The Voice of the White House

Washington , D.C. , April 17, 2008 : “The one subject never touched upon in the American media is the control of high level American political institutions by Israel and her American supporters. There is no question that Israel knew to the day when the 9/11 attacks were to happen and who, to the man, were involved in them. There is no question that Israeli businessmen, tipped off by their Mossad, rushed to stock markets all over the world to benefit from what they knew was coming. There is no question that one of the two reasons behind Bush’s useless and failed invasion of Iraq was to secure Israel ’s northern flank from an enemy, Saddam, who had dared to fire rocked into them during the First Gulf War. There is no question that Israel has been behind the threats made by Bush against Iran , an active Israeli enemy who might get atomic weapons and use them on Tel Aviv.

I ask the question: How many hundreds of billions of dollars have been spent on programs solely designed to assist or support Israel and, worse, how many young Americans have died to support Israeli wishes.

I think it is entirely safe to say, that if the United States had been strictly neutral in the Arab/Israeli conflicts, achieved total neutrality and stopped its blind and now ruinously expensive military and economic support of that country that there never would have been an attack on the USS Cole and, more important, on the WTC and the Pentagon.

American needs to reevaluate its foreign policy goals and file for immediate divorce from Israel and all her friends and agents now infesting not only the Beltway but the banks and the U.S. military policy makers.

The sooner the better.

If the American public ever gets this into its collective heads, there will be sociological problems in this country that would make Julius Streicher and Josef Stalin laugh..”

A premature withdrawal from Iraq would endanger Israel - John McCain

April 17, 2008

JTA

"I believe a reckless and premature withdrawal would be a terrible defeat for our security interests and our values," the Arizona senator and putative Republican presidential nominee said Wednesday in a major foreign policy speech. Iran , which backs Shi'ite hegemonic aspirations in Iraq , would "view our premature withdrawal as a victory and the biggest state supporter of terrorists, a country of nuclear ambitions and state of desire to destroy the state of Israel , will see its influence in the Middle East grow significantly."

Top Israeli officials have also said that a hasty U.S. withdrawal from Iraq would endanger Israel . Both Democratic candidates, Sens. Hillary Clinton (D-N.Y.) and Barack Obama (D-Ill.), have called for phased withdrawals from Iraq .

The overall theme of McCain's address was that foreign policy today means having an alliance of democracies - an implied rebuke of President Bush, who has been accused by critics of ignoring natural U.S. allies during the Iraq war.

He repeatedly cited Israel as a natural ally in a coalition of democracies. "Today we are not alone," he said. "There is a collective powerful voice of the European Union, and there are the great nations of India and Japan , Australia and Brazil , South Korea and South Africa , Turkey and Israel , to just name a few of the leading democracies."

Zombie Computers Decried As Imminent National Threat

April 9, 2008

by Ryan Singel

Wired.com

SAN FRANCISCO -- Gangs of thousands of zombie home computers grinding out spam, committing fraud and overpowering websites are the most vexing net threat today, according to law enforcement and security professionals.

Today's botnet herders have hundreds of thousands of computers at their command and use technically sophisticated ways to hide their headquarters, making it easy for them to make millions from spam and credit card theft. They can also be used to direct floods of fake traffic at a targeted website in order to bring down a rival, extract protection money or less frequently, used to make a political point in the case of attacks on Estonia and the Church of Scientology .

Security pros and government officials are now describing the latter attacks, known as Distributed Denial of Service attacks, as serious threats to national security -- turning  packet floods against public websites into the latest face of "cyberwar" hysteria.

Hence, the appearance Tuesday of a panel discussion at the RSA 2008 security conference entitled "Protecting the Homeland: Winning the Botnet Battle," which was marked by a mix of resignation, indignation and post-9/11 rhetoric.

Ronald Teixeira, the executive director of the non-profit National Cyber Security Alliance and the panel's moderator, began the discussion by describing botnets as "one of the largest threats we face on the internet today, and they can be used to attack critical infrastructure."

The Department of Homeland Security's representative Jordana Siegel, who works on public awareness at the National Cyber Security Division, echoed the line that botnets were a imminent threat to the nation's security.

Citing the attacks on Estonia last year by Russian nationalist hackers, Siegel said botnets can "disrupt an internet-reliant society," saying that the temporary takedown of Estonian newspaper and government websites "nearly crippled the country's cyber infrastructure." Earlier in the day, Homeland Security chief Michael Chertoff leaned on Estonia as evidence of the need for a federal government "Manhattan Project" for computer security.

Siegel said the DHS is working at fighting the problem, citing the annual October National Cyber Security Awareness month, which she said helped Americans learn that "all users need to practice safe online behavior."

McAfee's Joe Telafici, a vice president in their security lab, lamented the ease with which botnet herders can abuse domain registration services and the low cost of e-mail, which make the economics of online crime very attractive.

"We are seeing a model that is so economically viable that trying to tell the kids it is a bad thing to do is bound to fail," Telafici said, suggesting that botnet herders outnumber the 15,000 or so attendees at RSA. "Even if you don't have a computer, you are paying money to someone for the cost of dealing with the security ramifications."

FBI agent Matthew Fine cited two recent takedowns of U.S.-based botnets, operations dubbed Bot Roast, as an example of how the FBI is dealing with botnets. Fine declined to speculate, however, on whether the arrests actually put a dent in overall online criminality.

"I get paid to put bad guys in jail," the flat-topped Fine said, but he noted that as soon as one botnet herder was prosecuted another takes his place.

"It is a boulder coming down the hill and I am trying to keep it from getting to the bottom," Fine said.

Fine hopes Congress will step in with tougher criminal penalties for botnet runners, but noted that judges were now handing out substantial sentences of four to five years in cases brought to them by the feds.

Ira Winkler, a security consultant known for his outspoken ways, countered that this was all just caterwauling and that if the country thought that botnets were a real problem, ISPs and individual users would be held responsible for zombie machines.

"The problem is no one is doing anything," Winkler said, proposing that users be fined or blocked if their computer is infected.

"Guess what? If your system has a bot on it, you don't get on the internet," Winkler said, summarizing his proposal.

"We need to hold people responsible when they present an imminent threat to other people," Winkler said to wide applause from the audience. He contrasted the lack of computer regulation to laws preventing unsafe cars from taking the road.

Sparing no target, Winkler went on to ridicule DHS's awareness efforts as useless, and argued that the highest levels of government don't care about computer crime, citing the ability of a Russian cyber-criminal group known as the Russian Business Network to remain free.

"When they start putting the RBN in jail, then I will be impressed," Winkler said, noting that would require the feds to put pressure on the Russian government to stop protecting the gang -- not an easy task.

Still, Winkler argues, that's doable with political will.

"When the U.S. government wants to get things done, they know how to put people in jail."

So what really is the threat to the so-called Homeland from zombie computer armies?

When asked by Threat Level, the panel came to a split decision.

"Terrorism with botnets is overrated," McAfee's Telafici said. "But if you are looking at the economic burden of botnets, we could probably do without it."

Winkler suggests that botnets could be used in tactical small attacks, including, perhaps, inflicting minor power outages.

DHS's Siegel defended the use of overheated rhetoric, saying that temporarily unavailable government or financial websites would erode public confidence.

Missing from the panel discussion was any in depth talk about real solutions.

For instance, ISPs can easily learn or be told which of their customers has an infected computer, but due to the customer support costs of cutting off a zombified user -- angry phone calls, confusion -- they tend to do little.

Also not talked about are changes in internet governance that punish known domain sellers and ISPs that favored by online criminals for their lax policies.

Chinese Port Operator Linked to Weapons Smuggling

April 18, 2008

dka

A ship owned by a Chinese government-run company that currently operates two giant terminals at the Port of Long Beach, California was found to have been used to smuggle a huge cache of illegal weapons - with the smugglers saying they planned to import missiles that could "take out a 747."

Undercover Customs and BATF agents discovered 2000 AK-47's in a container smuggled aboard the Empress Phoenix, a ship owned by the China Ocean Shipping Company [COSCO] docked at the Port of Oakland .

The guns were manufactured by another state-run company, Poly Technologies, the international outlet for Chinese weapons sales.

According to Vanity Fair magazine, which covered the episode in detail, the Empress Phoenix's gun cargo was earmarked for sale to deadly Los Angeles street gangs.

It was the largest seizure of fully operational automatic weapons in the history of U.S. law enforcement.

Operatives nabbed after the seizure told investigators that they were ready to smuggle in everything from grenade launchers to shoulder-fired Red Parakeet surface to air missiles, which they boasted could "take out a 747."

In fact, the weapons smuggling operation was far from the only instance where questionable cargo has been discovered aboard COSCO vessels. Ships owned by the Chinese line have been repeatedly caught smuggling illegal immigrants in the United States .

In 2001, COSCO ships delivered weapons to Cuba , a move that triggered calls in the United States for sanctions against China , according to the Washington Times.

Still, Americans might come to regret giving COSCO the boot from U.S. port operations - a move currently favored by Sen. Hillary Clinton, who wants to ban all foreign ownership of U.S. ports.

In 2001, for instance, COSCO ships carried 434,000 containers to the United States , representing 12.1 percent of all the goods shipped between China and the United States .

Undoubtedly those numbers have increased in the last eight years.

In 1998, when COSCO first tried to lease terminal space at the Port of Long Beach formerly used by the U.S. Navy, Congress blocked the deal over national security concerns.

Three years later, however, other tenants at the port vacated space and COSCO was able to build its own terminal.

Art Wong, public information officer for the Port of Long Beach, told the San Francisco Chronicle last week that COSCO now operates terminals in a joint venture with a U.S. company, Stevedoring Services of America, with the Chinese company acting as the majority lease holder with 51 percent control.

By the end of the decade, COSCO plans to expand its Long Beach facility into a giant five terminal operation covering 300 acres, according to the Long Beach Press Telegram.

Domestic Spying

Administration Set to Use New Spy Program in U.S.

Congressional Critics Want More Assurances of Legality

April 12, 2008

by Spencer S. Hsu

Washington Post

The Bush administration said yesterday that it plans to start using the nation's most advanced spy technology for domestic purposes soon, rebuffing challenges by House Democrats over the idea's legal authority.

Homeland Security Secretary Michael Chertoff said his department will activate his department's new domestic satellite surveillance office in stages, starting as soon as possible with traditional scientific and homeland security activities -- such as tracking hurricane damage, monitoring climate change and creating terrain maps.

Sophisticated overhead sensor data will be used for law enforcement once privacy and civil rights concerns are resolved, he said. The department has previously said the program will not intercept communications.

"There is no basis to suggest that this process is in any way insufficient to protect the privacy and civil liberties of Americans," Chertoff wrote to Reps. Bennie G. Thompson (D-Miss.) and Jane Harman (D-Calif.), chairmen of the House Homeland Security Committee and its intelligence subcommittee, respectively, in letters released yesterday.

"I think we've fully addressed anybody's concerns," Chertoff added in remarks last week to bloggers. "I think the way is now clear to stand it up and go warm on it."

His statements marked a fresh determination to operate the department's new National Applications Office as part of its counterterrorism efforts. The administration in May 2007 gave DHS authority to coordinate requests for satellite imagery, radar, electronic-signal information, chemical detection and other monitoring capabilities that have been used for decades within U.S. borders for mapping and disaster response.

But Congress delayed launch of the new office last October. Critics cited its potential to expand the role of military assets in domestic law enforcement, to turn new or as-yet-undeveloped technologies against Americans without adequate public debate, and to divert the existing civilian and scientific focus of some satellite work to security uses.

Democrats say Chertoff has not spelled out what federal laws govern the NAO, whose funding and size are classified. Congress barred Homeland Security from funding the office until its investigators could review the office's operating procedures and safeguards. The department submitted answers on Thursday, but some lawmakers promptly said the response was inadequate.

"I have had a firsthand experience with the trust-me theory of law from this administration," said Harman, citing the 2005 disclosure of the National Security Agency's domestic spying program, which included warrantless eavesdropping on calls and e-mails between people in the United States and overseas. "I won't make the same mistake. . . . I want to see the legal underpinnings for the whole program."

Thompson called DHS's release Thursday of the office's procedures and a civil liberties impact assessment "a good start." But, he said, "We still don't know whether the NAO will pass constitutional muster since no legal framework has been provided."

DHS officials said the demands are unwarranted. "The legal framework that governs the National Applications Office . . . is reflected in the Constitution, the U.S. Code and all other U.S. laws," said DHS spokeswoman Laura Keehner. She said its operations will be subject to "robust," structured legal scrutiny by multiple agencies.

The Economic Collapse

Co-Payments Soar for Drugs With High Prices

April 14, 2008

by Gina Kolata

New York Times

Health insurance companies are rapidly adopting a new pricing system for very expensive drugs, asking patients to pay hundreds and even thousands of dollars for prescriptions for medications that may save their lives or slow the progress of serious diseases. With the new pricing system, insurers abandoned the traditional arrangement that has patients pay a fixed amount, like $10, $20 or $30 for a prescription, no matter what the drug’s actual cost. Instead, they are charging patients a percentage of the cost of certain high-priced drugs, usually 20 to 33 percent, which can amount to thousands of dollars a month.

The system means that the burden of expensive health care can now affect insured people, too.

No one knows how many patients are affected, but hundreds of drugs are priced this new way. They are used to treat diseases that may be fairly common, including multiple sclerosis, rheumatoid arthritis, hemophilia, hepatitis C and some cancers. There are no cheaper equivalents for these drugs, so patients are forced to pay the price or do without.

Insurers say the new system keeps everyone’s premiums down at a time when some of the most innovative and promising new treatments for conditions like cancer and rheumatoid arthritis and multiple sclerosis can cost $100,000 and more a year.

But the result is that patients may have to spend more for a drug than they pay for their mortgages, more, in some cases, than their monthly incomes.

The system, often called Tier 4, began in earnest with Medicare drug plans and spread rapidly. It is now incorporated into 86 percent of those plans. Some have even higher co-payments for certain drugs, a Tier 5.

Now Tier 4 is also showing up in insurance that people buy on their own or acquire through employers, said Dan Mendelson of Avalere Health, a research organization in Washington . It is the fastest-growing segment in private insurance, Mr. Mendelson said. Five years ago it was virtually nonexistent in private plans, he said. Now 10 percent of them have Tier 4 drug categories.

Private insurers began offering Tier 4 plans in response to employers who were looking for ways to keep costs down, said Karen Ignagni, president of America ’s Health Insurance Plans, which represents most of the nation’s health insurers. When people who need Tier 4 drugs pay more for them, other subscribers in the plan pay less for their coverage.

But the new system sticks seriously ill people with huge bills, said James Robinson, a health economist at the University of California , Berkeley . “It is very unfortunate social policy,” Dr. Robinson said. “The more the sick person pays, the less the healthy person pays.”

Traditionally, the idea of insurance was to spread the costs of paying for the sick.

“This is an erosion of the traditional concept of insurance,” Mr. Mendelson said. “Those beneficiaries who bear the burden of illness are also bearing the burden of cost.”

And often, patients say, they had no idea that they would be faced with such a situation.

It happened to Robin Steinwand, 53, who has multiple sclerosis.

In January, shortly after Ms. Steinwand renewed her insurance policy with Kaiser Permanente, she went to refill her prescription for Copaxone. She had been insured with Kaiser for 17 years through her husband, a federal employee, and had had no complaints about the coverage.

She had been taking Copaxone since multiple sclerosis was diagnosed in 2000, buying a 30 days’ supply at a time. And even though the drug costs $1,900 a month, Kaiser required only a $20 co-payment.

Not this time. When Ms. Steinwand went to pick up her prescription at a pharmacy near her home in Silver Spring , Md. , the pharmacist handed her a bill for $325.

There must be a mistake, Ms. Steinwand said. So the pharmacist checked with her supervisor. The new price was correct. Kaiser’s policy had changed. Now Kaiser was charging 25 percent of the cost of the drug up to a maximum of $325 per prescription. Her annual cost would be $3,900 and unless her insurance changed or the drug dropped in price, it would go on for the rest of her life.

“I charged it, then got into my car and burst into tears,” Ms. Steinwand said.

She needed the drug, she said, because it can slow the course of her disease. And she knew she would just have to pay for it, but it would not be easy.

“It’s a tough economic time for everyone,” she said. “My son will start college in a year and a half. We are asking ourselves, can we afford a vacation? Can we continue to save for retirement and college?”

Although Kaiser advised patients of the new plan in its brochure that it sent out in the open enrollment period late last year, Ms. Steinwand did not notice it. And private insurers, Mr. Mendelson said, can legally change their coverage to one in which some drugs are Tier 4 with no advance notice. Medicare drug plans have to notify patients but, Mr. Mendelson said, “that doesn’t mean the person will hear about it.” He added, “You don’t read all your mail.”

Some patients said they had no idea whether their plan changed or whether it always had a Tier 4. The new system came as a surprise when they found out that they needed an expensive drug.

That’s what happened to Robert W. Banning of Arlington , Va. , when his doctor prescribed Sprycel for his chronic myelogenous leukemia. The drug can block the growth of cancer cells, extending lives. It is a tablet to be taken twice a day — no need for chemotherapy infusions.

Mr. Banning, 81, a retired owner of car dealerships, thought he had good insurance through AARP. But Sprycel, which he will have to take for the rest of his life, costs more than $13,500 for a 90-day supply, and Mr. Banning soon discovered that the AARP plan required him to pay more than $4,000.

Mr. Banning and his son, Robert Banning Jr., have accepted the situation. “We’re not trying to make anybody the heavy,” the father said.

So far, they have not purchased the drug. But if they do, they know that the expense would go on and on, his son said. “Somehow or other, myself and my family will do whatever it takes. You don’t put your parent on a scale.”

But Ms. Steinwand was not so sanguine. She immediately asked Kaiser why it had changed its plan.

The answer came in a letter from the federal Office of Personnel Management, which negotiates with health insurers in the plan her husband has as a federal employee. Kaiser classifies drugs like Copaxone as specialty drugs. They, the letter said, “are high-cost drugs used to treat relatively few people suffering from complex conditions like anemia, cancer, hemophilia, multiple sclerosis, rheumatoid arthritis and human growth hormone deficiency.”

And Kaiser, the agency added, had made a convincing argument that charging a percentage of the cost of these drugs “helped lower the rates for federal employees.”

Ms. Steinwand can change plans at the end of the year, choosing one that allows her to pay $20 for the Copaxone, but she worries about whether that will help. “I am a little nervous,” she said. “Will the next company follow suit next year?”

But it turns out that she won’t have to worry, at least for the rest of this year.

A Kaiser spokeswoman, Sandra R. Gregg, said on Friday that Kaiser had decided to suspend the change for the program involving federal employees in the mid-Atlantic region while it reviewed the new policy. The suspension will last for the rest of the year, she said. Ms. Steinwand and others who paid the new price for their drugs will be repaid the difference between the new price and the old co-payment.

Ms. Gregg explained that Kaiser had been discussing the new pricing plan with the Office of Personnel Management over the previous few days because patients had been raising questions about it. That led to the decision to suspend the changed pricing system.

“Letters will go out next week,” Ms. Gregg said.

But some with the new plans say they have no way out.

Julie Bass, who lives near Orlando, Fla., has metastatic breast cancer, lives on Social Security disability payments, and because she is disabled, is covered by insurance through a Medicare H.M.O. Ms. Bass, 52, said she had no alternatives to her H.M.O. She said she could not afford a regular Medicare plan, which has co-payments of 20 percent for such things as emergency care, outpatient surgery and scans. That left her with a choice of two Medicare H.M.O’s that operate in her region. But of the two H.M.O’s, her doctors accept only Wellcare.

Now, she said, one drug her doctor may prescribe to control her cancer is Tykerb. But her insurer, Wellcare, classifies it as Tier 4, and she knows she cannot afford it.

Wellcare declined to say what Tykerb might cost, but its list price according to a standard source, Red Book, is $3,480 for 150 tablets, which may last a patient 21 days. Wellcare requires patients to pay a third of the cost of its Tier 4 drugs.

“For everybody in my position with metastatic breast cancer, there are times when you are stable and can go off treatment,” Ms. Bass said. “But if we are progressing, we have to be on treatment, or we will die.”

“People’s eyes need to be opened,” she said. “They need to understand that these drugs are very costly, and there are a lot of people out there who are struggling with these costs.”

AP poll: More avoid buying homes

April 14, 2008

by Alan Fram

Associated Press

WASHINGTON - A growing majority say they won't buy a home anytime soon, the latest sign of increasing pessimism about the nation's housing crisis, a poll showed Monday.

In a vivid sketch of how the sputtering real estate market is causing distress throughout the country, the Associated Press-AOL Money & Finance poll found that more than a quarter of homeowners worry their home will lose value over the next two years. Fully one in seven mortgage holders fear they won't be able to make their monthly payments on time over the next six months.

"This is a great time to buy, but not necessarily to sell," said Robert Jackson, who lives in a two-bedroom house in Ferguson , Mo. , with his wife and four young children. He said he would love to purchase a larger home, but can't because even if he found a buyer, he would probably lose thousands on his house, which he bought less than two years ago.

"We're just going to have to slap a Band-Aid on it and stay here until the market gets a little bit better," Jackson , 30, said in a follow-up interview.

Jackson is not alone. Sixty percent said they definitely won't buy a home in the next two years, up from 53 percent who said so in an AP-AOL poll in September 2006. At the same time, just 11 percent are certain or very likely to buy soon, down from 15 percent two years ago.

The growing reluctance to dip into the housing market seems to stem partly from worry that housing prices will continue falling — good if you're buying a house but bad if you have to sell one.

The number envisioning falling prices in their area has grown to one in four, while four in 10 think prices will rise, a decrease from two years ago. Expectations for rising prices are highest in the South, with Westerners likeliest to predict they will drop.

Underscoring the public's unsettled feelings, the number saying local housing prices are about right has fallen to 35 percent. Half say homes are overpriced — especially in the Northeast — while those saying housing is underpriced have doubled to one in 10, particularly Midwesterners.

Some pockets buck regional trends. Laurie Jensen, a single mother of three, struggles to make payments on her home in Whitehall , Mont. , by working as a seasonal road construction flagger and at times collecting unemployment. She said she'd like to move outside of town, but the area is popular and prices have surged.

"Things are pretty crazy," she said. "Places I don't consider that great are really expensive."

One in 10 have adjustable rate mortgages, half of the number who said so two years ago. These mortgages generally start at a low interest rate and are later adjusted to market conditions — which has often meant steep, unaffordable boosts that have forced many to refinance or even lose their homes.

Daniel Gallego, a warehouse worker in Stockton , Calif. , said he may have to sell his home at a big loss. He said rising gasoline and other costs have made his adjustable rate mortgage unaffordable. Because he doesn't expect his home's value to recover soon, he said he may be better off moving now, before his rates rise.

"We may have to move in with my wife's parents or my parents," said Gallego, 30, who has two young children. "I could pay off some debt, then we could rent, and maybe buy another house in a few years."

The public anxiety is in reaction to an economy that is veering toward recession and losing jobs even as the housing market sputters badly. Foreclosures have soared to record highs, mortgage rates have increased, sales of existing and new homes have fallen and home values have dropped.

Gus Faucher, director of macroeconomics for Moody's Economy.com, a consulting firm, estimated that 9 million homeowners owe more on their home than it's worth. He said his company believes home sales are at or near bottom and home values will continue to fall until early next year.

Even so, he said, many people bought their homes before the run-up in values that started around 2001 and remain in good shape.

"So the value of your house goes down temporarily," he said. Unless the homeowner must sell now or can't afford the payments, "that doesn't have that much of an impact."

The poll also found:

_The biggest worriers are those expecting to buy soon. Of that group 43 percent frets that their home's value will drop in the next two years, compared with 25 percent of those not expecting to buy shortly.

_Fifty-nine percent think now is a good time to buy.

_Half think this is a very tough time for first-time buyers, an increase from two years ago. Nearly two-thirds think it's harder for first-home buyers than it was five years ago.

The AP-AOL Money & Finance poll was conducted from March 24-April 3 by Abt SRBI Inc. It involved telephone interviews with 1,002 adults nationwide, for whom the margin of sampling error is plus or minus 3.1 percentage points.

Included were interviews with 769 homeowners, for whom the sampling margin of error is plus or minus 3.5 points. The margin of sampling error for other subgroups was larger.

___

AP Director of Surveys Trevor Tompson and AP News Survey Specialist Dennis Junius contributed to this report.

Wholesale prices in US soar 1.1 percent in March, nearly triple the expected increase

April 15, 2008

by Martin Crutsinger

Associated Press

WASHINGTON - Inflation at the wholesale level in the U.S. soared in March at nearly triple the rate that had been expected as the costs of energy and food both climbed rapidly.

The Labor Department reported Tuesday that wholesale prices rose by 1.1 percent last month, the largest increase since a 2.6 percent rise last November, which had been the biggest one-month jump in 33 years. Analysts had been expecting a much more moderate 0.4 percent rise in wholesale prices for the month.

Core inflation, which excludes energy and food, was better behaved last month, rising by just 0.2 percent, down from a worrisome 0.5 percent rise in February.

For the past 12 months, wholesale prices are up by 6.9 percent and core inflation is up by 2.7 percent, the biggest year-over-year increase in nearly two years.

The inflation pressures are occurring at a time when the overall economy is slowing and many analysts believe may have toppled into a recession. That raises concerns that the country could be facing another bout of stagflation, the malady that last occurred in the 1970s when economic growth stagnated but inflation kept rising.

Such a development would put the Federal Reserve in a bind. The central bank has been cutting interest rates in an effort to combat the current slowdown. However, if inflation pressures keep rising, it might be forced to stop cutting interest rates for fear that it would make inflation worse.

For March, energy prices jumped 2.9 percent, the biggest increase since November. The price of gasoline was up 1.3 percent while natural gas rose by 4.2 percent. Home heating oil shot up by 13.1 percent and diesel fuel, used to power the nation's trucking fleet, increased by 15.3 percent.

Analysts believe the economy will be hit with more energy pressures in coming months, reflecting the fact that crude oil costs are remaining at record levels above $111 per barrel.

Food costs rose by 1.2 percent in March, reflecting big increases in the price of vegetables, rice, and beef.

Outside of food and energy, the price of soap and detergents jumped 2 percent, the biggest gain in more than two years, while pet food increased by 1.3 percent.

However, the price of new cars dropped by 0.2 percent and the cost of light trucks was down 0.3 percent, indicating the struggles that automakers face as a weak economy dampens demand.

The government will report on consumer prices on Wednesday with the expectation that they rose by 0.3 percent in March.

Retailer bankruptcies set to prompt thousands of store closings

Retailing Chains Caught in a Wave of Bankruptcies

April 15, 2008

by Mike Sheehan/Michael Barbaro

New York Times

The consumer spending slump and tightening credit markets are unleashing a widening wave of bankruptcies in American retailing, prompting thousands of store closings that are expected to remake suburban malls and downtown shopping districts across the country.

Since last fall, eight mostly midsize chains — as diverse as the furniture store Levitz and the electronics seller Sharper Image — have filed for bankruptcy protection as they staggered under mounting debt and declining sales.

But the troubles are quickly spreading to bigger national companies, like Linens ‘n Things, the bedding and furniture retailer with 500 stores in 47 states. It may file for bankruptcy as early as this week, according to people briefed on the matter.

Even retailers that can avoid bankruptcy are shutting down stores to preserve cash through what could be a long economic downturn. Over the next year, Foot Locker said it would close 140 stores, Ann Taylor will start to shutter 117, and the jeweler Zales will close 100.

The surging cost of necessities has led to a national belt-tightening among consumers. Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.

Retailing is a business with big ups and downs during the year, and retailers rely heavily on borrowed money to finance their purchases of merchandise and even to meet payrolls during slow periods. Yet the nation’s banks, struggling with the growing mortgage crisis, have started to balk at extending new loans, effectively cutting up the retail industry’s collective credit cards.

“You have the makings of a wave of significant bankruptcies,” said Al Koch, who helped bring Kmart out of bankruptcy in 2003 as the company’s interim chief financial officer and works at a corporate turnaround firm called AlixPartners.

“For years, no deal was too ugly to finance,” he said. “But now, nobody will throw money at these companies.”

Because retailers rely on a broad network of suppliers, their bankruptcies are rippling across the economy. The cash-short chains are leaving behind tens of millions of dollars in unpaid bills to shipping companies, furniture manufacturers, mall owners and advertising agencies. Many are unlikely to be paid in full, spreading the economic pain.

When it filed for bankruptcy, Sharper Image owed $6.6 million to United Parcel Service. The furniture chain Levitz owed Sealy $1.4 million.

And it is not just large companies that are absorbing the losses. When Domain, the furniture retailer, filed for bankruptcy, it owed On Time Express, a 90-employee transportation and logistics company in Tempe , Ariz. , about $30,000.

“We’ll be lucky to see pennies on the dollar, if we see anything,” said Ross Musil, the chief financial officer of On Time Express. “It’s a big loss.”

Most of the ailing companies have filed for reorganization, not liquidation, under the bankruptcy laws, including the furniture chain Wickes, the housewares seller Fortunoff, Harvey Electronics and the catalog retailer Lillian Vernon. But, in a contrast with previous recessions, many are unlikely to emerge from bankruptcy, lawyers and industry experts said.

Changes in the federal bankruptcy code in 2005 significantly tightened deadlines for ailing companies to restructure their businesses, offering them less leeway.

And the changes may force companies to pay suppliers before paying wages or honoring obligations to customers, like redeeming gift cards, said Sally Henry, a partner in the bankruptcy law practice at Skadden, Arps, Slate, Meagher & Flom and the author of several books on bankruptcy.

As a result, she said, “it’s no longer reorganization or even liquidation for these companies. In many cases, it’s evaporation.”

Several of the retailers that filed for Chapter 11 bankruptcy protection over the last eight months, like the furniture sellers Bombay, Levitz and Domain, have begun to wind down — closing stores, laying off workers and liquidating merchandise.

In most cases, the collapses stemmed from a combination of factors: flawed business strategies, a souring economy and banks’ unwillingness to issue cheap loans.

Bombay , a chain with 360 stores, was considered a success in the furniture world, after its sales surged from $393 million in 1999 to $596 million in 2003.

Then the chain decided to move most of its stores out of enclosed malls into open-air shopping centers. It started a children’s furniture business, called BombayKids. And it started carrying bigger items, like beds and upholstered couches, with higher prices than its regular furniture.

Consumers balked at the changes, hurting Bombay ’s sales and profits at the same time that its expenses for the ambitious new strategies began to grow. The timing was unenviable: By early 2007, the housing market began to falter, so purchases of furniture slowed to a trickle.

The company was running out of money, but banks refused to lend more. “They did not want to take the chance that we might not repay the loans,” Elaine D. Crowley, the chief financial officer, said in an interview.

In September 2007, Bombay filed for bankruptcy protection. The highest bid for the company came from liquidation firms, who quickly dismembered the 33-year-old chain. Bombay , which once employed 3,608, now has 20 employees left. “It is very difficult and sad,” Ms. Crowley said.

The bankruptcies are putting a spotlight on a little-discussed facet of retailing: heavy debt.

Stores may appear to mint money by paying $2 for a T-shirt and charging $10 for it. But because shopping is based on weather patterns and fashion trends, retailers must pay for merchandise that may sit, unsold, on shelves for long periods.

So chains regularly borrow large sums to cover routine expenses, like wages and electricity bills. When sales are strong, as they typically are during the holiday season, the debts are repaid.

Fortunoff, a jewelry and home furnishing chain in the Northeast, relied on $90 million in loans to help operate its 23 stores, using merchandise as collateral.

But by early 2008, as the housing market struggled, the chain’s profits dropped, meaning its collateral was losing value and the amount it could borrow fell.

In better economic times, the banks might have granted Fortunoff a reprieve. But with a recession looming, they refused, forcing it to file for bankruptcy in February. In filings, the chain said it was “facing a liquidity crisis.” (Fortunoff was later sold to the owner of Lord & Taylor.)

Plenty of retailers remain on strong footing. Arnold H. Aronson, the former chief executive of Saks Fifth Avenue and a managing director at Kurt Salmon Associates, a retail consulting firm, said the credit tightness and consumer spending slowdown have only wiped out the “bottom tier” companies in retailing.