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IN THE LAST DAYS PERILOUS (DANGEROUS) TIMES

DEBKAfile Exclusive: New Al Qaeda threat of radioactive truck attacks naming New York, Los Angeles, Miami August 10, 2007, 1:11 AM (GMT+02:00)

The threat was picked up by DEBKAfile’s monitors from a rush of electronic chatter on al Qaeda sites Thursday, Aug. 8. The al Qaeda communications accuse the Americans of the grave error of failing to take seriously the videotape released by the American al Qaeda spokesman Adam Gaddahn last week. They will soon realize their mistake when American cities are hit by quality operations, said one message. Another said the attacks would be carried out by means of trucks loaded with radio-active material against America’s biggest city and financial nerve center. A third message mentioned New York, Los Angeles and Miami as targets. It drew the answer: The attack, with Allah’s help, will cause an economic meltdown, many dead, and a financial crisis on a scale that compels the United States to pull its military forces out of many parts of the world, including Iraq, for lack of any other way of cutting down costs.There is also a message which speaks obliquely of the approaching attacks easing the heavy pressure America exerts on countries like Japan, Cuba and Venezuela.

DEBKAfile’s counter-terror sources and monitors say there is no way of gauging for sure how serious these threats are, how real, or whether they are part of a war of nerves to give the Gaddahn tape extra mileage. But it is important to note that the exchange of messages took place over al Qaeda’s internal Internet sites and that they contained the threat of radioactive terror and specific American cities for the first time after a long silence on these subjects. In addition, a growing number of clips has been disseminated of late over al Qaeda sites instructing the faithful how to design remote-controlled gliders, pack them with explosives and launch them against predetermined targets.

NYPD responds to unsubstantiated threat AUG 11,07

NEW YORK - Authorities were taking extra counterterrorism precautions Friday in response to what they said was an unsubstantiated radiological threat to the city.

Officials said they had not changed the city's terror alert status in response to online chatter mentioning a truck packed with radioactive material. But police deployed extra radiological sensors on street, water and air patrols, and were stopping vehicles at checkpoints in lower Manhattan and around the city.Deputy Police Commissioner Paul J. Browne called the measures strictly precautionary. He said an Israeli Web site reported that online posts were made following a video released Sunday featuring an American member of al-Qaida threatening foreign diplomats and embassies across the Islamic world.We are closely monitoring the situation, said Homeland Security Department spokesman Russ Knocke. There continues to be no credible information telling us that there's a threat to the homeland at this time.The FBI also said there was no credible threat.

Mayor Michael Bloomberg said the police measures were nothing out of the ordinary.
These actions are like those that the NYPD takes every day — precautions against potential but unconfirmed threats that may never materialize, he said in a statement.

LUKE 21:25-26
25 And there shall be signs in the sun and the moon and the constellations, and on the earth pressure of nations in perplexity (Mass confusion, at the roaring of the sea and the shaking,
26 at the chilling of men from fear and apprehensiveness of that which is coming on the inhabited earth, for the powers of the heavens shall be shakin.

Hurricane Flossie now a Category 3 storm By JAYMES SONG, Associated Press Writer AUG 11,07

HONOLULU - Hurricane Flossie strengthened to a Category 3 storm early Saturday as it headed toward waters south of Hawaii, but forecasters did not expect it to hit the state with much more than rough surf. At 5 a.m. EDT on Saturday, Flossie had strengthened from a Category 1 storm to a Category 3, with maximum sustained winds near 115 mph, and was about 1,150 miles from Hawaii.The storm was expected to weaken as it passed over cooler waters. It was traveling west at about 12 mph.The Big Island's southeastern shores could see waves of 8 to 12 feet, forecasters said, with the surf rising during the day Monday and peaking Tuesday. The island's South Point is the southernmost area of the United States.Flossie formed as a tropical storm Wednesday about halfway between Mexico's southern Pacific coast and Hawaii. Its winds surpassed 74 mph, making it a hurricane, on Friday.

The last time a hurricane hit Hawaii was in 1992, when Iniki ravaged Kauai, killing six people and causing $2.5 billion in damage.Hurricane season runs from June 1 to Nov. 30. In May, forecasters predicted that Hawaii and the rest of the central Pacific face a slightly below-average hurricane season, with just two or three tropical cyclones expected because of lower sea surface temperatures.The islands get an average of 4.5 tropical cyclones a year and one hurricane about every 15 years. Last year, the central Pacific had five tropical cyclones after the National Oceanic and Atmospheric Administration predicted two to three.On July 21, a tropical depression moved past the Big Island, bringing a few inches of rain to the parched island but no major problems. Cosme, the year's first Pacific tropical cyclone, reached hurricane status for a day before it weakened.

South Asia monsoon toll passes 2,000 By MATTHEW ROSENBERG, Associated Press Writer Fri Aug 10, 5:03 PM ET

NEW DELHI - The death toll from this year's calamitous South Asian monsoons had surpassed 2,000 by Friday after a wild storm hit Pakistan's largest city. India asked doctors to cancel vacations and rushed food and medicine to flooded regions where disease has stricken thousands. Adding to the misery, the monsoon rains that flood wide stretches of South Asia each year have forced creatures large and small onto whatever dry land can be found, resulting in scores of fatal snake bites.Relief workers said there was an acute shortage of clean drinking water and medical supplies in parts of northern India, where storms have been heavier than usual this year.

With flooding from two weeks of rains finally receding in northern India, monsoon storms moved west. Heavy winds and rains lashed the Pakistani city of Karachi, destroyed homes and flooding streets. At least 22 bodies were pulled from collapsed homes, said Anwar Kazi, a spokesman for the private relief service Edhi Foundation. Residents waded through waist-deep water in parts of the city of 15 million people.
Vital to farmers whose crops feed hundreds of millions of people, the monsoon season runs from June to September as the rains work their way across the subcontinent. At least 2,090 people have died so far this year, double the number killed last year. Nearly 600 have died in the past two weeks alone.More than 1,550 have died in India; 226 have been killed neighboring Bangladesh; 92 in Nepal, and at least 222 in Pakistan, officials said.The storms have stranded 19 million people in India, Bangladesh and Pakistan. Nearly 243,000 people were still living in relief camps in India, the Home Ministry said.

The rainfall has been unevenly distributed across India this year due to unusual monsoon patterns, according to the country's Meteorological Department. While parts of central India received less rain, the north faced stronger storms for longer than usual.The reprieve in the monsoon rains created ponds of stagnant water in India's Uttar Pradesh and Bihar states, and aid workers struggled to stave off a disease epidemic.Paramedics visiting affected villages don't have adequate supplies of medicines, Ramakant Rai, chief of state's Voluntary Health Association, said of Uttar Pradesh. He said clean drinking water was running low.Families lined up for aid finally reaching their villages. In one Uttar Pradesh village, a family rowed a makeshift tube raft to a relief center.Doctors have treated at least 1,500 people in Uttar Pradesh for diarrhea in the past 10 days, said L.B. Prasad, director-general of the state's health services. Rai's group said the scope of the suffering was greater, with more than 22,000 people coming down with waterborne disease.

In neighboring Bihar state, the government canceled vacations for doctors in flood-ravaged districts, said state Health Minister Chandramohan Rai.The rains have driven poisonous snakes onto dry land in closer proximity to populations, and hundreds in India have been bitten this season. In neighboring Bangladesh, the government said at least 35 of the 226 people killed in the monsoon have died of snake bites. It has been the country's second-highest cause of death after drowning.Snakes are not the only dangerous creatures that compete with people for dry land. In India's northeastern Assam state, flooding forced rhinos from their habitat at the Kaziranga National Park last week. Their panicked charges killed one person and injured two others.Everything, everyone, is restricted to tiny, tiny islands with very little space, said Romulus Whitaker, a snake expert. Everyone is crammed in together and the chances of running into snakes, stepping on them, grabbing them and sleeping on them is much, much more.That's how Paltu Ram, a farmer in his 20s, died.

Stranded with a few hundred villagers on a sliver of land encircled by flood waters in the Bara Banki district of northern India, about 370 miles east of New Delhi, he decided to climb a tree to see if he could spot a rescue boat. On his way up, he reached for what looked like a brown rope. It wasn't — and when he grabbed it, the snake recoiled and struck, sinking its fangs into his arm. Paltu jumped into water saying he was bitten by snake. Before he could be taken to a doctor he died, said his father, Rameshwar, who couldn't say what kind of snake got his son. Associated Press reporters Biswajeet Banerjee in Lucknow, India, and Julhas Alam in Dhaka, Bangladesh, contributed to this story.

At least 13 dead in Pakistan rains Fri Aug 10, 4:24 PM ET

KARACHI (AFP) - Flooding caused by torrential rains has killed at least 13 people in Pakistan's southern port city of Karachi, officials said Friday. Severe weather has forced the provincial government to declare a state of emergency in Karachi's hospitals, with holidays cancelled for doctors and paramedics, they said.Most of the city was inundated by knee-deep rainwater, causing traffic chaos.Authorities have closed schools and colleges due to transportation difficulties and hazards like falling power lines.Four of the dead were reportedly electrocuted by power lines wrecked by the rainstorms in several areas of the city.Officials said Karachi had received 142mm (more than 5.5 inches) of rain in the previous 24 hours, with more expected.

Rivers above alert levels as rain subsides over central Europe Fri Aug 10, 4:20 PM ET

BERLIN (AFP) - Some rivers and lakes remained above alert levels Friday after two days of torrential rain and flooding in Switzerland and Germany which killed one and caused one serious injury. A man drowned in flooding in Germany after becoming trapped in his cellar, while the Rhine was closed to shipping after becoming dangerously swollen by torrential rain, police said.The Rhine had become so high in southwest Germany that it would be impossible to navigate until Saturday at the earliest, a spokesman for the police in the city of Karlsruhe, Reinhold Seene, told AFP.He added that, while the river, one of Europe's longest and most important at 1,320 kilometres (820 miles), was expected to peak at 8.3 metres (27 feet), it was not the flood of the century.

The man who died, a 61-year-old resident of the western town of Arnsberg, apparently got caught in his cellar by the rising water and drowned because he was unable to open the door.Other police services said a mudslide closed a main road for several hours, and a camping ground was evacuated.Meanwhile, in neighbouring Switzerland, to the south of the Rhine, weather services said that the low pressure system over the Alps which caused the massive rainfalls was slowly weakening and moving towards the Adriatic Sea.Rain which battered Switzerland on Wednesday and Thursday caused at least 65 million Swiss francs in damages (39.5 million euros), according to estimates Friday.A partial survey of damages by the Swiss intercantonal reinsurance union estimated damages to buildings at between 50 and 60 million Swiss francs.Crop damage was estimated to be at least five million Swiss francs.Meanwhile a hydraulic power station at Ruchlig, northern Switzerland, had been flooded and disconnected from the network, reported the power station administrator NOK.

More than 20 centimetres (eight inches) of water seeped into the machine room of the power station which has an annual capacity of 55 million kilowatts per hour. It was unclear how long it would remain disconnected or how much financial damage had occured.Several hydraulic power stations along the Aar river also reduced their capacities due to strong river currents and tree trunks travelling along them. Meanwhile, the Swiss rail company announced the resumption of traffic on sections of lines that had been cut by flooding and landslides.

Christian Zionist Leader Denounces Evangelicals' Pro-Palestinian Letter
By Ethan Cole - Christian Post Reporter
Tue, Aug. 07 2007 12:46 PM ET

A Christian Zionist leader has denounced the recent letter by some of America’s leading evangelicals voicing support for a Palestinian state, criticizing the signers for their appalling ignorance.Dr. Jim Hutchens, president of the Jerusalem Connection and the Washington-area director for Christian United for Israel, acknowledged the deep chasm growing among evangelicals regarding Israel.He contends, however, that the modern state of Israel is part of the fulfillment of God’s covenant of a homeland for the Jewish people.Evangelicals supporting a Palestinian state have an appalling ignorance of both secular and biblical history, said Hutchens, according to OneNewsNow. The Zionist leader noted that there has never been a sovereign state of Palestine.

In July, 34 prominent evangelical leaders signed a letter voicing support for President Bush’s Israeli-Palestinian peace efforts, emphasizing their support for a two-state solution.The leaders also said they wanted to repair the serious misconception that all American evangelicals are against the two-state solution and the creation of a new Palestinian state.Historical honesty compels us to recognize that both Israelis and Palestinians have legitimate rights stretching back for millennia to the lands of Israel/Palestine, states the letter dated July 27 and published in the New York Times.Signers included Richard Mouw, president of Fuller Theological Seminary; David Neff, editor of Christianity Today; Richard Stearns, president of World Vision; Tony Campolo, president/founder of Evangelical Association for the Promotion of Education; Stephen Hayner, former president InterVarsity Christian Fellowship; and Joel Hunter, senior pastor of Northland Church in Longwood, Fla., and member of the executive committee of the National Association of Evangelicals.Hutchens, however, disagrees and points to the Replacement Theory as the theological explanation for evangelical support of a Palestinian state.

I would suggest that the basic theological underpinning of this is super-cessionism, he said, according to OneNewsNow, and that is to say that the church is the new Israel, that Christians have replaced Jews as the covenant people of God … [and that] the covenants that God made with Israel and the Jews are now null and void because they have not accepted Jesus as the Messiah.Yet Hutchens believes that the covenant between God and Israel still holds. He proposes as solution to the Israel-Palestinian problem that Israel annex the West Bank and Gaza and for the Israeli military to uproot terrorists in the region.The debate on Israel and Christian support for the biblical land has stirred tension among evangelicals – arguably the world’s most vocal supporters of the state; evangelicals make up 1/3 of American tourists that visit Israel, second only to American Jews.

Among the critics are those against the blind support that some Christians give to Israel despite the fact that the Knesset – Israel’s legislative body – bans evangelism in the country and has proposed punishment including imprisonment and heavy fines for guilty parties.Megachurch pastor Joel Hunter, one of the signers supporting a Palestinian state, noted:There is a part of the evangelical family which is what I call Christian Zionists, who are just so staunchly pro-Israel that Israel and their side can do no wrong, and it’s almost anti-biblical to criticize Israel for anything, he said, according to the New York Times. But there are many more evangelicals who are really open and seek justice for both parties.Award-winning talk show host Janet Parshall is an example of a long-time pro-Israel Christian leader who has recently come to criticize the state.I thought, wait a minute: we can’t just blindly support Israel, said Parshall after she heard that the Knesset Christian Allies Caucus does not associate with groups that share the Gospel.

We have to able to tell them, as a friend, [that] you can’t do that. You can’t silence us.Vocal pro-Israel supporters include Dr. Jack Hayford, president of the International Church of the Foursquare Gospel; Paula White, co-pastor of the 22,000-member Without Walls International Church in Florida; Pastor John Hagee, founder of Christian United for Israel and senior pastor of the 18,000-member Cornerstone Church in Texas; Pastor Steve Munsey of the 12,000-member Family Christian Center; and Stephen Strang, founder and president of Charisma Magazine.

The US Earthquake Prophecy
July 28, 2007 Harrisburg, PA BY KIM CLEMENT

"In this Nation, yes, there shall be three earthquakes says the Lord. Not earthquakes of judgment but a sign in the earth. The wind has brought the rain. Signs from above. Fires have come on top of the land. Signs on top of the land. Fire consuming religion, consuming witchcraft, consuming control and the synagogues of Satan shall be invaded by the forces of righteousness, says the Lord of hosts. No more reasoning. No more debating. Go and show. Don't go and tell, go and show. For now you have embarked upon a period of manifestation, says the Lord. Now there must be a sign underneath the earth. And surely your earth shall shake saying to you three times and showing you three arenas. The heavens where the wind came and the rain came to America. On the earth the fires that came in the middle of this nation and shall continue in the west. And then underneath the earth - the shaking. And God says, you know why? Because the demonic powers that have held tight are now being released and being taken care of and being completely annihilated, says the Spirit of the Lord. They will never be above you, they will always be beneath you says the Spirit of the God.

Israel's Def Min: Palestinian Peace Talks A Fantasy-Report
Friday, Aug 10, 2007

JERUSALEM (AP)--The Israeli daily Yediot Ahronot quoted Defense Minister Ehud Barak on Friday as calling recent peace moves with the Palestinians fantasies and saying Israel would not withdraw from the West Bank for another five years at least. The comments were attributed to Barak in private conversations. If accurate, they are surprising because Barak heads the dovish Labor Party and tried to reach a dramatic peace deal with the Palestinians seven years ago, when he served as prime minister.

Barak's office would not comment on the Yediot report.

Israelis have healthy intuition. They can't be fed more fantasies about an upcoming agreement with the Palestinians, Barak is quoted as saying. Israel won't be able to pull out of the West Bank before it develops a technological response to rockets fired by Palestinian militants and more advanced missiles from Iran - a process that will take between three and five years, Barak said, according to the report. Palestinian militants regularly launch rockets at Israel from the Gaza Strip. But if fired from the West Bank, the rockets could threaten the country's population centers and paralyze its only airport outside of Tel Aviv. The Israeli army will not leave the West Bank at least in the next five years, Barak is quoted as saying.

Mideast peace moves have been jump-started in the past two months, as Israel and the international community scramble to shore up moderate Palestinian President Mahmoud Abbas in the aftermath of the takeover of Gaza by his rivals from the Islamic group Hamas in mid-June. Israeli Prime Minister Ehud Olmert has been holding regular meetings with Abbas and has ordered the release of Palestinian prisoners and the transfer of frozen Palestinian tax funds in an attempt to bolster him. Barak is dismissive of Olmert's recent efforts, according to the Yediot report, referring to them as packaging, and asserting that Abbas is incapable of taking control of the West Bank and providing security there. As a result, according to Yediot, Barak does not intend to comply with Palestinian requests to remove checkpoints in the West Bank, saying this would endanger Israeli civilians. (END) Dow Jones Newswires

ISRAELIS FROM AROUND THE WORLD BUT ESPECIALLY IN NEW YORK,ITS TIME TO GO HOME BEFORE THE MARKET COLLAPSES AND USE LOOSE ALL YOUR MONEY. WITH ALL THE UNCERTAINTY AROUND THE WORLD GO TO YOUR GOD GIVEN LAND AND REBUILD THE 3RD TEMPLE SO GOD WILL BE IN YOUR PRESENCE AND PROTECT USE FROM ALL USE WILL BE GOING THROUGH.

JAMES 5:1-3
1 Come now ye rich, lament, howling for your wretchedness which is coming on you!
2 Your riches have rotted and your garments have become food for moths.
3 Your gold and silver corrode and their venom will be for a testamony against you, and the venom will be eating your flesh as fire. You horde in the last days.

DR DOCTORIAN IN HIS REVELATION FROM ANGELS REVEALED THE COLLAPSE IN THE WORLD ECONOMY WILL BE FROM ASIA, LOOKOUT THIS THREAT COULD COME TO PASS.

China threatens nuclear option of dollar sales
By Ambrose Evans-Pritchard
Last Updated: 8:39pm BST 10/08/2007

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Blog - Dollar to collapse?

Fistful of dollars - China's trade surplus reached $26.9bn in June

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.
Shifts in Chinese policy are often announced through key think tanks and academies.
Described as China's nuclear option in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a bargaining chip in talks with the US.
Of course, China doesn't want any undesirable phenomenon in the global financial order, he added.He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar, he told China Daily.The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo.She said foreign control over 44pc of the US national debt had left America acutely vulnerable.Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles, he said.

A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and could trigger a global cycle of protectionist legislation.Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters.

Brussels frees Italy from gold fever By Paul Bompard in Rome
Thu Aug 9, 2:00 PM ET

The European Commission on Thursday cut short a furious debate in Italy on the use of the Bank of Italy's gold reserves to lower the country's debt, saying it was up to the European Central Bank to decide independently on the foreign reserves of eurozone member states. A suggestion by Romano Prodi, the prime minister, that the government might use the reserves sparked a political row on Wednesday with Paolo Bonaiuti, a spokesman for Silvio Berlusconi, the opposition leader.Mr Bonaiuti declared that Mr Prodi was eager to divest Italy of its wealth to try to balance his budget. Maurizio Gasparri, a leader of the opposition National Alliance party, was critical.Yesterday, the spokesperson for Joaquín Almunia, the European monetary affairs commissioner, said: It is . . . up to the ECB to decide about the foreign reserves [including gold reserves] of the euro area member states, in full independence.

In the Tuscan seaside resort where he is on holiday, Mr Prodi said: It is positive that a debate exists over using the Bank of Italy's gold reserves. Some countries have done so, others have not. On July 30 Italy's parliament passed a resolution that suggested the government explore, at international level, the possibility of selling gold reserves to cut the national debt. The resolution was not proposed by the government, but Mr Prodi's words were seized upon by the opposition as a declaration of intent.Silvio Sircana, Mr Prodi's spokesman, said: I don't understand all the excitement. All he said was that discussion was positive. This in no way expresses the prime minister's position or that of the government.Early this month Tommaso Padoa-Schioppa, the economics minister, said there should be no taboo regarding the central bank's gold. But this does not mean he wants to sell it, and, in any case, it represents a tiny value compared to the national debt, hardly enough to make any difference, said an economics ministry spokesman.

Italy's accumulated national debt is about EU1,609bn ($2,223bn, £1,090bn), or 107 per cent of GNP.Even if the Bank of Italy were to sell all its 2,500 tonnes of gold, which it cannot do under existing European Union regulations, it would collect about EU36bn, only 2.2 per cent of the national debt. If it sold all of the 500 tonnes per year - the amount permitted by the 15 EU signatories of the 2004 Agreement of Gold - it would cover 0.44 per cent of the debt. But this year only 206 tonnes are so far unreserved, less than 0.2 per cent of the debt.The Bank of Italy has kept silent. Unofficial comments from within indicate it is aware of parliament's sovereignty but also feels secure behind barriers of independence and autonomy.

ECB releases €95 billion to fend off credit crunch
10.08.2007 - 09:22 CET | By Honor Mahony

The European Central Bank (ECB) has poured around €95 billion into the eurozone banking system to calm market jitters following a credit crunch in the US market over high-risk mortgages.For Thursday only, the the ECB opened its funds to banks in the 13-nation eurozone at a rate of 4 percent.According to a report in Forbes news agency, some 49 banks took up the offer to various amounts, running in total to €94.8 billion - it is the biggest loan in the bank's history.The ECB notes that there are tensions in the euro money market notwithstanding the normal supply of aggregate euro liquidity, it said in a statement.This is the first time the ECB has felt compelled to intervene in the markets since the days following the terrorist attacks in the US in September 2001.

The move was prompted after investors panicked about the potential losses from the US subprime sector after BNP Paribas, a major French bank, froze payments on three funds invested in the sector.Ian Richards, European equity strategist at ABN Amro, told UK daily the Independent that the ECB's payout was a reflection of the fact that the sub-prime issues will not be constrained to the US financial sector. As the financial sector across Europe shows its hand over the next weeks and months we will see where the exposure exists.The ECB is acting as the lender of last resort. The scale of intervention we have seen today is quite large, he continued.There has been speculation that the ECB may have acted because it has knowledge of problems that have still to come to light.

Earlier this month, the Financial Times reported Jochen Sanio, head of Germany's financial regulator, as having warned about the worst banking crisis facing Germany since 1931 - this followed a German government rescue of domestic lender IKB, involved in subprime investments.Sub-prime mortgages are those loans made to borrowers who would not usually qualify for the normal market interest rates, often due to a poor credit history. They are riskier both for the borrower and lender because of this combination of higher interest rates and weak credit history. The US Federal Reserve also stepped in with emergency funds on Thursday. The crisis in the US started to escalate recently because of the collapse of many mortgage lenders in the subprime sector.The moves on both sides of the Atlantic are a bid to try and stop a cash flow crunch in the sector from spreading to other parts of the economy.

Banks Add More Funds To Stabilize Markets
Wall Street Steadies After 3 Fed Infusions
By Tomoeh Murakami Tse and Nancy Trejos
Washington Post Staff Writers
Saturday, August 11, 2007; Page A01

NEW YORK, Aug. 10 -- Central banks around the world pumped money into the financial system Friday, helping to settle a jittery stock market on Wall Street that at least for one day held steady despite intensifying concerns over tighter credit and its potential impact on the U.S. economy. In a sign that the turmoil in the credit market was far from over, shares of major lenders and companies that are targets of buyout deals suffered.Stocks tumbled around the world, with major indexes in Europe and Asia falling more than 2 percent after major declines in the United States on Thursday. The European Central Bank lent $84 billion Friday to financial institutions, a day after providing $130 billion. Japan's central bank added $8.5 billion, and the Reserve Bank of Australia provided $4.2 billion.A trader at the New York Stock Exchange. Stocks finished mixed after the Fed provided $38 billion, its biggest one-day infusion since September 2001. (By Ario Tama -- Getty Images)

How and Why the Fed Pumps Money Into the Financial System

Banks are required to maintain certain cash reserve levels overnight, and frequently have to borrow from other banks to keep their reserves. The Federal Reserve's federal funds rate is the interest rate charged on overnight loans between banks. The current rate is 5.25%.The Federal Reserve injected $38 billion into the system in three increments Friday, its biggest one-day infusion since September 2001. The Fed sought to reassure investors by releasing a statement before financial markets opened, saying it would provide as much extra money as needed to hold its benchmark overnight interest rate at about 5.25 percent.The demand for money overnight had pushed the rate up to more than 6 percent. The central bank is providing liquidity to facilitate the orderly functioning of financial markets, said a statement released by the Fed Board in Washington.

A sell-off occurred early in the trading session, with the Dow Jones industrial average down by 200 points. By the closing bell, with selling reined in by the Fed, stocks ended the session mostly unchanged.The Dow Jones industrial average of 30 blue-chip stocks finished the day down 31.14, or 0.2 percent, at 13,239.54. The tech-heavy Nasdaq fell 11.60, or 0.5 percent, to 2544.89. Standard & Poor's 500-stock index, a broad market measure, rose 0.55, or 0.04 percent, to 1453.64.The central banks around the world have stepped up to the plate, said Stanley A. Nabi, vice chairman of Silvercrest Asset Management. They're sending a signal: Hey, we're not going to let you get into trouble.Many stocks finished the day down, although energy and some consumer companies fared better. Shares in financial companies, which were pummeled Thursday, were mostly unchanged. Shares of small companies, which generally take a hit as credit is tightened and the economy slows, were higher. Some investment strategists took these as signs that the next week might be better.

We kind of started the day with the idea that, Gosh, the first of the [European Central Bank] injections didn't work, said James W. Paulsen, chief investment strategist at Wells Capital Management. The fact that the Fed came in might have been looked at as a positive by some . . . because they were criticized somewhat as being stuck in the mud, dogmatic, and not open to the idea of being responsive. And certainly, they showed that they would be [responsive] today.Nonetheless, fear and uncertainty dominated, as speculation of massive liquidations by hedge funds continued to spread across trading desks and as investment firms that had little to do with the home-mortgage market reported record withdrawals by investors.The speculation was adding to the wild swings in trading more so than in the past because of the proliferation of hedge funds, whose holdings are typically not public and whose strategy often involves the hefty use of leverage, or borrowed money. That amplifies returns, but also losses.Wall Street is paying attention to news from quant funds, the trading of which is based on computer-based models with limited human intervention. The fear is that such strategies can break down in a volatile market, leading to massive losses that could send ripples through the entire financial system.

Banks Add More Funds To Stabilize Markets

We're just having some incredibly strong volatility both ways, as much as I've ever seen, said Bart Barnett, head of equity trading at Morgan Keegan & Co. Every time I see a market spike like we're seeing right now, I just start looking for headlines. People are watching the news wires like hawks.On Friday, Deutsche Bank said the value of one of its investment funds had fallen by 30 percent since the end of July. The German bank said assets of its DWS ABS Fund fell even though it had no exposure to the risky American subprime mortgage market, the epicenter of the credit problems.
The uncertainties surrounding the U.S. mortgage crisis has constricted liquidity in this market, the company said in a statement. Deutsche Bank said it was leaving the fund open at the request of investors who might want to sell, even at a discount.

Shares of Countrywide Financial and Washington Mutual fell Friday after the release of regulatory filings late Thursday in which the mortgage lenders declared that it had become more difficult to find new money for home loans. Washington Mutual, of Seattle, said that since late July, liquidity for non-conforming loans -- those not backed by Freddie Mac and Fannie Mae, or made to borrowers with spotty credit -- diminished significantly.Many big lenders package home loans into bonds and sell them to investors in what is known as the secondary market. The rising rate of foreclosures and delinquencies among subprime borrowers, who generally have blemished credit histories, coupled with a drop in home prices, has made investors leery of buying those bonds.As the market for such bonds -- which are divided and packaged with other types of debt -- screeched to a halt, the pricing on the hard-to-value securities has become even more opaque.

Countrywide, of Calabasas, Calif., the country's biggest mortgage lender, said it had adequate cash to cope with the credit crunch -- about $190.3 billion in short-term liquidity -- but warned that the secondary market and funding liquidity situation is rapidly evolving and the potential impact on the company is unknown. Liquidity is essential to the company's business, Washington Mutual said in a statement. The Company's liquidity may be affected by an inability to access the capital markets or by unforeseen demands on cash.Also hurt Friday were companies that are buyout targets, the viability of which is increasingly being questioned as the cost of borrowing used in such takeovers rises. Among those companies is TXU, which is being sought in a $45 billion deal by the buyout firm Kohlberg Kravis Roberts and TPG.Shares of TXU, which agreed to sell itself for $69.25 a share, fell to $63.65 in heavy trading Friday. SLM Corp, better known as Sallie Mae, fell 95 cents, to $48.20 a share, significantly less than $60 a share price being paid by private-equity firm J.C. Flowers. And First Data closed at $31.05, down 4 cents, still below the $34 a share offered by KKR. The decline in these stocks show that the markets do not believe the buyouts will go through as advertised, analysts said. The trouble in the credit markets is raising the cost of financing these deals, and some of the deals may be renegotiated.

The Securities and Exchange Commission has sent inspectors in recent weeks to look inside some of the nation's largest broker-dealers to make sure they are properly valuing subprime mortgage assets for risk purposes.Most of these brokers engage in daily mark-to-market valuations of these instruments to ensure they have enough capital on hand. The valuations are supposed to correspond to what the assets would fetch in the open market, but some of the securities trade so rarely that it can be difficult to put a price tag on them.In the days ahead, the challenge for regulators and central bankers will be balancing the need to keep markets running smoothly and letting them self-correct. Fed officials gave no sign they were moving toward lowering interest rates, having worried for several years that investors were underestimating the risk of certain assets. They now welcome investors' willingness to reprice assets to better reflect their risk.Hugh Moore, partner at Guerite Advisors and former chief financial officer of a subprime mortgage company, said: There's relatively little they can do because they don't really control the securitization market, which packages mortgages into securities that are then sold off in pieces to investors around the world, including large hedge funds, pension funds and insurance funds. It's not like the savings and loans crisis.Trejos reported from Washington. Staff writers Nell Henderson, Carrie Johnson and David Cho in Washington contributed to this report.