Craigslist

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.