As Israel presses on its air retaliation in Gaza, many in the world have called for a 48 hour cease-fire, a plea that the Israeli government has chosen for the moment to ignore. Writing in today's New York Times, David Grossman argues that now is precisely the time for Israel to pause its strategic campaign. Hamas cannot be driven from power by repeated air assaults on a vulnerable population. Nor can rubble be pounded relentlessly. Rocket fire from Gaza has diminished, but is unlikely to cease. Of utmost emergency is the evacuation of wounded citizens from Gaza to hospitals in Egypt and Israel. The borders need to be opened for UN emergency services. And talks brokered by Egypt or Turkey need to take place.
An unlikely scenario, perhaps, but nothing should surprise us in the Middle East. Once hopeful glimmers such as the Israeli military withdrawal and evacuation of settlers in Gaza during August 2005 and the unexpected Hamas victory in elections during January 2006 have long since been extinguished as Israel has attempted to quarantine Gaza to drive Hamas from power. For its part, Hamas has sought to use the abduction of Israeli soldier Shalit as leverage to free 1,400 Palestinian prisoners in Israeli jails. As a result, Gaza has been turned into a heavily armed ghetto whose very existence strikes fear into the heart of Israel.
In the meantime, we are treated to the blame game. Palestinians blame Israel for crimes against humanity, demand an end to the bombing, the targeted assassinations of Hamas leaders and the occupation of the West Bank. Israel blames Hamas for the resumption of indiscriminant rocket firing into southern Lebanon once it chose to let the six-month cease-fire expire.
Cooler heads might prevail, but not as long as testerone levels soar sky high. Alas, a lot of innocent people will suffer. But such is the stuff of life in the Middle East.
Wednesday, December 31, 2008
Friday, October 10, 2008
BAILOUTS, BALANCE SHEETS AND B.S.
The steep fall in stock markets around the world during October is troubling news in nearly every respect. Despite the efforts of central banks and individual countries to come to the rescue of banks and other lending institutions, the crisis continues to spread and deepen. No financial institution seems willing to lend substantial amounts of money to other institutions, though conservative banks in the U.S. and abroad have used their strong capital positions to take over failing institutions. Unfortunately, in the midst of this financial free-fall, the United States is engaged in a highly partisan political debate that only occasionally focuses on the problem at hand.
It was certainly unwise for Secretary Paulson to allow the proposed $700 billion rescue package to be characterized as a bailout. To an extent, it certainly was a bailout of investment banks and other financial institutions that had accumulated large amounts of worthless mortgage backed securities on their balance sheets. Allowing these entities to pawn off this "toxic waste" was certainly one way of rescuing these wobbly lending institutions that could neither lend nor repay monies from a weakened capital base.
Yet, in the political discussion leading up to Congressional approval of the revised bailout package, now laden with special sweeteners, some Republican representatives decried accounting rules as one cause of the distress. Mark to market accounting had led financial institutions to mark down the value of mortgage based securities and derivatives once it became apparent that there no longer was a market in this financial inventions. Mark to market markdowns were thus not a cause, but a reflection of the loss of value that any financial institution holding such junk had experienced. In order to fairly reflect this loss of capital on the balance sheet, these mortgage based securities were reduced in value.
To advocate, as many Republican representatives attempted, the suspension of "mark to market" accounting in favor of some alternative - mark to make believe - might have rescued some balance sheets, but would have worsened the crisis in confidence that has led to the seizure of various credit markets. Balance sheets must reflect accurately the present value of a company or corporation. To game the balance sheets or to allow questionable transactions to remain off-balance sheet items will not save the system, but merely hasten its demise.
If Enron taught us nothing at all, it should have warned us that playing fast and loose with accounting rules and resorting to off-balance sheet accounting to hide losses and inflate profits does not eliminate problems, it merely postpones them. Then, when the deceit can no longer be maintained, the collapse is inevitably short, swift and brutal.
In the current crisis, the root cause is the frivolous waste of capital on mortgage loans that could not be repaid by those agreeing to interest free subprime mortgages and the like. Once, the default rate in the subprime market exploded, it caused lenders to pause with respect to refinancing teaser lows. When those holding mortgages in need of refinancing in order to avoid the balloon payments inherent in interest-free mortgages could no longer find refinancing, they too joined the chorus of mortgage defaults.
Unlike the past, many financial institutions were not directly impacted by the increased rate of defaults in the housing sector. Most of the original mortgages, especially the questionable ones involving subprime, Alt-A and option ARM mortgages, had been sliced and diced and packaged with other mortgages in order to spread the risk. At a certain tipping point, however, no matter how much repackaging had been done, the level of risk had to increase.
At the ground level, of course, foreclosures in one community reduced the property values of all surrounding homes. This led to negative equity scenarios that afflicted even reasonable mortgages. Once the mortgage value of the house exceeded the market value, even honest people were put in a bind. They could continue to pay the mortgage, even though they were paying more than the house was presently worth, and hope for an upturn in the housing market to bail them out. They could seek to refinance their mortgages at a better rate. Or, they could walk away from the negative equity by refusing to throw good money after bad. Unfortunately, many chose the latter.
The cascading of defaults on mortgages put pressure on the lenders. Ameriquest and Countrywide were the first large lenders to go under. Indeed, Countrywide burned through a loan from Bank of America in such short time that Bank of America had to buy Countrywide in order to have any hope of recouping its investment. Later, WaMu and Wachovia, a savings and loan and commercial bank respectively, were taken over as the burden of bad loans brought down their value.
It was certainly unwise for Secretary Paulson to allow the proposed $700 billion rescue package to be characterized as a bailout. To an extent, it certainly was a bailout of investment banks and other financial institutions that had accumulated large amounts of worthless mortgage backed securities on their balance sheets. Allowing these entities to pawn off this "toxic waste" was certainly one way of rescuing these wobbly lending institutions that could neither lend nor repay monies from a weakened capital base.
Yet, in the political discussion leading up to Congressional approval of the revised bailout package, now laden with special sweeteners, some Republican representatives decried accounting rules as one cause of the distress. Mark to market accounting had led financial institutions to mark down the value of mortgage based securities and derivatives once it became apparent that there no longer was a market in this financial inventions. Mark to market markdowns were thus not a cause, but a reflection of the loss of value that any financial institution holding such junk had experienced. In order to fairly reflect this loss of capital on the balance sheet, these mortgage based securities were reduced in value.
To advocate, as many Republican representatives attempted, the suspension of "mark to market" accounting in favor of some alternative - mark to make believe - might have rescued some balance sheets, but would have worsened the crisis in confidence that has led to the seizure of various credit markets. Balance sheets must reflect accurately the present value of a company or corporation. To game the balance sheets or to allow questionable transactions to remain off-balance sheet items will not save the system, but merely hasten its demise.
If Enron taught us nothing at all, it should have warned us that playing fast and loose with accounting rules and resorting to off-balance sheet accounting to hide losses and inflate profits does not eliminate problems, it merely postpones them. Then, when the deceit can no longer be maintained, the collapse is inevitably short, swift and brutal.
In the current crisis, the root cause is the frivolous waste of capital on mortgage loans that could not be repaid by those agreeing to interest free subprime mortgages and the like. Once, the default rate in the subprime market exploded, it caused lenders to pause with respect to refinancing teaser lows. When those holding mortgages in need of refinancing in order to avoid the balloon payments inherent in interest-free mortgages could no longer find refinancing, they too joined the chorus of mortgage defaults.
Unlike the past, many financial institutions were not directly impacted by the increased rate of defaults in the housing sector. Most of the original mortgages, especially the questionable ones involving subprime, Alt-A and option ARM mortgages, had been sliced and diced and packaged with other mortgages in order to spread the risk. At a certain tipping point, however, no matter how much repackaging had been done, the level of risk had to increase.
At the ground level, of course, foreclosures in one community reduced the property values of all surrounding homes. This led to negative equity scenarios that afflicted even reasonable mortgages. Once the mortgage value of the house exceeded the market value, even honest people were put in a bind. They could continue to pay the mortgage, even though they were paying more than the house was presently worth, and hope for an upturn in the housing market to bail them out. They could seek to refinance their mortgages at a better rate. Or, they could walk away from the negative equity by refusing to throw good money after bad. Unfortunately, many chose the latter.
The cascading of defaults on mortgages put pressure on the lenders. Ameriquest and Countrywide were the first large lenders to go under. Indeed, Countrywide burned through a loan from Bank of America in such short time that Bank of America had to buy Countrywide in order to have any hope of recouping its investment. Later, WaMu and Wachovia, a savings and loan and commercial bank respectively, were taken over as the burden of bad loans brought down their value.
Monday, September 29, 2008
IDEOLOGICAL IDIOCY AND THE WAY FORWARD
Let the markets fall and the recriminations spread. When the House of Representatives voted down the bi-partisan bailout bill proposed by the Bush Administration and the Congressional leadership, the markets reacted as expected. They plunged! In the meantime, two banks in Europe collapsed and were taken over before the U.S. Congress voted. Anecdotal reports describe a brief collapse last week of the overnight commercial paper market, a necessary financing arm for businesses large and small to meet payroll and inventory needs while providing other firms with a temporary surplus of cash to earn interest overnight. Washington Mutual (WaMu) was taken over and sold to J.P. Morgan Chase, while Wachovia looked for salvation from Citigroup. The crisis is very real and needs to be addressed.
Unfortunately, the Republican ideologues in the House of Representatives made it clear that they were not prepared to take away down a plank that in their view was but a slide down a slippery slope to socialism. Socialism, seriously? Are the Republican representatives from the heartland so confused about the world that they would describe an equity stake in a $700 billion bailout as socialism? It's not even nationalization of an industry.
In addition, the Republican representatives proclaimed their desire for even greater deregulation and an extension of capital gains cuts towards industry. On the other hand, they were unwilling to lift a hand to allow bankruptcy judges to help filers hang on to their homes.
At least, in one small respect, the Republicans put forth a moderately interesting idea: an insurance system perhaps akin to FDIC insurance that would be paid for by the securities industry. Unfortunately, such an insurance scheme would contribute nothing to easing the current crisis. In short, the Republicans have nothing to contribute to a crisis that is the direct result of 30 years of Reaganomics.
95 members of the Democratic caucus also voted against the bailout bill. Why? Like many economists, these representatives harbored many of the well-deserved reservations about the proposed bailout. Some of these concerns were addressed partially in the modifications to the original Paulson proposal. Some were not. Other objections were trite, yet understandable in the poisoned partisan atmosphere that is the result of 8 years of Bush II misrule.
Certainly, there are plenty of reasons not to trust the Bush Administration, an administration that downplayed the seriousness of the building crisis for the past two years and through its own lack of oversight and deregulatory delusion furthered a climate of anything goes that finally brought down the financial sector when the mortgage backed securities proved nothing more than a house of cards. Besides, there is that $10 billion per month Iraq debacle that is no more closer to conclusion now than it was in 2003.
One of the primary deficiencies of the proposed legislation was its almost total failure to address what is at the heart of the current crisis: the unending procession of foreclosures in the housing sector. As long as no legislation, akin to the 1933 federal Home Open Loan Corporation that pioneered the 15 year mortgage and kept people in their homes, is proposed nothing will staunch the bleeding in the housing sector. Nor can there be any possibility of recovery in the secondary and derivative markets built entirely upon these suspect mortgages. What needs to be done is the creation of an agency similar to what FDR put into place in 1933 that kept people in their homes and took problem mortgages out of the hands of savings and loans. Until this happens, whether $700 billion will be enough to reprime the global credit markets is open to question. Certainly, the first $400 billion prior to the latest request was not sufficient.
The righteous anger against investment bankers, Wall Street wonder boys and other greed gobbling Gatsbys unfortunately has clouded the judgement of too many Americans towards the necessity for action. Shout on until the crisis begins to cut sharply into Main Street as credit tightens up even further and jobs begin to become scarce. Righteous indignation without reason is ridiculous and has been fostered by runamok Reaganism for far too long. As the echoed shouts of USA, USA peter out, so too will the industrial and financial strength of a once great country. Let them stuff that in their ballot boxes, especially in the American heartland that for too long has heaped scorn on the cosmopolitan coasts.
That John McCain has the audacity to blame this on the Democratic party for injecting partisanship into a spirit of bipartisanship after his partisan grandstanding last week is beyond repulsive. It bespeaks how low the entire Republican party has fallen. That John Boehner and his Republican lackeys want to blame a speech by Nancy Pelosi for sabotaging the bailout legislation is absurd in almost every respect. Why would the Republican party even care to listen to a speech that more or less demanded that Republicans look in the mirror and see what 8 years of their own mismanagement has wrought in order to move forward? Are their egos that fragile that they cannot accept some of the blame? Or, are they so ideologically blinded that they cannot recognize how all of this is the logical consequence of Reaganism?
It's time for the Democratic majority in Congress to assert itself and propose the necessary legislation to move this country forward and deal with the crisis in both aspects: deal with problem mortgages and bailout out - under strict conditions - the financial sector that for too long played fast and loose with bogus paper, unearned bonuses and undeserved severance packages.
If the Republicans want to vote no in the House, let them. Their votes are only important if the Bush White House wants to veto legislation passed by Democratic majorities in Senate and House. Let the Democratic members of the House and Senate have the courage to explain in clear and certain terms why this had to be done, what precautions they have taken and why their path is the best way forward. And, let the voters have the courage to overcome their own angst and righteous indignation and rationally reflect on something they might not wish to do, but realize they probably have to do.
Unfortunately, the Republican ideologues in the House of Representatives made it clear that they were not prepared to take away down a plank that in their view was but a slide down a slippery slope to socialism. Socialism, seriously? Are the Republican representatives from the heartland so confused about the world that they would describe an equity stake in a $700 billion bailout as socialism? It's not even nationalization of an industry.
In addition, the Republican representatives proclaimed their desire for even greater deregulation and an extension of capital gains cuts towards industry. On the other hand, they were unwilling to lift a hand to allow bankruptcy judges to help filers hang on to their homes.
At least, in one small respect, the Republicans put forth a moderately interesting idea: an insurance system perhaps akin to FDIC insurance that would be paid for by the securities industry. Unfortunately, such an insurance scheme would contribute nothing to easing the current crisis. In short, the Republicans have nothing to contribute to a crisis that is the direct result of 30 years of Reaganomics.
95 members of the Democratic caucus also voted against the bailout bill. Why? Like many economists, these representatives harbored many of the well-deserved reservations about the proposed bailout. Some of these concerns were addressed partially in the modifications to the original Paulson proposal. Some were not. Other objections were trite, yet understandable in the poisoned partisan atmosphere that is the result of 8 years of Bush II misrule.
Certainly, there are plenty of reasons not to trust the Bush Administration, an administration that downplayed the seriousness of the building crisis for the past two years and through its own lack of oversight and deregulatory delusion furthered a climate of anything goes that finally brought down the financial sector when the mortgage backed securities proved nothing more than a house of cards. Besides, there is that $10 billion per month Iraq debacle that is no more closer to conclusion now than it was in 2003.
One of the primary deficiencies of the proposed legislation was its almost total failure to address what is at the heart of the current crisis: the unending procession of foreclosures in the housing sector. As long as no legislation, akin to the 1933 federal Home Open Loan Corporation that pioneered the 15 year mortgage and kept people in their homes, is proposed nothing will staunch the bleeding in the housing sector. Nor can there be any possibility of recovery in the secondary and derivative markets built entirely upon these suspect mortgages. What needs to be done is the creation of an agency similar to what FDR put into place in 1933 that kept people in their homes and took problem mortgages out of the hands of savings and loans. Until this happens, whether $700 billion will be enough to reprime the global credit markets is open to question. Certainly, the first $400 billion prior to the latest request was not sufficient.
The righteous anger against investment bankers, Wall Street wonder boys and other greed gobbling Gatsbys unfortunately has clouded the judgement of too many Americans towards the necessity for action. Shout on until the crisis begins to cut sharply into Main Street as credit tightens up even further and jobs begin to become scarce. Righteous indignation without reason is ridiculous and has been fostered by runamok Reaganism for far too long. As the echoed shouts of USA, USA peter out, so too will the industrial and financial strength of a once great country. Let them stuff that in their ballot boxes, especially in the American heartland that for too long has heaped scorn on the cosmopolitan coasts.
That John McCain has the audacity to blame this on the Democratic party for injecting partisanship into a spirit of bipartisanship after his partisan grandstanding last week is beyond repulsive. It bespeaks how low the entire Republican party has fallen. That John Boehner and his Republican lackeys want to blame a speech by Nancy Pelosi for sabotaging the bailout legislation is absurd in almost every respect. Why would the Republican party even care to listen to a speech that more or less demanded that Republicans look in the mirror and see what 8 years of their own mismanagement has wrought in order to move forward? Are their egos that fragile that they cannot accept some of the blame? Or, are they so ideologically blinded that they cannot recognize how all of this is the logical consequence of Reaganism?
It's time for the Democratic majority in Congress to assert itself and propose the necessary legislation to move this country forward and deal with the crisis in both aspects: deal with problem mortgages and bailout out - under strict conditions - the financial sector that for too long played fast and loose with bogus paper, unearned bonuses and undeserved severance packages.
If the Republicans want to vote no in the House, let them. Their votes are only important if the Bush White House wants to veto legislation passed by Democratic majorities in Senate and House. Let the Democratic members of the House and Senate have the courage to explain in clear and certain terms why this had to be done, what precautions they have taken and why their path is the best way forward. And, let the voters have the courage to overcome their own angst and righteous indignation and rationally reflect on something they might not wish to do, but realize they probably have to do.
Friday, September 26, 2008
WHO WON/WHO LOST? WE ALL DID!
As Pat Buchanan falls over himself gushing with praise for Senator McCain's performance in the first presidential debate, it is worth pondering how debates are appraised. Do we judge a debater's performance based on the arguments proferred? Do we examine the facts brought forth in support of various points? Or, do we judge a candidate's performance based on the emotional appeal mustered in support of whatever platitudes a debater chooses to highlight?
Calling these "debates" is a misnomer. Confrontation would be a much better description. Ali might not have been as powerful a hitter as Sonny Liston, but he brought a poetry to the fracas that befuddled Liston and left him helpless in the ring. So, did the street fighting McCain better the calmer, more traditionally focused debater Obama? And, how are we, the people, affected by all of this babble, bluster and bamboozle blathered by one of the two major party candidates?
However we choose to evaluate this gab fest, let's not let the facts get in the way of an analysis since the facts didn't seem to matter much at all to Senator McCain. He claimed that he had warned about Fannie Mae and Freddie Mac as early as 2005. No, Senator McCain, you didn't. You supported legislation that would have removed these two quasi-governmental private corporations from HUD supervision and placed them, along with the Federal Home Loan Bank Board, under a new independent commission. This legislation was aimed purely at the Enron-excesses of shoddy accounting that were designed to reward corporate executives with bonuses based on over-inflated and even non-existent earnings. That legislation had nothing to do with Fannie Mae and Freddie Mac's inability to raise capital to meet cash demands brought about by the cascading crisis in the credit market because of the mortgage-based securities wracked by default.
Senator McCain, despite his claim to have visited Waziristan, surely doesn't understand Pakistani politics. Former President Musharraf deposed a democratically elected government that had been mired in corruption scandals. He ruled, much as previous generals had, with the support of the Pakistani army. Was the deposed government a failed state, as McCain claimed? Hardly, though it was a corrupt regime. Was the Musharraf regime any better? Maybe. At least, it did provide stability until the anti-democratic tendencies of Musharraf brought about his rejection at elections he had tried his best to rig in his favor.
The larger point, of course, is what did 10 years of support for Musharraf yield. He did little to rein in the ISI, the Pakistani intelligence service that had long supported the Taliban in Afghanistan as long as it kept Afghanistan weak and provided Pakistan with a platform to interfere in Afghani politics. The blowback came, however, in the emergence of a Pakistani Taliban that targeted the regime in Islamabad and has succeeded in assassinating Benazir Bhutto and in truck-bombing the Marriott Hotel in Islamabad. Now, Pakistan is at risk of becoming a failed state, despite $10 billion of military assistance that did nothing to win the hearts and minds of rural Pakistanis who might have benefitted more had the United States invested in funding the decrepit public school system in rural Pakistan that, in its absence, has allowed anti-American, anti-Western, anti-democratic madrassas to flourish.
When asked about what lessons McCain had learned about Iraq, the Republican candidate once again demonstrated that he had learned nothing about Iraq, let alone Vietnam. He bemoaned the humiliation that American soldiers had felt upon their return to the United States after the debacle in Vietnam. Yet, what strategy would have provided "victory with honor" that McCain claims he seeks in Iraq? There was none. Vietnamization failed because the Vietnam War wasn't just an insurgency. It was a civil war where one side (Hanoi) had the support of two committed superpowers (the Soviet Union and the People's Republic of China) and the ability to wait out a country (the United States) that had no idea what it was fighting for in Vietnam. It certainly was democracy because not a single government in South Vietnam had ever been democratic, aspired to democracy or demonstrated the ability to run a government free of corruption.
Obama correctly pointed out that it doesn't matter what happened, failed to happened, should have happened or might even happen in Iraq. The war was wrong from the outset. It was driven by a pre-existing desire to take out Saddam Hussein. It was draped in lies, exaggeratons and outright fabrications that claimed among other things that Iraq was behind 9/11 and harbored untold quantities of weapons of mass destruction. And, it was hyped as the best way to bring democracy to a region of the world where the battle between the forces of modernity and tradition had not even been decided and where unquestioned American support of anti-democrat and corrupt regimes in Saudi Arabia and Egypt dashed the hopes of positive forces for change.
To allow McCain, as Obama did, to claim that somehow victory was at hand in Iraq only if we follow the present course because of the surge was a grievous mistake. Correctly, McCain noted that the Bush strategy of attack and withdraw was all wrong. A counter-insurgency strategy where territory was seized, held and improved in order to win over the local populace was probably a better bet. Whether it would have succeeded with the paltry amount of American troops in Iraq is dubious at best. We do know that the "surge" would not have experienced the success that McCain seeks to claim for his own without the Sunni Awakening. Paying former Sunni insurgents to fight al Qaeda in Iraq after the Sunni insurgency had grown weary of al Qaeda excesses in Anbar was a wise strategy.
Yet, where has this brought us in Iraq. Finally, after many, many months of negotiation McCain pointed to the passage of an election law which might finally lead to the holding of regional elections originally scheduled for October 2008. At the same time, though, the Iraqi Shiite dominated government is hell-bent on unraveling the Sunni Awakening by refusing to integrate the Sunni Sons of Iraq into official Iraqi police and army units. Moreover, it has expressed its desire to prosecute Sunni Sons of Iraq for earlier transgressions against the government of Iraq while members of the Iraqi insurgency.
Does this point us in the direction of "victory with honor" or keep us heading down the road to continued engagement in an unstable and fragile Iraq? In the meantime, the meltdown in Afghanistan continues. Unstated, of course, is whether the presence of NATO troops in Afghanistan is part of the problem or part of the solution. Certainly, bombing of civilians by NATO forces does not contribute to winning the hearts and minds of Afghanis. And, the lack of a sufficient level of ground forces that make it impossible for NATO to seize, hold and ameliorate territory to squelch the Taliban resurgence. Has the situation so deteriorated that not even additional forces in Afghanistan can reverse the decline, especially given the inability of Karzai to effectively govern territory held by the Afghani regime?
Unquestioned assumptions characterized the discussion of Georgia and the Ukraine. Strangely, Senator Obama expressed support for the admission of Georgia and the Ukraine into NATO, a course of action Senator McCain has advocated since his good friend Misha, the young, American educated president of Georgia, launched his foolish endeavor against South Ossetia. Why? Is NATO prepared to come to the defense of either country, especially if it recklessly decides to take action indirectly or directly against Russian forces? No. Not a single NATO country in Western Europe will ever accept mutual defense of these peripheral nations. What might work is the association and later admission of both countries into the European union in order to aid in the building of their nascent economies and the deepening of democratic tendencies in both nations. Russia might accept the latter, while it has stated categorically that it will never accept the former. Pursuing NATO membership, as Obama and McCain both advocated, would lead to a new cold war between Russia and the United States.
McCain constantly harped upon his experience; yet, he came up with comments that, at best, can be described as questionable. He claimed that Reagan's refusal to negotiate with Brezhnev, Andropov and Chernenko, as well as Reagan's unabashed support for the Strategic Defense Initiative (SDI) program that, McCain claimed, had brought the Soviet Union to its knees. This canard, constantly cited by Reaganites who apparently can't remove their own ideological blinders to analyze the crisis in the Soviet Union during the 80s, even if they read every official document released during the later Gorbachev and Yeltsin years. What Gorbachev realized was that the Soviet economy had become untenable. The rot was growing and would eventually have undermined the ability of the Soviet Union to keep pace with a rearming America. Even in the absence of the neutron bomb, the intermediate range missiles that Reagan foisted on West Germany during the early 80s, or the silly SDI program, which, to date, has been a phenomenal waste of money and still cannot shoot down a conventional missile when the launch time and trajectory are known in advance to an accuracy greater than 50%, the Soviet Union would have collapsed. Gorbachev knew this and launched perestroika and glasnost as a last ditch effort to hold together the Soviet Union. The Cold War ended when Gorbachev refused to support the rigid regime of Erich Honecker in East Berlin. Honecker was finished, the Wall came down and the Cold War concluded.
Perhaps it is a uniquely American trait to regard the entire world beholden to what an American government does or does not do. When America speaks, so the logic goes, the rest of the world ignores the United States at its peril. Well, that's true to a certain extent. The failure to monitor and deal with the subprime mortgage crisis promptly has clearly placed the world economy at risk. What the American government does or does not do will have profound consequence to not only the United States, but to the world as a whole. Yet, the American aggression against Iraq has not led to an explosion of democracy in the Middle East. Rather, it has led to a prodigious decline in American respect and prestige throughout the world. Despite Mr. McCain's boast: he can no more will victory in Iraq than he can demand respect without changing the idiocy of 53 years of Republican cold-war thinking.
Trapped in his own ideological blinders, McCain apparently can not grasp how deeply America's credibility has fallen. He promises that he will solve all of the problems America faces and deal with challenges at home and abroad. He claims direct knowledge of issues, regions of the world and leaders, both near and afar. Yet, none of this seems powerful enough to clue him in as to how appalling America's standing is. He promises a government that will never again resort to torture in order to extract whatever questionable intelligence it might receive from detainees held in Guantanomo, imprisoned on overseas bases or sent via rendition to torture friendly regimes in the Middle East. Neither he nor Senator Obama could ever contemplate the dispatch of Bush, Cheney, Rumsfeld et al to an international war crimes tribunal.
Call this a debate, a prize fight or a street brawl - whatever you will. It can't escape the judgement that the world deserves better than to listen to the pathetic patter of Senator McCain who can't seem to reconcile platitudes with his own contradictory stands. He will help veterans, but he fights a bill in Congress to ameliorate veterans' care. He wants to help America get out of its current financial crisis, but then rallies Congressional Republicans into opposing legislation supported by the White House, House and Senate Democrats and Senate Republicans all in the aim of deregulating the economy even more and reducing the capital gains tax.
Go back home, Senator McCain, to whichever house you wish to reside in. Go back now before you embarrass us worse than you already have. Your selection of an utterly incoherent governor whose rambling responses might be understandable were she lost in the Alaskan wilderness, but whose every misstep is proof positive that she has risen to her own level of incompetence is only one major stain on your claim to be able to lead. That you would deign to grandstand in Washington and indirectly help torpedo necessary legislation that may well be the only bipartisan means to stave off the complete collapse of the American economy is unconscionable. That you would claim success for its passage before it bombed on Monday is even more absurd.
Spare us any further town halls, "debates" or candidate fora. Sing, if you must, about bombing Iran. We, the rest of the world, would be better off if you confined your vocal prowess to a karaoke bar.
Calling these "debates" is a misnomer. Confrontation would be a much better description. Ali might not have been as powerful a hitter as Sonny Liston, but he brought a poetry to the fracas that befuddled Liston and left him helpless in the ring. So, did the street fighting McCain better the calmer, more traditionally focused debater Obama? And, how are we, the people, affected by all of this babble, bluster and bamboozle blathered by one of the two major party candidates?
However we choose to evaluate this gab fest, let's not let the facts get in the way of an analysis since the facts didn't seem to matter much at all to Senator McCain. He claimed that he had warned about Fannie Mae and Freddie Mac as early as 2005. No, Senator McCain, you didn't. You supported legislation that would have removed these two quasi-governmental private corporations from HUD supervision and placed them, along with the Federal Home Loan Bank Board, under a new independent commission. This legislation was aimed purely at the Enron-excesses of shoddy accounting that were designed to reward corporate executives with bonuses based on over-inflated and even non-existent earnings. That legislation had nothing to do with Fannie Mae and Freddie Mac's inability to raise capital to meet cash demands brought about by the cascading crisis in the credit market because of the mortgage-based securities wracked by default.
Senator McCain, despite his claim to have visited Waziristan, surely doesn't understand Pakistani politics. Former President Musharraf deposed a democratically elected government that had been mired in corruption scandals. He ruled, much as previous generals had, with the support of the Pakistani army. Was the deposed government a failed state, as McCain claimed? Hardly, though it was a corrupt regime. Was the Musharraf regime any better? Maybe. At least, it did provide stability until the anti-democratic tendencies of Musharraf brought about his rejection at elections he had tried his best to rig in his favor.
The larger point, of course, is what did 10 years of support for Musharraf yield. He did little to rein in the ISI, the Pakistani intelligence service that had long supported the Taliban in Afghanistan as long as it kept Afghanistan weak and provided Pakistan with a platform to interfere in Afghani politics. The blowback came, however, in the emergence of a Pakistani Taliban that targeted the regime in Islamabad and has succeeded in assassinating Benazir Bhutto and in truck-bombing the Marriott Hotel in Islamabad. Now, Pakistan is at risk of becoming a failed state, despite $10 billion of military assistance that did nothing to win the hearts and minds of rural Pakistanis who might have benefitted more had the United States invested in funding the decrepit public school system in rural Pakistan that, in its absence, has allowed anti-American, anti-Western, anti-democratic madrassas to flourish.
When asked about what lessons McCain had learned about Iraq, the Republican candidate once again demonstrated that he had learned nothing about Iraq, let alone Vietnam. He bemoaned the humiliation that American soldiers had felt upon their return to the United States after the debacle in Vietnam. Yet, what strategy would have provided "victory with honor" that McCain claims he seeks in Iraq? There was none. Vietnamization failed because the Vietnam War wasn't just an insurgency. It was a civil war where one side (Hanoi) had the support of two committed superpowers (the Soviet Union and the People's Republic of China) and the ability to wait out a country (the United States) that had no idea what it was fighting for in Vietnam. It certainly was democracy because not a single government in South Vietnam had ever been democratic, aspired to democracy or demonstrated the ability to run a government free of corruption.
Obama correctly pointed out that it doesn't matter what happened, failed to happened, should have happened or might even happen in Iraq. The war was wrong from the outset. It was driven by a pre-existing desire to take out Saddam Hussein. It was draped in lies, exaggeratons and outright fabrications that claimed among other things that Iraq was behind 9/11 and harbored untold quantities of weapons of mass destruction. And, it was hyped as the best way to bring democracy to a region of the world where the battle between the forces of modernity and tradition had not even been decided and where unquestioned American support of anti-democrat and corrupt regimes in Saudi Arabia and Egypt dashed the hopes of positive forces for change.
To allow McCain, as Obama did, to claim that somehow victory was at hand in Iraq only if we follow the present course because of the surge was a grievous mistake. Correctly, McCain noted that the Bush strategy of attack and withdraw was all wrong. A counter-insurgency strategy where territory was seized, held and improved in order to win over the local populace was probably a better bet. Whether it would have succeeded with the paltry amount of American troops in Iraq is dubious at best. We do know that the "surge" would not have experienced the success that McCain seeks to claim for his own without the Sunni Awakening. Paying former Sunni insurgents to fight al Qaeda in Iraq after the Sunni insurgency had grown weary of al Qaeda excesses in Anbar was a wise strategy.
Yet, where has this brought us in Iraq. Finally, after many, many months of negotiation McCain pointed to the passage of an election law which might finally lead to the holding of regional elections originally scheduled for October 2008. At the same time, though, the Iraqi Shiite dominated government is hell-bent on unraveling the Sunni Awakening by refusing to integrate the Sunni Sons of Iraq into official Iraqi police and army units. Moreover, it has expressed its desire to prosecute Sunni Sons of Iraq for earlier transgressions against the government of Iraq while members of the Iraqi insurgency.
Does this point us in the direction of "victory with honor" or keep us heading down the road to continued engagement in an unstable and fragile Iraq? In the meantime, the meltdown in Afghanistan continues. Unstated, of course, is whether the presence of NATO troops in Afghanistan is part of the problem or part of the solution. Certainly, bombing of civilians by NATO forces does not contribute to winning the hearts and minds of Afghanis. And, the lack of a sufficient level of ground forces that make it impossible for NATO to seize, hold and ameliorate territory to squelch the Taliban resurgence. Has the situation so deteriorated that not even additional forces in Afghanistan can reverse the decline, especially given the inability of Karzai to effectively govern territory held by the Afghani regime?
Unquestioned assumptions characterized the discussion of Georgia and the Ukraine. Strangely, Senator Obama expressed support for the admission of Georgia and the Ukraine into NATO, a course of action Senator McCain has advocated since his good friend Misha, the young, American educated president of Georgia, launched his foolish endeavor against South Ossetia. Why? Is NATO prepared to come to the defense of either country, especially if it recklessly decides to take action indirectly or directly against Russian forces? No. Not a single NATO country in Western Europe will ever accept mutual defense of these peripheral nations. What might work is the association and later admission of both countries into the European union in order to aid in the building of their nascent economies and the deepening of democratic tendencies in both nations. Russia might accept the latter, while it has stated categorically that it will never accept the former. Pursuing NATO membership, as Obama and McCain both advocated, would lead to a new cold war between Russia and the United States.
McCain constantly harped upon his experience; yet, he came up with comments that, at best, can be described as questionable. He claimed that Reagan's refusal to negotiate with Brezhnev, Andropov and Chernenko, as well as Reagan's unabashed support for the Strategic Defense Initiative (SDI) program that, McCain claimed, had brought the Soviet Union to its knees. This canard, constantly cited by Reaganites who apparently can't remove their own ideological blinders to analyze the crisis in the Soviet Union during the 80s, even if they read every official document released during the later Gorbachev and Yeltsin years. What Gorbachev realized was that the Soviet economy had become untenable. The rot was growing and would eventually have undermined the ability of the Soviet Union to keep pace with a rearming America. Even in the absence of the neutron bomb, the intermediate range missiles that Reagan foisted on West Germany during the early 80s, or the silly SDI program, which, to date, has been a phenomenal waste of money and still cannot shoot down a conventional missile when the launch time and trajectory are known in advance to an accuracy greater than 50%, the Soviet Union would have collapsed. Gorbachev knew this and launched perestroika and glasnost as a last ditch effort to hold together the Soviet Union. The Cold War ended when Gorbachev refused to support the rigid regime of Erich Honecker in East Berlin. Honecker was finished, the Wall came down and the Cold War concluded.
Perhaps it is a uniquely American trait to regard the entire world beholden to what an American government does or does not do. When America speaks, so the logic goes, the rest of the world ignores the United States at its peril. Well, that's true to a certain extent. The failure to monitor and deal with the subprime mortgage crisis promptly has clearly placed the world economy at risk. What the American government does or does not do will have profound consequence to not only the United States, but to the world as a whole. Yet, the American aggression against Iraq has not led to an explosion of democracy in the Middle East. Rather, it has led to a prodigious decline in American respect and prestige throughout the world. Despite Mr. McCain's boast: he can no more will victory in Iraq than he can demand respect without changing the idiocy of 53 years of Republican cold-war thinking.
Trapped in his own ideological blinders, McCain apparently can not grasp how deeply America's credibility has fallen. He promises that he will solve all of the problems America faces and deal with challenges at home and abroad. He claims direct knowledge of issues, regions of the world and leaders, both near and afar. Yet, none of this seems powerful enough to clue him in as to how appalling America's standing is. He promises a government that will never again resort to torture in order to extract whatever questionable intelligence it might receive from detainees held in Guantanomo, imprisoned on overseas bases or sent via rendition to torture friendly regimes in the Middle East. Neither he nor Senator Obama could ever contemplate the dispatch of Bush, Cheney, Rumsfeld et al to an international war crimes tribunal.
Call this a debate, a prize fight or a street brawl - whatever you will. It can't escape the judgement that the world deserves better than to listen to the pathetic patter of Senator McCain who can't seem to reconcile platitudes with his own contradictory stands. He will help veterans, but he fights a bill in Congress to ameliorate veterans' care. He wants to help America get out of its current financial crisis, but then rallies Congressional Republicans into opposing legislation supported by the White House, House and Senate Democrats and Senate Republicans all in the aim of deregulating the economy even more and reducing the capital gains tax.
Go back home, Senator McCain, to whichever house you wish to reside in. Go back now before you embarrass us worse than you already have. Your selection of an utterly incoherent governor whose rambling responses might be understandable were she lost in the Alaskan wilderness, but whose every misstep is proof positive that she has risen to her own level of incompetence is only one major stain on your claim to be able to lead. That you would deign to grandstand in Washington and indirectly help torpedo necessary legislation that may well be the only bipartisan means to stave off the complete collapse of the American economy is unconscionable. That you would claim success for its passage before it bombed on Monday is even more absurd.
Spare us any further town halls, "debates" or candidate fora. Sing, if you must, about bombing Iran. We, the rest of the world, would be better off if you confined your vocal prowess to a karaoke bar.
Saturday, September 20, 2008
MELTDOWN MADNESS
After the worst week on Wall Street since 1929, it's high time adhocracy is abandoned in favor of a concerted effort at reform of the regulatory regime that by lack of sophistication or sheer inaction failed to address the gathering storm. Expect the usual blame game to dominate popular media. Success has a thousand fathers, while no one wants to admit responsibility for a disaster. Still, some lessons can be drawn without allowing the discussion to degenerate into an attack on Obama or the Bush administration.
At the heart of the current crisis is the inability of investors, businesses and other creditworthy individuals to access credit. Money has fled from the credit market into T-bills or highly sought after tangible assets such as gold and other metals. People and institutions with money to shelter have even been willing to accept a 3 month Treasury bond rate of 0.05% interest (in effect, no interest at all) or the pointlessness of tangible assets that don't pay interest (gold) or accrete appreciably in value over time.
Alas, that's not what caused the crisis, however. The credit crunch is the financial industry's response to fear. It is a fear that mortgage backed securities may not be worth the paper they are printed on. Since no one knows the real value of any of these securities no one is willing to buy these "assets" when they are put up for sale in order to raise capital to meet declining asset values in order to maintain market capitalization.
Companies that could not do this have failed. Bears, Stearns was sold on the cheap to J.P. Morgan/Chase. Lehman Brothers filed for bankruptcy and will be scooped up on the cheap by Barclay's bank. Merrill Lynch avoid ignomy, but was swallowed up by Bank of America. Morgan Stanley might be acquired by Wachovia. And Wells Fargo may come to the rescue of WaMu.
AIG apparently was so large that only the government could come to the rescue by taking over its assets. Though nationalization was not used to describe what transpired, the U.S. government essentially nationalized the largest American insurance group. The ostensible aim was to avoid a further unraveling of shaky Wall Street institutions.
Now, the Treasury Department under the leadership of Henry Paulson is mulling over what to do with the toxic waste that pollutes too many Wall Street balance sheets. These are principally the mortgage backed securities whose value no one seems able to establish since there now is no market for them. Credit default swaps are also in the news, and these seem even more difficult to price since their ostensible purpose seemed to be the creation of an asset that guaranteed "Heads I Win, Tails You Lose".
An oft-cited precedent is the Resolution Trust Corporation, a short-lived institution that disposed of assets acquired through the defaults of various savings and loans institutions commencing in the late 1980s. RTC has been held up as a model as an entity that executed its assigned task at a cost far lower than originally estimated and even managed to dispose of some assets at a profit.
The analogy is misleading in so far as RTC acquired tangible assets. It held the mortgages to commercial and private real estate that had tangible value, even if many of the final values were less than the prices at which they were held on S&L balance sheets. Tangible assets can be disposed of. Unfortunately, there is hardly anything tangible in the toxic waste held currently by too many firms on Wall Street.
Unwittingly, the RTC - in order to auction off some of its more worthless "assets" - resorted to innovation, innovation that gave rise to the current mortgage-backed securities that are at the center of today's problems. To find buyers for non-performing loans, RTC initiated the securitization of these loans. What worked then won't now since it's the very existence of mortgage-backed securities and derivatives that are secured on a very shaky foundation, the subprime, Alt-A and even ostensibly sound mortgages that have gone into foreclosure. Worse: these mortgage-backed securities are not tied to specific properties. Rather, the mortgages were sliced and diced as the originating institutions spun them off to secure more capital to make even more loans of dubious quality. Untangling this mess of who owns what is difficult at best and impossible if one desires to separate the wheat from the chaff.
The current proposal foresees a huge government effort to suck up all of the worthless junk cluttering up Wall Street balance sheets. That's a catch-all phrase for whatever financial institutions cannot unload on the market. In this respect, whether it's Fannie Mae, Freddie Mac or some other agency, the government will acquire whatever junk Wall Street wants to jettison.
One of two models could emerge. The federal government could create an entity - let's call it Goodwill Securities - that would simply accept - without cost - whatever Wall Street wants to unload. Even though the government would expend money to dispose of this junk, it wouldn't have to spend money to acquire it. On the other hand, the federal goverment could create a different entity - let's call it Salvation Securities - that would offer some value for the junk they took in. Ultimately, the government might hope that it could dispose of the junk for more than it paid to acquire the "toxic securities".
Wall Street would benefit under either model, but not to the same extent. True, Goodwill Securities would allow Wall Street to purge its balance sheets, but no money would flow back to the companies unloading these securities. With Salvation Securities, Wall Street would get some remuneration. How much will depend on what the government is willing to lay out and that may reflect not a guess as to what these "assets" might be worth, but rather what it might take to keep these companies afloat.
If that's the case, then there is a real risk of moral hazard. Rewarding the reckless executives who ran their companies into the ground and paid themselves handsome bonuses along the way is a policy that will only serve to encourage others to undertake equally risky ventures, as they know that if they screw up hugely, the government will bail them out since the collateral damage would be horrendous. Indeed, one of the lessons from the government's refusal to bail out Lehman Brothers is that its executive officers failed to screw up badly enough. Had they really messed up, the government would have come to their rescue.
As a result, something needs to be done in order to rein in Wall Street excesses without damaging the valuable functions that Wall Street does manage to perform. Alas, demagoguery will compete with sound proposals to create a more regulated, yet flexible environment. Indeed, fulmination against short sellers has led to the banning of short selling of the stock of certain financial companies. But, short sellers do perform a valuable function. Betting that a company is not as sound as it appears or wishes to present itself forces the market to take note. If the short sellers are correct, a company's problems will be aired.
So what can be done? Two thoughts come to mind. Given the constant reference to "toxic waste", it is easy to imagine the need for a National Institute of Financial Research that would be tasked with examining the ever more exotic instruments dreamed up in Wall Street's derivative, securities and credit default swap markets in order to make the assumptions and processes understandable to leading financial analysts in the industry and at universities. Armed with the authority to subpoena whatever information required in order to conduct their analyses, the NIFR could provide the American public with valuable, advance information regarding possible future risks to the financial industry.
Think of the NIH (National Institute of Health). The NIH conducts fundamental research into diseases and endeavors to develop medicines that can cope with ever mutating viruses, bacteria and other germs. In some respects, the development of ever more exotic financial instruments is but a variation of the mutating aspects of germs.
An institution such as the NIFR could and should be financed by levees on the industry itself. Surtaxes on bonuses and executive compensation, as well as licensing fees, could be assessed of corporations that wish to partake of trading in the financial sector. Such fees should be regarded as legitimate costs of doing business and might go a long way towards reigning in the excesses of Wall Street.
The remaining investment banks could and should come under much closer regulatory scrutiny and be subject to the same regulations that the commercial banking industry is now subject to. Equalization of the regulatory regime is all the more urgent given the increasing merger of commercial and investment banks as Bank of America and Wachovia acquire investment banks.
Of course, much of this remains in the abstract for Main Street. Many of us do not hold assets of more than $100,000 in banks. We are not heavily invested in stocks, bonds and securities. We are just everyday joes living paycheck to paycheck. However, what Wall Street does or does not do can have a very direct impact on Main Street. If credit dries up - as it has recently - even the most creditworthy of businesses might find it difficult to secure loans. That impacts business activity and ultimately places in jeopardy the very jobs that we rely upon to pay for the basics of living, to pay back debt and perhaps to save for retirement. Thus, we all have a vested interest that Wall Street be rescued in a responsible way.
At the heart of the current crisis is the inability of investors, businesses and other creditworthy individuals to access credit. Money has fled from the credit market into T-bills or highly sought after tangible assets such as gold and other metals. People and institutions with money to shelter have even been willing to accept a 3 month Treasury bond rate of 0.05% interest (in effect, no interest at all) or the pointlessness of tangible assets that don't pay interest (gold) or accrete appreciably in value over time.
Alas, that's not what caused the crisis, however. The credit crunch is the financial industry's response to fear. It is a fear that mortgage backed securities may not be worth the paper they are printed on. Since no one knows the real value of any of these securities no one is willing to buy these "assets" when they are put up for sale in order to raise capital to meet declining asset values in order to maintain market capitalization.
Companies that could not do this have failed. Bears, Stearns was sold on the cheap to J.P. Morgan/Chase. Lehman Brothers filed for bankruptcy and will be scooped up on the cheap by Barclay's bank. Merrill Lynch avoid ignomy, but was swallowed up by Bank of America. Morgan Stanley might be acquired by Wachovia. And Wells Fargo may come to the rescue of WaMu.
AIG apparently was so large that only the government could come to the rescue by taking over its assets. Though nationalization was not used to describe what transpired, the U.S. government essentially nationalized the largest American insurance group. The ostensible aim was to avoid a further unraveling of shaky Wall Street institutions.
Now, the Treasury Department under the leadership of Henry Paulson is mulling over what to do with the toxic waste that pollutes too many Wall Street balance sheets. These are principally the mortgage backed securities whose value no one seems able to establish since there now is no market for them. Credit default swaps are also in the news, and these seem even more difficult to price since their ostensible purpose seemed to be the creation of an asset that guaranteed "Heads I Win, Tails You Lose".
An oft-cited precedent is the Resolution Trust Corporation, a short-lived institution that disposed of assets acquired through the defaults of various savings and loans institutions commencing in the late 1980s. RTC has been held up as a model as an entity that executed its assigned task at a cost far lower than originally estimated and even managed to dispose of some assets at a profit.
The analogy is misleading in so far as RTC acquired tangible assets. It held the mortgages to commercial and private real estate that had tangible value, even if many of the final values were less than the prices at which they were held on S&L balance sheets. Tangible assets can be disposed of. Unfortunately, there is hardly anything tangible in the toxic waste held currently by too many firms on Wall Street.
Unwittingly, the RTC - in order to auction off some of its more worthless "assets" - resorted to innovation, innovation that gave rise to the current mortgage-backed securities that are at the center of today's problems. To find buyers for non-performing loans, RTC initiated the securitization of these loans. What worked then won't now since it's the very existence of mortgage-backed securities and derivatives that are secured on a very shaky foundation, the subprime, Alt-A and even ostensibly sound mortgages that have gone into foreclosure. Worse: these mortgage-backed securities are not tied to specific properties. Rather, the mortgages were sliced and diced as the originating institutions spun them off to secure more capital to make even more loans of dubious quality. Untangling this mess of who owns what is difficult at best and impossible if one desires to separate the wheat from the chaff.
The current proposal foresees a huge government effort to suck up all of the worthless junk cluttering up Wall Street balance sheets. That's a catch-all phrase for whatever financial institutions cannot unload on the market. In this respect, whether it's Fannie Mae, Freddie Mac or some other agency, the government will acquire whatever junk Wall Street wants to jettison.
One of two models could emerge. The federal government could create an entity - let's call it Goodwill Securities - that would simply accept - without cost - whatever Wall Street wants to unload. Even though the government would expend money to dispose of this junk, it wouldn't have to spend money to acquire it. On the other hand, the federal goverment could create a different entity - let's call it Salvation Securities - that would offer some value for the junk they took in. Ultimately, the government might hope that it could dispose of the junk for more than it paid to acquire the "toxic securities".
Wall Street would benefit under either model, but not to the same extent. True, Goodwill Securities would allow Wall Street to purge its balance sheets, but no money would flow back to the companies unloading these securities. With Salvation Securities, Wall Street would get some remuneration. How much will depend on what the government is willing to lay out and that may reflect not a guess as to what these "assets" might be worth, but rather what it might take to keep these companies afloat.
If that's the case, then there is a real risk of moral hazard. Rewarding the reckless executives who ran their companies into the ground and paid themselves handsome bonuses along the way is a policy that will only serve to encourage others to undertake equally risky ventures, as they know that if they screw up hugely, the government will bail them out since the collateral damage would be horrendous. Indeed, one of the lessons from the government's refusal to bail out Lehman Brothers is that its executive officers failed to screw up badly enough. Had they really messed up, the government would have come to their rescue.
As a result, something needs to be done in order to rein in Wall Street excesses without damaging the valuable functions that Wall Street does manage to perform. Alas, demagoguery will compete with sound proposals to create a more regulated, yet flexible environment. Indeed, fulmination against short sellers has led to the banning of short selling of the stock of certain financial companies. But, short sellers do perform a valuable function. Betting that a company is not as sound as it appears or wishes to present itself forces the market to take note. If the short sellers are correct, a company's problems will be aired.
So what can be done? Two thoughts come to mind. Given the constant reference to "toxic waste", it is easy to imagine the need for a National Institute of Financial Research that would be tasked with examining the ever more exotic instruments dreamed up in Wall Street's derivative, securities and credit default swap markets in order to make the assumptions and processes understandable to leading financial analysts in the industry and at universities. Armed with the authority to subpoena whatever information required in order to conduct their analyses, the NIFR could provide the American public with valuable, advance information regarding possible future risks to the financial industry.
Think of the NIH (National Institute of Health). The NIH conducts fundamental research into diseases and endeavors to develop medicines that can cope with ever mutating viruses, bacteria and other germs. In some respects, the development of ever more exotic financial instruments is but a variation of the mutating aspects of germs.
An institution such as the NIFR could and should be financed by levees on the industry itself. Surtaxes on bonuses and executive compensation, as well as licensing fees, could be assessed of corporations that wish to partake of trading in the financial sector. Such fees should be regarded as legitimate costs of doing business and might go a long way towards reigning in the excesses of Wall Street.
The remaining investment banks could and should come under much closer regulatory scrutiny and be subject to the same regulations that the commercial banking industry is now subject to. Equalization of the regulatory regime is all the more urgent given the increasing merger of commercial and investment banks as Bank of America and Wachovia acquire investment banks.
Of course, much of this remains in the abstract for Main Street. Many of us do not hold assets of more than $100,000 in banks. We are not heavily invested in stocks, bonds and securities. We are just everyday joes living paycheck to paycheck. However, what Wall Street does or does not do can have a very direct impact on Main Street. If credit dries up - as it has recently - even the most creditworthy of businesses might find it difficult to secure loans. That impacts business activity and ultimately places in jeopardy the very jobs that we rely upon to pay for the basics of living, to pay back debt and perhaps to save for retirement. Thus, we all have a vested interest that Wall Street be rescued in a responsible way.
Thursday, September 18, 2008
FANNIE MAE, FREDDIE MAC AND ELMER FUDD
Senator McCain is on the stumps this week touting his support for a Senate bill proposed in 2005 that he claims would have proactively dealt with the crisis that engulfed Fannie Mae and Freddie Mac. In the right-wing blogosphere, McCain's support for the Federal Housing Enterprise Regulatory Reform Act of 2005, introduced by Senators Hagel, Dole and Sununu, has been placed on a par with his support for the surge in Iraq. Once again, Senator McCain demonstrates his extraordinary prescience in anticipating and recommending courses of action that improved a disastrous situation (in Iraq) and would have headed off the federal bailout of Fannie Mae and Freddie Mac.
Once again, oversimplification rules the land. Just as McCain's recommendation to the president that a "surge" of troops be dispatched to Baghdad in order to avert civil war and stabilize Iraq so that its politicians might be given space to achieve political reconciliation has been deemed an unqualified success in some quarters, so too his support of the Federal Housing Enterprise Regulatory Reform Act of 2005 and 2007 would have been an equally profound success had the Democrats not blocked the way.
Well, there is some truth in this. With respect to Iraq, the dispatch of additional troops to Baghdad probably helped in some small way to defuse the bloodbath that was unfolding daily on the streets of Baghdad and in other Iraqi cities undergoing ethnic cleansing. However, the willingness of Sunni tribal chiefs to put an end to the insurrection in Anbar Province and the perspicacity of American military leaders in Anbar to meet the Sunni chiefs and agree to finance the Sunni Awakening by placing former Sunni insurgents on the American payroll probably was a more important factor.
With respect to the Federal Housing Enterprise Regulatory Reform Act, it is much less clear what this act would have accomplished. Prompted by the outrage at the financial shenanigans at Fannie Mae under CEO Franklin Raines who left his position at Fannie Mae with a golden parachute after the scandals that surfaced during the first Bush Administration, Senators Dole, Hagel and Sununu proposed to place Fannie Mae and Freddie Mac, as well as the Federal Home Loan Bank Board, under an independent regulatory agency. Among other things, the legislation would have dealt with golden parachutes of the like that rewarded Raines for his incompetence and gross abuse of power.
On the other hand, the Federal Housing Enterprise Regulatory Reform Act would have been charged with seeing to the continued expansion of home ownership throughout the United States. Would this act have continued the strict lending standards usually pushed by Fannie Mae and Freddie Mac or loosened them and encouraged these agencies to guarantee subprime mortgage lending that did not meet Fannie Mae and Freddie Mac guidelines is unclear. What it did seek was to rein in Fannie Mae and Freddie Mac lobbying that had attempted to lobby Congress in order to thwart the Housing and Urban Development's (HUD) ability to investigate Fannie Mae and to gain Congressional acquiesence in corporate pursuits that Fannie Mae endeavored to follow.
An important distinction must be made. Although charged with guaranteeing mortgages privately arrived at that met Fannie Mae and Freddie Mac requirements, neither entity was a government agency. These were shareholder own corporations that performed a quasi-governmental role: a mortage guarantor that lent stability to the private mortgage market.
What Raines had done was to play loose with accounting rules in order to overstate earnings and thereby enrich himself and other senior officers of Fannie Mae. Restated, these earnings showed that Fannie Mae had not achieved the results claimed and thus the bonuses paid to its senior executives were unwarranted. In this respect, Fannie Mae was just another Enron type scandal that rocked the early Bush administration.
Like Enron, the roots of Fannie Mae's troubles lay in the regulatory lapses of the Clinton Administration which took a hands off approach to Wall Street. Coupled with the desire of a Republican controlled Congress to deregulate Wall Street wherever possible, the hands off approach of Robert Rubin, Secretary of Treasury, conspired to allow slipshod accounting practices to run amok until the bubble burst in the early 2000s.
Enter Elmer Fudd.
Sporting his double-barrelled shotgun, McCain takes aim at Fannie Mae 2008. Neither his support of the Federal Housing Executive Regulatory Act of 2005 or 2007 had met with Congressional approval. Neither a Republican controlled Congress nor a Democratic controlled Congress acted on the bill. It died in committee. Somehow, McCain construes the troubles that afflicted Fannie Mae to be the same as those that plagued Fannie Mae in 2002. Has he been asleep for six years? Did he miss everything that transpired in 2007?
What happened to Fannie Mae and Freddie Mac in many respects was collateral damaged inflicted by the subprime mortgage crisis that saw the destruction of Ameriquest, a leader in subprime mortgages, and the takeover of Countrywide by Bank of America after BofA's lending of millions of dollars to Countrywide failed to staunch the bleeding of capital in Countrywide. Neither Fannie Mae nor Freddie Mac held many subprime mortgages nor were they the guarantor of subprime mortgages, many of which were not worth the paper printed on since income verifications were largely absent and many involved financial chicanery that overstated the true value of the mortgages negotiated. Despite many Congressional leaders desire to push Fannie Mae and Freddie Mac to guarantee or even purchase outright many of these worthless mortgages, neither corporation was at risk.
However, once the subprime crisis unfolded, banks and investors grew skitterish. The collapse of the housing market as the pool of potential buyers shrank once the subprime market evaporated led to a fall in housing prices. Now, many homeowners who had good mortgages found an uncomfortable inversion in their portfolios. Too many houses were worth less than the mortgages that financed their purchase. Such negative value caused many homeowners to default on their mortgages or even walk away from negative value homes. A cascading effect began to take hold as entire neighborhoods took on more and more the resemblances of ghost towns, boarded up as lenders pursued foreclosure. Property values for the remaining homeowners declined and pushed even more homeowners into foreclosure.
For investment banks, mortgage security insurers, as well as Fannie Mae and Freddie Mac, the implosion the housing market meant that credit markets began to seize. Banks tightened lending requirements and companies that needed to borrow on the credit markets in order to shore up their own capitalization found it difficult to acquire the necessary cash. Though subprime mortgages amounted to a small percentage of the total portfolio of mortgages held by Fannie Mae and Freddie Mac, their total value exceeded the capitalization of both firms. If either firm had to guarantee these suspect mortgages, they themselves could have seen a wiping out of their own capital.
In short, the subprime crisis had morphed into a general financial crisis that dwarfed the Savings and Loan crisis of the early 1990s when the market value of assets held by many S&L's was below the value of S&L deposits. Thus, a run on the banks would have brought ruin to any entity that didn't have enough capital on hand and whose holdings were not worth near the amount of money required to indemnify depositors.
Thus, it was unsurprising that Bear, Stearns collapsed under the weight of a run on the bank. The precipitous decline in its stock valuation indicated that the market did not believe Bear, Stearns could honor its obligations.
After a pause, during which a minor bank - Indy Mac - but a major player in the subprime industry experienced a run on the bank which required FDIC intervention, the pressure built up over the summer and culminated in an attack on Freddie Mac and Fannie Mae. Bailing out these corporations only led a panicked financial industry to go after new suspects: Lehman Brothers, AIG, Merrill Lynch and possibly Morgan Stanley, which, despite posting profits, became the target of a lack of investor confidence.
Mr. McCain's support of the Federal Housing Executive Regulatory Reform Act of 2005 may have been laudatory in the abstract, but this act would have done nothing to stem the destruction wrought by the subprime crisis. Indeed, as the subprime meltdown gathered strength in 2006 and 2007, McCain lent his support once again to the Federal Housing Executive Regulatory Act of 2007 that again would not have addressed the problem at hand.
So. claim what you will, Senator McCain. None of it is compelling. It is but another attempt to present you as an all-seeing Senator who has the solution, if only we elect him president. On the other hand, Senator Obama has made specific proposals with respect to the ongoing subprime mortgage crisis and its ripple effects that you attempt to dismiss by attempting to link him to the disgraced Franklin Raines who contrary to the claims of some of your supporters is not an advisor to the Obama campaign.
You call for a 9/11 commission to investigate the current mess as if that would contribute anything to a resolution of the problem. Worse: it's ironic that the commission you tout - the 9/11 commission was virtually ignored by policymakers. Yes, it made for good press and used up a fair amount of money, but it didn't lead to the resignation of Bush administration officials who ignored the warnings before 9/11. It didn't cause the Bush administration to tender their resignations en masse. Nor did it lead to the resignation of Bush or Cheney.
While your proposed commission might meet interminably, discuss, debate and deliberate the chain of events that has brought us to the current global crisis and even produce a weighty tome amenable to holding down worthless mortgage paper, the crisis goes on. Worse: you waffle. Was it wise to bail out Fannie Mae and Freddie Mac? Was taxpayer money put to good use in buying out AIG? Frankly, I place much greater faith in President Paulson and Vice-President Bernanke who have been tasked with saving what can be saved. Yet, you're the man with a plan. Fire them all and fulminate against the greedy who walked away from the mess they wrought with millions of dollars in bonuses. Elmer Fudd would be proud.
Once again, oversimplification rules the land. Just as McCain's recommendation to the president that a "surge" of troops be dispatched to Baghdad in order to avert civil war and stabilize Iraq so that its politicians might be given space to achieve political reconciliation has been deemed an unqualified success in some quarters, so too his support of the Federal Housing Enterprise Regulatory Reform Act of 2005 and 2007 would have been an equally profound success had the Democrats not blocked the way.
Well, there is some truth in this. With respect to Iraq, the dispatch of additional troops to Baghdad probably helped in some small way to defuse the bloodbath that was unfolding daily on the streets of Baghdad and in other Iraqi cities undergoing ethnic cleansing. However, the willingness of Sunni tribal chiefs to put an end to the insurrection in Anbar Province and the perspicacity of American military leaders in Anbar to meet the Sunni chiefs and agree to finance the Sunni Awakening by placing former Sunni insurgents on the American payroll probably was a more important factor.
With respect to the Federal Housing Enterprise Regulatory Reform Act, it is much less clear what this act would have accomplished. Prompted by the outrage at the financial shenanigans at Fannie Mae under CEO Franklin Raines who left his position at Fannie Mae with a golden parachute after the scandals that surfaced during the first Bush Administration, Senators Dole, Hagel and Sununu proposed to place Fannie Mae and Freddie Mac, as well as the Federal Home Loan Bank Board, under an independent regulatory agency. Among other things, the legislation would have dealt with golden parachutes of the like that rewarded Raines for his incompetence and gross abuse of power.
On the other hand, the Federal Housing Enterprise Regulatory Reform Act would have been charged with seeing to the continued expansion of home ownership throughout the United States. Would this act have continued the strict lending standards usually pushed by Fannie Mae and Freddie Mac or loosened them and encouraged these agencies to guarantee subprime mortgage lending that did not meet Fannie Mae and Freddie Mac guidelines is unclear. What it did seek was to rein in Fannie Mae and Freddie Mac lobbying that had attempted to lobby Congress in order to thwart the Housing and Urban Development's (HUD) ability to investigate Fannie Mae and to gain Congressional acquiesence in corporate pursuits that Fannie Mae endeavored to follow.
An important distinction must be made. Although charged with guaranteeing mortgages privately arrived at that met Fannie Mae and Freddie Mac requirements, neither entity was a government agency. These were shareholder own corporations that performed a quasi-governmental role: a mortage guarantor that lent stability to the private mortgage market.
What Raines had done was to play loose with accounting rules in order to overstate earnings and thereby enrich himself and other senior officers of Fannie Mae. Restated, these earnings showed that Fannie Mae had not achieved the results claimed and thus the bonuses paid to its senior executives were unwarranted. In this respect, Fannie Mae was just another Enron type scandal that rocked the early Bush administration.
Like Enron, the roots of Fannie Mae's troubles lay in the regulatory lapses of the Clinton Administration which took a hands off approach to Wall Street. Coupled with the desire of a Republican controlled Congress to deregulate Wall Street wherever possible, the hands off approach of Robert Rubin, Secretary of Treasury, conspired to allow slipshod accounting practices to run amok until the bubble burst in the early 2000s.
Enter Elmer Fudd.
Sporting his double-barrelled shotgun, McCain takes aim at Fannie Mae 2008. Neither his support of the Federal Housing Executive Regulatory Act of 2005 or 2007 had met with Congressional approval. Neither a Republican controlled Congress nor a Democratic controlled Congress acted on the bill. It died in committee. Somehow, McCain construes the troubles that afflicted Fannie Mae to be the same as those that plagued Fannie Mae in 2002. Has he been asleep for six years? Did he miss everything that transpired in 2007?
What happened to Fannie Mae and Freddie Mac in many respects was collateral damaged inflicted by the subprime mortgage crisis that saw the destruction of Ameriquest, a leader in subprime mortgages, and the takeover of Countrywide by Bank of America after BofA's lending of millions of dollars to Countrywide failed to staunch the bleeding of capital in Countrywide. Neither Fannie Mae nor Freddie Mac held many subprime mortgages nor were they the guarantor of subprime mortgages, many of which were not worth the paper printed on since income verifications were largely absent and many involved financial chicanery that overstated the true value of the mortgages negotiated. Despite many Congressional leaders desire to push Fannie Mae and Freddie Mac to guarantee or even purchase outright many of these worthless mortgages, neither corporation was at risk.
However, once the subprime crisis unfolded, banks and investors grew skitterish. The collapse of the housing market as the pool of potential buyers shrank once the subprime market evaporated led to a fall in housing prices. Now, many homeowners who had good mortgages found an uncomfortable inversion in their portfolios. Too many houses were worth less than the mortgages that financed their purchase. Such negative value caused many homeowners to default on their mortgages or even walk away from negative value homes. A cascading effect began to take hold as entire neighborhoods took on more and more the resemblances of ghost towns, boarded up as lenders pursued foreclosure. Property values for the remaining homeowners declined and pushed even more homeowners into foreclosure.
For investment banks, mortgage security insurers, as well as Fannie Mae and Freddie Mac, the implosion the housing market meant that credit markets began to seize. Banks tightened lending requirements and companies that needed to borrow on the credit markets in order to shore up their own capitalization found it difficult to acquire the necessary cash. Though subprime mortgages amounted to a small percentage of the total portfolio of mortgages held by Fannie Mae and Freddie Mac, their total value exceeded the capitalization of both firms. If either firm had to guarantee these suspect mortgages, they themselves could have seen a wiping out of their own capital.
In short, the subprime crisis had morphed into a general financial crisis that dwarfed the Savings and Loan crisis of the early 1990s when the market value of assets held by many S&L's was below the value of S&L deposits. Thus, a run on the banks would have brought ruin to any entity that didn't have enough capital on hand and whose holdings were not worth near the amount of money required to indemnify depositors.
Thus, it was unsurprising that Bear, Stearns collapsed under the weight of a run on the bank. The precipitous decline in its stock valuation indicated that the market did not believe Bear, Stearns could honor its obligations.
After a pause, during which a minor bank - Indy Mac - but a major player in the subprime industry experienced a run on the bank which required FDIC intervention, the pressure built up over the summer and culminated in an attack on Freddie Mac and Fannie Mae. Bailing out these corporations only led a panicked financial industry to go after new suspects: Lehman Brothers, AIG, Merrill Lynch and possibly Morgan Stanley, which, despite posting profits, became the target of a lack of investor confidence.
Mr. McCain's support of the Federal Housing Executive Regulatory Reform Act of 2005 may have been laudatory in the abstract, but this act would have done nothing to stem the destruction wrought by the subprime crisis. Indeed, as the subprime meltdown gathered strength in 2006 and 2007, McCain lent his support once again to the Federal Housing Executive Regulatory Act of 2007 that again would not have addressed the problem at hand.
So. claim what you will, Senator McCain. None of it is compelling. It is but another attempt to present you as an all-seeing Senator who has the solution, if only we elect him president. On the other hand, Senator Obama has made specific proposals with respect to the ongoing subprime mortgage crisis and its ripple effects that you attempt to dismiss by attempting to link him to the disgraced Franklin Raines who contrary to the claims of some of your supporters is not an advisor to the Obama campaign.
You call for a 9/11 commission to investigate the current mess as if that would contribute anything to a resolution of the problem. Worse: it's ironic that the commission you tout - the 9/11 commission was virtually ignored by policymakers. Yes, it made for good press and used up a fair amount of money, but it didn't lead to the resignation of Bush administration officials who ignored the warnings before 9/11. It didn't cause the Bush administration to tender their resignations en masse. Nor did it lead to the resignation of Bush or Cheney.
While your proposed commission might meet interminably, discuss, debate and deliberate the chain of events that has brought us to the current global crisis and even produce a weighty tome amenable to holding down worthless mortgage paper, the crisis goes on. Worse: you waffle. Was it wise to bail out Fannie Mae and Freddie Mac? Was taxpayer money put to good use in buying out AIG? Frankly, I place much greater faith in President Paulson and Vice-President Bernanke who have been tasked with saving what can be saved. Yet, you're the man with a plan. Fire them all and fulminate against the greedy who walked away from the mess they wrought with millions of dollars in bonuses. Elmer Fudd would be proud.
Monday, September 15, 2008
WHAT'S UP, DOC?
What a day on Wall Street! Though the fall in the Dow Jones Industrial Average was a significant drop - about 5% - in one day, it pales in comparison to what happened in October 1987. However, that drop in the Dow occurred one year before a crucial election to replace an outgoing, lame-duck president. This drop landed in the middle of an intense political campaign where the race, as best as we can tell, is neck and neck.
Until now, the McCain/Palin campaign has used lies, distortions and fabrications to pull even and lift McCain from the dead. Yet, by wrapping himself in the economic policies of the Bush Administration and promising to continue tax cuts for the wealthy, John McCain faces a deep problem. Will an economy in free fall on Wall Street take down Main Street and expose insurmountable rifts in the conservative coalition? Or, will cultural fears dominate and allow McCain/Palin to beat the odds and win the White House?
Casting himself as the maverick, McCain promises to clear out the Aegean stalls. Today he railed against a Wall Street mentality that has turned sound investing into high stakes gambling more appropriate to a Las Vegas casino than a New York brokerage. That the architects of such risky adventures still manage to walk away with millions of dollars - fair in terms of the contracts these CEOs held, unfair in terms of the damage they have wrought - is surely an outrage. John McCain agrees and promises to deal with these malacious millionaires. But how?
Obama took pains to lay the blame for the current mess on eight years of Republican misrule in the White House. He cited a failure to exercise proper oversight and promised to deliver a much better regulatory regime should he win the White House.
Neither candidate, though, addresses what may lie at the crux of the current woes on Wall Street. Despite Obama's desire to pin this problem exclusively to the Bush Administration, its roots lie in the Reagan Revolution proper. Unfettering the economy and allowing Wall Street to design ever more exotic financial instruments that few, if any, truly understand have made it impossible for regulation to ever be sufficiently proactive to ward off periodic bubbles and busts.
As independent observers have noted, the Clinton interregnum did not diverge one bit from this aspect of the Reagan Revolution. Indeed, many of the "regulatory lapses" trace their origins to the Clinton regime. It was during the Clinton Administration after Treasury Secretary Robert Rubin won out over Labor Secretary Robert Reich that commerical and investment banks were allowed to "run amok". Accounting firms gained notoreity by facilitating ever more arcane off-balance sheet reporting. The Enron debacle that occurred during late 2001 had its roots during the Clinton Administration.
During the Democratic primary season, it was refreshing that Obama managed to put together a grass-roots funding of his campaign that was independent of democratic leaning Wall Street financiers who had aligned themselves almost exclusively behind Hillary Clinton. Without kowtowing to a whining Wall Street, Obama has appeared to be much more sympathetic to auto executive pleas for help as long as any government money is used to re-tool the automotive industry, produce fuel-efficient cars and herald a new era of innovation in an important industry. For Obama, it seems as if bail-outs must have a purpose and serve the overall interests of the American economy and not just appear to reward campaign supporters.
Still, both campaigns should read the important opinion piece that appeared in yesterday's New York Times. Composed by Tyler Cowen, economic professor at George Mason University, the article argued that it was not a lack of regulations on the financial sector that wreaked havoc on Wall Street. Rather, it was the general ineffectiveness of myriad existing regulations that failed to rein in excess financial speculation and allowed mortgage backed securities to profilerate without requiring the necessary transparency that might allow investors to accurately assess risk and the necessary paperwork to support fictitious income claims for would be home buyers.
Pushed by Senator Phil Gramm, the removal of some of the protections of the 1933 Glass-Steagall Act in 1999 may have helped break down the barriers between bankers and brokers and allowed a resurgence of the American economy, but where was the replacement regime that should have emerged to monitor the new American financial sector? The Clinton Administration didn't push for one, and Senator Gramm didn't wish one. What was left was a hodge-podge of regulations that may or may not have been adequate to deal with a housing bubble, the subprime mortgage meltdown that morphed into a general mortgage crisis and has led to weakened financial institutions reeling under credit markets that have seized up as commercial banks seek to protect themselves.
An earlier bout of financial distress culminating in the Dot-com bubble and the collapse of Enron in 2001 did lead to some regulatory reform. Despite the initial and ongoing resistance to reform measures such as Sarbanes-Oaxley have helped bring an air of transparency to corporate accounting. But, Sarbanes-Oaxley was only one small step towards an overhaul of the entire post Depression regulatory regime.
Both Palin and McCain claim that as mavericks, it will be their task to come in and clean up Washington. How they are going to succeed is dubious at best, their protestations notwithstanding. How can you, Senator McCain, clean up Washington when you are going to bring back to Washington people such as Phil Gramm whose Congressional career and subsequent Wall Street career demonstrate that they were and still are part of the problem? How, Senator McCain, are you going to clean up Washington when you so closely identify your economic policies with those currently in charge of Washington? What gives?
Perhaps we should hope that Palin DOES ascend to the Oval Office so that she can bring more of her friends and associates from Wasilla, the people she went to school with who filled important and high-paying positions in the Palin government in Alaska. After all, these people certainly had nothing to do with the financial destruction currently savaging Wall Street. Alas, Sarah, Michael Brown, the quintessential amateur, had nothing to do with Katrina devastating New Orleans. He couldn't order Katrina to turn away from the Big Easy. In the aftermath to Katrina, Brownie didn't do such a "heckuva job", and Sarah Palin's amateur hour won't save Wall Street or Main Street either.
And then, there is Douglas Holtz-Eakin. Officially, Mr. Holtz-Eakin is the chief economic advisor to the McCain campaign. In interviews, he reveals an understanding of the current mess on Wall Street that is far more nuanced than anything either Mr. McCain or Ms. Palin have offered. Mr. Holtz-Eakin proclaims that Senator McCain wants a uniform regulatory regime that theoretically would regulate equal actions equally. In other words, if investment banks want to act like highly regulated commerical banks, then they too should be subject to similar rules and regulations. In addition, Holtz-Aiken sees the need for greater transparency in order to penetrate the fog of arcana that allowed Wall Street to slice and dice securities to the point that no one, not even the originating institutions, appeared to truly understand what it was they were offering the investing public. De-toxification of these "assets" is what is required and transparency certainly is one part of the problem.
What's not transparent, though, is how exactly Mr. Holtz-Eakin's views are reflected in the mind set of John McCain. In the past, McCain has acknowledged that he doesn't really understand the economy that well. In March, he admitted to the Wall Street Journal that he is fundamentally a deregulator. Certainly, he demonstrated this during the early 90s Savings and Loan scandal when McCain, as one of the five senators - Republican and Democrat - caught up in the Keating Five scandal, urged federal regulators to back off from pursuing Charles Keating, then head of Lincoln Savings and Loan.
Even more troubling are the views of Phil Gramm, McCain's campaign co-chair and likely Treasury Secretary in a McCain/Palin administration. In the summer, ex-Senator and UBS lobbyist Phil Gramm sought to place the American malaise squarely on the shoulders of whiners. It wasn't toxic assets cluttering up the balance sheets of mortgage brokers and investment banks that were poisoning the public's perceptions of an economy that was fundamentally sound. It was an imagined state of mind that saw the United States standing on the threshold of perhaps the greatest economic challenge since the Great Depression. Who needs clarity and transparency when it's all in the mind, ya know!
So where do the views of Douglas Holtz-Eakin fit in exactly? Is he mere window dressing? Is he the fig leaf covering up the naked continuation of Bush/Cheney non-regulation and diverting attention from Senator McCain's disdain for regulation? Is he but a lone wolf sounding the right chords, but lost in a sea of other advisors such as Senator Gramm who really don't see a problem either on Wall Street or Main Street? Or, is he just another hatchet man who conjures nonsense in order to inflate the importance of John McCain by touting the latter's supposed role in facilitating the invention of the Blackberry?
Maybe the upcoming debates will provide an opportunity to see which John McCain emerges. Will it be the economic illiterate who parrots the views of advisors such as Phil Gramm and wraps it in the language of Herbert Hoover? Or, will it be the reasonable sounding, fairness espousing, complexity acknowledging economic views of Holtz-Aiken? Which McCain is it anyway? Straight talk as espoused by Holtz-Aiken or pure bull a la Gramm?
If ever Obama had an opportunity to get this campaign back on track and debate the issues, now is the time. If John McCain wants to resurrect Herbert Hoover and proclaim the underlying strength of the American economy, then it's time for Obama to become a truly hard hitting candidate. Compelling McCain to come clean would go a long way towards clarifying the stakes in this election. Pointing out the dangers inherent in allowing Bank of America to bail out first Countrywide and now Merrill/Lynch might persuade Americans of the need for greater transparency and accountability in financial transactions and alert us to future danger in letting such financial behemoths arise without an adequate oversight regime in place.
Melding FDR and JFK and presenting the warm and highly personal campaign that produces the hope and trust necessary between voter and government in order to enact legislation and rules that establish greater transparency, accountability and regulatory innovation in an Obama/Biden administration may be necessary, but it doesn't seem sufficient. Slamming McCain on specifics and holding him accountable for his deregulatory ardor might just do the trick. Of course, we could just let Elmer Fudd continue to baffle and befuddle the masses by masking the morass with more mascara.
"Nyah, what's up, doc?"
Until now, the McCain/Palin campaign has used lies, distortions and fabrications to pull even and lift McCain from the dead. Yet, by wrapping himself in the economic policies of the Bush Administration and promising to continue tax cuts for the wealthy, John McCain faces a deep problem. Will an economy in free fall on Wall Street take down Main Street and expose insurmountable rifts in the conservative coalition? Or, will cultural fears dominate and allow McCain/Palin to beat the odds and win the White House?
Casting himself as the maverick, McCain promises to clear out the Aegean stalls. Today he railed against a Wall Street mentality that has turned sound investing into high stakes gambling more appropriate to a Las Vegas casino than a New York brokerage. That the architects of such risky adventures still manage to walk away with millions of dollars - fair in terms of the contracts these CEOs held, unfair in terms of the damage they have wrought - is surely an outrage. John McCain agrees and promises to deal with these malacious millionaires. But how?
Obama took pains to lay the blame for the current mess on eight years of Republican misrule in the White House. He cited a failure to exercise proper oversight and promised to deliver a much better regulatory regime should he win the White House.
Neither candidate, though, addresses what may lie at the crux of the current woes on Wall Street. Despite Obama's desire to pin this problem exclusively to the Bush Administration, its roots lie in the Reagan Revolution proper. Unfettering the economy and allowing Wall Street to design ever more exotic financial instruments that few, if any, truly understand have made it impossible for regulation to ever be sufficiently proactive to ward off periodic bubbles and busts.
As independent observers have noted, the Clinton interregnum did not diverge one bit from this aspect of the Reagan Revolution. Indeed, many of the "regulatory lapses" trace their origins to the Clinton regime. It was during the Clinton Administration after Treasury Secretary Robert Rubin won out over Labor Secretary Robert Reich that commerical and investment banks were allowed to "run amok". Accounting firms gained notoreity by facilitating ever more arcane off-balance sheet reporting. The Enron debacle that occurred during late 2001 had its roots during the Clinton Administration.
During the Democratic primary season, it was refreshing that Obama managed to put together a grass-roots funding of his campaign that was independent of democratic leaning Wall Street financiers who had aligned themselves almost exclusively behind Hillary Clinton. Without kowtowing to a whining Wall Street, Obama has appeared to be much more sympathetic to auto executive pleas for help as long as any government money is used to re-tool the automotive industry, produce fuel-efficient cars and herald a new era of innovation in an important industry. For Obama, it seems as if bail-outs must have a purpose and serve the overall interests of the American economy and not just appear to reward campaign supporters.
Still, both campaigns should read the important opinion piece that appeared in yesterday's New York Times. Composed by Tyler Cowen, economic professor at George Mason University, the article argued that it was not a lack of regulations on the financial sector that wreaked havoc on Wall Street. Rather, it was the general ineffectiveness of myriad existing regulations that failed to rein in excess financial speculation and allowed mortgage backed securities to profilerate without requiring the necessary transparency that might allow investors to accurately assess risk and the necessary paperwork to support fictitious income claims for would be home buyers.
Pushed by Senator Phil Gramm, the removal of some of the protections of the 1933 Glass-Steagall Act in 1999 may have helped break down the barriers between bankers and brokers and allowed a resurgence of the American economy, but where was the replacement regime that should have emerged to monitor the new American financial sector? The Clinton Administration didn't push for one, and Senator Gramm didn't wish one. What was left was a hodge-podge of regulations that may or may not have been adequate to deal with a housing bubble, the subprime mortgage meltdown that morphed into a general mortgage crisis and has led to weakened financial institutions reeling under credit markets that have seized up as commercial banks seek to protect themselves.
An earlier bout of financial distress culminating in the Dot-com bubble and the collapse of Enron in 2001 did lead to some regulatory reform. Despite the initial and ongoing resistance to reform measures such as Sarbanes-Oaxley have helped bring an air of transparency to corporate accounting. But, Sarbanes-Oaxley was only one small step towards an overhaul of the entire post Depression regulatory regime.
Both Palin and McCain claim that as mavericks, it will be their task to come in and clean up Washington. How they are going to succeed is dubious at best, their protestations notwithstanding. How can you, Senator McCain, clean up Washington when you are going to bring back to Washington people such as Phil Gramm whose Congressional career and subsequent Wall Street career demonstrate that they were and still are part of the problem? How, Senator McCain, are you going to clean up Washington when you so closely identify your economic policies with those currently in charge of Washington? What gives?
Perhaps we should hope that Palin DOES ascend to the Oval Office so that she can bring more of her friends and associates from Wasilla, the people she went to school with who filled important and high-paying positions in the Palin government in Alaska. After all, these people certainly had nothing to do with the financial destruction currently savaging Wall Street. Alas, Sarah, Michael Brown, the quintessential amateur, had nothing to do with Katrina devastating New Orleans. He couldn't order Katrina to turn away from the Big Easy. In the aftermath to Katrina, Brownie didn't do such a "heckuva job", and Sarah Palin's amateur hour won't save Wall Street or Main Street either.
And then, there is Douglas Holtz-Eakin. Officially, Mr. Holtz-Eakin is the chief economic advisor to the McCain campaign. In interviews, he reveals an understanding of the current mess on Wall Street that is far more nuanced than anything either Mr. McCain or Ms. Palin have offered. Mr. Holtz-Eakin proclaims that Senator McCain wants a uniform regulatory regime that theoretically would regulate equal actions equally. In other words, if investment banks want to act like highly regulated commerical banks, then they too should be subject to similar rules and regulations. In addition, Holtz-Aiken sees the need for greater transparency in order to penetrate the fog of arcana that allowed Wall Street to slice and dice securities to the point that no one, not even the originating institutions, appeared to truly understand what it was they were offering the investing public. De-toxification of these "assets" is what is required and transparency certainly is one part of the problem.
What's not transparent, though, is how exactly Mr. Holtz-Eakin's views are reflected in the mind set of John McCain. In the past, McCain has acknowledged that he doesn't really understand the economy that well. In March, he admitted to the Wall Street Journal that he is fundamentally a deregulator. Certainly, he demonstrated this during the early 90s Savings and Loan scandal when McCain, as one of the five senators - Republican and Democrat - caught up in the Keating Five scandal, urged federal regulators to back off from pursuing Charles Keating, then head of Lincoln Savings and Loan.
Even more troubling are the views of Phil Gramm, McCain's campaign co-chair and likely Treasury Secretary in a McCain/Palin administration. In the summer, ex-Senator and UBS lobbyist Phil Gramm sought to place the American malaise squarely on the shoulders of whiners. It wasn't toxic assets cluttering up the balance sheets of mortgage brokers and investment banks that were poisoning the public's perceptions of an economy that was fundamentally sound. It was an imagined state of mind that saw the United States standing on the threshold of perhaps the greatest economic challenge since the Great Depression. Who needs clarity and transparency when it's all in the mind, ya know!
So where do the views of Douglas Holtz-Eakin fit in exactly? Is he mere window dressing? Is he the fig leaf covering up the naked continuation of Bush/Cheney non-regulation and diverting attention from Senator McCain's disdain for regulation? Is he but a lone wolf sounding the right chords, but lost in a sea of other advisors such as Senator Gramm who really don't see a problem either on Wall Street or Main Street? Or, is he just another hatchet man who conjures nonsense in order to inflate the importance of John McCain by touting the latter's supposed role in facilitating the invention of the Blackberry?
Maybe the upcoming debates will provide an opportunity to see which John McCain emerges. Will it be the economic illiterate who parrots the views of advisors such as Phil Gramm and wraps it in the language of Herbert Hoover? Or, will it be the reasonable sounding, fairness espousing, complexity acknowledging economic views of Holtz-Aiken? Which McCain is it anyway? Straight talk as espoused by Holtz-Aiken or pure bull a la Gramm?
If ever Obama had an opportunity to get this campaign back on track and debate the issues, now is the time. If John McCain wants to resurrect Herbert Hoover and proclaim the underlying strength of the American economy, then it's time for Obama to become a truly hard hitting candidate. Compelling McCain to come clean would go a long way towards clarifying the stakes in this election. Pointing out the dangers inherent in allowing Bank of America to bail out first Countrywide and now Merrill/Lynch might persuade Americans of the need for greater transparency and accountability in financial transactions and alert us to future danger in letting such financial behemoths arise without an adequate oversight regime in place.
Melding FDR and JFK and presenting the warm and highly personal campaign that produces the hope and trust necessary between voter and government in order to enact legislation and rules that establish greater transparency, accountability and regulatory innovation in an Obama/Biden administration may be necessary, but it doesn't seem sufficient. Slamming McCain on specifics and holding him accountable for his deregulatory ardor might just do the trick. Of course, we could just let Elmer Fudd continue to baffle and befuddle the masses by masking the morass with more mascara.
"Nyah, what's up, doc?"
Friday, September 12, 2008
SEX. LIES AND DODDERING OLD MEN
As the 2008 presidential campaign heads into the final two months, it appears to resemble less and less a break with the past than a continuation of trends that do not bode well for selecting a leader capable of understanding the world in which the United States must interact and able to command respect. Instead of a spirited campaign about the issues, we are forced to wallow in a seemingly endless sea of distortions, lies and ideological palliatives that obfuscate issues, embarrass the United States even more among key allies in Europe and make it likely that the most mediocre of talents will ascend to the Oval Office.
Some may take comfort in that. After all, isn't it better to have an average joe in the White House, someone you can sit down and have a beer with, rather than listen to doddering old men prattle on about global warming, health care or the fate of the middle class? Bush certainly embodied the former, and his frat boy image from the past, filtered through born again Christian ideology, gave hope that an average joe was there for us. He was someone who understood us, had compassion for our concerns and was just like us. He was a true patriot standing tall and true above flames of the crashing twin towers and leading us to victory against Al Qaeda.
Indeed, Bush played the schoolyard well. He had nicknames for everyone, both at home and abroad. Some were flattering, some not. He was playful with foreign leaders and could look them straight in the eye in order to assess their worthiness. He played T-ball with the kids on the White House lawn and danced before the cameras.
In the meantime, when it came to the classroom, Bush's intellectual disdain was apparent for all to see. Bone-headed policies were pursued. Preparation for natural disasters was turned over to a dilettante. Facts were forged to justify what at best could be described as highly risky gambits. Critics were accused of lacking patriotism or, worse, of giving outright comfort to the enemy. It was a heckuva job.
Damage was done and the international standing of the United States fell to such an extraordinary low that the United States could barely muster any effective opposition to the Russian incursion into Georgia. For all the rhetoric about sending aid to Georgia or coming to its rescue, the European Union under the leadership of Nicholas Sarkozy has played a much more important role in trying to extract Russia from Georgian soil. McCain might proclaim that "we are all Georgians". But, his boast has fallen on deaf ears. No one has rallied round his pitch and the prospect that Georgia will join NATO, let alone be rearmed by the United States, is a dim as the chances of offshore drilling making a significant dent in the world oil price. Claim what you will McCain/Palin, reality has a way of imposing its own priorities and timelines.
Nevertheless, as the political campaign proceeds, lies, distortions and fabrications proceed apace. With every new revelation that arises, the Obama campaign seems to flounder more and more. Is it so perplexed by the audacity of the ads, the gullibility of the media and the willingness of vast sectors of the American public to accept whatever the McCain campaign creates at face value that the last shred of dignity has been stripped from the American political process?
It's one thing to make a claim that cannot be supported by the evidence. Politicians of all stripes habitually make such mistakes. Usually, however, they have the honesty of drop further discussion lest they be made the object of ridicule. Policy proposals that appear absurd upon closer inspection usually are condemned to the dustbin never again to see the light of day. Eventually, real issues get debated and discussed and sometimes the public is better informed as a result.
Earlier, it might have been hoped that old patterns would hold. McCain's idiotic proposal to suspend the federal gasoline tax between Memorial Day and Labor Day had its fifteen minutes of shame. It didn't catch on, despite Ms. Clinton's "me-too" support, because it made no sense. Saving 18 cents per gallon wasn't going to help much when gasoline was rising more than 20 cents per gallon per week.
On the other hand, Obama's windfall profits tax on big oil didn't even last five minutes, let alone distract America's debate about energy for the full fifteen. It failed when Carter proposed and implemented it in the 70s. And, the windfall profits tax wasn't going to produce an additional drop of crude oil.
Yet, ever since the selection of Mrs. Palin to be vice-president on the McCain ticket, all bets are off. True, McCain has stopped claiming that Mrs. Palin made a profit on eBay by selling an executive jet used by the Alaskan governor. She had, of course, fruitlessly listed it on eBay several times and cost the Alaskan taxpayers listing fees. But, the plane was not sold on the internet. It was sold at a loss through a private broker. The facts notwithstanding, Mrs. Palin claims over and over that she sold the plane over and over again. What a lie!
Now, we hear that Mrs. Palin took on big oil to get the Trans-Canada Gas Pipeline. Well, she did - sort of. She did commit the legislature to ante up some money to help a non-big oil firm secure the permits to build a natural gas pipeline across Canada in order to market Alaskan natural gas to the lower 48 without going through the big oil companies that dominate the Alaskan economy and political process. But, the pipeline hasn't been built. It might never be built. And, it might take even more concerted effort to get an underground pipeline across the Yukon which has been in the works since the 70s to see the light of day. Perhaps Mrs. Palin should remain in Juneau and fight for its completion rather than use one small step in a lengthy process to tout her ability to take on big oil and boost her political career. It doesn't do a thing to answer America's energy dilemma.
But, then, why should it? McCain has ratched expectations so low and hastened the speed with which offshore oil could be extracted that we should expect a miracle within the first 100 days of a McCain administration as it transforms water into oil. When critics point out that even under the best of circumstances - the waving of all environmental safeguards by expediting the federal approval process and kowtowing to every demand imaginable that big oil might seek to exact - there simply is a lack of offshore drilling rigs to meet any significant boost in oil production in the near future. Straight talk is nothing more than pure bull.
And, now there's sex. The McCain campaign claims that Obama would teach sex education to kindergartners, at least that was the supposed aim of legislation supported by Mr. Obama in the Illinois state house. Really?
No, Obama supported a program to teach elementary age children about sexual predators. Children would receive instruction in recognizing the inappropriateness of certain interactions between adults and young children and in learning what they could and should do about it. Is that preparing kids for fornication as the McCainites would have it? Hardly.
On the other hand, we have a candidate in Palin who talks the talk of abstinence education and seeks to impose it on the rest of us even though the sparse bit of scientific data suggests that abstinence education makes little difference in the rate of teenage sex and might even worsen the rate of teenage pregnancy. And how is it possible that a mother can be so clueless about the sex life of her teenage daughter? Yes, it's a private matter, but it was a very important private matter for a highly religious family. Worse: it is an insult to those families that do practice abstinence and are able to raise children who resist the temptation to engage in adolescent sex and juggle the demands of work and home. This is hypocrisy to the nth degree.
Americans can and should expect their would-be leaders to be frank, forthcoming and intellectually honest with voters. Such an approach might even encourage discouraged voters to cast aside their apathy and turn out at the polls. It might even produce a leadership that could craft credible policies at home and abroad and thereby regain international respect and allow the United States to once again assume a leadership role.
But, the McCain campaign handlers seem all too willing to deny us such an election. Rather than debate real issues, we are asked to set aside logic and reason in order to believe that Obama was attacking Palin by referring to McCain's economic policies - a continuation of Bush's failed policies - as putting lipstick on a pig.
What's truly sad in all of this is that, as an educator, I am charged with teaching my students to become lifelong learners and to learn to think critically. I am supposed to prepare them for the intense academic competition that will land the best and the brightest in the top educational institutions.
At the same time, I am a mandated reporter who has to be ever watchful for instances of child sexual abuses. Once I had the fortunate misfortune to luck into a case of child sexual abuse that other adults had missed. The child, a six-grade boy, was hyperactive, prone to disruptive behavior and reluctant to remain on task. Yet, for some reason, this child chose to open up to me and begin the painful process of unraveling the history of child abuse that he had experienced for several years with the upstairs neighbor whom his working mom had entrusted to his care. Fourteen years later that incident remains vivid to me. And now, I am compelled to listen to the deliberate distortion of a sensible legislative proposals to proactively deal with child sexual abuse just so one side can gain points and paint the opponent as a lascivious liberal.
All that we are supposed to do as educators is the exact opposite of what we see on the local, state and national level. Once academia is left behind, we see the rule of the playground. Grab whatever you can in politics and business. Use whatever means necessary to succeed. Walk away with the best deal possible even if the results of your actions has been abject failure. And we wonder why the United States seems less and less capable of averting the fate of Argentina since the 1920s, a country that once numbered among the world's wealthiest, but now struggles to keep intact its middle class.
Lies, distortions and doddering old men fiddle while the middle class frets. McCain/Palin might succeed and win an election under the most improbable of circumstances. For their handlers, it might be a political miracle even greater than the upset win of Truman over Dewey. Can the rest of us, however, survive the consequences of their success?
Some may take comfort in that. After all, isn't it better to have an average joe in the White House, someone you can sit down and have a beer with, rather than listen to doddering old men prattle on about global warming, health care or the fate of the middle class? Bush certainly embodied the former, and his frat boy image from the past, filtered through born again Christian ideology, gave hope that an average joe was there for us. He was someone who understood us, had compassion for our concerns and was just like us. He was a true patriot standing tall and true above flames of the crashing twin towers and leading us to victory against Al Qaeda.
Indeed, Bush played the schoolyard well. He had nicknames for everyone, both at home and abroad. Some were flattering, some not. He was playful with foreign leaders and could look them straight in the eye in order to assess their worthiness. He played T-ball with the kids on the White House lawn and danced before the cameras.
In the meantime, when it came to the classroom, Bush's intellectual disdain was apparent for all to see. Bone-headed policies were pursued. Preparation for natural disasters was turned over to a dilettante. Facts were forged to justify what at best could be described as highly risky gambits. Critics were accused of lacking patriotism or, worse, of giving outright comfort to the enemy. It was a heckuva job.
Damage was done and the international standing of the United States fell to such an extraordinary low that the United States could barely muster any effective opposition to the Russian incursion into Georgia. For all the rhetoric about sending aid to Georgia or coming to its rescue, the European Union under the leadership of Nicholas Sarkozy has played a much more important role in trying to extract Russia from Georgian soil. McCain might proclaim that "we are all Georgians". But, his boast has fallen on deaf ears. No one has rallied round his pitch and the prospect that Georgia will join NATO, let alone be rearmed by the United States, is a dim as the chances of offshore drilling making a significant dent in the world oil price. Claim what you will McCain/Palin, reality has a way of imposing its own priorities and timelines.
Nevertheless, as the political campaign proceeds, lies, distortions and fabrications proceed apace. With every new revelation that arises, the Obama campaign seems to flounder more and more. Is it so perplexed by the audacity of the ads, the gullibility of the media and the willingness of vast sectors of the American public to accept whatever the McCain campaign creates at face value that the last shred of dignity has been stripped from the American political process?
It's one thing to make a claim that cannot be supported by the evidence. Politicians of all stripes habitually make such mistakes. Usually, however, they have the honesty of drop further discussion lest they be made the object of ridicule. Policy proposals that appear absurd upon closer inspection usually are condemned to the dustbin never again to see the light of day. Eventually, real issues get debated and discussed and sometimes the public is better informed as a result.
Earlier, it might have been hoped that old patterns would hold. McCain's idiotic proposal to suspend the federal gasoline tax between Memorial Day and Labor Day had its fifteen minutes of shame. It didn't catch on, despite Ms. Clinton's "me-too" support, because it made no sense. Saving 18 cents per gallon wasn't going to help much when gasoline was rising more than 20 cents per gallon per week.
On the other hand, Obama's windfall profits tax on big oil didn't even last five minutes, let alone distract America's debate about energy for the full fifteen. It failed when Carter proposed and implemented it in the 70s. And, the windfall profits tax wasn't going to produce an additional drop of crude oil.
Yet, ever since the selection of Mrs. Palin to be vice-president on the McCain ticket, all bets are off. True, McCain has stopped claiming that Mrs. Palin made a profit on eBay by selling an executive jet used by the Alaskan governor. She had, of course, fruitlessly listed it on eBay several times and cost the Alaskan taxpayers listing fees. But, the plane was not sold on the internet. It was sold at a loss through a private broker. The facts notwithstanding, Mrs. Palin claims over and over that she sold the plane over and over again. What a lie!
Now, we hear that Mrs. Palin took on big oil to get the Trans-Canada Gas Pipeline. Well, she did - sort of. She did commit the legislature to ante up some money to help a non-big oil firm secure the permits to build a natural gas pipeline across Canada in order to market Alaskan natural gas to the lower 48 without going through the big oil companies that dominate the Alaskan economy and political process. But, the pipeline hasn't been built. It might never be built. And, it might take even more concerted effort to get an underground pipeline across the Yukon which has been in the works since the 70s to see the light of day. Perhaps Mrs. Palin should remain in Juneau and fight for its completion rather than use one small step in a lengthy process to tout her ability to take on big oil and boost her political career. It doesn't do a thing to answer America's energy dilemma.
But, then, why should it? McCain has ratched expectations so low and hastened the speed with which offshore oil could be extracted that we should expect a miracle within the first 100 days of a McCain administration as it transforms water into oil. When critics point out that even under the best of circumstances - the waving of all environmental safeguards by expediting the federal approval process and kowtowing to every demand imaginable that big oil might seek to exact - there simply is a lack of offshore drilling rigs to meet any significant boost in oil production in the near future. Straight talk is nothing more than pure bull.
And, now there's sex. The McCain campaign claims that Obama would teach sex education to kindergartners, at least that was the supposed aim of legislation supported by Mr. Obama in the Illinois state house. Really?
No, Obama supported a program to teach elementary age children about sexual predators. Children would receive instruction in recognizing the inappropriateness of certain interactions between adults and young children and in learning what they could and should do about it. Is that preparing kids for fornication as the McCainites would have it? Hardly.
On the other hand, we have a candidate in Palin who talks the talk of abstinence education and seeks to impose it on the rest of us even though the sparse bit of scientific data suggests that abstinence education makes little difference in the rate of teenage sex and might even worsen the rate of teenage pregnancy. And how is it possible that a mother can be so clueless about the sex life of her teenage daughter? Yes, it's a private matter, but it was a very important private matter for a highly religious family. Worse: it is an insult to those families that do practice abstinence and are able to raise children who resist the temptation to engage in adolescent sex and juggle the demands of work and home. This is hypocrisy to the nth degree.
Americans can and should expect their would-be leaders to be frank, forthcoming and intellectually honest with voters. Such an approach might even encourage discouraged voters to cast aside their apathy and turn out at the polls. It might even produce a leadership that could craft credible policies at home and abroad and thereby regain international respect and allow the United States to once again assume a leadership role.
But, the McCain campaign handlers seem all too willing to deny us such an election. Rather than debate real issues, we are asked to set aside logic and reason in order to believe that Obama was attacking Palin by referring to McCain's economic policies - a continuation of Bush's failed policies - as putting lipstick on a pig.
What's truly sad in all of this is that, as an educator, I am charged with teaching my students to become lifelong learners and to learn to think critically. I am supposed to prepare them for the intense academic competition that will land the best and the brightest in the top educational institutions.
At the same time, I am a mandated reporter who has to be ever watchful for instances of child sexual abuses. Once I had the fortunate misfortune to luck into a case of child sexual abuse that other adults had missed. The child, a six-grade boy, was hyperactive, prone to disruptive behavior and reluctant to remain on task. Yet, for some reason, this child chose to open up to me and begin the painful process of unraveling the history of child abuse that he had experienced for several years with the upstairs neighbor whom his working mom had entrusted to his care. Fourteen years later that incident remains vivid to me. And now, I am compelled to listen to the deliberate distortion of a sensible legislative proposals to proactively deal with child sexual abuse just so one side can gain points and paint the opponent as a lascivious liberal.
All that we are supposed to do as educators is the exact opposite of what we see on the local, state and national level. Once academia is left behind, we see the rule of the playground. Grab whatever you can in politics and business. Use whatever means necessary to succeed. Walk away with the best deal possible even if the results of your actions has been abject failure. And we wonder why the United States seems less and less capable of averting the fate of Argentina since the 1920s, a country that once numbered among the world's wealthiest, but now struggles to keep intact its middle class.
Lies, distortions and doddering old men fiddle while the middle class frets. McCain/Palin might succeed and win an election under the most improbable of circumstances. For their handlers, it might be a political miracle even greater than the upset win of Truman over Dewey. Can the rest of us, however, survive the consequences of their success?
Wednesday, September 10, 2008
WHAT? ME WORRY?
By all rights, the November 2008 election ought to result in a landslide for the candidate of the Democratic Party. The economy is in the toilet for most people. Apart for big investment banks, Fannie Mae and Freddie Mac, relief does not appear on the way. Admitting that he lacks an understanding of the economy, McCain offers little but more of the same failed Bush policies that have left an underregulated economy lurching from financial crisis to financial crisis. Yet, Obama is in a neck and neck contest with McCain. How can this be?
In part, one might blame the electoral college. It is very possible that Obama will win the popular vote quite handily. The electoral college math, however, bespeaks a close race. Indeed, according to Chuck Todd, NBC News electoral analyst, the contest has come down to a race in four key states: Ohio, New Hampshire, Colorado and Virginia. In these states, the races are a statistical dead heat.
Ohio might be excused. It has always found it difficult to vote for a Democratic candidate. Indeed, it has also found ways to make it difficult for Democratically inclined voters to cast their votes on a timely basis. It's a large state with 21 electoral votes. But, it may be difficult for Obama to shake these votes his way.
Colorado is a strange bird indeed. On the one hand, Denver and its suburbs are probably inclined to support Obama. Indeed, votes for the Democratic party have increased in recent elections. Yet, western Colorado appears ready to succumb to the Republican mantra of Drill Here, Drill Now. So which way will Colorado swing? At this stage, it's too close to tell.
Electoral college politics is but one side of the equation, however. On the other side lies the arcana of American politics and history. To some, Obama is just too liberal. And, since America is not a liberal country, Obama is out of tune with the rhythm of the land. To others, Obama is, well he represents, the end of an era. No, it's not the poisonous politics of the recent past. Rather, the possible ascension of Obama to the highest office in the land will marked the final nail in the coffin burying white rule in the United States. Soon, the land will be dominated by minorities - black, brown, yellow, green, whatever color you like - and the white man will fade away like the American Indian. For such people, greener pastures do not lie in an all-inclusive future where men and women, regardless of creed, color or background, can legitimately aspire to lead, but hope lies in the myriad casinos scattered throughout the country.
Yet, the reluctance of some voters to break free of their prejudices and vote for the better candidate only explains part of the problem that Obama has. Ever since it became clear that he would become the Democratic nominee for president, Obama has meandered. Gone is the visceral fire in the belly that ignited voters in the winter and spring. Instead, we have the philosophical and professorial Obama who, although appealing to well-educated voters on the coasts, fails to connect with those Americans deeply hurt by the economy. Raise your voice. Denounce the idiotic policies of the Bushidos whose only response is more tax cuts for the rich. Trickle down, my arse. We've been pissed on for over 25 years by Reaganites who have soft soaped us with all kinds of promises. Tell us what you're going to do and show the working and middle class how it helps them.
Then, there's the Palin factor. Just who she is doesn't really seem to matter. The Republican evangelist base certainly knows who she is. They love her. She is George W. without the baggage. She's Barbie fighting back against the Bratz (who will all know support Obama!). Whatever the merits of her nomination, she does energize the crowds for John McCain. Whether she can help him move beyond the narrow evangelical base is another matter. But, it seems as if she has pushed states such as North Carolina out of the "contested" category and into the Republican fold.
If this election had been about the issues, then this election would have long since been decided. McCain's claim that drilling off-shore will solve the energy crisis in months is absurd and ignores the critical lack of off-shore drilling equipment that could be used to boost off-shore production, even if the approval process is so speeded up that environmental concerns are completely ignored. McCain has had nothing sensible to say about the financial meltdown that is shaking Wall Street. He offers nothing beyond the absurd palliative of extending the Bush tax cuts by making them permanent.
Whereas Obama has repeatedly decried the financial windfall exacted by those executives responsible for the irresponsible fiscal shenanigans that have wreaked havoc on the housing industry and resulted in a liquidity crisis that has made it difficult for students to get private sector loans, for companies to secure investment loans, and even for municipalites who rely on the market to finance infrastructure projects, McCain's silence was deafening until Obama had spoken. Now, McCain too is opposed to the multi-million dollar bonuses that Fannie Mae and Freddie Mac executives will walk away with. Yes, they should pay these undeserved millions back. It's just that the man whose economic policies you so dearly defend doesn't see a problem. Don't just talk the talk, John, call the boss. Tell Bush what you think if that's really what you believe! And tell us specifically what you would if you became president to go after executive overcompensation especially when the ruination of companies is what's been achieved. Parroting Obama just isn't enough!
Instead, we get distractions such as the lipstick on a pig nonsense that McCain surely knows is pigheaded. Yet, he acts as if his campaign has not been responsible for dragging this campaign through the sewer. When you have truly nothing to offer, I suppose the only thing you can do is throw enough mud and hope some of it not only sticks but so obfuscates the view that the bigger picture is lost for all the slime.
Maybe Obama ought to have debated McCain in town hall appearances. Somehow, though, the suspicion looms that the McCainites would have sought to structure these in such a way to maximize demagoguery and minimize rational debate. Surely, McCain's advisors know that he does not do well when speaking off the cuff. He doesn't have command of the facts. Beyond platitudes and his constant refrain about the "super successful surge" that he, McCain, pushed the president to enact, McCain still can't tell the difference between Sunni and Shia.
No serious analyst accepts McCain's claim that the surge has been successful solely as a result of the dispatch of 30,000 troops to Baghdad. Nor can McCain explain why if the "surge" is so successful is it impossible to speed the withdrawal of troops from Iraq. Could it be that the "super successful surge" still stands on shaky legs and a lot depends on how the government in Baghdad integrates the Sunni Awakening into the Iraqi police and military and how it addresses the regional issues that threaten to rend Iraq asunder. Not even Bill O'Reilly attempts to make Obama confess his sins can distract from the fact that Obama demonstrates a more nuanced and more accurate understanding of the Iraq debacle.
Yes, I am worried. If 50% of the voters who actually will go to the polls and cast a ballot for president wish to walk off a cliff and commit hari-kari, I might not be so chagrined. That they might just tip the scales by allowing McCain to win a majority of the electoral college while losing the popular vote and push the United States over the cliff is simply unconscionable. So, cast your vote for McCain, if you dare. Rest assured that if he wins, Palin will run for president in 4 years. Should she win, you can almost predict that the Supreme Court will at last achieve unanimous decisions and outlaw abortion, make it impossible for everyday citizens to achieve equity against corporations and continue the Bush practice of curtailing our rights as citizens.
In part, one might blame the electoral college. It is very possible that Obama will win the popular vote quite handily. The electoral college math, however, bespeaks a close race. Indeed, according to Chuck Todd, NBC News electoral analyst, the contest has come down to a race in four key states: Ohio, New Hampshire, Colorado and Virginia. In these states, the races are a statistical dead heat.
Ohio might be excused. It has always found it difficult to vote for a Democratic candidate. Indeed, it has also found ways to make it difficult for Democratically inclined voters to cast their votes on a timely basis. It's a large state with 21 electoral votes. But, it may be difficult for Obama to shake these votes his way.
Colorado is a strange bird indeed. On the one hand, Denver and its suburbs are probably inclined to support Obama. Indeed, votes for the Democratic party have increased in recent elections. Yet, western Colorado appears ready to succumb to the Republican mantra of Drill Here, Drill Now. So which way will Colorado swing? At this stage, it's too close to tell.
Electoral college politics is but one side of the equation, however. On the other side lies the arcana of American politics and history. To some, Obama is just too liberal. And, since America is not a liberal country, Obama is out of tune with the rhythm of the land. To others, Obama is, well he represents, the end of an era. No, it's not the poisonous politics of the recent past. Rather, the possible ascension of Obama to the highest office in the land will marked the final nail in the coffin burying white rule in the United States. Soon, the land will be dominated by minorities - black, brown, yellow, green, whatever color you like - and the white man will fade away like the American Indian. For such people, greener pastures do not lie in an all-inclusive future where men and women, regardless of creed, color or background, can legitimately aspire to lead, but hope lies in the myriad casinos scattered throughout the country.
Yet, the reluctance of some voters to break free of their prejudices and vote for the better candidate only explains part of the problem that Obama has. Ever since it became clear that he would become the Democratic nominee for president, Obama has meandered. Gone is the visceral fire in the belly that ignited voters in the winter and spring. Instead, we have the philosophical and professorial Obama who, although appealing to well-educated voters on the coasts, fails to connect with those Americans deeply hurt by the economy. Raise your voice. Denounce the idiotic policies of the Bushidos whose only response is more tax cuts for the rich. Trickle down, my arse. We've been pissed on for over 25 years by Reaganites who have soft soaped us with all kinds of promises. Tell us what you're going to do and show the working and middle class how it helps them.
Then, there's the Palin factor. Just who she is doesn't really seem to matter. The Republican evangelist base certainly knows who she is. They love her. She is George W. without the baggage. She's Barbie fighting back against the Bratz (who will all know support Obama!). Whatever the merits of her nomination, she does energize the crowds for John McCain. Whether she can help him move beyond the narrow evangelical base is another matter. But, it seems as if she has pushed states such as North Carolina out of the "contested" category and into the Republican fold.
If this election had been about the issues, then this election would have long since been decided. McCain's claim that drilling off-shore will solve the energy crisis in months is absurd and ignores the critical lack of off-shore drilling equipment that could be used to boost off-shore production, even if the approval process is so speeded up that environmental concerns are completely ignored. McCain has had nothing sensible to say about the financial meltdown that is shaking Wall Street. He offers nothing beyond the absurd palliative of extending the Bush tax cuts by making them permanent.
Whereas Obama has repeatedly decried the financial windfall exacted by those executives responsible for the irresponsible fiscal shenanigans that have wreaked havoc on the housing industry and resulted in a liquidity crisis that has made it difficult for students to get private sector loans, for companies to secure investment loans, and even for municipalites who rely on the market to finance infrastructure projects, McCain's silence was deafening until Obama had spoken. Now, McCain too is opposed to the multi-million dollar bonuses that Fannie Mae and Freddie Mac executives will walk away with. Yes, they should pay these undeserved millions back. It's just that the man whose economic policies you so dearly defend doesn't see a problem. Don't just talk the talk, John, call the boss. Tell Bush what you think if that's really what you believe! And tell us specifically what you would if you became president to go after executive overcompensation especially when the ruination of companies is what's been achieved. Parroting Obama just isn't enough!
Instead, we get distractions such as the lipstick on a pig nonsense that McCain surely knows is pigheaded. Yet, he acts as if his campaign has not been responsible for dragging this campaign through the sewer. When you have truly nothing to offer, I suppose the only thing you can do is throw enough mud and hope some of it not only sticks but so obfuscates the view that the bigger picture is lost for all the slime.
Maybe Obama ought to have debated McCain in town hall appearances. Somehow, though, the suspicion looms that the McCainites would have sought to structure these in such a way to maximize demagoguery and minimize rational debate. Surely, McCain's advisors know that he does not do well when speaking off the cuff. He doesn't have command of the facts. Beyond platitudes and his constant refrain about the "super successful surge" that he, McCain, pushed the president to enact, McCain still can't tell the difference between Sunni and Shia.
No serious analyst accepts McCain's claim that the surge has been successful solely as a result of the dispatch of 30,000 troops to Baghdad. Nor can McCain explain why if the "surge" is so successful is it impossible to speed the withdrawal of troops from Iraq. Could it be that the "super successful surge" still stands on shaky legs and a lot depends on how the government in Baghdad integrates the Sunni Awakening into the Iraqi police and military and how it addresses the regional issues that threaten to rend Iraq asunder. Not even Bill O'Reilly attempts to make Obama confess his sins can distract from the fact that Obama demonstrates a more nuanced and more accurate understanding of the Iraq debacle.
Yes, I am worried. If 50% of the voters who actually will go to the polls and cast a ballot for president wish to walk off a cliff and commit hari-kari, I might not be so chagrined. That they might just tip the scales by allowing McCain to win a majority of the electoral college while losing the popular vote and push the United States over the cliff is simply unconscionable. So, cast your vote for McCain, if you dare. Rest assured that if he wins, Palin will run for president in 4 years. Should she win, you can almost predict that the Supreme Court will at last achieve unanimous decisions and outlaw abortion, make it impossible for everyday citizens to achieve equity against corporations and continue the Bush practice of curtailing our rights as citizens.
Wednesday, August 20, 2008
COLD WAR, TOO?
The origins of the Cold War were debated by scholars for years and only faded into obscurity when the Soviet Union ceased to exist. Were Soviet actions in Poland and Czechoslovakia responsible for the bill chill? Did the West contribute by rushing to re-establish a German state? Actions and reactions - some deliberate, some unintentional, some well-considered, some misguided - conspired to bring about an icy era of global tension that reached its apex in the 1962 Cuban Missile Crisis. Are we now on the verge of another Cold War, it too the product of actions and reactions that lead where no one dare go?
The Russian press. the Russian foreign minister and eminences grises such as Mikhail Gorbachev, have cited the expansion of NATO, the desire to establish a missile defense system in Poland and the Czech Republic, along with a general Wester condescension towards the successor state to the Soviet Union. Mixed in with legitimate beefs are the familiar faces of Soviet Russia: hyperbole, distortion, fabrication and outright deception.
As Russia prolongs a ceasefire that never should have been required had the United States warned Saaskavili in no uncertain terms that a military attack on South Ossetia was foolhardy and would lead to consequences that might be beyond the ability of the nascent Georgian military to cope with, the Western response is muddled and rife with recklessness. True to its macho posturing, the Bush Administration has elected to ink an agreement with Poland to emplace missiles as part of a Star Wars technology ostensibly aimed at preventing an as yet non-existent Iran threat to Europe. Talk of NATO expansion into the Ukraine and expediting Georgia's request to join NATO have provoked even more Russia bile. What's lacking is a strategy to counter Russian bully tactics.
Harvard professor Monica Toft is the latest to weigh in on the ostensible lack of military options to deal with the Russian incursion. Apparently, forward positioning of NATO naval and air fleets, combined with the assertion of air superiority across Georgian territory - sans South Ossetia and Abkhazia - is not a viable military option in their view. Have the follies of the Bush Administration so diminished our capacities that we confuse the use of military power, that is, boots on the ground, with the application of credible military threats in order to exact concessions?
Admittedly, leadership is lacking. Western Europe dallies when it should be taking the lead. Condolezza Rice still looks more the shocked inspector in Casablanca than the Russia expert she supposedly was. Didn't she see the folly of foisting a missile defense system that has failed to demonstrate any ability to work to the 90 - 95% reliability most would expect of a defense system. In the meantime, more money is wasted on a system that even under the most favorable of circumstances - knowledge of when and where without any countermeasures - barely approaches a 50% success rate.
Bush, on the other hand, remains Bush. Clueless in the face of danger, Bush lacks the moral authority to mobilize the West against Russia. Ignoring legitimate Russian concerns regarding the haste with which Kosova was granted independence and the failure to tie this action to other intractable ethnic issues - South Ossetia and Abkhazia, for instance - Bush chose to press ahead, be it with his ill-fated folly in Iraq or his declaration of the Axis of Evil.
Russia, too, is not without fault. Indeed, the issuances of passports to South Ossetian and Abkhaz citizens of Georgia goes beyond what one normally would expect of a peacekeeping power. The swiftness and coordinated nature of its response to the Georgian gambit of 6 August suggest that it was looking for an opportunity to reshuffle the deck. The lack of Russian cooperation with respect to nuclear enrichment on the part of Iran, as well as outright Russian obstinence with respect to cooperation in Polonium poisoning incident in London, are clear indicators that dealing with this new, petro-dollar rich Russia won't be easy.
Still, there were signs that Russia could cooperate. Even though the Krasnoyarsk radar site is not particularly useful in dealing with an eventual Iranian military threat, the offer could have been used to establish a joint Russian/NATO task force to work through the scenario. Here again, the Bush Administration seems to have too wedded to its plans for Poland and the Czech Republic and too easily dismissive of the Russian counter-proposal.
Rather than offer NATO membership to newly independent states of the former Soviet Union, the West might have been better off extending membership in the European Union. Of course, that's not in America's interest. It has no voice in the EU. However, an ancillary defense arrangement, without the extension of formal NATO membership and the participation of relevant forces in war simulations, might have been possible, if only to reassure the Balkan states.
Conditions ought to have been attached to any such associative relationships. Resolution of ethnic disputes certainly should have been one. Why was the accession of Georgia to NATO even considered as long as Russian troops/peacekeepers occupied provinces that Georgia regarded as integral to its national territory?
No one need have conceded to Russian suzerainty over its "near abroad" either in diplomatic or military terms. Votes conducted under international supervision could have determined the fates of regions in dispute. And, granting self-determination rights still ought to be a part of a face-saving solution.
The difficulty now is to find a means to compel Russia to withdraw. Diplomacy seems the favored course, but its outcome seems uncertain at best. Issuance of an ultimatum might stand a better chance of success, but it is hard to imagine the Bush Administration mustering the requisite mettle required. Whether Europe can come up with the will to lead and undo the damage wrought by the Bush Administration in its relations with Russia is truly the great unknown. It doesn't seem to be a likely result, but it could happen.
Does anyone really want the alternative? Cold War Two?
The Russian press. the Russian foreign minister and eminences grises such as Mikhail Gorbachev, have cited the expansion of NATO, the desire to establish a missile defense system in Poland and the Czech Republic, along with a general Wester condescension towards the successor state to the Soviet Union. Mixed in with legitimate beefs are the familiar faces of Soviet Russia: hyperbole, distortion, fabrication and outright deception.
As Russia prolongs a ceasefire that never should have been required had the United States warned Saaskavili in no uncertain terms that a military attack on South Ossetia was foolhardy and would lead to consequences that might be beyond the ability of the nascent Georgian military to cope with, the Western response is muddled and rife with recklessness. True to its macho posturing, the Bush Administration has elected to ink an agreement with Poland to emplace missiles as part of a Star Wars technology ostensibly aimed at preventing an as yet non-existent Iran threat to Europe. Talk of NATO expansion into the Ukraine and expediting Georgia's request to join NATO have provoked even more Russia bile. What's lacking is a strategy to counter Russian bully tactics.
Harvard professor Monica Toft is the latest to weigh in on the ostensible lack of military options to deal with the Russian incursion. Apparently, forward positioning of NATO naval and air fleets, combined with the assertion of air superiority across Georgian territory - sans South Ossetia and Abkhazia - is not a viable military option in their view. Have the follies of the Bush Administration so diminished our capacities that we confuse the use of military power, that is, boots on the ground, with the application of credible military threats in order to exact concessions?
Admittedly, leadership is lacking. Western Europe dallies when it should be taking the lead. Condolezza Rice still looks more the shocked inspector in Casablanca than the Russia expert she supposedly was. Didn't she see the folly of foisting a missile defense system that has failed to demonstrate any ability to work to the 90 - 95% reliability most would expect of a defense system. In the meantime, more money is wasted on a system that even under the most favorable of circumstances - knowledge of when and where without any countermeasures - barely approaches a 50% success rate.
Bush, on the other hand, remains Bush. Clueless in the face of danger, Bush lacks the moral authority to mobilize the West against Russia. Ignoring legitimate Russian concerns regarding the haste with which Kosova was granted independence and the failure to tie this action to other intractable ethnic issues - South Ossetia and Abkhazia, for instance - Bush chose to press ahead, be it with his ill-fated folly in Iraq or his declaration of the Axis of Evil.
Russia, too, is not without fault. Indeed, the issuances of passports to South Ossetian and Abkhaz citizens of Georgia goes beyond what one normally would expect of a peacekeeping power. The swiftness and coordinated nature of its response to the Georgian gambit of 6 August suggest that it was looking for an opportunity to reshuffle the deck. The lack of Russian cooperation with respect to nuclear enrichment on the part of Iran, as well as outright Russian obstinence with respect to cooperation in Polonium poisoning incident in London, are clear indicators that dealing with this new, petro-dollar rich Russia won't be easy.
Still, there were signs that Russia could cooperate. Even though the Krasnoyarsk radar site is not particularly useful in dealing with an eventual Iranian military threat, the offer could have been used to establish a joint Russian/NATO task force to work through the scenario. Here again, the Bush Administration seems to have too wedded to its plans for Poland and the Czech Republic and too easily dismissive of the Russian counter-proposal.
Rather than offer NATO membership to newly independent states of the former Soviet Union, the West might have been better off extending membership in the European Union. Of course, that's not in America's interest. It has no voice in the EU. However, an ancillary defense arrangement, without the extension of formal NATO membership and the participation of relevant forces in war simulations, might have been possible, if only to reassure the Balkan states.
Conditions ought to have been attached to any such associative relationships. Resolution of ethnic disputes certainly should have been one. Why was the accession of Georgia to NATO even considered as long as Russian troops/peacekeepers occupied provinces that Georgia regarded as integral to its national territory?
No one need have conceded to Russian suzerainty over its "near abroad" either in diplomatic or military terms. Votes conducted under international supervision could have determined the fates of regions in dispute. And, granting self-determination rights still ought to be a part of a face-saving solution.
The difficulty now is to find a means to compel Russia to withdraw. Diplomacy seems the favored course, but its outcome seems uncertain at best. Issuance of an ultimatum might stand a better chance of success, but it is hard to imagine the Bush Administration mustering the requisite mettle required. Whether Europe can come up with the will to lead and undo the damage wrought by the Bush Administration in its relations with Russia is truly the great unknown. It doesn't seem to be a likely result, but it could happen.
Does anyone really want the alternative? Cold War Two?
Monday, August 18, 2008
ÇA PLAN POUR MOI!
Imagine how John and Bobby would react to the challenge posed by Russia in its two steps forward one step backward withdrawal from Georgia. They'd be spinning in their graves. Where would the West be today if the Kennedy Administration had but protested loudly and not issued an ultimatum to the Soviet Union regarding the placement of missiles in Cuba during 1962? Where would we be if President Kennedy had not assembled about him an excellent set of advisors who looked at every possible response, including the wacky ones advanced by Edward Lansdale? The chosen course, a naval blockade about Cuba, lent credibility to a game of brinkmanship that led to the withdrawal of missiles from Cuba and those missiles in Turkey that had annoyed the Soviets in the first place.
Ultimata are not especially popular, it seems. To date, no one has really come out with credible proposals that could make the cost of non-compliance to the ceasefire agreements crafted thus far too expensive for Russia to persist in its actions that suggest the desire for regime change in Tbilisi. Instead, we hear the mantra that there are no good military options. Really?
It is true that the American military is overextended due to its major commitment to Iraq and minor activity in Afghanistan. The unwillingness of the Bush Administration to curtail its commitments or to redress deficiencies in the American military by enacting draft legislation to swell the ranks of the American war machine has left the United States with few land-based options. (Of course, the generals are loathe to deal anew with draftees since the discontent exhibited by many unwilling eighteen year olds during the last unpopular war (Vietnam) did not result in the most efficient American military machine desired by the Pentagon.)
Yet, a naval blockade of Abkhazia is certainly doable. Forward positioning of NATO air force units to bases in Turkey is possible. The wresting of air superiority from woefully inferior Russian air forces could easily be accomplished. The drawing of a line in the sand or the establishment of a strict timetable with no wiggle room for interpretation for the withdrawal of Russian tanks and troops to the positions held prior to 6 August 2008 is also possible.
What is lacking is the will? Condolezza Rice seems to have lifted a page from Casablanca as she now professes to see vice everywhere. Where has she been the past several years? Is she unaware of the absolute refusal of the Russians to cooperate in the extradiction of the likely culprit in the Polonium poisoning in London a few years back? Is she unaware of the assassination of Russian reporters who dared to present a non-saccharine view of politics in Putin era state-enterprise controlled media? Is Rice, the so-called Russian expert, unaware that Russia has hardly lifted a finger to aid the West in hemming in Iran's pursuit of nuclear energy technology and its refusal to rule out the development of nuclear weapons as part and parcel of its pursuit of an alternative energy source?
At least some view the matter in a more nuanced matter. On CNN, Elizabeth Sherwood-Randall, a member of the Council on Foreign Relations, gave recognition to the reality that Russia appears to have done little to comply with agreements achieved so far and its behavior suggests that its motives go well beyond protecting the breakaway republics of South Ossetia and Abkhazia. Renowned Russia scholar, Strobe Talbott, interviewed on NPR, also voiced his deep concern over Russian behavior.
Yet, there are two sides to this story. To insist, as Elizabeth Sherwood-Randall did during her CNN interview that the national integrity of Georgia cannot be brought into question since that would lead to myriad other ethnic minorities to press their case, is pure poppycock. First, it fails to take into account the realities on the ground in South Ossetia and Abkhazia that demonstrate the inability of Georgia to make on its claim to national sovereignty over these breakaway regions. Russian troops or peacekeepers have been active since at least the mid-90s. And, in what other area of ethnic dispute do we have an instance where perhaps 90% of the residents of a breakaway region possess a passport (Russian) in addition to or in lieu of the one they ought to possess (Georgian) by dint of territorial integrity?
Nowhere.
It is true that the Armenians and the Azeris still dispute Ngorno-Karabakh, even though Armenia presently holds military sway in the issue. And yes, each of the Baltic Republics has to deal with a substantial Russian minority. The existence of these ethnic problem areas is not proof of the slippery slope argument. Rather, it is testimony to the deviousness with which Soviet authorities manipulated ethnic disputes by arbitrarily assigning boundaries and encouraging immigration of ethnic Russians into areas where their presence had been minimal.
Second, in a larger sense, the slippery slope has already taken shape. Once NATO decided to defend Kosovo in 1999 and allowed the United Nations to assume a offer protectorate status to Kosovo, a nominally Serbian territory, the die was cast. Granting Kosovo independence this spring merely confirmed that in some instances national integrity would not, and perhaps should not, be maintained.
Beyond the obvious anger that Russia expressed for the failure of the West to take its dissenting views into account and thereby continue in the interim at least Kosovo's status as a UN protectorate, it appears that Russia wished to apply the logic advanced by NATO to South Ossetia and Abkhazia. Moreover, Russian commentators have ridiculed the obvious nonsense spouted by McCain and others who decry the Russian invasion as unbecoming a nation in the 21st century. Oops, I guess the American invasion of Iraq to effect regime change was the product of the 20th century politics, when the American Congress, controlled by Republicans, decided to make regime change in Iraq a goal of American policy during the Clinton era.
Georgia was foolish to believe that it had America's backing when President Saashkavili attempted to extend his earlier success in regaining control of the Kodori Gorge (in Abkhazia) by the ill-advised foray into Tskhinvali that led to the disproportionate Russian response. Ultimately, it will have to pay a price. It's a price that the Russians will insist upon and one that analysts who share Ms. Randall-Sherman's hopelessly delusional insistence on national integrity cannot seem to reconcile themselves to.
Georgia can be assuaged in perhaps a similar way to the method adopted by Europe with respect to Serbia. Association with and eventual membership in the European Union may be the only way to get Georgia to accept the loss of territories it cannot hope to regain control of militarily. Nor can it count on NATO membership, should that ensue, to alter the military balance. Russia will remain the locally superior military force. The West is simply not prepared to engage in war with Russia over territories that Georgia has not effectively controlled since the demise of the Soviet Union.
A contradiction? Not at all. The point of an ultimatum, one that achieves the desired result, is to put forth a credible military threat and combine it with substantive, diplomatic face-saving gestures that allow both sides to feel that each succeeded to a certain extent. The Kennedy Administration never admitted that the withdrawal of missiles from Turkey was a quid pro quo for the abandonment of planned Cuban missile sites and the withdrawal of already established missile bases. Yet, the two actions are inevitably linked.
For the present crisis to be resolved, Europe may need to issue an ultimatum to Russia. If so, it should privately convey to Russia that after Russian peacekeepers are withdrawn from Abkhazia and South Ossetia an internationally supervised vote will be held in order to allow the self-determination of these breakaway regions. Woodrow Wilson would be proud. And, the Russians would be delighted since the outcome of any such vote would surely favor either independence of the breakaway regions from Georgia or their association with and incorporation into Russia.
Alas, the idiocy of American foreign policy as practiced by the neo-cons and chicken hawks has left the United States with neither the moral suasion nor the credibility to issue an ultimatum to the Russians. Europeans, especially those powers that opposed the American invasion of Iraq, hold the moral high ground. It's time for them to act in concert.
Such a course might still leave the Kennedys turning in their graves. But, at least they would have appreciated that someone had lifted a page from ten days that shook the world. Turn off the remote and leave Casablanca to the realm of cinematic fantasy. See the reality. It can't only be Georgian refugees and the international media who witness the ceasefire that won't go away.
Ultimata are not especially popular, it seems. To date, no one has really come out with credible proposals that could make the cost of non-compliance to the ceasefire agreements crafted thus far too expensive for Russia to persist in its actions that suggest the desire for regime change in Tbilisi. Instead, we hear the mantra that there are no good military options. Really?
It is true that the American military is overextended due to its major commitment to Iraq and minor activity in Afghanistan. The unwillingness of the Bush Administration to curtail its commitments or to redress deficiencies in the American military by enacting draft legislation to swell the ranks of the American war machine has left the United States with few land-based options. (Of course, the generals are loathe to deal anew with draftees since the discontent exhibited by many unwilling eighteen year olds during the last unpopular war (Vietnam) did not result in the most efficient American military machine desired by the Pentagon.)
Yet, a naval blockade of Abkhazia is certainly doable. Forward positioning of NATO air force units to bases in Turkey is possible. The wresting of air superiority from woefully inferior Russian air forces could easily be accomplished. The drawing of a line in the sand or the establishment of a strict timetable with no wiggle room for interpretation for the withdrawal of Russian tanks and troops to the positions held prior to 6 August 2008 is also possible.
What is lacking is the will? Condolezza Rice seems to have lifted a page from Casablanca as she now professes to see vice everywhere. Where has she been the past several years? Is she unaware of the absolute refusal of the Russians to cooperate in the extradiction of the likely culprit in the Polonium poisoning in London a few years back? Is she unaware of the assassination of Russian reporters who dared to present a non-saccharine view of politics in Putin era state-enterprise controlled media? Is Rice, the so-called Russian expert, unaware that Russia has hardly lifted a finger to aid the West in hemming in Iran's pursuit of nuclear energy technology and its refusal to rule out the development of nuclear weapons as part and parcel of its pursuit of an alternative energy source?
At least some view the matter in a more nuanced matter. On CNN, Elizabeth Sherwood-Randall, a member of the Council on Foreign Relations, gave recognition to the reality that Russia appears to have done little to comply with agreements achieved so far and its behavior suggests that its motives go well beyond protecting the breakaway republics of South Ossetia and Abkhazia. Renowned Russia scholar, Strobe Talbott, interviewed on NPR, also voiced his deep concern over Russian behavior.
Yet, there are two sides to this story. To insist, as Elizabeth Sherwood-Randall did during her CNN interview that the national integrity of Georgia cannot be brought into question since that would lead to myriad other ethnic minorities to press their case, is pure poppycock. First, it fails to take into account the realities on the ground in South Ossetia and Abkhazia that demonstrate the inability of Georgia to make on its claim to national sovereignty over these breakaway regions. Russian troops or peacekeepers have been active since at least the mid-90s. And, in what other area of ethnic dispute do we have an instance where perhaps 90% of the residents of a breakaway region possess a passport (Russian) in addition to or in lieu of the one they ought to possess (Georgian) by dint of territorial integrity?
Nowhere.
It is true that the Armenians and the Azeris still dispute Ngorno-Karabakh, even though Armenia presently holds military sway in the issue. And yes, each of the Baltic Republics has to deal with a substantial Russian minority. The existence of these ethnic problem areas is not proof of the slippery slope argument. Rather, it is testimony to the deviousness with which Soviet authorities manipulated ethnic disputes by arbitrarily assigning boundaries and encouraging immigration of ethnic Russians into areas where their presence had been minimal.
Second, in a larger sense, the slippery slope has already taken shape. Once NATO decided to defend Kosovo in 1999 and allowed the United Nations to assume a offer protectorate status to Kosovo, a nominally Serbian territory, the die was cast. Granting Kosovo independence this spring merely confirmed that in some instances national integrity would not, and perhaps should not, be maintained.
Beyond the obvious anger that Russia expressed for the failure of the West to take its dissenting views into account and thereby continue in the interim at least Kosovo's status as a UN protectorate, it appears that Russia wished to apply the logic advanced by NATO to South Ossetia and Abkhazia. Moreover, Russian commentators have ridiculed the obvious nonsense spouted by McCain and others who decry the Russian invasion as unbecoming a nation in the 21st century. Oops, I guess the American invasion of Iraq to effect regime change was the product of the 20th century politics, when the American Congress, controlled by Republicans, decided to make regime change in Iraq a goal of American policy during the Clinton era.
Georgia was foolish to believe that it had America's backing when President Saashkavili attempted to extend his earlier success in regaining control of the Kodori Gorge (in Abkhazia) by the ill-advised foray into Tskhinvali that led to the disproportionate Russian response. Ultimately, it will have to pay a price. It's a price that the Russians will insist upon and one that analysts who share Ms. Randall-Sherman's hopelessly delusional insistence on national integrity cannot seem to reconcile themselves to.
Georgia can be assuaged in perhaps a similar way to the method adopted by Europe with respect to Serbia. Association with and eventual membership in the European Union may be the only way to get Georgia to accept the loss of territories it cannot hope to regain control of militarily. Nor can it count on NATO membership, should that ensue, to alter the military balance. Russia will remain the locally superior military force. The West is simply not prepared to engage in war with Russia over territories that Georgia has not effectively controlled since the demise of the Soviet Union.
A contradiction? Not at all. The point of an ultimatum, one that achieves the desired result, is to put forth a credible military threat and combine it with substantive, diplomatic face-saving gestures that allow both sides to feel that each succeeded to a certain extent. The Kennedy Administration never admitted that the withdrawal of missiles from Turkey was a quid pro quo for the abandonment of planned Cuban missile sites and the withdrawal of already established missile bases. Yet, the two actions are inevitably linked.
For the present crisis to be resolved, Europe may need to issue an ultimatum to Russia. If so, it should privately convey to Russia that after Russian peacekeepers are withdrawn from Abkhazia and South Ossetia an internationally supervised vote will be held in order to allow the self-determination of these breakaway regions. Woodrow Wilson would be proud. And, the Russians would be delighted since the outcome of any such vote would surely favor either independence of the breakaway regions from Georgia or their association with and incorporation into Russia.
Alas, the idiocy of American foreign policy as practiced by the neo-cons and chicken hawks has left the United States with neither the moral suasion nor the credibility to issue an ultimatum to the Russians. Europeans, especially those powers that opposed the American invasion of Iraq, hold the moral high ground. It's time for them to act in concert.
Such a course might still leave the Kennedys turning in their graves. But, at least they would have appreciated that someone had lifted a page from ten days that shook the world. Turn off the remote and leave Casablanca to the realm of cinematic fantasy. See the reality. It can't only be Georgian refugees and the international media who witness the ceasefire that won't go away.
Saturday, August 16, 2008
ET TU, EUROPA?
With all the Sturm and Drang the Russian offensive against Georgia has unleashed in the United States, it's easy to conclude that much of this is the inevitable response of the moronic foreign policy mavens who have made a hash of American foreign policy for the past eight years. They were warned about 9/11, but chose to ignore FBI reports and daily foreign policy briefings. Bush looked Putin in eye and was mesmerized by his baby blues. Claiming to have known the man, Bush chose to turn a blind eye toward the collapse of democracy in Russia as political assassination was used to deal with a recalcitrant press and state run industry was used to buy out independent media outlets. Encouraging both Georgia and the Ukraine to seek membership in NATO and providing American military training to the nascent Georgian army predictably antagonized a Russia still smarting over NATO's and the UN's treatment of Kosovo since 1999 and especially during the spring of 2008. Nevertheless, the failure to make an issue of the role of Russian peackeeping forces in South Ossetia and Abkhazia and the issuance of Russian passports to nominally Georgian citizens openly defiant of attempts by Tbilisi to reassert national authority over these breakaway regions coupled with the complete failure to plan for the possibly impossible: a Russian incursion, predicated on a foolhardy Georgian attempt to extend its string of successes (over Ajara and regaining a Georgian present in the Kodori Gorge in Abkhazia) to Tskinkavali, into Georgia proper, has left the West claiming that there are very few options left.
Uncertain about the ultimate aims of the Russian incursion, Nicholas Sarkozy worked out a hastily arranged ceasefire whose specifics were differently interpreted by Tbilisi, Moscow and Paris. In the interim, Russian tanks pressed further into Georgia and paramilitary separatists from the breakaway regions proceeded into Georgia as well in order to rape and pillage those parts of Georgia no longer defended by the Georgian military. A second ceasefire agreement was required in order to clarify the vagueness of the first with respect to a timetable for the withdrawal of Russian troops back to the status quo ante of 6 August 2008. From what appears to be happening on the ground, yet a third ceasefire agreement may be required as Russian tanks keep pressing closer to Tbilisi.
Beyond the usual difficulty of getting the European Union to act as one, the constant refrain that there are precious few (military) options is repeated as mantra. If, by military options, reference is made to ground troops intervening in Georgia to stand as a buffer or tripwire between the Georgian capital and advancing Russian tanks, then there probably are not any such troops available. The American military is already overextended by the military sideshow in Iraq. NATO is taxed to the max by its intervention in Afghanistan. And, there does not seem to be a general willingness in any European capital to call up reserves in order to put together a credible military force (troops) to intervene in Georgia.
However, such an analysis fails to examine whether NATO air and naval forces could lend emphasis to the urgency of Russian compliance with ceasefire agreements. These forces are not stretched too thinly by the Iraqi or the Afghani operations. As such, they could provide an implied response if Russia does not withdraw its forces immediately and puts an end to the looting of the Georgian countryside.
In the 19th century, the issuance of such ultimata was typical. However, given the disastrous results of ultimata issued in the wake of the assassination of the Austrian archduke in Sarajevo which led to all-side mobilizations for general war, ultimata have been rarely used. The last major ultimatum issued was the imposition of a naval blockade about Cuba during the 1962 Cuban missile crisis. It worked but not before the world had to fret during ten days that shook the world.
For ultimata to work, the implied military threat must be credible. Would the designation of a line beyond which Russian tanks dare not advance lest they be fired upon by NATO aircraft pose a credible threat? Maybe. One thing it would probably not lead to, as some critics have asserted, is a natural gas embargo against Europe. And, even if one were attempted, it's the wrong time of the year to attempt a natural gas embargo in order to bring Europe to its knees. The best time for that would be winter.
An ultimatum certainly would not lead to nuclear retaliation, as some bloggers have asserted. The Russian nuclear capability has degraded to a certain extent and the problem still remains: would any rational leader risk mutually assured destruction over limited geo-political aims? The answer now, as it was back in 1962, was no.
At the same time, there must be an incentive for the Russians to comply with the ceasefire agreements achieved so far and perhaps the additional ones to be negotiated in days to come. No one benefits from the status quo ante. As much as Russia enjoys all the tactical and strategic advantages from the presence of its peacekeepers in South Ossetia and Abkhazia, Russian military might and the unilateral issuances of passports has not dissuaded Georgia from an eventual reassertion of state control over the breakaway regions. Indeed, one of the reasons why the Russians perhaps are seeking regime change in Tbilisi is that the Georgian government seems loathe to abandon its desire to restore complete national sovereignty over its territory.
On the other hand, the status quo ante does not offer Georgia much other than the return to its own control of undisputed Georgian territory, as well as perhaps the regaining of the Kodori Gorge, now reoccupied by insurgent and Russian forces. The status quo ante does not eliminate the basis for Georgian discontent.
Unfortunately, there will be a price for Georgian foolhardiness. Territorial integrity, as proclaimed by Georgia, is probably a non-starter. Whether Abkhazia and South Ossetia attain de facto independence as autonomous regions within Georgia, an existence as independent statelets, or reintegration into Russia, one outcome can be ruled out. Russia will never agree to Georgian sovereignty over these regions. To stubbornly assert territorial integrity is to risk further Russian hostility.
Georgia can be compensated for the formal loss of territory it hasn't controlled since the early 1990s. Immediate accession to NATO and an accelerated membership into the European Union could erase some of the inevitable bitterness that the permanent loss of territory entails. In this regard, the case of Serbia is no different from Georgia. Serbia cannot reacquire Kosovo, despite its deeply rooted historic claims. Both population dynamics and the realities on the ground doom any Serbian wishful thinking. Membership in the European Union does, however, concrete benefits to a Serbia and could succeed in loosening the ties that bind Russia and Serbia.
Despite Saaskashvili's vigorous protestations to the contrary, we are not witnessing a reprise of Munich in 1938. German troops did not occupy Bohemia or Moravia. Nazi Germany had not issued passports to nominally Czech, German speaking citizens. It did threaten military intervention and was willing to use fifth column elements in the Sudetenland as an excuse to intervene military, but Munich was a deal conceived as a means to avert warfare. Georgia, on the other hand, is dealing with an army of occupation that is presiding over the looting of the Georgian countryside.
Nor are the Soviet invasions of Hungary and Czechoslovakia in 1956 and 1968 especially illuminating contrary to Ms. Rice's assertions. Both of these countries lay behind the then Iron Curtain and NATO had no possible means to assert any military force without invading another country or inviting a response from Warsaw Pact forces. That John Foster Dulles promised American assistance to Hungary is as irrelevant now as it was then. It was an empty promise that carried with it not a shred of credibility.
Still, historical comparisons do carry a kernel of truth. It is not the actions of Nazi Germany or Czechoslovakia in 1938 that matter. It is the response of Europe that does. France and Britain had the military wherewithall to stop any aggressive action that Nazi Germany might have undertaken to effect a solution in its favor in the Sudetenland. Neither France nor Britain had the will to stop Germany and both paid a heavy price for this failure. Worse: Neville Chamberlain played the fool and claimed that his paper peace had ended the threat. It didn't, and he paid the ultimate political price.
Europe can and must put an end to 19th century bully politics by issuing an ultimatum to Russia. Yet, it needs to couple this with the carrot of a resolution of Abkhazia and South Ossetia that goes beyond mere posturing about national integrity. Woodrow Wilson laid the path in 1918 when he called for self-determination of peoples. Why not allowed South Ossetians and Abkhazians a vote in the matter, a vote carried out an international supervision and one free of the interference of Russian peacekeepers? By so doing, Europe could make a stand for self-determination and democracy and call Russia's bluff.
Et tu, Europa?
Uncertain about the ultimate aims of the Russian incursion, Nicholas Sarkozy worked out a hastily arranged ceasefire whose specifics were differently interpreted by Tbilisi, Moscow and Paris. In the interim, Russian tanks pressed further into Georgia and paramilitary separatists from the breakaway regions proceeded into Georgia as well in order to rape and pillage those parts of Georgia no longer defended by the Georgian military. A second ceasefire agreement was required in order to clarify the vagueness of the first with respect to a timetable for the withdrawal of Russian troops back to the status quo ante of 6 August 2008. From what appears to be happening on the ground, yet a third ceasefire agreement may be required as Russian tanks keep pressing closer to Tbilisi.
Beyond the usual difficulty of getting the European Union to act as one, the constant refrain that there are precious few (military) options is repeated as mantra. If, by military options, reference is made to ground troops intervening in Georgia to stand as a buffer or tripwire between the Georgian capital and advancing Russian tanks, then there probably are not any such troops available. The American military is already overextended by the military sideshow in Iraq. NATO is taxed to the max by its intervention in Afghanistan. And, there does not seem to be a general willingness in any European capital to call up reserves in order to put together a credible military force (troops) to intervene in Georgia.
However, such an analysis fails to examine whether NATO air and naval forces could lend emphasis to the urgency of Russian compliance with ceasefire agreements. These forces are not stretched too thinly by the Iraqi or the Afghani operations. As such, they could provide an implied response if Russia does not withdraw its forces immediately and puts an end to the looting of the Georgian countryside.
In the 19th century, the issuance of such ultimata was typical. However, given the disastrous results of ultimata issued in the wake of the assassination of the Austrian archduke in Sarajevo which led to all-side mobilizations for general war, ultimata have been rarely used. The last major ultimatum issued was the imposition of a naval blockade about Cuba during the 1962 Cuban missile crisis. It worked but not before the world had to fret during ten days that shook the world.
For ultimata to work, the implied military threat must be credible. Would the designation of a line beyond which Russian tanks dare not advance lest they be fired upon by NATO aircraft pose a credible threat? Maybe. One thing it would probably not lead to, as some critics have asserted, is a natural gas embargo against Europe. And, even if one were attempted, it's the wrong time of the year to attempt a natural gas embargo in order to bring Europe to its knees. The best time for that would be winter.
An ultimatum certainly would not lead to nuclear retaliation, as some bloggers have asserted. The Russian nuclear capability has degraded to a certain extent and the problem still remains: would any rational leader risk mutually assured destruction over limited geo-political aims? The answer now, as it was back in 1962, was no.
At the same time, there must be an incentive for the Russians to comply with the ceasefire agreements achieved so far and perhaps the additional ones to be negotiated in days to come. No one benefits from the status quo ante. As much as Russia enjoys all the tactical and strategic advantages from the presence of its peacekeepers in South Ossetia and Abkhazia, Russian military might and the unilateral issuances of passports has not dissuaded Georgia from an eventual reassertion of state control over the breakaway regions. Indeed, one of the reasons why the Russians perhaps are seeking regime change in Tbilisi is that the Georgian government seems loathe to abandon its desire to restore complete national sovereignty over its territory.
On the other hand, the status quo ante does not offer Georgia much other than the return to its own control of undisputed Georgian territory, as well as perhaps the regaining of the Kodori Gorge, now reoccupied by insurgent and Russian forces. The status quo ante does not eliminate the basis for Georgian discontent.
Unfortunately, there will be a price for Georgian foolhardiness. Territorial integrity, as proclaimed by Georgia, is probably a non-starter. Whether Abkhazia and South Ossetia attain de facto independence as autonomous regions within Georgia, an existence as independent statelets, or reintegration into Russia, one outcome can be ruled out. Russia will never agree to Georgian sovereignty over these regions. To stubbornly assert territorial integrity is to risk further Russian hostility.
Georgia can be compensated for the formal loss of territory it hasn't controlled since the early 1990s. Immediate accession to NATO and an accelerated membership into the European Union could erase some of the inevitable bitterness that the permanent loss of territory entails. In this regard, the case of Serbia is no different from Georgia. Serbia cannot reacquire Kosovo, despite its deeply rooted historic claims. Both population dynamics and the realities on the ground doom any Serbian wishful thinking. Membership in the European Union does, however, concrete benefits to a Serbia and could succeed in loosening the ties that bind Russia and Serbia.
Despite Saaskashvili's vigorous protestations to the contrary, we are not witnessing a reprise of Munich in 1938. German troops did not occupy Bohemia or Moravia. Nazi Germany had not issued passports to nominally Czech, German speaking citizens. It did threaten military intervention and was willing to use fifth column elements in the Sudetenland as an excuse to intervene military, but Munich was a deal conceived as a means to avert warfare. Georgia, on the other hand, is dealing with an army of occupation that is presiding over the looting of the Georgian countryside.
Nor are the Soviet invasions of Hungary and Czechoslovakia in 1956 and 1968 especially illuminating contrary to Ms. Rice's assertions. Both of these countries lay behind the then Iron Curtain and NATO had no possible means to assert any military force without invading another country or inviting a response from Warsaw Pact forces. That John Foster Dulles promised American assistance to Hungary is as irrelevant now as it was then. It was an empty promise that carried with it not a shred of credibility.
Still, historical comparisons do carry a kernel of truth. It is not the actions of Nazi Germany or Czechoslovakia in 1938 that matter. It is the response of Europe that does. France and Britain had the military wherewithall to stop any aggressive action that Nazi Germany might have undertaken to effect a solution in its favor in the Sudetenland. Neither France nor Britain had the will to stop Germany and both paid a heavy price for this failure. Worse: Neville Chamberlain played the fool and claimed that his paper peace had ended the threat. It didn't, and he paid the ultimate political price.
Europe can and must put an end to 19th century bully politics by issuing an ultimatum to Russia. Yet, it needs to couple this with the carrot of a resolution of Abkhazia and South Ossetia that goes beyond mere posturing about national integrity. Woodrow Wilson laid the path in 1918 when he called for self-determination of peoples. Why not allowed South Ossetians and Abkhazians a vote in the matter, a vote carried out an international supervision and one free of the interference of Russian peacekeepers? By so doing, Europe could make a stand for self-determination and democracy and call Russia's bluff.
Et tu, Europa?
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