Your request is being processed... North Korea Vows 'Nuclear' Response To U.S. Military Exercises

ABOARD USS GEORGE WASHINGTON — A massive nuclear-powered U.S. supercarrier began maneuvers Sunday with ally South Korea in a potent show of force, four months after the sinking of a South Korean warship. North Korea threatened the exercises could lead to nuclear war.

The military drills, set to run through Wednesday, involve about 8,000 U.S. and South Korean troops, 20 ships and submarines and 200 aircraft. The USS George Washington, with several thousand sailors and dozens of fighter jets aboard, was deployed from Japan.

The exercises will be the first in a series of U.S.-South Korean maneuvers conducted in the East Sea off South Korea's east coast, and in the Yellow Sea closer to China's shores in international waters. The exercises also are the first to employ the F-22 stealth fighter – which can evade North Korean air defenses – in South Korea.

The American and South Korean defense chiefs announced last Tuesday in Seoul they would stage the military drills to send a clear message to North Korea to stop its "aggressive" behavior.

Washington and Seoul blame Pyongyang for the sinking of the 1,200-ton Cheonan warship in late March near the Koreas' maritime border. A five-nation team of investigators concluded a North Korean torpedo sank the Cheonan, considered the worst military attack on the South since the 1950-53 Korean War.

North Korea, which denies any involvement in the sinking, has warned the United States against attempting to punish it. The regime called the drills an "unpardonable military provocation."

"The army and people of the DPRK will legitimately counter with their powerful nuclear deterrence the largest-ever nuclear war exercises to be staged by the U.S. and the South Korean puppet forces," the National Defense Commission said in a statement Saturday. North Korea's official name is the Democratic People's Republic of Korea.

The North's military "will start a retaliatory sacred war of their own style based on nuclear deterrent any time necessary in order to counter the U.S.," said the statement carried by the nation's official news agency.

Its rhetoric regarding using nuclear deterrence was seen by most as bluster, but its angry response to the maneuvers underscores the rising tensions in the region.

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ABOARD USS GEORGE WASHINGTON — A massive nuclear-powered U.S. supercarrier began maneuvers Sunday with ally South Korea in a potent show of force, four months after the sinking of a South Korean warship. North Korea threatened the exercises could lead to nuclear war.

The military drills, set to run through Wednesday, involve about 8,000 U.S. and South Korean troops, 20 ships and submarines and 200 aircraft. The USS George Washington, with several thousand sailors and dozens of fighter jets aboard, was deployed from Japan.

The exercises will be the first in a series of U.S.-South Korean maneuvers conducted in the East Sea off South Korea's east coast, and in the Yellow Sea closer to China's shores in international waters. The exercises also are the first to employ the F-22 stealth fighter – which can evade North Korean air defenses – in South Korea.

The American and South Korean defense chiefs announced last Tuesday in Seoul they would stage the military drills to send a clear message to North Korea to stop its "aggressive" behavior.

Washington and Seoul blame Pyongyang for the sinking of the 1,200-ton Cheonan warship in late March near the Koreas' maritime border. A five-nation team of investigators concluded a North Korean torpedo sank the Cheonan, considered the worst military attack on the South since the 1950-53 Korean War.

North Korea, which denies any involvement in the sinking, has warned the United States against attempting to punish it. The regime called the drills an "unpardonable military provocation."

"The army and people of the DPRK will legitimately counter with their powerful nuclear deterrence the largest-ever nuclear war exercises to be staged by the U.S. and the South Korean puppet forces," the National Defense Commission said in a statement Saturday. North Korea's official name is the Democratic People's Republic of Korea.

The North's military "will start a retaliatory sacred war of their own style based on nuclear deterrent any time necessary in order to counter the U.S.," said the statement carried by the nation's official news agency.

Its rhetoric regarding using nuclear deterrence was seen by most as bluster, but its angry response to the maneuvers underscores the rising tensions in the region.

Story continues below

The North routinely threatens attacks whenever South Korea and the U.S. hold joint military drills, which Pyongyang sees as a rehearsal for an invasion. The U.S. keeps 28,500 troops in South Korea and another 50,000 in Japan, but says it has no intention of invading the North.

South Korea was closely monitoring North Korea's military but spotted no unusual activity Sunday, the Defense Ministry said.

Though the impoverished North has a large conventional military and the capability to build nuclear weapons, it is not believed to have the technology needed to use nuclear devices as warheads.

U.S. Secretary of State Hillary Rodham Clinton announced Wednesday, after visiting the Demilitarized Zone dividing the two Koreas, the U.S. would slap new sanctions on the North to stifle its nuclear ambitions and punish it for the Cheonan sinking.

On Friday, the European Union said it, too, would consider new sanctions on North Korea.

In an apparent bow to China, the George Washington will participate in the exercise in the East Sea, but there are no plans for it to enter the Yellow Sea for subsequent exercises.

China, a traditional North Korean ally, has voiced concerns that military drills in the Yellow Sea could inflame tensions on the Korean peninsula and also fears exercises too close to its own shores could breach Chinese security.

The Nimitz-class George Washington had been expected to join in exercises – code-named "Invincible Spirit" – off South Korea sooner, but the Navy delayed those plans as the United Nations Security Council met to deliberate what action it should take over the Cheonan sinking.

The council eventually condemned the incident, but stopped short of naming North Korea as the perpetrator.

___

Associated Press writers Kwang-tae Kim and Hyung-jin Kim in Seoul contributed to this report.

US bank failures reach 108 for 2010

Seven more local and regional banks have closed their doors in the United States, bringing the total number of US bank failures to 103 this year, federal bank regulators announced.

The numbers released by the Federal Deposit Insurance Corporation indicate that the failure rate in 2010 was quicker that the year before.

Only 64 banks went under in the United States by this time last year. A total of 140 bank failures were registered in all of 2009, according to the FDIC

White House Predicts Record $1.47 Trillion Deficit

New estimates from the White House on Friday predict the budget deficit will reach a record $1.47 trillion this year. The government is borrowing 41 cents of every dollar it spends.

That's actually a little better than the administration predicted in February.

The new estimates paint a grim unemployment picture as the economy experiences a relatively jobless recovery. The unemployment rate, presently averaging 9.5 percent, would average 9 percent next year under the new estimates.

The Office of Management and Budget report has ominous news for President Barack Obama should he seek re-election in 2012 - a still-high unemployment rate of 8.1 percent. That would be well above normal, which is closer to a rate of 5.5 percent to 6 percent. Private economists don't think the unemployment rate will drop to those levels until well into this decade.

The gaping deficits are of increasing concern to voters. But Obama and Democrats controlling Congress are mostly taking a pass on deficit reduction this year as they await possible recommendations from Obama's deficit commission.

While there's a slight improvement in the deficit for the current year, next year's predicted $1.42 trillion worth of red ink - that's 37 cents of borrowing for every dollar spent - is looking worse. It's about $150 billion more than previously predicted, because of still-slumping tax revenues.

White House budget director Peter Orszag said the numbers represent a "fiscal situation that requires attention."

Deficits have skyrocketed since the recession took hold in 2008 and Congress responded with a massive bailout of the financial system and last year's $862 billion stimulus measure.

US Senate deals blow to global climate talks

WASHINGTON (AFP) – A year and a half after President Barack Obama breathed new life into global talks on a climate treaty, the United States is back in a familiar role -- the holdout.

The Senate's decision Thursday to shelve legislation on climate change is certain to cast a long shadow over December's meeting in Cancun, Mexico that will work on a successor to the Kyoto Protocol.

Obama's Democratic allies acknowledged they lacked votes to approve the first-ever US plan restricting carbon emissions blamed for global warming. The task is unlikely to get easier soon, with Democrats facing tight congressional elections in November.

"This is going to change the mood dramatically in terms of what countries are willing to put on the table in Cancun," said Jake Schmidt, international climate policy director at the Natural Resources Defense Council, which backs action to curb global warming.

"This will seriously downplay what we can realistically achieve."

Obama vowed to act on climate change when he was elected president, sharply reversing course from his predecessor George W. Bush, who was a sworn foe of the Kyoto Protocol, which he considered biased against wealthier countries.

Obama's climate negotiators enjoyed rousing welcomes when they arrived on the scene -- especially from the European Union, Kyoto's most enthusiastic champion.

The State Department, which leads international negotiations, said the Obama administration still considered climate a "priority" and would engage with other countries and with Congress.

"This is a global challenge and we have to resolve it through global cooperation and joint action by all of the key countries and key emitters. We are one of them," agency spokesman Philip Crowley said.

"And central to our ability to do our part is passing climate and energy legislation."

The clock is ticking on sealing a new treaty, with the Kyoto Protocol's obligations for rich nations to cut emissions expiring at the end of 2012.

Climate talks, including the contentious Copenhagen summit in December, have been plagued by fighting between wealthy and developing nations, which are both looking for clear commitments from the other side.

Major emerging nations have resisted any legally binding requirements to cut emissions and pressed first for industrialized powers to seal their commitments.

"Countries like China and India are not likely to commit to any sort of binding obligation if the US is not part of the discussion, part of the negotiation and makes some similar commitment," said Daniel Fiorino, an expert on environmental politics at American University.

While the United States may be the most visible holdout, other major developed nations have also grappled with controversy on climate change, a major issue ahead of Australia's August 21 elections.

Arabinda Mishra, a climate expert at India's Energy and Resources Institute, said the lack of an international treaty "has a real danger in domestic will" in his country to invest political capital on fighting global warming.

The Obama administration has authorized the Environmental Protection Agency to regulate carbon, potentially offering a way to meet US promises at Copenhagen to curb emissions by 17 percent by 2020 off 2005 levels.

But without Senate action, it would be difficult for the United States to meet another promise -- to contribute, along with the European Union, Japan and other rich nations, to a 100 billion-dollar fund to help poor nations cope with climate change.

Climate legislation was passed by the House of Representatives last year, but Republican lawmakers have strongly opposed it, rejecting Obama's arguments that a green economy would create jobs.

"We're still facing a very weak economy and we're still facing questions on the cost of any meaningful reduction," said Ben Lieberman, an energy expert at the Heritage Foundation, a conservative Washington think-tank.

"It's pretty clear that no post-Kyoto treaty is in the making -- certainly not in Cancun, and maybe not ever."

Scientists Confirm Underwater Plumes Are From Spill

Florida researchers said Friday that they had for the first time conclusively linked vast plumes of microscopic oil droplets drifting in the Gulf of Mexico to the Deepwater Horizon disaster.

The scientists, from the University of South Florida, matched samples taken from the plumes with oil from the leaking well provided by BP. The findings were the first direct confirmation that the plumes were linked to the spill, although federal scientists had said there was overwhelming circumstantial evidence tying them to BP’s well.

The discovery of the plumes several weeks into the oil leak alarmed scientists, who feared that clouds of oil particles could wreak havoc on marine life far below the surface. Plumes have been detected as far as 50 miles from the wellhead, although oil concentrations at those distances are extremely low, about 750 parts per billion.

This is well below the level considered acutely toxic for fish and marine organisms, but could still affect eggs and larvae, the scientists fear.

“There are a lot of things that are potentially at risk,” said David Hollander, an oceanographer with the University of South Florida who is studying the plumes. “There’s not a lot known of the toxic effects of oil on organisms living in deeper waters.”

The announcement by the Florida researchers came as federal scientists released their own report on the oil formations. The multiagency report describes the presence of large plumes of microscopic oil droplets within several miles of the wellhead at a depth of 3,280 to 4,265 feet. Oil concentrations there are as high as 10 parts per million, or the equivalent of one tablespoon of oil in 130 gallons of water.

The plumes closest to the well may be concentrated enough to pose a threat to nearby deepwater coral reefs, which host a diversity of ocean life, said Steve Murawski, the National Oceanic and Atmospheric Administration’s chief scientist for the spill response. “We know that even low concentrations can be harmful to the eggs and larvae of the deep coral,” he said.

The federal report also described a drop in dissolved oxygen levels in deep water near the well, which it said probably resulted from the rapid reproduction of oil-eating microbes. Yet the reduction did not signal conditions that could cause a die-off in sea life, the report concluded.

The ultimate impact of the oil plumes on sea life in the gulf remains open to debate. A plume has been found near DeSoto Canyon, an underwater valley south of the Florida Panhandle where ocean currents push nutrient-rich water up onto the continental shelf. Some scientists fear that oil, even in the low concentrations found in the plumes, could be driven into the shelf’s life-rich shallow waters and cause harm.

“It’s almost an express route up there,” Dr. Hollander said. “That’s what raises the concerns of the biologists.”

Yet federal scientists say they believe that the oil concentrations in the deepwater plumes are too low to have much of an effect on the gulf’s commercially valuable fisheries.

BP tries to limit release of oil spill research

HOUSTON -- Faced with hundreds of lawsuits and a deep need for experts, BP has been offering some Gulf Coast scientists lucrative consulting contracts that bar them from releasing their findings on the company's massive oil spill for three years.

Some scientists say the contracts constrain academic freedom. A few signed the agreements, then changed their minds.

And others argue BP's contract is standard, and with little federal funding available to study the spill's impact, Gulf Coast researchers have few other options.

"I personally wouldn't care to have my research limited, but if I wanted to do work on the spill and this was the only way I could get out there and get working on it, I don't think there's a lot of alternatives," said Chris D'Elia, dean of the Louisiana State University School of the Coast and Environment.

BP confirms hiring more than a dozen scientists who have Gulf Coast expertise to assist with hundreds of lawsuits and assess the environmental damage caused by the spill.

"What we have asked is that they treat information from BP's lawyers as confidential, as is customary," said David Nicholas, a BP spokesman in London. "But we do not take the position that environmental data is confidential and we do not place restrictions on academics speaking about scientific data."

Still, American Association of University Professors President Cary Nelson said the three-year limitation could suppress information key to restoring the environment.

"Many scientists are turning down these contracts because they feel this research needs to be shared with the public, it needs to be shared with the government," said Nelson, whose group represents about 48,000 academics.

Researchers are asked to sign similar contracts with the National Oceanic and Atmospheric Administration, the federal agency charged with tracking the oil and assessing the damage.

Also in the mix is a hesitance to be associated with the company that's responsible for around 184 million gallons of oil spilling into the Gulf of Mexico.

"Setting aside any good intentions, the idea of being affiliated with BP was not a good thing," said Joe Griffitt, a scientist at the Gulf Coast Research Marine Lab at the University of Southern Mississippi, who initially signed a deal with BP, then changed his mind.

In the end, each side will try to get as many experts on their team as possible, removing knowledge from the public domain, said Mark Davis, director of the Institute on Water Resources Law and Policy at Tulane Law School in New Orleans.

"That's not wrong. Those are the rules of the game," he said. "It's the survival of a company, the survival of a crucial industry is at stake in a vital market area. This is serious business."

Schwartz reported from Los Angeles.

North Korea Warns of Nuclear Response to Naval Exercises

North Korea said it would counter U.S. and South Korean joint naval exercises with “nuclear deterrence” after the Obama administration said the government in Pyongyang shouldn’t take any provocative steps.

North Korea will “legitimately counter with their powerful nuclear deterrence the largest-ever nuclear war exercises to be staged by the U.S. and the South Korean puppet forces,” the National Defense Commission said, according to the Korean Central News Agency.

The maneuvers, which involve 20 vessels and 200 aircraft from the U.S. and South Korea, pose a threat to the country’s sovereignty and security, Ri Tong Il, an official with North Korea’s delegation to the Asean Security Forum, told reporters in Hanoi yesterday.

Ri’s comments came after North Korean Foreign Minister Pak Ui Chun sat in the same room with Secretary of State Hillary Clinton in Hanoi for a security meeting of Asia’s largest powers. Clinton condemned North Korea for being “on a campaign of provocative, dangerous behavior,” urging Kim Jong Il’s regime to change.

Still, the “door remains open for North Korea,” Clinton later told reporters. “We are willing to meet with them, willing to negotiate, to move toward normal relations” if North Korea commits itself to giving up its nuclear weapons program, she said.

U.S. State Department spokesman Philip J. Crowley said in Washington yesterday that North Korea “would be better served by reflecting on the current situation, not taking any further aggressive actions or provocative steps.”

USS George Washington

The U.S. said this week it will intensify sanctions against North Korea and conduct military exercises with South Korea in waters surrounding the peninsula. The USS George Washington, a nuclear-powered carrier, and three destroyers called into South Korean ports this week in a show of force.

“North Korea may very well go ahead with missile launches or even a third nuclear test to show it won’t bend to U.S. pressure,” said Yang Moo Jin, a professor at the University of North Korean Studies in Seoul. “North Korea must have sensed that the U.S. and South Korea are after its regime’s collapse.”

Ri said the George Washington’s presence threatened security on the peninsula, which has been divided for more than half a century. Pak maintained the need for a peace treaty to replace a cease-fire, signed in 1953, to guarantee the peninsula’s security, Ri said.

“It’s no longer the 19th century with gunboat diplomacy,” Ri said. “It is a new century and the Asian countries are in need of peace and development.”

Cheonan Sinking

An international panel concluded that the March 26 sinking of the corvette Cheonan was caused by a torpedo fired from a North Korean mini-submarine. The United Nations Security Council condemned the attack, which killed 46 sailors, without naming a culprit.

The investigation’s results have been “fabricated,” Ri said, adding that North Korea wouldn’t apologize for the incident as demanded by South Korea.

“If anyone should apologize, it should be South Korea, responsible for driving the situation on the Korean peninsula to the brink of an explosion,” Ri said. “We won’t tolerate any attempt to put the blame on us.”

North Korea’s economy has been battered by UN sanctions limiting cross-border financial transactions, imposed after its nuclear tests in 2006 and last year. North Korea is willing to return to the so-called six-party talks on its nuclear weapons program “on an equal footing,” Ri said, repeating demands that the sanctions be removed.

Japan Role

The disarmament talks, also involving China, Japan, Russia, South Korea and the U.S., haven’t convened since December 2008. All members of that forum attended this week’s security meeting in Vietnam.

Japan will send four naval officers to the drills, the government’s top spokesman said today.

Four officers of Japan’s Maritime Self-Defense Force will board a U.S. ship as observers for the joint military exercise from tomorrow to July 28 in the sea between South Korea and Japan, said Yoshito Sengoku, chief cabinet secretary.

“It’s important to promote coordination among Japan, U.S. and South Korea,” Sengoku told reporters in Tokyo.

Bankruptcy filings up 25% over last year

BOSTON —

The number of bankruptcy filings in Massachusetts surged by 25 percent in the first six months of the year, as many consumers struggled with job losses, changing credit card terms and foreclosures.

The Warren Group reported Thursday that through June 30, 11,847 filers statewide sought protection through Chapter 7, Chapter 11 or Chapter 13 of the federal bankruptcy code.

That figure, which includes businesses and individuals, represents a 25.2 percent increase from the same January-June period in 2009. The sharp rise could put the state on track to surpass the rush of bankruptcies in 2005, before strict limits took effect.

“It’s telling the story that people are absolutely at their wit’s end,” said Vincent Valvo, group publisher for the Boston-based Warren Group’s real estate and financial publications. “It also tells the story of how overextended folks got.”

The most common bankruptcy filing is Chapter 7, which can completely erase many kinds of loans. The number of Chapter 7 filings in the state rose to 9,142 in the first six months of 2010, up 17.6 percent from the same period in 2009.

But the use of Chapter 13 rose dramatically, with 2,586 Chapter 13 filings in the first half of the year, up 62 percent from the same time in 2009. Chapter 13 filings can be used to work out payment plans to prevent foreclosures.

Winchester lawyer Nina Parker said many of her clients come to her office after lenders fail to offer permanent loan modifications to keep borrowers in their homes.

“People are feeling defeated,” said Parker, co-chairwoman of the Boston Bar Association’s bankruptcy section. “They do everything they can to comply with the (loan modification) programs, but the lenders don’t follow through.”

Richard Gottlieb, a bankruptcy lawyer in Boston, said high unemployment – the state’s jobless rate has been at 9 percent or above since September – has made it tough for many people to make ends meet. Many dual-income households struggle when one of the wage-earners lose a job unexpectedly.

“I’ve never seen it this bad,” Gottlieb said. “I’ve never seen this level of misery. ... It’s an incredibly small distance (for many people) between being able to make your bills and get on in life and becoming operationally insolvent.”

Kara O’Donnell, a lawyer with offices in Quincy and Hingham, said some of her bankruptcy clients pursue Chapter 13 filings as a way to keep their homes after lenders stymied loan modification efforts. But she said the vast majority pursue Chapter 7 filings, partly because they can be used to discharge credit card debts. She said Chapter 7 can’t be used to wipe out secured debt, such as a home loan.

Many consumers were caught off guard when credit card companies changed their policies during the past year. In some cases, O’Donnell said, a minimum monthly payment would jump from $200 to $400 or $500. Interest rate hikes for missing payments also skyrocketed, she said.

For most of her clients, bankruptcy is a last resort.

“They don’t just lose their jobs and go out the next day and file for bankruptcy,” O’Donnell said. “Most people will exhaust every last resource they have. ... Some of them will totally empty out their IRAs and borrow money from their families because they think it’s a temporary situation. But for most people, it’s not a temporary situation.”

Jon Chesto may be reached at jchesto@ledger.com.

Copyright 2010 The Patriot Ledger. Some rights reserved

New York State Demands Billions From BofA and Merrill Lynch

MANHATTAN (CN) - New York State Comptroller Thomas DiNapoli sued Merrill Lynch and Bank of America on Thursday, claiming that both companies knew that Merrill Lynch had tens of billions of dollars in unreported losses from the subprime mortgage meltdown. BofA shareholders, ignorant of the financial morass, authorized the $29.1 billion acquisition of Merrill Lynch, which quickly torpedoed profits, according to the federal complaints.
"BOA shareholders were deprived of information that was material to their vote, and an overwhelming 82 percent of votes, including those based upon all of plaintiff's approximately 18 million BOA shares, were cast in favor of the merger on December 5, 2008," DiNapoli wrote in one of two complaints - one against BofA and the other against Merrill Lynch.
As administrative head of the state and local retirement systems, and sole trustee of the state's common retirement fund, DiNapoli managed 18 million shares with BofA and 4.8 million shares with Merrill Lynch.
In addition to not reporting what it knew were at least $15.3 billion losses by end of the fourth quarter of 2008, Delaware-based BofA also authorized Merrill Lynch to pay out an additional $5.8 billion in bonuses to its employees on an accelerated schedule, DiNapoli says.
When BofA executives learned that Merrill Lynch's pretax losses had ballooned to $21 billion, it took a $138 billion government bailout "to salvage the merger" - but still did not enlighten investors about the bailout money or Merrill Lynch's true financial condition, DiNapoli claims.
On the last day of trading before Bank of America announced the merger, in September 2008, its shares closed at $28.03. By the time the facts had emerged, in late January 2009, shares had dropped to $5.71, according to the complaint.
Merrill Lynch imploded as it tried to stake ownership in mortgage origination companies amid a housing market in visible decline and escalating mortgage default levels, DiNapoli claims.
While the bank was giving mortgages to borrowers with poor credit histories and ignoring warnings from its own executives, it lied to the public that it was closely monitoring credit risks and extending loans only to borrowers with high credit, according to the complaint.
"Merrill, formerly one of the most revered financial institutions in the world, brought about its own demise by pursuing a reckless campaign to earn heightened fees through originating and proliferating subprime residential mortgages - loans extended to unqualified borrowers that presented an increased risk of default," according to the complaint. "Merrill was a leading participant in the mortgage finance industry until the company collapsed under the weight of the undisclosed and inordinate risk that it assumed in originating subprime mortgages and securitizing them into residential mortgage-backed securities ('RMBS') and collateralized debt obligations ('CDOs')."
Under the direction of E. Stanley O'Neal, Merrill Lynch became the world's largest producer of CDOs backed by subprime mortgages, underwriting $19 billion in CDOs in 2004, $44 billion in 2006 and $30 billion during the first half of 2007, DiNapoli claims.
As Merrill Lynch increased its CDO securitization, it also increased its underwriting fee income, from $400 million in 2005 to $700 million in 2006.
DiNapoli says Merrill Lynch lied to ensure that its stock traded at inflated prices, and ignored warning signs "of the impending collapse of the subprime mortgage market."
"Borrowers subject to these poorly underwritten loans were defaulting en masse by the end of 2006, forcing subprime lenders with which Merrill did business into bankruptcy," according to the complaint.
As Merrill Lynch made partial disclosures about its true financial condition, its shares lost value, eventually dropping to $11.64 by the end of 2008 from $76.67 about 15 months earlier.
Merrill Lynch had been reporting multibillion-dollar revenues, but it withheld hidden holdings that required the bank to take tens of billions of dollars in write-downs, DiNapoli claims.
Facing imminent collapse, O'Neal resigned - leaving with a $160 million benefits package - and Merrill Lynch negotiated a hasty merger with Bank of America, according to the complaint.
DiNapoli is suing the two banks, as well as their CEOs and CFOs, for compensatory damages, alleging violations of the Securities Exchange Act. He is represented by Andrew Entwistle with Entwistle & Cappucci.

Terrorism case baffles remote Alaska town

The FBI says the weatherman in tiny King Salmon, aided by his wife, had an assassination list and was an adherent of Islamic extremism.

Paul Rockwood Jr. worked at this National Weather Service station in King Salmon, Alaska. (Kim Murphy, Los Angeles Times / July 23, 2010)

Reporting from King Salmon, Alaska —

He was the local weatherman, sending up weather balloons twice a day above this remote community of 450 full-time residents near Bristol Bay and preparing short-term forecasts for pilots and fishermen.

She was a stay-at-home mom who drove their 4-year-old to preschool, sang in the town choir and picked berries with her girlfriends. She took part in the community play, in which she portrayed a fairy godmother who acted as a prosecutor in court, confronting the Big Bad Wolf for his crimes against Little Red Riding Hood, the Three Little Pigs and the Boy Who Cried Wolf.

So beloved were Paul Rockwood Jr. and his wife, Nadia, that when they left King Salmon in May to move to England, where Nadia was born, more than 30 people — pretty much their entire circle of friends — showed up at the airport. The choir sang "Wherever You Go," and "people were just bawling," said Rebecca Hamon, a friend of the couple.

China Calls Our Bluff: The US is Insolvent and Faces Bankruptcy as a Pure Debtor Nation

America's biggest creditor - China - has called our bluff.

As the Financial Times notes, the head of China's biggest credit rating agency has said America is insolvent and that U.S. credit ratings are a joke:

The head of China’s largest credit rating agency has slammed his western counterparts for causing the global financial crisis and said that as the world’s largest creditor nation China should have a bigger say in how governments and their debt are rated.

“The western rating agencies are politicised and highly ideological and they do not adhere to objective standards,” Guan Jianzhong, chairman of Dagong Global Credit Rating, told the Financial Times in an interview.

***

He specifically criticised the practice of “rating shopping” by companies who offer their business to the agency that provides the most favourable rating.

In the aftermath of the financial crisis “rating shopping” has been one of the key complaints from western regulators , who have heavily criticised the big three agencies for handing top ratings to mortgage-linked securities that turned toxic when the US housing market collapsed in 2007.

“The financial crisis was caused because rating agencies didn’t properly disclose risk and this brought the entire US financial system to the verge of collapse, causing huge damage to the US and its strategic interests,” Mr Guan said.

Recently, the rating agencies have been criticised for being too slow to downgrade some of the heavily indebted peripheral eurozone economies, most notably Spain, which still holds triple A ratings from Moody’s.

There is also a view among many investors that the agencies would shy away from withdrawing triple A ratings to countries such as the US and UK because of the political pressure that would bear down on them in the event of such actions.

Last week, privately-owned Dagong published its own sovereign credit ranking in what it said was a first for a non-western credit rating agency.

The results were very different from those published by Moody’s, Standard & Poor’s and Fitch, with China ranking higher than the United States, Britain, Japan, France and most other major economies, reflecting Dagong’s belief that China is more politically and economically stable than all of these countries.

Mr Guan said his company’s methodology has been developed over the last five years and reflects a more objective assessment of a government’s fiscal position, ability to govern, economic power, foreign reserves, debt burden and ability to create future wealth.

“The US is insolvent and faces bankruptcy as a pure debtor nation but the rating agencies still give it high rankings ,” Mr Guan said.

***

A wildly enthusiastic editorial published by Xinhua , China’s official state newswire, lauded Dagong’s report as a significant step toward breaking the monopoly of western rating agencies of which it said China has long been a “victim”.

“Compared with the US’ conquest of the world by means of force, Moody’s has controlled the world through its dominance in credit ratings,” the editorial said...

China is right. U.S. credit ratings have been less than worthless. And - in the real world - America should have been downgraded to junk. See this, this, this, this, this,this, this, this and this.

China is not shy about reminding the U.S. who's got the biggest pockets. As the Financial Times quotes Mr. Guan:

“China is the biggest creditor nation in the world and with the rise and national rejuvenation of China we should have our say in how the credit risks of states are judged.”

Might Makes Right Economic Collapse

Indeed, Guan is even dissing America's military prowess:

“Actually, the huge military expenditure of the US is not created by themselves but comes from borrowed money, which is not sustainable.”

As I've repeatedly shown, borrowing money to fund our huge military expenditures are - paradoxically - weakening our national security:

As I've previously pointed out, America's military-industrial complex is ruining our economy.

And U.S. military and intelligence leaders say that the economic crisis is the biggest national security threat to the United States. See this, this and this.

[I]t is ironic that America's huge military spending is what made us an empire ... but our huge military is what is bankrupting us ... thus destroying our status as an empire ...

Indeed, as I pointed out in 2008:

So why hasn't America's credit rating been downgraded?

Well, a report by Moody's in September states:

"In superficially similar circumstances, the ratings of Japan and some Scandinavian countries were downgraded in the 1990s.

***

For reasons that take their roots into the large size and wealth of the economy and, ultimately, the US military power, the US government faces very little liquidity risk — its debt remains a safe heaven. There is a large market for even a significant increase in debt issuance."

So Japan and Scandinavia have wimpy militaries, so they got downgraded, but the U.S. has lots of bombs, so we don't? In any event, American cannot remain a hyperpower if it is broke.

The fact that America spends more than the rest of the world combined on our military means that we can keep an artificially high credit rating. But ironically, all the money we're spending on our military means that we become less and less credit-worthy ... and that we'll no longer be able to fund our military.

The Scary Part

I chatted with the head of a small investment brokerage about the China credit rating story.

Because he gives his clients very bullish, status quo advice, I assumed that he would say that China was wrong.

To my surprise, he simply responded:

They're right. What's scary is that China knows it.

In other words, everyone who pays any attention knows that we're broke. What's scary is that our biggest creditor knows it.

Tricks Up Their Sleeves?

China has been threatening for many months to replace the dollar as the world's reserve currency (and see this). And China, Russia and other countries have made a lot of noises about replacing the dollar with the SDR. See this and this.

Gordon T. Long argues that the much talked about gold swaps are part and parcel of the plan to replace the dollar with the SDR. Time will tell if he's right.

China, of course, is not without its own problems. See this and this.

In related news, Germany's biggest companies are starting to shun Wall Street as too risky.

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