Life in OUR America, The Livyjr Files Volume 7 Options

[Livyjr]

"Proposed mortgage plan could aid markets"

By ALAN ZIBEL, Associated Press

Last updated: 6:12 a.m., Friday, January 25, 2008

WASHINGTON -- A component of the government's tentative economic stimulus package announced Thursday would give an immediate lift to buyers and sellers in higher-priced housing markets.

The package agreed upon by Democratic and Republican members of the House would allow government-sponsored Fannie Mae and Freddie Mac to buy mortgages up to 75 percent more expensive than the current $417,000 limit.

The Senate and White House still must sign off on the proposed stimulus plan, which also includes tax rebates for Americans.

Raising the limit on so-called conforming loans will allow a larger pool of borrowers to find lower rates when buying a new home or refinancing an existing mortgage.

"It's good for homebuyers who have prime credit, have some money to put down and can meet tougher underwriting standards that are in place now," said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication.

For homeowners with blemished credit who are struggling to pay their mortgage bills, the change offers little benefit, he added.

House Speaker Nancy Pelosi and Republican Leader John Boehner of Ohio announced the deal in a press conference Thursday.

The higher cap, to be effective until the end of December, would breathe life into housing markets in New York, California and other pricey areas because lenders would feel more comfortable knowing Fannie and Freddie can buy and package the loans into securities that investors consider to be relatively safe.

Fannie and Freddie would be allowed to purchase loans up to $730,000, though that limit would differ based on the median home price in a particular metropolitan area.

The same limits would also apply for loans backed by the Federal Housing Administration, which insures loans made to borrowers with poor credit, though the change would be permanent for FHA-backed loans, which had been capped at $367,000.

The Bush administration has long been critical of how Fannie and Freddie operate, and officials have pointed to the companies' multibillion-dollar accounting scandals in recent years to bolster their case that Fannie's and Freddie's massive mortgage holdings are improperly managed and pose risks to the financial system.

But as the mortgage-market crisis that began last spring has deepened, Democrats have stepped up calls for Fannie and Freddie to back larger loans and hold more of them in their portfolios.

Treasury Secretary Henry Paulson, speaking to reporters after the deal was announced, said he did not support raising Fannie and Freddie's loan limits without strengthening government power over the companies.

"I got run down by a bipartisan steamroller," on the issue, Paulson said, adding that he believes lawmakers would still pursue a broad overhaul of government regulation for the two companies.

James B. Lockhart, director of the Office of Federal Housing Enterprise Oversight -- which oversees the two companies -- said in a statement that raising the limits for Fannie and Freddie without providing stronger government oversight "would be a mistake."

Michael Cosgrove, a spokesman for McLean, Va.-based Freddie Mac, said the change "would be in the best interest of the economy and consumers," but noted that extra capital the company is required to hold on its books "creates a significant challenge for Freddie Mac as we continue to operate under severe capital constraints."

Amy Bonitatibus, a spokeswoman for Washington-based Fannie Mae, said, "If policymakers choose to raise the loan limit, we are supportive and committed to doing what we can to help."

Groups representing Realtors, bankers and home builders, which have been hit hard by the mortgage market downturn, have been lobbying for such changes for months.

The National Association of Realtors has been pushing for a permanent expansion of the Fannie and Freddie limits.

The trade group calculates that borrowers could save $3,000 to $5,000 per year in reduced interest costs as a result and projects up to 210,000 foreclosures could be prevented since refinancing into lower-rate loans would be easier.

Dale Stinton, the group's chief executive, said in a statement Thursday that increasing the loan limits "is a truly meaningful economic stimulus and should be enacted quickly."

Shares of Fannie Mae fell 59 cents to close at $34.19, while shares of Freddie Mac fell 52 cents to close at $32.

[Livyjr]

"Iraqi reinforcements rush to Mosul"

By STEVEN R. HURST, Associated Press Writer

25 January 2008

BAGHDAD - Shaken by two days of deadly bombings, the government said Friday it would dispatch several thousand more security forces to Mosul in a "decisive" bid to drive al-Qaida in Iraq from its last major stronghold.

Prime Minister Nouri al-Maliki gave no details on troop strength or when the additional police and soldiers would arrive in Iraq's main northern city.

But it added to growing signs that Mosul could represent a pivotal showdown with insurgents chased north by U.S.-led offensives.

"Today, our troops started moving toward Mosul ... and the fight there will be decisive," al-Maliki said during a speech in the Shiite holy city of Karbala.

The challenge, however, is whether the Iraqi forces have the firepower and training to lead an offensive into Iraq's third-largest city.

The U.S. military is relatively thin across northern Iraq and has signaled no immediate plans to shift troops from key zones in and around Baghdad.

Mosul is now considered the main logistical hub for al-Qaida in Iraq because of its size and location — sitting at crossroads between Baghdad, Syria, Turkey and Iran.

Many extremists fled north as U.S.-led forces began gaining ground in former insurgent strongholds last year, aided by Sunni tribes that rose up against al-Qaida and its backers.

Interior Ministry spokesman Maj. Gen. Abdul-Karim Khalaf told The Associated Press that 3,000 police were being sent to the Mosul region to augment the understaffed force.

Ninevah province, whose capital is Mosul, has about 18,000 policemen.

But only about 3,000 of those operate in the city of nearly 2 million, according to police spokesman Saeed al-Jubouri.

A Defense Ministry official said several thousand Iraqi soldiers would be moved from Baghdad and Anbar province.

He spoke on condition of anonymity because the information is sensitive.

"We have asked the prime minister to send us fresh units because we cannot defeat the terrorists with the weak units we have now in the city," Maj. Gen. Riyad Jalal, a senior Iraqi officer in the Mosul area.

"We need new equipment and stronger weapons because most of our security members have only rifles."

Mosul, 225 miles northwest of Baghdad, has become a fulcrum on two fronts.

First the United States is trying to keep Iraqi security forces in the lead as a major test of Washington's long-range plans, which seek to keep a smaller American force in Iraq as backup for local soldiers and police.

Second, U.S. officials say Mosul has become the only remaining major city in Iraq where al-Qaida is able to operate with any freedom.

Major centers of al-Qaida activity in the past — including the western Anbar province, Baghdad and Baqouba north of the capital — no longer offer easy refuge.

Al-Maliki announced reinforcements for Mosul two days after an abandoned apartment building, believed to be used as a bomb-making factory, was blown apart as the Iraqi army was investigating tips about a weapons cache.

At least 34 people were killed and 224 wounded when the blast tore through surrounding houses in the Zanjili neighborhood, a poverty-ridden district on the west bank of the Tigris River.

No soldiers were reported killed.

A suicide bomber then killed a police chief and two other officers Thursday as they toured the devastation.

Residents taunted the chief and pelted him with rocks moments before he was killed.

Nineveh province leader Duraid Kashmola said a vehicle ban would remain until 6 a.m. Saturday.

Al-Maliki issued the troop order in Karbala, 50 miles south of Baghdad.

He was in the holy city after a roadside bomb targeted a senior aide of Iraq's Shiite spiritual leader Grand Ayatollah Ali al-Sistani the night before.

The aide, Abdul-Mahdi al-Karbalai, was wounded in the arm.

Two bodyguards were killed and two were wounded, according to local police.

Al-Maliki met with the white-turbaned cleric, who wore a bandage on his right forearm.

There have been several assassination attempts against al-Sistani's followers in recent months as internal Shiite rivalries increased in the oil-rich southern Iraq, which also is home to some of the majority sect's most sacred shrines.

South of Baghdad, meanwhile, Iraqi troops backed by U.S. helicopters raided a suspected al-Qaida in Iraq stronghold near Madain, a predominantly Sunni town about 12 miles southeast of Baghdad.

Twelve militants were killed, including two female fighters and four men trying to plant roadside bombs, a police officer said on condition of anonymity because he wasn't authorized to release the information.

The U.S. military said it was checking the report.

Also Friday, the U.S. military said American and Iraqi troops had cleared a bomb-infested route between Baqouba and Khan Bani Saad, a strategic village on the northern outskirts of Baghdad.

The statement said the troops killed an estimated 41 suspected al-Qaida in Iraq militants.

[Livyjr]

"Blasts hit Baghdad, including Green Zone"

By HAMED AHMED, Associated Press

Last updated: 7:53 a.m., Saturday, January 26, 2008

BAGHDAD -- A series of explosions thundered in the Iraqi capital Saturday morning, police said, including one from a mortar round that hit the U.S.-controlled Green Zone.

One of the explosions was a roadside bomb that targeted a U.S. patrol in eastern Baghdad.

A police officer said the blast site was sealed by American forces and there was no immediate way to detail damage or casualties.

There was no immediate report of the incident from the U.S. military.

Another police officer confirmed a mortar round hit the heavily protected Green Zone.

The Americans did not report damage or casualties from that incident either.

Both officers spoke anonymously because they were not authorized to release the information.

On Friday, shaken by two days of deadly bombings in Mosul, the government said it would dispatch several thousand more security forces to that city in a "decisive" bid to drive al-Qaida in Iraq from its last major stronghold.

Prime Minister Nouri al-Maliki gave no details on troop strength or when the additional police and soldiers would arrive in Iraq's main northern city.

But it added to growing signs that Mosul could represent a pivotal showdown with insurgents chased north by U.S.-led offensives.

"Today, our troops started moving toward Mosul ... and the fight there will be decisive," al-Maliki said during a speech in the Shiite holy city of Karbala.

The challenge, however, is whether the Iraqi forces have the firepower and training to lead an offensive into Iraq's third-largest city.

The U.S. military presence in northern Iraq is relatively thin and it has signaled no immediate plans to shift troops from key zones in and around Baghdad.

Mosul is now considered the main logistical hub for al-Qaida in Iraq because of its size and location -- sitting at a crossroads between Baghdad, Syria, Turkey and Iran.

Many extremists fled north as U.S.-led forces began gaining ground in former insurgent strongholds last year, aided by Sunni tribes that rose up against al-Qaida and its backers.

Interior Ministry spokesman Maj. Gen. Abdul-Karim Khalaf told The Associated Press that 3,000 police were being sent to the Mosul region to augment an understaffed force there.

Ninevah province, whose capital is Mosul, has about 18,000 policemen.

But only about 3,000 of those operate in the city of nearly 2 million, according to police spokesman Saeed al-Jubouri.

A Defense Ministry official said several thousand Iraqi soldiers would be moved from Baghdad and Anbar province.

He spoke on condition of anonymity because the information is sensitive.

"We have asked the prime minister to send us fresh units because we cannot defeat the terrorists with the weak units we have now in the city," Maj. Gen. Riyad Jalal, a senior Iraqi officer in the Mosul area.

"We need new equipment and stronger weapons because most of our security members have only rifles."

Mosul, 225 miles northwest of Baghdad, has become a fulcrum on two fronts.

First the United States wants Iraqi security forces to take the lead there, as a major test of Washington's long-range plans, which seek to keep a smaller American force in Iraq as backup for local soldiers and police.

Second, U.S. officials say Mosul has become the only remaining major city in Iraq where al-Qaida is able to operate with any freedom.

Major centers of al-Qaida activity in the past -- including the western Anbar province, Baghdad and Baqouba north of the capital -- no longer offer easy refuge.

Al-Maliki announced reinforcements for Mosul two days after an abandoned apartment building, believed to be used as a bomb-making factory, was blown apart as the Iraqi army was investigating tips about a weapons cache.

At least 34 people were killed and 224 wounded when the blast tore through surrounding houses in the Zanjili neighborhood, a poverty-ridden district on the west bank of the Tigris River.

No soldiers were reported killed.

A suicide bomber then killed a police chief and two other officers Thursday as they toured the devastation.

Residents taunted the chief and pelted him with rocks moments before he was killed.

[Livyjr]

"Some Sunni Muslims won't salute Iraq's new flag"

By Leila Fadel and Hussein Kadhim, McClatchy Newspapers

Fri Jan 25, 6:22 PM ET

BAGHDAD — Officials in Iraq's mostly Sunni Muslim Anbar province are refusing to raise Iraq's new national flag, which the parliament approved earlier this week.

"The new flag is done for a foreign agenda and we won't raise it," said Ali Hatem al Suleiman , a leading member of the U.S.-backed Anbar Awakening Council.

"If they want to force us to raise it, we will leave the yard for them to fight al Qaida."

U.S. officials credit the Anbar Awakening Council , part of the American strategy of recruiting local Sunnis to battle Islamic militants, with driving al Qaida in Iraq, which once largely controlled the province, out of Anbar.

The dispute over the flag is a more accurate symbol of Iraq today than the flag itself is.

"On nothing we are completely united," said Mahmoud Othman , an independent Kurdish lawmaker.

Although parliament speaker Mahmoud al Mashhadani said the new flag would be raised immediately across Iraq after the parliament approved it Tuesday, it's nowhere to be seen.

In fact, when the parliament met Wednesday, the old flag was still behind the speaker and his two deputies.

A slim minority of parliamentarians approved the new flag, which doesn't have Saddam Hussein's handwriting or the three stars that represented his Sunni-dominated Baath Party .

It was rushed through parliament before a pan-Arab parliament meeting that's planned for March in Irbil , in the Kurdish north, because the Kurdish Regional Government prohibits flying Iraq's Saddam-era flag.

The Kurds consider that flag a symbol of Saddam's oppression.

Only 165 of the Iraqi parliament's 275 lawmakers were present Tuesday, and only 110 voted for the new red, white and black flag with "Allahu Akbar" ("God is great") in Kufic script, the ancient calligraphy developed in Mesopotamia.

While the Anbar Awakening Council vowed never to raise the new flag, U.S.-backed Iraqi Prime Minister Nouri al Maliki praised the council for standing against al Qaida in Iraq.

In a speech in Karbala, Maliki also pledged a new fight against Sunni militants in Ninevah province, where at least 40 people were killed in a bombing this week and a suicide bomber killed the police chief.

Suleiman of the Anbar Awakening Council, however, said he was angry that the parliament and government toiled away on a new flag rather than dealing with the country's lack of services.

Many Iraqis, including some lawmakers who rejected the flag, were angered at what they considered a change to the flag in order to please the Kurdish north and its president, Massoud Barzani.

"We don't want to handle the problem of the Kurdistan region by causing problems with other regions that might refuse the new flag," said Nassar al Rubaie , the head of radical Shiite Muslim cleric Muqtada al Sadr's bloc in parliament, who voted against the new flag.

The new flag is temporary.

According to Iraq's Constitution, the parliament must pass a new law that issues a permanent flag and a national anthem.

The Iraqi flag has long been a point of contention.

When a flag with light blue stripes and a blue crescent moon in the middle was proposed in 2004, many Iraqis thought that it resembled the Israeli flag and people took to the streets in protest.

Othman, the Kurdish lawmaker, said he expected people to reject the latest change in the flag but hoped that when a new, permanent flag was chosen, people would salute it.

"Just as the Kurds were not raising the flag all these years, others also will not raise the new flag," he said.

"I hope with time it will ease away, and I think everyone should look forward to the permanent flag."

(Kadhim is a McClatchy special correspondent.)

[Livyjr]

"GOP wants to remove names from NY primary ballot"

Associated Press

Last updated: 2:33 p.m., Saturday, January 26, 2008

ALBANY -- A move by state Republicans to strike three candidates from the Feb. 5 presidential primary ballot has prompted resistance from Democrats who say state election law doesn't allow them to do so.

The change would push former New York City Mayor Rudy Giuliani -- the state Republicans' preferred candidate -- higher up on the list of candidates appearing on the ballot.

On Friday, GOP staffers sent an amended ballot to county election boards.

It removes former Sen. Fred Thompson and Rep. Duncan Hunter and activist Alan Keyes.

Matthew Walter, a spokesman for the New York Republican State Committee said Thompson and Hunter were removed because they both dropped out of the race in the past week, and Keyes didn't provide the party with a required list of delegates.

"It is within seven days of the primary, and it is completely legal," Walter said.

Doug Kellner, one of Democrats on the state Board of Elections, told the New York Daily News that dropping out isn't legal grounds for removing candidates from the ballot, and board members were never consulted on the decision.

"Apparently the Republicans did this in secret," he said.

New York City's election board on Friday balked at the notice and deadlocked in a 4-4 party line vote.

Steve Richman, the city board's Democratic counsel, told Newsday that Republicans cannot remove candidates without a full state board vote.

Walter insisted that it's the Democrats who aren't following the law.

"The Democrats on the New York City board are acting illegally to disenfranchise Republican voters and meddle in the Republican primary," he said.

A random drawing set the order in which candidates names will appear on the ballot.

It was to be: Ron Paul on top, followed by Keyes, Hunter, Giuliani, Mitt Romney, Mike Huckabee, John McCain and Thompson.

The proposed ballot would move Giuliani from fourth to second place.

Lee Daghlian, a spokesman for the state Board of Elections, said it's unclear how the question will be resolved, since the board is equally divided with two Republicans and two Democrats and lawyers on each side have conflicting opinions.

"The Republicans say that since it's their plan, they're the final arbiter," Daghlian said.

"But there seems to be some disagreement on that."

"If somebody doesn't like it, I guess they could take it to a judge."

[Livyjr]

"Rogue trader held in French bank scandal"

By PIERRE-ANTOINE SOUCHARD, Associated Press

Last updated: 7:02 p.m., Saturday, January 26, 2008

PARIS -- Police on Saturday questioned the young trader blamed for a massive fraud that cost France's Societe Generale bank more than $7 billion, as the country's president accused global financial institutions of having "gone haywire" and urged common sense.

The possible motivations of the 31-year-old trader, Jerome Kerviel, remained a mystery, and the bank said it appeared that he made no personal gain from the unauthorized trades.

Judicial officials said Kerviel was taken into custody earlier in the day -- two days after Societe Generale's announcement that he was responsible for one of history's biggest frauds.

The officials spoke on condition of anonymity because the investigation was ongoing.

Under French law, Kerviel can be held up to 48 hours.

Jean-Michel Aldebert, head of Paris' financial police, said Kerviel gave himself up.

He "is very well, he's collaborating," Aldebert told reporters.

The debacle further rattled an already nervous banking sector and has fueled a debate about risk management.

"If we can make profits in a matter of hours, we can also have huge losses," President Nicolas Sarkozy said during a visit to India.

"We must stop with this system that has gone haywire and that has lost track of its aim."

He added: "It appears to be time to ... inject a bit of common sense into all these systems."

French officials said the trader had been dealing with more than $73.3 billion.

That figure outstrips the bank's market capitalization of $52.6 billion, and is close to the annual GDP of entire nations such as Slovakia, Qatar or Libya.

It remains unclear whether Kerviel's actions, if proved, were motivated by malevolence, ambition or some other reason.

Three union officials representing Societe Generale employees said managers at the bank who briefed them about the fraud told them Kerviel was having family problems.

Acquaintances described Kerviel as reserved and considerate, a young man who once taught children judo and held the door for elderly neighbors.

Experts and others including France's prime minister have questioned whether a single futures trader could have managed such large sums.

Some have suggested Societe Generale might have used Kerviel as a scapegoat for other losses.

Paris prosecutors are conducting a preliminary investigation based on three complaints: one by the bank accusing Kerviel of fraud, and two by small shareholders.

In an interview published Saturday, Societe Generale's chief executive, Daniel Bouton, dismissed the notion that the bank's actions helped fuel the turmoil on world markets.

"It's absurd!" Bouton told Le Figaro daily in an interview published Saturday.

"Anyone could calculate our contribution to the market in recent days."

Bouton said Kerviel had been betting throughout 2007 that markets would fall -- a winning position.

But the trader overstepped his authority and wagered much more money than he should have, Bouton said.

So at the beginning of January, Bouton said, Kerviel voluntarily created losing positions to neutralize his earlier gains and cover his tracks.

But this month's quickly dropping markets turned "this sad affair ... into a Greek tragedy: His virtual losing position became huge," Bouton was quoted as saying.

Despite the bank's $7.14 billion losses, which Bouton called "enormous and abnormal," he insisted Societe Generale's viability was not at risk.

In Thursday's statement, the company also announced another $2.99 billion subprime-related loss and said it planned to raise $8.02 billion in new capital.

French Finance Minister Christine Lagarde, speaking Saturday at the World Economic Forum in Davos, Switzerland, said she has been asked to compile a report on the fraud, Dow Jones Newswires reported.

Lagarde said her report will look at "the reality of facts based on real hard data," and "how and why" the bank's security controls failed to prevent the fraud.

The bank says the scale of the damage was so great only because of the bad timing of the discovery -- right before the worst day in world markets since Sept. 11, 2001.

It also fired Kerviel's supervisors.

Societe Generale's shares have lost nearly half their value over the past six months.

After an up-and-down day Friday, the shares closed down 2.5 percent at 108.62.

------

Associated Press writers Cecile Roux and Angela Charlton in Paris contributed to this report.

[Livyjr]

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"Regulators meet banks on bond insurance plan"

Associated Press

Last updated: 5:43 p.m., Wednesday, January 23, 2008

ALBANY -- State officials met with large investment banks on Wednesday as part of a previously announced series of measures to prop up the bond insurance industry.

David Neustadt, a spokesman for the state Insurance Department, confirmed the meetings but he would not name the banks or provide details about what was discussed.

Bond insurers -- which pay principal and interest payments on debt when an issuer defaults -- have been under scrutiny amid concerns that securities backed by shaky mortgages would lead to a spike in insurance claims.

The Insurance Department -- which regulates bond insurers -- this week said it is working with the industry to increase the capital available to them, developing measures to stabilize the market and developing new rules and regulations to oversee the bond insurance market.

Bond insurance company stocks surged amid a broader stock market rally Wednesday.

Shares of Ambac ended 72 percent higher at $13.70.

MBIA closed up 33 percent at $16.61.

Security Capital Assurance shares finished 76 percent higher at $3.79.

[Livyjr]

"Bloomberg criticizes federal stimulus package"

By DEVLIN BARRETT, Associated Press

Last updated: 3:54 p.m., Wednesday, January 23, 2008

WASHINGTON -- New York Mayor Michael Bloomberg castigated the White House and Congress on Wednesday for what he said was a shortsighted economic stimulus package and years of lousy financial management.

"We can't borrow our way out of this."

"The jig is up," Bloomberg said in prepared remarks to be delivered Wednesday evening before the U.S. Conference of Mayors, which is honoring his environmental efforts.

The billionaire mayor, who is said to be considering an independent presidential bid yet denies that he is a candidate, said the $150 billion stimulus package being hammered out between Democratic and Republican leaders won't be enough.

"There's just one problem: It's not going to make much of a difference because we've already been running huge deficits," Bloomberg said.

Some of those urging Bloomberg to run for president say his record as a CEO is his biggest selling point in a time of economic turmoil.

Despite his public denials, Bloomberg is conducting an analysis of voter data in all 50 states to better understand his chances as a third-party candidate.

Aides have said he would delay a decision until after the major parties produce clear front-runners.

The metropolitan mayor used a farming analogy to heap scorn on the current crop of Washington leaders.

"They spent most of this decade running up bills with reckless abandon and when the economy started heading for the ditch, the special interest giveaways got even bigger."

"They ate the seed corn without worrying about the next year's harvest."

"Well, the next year is here, and the seed corn is gone."

"All we've got is a barn full of IOU's," he said.

Details of the stimulus package are still being negotiated, but the centerpiece of the measure is expected to be a tax rebate similar to the $300-$600 checks sent out in the summer of 2001.

The emergency measure would more than double last year's deficit spending of $163 billion, according to new congressional budget estimates.

Bloomberg argued that the government's first goal should be to stop the bleeding in the housing sector.

"What good is a rebate going to do for a family who's about to lose their home?" he argued.

[Livyjr]

"NY regulators say bond insurance plan will take time"

Associated Press

Last updated: 11:14 a.m., Thursday, January 24, 2008

ALBANY -- New York's top insurance regulator says it's going to take time to develop a series of measures to prop up the bond insurance industry and his agency won't comment on widely reported details of any plan.

"Clearly it is important to resolve issues related to the bond insurers as soon as possible," Insurance Superintendent Eric Dinallo said in a statement Thursday.

"However, it must be understood that these are complicated issues involving a number of parties and any effective plan will take some time to finalize."

State insurance regulators are working on a potential bailout for bond insurers amid concerns that the collapse of securities backed by shaky mortgages will lead to a spike in insurance claims.

On Wednesday, they met with major investment banks to discuss the potential for a bailout, but are declining to discuss the details.

News reports and analysts have said the plan could include investment banks providing as much as $15 billion to help struggling companies.

Dinallo said he won't respond to "rumors" about the measures being discussed.

[Livyjr]

"Auditor: Government lags on measurements for Great Lakes toxins"

By JOHN FLESHER, Associated Press

Last updated: 7:22 p.m., Thursday, January 24, 2008

TRAVERSE CITY, Mich. -- The federal government is running behind on developing ways to measure highly toxic chemicals in the Great Lakes that accumulate in fish, creating health risks for people and wildlife that eat them, congressional investigators say.

The U.S. Environmental Protection Agency crafted guidelines more than a decade ago to help states crack down on the pollutants.

But their efforts are hampered by a lack of tools for detecting small amounts discharged by factories and municipal wastewater systems, the Government Accountability Office says.

"It's like we established speed limits on highways but didn't have radar guns for troopers to find out how fast people are going," David Maurer, director of the GAO's natural resources and environment staff, said in a phone interview Thursday.

The GAO is the investigative arm of Congress.

Under a program called the Great Lakes Initiative, the EPA in the 1990s crafted water quality standards to control discharges of more than 100 toxic pollutants.

The agency also issued guidelines for states to use in limiting nine particularly toxic substances known as "bioaccumulative chemicals of concern," which become more potent as they move up the aquatic food chain.

Their presence has led government agencies in the Great Lakes region to issue advisories about eating some types of fish.

"Pollution levels have gone down since the '70s and '80s, but until those fish consumption advisories go away we still have a serious problem," said Tim Eder, executive director of the Great Lakes Commission.

EPA has come up with adequate measuring sticks for two of the chemicals: mercury and lindane, the latter an insecticide that has been used to treat head lice and scabies, Maurer testified Wednesday during a hearing in Washington, D.C., before the House Subcommittee on Water Resources and the Environment.

Using the measurements, states have determined that many polluters are exceeding water quality standards for mercury, Maurer said.

As a result, the number of permits limiting mercury discharges in the region has risen in recent years.

"This more sensitive method disclosed a more pervasive problem of high mercury levels in the Great Lakes basin than previously recognized," Maurer said.

But the EPA has yet to finish comparable systems for the seven other bioaccumulative chemicals, including DDT, dioxins and PCBs, Maurer said.

Their presence can be detected to some extent, but not well enough to know whether standards are being violated.

He acknowledged that developing the measurements was "a tough technical challenge" but said their absence was "a significant barrier" to reaching the Great Lakes Initiative's goals for cleansing the lakes.

"We are advancing the science and working with the states to reduce toxic pollution in the Great Lakes," Benjamin Grumbles, the EPA's assistant administrator for water, said in a statement.

Members of Congress urged the agency to do more.

"EPA should be working with state and local partners -- such as our research colleges and universities -- to speed up development of the detection methods," said Rep. Bart Stupak, D-Mich.

Rep. Candice Miller, R-Mich., said the GAO report shows that "there are many pollutants entering the lakes that need to be monitored vigorously so that we can prevent pollution before we are faced with cleaning it up."

[Livyjr]

"Countrywide earnings eyed before deal"

By ALEX VEIGA, Associated Press

Last updated: 5:42 a.m., Saturday, January 26, 2008

LOS ANGELES -- Investor concerns that Bank of America Corp. might try to pull out or pay less for Countrywide Financial Corp. could intensify next week when the troubled mortgage lender reports 2007 year-end financial results.

After posting a $1.2 billion loss in the third quarter ended Sept. 30 -- its first quarterly loss in 25 years -- Countrywide declared it would post a profit for 2007's final three months and through this year.

Wall Street has its doubts -- most analysts expect Countrywide to post a fourth-quarter loss -- and will be watching closely Tuesday when the Calabasas-based company reports its results.

Investors will be looking for signs that suggest worsening fortunes at the nation's largest mortgage lender -- and a possible about-face by Bank of America.

"Bank of America is going to take a close look at Countrywide's business and see ... whether or not it is able to get value from the purchase," said Sean Egan, managing director of independent ratings firm Egan-Jones Ratings Co.

"With the continued weakness in the market, it's not as clear ... that Bank of America is going to be willing to step up," he said.

A Countrywide spokesman referred questions to Bank of America.

The Charlotte, N.C.-based bank declined comment.

It previously has maintained its intent to acquire Countrywide.

The housing slump has pummeled mortgage lenders, as home price declines have led to record levels of mortgage defaults, causing multibillion-dollar losses at many financial institutions left saddled with mortgage-backed securities that went bad.

During a conference call with analysts this week, Bank of America Chief Executive Ken Lewis reiterated his expectation that the all-stock deal, valued at about $4.1 billion, will close early in the second half of this year.

Still, some investors are engaging in arbitrage -- trading shares in both companies simultaneously based on the spreads in stock prices and speculation the deal will not go through.

That trading has put Countrywide shares on a roller coaster.

On Jan. 11, the day the proposed takeover was disclosed, Countrywide shares closed at $6.33.

The stock then slid to close at $4.92 on Jan. 18 before recovering somewhat this week, closing Friday down 9 cents, or 1.5 percent, to $6.02.

Bank of America shares slipped 42 cents, or about 1 percent, to $39.48 on Friday.

The buyout terms call for Countrywide shareholders to receive 0.1822 of a share of Bank of America stock in exchange for each share of Countrywide.

As of Friday's market close, that translated to $7.19 per share of Countrywide stock, roughly a 7.2 percent discount from Countrywide's closing price of $7.75 on the day before the buyout was announced.

Given the price it agreed to pay for Countrywide, Bank of America doesn't have a large incentive to renegotiate the deal, Frederick Cannon, an analyst at Keefe, Bruyette & Woods, wrote in a research note this week.

He expects the deal to close.

However, if Countrywide losses mount beyond what Bank of America has accounted for, "there is a high likelihood that the deal price will be renegotiated," Paul J. Miller Jr., an analyst at Friedman, Billings, Ramsey & Co Inc., warned earlier this month.

Countrywide posted its $1.2 billion loss as fallout from rising home loan defaults and the ongoing housing downturn hurt its loan originations and forced it to set aside millions of dollars in loan-loss provisions and write-downs.

Management predicted it would turn a profit in the fourth quarter and in 2008 and cited efforts to shift funding of its home-loan originations through its banking arm.

Analysts surveyed by Thomson Financial expect the company to report a fourth-quarter loss of 30 cents per share on revenue of $1.71 billion.

In monthly updates on loan production, Countrywide has reported year-over-year increases in mortgage loan delinquencies and declines in new loan fundings for October, November and December.

Some industry observers have suggested the language in the two companies' buyout agreement would make it relatively easy for Bank of America to walk away from the deal.

"Bank of America was very smart in the way they negotiated and they have two quarters basically for events to unfold so that (it) will be in the catbird seat to pick up a major franchise at a very cheap price," Egan said.

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AP Business Writer Ieva M. Augstums in Charlotte, N.C.. contributed to this story.

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"Consumers at heart of stimulus plan"

By CHRISTOPHER LEONARD, Associated Press

Last updated: 5:42 a.m., Saturday, January 26, 2008

ST. LOUIS -- The success of the federal $150 billion emergency economic stimulus plan will hinge on whether American consumers do what they do best -- spend, spend, spend.

The stimulus has been debated in Washington for more than a week as the economic outlook worsened, and now Americans are armed with specifics:

Individuals will get up to $600, working couples $1,200 and those with children $300 more per child.

President Bush and leaders in Congress hope people will spend those rebates -- a flat-screen television, maybe, or a trip to Disneyland -- to help revive an economy sagging from bad mortgage lending and a lack of confidence in the stock market.

One problem: The spending habits of Americans, many of whom used the rising value of their homes during the real-estate boom like a piggy bank, may be changing as housing prices tumble and credit dries up.

So many consumers, like Jennifer Galligos of St. Louis, may put the money into savings or use it to pay down debt instead.

The 24-year-old accountant is married and has a 5-year-old son, so she and her husband could get up to $1,500 in rebate money.

"I'd probably put something like that in a CD or another investment," Galligos said during her lunch break Friday.

"It's not often that I get a chance to save something."

The National Foundation for Credit Counseling urged consumers Friday to use the money to pay down debt and past-due bills.

But the group also recommended spending the money on home repairs or remodeling that might cut down on future energy bills.

The stimulus package isn't a done deal yet. While approved by Bush and leaders in the House, it goes to the House floor for full approval next week, and later to the Senate.

Democrats there are already promising to try to amend it.

Consumer spending accounts for roughly 70 percent of the U.S. economy, so putting money in the hands of shoppers is an easy way to boost economic output -- at least in the short run.

"I think it will have a positive effect -- I think it's a good package."

"But I don't think it's going to be enough to avoid a recession," said Steve Fazzari, a professor of economics at Washington University in St. Louis.

The rebate isn't likely to create the kind of broad economic resurgence that happened after the recession of 2001, Fazzari said.

Historically low interest rates then created a boom in home refinancing.

That put more money in consumers' pockets and lowered mortgage payments.

But most home owners have already refinanced, and tightening credit markets make another mortgage bonanza unlikely, he said.

"I expect that there'll be some spending out of this rebate."

"But it's true that households are going to be facing a tougher financial position at any time since the early 1980s," Fazzari said.

There's evidence that much of the rebate could find its way into cash registers, even if it's not immediate.

When similar rebates of about $300 per person were paid out in 2001, two-thirds of the cash was spent within six months, according to one paper published by the National Bureau of Economic Research, a private research group that serves as the national arbiter on such matters.

Tom Wirtz, an information technology manager from Pewaukee, Wis., has five kids between the ages of 5 and 16 as well as a 19-year-old.

Describing his current financial situation as "comfortable," he said he plans to save half of his $2,700 check and use the rest for home improvements.

"I support it," Wirtz said of the rebate plan.

"It's a good way to stimulate the economy and return money to the people who earned it."

In Salt Lake City, Munn Powell is used to funding a family of six on a bit of an economic roller coaster.

A self-employed videographer, his income varies yearly and usually drops when times get tough.

"After 9-11, it was a measurable drop," said Munn, 37, who's a father to 3-year-old twins, a 6-year-old boy and an 8-year-old girl.

Under the Bush stimulus plan, the family would qualify for about $2,400.

Munn says he hasn't discussed a possible rebate with his wife of 12 years, Cristy, but said the family has a fairly set financial plan.

"I imagine we'd be somewhat conservative with any little windfall," said Munn, who just finished a spending splurge remodeling his basement.

"Honestly, it's probably going to back into our reserves."

"That's probably not what Bush is hoping for."

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Associated Press writers Dinesh Ramde in Milwaukee and Jennifer Dobner in Salt Lake City contributed to this report.

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"Bond insurer plan key to market calm"

By STEPHEN BERNARD, Associated Press

Last updated: 5:22 a.m., Saturday, January 26, 2008

NEW YORK -- If the struggling bond market is saved by a potential bailout, turbulence in the stock market could ease -- but without a bailout, cities across the country could have difficulty building everything from sewers to schools.

A string of gains in the stock market this week came in part from the Federal Reserve's cut of a key interest rate, but news of a potential bailout of the bond insurance industry also sparked hope that credit markets could return to a more normal environment.

Hope for a bailout has "kept the Titanic from going straight down, and now we have a listing ship that needs to be righted," said Joseph Battipaglia, a market strategist for the private client group at Stifel Nicolaus.

"The insurance iceberg was probably a sinker."

Over the past few months, ratings agencies have downgraded or threatened to downgrade bond insurers' vital financial strength ratings, saying the insurers do not have enough extra cash to cover a potential spike in claims.

Bond insurers pay principal and interest on bonds when the issuer is unable to make payments.

A downgrade from a "AAA" rating would likely end the insurer's ability to book new business.

That in turn reduces the options for municipalities looking for insurance.

"A lot of municipalities have good reason to go to market," said Donald Light, a senior analyst at Celent LLC, but he added it would be more expensive for to issue bonds without insurance.

Most municipalities do not have pristine "AAA" ratings, so they go to bond insurers and pay to use their ratings.

That in turns makes the interest rates on the bonds lower, saving the group money.

Those added costs are likely to lead some municipalities to delay or cancel certain projects, or at least scale them back, Light said.

A collapse of the bond insurance market could lead to a 10 percent to 25 percent decline in new issuance, he added.

A continued plunge in ratings for the bond insurers not only hurts municipalities, but it also puts already struggling banks in a precarious position.

Investment banks -- which are still trying to sort of the mess from the subprime mortgage market -- have already reduced portfolio values by nearly $140 billion during the second half of 2007 because of bad bets on troubled loans.

Now they could face a fresh round of losses tied to the bond insurers.

Investments held by banks and insured by companies like Ambac or Security Capital or insurance contracts banks hold on the bond insurers themselves would all likely lose value if bond insurers ratings continue to fall.

That means more uncertainty surrounding banks' future earnings, which could drag down the stock market further.

But bailing out the bond insurers is very complicated with trillions of dollars in insurance coverage at stake, Battipaglia said, echoing sentiments a deal might take a while to finalize.

On Wednesday, the New York State Insurance Department met with banks about trying to determine a plan to help the beleaguered insurers and essentially save a flailing industry.

The insurance superintendent cautioned that any plan could take some time to develop because of the number of groups working on the project.

Speculation is also growing that billionaire investor Wilbur Ross could be negotiating to acquire Ambac outright, providing another avenue to help the industry.

Since reports of a potential bailout were raised earlier this week, shares of bond insurers rose considerably, reversing a steady march to record lows in recent months.

Shares of Ambac Financial Group Inc. which fell as low as $4.50 in trading on Jan. 17, are now at $11.55.

MBIA Inc. shares, which bottomed out at $6.75, now trade at $13.80.

Even Security Capital Assurance Ltd., which fell as low as $1.50 on Jan. 17, is trading at $3.05.

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"NY expands suit against Countrywide"

Associated Press

Last updated: 6:13 p.m., Friday, January 25, 2008

NEW YORK -- New York authorities are suing 26 banks and two accounting firms that did business with Countrywide Financial Corp., saying the companies failed to ensure the beleaguered mortgage company was being honest with investors.

The banks and accounting firms were added as defendants Friday in a class action lawsuit already pending against Countrywide in California.

Two of the lead plaintiffs, New York State Comptroller Thomas P. DiNapoli and City Comptroller William C. Thompson Jr., oversee several huge government pension funds that invested in Countrywide securites.

The long list of new defendants in the case includes underwriters and accounting firms that participated in the marketing of Countrywide securities.

The suit claims that the company made misstatements about its lending practices, artificially inflating the price of its securities.

"Countrywide's underwriters had a duty to investigate whether Countrywide was acting honestly," DiNapoli said.

"Investors lost millions, and New Yorkers lost their homes."

"We can't sit idly by."

Thompson and DiNapoli said they had also filed new complaints against several Countrywide officers and directors who hadn't been named as defendants in the previous court action.

A spokesman for Countrywide did not immediately respond to a phone message and an e-mail Friday.

California-based Countrywide rose to become the nation's largest mortgage lender but has been struggling amid rising mortgage defaults, particularly subprime loans to borrowers with questionable credit histories.

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"Asian markets drop, tracking Wall Street"

By CASSIE BIGGS, Associated Press

Last updated: 3:43 a.m., Monday, January 28, 2008

HONG KONG -- Global market turmoil continued into a second week as Asian markets tumbled Monday in the wake of Wall Street's sell-off Friday amid persistent worries about a possible U.S. -- and worldwide -- economic slowdown.

China's benchmark index plummeted 7.2 percent to its lowest point in six months on concerns that a recession in the U.S. would mean less demand for Chinese-made products.

Hong Kong's market sank 4.3 percent while India's Sensex dropped 3.5 percent in afternoon trading.

U.S. stock index futures also were down, suggesting that Wall Street was poised to drop again when markets open.

Investors around the world have been jittery for weeks about a U.S. slump, which would likely weaken demand for exports and drag on global growth.

There is also concern about a worldwide credit crunch triggered by rising defaults in risky U.S. mortgages, which has led to mountains of bad assets at major American and European banks.

"There's a lot of uncertainty out there: uncertainty over the U.S. economy, uncertainty over China's economy," said Rob Hart, an analyst with Morgan Stanley in Hong Kong.

China's Shanghai Composite index plunged 342.39 points to 4,419.29 amid worries about weaker demand from American consumers.

Concerns over the potential impact of a prolonged bout of severe winter weather also took a toll.

"Investors, especially institutional investors, are very cautious," said Chen Huiqin, an analyst at Nanjing-based Huatai Securities.

She said investors were waiting for possible "market rescuing" signals from the Chinese government.

"That could have a strong impact on the market," Chen said.

Japan's benchmark Nikkei 225 index fell 3.97 percent to close at 13,087.91, erasing its jump on Friday.

Markets in South Korea and Taiwan also dropped.

Last week was a tumultuous one for global markets, and it appeared that the volatility would continue.

Asian and European stocks had plunged early last week on worries about slower U.S. growth.

They rebounded after a hefty three-quarters cut in U.S. interest rates by the Federal Reserve last Tuesday, as well as news of a U.S. stimulus package.

By Friday, markets in Hong Kong and Tokyo had nearly recovered their early week losses.

But investors in Asia dumped shares again Monday after Wall Street sank Friday, when the Dow Jones industrials slid 1.38 percent and the technology-heavy Nasdaq composite index declined 1.47 percent.

Some traders said Asian markets were dropping on concern that the Fed may not slash interest rates again -- or as much as expected -- when its policy planners meet Tuesday and Wednesday.

"The possibility for a 50 basis points cut is looking less likely," said Castor Pang, a strategist at Sun Hung Kai Financial in Hong Kong, pointing to future prices in New York.

Dow futures were down 141 points, or 1.15 percent, to 12,095, while Nasdaq futures were down 24 points, or 1.34 percent, to 1,769.5.

Japan's economy may already be contracting, said Tetsufumi Yamakawa, chief economist at Goldman Sachs Japan.

He pointed out that five of the 11 components of Japan's business condition diffusion index have already hit highs and begun to deteriorate.

Declines in six of the 11 components often indicates a recession is coming.

"A recession, which was nothing more than a risk scenario six months ago, is now turning into our main scenario," Yamakawa said in a report released Friday.

Japanese traders also were cautious ahead of a slew of corporate quarterly earnings this week, including Honda Motor Co. on Wednesday and Sony Corp. on Thursday.

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Associated Press Writer Cassie Biggs in Hong Kong also contributed to this report.

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"Easing homeowners' pain - Gillibrand joins effort to loosen IRS rules for deducting property taxes"

By JENNIFER A. DLOUHY, Washington bureau, Albany, New York Times Union

First published: Sunday, January 27, 2008

WASHINGTON -- Homeowners fed up with rising property taxes could get a big break under a proposal in Congress that would make it easier for them to deduct real estate taxes on their federal income tax returns.

Current federal tax law allows property taxes to be deducted -- but only by those who itemize their deductions on federal tax returns.

Many taxpayers don't itemize their deductions but instead take the standard deductions when filling out their annual returns.

According to data from the National Association of Realtors, more than 40 percent of homeowners do not itemize.

Legislation being pushed by a bipartisan group of lawmakers, including Reps. Baron Hill, D-Ind.; Mike Pence, R-Ind.; and Kirsten Gillibrand, D-Greenport, would allow homeowners to claim a property tax deduction even if they don't itemize.

The property tax deduction would be on top of any standard deduction they already receive.

Sen. Evan Bayh, D-Ind., has sponsored a similar bill in the Senate.

Gillibrand, one of the lead cosponsors of the House bill, said the legislation responds to a complaint she hears from constituents in her upstate New York district who say that property taxes are out of control.

Gillibrand said property taxes are "the number one issue throughout the district."

Rising tax rates -- coupled with increased assessments of the value of a homeowner's property -- have "priced families out of their homes," she says.

The standard deduction that taxpayers can claim on their annual returns has not kept up with the rising cost of property taxes, she said in an interview.

For tax returns due April 15, a single person or a married person filing separately would get a standard deduction of $5,350.

Married couples filing jointly would qualify for a standard deduction of $10,700.

The issue is a big one for New York homeowners, who had the fourth-highest average property tax in 2006 -- $3,301 -- in the nation.

Property taxes account for roughly 4.7 percent of the average income in the state.

The problem is so acute that Gov. Eliot Spitzer recently convened a panel to come up with ideas for revamping New York's property tax structure.

Property taxes are fundamentally a local issue; the tax rates generally are set by elected city and county officials, and periodic assessments are done locally.

The amount homeowners could stand to gain in slashed federal taxes varies, depending on their household income and the size of their annual property tax bill.

But lawmakers who support the legislation say it could easily amount to hundreds of dollars for homeowners who do not itemize.

Lower-income taxpayers would benefit especially because most of them take the standard income tax deduction.

The percent of taxpayers who itemize increases along with their income.

For instance, according to data from the nonpartisan Congressional Research Service, 36 percent of people with annual incomes of $30,000 to $50,000 itemize their tax returns, compared to 77 percent of those making $75,000 to $100,000 each year.

"The folks who don't itemize will typically be middle-income and lower-income families and the elderly," Gillibrand said.

"So this is really, in my view, a targeted middle-class tax cut -- something that will really put money back in the pockets of the families (in) my district and in the country that really need it."

Like many of the bill's supporters, Gillibrand is a member of the Blue Dog Coalition -- a group of fiscally moderate and conservative Democrats.

The proposal also would help the U.S. economy, Gillibrand said, because it would "get dollars back in the hands of our families."

A more limited version of the legislation passed the House last year as part of a broader package of tax measures.

But the property tax provision was dropped by the Senate.

This year, lawmakers behind the measure say they will push for it to be part of a package of economic proposals Congress could tackle in several months.

That would follow a short-term stimulus bill Congress is expected to move immediately.

On Thursday, congressional leaders and the White House reached agreement on the scope of that short-term stimulus bill that would authorize tax rebates.

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'Disabled spy satellite threatens Earth"

By EILEEN SULLIVAN, Associated Press Writer

27 January 2008

WASHINGTON - A large U.S. spy satellite has lost power and could hit the Earth in late February or early March, government officials said Saturday.

The satellite, which no longer can be controlled, could contain hazardous materials, and it is unknown where on the planet it might come down, they said.

The officials spoke on condition of anonymity because the information is classified as secret.

It was not clear how long ago the satellite lost power, or under what circumstances.

"Appropriate government agencies are monitoring the situation," said Gordon Johndroe, a spokesman for the National Security Council, when asked about the situation after it was disclosed by other officials.

"Numerous satellites over the years have come out of orbit and fallen harmlessly."

"We are looking at potential options to mitigate any possible damage this satellite may cause."

He would not comment on whether it is possible for the satellite to perhaps be shot down by a missile.

He said it would be inappropriate to discuss any specifics at this time.

A senior government official said that lawmakers and other nations are being kept apprised of the situation.

The spacecraft contains hydrazine — which is rocket fuel — according to a government official who was not authorized to speak publicly but spoke on condition of anonymity.

Hydrazine, a colorless liquid with an ammonia-like odor, is a toxic chemical and can cause harm to anyone who contacts it.

Such an uncontrolled re-entry could risk exposure of U.S. secrets, said John Pike, a defense and intelligence expert.

Spy satellites typically are disposed of through a controlled re-entry into the ocean so that no one else can access the spacecraft, he said.

Pike also said it's not likely the threat from the satellite could be eliminated by shooting it down with a missile, because that would create debris that would then re-enter the atmosphere and burn up or hit the ground.

Pike, director of the defense research group GlobalSecurity.org, estimated that the spacecraft weighs about 20,000 pounds and is the size of a small bus.

He said the satellite would create 10 times less debris than the Columbia space shuttle crash in 2003.

Satellites have natural decay periods, and it's possible this one died as long as a year ago and is just now getting ready to re-enter the atmosphere, he said.

Jeffrey Richelson, a senior fellow with the National Security Archive, said the spacecraft likely is a photo reconnaissance satellite.

Such eyes in the sky are used to gather visual information from space about adversarial governments and terror groups, including construction at suspected nuclear sites or militant training camps.

The satellites also can be used to survey damage from hurricanes, fires and other natural disasters.

The largest uncontrolled re-entry by a NASA spacecraft was Skylab, the 78-ton abandoned space station that fell from orbit in 1979.

Its debris dropped harmlessly into the Indian Ocean and across a remote section of western Australia.

In 2000, NASA engineers successfully directed a safe de-orbit of the 17-ton Compton Gamma Ray Observatory, using rockets aboard the satellite to bring it down in a remote part of the Pacific Ocean.

In 2002, officials believe debris from a 7,000-pound science satellite smacked into the Earth's atmosphere and rained down over the Persian Gulf, a few thousand miles from where they first predicted it would plummet.
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Associated Press writers Pamela Hess and Deb Riechmann contributed to this report.

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"NY's 16-mile car tunnel would be longest"

By FRANK ELTMAN, Associated Press

Last updated: 10:42 a.m., Sunday, January 27, 2008

OYSTER BAY, N.Y. -- It would be the world's longest highway tunnel, running more than 16 miles under the west end of Long Island Sound.

The cost is estimated at $10 billion -- and it wouldn't cost taxpayers a dime.

A developer wants to build the tunnel with private money, recouping his costs by charging drivers $25 each way and by selling advertising.

Developer Vincent Polimeni says the tunnel between Oyster Bay and Rye on the New York mainland would let travelers going between Long Island and New England avoid crowded New York City highways and help alleviate traffic congestion.

While not expected to be completed before 2025, the proposal received renewed attention this past week when a state Senate committee held a hearing.

Polimeni acknowledges his idea was initially met with "smirks and skepticism."

But he added: "The more people looked at the plan, the larger circle of intrigued citizens who said 'tell me more.'"

The tunnel also brought back memories of Robert Moses, the powerful New York municipal planner who was rebuffed in his bid to build a bridge over Long Island Sound three decades ago.

Long Island officials savaged Moses for his plan.

"Considering that we're on Long Island, I'm amazed they didn't run me out of the room," Polimeni, a developer of malls and office buildings in the New York area and in Poland, cracked during a recess at the hearing Thursday.

"I think it's a good sign."

Oyster Bay Town Supervisor John Venditto described the project as "intriguing to say the least," but said his initial reaction was "it is unrealistic."

He promised to review the data "so we don't have to make knee-jerk reactions and we can make an informed decision."

Elected officials from the proposed northern terminus were not as congenial.

"We cannot in Westchester (County) absorb the additional traffic that this tunnel would bring to our roads," said Rye Mayor Steven Otis.

"It simply would make our roads nonfunctional."

He said the Westchester Municipal Officials Association voted in December to oppose the project.

Some Long Island residents agree with Otis' stand.

Gino Longinotti of Syosset, just south of Oyster Bay, said he was curious about the project but didn't "see it being feasible."

"We have traffic conditions now where all the roads are congested."

Polimeni contends the estimated 80,000 vehicles a day using the tunnel would simply represent a shift in the roads being used, not an increase.

He also argues the tunnel would ease air pollution because vehicles would be traveling shorter distances.

Polimeni has paid $250,000 out of his own pocket for engineering studies, and Bear, Stearns & Co. Inc. is providing investment banking advice.

Polimeni has also employed the engineering and construction firm Hatch Mott MacDonald, which has been involved in tunnel projects worldwide, including the 30-mile railroad "Chunnel" that connects Great Britain and France.

At 16 to 18 miles long, depending on the final design, the Long Island Sound project would eclipse Norway's 15.2-mile Laerdal Tunnel as the world's longest highway tunnel.

It would consist of two tubes carrying three lanes of traffic each, plus a central tunnel to be used for maintenance access and emergency ventilation and egress.

Where Moses -- the man responsible for many of New York's major spans, including the Verrazano Narrows -- failed in his bid to bridge the sound, Polimeni is not discouraged.

"Moses had the idea, only he was going to go up and over and nobody wanted to see this," he said.

The key to his strategy, is to take the project underground: "I thought, make it stealth."

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[size]"Still more rain in sodden California"[/size]

By JACOB ADELMAN, Associated Press

Last updated: 5:42 p.m., Sunday, January 27, 2008

LOS ANGELES -- Fast-moving thunderstorms brought new waves of rain on Sunday to Southern California, following days of drenching weather and heavy mountain snowfall.

Up to 2 inches of rain had fallen by early afternoon in valley and coastal areas since nightfall Saturday, with about double that in the mountains, the National Weather Service said.

"We're not completely done with this storm yet," forecaster Steve Vanderurg said.

Officials said the rain brought a threat of serious slides on hillsides stripped of vegetation by last year's wildfires.

Mud and minor rock slides prompted authorities to shut a highway through a San Diego-area burned between Ramona and Escondido.

The Los Angeles County and Orange County fire departments were on standby for possible flash floods and slides.

Flash flood watches remained in effect through Sunday night for Los Angeles, Ventura and San Bernardino counties.

In downtown Los Angeles, Sunday's basketball game between the Los Angeles Lakers and Cleveland Cavaliers was delayed 12 minutes after a small leak in the Staples Center roof allowed a steady flow of raindrops to fall on the court.

The Santa Anita race track in Arcadia, meanwhile, canceled horse races for the sixth day this month because of wet conditions on the synthetic track.

The storm system also soaked parts of Northern California and the weather service posted winter storm warnings for parts of the Sierra Nevada.

A highway was closed in the mountains south of San Francisco, and Pacific Gas and Electric said about 2,700 homes and businesses were still blacked out because of earlier storms.

A series of fierce storms has caused deadly avalanches, flooded streets and set off mud and rock slides in recent days.

Some areas have received more moisture in a week than during the entire rainy season last year.

Three skiers were killed Friday by a trio of avalanches that swept through canyons outside the trails of Mountain High ski resort at Wrightwood, northeast of Los Angeles in the San Gabriel Mountains.

A fourth man escaped the avalanches.

Avalanches are unusual in the San Gabriel Mountains, but the peaks had been hit by 3 feet or more of new snow this past week, drawing thousands of skiers and snowboarders.

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AP Sports Writer John Nadel in Los Angeles contributed to this report.

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"French bank says trader hacked computers"

By JENNY BARCHFIELD and JOHN LEICESTER, Associated Press

Last updated: 5:02 p.m., Sunday, January 27, 2008

PARIS -- Societe Generale said Sunday that a trader who evaded all its controls to bet $73.5 billion -- more than the French bank's market worth -- on European markets hacked computers and "combined several fraudulent methods" to cover his tracks, causing billions in losses.

The bank says the trader, Jerome Kerviel, did not appear to have profited personally from the transactions and seemingly worked alone -- a version reiterated Sunday by Jean-Pierre Mustier, chief executive of the bank's corporate and investment banking arm.

But, in a conference call with reporters, Mustier added:

"I cannot guarantee to you 100 percent that there was no complicity."

Kerviel's lawyer said the accusations of wrongdoing against his client were being used to hide bad investments by the bank related to subprime mortgages in the United States.

"He didn't steal anything, take anything, he didn't take any profit for himself," the lawyer, Christian Charriere-Bournazel, told The Associated Press by telephone.

"The suspicion on Kerviel allows the considerable losses that the bank made on subprimes to be hidden."

Officials said Kerviel was cooperating with police, who held him for a second day of questioning Sunday, seeking answers to what, if confirmed, would be the biggest-ever trading fraud by a single person.

The questioning was "going very well and the investigation led by the specialists of the financial police is extremely fruitful," said Jean-Michel Aldebert, head of the financial section of the Paris prosecutor's office.

Kerviel was giving "very interesting" explanations, Aldebert added.

"From what he told me, he was fine psychologically."

He refused to say whether Kerviel might face preliminary charges.

Kerviel, 31, has not been seen in public since the bank's bombshell revelation Thursday that his unauthorized trades resulted in 4.9 billion euros ($7.1 billion) in losses.

Even before his massive alleged fraud came to light, Kerviel had apparently triggered occasional alarms at Societe Generale -- France's second-largest bank -- with his trading, but not to a degree that led managers to investigate further.

"Our controls basically identified from time to time problems with this trader's portfolio," Mustier said.

But Kerviel explained away the red flags as trading mistakes, Mustier added.

"The trade was canceled, there was no specific follow-up to do," he said.

"From our understanding today, the number of mistakes was not higher than (for) any other trader, so from our understanding that was not a reason to ring a bell."

Kerviel's lawyer said the trader made money for the bank through 2007 and has since been "thrown to the wolves of public opinion."

"He made profits for the bank until Dec. 31."

"From Jan. 1, he took risky positions like all traders," said Charriere-Bournazel, who is also president of the Paris bar association.

In a five-page statement Sunday, the bank said Kerviel used its money to build massive positions in futures contracts tied to the performance of baskets of stocks traded on exchanges in London, Paris, Frankfurt and other European markets.

Since those bets greatly exceeded the amount of capital he was allowed to put at risk, Kerviel entered fictitious and offsetting trades in Societe Generale's computer system that appeared to minimize the odds of big losses, the bank said.

The trades were purposely chosen to avoid detection because they did not require cash contributions and were not subject to margin calls, which would require putting up more money if the fictitious bet soured, it said.

The bank said he plowed 30 billion euros ($44.1 billion) into the Eurostoxx index, another 18 billion euros ($26.5 billion) on the DAX in Germany and 2 billion euros ($2.9 billion) on the FTSE in London.

The combined value of those positions, 50 billion euros ($73.5 billion), is far more than the bank's market capitalization of 35.9 billion euros ($52.6 billion), and close to the annual GDP of countries such as Slovakia, Qatar or Libya.

Societe Generale took three days last week to sell or offset with hedges his contracts, which amounted to bets on whether market indexes would rise or fall.

But the bank sought Sunday to counter suggestions that its sell-off had caused already falling markets to plummet further than they otherwise might have done.

The bank said it unwound Kerviel's positions in "a controlled fashion."

"Our impact on the market was quite minimal," Mustier said.

Societe Generale said Kerviel misappropriated other people's computer access codes, falsified documents and employed other methods to cover his tracks -- helped by his previous years of experience when he worked in other offices at the bank that monitor traders.

Acquaintances described Kerviel as reserved and considerate, a young man who once taught children judo and held the door for elderly neighbors.

Kerviel's downfall started in the days before Friday, Jan. 18, when Societe Generale tightened lending restrictions on one of its customers, an unnamed large bank.

He had apparently used that bank's name for one or more of his fictitious trades, and it led to what Societe Generale described as having "additional controls" put in place.

Kerviel's superiors in Societe Generale's equity trading division reviewed an e-mail that day from the large bank supposedly confirming trades he had booked.

But they were suspicious about where the e-mail came from and launched an emergency investigation.

A day later, Kerviel was called to Societe Generale to explain.

In the meantime, bank investigators confirmed that the large bank did not know about the trades.

After first not providing a clear explanation, Kerviel eventually confirmed that he had entered fictitious trades, the bank said.

It then took a bank team throughout the night and into Sunday, Jan. 20, to identify all the exposure.

Societe Generale's chief executive, Daniel Bouton, notified the governor of the Bank of France that day, and a decision was made to unwind the trades as quickly and as quietly as possible.

A complicating factor was that the bank was finishing work that Sunday on details of a separate announcement about the size of the multi-billion-dollar charge it would take for bad bets on mortgage-related investments in the U.S.

News of that misstep was delayed until Thursday, when along with the fraud losses, the bank said it would take a 2.05 billion euro ($2.99 billion) write-down.

Societe Generale traders began unwinding Kerviel's losing bets at the beginning of European trading on Monday, just as Asian markets were in a free-fall and European shares were poised to plummet after a big drop in U.S. markets on the previous Friday.

It took until Wednesday to finally close the books on Kerviel's adventures, the bank said.

Kerviel's lawyer cast suspicion on the way Societe Generale unwound the position, saying it did so in "totally unusual conditions."

"This decision was driven by other motives," he claimed, without elaborating.

Some experts have suggested Societe Generale may have exacerbated the fall and indirectly led to the U.S. Federal Reserve's subsequent decision to cut rates.

But in its explanatory note released on Sunday, the bank defended itself by saying the trades represented no more than 8.1 percent of the volume in futures trading each day on the Eurostoxx, DAX and FTSE.

Mustier said Kerviel's motivations were still unclear.

"We don't know, we don't understand" what drove him to do it, he said.

"This event is a massive shock for us," he said.

The bank said Kerviel built up two portfolios of investments -- but that one of them consisted of "fictional operations," leaving the bank hugely exposed.

"In order to ensure that these fictitious operations were not immediately identified, the trader used his years of experience in processing and controlling market operations to successively circumvent all the controls which allow the bank to check the characteristics of the operations carried out by its traders," the bank's statement said.

"He had a very good understanding of all of Societe Generale's processing and control procedures."

It was the bank's most detailed explanation yet of the debacle that has further rattled the banking industry, already reeling from the subprime mortgage crisis in the U.S.

Some observers have said the crisis could also leave the bank vulnerable to a takeover.

An aide to French President Nicolas Sarkozy suggested the state could step in to prevent any possible hostile bids.

"I think the state will not stand idly by if any predator attempts to take advantage of the situation," Henri Guaino told RTL radio on Sunday.

The situation has prompted calls for tighter regulation -- 13 years after trader Nick Leeson, whose illegal speculation bankrupted British bank Barings, first highlighted the potential risks from rogue traders operating without proper oversight.

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Associated Press Writer Pierre-Antoine Souchard in Paris and AP Business Writer Chuck Hawkins in New York contributed to this report.