Starting Points

May 31, 2010

The New Poor - Blacks in Memphis Lose Decades of Gains

Josh Anderson for The New York Times

Tyrone Banks in his home in Memphis. He is in danger of losing it after the payments on his mortgage rose and he lost his job at FedEx. More Photos »

By MICHAEL POWELL

MEMPHIS — For two decades, Tyrone Banks was one of many African-Americans who saw his economic prospects brightening in this Mississippi River city.

A single father, he worked for FedEx and also as a custodian, built a handsome brick home, had a retirement account and put his eldest daughter through college.

Then the Great Recession rolled in like a fog bank. He refinanced his mortgage at a rate that adjusted sharply upward, and afterward he lost one of his jobs. Now Mr. Banks faces bankruptcy and foreclosure.

“I’m going to tell you the deal, plain-spoken: I’m a black man from the projects and I clean toilets and mop up for a living,” said Mr. Banks, a trim man who looks at least a decade younger than his 50 years. “I’m proud of what I’ve accomplished. But my whole life is backfiring.”

Not so long ago, Memphis, a city where a majority of the residents are black, was a symbol of a South where racial history no longer tightly constrained the choices of a rising black working and middle class. Now this city epitomizes something more grim: How rising unemployment and growing foreclosures in the recession have combined to destroy black wealth and income and erase two decades of slow progress.

The median income of black homeowners in Memphis rose steadily until five or six years ago. Now it has receded to a level below that of 1990 — and roughly half that of white Memphis homeowners, according to an analysis conducted by Queens College Sociology Department for The New York Times.

Black middle-class neighborhoods are hollowed out, with prices plummeting and homes standing vacant in places like Orange Mound, White Haven and Cordova. As job losses mount — black unemployment here, mirroring national trends, has risen to 16.9 percent from 9 percent two years ago; it stands at 5.3 percent for whites — many blacks speak of draining savings and retirement accounts in an effort to hold onto their homes. The overall local foreclosure rate is roughly twice the national average.

The repercussions will be long-lasting, in Memphis and nationwide. The most acute economic divide in America remains the steadily widening gap between the wealth of black and white families, according to a recent study by the Institute on Assets and Social Policy at Brandeis University. For every dollar of wealth owned by a white family, a black or Latino family owns just 16 cents, according to a recent Federal Reserve study.

The Economic Policy Institute’s forthcoming “The State of Working America” analyzed the recession-driven drop in wealth. As of December 2009, median white wealth dipped 34 percent, to $94,600; median black wealth dropped 77 percent, to $2,100. So the chasm widens, and Memphis is left to deal with the consequences.

“This cancer is metastasizing into an economic crisis for the city,” said Mayor A. C. Wharton Jr. in his riverfront office. “It’s done more to set us back than anything since the beginning of the civil rights movement.”

The mayor and former bank loan officers point a finger of blame at large national banks — in particular, Wells Fargo. During the last decade, they say, these banks singled out blacks in Memphis to sell them risky high-cost mortgages and consumer loans.

The City of Memphis and Shelby County sued Wells Fargo late last year, asserting that the bank’s foreclosure rate in predominantly black neighborhoods was nearly seven times that of the foreclosure rate in predominantly white neighborhoods. Other banks, including Citibank and Countrywide, foreclosed in more equal measure.

In a recent regulatory filing, Wells Fargo hinted that its legal troubles could multiply. “Certain government entities are conducting investigations into the mortgage lending practices of various Wells Fargo affiliated entities, including whether borrowers were steered to more costly mortgage products,” the bank stated.

Wells Fargo officials are not backing down in the face of the legal attacks. They say the bank made more prime loans and has foreclosed on fewer homes than most banks, and that the worst offenders — those banks that handed out bushels of no-money-down, negative-amortization loans — have gone out of business.

“The mistake Memphis officials made is that they picked the lender who was doing the most lending as opposed to the lender who was doing the worst lending,” said Brad Blackwell, executive vice president for Wells Fargo Home Mortgage.

Not every recessionary ill can be heaped upon banks. Some black homeowners contracted the buy-a-big-home fever that infected many Americans and took out ill-advised loans. And unemployment has pitched even homeowners who hold conventional mortgages into foreclosure.

Federal and state officials say that high-cost mortgages leave hard-pressed homeowners especially vulnerable and that statistical patterns are inescapable.

“The more segregated a community of color is, the more likely it is that homeowners will face foreclosure because the lenders who peddled the most toxic loans targeted those communities,” Thomas E. Perez, the assistant attorney general in charge of the Justice Department’s civil rights division, told a Congressional committee.

The reversal of economic fortune in Memphis is particularly grievous for a black professional class that has taken root here, a group that includes Mr. Wharton, a lawyer who became mayor in 2009. Demographers forecast that Memphis will soon become the nation’s first majority black metropolitan region.

That prospect, noted William Mitchell, a black real estate agent, once augured for a fine future.

“Our home values were up, income up,” he said. He pauses, his frustration palpable. “What we see today, it’s a new world. And not a good one.”

Porch View

“You don’t want to walk up there! That’s the wild, wild west,” a neighbor shouts. “Nothing on that block but foreclosed homes and squatters.”

To roam Soulsville, a neighborhood south of downtown Memphis, is to find a place where bungalows and brick homes stand vacant amid azaleas and dogwoods, where roofs are swaybacked and thieves punch holes through walls to strip the copper piping. The weekly newspaper is swollen with foreclosure notices.

Here and there, homes are burned by arsonists.

Yet just a few years back, Howard Smith felt like a rich man. A 56-year-old African-American engineer with a gray-flecked beard, butter-brown corduroys and red sneakers, he sits with two neighbors on a porch on Richmond Avenue and talks of his miniature real estate empire: He owned a home on this block, another in nearby White Haven and another farther out. His job paid well; a pleasant retirement beckoned.

Then he was laid off. He has sent out 60 applications, obtained a dozen interviews and received no calls back. A bank foreclosed on his biggest house. He will be lucky to get $30,000 for his house here, which was assessed at $80,000 two years ago.

“It all disappeared overnight,” he says.

“Mmm-mm, yes sir, overnight,” says his neighbor, Gwen Ward. In her 50s, she, too, was laid off, from her supervisory job of 15 years, and she moved in with her elderly mother. “It seemed we were headed up and then” — she snaps her fingers — “it all went away.”

Mr. Smith nods. “The banks and Wall Street have taken the middle class and shredded us,” he says.

For the greater part of the last century, racial discrimination crippled black efforts to buy homes and accumulate wealth. During the post-World War II boom years, banks and real estate agents steered blacks to segregated neighborhoods, where home appreciation lagged far behind that of white neighborhoods.

Blacks only recently began to close the home ownership gap with whites, and thus accumulate wealth — progress that now is being erased. In practical terms, this means black families have less money to pay for college tuition, invest in businesses or sustain them through hard times.

“We’re wiping out whatever wealth blacks have accumulated — it assures racial economic inequality for the next generation,” said Thomas M. Shapiro, director of the Institute on Assets and Social Policy at Brandeis University.

The African-American renaissance in Memphis was halting. Residential housing patterns remain deeply segregated. While big employers — FedEx and AutoZone — have headquarters here, wage growth is not robust. African-American employment is often serial rather than continuous, and many people lack retirement and health plans.

But the recession presents a crisis of a different magnitude.

Mayor Wharton walks across his office to a picture window and stares at a shimmering Mississippi River. He describes a recent drive through ailing neighborhoods. It is akin, he says, to being a doctor “looking for pulse rates in his patients and finding them near death.”

He adds: “I remember riding my bike as a kid through thriving neighborhoods. Now it’s like someone bombed my city.”

Banking on Nothing

Camille Thomas, a 40-year-old African-American, loved working for Wells Fargo. “I felt like I could help people,” she recalled over coffee.

As the subprime market heated up, she said, the bank pressure to move more loans — for autos, for furniture, for houses — edged into mania. “It was all about selling your units and getting your bonus,” she said.

Ms. Thomas and three other Wells Fargo employees have given affidavits for the city’s lawsuit against the bank, and their statements about bank practices reinforce one another.

“Your manager would say, ‘Let me see your cold-call list. I want you to concentrate on these ZIP codes,’ and you knew those were African-American neighborhoods,” she recalled. “We were told, ‘Oh, they aren’t so savvy.’ ”

She described tricks of the trade, several of dubious legality. She said supervisors had told employees to white out incomes on loan applications and substitute higher numbers. Agents went “fishing” for customers, mailing live checks to leads. When a homeowner deposited the check, it became a high-interest loan, with a rate of 20 to 29 percent. Then bank agents tried to talk the customer into refinancing, using the house as collateral.

Several state and city regulators have placed Wells Fargo Bank in their cross hairs, and their lawsuits include similar accusations. In Illinois, the state attorney general has accused the bank of marketing high-cost loans to blacks and Latinos while selling lower-cost loans to white borrowers. John P. Relman, the Washington, D.C., lawyer handling the Memphis case, has sued Wells Fargo on behalf of the City of Baltimore, asserting that the bank systematically exploited black borrowers.

A federal judge in Baltimore dismissed that lawsuit, saying it had made overly broad claims about the damage done by Wells Fargo. City lawyers have refiled papers.

“I don’t think it’s going too far to say that banks are at the core of the disaster here,” said Phyllis G. Betts, director of the Center for Community Building and Neighborhood Action at the University of Memphis, which has closely examined bank lending records.

Former employees say Wells Fargo loan officers marketed the most expensive loans to black applicants, even when they should have qualified for prime loans. This practice is known as reverse redlining.

Webb A. Brewer, a Memphis lawyer, recalls poring through piles of loan papers and coming across name after name of blacks with subprime mortgages. “This is money out of their pockets lining the purses of the banks,” he said.

For a $150,000 mortgage, a difference of three percentage points — the typical spread between a conventional and subprime loan — tacks on $90,000 in interest payments over its 30-year life.

Wells Fargo officials say they rejected the worst subprime products, and they portray their former employees as disgruntled rogues who subverted bank policies.

“They acknowledged that they knowingly worked to defeat our fair lending policies and controls,” said Mr. Blackwell, the bank executive.

Bank officials attribute the surge in black foreclosures in Memphis to the recession. They say that the average credit score in black Census tracts is 108 points lower than in white tracts.

“People who have less are more vulnerable during downturns,” said Andrew L. Sandler of Buckley Sandler, a law firm representing Wells Fargo.

Mr. Relman, the lawyer representing Memphis, is unconvinced. “If a bad economy and poor credit explains it, you’d expect to see other banks with the same ratio of foreclosures in the black community,” he said. “But you don’t. Wells is the outlier.”

Whatever the responsibility, individual or corporate, the detritus is plain to see. Within a two-block radius of that porch in Soulsville, Wells Fargo holds mortgages on nearly a dozen foreclosures. That trail of pain extends right out to the suburbs.

Begging to Stay

To turn into Tyrone Banks’s subdivision in Hickory Ridge is to find his dream in seeming bloom. Stone lions guard his door, the bushes are trimmed and a freshly waxed sport utility vehicle sits in his driveway.

For years, Mr. Banks was assiduous about paying down his debt: he stayed two months ahead on his mortgage, and he helped pay off his mother’s mortgage.

Two years ago, his doorbell rang, and two men from Wells Fargo offered to consolidate his consumer loans into a low-cost mortgage.

“I thought, ‘This is great! ’ ” Mr. Banks says. “When you have four kids, college expenses, you look for any savings.”

What those men did not tell Mr. Banks, he says (and Ms. Thomas, who studied his case, confirms), is that his new mortgage had an adjustable rate. When it reset last year, his payment jumped to $1,700 from $1,200.

Months later, he ruptured his Achilles tendon playing basketball, hindering his work as a janitor. And he lost his job at FedEx. Now foreclosure looms.

He is by nature an optimistic man; his smile is rueful.

“Man, I should I have stayed ‘old school’ with my finances,” he said. “I sat down my youngest son on the couch and I told him, ‘These are rough times.’ ”

Many neighbors are in similar straits. Foreclosure notices flutter like flags on the doors of two nearby homes, and the lawns there are overgrown and mud fills the gutters.

Wells Fargo says it has modified three mortgages for every foreclosure nationwide — although bank officials declined to provide the data for Memphis. A study by the Neighborhood Economic Development Advocacy Project and six nonprofit groups found that the nation’s four largest banks, Wells Fargo, Bank of America, Citigroup and JPMorgan Chase, had cut their prime mortgage refinancing 33 percent in predominantly minority communities, even as prime refinancing in white neighborhoods rose 32 percent from 2006 to 2008.

For Mr. Banks, it is as if he found the door wide open on his way into debt but closed as he tries to get out.

“Some days it feels like everyone I know in Memphis is in trouble,” Mr. Banks says. “We’re all just begging to stay in our homes, basically.”

Obama's national security strategy is light on the human rights agenda

Image via Wikipedia

By Jackson Diehl
Monday, May 31, 2010; A15

What sort of international order does Barack Obama seek? Last week he gave a detailed answer: "One that can resolve the challenges of our times -- countering violent extremism and insurgency; stopping the spread of nuclear weapons and securing nuclear materials; combating a changing climate and sustaining global growth; helping countries feed themselves and care for their sick; resolving and preventing conflict, while also healing its wounds."

That's a big agenda. But isn't something missing? Nowhere in that long sentence, in the introduction to his new national security strategy, does Obama suggest that the international "engagement" he proposes should serve to combat tyranny or oppression, or promote democracy. In that sense, it is typical of the first comprehensive account Obama has offered of his administration's goals in the world. In theory -- as in the practice of his first year -- human rights come second.

Big, set-piece Washington policy statements often provide a road map to the struggles over policy inside an administration, and the 52-page paper Obama released last Thursday is no exception. The White House's left-leaning "realists" -- who seek to limit U.S. foreign engagements, shift resources to domestic programs and jettison the "freedom agenda" of George W. Bush -- seem to have won all of the big arguments. Definitions of strategy throughout the report, from how to defeat al-Qaeda to resolving the Israeli-Palestinian conflict to dealing with North Korea and Iran, exclude any mention of democracy or human rights.

Like the Bush administration before it, the Obama team says America has an interest in the creation of a Palestinian state -- but unlike Bush, Obama doesn't say that that state should be democratic. The policy says al-Qaeda's extremist ideology should be combated with an agenda of "hope and opportunity," but doesn't mention freedom. A section titled "Promote a Responsible Iran" says "the United States seeks a future in which Iran meets its international responsibilities . . . and enjoys the political and economic opportunities that its people deserve." Does that include free speech and free elections, as the opposition Green Movement has demanded? The paper doesn't say.

Proponents of an Obama freedom agenda did get one chapter of the report, titled "Values." But its very segregation from the other three "interests" -- "Security," "Prosperity" and "International Order," gives its proposals a fenced-off feel. The policy begins with a couple of big qualifications: The United States will promote its values mainly "by living them at home," and it will "recognize economic opportunity as a human right." That means that "support for global health, food security and cooperative responses to humanitarian crises" will share attention and resources with the fight against tyranny and torture -- which will be welcome news for rulers in places such as Burma and North Korea.

The report's discussion of "engagement with non-democratic regimes" is solid, so far as it goes. It says the administration will pursue a "dual-track approach" in which it will cajole governments about human rights while supporting peaceful opposition. "When our overtures are rebuffed," it says, Washington will use "public and private diplomacy" and "incentives and disincentives" in "an effort to change repressive behavior."

But will this policy apply to Russia -- where the administration so far has offered nothing but incentives? "We support efforts within Russia to promote the rule of law, accountable government and universal values," the policy not-very-clearly says. How about the Arab Middle East? "We will continue to press governments in the region to undertake political reforms and to loosen restrictions on speech, assembly and media," says a sentence buried on Page 45.

Maybe such textual analysis is meaningless. But Obama's written strategy has a lot in common with what has actually happened since he took office. It will sound more than familiar to the dissident Greens of Iran, or to the leaders of the nascent pro-democracy movement in Egypt, who are already deeply disillusioned with this administration. It will confirm the thinking of Vladimir Putin of Russia and Hu Jintao of China that strategic partnership with the United States won't require domestic reforms.

Obama has already demonstrated that he does not accept Bush's conclusion that the promotion of democracy and human rights is inseparable from the tasks of defeating al-Qaeda and establishing a workable international order. But nowhere in his 52-page doctrine is there a coherent explanation of why.

Value Added: Online, the art of the deal

Tim O'Shaughnessy, chief executive and co-founder of LivingSocial, started with other businesses before hitting on this idea. (Bill O'leary/the Washington Post)

By Thomas Heath
Monday, May 31, 2010; A10

I am not on Facebook. I have never bought anything on eBay. My Amazon account is retired and my LinkedIn activity lapsed long ago.

I regularly tweet on Twitter. So at best, my online social activity is at the low end of the scale.

But I am fascinated by the marketing opportunities the online world presents. Every business under the sun, including newspapers such as this one, is trying to figure out how to make money through the Internet.

It looks as if one Washington enterprise might have cracked the code.

LivingSocial is a start-up run by some online entrepreneurs, led by Georgetown University graduate Tim O'Shaughnessy, 28.

The company has a simple online model: It has a deal of the day, in which participants use a credit card to buy, for instance, $50 of goods or services from a local company for $25. LivingSocial customers punch in their credit-card information and receive a code (or coupon) redeemable at the restaurant, spa or retailer participating in the offer. LivingSocial keeps 30 to 50 percent of each transaction and passes the rest to the deal-of-the-day business.

The May 19 deal of the day was a $40 voucher for food at Georgetown's Il Canale that sold for $20. O'Shaughnessy said 1,373 people bought in. That means LivingSocial took in around $27,460. At a hypothetical 50-50 split with Il Canale, LivingSocial's cut was $13,730.

Not bad. Throw in the fact that the company is operating in 20 cities, with dozens more on the horizon, and LivingSocial looks like a nice business indeed. It expects to gross $50 million this year; its net profit should be around 10 to 15 percent of that. One big competitor is Groupon, a company with a similar concept.

LivingSocial raised $40 million from venture firms such as Vienna-based Grotech Ventures and from former AOL mogul Steve Case this year. O'Shaughnessy, the son-in-law of Washington Post Co. Chairman Donald E. Graham, invested some of his own cash during the fundraising to increase his stake in the business. The four founders still own a significant portion of LivingSocial, though it is less than half of the company.

O'Shaughnessy is a busy man these days. I caught up with him on the telephone after a long day of meetings in San Francisco, and before he jumped on a red-eye flight back to Washington.

Business is in his blood: His father runs a trucking firm in Minneapolis. O'Shaughnessy joined AOL after graduating from Georgetown's undergraduate business school in 2004. Two years later, he left the Internet giant to join Case's Revolution Health, an online site designed to help people take better care of themselves. O'Shaughnessy ran a 20-person products team in charge of the entire site, which offers a variety of things, from a calorie calculator to a listing of symptoms for diabetes.

Revolution Health paid the bills, but O'Shaughnessy and three buddies had been noodling for years over the business possibilities of online social networking. Specifically, they were trying to figure out how to use the social side of the Internet to get people to buy stuff. After a day at Revolution Health, they would head to the nearby Brickskeller Saloon on 22nd Street NW, where they would bounce around business ideas.

In July 2007, O'Shaughnessy and his pals resigned from Revolution Health the same day. Soon they had used Legal Zoom to incorporate as Hungry Machine: "We were hungry to do a lot in the technology world."

By then, Facebook had opened up a platform that allowed companies to build products that worked with the hugely popular social networking site. Hungry Machine noticed.

They found space above a Georgetown antiques store and started doing two things. First, they built their own product, a book-review site called Visual Bookshelf, which they offered to Facebook's millions of users.

Second, Hungry Machine picked up consulting gigs for companies such as ESPN. That covered operating costs while they beavered away at Visual Bookshelf. Visual Bookshelf would attract readers through its reviews, then take a fee from retailers such as Amazon for every customer sent their way. By 2009, it was grossing $2 million a year.

They experimented, inventing an application called "Pick Your Five." The advertising-based site posed fun questions to Facebook users: "What are your five favorite movies of all time?" "What five people you don't want to wake up and see standing at the end of your bed?"

The group shut down its consulting business in 2008 and decided to build on Visual Bookshelf and Pick Your Five. O'Shaughnessy went to the D.C. venture capital market, and in June 2008 they received $5 million from Grotech.

They closed down Hungry Machine and launched the LivingSocial brand, which concentrated on one question: How do we bridge the gap between knowing what beer people drink, what they eat and what they like to do -- and driving them to the businesses that offer those things?

"It seemed like a really big nut to crack," O'Shaughnessy said.

They experimented more.

"Hot Potato," an online game in which people could compare one another's success at passing a potato, taught them loads.

"We learned that if you put up a leader board, people wanted to win," he said.

When LivingSocial built a leader board in Visual Bookshelf, where people competed to see how many books they could review, the number of reviews jumped 30 percent. The result was more online traffic and more advertising.

A key move came in early 2009 with the acquisition of BuyYourFriendADrink. Beer, wine and liquor companies paid LivingSocial to steer its online audience to bars and restaurants where they could buy the clients' products.

"It was pay for performance," O'Shaughnessy said. "Participants would get a code that you would bring into a bar, and [the bar] would then plug it into their point-of-sales system like a credit-card number. For every person we brought in, we would get paid. There would be a specific list of participating bars."

By last summer, LivingSocial had moved into its current 7th Street NW offices and began running with the coupon model from BuyYourFriendADrink.

The "aha" moment came last fall, when they offered $8 one-way bus tickets from Washington to New York. They sold 2,500 tickets in a single day, filling up 50 buses.

LivingSocial now sells coupons for restaurants, spas, sky diving, cooking classes, boat cruises, hot-air balloons, golf lessons and bed-and-breakfasts, to name a few things. The company employs 120 people and is growing by the month.

I haven't bought anything on LivingSocial, but I'm thinking of it.

Anyway, I am not a complete online dinosaur: O'Shaughnessy and I follow each other on Twitter.

You can follow me on Twitter at addedvalueth.

Former Libyan militants now wage battle within homeland to discredit al-Qaeda

Libya released hundreds of militants in March, including leaders of the Libyan Islamic Fighting Group, in hopes of rehabilitating them. (Sudarsan Raghavan/the Washington Post)

By Sudarsan Raghavan
Washington Post Foreign Service
Monday, May 31, 2010; A06

TRIPOLI, LIBYA -- His life as a militant began with a call to holy war. It ended inside a prison in his native Libya. In between, Sami al-Saadi orchestrated attacks against Libyan leader Moammar Gaddafi, moved in Osama bin Laden's inner circle and befriended Mohammad Omar, the Taliban leader.

Released from prison in March after he renounced violence, Saadi and other top leaders of the Libyan Islamic Fighting Group are now waging an ideological battle to de-radicalize extremists and discredit al-Qaeda.

"Let's leave Libya's dark chapter behind us," Gaddafi's son Saif al-Islam said the day Saadi was set free.

Libya, itself a former sponsor of terrorism, has joined a small but growing number of Arab and African nations that are using religion-based rehabilitation programs to isolate al-Qaeda and inoculate Muslims from bin Laden's narrative. Scores of militants have been released under the program, and U.S. officials say they are watching to see whether such models can serve as a blueprint for combating extremism at a time when al-Qaeda remains a long-term strategic threat.

"It is a new frontier in the fight against terrorism," said Rohan Gunaratna, head of the International Center for Political Violence and Terrorism Research in Singapore.

Yet Libya's experience also shows the limitations of efforts to reform Islamists who harbor deep-rooted grievances against U.S. policies and have spent their adult lives fighting for what they believed was just under the guidelines of Islam.

At one moment, Saadi seemed to embrace a new beginning. "Perhaps we can convince al-Qaeda not to attack the West," he said.

But he later sounded less sure: "I don't believe bin Laden is calling for the killing of any single civilian."

The scion of a wealthy religious family, Saadi dropped out of college in 1988 to wage jihad, heeding an influential Sunni theologian's call to Muslims to liberate Afghanistan from the Soviets. Saadi said he first went to Saudi Arabia and then to Pakistan along with scores of Libyan fighters. He made his way to Afghanistan, where he met bin Laden at a training camp and was impressed by his "devoutness."

After the Soviets pulled out of Afghanistan, Saadi helped found the Libyan Islamic Fighting Group. The group's goal: to overthrow Gaddafi and turn Libya into an Islamic state. By the late 1990s, the militia had staged dozens of attacks in Libya, including three assassination attempts on Gaddafi.

"There was no way but to face the regime with force," Saadi recalled thinking, a faint smile emerging on his face, haggard and gray from years in prison.

The group thrived under Taliban rule and forged close ties to the radical regime's leaders. But it was divided on al-Qaeda. In several meetings before the Sept. 11, 2001, attacks, bin Laden urged the Libyan fighters to join him in confronting the West, especially the United States, Saadi and two other senior leaders said in their first extensive interviews with a journalist since their release from prison in March.

Some of the fighters were against the idea, warning that the United States might retaliate against the Taliban.

"We did not have any ambitions to export our conflict outside of Libya," recalled Khalid al-Sherif, the group's military commander.

But others embraced bin Laden's global jihad.

Today, one of the group's leaders, Abu Yahya al-Libi, is the spiritual leader of al-Qaeda's North African branch, al-Qaeda in the Islamic Maghreb, which has launched suicide bombings and killed Western hostages.

A deal is offered

After the Sept. 11 attacks, many of the Libyan leaders fled Afghanistan. Pakistani and CIA operatives arrested Sherif in Peshawar in 2003. Saadi was arrested in China in 2004. The group's emir, Abdullah al-Sadeq, was captured in Bangkok in 2004. All three men were handed over to U.S. soldiers and eventually returned to Libya, they and Libyan officials say.

Upon their arrival in Tripoli, each of the men were thrown into a small cell.

In late 2008, the offer from Saif al-Islam Gaddafi arrived: Give up violence and get your freedom.

The government was concerned that Libyans were joining al-Qaeda in the Islamic Maghreb in neighboring Algeria, its birthplace.

The offer was rare in the Arab world, where regimes have long used brutality to suppress political conflicts, and Libyan internal security officials opposed it. But Gaddafi convinced his father that the group no longer posed a threat.

"I want Libya to be a safe place," said the younger Gaddafi, who has no official role in the government but has emerged as an influential voice in fostering national reconciliation.

For the jailed militants, there was little choice. Their group had suffered severe military losses.

Reform efforts

A well-respected moderate Islamist, Ali al-Salabi, was enlisted as a mediator to conduct religious dialogues with the jailed militants. Unlike similar programs in Saudi Arabia and Yemen, which focused on reforming grass-roots militants, Salabi met solely with the group's top leaders, who were expected to guide the fighters under them.

Encouraged by the younger Gaddafi, the leaders wrote a 400-page manifesto renouncing violence, challenging al-Qaeda's philosophies and condemning attacks on Western civilians in Muslim nations.

But some of the leaders who split from the original fold have publicly declared that the group had joined al-Qaeda.

Many of the former fighters said they still believe in waging war against U.S. troops in Iraq and Afghanistan. They also consider the conflicts in the Palestinian territories and Somalia, where Islamists are fighting a U.S.-backed transitional government, legitimate forms of jihad.

"When America invades a country, the insurgency is legal and lawful. From a religious point of view, it is permissible and we have to support it," said Sadeq, the group's emir. "And U.S. policies in Israel and other places add fuel to the fire."

Salabi, the mediator, agreed. "Violence against occupation is a sacred act," he said. "It is a sacred jihad."

The U.S. ambassador to Libya, Gene Cretz, expressed concern about such comments. "I don't know how you parse jihad," he said. "If it means that, 'If you don't do it in Libya, you are free to go and do it elsewhere,' that would be a little troubling to us."

It remains to be seen how the former militants will adapt to a Libya that in recent years has moved closer to the West. Saadi said his country is not "an ideal state under Islam." Others demanded strict Islamic sharia laws, with public amputations for convicted thieves and head-to-toe coverings for women.

"I am still a Salafist," said Tarreq Muftah al-Ghunnay, the group's former commander in Jordan, referring to the ultra-strict brand of Islam espoused by bin Laden.

The younger Gaddafi said he was confident the government could keep most of the released prisoners from returning to militancy. But "nobody can guarantee anything 100 percent," he said.

In Afghan region, U.S. spreads the cash to fight the Taliban

Image by isafmedia via Flickr

By Rajiv Chandrasekaran

Washington Post Staff Writer
Monday, May 31, 2010; A01

NAWA, AFGHANISTAN -- In this patch of southern Afghanistan, the U.S. strategy to keep the Taliban at bay involves an economic stimulus.

Thousands of men, wielding hoes and standing in knee-deep muck, are getting paid to clean reed-infested irrigation canals. Farmers are receiving seeds and fertilizer for a fraction of their retail cost, and many are riding around on shiny new red tractors. Over the summer, dozens of gravel roads and grain-storage facilities will be constructed -- all of it funded by the U.S. government.

Pumping reconstruction dollars into war zones has long been part of the U.S. counterinsurgency playbook, but the carpet bombing of Nawa with cash has resulted in far more money getting into local hands, far more quickly, than in any other part of Afghanistan. The U.S. Agency for International Development's agriculture program aims to spend upward of $30 million within nine months in this rural district of mud-walled homes and small farms. Other U.S. initiatives aim to bring millions more dollars to the area over the next year.

Because aid is so plentiful in Nawa -- seemingly everyone who wants a job has one -- many young men have opted to stop serving as the Taliban's guns for hire. Unlike neighboring Marja, where insurgent attacks remain a daily occurrence, the central parts of Nawa have been largely violence-free the past six months.

But the cash surge has also unleashed unintended and potentially troubling consequences. It is sparking new tension and rivalries within the community, and it is prompting concern that the nearly free seeds and gushing canals will result in more crops than farmers will be able to sell. It is also raising public expectations for handouts that the Afghan government will not be able to sustain once U.S. contributions ebb.

"We've blasted Nawa with a phenomenal amount of money in the name of counterinsurgency without fully thinking through the second- and third-order effects," said Ian Purves, a British development expert who recently completed a year-long assignment as the NATO stabilization adviser in Nawa.

U.S. officials responsible for Afghanistan policy contend that the initiative in Nawa, which is part of a $250 million effort to increase agricultural production across southern Afghanistan, was designed as a short-term jolt to resuscitate the economy and generate lasting employment. They say concerns about overspending are misplaced: After years of shortchanging Afghans on development aid, the officials maintain that they would rather do too much than too little.

"Our goal is to return Nawa to normalcy, to get folks back to their daily lives of farming, and that requires a large effort," said Rory Donohoe, USAID's agriculture program manager in Helmand province.

Of particular concern to some development specialists is USAID's decision to spend the entire $250 million over one year in parts of just two provinces, Helmand and Kandahar. In Nawa, which has a population of about 75,000, that works out to about $400 for every man, woman and child. The country's per-capita income, by comparison, is about $300 a year.

"This is a massive effort to buy people off so they won't fight us," said a U.S. development officer in southern Afghanistan.

The spending here is a preview of what the Obama administration wants to accomplish on a larger scale. USAID's "burn rate" in Afghanistan -- the amount it spends -- is about $300 million a month and will probably stay at that level for at least a year.

The White House recently asked Congress for an additional $4.4 billion for reconstruction and development programs in Afghanistan, with the aim of increasing employment and promoting economic growth in areas beset by the insurgency.

Although some of that money will be directed through Afghan government ministries and local aid organizations to fund projects designed and run by Afghans, most of it will go to large, U.S.-based development firms with the ability to hire lots of people and spend lots of money quickly.

Among the programs in the pipeline is a $600 million effort to improve municipal governments across the country and to increase the provision of basic services to urban dwellers. The program is supposed to include extensive day-labor projects to pick up trash and plant trees, and it calls for the contractor to implement "performance-based" budgeting systems within two years, something that most U.S. cities do not have.

USAID also envisions spending $140 million to help settle property disputes. One of the agency's hoped-for achievements is to train Afghans to appraise and value land.

Some development specialists question whether Afghanistan can absorb the flood of money, or whether a large portion will be lost to corruption, inefficiency and dubious ventures funded to meet Washington-imposed deadlines.

"We've turned a fire hose on these guys -- and they can't absorb it," said a development specialist who has worked as a USAID contractor in Afghanistan for three years. "We're setting ourselves up for a huge amount of waste and fraud."

Improving farming

The $250 million agriculture program is the Obama administration's principal effort to create jobs and improve livelihoods in the two provinces where U.S. troops are concentrating their counterinsurgency mission this year. It was designed to address what senior administration officials, particularly presidential envoy Richard C. Holbrooke, deemed to be scattershot and underfunded initiatives over the first eight years of the war to assist farmers, who make up most of the country's workforce.

The program aims to make farms more productive, thereby increasing employment and living standards. It would do so by cleaning canals so more water gets to crops, offering subsidized seeds so farmers would be encouraged to switch from growing opium-producing poppies, establishing cooperatives to share tractors and constructing a network of gravel roads so they can take their goods to market.

To forge links between residents and their government, a 42-member community council decides which canals to clean and which roads to improve.

USAID selected International Relief and Development (IRD), an Arlington-based nonprofit development firm, to run the program. To get the work started quickly, the agency gave the company the $250 million as a grant last summer, instead of hiring it under contract to do the work, which would have taken longer.

Grants also involve fewer auditing requirements for USAID, but once awarded they limit the government's ability to make changes.

The program has been a hit with Nawa residents since the day it began in December, largely because of the plentiful cash-for-work opportunities. Once the day labor began, unemployment disappeared almost overnight.

The initiative has put money in the pocket of almost every working-age male in the district. More than 7,000 residents have been hired for $5 a day to clean the canals, and a similar number of farmers have received vouchers for heavily discounted seeds and fertilizer. Thousands of others have benefited from additional forms of assistance through the program.

"We had nothing here before -- only bullets," said Gul Mohammed, a lanky tenant farmer, as he scooped mud from a narrow canal. He said the day labor is essential to feeding his family because he decided last fall, after a battalion of U.S. Marines arrived in Nawa, not to plant poppies on his 6.5-acre plot.

Now he is growing wheat, which fetches only about a quarter of what he would have made from poppies.

"We are so thankful for this work," he said. "Without it, we would be going hungry."

Local infighting

USAID's decision to involve the community council in the disbursement was intended to help build local governance. It has done that, but it has also generated new frictions in the district.

When the council was formed last fall, the seven principal tribal leaders in the area decided not to participate. They did not want to risk the Taliban's wrath by siding with the United States and the Afghan government. But now that the council has the ability to influence millions of dollars worth of projects, the leaders want a piece of the action.

The senior elder, Hayatullah Helmandi of the Barakzai tribe, has launched a campaign to discredit the council members, calling them opportunists and drug users. "The Marines should be working with us," he said.

The infighting has prompted concern among some U.S. officials in the area. "These tensions probably wouldn't be so severe if there wasn't as much money involved," one of them said.

Then there is the question of what to do with all the additional crops grown this year. Purves estimates that the program will increase agricultural production by tens of thousands of tons across central Helmand province.

"What on Earth will happen to that?" he said. "There's no way all of that can be gotten to market, and even if it could, there simply isn't a market for that much more food."

Holbrooke and USAID agriculture experts want to construct cold-storage facilities so the produce can be trucked to markets in other parts of Afghanistan or exported to nearby countries. But that effort will not be completed in time to help farmers with this year's crop.

The effort to spend the program funds as fast as possible has resulted in some items going to waste, according to people familiar with the effort.

Plastic tunnels to allow farmers to grow crops over the winter were not distributed until February -- well after the winter planting season -- so many of them simply used the plastic as window sheeting for their mud huts. The metal rods were turned into fences.

The cash-for-work programs are so plentiful and lucrative that some teachers and policemen sought to enroll before U.S. and Afghan officials barred their participation.

Among Nawa residents, the biggest worry is what will happen when the program ends Aug. 31. U.S. officials hope this effort will result in new farm jobs, but nobody thinks it will be enough to employ all of those participating in the day-labor projects. Although USAID is considering a follow-on agriculture program, it is not clear whether the labor component will be as large as it is now.

If not, Afghan officials said their government does not have the resources to make up the difference.

"Those cash-for-work men -- half of them used to be Taliban," said the district governor, Abdul Manaf. "If the Americans stop paying for them to work, they'll go back to the Taliban."

China pins food-security hopes on humble potato

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Farmers wash mud off just-harvested potatoes in Hunan province. (Lauren Keane - Twp)

By Lauren Keane
Washington Post Foreign Service
Monday, May 31, 2010; A01

JIUTIAOLONG, HUNAN PROVINCE, CHINA -- In the land of rice, China is looking at an unlikely tool for maintaining growth and social harmony: the potato.

The Chinese government has begun ramping up research, production and training related to the humble spud, and hopes are high that it could help alleviate poverty and serve as a bulwark against famine.

The challenge of feeding a growing nation on a shrinking supply of arable land while confronting severe water shortages has long been a major concern here. China has to feed one-fifth of the world's population on one-tenth of its arable land, and the nation's expanding cities are consuming farmland at breakneck speed. China estimates that by 2030, when its population is expected to level off at roughly 1.5 billion, it will need to produce an additional 100 million tons of food each year.

That statistical reality could change eating habits here. Potatoes need less water to grow than rice or wheat, and they yield far more calories per acre. In rice-cultivating regions of southern China, farmers can squeeze a round of fast-growing potatoes into their rice fields in between planting seasons. In some of the poorest parts of arid northern China, potatoes are among the few crops that grow.

"Potatoes have so much potential here," said Xie Kaiyun, a leading potato scientist at the Chinese Academy of Agricultural Sciences, a government think tank. "Rice, wheat, corn -- we've gone about as far as we can go with them. But not the potato."

Ever keen to seize opportunity, Chinese entrepreneurs are turning potatoes into forms more familiar to Chinese palates: buns, noodles, cakes. They are developing exotic varieties and have even sent seeds into orbit, saying that zero gravity makes them more nutritious and charging astronomical premiums for the seeds' offspring back on Earth.

Potatoes won't replace rice or wheat as mainstays of Chinese cuisine anytime soon, if ever. They are eaten as side dishes, and the government has not yet named them a staple, a distinction that would mean preferential treatment in domestic markets and would carry significant cultural weight.

But they are increasingly seen here as an underutilized resource.

With that in mind, the government in February signed an agreement with the International Potato Center, a research organization, to jointly launch a major potato research center in Beijing. Part of the center's broad mandate will be to develop varieties that grow quickly and dependably in specific regions throughout China. Last month, the State Council announced subsidies for farmers who grow high-yield seed potatoes. And government-funded pilot programs have been expanding in nearly every province, training farmers in innovative methods that raise crop yields and, with them, rural incomes.

Eye on the future

"It's unusual to see a country explicitly name a commodity as an instrument of development," said Pamela K. Anderson, director general of the International Potato Center. "It shows how seriously the Chinese government is taking its commitment to food security."

China has a long-standing policy of food self-sufficiency, growing 95 percent of the grain required to feed its people. The country's sheer size means that a major crop failure or other food emergency here could have international ramifications, overwhelming world food markets with sudden demand. "Were China to need to import a large amount of grain, it would have a very dramatic impact on world food prices," said Anthea Webb, director of World Food Program China.

China produces and consumes more potatoes than any other country. But that's largely because of its huge population. The Chinese lag in per capita terms, eating one-third the amount of potatoes that Russians do and two-thirds the amount Americans eat.

The average acre of potato plants in China yields far fewer edible spuds than in other developing countries, mostly because farmers plant cheap, disease-prone seed. China's national and local governments are trying to change that by increasing potato funding, hoping the investments will raise rural incomes and help maintain social stability by keeping farmers on their land in the country's poorest areas.

Researchers from Hunan Agricultural University started working with the province's potato farmers in 2005 and last year used government grant funds to provide training and seeds. Farmers plant in rice fields during the winter, when the land would otherwise produce nothing; potato plants then improve the soil for the next season's rice cultivation.

It's a good time to be in the Chinese potato business. Wholesale prices increased 85 percent from November to April, thanks in part to a severe drought in the nation's southwest that has limited supply.

"We earn the same from one potato crop that we get from three rice crops" or 10 cabbage crops, said Huang Weihua, 40, the leader of the local farmers association. He pointed across a terraced field of flowering potato plants to his house, a two-story brick-and-tile structure. His son was hard at work remodeling the first floor -- potato money, Huang said.

Market potential

But if potatoes are to become a key to China's food security, the market for them must expand even more.

"Chinese don't know enough about potatoes and their nutritional benefits," said Xie, the potato scientist. "If they eat one more potato dish every day -- well, there are 1.3 billion of us. That's a huge new market."

Liang Xisen was dubbed China's "potato king" last year. The lifelong entrepreneur, who made it into a 2006 list of the nation's richest men, has poured his wealth into potatoes. His company churned out 150,000 tons of high-quality seed potatoes last year, assisted by government subsidies, and sold them to farmers nationwide for a profit of about $22 million, according to company statistics.

Liang has even opened China's first Potato Museum. An altar outside presents burned offerings to a giant plaster statue of a Peruvian potato god. A red banner pulled taut above the entrance proclaims: "Little potatoes, big industry."

Premier Wen Jiabao has joined the cause. He shared a meal of steamed potatoes with farmers last fall in Gansu, one of China's poorest and most significant potato-growing provinces. He donned tennis shoes to shovel out spuds, with the video footage running on China's most-watched nightly news broadcast.

In China, where government endorsements mean business, Wen's message has trickled down to the Hunan potato fields. On a recent afternoon, Huang stood calf-deep in an irrigation ditch, surveying his ripening crop in a downpour from under a blue polka-dot umbrella.

"Wen Jiabao said potatoes are important -- on national television!" Huang said, wide-eyed. "I figure that's a good sign for us, right?"

Researcher Liu Liu contributed to this report.

Oil could spew until August, officials say

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Top Kill Fails; BP Trying other options

BP's 'top kill' operation has failed to plug the oil leak in the Gulf. The company is now planning to cut off the damaged riser from which the oil is leaking and cap it with a containment valve. (May 29)

By Steven Mufson and David S. Hilzenrath
Monday, May 31, 2010; A01

As BP readied its latest fallback plan to stop oil gushing from one of its wells in the Gulf of Mexico, the Obama administration and the company warned that the crude could continue flowing until August, compounding threats to coastal wetlands, fisheries and beaches.

White House energy and climate adviser Carol M. Browner said Sunday that the oil spill was "probably the biggest environmental disaster we've ever faced in this country" and that "we are prepared for the worst." On the CBS show "Face the Nation," she said that the "American people need to know that it is possible we will have oil leaking from this well until August when the relief wells will be finished."

Those two wells, which BP began drilling early this month, are expected to intersect the damaged one and seal it near the reservoir far below the seafloor. The first has reached 7,000 feet below the seafloor, and the second has reached 3,500 feet below the floor, but progress gets slower the deeper the wells go. With the arrival of hurricane season Tuesday, the drilling could be slowed if the rigs need to be evacuated during storms.

The grim assessment came in the wake of the failure last week of BP's "top kill" effort to stop the flow of oil from the damaged well by shooting heavy drilling mud into the hole.

BP managing director Bob Dudley, who also made the rounds of Sunday-morning shows, said on ABC's "This Week" that "the next step is to make sure that we minimize the oil and pollution going into the gulf." He added: "The main thing now is to contain it."

BP plans to saw off a bent and broken pipe attached to the five-story tall blowout preventer that sits over the well. The company will then lower a new apparatus that would funnel oil and gas to vessels on the sea surface. But until the new apparatus is in place, cutting the riser pipe will temporarily increase the flow of oil into the sea by 10 to 20 percent, because the procedure will remove a section of pipe where a kink is limiting the flow, Browner said.

4th fallback plan so far

Dudley expressed optimism about the latest fallback plan -- the fourth so far -- saying on CBS, "With this, we think we can contain the majority of the oil and gas."

BP and the Obama administration were also trying to contain the rising tide of public frustration as the oil spill comes to the end of its messy sixth week.

Drilling experts said they feared that BP's effort last week to stop the flow of oil and gas with heavy drilling mud might have done further damage to the well and the blowout preventer, possibly complicating the next effort to capture the oil and gas and bring them to surface vessels.

Some drilling experts said that the "top kill" effort failed over the weekend because the force of the oil and gas pushing up from the reservoir 13,000 feet below the seafloor was so great that it had shoved most of the drilling mud through the blowout preventer and into the sea.

Tadeusz W. Patzek, chairman of petroleum and geosystems engineering at the University of Texas at Austin, said it was the "equivalent of six or seven fire hoses blasting oil and gas up, while two fire hoses were used to blast the drilling mud down. They never stood much of a chance."

Sources at two companies involved with the well said that BP also discovered new damage inside the well below the seafloor and that, as a result, some of the drilling mud that was successfully forced into the well was going off to the side into rock formations.

"We discovered things that were broken in the sub-surface," said a BP official who spoke on the condition of anonymity. He said that mud was making it "out to the side, into the formation." The official said he could not describe what was damaged in the well.

Documents released Sunday by the House Committee on Energy and Commerce point to problems BP was having drilling the Macondo well, although some of them date to 2009 when BP was using a different rig with different equipment. Some documents describe previously reported trouble BP was having controlling the well. The company later drilled a new well section, costing it more than $20 million.

The longer oil seeps out of the ground, the more politics are seeping into the public debate as people question why the oil industry and the government were so ill-prepared.

In an echo of the counting of days during the politically debilitating Iranian hostage crisis during President Jimmy Carter's administration, Jake Tapper on ABC introduced his program as "Day 41 of the Gulf oil spill."

Sen. David Vitter (R-La.) said BP "made enormous mistakes and probably cut corners." Appearing on CNN's "State of the Union," Vitter also said the federal government has failed in its response to the crisis, "particularly with the effort to protect our coast and our marsh."

Last week, Minnesota Gov. Tim Pawlenty (R) questioned the administration's reliance on BP's estimates of the volume of oil, which has been flowing into the gulf since a blowout set fire to the Deepwater Horizon drilling rig, which sank, killing 11 people.

Browner conceded on CBS that "BP has a financial interest in these numbers" on the volume of the leak. "They will pay penalties at the end of the day, a per-barrel, per-day penalty," she said. But she said the latest, increased estimates of oil flowing from the well were produced by an independent government review panel.

"At the end of the day, the government tells BP what to do, and at the end of the day, we will hold BP accountable for all of this," she said.

She also sought to portray the administration as in charge and engaged. She said an administration "brain trust" led by Energy Secretary Steven Chu urged BP to stop adding pressure to the well through the top-kill maneuver because "things could happen that would make the situation worse."

But she stopped short on CBS of saying that Chu ordered an end to the top-kill maneuver.

Pressed to give an example of administration influence, Browner cited the drilling of two relief wells instead of one. A BP official said that it was "not unusual" to drill a second relief well and that it "very likely" would have been done anyway.

But Browner said that "BP said we're going to drill one relief well. These are expensive wells for them to drill. We said that's not good enough. You're going to drill a second one."

BP has said it would take responsibility for damage from the spill, but BP chief executive Tony Hayward on Sunday disputed claims by scientists that large undersea plumes have been set adrift by the gulf oil spill.

The Associated Press reported that during a tour of a company staging area for cleanup workers, Hayward said BP's samples showed "no evidence" that oil was suspended in large masses beneath the surface.

"The oil is on the surface," Hayward said. "Oil has a specific gravity that's about half that of water. It wants to get to the surface because of the difference in specific gravity."

Scientists from several universities have reported plumes of what appears to be oil suspended in clouds stretching for miles and reaching hundreds of feet beneath the gulf's surface.

Murder on the Flotilla ...

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