SOURCE: The St. Petersburg Times
DATE: Issue #1418 (82), Tuesday, October 21, 2008
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TITLE: State Will Put $6.7 Bln Into Stocks This Week
AUTHOR: By Courtney Weaver
PUBLISHER: Staff Writer
TEXT: MOSCOW — Finance Minister Alexei Kudrin announced Friday that the state would invest $6.7 billion from the National Welfare Fund into “secure, high-yield” Russian securities, just after hisprediction that the market’s troubles would continue sent stocks tumbling.
The $48.7 billion welfare fund is currently invested in foreign bonds, including ones issued by government-affiliated agencies in the United States and Britain. Kudrin said the investment in securities could start as soon as Monday.
The money will add to the more than $200 billion that the government has set aside for the financial sector, $86 billion of which has been allocated to boost banks’ liquidity. Still, economists and analysts say the measure will have little effect on the market unless it is immediately detailed and put into action.
“The market has been promised a number of times that government intervention is coming since talks about it began in September,” said Yevgeny Nadorshin, chief economist at Trust Investment Bank. “Now these words only disappoint market participants. [Investors] simply do not believe it anymore.”
The Central Bank garnered a more optimistic response to an announcement Friday that it would downgrade the rating levels banks need to receive state funding. Russian banks can now receive loans with securities as low as B- on Fitch Ratings and Standard & Poor’s, and B3 on Moody’s.
The plans came the same day that the State Duma passed in a first reading a bill that would allow the Central Bank to operate directly in securities markets.
Nadorshin said if the Central Bank actually implements the change to its loan policy next week — making up to 100 Russian banks eligible for a cash infusion — then the market will likely see a “very positive reaction.”
S&P credit analyst Frank Gill agreed. 
“This seems like an evolution of the direction their policy has been going in. I think what they’re trying to do is get liquidity to second- and third-tier banks,” especially after Globex failed Thursday night, Gill said. 
Speaking to a group of lawmakers, Kudrin said the stock indexes’ wild swings were a result of Russia’s “weak financial system” and that the country’s stocks would continue to decline because of increasing “risks on the global market,” Interfax reported.
Both the MICEX and RTS dropped sharply after Kudrin’s less than reassuring words, with the MICEX falling more than 5 percent from Thursday’s close after a 6 percent lead in the morning. 
The ruble-denominated index recovered slightly to finish the day down 4.3 percent at 599.6 points. 
The dollar-denominated RTS dropped 6.5 percent to close at 667.6 points — down nearly 21 percent on the week.
The biggest mover on the MICEX was potash producer Uralkali, whose stock sank 16 percent after it said a “ground crack” from a flooded mine would threaten shipments from rival Silvinit, the country’s largest producer of the fertilizer component.
Energy stocks had a mixed day, with Urals for November delivery rising by 8 percent Friday evening after breaking below the $70 mark the day before.
LUKoil’s shares closed down 3.6 percent, and Gazprom fell 1.8 percent on MICEX, while Rosneft and Surgutneftegaz beat the index, rising 3.8 percent and 0.3 percent, respectively.
Rory MacFarquhar, senior economist at Goldman Sachs, said oil prices would continue to determine the direction of the market.
“Until we have some clarity about where the oil price is going to land, it’s hard to declare that [the Russian market] has reached the bottom,” MacFarquhar said.
“The nature of volatility is that it’s completely unpredictable. It may be that when state money starts to show up in the market that we’ll start to see something and that we’ll stop hearing these scary stories across the country of companies shutting down production,” MacFarquhar added. 
And although it is not entirely clear why Kudrin chose to throw cold water on the markets’ early rally, some observers saw the move as a defense of the welfare fund before its resources were invested in the volatile, sinking market.
“You simply hear the words of a bear,” Nadorshin said.

TITLE: Russia in No Rush to Attend Crisis Summit
AUTHOR: By Anna Smolchenko
PUBLISHER: Staff Writer
TEXT: MOSCOW — The Kremlin signaled Sunday that it was in no hurry to confirm its participation in an international summit called by U.S. and EU leaders to tackle the global financial crisis over the weekend.
The apparent reluctance to join other world leaders came as a senior government official said that unlike in the West, there was no crisis in Russia.
A Kremlin spokesman said Russia would only participate in the summit if a convenient date could be agreed upon. “All leaders have very tight schedules,” he said, speaking on customary condition of anonymity. “So far, a date that would suit everybody has not been found.”
Few details about the summit have been released, making it too early to say who might represent Russia if it decides to participate, said Dmitry Peskov, spokesman for Prime Minister Vladimir Putin.
U.S. President George W. Bush on Saturday called for a summit aimed at reforming the international financial system while protecting free markets. French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso, who discussed the summit with Bush at his Camp David retreat on Saturday, suggested holding the summit in New York next month, after the U.S. presidential election on Nov. 4.
Moscow’s lack of enthusiasm might be linked to lingering resentment that Washington threatened to derail its WTO bid and limit its contacts with the Group of Eight in response to its invasion of Georgia in August. Several Western countries sought to isolate Russia after criticizing it for its actions in preventing Georgia’s breakaway region of South Ossetia from being retaken by Georgian forces.
But the senior government official indicated that Moscow’s stance might be linked to a belief in the corridors of power that the financial crisis is largely a Western problem that doesn’t involve Russia.
The official, who spoke Friday on condition of anonymity in order to speak more candidly, said past domestic economic debacles and current “absolutely healthy” macroeconomic indicators mean that Russia is better positioned to deal with the crisis than the United States or Europe.
“Today, there is no crisis in Russia,” the official told reporters at a two-hour meeting over tea and cookies.
Russia’s economy will continue to grow even under the most pessimistic scenario for next year, which sees it dipping a little under 5.5 percent, he said. By comparison, several European Union countries may struggle with negative growth and the United States is expected to post zero growth, he said.
Merrill Lynch said in a report released Friday that Russia continues to deliver “very solid economic data” that are unlikely to deteriorate dramatically even in the event of a sudden fall in oil prices. “Russia is unlikely to slow down below 3 percent to 4 percent in the midterm,” it said.
No one is able to fathom the depth of the crisis yet, but foreign governments are only now realizing that the banking system is the backbone of the economy — a fact that Russia understood all along after its bitter experience with the 1998 default, the official said.
“Despite all its faults, the Russian financial system will survive. We’ll keep hold of it,” he said. 
Two or three industries, including construction, will feel the squeeze later on, but they are “overheated” anyway, he said.
The government has pledged to allocate some $200 billion in loans and tax cuts, among other measures, to help banks and companies deal with the country’s worst financial turmoil since 1998. Finance Minister Alexei Kudrin announced Friday that the government would spend 175 billion rubles ($6.64 billion) of its wealth fund on buying domestic shares and bonds starting next week. 
The senior government official declined to identify the companies that would benefit from the purchases by the National Welfare Fund, saying the list would not be made public and would only be known to brokers. 
“We are getting a lot of calls” about it, he said. 
Buying the shares is in line with the wealth fund’s strategy, which will be announced next month, he said. The government will keep the shares for 10 to 15 years, he said. 
The official also sought to allay concerns that the government would use turmoil to take over private companies.
“We don’t aim to increase the share of the state in the economy,” he said.
The government has bailed out four banks this month, including Bank Globex on Friday. (Story, Page 9.) Analysts have said the crisis could trigger a redistribution of property.
However, the government official acknowledged that Russia would suffer from a slowdown in economic growth in the West and, therefore, would see demand for oil fall. The budget for this year is balanced at $70 per barrel, and if the price falls below this level, the state might need to tap into the stabilization fund.
The upside of the economic situation in Russia is that speculative capital has left the country, the government official said, reeling off a list of what he called positive economic indicators. 
The only possible crisis in Russia involves a crisis of confidence and mistrust among banks toward one another, the official said.

Staff Writer Anatoly Medetsky contributed to this report.

TITLE: Anti-Draft Protest Goes Ahead Despite Official Obstruction
AUTHOR: By Sergey Chernov
PUBLISHER: Staff Writer
TEXT: An anti-draft march, originally scheduled for Oct. 12 but banned by the authorities, was instead held as a stationary demonstration on Sunday.
Several dozen protesters came to a standing demo, originally called the March for an All-Volunteer Army, held in place of the banned event. 
Two heavy trucks carrying OMON special task police and several lighter police vans were parked close to both entrances of Chernyshevsky Garden, where the rally took place. Police were in position both in the garden and outside to monitor the event but did not interfere with the rally.
The rally’s organizers, which included the Stop the Draft (Stop Prizyv) movement, the Yabloko Democratic Party, the United Civil Front and the youth movement Oborona, are planning to sue City Hall, which agreed only to a stationary meeting at Chernyshevsky Garden, far from the central district’s busy streets where the demonstrators had hoped to make their point.
Earlier, the administration banned a 100-strong anti-draft march that the organizers had hoped to hold at Park Pobedy.
Stop Prizyv coordinator Yelena Ivanova said the authorities had no right to change the format of the demonstration under Russian law.
“It’s totally clear that all the changes in locations and times were made purely to humiliate us but this is the only legal ground on which we have to go to court,” she said by phone on Monday.
According to Ivanova, the authorities’ most recent reasoning for why the march could not be held at Park Pobedy was planned reconstruction works in the section where the rally was to take place. 
“Of course, there was not the slightest sign of any work going on when we checked it,” she said. “Nothing had changed.”
On Oct. 12, several activists attempted to hold one-man pickets, which do not require permission from the authorities, instead of the banned march. They also distributed flyers advertising Sunday’s demonstration but were met with overwhelming force from the police with two colonels in command.
Three activists were detained as soon as they produced flyers and were later taken to court where Yelena Popova, of both Yabloko and the United Civil Front, was fined 800 rubles (approximately $30), having been charged with disobeying police orders.
The cases of Oborona activists Maria Govorova and Darya Kostromina, who were also detained and charged with violation of the law on public events, were postponed and are yet to be heard.
The March for an All-Volunteer Army had been conceived as a national event going from city to city. A similar event was held in Moscow on Sept. 27, shortly before the start of the autumn draft campaign on Oct. 1, and others were held in Samara and Novokuznetsk before the curtailed St. Petersburg event on Sunday. 
In St. Petersburg on Oct. 1 several activists of the youth wing of Yabloko held their own small demonstration close to Vasileostrovskaya Metro. Police often check the documents of men at metro stations near the time of the draft to catch those who are attempting to avoid it.
A district administration official who was monitoring the Oct. 1 protest banned the use of party flags on the pretext that it was not mentioned in the written permission and threatened the protestors with arrest.

TITLE: South Ossetian Police Told to Fire Back
PUBLISHER: The Associated Press
TEXT: MOSCOW — Police in South Ossetia have been ordered to shoot back if they come under fire — a directive that increases the threat of new violence in the Russian-backed separatist region that broke away from Georgia.
South Ossetia’s top police official issued the order after a police post came under fire Saturday from an ethnic Georgian village, the separatist government said on its web site.
Acting Interior Minister Mikhail Mindzayev said no one was hurt by the gunfire, but he called it one of several provocations by Georgian forces.
“We will not allow our people and our officers to be killed,” Mindzayev said in a statement.
Georgian Interior Ministry spokesman Shota Utiashvili denied that Georgian forces fired at a South Ossetian post and said Nikozi came under fire early Saturday from South Ossetian-controlled territory.
The order came amid persistent tension along the edges of this breakaway region at the heart of the August war between Georgia and Russia.
South Ossetia’s government also criticized European Union monitors who are patrolling Georgian territory outside South Ossetia after Russian forces withdrew this month under a cease-fire agreement brokered by French President Nicolas Sarkozy. The separatist government accused the monitors of bias and claimed that they are ignoring alleged Georgian cease-fire violations.

TITLE: 2x2’s License Is Renewed Despite Flap Over South Park Screenings
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — The Federal Mass Media Inspection Service has renewed the broadcast license for the cartoon network 2x2, despite warnings from prosecutors that the channel aired an “extremist” episode of “South Park” and violated children’s rights by broadcasting shows such as “The Simpsons.”
The renewal of the network’s license was based on a recommendation issued last month by the Federal Broadcasting Competition Commission, the service said in a statement Friday. 
The network’s new license is valid until 2013.
On Sept. 8, the City Prosecutor’s Office said a commission of experts had determined that the “South Park” episode “Mr. Hankey’s Christmas Classics” was extremist in nature because it promotes “hatred between religions.”
On the same day, the Prosecutor General’s Office said numerous cartoons aired on 2x2, including “The Simpsons” and “Family Guy,” were found to be unsuitable for children.
The Federal Mass Media Inspection Service took into consideration assurances from the network’s executives that its content would be brought in line with “the concept of its programming,” according to Friday’s statement.
2x2 has pulled the episodes of shows cited by prosecutors but continues to air “South Park,” a channel spokeswoman said Friday.

TITLE: Moscow Court Cuts Tax Bill for British Council
AUTHOR: By Nikolaus von Twickel
PUBLISHER: Staff Writer
TEXT: MOSCOW — The Moscow Arbitration Court reduced a tax claim against the British Council on Friday, triggering hopes for a resolution to a bitter dispute that has closed several of its offices.
The court made the ruling after the council, the cultural arm of the British Embassy, complained that a claim for unpaid taxes from 2004 to 2006 was too high, the council said in a statement, without providing exact figures.
British Council spokesman Antony Watson would not confirm reports that said the court had thrown out most of the claim. 
“The details are incredibly complex, and we are reviewing the judgment with our lawyers,” Watson said by telephone from London.
Interfax reported that the court had rejected most of the profit and value-added tax claims and had significantly lowered fines against the council. “The court basically supported the British Council’s claims against the Federal Tax Service’s 47th Inspectorate,” Interfax said, citing court officials.
A court spokeswoman reached on her cell phone refused to comment, explaining that she was on vacation and would only answer questions Monday.
Kommersant reported that tax authorities had sought 4.3 million pounds sterling ($7.4 million).
The claim was filed in January and based on an inspection last year, the British Council said. 
It was unclear what Friday’s ruling might mean for the council’s main headache, a dispute over its legal status in the country that culminated in the forced closure of its offices outside Moscow in January. 
Watson said that while he hoped to make progress in reaching an agreement on the status dispute, it was unrelated to the tax ruling.
A British Embassy spokesman also saw no connection between the two issues. “This is too far to link,” he said, speaking upon customary condition of anonymity.
He did say, however, that high-level contacts between both governments were ongoing, noting that Foreign Minister Sergei Lavrov had met with his British counterpart, David Miliband, on the sidelines of the United Nations’ General Assembly in New York earlier this month.
An official in the Foreign Ministry said both sides have been in contact about the British Council since the onset of the problem. “The issue is being discussed through diplomatic channels,” the official said on condition of anonymity, citing the sensitivity of the issue.
The Russian government maintains that the council has been operating in the country illegally because there is no comprehensive treaty that would regulate its activities.
In response, London argues that the council has a sound legal basis but has said it is willing to negotiate a wider agreement.
Both sides have linked the dispute to a diplomatic spat over the 2006 poisoning death of former security services officer Alexander Litvinenko in London, which resulted in Russian-British relations plummeting to post-Cold War lows. 
Friday’s ruling came just a day after Britain’s new ambassador to Russia, Anne Pringle, gave her first news conference and expressed hope that an agreement could be reached about the British Council.

TITLE: Russia May Leave Sevastopol
PUBLISHER: The Associated Press
TEXT: LONDON — Russia will leave the strategic Black Sea port of Sevastopol if its lease is not renewed by the Ukrainian government, Russian Deputy Prime Minister Sergei Ivanov said in an interview due to be broadcast Monday.
Asked by the British Broadcasting Corp. whether he could envision the Russian fleet ever leaving the port, Ivanov said it was possible.
“Yes, I can imagine that easily after 2017,” he told the BBC. “Why not, if the Ukrainian government then in power decides not to prolong the lease?”
Sevastopol, on Ukraine’s Crimean peninsula, has a majority ethnic Russian population and is the site of a Russian naval base. Russia has used the port since the 18th century and it hosts Russia’s Black Sea fleet. Thousands of Russians live and work on the peninsula.
However, the lease agreement between Russia and Ukraine for the use of the base is due to expire in 2017, and Ukrainian officials have indicated they do not want to extend it.
Russia’s military campaign against Georgia in August stoked fears that the Kremlin could launch a similar action against Ukraine, which like Georgia has also sought to loosen ties with Russia.
The war with Georgia culminated in Russia’s recognition of Georgia’s pro-Russian rebel regions of South Ossetia and Abkhazia — stoking fears that Moscow could repeat the exercise in Crimea.
Asked what would happen if the Ukrainian government kicked out the fleet, over expected local opposition from ethnic Russians, Ivanov suggested Russia would not intervene.
“I love Crimea and even have relatives there, but that is Ukraine’s problem, not Russia’s,” he said.

TITLE: Icelandic Student Sought For Accidental Shooting
AUTHOR: By Natalya Krainova
PUBLISHER: Staff Writer
TEXT: MOSCOW — An international arrest warrant has been issued for an Icelandic exchange student who accidentally shot and killed her host brother in the southern city of Astrakhan, the Investigative Committee said Friday.
It was unclear if the case might affect a request by Reykjavik for a multibillion-dollar loan from Moscow to bail out its struggling financial sector.
The 17-year-old female Icelander accidentally shot Pavel Kurinny, 20, in the head with a pellet gun on Oct. 10, and he subsequently died from the injury, the committee said in a statement.
Investigators have opened a manslaughter case against the girl, who has since fled the country, the committee said. If charged and convicted in Russia, she faces up to two years in prison.
On the day of the incident, the Icelander was with Kurinny and his younger sister in their apartment, investigators said. 
The exchange student asked Kurinny to show her his pellet gun and while examining the weapon she accidentally pulled the trigger and fired a pellet into Kurinny’s head, they said.
The girls called the police and an ambulance, but Kurinny never regained consciousness and died in the hospital four days later.
Authorities have not released the girl’s name, but Astrakhan FM radio on Friday identified her by her first name, Halla.
A Prosecutor General’s Office spokesman could not say whether Russia would seek to extradite the girl because the Investigative Committee had not yet handed the case over to prosecutors.
An Investigative Committee spokeswoman said the case files would “probably be sent to Iceland” and that the girl would likely stand trial there. 
Under a mutual legal assistance treaty, should a request for the girl’s extradition be rejected, Icelandic authorities will take over the case, the committee said. If charged, she will be tried under Icelandic law. The girl was in Astrakhan to study Russian at a local school, investigators said.
The Icelandic Embassy in Moscow said Friday that it was unaware of the case and could not comment. Repeated calls to Astrakhan prosecutors went unanswered.
Iceland has asked Russia for a loan of several billion euros since the country’s financial sector, a mainstay of its economy, collapsed under the pressure of the global liquidity crisis. The first round of talks on the loan were held Wednesday. Further talks will resume soon, Iceland’s prime minister, Geir Haarde, said Thursday.

TITLE: Putin Announces Measures
PUBLISHER: Bloomberg
TEXT: MOSCOW — Russia will take further steps to boost banks and other industries, even though the country registered no net capital outflow in the first nine months, Prime Minister Vladimir Putin said.
“The government will take additional measures to support the banking sector and the real economy,” Putin said during a meeting with foreign investors in Moscow on Monday. He said he had ordered an additional 200 billion rubles ($7.62 billion) to be provided to the Deposit Insurance Agency for “additional capitalization of banks to ensure their stable operation.”
Investors withdrew the same amount of money from Russia as they brought into the country in the year through September, meaning net capital outflow was zero, Putin said. “I’d like to stress that our economy, on the whole, is quite well prepared for long-lasting external shocks,” he added.
The government has pledged more than $200 billion to stem the worst financial crisis since 1998, including a banking liquidity boost worth $86 billion, following capital outflow. Slumping commodities prices, the war with Georgia and the seizing up of global capital markets prompted investors to pull about $63 billion from Russia since Aug. 8, UniCredit SpA estimates.

TITLE: Local Real Estate Market Sees Stagnation
AUTHOR: By Natalya Chumarova, Nadezhda Zaitseva and Anatoly Tyomkin
PUBLISHER: Vedomosti
TEXT: The number and volume of mortgages issued in St. Petersburg fell by almost 30 percent during the third quarter of this year. From June to September, 3,901 mortgages were taken out in St. Petersburg, totaling 10,739.2 million rubles ($408 million). Until now, the mortgage market had only ever seen positive growth.
Loans issued in accordance with the City Mortgage Program fell by 50 percent, from 219 loans totaling 532.7 million rubles ($20.24 million) to 110 loans totaling 237.2 million rubles ($9 million). In August, 26 banks accredited by the program stopped providing mortgages due to changes in the conditions set by the Mortgage Agency and a lack of long-term funds, said Sergei Miliutin, head of the development department of the St. Petersburg Mortgage Agency. He said some of the banks had already resumed offering mortgages.
In August and September, banks started to shut down their mortgage programs, introduce stricter lending conditions and increase rates, said Igor Zhigunov, deputy president of the City Mortgage Bank. Many reduced the quota of mortgages given, according to Miliutin. The stagnation on the real estate market that set in at the end of spring was reflected in indexes, said Zhigunov.
Miliutin estimates that interest rates on loans have increased by two percentage points to 15-18 percent. During the last month, the average rates on loans in St. Petersburg have grown by 1.5-2 percentage points up to 14-16 percent for loans issued in rubles, and by 1-1.5 percentage points up to 11.5-12 percent for loans issued in other currencies, said Anna Ivanova, the head of public relations of the St. Petersburg branch of Fosborn Home mortgage brokerage.
Bank St. Petersburg increased its rates, and the number of potential clients seeking to obtain a loan decreased slightly, said Anna Barkhatova, the manager of the bank’s press service. The bank has always adhered to strict conditions when processing loan applications, so the number of unsuccessful applications will not increase, she said. 
Since the start of autumn, the City Mortgage Bank has been handling more applications, but the number of loans granted has decreased due to the fact that banks, including the City Mortgage Bank, have tightened underwriting requirements, said Zhigunov. The number of loans granted has decreased by 17 percent at Absolut bank and by a third at KIT Finance. Banks are withdrawing from the mortgage market and the number of loans issued will diminish, said Ivanov.

TITLE: Carlyle Sues NLMK For Reneging on $3.53 Bln Deal
AUTHOR: By Melissa Akin
PUBLISHER: Reuters
TEXT: MOSCOW — The Carlyle Group is suing steelmaker NLMK to force it to complete a $3.5 billion deal to buy U.S. tubular steel maker John Maneely, one of Russia’s biggest merger deals this year.
Both sides confirmed in e-mails on Saturday that the suit had been filed and that the deal was not closed.
In an Oct. 15 filing with the U.S. District Court for the Southern District of New York, lawyers for DBO Holdings — a unit of Carlyle — filed suit against NLMK demanding that NLMK complete the deal and pay damages for backing out of the deal.
“In a series of meetings and telephone calls with the company, which occurred between Oct. 2 and Oct. 15, NLMK’s authorized representatives stated that changed financial market conditions warranted a reduction in the purchase price or a significant restructuring of the merger transaction,” the Carlyle unit’s filing said. “During these meetings, NLMK’s authorized representatives indicated that NLMK repudiated the merger agreement.”
For its part, NLMK said in a statement, “There have been disagreements concerning the rights and obligations of the parties under the merger agreement, and at this time NLMK has not closed the transaction.”
NLMK, majority owned by the world’s 21st-richest man, Vladimir Lisin, said it had retained U.S. counsel and would defend itself against the suit.
Carlyle bought John Maneely in 2006 for $568 million and in August 2008 agreed to sell it to NLMK, also known as Novolipetsk Steel, for $3.53 billion. The deal amounted to 12 percent of total U.S. mergers and acquisitions activity in August, according to Thomson Reuters data.
The price tag of the deal is now equal to two-thirds of NLMK’s own stock market capitalization. NLMK’s share price has fallen nearly 80 percent since the deal was announced. It fell nearly 20 percent on Friday alone.
Mergermarket earlier in the week listed the John Maneely takeover as Russia’s second largest deal this year and, at $3.5 billion, it made up the vast majority of the deal flow for the third quarter.
For 2008, it was outstripped only by billionaire Mikhail Prokhorov’s sale of his share in investment vehicle KM-Invest to business partner Vladimir Potanin in a messy divorce that left Potanin in effective control of metals giant Norilsk Nickel, Mergermarket said.
“Although effective Oct. 1, 2008, NLMK’s lenders entered into a binding agreement to provide the financing necessary to enable NLMK to consummate the merger transaction, and NLMK refused to take steps — steps entirely within its control — to draw upon that financing,” said the Carlyle unit’s filing.
NLMK did not comment on the financing arrangements for the merger in its statement.
Steel companies’ market value has been savaged in a global stock sell-off that hit the makers of construction inputs harder than others, largely on fears that declining real estate prices and lower economic activity would hit demand for their products.

TITLE: In Brief
TEXT: <b>Deripaska Seeks Funds</b>
MOSCOW (Bloomberg) — Russian billionaire Oleg Deripaska is looking to raise funds to repay part of the $4.5 billion borrowed to buy GMK Norilsk Nickel, the Financial Times reported, citing two unidentified people familiar with the deal.
Deripaska’s United Co. Rusal may lose its 25 percent stake in Norilsk Nickel if it doesn’t raise more than $2 billion by the end of this month, the report said. The global financial crisis has made it difficult for the unit to raise funds overseas and it has turned to state-owned development bank Vnesheconombank, it said.
Deripaska is trying get an extension of the waiver for the refinancing beyond Oct. 31 from banks including Merrill Lynch & Co. and BNP Paribas SA, the report said.

<b>TNK-BP CEO Shortlist</b>
MOSCOW (Bloomberg) — BP’s Russian joint venture TNK-BP has three candidates for the role of chief executive officer, including the former head of Norilsk Nickel Denis Morozov, the Wall Street Journal reported, citing people familiar with the situation.
Other candidates being considered include Peter O’Brien, vice-president for finance and investments of Rosneft, and Piotr Galitzine, head of the Russian unit of BASF SE, according to the Sunday Times.
BP will have a final shortlist by the end of the month, the Wall Street Journal said. The winning candidate will replace Robert Dudley, who is stepping down.

<b>Kazakhstan Has Plan</b>
MOSCOW (Bloomberg) — Kazakhstan’s government plans to invest $15 billion by the end of this year to help revive the economy amid the credit crunch.
Kazakhstan will invest $5 billion from its National Oil fund into the National Wellbeing Fund “Samruk-Kazyna,” if parliament supports the move, Kazakh Prime Minister Karim Masimov told a government meeting in Astana, according to the state-run news agency Kazinform on Monday. Kazakhstan also plans to invest $5 billion from the National Oil Fund in the economy through “some securities,” Masimov said, without elaborating.

<b>36.6 Sees Revenue Soar</b>
MOSCOW (Bloomberg) — Pharmacy Chain 36.6, Russia’s largest drugstore company, said nine-month revenue rose 39 percent after higher incomes led to an increase in spending on medicines and personal-care products.
Sales increased to $820.7 million from $592 million a year earlier, the Moscow-based company said Monday in an e-mailed statement. Revenue at stores open at least two years climbed 17 percent, while the value of an average pharmacy transaction in such outlets gained 27 percent.

<b>Retail Loans Decrease</b>
MOSCOW (Bloomberg) — M.video, Russia’s second-largest electronics chain, and smaller rival Mir said shoppers took out fewer loans at their stores this month, Kommersant reported.
Consumer loans at M.video stores fell by 30 percent in October from September because banks began requesting so-called initial payments on loans and raised rates, the newspaper said, citing Valery Shatkovskoy, head of the retailer’s consumer credit department. Loan rates at Mir stores increased by as much as six percentage points this month, while the amount of loans fell, the newspaper said, citing the chain’s press service.

TITLE: State Seeks to Help Out Ailing Domestic Airlines
AUTHOR: By Maria Antonova
PUBLISHER: Staff Writer
TEXT: MOSCOW — The government is stepping up its efforts to help domestic airlines struggling with high jet fuel prices, calling for long-term contracts between oil companies and carriers.
In a meeting with President Dmitry Medvedev, Deputy Prime Minister Igor Sechin called on the industry to “switch to long-term contracts between airlines and oil companies that would exclude the middleman.” 
Intermediaries typically run refueling complexes at Russian airports, and the government has in the past accused them of selling fuel at unreasonable prices.
The Transportation Ministry said in a statement that it would outline a possible mechanism for formulating prices for the long-term contracts this week. It also proposed letting domestic carriers delay value-added tax and customs payments on imported planes for up to 18 months. 
Customs fees will remain at their current levels, however, until at least May, the statement said.
Deputy Prime Minister Sergei Ivanov, meanwhile, told a business forum Friday that the situation on the domestic jet fuel market was “ridiculous” because prices for oil products remained high — even as the cost of crude has fallen 50 percent since the summer.
“If we live in a market system, then let’s live by market rules,” Ivanov said, Interfax reported.
High fuel prices have pushed small Russian carriers into debt, resulting in delayed and canceled flights and a government bailout of struggling airline alliance AiRUnion. On Thursday, the Federal Anti-Monopoly Service warned the country’s biggest oil companies that it would pursue legal action if they did not voluntarily cut prices for jet fuel.
“It’s great that the government is finally looking into giving serious help to the airlines,” said Yelena Sakhnova, a transportation analyst at VTB. 
Fuel prices at the current level make them unprofitable, and even the larger companies could be in danger because they don’t measure up to global leaders, she said. 
The Russian aviation market should have consolidated five years ago, which would have alleviated some of its current problems, she said. 
“There are 110 domestic airlines that are only responsible for transporting 40 million passengers per year,” she said, adding that it was less than the volume of Lufthansa’s traffic.
The Federal Navigation Service warned nine regional carriers on Oct. 8 that they would be grounded from Friday for not paying debts, although it said last week that they could continue to fly passengers who have already bought tickets.
Interfax, citing a source in the navigation agency, reported that airlines’ debts were being restructured and that the companies would have to guarantee that they will repay the money.
But not everyone was convinced that eliminating middlemen would help airlines cut costs.
“There are middlemen in airports all over the world that operate fueling facilities,” said Oleg Panteleyev, an independent analyst who runs industry web site Aviaport.ru. 
“Getting rid of middlemen in a single-handed government measure will only create additional problems,” he said. “Instead, there needs to be competition on the market of fuel supply,” he said. 
Currently, many airports’ fueling facilities do not have any way of switching suppliers, so airlines are locked in contracts with one company and whatever price they set.
In a sign that the government’s warnings were being heard, Gazprom Neft said Friday that it would cut jet fuel prices by 12 percent on all new contracts, “which will lead to a decrease in fuel prices at Russian airports.” 
In late September, Gazprom Neft signed an agreement with Sheremetyevo Airport under which it would build new storage and fueling facilities by 2011 and become the airport’s supplier. 
Gazprom Neft was one of the five addressed by the Federal Anti-Monopoly Service last week. Its shares registered a slight tick upward Friday, gaining 0.2 on the MICEX.

TITLE: Ukraine Struggles Amid Crisis
AUTHOR: By Daryna Krasnolutska
PUBLISHER: Bloomberg
TEXT: KIEV — Ukraine’s hryvnia fell to its weakest level in more than a week against the dollar after Moody’s Investors Service followed other agencies in reducing or reviewing the country’s rating because of the credit crisis. 
Moody’s Investors Service lowered Ukraine’s outlook Monday as the global liquidity crunch adds pressure to an economy already beset by racing inflation and political instability. The hryvnia has slumped 18 percent since the start of September as the collapse of the government and seizure in debt markets made it harder for Ukraine to fund its current-account deficit.
The outlook for the former Soviet republic’s foreign- and local-currency debt ratings was cut from positive to stable, Moody’s said Monday in an emailed statement from New York. Moody’s downgrade follows moves by Fitch Ratings and Standard & Poor’s.
The worldwide financial turmoil is prompting investors to shun riskier assets in emerging markets. Ukraine has the worst creditworthiness of Europe’s emerging markets, based on the cost of credit-default swaps, which protect bondholders against default. The country is also heading for early elections on Dec. 7 after the second collapse of a ruling alliance between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko.
“Although Ukraine’s government balance sheet remains strong at the moment, the current global market turmoil heightens the existing vulnerabilities,” said Moody’s Vice President Jonathan Schiffer said in the statement.
The hryvnia fell 3.7 percent to 5.4400 to the dollar, its weakest level in more than a week, as of 2:25 p.m. in Kiev. The hryvnia has slumped 16 percent against the dollar since early September because of turmoil in global financial crisis, the government coalition collapse, and new national elections, scheduled for Dec. 7.
Fitch cut Ukraine’s credit rating to B+ on Oct. 17 and Standard & Poor’s put it on review for downgrades on Oct. 15.
“There has already been speculation against the local currency, with its attendant adverse affects for inflation, debt servicing and the asset quality of the banking system,” said Schiffer.
The current-account deficit will probably widen to $15 billion this year, weakening the hryvnia, said central bank Governor Volodymyr Stelmakh last Monday.
The shortfall reached 7.2 percent of gross domestic product in the first seven months, or $7.7 billion, as higher energy costs and domestic consumption boosted imports, the central bank said on Aug. 29.
The country is seeking a loan of as much as $14 billion from the International Monetary Fund to help cover the gap, said Oleksandr Shlapak, the first deputy chief of President Viktor Yushchenko’s staff, on Friday.
The economy may face the risk of recession as prices for its main exports, including steel, dropped as demand weakened on the global market, according to Shlapak.
Worldwide inflation, driven by food and energy prices, was exacerbated in Ukraine by higher government spending. The annual rate almost tripled in a year to a record 31.1 percent in May before easing back to 24.6 percent in September.
Ukraine’s foreign-currency denominated bonds are currently rated Ba3 by Moody’s, a high-yield, or “junk,” level three steps below investment grade. The local-currency debt is rated a step lower at B1.

TITLE: Gazprom Invited to Explore Just Off Alaska
PUBLISHER: Bloomberg
TEXT: MOSCOW — Gazprom, Russia’s largest energy producer, said it was invited to explore for resources off the coast of Alaska during talks with ConocoPhillips and state officials last week.
“We received invitations for exploration work on the Alaskan continental shelf and in the near future will hold a new round of meetings and discussions,” Gazprom Chief Executive Officer Alexei Miller said, according to a transcript of an interview broadcast by Russian state television during the weekend.
Miller led a delegation of senior executives to Anchorage, meeting last Monday with Alaska’s Department of Natural Resources and ConocoPhillips CEO Jim Mulva. Gazprom highlighted its experience in producing natural gas and building pipelines in similar climate conditions as Alaska.
Gazprom, which already supplies a quarter of Europe’s natural gas, is seeking to increase its reach with projects around the world, including in North America. The courtship of Alaska comes less than a month before the U.S. presidential election, in which Russia’s resurgence has become a campaign issue.
Future negotiations will determine which fields U.S. partners intend to open up for exploration in the Chukchi Sea, Miller said. The Chukchi Sea is located north of the Bering Strait, the narrow body of water that separates Russia from Alaska.

TITLE: Medvedev Asked to Intervene to Help Minority Investors
PUBLISHER: Bloomberg
TEXT: MOSCOW — Prosperity Capital Management, a fund with $3 billion in Russian shares, on Friday asked President Dmitry Medvedev to help minority investors in two utilities, saying controlling shareholders may back out of making a mandatory buyout offer. 
Billionaire Mikhail Prokhorov, who controls TGK-4, and Leonid Lebedev’s miner Sintez Group, which controls TGK-2, “are trying to avoid fulfilling their obligations by manipulating facts and using legal loopholes,” the fund said in an open letter to Medvedev. “We ask you to take urgent measures to protect the foundations of the Russian stock market and its judicial system.” 
Prokhorov’s Onexim Holdings ended an offer to buy the shares it does not already own in Tula-based TGK-4 on Oct. 13, saying the utility had been added to a list of “natural monopolies” by the Federal Tariffs Service. Prosperity Capital has a 20 percent stake in TGK-4. 
“All actions of Onexim Holdings Ltd. fully comply with Russian laws,” Onexim Holdings said in a statement. 
Sintez spokesman Alexander Levin declined to comment. 
TGK-4 is one of 19 generators sold by the state in the past two years to investors that include Gazprom and Enel. Onexim made its buyout offer July 30, valid for 80 days. The holding company held 48.4 percent of TGK-4 at the time.

TITLE: VEB to Acquire Globex Bank for $190
AUTHOR: By Dmitry Zhdannikov and Dmitry Sergeyev
PUBLISHER: Reuters
TEXT: MOSCOW — Vneshekonombank said Friday that it would buy midsized Bank Globex, which had acute liquidity problems, making it the fourth bank among Russia’s top 50 to be effectively nationalized in the past few weeks.
State-owned VEB said it would take over the troubled bank for a symbolic 5,000 rubles ($190).
“Just as we did with Svyaz Bank, we will take the whole bank and start helping it, partly with money that the Central Bank will deposit with us,” VEB chairman Vladimir Dmitriyev said.
While the purchase price of 5,000 rubles is small, Dmitriyev said the state would deposit $2 billion with VEB, also known as the Development Bank, to help rescue Globex.
The Central Bank has already provided in excess of $2 billion to VEB to help midsized Svyaz Bank, so Friday’s deal brings the total rescue package for the banking sector to more than $5.5 billion.
This month, the government also bailed out midsized banks KIT Finance and Sobinbank. The rescue of Sobinbank by Gazenergoprombank, a banking unit of Gazprom, cost $500 million. The gas giant’s other lender, Gazprombank, opened a $1.14 billion credit line to KIT Finance.
“There are several other banks waiting for their turn,” a high-level government source said late Thursday.
A senior Russian banker said more then 100 banks were looking for buyers. “There will be a very big reshuffle,” the banker said.
The government will have to plan subsequent moves carefully and prioritize how it doles out its considerable — but not endless — resources to support the country’s still nascent financial sector, analysts said.
“While we expect further failures among small banks, we believe the panic could quickly intensify if the authorities allow a deposit-rich bank to go under,” analysts from UniCredit Aton said in a research note.
Russia has more than 1,300 banks, and authorities have said a crisis could help reduce the number to a more manageable level, as many of the institutions, created in the 1990s as pocket banks of large corporations, have outlived themselves.
“The news [about Globex] once again highlights the authorities’ commitment to support banking-system stability, with a clear focus on top 50 banks,” said David Nangle, analyst at Renaissance Capital.
The sector is due to get $36 billion as part of the state’s total $210 billion rescue package, with the bulk of it set to flow via VEB, Sberbank and VTB. 
Bankers say Russians unfailingly continue to pay mortgage and retail loans and keep depositing money with state banks. But nerves are fraying, even though the Central Bank has kept the ruble rate stable by injecting billions of dollars to support the currency.
“People are lost. I see some clients ending their term deposits early and putting money in safe deposit boxes. The next day, they convert rubles into dollars. On the third day, they convert them into euros and open a new deposit account. It is not yet panic, but it is close,” a top banker said.

TITLE: Banks   Borrow $14.85 Bln
PUBLISHER: Bloomberg
TEXT: MOSCOW — Russian banks borrowed 388 billion rubles ($14.85 billion) of unsecured funds from the central bank in an auction aimed at easing access to liquidity.
Banks borrowed 55 percent of the total funds available at an average interest rate of 9.89 percent for 35 days, Bank Rossii said in a statement on its web site Monday. The funds must be returned by Nov. 24.
“This is unbelievable, it’s very good,” Evgeny Nadorshin, chief economist at Trust Investment Bank in Moscow, said by telephone Monday. “Barring any catastrophic news from the U.S., the unsecured loans auctions along with the other steps already taken should be enough to normalize the situation for the financial market.”
The central bank lowered reserve requirements from last Wednesday, the second cut since September, to 0.5 percent to “support the liquidity of the Russian banking sector.” The government also pledged more than $200 billion to stem the worst financial crisis since 1998, including a banking liquidity boost worth about $86 billion, following capital outflows.
The central bank last week announced ratings requirements for banks that seek unsecured loans to ease access to liquidity. Banks must be rated at least B- by Fitch Ratings and Standard & Poor’s or B3 by Moody’s Investors Service to apply. One hundred and twenty banks qualify for the auction, according to Trust Investment Bank.

TITLE: Russia’s Big Bang
AUTHOR: By Marshall I. Goldman
TEXT: Given how rapidly Russia moved from near-bankruptcy in 1998 to what seemed like unprecedented prosperity in 2007 and early 2008, perhaps we should not be surprised that Russian financial markets have been hit even harder than those in the United States, Europe and Asia. 
In addition, the original oligarchs, along with the new ones who rose to wealth with former President Vladimir Putin’s help, have suffered especially large reversals. Billionaires from Oleg Deripaska to Roman Abramovich have lost more than $230 billion as the combined wealth of Forbes magazine’s 25 richest Russians tumbled 62 percent between May 19 and Oct. 6, Bloomberg reported. How did all of this happen? 
Several factors have come into play. First, banks around the world traditionally compete to lend money to those who are already rich since wealthy debtors are more likely in normal circumstances to be able to repay those loans. They usually have plenty of the collateral that the banks require before they will make such loans. In most cases, the collateral is stock in corporations that are traded on exchanges in various parts of the world. What better collateral could there be than stock in oil or gas companies, especially when the price of a barrel of oil rises to as much as $145, as it did this summer?
But why would oligarchs need or want to borrow money? Don’t they have enough? More often than not, they borrow so they can become even richer by buying up control of more stock or developing another oil field or building another factory. To a bank lender operating in normal economic times, it is hard to find better borrowers. That explains why banks not only in Russia but around the world fought with each other to see who could offer the most generous terms to those on the Forbes magazine list of billionaires. 
But when a few lenders and banks came to realize that too much money had been lent out and that many of the borrowers would not be able to repay their loans, those banks and lenders decided to stop lending. They also demanded repayment of the loans they had already extended. This in turn triggered a general concern among Russians about the health of the country’s economy and whether their deposits were safe. This is because banks usually do not keep all their money in cash in the vault; they lend it out. But if the loans cannot be repaid, then the banks may not be able to return the money to their depositors. 
Naturally, this concern can easily cause panic among other depositors. To protect themselves, many lenders decide that it is unwise to lend to other banks, businesses and individuals. They fear that those borrowers will not be able to repay those loans or that banks will not have enough cash for their depositors to withdraw money. This causes even more panic for depositors, risking a full run on the banks. 
Although Russia has raised the level of federal insurance to cover the first 700,000 rubles ($26,800) of personal bank deposits in case of a bank failure, this new government guarantee program doesn’t have the historical reliability or the scope of coverage that the U.S. Federal Deposit Insurance Corporation offers Americans. Thus, most Russians rightfully remain concerned about their personal savings. 
More importantly, as the price of oil has dipped below $70 a barrel, the price of Russian energy stocks has fallen. This means that the collateral the banks have secured from energy companies may no longer be large enough to protect the banks should there be a default. 
Companies that produce commodities such as ferrous and nonferrous metals, which combined with energy companies account for almost all of Russia’s industrial sector, have also suffered. To salvage what they can, the banks sell the collateral they hold, which of course means that the price of these stocks will fall even farther. That explains why giants such as Gazprom, Rosneft and LUKoil — Russia’s best credit risks before the crisis — have all found themselves seeking more credit when they were forced to provide more collateral to those Russian and foreign banks. 
Moreover, Rosneft, the country’s largest producer of oil after taking over most of Yukos’ assets, had to respond to a margin call with more cash and stock when its own stock price fell and its banks no longer held enough collateral to cover the company’s loans. 
In the extreme case, the total value of Gazprom’s stock, which only a few weeks ago had a value of $359 billion, has fallen to slightly more than $100 billion. Overall, Russia’s market capitalization lost about $1 trillion since its peak in May. This wealth simply vaporized. Something similar happened to Deripaska, who until a few weeks ago was Russia’s richest man. Because he could not ante up the additional collateral demanded by his lenders, among other losses he was forced to fork over ownership of his $154 million stake in Magna, a Canadian auto parts manufacturer that is a major supplier to General Motors. 
Since the Russian stock market has fallen more than 70 percent since May, those who invested in the country have suffered badly. Yes, you could argue that this only directly affects a small group of Russian and foreign investors, but now there are signs that many Russians who do not own stock may also be hurt. For example, because of the sharp drop in automobile sales, Severstal has cut back steel production and employment by 25 percent in Russia and by 30 percent in the subsidiaries it has recently purchased in the United States. 
If such unemployment should spread, this will surely lead to political unrest. It may also mean a rough time for Prime Minister Vladimir Putin and especially for Dmitry Medvedev, who had the misfortune of taking over the presidency just as the country’s economy began what already looks likely to be the country’s worst financial collapse since the breakup of the Soviet Union.

Marshall I. Goldman, emeritus professor of economics at Wellesley College and senior scholar at Harvard University’s Davis Center, is author of “Petrostate: Putin, Power and the New Russia,” which was published in April.

TITLE: Time to Rejoin the International Community
AUTHOR: By Alexei Bayer
TEXT: Prime Minister Vladimir Putin recently said that the financial crisis has undermined confidence in the United States as the leader of the free world and destroyed trust in Wall Street — perhaps forever. It is an amusing assertion. Even though the debacle began in the United States, the dollar has been rising, gaining around 15 percent against the ruble. Investors have been dumping emerging governments’ Eurobonds and buying U.S. Treasury obligations — still the safest financial asset around.
The Kremlin risks emulating another arrogant government, the administration of U.S. President George W. Bush. Until recently, Bush and his economic advisers kept insisting that U.S. economic fundamentals were sound and that the financial crisis would take care of itself.
Russian leaders seem to think that their country will not only avoid the coming global economic calamity, but could actually benefit from it. In reality, Russia is facing an imminent downturn at a time when it is unprepared, isolated and with business and investor confidence badly shaken. There are troubling signs that Russia has been excluded from the important international decision-making process regarding key economic issues.
Russia still has plentiful financial resources, consisting of Central Bank reserves and money in its stabilization funds. But the time to act is now, before these funds are squandered in futile haphazard efforts to stabilize the domestic economy.
The outlines of the worldwide economic crisis are starting to take shape. The immediate concern is the global financial system. But beyond looms a potentially nasty international recession. Over the past decade, global economic growth has been fueled by a credit splurge that allowed the United States to consume much more than it produced. This spending binge was collateralized by rising real estate prices. Now, one in six U.S. households owes more on its home than what the home is worth, which means that the economic paradigm will have to change. If the United States is forced to live within its means, the U.S. economy could contract by as much as 10 percent over the next year.
The consequences for the rest of the world would be devastating. China will likely face an overproduction crisis and Russia’s export earnings will drop when demand for oil and other commodities weakens. Russia could find itself isolated, shunned by international investors and unable to borrow at affordable rates in a risk-averse environment when credit is tight.
As a first step, Russia needs to rejoin the international community. An opportunity exists because of the ongoing financial crisis and the growing realization that the $700 billion package provided by Washington is inadequate. It is the case of one pauper — the U.S. government, bankrolling another — the financial system. The financial crisis was created by excess credit and it cannot be resolved by borrowing even more money. The U.S. budget deficit, after rising to a record $455 billion in the fiscal year ending Sept. 30, may reach as much as $1 trillion this year.
Washington has rejected proposals by the European Union to fundamentally reform the global financial system, but its hand may soon be forced. Russia should then spearhead an effort by Japan, China, Saudi Arabia, Norway and other countries holding large amounts of dollars to set up an international fund that would recapitalize the global banking system by taking an ownership stake in financial institutions. This will address a key global imbalance — namely the severe overhang of dollars, as some $3 trillion is currently held in central bank vaults and sovereign wealth funds around the world. 
If this constructive proposal were to be backed by Moscow’s financial muscle, Russia could play a key international role in mitigating the global financial meltdown.

Alexei Bayer, a native Muscovite, is a New York-based economist.

TITLE: Freddie Mac Arranged Stealth Campaign
PUBLISHER: The Associated Press
TEXT: The Associated Press
WASHINGTON — Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.
In the cross hairs of the campaign carried out by lobbying firm DCI of Washington were Republican senators and a regulatory overhaul bill sponsored by Senator Chuck Hagel. DCI’s chief executive is Doug Goodyear, whom John McCain’s campaign later hired to manage the GOP convention in September.
Freddie Mac’s payments to DCI began shortly after the Senate Banking, Housing and Urban Affairs Committee sent Hagel’s bill to the then Republican-run Senate on July 28, 2005. All Republican members of the committee supported it; all Democrats opposed it.
In the midst of DCI’s yearlong effort, Hagel and 25 other Republican senators pleaded unsuccessfully with then Senate Majority Leader Bill Frist to allow a vote.
“If effective regulatory reform legislation ... is not enacted this year, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole,” the senators wrote in a letter that proved prescient.
Unknown to the senators, DCI was undermining support for the bill in a campaign targeting 17 Republican senators in 13 states, according to documents obtained by The Associated Press. The states and the senators targeted changed over time, but always stayed on the Republican side.
In the end, there was not enough Republican support for Hagel’s bill to warrant bringing it up for a vote because Democrats also opposed it and the votes of some would be needed for passage. The measure died at the end of the 109th Congress.
McCain was not a target of the DCI campaign. He signed Hagel’s letter and three weeks later signed on as a co-sponsor of the bill.
By the time McCain did so, however, DCI’s effort had gone on for nine months and was on its way toward killing the bill.
In recent days, McCain has said Freddie Mac and Fannie Mae were “one of the real catalysts, really the match that lit this fire” of the global credit crisis. McCain has accused Democratic presidential candidate Barack Obama of taking advice from former executives of Fannie Mae and Freddie Mac, and failing to see that the companies were heading for a meltdown.
McCain’s campaign manager, Rick Davis, or his lobbying firm has taken more than $2 million from Fannie Mae and Freddie Mac dating to 2000. In December, Freddie Mac contributed $250,000 to last month’s GOP convention.
Obama has received $120,349 in political donations from employees of Freddie Mac and Fannie Mae; McCain $21,550.

TARGETED SENATORS
The Republican senators targeted by DCI began hearing from prominent constituents and financial contributors, all urging the defeat of Hagel’s bill because it might harm the housing boom. The effort generated newspaper articles and radio and TV appearances by participants who spoke out against the measure.
Inside Freddie Mac headquarters in 2005, the few dozen people who knew what DCI was doing referred to the initiative as “the stealth lobbying campaign,” according to three people familiar with the drive.
They spoke only on condition of anonymity, saying they fear retaliation if their names were disclosed.
Freddie Mac executive Hollis McLoughlin oversaw DCI’s drive, according to the three people.
“Hollis’s goal was not to have any Freddie Mac fingerprints on this project and DCI became the hidden hand behind the effort,” one of the three people told the AP.
Before 2004, Fannie Mae and Freddie Mac were Democratic strongholds. After 2004, Republicans ran their political operations. McLoughlin, who joined Freddie Mac in 2004 as chief of staff, has given $32,250 to Republican candidates over the years, including $2,800 to McCain, and has given none to Democrats, according to the Center for Responsive Politics, a nonpartisan group that tracks money in politics.
On Friday night, Hagel’s chief of staff, Mike Buttry, said Hagel’s legislation “was the last best chance to bring greater oversight and tighter regulation to Freddie and Fannie, and they used every means they could to defeat Senator Hagel’s legislation every step of the way.”
“It is outrageous that a congressionally chartered government-sponsored enterprise would lobby against a member of Congress’s bill that would strengthen the regulation and oversight of that institution,” Buttry said in a statement. “America has paid an extremely high price for the reckless, and possibly criminal, actions of the leadership at Freddie and Fannie.”
Nine of the 17 targeted Republican senators did not sign Hagel’s letter: Senators Mitch McConnell of Kentucky, Christopher “Kit” Bond and Jim Talent of Missouri, Conrad Burns of Montana, Mike DeWine of Ohio, Lamar Alexander of Tennessee, Olympia Snowe of Maine, Lincoln Chafee of Rhode Island and George Allen of Virginia. Aside from the nine, 20 other Republican senators did not sign Hagel’s letter.
McConnell’s office said members of leadership do not sign letters to the leader. McConnell was majority whip at the time.
Eight of the targeted senators did sign it: Senators Rick Santorum of Pennsylvania, Mike Crapo of Idaho, Jim Bunning of Kentucky, Larry Craig of Idaho, John Ensign of Nevada, Lindsey Graham of South Carolina, George Voinovich of Ohio and David Vitter of Louisiana. Santorum, Crapo and Bunning were on the Senate Banking, Housing and Urban Affairs Committee and had voted in favor of sending the bill to the full Senate.
On Thursday, Freddie Mac acknowledged that the company “did retain DCI to provide public affairs support at the state and local level.” On Friday, DCI issued a four-sentence statement saying it complied with all applicable federal and state laws and regulations in representing Freddie Mac. Neither Freddie Mac nor DCI would say how much Goodyear’s consulting firm was paid.
Freddie Mac paid DCI $10,000 a month for each of the targeted states, so the more states, the more money for DCI, according to the three people familiar with the program. In addition, Freddie Mac paid DCI a group retainer of $40,000 a month plus $20,000 a month for each regional manager handling the project, the three people said.

REALITY BITES
Last month, the concerns of the 26 Republican senators who signed Hagel’s bill became a reality when the government seized control of Freddie Mac and Fannie Mae amid their near financial collapse. Federal prosecutors are investigating accounting, disclosure and corporate governance issues at both companies, which own or guarantee more than $5 trillion in mortgages, roughly equivalent to half of the national debt.
Freddie Mac was so pleased with DCI’s work that it retained the firm for other jobs, finally cutting DCI loose last month after the government takeover, according to the three people familiar with the situation.
Freddie Mac’s problems began when Hagel’s legislation won approval from the Senate committee.
Democrats did not like the harshest provision, which would have given a new regulator a mandate to shrink Freddie Mac and Fannie Mae by forcing them to sell off part of their portfolios. That approach, the Democrats feared, would cut into the ability of low- and moderate-income families to buy houses.
The political backdrop to the debate “was like bizarre-o-world,” said the second of three people familiar with the program. “The Republicans were pro-regulation and the Democrats were against it; it was upside down.”
Senator Richard Shelby, the committee chairman at the time, underscored that in a statement Wednesday, saying that with Democrats already on their side, it was not surprising that Freddie Mac and Fannie Mae went after Republicans. “Unfortunately,” said Shelby, “efforts then to derail reform were successful.”
In a sign of bad things to come, Freddie Mac was already having serious problems in 2005. Auditors had exposed massive accounting issues, so improved regulation was one obvious remedy.
Once Freddie Mac’s in-house lobbyists failed to keep Hagel’s bill bottled up in the committee, McLoughlin responded by secretly hiring DCI.

‘UNETHICAL’ LOBBYING
DCI never filed lobbying reports with Congress about what it was doing because the firm was relying on a long-recognized gap in the disclosure law.
Federal lobbying law only requires reporting and registration when there are contacts with a legislator or staff.
“To have it stealthy, not to let people know who is behind this, in my opinion is unethical,” said James Thurber, director of the Center for Congressional and Presidential Studies at American University who has long taught courses about lobbying.
Goodyear is a longtime political consultant from Arizona who resigned from the Republican convention job this year after Newsweek magazine revealed he had lobbied for the repressive military junta of Myanmar.
McLoughlin, Freddie Mac’s senior vice president for external relations, was assistant treasury secretary from 1989 through 1992 in the administration of President Bush’s father. McLoughlin served as chief of staff to Senator Nicholas Brady in 1982 and to Representative Millicent Fenwick, from 1975-79.
Seven of the 17 targeted Republican senators were in the midst of re-election campaigns in 2006, and according to one of the three people familiar with the program, Freddie Mac and DCI hoped those facing tough races would tell their Republican colleagues back in Washington that “we’ve got enough trouble; you’re making it worse with Hagel’s bill.”
Five of the seven DCI targets who ran for re-election in 2006 lost, and Senate control switched to the Democrats.
A Freddie Mac e-mail on May 4, 2006 — the day before Hagel’s letter — details the behind-the-scenes effort that Freddie Mac and DCI generated to hold down the number of Republicans signing Hagel’s letter urging a full Senate vote. It said:
“What I’m asking is that DCI get a few of their key well-connected constituents from each state to call in to the DC office of their Republican senators and speak to the (legislative director) or (chief of staff) and urge them not to sign the letter. The following could be used as a short script.”
The proposed script read: “We can all agree that Fannie’s and Freddie’s regulator should be strengthened but unfortunately, S.190 goes too far and could potentially have damaging effects on Georgia’s — example — home buyers.”
According to the third of the three people familiar with the program, “DCI was asked to help keep senators from signing; it was a big part of their effort that year and it was viewed as a success since many DCI targets did not sign the letter.”
DCI’s progress after the first four months of the campaign was spelled out in a 19-page document dated Dec. 12, 2005, and titled, “Freddie Mac Field Program State by State Summary Report.”
A snippet of a senator-by-senator breakdown of the efforts says this about Maine’s Snowe:
“Philip Harriman, former state senator, co-chair of Snowe’s 2006 campaign, personal Snowe friend, major GOP [Republican] donor and investment adviser, has written the senator a personal letter on this issue. Dick Morin, vice president Maine Association of Mortgage Brokers, has been in direct contact with Senator Snowe’s committee staff, has sent a letter to Snowe, and is pursuing a dozen(s) of letters from his members.”
On Wednesday, Snowe’s office issued a statement saying that she “literally gets hundreds of ‘Dear Colleague’ letters seeking support for their positions that she does not sign. Had this legislation come up for a vote in 2006, she certainly would have considered it on its merits — as she does every vote. Just last July, she voted for the housing bill that established a new, stronger regulator.”
Rosario Marin, a staunch McCain supporter who spoke at the GOP convention in September, was among the people DCI used in carrying out the campaign.
Marin, the U.S. treasurer during the first term of the Bush administration, went to Missouri and to Montana, Burns’ state, where she spoke out against Hagel’s bill.
At the time, Burns, who ended up losing his re-election bid, was caught up in a Washington influence-peddling scandal centering on disgraced lobbyist Jack Abramoff.
Marin’s visit triggered a local newspaper story in which the reporter contacted Burns’ staff for comment. Burns’ office told the newspaper the senator was not supportive of the latest version of Hagel’s bill.
On Wednesday, Marin, now state consumer services secretary in California, issued a statement confirming that her trips to Missouri and Montana were in her capacity as a DCI consultant.
The December 2005 summary listing 17 Republican targets outlines the inroads DCI was making.
“On day one” of the effort, Senator George Allen of Virginia had not addressed Hagel’s bill and his legislative aide for housing was not assigned to it, the report said.
“Today,” the report added, “the senator is aware of the issue and ... at the moment he is undecided.” Allen’s deputy chief of staff “has said that the senator will take into consideration before he decides that Freddie Mac is located in Virginia and is one of the largest Virginia employers.”
“Grasstops/opinion leaders James Todd, president, the Peterson Companies wrote to both senators,” the report added. “Milt Peterson, the founder and CEO of the company is one of Allen’s major donors.”
In the end, Allen, who lost his bid for re-election in 2006, did not sign Hagel’s letter.

TITLE: Cash-Strapped Korean Kills Six in Rampage
AUTHOR: By Jae-Soon Chang
PUBLISHER: The Associated Press
TEXT: SEOUL — A financially strapped South Korean man went on an arson and stabbing rampage in Seoul on Monday, leaving six people dead and seven others wounded, police said.
The 31-year-old suspect, identified only by his surname, Jeong, first set fire to his room in a low-cost lodging facility in southern Seoul and then stabbed other residents with a sashimi knife while fleeing the fire, police said.
Five people were stabbed to death and another died after jumping out of a window to escape the blaze, police said.
Seven others were wounded, including four seriously, and the death toll could rise, according to police.
The suspect, arrested at the scene, told police he did not want to live because “everybody looks down on me,” Kim Kap-shik, chief detective at Seoul’s Gangnam Police Station, told reporters.
Police also seized two more knives and a tear gas gun from Jeong.
The suspect used to work part-time at restaurants and other places, but has been out of job since April, police said.
Jeong’s “livelihood was difficult and (he) has been under considerable financial pressure” and could not pay his rent and mobile phone fees for months, the investigator told reporters.
Kim also said Jeong was facing a police investigation for not taking part in annual training for military reservists.
Jeong also told police he attempted to commit suicide when he was a middle school student, and had been suffering occasionally from severe headaches.
Yonhap news agency and other media reported that Jeong has been convicted of crimes eight times in the past. Police were not immediately available to confirm Jeong’s criminal record.
One of the dead and four injured victims were ethnic Korean Chinese citizens working in South Korea, according to media reports.
Such random violence is not common in South Korea, though is not unknown.
In February, a 69-year-old man, upset over a land dispute, started a blaze that destroyed a 14th-century gate in Seoul that is considered one of South Korea’s most treasured landmarks.
And in 2003, a 56-year-old man with a record of mental illness ignited a carton filled with gasoline on a subway train in the southern city of Daegu, leaving 198 people dead and 147 injured.
Neighboring Japan has been struck by a series of random stabbings this year.
In the worst case, seven people were killed in Tokyo’s Akihabara electronics district in June when a man slammed a truck into a crowd of people, jumped out and began stabbing passers-by at random.

TITLE: Murray Masters Madrid to Nab No.4 Spot
PUBLISHER: Combined Reports
TEXT: MADRID, Spain — Fourth-ranked Andy Murray beat Gilles Simon of France 6-4, 7-6 (6) Sunday to win the Madrid Masters.
The U.S. Open finalist became the first Briton to win four titles in a season. He will be the first Briton in the Open era since Fred Perry in 1936 to finish the year at No. 4.
Greg Rusedski and Tim Henman both reached No. 4 but never finished the year there and never won four titles and played in a Grand Slam final in one season.
Murray won in Doha, Marseille and Cincinnati. Mark Cox of Britain captured three titles in 1975.
“Gilles was hitting much better from behind the baseline, but I got a lot of free points from my serve,” Murray said. “That was probably the key to my win today.”
Murray never faced a break point and converted one in the fifth game to take the first set when Simon hit wide.
The Briton saved two set points in the tiebreaker before closing the match out when Simon hit into the net for his 30th unforced error. Simon had previously won five straight three-set matches.
“I couldn’t move like I’m used to and Andy knew it, so he tried to kill me by making me run,” said Simon, barely able to walk the step up to the microphone. “Often I missed two easy shots, one after another. That’s why I lost today; I couldn’t focus on every point. It was too much effort for me.”
Murray beat Roger Federer in the semifinals, while Simon defeated top-ranked Rafael Nadal to reach his fourth final this year. Their victories denied a fifth Nadal-Federer final of 2008.
“I know you guys would have liked to have seen a Roger-Rafa final but you brought a great atmosphere, so thanks for coming,” Murray told the crowd at the Madrid Arena, which hosted the tournament for the final time as it moves to the newly built “Caja Magica” (Magic Box) next year.
The two finalists had both beaten Federer and Nadal this year, with Simon saving 17 break point chances Saturday against Nadal.
The 16th-ranked Simon previously won at Bucharest, Casablanca and Indianapolis this year, and he is within reach of qualifying for next month’s Masters Cup in Shanghai.
The 23-year-old Frenchman is ninth in the race to qualify for the season-ending tournament — seven points behind No. 7 David Ferrer and six short of Juan Martin del Potro and the eighth and final qualifying spot.
“It won’t be easy because there are one or two tournaments left. I don’t know if I play in Lyon because right now I just want to rest,” Simon said. “You can’t make any mistakes, you have to win. It won’t be easy.”
Both players started tentatively with the match rarely venturing from lengthy groundstroke rallies on the baseline.
“I knew that he was going to be tired, but he plays so many matches like that, you don’t know how he is going to come out the next day,” said Murray, who extended his winning streak over French opponents to 10. “When he was actually running he moved good and that was what was tough for me. I didn’t expect him to chase as many balls down.”
The 21-year-old Briton fired one of his 10 aces to clinch the first set.
“I didn’t feel like I was on my game particularly, but I served great and came to the net a couple of times and took the ball on,” Murray said.
Nadal became the first Spaniard to secure the men’s year-end No. 1 ranking on Saturday despite losing in the semifinal in Madrid.
Nadal toppled Federer from top spot in August and after the Swiss perished in the last four in Madrid the five times grand slam champion was guaranteed to finish the season on top of the ATP rankings.
Saturday’s defeat meant it would be the first time since 2003 that Federer, who won his fifth successive U.S. Open crown last month, would not end the year as world No. 1.
“To become No.1 during the year was one of my goals and it is important to have achieved it,” said Nadal.
“Moreover, if you finish the year as No. 1 it is even more special,” added the 22-year-old after being beaten by Simon.
“I am also very happy to bring something more to Spanish sport, something for Spanish history and for our great tennis tradition.”
The Mallorcan is also the first left-hander to claim the accolade since John McEnroe in 1984.
After bagging a fourth successive French Open title in June, Nadal ended Federer’s five-year reign at Wimbledon by winning what is considered the greatest ever tennis match in July.
He also became the first man since Bjorn Borg in 1980 to win the Roland Garros-Wimbledon double.
Nadal crowned a glorious season by capturing the Olympic gold in Beijing before ending 27-year-old Federer’s record 237-week run as world No. 1.
The Spaniard leads the circuit with eight titles and an 80-10 match record in 2008.
(AP, Reuters)

TITLE: Tampa Bay To Contest World Series
AUTHOR: By Ben Walker
PUBLISHER: The Associated Press
TEXT: Brad Lidge’s only blemish this season came in the All-Star game. Turns out that loss means a lot more now.
Because of that one slip-up, Lidge and the Philadelphia Phillies will open the World Series on the road — against the Tampa Bay Rays, the team with the best home record in the majors this year.
Game 1 is Wednesday night at Tropicana Field. And really, who could’ve imagined this matchup back in March, when Rays rookie Evan Longoria homered off Cole Hamels in spring training?
One of the oldest franchises in baseball against one of the newest, linked by a single thread — a history of failure.
The Phillies, the losingest team in pro sports history, with only one championship to their name. The Rays, sad sacks since joining the majors with Arizona in 1998, with the worst record in baseball last year.
The Rays capped their turnaround by dethroning the Boston Red Sox 3-1 Sunday night in Game 7 of the AL championship series.
And while Fox TV executives might’ve hoped for something seemingly more attractive—say, Cubs-Red Sox—the likes of former NL MVPs Jimmy Rollins and Ryan Howard, along with B.J. Upton, Shane Victorino, Chase Utley and ALCS MVP Matt Garza certainly give fans a fresh look.
Oh, another theme coming this October: rest vs. rust. The Phillies will have been off a week by the time they play the opener.
“Obviously, winning is the silver lining. We would have been happy to do it in four,” Tampa Bay manager Joe Maddon said hours before Game 7.
While Maddon was a coach with the 2002 Angels when they won the World Series, this matchup is full of newcomers. Of all the players involved, the only one with a hit in any previous World Series is Phillies backup outfielder So Taguchi.
Friendly rivals, too. While the teams haven’t met in the regular season since 2006 and Rays reliever Trever Miller is the lone Series player who’s spent time on both sides, the clubs see a lot of each other every spring.
The Phillies have trained in the Tampa Bay town of Clearwater for more than a half-century and maintain a year-round fan base in the area that includes Phils Hall of Famer Robin Roberts.
Maddon grew up in Hazleton, Pa., about 100 miles from Philadelphia, and admits he didn’t root for the Phillies as a kid. Over the past few years, he’s become more of a fan.
“Just seeing them in spring training, my impression of them was that they were more like an American League lineup. I thought their offense, they could pound the ball up and down the lineup. I was really impressed with that,” Maddon said recently.
“I’ve always been a big fan of their MVP guys, but I liked Victorino also. He made a big impression on me in spring training,” he said. “The thing I didn’t know about them is how good their pitching was.”

TITLE: Livni Gets More Time to Form Coalition
AUTHOR: By Jeffrey Heller
PUBLISHER: Reuters
TEXT: JERUSALEM — Tzipi Livni will have another two weeks to try to form a government and become Israel’s prime minister after receiving on Monday an extension to an original 28-day presidential mandate to put together a coalition.
Foreign Minister Livni, elected leader of the centrist Kadima party last month, would take over as prime minister from Ehud Olmert, who resigned in a corruption scandal but remains in office until a new government is established.
At a meeting with President Shimon Peres, Livni requested and received an additional 14 days to try to finalize a governing coalition, a spokesman for Peres said.
From the outset, commentators had expected Livni would need a full six weeks to negotiate coalition deals.
“Yes, you need more time ... I am ready to help,” Peres told Livni, who said at his office that she would “bring a government to life” to deal with the current period of economic instability.
“We can reach decisions and wrap things up,” Livni said.
The question remains whether Livni, who has already won preliminary agreement from Defense Minister Ehud Barak’s Labour Party to join a government under her leadership, can persuade the ultra-Orthodox Shas party to sign up.
With Labour in her corner, Livni would control 48 of the 120 seats in parliament. Shas’s membership would boost that number to 60, a wafer-thin coalition but enough to block the opposition from toppling her government in no-confidence votes.
Winning the support of smaller factions, such as the Pensioners party, with seven lawmakers, and left-wing Meretz, with five, would give Livni a stronger mandate to pursue policies that include peacemaking with the Palestinians.
Shas, which has long billed itself as a party that represents Israel’s poor, has been demanding increased government spending of about 1 billion shekels ($270 million) on social welfare as a price for joining a Livni-led coalition.
Negotiations between Kadima and Shas are likely to be stepped up, amid speculation that Livni intends to present a government when parliament reconvenes on October 27 after its summer recess.
Without Shas, she could form a minority government relying on precarious support from outside the coalition of left-wing and Arab parties wary of a national ballot that opinion polls show Benjamin Netanyahu’s right-wing Likud would win.
An early election, ahead of voting not due until 2010, would be likely should Livni fail to establish a government.

TITLE: British Aid Worker Killed in Taliban Attack
PUBLISHER: Reuters
TEXT: KABUL — Two Taliban gunmen on a motorcycle killed a British woman aid worker in the Afghan capital on Monday, accusing her of spreading Christian propaganda.
Taliban insurgents have increasingly targeted aid workers this year in their campaign to spread an atmosphere of fear and undermine claims by the Afghan government and its Western backers that they are bringing security to the war-ravaged nation.
“She was walking to work this morning. There were two people on a motorcycle. They got off the motorcycle and shot her and then went away on the motorcycle. She was dead pretty soon afterwards,” said Mark Lyth, the board chairman of SERVE Afghanistan, the aid agency which employed the woman.
“We have no possible motivation for this other than, I suppose, what’s happening in Afghanistan at the moment. I can only guess it was part of the Taliban offensive,” he told Reuters by telephone from Britain.
SERVE Afghanistan is a British-based Christian aid organization that focuses on community development and education and vocational training for people with disabilities.
The Taliban claimed responsibility for the attack. “We killed her for spreading Christian propaganda,” Zabiullah Mujahid, a spokesman for the militant group, told Reuters by telephone.
More than 120 attacks were carried out on aid programs during the first seven months of this year, the United Nations says.

TITLE: Hamilton Edges Toward Title With One More Race To Go
AUTHOR: By Nick Mulvenney
PUBLISHER: Reuters
TEXT: SHANGHAI — Lewis Hamilton turned discipline into dominance at the Chinese Grand Prix on Sunday and trusted the same calm approach would lead him to the Formula One title in Brazil next month.
Last season, the McLaren driver gave up a 17-point championship lead to Ferrari’s Kimi Raikkonen over the last two races, a collapse that began when he tried to win it all in Shanghai and ended up in a gravel trap.
There was no repeat of that rookie rashness this weekend, with the Briton driving a supremely measured race to take a seven-point lead over Raikkonen’s teammate Felipe Massa.
The 23-year-old now requires only a top five finish to become the sport’s youngest champion at Sao Paulo’s Interlagos circuit on Nov. 2.
“I’ve got a seven-point lead in the world championship but that doesn’t allow me to take anything for granted,” he said.
“I think our approach to this race was right. It was not to go out and win everything just in this race.
“It was to look at both races to try and score as many points collectively.
“I know going to Brazil will be a much better situation compared to last year and also we know that we will be a lot more competitive than we are here so that is comforting.”
McLaren boss Ron Dennis said Hamilton had done a “truly fabulous job” and was encouraged that his protege had put his car on pole position despite carrying a heavier fuel load than his rivals.
“(This) clearly demonstrates the inherent pace of our car,” he said.
Hamilton was not surprised that world champion Raikkonen had slowed down to allow Massa to move into second place and win two more points.

TITLE: Right-Wing Turkish Plotters Go on Trial
AUTHOR: By Daren Butler
PUBLISHER: Reuters
TEXT: SILIVRI, Turkey — A shadowy right-wing group went on trial in Turkey on Monday on charges of trying to topple Prime Minister Tayyip Erdogan’s government.
Eighty-six people, including retired army officers, politicians, lawyers and journalists, are accused of planning assassinations and bombings to sow chaos and force the military to step in.
The case has shed light on what many Turks have long believed are ultra-nationalists tied to the security forces and state apparatus willing to take the law into their own hands in the name of defending the secularist state.
The trial at the heavily-guarded Silivri prison on the outskirts of Istanbul is expected to take months to complete. It began in disarray on Monday as officials sought to seat all the defendants and lawyers in the same court room.
Hundreds of protesters demonstrated against the trial, waving Turkish flags and chanting: “The traitors are in parliament, the patriots are in prison.”
Protesters also carried billboards of two prominent retired four-star generals who are under arrest for alleged ties to the ultra-nationalist group, but are yet to be indicted.
The case has caused concern in financial markets in Turkey, wary of renewed political tensions.
Some government opponents also see the controversial case as revenge for court moves earlier this year to outlaw the ruling AK Party. The AK Party, which has roots in political Islam, has denied any link.
The AK Party narrowly averted closure by the Constitutional Court in July for Islamist activities and was instead fined for undermining the country’s secular principles.
The new case has highlighted the tensions between the AK Party and the secularist elite, including generals, judges and professors, who fear the government is seeking to introduce Islam into public life.
“This is the first time in world history such a comedy happens,” professor Kemal Alamdaroglu, a suspect in the trial, told reporters outside the court house. “What I had done as a rector were all in line with the constitution and laws. If I am accused it is because of that,” he added.
The indictment targets the ultra-nationalist group called Ergenekon, which first came to light last year when a cache of explosives was discovered in a police raid on an Istanbul house.
Turkish liberals hope the Ergenekon case will unearth the existence of a “deep state” in Turkey, code for hardline nationalists who are believed tied to numerous unsolved political murders and attacks over the past few decades.
Defendants who are on trial include Dogu Perincek, head of a small nationalist party, Ilhan Selcuk, editor of nationalist, leftist Cumhuriyet, and retired brigadier general Veli Kucuk — all government critics.
“We have our doubts about whether the court process will be just, we believe some of those behind the crimes have not been brought to justice,” Filiz Kilicgun, a lawyer taking part as observer at the trial, told Reuters.

TITLE: Hull Rise to 3rd in League, Spurs Languish at Bottom
AUTHOR: By Martyn Herman
PUBLISHER: Reuters
TEXT: LONDON — Hull City gatecrashed the Premier League’s top four again on Sunday with a 1-0 home defeat of West Ham United — their fifth win in eight league games in their debut season in the top flight.
Stoke City, another of the promoted clubs, beat Tottenham Hotspur 2-1 later to leave the London club rooted to the bottom of the table with just two points.
Tottenham ended the game with nine men after Gareth Bale and Michael Dawson were both sent off while a third Spurs defender, Vedran Corluka, suffered a head injury and was carried from the field unconscious.
Michael Turner headed Hull’s winner from an Andy Dawson corner after 51 minutes to make it three consecutive wins against London clubs after away victories at Arsenal and Tottenham before the international break.
Hull, favorites for relegation before the season, are now behind only Chelsea and Liverpool (20 points) in the league with 17 points, above both fourth-placed Arsenal and champions Manchester United in fifth.
It is the best start for a promoted club since the Premier League began, although West Ham should have earned at least a point.
They wasted several good chances including Wales striker Craig Bellamy firing over the crossbar from in front of goal just before the break.
Carlton Cole also squandered the chance to equalise when his close-range shot bounced off the underside of the bar.
Tottenham’s afternoon began miserably when Bale was sent off after 19 minutes for tripping Tom Soares in the area and Danny Higginbotham buriefd the penalty low into the corner.
The visitors played some tidy soccer in response and Darren Bent equalised six minutes later.

TITLE: Powell Backs Obama in Blow to McCain
PUBLISHER: Reuters
TEXT: FAYETTEVILLE, North Carolina — Democrat Barack Obama won the support of former Republican Secretary of State Colin Powell on Sunday and announced he raised a record $150 million last month, dealing a double blow to rival John McCain’s presidential campaign.
McCain, despite trailing in opinion polls and fundraising, said he still expects to win the November 4 election and could sense “things are heading our way.”
Powell, who served several Republican presidents including George W. Bush as his first secretary of state, said either candidate would make a good president but he was critical of McCain’s uncertainty on how to deal with the economic crisis.
Powell, who in the past was mentioned as possibly the first black U.S. president, told NBC’s “Meet the Press” he backed Obama “because of his ability to inspire, because of the inclusive nature of his campaign, because he’s reaching out all across America, because of who he is.”
“I think he is a transformational figure,” Powell said of the man who could become the first black president. “His is a new generation coming ... onto the world stage, American stage.”
Powell’s backing of Obama, 47, could give a boost to the foreign policy and national security credentials of the first-term Illinois senator and appeal to moderates and independents.
But the impact of endorsements on voters is questionable and Powell’s reputation was somewhat tarnished by making the case for invading Iraq to the United Nations on the false claims that it possessed weapons of mass destruction.
In the midst of economic turmoil and with just over two weeks to go until the election, Obama leads in national polls and in many battleground states but McCain said he sees some movement in his direction.
Obama’s lead over McCain has dropped to 3 points, according to a Reuters/C-SPAN/Zogby poll released on Sunday. Obama leads McCain 48 to 45 percent among likely U.S. voters, down 1 percentage point from Saturday.
“We’re very happy with the way the campaign is going,” McCain said on the “Fox News Sunday” program. “I’ve been on enough campaigns, my friend, to sense enthusiasm and momentum, and we’ve got it.”
McCain, 72, said he did not mind being behind in polls.
“And I love being the underdog. You know every time that I’ve gotten ahead, somehow I’ve messed it up,” he said, referring to the times he has been written off as a candidate.
Obama’s fundraising announcement highlighted his disproportionate ability to spend money and blanket the air waves with advertisements, sometimes by a margin of 4-to-1 over McCain.
By bringing in at least $150 million in September, Obama more than doubled the $66 million he raised in August, which had been a record. McCain has accepted public financing and is limited to spending $84 million for the entire campaign.
Unlike McCain, Obama chose not to accept public funding for his campaign, freeing him to raise millions privately.
The Obama campaign said it had 632,000 new donors in September to bring its total to 3.1 million. It said the average donation for the month was less than $100.
McCain again chided Obama for not living up to his pledge to accept public funds and warned of the damages of unlimited spending.
“I’m saying that history shows us where unlimited amounts of money are in political campaigns, it leads to scandal,” he said. When asked whether Obama was buying the election as his campaign spokesman claimed, McCain said, “I think you could make that argument.”
McCain was spending the day in Ohio, a state he must win if he is to be president. No Republican has won the White House without winning Ohio and it was the state that put Bush over the top in 2004.
Obama was also in a battleground state with a heavy military presence, North Carolina, which had been expected to be an easy Republican win but is now in play for Democrats.
At Fayetteville, near Fort Bragg, the home of the 82nd Airborne Division, Obama called Powell “a great soldier, a great statesman and a great American” and thanked him for his advice over the years.
“He reminded us that at this defining moment, we don’t have the luxury of relying on the same political games, the same political tactics that have been used in so many elections to divide us from one another and make us afraid of one another,” Obama told the cheering crowd of about 10,000 people.
Powell said he has no plans to campaign for Obama and was not looking for a job in his administration but he left the door open to the possibility.

TITLE: Palin Meets Impersonator On Saturday Night Live
PUBLISHER: The Associated Press
TEXT: NEW YORK — The entertainment summit of the season — Sarah Palin and her impersonator, Tina Fey — earned “Saturday Night Live” its best ratings in 14 years. But if you blinked, you might have missed it.
Fey was answering questions at a news conference, something Palin hasn’t done yet as the Republican vice presidential nominee, when Palin walked on the stage. Fey beat a hasty retreat in the opening segment, walking past the real Palin with a barely perceptible nod.
If anyone was hoping for a side-by-side photo of the identically dressed women, they were out of luck.
Palin’s guest shot, widely anticipated since Fey began imitating her a month ago, led “Saturday Night Live” to its highest mark in overnight Nielsen Media Research ratings since March 1994, when assaulted skater Nancy Kerrigan was guest host.
Although a complete audience estimate for the rest of the country won’t be available until later in the week, it is likely to be around 14 million.
For the first half-hour, when Palin first came out, the audience was about 17 million. That’s pretty impressive for a TV program around midnight. The week before, only two other shows in prime time had a bigger audience, Nielsen said.
Palin told WWOR-TV in New York in an interview Sunday that she had a great time — but did not attend the after-party.
“I would do that again in a heartbeat,” she said. “It was the most welcoming and friendly environment that you could imagine. Everyone was so nice, and you know, you have to have a sense of humor through all of this. You have to have some levity through this. Otherwise, it would really, I think, grind on you and wear you out.”
In the show’s opening, Fey’s Palin said at a news conference: “First off, I just want to say how excited I am to be in front of both the liberal elite media, as well as the liberal regular media. I am looking forward to a portion of your questions.”
Moments later, the camera cut away to the real Palin watching a television monitor alongside the show’s executive producer, Lorne Michaels.
Palin stood quietly as Fey’s “30 Rock” co-star Alec Baldwin came by, mistook Palin for Fey and pleaded with Michaels not to let the actor go onstage with the governor.
“This is the most important election in our nation’s history and you want her, our Tina, to go out there and stand with that horrible woman?” Baldwin said.
When Michaels introduced him to Palin, Baldwin feigned embarrassment and replied: “I see. Forgive me. I feel I must say this: You are way hotter in person.”
Palin got even, saying: “Thank you, and I must say, your brother Stephen is my favorite Baldwin brother.” Stephen Baldwin is a born-again Christian who attended the Republican national convention in 2004.
Alec Baldwin ushered her onstage past Fey, where Palin delivered the show’s traditional opening: “Live from New York, it’s Saturday night.”
Palin later appeared alongside Seth Meyers on “Weekend Update,” declining to perform a rap song that had been written for her. Amy Poehler “filled in” for Palin as actors dressed as Eskimos, Palin’s husband, Todd, and a moose danced across the stage.

TITLE: Madonna, Guy Ritchie Call it a Day After 8-Year Marriage
PUBLISHER: Reuters
TEXT: LONDON — The key to Madonna’s enduring appeal has been to stay one step ahead of the game in the famously fickle world of pop.
But a successful musical career does not always equal harmony at home, and the performer announced on Wednesday that she and British film director Guy Ritchie were divorcing eight years after their fairytale wedding in Scotland.
Madonna was married once before to actor Sean Penn in the 1980s.
Few expect the latest personal setback to get in the way of Madonna’s stellar career for long. On Wednesday and Thursday she is due to perform gigs in Boston on her “Sticky & Sweet” world tour, before moving on to Canada.
At 50, fans say Madonna is moving and shaking like someone half her age, testament to the rigorous training that underlines the drive and professionalism of a woman who rose from the humble surroundings of a small town in the U.S. state of Michigan to international fame and fabulous riches.
But it is not just stamina and determination that have got the singer to where she is today. Perhaps more than anything else it is her ability to reinvent herself.
From the raunchy videos condemned by the Vatican to “Mamma-Donna” the mother of two heading up the aisle in 2000, she has had more image make-overs than David Bowie -- and always stayed one step ahead of her detractors.
Only last year she was shaking up the music industry again, leaving her long-time record label Warner and joining concert promotion company Live Nation in a long-term deal reported to be worth $120 million.
Having earned tens of millions of dollars on the road already, she was among the first major musical acts to react to the fact that touring was making more money than recording.
After a quarter of a century at the summit of pop, she and Ritchie, 40, have amassed a fortune estimated at $525 million, of which the vast majority comes from Madonna.
Ritchie’s film making career has been a rollercoaster ride, starting promisingly with crime caper “Lock, Stock and Two Smoking Barrels” in 1998 followed by another acclaimed picture “Snatch” two years later.
But after that he struggled, directing his wife in the critically mauled “Swept Away” in 2002 before making the commercial flop “Revolver.”
The studios have put their faith in his ability, though, and he is aiming for a major comeback with “Sherlock Holmes,” a big-budget adaptation of the Arthur Conan Doyle stories starring Robert Downey Jr. as the Victorian-era super sleuth.
True to her reputation as a career chameleon, Madonna has also tried her hand at movies. Although her turn in “Swept Away” was treated with derision, she did win a Golden Globe award in 1996 for the musical film “Evita.”
It was not surprising that Madonna begged director Alan Parker to give her the title role in a film which depicted the life of Argentine heroine Eva Peron. In many ways, Peron’s rise from poverty to president’s wife was a mirror image of the pop singer. Both clawed their way to fame from obscurity.
Madonna has also worked behind the camera, directing her first feature, “Filth and Wisdom,” which received mixed reviews.
Madonna Louise Veronica Ciccone was born in Bay City, Michigan on August 16, 1958.
She was the third child born into a large, devout Italian-Catholic family. Her mother died when she was six. Her strict disciplinarian father brought them up single-handedly.
“I became an overachiever to get approval from the world,” she confessed. “I didn’t have a mother so I needed the whole world around me.”
After studying dance, she left Michigan for Manhattan at the age of 19. She clutched just $35 in her hand and told the taxi driver “Take me where everything is.” He dropped her in Times Square.
The big breakthrough came in 1984 when she signed a record deal and made her first two big hits “Like a Virgin” and “Holiday.” She was on her way.
The next year she married Penn and landed one of her most memorable screen roles in “Desperately Seeking Susan.”
But her stormy marriage only lasted four years and her screen duet with Penn in “Shanghai Surprise” bombed.
Madonna thrives on controversy.
In her 1990 “Blonde Ambition” tour, she famously wore a Jean Paul Gaultier conical bra and covered the stage in religious imagery. The Vatican called it “one of the most satanic shows in the history of humanity.”
In 1992, her erotic “Sex” book, in which she posed nude in a string of provocative poses, was panned.
Aid groups in Malawi criticized her decision in 2006 to adopt a boy whose mother had died, saying the authorities there had bent the rules to accommodate the superstar, and the adoption was challenged in court.
Not for the first time, Madonna prevailed and the adoption went through.
Madonna has two other children -- son Rocco with Ritchie, and daughter Lourdes, born in 1996, from her relationship with fitness trainer Carlos Leon.