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North Korea Threatens Nuclear Strikes on South, US

(March 26) -- North Korea is threatening to unleash "unprecedented nuclear strikes" against South Korea and the U.S. as those two countries prepare for possible instability in the totalitarian communist state.

"Those who seek to bring down the system in the (North), whether they play a main role or a passive role, will fall victim to the unprecedented nuclear strikes of the invincible army," North Korea's military told state media today. It described the North's communist system as an "impregnable fortress."

Pyongyang is believed to have enough weaponized plutonium for at least half a dozen atomic bombs. The country conducted its second atomic test last year, prompting tighter U.N. sanctions. Diplomats from Washington and Seoul continue to prod the North to return to international talks aimed at halting its nuclear program.

Earlier this month, a South Korean newspaper reported that representatives from the U.S. Pacific Command would meet with defense experts from South Korea and China next month to discuss how to control the North's weapons if its regime collapses.

Any expectations for such a collapse are the "pipe dream of a lunatic wishing for the sky to fall," the official Korean Central News Agency said today. The North is "capable of frustrating any plot and provocation at a single strike," it said.

Such rhetoric is quite common from North Korea, which has previously threatened nuclear attacks in response to what it calls plots for regime change by the West -- a sensitive topic inside the reclusive, closed state, considering the health of its leader, Kim Jong Il.

Kim is 68 and suffered a stroke in August 2008. Earlier this week, the head of a South Korean think tank said Kim is also suffering from kidney failure, which requires dialysis. He's widely believed to be preparing to hand over power to his youngest son.

While state media spout assurances to North Koreans about the strength of their government, the country is succumbing to severe food shortages and famine. A bungled attempt at currency reform last year sparked huge inflation and rare public unrest.

Meanwhile, the top American commander in South Korea, Gen. Walter Sharp, testified before the House Appropriations Committee this week and warned of the possibility of further turmoil in the North. He cited the country's weak economy, the malnourishment of soldiers and the general population, and the nation's nuclear weapons.

"The possibility of a sudden leadership change in the North could be destabilizing and unpredictable," Sharp said. South Korean media have reported that the U.S. and Seoul are coordinating military contingency plans for when Kim dies.

The North accuses Washington and Seoul of plotting to topple its government -- a claim both capitals deny.

Filed under: World

SKorean naval ship sinks near NKorea; 40 missing

SEOUL, South Korea – Word that a South Korean naval ship sank in the tense waters around the disputed maritime border with communist North Korea set off panic: The president convened an emergency meeting and the military dispatched a fleet of ships.

Five hours later, 58 sailors had been pulled to safety but some 40 others were missing, reports said. There was no indication early Saturday that North Korea was to blame for the ship's demise, but troops kept a vigilant watch.

Seoul's panic attack — hours after North Korea's military threatened "unpredictable strikes" against the U.S. and South Korea — highlighted the fragility of peace on the divided Korean peninsula.

The two Koreas remain locked in a state of war because their three-year conflict ended in a truce, not a peace treaty, in 1953.

Since then, the two Koreas have fought three bloody skirmishes in the Yellow Sea waters. And in January, North Korea fired about 30 artillery rounds not far from Baeknyeong; the South Korean military fired 100 warning shots in response.

The 1,200-ton "Cheonan" was on a routine patrolling mission near South Korea's Baeknyeong Island on Friday night with 104 crew members on board when the ship began taking on water, Rear Adm. Lee Ki-sik of the Joint Chiefs of Staff told reporters.

Unidentified military officials told South Korea's Yonhap news agency that an explosion tore a hole into the rear hull, shutting off the engine, wiping out the power and quickly taking the ship down. A number of crew members jumped into the water, Yonhap said.

Six naval ships and two coast guard vessels, as well as helicopters and ambulances, rushed to save the crew, Yonhap and military officials said. Troops scanned the skies for an attack, at one point firing shots at what officials later speculated was a flock of birds.

President Lee Myung-bak, meanwhile, convened a late-night emergency meeting with his defense minister and other top military officials. After three hours, and no conclusion about what caused the ship to sink, they agreed to meet again Saturday, presidential spokesman Lee Dong-kwan said.

President Lee ordered the military to focus on the rescue operation, he said.

Nearby Baeknyeong Island, four hours by boat from the South Korean port of Incheon but just 10 miles (20 kilometers) from North Korea, was turned into a triage center, with islanders helping to treat injured crew members, according to cable network YTN.

A naval official told Yonhap there were deaths among the sailors, and YTN said some 40 crew members were missing. However, military officials told the AP they could not confirm deaths, and said 58 sailors had been rescued, with two airlifted for emergency medical treatment.

The waters around Baeknyeong island are rocky, and some senior government officials speculated that the sinking may have been an accident, not an attack, South Korean media said.

"It's looking more and more like it was just an accident that happens on a ship," Carl Baker, an expert on Korean military relations at the Pacific Forum CSIS think tank in Honolulu, said by telephone.

He said Pyongyang was unlikely to attack the far more powerful South Korean military.

"The South Koreans are so much more capable these days than the North that it would be difficult for the miscalculation to happen because I think the North understands its lack of ability," he said.

___

Associated Press writers Hyung-jin Kim and Kelly Olsen contributed to this report.

Taiwan president calls security alert after Korean clash

President Ma Ying-jeou ordered Defence Minister Kao Hwa-chu to initiate the national security mechanism to monitor developments in the wake of the sinking of a South Korean patrol boat by a North Korean navy vessel off Baengnyeong Island west of North Korea Friday evening.

According to news reports, 59 of the 104 officers and staff on the South Korean naval ship had been rescued after the attack which occurred shortly before 11 pm (10 pm Taiwan time), but the reasons for the clash were still unclear.

After televised reports of the sinking reached Ma, the president called an emergency security meeting with National Security Council Secretary-General Hu Wei-chen and other staff accompanying him on the last evening of a six day series of state visits to Taiwan`s six Pacific allies.

Presidential Spokesman Lo Chih-chiang told reporters accompanying Ma about the emergency meeting, which was convened at held at 12 midnight in the wake of the reports of the event.

Lo said that the president had telephoned Defense Minister Kao Hwa-chu and Armed Forces Chief of Staff Lin Chen-ying and asked them ``initiate the national security mechanism and pay close attention to developments in South Korea and adopt necessary measures.``

Lo stated that the president had not yet decided to change his schedule for the last day of his visit in Koror.

Government Information Office Minister Chiang Chi-chen related that he had already called Premier Wu Den-yih to notify him of the president`s decision, and Wu had in turn stated that the Executive Yuan had been carefully monitoring the situation.

South Korean navy ship sinks, North link played down

SEOUL (Reuters) – A South Korean naval ship sank near the disputed maritime border with North Korea, killing some of the more than 100 crew on board, but officials played down suggestions that it may have been attacked by the North.

A defense ministry official later said that the unidentified object the vessel had fired at on Friday night near the western sea border that divides the two Koreas may well have been a flock of birds.

Initial fears that North Korea might be to blame caused ripples on Wall Street, where share prices dipped partly on geopolitical concerns, and the South Korean won dropped against the dollar.

"It is premature to discuss the cause of this sinking," presidential Blue House spokeswoman Kim Eun-hye told Reuters early on Saturday. "It is not clear whether North Korea was involved."

The Joint Chiefs of Staff also said it could not conclude that the reclusive North was behind the attack.

Yonhap news agency quoted a presidential official as saying satellite pictures and other information showed no sign of the North Korean military in the area at the time of the sinking.

The defense ministry said 58 of the 104 on board had been rescued and Yonhap quoted navy officials as saying several had died.

"An unidentified reason caused a hole in the ship, which led to its sinking. Currently 58 have been rescued out of the total 104 on board. Rescue efforts are under way," the ministry said.

"The ship fired a warning shot at an unidentified object, and the object was later suspected to have been a flock of birds. But we are checking."

Earlier, South Korean media had quoted officials as saying the North could have torpedoed the ship.

COLD SHOULDER

The sinking comes as the impoverished North has become increasingly frustrated by its wealthy neighbor, which has given the cold-shoulder to recent attempts to reopen a lucrative tourist business on the northern side of the Cold War's last frontier.

It also coincides with mounting pressure on Pyongyang to end a more than one-year boycott of international talks to end its efforts to build a nuclear arsenal.

Reports of a possible naval clash saw the won weaken roughly 0.45 percent against the dollar and were cited by analysts as one reason for a dip in U.S. stocks.

The price to insure Korean sovereign debt rose to 83 basis points from 78 basis points in the wake of the news, according to two trading sources. That means the cost to insure $10 million in South Korean debt increased by $5,000 to $83,000.

Markets have become used to saber-rattling by North Korea and occasional brief border skirmishes, and dips in response to such incidents tend to be quickly reversed.

In Seoul, the government held an emergency security meeting following the incident.

The ship sank near the disputed Yellow Sea border off the west coast of the peninsula which was the scene of two deadly naval fights between the rival Koreas in the past decade.

Navies from the rival Koreas exchanged gunfire for the first time in seven years in the Yellow Sea waters in November, damaging vessels on both sides.

The international community has been pressuring the North to give up efforts to build nuclear weapons, promising help for its broken economy if it does so.

There has been widespread speculation that North Korea's iron ruler, Kim Jong-il, was about to visit China, his only significant ally and on which he has depended almost entirely for economic aid after a new conservative government in Seoul effectively ended years of free-flowing assistance.

(Additional reporting by Kim Miyoung and Jon Herskovitz; Writing by Jonathan Thatcher; Editing by Alex Richardson)

Mortgage delinquencies rise to nearly 14 percent

NEW YORK (Reuters) – Delinquencies on mortgages rose to nearly 14 percent in late 2009, led by a sharp increase in seriously overdue home loans held by the most credit-worthy borrowers, U.S. banking regulators said on Thursday.

The percentage of current and performing mortgages fell to 86.4 percent at the end of the fourth quarter of 2009, down 0.9 percent from the previous three months, marking a decline for the seventh consecutive quarter, the report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision said.

It was also down 3.9 percent from a year earlier.

The decline was attributable to a 21.1 percent jump in mortgages 90 or more days past due, to 4.7 percent of all mortgages in the portfolio at the end of 2009.

The increase in seriously delinquent mortgages was most pronounced among prime borrowers, with an increase of 16.5 percent in seriously delinquent mortgages during the fourth quarter.

The jump in seriously delinquent mortgages is likely to lead to a rise in foreclosure actions, the report said.

So-called prime mortgages are granted to the most credit-worthy borrowers, a sector that initially raised few worries when the housing bubble burst.

The continued decline in performance of prime mortgages is a significant trend, given those mortgages accounted for 68 percent of all home loans within the portfolio.

The report by the U.S. Treasury Department units covers nearly 34 million loans totaling almost $6 trillion in principal balances and provides information on their performance through the end of the fourth quarter of 2009.

The report defines "serious delinquencies" as those loans 60 days or more past due and loans delinquent to bankrupt borrowers.

The OCC and OTS Mortgage Metrics Report provides performance data on first-lien residential mortgages serviced by national banks and federally regulated thrifts. The report covers all types of first-lien mortgages serviced by most of the industry's largest mortgage servicers.

The mortgages in this portfolio comprise more than 64 percent of all mortgages outstanding in the United States.

Without the help of government, state and private loan modification programs, many of the homes backed by these delinquent loans could go into foreclosure. Foreclosures are by far one of the biggest threats to the U.S. housing market, which remains highly vulnerable to setbacks and heavily reliant on government intervention.

"While servicers reported that HAMP (Home Affordable Modification Program) and proprietary foreclosure prevention programs will help a significant number of distressed homeowners, they indicated these programs are not expected to help all delinquent borrowers," the report said.

"In this regard, servicers reported that they expect new foreclosure actions to increase in the upcoming quarters as many of the mortgages that are seriously delinquent may eventually result in foreclosure as alternatives that prevent foreclosure are exhausted," the report said.

Home forfeiture actions -- foreclosure sales, short sales, and deed-in-lieu-of-foreclosure actions -- increased by 8.6 percent from the previous quarter to 163,224. That is up 44.5 percent from a year earlier.

The number of newly initiated foreclosures, however, dropped by 15.4 percent from the previous quarter to 312,529 after remaining steady the three prior quarters.

But that is up 19.0 percent from a year earlier. The number was curtailed as more loans are held in a delinquent status for an extended period as borrowers and servicers pursue alternate workout solutions, the report said.

Ill. Gov: Pension Revamp a 'Political Earthquake'

SPRINGFIELD, Ill. (AP) -- Legislation to trim Illinois pension costs amounts to a ''political earthquake'' that proves state government is willing to tighten its belt as it asks more of taxpayers, Gov. Pat Quinn said Thursday.

The pension overhaul, approved by lawmakers on Wednesday, won't have a major effect on the state's current budget crisis but it will reduce retirement costs by roughly $100 billion in the coming decades.

''It's been talked about by many governors before me. Yesterday was a day of action,'' said Quinn, a Chicago Democrat. ''That was an earthquake ... a political earthquake.''

Illinois faces a record-high budget deficit of roughly $13 billion in the upcoming fiscal year. Officials could reduce that deficit by allocating some of the long-term pension savings to the next budget.

Saying government should be conservative about that financial maneuver, Quinn advocated using just $300 million of the pension savings in the next budget.

The pension legislation also could help Quinn politically.

His Republican opponent, Sen. Bill Brady of Bloomington, opposes a tax increase and argues that the keys to balancing the budget are cutting Medicaid and overhauling government pensions. Quinn has now taken one of those steps himself.

But Quinn may pay a price in union support and campaign donations. Organizations like the Illinois Federation of Teachers and the American Federation of State, County and Municipal Employees strongly oppose the pension overhaul.

The Brady campaign did not immediately return a phone call seeking comment.

Quinn, who favors raising income taxes by one-third, did not directly say the pension cuts were a necessary step before any increase. But he repeatedly said taxpayers want proof that government is willing to make changes before they would consider paying more.

He rejected union complaints that it's unfair to reduce retirement benefits for future employees because of a pension shortfall caused by the state's long failure to make its full contributions to government retirement systems.

''I think it's fair. I think everything's fair,'' Quinn said.

Illinois pension systems are among the most financially troubled in the nation. They have money for benefit checks now, but the amounts promised to future retirees outweighs the systems' assets by roughly $80 billion.

Eventually, taxpayers will have to come up with that money. Already, rapidly increasing annual payments to the pension systems eats up billions of dollars in state revenue each year, leaving little new money for government services.

Quinn did not say when he will sign the legislation, which reduces benefits for future government employees but does not affect payments to current workers.

It would require employees to work until age 67 to qualify for full retirement benefits. It also caps the amount of salary that can be used to calculate benefits and limits the annual growth in benefit checks.