HEADLINES TUESDAY MORNING:

• 28 Iraqi army recruits killed by suicide bombings in Baqouba
• Video showing interrogations of Gitmo terror suspect released
• Israeli lawmakers approve prisoner swap with Hezbollah
• Federal appeals court upholds $15 million award to LAPD officers
• Euro soars to $1.60 against U.S. dollar, a new record high

I MAY HAVE LEFT IN THE NICK OF TIME

DUBAI, United Arab Emirates - Westerners were getting too racy on the beaches of this Persian Gulf tourist haven, and a police crackdown on topless sunbathing, nudity and other indecent behavior has resulted in 79 arrests in recent days.

THE BOMB IRAN DEBATE: YES, NO, MAYBE
THE UNITED STATES OF PARANOIA
DEBATING THE NEW YORKER COVER

The American Civil Liberties Union will announce today at the National Press Club that the U.S. government’s terrorist watch list has added its 1 millionth name. The estimate stems from a Justice Department inspector general’s report last year that put the watch list roster — four years after its creation — at more than 720,000 in April 2007, and growing by 20,000 records a month.

The list is used by the Transportation Security Administration in determining who may be blocked from flying on commercial airlines or who must undergo additional screening before boarding a plane. Critics such as the ACLU have accused federal officials of ignoring systemic problems with the list and say these errors mean far too many travelers are unfairly subjected to increased scrutiny by virtue of an incorrect listing

U.S. defends laptop searches at the border
Courts have upheld routine checks of Americans’ hard drives at the border. Critics say they’re anything but routine.

Is a laptop searchable in the same way as a piece of luggage? The Department of Homeland Security believes it is.

For the past 18 months, immigration officials at border entries have been searching and seizing some citizens’ laptops, cellphones, and BlackBerry devices when they return from international trips.

In some cases, the officers go through the files while the traveler is standing there. In others, they take the device for several hours and download the hard drive’s content. After that, it’s unclear what happens to the data.
The Department of Homeland Security contends these searches and seizures of electronic files are vital to detecting terrorists and child pornographers. It also says it has the constitutional authority to do them without a warrant or probable cause.

But many people in the business community disagree, saying DHS is overstepping the Fourth Amendment bounds of permissible routine searches. Some are fighting for Congress to put limits on what can be searched and seized and what happens to the information that’s taken. The civil rights community says the laptop seizures are simply unconstitutional. They want DHS to stop the practice unless there’s at least reasonable suspicion.

Amtrak expands random security sweeps
By Mimi Hall, USA TODAY

WASHINGTON - Rail passengers from coast to coast will be subject to random security checks and may have their luggage scanned for explosives beginning this fall, according to Amtrak officials.

Six months after it set up counterterrorism teams to screen passengers at busy East Coast stations, the rail company is expanding its security sweeps across the country with a new team of special agents in California.
“We want to show we’re playing defense” against would-be terrorists, says Amtrak security chief Bill Rooney. “Our focus is counterterrorism. We’re thinking along the lines of a Madrid or a London.”

ECONOMIC CRISIS NEWS

IS WAMU NEXT?

Washington Mutual says no as its share price fails and analysts predict as many as 300 bank closings. (Remember Bear Stearns was well capitalized too.)

NEW YORK (Reuters) - Washington Mutual Inc said it is “well capitalized” with more than $40 billion of liquidity and $150 billion of retail deposits, moving to reassure investors and depositors after shares of the largest U.S. savings and loan sank 34.7 percent on Monday.

The thrift said it would provide further details on its financial health and steps it is taking to work through the market environment when it reports second-quarter results on July 22.

WAMU MOCHA

Jon Talton writes in the Seattle Times:

… it’s an ominous sign that I can buy a share of Washington Mutual for about the same price as my morning tall, nonfat, no-whip, stirred mocha at Starbucks. The sour taste from a week of more market turmoil, ending with the federal seizure of big mortgage lender IndyMac Bank, sent Washington Mutual shares down 34.7 percent today to $3.23. Those same shares fetched nearly $43 a year ago.

Markets are not rational, so it’s impossible to know what the price drop of financial shares is really telling us. Sometimes markets anticipate real trouble. Sometimes they simply react to fear.

REBOUND OR NOT?

The stock market rebounded after the government announced plans to back (ie bail out) Fannie Mae and Fannie MAc…at least for an hour and then people started dumping the stock and the dow fell. Why was the governmenyt so quick to act. One reason as Brad Stetser notes is that these mortgage companies are global institutions.

The epicenter of the US financial crisis now seems to have shifted to Fannie Mae and Freddie Mac — the government sponsored enterprises that dominate the market for US housing finance. Few institutions matter more for the US economy. They currently buy or guarantee an astonishingly high fraction of all new mortgages in the US. Absent that financing, home prices would fall further — dragging down the value of a lot of the “private” mortgage-backed securities issued at the height of the crisis, and health of a lot of (troubled) private financial institutions.

But Fannie and Freddie aren’t just “too-big-to-fail” US financial institutions. Not anymore. They are now global financial institutions. They have been central to the process that has turned US mortgages into securities held by the world’s central banks. Official — meaning central bank — holdings of Agencies have soared over the past two years. The US “TIC” and survey data suggests that central banks now have at least $925 billion in “Agency debt.” That is almost certainly an understatement: the monthly TIC data tends to understate official purchases, leading to large revisions when the more accurate survey data is released in June. Total official holdings are likely above a trillion — or about 20% of the $5 trillion or so in Agency debt outstanding.

THE FEDS WERE ALSO PREDATORY LENDERS

While most of the financial media hail the rescue of Government Sponsored Enterprises (GSE’s) like Fannie and Freddy few remember that both institutions were actually promoting predatory subprime lending practices.Back in 2000, Bruce Marks, CEO of NACA (Neighborhood Assistance Corportation of America0 criticized the role they were playing.

As has been clearly documented by HUD and other testimony, the GSE’s fund a lower percent of loans to low and moderate the people than to upper income borrowers. For example in l997, the GSE’s purchased 39% of all owner-occupied and rental property available during the year while it purchased only 30% of the units purchased by low and moderate income families.

It is an outrage that Fannie Mae and Freddie Mac, with over $10 Billion in subsidies, do less for working people than the for-profit lenders. Their public relations prowess and utilization of their financial resources to squelch dissent is legendary. There is so little fact and substance to their commitments to lend to working people that it is almost incomprehensible. NACA has offices in one-third of the areas where Fannie Mae has Partnership offices . NACA provides hundreds of mortgages with excellent results in each of these cities to working people who Fannie Mae deems too risky. All the while Fannie Mae officials work their public relations machine. The GSE’s will not reform without Congressional action.

The WALL STREET JOURNAL NOTES:

The unique status of the two companies puts the government in a delicate position. They were chartered by Congress to support the mortgage market, but they are ownedby shareholders. Investors have long believed that the government implicitly backs them. That allowed the two companies to borrow at favorable rates, benefiting shareholders and supporting the housing market, but putting taxpayer money at risk. Sunday’s moves, by promising government funds to keep Fannie and Freddie operational, reinforce the notion that investors can count on the government to bail them out in a crisis.”

U.S. stocks sag as Fannie, Freddie plan overshadowed

SOROS SAYS CRISIS TO GET WORSE

EW YORK, July 14 (Reuters) - Billionaire investor George Soros said on Monday that the crisis over Fannie Mae and Freddie Mac will not be the last, and noted that the broader credit meltdown will impact an already slowing U.S. economy.

The Treasury Department agreed to raise Fannie and Freddie’s credit lines above the existing $2.25 billion apiece and buy shares to strengthen their finances, if needed. The Federal Reserve offered to let the mortgage finance companies borrow at the rate it charges banks for direct loans.

The government’s aggressive move on Sunday underscored problems plaguing the markets and the potential for them to send the U.S. economy into a severe recession.

“This incident (with Fannie and Freddie) is not the last one,” Soros told Reuters in a phone interview, adding the year-long global financial market turmoil represented “the most serious financial crisis of our lifetime.”