April 8 (Bloomberg) — Democratic presidential candidate Barack Obama trails Hillary Clinton by 6 percentage points among Pennsylvania’s likely primary voters, a Quinnipiac University poll found.

Clinton, a New York senator, received 50 percent support compared with Obama’s 44 percent in the poll conducted April 3-6. That’s down from the 50-41 percent lead Clinton had in a similar poll released April 2. The biggest shifts for Obama, an Illinois senator, came among female and white voters, the poll found.

Obama is “knocking on the door of a major political upset in the Pennsylvania Democratic primary,” Clay Richards, assistant director of the Quinnipiac University Polling Institute, said in a statement. “Obama is not only building on his own constituencies, but is taking away voters in Senator Hillary Clinton’s strongest areas.”

Pennsylvania holds its contest April 22. The survey by Hamden, Connecticut-based Quinnipiac included 1,340 likely voters in Pennsylvania’s Democratic primary. The poll had a margin of error of plus or minus 2.7 percentage points.

To contact the reporter on this story: Nadine Elsibai in Washington at nelsibai@bloomberg.net.

April 7 (Bloomberg) — President George W. Bush went to Russia looking for a deal on missile defense. He left with less: a “framework agreement” on principles for the Russia-U.S. relationship and a promise that the Russians will keep talking once President Vladimir Putin’s successor takes office.

“We’ve got work to do, but we’ve come a long way from our first discussions,” Bush said at a news conference yesterday with Putin at the Black Sea resort of Sochi. “I happen to believe it’s a significant breakthrough simply because I’ve been involved in this issue and know how far it’s come.”

The two leaders also signed a strategic framework for their successors to guide relations on security, non-proliferation, counter-terrorism and economic issues.

Bush and Putin are grappling with suspicions and strained relations that have developed over the anti-missile plan and expansion of the North Atlantic Treaty Organization. NATO leaders agreed at their summit in Bucharest this week to invite Croatia and Albania to join.

While declining to put Ukraine and Georgia on a fast track to membership, which would further Bush’s goal of extending the military alliance into the former Soviet heartland, it vowed to let them in eventually.

Bush and Putin praised each other in their final official meeting as presidents and said they’d work to reach common ground.

`Not Always Easy’

“This dialogue is not always easy between our two countries,” Putin said, but “the search for common denominators” continues. Putin said he and Bush “have sought to find new horizons for our cooperation.”

Bush said the signing of the strategic document shows “the breadth and depth of our cooperation.”

“We spent a lot of time in our relationship trying to get rid of the Cold War,” Bush said. “We worked very hard over the past few years to find areas where we can work together.”

The U.S. says the missile system is needed to intercept attacks from rogue regimes in the Middle East, such as Iran, and isn’t aimed at Russia. Russia fears the system will upset the balance of power in Europe and risk a new arms race.

“Our fundamental attitude to the American plans have not changed, however, certain progress is obvious,” Putin said.

“We’ve got more work to do to convince the Russian side that the system is not aimed at Russia,” Bush said.

`Equal Partners’

The framework agreement said both sides “expressed their interest in creating a system” to prevent missile threats and Russia, Europe and the U.S. would participate “as equal partners.”

Still, Putin is giving preference to “a global defense” system against potential adversaries compared with the U.S- backed regional system.

The Bush administration wants to install a radar base in the Czech Republic and 10 interceptor missiles in Poland. The U.S. and the Czech Republic completed negotiations and announced on April 3 that they would soon sign an agreement.

Negotiations are continuing on a U.S. offer to give Russian inspectors access to the sites and delay making the system operational until Iran has missiles that can reach Europe.

Putin said that Russia wants its inspectors to be granted “permanent” access to the facilities.

“I have cautious optimism” about a deal, he said. “I believe this is possible, but the devil is in the detail.”

Both leaders are seeking to polish their legacies as they prepare to hand over power.

`Up Note’

“In light of the fact that they are both ready to pass the baton on, they would rather leave on an up note rather than a sense of estrangement,” said Charles Kupchan, a professor of international relations at Georgetown University in Washington.

Stephen Hadley, national security adviser to Bush, said it didn’t matter that no deal was completed.

“They can leave that to their prospective successors,” he told reporters on Air Force One as Bush returned home yesterday.

Bush conferred separately with Putin’s successor, Dmitry Medvedev, who will be sworn in May 7. Putin will remain on the scene as prime minister. Bush will leave office in January after U.S. voters go to the polls in November.

“He seemed like a straightforward fellow; someone to tell you what’s on his mind,” Bush said of Medvedev. “I was impressed.”

“My guess is that these two men who have worked very closely together now for two decades will continue to do so. That is a good thing, not a bad thing,” Hadley said in commenting on Putin and Medvedev.

Bush wrapped up a four-country, seven-day trip, which included the April 2-4 NATO summit and stops in Ukraine and Croatia. He returned to Washington yesterday afternoon.

To contact the reporter on this story: Catherine Dodge in Sochi, Russia at Cdodge1@bloomberg.netRoger Runningen in Sochi, Russia at rrunningen@bloomberg.net

April 7 (Bloomberg) — The Bank of England may be forced to cut its main interest rate this week as the credit squeeze spreads to the mortgage market, exacerbating the worst housing downturn since the last recession in 1991.

HSBC Holdings Plc, Nationwide Building Society and Royal Bank of Scotland Group Plc are raising loan rates or withdrawing their best offers in order to shore up balance sheets. That’s dulling the impact of the central bank’s two rate cuts since December and making it harder for policy makers to protect the economy.

“This is a panic,” said Nigel Welch, 54, director of mortgage broker TS Mackenzie in London’s fashionable Islington neighborhood. “Mortgages are more expensive and harder to get. I’ve had to turn away some people that I know won’t find the loan that they need.”

The mortgage market has tightened this month as banks scramble to conserve cash and stem a credit binge that fueled the country’s decade-long housing boom. The number of home-loan products on offer declined by 21 percent in the past two weeks to 4,499 on April 4, says Moneyfacts Group, a financial Web site.

The pound fell today against 14 of the 16 most-traded currencies today, including the dollar and euro, on speculation the Bank of England will cut its benchmark rate this week. The currency traded at $1.9885 and 79.06 pence per euro, as of 11:17 a.m. in London.

Rate Forecasts

Worsening credit conditions spurred economists at Deutsche Bank AG and Bank of America to change their forecast last week and predict the Bank of England will take action on April 10.

Forty-nine of the 61 analysts surveyed by Bloomberg News predict policy makers, led by Governor Mervyn King, will cut their benchmark rate by a quarter point to 5 percent this week. That would still be the highest among the Group of Seven nations and compare with the Federal Reserve’s main rate of 2.25 percent and the European Central Bank’s 4 percent.

The cost of borrowing pounds for three months was at 5.98 percent on April 4 after reaching 6.01 percent last week, the highest level since December.

More expensive mortgages are increasing the burden on consumers already shouldering a record 1.4 trillion pounds ($2.8 trillion) in personal debt.

`Horrible Shock’

“This has been a horrible shock,” said Sue Freeman, 43, a health researcher living in North London. She comes off a five- year mortgage rate of 4.65 percent next month and her lender wouldn’t offer a new deal below 7 percent. “I went into panic mode. I thought we’ll never be able to afford a mortgage again.”

HBOS Plc, the U.K.’s biggest mortgage lender, said April 4 that its Halifax unit will increase the interest rate payments for customers who provide a deposit of less than 25 percent. First Direct, the British online banking unit of HSBC, on April 2 suspended mortgage lending to new customers. Nationwide said March 27 it’s withdrawing some of its home loans and raising rates on others by as much as 0.57 percentage point.

The U.K. may nevertheless avoid the fate of the U.S., which is being dragged into recession by the housing market. British house prices, which have tripled in the past decade, have fallen just 0.8 percent since September, according to HBOS. In the U.S., prices dropped 9 percent in the fourth quarter, the Case-Schiller index shows.

Unemployment fell to the lowest since 1975 in February, retail sales unexpectedly rose and Bank of England policy makers said at their last rate decision in March that economic growth was more resilient than they expected.

Inflation Risk

The central bank’s task is compounded by faster inflation, restricting the scope for rate cuts. King said last month that price increases may exceed the government’s 3 percent limit this year after a surge in energy and food prices. Consumer prices rose 2.5 percent in February from a year earlier.

“We haven’t reached a crisis point yet and there are inflationary pressures,” said Philip Shaw, chief economist at Investec Securities in London. “But the economy will slow more sharply from here. If conditions don’t improve, the bank will have to be more aggressive.”

Bank of England policy makers have conceded the need to counter tighter credit conditions to prevent them dragging down the economy. Policy maker Paul Tucker said April 2 the central bank will need to cut rates “gradually.”

Growth Forecast

The U.K. central bank forecasts expansion will cool this year to an annual 1.6 percent rate in the fourth quarter, matching the slowest pace since 1993. Lehman Brothers Holdings Inc. forecasts the slowdown may be worse and says there’s a 35 percent chance of a recession in the next two years.

Royal Institution of Chartered Surveyors said March 11 the property market slumped in February to the worst since 1990, the eve of the nation’s last recession.

The Bank of England on April 3 said lenders expect the mortgage market to tighten further in coming months, which will put further pressure on a housing market the International Monetary Fund says is among the most vulnerable to a slump.

“My biggest fear is that when I try to re-mortgage it won’t be accepted,” said Robin Bingeman, 34, a product manager in southwest London, whose monthly payments are scheduled to rise to 2,600 pounds in May from 1,700 pounds. “I had to go back to my employer and say I need a raise in order to survive.”

April 8 (Bloomberg) — Three former leaders of the U.S. Securities and Exchange Commission say the Bush administration’s proposed overhaul of financial regulation threatens to weaken the agency, a process that may already be under way with help from the SEC itself.

David Ruder, Arthur Levitt and William Donaldson, all former SEC chairmen, said a Treasury Department push for the agency to adopt the regulatory approach of the much smaller Commodity Futures Trading Commission would be a mistake.

It’s “not useful” for the SEC to have “a prudential-based attitude in which regulators solve problems by discussing them informally with market participants and ask them to change,” Ruder, a Republican SEC chairman under President Ronald Reagan, said in an interview. “We have to have an enforcement approach.”

Levitt, a Democrat who led the SEC from 1993 to 2001 under President Bill Clinton and who supports an SEC and CFTC merger, says the terms proposed by Treasury are “wrongheaded” because they would give the trading commission “primacy.”

SEC Chairman Christopher Cox, 55, hasn’t endorsed a merger between the two agencies, said SEC spokesman John Nester. “He would insist on a system of oversight that best protects investors, promotes fair markets and facilitates capital formation.”

Treasury’s proposal, issued in a March 31 report, comes as lawmakers question whether the SEC has already eased up in fighting fraud. The Federal Reserve now shares oversight of investment banks, and the SEC is moving to transfer some responsibilities for monitoring accounting rules and securities sales to overseas regulators.

Policy Change

Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and Jack Reed, a Rhode Island Democrat, have asked government watchdogs to investigate why SEC sanctions against companies and individuals plunged 51 percent, to $1.6 billion, in the regulator’s most recent fiscal year. The agency also opened 15 percent fewer probes over the same period, according to its annual reports.

The drop in fines, Dodd and Reed said in a March 20 letter to the Government Accountability Office, “raises questions about whether changes have taken place in enforcement philosophy or scope of activity.” The two senators asked the GAO to review a policy change implemented last year by Cox that requires agency attorneys to get approval from commissioners before negotiating corporate fines.

Milken, Enron

Cox, in an April 1 letter to Dodd, said the SEC has demonstrated “vigorous enforcement of the securities laws.” He noted that the agency brought 655 cases in the fiscal year ended in September, the second-most in its history. The number of inquiries that resulted in enforcement actions within two years, however, fell to 54 percent last year, down from 64 percent in 2006, according to the agency’s annual reports.

The SEC was created by President Franklin Roosevelt to restore investor confidence after the 1929 stock market crash. It regulates brokers, stock exchanges, money managers and public companies, and sues them for violating securities laws.

The agency gained prominence in 1990 for its insider-trading probe of former Drexel Burnham Lambert Inc. bond trader Michael Milken and its collaboration with the Justice Department earlier this decade in investigating Enron Corp., the defunct energy trader accused of accounting fraud.

Liquidity Shortage

While Milken was never convicted of insider-trading, he served 22 months in prison for securities fraud and paid $1.1 billion in fines. Enron’s former chairman and chief executive officer were convicted of deceiving the company’s investors, and the SEC extracted more than $400 million in penalties from the bankrupt energy trader’s banks.

Oversight of Wall Street investment banks was primarily the SEC’s responsibility until rumors of a liquidity shortage at Bear Stearns Cos. triggered the firm’s near collapse and forced a sale to JPMorgan Chase & Co. on March 16. Cash and easy-to-sell assets plunged to $2 billion at New York-based Bear Stearns on March 13 from $12.4 billion a day earlier, according to the SEC.

The Fed, which orchestrated Bear Stearns’s takeover to prevent a market panic, is now lending money to securities firms for the first time since the Great Depression. The central bank also has examiners onsite at such companies as Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. to help the SEC scrutinize capital and liquidity.

Writing New Rules

Treasury Secretary Henry Paulson, who was previously Goldman’s chairman, wants to increase the Fed’s power further by giving the central bank a hand in writing rules for securities firms and making it responsible for monitoring risks that Wall Street poses to the U.S. economy.

His 218-page report, which was in the works before the credit crisis, also says the SEC should rely more on the $11.7 trillion mutual-fund industry to police itself. Most of the recommendations would require changes in legislation.

Donaldson, a Republican who stepped down as SEC chairman in June 2005, was also critical of Paulson’s approach. “Before you start rearranging the organization of the financial-regulatory agencies,” he said in an interview, “you must examine how all of this happened.” Congress needs to determine “whether new powers are needed or whether there were powers there that were not used.”

Even without legislation, the SEC is changing. Last year the agency dropped a requirement that overseas companies align their financial statements with U.S. accounting rules. It’s now considering letting American companies use international rules as part of a plan to move to global standards for accounting provisions. In doing so, said Levitt, the SEC risks relinquishing its oversight of how companies report profit and revenue under rules drafted by the Norwalk, Connecticut-based Financial Accounting Standards Board.

Overseas Regulators

“That proposal does more violence to protecting America’s investors from the standpoint of transparency as anything in the Paulson proposal,” said Levitt, who is now a senior adviser at Carlyle Group Inc. and a board member of Bloomberg LP, the parent of Bloomberg News.

Cox, in a January speech, said the SEC is doing “everything within our power to ensure that financial-reporting information from different countries is comparable and reliable.” He said the SEC and overseas regulators have to “harmonize our differing sets of rulebooks” to respond to growing public demand for cross-border investing.

Separately, the SEC is also considering easing its rules to allow foreign stock exchanges and brokerages to sell securities directly to U.S. investors. The plan would permit transactions under the watch of overseas regulators who have rules that are similar to those in the U.S.

Reed, who heads the Senate Subcommittee on Securities, Insurance and Investment, said he will hold hearings on the proposal. “No other regulator,” he said in an April 1 speech, “no matter how conscientious, is likely to share our same commitment to protecting U.S. investors.”

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.

April 9 (Bloomberg) — Akira Mori, Japan’s richest man, spent a record 231 billion yen ($2.3 billion) buying Tokyo’s Toranomon Pastoral Hotel last September. He now says it’s worth closer to 200 billion yen.

“The boom we’ve enjoyed for the past few years is over,” said the 71-year-old chief executive officer of Mori Trust Co., who teamed with K.K. DaVinci Advisors, a 1.2 trillion yen Tokyo- based property fund, for the acquisition. “Investors were convinced that prices would keep rising, so in about six months, they’ll probably rush to get out regardless of price.”

Global real estate financing has evaporated as defaults by U.S. homeowners saddled banks and securities firms with $232 billion of losses and asset writedowns. Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, reduced property loans by 7.7 percent as of Sept. 30 from a year earlier. Regulators have sought to prevent a bubble like the one that burst in 1991, leading to 15 years of falling land values.

“People who bought properties last year at a very high price, they’re in trouble,” said Toshio Masui, president of Japan operations for Los Angeles-based buyout firm Colony Capital LLC. “Everybody was overpaying. People with a bunch of stuff in their portfolio are now running around trying to get refinancing, and they won’t get it.”

Cracks are emerging in a market that generated annual returns averaging 14 percent since 2003. The Tokyo Stock Exchange REIT Index dropped 16 percent this year and 40 percent from its peak in May. Twenty-six of 42 property trusts are trading below their initial public offering price, according to data complied by Bloomberg.

Lone Star

The purchase price for the Pastoral in Tokyo’s central Minato ward was the highest paid anywhere in the world for a hotel last year, according to New York-based research firm Real Capital Analytics Inc. The 313-room hotel now is worth about 13 percent less, Mori said in a March 24 interview. The buyers plan to redevelop the site, which is close to nine other buildings owned by Mori Trust.

Lone Star Funds, the Dallas-based buyout firm led by John Grayken, scrapped plans last month to sell a group of Japan hotels after bidders reduced their offers by as much as 25 percent between December and March as financing conditions deteriorated, said two people with direct knowledge of the matter.

“We should be prepared for another round of real estate deflation that may last for some time,” said Akiyoshi Inoue, president of Tokyo-based Sanyu Appraisal Corp.

Financing Costs

Reicof Co., an Osaka-based real estate investor, filed for court protection from creditors last month, saying it was struggling to obtain bank loans and selling properties because of contagion from the U.S. subprime collapse.

Funding costs for investment banks climbed at least 2 percentage points in the past six months, said Yukio Egawa, head of Japan securitization research at Deutsche Bank AG in Tokyo.

“The credit market started demanding a substantial credit premium from U.S. investment banks,” Egawa said. “It doesn’t make economic sense for them to extend new loans for real estate investment funds when funding costs have risen substantially.”

Morgan Stanley, the biggest issuer of commercial mortgage- backed securities in Japan, plans to cut as many as 40 employees in its securitization unit. Merrill Lynch & Co., the largest U.S. brokerage, closed its Japan property funding unit, eliminating 11 jobs. Both Morgan Stanley and Merrill are based in New York.

“There are now fewer lenders providing higher-leverage loans,” said Douglas Smith, managing director of commercial real estate at Deutsche Bank in Tokyo. “Not because they necessarily are taking any particular view on the prospects for the Japanese real estate market, but because of events outside this market affecting their ability or willingness to provide lending.”

Condominium Slump

While total returns for real estate investments in Japan, including capital gains and rental income, have been positive since 2002, according to the MTB-IKOMA Real Estate Index produced by K.K. Ikoma Data Service System and Mitsubishi UFJ, the housing market has been showing signs of strain.

Condominium sales are set to fall for a third year in 2008 after a new building code slowed project approvals and construction costs soared. Total condo sales dropped 14 percent to 133,000 units in 2007, according to the Tokyo-based Real Estate Economic Research Institute.

Commercial property has held up better. Prime office rents in Tokyo rose 16 percent last year, and have almost doubled since 2004, according to real estate broker Jones Lang LaSalle Inc. Prices for commercial buildings in the center of the city jumped 20 percent in 2007, helping swell Mori’s wealth to $7.5 billion, the most among Japan’s 24 billionaires, according to Forbes magazine.

`Peaking or Pausing’

“Nobody knows whether the market is peaking or pausing, but it’s definitely doing one or the other,” said James Fink, senior managing director of property consulting firm Colliers Halifax in Tokyo. “We have come very far, very fast.”

Japan’s previous property boom lasted 16 years, making Mori’s father Taikichiro Mori the world’s richest individual in 1991, according to Forbes.

Australia’s government sold half of its Tokyo embassy plot in the late 1980s and booked a profit of at least A$500 million ($463 million), even after building a new compound that includes 40 staff apartments, said Bill Jackson, Minister-Counsellor at the embassy.

The crash was equally spectacular as Tokyo commercial land prices plunged more than 50 percent in five years and the Nikkei 225 Stock Average lost three quarters of its value.

Rents in Marunouchi, Tokyo’s most expensive business district, peaked at 100,000 yen per tsubo in 1991 before dropping to as low as 35,000 yen in 2003, according to Colliers Halifax. The rate averaged 65,000 yen last year. A tsubo, the standard measure of property in Japan, is 3.3 square meters, or 35.5 square feet.

Family Fortune

When Taikichiro Mori died in 1993, the family’s $15 billion fortune had been cut in half in just two years, Forbes reported.

“Japanese investors suffered a severe shock when the last bubble burst, and because they lived through the crash, they’re bound to be cautious now,” said Junko Miyakawa, a senior analyst at Tokyo-based Shinsei Securities Co.

Regulators at the Tokyo-based Financial Services Agency may have sought to curb lending to prevent a new bubble from forming, said Katsuya Takanashi, CEO of Secured Capital Japan Co., which manages about 550 billion yen of real estate assets.

“The FSA doesn’t want to repeat the bad-loan problem that trapped Japan’s economy for such a long, long time,” he said.

Soured property loans devastated Japanese lenders in the 1990s, forcing the government to spend more than 9 trillion yen on an industry bailout. Tumbling real estate prices helped trigger a decade of deflation that the world’s second-biggest economy has yet to fully shake off.

Buying Opportunity?

Global investors led by General Electric Co. and Morgan Stanley sense a buying opportunity in a nation where Real Capital Analytics estimates the value of transactions was just 7 percent that of the U.S. last year.

GE’s real estate unit may buy as much as $10 billion of Japanese property this year, anticipating tighter credit and rising borrowing costs will prompt local trusts to accelerate asset sales and drive down prices. GE uses its own cash to invest in property, unlike REITs and private funds that borrow money.

“The market is very favorable to GE,” Tomoyuki Yoshida, head of Japan operations for the real estate unit of the Fairfield, Connecticut-based company, said last month. “Small and medium-sized fund managers have a huge issue about getting financing. They have to dispose of a lot of properties.”

Morgan Stanley, the second-biggest U.S. securities firm by market value, has invested more than 2 trillion yen in Japanese property, spending more than a 10th of that amount last April to acquire 13 hotels from All Nippon Airways Co. in Japan’s largest real estate purchase. Morgan Stanley also bought office buildings from Citigroup Inc. and Shinsei Bank Ltd. in the past two months.

Secured Capital, based in Tokyo, is seeking at least $3.5 billion from investors for property acquisitions.

“We think the next few years will offer really good investment opportunities,” Takanashi said.

To contact the reporter on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net.

April 9 (Bloomberg) — Economic growth in the U.S. will come to a halt in the first six months of 2008 as consumer spending cools, a Bloomberg News survey showed.

The world’s largest economy will not expand at all from January through June, according to the median estimate of 62 economists surveyed from April 2 to April 8. A majority now projects the U.S. is, or will soon be, in a recession.

Job losses, falling home values and credit restrictions are plaguing consumers already burdened by soaring food and gasoline bills. Federal Reserve Chairman Ben S. Bernanke, who conceded for the first time last week that the economic expansion may end, will cut interest rates again, the poll showed.

“The economy is not going anywhere in the first half,” said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. “The American consumer is pretty dismal right now. We’re in the middle of a recession and we’ve got another three to six months to work our way out of it.”

The deepest reductions came in the outlook for the second quarter as economists slashed the growth estimate to zero from last month’s projected 0.5 percent annual pace.

Increases in fuel prices and the unexpected pickup in firings since the start of the year explain the downgrade.

“Those two things are hitting the consumer hard,” said Stephen Stanley, chief economist for RBS Greenwich Capital Markets in Greenwich, Connecticut. “Demand is deteriorating rapidly.”

Consumer Outlook

Consumer spending, which accounts for more than two-thirds of the economy, will rise at an average annual pace of 0.5 percent in the first half of the year, the survey showed. That would be the smallest two-quarter gain since dropped in the six months that ended March 1991.

Spending will pick up in the latter half of 2008 as Americans receive tax-rebate checks under the $168 billion stimulus package passed by Congress and the administration. Still, the plan is unlikely to have a lasting effect as debt- ridden consumers will probably use some of the money to pay off loans or shore up savings.

“The consumer has virtually ground to a halt,” said Nariman Behravesh, chief economist at Global Insight Inc., a forecasting firm in Lexington, Massachusetts. “We may see a bump up in third- and fourth-quarter growth, then a drop-off before a real recovery kicks in.”

The odds the economy will be in a recession in the next 12 months jumped to 70 percent from 50 percent in the March survey, according to the median forecast.

Fed Less Optimistic

Minutes of the Fed’s March 18 policy meeting released yesterday showed policy makers and staff economists at the central bank are even more pessimistic.

“Many participants thought some contraction in economic activity in the first half of 2008 now appeared likely,” the minutes said. “Some believed that a prolonged and severe economic downturn could not be ruled out.”

Fed staff economists told policy makers they had “substantially revised down” their forecast to show a first- half contraction in gross domestic product.

Bernanke echoed their concern when he told Congress on April 2 that the economy is going through a “very difficult period.”

The Fed will trim the benchmark rate by a half point to 1.75 percent by June and keep it there the rest of the year, the Bloomberg survey showed. Policy makers lowered the rate three- quarters of a point in March, bringing the total reduction so far this year to 2 percentage points, the fastest drop in borrowing costs in two decades.

`Aggressive’ Fed

“The Fed will stay on the side of being aggressive, doing more rather than less,” RBS Greenwich Capital’s Stanley said.

The S&P/Case-Shiller index showed property values in 20 metropolitan cities fell by the most on record in January as the residential real estate slump extended into its third year.

Consumer confidence as measured by Reuters/University of Michigan dropped to a 16-year low in March and the average price of regular gasoline reached a record $3.34 a gallon this week.

Employment, formerly the main pillar of support for consumers, is now a liability. Payrolls fell by 80,000 in March, the most in five years, and the jobless rate jumped to 5.1 percent. Unemployment is likely to reach 5.5 percent by the end of the year, the survey showed.

“This is really the most challenging environment we’ve faced in recent memory,” said Gary Schlossberg, a senior economist at Wells Capital Management in San Francisco. “The weakness seems to be broad based.”

To contact the reporters for this story: Shobhana Chandra in Washington at schandra1@bloomberg.netKristy Scheuble in Washington at kmckeaney@bloomberg.net

Researchers led by Durham University asked 700 study participants to judge the attractiveness and attitudes about sex of the opposite sex — all in their early 20s — from their facial photographs. These perceptual judgments were then compared with the actual attitudes and behaviors of the individuals in the photographs, which had been determined through a detailed questionnaire.

In the first study sample of 153 participants, 72 percent of people correctly identified the attitudes from photographs more than half of the time.

The study, published in Evolution and Human Behavior, found that women who were open to short-term sexual relationships were usually seen by others as more attractive — although researchers can not determine precisely why without further investigation. The men who were most open to casual sex were generally perceived as being more masculine-looking, with facial features including squarer jaws, larger nose and smaller eyes.

Men generally prefer women they perceive are open to short-term sexual relationships, while women are usually interested in men who appear to have potential for a long-term relationship, the researchers said.

“Well I quite fancy you - if you were straight as it is, I think you are a good gay role model.”

“The ‘frequency’ question needed a write-in box: If I’m in a relationship, which was the case twice in the last year, it’s somewhere between a few times a day and a few times a week. If I’m not, it’s not at all for months on end. So I averaged at once a month, but that’s a misleading answer. As usual, a Tory failed to realise how to ask the right question.”

“Someone should write a book about the link between political ambition and sex drive — I say this having slept with politicians of the opposite sex of all three parties. Much better than the apolitical masses!”

“Its like a sexual version of Cluedo: Sarah Teather, over the woolsack with a feather duster.”

“OK, well, Chatham House rules - quote this if you like, but my name doesn’t get associated with it. (Not that you actually know my name or anything about me, at least I hope not.) I’m a male Lib Dem student. I was at a political debate at a student society, and afterwards we were having some wind-down drinks with guest speakers and the committee. A certain male Lib Dem MP, in his 40s, had been a speaker, and we started chatting. It was initially about student politics etc, we had a bit of a disagreement on the smoking ban (he supports it, I think it’s illiberal bullshit). The questions got more and more, er, unpolitical; this fellow started asking questions about my opinions on other (male) members of the student society. I think the fact that I was gay had already been mentioned in some context, I don’t make any secret about it. So yeah, this guy was asking if I fancied the president of our debating club (I didn’t), in retrospect an odd question but I was drunk and it didn’t seem weird at the time. So I milled around, chatted to more people, got more drunk, the night went on. Our society had booked this MP a hotel room for the night - we usually do that for guests who have to come a fair distance late on - and not knowing the city, our yellow-feathered friend asked me if I could walk him back to his hotel, since I knew my way around town. I didn’t think anything of it. We got as far as the road when he asked me if I wanted to come up for a drink (that’s when the penny dropped, god I was being slow wasn’t I …) I did a Brown, I’m afraid. Bottled it. Didn’t really fancy him in the slightest though. And why bother? I mean, I’ve actually bedded a couple of players from my uni’s rugby team, they were über-fit and had six-packs and are officially straight (hah! hardon says otherwise). Way more risqué than some podgy middle-aged MP. Why the f*** am I telling you this, you’re a Tory, and this is my private life. Call it Clegg Syndrome. Meh.”

“The freedom to express my own sexual feelings is part of such a great ideology that only the Liberal Democrats can bring.”

“I clicked yes to “affair” but as I’m in an open relationship it doesn’t really count as being unfaithful. I’ve only ever done it with permission, and sometimes even with my committed life partner present and participating.”

I was not going to post on here for a few more weeks, but this has really pissed me off.

It would appear Muslim criminals >Arn’t they all< should not discuss there crimes, well I want to know, as a good Muslim, why are they breaking the laws of England?

Could it be they do not respect our laws and if this is the case, they either do not respect their religion, so they should not be allowed to opt out or have any special treatment in prison. Or wose they are deliberately attacking us through our system and are not going to ever comply with our man made laws, designed to keep our society healthy. Therefore this exposes the myth that Muslims are acceptable in our country, it is obvious Muslims cannot live in modern western society’s.

Muslim sex offenders may opt out of treatment
By Ben Farmer
Last Updated: 3:06pm BST 08/04/2008

Muslim sex offenders may be allowed to opt out of a prison treatment programme because it is against their religion, it has emerged.

Muslim sex offenders who do not take part in the course may spend more time in prison, experts say
The Prison Service’s Muslim advisor has said there is a “legitimate Islamic position” that criminals should not discuss their crimes with others.

Under the Sex Offender Treatment Programme (SOTP), which treats more than 600 prisoners including rapists and sexual killers each year, offenders must discuss their crime, sometimes in groups.

Ahtsham Ali said he would now urgently raise the issue with prison policy makers, raising the prospect of an exemption or special rules for Muslim prisoners.

However, union leaders warned that as treatment is used to assess whether prisoners are suitable for early release, Muslims who have to serve longer terms because they did not take part could sue the Prison Service.

advertisementThe prospect of a dispensation for Muslim prisoners emerged after an unnamed prisoner wrote to a prison magazine asking for clarification of the position of Muslims on the programme.

He wrote: “I have always insisted that it was against Islamic teachings to discuss your offence to anyone, let alone act it out within a peer group.”

Mr Ali said the issue had been raised before and told Inside Times: “I will be taking it forward as a matter of some urgency with colleagues, including those with policy responsibility for the SOTP programme.”

The Prison Service last night said it was seeking to ensure the programme was “sensitive to the diversity of religions within the prison context”.

Mark Leech, the editor of the Prisons Handbook, said: “Muslims who don’t want to take part in the course may have to spend more time in prison, because their risk of re-offending will not be assessed as part of the treatment programme.

“This would be quite right, because we have to think about the victim.

“I think it is feasible there may be a judicial review so that Muslim sex offenders get a dispensation from the rules.”

Harry Fletcher, the assistant general secretary of probation union Napo, described the situation as an “intractable problem”.

He said: “The logic is that Muslims cannot take part in offender programmes and therefore their offending behaviour cannot be assessed and they are unlikely to be granted parole.

“They may then seek legal redress through judicial review on the grounds that they are being discriminated against on the grounds of religion.”

A spokeswoman for the Prison Service said the programme was suitable for all sex offenders.

She said: “Membership of a particular religion is not a bar to participation in accredited programmes.”

As cameras whirred at the rare Washington appearance of all three senators running for president - and the chance to inherit the Iraq war - Petraeus, the top U.S. commander in Iraq, and Crocker, the top U.S. diplomat, described progress as fragile and reversible. They asked for patience and a suspension of troop withdrawals that will leave 10,000 more American soldiers in Iraq through the end of the Bush presidency than before the surge of 30,000 was announced more than a year ago.

But that patience has run out.

Five years of administration requests for more time, more troops and more money have exhausted not just Democrats, but key Republicans, with the important exception of the GOP’s presumptive nominee, Sen. John McCain of Arizona.

The party’s two most-respected voices on foreign policy, Sen. Richard Lugar, former chairman of the Senate Foreign Relations Committee, and Sen. John Warner, former chairman of the Armed Services Committee, refused to buy the argument.

Small signs of progress, Lugar said, are no substitute for what he called “the political endgame.”

“Simply appealing for more time to make progress is insufficient,” Lugar of Indiana declared. “Iraq will be an unstable country for the foreseeable future.”

Military operations plateau

The ability of the United States to change Iraq through military operations has reached a plateau, he said, and debate over progress “is less illuminating than determining whether the administration has a definable political strategy” to end the war.

Warner of Virginia pressed Petraeus to answer whether the war has made the United States more secure.

“I’ve thought more than a bit about that, senator, since September,” Petraeus replied, referring to the last time he testified before the congressional committees. The question is “perhaps best answered by folks with a broader view and ultimately will have to be answered by history.” Petraeus weighed the lives of the more than 4,000 troops who have died, the strain on the military and the crippling of U.S. capacity to respond to threats elsewhere against the toppling of a ruthless dictator and “the seeds of a nascent democracy that have been planted in an Arab country.”

“Though the germination of those seeds has been anything but smooth, there has been growth,” Petraeus said. “All of this, again, has come at great cost.”

McCain, by contrast, urged the United States not to “choose to lose.” He was backed by such stalwarts as Sen. Lindsey Graham, R-S.C., and Republican leaders who have cast their lot with the surge and denounced Democrats for minimizing the consequent reduction of violence.

The GOP split on Iraq demonstrates the challenge McCain faces. While press releases from party leaders state unequivocal support for the troop surge, now that the surge is over and no end to the war is yet in sight, McCain may be compelled to do what has eluded President Bush for five years: outline the end game.

“We’re no longer staring into the abyss of defeat, and we can now look ahead to the genuine prospect of success,” McCain said, defining success as “a peaceful, stable, prosperous, democratic state that poses no threats to its neighbors and contributes to the defeat of terrorists.”
Republicans unconvinced

Yet Republicans were in no mood to find glimmers of hope in the swirl of Iraqi politics that Crocker and Petraeus described.

Sen. Bob Corker, R-Tenn., told Petraeus, “People want a sense of what the end is going to look like,” correcting himself for using the word victorious. “I don’t even want to use that word,” he said.

Sen. George Voinovich, R-Ohio, said that the war is “bankrupting our country” and that the United States needs to “show with some urgency that we are on our way out.”

The endgame in Iraq poses its own challenges for Sens. Barack Obama and Hillary Rodham Clinton, the Democratic presidential candidates. McCain has challenged both candidates to explain how they would avoid the chaos that is expected to fill the power vacuum that will emerge once U.S. forces begin to leave Iraq.

Petraeus described Iran’s extensive activity in Iraq, including the widespread infiltration of its elite Quds forces and sophisticated weapons among Shiite factions. Crocker outlined an Iranian strategy of seeking a “Lebanonization” of Iraq with Hezbollah-like terrorist surrogates that keep the country destabilized.

“If this were easy, or if there were a very clear way forward, we could all perhaps agree on the facts about how to build toward a resolution that is in the best interest of the United States, that would stabilize Iraq and would meet our other challenges around the world,” Clinton said, without offering her own solution other than a gradual withdrawal.

Obama outlined a plan of sharply reduced expectations. He suggested abandoning efforts to eliminate al Qaeda in Iraq, and accepting some Iranian influence, a far cry from McCain’s standard.
‘Parade of horribles’

Brushing aside what he called “the parade of horribles” that might follow a U.S. retreat, Obama asked whether the current “messy, sloppy” status quo in Iraq, minus the presence of all but 30,000 U.S. troops, would be tolerable.

“When Iraq gets to a point that it can carry forward its further development without a major commitment of U.S. forces, with still a lot of problems out there but a fair certitude that they can drive forward themselves without significant danger that the whole thing slips away from them again, clearly our profile can diminish markedly,” Crocker replied. “But that’s not where we are now.”

Petraeus hinted at the alternative, unpleasant options that await the next president. “We are where we are,” he said. “There are very, very real consequences of the different options that we consider. And I think as long as it’s very clear that we address those and we go into those with our eyes wide open, then that is - the job has been done.”

E-mail Carolyn Lochhead at clochhead@sfchronicle.com.