Archive for July, 2008

KANSAS CITY, Missouri (Reuters) – The U.S. housing crisis looks pretty distant when viewed from the cornfields of middle America, although land values pushed up by record commodity prices also evoke past booms that ended in bust.

Farm prices in the corn belt jumped an eye-popping 20-plus percent last year. Economists at the Kansas City Federal Reserve say that so far, the gains seem to be based on anticipated profits from future harvests, not speculation.

If prices suddenly turned lower, the sector could suffer, and it would not be the first time. Farm values collapsed 40 percent between 1982-87, squeezed by higher production costs and lower agricultural earnings.

“If prices stay put we’re somewhat better, but if they don’t, we’re somewhat in trouble … It’s not all roses,” said Dennis Kvatum, a soybean and wheat farmer in Beardsley, Minnesota.

On the other hand, farmers have far fewer debts than in the 1970s and 1980s, giving them a decent cushion.

“Rising farmland values might be a sign of a bright, new, golden age in agriculture — but they are not without risks, noted the Kansas City Fed’s latest Economic Review.

In the meantime, the rest of the regional economy is benefiting from the sector’s strength, albeit with typical Midwestern understatement.

“Our business is really not bad. In fact, it’s pretty good,” said Mike Haverty, chief executive officer of Kansas City Southern railway, whose trains haul cargo like coal and grain for export to ports in Mexico.

Surging energy costs have not dented the railroad man’s enthusiasm because strong demand has helped him to pass along roughly 70 percent of these increases to customers.

A monthly manufacturing survey by the Kansas City Fed of its district declined in June, but it did show that companies’ expectations for future activity remained positive and export activity was solid.

The Kansas City Fed’s seven-state district spans the farming heartland of Oklahoma, Kansas, Nebraska and western Missouri, as well as the Rocky Mountain states of Colorado, Wyoming and northern New Mexico, where energy and ranching, as well as tourism, are economically dominant.


“The major food exporters, energy and commodity producers of our district are doing well,” Kansas City Fed President Thomas Hoenig told Reuters in an interview earlier this month.

“Our housing industry is under pressure, but by much less than in southern California,” he said, referring to a region of the country at the heart of the subprime mortgage meltdown.

U.S. agricultural exports have skyrocketed more than 40 percent this year due to both higher prices and larger volumes, amid soaring demand from markets like India and China, whose massive emerging middle classes want to eat more and better.

The benefits of this boom have been felt broadly, with retail sales taxes up in neighboring Nebraska, for example, in an indication that consumers have continued to spend and buoy a service sector suffering at a national level.

“Record high commodity prices have lifted farm profitability and that has spilled over into capital spending,” said Jason Henderson, a rural economist and head of the Omaha branch of the Kansas City Fed.

“We’re going to have some solid growth in 2008 and our service sector is holding up well,” he said, adding that west Nebraska may be one of the few places in the country where demand for SUVs has defied $4-plus gasoline.

The Kansas City Fed calculates an index of farm incomes and capital spending based on a survey of agricultural banks.

This gauge soared to around 160 during 2007 from a reading near 100 in the fourth quarter of 2006, with capital spending tracing a similar climb. But the pace of gains for both were expected to slow over the coming months.

“Rising input costs are limiting crop profit margins. Livestock producers are posting huge losses due to higher feed costs,” it noted in its most recent survey of agricultural credit conditions, which covered the first quarter.

On top of margin pressures, higher commodity prices also up the ante for agricultural businesses that have to buy and store produce at the higher prices, and finance these inventories with bank credit.

“Your county grain elevator used to need a credit line of $10 million and now that is more like $40 million,” said Paul DeBruce, chief executive of DeBruce Grain, a huge private grain distributor with $4.6 billion of turnover in fiscal 2008.

Some if his grain elevators customers were negotiating harder on when they would get paid than on price — an indication of their need for cash — and order backlogs for agricultural equipment were lean, in a sign of slowing demand.

“The industry is not in trouble, but it is under strain,” the Kansas City-based DeBruce said.


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Last night’s CBS 2 Chicago’s newscast led off with a segment on Barack Obama’s visit to Kuwait.  The station’s Web site includes a written report headlined “Soldiers Overjoyed To Meet Obama In Kuwait.” The accompanying video is titled “Troops In Kuwait Thrilled By Obama Visit.”  Obama was “applauded thunderously” by “excited soldiers,” according to reporter Susan Carlson.  How the media determined the troops were both overjoyed and thrilled isn’t detailed.  President Bush and others have been greeted by our troops with similar enthusiasm, but I doubt that overjoyed or thrilled were used in describing it.

This typifies the caliber of detached, objective reporting we’ve come to expect when Mr. Wonderful is the subject at hand.  The mainstream media will be tossing bouquets – and probably their undies – in the direction of Obama.

Carlson did mention on her video report that Obama’s campaign hopes his overseas trip will “overcome criticism that he lacks experience in world affairs.”  He needs major help in that area.  As noted on CNN.com earlier this year:

At a campaign stop in November, Obama told an Iowa audience that “probably the strongest experience I have in foreign relations is the fact that I spent four years living overseas when I was a child in Southeast Asia.”

Can you imagine?  Four whole years as a grammar school student provide him, by his own admission, with his strongest experience in foreign relations.  I’m certain his supporters are overjoyed and thrilled by it all.  As well as the mainstream media, of course.

It’s going to be a very long week.

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A genetic variation that once protected people in sub-Saharan Africa from a now extinct form of malaria may have left them somewhat more vulnerable to infection by H.I.V., the virus that causes AIDS. The gene could account for 11 percent of the H.I.V. infections in Africa, explaining why the disease is more common there than expected, researchers based in Texas and London say. The researchers said their finding had no immediate public health consequences. But if confirmed, it would offer an important insight into the biology of the virus.

The genetic variation has been studied in United States Air Force personnel, whose H.I.V. infections have been followed for 25 years. African-Americans who carried the variation were 50 percent more likely to acquire H.I.V. than African-Americans who did not, although their disease progressed more slowly, say researchers led by Sunil K. Ahuja, director of the Veterans Administration H.I.V./AIDS Center, San Antonio, and Matthew J. Dolan of the Uniformed Services University in Bethesda, Md. Their results were reported Wednesday in the journal Cell Host & Microbe.

David B. Goldstein, geneticist who studies H.I.V. at Duke University, said that the new result “would be pretty exciting if it holds up” and that many other researchers would now test it. “If the results are confirmed, it would mean that selection for resistance to malaria has created a vulnerability to infection with HIV-1,” he said, referring to the principal form of the virus.

The genetic variation, called a SNP, or snip, involves a change in one unit of DNA. This particular snip has a far-reaching consequence. It prevents red blood cells from inserting a certain protein on their surface. The protein is called a receptor because it receives signals from a hormone known as CCL5, which is part of the immune system’s regulatory system.

The receptor is also used by a malarial parasite called Plasmodium vivax to gain entry to the red blood cells it feeds on. About 10,000 years ago, people in Africa who possessed the SNP variation gained a powerful survival advantage from not being vulnerable to the ancestor of Plasmodium vivax. The SNP eventually swept through the population and the vivax parasite died out in Africa, to be replaced by its current successor, Plasmodium falciparum.

More than 90 percent of people in Africa now lack the receptor on their red blood cells, as do about 60 percent of African-Americans.

The possibility that the receptor has a bearing on H.I.V. infection first occurred to Robin Weiss, a biologist at University College, London, after he noticed that the virus seemed to be hitchhiking on red blood cells. Dr. Weiss, who wrote the new report with Dr. Ahuja and Dr. Dolan, showed in laboratory tests that H.I.V. latches onto the receptor in place of its intended guest, the CCL5 hormone.

The Texas-London research team is not certain how lack of the receptor promotes H.I.V. infection, but Dr. Ahuja said the red blood cells acted like a sponge for CCL5. Because CCL5 is known to obstruct multiplication of the virus, having lots of the hormone in the bloodstream may prevent infection. Conversely, people whose blood cannot soak up the hormone could be more vulnerable.

Dr. Weiss said the red blood cell receptor was similar to another receptor, CCR5, which occurs on the surface of the white blood cells that are H.I.V.’s major target. A small percentage of Europeans have a mutation that prevents the CCR5 receptor from being displayed on the surface of white blood cells, and they are protected against H.I.V.

It is somewhat puzzling that the absence of the two receptors has the opposite effect — vulnerability to H.I.V. when the red cell receptor is missing, protection from it when the white cell receptor is withdrawn. The researchers offer an explanation that they concede is far from straightforward.

“If you found the paper plain sailing, most of my students didn’t,” Dr. Weiss said. As is often the case with provocative new findings, the researchers may have some way to go before convincing others that their observation is correct. Dr. Goldstein said that in parts of the United States, African-Americans have a higher infection rate than European-Americans, and that patients with a higher proportion of African genes may be more vulnerable to H.I.V. for reasons unconnected to the SNP. Nonetheless, the SNP would show up in a greater proportion of infected people simply because of their African heritage. If so, the gene’s apparent association with H.I.V. infection could be just coincidental, not causal.

The researchers took steps to rule out this possibility, but Dr. Goldstein said those steps might not have been adequate.

Dr. Carl Dieffenbach, director of the AIDS division of the National Institute of Allergy and Infectious Diseases, said the new finding, if confirmed, would be intriguing because it pointed to the many ways in which pathogens have shaped the body’s receptors.

Although H.I.V. is too recent an infection to have left an evolutionary mark on the genome, human ancestors would have been exposed to malarial parasites and to S.I.V., which infects monkeys, and the genome still bears the marks of these challenges to survival. Better knowledge of these adaptations will help understand the biology of H.I.V. infection, he said.

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In a tightly controlled dieting experiment, obese people lost an average of just 6 to 10 pounds over two years.

The study, published Thursday in The New England Journal of Medicine, was supposed to determine which of three types of diets works best. Instead, the results highlight the difficulty of weight loss and the fact that most diets do not work well.

The researchers followed 322 dieters, 277 men and 45 women. The dieters were assigned to follow one of three types of diets — a diet with about 30 percent fat, based on American Heart Association guidelines; a Mediterranean diet; and a low-carbohydrate diet based on the Atkins diet plan. The study was partly financed by the Atkins Research Foundation.

The trial was conducted at the Nuclear Research Center in Dimona, Israel, an isolated workplace that has its own medical department.

In addition to regular meetings and telephone calls with dietitians for the participants, the plan included nutrition counseling for spouses and a revamping of the food served in the center’s cafeteria.
Because the center is in an isolated area, the dieters consistently ate lunch, the largest meal of the day, in the company cafeteria, where food was color-coded to help dieters comply with their eating plan.

The biggest weight loss happened in the first five months of the diet — low-fat and Mediterranean dieters lost about 10 pounds, and low-carbohydrate dieters lost 14 pounds.

By the end of two years, all the dieters had regained some, but not all, of the lost weight. The low-fat dieters showed a net loss of six pounds, and the Mediterranean and low-carbohydrate dieters both lost about 10 pounds.

Researchers said the results sound modest, but they said the small weight loss had resulted in improvements in cholesterol and other health markers.

“In order to keep participants on the diet for long term as a way of life, we did not impose extreme diet protocols,” said Iris Shai, the study’s lead author and a registered dietitian at the S. Daniel Abraham International Center for Health and Nutrition. “More dramatic diet protocols could probably reduce more weight for the short term, but participants would have dropped out.”

There were subtle differences in the three diets studied. Men did better on the low-carbohydrate diets, losing 11 pounds compared with about 9 pounds for the Mediterranean diet.

Women fared best on the Mediterranean diet, losing about 14 pounds compared with about 5 pounds on the low-carbohydrate plan.

For all dieters, there were improvements in the ratios of good to bad cholesterol.

“This suggests that healthy diet has beneficial effects beyond weight loss,” Ms. Shai said.

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For 15 years, the American Red Cross has been under a federal court order to improve the way it collects and processes blood. Yet, despite $21 million in fines since 2003 and repeated promises to follow procedures intended to ensure the safety of the nation’s blood supply, it continues to fall short.
The situation has proved so frustrating that in January the commissioner of food and drugs attended a Red Cross board meeting — a first for a commissioner — and warned members that they could face criminal charges for their continued failure to bring about compliance, according to three Red Cross officials who attended the meeting and requested anonymity because Red Cross policy prohibits public discussion of its meetings with regulators.

“If fear is a motivator, we’re happy to help out in that way,” said Eric M. Blumberg, deputy general counsel at the Food and Drug Administration, though he declined to confirm what the commissioner, Andrew C. von Eschenbach, said at the meeting.

Some critics, including former Red Cross executives, have even suggested breaking off the blood services operations from the rest of the organization, as the Canadian Red Cross did a decade ago.
The problems, described in more than a dozen publicly available F.D.A. reports — some of which cite hundreds of lapses — include shortcomings in screening donors for possible exposure to diseases; failures to spend enough time swabbing arms before inserting needles; failures to test for syphilis; and failures to discard deficient blood.

In some cases, the lapses have put the recipients of blood at risk for diseases like hepatitis, malaria and syphilis. But according to the food and drug agency, the Red Cross has repeatedly failed to investigate the results of its mistakes, meaning there is no reliable record of whether recipients were harmed by the blood it collected.

The Red Cross, which controls 43 percent of the nation’s blood supply, agrees that it has had quality-control problems and is working to fix them. Both its officials and the drug agency point out that none of the identified problems involve the most serious category of infractions. For instance, the Red Cross does a good job of testing for H.I.V. and hepatitis B, officials on all sides agree. And in general, Red Cross blood is regarded as some of the safest in the world.

Still, the drug agency says, the problems that remain in screening donors and following protocols for collection add unnecessary risk to blood transfusions, almost five million of which were done in 2007, according to the National Heart, Lung and Blood Institute.

“This is a critical piece of the public health infrastructure,” Mary A. Malarkey, director of the Office of Compliance and Biologics Quality at the drug agency, said in an interview. “I know it’s difficult to get so many people trained and properly supervised, but it has to be done.”

This week, the agency sent the Red Cross the results of yet another recent investigation that makes Ms. Malarkey’s point: From December 2006 to April 2008, the Red Cross distributed more than 200 blood products that it had already identified as problematic, according to the investigation report.

A Troubled History

While many Americans see the Red Cross as the ubiquitous organization that responds to disasters big and small, its disaster-relief operation, which spends $400 million to $500 million annually, is small compared with its blood business, which generated $2.1 billion in revenue in the fiscal year that ended in June 2007.

In fact, the Red Cross is the world’s largest single steward of blood, more than twice the size of the second-largest known blood collection operation. The rest of the world’s blood supply is controlled by dozens of smaller organizations, only three of which have ever been under F.D.A.-requested consent decree.

After years of quiet complaints about the Red Cross’s blood business, the F.D.A. reluctantly decided to go public with its concerns in 1993, obtaining a consent decree that required the Red Cross to strengthen quality control and training and improve its ability to identify, investigate and record problems.

“It was one of the hardest things I did as commissioner,” said Dr. David A. Kessler, the F.D.A. commissioner from 1990 to 1997. Dr. Kessler said he had agonized that the move would cause undue alarm.

The news media, however, barely made note of it.

Fifteen years later, that consent decree, toughened in 2003 to allow the F.D.A. to impose fines for failing to properly identify, handle and report quality control problems, has produced only modest improvements, food and drug officials said.

“Leaving aside who’s at fault here, it’s not working,” said Dr. Kessler, now a professor of pediatric medicine at the University of California, San Francisco. “Whether it’s that the American Red Cross just doesn’t get it, whether it’s that the relationship between the regulator and regulated is beyond the point of repair is immaterial. It’s just not working.”

Dr. Kessler said Congress should intervene at this point.

Dr. Bernadine Healy, the former chief executive of the Red Cross who made repairing the organization’s blood operations a paramount goal, said the best solution might be to spin off the Red Cross’s blood services.

“Two-thirds of the revenue base of the Red Cross is blood, yet the Red Cross is run by people who think of it as primarily a disaster-relief organization, relegating blood to stepchild status,” Dr. Healy said. “When is the last time you saw a Red Cross fund-raising appeal for money to make the blood supply safer or support its blood research?”

Dr. Healy said she tried to start such a fund-raising program when she ran the Red Cross, but met internal resistance to it.

The Red Cross has toyed with selling off its blood operations, or otherwise decoupling them from its disaster work, but has never done so, in part because of a belief that the billions in revenue from blood has subsidized its disaster operations. But its financial systems are so antiquated that no one really knows.

“I can’t tell you that for sure because I can’t find it out,” said Kevin M. Brown, the Red Cross’s chief operating officer. “I wish I could.”

Mr. Brown noted, however, that the blood business was an integral part of the Red Cross. “It is consistent with our overall mission, which is saving lives,” he said. “Having an ample and safe blood supply is critical to that mission.”

Failing to Act

The frustrations of dealing with the Red Cross are illustrated by the story of Michelle Hoyte, a whistle-blower who was first ignored, then dismissed.

Ms. Hoyte led a team of auditors who conducted a routine visit to the Red Cross blood services operation in Philadelphia in 2004. The team discovered that the facility, with the approval of a senior executive at the national headquarters in Washington, had decided not to recall some 600 units of blood collected using improper methods.

Such mistakes must be reported in writing to the F.D.A. within 15 days of detection, and the blood must be recalled. But Ms. Hoyte spent six months pleading with various supervisors to report the problem, first identified on Dec 18, 2003. Then she was fired.

“It wasn’t just that I thought it was the right thing for them to do; they are required to tell the F.D.A. under the terms of the consent decree,” Ms. Hoyte, who worked for the F.D.A. before joining the Red Cross, said in an interview. “They didn’t want to hear it.”

Ms. Hoyte, who unsuccessfully sued the Red Cross for wrongful termination, had received “excellent performance appraisals,” according to the lawsuit, and received a bonus and merit raise in the two years before her firing.

The Red Cross contends that her dismissal had nothing to do with her insistence on abiding by the court order. It said in court papers that she had been warned of shortcomings in her performance.
The Red Cross also defended its handling of the episode. “They followed the process and did what they should have done,” said Eva Quinley, the senior vice president for quality and regulatory affairs at the Red Cross.

But the Red Cross did not recall the components produced from that blood until Feb. 23, 2005, 14 months after the problem was discovered, according to an F.D.A. report. By then, those components would have been used or discarded, and whether they caused any problems for patients is unknown.

Determining how often, if ever, blood supplied by the Red Cross has been responsible for serious health problems is difficult. F.D.A. documents rarely spell out the consequences of the failures they catalogue, a reflection, to some degree, of the agency’s concern about alarming the public. But often they simply do not know. “Patients who get blood transfusions tend to be pretty sick,” Dr. Healy said. “If they spike a fever post-transfusion, no one is likely to suspect that the blood caused it.”

Various records of F.D.A. inspections and correspondence with the Red Cross highlight poor follow-up, including falsified records.

On Nov. 19, 2001, for example, a patient receiving blood bought from the Red Cross’s greater Chesapeake and Potomac region, which serves the Washington area, died of hepatitis, according to an F.D.A. report. The agency concluded that the Red Cross had failed to perform a thorough investigation.

Furthermore, the drug agency found that the Red Cross had failed to investigate 134 cases of suspected post-transfusion hepatitis that occurred across all its regions from January 2000 to June 2002.

Ms. Quinley said procedures had been changed since then in an effort to ensure that such cases would be investigated.

A Fractured System

Until 1991, Red Cross blood operations were largely controlled by its regional chapters, which operated 53 blood centers in vastly different and often idiosyncratic ways. That year, Elizabeth Dole, then chief executive of the Red Cross, announced a sweeping overhaul that wrested control of the blood operations from the chapters and reorganized them into 10 regions, which were expected to adhere to a uniform set of standards and procedures.

That event is still referred to among many at the Red Cross as “the Divorce,” a measure of the organization’s entrenched culture.

While Mrs. Dole won praise for taking a bold step to address a long history of sloppy testing and record keeping that raised concerns among regulators and the public about blood being potentially contaminated with H.I.V., chapters and their staff and volunteers saw it as an effort by the national headquarters to control the vast amount of money the blood services generate.

That legacy persists.

“We have never truly moved away from independence to national, central standards,” said J. Chris Hrouda, executive vice president and a 20-year veteran of the Red Cross’s biomedical services, as the blood operations are known.

Nor did anyone anticipate the cost and difficulty of the reorganization, current and former executives said. At first the project was budgeted at $120 million, but the cost of developing a centralized database has run to at least $1 billion so far, according to estimates by former executives. The database would make it easier to track down flawed blood components and to flag donors who have been previously screened out because of diseases or travel to places where malaria is common.

“There is no system to meet our needs,” Mr. Hrouda said. “We are six times the size of the next-largest blood operations, and clearly that’s a hindrance.”

A small company in Paris, Mak-System International Group, is working to create such a system, but Mr. Hrouda had no estimate of when it would be up and running.

Thus, the Red Cross’s current blood operations, 36 regions grouped into seven divisions served by five testing laboratories, are still controlled by different systems that cannot easily “talk” to one another.
In the meantime, the Red Cross has incorporated technology intended to help it prevent mistakes when blood is collected.

The most frequent errors cited by F.D.A. investigators involve failing to ask donors questions that would reveal their ineligibility to give blood. For instance, an interviewer forgets to ask a donor whether he has traveled in an area where malaria is a problem. So increasingly, donors fill out online questionnaires, which helps ensure that all required questions are answered.

Blood collection is also error prone, governed as it is by strictly prescribed procedures. After phlebotomists locate a vein, they must scrub a 3-inch-by-3-inch area with antiseptic soap for 30 seconds, then use an antiseptic swab and, starting at the point where they will insert the needle, work outwards in concentric circles. They must then allow the area to dry for precisely 30 seconds before inserting the needle.

To improve that process, Red Cross phlebotomists recently began wearing electronic devices that time each of those steps.

The organization is also improving oversight on the mobile units used to collect roughly 80 percent of the blood it processes by assigning full-time supervisors.

Such measures, however, are undercut by high turnover among employees, who are paid little better than minimum wage, former executives say.

Mr. Hrouda said there was no plan to address high turnover. “We think we’re able to recruit people at the wages we pay and are good at training them,” he said.

The F.D.A., however, sees the main problem differently. “Size is no longer an excuse,” said Mr. Blumberg, the agency’s deputy general counsel.

Ms. Malarkey, of the F.D.A.’s Office of Compliance and Biologics Quality, said: “Right now, the biggest issue confronting the Red Cross is what we refer to as their problem management. They have standard operating procedures by which they should be able to investigate, evaluate, correct and control to prevent recurrence of the issues we have identified again and again, but they have a lot of difficulty implementing those procedures and, frankly, in having people follow them.”

Ms. Malarkey said a recent “adverse determination letter,” the process through which the F.D.A. informs the Red Cross of violations it has identified and demands payment of fines, illustrated her point.
In that letter, dated Feb. 8, the drug agency listed 113 “events” involving 4,094 flawed blood components that were recalled by 15 of the Red Cross’s 36 regions. The recalls occurred largely from April 15, 2003, to April 15, 2006. (It is not uncommon for letters to list hundreds of infractions — one 2005 letter identified more than 22,000 flawed blood components that were recalled — and recalls do not mean every blood product is returned.)

“We are not seeing what we were seeing in the late 1980s and early 1990s, where unsuitable blood was routinely being released,” Ms. Malarkey said, “but they still need to make more progress, and we would like to see that progress made quickly.”

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Sen. Barack Obama proposed changes in three-year-old bankruptcy laws Tuesday to help military families, the elderly and others overcome by debt because of medical bills, natural disasters or other financial distress.

In a campaign address at Powder Springs, Ga., that portrayed banks, credit-card companies and mortgage brokers as unscrupulous predators, the Illinois Democrat accused his presidential rival, Sen. John McCain, of constantly siding with the banking industry.

“When it comes to strengthening the safety net for hardworking families, he’s been part of the problem, not part of the solution,” Mr. Obama said.

“Like the president he hopes to succeed, Senator McCain does not believe the government has a real role to play in protecting Americans from unscrupulous lending practices,” Mr. Obama said. “He would continue to allow the banks and credit card companies to tilt the playing field in their favor, at the expense of hardworking Americans.”

The freshman senator took aim at the bankruptcy reform laws that Congress passed in 2005 by overwhelmingly bipartisan margins and were signed by President Bush.

The bill passed the Senate by a vote of 74-25, backed by 18 Democrats, all of whom are now supporting Mr. Obama’s presidential candidacy. The House gave final approval by a vote of 302-126, with 73 Democrats joining Republicans in favor of the measure.

The reforms were aimed at making it more difficult for people filing for bankruptcy to avoid paying their debts and, in effect, having most of it written off in the bankruptcy process. Credit card companies and banks said the practice resulted in billions of dollars in losses that drove up the cost of credit accounts to consumers and, eventually, led to tighter credit requirements that hurt lower- to middle-income people.

The bill, strongly supported by the credit card and banking industries, required more Americans filing for bankruptcy to pay back a larger share of their debts.

The Obama campaign pointed to a number of votes that Mr. McCain cast in the Senate on the Democrats’ amendments when the reforms were debated, accusing him of repeatedly “siding with banking industry lobbyists”.

The McCain campaign said Tuesday that Mr. Obama was playing partisan politics with an issue that had won strong bipartisan support for a bill that the Arizona Republican had helped steer through the Senate.

“Eighteen Democrats and John McCain worked together on the bipartisan Senate Bankruptcy Bill, and Barack Obama’s rigid partisanship and self-promoting political attacks show that he’s a typical politician – which is the problem in Washington, not the solution,” the McCain campaign said.

“The difference is clear, John McCain wants to grow jobs, keep Americans working and out of bankruptcy, while Barack Obama has shown he’ll tax job-creating small businesses and Americans making as little as $32,000 a year,” said campaign spokesman Tucker Bounds.

Mr. Obama proposed helping service members and military families who have fallen deeply in debt by speeding up the bankruptcy process, exempting them from a “harsh means test,” cutting “unnecessary paperwork” and offering a homestead exemption that would allow debtors to keep a larger share of their home’s value.

He promised to help Americans older than 62 who are facing bankruptcy with a minimum home exemption equal to the median cost of a home in their state – “giving them a better chance to keep their homes.”

He also proposed a 120-day moratorium “on adverse credit actions from collectors, such as [home] foreclosure.”

And whom exactly will pay for this – yup, you guessed it, the tax payers – just like we’re going to pay for every damn thing that Obama proposes.

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In 2005, New Jersey put either $551 million, $56 million or nothing into its pension fund for teachers. All three figures appeared in various state documents — though the state now says that the actual amount was zero.
The phantom contribution is just one indication that New Jersey has been diverting billions of dollars from its pension fund for state and local workers into other government purposes over the last 15 years, using a variety of unorthodox transactions authorized by the Legislature and by governors from both political parties.
The state has long acknowledged that it has been putting less money into the pension fund than it should. But an analysis of its records by The New York Times shows that in many cases, New Jersey has overstated even what it has claimed to be contributing, sometimes by hundreds of millions of dollars.
The discrepancies raise questions about how much money is really in the New Jersey pension fund, which industry statistics show to be the ninth largest in the nation’s public sector, with reported assets of $79 billion.
State officials say the fund is in dire shape, with a serious deficit. It has enough to pay retirees for several years, but without big contributions, paid for by cuts elsewhere in the state’s programs, higher taxes or another source, the fund could soon be caught in a downward spiral that could devastate the state’s fiscal health. Under its Constitution, New Jersey cannot reduce earned pension benefits.
The Times’s examination of New Jersey’s pension fund showed that officials have taken questionable steps again and again. The state recorded investment gains immediately when the markets were up, for instance, then delayed recording losses when the markets were down. It reported money to pay for health care costs as contributions to the pension fund, though that money would soon flow out of the fund. It claimed it had “excess” assets that allowed it to divert required pension contributions to other uses, like providing financial assistance to poor school districts.
Frederick J. Beaver, director of the Division of Pensions and Benefits in the New Jersey Treasury Department, pointed out that other places had taken similar steps occasionally when dealing with a budget crunch, but acknowledged that New Jersey was unusual. “The problem we had was doing it on a repeat basis,” he said.
An in-depth look at the reporting discrepancies for the teachers’ fund, which covers about 155,000 current teachers and 65,000 retirees, shows how the system ran awry over many years, using many questionable practices.
New Jersey recorded the $551 million contribution for the 2005 fiscal year in a bond offering statement at the end of last year. The $56 million figure appeared in an audited financial statement for the fund.
Treasury officials said that everything had been done legally. But they confirmed in a recent interview that the correct amount for that year’s pension contribution was zero, which appeared in an actuarial report. They explained that the conflicting figures elsewhere had been inflated by other items, like health care contributions.
If New Jersey violated federal securities, tax or other rules, it could be forced to make up some of the contributions. The Internal Revenue Service has very specific rules against mixing pension money with money for other uses, like health care. Federal securities law also requires bond issuers to provide complete and accurate financial information.
The New Jersey Education Association has sued the state for failing to put enough money into the teachers’ pension fund. The lawsuit does not describe all the accounting maneuvers, but a State Superior Court judge has held that the case, now scheduled for trial in May, can proceed.
State law requires New Jersey’s seven pension plans, large and small, for various types of public employees, to be funded according to actuarial standards. Over the last decade, though, the Legislature has passed, and various governors have signed, a series of amendments to statutes that allow smaller contributions or none. These were justified by various maneuvers and approved with little scrutiny. In interviews, officials of the Treasury said the changes were made at the behest of the Legislature, while legislators faulted the Treasury.
Donald T. DiFrancesco, the acting governor in 2001, when the Legislature approved an expensive pension increase for teachers and other state employees, said he recalled that “people thought it was good public policy,” devised to attract the best people. He said he did not think the measure was considered financially unsound and did not recall anyone challenging it or calling it improper.
The state’s practices have nevertheless left its retirement system in a much more perilous condition than is widely understood.
“If people ran their households like this, they’d be in bankruptcy,” said Lynn E. Turner, a former chief accountant for the Securities and Exchange Commission. “If businesses did, the best example is the old steel mills when they got so far behind and didn’t fund their pensions as they should have. It tipped them into bankruptcy.”

A Governor Seeks Changes

Since taking office in January 2006, Gov. Jon S. Corzine, a former chairman of Goldman Sachs, has been warning that the pension fund is in worse shape than people may realize. “It’s impossible for us to stay on the course that we are on today, and deliver what people are asking for,” he said in an interview late last year. “The money will not be there.”
Governor Corzine has succeeded in getting the Legislature to contribute more to the pension fund, though not enough to meet its future obligations. There appears to be too little money to both restore the pension fund and fulfill the popular promise of property-tax relief without cutting services to an unacceptable level.
Governor Corzine has also pressed to raise the retirement age, increase employee contributions and to institute other changes to stem the growth of future costs. Now his administration is studying novel steps, like the sale of the New Jersey Turnpike.
Such strategies carry risks of their own. If the Corzine administration sells a big asset without first correcting the system’s entrenched problems, the new money could disappear into other government operations, too.
“When you sell the assets of the state, you’d better not use them for current spending. You’re eating your seed corn,” said Douglas A. Love, a member of the system’s investment oversight board. Mr. Love recently completed a calculation showing that the fund had not measured its future liabilities properly and estimated it had a $56 billion deficit, much higher than the $18 billion that the state had reported. Of course, the deficit could be greater if the assets have been inflated.

Increasing Federal Scrutiny

New Jersey’s situation may be extreme, but some other state and city governments will come under pressure in the coming years as longtime public workers retire in large numbers and the true cost of their benefit plans becomes more apparent.
The handling of public pension money has not drawn much scrutiny in the past but that is beginning to change. Members of the United States Senate have asked the Government Accountability Office for a review of public pension operations and whether new rules are needed.
The chairman of the Securities and Exchange Commission, Christopher Cox, recently said he wants to step up enforcement in the municipal bond markets and to improve financial reporting. He said he had come to this conclusion after a scandal in San Diego, where officials put false information about the pension fund into bond offering statements. After an investigation, the S.E.C. found it amounted to securities fraud.
The Internal Revenue Service may also be flexing some muscles. It intervened in San Diego after learning that the city was using its pension fund to pay other expenses, like retiree health care costs. The money in pension funds gets preferred tax treatment and must be spent solely on pensions.
Andy Zuckerman, the I.R.S.’s director for employee plans, rulings and agreements, said he could not discuss New Jersey’s situation because of rules on tax confidentiality. But in general, when local laws conflicted with the rules in the tax code, “the federal law applies, period.”
When asked about the discrepancies in the records for New Jersey’s pension plans, Treasury officials who met with two reporters at a conference room at an office building in Trenton last month acknowledged some unusual practices.
“We were not the ultimate decision-makers,” said John D. Megariotis, the deputy director of the Division of Pensions and Benefits. “We were the bean-counters.”
Mr. Megariotis was asked about the reference to the $551 million contribution to the teachers’ pension fund. He said that most of that amount had been the state’s payments for health care benefits.
The items were combined, he said, because New Jersey’s health plan for retired teachers lies within their pension fund. It is not clear whether New Jersey’s practices satisfy I.R.S. rules on the commingling of such assets.
Mr. Beaver, the division’s director since 2003, asked Mr. Megariotis why he had accounted for health care costs that way.
“Those are not my numbers,” Mr. Megariotis, a certified public accountant, responded emphatically. He added that New Jersey would not do it again. Both officials said the numbers had been approved by outside counsel.
As for the $56 million pension contribution listed in the audited financial statements, Mr. Beaver said he preferred the state’s actuarial reports — the ones showing a contribution of zero.

Seizing on $5.3 Billion

To explain the $56 million, though, Mr. Beaver and Mr. Megariotis recounted a bit of history. In 2001, the Legislature voted to increase teachers’ pensions by 9 percent, raising the plan’s total cost by an estimated $3.1 billion. Because New Jersey’s Constitution forbids creating debts without creating a funding source, the lawmakers needed to pay for it. They looked back to June 30, 1999, the height of the bull market.
Records showed that the pension investments were worth $5.3 billion more on that day than the plan’s actuary showed, because actuaries phase in gains and losses slowly to avoid sudden swings in market value. The lawmakers seized on this paper gain of $5.3 billion, and voted to channel it as an actual windfall into a new reserve in the pension fund, to pay for the new benefits.
I.R.S. officials said that a company would not be permitted to do this with a pension fund.
By the time the Legislature did this in 2001, of course, the stock market had tumbled and much of the $5.3 billion had melted away. That appeared not to have concerned the Legislature. An election was looming, and the teachers’ union was complaining bitterly about past failures to put money into their pension fund.
John O. Bennett, who was the Republican majority leader of the State Senate in 2001, said the DiFrancesco administration had pushed for the increase and said there would be money to cover it.
“Now history has shown that that hasn’t been the case,” said Mr. Bennett, who abstained from voting on the bill because it also increased the pensions of legislators.
Mr. Beaver, of the Treasury, said he thought the Legislature “went back and rewrote history” when it passed the 2001 bill.
This unusual arrangement did not last long. Two years later, the state needed to make a big contribution to the pension fund as those earlier market declines showed up in its overall value.
Lacking the resources, the state laid claim to the special reserve. The assets were recycled back into the main body of the pension fund — and labeled a state contribution. That was $56 million in one year, Mr. Beaver said pointing to the state’s audited financial report. The state did this three years in a row, until fiscal 2007, when the reserve was empty.
Independent experts said they could not understand how New Jersey could designate this a pension contribution. “It’s a real misnomer,” said Mr. Turner, the former S.E.C. official. “The reality is, there was no new money.”
Because steps like these were taken over many years, it is difficult to judge the accumulated damage to the New Jersey system, experts said.
“It would be a really shocking picture, to show it all in one place, all the money that’s been taken out of the retirement system at precisely the times when the benefits were increased,” said Douglas R. Forrester, who ran New Jersey’s pension fund years ago, in the administration of Thomas H. Kean. In 2005, Mr. Forrester, a Republican, ran for governor against Mr. Corzine.
The state has about $31 billion of long-term debt outstanding, most of it in bonds. But Mr. Forrester said he thought that if all the unfunded debts of the state retirement system were correctly measured and added to that, “you’d get a number that’s about $175 billion.”
“I don’t see how we’re going to get out of this,” he said.

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