Saturday, June 30, 2007

International Herald Tribune Editorial - Resegregation now

International Herald Tribune Editorial - Resegregation now
Copyright by The International Herald Tribune
Published: June 29, 2007

The Supreme Court ruled 53 years ago in Brown v. Board of Education that segregated education is inherently unequal, and it ordered America's schools to integrate.

On Thursday, the court switched sides and told two cities, Louisville and Seattle, that they cannot take modest steps to bring public school students of different races together. It was a sad day for the court and for the ideal of racial equality.

Since 1954, the Supreme Court has been the nation's driving force for integration. Its orders required segregated buses and public buildings, parks, and playgrounds to open up to all Americans. It wasn't easy, but the court never wavered. In many of the most important cases it spoke unanimously.

On Thursday, the court's radical new majority turned its back on that proud tradition in a 5-4 ruling written by Chief Justice John Roberts. It has been some time since the court did much to compel local governments to promote racial integration. But now it is moving in reverse, broadly ordering the public schools to become more segregated.

In an eloquent dissent, Justice Stephen Breyer explained just how sharp a break the decision is with history. The Supreme Court has often ordered schools to use race-conscious remedies, and it has unanimously held that deciding to make assignments based on race "to prepare students to live in a pluralistic society" is "within the broad discretionary powers of school authorities."

Roberts, who assured the Senate at his confirmation hearings that he respected precedent, and Brown in particular, eagerly set these precedents aside.

The nation is getting more diverse, but by many measures public schools are becoming more segregated. More than one in six black children now attend schools that are 99 percent to 100 percent minority. This resegregation is likely to get appreciably worse as a result of the court's ruling.

Subprime problems hit WaMu - Itasca office to close; 110 layoffs

Subprime problems hit WaMu - Itasca office to close; 110 layoffs
By Becky Yerak
Copyright © 2007, Chicago Tribune
Published June 30, 2007

The Chicago job market continues to be haunted by problems in the nation's subprime mortgage industry, even as federal regulators fashion guidelines they hope will improve conditions in the sector.

Washington Mutual Inc. has disclosed that it is closing a subprime mortgage office at One Pierce Place in Itasca, leaving more than 100 employees out of work, according to a filing this week with the Illinois Department of Commerce and Economic Opportunity.

"As a result of the changing subprime market, we made the decision to close the facility," a WaMu spokesman confirmed Friday.

The state filing said 140 workers would be affected, but WaMu said the final number would be 110. Layoffs begin July 31, the document said.

WaMu's cost-cutting action follows numerous other Chicago-area layoffs at subprime lenders, which cater to borrowers with blemished credit or those with little credit history. Mortgage defaults have been rising, particularly among subprime borrowers.

In May, Irvine, Calif.-based New Century Financial Corp. said it laid off 133 workers at its Itasca office. And in April, nearly 900 other Chicago-area workers at four mortgage firms were told that they would lose their jobs.

Also Friday, watchdog agencies for banks, thrifts and credit unions finished guidelines that urge lenders to better scrutinize consumers' wherewithal to repay home loans.

The Federal Reserve, the Federal Deposit Insurance Corp., the National Credit Union Administration and the Treasury Department's Office of the Comptroller of the Currency and Office of Thrift Supervision took the action amid housing-market woes and pressure from lawmakers who believe there are shortcomings in the oversight of the mortgage industry.

The voluntary standards, which apply to federally regulated lenders, call for verification of consumers' incomes in most cases. Borrowers should have clear disclosures of their mortgage terms and have at least two months to refinance a loan, without penalty, that is about to adjust to a higher rate.

The Mortgage Bankers Association cautioned that the guidelines would tighten credit for borrowers. It urged Congress not to turn what would be voluntary standards into law. Although the guidelines wouldn't affect state-regulated companies, many state regulators are expected to follow suit.

But Sheila Bair, the FDIC's chairman, said in a statement that because the guidelines won't affect non-bank lenders, which have been the main originators of subprime loans, it is "essential for Congress or the Federal Reserve to establish comparable principles" for all lenders.


Beware the gurgles as liquidity starts to drain

Beware the gurgles as liquidity starts to drain
By Francesco Guerrera
Copyright The Financial Times Limited 2007
Published: June 30 2007 03:00 | Last updated: June 30 2007 03:00

To understand the recent setbacks in debt markets and takeover activity, imagine taking a bath in a luxury hotel.

As you slosh around in the warm water, nothing seems to matter other than that moment of relaxation. But things can change quickly. With one wrong move, you hit the plug and the hotel's super-efficient draining system leaves you shivering and wet in an empty marble tub.

Over the past fortnight or so, the plug that has kept the global financial system warm and liquid for the past few years has endured repeated knocks.

The question is whether "liquidity" - the flow of money that has lubricated capital markets and fuelled the recent takeover frenzy - is about to disappear down the plug hole.

This is not a trivial matter: an abrupt draining of liquidity would put an end to these boom times, hurting investors and companies. There certainly have been some worrying leaks from the global financial bathtub.

The first whiff of trouble came from the US a couple of weeks ago, when two hedge funds run by Bear Stearns hit the rocks. The news should not have been a surprise: the two funds had heavy exposure to troubled subprime mortgages - loans to people with poor credit records.

What spooked the market, though, was that the funds' losses were magnified by their liberal use of debt. The Bear funds' debacle reminded Wall Street of a simple truth that had been trampled in the thundering herd's stampede towards ever juicier returns: debt is a double-edged sword.

Leveraging companies and funds up to the hilt supercharges returns in a bull market but it also amplifies losses in times of trouble. Still, after initial dithering, Bear offered $3.2bn to bail out the less leveraged of the funds.

The move staved off the feared meltdown in parts of the credit market but did not ease investors' anxiety on leverage. This quickly spread. Concerns about leverage in a small part of the US mortgage market quickly became a global retreat from risk in credit markets. The contagion was particularly nasty in a sector that had been in rude, almost arrogant, health: the buy-out market.

For more than two years, private equity groups have been exploiting investors' low risk-aversion and feasting on cheap debt. Large firms such as Blackstone have ruled the roost, buying ever-larger companies and forcing banks to lend them vast amounts of money with no strings attached. Not anymore.

This week - for the first time in years - investors said "thanks, but no thanks" to risky bonds issued by buy-out groups to fund takeovers. Companies such as US Foodservice, a caterer, Dollar General, a US retailer, and Arcelor Finance, part of the Arcelor Mittal steel group, had to shelve their debt offerings.

Put simply: investors got fed up with taking on risk without being adequately paid for it. They took particular issue with bubble-like features such as the one allowing private equity-owned companies to stop paying interest on debt when cash flow was low.

In this case, however, it was the over-eager investment banks, not the buy-out funds, that were left carrying the can. But that will soon change. The latest rout should persuade even the most short-sighted of lenders to share the financing risk with private equity groups.

That, in turn, is likely to have a chilling effect on the buy-out bonanza. As for the fate of the rest of the market, keep an eye both on the global economy and investors from emerging markets. Healthy economic growth across the world will help companies and markets to weather the credit downturn. That is why stock markets were relatively unaffected by the recent turmoil.

And as long as investors from the Middle East, Russia and China keep pouring their petrodollars and foreign exchange reserves into the West, there should be a well-stocked source of liquidity. I would not, however, subscribe to the complacent optimism emanating from self-interested sources.

The mellifluous words that came from several heads of Wall Street banks this week for example, should be taken with a shaker of salt. The truth is that we are facing a mini-liquidity crunch. We should be able to weather it without too much pain but the plug at the bottom of the bathtub is wobbling. Be wary of any unexpected gurgling sounds.

John Authers: Just take it easy over the big sell-off season

John Authers: Just take it easy over the big sell-off season
By John Authers
Copyright The Financial Times Limited 2007
Published: June 29 2007 16:04 | Last updated: June 29 2007 16:04

Timing the market is a mug’s game. The efficient markets hypothesis holds that it is impossible: markets always adjust to account for all known data.

In practice, of course, markets are not always efficient. But inefficiencies at the grand level of overall stock markets or asset classes are harder to spot than at the level of individual stocks. Market calls look like a bad gamble.

But they are a gamble that can make a lot of money. And several market-timing models signalled a risk of a sell-off earlier this month. Should they be taken seriously?

Several factors go into these models. First, the amount investors spent to protect themselves from equity market volatility, as measured by the Chicago Board Options Exchange’s Vix index, spiked to its highest level in months this week. That is a bad sign.

Then, credit spreads – the extra cost of borrowing for higher risk companies – have widened.

And trading in the Japanese yen suggests traders are growing nervous about the risky game of borrowing at low Japanese interest rates.

All suggest growing risk aversion. When sudden waves of risk aversion hit, markets are vulnerable.

A historical pattern might also come into play. Teun Draaisma, European equity strategist at Morgan Stanley, points out that stocks are less volatile in the first stage of a bull market, when returns are earned on the good value that stocks have come to represent. In the later stages of a bull market, returns are based on more optimistic multiples and hopes for economic growth, and things get much more volatile.

In US stocks, there were six separate “corrections” of 10 per cent or more in the three years leading up to the top of the internet boom in 2000. There has not been one single correction of this magnitude in the US since the current bull market started in late 2002 (although there was one correction this deep in Europe, which started in May last year).

It is logical to expect more sharp corrections as the bull market grows older.

Then there is seasonality. David Schwartz points out powerfully that it is always possible for patterns to recur over time by coincidence.

But the annoying old saw of the stock market that you should “sell in May and go away” turns out, quite remarkably, to have been a good strategy.

David Bowers of Absolute Strategy Research in London looked into the historical results from two seasonal patterns of investing. A strategy of being in stocks (the FTSE All-Share) from November to April each year since 1963, and in bonds from May to October, would have beaten the FTSE All-Share. Holding bonds from November to April and stocks from May to October would, on the other hand, have lost money in nominal terms.

Since 1997, the “Sell in May” strategy has gained 95 per cent, while the “Buy in May” strategy has lost 19 per cent. The All-Share is up 57 per cent. This is not due to a few one-off events. Over every three-year and five-year period since 1980, these results have held good. Selling in May always wins. This also holds true whether the money held out of the market is parked in bonds, or cash, or hidden under the mattress.

As for this year, the market in several countries peaked on June 1 – exactly when Draaisma of Morgan Stanley wrote what would be a highly-publicised note recommending that investors go tactically “neutral” on European stocks, to guard against a summer sell-off, and shift into cash (while staying underweight in bonds).

At the time of writing, all the major western indices were on course either to be flat or down for the month of June – apart from a few Asia-Pacific markets. Investors obviously started selling at the end of May.

There are a few good reasons why stocks should be seasonal. The oil price affects stocks, and it is justifiably seasonal. Traders, currently preoccupied by the state of oil inventories in the US, need to know the full impact of the summer driving season in the US and Europe, and they also need to know about the annual hurricane season.

Liquidity also helps to drive stock prices, as do deals. Both tend to go down during the summer months, when schools are on vacation and when fewer traders are at work.

With fewer deals to keep the market bubbling in the holiday season, summer drift is not surprising. The recent rise in bond yields, and the widening of credit spreads, make it harder to finance acquisitions and make a lull more likely.

Weather, too, can have an effect on trading activity. For example, the morning weather in Chicago can affect that day’s action in its futures markets.

But Bowers suggests not much weight should be put on this, as stocks in Australia also trade sideways from May to October – the Antipodean winter.

The efficient markets hypothesis says none of this need hold this year, because players in the market can see all these factors and position themselves accordingly. But the case for taking it easy over the summer is still tempting.

Core US inflation falls below 2%

Core US inflation falls below 2%
By Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: June 29 2007 17:55 | Last updated: June 29 2007 17:55

Core inflation fell below 2 per cent for the first time in three years after a modest increase in prices last month, according to new government figures.

A key index of consumer prices, excluding volatile food and energy, climbed only 0.1 per cent in May, which brought the rate for 12 months to 1.9 per cent. High petrol prices drove the headline rate up 0.5 per cent.

The slowdown in core inflation will be welcomed by the Federal Reserve, which on Thursday left interest rates unchanged and kept a resolute focus on risks of future inflation.

In its statement at its June policy meeting, which kept rates at 5.25 per cent, the Fed dropped its description of core inflation as “somewhat elevated” and acknowledged that “readings on core inflation have improved modestly in recent months”.

But it warned that “a sustained moderation in inflation pressures has yet to be convincingly demonstrated.”

Gary Bigg, economist at Bank of America, said of the Federal open market committee: “The FOMC should be quite pleased with recent inflation developments.”

Ethan Harris, chief economist at Lehman Brothers, said the economy was “evolving as the Fed expected” with inflation easing and growth projections also being reined in.

The report from the commerce department on Friday also showed consumer spending and income lower than expected in May.

Personal income increased 0.4 per cent. Consumption spending increased 0.5 per cent for the second consecutive month.

“The slender gain in income will restrain consumption spending,” said Gary Bigg, economist at Bank of America.

“Income and spending gains were weaker than expected, suggesting that spending for the quarter will be soft.”

Economists said higher fuel prices explained much of the spending increase.

Nigel Gault, US economist at Global Insight, said: “Although consumer spending rose by what looks like a robust 0.5 per cent in May, more than half of the increase in spending went into gasoline tanks as consumers were hit by higher gasoline prices.”

”Spending should improve in the second half of the year, with gasoline prices easing back, but not back to the runaway first-quarter pace, as the downturn in the housing market will weigh on consumers,” he said.

Experience can be a drawback

Experience can be a drawback
By Christopher Caldwell
Copyright The Financial Times Limited 2007
Published: June 29 2007 19:20 | Last updated: June 29 2007 19:20

After a fundraising dinner in Chicago this week, Illinois senator and presidential hopeful Barack Obama made a verbal gaffe that sums up his predicament in defeating Hillary Clinton for the Democratic party’s nomination. “I’m sure the Clintons can raise more money than us,” he told the Chicago Sun-Times. “She was president – or he was president – for eight years.” Mr Obama is arguably the upper chamber’s best thinker and orator and certainly its best writer. He is simultaneously in closer touch with the party’s hardline base (he opposed the Iraq war from the outset) and more palatable to Republican and independent voters (polls show he fares better than Mrs Clinton does against all Republican challengers). He continues to be a formidable fundraiser and is expected to match Mrs Clinton when quarterly accounts are made public next week.

Yet Mrs Clinton has one great advantage among partisan Democrats that Mr Obama is finding it difficult to surmount: her “experience”. Voters and fundraisers consistently allude to it in interviews; Mrs Clinton strains to show it off. (“I have fought for more than 35 years to raise educational standards,” she said on Thursday night at Howard University.) It is working. In a Gallup poll released this week, Mrs Clinton has the loyalty of 35 per cent of Democratic voters, versus 20 for Mr Obama.

It is not obvious, however, what people mean by experience or why Mrs Clinton is deemed to have so much more of it. Both candidates are, relative to most of their rivals, neophytes. Mr Obama is in his first term as senator, Mrs Clinton in the opening months of her second. Before that, Mr Obama was editor of the Harvard Law Review, a community organiser, a lecturer in constitutional law at the University of Chicago, a state legislator and an unsuccessful candidate for Congress. Mrs Clinton, a lawyer, was made the custodian of various policy projects when her husband held power. Where is the advantage to Mrs Clinton? To say that her deeds were done on a national stage, while Mr Obama has been in the public eye only since 2004, is to measure their relative fame rather than their relative experience.

Both candidates have career experience that is arguably relevant to the presidency. Stacking them up against one another requires figuring out what kind of experience one gains by being married to a powerful executive and the nature of the non-constitutional position of US “first lady”. Was Mrs Clinton a combination of apprentice, adviser and inheritor, Georges Pompidou to her husband’s Charles de Gaulle? Or was she simply an observant and ambitious relative, George W. to her husband’s George H.W. Bush?

Mrs Clinton managed, at least for the first two years of her husband’s presidency, to seize real policymaking power. But Carl Bernstein, the most thorough (and by no means the least sympathetic) of her recent biographers, judges that she failed wherever she did. “With the notable exception of her husband’s libidinous carelessness, the most egregious errors, strategic and tactical, of the Bill Clinton presidency, particularly in its infancy, were traceable to Hillary,” Mr Bernstein writes, “. . . For the first time in American history, a president’s wife sent her husband’s presidency off the rails.” Mr Bernstein, who takes seriously the idea that the Clinton presidency was a “co-presidency”, at least for its first two years, blames Mrs Clinton for most of the missteps that resulted in the Republican congressional landslide of 1994. These include the politicisation of White House staff, an over-ambitious healthcare plan and a high-handedness towards key legislators.

The basic thing a politician seeks to do is turn himself from a public nobody into a public somebody. The big challenge is building a political organisation – a task that is part managerial, part financial and part intellectual, and that involves both long-term planning and an infinity of snap judgments, many of which are undertaken when one is still powerless, vulnerable and shut off from inside information. This is the essence of being a political executive and Mrs Clinton has had to do relatively little of it. Her political organisation – like that of President Bush, but unlike that of Ronald Reagan or Mr Clinton or Mr Obama – came largely pre-assembled. It is a close call, but here the advantage in experience goes to Mr Obama.

What is more, as a black politician, Mr Obama has a longer row to hoe than Mrs Clinton as a female one. This is only partly because the US has historically had more racism and less sexism than other western countries. The larger problem is that US blacks, who owe much of their advancement to political activism, seldom recognise themselves in the anti-statist rhetoric that has dominated US politics for a quarter-century. A black politician who wants to develop a national following while being hailed as “authentic” must square an ideological circle.

If Mr Obama’s experience reveals more competence, Mrs Clinton’s reveals more resilience. Experience is also about learning to react to crises and Mrs Clinton met the attempt to impeach her husband with a steely obstinacy. Whether steely obstinacy is necessarily a plus in an administration not victimised by overzealous prosecutors is another question. The country has lately had a bad experience with an obstinate president “finishing off” a war launched by a relative in years past. It is possible that Mrs Clinton’s ideology has hardened along the lines of 1990s conflicts that no longer exist.

That does not seem to worry Democrats. Voters may have reasons to believe that Mrs Clinton would make a better president than Mr Obama. But they are wrong if they think that experience is one of them.

The writer is a senior editor at The Weekly Standard

Bad week for Bush as allies melt away

Bad week for Bush as allies melt away
By Andrew Ward in Washington
Copyright The Financial Times Limited 2007
Published: June 29 2007 20:16 | Last updated: June 29 2007 20:16

As President George W. Bush told the story of Cory Endlich, a 23-year-old from Ohio, who died in Iraq this month, his voice cracked and his chin quivered.

“Cory was an Ohio boy who wanted to join the army so badly that his dad let him start training his senior year of high school,” he told an audience in Rhode Island on Thursday.

There was no doubting the authenticity of Mr Bush’s anguish about Sgt Endlich’s death, but the show of emotion may also have reflected the strain of what has been one of the worst weeks of his presidency.

In recent days, Mr Bush has suffered a series of damaging setbacks that have exposed the waning influence of his increasingly unpopular and isolated administration.

As Mr Bush was speaking in Rhode Island, Congress was in the process of dealing a fatal blow to a bipartisan immigration reform bill that the president had spent much of the past several months promoting.

What made the defeat particularly damaging was the fact it was delivered not by Democrats but by Mr Bush’s own party.

Earlier in the week, Senator Richard Lugar, senior Republican on the Senate foreign relations committee, became the most senior member of his party to call for the start of US withdrawal from Iraq, giving voice to growing unrest among Republicans about the war.

Together, the collapse of the immigration bill and mounting rebellion over Iraq have highlighted Mr Bush’s diminishing authority over his own party as Republicans turn their attention towards next year’s elections.

Sensing weakness, Democrats chose this week to intensify a range of investigations into the Bush administration, including the issuing of subpoenas demanding documents relating to the National Security Agency’s controversial domestic surveillance programme.

The bad news continued on Friday when the Supreme Court agreed to review whether Guantánamo Bay detainees may go to federal court to challenge their indefinite confinement, raising fresh doubts about the legality of the administration’s treatment of prisoners captured in the “war on terror”.

Mr Bush had hoped an overhaul of US immigration laws would provide the lasting domestic legacy he has been seeking since his efforts to reform the Social Security system failed earlier in his second term.

With little prospect of agreement between the White House and Democratic-controlled Congress on other main issues, the defeat means Mr Bush’s legislative agenda is in effect dead 18 months before he leaves office. In a make-or-break procedural vote, only 12 of 48 Republican senators voted in favour of keeping the bill alive. The outcome was a humiliation for Mr Bush, who had made personal phone calls to numerous senators seeking their support, and dispatched senior cabinet and White House officials to Capitol Hill.

EU strikes deal with US on passenger data

EU strikes deal with US on passenger data
By Andrew Bounds in Brussels
Copyright The Financial Times Limited 2007
Published: June 29 2007 19:57 | Last updated: June 29 2007 19:57

European countries endorsed a controversial deal to share information on airline passengers with the US in a move that should avert the threat of transatlantic travel chaos this summer.

European Union ambassadors meeting in Brussels reached a “basic political understanding” on the issue, according to Germany, which chaired the talks. Several countries said they could not commit before their parliaments had debated the issue but did not dispute the substance of the deal reached, diplomats said.

The accord, which replaces an interim agreement due to expire at the end of July, will increase from three to 15 years the time that US authorities can hold passenger data such as names, payment details and seat numbers. Under the deal, EU airlines must provide 19 pieces of information, down from 34, shortly before take-off.

Wolfgang Schäuble, German interior minister, Fran co Frattini, EU justice commissioner, and Michael Chertoff, US homeland security secretary, struck the agreement on Wednesday.

Mr Chertoff says that the deal is not legally binding but Brussels regards it as an international agreement that could be revoked if not complied with. “We can cut off the flow if we are not satisfied,” said one official. However, that would lead the US to ban airlines that refuse to supply the information.

Critics say the deal would allow the Department of Homeland Security as well as US customs access to the data and there are insufficient limitations on how it can share it with other law enforcement agencies, such as the CIA. The US is obliged to filter out sensitive data such as dietary requirements – a clue to religion – unless it is essential to preventing loss of life.

Police hunt London bomb plot terrorists

Police hunt London bomb plot terrorists
By Stephen Fidler in London
Copyright The Financial Times Limited 2007
Published: June 29 2007 08:16 | Last updated: June 29 2007 20:54

Police were Friday night hunting terrorists after two car bombs capable of killing hundreds of people were found in London’s West End.

The vehicles which contained similar explosive materials were “clearly linked” and both were “potentially viable”, police said.

The first bomb, discovered in a green Mercedes outside the Tiger Tiger nightclub in Haymarket near Piccadilly Circus and defused by police, was set to go off less than 48 hours after Gordon Brown assumed office as prime minister.

The second car, a blue Mercedes, was found near Trafalgar Square and taken to a car pound near Hyde Park before being removed by police. Like the first car, it contained substantial quantities of fuel, gas canisters and nails, police said.

Terrorism experts who follow jihadi websites said there had been calls to mark Mr Brown’s coming into office with an attack, although government officials could not Friday night authenticate these reports.

CBS News also reported that, on a jihadi internet chatroom, someone calling himself Osama al-Hazeen had predicted “London shall be bombed”, hours before the attempted attack. It cited, among other supposed provocations, the recent knighthood given to the author, Salman Rushdie.

The second bomb was discovered amid a series of scares in the capital which led to several main roads being sealed off.

Police were seeking the driver of the four-door Mercedes left outside the Haymarket nightclub and were on Friday beginning to plough through CCTV footage of the area.

Terrorism experts said the relatively crude nature of the devices suggested, at least at first sight, that the culprits had not received sophisticated weapons training from al-Qaeda but instead may have been a self-starting group influenced by the group’s ideology.

However, previously convicted plotters had discussed targeting a nightclub with a bomb using gas canisters. The Crevice plotters, arrested in 2004 after buying 600kg of fertiliser and storing it in a lock-up garage, discussed bombing the Ministry of Sound, another London nightclub.

The security services said they had received no advance warning of such attacks on Friday and they were not among the 30 or so terrorist plots being monitored.

The website of MI5 said the national threat level remained at “severe”, the second-highest rating, meaning future terrorist attacks were highly likely. The level has remained unchanged since an alleged plot to blow up airliners across the Atlantic was uncovered last August.

Central London is one of the most intensively photographed and video-taped areas in the world, and every driver entering the centre of the city is photographed.

The new home secretary, Jacqui Smith, said she had chaired a session with the government’s “Cobra” committee, made up of ministers, police, emergency services and intelligence agencies, to discuss the attempted attacks. “We are currently facing the most serious and sustained threat to our security from international terrorism,” she said.

Police said the first alert was raised by an ambulance crew called to treat someone inside the nightclub at about 1am. The police were called and dismantled the device, which would have been detonated by a simple timer.

US Supreme Court in U-turn on Gitmo

US Supreme Court in U-turn on Gitmo
By Demetri Sevastopulo and Patti Waldmeir in Washington
Copyright The Financial Times Limited 2007
Published: June 29 2007 18:38 | Last updated: June 29 2007 22:49

The Supreme Court delivered a blow to the White House on Friday by deciding to consider whether prisoners held at Guantánamo Bay could challenge their detention in US courts.

The move is the latest setback to Bush administration efforts to bring about 80 of the 375 detainees held at Guantánamo Bay before military commissions. It also comes as the administration faces increased pressure to close the Cuba-based prison.

In February, a federal court ruled that the Military Commissions Act passed by Congress last year stripped prisoners at Guantánamo of the right to challenge their detention in US courts.

The Supreme Court re fused to hear an appeal in April, but on Friday, in a highly unusual move, the court reversed position and announced it would hear an appeal later this year.

“[We] are confident in our legal ar guments and look forward to presenting them before the court,” said Erik Ablin, a Justice Department spokesman.

Five of the nine justices are required to reverse a decision in this way. When the court previously de clined to hear the case, two of the justices, John Paul Stevens and Anthony Kennedy, said they wanted the detainees to go before military tribunals first. Eu gene Fidell, a military law attorney at Feldesman, Tuc k er, Leifer, Fidell, said the court may have been swayed by a statement submitted by an army reservist involved in legal proceedings at Guantánamo, which raised serious concerns about the integrity of the process to decide whether prisoners could be held indefinitely as “enemy combatants”.

So far, the Pentagon has only brought two prisoners, who include the alleged former driver for Osama bin Laden, before the commissions. But that effort failed after military judges threw out charges. The judges said Congress only permitted the commissions to hear the cases of “unlawful enemy combatants”, and not “enemy combatants” as they have been classified. The administration asked the judges to reconsider.

The White House is coming under increased pressure to close Guantánamo, where most of the prisoners have been held without trial for more than five years. In a stinging rebuke, Colin Powell, former secretary of state, last month urged the administration to close the prison.

Robert Gates, US defence secretary, on Friday said the Pentagon was striving harder to work through some of the legal issues that surrounded closing the prison.

“The biggest challenge is finding a statutory basis for holding prisoners who should never be released and who may or may not be able to be put on trial,” said Mr Gates. “I think that this is the challenge that faces both the administration and the Congress.”

Separately, Jim Moran, a Virginia Democrat, and more than 140 members of the House of Representatives, sent a letter to the White House calling for the closure of Guantánamo.

“Guantánamo is anathema to our values as a nation, governed by the rule of law,” said Mr Moran. “Its continued operation undermines our efforts to combat terrorism, providing psychological ammunition for those bent on doing us harm.”

Banks told to show subprime leniency

Banks told to show subprime leniency
By FT reporters
Copyright The Financial Times Limited 2007
Published: June 29 2007 20:45 | Last updated: June 29 2007 23:58

US regulators on Friday told banks to be more lenient with subprime mortgage borrowers in difficulties, potentially compounding uncertainties in the troubled mortgage securities market.

Such changes could affect the value of securities backed by subprime loans, which have already fallen sharply following a recent surge in defaults.

“Banks will have to work out how to reconcile the requirements of the regulators and the interests of holders of mortgage securities,” said one official.

American International Group has said implementing the guidelines will cost it at least $178m, while Washington Mutual has committed to cut rates on up to $2bn of subprime loans, some of which have been securitised.

The turmoil in the mortgage-backed securities market has brought two Bear Stearns hedge funds near to collapse, spreading wider concerns across credit markets. Richard Marin, Bear’s head of asset management, on Friday became the first high-profile casualty when he was replaced by Jeffrey Lane, a senior Lehman Brothers executive.

Several junk-rated deals coming to market were forced either to drop their most aggressively-structured elements or raise pricing.

The moves reflected investor jitters fuelled partly by subprime worries but also by rising global interest rates, expectations of heavy supply of debt for leveraged buy-outs and resistance to increasingly fashionable borrower-friendly debt structures.

Regulators have also expressed concern about rising levels of risk. A senior Bank of England official warned the vulnerability of the global financial system had increased as financial institutions have taken on greater risks in search of higher returns.

Meanwhile, investors are still struggling to evaluate the potential scale of subprime exposure in financial markets after the losses at Bear’s two funds and at others, including a listed fund run by London-based Cheyne Capital.

Much of the exposure to the subprime sector is through opaque and complex instruments known as collateralised debt obligations, which repackage tranches of debt of varying risk.

Morgan Stanley estimates the total volume of CDOs issued since the start of 2005 with some subprime mortgage exposure is about $550bn.

Reporting by Richard Beales, Joanna Chung, Saskia Scholtes and David Wighton

Friday, June 29, 2007

Orgullo en Accion Announces Latin Pride July 14, 2007

Good Morning:  Orgullo en Accion’s Supporters, Friends, and Colleagues.
Personally, I would like to send my appreciation for your participation in yesterday evening event at T’s.
This was a fundraiser designed for the second annual OEA Latino Pride.
Strength, energy, and community support will build the strong foundation required for our work. Two years ago, a small group of community members believed/envisioned in working together for social and political change, a new wave to promote education and provide leadership development (Latino/o LGBTQQ Summit), and increases Latino/a LGBTQQ awareness within our communities thru the multiple phrases and struggles: Orgullo en Accion gave birth.
Orgullo en Accion through it movement have create and build strong collaborations/relationships with numerous sisters/brothers organizations, community members, and communities, in which we are deeply honored.
As board chair, I have earned the privilege to be a presence in a group with wonderful diversity, an uncontrollable force, dedication, and faith in the beautiful future head of us: it will be a fruitful journey.
Thank you! All in advance for the support in 2007.. Orgullo en Accion Latino/a LGBTQQ Pride!
See you all there!!! Spread the Word!!!
Date: July 14, 2007
Time: 12 pm- 6pm
Location: Humboldt Park
(Corner Division and Sacramento)
Nilsa Irizarry
Orgullo en Accion
Board Chair

Ethnic biases stronger than ever

Ethnic biases stronger than ever
Copyright by The Chicago Sun-Times
June 29, 2007

As the 19th century turned into the 20th, Americans began to worry about the stability of their society and its culture. Strange languages were spoken on the streets, strange-looking people in strange clothes were shopping in our stores. Strange smells percolated in certain neighborhoods. Strange customs were appearing on strange holidays. These strangers were pouring into our country. They threatened our democracy, our way of life, our culture, our religious beliefs, our economy, our blood stock. Why didn't they stay in their own countries?

The answer is they were caught in a demographic transition -- the birth rate had increased and the death rate had fallen. A population explosion was driving people out of eastern and southern Europe.

In the decade before the beginning of the Great War, the government established a commission, presided over by Sen. William P. Dillingham of Vermont, to recommend restrictions of immigration from Europe. Many of the immigrants were of inferior races, as 19th century ''scientific'' racialism defined inferior. It was evident to explorers that Asian and African races were inferior to the ''white'' races. However, all one had to do was to observe eastern and southern Europeans to realize that they were inferior too. Indeed, the most successful of the races were the white Anglo-Saxon Protestants. Surely they represented, along perhaps with the Germans, the greatest progress in human civilization.

Therefore, the Dillingham Commission informed the country that it was patent that Italians were an innately criminal race, that the Poles had very limited intelligence, that Jews were incapable of honest business dealings and that the Irish were shiftless, superstitious and incapable of ambition. Such individuals could never become good Americans. On the basis of ''science'' like this, the commission recommended draconian limitations on immigration. The country sighed with relief.

These ''racial'' stereotypes persist -- not as vehement as they once were, but still part of the national unconscious. ''The Godfather'' and ''The Sopranos'' fit perfectly. So does the film ''The Break-up,'' in which Vince Vaughn plays an insensitive oaf. He is subtly labeled "Pole" by the huge Polish flag, complete with the Polish eagle, on the wall of his office. The lazy, alcoholic Irish laugh all the way to their hedge-fund manager.

A Mexican-American high school sophomore sent me an e-mail asking why other Americans hate them so much and tell so many lies about them. My answer is that Dillingham is alive and well. They don't want more people with somewhat darker skin who can never become good Americans.

Harvard Professor Samuel Huntington has argued that Mexicans do not want to acculturate into our Protestant political and social system. Don't tell me, kid, that you can refute all the "facts" they propound to establish your inferiority (you're second generation, but you have no right to the educated prose of your e-mail). The bigots (less than a third of the country) who hate you know in the depths of their souls that you and your kind are an inferior people who are trying to take over their country and ruin it. We don't need no more Mexican flags at soccer matches and certainly no more statues of Guadalupe parading down our streets.

More seriously, young woman, you're very smart, the kind of young person this country needs. I pray to God that you can avoid the stormtroopers who might throw you out of the country. Given half a chance, you will become a successful American. Maybe someday you can laugh at them all the way to your hedge-fund broker.

Boston Globe Editorial - Why Guantánamo is unjust

Boston Globe Editorial - Why Guantánamo is unjust
Copyright by The Boston Globe
Published: June 28, 2007

For most of the 400 prisoners at Guantánamo Bay, Cuba, the only chance to challenge their confinement as enemy combatants comes at their Combatant Status Review Tribunals. No one in the Bush administration ever claimed these proceedings were full-blown trials in which the prisoners would have the benefit of an attorney. But it was not until last week that a military insider revealed just what a travesty of justice the tribunals actually are.

The disclosures of Lieutenant Colonel Stephen E. Abraham of the U.S. Army Reserve are more reason to close Guantánamo, move the prisoners to mainland U.S. prisons, and try those suspected of war crimes in federal courts or courts martial. Under pressure from Defense Secretary Robert Gates, the administration is at least moving closer to shuttering the detention center.

The attorneys who have worked with Guantánamo prisoners but have not been allowed to represent them in the tribunals have long said the hearings were kangaroo courts. The tribunals are important because they offered a chance for prisoners to claim they were detained by mistake in Afghanistan or Pakistan, where U.S. officials paid as much as $5,000 in bounties for individuals taken into custody.

In an affidavit in a federal appeals case, Abraham charged that evidence against prisoners was often generalized and did not allege specific acts. He also charged military commanders with putting pressure on the officers serving on the tribunals.

Despite the Defense Department's effort to answer Abraham's criticism by stating that he had "limited experience" with the tribunals and that they were "fair, rigorous, and robust," Abraham had a sound basis for his observations. He was both a member of a tribunal and served as a liaison between the office conducting the tribunals and intelligence agencies with access to information about the prisoners.

In that capacity, he reviewed intelligence data to see if there was any information favorable to the prisoners. He said that when he asked the intelligence agencies to state in writing that there was no undisclosed evidence that would benefit the prisoners, "the requests were summarily denied."

Gates has said any trials of suspects should take place elsewhere, because "no matter how transparent, how open the trials, if they took place in Guantánamo. . . they would lack credibility." The Combatant Status Review Tribunals lack transparency, openness, and fairness.

International Herald Tribune Editorial - Housing and hedge funds

International Herald Tribune Editorial - Housing and hedge funds
Copyright by The International Herald Tribune
Published: June 28, 2007

It should not be permitted for lenders, banks and hedge funds to risk everyone's economic well-being in their attempts to enrich the few.

The United States needs vastly better regulation than it now has. It must embrace global coordination of hedge fund regulation, just as banking regulation is increasingly global. Mortgage lenders must be restricted to recommending loans that are reasonably within the borrowers' ability to repay over time. Hedge funds should be regulated if they accept pension money, because doing so exposes ordinary people to outsized investment risks. Regulation should also cover hedge funds with large sums of borrowed money.

In this context, there may be a silver lining in the recent hedge fund debacle at Bear Stearns. Until now, the deepest pain of the housing slump has been felt by hard-pressed borrowers, generally low-income homeowners stuck with unsuitable and even predatory subprime loans - adjustable-rate mortgages made to people with weak credit.

As monthly payments have increased, the loans have become unaffordable, while falling housing prices and tougher credit terms have made them harder to refinance. Defaults and foreclosures have multiplied, but Congress has provided scant relief.

Now the pain is being felt by Wall Street. The two big Bear Stearns hedge funds that neared collapse last week were full of tricky investments tied to subprime mortgages.

To try to ensure that hundreds of billions of dollars worth of similar investments don't also plummet, endangering the financial system, Congress may finally have to do more to help lower-end borrowers. That, in turn, would prop up the investments based on their mortgages.

We're all for helping distressed borrowers. And we accept government's role, if necessary, to avert a financial collapse. But in the end, intervention on behalf of Wall Street would be an outrage, because Wall Street - abetted by lax federal regulation - is largely to blame for this fiasco. Wall Street firms encouraged the issuance of risky loans to troubled borrowers and then reaped a windfall by packaging them as investments for hedge fund clients.

Yet, the possibility of economywide problems from further Bear Stearns-like debacles is real. The Bear Stearns funds, like many others, borrowed big to invest in subprime loans. Investing with borrowed money juices returns in hot markets and magnifies losses in down markets, making losers out of lenders as well as equity investors.

One of the Bear Stearns funds borrowed some $6 billion, from Merrill Lynch, Goldman Sachs, Bank of America and other powerhouses. For the other fund, Bear Stearns reportedly put up $3.2 billion to help liquidate holdings. That's 32 cents on the dollar for assets once valued at $10 billion.

In the past two years, Wall Street firms have issued investments similar to the Bear Stearns holdings, worth about $500 billion on paper. If those were to tank, the damage could be felt broadly.

In the coming year, interest rates on some $850 billion in mortgages are scheduled for their first increase. Over half of that is in subprime loans. That is the dangerous financial world we live in. It needs strong regulations.

U.S. says Blair's Mideast role will be limited

U.S. says Blair's Mideast role will be limited
By Helene Cooper
Copyright by The International Herald Tribune
Published: June 28, 2007

WASHINGTON: In his new role as envoy to the Middle East, Tony Blair will be charged with shoring up Palestinian institutions, but not with trying to nail down a peace deal between Israelis and Palestinians, a job Secretary of State Condoleezza Rice will handle herself, according to Bush administration officials.

Rice has said several times that she intends to spend her remaining months in office trying to push peace talks forward.

Some Middle East analysts said Wednesday that such a narrow mandate would hamper the chances of Blair, who resigned as British prime minister Wednesday, succeeding. Indeed, the lack of a link between final status talks and the building of Palestinian institutions is the crux of why previous attempts have been unsuccessful, those analysts say.

"Unless he has the authority to deal with the Israelis on the issue of movement and lifting of barriers, he's not going to get very far," said Aaron David Miller, a scholar at the Woodrow Wilson Center who was a senior adviser for Arab-Israeli relations at the State Department under the last three U.S. presidents.

"If this is a variation of the Jim Wolfensohn portfolio, where you have a very smart guy who is thrown at the economics of the Palestinian issue, but without the authority to help change the situation on the ground, then this isn't going to work," Miller said.

He was referring to the last envoy to represent the so-called quartet, James Wolfensohn, the former World Bank president, who left the post last year, expressing frustration with the lack of progress. The quartet consists of the United States, the European Union, the United Nations and Russia.

In their official statements, Bush administration officials have said that Rice and Prime Minister Ehud Olmert of Israel believe strongly that the United States is the only country Israel trusts as a broker of a Middle East peace pact.

"Mr. Blair, who is stepping down from office this week, has long demonstrated his commitment on these issues," the State Department spokesman, Sean McCormack, said in announcing the appointment.

But, he added, "Secretary Rice and President Bush are going to focus on the political negotiations, as they have, and Mr. Blair is going to focus his considerable talents and his efforts on building those Palestinian institutions."

Bush administration officials defined Blair's mandate as one in which he would mobilize international assistance to the Palestinian president, Mahmoud Abbas, identify and secure financing for Palestinian institutions and governing tasks and work out plans to promote Palestinian economic development.

In the steps outlined by McCormack, Rice would be the one to try to work with Olmert and Abbas on a separate track that addresses the "final status" issues that have bedeviled peace negotiators since 1979: Jerusalem's future, a Palestinian state's borders and what to do about Palestinian refugees who fled, or were forced to leave, homes in Israel.

In the Arab world, many reacted to Blair's appointment with a mixture of bemusement and cynicism.

"Blair is hated so much here - he took the Bush line all the way, and he was not worthy of Britain's past diplomacy," said Fahd Kheitan, a columnist with the Jordanian daily Al Arab al Youm. "Most people will ultimately view him as a prisoner of America's will."

Many Arabs see Blair as the man who lent the greatest legitimacy to the Bush administration's push for war with Iraq in 2003, a conflict that is seen as the basis of the region's current instability.

Others say they will never forget his unwillingness to insist on an end to Israel's bombardment of Lebanon last summer as Israeli forces tried to crush Hezbollah, the Shiite militia, in southern Lebanon. And still others accuse him of having come out on the side of the Israelis despite calling for the peace talks to be restarted.

Writing in a syndicated column, Rami Khouri, editor at large at The Daily Star in Beirut, said, "Appointing Tony Blair as special envoy for Arab-Israeli peace is something like appointing the Emperor Nero to be the chief fireman of Rome."

A senior Bush administration official maintained that Blair had not pressed U.S. officials to allow him to take on the final status issues.

With Gaza now in the hands of Hamas and the West Bank in the hands of Fatah, Blair will also have to try to strengthen a prospective Palestinian state that, at this point, consists of two sets of peoples who are separated both physically and politically.

Reflecting those differences, Abbas, the Palestinian president, welcomed the Blair appointment while the Hamas leadership in Gaza rejected it, saying Blair had always sided with Israel and the United States over the Palestinians.

Hassan M. Fattah contributed reporting from Amman.

U.S. strings rankle some in AIDS fight - Funding is tied to abstinence message

U.S. strings rankle some in AIDS fight - Funding is tied to abstinence message
By Mark Silva
Copyright © 2007, Chicago Tribune
Published June 29, 2007

LUSAKA, Zambia -- On a bright yellow wall facing the red clay courtyard of Regiment Basic School, rules of the school are painted in bold letters. Among the strictures: Eat healthy foods, drink boiled or chlorinated water, wash hands often and say no to sex and drugs, "because AIDS is real."

In Africa, where the United States is spending billions of dollars in an unprecedented global war against AIDS, the Republican-run Congress that first authorized this money also set a requirement: One-third of the money spent on prevention of the disease must go toward promotion of sexual abstinence.

While the U.S. is widely hailed for spending more than any other nation on a commitment already costing $15 billion -- and with President Bush seeking a doubling of that to $30 billion over the next five years -- Americans also are criticized for attaching strings that some relief advocates insist render the aid worthless.

Some agencies reject funding

Some of the many non-governmental relief agencies offering aid around the world have refused to accept U.S. funding with promotion of abstinence required , and some have sued the U.S. Agency for International Development.

"We have people living with HIV-positive partners," said Paul Kasonkomona, an activist in Lusaka who has had HIV since 2001 and whose wife has tested positive. "We believe that staying abstinent is not healthy. We feel it is not right -- the imposition of another government because it has power and it is telling us what to do."

Administrators of the U.S. aid insist that abstinence is only a small part of a comprehensive program -- representing about 7 percent of the money spent so far on the fight against AIDS in 15 nations, mostly in Africa. They say more than 1 billion condoms have been distributed as part of the program.

In Zambia and other stricken corners of Africa, where schoolchildren are tutored in the basics of abstinence with the help of U.S. funding, the program is known as ABC -- "Abstinence, Be Faithful, Condoms."

It is pictured in a cartoon poster on the classroom wall of teacher Emelde Chewe. It shows three men up to their waist in water, with three small lifeboats strung together by rope: "Life saving boats in an AIDS flood." The boats are labeled: "Abstinence, Be faithful, Condom."

"The ABC program is part of the Zambian national strategy," said Mark Dybul, U.S. Global AIDS coordinator. "The ABC approach was actually developed in Africa by Africans."

For the U.S., he said, it is part of a wider approach under the President's Emergency Plan for AIDS Relief. "You've got to get to these kids to begin with and teach them messages when they're 10 years old."

Since Congress started paying for a program that Bush sought in his 2003 State of the Union address, it has required that one-third of the AIDS prevention money go toward abstinence. Prevention accounts for nearly a quarter of the overall money spent on a program that includes testing for HIV and treatment of AIDS patients using antiretroviral drugs.

'We must save lives'

Yet relief advocates say the restraint on spending has hindered programs that could use more money for treatment. With Democrats in control of Congress, Rep. Nita Lowey of New York has won House approval of an amendment on a bill containing the coming year's AIDS funding that would allow the president to waive the one-third requirement.

"We must save lives," said Lowey, whose waiver is headed to the Senate this summer.

As First Lady Laura Bush completes a four-nation tour of Africa this week to showcase the U.S. campaign against AIDS and malaria on a continent where 1 million children die of malaria each year and where an estimated 30 million people are HIV-infected, she has touted the comprehensive approach to fighting AIDS and staunchly defends abstinence as a strategy.

Bush also has touted church-affiliated programs involved in counseling and treatment of AIDS patients, such as a World Vision-supported and U.S. government-funded program outside Lusaka that trains caregivers for patients.

"One of the greatest sources of hope is the compassion of people of faith," she said Thursday. "In the United States and around the world, I've seen how houses of worship inspire volunteers ... and they are putting their faith into practice across the continent of Africa. ... Their compassion is right on display here in Zambia."

At Chreso Ministries, which treats more than 4,000 people with medicine supplied by the U.S., the first lady met one woman whose family of 18 includes four who are HIV-positive and a man who said medication has given him a "second chance" in life.

First Lady Maureen Mwanawasa of Zambia, who toured the Lusaka area with Bush on Thursday, insists the U.S. spending requirement is not a hindrance in her country, where 17 percent of the people ages 15 to 49 have HIV. .

"What we are saying, the children should not get into sexual activities until they are mature enough to understand the consequences," Mwanawasa said.

"This money regarding abstinence is being spent properly, and it must be encouraged," the Zambian president's wife said. "There are several ways in which we can reach young people. ... One of the effective ways is abstinence. ... It brings back dignity and self-responsibility to young people, because they know their bodies are not supposed to be abused and they should learn to say no."


House bid to cut off Cheney funds fails - Emanuel led effort in flap over secrecy

House bid to cut off Cheney funds fails - Emanuel led effort in flap over secrecy
Copyright © 2007, Chicago Tribune and The Associated Press
Published June 29, 2007

WASHINGTON -- Vice President Dick Cheney won't lose his home, his office and his entertainment expense account after all.

The House on Thursday rejected an attempt to eliminate the vice president's executive office budget, a move that Democrats tied to Cheney's assertion that his office did not need to comply with national security disclosure rules required of other executive branch agencies.

Republicans denounced the proposal as political theater.

The vote, rejecting an amendment to a 2008 spending bill for the Treasury Department and executive branch agencies, was 217-209.

"We are pleased to see a bipartisan majority reject this political stunt," said Cheney spokeswoman Megan McGinn.

Rep. Rahm Emanuel (D-Ill.), the author of the amendment, said it was the logical outgrowth of Cheney's claim that his office was outside the scope of rules imposed on other executive offices.

"Perhaps the vice president thought he occupied an undisclosed fourth branch of government," Emanuel said.

The proposal would have withheld about $4.8 million in the budget for the vice president's official residence, his office and for other expenses including the hiring of passenger vehicles and entertainment expenses. He still would have received a budget for his role as president of the Senate.

The latest dispute between the Democratic Congress demanding information from the White House and a vice president with a penchant for secrecy came when Cheney said his office was exempt from sections of a presidential order that executive branch offices provide data on how much material they classify and declassify.

Cheney's office, with backing from the White House, argued that the offices of the president and vice president were exempt from the order because they are not executive "agencies."

Bush rebuffs records demand - Democrats vow fight on prosecutor firings

Bush rebuffs records demand - Democrats vow fight on prosecutor firings
By Andrew Zajac
Copyright © 2007, Chicago Tribune
Published June 29, 2007

WASHINGTON -- President Bush refused Thursday to turn over records sought by Congress in its investigation of the firing of federal prosecutors, setting up a standoff with no quick resolution unless one side or the other blinks.

White House counsel Fred Fielding told lawmakers in a letter that "the president has decided to assert executive privilege and therefore the White House will not be making any production" of documents.

Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) denounced the rebuff as "Nixonian stonewalling and more evidence of their disdain for our system of checks and balances."

Leahy and House Judiciary Committee Chairman John Conyers (D-Mich.) vowed to press ahead in their attempt to enforce a pair of subpoenas for documents from former White House political director Sara Taylor and former White House counsel Harriet Miers.

Both were involved in deliberations that ended with the forced removal of nine U.S. attorneys in 2006, according to records already released by the Justice Department and the White House.

Fielding said Bush is shielding the requested documents because he needs his aides to be able to advise him without "fear of being commanded to Capitol Hill to testify or having their documents produced to Congress."

Miers and Taylor are slated to testify before Congress next month, but Bush also objects to that and is prepared to assert executive privilege to block it "if the matter cannot be resolved," Fielding said in his letter.

Democrats say claim invalid

But congressional Democrats said Fielding's claims of privilege are overly broad because there is no evidence that Bush himself was involved in the discussions about the firings.

Democratic lawmakers say they will ask Fielding to provide a more detailed explanation of the privilege claim as a first step in a lengthy process that could result in contempt of Congress citations and even criminal contempt charges.

The White House brush-off was expected. When Fielding's letter was released, Democrats were ready with information sheets on the limits of executive privilege and an explanation of how subpoenas are enforced.

But aides privately acknowledged that Bush could draw out the process until he leaves office in 18 months if he has the stomach for the political heat the fight might generate. Conversely, congressional Democrats run the risk of a backlash if the public perceives them as unfairly belaboring the issue.

"The system is designed to slowly ratchet up the pressure on both sides," a senior Senate aide said.

Showdowns over claims of executive privilege have occurred repeatedly over the past four decades.

Charles Tiefer, a law professor at the University of Baltimore and House deputy counsel in 1984-95, said: "President Bush's claim is like several others made by presidents in a number of scandals since Watergate. Often Congress has succeeded in bringing enough political and legal pressure to overcome presidential resistance."

Tiefer said congressional committees occasionally have voted to issue contempt citations, most recently in 1996 against Janet Reno, who was the attorney general, but the full House or Senate has approved a contempt citation only once in recent decades. In 1983, the House cited Anne Gorsuch Burford, the administrator of the Environmental Protection Agency, for contempt for refusing, at White House direction, to produce documents on toxic waste related to the operation of the Superfund environmental cleanup program.

She resigned, but President Ronald Reagan released the disputed documents.

Mushrooming probe

The subpoenas of Miers and Taylor are part of a broadening set of inquiries that began as an examination of how the prosecutors were fired and now include the politicized hiring of Justice Department civil service employees, the alleged politicization of the department's Civil Rights Division and the department's role in the administration's warrantless domestic surveillance operation.

Six top Justice Department officials have quit since the investigations began earlier this year.

On Wednesday, the Senate Judiciary Committee subpoenaed Committee subpoenaed the White House and Vice President Dick Cheney's office seeking records connected to the surveillance program. Leahy also announced that he has asked Atty. Gen. Alberto Gonzales to testify again before his committee. Lawmakers from both parties have called on Gonzales to resign, but Bush has said he retains confidence in the attorney general.


- - -

The president's rationale Excerpts from a letter White House counsel Fred Fielding sent to Sen. Patrick Leahy and Rep. John Conyers on congressional subpoenas for documents in the firings of nine U.S. attorneys:

... To be sure, the President's offer also took care to protect fundamental interests of the Presidency and the constitutional principle of separation of powers. Specifically, the President was not willing to provide your Committees with documents revealing internal White House communications or to accede to your desire for senior advisors to testify at public hearings. The reason for these distinctions rests upon a bedrock Presidential prerogative: for the President to perform his constitutional duties, it is imperative that he receive candid and unfettered advice and that free and open discussions and deliberations occur among his advisors and between those advisors and others within and outside the Executive Branch. ...

... The President has frequently, plainly, and completely explained that his position, and now his decision, is rooted in a need to protect the institution of the Presidency. The President's assertion of Executive Privilege is not designed to shield information in a particular situation, but to help protect the ability of Presidents to ensure that decisions ... benefit from the exchange of informed and diverse viewpoints and open and frank deliberations.

Frank conversation at debate - Democratic hopefuls discuss AIDS threat, racial profiling

Frank conversation at debate - Democratic hopefuls discuss AIDS threat, racial profiling
By Christi Parsons and Mike Dorning
Copyright © 2007, Chicago Tribune
Published June 29, 2007

WASHINGTON -- In a blunt conversation before a largely African-American audience, the Democratic presidential candidates on Thursday occasionally departed from polite talking points as they discussed everything from the spread of HIV and AIDS to racial profiling in the criminal justice system.

Sen. Hillary Clinton asserted that if white women were dying of AIDS at the same rate as black women, there would be an "outraged outcry" in the country instead of the current response, which she suggested is tepid.

Sen. Barack Obama, the only African-American candidate on the stage, blamed "homophobia" and other stigmas for the failure to stop the spread of the disease in "our communities" -- an assertion followed quickly by an admiring reminder from Sen. Joseph Biden that Obama himself had been tested for AIDS.

That prompted Obama to jump in immediately and clarify that he had done so with his wife, Michelle, at his side, as a public demonstration of the importance of AIDS testing while on a trip to Africa.

"I've just got to make it clear, I got tested with Michelle when we were in Kenya and Africa," Obama said, as his wife waved her arms in the audience and nodded her head in agreement. "I don't want there to be any confusion about what happened here."

The exchange came to a close only after Biden mentioned that he recently went around his hometown "trying to get black men to understand it is not unmanly to wear a condom."

Like several exchanges of the night, the back and forth between Obama and Biden drew a mixed reaction from the crowd, as some audience members laughed and applauded the candor but others, such as Rev. Al Sharpton, sat silently with furrowed brows.

Sensitive issues

The response was a testament to the uniqueness of the forum thus far in the debate season, which has included spirited and confrontational interactions but never such blunt conversation about the most sensitive issues in churches, homes and communities across the country.

But that was the stated goal of the event's organizers, who held the debate at historically black Howard University and invited only journalists of color to sit on the panel of questioners. The 90-minute meeting was moderated by PBS host Tavis Smiley, who told candidates in advance that the conversation would focus exclusively on issues outlined in the essays of "Covenant With Black America," which he edited.

And the audience included some of black America's leading thinkers, among them provocative academic Cornel West, prominent children's rights activist Marian Wright Edelman and former Surgeon General David Satcher.

With that crowd, and with Smiley demanding succinct answers, the Democratic presidential candidates at times spoke directly about issues of concern to demographic minorities.

A black president

Obama hinted at concrete benefits for African-Americans from the symbolic impact of electing a black man president in answering a question on criminal justice. The candidates were asked to explain statistics showing that blacks who are arrested are sent to prison in greater numbers than whites who are arrested.

"The criminal justice system is not color blind. It does not work for all people equally," Obama said. "That is why it is critical to have a president who sends a signal that we are going to have a justice system that is not 'just us,' but is everybody."

Clinton seized the opportunity from a question about the genocide in Darfur to demonstrate to viewers her steel and readiness to use U.S. force abroad. While she was joined by most of the other candidates in advocating a no-fly zone to deter attacks in the region, she laid out the military threat in explicit terms.

"We should make it very clear to the government of Khartoum," Clinton said. "We are putting up a no-fly zone. If they fly into it, we will shoot down their planes."

Tough talk on Sudan

New Mexico Gov. Bill Richardson, who also supports a no-fly zone, defended a threat he made in a previous debate to pull out of the 2008 Olympics in Beijing if the Chinese government continues to fight sanctions against Sudan.

"You know, I believe fighting genocide is more important than sports," he said.

Richardson argued that the next president should "speak passionately" about the need for dialogue among people of diverse backgrounds.

"Issues of diversity for me, the first Latino to run for president, are not talking points," he said. "They are facts of life."

Organizers emphasized that none of the candidates should take for granted the support of the African-American voters.

"Black America stands united on many of these issues, but not all," said radio host Tom Joyner. "That's why our votes cannot be taken for granted."

Smiley set the agenda this way:

"You can't save people if you don't serve people," he said. "We ask tonight, 'What's the depth of your love for people?' "


Financial Times Editorial Comment: Global credit woes

Financial Times Editorial Comment: Global credit woes
Copyright The Financial Times Limited 2007
Published: June 28 2007 22:59 | Last updated: June 28 2007 22:59

Global credit markets are jittery. Like motorists driving past a crash, bond investors are taking a ghoulish interest in the wreckage of two Bear Stearns hedge funds hit by US subprime housing loans, and refusing to buy into the risky new deals on offer from investment banks. Without a more substantial external shock, however, this is unlikely to turn into a systemic meltdown in the credit markets.

The Bear Stearns funds in question were leveraged vehicles that bought derivatives backed by subprime mortgages. When the price of the derivatives fell, lenders to the funds asked for their money back, which meant the funds had to sell some of these structured mortgage-backed securities. That has proved to be very hard to do.

The market for these structured securities has grown exponentially but this saga has shown that the institutions of the market have not matched that growth. There is little trading or liquidity in products such as collateralised debt obligations and so no market prices. It is possible that they are systematically overvalued on the books of hedge funds, insurers and banks and a revaluation would cause pain.

The question is whether it could cause forced sales of bonds that undermined the wider credit markets. There are signs of nervousness: KKR, the buy-out firm, has had to delay a bond offering by US Foodservice, one of its portfolio companies, after investors refused to bite.

But widespread, lasting contagion from the subprime crash seems unlikely, because alongside these wobbles has come broadly good economic news. Real interest rates have risen as US investors reassessed the prospects for growth, and the chances of the Federal Reserve cutting interest rates this year.

Credit spreads remain unusually low – perhaps driven by global financial integration – and there is no question that the markets for securities such as high-yield corporate bonds are vulnerable to a fall. But a more substantial trigger than subprime will probably be needed for that setback to materialise.

The CDO market needs to grow up, fast. Participants need to improve the transparency and independence of pricing and develop more liquid markets for secondary trading. If the subprime slide does get worse, this lack of liquidity could lead to a wider crisis.

But balance of probability is that we are just seeing a shake-out in a market – subprime – that was always high-risk. If investors in other assets take note, and moderate their appetites for risk, today’s jitters may prevent a nastier credit crunch in months to come.

Court rules out schools' racial balancing

Court rules out schools' racial balancing
By Patti Waldmeir in Washington
Copyright The Financial Times Limited 2007
Published: June 29 2007 03:00 | Last updated: June 29 2007 03:00

A sharply divided US Supreme Court yesterday ruled that race alone could not be used to determine where children go to school, a ruling that could affect millions of American pupils.

In one of its most important decisions on race in years, the court ruled unconstitutional the practice of "racial balancing", a tool used by thousands of US school districts to seek integration of the country's still largely segregated schools.

Ruling 5-4 on the last day of its term, the court's conservative majority - led by the new conservative chief justice, John Roberts, appointed by President George W. Bush - struck down voluntary integration programmes, which had been challenged primarily by white parents who complained their children were harmed by them. The programmes used race as an important factor in selecting students for popular schools.

The ruling marks a significant shift for the Supreme Court, which only three years ago said universities could consider race in making admissions decisions.

Writing for the conservative wing of the court, Chief Justice Roberts said choosing students by race violated the constitution's equal protection clause, which outlaws most racial discrimination by government.

He drew explicit parallels with race-based schooling that existed before the historic Brown v Board of Education Supreme Court ruling, which struck down school segregation more than 50 years ago.

"Before Brown, schoolchildren were told where they could and could not go to school based on the colour of their skin," he wrote. "The school districts in these cases have not carried the heavy burden of demonstrating that we should allow this once again - even for very different reasons."

"The way to stop discrimination on the basis of race is to stop discriminating on the basis of race," he wrote.

However the fifth member of the majority, Justice Anthony Kennedy, wrote separately to limit the scope of the decision. He said districts could try to foster integration, but should find subtler methods such as strategic site selection for new schools and attendance zones that take into account neighbourhood demographics.

Liberals in the court attacked the conservatives for betraying the Brown ruling. In a dissent read from the bench, Justice Stephen Breyer said: "The last half-century has witnessed great strides toward racial equality, but we have not yet realised the promise of Brown. This is a decision that the court and the nation will come to regret."

The Alliance for Justice, a liberal group that opposed the nomination of Chief Justice Roberts and his fellow Bush appointee, Justice Samuel Alito, said the new justices had violated assurances given at their confirmation hearings.

They had "taken the first opportunity they had to undercut the reasoning of that landmark case", it said, adding: "By barring public school districts from assigning students on the basis of race, the court has undone years of precedent and disregarded settled federal law."

1911 ruling on minimum-price pacts overturned

The US Supreme Court yesterday overturned a near century-old antitrust precedent, ruling that manufacturers sometimes can agree with retailers on minimum prices for products, writes Patti Waldmeir.

Ruling 5-4, the court said an agreement on a price floor for a product was legal if it promoted competition, and illegal if it did not. Courts will have to evaluate accusations of minimum pricing pacts case by case. The ruling will allow manufacturers in some circumstances to tell distributors and retailers what the resale price of products will be.

The Supreme Court said in 1911 that such minimum price agreements violated federal antitrust law. Consumer advocates say ending the automatic ban will lead to higher consumer prices by hurting discounters and internet resellers seeking to offer cheaper ways to distribute products.

But Justice Anthony Kennedy, writing for the majority, said thatsuch agreements might be good for competition and could "give consumersmore options to choose among low-price,low-service brands; high-price, high-service brands; and brands falling in between".

Justice Stephen Breyer, writing for the dissent, said: "The only safe predictions to make about today's decision are that it will likely raise the price of goods at retail."

Fed leaves interest rates unchanged

Fed leaves interest rates unchanged
By Krishna Guha in Washington
Copyright The Financial Times Limited 2007
Published: June 28 2007 21:41 | Last updated: June 29 2007 02:22

The Federal Reserve on Thursday left interest rates unchanged as it kept a resolute focus on the risks to future inflation, noting the recent decline in core inflation in the US but playing down its significance in language that offered little relief to the bond markets.

The statement at the end of its June policy meeting, which kept rates at 5.25 per cent, made no reference to the recent turmoil in the bond market or to any risks to growth deriving from it, leaving the impression that the Fed’s view of US economic prospects had not changed greatly since the last meeting, in early May.

The US central bank dropped its description of core inflation as “somewhat elevated” and acknowledged that “readings on core inflation have improved modestly in recent months”.

But it added: “A sustained moderation in inflation pressures has yet to be convincingly demonstrated.” With risks to inflation from a tight jobs market, the Fed said its “predominant policy concern remains the risk that inflation will fail to moderate as expected”.

The statement came after revisions to inflation estimates for the first quarter of the year suggested that the easing in core inflation was not as marked as earlier data suggested.

The Fed’s new language on inflation looks to be a compromise between those on the committee who want to drive inflation down to about 1.5 per cent and those who would be content at or just under 2 per cent.

Some analysts interpreted the Fed’s decision no longer to talk about core inflation as “somewhat elevated” as marking a small step in a more dovish direction. However, this may largely be a tidying-up exercise.

Fed officials worried that, if they continued to offer a running commentary on the level of core inflation, the moment they stopped calling it elevated the market would assume they had reached an agreed de facto inflation target. Moreover, the Fed would like to direct the market’s attention to its forecast of future inflation and the risks to that forecast, rather than the current core rate.

In a note to clients, Goldman Sachs economists said: “Statements on recent and prospective inflation are slightly more hawkish than we expected; however, the FOMC retains its focus on core inflation (as expected) and gives no hint of discomfort with policy on its current setting.”

Bruce Kasman, JPMorgan chief economist, summed up the message: “In short, the Fed is more comfortable with what it is seeing on growth and inflation and is not considering action anytime soon. But it maintains a firm inflation bias and is telling us that this will not change soon, even if June delivers low core inflation.”

Senate kills Bush immigration reform bill

Senate kills Bush immigration reform bill
By Andrew Ward in Washington
Copyright The Financial Times Limited 2007
Published: June 28 2007 19:43 | Last updated: June 29 2007 02:19

Senate Republicans on Thursday delivered a crushing political blow to President George W. Bush by blocking an immigration reform bill that had become the top domestic priority of his remaining time in office.

The defeat exposed Mr Bush’s dwindling authority over his own party and increased the probability his troubled second term will end without a significant legislative achievement.

Mr Bush invested much of his remaining political capital in pushing for immigration reform, aligning himself with Democrats and Republican moderates behind a bill aimed at tightening border security while also offering a path to citizenship for the estimated 12m illegal immigrants already in the US.

But the measures faced fierce opposition from a large majority of grassroots Republicans, who accused Mr Bush of offering “amnesty” to people who had entered the US illegally.

Opposition to immigration reform has merged with growing Republican unrest over the war in Iraq to create the most serious breach between Mr Bush and his party since he took office. Two senior senators this week called for a change of course in Iraq.

Republican members of Congress and some presidential hopefuls have increasingly sought to distance themselves from Mr Bush in an attempt to prevent his unpopularity further damaging their prospects in next year’s elections.

The immigration bill fell 14 votes short of the 60 needed to cut off debate and proceed to final passage of the legislation, with only 12 of the 48 Republican senators voting in favour.

The defeat marked the second time in a month that the bill had been derailed by a procedural vote, and its supporters acknowledged efforts to reform US immigration laws were now dead until after next year’s election.

Democratic Senator Edward Kennedy, one of the main architects of the bill, said: “It is now clear that we are not going to complete our work on immigration reform. That is enormously disappointing for Congress and for the country.”

Mr Bush expressed disappointment, and warned Congress it needed to prove it was capable of uniting to solve the country’s biggest problems. He urged lawmakers to keep working on energy legislation and healthcare reform, but with wide differences between the White House and Congress on those issues chances of progress appeared slim.

Collapse of immigration reform is the latest in a series of setbacks for Mr Bush’s second-term agenda, including the failure of efforts to overhaul the Social Security system.

Thursday's vote was also a blow to Senator John McCain, the Republican presidential hopeful, whose backing for Mr Bush on immigration and the war in Iraq has contributed to his poor performance in opinion polls and fundraising.

The bill sought to coax illegal immigrants out of the shadows by offering temporary visas to a limited number of new migrant workers each year.

Most controversially, it also created a path for illegal immigrants already in the country to apply for visas that could eventually lead to citizenship, subject to payment of various fees and penalties.

A poll this week showed 47 per cent of Americans opposed to the bill, with 30 per cent in favour and 19 per cent undecided.

Investors in retreat to escape credit risk

Investors in retreat to escape credit risk
By FT Reporters
Copyright The Financial Times Limited 2007
Published: June 28 2007 11:41 | Last updated: June 29 2007 01:44

The retreat from risk in global credit markets gathered pace on Thursday as investors demanded stricter terms for high-yield bond issues and a London hedge fund said it would wind down after suffering big losses on US subprime mortgages.

Caliber Global Investment, a London-listed fund, said it would sell its assets and return capital to investors after a review found “insufficient demand currently” for exposure to the subprime mortgage market. The review was triggered by an $8.8m (£4.4m) net loss from subprime investments.

The $900m fund will wind down over the next 12 months. It is managed by hedge fund Cambridge Place Investment Management, whose founders included Martin Finegold, founder of subprime lender Kensington Group.

Carlyle Group, the US private equity company, also delayed – at the last minute – the flotation in Amsterdam of an investment fund dealing in residential mortgage-backed securities in order to cut the offer price because of market volatility.

Carlyle said the fund had no exposure to US subprime mortgages. However, people familiar with the plans said the intended flotation had suffered knock-on effects of volatility. The company said it was confident the IPO would go ahead next week.

The developments follow the cancellations or postponements of several other debt offerings this week and come amid questions about whether the cheap debt that has fuelled the buy-out boom is still as easily available.

Dollar General, a leading US retail chain, was on Thursday forced to shelve its planned offering of $725m in “payment-in-kind toggle” notes – an aggressive financing structure that allows borrowers to choose whether to pay investors back in cash or additional debt. The company also added protective covenants to sell $1.2bn of high-yield debt.

Separately, CanWest MediaWorks, a Canadian media company, downsized its own high-yield offering from $650m to $400m.

“The balance between sellers of debt and buyers of debt is evening out,” said Eirik Winter, co-head of fixed income capital markets at Citi. “Investors are taking a step back and saying that we have a lot of cash, but we are going to be more cautious and will not buy just anything.”

Reporting by Joanna Chung, Peter Thal Larsen, Martin Arnold in London, Ian Bickerton in Amsterdam and Saskia Scholtes and James Mackintosh in New York

Thursday, June 28, 2007

International Herald Tribune Editorial - Domestic Guantánamos

International Herald Tribune Editorial - Domestic Guantánamos
Copyright by The International Herald Tribune
Published: June 27, 2007

Toughness is the watchword in immigration policy these days. When you combine the new toughness with same-old bureaucratic indolence and ineptitude, you get a situation like that described by Nina Bernstein of The New York Times in Wednesday's IHT. She wrote about how the boom in immigration detention - the nation's fastest-growing form of incarceration - ensnares people for dubious reasons, denies them access to medicine and lawyers and sometimes holds them until they die.

Sixty-two immigrants have died since 2004 while being held in a secretive detention system, a patchwork of federal centers, private prisons and local jails. Advocacy groups and lawyers say that the system not only denies detainees the most basic rights but also lacks the oversight and regulations that apply to federal prisons. Instead of fixing this broken system, the Senate bill that is lumbering toward final passage - after surviving a crucial procedural vote on Tuesday - is overloaded with provisions that will make it even harsher and more unfair.

One of the worst amendments would impose mandatory detention of all people who overstay their visas. It's a huge overreach that threatens to swamp the detention system, filling already-strapped prisons at great expense and inevitably leading to more abuses and deaths.

Non-citizens are subject to the laws of the United States and are being deported if they do bad things. But this doesn't mean that America must detain or deport everybody, or relinquish basic decency or even basic sense to achieve some imagined ideal of toughness.

Boston Globe Editorial -Breaking the code of secrecy

Boston Globe Editorial -Breaking the code of secrecy
Copyright by The Boston Globe
Published: June 27, 2007

There is no end to the magnetic attraction of secrecy on government officials. So it is a healthy sign of democratic self-correction when the code of secrecy is set aside, as it was yesterday when, at the behest of CIA Director Michael Hayden, the agency released 693 pages of declassified files on CIA abuses from the 1950s to the 1970s. Among these were a plot to assassinate Fidel Castro, subjecting unwitting subjects to LSD and the wiretapping of journalists.

Making those records public is not merely a boon for historians. It may also help cure contemporary leaders of their addiction to acting secretly, outside the law. Anticipating Hayden's action, the National Security Archive at George Washington University last week released documents from 1975 in which former President Gerald Ford; his secretary of State, Henry Kissinger; and the CIA director at the time, William Colby, discuss some of what Colby called the "skeletons" in the agency's closet.

Then as now, the CIA was conducting illegal wiretaps of Americans. To uncover the source of leaks to newspapers, journalists and government officials were placed under 24-hour surveillance. CIA letter openers were reading mail to Americans from the Soviet Union and China. CIA operatives covertly monitored and inflitrated antiwar groups and conducted covert programs against "the international activities of radicals and black militants."

The parallels between those old transgressions and recent abuses countenanced by President George W. Bush and members of his administration are not always exact. Nonetheless, there are enough similarities to cast light on the enduring temptation of secrecy-obsessed officials to trample on American liberties in the name of protecting them.

Indeed, some of the contemporary excesses that have come to light are worse than the Vietnam-era opening of Jane Fonda's mail. Scores of suspected terrorists or Islamist recruiters for global jihad have been kidnapped and delivered to interrogators in countries known to practice torture. The e-mails of many more Americans than were monitored during the Vietnam War have been subjected to data mining by government snoops.

Records of those old un-American activities were kept secret so long not merely to protect the reputation of officials who have long since retired or died. The hiding of old abuses also makes it easier to forget how harmful and unnecessary they were. Secrecy about the past makes it easier for new generations of abusers to pursue new abuses.

Good times, bad mood

Good times, bad mood
By Steve Chapman
Copyright © 2007, Chicago Tribune
Published June 28, 2007

Americans have many reasons for gloom. The war in Iraq has yet to turn around, we can't agree on a solution for illegal immigration, and Lindsay Lohan isn't cute anymore. We also have one reason to be happy: the economy. But right now, we're in the middle of a good funk, and we don't want to let any sunshine intrude.

When it comes to the economy, the national mood is a combination of dissatisfaction and fear. A recent Gallup poll found that 66 percent of Americans think national economic conditions are "only fair" or "poor." And we remember the old proverb: It's always darkest just before it goes totally black. Fully 70 percent think the economy is getting worse, compared with 23 percent who discern signs of improvement.

In the midst of a recession, a depression or the Irish potato famine, our morose outlook would make sense. At the moment, though, it seems to have no basis in reality.

Unemployment stands at 4.5 percent, down from the peak rate of 6.3 percent four years ago. The stock market is near record levels. Economic growth, which slowed in the first quarter, has since rebounded. Inflation is running below 3 percent. But to paraphrase the old country song, we've enjoyed as much of this as we can stand.

It's true that not all the economic news is golden. Some people are out of work or drowning in debt. Gas prices are painfully high. People who expected their home values to keep climbing, no matter what, are learning the definition of the term "bubble." Health care and college costs, however, seem permanently immune to the law of gravity.

But even in the best of times, some trends fall below average. Taken as a whole, the economy is plenty healthy. So why do we insist on seeing it as sickly?

One reason is that we've gotten so accustomed to prosperity that we take it for granted. From 1971 through 1997, the unemployment rate never once fell to the level we now enjoy. In the 1970s, annual inflation was frequently in double-digits. Recessions used to come along every four or five years, but since 1991, we've had only one mild downturn back in 2001.

Another reason for the pessimism is that we mistake the few bad indicators for a broad trend. When gas prices soar, it's tempting to conclude that we're on the verge of economic turmoil so awful that we will soon be eating tree bark to stay alive. Never mind that other prices are reasonably stable, and that the national economy has absorbed higher fuel costs without too much strain.

In one sector where prices have been dropping, of course, the trend is taken as cause for panic: home sales. But what is bad for home sellers is good for home buyers. Most of us are both, which makes the whole phenomenon pretty much a wash.

A major cause of the misperception, though, is President Bush's sagging popularity. It's clear that many people let their discontent with the president color their view of everything. If he is failing to win the war in Iraq or curb illegal immigration, we assume he must also be coming up short on the economy.

The polls suggest that some people won't acknowledge anything good here lest it suggest competence on the part of a president they can't stand. According to a survey by the Pew Research Center for the People & the Press, 43 percent of Republicans say the economy is fair or poor, but 79 percent of Democrats take that view. "People are giving partisan responses," says public opinion expert Karlyn Bowman of the American Enterprise Institute in Washington.

This is an error on two counts. The first is that even if George W. Bush were completely incompetent on matters related to our money, which he is not, presidents don't have that much power over the fortunes of the economy. The second is that it's entirely possible for a president to handle one area of policy badly and another one well -- just as a baseball player can be a star at the plate and a klutz in the field.

For a variety of reasons, we just can't be happy with our current prosperity. When things eventually change, trust me: We may not miss Bush, but we will really miss the good times.


Steve Chapman is a member of the Tribune's editorial board. E-mail: