Tuesday, March 31, 2009

Has Government and Obama Gone Wild?

Netanyahu starts with a brilliant group of advisors. (See 1 below)

Contrast Netanyahu's actions with Sowell's take on Obama. (See 1a)

I have a very dour view what the rising trend in anti-Semitism portends. I have written repeatedly that when anti-Semitism is on the rise it is generally followed by war and I believe we are marching steadily in that direction.

Economic distress creates an opportunity to project hatred and it is beginning to take a variety of forms.

Arabs have cleverly exploited their own failures and mistakes by blaming Israel and enlisting the press and media to ignore facts. Israel, this tiny nation surrounded by a sea of Arab and Muslim nations bent on their destruction, is the cause of all the world's ills. Meanwhile Islamic fascism spreads like a virus and soon to become a nuclear armed one to boot.

The West cowers and I see Czechoslovakia all over again. We never seem to learn. I have little faith in Obama's judgement when it comes to standing firm against the various threats we face. Yes, he has moved decisively in Afghanistan but, as Sowell points out below, Russia, Iran, N Korea and China have taken his measure and are not deterred. In fact they have become more emboldened.

After 6 years of failed efforts at negotiations Britain's Foreign Secretary says give Iran more time to negotiate with Obama.(See 2, 2a and 2b below.)

A recent article that appeared in a Pittsburgh newspaper about Sweet-Tammys. (See 3 below.)

Newsweek artcle asserts Nobel winning economist,Paul Krugman, has turned on Obama - how can that be? (See 4 below.)

Daniel Howes writes Obama has become both president and CEO of Capitalism.

Borrow money from the government and, like a snake, it can and will turn on and bite you. Obama has sent a clear message that he will not tolerate what he will not tolerate.

Yes, Obama is acting bold but will the government be capable of running what Obama has chosen it should control? Highly unlikely. I get a strange feeling Obama is enjoying playing president as opposed to being president. Obama may pull it off but he could also be facing his economic and political Waterloo. (See 5 and 5a below.)


1)Netanyahu names professionals to his new inner military-security cabinet

During his years in opposition, the incoming Israeli prime minister Binyamin Netanyahu turned over ideas for making his next government substantially more effective and efficient than any of its predecessors, including his own, which ended disastrously ten years ago. Preparing to take over as Israel's 32nd prime minister this week, he bound 7-8 ministers and senior officials into a powerful new body to assist him in top-level decision-making on military, diplomatic, security and intelligence policy-making and actions.

Its members fall into two main groups, military and strategic-intelligence. Their input will guide Netanyahu's steps on such critical matters as whether to strike Iran's nuclear facilities or the tenor of his government's relations with the Obama administration.

It will be up to him as prime minister to pick his way among the divergent views offered him, because the members of the two teams, far from being yes-men, are individualists on the security issues in their fields of expertise.

While taxed with pulling together to produce the best strategic, economic and military guidelines for the country, each at the same time will want to leave his imprint on the next chapter in Israel's history.

The four ministers are ex-chief of staff Moshe Yaalon, strategic affairs, Avigdor Lieberman, foreign affairs, Dan Meridor, intelligence and nuclear energy, and Benny Begin, minister without portfolio.

Dr. Uzi Arad, who is in line as Netanyahu's national security adviser, and the heads of Israel's three intelligence arms, Mosad, Shin Bet and AMAN will be attached to the team.

Military sources note, that political views aside, this group ranks as Israel's A-team in terms of professional competence in the most sensitive policy areas Netanyahu will be called on to confront in his first weeks in office.

Yaalon's appointment as czar for strategic affairs aspires to learn from Lieberman's failings in this capacity in the outgoing Olmert administration. One of his advantages is that he will have no hang-ups about working with defense minister Ehud Barak. Because they respect each other and because as a former army man, he will defer to the defense minister both as his superior in the chain of command and the more experienced in military affairs, Yaalon will not find it hard to cooperate with Barak.

New to politics, his ranking will approximate that of deputy defense minister, a post which Barak handed formally to his fellow-Laborite Matan Vilnai, who will focus mainly on organization.

If this teaming-up works out, the new government will boast a four-man military leadership made up of Netanyahu, Barak, Yaalon and chief of staff Lt. Gen. Gaby Ashkenazi.

Dan Meridor's task is more complex and chancy: He must carve out a new niche as boss of intelligence and nuclear affairs, the first minister to officiate in this task in any Israeli government. His function is political and diplomatic, unlike Egypt's intelligence minister Gen. Omar Suleiman, who comes form the army.

In filling this complicated slot, Netanyahu acted on a recommendation common to every inquiry commission examining the lapses and errors in Israel's conduct of previous wars and all the secret panels dissecting the competence of its intelligence services. They all recommended the concentration of Israel's clandestine spy and security agencies in one hand for the sake of operational coordination.

Meridor will have his work cut out to assert interdepartmental authority over the innately reclusive Mossad (external intelligence), Shin Bet (domestic intelligence) and AMAN (military intelligence), as well as the foreign ministry's research and intelligence department and the national security council.

The weights tied to his feet include bad relations with the new prime minister. To have any hope of changing the policies bequeathed by the outgoing Ehud Olmert, Meridor will have to cultivate Netanyahu's close adviser and friend, Uzi Arad, who is an old intelligence hand, in the same way as Yaalon and Barak will need to work in harmony.

On the credit side, the new intelligence minister and prime minister share a friend in Benny Begin, who both admire. If Begin can bury the hatchet between them, Israel will acquire the services of a powerful intelligence-strategic policy-making team of four at one end of the spectrum to match the military grouping at the other.

As prime minister, Netanyahu will be supplied with first-rate, professional position papers from the two groupings. He will have the option of balancing them against each other before reaching decisions.

1a) A Rookie President
By Thomas Sowell

Someone once said that, for every rookie you have on your starting team in the National Football League, you will lose a game. Somewhere, at some time during the season, a rookie will make a mistake that will cost you a game.

We now have a rookie President of the United States and, in the dangerous world we live in, with terrorist nations going nuclear, just one rookie mistake can bring disaster down on this generation and generations yet to come.

Barack Obama is a rookie in a sense that few other Presidents in American history have ever been. It is not just that he has never been President before. He has never had any position of major executive responsibility in any kind of organization where he was personally responsible for the outcome.

Other first-term Presidents have been governors, generals, cabinet members or others in positions of personal responsibility. A few have been senators, like Barack Obama, but usually for longer than Obama, and had not spent half their few years in the senate running for President.

What is even worse than making mistakes is having sycophants telling you that you are doing fine when you are not. In addition to all the usual hangers-on and supplicants for government favors that every President has, Barack Obama has a media that will see no evil, hear no evil and certainly speak no evil.

They will cheer him on, no matter what he does, short of first-degree murder-- and they would make excuses for that. Even former Reagan speech writer Peggy Noonan has gushed over President Obama and even crusty Bill O'Reilly has been impressed by Obama's demeanor.

There is no sign that President Obama has impressed the Russians, the Iranians or the North Koreans, except by his rookie mistakes-- and that is a dangerous way to impress dangerous people.

What did his televised overture to the Iranians accomplish, except to reassure them that he was not going to do a damn thing to stop them from getting a nuclear bomb? It is a mistake that can go ringing down the corridors of history.

Future generations who live in the shadow of that nuclear threat may wonder what we were thinking about, putting our lives-- and theirs-- in the hands of a rookie because we liked his style and symbolism?

In the name of "change," Barack Obama is following policies so old that this generation has never heard of them-- certainly not in most of our educational institutions, where history has been replaced by "social studies" or other politically correct courses.

Seeking deals with our adversaries, behind the backs of our allies? France did that at Munich back in 1938. They threw Czechoslovakia to the wolves and, less than two years later, Hitler gobbled up France anyway.

This year, President Obama's attempt to make a backdoor deal with the Russians, behind the backs of the NATO countries, was not only rejected but made public by the Russians-- a sign of contempt and a warning to our allies not to put too much trust in the United States.

Barack Obama is following a long practice among those on the left of being hard on our allies and soft on our enemies. One of our few allies in the Middle East, the Shah of Iran, was a whipping boy for many in the American media, who vented their indignation at his regime-- which now, in retrospect, seems almost benign compared to the hate-filled fanatics and international terrorism sponsors who now rule that country.

However much Barack Obama has proclaimed his support for Israel, his first phone call as President of the United States was to Mahmoud Abbas, President of the Palestinian National Authority.

Our oldest and staunchest ally, Britain, has been downgraded by President Obama's visibly less impressive reception of British Prime Minister Gordon Brown, compared to the way that previous Presidents over the past two generations have received British Prime Ministers. President Obama's sending the bust of Winston Churchill in the White House back to the British embassy at about the same time was either a rookie mistake or another snub.

We can lose some very big games with this rookie.

2) New Broadway Play About Hero Who Is … Religious!
By Dennis Prager

The older I get, the less I find evil interesting and the more I find goodness interesting. Contrary to conventional wisdom, it is great goodness, not great evil, that needs to be explained. In fact, given the ubiquity of gratuitous cruelty and other expressions of evil — and the apparent ease with which many ordinary people can be transformed into monsters — evil may be more explicable than goodness.

Given all this, one would therefore assume that there would be many studies of goodness and of good people. Yet, there are probably 100 books, studies, and articles about evil for every book, study, or article about goodness. This emanates in large measure from the modern, i.e., post-religious, belief ("faith" would be a better word) that people are born good. Consequently, it is evil that is deemed aberrant and therefore needs to be explained, not good, which is deemed normal and therefore needs little explanation.

Just as studies of goodness are deemed less interesting than studies of evil, portrayals of goodness are deemed less interesting than portrayals of evil. Again, the ratio is probably at least a 100-to-1.

Yet, true stories of goodness, well told, are the greatest stories. While stories of evil have the benefit of sensationalism and appeal to voyeurism, stories of goodness uplift, inspire, make us cry, give us hope, provide real models to emulate, and ultimately may even make us a little better.

One problem, however, is that it is much easier to depict evil in a riveting manner than to so depict goodness. Stephen Spielberg achieved the latter in Schindler's List, but that was the exception that proves the rule. Now, however, another exception has come along. Playwright Dan Gordon and director Michael Parva have made goodness riveting in the new Broadway play, "Irena's Vow."

The Irena of the title is Irene Gut Opdyke, who, at the time of the play's World War II's setting, was a pretty 19-year-old blond Polish Roman Catholic to whom fate (she would say G-d) gave the opportunity to save 12 Jews in, of all places, the home of the highest-ranking German officer in a Polish city. Ultimately discovered by the Nazi officer, she was offered the choice of becoming the elderly Nazi's mistress or the Jews all being sent to death camps.

As it happens, I interviewed Opdyke on my radio show 20 years ago and again 12 years later, and she revealed to me how conflicted she was about what she consented to do not only because she became what fellow Poles derided as a "Nazi whore" but because as a deeply religious Catholic she was sure she was committing a grave sin by regularly sleeping with a man to whom she was not married and worse, indeed a married man, which likely rendered her sin of adultery a mortal sin.

What she did therefore, was not only heroic because she had to overcome daily fear of being caught and put to death, but because she also had to overcome a daily fear of committing a mortal sin before G-d.

Aside from my lifelong interest in altruism and especially in understanding the motivations of rescuers of Jews during the Holocaust, I had an unwitting role in the making of "Irena's Vow." According to the playwright, Gordon, the play came about because he heard Opdyke on my radio show 20 years ago. He immediately contacted her, they became friends, and the rest is history.

We never know all the good (or bad) we have done. So Gordon's attribution of the genesis of his play to me is very gratifying. If there was a dry eye on opening night this past Sunday when I attended, it surely wasn't near my seat.

It is rare to see a play on Broadway that is preoccupied with goodness. It is even more rare to see Broadway play extol the goodness of a religious person. When was the last Broadway show about a Christian hero? In this upside-down age that is hypersensitive to any criticism, no matter how fair, of any aspect of Islam but which regularly depicts many American Christians as buffoons and quasi-fascists, one can only hope that this play has a long run. Likewise, in an age when art increasingly celebrates the ugly and the bad, one can only hope that a million young people see a play that celebrates the goodness that G-d-based morality can produce.

Dennis Prager hosts a national daily radio show based in Los Angeles. He the author of, most recently, "Happiness is a Serious Problem". The Stages of Anti-Semitism

2a)n An avant-garde play revives an ancient hatred.

Here's a sketch for a racist play about "moral decline" in black America since the civil rights era.

Act I: Heroic protestors gather at the Edmund Pettus Bridge in Selma, Ala., in 1965 to march in defiance of a segregationist state. Act II: The scene moves to San Francisco in the early 1970s, where the radical politics of the Black Panthers quickly give way to robbery and murder. Act III: A New York City crack house, circa 1985. Act IV: the trial of O.J. Simpson. Act V: The present, in which a black man on a prison furlough goes on a murder spree.

Appalled? I hope so.

Now substitute the word "Jewish" for "black" and change the scene to Europe and Israel and you have, roughly, the plot of celebrated British playwright Caryl Churchill's "Seven Jewish Children," which debuted last month to some controversy and much acclaim at London's Royal Court Theater. It is now in the U.S., playing in small but respectable venues to sophisticated audiences that -- judging from the performance I attended in New York last Thursday -- are overwhelmingly disposed to like it.

Ms. Churchill's short play unfolds over seven scenes, beginning, dimly, sometime during the Holocaust and concluding, sharply, with Israel's war with Hamas. Characters appear as parents or older relatives of an offstage child, and the dialogue revolves around what the girl should or should not know about her political circumstances as they unfold over the decades.

So, for the first scene we have the line, "Don't tell her they'll kill her" -- the "they" presumably referring to Nazis. Yet by the final scene the tables have turned. Now it's the Jews who behave like Nazis: "Tell her," says one of the play's Zionist elders, "I wouldn't care if we wiped them out . . . tell her we're better haters, tell her we're chosen people, tell her I look at one of their children covered in blood and what do I feel? Tell her all I feel is happy it's not her." (My emphases.)

Just what is this supposed to mean? Michael Billington of the Guardian grasped Ms. Churchill's point when he wrote that the play captured "the transition that has overtaken Israel, to the point where security has become the pretext for indiscriminate slaughter." Ms. Churchill herself has written that she "wanted [the play] in some small way to reflect the shock and enormity of what happened in Gaza. I think it does that relatively mildly." (My emphasis again.)

All this makes perfect sense -- provided you're willing to reduce the Arab-Israeli conflict to caricature, magnify it to the exclusion of all others, assign blame (and moral agency) wholly to one side, and suppose that Israelis use the memory of the Holocaust cynically or neurotically as an alibi for gratuitous and wanton bloodletting.

In other words, if you're prepared to manipulate history as dishonestly as our vile little "play" about black America does, then it's easy to draw a damning moral. And if you're clever enough to cast the indictment as a story about some blacks or some Jews, or as one of generational decadence, then you might also acquit yourself of charges of racism or anti-Semitism, since you can point to a few Jews or blacks worthy of your considered respect.

Of course Ms. Churchill does just that, even as she mocks Jewish claims to statehood ("Tell her her great great great great lots of greats grandad lived there"). Of course she cites the authority of Israel's many internal dissenters and Jewish critics as another method of self-justification, thereby using Israel's own openness as a club with which to bludgeon it. Yet if you say, for instance, that Israel is a fascist state and cite the testimony of Israelis who freely argue as much, then you have done nothing except instantly disprove your own premise.

But logic is not the issue here, nor, really, are the facts: Try arguing either with someone determined to ignore them. The issue is about taboo -- a word easy to mock until you realize it often upholds what is best in society. Racism has become taboo in American society, and that's a very good thing. Anti-Semitism used to be taboo, but that's been eroded by an obsessive criticism of Israel that seems to borrow freely from the classic anti-Semitic repertoire ("tell her they're filth") while adopting the brilliant trick of treating Jewish victimization as a moral ideal from which modern Israel has sadly deviated.

Readers may wonder why Ms. Churchill's trite agitprop, a cultural blip on the vast American stage, deserves a column. Maybe it doesn't; maybe it's best ignored. But I'm reminded of what a better Churchill -- Winston -- wrote about the German decision in 1917 to put V.I. Lenin on a sealed train to Petersburg, "in the same way you might send a phial containing a culture of typhoid or cholera to be poured into the water supply of a great city." Something foul has now gotten into our water, too.

2b) UK: Not the time to rush for more Iran sanctions

Foreign Secretary Miliband says world powers should refrain from imposing new sanctions due to 'Tehran's chance to normalize ties with US'

Big powers should not rush to impose new sanctions on Iran at a time when Tehran has a good chance to move to normal ties with Washington, British Foreign Secretary David Miliband said on Tuesday.

In a sharp change in US policy, President Barack Obama has offered a new start in relations with Iran after decades of deep mistrust between the two countries which are also locked in a dispute over Iran's nuclear program.

Britain, a close US ally and one of the six powers that have been trying to persuade Iran to abandon uranium enrichment, has backed the new US approach.

Miliband told Britain's parliament the US offer "represents the best chance Iran will ever have to normalize its relations with the rest of the world and above all to normalize its relations with the US"

Asked how long Britain would wait before seeking more United Nations' or European Union sanctions against Iran over its nuclear program, Miliband said: "Now is not the time to be rushing for more sanctions."

3) Business sweet for new Squirrel Hill bakery
By Michael Machosky, TRIBUNE-REVIEW

Sweet Tammy's
Location: 2119 Murray Ave., Squirrel Hill

Hours: 8 a.m. to 5 p.m. Sundays, appointment only Mondays, 7 a.m. to 7 p.m. Tuesdays-Thursdays, 7 a.m. to 2:30 p.m. Fridays. Major credit cards accepted.

Details: 412-224-2306

About the writer
Michael Machosky can be reached via e-mail or at 412-320-7901.

With the national economy sinking deeper into the doldrums, it doesn't seem like a great time to be starting up a high-end bakery.

But Daniel Berkowitz, 31, and wife Tamara, 28, the baker, decided that their dream couldn't wait, and opened Sweet Tammy's in Squirrel Hill, anyway. Fortunately, they've found that upscale bakeries tend to run counter to economic trends.

"As people cancel their trips and vacations and larger pleasurable spending, they feel more entitled to treat themselves to a little indulgence," Daniel Berkowitz says. "We're seeing an interesting uptick in people -- the market goes down, and they're buying cupcakes. I used to be in the beer business, and we used to say that when people get hired, they drink, but when they get fired, they really drink. I think people have the same relationships with baked goods."

They came to Pittsburgh sight unseen, after Berkowitz was offered a cooking job.

"We actually moved to Pittsburgh Super Bowl weekend 2006," he says. "It was awesome. We thought that happened every Sunday."

"In April, when my wife decided she wanted to open a bakery and the space became available in Squirrel Hill, we went for it," Berkowitz says. "Things wound down at my previous job, so I'm working here as well. We call ourselves 'Mom-and-Pop 2.0.'"

Starting a business is never easy, but the location had some built-in advantages.

"We really fell in love with the neighborhood," Berkowitz says. "We live literally a block from the bakery -- it's a great commute. We tell everybody in and out of the city, that this is one of the few cities in the U.S. where you can do that. A young couple can come and start a business and live near the business. The cost of living is so reasonable, we can actually afford to do this at our age."

Sweet Tammy's fills the space on Murray Avenue vacated by Simple Treat, Squirrel Hill's last kosher bakery. Inside, it has been totally transformed -- with elegant crystal chandeliers, a stained-glass panel on the kitchen door and a massive custom-designed glass display case.

"We call it 'Nouveau Victorian,'" Berkowitz says. "Our whole dream was to re-create a Viennese pastry shop, or a Victorian pastry shop, on Murray Avenue. We think it's really keeping with the grand period for Pittsburgh, which was the Victorian period. When we poked around the space and looked at some of the original architectural elements, we envisioned what it would look like if we opened the shop around the turn of the century."

Typical offerings include Snickerdoodle Cookies, Chocolate Chip Sandwich Cookies, Peanut Butter Sandwich Cookies, Raspberry Linzer Cookies, and Black & White Cookies (all $1.25 each).

"We do everything by hand, with no mixes or pre-made anything," Berkowitz says. "All our products are certified non-dairy and kosher. We are a kosher bakery, but when you use the term 'kosher bakery,' people think of a very specific kind of place. We're trying to change that model and show that just because you're kosher, you don't have to offer just a certain kind of product. You can offer fresh, new, innovative products and still make them kosher.

"The favorites are the Coconut Macaroons, and our Caramel Blondie bars. And on the other end of the spectrum, our wedding cakes."

It also helps to be diversified. Sweet Tammy's serves local La Prima coffee, and features bins of candy along the wall -- jellybeans, candy corns, jawbreakers, all kinds of gummi things. Eventually, they hope to develop an online presence, and ship Sweet Tammy's sweets all over the country.

"Our vision is to be headquartered in Pittsburgh, but to have a national distribution reach," Berkowitz says. "Again, the overhead of doing business in Pittsburgh is so much lower. I can distribute product to New York, and be cheaper than guys who are based in Brooklyn."

"Mom-and-pop businesses are by no means dead. I think, if anything, this economy has shown us that some of the jobs and positions that people held in such esteem aren't as good as making an honest living close to home."

4) Obama’s Nobel Headache: Paul Krugman has emerged as Obama's toughest liberal critic. He's deeply skeptical of the bank bailout and pessimistic about the economy. Why the establishment worries he may be right.
By Evan Thomas

Traditionally, punditry in Washington has been a cozy business. To get the inside scoop, big-time columnists sometimes befriend top policymakers and offer informal advice over lunch or drinks. Naturally, lines can blur. The most noted pundit of mid-20th-century Washington, Walter Lippmann, was known to help a president write a speech—and then to write a newspaper column praising the speech.

Paul Krugman has all the credentials of a ranking member of the East Coast liberal establishment: a column in The New York Times, a professorship at Princeton, a Nobel Prize in economics. He is the type you might expect to find holding forth at a Georgetown cocktail party or chumming around in the White House Mess of a Democratic administration. But in his published opinions, and perhaps in his very being, he is anti-establishment. Though he was a scourge of the Bush administration, he has been critical, if not hostile, to the Obama White House.

In his twice-a-week column and his blog, Conscience of a Liberal, he criticizes the Obamaites for trying to prop up a financial system that he regards as essentially a dead man walking. In conversation, he portrays Treasury Secretary Tim Geithner and other top officials as, in effect, tools of Wall Street (a ridiculous charge, say Geithner defenders). These men and women have "no venality," Krugman hastened to say in an interview with NEWSWEEK. But they are suffering from "osmosis," from simply spending too much time around investment bankers and the like. In his Times column the day Geithner announced the details of the administration's bank-rescue plan, Krugman described his "despair" that Obama "has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they're doing. It's as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street."

If you are of the establishment persuasion (and I am), reading Krugman makes you uneasy. You hope he's wrong, and you sense he's being a little harsh (especially about Geithner), but you have a creeping feeling that he knows something that others cannot, or will not, see. By definition, establishments believe in propping up the existing order. Members of the ruling class have a vested interest in keeping things pretty much the way they are. Safeguarding the status quo, protecting traditional institutions, can be healthy and useful, stabilizing and reassuring. But sometimes, beneath the pleasant murmur and tinkle of cocktails, the old guard cannot hear the sound of ice cracking. The in crowd of any age can be deceived by self-confidence, as Liaquat Ahamed has shown in "Lords of Finance," his new book about the folly of central bankers before the Great Depression, and David Halberstam revealed in his Vietnam War classic, "The Best and the Brightest." Krugman may be exaggerating the decay of the financial system or the devotion of Obama's team to preserving it. But what if he's right, or part right? What if President Obama is squandering his only chance to step in and nationalize—well, maybe not nationalize, that loaded word—but restructure the banks before they collapse altogether?

The Obama White House is careful not to provoke the wrath of Krugman any more than necessary. Treasury officials go out of their way to praise him by name (while also decrying the bank-rescue prescriptions of him and his ilk as "deeply impractical"). But the administration does not seek to cultivate him. Obama aides have invited commentators of all persuasions to the White House for some off-the-record stroking; in February, after Krugman's fellow Times op-ed columnist David Brooks wrote a critical column accusing Obama of overreaching, Brooks, a moderate Republican, was cajoled by three different aides and by the president himself, who just happened to drop by. But, says Krugman, "the White House has done very little by way of serious outreach. I've never met Obama. He pronounced my name wrong"—when, at a press conference, the president, with a slight note of irritation in his voice, invited Krugman (pronounced with an "oo," not an "uh" sound) to offer a better plan for fixing the banking system.

It's possible that Krugman is a little wounded by this high-level disregard, and he said he felt sorry about criticizing officials whom he regards as friends, like White House Council of Economic Advisers chair Christina Romer. But he didn't seem all that sorry.

Krugman is having his 15 minutes and enjoying it, although at moments, as I followed him around last week, he seemed a little overwhelmed. He is an unusual mix, at once nervous, shy, sweet and fiercely sure of himself. He enjoys his outsider's power: "No one has as big a megaphone as I have," he says. "Aside from the world going to hell, it's great." He is in much demand on the talk-show circuit: PBS's "The NewsHour" and "Charlie Rose" on Monday last week, ABC's "This Week With George Stephanopoulos" this past Sunday. Someone has even cut a rock video on YouTube: "Hey, Paul Krugman, why aren't you in the administration?" A singer croons, "Hey, Paul Krugman, where the hell are you, man? We need you on the front lines, not just writing for The New York Times." (And the cruel chorus: "All we hear [from Geithner] is blah, blah, blah.")

Krugman is not likely to show up in an administration job in part because he has a noble—but not government-career-enhancing—history of speaking truth to power. With dry humor, he once told a friend the story of attending an economic summit in Little Rock after Bill Clinton was elected president in 1992. As the friend recounted the story to NEWSWEEK, "Clinton asked Paul, 'Can we have a balanced budget and health-care reform?'—essentially, can we have it all? And Paul said, 'No, you have to be disciplined. You have to make choices.' Then Paul says to me (deadpan), 'That was the wrong answer.' Then Clinton turns to Laura Tyson and asks the same questions, and she says, 'Yes, it's all possible, you have your cake and eat it too.' And then [Paul] says, 'That was the right answer'." (Tyson became chairman of Clinton's Council of Economic Advisers; she did not respond to requests to comment.) Krugman confirmed the story to NEWSWEEK WITH a smile. "I'm more tolerant now," he says. But at the time, he was bitter that he was kept out of the Clinton administration.

Krugman has a bit of a reputation for settling scores. "He doesn't suffer fools. He doesn't like hauteur in any shape or form. He doesn't like to be f––ked with," says his friend and colleague Princeton history professor Sean Wilentz. "He's not a Jim Baker; he's not that kind of Princeton," says Wilentz, referring to the ur-establishment operator who was Reagan's secretary of the Treasury and George H.W. Bush's secretary of state. But Wilentz went on to say that Krugman is "not a prima donna, he wears his fame lightly," and that Krugman is not resented among his academic colleagues, who can be a jealous lot. Krugman's fellow geniuses sometimes tease him or intentionally provoke his wrath. At an economic conference in Tokyo in 1994, Krugman spent so much time berating others that his friends purposely started telling him things that they knew weren't true, just to see him get riled up. "He fell for it every time," said a journalist who was there but asked not to be identified so she could speak candidly. "You'd think that eventually, he would say, 'Oh, come on, you're just jerking my chain'." Krugman says he doesn't recall the incident, but says it's "possible."

Born of poor Russian-immigrant stock, raised in a small suburban house on middle-class Long Island, Krugman, 56, has never pretended to be in the cool crowd. Taunted in school as a nerd, he came home one day with a bloody nose—but told his parents to stay out of it, he would take care of himself. "He was so shy as a child that I'm shocked at the way he turned out," says his mother, Anita. Krugman says he found himself in the science fiction of Isaac Asimov, especially the "Foundation" series—"It was nerds saving civilization, quants who had a theory of society, people writing equations on a blackboard, saying, 'See, unless you follow this formula, the empire will fail and be followed by a thousand years of barbarism'."

His Yale was "not George Bush's Yale," he says—no boola-boola, no frats or secret societies, rather "drinking coffee in the Economics Department lounge." Social science, he says, offered the promise of what he dreamed of in science fiction—"the beauty of pushing a button to solve problems. Sometimes there really are simple solutions: you really can have a grand idea."

Searching for his own grand idea (his model and hero is John Maynard Keynes) Krugman became one of the top economists in the country before he turned 30. He took a job on the Council of Economic Advisers in the Reagan administration at the age of 29. His colleague and rival was another brilliant young economist named Larry Summers. The two share a kind of edgy braininess, but they took different career paths—Summers as an inside player, working his way up to become Treasury secretary under Clinton and president of Harvard, then Obama's chief economic adviser. Krugman preferred to stay in the world of ideas, as an "irresponsible academic," he puts it, half jokingly, teaching at Yale, MIT, Stanford and Princeton. In 1999 he almost turned down the extraordinary opportunity to become the economic op-ed columnist for The New York Times. He was afraid that if he became a mere popularizer he'd blow his shot at a Nobel Prize.

Last October, he won his Nobel. Most economists interviewed by NEWSWEEK agreed that he richly deserved it for his pathbreaking work on global trade—his discovery that traditional theories of comparative advantage between nations often do not work in practice. He was stepping into the shower at a hotel when his cell phone rang with the news that he had achieved his life's ambition. At first, he thought the call might be a hoax. His wife Robin's reaction, once the initial thrill wore off, was, "Paul, you don't have time for this." He is, to be sure, insanely busy, producing two columns a week, teaching two courses and still writing books (his latest is "The Return of Depression Economics and the Crisis of 2008"). He posts to his blog as many as six times a day. Last Thursday morning, he was gleeful because he was able to thump a blogger who insisted, wrongly, that Keynes did not use much math in his work.

In class that day, discussing global currency exchange with a score of undergraduates, he was gentle, bemused, a little absent-minded, occasionally cracking mordant jokes (on trade with China: "They give us poisoned products, we give them worthless paper"). He says he plans to reduce his teaching load a little, and his colleagues say his best academic work is behind him. "His academic career culminated with him winning the prize," says his Princeton colleague and friend Gene Grossman. "He's not that engaged anymore with academic research. He has a public career now. That's what he views as his main avocation now—as a public intellectual."

He has made enemies in the economics community. "He's become more and more outspoken. A lot of what he says is wrong and not considered," says Daniel Klein, professor of economics at George Mason University. A longtime mentor, MIT Nobel laureate Robert Solow, who taught Krugman as a grad student, remembers him as "very unassertive, mild-mannered. One thing he still has is a smile that plays around his face when he's talking, almost like he's looking at himself and thinking, 'What am I doing here?' " But, Solow added, "when he started writing his column, his personality adapted to it."

Academic life, bolstered by book and lecture fees, has been lucrative and comfortable. Krugman and Robin (his second wife; he has no children) live in a lovely custom-built wood, stone and glass house by a brook in bucolic Princeton. Krugman pointed out that unlike some earlier Nobel Prize winners, he has not asked for a better parking place on campus. (He was not kidding.)

Arriving at the Times just before Bush's election in 2000, he was soon writing about politics and national security as well as economics, sharply attacking the Bush administration for invading Iraq. Someone at the Times—Krugman won't say who—told him to tone it down a bit and stick to what he knew. "I made them nervous," he says. In 2005, Times ombudsman Daniel Okrent wrote, "Op-Ed columnist Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults." Krugman says that Okrent "caved" to the criticism of conservative ideologues who were out to get him. ("I tried to be an honest broker," says Okrent. "But when someone challenged Krugman on the facts, he tended to question the motivation and ignore the substance.") It's true that during the Bush era Krugman was the target of cranks and kooks, but it is also true that in areas outside his expertise he sometimes gets his facts wrong (his record has improved lately). Krugman is unrepentant about his Bush bashing. "I was more right in 2001 than anyone in the pundit class," he says.

Ideologically, Krugman is a European Social Democrat. Brought up to worship the New Deal, he says, "I am not overflowing with human compassion. It's more of an intellectual thing. I don't buy that selfishness is always good. That doesn't fit the way the world works." Krugman is particularly passionate about the growing gap between rich and poor. Last week he raced down to Washington to testify on the subject before the House Appropriations Committee. In the 2008 election, Krugman first leaned toward populist John Edwards, then Hillary Clinton. "Obama offered a weak health-care plan," he explains, "and he had a postpartisan shtik, which I thought was naive."

Krugman generally applauds Obama's efforts to tax the rich in his budget and try for massive health-care reform. On the all-important questions of the financial system, he says he has not given up on the White House's seeing the merits of his argument—that the government must guarantee the liabilities of all the nation's banks and nationalize the big "zombie" banks—and do it fast. "The public wants to trust Obama," Krugman says. "This is still Bush's crisis. But if they wait, Obama will be blamed for a fair share of the problem."

Obama administration officials are dismissive of Krugman's arguments, although not on the record. One official made the point that pundits can have a 60 percent chance of being right—and just go for it. They have nothing to lose but readers, and Krugman's many fans have routinely forgiven his wrong calls. The government does not have the luxury of guessing wrong. If Obama miscalculates, he could truly crash the stock market and drive the economy into depression. Krugman's suggestion that the government could take over the banking system is deeply impractical, Obama aides say. Krugman points to the example of Sweden, which nationalized its banks in the 1990s. But Sweden is tiny. The United States, with 8,000 banks, has a vastly more complex financial system. What's more, the federal government does not have anywhere near the manpower or resources to take over the banking system.

Krugman swats away these arguments, though he acknowledges he's not a "detail" man. He believes he is fighting a philosophical battle against the plutocrats and money-changers. Although he thinks Geithner has been captured by Wall Street, he has hope for Summers. "I have a strong suspicion that if Larry was on the outside and I was on the inside, we'd be reversing roles," he says, but adds, "Well, not entirely. Larry has more faith in markets. I'm more of an interventionist."

Last week Krugman and Summers were "playing phone tag." ("It doesn't necessarily mean that much," says Krugman. "We've known each other all our adult lives." Summers initiated the call; Krugman suspects he wanted to talk him through the administration's plan.) In Friday's column, Krugman tweaked Summers directly for his faith in markets, though he grudgingly gave the Obamaites credit for calling for extensive regulation of the financial world. Krugman thinks that Obama needs some kind of "wise man" to advise him and mentions Paul Volcker, the former Fed chairman who tamed inflation for Reagan and now heads an advisory panel for Obama. How about Krugman himself for that role? "I'm not a backroom kind of guy," he says, schlumped over in his Princeton office, which overflows with unopened mail. He describes himself as a "born pessimist" and a "natural rebel." But he adds, "What I have is a voice." That he does.

5) Commentary: Obama effectively becomes CEO-in-chief
By Daniel Howes

President Obama says he wants to save America's auto industry. He says General Motors Corp., under a new CEO, has 60 days to sharpen its restructuring or submit to bankruptcy. He's giving Chrysler LLC 30 days to complete an alliance with Fiat SpA of Italy lest Detroit's No. 3 carmaker find itself in a federal court.

But what the president didn't say Monday, as he detailed his administration's prescription for Detroit's two sickest automakers, is what he actually did -- oust a sitting CEO, GM's Rick Wagoner, and begin the process of remaking a board of directors deemed to have done too little, too late to prevent GM's slide into the arms of the federal government.

The terror of Wall Street, disgraced New York Gov. Eliot Spitzer, would love it.

In one swift act, the president effectively overruled the oversight and fiduciary responsibilities of GM's directors, duly elected by the automaker's shareholders, because he could -- and the federal government, officially a lender of $13.4 billion to GM, doesn't own a single share of the automaker.

A chilling message? It should be if you run a bank recapitalized with Treasury money, lead an auto supplier likely to tap into a new $5 billion federal fund, are considering a pitch for a government bailout or are Fritz Henderson, the GM president-turned-CEO who has two months to accelerate the automaker's restructuring.

"Firing a CEO is usually what a board does," says Peter Henning, a law professor at Wayne State University who worked in the enforcement division of the Securities and Exchange Commission. "We now have a CEO-in-chief ... overseeing large sectors of the economy. We are certainly in a brave new world."

And it looks like this: the federal government, in a bid to "save" companies determined crucial to the economy, is prepared to use whatever thin financial connections it has to them to broom management, void employment contracts, reload boards of directors and, if necessary, force bankruptcies.

Monday, the president's people -- the president himself -- amped the threat of bankruptcy because without it there can be no deal between GM, its bondholders and the United Auto Workers. Should GM be forced into bankruptcy, as seems increasingly likely, White House pressure to replace the CEO and GM's directors could enable the president's allies to influence the shape and priorities of a new, leaner and smaller GM.

In the Detroit-based auto industry, a crisis crystallized by $4-a-gallon gas, the credit crunch and plunging consumer confidence offers a Democratic White House with close ties to the environmental wing of its party a golden opportunity to turn the General "green" -- even if doing so means beggaring the retiree health care promises of hourly workers.

The argument here isn't whether Wagoner should have been pressured to resign to speed a concessionary deal with bondholders and the UAW that would keep GM out of bankruptcy. GM's massive problems -- $82 billion in losses this decade, a collapsed credit rating, massive outstanding debt made worse by its borrowing from the government -- will partly define Wagoner's legacy.

Nor are GM's directors, sharply criticized for being too beholden to Wagoner & Co., remotely blameless. Their stewardship is marked by a tolerance of incremental change and rejection of boardroom activism (see investor Kirk Kerkorian's Jerry York) that is even more suspect when compared to the dramatic progress made at crosstown rival Ford.

The issue is principle and the lengthening arm of government into commerce. How can corporate governance and the fiduciary responsibility of directors to shareholders be so easily usurped to satisfy the political exigencies of the day? Stunning is too mild a word to describe the precedent set here.

"Certainly they have a large investment in General Motors," says spokesman Steve Harris, referring to the $13.4 billion-and-counting federal lifeline to GM. "We certainly knew that would involve a certain amount of oversight and involvement of government in our activities."

They just didn't know how much. Not since World War II, with the arguable exception of President Harry S. Truman's brief control of the steel industry, has a president exercised such forceful unilateral control over firms in the private sector. And the double-standards? Towering, as if that makes any difference.

What does it say that on the same day President Obama made nice at the White House with the nation's leading bank CEOs -- none of whom have lost their jobs despite sitting on vastly larger sums of taxpayer dough -- the head of the president's auto task force was urging Wagoner to "step aside?"

"There is no standard," Rep. Thaddeus McCotter, R-Livonia, told me. "You cannot look at what happened to Rick Wagoner and draw any policy certitude about what happened to the Wall Street CEOs. How do you reconcile the two images on Friday?"

You don't because you can't.

5a) Obama, the nation's CEO
By Mike Allen and Jim VandeHei

President Obama, with seven days of unprecedented market intervention capped by Monday’s ultimatum to U.S. automakers, has made one thing emphatically clear: He is the most powerful player in American business today.

Obama’s move to oust the CEO of GM and put Detroit on notice that he is prepared to let icons of American industry fail if they refuse to bend to his will was a calculated attempt to send a message, said an official often consulted by the administration. And that message was unmistakable: In any business-government partnership, Obama himself expects to play the dominant role.

“He’s realizing, ‘Hey, the economy’s mine now, and I better do it my way,’” said the official. “So the administration is collaring people and letting them know who’s in charge. The days of saying, ‘It’s not our economy’ have come to an end.”

An Obama administration official said the president’s hard-nosed approach will continue. “We’re not going to reward failure,” the official said. “We’re in an economic crisis, which takes shared responsibility and shared sacrifice. The only way that we will recover is if everybody puts a little skin in the game.”

Officials said the evolution of Obama’s increasingly tough tactics has been partly human: He became exasperated when bailed-out banks continued buying planes and paying bonuses at a time when so many people were losing jobs. He took it as a slap in the face — and knew that Americans seeing it on TV would, too.

In a 150-hour period, starting last Monday, Obama put the government in the business of partnering with investors to buy up $1 trillion in high-risk bad assets. The move single-handedly caused a market rally and breathed life into bank stocks.

His administration then called for a whole new set of government regulations for high-flying hedge funds and other financial institutions. If successful, he will be the first president with the power to take over not only banks but also other financial firms, including big insurance companies (take that, AIG).

At week’s end, the president hauled in CEOs of big banks and later said he had lectured them on how to run better and more trusted businesses.

Most amazingly, he then pushed out Rick Wagoner, the CEO of General Motors, and vowed to let Chrysler fail if it didn’t merge with another company within a month.

Taken alone, the moves are remarkable. Taken together, they amount to a major exercise of presidential power — the imperial presidency applied to the economy to a sweeping degree not seen in decades.

“The message from the Obama administration to the auto industry is loud and clear: Restructure or die,” Harvard Business School’s Rosabeth Moss Kanter said in POLITICO’s Arena discussion. “If the government invests or lends, then, like any bank or investment group, it can demand accountable leadership that can deliver performance.”

But Obama’s move, particularly his dramatic ultimatum to Detroit, puts government in a role better performed by the private sector.

Said David Boaz of the Cato Institute in The Arena: “Rick Wagoner may be a bad CEO, or he may be a victim of difficult conditions facing the legacy auto industry. In either case, board members and investors are the right people to make that decision. I don’t know who should run GM, and neither does President Obama.”

Behind the scenes, Obama seems increasingly comfortable with his assertive role, according to Democratic officials. This mentality pervades the entire White House team — and it was on full display at Friday’s meeting with big bank CEOs. A source familiar with the meeting said that when one of them questioned the price buyers would be able to get for the bad loans known as toxic assets, White House chief of staff Rahm Emanuel jumped in to say: “Let’s do the deal right here.”

Obama, who entered the White House with notably little business experience, is trying to position himself as a common-sense centrist when it comes to bailouts, aides said. He rejected calls from leading liberals to nationalize banks and ignored pleas from Michigan Democrats to be as generous with the auto industry as he has been with the banks.

It should come as no surprise that Obama is trying to claim the middle ground. He picked Timothy Geithner for Treasury, Emanuel as chief of staff and Lawrence Summers as his top domestic adviser for a reason. All three are more in the moderate vein of President Bill Clinton than the liberal lane of House Speaker Nancy Pelosi.

So far, the president has not alienated the business community — and, in some cases, has found ways to win over executives who had been skeptical at best.

“His criticism of industry leaders has been well-placed and dead on, but he’s managed not to demonize or disparage the whole capitalist system,” Democratic strategist Jim Jordan said. “There’s nothing in the world that has the center of gravity to fix so much profoundly broken stuff. It’s got to be the federal government, and he has the confidence and approval rating to be able to try it.”

Obama also has tried to show he’s willing to listen. Some business leaders had complained that no one heard their views because Geithner was so swamped, with few deputies in place and constant demands from the cratering economy and an impatient Capitol Hill.

So Obama has had a series of West Wing meetings with executives in which he has heard about the problems of specific industries, including technology, hospitality and the airlines.

In an interview with CBS’s “Face the Nation,” Obama said he had lectured the bankers: “Show some restraint. ... Let me help you — help me help you. ... It’s very difficult for me as president to call on the American people to make sacrifices to help shore up the financial system if there’s no sense of mutual obligation.”

But participants said he conveyed the message diplomatically, saying little and drawing out almost all of the bankers to find out what was on their minds. They said they felt consulted, not scolded — another victory for the young president.

Obama used a similarly deft touch in letting Midwest lawmakers know about the harsh medicine he planned for the carmakers. In the Oval Office on Sunday evening, Obama called Sen. Carl Levin (D-Mich.) and three other lawmakers for a long conversation in which he argued that the industry could become viable again through the unpopular plan he was about to propose.

Levin praised the president for a “good give-and-take.” But the senator recalled that there was no opportunity to change the president’s mind about his insistence that Wagoner resign as GM’s CEO. Levin said Obama’s mind was clearly made up: “He didn’t ask us about it. He informed us.”

5b) Government Gone Wild: With bailouts, the budget deficit is exploding.
By Brian S. Wesbury and Robert Stein

Back in February, the government said that its $787 billion stimulus bill would create 3.5 million new jobs. This was at the very highest end of the Congressional Budget Office's (CBO) estimate of 1.2 to 3.6 million new jobs.

But even this high-end estimate of U.S. job creation is penny ante, when compared to a leaked memo from Gordon Brown, the British prime minister. He proposed a $2 trillion European stimulus plan that was supposedly going to create 19 million jobs. In other words, Europe can create a new job with just $105,000 of government spending per job, while the U.S. needs $219,000.

But all of this is just a pipe dream. Government spending does not cause a net increase in jobs over the long run; it costs jobs. Every dollar the government spends is either taxed or borrowed from the private sector, which means it "crowds out" private sector job creation. And because government spending is less efficient than private sector spending, the economy actually grows more slowly in the long run as the government gets bigger.

What's interesting is how all these numbers are being bandied about with very little pushback from the press. In recent years, the press has complained loudly about $200 billion deficits as far as the eye can see. And almost everyone in the media suggested that budget deficits lifted interest rates and hurt the economy. But in recent weeks, the press seems to have forgotten its old argument.

The new massive government spending plans are especially frightening with the U.S. now facing $1 trillion deficits. President Obama says that this is all OK, and that he is cutting the deficit in half (to $533 billion using administration math, or $672 billion according to the CBO) in just four years. What he doesn't say, and what no one seems willing to say, is that without his new budget the deficit would have been cut by 75% in four years to about $250 billion. The budget deficit and the size of the government are exploding and no one seems to care.

But it doesn't end there. Americans are the most generous people on the face of the earth, when measured in dollars donated to charities. At the same time, private charity does a great deal of good and often does it more effectively than government. But now the government wants to limit deductions for charitable contributions.

Some conservatives have argued that this might be a good trade-off if marginal tax rates were lowered. They argue that the benefits of higher GDP (resulting from lower tax rates) would outweigh the losses from slimmer donations (as a share of income). That is an economic argument that reasonable people can disagree about.

Sunday, March 29, 2009

I'll Do Whatever I damn Please! Because I can!

This from a fellow memo reader and long time friend. (See 1 below.)

Obama's penata du jour is now the 'former' chairman of GM, Rick Wagoner. Interesting that so many of GM's problems are related to union demands that were inordinate but Obama did not call for the firing of any union executives. The difference is that Demwits receive money from unions and pay back with favorable legislation which then cripples companies, puts workers at risk of losing their jobs which are shipped overseas.

Why does Obama believe the auto industry cannot survive and needs a radical makeover when the auto companies have lost a lot less than his administration will cost tax payers and he has been in office less than 5 months. More hypocrisy? (See 2 below.)

Obama's new foreign policy regarding Syria - take a Muslim to lunch!

Eventually it might include Iran and the Mullahs.

Turkey's pro-Islam administration is giving advice to Obama which, it appears, he will take. (See 3 below.)

Mor hypocritical charges against Israel and the IDF have been disproved. (See 4 below.)

It might be difficult for Obama to save that which he does not understand or seemingly gives a fig about. He is hell bent on implementing his own agenda and everything else be damned because the messiah knows best.

In "The Forgotten Man," the author describes several instances where Roosevelt knowingly contradicted himself because what mattered was 'change.' Roosevelt peremptorily modified our adherence to a gold standard based a whim so that he could pump money into the economy. The nation's reaction: "...the country was in no mood in any case to put Roosevelt's concepts under a microscope. What mattered was change: like an invalid, the country took pleasure in the very thought of motion..." Sound familiar?

Obama can do whatever he damn well pleases because he can. If the consequences were not tragically frightening I would be in favor of giving him all the rope he needs. The problem is that in hanging himself he will take us to the gallows as well. We are still payng for some of Roosevelt's precipitous decisions and for Nixon taking us delinking gold and our currency. (See 5 below.)

Like with Carter, a toothy smile will only carry you so far and its effect will last only so long. (See 6 below.)

If Europe would only keep loving us. (See 7 below.)

Obama's agenda problem strems from his own party according to Jonathan Chait. Will Rogers was right: The Demwits are not an organized party. (See 8 below.)

Weakness does not work according to Reuel Marc Gerecht. (See 9 below.)

Obama can do whatever he damn well pleases because he can. If the consequences were not tragically frightening I would be in favor of giving him all the rope he needs. The problem is that in hanging himself he will take us to the gallows as well.


1) When Private Investors Get Rich
By John Carney

Tim Geithner keeps saying that investors would share in the downside of any losses in assets purchased through the Public-Private Investment Partnerships. But that’s just not true. It’s entirely possible for the private investors to make money while taxpayers lose money.

The reason is that the asset purchases are financed with non-recourse loans, which effectively means that the private investors can just walk away from any money losing deals while keeping the upside from the winners. Basically, the government is enabling the equivalent of jingle mail. The private equity investors in the plan can treat money losing deals like homeowners underwater mortgages: default on the debt and hand the crappy loans back to the government.

A blogger named Nemo described the problem very nicely. Paul Krugman linked to his blog, and it seems to have crashed now due to the traffic. We'll describe the argument of Nemo here.

•Say a bank has 100 mortgage pools with a face value of $100 each. No one knows what these mortgage pools will actually be worth because we don’t know what the default rates will be and all the models we developed earlier have turned out to produce misinformation. For simplicity’s sake, let’s assume that half are worth $100 and half are worth $0. On average, the pools are worth $50, and the true value of all 100 pools is $5000.
•The FDIC provides 6:1 leverage to purchase each pool, and some investor takes them up on it, bidding $84 apiece. Between the FDIC leverage and the Treasury matching funds, the private equity firm thus offers $8400 for all 100 pools. That’s $600 from Treasury, $600 from the investor and $7,200 from the FDIC.
•Half of the pools wind up worthless. So the investor and the Treasury each lose half the money they invested, $300. The FDIC lent $3,600 but because the loan is non-recourse, the investor doesn’t have to pay it back. Instead, it just hands the FDIC the worthless paper.
•The other half wind up worth $100, for a $16 profit each. The FDIC gets paid back its $3,600 loan. After paying back the loan, the total profit on the pool is $800. That profit gets split evenly with the Treasury. The investor makes $400.
•A $400 gain less the $300 loss leaves the investor with a $100 net gain. So the investor risked $600 to make $100, a tidy 16.7% return. The Treasury is in the same position as the investor, making $100. It almost looks like the tax-payer has made money on this deal.
•And the bank did well, too. It unloaded assets worth $5000 for $8400. So the bank made $3400.
•So in the end, the investor made $400, the Treasury made $400, the bank made $3,400 and the FDIC lost $3,600. The FDIC funds its own loans by borrowing from the Treasury, which means the Treasury—that is, the US taxpayer—is out a net $3,200.
Of course, the FDIC will still owe the money to the Treasury. How will it pay back the loan? It has proved impossible for the FDIC to raise fees on banks because their balance sheets are so shaky. It seems likely that the Treasury will simply have to cancel the loan and eat the loss, or taxpayers will have to inject funds to bailout the FDIC. Either way, taxpayers eat the loss.

2) White House questions viability of GM, Chrysler

President Barack Obama is sending a blunt message to Detroit automakers: To survive —and win more government help — they must remake themselves top to bottom. Driving home the point, the White House ousted the General Motors chairman as it rejected GM and Chrysler's restructuring plans.

Obama is set to elaborate on that message Monday when he announces what his White House told reporters over the weekend: Neither GM nor Chrysler submitted acceptable plans to receive additional federal bailout money.

GM chairman Rick Wagoner became the most conspicuous casualty of that decision, forced out Sunday as the White House indicated Detroit must make management and other changes if it hopes to survive — and that the Obama administration will have a hands-on role in those changes.

Michigan Gov. Governor Jennifer Granholm said Wagoner "clearly is a sacrificial lamb" who stepped aside "for the future of the company and for the future of jobs." She spoke on NBC's "Today" show Monday.

Obama said the companies must do more to receive additional financial aid from the government.

"We think we can have a successful U.S. auto industry. But it's got to be one that's realistically designed to weather this storm and to emerge — at the other end — much more lean, mean and competitive than it currently is," Obama said on CBS' "Face the Nation" broadcast Sunday.

Frustrated administration officials, speaking on condition of anonymity ahead of Obama's announcement, said Chrysler has been given a 30-day window to complete a proposed partnership with Italian automaker Fiat SpA. The government will offer up to $6 billion to the companies if they can negotiate a deal before time runs out. If a Chrysler-Fiat union cannot be completed, Washington plans to walk away, leaving Chrysler destined for a complete sell-off.

Shawn Morgan, a Chrysler spokeswoman, declined to comment ahead of Obama's announcement.

For GM, the administration offered 60 days of operating money to restructure. Officials say they believe GM can put together a plan that will keep production lines moving in the coming years.

New directors will now make up the majority of GM's board. Fritz Henderson, GM's president and chief operating officer, became the new CEO. Board member Kent Kresa, the former chairman and CEO of defense contractor Northrop Grumman Corp., was named interim chairman of the GM board.

"The board has recognized for some time that the company's restructuring will likely cause a significant change in the stockholders of the company and create the need for new directors with additional skills and experience," Kresa said in a written statement.

The Obama administration move comes amid public outrage over bonuses paid to business leaders and American International Group executives — set against a severely ailing economy.

GM failed to make good on promises made in exchange for $13.4 billion in government loans. Chrysler, meanwhile, has survived on $4 billion in federal aid during this economic downturn and the worst decline in auto sales in 27 years. In progress reports filed with the government in February, GM asked for $16.6 billion more and Chrysler wanted $5 billion more. The White House balked and instead started a countdown clock.

Two people familiar with the plan said bankruptcy would still be possible if the automakers failed to restructure. Those officials spoke on condition of anonymity because they were not authorized to make details public.

An exasperated administration official noted that the companies had not done enough to reduce debt; in some cases, it actually increased during this restructuring and review process. GM owes roughly $28 billion to bondholders. Chrysler owes about $7 billion in first- and second-term debt, mainly to banks. GM owes about $20 billion to its retiree health care trust, while Chrysler owes $10.6 billion.

GM and Chrysler employ about 140,000 workers in the U.S. In February, GM said it intended to cut 47,000 jobs around the globe, or almost 20 percent of its work force, close hundreds of dealerships and focus on four core brands — Chevrolet, Cadillac, GMC and Buick.

3) Obama may meet Assad in Istanbul to dramatize outreach to Muslims

Turkish prime minister Recip Tayyep Edrogan is leaning hard on the White House for US president Barack Obama to meet Syrian president Bashar Assad. Edrogan says this will dramatize the address Obama plans to deliver from Istanbul on April 7 extending America's hand of peace to Muslims worldwide. It will also telegraph a strong message to the new Netanyah-Barak-Lieberman government that the Obama administration wants Israel to go back to the Turkish-mediated peace talks with Syria begun by Ehud Olmert – this time with active US involvement.

According to Washington sources, which report this exclusively, the White House has neither accepted nor rejected the Turkish premier's initiative, but time for a negative is shrinking.

Obama's outreach to the Muslim world speech will be delivered the day before the start of Jewish Passover festival. Turkish premier maintains that Obama must underscore his message to the Muslim world with actions not just words; a meeting with the Syrian ruler would show he is in earnest.

While the US president's movements in the Turkish city are undisclosed for reasons of security, sources report that he has scheduled an appearance at the second forum of the Alliance of Civilizations in the first week of April in Istanbul. He will be joined on the platform by Erdogan, UN secretary Ban ki-moon, Spanish prime minister Louis Rodriguez Zapatero and one or two influential Muslim clerical figures.

To lend wings to Obama's outreach to the Muslims, White House circles Monday, March 30, leaked word that his team took a hand in persuading Israel to accept a ceasefire which cut short its anti-Hamas operation in Gaza in January. The radical Islamist terrorists had to be spared from total defeat by Israel and their leaders from capture otherwise Assad, as their backer, would be restrained from resuming peace talks with Israel for some time.

The ceasefire gave Assad enough political room to continue the negotiations without losing credibility in the Arab world.

Seymour Hersh of The New Yorker wrote in its coming issue: A major change in American policy toward Syria is clearly under way.

“The return of the Golan Heights is part of a broader strategy for peace in the Middle East that includes countering Iran’s influence… Syria is a strategic linchpin for dealing with Iran and the Palestinian issue."

According to this report, Cheney began getting messages from the Israelis about pressure from Obama when he was still President-elect. Cheney portrayed Obama to the Israelis as a “pro-Palestinian,” who would not support their efforts.

4) IDF ends Gaza probe, says misconduct claims are 'rumors'
By Anshel Pfeffer and Amos Harel

Military Advocate General Brig. Gen. Avichai Mendelblit on Monday instructed the Military Police Investigation unit to close the inquiry into soldiers' accounts of alleged misconduct and serious violations of the army's rules of engagement during Operation Cast Lead.

He said it was unfortunate that the soldiers, who discussed their Gaza experiences in private on Feb. 13 at a military academy session which was later leaked verbatim to the media, had been careless about accuracy.

"It will be difficult to evaluate the damage done to the image and morals [of the armed forces] in Israel and the world", his statement said.

In a press release issued Monday the army said that the preliminary Military Police investigation into the testimonies revealed that they "were based on hearsay and not first-hand experience."

The probe was launched earlier this month after IDF soldiers were quoted as telling a military cadet academy that combat troops in Gaza fired at unarmed Palestinian civilians and vandalized property during Operation Cast Lead. The army has barred those soldiers from speaking to the press. The allegations first surfaced in the media on March 19.

The testimonies include a description by an infantry squad leader of an incident where an IDF sharpshooter mistakenly shot a Palestinian mother and her two children. "There was a house with a family inside .... We put them in a room. Later we left the house and another platoon entered it, and a few days after that there was an order to release the family. They had set up positions upstairs. There was a sniper position on the roof," the soldier said.

Another squad leader from the same brigade told of an incident where the company commander ordered that an elderly Palestinian woman be shot and killed; she was walking on a road about 100 meters from a house the company had commandeered.

IDF investigators said the soldier who alleged that a comrade was given orders to shoot an elderly woman had not witnessed such an event and "was only repeating a rumour he had heard". They noted, on the other hand, that a woman who approached troops and was suspected of being a suicide bomber had been fired upon repeatedly to try to stop her advancing at them.

The Israeli human rights groups B'Tselem, Yesh Din, Physicians for Human Rights and others issued a statement Monday saying "the speedy closing of the investigation immediately raises suspicions that [it] was merely the army's attempt to wipe its hands of all blame for illegal activity..."

The groups said the allegations should be investigated by a non-partisan body.

5) G20: If capitalism is 'overthrown', we'll lose our political freedom: International regulation to manage the economic crisis could have dangerous results.
By Janet Daley.

G20 protestors are wrong to demand the 'overthrow' of capitalism Photo: AP Some of the demonstrators in this week's G20 protest jamboree are demanding the "overthrow" of capitalism. Well, there are lots of things than can be done to "capitalism" – it can be undermined, suppressed, sabotaged, even outlawed – but it cannot be "overthrown" because in itself, it has no power.

It is the very opposite, in fact, of a tyranny. It is simply the conglomeration of all the transactions made between individual and corporate players in an open market. Some people may gain power through those transactions but that power is transient and contingent on their own financial success: they are not installed in immutable positions from which they can be forcibly removed in a coup d'etat.

Those who talk of "overthrowing" capitalism are determined to depict it as a system of government in a precise parallel with socialism, when in reality, capitalism is not a system in the ideological sense.

It is, if anything, an anti-system: the aggregation of human behaviour as it goes about fulfilling particular wants and needs. It can be described in anthropomorphic terms, such as "ruthless" or "benign" but of itself has no motives and no objectives. (Gordon Brown is more than usually fatuous when he insists that markets need to have "values": only people have values, methods of exchange do not.)

It is in the interests of the Left to talk as if capitalism and socialism were precisely analogous because then they can be seen as competitors and in bad times, the command economy as opposed to the market-based one can win the popularity contest. But this fallacious argument into which, I am sorry to say, a great many well-intentioned people are allowing themselves to be drawn is very dangerous: capitalism isn't really an "ism" which is why the term "free market economics" is so much more apt.

When we make the case for capitalism, we are defending the political principle of freedom, not arguing for one kind of rigid economic organisation over another. The debate is being hopelessly muddied by those late converts to free enterprise – politicians like Mr Brown who believe that markets should only survive if they can be made to serve Left-wing purposes.

So the idea that the arguments which will dominate the summit are purely economic is quite wrong: this is about politics. The fundamental disagreement between the United States and Europe amounts to nothing less than the question of whether the great 200 year old experiment in national democracy – government of the people, by the people, and for the people – will survive.

The major dispute over the American preference for fiscal stimulus as opposed to the European priority of global regulation is at the heart of this. Europe may as well get this straight now: Barack Obama will not subject the United States to policing by an international regulatory authority, not just because he puts the economic recovery of his own nation above all other concerns (and from the point of view of the rest of the world, this is no bad thing since American recovery is essential to the future of the global economy) but because to do so would be to sign away the democratic accountability of his and all future US governments to a body in which American voters had no say.

Unlike in Europe – where the historical commitment to democracy has been patchy – America has little difficulty with the question, "who needs to be in charge of our future?" The answer is always, "we the people". Democratic self-governance, and the concept of personal freedom that underpins it, comes first and last.

Which is why the anger in America about bankers (and the recent furore about AIG bonuses) was more personal than political: the rage was against individuals who had abused the freedom of the market and who needed to be punished as individuals.

When the crisis first hit, the overwhelming majority of Americans were vehemently opposed to any bank bail-out. That was why Hank Paulsen's first rescue package was thrown out by Congress: the bankers had screwed up and they were not (hell, no) going to be pulled out of the tank by taxpayer dollars.

The US population had to be painstakingly persuaded that if Wall Street went down, Main Street would go with it before they agreed to stump up: they were much more inclined to believe that the banks should be allowed to go under than that the hard-earned money of ordinary people should be given to support them. You take the consequences of your own stupidity: that's the price of freedom. Faced with the damage that such bank failures would have done to the mass of the population, Americans relented, but I suspect that many still believe they could have rebuilt their lives and economy again from scratch through their own industry and resilience.

The good news is that even in Britain, for all our overheated arguments about the future of capitalism, there seems little appetite for a command economy to replace it. Because people are as disgusted by politicians who have spent their money unwisely as by bankers who have lent it unwisely, they distrust the state as much as they dislike the banks. But they are not at all sure how this notion of international regulation will affect them.

Everybody is telling them that global cooperation (which sounds so nice) is necessary for survival, but nobody is saying what that will actually mean in terms of sacrificing the power they have over their own government – even in the attenuated form in which it still exists in the EU. When people are worried about their survival, it is quite easy to persuade them to suspend what seems like the abstract concept of democracy. But once you have given up, as citizens, that power of restraint over your elected government, you can say goodbye to it forever.

By all means, we must continue to make the moral case for capitalism, but it seems that we have to make the case for democracy, too. People must not be bullied into believing that economic security must be bought at the price of their political birthright. The operative word in the phrase "free market economics" is "free".

6) Nice-guy image buys Obama only so much goodwill
By Clive Crook

During last year’s election campaign, Barack Obama’s supporters stressed his promise as a leader who could restore US standing in the world. Even at home, despite the worsening economy, many of Mr Obama’s fans deemed this his most important virtue. The rest of the world agreed. Understanding that nothing happens unless America takes charge, few other governments were opposed to a renewal of US leadership. On the contrary, most longed for it.

As the Group of 20 developed and emerging nations’ summit in London approaches, how is that going? About as well as could be expected.

Mr Obama’s campaign always exaggerated the difference he would make on foreign policy. His style could hardly be more different from the caricature of US supremacism projected by George W. Bush, but the underlying issues were unlikely to be any easier to deal with. So it has proved. In many areas of foreign and security policy, in contrast to the clear break he is attempting in domestic policy, Mr Obama is mostly rebranding Mr Bush’s approach.

On Iraq, things are moving much as they would have done if Mr Bush were still in office. Likewise in Afghanistan, where the administration is proposing a surge not unlike the one in Iraq – overseen by the same general, under the political supervision of the same defence secretary – which Mr Obama found so unimpressive last year.

On Iran, Mr Obama has for the moment adjusted the rhetoric, but not the underlying condescension, the key demands, or the implicit “do as we say or else”. “War on terror” terminology is used less often and less eagerly than it was by the Bush administration. This has not stopped the US attacking targets in Pakistan, a legally dubious enterprise to put it mildly, and one that looks a lot like waging war on terror. Lately the administration has even wanted North Korea’s leaders to believe that the US might shoot down the rocket they are preparing to launch. How George W. Bush can you get?

What about Guantánamo, which many Americans see as a scar on the country’s conscience and reputation? Mr Obama has reaffirmed his campaign promise to close the prison, and plans are afoot to do this. But the administration is in no hurry to release the people it no longer calls “enemy combatants”. In a recent television interview, the president criticised some of the releases carried out by the Bush administration, mentioning that people let go have rejoined terrorist groups. To the dismay of civil-rights lawyers, the government’s legal posture towards prisoners trying to challenge their detention in court is in most ways indistinguishable from that of the previous administration.

This strategy of mostly persisting with the foreign and security policies of Mr Bush while insisting that those policies have been overthrown has not yet met organised resistance from US allies. The fact that Mr Obama is so much better liked buys him a great deal of goodwill, and the desire to suck up to him still predominates.

Nonetheless, as the new president continues to seek material support for his fundamentally Bush-like security policies – more European troops in Afghanistan, a united front in dealing with Iran and other troublemakers, overseas dispersal of the G-Bay detainees – he is often going to come up empty-handed, leading to disillusionment on both sides. Friction with the allies is likely to increase.

It has already increased markedly in trade and economic policy. The administration is frustrated that Europe’s governments are failing to pull their weight on fiscal stimulus. It talks openly of Europe’s “free-riding” on the much bolder US fiscal expansion.

Each side’s position is defensible. The US is right that a big temporary fiscal stimulus is needed, and that countries such as France and Germany have scope to do more. Europeans are right that their automatic fiscal stabilisers, under the influence of their higher tax rates and bigger welfare states, are more powerful than those of the US, and that comparing discretionary fiscal boosts in isolation is wrong; in most cases their prudent borrowing capacity is also less than that of the US. At the G20 these disagreements will again be papered over.

Even so, they could easily be the prelude to worsening tension over trade. True, the “Buy American” provisions in the fiscal stimulus law were partially defanged at the administration’s request, but the Obama administration has made and continues to emphasise the link between willing fiscal co-operation and commitment to open markets. Given Europe’s relative caution on fiscal policy, this is ominous.

But surely, you say, I am forgetting climate change – where US leadership is so badly needed, and where the Obama administration has promised a clean break with past policy. Thanks for mentioning it.

Mr Obama’s recent budget proposed a cap-and-trade system to curb carbon emissions and raise more than $600bn (€451bn, £420bn) in new revenues over 10 years. Equipped with this bold new initiative, Mr Obama’s team could head to the Copenhagen climate conference in December and assume the leadership role on global warming that the US has hitherto shunned.

The trouble is, many Democrats as well as most Republicans are opposed to cap and trade. They see it as a big new tax – a position that the administration, curiously enough, wishes to deny. Asked this week whether cap and trade would be “a tax on gasoline, electricity and other forms of energy”, Peter Orszag, budget chief, said: “I wouldn’t characterise it like that.” However Mr Orszag would characterise it, Congress now seems likely to leave cap and trade out of the budget, and so far the administration is failing to put up a fight. US negotiators may have to go to Copenhagen with good intentions but no actual policy.

Opinion polls in the US show a disparity between Mr Obama’s personal approval rating, which remains high, and views about his policies, which are less favourable. A poll of world leaders would likely echo the sentiment. At home and abroad, then, the same two questions arise. How long can Mr Obama remain popular if his actions, for one reason or another, are not? And what is popularity worth anyway, where the calculus of ends and means remains unmoved?

7) Obama & Europe: Is the Honeymoon Over?
By David Paul Kuhn

The love affair between Obama and Europe is about to face its first test.

As President Obama steps onto the world stage this week, he must ease the tension between the candidate Europe fell in love with and the president they have yet to substantively embrace.

Obama must now convince his audience that the policies he ran on, and is implementing, are inseparable from the face that Europeans found so fashionable. He is no less compelled to prove to Americans that the warm reception he received as a candidate carries real diplomatic chits as president.

The test for American allies, and perhaps even adversaries, is whether they can show that a turn from George W. Bush's perceived unilateralism to Obama's sought after multilateralism will serve not only their interests but U.S. interests as well. After all, if all politics is local then all international politics is national. Obama must demonstrate to Americans that using your words can, at times, carry one further than one's might.

It's this combination of tests that frames Obama's first extended trip abroad. The president begins tomorrow with the G-20 summit in London, aiming for a global response to a global financial crisis. On Thursday and Friday, Obama attends NATO's 60th anniversary summit meeting in Strasbourg, France and in Baden-Baden and Kehl, Germany, where the commander-in-chief hopes to convince skeptical allies that they too have a stake in the U.S. war in Afghanistan. Obama then goes on to Prague, Ankara and finally Istanbul, where he hopes to convey that the election of a man named Barack and Hussein exemplifies that America is a nation of open minds.

By trip's end Obama though may have little to show for the diplomatic blitz. There is a heightened temptation abroad to scold America. Many U.S. allies and adversaries believe that the war in Iraq has undercut American national security clout and that the global recession has done the same to America's economic authority.

To much of the world, the United States is looking like the Wizard of Oz. The flash is mesmerizing but many nations question the country behind the curtain. They see an unregulated wild west with an unsustainable financial machine that depends on nations like China for endless credit.

As Columbia Professor of International Affairs Michael W. Doyle put it: "The curtain is about to be raised ... and he will walk out as the key actor."

The U.S. narrative, as Europe has long requested, though has changed. The closure of the Guantanamo Bay detention center confirmed a willingness to heed world opinion. The staggered withdrawal of U.S. soldiers in Iraq should help mend the tear in transatlantic relations.

Even Americans are now second-guessing "cowboy capitalism." There is a sense that hedge funds will be regulated like banks, though not to the extent that nations like France desire. The United States has also put its money where its mouth is, investing trillions in revitalizing its own economy at the moment it asks the same of the world powers.

Obama's election was the most powerful gesture of all that the United States has, in the president's words, "turned the page." European magazines covered themselves with photos of Obama during the campaign in a fashion rivaling those of David Beckham. It was just last summer that 200,000 Germans crowded Berlin's Tiergarten park to hear the candidate lecture on how to "save this planet" with an ethos of "global citizenship."

It is Europe however acting most parochial of late. On the eve of the G-20, French President Nicolas Sarkozy argues that "radical reform" of capitalism should be the top issue. German Chancellor Angela Merkel told reporters that she "will not let anyone tell" her "we must spend more money." It was a most blunt, perhaps Bushian, challenge to Obama and British Prime Minister Gordon Brown's effort to orchestrate trillions of dollars in global fiscal stimulus.

The Spanish finance minister, Pedro Solbes, said he too opposes new large-scale spending. The Czech Republic's prime minister characterized the United States' push for a global stimulus as "the road to hell." This rhetoric is hardly the statesmanship Europe has demanded of us.

The responses are also indicative of European national politics. There is less urgency to exit the recession in continental Europe. The focus instead is on long-range solutions like an international financial regulatory structure. Continental Europe's automatic stabilizers pump more money into the economy and its wider safety nets insulate its citizens from economic anxiety. Losing your job, across Europe, does not mean you lose your health insurance.

But as British Member of Parliament Denis MacShane put it, if the world's economies do not recover "who does Mrs. Merkel think is going to buy Mercedes and BMWs?"

In this sense, many continental European leaders seem unwilling to ask their constituents what they have long asked of American presidents: convince their voters that what is in the world's interest is in their national interests as well.

If continental Europe does not ante up, London will look like a G-2 meeting of China and the United States. European nations could relegate themselves to the sidelines even as they hope to prove themselves still vital world players.

It seems Europeans have not generally reconciled with the candidate they fell for. A Financial Times/Harris Poll conducted when Obama was inaugurated found that Europeans wanted the Guantanamo detention center closed but were unwilling to take in some of the captives. Europeans were also opposed to escalating the war in Afghanistan but it's precisely that escalation that is necessary to stabilize the region.

Obama will look to the NATO summit to, at least, earn a communiqué of unified support for America's renewed efforts in Afghanistan. Obama's burden, however, is of perception. The American push for a global economic stimulus is viewed as the assailant asking the victim for help.

"The U.S. is blamed, with some justification, with having inflicted an absolutely disastrous recession on much of the world," said Sebastian Mallaby, the director of the Center for Geoeconomic Studies at the Council on Foreign Relations in Washington.

But the blame game can quickly turn London 2009 into London 1933. More than 50 nations sent delegates to meet at the London Monetary and Economic Conference of 1933 to revive the global economy during the Great Depression. The meeting fell apart when Franklin Roosevelt broke from his British and French allies. That failure assured that the depression turned global.

According to Columbia University's Doyle, "The failure to coordinate," sundered the 1933 conference. "That's why this London summit is so important," he added, "it is the opportunity to do it right."

Obama's desire to deal immediately with the recession, like Roosevelt in 1933, is again up against a continental European desire to return to more orthodox financial standards. But this is the candidate Europe courted. Last summer, when Obama toured the continent, no one anticipated this economic crisis. That's the way marriages go however. It's the hard times that prove their mettle.

8) Why the Democrats Can't Govern:Look who's killing Obama's agenda now.
By Jonathan Chait

The last Democrat who held the White House, Bill Clinton, saw the core of his domestic agenda come to ruin, his political support collapse, and his failure spawn a massive Republican resurgence that made progressive reform impossible for a decade to come. The Democrat who last held the White House before that, Jimmy Carter, saw the exact same thing happen to him.

At this early date, nobody can know whether or not Barack Obama will escape this fate. But the contours of failure are now clearly visible. In Obama's case, as with his predecessors, the prospective culprit is the same: Democrats in Congress, and especially the Senate. At a time when the country desperately needs a coherent response to the array of challenges it faces, the congressional arm of the Democratic Party remains mired in fecklessness, parochialism, and privilege. Obama has made mistakes, as did his predecessors. Yet the constant recurrence of legislative squabbling and drift suggests a deeper problem than any characterological or tactical failures by these presidents: a congressional party that is congenitally unable to govern.

George W. Bush came to office having lost the popular vote, with only 50 Republicans in the Senate. After his disputed election, pundits insisted Bush would have to scale back his proposed massive tax cuts for the rich. Instead, Bush managed to enact several rounds of tax cuts that substantially exceeded those in his campaign platform, along with two war resolutions, a Medicare prescription drug benefit designed to maximize profits for the health care industry, energy legislation, education reform, and sundry other items. Whatever the substantive merits of this agenda, its passage represented an impressive feat of political leverage, accomplished through near-total partisan discipline.

Obama has come into office having won the popular vote by seven percentage points, along with a 79-seat edge in the House, a 17-seat edge in the Senate, and massive public demand for change. But it's already clear he is receiving less, not more, deference from his own party. Democrats have treated Obama with studied diffidence, both in their support for the substance of his agenda and (more importantly) their willingness to support it procedurally.

The tone of the Senate's disposition toward Obama was set from the very beginning. Coming into office during a severe economic emergency, he hoped that Congress would have a bill to jump-start consumer demand ready to sign immediately upon taking office. And most Democrats supported Obama's position, though eleven House moderates defected, while a handful of their Senate colleagues joined with Republican moderates to water down the legislation. Economic forecasters projected that the original House bill would increase employment by 3.5 million. After the Senate rewrote the bill, forecasters downgraded their estimate to just 2.5 million. Moderates regarded their contribution with deep satisfaction.

The stimulus served as a mere precursor to the major battle over Obama's budget, which represents a once-in-a-generation chance for the Democratic Party to reshape the priorities of the federal government--to reduce America's unsustainable carbon emissions and reform its bloated, cruel health care system. Democrats have utterly failed to rise to the occasion.

The first sign of how the Senate would respond came on February 27, when Kent Conrad, the chairman of the Senate Budget Committee, gave an interview to CNBC. Conrad listed three objections to Obama's budget. First, he opposed a provision to limit tax deductions for high-income earners. Second, he opposed a new cap on crop subsidies to farmers who take in more than $500,000 per year. And, third, he upbraided Obama for not doing more to reduce the budget deficit.

You might think a performance like this--demanding that Obama do more to reduce the deficit while simultaneously opposing his deficit-reducing measures--would have turned Conrad into a punch line. Instead, it launched him as a symbol of fiscal rectitude and encouraged fellow Democrats to follow in his hypocritical wake. Numerous Democrats have since stepped forward to join what news reports have accurately described as a "revolt" against Obama's budget.

Watch TNR senior editor Jonathan Chait discuss this article with TNR editor Franklin Foer:

What's maddening is not that Obama's budget is a perfect document--though it does a better job of setting priorities than any presidential budget in at least the last 30 years--but that the deficit-reducing measures Democrats object to are the most sensible parts of the budget.

Take the farm payments Conrad endorses. It is virtually impossible to find an economist on the left, right, or center who defends agriculture subsidies, which are costly, distort the market, and hurt the Third World poor. Obama does not dare phase out crop subsidies. Instead, he modestly asks to save about $1 billion per year by eliminating payments to farmers who gross more than $500, 000 per year--the least justifiable slice of a totally unjustifiable program. Conrad the Deficit Hawk, joined by other farm-state senators (such as Nebraska's Ben Nelson) and representatives, cannot abide it.

Or consider Obama's plan to limit tax deductions for the rich. If your goal is to raise revenue without imposing pain on the middle class or unduly harming incentives, this is about the best way one can do it. (Because limiting deductions would not raise marginal tax rates, objections from conservative economists have been generally muted.) Democrats in both chambers have declared this proposal dead on arrival. But, if they want to reduce the deficit and fund health care reform, the money needs to come from somewhere.

The most emblematic objection has come from Nelson, who is balking at Obama's plan to save money on college loans. You might suppose that a fiscal conservative like Nelson would agree with Obama's plan to save $4 billion on a social program. But he does not, for reasons that provide a useful window into the rot afflicting the congressional Democratic Party.

For many years, the federal government supported college education by guaranteeing bank loans to students. If a student defaulted on his loan, Washington would simply pay back the difference. In 1993, Clinton undertook to reform the program by cutting out the middlemen and simply having the federal government issue the loans directly. Clinton hoped to save money for the government and plow some of those savings into lower interest rates for students. Of course, private lenders who benefitted from the no-risk profit stream balked and forced a compromise whereby both kinds of loans--guaranteed private loans, and direct loans from the government--would exist side by side.

Recent years have shown beyond a doubt that the direct lending program works better. Every independent analysis--by the Congressional Budget Office, by the Office of Management and Budget under each of the last three presidents, and by the New America Foundation--has found that direct lending is cheaper. The guaranteed-loan program managed to cling to life through its congressional patrons and through simple graft. In 2007, a major student-loan scandal emerged when it turned out that private lenders paid off college administrators to drop out of the direct lending program and steer students to them.

Obama thus proposes to save the taxpayers more than $4 billion per year by ending the guaranteed loans. This is as straightforward a case as you can find of a fight between special interests and the public good. Nelson opposes it because one of the lenders that benefits from federal overpayments is based in Lincoln, Nebraska.

Some moderate Democrats seem to suffer from a conflation of their own fund-raising strategies with responsible fiscal policy. The Wall Street Journal reported, of a group of Democratic Senate centrists, "Their stated goal is to rein in deficits and to protect business interests." In fact, this is not a goal but two often-conflicting goals, and neither is synonymous with "the national interest." This sort of behavior didn't hurt Bush because his agenda largely was synonymous with business interests. But the Democratic agenda isn't, and Democratic confusion of the two is poisonous.

A second and related problem is that Democrats are especially susceptible to the dysfunction of the Senate. Congressional scholar Norm Ornstein of the American Enterprise Institute penned an article in AEI's magazine titled "Our Broken Senate." Over the last three decades, the filibuster, once a rare weapon used to express unusually strong objections, has dramatically expanded and turned into a routine, 60-vote supermajority requirement. During the same time period, the Senate has developed a new, anonymous one-person filibuster called a "hold." The clubby traditions of the Senate have allowed these new practices to expand unchallenged. "The always individual-oriented Senate," writes Ornstein, "has become even more indulgent of the demands of each of its 100 egotists."

The Senate poses a particular obstacle to Democrats. Its structure gives greater voice to residents of low-population states, who tilt more Republican than the country as a whole. If you assume that every senator represents half the population of that state, then the Republican caucus represents less than 38 percent of the public. In electoral terms, we think of that as a tiny, even fringe minority. It's less than the share of the electorate that voted for Barry Goldwater in 1964. But it supports enough senators to block the majority's will.

There is one tool available to break through the new supermajority requirement. That tool is called "reconciliation." Reconciliation is an expedited process to vote on a budget, limiting debate to 20 hours and, more importantly, circumventing the filibuster. This means that one budget bill every year can be passed with just 51 votes. As the filibuster has grown routine, reconciliation has become a vital legislative tool. Many Democrats, alas, are far more squeamish than their GOP colleagues about deploying this tool.

If you do not follow Senate arcana for a living, you have probably never heard of reconciliation until the last few weeks, when it has suddenly emerged into the public debate as a terrible weapon with fearsome consequences. A recent front-page Washington Post article described reconciliation as a "shortcut." Republican Senator Judd Gregg cast the tactic in the most dramatic terms. "You're talking about running over the minority, putting them in cement and throwing them in the Chicago River," he wailed.

The notion that reconciliation represents some radical and extreme partisan step has settled in so deeply in part because numerous Democrats are making the same case, albeit in slightly less hysterical terms. Eight Democratic senators signed a letter opposing the use of reconciliation to pass a cap-and-trade bill limiting carbon-dioxide emissions. Reconciliation, they wrote, "would circumvent normal Senate practice and would be inconsistent with the administration's stated goals of bipartisanship, cooperation, and openness." Several Democrats also oppose using reconciliation to pass health care reform. Democrat Mary Landrieu offered up a somewhat less melodramatic argument when she said that reconciliation "was intended for deficit reduction, and it should not be used for other things."

Reconciliation may have been intended for deficit reduction, but it has been often used for other things, such as deficit expansion--as in the case of the Bush tax cuts, which Landrieu voted for. (As did Gregg, who, as my colleague Jonathan Cohn discovered, was happy to support reconciliation for proposals like drilling for oil in ANWR when Republicans controlled the majority.)

There is, to be sure, a technical case to be made against the use of reconciliation. It's a more limited procedure that allows for less debate and may constrict the scope of the legislation that can be passed. I'd argue, in response, that the technical compromises required to get through reconciliation would degrade the legislation less than the political compromises required to get 60 votes. But the heart of the case against reconciliation isn't technical, it's moral--reconciliation as an unprecedented act of partisan irresponsibility. Robert Byrd calls the process "an undemocratic disservice to our people and to the Senate's institutional role."

To grasp how upside-down this view is, remember the purpose of the reconciliation process, which is to clear the way for the Senate to make politically painful solutions to long-term problems. Health care and climate change clearly fall into that category. Shoveling hundreds of billions of dollars of upper-class tax cuts out the door, by contrast, is the very opposite of what reconciliation is intended for. And yet, Bush's repeated use of reconciliation to enact his tax cuts attracted no controversy at all.

Even at this early date, the contrast between Democrats under Obama and Republicans under Bush is stark. Republicans did not denounce Bush for squandering a budget surplus to benefit the rich, the way Democrats now assail Obama for big spending and deficits. And Republicans did not refuse to use the budget procedures available to them to break through the Senate's inherent lethargy. Republicans, in other words, acted like a parliamentary party.

Voters in 2000 did not go to the polls with the intention of giving the GOP a chance to put its agenda into place. But Republicans acted as if they did. With very few exceptions, Republicans in Congress behaved like the legislative branch of the Bush administration, helping Bush enact his agenda by using every method at their disposal.

Democratic partisans constantly complain that their leaders in Washington fail to display the same partisan unity as Republicans do. And, in many crucial respects, they are correct. Even when they control the White House and both branches of Congress, Democrats have not displayed the parliamentary-style cohesion Republicans managed under Bush.

One reason is that Democrats are trapped by their past. America's two major parties have, historically, lacked much ideological cohesion. The GOP contained conservatives alongside progressives. The Democratic Party consisted of everything from Northern liberals to Southern reactionaries. The latter, in particular, held disproportionate sway in Congress. Having less in common with Democratic presidents than Republican ones, they carved out an independent role and guarded their prerogatives.

Since Democrats controlled the Congress almost continuously for more than 60 years beginning in 1933, the culture of Congress left a deeper imprint on their party. Republicans, shut out from the perks of majority status, finally decided under the opposition leadership of Newt Gingrich in the 1990s that their only path to power lay in partisan discipline.

Democrats, on the other hand, came of age under the old Democratic chieftains, and they have mostly aped that style. They do not fall in line, even under a Democratic president who mostly shares their goals. Shortly after Obama took office, Senate Majority Leader Harry Reid announced, "I don't work for him." Even House Ways and Means Chairman Charlie Rangel, whose Harlem constituents danced in the streets after Obama's election, sniffed of Obama's plan to raise taxes on the rich, "I have to study it but I really don't take presidents' recommendations that seriously." Recommendation--that is the term that summarizes Congress's attitude. A president can suggest whatever he likes, but Congress is the one making the decisions, and don't you forget it.

A second factor encouraging Democrats to buck their presidents is the role of the rich and business interests. Unless you are a high school student reading this article in your civics course, in which case I'm sorry to dispel your illusions, you will not be stunned to learn that the affluent carry disproportionate political weight with elites in both parties. So, while people who earn more than $250,000 per year make up just a tiny slice of the electorate, they make up a huge chunk of any congressman's friends, acquaintances, and fund-raisers.

What's more, whatever their disposition toward business in general, Democrats feel it is not just a right but a duty to slavishly attend to the interests of their home-state businesses. That is why Kent Conrad upholds even the most absurd demands of agribusiness, or why even a good-government progressive like Michigan's Carl Levin parrots the auto industry's line on regulating carbon dioxide.

Taken as a whole, then, the influence of business and the rich unites Republicans and splits Democrats. A few Republicans no doubt felt some qualms about supporting Bush's regressive, extreme pro-business agenda, but their most influential donors and constituents pushed them in the direction of partisan unity. Those same forces encourage Democrats to defect. That's why Ben Nelson is fighting student-loan reform, coal-and oil-state Democrats are insisting that cap-and-trade legislation be subject to a filibuster, and Democrats everywhere are fretting about reducing tax deductions for the highest-earning 1 percent of the population.

And then, finally, Democrats have locked themselves into a self-fulfilling prophecy. When their party controls all of Washington, things tend to go south quickly. The president's popularity plunges, and soon his copartisans in Congress find themselves scrambling to keep from losing their own seats in the political undertow. It happened to Carter in 1978 and 1980, and again to Clinton in 1994.

And, so, they hedge their bets by carving out an independent identity. It doesn't matter that Obama is popular now, or that a majority of Americans (according to a recent Pew poll) reject the criticism that he's "trying to do too much." If Obama defies history and retains his popularity, they'll retain their seats anyway. They have to worry about the scenario where Obama turns into an albatross.

But, of course, the more Democrats defect, the more the president is defined as an extreme liberal, and the more ineffectual he seems as his agenda crashes upon the shoals. Ultimately, the moderates find there is no escape. Republicans in Congress grasped the futility of beggar-thy-neighbor survivalism, and they stood behind Bush in 2005 and 2006, even as his popularity fell to Nixonian levels. The hard truth for Democrats is that Obama's popularity is bound to fall. The economy will not turn around overnight, and the voters' memory of disastrous GOP rule will grow dimmer and dimmer with time. The one factor within the Democrats' control is whether their constituents see Obama as a strong leader taking action, like Roosevelt or Kennedy, or a floundering weakling, like Carter or first-term Clinton.

It seems impossible to believe that this party, with the challenges before the country so great and the opportunity to address them so rare, would once again follow the path to self-immolation. Yet, somehow, the Democrats can't help themselves.

9) The Return of Weakness: President Obama means well. Iran doesn't.
By Reuel Marc Gerecht

In diplomacy and espionage, there is no worse mistake than "mirror-imaging," that is, ascribing to foreigners your own actions and views. For Westerners this is especially debilitating, given our modern proclivity to assume that others pursue their interests in secular, material, and guilt-ridden ways. Confession is an important part of the Western tradition; self-criticism is less acute elsewhere. Americans, the British, the Spanish, and the French have written libraries about their own imperialistic sins; Arabs, Iranians, Turks, and Russians have not. In an unsuccessful effort to reach out to Iran's clerical regime in 1999, President Bill Clinton apologized for the actions of the entire Western world. Last week, in response to President Barack Obama's let's-talk greetings broadcast to Iran, theocratic overlord Ali Khamenei, "supreme leader" of the Islamic Republic of Iran, enumerated 30 years' worth of America's dastardly deeds against the Islamic revolution--but not a peccadillo that the clerical regime had committed against any Western country.

Looking overseas, many Americans are feeling guilty. George W. Bush and his wars have embarrassed Democrats and Republicans. So the Obama administration has tried to push the "reset" button, and not just with Russia. Nowhere has this American sense of guilt been more on display than in the Middle East: Obama has picked up where Bill Clinton left off, trying to engage diplomatically Iran and Syria, and perhaps down the road the Palestinian fundamentalist movement Hamas. Yet nowhere is guilt-fueled mirror-imaging more dangerous.

Washington is again putting U.S.-Iranian relations on the psychiatrist's couch, treating the mullahs as if they were something other than masters of Islamic machtpolitik. Obama's message to Khamenei emphasizes "mutual respect," "shared hopes," "common dreams," and Iran's great historic "ability to build and create." I would bet the national debt that the president and the supreme leader share not a single hope or dream that could possibly have any bearing on the relations between their two countries. Khamenei is a serious revolutionary cleric and a man of considerable personal integrity who has suffered severely for his beliefs (in 1981 a bomb blast mangled his right arm). He is a faithful son of the Islamic revolution.

In his public orations, Khamenei has regularly dreamed of Muslims'

uniting in one line  .  .  .  amassing all the elements of their power to strengthen the Islamic community--learning and wisdom, prudence and vigilance, an historic sense of duty and commitment, and reliance and hope in the divine promise--so that it can attain glory, independence, and spiritual and material progress, and the enemy [the United States], in its pursuit of grandeur and the control of Muslim lands, can see defeat.

For Khamenei, there is no goal more divine than seeing America and her allies driven from the Middle East.

Khamenei has led revolutionary Iran since the death of the Ayatollah Khomeini in 1989. To fulfill God's promise and his own duty, Khamenei authorized the bombing attack on the United States at Khobar Towers (U.S. death toll: 19 servicemen) in 1996; aid to violent Islamist groups including al Qaeda (see the 9/11 Commission report), Hezbollah, and Hamas; the export to Iraq of Iranian-manufactured remote-controlled explosive devices and Iranian-trained assassination teams; ties with anti-American regimes abroad (President Chávez of Venezuela has visited four times); and the development of a nuclear weapons program. Khamenei--not Iran's colorful president, Mahmoud Ahmadinejad--turned the Islamic Republic into a turbo-charged engine of anti-Semitism and anti-Zionism. Khamenei, not Ahmadinejad, con-verted the Revolutionary Guards Corps and its thuggish, morals-enforcing appendage, the Basij, into major political players.

On Khamenei's watch, the Iranian reform movement, spearheaded by disaffected disciples of the revolution and university students, has been politically crushed and many of its most important members exiled, jailed, beaten, and, in the case of Saeed Hajjarian, a founding father of the clerical regime's intelligence service, shot in the head. As Iran's internal politics have gotten worse, however, Western hope for meaningful diplomacy with the regime has risen.

Thus, the eternal advocates of en--gagement counsel engaging Khamenei, who they insist is really a "conservative pragmatist." Thoughtful Iran analysts have peered into the eyes of Khamenei (his speeches aren't helpful) and seen Boeing aircraft parts, oil and gas deals, pipelines, and eventually an American embassy in Tehran. They have not seen a man of God and politics whose cherished conception of a just world is inimical to both Democratic and Republican visions of what is right.

This hope attached to Khamenei and to dialogue is partly just a reaction against George W. Bush. Many feared Bush would attack Iran's nuclear facilities. "Diplomacy first, diplomacy only" became a mantra in Europe, since most Europeans would rather see the clerics go nuclear than have the United States (or Israel) do anything harsh to stop them. Most in the Obama administration no doubt share this view.

But misleading analysis easily follows: Europeans and Americans who are adamantly opposed to the use of force (or economy-crushing sanctions) naturally start to see "pragmatists" where they don't exist. Khamenei calls the United States "Satan Incarnate" and President Obama responds with a verse about brotherhood from the Persian Sufi poet Saadi. To respond otherwise would be to act like Bush. (Note to the White House: Revolutionary clerics don't appreciate Sufism, with its ecumenical call for brotherhood. They harass and suppress it.)

Much of Obama's outreach could be chalked up as harmless if the stakes weren't so high. The truth: The administration knows that it will probably fail to stop Iran from developing a nuclear weapon through diplomacy or sanctions. The only sanctions that could conceivably pull the regime to the negotiating table, freeze its nuclear program, and allow for inspections of its closed nuclear sites would be energy related. Stopping the export of gasoline to Iran (which cannot refine enough for its domestic market) could have a devastating effect on Iran's economy and public morale. But neither the Obama administration nor the Europeans like the "big stick" approach. In other words, the nuke is coming.

How alarming is that? Since 9/11, conversations about combating terrorism have revolved around non-state actors, a disposition reinforced by the war in Iraq and the controversy over Saddam Hussein's links to terrorists, in particular al Qaeda. Yet this disposition is unwise. Even the Bush administration never wanted to touch the 9/11 Commission report's revelations about Iranian ties to al Qaeda--impressed by al Qaeda's attack on the USS Cole in 2000, the mullahs reached out to Osama bin Laden--since to do so would supercharge any discussion of policy toward Tehran. So the question remains: Should the United States allow a virulently anti-American regime that knowingly aided al Qaeda to have an atomic bomb?

We don't know what the mullahs will do once they have a nuclear weapon. They may act as the Pakistanis did after they got theirs: much more aggressively. Pakistan's ruler Pervez Musharraf almost provoked a massive war with India over Kargil. Clerical Iran's conception of itself is far more grandiose than Pakistan's. Its support for anti-American terrorism is unrivaled among Middle Eastern states. Almost 30 years ago, Tehran reached out to Ayman al Zawahiri and his murderous band of Egyptian jihadists. It is highly likely that this contact led to Iran's later offer of assistance to al Qaeda.

Remember: The same individuals who brought us the Khobar Towers bombing are with us today. Their power is undiminished. If anything, their rhetoric against the United States--and certainly their lethal actions in Iraq and Afghanistan--are harsher than they were in the mid-1990s, when President Ali Akbar Hashemi Rafsanjani, with Khamenei by his side, appealed to Europeans for more investment and trade while sending assassination teams clandestinely to kill Iranian dissidents in Europe.

The Obama administration now runs the risk of appearing weak in its dealings with Tehran. Whether through mirror-imaging or conflict avoidance, it has set the stage for an embarrassing denouement. Unless Washington can convince itself, and then the Europeans, to implement draconian sanctions, Iran will get its nuke. Once that happens, the appeasement (or engagement) reflex will come powerfully into play. The Islamic Republic's appetite to push its newly obtained strategic advantage could prove irresistible.

The clerical regime has never abandoned its ecumenical outreach to Sunni militants. American success, or more likely failure, in Iraq or Afghanistan could be a powerful spur to Iran to strike. State-supported terrorism, which would be both denied and nuclear-protected, could come ferociously back at us. It was a truly nervy move for Damascus, Tehran's closest Arab ally, to have the North Koreans build a uranium-processing plant (the one the Israelis bombed in September 2007). But then, terrorist-supporting "rogue states," by definition, do nervy, unexpected things.

It is useful to remember what has motivated the Iranians to talk in the past: fear. Fear that the Islamic revolution would collapse brought Khomeini to the negotiating table with Iraq in 1988. And, most tellingly, there is 2003, when Tehran made an overture--how serious is unclear--to the United States via the Swiss ambassador in Tehran. To state the obvious: After the fall of Saddam Hussein, Tehran was terrified that President Bush might eliminate another member of the "axis of evil," the one that had just been discovered to have a massive underground uranium-enrichment facility at Natanz. It was fear, not "mutual respect," that provoked some within the clerical regime to reach out to Washington.

Severe tension in foreign affairs is often salutary. Although it is out of fashion to say so, American hard and soft power in the Muslim Middle East has been mostly a force for good. For much of the last 30 years, U.S. power has helped to check Iran's revolutionary potential and offered a seductive alternative to the mullahs' spirit-crunching theocratic state.

The United States, not Europe, became the focus of Iranians' profound fascination with the West. The strongest, most explicit internal denunciation of revolutionary Islamist extremism ever made was that of the cleric Abdullah Nouri, interior minister under presidents Rafsanjani and Khatami. A faithful and loving disciple of the Ayatollah Khomeini and Khomeini's "defrocked" one-time successor, Ali Montazeri, Nouri was put on trial in 1999 for challenging the regime's monopoly of power and faith. More than anyone before or since, he mocked the regime's fear of the United States, suggesting that Islam really ought to be able to withstand the restoration of diplomatic relations with Washington. Nouri was nearly killed in jail, where he spent about four years.

Iran's reform movement has been most unnerving to the regime's hard core when advanced by famous foot soldiers of the Islamic revolution like Nouri. But it is in great part a product of the enormous, healthy tension that has existed between the United States and the Islamic Republic. The denial of legitimacy by the United States--and secondarily by Europe, which has sometimes treated Iran's female-oppressing, dissident-killing clerics as moral reprobates--has had an effect inside the country, provoking important debates about Iran's place in the world and its politico-religious ethics. Indeed, it is difficult to imagine the intellectual survival of the reform movement if the United States had not denied the mullahs the respect that they demand from their own citizenry and increasingly do not receive.

It is clear that President Obama means well, yet his good intentions could end up accomplishing the exact opposite of what he wants. Irony is, of course, a Persian forte. It is less appreciated in the United States.