Government to Sell Nuclear Assets

Government to Sell Nuclear Assets
BBC News
The government has announced that it is putting the commercial arm of the UK's Atomic Energy Agency, UKAEA Limited, up for sale.

http://news.bbc.co.uk/1/hi/business/7972293.stm

Towards Zero: Obama Grasps the Nuclear Nettle

Towards Zero: Obama Grasps the Nuclear Nettle
Philip Stephens, Financial Times
Fixing the economy, withdrawing from Iraq, overtures to Iran, a plan for Afghanistan, a thaw with Moscow and a bargain with Beijing . . . I could go on. The issues on Barack Obama's agenda rush by like station names seen from a fast-moving train. This is a US president who wants to do more than walk and chew gum.

http://www.ft.com/cms/s/0/6303026e-1a70-11de-9f91-0000779fd2ac.html?nclick_check=1

No U.S. Plans to Stop Korea on ICBM Test

No U.S. Plans to Stop Korea on ICBM Test
Thom Shanker, The New York Times The United States has no plans for military action to pre-empt the launching of a long-range missile by North Korea and would act only if the missile or its parts appeared to be headed toward American territory, Defense Secretary Robert M. Gates said Sunday.
http://www.nytimes.com/2009/03/30/washington/30military.html?_r=1

* Expert: NKorea Has Several Nuclear Warheads
http://www.google.com/hostednews/ap/article/ALeqM5g5bCbd3G8qFoX7H4TvQbUWvBQ08QD978T9180

Obama, Medvedev to Sign Declaration on Treaty

Obama, Medvedev to Sign Declaration on Treaty
Simon Shuster and Oleg Shchedrov, Reuters
MedvedevThe United States and Russia will commit to new talks on reducing their nuclear arsenals when Barack Obama meets President Dmitry Medvedev for the first time next month, the Kremlin said on Saturday.

The two leaders will also sign a document on U.S.-Russian relations in general at a meeting in London, and seek to coordinate policies on Iran, North Korea and Afghanistan, Sergei Prikhodko, an aide to President Dmitry Medvedev, told reporters.

http://www.reuters.com/article/newsOne/idUSTRE52R0PB20090328

Obama's Latest No Banker Left Behind Scheme by Stephen Lendman

Obama's Latest No Banker Left Behind Scheme

by Stephen Lendman


Global Research, March 27, 2009


On Wall Street, that is. So hyped by advance fanfare, Timothy Geithner unveiled his Public-Private Investment Program (PPIP) on March 23, the latest in a growing alphabet soup of handouts topping $12.5 trillion and counting - so much in so many forms, in "gov-speak" language, with so many changing and moving parts, it's hard for experts to keep up let alone the public, except to sense something is very wrong. They're being fleeced by a finance Ponzi scheme, sheer flimflam, and here's how from what we know:

-- $400 billion in taking over Fannie and Freddie;

-- $42 billion for the auto giants; billions more coming for their suppliers;

-- approaching $200 billion for AIG with more coming on request;

-- $350 billion to Citigroup in handouts and loan guarantees;

-- tens of billions to other banks, including $87 billion to JP Morgan Chase for bad Lehman Brothers trades;

-- $700 billion for TARP I; half the money released under TARP II;

-- over $200 billion and counting for the Term Asset-Backed Securities Loan Facility (TALF) to extend government-guaranteed loans for investors to buy "certain AAA-rated asset-backed securities (as a) component" of the Consumer and Business Lending Initiative (CBLI), established under the Emergency Economic Stabilization Act (EESA) of 2008;

-- the $787 billion stimulus under the American Recovery and Relief Act of 2009 (ARRA);

-- around $300 billion under the Homeowner Affordability and Stability Plan (HASP) - the so-called mortgage bailout plan;

-- $50 billion backing for short-term corporate IOUs held by money market funds - from the Exchange Stabilization Fund (ESF), a vehicle established by a provision in the 1934 Gold Reserve Act for foreign exchange intervention to stabilize the value of the dollar;

-- $500 billion for various credit market rescues;

-- $620 billion for industrial nations' currency swaps;

-- $120 billion for emerging economies' currency swaps;

-- $1.25 trillion for Fannie and Freddie mortgage backed securities;

-- $200 billion for Fannie, Freddie, and Federal Home Loan Bank bonds;

-- way more than the announced $300 billion for longer-term Treasuries (mostly with 7 - 10 year maturities); the Fed's been buying billions of them since last year;

-- Fed-expanded overnight lending to $2.4 trillion - free money at 0% interest;

-- a reported $750 billion for banks in the FY 2010 budget - yet to be voted on and appropriated;

-- a proposed $470 billion increase for the FDIC to borrow from the Treasury;

-- perhaps hundreds of billions more in unannounced or hidden handouts in amounts and to whom the Fed and Treasury won't say; on March 14, AIG named its big counterparties for the first time with firms like Goldman Sachs, Societe Generale, Deutsche Bank, and Barclays showing up prominently; and now

-- PPIP - the latest gift to Wall Street courtesy of taxpayers getting none of the gain and all the pain.

A Treasury Fact Sheet explains it on its web site. In "gov-speak," it cites the "challenge of legacy assets" comprised of (distressed commercial and household) "loans"/mortgages and (toxic) "securities" (mortgage-backed and others) with a new Public-Private Investment Program (PPIP) in conjunction with the FDIC and Fed to finance and guarantee it. The idea is to "repair balance sheets," encourage banks to lend, and "help drive us toward recovery." It expands TALF "to bring private investors back into the market" by offering deals too sweet to pass up:

-- a public-private (open-ended) trillion dollar partnership with Washington contributing up to 95-97% of the cash and investors the other 3-5%;

-- the Fed and FDIC (through low-cost loans and guarantees) acting as middlemen to transfer "legacy asset" losses to the public while buyers get government financing and guarantees (for no-risk investments) to purchase them on the cheap for themselves and well above fair value for the banks;

-- PPIP particulars are for $100 billion in mostly TARP and some private capital with Fed and FDIC $500 billion in leverage financing to expand it to $1 trillion or more in purchasing power.

In a March 23 Wall Street Journal op-ed, Geithner called it "My Plan for Bad Bank Assets (to) increase the flow of credit and expand liquidity (and do it by) shar(ing) risk with the private sector (to) rid banks of legacy assets." These "policies will work," says Geithner, even though everything tried to date failed, and the only achievement is what they planned - the greatest ever wealth transfer in the shortest span of time, now increased by another trillion or more through PPIP and whatever else the masters of the universe have in mind.

"Toxic-Asset Plan Lifts Stocks," headlined the Wall Street Journal, after surging around 7% on March 23 with banks and other financials in the lead, buoyed by the prospect of more free money, hundreds of billions for the taking, and plenty more where that came from.

If It Works, A Win-Win for the Money Trust

Here's how economist Jeffrey Sachs explains it:

Geithner's plan will have the Fed and FDIC "subsidize investors to buy toxic assets from the banks at inflated prices." If done, it will be another in a series of massive wealth transfers in the hundreds of billions of dollars "to bank shareholders from taxpayers." If investors incur losses, the Fed and FDIC will absorb them, meaning heads or tails they win.

"The investment funds will have the following balance sheet. For every $1 of toxic assets (bought), the FDIC will lend up to 85.7 cents, and the Treasury and private investors (only) 7.15 cents in equity to cover the remaining balance. FDIC loans will be non-recourse, meaning that if the toxic assets (bought) fall in value below the amount of FDIC loans, the investment funds will default on the loans and the FDIC will end up holding the toxic assets...."

In other words, "The FDIC is giving a 'heads you win, tails the taxpayer loses' offer to private investors.' " Economist Paul Krugman agrees calling it a one-way bet, "a disguised way to subsidize purchases of bad assets."

Economist James Galbraith calls it another massive "ineffective" giveaway to banks with taxpayers getting hosed from a repackaged trash removal scheme that's been around since last fall when Geithner, as New York Fed president, planned it with Wall Street CEOs. They see it as a temporary liquidity problem (which it's not) so the idea is to clean up the system and get banks lending again. But here's the rub:

"If Geithner's plan to fix the banks would also fix the economy," maybe the idea makes sense. "But no smart economist we know thinks that it will." It's a giant swindle, but that aside, Geithner has "five fundamental misconceptions:"

(1) The trouble with the economy is that banks aren't lending, he says.

In fact, it's because businesses and mainly households are way over-extended and "are now collapsing under the weight of it. As consumers retrench (of necessity), companies that sell to them (must also), thus exacerbating the problem. The banks, meanwhile, are lending," just not as much as they used to.

"Also, the shadow banking system (securitization markets), which actually provided more funding to the economy than the banks, has collapsed."

(2) The banks aren't lending because their balance sheets are loaded with 'bad assets.'

In fact, "banks aren't lending (enough) because they have decided to stop making loans to people and companies who can't pay them back" or don't want more loans in the first place. They're also scared that new debt will cause more write-offs, greater losses, and the threat they'll be wiped out entirely. So their strategy is hunker down and wait for a better time to do business.

(3) Bad assets are "bad" because the market doesn't understand how much they're really worth.

In fact, they're bad because "they are worth (lots) less than banks say they are." A major factor is the near-30% drop in house prices wiping out over $5 trillion in valuations. Lenders want households to take losses because if they do it themselves they'll be wiped out. So PPIP arranges it for them.

(4) Once "bad assets" are off balance sheets, banks will start lending again.

In fact, banks will stay cautious until the housing market and economy improve. So far, that's nowhere in sight.

(5) Once banks start lending, the economy will recover.

In fact, house prices are falling, savings have been wiped out, huge job losses are continuing, and "consumers will have debt coming out of their ears" that will take years to work off.

Geithner's plan just shifts debt from lenders to taxpayers "where it will sit until the government finally admits that a major portion will never be paid back." Galbraith's conclusion: Geithner's plan is "extremely dangerous" besides being a scam to cheat the public. Why does Wall Street love it? Because it wrote it in the first place, so the whole scheme is arranged for its benefit - if it works.

It's a big "if" as investors want the lowest possible prices and banks the highest. The question is will they compromise and for what - the better quality junk investors want or the most toxic stuff banks want to offload for whatever they can get.

Even a Wall Street Journal editorial raised doubts about "Geithner's Asset Play. At least it's an attempt to clean up bank balance sheets," it said, but hold the cheers. "The best news (is that Geithner has) a strategy. The uncertainty was almost as toxic as those securities. Now all (he) has to do is find private investors willing to 'partner' with the feds to bid for those rotten assets, coax the banks to sell them at a loss, and hope the economy doesn't keep falling...."

"Other than that, general, how (did) the siege of Moscow" go?

In a front of the paper article, a trio of Journal writers said "visions of vilification of Wall Street executives on Capitol Hill remain fresh in the minds of potential (bad asset) buyers....numerous (ones) express(ing) concern that they, too, might be hauled before Congress for a grilling, or be subjected to new taxes if they profit from partnerships with the federal government."

They quoted Washington lobbyist, Lendall Porterfield, whose clients include hedge funds and banks, saying: "There are still some very serious reservations about doing business with the government, because you don't know what the rules may be tomorrow, next week or next month."

Economist Nouriel Roubini wants two firmly in place:

-- force banks to sell toxic assets at true value and take the losses; and

-- shut down the insolvent ones.

For his part, Financial Times writer Martin Wolf expressed deep concerns about PPIP in his March 25 column headlined: "Successful bank rescue still far away." He's "ever more worried" and says why:

-- he expected a "popular new president to be decisive;"

-- he fears a "Congress indulging in a populist frenzy" and an administration "hoping for the best;"

-- instead of letting businesses succeed or fail on their own, "bailouts have poured staggering sums into the failed institutions that brought the economy down;"

-- PPIP is a "vulture (investor) relief scheme," cash for trash, with Washington putting up most of the money, bearing nearly all the risk, while private parties get all the gain - if the plan works;

-- PPIP masks a "more fundamental problem" of "chronic under-capitalization of US finance" and it may make achieving it harder - given growing public anger, a "timid" president, Congress on the "warpath," and being less likely to put up the kind of money needed to do it;

-- enriching vulture investors may "convince ordinary Americans that their government is a racket run for the benefit of Wall Street;" and

-- when all is said and done, PPIP may not work.

As a result, "Nobody can be confident that the US yet has a workable solution to its banking disaster....If this is not frightening, I do not know what is."

Economist Jack Rasmus calls PPIP a "win they win vs. lose they win proposition -- i.e. free money with which to leverage to make even more money" with government taking nearly all the risk. It's "an offer that no capitalist speculator could ever refuse" with nothing for the public except the bill.

It's why Dean Baker, co-director of the Center for Economic and Policy Research, called it "another Rube Goldberg contraption intended to funnel taxpayer dollars to bankrupt banks...." However, the process plays out, "much of the toxic waste (will) stay on the banks' books (since it's) likely that the gap between the asking price and the offer (won't) be closed for a large portion of these assets, even with the government subsidy."

So what's next? "The Obama administration will be forced to go to Congress with yet another bailout proposal. (It's) hard to understand this plan as anything other than a last ditch effort to save Wall Street banks. (Obama) seems prepared to risk his presidency on their behalf" and odds are he'll lose.

Whatever happens going forward, the uncertainties and dangers are enormous:

-- Eurointelligence refers to "Geithner's trillion dollar gamble" despite the positive market reaction;

-- will taxpayers stand for it, how long, and at what cost;

-- will enough buyers settle for the best deals they can get, and/or will banks compromise enough to matter; put another way - will government "grease" attract enough buyers willing to invest at valuations banks will accept; so far, they've stubbornly refused to take losses, preferring instead to keep junk on their books at fictitious values hoping eventually they'll be real or close enough; another disincentive is talk that the Financial Accounting Standards Board (FASB) will ease mark-to-market accounting rules to legitimize fake values;

-- whatever they do, can banks offload enough to matter or are they so over-indebted that nothing can work;

-- how much in the way of deficits, money printing and dollar debasing can the nation stand, and how long will sovereign and private debt buyers put up with it;

-- going forward, how many banks are too weak to survive no matter what's done to save them - that is, ones big enough to matter (like Citigroup), not others targeted to be bought up or closed down - and globally that's what's behind this scheme in the first place;

-- what about the CEOs that caused the global crisis and left their banks insolvent; issues of fraud and bailouts aside, why weren't they fired long ago; why are they still in charge drawing big salaries and bonuses; why wasn't the main demand to fire these guys and replace them with responsible managers; and

-- skeptics call Geithner's plan much like Paulson's, except for some differences in details.

On March 24, Dan Roberts in the London Guardian headlined: "US follows UK - on the wrong road." Geithner's plan "aims to achieve roughly the same as the British government's (bad loans) insurance for the Royal Bank of Scotland and Lloyds. So how do the two schemes compare?"

Details aside, they "work on the same principle: that banks will (behave) normally again and (benefit) the economy (once) they're protected from past mistakes. But these responses underestimate the scale of the crisis." Geithner's plan covers not just toxic assets but many ordinary bank loans as well.

"Similarly, the assets put forward by Lloyds in the UK insurance scheme include every buy-to-let mortgage issued by HBOS, not just the ones already in default. Judge the banks on their actions (not just their words), and you would conclude this crisis has some way to go. Yet both governments assume banks (suffer) from a crisis of confidence (simply cured) by removing (toxic debt) uncertainty. What neither seems willing to acknowledge is the likelihood that much of their lending has gone for good; that this is not a liquidity crisis, but a solvency (one)." Britain's plan didn't work and neither will Washington's.

No comment from the Journal except to say: "Whatever the Geithner plan's pitfalls, we sincerely hope it works. The feds so thoroughly botched the TARP and (other) bailouts that Treasury has few options left."

Indeed so. No accounting magic can erase losses, inspire investors, and turn a sick economy around. Especially since all Washington schemes make it sicker, and now Geithner's thrown more fuel on the fire. Problem one is reducing the huge debt overhang and helping beleaguered households. His solutions:

-- help Wall Street, not people and

-- pile on more debt but hope bank "operating" results improve enough to create an illusion of recovery.

It won't work, and at the same time, the latest Fed Flow of Funds data show trillions in vanished household wealth - $12.9 trillion from real estate, savings, investments, and other personal losses. So while insolvent banks are partying, the crisis is deepening. It's far from being resolved, at best has a long way to run, so Bank of America's Richard Bernstein advised clients to sell bank stocks after their rally because PPIP won't stop their profits from falling.

Worse still, according to financial expert and investor safety advocate Martin Weiss, Washington greatly underestimates the "magnitude of the debt crisis." He cites the following:

-- the current FDIC "Problem List" includes 252 banks with $159 billion in assets;

-- from his analysis, he lists 1568 troubled banks and thrifts by name with $2.32 trillion "at risk of failure" - because of "weak capital, asset quality, earnings, and other factors;"

Last year when TARP was announced, Treasury officials thought it would stabilize the economy and improve the health of recipients like Citigroup. However, it quickly learned that Citi and other major banks needed emergency capital to keep from collapsing - for their credit default swap (CDS) problems alone.

AIG's $2 trillion CDS portfolio triggered a government takeover, but it's not alone. Citi has $2.9 trillion, JP Morgan Chase $9.2 trillion, and the Bank of International Settlements reports a global $57 trillion burden, much of it toxic and plenty to sink holders of enough of it.

The problem in America is so great that "the money available to the government is too small for a crisis of these dimensions." Forced mergers, buyouts and handouts have done "little more than shift toxic assets like DDT up the food chain." Further, Washington's "promises to buy up the toxic paper have done little more than encourage banks to hold on, piling up even bigger losses."

Another CDS is also worrisome, one no one talks about but should, on US sovereign debt - Treasury bills, notes and bonds. "A small but growing number of investors are not only thinking the unthinkable, they're actually spending money on it, bidding up the premiums on Treasury bond (CDSs) to 14 times their 2007 level" because they're worried about the Treasury's credibility and borrowing power.

Their message is clear and important - "there's no free lunch; the government (can't) bail out every failing giant with no consequences; and contrary to popular belief, even Uncle Sam must face his day of reckoning with creditors."

Also, "the public knows intuitively that (too much debt) got us into trouble. Yet the solution being offered is to encourage banks to lend more and people to (save less and) borrow (and spend) more." The only way forward is to change course because there's "no other choice....We have to bite the bullet, pay the penalty for our past mistakes," and make hard sacrifices for a sound recovery.

That includes shuttering insolvent banks and other companies (even big ones), not bail them out. Even Kansas City Fed president Thomas Hoenig recommends that:

"public authorities....declare any financial institution insolvent whenever its capital level falls too low to support its ongoing operations and claims against it, or whenever the market loses confidence in the firm and refuses to provide funding and capital."

The wrong choices are trillions more in handouts, reckless money creation, dollar debasing, and an eventual inflation destroying the purchasing power for millions. So far, that's where Congress and Obama's money managers are heading us, and already the bill for their actions is past due.

Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.

Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Monday - Friday at 10AM US Central time for cutting-edge discussions with distinguished guests on world and national issues. All programs are archived for easy listening.

http://www.globalresearch.ca/index.php?context=va&aid=12852

Stephen Lendman is a frequent contributor to Global Research. Global Research Articles by Stephen Lendman
http://globalresearch.ca/index.php?context=va&aid=12923

Financial Crime in America Why Hasn't Obama Targeted The Ongoing White Collar Crime Wave? by Danny Schechter

Financial Crime in America Why Hasn't Obama Targeted The Ongoing White Collar Crime Wave?
by Danny Schechter

Another day. Another ponzi scheme

This time it's the Millenium Bank in the Eastern Caribbean accused of a mere $65 million dollar rip off. (Ponzi king Bernard Maddoff allegedly took in $65 billion.) Regulators say there is a "ponzimonium" underway with scores of newly opened investigations. We are talking about pervasive institutional crime, not just individual theft.

The role of shady, largely unreported, "off shore" institutions is slowly emerging as a component of a larger criminal scheme. There is a report that "a class action lawsuit has been filed against several offshore entities and individuals on behalf of investors in four hedge funds who allegedly lost over $3 billion in the Bernard Madoff fraud."

On shore, in New York, Attorney General Andrew Cuomo has issued new subpoenas to AIG. Former Governor Eliot Spitzer is saying the problem there is not just with bonuses by billions from government bailouts going to "counterparties"---companies that did business with the infamous insurer which just changed its name.

Reports the Wall Street Journal: "CDS contracts were at the heart of AIG's meltdown," Cuomo said in a statement. "The question is whether the contracts are being wound down properly and efficiently or whether they have become a vehicle for funneling billions in taxpayers dollars to capitalize banks all over the world."

The Obama people must be worried about the capacity of white collar crooks to undercut their own programs because they are setting up their own investigation of those who took bailout monies.

Reports a Memphis newspaper: "Eil M. Barofsky, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), recently announced the creation of a broad, multi-agency task force designed to deter, detect and investigate instances of fraud in the soon-to-be-launched Term Asset-Backed Securities Loan Facility (TALF) program."

They know who they are dealing with. It's always been easier to rob banks with fountain pens and electronic transfers than guns and stickups.

In North Carolina, a judge sentenced Lance Paulson, the former CEO of National Century Financial Enterprises, to 30 years for security frauds. Said the Judge, "Poulsen was the architect of a fraud of such magnitude that it would have made financial experts shudder."

Judges may be shuddering but our media is still downplaying the extent of the crimes behind the collapse of our economy. This issue does not seem to have a high priority with the Obama Administration either. The President had denounced "reckless speculation" but is preoccupied with pumping more money into banks rather than tracking down the fraudsters that Franklin Roosevelt called "banksters."

Recall that this crisis started with the collapse of the housing bubble. The FBI has called mortgage fraud an "epidemic" and says "the thousands of financial fraud investigations now underway are putting a strain on the bureau's ability to fight other crimes. An explosion of mortgage fraud cases has stretched the FBI so thin it's having a hard time investigating other white collar crime."

They have 250 agents investigating these crimes as compared to more than l000 who handled the S&L crisis in the 1980s. Many of their corporate crime experts were reassigned to combating terrorism. The Tri-State Defender in Memphis reports:

"The Federal Bureau of Investigation said it received 46,717 suspicious activity reports related to mortgage fraud last year – compared with 45,617 in 2006 and 6,936 in 2003. By the end of fiscal year 2007, the Bureau was handling just over 1,200 mortgage fraud investigations – a 47 percent rise from 2006. That figure has reached 1600 for the current fiscal year.

FBI Deputy Director Pistole told a Senate Judiciary Committee last month that the agency is investigating 530 open corporate fraud investigations, including 38 directly related to the current financial crisis. Pistole said the fraud investigations were putting a strain on the staffs.

"The increasing mortgage, corporate fraud and financial institution failure case inventory is straining the FBI's limited white-collar crimes resources," he said."

FBI Director Mueller told the Senators the Justice Department and the bureau were working on "what we call fast track prosecutions in a number of areas, and….we're prioritizing our cases to hit the most egregious early and put those persons away."

The Financial Crimes Enforcement Network (FinCEN) released a new report that shows subjects reported for suspected mortgage loan fraud may also be involved in other financial crimes such as check fraud, money laundering, stock manipulation, structuring to avoid currency transaction reporting requirements and others. From depository institution Suspicious Activity Reports (SARs), FinCEN identified approximately 156,000 mortgage fraud subjects, and found that 2,360 were reported for suspicious activity in 3,680 of the other SAR types.

"This study analyzes the possible interrelationship of illicit activity occurring across different financial sectors. Criminal actors may attempt to exploit any vulnerability to commit fraud and launder money through a range of financial institutions," said FinCEN Director James H. Freis, Jr. "The interconnected nature of suspicious activity across multiple financial sectors covered by FinCEN's Bank Secrecy Act regulations underscores the immense value of combining insights from the different sectors for the purpose of detecting and thwarting criminal activity."

This whole crime by crime approach is incremental at best and misses the deeper problem. We might look back at an earlier crisis and learn what was done then to combat what John Kenneth Galbraith denounced as widespread "corporate larcency."

Galbraith cited the Pecora Commission which in 1932 investigated the causes of the 1929 crash. It uncovered a wide range of abusive practices on the part of banks and bank affiliates.

A Wikipedia entry explains: "These included a variety of conflicts of interest such as the underwriting of unsound securities in order to pay off bad bank loans as well as "pool operations" to support the price of bank stocks. There was outrage then when banker JP Morgan admitted he had paid no taxes for two years. The commission's Chief Counsel Ferdinand Pecora said; 'Legal chicanery and pitch darkness were the banker's stoutest allies."

Somehow those lessons were lost. Amnesia about the past contributed to denial about the present. We need a new Pecora Commission with subpoena power to investigate the causes of this crisis—and it's too bad that a man with the stature of John Kenneth Gailbraith is not alive to chair it.

Senator Bernie Sanders is calling for just such a commission complete with an investigative staff and subpoena powers. Why don't all progressive groups, media, unions, and concerned organizations endorse this call. We need professionals like Eliot Spitzer who had denounced predatory lending practices involved. You need people who have been on Wall St to see through the tricks on Wall Street.

We need to look into the $5 billion these firms have spent to rewrite laws and deregulate. We need to know which politicians took their payoffs and do their bidding. We need a jailout, not just a bailout.

We need to remember Balzac's insight: "Behind every great fortune lies a great crime." But he was not the only great thinker with insight. "In a closed society where everybody's guilty, the only crime is getting caught," wrote Hunter S. Thompson, " In a world of thieves, the only final sin is stupidity." And that does not just apply to the perpetrators.

News Dissector Danny Schechter is making a film based on his book PLUNDER: Investigating Our Economic Calamity (Cosimo Books at Amazon.com. Comments to dissector@mediachannel.org




http://globalresearch.ca/index.php?context=va&aid=12926

The U.S. has 'no moral standing' to criticize Iran: Zunes

The U.S. has 'no moral standing' to criticize Iran: Zunes

An exclusive Foreign Policy Journal interview with Professor Stephen Zunes

March 28, 2009

by Kourosh Ziabari

Stephen Zunes discusses Iran, Israel, and U.S. foreign policy in the Middle East in an exclusive interview with Foreign Policy Journal.

http://www.foreignpolicyjournal.com/articles/2009/03/28/ziabari_stephen-zunes-interview.html

Despite Obama's Promises, Combat Forces will Remain in Iraq The Big Con on Iraq By GARETH PORTER

Despite Obama's Promises, Combat Forces will Remain in Iraq
The Big Con on Iraq

By GARETH PORTER

Despite President Barack Obama’s statement at Camp LeJeune, North Carolina Feb. 27 that he had "chosen a timeline that will remove our combat brigades over the next 18 months," a number of Brigade Combat Teams (BCTs), which have been the basic U.S. Army combat unit in Iraq for six years, will remain in Iraq after that date under a new non-combat label.

A spokesman for Defence Secretary Robert M. Gates, Lt. Col. Patrick S. Ryder, told IPS Tuesday that "several advisory and assistance brigades" would be part of a U.S. command in Iraq that will be "re-designated" as a "transition force headquarters" after August 2010.

But the "advisory and assistance brigades" to remain in Iraq after that date will in fact be the same as BCTs, except for the addition of a few dozen officers who would carry out the advice and assistance missions, according to military officials involved in the planning process.

Gates has hinted that the withdrawal of combat brigades will be accomplished through an administrative sleight of hand rather than by actually withdrawing all the combat brigade teams. Appearing on Meet the Press Mar. 1, Gates said the "transition force" would have "a very different kind of mission", and that the units remaining in Iraq "will be characterised differently".

"They will be called advisory and assistance brigades," said Gates. "They won't be called combat brigades."

Obama’s decision to go along with the military proposal for a "transition force" of 35,000 to 50,000 troops thus represents a complete abandonment of his own original policy of combat troop withdrawal and an acceptance of what the military wanted all along - the continued presence of several combat brigades in Iraq well beyond mid-2010.

National Security Council officials declined to comment on the question of whether combat brigades were actually going to be left in Iraq beyond August 2020 under the policy announced by Obama Feb. 27.

The term that has been used internally within the Army to designate the units that will form a large part of the "transition force" is not "Advisory and Assistance Brigades" but "Brigades Enhanced for Stability Operations" (BESO).

Lt. Col. Gary Tallman, a spokesman for the Joint Staff, confirmed Monday that BESO will be the Army unit deployed to Iraq for the purpose of the transition force. Tallman said the decision-making process now underway involving CENTCOM and the Army is to determine "the exact composition of the BESO".

But the U.S. Army has already been developing the outlines of the BESO for the past few months. The only change to the existing BCT structure that is being planned is the addition of advisory and assistance skills rather than any reduction in its combat power. The BCT is organised around two or three battalions of motorized infantry but also includes all the support elements, including its own artillery support, needed to sustain the full spectrum of military operations.

Those are permanent features of all variants of the BCT, which will not be altered in the new version to be deployed under a "transition force", according to specialists on the BCT.

They say the only issue on which the Army is still engaged in discussions with field commanders is what standard augmentation a BCT will need for its new mission.

Maj. Larry Burns of the Army Combined Arms Centre at Ft. Leavenworth, Kansas, told IPS that Army Chief of Staff Gen. George W. Casey directed the Combined Arms Centre, which specialises in Army mission and doctrine, to work on giving the BCTs the capability to carry out a training and advisory assistance mission.

The essence of the BESO variant of the BCTs, according to Burns, is that the Military Transition Teams working directly with Iraqi military units will no longer operate independently but will be integrated into the BCTs.

That development would continue a trend already begun in Iraq in which the BCTs have gradually acquired operational control over the previously independent Military Transition Teams, according to Maj. Robert Thornton of the Joint Centre for International and Security Force Assistance at Fort Leavenworth.

Gen. Martin Dempsey, the commander of Army Training and Doctrine Command, has issued Planning Guidance calling for further refinement of the BESO. After further work on the additional personnel requirements, Casey was briefed on the proposed enhancement of the BCT for the second time in a month at a conference of four-star generals on Feb. 18, according to Burns.

Other names for the new variant that were used in recent months but eventually dropped made it explicitly clear that it is simply a slightly augmented BCT. Those names, according to Burns, included "Brigade Combat Team-Security Force Assistance" and "Brigade Combat Team for Stability Operations".

The plan to deploy several augmented BCTs represents the culmination of the strategy of "relabeling" or "remissioning" of BCTs in Iraq that was developed by U.S. military leaders in the wake of the surge of candidate Barack Obama to near-certain victory in the presidential election last year.

Late last year, Gen. David Petraeus, the CENTCOM chief, and Gen. Ray Odierno, the top commander in Iraq, were unhappy with Obama’s pledge to withdraw all U.S. combat brigades within 16 months. But military planners quickly hit on the relabeling scheme as a way of avoiding the complete withdrawal of BCTs in an Obama administration.

The New York Times revealed Dec. 4 that Pentagon planners were talking about "relabeling" of U.S. combat units as "training and support" units in a Dec. 4 story, but provided no details. Pentagon planners were projecting that as many as 70,000 U.S. troops would be maintained in Iraq "for a substantial time even beyond 2011".

That report suggested that the strategy envisioned keeping the bulk of the existing BCTs in Iraq as under a new label indicating an advisory and support mission.

Secretary Gates and Chairman of the Joint Chiefs of Staff Adm. Mike Mullen discussed a plan to re-designate U.S. combat troops as support troops at a meeting with Obama in Chicago on Dec. 15, according a report in the Times three days later.

Gates and Mullen reportedly speculated at the meeting on whether Iraqis would permit such "re-labeled" combat forces to remain in Iraqi cities and towns after next June, despite the fact that the U.S.-Iraq withdrawal agreement signed in November 2008 called for all U.S. combat forces to be withdrawn from populated areas by the end of June 2010.

That report suggests that Obama was well aware that giving the Petraeus and Odierno a free hand to determine the composition of a "transition force" of 35,000 to 50,000 troops meant that most combat brigades would remain in Iraq rather than being withdrawn, as he ostensibly promised the U.S. public on Feb. 27.

Gareth Porter is an investigative historian and journalist with Inter-Press Service specialising in U.S. national security policy. The paperback edition of his latest book, "Perils of Dominance: Imbalance of Power and the Road to War in Vietnam", was published in 2006.
http://www.counterpunch.org/porter03262009.html

The Poverty of Monetarism Too Big to Fail? By ARNO J. MAYER

The Poverty of Monetarism
Too Big to Fail?

By ARNO J. MAYER

Blaming the U.S. subprime mortgage meltdown for the global financial and economic blowout of 2008 is like blaming the assassination of Archduke Franz Ferdinand for World War I. In each case, a discrete event sparked a wider conflagration—but the tinder was already there.

In the early dawn of the 21st century, American capitalism continues to predominate and set the pace. But ever-more-frequent disturbances in the world economy undermine the pretended apoliticism of the econometrists who presume to legitimate and fine-tune capitalism in normal times. Acute convulsions invariably force a return to classical political economy rooted in moral philosophy and ethics, as practiced by Adam Smith, David Ricardo, Karl Marx, John Maynard Keynes, and Friedrich von Hayek. Although today’s reigning economists, finance ministers, and central bankers are adept at manipulating interest rates and the money supply, by themselves such monetarist nostrums are of little use: the present disarray demands concerted political intervention.

In the midst of the First World War, French Prime Minister Georges Clemenceau exclaimed that war was too serious a matter to be left to the generals. Similarly, today’s great economic recession is too grave to be entrusted to the likes of Robert Rubin and Henry Paulson, Alan Greenspan and Ben Bernanke, Lawrence Summers and Timothy Geithner. Not that politicians are any less out of their depth. But it is their responsibility to take matters in hand, with mathematical economists and financial wizards on tap, not on top. As they do so, they enlist the hallowed titans and champions of the Wall Street-Washington consensus to stabilize the shaken financial and corporate Establishment, as if to make certain that the foxes should continue to guard the henhouse.

Of course, in the U.S., both Democrats and Republicans retain their unshaken faith in the benign power of the unchained “invisible hand,” though few choose to remember Adam Smith’s constant concern about social and economic inequalities. As sworn free marketeers, they insist that the current crisis is not structural but contingent, and that its roots lie in the failure of the regulatory system—which America’s two major parties, beholden to powerful special interests and lobbies, conspired to dismantle for decades. Predictably, rather than call for the prosecution of wildcat CEOs and negligent governors of the equities markets, the power elite lambastes the evil geniuses of boundless greed: the speculators, gamblers, cheats, and sharks. Like Jesus chasing the moneylenders from the Temple of God, they propose to run today’s transgressors out of Wall Street, the temple of world capitalism. They raise the specter of the Great Depression of 1929 in order to blunt popular social movements of both left and right. And they oppose “Wall Street” to “Main Street” to avoid discussing the vast gulf between the upper ten thousand on the one hand and the salaried middle classes, wage-earning blue collars, and working poor on the other. With the richest 5% of Americans earning more than a third of all personal income and the long-stagnant minimum wage often ignored, it is astounding that political discourse should fixate on the suffering of middle-class families. Even John J. Sweeney, president of the AFL-CIO, stresses the need to “counterbalance corporate power and reverse the decline of the middle class.” And Gordon Brown, Britain’s New Labour Prime Minister, urges Washington and London to “seize the moment” to bring about “the biggest expansion of middle-class incomes and jobs the world has ever seen.” Perish the thought that anyone should mention the working and lower-middle classes, let alone the poor: for the moment, in America, the streets are quiet, picket lines thin, sit-ins rare, and town hall meetings calm.

Pace Bernanke and his mentor Milton Friedman, the causes of the crash that brought about the Great Depression bear little resemblance to those that quickened the downturn of 2008. Following World War I and the Russian Revolution, European societies entered a prolonged crisis marked by economic turmoil, political upheaval, and cultural defiance in which the very foundations of capitalism seemed to fall apart. Remarkably, in the face of the gathering storm, John Maynard Keynes, who in 1929-30 was still intensely preoccupied with interest rates, abruptly returned to political economy, which had informed his prophetic The Economic Consequences of the Peace (1919). In The General Theory of Employment, Interest, and Money, published in 1936, he took account of the organic crisis, involving soaring unemployment, labor unrest, ideological discord, and political struggle. Keynes also kept a keen eye on the emerging collective and planned economy in Soviet Russia, the antithesis of the capitalist system he looked to revitalize and preserve.

Indeed, the idea of economic planning gained traction in the West, though it was harnessed to different ends: the advanced countries resorted to it to restabilize their economies, while the beleaguered Soviets embraced it to force Russia’s headlong industrialization and military buildup. Planning was adopted by right-populist regimes as well: in response to the Kremlin’s first two Five-Year Plans, Nazi Germany launched a Four-Year Plan of its own to spur the Third Reich’s economic recovery and preparation for war. In general, however, the concept of planning became a rallying cry of the left’s drive for a progressive-reformist way out of the crisis: the New Deal in the U.S. and the Popular Fronts across Europe. One and all accepted Keynes’ premise that severe and acute capitalist downturns, not being “self-correcting” except at unacceptable costs, compel government and central-bank intervention.

Obviously, the U. S. at present is not undergoing a crisis remotely as deep and broad as that of the 1930s, which was at once economic, political, social, cultural, and ideological. But that does not mean the orthodox academic monetarists are any better equipped to repair the shaky system. Just as their theory and computer models failed to grasp the non-economic dimensions of the Great Depression, they cannot explain the upheavals of a capitalism radically different from that of the inter- and post-war years. Having survived the somber thirties, World War II, and the postwar chaos of 1945-55, capitalism grew ever more concentrated, multinational, and global. And the expanding U. S. empire became its linchpin and powerhouse.

This imperial factor determines America’s present strengths and frailties. Having crested but not yet approaching collapse, the U. S. empire is bound to become economically less profitable and politically less consensual. The cost of maintaining an overstretched imperium at a time of rising great-power rivalries is steep. Besides the gargantuan regular military budget, Washington must fund recurrent wars as well as countless foreign-aid, intelligence, and soft-power missions. These burdens exacerbate budget deficits largely financed by private and public foreign lenders, including sovereign wealth funds, thereby unsteadying the dollar.

The subprime fiasco and cumulative transnational credit crunch would simply constitute a classic burst bubble were they not intrinsic to America’s imperial enterprise and crusade. Whereas the classes reap the benefits of empire, the masses shoulder a disproportionate share of its costs. With wages and employment fragile in a de-industrializing economy, only deceptively cheap and opaque forms of credit—mortgages, home equity loans, charge cards—have kept the lower strata from calling into question the vast sums poured into America’s mission civilisatrice.

Marxist theorists once confidently predicted that capitalism’s accelerating swings of boom and bust signaled its imminent collapse. Today the power elite adapts that prediction to serve its own purpose: CEOs, bankers, economists, politicians, and talking heads warn that unless governments step in forcefully, globalizing capitalism will founder. These alarums are misleading not least because even under capitalism, polity and economy have been intertwined since the beginning. The ostensible separation of these spheres is a myth that shatters whenever the business cycle goes into a tailspin.

As early as 1910 the Social Democratic theorist Rudolf Hilferding published his treatise on the intensifying gyrations of capitalism with the then arresting title: Finance Capital: A Study of the Latest Phase of Capitalist Development. He was not the first Marxist thinker to counterpose unbridled free-market capitalism to its more advanced form, marked by galloping financial, industrial, and commercial concentration—but he may have been the most prescient. Many Socialists and Marxists, including Jean Jaurès, Lenin, and Rosa Luxemburg, postulated that Europe’s ruling classes, challenged by an increasingly militant working class, would press their governments to step up imperialist drives, partly to channel domestic distempers into the international system. Presently much of the European left uneasily hoped that imperialist rivalries would lead to a catastrophic European war fraught with revolutionary uprisings. Without minimizing the likelihood of such a turn, Hilferding emphasized the resilience of the established order, despite infighting in the ruling and governing classes. In his reading, capitalism and its supporting state seemed likely to emerge strengthened from periodic crisis-induced political interventions in the economy. Like Keynes after the Very Great War, he grudgingly conceded the dogged persistence of capitalism, with all its many and recurrent failings. And in fact, both more than weathered not just the Depression but the Thirty Years War of the 20th century, the Cold War, the shock of decolonization, and the rebellion of the wretched of the earth. Especially once Western and Central Europe were restored thanks to America’s pumping in Marshall Aid and brandishing the threat of Communism, capitalism reached unprecedented heights and spread all over the planet. It not only held Communism at bay and finally prevailed over it but also all but engulfed Social Democracy, whose legacy, in the form of the welfare state, is under assault in several European countries.

On one central point Marxists of all denominations have been dead-on: that as long as capitalism survived, consolidation and concentration would gain ground in key sectors of the advanced economies, including the epicentral financial one. As that process continued, business grew more intertwined with the state, reinforced by embattled governments during recurrent downturns. These slumps constituted milestones on the way to various types of state capitalism, including eventually those curious forms in post-Soviet Russia and post-Mao China. The state may not own or control most of the means of production and finance. But even in self-proclaimed laissez-faire America, the military-industrial-congressional complex is merely one arm of a huge octopus of mega-corporate-cum-state interests that reach into the four corners of the empire.

The magnitude of the crisis that struck capitalism in the 1930s is virtually unimaginable even in the midst of the sharpest contraction since then. During the Great Crash of 1929 shares on the New York Stock Exchange fell at amazing speed. At its nadir in 1932 the Dow Jones industrial average had sunk some 75%. By 1933, when Congress passed the Glass-Steagall Act mandating the separation of commercial and investment banks, some 4,000 banks had failed, a quarter of the U.S. work force was jobless, and national income had dropped by 50%.

The tidal wave from the U.S. soon smashed into Europe. At the time of the Wall Street Crash of October 1929, Weimar Germany already counted 1,500,000 unemployed. When Glass-Steagall was adopted that number had risen to over 6 million, or about a quarter of the working population; the National Socialists and Communists had scored respectively 13,400,000 and 3,700,000 votes in a presidential election, and Adolf Hitler was Chancellor. Other European countries were storm-swept as well, though to a lesser degree in most cases. Even assuming the U. S. had rapidly staged a recovery, it is doubtful that its benefits could have raced across the Atlantic in time to steady a Europe buffeted by Fascism and Communism and caught diplomatically between Berlin and Moscow. Nor could they have reached across the Pacific to help calm the waters in Japan and head off the invasion of Manchuria.

Today, the high-income world—the U.S., European Union, and Japan—is free of major ideological conflict, partly because capitalism holds sway over the entire world. Formerly communist nations such as China and Russia, long proto-socialist ones such as India, and even the Islamic nations have all taken the route to state or political capitalism. Globalization has raced ahead, reflected in the growth of multinational corporations, cross-border financial transactions, and high-speed telecommunications. In the advanced economies, the service and knowledge sectors are gaining on manufacture and industry, radically shrinking the number of unionized blue-collar wage-earners, their place taken by salaried white-collar employees in the private sector, struggling to organize. Wages and salaries are depressed by the fast-expanding labor pool in the emerging-market countries, and by migrant labor from these nations all over the world. Indeed, wanton globalization accelerates the emasculation of labor’s countervailing power throughout the so-called developed world.

And yet, despite the sea changes in capitalism, the powers that be insist on drawing close parallels between the Crash of 2008 and the Crash of 1929. Ironically, Federal Reserve Chairman Ben Bernanke is validated by his scholarly research on the Great Depression. He proposes to do all in his power to avoid the missteps that had led from Black Friday to the precipitous economic collapse. Hence his resolve to lose no time bailing out financial institutions that are vastly more sizable, concentrated, and international than they were 80 years ago—in the process making them even more so. In keeping with a socio-economic Darwinism driven by what Joseph Schumpeter called a “gale of creative destruction,” the big are getting bigger and stronger at the expense of the smaller and weaker, most notably in the financial sector in which a handful of large banks rule the roost. Thanks to state-supported natural selection, Citigroup, Goldman Sachs, Bank of America, J. P. Morgan Chase, and Wells Fargo—which hold over 40% of the nation’s bank assets—win the day. So does American International Group (A.I.G.), the mammoth insurance corporation, which by way of Goldman Sachs is entwined with the entire Western banking system and operates in more than 100 countries. In the industrial sector, as a first step Washington is throwing a lifeline to General Motors and Chrysler. The radical streamlining entailed in such measures, including massive job losses and wage cuts, is treated as a secondary issue. Citigroup is laying off 52,000 of its 300,000 employees worldwide, and job cuts at General Motors are of the same order of magnitude. Meanwhile gigantic mergers continue throughout the economy, driven by cost savings.

Clearly, what America exalts as democratic capitalism is itself becoming more concentrated and statist as it competes with the rising state-supported and -guided economies of the non-Western world, especially China, India, and resurgent Russia. In the early 1920s, when launching the New Economic Policy privatizing several sectors of the Soviet Union’s embryonic planned collectivist economy, Lenin insisted that its “commanding heights” (heavy industry, banking, foreign trade, and railroads) would continue to be owned and operated by the state. Nowadays ever-fewer gargantuan corporations, most of them with global dimensions, occupy the commanding heights of the U. S. economy. Governments pressed by well-funded and cleverly staffed lobbies further their interests and are primed to bail them out at the eleventh hour.

Nearly the entire political class proposes to contain the global financial crisis by re-regulating allegedly runaway markets and transactions. No one questions the rationale of American-style capitalism, driven by the pursuit of unrestricted profit and creative destruction. During his 18 years as chairman of the Federal Reserve, Alan Greenspan took for granted not only the ultimate self-regulation of the profit motive and of risk-taking markets but also the “evident acceleration of the process of creative destruction which has accompanied these expanding innovations and which has been reflected in the shifting of capital from failing technologies into those technologies at the cutting edge.” Even today the cream of academic economists and their patrons would not dream of questioning the iron imperative of profit- and efficiency-driven capitalist globalization whose end-purpose is to make the world safe for credit-card consumerism.

In the wake of September 11, 2001, President George W. Bush, as he declared war on world terror, bid Americans “go shopping” and “go down to Disney World in Florida.” On March 8, 2009, in the thick of the great recession, President Obama exhorted them not to “suddenly stuff money into their mattresses and pull back completely from spending.” Four days earlier Premier Wen Jiabao, addressing the yearly session of China’s Parliament, encouraged the Chinese to be less frugal and spend more on goods and services so as to boost domestic demand conjointly with a new stimulus package.

Aside from rescuing those mega-corporations fortunate enough to be “too big to fail,” the West has few ideas other than bailouts, tax adjustments, fiscal incentives, public spending, modulated protectionism, regulation of financial markets, and clampdowns on tax havens—all of it, according to President Obama, “entirely consistent with free-market principles.” Tighter regultory scrutiny hardly seems a fail-safe prescription to repair the present unhingement and prevent future crises. The frequency and magnitude of capitalism’s convulsions are likely to keep growing along with its irreversible globalization, as foreseen by Marx. While it will be fiendishly difficult to police American bankers, traders, hedgers, and insurers, it will be all but impossible to design and enforce a global system of financial regulation for 192 sovereign states at different stages of development, with conflicting economic interests, social priorities, and political agendas.

Nevertheless, the political classes, economists, central bankers, and public intellectuals of virtually all nations cry out for a global response to the worldwide financial and economic breakdown. President Bush hosted a preliminary summit of the leaders of the G-20, or the world’s 20 largest economies, on November 15, 2008, just 10 days after America’s presidential election. Some European leaders grandiloquently called for a fundamental recasting or renewal of capitalism. But behind closed doors the officials focused on questions of control and transparency. For the gallery and the media they took turns excoriating the creatively destructive banking and corporate tycoons whose salaries, bonuses, and golden parachutes they mean to cap, cautiously. In other words, the power elite portrays the efficient causes of capitalism’s spasms to be random, personal, and moral rather than systemic, socio-economic, and political. Hence the call not for fundamental reform but for purification, exorcism, and rehabilitation by means of a mix of hard national and soft transnational financial and market regulations. Since Adam and Eve were driven from Eden, such efforts to purge the world of avarice and corruption have amounted to catching the wind in a net.

Globalizing free-market finance capitalism is inherently and increasingly crisis-prone. But given the absence of a coherent and credible model of an alternative economy, polity, and society, the world seems not to be careening toward a historical crossroads, predictions to that effect notwithstanding. Precious few sober political parties or thinkers articulate a systematic critique of contemporary capitalism or propose a program of broad-based reform. It is preposterous for the pro-business French President Nicolas Sarkozy to claim that since the idea that the “markets are always right” is “crazy, . . . a certain idea of globalization is drawing to a close with the end of a financial capitalism that imposed its logic on the whole economy.” Washington’s prodigious financial, economic, military, cultural, and ideological power is not about to decline overnight in favor of Europe, Japan, China, and Russia, which blame American rampancy for the pandemic. Despite economic rivalries and diplomatic discords, the ruling classes of most “developed” nations fundamentally see eye to eye with their American counterparts. They do not long for a sudden twilight of U. S. power and demise of the dollar as the global reserve currency. Nor does Beijing, given its dire economic interdependence with America, despite its launching the idea of a “super-sovereign reserve currency.” To the rest of the world, the U.S. itself is too big to fail.

To the extent that the Crash of 2008 marks a turning point for capitalism, it lies in the shift from nationally framed microeconomic interventions to broadly coordinated multinational and macroeconomic ones. For the moment the stress is on cross-border policies not just to re-stabilize the world’s principal financial markets and economies but to revive the sputtering economies of lower- and middle-income countries—of the Baltic, Eastern Europe, and the “developing” world. Ideology is being tossed to the breeze: while the leaders of the European Union, even more than their trans-Atlantic colleagues, readily fustigate authoritarian rule in China, the Gulf States, and Russia, they have few compunctions about pressing them to help bail out democratic capitalism. Before the Washington summit, Gordon Brown and Sarkozy urged autocratic capitalist economies to inject some of their vast hoards of hard currency into international credit arteries. Tellingly, when she stopped in China on her first whirlwind imperial tour, Secretary of State Hillary Clinton urged Beijing to keep buying U. S. Treasury bonds not only because they are a “good investment” but also because “we are in the same boat . . . we are truly going to rise or fall together.” Thanks to its trade surplus, China has a reserve of close to $2 trillion—nearly six times the reserve of the International Monetary Fund—while Russia and the Gulf states have amassed zillions in hard currencies, though these are for the time being cut in half. But if and when they do lend a hand, besides looking for a solid financial return they will exact a political price—above all a greater voice in the inner councils of the post-Bretton Woods global economic-financial order.

As for the U.S., if the crux of the crisis were purely fiscal and economic, it could be defused with relatively little difficulty and pain. Washington piled up a $455 billion budget deficit for the year ending in September 2008. It is expected to hit at least $700 billion in the next fiscal year, aggravated by huge trade deficits and interest payments on a multitrillion-dollar national debt. This overdraft on the future, which drains funds for public health care, education, and social welfare, could be reduced by slashing America’s enormous military expenditures, which continue to nearly equal those of all the other countries of the planet combined. In addition to the Defense Department’s base budget of $440 billion for fiscal 2007-08, the cost of the wars in Iraq and Afghanistan runs to at least $12 billion monthly. Scores of billions are spent on overseas military and economic assistance as well as undercover operations.

It is worth recalling that although in 1929 America was already a creditor nation, its military budget was negligible, and, with no empire to speak of, it faced none of the ancillary expenses either. Even so, it took the planned economy of the Second World War as well as postwar euphoria and imperial thrust for prosperity to kick in. Today the empire is still close to its zenith but beginning its bumpy downward course. Needless to say, though the presidential election of 2008 unfolded in the midst of two costly wars and grave economic hardships, neither of the candidates mentioned the exorbitant expense of imperial overreach. To the contrary: John McCain and Barack Obama squabbled over who would be more unflinching in pursuit of America’s imperial interest, which both invariably referred to as the national interest. The differences between the parties and their supporters are largely tactical and stylistic. Early in his first term Obama declared that America “will maintain its military dominance” by doing “whatever it takes to sustain [the] technological advantage . . . of the strongest armed forces in the history of the world” so as to be able “to defeat and deter” both “conventional” and “unconventional” enemies.

Clearly the U. S. empire is not about to be sacrificed on the altar of fiscal responsibility. Instead, the balanced budget will be sacrificed to the empire, especially since, like all such imperial exertions, the empire serves many purposes. Besides being profitable for basic sectors of the economy, it fosters America’s prestige, social cohesion, and cultural clout. Of course, the empire takes a heavy civil toll which cannot be reckoned in dollars: the deepening corruption of the political process by big money, particularly by powerful and lavishly bankrolled lobbies. When reflecting on this scourge it pays to dip into Machiavelli’s Discourse on Livy and Montesquieu’s Considerations on the Causes of the Greatness of the Romans and Their Decline.

Though the American empire has passed its peak, it remains a hyperpower with enormous military capabilities to compensate for its frayed but still formidable soft or smart power. Empires do not decline, let alone fall, all at once, as Gibbon observed. After completing his magisterial Decline and Fall of the Roman Empire in 1788, he mused that perhaps instead of inquiring why Rome “was destroyed we should rather be surprised that it had subsisted for so long.”

Finally there is the question of whether the American empire, like Rome’s, will suffer rebellions among what Arnold Toynbee called the “internal” and “external” proletariat. Whereas in the U. S., Greater Europe, and Japan such rebellions could well be set off by the frustration of rising expectations, in the “developing” world they more likely will be fired by despair in the face of raw poverty and destitution spiked by a demographic boom, especially in times of galloping unemployment, declining wages, and volatile food prices. Some 20% of the world’s 6.5 billion people live on $1 a day, 50% on less than $2, most of them in “developing” countries. This material misery along with ecological blowback, rather than religious or ethnic discords, are the main triggers of popular and regime-threatening violence. .” In March 2009, on the eve of the G-20 meeting in London, Robert Zoellick, the American president of the World Bank, forewarned that faced with the first major shrinkage of the world economy and world trade since 1945, the emerging-market nations of the Third World “need investments in safety nets, infrastructures, and small and medium-size companies to create jobs and to avoid social and political unrest.” Or in the more pointed words of the open letter to the Washington summit by Ban Ki-moon, the confounded U.N. Secretary-General: “If hundreds of millions of people lose their livelihoods, and their hopes for the future are dashed because of a crisis for which they have absolutely no responsibility, the human crisis will not remain just economic.”

Arno J Mayer is emeritus professor of history at Princeton University. He is the author of The Furies: Violence and Terror in the French and Russian Revolutions.and Plowshares Into Swords: From Zionism to Israel (Verso).

http://www.counterpunch.org/mayer03272009.html

The Free Market, Financial Style How the Scam Works By MICHAEL HUDSON

The Free Market, Financial Style

How the Scam Works

By MICHAEL HUDSON

Here’s the rip-off as I see it. For an outlay of $750,000, the bank rids its books of a mortgage worth $2 million, for which it receives $4,250,000. It gets twice as much as the junk is worth. Continue http://informationclearinghouse.info/article22306.htm

Enduring Freedom by: William Rivers Pitt, t r u t h o u t | Columnist

Enduring Freedom

Friday 27 March 2009

by: William Rivers Pitt, t r u t h o u t | Columnist

A Pakistani girl from the Bajur tribal region.
A Pakistani girl from the Bajur tribal region in line for bread. (Photo: AP)

In Afghanistan, this is the problem, because everybody holds a piece of that mirror, and they all look at it and claim that they hold the entire truth.

- Mohsen Makhmalbaf

There was the battle of Mazari Sharif, and the battle of Qala-i-Jangi, and the battle of Tora Bora, and the massacre at Dasht-i-Leili, and the Tamak Farm incident and the slaughter of a wedding party in Uruzgan Province.

There was the Damadola airstrike in Pakistan made by US forces, and there was the Battle of Lashkagar, and the battle of Panjwaii and the Shinwar massacre. There was the battle of Chora, and the Baghlan sugar factory bombing and the battle of Musa Qala.

There was the Kabul Serena Hotel attack, the Kandahar bombing, the Gora Prai airstrike, the Sarposa Prison attack and the bombing of the Indian embassy. There was the battle of Wanat, and the Uzbin Valley ambush, and the Azizabad airstrike and the Angoor Ada raid into Pakistan again.

There was Operation Anaconda and there was Operation Red Wing. There was Operation Mountain Thrust, and Operation Medusa and Operation Mountain Fury. There was Operation Achilles and there was Operation Eagle's Summit.

All of this was, and remains, Operation Enduring Freedom. All of this was, and remains, America's war in Afghanistan.

Our war in Afghanistan began almost 3,000 days ago, on October 7, 2001. Our war in Afghanistan has lasted longer than World War I, World War II, the Civil War, the Korean War, the first Gulf War in Iraq and the second Gulf War in Iraq. If we are still fighting in Afghanistan a year from now, the war will have lasted longer than the American Revolution. Children who were born on the day the war began are now halfway through grammar school.

All the bad economic news and the turmoil in the financial and housing markets have America looking inward these days. We rarely hear anything about Iraq anymore, and even less about Afghanistan. For the record, and to bring everyone up to speed, the following events have taken place in Afghanistan during the last 72 hours.

Taliban fighters killed nine police officers. Three Australian soldiers were wounded. Pakistan's intelligence service was accused of aiding and abetting the Taliban in southern Afghanistan. Two Afghani farmers were killed by NATO troops. A bomb killed ten civilians in eastern Afghanistan. A Canadian woman held captive by the Taliban was made to plead for her life. Two separate bombings in southern Afghanistan killed 11 people.

All told, it's been a quiet week over there. That is about to change.

President Obama will soon be announcing his administration's plans for the future of our conflict in Afghanistan. Reportedly, this announcement will include the deployment of 17,000 more US soldiers Obama promised during the campaign, and will also reportedly include the deployment of an additional 4,000 troops, as well. "President Obama will deploy as many as 4,000 additional U.S. troops to Afghanistan, beyond the 17,000 he authorized last month, as trainers and advisers to the Afghan Army, according to a senior Pentagon official who has seen the new Afghanistan-Pakistan strategy Obama will unveil Friday," wrote The Washington Post.

"Since the United States invaded Iraq six years ago," reported the Christian Science Monitor on Thursday, "its attention, effort, and military know-how has tilted toward the Gulf. Perhaps as soon as Friday, President Obama is expected to shift that focus, announcing a new strategy for Afghanistan and the neighbor with which it is entwined, Pakistan. Yet the challenges presented by Afghanistan are an order of magnitude greater than they were in Iraq - involving a state with virtually no rule of law, a government rife with opium-fueled corruption, and an insurgency spanning two nations and entrenched in some of the world's most inhospitable terrain."

"President Barack Obama insisted on Sunday that military force alone would not end the war in Afghanistan," reported Reuters on Sunday, "and suggested a U.S. 'exit strategy' could be part of a new comprehensive policy he is expected to unveil soon. Obama, in an interview on CBS's '60 Minutes' program, previewed in broad terms his administration's review of Afghanistan-Pakistan strategy based on recommendations from senior U.S. officials and consultations with allies."

For the last seven years, the war in Afghanistan has been a collective effort shared among the United States and several other countries by way of NATO. That also appears to be changing soon. "After years of often testy cooperation with NATO and resentment over unequal burden-sharing," reported the Washington Post on Thursday, "the United States is taking unabashed ownership of the Afghan war. Even as the U.S. military expands its control over the battlefield, the number of American civilian officials will also grow by at least 50 percent - to more than 900 - under the new Afghanistan-Pakistan strategy Obama will announce as early as tomorrow, according to administration officials. American diplomats and development experts plan to spread into relatively peaceful western and northern regions of Afghanistan that until now were left to other NATO governments. New U.S. resources and leadership also will be brought to bear over critical issues such as counter-narcotics efforts and strengthening local government institutions."

"The Americanization of the war is visible in the turbulent south," continued the Post's report, "where the regional NATO command, led by a Dutch general, with Dutch, British, Danish and U.S. troops, faces the primary Taliban threat. Most of the additional U.S. troops will deploy there, and dozens of C-130 transport aircraft land at the Kandahar airfield every day with pallets of supplies. In a dusty parking lot not far from the main runway, more than 200 Mine Resistant Ambush Protected vehicles, or MRAPs, await the supplementary U.S. troops. When they arrive, there will be more American personnel at the Kandahar base than at the current largest U.S. facility - at Bagram, north of Kabul, the capital. 'This will become an American headquarters,' one non-U.S. military officer in southern Afghanistan said of Kandahar. 'They're going to have almost three times as many troops as any other NATO member here. And that's going to mean they'll be in charge.'"

Is the Obama administration simply working with the hand it was dealt by George W. Bush, or are the same Bush administration mistakes about to be committed all over again? Norman Solomon, writing for Truthout on Tuesday, noted, "We desperately need a substantive national debate on US military intervention in Afghanistan and Pakistan. While the Obama administration says that the problems of the region cannot be solved by military means, the basic approach is reliance on heightened military means. And so, with chillingly familiar echoes, goes the perverse logic of escalating the war in Afghanistan. 'Strategic patience' - more and more war - will be necessary so that those who must die will not have died in vain."

However this all shakes out, one thing is certain: Both the United States and Afghanistan are likely going to be Enduring Freedom for a long time to come.

»

William Rivers Pitt is a New York Times and internationally bestselling author of two books: "War on Iraq: What Team Bush Doesn't Want You to Know" and "The Greatest Sedition Is Silence." His newest book, "House of Ill Repute: Reflections on War, Lies, and America's Ravaged Reputation," is now available from PoliPointPress.

The Fierce Urgency of Peace By ROGER COHEN

March 26, 2009
Op-Ed Columnist
The Fierce Urgency of Peace
By ROGER COHEN

Pressure on President Obama to recast the failed American approach to Israel-Palestine is building from former senior officials whose counsel he respects.

Following up on a letter dated Nov. 6, 2008, that was handed to Obama late last year by Paul Volcker, now a senior economic adviser to the president, these foreign policy mandarins have concluded a “Bipartisan Statement on U.S. Middle East Peacemaking” that should become an essential template.

Deploring “seven years of absenteeism” under the Bush administration, they call for intense American mediation in pursuit of a two-state solution, “a more pragmatic approach toward Hamas,” and eventual U.S. leadership of a multinational force to police transitional security between Israel and Palestine.

The 10 signatories — of both the four-page letter and the report — include Volcker himself, former national security advisers Brent Scowcroft and Zbigniew Brzezinski, former Senator Chuck Hagel, former World Bank President James Wolfensohn, former U.S. Trade Representative Carla Hills, former Congressman Lee Hamilton and former U.S. ambassador to the United Nations Thomas Pickering.

My understanding is their thinking coincides in significant degree with that of both George Mitchell, Obama’s Middle East envoy, and Gen. James Jones, Obama’s national security adviser who worked on security issues with Israelis and Palestinians in the last year of the Bush administration, an often frustrating experience.

This overlap gives the report particular significance.

Of Hamas, the target of Israel’s futile pounding of Gaza, the eminent Group of 10 writes that, “Shutting out the movement and isolating Gaza has only made it stronger and Fatah weaker.”

They urge a fundamental change: “Shift the U.S. objective from ousting Hamas to modifying its behavior, offer it inducements that will enable its more moderate elements to prevail, and cease discouraging third parties from engaging with Hamas in ways that might clarify the movement’s view and test its behavior.”

Although this falls short of my own recommendation that the United States itself — rather than European allies — engage with moderate elements of Hamas, such a shift is critical.

Without Hamas’s involvement, there can be no Middle East peace. Mahmoud Abbas, the Fatah leader and president of the Palestinian Authority, is a beleaguered figure.

The report goes further: “Cease discouraging Palestinian national reconciliation and make clear that a government that agrees to a cease-fire with Israel, accepts President Mahmoud Abbas as the chief negotiator and commits to abiding by the results of a national referendum on a future peace agreement would not be boycotted or sanctioned.”

In other words, stop being hung up on prior Hamas recognition of Israel and watch what it does rather than what it says. If Hamas is part of, and remains part of, a Palestinian unity government that makes a peace deal with Israel, that’s workable.

Henry Siegman, the president of the U.S./Middle East Project, whose chairman is Scowcroft and board includes all 10 signatories, told me that he met recently with Khaled Meshal, the political director of Hamas in Damascus.

Meshal told him, and put in writing, that although Hamas would not recognize Israel, it would remain in a Palestinian national unity government that reached a referendum-endorsed peace settlement with Israel.

De facto, rather than de jure, recognition can be a basis for a constructive relationship, as Israel knows from the mutual benefits of its shah-era dealings with Iran.

Israeli governments have negotiated a two-state solution although they included religious parties that do not recognize Palestinians’ right to statehood.

“But,” Siegman said, “if moderates within Hamas are to prevail, a payoff is needed for their moderation. And until the U.S. provides one, there will be no Palestinian unity government.”

The need for that incentive is reflected in the four core proposals of what the authors call “a last chance for a two-state Israel-Palestine agreement.” Taken together, they constitute the start of an essential rebalancing of America’s Bush-era Israel-can-do-no-wrong policy.

The first is clear U.S. endorsement of a two-state solution based on the lines of June 4, 1967, with minor, reciprocal, agreed land swaps where necessary. That means removing all West Bank settlements except in some heavily populated areas abutting Jerusalem — and, of course, halting the unacceptable ongoing construction of new ones.

The second is establishing Jerusalem as home to the Israeli and Palestinian capitals. Jewish neighborhoods would be under Israeli sovereignty and Arab neighborhoods under Palestinian sovereignty, with special arrangements for the Old City providing unimpeded access to holy sites for all communities.

The third is major financial compensation and resettlement assistance in a Palestinian state for refugees, coupled with some formal Israeli acknowledgment of responsibility for the problem, but no generalized right of return.

The fourth is the creation of an American-led, U.N.-mandated multinational force for a transitional period of up to 15 years leading to full Palestinian control of their security.

Obama has told Volcker that he would, in time, meet with the signatories of the letter. He should do so once an Israeli government is in place. And then he should incorporate their ideas in laying out the new realism of American commitment to Palestine and the new price of American commitment to Israel.


Copyright 2009 The New York Times Company

White Paper of the Interagency Policy Group's Report on U.S. Policy toward Afghanistan and Pakistan

http://www.whitehouse.gov/assets/documents/Afghanistan-Pakistan_White_Paper.pdf

White Paper of the Interagency Policy Group's Report on
U.S. Policy toward Afghanistan and Pakistan

INTRODUCTION

The United States has a vital national security interest in addressing the current and potential security threats posed by extremists in Afghanistan and Pakistan. In Pakistan, al Qaeda and other groups of jihadist terrorists are planning new terror attacks. Their targets remain the U.S. homeland, Pakistan, Afghanistan, India, Europe, Australia, our allies in the Middle East, and other targets of opportunity. The growing size of the space in which they are operating is a direct result of the terrorist/insurgent activities of the Taliban and related organizations. At the same time, this group seeks to reestablish their old sanctuaries in Afghanistan.

Therefore, the core goal of the U.S. must be to disrupt, dismantle, and defeat al Qaeda and its safe havens in Pakistan, and to prevent their return to Pakistan or Afghanistan.

The ability of extremists in Pakistan to undermine Afghanistan is proven, while insurgency in Afghanistan feeds instability in Pakistan. The threat that al Qaeda poses to the United States and our allies in Pakistan - including the possibility of extremists obtaining fissile material - is all too real. Without more effective action against these groups in Pakistan, Afghanistan will face continuing instability.

Objectives

Achieving our core goal is vital to U.S. national security. It requires, first of all, realistic and achievable objectives. These include:

• Disrupting terrorist networks in Afghanistan and especially Pakistan to degrade any ability they have to plan and launch international terrorist attacks.

• Promoting a more capable, accountable, and effective government in Afghanistan that serves the Afghan people and can eventually function, especially regarding internal security, with limited international support.

• Developing increasingly self-reliant Afghan security forces that can lead the counterinsurgency and counterterrorism fight with reduced U.S. assistance.

• Assisting efforts to enhance civilian control and stable constitutional government in Pakistan and a vibrant economy that provides opportunity for the people of Pakistan.

• Involving the international community to actively assist in addressing these objectives for Afghanistan and Pakistan, with an important leadership role for the UN.

A New Way Forward

These are daunting tasks. They require a new way of thinking about the challenges, a wide ranging diplomatic strategy to build support for our efforts, enhanced engagement with the publics in the region and at home, and a realization that all elements of international power -- diplomatic, informational, military and economic -- must be brought to bear. They will also require a significant change in the management, resources, and focus of our foreign assistance.

Our diplomatic effort should be based on building a clear consensus behind the common core goal and supporting objectives. To this end, we will explore creating new diplomatic mechanisms, including establishing a “Contact Group” and a regional security and economic cooperation forum. The trilateral U.S.-Pakistan-Afghanistan effort of February 24-26, 2009 will be continued and broadened, into the next meeting planned for early May, in Washington.

The United States must overcome the 'trust deficit' it faces in Afghanistan and Pakistan, where many believe that we are not a reliable long-term partner. We must engage the Afghan people in ways that demonstrate our commitment to promoting a legitimate and capable Afghan government with economic progress. We must engage the Pakistani people based on our long-term commitment to helping them build a stable economy, a stronger democracy, and a vibrant civil society.

A strategic communications program must be created, made more effective, and resourced. This new strategy will have no chance of success without better civil-military coordination by U.S. agencies, a significant increase of civilian resources, and a new model of how we allocate and use these resources. For too long, U.S. and international assistance efforts in Afghanistan and Pakistan have suffered from being ill-organized and significantly under-resourced in some areas. A large portion of development assistance ends up being spent on international consultants and overhead, and virtually no impact assessments have yet been done on our assistance programs.

We must ensure that our assistance to both Afghanistan and Pakistan is aligned with our core goals and objectives. This will involve assistance that is geared to strengthening government capacity and the message that assistance will be limited without the achievement of results.

Additional assistance to Afghanistan must be accompanied by concrete mechanisms to ensure greater government accountability. In a country that is 70 percent rural, and where the Taliban recruiting base is primarily among under-employed youths, a complete overhaul of our civilian assistance strategy is necessary; agricultural sector job creation is an essential first step to undercutting the appeal of al Qaeda and its allies. Increased assistance to Pakistan will be limited without a greater willingness to cooperate with us to eliminate the sanctuary enjoyed by al Qaeda and other extremist groups, as well as a greater commitment to economic reforms that will raise the living standard of ordinary Pakistanis, including in the border regions of the Federally Administered Tribal Areas, the North West Frontier Province, and Baluchistan.

SUMMARY OF RECOMMENDATIONS FOR AFGHANISTAN AND PAKISTAN

The following steps must be done in concert to produce the desired end state: the removal of al-Qaeda's sanctuary, effective democratic government control in Pakistan, and a self-reliant Afghanistan that will enable a withdrawal of combat forces while sustaining our commitment to political and economic development.

• Executing and resourcing an integrated civilian-military counterinsurgency strategy in Afghanistan.

Our military forces in Afghanistan, including those recently approved by the President, should be utilized for two priority missions: 1) securing Afghanistan's south and east against a return of al Qaeda and its allies, to provide a space for the Afghani government to establish effective government control and 2) providing the Afghan security forces with the mentoring needed to expand rapidly, take the lead in effective counterinsurgency operations, and allow us and our partners to wind down our combat operations.

Our counter-insurgency strategy must integrate population security with building effective local governance and economic development. We will establish the security needed to provide space and time for stabilization and reconstruction activities.

To prevent future attacks on the U.S. and its allies - including the local populace - the development of a strategic communications strategy to counter the terror information campaign is urgent. This has proved successful in Iraq (where the U.S. military has made a significant effort in this area) and should be developed in Afghanistan as a top priority to improve the image of the United States and its allies. The strategic communications plan -- including electronic media, telecom, and radio -- shall include options on how best to counter the propaganda that is key to the enemy's terror campaign.

• Resourcing and prioritizing civilian assistance in Afghanistan

By increasing civilian capacity we will strengthen the relationship between the Afghan people and their government. A dramatic increase in Afghan civilian expertise is needed to facilitate the development of systems and institutions particularly at the provincial and local levels, provide basic infrastructure, and create economic alternatives to the insurgency at all levels of Afghan society, particularly in agriculture. The United States should play an important part in providing that expertise, but responding effectively to Afghanistan's needs will require that allies, partners, the UN and other international organizations, and non-governmental organizations significantly increase their involvement in Afghanistan.

• Expanding the Afghan National Security Forces: Army and Police

To be capable of assuming the security mission from U.S. forces in Afghanistan's south and east, the Afghan National Security Forces must substantially increase its size and capability. Initially this will require a more rapid build-up of the Afghan Army and police up to 134,000 and 82,000 over the next two years, with additional enlargements as circumstances and resources warrant.

The international community must assume responsibility for funding this significantly enhanced Afghan security force for an extended period. We will also have to provide support for other Afghan security forces such as the Afghan Public Protection Force. Salaries paid to Afghan National Army and Afghan National Police must become more competitive with those paid by the insurgents.

Over time, as security conditions change, we should continue to reassess Afghan National Security Forces size, as it will be affected by such factors as: the overall security situation, the capabilities of the Afghan National Security Forces, and the rate at which we can grow local security forces and integrate them into the overall ANSF structure.

• Engaging the Afghan government and bolstering its legitimacy

International support for the election will be necessary for a successful outcome. We should do everything necessary to ensure the security and legitimacy of voter registration, elections, and vote counting. The international military presence should help the Afghan security forces provide security before, during and after the election. International monitoring will also be required to ensure legitimacy and oversee Afghanistan's polling sites.

The overall legitimacy of the Afghan government is also undermined by rampant corruption and a failure to provide basic services to much of the population over the past 7 years. Where Afghan systems and institutions have benefited from high quality technical assistance and mentoring, they have made great progress. Making such support more consistent with qualified mentors to advise and monitor officials, pushing such efforts to the provincial and district levels, and channeling more assistance through Afghan institutions benefiting from this high quality support will help restore and maintain the legitimacy of the Afghan government.

• Encouraging Afghan government efforts to integrate reconcilable insurgents

While Mullah Omar and the Taliban's hard core that have aligned themselves with al Qaeda are not reconcilable and we cannot make a deal that includes them, the war in Afghanistan cannot be won without convincing non-ideologically committed insurgents to lay down their arms, reject al Qaeda, and accept the Afghan Constitution.

Practical integration must not become a mechanism for instituting medieval social policies that give up the quest for gender equality and human rights. We can help this process along by exploiting differences among the insurgents to divide the Taliban's true believers from less committed fighters.

Integration must be Afghan-led. An office should be created in every province and we should support efforts by the Independent Directorate of Local Governance to develop a reconciliation effort targeting mid-to-low level insurgents to be led by provincial governors. We should also explore ways to rehabilitate captured insurgents drawing on lessons learned from similar programs in Iraq and other countries.

• Including provincial and local governments in our capacity building efforts

We need to work with the Afghan government to refocus civilian assistance and capacity-building programs on building up competent provincial and local governments where they can more directly serve the people and connect them to their government.

• Breaking the link between narcotics and the insurgency

Besides the global consequences of the drug trade, the Afghan narcotics problem causes great concern due to its ties to the insurgency, the fact that it is the major driver of corruption in Afghanistan, and distorts the legal economy. The NATO/International Security Assistance Forces and U.S. forces should use their authorities to directly support Afghan counternarcotics units during the interdiction of narco-traffickers. The new authorities permit the destruction of labs, drug storage facilities, drug processing equipment, and drug caches and should contribute to breaking the drug-insurgency funding nexus and the corruption associated with the opium/heroin trade. Crop substitution and alternative livelihood programs that are a key pillar of effectively countering narcotics have been disastrously underdeveloped and under-resourced, however, and the narcotics trade will persist until such programs allow Afghans to reclaim their land for licit agriculture. Targeting those who grow the poppy will continue, but the focus will shift to higher level drug lords.

• Mobilizing greater international political support of our objectives in Afghanistan

We need to do more to build a shared understanding of what is at stake in Afghanistan, while engaging other actors and offering them the opportunity to advance our mutual interests by cooperating with us.

• Bolstering Afghanistan-Pakistan cooperation

We need to institutionalize stronger mechanisms for bilateral and trilateral cooperation. During the process of this review, inter-agency teams from Afghanistan and Pakistan came to Washington, DC for trilateral meetings. This new forum should continue and serve as the basis for enhanced bilateral and trilateral cooperation.

• Engaging and focusing Islamabad on the common threat

Successfully shutting down the Pakistani safe haven for extremists will also require consistent and intensive strategic engagement with Pakistani leadership in both the civilian and military spheres. The engagement must be conducted in a way that respects, and indeed enhances, democratic civilian authority.

• Assisting Pakistan's capability to fight extremists

It is vital to strengthen our efforts to both develop and operationally enable Pakistani security forces so they are capable of succeeding in sustained counterterrorism and counterinsurgency operations. In part this will include increased U.S. military assistance for helicopters to provide air mobility, night vision equipment, and training and equipment specifically for Pakistani Special Operation Forces and their Frontier Corps.

• Increasing and broadening assistance in Pakistan

Increasing economic assistance to Pakistan - to include direct budget support, development assistance, infrastructure investment, and technical advice on making sound economic policy adjustments - and strengthening trade relations will maximize support for our policy aims;

it should also help to provide longer-term economic stability. Our assistance should focus on long-term capacity building, on agricultural sector job creation, education and training, and on infrastructure requirements. Assistance should also support Pakistani efforts to 'hold and build' in western Pakistan as a part of its counterinsurgency efforts.

• Exploring other areas of economic cooperation with Pakistan

We need to enhance bilateral and regional trade possibilities, in part through implementing Reconstruction Opportunity Zones (which were recently re-introduced in Congress) and encouraging foreign investment in key sectors, such as energy. In addition, assisting Islamabad with developing a concrete strategy for utilizing donor aid would increase Islamabad's chances for garnering additional support from the international community.

• Strengthening Pakistani government capacity

Strengthening the civilian, democratic government must be a centerpiece of our overall effort. Key efforts should include fostering the reform of provincial and local governance in the Federally Administered Tribal Areas and the North West Frontier Province. We need to help Islamabad enhance the services and support in areas cleared of insurgents so that they have a real chance in preventing insurgents from returning to those areas.

With international partners, we should also promote the development of regional organizations that focus on economic and security cooperation, as well as fostering productive political dialogue.

• Asking for assistance from allies for Afghanistan and Pakistan

Our efforts are a struggle against forces that pose a direct threat to the entire international community. While reaching out to allies and partners for their political support, we should also ask them to provide the necessary resources to accomplish our shared objectives. They have the same interest in denying terrorists and extremists sanctuaries in Pakistan and Afghanistan that we do. In approaching allies we should emphasize that our new approach is integrated between civilian and military elements and in looking at Afghanistan and Pakistan as one theater for diplomacy.

For the mission in Afghanistan, we should continue to seek contributions for combat forces, trainers and mentors, strategic lift, and equipment from our friends and allies. The U.S. will also pursue major international funding and experts for civilian reconstruction and Afghan government capacity building at the national and especially the provincial and local levels.

The United Nations Assistance Mission in Afghanistan should take the lead in exploring ways that donors could systematically share the burden of building Afghan capacity and providing civilian expertise. As part of its coordination role for civilian assistance, the UN should consolidate requests and identify gaps.

In Pakistan, the U.S. will urge allies to work closely with us both bilaterally and through the 'Friends of Democratic Pakistan' to coordinate economic and development assistance, including additional direct budget support, development assistance, infrastructure investment and technical advice on making sound economic policy adjustments. Similarly, we should ask them to provide technical advice and assistance in strengthening government capacity, such as improving Pakistani institutions.

Conclusion

There are no quick fixes to achieve U.S. national security interests in Afghanistan and Pakistan. The danger of failure is real and the implications are grave. In 2009-2010 the Taliban's momentum must be reversed in Afghanistan and the international community must work with Pakistan to disrupt the threats to security along Pakistan's western border.

This new strategy of focusing on our core goal - to disrupt, dismantle, and eventually destroy extremists and their safe havens within both nations, although with different tactics - will require immediate action, sustained commitment, and substantial resources. The United States is committed to working with our partners in the region and the international community to address this challenging but essential security goal.

###

Comparing the U.S. to Russia and Argentina

Comparing the U.S. to Russia and Argentina

(updated below - Update II)

Desmond Lachman -- the former chief strategist for emerging markets at Salomon Smith Barney and a long-time official with the IMF (no raving socialist he) -- argues today that the most apt comparison for the U.S. now is not Japan's "lost decade," but rather, "that the United States is coming to resemble Argentina, Russia and other so-called emerging markets, both in what led us to the crisis, and in how we're trying to fix it." He begins by recounting an IMF trip to Yeltsin-era Russia:

I still recall the shock I felt at a meeting in Russia's dingy Ministry of Finance, where I finally realized how a handful of young oligarchs were bringing Russia's economy to ruin in the pursuit of their own selfish interests, despite the supposed brilliance of Anatoly Chubais, Russia's economic czar at the time.

He then describes the numerous similarities between the U.S. today and those corrupt, collapsing nations he studied in the past:

The parallels between U.S. policymaking and what we see in emerging markets are clearest in how we've mishandled the banking crisis. We delude ourselves that our banks face liquidity problems, rather than deeper solvency problems, and we try to fix it all on the cheap just like any run-of-the-mill emerging market economy would try to do. And after years of lecturing Asian and Latin American leaders about the importance of consistency and transparency in sorting out financial crises, we fail on both counts: . . . .

In visits to Asian capitals during the region's financial crisis in the late 1990s, I often heard Asian reformers such as Singapore's Lee Kuan Yew or Japan's Eisuke Sakakibara complain about how the incestuous relationship between governments and large Asian corporate conglomerates stymied real economic change. How fortunate, I thought then, that the United States was not similarly plagued by crony capitalism! However, watching Goldman Sachs's seeming lock on high-level U.S. Treasury jobs as well as the way that Republicans and Democrats alike tiptoed around reforming Freddie Mac and Fannie Mae -- among the largest campaign contributors to Congress -- made me wonder if the differences between the United States and the Asian economies were only a matter of degree. . . .

In the twilight of my career, when I am hopefully wiser than before, I have come to regret how the IMF and the U.S. Treasury all too often lectured leaders in emerging markets on how to "get their house in order" -- without the slightest thought that the United States might fare no better when facing a major economic crisis. . . . If we insist on improvising and not facing our real problems, we might soon lose our status as a country to be emulated and join the ranks of those nations we have patronized for so long.

Does anyone really doubt any more that the predominant characteristic of our political culture is "the incestuous relationship between governments and large [] corporate conglomerates"? Yet another former Goldman Sachs official and long-time derivatives advocate who played a major role in the repeal of key banking regulations, Gary Gesner, is now poised to become Obama's chief of the Commodities Futures Trading Commission, the body charged with regulating commodities and financial futures. The sleazy, central role Goldman Sachs has played in the events of the last six months -- from their current CEO's still-unexplained presence with Paulson (its former Chairman) and Geithner (protegé of its other former Chairman, Robert Rubin) as the AIG bailout was designed to the massive government windfalls that firm has received (including from that very AIG bailout) -- is merely illustrative of how our Government has long functioned and continues to.

Yves Smith last night noted the rather extraordinary (though unsurprising) development that the very institutions that played such a critical role in the crisis -- Citibank and Bank of America -- are now using TARP funds they received not to extend more loans (the ostensible purpose of the bailout), but rather, to buy up more and more of the very distressed assets that Geithner insists they need to be relieved of, because they now know that, under Geithner's plan, they will be able to sell them at a substantial profit courtesy of public funds (i.e, the Government will buy those crippled assets at well above their current market price). As Smith puts it: "So not only are they seeking to extract far more than was intended even with the already generous subsidies embodied in this program, but this activity is also speculating with taxpayer money. . . .Welcome to yet more looting."

Despite the limitless gorging on public funds by the very oligarchs (government owners) who caused the financial crisis in the first place, the predominant sentiment from our establishment media now is that Obama needs to force ordinary Americans to "sacrifice more." Back in 2006, Jonathan Schwarz wrote this very prescient post predicting that the U.S. would soon adopt the type of so-called "structural adjustments" which, through the IMF, we repeatedly forced upon other heavily indebted, defaulting nations: whereby we would demand that they pursue solutions that further enriched their economic elites while massively cutting the social spending that provided the barest of safety nets to their ordinary citizens. As Schwarz put it yesterday in citing highly revealing comments by Tim Geithner at a CFR conference this week:

There's been a common phenomenon in the third world over the past three decades or so. A country's financial sector, in collaboration with the larger financial world, would create some type of gigantic economic fuck up. The IMF would then (in collaboration with the local financial elites) step in and provide loans in return for what was called "structural adjustment." Structural adjustment involved getting rid of any kind of social spending that made life bearable for everyone else.

In other words, the country's financial elites would use the catastrophes they'd created themselves in order to do what they'd always wanted to but couldn't get away with in normal times. They took the profit, and then imposed all the costs on everyone else.

Isn't that exactly what is now happening here? When I first heard Chuck Todd questioning Obama at Tuesday's Press Conference about why Obama wasn't demanding "sacrifice" from ordinary Americans -- as though the massive loss of jobs, homes, retirement security and financial opportunities isn't sufficient "sacrifice" -- I mistakenly attributed Todd's question to the standard vapid ignorance and insularity of our media stars. I assumed that Todd was just mimicking a question he heard about 9/11 and decided to repeat it seven years later without realizing what a complete nonsequitur it is when applied to the financial crisis.

But there was actually a more pernicious aspect to his question. He was basically demanding of Obama: shouldn't you be telling those dirty masses that they can't have health care and education improvements and that they're also going to have to give up their Medicare, Medicaid and Social Security benefits (while Citibank and BoA use taxpayer money to buy up distressed assets that they will then sell at a huge profit, also to the taxpayer under the Geithner plan)? Among our coddled elites, anger at the oligarchs who pillaged and who continue to pillage is misplaced, irresponsible and dangerous populist rage that must be stigmatized and suppressed. Instead, what is needed -- as Digby and DougJ noted weeks ago would be the prevailing message from our media class -- is a further reduction in the standard of living for average Americans in the name of "fiscal responsibility" to ensure that the subsidies to our oligarchical class -- the ones who enriched themselves for the last decade (and who own our media outlets) -- can continue (and that is, more or less, what Lachman advocates today as the necessary solution).

The key dynamic underlying all of this -- the linchpin that allows it all to happen and, historically, the primary hallmark of a deeply broken nation -- is the total elimination of the rule of law for the ruling class, with a simultaneous intensification of the law as a weapon against the citizenry. Does anyone expect there to be any widespread prosecutions for those most responsible for the looting, systematic fraud and grand-scale theft of the last decade? Identically, as more and more evidence emerges of the vast war crimes of the prior administration, the failure to enforce the law and our legal obligations against our nation's most powerful becomes even more transparent. As law professor Jonathan Turley put it on Rachel Maddow's show Monday night:

The president refuses to allow the investigation of war crimes. And we just found out the international Red Cross, also the definitive body on torture, found that this was a real torture program. And yet, the president is having a debate with the guy [Cheney] over whether it was good policy. . . .

It is just as bad to prevent the investigation and prosecution of a war crime as its commission because you become part of it. There‘s no question about a war crime here. . . .

You know, some people say, what do you need, a film? We actually had films of us torturing people. So this would be the shortest investigation in history. You have Bush officials who have said that we tortured people. We have interrogators who have said we tortured people. The Red Cross has said it. A host of international organizations have said it. . . .

He should be appointing a special prosecutor. There is no question about that. This is the most well-defined and publicly known crime I have seen in my lifetime. There is no debate about it. There is no ambiguity. It is well known.

Contrast these desperate efforts to avoid any criminal accountability at all for the country's most powerful lawbreakers with the merciless application of criminal law to ordinary Americans. As Brown University Glenn Loury recently wrote:

Simply put, we have become a nation of jailers and, arguably, racist jailers at that. The past four decades have witnessed a truly historic expansion, and transformation, of penal institutions in the United States — at every level of government, and in all regions of the country. We have, by any measure, become a vastly more punitive society. Measured in constant dollars and taking account of all levels of government, spending on corrections and law enforcement in the United States has more than quadrupled over the last quarter century. As a result, the American prison system has grown into a leviathan unmatched in human history.

Here, as in other areas of social policy, the United States is a stark international outlier, sitting at the most rightward end of the political spectrum: We imprison at a far higher rate than the other industrial democracies — higher, indeed, than either Russia or China, and vastly higher than any of the countries of Western Europe. . . . With approximately one twentieth of the world’s population, America had nearly one fourth of the world’s inmates.

The treatment in our justice system of ordinary citizens ("a nation of jailers") and our elites (immunity from lawbreaking) could not be more disparate. We have (and are continuing to solidify) exactly the state of affairs that political science literature and the American government itself have long self-righteously warned other countries is the prime enabler for tyrannical rot: a two-tiered system of justice which exempts the country's elites from accountability. I've previously cited this 1998 essay in Foreign Affairs entitled "The Rule of Law Revival," by Thomas Carothers of the Carnegie Endowment for International Peace, because it so perfectly expresses long-standing Western lectures to the "developing world" about the need for a robust rule of law for a nation's ruling elite class:

LEGAL BEDROCK

THE RULE of law can be defined as a system in which the laws are public knowledge, are clear in meaning, and apply equally to everyone. They enshrine and uphold the political and civil liberties that have gained status as universal human rights over the last half-century. . . . Perhaps most important, the government is embedded in a comprehensive legal framework, its officials accept that the law will be applied to their own conduct, and the government seeks to be law-abiding. . . .

The primary obstacles to such reform are not technical or financial, but political and human. Rule-of-law reform will succeed only if it gets at the fundamental problem of leaders who refuse to be ruled by the law. Respect for the law will not easily take root in systems rife with corruption and cynicism, since entrenched elites cede their traditional impunity and vested interests only under great pressure.

It should be fairly significant when someone like Lachman -- who spent his career at Salomon and the IMF -- warns that the U.S. has now adopted the worst and most decadent attributes that drove and defined the era of collapse in Russia, Argentina and similar places. As he says, this is true not only "in what led us to the crisis" but also "in how we're trying to fix it." There is fundamental corruption in our political system that has led to all of this, and that corruption, in so many ways, is now being exacerbated and fortified rather than uprooted.



UPDATE: Salon's Andrew Leonard has a very good analysis of the significance (or lack thereof) of Geithner's call for new regulatory oversight over the financial industry.



UPDATE II: In a superb article just published in The Atlantic, former IMF Chief Economist and current MIT Professor Simon Johnson makes a very similar argument, using his IMF experience with failing economies to document numerous similarities between the U.S. and other collapsing nations. He notes specifically "that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises." The article should be read in full, but a couple of excepts are here:

Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise. . . .

The downward spiral that follows is remarkably steep. Enormous companies teeter on the brink of default, and the local banks that have lent to them collapse. Yesterday’s “public-private partnerships” are relabeled “crony capitalism.” . . . The government, in its race to stop the bleeding, will typically need to wipe out some of the national champions—now hemorrhaging cash—and usually restructure a banking system that’s gone badly out of balance. It will, in other words, need to squeeze at least some of its oligarchs.

Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or—here’s a classic Kremlin bailout technique—the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk—at least until the riots grow too large. . . .

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). . . .But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

It's rather difficult to dismiss as fringe hysteria the observations of those most familiar with what took place in other financial crises around the world.

Related to Johnson's observation that "needing to squeeze someone, most emerging-market governments look first to ordinary working folk," here is The Washington Post's Paul Kane today explaining what the U.S. must do to solve its deficit and debt problems:

Even if you were to curb a bunch of Obama's most ambitious programs, you're still looking at trillions and trillions of dollars in debt.

The real fiscal answer is entitlement reform -- that's code word, everyone, for slashing Medicare benefits and raising the retirement age/payout time for Social Security recipients.

So our political class cheers on treasury-draining wars, allows financial elites to rob and pillage, witnesses huge transfers of wealth to the richest, and then when the whole thing explodes, the "real fiscal answer" is for ordinary Americans to have their Medicare benefits "slashed" and Social Security benefits reduced.

-- Glenn Greenwald
http://www.salon.com/opinion/greenwald/

A Future of Inflation, High Interest Rates and a Hollow Dollar? Is the Bail Out Breeding a Bigger Crisis? By PAUL CRAIG ROBERTS

A Future of Inflation, High Interest Rates and a Hollow Dollar?
Is the Bail Out Breeding a Bigger Crisis?

By PAUL CRAIG ROBERTS

At his March 24 press conference President Obama demonstrated that he is capable of understanding issues as presented to him by his advisers and able to pass on the explanations to the press. The question is whether Obama’s advisers understand the issues.

Obama’s advisers are focused on rescuing banks and the insurance company, AIG. They perceive the problems as solvency and paralyzing uncertainly or fear. Financial institutions, unsure of their own and other institutions solvency, hoard cash and refuse to lend. Credit is needed to get the economy moving, and the Federal Reserve and Treasury are doing their best to inject liquidity and to remove troubled assets from the banks’ books.

This perception of the problem and the “remedies” being applied, might be causing a greater problem for which there is no solution. Obama’s approach, and that of the previous administration, requires massive monetization of debt by the Federal Reserve and massive new debt issues by the Treasury.

The unaddressed question remains: Is the US dollar’s status as world reserve currency threatened by the debt monetization and multi-year, multi-trillion dollar issuance of new Treasuries?

The United States has become an import-dependent country. The US is dependent on imports for energy, manufactured goods including clothes and shoes, and advanced technology products. If the US dollar loses its reserve currency status, the US will not be able to pay for its imports. The ensuing crisis would dwarf the current one.

Obama’s advisers believe that the US can monetize debt and issue new debt endlessly, because America’s capital markets are the deepest and most liquid. The dollar is strong, Obama said at his press conference.

But already cracks and strains are appearing. The day after Obama’s press conference, an auction of UK bonds, known as gilts, failed when bids fell short of the supply offered and interest rates rose. This is a bad sign for Prime Minister Gordon Brown’s plan to market an unprecedented amount of new debt during the current fiscal year.

It is also a bad sign for Obama’s similar plan. In the US, interest rates on US Treasuries have risen in anticipation of unprecedented new Treasury issues despite the Federal Reserve’s recent announcement that it intends to purchase $300 billion of existing Treasuries held by the banking system.

Normally, Fed purchases raise bond prices, thereby lowering interest rates. However, the inflation and interest rate implications of the unprecedented supply of new Treasuries necessary to finance the multi-year, multi-trillion dollar budget deficits are beginning to be recognized in bond and currency markets. Everyone knows that the Federal Reserve will monetize the new debt issues rather than allow a Treasury auction to fail. Recently, America’s largest creditor, China, expressed concern that the value of its massive holdings of US dollar investments is in danger of being inflated away.

The Fed cannot monetize new Treasury issues without the word getting out. If and when this happens, the US dollar’s exchange value is likely to drop while interest rates and inflation rise.

To avoid a crisis of this magnitude, the US needs to focus on saving the dollar as reserve currency. As I previously emphasized, this requires reducing US budget and trade deficits.

Despite the near-term budget costs of ending the occupation of Iraq and the war in Afghanistan, terminating these pointless military adventures would produce immediate large out-year budget savings. Closing many foreign military bases and cutting a gratuitously large military budget would produce more out-year savings. The Obama administration’s belief that it can continue with Bush’s wars of aggression while it engages in a massive economic bailout indicates a lack of seriousness about America’s predicament.

Rome eventually understood that its imperial frontiers exceeded its resources and pulled back. This realization has yet to dawn on Washington.

More budget savings could come from a different approach to the financial crisis. The entire question of bailing out private financial institutions needs rethinking. The probability is that the bailouts are not over. The commercial real estate defaults are yet to present themselves.

Would it be cheaper for government to buy the shares of the banks and AIG at the current low prices than to pour trillions of taxpayers’ dollars into them in an effort to drive up private share prices with public money? The Bush/Paulson bailout plan of approximately $800 billion has been followed a few months later by the Obama/Geithner stimulus-bailout plan of another approximately $800 billion. Together it adds to $1.6 trillion in new Treasury debt, much of which might have to be monetized.

Could this huge debt issue be avoided if the government took over the banks and netted out the losses between the constituent parts? A staid socialized financial sector run by civil servants is preferable to the gambling casino of greed-driven, innovative, unregulated capitalism operated by banksters who have caused crisis throughout the world.

Perhaps the Federal Reserve should be socialized as well. The notion of an independent, privately-owned Federal Reserve system was never more than a ruse to get a national bank into place. Once the central bank is part of the state-owned banking system, the government can create money without having to accumulate a public debt that saddles taxpayers and future budgets with hundreds of billions of dollars in annual interest payments.

Free market ideologues will say the government would inflate. However, the government has been inflating for generations and is now set on a course for hyperinflation. Monetization of troubled financial instruments by the Federal Reserve is just beginning. In addition, there are the multi-trillion dollar budget deficits which probably cannot be financed other than by monetization of new debt issues.

The US money supply as measured by cash in circulation and demand deposits (checking accounts) is currently about $1.4 trillion. If this year’s budget deficit is monetized, the money supply doubles. If next year’s budget deficit is monetized, the money supply would have tripled in two years. Inflation would explode. The combination of high unemployment and high inflation would be devastating.

In contrast, protecting depositors is not inflationary. It merely prevents monetary contraction.

If the Obama administration can think about socializing health care as a single-payer system, it should be able to think about socializing the banking system. Currently, Medicare is paid for by taxpayers, Medicare beneficiaries, healthy retirees, and doctors. Beneficiaries have to pay substantial premiums for supplemental coverage whether ill or healthy, and doctors are paid a pittance from the schedule of fixed prices. The insurers are the ones who make money, not the medical service providers. The single-payer system would shrink costs by the amount of the health insurance industry’s profits and the enormous paperwork and enforcement compliance costs.

The trade deficit is even more difficult to address. The American economy lost much of its manufacturing leg to offshoring. It has now lost its real estate and financial sector legs. Real incomes for the average family have not increased. The consumer-demand-driven economy became dependent on the accumulation of consumer debt, which has reached its limit.

When the production of goods and services for the domestic market is moved offshore, Americans lose income and the economy loses GDP. When the goods and services produced offshore return to be sold to Americans, they constitute imports that widen the trade deficit.

The US finances its trade deficit by turning over to foreigners ownership of existing US assets and their future income streams, which, of course, increases the flow of income away from Americans.

The claim that low prices in Wal-Mart compensate for all these costs is ridiculous. Nevertheless, the Obama administration, corporation executives, and the economics profession remain committed to offshoring.

The claim, expressed by Obama at his press conference, that retraining programs are the solution to manufacturing and IT unemployment caused by offshoring is also ridiculous. For a decade the only source of American job growth has been domestic services that cannot be offshored, such as hospital orderlies, barbers, waitresses and bartenders. Retraining is simply a government subsidy to educational institutions, a subsidy that insures their continued support for offshoring.

The enormous trade deficit that has been created by the pursuit of short-term corporate profits can only be closed in two ways. One is to stop the offshoring and to bring home the offshored production. Possibly, this could be done by replacing the corporate income tax with a tax based on whether value added to a company’s output occurs domestically or abroad.

The other way the trade deficit can be closed is by the inability of Americans to pay for imports. If debt monetization wrecks the dollar and drives up import prices, Americans will have to learn to live with less imported energy and manufactured goods. American annual consumption would shrink by the amount of the trade deficit.

The Bush/Obama approach to the crisis in the financial sector is to monetize existing debt and to accumulate enormous new debt that will likely also require monetization. The monetization threatens inflation, high interest rates, and depreciation of the US dollar and loss of its reserve currency role. The accumulation of new public debt implies larger annual interest payments that could make future deficit reduction problematic. Clearly, the Obama administration needs to broaden its perception of the predicament to which financial deregulation and offshoring have brought the US economy.

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He is coauthor of The Tyranny of Good Intentions.He can be reached at: PaulCraigRoberts@yahoo.com
http://www.counterpunch.org/roberts03262009.html

When Banks Rob People Geithner's Hog Wallow By MIKE WHITNEY

When Banks Rob People
Geithner's Hog Wallow
By MIKE WHITNEY

This time the banks are zeroing in on Geithner's cash giveaway bonanza, the "Public Private Investment Partnership" (PPIP). As expected, Bank of America and Citigroup have angled their way to the front of the herd, thrusting their snouts into the public trough and extracting whatever morsels they can find amid a din of gurgling and sucking sounds. Here's the story from the New York Post:

"As Treasury Secretary Tim Geithner orchestrated a plan to help the nation's largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post...

But the banks' purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders. Alt-A and option ARM loans have widely been seen as the next mortgage type to see increases in defaults.

One Wall Street trader told The Post that what's been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.

Recently, securities rated AAA have changed hands for roughly 30 cents on the dollar, and most of the buyers have been hedge funds acting opportunistically on a bet that prices will rise over time. However, sources said Citi and BofA have trumped those bids."("Double Dippers; Citi and B of A buy laundered loans at lower rates", Mark DeCambre, New York Post)

Thus begins the next taxpayer-subsidized feeding frenzy, featuring all the usual suspects. The race is on to vacuum up as much toxic mortgage paper as possible so it can be dumped on Uncle Sam at a hefty profit. These are the same miscreants the Obama administration is so dead-set on rescuing. Better to let them sink from their own bad bets.

How is it that industry rep Geithner couldn't see that his latest round of corporate welfare would create incentives for the bank scoundrels to game the system again? Naturally, if the government goes into the business of buying crap-loans from teetering financial institutions, the speculators and snake oil salesmen will follow. And so they have. Citi and B of A are just the first to respond to Geithner's pigwhistle. Next will be the hedgies and the Private Equity porkers, all nuzzling up to the Treasury's feedbin.

Geithner's plan is a disaster from the get-go. It jacks up the price of garbage assets, rewards the misallocation of capital, invites rampant fraud, and prolongs the recession. Worst of all, it transforms the FDIC into a hedge fund putting individual bank deposits at greater risk. Economist Jeffrey Sachs sums up Geithner's "public-private" boondoggle in his article "Will Geithner and Summers suceed in raiding the FDIC and Fed?":

"Geithner and Summers have now announced their plan to raid the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve to subsidize investors to buy toxic assets from the banks at inflated prices. If carried out, the result will be a massive transfer of wealth -- of perhaps hundreds of billions of dollars -- to bank shareholders from the taxpayers (who will absorb losses at the FDIC and Fed)...

The FDIC is lending money at a low interest rate and on a non-recourse basis even though the FDIC is likely to experience a massive default on its loans to the investment funds....In essence, the FDIC is transferring hundreds of billions of dollars of taxpayer wealth to the banks...The public will not accept overpaying for the toxic assets at taxpayers' expense. Thus, it is very likely that the Administration will attempt to avoid Congressional oversight of the plan, and to count on confusion and the evident "good news" of soaring stock market prices to justify their actions. ....

Other parts of the plan support subsidized loans from the Treasury and, even more, from the Fed. The Fed is already buying up hundreds of billions of dollars of toxic assets with little if any oversight or offsetting appropriations. Since the Federal Reserve profits and losses eventually show up on the budget, the Fed's purchases of toxic assets also should fall under the Federal Credit Reform Act and should be explicitly budgeted. ("Will Geithner and Summers suceed in raiding the FDIC and Fed?", Jeffrey Sachs, Huffington Post)

As Sachs points out, the Fed's liabilities will eventually be shifted onto the taxpayer. But that hasn't stopped Bernanke from writing checks on an account that is overdrawn by $11 trillion. Nor has it compelled Geithner to seek congressional authorization before he leverages the FDIC up to its eyeballs. These decisions are all being made by a small coterie of bank loyalists who operate independent of any oversight or government supervision. They do what's best for their constituents and let the chips fall where they may.

Earlier this week, Geithner asked Congress for additional powers to take over insolvent non-bank financial institutions. The Washington Post:

"The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document."

Geithner must think he's a shoe-in for the new "systemic regulator" post because of the exemplary way he handled the AIG bonus scandal.

Of course, in the bizarro world of Washington--where failure typically catapults one to higher office--it's only logical that Geithner would be elevated to Uber-Regulator, not only controlling the public purse, but using his own peerless grasp of the marketplace to decide which institutions pose a systemic risk and need to be sidelined, and which need stepped-up government support via limitless capital injections.

Prediction: If Geithner is granted these special powers by the braindead Congress, the country will undergo the greatest period of bank consolidation in its 230 year history. This is a blatant power grab by a shifty character who has risen to his present pay-grade by nosing his way up the political stepladder. Congress had better get its act together and put an end to this nonsense or the nation will continue its fast-paced metamorphosis into a feudal oligarchy run by the Bank Mafia and Wall Street racketeers. The first step, is to give Geithner, Summers and any other of the Rubin-clones a full-body bacon-rub followed by a few brisk dunks in the shark tank. Then, hose down Treasury and bring in a whole new team.

Nobel Prize winning economist Joseph Stiglitz summed up Geithner's "public-private" fiasco like this:

"Quite frankly, this amounts to robbery of the American people. I don't think it's going to work because I think there'll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer."

Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com

http://www.counterpunch.org/whitney03272009.html

Freeze The $1.5 Qaudrillion Derivatives Bubble As The First Step To Recovery By Webster Tarpley

Freeze The $1.5 Qaudrillion
Derivatives Bubble As The
First Step To Recovery

By Webster Tarpley
3-25-9

WASHINGTON, DC -- On the eve of the long-awaited London conference of the G-20 nations, we are rapidly descending into the chaos of a Second World Economic Depression of catastrophic proportions. In the year since the collapse of Bear Stearns, we have moved toward the disintegration of the entire globalized world financial system, based on the residual status of the US dollar as a reserve currency, and expressed through the banking hegemony of London, New York, and the US-UK controlled international lending institutions like the International Monetary fund and the World Bank. This is a breakdown crisis of world civilization, prepared over decades by the folly of deindustrialization and the illusions of a postindustrial society, further complicated by the deregulation and privatization of the leading economies based on the Washington Consensus, itself a distillation of the economic misconceptions of the Austrian and Chicago monetarist schools. If current policies are maintained, we face the acute danger of a terminal dollar disintegration and world hyperinflation.


Derivatives are financial instruments based on other financial instruments ­ paper based on paper. Derivatives are one giant step away from the world of production and consumption, plant and equipment, wages and employment in the production of tangible physical wealth or hard commodities. In the present hysteria of the globalized financial oligarchy, the very term of "derivative" has become taboo: commentators prefer to speak of toxic assets, complex securities, exotic instruments, and counterparty arrangements. At the time of the Bear Stearns bankruptcy, Bernanke warned against "chaotic unwinding." All of these code words are signals that derivatives are being talked about. Derivatives include such exchange traded speculative instruments as options and futures; beyond these are the over-the-counter derivatives, structured notes, and designer derivatives. Derivatives include the credit default swaps so prominent in the fall of AIG, collateralized debt obligations, structured investment vehicles, asset-backed securities, mortgage backed securities, auction rate securities, and a myriad of other toxic variations. These derivatives, in turn, are pyramided one on top of the other, thus creating a house of cards reaching into interplanetary space.
As long as this huge mass of kited derivatives was experiencing positive cash flow and positive leverage, the profits generated at the apex of the pyramid were astronomical. But disturbances at the base of the pyramid turned the cash flow and exponential leverage negative, and the losses at the top of the pyramid became immense and uncontrollable. By 2005-6, the disturbances were visible in the form of a looming crisis of the automobile sector, plus the slowing of the housing bubble cynically and deliberately created by the Federal Reserve in the wake of the collapse of the dot com bubble, the third world debt bubble. and the other asset bubbles favored by Greenspan. Financiers are trying to blame the current depression on poor people who acquired properties with the help of subprime mortgages, and then defaulted, thus ­ it is alleged -- bringing down the entire world banking system! This is a fantastic and reactionary myth. The cause of the depression is derivatives, and this means that the perpetrators to be held responsible are not poor mortgage holders, but rather globalized investment bankers and hedge fund operators, the derivatives merchants. We are now in the throes of a world wide derivatives panic. This panic has been gathering momentum for at least a year, since the fall of Bear Stearns. There is no power on earth which can prevent this panic from destroying most of the current mass of toxic derivatives. It is however possible that the ongoing attempts to bail out, shore up, and otherwise preserve the deadly mass of derivatives will destroy human civilization as we have known it. We must choose between the continued existence of derivatives speculation on the one hand, and the survival of human society worldwide on the other. If this be crude populism, make the most of it.

FREEZE DERIVATIVES FOR THE DURATION OF THE CRISIS

The G-20 must remove the crushing mass of derivatives which is now dragging down the world economy. Derivatives must be banned going forward, but this by itself will not be sufficient. The ultimate goal must be to wipe out and neutralize the existing mass of $1.5 quadrillion in notional values of toxic derivative instruments. Some governments may be able simply to decree that derivatives be shredded, deleted, and otherwise liquidated, and they should do so at once. Virtually all governments should be able to use their emergency economic powers to freeze derivatives and set them aside for at least five years or for the duration of the crisis, whichever lasts longer. Legal issues can be settled over the coming decades in the courts. Humanity is in agony, and we must act against derivatives now. Going forward, we must ban the paper pyramids of derivatives in the same way that the Public Utility Holding Company Act of 1935 banned the pyramiding of holding companies.

Derivatives were illegal in the United States between 1936 and 1983. In 1933, an attempt was made to corner the wheat futures market using options, and the resulting outcry led to a 1936 federal law banning such options on farm commodity markets. This ban was repealed by the Futures Trading Act of 1982, signed by President Reagan in January 1983. During the G.H.W. Bush administration, Wendy Gramm of the Commodity Future Trading Commission went further, promising a "safe harbor" for derivatives. Despite the key role of derivatives in the Orange County disaster during the Clinton years, a valiant attempt by Brooksley Born of the CFTC to make derivatives reportable and subject to regulation was defeated by a united front of Robert Rubin, Larry Summers (today running US economic policy), and Greenspan. Despite the central role of $1 trillion of derivatives in the Long Term Capital Management debacle of 1998, Phil Gramm's Commodity Futures Modernization Act of 2000 guaranteed that derivatives, notably credit default swaps, would remain totally unregulated. These pro-derivatives forces must bear responsibility for the current depression, and those still in power must be ousted

The Bush-Paulson-Obama-Geithner policy pursued by the United States, which amounts to a $10 trillion (Fed and Treasury) effort to bail out the world derivatives bubble on the backs of taxpayers, can only make the depression worse, will never lead to an economic recovery, and must therefore he rejected. Krugman is right: the "zombie ideas" rule Obama's Washington. The Fed's TALF amounts to subsidies for securitization, meaning more derivatives. The derivatives bailout was pioneered by Gordon Brown, Alistair Darling, and Mervyn King in the case of Northern Rock. These efforts are doomed to costly futility. The $1.5 quadrillion derivatives bubble is comparable to the black holes of astrophysics, those artifacts of gravity collapse which will irresistably suck in all matter that comes near them. This compares to a world GDP of a mere $55 trillion, itself a figure inflated by financial speculation. The derivatives are the black holes of financial engineering, and can easily consume all the physical wealth and all the money in the world, and still be bankrupt. Gordon Brown's demand of $500 billion for the IMF is enough to bankrupt several nations, but pitifully inadequate to deal with the derivatives. They can only be dealt with by re-regulation -- a quick freeze, leading to extinction and permanent illegality. We reject Brown's IMF world derivatives dictatorship.

Derivatives pose the question of fictitious capital -- financial instruments created outside of the realm of production, and which destroy production. In 1931-2, fictitious capital appeared as tens of billions of dollars of reparations imposed on Germany, plus the war debts owed by Britain and France to the United States. These debts strangled world production and world trade. Bankers and statesmen tried desperately to maintain these debt structures. But US President Herbert Hoover proposed the Hoover Moratorium of 1931-1932, a temporary freeze on all these payments. The Lausanne Conference of June 1932 was the last chance to wipe out the debt permanently. But the Lausanne Conference failed to act decisively, and passed the buck. By the end of 1932, there was near-universal default on reparations and war debts anyway. And by January 1933, Hitler had seized power. We urge the London G-20 to defend world civilization against derivatives. It is time to lift the crushing weight of derivatives from the backs of humanity before the world economy and the major nations collapse into irreversible chaos and war, as seen during the 1930s.
http://www.rense.com/general85/freeze.htm

The Quiet Coup

The Quiet Coup
http://www.theatlantic.com/doc/200905/imf-advice
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

by Simon Johnson

Nuclear Dealing Henry Sokolski, National Review Online

Nuclear Dealing
Henry Sokolski, National Review Online
Unless cooler heads prevail, Congress will soon receive the first civilian nuclear cooperation agreement of the Obama administration — an agreement hastily drafted and signed with the United Arab Emirates (UAE) in the waning days of the Bush administration. Congress and the executive branch need to make sure this deal doesn't end up spreading the very nuclear-weapons capabilities it's supposed to curb.

http://article.nationalreview.com/?q=MzRhYTc2OWY0MzY4ZDgxZmRkMDA4ZDQzMjJhNzE4MWY=

How to Keep the Bomb From Terrorists Graham Allison, Newsweek

How to Keep the Bomb From Terrorists
Graham Allison, Newsweek
In 2007, at the very moment Washington was sitting at the negotiating table with Pyong-Yang to hammer out a nuclear deal, North Korean officials were supplying know-how, equipment and nuclear material to Syria to build a weapons-grade reactor only a few miles from Israel's border. When the news came to light, diplomats and nuclear experts were shocked at Kim Jong Il's duplicity. Israel bombed the Syrian site later that year.

http://www.newsweek.com/id/189260/page/1

Watershed Moment on Nuclear Arms

Watershed Moment on Nuclear Arms
The New York Times
During the 2008 campaign, President Obama promised to deal with one of the world’s great scourges — thousands of nuclear weapons still in the American and Russian arsenals. He said he would resume arms-control negotiations — the sort that former President George W. Bush disdained — and seek deep cuts in pursuit of an eventual nuclear-free world. There is no time to waste.

http://www.nytimes.com/2009/03/25/opinion/25wed1.html

Nuclear Energy: Rebirth or Resuscitation?

Nuclear Energy: Rebirth or Resuscitation?
Sharon Squassoni, Carnegie Report
Nuclear EnergyExpectations for nuclear energy have grown dramatically. Scores of nations are now considering nuclear power to improve their energy security and reduce their carbon emissions. But nuclear energy is a costly detour if the goals are to mitigate climate change or reduce dependence on foreign oil, concludes Sharon Squassoni in a Carnegie report(PDF).

Serious expansion of nuclear capacity will happen too late and cost too much. Tripling or quadrupling power reactors globally—the scale needed to make a dent in carbon dioxide emissions—would also present safety, security, waste, and proliferation challenges. These challenges—often overlooked in the recent enthusiasm for nuclear power—deserve more attention by government and industry leaders if safe and secure nuclear energy is desirable.

http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=22749&prog=zgp&proj=zec,znpp

CT or COIN? Obama must choose this week between two radically different Afghanistan policies. by Fred Kaplan

SLATE

3/24/09

CT or COIN?

Obama must choose this week between two radically different Afghanistan policies.

Fred Kaplan

With just a week until President Barack Obama flies to Strasbourg, France, for his first NATO conference, his top advisers are still divided over what U.S. policy should be on the summit's No. 1 issue: how to fight the war in Afghanistan.

It's a debate that the Bush administration never seriously had in the seven years following the post-9/11 invasion. Now, by contrast, in the wake of three major strategic reviews, Obama is extending and deepening the discussion of Afghanistan, because the outcome of this debate may set the course of American foreign policy for the remainder of his presidency.

In the first days of his term, Obama placed strict limits on the war's objectives, shedding Bush's utopian rhetoric about turning Afghanistan into a Western-style democracy and focusing instead on merely keeping the place from reverting to a haven for global terrorists. But though he may initially have thought otherwise, this didn't settle questions of military strategy: how many troops should be deployed, what they should do when they get there, and how victory or defeat will be measured and appraised. This is what the debate inside the White House is about.

According to close observers, the key debate in the White House is whether the United States and NATO should wage a counterinsurgency campaign—securing the Afghan population, helping to provide basic services, and thus strengthening support for the government—or whether we should devote most of our resources to going after al-Qaida terrorists directly. Obviously, any plan will wind up doing at least a bit of both; the debate is over priorities and emphasis.

The advocates for a more purely counterterrorist (or CT) approach—led forcefully by Vice President Joe Biden—point out that, after all, we're in Afghanistan only because of al-Qaida and therefore we should focus on that threat and leave the rest to the Afghans. Yes, we should offer them aid and assistance, but neither their economic development nor the survival of Afghan President Hamid Karzai's regime should be what our troops are fighting and dying for.

The counterinsurgency (or COIN) advocates argue that only through their approach can al-Qaida and the Taliban be defeated. Hunting and killing terrorists has its place, but in the long run it only gives the enemy the initiative, lets them melt away into the landscape, and does little to stop new recruits from taking their place. The best way to keep al-Qaida at bay is to dry up its support by earning the trust of the civilian population, building roads, creating jobs, and striking power-sharing deals with tribal elders.

Some in the CT camp realize that the COIN-dinistas (as critics call them) have a point. Their real gripe with counterinsurgency is that it costs too much and promises too little. Even most COIN strategists acknowledge that a successful campaign, especially in Afghanistan, would require lots of troops (way more than President Obama has committed so far), lots of time (a decade or so), and lots of money (wiping out most or all of the savings achieved by the withdrawal from Iraq)—and even then the insurgents might still win.

A "targeted" CT campaign, its advocates say, would at least demonstrate the West's resolve in the war on terrorism and keep al-Qaida jihadists contained. It's a type of fighting that we know how to do, and its effects are measurable. One might also argue (I don't know if anyone on the inside is doing so) that it could serve as a holding action—a way of keeping Afghanistan from plunging deeper into chaos—while we focus more intently on diplomatic measures to stabilize neighboring Pakistan. If Pakistan blows up, curing Afghanistan of its problems will be irrelevant and, in any case, impossible.

Some in the COIN camp have sympathy for this argument—especially for the part about the high cost and the uncertainty of success—but they would argue back that a purely CT approach is sure to fail in the long run.

In short, it's a messy plate that President Obama's been handed, and his advisers' debate only highlights the dearth of good choices and the real chance that things might get still worse, no matter what he does. He scaled back the war's objectives, but the task is daunting all the same.
Obama has to choose one approach or the other this week, if he hasn't done so already. Afghanistan will fill the agenda at next week's NATO conference. He has said that he'll ask the allies to step up their involvement. But he can't expect them to accede unless he requests specific measures and explains how they fit into a clear strategic context, and he can't do that unless he decides what the strategy is

'In real terms, Nato is losing'

'In real terms, Nato is losing'

It's been more than seven years since Nato forces invaded Afghanistan. Yet there's no end in sight for the conflict - and vast tracts of the country remain no-go areas for foreign troops. Julian Borger reports

* Julian Borger
*
o Julian Borger
o The Guardian, Friday 20 March 2009

Soldiers demolish the wall of a Taliban-held compound in Helmand

Soldiers demolish the wall of a Taliban-held compound in Helmand. Photograph: Sergeant Will Craig/PR

Most days, weather permitting, a couple of US Black Hawk helicopters take off from Bagram air base and do the rounds of Nato bases in Afghanistan's eastern provinces. They serve as taxis, couriers and delivery vans and hop from one fortified lilypad to the next, crossing mountain ranges and dusty mudbrick towns over which the alliance and the government it supports have little, if any, control.

The helicopter traffic provides an umbilical connection between the provincial outposts of the Nato-led force in this part of the country - the French in Kapisa province, the Poles in Ghazni and the vast US-run hub at Bagram air-base, north of Kabul. This is the Afghanistan that most senior officers, diplomats and visiting journalists get to see - brave soldiers and well-run, well-meaning development projects.

But it is in the vast tracts of land in between these outposts where the country's future is being determined each day, and where the outcome in the struggle between chaos and order, backwardness and development has yet to be resolved.

Right now there's a stalemate between Nato and its Afghan government allies on one side, and the Taliban and associated Pashtun militias on the other. In real terms, that means Nato is losing. After more than seven years, security is diminishing, death tolls are rising, and the popularity of the Kabul government is evaporating, while back on the home front, particularly in Europe, some troop contributors are already groping their way to the exit

Time, meanwhile, is on the Taliban's side, and there are clear signs that they are now mustering in their winter havens, across the border in Pakistan, in readiness for a fearsome offensive this summer, when Afghanistan's presidential elections are due. It will be a critical test of will, not only in Afghanistan, but in the US and Europe too.

The critical choices are also being made now. This weekend President Barack Obama will be making a final decision on the shape of US strategy. He has already decided to send another 17,000 troops into the fray, to add to the 30,000 already there, but he must make up his mind on how many more forces to commit.

Britain and the other Europeans have tried hard to lobby Washington with their own views in the last few weeks, but now they have to wait for pronouncements from Washington, and hope for a workable strategy that will eventually pave the way home for their forces.

But that is not going to happen any time soon: the sheer size of Bagram air base testifies to that. In the past few years, the base has grown into a sizeable town, sustaining itself behind its 20km (13-mile) fortified perimeter like a city state of old. There is a Burger King and Dairy Queen, a huge tented gym, to be found on the high road, Disney Boulevard (named after a US serviceman killed here, not the cartoon king). Most of the accommodation is in containers, but multi-storey concrete flats are rising in the heart of town - a reflection of long-term resolve. Transport planes, helicopters and jet fighters thunder in and out day and night, constantly replenishing the 18,000 population.

Bagram is just 80km (50 miles) from Kabul, but most coalition troops and foreign workers fly between the two in huge military transport planes that barely take off before it is time to land again. That tells you all you need to know about the state of security in Afghanistan, more than seven years into the war.

On arrival at Bagram, fresh troops enter a dingy waiting room, decorated with a picture of three silhouetted American soldiers and this message: "This is a tribute to all who have fallen during Operation Enduring Freedom. Live a life worthy of their sacrifices." On one long afternoon recently, there were dozens of soldiers dozing on their kit bags and staring at two large television screens - one showing college basketball, the other The Graduate.

The toilets are crumbling under the pressure of the unceasing turnover of troops. They are scrawled with the usual impressionistic drawings of male genitalia, comments about the sexual orientation of the infantry or the navy, and some more political observations. "Osama bin Laden. Bush bin Fuckup," says one.

Here there is general consensus that the Bush years marked an extraordinary lost opportunity in Afghanistan. No sooner had the Taliban been ousted when the US diverted its attention to Iraq. Both the US and Europe short-changed Afghanistan on development funds in the four relatively peaceful years that followed. Now the country is still one of the five poorest on earth, and though development work is going on, it now - particularly in the south and east - has to be carried out under fire.

It is an expensive way of doing things, and an erratic one, dependent on the policies of the foreign military taskforce in residence, which tend to run their provinces like independent fiefdoms, with completely different approaches to the central and provincial government, and to the insurgency.

Most of the Nato nations here have "caveats" on the use of the force, limiting the conditions in which they can be deployed. The Germans in the north, to cite the most ridiculous example, will not patrol at night and resist going anywhere without an ambulance, which precludes foot patrols.

But whatever the national colours flying above each provincial "forward operating base", the food is aways the same: American. That's because it's provided by KBR (Kellogg, Brown & Root), a former subsidiary of Dick Cheney's old mega-firm, Halliburton. In every base it puts on a staggering buffet spread for the troops, of which most hotels would be proud. There is a choice of half a dozen desserts including ice cream at every meal, and every last scrap of food is imported. No wonder it costs so much to keep the International Security Assistance Force (Isaf) in the field - an estimated $2,000 per soldier per day. It is an enormous logistical effort just to keep it treading water.

The Poles have been running Ghazni province for the last four months and so far have not lost a man. They also claim not to have killed any civilians which, for a rough province like Ghazni, with several "contacts" with the enemy each week, is a good record. The commander of the Polish taskforce is an energetic colonel called Rajmund Andrzejczak, who seems to have taken on board the emerging new orthodoxy on counter-insurgency.

"For me the critical thing is to be non-kinetic," he says, employing Nato-speak for not shooting. "After a couple of operations, we realised the less aggressive we were, the more effective we were. I recommend not so many troops knocking down doors every night, but instead to sit down and drink tea, discuss what the people need, and bring them closer to the coalition."

The reference to knocking down doors at night is clear to anyone who has spent more than a couple of days here. It is a dig at US special forces, who have a reputation for raiding Afghan houses in the middle of the night, on the basis of intelligence that can be accurate or inaccurate, causing a disproportionate number of civilian casualties.

"The special forces are playing a damaging and negative role. They operate outside the chain of command, going in and doing raids without any coordination," a senior western aid official tells me. Nothing is eroding support for foreign forces faster. A UN report last month said the number of civilian casualties in 2008 was up 40% on the previous year at 2,118. A little more than half were killed by the Taliban and other insurgents, mostly with roadside and suicide bombs. The rest were killed by Isaf.

The difference is that while the Taliban are actually trying to kill civilians, Isaf appears to be killing almost as many by accident - some in special forces raids, but 64% as a result of air strikes. Some of those strikes are assassination attempts against "high-value" insurgent leaders, but others are in support of troops on the ground engaged in battle. That is relatively uncontroversial when ground forces find themselves outnumbered or surrounded and are trying to save their own lives.

More troubling is the practice of calling in a strike on an Afghan qala (the high-walled mud-brick houses that look like mini-forts and are the norm here), from where western forces suspect they are taking fire but are reluctant to storm for fear of suffering casualties. Every time a qala is demolished from above, and families inevitably perish, more recruits are driven towards the Taliban.

"We are fighting a lot of people we don't have to be fighting," the western aid official says.

Andrzejczak is adamant he does not use such tactics: "Sometimes, if we are not sure who is in a house, we just cancel the operation, even knowing some of the targets will leave the area. You cannot kill all the terrorists in six months, but you can create good relations with the locals. The biggest power here is not the Taliban, it's the people of Ghazni. They are the power we should fight for."

Everyone subscribes to this view of counter-insurgency in theory, but the Americans, and to some extent the British, are less likely to walk away from an engagement, and more likely to call in an air strike.

Ghazni's governor, Mohamed Osman Osmani, is pleased with the Poles. When Osmani first heard they were coming, he had feared a bunch of Warsaw Pact headbangers, who would use their artillery and Soviet-model Hind gunships on everything that moved. So he is now pleasantly surprised. He says his province is more peaceful under the lighter-touch Poles than the more aggressive Americans before them.

"Security for us is like oxygen. Without it nothing can breathe, nothing can happen. And the Poles really have brought security," Osmani says when we first meet. Shortly after, however, something happens to threaten this fragile
harmony. On 27 February, Polish troops were called to a house in a village called Dhi Khodaidad, a few miles south-west of Ghazni city, where they were told there was a Taliban cell recruiting locals.

What happened next is the subject of furious debate. The Poles say they were called in by the Afghan police, and did not open fire, using only a flash grenade on what looked like an ordinary building. The local press say the Poles stormed a mosque guns blazing, damaging the building and destroying a Qur'an. Riots followed soon in Ghazni city, threatening to undo all the Poles' careful "hearts and minds" work.

"People were saying that the Poles had improved security here, but now with this problem with the mosque they are beginning to wonder and ask what the Poles are really trying to do here," says Mirwais Pashtun, the director of a local radio station.

The polls in Afghanistan still show strong majority support for the presence of foreign troops, but there are signs that the welcome is wearing thin in the absence of results. In a poll published by a consortium of humanitarian agencies this week, nearly two thirds said that the security situation in their area was getting worse. And there is increasing distress at night raids on homes and civilian casualties from air strikes.

No one is more aware of the thin ice on which Nato stands than Andrzejczak, who has to spend two solid days in talks with local leaders to get his side of the story across after the incident in Dhi Kohdaidad, and reassure them of the Poles' respect for local culture.

The emergency PR campaign was treated as a major counter-insurgency operation, which, of course, it was.

"It's a war of perception," the colonel says. "The mosque could be a critical [tipping] point, and we have to win this battle."

• Julian Borger is the Guardian's diplomatic editor.

Freeman, Straight, No Chaser, as Critic of Israel By Larry Cohler-Esses

Freeman, Straight, No Chaser, as Critic of Israel
By Larry Cohler-Esses
Published March 25, 2009, issue of April 03, 2009.

Charles “Chas” Freeman, who until recently was set to assume the post of chairman of the National Intelligence Council, wants to make a few things emphatically clear.

Freeman would like it to be known that he does not believe, as some have charged he does, that American support of Israel caused the September 11 terrorist attacks.

“That’s obviously nonsense,” said Freeman, who withdrew his name for the post on March 10, just a month-and-a-half after agreeing to take up the job amid weeks of attacks on him by supporters of Israel and others.
FILE PHOTO
Different Paths: Charles Freeman says the U.S. and Israel have ‘divergent interests.’

But Freeman also did not mince words about his view of American and Israeli interests. They are, he said, “divergent.”

“It’s a foreign country, and while maybe 40 years ago many of its values were convergent with ours, I think there’s been a divergence of values,” Freeman told the Forward in a phone interview. He argued that this trend is embodied most clearly in the rise of controversial right-wing Israeli politician Avigdor Lieberman.

“I think the values in Israel are deeply disturbing now to many in the Jewish community, as well,” he said.

But while Freeman has spoken at length and often about the causes and motivations for Arab, Palestinian and Muslim extremism — a function, he notes, that is central to the kind of analysis his job would have required — he was blunt about his lack of interest in expressing similar “analytic empathy,” at least in public, with regard to Israel.

“I think I understand Israel’s view of itself and its neighbors,” he said. “Israel has multiple voices in the United States explaining it and its motivations. It doesn’t need me to do so. In fact, Israel’s viewpoints dominate our understanding of its dispute with the Palestinians and its consequent estrangement from its other Arab neighbors…. Frankly, I don’t see that need.”

That may explain something about why Freeman’s appointment to the National Intelligence Council provoked such strong opposition.

Some in Washington who venture criticism of Israel do so in a tone of critical sympathy that may at once blunt the criticism but also allow it to be heard. Freeman, a self-confessed “non-political” figure, does not choose to do so, and he makes no apologies for that.

One example is the speech he gave at a policy conference in 2006, which some opponents cite as the basis for their saying he blames Israel for 9/11.

“Americans need to be clear about the consequences of continuing our current counterproductive approaches to security in the Middle East,” he told his audience. “We have paid heavily and often in treasure in the past for our unflinching support and unstinting subsidies of Israel’s approach to managing its relations with the Arabs. Five years ago we began to pay with the blood of our citizens here at home. We are now paying with the lives of our soldiers, sailors, airmen and marines on battlefields in several regions of the realm of Islam, with more said by our government’s neoconservative mentors to be in prospect.”

“You have to be fairly obsessive to read that into it,” Freeman said of the charge that he blames American support of Israel for 9/11. “What it means is that our relationship with Israel, given what Israel has done to the Palestinians in the West Bank and Gaza, has helped to create an atmosphere first in the Arab world and now through all of Islam, in which anti-Americanism flourishes.

“There is a hell of a lot of polling date to sustain this. It’s ridiculous to say it’s cause and effect. But it’s also ridiculous to say there are no consequences. There are consequences.”

Freeman, 66, is a man of clear intelligence and wide experience, and is not falsely modest about noting this. Asked about reports he speaks Mandarin and Arabic, he confirmed this, noted his Arabic was “self-taught” and added: “Also Taiwanese, French, Spanish, and Tamil and others.”

“This job involved the world,” he noted, referring to the position from which he withdrew, “and my breadth of experience is unique. I have a reputation of being iconoclastic, and I’m not afraid of putting forward notions that are rebuttable. I despise political correctness, and that is why I am unacceptable to this group and others.”

The “group” to which Freeman was referring, of course, is the supporters of Israel who attacked him for weeks after the news emerged that Dennis Blair, the Obama administration’s director of national intelligence, had asked him to serve as head of his National Intelligence Council.

When news of the appointment emerged, some pro-Israel bloggers, such as Steve Rosen, a former official with the American Israel Public Affairs Committee, launched a sustained campaign to roll it back. Soon, members of Congress, such as Senator Charles Schumer, a New York Democrat, made their objections known to the White House as well. At least one major Jewish organization, the Anti-Defamation League, registered its concerns privately with members of Congress and the White House.

To be sure, Freeman’s appointment sustained criticism from other quarters, too, in particular critics of human rights conditions in China, who viewed him as a defender of China’s communist government policies toward dissenters.

But Freeman insisted that it was the attacks from supporters of Israel that forced him to withdraw. “The tactics of the Israel Lobby plumb the depths of dishonor and indecency and include character assassination, selective misquotation, the willful distortion of the record, the fabrication of falsehoods, and an utter disregard for the truth,” he wrote in a statement announcing his withdrawal.

He has since voiced regret that he referred to his opponents then as “the Israel Lobby.” “I’d call this little group the ‘Lieberman lobby,’” he told the Forward, explaining that he viewed them as hardcore defenders of what he considers Israel’s racist tendencies toward Palestinians, as embodied by Lieberman, the country’s incoming foreign minister.

Freeman dismissed the notion that he had withdrawn out of concern for a pending review of allegations that as president of the Middle East Policy Council, a private group, he had received substantial sums from Saudi Arabia and represented its interests to an extent that might compromise his analytical judgment.

“They would have found my activities at the council were virtually a voluntary activity, about 5% of my income,” he said. “Most of my income came from the stock market. The income I have from abroad also does not come from the Middle East. No one ever came up with evidence I was shilling for Saudi Arabia, or that the council was its voice.”

Freeman said that despite being by nature “a combative person,” he withdrew because the attacks were bound to continue and interfere with the perception of any intelligence estimates on Israel and the Middle East produced under his tenure.

“I had accepted the job very reluctantly, with two objectives in mind: to improve the quality of our intelligence and to improve its credibility, which has been badly damaged by the political use of intelligence by policymakers,” he said. “It simply became apparent that I could not add to the credibility of it” given the attacks.

Stratfor Logo Part 7: The Obama Administration and the Former Soviet Union

Stratfor Logo
Part 7: The Obama Administration and the Former Soviet Union


Editor's Note: This is the seventh piece in a series that explores how key countries in various regions have interacted with the United States in the past, and how their relationships with Washington will likely be defined during the administration of U.S. President Barack Obama.

U.S. President Barack Obama's administration seems to be largely focused on South Asia and the Middle East. Yet one of Washington's biggest challenges will come from its old foe: Russia. Obama's team must make some major decisions regarding Russia and American influence in Eurasia — decisions that will affect not only U.S.-Russian relations but also future dynamics in Europe, the former Soviet Union and many other regions.
Russia's Geographic Position

In a nutshell, Russia is a large, untenable landmass that not only is difficult to hold together but also sees itself surrounded by enemies and other great (or potentially great) powers. The country's core — where most of its population and commerce are concentrated — actually consists of only the Moscow-St. Petersburg corridor and the surrounding European Russian regions up to the Ural Mountains. The only geographic barrier separating this core from both Europe and the Middle East is distance. The core is also disconnected from Russia's wealth of resources, which lie beyond the Ural Mountains in Siberia — making the use of Russian resources very difficult and pricey, given the costs of transport and of operating in Siberia's marshlands and frozen tundra.

Russian Perspective

Russia — the largest country in terms of landmass — has difficulty being a land power because of its sheer size. Its land and sea borders are impossible to defend effectively, leaving the country very vulnerable to invasion. Because Russia is surrounded by countless countries and superpowers, it is constantly concerned about security. Its main focus, of course, is protecting its core; its south and east are its secondary focus. In order to fully protect itself, Russia must have a buffer zone surrounding it almost entirely, keeping other powers and threats at bay. This means Russia must conquer (or at least influence) a ring of states surrounding European Russia, the Caucasus and non-European Russia. This imperative led to the organization of the Soviet Union and its Warsaw Pact bloc, and it is now driving Russia to reassert control over the former Soviet states.

Russia wants to be a world power, but it must protect itself before extending its reach beyond its immediate sphere of influence. And since the collapse of the Soviet Union, Russia has lost a lot of ground, with Western powers (particularly NATO and the European Union) expanding into its realm. Therefore, Russia faces the task of reasserting control over its former Soviet states while pushing Western influence out of those states.
The Bush Administration and Russia

At the beginning of the Bush administration, it seemed as if a new era of U.S.-Russian relations was dawning. When U.S. President George W. Bush met with Russian President Vladimir Putin, Bush said he "looked the man in the eye" and "was able to get a sense of his soul." Putin (now Russian prime minister) was the first head of state to call Bush after the 9/11 attacks in the United States, and he was quick to offer Russia's support.

But there was an inherent problem with this new friendship: Neither country truly trusted the other, no matter the rhetoric. Russia had too much work to do in order to secure its strength and its future, and the United States never wanted to see a strong Russia again. At the time, Russia was a weak, fractured and crumbling state that needed time to consolidate internally. Furthermore, once it was stronger (which would take years), Russia needed the United States to be preoccupied enough to allow Moscow to resurge onto the international scene. This opportunity would arise when the United States became too bogged down with its wars in Iraq and Afghanistan to prevent Russia from pushing back against Western influence in its border regions.

But while the Bush administration was focused on its wars, it did not allow Russia free rein in Eurasia. Bush pledged to those states in Russia's sphere — especially Poland, Ukraine and Georgia — that the United States would protect them from their former Soviet master. Under the Bush administration, Washington did much to secure these states and solidify Western influence there, but there are four moves in particular that stand out in Moscow's mind:

* The Bush administration started its strategic moves into the former Soviet sphere by placing military bases in Central Asia in 2001. The bases were meant to support the U.S. effort in Afghanistan, but they also served to infiltrate a territory where the West had not had much influence. Involved in one war and about to begin another, the United States was not thinking foremost about countering a resurgent Russia. But the war in Afghanistan gave Washington an excuse to achieve its long-term goal of capping Russia's influence in Central Asia, where Russia had long been the sole power (although the West and China had dabbled in the region). Now, the United States was setting up permanent ties in the region (and military ones at that).
* Next, starting in 2002, Washington entered negotiations with many Central and Eastern European states about placing ballistic missile defense (BMD) systems on their soil. Washington's rationale was that they would protect against a strike from Iran. The move would place U.S. military installations in Central Europe, essentially moving the Warsaw Pact line from Germany eastward.
* In 2004, the United States ushered the three former Soviet Baltic states — Lithuania, Latvia and Estonia — into NATO. This put NATO on Russia's border and a stone's throw from St. Petersburg — a nightmare for Moscow.
* The United States then demonstrated its commitment to Georgia and Ukraine after the two former Soviet states had their pro-Western revolutions (the 2003 Georgian Rose Revolution and the 2004 Ukrainian Orange Revolution). It did this by pushing for the two states to be quickly put on the path toward membership in Western organizations like NATO. The United States fiercely maintained this push despite the fact that other NATO members did not want to face Russia's ire should they agree to accept the two states as members. At present, the debate over further NATO expansion is heavily contested among its members, who allowed the Baltics to come in while Russia was still passive and weak but have had second thoughts about Georgia and Ukraine since Russia has become stronger and more assertive.

While Russia perceived them as genuine threats, these four moves actually helped Russia counter the United States. There was no question about who was behind them or whether Washington had NATO's unanimous support. Moscow knew the moves were all led by Washington, which had discounted much of NATO's concern over riling a resurgent Russia. Moscow also realized the power of fracturing the trans-Atlantic alliance into three main parts, each with its own strategic interests — the United States, Western Europe and Central/Eastern Europe. This awareness also helped Russia fracture the European Union.

From the Kremlin's point of view, the Bush administration betrayed it by heralding American-Russian friendship while making the first moves to undermine a Russian resurgence. Bush drew many lines in the sand and agitated Russia almost to the point of igniting a new Cold War — at least in Moscow's view, though it certainly contributed to the tensions by reasserting itself on the international stage. Russia understood what the Bush administration was attempting to achieve — a permanent break in Russia's influence abroad so that it could never call itself a world power again. Moscow also understood that the United States was using an old Cold War handbook to find Russia's pressure points.

Today, with the Obama administration in place, Moscow wonders if priorities have truly changed in Washington and, if they have, how it can use this transition to regain control in its near abroad and fully achieve its geopolitical goals.
Russia's Goals

Though Russia has many things it would love to demand of the new Obama administration, there are four key areas of concern: NATO's expansion and influence in former Soviet states, renegotiating the Strategic Arms Reduction Treaty (START), U.S. BMD in Europe and the U.S. presence in Central Asia. The first two issues are the most critical for Russia, which believes it must preserve its buffers and maintain nuclear parity with the United States if it intends to survive as a nation-state.

Beginning in 1999, when it accepted Poland, the Czech Republic and Hungary as new members, NATO expanded into former Warsaw Pact states. These particular states were not exactly pro-Russian and were looking for heavyweight protection against Russia. It was a NATO expansion in 2004 — when Slovenia, Slovakia, Bulgaria, Romania and the former Soviet states of Latvia, Lithuania and Estonia joined the alliance — that shook Moscow to its core.

NATO

Today, the even more critical former Soviet states of Ukraine and Georgia are on the path toward NATO membership. If either of these states actually became part of the alliance, NATO would be positioned to undermine Russia's fundamental ability to defend itself and would be able to strike at the country's core. Moscow is looking for a firm agreement from Washington that it will not expand to Ukraine or Georgia — as well as an understanding that, although the Baltic states are members of NATO, Russia still wields more influence in these three small, difficult-to-defend Eastern European countries.

One state that is not yet on NATO's agenda but may be at some point is Finland. This state has long maintained neutrality to avoid having to choose sides against Russia, its largest trading partner and with whom it shares its longest border. Finland's Scandinavian neighbor, Sweden, is considering joining NATO and, if it does, Finland could follow suit. Although Russia does not view Finland as a potential NATO threat, Moscow could move quickly to block its membership in the alliance by leveraging the many tools at its disposal (trade, energy, security) if it ever looked like it might become one.

The 1991 START treaty was a Cold War-era arms reduction treaty that was highly specific and contained rigorous declaration, inspection and verification mechanisms. Since the collapse of the Soviet Union, Washington has become disillusioned with this sort of arms agreement, concerned as it is about being locked into bilateral arrangements with one country while another — China, say — starts ramping up its nuclear arsenal. But this does not mean that the transparency of the START framework does not have value, and both the Kremlin and the White House are interested in further reductions (even beyond those called for by 2012 in the 2003 Strategic Offensive Reductions Treaty).
Russia considers arms control of central importance. With a decaying arsenal, the Kremlin relies on treaties like START to lock the Pentagon into a bilateral strategic balance. Russia simply does not have the resources (money or technical skills) to compete in another arms race. For Russia, a renegotiation of START, which expires at the end of 2009, is all about long-term survival; nuclear balance has come to play an increasingly central role in ensuring Russian sovereignty and territorial integrity.

The other two issues on Russia's agenda — U.S. BMD efforts in Europe and U.S. meddling in Central Asia — are not as critical as the first two, but they are being packaged into some sort of grand agreement in negotiations now under way between Moscow and Washington. For Russia, the BMD installations slated for Poland and the Czech Republic are more about the precedent they set for U.S. military troops on the ground in former Warsaw Pact territory than about the strategic nuclear balance.

Russia is deeply concerned about the long-term impact of BMD on the Russian nuclear deterrent, but the Polish installation with 10 interceptors would have little effect on Russian intercontinental ballistic missiles directed at the United States (which would travel over the Arctic). Nevertheless, Poland is a country with which Russia has legitimate concerns, and the BMD issue is one in which Moscow can easily appear to be the aggrieved party (it was Washington, after all, that withdrew from the 1972 Anti-Ballistic Missile Treaty). But the issue is symptomatic rather than central to the Kremlin's larger concerns.

Then there is Central Asia, where Russia wants to remove U.S. influence from its southern region. The United States no longer has a strong hold inside any Central Asian state, though it does have a base in Kyrgyzstan (as of this writing) and is currently using most of the Central Asian states as transport routes into Afghanistan — with Russia's permission. But Moscow wants it understood that Central Asia is its turf and that the United States is there with Russia's permission and can be ejected at any time. Central Asia is a tougher region for the Americans to project into, but it is becoming more important to the United States as the Obama administration reconsiders its strategy in South Asia.
Russia's Expectations and Concerns

Russia is viewing this new American administration with the same reservations it had when it viewed the old one. Moscow simply feels it was burned by Bush, and the Obama administration has come in at a time when the United States could use Russia's help. With Pakistan increasingly unreliable, the United States needs other supply routes into Afghanistan, and going through Russia and its former Soviet turf in Central Asia is the best alternative. At the same time, Russia has supported Iran in helping it develop its nuclear facilities and providing air-defense missile systems — in effect, giving Iran just the tools it needs to bargain with the United States and making Iran itself a bargaining chip for Russia to use for its own needs.

Of course, asking Russia for either concession would come with a price. It is Russia's time to place its goals on the table and ask for real actions by the new American administration in reversing or at least freezing certain Bush policies. In return, Russia would be more than happy to help the United States with its war in Afghanistan and cease supporting Iran, as long as such tactics would help Russia meet its own geopolitical objectives while keeping the United States at least partially distracted.

The Obama administration started to make overtures to Russia even before taking office, sending envoys led by former Secretary of State Henry Kissinger to Moscow for negotiations. Obama, Vice President Joe Biden and Secretary of State Hillary Clinton have said they are open to renegotiating START and possibly freezing the BMD plan, and they have already relayed to Ukraine and Georgia that NATO membership will most likely not happen. In return, Russia has allowed small shipments of supplies to start rolling from Latvia through Russia, Kazakhstan and Uzbekistan into Afghanistan, and it is helping negotiate airspace rights for the United States over Tajikistan and Turkmenistan.

But for any further commitment, Moscow wants tangible assurances from Washington that its major concerns — particularly NATO expansion and START renegotiation — will be addressed. The Kremlin does not trust the new White House and understands it can be betrayed at any moment, especially as the United States becomes less bogged down in Iraq. Russia is also concerned about how much the United States is willing to give up for its war in Afghanistan. Russia knows that, at the moment, the war in Afghanistan is a top priority for the Obama administration, but Moscow also knows that the U.S. attention span is short and that Russia's window of opportunity is correspondingly narrow.

Current negotiations will come to a head in April, when Obama sits down for the first time with Russian President Dmitri Medvedev and finally allows the Kremlin to gauge where this new administration is and where it is willing to go. Russia believes both countries are at a unique place in history: each could give a little to the other over the short term, before some future and unavoidable confrontation, or Obama could decide to take on this resurgent and stronger Russia, even if it meant sacrificing other U.S. priorities, such as Afghanistan and Iran.

Either way, the decisions facing the Kremlin and the Obama administration are ones that will shape a renewed global rivalry.

Judgment Day for Geithner

Judgment Day for Geithner

by Mike Whitney / March 25th, 2009

Whether he deserves it or not, Timothy Geithner has become the poster boy for everything that’s wrong with the government’s scatterbrain financial rescue plan. Geithner was in the wheelhouse at the New York Fed when Bear Stearns and Lehman Bros defaulted, and he played a central role in the $165 million AIG bonus scandal that ignited a populist firestorm across the country. Now everything even remotely connected to the bank bailout has become a source of fist-clenching rage. The mood of the country has darkened from the steady downpour of bad economic news, the sharp decline in housing prices and the steep rise in unemployment. People are angry at the government, the banks and Wall Street. Their nerves are frayed and their patience is stretched to the limit.

It is in this atmosphere of simmering public fury that Geithner will announce the details of his long-awaited plan for removing up to $1 trillion of toxic assets from the balance sheets of some of the country’s biggest banks. Information about Geithner’s “Public-Private Partnership” and the so called Term Asset-Backed Securities Loan Facility (TALF) has been spotty so far, but enough is known about the plan to predict that it will likely be the noose into which Geithner thrusts his scrawny neck, bringing his dismal career at Treasury to a end. The country will not endure another pretentious-sounding banker-friendly flim flam, which is precisely what Geithner has in mind.

According to the Associated Press:

Officials said Geithner’s plan will have three major parts. One part will be an effort Geithner spoke about last month — the creation of a public-private partnership to back purchases of bad assets by private investors . . . Treasury will hire four or five investment management firms, matching the private money that each of the firms puts up with government funds.

A second part of the plan will expand a recently launched program being run by the Federal Reserve called the Term Asset-Backed Securities Loan Facility, or TALF.

That program is providing loans for investors to buy assets backed by consumer debt in an effort to make it easier for consumers to get auto, student and credit card loans. Under Geithner’s proposal, this program would be expanded to support investors’ purchases of banks’ toxic assets.

The third part of the Geithner plan would utilize the resources of the FDIC, the agency that guarantees bank deposits, to purchase toxic assets. Officials said that the FDIC will create special purpose investment partnerships and then lend those partnerships money so that they can buy up troubled assets.

Why in heaven’s name would Sheila Bair attach her good name to Treasury’s latest bunko-scam? As Bair undoubtedly knows, the main objective of the Public-Private Partnership and TALF is to provide inflated prices for garbage assets that investors refuse to buy. It’s just a way of transferring losses from the banks to the taxpayer by using a middleman who looks like a partner but only has a five percent stake in the game. This is “tax cheat” Timmy’s circuitous way of socking it to the public one more time. Here’s how Yves Smith at Naked Capitalism explains it:

“First, the banks, as in normal auctions, will presumably set a reserve price equal to the value of the assets on their books. If the price does not meet the reserve (and the level of the reserve is not disclosed to the bidders), there is no sale; in this case, the bank would keep the toxic instruments.

Having the banks realize a price at least equal to the value they hold it at on their books is a boundary condition. If the banks sell the assets as a lower level, it will result in a loss, which is a direct hit to equity. The whole point of this exercise is to get rid of the bad paper without further impairing the banks.”

Okay, so the auctions are rigged and the banks get overpaid for toxic waste. Surprised? Geithner’s task from Day 1 has been to keep the money flowing from the vault at Treasury to the big banks. This is just more of the same. The TALF and the PPP are just clever acronyms meaning “corporate welfare” which is ladled out to bank tycoons who have their agents working the levers from the inside. The public, of course, takes it in the shorts once again.

Yves Smith writes:

“Dear God, the Administration really thinks the public is full of idiots. But there are so many components to the program, and a lot of moving parts in each, they no doubt expect everyone’s eyes to glaze over.” (“Public Private Partnership Emerging,” Yves Smith, Naked Capitalism)

Geithner has been trying for weeks to lure hedge funds and private equity firms into participating in his program offering up to 95 percent leverage for the purchase of the banks bad assets. By providing loan guarantees rather than capital, Geithner can (in the words of the Wall Street Journal’s David Wessel) “rely on the Federal Reserve’s amazing ability to come up with unlimited sums without congressional consent.” This means that Geithner has moved on to Plan B, which makes good use of Bernanke’s deep pockets and well-oiled printing press.

Geithner’s strategy is nothing more than a trillion dollar stealth bailout of the country’s biggest banks. The funding from the TALF and PPP are just the first part of a one-two knockout punch. Treasury will try to show that it paid less for the assets than their current book value (which, of course, is grossly inflated) and then follow up with generous capital injections from the TARP program to make up the difference. That way, the banks will be “made whole” again while the public gets the double whammy. Geithner is hoping that the public relations hype surrounding the program will allow him to carry out his strategy before anyone figures out what’s really going on. Fortunately, the blogosphere is following every little detail, which means that the plan will be picked apart just minutes after it is released. If the punditocracy gives it the “thumbs down,” there’s a good chance that Geithner will have to pack it in and resign. His credibility was wobbly to begin with. A failure here would surely be the last straw. Senator Richard Shelby voiced the concerns of many elected representatives when he said on FOX News Sunday that Geithner was on “shaky ground,” and that “if he keeps going down this road, he won’t last long.” By late Monday, we should know whether Geithner will continue to serve at Treasury or hobble back to his dingy rookery at Kissinger and Associates.

According to the New York Times:

“The Federal Deposit Insurance Corporation will set up special-purpose investment partnerships and lend about 85 percent of the money that those partnerships will need to buy up troubled assets that banks want to sell.

. . . Private investors, then, would be contributing as little as 3 percent of the equity, and the government as much as 97 percent.”

The idea that 97 percent “low interest” funding constitutes a “partnership” boggles the mind. Where can a businessman or a homeowner get gravy a deal like that? The Treasury is providing a subsidy to Wall Street crooksters to manage taxpayer money so they can fatten their own bottom line. It’s that simple. Geithner’s not only willing to empty the public purse for his buddies but, also, write another trillion dollar check on an account that is already overdrawn by $11 trillion. This is one gigantic looting operation concocted by bank lobbyists masquerading as public officials.

The whole purpose of the Geithner shakedown is to mislead the public. Why should the perilously underfunded FDIC provide non-recourse loans to hedge fund sharpies and PE scalawags when its primary responsibility is to protect bank depositors? And why are they setting up more of the same Enron-type “off-balance sheets” special purpose vehicles that blew up the financial markets to begin with? This has disaster written all over it. The non-recourse loans create a “no lose” situation for investors who can dump any type of crappy mortgage-backed sludge into the program and not worry about any legal backlash. Here’s how Paul Krugman sums it up on Saturday’s blog:

The Geithner plan has now been leaked in detail. It’s exactly the plan that was widely analyzed — and found wanting — a couple of weeks ago. The zombie ideas have won.

The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank. As Tim Duy put it, there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.

To this end the plan proposes to create funds in which private investors put in a small amount of their own money, and in return get large, non-recourse loans from the taxpayer, with which to buy bad — I mean misunderstood — assets. This is supposed to lead to fair prices because the funds will engage in competitive bidding….

This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won’t be able to come back to Congress for a plan that might actually work. (Paul Krugman’s blog)

Geithner’s plan is a catastrophe. It’s just a sloppy remake of Paulson’s failed Super SIV that was supposed to save Citi from massive losses but closed without a single sale. Not one investor stepped forward to buy assets even though Paulson slapped the Treasury’s seal of approval on entire operation. It was a complete bust. Now Geithner is following in the ex-Treasury Secretary’s footsteps.

The banks are not going to fix themselves. Only government can do that, which means that someone will have to fill the leadership void and do the heavy lifting. But time is running out and the problems are getting worse. Public support is on the wane. Obama should take advantage of what little confidence in the system is left and take radical corrective action. Insolvent financial institutions have to be taken into receivership and liquidated. Shareholders and bondholders will have to take a haircut. And Geithner, Summers and the rest of the White House banking fraternity will have to resign or be fired. Obama should mull over Albert Einstein’s sage advice when he said, “The problems we face today cannot be solved by the minds that created them.”
http://www.dissidentvoice.org/2009/03/judgment-day-for-geithner/

Geithner Update: Grab Yer Ankles and Say “Uncle Sam”

Geithner Update: Grab Yer Ankles and Say “Uncle Sam”

by Mike Whitney / March 25th, 2009 (5)

Timothy Geithner refuses to take underwater banks into receivership and resolve them, but has no problem turning the FDIC into a hedge fund. That’s right; under Geithner’s “Public Private Investment Partnership” (PPIP) FDIC chief Sheila Bair will assume the mantle of Bernie Madoff and oversee the establishment of Hedge Fund USA, a behemoth government-owned operation that will enlist the talents of five or six Wall Street managers to conduct auctions for toxic home loans and other repellent securities. The new program, which will provide lavish subsidies to investors, marks the first time that a standing government has transformed itself into …
(Full article …)
http://www.dissidentvoice.org/2009/03/geithner-update-grab-yer-ankles-and-say-%E2%80%9Cuncle-sam%E2%80%9D/

Good Money After Bad Billions More for Failed Banks By DEAN BAKER

Good Money After Bad
Billions More for Failed Banks
By DEAN BAKER

Treasury Secretary Timothy Geithner's latest bank bailout plan is another Rube Goldberg contraption intended to funnel taxpayer dollars to bankrupt banks, without being overly visible about the process. The main mechanism is a government guarantee that would allow investors to buy junk with a 12 to 1 leverage ratio, where they only risk the downside on their own investment, not the borrowed money.

Ostensibly, this is supposed to reveal the "true" price for junk assets, as investors compete at auctions to buy assets under the new rules. However, this story doesn't pass the laugh test. We will learn what price investors are willing to pay for these junk assets when they are given a large subsidy from the government to buy them. In reality, this plan is a way to use taxpayer dollars to get investors to pay far more than these assets are worth in order to give more money to bankrupt banks.

The results will be mixed. Some of the assets undoubtedly have some value. There are no doubt shrewd investors who have identified certain assets that they would have been willing to buy from the banks, but they put off the purchase waiting for a deal like this. Now these investors will have the opportunity to buy these assets with large subsidies from the government, allowing them to make substantial profits. It's not clear if President Obama will want to invite this new group of hedge fund billionaires, who got rich off this government program, for photo ops in the White House Rose Garden.

A second outcome is that many investors will see the subsidy and decide to dive in, recognizing that most of any potential loss will be born by the government. This route might prove especially attractive for one of the zombie banks, who would effectively have nothing to lose anyhow, since they are already bankrupt. In these cases, the government can expect to see substantial losses, since the investors would bid more than the assets are worth, and the government would be stuck with the eventual loss.

A third result of this path is that the subsidized class of assets would rise in value relative to assets that do not benefit from the government subsidy. This could cause banks that are relatively healthy, and therefore not taking part in this program, to suffer. With investors opting to buy assets that come with government subsidies, the demand for mortgages or mortgage-backed securities that don't have these subsidies might suffer.

A fourth likely outcome is that even with the subsidies, much of the toxic waste would stay on the banks' books. There is a large gap between the price that investors have been willing to pay for these junk assets, which has been around 30 cents on the dollar, and the price that banks list on their books, which has been 60 cents on the dollar. If the government subsidies raise the price that investors are willing to pay by 50 percent (a very large increase), then the banks would still have to write down these assets by another 15 cents on the dollar in order to make the sale.

It is likely that the gap between the asking price and the offer will not be closed for a large portion of these assets, even with the government subsidy. As a result, the banks are likely to still have several hundred billion of bad assets on their books even after this plan has been put in place. The Obama administration will then be forced to go to Congress with yet another bailout proposal.

It is also worth noting that this is a situation that invites all manner of fraud since there are very large government subsidies that could be appropriated through clever schemes. The Obama administration assured the public that the Federal Deposit Insurance Corporation (FDIC) will be closely monitoring the program, but the FDIC does not have the staff or the expertise to effectively track a program of this size. The situation is complicated further by the fact that many of the big actors are likely to be hedge funds and private equity funds, who are almost completely unregulated in the current environment.

It is hard to understand this plan as anything other than a last ditch effort to save the Wall Street banks. Unfortunately, Mr. Obama seems prepared to risk his presidency on their behalf.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy.

This article originally appeared in The Guardian.


http://www.counterpunch.org/baker03252009.html

A Future of Inflation, High Interest Rates and a Hollow Dollar? Is the Bail Out Breeding a Bigger Crisis? By PAUL CRAIG ROBERTS

A Future of Inflation, High Interest Rates and a Hollow Dollar?
Is the Bail Out Breeding a Bigger Crisis?
By PAUL CRAIG ROBERTS

At his March 24 press conference President Obama demonstrated that he is capable of understanding issues as presented to him by his advisers and able to pass on the explanations to the press. The question is whether Obama's advisers understand the issues.

Obama's advisers are focused on rescuing banks and the insurance company, AIG. They perceive the problems as solvency and paralyzing uncertainly or fear. Financial institutions, unsure of their own and other institutions solvency, hoard cash and refuse to lend. Credit is needed to get the economy moving, and the Federal Reserve and Treasury are doing their best to inject liquidity and to remove troubled assets from the banks' books.

This perception of the problem and the "remedies" being applied, might be causing a greater problem for which there is no solution. Obama's approach, and that of the previous administration, requires massive monetization of debt by the Federal Reserve and massive new debt issues by the Treasury.

The unaddressed question remains: Is the US dollar's status as world reserve currency threatened by the debt monetization and multi-year, multi-trillion dollar issuance of new Treasuries?

The United States has become an import-dependent country. The US is dependent on imports for energy, manufactured goods including clothes and shoes, and advanced technology products. If the US dollar loses its reserve currency status, the US will not be able to pay for its imports. The ensuing crisis would dwarf the current one.

Obama's advisers believe that the US can monetize debt and issue new debt endlessly, because America's capital markets are the deepest and most liquid. The dollar is strong, Obama said at his press conference.

But already cracks and strains are appearing. The day after Obama's press conference, an auction of UK bonds, known as gilts, failed when bids fell short of the supply offered and interest rates rose. This is a bad sign for Prime Minister Gordon Brown's plan to market an unprecedented amount of new debt during the current fiscal year.

It is also a bad sign for Obama's similar plan. In the US, interest rates on US Treasuries have risen in anticipation of unprecedented new Treasury issues despite the Federal Reserve's recent announcement that it intends to purchase $300 billion of existing Treasuries held by the banking system.

Normally, Fed purchases raise bond prices, thereby lowering interest rates. However, the inflation and interest rate implications of the unprecedented supply of new Treasuries necessary to finance the multi-year, multi-trillion dollar budget deficits are beginning to be recognized in bond and currency markets. Everyone knows that the Federal Reserve will monetize the new debt issues rather than allow a Treasury auction to fail. Recently, America's largest creditor, China, expressed concern that the value of its massive holdings of US dollar investments is in danger of being inflated away.

The Fed cannot monetize new Treasury issues without the word getting out. If and when this happens, the US dollar's exchange value is likely to drop while interest rates and inflation rise.

To avoid a crisis of this magnitude, the US needs to focus on saving the dollar as reserve currency. As I previously emphasized, this requires reducing US budget and trade deficits.

Despite the near-term budget costs of ending the occupation of Iraq and the war in Afghanistan, terminating these pointless military adventures would produce immediate large out-year budget savings. Closing many foreign military bases and cutting a gratuitously large military budget would produce more out-year savings. The Obama administration's belief that it can continue with Bush's wars of aggression while it engages in a massive economic bailout indicates a lack of seriousness about America's predicament.

Rome eventually understood that its imperial frontiers exceeded its resources and pulled back. This realization has yet to dawn on Washington.

More budget savings could come from a different approach to the financial crisis. The entire question of bailing out private financial institutions needs rethinking. The probability is that the bailouts are not over. The commercial real estate defaults are yet to present themselves.

Would it be cheaper for government to buy the shares of the banks and AIG at the current low prices than to pour trillions of taxpayers' dollars into them in an effort to drive up private share prices with public money? The Bush/Paulson bailout plan of approximately $800 billion has been followed a few months later by the Obama/Geithner stimulus-bailout plan of another approximately $800 billion. Together it adds to $1.6 trillion in new Treasury debt, much of which might have to be monetized.

Could this huge debt issue be avoided if the government took over the banks and netted out the losses between the constituent parts? A staid socialized financial sector run by civil servants is preferable to the gambling casino of greed-driven, innovative, unregulated capitalism operated by banksters who have caused crisis throughout the world.

Perhaps the Federal Reserve should be socialized as well. The notion of an independent, privately-owned Federal Reserve system was never more than a ruse to get a national bank into place. Once the central bank is part of the state-owned banking system, the government can create money without having to accumulate a public debt that saddles taxpayers and future budgets with hundreds of billions of dollars in annual interest payments.

Free market ideologues will say the government would inflate. However, the government has been inflating for generations and is now set on a course for hyperinflation. Monetization of troubled financial instruments by the Federal Reserve is just beginning. In addition, there are the multi-trillion dollar budget deficits which probably cannot be financed other than by monetization of new debt issues.

The US money supply as measured by cash in circulation and demand deposits (checking accounts) is currently about $1.4 trillion. If this year's budget deficit is monetized, the money supply doubles. If next year's budget deficit is monetized, the money supply would have tripled in two years. Inflation would explode. The combination of high unemployment and high inflation would be devastating.

In contrast, protecting depositors is not inflationary. It merely prevents monetary contraction.

If the Obama administration can think about socializing health care as a single-payer system, it should be able to think about socializing the banking system. Currently, Medicare is paid for by taxpayers, Medicare beneficiaries, healthy retirees, and doctors. Beneficiaries have to pay substantial premiums for supplemental coverage whether ill or healthy, and doctors are paid a pittance from the schedule of fixed prices. The insurers are the ones who make money, not the medical service providers. The single-payer system would shrink costs by the amount of the health insurance industry's profits and the enormous paperwork and enforcement compliance costs.

The trade deficit is even more difficult to address. The American economy lost much of its manufacturing leg to offshoring. It has now lost its real estate and financial sector legs. Real incomes for the average family have not increased. The consumer-demand-driven economy became dependent on the accumulation of consumer debt, which has reached its limit.

When the production of goods and services for the domestic market is moved offshore, Americans lose income and the economy loses GDP. When the goods and services produced offshore return to be sold to Americans, they constitute imports that widen the trade deficit.

The US finances its trade deficit by turning over to foreigners ownership of existing US assets and their future income streams, which, of course, increases the flow of income away from Americans.

The claim that low prices in Wal-Mart compensate for all these costs is ridiculous. Nevertheless, the Obama administration, corporation executives, and the economics profession remain committed to offshoring.

The claim, expressed by Obama at his press conference, that retraining programs are the solution to manufacturing and IT unemployment caused by offshoring is also ridiculous. For a decade the only source of American job growth has been domestic services that cannot be offshored, such as hospital orderlies, barbers, waitresses and bartenders. Retraining is simply a government subsidy to educational institutions, a subsidy that insures their continued support for offshoring.

The enormous trade deficit that has been created by the pursuit of short-term corporate profits can only be closed in two ways. One is to stop the offshoring and to bring home the offshored production. Possibly, this could be done by replacing the corporate income tax with a tax based on whether value added to a company's output occurs domestically or abroad.

The other way the trade deficit can be closed is by the inability of Americans to pay for imports. If debt monetization wrecks the dollar and drives up import prices, Americans will have to learn to live with less imported energy and manufactured goods. American annual consumption would shrink by the amount of the trade deficit.

The Bush/Obama approach to the crisis in the financial sector is to monetize existing debt and to accumulate enormous new debt that will likely also require monetization. The monetization threatens inflation, high interest rates, and depreciation of the US dollar and loss of its reserve currency role. The accumulation of new public debt implies larger annual interest payments that could make future deficit reduction problematic. Clearly, the Obama administration needs to broaden its perception of the predicament to which financial deregulation and offshoring have brought the US economy.

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He is coauthor of The Tyranny of Good Intentions.He can be reached at: PaulCraigRoberts@yahoo.com



http://www.counterpunch.org/roberts03262009.html

China's reserve choice

China's reserve choice
The Chinese want a place at the table. In the meantime, they will keep buying Treasuries. The only option is to become the whole market for gold and own it all - once you have a couple of trillion in reserves you ARE the market. - David Goldman

http://blog.atimes.net/?p=800

Time to stop the rip-off

Time to stop the rip-off
The US government is indulging in the biggest rip-off in the history of man - even as the wealth divide in the US has never been greater. And there is no end in sight. President Barack Obama has to learn the toughest decision there is in business - when to stop throwing good money after bad money.- Hossein Askari and Noureddine Krichene

http://www.atimes.com/atimes/Global_Economy/KC27Dj03.html

We Need to Regulate the Financial Instruments That Took AIG Down George Soros, The Financial Times

We Need to Regulate the Financial Instruments That Took AIG Down

George Soros, The Financial Times

http://www.alternet.org/workplace/133272/w..._took_aig_down/

The Real AIG Scandal: How the Game Is Rigged at Wall Street's Casino

The Real AIG Scandal: How the Game Is Rigged at Wall Street's Casino
Lucy Komisar, AlterNet
Congress has deftly avoided the real story of AIG's collapse, which will make a few million in bonuses seem like peanuts.

http://www.alternet.org/workplace/133228/the_real_aig_scandal%3A_how_the_game_is_rigged_at_wall_street%27s_casino/

9 Reasons Obama's Fiscal Plan Fails both Markets and Taxpayers Joseph Stiglitz

9 Reasons Obama's Fiscal Plan Fails both Markets and Taxpayers
Joseph Stiglitz, Project Syndicate
Corporate Accountability and WorkPlace: The real failings in the Obama recovery program lie not in the stimulus package, but in its efforts to revive financial markets.

http://www.alternet.org/workplace/133450/9_reasons_obama%27s_fiscal_plan_fails_both_markets_and_taxpayers/

A Tax Break Fuels Middle East Friction By David Ignatius

A Tax Break Fuels Middle East Friction
By David Ignatius
Thursday, March 26, 2009; A21

For many years, the United States has had a policy against spending aid money to fund Israeli settlements in the West Bank, which successive administrations have regarded as an obstacle to peace. Yet private organizations in the United States continue to raise tax-exempt contributions for the very activities that the government opposes.

There's nothing illegal about the charitable contributions to pro-settlement organizations, which are documented in filings with the Internal Revenue Service. They're similar to tax-exempt donations made to thousands of foreign organizations around the world through groups that are often described as "American friends of" the recipient.

But critics of Israeli settlements question why American taxpayers are supporting indirectly, through the exempt contributions, a process that the government condemns. A search of IRS records identified 28 U.S. charitable groups that made a total of $33.4 million in tax-exempt contributions to settlements and related organizations between 2004 and 2007.

"This is an issue that has not gotten the attention it deserves," said Ori Nir, a spokesman for Americans for Peace Now, a lobbying group that opposes settlements. "I don't know how many people, including in the U.S. government, realize the extent of private American funding to settlements. . . . Every dollar that goes to settlements makes Middle East peace that much harder to reach."

The Obama administration had an early confrontation over settlements when Secretary of State Hillary Clinton visited Israel this month. She criticized Israeli demolitions of Palestinian homes in a largely Arab area of Jerusalem known as Silwan, just below the walls of the Old City. "Clearly this kind of activity is unhelpful," she said. Jerusalem Mayor Nir Barkat responded that Clinton was mistaken and that the Palestinian houses had been built illegally.

One of the Israeli organizations that has led the way in developing this area of East Jerusalem is called Ir David, or City of David. Like other pro-settlement groups, it has an active fundraising effort in the United States. According to Form 990s filed with the IRS, Friends of Ir David raised $8.7 million in 2004, $1.2 million in 2005 and $2.7 million in 2006.

The group's primary tax-exempt purpose, according to the IRS filings, is: "To create a charitable fund to provide financial aid & other reasonable assistance to benefit the Jewish people of the Old City of Jerusalem. To teach about the history and archeology of the biblical city of Jerusalem. To offer aid & assistance for education, housing & the rehabilitation of distressed properties."

A senior Jordanian official argued in an interview this week that Israeli pro-settlement groups such as Ir David are seeking to transform the demographic character of East Jerusalem so that a two-state solution with Jerusalem shared by Israeli and Palestinian governments will be impossible.

Hebron is another controversial area where settlements have received substantial tax-exempt gifts from America. According to IRS records, the Hebron Fund donated $860,637 in 2005 and $967,954 in 2006 for "social and educational well-being"; the fund's online mission statement makes clear this is for Israeli settlers inside the city. The Hebron settlement of Kiryat Arba received $730,000 in 2006 from a group called American Friends of Yeshiva High School of Kiryat Arba.

Often the U.S. charities will specify that their gifts are going to charities in Israel, even though the recipients are in the West Bank, which the United States regards as occupied territory. American Friends of the College of Judea and Samaria, for example, said its donations were "to provide for the expansion and furtherance of the needs of educational institutions in Israel," even though the college is in the settlement of Ariel. Similarly, other filings speak of gifts to "Elon Moreh, Israel," "Gush Etzion, Israel," "Karnei Shomron, Israel," "Efrat, Israel," and "Bat Ayin, Israel," even though those settlements are all in the West Bank.

A 2005 report by the Congressional Research Service stated: "The United States stipulates that U.S. aid funds cannot be used in the occupied territories." The issue came to a head during a 1992 dispute over the use of U.S. loan guarantees. A Jan. 25, 1992, story in the New York Times said that Secretary of State James A. Baker had cautioned Israel's ambassador "that the administration was not going to underwrite Israeli policies that fundamentally contradict its own principles and long-stated policies."

U.S.-Israeli friction over settlements is likely to increase as Israel forms a new conservative government under Prime Minister-designate Binyamin Netanyahu. Indeed, the man he has selected as Israel's next foreign minister, Avigdor Lieberman, lives in the West Bank settlement of Nokdim, just east of Bethlehem.

Bitterlemons-International.org Middle East Roundtable: Obama's initial regional deployment: Israel-Palestine March 26, 2009

Edition 12 Volume 7 - March 26, 2009

Obama's initial regional deployment: Israel-Palestine

• A slow start - Aluf Benn
The issue is not high on Obama's list of priorities.

• Did the Obama administration hit the ground running? - George Giacaman
There is no room for another 17 years of negotiations.

• Obama's promised land - Abdel Monem Said Aly
The administration has hit the ground running in the Middle East.

• Letters. He gets letters - Chris Toensing
There is indeed no peace in Israel-Palestine without Hamas.

A slow start
Aluf Benn

The Israeli-Palestinian conflict is not high on President Barack Obama's list of priorities. Two months into his term, Obama has paid only lip service to the issue, delegating it to lower officials. Since Israel is in a waiting period for its new government, Obama's behavior appears reasonable. The president did not bother engaging outgoing Prime Minister Ehud Olmert, deferring any policy decisions until after the new Netanyahu government is sworn in.

Obama's election raised concerns in Israel and among its American supporters that the new president would end the honeymoon Israel enjoyed under his predecessor, George W. Bush. Fixing America's image and relations with the Arab world is a key policy goal for Obama, and keeping a distance from Israel is a well-checked way to gain popularity in the Arab "street". Bush was criticized for being too close to Israel and too lazy on the peace process. Changing that course could be a reasonable point of departure for the "change" leader.

So far, while reaching out to Arab and Muslim public opinion and breaking the Bush taboos against engaging Tehran and Damascus, Obama has been careful not to rock the boat vis-a-vis Israel. No new policy has been offered for resolving the Israeli-Palestinian conflict. Obama did not take sides in the February 10 Israeli election or in the ensuing coalition-forming process. Washington offered no support for left-leaning candidates and parties against the right wing but rather took a wait-and-see approach.

Obama's most visible decision thus far is the appointment of former Senator George Mitchell as his special envoy to the Middle East. Here Obama fulfilled a campaign pledge to appoint an envoy and signaled a departure from Bush's policies. Mitchell's record as a successful peace broker in Northern Ireland and as chairman of the Sharm al-Sheikh fact-finding commission in the final days of the Clinton presidency, as well as his Lebanese family origins, were all interpreted as signs of a new, activist approach to peacemaking. Until now, however, Mitchell has been in a learning mode, offering no clue to his ideas or to his real authority. It is too early to tell whether Mitchell's appointment indicates a full gear effort to resolve the conflict or is merely a convenient tool for keeping the issue away from the president's table.

The other key person on Obama's team, Secretary of State Hillary Clinton, appeared on the scene as a reminder of her husband's more activist approach to the Arab-Israel conflict. But Clinton too shows no urgency in dealing with the issue. She visited the region only after an Asia trip and, like Mitchell, stopped in Cairo before Jerusalem--a deliberate signal of "even-handedness" between Arabs and Israelis.

Beyond diplomatic gestures, however, Obama and Clinton have followed in the footsteps of their predecessors, Bush and Condoleezza Rice, on most decisions concerning the Israeli-Palestinian arena. Obama decided to honor the military aid commitment made by Bush to Israel. He decided to stay away from the "Durban 2" conference because of the anti-Israel language in its draft decisions. And most importantly, while pledging American aid for the reconstruction of Gaza, Clinton made clear that all funds must go through the Palestinian Authority rather than directly to Hamas. Moreover, she insisted upon the Quartet demands from Hamas--recognition of Israel and of past agreements and rejection of terror--as preconditions for dialogue.

Where the Obama policy appears to differ from Israel's is on matters of human rights and settlements, which the Bush administration had mostly overlooked, giving Israel a free hand in the West Bank and Gaza. Clinton said that Israel should implement its roadmap commitments, i.e., remove illegal outposts and freeze settlement construction, and publicly criticized a plan for house demolitions in East Jerusalem. Her visit prompted Israel to remove some of the restrictions over the entry of food supplies to Gaza, following complaints from Senator John Kerry, who had visited Gaza.

A right-wing government in Israel will probably have a hard time with the Obama team if it intends to expand settlements while offering no "political horizon" to the Palestinians. And Netanyahu will have to deliver on his "economic peace" plan, which includes some easing of restrictions on movement in the West Bank.

In her public remarks, Clinton committed the United States to the goal of an "independent, viable Palestinian state in the West Bank and Gaza" as well as to Israel's security. But she did not mention the Annapolis process of Bush and Rice, perhaps because it ended in failure. This indicates that the new team in Washington is open to new ideas and diplomatic frameworks as long as they follow the general direction of the two-state solution. One such framework that Clinton has already referred to is the Arab peace initiative, which ties a Palestinian deal into a more comprehensive Arab-Israel rapprochement.

Obama's slow start, his refraining from rushing to resolve the Palestinian-Israeli conflict based on old formulas and his preference for a regional approach give Netanyahu a window of opportunity to work with the new team in Washington, despite the latter's refusal to adopt the idea of a Palestinian state and his reliance on a right-wing coalition. But he will have to deliver on improving the situation of the Palestinians and avoid unnecessary provocations in the settlements or East Jerusalem.- Published 26/3/2009 © bitterlemons-international.org

Aluf Benn is editor-at-large of Haaretz.

Did the Obama administration hit the ground running?
George Giacaman

The first moves by the Obama administration were quick and deft and appeared to many promising. The appointment of George Mitchell as special representative, a man of experience and credibility, was followed by a visit by him to the area and then news of the possible opening of an office for him in Jerusalem. Then came the visit to Gaza of a congressional delegation led by Senator John Kerry, positive even if the emphasis was on the "humanitarian" aspect, unlike Kerry's visit to Syria, which was clearly political.

Then came the visit by Secretary of State Hillary Clinton, who had already declared the new administration's commitment to the two-state solution. She was even quoted during her visit as saying that the establishment of a Palestinian state was "inevitable".

On March 10, Charles Freeman, who had been nominated for the post of chairman of the National Intelligence Council, declared he was withdrawing his candidacy because, as he put it in an interview with CNN, of the character assassination conducted by a lobby working in the interests of a party in a foreign state.

The fact that the Freeman affair became discussable in the mainstream American media, with clear reference to the pro-Israel lobby, was an indication of the way in which the event was interpreted; as the first test of wills between the lobby, or elements thereof, and the Obama administration and possibly a premonition of things to come. That too was the interpretation in the Arab media.

Meanwhile, Binyamin Netanyahu was making a last-ditch effort to include Labor in his cabinet as well as Kadima if possible, knowing full well that a far-right government will not only make his life more difficult with the new administration, but the life of the pro-Israel lobby as well.

The next two to three months after the formation of a new government in Israel will provide clear indications of the new administration's approach to the conflict as well as its credibility. The Palestinian Authority and most Arab governments have been waiting for President Obama to take over, after a calamitous Bush legacy, and in the hope that peace can be made by the new administration. There is no room for another 17 years of negotiations, counting from the Madrid conference in late 1991. It is either now or never. Many Palestinians and Arabs already think the two-state solution is no longer possible given the continued settlement land-grab and the cantonization of the West Bank and Gaza.

The first test for the US administration is its ability to stop the settlement process, including in occupied Jerusalem, and prevent the impending division of the West Bank into two large cantons. The new administration has chosen to resuscitate the roadmap, referred to most recently by Secretary Clinton during her visit. Stage one of the roadmap calls for the complete cessation of settlement expansion. The PA maintains that it has fulfilled its part of that stage in terms of security and continues to do so. This is what General Keith Dayton is supervising, an effort that has generated considerable opprobrium among Palestinians and led to the increased de-legitimization of the PA.

This has been the central problem of the "peace process" ever since the Oslo agreements were signed. The "security first" route that Israel insisted upon was not accompanied by credible political progress that could retain the legitimacy of the PA and the credibility of negotiations. The continuing theft of Palestinian land made a farce of the "Annapolis process".

One must assume this is all clear to the Obama administration. After a new cabinet is formed in Israel, the US administration will not have indefinite time to show serious intent or, alternatively, loss of credibility. Serious intent begins with stopping settlement building. And that is only the first step. But it is of significance for more than one reason including the gesture it makes in the direction of Israeli public opinion and future relations with the US.

If the US does not succeed in this, the extreme right wing will rule supreme in Israel, promising more wars in the years ahead. And the "Obama legacy" will go down in history as another abject failure for the US. It will all become clear soon.- Published 26/3/2009 © bitterlemons-international.org

George Giacaman teaches at Birzeit University and contributes political analysis for Arab and International media. He is co-editor of After Oslo: New Realities, Old Problems, and most recently, State Formation in Palestine.

Obama's promised land
Abdel Monem Said Aly

The Obama administration has hit the ground running in the Middle East by virtually reversing all the traditional positions of the Bush administration: from neglect to activism, from clash of civilizations to dialogue of civilizations, from believing that the Arab-Israel conflict cannot be resolved to believing that despite difficulties the hope is there. The early March visit by newly appointed Secretary of State Hillary Clinton, the appointment of George Mitchell as special envoy for Middle East peace negotiations and the granting of $900 million for the Palestinian Authority and Gaza reconstruction all signaled that the United States really means business in the region.

And the post-Gaza conflict situation has been promising. The belligerent parties, Hamas and Israel, ceased fire and the humanitarian crisis in Gaza eased. Egypt proved capable not only of mediating the ceasefire but also of working out a de facto stabilization process. Moreover, Cairo was capable of getting the Palestinian factions to dialogue over a new united national program and government.

In early March, 71 states and 16 international organizations met in Sharm al-Sheikh to grant $5.2 billion for the reconstruction of the Gaza Strip. Syria and Qatar, who had formed a kind of a radical camp during the crisis in collaboration with Iran, attended the conference despite Tehran's displeasure. French President Nicolas Sarkozy called for an international conference for the Middle East before the end of the year and Prime Minister Silvio Berlusconi of Italy expressed interest in hosting Israeli-Palestinian negotiations in Sicily.

Yet it is still early for the Obama team to opt for optimism in the Middle East. The history of failures in the region is not the only justification for caution. The crisis in Gaza is not yet over. The situation along the Gaza-Israel border is still fragile. The negotiations in Cairo aimed at stabilizing the ceasefire and among the Palestinian factions have encountered a variety of obstacles.

Moreover, there are structural problems that are very difficult to resolve. First, the Israeli public elected an extreme right wing majority to the Knesset. Attempts by the US and other countries to encourage formation of a mainstream Israeli government, even one right of center, have thus far failed. Even if the now small Labor party (or a portion of it) joins, a new right-wing government will have neither the intention nor the ability to resume the peace path.

Second, during the past few years the legitimacy of the Palestinian Authority was undermined by two opposite forces: Hamas and other radical movements, and Israel. The former made it impossible for the PA to fulfill its obligations under Palestinian-Israeli agreements to prevent the use of force, whether terrorist or resistance, against Israel. The latter, by building settlements and reoccupying Palestinian territories, made it impossible for the PA to be the legitimate representative of the Palestinian people.

This was one of those ironies of history in which two arch-enemies work in unison to achieve the same strategic goal: in this case, ending the possibility of a two-state solution to the Palestinian-Israeli question. What did happen was that the PA failed in substance but was resilient in form. Whether under the leadership of Yasser Arafat or Mahmoud Abbas, the PA lost its powers to manage both Palestinian lives and the Palestinian cause. The Israeli propensity for unilateral steps, including building the separation wall, and Hamas' success in the 2006 Palestinian parliamentary elections opened the door for a fundamentally new Palestinian situation that is not ripe for serious negotiations. Even before the new Israeli government has assumed its responsibilities, a project for massive construction of settlements in the West Bank is in place and major de-Palestinization of East Jerusalem is at work. For Palestinians, Arabs and Muslims there is no peace without East Jerusalem as capital of the Palestinian state.

However, the approach of the Obama administration to the Palestinian question is thus far more regional than it is captive of the specificities of the conflict. It is much more important to create an environment conducive to peacemaking and serving American global interests. Promising to visit Ankara to mend fences with the Islamic world, asking for a serious dialogue with Tehran on all issues to give Iran its rightful place under the sun and clearing the air that was polluted by the Bush administration in Cairo and Riyadh are all steps in that direction.

Such an approach will provide incentives for the parties to move in the right direction. Its success or failure is still to be seen. It will be an uphill battle for Obama, but without it all his other objectives in the Middle East will be jeopardized.- Published 26/3/2009 © bitterlemons-international.org

Abdel Monem Said Aly is director of Al Ahram Center for Political & Strategic Studies in Cairo.

Letters. He gets letters
Chris Toensing

Shortly before assuming office, President Barack Obama was handed a missive signed by such Washington luminaries as ex-national security advisers Zbigniew Brezezinski and Brent Scowcroft, urging him to "explore the possibility" of direct contact with Hamas. One month after he entered the White House, Obama received an epistle from Ahmad Yousef, a Gaza-based spokesman for the Islamist movement, making the same recommendation. "There can be no peace without Hamas," Yousef told the New York Times when asked about the letter's contents. "We congratulated Mr. Obama on his presidency and reminded him that he should live up to his promise to bring real change to the region."

There is no word, as yet, on how the foreign policy doyens' message was received, but Yousef's occasioned a huffy US rebuke of the UN Relief Works Agency, whose top official in Gaza, Karen Abu Zayd, passed the letter to Sen. John Kerry while he was visiting the devastated territory in mid-February. Even a single sealed envelope, it seems, creates the appearance that the Obama administration is breaking with the US vow, enunciated first under President George W. Bush, not to speak with Hamas until it agrees to renounce violence, abide by previous Palestinian agreements with Israel and recognize Israel as a Jewish state. Kerry hastily explained that he had transferred the letter unknowingly.

The Kerry episode is noteworthy because the Massachusetts senator is seen in Washington as a stalking horse for the Obama administration, a sort of shadow secretary of state who will go, physically and verbally, where Hillary Clinton will not. Though Hamas later claimed Yousef wrote his letter on his own, he interpreted Kerry's trip to Gaza in precisely this way. Perhaps this is why Hamas politburo chief Khalid Meshaal told the Italian daily La Repubblica on March 23, "Regarding an official opening toward Hamas, it's a matter of time."

Indeed, Kerry made conciliatory noises toward Hamas on his Middle East trip, plugging Syrian President Bashar al-Assad as a possible broker of a Palestinian national unity deal including the Islamist party. Upon returning to Washington, furthermore, the senator sent a shot across the bow of Israel's designated premier, Binyamin Netanyahu, in a speech at the Brookings Institution. "The settlements are an obstacle to peace," said Kerry, in words that rarely escaped the Bush administration's lips. And the words that followed never did: "But in our honest moments we would all acknowledge that this [US] policy [against the settlements] has usually existed on paper alone."

Taken in full, however, Kerry's remarks at Brookings demonstrated yet again how achingly slowly the foreign policy wheels grind in Washington. His primary stated reason for optimism about the chances for Israeli-Palestinian peace, for example, was that "the rise of Iran has created an unprecedented willingness among moderate Arab nations to work with Israel." If Kerry is speaking for Obama, therefore, the new president believes, like his predecessor, that the road to Jerusalem goes through regional cold war with Tehran. The senator spoke of "direct engagement with Iran" on bilateral issues, but interwove his comments with tips for isolating Iran in the region. He even reprised the Bush administration's occasional ham-handed sectarian analysis of the Middle East with his musing that "as a secular Arab country with a Sunni-majority population, Syria's long-term interests lie not with Iran but with its Sunni neighbors and with the West." And Kerry's expressions of faith in the 2002 Arab peace initiative were coupled with scolding that will not sit well with Arab interlocutors. "Qatar can't continue to be an American ally on Monday that sends money to Hamas on Tuesday," he jibed. (Can the United States continue to be a Qatari ally on Monday that sends money to Israel every day of the week?)

The most worrisome aspect of Kerry's approach, particularly if, as rumored, it reflects the thinking of the real secretary of state and her advisers, is that Israeli-Palestinian peace will be reduced to one moving part in another of Washington's great games. Meanwhile, in concrete, barbed wire, adobe and red tile, the biggest obstacles to peace will continue to rise in East Jerusalem and the West Bank.

Perhaps President Obama will heed the repeated advice of his correspondents, American and Palestinian, call a halt to Israel's colonization and then find a way to engage Hamas. The movement's sense of self-importance aside, there is indeed no peace in Israel-Palestine without them, because no Israeli leader can sell a deal to the Israeli public that was concluded with only some of the Palestinians, and because Hamas would have every incentive to destroy, including with violence against Israeli civilians, a deal that excluded them. Eventually Obama may appreciate these realities deeply enough to drop Washington's insistence that Hamas give up its negotiating cards before the negotiations begin. But history, and the centrist caution shown by the nascent administration on nearly every front to date, counsel that such a change, if it comes, will come too late, and certainly too late to save the two-state solution that the US professes to cherish.- Published 26/3/2009 © bitterlemons-international.org

Chris Toensing is editor of Middle East Report, published out of Washington by the Middle East Research and Information Project.

Going South in Afghanistan Gilles Dorronsoro

Stabilizing Afghanistan:
Threats and Challenges
William Maley
http://carnegieendowment.org/publications/index.cfm?fa=view&id=22337

Reforming the Intelligence Agencies in Pakistan’s Transitional Democracy
Frederic Grare
http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=22817

Afghanistan and the Transatlantic Community: Developments and Perspectives for Future Engagement
U.S. Ambassador to NATO Kurt Volker, Kim Sengupta
http://carnegieeurope.eu/events/?fa=1215

Focus and Exit: An Alternative Strategy for the Afghan War
http://carnegieendowment.org/publications/index.cfm?fa=view&id=22619

Going South in Afghanistan
Gilles Dorronsoro
http://carnegieendowment.org/publications/index.cfm?fa=view&id=22722

The Monarch Who Declared His Own Revolution King Abdullah, 85, is racing to reform Saudi Arabia. How much can he accomplish—and will it last?

NEWSWEEK

3/25/09

The Monarch Who Declared His Own Revolution

King Abdullah, 85, is racing to reform Saudi Arabia. How much can he accomplish—and will it last?

Christopher Dickey

The night of September 11, 2001, had come and gone in Saudi Arabia, and the dawn prayers had been said in Jidda. But at midmorning, when a visitor to Crown Prince Abdullah bin Abdel Aziz al-Saud found him in one of the vast rooms of his palace, the de facto ruler of the country was still bent on the floor. "He was alone," remembers the visitor, insisting on anonymity. "He prayed long, long, long—much longer than I have ever seen." At last the man who is now the king of Saudi Arabia (he would inherit the throne in 2005) arose and spoke. He seemed stunned. "I am sure our good people did not do these things," he said. Yet word had already come from the United States that most of the 19 hijackers were Saudi citizens. "He could not put this within a context that he understood," recalls the visitor. "Not in an Arab context or a Muslim context or a Saudi context." In the years since, when Abdullah has talked of Al Qaeda and its allies, he uses words that translate as "the deviant group," or "the miscreants," as if it is impossible that they could have been his subjects.

For years the pace of reform in Saudi Arabia has reflected what seemed to be denial. Change has been almost imperceptibly slow, like a dune moving across the desert, even as the kingdom's festering problems nourished extremism. In the past few weeks, however, things have suddenly accelerated as the king has moved to show the ultraconservative Saudi religious establishment quite literally who's boss. He sacked the head of the feared religious police and the minister of justice, appointed Nora al-Fayez as deputy education minister, making her the highest-ranking female official in the country's history, and moved to equalize the education of women and men under the direction of a favored son-in-law who has been preparing for years to modernize the nation's school system. "Abdullah waited," says Robert Lacey, who wrote "The Kingdom," the classic 1981 study of Saudi Arabia, and is now working on a sequel. "He bided his time until it was appropriate for him to make the changes he wanted." Whatever the reason, the 85-year-old monarch has begun acting like a leader whose vision is becoming clear just as time is running short.

The question is how much he can accomplish before his death or dotage. Physically and mentally, Abdullah is still going strong, says Ford Fraker, the outgoing U.S. ambassador to Riyadh. "The physical power of this man is remarkable," Fraker says. "When you shake hands with him it's like shaking hands with a tree trunk. He is rock solid. There isn't a tremor anywhere." But he'll need every bit of strength and stamina he can muster. Transforming Saudi society may be a task as overwhelming as that of creating Middle East peace. There are just as many factions hoping the king's efforts will fail, and just as much hard, incremental, unglamorous work to make sure the reforms stick. Can Abdullah follow through? And will the next king continue those reforms or undo them? Abdullah's father, King Abdel Aziz ibn Saud, had more than 50 sons by various wives, and not all the half-brothers-in-waiting have the present king's cool wisdom—like Interior Minister Nayef, 76, who publicly suggested in 2002 that "Jews" might have been behind the 9/11 attacks.

To say that Abdullah believes in simple values—those of the Arabs, of Islam and of the House of Saud, as he sees them—is not at all to say he is a simple man. His life has bridged centuries of change. Born into the crumbling palaces of desert tribes in 1923 (the precise date was not recorded), he now rules one of the richest countries on earth. When Abdullah was a child, his father had not yet finished his conquests on the Arabian Peninsula or founded the nation-state that bears the family name.

The boy was 6 when his mother died, and as her only son he felt he had to take care of his younger sisters even then. "He had a tough childhood," says Abdullah's daughter Princess Adelah. "He took on a lot of responsibility from the time he was very young." The children grew up amid rebellion and insurrection, with their father's rule threatened by the intolerant Wahhabi Brotherhood that had helped bring him to power.

As a grown man, Abdullah witnessed the oil boom and the corrosive effects of spectacular greed—and more fanaticism, more insurrection, including the bloody siege of the Great Mosque in Mecca in 1979. There were dangerous intrigues within the family, too. When Abdel Aziz died in 1953, the succession passed to his son Saud, who was deposed in 1964 by his half-brother Faisal, who was murdered years later by a nephew. When Fahd took the crown in 1982, Abdullah became crown prince, and after Fahd suffered a stroke in 1995, he became acting king.

He brought a powerful sense of desert tradition to the job. His mother was from the powerful Shammar tribe that extends from Saudi territory deep into Iraq, Syria and Jordan, and before being named crown prince he had been head of the Saudi National Guard, a force made up of tribal levies from all over the country. He was immersed in Bedouin culture—the same traditional Saudi values that frame the world as Abdullah sees it. "You do not see him being more lenient with his family than with the National Guard," Princess Adelah told NEWSWEEK. "He is very straightforward, very honest, and hates injustice." Ambassador Fraker sees him as "someone who in many ways is a throwback to that desert-warrior ethos where men stand by their word, they look each other straight in the eye and they apply a code of honor." Fraker recalls Abdullah talking about his fellow leaders in the region and asking, "Are there men of honor in the Middle East?" The answer, for the most part: "No."

According to Saudis who have watched the king's foreign-policy initiatives up close, he holds little trust in his counterparts. "He is suspicious of everyone, and believes they are evil until proven innocent," says one analyst who is close enough to the palace to prefer not to be named talking out of school. After the king finally came to terms with his subjects' involvement in 9/11, his attitude toward the terrorists was that they had betrayed everything in which he believed.

That sense of betrayal continues to drive him. Former CIA director Michael Hayden has credited the king and his men with providing some of the most productive and effective cooperation that the United States has with any country in the world. "Aggressive efforts by the Saudi security forces between 2003 and 2006 led to the death or capture of most Al Qaeda leaders and operatives within the kingdom," Hayden told a think tank late last year. "Financing networks were disrupted. The Saudi Interior Ministry undertook what is perhaps the world's most effective counterradicalization programs." Hayden added: "I am struck, maybe even surprised … by the degree of emotion in my Islamic counterpart's voice when he is talking about Al Qaeda and how un-Islamic Al Qaeda really is."

Abdullah essentially looks on his subjects with paternal indulgence, and his affection is reciprocated by much of the population. But such a personalized relationship between king and people provides an uncertain foundation for some of the reforms Abdullah now wants to push through. Speech is freer than ever before, but dissidents still risk being thrown in jail for speaking out publicly. Book fairs and poetry festivals have become gathering places for men and women, but they're also what one British expatriate in Riyadh calls "battlegrounds" where young hard-liners express outrage at the distribution of popular romances. The king has made history by meeting with the pope (after demanding and getting the acquiescence of Saudi Arabia's religious authorities), but Christian churches are still forbidden on Arabia's sacred soil.

Women are still forbidden to drive. They're required to keep their bodies covered (though they may expose their face if they like), and their choices in every aspect of life, personal and professional, are more limited than those of men. Saudi law treats women, at best, as second-class citizens. The fiery Princess Adelah, playing an ever more assertive role, is an inspiration to some. "She listens," says a young mother of two girls. "The king likes her a lot. She has become his public face."

And the old man himself? "I met him once," the mother says. "He's very quiet. I was with a delegation. We all shook hands with him." In puritanical Saudi Arabia, that's a serious gesture in itself. "He said we were all his daughters. And he actually listened and tried to solve each one's problem: 'Talk to this person or that person'." Still, change like that is hardly systemic. "Look, I would like to have a more effective role for women in society," says Adelah, who presides over numerous Saudi charities and whose husband, Faisal bin Abdullah, is the new minister of education. "We are finding it hard. We find lots of resistance. But we will not give up. These things aren't given to you. You need to pull them out of society."

Whatever you do, don't make King Abdullah angry. In 2001 and 2002 he threatened to rethink the U.S.-Saudi strategic partnership if Washington did not do something to stop the suffering of the Palestinians under Israeli occupation. In short order, George W. Bush became the first American president to openly advocate the creation of a viable Palestinian state. When Bush started to backpedal on diplomatic efforts to realize that goal, Abdullah visited the Crawford ranch and reportedly delivered an angry ultimatum; Bush's then secretary of state, Colin Powell, was later quoted as calling it a "near-death experience."

Nevertheless, the king prefers honorable conciliation over confrontation. In 2002 he tried to end the Arab-Israeli conflict by imposing a deal on the Arab League that would offer peace between Israel and all of the Arab world if Israel would pull back to its 1967 borders, allow East Jerusalem to become the Palestinian capital and make some accommodation with Arab refugees from the wars of 1948 and 1967. The plan won't stay on the table forever, he warned during the recent Israeli bombing of Gaza.

But the violence and threats continue on all sides despite his best efforts. Fighting between Hamas and Fatah is said to cause him particular anguish. Abdullah's foreign minister, Prince Saud al-Faisal, recalls the king's reaction during an especially ugly moment, back in 2007: "He just couldn't believe that Palestinian guns were turned against Palestinian people, and blood is shed and people are killed and children are orphaned while they're facing such horrendous treatment from the Israelis. He just couldn't take that."

The king is likewise distressed by Mahmoud Ahmadinejad's popularity on the Arab street. The Iranian president keeps gleefully stirring up trouble in the region, apparently oblivious to the harm he does with his encouragement of extremists, with his venomous posturing toward Israel and with the nuclear program he's revealing bit by bit, like a bomb hidden behind seven veils. "Don't play with fire," Abdullah warned Ahmadinejad when they met face to face in early 2007. The Saudis have quietly worked to undermine Iranian influence in Lebanon and even in Syria, Tehran's old ally. "The Iranians cannot match us financially, so why not give it a try?" said a Saudi analyst who asked not to be cited by name because of the sensitivities involved.

But Abdullah's reforms at home—if they succeed—could be as significant as any of his foreign-policy efforts. Those domestic moves are likely to take months or years before they produce solid results. "The king's heart is in the right place, but he's up against an intransigent bureaucracy," says one senior Western diplomat who has worked with him closely. "There were times when we agreed on something with the king and six months later we would raise it again. He'd say, 'We agreed, and it was done.' And we'd have to say, 'But Your Majesty, it wasn't done'."

Most Saudis seem to revere their king, and many appreciate what he's trying to do. Still, they're not sure that even he has what it takes to transform their reactionary society. "I am afraid it's not enough," says the young mother in Riyadh. "And in a year or two, it might be—nothing." For Abdullah, for the Americans and for the Saudis themselves, that would be a tragedy.

An Army of Extremists How some military rabbis are trying to radicalize Israeli soldiers. Christopher Hitchens

SLATE

3/23/09

An Army of Extremists

How some military rabbis are trying to radicalize Israeli soldiers.

Christopher Hitchens

Recent reports of atrocities committed by Israeli soldiers in the course of the intervention in Gaza have described the incitement of conscripts and reservists by military rabbis who characterized the battle as a holy war for the expulsion of non-Jews from Jewish land. The secular Israeli academic Dany Zamir, who first brought the testimony of shocked Israeli soldiers to light, has been quoted as if the influence of such extremist clerical teachings was something new. This is not the case.

I remember being in Israel in 1986 when the chief army "chaplain" in the occupied territories, Rabbi Shmuel Derlich, issued his troops a 1,000-word pastoral letter enjoining them to apply the biblical commandment to exterminate the Amalekites as "the enemies of Israel." Nobody has recently encountered any Amalekites, so the chief educational officer of the Israeli Defense Forces asked Rabbi Derlich whether he would care to define his terms and say whom he meant. Rather evasively—if rather alarmingly—the man of God replied, "Germans." There are no Germans in Judaea and Samaria or, indeed, in the Old Testament, so the rabbi's exhortation to slay all Germans as well as quite probably all Palestinians was referred to the Judge Advocate General's Office. Forty military rabbis publicly came to Derlich's support, and the rather spineless conclusion of the JAG was that he had committed no legal offense but should perhaps refrain in the future from making political statements on the army's behalf.

The problem here is precisely that the rabbi was not making a "political" statement. Rather, he was doing his religious duty in reminding his readers what the Torah actually says. It's not at all uncommon in Israel to read discussions, featuring military rabbis, of quite how to interpret the following holy order from Moses, in the Book of Numbers, Chapter 31, Verses 13-18, as quoted from my 1985 translation by the Jewish Publication Society. The Israelites have just done a fairly pitiless job on the Midianites, slaughtering all of the adult males. But, says their stern commander-in-chief, they have still failed him:

Moses, Eleazer the priest, and all the chieftains of the community came out to meet them outside the camp. Moses became angry with the commanders of the army, the officers of thousands and the officers of hundreds, who had come back from the military campaign. Moses said to them, "You have spared every female! Yet they are the very ones who, at the bidding of Balaam, induced the Israelites to trespass against the Lord in the matter of Peor, so that the Lord's community was struck by the plague. Now, therefore, slay every male among the children, and slay also every young woman who has known a man carnally; but spare every young woman who has not had carnal relations with a man."

Moses and Eleazar the priest go on to issue some complex instructions about the ritual cleansings that must be practiced after this exhausting massacre has been completed.

Now, it's common to hear people say, when this infamous passage and others like it come up, that it's not intended to be "taken literally." One also often hears the excuse that some wicked things are done "in the name of" religion, as if the wicked things were somehow the result of a misinterpretation. But the nationalist rabbis who prepare Israeli soldiers for their mission seem to think that this book might be the word of God, in which case the only misinterpretation would be the failure to take it literally. (I hate to break it to you, but the people who think that God's will is revealed in scripture are known as "religious." Those who do not think so must try to find another name for themselves.)

Possibly you remember Dr. Baruch Goldstein, the man who in February 1994 unslung his weapon and killed more than two dozen worshippers at the mosque in Hebron. He had been a physician in the Israeli army and had first attracted attention by saying that he would refuse to treat non-Jews on the Sabbath. Now read Ethan Bronner's report in the March 22 New York Times about the preachments of the Israeli army's latest chief rabbi, a West Bank settler named Avichai Rontzski who also holds the rank of brigadier general. He has "said that the main reason for a Jewish doctor to treat a non-Jew on the Sabbath … is to avoid exposing Diaspora Jews to hatred." Those of us who follow these things recognize that statement as one of the leading indicators of a truly determined racist and fundamentalist. Yet it comes not this time in the garb of a homicidal lone-wolf nut bag but in the full uniform and accoutrement of a general and a high priest: Moses and Eleazar combined. The latest news, according to Bronner, is that the Israeli Defense Ministry has felt compelled to reprimand Rontzski for "a rabbinal edict against showing the enemy mercy" that was distributed in booklet form to men and women in uniform (see Numbers 31:13-18, above).

Peering over the horrible pile of Palestinian civilian casualties that has immediately resulted, it's fairly easy to see where this is going in the medium-to-longer term. The zealot settlers and their clerical accomplices are establishing an army within the army so that one day, if it is ever decided to disband or evacuate the colonial settlements, there will be enough officers and soldiers, stiffened by enough rabbis and enough extremist sermons, to refuse to obey the order. Torah verses will also be found that make it permissible to murder secular Jews as well as Arabs. The dress rehearsals for this have already taken place, with the religious excuses given for Baruch Goldstein's rampage and the Talmudic evasions concerning the assassination of Yitzhak Rabin. Once considered highly extreme, such biblical exegeses are moving ever closer to the mainstream. It's high time the United States cut off any financial support for Israel that can be used even indirectly for settler activity, not just because such colonization constitutes a theft of another people's land but also because our Constitution absolutely forbids us to spend public money on the establishment of any religion.

Christopher Hitchens is a columnist for Vanity Fair and the Roger S. Mertz media fellow at the Hoover Institution in Stanford, Calif.

On Khamenei’s Response to Obama Farideh Farhi

On Khamenei’s Response to Obama
Farideh Farhi

Juan Cole already has a run down of some of the things Iran’s supreme leader Ayatollah Khamenei said in response to President Obama’s message on the occasion of Iranian New Year and the press coverage of it. I think Juan’s point about the speech not being a rebuff is on the money, but I do take issue with his characterization of the speech being more like a “grumpy old man response to Obama's call for engagement.”

I say this because I think the translations of the bits and pieces of the speech in the news (even the Persian language Farsnews upon which Juan relies) do not do justice to this carefully crafted response intended to set the parameters of US-Iran talks if they are to happen.

For those who can understand Persian, I recommend that you check Khamenei’s website. The Persian language section of the website - the site has translations in 12 other languages – has both the video of his speech as well as the whole text. The English section also has an abbreviated English translation which is decent but still does not relay the feel you get by watching the whole speech.

The speech was quite long, first dealing with domestic affairs and focusing mostly on the need to curb the consumption of resources. But it gets interesting around minute 40 when he explains why his public support for President Ahmadinejad should not be construed as support for him as a candidate in the next presidential election. This is of course a big issue for Iran’s domestic politics and the fact that the leader himself had to address it was significant since Ahmadinejad supporters are working very hard to give the impression that he is his candidate

The move to the subject of US-Iran talks is abrupt and Khamenei makes clear that this is the only external issue with which he will deal, spending more than 20 minutes on it. It is a powerful speech, calmly delivered, and mostly devoid of usual jargon. He does talk about US policies that have harmed Iran and continue to harm it, including sanctions, freezing of assets, support for opposition and secessionist groups, and Baluchi insurgents - communications of whom with US operatives he says the Iranian government has intercepted.

But he mentions these as reasons why mere conciliatory speeches cannot be considered real change in American policy. More significantly, he mentions them in order to explain why the continuation of these hostile policies has to make Iran wonder whether President Obama’s gestures are of any value: “They say they have extended their hands towards Iran. If the extended hand has a velvet glove but under it is an iron cast hand, then this does not have a good meaning.”

This leads to the point: “They say come and talk, come and establish relations, they change slogans. Well, where is this change? Clarify this for us; what has changed? Have you unfrozen the assets of the Iranian people; have you lifted the oppressive sanctions…? We do not have any experience with the new American government and president; we will look and judge. You change, and we will also change our behavior too.”

He also makes a clever play on the usual way the American policy community talks about Iran, turning it against US and saying “I don’t know who really makes policy in the US – the president, Congress or behind the scene players.” But no matter who makes decisions in the US, Iran makes decision "rationally and not based on emotions." The bottom line is: “Our nation dislikes it when you again proclaim ‘talks with pressure’; we talk to Iran while we pressure them as well – threat and inducement. You cannot talk to our nation this way."

Juan Cole interpret complains about US foreign policy as “Iran’s initial bargaining position which include everything but the kitchen sink.” I don’t.

Khamenei’s speech actually shows how attuned he is to debates in Washington. He makes no calls for U.S. apology for past actions. His focus is today. No doubt he wants sanctions to be lifted, assets unfrozen, and attempts to undermine the Iranian government ended at some point as a result of talks with the U.S.

But his concern now is the argument forwarded by powerful circles in Washington that negotiations with Iran should be combined with increased pressure to make sure that Iran will give in at the end. It is this type of what he calls “condescending language, arrogant approach, and patronizing moves” that he rejects.

Clearly from his view, engagement in talks must be accompanied with some concrete steps that show Iran that the United States is interested in a process and give and take and not a process based on “either deception or intimidation.” Deception because the objective remains the same while the softer language is a mere tactical change. Intimidation because talks are combined with further squeeze of Iran.

He leaves no doubt that further squeezing of Iran leading up to talks and during the talks will be seen as a sign that President Obama’s rhetoric of change is a farce. As such the speech should really be seen as a carefully calibrated attempt to shape the debate in Washington on how to go about talking to Iran.





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http://icga.blogspot.com/

Obama's Plan to Save the World by Scott Ritter

Obama's Plan to Save the World
by Scott Ritter

While pundits and politicians wrestle with immediate issues such as the economic meltdown, the wars in Iraq and Afghanistan and the nuclear ambitions of Iran and North Korea, global climate change has emerged as one of the most critical and contentious security issues of the 21st century. The new director of national intelligence, Adm. Dennis Blair, has cited rising temperatures, combined with an increase in weather-related natural disasters, as a major facilitator of governmental instability worldwide, especially in underdeveloped regions. Issues of poverty, infrastructure degradation, social and political collapse and environmental decay will all be exacerbated by global warming. While the crises stemming from climate change will initially manifest themselves most critically in regions of the world already impacted by political, social and economic turmoil, there is a pronounced threat of spillover as entire populations migrate from the stricken regions into areas where humans have a better chance of survival. The severity and longevity of the consequences of severe weather-related events will make current mechanisms of containing and mitigating these crises inadequate. The scope and scale of these massive migrations would be unprecedented in modern history, as would the ensuing conflicts over basic resources such as food and water, not to mention energy.

The potential catastrophe that global climate change could unleash on America makes every other foreign policy crisis pale in comparison. Recognizing the importance of proactive, as opposed to reactive, policy to head off these looming problems, President Obama has crafted a national policy designed to address the principal underlying cause of global climate change: greenhouse gas emissions. Greenhouse gas reduction is one of three pillars on which Obama has constructed his ambitious energy plan, the other two being economic stimulus and increased energy security. In the recent economic stimulus bill signed by the president, some $50 billion of a $789 billion total stimulus package will be set aside for programs related to efficient and renewable energy. This will be followed by an outlay of $150 billion over 10 years for investments in projects related to clean energy, efficient power generation and usage, and improved domestic oil and gas production.

Increased domestic energy production is linked with a broader concept of increased energy security, the stated objectives of which are to reduce American dependency on imported oil from the Middle East and Venezuela, which together account for 33 percent of the United States' daily consumption, 10 million barrels. Reducing or eliminating this dependency is seen as a mechanism for freeing up American diplomatic and economic options in these critical regions, providing U.S. leaders with more flexibility in crafting solutions deemed to be in the national interest, and not so heavily tied to the need to guarantee continued access to these important sources of energy. But increased domestic energy production will not, in and of itself, deal with the pressing issue of greenhouse gas emissions. Indeed, void of a plan to manage greenhouse gas emissions, any massive effort to increase domestic energy production could result in even higher emissions.

The Obama administration does have a plan, in the form of an innovative, ambitious and as such contentious national "cap and trade" system for managing and reducing greenhouse gas emissions. Under the plan, the government would establish a national standard for greenhouse gas emissions by various industries, representing a "cap" intended to achieve a reduction of 80 percent by 2050. Industries operating below this "cap" would have "credits" that could then be traded-through for-profit "auctions"-to industries unable to meet the standard.

The Obama administration believes this cap-and-trade proposal will not only reduce greenhouse gas emissions in the United States but will also generate federal income from the taxation of the revenue obtained from the trading of credits. This revenue would then be invested by the government in new clean energy projects and initiatives. There is even an international aspect of the domestic cap-and-trade system: Heavy U.S. emitters of greenhouse gases would have the option of offsetting their domestic quotas by investing in low-carbon energy projects in the developing world. There are several major obstacles in the way of turning the cap-and-trade concept into reality. First, there is the issue of establishing a domestic framework for defining and enforcing the greenhouse emission caps. The industrial infrastructure that would be most impacted by the caps is arguing for a single national standard, as opposed to caps being set at the state level. Another key issue is the cap itself, how it would be defined, and what benchmarks would be set for implementation of the 80 percent reduction. Until these questions are answered, new energy production initiatives in the United States are frozen.

Second, there is a need to integrate the ambitious American domestic policy into an overarching international policy of controlling greenhouse gas emissions. President Obama has committed to the creation of a Global Energy Forum, which would comprise the core G-8 countries plus major developing nations such as Brazil, China, India, Mexico and South Africa. The forum would focus exclusively on global energy and environmental issues. Obama has also committed to re-engage the United States in the United Nations Framework Convention of Climate Change (UNFCCC), which is working to build a new global regime of commitments to replace the existing Kyoto Protocol, which expires in 2012.

The goals and expectations that individual nations bring to these assemblies, whether it is Obama's Global Energy Forum or the UNFCCC, differ greatly. As a developed nation, the United States has flexibility in internal operations that nations conducting major development programs, such as China and India, do not. Negotiating viable greenhouse emissions caps with China, India and other major developing nations is essential to defining a realistic emission cap in the United States. Without such a global agreement, U.S. industries may be compelled, because of simple economics, to flee a constrictive American domestic environment for more permissive locations abroad. Such flight would be counterproductive to the Obama economic stimulus plan, which hinges on industries, and their associated jobs, remaining in the U.S. It would also hamper the overall goal of reducing global emissions to make the homeland more secure.

Another problem is the issue of projecting caps in a fair and equitable manner. While the United States and Europe can project with some confidence energy consumption models for the foreseeable future, the same cannot be said of many developing nations. A cap level for the U.S. and Europe projected over a 50-year period is viable. However, for developing nations, population changes alone will radically alter their energy consumption requirements, as well as their population-related infrastructures. Caps using present-day criteria would rapidly become unrealistic, and consequently would be subject to violation. However, adjusting U.S. and European caps based upon such projections would place an even greater burden on the industrial bases of these nations. Managing the issue would be a major challenge for the Obama administration and the rest of the world.

The linkage between global climate change, national security and energy consumption models is not one of normal association. Today, however, the potential impact on global social, political and economic systems simply cannot be ignored. This impact would be not only iterative, but would cumulatively have an effect that is several orders of magnitude greater than what normally would be projected. Preventing, or at least containing and mitigating, the potential dire consequences of global climate change will require sweeping reform which will affect existing global energy consumption models. How this reform is framed, and the manner in which it is implemented, will likewise heavily influence the economic, political and physical aspects of the world energy markets, making global climate change perhaps the most critical issue when it comes to the future of energy security, and national security.

Given the paramount role played by the United States in world affairs today, the energy policies implemented by the Obama administration will have an influence unmatched by any other nation or group of nations. While the Obama energy plan is complex, a major indicator of whether or not the plan is unfolding as expected will be the issue of cap and trade. The success or failure of the cap-and-trade initiative will impact the overall viability of Obama's clean energy initiatives, domestically and internationally, and as such should be closely monitored by all parties with a vested interest in energy and related security matters. And given the inherent problems confronting the successful implementation of the cap-and-trade initiative, it is imperative that the Obama administration develop alternative plans and courses of action. There might not be enough time to do so if "cap and trade" fails. The threats faced by America and the rest of the world today from terrorism and so-called rogue states will shrink into insignificance if entire populations begin vying for habitable land and the basic resources required to sustain life. This is a predictable problem, with recognizable solutions. Whether America and the world have the collective wisdom, and courage, to implement these solutions is yet to be seen.

© 2009 TruthDig.comhttp://www.commondreams.org/view/2009/03/24-15

Fiscal Plan Fails both Markets and Taxpayers by Joseph E. Stiglitz

Fiscal Plan Fails both Markets and Taxpayers
by Joseph E. Stiglitz

Let's be clear: President Barack Obama inherited an economy in freefall and could not possibly have turned things around in the short time since his election. Unfortunately, what he is doing is not enough.

The real failings in the Obama recovery program lie not in the stimulus package -- though it is too heavily weighted toward tax cuts, and much of it merely offsets cutbacks by states -- but in its efforts to revive financial markets. America's failures provide important lessons to countries around the world that are or will be facing increasing problems with their banks:

* Delaying bank restructuring is costly, in terms of both the eventual bailout costs and the damage to the overall economy in the interim.
* Governments do not like to admit the full costs of the problem, so they give the banking system just enough to survive, but not enough to return it to health.

* Confidence is important, but it must rest on sound fundamentals. Policies must not be based on the fiction that good loans were made, and that the business acumen of financial-market leaders and regulators will be validated once confidence is restored.
* Bankers can be expected to act in their self-interest on the basis of incentives. Perverse incentives fueled excessive risk-taking, and banks that are near collapse but are too big to fail will engage in even more of it. Knowing that the government will pick up the pieces if necessary, they will postpone resolving mortgages and pay out billions in bonuses and dividends.
* Socializing losses while privatizing gains is more worrisome than the consequences of nationalizing banks. American taxpayers are getting an increasingly bad deal. In the first round of cash infusions, they got about 67 cents in assets for every dollar they gave (though the assets were almost surely overvalued, and quickly fell in value). But in the recent cash infusions, it is estimated that Americans are getting 25 cents, or less, for every dollar. Bad terms mean a large national debt in the future.
* Don't confuse saving bankers and shareholders with saving banks. America could have saved its banks, but let the shareholders go, for far less than it has spent.
* Trickle-down economics almost never works. Throwing money at the banks hasn't helped homeowners: foreclosures continue to increase. Letting AIG fail might have hurt some systemically important institutions, but dealing with that would have been better than to gamble upwards of $150 billion and hope that some of it might stick where it is important. One of the reasons we may be getting bad terms is that if we got fair value for our money, we would by now be the dominant shareholder in at least one of the major banks.
* Lack of transparency got America's financial system into this trouble. Lack of transparency will not get it out. The Obama administration is promising to pick up losses to persuade hedge funds and other private investors to buy out banks' bad assets. But this will not establish ''market prices,'' as the administration claims. Banks' losses have already occurred, and their gains must now come at taxpayers' expense. Bringing in hedge funds as third parties will simply increase the cost.
* Better to be forward looking than backward looking, focusing on reducing the risk of new loans and ensuring that funds create new lending capacity.

There is no ''mystique'' in finance: The era of believing that something can be created out of nothing should be over. Short-sighted responses by politicians -- who hope to get by with a deal that is small enough to please taxpayers and large enough to please the banks -- will merely prolong the problem.

An impasse is looming. More money will be needed, but Americans are in no mood to provide it -- certainly not on the terms that we have seen The well of money may be running dry, and so, too, may be America's legendary optimism and hope.

http://www.commondreams.org/view/2009/03/24-8

Obama’s Toxic Advisers by Robert Scheer

Published on Wednesday, March 25, 2009 by TruthDig.com
Obama’s Toxic Advisers

by Robert Scheer

Bernie Sanders, the senator from Vermont who is independent in spirit as well as party label, has placed a hold on President Obama's nomination of Gary Gensler to head the Commodity Futures Trading Commission. Sounds like a minor issue to get worked up about, but the senator is right. Like most Americans, I am eager for Barack Obama to succeed, but I see this appointment as further evidence that the president has entrusted his economic policy to the wrong people.

Gensler helped create this financial crisis when he was in the Treasury Department back in the Clinton era, when bipartisan cooperation with Wall Street lobbyists was all the rage. Sanders gets right to the point: "Mr. Gensler worked with Senator Phil Gramm and Alan Greenspan to exempt credit default swaps from regulation, which led to the collapse of A.I.G. and has resulted in the largest taxpayer bailout in U.S. history."

Sanders' hold will not stop the Gensler nomination, because Congress and the president, recognizing the nation's mood, want to give Wall Street whatever it wants to make the stock market go up. And Gensler is a reassuring figure to the moguls of finance; he was a partner at Goldman Sachs before being brought by Goldman honcho Robert Rubin to the Clinton Treasury Department.

After Rubin left to take a $20-million-a-year job at Citigroup, which he helped run into the ground, Lawrence Summers, his protégé and replacement at Treasury, elevated Gensler to be an undersecretary. Gensler then performed as Summers' point man in advocating for deregulation legislation that enabled the current debacle.

The explosion of toxic assets is a direct result of the laws pushed through by Rubin and his followers, and in the decade since, we have had a 20-fold increase, to more than $530 trillion, in the value of those newfangled financial instruments, which Warren Buffett in February 2003 correctly termed "financial weapons of mass destruction."

Yet when one member of the Clinton administration, Brooksley Born, then head of the Commodity Futures Trading Commission, attempted to sound a warning, she was treated by the rest of Clinton's economic team as the enemy.

In response to Born's warning, they drove her from government and pushed through the Commodity Futures Modernization Act, which summarily exempted from regulation the derivatives that now haunt us. The claim at the time by Summers, now top economic adviser in the Obama White House, was that "[t]his legislation promotes innovation and competition in the U.S. financial markets and may help to reduce systemic risk." Of course now we know, as Born predicted, that it did quite the opposite. What irony that Gensler is being rewarded with Born's old job for getting it wrong.

In congressional testimony supporting the radical deregulation of the financial derivatives market, Gensler had insisted with great enthusiasm that "OTC derivatives directly and indirectly support higher investment and growth in living standards in the United States and around the world." As to the many trillions of dollars in credit swaps that now afflict the world economy, Gensler specifically called for freeing swaps of this kind from existing government regulation in the Commodity Exchange Act, which regulated other futures such as wheat sales. He said, "...[S]wap transactions should not be regulated under the CEA. ..."

His key argument, and that of Summers as well, was that even raising the prospect of regulating what have proved to be toxic derivatives would deny these financial instruments the "legal certainty" they needed to thrive. What a loss that would be, warned Summers, who called the financial derivatives market "a powerful symbol of the kind of innovation and technology that has made the American financial system as strong as it is today."

So "they"-Summers, Gensler, Treasury Secretary Timothy Geithner and their über mentor, Rubin--were as wrong as anyone could be. Perhaps such error is human, but aren't there folks out there with a better prospect of getting it right that Obama can rely on?

A great deal is at stake, and we are being asked to support the president's plans as a matter of trust in a hopeful new leader. But the latest administration plan, announced by Geithner on Monday, seems to be more of the same. We taxpayers are being asked to buy back from the banks the very toxic assets that the members of Obama's economic team once celebrated as an unmitigated blessing. Only this time, instead of trusting the banks, we will turn over control, but little risk, to hedge funds that are totally unregulated. Here we go again.
http://www.commondreams.org/view/2009/03/25-2

Liquid war: Welcome to Pipelineistan

Liquid war: Welcome to Pipelineistan

The new Silk Road of energy sees Washington, Beijing, Moscow and Tehran fight for control of Caspian oil lines on a global energy battlefield on which the fate of humankind could well be settled. Pepe Escobar enters the Space Odyssey-style map room of Russian energy giant Gazprom, spends a rainy "night" in Georgia, and discovers the thrill of following energy around the "arc of instability". (Mar 25,'09)

http://www.atimes.com/atimes/Central_Asia/KC26Ag01.html

The pro-Israel lobby - 'alive, well, and bipartisan?' By Nathan Guttman, The Forward

The pro-Israel lobby - 'alive, well, and bipartisan?'
By Nathan Guttman, The Forward

The fight is over. Chas Freeman, the outspoken Israel critic appointed to chair the National Intelligence Council, is out. And now, both sides in the explosive firefight that broke out over his appointment are battling to frame the narrative over what it all meant.

For some of Freeman's critics, the bottom line is what counts. "This shows the pro-Israel lobby is alive and well, and bipartisan," declared Jonathan Tobin, executive editor of the neoconservative journal Commentary, at a public forum just five days after Freeman's March 10 withdrawal.

Indeed, with Freeman departing under pressure, pro-Israel activists succeeded in drawing a line in the sand and sending a strong signal to the Obama administration about what is acceptable in Middle East policy. President Obama himself made no effort to defend Freeman. He stressed, as the controversy escalated, that it was his director of national intelligence, Dennis Blair, who made the appointment with no White House input.

But critics, interestingly, are celebrating the bright light the Freeman issue shone on their own questioning of American policy toward Israel and on their claims that the pro-Israel lobby routinely uses its clout to ensure that dissenters gain no foothold. They say their attempt to discuss the Israel lobby issue won a legitimacy it never had before.

"Freeman became sort of a martyr," argued Ian Lustick, political science professor at the University of Pennsylvania. "The lobby might have won, but they paid a price."

The eruption of public debate over the role of pro-Israel activists in shaping American policy toward the Middle East comes nearly three years after two leading scholars, Stephen Walt and John Mearsheimer, published their article about the Israel lobby, which later turned into a book, "The Israel Lobby and U.S. Foreign Policy."

One of the authors' key arguments was that there was a lack of open public debate in the United States over foreign policy issues relating to Israel, because the lobby and its supporters seek to stifle open discussion of the issue.

Thanks in part to the Internet, the Freeman affair made clear that in one respect, this argument is no longer valid. Walt was among those leading the debate through his daily blog, hosted by the prestigious Web site foreignpolicy.com. He has been joined and supported by bloggers and columnists who are well within the mainstream.

Still, the mainstream press was slow to pick up on the issue. And the outcome of the episode indicates that strong critics of Israel may be cut off from government positions of real influence. Several incidents in recent years also suggest that untenured faculty at some colleges may want to consider their career prospects before speaking out too boldly.

Mearsheimer sees the situation as nuanced. "The Freeman issue had a significant influence on how people think; it had some influence on the discourse - and almost none on how policy is made," he told the Forward.

Mearsheimer praised the Internet as the main force promoting a new sense of openness on this issue. He condemned the mainstream media as "hopeless."

One of the questions that continues to be debated between pro-Freeman activists and those who oppose Freeman is to what extent the Israel lobby was actually involved in derailing his appointment.

The American Israel Public Affairs Committee, the pro-Israel Washington lobby, issued a statement asserting that it had not lobbied against Freeman. And most large Jewish groups avoided the issue publicly. Still, it is now clear that pro-Israel activists were involved behind the scenes in conveying their displeasure with the choice of Freeman as National Intelligence Council chairman.

"We made our representation to members of Congress and to people in the administration," said Abraham Foxman, national director of the Anti-Defamation League. "Sometimes we talk publicly and sometimes privately."

Foxman, who led the fight against Walt and Mearsheimer when their book first came out, and even published a book rebutting them, stressed that there is nothing wrong with Jewish Americans raising their concerns on the Freeman issue.

"If the Jewish community would not express its views, it would be a victory for the bigots," he said, "I don't think we should let them intimidate us."

Though Foxman is skeptical of their sincerity, Mearsheimer and Walt themselves say repeatedly that they agree with him, calling pro-Israel advocacy "entirely legitimate."

They argue instead that some also seek to stifle or penalize those who speak out on the other side. And they insist that the success of the pro-Israel lobby in influencing American policy - though pursued legitimately - has harmed American interests.

Some Jewish activists say the attention given to the issue by critics of the pro-Israel lobby helped only to amplify the lobby's perceived power.

Doug Bloomfield, who served in the past as AIPAC's chief lobbyist on Capitol Hill, said that if the lobby would have been really active on this issue, "they could get dozens of signatures on a congressional letter overnight." Instead, he said, AIPAC's detractors created an image of enormous power "without AIPAC lifting a finger."

AIPAC's former director of foreign policy, Steve Rosen, who used his blog to lead the fight against Freeman's appointment, saw it differently. Rosen, who once famously described the lobby as a night flower that "thrives in the dark and dies in the sun," made clear that the public exposure did not serve the pro-Israel lobby's interests.

"I'm sure AIPAC was happy when Freeman withdrew, but they might also be worried by the high profile of the Freeman issue," he said.

Tobin, speaking at a March 15 panel discussion at Queens College, said the lobby's show of force made clear that Obama will not "fall on his sword" to defend appointees perceived as anti-Israel. He said it also suggested that Obama would not spend political capital on fighting with incoming Israeli prime minister Benjamin Netanyahu.

Walt agreed. "The worst aspect of the Freeman affair is the likelihood of a chilling effect on discourse in Washington, at precisely the time when we badly need a more open and wide-ranging discussion of our Middle East policy," he blogged at foreignpolicy.com.

Rosen, who is now awaiting trial on charges of communicating national security information, and at the same time is suing his former bosses at AIPAC for more than $20 million, stressed that the lobby could not have succeeded in blocking Freeman if similar attitudes did not already exist in Congress.

"I was taught that AIPAC cannot do anything against the will of its friends in Congress," Rosen said, referring to his 23-year experience with the organization.

Critics respond that through their donations to congressional campaigns, organized Jewish contributors and a network of pro-Israel political action committees do much to help shape that will.

It was clear that Freeman had few friends in Congress. The anti-Freeman push came from some of Israel's strongest supporters. Democratic New York Senator Charles Schumer personally lobbied White House Chief of Staff Rahm Emanuel, who is also a strong backer of Israel. After Freeman withdrew his nomination, Schumer stated publicly that he "repeatedly urged the White House to reject him" because Freeman's views on Israel were "way over the top."

Several other strong supporters of Israel took action on this issue, including Independent Connecticut Senator Joe Lieberman and two congressmen - Democrat Steve Israel of New York, and Republican Mark Kirk of Illinois.

At the same time, several lawmakers, among them House Speaker Nancy Pelosi, who is a California Democrat, and Virginia Republican Rep. Frank Wolf, came out against Freeman's appointment because of his views on China.

Washington Post columnist and staunch centrist David Broder deplored the influence of the Israel lobby in this case. He fingered Congress as the critical force that compelled Freeman's departure. The foreign policy analyst, who speaks Mandarin Chinese and Arabic, was set to ride out the storm when Broder met him for breakfast the day he left. "But after another visit to members of Congress, Freeman was gone," Broder reported.

In his wake, advocates on both sides of the debate about the lobby agree that public discourse is now more receptive to ideas challenging the lobby's positions. But despite the lively debate in the blogosphere and in the press, the political echelons are untouched by this trend.

"I don't see it happening in the near future," Lustick said. "The last people to change are the politicians."

U.S. Nuclear Submarine Collides in Strait Near Iran

U.S. Nuclear Submarine Collides in Strait Near Iran
Raissa Kasolowsky, Reuters A nuclear-powered U.S. submarine and another U.S. vessel collided Friday in the Strait of Hormuz bordering Iran, but there was no damage to the atomic propulsion unit, the U.S. Navy said.

http://www.reuters.com/article/topNews/idUSTRE52J3KY20090320?feedType=RSS&feedName=topNews

India Links CTBT Signing to Nuclear Disarmament

India Links CTBT Signing to Nuclear Disarmament
The Times of India
India has asserted it would not sign the Comprehensive Test Ban Treaty - a top non-proliferation priority of the Obama administration - unless the world moves "categorically towards nuclear disarmament in a credible time-frame."

http://timesofindia.indiatimes.com/India/India-links-CTBT-signing-to-nuclear-disarmament/articleshow/4308372.cms

Central Asia Becomes a Nuclear-Weapon-Free-Zone

Central Asia Becomes a Nuclear-Weapon-Free-Zone
William C. Potter, Togzhan Kassenova and Anya Loukianova, James Martin Center for Nonproliferation Studies

Central Asian Nuclear-Weapon-Free Zone Treaty ratification represents a nuclear disarmament and nonproliferation milestone.
http://cns.miis.edu/stories/081201_canwfz.htm

* UN Secretary-General Welcomes Entry into Force of Historic Treaty on NWFZ in Central Asia

Report: Iranian Defector Tipped Syrian Nuke Plans

*

Report: Iranian Defector Tipped Syrian Nuke Plans
Alexander G. Higgins, Associated Press
An Iranian defector told the West that Iran was financing North Korean moves to transform Syria into a nuclear weapons power, leading to the Israeli airstrike that destroyed a secret reactor, a report said Thursday.

http://www.google.com/hostednews/ap/article/ALeqM5ge4oHlrAOPr_X_cLSzTuqwUX5fBAD971BHEG3

Obama's Message to Iran Is Opening Bid in Diplomatic Drive
Helene Cooper and David E. Sanger, The New York Times
http://www.nytimes.com/2009/03/21/world/middleeast/21iran.html?_r=1&scp=4&sq=iran&st=cse
Nowrouz MessageThe groundbreaking message to Iran that President Obama delivered by videotape on Friday was part of a strategy intended to emphasize a positive message to Iran in the prelude to that nation's presidential election this summer, according to administration officials and European diplomats.

Among other measures being weighed are a direct communication from Mr. Obama to Ayatollah Ali Khamenei, Iran's supreme leader, and an end to a prohibition on direct contacts between junior American diplomats and their Iranian counterparts around the world, the officials and diplomats said.

* Video: Obama's Nowrouz Message
http://www.whitehouse.gov/nowruz/

* Iran's View of Obama
http://www.stratfor.com/weekly/20090323_obamas_new_year_greeting_and_view_iran

RGE Monitor - The Public-Private Partnership Investment Program (PPIP) - Will It Work?

RGE Monitor - The Public-Private Partnership Investment Program (PPIP) - Will It Work?

The main components of Treasury Secretary Geithner’s new PPIP to price and remove toxic assets from banks’ balance sheets are as follows:

Basic Principles: Treasury will use $75bn - $100bn in TARP money to co-invest alongside private sector participants and the FDIC as well as the Federal Reserve, to buy $500bn to $1 trillion of toxic mortgage assets (both residential and commercial) off banks’ books (‘legacy assets’)

There are two separate approaches for legacy loans and for legacy securities. At first, Treasury will share its $75-100bn equity stake equally between the two programs with the option to shift the bulk of financing towards the option with the greater promise of success with market participants.

1) Public-Private Program for Legacy Loans: The FDIC establishes several public-private investment funds whose sole purpose will be to purchase and hold specific loan pools put up for sale by banks (large and small). The transaction price will be established by the highest bid at an auction run by the FDIC, in which a wide array of institutional investors and even individuals with a long-term orientation are encouraged to participate. The liabilities of the investment fund consist of an equity stake (50% of which provided by auction winner, 50% from Treasury TARP), and collateralized debt issued by the investment fund and guaranteed by the FDIC to finance the remainder of the purchase price (FDIC gets guarantee fee). Before the auction, the FDIC specifies the pool-specific debt-to-equity ratio it is willing to guarantee subject to a maximum 6-to-1 leverage ratio. The private investor would then manage the servicing of the asset pool - using asset managers approved and supervised by the FDIC - until disposal or maturity.

Example: Assuming a 6-to-1 debt-to-equity ratio, the highest bid for a loan pool with $100 face value might turn out to be $84. Of this amount, the FDIC would provide $72 in debt guarantees whereas the equity stake of $12 would be shared equally between the auction winner ($6) and the Treasury ($6).

2) Legacy Securities Program: The legacy securities program is to be incorporated into the Term Asset-Backed Securities Facility (TALF) whose original goal was to provide collateralized financing (non-recourse loans) to buyers of newly created consumer loan/small business loan ABS. Under the Legacy Securities Program, the eligible collateral for TALF is extended to include non-agency RMBS that were originally rated AAA and outstanding CMBS and ABS that are rated AAA.

Example: Under the Legacy Securities Program, up to five Treasury-approved fund managers will have a period of time to raise private capital to target the purchase of designated securities. Assuming the fund manager is able to raise $100 of private capital for the fund, Treasury will provide $100 equity co-investment alongside private investors. Treasury will then provide a $100 loan to the public-private investment fund. Moreover, Treasury may also choose to provide an additional loan of up to $100 to the fund. The investment fund then has $300-$400 at its disposal to buy legacy securities at its discretion. As a purchaser of TALF-eligible securities, the PPIF would also have access to the expanded TALF program of collateralized Fed loans when it is launched.


Assessment

The main sticking points in previous market-based approaches to clear toxic assets from banks’ books were threefold:

a) How to value illiquid assets?
b) Once a transaction price is established, will banks be willing to sell and take a hair cut?
c) How to induce private investors to purchase legacy assets without unduly wasting taxpayer money?

a) Valuation of Illiquid Assets
The theoretical foundations of Geithner’s plan are provided by Lucian Bebchuk from Harvard University among others. He explains that “if the underlying market failure is at least partly one of liquidity, an effective plan for a public-private partnership in buying troubled assets can be designed. The key is to have competition at two levels.First, at the level of buying troubled assets, the government’s program should focus on establishing many competing funds that are privately managed and partly funded with private capital--and not creating one, large "aggregator bank"-- funded with public and private capital and engaging in purchasing troubled assets. Second, several potential fund managers should compete for government capital under a market mechanism resulting in maximum participation of private capital and minimum costs to taxpayers.”

Geithner’s plan seems to follow these guidelines to a large degree. In particular, on the one hand the government subsidy allows private investors to bid a higher price than otherwise warranted (i.e. the government gives investors the equivalent of a call option.) On the other hand, the fact that the private investor is bound to lose its entire equity stake if the asset value deteriorates from artificially high valuations provides an incentive to bid conservatively. Both effects together may contribute to a reasonable level of price discovery. In case of the securities program, the prospect of refinancing purchased legacy securities with TALF via a non-recourse loan (which is the equivalent of a put option) should incentivize private investors to bid higher than otherwise warranted.

b) Will banks participate?
A similar purely private solution to get toxic assets off banks’ balance sheets was tried with Paulson’s aborted Super-SIV when legacy assets were still marked substantially higher than at present. It became clear then that the private sector will require a possibly substantial taxpayer subsidy in order to overcome the collective action paralysis. Indeed, in the case of the legacy loan example outlined in the Geithner plan with a 6/1 leverage, private investors that invest 7.1% (=1/7 * 0.5) of the equity will get 50% of any upside in return. While Treasury will also share in any upside by half, any downside beyond the private investors’ equity stake is clearly borne by the taxpayers.

While this subsidy to investors provides a powerful incentive to bid prices up in a competitive auction, banks stuck with particularly toxic assets or thin capital buffers may still find a potential writedown at market-clearing prices prohibitive and some might need to be recapitalized after taking the hair cut. FDIC Chairman Sheila Bair has already warned that while this plan will help many solvent banks get rid of their toxic assets thus clearing the way for new loans and fresh capital some banks are beyond the stage of rescue. Those borderline insolvent banks will likely require an additional incentive to sell or mandatory participation otherwise they will prefer to hold on to their assets, especially in view of the FASB’s prospective easing of mark-to-market accounting rules.

For the sake completeness, some commentators would also like to see better safeguards established in order to prevent banks and asset managers from potentially colluding in their common interest to the detriment of the taxpayer.

c) And taxpayers?
At the end of the day the performance of the toxic legacy assets is driven by the cash flow performance of the underlying loans. Keep in mind that among subprime borrowers, serious delinquencies and foreclosures have affected about 20% of outstanding loans as of December 2008 thus impairing the cash flow directed to junior RMBS investors and/or ABS CDOs consisting of these junior tranches. While ABX prices responded positively to the prospect of increased buyer interest, the ultimate loan value will depend on whether households and commercial real estate borrowers will continue making payments in the future. More on that below.

As a practical example of the performance of a toxic portfolio, take the Fed’s Maiden Lane portfolio with Bear Stearns assets. Cumberland Advisors reported that so far the results aren’t promising, and they see no prospect for a profit on the assets. In fact, the portfolio has lost over 10% of its value, and losses are mounting. At present, losses on that portfolio exceed $4.5 billion and the taxpayers’ share is now $3.5 billion. Others point to the low recovery value of IndyMac’s mortgage portfolio as a benchmark.


Bottom line: Will it get credit flowing again?

The immediate market reaction (equities and investment grade CDS staged a substantial rally, less so high yield CDS) was clearly one of relief that nationalization seems to be off the table for now and that the administration is committed to market-based solutions. While the extent of the guarantees almost makes one wonder why the involvement of the private sector is needed in the first place, it is the involvement of the private sector that creates a context in which price setting and discovery happen based on a market mechanism.

An important question at this point is: What should we look at while assessing the plan in the months ahead?

Clearly the unfreeze of credit markets would be the first sign of success but we might not see this happening before some time. Some of the banks that choose to sell assets and take a writedown might be in need of additional capital before they can resume lending. Also, for those institutions that are beyond the stage of rescue and effectively insolvent, the plan will likely not be as effective in stimulating lending or participation in the first place.

The increase in the supply of credit that will come from institutions that are solvent will be important, but will demand be there to do its part? If the real side of the economy continues to deteriorate, it is likely that credit demand might be subdued. Moreover, a further continued deterioration on the real side of the economy would imply new defaults on credit cards, consumer loans, auto loans and mortgages that would result in new toxic assets on the balance sheets of financial institutions recreating an environment where banks would maintain stringent lending standards. Therefore, the success of the plan is a necessary but not sufficient condition to get the economy back on a recovery path. The success of the fiscal stimulus package in sustaining aggregate demand and minimizing job losses and the success in restarting demand in the housing sector will be instrumental to put a stop to the negative feedback loop between the real and the financial side of the economy.

Moreover, if the negative feedback loop persists, need for further funding will arise. While it will be very challenging to obtain Congress approval for additional TARP money, we should point out that the government has set aside an additional $750bn in the FY2010 budget in aid for the financial sector.

Hence, taking care of legacy loans and securities is a welcome step forward, especially for solvent institutions whose asset values are subject to a substantial liquidity discount. However, insolvent institutions might not find as much relief from this plan, and the impact of the plan on the real economy might not be enough to pull the economy out of a contraction for good part of this year and sluggish growth thereafter. But by conducting auctions and determining the market value of the toxic assets, the Treasury will be implicitly using the private sector to ‘stress test’ the financial system to determine which banks are insolvent and therefore will need further government intervention.

London G20 Summit: Last chance before global geopolitical dislocation Open letter to the G20 leaders

http://globalresearch.ca/index.php?context=va&aid=12891



London G20 Summit: Last chance before global geopolitical dislocation
Open letter to the G20 leaders
- by Franck Biancheri - 2009-03-24

Down the dark path by Julian Delasantellis

Down the dark path
The warm market welcome accorded to US Treasury Secretary Timothy Geithner's toxic assets plan does not signal its success, while President Barack Obama's choice of favoring banks over taxpayers seems to indicate he is heading down the sad, dark path of "third way" socialism. - Julian Delasantellis

http://www.atimes.com/atimes/Global_Economy/KC25Dj03.html

Ron Paul: Depression For 15 Years

Ron Paul: Depression For 15 Years

http://www.huffingtonpost.com/2009/03/24/ron-paul-depression-for-1_n_178381.html

Have Geithner's Zombie Ideas Won? Paul Krugman on the "Cash for Trash" Program By Amy Goodman

Have Geithner's Zombie Ideas Won? Paul Krugman on the "Cash for Trash" Program
By Amy Goodman, Democracy Now!
Krugman on Geithner's toxic assets program: "It’s the zombie that you keep killing, and it just keeps coming back."

http://www.alternet.org/story/133054/have_geithner%27s_zombie_ideas_won_paul_krugman_on_the_%22cash_for_trash%22_program/

China Takes Aim at Dollar By ANDREW BATSON

China Takes Aim at Dollar
By ANDREW BATSON

BEIJING -- China called for the creation of a new currency to eventually replace the dollar as the world's standard, proposing a sweeping overhaul of global finance that reflects developing nations' growing unhappiness with the U.S. role in the world economy.

The unusual proposal, made by central bank governor Zhou Xiaochuan in an essay released Monday in Beijing, is part of China's increasingly assertive approach to shaping the global response to the financial crisis.
3:31

David Semple of Van Eck Emerging Markets Fund outlines opportunities in China's real-estate and retail sectors, along with greater stability in Russia. But the situation in Eastern Europe is still uncertain. Polya Lesova reports.

Mr. Zhou's proposal comes amid preparations for a summit of the world's industrial and developing nations, the Group of 20, in London next week. At past such meetings, developed nations have criticized China's economic and currency policies.

This time, China is on the offensive, backed by other emerging economies such as Russia in making clear they want a global economic order less dominated by the U.S. and other wealthy nations.
Read More

* China Journal: Precedent for Zhou's Comments
* Beijing Faces Big Barriers to Supplant Dollar
* Video: China's a Bellweather
* Text: Reform the International Monetary System

However, the technical and political hurdles to implementing China's recommendation are enormous, so even if backed by other nations, the proposal is unlikely to change the dollar's role in the short term. Central banks around the world hold more U.S. dollars and dollar securities than they do assets denominated in any other individual foreign currency. Such reserves can be used to stabilize the value of the central banks' domestic currencies.

Monday's proposal follows a similar one Russia made this month during preparations for the G20 meeting. Like China, Russia recommended that the International Monetary Fund might issue the currency, and emphasized the need to update "the obsolescent unipolar world economic order."
[Dollar Dominated]

Chinese officials are frustrated at their financial dependence on the U.S., with Premier Wen Jiabao this month publicly expressing "worries" over China's significant holdings of U.S. government bonds. The size of those holdings means the value of the national rainy-day fund is mainly driven by factors China has little control over, such as fluctuations in the value of the dollar and changes in U.S. economic policies. While Chinese banks have weathered the global downturn and continue to lend, the collapse in demand for the nation's exports has shuttered factories and left millions jobless.

In his paper, published in Chinese and English on the central bank's Web site, Mr. Zhou argued for reducing the dominance of a few individual currencies, such as the dollar, euro and yen, in international trade and finance. Most nations concentrate their assets in those reserve currencies, which exaggerates the size of flows and makes financial systems overall more volatile, Mr. Zhou said.

Moving to a reserve currency that belongs to no individual nation would make it easier for all nations to manage their economies better, he argued, because it would give the reserve-currency nations more freedom to shift monetary policy and exchange rates. It could also be the basis for a more equitable way of financing the IMF, Mr. Zhou added. China is among several nations under pressure to pony up extra cash to help the IMF.
[Zhou Xiaochuan, governor of the People's Bank of China.] Reuters

Zhou Xiaochuan, governor of the People's Bank of China.

John Lipsky, the IMF's deputy managing director, said the Chinese proposal should be treated seriously. "It reflects officials' concerns about improving the stability of the financial system," he said. "It's interesting because of China's unique position, and because the governor put it in a measured and considered way."

China's proposal is likely to have significant implications, said Eswar Prasad, a professor of trade policy at Cornell University and former IMF official. "Nobody believes that this is the perfect solution, but by putting this on the table the Chinese have redefined the debate," he said. "It represents a very strong pushback by China on a number of fronts where they feel themselves being pushed around by the advanced countries," such as currency policy and funding for the IMF.

A spokeswoman for the U.S. Treasury Department declined to comment on Mr. Zhou's views. In recent weeks, senior Obama administration officials have sought to reassure Beijing that the current U.S. spending spree is a short-term effort to restart the stalled American economy, not evidence of long-term U.S. profligacy.

"The re-establishment of a new and widely accepted reserve currency with a stable valuation benchmark may take a long time," Mr. Zhou said. In remarks earlier Monday, one of his deputies, Hu Xiaolian, also said the dollar's dominant position in international trade and investment is unlikely to change soon. Ms. Hu is in charge of reserve management as the head of China's State Administration of Foreign Exchange.

Mr. Zhou's comments -- coming on the heels of Mr. Wen's musing about the safety of China's dollar holdings -- appear to be a warning to the U.S. that it can't expect China to finance its spending indefinitely.
[The Haves and Have Mores]

The central banker's proposal reflects both China's desire to hold its $1.95 trillion in reserves in something other than U.S. dollars and the fact that Beijing has few alternatives. With more U.S. dollars continuing to pour into China from trade and investment, Beijing has no realistic option other than storing them in U.S. debt.

Mr. Zhou argued, without mentioning the dollar by name, that the loss of the dollar's de facto reserve status would benefit the U.S. by avoiding future crises. Because other nations continued to park their money in U.S. dollars, the argument goes, the Federal Reserve was able to pursue an irresponsible policy in recent years, keeping interest rates too low for too long and thereby helping to inflate a bubble in the housing market.

"The outbreak of the crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system," Mr. Zhou said. The increasing number and intensity of financial crises suggests "the costs of such a system to the world may have exceeded its benefits."

Mr. Zhou isn't the first to make that argument. "The dollar reserve system is part of the problem," Joseph Stiglitz, the Columbia University economist, said in a speech in Shanghai last week, because it meant so much of the world's cash was funneled into the U.S. "We need a global reserve system," he said in the speech.

Mr. Zhou's idea is to expand the use of "special drawing rights," or SDRs -- a kind of synthetic currency created by the IMF in the 1960s. Its value is determined by a basket of major currencies. Originally, the SDR was intended to serve as a shared currency for international reserves, though that aspect never really got off the ground.

These days, the SDR is mainly used in the IMF's accounting for its transactions with member nations. Mr. Zhou suggested countries could increase their contributions to the IMF in exchange for greater access to a pool of reserves in SDRs.

Holding more international reserves in SDRs would increase the role and powers of the IMF. That indicates China and other developing nations aren't hostile to international financial institutions -- they just want to have more say in running them. China has resisted the U.S. push to make an immediate loan to the IMF because that wouldn't give China a bigger vote. Ms. Hu said Monday that China, which encourages the IMF to explore other fund-raising options, would consider buying into a bond issue.

The IMF has been working on a proposal to issue bonds, probably only to central banks. Bond purchases are one way for the organization to raise money and meet its goal of at least doubling its lending war chest to $500 billion from $250 billion. Japan has loaned the IMF $100 billion and the European Union has pledged another $100 billion.
—Terence Poon in Beijing, James T. Areddy in Shanghai, and Bob Davis and Michael M. Phillips in Washington contributed to this article.

Write to Andrew Batson at andrew.batson@wsj.com

The Return of the Old Middle East

Published on Foreign Affairs (http://www.foreignaffairs.com)

The Return of the Old Middle East

How to Win at Balance-of-Power Politics
F. Gregory Gause III
F. GREGORY GAUSE III is Professor of Political Science at University of Vermont, Kuwait Foundation Visiting Professor at the Kennedy School of Government at Harvard, and a Fulbright Scholar at the American University in Kuwait.

As the United States has learned from its failures at transforming the Middle East, old-fashioned balance-of-power politics are once again driving events in the region.

In the 1990s, the Clinton administration hoped that settling the Arab-Israeli conflict would stabilize the region by marginalizing Iran and strengthening pro-American regimes, from North Africa to the Persian Gulf. In turn, the theory went, this would lead to unprecedented economic cooperation among states in the region and the emergence of what Shimon Peres, Israel's prime minister in 1995-96 and its president today, called a "new Middle East." The diagnosis was not bad, but the treatment did not work, and the patient remained as sick as ever.

Then, in the wake of 9/11, the Bush administration developed its own grand design for the region. The centerpiece of the plan was to replace the repressive regime of Saddam Hussein in Iraq with a thriving democracy. A successful U.S. intervention in Iraq was supposed to intimidate anti-American actors in the Middle East, start a democratic chain reaction throughout the region, encourage Arab-Israeli peace, and reduce the threat of terrorist attacks against the United States.

But despite some modest successes, the Bush administration's "forward strategy of freedom" -- much like Clinton's efforts at engagement -- ultimately failed to remake the Middle East. As Iraq became weaker, Iran grew stronger and both the fundamentalist parties within Iraq and Islamic groups elsewhere, such as Hamas and Hezbollah, gained political ground.

The Obama administration seems to have more realistic goals in the Middle East. The new team realizes that the Iranian leadership has to be engaged rather than isolated in the hope that it might just go away. The Obama administration seems appropriately humble about the prospects for achieving Arab-Israeli peace but also determined to try.

All this is sensible, but to best secure U.S. interests in the Middle East, the new administration needs to remind itself of the rules of the local game -- the traditional contest for influence among regional states. It is played out more in political terms than in military ones, although the possibility of violence is never far. The players are the stronger regional powers (Egypt, Iran, Israel, Saudi Arabia, Syria, and Turkey) and the playing fields are the weaker powers (Iraq, Lebanon, and the Palestinian territories) whose governments cannot prevent outsiders from interfering in domestic politics. The tools of influence are money, guns, and ideology -- and the scorecard is judged by the political orientations of the weaker states.

By this metric, Iran is doing rather well. In Iraq, its influence is greater than that of any other regional power. Iran's closest Iraqi ally, the Islamic Supreme Council of Iraq, did not do well in recent provincial elections, but Tehran's ties to the political party of Prime Minister Nuri Kamal al-Maliki and to the Sadrist movement, a Shia party built around Muqtada al-Sadr -- both of which fared better in provincial elections -- remain strong. Meanwhile, Hamas, Iran's longtime client, emerged from this winter's war against Israeli forces in Gaza bloodied but unbowed, much as Iran's ally Hezbollah did from its own war with Israel in 2006. Hamas and Hezbollah now dictate the course of politics in the Palestinian territories and Lebanon, respectively -- far more so than the central governments controlled by "moderate" Arabs with pro-Western inclinations.

Still, the game is far from over. In fact, it never ends. After World War II, the Hashemite kings of Iraq and Jordan hoped to unite the Arab world under their leadership. They played politics in Syria and among Palestinians to garner support for Arab nationalism. In the late 1950s, Egyptian President Gamal Abdel Nasser used Arab nationalism and a confrontational stance toward Israel to rally Arab public opinion behind his leadership and pressure Arab governments to do his will. Nasser looked to be a winner when he united Syria and Egypt in the United Arab Republic and helped cause the downfall of Iraq's pro-Western monarchy. But regional alliances soon formed to balance against him, and eventually, Egypt's defeat in the 1967 Arab-Israeli War fully ended Nasser's regional appeal.

After the overthrow of the Shah in 1979, Ayatollah Ruhollah Khomeini hoped that the Islamic Revolution would spread beyond Iran's borders. He had some luck in Lebanon -- where Iran created Hezbollah after the Israeli invasion of 1982 -- and elsewhere. But Khomeini's revolution had limited appeal, and ultimately, no Arab government fell to a sister revolution. Saddam, who played an important role in checking Iran's power, learned a similar lesson during the first Gulf War in the early 1990s. He combined Arab nationalism with Islamism to try to create instability in Arab states that had joined the coalition against him. He failed.

The U.S. government can learn three lessons from this history. First, the United States is not the only player that has failed to organize the Middle East under its own leadership and power. Lots of local players who understand the region much better than the United States have failed as well. Iran, for example, is unlikely to consolidate its regional hegemony either, so Washington should not overreact to Iran's tactical victories.

Second, since the game is played in the region's weaker states, where Tehran has recently done well, Washington should try to strengthen the central governments there. Iraq is a case in point. A year ago, Prime Minister Maliki appeared so weak as to be almost irrelevant, but now he seems to be emerging as the strongman of Iraqi politics. Washington helped him get there, and it makes sense to continue supporting him -- even at the price of tension with America's Kurdish allies (who fear that Maliki's plans for a strong central government will lessen their autonomy). With the United States planning a military withdrawal, American influence over Iraqi politics is a wasting asset, but Washington can still use it to improve, on the margins, the governing capacity of the Iraqi state.

Third, the United States should also pay close attention to the Arab-Israeli peace process. Iran's rulers -- much like Nasser, Khomeini, and Saddam in the past -- use the Palestinian issue to mobilize popular support at home and pressure pro-American governments throughout the region. At the moment, conditions are not propitious for solving the Palestinian question, and the results of the recent Israeli elections make them even less so. Strengthening the Palestinian Authority would be a positive step, but it would require reconciliation between Hamas and Fatah of a sort that seems distant. So working through Syria looks like a more promising approach -- as the Obama administration has apparently recognized, judging from the recent stirrings of diplomatic activity on this front.

Israel and Syria have been negotiating indirectly for some time through Turkey -- although Syria suspended talks during the war in Gaza -- and the outlines of a settlement are clear. If Washington could help broker a Syrian-Israeli deal, it would open up some distance between Tehran and Damascus, refute Iran's argument that confrontation pays, and give new momentum to the idea that the larger Arab-Israeli conflict is moving toward resolution.

Using traditional tools of influence to counter opponents and shift the strategic orientation of secondary regional actors would be a classic move -- and just the sort to get the United States right back in the game.
Copyright © 2002-2009 by the Council on Foreign Relations, Inc.
All rights reserved.

Falling greenback fuels BRIC dollar reserve rethink

Falling greenback fuels BRIC dollar reserve rethink
Mon Mar 23, 2009 3:00pm EDT

By Sebastian Tong and Peter Apps - Analysis

LONDON (Reuters) - A push by the world's leading emerging economies to dislodge the dollar as the dominant global reserve currency appears to be gaining momentum even as a weakening greenback adds further urgency to the discussion.

China on Monday added its voice to a growing international chorus seeking the replacement of the dollar as the main reserve currency, urging for an overhaul of the global monetary system to allow for wider use of Special Drawing Rights (SDRs) allocated by the International Monetary Fund (IMF).

Chinese central bank chief Zhou Xiaochuan said the SDRs, created by the IMF as international reserve assets in 1965, could be used as a super-sovereign reserve currency, eventually displacing the dollar.

His comments come a week after Russia said it would put forward a proposal for the creation of a new reserve currency issued by international financial institutions at the G20 meeting in April.

Russia said it had the broad support of its fellow BRIC countries -- Brazil, India and China -- as well as South Korea and South Africa for its proposal.

The push underscores growing concerns among emerging-market leaders about the long-term value of the dollar.

The dollar saw its biggest weekly slide since 1985 .DXY last week after the Federal Reserve's decision to buy long-term government debt raised the specter of oversupply in dollars.

That emerging economies -- among the largest dollar holders in the world thanks to strong export revenues -- want to diversify reserves away from the dollar is not only sensible but inevitable, argues Jerome Booth, Ashmore Investment Management research head.

"The unknowns are how fast and the disruption this may cause," Booth said.

DOLLAR RISKS

China, which has the world's largest foreign-currency reserves at close to $2 trillion, would be especially keen to avoid a widespread dollar sell-off.

Chinese Premier Wen Jiabao said earlier this month that he was worried about China's heavy exposure to the United States -- which, taking into account its US Treasuries and other bond holdings, is estimated to represent about a two-thirds of its reserves.

Any Chinese move to reweight its reserves portfolio could be destabilizing to the value of the greenback because of the level of market scrutiny.

"As soon as you sell-off a part of your reserves, people will expect you to sell the rest so the value of everything you have would plummet," said Jon Harrison, emerging foreign exchange strategist at Dresdner Kleinwort.

SDRs, which have a value based on a basket of key international currencies, also serve as the unit of account of the IMF and some other international organizations.

"If you really believed that (the SDR adoption) was going to happen, you'd want to sell the dollar and buy other currencies that would be part of the SDR basket -- euros, yen and perhaps the pound," said Dresdner's Harrison.

China's Zhou has said global acceptance of a new reserve currency would take a long time, and would be "a bold initiative that requires extraordinary political vision and courage."

Russia, which has significantly reduced the dollar's share of its own reserves in recent years in tandem with the 2005 introduction of a euro/dollar basket for tracking the rouble, has signaled it does not expect to see any reforms rising from the Group of 20 nations meeting in London on April 2.

WATCHING EACH OTHER

Still, Russia and China's push for a global super-sovereign reserve currency could have resonance beyond the corridors of power in the developing world -- possibly even in Washington.

Adopting a super-sovereign reserve currency such as SDRs could do away with the global imbalances of recent years that allowed the United States to run up large twin budget and external deficits while export-oriented emerging economies accumulated dollar-denominated reserves.

This global imbalance has been blamed for the cheap borrowing costs in the U.S. that contributed to subprime mortgage bust that triggered the global credit crunch.

A United Nations panel of experts this week is set to recommend the world ditch the dollar as its reserve currency in favor of a shared basket.

Avinash Persaud, a member of the UN Commission of Experts on International Financial Reform, said the creation of something like the old Ecu -- or European currency unit -- as a hard-traded weighted basket was one of the recommendations that would be delivered to the U.N. on Wednesday.

Politics will determine the timing of any diversification moves, Ashmore's Booth said.

"Central banks are watching each other...Many countries may want to start a senior dialogue with the new US administration before selling their Treasuries," he said.

(Reporting by Sebastian Tong and Peter Apps; Editing by Andy Bruce)

Iran's View of Obama by George Friedman

Iran's View of Obama
March 23, 2009
By George Friedman

U.S. President Barack Obama released a video offering Iran congratulations on the occasion of Nowruz, the Persian New Year, on Friday. Israeli President Shimon Peres also offered his best wishes, referring to “the noble Iranian people.” The joint initiative was received coldly in Tehran, however. Iran’s supreme leader, Ayatollah Ali Khamenei, said the video did not show that the United States had shifted its hostile attitude toward Iran.

The video is obviously part of Obama’s broader strategy of demonstrating that his administration has shifted U.S. policy, at least to the extent that it is prepared to open discussions with other regimes (with Iran being the hardest and most controversial case). The U.S. strategy is fairly straightforward: Obama is trying to create a new global perception of the United States. Global opinion was that former U.S. President George W. Bush was unwilling to engage with, and listen to, allies or enemies. Obama’s view is that that perception in itself harmed U.S. foreign policy by increasing suspicion of the United States. For Obama, offering New Year’s greetings to Iran is therefore part of a strategy to change the tone of all aspects of U.S. foreign policy.

Getting Peres to offer parallel greetings was undoubtedly intended to demonstrate to the Iranians that the Israelis would not block U.S. initiatives toward Iran. The Israelis probably were willing to go along with the greetings because they don’t expect them to go very far. They also want to show that they were not responsible for their failure, something critical in their relations with the Obama administration.

The Iranian response is also understandable. The United States has made a series of specific demands on Iran, and has worked to impose economic sanctions on Iran when Tehran has not complied. But Iran also has some fairly specific demands of the United States. It might be useful, therefore, to look at the Iranian view of the United States and the world through its eyes.

From the Iranian point of view, the United States has made two fundamental demands of Iran. The first is that Iran halt its military nuclear program. The second, a much broader demand, is that Iran stop engaging in what the United States calls terrorism. This ranges from support for Hezbollah to support for Shiite factions in Iraq. In return, the United States is prepared to call for a suspension of sanctions against Iran.

For Tehran, however, the suspension of sanctions is much too small a price to pay for major strategic concessions. First, the sanctions don’t work very well. Sanctions only work when most powers are prepared to comply with them. Neither the Russians nor the Chinese are prepared to systematically comply with sanctions, so there is little that Iran can afford that it can’t get. Iran’s problem is that it cannot afford much. Its economy is in shambles due more to internal problems than to sanctions. Therefore, in the Iranian point of view, the United States is asking for strategic concessions, yet offering very little in return.
The Nuclear Question

Meanwhile, merely working on a nuclear device — regardless of how close or far Iran really is from having one — provides Iran with a dramatically important strategic lever. The Iranians learned from the North Korean experience that the United States has a nuclear fetish. Having a nuclear program alone was more important to Pyongyang than actually having nuclear weapons. U.S. fears that North Korea might someday have a nuclear device resulted in significant concessions from the United States, Japan and South Korea.

The danger of having such a program is that the United States — or some other country — might attack and destroy the associated facilities. Therefore, the North Koreans created a high level of uncertainty as to just how far along they were on the road to having a nuclear device and as to how urgent the situation was, raising and lowering alarms like a conductor in a symphony. The Iranians are following the same strategy. They are constantly shifting from a conciliatory tone to an aggressive one, keeping the United States and Israel under perpetual psychological pressure. The Iranians are trying to avoid an attack by keeping the intelligence ambiguous. Tehran’s ideal strategy is maintaining maximum ambiguity and anxiety in the West while minimizing the need to strike immediately. Actually obtaining a bomb would increase the danger of an attack in the period between a successful test and the deployment of a deliverable device.

What the Iranians get out of this is exactly what the North Koreans got: disproportionate international attention and a lever on other topics, along with something that could be sacrificed in negotiations. They also have a chance of actually developing a deliverable device in the confusion surrounding its progress. If so, Iran would become invasion- and even harassment-proof thanks to its apparent instability and ideology. From Tehran’s perspective, abandoning its nuclear program without substantial concessions, none of which have materialized as yet, would be irrational. And the Iranians expect a large payoff from all this.
Radical Islamists, Iraq and Afghanistan

This brings us to the Hezbollah/Iraq question, which in fact represents two very different issues. Iraq constitutes the greatest potential strategic threat to Iran. This is as ancient as Babylon and Persia, as modern as the Iran-Iraq war of the 1980s. Iran wants guarantees that Iraq will never threaten it, and that U.S. forces in Iraq will never pose a threat to Iran. Tehran does not want promises alone; it wants a recognized degree of control over the Iraqi government, or at least negative control that would allow it to stop Baghdad from doing things Iran doesn’t want. To achieve this, Iran systematically has built its influence among factions in Iraq, permitting it to block Iraqi policies that Iran regards as dangerous.

The American demand that Iran stop meddling in Iraqi policies strikes the Iranians as if the United States is planning to use the new Baghdad regime to restore the regional balance of power. In fact, that is very much on Washington’s mind. This is completely unacceptable to Iran, although it might benefit the United States and the region. From the Iranian point of view, a fully neutral Iraq — with its neutrality guaranteed by Iranian influence — is the only acceptable outcome. The Iranians regard the American demand that Iran not meddle in Iraq as directly threatening Iranian national security.

There is then the issue of Iranian support for Hezbollah, Hamas and other radical Islamist groups. Between 1979 and 2001, Iran represented the background of the Islamic challenge to the West: The Shia represented radical Islam. When al Qaeda struck, Iran and the Shia lost this place of honor. Now, al Qaeda has faded and Iran wants to reclaim its place. It can do that by supporting Hezbollah, a radical Shiite group that directly challenges Israel, as well as Hamas — a radical Sunni group — thus showing that Iran speaks for all of Islam, a powerful position in an arena that matters a great deal to Iran and the region. Iran’s support for these groups helps it achieve a very important goal at little risk. Meanwhile, the U.S. demand that Iran end this support is not matched by any meaningful counteroffer or by a significant threat.

Moreover, Tehran dislikes the Obama-Petraeus strategy in Afghanistan. That strategy involves talking with the Taliban, a group that Iran has been hostile toward historically. The chance that the United States might install a Taliban-linked government in Afghanistan represents a threat to Iran second only to the threat posed to it by Iraq.

The Iranians see themselves as having been quite helpful to the United States in both Iraq and Afghanistan, as they helped Washington topple both the Taliban and Saddam Hussein. In 2001, they offered to let U.S. aircraft land in Iran, and assured Washington of the cooperation of pro-Iranian factions in Afghanistan. In Iraq, they provided intelligence and helped keep the Shiite population relatively passive after the invasion in 2003. But Iranians see Washington as having betrayed implicit understandings that in return for these services, the Iranians would enjoy a degree of influence in both countries. And the U.S. opening to the Taliban is the last straw.
Obama’s Greetings in Context

Iran views Obama’s New Year greetings within this context. To them, Obama has not addressed the core issues between the two countries. In fact, apart from videos, Obama’s position on Iran does not appear different from the Bush position. The Iranian leadership does not see why it should respond more favorably to the Obama administration than it did to the Bush administration. Tehran wants to be very sure that Obama understands that the willingness alone to talk is insufficient; some indications of what is to be discussed and what might be offered are necessary.

Many in the U.S. administration believe that the weak Iranian economy might shape the upcoming Iranian presidential election. Undoubtedly, the U.S. greetings were timed to influence the election. Washington has tried to influence internal Iranian politics for decades, constantly searching for reformist elements. The U.S. hope is that someone might be elected in Iran who is so obsessed with the economy that he would trade away strategic and geopolitical interests in return for some sort of economic aid. There are undoubtedly candidates who would be interested in economic aid, but none who are prepared to trade away strategic interests. Nor could they even if they wanted to. The Iran-Iraq war is burned into the popular Iranian consciousness; any candidate who appeared willing to see a strong Iraq would lose the election. American analysts are constantly confusing an Iranian interest in economic aid with a willingness to abandon core interests. But this hasn’t happened, and isn’t happening now.

This is not to say that the Iranians won’t bargain. Beneath the rhetoric, they are practical to the extreme. Indeed, the rhetoric is part of the bargaining. What is not clear is whether Obama is prepared to bargain. What will he give for the things he wants? Economic aid is not enough for Iran, and in any event, the idea of U.S. economic aid for Iran during a time of recession is a non-starter. Is Obama prepared to offer Iran a dominant voice in Iraq and Afghanistan? How insistent is Obama on the Hezbollah and Hamas issue? What will he give if Iran shuts down its nuclear program? It is not clear that Obama has answers to these questions.

Rebuilding the U.S. public image is a reasonable goal for the first 100 days of a presidency. But soon it will be summer, and the openings Obama has made will have to be walked through, with tough bargaining. In the case of Iran — one of the toughest cases of all — it is hard to see how Washington can give Tehran the things it wants because that would make Iran a major regional power. And it is hard to see how Iran could give away the things the Americans are demanding.

Obama indicated that it would take time for his message to generate a positive response from the Iranians. It is more likely that unless the message starts to take on more substance that pleases the Iranians, the response will remain unchanged. The problem wasn’t Bush or Clinton or Reagan, the problem was the reality of Iran and the United States. Only if a third power frightened the Iranians sufficiently — a third power that also threatened the United States — would U.S.-Iranian interests be brought together. But Russia, at least for now, is working very hard to be friendly with Iran.

The Political Risks Of Geithner's Public-Private Partnerships

John Carney
How what looks like a win-win toxic asset bet now could become a lose-lose bet later

The Political Risks Of Geithner's Public-Private Partnerships
http://www.businessinsider.com/the-political-risks-of-geithners-public-private-partnerships-2009-3

How Banks And Hedge Funds Will Scam The TALF

How Banks And Hedge Funds Will Scam The TALF

http://www.businessinsider.com/how-banks-and-hedge-funds-will-scam-the-talf-2009-3

James Galbraith: Geithner Plan "Extremely Dangerous," Banks "Massively Corrupted"

James Galbraith: Geithner Plan "Extremely Dangerous," Banks "Massively Corrupted"

http://www.businessinsider.com/henry-blodget-james-galbraith-geithner-plan-extremely-dangerous-banks-massively-corrupted-2009-3

The Budget's Foreign Policy Handcuffs by Stephen Zunes

The Budget's Foreign Policy Handcuffs
Stephen Zunes
Foreign Policy In Focus
March 20, 2009
http://www.fpif.org/fpiftxt/5978

Hopes that a Democratic administration with an expanded
Democratic congressional majority might lead to a more
ethical, rational, and progressive foreign policy were
challenged with last week's passage of the 2009 omnibus
budget bill, which included many troubling provisions
regarding the State Department and related diplomatic
functions.

In the House of Representatives, all but two dozen
Democrats supported and all but 20 Republicans opposed
the bill. It passed the Senate by voice vote, believed
to have been mostly divided by strict party lines.

While the Obama administration had little to do with
putting the bill together and seemed willing to wait to
put its imprint on the budget for the 2010 fiscal year,
it was nevertheless disturbing that the new president
didn't challenge the inclusion of segments of the
legislation that seemed to be designed by House Speaker
Nancy Pelosi, Senate Majority leader Harry Reid, and
other Democratic congressional leaders to undercut his
authority to pursue a different Middle East policy than
his predecessor.

Most notably, Pelosi and other Democratic leaders
refused calls for conditioning U.S. military aid to
Israel, Egypt, and other countries in the region on
their adherence to internationally recognized human
rights standards. In addition, in reaction to the United
Nations Human Rights Council raising concerns about
human rights abuses by Israel and other U.S. allies in
the region, Pelosi's bill bars the use of any U.S. funds
to be appropriated as part of the annual contribution of
UN member states to support the Council's work.

Also problematic is that - while Congressional Democrats
formally dropped their longstanding opposition to
Palestinian statehood in the 1990s (in contrast to
President Barack Obama, who has supported Palestinian
statehood since his days as a student activist in the
early 1980s) - the Democratic-sponsored appropriations
bill contains a series of measures which appear to be
designed to prevent the emergence of a viable
Palestinian state alongside Israel.

Fueling the Arms Race

Challenging the widespread consensus by arms control
specialists and other observers that the Middle East
already has too many armaments, Pelosi and the Democrats
have clearly determined that, in their view, the region
doesn't have enough armaments and that the United States
must continue its role as supplier of most of the
region's weaponry. As teachers, librarians, social
workers, health care professionals, and other Americans
are losing their jobs due to a lack of public funding,
the Democrats' appropriation bill pours billions of
dollars' worth of taxpayer funding into sophisticated
weapons for both Israel and neighboring Arab states.
And, with his signature, it appears Obama agrees with
these distorted priorities.

Pelosi and the Democrats made clear their outright
rejection of recent calls by Amnesty International and
other human rights groups to suspend U.S. military aid
to Israel in response to the use of U.S. weapons in war
crimes during the assault on the Gaza Strip in January,
instead siding with the former Bush administration in
allocating $2.5 billion of unconditional military aid to
the Israeli government this fiscal year.

Rather than being directed toward counterterrorism or
other defensive measures, the bill stipulates that funds
will be used for the procurement of advanced weapons
systems, roughly three-quarters of which will be
purchased from American arms manufacturers.

An additional $1.3 billion in foreign military financing
is earmarked for the Egyptian dictatorship of Hosni
Mubarak, $235 million for the autocratic monarchy in
Jordan, $58 million for Lebanon, and $12 million for the
repressive regime in Tunisia. The only other country
specifically targeted for military aid in this
legislation is Colombia, which will receive $53 million.

While last year's appropriations bill blocked Egypt from
access to part of its military aid until it had taken
clear and measurable steps to "adopt and implement
judicial reforms that protect the independence of the
judiciary" and "review criminal procedures and train
police leadership in modern policing to curb police
abuses," such provisions were removed from this year's
bill, yet another indication of the Democratic
majority's lack of concern for human rights.

Sabotaging a Palestinian Unity Government

As European governments and others, recognizing that
some kind of government of national unity between Fatah
and the more moderate elements of Hamas is necessary for
the peace process to move forward, Pelosi and her
colleagues are attempting to sabotage such efforts. This
year's appropriations bill prohibits any support for
"any power-sharing government" in Palestine "of which
Hamas is a member," unless Hamas unilaterally agrees to
"recognize Israel, renounce violence, disarm, and accept
prior agreements, including the Roadmap."

By contrast, there are no such provisions restricting
the billions of dollars of aid to the emerging coalition
government in Israel, which includes far right parties
that have likewise refused to recognize Palestine,
renounce violence, support the disarming of allied
settler militias, or accept prior agreements, including
the roadmap.

In short, to Pelosi and other Democratic congressional
leaders, Palestinians simply do not have equal rights to
Israelis in terms of statehood, security, or
international obligations. The Democrats are willing to
sabotage any Palestinian government that dares include -
even as a minority in a broad coalition - any hard-line
anti-Israeli party, yet they have no problems whatsoever
in pouring billions of taxpayer dollars into supporting
an Israeli government dominated by hard-line anti-
Palestinian parties.

There's a word for such double-standards: racism.

Other Anti-Palestinian Provisions

Migration and refugee assistance are other areas where
the anti-Palestinian bias of Pelosi and other Democratic
leaders becomes apparent. There are dozens of countries
in which the United Nations, assisted in part through
U.S. aid, is involved in relief operations, including
those dealing with Rwandans, Kurds, Congolese, Afghans,
Iraqis, Somalis, and other refugee populations from
which terrorist groups operate or have operated in the
recent past. However, Pelosi and the Democratic
leadership have determined that it's among Palestinian
refugees alone that the State Department is required to
work with the UN and host governments "to develop a
strategy for identifying individuals known to have
engaged in terrorist activities."

Pelosi's bill stipulates that not less than $30 million
in funds for migration and refugee assistance should be
made available for refugee resettlement in Israel. None
of the other 192 recognized states in the world are
specifically earmarked to receive this kind of funding,
which is normally made available on assessment of
humanitarian need. In recent years, successive Israeli
governments have encouraged immigrants to live in
subsidized Jewish-only settlements, illegally
constructed on confiscated land in the occupied West
Bank and Golan Heights, in violation of a series of UN
Security Council resolutions and a landmark advisory
opinion of the International Court of Justice. The
inclusion of this funding is widely interpreted as an
effort by Pelosi and other Democratic lawmakers to
encourage further Israeli colonization in occupied
Palestinian and Syrian territory so as to decrease the
likelihood of a peace settlement.

Only $75 million in aid is allocated to the West Bank
and none of it is allocated to the Palestinian Authority
itself. In contrast, annual U.S. economic assistance to
Israel (which doesn't include the billions in military
aid) goes directly to the Israeli government and has
usually totaled more than 15 times that amount, even
though the per-capita income of Palestinians in the West
Bank and Gaza Strip is less than one-twentieth that of
Israeli Jews.

Pelosi's bill contains lengthy and detailed conditions
and restrictions on programs in the West Bank, with
extensive vetting, reporting, and auditing requirements
required for no other place in the world. This year's
bill adds requirements that all funds are subjected to
the regular notification procedures, also an
unprecedented requirement. There are also a number of
other stipulations not found for any other nations, such
as the provision banning any assistance to the
Palestinian Broadcasting Corporation.

Despite all the additional administrative costs such
restrictions require, the bill caps administrative
expenses at $2 million; no such limitations exist
involving aid to any other nation.

The Democrats' goal appears to be to make it all the
more difficult for Palestinians - already suffering
under U.S.-backed Israeli sieges - to meet even their
most basic needs for health care, education, housing,
and economic development.

Roadblocks for Palestinian Statehood

Though the United States remains the world's number one
military, economic, and diplomatic supporter of
repressive Middle Eastern governments - including
absolute monarchies, military juntas, and occupation
armies - the appropriations bill includes language
insisting that the "governing entity" of Palestine
"should enact a constitution assuring the rule of law,
an independent judiciary, and respect for human rights
for its citizens, and should enact other laws and
regulations assuring transparent and accountable
governance." No such language exists in regard to any
other nation.

There are also provisions blocking U.S. support for a
Palestinian state unless it meets a long list of
criteria regarding perceived Israeli security needs.
Again, no such conditions exist for any other nation in
terms of its right to exist.

One target of Pelosi and other Democratic leaders is the
Palestinians' desire to regain the Arab-populated
sections of East Jerusalem, which have been under
Israeli military occupation since 1967. In addition to
its religious significance for both Palestinian
Christians and Palestinian Muslims, Jerusalem has long
been the most important cultural, commercial, political,
and educational center for Palestinians and has the
largest Palestinian population of any city in the world.
Given the city's significance to both populations, any
sustainable peace agreement would need to recognize
Jerusalem as the capital city for both Israel and
Palestine.

In an apparent effort to delegitimize any Palestinian
claims to their occupied capital, however, Pelosi's bill
prohibits any "meetings between officers and employees
of the United States and officials of the Palestinian
Authority, or any successor Palestinian governing
entity" in Israeli-occupied East Jerusalem "for the
purpose of conducting official United States Government
business with such authority." Even if the Israelis do
agree to end their occupation of Arab East Jerusalem,
Pelosi and the Democrats have inserted language that no
funds could be used to create any new U.S. government
offices in Jerusalem that would interact with the
Palestinian Authority or any successor Palestinian
government entity.

Nuclear Nonproliferation

Pelosi and her Democratic colleagues continue to pursue
nonproliferation based on ideological litmus tests
rather than universal law-based principles. For example,
the bill requires that any assistance to Russia be
withheld until the Russian government has "terminated
implementation of arrangements to provide Iran with
technical expertise, training, technology, or equipment
necessary to develop a nuclear reactor, related nuclear
research facilities or programs, or ballistic missile
capability." However, there are no such restrictions on
the United States itself continuing its nuclear
cooperation with India, despite India's maintaining and
expanding its nuclear weapons arsenal in violation of UN
Security Council Resolution 1172, nor are there any
objections included regarding ongoing U.S. ballistic
missile development with Israel, despite Israel's
nuclear weapons arsenal and its ongoing violation of UN
Security Council Resolution 487.

The appropriations bill stipulates that the United
States will support the UN's International Atomic Energy
Agency - which successfully dismantled Iraq's nuclear
program in the early 1990s - "only if the Secretary of
State determines (and so reports to the Congress) that
Israel is not being denied its right to participate in
the activities of that Agency." This appears to be an
effort to prevent one of the means by which the United
Nations could conceivably pressure Israel into ending
its ongoing violation of Resolution 487, which calls on
Israel to place its nuclear facilities under the
trusteeship of the IAEA. There are no other countries
whose potential exclusion from the IAEA would jeopardize
U.S. funding.

Moving Forward

It should also be noted that there were a number of
positive changes to the FY2009 budget impacting the
Middle East. Language that required the State Department
to designate the birthplace of U.S. citizens born in
Israeli-occupied parts of greater East Jerusalem as
"Israel" - thereby effectively recognizing Israel's
illegal annexation of Palestinian territory - was
dropped. There was also a new segment in the bill
directing the Secretary of State to report on Moroccan
suppression of human rights in the occupied Western
Sahara.

Most significant is a provision banning nearly all
cluster-bomb exports to Israel and other Middle Eastern
countries, an initiative which had been defeated during
the last session of Congress thanks to near-unanimous
Republican opposition, as well as negative votes from
such leading Democratic senators as Joe Biden and
Hillary Clinton. Obama - who, in contrast, voted in
favor of the resolution - apparently helped to insure
the inclusion of this provision in the bill, which has
been applauded by human rights groups.

Meanwhile, a number of additional anti-Palestinian
amendments introduced from the floor by Senator John Kyl
(R-AZ) were voted down after vigorous lobbying by
Americans for Peace Now and other liberal groups.

Nevertheless, it's disappointing that so many other
right-wing provisions involving the Middle East were
included in the omnibus spending bill, particularly
since this year's appropriations were put together by a
Congress with the largest Democratic majority in
decades.

It will be President Obama, and not the Democratic-
controlled Congress, who will ultimately determine the
direction of U.S. foreign policy in the Middle East and
elsewhere in the coming years. Unfortunately, even
assuming the best of intentions by a president who came
to office in large part due to popular dissatisfaction
with the direction of U.S. policy in the region, he
won't be able to fundamentally change the direction of
that policy if Congress continues to pursue policies
supporting militarization, occupation, and repression.

Stephen Zunes, a Foreign Policy in Focus senior analyst,
is a professor of politics and chair of Middle Eastern
Studies at the University of San Francisco.

America Is in Need of a Moral Bailout

Published on Monday, March 23, 2009 by TruthDig.com
America Is in Need of a Moral Bailout

by Chris Hedges

In decaying societies, politics become theater. The elite, who have hollowed out the democratic system to serve the corporate state, rule through image and presentation. They express indignation at AIG bonuses and empathy with a working class they have spent the last few decades disenfranchising, and make promises to desperate families that they know will never be fulfilled. Once the spotlights go on they read their lines with appropriate emotion. Once the lights go off, they make sure Goldman Sachs and a host of other large corporations have the hundreds of billions of dollars in losses they incurred playing casino capitalism repaid with taxpayer money.

We live in an age of moral nihilism. We have trashed our universities, turning them into vocational factories that produce corporate drones and chase after defense-related grants and funding. The humanities, the discipline that forces us to stand back and ask the broad moral questions of meaning and purpose, that challenges the validity of structures, that trains us to be self-reflective and critical of all cultural assumptions, have withered. Our press, which should promote such intellectual and moral questioning, confuses bread and circus with news and refuses to give a voice to critics who challenge not this bonus payment or that bailout but the pernicious superstructure of the corporate state itself. We kneel before a cult of the self, elaborately constructed by the architects of our consumer society, which dismisses compassion, sacrifice for the less fortunate, and honesty. The methods used to attain what we want, we are told by reality television programs, business schools and self-help gurus, are irrelevant. Success, always defined in terms of money and power, is its own justification. The capacity for manipulation is what is most highly prized. And our moral collapse is as terrifying, and as dangerous, as our economic collapse.

Theodor Adorno in 1967 wrote an essay called "Education After Auschwitz." He argued that the moral corruption that made the Holocaust possible remained "largely unchanged." He wrote that "the mechanisms that render people capable of such deeds" must be made visible. Schools had to teach more than skills. They had to teach values. If they did not, another Auschwitz was always possible.

"All political instruction finally should be centered upon the idea that Auschwitz should never happen again," he wrote. "This would be possible only when it devotes itself openly, without fear of offending any authorities, to this most important of problems. To do this, education must transform itself into sociology, that is, it must teach about the societal play of forces that operates beneath the surface of political forms."

Our elites are imploding. Their fraud and corruption are slowly being exposed as the disparity between their words and our reality becomes wider and more apparent. The rage that is bubbling up across the country will have to be countered by the elite with less subtle forms of control. But unless we grasp the "societal play of forces that operates beneath the surface of political forms" we will be cursed with a more ruthless form of corporate power, one that does away with artifice and the seduction of a consumer society and instead wields power through naked repression.

I had lunch a few days ago in Toronto with Henry Giroux, professor of English and cultural studies at McMaster University in Canada and who for many years was the Waterbury Chair Professor at Penn State. Giroux, who has been one of the most prescient and vocal critics of the corporate state and the systematic destruction of American education, was driven to the margins of academia because he kept asking the uncomfortable questions Adorno knew should be asked by university professors. He left the United States in 2004 for Canada.

"The emergence of what Eisenhower had called the military-industrial-academic complex had secured a grip on higher education that may have exceeded even what he had anticipated and most feared," Giroux, who wrote "The University in Chains: Confronting the Military-Industrial-Academic Complex," told me. "Universities, in general, especially following the events of 9/11, were under assault by Christian nationalists, reactionary neoconservatives and market fundamentalists for allegedly representing the weak link in the war on terrorism. Right-wing students were encouraged to spy on the classes of progressive professors, the corporate grip on the university was tightening as made clear not only in the emergence of business models of governance, but also in the money being pumped into research and programs that blatantly favored corporate interests. And at Penn State, where I was located at the time, the university had joined itself at the hip with corporate and military power. Put differently, corporate and Pentagon money was now funding research projects and increasingly knowledge was being militarized in the service of developing weapons of destruction, surveillance and death. Couple this assault with the fact that faculty were becoming irrelevant as an oppositional force. Many disappeared into discourses that threatened no one, some simply were too scared to raise critical issues in their classrooms for fear of being fired, and many simply no longer had the conviction to uphold the university as a democratic public sphere."

Frank Donoghue, the author of "The Last Professors: The Corporate University and the Fate of the Humanities," details how liberal arts education has been dismantled. Any form of learning that is not strictly vocational has at best been marginalized and in many schools has been abolished. Students are steered away from asking the broad, disturbing questions that challenge the assumptions of the power elite or an economic system that serves the corporate state. This has led many bright graduates into the arms of corporate entities they do not examine morally or ethically. They accept the assumptions of corporate culture because they have never been taught to think.

Only 8 percent of U.S. college graduates now receive degrees in the humanities, about 110,000 students. Between 1970 and 2001, bachelor's degrees in English declined from 7.6 percent to 4 percent, as did degrees in foreign languages (2.4 percent to 1 percent), mathematics (3 percent to 1 percent), social science and history (18.4 percent to 10 percent). Bachelor's degrees in business, which promise the accumulation of wealth, have skyrocketed. Business majors since 1970-1971 have risen from 13.6 percent of the graduation population to 21.7 percent. Business has now replaced education, which has fallen from 21 percent to 8.2 percent, as the most popular major.

The values that sustain an open society have been crushed. A university, as John Ralston Saul writes, now "actively seeks students who suffer from the appropriate imbalance and then sets out to exaggerate it. Imagination, creativity, moral balance, knowledge, common sense, a social view-all these things wither. Competitiveness, having an ever-ready answer, a talent for manipulating situations-all these things are encouraged to grow. As a result amorality also grows; as does extreme aggressivity when they are questioned by outsiders; as does a confusion between the nature of good versus having a ready answer to all questions. Above all, what is encouraged is the growth of an undisciplined form of self-interest, in which winning is what counts."

This moral nihilism would have terrified Adorno. He knew that radical evil was possible only with the collaboration of a timid, cowed and confused population, a system of propaganda and a press that offered little more than spectacle and entertainment and an educational system that did not transmit transcendent values or nurture the capacity for individual conscience. He feared a culture that banished the anxieties and complexities of moral choice and embraced a childish hyper-masculinity, one championed by ruthless capitalists (think of the brutal backstabbing and deception cheered by TV shows like "Survivor") and Hollywood action heroes like the governor of California.

"This educational ideal of hardness, in which many may believe without reflecting about it, is utterly wrong," Adorno wrote. "The idea that virility consists in the maximum degree of endurance long ago became a screen-image for masochism that, as psychology has demonstrated, aligns itself all too easily with sadism."

Sadism is as much a part of popular culture as it is of corporate culture. It dominates pornography, runs like an electric current through reality television and trash-talk programs and is at the core of the compliant, corporate collective. Corporatism is about crushing the capacity for moral choice. And it has its logical fruition in Abu Ghraib, the wars in Iraq and Afghanistan and our lack of compassion for the homeless, our poor, the mentally ill, the unemployed and the sick.

"The political and economic forces fuelling such crimes against humanity-whether they are unlawful wars, systemic torture, practiced indifference to chronic starvation and disease or genocidal acts-are always mediated by educational forces," Giroux said. "Resistance to such acts cannot take place without a degree of knowledge and self-reflection. We have to name these acts and transform moral outrage into concrete attempts to prevent such human violations from taking place in the first place."

The single most important quality needed to resist evil is moral autonomy. Moral autonomy, as Immanuel Kant wrote, is possible only through reflection, self-determination and the courage not to cooperate.

Moral autonomy is what the corporate state, with all its attacks on liberal institutions and "leftist" professors, has really set out to destroy. The corporate state holds up as our ideal what Adorno called "the manipulative character." The manipulative character has superb organizational skills and the inability to have authentic human experiences. He or she is an emotional cripple and driven by an overvalued realism. The manipulative character is a systems manager. He or she exclusively trained to sustain the corporate structure, which is why our elites are wasting mind-blowing amounts of our money on corporations like Goldman Sachs and AIG. "He makes a cult of action, activity, of so-called efficiency as such which reappears in the advertising image of the active person," Adorno wrote of this personality type. These manipulative characters, people like Lawrence Summers, Henry Paulson, Robert Rubin, Ben Bernanke, Timothy Geithner, AIG's Edward Liddy and Goldman Sachs CEO Lloyd Blankfein, along with most of our ruling class, have used corporate money and power to determine the narrow parameters of the debate in our classrooms, on the airwaves and in the halls of Congress while they looted the country.

"It is especially difficult to fight against it," warned Adorno, "because those manipulative people, who actually are incapable of true experience, for that very reason manifest an unresponsiveness that associates them with certain mentally ill or psychotic characters, namely schizoids."
© 2009 TruthDig.com
http://www.commondreams.org/view/2009/03/23-0

President Obama’s Opening to Iran: A step in the right direction but Tehran likely to once again miss the opportunity

Gulf Research Center Analysis
(Dubai, U.A.E.)



President Obama’s Opening to Iran:
A step in the right direction but Tehran likely to once again miss the opportunity

22 March, 2009

Dr. Christian Koch
Director of International Studies


With his video message on the occasion of the Iranian New Year Nowruz, US President Barack Obama made a significant gesture to Iran that if properly responded to by the Iranian leadership, holds the potential to reduce tensions in the Gulf region. It is a first step that clearly underlines the current US administration’s determination to initiate a new approach towards Iran that is different from its predecessor’s. It also introduces the critical element of public diplomacy by addressing the Iranian people directly which so far has been sorely missed in US policy towards Tehran. Unfortunately, for various reasons, Iran is unlikely to take advantage of this opportunity as was clear from Supreme Leader Ayatollah Khameini’s dismissal of the message as being merely cosmetic and lacking any real change in the US position. The likely result is the further isolation of Iran to the detriment of regional security.

In his message, President Obama outlined a new approach to the strained US-Iran relationship. First, his message came somewhat as a surprise at a time when most analysts still expected the administration to continue its internal deliberations before taking any sort of initiative, possibly waiting until the outcome of the Iranian presidential election later on in June of this year. Instead, President Obama made it clear that he wants a new relationship with Iran and that this is not contingent on internal developments inside Iran. As far as his administration is concerned, simply waiting in the hope for a more constructive government in Tehran is not the answer. Second, the administration chose the occasion of Nowruz, a very important time in Iran when people are in a celebratory mood despite the many economic and social hardships they face. The acknowledgment of this occasion, in addition to delivering his message with Farsi subtitles so that it can reach and be read by all Iranians, is bound to have a positive resonance among Iran’s population.

Third, and in connection to the timing, Presiden