Re-segregating schools

After white parents in this racially mixed city complained about school overcrowding, school authorities set out to draw up a sweeping rezoning plan. The results: all but a handful of the hundreds of students required to move this fall were black — and many were sent to virtually all-black, low-performing schools.

Black parents have been battling the rezoning for weeks, calling it resegregation. And in a new twist for an integration fight, they are wielding an unusual weapon: the federal No Child Left Behind law, which gives students in schools deemed failing the right to move to better ones.

“We’re talking about moving children from good schools into low-performing ones, and that’s illegal,” said Kendra Williams, a hospital receptionist, whose two children were rezoned. “And it’s all about race. It’s as clear as daylight.”

Tuscaloosa, where George Wallace once stood defiantly in the schoolhouse door to keep blacks out of the University of Alabama, also has had a volatile history in its public schools. Three decades of federal desegregation marked by busing and white flight ended in 2000. Though the city is 54 percent white, its school system is 75 percent black.

The schools superintendent and board president, both white, said in an interview that the rezoning, which redrew boundaries of school attendance zones, was a color-blind effort to reorganize the 10,000-student district around community schools and relieve overcrowding. By optimizing use of the city’s 19 school buildings, the district saved taxpayers millions, officials said. They also acknowledged another goal: to draw more whites back into Tuscaloosa’s schools by making them attractive to parents of 1,500 children attending private academies founded after court-ordered desegregation began.

“I’m sorry not everybody is on board with this,” said Joyce Levey, the superintendent. “But the issue in drawing up our plan was not race. It was how to use our buildings in the best possible way.” Dr. Levey said that all students forced by the rezoning to move from a high- to a lower-performing school were told of their right under the No Child law to request a transfer.

When the racially polarized, eight-member Board of Education approved the rezoning plan in May, however, its two black members voted against it. “All the issues we dealt with in the ’60s, we’re having to deal with again in 2007,” said Earnestine Tucker, one of the black members. “We’re back to separate but equal — but separate isn’t equal.”

For decades school districts across the nation used rezoning to restrict black students to some schools while channeling white students to others. Such plans became rare after civil rights lawsuits in the 1960s and ’70s successfully challenged their constitutionality, said William L. Taylor, chairman of the Citizens’ Commission on Civil Rights.

Tuscaloosa’s rezoning dispute, civil rights lawyers say, is one of the first in which the No Child Left Behind law has become central, sending the district into uncharted territory over whether a reassignment plan can trump the law’s prohibition on moving students into low-performing schools. A spokesman, Chad Colby, said the federal Education Department would not comment.

Tuscaloosa is not the only community where black parents are using the law to seek more integrated, academically successful schools for their children.

In Greensboro, N.C., students in failing black schools have transferred in considerable numbers to higher-performing, majority-white schools, school officials there said. A 2004 study by the Citizens’ Commission on Civil Rights documented cases in Florida, Indiana, Tennessee and Virginia where parents were moving their children into less-segregated schools.

Nationally, less than 2 percent of eligible students have taken advantage of the law’s transfer provisions. Tuscaloosa, with 83,000 residents, is an hour’s drive west of Birmingham. During court-ordered desegregation its schools roughly reflected the school system’s racial makeup, and there were no all-black schools.

But in recent years the board has carved the district into three zones, each with a new high school. One cluster of schools lies in the east of the city; its high school is 73 percent black.

Another cluster on Tuscaloosa’s gritty west side now amounts to an all-black minidistrict; its five schools have 2,330 students, and only 19 are white. Its high school is 99 percent black.

 In contrast, a cluster of schools that draw white students from an affluent enclave of mansions and lake homes in the north, as well as some blacks bused into the area, now includes two majority-white elementary schools. Its high school, Northridge, is 56 percent black.

The rezoning plan will force an estimated 880 students in Tuscaloosa to change their schools.

At a meeting in February 2005, scores of parents from the two majority white elementary schools complained of overcrowding and discipline problems in the middle school their children were sent to outside of the northern enclave.

Ms. Tucker said she, another board member and a teacher were the only blacks present. The white parents clamored for a new middle school closer to their homes. They also urged Dr. Levey to consider sending some students being bused into northern cluster schools back to their own neighborhood, Ms. Tucker said. Dr. Levey did not dispute the broad outlines of Ms. Tucker’s account.

“That was the origin of this whole rezoning,” Ms. Tucker said.

Months later, the school board commissioned a demographic study to draft the rezoning plan. J. Russell Gibson III, the board’s lawyer, said the plan drawn up used school buildings more efficiently, freeing classroom space equivalent to an entire elementary school and saving potential construction costs of $10 million to $14 million. “That’s a significant savings,” Mr. Gibson said, “and we relieved overcrowding and placed most students in a school near their home. That’s been lost in all the rhetoric.”

Others see the matter differently. Gerald Rosiek, an education professor at the University of Alabama, studied the Tuscaloosa school district’s recent evolution. “This is a case study in resegregation,” said Dr. Rosiek, now at the University of Oregon.

In his research, he said, he found disappointment among some white parents that Northridge, the high school created in the northern enclave, was a majority-black school, and he said he believed the rezoning was in part an attempt to reduce its black enrollment.

The district projected last spring that the plan would move some 880 students citywide, and Dr. Levey said that remained the best estimate available. The plan redrew school boundaries in ways that, among other changes, required students from black neighborhoods and from a low-income housing project who had been attending the more-integrated schools in the northern zone to leave them for nearly all-black schools in the west end.

Tuscaloosa’s school board approved the rezoning at a May 3 meeting, at which several white parents spoke out for the plan. One parent, Kim Ingram, said, “I’m not one who looks to resegregate the schools,” but described what she called a crisis in overcrowding, and said the rezoning would alleviate it. In an interview this month, Ms. Ingram said the middle school attended by her twin seventh-grade girls has been “bursting at the seams,” with student movement difficult in hallways, the cafeteria and locker rooms.

Voting against the rezoning were the board’s two black members and a white ally.

Dan Meissner, the board president, said in an interview this month that any rezoning would make people unhappy. “This has involved minimal disruption for a school system that has 10,000 students,” he said.

But black students and parents say the plan has proven disruptive for them.

Telissa Graham, 17, was a sophomore last year at Northridge High. She learned of the plan last May by reading a notice on her school’s bulletin board listing her name along with about 70 other students required to move. “They said Northridge was too crowded,” Telissa said. “But I think they just wanted to separate some of the blacks and Hispanics from the whites.”

Parents looking for recourse turned to the No Child Left Behind law. Its testing requirements have enabled parents to distinguish good schools from bad. And other provisions give students stuck in troubled schools the right to transfer. In a protest at an elementary school after school opened last month, about 60 black relatives and supporters of rezoned children repeatedly cited the law. Much of the raucous meeting was broadcast live by a black-run radio station.

Some black parents wrote to the Alabama superintendent of education, Joseph Morton, arguing that the rezoning violated the federal law. Mr. Morton disagreed, noting that Tuscaloosa was offering students who were moved to low-performing schools the right to transfer into better schools. That, he said, had kept it within the law.

Dr. Levey said about 180 students requested a transfer.

Telissa was one of them. She expects to return this week to Northridge, but says moving from one high school to another and back again has disrupted her fall.

One of Telissa’s brothers has also been rezoned to a virtually all-black, low-performing school. Her mother, Etta Nolan, has been trying to get him a transfer, too.

“I’m fed up,” Ms. Nolan said. “They’re just shuffling us and shuffling us.”

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Communist in the spotlight

The head of the Communist Party was found to have been watching porn at a Ukrainian sanatorium.

While one powers his way through the waters of the Caspian, slaying Russia’s marine resources with a single blow of his spear, the other lolls in a jacuzzi sprinkled with rose petals, his attention equally divided between a porn channel and a lissome brunette.

That was the picture painted by the Zhizn tabloid on Wednesday as it compared the lotus-eating lifestyle of Communist Party leader Gennady Zyuganov with the manly pursuits of the country’s head boy, Vladimir Putin.

The swines at Zhizn got hold of Zyuganov’s hotel bill after he stayed at a "foreign sanatorium" whose mud baths he is unlikely to patronize again. Although Zhizn’s subhead makes much of the party leader’s treachery in going abroad on vacation, the word "sanatorium" and the fact that the bill is in Russian give the game away — Zyuganov just nipped across the border to Ukraine. Though he did stay in the presidential suite, the nerve of him.

    
Zhizn writes that Zyuganov paid $800 per night to stay in the suite and also left a tip of $50 in the restaurant, which the tabloid emphasizes is "half the pension of the average Russian pensioner."

But the main attack is on Zyuganov’s sexual proclivities. The tabloid helpfully blows up the part of the bill that indicates he paid 700 hryvnas (presumably — the currency isn’t given) for a cable channel called Sex View TV. And it juxtaposes this with a photo of Zyuganov with a girl in shorts and a sleeveless top. He has his arm around her shoulders, although their awkward stance doesn’t exactly scream that they engaged in illicit activities on the presidential king-size bed.

Zhizn also prints a picture of the suite’s jacuzzi, which looks onto the Black Sea and has rose petals scattered round it. Presumably, they were red for this would-be communist president. But it doesn’t give any concrete evidence, and the bill doesn’t indicate double occupation of the suite.

Personally, I doubt that a man who voluntarily goes on vacation to a sanatorium and also — according to the bill published by the tabloid — pays for a 5-day "medical tour" called Diagnosis and Relaxation, would know wild vice if it hit him on the head. With their stern staff, terrifying treatments and compulsory diet of meat and potatoes, sanatoriums would be a strange choice for a dirty weekend, unless it’s mud baths you’re after.

Meanwhile, Putin has taken up a far more wholesome hobby than flicking through porn channels, the tabloid points out on Page 2. The article, which is yet another excuse to roll out the topless Putin-as-Rambo photos, quotes "sources in the presidential administration" as saying that Putin has taken up diving and underwater spear-fishing.

Putin began diving seriously in the Seychelles this year, Zhizn’s sources reveal. And doubtless, he found a nice budget hotel with absolutely no porn channels on offer. It quotes some unidentified British zoologists as saying that the area around an island called Praslin was cordoned off so Putin could do his stuff without some crazed scientist or maverick spear-fisher mistaking him for a prawn.

The best part of the article is a piece of purple prose about why Putin prefers spear-fishing to idly admiring marine life with a snorkel. "Obviously, aimless underwater swimming and looking at the beauties of seas and oceans don’t tempt the Russian leader," it gushes.

Apparently Putin’s new hobby has encouraged him to support the building of new diving centers in Sochi and the Far East, the paper writes, quoting those presidential administration sources again. And one of the presidential candidates, Sergei Ivanov, has quite coincidentally also developed an enthusiasm for the sport, Zhizn writes.

"In order to dive, admire the sea, nature, sea urchins and crabs, you don’t need to go to Egypt," the paper quotes Ivanov waxing lyrically. "You can go to the Far East [of Russia]." Or indeed, to the Seychelles. But give Ukraine a wide berth. There be Zhizn reporters.

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French arms to Pakistan could help China

Pakistan is trying to buy French missiles and radar for a jet fighter it is developing with China, a defense journal said Thursday, and experts warned that such a deal risked the technology falling into Chinese hands despite a European arms embargo on China.

Pakistan is talking to France about obtaining air-to-air missiles from the MBDA company and radars from Thales for its version of the JF-17 warplane, Jane’s Defense Weekly said in a report posted on its Internet site.

Those missiles and similar radars also equip Taiwan’s French-built Mirage fighters, and the island’s weapons systems could be compromised if Pakistan transferred the technology to China, Jane’s said.

The journal cited unidentified Russian and Chinese sources as saying the French sale to Pakistan was "likely" to go ahead.

[…]

Alexander Neill, head of the Asia program at the Royal United Services Institute for Defense and Security Studies in England, said he anticipated a "quite vicious" reaction from the United States if France proceeded with the reported sale.

He said there were "valid" concerns that China could get its hands on the technology, because "Pakistan is building a very solid relationship with China."

A look at the French technology could allow Chinese engineers to counter it, possibly affecting the delicate military balance between China and Taiwan, said Paul Smyth, head of aerospace studies at the institute.

[…]

Pakistan reportedly let Chinese engineers look at U.S. military equipment in the past, and experts said permitting examination of the French technology would circumvent a European Union ban on arms sales to China in place since the Chinese army crushed democracy protests in 1989.

The experts said the embargo has become increasingly porous and France has lobbied for it to be lifted.

[…]

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EU told to accept 20 million migrants

Europe must relax its immigration controls and open the door to an extra 20 million workers during the next two decades, the European Union’s justice chief will say on Friday.

Franco Frattini, justice commissioner, is to tell the bloc’s immigration ministers in Lisbon that the EU should stop erecting barriers and instead build safe pathways for Africans and Asians who risk their lives heading to the continent to find a job.

“We have to look at immigration not as a threat but—when well-managed, and that is our new task—as an enrichment and as an inescapable phenomenon of today’s world,” he will say.

“Europe has to compete against Australia, Canada, the USA and the rising powers in Asia.” He will suggest the word immigration and its “dark side” should be dropped in favour of “mobility.”

[…]

Next month Mr Frattini is to propose an EU “blue card” to compete with the US green card. Skilled workers could apply for two-year residency that could be extended. After five consecutive years living in any number of EU countries they would be allowed to stay permanently.

He is to table a law laying out minimum working standards for unskilled migrants and forming a one-stop shop for them to apply for work permits.

The Commission is about to establish a €10m information centre for Mali. Locals will be able to apply for jobs in Spain and France through a deal signed between the countries. It will be the first of several such centres in Africa.

[…]

The “reforms” could lead to a more than doubling of the EU’s foreign-born population by 2030. So he will also stress the importance of finding jobs for indigenous workers and cracking down on illegal immigration.

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Dollar at edge of cliff

The U.S. dollar is standing at the edge of a cliff, and most people don’t even know it.

Data released by the New York Federal Reserve shows that foreign central banks have been net sellers of U.S. treasuries over the past five weeks, with $48 billion having been sold since late July, and $32 billion in just the last two weeks.

The U.S. runs budget deficits each year. If foreigners stop buying treasuries—or worse, start selling them—the dollar could be in big trouble.

The reduction in treasuries “comes as a big surprise and it is definitely worrying,” said Hans Redeker, foreign exchange strategy chief at bnp Paribas, one of Europe’s biggest banks.

The Telegraph reported that, according to Redeker, the numbers demonstrate “that world central banks are in a hurry to get out of the U.S.”

The nation that analysts are watching especially closely at this stage is China. Whether or not Beijing is selling its dollars can’t be officially confirmed until November, when the Treasury releases its tic data. However, top Beijing officials have been signaling for at least two years that dollar sales are increasingly imminent.

This past August, two Chinese government officials highlighted China’s massive U.S. dollar holdings (which include treasuries) and how it supports the value of the U.S. currency. They also noted that Beijing could use those holdings as a political weapon to counter congressional calls to revalue the yuan and impose trade sanctions on Chinese goods. Chinese state media referred to the country’s stockpile of U.S. dollars as its economic “nuclear option,” capable of destroying the dollar at will.

Beijing also clearly signaled that it would begin “diversifying” out of the dollar earlier this year when it announced plans to rebalance its $1.34 trillion currency reserves, which are mostly U.S. bonds. Already Beijing has created a $300 billion investment fund to use those dollars to purchase other assets in an attempt to increase its investment returns.

It should come as no shock, then, that China would now be selling its dollar holdings.

The danger, as the Telegraph notes, relates to the fact that China holds such a large amount of treasuries. Any confirmed evidence that China was no longer supporting the dollar, and was actually selling it, risks setting off “an unstoppable stampede” in which other nations would seek to dump their holdings before China swamps the market and demand for dollars is overwhelmed.

The implications of a run on the dollar due to Chinese treasury-dumping go far beyond just the value of the greenback.

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Northern Rock scramble

The turmoil in global banking hit the streets of Britain on Friday as thousands of Northern Rock customers queued up to withdraw their savings from the UK mortgage lender after it was rescued by the Bank of England.

As regulators and politicians called for calm, Northern Rock – Britain’s fifth-biggest mortgage lender – scrambled to contain the fallout after it became the first British bank in decades to be bailed out by regulators. One person close to the situation said customers had withdrawn about $2bn Friday but Northern Rock declined to comment on the figure, which would amount to 4 per cent of its deposit base.

The rescue demonstrates the risks from a decade of financial innovation in the capital markets, which allowed a small regional lender to wield financial clout far greater than its network of 76 branches would suggest.

It also shows how the turmoil in the financial system that resulted from excessive lending to Americans with patchy credit histories triggered the failure of a bank with no direct links to the US mortgage market.

Shares in Northern Rock plunged more than 30 per cent as analysts slashed their earnings forecasts for the bank. The news also dragged down share prices for other UK banks such as Alliance & Leicester, HBOS and Barclays.

The FTSE 100 saw sharp falls until US markets opened and helped soften the bearish tone. As the day wore on, sentiment soured again. The list of leading UK shares ended 74.6 points lower, almost 1.2 per cent down at 6,289.3. The FTSE Eurofirst 300 was 16.2 points lower at 1508.1, 1.1 per cent down.

In the US, equity markets pared early losses after economic data showed retail sales, excluding sales of vehicles, fell sharply in August. The data cemented investors’ expectations of at least a quarter-point interest rate cut from the Federal Reserve when policymakers meet on Tuesday.

The commerce department reported retail sales fell 0.4 per cent in August, excluding vehicle sales, compared with forecasts of a 0.1 per cent rise, and a 0.7 per cent increase in retail sales in July. The S&P500 was down 0.1 per cent to 1,482.45 by midday in New York. The Dow Jones Industrial Average of blue-chip stocks fell 0.01 per cent to 13,423.66.

Financials were among the worst performers, after Merrill Lynch, the world’s largest brokerage, warned that shaky credit markets had forced it to adjust the value of securities linked to risky subprime mortgages.

Concern over Northern Rock and the ability of UK banks to maintain new mortgage lending at attractive rates added to concerns about the housing market and the economy in general.

Under the terms of the bail-out, the Bank of England will provide an open-ended facility to Northern Rock, allowing it to access liquidity by posting mortgages or mortgage-backed securities as collateral. The rescue – finalised yesterday after days of negotiations involving the Financial Services Authority and the UK Treasury – came just two days after Mervyn King, governor of the Bank, insisted it would not intervene to bail out the markets.

According to people familiar with the matter, several banks considered buying Northern Rock. However, a deal was undermined by a shortage of liquidity and uncertainty about Northern Rock’s value. Adam Applegarth, Northern Rock’s chief executive, said the bank was not in talks with a buyer.

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Chinese to equip Nigerian schools

The Chinese Embassy on Wednesday in Abuja said it was prepared to equip selected secondary schools in Nigeria with facilities to aid the teaching and learning of Chinese language.

The embassy’s Cultural Attache, Mr Jiang Weiming, announced the decision at a ceremony marking the commencement of an education and cultural collaboration between Nigeria and China.

Weiming said through the collaboration, the embassy would equip and establish Chinese classes and train teachers in the chosen schools.

He also said the understanding of the language would improve the existing relationship between the two countries as well as enhance the appreciation of the Chinese culture by Nigerians.

In a remark at the ceremony, FCTA Education Secretary, Mrs Felicia Olajide, said it was gratifying that both countries were exploring the possibilities of building stronger ties through education and culture.

Olajide said that the potential areas of cooperation transcended culture and education. “Industrial development can also be explored for the benefit of both nations,’’ she said.

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Centcom chief derided Petraeus

In sharp contrast to the lionisation of Gen. David Petraeus by members of the U.S. Congress during his testimony this week, Petraeus’s superior, Admiral William Fallon, chief of the Central Command (CENTCOM), derided Petraeus as a sycophant during their first meeting in Baghdad last March, according to Pentagon sources familiar with reports of the meeting.

Fallon told Petraeus that he considered him to be "an ass-kissing little chickenshit" and added, "I hate people like that", the sources say. That remark reportedly came after Petraeus began the meeting by making remarks that Fallon interpreted as trying to ingratiate himself with a superior.

That extraordinarily contentious start of Fallon’s mission to Baghdad led to more meetings marked by acute tension between the two commanders. Fallon went on develop his own alternative to Petraeus’s recommendation for continued high levels of U.S. troops in Iraq during the summer.

The enmity between the two commanders became public knowledge when the Washington Post reported Sep. 9 on intense conflict within the administration over Iraq. The story quoted a senior official as saying that referring to "bad relations" between them is "the understatement of the century".

Fallon’s derision toward Petraeus reflected both the CENTCOM commander’s personal distaste for Petraeus’s style of operating and their fundamental policy differences over Iraq, according to the sources.

The policy context of Fallon’s extraordinarily abrasive treatment of his subordinate was Petraeus’s agreement in February to serve as front man for the George W. Bush administration’s effort to sell its policy of increasing U.S. troop strength in Iraq to Congress.

In a highly unusual political role for an officer who had not yet taken command of a war, Petraeus was installed in the office of Minority Leader Mitch McConnell, a Republican from Kentucky, in early February just before the Senate debated Bush’s troop increase. According to a report in The Washington Post Feb. 7, senators were then approached on the floor and invited to go McConnell’s office to hear Petraeus make the case for the surge policy.

Fallon was strongly opposed to Petraeus’s role as pitch man for the surge policy in Iraq adopted by Bush in December as putting his own interests ahead of a sound military posture in the Middle East and Southwest Asia — the area for which Fallon’s CENTCOM is responsible.

The CENTCOM commander believed the United States should be withdrawing troops from Iraq urgently, largely because he saw greater dangers elsewhere in the region. "He is very focused on Pakistan," said a source familiar with Fallon’s thinking, "and trying to maintain a difficult status quo with Iran."

By the time Fallon took command of CENTCOM in March, Pakistan had become the main safe haven for Osama bin Laden’s al Qaeda to plan and carry out its worldwide operations, as well as being an extremely unstable state with both nuclear weapons and the world’s largest population of Islamic extremists.

Plans for continued high troop levels in Iraq would leave no troops available for other contingencies in the region.

Fallon was reported by the New York Times to have been determined to achieve results "as soon as possible". The notion of a long war, in contrast, seemed to connote an extended conflict in which Iraq was but a chapter.

Fallon also expressed great scepticism about the basic assumption underlying the surge strategy, which was that it could pave the way for political reconciliation in Iraq. In the lead story Sep. 9, The Washington Post quoted a "senior administration official" as saying that Fallon had been "saying from Day One, ‘This isn’t working.’ "

One of Fallon’s first moves upon taking command of CENTCOM was to order his subordinates to avoid the term "long war" — a phrase Bush and Secretary of Defence Robert M. Gates had used to describe the fight against terrorism.

Fallon was signaling his unhappiness with the policy of U.S. occupation of Iraq for an indeterminate period. Military sources explained that Fallon was concerned that the concept of a long war would alienate Middle East publics by suggesting that U.S. troops would remain in the region indefinitely.

During the summer, according to the Post Sep. 9 report, Fallon began to develop his own plans for redefine the U.S. mission in Iraq, including a plan for withdrawal of three-quarters of the U.S. troop strength by the end of 2009.

The conflict between Fallon and Petraeus over Iraq came to a head in early September. According to the Post story, Fallon expressed views on Iraq that were sharply at odds with those of Petraeus in a three-way conversation with Bush on Iraq the previous weekend. Petraeus argued for keeping as many troops in Iraq for as long as possible to cement any security progress, but Fallon argued that a strategic withdrawal from Iraq was necessary to have sufficient forces to deal with other potential threats in the region.

Fallon’s presentation to Bush of the case against Petraeus’s recommendation for keeping troop levels in Iraq at the highest possible level just before Petraeus was to go public with his recommendations was another sign that Petraeus’s role as chief spokesperson for the surge policy has created a deep rift between him and the nation’s highest military leaders. Bush presumably would not have chosen to invite an opponent of the surge policy to make such a presentation without lobbying by the top brass.

Fallon had a "visceral distaste" for what he regarded as Petraeus’s sycophantic behaviour in general, which had deeper institutional roots, according to a military source familiar with his thinking.

Fallon is a veteran of 35 years in the Navy, operating in an institutional culture in which an officer is expected to make enemies in the process of advancement. "If you are Navy captain and don’t have two or three enemies, you’re not doing your job," says the source.

Fallon acquired a reputation for a willingness to stand up to powerful figures during his tenure as commander in chief of the Pacific Command from February 2005 to March 2007. He pushed hard for a conciliatory line toward and China, which put him in conflict with senior military and civilian officials with a vested interest in pointing to China as a future rival and threat.

He demonstrated his independence from the White House when he refused in February to go along with a proposal to send a third naval carrier task force to the Persian Gulf, as reported by IPS in May. Fallon questioned the military necessity for the move, which would have signaled to Iran a readiness to go to war. Fallon also privately vowed that there would be no war against Iran on his watch, implying that he would quit rather than accept such a policy.

A crucial element of Petraeus’s path of advancement in the Army, on the other hand, was through serving as an aide to senior generals. He was assistant executive officer to the Army Chief of Staff, Gen. Carl Vuono, and later executive assistant to the chairman of the Joint Chiefs, Gen. Henry Shelton. His experience taught him that cultivating senior officers is the key to success.

The contrasting styles of the two men converged with their conflict over Iraq to produce one of the most intense clashes between U.S. military leaders in recent history.

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Germany’s actions leaves US ‘no choice’

A recent decision by German officials to withhold support for any new sanctions against Iran has pushed a broad spectrum of officials in Washington to develop potential scenarios for a military attack on the Islamic regime, FOX News confirmed Tuesday.

Germany — a pivotal player among three European nations to rein in Iran’s nuclear program over the last two-and-a-half years through a mixture of diplomacy and sanctions supported by the United States — notified its allies last week that the government of Chancellor Angela Merkel refuses to support the imposition of any further sanctions against Iran that could be imposed by the U.N. Security Council.

The announcement was made at a meeting in Berlin that brought German officials together with Iran desk officers from the five member states of the Security Council. It stunned the room, according to one of several Bush administration and foreign government sources who spoke to FOX News, and left most Bush administration principals concluding that sanctions are dead.

The Germans voiced concern about the damaging effects any further sanctions on Iran would have on the German economy — and also, according to diplomats from other countries, gave the distinct impression that they would privately welcome, while publicly protesting, an American bombing campaign against Iran’s nuclear facilities.

Germany’s withdrawal from the allied diplomatic offensive is the latest consensus across relevant U.S. agencies and offices, including the State Department, the National Security Council and the offices of the president and vice president. Under Secretary of State for Political Affairs Nicholas Burns, the most ardent proponent of a diplomatic resolution to the problem of Iran’s nuclear ambitions, has had his chance on the Iranian account and come up empty.

Political and military officers, as well as weapons of mass destruction specialists at the State Department, are now advising Secretary of State Condoleezza Rice that the diplomatic approach favored by Burns has failed and the administration must actively prepare for military intervention of some kind. Among those advising Rice along these lines are John Rood, the assistant secretary for the Bureau of International Security and Nonproliferation; and a number of Mideast experts, including Ambassador James Jeffrey, deputy White House national security adviser under Stephen Hadley and formerly the principal deputy assistant secretary for Near Eastern affairs.

Consequently, according to a well-placed Bush administration source, "everyone in town" is now participating in a broad discussion about the costs and benefits of military action against Iran, with the likely timeframe for any such course of action being over the next eight to 10 months, after the presidential primaries have probably been decided, but well before the November 2008 elections.

The discussions are now focused on two basic options: less invasive scenarios under which the U.S. might blockade Iranian imports of gasoline or exports of oil, actions generally thought to exact too high a cost on the Iranian people but not enough on the regime in Tehran; and full-scale aerial bombardment.

On the latter course, active consideration is being given as to how long it would take to degrade Iranian air defenses before American air superiority could be established and U.S. fighter jets could then begin a systematic attack on Iran’s known nuclear targets.

Most relevant parties have concluded such a comprehensive attack plan would require at least a week of sustained bombing runs, and would at best set the Iranian nuclear program back a number of years — but not destroy it forever. Other considerations include the likelihood of Iranian reprisals against Tel Aviv and other Israeli population centers; and the effects on American troops in Iraq. There, officials have concluded that the Iranians are unlikely to do much more damage than they already have been able to inflict through their supply of explosives and training of insurgents in Iraq.

The Bush administration "has just about had it with Iran," said one foreign diplomat. "They tried the diplomatic process. China is now obstructing them at the U.N. Security Council and the Russians are tucking themselves behind them.

"The Germans are wobbling …There are a number of people in the administration who do not want their legacy to be leaving behind an Iran that is nuclear armed, so they are looking at what are the alternatives? They are looking at other options," the diplomat said.

Vice President Cheney and his aides are said to be enjoying a bit of "schadenfreude" at the expense of Burns. A source described Cheney’s office as effectively gloating to Burns and Rice, "We told you so. (The Iranians) are not containable diplomatically."

The next shoe to drop will be when Rice and President Bush make a final decision about whether to designate the Iranian Revolutionary Guard Corps (IRGC) and/or its lethal subset, the Quds Force, as a terrorist entity or entities. FOX News reported in June that such a move is under consideration.

Sources say news leaks about the prospective designation greatly worried European governments and private sector firms, which could theoretically face prosecution in American courts if such measures became law and these entities continued to do business with IRGC and its multiple financial subsidiaries.

If the Bush administration moves forward with such a designation, sources said, it would be an indication that Rice agrees that Burns’ approach has failed. Designation of such a large Iranian military institution as a terrorist entity would also be seen, sources said, as laying the groundwork for a public justification of American military action.

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Red Storm Rising

A growing band of civilian units inside China is writing malicous code and training to launch cyberstrikes into enemy systems.
And for many of these units, the first enemy is the U.S. Defense Department.

Pentagon officials say there are more than three million daily scans of the Global Information Grid, the Defense Department’s main network artery, and that the United States and China are the top two originating countries.

“China has downloaded 10 to 20 terabytes of data from the NIPRNet (DOD’s Non-Classified IP Router Network),” said Maj. Gen. William Lord, director of information, services and integration in the Air Force’s Office of Warfighting Integration and Chief Information Officer, during the recent Air Force IT Conference in Montgomery, Ala.

“They’re looking for your identity so they can get into the network as you,” said Lord, adding that Chinese hackers had yet to penetrate DOD’s secret, classified network. “There is a nation-state threat by the Chinese.”

People’s Liberation Army writings in recent years have called for the use of all means necessary, including—or particularly—information warfare, to support or advance their nation’s interests.

To China’s PLA, attacks against DOD systems would be the first salvo in a long-term strategy to cripple the U.S. military’s ability to communicate and deliver precision weapons.

A big part of the strategy is the PLA’s civilian units—IT engineers drawn from universities, institutes and corporations. The PLA views these militias as its trump card and a way of asserting virtual dominance to paralyze the United States and other potential adversaries.

The U.S. military is familiar with China’s approach. In fact, its own strategy in cyberspace is similar to the PLA’s—the countries’ doctrines and strategies almost mirror one another.

It is unclear how aggressive a posture the United States is taking when it comes to defending against cyberattacks. But DOD certainly is paying attention to China’s offensive aggression, and even considering offensive actions of its own, Lord said. “But the rules of engagement have to change before we’re fully engaged in cyberspace.”

The Pentagon has made net-centricity the core of its transformation into a modern military force, and it seeks ways to create a vast web of information accessible at every level of the warfighting operation, from ground troops to pilots, command staffs to logistics operations.

China, recognizing America’s dominance in C4—command, control, communications and computers—wants to disrupt or even remove that advantage, experts have said.

If the armies of bygone days traveled on their stomachs, future armies will travel on invisible threads of data.

But the concern should not be limited to DOD. All federal agencies have to be aware of the Chinese view of information warfare.

Chinese military writings make it clear that in cyberspace there are no boundaries between military and civilian targets. If crashing a country’s financial system through computer attack will paralyze the foe, that’s all part of the new face of war.

If DOD—the most security-conscious of all federal agencies—can be attacked, can have information stolen, then other agencies must seem like low-hanging fruit by comparison.

China is not the only country targeting DOD systems. John Thompson, chairman and chief executive officer of Symantec Corp. of Cupertino, Calif., told the audience at the Air Force conference: “There are at least 20 nations that have their own cyberattack programs.” He said there is no way to know how many terrorist organizations have launched similar efforts.

But China—the largest country by population at 1.3 billion, third in area, and among the fastest-growing economically—gets the most attention, in part because it is the single largest source of cheap goods sold in the United States, including technology.

While Defense and Homeland Security department officials are reluctant to make pointed accusations, events in cyberspace show how the two countries are jockeying for position in preparation for “virtual” conflict.

From at least 2003 to 2005, a series of coordinated cyberattacks hit U.S. military, government and contractor Web sites with abandon. The systematic intrusions, collectively dubbed Titan Rain, attacked hundreds of government computers.

Time magazine reported last year that the incursions originated on a local network that connected to three routers in Guangdong Province, though U.S. officials still offer only generic comments about this and other published reports about Titan Rain.

“What I can say about this is [that] we have seen some attempts at access to our network. We’ve seen some of that from China,” said Air Force Lt. Gen. Robert Kehler, deputy commander of the U.S. Strategic Command.
   
“We are seeing attacks that traversed through China. I can’t say with any real assurance that that’s where they start,” added Navy Rear Adm. Elizabeth Hight, deputy director of DOD’s Joint Task Force for Global Network Operations.

A military attache at the Chinese Embassy in Washington insisted that, to his knowledge, Beijing “does not want” to use hackers to attack the United States.

“The official answer is, I have no idea about this,” said Sr. Col. Wang in a brief telephone interview.

The fallout from this cybercampaign continues among other agencies.

In June, the Energy Department revealed that names and other personal information on more than 1,500 employees of the National Nuclear Security Administration had been stolen in a network incursion that took place more than two years ago. NNSA didn’t discover the breach for more than a year after it happened.

Officials would not confirm for the record that the data breach was part of Titan Rain, but Alan Paller, research director for the SANS Institute of Bethesda, Md., called it “an example of the kind of attack and extraction that [has been] going on for the last 2 1⁄2 years.”

Also in June, hackers broke into State Department unclassified networks. In this incident, investigators believe the hackers, who they say launched the attacks from East Asia, stole sensitive information and passwords and planted back doors in unclassified government computers to allow them to return at will, according to a CNN story.

“Any average computer geek knows about spyware, viruses and the countless other hardware and software devices and capabilities that could jeopardize the security of our networks and the information they contain,” Michael Wessel, a commissioner with the U.S.-China Economic and Security Review Commission, said in May. “These, of course, are only the tip of the iceberg.”

And DOD is not alone in trying to keep out hackers from China and other nation states.

“On the commercial side, Internet usage and broadband adoption from China has grown,” said Betsy Appleby, vice president of the public sector at Akamai Technologies of Cambridge, Mass., and former Net-Centric Enterprise Services program director at the Defense Information Systems Agency. “Specifically considering that the Chinese government is pretty much in control, you can do the math and figure it out.”

China has existed as an identifiable society for more than 6,000 years. Its name for itself, in Chinese, is Jhongguo, or Middle Kingdom, sometimes characterized as the land below heaven but above the rest of the world.

The country has been under Communist rule for less than 60 years. The millennia-old expectation that China rules, or should rule, “all under heaven” is a permanent subtext in the country’s psyche, many Sinologists believe.

This gives the Chinese great patience; its leaders may take a decades-long view of a problem and its possible solutions.

So what the United States characterizes as attacks on its military networks could, to the Chinese, be in-depth reconnaissance.

“If you were an adversary, and you wanted to assess somebody’s strengths and weaknesses, one of the ways to do it would be to probe their defenses, so you would want to take a look at their computer situation,” said John Stack, enterprise architecture and security solutions manager for Northrop Grumman Information Technology’s Defense Group of McLean, Va.

For more than a decade, the Chinese military has observed how DOD is modernizing its troops and tactics. The first Gulf War was considered “a watershed event” in terms of how the Chinese viewed future warfare, according to the Defense Department’s 2004 Annual Report on The Military Power of the People’s Republic of China.

“The PLA noted that the rapid defeat of Iraqi forces—which resembled the PLA at that time in many ways—revealed how backward and vulnerable China would be in a modern war,” the report said. “The Gulf War also spurred internal PLA debate on the implications of an emergent revolution in military affairs, in which the conflict became a point of reference for efforts to build capabilities in command, control, communications, computers, intelligence, surveillance and reconnaissance, information warfare, air defense, precision strike and logistics.”

“There have been Chinese writings for over a decade regarding the People’s Liberation Army studying cyberwarfare and evolving concepts toward development of information warfare doctrine,” said a Defense Intelligence Agency spokesman.

Perhaps one of the most important milestones was the 1999 publication in China of Unrestricted Warfare, a book authored by two colonels in the PLA, that was generated by the PLA’s observations on Desert Storm. The CIA’s Foreign Broadcast Information Service obtained and translated it, and it can now be found on the Internet.

“The new principles of war are no longer ‘using armed force to compel the enemy to submit to one’s will,’ but rather are ‘using all means, including armed force or nonarmed force, military and nonmilitary, and lethal and nonlethal means to compel the enemy to accept one’s interests,’ ” the colonels wrote.

The book argues that the spread of IT and access to the Internet has removed traditional boundaries and expanded the arena beyond traditional warfighters.

“[T]his kind of war means that all means will be in readiness, that information will be omnipresent, and the battlefield will be everywhere,” the colonels wrote. It “also means that many of the current principles of combat will be modified, and even that the rules of war may need to be rewritten.”

The DIA spokesman said a Chinese major general recently described information warfare “as containing six elements in its application: operational security, military deception, psychological warfare, electronic warfare, computer network warfare and physical destruction.”

The PLA’s new information warfare focus illustrates a growing recognition that cyberattacks launched against the U.S. military could give China a decisive advantage in the event of a crisis.

One such crisis scenario, according to people who have studied the issue, would be the prospect of American intervention to aid Taiwan in the event of an attack from China. A 1979 law requires the United States to defend the island nation from attack.

Chinese leaders have a conundrum of their own—how the People’s Liberation Army can move against Taiwan but forestall U.S. action long enough to make it a fait accompli.

“For the PLA, using [information warfare] against U.S. information systems to degrade or even delay a deployment of forces to Taiwan offers an attractive asymetric strategy,” wrote James Mulvenon in 1998. Mulvenon is deputy director for advanced analysis at the Defense Group Inc.’s Center for Intelligence Research and Analysis in Washington, and widely regarded as one of the foremost authorities on the Chinese military’s use of IT.

“American forces are highly information-dependent and rely heavily on precisely coordinated logistics networks,” he wrote. “If PLA information operators … were able to hack or crash these systems, thereby delaying the arrival of a U.S. carrier battle group to the theater, while simultaneously carrying out a coordinated campaign of short-range ballistic missile attacks, ‘fifth column’ and [information warfare] attacks against Taiwanese critical infrastructure, then Taipei might be quickly brought to its knees and forced to capitulate to Beijing.”

This is the role of information warfare, many experts now believe: Cyberattacks on military C4 systems will amplify the effects of kinetic weapons, to bring matters to a swift conclusion with a minimum of bloodshed.

Rear Adm. Hight, of JTF-GNO, said DOD is taking note of the incursions and data extractions, and looking at the department’s defensive measures.

“Our daily efforts are all about assessing and mitigating risks. We are students of Sun Tzu and other philosophical thinkers who have a wonderful way of capturing warfighting concepts,” Hight said. “The key to this type of warfare is just what you might think of as traditional warfare. You can’t forget the foundations. You can’t forget the basics. The cyberworld relies, in many cases, on foundational concepts in terms of how you protect it.”

America’s standing as the current sole superpower is a source of internal conflict for Chinese policies, said James Gilmore III, former governor of Virginia and now with Kelley Drye Collier Shannon’s Homeland Security Practice Group, a Washington law firm. He was chairman of the Advisory Panel to Access Domestic Response Capabilities for Terrorism Involving Weapons of Mass Destruction, created by the Clinton administration in 1999.

“An adversary or partner of the U.S. … They are prepared to be either one,” Gilmore said.

Should its leaders feel it is in their interests, China would seek to “disrupt the DOD’s capacity to communicate overseas and maneuver their people,” he added.

Cortez Cooper III, director of East Asia Studies with Hicks and Associates Inc., a defense and national security consulting company in McLean, Va., told the U.S.- China Commission that the Chinese understand their military focus must use niche capabilities to counter the moves of a technologically superior adversary that might challenge their interests.

To address the cybersecurity threat, DOD and intelligence officials are playing both offensive and defensive roles.

Pentagon officials acknowledge DOD is developing capabilities to deny an adversary the use of its own computer systems to attack U.S. computer networks.

JTF-GNO is tasked with operating and defending the GIG, while the National Security Agency has the responsibility for the “nondefensive parts of operations in cyberspace,” according to Army Maj. Gen. Dennis Moran, vice director for command, control, communications and computer systems for the Joint Chiefs of Staff.

As “part of a good defense, and I don’t care if you’re defending a forward operating base in a country, or no matter what it is physically, you do a very good analysis of what your vulnerabilities are. And there have been analyses within the department to determine what we need to protect and how should we prioritize our resources,” Moran said.

“The resources required to provide that defense are being allocated against those priorities,” Moran said. “Now, I’m certainly not going to talk about those in detail, because that would certainly be an opportunity to tell someone these are what we are concerned about.”

But Moran did talk about the protocols DOD has been working on to improve its network security posture.

“If you look at the whole net-centric strategy that we have in the DOD, the focus is, first of all, identify your data, then appropriately tag that data so it can be made available to other people who are authorized users,” Moran said. “We are putting in place a service-oriented architecture across the GIG which is able to find, locate and securely move that data to an application. Security is a critical tenet to this whole architecture, because if you’re doing business one way and (another agency) is doing business another way, we are creating seams that an intruder can take advantage of.”

Kehler said DOD officials also are mandating full public-key infrastructure implementation for user authentication, requiring automated patch management and looking in the mirror to increase the department’s defensive position.

“We’re looking at ourselves pretty hard to understand where our vulnerabilities are,” Kehler said. “Sometimes we find that our worst enemy in protecting our information is ourselves. In order to make things better faster, sometimes our people leave doorways open into our network.”

The key to closing those doorways is a layered defense-in-depth strategy, Hight said.

“We don’t have a single approach. We’re trying to protect the house by locking the doors, locking the windows, making sure wires that come in and out of the house are protected,” Hight said. “Our organization is very transient, so as we get systems administrators moving around the world, we want to make sure they know they have a consistent and well-defined set of procedures that they adhere to and provide consistent protections for the network.”

To accomplish this, JTF-GNO is looking at the best way to train Defense employees on cybersecurity mechanisms, what types of protective software to employ and how to standardize processes.

Additionally, Hight said, the organization soon will release a Network Operations Concept of Operations (Netops/Conops) document, which will detail for military personnel how to secure their systems.

Hight said the document describes three basic concepts that make up the department’s larger doctrinal view:

    * Ensuring systems and networks that deliver information are available
    * Ensuring information can move freely from one point to another
    * Ensuring information is protected at the right level.

“When you go to Amazon.com, you can see what Amazon chooses for you to see, their book titles and other information. You can’t see Amazon’s financial information, because they mask that from you,” Hight said. “So the protection of information might be something as simple as where you put that information and [whom] you make that available to.”

The exploitation of network weaknesses doesn’t mean that more traditional forms of espionage targeting cyberassets can be overlooked. For instance, in August 2001, U.S. Customs officers arrested two men for trying to export military encryption technology to China.

What’s a real threat? Four months earlier, enraged Chinese hackers had defaced dozens of U.S. military Web sites following the collision of a U.S. surveillance plane and a Chinese fighter plane. The Chinese pilot died as a result of the accident. Is that kind of threat, whether from China or another country, real? John Hamre, president and chief executive officer of the Center for Strategic and International Studies, believes so. He served in the 1990s as comptroller, then deputy secretary of Defense.

“I was so deeply involved in cybersecurity issues when I was the deputy secretary, but have not been involved in these issues since,” he said. “I continue to believe that cyberthreats will overwhelmingly be from competent national state security elements, and that intelligence is the higher goal, not disruption.” Still, Donavan Lewis, chief of the Defense Intelligence Agency’s threat analysis division, wants the United States to think more about long-term trends.

“China has shifted its dependence away from the United States to [countries such as Malaysia and South Korea], while our dependence on them has grown,” he said during a Defense conference in Salt Lake City in May. “We’ve got to adjust our thinking, our calculus about how we put together a system of systems.”

He admits to being worried about the possibility that “subversive functionality could be embedded” in technology.

“The Defense acquisition community is not used to thinking of itself as part of computer security,” he said.

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Iran Asks Japan to Pay Yen

Iran asked Japanese refiners to switch to the yen to pay for all crude oil purchases, after Iran’s central bank said it is reducing holdings of the U.S. dollar.

Iran wants yen-based transactions “for any/all of your forthcoming Iranian crude oil liftings,” according to a letter sent to Japanese refiners that was signed by Ali A. Arshi, general manager of crude oil marketing and exports in Tehran at the National Iranian Oil Co. The request is for all shipments “effective immediately,” according to the letter, dated July 10 and obtained by Bloomberg News.

The yen rose on speculation for an increase in demand for the currency, the result of Japan’s annual 1.24 trillion yen ($10.1 billion) of oil imports from Iran. Central bankers in Venezuela, Indonesia and the United Arab Emirates have said they will invest less of their reserves in dollar assets because of the weakening currency.

“What else can Japan do but to accept the request, once the oil producer sent its wish?” said Hirofumi Kawachi, an analyst at Mizuho Investors Securities Co. in Tokyo. “The tensions between the U.S. and Iran are escalating, and it’s Iran’s measure to hedge risk.”

A spokesman for Iran’s oil ministry in Tehran said he could neither confirm nor deny that the letter had been sent. Most Japanese oil refiners have until now used U.S. dollars to pay Iran for oil, said the spokesman, who declined to be identified by name because of government policy.

The yen advanced to 122.07 per dollar at 2:30 p.m. in New York, from 122.42 late yesterday.

Iran is cutting its U.S. dollar reserves to less than 20 percent of total foreign currency holdings, and will buy more euros and yen as tensions with the U.S. increase, Central Bank Governor Ebrahim Sheibany said on March 27.

The United Nations Security Council is preparing for another round of sanctions against Iran because of the nation’s nuclear research.

The Islamic republic, holder of the world’s second-largest oil and gas reserves, has refused to halt uranium enrichment that it says is for use in nuclear power plants to produce electricity. The U.S. says Iran seeks instead to develop an atomic bomb. Enriched uranium can be used to make nuclear fuel or build nuclear weapons.

Iran isn’t alone in wanting to drop the dollar for pricing oil. Russia has been examining plans to price the Urals oil export blend in rubles to curb currency risks. The nation plans to open the Energy Stock Exchange in St. Petersburg in the first half of next year to trade oil in rubles, UBS AG reported June 14.

Iran asked the refiners to use the yen exchange rate quoted at the Bank of Tokyo Mitsubishi UFJ on the date oil cargoes are loaded. The use of yen-based letters of credit for oil “has finally been approved” by the Iranian central bank and the NIOC, according to the letter, titled “New payment mechanism for Iranian Crude Oil Cargoes.”

Japan imported 1.59 million kiloliters of Iranian crude oil in May, the least since June 2006, according to government data.

Only Saudi Arabia and the United Arab Emirates are larger oil suppliers to Japan than Iran.

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Problems on scale of Great Depression

The chief executive of one of America’s biggest sub-prime mortgage lenders has predicted that the current “dislocation” in the US home loan market could be the most severe since the Great Depression in the 1930s.

Mark Ernst, chief executive of H&R Block, made the comments after it emerged that Cerberus Capital Managament, the US hedge fund, was in advanced talks to reduce the $1 billion price that it agreed to pay to H&R five months ago for one of its subsidiaries.

Cerberus is hoping that “material adverse market conditions” could let it either cut the price for Option One Mortgage Company or walk away from the agreed deal altogether.

Mr Ernst attributed two thirds of that loss to the Option One Mortgage operations, bought in 1997.

Since the surge in mortgage delinquencies in America and the slowing of the property market, Option One has cut its lending by 80 per cent. It now offers mortgages worth $200 million a month, down from the $1 billion a month lent before this summer’s crisis. That sharp decrease breaches terms of the sale of the unit to Cerberus.

However, Mr Ernst said that he would rather have risked the success of the sale, and the future of the unit, than continue to sell mortgages in the current market. He said that H&R would close the unit if sale talks fail. Cerberus Capital was unavailable for comment yesterday.

Meanwhile, Freddie Mac, the American mortgage financier, yesterday admitted to a 45 per cent slide in profits during the second quarter of the year. It said that it had taken a $320 million hit over the period on new mortgages and reported net income of $764 million, down from $1.4 billion for the same period the year before.

Anthony Piszel, Freddie Mac’s chief financial officer, said: “Assuming nothing changes over the balance of the quarter, it will put pressure on our fair-value returns.”

In June, Freddie Mac returned to quarterly reporting for the first time since accounting and management problems forced it to restate $5 billion in earnings several years ago.

Freddie Mac – more formally the Federal Home Loan Mortage Corporation – buys mortgages, pools them and then sells them on as mortgage-backed securities. Although the company is privately owned, it is sponsored by the US Government and allowed to make loans and offer loan guarantees.

Freddie Mac, and its larger government-sponsored sibling Fannie Mae, were created by Congress to pump money into the $8 trillion home mortgage market by buying banks’ mortgages and selling them on.

Combined, Fannie and Freddie finance or guarantee about two thirds of all American mortgages. They are seen as more cautious than the lenders catering to borrowers with poor credit that have collapsed this year.

Nevertheless, Freddie Mac’s total credit-related expenses – expected losses and expenses from mortgages projected to fail – leapt by 74 per cent in the second quarter to $336 million, up from $193 million a year earlier.

Democrats in Congress want to raise the individual limit for home mortgages that Fannie and Freddie are allowed to buy as a way to help to stabilise the mortgage market.

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Brown won’t attend “Mugabe circus’

Britain has warned fellow European Union nations that Prime Minister Gordon Brown will not attend a planned Europe-Africa summit if Zimbabwean leader Robert Mugabe does, diplomatic sources said on Saturday.

British Foreign Secretary David Miliband made London’s position clear on Friday during an informal meeting of EU foreign ministers in the northern Portuguese town of Viana do Castelo.

"He told them that the PM would not be there if Mugabe goes," a source close to the closed-door talks said.

Miliband contented himself on Saturday by saying: "I don’t think anyone wants to be part of a media circus in December," when the summit will be held in Lisbon.

"There is serious work to be done and that is what we are focussing on," he said before joining his fellow foreign ministers for a group photo.

"I think we all want a successful summit, but we are also very, very concerned about the situation in Zimbabwe," Miliband added, pointing out that the Zimbabwean currency had been devalued by 1 200% on Thursday.

A senior British official told Agence France-Presse that "it is difficult to imagine a scenario in which the British prime minister and other EU leaders will attend a summit at which Mugabe is present."

He added that Zimbabwe should nevertheless be represented at the meeting.

While Africa as a whole and Zimbabwe in particular have serious issues to discuss, such as poverty, climate change and security "none of them will be properly discussed if Mugabe rolls up and we have a Mugabe circus," the British official said.

He added that there were precedents for such cases, such as Burma’s involvement in the Association of South East Asian Nations (Asean) despite a bar on prime minister Than Shwe attending.

An EU official said there could be some room for manoeuvre on the problem.

"You know how it goes, you send a generic invitation to everyone and hope that there will be some kind of transport problem … The Africans know very well that it is in their interests that this summit takes place".

Portugal, which holds the EU’s rotating presidency, has said that it has no intention of discriminating against Mugabe.

"It is not up to Portugal, current head of the EU, to invite some people rather than others," Portugal’s Deputy Foreign Minister Joao Gomes Cravinho said at a Lusaka summit of Southern African leaders last month.

The 83-year-old Mugabe is officially barred from travelling to the 27 nations in the EU.

The issue has long hampered efforts to organise a second summit between the European Union and African states. The first was held in Cairo in 2000.

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China denies hacking

China on Tuesday rejected a report that hackers controlled by its military had successfully entered a Pentagon network, calling the claim a product of "Cold War" thinking.

The Financial Times, citing former and serving U.S. officials, said Chinese People’s Liberation Army hackers broke into a U.S. Defense Department network in June, taking data and prompting the shutdown of a system serving department secretary Robert Gates.

The report came a week after German Chancellor Angela Merkel raised similar claims that Chinese hackers had infected German government ministries with spying programs.

China deflected the German reports, and now it has flatly rejected the U.S. claims, as well as denying reports that Chinese-made weapons have been used by Taliban fighters in Afghanistan.

"The Chinese government has consistently opposed and vigorously attacked according to the law all Internet-wrecking crimes, including hacking," Foreign Ministry spokeswoman Jiang Yu said.

"Some people are making wild accusations against China … They are totally groundless and also reflect a Cold War mentality."

Beijing has devoted a large part of its rising defense budget to developing more advanced technology, including computer capabilities. But Jiang said her government was also the victim of computer attacks.

The Financial Times cited one source familiar with the event as saying there was a "very high level of confidence … trending towards total certainty" that the army was behind it.

It said hackers from various locations in China had spent several months trying to tap into the system before breaching its cyber defenses, forcing the Pentagon to shut down its network for more than a week.

U.S. President George W. Bush is scheduled to meet Chinese President Hu Jintao in Sydney while the two leaders are there for the APEC regional summit.

The FT quoted a former U.S. official as saying the PLA was now able to disrupt and even disable the Pentagon’s computer system.

"The PLA has demonstrated the ability to conduct attacks that disable our system … and the ability in a conflict situation to re-enter and disrupt on a very large scale," the former official told the newspaper.

The Financial Times reported that the Pentagon was investigating what data had been taken, and a source told the paper that most of it was probably unclassified.

Spokeswoman Jiang also rejected a BBC report that Chinese-made weapons have been used by Taliban fighters in Afghanistan.

London has complained to Beijing that the weapons were used in Taliban attacks on British and U.S. troops, the BBC reported, citing British officials.

"This accusation is groundless," Jiang said. "The Chinese government has always been prudent and responsible in its military exports."

China did not sell weapons to "non-state" entities, she said.

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