From omnipotent to impotent!

While everyone seems to blame GW for being unwilling to stand for dissent I believe GW's problem is actually the reverse. He seems to tolerate incompetency and insubordinates longer than he should. Perhaps it is because he lacks sufficient management skills and is not able to detect personnel problems when they arise, perhaps the job a war presidency is so overwhelming it is impossible for even the best manager to focus on everything that needs direct attention, or perhaps all president assume office initially surrounded by long time friendships and many are not equal to the task.

Whatever the reason one must now ask whether Adm. Fallon's departure frees GW to take a more aggressive approach towards Iran and if so will he. To date GW has talked the talk but mostly failed to walk the walk.(See 1 below.)

I consistently write about, what I believe, is a pattern of decline in most aspects of American competitiveness and lurid rewards for executive failure and even more outrageous munificence distributed for success. I have cited the egregious sum paid to the former Chairman of Home Depot which even included paying the tax bill on his out sized compensation package.

Daniel Gross approaches the issue from a different viewpoint.

Several points Gross does not discuss is the connection between Congress passing legislation limiting deductions on executive compensation and the massive use of stock option awards.

First of all, Wall Street's focus on quarterly earnings caused executives to manipulate earnings reports in order to beat analyst estimates their company stock price would rise and along with it the value of their stock options. Corporate managers lost sight of doing what was best for both their company's competitiveness as well as their shareholders.

Secondly, as I have consistently pointed out, corporate boards abdicated their compensation setting role to consultants who earned big fees for creative pay packages arguing they were necessary to meet competition.

Third, In the last few decades leveraging corporate balance sheets to accomplish acquisitions became "the thing." In many cases, they were unmanageable, were poorly rationalized and/or were ill conceived because of the hopeless variance in corporate cultures, became "the thing.".

More recently, corporate balance sheets had become flush and executives felt compelled to either re-purchase stock, which was often selling at inflated multiples of earnings, or concluded they had to do something because corporate liquidity burned holes in their high priced executive suits and hedge funds were applying pressure on them for more and more performance .

Lastly, as with Eliot Spitzer,far too many corporate managers simply lost sight of reality because they were surrounded by so many additional lofty perks - limousines, club memberships, corporate dining rooms and fancy jets etc. They began to think themselves omnipotent when in fact they were become increasingly impotent.(See 2 below.)

Th Economist chimes in. (See 3 below.)

Most politicians travel when in trouble but McCain's travel this coming week is likely to enhance his stature and drive home the point that when it comes to matters foreign he has more experience and connections that either of the two Democrats have now and/or are likely to have even after four years were one of them to become president.

Obama and Clinton have been parrying back and forth of late on how much experience they have and it reminds me once again of the Shakespearian line: "Methinks Thou Doth Protest Too Much." Hillary's experience came from living in The White House and Obama's is a figment of his imagination.

Is Barak in Rice's dog house? Does Barak have a legitimate claim or is his bruised ego in the way? (See 4 below.)

What is going on with Merkel? See 5 below.)

Dick


1) The Importance of Fallon's Fall
By Michael Barone

The abrupt resignation of Adm. William Fallon as the head of Central Command almost got lost amid the breaking news of Barack Obama's victory in the Mississippi primary and Eliot Spitzer's resignation as governor of New York. But it's a much more consequential development -- in the foreign and military policy of the Bush administration in its final year in office and in the relations between civilian commanders and military officers in the long run of American history.

Though everyone involved denies it, Fallon was kicked out for insubordination, or something very close to it. His conduct became impossible to overlook after the publication of a jauntily written article in Esquire by Thomas P.M. Barnett, author of "The Pentagon's New Map."

Barnett paints Fallon as a seasoned officer who coolly and wisely has been frustrating George W. Bush's desire to invade Iran. He points out that Fallon opposed the surge in Iraq ordered by Bush in January 2007 and that he has tried to rein in Gen. David Petraeus, whose leadership of the surge has produced such impressive results. He seems to take it for granted that readers will applaud Fallon for opposing a move that converted likely defeat to a high chance of success.

Fallon also made it plain that he wants to withdraw troops from Iraq, as soon as possible -- even though Defense Secretary Robert Gates has approved Petraeus' request for a pause after currently scheduled troop withdrawals end in July.

Fallon is not the first subordinate to work openly to undercut the commander in chief. The authors of the National Intelligence Estimate headlined a conclusion that Iran had abandoned part of its nuclear program, while underplaying the more important news that the mullahs were continuing the critical parts of the nuclear program and retained the capacity to rev up the rest quickly at any time. Leaks from the State Department and CIA have been clearly designed to frustrate administration policy.

Civilian and military, those who have been undercutting administration policy do so in the belief that their views are more in the nation's interests than the conclusion of the Texas cowboy whom the voters somehow elected president. State and CIA are filled with professionals educated in elite universities dominated by the left and, while not as wacky as their professors, have come away with the default assumption that liberals are always right. Many military officers, who increasingly have graduate degrees from such universities, seem to have imbibed similar habits of mind.

In addition, officers assigned to regional commands seem, like diplomats assigned to one area, inclined to go native. As head of Pacific Command, Fallon (at least as Barnett paints him) seemed transfixed on cooperating with China; at Central Command, he came to believe that pressuring Israel toward a settlement with Palestinians was the way to solve every problem in the region. After all, those are the things the Chinese and Arab military officers he's been interfacing with have told him.

In my view, George W. Bush has been unduly tolerant of the efforts of civilian career professionals to undercut his policies. But Fallon's abrupt resignation suggests that he and-or Gates decided that things had gone too far when a commanding military officer was lionized for opposing the president's policies in the pages of Esquire.

One of the firmest principles of American public life, established with great deliberateness by George Washington, is civilian control of the military. The vast majority of American military officers over our history have honored and cherished that principle. Fallon, as portrayed by Barnett, seemed to relish brushing it aside.

My guess is that Gates, who was a career professional and whose memoir stresses the continuity of U.S. government policy in different administrations, decided that enough was enough.

Tough questions remain about how civilian commanders should choose and interact with military professionals. Bush's record, in my view, has been far from ideal. He has seemed content with letting others choose military commanders and then accepting their advice with little of the abrasive interaction recommended by Eliot Cohen in his 2002 book "Supreme Command." Only after the debacle of the 2006 elections did he call on David Petraeus.

One wonders how much he pondered the installation at Central Command of Petraeus' critic Fallon. It is surely a difficult thing for civilian presidents to choose able and apt military commanders -- looking back in our history Franklin Roosevelt seems to have been the only commander in chief who had a consistent record of doing so early on. But at least Bush -- and Gates -- have rectified what they must now consider a mistake. And they have reaffirmed the ancient principle of civilian control.

2) The Rise of American Incompetence:
By Daniel Gross

We used to be the world's most skillful entrepreneurs and managers. Now we're laughingstocks. What happened?


The dollar plunged to new lows against foreign currencies this week. There are plenty of reasons for its plunge, but at the most basic level, the dollar's weakness reflects the world's collective, two-thumbs-down verdict about the ability of the United States—businesses, individuals, the government, the Federal Reserve—to manage the global financial system and the world's largest economy. Countries that outsourced their monetary policy by pegging domestic currencies to the dollar are having second thoughts. Kuwait last year detached the dinar from the dollar, and Qatar government officials last week said they were considering doing the same with their currency. International financiers are unnerved by the toxic combination of "misplaced assumptions about housing, a lack of necessary regulation and irresponsible use of debt with sophisticated financial instruments," said Ashraf Laidi, currency strategist at CMC Markets.

Dissing American financial management is an affront to national pride tantamount to standing in Rome and asking, loudly, if Italians are able to make pasta. The United States invented the concept and practice of running large, complex systems. Along with baseball and deep-frying, management is one of our great national pastimes. The world's first MBAs were awarded by pioneering yuppie factories such as the Wharton School at the University of Pennsylvania. (Wharton's founding in 1881 was quickly followed by the world's first time-share summer houses in the Hamptons.) Henry Ford's revolutionary assembly line was the gold standard in global manufacturing for decades. Contemporary American institutions stand for excellence in managing everything from supply chains (Wal-Mart) to delivery services (Federal Express and UPS).

Americans' ability to manage complex systems has been the ultimate competitive advantage. It has allowed the United States to enjoy high growth and low inflation—a record we haven't hesitated to lord over our foreign friends. The shelves in the business section of a bookstore in a mall in Johannesburg, South Africa, are stocked with the same volumes you'll find in a Barnes & Noble in Pittsburgh, Pa.: memoirs by cornfed paragons of capitalism like Jack Welch, wealth-building advice from American money managers, large tomes on how Andrew Carnegie and John D. Rockefeller built global businesses from scratch.

But now, thanks to widespread incompetence, American management is on its way to becoming an international laughingstock. Faith in American financial sobriety has been widely undermined by the subprime mess. The very mention of the strong-dollar policy now elicits raucous bouts of knee-slapping in even the most sober Swiss banks. (How do you say schadenfreude in German?) Earlier this month, as oil hovered near $100 a barrel, President Bush complained to OPEC about high oil prices. OPEC President Chakib Khelil responded acidly that crude's remarkable run had nothing to do with the reluctance of Persian Gulf nations to pump oil, and everything to do with the "mismanagement of the U.S. economy." Since Bush's plea, oil has gushed to $110 per barrel. (How do you say schadenfreude in Arabic?)

Americans abroad are constantly taunted by perceived failings of American management. America's aviation system is now the butt of jokes because 9-year-olds have become accustomed to removing their Heelys before boarding a plane. As my family and I passed through the snaking security line in Cancún, Mexico's airport last month, we were harangued by a security guard who encouraged tourists to sing along with him: "Please. Do not. Remove. Your shoes."

The concern extends beyond airlines to America's industrial complex. Doubtful of the ability of provincial American executives, with their limited language skills, to negotiate today's global business environment, the boards of massive U.S. firms like Coca-Cola, Pepsi-Cola, Alcoa, and insurer AIG have hired foreign-born CEOs. Carl Icahn, the 1980s corporate raider, has reinvented himself as a borscht-belt comedian/activist investor, who delights conferences and reporters with jokes at CEOs' expense. On a recent 60 Minutes, Icahn complained to Lesley Stahl about the incompetence of American management. "I see our country going off a cliff, and I feel bad about it."

Icahn is moping all the way to the bank. The market's recognition of management failures gives him the opportunities to acquire companies on the cheap. But those of us who aren't billionaire corporate raiders—which is to say pretty much all of us—must manage through this management crisis on our own.

3) Dousing the fire: America's plan to fix the credit markets


HOW do you fight a conflagration when smaller blazes erupt almost daily? Unenviable though the task must seem, several regulatory bodies are having a go with credit markets. On Thursday March 13th the first of them, the President’s Working Group on Financial Markets (PWG), unveiled its blueprint for reform after nearly seven months of deliberation.

Though the crisis is far from over, its causes have long been clear. Securitization—the packaging of bank loans into tradeable bonds—grew too complex. The incentives of those involved, especially loan originators, were warped. Lending standards plummeted as a result, not only in mortgages but in credit cards and corporate lending too. Investors over-reached for yield as interest rates fell. Everyone focused on credit ratings rather than the underlying credits.

The PWG—which comprises America’s Treasury, the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission—concludes that, as Hank Paulson, the treasury secretary, put it, “regulation needs to catch up with innovation.” Though the group defends the concept of securitization, it calls for tougher licensing and oversight of mortgage brokers and stronger safeguards against fraud.

It also urges better disclosure of both loan terms for borrowers and analysis of underlying assets by issuers of mortgage-backed securities. Credit-rating agencies will be expected to distinguish more clearly between ratings for structured products and straight corporate debt, and to flag up conflicts of interest. The group is also seeking to encourage alternatives to standard securitization, such as covered bonds, which provide banks with capital-market funding while holding on to their mortgage loans. These are already popular in Europe.

The group sounds a note of urgency on over-the-counter (off-exchange) credit derivatives, which have boomed in recent years but now look combustible. The answer, it believes, is stronger market infrastructure, namely more standardised products and documentation, more robust settlement and enhanced counterparty-risk management through netting and collateral agreements. A central clearing organization, akin to the Depository Trust & Clearing Corporation, which handles stock trades in America, would also help, it reckons.

The group also addresses the regulation and management of bank capital. Banks need to plump up their cushions as a matter of urgency, said Mr Paulson, which may mean cutting dividends. Gaps in the new Basel II standards on bank capital, concerning lenders’ off-balance-sheet exposures and liquidity risk, also need addressing. The group comes close to admitting it had its sights on the wrong target—hedge funds rather than regulated banks—in the run-up to the crunch.

It makes clear, however, that the job of steering financial behemoths rests ultimately with top managers, not regulators. “The ultimate success of any CEO is largely determined by the answer to one question: do we have the right people in the right jobs with the right incentive structure?” said Mr Paulson, a former boss of Goldman Sachs.

The group thinks reform is best left to the industry in other areas, too, such as pay. Memories of Sarbanes-Oxley, the aggressive corporate-governance law enacted after Enron’s collapse, which has since been pared back, are still fresh.

Some see this as spinelessness. Certainly, some of the recommendations seem soft. Rating agencies are already exploring different rating scales, for instance (not that there is anyone left on the planet who thinks a triple-A collateralized-debt obligation is as solid as a top-rated corporation). There are omissions, too. The group has nothing to say about ensuring that mortgage originators have more “skin in the game”, though recommendations on that may crystallise later.

Indeed, there is plenty more to come. The Working Group will report soon on America’s regulatory architecture (which Mr Paulson considers too fragmented) and the accounting industry. A global group of regulators, the Financial Stability Forum, is also working on a report. There is scope for disagreement here: the Europeans, for instance, favor a harder line on rating agencies than the Americans do. And then there is the fast-expanding batch of crunch-related bills in Congress, which range from the reasonably sensible to the downright barmy.

To some, this must feel a bit like firefighters standing around discussing nozzle design while an inferno rages around them. Hedge funds are starting to squeal as funding terms tighten, even on good assets. The collapse of a hedge fund affiliated to Carlyle Group, one of the world's biggest buyout firms, has added to the sense of crisis. And banks are far from finished writing down assets. Questions continue to mount over some: Bear Stearns has been forced to deny rumors of liquidity problems. Many economists agree that America is already in recession. The Working Group’s recommendations will do nothing to douse these flames. They may, however, go some way towards preventing future conflagrations.

4) Serious falling-out between Israel’s Barak and Washington over peace track

Washington and Israeli sources report Secretary of State Condoleezza Rice and the three US generals, who act as US envoys for the Israel-Palestinian peace track have accused Israel’s defense minister Ehud Barak of sabotaging Rice’s Middle East policy objectives. This accusation was first raised by Palestinian Authority chairman Mahmoud Abbas.

In protest against what he considered these officials’ anti-Israel positions, Barak absented himself from a meeting Friday, March 14, in Jerusalem with US Gen. William Fraser and Palestinian PM Salam Fayyad. Instead, he sent Amos Gilead, senior political adviser at the defense ministry.

Gilead said that the minister was not scheduled to attend, but our sources confirm that at previous encounters of this sort Barak represented Israel in person.

The defense minister complained that Gen. Keith Dayton, one of the three US envoys, leveled harsh criticism against him personally and Israel’s defense community in general at a gathering of US consular staff serving in Israel.

According to our sources, Dayton faulted Israel on three points:

1. Israel, he said, was not giving Palestinian security and intelligence organs a chance to act in an orderly and continuous manner in the A areas of the West Bank under their control. This prevented the Palestinian Authority from exercising its authority over West Bank towns and rooting out terrorist structures, while strengthening Hamas elements and helping them build strongholds that would undermine Abbas.

2. Systematic Israel military operations in West Bank towns are driving wanted terrorists, criminal gangs and lawbreakers into Israel-controlled B and C areas in search of asylum. Gen. Dayton insinuated that the current anarchy in the West Bank was down to Israel, which he blamed for the inability of Abbas and Fayad to take charge of the territory.

3. The American general told the US diplomats that Ehud Barak and his defense establishment had spurned repeated American requests for a set of new security measures to be introduced on the West Bank as peace negotiations went forward.

A diplomatic source present at the meeting was convinced that Gen. Dayton’s severe remarks were backed by the secretary of state.

Barak is reported by military sources to have angrily rejected the US general’s charges and remarked such complaints should have been properly addressed to him, not laid before officials not directly involved in the Israel-Palestinian dialogue, some of whom are openly hostile to Israel. The minister said there was no point in him attending any more “Palestinian charades.”

Those military sources also noted Gen. Dayton had still not accomplished his mission to establish an effective Palestinian anti-terror force for the Ramallah government. That appears to be at the bottom of the controversy.

5) Threats to Israel are threats to us, says Merkel

Merkel expresses solidarity with Israel, states Iran must halt its nuclear program on eve of three-day visit to Israel



German Chancellor Angela Merkel expressed solidarity with Israel in the face of threats to the Jewish state on Saturday, the eve of a three-day visit to the country, and said Iran must halt its nuclear program.


"The threats to which the Israeli state is exposed are also threats to us," Merkel said in her weekly podcast. She said she would underline on the trip that "the Iranian nuclear program cannot continue and Iran must finally play to international rules."


The UN Security Council imposed a third round of sanctions on Iran earlier this month for refusing to suspend uranium enrichment, adopting a resolution that Germany co-sponsored, though not itself on the council.



Merkel will be the first German chancellor to address Israel's parliament, more than six decades after the end of World War II. Her visit will launch yearly talks between the governments. She will also visit the Yad Vashem Holocaust memorial on Monday. "With this (visit) we want to take responsibility for the past ... we want to show clearly that Israel's right to exist is a permanent part of German foreign policy," she said.


Her visit marks the 60th anniversary of the creation of Israel in 1948 and is intended to help further normalize relations between Germany and Israel. Some commentators say Merkel has been less vocal in her public criticism of Israel than her predecessor, Gerhard Schroeder, on issues including military action in the Israeli-occupied West Bank.



The German Foreign Ministry said on Friday that Merkel and Quartet Middle East Envoy Tony Blair would organize a Middle East security conference in Berlin in June to discuss the strengthening of the Palestinian police force and justice apparatus.



German media reported all EU members, several Arab states, the Middle East quartet -- Russia, the United States, the European Union and the United Nations -- and Palestinian and Israeli officials would be invited.