.

If that's true, let's take a look at your solutions:

YOU SAID: "We're going to restore order in the city of New Orleans."

WHAT HAPPENED: Military police still patrol the streets. The murder rate has doubled with more than 125 homicide victims so far this year. Burglary rates jumped 73 percent since Katrina. Police ranks have fallen, and as of July, no repairs had been made to damaged police stations.

YOU SAID: "I appreciate that FEMA will be providing a lot of temporary housing, and that's one of the responsibilities that Federal Emergency Management Agency assumes, to find shelter for people."

WHAT HAPPENED: FEMA spent $7.6 billion to repair and replace about 1.4 million homes. The agency also paid $2.3 billion on rent. Today 61,817 families live in FEMA trailers and shelters.

Another federal program designed to rehab damaged homes will fall short by $5 billion. That's partly because FEMA underestimated the need for house repairs. Only 45,000 of the 184,000 who asked for help have received it.

YOU SAID: "Brownie, you're doing a heck of a job."

WHAT HAPPENED: Disgraced former FEMA director Michael Brown has since taken a job selling disaster response and data-mining technology.

YOU SAID: "Out of New Orleans is going to come that great city again."

WHAT HAPPENED: Before Katrina, New Orleans had 128 public schools, only 83 have reopened. Before Katrina, the city had 13 public libraries, today it has nine. Fewer than two-thirds of pre-storm hospital beds are available. Just 98 out of the 276 child-care facilities have reopened. Only 60 percent of its pre-Katrina population of 455,000 reside in New Orleans today.

Local musicians -- the city's heart and soul -- are barely making it. Once numbering 3,000, musicians have dropped to 1,800 -- with many begging to be paid minimum wage. So desperate, a few dozen took to the streets Sunday protesting the cut-throat wages.

What remains in parts of New Orleans is a ghost of what was. Many homes are still in disrepair and unoccupied, their front stoops leading to piles of splintered two-by-fours and dangling wires.

What we're asking, Mr. President: How can New Orleans achieve greatness, when so many residents can't go home?

Lesbian could head Episcopal Diocese - Columbus native among finalists for Chicago post

2007-08-29T07:58:00.000-07:00

Lesbian could head Episcopal Diocese - Columbus native among finalists for Chicago post
BY SUSAN HOGAN/ALBACH Religion Reporter/shogan@suntimes.com
Copyright by The Chicago Sun-Times
August 29, 2007

A lesbian priest has been named a finalist for bishop of the Episcopal Diocese of Chicago.

The Rev. Tracey Lind's nomination comes as conservatives in the worldwide Anglican Communion are demanding that its U.S. branch no longer consecrate openly gay bishops.

"I believe that accepting this nomination is what God is asking of me," Lind said in a statement. She's dean of Trinity Cathedral in Cleveland and author of Interrupted by God.

Lind is among a list of five bishop candidates that includes three women. No woman has ever been a finalist, the diocese said.
Bishop James Stanton of Dallas, a catalyst in the global effort against gay bishops, called Lind's nomination distressing.

"It's an action that says Chicago really doesn't care what the rest of the Anglican Communion says," he told the Sun-Times.

The 77-million member Anglican Communion has been fractured over the issue since 2003, when its U.S. community -- the Episcopal Church -- consecrated its first openly gay bishop, the Rev. V. Gene Robinson of New Hampshire.

With the exception of some bishops, leaders of the 2.2 million-member Episcopal Church have been supportive of gay clergy.

"My life with my partner, Emily Ingalls [a cradle Episcopalian], is the gift that most sustains me," Lind's statement said. "Together, we tend our garden, travel, hike."

The Columbus native dropped out as a candidate for bishop in the Newark Diocese last year, saying she wasn't ready to leave Ohio. But she's told the Chicago diocese "the timing is now right," a spokesman said.

Church's inner turmoil

Last year, the Episcopal Church passed a resolution that encouraged dioceses to exercise restraint in elevating leaders whose "manner of life" might be an issue for the Anglican Communion.
Earlier this year, primates -- leaders of the Communion's 38 provinces -- asked the Episcopal Church's House of Bishops not to authorize gay bishops.

They set a Sept. 30 deadline for response.

Archbishop of Canterbury Rowan Williams will attend the House of Bishops meeting next month in New Orleans.

The Chicago diocese election is Nov. 10. Other nominees are the Rev. Jane Gould of Lynn, Mass; the Rev. Margaret Rose of New York; the Rev. Jeffrey Lee of Medina, Wash., and the Rev. Timothy Safford of Philadelphia.

But before a bishop can be consecrated, the election must be ratified by a majority of representatives from other U.S. dioceses, church officials said.

The new bishop will succeed Bishop William Persell, who's led the diocese since 1999.

The candidates were selected by a diocesan search committee. Additional nominees can be made through a petition process.

Daley, other leaders rally for transit funding bill

2007-08-29T07:56:00.000-07:00

Daley, other leaders rally for transit funding bill
By Richard Wronski
Copyright © 2007, Chicago Tribune
7:15 PM CDT, August 28, 2007

Chicago and suburban political leaders, including House Speaker Michael Madigan and Mayor Richard Daley, urged the public today to press lawmakers and Gov. Rod Blagojevich to support a bill raising $450 million for mass transit.

If the legislature doesn't heed a Sept. 15 deadline for approval of the measure, riders will awake the next day to fewer CTA and Pace buses and will pay higher fares, officials warned.

"If Springfield doesn't act, every resident will suffer through more traffic congestion, more air pollution, more absenteeism and less productivity, slower transit service and more money out of our pockets for higher fares and car travel," Daley told about 200 sign-carrying transit advocates, union workers and others at a rally organized by the Regional Transportation Authority at the James R. Thompson Center.

The RTA and other transit agencies have been calling for approval of the legislation for months, but the General Assembly has been stymied by budget negotiations and personal differences between the governor and legislative leaders.

The CTA, Metra and Pace have a combined $226 million budget shortfall for 2007. The agencies have approved what they say is only the first round of fare hikes and service cuts if more money does not come from the state.

Among the actions slated for Sept. 16 are increases in CTA cash fares from $2 to $2.50 for buses and $3 for trains during peak hours, and the elimination of 39 bus routes. Pace increases, originally announced for Sept. 1 but delayed to coincide with the CTA's, include paratransit fares raised to a standard $3 charge, from $2.25 in Chicago and $2.50 in DuPage, Lake, McHenry and Will Counties. Metra has threatened to increase fares 10 to 15 percent starting in 2008.

To provide transit funding, a Senate bill calls for a 0.25 percent increase in the RTA sales tax collected in the six-county region and a new real estate transfer tax in Chicago.

The House Mass Transit Committee will hold a hearing Wednesday on the measure in the Thompson Center. Committee Chairwoman Rep. Julie Hamos (D-Evanston) said she expected that the committee would pass the measure, and that it would be voted on by the legislature on Sept. 4.

Hamos and other supporters said they were confident they would have votes to override a veto from Blagojevich, who has said he would not approve any increase in the sales tax.

rwronski@tribune.com

Governor OKs utility-relief bill - $1 billion deal includes rebates for ComEd, Ameren customers

2007-08-29T07:54:00.000-07:00

Governor OKs utility-relief bill - $1 billion deal includes rebates for ComEd, Ameren customers
By Jeffrey Meitrodt |
Copyright © 2007, Chicago Tribune
11:03 PM CDT, August 28, 2007
:

SPRINGFIELD - Gov. Rod Blagojevich reluctantly signed a $1 billion electricity-rate relief package Tuesday that dramatically reshapes the Illinois electric market, saying the legislation provides a "good starting point" in protecting consumers against skyrocketing energy charges.

In the Chicago area, ComEd customers will get a one-time credit on their October bill worth an average of $57 for the first eight months of the year, with a credit worth about $7 per month for the rest of the year. That will offset about half of the rate increase that went into effect at the beginning of 2007, ComEd officials said Tuesday.

Lawmakers of both parties were under intense pressure this year to help customers deal with utility bills that more than tripled in some areas. After months of negotiations led by Atty. Gen. Lisa Madigan, legislators crafted a bill that goes far beyond a simple rebate worth an average of $235 over the next three years.

The much-maligned reverse auction, which was widely blamed for this year's price increases, is gone, replaced by a new state agency that will purchase power in the competitive market on behalf of Commonwealth Edison and Ameren.

The legislation also requires energy-efficiency programs that will substantially decrease the growth of electric use in Illinois and make the state a national leader in its goals for using electricity generated by renewable resources such as wind power, biomass and solar power, according to Environment Illinois, one of the state's leading environmental organizations. Only two states have higher goals, the group said.

"We think this is a great step forward," said David Kolata, director of the Citizens Utility Board.

Though Republicans complained that the settlement didn't provide enough money to their hard-hit constituents, proponents said the deal was the best they could squeeze out of the utilities, which originally offered just $152 million in rate relief and customer assistance. The legislation passed easily in both chambers late last month and customers were told to expect their refund checks and credits as soon as August.

But Blagojevich, who sat on the sidelines during the negotiations, angered lawmakers by announcing that he would take up to 60 days to review the bill. He said he thought he might be able to persuade the power companies to sweeten the deal, despite warnings from the attorney general's office that any delays could lead to higher bills.

"After reviewing it, I believe it will provide immediate relief and put us in a position to keep working on longer-term electricity issues that need to be addressed to ensure that electricity in Illinois is affordable," Blagojevich said in a statement.

State Rep. George Scully (D-Flossmoor), the House's lead utility negotiator, said he was happy the governor signed the bill. "But it's very unfortunate that he forced the people of Illinois to wait another month to get rate relief," Scully said.

As it turns out, however, the delay actually will save Ameren customers in Downstate Illinois an additional $17 million because of a recent downturn in energy prices, said Madigan spokeswoman Robyn Ziegler.

As a way to protect consumers against future price hikes, Madigan had persuaded Ameren and ComEd to sign five-year deals for nearly half the power they use on a daily basis. Ameren's prices were good through Aug. 5, while ComEd's were set to expire on Sept. 5.

Energy prices were spiking in the first week of August, leading Madigan to accuse Blagojevich of costing Ameren's customers another $27 million because of the delay in signing the bill into law. But prices have been on a roller coaster ever since, creating savings for Ameren customers. In fact, if the governor had signed the bill last Friday, Ameren customers would have saved an extra $31 million, not $17 million, according to the attorney general's office.

"We felt like it was very important to take our time and fully review this legislation and not rush to a decision based on those previous deadlines," said Blagojevich spokeswoman Rebecca Rausch.

Ameren customers will start receiving checks worth a minimum of $85 in about two weeks, and minimum credits worth $5 a month for the rest of the year. The typical rebate for the year will be $130 to $150, but Ameren's all-electric customers—who got clobbered with big heating bills in the first part of 2007—will receive an average rebate of $400 to $600 this year, said Shelley Epstein, spokesman for Ameren Illinois Utilities. Epstein said some of the company's hardest hit customers will get back more than $1,000 in 2007.

Credits for customers of both utility companies will drop sharply in 2008 and disappear by July 2009, when the full impact of this year's rate increases finally will be felt. Rausch said the governor hopes lawmakers are able to pass new legislation aimed at softening that blow.

"It's imperative that we keep working to make sure that when the rebates run out in three years, consumers aren't socked with huge increases," Rausch said.

Scully said that's wishful thinking because lawmakers agreed not to pursue additional rebates or rate freezes for three years as a condition of the settlement. If lawmakers passed such legislation next year, for instance, ComEd and Ameren would not be bound by the deal and could stop providing credits. The companies would not be able to recover relief already handed out to customers.

"That is the only way we got the electric companies to come up with a billion dollars," Scully said.

jmeitrodt@tribune.com

Mortgage blow hits 'McMansion' clients

2007-08-29T07:50:00.000-07:00

Mortgage blow hits 'McMansion' clients
By Victoria Kim
Copyright The Financial Times Limited 2007
Published: August 29 2007 03:00 | Last updated: August 29 2007 03:00

Last month, a New York hedge fund manager tried to close the deal on a $6m apartment in downtown Manhattan that he had set his eyes on a year and a half ago. Back then, the manager, recently married and looking to purchase his first home, had been approved for a mortgage at 80 per cent financing with no income verification.

Come July, however, the manager could not close the financing, says his mortgage broker Melissa Cohn, president of Manhattan Mortgage. He was left to settle instead for an apartment in the same building that was half the price, at only 76 per cent financing.

The tale is typical of thousands of US home buyers, who are stretching themselves to finance expensive homes but finding mortgages slipping through their fingers.

Jumbo mortgages are defined as those for more than $417,000, the level beyond which Fannie Mae and Freddie Mac, the government-affiliated mortgage banks, will not lend. They are particularly associated with financing for the aspiring wealthy and their suburban "McMansions" - the type of often neo-classical, new-build properties that have sprung up across the US in recent decades.

But with such a relatively low cut-off for jumbo mortgages, borrowers are often far from the wealthy professionals that one mightimagine.

Jumbo mortgage rates inched down to 7.4 per cent last week but the week before they hit a five-year high of 7.43 per cent, according to bankrate.com.

The hardest hit by the changing markets are those on the margin, straining their resources to buy a first home.

The market for jumbo mortgages has become "bifurcated", says Ms Cohn of Manhattan Mortgage.

"There are two different mortgage rules out there. For very strong qualified buyers, there are plenty of banks and plenty of great rates . . . for people applying for jumbo mortgages with some hair on their application, it's going to be more expensive."

Some poor-credit buyers face rates as high as 12 per cent, and no-income-verification and no-money-down mortgages for the underqualified are a thing of the past, says Guy Cecala, publisher of Inside Mortgage Finance, and a 27-year veteran of the industry.

And as large loans become a near impossibility for subprime or the next tier up of "Alt-A" borrowers, marginal buyers may be squeezed out of the jumbo market.

Inside Mortgage estimates that in the first half of 2007, as much as 10 per cent of jumbo mortgage loans were issued to subprime borrowers. Another 25 per cent of the market was estimated to be "Alt-A" mortgages.

Home buying at the very high end, however, remains robust as buyers expect the market to pick up.

Kathy Korte, president and chief executive of luxury real estate company Sotheby's Realty, says that although her clients are concerned, their willingness to buy has not been affected.

"The industry doesn't want to throw out the baby with the bath water. There still are a lot of highly qualified buyers," says Pamela Liebman, chief executive of Corcoran Group, which lists homes and resorts in Manhattan and the Hamptons.

Real estate agents and mortgage brokers say the very high-end of the housing market remains unaffected by the increase in rates and market trouble, because buyers are typically purchasing secondary or tertiary homes, often with cash.

Celebrities certainly do not seem hindered by market conditions - Stephen Shapiro, co-founder of West Side Estate Agency that lists celebrity homes in Beverly Hills, Bel Air and Malibu, is among the agents who say they have not lost any deals in the turmoil. David and Victoria Beckham were among the latest to splash out $20m on a luxury Beverly Hills home.

The Short View -The Housing Nightmare By John Authers

2007-08-29T07:47:00.000-07:00

The Short View -The Housing Crisis By John Authers
Copyright The Financial Times Limited 2007
Published: August 29 2007 03:00 | Last updated: August 29 2007 03:00

To have a house of your own is the essence of the American Dream. The problem is that that dream shows signs of turning into a nightmare. And all of the world now shares it.

Risk aversion returned yesterday, with stocks in the US and Europe falling more than2 per cent, volatility spiking, a flight to Treasuries, and a fall in the dollar against the yen.

The trigger was concern for the US homeowner. The Case-Shiller housing indices, seen as the most statistically robust measure of US house prices, yesterday painted a gloomier picture than many had expected. Home prices in the 20 biggest metropolitan markets fell 3.2 per cent in the second quarter - the biggest such fall yet recorded. Only five of the 20 cities avoided falls in prices.

Following Monday's news that the overhang of unsold apartments in condominiums and co-operatives is now equivalent to a year's worth of supply, the message was clear: US housing could still get worse. Publication of minutes for the Federal Open Markets Committee's meeting this month, showing that Fed governors thought the housing slump would be "deeper and more prolonged" than earlier expected, confirmed the gloom.

The problem is no longer restricted to subprime lenders. Anthony Sanders, of Ohio State University's business school, points out that median house prices have fallen less than the mean, showing that the most expensive houses are suffering the fastest drops. The rates for "jumbo" mortgages (too big to be covered by the federal mortgage agencies) exceed standard fixed mortgages by the highest spread ever.

These borrowers could be most affected by the resetting of adjustable-rate mortgages later this year, which will see a sharp increase in borrowing costs.

The Case-Shiller is only3.6 per cent below its record high. Yesterday's rout may well be an overreaction. But markets needed a reminder that there are still reasons for concern.

Central banks should not rescue fools

2007-08-29T07:45:00.000-07:00

Central banks should not rescue fools
By Martin Wolf
Copyright The Financial Times Limited 2007
Published: August 28 2007 19:27 | Last updated: August 28 2007 19:27

Sometimes a picture is worth a thousand words. The one last Wednesday showing Christopher Dodd, chairman of the US senate’s banking committee, flanked by Hank Paulson, Treasury secretary, and Ben Bernanke, governor of the Federal Reserve, was such a picture. This showed Mr Bernanke as a performer in a political circus. Mr Dodd even announced Mr Bernanke’s policies: the latter had, said Mr Dodd, told him he would use “all the tools” at his disposal to contain market turmoil and prevent it from damaging the economy. The Fed has its orders: save Main Street and rescue Wall Street.

Such panic-driven politicisation is almost certain to lead to both overreaction and the creation of bad precedents. What then would be the right response to this latest scrape that supposedly sophisticated financial markets have fallen into?

Policymakers must distinguish two objectives: the first is macroeconomic stability; the second is a sound financial system. These are not the same thing. Policymakers must not only distinguish these objectives, but be seen to do so. The Federal Reserve failed to do this when it issued statements, on prospects for the economy and on emergency lending, on August 17. This unavoidably – and undesirably – confused the two goals.

The statement on the economy was also premature. Everybody knows that the Fed’s job is to stabilise the economy and prevent deflation. Everybody knows, too, that the Fed will investigate the economic implications of the crisis in the credit markets at the next meeting of the open market committee. If prospects seem significantly worse, the Fed will, presumably, cut rates. But now a cut looks pre-announced. Monetary policy should not be made “on the hoof” in this way, except in the direst of circumstances.

This brings one to the second objective: ensuring the functioning of the financial system. The question is how to help the system without encouraging even more bad behaviour. This is such an important question because the system has been so crisis-prone, as Larry Summers points out (“This is where Fannie and Freddie step in”, August 27). I think of the underlying game as “seek the sucker”: sucker number one is persuaded to borrow too much; sucker number two is sold the debt created by lending to sucker number one; sucker number three is the taxpayer who rescues the players who became rich from lending to sucker number one and selling to sucker number two.

The most recent game is a particularly creative one. This time the geniuses seem to have created a “lemons crisis”, after the celebrated paper by the Nobel laureate George Akerlof*. Consider the market in used cars. Suppose buyers cannot tell the difference between good cars and bad ones (lemons). They will then offer only an average price for cars. Sellers will withdraw any good cars from the market. This may continue until the market disappears entirely.

What is driving this is “asymmetric information”: buyers believe sellers know more about the quality of what they are selling than they themselves do. This seems to be precisely what has now happened to trading in certain classes of security. The crisis is focused in markets in structured credits and associated derivatives. The cause seems to be rampant uncertainty. Investors have learnt from what happened to US subprime mortgages that these securities may be “weapons of financial mass destruction”, as Warren Buffett warned. With the suckers fled, the markets have frozen. The people who created this kind of stuff distrust both the instruments and their counterparties. This, in turn, has led to the panic purchases of US Treasury bills shown in the chart.

Yet the difficulty is not a lack of general liquidity. Central banks have provided it freely. Some would argue that, in the case of the Fed, with its half a percentage point cut in the discount rate, provision has been too cheap and, in the case of the European Central Bank, provision has been too free. Nor is this a general crisis in lending. Credit spreads have not exploded for corporate or emerging market debt. They have merely become less unreasonable. Market volatility has increased, but not to extraordinary levels.

This then is a crisis in the market for financial lemons. So what should the authorities do about that? My answer is “nothing”. They should, of course, stand ready to provide liquidity to the market, at a penal rate (since insurance should never be free), and also to adjust interest rates to overall macroeconomic conditions. But they should not promote the survival of a market in lemons.

This is why I disagree with the suggestion by Willem Buiter and Anne Sibert, in the FT’s Economists’ Forum, that central banks should now become market-makers of last resort. Central banks could do this only if someone regulated not just the soundness of financial institutions (as now) but also the properties of all the products these institutions invent. Otherwise, the central banks might be forced to buy what they do not understand. They would, instead, be offering a commitment to be buyers of last resort in a market for lemons, thereby subsidising the creation of a market in junk. If central banks were to regulate products, however, they would be running the financial institutions. Ours would become a quasi-nationalised financial system.

Now suppose central banks did, instead, refuse to intervene in the afflicted markets. What would happen? Sellers must turn lemons into apples, pears, strawberries and all the rest. In other words, they must demonstrate the precise properties of what they are trying to offload. Where they cannot do this, they may have to hold securities to maturity. Meanwhile, vulture funds would invest in obtaining requisite knowledge. Losses will also have to be written off. How much of the market in securitised lending would survive this shake-out, I have no idea. But I do not care either. That is for the players to decide, after they realise the consequences of getting it wrong.

Burned children fear the fire. If some of the biggest and most powerful institutions in the world have been playing with fire, they need to feel the burns. It is not the central banks’ job to rescue them by creating a market in the incomprehensible. It is their job to preserve the banking system and the health of the economy. Neither seems now to be in grave danger.

Decisions made in panic are almost always bad ones. Stick to principles and let the masters of the financial system sort themselves out. They are paid enough to do so, after all.

* The Market for “Lemons”, Quarterly Journal of Economics 1970

Send your comments to martin.wolf@ft.com

Shares slip on back of housing data and gloomy Fed minutes

2007-08-29T07:41:00.001-07:00

Shares slip on back of housing data and gloomy Fed minutes
By Eoin Callan in Washington andSaskia Scholtes andAnuj,Gangahar in New York
Copyright The Financial Times Limited 2007
Published: August 29 2007 03:00 | Last updated: August 29 2007 03:00

Fresh turbulence hit markets yesterday as the economic outlook for US households became more clouded and fears about the fallout from the crisis in credit markets drove volatility.

Sentiment darkened after it was revealed that Federal Reserve policymakers had acknowledged that deteriorating financial conditions "might require a policy response" even before it moved to staunch a liquidity crisis by lowering the rate at which it lends to banks.

New figures also suggested an acceleration in house price depreciation while consumer confidence this month suffered its biggest fall since the aftermath of Hurricane Katrina two years ago.

The S&P 500 had its worst day for three weeks, falling about 2.3 per cent while investors fled to the safety of government bonds.

Seth Waugh, head of Deutsche Bank's US unit, said markets were undergoing a "dramatic repricing" but that Fed action to increase liquidity would prevent another seizure in credit markets. "We're at the beginning of the end of the crisis."

The Fed minutes showed it had pared back its forecasts on August 7, before credit market turmoil forced it to intervene on August 17. The open market committee's underlying outlook for the economy remained benign - predicting moderate growth and easing inflation pressures. But the minutes suggest policymakers were more concerned about the risks to growth than their statement at the time revealed.

Bruce Kasman, chief economist at JP Morgan, said: "What the minutes show is that there was an even greater shift in the assessment of risk than [publicly] indicated."

The minutes said that "a further deterioration in financial conditions could not be ruled out and, to the extent such a development could have an adverse effect on growth prospects, might require a policy response".

A shift in tone in the minutes was accompanied by a reduction in the forecast for growth during the second half of this year and next, in part due to tighter lending conditions and softness in some economic indicators.

Many investors and economists said the liquidity crisis since that meeting meant the Fed was likely to cut rates next month.

"Taken together with developments over the past three weeks - these dovish minutes should be seen as increasing the likelihood that the Fed eases 25bp at the September 18 meeting," Mr Kasman said.

The Fed also underlined its worries about the impact of the US housing downturn. A Standard & Poor's survey released yesterday showed home prices fell 3.2 per cent in the second quarter compared to a year ago.

Financial Times Editorial Comment: Gonzales was unfit from the outset

2007-08-29T07:39:00.001-07:00

Financial Times Editorial Comment: Gonzales was unfit from the outset
Copyright The Financial Times Limited 2007
Published: August 28 2007 19:32 | Last updated: August 28 2007 19:32

To call the resignation of Alberto Gonzales as US attorney-general overdue seems barely adequate. From the outset, he was the most delinquent and incompetent holder of that vital office in living memory. Yet to the end, President George W. Bush seemed blithely unaware of Mr Gonzales’ limitations, calling him “a man of integrity, decency and principle” who was “impeded from doing important work as his good name was dragged through the mud for political reasons”. One can only hope Mr Bush was insincere, wishing to show kindness to a humiliated friend. If those remarks really do express the president’s understanding of the matter, his incapacity to learn from mistakes is indeed boundless.

The main criticism to make of Mr Gonzales is not that he put loyalty to the president above his obligations to the constitution. The office of attorney-general calls for a difficult balancing act: the problem of divided loyalties goes with the job. Mr Gonzales’ great failure was in offering his political master not loyalty but blind, sycophantic obedience. He offered no challenge or effective counsel, as the interests of the president and the country both required. As Mr Gonzales reduced his office to that of legal echo-chamber, the administration advanced indefensible claims of unchecked authority over the treatment of detainees, secret domestic surveillance and broader civil liberties. Far from strengthening the presidency and supporting national security, these failed initiatives have undermined both. Mr Gonzales let his beloved president down, as well as the country.

The book is not yet closed: investigations into Mr Gonzales’ conduct will continue despite his resignation. Yet the departing attorney- general does not appear to be an evil man, so much as one who was utterly out of his depth. This was apparent even before his appointment. As White House counsel, he helped draft a 2002 opinion that, among other things, authorised use of torture. Challenged on this during confirmation hearings for his new post in 2005, his testimony was a self-contradictory shambles. His subsequent attempts to explain the sacking of US attorneys – dismissals seemingly motivated by the White House’s desire to prosecute Democrats and build electoral support for Republicans – were even worse.

As Mr Gonzales dug himself ever deeper into a hole of his own making, affront at his conduct gave way to incredulity and even to a measure of sympathy. The man was entirely unfitted to the office. For what happened on his watch, blame the president who appointed him.

Beware attacking Iran’s Guards

2007-08-29T07:37:00.001-07:00

Beware attacking Iran’s Guards
By Ray Takeyh
Copyright The Financial Times Limited 2007
Published: August 28 2007 18:36 | Last updated: August 28 2007 18:36

President George W. Bush’s plan

The 125,000-strong Revolutionary Guards were created in the early 1980s and continue to be commanded by reactionary ideologues who are committed to the values and outlook of the clerical hardliners. Throughout the 1990s, the Guards pressed for suppression of the reform movement.

In recent years, the Guards have steadily intruded into economic activities, establishing their own companies with privileged access to contracts in industries such as telecommunications and imported consumer goods. Through this network, the Guards have enhanced their patronage power, allowing them to cultivate their constituents. More ominously, under the auspices of the Revolutionary Guards an entire array of organisations such as the Defence Industries Organisation, university laboratories and a plethora of companies have provided an impetus for Iran’s expanding nuclear efforts.

In recent years, many members of the Revolutionary Guards have entered the political sphere. President Mahmoud Ahmadi-Nejad and hardline elements within the parliament are among the most prominent guardsmen-turned-politicians. However, it is too facile to suggest that all the guardsmen entering politics have been dogmatic and intransigent. In one of the many paradoxes of Iran, many members of the reform movement and the democratic opposition are also former members of the Revolutionary Guards, making their terrorist label even more problematic.

Beyond the intricacies of Iran’s internal politics, the practical impact of such a terrorist designation on the Revolutionary Guards’ commercial activities will be limited.

To begin with, the US has no trade linkages to Iran that it can sever, and European companies are unlikely to adhere to yet another set of American sanctions. Moreover, given the murky and ambiguous nature of the Revolutionary Guards’ business enterprises, it is difficult to suggest in a conclusive manner whether a company is really operating on their behalf. As such, the type of information and intelligence that is needed for targeted sanctions is unlikely to be available.

While the economic ramifications of the new policy will probably be inadequate, its political impact is likely to be considerable. Past and present Guardsmen permeate Iran’s security network. The staff of Ali Larijani, Iran’s national security adviser and chief nuclear negotiator, is composed mostly of Revolutionary Guards. Iran’s policy toward Iraq and Afghanistan is also under the purview of the Guards.

Despite their attempts to arm and train Iraqi Shia militias and advance Iran’s nuclear programme, the Guards have not opposed negotiations with the US. Indeed, it would be inconceivable for talks on the nuclear issue or Iraq to have proceeded without the Guards’ approbation. The administration’s attempt to coerce and put pressure on this organisation is likely to trigger its antagonism towards further dealings with the US.

The Bush administration has embraced a dual-track approach of coercion and negotiations at the same time, without an appreciation of how one track undermines the other. The offer by Condoleezza Rice, secretary of state, to negotiate with Iran on its nuclear programme and Iraqi security will be subverted when the administration restricts Iran’s access to global financial institutions or designates the entire Revolutionary Guard corps as a terrorist entity.

The tensions and problems between the US and Iran cannot be resolved by episodic diplomacy or sanctions and threats. In the end, the best means of resolving the difficulties between the two states is through comprehensive dialogue encompassing the totality of differences between them. Only through such a framework can the US and Iran arrive at a common perspective on Iraq, the nuclear issue and terrorism.

The writer is a senior fellow at the Council on Foreign Relations and the author of Hidden Iran: Paradox and Power in the Islamic Republic

Obama unveils radical mortgage plan

2007-08-29T07:35:00.000-07:00

Obama unveils radical mortgage plan
By Jeremy Grant and Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: August 28 2007 22:04 | Last updated: August 28 2007 22:04

Unscrupulous lenders who deceptively sold subprime mortgages to millions of Americans should be fined and the proceeds used to help bail out borrowers facing a wave of foreclosures, according to Barack Obama, the Democratic senator running to be his party’s presidential candidate.

The proposal is among the most radical yet from a leading Democrat and comes as Washington tries to respond to a growing wave of foreclosures and a crisis in credit markets.

It also comes amid greater discussion in Washington on whether the mortgage industry – including credit rating agencies involved in rating mortgage-related securities – should be more tightly regulated to prevent a repeat of the crisis.

Writing in today’s Financial Times, Mr Obama blamed lobbyists working on behalf of lenders for obstructing tougher regulation of the subprime industry, adding: “Our government failed to provide the regulatory scrutiny that could have prevented this crisis.

“While predatory lenders were driving low-income families into financial ruin, 10 of the country’s largest mortgage lenders were spending more than $185m (€136m, £92m) lobbying Washington to let them get away with it,” he wrote, citing figures from the Centre for Responsive Politics.

Wall Street banks have also stepped up their lobbying over the issue of subprime lending as their underwriting practices come under scrutiny. It emerged this week that Citigroup paid $160,000 in the first half of this year for lobbying services from Ogilvy Government Relations.

Mr Obama said the government needed to “stop the unlicensed, unregulated, fly-by-night mortgage brokers who are hoodwinking low- income borrowers into loans they can’t afford”.

He added that “Washington needs to stop acting like an industry advocate and start acting like a public advocate”.

Curtailing undue corporate influence on policymaking in Washington is one of Mr Obama’s signature issues.

Mr Obama’s proposal is one of many to have emerged in recent weeks from Democrats as they seek to take advantage of what they see as a potential weakness in the Bush administration’s response to the subprime crisis.

Christopher Dodd, Senate banking committee chairman, and Barney Frank, who heads the House financial services committee, have called on the administration to allow giant mortgage lenders Fannie Mae and Freddie Mac to step in by lifting caps on their mortgage portfolios.

The administration opposes such a move, arguing that Congress must first pass pending legislation reforming how they are overseen. It favours less radical steps such as expanding a loan insurance scheme already operated for decades by the Federal Housing Administration.

Ethan Harris, an economist at Lehman Brothers, said: “There needs to be rationalisation – more centralisation – of how mortgage lending is regulated.”

Disaster leaves behind a tale of two cities/Bush taken to task on New Orleans

2007-08-29T07:31:00.000-07:00

Disaster leaves behind a tale of two cities
By Sheila McNulty in New Orleans
Copyright The Financial Times Limited 2007
Published: August 29 2007 03:00 | Last updated: August 29 2007 03:00

Rachelle Blue snuggles her son, DJ, on an overstuffed sofa in her newly renovated home. Fountains flow into the swimming pool outside the picture window behind her.

It is hard to believe that two years ago Hurricane Katrina forced a wall of water over the nearby levee, leaving 10 feet of water in here for three weeks until the city drained.

But step outside and reminders are everywhere. The once bustling middle-class Lakeview neighbourhood remains mostly empty. Across the street a home is filled with debris untouched since the hurricane.

"What I hate about living here right now is that house; you never know what is going to come out of that house," Ms Blue said. "This is why the neighbourhood is not coming back as fast as it could. You look across the street and it is a reminder."

Such reminders are in every neighbourhood hit hard by the storm.Yet New Orleans's metropolitan area is seven times the size of Manhattan, so not every parish flooded.

Airport passengers are down only 10 per cent, hotel rooms down 17 per cent and restaurants down 23 per cent compared with before Katrina. But the neighbourhoods tell a different story.

"The truth is it's a tale of two cities," said Peter Ricchiuti, assistant dean at Tulane University business school. "The university area and the French Quarter are fine. Six blocks in the other direction it looks like the storm hit yesterday." A five-hour drive reveals streets deserted for block after block.

Some "Stop" signs remain bent to the ground. Every few yards a stairway leads nowhere - the homes having been swept away. Here a gate stands with a mangled house behind it; there, a row of houses with holes hatched through roofs reveal how families escaped as the water reached attics.

The red paint markings by rescue squads who went from house to house after waters receded remain on tens of thousands of homes. One shows three sets - the first by teams who found nothing, and the third revealing the discovery of three bodies trapped in the rafters.

Amid this haunting debris is a rare find - Stewart's Diner, which Kim Stewart opened last year in time for President George W. Bush to visit during his trip to the city. Yet this is not trumpeted, as many hold Mr Bush - and all other levels of government - responsible for the slow assistance.

"I'm not going to put all of the blame on him, just some of the blame," Ms Stewart says. She has yet to get a dime from the government, despite almost $7bn (€5bn, £3.5bn) in federal assistance to rebuild homes, schools and infrastructure. The big-ticket items, such as the stadium and convention centre, have been taken care of, but of the 181,608 who applied for funds to rebuild homes, only 40,433 have closed.

"The biggest issue hindering us is housing," said Mark Drennan, president of GNO, an economic development agency. "There are still tens of thousands of homeowners without the money to fund renovations."

Ms Stewart used savings to reopen her restaurant. Yet only 20 per cent of the neighbourhood around her is repopulated, so business is slow: "We just felt if we made the restaurant, it would encourage somebody else to make a move."

Others have the same idea; a few blocks away a man paints his newly renovated home bright yellow on an otherwise abandoned street.

"This is a citizen-led recovery," said Pamela Pipes.

This week Ms Pipes launched a self-guided tour of Katrina's destruction, but realised people could not follow it with many street signs still missing. She hired a sign painter to make street signs and spent Sunday with a carpenter hanging them up.

Residents know another hurricane could devastate the city again; only 20 per cent of levees are as high as they should be, and the government admits they would not protect against a Category 5 hurricane. Indeed, one levee that has for years stood unfinished because of government infighting about who should fund it.

Nonetheless, some people refuse to give up on the city.

"People are trying to come back and put their houses back together," said Harold Augustine, who mans a volunteer tool-lending and general assistance effort in the Lower Ninth Ward. "They're doing anything and everything to survive. But it will never be the same again."

Bush taken to task on New Orleans
By Edward Luce in Washington
Copyright The Financial Times Limited 2007
Published: August 28 2007 20:32 | Last updated: August 28 2007 20:32

George W. Bush will speak in New Orleans on Wednesday two years after it was devastated by Hurricane Katrina, the second consecutive year the storm has overshadowed the anniversary of the 11 September terrorist attacks.

Mr Bush, whose poor poll ratings date from the aftermath of Hurricane Katrina, which he was widely seen as having mishandled, pledged two years ago to “do what it takes” to rebuild the historic city.

But critics of Mr Bush, who was on vacation in Texas when the storm hit, say the federal government has not fulfilled its promises. Only two-thirds of the city’s pre-Katrina population has returned. Fewer than half of its public schools have reopened and the city has created 17,000 only jobs to replace the 118,000 that were lost, according to the Brookings Institution, which tracks the reconstruction effort.

Mr Bush has also come under fire for failing to appoint a top federal co-ordinator for Gulf coast reconstruction who would report daily to the president. After the storm, Mr Bush asked Karl Rove, his top political adviser, to oversee the rebuilding plans.

But the Bush administration’s effort has come under attack for alleged waste, poor co-ordination and for using “sole bid” contracts for reconstruction projects, many of which remain uncompleted.

“There has been a failure to rebuild every vital public institution that is necessary for civilised society,” James Clyburn, the Democratic majority whip in the House of Representatives, said on Tuesday. Mr Clyburn said that more than 50m gallons of sewage was leaking daily in the New Orleans area.

Mr Bush’s New Orleans visit follows sharply on the heels of most of the 2008 presidential hopefuls – Republicans included. John Edwards, who launched his presidential bid from New Orleans earlier this year, said he would revamp Washington’s federal emergency bureaucracy by placing a “disaster czar” in the White House.

Mr Edwards also pledged that as president he would push through a “Brownie law” – a sardonic reference to Michael Brown, who was head of the Federal Emergency Management Agency when the storm hit. At the time, Mr Bush told the Fema director: “You’re doing a heck of a job, Brownie.”

Mr Edwards’s proposed law would aim to ensure that political appointees to federal agencies are qualified to do the job. Mr Brown had previously been commissioner for the International Arabian Horse Association.

Both Hillary Clinton and Barack Obama, the Democratic frontrunners, issued similar criticisms and plans on their visits to New Orleans. Mike Huckabee, who surprised many by coming second to Mitt Romney in the Iowa Republican straw poll and who is the former governor of Arkansas, which took 75,000 evacuees, also blasted the Bush administration. He said: “We came to believe Fema stood for ‘Forget expecting meaningful answers’.”

NEW BUMPER STICKERS FOR '07

2007-08-28T19:36:00.001-07:00

NEW BUMPER STICKERS FOR '07

Bush: End of an Error
That's OK, I Wasn't Using My Civil Liberties Anyway
Let's Fix Democracy in this Country First
If You Want a Nation Ruled By Religion, Move to Iran
Bush. Like a Rock. Only Dumber
If You Can Read This, You're Not Our President
Of Course It Hurts: You're Getting Screwed by an Elephant
Hey, Bush Supporters: Embarrassed Yet?
George Bush: Creating the Terrorists Our Kids Will Have to Fight
Impeachment: It's Not Just for Blowjobs Anymore
America: One Nation, Under Surveillance
They Call Him "W" So He Can Spell It
Whose God Do You Kill For?
Jail to the Chief!
No, Seriously, Why Did We Invade Iraq?
Bush: God's Way of Proving Intelligent Design is Full Of Crap
Bad President! No Banana
We Need a President Who's Fluent In At Least One Language
We're Making Enemies Faster Than We Can Kill Them
Is It Vietnam Yet?
Bush Doesn't Care About White People, Either
Where Are We Going? And Why Are We In This Handbasket?
You Elected Him. You Deserve Him.
Dubya, Your Dad Shoulda Pulled Out, Too
When Bush Took Office, Gas Was $1.46
Pray For Impeachment
The Republican Party: Our Bridge to the 11th Century
What Part of "Bush Lied" Don't You Understand?
One Nation Under Clod
2004: Embarrassed, 2005: Horrified, 2006: Terrified
Bush Never Exhaled
At Least Nixon Resigned

The Catch-22 of Economics by Robert J. Samuelson

2007-08-28T07:43:00.000-07:00

The Catch-22 of Economics
by Robert J. Samuelson
© 2007 Newsweek, Inc.

Sept. 3, 2007 issue - We are now in the "blame phase" of the economic cycle. As the housing slump deepens and swings in financial markets widen, we've embarked on the usual search for culprits. Who got us into this mess? Our investigations will doubtlessly reveal, as they already have, much wishful thinking and miscalculation. They will also find incompetence, predatory behavior and some criminality. But let me suggest that, though inevitable and necessary, this exercise is also simplistic and deceptive.

It assumes that, absent mistakes and misdeeds, we might remain in a permanent paradise of powerful income and wealth growth. The reality, I think, is that the economy follows its own Catch-22: by taking prosperity for granted, people perversely subvert prosperity. The more we—business managers, investors, consumers—think that economic growth is guaranteed and that risk and uncertainty are receding, the more we act in ways that raise risk, magnify uncertainty and threaten economic growth. Prosperity destabilizes itself.

This is not a new idea. Indeed, it explains why terms like "the business cycle" and "boom and bust" survive. But it gets overlooked in periods of finger-pointing: now, for instance. The housing-collapse and credit fears are undeniable. Someone or something must be held responsible. Here's a rundown of popular suspects:

The Federal Reserve. It allegedly held short-term interest rates too low for too long. From late 2001 to late 2004, the overnight Fed funds rate was 2 percent or less. Credit was supposedly "too easy."

The Chinese. They funneled their huge export surpluses (mostly in dollars) into U.S. Treasury bonds. That kept long-term interest rates low even after the Fed began raising short-term rates in 2004. China's foreign-exchange reserves now exceed $1.3 trillion.

Mortgage bankers. They relaxed lending standards for weak borrowers, leading to high defaults. In 2006, about 90 percent of new "subprime" mortgages had adjustable interest rates. That exposed borrowers to future rate increases—which many now can't afford.

Wall Street. The mortgage bankers got giddy only because they could sell the loans to pension funds, hedge funds and others as mortgage-backed securities (bonds created by bundling loans).

Credit rating agencies: Moody's and Standard & Poor's—which rate the credit-worthiness of bonds—allegedly weren't tough enough on subprime mortgages. That fanned investor appetite.

Lending standards were clearly too lax and rating agencies too uncritical. Still, the rating agencies have downgraded less than 5 percent of 2006 subprime mortgage-backed securities (by dollar volume). This suggests that many investors knowingly bought risky mortgage bonds, thereby inflating the housing bubble. Just why they did this is less clear. Did the Fed foster easy credit for too long? Maybe. But economist Mark Gertler of New York University argues that if this were so, inflation would have exploded. It didn't. From 2003 to 2005, it rose modestly, from 1.9 percent to 3.4 percent.

What seems to have happened was a broad and mistaken reappraisal of risk. Once highly risky bonds were considered much less so. China's appetite for Treasury bonds may account for some of this. It may have lowered interest rates on Treasuries and sent investors scurrying into riskier bonds with higher rates (corporate "junk" bonds, mortgage bonds, and bonds of "emerging market" countries like Brazil). But that can't fully explain the extraordinary drop of interest-rate "spreads"—the gap between rates on riskier bonds and safer Treasuries. In early 2003, junk bonds carried rates eight percentage points above Treasuries; early this year, the gap was less than three percentage points. Somehow, junk bonds were no longer so risky; therefore, it was OK to accept lower rates.

Paradoxically, the fact that the U.S. economy grew in spite of so many daunting obstacles—corporate scandals, 9/11, higher oil prices—may have created a false sense of confidence that it could overcome almost anything. Sophisticated investors and ordinary consumers alike seem to have fallen under the spell of this logic. Believing risks had declined, the first group actually adopted ever-riskier investment strategies—and unknowingly increased financial risk. The second, believing in continuing economic growth and rising home prices, assumed ever-heavier debt burdens—and created potential obstacles to future spending. In 2000, household debt was 103 percent of disposable income; in 2007, it's 136 percent.

Mistakes and misdeeds do not occur in a vacuum. The ultimate culprit here may be irrational exuberance. As economic expansions lengthen, people become more complacent and careless. The very fact that the economy has done well creates conditions in which it may—at least temporarily—do less well. Prosperity inevitably interrupts itself with losses, popped bubbles and recessions. This produces recriminations and promises to do better, but there is always a next time.

Disinvited to the Party - Why Giuliani's candidacy could be a good thing for the GOP.

2007-08-28T07:41:00.000-07:00

Disinvited to the Party - Why Giuliani's candidacy could be a good thing for the GOP.
By Anna Quindlen
© 2007 Newsweek, Inc.

Sept. 3, 2007 issue - One of the complaints you hear a lot from readers when you're in my line of work and live in my part of the country is that you can't understand America from the vantage point of New York City. I'm beginning to think there's some truth to that, and it's all because of the candidacy of Rudy Giuliani.

Ever since the presidency was a mere gleam in his eye, lots of New Yorkers have been predicting that Rudy, like a toddler or a genuine bagel, would not travel well across the country. It wasn't just the quasi-liberal positions on abortion, gay rights and gun control: he could massage those, and sometimes has. It was his private life, which his former constituents have watched with all the avidity of a soaps addict tuning in to "All My Children." There was the annulment from the first wife, who was his second cousin, the press conference he used to inform the second wife that she was history, the girlfriend he met in the cigar bar who became wife number three, and the very public estrangement from his children, both of whom have suggested that they won't be stumping for Dad. To which the candidate recently responded at a town-hall meeting, "Leave my family alone, just like I'll leave your family alone."

This would be a reasonable response were Giuliani not a member of the Republican Party, which in the last three decades has often been less about public policy and more about moral judgment. It wasn't always so. Once the GOP was moderate and secular. But then the '60s arrived. Society divided itself neatly into the button-down and the tie-dyed, and the Republican Party rallied around something called "family values." It's a phrase that has appeared in every party platform since 1976 and is often accompanied by the adjective "traditional," which translated means that if you don't have a stay-at-home mommy, a dominant daddy, some kids, a marriage license and a church membership, you're disinvited to the party.

Combined with the ascendancy of the religious right, which had the distinct political advantage of insisting that even its most uncharitable positions were beamed down from above, what developed was a neat political dichotomy. The Democrats were godless liberals—"contemporary socialism" was how the 1992 GOP platform put it—no matter how often they went to church or voted for war. And the Republicans were the party of old-fashioned values, less constitutional than canonical. Barry Goldwater, once known as Mr. Conservative, decried this shift before he died: Christian conservatives were, he said, "trying to take the Republican Party away from the Republican Party, and make a religious organization out of it."

It took some sleight of hand to reinforce this positioning. You have to give credit to the spin-sters who portrayed Ronald Reagan as a paterfamilias (although he had distant relationships with his children) guided by God (although he scarcely ever went to church). By contrast, while the Clintons were inveterate churchgoers and involved parents, and decided to keep their marriage together after consulting with Billy Graham, it was easy in the wake of the Lewinsky scandal to demonize their personal lives. Bill Clinton alone helped to keep the Republican Church of Moral Certainty alive longer than it might have been, and Hillary Clinton's candidacy has given its fringes a second wind.

But a shift has slowly been brewing. The Republican platform of 1992 had the family-values section at its very beginning; by 2004 it appeared at the end. National security had trumped the wacky emphasis on whether kids can sue their parents. Perhaps in part this was because even Republican families have changed in the last 30 years. The vice president became enraged when he was asked by a reporter about his daughter, a lesbian with a longtime partner, who gave birth to their first child not long ago. Maybe Dick Cheney genuinely thinks there is no conflict between being the standard-bearer of a party that has been hostile to gay rights and the father of a person who might need them. But if you run on family values, both your values and your family will inevitably be subject to scrutiny. Be careful what you wish for: it might get you.

A Giuliani victory wouldn't be a good thing for this country, but his candidacy may wind up being a very good thing for his party. The poll numbers that show him consistently ahead come as a surprise to many of us in the city where he was once mayor—and where he once bunked with a gay couple after leaving his second wife. But perhaps they indicate that the end is nigh for the stranglehold the Leviticus lobby has had on the GOP. All those who joined the Republican Party for smaller government, not fire and brimstone, may be ready to take back the power, to say that health care is more important than creationism, that the disintegration of Social Security is more critical than a ban on gay marriage. Maybe Republicans are finally ready to be members of a political party again, the kind Barry Goldwater could embrace, one that knows the difference between a podium and a pulpit.

Why America's Pullout From Vietnam Worked - The truth behind Bush's mangling of cold war history.

2007-08-28T07:38:00.000-07:00

Why America's Pullout From Vietnam Worked - The truth behind Bush's mangling of cold war history.
By Michael Hirsh
© 2007 Newsweek, Inc.

Updated: 12:10 p.m. CT Aug 23, 2007
Aug. 23, 2007 - The Soviet Union was in its final days of existence when I visited Vietnam in late December of 1991. The cold war was about to end forever with the collapse of one of the two adversaries that had kept it going for 40-odd years. A lot had changed in Vietnam, too, I discovered during my trip. The coziness between Moscow and Hanoi, once comrades within the Soviet bloc, had curdled into mutual hatred. Throughout the country, but especially in the North, the Vietnamese had come to despise the large resident Russian population for its cheap spending habits and arrogance. Visiting Americans, by contrast, were welcomed with smiles (“Russians with dollars,” we were called.) On the day I visited the old U.S. Embassy in Saigon—the where some of those iconic photos symbolizing American defeat were taken—I discovered government workmen removing a plaque that once commemorated the North’s victory over the “U.S. imperialists.” In the waning days of that epochal year, 1991, the propaganda against American involvement in Southeast Asia was suddenly no longer politically correct. Hanoi’s new message: Yankee Come Back (and bring your investment dollars). Today Vietnam remains nominally communist, but Hanoi knows it is an ideological relic surrounded by Asian capitalist tigers, all of them U.S. allies or dependents (one reason Vietnam was so eager to have Bush visit last November: it wants to be part of that club). The cold war dominoes did fall—but the opposite way.

This was the “harsh” aftermath that George W. Bush attempted to describe this week when he warned against pulling out of Iraq as we did in Vietnam. His remarks to the Veterans of Foreign Wars convention in Kansas City on Wednesday were an abuse of historical fact—no surprise, perhaps, coming from a president who is just now catching up with the Political Science 101 reading he shrugged off at Yale. Yes, a lot of Vietnamese boat people died on the high seas; but many others have returned to visit in the ensuing years. Above all, we have learned that Vietnam and Southeast Asia were never really central fronts in the cold war (although Korea at the time of the outbreak of war in 1950, when Beijing still kowtowed to Moscow and before the Soviet Union and China split, might have fit that bill). The decision to pull out had very little effect on the ultimate outcome. America triumphed in the cold war because it had the right kind of economy—an open one—compared to Moscow and Beijing, and its ideas about freedom were more attractive to the states within the Soviet bloc than their own failed ideas were.

The president would like to make the argument that Iraq is about the same struggle. It’s not, for several important reasons. In contrast to the Soviet and Chinese communists, or for that matter the fascists of the 1930s and '40s, Al Qaeda and its ilk have no universalist program, no persuasive alternative ideology to globalization and some brand of democracy. They are nihilists, and they have failed to capture half the world’s attention as communism and socialism once did. So, yes, while a U.S. pullout would no doubt inspire a great deal of Al Qaeda propaganda about how they succeeded in forcing the Americans to withdraw from Iraq as they forced the Soviets to do in Afghanistan, the majority of the world’s elites won’t buy it. And the truth is, the slow bleed of America’s might and prestige on the streets of Iraq makes for a far more compelling picture of U.S. weakness than any Al Qaeda propaganda could ever do. If we leave, Al Qaeda will rant triumphantly on the Web sites and perhaps win more adherents, but that won’t get them any closer to “victory” over us than they are now.

We need to face facts. The problem of Iraq has very little to do with “the terrorists” whom Bush vaguely refers to in speech after speech. The problem of Iraq is that four years of a botched bloody occupation have created a failed state defined by fear, sectarian slaughter and the flight of Iraq’s educated class. Iraq is being held together by just one thing now: American glue, the glue of U.S. troops on the ground. The noises you hear now about the ineffectiveness of the government of Prime Minister Nuri al-Maliki are merely the sound of an approaching collapse long in the making. The only really appropriate analogy to Vietnam is that Bush’s policy of Iraqification—handing over things to the Iraqis—is far too similar to Vietnamization. Like the South Vietnamese government, the Iraqi politicians hunkered down in the Green Zone have little legitimacy any longer. Whatever authority they gained in the January 2005 elections has long since been frittered away and overtaken by the sectarian power struggle that is the governing reality on the ground. This power struggle is the reason why the Parliament is hopelessly paralyzed and why Maliki has almost no freedom of action. As a loyal Shiite of the Dawa Party, he is and will remain incapable of defying the new consensus among his sect for Shiite dominance. So powerful are these centrifugal forces pulling Iraq apart that the Iraqi Army seems to be disintegrating faster than it can be trained up. As seven soldiers of the 82nd Airborne Division wrote in The New York Times on Aug. 19: “Reports that a majority of Iraqi Army commanders are now reliable partners can be considered only misleading rhetoric. The truth is that battalion commanders, even if well meaning, have little to no influence over the thousands of obstinate men under them, in an incoherent chain of command, who are really loyal only to their militias.”

Iraq will have to sort out these problems itself. There needs to be dramatic scaling back of the U.S. presence so that U.S. attention and resources can turn to the real terrorists. Most of them are still outside Iraq, especially in Pakistan and Afghanistan, where the whole thing started and where the “war on terror” should have always been focused. Even some very smart people don’t seem to understand that Bush’s larger idea of a “war on terror” has always been a fraudulent concept ginned up to justify his invasion of Iraq by broadening the enemy beyond the handful of Afghanistan-based bad guys who attacked us on 9/11. Mark Lilla, the Columbia University professor whose forthcoming book, "The Stillborn God," was excerpted in The New York Times Magazine last Sunday, is so intimidated by the threat of Islamism that he argues, nonsensically, that the separation of religion and politics achieved in the West is the exception rather than the rule in the world today. Lilla writes: “A little more than two centuries ago we began to believe that the West was on a one-way track toward modern secular democracy and that other societies, once placed on that track, would inevitably follow. Though this has not happened, we still maintain our implicit faith in a modernizing process and blame delays on extenuating circumstances like poverty or colonialism.”

This is a misreading of history almost as profound as Bush’s. In fact this process has happened. It’s called globalization. Yes, there are some pretty large parts of the globe that haven't experienced it much yet: much of the Islamic world—let’s narrow that to certain Islamist and Arab countries like Saudi Arabia and Iran—and most of Africa. But in every other developed or developing part of the globe—the Americas, Europe, most of Asia, even Putin-controlled Russia—this Western-engendered system in which secularism eclipses religion in politics and governance has been accepted. (In fact, when it comes to mixing religion and politics, the most backsliding we've seen in the developed world in recent years has been right here in the United States, with the rise of the evangelical right). Even if we were to vastly oversimplify the terms of the conflict, we’d have to conclude it’s the 4 or 5 billion (give or take a few hundred million) of the international community versus 1 billion or so Muslims. And thanks to this process, we of the majority—the international community—are still winning. Just ask that dwindling band of communists in Hanoi.

The Love That Will Finally Speak Its Name - It took the death of my dear life partner for me to find the courage to come out of the closet.

2007-08-28T07:26:00.000-07:00

The Love That Will Finally Speak Its Name - It took the death of my dear life partner for me to find the courage to come out of the closet.

Amanda Friedman for Newsweek - Out and Proud: Why am I now able to speak the unspoken? For heaven's sake, I'm 88 years old. No one can fire me.
By Loraine Barr
© 2007 Newsweek, Inc.

Sept. 3, 2007 issue - I was born at a time when to have romantic feelings for another woman was known as "the love that dare not speak its name." I first read Radclyffe Hall's "The Well of Loneliness" around 1938, in my impressionable teens. The book was a heartfelt cry for understanding and acceptance of the "invert." Now we say "gay" and "lesbian," and nobody faints, although we still lack the same rights as other citizens. In how many ways have attitudes changed? And how have they not?

When I went to college in the 1940s, the sex books were kept under lock and key in the UCLA library. I was too embarrassed to ask for permission to borrow those books.

Seeking enlightenment, I looked at young women walking around the campus engrossed in one another, and I thought, "Well, at least they have each other."

I did not realize that even I was judging them, while perhaps envying them. I was dating men regularly and enjoyed being thought popular. Nevertheless, when I came home after each date, said "Goodnight" and closed the door, I usually breathed a sigh of relief.

One eligible young man said, on leaving, "We'll get together soon." I said, "All right, but be sure to warn me."

"Warn you!" he exploded, slamming the door as he left.

And then I met a woman: a teacher on campus, who helped me see beauty in the whole world. At 28, for the first time, I was loved and knew love, for myself, for the person I really was.

But while glorying in my never-before-experienced happiness, I knew it had to be hidden. She was married. Often, the only way to see her was with her husband. I was also dating her brother, and we all would sometimes go dancing.

That relationship ended after a few years, when my loved one's husband intervened. I didn't see her until years later, when I stood in line at her book signing at USC. She was alone, cordial; she asked about my mother. But no, she couldn't join me for coffee afterward.

Now I write this after living for 44 years with the most loved and loving, giving, understanding and delightful partner imaginable. For all our time together, we were "in the closet."

For so long, if you were a known homosexual you could lose your job. We kept our relationship from our families—or at least we thought we did. After my partner died, her son told me that her family knew about us, but kept our secret because they believed our relationship was our own business.

But our silence for all those years was also partially a self-induced caution. Looking back, I think it's possible that as the world changed, we didn't change fast enough.

We knew a few other lesbian couples, and we were comfortable around them. But most of our friends were straight, so we had separate bedrooms to make it seem as though we were just roommates. On one occasion, when my partner and I were with cherished, straight friends, just the four of us after a satisfying dinner, sitting quietly in our living room, I thought how liberating it would be for us to tell our friends of our relationship. They must have seen it coming, for they quickly changed the subject. We four remained warmhearted friends, but we two never again tried to enlighten them or any others.

I never spoke about my sexual orientation with my mother, but she also must have known. When she died, the last thing she said to me was, "I never understood your way of life, but I do now." I didn't reply.

Finally, after almost nine years since my beloved partner's death, I am able to do what I could never have braved in earlier years: pre-sent myself herewith to the world as a lesbian, along with all the women who ask to be judged by the full facet of our characters.

Why am I now able to speak the unspoken? A friend at the retirement community where I live recently came out in the local and national newspapers. When I saw her do that, I thought, for heaven's sake, nobody can fire me, I'm 88 years old, my parents are gone.

Still, I was frightened. It took me several days to put this essay in the mailbox. I owe a lot of credit to people who are comfortable enough in their own skins to say, "This is who I am."

Shall I be haunted for trying to tell my story now, when many might still not wish to address it, or shall I, perhaps, be congratulated?

Chicago Sun-Times Editorial - Silly farce is shaming our state/Blagojevich sues Madigan - Speaker's aide calls filing 'a farce'

2007-08-28T04:37:00.000-07:00

Chicago Sun-Times Editorial - Silly farce is shaming our state
Copyright by The Chicago Sun-Times
August 29, 2007

Just when we thought state government couldn't get any more dysfunctional, along comes the farcical lawsuit that Gov. Blagojevich filed against his nemesis, House Speaker Michael Madigan. As Sen. Dick Durbin told us Tuesday, the situation between Democratic leaders in Springfield has "clearly reached the point where it's an embarrassment."
Blagojevich sued Madigan last week because Madigan didn't convene special sessions when the governor ordered him to and then started to ignore the sessions entirely. We might agree that Madigan was being irresponsible -- if the governor wasn't abusing his power to call the meetings. They should be used in the case of genuine emergencies, when the Legislature isn't already in session. They shouldn't be used for showboating, or to harass lawmakers, or as a replacement for working with legislative leaders.

That's what Blagojevich has used them for. He's called 16 special sessions on this or that issue so far this year, one less than 2004, when he also was engaged in a battle with lawmakers over the budget. He accounts for nearly half of the 67 special sessions called by governors since the state's 1970 Constitution was adopted.

That constitution gives him the authority to call for the special meetings to discuss a specific topic, but it doesn't clearly say the governor may set the date and time. It would probably be a good thing to settle that issue. But that will do nothing to settle the underlying problem -- that Blagojevich was ordering lawmakers to show up when there was nothing for them to do, often on weekends. For instance, he called a special session to address CTA funding on August 13. He offered no bill of his own, but he did threaten to veto the only realistic proposal on the table, an increase in the regional mass transit sales tax.

This is not a constitutional crisis, as the governor claims. It's a crisis of our leadership, and no court in the world can sort that out.

Blagojevich sues Madigan - SPECIAL SESSIONS | Speaker's aide calls filing 'a farce'
BY WHITNEY WOODWARD Sun-Times Springfield Bureau wwoodward@suntimes.com
Copyright by The Chicago Sun-times
August 28, 2007

SPRINGFIELD -- Taking his disdain of House Speaker Michael Madigan to a new arena, Gov. Blagojevich is suing the top House Democrat over who has the power to schedule when lawmakers meet in Springfield.
The lawsuit, quietly filed by Blagojevich's office Friday but announced Monday, claims that the governor's power to call special legislative sessions is being "eviscerated" by Madigan, who repeatedly ignored the times set by Blagojevich and encouraged members to stay home.

A top aide to Madigan ridiculed the filing and said the speaker's office will file a motion to dismiss the suit.

The state constitution gives the governor the authority to call the General Assembly into special legislative session to discuss a specific topic, but is silent on the issue of timing.

The Sangamon County lawsuit asks for a declaration that the speaker cannot disregard the dates and times a governor sets.

"Under Madigan's interpretation of the constitution and the Special Sessions Act, in theory, Madigan would possess the unilateral authority to wait 10 years, if he so chooses, to convene a special session proclaimed by the governor for tomorrow," the lawsuit states.

The House and the Senate did not conduct any substantial business during the 16 special sessions Blagojevich ordered this summer.

Madigan spokesman Steve Brown derided Blagojevich for exploiting the purpose of the original intent of special sessions: to deal with emergencies. Brown noted that the House had met every day -- although not necessarily at the specific time -- that Blagojevich had ordered.

"He's making a farce of the special session process," Brown said.

Chicago Tribune Editorial - The damage at Justice/Goodbye and good riddance - D.C. | Attorney general quits and even Republicans glad

2007-08-28T04:32:00.000-07:00

Chicago Tribune Editorial - The damage at Justice
Copyright © 2007, Chicago Tribune
August 28, 2007
:

President Bush has done a lousy job of picking attorneys general. His first, John Ashcroft, was a grandstanding ideologue who demonized his critics by saying their efforts "only aid terrorists." His second, Alberto Gonzales, was a longtime Texas pal of the president who saw his role as toadying to the White House.

With Gonzales' departure, is it too much to hope that this time the president will choose someone who can regain the trust Americans are entitled to have in a department that is supposed to stand for justice?

It's been a long time since the country has had an attorney general who could inspire real pride. But you have to go back to the Watergate scandal to find one who has done as much as Gonzales to damage public confidence.

His dismissal of eight U.S. attorneys last year raised suspicions that they were sacked for failing to advance the interests of the Republican Party -- mostly by refusing to pursue investigations of political corruption against Democrats. Congressional hearings provided a good deal of evidence to support the suspicions.

Among the most damning witnesses was the attorney general, who was repeatedly unable to give a plausible explanation of why these prosecutors had to go. So embarrassing was his performance that even some Bush allies in the Senate threw up their hands in disgust.

But Gonzales was less the cause of the problem than a symptom of a deeper ill: the administration's unwillingness to recognize that the attorney general has to put the interests of the citizenry above the interests of his president or party. To politicize law enforcement is to risk forfeiting the public's basic faith in our system of government, by suggesting that prosecutions are just a matter of who's got power.

Former Deputy Atty. Gen. James Comey, who served under both Ashcroft and Gonzales, was asked by one committee about claims that even career prosecutors, who are supposed to be chosen without regard for political affiliations, were subject to partisan litmus tests. If that was going on, he replied, it "deprives the department of its lifeblood, which is the ability to stand up and have juries of all stripes believe what you say, and have sheriffs and judges and jailers -- the people we deal with -- trust the Department of Justice."

Comey is the sort of person who could help rebuild the department's ethos as well as its reputation, but his unwillingness to automatically defend the administration has alienated the White House. Independence, however, is a trait desperately needed in the next attorney general.

When Gonzales was named to succeed Ashcroft in 2004, this page said it would "be his task to restore the trust and prestige of an office that his predecessor did so much to injure." Instead, Gonzales damaged it further.

The president ought to have learned from this experience. When he chooses a new attorney general, it should be someone who commands respect across party lines for ability, integrity, a level head and devotion to the good of the country. It's his third chance.

Goodbye and good riddance - D.C. | Attorney general quits and even Republicans glad
BY DAVID ESPO
Copyright by The Associated Press
August 28, 2007

WASHINGTON -- Attorney General Alberto Gonzales' resignation Monday after months of draining controversy drew expressions of relief from Republicans and a vow from Democrats to pursue their investigation into fired federal prosecutors.

President Bush, Gonzales' most dogged defender, told reporters he had accepted the resignation reluctantly. ''His good name was dragged through the mud for political reasons,'' Bush said.

The president named Paul Clement, the solicitor general, as a temporary replacement. With less than 18 months remaining in office, there was no indication when Bush would name a successor -- or how quickly or easily the Senate might confirm one.

Apart from the president, there were few Republican expressions of regret following the departure of the nation's first Hispanic attorney general, a man once hailed as the embodiment of the American Dream.
''Our country needs a credible, effective attorney general who can work with Congress on critical issues,'' said GOP Sen. John Sununu of New Hampshire. ''Alberto Gonzales' resignation will finally allow a new attorney general to take on this task.''

Democrats were less charitable.

''I have long believed that Alberto Gonzales subverted justice to promote a political agenda," Illinois Sen. Barack Obama said.

Gonzales made a brief appearance before reporters at the Justice Department to announce his resignation. ''Even my worst days as attorney general have been better than my father's best days,'' said the son of migrants.

One of the controversies dogging Gonzales has been the firings of eight Justice Department prosecutors whom Democrats say were axed for political reasons.

City disconnecting from Wi-Fi vision

2007-08-28T04:28:00.000-07:00

City disconnecting from Wi-Fi vision
By Jon Van
Copyright © 2007, Chicago Tribune
August 28, 2007

Chicago is curtailing its digital dreams, deciding to back away from municipal Wi-Fi service after failing to reach agreement with either of two companies that sought to build a wireless Internet network in the city.

The move comes as municipal broadband wireless projects around the country face difficulties, and EarthLink Inc., a major player in the field, is re-evaluating its future in municipal Wi-Fi.

As envisioned in early 2006, Chicago was expected to become one of the first big cities in the country to blanket its streets and neighborhoods with a wireless Internet signal that would allow residents access to the Web in their homes and wherever they traveled in the city.

But technology is advancing and the cost of online access for consumers is declining so dramatically that Chicago has other avenues to promote more use of the Internet. As a result, the Wi-Fi deal lost luster when negotiations bogged down, according to sources close to the matter.

Chicago officials had intended that the city would offer infrastructure, but no cash, to a carrier that would use its own funds to build the network here. EarthLink and AT&T Inc. submitted proposals to the city, but after months of negotiations the parties were unable to reach agreement.

The companies sought a commitment from Chicago to be an "anchor tenant," agreeing to pay to use the Wi-Fi network to support city services, but the city declined.

Taking its proposal request off the table for re-evaluation "is entirely appropriate for the city," said Tom Hulsebosch, vice president of municipal sales for EarthLink. "We're seeing this evolve as we learn more about these networks, and the city needs to think about this again from its own business perspective."

It might be possible for the city to spend money on Wi-Fi services that it now spends on other communications, he said, but that would require rethinking the budget.

A few years ago when San Francisco, Philadelphia, Houston and other cities jumped into Wi-Fi, officials thought paying less than $20 a month to get a high-speed Internet connection anywhere in the city would find a lot of takers. They also thought advertising could support citywide free connections.

Results on both scores have been generally disappointing. In Lompoc, Calif., which activated its $2 million Wi-Fi network almost a year ago, the city signed up fewer than 500 users out of a population of more than 40,000.

"There's a serious dose of reality, much needed, that has come into play after all the hype last year about free, ad-driven Wi-Fi," said Craig Settles, a wireless business strategist and consultant based in Oakland.

The most successful municipal Wi-Fi networks are those devoted to improving public safety and other city services, Settles said. Helping less-affluent residents get fast Internet access also can be a goal, he said, but it requires much more than just firing up a wireless network. Getting computers and training for the poor is a greater challenge, he said.

"We think that municipal services and public safety are at the sweet spot for a Wi-Fi network," said Blair Klein, a Chicago-based spokeswoman for the company. She said anchor tenancy has been a key point for the company in all its discussions of municipal Wi-Fi.

A primary goal of Chicago's request for proposals to build a wireless network was to assure that all city residents had high-speed Internet access at affordable prices. Municipal Wi-Fi was one aspect of that goal, but getting hardware, software and training to city residents is also necessary, said a city official, who spoke on condition of anonymity because an official announcement is not scheduled until Tuesday.

The city already provides free Internet access at 79 public libraries and at public spaces like Millennium Park and Daley Plaza and will seek other ways to expand access, he said.

A Wi-Fi network intrigued Chicago as a low-cost method of blasting an Internet signal across the city. The system would deploy radio equipment mounted on light poles and would cover 220 square miles of territory. Industry sources have estimated that it could cost as much as $50 million to install the infrastructure and perhaps an additional $150 million to operate the system for six years.

Chicago never intended to be a leader in municipal Wi-Fi, said a city official, preferring instead to watch what happened in other cities and learn from that. Some of what's happening isn't pretty.

In San Francisco, bickering among elected officials has stalled progress for months. In Houston, where the city council approved a contract with EarthLink last spring, work on the project has yet to start.

As municipal wireless projects have hit one snag after another, prices for wired Internet have fallen. AT&T charges $20 a month for speeds of 1.5 megabits a second in Chicago and will provide connections half that fast for $10 to new subscribers, although more than 10 percent of residences in the metropolitan area cannot get digital subscriber line service because they are located too far from AT&T's switching centers.

Even if Chicago declines to back a municipal wireless network, city residents soon will gain more Internet connection options. Sprint Nextel Corp. is building a wireless WiMax network here that is due to offer service next spring. WiMax is a technologic cousin to Wi-Fi intended to cover miles of territory with a wireless Internet signal via radio spectrum, whereas Wi-Fi transmits hundreds of feet per transmitter.

Another new wireless network may be built in 2009 after a portion of spectrum now used for analog television broadcasts becomes available for Internet connections.

- - -

Stuck on the ground

Municipal wireless projects have faced problems across the country:

*In San Francisco, progress has been stalled for months as elected officials bicker.

*In Houston, the city signed a contract with EarthLink in the spring, but work has yet to start.

*In Lompoc, Calif., the city has signed up fewer than 500 users out of a population of more than 40,000.

----------

jvan@tribune.com

Republicans’ terrifying jockeying

2007-08-28T04:26:00.001-07:00

Republicans’ terrifying jockeying
By Edward Luce
Copyright The Financial Times Limited 2007
Published: August 27 2007 19:20 | Last updated: August 27 2007 19:20

Last week Hillary Clinton provoked howls of protest from her Democratic rivals when she suggested that she would be the best candidate to blunt any Republican response to a terrorist attack prior to the 2008 election.

Another incident would “automatically give the Republicans an advantage again no matter how much more dangerous they have made the world,” she said. “I’m the best of the Democrats to deal with that.” Mrs Clinton’s rivals understandably chose only to respond to her self-serving conclusion, albeit with cinematic outrage (“Why, you low-down, scheming, good-for-nothing ... ” or words to that effect). But her premise was hard to dispute.

Much has been made of the Bush administration’s ability to harness the post-September 11 trauma for partisan gain. Among the dozen or so homegrown plots the Federal Bureau of Investigation has uncovered since 2001, few, if any, were close to execution. Many were sting operations. But in each instance the White House linked the plot to a broader narrative that paints the Democratic party as half-hearted in its willingness to prosecute the “war on terror”. Secretaries of homeland security have also proved adept at raising terror alerts from yellow to orange and sometimes red at sensitive moments in the electoral calendar.

Leaving aside the “cry wolf” dangers of such an approach, the Bush administration’s rhetorical methods are subtle compared with the blood and guts vocabulary of the 2008 Republican candidates.

Given that the Democrats enjoy possibly unassailable opinion poll leads on virtually every domestic issue, it is no surprise that national security dominates much of the Republican message. But that does not excuse their largely fictional portrayal of the Democrats as being oblivious to the threat of terrorism and weak on national defence.

All of the leading Democratic candidates, including Barack Obama and John Edwards, have pledged large expansions in the US military both in terms of budgets and personnel. None has ruled out the military option against Iran. All would spend billions shoring up domestic homeland security.

The leading Republican candidates have apparently missed such pronouncements. “They [the Democrats] don’t think there’s a war on terror,” Mitt Romney, running third among the Republicans, said recently. At the same forum, Rudy Giuliani said: “The Republican party can unite around an offence against terrorism – unlike the Democrats, who are on defence against terrorism. They can’t even utter the words ‘Islamic terrorism’.” Mr Giuliani’s usual term is “Islamic fascism” – a variation on the “Islamofascism” that some of the other candidates use.

Meanwhile, Fred Thompson, who is likely to declare his candidacy in the next two weeks, argues that America is in denial about global terrorism. Of the four frontrunners, John McCain is probably the most circumspect. The most unrelenting is Mr Giuliani, who for the past seven months has led the Republican field. Almost no one in mainstream politics denies the US faces a serious threat from Islamist terrorist groups. But there are critical differences over how best to deal with it. The Giuliani school starts on the premise of a multi-generation war in which Americans will never sleep safely in their beds.

At a recent campaign stop the former mayor of New York took strident issue with an elderly questioner who asked whether he might be overstating things after he remarked that Islamic terrorism would “threaten your grandchildren and your grandchildren’s grandchildren” (which adds up to about a century).

Because of the importance of moral issues among Republican primary voters, Mr Giuliani is portrayed as a moderate. That might summarise his views on the right to choose, gay civil union and gun control compared with the rest of the field. But on national security Mr Giuliani sets the Republican tone and it is unremittingly hawkish. In an article in the current issue of Foreign Affairs, he sketches out a world view that would put most neo-conservatives in the shade (Norman Podhoretz, one of the most hardline neo-conservatives, is an adviser). The world he describes is a bleak place in which America is still in the early stages of confronting “radical Islamic fascism” and other forces that aim to “destroy the existing international system”.

President Giuliani would inherit a global fight to the finish. That struggle would encompass Iran, against which Mr Giuliani has repeatedly declined to rule out the use of “bunker-busting” tactical nuclear weapons to reach its underground laboratories. Given the “multifaceted” threats it confronts, the US must urgently rebuild its military – adding at least 10 new combat brigades. It must install a national missile defence system to keep out foreign ballistic threats and create a “technological and intelligence shield that is effective against all delivery methods”.

In President Giuliani’s world there would be little place for the niceties of global institutions. Rather than rebuilding the United Nations, Mr Giuliani sees it as “irrelevant to almost every major dispute of the last 50 years”. The UN could be useful for “some humanitarian and peacekeeping functions, but we should not expect much more of it”.

Instead, Mr Giuliani would open up Nato to global membership and fuse US civil and military capabilities to create a nation-building corps that would be carved up along continental lines. Mr Giuliani’s America would recalibrate at every level to respond to the multiple threats it faces.

It is not a message of optimism. Nor is it one that addresses the legitimate fears that much of the world harbours towards an overweening America. Quite the reverse. For Mr Giuliani, neo-conservatism failed because it was not tried enough, not because it was tried too much.

“At the core of all Americans is the belief that all human beings have certain inalienable rights that proceed from God but must be protected by the state,” he writes. “Americans believe that to the extent that nations recognise those rights within their own laws and customs peace with them is achievable [italics added].”

The events of September 11 catapulted Mr Giuliani to national stardom (though there are questions about what he did following the World Trade Center attacks to merit such adulation). The more nervous Americans feel, the better Mr Giuliani’s prospects will become and the more nervous everyone else should be. As the saying goes, people with hammers tend to look for nails.

Send your comments to edward.luce@ft.com

Credit-card defaults on rise in US

2007-08-28T04:23:00.000-07:00

Credit-card defaults on rise in US
By Saskia Scholtes in New York
Copyright The Financial Times Limited 2007
Published: August 27 2007 19:02 | Last updated: August 27 2007 19:02

US consumers are defaulting on credit-card payments at a significantly higher rate than last year, raising the prospect of problems in the stricken US subprime mortgage market spreading to other types of consumer debt.

Credit-card companies were forced to write off 4.58 per cent of payments as uncollectable in the first half of 2007, almost 30 per cent higher year-on-year. Late payments also rose, and the quarterly payment rate – a measure of cardholders’ willingness and ability to repay their debt – fell for the first time in more than four years.

Analysts at Moody’s, the rating agency, said the trend could be related to the slowdown in the US property market and a fall in the number of borrowers rolling their mortgage debt into new and cheaper home loans.

“The combination of higher interest rates and a softer real estate market diminished the attractiveness of mortgage refinancings in which many borrowers reduced their more expensive credit-card debt by drawing on the equity in their home,” Moody’s said.

But it is not clear that the borrowers defaulting on their credit cards are the same people defaulting on their subprime mortgages, it added. This is in part because underwriting standards in the credit-card sector have been more robust than in the mortgage industry. Also, many highly leveraged subprime borrowers, with little or no equity in their homes, may choose to default on a mortgage before risking being unable to charge everyday necessities to their credit card.

But Moody’s said the rate of losses remained well below the 6.29 per cent average seen in 2004, a year before the US enacted a new law that made filing for personal bankruptcy more onerous.

The law led to a surge in individual filings and related credit card losses in 2005 as cash-strapped borrowers filed for bankruptcy before the rules came into effect.

Recent increases in credit card losses can in part be ascribed to a steady rise in personal bankruptcy filings since 2005. According to the Administrative Office of the US Courts, quarterly non-business bankruptcy filings have been rising since the first quarter of 2006.

Scott Hoyt, economist at Moody’s Economy.com said: “Consumer credit quality will continue to deteriorate as debt burdens and financial obligations rise, house prices continue to fall, credit standards are tightened, labour markets loosen modestly, and gasoline and other energy prices remain high.”

Gonzales succumbs to ‘toxic’ tide - Announcenent of his service comes in much the same way that he provided it – without divulging any information

2007-08-28T04:15:00.000-07:00

Gonzales succumbs to ‘toxic’ tide - Alberto Gonzales announced the end of his service to the Bush administration in much the same way that he provided it – without divulging any information
By Edward Luce and Demetri Sevastopulo in Washington
Copyright The Financial Times Limited 2007
Published: August 27 2007 19:08 | Last updated: August 27 2007 19:08

Alberto Gonzales announced the end of his service to the Bush administration on Monday in much the same way that he provided it – without divulging any further information. The man who said “I don’t recall” or “I have no recollection” more than 100 times in testimony to Congress this year will go down as one of the most secretive cabinet officers in modern US history.

An intensely loyal “Bushie”, Mr Gonzales will also be seen as America’s most partisan attorney-general since John Mitchell, Richard Nixon’s senior law officer, who resigned in 1972.

A close friend of George W. Bush before he became governor of Texas in 1994, Mr Gonzales was appointed as a White House counsel when Mr Bush took office in January 2001. He became attorney-general in 2005 after the retirement of John Ashcroft.

“As attorney-general, Alberto Gonzales’ first duty was to serve the constitution and uphold the law of the land but he continued to behave as though he were Mr Bush’s personal lawyer,” said Carl Tobias, a professor of constitutional law. “It is hard to think of any single figure who has done as much as Gonzales to politicise the Department of Justice or who saw the law in such a political light.”

Monday’s resignation will bring into greater focus Mr Bush’s tendency to place loyalty above all other qualities among those who surround him. Just three weeks ago the president said he had full confidence in Mr Gonzales in spite of the fact that the attorney-general’s sworn testimony to Congress had been directly contradicted by Robert Mueller, head of the FBI.

Mr Gonzales had denied that as White House counsel he had visited Mr Ashcroft on his sick bed in hospital in 2004 to press the then attorney-general to sign off on the renewal of the president’s still secret – and allegedly unconstitutional – expansion of wire-tapping authority. Mr Gonzales’ account was also contradicted in testimony to Congress this year by Jim Comey, who had accompanied Mr Gonzales on the 2004 hospital visit as acting attorney-general.

By sticking with Mr Gonzales in spite of growing calls from Republican as well as Democratic senators for his removal, many believed that Mr Bush was ultimately seeking to protect Karl Rove, his senior political adviser, who Democrats believed was the prime mover behind a separate controversy over the allegedly political sacking of nine federal prosecutors last year.

But Mr Rove’s resignation this month and the fact that Mr Gonzales’ remaining 17 months as attorney-general were likely to be dominated by continuing congressional investigations left Mr Bush little choice but to accept his resignation. A number of lawmakers had also joined calls to impeach Mr Gonzales in a tide that Tony Snow, the White House spokesman, described as “the race to be most toxic”.

“They said that Karl Rove was leaving town before the sheriff arrived and the same might be doubly true of Alberto Gonzales,” said Robert Dallek, a presidential historian. “People will be looking through the official records for many years to ferret out just how deep the political corruption went during his time at justice.”

But it was Mr Gonzales’ role as White House counsel in Mr Bush’s first term that will prove more controversial. After the September 11 terrorist attacks, he played a central role in helping to expand the powers of the presidency.

Among other initiatives Mr Gonzales helped frame the legal justification for extending the White House’s “executive privilege” to permit the detention of suspects without trial, to eavesdrop on conversations without judicial warrant, to circumvent the Geneva conventions on torture (which Mr Gonzales described as “quaint”) and to establish the detention facility at Guantánamo Bay.

A number of senior officials, including Robert Gates, the secretary of defence, and Condoleezza Rice, the secretary of state, have been arguing for the closure of Guantánamo. Mr Gonzales was thought to have been an ally of Dick Cheney, the vice-president, in arguing against it. His departure could strengthen the hand of those pushing for its closure.

Attention will now focus on whom Mr Bush will nominate to replace Mr Gonzales and how the Democratic Congress will treat the nominee. Paul Clement, the solicitor-general, will be acting attorney-general until then. “If Bush wants to avoid controversy he can keep Clement in place indefinitely,” said Mr Tobias.

Mr Gonzales will bequeath a Justice Department shorn of almost its entire upper echelon. The top three positions – of attorney-general, deputy attorney-general and associate attorney-general – are vacant. It is thought likely that both Mr Gonzales and Mr Rove will continue to cite “executive privilege” in refusing to testify on sensitive matters to Congress, whose investigation will continue.

Timeline: Bush loyalist
Nov 1994 Alberto Gonzales leaves private legal practice to serve as general counsel to George W. Bush as governor of Texas. Bush later appoints him secretary of state and, in 1999, a justice of the Texas Supreme Court

Jan 2001 Gonzales appointed as White House counsel. Following the September 11 terrorist attacks, Gonzales becomes an architect of the legal framework surrounding detainees held in Guantánamo Bay

Feb 2005 Takes over from John Ashcroft as attorney-general, the first Hispanic in the post

Jun 2007 Narrowly avoids a vote of no-confidence in the Senate. Gonzales had faced calls for his resignation following charges that he had improperly dismissed nine district attorneys on political grounds

GOP Senator Pleaded Guilty After Restroom Arrest - Idaho's Craig Denies 'Inappropriate Conduct,' Says He Regrets Entering Plea

2007-08-28T03:58:00.000-07:00

GOP Senator Pleaded Guilty After Restroom Arrest - Idaho's Craig Denies 'Inappropriate Conduct,' Says He Regrets Entering Plea
By Paul Kane and Shailagh Murray
washingtonpost.com Staff Writer and Washington Post Staff Writer
Tuesday, August 28, 2007; Page A01

Sen. Larry E. Craig pleaded guilty earlier this month to misdemeanor disorderly-conduct charges stemming from his June arrest by an undercover police officer in a men's restroom at Minneapolis-St. Paul International Airport, a court spokeswoman and the senator's office said yesterday.

Craig issued a statement confirming his arrest and guilty plea, which were reported in the Capitol Hill newspaper Roll Call. But the Idaho Republican maintained that he had not engaged in any "inappropriate conduct" and that the airport police misunderstood his behavior.

"At the time of this incident, I complained to the police that they were misconstruing my actions. I was not involved in any inappropriate conduct," Craig said. "I should have had the advice of counsel in resolving this matter. In hindsight, I should not have pled guilty. I was trying to handle this matter myself quickly and expeditiously."

Now in his third term, Craig, 62, has been a member of the Senate Republican leadership and ran unsuccessfully in 2002 to become the GOP whip, the No. 2 leadership job. He has been a prominent figure on gun rights and Western land issues, and he resigned yesterday as Idaho chairman of the presidential campaign of former Massachusetts governor Mitt Romney (R).

Craig "did not want to be a distraction," said Romney spokesman Matt Rhoades, "and we accept his decision."

Roll Call, citing a copy of a report by airport police, said officers had been conducting a sting operation inside the men's room because of complaints of sexual activity there. The police report gives this account of the arrest:

The undercover officer was monitoring the restroom on June 11. A few minutes after noon, Craig entered and sat in the stall next to him. Craig began tapping his right foot, touched his right foot to the left foot of the officer and brushed his hand beneath the partition between them. He was then arrested.

While he was being interviewed about the incident, Craig gave police a business card showing that he is a U.S. senator. "What do you think about that?" Craig asked the officer, according to the report obtained by Roll Call.

Airport police declined to comment last night. Nancy Peters, a spokeswoman for the Hennepin County District Court, confirmed the charges. She said Craig paid $500 in fines and was placed on one year's probation, beginning Aug. 8, the date he pleaded guilty. He could face an additional $500 in fines and a 10-day jail sentence if he violates probation.

Senate GOP leaders said yesterday that they were shocked by the news but declined to comment further. "We just found out about this incident late this afternoon," said Josh Holmes, a spokesman for Senate Minority Leader Mitch McConnell (R-Ky.).

Because Craig pleaded guilty to a crime, the incident may be reviewed by the Senate ethics committee. Its chairman, Sen. Barbara Boxer (D-Calif.), declined to comment last night.

In 2006, a gay activist said he had spoken with men who had sexual encounters with Craig, including in the restrooms at Union Station. Craig's office told the Spokesman-Review of Spokane, Wash., that the allegations were "completely ridiculous."

The activist, Mike Rogers, who runs the Web site BlogActive.com, has complained about Craig's opposition to gay rights. The conservative senator has supported an amendment to the Constitution banning same-sex marriage and voted for the Defense of Marriage Act in the 1990s. Craig, who served in the National Guard, has also spoken out against homosexuals serving in the military.

Craig was a member of the "Singing Senators," a now-defunct Republican barbershop quartet. It included Sen. Trent Lott (Miss.) and then-Sen. John D. Ashcroft (Mo.), who broke up the group when he was named attorney general.k

Craig was chairman of the Republican Policy Committee, the fourth-ranking GOP leadership job, from 1996 to 2002. He also played a prominent role in recent immigration battles, championing rights for illegal farmworkers -- an advocacy that made the staunch conservative an unlikely target of groups opposing illegal immigrants.

Craig is married and has three grown children. He will complete his third Senate term next year, after serving 10 years in the House, and speculation has swirled for months that he may retire. Spokesman Dan Whiting said the senator will announce his decision this fall.

On June 30, Craig reported $550,000 in the bank for a reelection race, a healthy sum in the heavily Republican state.

His leading Democratic challenger is former congressman Larry LaRocco, a Boise banker and onetime Senate staffer. He already is campaigning aggressively, baling hay and laying pipe on a "Working for the Senate" tour. LaRocco reported raising $80,000 through June 30 and has lost repeated attempts at state office, including a House race to Craig in 1982 and a bid for lieutenant governor in November. He served two terms in the House in the early 1990s.

On the Republican side, if Craig does not run again, one colorful match could pit veterinarian Rex Rammell against Jim Risch, who as governor had ordered state officials to kill elk that had escaped from Rammell's ranch, in order to prevent the possible spread of disease. Rammell was arrested in September 2006 after scuffling with state wildlife officials, but he was acquitted and later sued the state for $1.3 million, according to the Idaho Statesman newspaper.

Risch has said he is interested in Craig's seat if the senator retires. Another potential GOP candidate is Rep. Mike Simpson.

Staff researcher Madonna Lebling contributed to this report.

SAUGATUCK PASSES ANTI-DISCRIMINATION LAW

2007-08-27T22:32:00.001-07:00

During the evening of Aug. 27 the Saugatuck City Council unanimously passed a non-discrimination ordinance that gives full protections to GLBT people in housing, employment and public accommodations. This is significant because in the state of Michigan discrimination based on someone’s real or perceived sexual orientation or gender identity is still legal.
Saugatuck is a small city with a large GLBT community. The community has approximately 1,065 year-round residents and the number grows substantially in the summer. Last month Saugatuck Township passed a similar ordinance.

“Saugatuck is a very special place for the gay and lesbian community,” said Sean Kosofsky, Director of Policy for Triangle Foundation. “It is only fitting that a community with such a strong GLBT community and an international reputation for hospitality do all it can to protect people who live, shop and work there. The state legislature has failed to act on a statewide ban on anti-GLBT discrimination, so each move to protect our community by a municipality is a welcomed step."

“I am so proud of my fellow city leaders and of my community," said Mayor Tony Vettori. "Today Saugatuck joins the ranks of hundreds of other jurisdictions and companies across our country that understand and value diversity. Saugatuck is a place people come to relax, have fun and enjoy themselves and it is no place for legal discrimination."

Saugatuck City Council is the sixteenth Michigan municipality to provide non-discrimination protections to GLBT citizens.

International Herald Tribune Editorial - A treaty whose time has come

2007-08-27T08:06:00.000-07:00

International Herald Tribune Editorial - A treaty whose time has come
Copyright by The International Herald Tribune
Published: August 26, 2007

A solemn international treaty known as the Law of the Sea Convention will celebrate its 25th anniversary this December, and for 25 years the mere mention of its name has been enough to induce deep slumber.

Yet for all kinds of reasons - not least growing fears about the availability of energy resources - people are finally paying attention. That includes the Senate, where right-wing scare tactics and official inertia have long blocked the treaty's ratification, leaving America as the only major power standing on the sidelines.

That could change this fall, when the treaty will again be presented for Senate approval. One reason for optimism is that President George W. Bush has added his voice to a diverse pro-treaty coalition that includes the environmental community, fishing interests, the oil and gas industry, the shipping industry, the State Department and the U.S. Navy.

But the main reason is this: Unless the United States joins up, it could very well lose out in what is shaping up as a mad scramble to lay claim to what are believed to be immense deposits of oil, gas and other resources under the Arctic ice - deposits that are becoming more and more accessible as the earth warms and the ice melts.

The Law of the Sea will provide the forum for determining who gets what.

The law gives each nation control over its own coastal waters - an "exclusive economic zone" extending 200 miles, or 322 kilometers, offshore. The rest is regarded as international waters, subject to agreed-upon rules governing fishing, protection of the marine environment, navigation and mining on the ocean floor. A country can claim territory and mineral deposits beyond the 200-mile limit, but only if it can prove that the seabed is a physical extension of its continental shelf.

Claims and disputes will be resolved by arbitration panels established by the treaty.

The Russians, the Canadians and the Danes are all busily staking claims to thousands of square miles of the Arctic seabed beyond their 200-mile zones; the Russians have already planted a flag 15,000 feet under the North Pole.

And two weeks ago, a U.S. Coast Guard cutter, Healy, embarked on the third in a series of polar mapping expeditions to help strengthen the United States' territorial claims to the seabed off Alaska.

But the United States will have a hard time pressing those claims unless it ratifies the treaty and gets a seat at the negotiating table. One of the main right-wing arguments over the years is that the treaty would threaten American sovereignty by impeding unfettered exploitation of the ocean's resources - a "giant giveaway of American wealth," in the words of one critic.

The facts suggest just the reverse. By not signing, we could easily find ourselves out of the hunt altogether.

International Herald Tribune Editorial - Dollars for sale

2007-08-27T08:04:00.000-07:00

International Herald Tribune Editorial - Dollars for sale
Copyright by The International Herald Tribune
Published: August 26, 2007

During the worst of the markets' recent volatility, many investors moved their money into supersafe U.S. Treasury securities, temporarily boosting the dollar against the euro and the British pound. But of late, the dollar has resumed its downward trend of the past several years. And policymakers and currency traders are once again hypervigilant for signs that Asian central banks might redeploy part of their dollar-based debt holdings into non-American investments.

Such diversification - particularly by China, which is believed to have some $1 trillion - could further weaken the dollar, presaging higher interest rates and higher prices in the United States.

But Asian bankers, it turns out, are not the only ones to watch.

According to a new study by Stephen Jen, a currency economist at Morgan Stanley, American investors may be a more powerful force than their foreign counterparts in driving the dollar down.

Jen notes that since 2003, American mutual funds have increased their allocation of overseas equities from 15 percent to 22.5 percent, a pace he describes as "gradual but determined." If America's other big institutional investors, such as pensions and insurance companies, have invested elsewhere at the same pace, he calculates that the outflow of dollars would now amount to $1.16 trillion, about the same as China's total foreign reserves.

The outflow is not necessarily a thumbs-down on the dollar's prospects, says Jen. Instead, it may reflect an increased willingness to invest overseas in a prudent attempt at broad diversification.

But in a recent analysis of Jen's study, the Economist magazine points out that a negative view about the dollar may underlie the urge to diversify. The Economist cites a Merrill Lynch survey showing that downbeat expectations for the dollar have been common among fund managers for the past five years.

The push to diversify out of dollars was strongest three years ago, but persists today.

If dollar wariness among American investors were a recent phenomenon, it could be chalked up to temporary forces. But because the unease has been marked for many years, it must emanate from something more entrenched. One probable source is concern about America's huge ongoing foreign indebtedness.

Currency markets generally punish heavily indebted nations by pushing down their currency. In the absence of policies to boost domestic savings - and thereby slow the build up of debt - a steady decline of the dollar implies a steady decline in American living standards. A sharply accelerating decline would imply severe economic distress. By diversifying out of dollars, American investors seem intent, at least in part, on reducing their exposure to either eventuality.

Policymakers should spend less time worrying about what foreign creditors could do to harm the dollar, and more time working to improve savings at home, both public and private. That way, the United States would be less reliant on imported capital and less vulnerable over all, come what may.

Gun lovers disarm control advocates

2007-08-27T08:01:00.000-07:00

Gun lovers disarm control advocates
LAURA WASHINGTON novakevans@aol.com
Copyright by The Chicago Sun-Times
August 27, 2007

It looks like the petulant, gun-toting NRA stalwarts have won the first round.

Last time, I used this space to ask where you stand on the issue of gun control. A torrent of e-mails later, it's clear: Gun-control advocates were outgunned, four to one.

The gun lovers were legion, robust and vitriolic. Many of you told me to go places where the sun doesn't shine and the temperature is way too hot. Yet, if you believe public opinion polls, that reaction is an anomaly. For instance, last April, ABC News polled adults nationwide, and asked: "Do you favor or oppose stricter gun control laws in this country?" Sixty-one percent favored them, 36 percent were opposed, and 3 percent were "unsure."

CBS News asked, "In general, do you feel the laws covering the sale of handguns should be made more strict, less strict, or kept as they are now?" Two-thirds of respondents nationwide opted for "more strict."

What is the problem with the advocates of gun control? Why are their voices not being heard? They are consistently cowed and overmatched. Gun violence is out of control, yet the gun lovers are ascendant.

You think we've got problems now? Just listen to Mike Huckabee, the former Arkansas governor and Republican presidential aspirant. At a recent Conservative Political Action Conference, he bragged, "I'm not a newcomer to the NRA," the New York Times reported on its political blog. "I was the first governor to have a conceal-carry permit, so don't mess with me."

Huckabee, mind you, recently made a flashy second-place showing in the Iowa presidential straw poll.

Do you want to be standing in line for gas, popcorn or a gallon of milk and find yourself next to someone who's packing heat? If he takes the White House, we can all go shopping for embossed leather holsters and pearl-handled pistols. I'll be looking to accessorize that with rhinestone-studded boots.

Luckily, Huckabee is a long shot.

Still, despite the polls, it seems the gun control advocates have been outmatched. Abigail Spangler acknowledges as much. Spangler is the founder of ProtestEasyGuns.com, a Virginia-based group that has been spearheading a slew of anti-gun protests around the nation.

Gun control activists, she wrote me, "are TRYING HARD but they are seriously affected in state after state by lack of funding and contributions." She recently met, she says, with the leader of Virginia's only gun control group. "He says they may not even be able to afford any lobbyist at all soon in Virginia!"

This comes just four months after the Virginia Tech shooting massacre, which took 32 lives.

Our elected officials have either been bought off or are missing in action. The odds are against the majority of Americans who are terrified and sickened by the gun menace.

For Spangler, it comes down to one urgent hope. "Who knows whether our protests against lax gun laws will make a difference?" she asks. "It's basically my 'Hail Mary' pass -- a pass of desperation to the American people -- that I hope they will catch."

If I had my way, the gun lobby would be looking at three yards and a cloud of dust. Let's get organized and shove tougher gun policies right down their throats.

Unsold homes in US rise by 5%/Sales of existing homes fall to slowest pace in 5 years

2007-08-27T07:56:00.000-07:00

Unsold homes in US rise by 5%
By Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: August 27 2007 16:17 | Last updated: August 28 2007 00:36

The supply of unsold homes in the US rose to a 16-year high last month amid a crisis in the credit market, suggesting the worst is yet to come for the domestic housing market.

Inventories of houses for sale by homeowners rose 5 per cent on the previous month to the highest level since October 1991 as purchases fell to the lowest level in nearly five years, according to the National Association of Realtors.

Economists said the increase in supply and slowdown in demand suggested the most severe housing downturn since the early 1990s was set to worsen. Lending conditions had tightened following a crisis of confidence in credit markets after a rise in defaults on high-risk subprime mortgages.

The NAR blamed “mortgage liquidity issues” for the slowdown in purchases.

Nigel Gault, an economist at Global Insight, said: “Unfortunately, worse news lies ahead. The July data reflect sales that were agreed in May or June, well before the severe tightening in credit standards occurred in July and August. That will mean more foreclosures reducing demand, adding up to lower home sales and lower prices.”

Sales of existing homes were 9 per cent lower than a year ago as sales fell for the fifth consecutive month.

The median price of an existing home fell 0.6 per cent in July from a year ago to $228,900 (£113,665), the NAR said.

The decline in sales was concentrated in the Midwest, which has been spared the worst of the house price falls so far, with purchases flat or slightly higher in the rest of the country.

US stocks fell on the figures and the yield on the 10-year bond was slightly lower, at 4.61 per cent.

Meanwhile, durable goods orders were much stronger than expected in July, rising 5.9 per cent. Underlying order growth was also significantly stronger than expected.

Sales of existing homes fall to slowest pace in 5 years
Copyright by The Associated Press
9:04 AM CDT, August 27, 2007

Sales of existing homes dropped for a fifth straight month in July, falling to the slowest pace in nearly five years, while home prices fell for a record 12th consecutive month.

The National Association of Realtors reported that sales of existing homes dipped by 0.2 percent last month to a seasonally adjusted annual rate of 5.75 million units.

The median price of a home sold last month slid to $230,200, down by 0.6 percent from the median price a year ago. It marked the 12th consecutive month that home prices have declined, a record stretch.

The deep slump in housing, combined with recent severe turmoil in financial markets, has raised worries about a possible recession. But many economists believe the Federal Reserve will ward off a full-blown downturn by reducing a key short-term interest rate should financial market conditions fail to stabilize.

The steep slump in housing has trimmed overall growth for the past year and recently the economy has been shaken by spillover effects in financial markets. Rising defaults in subprime mortgages have triggered a serious credit crunch as investors have worried that hedge funds and other big investors in securities backed by subprime loans could suffer serious losses.

The 0.2 percent drop in July sales, compared with activity in June, marked the fifth straight monthly decline and left sales 9 percent below the level of a year ago. The sales pace was the slowest since November 2002.

By region of the country, sales fell by 2.2 percent in the Midwest and were unchanged in the South. Sales rose by 1.8 percent in the West and 1 percent in the Northeast.

The increase in the Northeast, which also saw the median home price increase, was seen as possibly hopeful sign that the worst of the housing downturn may be ending.

“The rise in sales and prices in the Northeast region on a fairly consistent basis in recent months is promising because this was the first region that underwent sales and price weakness after the boom,” said Lawrence Yun, senior economist for the Realtors. “Now, it appears that it will be the first region to climb back, indicating that other regions could follow a similar path.”

However, many analysts believe it could be months before housing stabilizes because of the threat that rising delinquencies could dump further homes onto an already glutted market.

The inventory of unsold homes rose by 5.1 percent at the end of July to a record of 4.59 million units.

Acer to buy Gateway for $710m

2007-08-27T07:53:00.000-07:00

Acer to buy Gateway for $710m
© Reuters Limited
Aug 27 11:02:20

Taiwan’s Acer said on Monday it will buy Gateway for $710m, creating the world’s No.3 PC maker, as Acer doubles its presence in Gateway’s lucrative but highly competitive home market.

Acer said it would pay $1.90 per Gateway share, representing a premium of 57 per cent over Gateway’s last closing price.

Acer said the merger would create a company with more than $15bn in sales and 20mn PCs shipped per year, adding it would keep the Gateway brand in the US.

”This acquisition of Gateway and its strong brand immediately completes Acer’s global footprint by strengthening our US presence,” Acer Chairman J.T. Wang said in a statement.

”This will be an excellent addition to Acer’s already strong positions in Europe and Asia. Upon acquiring Gateway, we will further solidify our position as No. 3 PC vendor globally.”

Acer shares closed down 1.85 per cent at T$63.60 before the announcement.

It had said for months that it was in acquisition talks but had declined to name the target.

The deal would help Acer immediately double its U.S. market share, combining its own 5.2 per cent of the market with Gateway’s 5.6 per cent, according to second-quarter market data from IDC.

The merged company would still be a distant third in the highly competitive United States, behind No.2 Hewlett-Packard at 23.6 per cent and market leader Dell at 28.4 per cent, according to IDC.

”Acer’s fumbled around a bit in the US, so this will definitely help in that regard,” said IDC analyst Bryan Ma.

On a worldwide basis, the merger would push Acer – Taiwan’s most recognised global brand – to the No.3 position instead of Chinese rival Lenovo, which confirmed this month it was in talks to buy PC maker Packard Bell.

A merged Acer and Gateway would have sold about 18.6m PCs worldwide last year, or about 8 per cent of global sales, compared to Dell’s 39.1m units, Hewlett-Packard’s 38.8mn and Lenovo’s 16.6m, according to IDC.

Acer said it expected to achieve at least $150m in pre-tax synergies following the merger, which should be accretive to its earnings per share in 2008 without synergies.

But execution will be key – a lesson that Lenovo learned when it stumbled badly after forecasting similar cost savings following its 2005 acquisition of IBM’s PC business.

”This starts to bring back memories of the whole Lenovo-IBM deal,” said IDC’s Mr Ma. ”Can you integrate the operations of the two organisations quickly enough to reap the benefits of that kind of scale? That remains to be seen.”

Doomed to repeat it? 400 years later, the rules are little changed

2007-08-27T07:48:00.000-07:00

Doomed to repeat it?
By Gillian Tett
Copyright The Financial Times Limited 2007
Published: August 27 2007 03:00 | Last updated: August 27 2007 03:00

A few years ago, Robert Bruner and Sean Carr, two American academ- ics at a Virginia business school, decided to write a comprehensive study of a financial market crash that took place on Wall Street back in 1907.

In normal, calmer times, their worthy opus might have attracted only limited attention. After all, the 1907 turmoil has never carried the fame of 1929. But in a happy burst of brilliant timing - and sheer luck - their work is due to be published this autumn, and the two authors are unexpectedly finding their insights in hot demand from the financial world. "We had no expectation that a crisis would sprout this summer," admits Professor Bruner. "[But] our re-search taught us that the drivers of crisis are always present [so] we thought the lessons of 1907 would be immensely relevant to investors, CEOs and regulators."

It is a sentiment Wall Street and the City of London seem to share. For as investors and financiers recoil in shock from this summer's violent market swings, and as a crisis in the subprime mortgage lending sector has triggered gyrations in stocks, many are now reaching for the history books with a newfound enthusiasm - or desperation - to assess how this crisis will play out. "Everyone is muttering about 1987, 1998 or 1929," says one senior hedge fund manager. "I don't know much about 1907, but probably I should."

From some perspectives, this sudden fascination with the past marks something of a U-turn. After all, the financial sector has spent much of this decade operating with a short-term view that was focused on the future, not the past. Indeed, as recently as this spring, it was rare to find any financial trader who spent much time pondering events more than a decade old - or beyond the data points typically found on a trading terminal.

That partly reflected the fact that financial traders are often too young to remember many economic cycles. However, more importantly, many of the instruments that have been in the eye of the recent market storm have only risen to prominence this decade. Thus the "historical" data bankers feed into their computer models to assess market swings, or measure their levels of risk-taking, is often based on just a few years of records. That can potentially distort the way these computer models work, since it means that bankers are effectively presuming that the future will be similar to the past - but based purely on very recent experience. "What is remarkable is that the risk models currently applied [in some markets] do not reflect the experience of the autumn of 1998, only a few years ago," says Harald Malmgrem, a Washington-based economist.

However, the other reason for the recent lack of interest in history is that many bankers have believed - at least until recently - that this decade's burst of market innovation had rewritten the rules of finance. For as financiers have created products that distribute credit risk across the capital markets, this has altered the way the financial system works. That in turn, may have changed the way the credit cycle works - or so some optimists believed until very recently.

However, this summer's market swings are now blowing apart many of these cosy assumptions. As a result, the indifference towards the past is being replaced by a violent thirst for historical knowledge, as financiers reacquaint themselves with the unpalatable truth that almost every bubble is accompanied by a belief that innovation has changed the rules - a belief that typically proves to be false. "This neo-modern credit market is not very dissimilar after all from its classical predecessors," says Jack Malvey, an analyst at Lehman Brothers. "The catalysts differ, but market reactions feel similar [to crises before] . . . in our view long-term economic and capital markets history is the best teacher and best model [to understanding the present]."

T he one big problemthat confronts men such as Mr Malvey, however, is that "long-term history" offers a truly dazzling array of models to peruse. Indeed, Lehman Brothers itself estimates there have been more than 60 market crashes since 1622. As a result, pundits disagree sharply about which particular crash might offer the "best" analogy for today, depending on whether they are optimistic about the macro-economic outlook or not.

One parallel provoking much discussion, for example, is the collapse of the internet bubble at the start of this decade. That seems similar to this year's events because the crash came after a bout of equity market exuberance that anticipated recent conditions in credit markets. Most notably, in the late 1990s, debt levels were rising in the system as equity investors threw caution to the winds amid a widespread belief that innovation had changed the investment rules. (Most notably, in 1999, the rise of the internet was perceived to have altered the business cycle.)

However, when equity investors suffered a sudden loss of confidence in overvalued technology stocks, they scrambled to slash debt, in a bout of deleveraging similar to that of this summer. "Deleveraging an overleveraged system is always dangerous," said Credit Suisse, in a recent note to clients. "The last big time around [this occurred] was the tech bust, when corporate sector leverage was the main culprit, but equity investors were also running far riskier portfolios than they normally do."

Seven years ago, these events sparked concern that a serious recession was looming, which was only partly averted after the Federal Reserve cut interest rates. The deleveraging also eventually contributed to a corporate credit crunch in the commercial paper market - or the sector where entities raise short-term finance. "During 2002, corporate commercial paper markets closed, forcing back-up liquidity providers to fill the breach, leading to large increases in credit risk for the banking system," says Jeffrey Rosenberg, analyst at Bank of America, noting that a similar phenomenon erupted this month in parts of the commercial paper market again.

However, as Mr Rosenbergalso notes, one striking difference between now and 2002 is that it is financial companies - not, say, manufacturers - that face a funding squeeze. And that highlights an even more crucial distinction: whereas in 2000 the list of companies that were overladen with debt included mainstream names, this time it is financial players, such as hedge funds or banks, that are excessively leveraged.

That may help to explain why the current turbulence has largely originated in the credit markets, rather than the equity world (as it did in 2000). But it also implies that today's market turmoil has a less negative impact on the "real economy" than seven years ago, since it is not hitting mainstream companies - yet.

Consequently, some analysts suspect that a much better model to analyse today's events lies further back - namely in those of 1997 and 1998, when a storm in the Asian financial markets triggered an unexpected default on Russian debt, which eventually lead to the near implosion of Long-Term Capital Management hedge fund. One reason this parallel is alluring to some traders is that the market movements this summer have been so violent they suggest some large - unidentified - institutions are in such distress that they are conducting fire sales of their portfolios. If so, that echoes the pattern in August 1998, when LTCM and its counterparties also tried to liquidate portfolios quickly, triggering seemingly bizarre price swings and a collapse in trust between the banks.

But another crucial parallel is that the 1998 turbulence was also centred on the financial world, not mainstream companies. As a result, LTCM's problems triggered few immediate adverse effects on the "real" economy.

That parallel prompts some observers to also conclude that this month's market chaos will do little tangible economic damage. The catch, however, is that losses in the subprime world now appear to be hitting a much broader range of investors than in 1998 - partly because they have been so widely scattered around as a result of financial innovation. Meanwhile, the pain is also potentially much larger: whereas the LTCM episode threatened to create a $3bn-odd hit to hedge fund investors and banks, estimates for the size of the losses from subprime mortgages range from from $50bn to $200bn. "The consensus remains sanguine on the outlook for global growth and is convinced we are seeing a repeat of the 1998 LTCM crisis," notes Jan Loeys, of JPMorgan. "But we are aware that history never fully repeats itself."

Nevertheless, that does not stop some analysts groping even further back in history for better lessons. Thus far, few pundits have attempted to suggest that the current events are a replay of the best-known drama of all - 1929. After all, the global economy still appears to be in rude health and the scale of market swings still looks extremely small compared with 1929 or other crashes. (Indeed, were it not for the fact that levels of market volatility have been unusually low this decade, some observers might hesitate to use the word "turmoil" at all.)

However, some analysts see parallels with another well-known crash - the events of 1987, when equity markets tumbled 22 per cent in a day and 60 brokerages went bust. The linkage partly revolves around the use of trading models. In the run-up to the 1987 crash, Wall Street had adopted the use of so-called "portfolio trading" models, which effectively exacerbated the downward move when equities started to fall. Similarly, some observers suspect that the widespread use of a new breed of trading models in 2007, known as quantitative - or "quant" - strategies has also magnified the market swings this summer, and enabled a shock in a narrow segment of the credit markets to infect numerous asset classes.

However, as Mr Bruner and Mr Carr demonstrate in their well-timed book, history shows that contagion has predated computers. The event that triggered the crash of 1907 in New York was the suicide of Charles Barney, the deposed president of the Knickerbocker Trust Company, who had attempted to corner shares in the United Copper company. Though this death seemed an isolated event - or a "contained" surprise, in modern parlance - as the implications spread, it set off a chain reaction throughout the banking world, fuelled by the fact the leverage levels were high and the economy had been weakened by a recent earthquake.

"Crises are like hurricanes," notes Mr Bruner. "Each is unique, yet we know enough about them all to be able to generalise - our big generalisation [from 1907] is that explanations come from a convergence of causes, most of which are always present in the global economy. [But] when these causes click into the right combination, financial crisis follows."

That may not offer definitive help for investors who want clear guidance about whether the current turbulence is just a passing storm - or not. But as economists thumb through the history books, the one thing that is crystal clear is that this summer's turmoil will not be the last.

On the contrary, as Mr Malvey notes, the lesson from the history books is that these episodes occur with striking regularity - typically, at least once a decade - whenever excess leverage, innovation and investor hubris collide. "Markets have always moved between three phases: pessimistic wariness, complacency and exuberance," he notes. "Well in advance, beware of a credit crunch in 2017. [But] sadly by then, the market will once again behave as if the turbulence of 2007 never took place."

400 years later, the rules are little changed
By Gillian Tett
Copyright The Financial Times Limited 2007
Published: August 27 2007 03:00 | Last updated: August 27 2007 03:00

Though financial markets have only existed for a few centuries, they have already delivered a truly dazzling array of storms, writes Gillian Tett. Lehman Brothers, for example, reckons that the first financial crash in the Western world can be dated back to 1622, when the Holy Roman Empire debased its coins, triggering the equivalent of a modern banking panic.

That was followed by the 1637 tulip boom-and-bust in Holland and the 1720 South Sea bubble - an event that spawned the first literary analysis of crashes.

Eight more crashes then occurred in the 18th century, culminating in the Hamburg commodities bubble of 1799. Then in the 18th century, the pace of financial disaster speeded up, with 18 financial storms erupting in Europe, and increasingly in the US too.

These included bank crises that hit the US in 1819, 1837, 1847, 1857, 1873, 1884, 1890 and 1896, several of which were linked to booms and bust in the commodities sphere, or railroad sector.

However, these events contributed to regular bank runs in Europe too, and a financial crisis even struck Australia in 1893.

It was the 20th century, however, that produced the most dazzling array of financial turbulence, with 33 market storms, according to Lehman Brothers. The best known of these are the stock market crashes of 1929 and 1987; however, the Japanese bank turmoil of the 1990s also caused deep economic distress, as did the savings and loan crisis in America in the 1980s - and the bank run of 1907.

Meanwhile, another, lesser-known period that some analysts think carries lessons for banks today was a stock market crash in London in 1974, which was accompanied by a banking crunch.

By the standard of many of these market storms, the recent turmoil still looks pretty modest. Indeed, it is arguable that the only reason the price swings have generated so much shock among investors is that markets have been unusually quiet during most of this decade.

Nevertheless, the one factor that does make this summer's events different from previous cycles is the degree to which the events have played out in the capital markets, rather than the banking world. That is largely because credit risk has been distributed to a much wider pool of investors than before.

Another crucial distinction is the sheer speed at which shocks now tend to move round the world, and between asset classes, as computing power links markets more closely than ever before. Back in the 19th century, for example, it could take days for news about railroad problems in America's Midwest to reach London; but this summer, bad news of subprime losses has often hit trading screens round the world in seconds.

Stem-cell advance offers hope to people with heart failure

2007-08-27T07:45:00.000-07:00

Stem-cell advance offers hope to people with heart failure
By Clive Cookson, Science Editor
Copyright The Financial Times Limited 2007
Published: August 27 2007 03:00 | Last updated: August 27 2007 03:00

Human embryonic stem cells can repair damaged hearts, according to research on animals published today.

If the results are confirmed in clinical trials, heart disease may be a multibillion-dollar market for stem-cell therapies.

Scientists at the University of Washington and Geron, theCalifornia biotechnology company, implanted cardiac cells derived from human embryonic stem cells into rats four days after a heart attack. They helped rebuild the animals' heart muscles and improved the functioning of the whole heart.

Tom Okarma, Geron chief executive, said the "landmark study" - published by the journal Nature Biotechnology - was the first to demonstrate convincingly that embryonic stem cells could treat hearts weakened by an infarction or heart attack. Five million people in the US suffering from heart failure could benefit.

The study overcame two problems that have bedevilled efforts to develop stem-cell therapies for cardiac disease: creating heart muscle cells from embryonic stem cells; and enabling the new cells to thrive after implantation in the damaged heart.

In principle, embryonic stem cells can develop into any type of cell in the body. But scientists have found it difficult to coax them to become cardiomyocytes - heart muscle cells. Using a new culture technique, the researchers turned 90 per cent of their stem cells into cardiomyocytes.

To make the human cardiomyocytes thrive, the researchers suspended them in a biochemical cocktail of "survival factors". All of the treated rat hearts grew a human tissue graft.

"We found that the grafts didn't just survive in the rat hearts - they also helped improve the function of the damaged heart," said Michael Laflamme of UW. "That's very important, because one of the major problems for people suffering a myocardial infarction is that the heart is damaged and doesn't pump blood nearly as well. This sort of treatment could help the heart rebound from an infarction and retain more of its function."

The next step is to conduct similar trials in larger animals, while further refining the treatment in rats. Human clinicaltrials could begin in about two years, the researchers said.

Geron starts the world's first clinical trial of embryonic stem cells next year - on patients with spinal-cord injury. Immature specialised nerve cells grown from human embryonic stem cells will be injected into accident victims.

Financial Times Editorial Comment: Republican stakes ahead of 2008

2007-08-27T07:44:00.000-07:00

Financial Times Editorial Comment: Republican stakes ahead of 2008
Copyright The Financial Times Limited 2007
Published: August 26 2007 15:55 | Last updated: August 26 2007 15:55

True to the nostrum that in politics a gaffe is when a politician tells the truth, Hillary Clinton slipped up last week by saying that a terrorist attack in the US would help the Republicans. So it would, and none more so than the party’s frontrunner, Rudolph Giuliani, who is making national security the signature theme of his campaign. One might think it odd that the Republicans should still have this edge: the current administration has not made a notable success of its war on terror. Yet Democrats have failed to press the advantage. Their ill-advised discomfort with the very phrase “war on terror” may be partly to blame: to many Americans, that signals irresolution.

Fear of domestic terrorism is subsiding, however. If this continues, the Republicans will face a daunting test in November next year. The party itself, to say nothing of voters at large, lacks enthusiasm for any of its declared candidates.

Mr Giuliani, running on the leadership he displayed as mayor of New York in 2001, is not exactly a formula Republican: three-times married, estranged from his children, pro-choice on abortion, a liberal on immigration, an advocate of gun control. Mitt Romney is a smooth performer with an eerily attractive family and, lately, the correct social-conservative positions; but aside from being a member of a strange religion, he does not convey strength of conviction. For that, one always looked to John McCain, but he offended too many party members and is no longer among the frontrunners. Such is the disaffection with the announced contenders that the still-undeclared Fred Thompson – whose mysterious appeal can lie only in being none of the above – stands second to Mr Giuliani for the nomination. It is a situation that may yet tempt other candidates into the race.

Despite all this, and the legacy of a failed Republican presidency as well, the Republicans should not be written off. The fact that Mr Giuliani, with all his impressive defects, leads the contest for the nomination points to something significant: the party’s voters are not so gloomy or demoralised that they have lost the will to win. Mr Giuliani’s advantage in their eyes is that his appeal to independents would make him the party’s best hope in the general election. Polls continue to suggest that Mr Giuliani would give Mrs Clinton or Barack Obama more of a fight than would Mr Romney or Mr Thompson.

Republicans are not yet ready to back a loser or just give up. Unless that changes, the Democratic nominee, whoever that may be, will have a fight on her or his hands.