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Editorials | Article | Middle | Oped

EDITORIALS

Needed a tough law
But it is not a substitute for effective policing
T
ERRORISM poses the biggest threat to national security. Conventional laws have been found to be inadequate to deal with the scourge. Seen against this backdrop, the recommendation of the Administrative Reforms Commission, headed by M. Veerappa Moily, for a stringent law to deal with the crime would have many takers, particularly in the light of what happened in Jaipur, Bangalore, Ahmedabad and the national Capital.

Cut oil prices
This will control inflation, boost growth
The global crude price fall has come as a relief to most inflation-battered economies around the world. The cooling of oil, which is despite an OPEC production cut of 5,20,000 barrels a day on the insistence of Iran, Libya and Venezuela, is being attributed to the dwindling demand in the US and Europe. Speculative investors are also withdrawing from trading in commodities, thus accelerating the downward journey of prices.






EARLIER STORIES

Time Patil goes
September 17, 2008
Now, in Karnataka
September 16, 2008
Terror in Capital
September 15, 2008
Lessons from Kosi
September 14, 2008
The final lap
September 13, 2008
Captain’s expulsion
September 12, 2008
The road ahead
September 11, 2008
Husain to come home
September 10, 2008
Impeach the Judge
September 9, 2008
From prison to presidency
September 8, 2008


Zonal benches
Supreme Court needs to be decentralised
CHIEF Justice of India Justice K.G. Balakrishnan’s suggestion for zonal benches of the Supreme Court is most welcome as it would decentralise justice and bring it closer to the people. In fact, he was responding to Leader of Opposition in the Lok Sabha L.K. Advani’s proposal. Today, the apex court is overburdened. Regional benches in cities like Kolkata, Mumbai and Chennai will not only ease congestion in New Delhi but also help the litigants most.

ARTICLE

Chinese duplicity
They played strange games at Vienna
by G. Parthasarathy
O
ne of China’s greatest assets in its dealings with India over the past six decades has been the gullibility and readiness of Indian political leaders, diplomats, intellectuals and ideologically motivated political parties to look at every Chinese statement, both public and private, as being truthful and sincere, instead of judging China by its actions and examining the dynamics of its relations with others, particularly in our neighbourhood.

MIDDLE

At-Home Minister
by Amar Chandel
I
had a strong urge to seek an interview with Home Minister Shivraj Patil after the Delhi blasts, but, taking a cue from his style of functioning, did not do anything because I knew it would have only gone something like this:

OPED

Horrors of war
The utter disgust of being there
by Robert Fisk
J
ust outside Andrew Holden’s office at the Christchurch Press off Cathedral Square – and, believe me, New Zealand’s prettiest city is as colonial as they come, a Potemkin town of mock-Tudor government buildings, Scottish baronial churches and wooden versions of Victorian homes – is a brightly coloured, cheerful little water-colour.

ISI tries to exploit unrest in J and K
by Satish Misra
E
ven as Pakistan and India have renewed their commitment to continue the peace process and workout modalities for opening more routes for intra-Kashmir transport links, the ISI sponsored Kashmiri NGOs in the United States and Europe have been activated to exploit the current situation in J and K and organise demonstrations against alleged human rights violations there with calls for self-determination.

US going overboard on bailouts?
by MIchael A. Hiltzik
D
oes America have the bailout monkey on its back? So far this year, the federal government has put up nearly $30 billion to avert a major financial default by the investment bank Bear Stearns; committed to investing up to as much as $200 billion in preferred stock of the loss-plagued finance giants Fannie Mae and Freddie Mac and at least $5 billion in their mortgage securities; and agreed to provide an emergency loan of $85 billion to American International Group Inc. in return for an ownership stake of as much as 80 percent in the stricken insurance giant.


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EDITORIALS

Needed a tough law
But it is not a substitute for effective policing

TERRORISM poses the biggest threat to national security. Conventional laws have been found to be inadequate to deal with the scourge. Seen against this backdrop, the recommendation of the Administrative Reforms Commission, headed by M. Veerappa Moily, for a stringent law to deal with the crime would have many takers, particularly in the light of what happened in Jaipur, Bangalore, Ahmedabad and the national Capital. The commission wants a law like the Prevention of Terrorism Act (Pota), which was scrapped soon after the UPA government came into being. It would be instructive to recall how and why Pota became a much-maligned legal measure. Pota had many inbuilt provisions - confessions before the police becoming legally admissible, for instance — that made it easier for the state to deal with terrorism.

One reason why it became controversial was that the police in some states found the law convenient to be used against all and sundry. In one state, it was found that Pota was used against even children accused of petty crimes. In another state, it was used primarily against members of a particular community. Significantly, some of the worst incidents of terror — the attack on Parliament and the Akshardham temple in Gujarat - occurred when Pota was on the statute book. Small wonder that there was a clamour for scrapping the law like its predecessor, the Terrorists and Disruptive Activities (Prevention) Act (Tada). But a series of terrorist attacks in places as far apart as Bangalore, Ajmer, Ahmedabad, Malegaon and Delhi have compelled security experts to think of a new law that can deal with terrorism.

However, the mere enactment of a law — however stringent it may be — will not deter terrorists. Whatever be the law, it can be used against the terrorists only when they are identified and arrested. In many cases, the police have been unable to lay their hands on the perpetrators of the blasts like the one in the Attari-bound train at Panipat. In other words, there is no substitute for intelligence, which is the main weapon against terrorism. Once the terrorists are in police custody, a Pota-like law will help in punishing them expeditiously.

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Cut oil prices
This will control inflation, boost growth

The global crude price fall has come as a relief to most inflation-battered economies around the world. The cooling of oil, which is despite an OPEC production cut of 5,20,000 barrels a day on the insistence of Iran, Libya and Venezuela, is being attributed to the dwindling demand in the US and Europe. Speculative investors are also withdrawing from trading in commodities, thus accelerating the downward journey of prices. Another factor contributing to this trend is the strengthening of the dollar against major currencies. The depreciation of the rupee against the dollar has limited the gains of the falling oil prices for India.

With the crude prices falling below $90 a barrel, public and political pressure has started mounting on the UPA government to cut the domestic oil prices. Petroleum Minister Murli Deora has made it known that he is against any such measure at this stage, which is understandable as the government oil marketing companies have piled up huge losses for heavily subsidising fuel. Going strictly by economic sense, there is a strong case to drop the administered price mechanism and sell petrol, LPG and diesel at market rates. But that would cause prices of essential commodities to shoot up and no political party would like to see that happen in an election year.

Poll strategists in the UPA are, in fact, pleading the party leadership for an oil price rollback ahead of the assembly elections in five states in November. Political advantages for the ruling parties apart, any reduction in the oil prices would further bring down inflation, send positive signals all around, lead to lower interest rates and perk up the economy. Higher growth means larger tax revenue and greater inflow of foreign investment. The benefits of a reduction in the petroleum prices outweigh the losses to the oil marketing companies. For the long term, there is need to tap all the available energy sources, avoid wastage, minimise environmental pollution and prepare for any eventuality on the oil front.

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Zonal benches
Supreme Court needs to be decentralised

CHIEF Justice of India Justice K.G. Balakrishnan’s suggestion for zonal benches of the Supreme Court is most welcome as it would decentralise justice and bring it closer to the people. In fact, he was responding to Leader of Opposition in the Lok Sabha L.K. Advani’s proposal. Today, the apex court is overburdened. Regional benches in cities like Kolkata, Mumbai and Chennai will not only ease congestion in New Delhi but also help the litigants most. The poor litigants find it difficult to go to New Delhi because they have to spend a lot of money on travel and stay. Worse, cases are frequently adjourned. If more Benches come up, the principal bench in New Delhi can deal exclusively with constitutional matters and inter-state disputes. The CJI has mentioned that there can be a Constitution Bench of five, seven or even nine judges. There could be appellate forums, too, with powers to hear appeals from the high courts under Article 136 and writ petitions under Article 32.

Incidentally, the apex court had rejected pleas for regional benches in 1999, 2001, 2004 and 2005 on the ground that such a step would “affect the country’s unitary character”. Over the years, the Centre’s appeal to the apex court to heed the pleas of states did not cut ice. Successive parliamentary committees, which went into the issue, did not find the apex court’s opinion convincing. They have been maintaining that the benches set up outside New Delhi would neither impair the unity and integrity nor undermine the importance of the Supreme Court.

Significantly, the Law Commission, in its 125th report, had recommended regional benches to reduce arrears and help litigants. Now that the CJI is favourably inclined, the Centre should follow it up promptly. In a democracy like ours, the judiciary needs to extend its benevolent arm of law to the poor litigants. Under Article 130, the Constitution makes it very clear that the apex court has the power to decide about benches. Clearly, the founding fathers never intended to fetter the court’s discretion in this regard for the public good and in the national interest.

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Thought for the Day

The good critic is he who relates the adventures of his soul in the midst of masterpieces. — Anatole France

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ARTICLE

Chinese duplicity
They played strange games at Vienna
by G. Parthasarathy

One of China’s greatest assets in its dealings with India over the past six decades has been the gullibility and readiness of Indian political leaders, diplomats, intellectuals and ideologically motivated political parties to look at every Chinese statement, both public and private, as being truthful and sincere, instead of judging China by its actions and examining the dynamics of its relations with others, particularly in our neighbourhood. It is such wishful and woolly headed thinking that landed a militarily unprepared India in the disastrous conflict of 1962 — a conflict aptly described as a “Himalayan Blunder”.

Similar wishful thinking led China’s many apologists and admirers in India to proclaim that there had been a great “breakthrough” on the border issue and that China had renounced its border claims to Tawang and other border areas in Arunachal Pradesh in the 2005 agreement signed by Prime Minister Manmohan Singh and his Chinese counterpart Wen Jiabao.

The 2005 agreement stated: “In reaching a border settlement, the two sides shall safeguard the population in border areas”. This meant that there would be no change in the status of populated areas and that the status of Tawang would not be changed. Even as Champagne bottles were being opened by China’s influential admirers in India to celebrate this “breakthrough” in Sino-Indian relations, Chinese Foreign Minister Yang Jiechi poured cold water on the celebrations proclaiming: “The mere presence of populated areas in Arunachal Pradesh would not affect Chinese claims on the border.”

Our Sinologists were forgetting amidst their celebrations that over the past few years China has actually hardened its position on the border issue, laying claims on the whole of Arunachal Pradesh on the grounds that the entire state is a part of “South Tibet”. Despite this, obviously not wishing to enrage the Chinese dragon as it was seeking Chinese support in the NSG for ending nuclear sanctions against India, New Delhi cravenly behaved like a supplicant, by closing down traffic and curbing civil liberties of people, merely to please the Chinese, when the Olympic Torch landed in India.

Similar wishful thinking, about “assurances” given privately by Chinese leaders Hu Jintao and Wen Jiabao to Dr Manmohan Singh that China would not come in the way of the NSG ending nuclear sanctions against India, nearly led India to a diplomatic disaster at the NSG meeting in Vienna. New Delhi had ample evidence from its diplomatic missions abroad and from meetings with NSG member-states that over the past three years, China had mounted concerted effort to persuade countries like Austria, the Netherlands, Ireland, New Zealand, Norway and Switzerland, which had strong domestic constituencies opposing the dilution of non-proliferation benchmarks, to reject US moves to end nuclear sanctions against India.

China also urged these countries that if non-proliferation benchmarks should be diluted, this had to be done on a “criteria-based” approach, which would also exempt Pakistan from sanctions. Knowing that no country in its right senses would end sanctions on a country with Pakistan’s notorious record on non-proliferation, this Chinese ploy was primarily designed to strengthen opposition to any exemption for India. These moves were undertaken quietly. The Chinese did not want to offend the Americans by publicly opposing an initiative by President Bush, or the Russians, who had supported the American initiative.

New Delhi’s naiveté on Chinese intentions is best symbolised in the manner in which it chose to ignore reports of real Chinese government thinking voiced by the official mouthpiece, The People’s Daily. In a report in August 2007, The People’s Daily averred: “The US-India nuclear agreement has strong symbolic significance (for India) achieving its dream of powerful nation. In fact, the purpose of the US to sign a civilian nuclear agreement with India is to enclose India in its global partners’ camp. This fits in with India’s wishes.”

Worse still, just on the eve of the NSG meeting The People’s Daily pontificated on September 1, 2008: “Whether it is motivated by political considerations or commercial interests, the US-India Nuclear Agreement has constituted a major blow to the international non-proliferation regime”. This article undoubtedly reflected the views of the Chinese Communist Party’s leadership. What is ironical is that the Chinese shed tears about their respect for the “international nuclear non-proliferation regime” after having provided Pakistan with nuclear weapons designs, advanced nuclear enrichment equipment, ring magnets and plutonium production and reprocessing facilities for miniaturised nuclear warheads. China opposing the Indo-US nuclear deals on grounds of “non-proliferation” is like Satan rebuking Sin!!

China rubbed salt on Indian wounds when its leaders, Hu Jintao and Wen Jiabao, refused to take personal telephone calls from Prime Minister Manmohan Singh claiming that both these luminaries were “unavailable” — The Chinese perhaps felt emboldened by a belief that having hosted the Congress party President twice over one year, they could take liberties and insult India’s Prime Minister. Mercifully, the Congress President responded appropriately be refusing to receive the visiting Chinese Foreign Minister. But would this alone suffice as an adequate response to the brazen insult to India’s Prime Minister?

Chinese behaviour in the NSG is best summed up by a perceptive Indian correspondent who covered the Vienna meeting extensively. This correspondent noted: “The Chinese did manoeuvres in a procedural way in order to support the G-6 comprising Austria, Ireland, the Netherlands, New Zealand, Switzerland and Norway. But they didn’t want to come out in the open. “They wanted to remain in the bushes rather than come on to the battlefield”, said one diplomat from a European country that backed the waiver with reservations. A “G-6” diplomat described this phase as one where the Chinese “offered quiet but clear support for a number of proposals put forward by the like-minded group of six”. This support, he said, continued “right up to the last moment”.

But, when it seemed to China that the G-6 was standing resolute, the Chinese delegates also began putting forward amendments and sentences of their own. “They suggested a lot of minor changes to the text last Friday, seemingly with the intention of delaying progress”, the diplomat said. Though these changes were more often than not unacceptable to India, the diplomats said the Chinese suggestion to include language which might open a door for “other states” (i.e. Pakistan) to seek a similar waiver, met with stiff resistance by virtually all the NSG members, including the G-6.

“This idea was a complete non-starter”, said one diplomat. Another described it as part of a tactic of “procedural procrastination”. Finally, a telephone call from President Bush to President Hu Jintao forced the Chinese to end their duplicity.

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MIDDLE

At-Home Minister
by Amar Chandel

I had a strong urge to seek an interview with Home Minister Shivraj Patil after the Delhi blasts, but, taking a cue from his style of functioning, did not do anything because I knew it would have only gone something like this:

Question: Mr Patil, after Mumbai, Surat, Ahmedabad, Hyderabad, Jaipur, Bangalore and many other places, terrorists have struck with impunity in the national Capital itself. Why is it that the government does not take any action?

Answer: Who says we do not take any action? Can’t you see that we have immediately removed all garbage bins in which bombs can be hidden?

Q: But sir, bombs can be hidden in many other places.

A: Then what? We are also thinking of removing all cars, autos and trees from our cities. If need be, we will ask all people to stay off cities. I can assure you that the government will not be found wanting in any way.

Q: There is common belief that you are too slow to react to such crises.

A: That again is a total lie. I am on record to have changed my clothes thrice on the Black Saturday when the terrorists exploded bombs. Show me one Home Minister in the world who acts so swiftly even in an hour of crisis.

Q: Sir, people allege that there is hardly any change in your statements after the blasts in various cities.

A: Off the record, there are only so many ways of passing the buck. If you know of any new ways of making excuses, do let me know.

Q: Isn’t it surprising that even when there are enough straws in the wind that terrorists are going to strike a particular place, nothing is done to foil their nefarious plans? For instance, it was well known that they had chalked out Operation BAD under which they were to target Delhi after Bangalore and Ahmedabad.

A: Terrorists are inhuman and have been playing unfair all along. They send their e-mail warnings only minutes before explosions. Etiquette demands that they should intimate us about the exact place, date and time of an explosion at the earliest so that the government can take adequate preventive measures.

Q: We have had glorious ministers like Lal Bahadur Shastri, who resigned as Railway Minister owning moral responsibility for a train accident. Shouldn’t you do the same after the series of explosions at so many places killed so many innocent persons?

A: If I am given gilt-edged guarantees that I can become a Prime Minister some day after that, I will emulate the gesture.

Q: You have lost the confidence of the country and have no right to continue as Home Minister.

A: No confidence of the country does not matter. I enjoy the confidence of Mrs Sonia Gandhi. What else you want? Thank you.

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OPED

Horrors of war
The utter disgust of being there
by Robert Fisk

Just outside Andrew Holden’s office at the Christchurch Press off Cathedral Square – and, believe me, New Zealand’s prettiest city is as colonial as they come, a Potemkin town of mock-Tudor government buildings, Scottish baronial churches and wooden versions of Victorian homes – is a brightly coloured, cheerful little water-colour. Boarding a big steamship, thousands of New Zealanders in big broad-bottomed brown hats are lining the quaysides, the gangplanks and the decks.

For a moment this week, I thought this might be some annual festival (perhaps involving New Zealand’s 35 million boring sheep). But then Andrew spotted my interest. “They’re going to Gallipoli,” he said. And – fast as the lightning bolt of history – my eyes returned to the tiny figures on the deck. Off they were going, another flower of youth, to the trenches and dust and filth of my father’s war.

I’m not sure of this, but I think – I suspect and feel – that the Great War, the war of 1914-1918, is beginning to dominate our lives even more than the terrible and infinitely more costly conflict of 1939-1945. As the years go by, the visitors to the great cemeteries of the Somme, Passchendaele and Verdun grow greater in number. The Second World War may haunt our lives. The First World War, it seems to me, imprisons us all.

The statistics still have the power to overawe us. As John Terraine calculates, by November of 1918, France had lost 1,700,000 men out of a population of 40 million, the British Empire a million – 700,000 of them from the 50 million people of the British Isles. The British Army, let it be repeated, lost 20,000 killed on the first day of the Somme. I noticed that in Christchurch Cathedral, the bronze plaques to the Great War dead had been newly polished – so that they looked as they must have been seen by those who came to mourn almost a hundred years ago.

Who would have believed, even half a century ago, that this year’s Toronto Film Festival would open in Canada with a film called Passchendaele – perhaps the most-difficult-to-spell-movie of all time – the film poster showing just a young man standing in mud and filth and rain? Who could conceive that one of the most popular non-fiction books in recent Canadian history would be the Ottawa War Museum’s Great War historian Tim Cook’s At the Sharp End, the first volume of his monumental study of Canadians in the 1914-18 war?

Canada had its Douglas Haig – a maniac called Sam Hughes (“Minister of Militia and Defence”) who forced his young men to use the hopeless Canadian-made Mark III Ross rifle which jammed and misfired and heaped up the corpses of Canadians who could not defend themselves with this patriotic, murderous weapon. Cook, despite his occasional tendency to cliché is superlative.

His description of desperately young Canadian men cowering in shell-holes – showered by the putrefying remains of their long-dead friends as bodies are again torn apart by shells – is devastating. So, too, are his quotations from the letters home of Canadian soldiers. “I went thru all the fights the same as if I was making logs,” Sergeant Frank Maheux writes home to his wife in an innocent, broken English. “I bayoneted some (sic) killed lots of Huns. I was caught in one place with a chum of mine he was killed beside me when I saw he was killed I saw red ... The Germans when they saw they were beaten they put up their hands but dear wife it was too late.” My God, how that “dear wife” tells the truth about the surrendering Germans’ fate.

How the gorge rises at such wickedness. But it rises far more as you turn the pages of the beautifully produced, desperate collection of French soldiers’ amateur paintings and sketches of the Great War – “Croquis et dessins de Poilus” – which, ironically, includes a set of sad portraits of the poilus’ Canadian comrades. This magnificent book was produced by the French Ministry of Defence; why it could not have had a joint production with the Imperial War Museum beggars belief – does the Entente now count for nothing? For anyone who wants to understand the total failure of the human spirit which war represents – and the utter disgust which must follow the “arbitrament”of war (a Chamberlain word this – see his 3 September 1939, declaration of war) – must read the extract from Jean Giono’s Le Grand Troupeau, which accompanies Louis Dauphin’s bleak, rainswept painting, “Supply Route at Peronne”.

“The rats, with red eyes, march delicately along the trench,” Giono writes of the creatures with whom he shared the war. “All life had disappeared down there except for that of the rats and the lice ... The rats were coming to sniff the bodies ... They chose the young men without beards on the cheeks ... rolled up into a ball and began to eat the flesh between the nose and the mouth up to the edge of the lips ... from time to time they would wash their whiskers to stay clean. Then the eyes, they took them out with their claws, licked the eyelids, and would then bite into the eye as if it was a small egg...”

My father saw these horrors on the Somme. They all did. Of course, Messrs Bush and Blair did not have to soil their thoughts with such images. Our boys shipping off to war – Mrs Thatcher happily endured the Gallipoli-like departures from Portsmouth – is enough for our leaders. But could it be, perhaps, that we – the people – know more about horror than our masters? Our history suggests this is true.

By arrangement with The Independent

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ISI tries to exploit unrest in J and K
by Satish Misra

Even as Pakistan and India have renewed their commitment to continue the peace process and workout modalities for opening more routes for intra-Kashmir transport links, the ISI sponsored Kashmiri NGOs in the United States and Europe have been activated to exploit the current situation in J and K and organise demonstrations against alleged human rights violations there with calls for self-determination.

On the instructions of the ISI, these self-styled Kashmiri activists have been interacting with legislators in their countries of residence to brief them that the problem in Kashmir was not simply the land allotment but the denial of the right to self-determination.

They were also asked to request members of European Parliament and Congressmen to call for a debate on the issue of self-determination in their respective legislative bodies.

Abdul Majid Tramboo of the Kashmir Centre, Brussels, has been lobbying with MEPs led by James Elles to highlight the recent unrest in Kashmir. Ghulam Nabi Fai of the Kashmiri American Council has sought audience with State Department and NSC officials.

London-based Nazir Ahmed Shawl of the Justice Foundation Kashmir Centre and Nazir Qureshi of the World Kashmir Freedom Movement have held demonstrations in an attempt to attract international attention.

Simultaneously, the NGOs have been directed to take advantage of the current situation and launch a sustained campaign to discredit European experts of Kashmir like Emma Nicholson, who have exposed the situation in Pakistan-held Kashmir and northern areas.

This task was given to Tramboo, who led a campaign against Emma Nicholson and her associates. Kashmiri sources revealed that Tramboo contacted and convinced some of the Kashmiri leaders from Pakistan and its held Kashmir not to participate in a conference convened by Emma Nicholson in Brussels this month.

While the Pakistani agency kept up pressure on these NGOs to deliver, differences and personality clashes among leaders of these NGOs have become a major headache for their masters.

Fai reportedly registered strong protest with his ISI handling officer for not being invited to a Kashmir EU week organised by Majid Tramboo in Brussels in July. Despite the intervention by the agency officials to invite Fai and Najir Ahmed Shawl for the conference, Tramboo did not invite them.

The ISI’s disdain for the civilian leadership in Pakistan, particularly the current dispensation led by Asif Ali Zardari, has also been echoed by some of the NGO leaders financed by the agency.

A close confidante of Fai revealed to a friend that Fai has chided him for learning habits from Asif Zardari to put the issues on a back-burner and advised him not to follow the example of the PPP leader.

While the Pakistani intelligence agency continued to keep up the pro-Pak Huriyat-sponsored agitation in J & K and bring it to the attention of the international community through fractured self-styled Kashmiri activists, there is very little focus on the massive tragedy perpetrated by government forces and jehadists in the North West Frontier of Pakistan.

The ferocity of the ongoing military operation and stiff resistance being offered by Tehrik-e-Taliban, Pakistan, turned the area into a killing arena.

More than 3,200 innocent civilians died and another 3,000 were injured in aerial shelling in the Bajaur, Mohmand and Kurram areas in the last six months. Over 1,000 villagers were killed last month itself.

More than 4,00,000 persons were forced to leave their homes from the Bajaur agency after select areas in their belt came under aerial bombardment. F-16 aircraft have been used in the conflict while gunship helicopters and jetfighters heavily bombarded the region, causing massive displacement of people. Security forces forced farmers to cut the main crop in the area so that it is not used for ambush.

Villages after villages have been razed to the ground. The colossal damage to life and property in Bajaur, Khyber, Kurram and Swat created anger and panic among the people.

These displaced people continued to live in pathetic conditions in refugee camps in their own country facing severe shortages of food, clean drinking water and other essential supplies.

Most victims find themselves caught in an almost impossible situation between militants and security forces. The militants are also using the local people as human shields against aerial bombarding, leading to huge civilian casualties.

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US going overboard on bailouts?
by MIchael A. Hiltzik

Does America have the bailout monkey on its back? So far this year, the federal government has put up nearly $30 billion to avert a major financial default by the investment bank Bear Stearns; committed to investing up to as much as $200 billion in preferred stock of the loss-plagued finance giants Fannie Mae and Freddie Mac and at least $5 billion in their mortgage securities; and agreed to provide an emergency loan of $85 billion to American International Group Inc. in return for an ownership stake of as much as 80 percent in the stricken insurance giant.

Tuesday’s helping hand to AIG bailed out not only that company, which was contemplating a bankruptcy filing as early as Wednesday, but also countless trading partners of the company, including investment banks that had failed to raise the massive loans themselves.

Thus far, only one major supplicant for federal assistance has been turned away: investment bank Lehman Bros. Holdings Inc., which was refused a bailout by Treasury Secretary Henry M. Paulson last weekend and filed for bankruptcy protection Monday. Meanwhile, Congress is contemplating a loan program of $25 billion to $50 billion for automakers.

This year’s bailouts add up to an unprecedented surge of direct financial intervention by the government in the nation’s private sector — a cornucopia of handouts and guarantees dwarfing the rescue of the savings and loan industry in the 1980s, which ended up costing taxpayers $124 billion.

In each case, industry and government officials have justified the bailout as cheaper in the long run than doing nothing. But critics contend that bailouts often encourage bad behavior by relieving under-performing industries of the consequences of their ineptitude.

In addition, sometimes the government can end up as an investor in companies that are the target of regulatory action, creating a conflict of interest. The government’s potential ownership of AIG could put policymakers at cross-purposes with their own efforts to regulate a variety of financial transactions in which the company participates.

The situation is bound to raise thorny policy issues for the next president, who is likely to face further demands for assistance from mortgage lenders, home builders, automakers and other struggling industries. Economic and legal experts say Congress and regulators need a set of standards for how to treat industries and companies with their hands out, especially when the requests come in an atmosphere of crisis.

“The more the government steps in, the more there are people who want the government to step in,” says Peter J. Wallison, a research fellow at the American Enterprise Institute and a former White House and Treasury Department official. “Every time you do it, that creates an equitable argument for someone else to get bailed out.”

The president and Congress also will have to decide what sort of concessions to demand from recipients of public largesse.

By arrangement with LA Times-Washington Post

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