8A - Thursday, September 6, 2007

The Michigan Daily - michigandailycom

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HENNA AT HILLEL

Germany seizes
3 it says planned
terror attacks

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LSA junior Marissa Neuman, a member of Hillel's executive board, displays her hennat
organization's open house yesterday at the group's building on Hill Street. The group he
more about Jewish life on campus.
Stocks fall as Fe(
housing crisis co--

But some reports say
trouble deepening
By VIKAS BAJAJ
and EDMUND L. ANDREWS
The New York Times
Stocks fell yesterday as inves-
tors were thrown by reports that
showed the troubles in the housing
market were deepening even as a
Federal Reserve survey of regional
conditions found little evidence of
the turmoil having damaged other
parts of the economy.
The sell-off briefly intensified
after the release of the Fed's Beige
Book, which summarizes anec-
dotal reports about the economy
from business executives across the
country, led some investors to con-
clude that Fed policymakers would.
be less inclined to cut interest rates
after their meeting on Sept. 18,
given the relatively benign report.
When Fed officials next meet,
they are widely expected to reduce
the key lending rate from 5.25 per-
cent to 5 percent or perhaps even
less, but analysts are divided over
how aggressively the Fed mightpur-
sue further rate cuts later this year.
The Standard & Poor's 500-stock
index closed down 1.2 percent, or
17.13 points, to 1,472.29; ithad fallen
by as much as 1.5 percent after the
Beige Book was released in the early
afternoon. The Dow Jones indus-
trial average closed down 143.39
points, or 1.1 percent, to 13,305.47.
Treasury prices jumped, as
investors sought safety in debt
backed by the federal government.
The yield on the 10-year Treasury
note, which moves in the opposite
direction from the price, fell to 4.47
percent, from 4.55 percent on Tues-
day, hitting its lowest level since
early December.
Early yesterday, an index that
tracks signing of contracts for
existing home sales tumbled 12.2
percent for July, to its lowest level
in more than six years, the National
Association of Realtors reported.
The trade group said its mem-
bers were reporting that buyers of
homes were having a tougher time
obtaining financing.
Pending home sales dropped
by nearly 21 percent in the West,
which has been hit hard by a spike
in interest rates on jumbo mortgag-
es - those for amounts higher than
$417,000.
"The fact is that housing trou-
bles are still building," said Marc
D. Stern, chief investment officer
at Bessemer Trust, an investment
firm in New York. "To say that we
have bottomed is very much prema-

ture. The effect on economic activ-
ity will grow in the second half of
the year and into 2008."
The Fed report released yester-
day said that the credit crunch had
made it more difficult for people
to obtain mortgages and that "the
weakness in the housing market
deepened" in most of the Federal
Reserve districts. But it also said
that credit remained readily avail-
able for most consumer and busi-
ness borrowers and that, outside
of real estate, the convulsions in
financial markets had had "limited"
effects on economic activity.
In a speech Friday at the Fed's
annual symposium in Wyoming,
the chairman, Ben S. Bernanke,
said the central bank would place
more weight than usual on anec-
dotal reports because the incoming
statistical data might not be timely
enough to measure a broad econom-
ic impact of the credit crisis that
began with failing subprime loans.
But Fed officials made it clear last
week that they were very worried
about the housing market, where
the news was gloomy, and the read-
ings from other areas were mixed
rather than buoyant.
"They are going to take the Beige
Book statement that it's limited only
to the housing area with a grain
of salt," said Joshua Shapiro, chief
economist at MFR Inc., a research
firm in New York. "There is only
one wound on the body, but how big
is the wound and what impact does
it have on the rest of the body?"
Shapiro's firm is expecting the
Fed to cut its benchmark interest
rate, now at 5.25 percent, by 0.25
percentage point later this month
and by a total of 0.75 percentage
point by the end of the year. That
forecast is in line with trading in
the futures market.
There have been only a few signs
that the housing market's problems
are spilling into the economy as a
whole.
The Beige Book reported that
retail sales were "modest to mod-
erate" in most of the country, but
inventory was "at or above desired
levels" in districts that mentioned
it. "Several retailers reported that
they planned to or had already
heavily discounted merchandise to
move inventory," the report said.
A key reading on the economy
that is likely to play a big role in the
Fed's decision on interest rates will
come tomorrow when the Labor
Department releases employment
figures for August. Yesterday, a pri-
vately compiled payroll report from
Automatic Data Processing showed
that corporate payrolls grew by
just 38,000 in August, down from
41,000 in July and 143,000 in June.

PETER SCHOT IENELS/Daily
tattoo of a Star of David at the Jewish
d the event so new students could learn
d calls
ntained
Many forecasters believe the
economy will be able to weather
a surge in mortgage defaults and
falling home prices if jobs remain
plentiful and wages continue rising.
Experts acknowledge, however,
that employment is a lagging indi-
cator of the economy's health and
that many corporate sectors would
be hurt if consumer spending dete-
riorated significantly.
"The job market has been a stal-
wart of strength," said Stern of Bes-
semer Trust, who does not expect
a recession. "We are dependent on
companies continuing to create
jobs."
Among the S&P 500, 422 stocks
fell,76rose andtwowereunchanged;
all but three of the 30 Dow compa-
nies fell. Financial stocks accounted
for more than a third of the losses in
the S&P 500. Information technolo-
gy, industrial and consumer discre-
tionary stocks accounted for a third
of the decline.
Citigroup and Bank of America
led the financial sector down as
concerns mounted about big insti-
tutions' involvement in off-balance
sheet borrowing in the short-term
debtmarkets and investingin assets
like mortgage bonds. A Securities
and Exchange Commission official
testifying before Congress said the
commission was looking into such
structured investment vehicles,
which have had a increasingly hard
time borrowing money by selling
commercial paper, a type of short-
term debt.
Technology shares were led
down by Apple, which cut the price
of its new iPhone by $200 and
stopped selling a lower-end version
of the device just two months after
introducing it. Shares of Apple fell
5.2 percent and shares of AT&T, the
service provider for the phone, lost
1.4 percent.
More broadly, the Beige Book
noted that manufacturing activity
expanded, except in the automobile
and building material industries.
But demand for business loans was
either steady or declining in the
New York, Cleveland, Chicago and
St. Louis districts.
Given the turmoil and volatil-
ity in the financial markets in the
last month and a half, some market
specialists believe the Fed may be
forced to be freer with a rate cut
than it normally would be.
"It would be psychological," said
Bruce Bittles, chief market strate-
gist at Robert W. Baird & Co. "It
would leave room for further rate
cuts if needed. There is no guaran-
tee that lower rates will help this
housing situation. The important
thing is that it stabilizes other areas
like the stock market"

Authorities say
attack with
hydrogen peroxide
was imminent
By MARK LANDLER,
NICHOLAS KULISH
and SOUAD MEKHENNET
FRANKFURT, Germany - Ger-
man authorities said yesterday that
they had stopped a major terrorist
attack against U.S. and German
targets in this country, arresting
three Islamic militants and seizing
a large amount of potentially explo-
sive chemicals and military-grade
detonators.
Those arrested - two German
citizens who had converted to Islam
and a Turkish resident of Germany
- had been in the advanced stages
of plotting bomb attacks that could
have been deadlier than those
that killed dozens in London and
Madridthe police and securityoffi-
cials said. At least five lesser figures
are still being pursued, they said.
"They were planning massive
attacks," the German federal prose-
cutor, Monika Harms, said at a news
conference, outlining an intense
six-month investigation. She said
the suspects had amassed hydro-
gen peroxide, the main chemical in
the explosives used in the London
suicide bombings of July 2005.
For months, Germany has been
warningofalikelyterrorattack,and
the government has been contem-
plating tightening surveillance and
enforcement tactics that are now
looser than elsewhere in Europe, in
part because of Germany's troubled
20th-century history.
Although officials spoke with
confidence of the attack's immi-
nence and seriousness, they did not
make fully clear the basis of their
assertions. Europe has been the site
of a number of devastating terror-
ist plots, but some have turned out
later to be less than they seemed
when announced.
If the announced details hold up
under scrutiny, it means that Ger-
many, like Britain, has become a
targetforsophisticatedhomegrown
terrorism, and the case will fan the
debate over the balance between
civil liberties and public security.
Previous German plots have been
far smaller, carried out by foreign-
ers, or focused outside of Germany,
like the 9/11 attacks, which were
hatched in Hamburg.
A U.S. intelligence official said
that the United States helped Ger-
man authorities track the location
of two of the German suspects by
eavesdropping on their cell phone
conversations as they moved out of
trainingcamps in Pakistan.
Harms also said the two German
converts had trained in terrorist
camps inPakistan and that the three
suspects had about 1,500 pounds
of hydrogen peroxide, which they
had been preparing to move by van
when arrested in Oberschledorn, an
out-of-the-way village in western
Germany on Tuesday afternoon.
Security authorities in Europe have
warned for some years that radi-
cal converts could pose a keen risk,
since they blend in easily to main-
stream society.
The Turkish links in this case
also trouble counterterrorism
experts, who note that Germany
has generally not had to contend
with a radical element in its large
Turkish Muslim minority.
"This is the first time I've seen
a Turkish-German network," said
Guido Steinberg, a researcher at the
German Institute for International
and Security Affairs in Berlin. "And
the fact that it is connected to a
Turkish network in Pakistan is an
even bigger problem."

While the suspects were home-
grown, the targets the authorities.
said they intended to attack were
symbols of the enduring U.S. pres-
ence in Germany.
Information that surfaced
during the investigation, which
included -monitoring phone calls

and tracking suspects movements,
led the authorities to conclude that
among the targets under consider-
ation, were the Ramstein Air Base,
a crucial transportation hub for the
U.S. military, and Frankfurt Inter-
national Airport.
The 12 vats of hydrogen perox-
ide collected by the suspects, when
mixed with other chemicals, could
produce a bomb with a force equiv-
alent to 1,200 pounds of TNT, offi-
cials said.
"This would have enabled them
to make bombs with more explo-
sive power than the ones used in
the London and Madridbombings,"
said Joerg Ziercke, head of the Ger-
man Federal Crime Office.
Ziercke said the men belonged to
aterroristgroup that the police sus-
pected had close ties to al-Qaida,
though he did not offer evidence
of those links. Counterterrorism
experts here expressed wariness,
noting that in almost every major
attack or suspected plot since 9/11,
the role of al-Qaida has been raised
but rarely substantiated.
Nevertheless, the German
defense minister, Franz Josef Jung,
said on state television, "There was
an imminent security threat." And
some officials said the attacks could
have come within days, noting that
the German parliament will soon
take up a politically fraught debate
about extending the deployment
of German troops in Afghanistan.
Next week is also the sixth anni-
versary of the 9/11 attacks.
German officials were vis-
ibly relieved by the arrests - the
fruits of an elaborate investigation
involving more than 300 people. On
yesterday, police officers raided 41
houses and apartments across Ger-
many, seizing computers and other
evidence.
But some politicians warned
that the danger remained high.
"The arrests yesterday are just
evidence of how serious the situ-
ation here in Germany is," said
Wolfgang Bosbach, a. prominent
legislator in Chancellor Angela
Merkel's party.
The surveillance operation was
so close that in July, officials said,
the police managed to swap some of
the tanks of hydrogen peroxide the
suspects had gathered with tanks
containing a far lesser concentra-
tion.
One of the suspects, whom police
sources identified as Fritz Gelow-
icz, a 28-year-old German born in
Munich, was detained in 2005 in a
raid in a Muslim neighborhood in
Bavaria. He was put under surveil-
lance again in December 2006, after
he was seen scouting a U.S. military
barracks in Hanau, according to
court documents.
The police are investigating a
German-Turkish man, an associate
of Gelowicz's and also a suspect in
the plot, two security officials said.
They said he was believed to be in
Turkey.
Tuesday's arrests were made at
a vacation home in Oberschiedorn,
a village of 800 tucked into the
hills, 75 miles north of Frankfurt.
The suspects had rented the house
to store chemicals to make explo-
sives, officials said. They had been
preparing to leave when the police
swooped in.
One of the three men fled and,
in a scuffle with a police officer,
wrested a pistol from his holster
and shot him in the hand before he
was subdued, officials said.
A few had seen three young men
walking through the village in
recent days, but they did not arouse
suspicion. Curinna Imuhl, 12, who
lives near the rented house, said,
"I thought no one was there; the
shades were always down."
On Tuesday, the Danish police
arrested eight people in a suspect-
ed terrorist plot. The German inte-
rior minister, Wolfgang Schaeuble,
said there was no evidence of a

direct link between the plots. Six
of those suspects have already been
released.
Harms, the federal prosecutor,
said the three suspects arrested
Tuesday belonged to a German cell
of the Islamic Jihad Union, a radi-

cal Sunni group based in Central
Asia that split from the extremist
Islamic Movement of Uzbekistan.
While this group has not been
linked to terrorist attacks in Europe,
it has claimed credit for suicide
bombings in July 2004 near the
United States and Israeli Embas-
sies, in the Uzbek capital, Tashkent.
The group has called for the over-
throw of the secular government in
Uzbekistan.
German officials have warned
that the country was under threat
of a terrorist attack because of Ger-
many's involvementin Afghanistan.
They said they were particularly
worried by reports of Germans tak-
ing part in terrorist training camps
in Pakistan, near the Afghan bor-
der, and returning to Germany to
carry out attacks.
Speaking to reporters in Berlin,
Merkel said, "The lesson from this
is the danger is not just abstract,
it's real" The consequences of an
attack, she added, would have been
"indescribable."
Ziercke said the United States
aided German authorities. Another
security official said the Americans
tipped off the Germans to the exis-
tence of the Islamic Jihad Union.
President Bush, who is in Aus-
tralia, was briefed on the arrests,
according to Gordon D. Johndroe,
a spokesman for the National Secu-
rity Council.
U.S. officials, who have spoken
publicly about al-Qaida's growing
abilities to attack Western targets,
say that the group in Germany
is likely to have ties to al-Qaida's
operational figures in Pakistan.
U.S. spy agencies believe that Qaida
leaders have established a haven
in the western mountains of Paki-
stan, where they have set up small
compounds to train operatives for
attacks on Western targets.
U.S. military officials said the
Germans contacted them on Tues-
day evening to warn them about
the plot. "This was a German-led
investigation," said Lt. Cmdr. Corey
Barker, a spokesman for the U.S.
European Command in Stuttgart.
"We do appreciate their commit-
ment to safeguarding us against a
terrorist attack."
Ramstein is the largest U.S. air
base in Germany and a hub for
troopsdeployingtoEasternEurope,
Iraq, and Afghanistan. Barker said
the base had not lifted its force pro-
tection level, which is now at the
second highest designation.
Frankfurt's airport, the second
busiest in Continental Europe after
Charles de Gaulle in Paris, was
operating normally, said a spokes-
man for the airport, Robert A.
Payne.
Germany narrowly missed a
smaller terrorist attack in July
2006, when a pair of suitcase bombs
left on commuter trains in Cologne
failed to explode. Officials noted
that the two suspects in that attack,
from Lebanon, had a fraction of the
bomb-making chemicals used in
this plot.
In June, Schaeuble and his dep-
uty, August Hanning, warned that
the terrorist threat was comparable
to that in the months before the
Sept. 11, 2001, attacks in the United
States. That plot was hatched in
Hamburg by Islamic militants pos-
ing as students.
Schaeuble coupled his warning
with a call for stricter anti-terror-
ism measures. He said he would
like the police to be able to conduct
surreptitious searches of comput-
ers belonging to people suspected
of being terrorists.
In the past, some critics here
have accused Schaeuble of ratchet-
ing up fears of terrorism in order to
build support for his measures. But
no such criticisms were voiced yes-
terday.
- Mark Landler and Souad

Mekhennet reported from Frankfurt,
and Nicholas Kulish from Berlin.
Reporting was contributed by
Rhea Wessel from Oberschledorn,
Germany, Mark Mazzetti and Eric
Schmitt from Washington, and Sheryl
Gay Stolberg from Sydney, Australia.

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