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In May, Credit Suisse Group and Deutsche Bank AG began offering investments in iron ore, a component of steel. About one billion tons of iron ore is mined a year but isn’t traded on a futures exchange. So it has been virtually impossible for speculators to bet on price movements.

The investment banks were inundated with interest in iron-ore deals, which function like futures contracts. In just two months, investors and hedgers took on more than $500 million of notional exposure — about 2.7 million metric tons — making this one of the biggest commodities markets to spring up almost overnight.

The new markets show how hard it will be for legislators to curb commodities speculation. Such trading is spreading to an array of other goods, from jet fuel to chicken, that have been off-limits to investors because they aren’t traded on futures markets. They also are offered for commodities already bought and sold on global exchanges, including crude oil, corn and coffee.

Through Goldman Sachs Group Inc., clients can invest in palm oil and other biofuel components. Deutsche Bank is trading ruthenium, an obscure metal used in fountain pens. Along with other firms, Deutsche is expanding into rhodium, used in catalytic converters.

Deals are being teed up in lithium and “rare earth” metals, including components of electric and hybrid cars. One Credit Suisse list reads like a science textbook: alumina, cobalt, molybdenum, ferrochrome and vanadium.

“The model is virtually limitless,” said Kamal Naqvi, a 36-year-old, London-based Credit Suisse executive who helped create the new platform after joining the bank last year. In July alone, Credit Suisse was asked to put together similar contracts by producers of wood chips, chicken and potash
fertilizer.

Some lawmakers have been alarmed by the surge in investments by big institutions such as pension funds and university endowments, which allocate money to commodities tied to indexes that track futures exchanges. Big institutions have about $260 billion invested in commodities, up from $13 billion five years ago, hedge-fund manager Michael Masters told Congress earlier this summer.

These “index speculators,” he testified, were driving up prices of oil and other natural resources. Several senators agreed, responding with bills that would limit what investors can channel into commodities they don’t intend to own.

Many economists and investors balk at the bills, attributing high commodities prices to demand from emerging economies and production squeezes. Often, they hold out iron ore as evidence: Even though it wasn’t traded on a futures exchange, its price surged in the last year. The price Chinese steelmakers pay to Australian mines, for example, has nearly doubled.

“It is not that the flow of money has no impact,” said Mr. Naqvi, the Credit Suisse executive. “But this flow . . . is a distant second to the impact of market expectations on physical supply and demand fundamentals.”

If passed, the legislation could complicate contracts linked to exchanges. The bills, investors and bankers said, are inadvertently helping nurture these nascent, over-the-counter markets. That worries some critics.

In June, Mr. Masters urged Congress to investigate the iron-ore contracts and similar deals, claiming they could help investors buy natural resources, sit on them until their price rises and then sell them. “This is Wall Street innovation run amok,” he said in an interview.

“He misunderstood our product,” said Mr. Naqvi. “There is no requirement to take physical delivery at any point, so there is no encouragement to physically hoard.”

Credit Suisse’s contracts are offered by a London unit that is an alliance with Glencore International AG, a Swiss commodities company. The alliance has about 75 people in London, New York, Hong Kong, Switzerland and Sydney.

Though clients can obtain physical assets through Glencore, Credit Suisse isn’t directly involved in any physical transactions, other than its precious-metals business in Zurich. The alliance helps Credit Suisse collect information about commodities and pass it onto clients in exchange for more trading business.

These instruments have implications for the way money flows into commodities. Historically, if someone sought to profit from iron ore, they could buy shares in a producer or a mine, but not the underlying assets.

“Iron ore is probably the largest commodity market in the world that hasn’t had financial trading around it,” said Raymond Key, the global head of metals trading for Deutsche Bank in London.

Under the contracts, known as “cash-settled swaps,” the client — a hedge fund, pension fund or steelmaker — agrees to pay a fixed price for iron ore in the future. Now, it stands at about $180 per metric ton. The bank lines up a seller that wants to lock in a price.

Credit Suisse’s minimum transaction is 5,000 metric tons. No physical delivery is taken. Instead, every month, there is a net payment in cash of the difference between the set price and a floating price pegged to an index of the spot price that steelmakers pay for iron ore that is delivered immediately.

Suskind writes in “The Way of the World,” to be published Tuesday, that the alleged forgery – adamantly denied by the White House – was designed to portray a false link between Hussein’s regime and al Qaeda as a justification for the Iraq war.

The author also claims that the Bush administration had information from a top Iraqi intelligence official “that there were no weapons of mass destruction in Iraq – intelligence they received in plenty of time to stop an invasion.”

The letter’s existence has been reported before, and it had been written about as if it were genuine. It was passed in Baghdad to a reporter for The (London) Sunday Telegraph who wrote about it on the front page of Dec. 14, 2003, under the headline, “Terrorist behind September 11 strike ‘was trained by Saddam.’”

The Telegraph story by Con Coughlin (which, coincidentally, ran the day Hussein was captured in his “spider hole”) was touted in the U.S. media by supporters of the war, and he was interviewed on NBC’s “Meet the Press.”

“Over the next few days, the Habbush letter continued to be featured prominently in the United States and across the globe,” Suskind writes. “Fox’s Bill O’Reilly trumpeted the story Sunday night on ‘The O’Reilly Factor,’ talking breathlessly about details of the story and exhorting, ‘Now, if this is true, that blows the lid off al Qaeda—Saddam.'”

According to Suskind, the administration had been in contact with the director of the Iraqi intelligence service in the last years of Hussein’s regime, Tahir Jalil Habbush al-Tikriti.

“The White House had concocted a fake letter from Habbush to Saddam, backdated to July 1, 2001,” Suskind writes. “It said that 9/11 ringleader Mohammad Atta had actually trained for his mission in Iraq – thus showing, finally, that there was an operational link between Saddam and al Qaeda, something the Vice President’s Office had been pressing CIA to prove since 9/11 as a justification to invade Iraq. There is no link.”

The White House flatly denied Suskind’s account. Tony Fratto, deputy White House press secretary, told Politico: “The allegation that the White House directed anyone to forge a document from Habbush to Saddam is just absurd.”

The White House plans to push back hard. Fratto added: “Ron Suskind makes a living from gutter journalism. He is about selling books and making wild allegations that no one can verify, including the numerous bipartisan commissions that have reported on pre-war intelligence.”

Before “The Way of the World: A Story of Truth and Hope in an Age of Extremism,” Suskind wrote two New York Times bestsellers critical of the Bush administration – “The Price of Loyalty” (2004), which featured extensive comments by former Treasury Secretary Paul O’Neill, and “The One Percent Doctrine” (2006).

Suskind writes in his new book that the order to create the letter was written on “creamy White House stationery.” The book suggests that the letter was subsequently created by the CIA and delivered to Iraq, but does not say how.

The author claims that such an operation, part of “false pretenses” for war, would apparently constitute illegal White House use of the CIA to influence a domestic audience, an arguably impeachable offense.

Taxpayers will pay a big price for helping bail out the rest of the financial services industry as well, Roubini said — at least $1 trillion and more likely $2 trillion.

The banks will become insolvent because of mounting losses as a result of the housing bust and because they have only written down their subprime loans so far, he said. Still in front of them are their consumer-credit losses, for which they lack the reserves, Barron’s reported.

He also said there are hundreds of millions of dollars outstanding in home-equity loans that could be worth zero, too.

U.S. consumers, meanwhile, are “shopped out” and saving less, while the Federal Reserve’s performance in handling the crisis has been poor, Roubini said, because it failed to see that the problem extended beyond subprime mortgage debt.

Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults.

The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.

The mortgage troubles have been exacerbated by an economy that is still struggling. Reports last week showed another drop in home prices, slower-than-expected economic growth and a huge loss at General Motors. On Friday, the Labor Department reported that the unemployment rate in July climbed to a four-year high.

While it is difficult to draw precise parallels among various segments of the mortgage market, the arc of the crisis in subprime loans suggests that the problems in the broader market may not peak for another year or two, analysts said.

Defaults are likely to accelerate because many homeowners’ monthly payments are rising rapidly. The higher bills come as home prices continue to decline and banks tighten their lending standards, making it harder for people to refinance loans or sell their homes. Of particular concern are “alt-A” loans, many of which were made to people with good credit scores without proof of their income or assets.

“Subprime was the tip of the iceberg,” said Thomas H. Atteberry, president of First Pacific Advisors, a investment firm in Los Angeles that trades mortgage securities. “Prime will be far bigger in its impact.”

In a conference call with analysts last month, James Dimon, the chairman and chief executive of JPMorgan Chase, said he expected losses on prime loans at his bank to triple in the coming months and described the outlook for them as “terrible.”

Delinquencies on mortgages tend to peak three to five years after loans are made, said Mark Fleming, the chief economist at First American CoreLogic, a research firm. Not surprisingly, subprime loans from 2005 appear closer to the end of defaults than those made in 2007, for which default rates continue to rise steeply.

“We will hit those points in a few years, and that will help in many ways,” Mr. Fleming said, referring to the loans made later in the housing boom. “We just have to survive through this part of the cycle.”

Data on securities backed by subprime mortgages show that 8.41 percent of loans from 2005 were delinquent by 90 days or more or in foreclosure in June, up from 8.35 percent in May, according to CreditSights, a research firm with offices in New York and London. By contrast, 16.6 percent of 2007 loans were troubled in June, up from 15.8 percent.

Some of that reflects basic math. Over the years, some loans will be paid off as homeowners sell or refinance, and some homes will be foreclosed upon and sold. That reduces the number of loans from those earlier years that could default. Also, since the credit market seized up last year, lenders have become much more conservative and have stopped making most subprime loans and cut back on many other popular mortgages.

The resetting of rates on adjustable mortgages, which was a big fear of many analysts in 2006 and 2007, has become less problematic because the short-term interest rates to which many of those loans are tied have fallen significantly as the Federal Reserve has lowered rates. The recent federal tax rebates and efforts to modify more loans have also helped somewhat, analysts say.

What will sting borrowers more than rising interest rates, analysts say, is having to pay interest and principal every month after spending several years paying only interest or sometimes even less than that. Such loan terms were popular during the boom with alt-A and prime borrowers and appeared appealing while home prices were rising and interest rates were low.

But now, some borrowers could see their payments jump 50 percent or more, and they may not be able to sell their properties for as much as they owe.

Prime and alt-A borrowers typically had a five- or seven-year grace period before payments toward principal were required. By contrast, subprime loans had a two-to-three-year introductory period. That difference partly explains the lag in delinquencies between the two types of loans, said David Watts, an analyst with CreditSights.

“More delinquencies look like they are on the horizon because so few of them have reset,” Mr. Watts said about alt-A mortgages.

The wave of foreclosures is still rising in states like California, where many homeowners turned to creative mortgages during the boom. From April to June, mortgage companies filed 121,000 notices of default in California, up nearly 7 percent from the first quarter and more than twice as many as in the second quarter of 2007, according to DataQuick, a real estate data firm based in La Jolla, Calif. The firm said the median age of the loans increased to 26 months from 16 months a year earlier.

The mortgage giants Freddie Mac and Fannie Mae, which own or guarantee nearly half of all mortgages, are trying to stem that tide. Last week, they said they would pay more to the mortgage servicing companies that they hire to modify delinquent loans and avoid foreclosures.

Delinquencies in prime and alt-A loans are particularly challenging for banks because they hold more such loans on their books than they do subprime mortgages. Downey Financial, which owns a savings bank that operates in California and Arizona, recently reported that 11.2 percent of its loans were delinquent at the end of June, a big increase from the 6.1 percent that were past due at the end of last year.

The bank’s troubles stem from its $6.2 billion portfolio of so-called option adjustable-rate mortgages, which allow borrowers to pay less than the interest owed on their mortgage in the early years. The unpaid interest is added to the principal due on the loan, so over time borrowers can owe more than the initial loan amount. Eventually, when loans grow by 10 percent or 15 percent, the borrowers are required to start paying both the interest and principal due.

Many borrowers who got these loans during the boom had good credit scores, but many of them owe more than their homes are worth. Analysts believe that many will not be able to or want to make higher payments.

After the Oct. 5, 2001, death from anthrax exposure of Sun photo editor Robert Stevens, Mueller was “beaten up” during President Bush’s morning intelligence briefings for not producing proof the killer spores were the handiwork of terrorist mastermind Osama Bin Laden, according to a former aide.

“They really wanted to blame somebody in the Middle East,” the retired senior FBI official told The News.

On October 15, 2001, President Bush said, “There may be some possible link” to Bin Laden, adding, “I wouldn’t put it past him.” Vice President Cheney also said Bin Laden’s henchmen were trained “how to deploy and use these kinds of substances, so you start to piece it all together.”

If this story sounds plausible to you, you may have missed your calling as an officer in the U.S. Army, because Army officers, speaking with a straight face, would have you believe that such a thing is not only possible, but actually happened.

In reality, LaVena Johnson was raped, beaten, and murdered by someone on a military base in Balad, Iraq, and the Army doesn’t want you to know about it. Army officers most especially didn’t want her parents to know about it, so they concocted the suicide story, informing them that their daughter had shot herself in the head in her barracks.

Some 3,000 soldiers will be deployed over the next week in major cities including Milan, Rome and Naples.

They are patrolling alongside police officers and guarding high-profile tourist sites and embassies, as well as immigrant holding centres.

Critics say the move sends a message that Italy is swamped by crime and that its police are not up to the job.

The deployment is due to last for six months.

The BBC’s Mark Duff in Milan says troops made their presence discretely felt from first light, at the city’s main railway station and main square, the Piazza Duomo.

‘Public demand’

Those patrolling city centres wore working rather than combat dress, and carried only sidearms – though those guarding embassies and other sensitive sites were more heavily armed.

Defence Minister Ignazio La Russa said that after six months the government would “make an evaluation to see whether it has worked and should be extended to other cities”.

”This is not a militarisation of cities but a clear response to the perceived demand for greater security,” he said last week.

Right-wing Prime Minister Silvio Berlusconi swept to power in April’s election on a tough law-and-order platform, promising new measures to curb illegal immigration and combat crime.

But his government has also been accused of whipping up a xenophobic mood against the illegal immigrants it blames for much of the serious street crime in Italian cities.

Ministers say they are simply responding to Italians’ fears. A recent study showed that Italians have never before been so worried about their vulnerability to crime.

But shadow interior minister Marco Minniti said: “It’s an image-building operation that risks backfiring.”

In the tape of radio transmissions, officers referred to the attacker, who also beheaded the victim, as “Badger.” They said he was armed with a knife and scissors and was “defiling the body.”

“Badger’s at the back of the bus, hacking off pieces and eating it,” an officer with the Royal Canadian Mounted Police said on the tape.

Britain’s second-largest bank is this week expected to reveal a pre-tax loss of at least £1 billion for the first six months of the year, with analysts warning it could slide to as much as £1.7 billion in the red.

The motion, dubbed the “identification card, travel papers and biometrics database bill,” will now be referred back to the various Knesset committees, which would ready it for its Knesset votes.

The new bill called for embedding biometric data, such as fingerprints and computerized tags of facial features, in Israeli IDs and passports; as well as for the establishment of a database which would include biometric data on all Israeli citizens.

The data would be used by the Ministry of Interior in its future plans to create “smart”, forgery-proof identification papers and passports; and would also allow authorities to identify people who are not carrying any means of identification, especially in cases of a mass disaster, should the need to identify fatalities arise.

Internal Security Minister Avi Dichter told the government that the “need to create a unique (physical) bond between the person carrying an ID and the data which appears on it, is essential in order to fight the worldwide forgeries… Should we succeed we would be able to create a nationwide database controlled, as it should be, by the State.”

‘Database detrimental to civil rights’

The motion was carried despite the fierce objections of ministers who claim creating a biometrics database would be detrimental to civil rights, such as the right to privacy.

The Israeli Bar Association sent Justice Minister Daniel Friedmann a letter to that effect last week, in which it asked him to postpone the decision on the bill, pending the Bar’s further studying of the subject.

“Forming such a database would harm the citizens’ basic right to privacy,” read the letter; adding that such a database would be at constant risk of being hacked into by hostile elements, and would make “potential criminals out of every law-abiding citizen.”