Saturday, March 1, 2008

Profit-Taking Pulls Oil Back From $103

Oil futures retreated from a new overnight record above $103 as the dollar gained strength and Turkish forces withdrew from northern Iraq.

The slumping dollar and tension in the oil-rich Middle East have been among the factors in crude's dramatic 19 percent rise in February.

Still, many analysts believe any declines may be temporary and that oil is poised to rise above $103.76 a barrel. That's the price many believe to be oil's all-time high, on an inflation-adjusted basis, set in early 1980 during the Iranian hostage crisis.

Gasoline and diesel prices, meanwhile, continued to soar.

Gas prices rose 0.3 cent overnight to a national average of $3.164 a gallon, creeping closer to last May's record of $3.227 a gallon, according to AAA and the Oil Price Information Service. Diesel prices jumped 1.5 cents to a new record national average of $3.642 a gallon.

While most Americans fuel their cars with gasoline, most of the products they buy are transported by trucks, trains and ships that burn diesel. While gas prices are unlikely to rise as high as $4 a gallon, diesel may well pass that psychologically important level this spring, boosting prices of nectarines, computers, clothing and virtually every other consumer product, said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J.

"It's everything that gets shipped," Kloza said of diesel fuel's impact on the economy. "That is the one that is much scarier."

Gas and diesel prices are following light, sweet crude oil, which spiked to a new record of $103.05 overnight before falling 75 cents to settle at $101.84 a barrel on New York Mercantile Exchange.

In London, Brent crude futures fell 80 cents to settle at $100.10 a barrel on the ICE Futures exchange.

Analysts cited profit-taking by investors who have bought into oil's recent runup for Friday's declines.

The dollar rose against the euro Friday, reversing one of the factors that has attracted huge flows of investment capital to the oil market. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling. That logic tends to reverse itself when the dollar strengthens.

Also giving investors reason to sell was Turkey's decision to withdraw its forces from northern Iraq, which they invaded earlier this week in search of Kurdish rebels. Turkish attacks on Kurds in northern Iraq — and the concern that Kurds would retaliate by cutting off oil supplies — have helped propel oil to new records in recent months.

Traders also continue to fret over OPEC, which meets next week to consider production levels. The prospect that the Organization of Petroleum Exporting Countries might cut production has helped fuel oil's recent rise. But with prices holding above $100, most analysts now expect OPEC to hold production steady.

Despite oil's modest retreat Friday, many analysts believe the investment flows that have pushed prices higher this year are not about to dry up.

"We've just got a huge, huge speculative drive going on here," said Jim Ritterbusch, president of Ritterbusch and Associates, an energy consultancy in Galena, Ill. "The fresh buying brings in new buying."

Many analysts believe the underlying fundamentals of oil supply and demand do not justify such high prices. Some predict speculative investing could push oil prices as high as $120, while others argue prices have formed a bubble, and could crash back to the $70 range.

Other energy futures were mixed Friday. In other Nymex trading, March heating oil fell 0.59 cent to settle at $2.8397 a gallon while March gasoline futures rose 1.66 cents to settle at $2.5123 a gallon. Both contracts expired after the close of trading.

April natural gas futures fell 7.7 cents to settle at $9.366 per 1,000 cubic feet on the Nymex.

Cry ’God for Harry, England and St George’

Cry 'God for Harry, England and St George'

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By George Galloway

As the peerless John Pilger put it, the invasion of Iraq would have been impossible without the supine connivance of the British media. The BBC was as much a part of operations as the Black Watch.

Five years on and a further instance of the kind of collusion that embeds journalism in the sewer of state spin. Peter Wilby says the media were "suckered", but that's a charitable view.

The case for the media keeping mum about Prince Harry's deployment to Afghanistan is straightforward enough - protecting not only his security but that of those around him. If that were all there was to it, then there would be little to consider, except the extraordinary double standard of the British media, which means that some people's safety and privacy is deemed worthy of protection and others' not.

But a moment's thought should puncture the gushing, sentimental story of the media and the MoD uniting in the national interest - reporters and royalty, prince and paparazzi standing together against a common foe.

At the very least, news of this collusion has made life very difficult for reporters, especially conscientious ones, in the BBC and other news organisations. Many people across the world already believed the BBC to be complicit in the British government's crimes of war. Now the corporation has acknowledged that it colluded with the state to suppress and manipulate the news.

How will that improve the standing of British correspondents abroad? Or their safety.

But collusion certainly didn't end there. The media is ever a hungry beast, and it was inconceivable that it would fast for three months without the promise of bacchanalian orgy at the end of it.

And so the flipside of 10 weeks of radio silence is wall-to-wall Harry, as the pin-up of the armed forces, one of the lads, full of derring-do, a British hero on Afghanistan's plains straight out of Tennyson or Kipling.

For a military adventure which, now, even the US's senior intelligence officer concedes is staring into the abyss, this could not have come at a better time.

Over the last few months, I've asked at public meetings, on my radio show and on walkabouts, why people think we are in Afghanistan, what would define the "victory" which would allow us to withdraw with laurels. Our ambassador in Kabul - a double-barrel who might also have walked out of 19th-century page - says we are going to be there for 30 or 40 years.

Other countries, wisely, are none too phlegmatic about that prospect. Condoleezza Rice's last visit to Europe was part of the US's effort to put pressure on other Nato counties to commit more troops to the Afghan quagmire.

Then comes the scoop of the young prince forsaking Boujis, despatched to that place beyond the Khyber pass by his sovereign grandmother, and enduring hardship with cheerful Tommy. There were naturally a few touches to bring it into this century - instead of fixing bayonets, we're informed he helped bring down air strikes with a handheld computer, which could easily pass for a video game; no Latin motto on his cap, instead a psychotic, dehumanised epigram that could have come from Travis in Taxi Driver: "We do bad things to bad people."

All sections of the establishment have gained from this superbly well-executed piece of theatre (incidentally, I'm not doubting Harry's personal bravery, it's just that that is not the issue): the army has a star; the BBC and Fleet Street appear to have a heart; and the royal family have a newfound source of capital at just the time that the circus that is the Diana inquest heaps more and more ordure in their direction. Out with the images of partying in a Nazi uniform, in with the young warrior who lost his mother when young but who has now grown up.

So the greatest collusion of all by the media is in perpetuating the myths of this war and in helping to craft the perfect recruitment poster.

It's better than Kitchener's "Your country needs you." Skilfully and chillingly, it speaks to this century and through the most modern media.

It is going to play an enduring role in prolonging this futile adventure, and perhaps starting others, in a country which British armies have three times before staggered out of in defeat, leaving so many of their number behind. No one, not even Alexander the Great has successfully occupied Afghanistan; and Harry, whatever you think about him, is certainly no Alexander the Great.

Iran Nuke Laptop Data Came from Terror Group

Iran Nuke Laptop Data Came from Terror Group

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By Gareth Porter

The George W. Bush administration has long pushed the "laptop documents" -- 1,000 pages of technical documents supposedly from a stolen Iranian laptop -- as hard evidence of Iranian intentions to build a nuclear weapon. Now charges based on those documents pose the only remaining obstacles to the International Atomic Energy Agency (IAEA) declaring that Iran has resolved all unanswered questions about its nuclear programme.

But those documents have long been regarded with great suspicion by U.S. and foreign analysts. German officials have identified the source of the laptop documents in November 2004 as the Mujahideen e Khalq (MEK), which along with its political arm, the National Council of Resistance in Iran (NCRI), is listed by the U.S. State Department as a terrorist organisation.

There are some indications, moreover, that the MEK obtained the documents not from an Iranian source but from Israel's Mossad.

In its latest report on Iran, circulated Feb. 22, the IAEA, under strong pressure from the Bush administration, included descriptions of plans for a facility to produce "green salt", technical specifications for high explosives testing and the schematic layout of a missile reentry vehicle that appears capable of holding a nuclear weapon. Iran has been asked to provide full explanations for these alleged activities.

Tehran has denounced the documents on which the charges are based as fabrications provided by the MEK, and has demanded copies of the documents to analyse, but the United States had refused to do so.

The Iranian assertion is supported by statements by German officials. A few days after then Secretary of State Colin Powell announced the laptop documents, Karsten Voight, the coordinator for German-American relations in the German Foreign Ministry, was reported by the Wall Street Journal Nov. 22, 2004 as saying that the information had been provided by "an Iranian dissident group".

A German official familiar with the issue confirmed to this writer that the NCRI had been the source of the laptop documents. "I can assure you that the documents came from the Iranian resistance organisation," the source said.

The Germans have been deeply involved in intelligence collection and analysis regarding the Iranian nuclear programme. According to a story by Washington Post reporter Dafna Linzer soon after the laptop documents were first mentioned publicly by Powell in late 2004, U.S. officials said they had been stolen from an Iranian whom German intelligence had been trying to recruit, and had been given to intelligence officials of an unnamed country in Turkey.

The German account of the origins of the laptop documents contradicts the insistence by unnamed U.S. intelligence officials who insisted to journalists William J. Broad and David Sanger in November 2005 that the laptop documents did not come from any Iranian resistance groups.

Despite the fact that it was listed as a terrorist organisation, the MEK was a favourite of neoconservatives in the Pentagon, who were proposing in 2003-2004 to use it as part of a policy to destabilise Iran. The United States is known to have used intelligence from the MEK on Iranian military questions for years. It was considered a credible source of intelligence on the Iranian nuclear programme after 2002, mainly because of its identification of the facility in Natanz as a nuclear site.

The German source said he did not know whether the documents were authentic or not. However, CIA analysts, and European and IAEA officials who were given access to the laptop documents in 2005 were very sceptical about their authenticity.

The Guardian's Julian Borger last February quoted an IAEA official as saying there is "doubt over the provenance of the computer".

A senior European diplomat who had examined the documents was quoted by the New York Times in November 2005 as saying, "I can fabricate that data. It looks beautiful, but is open to doubt."

Scott Ritter, the former U.S. military intelligence officer who was chief United Nations weapons inspector in Iraq from 1991 to 1998, noted in an interview that the CIA has the capability test the authenticity of laptop documents through forensic tests that would reveal when different versions of different documents were created.

The fact that the agency could not rule out the possibility of fabrication, according to Ritter, indicates that it had either chosen not to do such tests or that the tests had revealed fraud.

Despite its having been credited with the Natanz intelligence coup in 2002, the overall record of the MEK on the Iranian nuclear programme has been very poor. The CIA continued to submit intelligence from the Iranian group about alleged Iranian nuclear weapons-related work to the IAEA over the next five years, without identifying the source.

But that intelligence turned out to be unreliable. A senior IAEA official told the Los Angeles Times in February 2007 that, since 2002, "pretty much all the intelligence that has come to us has proved to be wrong."

Former State Department deputy intelligence director for the Near East and South Asia Wayne White doubts that the MEK has actually had the contacts within the Iranian bureaucracy and scientific community necessary to come up with intelligence such as Natanz and the laptop documents. "I find it very hard to believe that supporters of the MEK haven't been thoroughly rooted out of the Iranian bureaucracy," says White. "I think they are without key sources in the Iranian government."

In her February 2006 report on the laptop documents, the Post's Linzer said CIA analysts had originally speculated that a "third country, such as Israel, had fabricated the evidence". They eventually "discounted that theory", she wrote, without explaining why.

Since 2002, new information has emerged indicating that the MEK did not obtain the 2002 data on Natanz itself but received it from the Israeli intelligence agency Mossad. Yossi Melman and Meier Javadanfar, who co-authored a book on the Iranian nuclear programme last year, write that they were told by "very senior Israeli Intelligence officials" in late 2006 that Israeli intelligence had known about Natanz for a full year before the Iranian group's press conference. They explained that they had chosen not to reveal it to the public "because of safety concerns for the sources that provided the information".

Shahriar Ahy, an adviser to monarchist leader Reza Pahlavi, told journalist Connie Bruck that the detailed information on Natanz had not come from MEK but from "a friendly government, and it had come to more than one opposition group, not only the mujahideen."

Bruck wrote in the New Yorker on Mar, 16, 2006 that when he was asked if the "friendly government" was Israel, Ahy smiled and said, "The friendly government did not want to be the source of it, publicly. If the friendly government gives it to the U.S. publicly, then it would be received differently. Better to come from an opposition group."

Israel has maintained a relationship with the MEK since the late 1990s, according to Bruck, including assistance to the organisation in beaming broadcasts by the NCRI from Paris into Iran. An Israeli diplomat confirmed that Israel had found the MEK "useful", Bruck reported, but the official declined to elaborate.

*Gareth Porter is an historian and national security policy analyst. The paperback edition of his latest book, "Perils of Dominance: Imbalance of Power and the Road to War in Vietnam", was published in 2006.

Is John McCain a Liar?

Is John McCain a Liar?

One of the pressing questions for American voters as they look toward the formal nomination of McCain as the Republican presidential candidate is whether he is a phony who's long been protected by his gilded reputation or whether he suffers from severe – or at least convenient – memory loss, says Robert Parry.

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By Robert Parry

In journalism, it's a safe bet that if you write a story with the suggestion that a prominent male politician is bedding an attractive female lobbyist, whatever other point you hoped to make will be overlooked.

That appears to have been the case with the New York Times article on Feb. 21, which led with suspicions held by some McCain staffers that the Arizona senator had gotten too cozy with lobbyist Vicky Iseman. The Times story then veered off into a historical examination of McCain's over-confidence about his own moral rectitude.

Yet, despite the Times' best efforts to explore this complicated history of McCain as both ethics sinner and ethics reformer, the public and pundits never got much past the sex angle, an insinuation that McCain, 71, and Iseman, 40, both adamantly denied.

Thus, McCain succeeded in deflecting the story's more significant question: Is McCain's reputation as a straight-talking politician a sham?

Put differently, is the presumptive Republican presidential nominee – like Colin Powell – a media darling whose reputation for honesty is largely undeserved? The question is not an insignificant one.

In 2003, Secretary of State Powell exploited his sterling image to help mislead the nation into the Iraq War. [For details on Powell, see our book Neck Deep.] Now, McCain hopes his "straight-talk-express" appeal will help keep US troops in Iraq indefinitely.

So, there's urgency for Americans to know whether John McCain is a sanctimonious phony and a self-assured liar, who's just masquerading as the guy who tells it like it is and disdains the self-serving ways of Washington.

Evidence of Lies

Though no new evidence has surfaced about McCain and Iseman as a romantic item, McCain's blanket denial about assisting Iseman and other lobbyists is fast disintegrating.

As we noted in an article on Feb. 21, McCain's assertion in response to the Times article -- that during his quarter-century congressional career, he "has never violated the public trust, never done favors for special interests or lobbyists" -- just isn't true.

For instance, the Times story recalled how McCain helped one of his early financial backers, wheeler-dealer Charles Keating, frustrate oversight from federal banking regulators who were examining Keating's Lincoln Savings and Loan Association.

At Keating's urging, McCain wrote letters, introduced bills and pushed a Keating associate for a job on a banking regulatory board. In 1987, McCain joined several other senators in two private meetings with federal banking regulators on Keating's behalf.

Two years later, Lincoln collapsed, costing the US taxpayers $3.4 billion. Keating eventually went to prison and three other senators from the so-called Keating Five saw their political careers ruined.

McCain drew a Senate reprimand for his involvement and later lamented his faulty judgment. "Why didn't I fully grasp the unusual appearance of such a meeting?" he wrote in his 2002 memoir, Worth the Fighting For.

But some people close to the case thought McCain got off too easy.

Not only was McCain taking donations from Keating and his business circle, getting free rides on Keating's corporate jet and enjoying joint vacations in the Bahamas – McCain's second wife, the beer fortune heiress Cindy Hensley, had invested with Keating in an Arizona shopping mall.

In the years that followed, however, McCain not only got out from under the shadow of the Keating Five scandal but found a silver lining in the cloud, transforming the case into a lessons-learned chapter of his personal narrative.

McCain, as born-again reformer, soon was winning over the Washington press corps with his sponsorship of ethics legislation, like the McCain-Feingold bill limiting "soft money" contributions to the political parties.

However, there was still the other side of John McCain as he wielded enormous power from his position as chairman of the Senate Commerce Committee, which helped him solicit campaign donations from corporations doing business before the panel.

Pressure on the FCC

The Times story suggested that McCain did favors on behalf of Iseman's lobbying clients, including two letters that McCain wrote in 1999 to the Federal Communications Commission demanding that it act on a long-delayed request by Iseman's client, Florida-based Paxson Communications, to buy a Pittsburgh television station.

In the furious counter-offensive against the Times article, McCain's campaign issued a point-by-point denial, calling those letters routine correspondence that were handled by staff without McCain meeting either with Paxson or anyone from Iseman's firm, Alcalde & Fay.

"No representative of Paxson or Alcalde & Fay personally asked Senator McCain to send a letter to the FCC," his campaign said.

But that turned out not to be true. Newsweek's investigative reporter Michael Isikoff dug up a sworn deposition from Sept. 25, 2002, in which McCain himself declared that "I was contacted by Mr. Paxson on this issue. … He wanted their [the FCC's] approval very bad for purposes of his business. I believe that Mr. Paxson had a legitimate complaint."

Though McCain claimed not to recall whether he had spoken with Paxson's lobbyist [presumably a reference to Iseman], he added, "I'm sure I spoke to [Paxson]," according to the deposition. [See Newsweek's Web posting, Feb. 22, 2008]

McCain's letters to the FCC, which Chairman William Kennard criticized as "highly unusual," came in the same period when Paxson's company was ferrying McCain to political events aboard its corporate jet and donating $20,000 to his campaign.

After the Feb. 21 Times article appeared, McCain's spokesmen confirmed that Iseman accompanied McCain on at least one of those flights from Florida to Washington, though McCain said in the 2002 deposition that "I do not recall" if Paxson's lobbyist was onboard.

First Amendment lawyer Floyd Abrams, who conducted the deposition in connection with a challenge to the McCain-Feingold law, asked McCain if the benefits that he received from Paxson created "at least an appearance of corruption here?"

"Absolutely," McCain answered. "I believe that there could possibly be an appearance of corruption because this system has tainted all of us."

Sticking to the Story

When Newsweek went to McCain's 2008 campaign with the seeming contradictions between the deposition and the denial of the Times article, McCain's people stuck to their story that that the senator had never discussed the FCC issue with Paxson or his lobbyist.

"We do not think there is a contradiction here," campaign spokeswoman Ann Begeman told Newsweek. "It appears that Senator McCain, when speaking of being contacted by Paxson, was speaking in shorthand of his staff being contacted by representatives of Paxson. Senator McCain does not recall being asked directly by Paxson or any representative of him or by Alcalde & Fay to contact the FCC regarding the Pittsburgh license transaction."

That new denial, however, soon crumbled when the Washington Post interviewed Paxson, who said he had talked with McCain in his Washington office several weeks before McCain sent the letters to the FCC.

The broadcast executive also believed that Iseman had helped arrange the meeting and likely was in attendance. "Was Vicki there? Probably," Paxson said. [Washington Post, Feb. 23, 2008]

A day earlier, the Post also noted the discrepancy between a central tenet of McCain's campaign – his denunciation of lobbyists and the corrupt revolving-door ways of Washington – and his reliance on lobbyists for his congressional work and his campaign.

"When McCain huddled with his closest advisers at his rustic Arizona cabin last weekend to map out his presidential campaign, virtually every one was part of the Washington lobbying culture he has long decried," the Post reported on Feb. 22.

In its article about McCain and Iseman, the New York Times also noted that in 2001, McCain helped found a non-profit organization called the Reform Institute supposedly to advance McCain's signature cause of political ethics.

But the institute drew much of its funding from companies trying to ingratiate themselves with McCain and his Commerce Committee. Though denying any impropriety, McCain severed his ties to the Reform Institute in 2005 because of the "bad publicity."

So, one of the pressing questions for American voters as they look toward the formal nomination of McCain as the Republican presidential candidate is whether he is a phony who's long been protected by his gilded reputation or whether he suffers from severe – or at least convenient – memory loss.

McCain also may have learned some tricks from watching his former rival, George W. Bush, whose tendency to lie grew increasingly brazen after 9/11.

As Commander in Chief for a nation at war, Bush brushed aside questions about his statements not squaring with the facts: From his insistence that waterboarding is not torture to Saddam Hussein not letting the UN inspectors in. [See, for instance,'s "Bush's Favorite Lie."]

Since McCain as Commander in Chief would ensure that the United States remains at war for the foreseeable future, he might expect a Bush-like pass when his words diverge almost 180 degrees from the facts. Endless war will justify endless lies.

Or maybe he just believes his own press clippings – that he is such a straight-talker that whatever comes out of his mouth must be the truth.

Iraq Casualties Rise Again After Qaeda Bombs

Iraq Casualties Rise Again After Qaeda Bombs

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By Paul Tait

Baghdad - Violent civilian deaths in Iraq rose 36 percent in February from the previous month after a series of large-scale bombings blamed on al Qaeda, Iraqi government figures showed on Saturday.

    A total of 633 civilians died violently in February, compared with 466 in January, according to figures released by Iraq's interior, defense and health ministries. It was the first increase after six consecutive months of falling casualty tolls.

    Despite its sharp rise, the February 2008 figure was still dramatically lower than the 1,645 civilians who died violently in the same month a year ago. A total of 701 civilians were wounded, compared with 2,700 a year ago.

    Declining civilian casualties have been hailed by Iraqi and U.S. military officials as proof that new counter-insurgency tactics adopted last year have been working and Iraq is safer.

    February's casualty figures spiked after female bombers killed 99 people at two pet markets in Baghdad on February 2 and a suicide bomber killed 63 people returning from a Shi'ite religious ritual south of Baghdad on February 24.

    Both attacks were blamed on al Qaeda.

    Officials say attacks across Iraq have fallen 60 percent since last June, when an extra 30,000 U.S. troops became fully deployed as part of the new counter-insurgency strategy, which included moving troops out of large bases and into smaller combat outposts.

    That coincided with the growth of largely Sunni Arab neighborhood police units, whose U.S.-backed guards now number about 80,000 and are also credited with playing a large part in improved security.

    Abducted at Gunpoint

    U.S. commanders say al Qaeda and other insurgents remain dangerous enemies, especially in Iraq's north where they have regrouped after crackdowns on former strongholds in western Anbar province and around Baghdad last year.

    In northern Mosul, police were searching for Paulos Faraj Rahho, the Chaldean Catholic archbishop snatched at gunpoint after he left a church on Friday. His driver and two guards were killed in the attack.

    Police and representatives of the Chaldean church, a branch of the Roman Catholic Church which practices an ancient Eastern rite, said nothing had been heard about Rahho's fate.

    Christians make up about 3 percent of Iraq's 27 million mainly Muslim population and have been targeted several times in recent years. A Catholic priest and three assistants were killed in ethnically and religiously mixed Mosul last June.

    "The situation for Christians is like that for other people in Iraq. We live in the same society and we are sharing the same suffering," Andraws Abuna, an assistant to the Chaldean patriarch of Baghdad, told Reuters.

    U.S. military deaths fell after a spike in January. So far 29 U.S. soldiers have been reported killed in February, compared with 40 in January.

    Both figures are much lower than a year ago, when 81 and 83 were killed in February and January 2007 as Iraq teetered on the brink of all-out sectarian civil war between majority Shi'ites and minority Sunni Arabs.

    A total of 3,973 U.S. soldiers have been killed in Iraq since the U.S.-led invasion to topple Saddam Hussein in 2003.

    Friday's data showed 65 policemen and 20 Iraqi soldiers were killed, compared with 132 and 28 respectively in January, and that 235 insurgents had been killed and 1,340 detained.

    Another factor in improved security has been the six-month ceasefire announced in August of the Mehdi Army militia of anti-U.S. Shi'ite cleric Moqtada al-Sadr. That ceasefire was extended by another six months last month.

Arctic Warming Could Result in Armed Conflict: Naval Expert

Arctic Warming Could Result in Armed Conflict: Naval Expert

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By Peter O'Neil

Melting of passageway means countries will vie to control it, former Coast Guard official says.

    Paris - The fast-warming Arctic's vast economic potential makes it increasingly prone to smuggling, perilous polar tourism, environmental catastrophes and even armed conflict unless Canada and the U.S. lead efforts to bring order to the region, according to a new analysis.

    Former U.S. Coast Guard Lt.-Cmdr. Scott Borgerson, in the latest issue of Foreign Policy magazine, argued Washington has to start with a Canada-U.S. agreement on how the Arctic should be regulated as global warming opens northern sea lanes.

    He also called on U.S. leaders to take seriously Canada's sovereignty claims over the Northwest Passage, as well as consider a way to resolve competing claims involving Russia, Denmark and Norway.

    "The United States should not underestimate Canadian passions on this issue," wrote Lt.-Cmdr. Borgerson, a fellow at the influential Council on Foreign Relations.

    He cited ongoing Canadian "sabre-rattling" and noted that Canada is among several countries bulking up their military and surveillance capabilities in the North in anticipation of expanded shipping and energy exploration activity.

    "There are currently no clear rules governing this economically and strategically vital region," stated the magazine's summary of Lt.-Cmdr. Borgerson's analysis, called Arctic Meltdown: The Economic and Security Implications of Global Warming.

    "Unless Washington leads the way toward a multilateral diplomatic solution, the Arctic could descend into armed conflict."

    Lt.-Cmdr. Borgerson doesn't specifically identify which countries would engage in battle, though he noted Russia's increasing assertiveness in claiming sovereignty of huge swaths of the region off its coast.

    Territorial disputes and the lack of regulations pose "grave dangers" that could "eventually lead to ... armed brinkmanship" involving not only the countries staking claims, but also energy-hungry newcomers like China eying the North, he wrote.

    The U.S. has consistently rejected Canada's claim of right of control over the Northwest Passage. It has also refused to ratify the United Nations Law of the Sea because the Senate views the treaty as an encroachment on U.S. sovereignty.

    Lt.-Cmdr. Borgerson said the U.S. government's status outside the treaty restricts its ability to assert its own territorial claims off the Alaskan coast. He also asserted that the U.S. needs, as a first step, to strike an accord with Canada on regulating vessel and tanker traffic in the North.

    Citing studies suggesting an ice-free Arctic in the summer as early as 2013, he said the U.S. should seek a broad treaty with all Arctic countries as well as a bilateral deal with Canada to manage and police shipping and Arctic activity, including tourism and environmental protection.

    Among the concerns he cited:

  • How to carve up the "the world's longest uncharted and most geologically complex continental shelf among five states with competing claims."

  • How to regulate and protect a region facing an explosion of offshore oil and gas exploration and development. "Oil tankers present a particularly grave environmental threat, as illustrated by three recent oil spills in the much safer waters of the San Francisco Bay, the Black Sea, and the Yellow Sea."

  • How to clean up the hazard created by Russia's dumping of 18 reactors, some still fully loaded with nuclear fuel, in the Arctic Ocean between 1958 and 1992.

  • How to recognize the interests of one million indigenous people whose rights in areas such as the bowhead whale hunt, which could be jeopardized by an explosion of shipping activity by companies seeking to exploit far quicker sea routes than exist today from Asia to Europe through the Panama Canal.

White House Blocks Inquiry Into Construction of $736 Million Embassy in Iraq

White House Blocks Inquiry Into Construction of $736 Million Embassy in Iraq

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By Elana Schor

The Bush administration is blocking an inquiry into the delay-plagued construction of the $736 million US embassy in Baghdad, a senior Democrat in Congress said today.

Henry Waxman, who is chairman of the oversight committee in the House of Representatives, asked US secretary of state Condoleezza Rice today to explain why her department certified the embassy as "substantially completed" in December despite inspections that reveal continued deficiencies in the facility's water, fire alarm and kitchen systems.

The Baghdad embassy, which stands to become the largest US diplomatic facility in the world, had an original opening date of mid-2007. But the project stalled amid ballooning cost estimates as well as charges of corruption and shoddy work by the private contracting company overseeing the project.

In addition, two US state department employees who worked on the embassy project are now under criminal investigation. Waxman urged Rice to release subpoenaed documents related to the Baghdad embassy project next week or risk being forced to do so.

"It appears that the state department is concealing from Congress basic information about the status of the embassy project and the activities of the individuals and contractors involved," Waxman wrote to Rice. "This continued intransigence is inappropriate."

The private construction company, First Kuwaiti General Trading & Contracting, declined repeatedly to provide safety inspectors with reports on fire protection systems at the embassy, according to reports released by Waxman. First Kuwaiti, based in Kuwait, remains the target of a separate US criminal probe into allegations of labour trafficking.

The state department has not yet received Waxman's letter but plans to address the Democrat's concerns by his March 7 deadline, spokesman Tom Casey told reporters today.

Casey defended the delay in construction of the embassy, asserting that the building would not be occupied until its fitness for use could be certified.

"[W]e certainly have no intention of taking occupancy or establishing occupancy in a facility that doesn't fully meet all our standards," Casey said. He reminded reporters that First Kuwaiti is required under its contract to bear the cost of any needed additional work.

The new director of building operations at the state department has ordered a review of the embassy project and may revoke the building's "substantially completed" certification, McClatchy news service reported this week.

Mukasey Refuses Probe of Bush Aides

Mukasey Refuses Probe of Bush Aides

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By Laurie Kellman

Washington - Attorney General Michael Mukasey refused Friday to refer the House's contempt citations against two of President Bush's top aides to a federal grand jury. Mukasey said White House Chief of Staff Josh Bolten and former presidential counsel Harriet Miers committed no crime.

    As promised, House Speaker Nancy Pelosi announced that she has given the Judiciary Committee authority to file a lawsuit against Bolten and Miers in federal court.

    "The House shall do so promptly," she said in a statement.

    Mukasey said Bolten and Miers were right in ignoring subpoenas to provide Congress with White House documents or testify about the firings of federal prosecutors.

    "The department will not bring the congressional contempt citations before a grand jury or take any other action to prosecute Mr. Bolten or Ms. Miers," Mukasey wrote Pelosi.

    Pelosi shot back that the aides can expect a lawsuit.

    "The American people demand that we uphold the law," Pelosi said. "As public officials, we take an oath to uphold the Constitution and protect our system of checks and balances and our civil lawsuit seeks to do just that."

    The suit had a political purpose too. Democrats have urged that the filing occur swiftly so that a judge might rule before the November elections, when all 435 House seats and a third of the Senate are up for grabs. Criticism of Bush's use of executive power is a key tenet of the Democrats' platform, from the presidential race on down.

    The House voted two weeks ago to cite Bolten and Miers for contempt of Congress and seek a grand jury investigation. Most Republicans boycotted the vote.

    Pelosi requested the grand jury investigation on Thursday and gave Mukasey a week to reply. She said the House would file a civil suit seeking enforcement of the contempt citations if federal prosecutors declined to seek misdemeanor charges against Bolten and Miers. The plaintiffs would be the entire Judiciary Committee, who would be represented by the House's lawyers, according to aides to Pelosi and committee Chairman John Conyers, D-Mich.

    Mukasey took only a day to get back to her. But he had earlier joined his predecessor, Alberto Gonzales, in telling lawmakers they would refuse to refer any contempt citations to prosecutors because Bolten and Miers were acting at Bush's instruction.

    A civil suit would drag out a slow-motion crawl to a constitutional struggle between a Democratic-run Congress and a Republican White House that has been simmering for more than a year.

    Democrats say Bush's instructions to Miers and Bolten to ignore the House Judiciary Committee's subpoenas was an abuse of power and an effort to block an effort to find out whether the White House directed the firing of nine U.S. attorneys in 2006 for political reasons.

    Republicans call the whole affair a political game and walked out of the House vote on the contempt citations in protest.

    The 223-32 House vote on a resolution approving the contempt citations Feb. 14 was the first of its type in 25 years. The White House pointed out that it was the first time that such action had been taken against top White House officials who had been instructed by the president to remain silent to preserve executive privilege.

    In his letter, received by the House early Friday evening, Mukasey pointed out that not only was Miers directed not to testify, she also was immune from congressional subpoenas and was right to not show up to the hearing to which she had been summoned.

    "The contempt of Congress statute was not intended to apply and could not constitutionally be applied to an executive branch official who asserts the president's claim of executive privilege," Mukasey wrote, quoting Justice policy.

    "Accordingly," Mukasey concluded, "the department has determined that the noncompliance by Mr. Bolten and Ms. Miers with the Judiciary Committee subpoenas did not constitute a crime."

    Though they were not surprised, Democrats reacted to Mukasey's letter with outrage.

    "Today's decision to shelve the contempt process, in violation of a federal statute, shows that the White House will go to any lengths to keep its role in the U.S. attorney firings hidden," said Conyers. "In the face of such extraordinary actions, we have no choice but to proceed with a lawsuit to enforce the committee's subpoenas."

Librarians and archivists demand US return of stolen Iraqi documents

Librarians and archivists demand US return of stolen Iraqi documents

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By Sandy English

The removal of millions of pages of Interior Ministry documents from Iraq by the American military has prompted calls from organizations and individuals in the library and archives community for their return to the Iraqi people.

These documents, many of which detail the crimes of the regime of Saddam Hussein and his predecessors, are now in the United States in the hands of the military and intelligence agencies. Others are being held by a private foundation in the US headed by pro-occupation Iraqis.

Some 43,000 to 55,000 boxes, amounting to over 100 million pages, were seized from Baghdad by British and American forces in April 2003. These included, according to the Associated Press, "memos, training guides, reports, transcripts of conversations, audiotapes and videotapes." At the urging of Republican Rep. Pete Hoekstra, chairman of the House Intelligence Committee, then-Director of National Intelligence John Negroponte posted a few hundred on a military web site, "Operation Iraqi Freedom Document Portal," in March 2006.

The documents were removed from the Internet in November 2006 after the New York Times informed the government that it was publishing an article that alleged that the documents contained sensitive information on Iraq's pre-1991 nuclear program, sparking a momentary crisis for the Bush Administration.

At the time, little of the controversy around these documents centered on the illegality of the United States holding, accessing, and publicizing material that was the property of the Iraqi people.

Today, the whereabouts of the originals are unknown to the public, either Iraqi or American. Digitized images of these documents now reside in the computer networks of the US government, accessible to no one without clearance from the American military-intelligence apparatus.

During a speaking tour in the United States between October and December, Dr. Saad Eskander, the director general of the Iraqi National Library and Archive (INLA), the country's main repository of historical materials, called for the return of these documents to Iraq. (See: "Iraqi archivist demands US return seized documents").

At its midwinter meeting last month in Philadelphia, the American Library Association central council passed a resolution that called for millions of stolen Iraqi documents now in the United States to be returned to INLA.

The resolution states that these documents "represent Iraqi social memory" and that the ALA "condemns the confiscation of documents ... by the United States and British forces and strongly advocates the immediate return of all documents." This resolution has garnered support from professionals around the world.

But, aside from the ALA's resolution and the demands of Eskander, little has been said in the media about the legality of these documents' seizure or their continued presence in the United States under the tight control of the American government.

Another smaller selection of approximately 11 million pages of Iraqi documents has, however, provoked intense debate in the last two months. These are held by a private group called the Iraq Memory Foundation, based Washington, DC, which has digitized them and recently arranged that the original documents be delivered for safekeeping to the right-wing Hoover Institution.

An Iraqi named Kanan Makiya, a former associate of CIA asset Ahmed Chalabi and a vocal proponent of the American invasion of Iraq heads the Iraq Memory foundation. Under the pseudonym Samir al-Khalil, Makiya published his 1989 book Republic of Fear depicting life in the Baathist state.

His book was seized upon by elements in American ruling circles, especially the neo-conservatives, as ideological ammunition for promoting an invasion and conquest of Iraq, both during the Gulf War of 1991 and in the lead-up to the invasion of Iraq in 2003. According to George Packer's The Assassin's Gate, Makiya sat next to Bush and wept as he watched the toppling of Hussein's statue in Baghdad's Fardus Square, now known to be an event staged by the US military.

Makiya returned to Iraq on the coattails of the occupation, gaining entry to venues presumably secured by the Americans. According to a feature-piece by Dexter Filkins in the New York Times Magazine, "Since 2003 Makiya and his small staff have scoured Baath Party offices and dungeons, adding to a collection that would reach more than 11 million pages of records."

Makiya has said that these documents were moved to his parents' home in Baghdad's Green Zone with the approval of the Coalition Provisional Authority. The article continues: "In February 2005, the Memory Foundation reached an agreement with the US military to have the Baath Party documents shipped to the United States. Government contractors here could complete the digitizing process much more quickly, the foundation concluded, and Baghdad was too volatile."

Once in the United States, the exact use of the documents is unclear. In an article discussed below, Hassan Mneihmneh, the executive director of the Iraq Memory Foundation, said that in order to have the documents transported to the US and digitized, the foundation told the American military that the documents "could be of intelligence value and that the Baath party structure depicted in them might correspond to the insurgency."

Harvard University pulled back from a proposal to store the documents fearing, apparently, that it might break international law by doing so. Dutch cultural heritage specialist Rene Teijgeler has noted that in 2005 he had advised a Harvard committee, on request, that "the legal owner [of the archives held by Makiya] was the Iraqi state and that at least they should contact the State Department. However, the State Department did not want to get involved."

In a January 23 article in the Chronicle of Higher Education, journalist John Gravois revealed that the originals of the archives were now to be stored at the Hoover Institution at Stanford University in California. The Iraq Memory Foundation claims that it had the support of an Iraqi deputy prime minister for this transfer.

The article reported that Saad Eskander demanded the return of these documents to INLA because "they are the inalienable public property and belong in the national archive without delay." In an interview with Gravois, Eskander emphasized that these documents belong to the Iraqi people and that "Makiya just represents himself."

Makiya's supercilious response was that "Baghdad is just not ready" for the return of the archives.

The article provoked an outcry among librarians, archivists, and academics. Jeffery Spurr, Islamic and Middle East Specialist at Harvard University's Fine Arts Library, in an e-mail to the IraqCrisis discussion group observed, "That the newly-designated temporary custodian should be a private institution, and that notable bastion of conservative views, the Hoover Institution, should come as no surprise given that Mr. Makiya has perforce become a fellow traveler of the Neo-cons since he made common cause with the Bush Administration in the run-up to the invasion of Iraq. That such an institution in far-off California should consider itself the proper site for these documents as opposed to the national archives of Iraq is the height of arrogance."

He further noted, "Dr. Eskander was rebuffed at every turn by the representatives of the IMF in Baghdad. In 2005, I myself encouraged Kanan Makiya to communicate with Dr. Eskander, with whom I had been in communication since 2004. Makiya was uninterested."

Spurr was also critical of Gravois article, claiming that it appears to "privilege the self-serving arguments of Kanan Makiya and his colleagues, and employs quotations from Dr. Trudy Huskamp Peterson, a prominent expert on archives and international law relating to archives, in such a way as to support the plausibility of the refusal to return the originals to their proper custodian, the Iraq National Archive, and its Director General, Dr. Eskander."

Perhaps in response to these and other criticisms, Gravois wrote a second article for the Chronicle of Higher Education, published on February 8. He provided some new information about the history of these archives, notably that the US Navy had held them for 21 months, and took a more conciliatory (and honest) tone, amending, for example, his representation of Trudy Huskamp Petersen. The new article quotes her as saying that when it comes to the issues of ownership of archives like those in the hands of the Iraq Memory Foundation, ownership can only be passed on by an act of the Iraqi parliament. "There's tons of literature on this. There's just no question."

Nevertheless, the second Gravois article, like the first, serves to obscure the fundamental issues at hand in the removal of these documents from Iraq and their possession by Makiya's Memory Foundation. Gravois portrays Makiya as a "liberal idealist who brought moral ballast to the case for deposing Saddam Hussein."

While it does quote Eskander's characterization of Makyia as "a spoiled child of the State Department," the article frames the debate as though it were a "tug of war" (part of the title of the article) between two individuals, Kanan Makiya and Saad Eskander, equally concerned about the documents and both determined to protect them with a "remarkably similar vision."

This is an intellectual dodge. Makiya is not only a "spoiled child" of the State Department; he is a collaborator with the United States in the sociocide of Iraq.

As professionals in the field have made amply clear, these archives are essential for the preservation of the social memory of the Iraqi people. The "tug of war" between the two men represents something entirely different than opposing opinions on the best way to preserve a set of archives.

Makiya is a defender of the rapacity of American imperialism and its willingness to take whatever it wants from a people that it has militarily overwhelmed. To commit a "sociocide"—the destruction of an entire culture—it is not enough to kill a million people and drive millions of others form their homes. Keeping the documents out of Iraq intellectually abases the Iraq people. It goes hand-in-hand with the destruction of education at all levels, the assassination of academics, and the fragmentation of common culture by ethnic cleansing, and the looting of archeological sites.

The demand to return the documents held by the Iraq Memory Foundation, as well as the larger group in the hands of the American military, represents the desire of the Iraqi people to understand their own history and to be able to determine their destiny though accurate and truthful knowledge of the past.

It is significant that this demand has found increasing popularity among educated people in the Europe and America. But the calls for the return of the documents, including the ALA's, while principled, suffer from political myopia. Nearly five years of the unrestrained plunder of Iraq, funded by both Democrats and Republicans, have dismembered Iraqi culture, in itself a vital aspect of the world historical legacy.

These actions call for more than appeals to return looted documents and artifacts. The US government will not relent to these pleas, any more than it did to the mass anti-war protests of 2003. Archaeological, library and archival organizations must demand that the perpetrators of these crimes—ranging from Kanan Makiya to figures at the highest levels of the American government—be tried for war crimes. It is time to consider what political strategy will achieve this goal.

Economist estimates cost of Iraq war to exceed $3 trillion

Economist estimates cost of Iraq war to exceed $3 trillion

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By Naomi Spencer

As the five-year anniversary of the US invasion of Iraq approaches, a leading economist is estimating that the overall cost of the war will be between $3 trillion and $5 trillion. This figure does not take into account the enormous devastation that the US military has wrought upon the population and social infrastructure of Iraq.

On Thursday, Joseph Stiglitz told the congressional Joint Economic Committee that $3 trillion was at the low end of estimated war costs. After factoring in the cost of weapons and operations, future health-care costs for veterans, interest on foreign loans used to fund the war, and future borrowing, Stiglitz said the costs of the wars in Iraq and Afghanistan would be somewhere between $5 trillion and $7 trillion for the US alone. Another estimated $6 trillion will be borne by other countries, he said.

Stiglitz, former chief economist for the World Bank and a Nobel laureate, is co-author with Harvard economics professor Linda Bilmes of The Three Trillion Dollar War: The True Cost of the Iraq Conflict, a book released Friday. The book builds on 2006 research that estimated the cost of the so-called war on terror in excess of $1 trillion.

Officially, the US spends $16 billion every month to occupy Iraq and Afghanistan, but this figure includes only direct expenses.

These enormous sums are being expended to carry out a crime of immeasurable proportions. More than a million civilians have been killed in Iraq alone. Some 4.5 million more have been displaced by the violence, with thousands of refugees fleeing the country into Syria, Jordan and elsewhere every day. With $3-5 trillion, the US government has destroyed an entire society.

Those charged with carrying out the conquest have also been sacrificed. Over 5,000 military personnel—the vast majority US troops—have died in the wars against Iraq and Afghanistan since 2001. A substantial portion of the estimated costs will go to pay for health care for the tens of thousands of wounded soldiers.

The American ruling class has initiated a policy of unending war as it cuts jobs and social programs in the United States. According to Stiglitz and Bilmes, $1 trillion could pay for 8 million housing units, university scholarships for 43 million students, health care for 530 million children, or the salaries of 15 million public school teachers in the US.

In an interview published Thursday in the British newspaper, the Guardian, Stiglitz noted that the US spends $5 billion a year in aid to Africa. "Five billion is roughly 10 days' fighting, so you get a new metric of thinking about everything," he said.

The United Nations estimates that $195 billion would end world hunger and most of the devastating diseases afflicting the world's poor. AIDS, measles, tuberculosis, malaria and other water-borne illnesses could all be brought into manageable numbers or wholly eradicated within a short time for less than the cost of one year of waging war in Iraq. Instead, the US occupation of Iraq has reintroduced diseases such as cholera into Iraqi society.

For years, the US political establishment has carried out attacks on social programs and the jobs of American workers. Workers are now told that there is no money for decent wages and benefits, while billions are spent on military wars of aggression.

One consequence of the chaos wrought in the Middle East, Stiglitz asserts, has been the enormous rise in the price of oil. For industrialized countries, the increase in the cost of oil attributable to the war is around $1.1 trillion. For developing countries, the effect has been much more extreme. According to Stigltiz's and Bilmes' book, the increase in the cost of oil more than offsets the increase in foreign aid to countries in Africa.

The White House, which refused to testify before the Joint Economic Committee on the cost of the war, reacted to Stiglitz's remarks with undisguised hostility and derision. "People like Joe Stiglitz lack the courage to consider the cost of doing nothing and the cost of failure," White House spokesperson Tony Fratto told the press. "One can't even begin to put a price tag on the cost to this nation of the attacks of 9/11."

The Iraq war, Fratto said, "is also an investment in the future safety and security of Americans and our vital national interests. Three trillion dollars? What price does Joe Stiglitz put on attacks on the homeland that have already been prevented? Or doesn't his slide rule work that way?"

Stiglitz told Democracy Now! radio on Friday that the most significant budgetary cost of the war is the care of disabled veterans, which he said "will total hundreds of billions of dollars over the next decades." The war has inflicted a huge number of injuries. He said that an estimated 39 percent of soldiers would have some form of disability after completing their rotations.

Bilmes, who also appeared on the Democracy Now! program, explained that while in previous wars the ratio of wounded to dead was two-to-one or three-to-one, new medical technologies have allowed many who might otherwise have died to survive extremely serious injuries. The wounded to fatality rate for the Iraq war is approximately 15-to-1. "What it means is that the United States has a long-term cost of taking care of many, many thousands of disabled veterans for the rest of their lives," she said.

"Then you go beyond that budgetary cost to the cost of the economy," Stiglitz added. "When somebody gets disabled, the disability pay is just a fraction of the loss to their family, to the income that they could have otherwise earned."

"There are a whole set of macroeconomic costs, which have depressed the economy," including the price of oil, Stiglitz said. "What's happened is, to offset those costs, the Federal Reserve has flooded the economy with liquidity.... We were living off of borrowed money. The war was totally financed by deficits. And eventually, a day of reckoning had to come, and now it's come."

While the vast majority of the US and world population wants an end to the occupation in Iraq, no section of the political establishment represents this opposition.

An article in the Wall Street Journal on Friday noted that the Democratic presidential candidates, Senators Barack Obama and Hillary Clinton, employ careful rhetoric on the issue of withdrawal from Iraq. "Both candidates draw a distinction between 'combat' troops, whom they want to withdraw, and 'noncombat' troops, who will stay to battle terrorists, protect the US civilian presence and possibly train and mentor Iraqi security forces," the newspaper noted.

This distinction allows the candidates to posture as opponents of the war while maintaining their commitment to an indefinite occupation.

"No one is talking about getting to zero," a foreign policy advisor for Obama told the Journal. An unnamed Obama campaign "senior advisor" said the senator was "comfortable with a long-term US troop presence of around five brigades," according to the paper.

US stocks plunge following Fed Chairman Bernanke’s testimony before Congress

US stocks plunge following Fed Chairman Bernanke's testimony before Congress

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By Barry Grey

Share prices on US stock markets fell sharply Thursday and Friday following congressional testimony by Federal Reserve Board Chairman Ben Bernanke.

The Dow Jones Industrial Average declined 112 points (0.9 percent) on Thursday and plummeted another 315 points (2.5 percent) on Friday, wiping out gains from the four previous trading days and leaving the stock index with four consecutive monthly losses.

The other major stock indexes also fell sharply on Friday, with the Standard & Poor's 500 index falling 37 points (2.7 percent) and the Nasdaq Composite index down 60 points (2.6 percent). With Friday's close, the S&P 500 index has suffered its worst start to a year since 1941.

Bernanke appeared Wednesday before the Financial Services Committee of the House of Representatives and Thursday before the Senate Banking Committee to deliver the Federal Reserve Board's semi-annual report to Congress. While saying be believed the US could still avert a recession, he presented a grim picture of an economy reeling from a housing collapse, a credit and banking crisis, a slowdown in consumer spending, growing unemployment and virtually zero economic growth, combined with accelerating inflation and a weakening dollar.

Bernanke made it clear he intended to slash interest rates again when the Fed's policy-making board, the Federal Open Market Committee, meets next on March 18. The Fed is expected to cut its federal funds rate by another 0.5 points, or even 0.75 points, which would be the sixth rate cut since last September. A 0.5 point reduction would bring the benchmark short-term rate down to 2.5 percent from its level of 5.25 percent last August, when the collapse of the US subprime mortgage market all but froze credit markets in the US and much of the world.

While Bernanke's signals in regard to interest rates reassured Wall Street banks and investors, who have been pushing for rate cuts to pump liquidity into financial markets and aid banks facing billions in subprime-related losses, the gloomy substance of his testimony, combined with new recessionary indicators and record-high crude oil prices, sparked the sell-off of stocks.

In opening his remarks to the House committee, Bernanke said the economic situation had become "distinctly less favorable" since his previous report to Congress in July. He then cited persistent "strains" in financial markets, turmoil in credit markets leading to "tighter credit for many households and businesses," a sharp contraction in economic growth, a decline in job creation and growth of unemployment.

He indicated that the collapse in the housing market would continue to weigh on the economy for at least another year and noted that consumer spending had slackened markedly since the end of 2007. He predicted that business investment would slow in the first half of 2008, and that nonresidential construction would "decelerate sharply."

He projected a rise in the unemployment rate from the present 4.9 percent to 5.2 percent or 5.3 percent by the fourth quarter of this year.

He then warned that the reality could turn out considerably worse than his projections, citing the possibility that the housing market or the labor market could deteriorate more dramatically and that the credit crunch could worsen.

He took note of rising inflation and soaring energy and commodity prices and said the Fed would "monitor closely inflation and inflation expectations." But he clearly placed the emphasis on the dangers of recession, saying the Fed would "act in a timely manner as needed to support growth and to provide adequate insurance against downside risks"—a euphemistic way of saying the Fed was prepared to cut interest rates further.

In his appearance the following day before the Senate Banking Committee, Bernanke said that the US economy faced a more difficult situation than in the aftermath of the dotcom stock market crash in 2001. He noted that the US was then running a budget surplus, that the US dollar was strong, and that inflation was low. He pointed out that in 2001, crude oil was selling at $20 a barrel, as compared to $100 a barrel today.

Today, the federal government is running huge budget deficits and the US dollar is weak and growing weaker. As a result, he said, "Congress and the Fed have less freedom to combat economic weakness..."

He added, in a remark that reverberated through both US and international markets, that "there will probably be some bank failures." He said he had confidence that none of the major banks would collapse, but suggested that some smaller banks would inevitably fail.

Bernanke's testimony had an immediate impact on global currency and commodity markets. His virtual pledge to continue cutting US interest rates, as well as his gloomy assessment of economic conditions, produced a sharp fall in the dollar. On Thursday, the dollar hit a record low against the euro, closing at $1.52 per euro. It also fell to a record low against the Swiss franc and a three-year low against the Japanese yen.

Over the past six years, the dollar has fallen more than 40 percent against the euro and more than 20 percent against a basket of currencies. With its decline this week, it fell to its lowest level since the US allowed the dollar to float freely in 1973.

The sinking dollar led Thursday to a $2.95 jump in the price of crude oil, which is traded in dollars, with the price-per-barrel settling at a record-high $102.59 on the New York Mercantile Exchange. Gold, corn and soybeans also hit or approached new highs, with gold closing at $970.74 an ounce.

The decline in the dollar, the world's preeminent reserve and trading currency, has led to a sharp increase in commodities speculation, contributing to an upsurge in basic commodity prices. So far this year, natural gas prices have risen by 26 percent, coal has increased by 56 percent, platinum is up by 41 percent, wheat prices have jumped 32 percent, and cocoa has gone up by 38 percent.

The upward spiral in world commodity prices is increasingly hitting consumers in the US in the form of sharply higher costs for gasoline, home heating and food. Last week, the US Labor Department reported that the Consumer Price Index had risen in January by 4.3 percent over a year ago, and this week government figures showed a jump in producer, or wholesale, prices for the month of 7.4 percent compared with a year ago. This was the worst year-to-year increase in producer price inflation since 1981.

The signs of growing inflation coincided with a series of economic indicators suggesting an existing or imminent recession:

* The Labor Department reported that first-time unemployment claims rose last week by 19,000, to 373,000, the highest level since late January. Economists had expected an increase of only 4,000.

* The government confirmed that the gross domestic product rose by only 0.6 percent in the fourth quarter of 2007. The GDP for all of 2007 rose by only 2.2 percent, the weakest performance since 2002.

* The National Association of Realtors reported that sales of previously owned homes fell for the sixth consecutive month in January, dropping 0.4 percent. Median home prices also continued to fall, declining by 4.6 percent from a year ago.

A different index of home prices, the Standard & Poor's/Case-Shiller index, which measures home prices in twenty metropolitan areas, reported a decline in December of 9.1 percent from a year ago, and projected an annual rate of home price declines of 20 percent.

* Two reports on consumer confidence showed sharp declines in January.

* Other reports showed consumer spending barely keeping pace with inflation and a sharp decline in business activity in the Chicago region.

Markets were further shaken by reports of more losses from the collapse of the mortgage market and the resulting banking crisis. Fannie Mae, the government-chartered mortgage-financing giant, reported a fourth quarter loss of $3.56 billion. The next day its smaller rival, Freddie Mac, reported its own fourth quarter loss of $2.5 billion and warned that it expected to lose billions more.

Financial analysts on Friday predicted that US and European banks stood to lose an additional $350 billion from the collapse of subprime-linked securities. On the same day, American International Group, the world's largest insurance company, reported a record fourth-quarter loss of $5.29 billion, resulting mainly from a write-down of $11.12 billion in insurance contracts tied to mortgages.

An additional factor in the sell-off of financial stocks was a statement by Treasury Secretary Henry Paulson, seconded by President Bush at his Thursday press conference, rejecting proposals being worked out between Wall Street banks and Democratic legislators for a government-funded bailout of mortgage lenders, banks and financial institutions that are holding tens of billions in bad investments linked to subprime and other shaky mortgages.

China, India, play it again for Uncle Sam

China, India, play it again for Uncle Sam

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By M K Bhadrakumar

American diplomacy was on splendid display this week in two key Asian capitals - Beijing and New Delhi. China and India rolled out the red carpet to visiting cabinet officials from Washington. By a curious coincidence, the two top US officials - Secretary of State Condoleezza Rice and Secretary of Defense Robert Gates - chose the same block of dates to befriend the two Asian "rivals".
Amid the debris of the George W Bush administration's foreign policy in the Middle East, what is often overlooked is the extraordinary diplomatic gusto with which Washington goes about convincing the two Asian giants, China and India, that each is a privileged partner of the US's global strategies.

Indeed, it is difficult to be judgmental about the relative importance that the US attaches to its relations with China and India - or, conversely, what goes on in the inscrutable minds of such ancient peoples as the Chinese or Indians. But Chinese pronouncements insist that the US is inviting China to be a "stakeholder" in the affairs of the 21st century and Beijing is responding. On the contrary, the Indian strategic community remains confident that the US is painstakingly building up Indian capabilities as a first-class power so as to make it a counterweight to China.

Full credit must be given to American diplomacy. Welcoming Gates to Delhi, the Indian Defense Ministry noted in an effusive press release that the George W Bush presidency "witnessed unprecedented acceleration in India-US engagement and qualitative transformation in the relationship, particularly in defense". It added that Gates' visit "reaffirms the importance of Indo-US relations and the strong political support in the US for our strategic partnership".

China was characteristically restrained in welcoming Rice to Beijing. Foreign Ministry spokesman Liu Jianchao said, "China and the United States will exchange views during Rice's visit on bilateral relations and the significant regional and international issues of common concern." All the same, former secretary of state Henry Kissinger, who was on a visit to Beijing last week, underscored the high importance of US-China relations. He told the China Daily on Sunday, "I consider that [his 1972 visit to China] the single-most important thing I did in government and the one that had the best permanent effect."

Rice sees China as stakeholder

But then, the problem with Kissinger is that he has a rare ability to make his interlocutors feel special. On balance, however, it does stand out that the US is cruising on a velvet patch in its relations with both the Asian powers. Things couldn't be better from the American point of view. Both China and India place great store on their respective strategic cooperation with the US.

Rice said in Beijing China is reaching out for a greater role in global affairs and is opening up, and that's good news. "I can't get into their motivations, but ... China is opening up to the world in a lot of ways," Rice said after talks with Chinese President Hu Jintao and other leaders. She noted, "I do believe that there is more of an effort to reconcile China's size and influence in international politics, which is a relatively new thing, with China's foreign policy behavior."

She added, "There is a broadening, I think, in general of China's view of itself in international politics and I think we're benefiting from it." Rice singled out China's cooperative role over the North Korea problem, Myanmar and Sudan's Darfur region, where "China is making an impact".

Rice said, "I see them grappling with the 'responsible stakeholder idea', which everybody said they couldn't translate. It turns out that they can translate it and they talk about it actually." She flatly dismissed the idea of using Summer Olympic Games as leverage, "We've been very clear, the president has been very clear, that this is a sporting event." And Bush plans to attend the opening ceremony in Beijing in August.

Clearly, the focus of Rice's visit to Beijing was on the North Korea problem where China and the US are in the process of working out detailed arrangements for the next phase of talks on Pyongyang dismantling its nuclear weapons. Washington needs Beijing's help. Top US nuclear negotiator on North Korea, Christopher Hill, was "ordered" by Rice to visit Beijing last week, according to US media reports, and China facilitated "a good substantial discussion" for Hill with his North Korean counterpart, Kim Kye-gwan. China also chaired a meeting of North and South Korean officials to discuss the economic underpinnings of the six-party talks.

Equally, Rice would have discussed the Iran problem with the Chinese leaders. Tehran acutely senses it may pave the way for a third United Nations Security Council resolution on tighter sanctions against Iran. Chinese Foreign Minister Yang Jiechi telephoned Iran's top nuclear negotiator, Saeed Jalili, on Wednesday soon after Rice concluded her talks in Beijing. At any rate, Tehran abruptly called off on Wednesday the signing of the long-awaited US$16 billion deal with China Offshore Oil Corporation for the development of its North Pars gas fields, which is estimated to have reserves of 80 trillion cubic feet. The reason attributed was that the Iranian Oil Minister Gholamhossein Nozari couldn't attend the signing ceremony in Tehran.

Again, Beijing agreed this week, after having rejected US appeals previously, to send a battalion of engineers to Darfur. Rice was quick to laud the Chinese move. The US, on its part, is attending to China's core concern, the Taiwan issue. As Kissinger put it, "I think Beijing and Washington will cooperate and really pressure Taipei that if they do not pull back, it could look extremely unfavorable. I believe that we will avoid a crisis in the Taiwan Strait."

Xinhua news agency reported that Hu and Rice "agreed to step up bilateral constructive and cooperative relations and handle the bilateral relations in a long-term and strategic perspective". Hu told Rice, "The cooperation arena keeps expanding and the strategic significance of the bilateral ties grow higher and higher". Rice responded that Washington hopes to see Beijing continuing to play a constructive role in addressing international issues. At a meeting with State Councilor Tang Jiaxuan, she said the US wanted to strengthen cooperation with China "so as to promote the resolution of the issues facing the world". She added that as a responsible member of the international system, China has played a key role in global affairs.

Tang said, "China-US relations have gone far beyond the bilateral dimension and hold increasing global influence and important strategic meanings." He underlined that Rice's visit came at "a very important moment" as the international and regional situation was evolving. Both Tang and Premier Wen Jiabao stressed that China-US cooperation makes an important contribution to the peace, stability and development of the word. Rice concurred that the "fruitful bilateral relationship and cooperation could help better resolve the complicated and difficult issues in the international system".

US's defense trade with India

Thus, it came as no surprise that Gates kept his visit to Delhi focused strictly on US-India military relations. He said, "I don't see our improving military relationships in the region in the context of any other country, including China. These expanding relationships don't necessarily have to be directed to anybody. They are a set of bilateral relationships that are aimed at improving our coordination and the closeness of our relationships for a variety of reasons."

Gates' talking points in Delhi related primarily to defense trade. India's procurement of 126 multi-role combat aircraft in a deal estimated at $10 billion - and possibly, as high as $ 16 billion - was number one priority for him and for the American defense contractors accompanying him. The principal bidders include Lockheed Martin's F-16 and Boeing's F/A-18 Super Hornet.

The importance of the deal is not only commercial, but that the new generation aircraft will be in use with the Indian Air Force for the next 40-year period and, therefore, clinching the deal becomes absolutely vital for the US if it is to aim at "inter-operability" with India. Gates knows it is the sort of deal that will ensure US-India military-to-military cooperation becomes irreversible and pin India down as the US's strategic ally in the region.

Indian defense industry sources already speculate that Lockheed Martin could be pushing for closer ties with India's military to increase its chances in the above tender. American companies are also keen to secure another Indian tender for 312 helicopters for its air force and navy worth about $1 billion. In January, India closed a $1 billion deal with Lockheed Martin for six C-130 Hercules aircraft for its special forces. India is expected to spend another $30 billion on military purchases by 2012. Gates' message to Indian officials was that the US defense trade offers the "full package" - sale, technology transfer, guaranteed supply of spares and co-production.

Gates expressed satisfaction over the entry that the US has made in the Indian market, which is traditionally dominated by Russia. He said, "We have tried for some years now to get a seat at the table, and we're finally there." Washington is determined to throw Russia out of the Indian defense market in the coming years. The assertiveness of the US sales pitch is evident from the remark by a US official in Gates's entourage, "When you go into joint production [and] cooperative development [with the US], you're getting not only the best product in the world, but you have the best support system, the best maintenance package over the life of the product. You also have companies that operate with integrity, which is different than what India has seen with other partners in the world. We're very transparent."

Washington will incrementally try to persuade India to get rid of its tendering mechanism altogether - bureaucratic buying and selling processes - and instead take recourse to direct negotiations. India has already moved in this direction and begun talks with the US on the purchase of P-8i long-range maritime reconnaissance patrol aircraft with anti-submarine war capabilities to replace Russian-made Tu-142M bombers. The deal could be worth $2 billion, the biggest defense deal so far between the two countries.

Meanwhile, the quantum jump in US-Indian strategic ties in the past two to three years needs to be consolidated. "We're not looking for quick results or big leaps forward, but rather a steady expansion of this relationship that leaves everybody comfortable," Gates modestly said.

A lot indeed depends on the fate of the US-India nuclear civilian deal. Washington is keeping its fingers crossed about the Indian government's grit to push the deal despite vehement domestic opposition. Untrammeled technology transfer to India and a qualitative shift of the strategic partnership to de facto alliance depend on the deal going through. Washington is, therefore, pulling all stops.

The worrisome thing for Washington, paradoxically, is that India has a democratic system. Indian politics are in flux with approaching parliamentary elections, while big-ticket items such as India's participation in the US defense missile system, India's ties with the North Atlantic Treaty Organization or India's role in regional security remain to be finessed. Of course, the elite leaderships in India's two centrist parties - Congress and Bhartiya Janata Party - are equally zealous about making India a "natural ally" of the US. Gates made it a point to touch base with the opposition BJP.

However, there is a flip side insofar as Indian politics have entered a coalition era and interest groups are multiplying. Outside of the middle class immersed in the enchantments of globalization, the vast majority of Indians grapple with sheer day-to-day survival - a newborn zone of development surrounded by endless horizons of depletion.

But then it is not Gates' problem if acute contradictions are playing out in India with no historical precedents to guide it. He returns to Washington a happy man. He said his discussions with India's leaders were positive and like-minded. "I encountered enthusiasm in all of the leaders here I talked to," he added. "I think ... they see it as we do ... a long-term enterprise by two sovereign states. We are mindful of India's long tradition of non-alignment and are respectful of that, but I think there are a lot of opportunities to expand on this relationship, and I think that was the feeling on the part of the Indian leaders that I met with, as well."

US's Asian strategy

The tricky part for Washington is that the US must not create apprehensions in the Chinese mind. Clearly, Washington accords number one priority in its Asian strategy to relations with China. US-China economic ties are inexorably gaining a global character. US-China economic interdependence rules out a "containment" policy toward China.

As a People's Daily commentary in December pointed out, the subprime loan or mortgage crisis in the US "poses a sound opportunity for the two sides [US and China] to reach overall, wide-ranging consensus. With the seizure of this rare opportunity, the risk-reduction capacity for both nations will beef up".

At the Third China-US Strategic Economic Dialogue in Beijing in December, Treasury Secretary Henry Paulson said, "I think one of our jobs in the dialogue is to make the case as to why trade is good, why China's economic success is good for the US, and the US economic success is good for China." He stressed that the US-China relationship has become central to each nation's interests and to maintaining "a stable, secure and prosperous global economic system". Paulson has paid as many as five visits to China during the 20 months since he assumed office. (He visited Delhi once during this period.)

Unsurprisingly, therefore, Gates avoided any of the political rhetoric regarding Asian security that came naturally to his predecessor, Donald Rumsfeld. First, in the near term, it is Russia and not China that threatens the US's global dominance. India is awkwardly placed with regard to US-Russia-China equations. Russia is still viewed largely as an ally, while China remains an adversary in the Indian perception. But Washington sees things differently.

The US Annual Threat Assessment presented on February 5 by the Director of US National Intelligence Michael McConnell suggests repeatedly that US-Russian relations stand to become more confrontational. It highlights the gradual resurgence of Russia's military forces. Also, an unspoken factor is that the energy exporting countries are increasingly challenging the US-dominated post-Bretton Woods global economic system. Russia, Iran and Venezuela have spoken of dispensing with the US dollar as the principal currency of settling energy accounts. There is talk of the gas-producing countries forming a cartel along the lines of the Organization of Petroleum Exporting Countries, which would of course pose a major challenge to the prevailing international economic system.

Beijing expressed misgivings last year about a "quadripartite" alliance between the US, Japan, Australia and India. But the alliance has since become moribund due to the change of governments in Japan and Australia and the priorities of the new leaderships toward relations with China. The accent for Washington, too, has changed and is now on drawing in Beijing as a mainstream player to be part of a multilateral framework. India is the odd man out, still figuring out how to come to terms with China's rise.

For all these reasons, Gates was careful not to give an "anti-China" flavor to the US's burgeoning military ties with India. There are other inter-linkages as well. Ironically, the US-India nuclear deal, which would boost their strategic ties, itself cannot go through without China's cooperation. The minimum that Beijing expects from Washington is that US-India strategic cooperation will not be directed against China.

In sum, Rice's mission to Beijing and Gates's stopover in Delhi become a case study of the US's evolving Asian strategy. Washington's preoccupation with containing resurgent Russia is set to become a major driving force behind the US's Asian strategy. And the isolation of Russia can work only if Washington whittles down Sino-Russian (and Russian-Indian) strategic cooperation.

Alongside comes Washington's need to make China a stakeholder in global security. US-China economic interdependence has reached a level where any attempt by Washington to hurt China can result in hurting itself and the world economy. Thus, Gates' visit to Delhi becomes a reality check for Indian strategists.

Warren Buffett warns of tough times ahead

Warren Buffett warns of tough times ahead

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By Dominic Rushe

BILLIONAIRE investor Warren Buffett warned of tough times ahead for the insurance industry in his annual letter sent to shareholders this weekend.

Buffett's Bekshire Hathaway investment company invests in 76 businesses including American Express, Coca Cola, Tesco and Wal-Mart. The company added $12.3bn (£6.2bn) to its net worth in 2007, an increase of 11%. But the company posted an 18% drop in fourth-quarter net income as investment gains fell and operating earnings declined at its core insurance business.

Buffett wrote: "We also were very lucky in 2007, the second year in a row free of major insured catastrophes. That party is over. It's a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008."

In his widely followed letter Buffett, one of the world's three richest men, also took a swipe at the "financial folly" of those firms that had fuelled and then been burnt by the sub-prime mortgage market

"As house prices fall, a huge amount of financial folly is being exposed," Buffett wrote. "You only learn who has been swimming naked when the tide goes out — and what we are witnessing at some of our largest financial institutions is an ugly sight."

In last year's letter Buffett warned against "weakened lending practices" in the mortgage market.

This year he wrote: "Just about all Americans came to believe that house prices would forever rise.

"That conviction made a borrower's income and cash equity seem unimportant to lenders, who shovelled out money, confident that HPA — house price appreciation — would cure all problems. Today, our country is experiencing widespread pain because of that erroneous belief."

Buffett also warned of another ticking time bomb in the form of state and local government pensions.

"Public pension promises are huge and, in many cases, funding is woefully inadequate. Because the fuse on this time bomb is long, politicians flinch from inflicting tax pain, given that problems will only become apparent long after these officials have departed. Promises involving very early retirement — sometimes to those in their low 40s — and generous cost-of-living adjustments are easy for these officials to make. In a world where people are living longer and inflation is certain, those promises will be anything but easy to keep."

Buffett, 76, said the company had identified four potential successors for his job but gave no timetable for when he would step down.

"The candidates are young to middle-aged, well-to-do to rich, and all wish to work for Berkshire for reasons that go beyond compensation," Buffett said . "I've reluctantly discarded the notion of my continuing to manage the portfolio after my death – abandoning my hope to give new meaning to the term "thinking outside the box".

U.S. stocks tumble on news of AIG's losses

U.S. stocks tumble on news of AIG's losses

A report from Swiss Bank UBS predicting more severe sub-prime mortgage losses also sends shivers across Wall Street.

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By Walter Hamilton

The stock market suffered its worst drubbing in almost a month Friday as new troubles in the financial sector suggested that damage from the sub-prime crisis still had a long way to go.

The Dow Jones industrial average slumped more than 300 points after insurance giant American International Group Inc. reported a brutal fourth-quarter loss and a research report predicted that Wall Street's mortgage-related losses would reach $600 billion.

Financial stocks led the way down, as they have for much of the last year.

The developments wiped out recent hopes that the sub-prime fallout was easing, and left some investors with the feeling that economic and market turmoil would persist through at least the first half of the year.

"We are in a process of winding out this great party that they had on Wall Street for this junk that went on for three or four years," said Greg Church, chief investment officer at Church Capital Management in Yardley, Pa., who predicted more pain in the months ahead. "We might be in the fourth or fifth inning. There's more to come."

Also depressing stocks was news that an index of business activity in the Chicago area sank much more than expected last month to its lowest level since December 2001.

The Dow Jones industrial average tumbled 315.79 points, or 2.5%, to 12,266.39. The blue-chip indicator is down 7.5% since the start of the year, but it remains above its recent low of 11,971 reached on Jan. 22.

The Standard & Poor's 500 slumped 37.05 points, or 2.7%, to 1,330.63. It's down 9.4% this year.

Investors continued a mad dash to the safety of Treasury securities. The yield on the two-year note slid to 1.64% from 1.82% late Thursday and 2% late Wednesday. The yield has been cut almost in half from the start of the year, when it stood at 3.06%.

But the upheaval in the municipal-bond market continued as large investors dumped their holdings, pushing yields up, amid rumors that hedge funds were liquidating muni bonds they had bought on credit. The turmoil has eaten into the value of muni-bond funds owned by many individual investors.

Stocks had picked up early in the week when it appeared that the fortunes of beleaguered bond insurers, which have backed billions of dollars in sub-prime securities, were improving. But the enthusiasm was soon overtaken by fears that more sub-prime bombs would go off.

AIG reported a $5.3-billion fourth-quarter loss late Thursday because of a write-down of sub-prime securities in its portfolio. Its shares tumbled $3.29, or 6.6%, on Friday to $46.86.

And a report by analysts at banking giant UBS sent shivers across Wall Street with its prediction that the total sub-prime hit at financial firms would quadruple from about $150 billion now to $600 billion.

"It really is ugly still," said Georges Yared, chief investment strategist at Yared Investment Research in Minneapolis.

"Housing still hasn't bottomed. It has a way to go."

Among the day's market highlights:

* Declining issues outnumbered advancers by about 7 to 1 on the New York Stock Exchange.

* The tech-dominated Nasdaq composite index declined 60.09 points, or 2.6%, to 2,271.48. The Russell 2,000 index of smaller companies fell 19.54 points, or 2.8%, to 686.18.

* For the week, the Dow lost 0.9%, the S&P 500 gave up 1.7%, the Nasdaq fell 1.4% and the Russell 2,000 declined 1.3%.

* An index of financial stocks in the S&P 500 tumbled 4%, putting it down 11% for the month, in response to the UBS report and a Deutsche Bank forecast of further write-downs at Lehman Bros. Holdings and Bear Stearns.

Citigroup dropped $1.30, or 5.2%, to $23.71. Goldman Sachs Group fell $7.07, or 4%, to $169.63. Lehman sank $3.69, or 6.7%, to $50.99. Bear Stearns slid $4.36, or 5.2%, to $79.86.

* Ambac Financial Group fell 66 cents, or 5.6%, to $11.14 on a report that a deal to boost capital at the second-largest bond insurer had hit a snag. Its larger rival, MBIA, fell $1.09, or 7.8%, to $12.97 after saying it was writing "very little" new bond insurance.

* Wells Fargo slumped $1.33, or 4.4%, to $29.23 after recording a $39-million loss on complex debt held by money market funds it manages that it agreed to prop up.

* Oil jumped to a record of $103.05 a barrel in early electronic trading. On the New York Mercantile Exchange, crude futures fell 75 cents to $101.84.

* The dollar finished lower after marking another intraday low against the euro, which traded as high as $1.524. The greenback fell below 104 yen for the first time in three years.

* Trading in interest-rate futures implied a 70% chance of a three-quarter-point rate cut by the Federal Reserve at its March 18 meeting. That was up from 36% on Thursday and 2% last week.

* Overseas stock markets tumbled. Key indexes fell 2.3% in Japan, 1.4% in Britain, 1.7% in Germany and 1.5% in France.

Washington deploys warships off the coast of Lebanon

Washington deploys warships off the coast of Lebanon

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By Bill Van Auken

The Bush administration has ordered the deployment of US Navy warships, including the guided missile destroyer USS Cole, off the coast of Lebanon and Israel, escalating the threat of a wider war in the Middle East.

The Cole, capable of striking targets throughout the region with cruise missiles, is expected to be joined soon by the US Navy's Nassau battle group, which includes six vessels, including amphibious landing craft, as well as a contingent of over 2,000 Marines.

The deployment constitutes a "show of support for regional stability" because of "concern about the situation in Lebanon," a Pentagon official told Agence France-Press.

In reality this naked exercise in gunboat diplomacy can only serve to increase tensions and make a regional war all the more likely.

The immediate target of the military buildup appears to be Syria and opposition political forces in Lebanon itself, particularly Hezbollah, the Lebanese Shia mass movement that Washington has branded as a terrorist organization.

The military action was joined Thursday by the Bush administration's announcement of another round of sanctions against Syria, this time directed at four named individuals alleged to have played a role in supporting the anti-occupation resistance in neighboring Iraq.

"We don't succumb to threats and military intimidation practiced by the United States to implement its hegemony over Lebanon," said Hezbollah legislator Hassan Fadlallah, who declared the naval deployment a direct threat to Lebanon's sovereignty. "This proves the confrontation is with decision-makers in Washington," he added.

Politicians linked to the US-backed government claimed that Washington had ordered the deployment without any consultation with Lebanese officials.

The US naval deployment coincided with yet another postponement of a parliamentary vote to fill the office of the Lebanese president, which has been vacant for the past four months. Washington is anxious to consolidate a US-dominated regime in Lebanon around Prime Minister Fouad Siniora to further its broader aims of controlling the region and its vital energy resources.

This week saw the 15th such postponement, derailing a mediation attempt by Arab League Secretary General Amr Moussa and making the selection of a new president unlikely until after an Arab summit scheduled in Damascus for March 29-30. King Abdullah of Saudi Arabia and some other Arab heads of state aligned with the US-backed ruling coalition in Lebanon have indicated that they will boycott the summit unless the political impasse is resolved and a Lebanese president is in attendance.

Washington has cynically opposed any negotiated settlement, instead seeking the installation of a regime committed to destroying the political influence of Hezbollah. For its part, Hezbollah and its political allies are determined to secure sufficient representation in the government to give them effective veto power. The opposition holds a sufficient number of seats in parliament to deny the ruling parties a quorum, thus giving it the power to prevent the selection of a president.

Nabih Berri, the speaker of the Lebanese parliament and a leading opposition figure, charged the US with seeking to block any compromise. In a television interview Friday, he said that the Bush administration was particularly hostile to the Arab League initiative, which called for a unity government and the enactment of a new electoral law.

Washington and the March 14 coalition of pro-US government parties have sought to pin the blame for the government crisis on Syria, portraying it as an attempt by Damascus to extract revenge for having been compelled to withdraw its troops from Lebanon and cede power to pro-American politicians who succeeded in winning a parliamentary majority in 2005.

But there are growing indications that the attempts by the Bush administration to turn Lebanon into a key theater for prosecuting its "global war on terrorism," with Hezbollah, Syria and Iran all as targets, are exacerbating deep-going social and political tensions in Lebanon. The US strategy is threatening to unravel the country's frayed political power-sharing agreement between Maronite Christian, Sunni and Shia political forces and reignite the civil war that ravaged the country for 15 years beginning in 1975.

Popular protests over social conditions by the country's predominantly working-class and poor Shia population have met with increasing repression. Early last month, a protest against power cuts in a Shia neighborhood in Beirut turned into a full-blown confrontation with the army that left seven unarmed demonstrators dead. The weeks since have seen repeated exchanges of gunfire between rival militias affiliated to either government of opposition parties.

Meanwhile, Druze leader Walid Jumblatt, a prominent member of the ruling coalition, used a televised February 10 speech to issue a bellicose challenge to the opposition: "You want disorder? It will be welcomed. You want war? It will be welcomed. We have no problem with weapons, no problem with missiles. We will bring them to you."

Saudi Foreign Minister Prince Saud al-Faisal warned recently that Lebanon was "on the verge of civil war."

Washington has a long and bloody history of military intervention in Lebanon's internal affairs, having acted repeatedly to bolster the political power of pro-Western parties and to suppress opposition from the country's oppressed.

In 1958, President Dwight Eisenhower sent some 14,000 soldiers and Marines into Lebanon to prop up the rightist regime of President Camille Chamoun—who enjoyed financial backing from both the CIA and the oil companies—against mounting opposition from predominantly Muslim Arab nationalists.

Some 25 years later, US Marines were sent into Lebanon again in the wake of the Israeli invasion of the country, only to be withdrawn after the bombings of their Beirut barracks left 241 Marines and 58 French troops dead. Then, as now, US warships were dispatched to the Lebanese coast, bombarding Shia and Druze villages.

The other broader context of the US naval deployment is the mounting threat of renewed Israeli military offensives, both in southern Lebanon and in the Gaza Strip. Israel has carried out repeated air strikes against Gaza since Wednesday, killing at least 35 Palestinians, including a six-month-old baby and four children struck down as they were playing football.

The Israeli government said that the bombardment was a response to the firing of rockets from Gaza into southern Israel. Meanwhile, senior government officials have warned that an Israeli ground invasion of Gaza is virtually inevitable.

Deputy Defense Minister Matan Vilnai employed the Hebrew word for Holocaust to describe the retaliation that is being prepared. He told the Israeli Army Radio Friday that the Palestinians would "bring upon themselves a bigger shoah because we will use all our might to defend ourselves."

Meanwhile, Israeli forces have also recently conducted war games on the northern border with Lebanon in apparent preparation for another war. In 2006, Israel launched a war against Lebanon, including massive bombardments that left over 1,000 civilians killed and much of the country's infrastructure in ruins.

Nonetheless, the 34-day war was a defeat for Israel, leaving Hezbollah strengthened. A report issued recently by an Israeli commission formed to investigate the conduct of the war described it as "a serious missed opportunity."

The government of Prime Minister Ehud Olmert may well seek to reverse this failure with a new act of military aggression. The recent "targeted assassination" of Hezbullah's senior military commander Imad Mugniyah in Damascus is widely seen in the region as a deliberate Israeli provocation aimed at provoking the Shia movement's retaliation and thereby providing the pretext for another Israeli war in Lebanon. Such a project would almost certainly enjoy the backing of the Bush administration, providing it with its own pretext for targeting Iran and Syria as the supposed state sponsors of terrorism and instability in the Middle East.

The dispatch to the eastern Mediterranean of the USS Cole, a ship which has been identified with the US "war on terror" since it was attacked by a suicide bomber in Yemen in 2000, losing 17 sailors, constitutes a stark warning that US imperialism is preparing to follow up its invasions of Iraq and Afghanistan with the unleashing of even greater armed terror against the peoples of the region.