POGO was right - the enemy is Us/U.S. !

Baum makes some sense so let's not listen to her. (See 1 below.)

The best advice I can offer is see the old classic movie "Ship of Fools" and read "Atlas Shrugged", "Gulliver's Travels" and "1984."

Voters, like investors are depressed,in panic and denial. Certainly Republicans have offered them little by way of a compelling alternative. The press and media have made their contribution as well by failing in their responsibility to be more professional at their chosen craft. Congressional leadership is mostly a basket case of untrustworthy incompetents.

Slavery is returning to America - its "MASSA SAM," our former benign UNCLE, who now owns us! POGO was right - the enemy is Us/U.S.! (See 2 below.)



An old friend, who loves the market, made an interesting observation recently. He said derivative investing might well have diminished the prospects of a climactic bottom.

He also suggested world wide government guarantees of bank accounts could have facilitated stock liquidations because investors now had somewhere to put stock money they deemed was safe.

You know things are bad when GM and Chrysler are contemplating marriage! Even a "Good Cigar" now falls short of our needs. (See 3 and 3a below.)

Try this on for size. From a memo reader friend. (See 4 below.)

When the election is over, no matter who wins, two general and broad conclusions seem apt.

a)One could conclude democracy is messy, and we have demonstrated that, but it is worth it because, in a broad sense, we are free to make a collective judgment call and did so in increasing numbers.

b) A second view entails a more discriminating look and that is when matters become discouraging. The cost, the exhaustive demand on candidates, the sound and fury generated and yet, we are left knowing so very little. Furthermore, does the current debate format lend itself to thoughtful discussion? The electorate probably have formed judgments based more on style rather than substance. Maybe that is the best we can hope for and, if so, it is little wonder we are in our current perilous state.

McCain has run a disorganized campaign, has been short of funds because he stood by his commitment to use public money, had an uphill fight while the economy was going downhill, had to run against the press and media and chose a fresh face for VP that caused more problems - Palin became a lightening rod for hateful commentary from the sanctimonious elitist left. And what about poor ole Joe The Plumber, who has been pummeled for wanting to enhance his economic status and exposing "The One's" economic nonsense. Joe has been viciously attacked as if he planned 9/11. (See 5 below.)

Obama has run a well oiled campaign, had plenty of money (some of which I believe is foreign based but we will probably never know), was able to avoid answering many charges and accusatory claims about his judgment, character and associations because he was never probed by the press and media. Obama proved, in his selection of a VP, his own concerns about his vulnerabilities but, here again, even his own VP's expressed fears trailed off unchallenged.

So we will probably end with a young president who is less than qualified, based on past experience, a man few voters really know a great deal about beyond their impression based on charisma at a time when even his own VP feels a bit rocky about how successful his own running mate might be in meeting the challenges they and the nation may face.

The coattail effect could also result in a veto proof Congress, the lustful goal of Pelosi and Reid. At least we will have establish for all time we elected the first black person to be our president. That is a major positive and I am sure drove the decision of many guilt ridden voters. What remains to be seen is at what price to our security and freedom? Only time can answer that.

We are opting for "change" without understanding what the word means and yet we were told by "Mr. Change" words do matter. Something is missing but I suspect "change" means more of the same from the liberal left - higher taxes, more government programs, control over the market place and cuts in defense. Of one thing I am sure. If Obama flops, as I fear he might but pray he does not, the press and media will tear him to shreds. Why? Because they will do everything they can to avoid the stench of having pressed his election upon a less than discerning electorate they helped dupe and dis-inform. However, when faced with the choice of McCain and the campaign McCain ran I understand why many have flocked to Obama.

Dennis Ross, Obama's Middle East Advisor, explains Obama and why he finds him so extraordinary and the transformational leader Ross' believes we need. Ross is a solid thinker and his insight is encouraging. (See 6 below.)

Dick

1) Election Winner May Welcome Early Exit in 2013: Caroline Baum
Commentary by Caroline Baum

The 2008 presidential campaign has been notable for many things: its interminable length, its lack of substance and its sheer nastiness, to name just three.

What has been notably absent is a serious discussion of the challenges facing the country -- those that pre-date the credit crisis and will be with us long after it abates -- and the candidates' ideas for addressing them.

Did you hear anything pithy about the future of Social Security and Medicare? Neither did I. The moderators of the three presidential debates clearly didn't think the U.S.'s entitlement programs, which are on automatic pilot and have the potential to bankrupt the country in the 21st century, were worthy of discussion.

The candidates touted green fuels -- wind, solar, biomass, geothermal, cellulosic ethanol -- until they were blue in the face. They talked about better, more affordable health care that achieves cost savings and belongs to the fuzzy-math school of budgeting. (In the candidates' defense, my guess is that every health-care initiative has exceeded cost estimates by a long shot.) And they enumerated plans for lots of job-creating new spending while glossing over the issue of how to pay for it.

In short, the 2008 presidential campaign has been short on substance and long on slogans. Call it, Change meets the Mavericks.

Democratic candidate Barack Obama and Republican candidate John McCain have made noises about fiscal responsibility that don't pass the most basic smell test.

Wrong Rock

Obama has pledged to go through the federal budget ``line by line, page by page,'' cutting programs that don't work and making necessary ones work better.

John McCain has promised to balance the budget by the end of his first term and is targeting earmarks, or pork-barrel spending, toward that end.

Both candidates are looking under the wrong rocks. Excluding defense, discretionary spending (those expenditures that go through an annual appropriation process) amounted to 17.5 percent of all federal spending in fiscal 2008, according to the Congressional Budget Office.

Even if Obama used a thick, charcoal pencil, it would be hard to find enough savings in non-defense discretionary spending to change the long-term outlook.

As for John McCain's jihad on earmarks, ``Congress stuffed 11,610 projects into the 12 appropriations bills worth $17.2 billion'' in 2008, according to Citizens Against Government Waste, a Washington non-profit organization committed to eliminating inefficiency in federal government. That represents a 337 percent increase from fiscal 2007. It also represents about 0.6 percent of the 2008 budget.

Going Broke

The ticking time bomb for the federal government is entitlement spending: Medicare and Social Security. Social Security's costs will exceed tax income in 2017, according to the 2008 annual report from the Trustees of the Social Security and Medicare trust funds. By 2041, the ``trust funds'' -- there are no assets compounding in the trust fund -- will be exhausted and unable to pay full benefits.

Medicare's financial status is even worse, according to the Trustees. The Hospital Insurance Fund is already paying out more than it's taking in on an annual basis. The HI fund will be kaput in 2019.

The 2008 Medicare Report triggered a ``funding warning'' for the second consecutive year as required by law when Medicare outlays are projected to be 45 percent greater than revenue from payroll taxes and premiums.

Congrats and Regrets

Outside of entitlements, budget trends are nothing to write home about. The federal budget deficit hit a record $455 billion, or 3.2 percent of gross domestic product, in fiscal year 2008. The $250 billion the Treasury will use to buy preferred stock in U.S. banks will be scored as an expenditure in the 2009 budget, according to the White House budget office.

Now that cyclical forces (a recession) are compounding deteriorating secular trends -- fewer workers to support a greater number of retirees -- one wonders how either candidate is going to be able to do anything more than keep spending, which rose 9.1 percent this year, to single-digit gains.

I feel sorry for whoever wins the presidential election on Nov. 4. He faces a colossal mess. The housing bubble is still deflating, with no end in sight. The unemployment rate is rising, making consumer loans of all descriptions -- mortgage, auto, credit card -- vulnerable to rising delinquencies.

U.S. banks have already reported write downs and credit losses of $411 billion ($662 billion worldwide), a financial hole that is certain to grow as more loan categories are affected by recession.

Playing Defense

Neither candidate has offered much of a vision for addressing the credit crunch sinking an economy that was already taking on water.

McCain wants the government to buy $300 billion of home mortgages to help homeowners facing foreclosure, which sounds like an incentive for homeowners who are current on their mortgage payments to find a way to qualify for relief.

Obama wants to give a tax cut to some people who don't pay any taxes, which sounds like government spending by any other name.

For the next 11 days, the two candidates will regale us with their vision for the future. They will promise, if elected, to work hard each and every day for the American people. They will inspire us with their rhetoric and scare us with distortions about the other guy.

Whether they know it or not, they won't be fulfilling many of those promises come Jan. 20. The next president of the U.S. will be handcuffed by events and constrained by deficits. He'll be playing defense. And he won't have a deep bench to work with.

The only bright spot is the prospect of escape in four years if things get worse before they get better.

2)How's Obama Going to Raise $4.3 Trillion? The Democrat's tax and spending plans deserve closer examination.
By ALAN REYNOLDS


The most troublesome tax increases in Barack Obama's plan are not those we can already see but those sure to be announced later, after the election is over and budget realities rear their ugly head.
[Commentary] M.E. Cohen

The new president, whoever he is, will start out facing a budget deficit of at least $1 trillion, possibly much more. Sen. Obama has nonetheless promised to devote another $1.32 trillion over the next 10 years to several new or expanded refundable tax credits and a special exemption for seniors, according to the Urban Institute and Brookings Institution's Tax Policy Center (TPC). He calls this a "middle-class tax cut," while suggesting the middle class includes 95% of those who work.

Mr. Obama's proposed income-based health-insurance subsidies, tax credits for tiny businesses, and expanded Medicaid eligibility would cost another $1.63 trillion, according to the TPC. Thus his tax rebates and health insurance subsidies alone would lift the undisclosed bill to future taxpayers by $2.95 trillion -- roughly $295 billion a year by 2012.

But that's not all. Mr. Obama has also promised to spend more on 176 other programs, according to an 85-page list of campaign promises (actual quotations) compiled by the National Taxpayers Union Foundation. The NTUF was able to produce cost estimates for only 77 of the 176, so its estimate is low. Excluding the Obama health plan, the NTUF estimates that Mr. Obama would raise spending by $611.5 billion over the next five years; the 10-year total (aside from health) would surely exceed $1.4 trillion, because spending typically grows at least as quickly as nominal GDP.

A trillion here, a trillion there, and pretty soon you're talking about real money. Altogether, Mr. Obama is promising at least $4.3 trillion of increased spending and reduced tax revenue from 2009 to 2018 -- roughly an extra $430 billion a year by 2012-2013.

How is he going to pay for it?

Raising the tax rates on the salaries, dividends and capital gains of those making more than $200,000-$250,000, and phasing out their exemptions and deductions, can raise only a small fraction of the amount. Even if we have a strong economy, Mr. Obama's proposed tax hikes on the dwindling ranks of high earners would be unlikely to raise much more than $30 billion-$35 billion a year by 2012.

Besides, Mr. Obama does not claim he can finance his ambitious plans for tax credits, health insurance, etc. by taxing the rich. On the contrary, he has an even less likely revenue source in mind.

In his acceptance speech at the Democratic convention on Aug. 28, Mr. Obama said, "I've laid out how I'll pay for every dime -- by closing corporate loopholes and tax havens." That comment refers to $924.1 billion over 10 years from what the TPC wisely labels "unverifiable revenue raisers." To put that huge figure in perspective, the Congressional Budget Office optimistically expects a total of $3.7 trillion from corporate taxes over that period. In other words, Mr. Obama is counting on increasing corporate tax collections by more than 25% simply by closing "loopholes" and complaining about foreign "tax havens."

Nobody, including the Tax Policy Center, believes that is remotely feasible. And Mr. Obama's dream of squeezing more revenue out of corporate profits, dividends and capital gains looks increasingly unbelievable now that profits are falling, banks have cut or eliminated dividends, and only a few short-sellers have any capital gains left to tax.

When it comes to direct spending -- as opposed to handing out "refund" checks through the tax code -- Mr. Obama claims he won't need more revenue because there will be no more spending. He even claims to be proposing to cut more spending ending up with a "net spending cut." That was Mr. Obama's most direct answer to Bob Schieffer, the moderator of the last debate, right after Mr. Schieffer said "The nonpartisan Committee for a Responsible Federal Budget (CFARB) ran the numbers" and found otherwise.

When CFARB "ran the numbers," they relied almost entirely on unverifiable numbers eagerly provided to them by the Obama campaign. That explains why their list of Mr. Obama's new spending plans is so much shorter than the National Taxpayers Union fully documented list.

But nothing quite explains why even the vaguest promises to save money are recorded by CFARB as if they had substance. Mr. Obama is thus credited with saving $50 billion in a single year (2013) by reducing "wasteful spending" and unnamed "obsolete programs." He is said to save Medicare $43 billion a year by importing foreign drugs and negotiating bargains from drug companies. Yet even proponents of that approach such as the Lewin Group find that cannot save more than $6 billion a year. So the remaining $37 billion turns out to depend on what the Obama campaign refers to as undertaking "additional measures as necessary" (more taxes?).

The number of U.S. troops in Iraq will decline, regardless of who the next president is. Yet the CFARB credits John McCain's budget with only a $5 billion savings from troop reduction in Iraq, while Mr. Obama gets an extra $55 billion.

Straining to add credibility to Mr. Obama's fantasy about discovering $75 billion in 2013 from "closing corporate loopholes and tax havens," CFARB assures us that "the campaign has said that an Obama administration would look for other sources of revenue." Indeed they would.

In one respect, CFARB is more candid than the Obama campaign. Mr. Obama favors a relatively draconian cap-and-trade scheme in which the government would sell rights to emit carbon dioxide. The effect on U.S. families and firms would be like a steep tax on electricity, gasoline and energy-intensive products such as paper, plastic and aluminum. Whenever Mr. Obama claims he has not (yet) proposed any tax increase on couples earning less than $250,000, he forgets to mention his de facto $100 billion annual tax on energy. (The McCain-Lieberman cap-and-trade plan is more gradual and much less costly.)

CFARB assumes Mr. Obama's cap-and-trade tax would raise $100 billion in 2013 alone, but the actual revenue raised would be much lower. Like every other steep surge in energy costs, the Obama cap-and-trade tax would crush the economy, reducing tax receipts from profits and personal income.

The Joint Tax Committee reports that the bottom 60% of taxpayers with incomes below $50,000 paid less than 1% of the federal income tax in 2006, while the 3.3% with incomes above $200,000 paid more than 58%. Most of Mr. Obama's tax rebates go to the bottom 60%. They can't possibly be financed by shifting an even larger share of the tax burden to the top 3.3%.

Mr. Obama has offered no clue as to how he intends to pay for his health-insurance plans, or doubling foreign aid, or any of the other 175 programs he's promised to expand. Although he may hope to collect an even larger share of loot from the top of the heap, the harsh reality is that this Democrat's quest for hundreds of billions more revenue each year would have to reach deep into the pockets of the people much lower on the economic ladder. Even then he'd come up short.

3) Global recession fears intensify, markets dive
By Patricia Zengerle


Poor economic data around the world and another international barrage of corporate profit warnings and job cut announcements intensified fears of deep global recession on Friday.

Seventy-nine years to the day after the 1929 crash that led into the Great Depression, stock markets dropped around the globe, currencies experienced almost unprecedented volatility, and oil and other commodities tumbled on fears of plummeting demand that would accompany a global economic slowdown.

"There's definitely concern that this could be a recession for the United States, deep and long," Doreen Mogavero, chief executive of independent New York Stock Exchange member firm Mogavero, Lee & Co Inc, said on the exchange's trading floor.

Japan's Nikkei index ended down 9.6 percent, and European shares lost 5.4 percent to close at their lowest level in more than five years.

Reports of the euro zone's private economy shrinking this month at the fastest pace since monetary union and a much deeper-than-expected contraction in Britain's economy in the third quarter led many analysts to declare "recession."

The Dow Jones industrial average and S&P 500 indexes both closed down over 3 percent, but pared losses after dropping more than 5 percent at the open. The Dow ended down 312.30 points, or 3.59 percent, and the S&P closed down 31.34 points, or 3.45 percent. The Nasdaq Composite Index ended down 51.88 points, or 3.23 percent.

The economic crisis prompted further U.S. government intervention: Officials stepped in to help finance the sale of ailing Cleveland-based National City Corp and also prepared to announce 20 more banks that will receive capital injections.

Speculation about a bailout of the U.S. auto industry increased as General Motors has intensified negotiations to buy Chrysler's auto operations, intending to seek U.S. government aid to support any deal, people familiar with the talks told Reuters. Chrysler said it was slashing about 5,000 white-collar jobs.

Foreign exchange markets saw extreme volatility, with the yen rocketing to multiyear highs against the dollar and euro. The euro/yen rate fell 10 percent at one point, also kindling speculation over how central banks might respond.

OPEC agreed to cut oil output by 1.5 million barrels per day in a bid to halt a steep slide in prices. But the price of U.S. crude fell more than 5 percent, below $64 as economic gloom overshadowed the cut.

Other commodities from copper and zinc to sugar and coffee were battered by sharp selling -- bad news for emerging market economies that are major producers

A range of corporate giants reeled.

Sony's shares plunged to a 13-year low after it halved its profit forecast. Samsung posted a 44 percent drop in quarterly profit and Europe's largest airline group, Air France-KLM, issued a profit warning.

3a) "This is worse than a divorce; I've lost half my net worth and still have a wife."


4) Subject: WEALTH REDISTRIBUTION

I was in a local restaurant and my server had on an "Obama 08" button.

When the bill came I decided not to tip the server. I explained to him that
I was exploring the Obama redistribution of wealth concept. He stood there
in disbelief while I told him that I was going to redistribute his tip to
someone who I deemed more in need--the homeless guy outside. The server
angrily stormed from my sight.

I went outside, gave the homeless guy $10 and told him to thank the server
inside as I've decided he could use the money more. The homeless guy was
grateful.

At the end of my rather unscientific redistribution experiment I realized
the homeless guy was grateful for the money he did not earn, but the waiter
was pretty angry that I gave away the money he did earn even though the
actual recipient deserved money more.

I guess redistribution of wealth is an easier thing to swallow in concept
than in practical application.

5) Betting Against the Elites on Sarah Palin
By J. Robert Smith

When it comes to politics, it's often smart to bet against the elites -- on the left and right. Bet against them about Sarah Palin.

Palin is the latest in a long line politicians who have been discounted by those comfortably ensconced in positions of power and privilege. Since, at least, the early 1800s, the chattering classes, especially, have managed to bet against men who went on to notable, if not historic, presidencies. They disparaged Andrew Jackson and ridiculed Abe Lincoln. In recent times, elites turned noses up at Truman and Eisenhower. And, of course, they disdained Ronald Reagan as a second rate actor and corporate huckster.

Palin isn't seeking the presidency -- not this go-round. Yet the very same elites who are uneasy about a rookie being a heartbeat away from the presidency aren't quite as fussed about a rookie United States senator winning the presidency.

The surprising and unfortunate thing is that some prominent conservative establishmentarians have joined with the usual suspects on the left to question Palin's fitness. David Brooks, David Frum, Charles Krauthammer, George Will and Peggy Noonan, most conspicuously, have taken turns criticizing McCain's choice of Palin.

In apples-to-oranges comparisons, they've commented that the callow Barack Obama is better ready to be president than Sarah Palin is to be vice president. Or at least implied it:

In one strikingly odd take, David Frum said:

"Ms. Palin's experience in government makes Barack Obama look like George C. Marshall. She served two terms on the city council of Wasilla, Alaska, population 9,000. She served two terms as mayor. In November, 2006, she was elected governor of the state, a job she has held for a little more than 18 months. She has zero foreign policy experience, and no record on national security issues."


So, if in comparison to Palin, Barack Obama looks like George C. Marshall, then when compared to the man he's actually running against, John McCain, might McCain resemble George Washington or U.S. Grant?

What about Obama's tissue-thin record on foreign policy and national security matters? The Illinoisan was only elected to the United States Senate in 2004. Much of his time in the senate has been spent running for president.

And no small point here, what about Obama's naïve, if not downright daffy and dangerous, positions on critical foreign policy and national security issues?

Anyone heard Sarah Palin calling for unconditional talks with Fidel Castro's pal Hugo Chavez or that exemplar of moderation and reason, Iranian President Ahmadinejad? Has Palin twisted herself in a pretzel avoiding admitting that the Surge worked? Or is she pushing for violating an unstable and nuclear-armed Pakistan's territory to root out bad guys?

Certainly, no one is suggesting that otherwise sensible conservative commentators should flak for McCain or Palin, but one wonders about their perspectives and priorities in this instance. Wouldn't any conservative sleep better knowing that a President McCain will pick up the red phone at three a.m., rather than the callow Barack Obama? That is the critical question. Biden and Palin are secondary considerations.

Not all, but some of the slings and arrows aimed by the elites at Palin are simply because she's an outsider. By their standards, Palin isn't pedigreed. A sheepskin from the University of Idaho might as well be a GED to them. Unlike Obama, she's not part of their network, even indirectly. She's a practicing fundamentalist Christian, while many of the elites are secularists. She can use a gun and hunt moose. Many elites revile the 2nd Amendment and their hunting consists of finding the free-range chicken at Whole Foods.

For elites, Palin is too plain-spoken and colloquial. Her gal next door demeanor grates. Her winks are cheesy. She's a hockey mom, not a soccer mom. Hockey's just too violent.

But for all the reasons and more that elites are dismissing Palin, voters are finding her appealing. They're neither offended by her conservatism nor her person. In fact, they see a lot of themselves in her. Her rallies overflow. She attracts a crowd walking down the street. She gave Saturday Night Live its best ratings in fourteen years. She has a common sense, practical approach, which is very much what everyday Americans are about.

Sarah Palin is typically who Americans want to elect to high office - or any office. They want someone who's right on the issues, good at the business of politics and governance, but who is fundamentally simpatico.

Once again, history teaches. Andrew Jackson was an up-from-the-bootstraps frontiersman in a nation ever pushing west. He was a fighter, who not only won the Battle of New Orleans, but as a politician, fought the vested interests that he and voters believed were ruining the country.

Lincoln -- who doesn't know how he was run into the ground as an unschooled backwoodsman? He was ridiculed for his informality and colloquialisms. Initially, his own cabinet thought they were his betters.

Truman had a high school education and spent most his life in rural, small-town Missouri. His business ventures failed. There was no polish or elegance to the man, and he had a temper, which he exercised famously when a newspaper critic lambasted his daughter Margret's recital.

The unassuming Eisenhower was renowned for his generalship, but as president, he was forever branded an inarticulate middlebrow.

Ronald Reagan was the "amiable dunce." He chopped brush at this ranch and enjoyed a dinner of macaroni and cheese.

But what each of these men had was the allegiance of the American people. The elites couldn't figure it out then, and they're missing the mark again about Sarah Palin. If history is any guide, the smart money goes on Palin.


6) Dennis Ross on why he's working for Obama and how he'd talk to Iran
By Natasha Mozgovaya

Ahead of the American elections, Dennis Ross, the man who used to work as President Bill Clinton's envoy to the Middle East, has been busy "working" the shuls in Florida, a key battleground state in the presidential election. Aside from sitting on the boards of many different research institutes, Ross also acts as Democratic candidate Barack Obama's Middle East advisor. In addition, he is a leading contender - among some 300 candidates - for the post of secretary of state in an Obama government. This week he sat down and talked to Haaretz.

How was it in Florida? How did people react and what are the main concerns of the local Jewish community?

Ross: "When I was down there a few weeks ago, I think there were many more questions about Senator Obama than what I see among audiences today. The questions that are asked now show that people are beginning to decide that they want to go for him, and they want to be satisfied. I think there's a desire to understand the nature of his relationship to Israel, how he would approach Iran, and [what] he thinks about the peace process. I would say those are the three big questions I was asked in one form or another everywhere I went."

Assuming that the next president's capacity to deal with these issues will be limited because of national debt, two ongoing wars and the recent financial crisis, can he really promise anything - and keep his word?

"In the first instance, [Obama] views the issue of Iran as an urgent priority, because the Bush administration's approach to Iran has failed. I talk about how Obama wants to use our willingness to talk as a means to get others to actually apply more pressure on the Iranians, as a way to ensure the talks' success, but also because the talks themselves send a signal [to] those who fear [that] applying more pressure means you're descending toward a slippery slope of confrontation. This is a way of saying, 'Look, we're trying to see if there's a way to avoid that.' Preventing Iran from going nuclear is a very high priority for him, not only because it's such a threat to Israel, but because it's such a threat to the United States.

"On the question of Israel, I talk about what I saw during his trip to Israel, how I saw his understanding of the relationship with Israel - he would describe it as a commitment of the head and heart. He looks at Israel and sees us as being two countries with common values. But he also looks at Israel and sees that whatever threatens Israel also happens to threaten the United States. So we have a [common] interest, because we end up facing the same threats.

"Regarding the peace process, I think this is an issue where engagement is also crucial, but, much like Iran, it is an engagement without illusions. When you engage, you do so without illusions. But when you don't engage, you leave the way open for your adversaries to actually gain more. The Bush administration wanted to disengage for its first six years in office. [By doing so] they actually strengthened Hamas' hand, because Hamas' argument is [that] there is no possibility for peace. The least you want to do is show that there could be an alternative answer."

What kind of engagement might it be? The Israeli government isn't fond of being under pressure, and some people are very sensitive about the idea of talking to Iran, especially since the Iranian leadership is saying nasty things about Israel.

"Sure, that's why I started by saying that it's an engagement without illusions. With regard to the Iranians, we know that by not talking to Iran the U.S. did not improve the situation. Today Iran is a nuclear power - it doesn't have nuclear weapons yet, but in 2001 it was not yet able to convert uranium or uranium gas, it didn't have a single centrifuge. Now it's stockpiling highly enriched uranium. So the current approach of not talking hasn't worked. There's no guarantee that if you talk you'll succeed, but if you don't talk you will fail."

Does one talk to Mahmoud Ahmadinejad?

"You don't talk to Ahmadinejad. First of all, he's not the decision maker. When Senator Obama suggests that he would be prepared to meet with him, he says such a meeting first has to be prepared. What he means is that you have to coordinate with your allies - all your allies. Secondly, it means you have to check whether you can put together an agenda for a lower-level meeting. If it becomes clear that you can't put together such an agenda, then you don't hold a meeting at a high level - the presidential level - because it's not going to lead anywhere. But if you can produce something that you know will lead somewhere, then it's silly not to do that.

"And in terms of the peace process, if you don't engage, then by definition, Hamas becomes stronger. We've seen that. Senator Obama won't deal with a non-state actor like Hamas unless Hamas changes its position, unless it's prepared to recognize Israel, unless it makes it clear [that] it gives up on terror, unless it's prepared to recognize previous agreements. So as for non-state actors, he's not willing to deal with them. Engagement without illusion in the peace process means that the U.S. should play a role, the U.S. should be involved, the U.S. should do what it can to promote the peace process and build bridges where it can.

"At the end of the day his position is [that] we cannot impose peace, because an imposed peace isn't peace at all. He's more than willing to invest in the process, but, then again, how he does it and in what ways will depend very much on the circumstances, and obviously there are many other issues out there."

Do you believe Israel and the Palestinians can reach an agreement in the near future? Secretary of State Condoleezza Rice said she'll do her utmost to try and reach a framework agreement by the end of the Bush administration.

"I think that in the current circumstances, it's difficult to see that happening. It's important for the two sides to do what they can, but I think we need to be realistic as well."

Leaving the sidelines

Not everyone in Washington likes the Israeli talks with Syria. What do you think?

"The fact that Israel is negotiating indirectly with Syria through Turkey is a sign that Israel believes it's worth trying this approach, and I believe we should try it, too. I think it's a mistake not to. Too often when you don't talk - as I said before - you create a self-fulfilling prophecy. Just because you make the effort doesn't mean you'll succeed. But at least you ought to see if you can do it, you ought to do it with your eyes open, without illusions, without naivete, but it's worth probing and testing."

Why and when did you decide to take on an active role in this campaign?

"I decided to take an active part in the campaign because I feel the stakes are so high. I looked at us, especially in the Middle East, and I think we've been on the sidelines everywhere except [in] Iraq. And when the U.S. is on the sidelines, U.S. interests suffer and I think Israel's interests suffer, too. I felt that I just didn't have the luxury of remaining on the sidelines and sitting this one out."

Some of America's image problems didn't start with the Bush administration. Is it possible to repair the damage?

"One of the problems of the last eight years is that too often we've staked out objectives that we could not achieve. The rest of the world watches and looks for several things. The first is whether we are effective in terms of what we do. Secondly they have to see that we don't just lecture, we also listen."

Can you define what constitutes an American interest right now?

"I think our interest at this point around the world is [that] we do have to contend with the radicalists, they do constitute a serious threat to us. But I think we have to realize who our natural partners are and how we can work with both them and our allies so we, in a sense, build our collective leverage against those who constitute threats to us. It's very clear that we have to restore our economic well-being, because you can't be strong internationally if you're not strong at home, and if you're not strong financially."

Is it about the stakes, or Obama's personality and policies?

"It's a combination. First, the stakes were so high, and I think he's also a unique talent. I've sat in on probably 100 meetings with our presidents - those I've worked for and their counterparts. I know what it takes to be an effective, good leader. I saw Senator Obama at work in meetings with leaders. His manner of operation shows me unquestionably that he's someone who grasps issues in their detail, but also strategically, and he understands how to deal with leaders in an effective way, from the standpoint of promoting America's interests and needs. It's a combination of the stakes but also of seeing in Senator Obama a transformational figure at a time when I think the United States needs a transformational figure."

If Obama wins and you are offered the post of secretary of state, would you accept the offer?

"I'm not assuming that. The truth of the matter is that I'm concentrating on helping him through November 4. Whatever happens after that - we'll see."

What in his character impressed you the most, and what does he lack as a leader?

"I think that what impressed me the most is that he has perspective. He's very thoughtful, he knows how to ask the right questions, and he doesn't jump to conclusions. He's careful with his judgments and he's not afraid to ask questions, because he's not afraid to have people ask him questions. I think he has a kind of personal character and the kind of temperament presidents need.

"I've worked on the National Security Council staff of Ronald Reagan's administration, so I was in that White House. I served in a senior State Department position under George H. W. Bush and then I was President Clinton's negotiator on the Middle East - so I've been around a few American presidents. I've witnessed decision processes, I've been around American presidents at times of crisis, and I think I have a pretty good sense of what it takes for someone to be effective as president - in terms of judgment capability, perspective and even wisdom. And I think Senator Obama brings all those to bear. That's why I find him enormously impressive and believe he is just the person we need at this time."

Some progressive groups have expressed disappointment with him, saying that some of his positions are actually more hawkish than those of President Bush. Suddenly his positions regarding Al-Qaida terrorists, Afghanistan, Pakistan or Iran are becoming harsher.

"I think he is quite realistic. Contrary to what was commonplace practice in the Bush administration, he doesn't let ideology blind or color his thinking. His assessments are based on looking at the world as it is and understanding the kinds of things we'll need to do to change the world where it needs to be changed."

Taking into account the possible "Bradley effect" [referring to the discrepancies between voter opinion polls and the outcome of U.S. election campaigns], the traditional low voting rate and other "unknowns" - do you think Obama will win?

"I certainly hope he will, and I'm cautiously optimistic."