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Credit markets freeze, global stocks plunge

ELEANOR HALL: With Wall Street in a frightening freefall today, market strategists are trying to
predict when and where the next crisis will emerge.

Already banks in the United States and Europe are preparing survival plans that could see more of
the big names of the financial world disappear in hasty mergers and acquisitions.

Investors are diving into gold and treasury bonds as the only havens in the financial storm and
with capitalism in an unprecedented crisis, pundits are racing to decide where to lay the blame.

This report from business editor Peter Ryan.

COMMENTATOR: Now yesterday it was AIG capital concerns. Today you're seeing capital concerns, still
in this market, still regarding financial stocks...

PETER RYAN: On the floor of the New York Stock Exchange frantic activity and high emotion after the
bailout of American International Group failed to ease the panic about sinking financial stocks.

COMMENTATOR: It's a lack of faith in general and trust in the entire brokerage structure right now
people just don't trust the model and that's the bottom line, a lack of confidence, a lack of trust
here. Also worth mentioning...

PETER RYAN: The Wall Street freefall has engulfed the entire market in a new level of fear and
suspicion. While market-watchers worry, the AIG deal won't stem the blood bath. They know what
would have happened today if the US Federal Reserve let the insurance giant fail.

Economist Jeremy Siegel:

JEREMY SIEGEL: It's my opinion that if the AIG deal wasn't done yesterday, instead of down 300
points we'd be down 1300 points.

PETER RYAN: Even so the two remaining Wall Street banking giants were caned today as investors
worried about more bad news in the pipeline.

Morgan Stanley lost as much as 44 per cent and Goldman Sachs fell as much as 26 per cent on a day
when Wall Street lost around half the gains made in the official bull market since 2002.

Now a race for survival is under way while there's still time. Morgan Stanley is weighing up a
merger with the Wachovia Bank while Morgan Stanley itself is said to be in talks to be acquired by
China's CITIC Group.

At the same time, another potential domino, Washington Mutual, is also teetering from guilt by
association, desperately looking for a marriage.

All in all it's a frightening and vastly different financial landscape, full of new and unknown
risk.

JEFF KLEINTOP: For the markets it's about uncertainty and not about getting out of the woods, you
know. It's just how big the forest is.

PETER RYAN: Financial analyst Jeff Kleintop says the fear is now swiftly moving from Wall Street to
Main Street.

JEFF KLEINTOP: A lot of what's been going on here has really been a Wall Street problem. But
obviously when you start to question the solvency of money markets, well that hits the man in the
street. And so you know, you've started to see some of that.

You're starting to see money move very much into the safest securities you talked about. And the
Fed has been on top of that in recent days but clearly needs to put a lot of money to work very
short term in this market to ensure there isn't a seize up among banks as investors really, really
question their money market funds and where the safest place to put their money is, in these
turbulent times.

PETER RYAN: As a result, investors are jumping into the perceived safety of US Treasury bills.
Today yields on three-year notes fell to their lowest level since World War II.

Economist Jeremy Siegel hasn't seen such a rush.

JEREMY SIEGEL: All these ripples about oh my God where is my money safe? Where do I have to be?
I've never seen... Treasury bills, three-month treasury bills are selling for four basis points, five
basis points.

I mean this is, I don't even think in my lifetime, I think you have to go back to the Great
Depression to get T bill rates that low. Everyone says, get me into governments, get me safe. You
know, like the whole world is coming down and that's the hunkering down the market is doing right
now.

PETER RYAN: Another haven in times of war and instability is gold. It's now up around $US97 an
ounce. And oil jumped $US6 overnight as part of the share market exit.

While so much money looks for a safe home, the blame game continues about whether this is a blow to
capitalism and whether greed really is good.

WILLIAM BEACH: You know in some respects this is the way that capitalism works. Some people say,
well it's all about greed and they're trying to get as much money as they possibly can and rake in
as many assets as are out there. But capitalism really does discipline greed.

PETER RYAN: But William Beach of the Heritage Institute says despite criticism about the
privatisation of profit and the socialisation of failure, capitalism still works.

WILLIAM BEACH: These are the kinds of corrections which are brutal, fast and very effective.
Companies are wiped out. All the stockholders right now in AIG have lost their holdings.

It is maybe too brutal for some and so that's why governments sometimes step in and say, well we
can't let this pain go on. Sometimes it isn't pretty. But in this particular case AIG maybe was too
big to fail. And we'll see. History will tell whether or not the titans of Wall Street made the
right decision or not.

PETER RYAN: The outlook though remains gloomy as credit markets freeze over. Central banks are now
racing with emergency liquidity injections to ensure the wheels of the financial system don't grind
to a halt.

ELEANOR HALL: Business editor Peter Ryan.

US Govt backflips on credit crisis bailout

ELEANOR HALL: After standing firm earlier in the week, the US Government is now not ruling out
further bailouts.

Part of the reason for this may be that it is now even more clear that the pain on Wall Street is
being felt on Main Street.

In Washington, correspondent Kim Landers reports.

KIM LANDERS: As stocks slide and gloom engulfs the financial world, Americans are struggling to
understand what's happening.

VOX POP 1: I call it the united states of socialism in the sense that we're privatising the gains
on Wall Street and socialising the losses to all the tax payers.

VOX POP 2: I have very little confidence. I want to take my money and put it under my mattress.

KIM LANDERS: The Dow Jones industrial average has plunged to its lowest level in three years just
hours after the US Government announced a massive bailout of America's biggest insurance company
AIG. Investors weren't reassured. Instead the deal seemed to add to the uncertainty surrounding the
financial markets.

And the turmoil is leaving many of those on Wall Street grappling for explanations.

Howard Silverblatt is a senior analyst with Standard and Poor's.

HOWARD SILVERBLATT: I'm shocked. I am down on the street 31 years under S and P and I've never seen
anything like this. I mean, not the crash in 87, not the inflation times of the late '70s,
definitely not the 2000, 2002. It's been nothing like this - a flight to safety and you can't even
find anywhere that's safe. These are major companies, major losses.

KIM LANDERS: Bob Diamond is the president of Barclays.

BOB DIAMOND: In 25 years in the business I've never been through a period like this year. There is
no play book, not for the investment banks and certainly not for the Fed or the Treasury.

There is no play book for any of us and I think they have to take one situation at a time and
they're getting through difficult challenges. But we will get through these.

You know the enormous influence that the financial system has had on the global economy and the
developments in so many parts of the world, it's important that we get the financial system, you
know, through these challenges and strong again.

KIM LANDERS: The White House isn't ruling out more bailouts and on Capitol Hill politicians like
the Democratic Senate leader Harry Reid are struggling to come to grips with the shifting Wall
Street landscape.

HARRY REID: No-one knows what to do. As I indicated in an earlier question, we are in new territory
here. This is a different game. We're not out here playing soccer, basketball or football. This is
a new game and we're going to have to figure out how to do it.

KIM LANDERS: Lakshman Achuthan is the managing director of the New York based Economic Cycle
Research Institute. He says the key to understanding what's happening on Wall Street is to first
acknowledge that the United States is in a recession.

LAKSHMAN ACHUTHAN: That is why you are having the midnight deals, the weekend deals with more and
more frequency. And they are not going to end any time soon.

In fact, it looks as though policymakers have said lowering interest rates further isn't going to
solve the problem because even if we lower them further, since the financial sector is so sick,
those lower rates don't make it to the broader economy.

And so therefore, rather than lowering interest rates further what we're going to do is on a case
by case basis, we're going to take a look at these institutions that are on the brink of failing
and in many cases we're going to throw them a lifeline.

KIM LANDERS: The White House today has said that the US economic news is a very mixed picture. The
spokeswoman is still saying that America has the strength to overcome the current financial crisis.
Do you believe that?

LAKSHMAN ACHUTHAN: I believe, you know, in the big picture over many, many years, certainly US
economic prospects are good.

However if we are looking over the next few quarters into say the middle of next year, the
prospects are quite dire.

I think there are a number of policy makers that may not believe that we are even in a recession
and therein is a huge problem because in order to understand what is going on with these
institutions falling over left and right, you must understand that you are in the second or third
year of a home price downturn, the second year of a credit crisis, and the first year of a
recession.

KIM LANDERS: But with fears still swirling about which institution will go under next, there's
little chance yet of stopping the panic.

This is Kim Landers in Washington for The World Today.

Local investors also get burnt

ELEANOR HALL: Investors in Australia are also running for the exits. The ASX 200 is down 3.5 per
cent this morning and is trading at levels not seen for almost three years.

Not surprisingly, it's the banks that have come under the most pressure with massive falls across
the sector.

With the latest we're joined now by Richard Lindell.

So Richard just how bad are things looking?

RICHARD LINDELL: Well the action on the markets this morning really tells the story. Macquarie
Banks is down another 17 per cent to $28. It's lost 40 per cent in a month, 60 per cent in a year,
and was close to $100 at its peak.

Babcock & Brown has shed 21 per cent to just 73 cents - it was $35 at the peak. On Babcock & Brown
there's really no confidence left at all here. It owes $50-billion and every time another bank
falls over and credit gets tighter again, things just look grimmer and grimmer for Babcock. The
market certainly doesn't think this one will survive.

Macquarie is better off. It's better capitalised, it has a more diverse business. But it still has
billions of dollars in debt to refinance. Also deals in this environment will be much harder to get
over the line so its future is certainly looking much tougher than it was certainly 12 months ago.

The ASX has queried Macquarie Bank as to why its shares have gone down so much. Macquarie Bank says
it doesn't know. In other words the previous guidance for profit of around $1-billion for this half
still stands and as far as Macquarie Bank is concerned there's no need to update the market.

ELEANOR HALL: Now Richard, how is it looking beyond the investment banks? Aare Australia's big four
banks that keep telling us they are in good shape faring better?

RICHARD LINDELL: It's fair to say that the world has just got a lot tougher for all of the banks.
Remember they source around half their funds from overseas. The big banks need to find $120-billion
on global markets in the next year. Where's that money going to come from and at what cost? No-one
really knows the answers to those questions at the moment.

So the cost of borrowing is going up for all the banks - already seeing that with rises in the
rates charged between the banks overnight and over the past week. Bad loans are also going to
increase as conditions here at home also slow down.

It's these real world conditions together with some fear causing the sell-off on the market this
morning. NAB is down seven per cent, ANZ has lost four per cent, Westpac has shed 4.5 per cent, CBA
and St George, a similar amount as well.

Now it's important to remember that our banks are in a much better position than overseas. They're
not close to collapse, they're well capitalised and the Australian economy is still relatively
okay.

But try telling that to any investor. All they see at the moment is global financial markets
seizing up and many investors don't have the nerve to hold on at the moment.

ELEANOR HALL: Now I understand that Australia's corporate watchdog is investigating allegations of
illegal trading. What's that about?

RICHARD LINDELL: Well there has been a lot of speculation that Macquarie Bank shares are being
manipulated, that false rumours are being spread to push the share price down. That could prove
very profitable for those betting that Macquarie Bank shares will fall.

The corporate watchdog ASIC is now investigating a series of complaints about specific stocks and
it mentioned Macquarie Bank in particular.

The practice of spreading false rumours is of course illegal. There's been concern for a number of
years that rumour and speculation was driving trading in a number of cases, in particular when the
market was going up. But this kind of market manipulation is very difficult to find the source of
and it's even more difficult to prove in court.

ELEANOR HALL: Now this is clearly a very difficult market. How is the Reserve Bank responding?

RICHARD LINDELL: Well we're already seeing it. It's pumped another $3-billion into the banking
system this morning. That's more than $11-billion this week.

What it's trying to do is provide liquidity to make sure that the banks have enough to continue
going about doing their business. It also helps keep short term interest rates as much as they can,
in line with official interest rates.

ELEANOR HALL: What does all this mean for interest rates for mortgage holders?

RICHARD LINDELL: Well yesterday Glenn Stevens said that he would not, well he wouldn't actually say
whether this, the events of this week has changed the interest rate environment, but it really must
have.

You just have to look at the Australian dollar. It's slumped to 78 US cents. The Australian dollar
is considered a riskier currency. It's highly leveraged to commodity prices and global growth. But
more than that the Australian dollar is being sold off with the market now pricing in much more
aggressive interest rate cuts from the Reserve Bank.

There are now real threats to the Australian growth prospects. Australia is not immune from what's
going on around the world. Commodity prices are coming off their peak, the global economy is
slowing so Australia will as well - the question is by how much.

The good news perhaps is that slowing growth does a lot of the RBA's work for it in terms of
fighting inflation. That's because when people aren't spending, no-one's going to be putting prices
up. So it could mean that the RBA will be able to cut rates faster to stave off slowing growth and
still not allow inflation to get out of control.

ELEANOR HALL: But with the credit market as it is, the banks will be making a case presumably not
to necessarily pass on any official rate cuts?

RICHARD LINDELL: Well that's true and they probably do have more of a case now not to pass on all
the official rate rises because they will face higher borrowing costs from overseas but I think
it's important to remember here that what the Reserve Bank will target is the actual mortgage rate.

So if it wants the mortgage rates to go down by one per cent, it cut will official rates until the
banks pass on one per cent worth of rate cuts.

ELEANOR HALL: Richard Lindell, thank you.

Parliamentary committee rejects Russia uranium deal

IR plan fails to please unions or business

ELEANOR HALL: Unions are voicing their unhappiness with the Government's unfair dismissal proposals
for small businesses.

Under the plan small business owners will be able to sack workers they've employed for under a
year, as long as they give them one warning.

But while unions are complaining about the process being not fair to employees, a major industry
group is warning that it will expose businesses to more unfair dismissal claims.

In Melbourne, Simon Lauder reports.

SIMON LAUDER: If negative feedback is a measure of balance, then the Federal Government may feel
like it's found the middle ground with its new workplace laws. They leave unions and industry
groups both something to complain about.

The head of the Australian Chamber of Commerce and Industry, Peter Anderson, acknowledges the
Government's balancing act.

PETER ANDERSON: The Government has acted in accordance with what it had said it would do. We do
recognise the Government has been trying to strike a reasonable balance.

SIMON LAUDER: So does the secretary of the ACTU, Jeff Lawrence.

JEFF LAWRENCE: It is a significant difference to WorkChoices. It's a quantifiable difference.

SIMON LAUDER: But the head of the Victorian Trades Hall Council, Brian Boyd, says the changes
announced by the Deputy Prime Minister Julia Gillard are at risk of being dubbed "WorkChoices
light".

He's particularly concerned for workers at small businesses who he says will still be too easy to
sack unfairly.

BRIAN BOYD: They don't deserve it and they didn't march down the streets for three or four years
against John Howard to accept that limited ability that's now on offer.

There's a big expectation out there amongst the workforce that John Howard's industrial relations
legacy had to be torn up and replaced with a fair system. That's what the expectation is.

What we want is the trade union movement to be able to say to its workforce and the wider community
that John Howard's legacy was defeated and removed.

SIMON LAUDER: The biggest difference for Labor's new rules and WorkChoices is the unfair dismissals
policy for small businesses. Businesses which employed 100 people or fewer were exempt under
WorkChoices.

Labor's new threshold is 15 employees. Workers will only be protected by unfair dismissal laws
after a year and then they can be sacked if they are warned to improve, and fail to.

Brian Boyd says that's not what Labor promised and it's not good enough.

BRIAN BOYD: Most workers in Australia work for employers that employ 15 or less, so if they're
going to have severe restrictions on the ability to test whether they were unfairly dismissed or
not, then that is also not what we expected when we campaigned leading up to the last federal
election.

SIMON LAUDER: The chief executive of the Australian Chamber of Commerce and Industry, Peter
Anderson, is also not satisfied with the unfair dismissal laws for small businesses.

PETER ANDERSON: The 15 figure is not a complete exemption for small business and we would much
rather just see an exemption for small businesses at that, or around that level, rather than what
is proposed which is that those businesses are exposed to unfair dismissal claims after 12 months.

SIMON LAUDER: Collective bargaining is another area where the unions and business groups both
disagree with the Government's approach, but more so with each other.

Peter Anderson says the Government is putting too much emphasis on collective bargaining and that
has the potential to lead to more industrial action.

PETER ANDERSON: The Government is putting a lot of its eggs in the collective approach. We need to
make sure that the new rules set by Government have some flexibility built into them.

And we also need to make sure that the Government's proposals to take a strong line against
industrial action are retained because we have low industrial disputes in Australia and we don't
want to see these new rules provide opportunities for a re-activation of strike action.

SIMON LAUDER: Victorian union leader Brian Boyd argues the conditions on collective bargaining
claims are too restrictive for workers to be able to bargain properly.

BRIAN BOYD: They want to have a code that virtually goes line by line about how you go about having
industrial action to get a fair industrial agreement in the first place.

And I'm also talking about the right of union officials and union organisers going into organised
workplaces so they can win a decent collective bargain.

ELEANOR HALL: That's the head of the Victorian Trades Hall Council Brian Boyd speaking to Simon
Lauder.

Israel a step closer to new PM

ELEANOR HALL: Israel's Foreign Minister Tzipi Livni has claimed victory as the new leader of the
ruling Kadima Party and could be Israel's next prime minister.

The current leader Prime Minister Ehud Olmert announced he'd step down to fight the corruption
allegations against him, but he remains Prime Minster until a new coalition government is formed or
until elections are held and he is still pressing ahead with peace talks with Palestinian leader
Mahmoud Abbas.

To discuss the latest developments I spoke to Eli Yerushalmi, the deputy chef de mission at the
Israeli Embassy.

ELEANOR HALL: Mr Yerushalmi, thanks for joining us.

ELI YERUSHALMI: Pleasure being with you.

ELEANOR HALL: Now Tzipi Livni has claimed victory as the new leader of Kadima. Will she be a
significantly different leader from Ehud Olmert?

ELI YERUSHALMI: Well you know that before I answer that question we first of all need to know if
she is going to be the next prime minister.

First of all she needs to do something very, very important which is to form a coalition. So
eventually the government, if it would be led by Mrs Livni, it will have to be a coalition of a
certain compromise.

Now in terms of her being prime minister and a different leadership and so on, I think her
positions are very, very well known. In terms of the peace process and everything to do with that,
then I think she'll go by the lines that we've seen in the last couple of years.

ELEANOR HALL: As you said, she's not yet prime minister because she needs to form her own
coalition, but what are the chances that the Labour Party, for example, would not join her in
coalition as it did with Mr Olmert?

ELI YERUSHALMI: It's hard to say. There are two parties which are kind of you know hesitating at
the moment. One is the Shas Party which is an ultra-orthodox Sephardic party who tends to be a
little bit more on the right-wing side of Israeli politics and as you know Tzipi Livni is more to
the centre, even centre-left.

And the Labour Party also has a problem in terms of Tzipi Livni's leadership because a lot in the
party say that maybe it will be good for the party to go for an early election that will be called
in a few months and that will give them an opportunity to kind of show their real flag and get more
seats in the Knesset than they do right now.

ELEANOR HALL: Of course the opinion polls are showing a surge in support for Benjamin Netanyahu's
Likud Party, aren't they?

ELI YERUSHALMI: That's true, that's true. But you know in Israel you never know the polls are
never, you know, are never right. A lot of things might change. And don't forget that Israel is
facing some critical issues which might pop up in the next few months, even before that election.

ELEANOR HALL: Well even as this vote for a new leader has been taking place, the current Prime
Minister Ehud Olmert has been holding what he's called serious talks with the Palestinian leader
Mahmoud Abbas. What would a new government mean for these peace talks?

ELI YERUSHALMI: Well I think a new government or in matter of fact any government of Israel will
try to move forward in terms of the peace process. This is the most important thing for us, meaning
the most important thing for us right now is of course Israel's security and Israel's survival.

And we're facing a major, major issue with Iran threatening to destroy Israel and it's trying to
obtain nuclear weapons. That is the most important issue right now on any agenda of any Israeli
government or the Israeli people.

And the second thing is of course the continuation of the peace process. We've been discussing you
know negotiating with them for many, many years and we still haven't solved you know some of the
basic issues on the table.

ELEANOR HALL: Now if the government were to be led by Tzipi Livni, how different would it be say to
a government led by Benjamin Netanyahu?

ELI YERUSHALMI: I think the differences are only in nuance, meaning it might seem to the listener
that Netanyahu is a little bit tougher and Tzipi Livni is a little bit less, but the truth of the
matter is that there is not a great difference in terms of how Israel handles itself in the peace
process between right and left.

ELEANOR HALL: Critics are already describing Mrs Livni as too inexperienced saying she wouldn't
lead a strong government. What sort of pressure does that put on her? Will it make her more hawkish
in relation to foreign policy issues like those you've been describing?

ELI YERUSHALMI: It's hard to say. You know, Tzipi Livni despite the fact she has not been, you
know, a prime minister, she has definitely been many, many years in Israel's government. She's been
foreign minister. She knows what she's talking about. She's participated in the negotiations,
especially with the Palestinians.

So I don't think that kind of pressure will mean that she'll be tougher or less tougher. I think it
will depend by the issue and of course by the formation of the next government.

ELEANOR HALL: Now she described her win, becoming leader of Kadima, as a victory for the good guys.
What does she mean by that?

ELI YERUSHALMI: Well that's a phrase she used. I assume she meant the good guys are the people
pretty much that support her. Politically they are very much into the centre of Israeli politics.

Mofaz represented in a way a little bit more centre-right of Kadima politics. But again, as I'm
telling you, this was a phrase used in the happiness of her winning the election.

The differences between the different parts of Kadima or the different parts of the Israeli
Coalition or even between Likud, Kadima and Labour are not that great when it comes to the real
issues of Iran, negotiations with the Palestinians and negotiations with the Syrians.

ELEANOR HALL: Eli Yerushalmi, thanks very much for joining us.

ELI YERUSHALMI: Thank you.

ELEANOR HALL: That's Eli Yerushalmi, the deputy chef de mission at the Israeli embassy.

Sixteen killed in US embassy attack

ELEANOR HALL: The United States says an attack on its embassy in Yemen has only stiffened its
resolve to fight terrorism.

Sixteen people, including six of the bombers, were killed in the attack and the United States is
pointing the finger at al-Qaeda.

Analysts say Yemen has a reputation as a safe haven for terrorists but that recently the government
has been trying to crack down on militants.

Michael Edwards has our report.

MICHAEL EDWARDS: It's the latest incident in a country regarded as a terrorist hot-spot. In what's
being described as a "sophisticated" operation, militants driving cars packed with explosives and
armed with rocket launchers attacked the US embassy compound in the Yemeni capital of San'a.

The attackers killed six Yemeni policemen and four civilians. Six militants also lost their lives.

US State Department spokesman Sean McCormack says the attack bears the hallmarks of al-Qaeda.

SEAN MCCORMACK: We have multiple vehicle-borne devises, along with personnel on foot, seemingly in
an attempt to try to breach the perimeter, actually get inside, get inside the perimeter and again
try to inflict further damage and inflict loss of life.

MICHAEL EDWARDS: Media reports say a group calling itself Islamic Jihad in Yemen has claimed
responsibility.

Associate Professor David Wright-Neville, a terrorism expert from Monash University says it's a
strong likelihood that this group is linked to al-Qaeda.

DAVID WRIGHT-NEVILLE: Yemen is an area where al-Qaeda has been very active in the past.

Yemen is bin Laden's ancestral home. He's a Hadrami whose family originally came from Yemen and
settled in Saudi Arabia. There have been previous attacks by al-Qaeda in Yemen.

MICHAEL EDWARDS: Bordering Saudi Arabia and Oman, Yemen is regarded as an emerging centre for
Islamic terrorism.

The most significant attack on its soil against US interests came in 2000 when 17 sailors were
killed in a suicide bomb strike on the "USS Cole". In recent months there have been several other
smaller attacks.

And David Wright-Neville says recently the Yemeni Government has cooperated more closely with the
United States to crack down on terror groups.

DAVID WRIGHT-NEVILLE: There's been a number of attacks against American interests in Yemen this
year. This is the most significant, obviously, outside the US embassy.

But at the same time I think it's designed to send a message to the government in Yemen that its
cooperation with the Americans is likely to be punished because as a subsidiary to this attack
there was of course an assault against a police station.

And so there are multiple audiences that this act of terrorism was designed to cater to.

MICHAEL EDWARDS: David Wright-Neville says the democratically elected Yemeni Government faces a
tough dilemma when it comes to dealing with the US. Support for Islamic militants is considered to
be strong among the Yemeni population.

Terrorism experts say outside the major cities the Government is often left no choice but to leave
militant groups to their own devices.

In recent years the Government has introduced a de-radicalisation program aimed at re-educating
terrorists.

David Wright-Neville says these programs have mixed results.

DAVID WRIGHT-NEVILLE: Some people suggest it's been fairly successful, especially in the prisons
and it has robbed some of the extremist movements of some potentially very valuable young recruits.

But others suggest that you know, they're a bit more, I should say, they're a bit more sceptical
about this program. Their argument is that the de-radicalisation program simply means a few
perfunctory lessons in a moderate form of Islam and then sort of let them out of prison and push
them across the border into Iraq.

ELEANOR HALL: Terrorism analyst David Wright-Neville ending Michael Edwards' report.

Concerned parents flood Chinese hospitals as milk crisis widens

ELEANOR HALL: Across China worried parents are rushing to hospitals to have their children examined
as the milk contamination crisis widens.

Milk powder made by San Lu, a Chinese company part owned by New Zealand dairy giant Fonterra, has
now killed three babies and made more than 6,000 sick.

As New Zealand correspondent Kerri Ritchie reports, Fonterra executives are now saying that they
knew about the contamination for six weeks before they went public.

KERRI RITCHIE: Fear and anger is spreading across China.

Twenty-two companies have now admitted selling poisonous milk powder. The milk was contaminated
with the toxic substance melamine by farmers in China. They wanted protein levels to appear high,
even though they had diluted the milk with water to get more money.

Three babies have died; more than 6,000 others are sick.

Jow Jan Shin (phonetic) is very worried about his 15-month-old son.

JOW JAN SHIN (translated): I took my son to the hospital for a medical check and he was diagnosed
with a stone in the right side of his kidney because he was drinking San Lu milk powder.

KERRI RITCHIE: New Zealand dairy co-operative Fonterra owns 43 per cent of San Lu. Andrew Ferrier
is Fonterra's CEO.

ANDREW FERRIER: This is an absolutely shocking and tragic incident. We're going to do whatever we
can to make it right. So it's not an issue of responsibility. It's an issue of our responsibility
to the babies there. So we're all over this one.

KERRI RITCHIE: The San Lu board which includes three Fonterra members was told about the
contamination crisis on August the 2nd. Six weeks later Fonterra went public.

Andrew Ferrier defends the decision to wait, saying Fonterra wanted to work with the Chinese
Government. But he's dodging questions about compensation.

ANDREW FERRIER: Well the Chinese Government is controlling all aspects of the health of these
babies and compensation and so on. And as I said, we're meeting with officials of the Chinese
Government. We want to be doing the right thing here.

KERRI RITCHIE: Fonterra is owned by New Zealand dairy farmers. That means this scandal can't harm a
share price but it can harm profits and Fonterra's reputation. Andrew Ferrier says money isn't on
his mind.

ANDREW FERRIER: We're not worried about that right now, frankly. We're just worried about doing the
right thing. We're relieved that this is in the public domain. We'd like to see that San Lu can get
back and operating with safe product and we'll put all of our energies to that.

KERRI RITCHIE: New Zealand dairy farmers are defending Fonterra bosses. Vice-president of the
Farmers Federation Frank Brenmuhl says Fonterra tried hard to get the product recalled.

FRANK BRENMUHL: You can move as fast as people allow you to move and given the restrictions you
have in dealing with a foreign country, there are some things you have to do.

KERRI RITCHIE: Frank Brenmuhl hopes the scandal doesn't harm Fonterra's reputation.

FRANK BRENMUHL: All of New Zealand farmers on this one, will be monitoring this one closely because
they are concerned about reputation, they are concerned about food safety. I mean we have spent out
lives ensuring that we produce the very best product so that people can consume this with
confidence.

KERRI RITCHIE: But Dr Anne-Marie Brady, who lecturers in Chinese politics at New Zealand's
Canterbury University, says Fonterra was foolish to think Chinese officials would inform parents
about the contaminated milk.

ANNE-MARIE BRADY: It's a mixture of the political control, along with a society that frequently
doesn't abide by rule of law. The Government doesn't follow rule of law and people often ignore the
laws. So for companies like..New Zealand, who value their international reputation, China is a very
difficult environment to work in.

KERRI RITCHIE: In China, five Government officials have been sacked. China has admitted its dairy
market is chaotic. It has ordered that all its dairy products be tested.

This is Kerri Ritchie in Auckland reporting for The World Today.

Bourke residents protest Toorale acquisition

ELEANOR HALL: It's the first major purchase under the Federal Government's $3-billion national
water plan but it's running into trouble with locals.

Residents of the Bourke area in north-western New South Wales are planning a protest today against
last week's sale of the historic farming property Toorale Station to the New South Wales and
Federal Governments.

They say that while the purchase might be good for the Murray Darling River system, it threatens
the survival of their community.

Karen Barlow has our report.

KAREN BARLOW: Turning the Toorale cotton and grazing station into a national park run by New South
Wales should release 20 gigalitres of water back into the system every year.

But that's not the aspect the locals are worried about.

TREVOR RANDALL: Everybody would have to accept that the water is gone. Okay, well that's all right,
that people have wanted the water. They have the water. That's too late. That's past history.

KAREN BARLOW: Trevor Randall is a local businessman and a former president of the Bourke Shire. He
says the sale will remove 10 per cent of the shire's livestock production and lead to the loss of
at least 100 jobs. He's helped to organise a rally in Bourke today to protest against the sale.

TREVOR RANDALL: We're at a point where, you know, we get knocked around by governments, we do
nothing, we sit and do nothing. We're not doing nothing this time.

KAREN BARLOW: Where do you get that 10 per cent figure from?

TREVOR RANDALL: Oh, the figures are well-known. The shire have got into the sites and we've got the
production figures. We got the productions from the Rural Lands Protection Board.

KAREN BARLOW: The locals say they want to salvage aspects of the deal to get a better outcome the
area.

Trevor Randall concedes the crop areas are gone and he wants the remaining 89,000 hectares to be
released or resold and then turned into sheep and cattle farming land.

He's backed by the Mayor of Bourke, Wayne O'Malley.

WAYNE O'MALLEY: I don't believe they have considered the socio-economic side of things at all in
this particular instance because it seemed to be all very rushed and I don't know even, you know,
I'd question the due diligence of the amount of money payed for the water too.

But apart from that I'm more concerned about the economic and loss of jobs.

KAREN BARLOW: There are locals happy with the sale. The Australian Floodplain Association
represents the interests of floodplain residents and communities. Its secretary Sandy Prell wants
to talk to government to ensure that the property doesn't go to waste as a national park.

SANDY PRELL: I doubt that we can turn this sale around so what the Australian Floodplain
Association intends to do is to get in behind the Government and make absolutely sure that the
management is conducted in the best possible way.

I guess it's fair to say that perhaps the New South Wales National Parks and Wildlife don't have a
great record in land management in New South Wales, particularly with respect to the Culgao
National Park. So for us to get into work with government and ensure that management is exemplary
is really important.

KAREN BARLOW: The New South Wales Government says it is sensitive to the concerns of locals, but
has indicated the region must get ready for a radical change in income source.

The State's Climate Change Minister Carmel Tebbutt says Toorale Station was bought as an entire
package and is likely to stay that way.

CARMEL TEBBUTT: There will be employment opportunities with the management of the reserve. There
will be employment opportunities also as the water infrastructure is decommissioned. It is also of
course a tourism opportunity and the Department of Environment and Climate Change also have a
commitment to purchasing locally, to buying locally, to buying in Bourke.

ELEANOR HALL: The New South Wales Minister for Climate Change Carmel Tebbutt, ending that report
from Karen Barlow.

McEnroe Snr plans men's tour shake-up

ELEANOR HALL: He was a Wimbledon and US Open Champion many times over, but John McEnroe is still
probably best remembered for his explosive temper on the tennis court.

Now his father, John McEnroe senior, is a candidate to run the men's tennis tour and he's planning
to shake it up.

He's been telling Simon Santow that he thinks the tour is ready for some big changes.

JOHN MCENROE: I think that the rules that the tour imposes on the players as far as their
participation are totally unfair and need to be revised in a substantial manner.

SIMON SANTOW: In what way are they unfair?

JOHN MCENROE: I think that requiring the players to play every of the - this is not taking up the
Grand Slam, the players obviously play the Grand Slams because they want to and they think they
should and it benefits their careers - but the tournaments below that, the so-called super series.

The players are required to play those whether or not they wish to and if they don't they get
penalised by reductions in their bonus money and if they're injured they're supposed to go and make
an appearance at the site, which is just completely absurd.

If you're sick or you're ill or you're injured, the last thing you want to do is hop on a plane and
travel six or eight time zones to stand in a stadium and say you're sorry you're not there to play.

SIMON SANTOW: But presumably those rules are in place because there was a degree of scepticism from
the tennis public and indeed from the tennis promoters that players weren't genuinely injured when
they said they were.

JOHN MCENROE: I understand that and that may be the case in certain instances. My own view is that
that's certainly not the case as a general rule.

On the other hand, there would not have to be such scepticism if the players weren't required to
go, if they could simply say well I'm not going there at this time.

SIMON SANTOW: Do you see the same level of passion as when your sons played the game?

JOHN MCENROE: Oh I think so. I mean it's just different. I think, you know, John was very
vociferous and on occasion was inclined to go overboard.

JOHN MCENROE (Junior, on the court): This is absurd! I can't believe this!

You're a disgrace and everyone here is a disgrace. You can't get a call this far out right. It's
absolutely unacceptable!

JOHN MCENROE: But he brought a lot of order to the game and a lot of passion and his heart was on
his sleeve every time.

JOHN MCENROE (Junior, on the court): Oh shit!

UMPIRE: Forty-thirty. Violation (inaudible, crowd booing) Mr McEnroe.

JOHN MCENROE: There are players of that kind now. Sampras was not, certainly Bjorn Borg wasn't. But
I mean there's Andy Murray now and then Rafael Nadal has shown a lot of passion as has Federer now.

So I think there are plenty of players who are there and giving their all.

SIMON SANTOW: If you are successful in heading up the ATP, apart from relaxing some of those rules
about participation in tennis tournaments, what else would you like to do?

JOHN MCENROE: I think one rule that John for example has been proposing for many years is that the
let on serves should be a played ball, not a do-over, just as you play a let when in the course of
the game, after the serve has been done.

There seems to be no reason why you should have a different treatment of the same thing when it's a
service.

SIMON SANTOW: And what about Mr McEnroe seeing women's and men's tournaments combined more often,
other than in the majors?

JOHN MCENROE: My own view of that is that's a marvellous thing for the WTA (Women's Tennis
Association) tour but I don't see it doing anything for the ATP (Association of Tennis
Professionals) tour.

SIMON SANTOW: Why wouldn't it do anything for the men? I mean the women's game is very buoyant.

JOHN MCENROE: I mean, well if the women's game is so buoyant then just run their own tournaments
and be buoyant.

SIMON SANTOW: Why would there be no up-side for the men?

JOHN MCENROE: Well I mean what up-side is there? I mean the men that are there now, they're getting
the money. The possibility could be that the tournaments will say now that we have to have two sets
of players right here at the same time, we'll have to cut the prize money down.

SIMON SANTOW: Are you an advocate for the men and women to receive the same pay?

JOHN MCENROE: Absolutely not.

SIMON SANTOW: And why is that?

JOHN MCENROE: I think Billie Jean King has sold the world a bill of goods, I think she's
marvellous. I think every player in the WTA tour should donate 10 per cent of their winnings every
year and give it to Billie Jean King because she has convinced the world that there should be equal
pay for what is not equal work.

SIMON SANTOW: Why is it not equal work?

JOHN MCENROE: The men play three out of five in the majors; the women play two out of three. That's
just for starters.

Also you see men's matches going three and four hours and you see the women's match, particularly
in the early rounds, going less than the full hour; never two hours. I mean it's just, it's absurd
to suggest that that's the same amount of work.

SIMON SANTOW: If you were successful in heading up the ATP, how would you deal with someone like
your son's behaviour?

JOHN MCENROE (Junior, on the court): You can't be serious man. You cannot be serious! That ball was
on the line! The chalk flew up! That's clearly in! How can you possibly call that out?

JOHN MCENROE: I wouldn't do a thing. Behaviour was, my son's behaviour was perfectly all right
except in rare instances, and in those rare instances he deserved to be dealt with and he was.

And so I don't see any need for any special rules to deal with it. In the first place there's
no-one like that around. John is a unique individual and he's a wonderfully unique individual and
he will stay that way.

But I don't think he ever was a real problem. The problem was with the media and their lemming-like
attitude about things.

ELEANOR HALL: They're a feisty lot the McEnroes aren't they? That's John McEnroe senior speaking to
Simon Santow.