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Israel and Iran - Coming to a city near you?

July 10, 2008 · No Comments

Be very afraid, please

Reuters

AMERICA and Israel often hint at military action to stop Iran’s suspected nuclear-weapons programme. The latest rumblings, however, may be more serious. The atmosphere has been charged by a combination of factors: Iran’s expanding uranium-enrichment programme, faltering diplomatic efforts to halt it, a dying American administration and a nervous Israel. Throw in the latest war games by Israel, America and Iran—and Iran’s apparent rejection of the latest international incentives to halt its nuclear work—and some reckon the sparks could soon fly.

On July 9th Iranian television showed the test-firing of nine missiles (see picture), a day after an aide to the supreme leader, Ayatollah Ali Khamenei, threatened to “burn” Tel Aviv and American ships in the Gulf, and strike at America’s “vital interests around the globe”, if it were attacked. More tests took place on July 10th.

This was a response to Israel’s demonstration of its own long arm in June, when about 100 Israeli jets took part in exercises that appeared to rehearse the bombing of distant targets. Western officials were struck by helicopter sorties of more than 800 miles (1,290km), about the distance from Israel to Iran, to simulate the rescue of downed pilots. Israel conducted the exercise with Greece, rather than its traditional partner, Turkey, maybe because Greece has some of the Russian SA-20 anti-aircraft missiles Iran recently bought.

In the Gulf, meanwhile, American, British and Bahraini ships are involved in a joint exercise to protect gas and oil installations. This seems to be a reaction to Iran’s threats to retaliate against any attack by closing the Strait of Hormuz, the passage for roughly 40% of the world’s traded oil, and striking at neighbouring countries.

Does this public bellicosity really make military action more likely? Mahmoud Ahmadinejad, Iran’s president, dismissed the idea this week as a “funny joke”. And, yes, Israel could well be bluffing, waving its big stick in order to make the rewards the Europeans, Americans, Russians and Chinese are offering Iran in return for an end to uranium enrichment look more tempting. But whether or not Israel has frightened Iran, it has clearly rattled others.

France’s Total, an energy giant, said this week it was giving up plans to invest in Iran because of the risk. A top British government official puts the chance of an Israeli strike at 30%. Admiral Mike Mullen, chairman of America’s Joint Chiefs of Staff, was worried enough to say publicly that a third war (after Afghanistan and Iraq) would be “extremely stressful, very challenging, with consequences that would be difficult to predict”. As to whether Israel might act alone, he said: “This is a very unstable part of the world, and I don’t need it to become more unstable.”

One uncertainty is how close Iran is to being able to make a nuclear weapon (an aspiration it vehemently denies). America’s controversial National Intelligence Estimate, made public in December, said that Iran had indeed run a weaponisation programme but seemed to stop it in 2003. The Iranians continue (despite UN sanctions) to enrich uranium, but most Western experts think they have much to learn before being able to make the high-enriched variety for a bomb. America’s estimate is that the soonest Iran could make enough for one device would be the end of 2009, but that it could take five or more years longer.

Israeli officials are less sanguine. So far Iran has produced only a small amount of low-enriched uranium, but this could eventually be converted to the bomb-making sort. For all its sabre-rattling, Israel still says that diplomacy is preferable to war. But a number of political and military considerations may yet convince Israel to act alone—sooner rather than later.

One of these is the departure of the friendly Bush administration and the possible advent of a President Obama, who has promised to do “everything” to stop Iran getting a bomb but who is distrusted by many Israelis. Another is that Iran’s Russian-built reactor at Bushehr is due to start working in October. This is less worrying than the underground enrichment facility at Natanz. But if Israel intends to bomb it, it would be best to do so before it is loaded with nuclear fuel. Finally, it would be easier for Israel to act before Iran deploys its SA-20s, which may happen in early 2009.

That said, an effective attack against Iran’s buried and dispersed nuclear facilities would not be easy, even if Israel knew where all of them were. There will be no element of surprise, as when Israel bombed Iraq’s nuclear reactor in 1981, and a Syrian facility which America said afterwards was a secret reactor last September.

Another unknown is whether Israel would dare to strike Iran without a green or at least an amber light from the Americans. Without one, flying to Iran the direct way—through American-controlled Iraqi airspace—would be fraught with danger. An unauthorised Israeli strike that added to America’s miscellaneous woes in the Middle East would test even the closest alliance, jeopardising Israel’s relationship with its vital patron and armourer.

Against this must be weighed Israel’s visceral sense of vulnerability, sharpened not only by the Jewish state’s history but also by the implacability of Iran, whose government rules out any accommodation with the “Zionist regime” and repeatedly predicts its disappearance. Nobody can be quite sure that in a corner, confronting what it believed to be existential peril, Israel will not act—alone if necessary.

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Zooming In on Iran

June 5, 2008 · No Comments


Zoom in on Iran
Zoom out on the Middle East


Iran’s president, Mahmoud Ahmadinejad, made headlines again yesterday, with a speech calling for the downfall of both Israel and the United States. Of Israel, the Iranian leader said, “the criminal and terrorist Zionist regime . . . has reached the end of its work and will soon disappear off the geographical scene.”

Of the United States, he said, “the time for the fall of the satanic power . . . has come and the countdown to the annihilation of the emperor of power and wealth has begun.”

Amid such animosity, we decided it was time to zoom in on Iran. So today, we’ll measure the nation by the numbers and place it squarely on your mental map. Then, tomorrow and Thursday, we’ll retrace Iran’s history, from Alexander the Great to the rise of the current regime.

ran, By the Numbers

1935 - The year Iran asked the West to stop labeling the place “Persia” and to start using the name natives use: “Iran.” The language is still called Persian, though, or Farsi–from the modern province Fars (ancient Parsa, called Persis by the Greeks). Today, Persian is written in Arabic script, a holdover from medieval times, when Persian rulers fell to Islamic caliphs in Damascus and Baghdad.

1979 - The year an Islamic revolution forced Iran’s western-supported shah (”king”) into exile and Iranians voted overwhelmingly to establish an Islamic republic. In the republic, all adult citizens can vote, but clerics can veto laws and candidates deemed un-Islamic.

636,300 - Iran’s total area, in square miles (1,648,000 sq km). That’s slightly larger than the state of Alaska, and nearly four times the size of Iraq. The country sits on a vast waterless plateau, ringed by forbidding mountain ranges. Most of the population lives at the foot of these mountains.

70 million - Iran’s total population. That’s more than France or the United Kingdom, but less than Germany or Turkey. It’s a youthful country–about half of its people are under 25–and increasingly urban. In 1950, about a quarter of the population lived in cities. Now, more than 60 percent do.

7.7 million - The population of Tehran, Iran’s largest and capital city. More than 13 million people live in its metropolitan area, at the southern foot of the Elburz Mountains, not far from the Caspian Sea. More than half of the country’s growing industry is based there.

89 - Percent of the population that is Shi’a Muslim. Nearly everyone else is Sunni Muslim. The Shi’ite branch of Islam is the official state religion, and the nation’s post-revolution constitution guarantees Islamic principles of government.

85 - Percent of government revenues that come from oil. Only Saudi Arabia exports more crude than Iran, which is also one of the world’s leading natural gas exporters.

Iran, On the Map

Get a printable map of Iran’s mountainous geography:
http://knowledgenews.net/moxie/pdf/iran_physical.pdf

Get a printable map of Iran’s mixed ethnicity:
http://knowledgenews.net/moxie/pdf/iran_ethno.pdf

Get a printable map of Iran’s population centers:
http://knowledgenews.net/moxie/pdf/iran_pop.pdf

–Michael Himick

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NSA’s Domestic Spying Grows

March 11, 2008 · No Comments

Terror Fight Blurs

Line Over Domain;
Tracking Email

By SIOBHAN GORMAN
March 10, 2008; Page A1

WASHINGTON, D.C. — Five years ago, Congress killed an experimental Pentagon antiterrorism program meant to vacuum up electronic data about people in the U.S. to search for suspicious patterns. Opponents called it too broad an intrusion on Americans’ privacy, even after the Sept. 11 terrorist attacks.

But the data-sifting effort didn’t disappear. The National Security Agency, once confined to foreign surveillance, has been building essentially the same system.

The central role the NSA has come to occupy in domestic intelligence gathering has never been publicly disclosed. But an inquiry reveals that its efforts have evolved to reach more broadly into data about people’s communications, travel and finances in the U.S. than the domestic surveillance programs brought to light since the 2001 terrorist attacks.

Congress now is hotly debating domestic spying powers under the main law governing U.S. surveillance aimed at foreign threats. An expansion of those powers expired last month and awaits renewal, which could be voted on in the House of Representatives this week. The biggest point of contention over the law, the Foreign Intelligence Surveillance Act, is whether telecommunications and other companies should be made immune from liability for assisting government surveillance.

Largely missing from the public discussion is the role of the highly secretive NSA in analyzing that data, collected through little-known arrangements that can blur the lines between domestic and foreign intelligence gathering. Supporters say the NSA is serving as a key bulwark against foreign terrorists and that it would be reckless to constrain the agency’s mission. The NSA says it is scrupulously following all applicable laws and that it keeps Congress fully informed of its activities.

According to current and former intelligence officials, the spy agency now monitors huge volumes of records of domestic emails and Internet searches as well as bank transfers, credit-card transactions, travel and telephone records. The NSA receives this so-called “transactional” data from other agencies or private companies, and its sophisticated software programs analyze the various transactions for suspicious patterns. Then they spit out leads to be explored by counterterrorism programs across the U.S. government, such as the NSA’s own Terrorist Surveillance Program, formed to intercept phone calls and emails between the U.S. and overseas without a judge’s approval when a link to al Qaeda is suspected.

The NSA’s enterprise involves a cluster of powerful intelligence-gathering programs, all of which sparked civil-liberties complaints when they came to light. They include a Federal Bureau of Investigation program to track telecommunications data once known as Carnivore, now called the Digital Collection System, and a U.S. arrangement with the world’s main international banking clearinghouse to track money movements.

The effort also ties into data from an ad-hoc collection of so-called “black programs” whose existence is undisclosed, the current and former officials say. Many of the programs in various agencies began years before the 9/11 attacks but have since been given greater reach. Among them, current and former intelligence officials say, is a longstanding Treasury Department program to collect individual financial data including wire transfers and credit-card transactions.

It isn’t clear how many of the different kinds of data are combined and analyzed together in one database by the NSA. An intelligence official said the agency’s work links to about a dozen antiterror programs in all.

A number of NSA employees have expressed concerns that the agency may be overstepping its authority by veering into domestic surveillance. And the constitutional question of whether the government can examine such a large array of information without violating an individual’s reasonable expectation of privacy “has never really been resolved,” said Suzanne Spaulding, a national-security lawyer who has worked for both parties on Capitol Hill.

NSA officials say the agency’s own investigations remain focused only on foreign threats, but it’s increasingly difficult to distinguish between domestic and international communications in a digital era, so they need to sweep up more information.

The Fourth Amendment

In response to the Sept. 11 attacks, then NSA-chief Gen. Michael Hayden has said he used his authority to expand the NSA’s capabilities under a 1981 executive order governing the agency. Another presidential order issued shortly after the attacks, the text of which is classified, opened the door for the NSA to incorporate more domestic data in its searches, one senior intelligence official said.

[Michael Hayden]The NSA “strictly follows laws and regulations designed to preserve every American’s privacy rights under the Fourth Amendment to the U.S. Constitution,” agency spokeswoman Judith Emmel said in a statement, referring to the protection against unreasonable searches and seizures. The Office of the Director of National Intelligence, which oversees the NSA in conjunction with the Pentagon, added in a statement that intelligence agencies operate “within an extensive legal and policy framework” and inform Congress of their activities “as required by the law.” It pointed out that the 9/11 Commission recommended in 2004 that intelligence agencies analyze “all relevant sources of information” and share their databases.

Two former officials familiar with the data-sifting efforts said they work by starting with some sort of lead, like a phone number or Internet address. In partnership with the FBI, the systems then can track all domestic and foreign transactions of people associated with that item — and then the people who associated with them, and so on, casting a gradually wider net. An intelligence official described more of a rapid-response effect: If a person suspected of terrorist connections is believed to be in a U.S. city — for instance, Detroit, a community with a high concentration of Muslim Americans — the government’s spy systems may be directed to collect and analyze all electronic communications into and out of the city.

The haul can include records of phone calls, email headers and destinations, data on financial transactions and records of Internet browsing. The system also would collect information about other people, including those in the U.S., who communicated with people in Detroit.

The information doesn’t generally include the contents of conversations or emails. But it can give such transactional information as a cellphone’s location, whom a person is calling, and what Web sites he or she is visiting. For an email, the data haul can include the identities of the sender and recipient and the subject line, but not the content of the message.

Intelligence agencies have used administrative subpoenas issued by the FBI — which don’t need a judge’s signature — to collect and analyze such data, current and former intelligence officials said. If that data provided “reasonable suspicion” that a person, whether foreign or from the U.S., was linked to al Qaeda, intelligence officers could eavesdrop under the NSA’s Terrorist Surveillance Program.

The White House wants to give companies that assist government surveillance immunity from lawsuits alleging an invasion of privacy, but Democrats in Congress have been blocking it. The Terrorist Surveillance Program has spurred 38 lawsuits against companies. Current and former intelligence officials say telecom companies’ concern comes chiefly because they are giving the government unlimited access to a copy of the flow of communications, through a network of switches at U.S. telecommunications hubs that duplicate all the data running through it. It isn’t clear whether the government or telecom companies control the switches, but companies process some of the data for the NSA, the current and former officials say.

[Graphic]On Friday, the House Energy and Commerce Committee released a letter warning colleagues to look more deeply into how telecommunications data are being accessed, citing an allegation by the head of a New York-based computer security firm that a wireless carrier that hired him was giving unfettered access to data to an entity called “Quantico Circuit.” Quantico is a Marine base that houses the FBI Academy; senior FBI official Anthony DiClemente said the bureau “does not have ‘unfettered access’ to any communication provider’s network.”

The political debate over the telecom information comes as intelligence agencies seek to change traditional definitions of how to balance privacy rights against investigative needs. Donald Kerr, the deputy director of national intelligence, told a conference of intelligence officials in October that the government needs new rules. Since many people routinely post details of their lives on social-networking sites such as MySpace, he said, their identity shouldn’t need the same protection as in the past. Instead, only their “essential privacy,” or “what they would wish to protect about their lives and affairs,” should be veiled, he said, without providing examples.

Social-Network Analysis

The NSA uses its own high-powered version of social-network analysis to search for possible new patterns and links to terrorism. The Pentagon’s experimental Total Information Awareness program, later renamed Terrorism Information Awareness, was an early research effort on the same concept, designed to bring together and analyze as much and as many varied kinds of data as possible. Congress eliminated funding for the program in 2003 before it began operating. But it permitted some of the research to continue and TIA technology to be used for foreign surveillance.

Some of it was shifted to the NSA — which also is funded by the Pentagon — and put in the so-called black budget, where it would receive less scrutiny and bolster other data-sifting efforts, current and former intelligence officials said. “When it got taken apart, it didn’t get thrown away,” says a former top government official familiar with the TIA program.

Two current officials also said the NSA’s current combination of programs now largely mirrors the former TIA project. But the NSA offers less privacy protection. TIA developers researched ways to limit the use of the system for broad searches of individuals’ data, such as requiring intelligence officers to get leads from other sources first. The NSA effort lacks those controls, as well as controls that it developed in the 1990s for an earlier data-sweeping attempt.

Sen. Ron Wyden, an Oregon Democrat and member of the Senate Intelligence Committee who led the charge to kill TIA, says “the administration is trying to bring as much of the philosophy of operation Total Information Awareness as it can into the programs they’re using today.” The issue has been overshadowed by the fight over telecoms’ immunity, he said. “There’s not been as much discussion in the Congress as there ought to be.”

Opportunity for Debate

But Sen. Kit Bond of Missouri, the ranking Republican on the committee, said by email his committee colleagues have had “ample opportunity for debate” behind closed doors and that each intelligence program has specific legal authorization and oversight. He cautioned against seeing a group of intelligence programs as “a mythical ‘big brother’ program,” adding, “that’s not what is happening today.”

READ THE RULING

 

While the Fourth Amendment guarantees “[t]he right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures,” the legality of data-sweeping relies on the government’s interpretation of a 1979 Supreme Court ruling allowing records of phone calls — but not actual conversations — to be collected without a warrant. Read the ruling.1

The legality of data-sweeping relies largely on the government’s interpretation of a 1979 Supreme Court ruling allowing records of phone calls — but not actual conversations — to be collected without a judge issuing a warrant. Multiple laws require a court order for so-called “transactional’” records of electronic communications, but the 2001 Patriot Act lowered the standard for such an order in some cases, and in others made records accessible using FBI administrative subpoenas called “national security letters.” (Read the ruling.2)

A debate is brewing among legal and technology scholars over whether there should be privacy protections when a wide variety of transactional data are brought together to paint what is essentially a profile of an individual’s behavior. “You know everything I’m doing, you know what happened, and you haven’t listened to any of the contents” of the communications, said Susan Landau, co-author of a book on electronic privacy and a senior engineer at Sun Microsystems Laboratories. “Transactional information is remarkably revelatory.”

Ms. Spaulding, the national-security lawyer, said it’s “extremely questionable” to assume Americans don’t have a reasonable expectation of privacy for data such as the subject-header of an email or a Web address from an Internet search, because those are more like the content of a communication than a phone number. “These are questions that require discussion and debate,” she said. “This is one of the problems with doing it all in secret.”

Gen. Hayden, the former NSA chief and now Central Intelligence Agency director, in January 2006 publicly defended the activities of the Terrorist Surveillance Program after it was disclosed by the New York Times. He said it was “not a driftnet over Lackawanna or Fremont or Dearborn, grabbing all communications and then sifting them out.” Rather, he said, it was carefully targeted at terrorists. However, some intelligence officials now say the broader NSA effort amounts to a driftnet. A portion of the activity, the NSA’s access to domestic phone records, was disclosed by a USA Today article in 2006.

The NSA, which President Truman created in 1952 through a classified presidential order to be America’s ears abroad, has for decades been the country’s largest and most secretive intelligence agency. The order confined NSA spying to “foreign governments,” and during the Cold War the NSA developed a reputation as the world’s premier code-breaking operation. But in the 1970s, the NSA and other intelligence agencies were found to be using their spy tools to monitor Americans for political purposes. That led to the original FISA legislation in 1978, which included an explicit ban on the NSA eavesdropping in the U.S. without a warrant.

Big advances in telecommunications and database technology led to unprecedented data-collection efforts in the 1990s. One was the FBI’s Carnivore program, which raised fears when it was in disclosed in 2000 that it might collect telecommunications information about law-abiding individuals. But the ground shifted after 9/11. Requests for analysis of any data that might hint at terrorist activity flooded from the White House and other agencies into NSA’s Fort Meade, Md., headquarters outside Washington, D.C., one former NSA official recalls. At the time, “We’re scrambling, trying to find any piece of data we can to find the answers,” the official said.

The 2002 congressional inquiry into the 9/11 attacks criticized the NSA for holding back information, which NSA officials said they were doing to protect the privacy of U.S. citizens. “NSA did not want to be perceived as targeting individuals in the United States” and considered such surveillance the FBI’s job, the inquiry concluded.

FBI-NSA Projects

The NSA quietly redefined its role. Joint FBI-NSA projects “expanded exponentially,” said Jack Cloonan, a longtime FBI veteran who investigated al Qaeda. He pointed to national-security letter requests: They rose from 8,500 in 2000 to 47,000 in 2005, according to a Justice Department inspector general’s report last year. It also said the letters permitted the potentially illegal collection of thousands of records of people in the U.S. from 2003-05. Last Wednesday, FBI Director Robert Mueller said the bureau had found additional instances in 2006.

It isn’t known how many Americans’ data have been swept into the NSA’s systems. The Treasury, for instance, built its database “to look at all the world’s financial transactions” and gave the NSA access to it about 15 years ago, said a former NSA official. The data include domestic and international money flows between bank accounts and credit-card information, according to current and former intelligence officials.

The NSA receives from Treasury weekly batches of this data and adds it to a database at its headquarters. Prior to 9/11, the database was used to pursue specific leads, but afterward, the effort was expanded to hunt for suspicious patterns.

Through the Treasury, the NSA also can access the database of the Society for Worldwide Interbank Financial Telecommunication, or Swift, the Belgium-based clearinghouse for records of international transactions between financial institutions, current and former officials said. The U.S. acknowledged in 2006 that the CIA and Treasury had access to Swift’s database, but said the NSA’s Terrorism Surveillance Program was separate and that the NSA provided only “technical assistance.” A Treasury spokesman said the agency had no comment.

Through the Department of Homeland Security, airline passenger data also are accessed and analyzed for suspicious patterns, such as five unrelated people who repeatedly fly together, current and former intelligence officials said. Homeland Security shares information with other agencies only “on a limited basis,” spokesman Russ Knocke said.

NSA gets access to the flow of data from telecommunications switches through the FBI, according to current and former officials. It also has a partnership with FBI’s Digital Collection system, providing access to Internet providers and other companies. The existence of a shadow hub to copy information about AT&T Corp. telecommunications in San Francisco is alleged in a lawsuit against AT&T filed by the civil-liberties group Electronic Frontier Foundation, based on documents provided by a former AT&T official. In that lawsuit, a former technology adviser to the Federal Communications Commission says in a sworn declaration that there could be 15 to 20 such operations around the country. Current and former intelligence officials confirmed a domestic network of hubs, but didn’t know the number. “As a matter of policy and law, we can not discuss matters that are classified,” said FBI spokesman John Miller.

The budget for the NSA’s data-sifting effort is classified, but one official estimated it surpasses $1 billion. The FBI is requesting to nearly double the budget for the Digital Collection System in 2009, compared with last year, requesting $42 million. “Not only do demands for information continue to increase, but also the requirement to facilitate information sharing does,” says a budget justification document, noting an “expansion of electronic surveillance activity in frequency, sophistication, and linguistic needs.”

Categories: Baby Boomers · Dead Serious · George Bush · Government · Headlines · News · Opinion · Pentagon · Politics · Right Wing Wackos · Rule of Dumb · Spying · Talk Radio · The Blender · The Media · The Middle East · War · War on Terror · We the People · antiterrorism · privacy

Somali Strikes

March 3, 2008 · No Comments


Not far from the Kenyan border
Zoom in | Zoom out

The U.S. military launched what it called “a deliberate, precise strike against a known terrorist and his associates” in Somalia on Monday. The attack destroyed at least one building in the remote southern town of Dobley, just a few miles from the Kenyan border.

The town had reportedly fallen into the hands of Islamic extremists–allies of the Islamic militias who seized much of southern Somalia in 2006, only to be driven back by Somali and Ethiopian forces.

That still-simmering conflict has helped bring Somalia to the brink of “the worst humanitarian crisis in the world,” according to the UN’s refugee agency–worse even than the crisis in Darfur. How has it come to this? Let’s review Somalia’s sad story, from the nation’s ancient origins to the start of the ongoing chaos nearly two decades ago.

Somalia is located on the Horn of Africa, just across the Gulf of Aden from the Arabian Peninsula. People have occupied its beachfront property for ages. Ancient Egyptians traded along the Horn’s shores. So did Greeks and medieval Arabs. In the 10th century, Chinese merchants arrived and reportedly took home exotic animals for the emperor’s menagerie.

Today’s Somalis claim descent from Arab immigrants who settled along the coast more than 1,000 years ago. Scholars debate when and how they actually arrived and moved inland, but there’s no question that Somali clans were well established in much of modern Somalia by the 16th century.

The clans are still central to Somali society. Each traces its ancestry to a single father figure, and each is divided into sub-clans that don’t always get along. Still, all the clans share a common language (Somali), religion (Islam), and culture. In fact, Somali culture extends beyond Somalia’s borders, which were largely drawn by Europeans.

The Scramble for Somalia

Europeans began arriving in force after the opening of the Suez Canal in Egypt in 1869. Suddenly, the Somali coast lay along a strategically important shipping route, and the British, Italians, and French arrived to promote their interests.

The French set up shop around the Somali port of Djibouti, in an area that later became the independent nation of that name. The British established “British Somaliland” in the northwest, while the Italians moved into the south. Not to be outdone, Ethiopia–then a regional power–assumed control in the Somali-inhabited Ogaden region in the west. Disputes followed, and borders were drawn without asking the locals.

Around the turn of the 20th century, Mohammed Abdullah Hassan–whom the British called the “Mad Mullah”–launched a rebellion against the colonizers. He and his followers, called “dervishes,” survived attacks by the British, the Italians, and the Ethiopians before finally falling to the Brits in 1920. Even then, pockets of Somali resistance continued.

Unscrambling Somalia

During World War II, the Italians briefly took British Somaliland, only to see the British return to retake “their” Somaliland, plus Italian Somaliland and Ogaden, too. In 1949, the Italians returned to administer Italian Somaliland as a UN trust territory, but not before many Somalis had begun longing for their own independent, pan-Somali state.

In 1960, the British and Italians left, and British Somaliland and Italian Somaliland joined to form the United Republic of Somalia. Almost immediately, the new nation became embroiled in border conflicts over Somali-inhabited lands in northern Kenya and eastern Ethiopia. A military buildup followed, even as internal tensions mounted between the former British and Italian regions.

In 1969, a bodyguard from a rival clan assassinated Somalia’s president, and the military assumed power. The commander of the army, Mohamed Siad Barre, became president–and, before long, dictator. The coup was restyled a “revolution,” as “Comrade Siad” announced his pursuit of an Islam-friendly version of “scientific socialism.” Yet socialism never really took root in Somalia, and rival clans and Islamic leaders soon resented the Comrade’s rule.

Somalia Rescrambled

In 1974, Ethiopia’s Emperor Haile Selassie fell. Three years later, Siad Barre retook the Somali-inhabited Ogaden region. At first, the Soviets tried to mediate the dispute. Then they shifted their support to Ethiopia (which has 77 million people to Somalia’s 9 million). Somalia’s Soviet arms shipments stopped, while Ethiopia got military advisors and Cuban troops. The United States shifted its support from Ethiopia to Somalia, but not before Ogaden was back in Ethiopian hands.

After the defeat in Ogaden, officers from a rival clan tried to topple Siad Barre. They failed, but the threat they posed prompted the dictator to start making government appointments based on perceived clan loyalty. The government and military became less competent, clan rivalries increased, and guerrilla attacks began. As the 1980s wore on, opposition groups became more powerful, and Siad Barre responded with increasingly repressive measures.

By the end of the decade, clan militias had seized much of the country. Last-ditch efforts at political reform failed to appease them, and in January 1991, a united opposition front captured the capital, Mogadishu. Siad Barre fled, and the militias turned on each other. In the next two years, 50,000 people died in factional fighting, and some 300,000 Somalis starved. Meanwhile, the former British Somaliland effectively seceded, calling itself, simply, “Somaliland.” Somalia hasn’t had a functional central government since.

Categories: Dead Serious · Government · Headlines · Mean Streets · News · Somalia · War on Terror

Return of the Mahdi Army?

February 21, 2008 · No Comments



“What’s the status of that ceasefire?”

Iraqi Shi’ite cleric Muqtada al-Sadr will announce on Friday whether the Mahdi Army will continue to observe the unilateral ceasefire he declared last summer. Since then, violence in Iraq has decreased, even as al-Sadr has reportedly worked to improve the Mahdi Army’s image among everyday Iraqis and to assert more control over the group.

Despite those efforts, and despite his obvious influence over the recent ceasefire, al-Sadr has always insisted that the Mahdi Army isn’t simply his to command. Instead, he says, it “belongs to the Mahdi.” The Mahdi? Who’s the Mahdi?

Islam’s Redeemer

The Mahdi–Arabic for “divinely guided one”–is the redeemer who’s supposed to straighten things out at the end of time. Along with the prophet Isa, Islam’s version of Jesus, the Mahdi is supposed to usher in a golden age here on Earth, just after the defeat of the Antichrist and just before the Final Judgment. (Yes, many Muslims believe that Jesus will one day return–though their view of the Second Coming is pretty different from the Christian one.)

Belief in the messianic Mahdi is common among both Sunnis and Shi’ites. But they disagree about the particulars of his story. And that disagreement ties in with the history of the Sunni-Shi’ite split, which basically began as an argument over who should lead all Muslims after Muhammad’s death in 632.

Infallible Imams

Shi’ites believe Muhammad clearly made Ali, his cousin and son-in-law, successor. But a group of Muslim elders gathered and selected Muhammad’s father-in-law instead. For a time, Ali stayed out of the public eye, but a small community of shi’a (Arabic for “followers”) soon surrounded him and deferred to him as their imam, or guide. These shi’a eventually became the “Shi’ites,” and they developed unique ideas about the nature of Imams–and about the Mahdi, too.

In Sunni usage, an “imam” is generally just the person who leads each mosque in prayer. But for Shi’ites, the Imam is a sort of sinless saint, specially connected to God and set apart from the rest of humanity as an infallible guide. Every such Imam is directly descended from Muhammad, through Ali and his wife Fatima. According to Twelver Shi’ism (the dominant Shi’ite branch), a succession of twelve infallible Imams ended in the 9th century, when the final one, Muhammad al-Mahdi al-Hujjah, disappeared.

But he didn’t die. Rather, they say, he was concealed, or “occulted,” by God and will reappear as the Mahdi when the End Time comes. Other Shi’ite sects recognize fewer legitimate Imams, and so say different things about the Mahdi. Sunni tradition doesn’t recognize any infallible Imams, and tends to put less emphasis on the Mahdi.

Apocalypse Now?

But don’t tell any of that to Muqtada al-Sadr. The young Shi’ite cleric says the Madhi is back and America knows it. In fact, al-Sadr has repeatedly suggested that the real goal of the Iraq invasion was to capture and kill the Mahdi, on whom U.S. forces supposedly keep a detailed file. The Mahdi Army says it has to fight–to help bring Allah’s kingdom to Earth.

Not surprisingly, al-Sadr isn’t the first Muslim leader to call upon the Mahdi in a time of crisis. In fact, Mahdi-centered movements have cropped up throughout Muslim history, from the Spanish reconquest of Spain in the Middle Ages to the British invasion of Sudan in the late 19th century. But the world hasn’t ended yet.

–Steve Sampson

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Kosovo Q&A

February 20, 2008 · 1 Comment


It used to be part of Yugoslavia.
Now it wants independence from Serbia.

Kosovo declared its independence on Sunday. Depending on whom you ask, it is now either a new nation in the Balkans or a renegade province that belongs within Serbia. The United States, the United Kingdom, and France were quick to recognize Kosovo as a country. Serbia, Russia, and China were quick to deny that it’s any such thing. Clearly, it’s time for us to ask some Kosovo questions.

A provisional government handles many of Kosovo’s daily affairs (and proclaimed its independence). But the region has been under UN administration since 1999, when a NATO bombing campaign forced Serbian security forces out. Those forces had been battling an armed revolutionary group, the Kosovo Liberation Army (KLA), since 1996.

While NATO’s bombs ended the Kosovo War, they didn’t resolve the underlying issue. Ethnic Albanians–the vast majority of Kosovo’s population–want independence from Serbia. The Serbs, however, insist that the Kosovars can’t just carve up Serbia to start their own country.

The news often says that Kosovo is “culturally important” to the Serbs. Why it that?

Eight centuries ago, Kosovo was the center of a Serbian empire–the heart of Serbia during what many Serbs consider a golden age. Ever since, the region has been home to important Serbian Orthodox religious sites, including the Decani Monastery, a UNESCO World Heritage site.

Still, for most of the intervening years, Kosovo was not a part of Serbia. In 1389, the Ottoman Turks defeated the Serbs and their allies at the “Battle of Kosovo.” Serbia did not retake Kosovo from the Ottomans until 1912.

How did the heart of an old Serbian empire become a home for mainly ethnic Albanians?

During the Ottoman era, ethnic Albanians–who are mainly Muslim but not Turks–began to migrate into Kosovo. As they moved in, many ethnic Serbs moved out.

Over the years, there was a good deal of ethnic ebb and flow, especially after Serbia retook Kosovo. Yet the overall demographic trend, even after 1912, saw the local Albanian population continue to grow. Today, ethnic Albanians account for about 90 percent of Kosovo’s people.

What’s Yugoslavia got to do with it?

At the end of World War II, many ethnic Albanian Kosovars wanted to unite with Albania. Instead, a new Balkan nation, the “Socialist Federal Republic of Yugoslavia,” absorbed Serbia and compelled Kosovo to remain within it as an “autonomous province.” The new nation didn’t last 50 years. In 1991, Yugoslavia began to disintegrate into its constituent republics (all the colorful states on the map above).

Ethnic Albanians in Kosovo again called for separation. But they crashed headlong into a tide of Serbian nationalism. Before long, the KLA formed and went to war against Serbian forces. Serb reprisals led to charges of ethnic cleansing and to the displacement of hundreds of thousands of ethnic Albanians. Eventually, NATO intervened, and after 11 weeks of bombing, Serbian forces withdrew from Kosovo.

What’s Russia got to do with it?

In addition to being a longtime ally of the Serbs, Russia is worried about the example an independent Kosovo might set for secessionists across the former Soviet Union–including the ones in Chechnya. It isn’t alone in this fear, either. Along with China, other countries facing separatist movements have also come out against Kosovo’s declaration of independence, including NATO members Spain and Greece.

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Hezbollah 101

February 14, 2008 · No Comments


Hezbollah’s base is where Lebanon meets Israel

One of the FBI’s most wanted terrorists, Imad Mughniyeh, was killed by a car bomb in Damascus, Syria, on Tuesday. An early leader of the Islamic militant group Hezbollah, Mughniyeh stood accused of directing a long list of terrorist attacks–including the devastating attack on the U.S. Marines barracks in Beirut, Lebanon, in 1983.

Hezbollah blamed its old enemy, Israel, for Mughniyeh’s death. Israel denied any involvement. The U.S. State Department responded unequivocally, saying “the world is a better place without this man in it.”

So, if Mughniyeh was a terrorist, then just what is the group he helped lead? We’ll tell you. Hezbollah–Arabic for “Party of God”–was born out of the Arab-Israeli conflict, in Lebanon, with help from Iran. Today, some of its members officially serve in Lebanon’s government, while others charitably serve the fractured country’s Shi’ite community. But its military wing has never laid down its arms.

Hezbollah’s Roots

In the early 1970s, the Palestine Liberation Organization (PLO) established bases in southern Lebanon–a region bordering Israel that is occupied by large numbers of Palestinian refugees. From there, it launched operations against targets within Israel. So, in 1978 and again in 1982, Israeli forces invaded Lebanon, intending to root out the PLO.

Israel succeeded in driving the PLO out–but at a cost. In 1979, the Islamic revolution in Iran brought Ayatollah Khomeini to power. In 1982, he sent Iranian military advisors to Lebanon to help organize its Shi’ite people. As the Israeli occupation dragged on, the opposition gained strength. Ultimately, Hezbollah–a Shi’ite paramilitary organization–was founded to fight Israel and promote the goal of turning Lebanon into an Islamic republic like Iran.

Israel occupied parts of Lebanon for another 18 years, during which Hezbollah waged a violent campaign against the Israelis and their allies–a campaign that included kidnappings, hijackings, and car bombings. In 1983, Hezbollah sponsored a suicide bombing on the American embassy in Beirut that killed 63 people. That same year, a truck bomb devastated a U.S. Marines barracks in Beirut, killing 241.

Not all of Hezbollah’s attacks were in Lebanon. The group sponsored two attacks, in 1992 and 1994, on Jewish targets in Argentina–bombing the Israeli embassy and killing 29, and bombing a Jewish community center and killing 85. And in July 2006, Hezbollah militants seized two Israeli soldiers in northern Israel, sparking a month-long “Lebanon War.”

Hezbollah’s Branches

Israel, the United States, Canada, and the Netherlands all call Hezbollah a terrorist organization. The United Kingdom and Australia classify Hezbollah’s “external security organization” as “terrorist.” In the Arab world, though, polls show that Hezbollah is widely viewed as a legitimate resistance group.

Its civilian wing provides a variety of social services for Lebanese Shi’ites. It publishes a newspaper and monthly magazine, operates radio and TV stations, and runs hospitals, schools, and orphanages. And since 1992, the group’s political arm has put up candidates in parliamentary elections. In 2005, the “Party of God” hit an all-time political high, winning 14 of the Lebanese parliament’s 128 seats

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Stating the Union

January 28, 2008 · No Comments


In front of a half-tough crowd

President Bush will deliver his final State of the Union address tonight. Well, maybe not his final one. After all, nothing in the Constitution says the State of the Union has to be an annual affair. Article II, Section 3 just says the president “shall from time to time give to the Congress information of the state of the union, and recommend to their consideration such measures as he shall judge necessary and expedient.”

Nothing in there about doing it once a year. Nothing in there about making a speech, either. In fact, presidents from Thomas Jefferson to Woodrow Wilson put their statements in writing. So, how did the State of the Union address get to be the way it is? It all started with George Washington.

Precedents for Presidents

In 1790, President Washington delivered the first State of the Union speech to a joint session of Congress convened in New York City (then the nation’s capital). At 1,085 words, Washington’s address is among the shortest ever. After hearing the president’s proposals, Congress debated, drafted, and delivered a courteous reply promising its cooperation.

So such speeches went until 1801, when Thomas Jefferson became president. Jefferson thought Washington’s approach reeked of royalty. (In fact, the idea for the State of the Union address did derive from a British tradition in which the king opened Parliament with a “Speech from the Throne.”) What’s more, Jefferson thought the Congress had better things to do than debate replies to presidential speeches.

Rather than speaking, Jefferson submitted his message in writing–saving Congress from “the bloody conflict which the making an answer would have committed them.” The next 24 presidents followed Jefferson’s lead rather than Washington’s, delivering written “information” instead of speeches.

Memorable Moments

In 1823, James Monroe used his written message to Congress to lay out the Monroe Doctrine, which declared that “the American continents, by the free and independent condition which they have assumed and maintain, are henceforth not to be considered as subjects for future colonization by any European powers.”

In the midst of the Civil War, in 1862, Abraham Lincoln used his message to propose emancipation of the slaves. “The fiery trial through which we pass,” he wrote, “will light us down in honor or dishonor to the latest generation. In giving freedom to the slave we assure freedom to the free–honorable alike in what we give and what we preserve.”

Finally, in 1913, Woodrow Wilson decided to follow Washington’s lead and not Jefferson’s. He gave a speech to both houses of Congress–reestablishing, as he put it, that “the President of the United States is a person, not a mere department of the government hailing Congress from some isolated island of jealous power.”

Media Darlings

Ten years after Wilson’s speech, Calvin Coolidge delivered the first State of the Union address to be broadcast by radio. But most agree that the master of the radio address was Franklin Roosevelt, who in 1941 famously looked forward to a future founded on four freedoms: “The first is freedom of speech and expression. . . . The second is freedom of every person to worship God in his own way. . . . The third is freedom from want. . . . The fourth is freedom from fear.”

President Harry Truman delivered the first televised State of the Union speech in 1947, but he didn’t do it in prime time. The first president to take full advantage of the power of prime-time TV was Lyndon Johnson, in 1965. The following year saw the first televised opposition response immediately following the address. So much for carefully debated replies.

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Mortgage crimes

January 25, 2008 · No Comments

FBI officials expect to see foreclosure and mortgage scam cases increase as the economy continues its slide from the crash of the housing market.

USA Today reported last week that federal mortgage fraud convictions in fiscal year 2007 more than doubled over the previous year.

Law enforcement authorities say the housing market’s crash will also lead to an increase in a different type of crime crooks preying on those in jeopardy of foreclosure with offers that are too good to be true.

Are we ever going to wake up and figure out that this kind of stuff is preventable and that we already have a system in place where there are people who are paid to protect us from this crap?

It is good that federal investigators are pursuing fraud cases and homeowners, obviously, have to be cautious. But the bigger issue is that this type of crime has flourished because government wasn’t doing enough to prevent it.

Sharon Ormsby, the FBI’s financial crimes chief, said the flood of cases is a result of “the perfect storm of lending fraud.”

She said the record housing market and its subsequent bust were caused by low interest rates, skyrocketing housing values and loose lending standards.

Law enforcement’s action against mortgage fraud is good, but it is only one part of cleaning up the problem. There should be more oversight and a stronger regulatory process to begin with to prevent the types of problems law enforcement is now dealing with.

That is never going to happen until we hold our representatives accountable and demand that they do their jobs.

They get away with it because we let them.

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Next on the Worry List: Shaky Insurers of Bonds

January 24, 2008 · No Comments

Correction Appended

Even as stocks ended five days of losses with a surprising recovery on Wednesday, officials began moving to defuse another potential time bomb in the markets: the weakened condition of two large insurance companies that have guaranteed buyers against losses on more than $1 trillion of bonds.

Regulators fear a possible chain of events in which the troubled bond insurers, MBIA and Ambac, might be unable to keep their promise to pay investors if borrowers default on their debt.

That could leave the buyers of the bonds — including many banks and pension funds — on the hook for untold billions of dollars in losses, shaking confidence in the financial system.

To avoid a possible crisis, insurance regulators met with representatives of about a dozen banks on Wednesday to discuss ways to shore up the insurers by injecting fresh capital, much as Wall Street firms have turned to outside investors recently after suffering steep losses related to subprime mortgages.

While it is unclear what steps, if any, the banks and regulators may ultimately take, the talks focused on raising as much as $15 billion for the companies, according to several people briefed on the discussion who asked not to be identified because of the sensitive nature of the discussions.

The notion that the failure of even one big bond insurer might touch off a chain reaction of losses across the financial world has unnerved Wall Street and Washington. It was a factor in the Federal Reserve’s decision on Tuesday to calm investors by reducing interest rates by three-quarters of a point, to 3.5 percent.

News of Wednesday’s meeting helped rally stocks, which had been down as much as 3 percent but ended up about 2 percent. Shares of MBIA jumped by nearly a third and Ambac jumped 72 percent, although they both remain far below their levels before the extent of the mortgage debacle became known.

Traditionally, bond insurance has been a low-risk business. State and municipal bonds rarely defaulted, so the insurers paid out few claims for such debt. But in recent years the bond insurers increasingly have guaranteed debt related to subprime mortgages, a business that they thought was safe but has turned out to be risky.

Now, as many subprime borrowers are defaulting, insurers could be obligated to cover some of the losses on securities backed by these loans.

Eric R. Dinallo, the New York insurance superintendent who regulates MBIA, called Wall Street executives on Tuesday to set up the meeting at his office in Lower Manhattan. He led the session on Wednesday and suggested that the group move in as little as 48 hours to get a deal done ahead of any downgrading of the bond guarantors by credit ratings firms.

According to two people, Mr. Dinallo said he would talk with the bankers one on one and reconvene the group — which included executives from Citigroup, Goldman Sachs and Merrill Lynch — on Thursday or Friday. Neither federal officials nor executives of the two insurers attended the meeting.

“Regulators are furiously trying to come up with a plan,” said Rob Haines, an analyst at CreditSights, a research firm, who was not at the meeting.

Mr. Dinallo could face resistance from banks that do not have significant exposure to the guarantors and thus have less incentive to put up money. It is also unclear how executives and shareholders of the companies would react to the plan and the prospect of ceding control.

Sean Dilweg, the commissioner of insurance in Wisconsin, which regulates Ambac, sat in on the meeting but said he would be working with Ambac directly. Mr. Dilweg said he met separately on Tuesday with executives at Ambac, which is based in New York but chartered in Wisconsin.

“Eric is looking at the overall issue, but I am pretty confident that we will work through Ambac’s specific issues,” Mr. Dilweg said in a telephone interview. “They are a stable and well-capitalized company but they have some choices to make.”

Other options open to the banks include providing lines of credit and other backup financing to the guarantors. A chief goal of any rescue would be to help the companies regain or keep triple-A credit ratings, which are seen as vital to their business.

Late last year, Mr. Dinallo encouraged Berkshire Hathaway, the company controlled by Warren E. Buffett, to enter the bond insurance business. At the time, Mr. Buffett said he did not want to invest in existing guarantors because of their financial problems, and he started his own firm instead.

Since then, the troubles have worsened. Last week, Fitch Ratings downgraded Ambac’s credit ratings to double-A, from triple-A. MBIA still has a triple-A rating from the three agencies; the others are Standard & Poor’s and Moody’s Investors Service.

While $15 billion might seem like a large amount of money for banks to commit to bond guarantors at a time when many investors have lost faith in them, Mr. Haines said it would be smaller than the billions the banks might have to write down if the companies lost their top ratings or incurred major losses.

“It’s a calculated kind of risk,” he said.

A spokesman for Ambac did not return calls seeking comment. A spokeswoman for MBIA declined to comment.

Analysts say it is unclear how much money would be needed to capitalize the companies adequately. Ratings agencies have changed their requirements several times already as they update their assumptions of defaults and losses on mortgage securities.

“What is needed to do the job is to solidify the market perception of a triple-A rating,” said Sean Egan, founder of Egan-Jones Ratings, a firm that says the companies may need to raise as much as $30 billion.

A recent effort by some banks to help a smaller bond insurer, ACA Capital, has not gone smoothly. The banks have twice agreed to give the company, which was downgraded to triple-C from single-A, more time to come up with an acceptable plan.

State regulators are under pressure to help solve a problem that many critics say could have been avoided with closer supervision. The insurers’ problems are also spilling over into the municipal bond market, making it harder for cities, counties and states to raise money for projects.

On Wednesday, for instance, some short-term insured municipal bonds, which typically trade at a premium to other bonds, were trading at a discount of as much as 1.5 percentage points to similar uninsured bonds, said Michael S. Downing, an account manager at Thomson Financial.

The companies have defended their assumptions. They also note that losses on the bonds that they insure would have to rise substantially before they would have to pay claims, and even then they would make interest and principal payments over the life of the bond, not all at once.

MBIA has estimated that in the worst case, which it described as a one in 10,000 event, it expects to incur losses of $10 billion, a fraction of the $673 billion it has insured.

Still, losses of that magnitude could strain the company’s finances, and the difficulties continue to mount. On Wednesday, Moody’s said it was considering downgrading a company, Channel Re, that reinsures more than $40 billion of insurance contracts written by MBIA. If the reinsurer is downgraded, MBIA, which owns more than 17 percent of Channel, would have to acknowledge fresh losses.

“If you are a bond insurer or bank you can never really eliminate the risk that you originated in entirety, unless you sell it,” said Edward J. Grebeck, chief executive of Tempus Advisors.

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French Bank Links Lone Futures Trader To $7 Billion Fraud

January 24, 2008 · No Comments

J¿r¿me Kerviel knew how to evade controls at Societe Generale.

J¿r¿me Kerviel knew how to evade controls at Societe Generale
PARIS, Jan. 24 — For five years, Jérôme Kerviel toiled in the back offices of Societe Generale, learning the intricacies of the six-layer security system that France’s second-largest bank used to protect its money, investors and customers from fraud, according to bank officials here.

Kerviel then made an unusual career move. He was promoted to trader — becoming one of the very employees the security systems are designed to oversee and keep honest.

Over the next several months, his chagrined employer alleged Thursday, Kerviel used his inside knowledge of the security system and his brazenness as a futures trader to pull off one of the largest banking frauds in history, ringing up losses of more than $7 billion for Societe Generale.

The trader hid the massive fraud “using extremely sophisticated and varied techniques,” Societe Generale Chairman Daniel Bouton told reporters Thursday. Bouton and other bank officials had little explanation for Kerviel’s motivation, except to say he appeared to have acted alone and to have made no personal profit, instead creating losses through successive transactions of buying dear and selling cheap.

There was no comment Thursday from Kerviel, whom the bank said it had fired along with several of his supervisors. The man described as a 31-year-old computer genius dropped out of sight, but Elisabeth Meyer, his lawyer, said on French television that he “is not fleeing” and is “available for judicial authorities.” She did not specify where he was; calls to a telephone number listed under his name went unanswered.

The disclosure of the losses was the latest shock to world financial markets as they struggle to recover from a massive sell-off earlier in the week linked to problems in the U.S. subprime mortgage market. Some analysts suggested that high-volume sales by Societe General on Monday as it secretly liquidated Kerviel’s tainted investments contributed to the global market drops that led the U.S. Federal Reserve to counter Tuesday with an interest rate cut of three-quarters of a percentage point.

The Fed was unaware Monday that the bank was making its sales, according to a Fed source who spoke on condition of anonymity, leading some analysts to charge that the central bank overreacted in its rate cut. Investors in futures markets are now betting there is less likelihood that the Fed will make another steep rate cut at its regularly scheduled meeting next week.

The case highlighted global distrust of the financial institutions that hold personal nest eggs and corporate wealth, and the regulators charged with keeping them honest. The Bank of France, the country’s banking regulator, conducted 17 investigations at Societe Generale during 2006 and 2007, but spotted no evidence of fraudulent activity, its chief reported Thursday.

“I don’t consider this a failure of our controls,” Christian Noyer, governor of the Bank of France, told reporters. “We can’t have a controller behind every trader at every bank in the country at every moment. Even the best laws and the best police can’t always stop someone who is determined to defraud the system.”

But analysts and banking experts said the statements by both institutions revealed troubling failures in oversight. “What guarantees do we have that this cannot happen again tomorrow with another trader?” asked Xavier Timbeau, director of analysis and forecasting at the French Economic Observatory. “None.”

If confirmed, the losses at the bank would be the largest ever caused by an individual trader. They are far higher than the $1.4 billion run up by trader Nick Leeson in the mid-1990s in Singapore. His fraud caused the collapse of the institution where he worked, Britain’s 233-year-old Barings Bank.

Leeson, now living in Ireland after serving a prison sentence in Singapore, told the BBC that he was not shocked such a fraud had happened again, but that “the thing that really shocked me was the size of it.”

Banking specialists said Societe Generale’s first misstep was catapulting an employee armed with the back-office secrets of the bank’s internal security monitoring system into the aggressive role of a futures trader.

Kerviel, who banking officials said was paid just under $146,500 a year in salary and bonuses, was tasked with trading in European equities futures, a speculative market that involves betting on the future performance of stocks.

The trader maintained two sets of books, one in which he kept accounts of his successful investments, and a secret parallel book where he was “voiding his losing positions,” Bouton said.

“He knew when controls were going to take place,” Bouton said, because “over the years he had become an expert in controls.” Bouton said Kerviel managed to outmaneuver six levels of controls and firewalls intended to detect and prevent fraud.

Kerviel “made a mistake in December which triggered our controllers,” Bouton said. But for reasons that remain undisclosed, bank officials did not discover the fraud until last Friday night, when markets began a precipitous slide and the losses in some of his speculative trades became more obvious.

Societe Generale officials hauled Kerviel into the office for a six-hour interrogation on Saturday. By Bouton’s account, the trader confessed to cooking the books to hide unauthorized trades. “His motivations were totally incomprehensible,” Bouton said. “It does not seem that he would have profited directly from this gigantic fraud.”

Bank officials spent last weekend and the early part of this week secretly selling many of Kerviel’s investments to try to mitigate the damage. But the worst collapse in world stock markets since the Sept. 11, 2001, terrorist attacks drove Kerviel’s losses higher and higher, eventually topping $7 billion.

“These losses could have been gains if the market had climbed on Monday, Tuesday and Wednesday,” Bouton told reporters.

Noyer of the Bank of France said that Societe Generale notified banking regulators of its investigation last weekend, before beginning its sales. But the Fed source said the U.S. central bank remained unaware of it on Monday, as markets abroad took their deep plunges. U.S. markets were closed for the Martin Luther King Jr. holiday.

“It does appear that the move to unwind those positions contributed to the stunning decline in stocks at the beginning of the week,” said Louis Crandall, chief economist at Wrightson ICAP, a bond market research firm. With U.S. markets closed, the price-depressing effects of sales in foreign markets would have been amplified, he observed.

“The Fed would have responded differently if the decline was because of a special situation rather than general systemic fragility,” he said.

“The Fed was duped,” said Axel Merk, manager of the Merk Hard Currency Fund. “It thought this was a widespread event. But it seems to have been just one trader.” The big interest rate cut was not “the right reaction,” he said.

Other analysts saw no connection. “The whole thing’s incredible, but I don’t think that’s why the Fed cut rates,” said David Kotok, chief investment officer at Cumberland Advisors. “I don’t think Societe Generale had anything to do with the Fed’s decision.”

Following the French bank’s news, the Fed remains comfortable that the rate cut was the right move and not a response to the bad day in the markets, the Fed source said, because it views the problems in world financial markets as symptomatic of emerging economic weakness.

Societe Generale had other bad news on Thursday for stockholders: It had suffered nearly $3 billion in losses from investments connected to the subprime mortgage crisis. It will seek an infusion of $8 billion of new capital, it said.

The Bank of France said it would launch an investigation of the alleged fraud. Shareholders from the United States, Germany, France, Belgium, Switzerland and the Netherlands filed lawsuits alleging fraud, breach of trust and receipt of stolen goods against Societe Generale, attorneys said.

Trading of the bank’s stock, which has lost almost half of its value in the past six months, was suspended temporarily on the French stock exchange Thursday and financial ratings services downgraded the bank’s ratings.

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World Tour - Saudi Resurvey

January 20, 2008 · No Comments

Like President Bush, we’ve been touring Arabian states all week, from Kuwait to the UAE. While we’re in the neighborhood, we figured it made sense to go back to the biggest state on the Arabian Peninsula’s block: Saudi Arabia.

Saudi Arabia has been a U.S. ally and a key Middle East trading partner for decades, but it’s not exactly the sort of country Uncle Sam would bring home to meet the founders. It’s an absolute monarchy where mosque and state are thoroughly interwoven. And, along with lots of oil, it keeps producing terrorists, including Osama bin Laden and 15 of the 9/11 hijackers. Here’s a look at Saudi Arabia, by the numbers.

Size Matters

830,000 – Saudi Arabia’s total area, in square miles (2,150,000 sq km). That’s a little larger than Mexico, a little smaller than Greenland, and roughly one-fifth the size of the United States. Saudi Arabia covers about four-fifths of the Arabian Peninsula, which it shares with Oman, Yemen, Qatar, Kuwait, and the United Arab Emirates. (Another small nation, Bahrain, is an island near Qatar.)

27,600,000 – Saudi Arabia’s total population, including some 5.6 million non-nationals who call the kingdom home. That’s more people than live in Texas, but not nearly as many as live in California. Take away the non-nationals, and Saudi Arabia would have just a few more people than Australia. Add in the more than 2 million Muslim pilgrims who visit each year, and it would have almost as many people as Canada.

4,700,000 – Population of Riyadh, Saudi Arabia’s capital and largest city. Riyadh gets more rain than many parts of Saudi Arabia, but it still relies on hundreds of miles of pipes to carry water from desalination plants on the Persian Gulf.

Religious Matters

100 – Percentage of Saudis who are Muslim. Sound impossible? Well, Saudi Arabia is Islam’s birthplace and home to its two holiest cities, Mecca and Medina. Its constitution is the Qur’an and Sunnah (the “trodden path” of the prophet), its legal system is based on Sharia (Islamic law), and its religious “police” enforce traditional values. Blasphemy is punishable by beheading. So is conversion from Islam to other religions, whose public practice is banned. Oh, and the government requires that citizens be Muslims.

0 – Number of drivers licenses issued to women. Despite a handful of recent reforms, it’s still illegal for women to drive a car in Saudi Arabia. Human rights groups also regularly condemn the Saudi government for its treatment of political and religious minorities (including Islamic ones). The government generally brushes such claims aside.

Money Matters

264 billion – Barrels of oil in Saudi Arabia’s proven reserves, according to the leading oil industry survey. That’s around 22 percent of all of the world’s proven crude. (For more on what “proven reserves” actually means, click here.)

90 – Percentage of Saudi Arabia’s export earnings that come from oil. Much of that money flows from the United States. And much of it goes to fund generous social welfare programs. But times aren’t as good as they once were. In 1980, oil exports raked in $22,589 for every man, woman, and child in the kingdom. Thanks to a population boom and a changing market, the number these days is around $5,000.

7,000 – Estimated number of members of the Saudi royal family. Some 200 of those are direct descendents of Abd al Aziz al Saud, the king who founded the country in 1932. The nation’s current king, Abdullah, officially assumed the throne in 2005, but he’s no newcomer to power. Abdullah has effectively run Saudi Arabia since 1995, when the previous king–his half-brother Fahd–suffered a stroke.

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