Sunday, July 27, 2008

How housing rescue bill can help you

By Les Christie, staff writer

NEW YORK ( -- The Senate on Saturday passed a $300 billion housing rescue bill aimed at helping troubled homeowners avoid foreclosure and supporting mortgage giants Fannie Mae and Freddie Mac.

President Bush is likely to sign the bill into law within days. After the law kicks in on Oct. 1, thousands of at-risk borrowers will be able to refinance their unaffordable old mortgages into new low-cost fixed-rate loans insured by the Federal Housing Administration (FHA).

The Congressional Budget Office estimates that 400,000 borrowers with $68 billion in loans may benefit from the program - but the bill allows for as many as 1 million or 2 million borrowers to participate in the program.

Here's what homeowners need to know.

Who's eligible?

Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 31% of their gross monthly income on mortgage debt to be eligible for the program.

They can be up to date on their existing mortgage or in default, but either way borrowers must prove that they will not be able to keep paying their existing mortgage - and attest that they are not deliberately defaulting just to obtain lower payments.

Before homeowners can get FHA-backed mortgages, they must first retire any other debt on the home, such as a home equity loan or line of credit. Borrowers are not permitted to take out another home equity loan for at least five years, unless it's to pay for necessary upkeep on the home.

To get a new home equity loan, borrowers will need approval from the FHA, and total debt cannot exceed 95% of the home's appraised value at the time.

How can I apply?

Borrowers can contact their current mortgage servicer or go directly to an FHA-approved lender for help. These lenders can be found on the Web site of the Department of Housing and Urban Development.

How does the refinancing process work?

This is a voluntary program, so lenders holding the original mortgage have to agree to rework a given loan before things can get started. The bill requires lenders to make major concessions, writing down the value of the loan to 90% of the home's current value. In areas where prices have plummeted by as much as 20%, that will mean a substantial loss for the lender.

But lenders won't sign off on a workout unless they think that they'll lose less money on that than they would by allowing a home to go through the costly foreclosure process.

Each loan will have to be underwritten by an FHA lender on a case-by-case basis. That means the banks will do a new appraisal to determine the home's current value, as well as examine and verify income statements, bank accounts, job histories and credit scores.

Based on that new appraised home value, the FHA lender must determine how much the original lender has to reduce the original mortgage, so that it will reflect 90% of the home's market value.

If the original lender agrees to the writedown, the new lender buys the old loan and takes over the reworked mortgage.

As part of the deal, the old lender writes off any fees and penalties on the original mortgage, including prepayment penalties, and accepts the proceeds from the new loan on a paid-in-full basis. Additionally, it pays the FHA an up-front premium equal to 3% of the mortgage principal.

What does it cost?

There should be little up-front costs for borrowers to bear. Loan origination fees will vary by lender, but these can usually be paid by the borrower over the life of the loan in the form of a slightly higher interest rate.

However, the refinanced loans do come with many strings. For one thing, borrowers are responsible for paying an insurance premium to the FHA guaranteeing the loan, which will be 1.5% of the principal annually.

Borrowers also agree to share any profits from future home-price appreciation with the FHA. To do that, they'll pay a "3% exit fee" of the mortgage principal to the FHA when they resell or refinance.

Plus, they'll agree to pay the FHA 100% of any profits they realize from higher home prices if they sell or refinance within a year. So if the original loan principal is $200,000 and the home sells for $250,000, the borrower will owe the FHA $50,000, minus costs.

After a year, borrowers will share 90% of the profits with the FHA. The percentage keeps dropping in 10% increments to 50% after the fifth year, where it stays.

What will I save?

Savings depend on what borrowers are paying for their present loan and where they live, but for most people it will be substantial, even after factoring in the FHA fees.

In areas that have sustained huge price drops, such as Sacramento, Calif., where prices have fallen by about 30% over the past year, some loans might be reduced by more than 40%.

Additionally, the FHA loans carry reasonable interest rates, which are fixed for the life of the loan, as opposed to a subprime adjustable-rate mortgage that can jump higher every six months.

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Minimum Wage Soars To $6.55, Working Poor Still Too Impoverished To Celebrate

Great news, minimum wage workers: if you spend the next year working without getting sick or, um, going on vacation, you'll make $13,624! Uncle Sam's $0.70 minimum wage hike is the second of three to take effect before next summer, but the meager raise is hardly a godsend for the working poor.

Last week, the Labor Department reported the fastest inflation since 1991 — 5 percent for June compared with a year earlier. Energy costs soared nearly 25 percent. The price of food rose more than 5 percent.

So the minimum wage hike is "a drop in the bucket compared to the increases in costs, declining labor market, and declining household wealth that consumers have experienced in the past year," Lehman Brothers economist Zach Pandl said.

The new minimum is less than the inflation-adjusted 1997 level of $7.02, and far below the inflation-adjusted level of $10.06 from 40 years ago, according to a Labor Department inflation calculator.

25 states require employers to pay more than the national minimum wage, but 1.7 million Americans still rely on the federal government to set a wage floor. Only 20% of them are teenagers.

The nation's top financial minds can't tell us how the minimum wage effects the economy, but we're sure our beloved cadre of ever-cheerful commenters not only knows for certain, but is willing to share.

Federal minimum wage rises to $6.55 today [AP]
(AP Photo/ Ellen Wznick)

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Way to Spot Suspicious Activity Bank of America

I used to think identity theft was just an over-hyped gimmick to get people to pay for credit reports and monitoring. That is, until my checking account was cleared out. Turns out, most major banks are not well equipped to handle ID theft, or even your money for that matter.

It was a Sunday night a few weeks back, and I went to Target to grab some groceries. I had been swimming most of the day, so I was still in my board shorts. With no pockets. So I had my wallet *firmly* in hand the whole time. I run through target, grab my stuff, pay with my debit card, and head out to pack my car up- still clutching my wallet. This was the last time I saw that wallet. Nothing suspicious had happened. I spotted nobody that set off my spidey sense (other than the sleeve tattoos and multiple piercings from the girl running the register, but that’s not exactly suspicious).

When getting ready for work the next day, my wallet was missing. I know where my wallet is at all times. This was really strange. I ripped my house apart, searching every square inch. I even rummaged through the garbage (in AZ heat, the term “hot garbage” is not a simile) before I realized it really was gone. So I reviewed the security footage from my home surveillance system to see if anybody broke in while I was sleeping. No signs of entry. The wallet was just gone. Could have been lost, could have been stolen, but I had no clues to go on.

So, I call work to let them know I’m taking the day off. I had to get to a Bank of America branch and the DMV to cancel my debit card and get a new license. Got home and checked my online banking, and there was no sign of suspicious activity. So, I figured the wallet was lost, the bank card is useless, and there isn’t much somebody can do with my driver’s license; I figured everything was cool. Had a frustrating day, so I head back to the pool to relax and have a beer.

Everything is business as usual for the next few days. Until late Thursday night, I got a call from the Phoenix Police Department. The officer said they had a subject in custody who had two forms of ID with my information on it. Then the guy asked what I looked like. At first I thought it was a prank because people were joking around the office that I missed work on a Monday because I “lost my wallet”. As the officer began rattling off my personal information, I quickly realized this was no joke.

They said they caught this guy at BestBuy trying to use somebody else’s credit card to buy a whole bunch of computers. Apparently BestBuy’s register system pops up an alert code if there is somebody trying to use a card that has been reported lost or stolen, and they call the cops. Impressive. The police caught the guy red handed. With drugs. And paraphernalia. And a bunch of people’s personal information.

At the time, I thought they got the sucker before he could do any real damage. But just to be safe, I checked with Bank of America. I was shocked to see my account was overdrawn by almost $300. Last I checked, I had almost 40k in there.

A quick review turned up 5 suspicious transactions. Two were deposits, and three were withdrawals. All five transactions occurred *inside* five different Bank of America banking centers. What amazed me most is the final two transactions. A withdrawal of 26k. And later that day, another withdrawal of 12.5k. Way to spot suspicious activity Bank of America. They handed the guy almost 40k in cash in one day.

Turns out the first two transactions where not just deposits. They were checks written to me, Christopher Hooley. The first one was $6200. The guy kept $5k and left $1200 in my account. The next one was a day later at a different center for $7500. Again, the guy kept $5k. I saw the debit slip online, and this guy’s signature wasn’t even a remote attempt to copy mine. To make matters worse, it turns out he was forging checks from another valley business, who subsequently called the police on ME!

After seeing his writing, all of the sudden it felt personal. That was MY name, written as sloppily as I had ever seen it. Now I had to find out who this guy was.

A detective from the Phoenix PD was already assigned to my case. I never actually even spoke with him. I sent the detective an email with the list of fraudulent transactions on my bank account and that was pretty much all he needed. But I had his email address, so I shot him an email asking who the thief was.

The detective told me the suspect’s name was Christopher Cantrell. An identity thief heavily involved in drugs. That’s all I needed to know to find his case on And right there in front of me was his mug shot and list of charges.

Check this out:


Booked: 07-09-2008

D.O.B: 10-11-1975
Height: 5′09
Weight: 200

In Custody For:

As you can see from the picture above the huge rap sheet, he’s pretty much a spitting image of me. So it’s understandable why 5 separate bank of America branches where confused, and allowed him to make huge cash withdrawals. He has trusting eyes.

But just for conjecture’s sake, here’s a picture of me.

Chris Hooley

The moral of this story is, if you want to steal somebody’s identity, you don’t need to mess with all that online stuff. Just get somebody’s info, make a fake license with your picture on it, and walk right into any Bank of America branch and just ask them to hand you the money in cash. It doesn’t matter if you look like a doper, or even if you’re on drugs at the time. Doesn’t even matter if you know your victim’s signature. All you need is their name and address and a fake ID, and you can clean out any Bank of America account!

In my next post. I’ll explain the aftermath and how Bank of America’s service is only second to their ability to protect your money from identity thieves. Stay tuned.

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FCC approves Sirius Satellite acquisition of XM

WASHINGTON (Reuters) - Sirius Satellite Radio Inc's (SIRI.O) purchase of XM Satellite Radio Holdings Inc (XMSR.O) was approved with conditions by U.S. communications regulators on Friday, clearing the way for a deal that will leave just one U.S. satellite radio service.

The Federal Communications Commission voted 3-2 in favor of a proposal that would allow the deal to proceed as long as the companies meet a series of consumer protection conditions, including a three-year cap on prices, set-aside of channels for minority and non-commercial programming and payment of a $19.7 million penalty for past FCC rule violations.

(Reporting by Peter Kaplan: Editing by Tim Dobbyn)

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'Dark Knight' poised to rule another weekend

Associated Press / Warner Bros.
IN THE RUNNING: This weekend the sequel to "Batman Begins" is up against Sony Pictures' "Step Brothers," an R-rated comedy, and Twentieth Century Fox's "The X-Files: I Want to Believe," a PG-13-rated mystery thriller based on the TV series.
The latest Batman installment has a pair of box-office records within reach.

By Josh Friedman, Los Angeles Times Staff Writer

Batman has only begun.

Warner Bros. and Legendary Pictures' "The Dark Knight," which opened last weekend to a record $158.4 million and piled up big numbers all week, could add on $75 million or more this weekend.

"The Dark Knight," produced for about $180 million, has two box-office marks squarely in sight. "Shrek 2" has the record for second-weekend gross, at $72.2 million. And "Pirates of the Caribbean: Dead Man's Chest" is the film that topped $300 million the fastest, but it won't be for much longer: It took 16 days to get there, whereas "The Dark Knight" should do the trick by its 10th day, thanks to strong word of mouth and repeat business.

Christopher Nolan's sequel to "Batman Begins" will easily repeat at No. 1 this weekend, even with two high-profile films opening today.

Sony Pictures' "Step Brothers," an R-rated comedy pairing Will Ferrell and John C. Reilly as immature, foul-mouthed adults who bunk together when one's mother marries the other's father, could open to $30 million-plus, consumer tracking shows.

Twentieth Century Fox's "The X-Files: I Want to Believe," a PG-13-rated mystery thriller based on the TV series, has been tracking softly and figures to be overshadowed by "The Dark Knight," which appeals to the same adult crowd. A launch of $15 million or less appears likely.

"Everyone's playing for No. 2 this weekend," said Jeff Blake, Sony's chairman of marketing and distribution. "We've got a great advantage in that we're a pure comedy and there hasn't been one since 'Get Smart' and 'The Love Guru.' "

"Step Brothers," the first Judd Apatow-produced comedy in a full three months, was made for about $65 million with Sony's partner, Relativity Media. It has the jump on two other R-rated comedies -- "Pineapple Express," a stoner adventure starring Seth Rogen and James Franco, coming Aug. 6; and "Tropic Thunder," a Hollywood send-up starring Robert Downey Jr., Jack Black and Ben Stiller, due Aug. 13.

Awareness and wanna-see totals for "Step Brothers" are similar to those for last summer's "Superbad," which opened to $33.1 million. As of Thursday, 61% of reviews were positive, according to movie site Rotten Tomatoes.

"X-Files," produced for about $30 million, could be suffering from been-there-done-that syndrome. The TV series, created by Chris Carter and starring David Duchovny and Gillian Anderson as FBI agents investigating the paranormal, had a loyal following in the 1990s and spawned a successful spinoff movie, titled simply "The X Files," in 1998, before ending its run in 2002.

The new film was co-written and directed by Carter and reunites Duchovny and Anderson as Sculder and Mully, or whatever they're called. With a secrecy-shrouded plot that takes the relationship between the two heroes in a new direction, it figures to attract the franchise's fans, Batman or no Batman in the market.

The film's overall tracking numbers, however, are similar to those for "The Invasion," last summer's sci-fi thriller starring Nicole Kidman and Daniel Craig, which opened to a dismal $6 million, and only 29% of early reviews were positive.

For Fox, coming off the Eddie Murphy comedy "Meet Dave" and last weekend's "Space Chimps" (which the studio distributed for Starz Animation), "The X-Files: I Want to Believe" could be a third straight box-office dud. That would be about as pleasant as an alien probe.

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A Long Wait at the Gate to Greatness

By John Pomfret

Nikita Khrushchev said the Soviet Union would bury us, but these days, everybody seems to think that China is the one wielding the shovel. The People's Republic is on the march -- economically, militarily, even ideologically. Economists expect its GDP to surpass America's by 2025; its submarine fleet is reportedly growing five times faster than Washington's; even its capitalist authoritarianism is called a real alternative to the West's liberal democracy. China, the drumbeat goes, is poised to become the 800-pound gorilla of the international system, ready to dominate the 21st century the way the United States dominated the 20th.

Except that it's not.

Ever since I returned to the United States in 2004 from my last posting to China, as this newspaper's Beijing bureau chief, I've been struck by the breathless way we talk about that country. So often, our perceptions of the place have more to do with how we look at ourselves than with what's actually happening over there. Worried about the U.S. education system? China's becomes a model. Fretting about our military readiness? China's missiles pose a threat. Concerned about slipping U.S. global influence? China seems ready to take our place.

But is China really going to be another superpower? I doubt it.

It's not that I'm a China-basher, like those who predict its collapse because they despise its system and assume that it will go the way of the Soviet Union. I first went to China in 1980 as a student, and I've followed its remarkable transformation over the past 28 years. I met my wife there and call it a second home. I'm hardly expecting China to implode. But its dream of dominating the century isn't going to become a reality anytime soon.

Too many constraints are built into the country's social, economic and political systems. For four big reasons -- dire demographics, an overrated economy, an environment under siege and an ideology that doesn't travel well -- China is more likely to remain the muscle-bound adolescent of the international system than to become the master of the world.

In the West, China is known as "the factory to the world," the land of unlimited labor where millions are eager to leave the hardscrabble countryside for a chance to tighten screws in microwaves or assemble Apple's latest gizmo. If the country is going to rise to superpowerdom, says conventional wisdom, it will do so on the back of its massive workforce.

But there's a hitch: China's demographics stink. No country is aging faster than the People's Republic, which is on track to become the first nation in the world to get old before it gets rich. Because of the Communist Party's notorious one-child-per-family policy, the average number of children born to a Chinese woman has dropped from 5.8 in the 1970s to 1.8 today -- below the rate of 2.1 that would keep the population stable. Meanwhile, life expectancy has shot up, from just 35 in 1949 to more than 73 today. Economists worry that as the working-age population shrinks, labor costs will rise, significantly eroding one of China's key competitive advantages.

Worse, Chinese demographers such as Li Jianmin of Nankai University now predict a crisis in dealing with China's elderly, a group that will balloon from 100 million people older than 60 today to 334 million by 2050, including a staggering 100 million age 80 or older. How will China care for them? With pensions? Fewer than 30 percent of China's urban dwellers have them, and none of the country's 700 million farmers do. And China's state-funded pension system makes Social Security look like Fort Knox. Nicholas Eberstadt, a demographer and economist at the American Enterprise Institute, calls China's demographic time bomb "a slow-motion humanitarian tragedy in the making" that will "probably require a rewrite of the narrative of the rising China."

I count myself lucky to have witnessed China's economic rise first-hand and seen its successes etched on the bodies of my Chinese classmates. When I first met them in the early 1980s, my fellow students were hard and thin as rails; when I found them again almost 20 years later, they proudly sported what the Chinese call the "boss belly." They now golfed and lolled around in swanky saunas.

But in our exuberance over these incredible economic changes, we seem to have forgotten that past performance doesn't guarantee future results. Not a month goes by without some Washington think tank crowing that China's economy is overtaking America's. The Carnegie Endowment for International Peace is the latest, predicting earlier this month that the Chinese economy would be twice the size of ours by the middle of the century.

There are two problems with predictions like these. First, in the universe where these reports are generated, China's graphs always go up, never down. Second, while the documents may include some nuance, it vanishes when the studies are reported to the rest of us.

One important nuance we keep forgetting is the sheer size of China's population: about 1.3 billion, more than four times that of the United States. China should have a big economy. But on a per capita basis, the country isn't a dragon; it's a medium-size lizard, sitting in 109th place on the International Monetary Fund's World Economic Outlook Database, squarely between Swaziland and Morocco. China's economy is large, but its average living standard is low, and it will stay that way for a very long time, even assuming that the economy continues to grow at impressive rates.

The big number wheeled out to prove that China is eating our economic lunch is the U.S. trade deficit with China, which last year hit $256 billion. But again, where's the missing nuance? Nearly 60 percent of China's total exports are churned out by companies not owned by Chinese (including plenty of U.S. ones). When it comes to high-tech exports such as computers and electronic goods, 89 percent of China's exports come from non-Chinese-owned companies. China is part of the global system, but it's still the low-cost assembly and manufacturing part -- and foreign, not Chinese, firms are reaping the lion's share of the profits.

When my family and I left China in 2004, we moved to Los Angeles, the smog capital of the United States. No sooner had we set foot in southern California than my son's asthma attacks and chronic chest infections -- so worryingly frequent in Beijing -- stopped. When people asked me why we'd moved to L.A., I started joking, "For the air."


China's environmental woes are no joke. This year, China will surpass the United States as the world's No. 1 emitter of greenhouse gases. It continues to be the largest depleter of the ozone layer. And it's the largest polluter of the Pacific Ocean. But in the accepted China narrative, the country's environmental problems will merely mean a few breathing complications for the odd sprinter at the Beijing games. In fact, they could block the country's rise.

The problem is huge: Sixteen of the world's 20 most polluted cities are in China, 70 percent of the country's lakes and rivers are polluted, and half the population lacks clean drinking water. The constant smoggy haze over northern China diminishes crop yields. By 2030, the nation will face a water shortage equal to the amount it consumes today; factories in the northwest have already been forced out of business because there just isn't any water. Even Chinese government economists estimate that environmental troubles shave 10 percent off the country's gross domestic product each year. Somehow, though, the effect this calamity is having on China's rise doesn't quite register in the West .

And then there's "Kung Fu Panda." That Hollywood movie embodies the final reason why China won't be a superpower: Beijing's animating ideas just aren't that animating.

In recent years, we've been bombarded with articles and books about China's rising global ideological influence. (One typical title: "Charm Offensive: How China's Soft Power Is Transforming the World.") These works portray China's model -- a one-party state with a juggernaut economy -- as highly attractive to elites in many developing nations, although China's dreary current crop of acolytes (Zimbabwe, Burma and Sudan) don't amount to much of a threat.

But consider the case of the high-kicking panda who uses ancient Chinese teachings to turn himself into a kung fu warrior. That recent Hollywood smash broke Chinese box-office records -- and caused no end of hand-wringing among the country's glitterati. "The film's protagonist is China's national treasure, and all the elements are Chinese, but why didn't we make such a film?" Wu Jiang, president of the China National Peking Opera Company, told the official New China News Agency.

The content may be Chinese, but the irreverence and creativity of "Kung Fu Panda" are 100 percent American. That highlights another weakness in the argument about China's inevitable rise: The place remains an authoritarian state run by a party that limits the free flow of information, stifles ingenuity and doesn't understand how to self-correct. Blockbusters don't grow out of the barrel of a gun. Neither do superpowers in the age of globalization.

And yet we seem to revel in overestimating China. One recent evening, I was at a party where a senior aide to a Democratic senator was discussing the business deal earlier this year in which a Chinese state-owned investment company had bought a big chunk of the Blackstone Group, a U.S. investment firm. The Chinese company has lost more than $1 billion, but the aide wouldn't believe that it was just a bum investment. "It's got to be part of a broader plan," she insisted. "It's China."

I tried to convince her otherwise. I don't think I succeeded.

John Pomfret is the editor of Outlook. He is a former Beijing bureau chief of The Washington Post and the author of "Chinese Lessons: Five Classmates and the Story of the New China."

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China Surpasses U.S. in Number of Internet Users


SHANGHAI — China said the number of Internet users in the country reached about 253 million last month, putting it ahead of the United States as the world’s biggest Internet market.

Diego Azubel/European Pressphoto Agency

An Internet cafe in China. The majority of the country’s Internet users are 30 or younger.

The estimate, based on a national phone survey and released on Thursday by the China Internet Network Information Center in Beijing, showed a powerful surge in Internet adoption in this country over the last few years, particularly among teenagers.

The number of Internet users jumped more than 50 percent, or by about 90 million people, during the last year, said the center, which operates under the government-controlled Chinese Academy of Sciences. The new estimate represents only about 19 percent of China’s population, underscoring the potential for growth.

By contrast, about 220 million Americans are online, or 70 percent of the population, according to the Nielsen Company. Japan and South Korea have similarly high percentages.

Political content on Web sites inside China is heavily censored, and foreign sites operating here have faced restrictions. But online gaming, blogs, and social networking and entertainment sites are extremely popular among young people in China.

The survey found that nearly 70 percent of China’s Internet users were 30 or younger, and that in the first half of this year, high school students were, by far, the fastest-growing segment of new users, accounting for 39 million of the 43 million new users in that period.

With Internet use booming, so is Web advertising. The investment firm Morgan Stanley says online advertising in China is growing by 60 to 70 percent a year, and forecasts that by the end of this year, it could be a $1.7 billion market.

China’s biggest Internet companies, including Baidu, Sina, Tencent and Alibaba, are thriving, and in many cases are outperforming the China-based operations of American Internet giants like Google, Yahoo and eBay.

“The Internet market is the fastest-growing consumer market sector in China,” said Richard Ji, an Internet analyst at Morgan Stanley. “We are still far from saturation. So the next three to five years, we’re still going to see hyper-growth in this market.”

Baidu, for instance, said on Thursday that its second-quarter net profit had jumped 81 percent. During that period, Baidu had a 63 percent share of China’s search engine market, while Google had about 26 percent, with Yahoo trailing far behind, according to iResearch, a market research firm based in Beijing.

Tencent, a popular site for social networking and gaming, now has a stock market value of $15 billion, making it one of the world’s most valuable Internet companies. In comparison, is valued at about $30 billion.

One measure of the growth of the Internet here, and its social and entertainment functions, is the popularity of blogs.

The site of China’s most popular blogger, the actress Xu Jinglei, has attracted more than 174 million visitors over the last few years, according to, the popular Web portal, which posts a live tally. According to Sina, 11 other bloggers have also attracted more than 100 million visitors in recent years.

The Internet’s popularity often poses serious challenges to the government. Online gambling, pornography, videos of protests and addiction have led to regular campaigns to crack down on what the government views as vices. But Internet users have also used the Web for nationalist campaigns to criticize the Western news media or foreign companies, as was the case after riots broke out in Tibet this year.

While several organizations had projected that China would surpass the United States in Internet users this year, the new survey results were the first time a government agency had released figures showing China’s market to be larger than that of the United States.

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Did the U.S. Army Arrange a 'Sweetheart' Deal to Sell Russian Helicopters to Iraq?

The Defense Department quietly gave a U.S. company a contract to provide 22 new Russian-made Mi-17 troop transport helicopters to the Iraqi military in a deal worth an eyebrow-raising $325 million, DANGER ROOM has learned.

Iraq's effort to re-equip its military has been marred with corruption, including a notorious plan to buy used Mi-17s from Poland in a deal that involved accusations of shoddy equipment and was eventually scrapped. This new Mi-17 contract, which involves Iraqi money routed through the Pentagon's foreign military sales process, was designed to avoid problems that occurred in the previous sale. But in an unusual move, the U.S. Army sole sourced the contract to ARINC, a Carlyle Group-owned company.

The deal, which was consummated earlier this year, may represent the highest price ever paid for the Russian-produced helicopters, which are sold by a number of brokers, as well as directly from the manufacturers in Russia.

For ARINC, the contract offers the potential to boost the company's estimated annual $900 million revenues by one-third. That's not bad, considering the company is essentially just serving as a broker for equipment manufactured in Russia.

How much do Mi-17s cost? That's hard to say because they cost whatever someone is willing pay for them. One company is offering on the Internet to sell new production Mi-17s for $5 million each, and India just a couple months ago bought 80 Mi-17 helicopters converted for military use for $662 million, which comes out to a unit price of a little over $8 million (and less, if the contract included sustainment costs and spares). According to the contract terms confirmed by the Pentagon, the Iraqis are paying a unit price of nearly $15 million, which would appear to be well above the norm.

Steve Zaloga, an analyst at the Teal Group notes that military modifications can drive up the costs. “The Mi-17 can be a plain vanilla transport helicopter,” he said, but it can also be modified for signals intelligence, communications, or any number of other uses. Without knowing the details of the contract, it’s hard to judge the price, he noted.

The ultimate question, however, is why the contract was sole sourced. There are at least six American companies that have the experience or contacts needed to broker this type of sale between Russia and Iraq (somewhat frighteningly, that list would include Defense Solutions, the company that employs former Congressman Curt Weldon, and has been the subject of numerous posts here on DANGER ROOM). If we include foreign firms in this equation, the number of potential brokers is even higher.

A Pentagon spokesperson confirmed the amount of the contract and the number of helicopters involved, but was unable to provide further information. Linda Hartwig, an ARINC spokesperson, declined to answer any questions regarding the contract, saying the company “was not authorized” to speak about the sale with the media. A spokesperson for the Army's Program Executive Office for Simulation, Training and Instrumentation, which negotiated and awarded the contract to ARINC, at first agreed to answer questions and then later declined.

The Defense Security Cooperation Agency, which oversees foreign military sales, notified Congress of the Iraqi Mi-17 requirement and put out a standard press release back in 2006, but it appears the U.S. Army, which was handling the contract, never released a solicitation, as would be standard practice for competitive sales. Why the Army won't talk about the deal is unclear, except that the price that the Iraqis are paying for the helicopters could raise some uncomfortable questions for everyone involved.

I’m waiting for a response to a Freedom of Information Act request I filed with the Army to obtain details of the deal. I’m expecting to see, if anything, a lot of blacked out information, but will nonetheless update this story as appropriate. On Monday, I’ll discuss how ARINC and the U.S. Army managed to get around sanctions placed on Rosoboronexport, the Russian weapons export agency, in order make this deal happen.

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4,000 U.S. Deaths, and a Handful of Images

BAGHDAD — The case of a freelance photographer in Iraq who was barred from covering the Marines after he posted photos on the Internet of several of them dead has underscored what some journalists say is a growing effort by the American military to control graphic images from the war.

Zoriah Miller, the photographer who took images of marines killed in a June 26 suicide attack and posted them on his Web site, was subsequently forbidden to work in Marine Corps-controlled areas of the country. Maj. Gen. John Kelly, the Marine commander in Iraq, is now seeking to have Mr. Miller barred from all United States military facilities throughout the world. Mr. Miller has since left Iraq.

If the conflict in Vietnam was notable for open access given to journalists — too much, many critics said, as the war played out nightly in bloody newscasts — the Iraq war may mark an opposite extreme: after five years and more than 4,000 American combat deaths, searches and interviews turned up fewer than a half-dozen graphic photographs of dead American soldiers.

It is a complex issue, with competing claims often difficult to weigh in an age of instant communication around the globe via the Internet, in which such images can add to the immediate grief of families and the anger of comrades still in the field.

While the Bush administration faced criticism for overt political manipulation in not permitting photos of flag-draped coffins, the issue is more emotional on the battlefield: local military commanders worry about security in publishing images of the American dead as well as an affront to the dignity of fallen comrades. Most newspapers refuse to publish such pictures as a matter of policy.

But opponents of the war, civil liberties advocates and journalists argue that the public portrayal of the war is being sanitized and that Americans who choose to do so have the right to see — in whatever medium — the human cost of a war that polls consistently show is unpopular with Americans.

Journalists say it is now harder, or harder than in the earlier years, to accompany troops in Iraq on combat missions. Even memorial services for killed soldiers, once routinely open, are increasingly off limits. Detainees were widely photographed in the early years of the war, but the Department of Defense, citing prisoners’ rights, has recently stopped that practice as well.

And while publishing photos of American dead is not barred under the “embed” rules in which journalists travel with military units, the Miller case underscores what is apparently one reality of the Iraq war: that doing so, even under the rules, can result in expulsion from covering the war with the military.

“It is absolutely censorship,” Mr. Miller said. “I took pictures of something they didn’t like, and they removed me. Deciding what I can and cannot document, I don’t see a clearer definition of censorship.”

The Marine Corps denied it was trying to place limits on the news media and said Mr. Miller broke embed regulations. Security is the issue, officials said.

“Specifically, Mr. Miller provided our enemy with an after-action report on the effectiveness of their attack and on the response procedures of U.S. and Iraqi forces,” said Lt. Col. Chris Hughes, a Marine spokesman.

News organizations say that such restrictions are one factor in declining coverage of the war, along with the danger, the high cost to financially ailing media outlets and diminished interest among Americans in following the war. By a recent count, only half a dozen Western photographers were covering a war in which 150,000 American troops are engaged.

In Mr. Miller’s case, a senior military official in Baghdad said that while his photographs were still under review, a preliminary assessment showed he had not violated ground rules established by the multinational force command. The official, who spoke on condition of anonymity because the investigation was ongoing, emphasized that Mr. Miller was still credentialed to work in Iraq, though several military officials acknowledged that no military unit would accept him.

Robert H. Reid, the Baghdad bureau chief for The Associated Press, said one major problem was a disconnection between the officials in Washington who created the embed program before the war and the soldiers who must accommodate journalists — and be responsible for their reports afterward.

“I don’t think the uniformed military has really bought into the whole embed program,” Mr. Reid said.

“During the invasion it got a lot of ‘Whoopee, we’re kicking their butts’-type of TV coverage,” he said.

Now, he said the situation is nuanced and unpredictable. Generally, he said, the access reporters get “very much depends on the local commander.” More specifically, he said, “They’ve always been freaky about bodies.”

The facts of the Miller case are not in dispute, only their interpretation.

On the morning of June 26, Mr. Miller, 32, was embedded with Company E of the Second Battalion, Third Marine Regiment in Garma, in Anbar Province. The photographer declined a Marine request to attend a city council meeting, and instead accompanied a unit on foot patrol nearby.

When a suicide bomber detonated his vest inside the council meeting, killing 20 people, including 3 marines, Mr. Miller was one of the first to arrive. His photos show a scene of horror, with body parts littering the ground and heaps of eviscerated corpses. Mr. Miller was able to photograph for less than 10 minutes, he said, before being escorted from the scene.

Mr. Miller said he spent three days on a remote Marine base editing his photos, which he then showed to the Company E marines. When they said they could not identify the dead marines, he believed he was within embed rules, which forbid showing identifiable soldiers killed in action before their families have been notified. According to records Mr. Miller provided, he posted his photos on his Web site the night of June 30, three days after the families had been notified.

The next morning, high-ranking Marine public affairs officers demanded that Mr. Miller remove the photos. When he refused, his embed was terminated. Worry that marines might hurt him was high enough that guards were posted to protect him.

On July 3, Mr. Miller was given a letter signed by General Kelly barring him from Marine installations. The letter said that the journalist violated sections 14 (h) and (o) of the embed rules, which state that no information can be published without approval, including material about “any tactics, techniques and procedures witnessed during operations,” or that “provides information on the effectiveness of enemy techniques.”

“In disembedding Mr. Miller, the Marines are using a catch-all phrase which could be applied to just about anything a journalist does,” said Joel Campagna, Middle East program coordinator for the Committee to Protect Journalists.

New embed rules were adopted in the spring of 2007 that required written permission from wounded soldiers before their image could be used, a near impossibility in the case of badly wounded soldiers, journalists say. While embed restrictions do permit photographs of dead soldiers to be published once family members have been notified, in practice, photographers say, the military has exacted retribution on the rare occasions that such images have appeared. In four out of five cases that The New York Times was able to document, the photographer was immediately kicked out of his or her embed following publication of such photos.

In the first of such incidents, Stefan Zaklin, formerly of the European Pressphoto Agency, was barred from working with an Army unit after he published a photo of a dead Army captain lying in a pool of blood in Falluja in 2004.

Two New York Times journalists were disembedded in January 2007 after the paper published a photo of a mortally wounded soldier. Though the soldier was shot through the head and died hours after the photo was taken, Lt. Gen. Raymond T. Odierno argued that The Times had broken embed rules by not getting written permission from the soldier.

Chris Hondros, of Getty Images, was with an army unit in Tal Afar on Jan. 18, 2005, when soldiers killed the parents of an unarmed Iraqi family. After his photos of their screaming blood-spattered daughter were published around the world, Mr. Hondros was kicked out of his embed (though Mr. Hondros points out that he soon found an embed with a unit in another city).

Increasingly, photographers say the military allows them to embed but keeps them away from combat. Franco Pagetti of the VII Photo Agency said he had been repeatedly thwarted by the military when he tried to get to the front lines.

In April 2008, Mr. Pagetti tried to cover heavy fighting in Baghdad’s Sadr City. “The commander there refused to let me in,” Mr. Pagetti said. “He said it was unsafe. I know it’s unsafe, there’s a war going on. It was unsafe when I got to Iraq in 2003, but the military did not stop us from working. Now, they are stopping us from working.”

James Lee, a former marine who returned to Iraq as a photographer, was embedded with marines in the spring of 2008 as they headed into battle in the southern port city of Basra in support of Iraqi forces.

“We were within hours of Basra when they told me I had to go back. I was told that General Kelly did not want any Western eyes down there,” he said, referring to the same Marine general who barred Mr. Miller.

Military officials stressed that the embed regulations provided only a framework. “There is leeway for commanders to make judgment calls, which is part of what commanders do,” said Col. Steve Boylan, the public affairs officer for Gen. David H. Petraeus, the top commander in Iraq. For many in the military, a legal or philosophical debate over press freedom misses the point. Capt. Esteban T. Vickers of the First Regimental Combat Team, who knew two of the marines killed at Garma, said photos of his dead comrades, displayed on the Internet for all to see, desecrated their memory and their sacrifice.

“Mr. Miller’s complete lack of respect to these marines, their friends, and families is shameful,” Captain Vickers said. “How do we explain to their children or families these disturbing pictures just days after it happened?”

Mr. Miller, who returned to the United States on July 9, expressed surprise that his images had ignited such an uproar.

“The fact that the images I took of the suicide bombing — which are just photographs of something that happens every day all across the country — the fact that these photos have been so incredibly shocking to people, says that whatever they are doing to limit this type of photo getting out, it is working,” he said.

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