Cheney urging strikes on Iran

Warren P. Strobel, John Walcott and Nancy A. Youssef
McClatchy Newspapers
Friday Aug 10, 2007

President Bush charged Thursday that Iran continues to arm and train insurgents who are killing U.S. soldiers in Iraq, and he threatened action if that continues.

At a news conference Thursday, Bush said Iran had been warned of unspecified consequences if it continued its alleged support for anti-American forces in Iraq. U.S. Ambassador to Iraq Ryan Crocker had conveyed the warning in meetings with his Iranian counterpart in Baghdad, the president said.

Bush wasn't specific, and a State Department official refused to elaborate on the warning.

Behind the scenes, however, the president's top aides have been engaged in an intensive internal debate over how to respond to Iran's support for Shiite Muslim groups in Iraq and its nuclear program. Vice President Dick Cheney several weeks ago proposed launching airstrikes at suspected training camps in Iraq run by the Quds force, a special unit of the Iranian Revolutionary Guard Corps, according to two U.S. officials who are involved in Iran policy.

The debate has been accompanied by a growing drumbeat of allegations about Iranian meddling in Iraq from U.S. military officers, administration officials and administration allies outside government and in the news media. It isn't clear whether the media campaign is intended to build support for limited military action against Iran, to pressure the Iranians to curb their support for Shiite groups in Iraq or both.

Nor is it clear from the evidence the administration has presented whether Iran, which has long-standing ties to several Iraqi Shiite groups, including the Mahdi Army of radical cleric Muqtada al Sadr and the Badr Organization, which is allied with the U.S.-backed government of Prime Minister Nouri al Maliki, is a major cause of the anti-American and sectarian violence in Iraq or merely one of many. At other times, administration officials have blamed the Sunni Muslim group al Qaida in Iraq for much of the violence.

For now, however, the president appears to have settled on a policy of stepped-up military operations in Iraq aimed at the suspected Iranian networks there, combined with direct American-Iranian talks in Baghdad to try to persuade Tehran to halt its alleged meddling.

The U.S. military launched one such raid Wednesday in Baghdad's predominantly Shiite Sadr City district.

But so far that course has failed to halt what American military officials say is a flow of sophisticated roadside bombs, known as explosively formed penetrators, into Iraq. Last month they accounted for a third of the combat deaths among U.S.-led forces, according to the military.

Cheney, who's long been skeptical of diplomacy with Iran, argued for military action if hard new evidence emerges of Iran's complicity in supporting anti-American forces in Iraq; for example, catching a truckload of fighters or weapons crossing into Iraq from Iran, one official said.

The two officials spoke on condition of anonymity because they weren't authorized to talk publicly about internal government deliberations.

Secretary of State Condoleezza Rice opposes this idea, the officials said. Defense Secretary Robert Gates has stated publicly that "we think we can handle this inside the borders of Iraq."

Lea Anne McBride, a Cheney spokeswoman, said only that "the vice president is right where the president is" on Iran policy.

Bush left no doubt at his news conference that he intended to get tough with Iran.

"One of the main reasons that I asked Ambassador Crocker to meet with Iranians inside Iraq was to send the message that there will be consequences for . . . people transporting, delivering EFPs, highly sophisticated IEDs (improvised explosive devices), that kill Americans in Iraq," he said.

He also appeared to call on the Iranian people to change their government.

"My message to the Iranian people is, you can do better than this current government," he said. "You don't have to be isolated. You don't have to be in a position where you can't realize your full economic potential."

The Bush administration has launched what appears to be a coordinated campaign to pin more of Iraq's security troubles on Iran.

Last week, Lt. Gen. Raymond Odierno, the No. 2 U.S. military commander in Iraq, said Shiite militiamen had launched 73 percent of the attacks that had killed or wounded American troops in July. U.S. officials think that majority Shiite Iran is providing militiamen with EFPs, which pierce armored vehicles and explode once inside.

Last month, Brig. Gen. Kevin Bergner, a multinational force spokesman, said members of the Quds force had helped plan a January attack in the holy Shiite city of Karbala, which lead to the deaths of five American soldiers. Bergner said the military had evidence that some of the attackers had trained at Quds camps near Tehran.

Bush's efforts to pressure Iran are complicated by the fact that the leaders of U.S.-supported governments in Iraq and Afghanistan have a more nuanced view of their neighbor.

Maliki is on a three-day visit to Tehran, during which he was photographed Wednesday hand in hand with Iranian President Mahmoud Ahmadinejad. Unconfirmed media reports said Maliki had told Iranian officials they'd played a constructive role in the region.

Asked about that, Bush said he hadn't been briefed on the meeting. "Now if the signal is that Iran is constructive, I will have to have a heart-to-heart with my friend the prime minister, because I don't believe they are constructive. I don't think he in his heart of hearts thinks they're constructive either," he said.

Bush and Afghan President Hamid Karzai differed on Iran's role when they met last weekend, with Karzai saying in a TV interview that Iran was "a helper" and Bush challenging that view.

The toughening U.S. position on Iran puts Karzai and Iraqi leaders such as Maliki in a difficult spot between Iran, their longtime ally, and the United States, which is spending lives and treasure to secure their newly formed government.

A senior Iraqi official in Baghdad said the Iraqi government received regular intelligence briefings from the United States about suspected Iranian activities. He refused to discuss details, but said the American position worried him.

The United States is "becoming more focused on Iranian influence inside Iraq," said the official, who requested anonymity to discuss private talks with the Americans. "And we don't want Iraq to become a zone of conflict between Iran and the U.S."

Proposals to use force against Iran over its actions in Iraq mark a new phase in the Bush administration's long internal war over Iran policy.

Until now, some hawks within the administration — including Cheney — are said to have favored military strikes to stop Iran from furthering its suspected ambitions for nuclear weapons.

Rice has championed a diplomatic strategy, but that, too, has failed to deter Iran so far.

Patrick Clawson, an Iran specialist at the Washington Institute for Near East Policy, said a strike on the Quds camps in Iran could make the nuclear diplomacy more difficult.

Before launching such a strike, "We better be prepared to go public with very detailed and very convincing intelligence," Clawson said.

Stocks Rebound After Fed Adds Liquidity

Stocks Pare Losses After Fed Adds Liquidity, Indexes at Times Move Into Positive Territory

NEW YORK (AP) -- Wall Street pared its losses Friday after the Federal Reserve said it would do all it can to "facilitate the orderly functioning of financial markets" and twice injected liquidity into the banking system.

The stock market, which has been gyrating for weeks over fears that credit is drying up, began to pare its losses several hours after the Fed's latest injection of cash into the system Friday. The day's declines, however, showed the depths of fear that have investors yanking money out of stocks.

The Fed added $16 billion in liquidity to the market at midmorning Friday, supplementing the $19 billion added earlier in the day.

Federal Reserve policy makers "are trying to do everything they can short of cutting the federal funds rate" to try to calm the markets, said Ed Yardeni, president of Yardeni Research in Great Neck, N.Y.

But, he said, "I think they probably have to cut rates, and probably before their scheduled September meeting."

He noted that it was Fed rate cuts that calmed the market after the 1998 Russian debt crisis and the implosion of the hedge fund Long-Term Capital Management.

In midday trading, the Dow Jones industrials fell 37.48, or 0.28 percent, to 13,233.20, after being down as much as 212 points and briefly moving into positive territory. On Thursday, the Dow fell 387 points and extended a series of triple-digit moves that began in late July.

Friday's moves were typical of the zigzag trading and triple-digit moves in the Dow since the index closed at a record 14,000.41 on July 19. As of Thursday's close, the Dow was down about 730 points, or 5.2 percent, from its record close.

Broader stock indicators also pared their losses from earlier in the session. The Standard & Poor's 500 index slipped 0.22, or 0.02 percent, to 1,452.87, and the Nasdaq composite index fell 8.74, or 0.34 percent, to 2,547.75.

On Friday, the New York Fed, which carries out the central bank's market operation, announced a three-day repurchase agreement and then a second "repo" to inject liquidity into the market. The Fed said Friday it would accept $19 billion and then $16 billion in mortgage backed securities. The move came after the fed funds rate, the rate banks charge each other for overnight loans, ticked above 6 percent again Friday -- well above the Fed's target of 5.25 percent and a sign that credit was becoming harder to obtain.

The Fed stepped in after the same occurrence Thursday, injecting a larger-than-normal $24 billion in temporary reserves to the U.S. banking system. In a repo, the Fed arranges to buy securities from dealers, who then deposit the money the Fed has paid them into commercial banks.

"It's encouraging because it's a proactive step and they're not just focused on the inflation numbers and not ignoring turmoil in the credit market," said John Miller, head of the fixed income funds at Nuveen Asset Management.

The Fed's moves Thursday and Friday follow its August meeting Tuesday at which it left short-term interest rates unchanged at 5.25 percent, as it has done for more than a year. In its statement following the meeting, the bank said its primary concern remains inflation.

But the tumultuousness of the final two sessions of the week, which followed a sharp run-up in the week's first three sessions, has some market observers wondering whether the Fed will step in and douse some of the credit fears that have gripped the markets. So while some are now calling for a rate cut at the Fed's September meeting or even sooner, others contend investors will in any case first need to gather some confidence that the subprime woes and the credit market tightening aren't lethal for the economy and the markets.

"The confidence will be restored over time if the economy and the financial markets are resilient enough to overcome these kinds of announcements and view them in isolation," Miller said. "I think it's premature to forecast a recession, particularly if the Fed is responsive. There is no reason why we couldn't work our way out of this fairly quickly."

However, he thinks subprime unease is likely to continue, particularly this fall as a big batch of subprime mortgages written in 2005 and 2006 begin to reset their rates.

"I think other shoes will drop simply because of the size of the lending that went on in the subprime sector, the upcoming resets and the tightening of credit standards."

But regardless of how quickly it might be restored, investor confidence worldwide has been shaken. In Asia, stocks fell Friday after regulators including the Bank of Japan added liquidity. The European Central Bank for the second day added cash to its money markets.

These banks and others around the world haven't worked together to inject liquidity into the markets since the aftermath of the Sept. 11, 2001, attacks. But the measures, intended to keep financial markets well-oiled, also seemed to confirm investor fears of a larger problem in the credit markets that will stall corporate growth -- including the burst of takeover activity that powered stocks higher this year.

Overseas, Japan's Nikkei stock average fell 2.4 percent. Hong Kong's Hang Seng Index fell 2.9 percent. Britain's FTSE 100 fell 3.71 percent, Germany's DAX index fell 1.48 percent, and France's CAC-40 fell 3.13 percent.

Bonds rose again Friday as investors again sought the relative safety of Treasurys. The yield on the benchmark 10-year Treasury note fell to 4.77 percent from 4.79 percent late Thursday. The dollar was mixed against other major currencies, while gold prices rose.

The concerns about credit and the effect of subprime loans, those made to borrowers with weak credit, were undiminished Friday, perhaps in part because of comments from Countrywide Financial Corp.

The nation's biggest mortgage lender fell $1.64, or 5.7 percent, to $27.02 after saying in a regulatory filing Thursday that disruptions in credit and secondary mortgage markets pose a risk to the company and could hurt its financial standing in the short-term. Earlier in the week, Countrywide said it still has access to capital despite the credit crunch.

Credit concerns unnerved investors not only for the deals that such difficulties could prevent but also for deals in the works that could be derailed.

ABN Amro Holding NV had been down sharply early and was recently off 58 cents at $46.54 amid worries that one or both of two competing bids for the company might fall apart. ABN fell as investors appeared to re-evaluate risk that a bid from Fortis NV, part of a consortium led by Royal Bank of Scotland PLC, could lose out to a bid from Barclays PLC, or that both could fail. However, Fortis' chief executive said he was "very confident" about financing the ABN deal, according to Dow Jones Newswires.

In economic news, the Commerce Department said U.S. import prices rose for a fifth consecutive month in July, increasing 1.5 percent. Prices rose in part amid increased energy costs. The figures could stir concern among the Fed about inflationary prices.

Light, sweet crude fell 85 cents to $70.74 per barrel on the New York Mercantile Exchange.

Declining issues outnumbered advancers by about 5 to 3 on the New York Stock Exchange, where volume came to 1.33 billion shares.

The Russell 2000 index of smaller companies turned positive, rising 6.99, or 0.89 percent, to 791.86.

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

Fed Adds $35 Bln in Funds, Most Since September 2001 (Update6)

Aug. 10 (Bloomberg) -- The Federal Reserve added $35 billion in temporary funds to the banking system through the purchase of securities including mortgage-backed debt to meet demand for cash amid a rout in bonds backed by home loans to riskier borrowers.

The Fed's additions totaled the most since September 2001. They came in two weekend repurchase agreements, of $19 billion and $16 billion, for which the Fed accepted securities including mortgage-backed debt, so-called agency debt and Treasuries as collateral. Losses in U.S. subprime mortgages have been rippling through credit markets, driving interest rates higher and sinking stocks. The Fed added $24 billion yesterday.

The New York Fed's actions lowered the Federal funds rate to 5.25 percent, matching the bank's benchmark overnight rate, according to ICAP Plc. The rate began trading today at 6 percent, the highest open since January 2001. Treasuries fell after the additions, stocks rebounded and the dollar rose against the yen.

``They've been very aggressive and they want to make sure there's sufficient liquidity in the financial market,'' said Ward McCarthy, principal at Stone & McCarthy Research in Skillman, New Jersey. ``It looks like they succeeded.''

2001 Record

The Fed's benchmark was 6 percent the last time fed funds opened at today's level. On average, the Fed has added about $9 billion in temporary funds daily this year through yesterday.

In the week after the Sept. 11, 2001, terror attacks, the Fed added a daily average of $75.3 billion in reserves through repos. The record was $81.25 billion on Sept. 14, 2001.

Stocks dropped worldwide earlier on speculation losses in mortgage debt will hurt economic growth and earnings. European benchmark indexes fell 1 percent or more.

The European Central Bank today loaned 61.05 billion euros ($83.6 billion), pumping funds into the banking system for a second day. The ECB added an unprecedented 94.8 billion euros yesterday.

Some banks may experience ``unusual funding needs,'' the Fed said in a statement from Washington. The Fed's discount window is open and the central bank pledges to provide liquidity, the Fed said.

As of yesterday, interest-rate futures for August showed investors saw more than a 50 percent chance the Fed will cut the key rate a quarter-point on any day from Aug. 16, Merrill Lynch & Co. said in a report yesterday. An August rate cut is a ``genuine possibility,'' JPMorgan Chase & Co. said in a report today.

``Because of today's operations, the probability of an August cut has gone down,'' said Dominic Konstam, head of interest-rate strategy in New York at Credit Suisse Group. ``The Fed is going out of its way not to cut rates to resolve the liquidity issue.''

`Special Demand'

Countrywide Financial Corp., the biggest U.S. mortgage lender, said it faces ``unprecedented disruptions'' that may reduce profit, suggesting a credit crunch that started with the U.S. subprime market will spread. BNP Paribas SA, France's biggest bank, helped spark financial market turmoil yesterday by halting withdrawals from three investment funds because it couldn't value their holdings.

The New York Fed accepted $19 billion of securities in today's first repurchase agreement, of $31.2 billion submitted. In the second, it took $16 billion of $40.95 billion submitted.

The central bank probably received only mortgage-backed debt in today's operations, said Louis Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. The central bank likely wanted to avoid taking Treasury debt at a time when government securities are in demand as a safe haven, he said.

``The Street has special demand for the highest-quality Treasury collateral right now, so the Fed chose to leave Treasury collateral,'' Crandall said. ``It should not be taken as a sign that basic Fannie Mae and Freddie Mac mortgage pools are difficult to finance.''

Overnight Rates

The Fed typically only accepts so-called agency mortgage- backed securities, such as those guaranteed by government- chartered Fannie Mae or Freddie Mac, rather than non-agency home- loan bonds from other financial institutions. Issuance and trading of non-agency bonds, including securities backed by subprime mortgages, has ground to a near-halt the past month.

Overnight euro rates again rose to as high as 4.27 percent today, compared with the ECB's benchmark rate of 4 percent.

Fed funds, the U.S. overnight interbank lending rate, closed at 4 15/16 percent yesterday, after trading between 4 3/4 percent and 5 3/4 percent, and averaging 5.38 percent, according to ICAP Plc, the world's largest inter-dealer broker.

In repos, the Fed buys U.S. Treasury, mortgage-backed and so-called agency debt from its 21 primary dealers for a set period, temporarily raising the amount of money available in the banking system. At maturity, the securities are returned to the dealers, and the cash to the Fed.

Repos help maintain enough money in the system to keep overnight interest rates close to the central bank's target. They don't signal a policy shift.

How Bush Gained the Power to Spy on You without Security Justifications

Aziz Huq
TheNation.com
Friday Aug 10, 2007

The Bush Administration has successfully forced on Congress a law that largely authorizes open-ended surveillance of Americans' overseas phone calls and e-mails. How did they do it?

After enduring weeks of blistering criticism for Attorney General Alberto Gonzales's inartful elisions about the National Security Agency (NSA) spying activities, the Bush Administration has successfully forced on Congress a law that largely authorizes open-ended surveillance of Americans' overseas phone calls and e-mails. How did they do it?

The Protect America Act of 2007 -- the title alone ought to be warning that unsavory motives are at work -- is the most recent example of the national security waltz, a three-step Administration maneuver for taking defeat and turning it into victory.

The waltz starts with a defeat in the courts for Administration actions -- for example, the Supreme Court's extension of the rule of law to the US military prison at Guantánamo in the 2004 case of Rasul v. Bush, or its striking down of the military commissions in 2006 in Hamdan v. Rumsfeld. The second step does not follow immediately. Rather, some months later, the Administration suddenly announces that the ruling has created a security crisis and cries out for urgent remedial legislation. Then (and here's the coup de grâce) the Administration rams legislation through Congress -- the Detainee Treatment Act of 2005, or the Military Commissions Act of 2006 -- that not only undoes the good court decision but also inflicts substantial damage to the infrastructure of accountability.

This time, the sordid dance began with a bad ruling for the government, a ruling that demands some context to be understood.

In January the Administration suddenly announced that it was submitting the secretive NSA "terrorist surveillance program" to the Foreign Intelligence Surveillance Court, or FISC, a closed judicial process established by the 1978 FISA law to handle search warrants for foreign intelligence purposes. The move came as federal appellate courts in Ohio and California seemed on the cusp of ruling the NSA's domestic surveillance efforts illegal as violations of FISA and possibly the Fourth Amendment. It seemed a way to forestall defeat in those cases.

But in early summer, a FISC judge declined to approve part of the NSA's activities. While the ruling remains classified, it apparently focused on communication that originated overseas but passed through telecom switches in the United States.

Modern telecommunications work by breaking communications into packets of data and routing them through a network of connected computers. Messages do not travel in a linear fashion: A message from Murmansk to Mali might be routed through California. Many of the largest switches routing international data are located in the United States. As USA Today reported in May 2006, the NSA is already tapping those switches. And since January, the government appears to have obtained "basket warrants," allowing it to trawl this data freely, without any judicial or Congressional oversight.

It seems likely that the judge objected because the NSA was collecting calls that originated overseas but ended in the United States. The NSA can generally get a warrant for such communications -- unless there is no evidence that the person under scrutiny is a terrorist. A broad-brush NSA surveillance program, especially one that generates its leads through data-mining, the science of extracting information from large databases, might have exactly this problem.

The second step in the waltz came several months later, with Administration allies such as House minority leader John Boehner invoking the FISC ruling on Fox News as justification for a new law. As usual, the Administration and its allies had no compunction about using classified information -- such as the ruling -- when it helped them politically. And as usual, the Administration artfully concealed the full details of the ruling even while insisting on it as a spur to immediate action. By waiting for the last week of the Congressional session, the Administration in effect cut off the possibility of meaningful debate.

The third step of the waltz has a grim familiarity about it: enactment of a law that is in no way limited to addressing the narrow "problem" created by the FISC ruling. Rather, the Protect America Act is a dramatic, across-the-board expansion of government authority to collect information without judicial oversight. Even though Democrats negotiated a deal with Director of National Intelligence Mike McConnell that addressed solely the foreign-to-foreign "problem" created by the FISC ruling, the White House torpedoed that deal and won a far broader law.

To those who have followed this Administration's legal strategy closely, the outcome should be no surprise. The law's most important effect is arguably not its expansion of raw surveillance power but the sloughing away of judicial or Congressional oversight. In the words of former CIA officer Philip Giraldi, the law provides "unlimited access to currently protected personal information that is already accessible through an oversight procedure."

Like the Constitution's Framers, this Administration understands that power is accrued through the evisceration of checks and balances. Unlike that of the Framers, its mission is the transformation of limited government into a government that is not accountable to anyone.

On Monday, the Administration defended the Protect America Act as a "narrow" fix and rejected accusations that it authorized a "driftnet." To see how disingenuous these claims are requires some attention to the details of the legislation.

The key term in the Protect America Act is its licensing of "surveillance directed at a person reasonably believed to be located outside of the United States." This language has a superficial reasonableness, since domestic surveillance has long been understood to raise the most troubling abuse concerns.

But the trouble with this language is that it permits freewheeling surveillance of Americans' international calls and e-mails. The problem lies in the words "directed at." Under this language, the NSA could decide to "direct" its surveillance at Peshawar, Pakistan -- and seize all US calls going to and from there. It could focus on Amman, or Cairo, or London, or Paris, or Toronto... Simply put, the law is an open-ended invitation to collect Americans' international calls and e-mails.

Further, the law does not limit the collection of international calls to security purposes: Rather, it seems the government can seize any international call or e-mail for any reason -- even if it's unrelated to security. Indeed, another provision of the law confirms that national security can be merely one of several purposes of an intelligence collection program. This point alone should sink the Administration's claim to be doing no more than technical fiddling. While the FISA law limited warrantless surveillance absolutely, this law licenses it, not only for national security purposes but also for whatever purpose the government sees fit.

Of further concern is the "reasonably believe" caveat. This means that so long as the NSA "reasonably" believes its antennas are trained overseas, wholly domestic calls can sometimes be collected. And since the NSA uses a filter to separate international calls from wholly domestic calls, it need only "reasonably believe" that it's getting this right. It's this new latitude for error that is troubling, especially because this isn't an Administration known for its care when the rights and lives of others are at stake. It remains deeply unclear how much domestic surveillance this allows.

The problems created by this loosening of standards are compounded by the risibly weak oversight procedures contained in the law. Rather than issuing individualized warrants, now the Director of National Intelligence and the Attorney General can certify yearlong programs for collecting international calls. The program as a whole is placed before the FISA court, which can only invalidate those procedures and claims that are "clearly erroneous." The government thus has to meet an extraordinarily low standard, in a one-sided judicial procedure in which the court has no access to details of the program's actual operation.

Congressional oversight is even more laughable. Attorney General Gonzales, that paragon of probity and full disclosure, is required to report not on the program's overall operations but solely on "incidents of noncompliance." Of course, given how weak the constraints imposed by the law are, self-reported noncompliance is likely to be minimal.

Finally, some advocates and legislators have taken comfort in the law's six-month sunset provision. But this means that the act will be up for authorization in the middle of the presidential campaign, an environment in which the pressures to accede to Administration demands will be even higher than usual. And the law doesn't really sunset after six months: The provision is artfully drafted to allow the NSA to continue wielding its new surveillance powers for up to a year afterward.

The Protect America Act, in short, does not live up to its name: It does not enhance security-related surveillance powers. Rather, it allows the government to spy when there is no security justification. And it abandons all but the pretense of oversight. The result, as with so many of this Administration's ill-advised policies, is power without responsibility -- and it is by now all too clear how wisely and carefully this Administration wields power in the absence of accountability.

One coda to this story is worth adding. The Justice Department is unlikely to take action against Representative Boehner for his partisan invocation of classified information on network news. Newsweek reported this week that former Justice Department lawyer Thomas Tamm is being investigated apparently in connection to leaks of information about the NSA's domestic surveillance. So goes Gonzales Justice: Politicized manipulation of classified information gets the green light, while hardworking career officials become targets for speaking out when they see the law being violated.