Thursday, 25 July 2013

SAC Capital Is Indicted

Federal authorities announced a raft of criminal charges on Thursday against SAC Capital, the hedge fund run by the billionaire Steven A. Cohen, an unusually aggressive move that could cripple one of Wall Street's most successful stock trading firms.

In the 41-page indictment that includes four counts of securities fraud and one count of wire fraud, prosecutors charged the fund and its units with carrying out a broad insider trading scheme between 1999 and 2010. The case seeks to attribute certain criminal acts of employees to the company itself.

The indictment also takes aim at SAC for "an institutional indifference" to wrongdoing that "resulted in insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry."

The case, announced by federal prosecutors and the F.B.I. in Manhattan, is the culmination of an investigation that spanned a decade. As the federal government mounted a relentless crackdown against insider trading, an investigation that reached into corporate board rooms and Wall Street trading floors, it zeroed in on Mr. Cohen as a central target.

Without evidence directly linking Mr. Cohen to illicit trades, the government stopped short of criminally charging him. But the case is a blow to him all the same. Not only does the firm name bear his initials, but Mr. Cohen also owns 100 percent of the firm he founded with his own money more than two decades ago.

Mr. Cohen, 57, an avid collector of art and real estate, also faces civil charges. The indictment on Thursday comes on the heels of the Securities and Exchange Commission's filing a civil action last week that accused Mr. Cohen of failing to supervise employees suspected of insider trading. The government's effort to root out insider trading on Wall Street has swept up more than 80 people; of those, 73 have either been convicted or pleaded guilty.

But Thursday's indictment against SAC itself represents a new phase in the investigation. Criminal charges against large companies are rare, given the collateral consequences for the economy and innocent employees. After the Justice Department indicted Enron 's accounting firm, Arthur Andersen, in 2002, the firm collapsed and 28,000 jobs were lost.

In the SAC case, the indictment could deliver a death blow to the fund. Already, amid several guilty pleas by former SAC employees and a series of civil actions brought by federal securities regulators, the fund's investors have pulled about $5 billion of $6 billion in outside money from the firm. Those that have withdrawn money include major financial-industry players like Blackstone Group and Citigroup.

That exodus could gain steam in the wake of the indictment. SAC also must assuage concerns from Goldman Sachs and other large banks that trade with SAC and finance its operations. There is little precedent for what a criminal charge would mean for SAC and its banking relationships, but legal experts said that an indictment could trigger default provisions in the fund's agreements with its trading partners, meaning that it would force brokerage firms to stop doing business with the fund.

But the charges won't necessarily destroy SAC. Until now, Mr. Cohen has been largely shielded from the crippling effects of mass investor withdrawals. Of the $15 billion that SAC managed at the beginning of the year, about $8 billion is Mr. Cohen's.

One option for Mr. Cohen would be to shut down SAC and open up a so-called "family office" that managed his own personal fortune. But Securities and Exchange Commission, as part of a civil action filed against Mr. Cohen last week that accuses him of failing to supervise his employees, could seek to have him banned from the financial-services industry for life, an outcome that would prohibit him from trading stocks.

Mr. Cohen could also deploy his deep Wall Street Rolodex to sustain the fund. He sits on the vaunted board of the Robin Hood Foundation, a nonprofit fighting poverty, with David M. Solomon, the co-head of investment banking at Goldman Sachs. He also serves as a trustee of Brown University, alongside Brian T. Moynihan, the chief executive of Bank of America. (One of Mr. Cohen's seven children graduated from Brown.)

SAC could also stem concerns by combating the criminal charge. The government will face off against an army of lawyers from two of the world's most sophisticated law firms: Willkie Farr & Gallagher and Paul, Weiss, Rifkind, Wharton & Garrison. Martin Klotz at Willkie and Daniel J. Kramer at Paul Weiss have spearheaded the SAC representation.

For the criminal case, the fund has also enlisted Mark F. Pomerantz and Theodore V. Wells Jr. of Paul Weiss. Mr. Pomerantz has been involved in a number of insider-trading cases, including the defense of Samuel Waksal, the former chief executive of Imclone Systems, and Joseph Contorinis, a former portfolio manager at Jefferies Group. Mr. Chiasson, the former SAC employee convicted last year, recently hired him to handle his appeal.

Mr. Wells is considered one of the country's preeminent trial lawyers, and he and Mr. Pomerantz work closely together on many of their cases. Among Mr. Wells's high-profile assignments have been political corruption cases, including representing Robert Torricelli, the former United States senator; I. Lewis Libby, the former adviser to Vice President Cheney; and Eliot Spitzer, the former New York governor.

Train derailment closes Port of Tampa

Tampa (Fla.) Fire Rescue crews responded to a train derailment Thursday, July 25, 2013, at the Port of Tampa. (Photo: WTSP-TV, Tampa, Fla.)

Story Highlights Ten rail cars were completely on their sides The cause of the derailment is not yet known Firefighters laid a coating of foam on top of the spill to prevent fire

TAMPA, Fla. -- Firefighters used foam to clean up ethanol that leaked from a CSX train that derailed at the Port of Tampa.

The main portion of the port remained closed and may stay blocked off for much of the day after Tampa Fire Rescue officials say at least 12 rail cars derailed early Thursday.

The train was coming into the port at 1 a.m. when it left the tracks, pulling 12 cars off of the rails -- and sending 10 of those completely onto their sides, according to fire department spokesman Capt. Lonnie Benniefield.

Responders found three of the cars leaking ethanol, a flammable liquid that's often mixed with gasoline to fuel cars and trucks. When it's shipped by rail, ethanol is usually stored in a form that is more flammable than gasoline.

Hazmat-trained firefighters have laid a coating of foam on top of the spill to keep it from catching fire.

The toppled train is blocking the main entrance to the Port of Tampa.

Benniefield said equipment to place the rail cars back on the tracks is being transported from Atlanta to Tampa by railroad company CSX. Righting the entire train could take until late Thursday or early Friday.

No one was hurt in the train derailment, which was originally reported as involving 15 cars. Benniefield said it's not clear yet why the train jumped the tracks. CSX and government agencies are expected to investigate the accident.

Ethanol typically breaks down within a few weeks in the environment, so the impact to the soil and groundwater may be limited.

Arms to Syria opposition still a debate in progress

Washington (CNN) -- While the United States draws closer to providing some form of lethal assistance to the Syrian opposition, the debate over how extensive the package should be and the possible outcome are likely to follow any decision.

In a letter to the Chairman of the Senate Armed Services Committee this week, Joint Chiefs Chairman Martin Dempsey laid out the scenarios that could unfold, ranging from the establishment of a no-fly zone over Syria, to training and assisting the opposition through intelligence and logistics assistance.

Read more: 'London 11' vow to increase arms to Syrian rebels

None of the options, he said, would be easy, and all would come with a pretty extensive price tag.

"We must anticipate and be prepared for the unintended consequences of our action," Dempsey wrote in the letter to Sen. Carl Levin (D-MI).

"Should the regime's institutions collapse in the absence of a viable opposition, we could inadvertently empower extremists or unleash the very chemical weapons we seek to control."

Some advocates such as Arizona Republican Sen. John McCain say a no-fly zone over Syria is the most effective way to stop the killing machine of President Bashar al-Assad.

Read more: Putin criticizes West on plan to arm Syrian rebels

"I know that we have the military capability to impose a 'no-fly' zone, to crater their runways and their fixed installations where fuel and parts are, and establish a 'no-fly' zone with Patriot missiles," McCain said in June. "And if we can't do that, then the question ought to be asked to the American taxpayer, to the Pentagon, 'What in the world are we wasting tens of billions of dollars for defense for if we can't even take care of this situation?'"

Pentagon's complex contingencies

But despite costs of such an operation possibly going as high as a "billion dollars per month over the course of a year" as Dempsey wrote in his letter to Levin, analysts say such an option faces other challenges.

Opinion: Time running out to aid Syria's rebels

Despite the risk to U.S. aircraft and recovery force personnel that may be associated with it, the military involvement in Afghanistan will not end until the end of next year. The Pentagon is also dealing with some complex contingencies in the context of Iran if diplomacy over Tehran's disputed nuclear program fails, as well as other volatile areas in the Middle East.

'Trading modernization against readiness'

The debate also comes at a time when forced budget cuts known as sequestration are shaving billions from the defense budget and forcing some military commanders to question whether the readiness capacity in fiscal environment can handle a new contingency.

Opinion: What if al-Assad prevails?

"We are trading modernization against readiness, it's the only place we have to go for funding because of this arbitrary mechanism that is sequestration, and it's causing a real problem on the readiness side of the house and putting our ability to modernize over time at risk," Gen. Mark Welsh, chief of staff of the U.S. Air Force, said last week at a security forum sponsored by the Aspen Institute.

Too little too late?

Some of the criticism over the administration's decision to send some form of lethal aid to the Syrian opposition, in a conflict that has claimed nearly 90,000 lives, and more than two years after the conflict began amounts to little more than too little too late.

"Right now, we're playing for the best worst option," Rep. Mike Rogers (R-MI), chairman of the House Intelligence Committee, told CNN's Wolf Blitzer in an interview on the 'Situation Room' Tuesday.

'No guarantees in this business'

Frederic Hof, a former top State Department adviser on Syria, says it would have been better had President Barack Obama endorsed recommendations of former Secretary of State Hillary Clinton, former Secretary of Defense Leon Panetta, and former CIA Director David Petraeus to arm mainstream opposition elements when they recommended it a year ago.

But acting and arming now is better than staying on the sidelines, Hof says.

Read more: Syria is a '10-year issue,' top general says

"There are no guarantees in this business, but when you consider the costs of inaction, of trying to stand aside and watching this problem fester, it's clear to me that just trying to hold Syria at arm's length is every bit as risky as the alternatives, says Hof, now senior fellow at the Atlantic Council's Rafik Hariri Center for the Middle East. "There are no good answers here, no silver bullets."

For Hof, the limited use of "targeted strikes" against specific elements in al-Assad's arsenal responsible for much of the killing, like artillery and missile strikes that reach heavily populated areas, would be an effective tool alongside the provision of small arms and training to the opposition.

"It kind of restricts the amount of expense and the amount of time because you will know with some degree of specificity when you have actually accomplished the mission," Hof says.

Billions of dollars

In his letter to Levin, Dempsey said the cost of such missions could reach billions of dollars, depending on the duration of the operations.

And then what about the disparate state of the Syrian opposition?

Much of the trepidation for greater involvement in the Syrian civil war was the presence of al Qaeda affiliated fighters within opposition ranks, and the danger of weapons falling into their hands.

"There is sort of an idea out there that all of the opposition are extremists," says longtime Syria watcher Andrew Tabler with the Washington Institute for Near East Policy. "They are not, but there are extremists among their ranks."

Who gets the weapons?

For Hof, the funneling of all weapons through Brig. Gen. Salim Idris, the supreme commander of the Syrian Military Council, whom the United States and the West see as an interlocutor, would be an effective organizing mechanism for the opposition.

"Up until now, things have come in with a variety of motives in mind -- different countries and kingdoms wanting clients inside Syria, and private contributors mostly from the [Persian] Gulf wanting to support jihadists," Hof says in advocating for a central figure to funnel everything through. "This is a big reason why there is chaos and disunity in the opposition ranks."

Diplomatic solution still an option

That said, the United States is still pursuing a diplomatic solution through which a political transition would be brokered by all sides of the conflict as long as al-Assad had no role in any incoming government.

While the makeup of any transition government would not include anyone with blood on their hands, as called for by the Geneva Communique signed on to by the United States and other countries, the possible presence of some remnants of the al-Assad regime in a transition government causes pause for some analysts.

"I don't think it will be pulled off anytime soon," said Tabler, who says a process that allows the possible inclusion of regime elements in a new government over a population that has changed rapidly over the course of the last few years would be problematic. "It's just going to kick the can down the road, and we are going to be back to the same place we were before. But this time it will be with many more death tolls, so I just don't think it's viable."

Fox News Poll: Voters say repeal ObamaCare

Voters think ObamaCare is going to hurt their wallet and over half want the law repealed, according to a new Fox News national poll.

By a large 47-11 percent margin, voters expect the 2010 health care law will cost them rather than save them money in the coming year. Another 34 percent think the law won't change their family's health care costs.

Those negative expectations come at a time when a majority of the public remains unhappy with the way thing are going in the country (63 percent dissatisfied), and over half say they haven't seen any signs the economy has started to turn the corner (57 percent).

Republicans are three times as likely as Democrats to think ObamaCare will cost them money over the next year (70 percent vs. 23 percent). One Democrat in five expects the law will result in savings for their family (21 percent).

The poll asks people to take an up-or-down vote on ObamaCare: 40 percent say they would vote to keep the law in place, while just over half -- 53 percent -- would repeal it.

Over half of those under age 45 (51 percent) as well as those 45 and over (56 percent) would vote to repeal ObamaCare.

Most Republicans want the law repealed (by 85-13 percent) and so do independents (by 65-25 percent). Most Democrats favor keeping ObamaCare (by 72-21 percent).

On July 2, the White House announced it was delaying implementation of some key provisions of the health care law because it had determined reporting requirements were too complex. Some lawmakers charged this was an abuse of executive discretion under the Constitution and criticized the president for sidestepping Congress. The reaction from voters is mixed: 45 percent say Obama's actions are "unacceptable," while 46 percent say "it's no big deal."

Majorities of Republicans (68 percent) and independents (55 percent) think Obama delaying parts of the law is unacceptable, while most Democrats say it's no big deal (71 percent).

One provision of the law that has already gone into effect is the "Medical Loss Ratio" provision. It is expected to result in millions of Americans receiving rebate checks from their insurance companies for unspent premiums. The first checks went out last year, and another batch is going out this summer. Even so, only eight percent of voters say ObamaCare has saved them money since it was implemented.

The Fox News poll is based on landline and cell phone interviews with 1,017 randomly chosen registered voters nationwide and was conducted under the joint direction of Anderson Robbins Research (D) and Shaw & Company Research (R) from July 21 to July 23. The full poll has a margin of sampling error of plus or minus three percentage points.

Israeli minister sees possible Palestine talks on July 30

Credit: Reuters/Nir Elias

Israel's Energy Minister Silvan Shalom speaks during an interview with Reuters at his office in Tel Aviv May 21, 2013.

Spokesmen for Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas had no immediate comment.

"As I understand, today, I think that the Palestinians will decide to come next week," Energy Minister Silvan Shalom told reporters during a meeting with the Palestinians in the occupied West Bank.

"But of course it's not something that I can speak on behalf of the Palestinians. If they will do so, as I said, the negotiations will start next Tuesday in Washington."

U.S. Secretary of State John Kerry announced on Friday that the sides had laid the groundwork for new peace talks after an almost three-year stalemate, and that he expected them to send negotiators to Washington soon.

Israel says it is ready for the relaunch of talks without preconditions, but the Palestinians have sought reassurances about delineating the borders of the state they seek in the West Bank and Gaza Strip.

(Writing by Dan Williams; editing by Mike Collett-White)

Analysis: History offers few happy endings for Detroit to follow

Credit: Reuters/ Rebecca Cook

Downtown Detroit is seen looking south along Woodward Avenue in Detroit, Michigan July 21, 2013.

History, however, has few story book endings to offer as a guide when it comes to U.S. municipal bankruptcies.

Fact is, they are rare events - just 61 local governments have gone through Chapter 9 bankruptcy since 1954 - and while the process is devoted to restructuring debt and provides temporary cash flow relief, it does not help a city enhance its revenue or economic outlook. Furthermore, cities typically lose access to capital markets in the wake of a bankruptcy.

"Detroit has a very high level of debt and the bankruptcy can correct some of it, but is it going to turn around its economy quickly? That's probably unlikely," said Jeff Previdi, Managing Director and Co-Head of Local Government Ratings at Standard and Poor's.

To be sure, Detroit's financial disarray was decades in the making: a downward spiral of company departures and failures accompanied by a dramatic drop in its population, to just below 700,000 from a peak of 1.8 million, and a rise in crime.

Once the cradle of U.S. automotive industry and Motown music, Detroit appears to have run out of alternatives to bankruptcy barring a bailout from the state.

New York, Cleveland and Philadelphia previously teetered on the edge of bankruptcy but Detroit is the first major U.S. city to file for bankruptcy, pressured by $18.5 billion of outstanding liabilities.

To this point, only much smaller local governments have gone the bankruptcy route without external help and facing similar issues.

Take for example Vallejo, California, with about 116,000 people. It spent more than three years in bankruptcy from 2008 to 2011, weighed down by generous labor contracts and retirement benefits.

The city, about 30 miles northeast of San Francisco, was allowed to terminate its collective bargaining agreements, but it never renegotiated some $128 million of unfunded pension liabilities.

And while Vallejo generated about $34 million in savings on some of the liabilities it faced heading into bankruptcy, those have been nearly matched by expenses related to the bankruptcy itself, according to a 2012 study by Standard & Poor's.

Now two years after emerging from Chapter 9, it has yet to balance its budget, and the police force is roughly half its previous size. Vallejo remains shut out of the municipal bond market and cannot raise money to address much needed infrastructure repairs.

"We have not done enough, and the budget we just adopted in June still has a $5.2 million dollar deficit on an $82 million general fund budget," Vallejo City Manager Daniel Keen said.

Both Vallejo and nearby Stockton, which before Detroit's filing last week had been the most populous city to file for bankruptcy, have seen further increases in crime after seeking protection from creditors. Stockton, with nearly 300,000 people, was granted permission to enter Chapter 9 protection in April and will file a debt-adjustment plan later this year.


The brightest post-bankruptcy story is perhaps California's Orange County. But its 1994 bankruptcy - the largest in history at the time - stemmed from $1.7 billion in bad derivative bets, not the kind of grinding economic slump and population flight that feature so prominently in the Detroit case.

Orange County, home to Disneyland and with median household income of more than $75,000, nearly three times Detroit's, has suffered few lingering effects from its 18 months in Chapter 9.

"Most county residents were not impacted," said Mark Baldassare, president of the Public Policy Institute of California. "Police services, streets and road, schools, things that people depend on local government for, went on."

Orange County also stands out as the only bankruptcy alumnus to successfully re-enter the municipal bond market. But its recovery bonds were fully backed by bond insurer MBIA Insurance Corp, an option that may not be available in the future since the 2007-2009 financial crisis crushed the bond insurance business.


And the jury is still out on Jefferson County, Alabama, which before Detroit had held the mantle as the largest municipal bankruptcy ever at $4.2 billion that stemmed from debts to overhaul and expand its sewer system.

The county, home to Birmingham, the state's largest city, is on track to leave bankruptcy by year's end. By many measures, it is thriving: its jobless rate is just 5.5 percent compared with the U.S. rate of 7.6 percent; it has a diverse employer base; and private business investment is robust, totaling $579 million in 2012, more than double a 10-year average, according to the Birmingham Business Alliance.

Nonetheless, local officials are bracing for years of stunted government services such as few emergency crews to deal with deadly tornadoes, rising utility costs, and limited public resources for boosting local commerce.

"We have no money for economic growth," said David Carrington, president of the Jefferson County Commission and a negotiator of the county's debt-adjustment plan filed on June 30. "There will be on-going deterioration of infrastructure."

Road repairs in Jefferson County, home to 660,00 people, already lag other sizeable Alabama counties, according to Carrington, who also worries federal officials will sue over the county's below-par jails.

"Like any company, you have to grow, or you are going to die," said Robert Brooks, finance professor at the University of Alabama. "This is going to be a strain and make it unattractive for businesses to move into the Birmingham area."

Jefferson County also hopes to follow in Orange County's footsteps in returning to the bond market, with a $1.9 billion debt deal planned for later this year that is central to its negotiated reorganization plan. With slim prospects for the kind of bond insurance enhancement obtained by Orange County, however, the deal is likely to saddle the county with outsized interest rates for decades.

"Clearly, with such a huge liability for such an extended length of time, it is like having a ball and chain around our ankle," said Brooks.

In the end, though, the enduring costs of a municipal bankruptcy are tallied in more than dollars.

"The impacts of a bankruptcy on a community are pretty hard to predict but they are not very good. There is a loss of confidence ... there is a lot of anxiety in the city's workforce," Vallejo's Keen said. "We are still the city that all know for having being in bankruptcy."

(Additional reporting by Jim Christie and Verna Gates; Editing by Dan Burns and Tim Dobbyn)

Wednesday, 24 July 2013

Bo Xilai Charged With Corruption, Bribery, Abuse of Power

Former Chinese Politburo member Bo Xilai was charged with bribery, corruption and abuse of power, as the Communist Party's new leadership seeks to bring to a close its most serious political scandal in two decades.

The charges were broadcast in a one-sentence report on the official Xinhua News Agency.

The formal indictment made against Bo today means that under Chinese law, a court will probably deliver a judgment within a month. Bo's wife Gu Kailai was convicted of murdering British businessman Neil Heywood last August after a one-day trial that produced a suspended death sentence.

A conviction will cap the party's handling of a case that roiled last year's leadership transition in which Xi Jinping took over as general secretary. The party is seeking to shore up its legitimacy as the new leaders tackle corruption, including sex tapes featuring senior officials and revelations of cadres living opulent lifestyles.

"This leadership looks stable enough and bedded in now, and Bo marginalized enough, for them to go ahead with this," Kerry Brown, a former U.K. diplomat and a professor of China studies at the University of Sydney said in an e-mail before the announcement. "It sends a strong, confident message, and clears away the final collateral from last year's power transition, so from that point of view handling it now would make political sense."

Bo, 64, once seen as a possible candidate for the ruling Politburo Standing Committee, was expelled from the Communist Party in September. He was accused of taking bribes throughout his career and abusing his power in the homicide case against his wife, according to Xinhua. He also had improper sexual relations with "a number" of women, Xinhua reported.

To contact Bloomberg News staff for this story: Michael Forsythe in Beijing at; Nicholas Wadhams in Beijing at

To contact the editor responsible for this story: Peter Hirschberg at

Enlarge image

China charges disgraced politician Bo Xilai with corruption

Credit: Reuters/Jason Lee

Then Chongqing Municipality Communist Party Secretary Bo Xilai listens to Chongqing's Mayor Huang Qifan (not pictured) during a meeting at the annual session of China's parliament, the National People's Congress, at the Great Hall of the People in Beijing, in this file picture taken March 6, 2010.

Prosecutors in the eastern city of Jinan in Shandong province indicted Bo on the charges on Thursday, Xinhua said.

Bo's wife, Gu Kailai, and his former police chief, Wang Lijun, have both been jailed over the scandal stemming from the murder of British businessman Neil Heywood.

The government in September last year accused Bo of corruption and of bending the law to hush up that murder.

(Reporting by Sui-Lee Wee and Hui Li; editing by Jonathan Standing)

Japan to mull pre

Credit: Reuters/Issei Kato

Japanese Ground Self-Defense Force's 1st Airborne Brigade soldiers walks toward to a CH-47 helicopter for parachute drop training during their military drill at Higashifuji training field in Susono, west of Tokyo, July 8, 2013.

The expected proposal, which will almost certainly sound alarm bells in China, is part of a review of Japan's defense policies undertaken by Prime Minister Shinzo Abe's government, an interim report on which could come as early as Friday.

The hawkish Abe took office in December for a rare second term, pledging to bolster the military to cope with what Japan sees as an increasingly threatening security environment including an assertive China and unpredictable North Korea.

Article 9 of Japan's constitution, drafted by U.S. occupation forces after its defeat in World War Two, renounces the right to wage war and, if taken literally, rules out the very notion of a standing army. In reality, Japan's Self-Defense Forces are one of Asia's strongest militaries.

The Defence Ministry is likely to call in the report for consideration of acquiring the ability to make a pre-emptive strike when an enemy attack is imminent, and creating a Marines force to protect remote islands such as those at the core of a dispute with China, Japanese media said.

"The acquisition of offensive capability would be a fundamental change in our defence policy, a kind of philosophical change," said Marushige Michishita, a professor at the National Graduate Institute of Policy Studies.

Obtaining that capability, however, would take time, money and training, meaning any shift may be more rhetorical than real. "It's easier said than done," Michishita added.

The updated guidelines could also touch on Abe's moves toward lifting a self-imposed ban on exercising the right of collective self-defence, or helping an ally under attack, such as if North Korea launched an attack on the United States.

The defence review may also urge replacing a self-imposed ban on arms exports, that has been eased several times, making it easier for Japan's defence contractors to join international projects and reduce procurement costs.

Some experts stressed that the changes were evolutionary rather than a sudden transformation in Japan's defence posture.


"It's all part of a process of Japan edging away from the most restrictive interpretation of Article 9," said Richard Samuels, director of the MIT-Japan program at the Massachusetts Institute of Technology.

Still, given Japan's strained ties with China over disputed isles and how to frame the narrative of Japan's wartime history, China is likely to react strongly to the proposals, which come after Abe cemented his grip on power with a big win in a weekend election for parliament's upper house.

"No matter how Japan explains things, China will attack it pretty harshly," said Michael Green of the Washington-based Center for Strategic and International Studies.

Although China has been a nuclear power for decades and North Korea is developing nuclear arms, Japan says it has no intention of doing so.

Support has grown in Japan for a more robust military because of concern about China, but opposition also remains.

Japan last updated its National Defence Programme Guidelines in 2010 when the Democratic Party of Japan was in power.

Those changes shifted Japan away from defending areas to its north, a Cold War legacy, to a defence capability that could respond with more flexibility to incursions to the south, the site of the row with China over tiny, uninhabited islands.

Japan has for decades been stretching the limits of Article 9 and has long said it has the right to attack enemy bases overseas when the enemy's intention to attack Japan is evident, the threat is imminent and there are no other defence options.

But while previous administrations shied away from acquiring the hardware to do so, Abe's Liberal Democratic Party in June urged the government to consider acquiring that capability.

Just what hardware might come under consideration is as yet unclear. And with a huge public debt, Japan may be in no position to afford the bill.

Japan already has a very limited attack capability with its F-2 and F-15 fighter jets, mid-air refueling aircraft and Joint Direct Attack Munition guidance kit. Tokyo also plans to buy 42 Lockheed Martin's F-35 stealth fighters, with the first four due for delivery by March 2017.

Acquiring the ability to hit mobile missile launchers in North Korea - the most likely target - would require many more attack aircraft as well as intelligence capability for which Japan would most likely have to rely on the United States, Michishita said. Cruise missiles might also be considered.

Obtaining the ability to strike missile bases in mainland China would be an even bigger stretch, experts said, requiring for example intercontinental missiles. "It would cost lots of money, and take time, training and education to acquire a robust and meaningful capability," Michishita said.

(Additional reporting by Kiyoshi Takenaka; Editing by Robert Birsel)

Senate passes student loan fix

People walk past the Alma Mater statue on the Columbia University campus on July 1, 2013 in New York City. (Photo: Mario Tama, Getty Images)

Story Highlights The legislation, affecting seven million students this year, would tie loan rates to the financial markets The Republican-controlled House is expected to pass it before the August break President Obama "strongly supports" the bill, the White House said Wednesday

WASHINGTON--Despite strong opposition from liberals, the Democratic-controlled U.S. Senate approved a bill Wednesday to tie federal college loan rates to financial markets to retroactively roll back an unpopular July 1 rate hike.

The bipartisan legislation was approved 81-18.

The GOP-controlled U.S. House is expected to approve the legislation before the August recess. President Obama supports the bill and commended the bipartisan effort that produced it, the White House said in a statement issued Wednesday. The legislation will affect seven million students heading to college this fall.

The bill will bring down interest rates for subsidized Stafford loans in the short-term. These rates doubled to 6.8% on July 1 because Congress could not come to terms on an agreement ahead of that deadline. Under the legislation, undergraduates will be able to borrow at 3.9% for this school year; graduate students at 5.4%, and parents at 6.4%.

Liberal Democrats are wary that the legislation could allow interest rates to rise above 6.8% in future years as the financial markets recover and interest rates rise.

"The truth of the matter is, if the bill on the floor passes without amendment, it would be a disaster for the young people of our country who are looking to go to college and for the parents who are looking to help pay their bills," said Sen. Bernie Sanders, I-Vt., who voted against the bill. Sanders offered an amendment to sunset the legislation in two years, but it was rejected.

The legislation includes loan interest rate caps at 8.25% for undergraduates, 9.5% for graduates, and 10.5% for parents. The non-partisan Congressional Budget Office estimates rates would not hit the rate caps within the next decade.

An effort by Sens. Jack Reed, D-R.I., and Elizabeth Warren, D-Mass., to put tighter interest rates caps on student loans was also rejected. Reed and Warren also voted against the bill.

Instead of Congress continuing to set interest rates on student loans, future borrowers will see their loans tied to the U.S. Treasury 10-year borrowing rate. The legislation creates a three tier systems, to charging an additional 1.85% for undergraduate Stafford loans, 3.4% for graduate Stafford loans, and 4.4% for PLUS loans, which parents can take for their children. The interest rate would be fixed over the life of the loan.

The legislation provided a rare area of accord between the Obama administration and congressional Republicans. The president included a similar proposal in his budget this year, which House Republicans touted in initial legislation.

House Speaker John Boehner's office noted the similarities between the House GOP proposal and the final bill. "A victory indeed, and one that shows when we have common ground, we should seize it on behalf of the people we serve," said a blog posted Wednesday on the speaker's official Web site.

Obama to nominate Kennedy for Japan post

Caroline Kennedy (Photo: Mary Altaffer, AP)

WASHINGTON -- President Obama intends to nominate Caroline Kennedy, a close political ally and the daughter of slain President John F. Kennedy, as U.S. ambassador to Japan, according to news reports., citing anonymous sources, said the announcement would come Wednesday.

Kennedy brings star power to the post as the most famous living member of America's best-known Democratic political dynasty.

The nomination rewards Kennedy for providing crucial early support to Obama. She endorsed him in January 2008 over his better-known rival for the Democratic presidential nomination, Hillary Rodham Clinton. Kennedy went on to campaign for his election and to co-chair the vice presidential search committee that selected Joe Biden as his running mate.

By giving Kennedy the nod, Obama also continues a tradition of sending a high-profile envoy to Japan. Previous ambassadors have included former vice president Walter Mondale and two former Senate majority leaders, Mike Mansfield and Howard Baker.

If confirmed by the Senate, Kennedy would be the first female ambassador to represent the United States in Japan.

Kennedy, 55, also would fulfill another family legacy: Her grandfather, Joseph P. Kennedy, served as U.S. Ambassador to the United Kingdom from 1938 to 1940.

The post would place Kennedy at the center of America's relationship with one of the world's largest economies. The current ambassador John Roos, a Silicon Valley lawyer and Obama fundraiser, had no previous diplomatic experience but won praise for his work helping to coordinate the U.S. relief effort following the earthquake and tsunami that devastated northeastern Japan in March 2011.

Kennedy's nomination comes after months of tension in the region.Japan is engaged in territorial disputes with both China and South Korea. Internally, the Japanese government is working to revive the economy and grapple with a rapidly aging population and enormous public debt.

Kennedy, whose nomination has long been expected, has neither extensive government nor business experience.

"Japan is in real crisis right now. This is a moment for some real creative thinking on the part of the United States," said Clyde Prestowitz, an expert on Japan and president of the Economic Strategic Institute. He objects to Kennedy's nomination.

"The only thing Caroline Kennedy has going for her is the Kennedy name," he said. "We keep handicapping ourselves in our global diplomacy by putting people into positions who don't know anything about what they are doing."

The ambassadorship marks the highest profile role undertaken by Kennedy. She has authored 10 books and serves as president John F. Kennedy Presidential Library and Museum. But she spent much of her adult life avoiding the family business of politics until she sought appointment in late 2008 to Hillary Clinton's U.S. Senate seat from New York.

Kennedy, however, withdrew from consideration weeks later after a rocky public rollout and persistent questions about her lack of political experience.

Her defenders note that few U.S. ambassadors could claim closer ties to both Obama and to Secretary of State John Kerry, who served alongside her late uncle, Edward Kennedy, for more than two decades in the U.S. Senate.

Kennedy graduated from Harvard University and has a law degree from Columbia University. She and her husband, Edwin Schlossberg, have three children.

Contributing: David Jackson

Dozens killed in Spain train derailment

MADRID A train traveling in northwestern Spain has derailed, toppling passenger cars on their sides and leaving at least one torn open as smoke rose into the air.

Newspaper El Pais reported at least 35 are dead

Spanish state television showed images of the accident on high-speed tracks near the train station in Santiago de Compostola, 60 miles south of El Ferrol.

The train was headed to El Ferrol from Madrid on Wednesday.

Officials at the Interior Ministry or with Spain's state-owned Renfe passenger train company and the Adif rail infrastructure authority did not immediately answer telephone calls or return messages seeking comment.

George HW Bush shaves head for 2

Office of George Bush

Former President George H.W. Bush shaved his head on Tuesday, supporting a two-year-old with leukemia whose father is part of the 89-year-old's Secret Service detail.

Members of the Bush Protective Division began removing their hair last week in solidarity with Patrick, who was diagnosed with leukemia last spring, Bush's spokesperson Jim McGrath told

Bush said "it was very easy for him to do," McGrath said.

Patrick's prognosis is "good," but his treatment and illness carry a special place in Bush's heart as his daughter Robin died of the same blood disease when she was three.

His Secret Service members have organized a website and 50-mile motorcycle ride through Maine - where Bush resides - to help pay for Patrick's medical bills.

Obama to nominate Kennedy for Japan post

Caroline Kennedy (Photo: Mary Altaffer, AP)

WASHINGTON -- President Obama intends to nominate Caroline Kennedy, a close political ally and the daughter of slain President John F. Kennedy, as U.S. ambassador to Japan, according to news reports., citing anonymous sources, said the announcement would come Wednesday.

Kennedy brings star power to the post as the most famous living member of America's best-known Democratic political dynasty.

The nomination rewards Kennedy for providing crucial early support to Obama. She endorsed him in January 2008 over his better-known rival for the Democratic presidential nomination, Hillary Rodham Clinton. Kennedy went on to campaign for his election and to co-chair the vice presidential search committee that selected Joe Biden as his running mate.

By giving Kennedy the nod, Obama also continues a tradition of sending a high-profile envoy to Japan. Previous ambassadors have included former vice president Walter Mondale and two former Senate majority leaders, Mike Mansfield and Howard Baker.

If confirmed by the Senate, Kennedy would be the first female ambassador to represent the United States in Japan.

Kennedy, 55, also would fulfill another family legacy: Her grandfather, Joseph P. Kennedy, served as U.S. Ambassador to the United Kingdom from 1938 to 1940.

The post would place Kennedy at the center of America's relationship with one of the world's largest economies. The current ambassador John Roos, a Silicon Valley lawyer and Obama fundraiser, had no previous diplomatic experience but won praise for his work helping to coordinate the U.S. relief effort following the earthquake and tsunami that devastated northeastern Japan in March 2011.

Kennedy's nomination comes after months of tension in the region.Japan is engaged in territorial disputes with both China and South Korea. Internally, the Japanese government is working to revive the economy and grapple with a rapidly aging population and enormous public debt.

Kennedy, whose nomination has long been expected, has neither extensive government nor business experience.

"Japan is in real crisis right now. This is a moment for some real creative thinking on the part of the United States," said Clyde Prestowitz, an expert on Japan and president of the Economic Strategic Institute. He objects to Kennedy's nomination.

"The only thing Caroline Kennedy has going for her is the Kennedy name," he said. "We keep handicapping ourselves in our global diplomacy by putting people into positions who don't know anything about what they are doing."

The ambassadorship marks the highest profile role undertaken by Kennedy. She has authored 10 books and serves as president John F. Kennedy Presidential Library and Museum. But she spent much of her adult life avoiding the family business of politics until she sought appointment in late 2008 to Hillary Clinton's U.S. Senate seat from New York.

Kennedy, however, withdrew from consideration weeks later after a rocky public rollout and persistent questions about her lack of political experience.

Her defenders note that few U.S. ambassadors could claim closer ties to both Obama and to Secretary of State John Kerry, who served alongside her late uncle, Edward Kennedy, for more than two decades in the U.S. Senate.

Kennedy graduated from Harvard University and has a law degree from Columbia University. She and her husband, Edwin Schlossberg, have three children.

Contributing: David Jackson

A train has derailed in north

A train has derailed in north-western Spain, with at least 10 people reported killed.

Spanish railway company Renfe confirmed the train had come off the tracks near the city of Santiago de Compostela in the Galicia region.

A Renfe spokesman told AFP news agency several people had been killed and several more injured.

Spanish news agency Efe quoted police and hospital sources as saying at least 50 people were injured.

Reports said all 13 carriages had left the tracks, and four carriages had overturned completely.

Images showed dozens of emergency workers crowded around ruined carriages.

Passengers were shown lying on the ground being treated.

Renfe said the train carried more than 200 passengers, and was on the express route between Madrid and Ferrol on the Galician coast.

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Gaza's Economy Suffers From Egyptian Crackdown

JABALYA, Gaza Strip - The only sound that could be heard on a recent weekday at Abu Eida's concrete-mixing plant in the north of Gaza was birdsong. The pumps, mixers and other heavy vehicles had been idle for days.

The factory floor was empty. In a prayer room inside the air-conditioned management section, five men were taking an afternoon nap. Work here has been at a virtual standstill since the Egyptian military's ouster of President Mohamed Morsi early this month, staff members said.

Along with the takeover in Cairo, the Egyptian military stepped up its campaign against Islamic militants operating against its forces in the rugged Sinai Peninsula, which borders Gaza. The clampdown has resulted in the destruction or closure of around 80 percent of the tunnels that run beneath the Egypt-Gaza border, long used for smuggling weapons and fugitives but also for construction materials restricted by Israel, cheap fuel and other goods.

So now, Abu Eida has no cement or gravel to operate his factory, one of the biggest in Gaza, the Palestinian coastal territory. Manar al-Batsh, an accountant at the plant, said 40 employees were sitting at home.

"If the crisis lasts until the end of this month, we won't be able to keep those workers on our payroll," he added.

For Hamas, the Palestinian Islamic militant group that runs Gaza and has its roots in the Muslim Brotherhood, Mr. Morsi's ally in Egypt, the upheaval next door means the loss of an important friend and a looming economic crisis if the tunnel restrictions continue.

Hamas, which refuses to recognize Israel and is considered a terrorist organization by much of the West, faces increasing physical and political isolation.

New restrictions at the Rafah border crossing, Gaza's main gateway to Egypt and the outside world, limit travel to holders of foreign passports and to patients with official medical referrals from the Hamas-run Ministry of Health. Hamas officials are unable to leave Gaza, and given the security situation in Sinai, aid and solidarity missions are not coming in.

More materially, Hamas relies on the taxes it collects from the underground trade. Experts have estimated the group's annual budget at $900 million. Hamas employs almost 50,000 government workers in Gaza, and two-thirds of the budget is said to be spent on salaries.

Omar Shaban, a Gaza economist and the director of PalThink, an independent research institute, said taxes collected from the tunnel trade made up about a third of the budget. Additional income has come from taxes on local businesses, many of which also depend on cheap commodities from the tunnels that are now in short supply. Fuel from Egypt is sold here at half the price of fuel imported from Israel.

Hamas had already been suffering from a sharp drop in financing from Iran in recent months because it did not stand by President Bashar al-Assad of Syria, its former patron, in his struggle against rebel forces.

Yasser Othman, Egypt's representative to the Palestinian Authority in the West Bank, told a Palestinian newspaper this week that the extraordinary security measures along the border with Gaza were not directed against the Palestinian territory but were to "protect Egypt's national security." He added that the measures would end "once the exceptional situation ended."

But in Egypt, a media campaign is under way against Hamas, as critics of Mr. Morsi associate the group with the violence along the Sinai border. Egyptian military officials have told state news media that scores of Hamas fighters and snipers have been making their way into Egypt to battle the anti-Morsi demonstrators. Newspaper columnists have accused Hamas of interfering in Egypt's affairs, and liberal television presenters have openly called Hamas "the militant arm of the Muslim Brotherhood," stoking the anti-Morsi and anti-Hamas sentiment.

Salah al-Bardawil, a Hamas official in Gaza, said in a telephone interview that the Egyptian media were being "pushed by the enemies of resistance" and some Arab states that want to see Hamas toppled like the Brotherhood in Egypt. He acknowledged that Hamas's options for dealing with the crisis were limited but said the Palestinian people were used to putting up with hardship to preserve their "dignity and national principles."

Some analysts have questioned whether a weakened Hamas would remain committed to its cease-fire with Israel. In November, Mr. Morsi played an instrumental role in brokering a truce, ending a fierce eight-day Israeli offensive. Hamas has since worked to rein in rocket fire by Gaza militants against southern Israel.

For a while after Mr. Morsi's election victory last year, Hamas felt empowered. In October, the emir of Qatar became the first head of state to visit Gaza since Hamas took power in 2007, and he pledged $400 million for major housing and infrastructure projects here. But because of a lack of supplies, most infrastructure projects, including the Qatari-financed ones, have come to a temporary halt.

Abdul-Fattah al-Zeri of the Hamas-run Ministry of Economy said this week that 50,000 workers who depended directly or indirectly on the construction sector, like carpenters, engineers and aluminum window manufacturers, were out of work.

"Today we are seeing a crippled economy, postponed contracts and losses among contractors," he said.

Israel eased its blockade on Gaza in 2010 under intense international pressure. The increased flow and variety of goods from Israel freed up the smuggling tunnels for more industrial materials, setting off a building boom in Gaza. Unemployment had dropped from nearly 36 percent to 26 percent over the last three years. Now, Mr. Zeri said, there are worries that it will rise again, adding, "We are on the brink of a crisis in terms of economy."

Israel restricts the official import of construction materials that it says could be used by Hamas to manufacture rockets or build fortifications. For example, Mr. Zeri said, Israel only allows pipes no larger than one and a half inches in diameter to enter Gaza. To import electronics, he said, Gaza merchants have to explain what they will be used for and attach user guides and catalogs before gaining approval, a process he said takes three months.

Other commercial sectors are also feeling the effects of the Egyptian clampdown. Most of Gaza's fishermen have not been going out to sea for lack of cheap fuel. And Gaza's fish market was almost empty of fish and buyers after sundown, when Muslims break their fast during the holy month of Ramadan.

One fisherman, Ali Ayyad, 28, a newlywed, stood on the deck of his family's fishing boat, which remained anchored in the harbor this week, and tried to catch some mullets with a rod.

"It's better than begging," he said.

Mayy El Sheikh contributed reporting from Cairo.

Pakistan bomb blasts hit intelligence agency in Sukkur

At least four people were killed and 30 injured in an apparent bomb attack on government security agencies in Pakistan's Sindh province.

Gunmen detonated four bombs near the offices of the Pakistani intelligence agency and other security forces in the town of Sukkur, state TV reports.

Sporadic gunfire was reportedly heard in the area following the explosions.

Sukkur is located around 500 km (310 miles ) from Karachi, the main city in Sindh province.

The attackers seized control of one of the government buildings while another office was still under fire, according to the state-run Pakistan Television Corporation (PTV).

The roof of a third building was reported to have collapsed, with people feared trapped beneath the rubble.

Police sent reinforcements to the area, officials said, adding that it was not yet clear who was behind the assault.

As Communist Cuba Reforms, Capitalism Slowly Takes Hold of Its Real Estate ...

Joakim Eskildsen for TIME

Ray leads his clients through the crumbling, faded streets of central Havana, just off the city's Malecón where you can taste salt in the air coming off the Florida Straits. The 65-year-old walks with purpose, though he asks foreigners to keep a few paces behind him and talk among themselves lest police hassle him. "This next one is lovely," he says slyly turning to his clients. "It has a view of the sea from the balcony and you have all the shops nearby." In the three-bedroom, third-floor apartment, Ray shows off a "big bathroom" which has barely enough space to walk around. Typical of many Cuban homes, its furniture and electrical equipment - such as a large transistor radio - would fit nicely into a museum. The entire place will cost $30,000, though, Ray advises, it "needs work."

Ray's spiel is as practiced as estate agents the world over. But in Cuba, there's one difference: his work is illegal. For it, he will receive 10 percent of the sale price and perhaps a tip from the buyers, he suggests with a smile in the living room he is showing off.

In November 2011, the buying and selling of property on this Communist island became legal, in one of many cautious reforms enacted by the government of President Raúl Castro to open up the country's economy. Ray's commission makes him a broker and puts him on the wrong side of the law. "I do this because I make money," says Ray. Just as in nearby Venezuela, capitalism is at its most naked in countries governed by hard-left economies. Ray, like many Cubans, has found a way around the average wage of some $20 a month here. "Cubans are nothing but resilient and will always find a way to monetize things," says Ann Louise Bardach, a long-time Cuba analyst and author of Without Fidel: A Death Foretold in Miami, Havana and Washington.

Since his takeover of the presidency in 2006 from 86-year-old brother Fidel, Raúl Castro, himself 82, has cautiously attempted to grow Cuba's fledgling private sector. Yet, as with all the reforms in Cuba, the property laws are progressing "poco a poco" (little by little) offering time for the government to gauge progress and calculate its next move, "without haste," Raúl told reporters in January 2012, "so that we don't make new mistakes." Some are not impressed. "They could be done much quicker," said Cuban economist Oscar Espinosa Chepe, sitting in his small living room in Havana surrounded by books. "This government is trying to give the impression that it is changing but the country is on the edge of a cliff." Cuba's economy relies heavily on oil-rich Venezuela, which provides Havana some $10 billion annually - a significant chunk of the island's $61 billion GDP.

Ray advertises his services on Paseo del Prado, a major thoroughfare in the east of Havana. Colleagues congregate holding hand-written signs advertising homes for sale or rent. Anyone expressing interest is sneakily handed small-typed scraps of paper offering more details, a rough location for a property, the number of bedrooms and a price. Before November 2011, Cubans were legally allowed only to swap homes-however, payments were sometimes made under the table. There was of course no legal recourse should agreements go awry.

Not everyone involved in the nascent real estate industry is as rudimentary in their methods as Ray. Yosuán Crespo runs EspacioCuba from an office in Havana's more upmarket western district of Vedado. Up some stairs in his grand building are laminated signs printed just as at any other estate agent in the world, with pictures, details of the property and of course an asking price. Prices vary between around $20,000 and $250,000.

Crespo insists that his business, which opened three months after the law came into effect, is not a brokerage and says he does not receive commission. Rather, he charges clients for photographing their properties as well as preparing and publishing the adverts both at the office and online. His published fees are just a few dollars. "It's not legal to work as a broker in Cuba," says the 28-year-old. "We are not brokers and we not willing to be brokers. We don't get commission."

Supply of properties far outstrips demand. "Many of the houses we are selling right now are to people who have money from other parts of the world," says Crespo. Often the money changes hands in foreign bank accounts. Adding to excess supply is a migratory law enacted in January which allowed Cubans to obtain passports and leave the country with fewer restrictions. Meanwhile, Cuba's comparatively low average wage means that many simply do not have access to the sums of money required to purchase properties.

However, that supply and demand balance is likely to slide as foreigners realize what a huge investment opportunity Cuba represents. With prices relatively low, many imagine the price of Cuban real estate will rocket in the coming years as the island inevitably opens up to foreigners. Those who do not hold permanent Cuban residence-a requirement to purchase property-must use a Cuban spouse, friend or some other proxy as a front. This carries inherent risk but investors may see it as a worthwhile gamble.

In the meantime, the ability to buy and sell property is being exploited by some Cubans who have long been crammed into houses they do not want. Around 45,000 homes changed hands in the first eight months of last year, according to the government's latest figures. "The new law was very favorable for us," says Juan Carlos, 26, as he waits his turn at EspacioCuba looking for a place for himself, his brother and their parents.

In the crumbling apartment, Ray offers a potential customer assurances that it will be easy to renovate: "You can have anything you want in Cuba if you have money."

Obama halts delivery of F

Credit: Reuters/Asmaa Waguih

An opponent of deposed President Mohamed Mursi, dresses the wound of another opponent injured in Monday's clashes with pro-Mursi protesters, near police officers guarding, near Tahrir square, in Cairo, July 23, 2013.

"Given the current situation in Egypt, we do not believe it is appropriate to move forward at this time with the delivery of F-16s," Pentagon spokesman George Little told reporters, adding Obama's decision was made with the unanimous consent of his entire national security team.

Violence has surged in Egypt since the military overthrow of Mohamed Mursi, Egypt's first democratically elected president.

(Reporting by Phil Stewart; Editing by Vicki Allen)

Indian principal at school where 23 kids died arrested

PATNA, IndiaThe principal of a primary school in eastern India where 23 children died last week after eating lunch prepared with contaminated oil was arrested Wednesday, nine days after she went into hiding, police said.

Meena Kumari fled as soon as the children began falling ill after eating the lunch cooked at the school in Bihar state. Twenty-three children between the ages of 5 and 12 died after eating the meal and many others fell ill.

Forensic tests have revealed that the lunch contained toxic levels of a deadly pesticide.

A police team investigating the deaths arrested Kumari on Wednesday, and authorities were questioning her to establish how the pesticide got mixed with the food, said police superintendent Sujit Kumar.

Bihar's education minister, P.K. Sahi, has said the principal bought the ingredients for the meal from a shop owned by her husband, who has fled.

The school's cooks have told authorities that the principal controlled the food for the government-provided free daily lunch.

One of the cooks said that the cooking oil appeared different than usual, but that the principal told her to use it anyway.

On Wednesday, Bihar's chief minister and top elected official, Nitish Kumar, said the government would punish all those who were responsible for the tragedy.

"No one will be spared," Kumar told reporters, adding that state authorities were working to streamline the school lunch program to prevent the recurrence of such a mishap.

India's midday meal plan is one of the world's biggest school nutrition programs. State governments have the freedom to decide on menus and timings of the meals, depending on local conditions and availability of food rations. It was first introduced in the 1960s in southern India, where it was seen as an incentive for poor parents to send their children to school.

Since then, the program has been replicated across the country, covering some 120 million schoolchildren. It's part of an effort to address concerns about malnutrition, which the government says nearly half of all Indian children suffer from.

Although there have been complaints about the quality of the food served and the lack of hygiene, the incident in Bihar appeared to be unprecedented for the massive food program.

Fight over Detroit bankruptcy begins in federal court

Credit: Reuters/ Rebecca Cook

A vacant blighted home is seen next to a well-kept occupied home on West Grand Boulevard in Detroit, Michigan July 23, 2013.

Attorneys for Kevyn Orr, a corporate bankruptcy lawyer tapped by Michigan officials in March as Detroit's emergency manager, want U.S. Bankruptcy Judge Steven Rhodes to put on hold a flurry of lawsuits claiming the Chapter 9 bankruptcy filing violates the state constitution.

Rhodes agreed on Monday to an expedited hearing requested by Orr that seeks to extend Chapter 9's automatic stay of litigation to lawsuits filed against Governor Rick Snyder, Michigan Treasurer Andy Dillon, and Orr by Detroit workers, retirees and pension funds that are pending in state court in Michigan's capital city of Lansing.

Those lawsuits were halted by a Michigan Appeals Court panel on Tuesday in response to State Attorney General Bill Schuette's request to stop proceedings while he seeks to overturn orders issued by a lower court judge hearing the cases. One of those orders directs Orr to withdraw the bankruptcy petition on state constitutional grounds.

The federal court in Detroit is expecting an overflow crowd of media, attorneys, labor union representatives and others participating in or witnessing the unfolding of the historic drama.

Detroit, a former manufacturing powerhouse and cradle of the U.S. automotive industry and Motown music, has struggled for decades as companies moved or closed, crime became rampant and its population shriveled by almost two thirds since the 1950s to about 700,000 now. The city's revenue failed to keep pace with spending, leading to years of budget deficits and a dependence on borrowing to stay afloat.

Concerned that retirement benefits will be slashed, the American Federation of State, County and Municipal Employees Council 25, which represents about 70 percent of Detroit's civilian workforce, on Monday filed an objection to pushing the lawsuits aside. They said if they were stopped, Orr, Michigan's governor and others would be able to continue to operate beyond state constitutional authority.

In a June 14 proposal to creditors, Orr called for "significant cuts in accrued, vested pension amounts for both active and currently retired persons."

Bill Wertheimer, an attorney handling one of the retiree lawsuits, said pension benefits "are sacrosanct under state law."

"The state has certain powers that the federal government cannot superimpose itself on, unlike a normal bankruptcy," he said.


Rhodes could rule immediately that all the litigation seeking to derail Detroit's bankruptcy petition be put on hold, according to legal experts.

Laura Bartell, a law professor at Wayne State University in Detroit, said Judge Rhodes was not likely to permit interference from Michigan judges.

"I personally think the argument that a bankruptcy filing violates the Michigan Constitution is specious and will be quickly dismissed by Rhodes," she said.

Ken Schneider, a bankruptcy attorney with Detroit-based Schneider Miller PC, predicted the city's bankruptcy case will proceed. "The federal constitution preempts state law," he said.

A 2012 Michigan law that governs emergency managers like Orr who are selected by the state to run fiscally troubled local governments gives the governor the final say on whether to file for bankruptcy.

Bankruptcy opponents could attempt to appeal to the federal district court any order by Judge Rhodes enforcing the stay of litigation against Detroit. But, because such an order would not be considered a final judgment under bankruptcy laws, the federal court could decline to hear the appeal.

In a declaratory judgment on Friday, state Judge Rosemarie Aquilina ordered Orr to withdraw the bankruptcy petition, saying the state law that allowed Snyder to approve the bankruptcy filing violated the Michigan constitution. The governor cannot take actions that would violate constitutional protections covering retirement benefits for public workers, she said.

Aquilina's order was in response to a lawsuit filed this month by a Detroit worker and retiree. Two other lawsuits are also pending, one backed by the United Auto Workers union and another filed by the city's general retirement system and police and fire retirement system.


To remain in bankruptcy court, Detroit must prove that it is insolvent and that it made a good faith effort to negotiate with its creditors, including its employee pension funds, over the city's more than $18 billion of debt and unfunded liabilities. That includes $5.7 billion in liabilities for healthcare and other retiree benefits and a $3.5 billion pension liability.

Union officials on Monday contended some of the city's 48 bargaining units were shut out of pre-bankruptcy negotiations, although Orr's spokesman said Orr was not obligated to engage in collective bargaining negotiations with the unions under the 2012 state emergency manager law.

The arguments over eligibility could take a long time as the unions challenge the legality of the filing. In the case of Stockton, California's bankruptcy case, the eligibility determination took a year.

(Writing and additional reporting by Karen Pierog; Additional reporting by Nick Brown; Editing by Tim Dobbyn)

India School Head Teacher Is Arrested Over 23 Toxic Lunch Deaths

The arrested principal of the Indian school where 23 children died after eating a pesticide-laced lunch will face the "full force of the law" if found negligent, Nitish Kumar, chief minister of Bihar state, said after a week-long search for the head teacher ended.

Speaking after police confirmed the detention of Meena Devi, Kumar gave details of what he called a "heart-rending incident" that will force the state and central governments to better regulate a program aimed at feeding India 's poorest children. Students were made to eat the food against their will, Kumar said.

Tests released July 20 identified the source of poison that killed the schoolchildren in the village of Dharmasati Gandawan as the vessel storing cooking oil. Monocrotophos, a highly toxic organophosphate insecticide, was found in the container, the food and the utensil in which it was prepared, R. Lakshmanan, who runs Bihar's Mid-Day Meals Scheme, said.

Kumar said a new high school and clinic would be built in the village, while families would be provided pensions. Roads will be improved. "We cannot bring back the children who died, but we'll do whatever is possible to develop the village," Kumar told reporters in Patna, the provincial capital.

Hungriest Children

The deaths of the children further tarnished the reputation of an 18-year-old government meals program meant to feed the hungriest children in the poorest corners of India. The plan, part of a web of polices aimed at easing the malnourishment that afflicts almost half the country's children, has been criticized by the Supreme Court and the comptroller and auditor general for corruption and inefficiencies.

About 50 to 60 children were present, seated on the school's concrete floor, as lunch was served on July 16 around 1 p.m., relatives said two days later.

A soyabean dish given to the children may have been prepared using the pesticide as a cooking medium instead of oil, the Times of India reported, citing sources in the federal human resources development ministry it didn't name. Devi scolded the students who refused to eat the dish because of its black color and smell, according to the report.

'Gross Negligence'

Lakshmanan said July 19 said the tragedy wouldn't have occurred if rules had been followed and condemned the "gross negligence" of Devi. He rejected charges the deaths represented a wider government failure. Principals had been instructed as recently as April to taste the food before feeding students.

The forensic report didn't indicate whether the poisoning was intentional, Lakshmanan said.

Rapid economic growth hasn't dented malnourishment rates, and more people than ever don't consume government-recommended minimums. Some 900 million Indians hover just above starvation but below well-nourished, according to the latest data available, up from 472 million in 1983.

Bihar, one of India's poorest states, has been admonished by the Supreme Court for its management of the school meal program. In 2010, the latest data available, the central government set aside $80 million for food and $73 million to pay for cooking materials, including the construction of hygienic sheds and water supplies. The state government managed to spend only $30 million of that, the planning commission report found.

To contact the reporters on this story: Kartikay Mehrotra in New Delhi at; Bibhudatta Pradhan in New Delhi at

To contact the editors responsible for this story: Michael Tighe at; Hari Govind at

Enlarge image

Britain's new prince heads to maternal grandparents' house outside London

Prince William and his wife Kate kept the world guessing about the name of Britain's new prince after presenting their newborn son to the world for the first time Tuesday.

"We're still working on a name. So we'll have that as soon as we can," William told scores of reporters as he cradled the child outside St. Mary's Hospital, where he was born not quite 24 hours earlier.

The royal couple may well take their time in deciding. Queen Elizabeth II and the Duke of Edinburgh took a month before settling on the name Charles for the Prince of Wales. Princess Diana and Prince Charles took a week before settling on William's four names.

"Who knows what the future will hold," said Timothy Long, a curator at the Museum of London, which is celebrating the royal birth with a special exhibition showcasing royal baby items. "But I'm sure with that comes a little bit of pressure."

The bookies are hoping for everyone to take their time. The bets just keep rolling on in while everyone ponders the future.

"We're taking in money by the pramload," said Rory Scott, a spokesman for Paddy Power, a bookmaker. It's also taking wagers on the royal baby's first word and where he will be christened.

The baby waved his hands a little but otherwise appeared quiet during his first, and very noisy, encounter with the press Tuesday.

The infant is third in line to become monarch one day, after his grandfather, Prince Charles, and William.

"He's got her looks, thankfully," William said, referring to his wife, the Duchess of Cambridge, as the newborn prince squirmed in his arms and poked a tiny hand out of his swaddling blanket, almost like a little royal wave.

"He's got a good pair of lungs on him, that's for sure," William added with a grin. "He's a big boy. He's quite heavy."

The couple re-entered the hospital to place the child in a car seat before re-emerging to get into a black Range Rover. With William at the wheel, they drove away. Palace officials said they will head to an apartment in Kensington Palace and spend the night there.

The birth marks a new chapter for William and Kate, who had enjoyed a quiet life away from the public eye in Anglesey, Wales, since their wedding in April 2011.

The couple had been living in a small Welsh cottage while William - known as Flight Lieutenant Wales - completed his term as a search-and-rescue pilot.

Now that they are a family, they are moving to a much larger apartment in Kensington Palace in central London, where William spent most of his childhood and where it will be much more difficult to keep a low profile and avoid the press.

Earlier Tuesday, William's father, Charles, and his wife, Camilla, as well as Michael and Carole Middleton - Kate's parents - visited the young family at the hospital.

Charles called the baby "marvelous," while a beaming Carole Middleton described the infant as "absolutely beautiful."

It was not immediately clear when Queen Elizabeth II would meet the newborn heir. The queen was hosting a reception at Buckingham Palace Tuesday evening, and was due to leave for an annual holiday in Scotland in the coming days. contributed to this report.


Prince William Duke of Cambridge and Catherine Duchess of Cambridge depart the Lindo Wing with their newborn son at St. Mary's Hospital on July 23. (Photo: Stuart C. Wilson, Getty Images)

Story Highlights Then, there were only two TV crews Now, the entire world was watching But some traditions have stayed the same

The presentation of the prince wasn't much like the way Prince Charles, then 33, and Princess Diana, then 20, showed off their first baby, Prince William, to the world the day after he was born. In fact, what a difference 31 years makes. But the ritual blended tradition and modernity, one of the reasons William and Duchess Kate are so popular with the British and worldwide.

Especially now. Kate, 31, gave birth on Monday to an 8-pound, 6-ounce boy, still unnamed, in the same hospital, St. Mary's, where William was born. She and William, also 31, presented their Baby Prince Cambridge to a wildly excited throng outside the hospital on Tuesday.

Those watching could not help thinking of the day in June 1982 when Charles and Diana performed the same dance for the media. Here's a look at what's changed and what's stayed the same.


1982: Charles walked out holding baby William, then gave him to Diana

2013: Kate walked out holding her newborn, then gave him to William

Royal remix: The royal one took the lead back then; this new couple is more of an equal partnership.

1982: Nothing; they smiled and posed. She later said she was nervous and teary.

2013: Both were practically chatty. Kate said giving birth was an "emotional" and "very special" experience. William joked about the baby's weight, lungs and tardiness, promised a name soon, acknowledged the media mob's long wait and subtly pleaded to be left alone for at least a while.

Royal remix: Even a wary royal like William knows he has to feed the media beast; it's good for the media and for the royals. Charles expected and received more deference in his day. Kate, more than a decade older than Diana at the time, looked relaxed, happy and serene.

In this June 22, 1982 photo, Prince Charles, Prince of Wales, and wife Princess Diana take home their newborn son Prince William, as they leave St. Mary's Hospital in London.(Photo: John Redman, AP)


1982: She wore a maternity dress, a voluminous kelly-green smock dress with white polka-dots and a white collar by British designer Catherine Walker. He wore a formal striped suit with a striped tie and blue shirt.

2013: She wore a bespoke crepe-de chine dress of cornflower blue with white polka dots with a belted waist (plainly showing the remains of her baby bump), by British designer Jenny Packham. He wore a casual blue shirt, no tie, dark slacks belted with a worked leather belt.

Royal remix: Packham made it for this occasion, and proudly cooed about it within minutes of the reveal. Walker's dress was a maternity dress that was the only frock Diana had with her at the time of the birth. Charles has been most comfortable in his impeccable suits practically since he was a toddler; William lives in casual wear but dresses up smartly.

1982: Cheering crowds but a relatively smaller media contingent; there were only two national broadcast networks in Britain at the time.

2013: Huge cheering crowds, clutching camera phones, and a media mob hundreds strong from around the world.

Royal remix: Interest in royal babies remains intense; the technological capacity to indulge that interest has exploded and expanded worldwide.

1982: They both got in the back of a British black luxury car to be driven by chauffeur away from the hospital.

2013: They got into a British black luxury car; he was driving, a security agent in the front seat, and she got in the back with the baby.

Royal remix: William not only likes to drive himself, he's handy with a car seat, prompting speculation about whether he practiced ahead of time. Charles would not have had a clue about car seats.


1982: To their apartment at Kensington Palace

2013: To their apartment at Kensington Palace

Royal remix: The palace once derided as the "aunt heap" by Edward VIII is still the indispensable public housing for high-ranking royals.

1982: 7 pounds, 1½ ounces; she labored 16 hours.

2013: 8 pounds, 6 ounces; she labored about 10 hours.

1982: Could barely be seen in its swaddling blanket, but he was not crying.

2013: Could barely be seen from some angles, but was in full view from other angles. He was awake and not crying, and even sort of gave a little royal wave.

Royal remix: The royal media operation today is more savvy about the positive effects of good camera angles.


1982: A white swaddling blanket, in their arms in the car.

2013: A white swaddling blanket, then in a car seat that William carried out of the hospital and placed in the back seat.

Royal remix: Modern royals want their babies to be safe. And the makers of baby products (Britax Baby Safe car seat and aden+anais cotton muslin swaddle) instantly send out messages bragging about their link with royals.


1982: Charles was there for it, the first future monarch to witness the birth of his heir; William was the first future monarch to be born in a hospital.

2013: William was there for it. He was the first future monarch to spend the night in the hospital with his wife after the birth of his heir.

Royal remix: The days of royal births taking place only in royal palaces or residences with scores of people, including government ministers, to act as witnesses, are gone forever after persisting well into the 20th century.


1982: Note on a gilded easel at the gates of Buckingham Palace, followed by a paper press release.

2013: A series of tweets and electronic press releases, followed by the note on the gilded easel at the palace.

Royal remix: This was the first birth of a future king announced via a tweet, and before the more antique manner of announcement.

Snowden could soon leave Moscow airport: airport source

Credit: Reuters/Glenn Greenwald/Laura Poitras/Courtesy of The Guardian/Handout via Reuters

NSA whistleblower Edward Snowden, an analyst with a U.S. defence contractor, is seen in this still image taken from video during an interview by The Guardian in his hotel room in Hong Kong June 6, 2013.

The official, who spoke on condition of anonymity, said Snowden, who is wanted by the United States for leaking details of U.S. government intelligence programs, was expected to meet his lawyer at Sheremetyevo airport later on Wednesday after lodging a request for temporary asylum in Russia. The immigration authorities declined immediate comment.

(Reporting by Lidia Kelly, Writing by Alexei Anishchuk, Editing by Timothy Heritage)

Queen visits her new great

LONDON Britain's Queen Elizabeth II arrived at Kensington Palace Wednesday to see her new great-grandson, who has spent a first night at home with his parents, Prince William and Kate.

The 87-year-old monarch made a short trip from Buckingham Palace to visit the two-day-old Prince of Cambridge, who is third in line to the throne, then left, the British Broadcasting Corporation reports.

The baby's name hasn't been revealed yet. "We're still working on a name," William told reporters Tuesday as he and Kate took the baby home from St. Mary's Hospital.

Bookmaker William Hill has George -- the name of six previous British kings -- as the favorite at 2-to-1 odds, with James at 4-to-1.

Images of the prince, his little hand peeking above a white crocheted wrap, blanketed the front pages of British newspapers Wednesday. The Daily Mail offered a photo album image with the headline "Baby's first royal wave."

The prince slept through his debut public appearance -- though William assured the media he had "a good pair of lungs on him."

The new family is expected to spend time quietly at Kensington Palace, their London home. As well as choosing a name, William and Kate will soon choose a photographer for the baby's first official portrait.

William has two weeks' paternity leave from his job as a Royal Air Force search-and-rescue helicopter pilot.

Three hikers die in a month on scenic Southwest hiking trail

FILE - A May 28, 2013, file photo shows a hiker on a rock formation known as The Wave in the Vermilion Cliffs National Monument in Arizona. (AP Photo)

They left their two young children with relatives and set off to celebrate their fifth wedding anniversary at one of the most beautiful hiking destinations in the Southwest.

Months earlier, the luck of a draw had brought Anthony and Elisabeth Ann Bervel coveted hiking permits for The Wave, a region of richly colored sandstone patterns near the Utah-Arizona border.

But just hours into Monday's trek, 27-year-old Elisabeth Bervel died of cardiac arrest, becoming the third hiker in a month to succumb to the brutal summer heat and disorienting open country where no marked trail shows the way.

The deaths have prompted officials to reassess the dangers for people who make the hike and perhaps seek an outside investigation of the risks, said Kevin Wright, manager of Vermilion Cliffs National Monument.

"We're considering everything at this point," he said.

Only 20 hikers are granted permits each day, a limit defended as necessary to protect the rock formations and preserve a sense of wilderness around the signature rock formation said to be one of the most photographed spots in North America.

Hikers are given plenty of warnings about how to survive. They also get pictures of prominent landmarks and access to eight guides who can lead the way.

"It's not like going to Zion National Park and hiking on an asphalt trail," said Kane County sheriff's Sgt. Alan Alldredge. "Once you hit the slickrock, nothing distinguishes the trail."

"It seems to go well for people going to The Wave," he added. "But for some reasons on the way back, they end up getting lost."

The Bervels, of Mesa, Ariz., lost their way on a three-mile cross-country route back to a trailhead, forcing them to spend extra hours under blazing sun in 90-degree temperatures and humidity, he said.

Officials said Elisabeth Bervel's legs gave out hiking in soft sand, and her husband kept going to find a cellphone signal to call for help.

He appeared to be in no danger from the heat or exertion. But Kane County officials said he was distraught when he sat down Monday night to recount the tragedy. A phone listing for Anthony Bervel had been disconnected Tuesday.

"This event once again demonstrates the inherent risks associated with hiking in southern Utah's desert country," the Kane County Sheriff's Office said in a statement. "Even though the Bervels had tried to make sure they were prepared for this hike, the elements proved to be stronger."

The latest death led to further questions about the lottery system that makes it hard to land a permit for the hike that starts in Utah before reaching The Wave in Arizona. More than 48,000 people applied last year for 7,300 available permits, officials said.

Half of the 20 daily permits are doled out on a walk-in basis at a visitor's center in Kanab, with as many as 100 people showing up to get a permit for the next day.

The rest are awarded through an online lottery, with winners given a specific hiking date months in the future. For many, it's a lifetime opportunity, and the difficulty in getting permits prompts some people to go in the heat of the summer.

On July 3, Ulrich and Patricia Wahli of Campbell, Calif., were found dead in 106-degree heat.

About a year ago, a 30-year-old California man who spent much of a day at The Wave and tried to return after nightfall died after falling into a slot canyon, officials said.

"It does come back to personal discretion, and making choices," said Rachel Tueller, a spokeswoman for the Arizona Strip District of the U.S. Bureau of Land Management, which controls The Wave. "Anytime you go out on public land, it's a risk. You have to know your own capabilities."

Four dead after Australia

At least four people have died after a boat carrying Australia-bound asylum-seekers sank, amid ongoing debate over the new policy.

The boat sank off the Indonesian island of Java, the transit point for people-smugglers.

At least 157 people have been rescued. It is not clear how many are missing.

Meanwhile, Australia's immigration minister said he would investigate abuse claims at the country's offshore processing centre in Papua New Guinea.

Prime Minister Kevin Rudd announced a new asylum policy last week, ahead of polls expected to be announced soon.

Under the policy, asylum-seekers arriving by boat in Australia will be sent to Papua New Guinea (PNG) for processing, and those whose refugee claims are upheld will be settled in PNG, rather than Australia.

Australia has experienced a sharp increase in the number of asylum seekers arriving by boat in recent months. But critics have accused Australia of avoiding responsibility and passing on its problem to a developing nation.

Mr Rudd said that the sinking underlined the need for a policy shift, saying the government had to send "a very clear message to people-smugglers to stop sending people by boat to Australia".

Australia's irregular maritime arrivals 2010: 134 boats carrying 6,535 passengers 2011: 69 boats, carrying 4,565 passengers 2012: 278 boats carrying 17,202 passengers 2013 (figures up to 16 July): 218 boats carrying 15,182 passengers Figures from Australia's Department of Immigration; passenger numbers exclude crew

"We are seeing too many drownings, we are seeing too many sinkings, too many innocent people being lost at sea."

PNG is to receive Australian investment as part of the deal. But some PNG politicians say the agreement could cause tensions on the island.

Opposition spokesman Tobias Kulang said PNG had "become a dumping ground for Australia's inadequacies".

"This is an appalling performance by Australia, which with its monetary wealth is able to pass the buck on to poorer countries," he said.

'Helpless and hopeless'

The latest sinking, which happened on Tuesday night, involved passengers who said they were from Iraq, Iran, Sri Lanka and Syria.

At least two children are among the dead. More people are feared missing but officials still do not know the exact number of people who were on board.

Fishermen first spotted the asylum seekers - men, women and children - swimming to the shore near the West Java town of Cidaun on Tuesday evening, the BBC's Alice Budisatrijo in Jakarta reports.

The head of the local rescue agency told the BBC they were now being held in a nearby immigration facility.

Another boat carrying around 38 asylum seekers has also been stopped near Christmas Island, reports say.

Many asylum seekers seek to journey to Christmas Island, which is the closest part of Australia to Indonesia and lies 1,600 miles north-west of mainland Australia.

Meanwhile, Immigration Minister Tony Burke said he would travel to Manus Island, Australia's offshore processing centre in PNG, after allegations of abuse there emerged.

A former security manager, Rod St George, told Australia's Special Broadcasting Service that some detainees had been raped and assaulted.

He said the the facilities at the site were not "even fit to be used as a dog kennel".

Mr Burke has described the allegations as "horrific", and said that he intended to "work through" issues at the island.

Asylum policy is expected to be a key issue in Australia's elections, which must take place by 30 November.

An opinion poll on Tuesday suggested that the opposition coalition led Mr Rudd's Labor party by 52% to 48% after preferences.

However, Mr Rudd is still polled as voters' preferred prime minister, at 50%, compared to opposition leader Tony Abbott's 34%.

Mr Rudd ousted Julia Gillard as Labor Party leader last month, amid dismal pre-election polling figures.