G--Damn Captialists - Full Speed Ahead-Go Change!

This was sent to me by an old friend and fellow memo reader who also reminded me Obama signed the stimulus bill on the same desk on which Clinton never had sex with that woman.

I proceeded to remind my friend we may actually need Obama's health care bill because, in due course, I believe more and more Americans might become sick of his efforts to correct all our nations ills in the first 90 days of his presidency - starting with killing capitalism. As I have written, even a large python cannot swallow a cow all at once.

Obama is on fire. He is moving pell mell, is hell bent set on 'changing' our nation and bailing us out of our misery. He keeps reminding us, we are a sinking ship and only his stewardship can save us. So to paraphrase his now forgotten preacher and a great American Admiral: 'g--damn capitalists - full speed ahead!'

If Obama can wipe out the nation's stockholders and substitute government ownership and management we will have the 'change' we need, right? After all Wall Street is nothing but 'greed and fear' and everyone who works in Wall Street are crooks and all the nation's industrialists are a bunch of paratroopers attached to golden parachutes! Certainly, that is the message our fearless and corrupt leaders in Congress have been conveying as they go through blame shifting hearings.

What Obama seems to have forgotten, maybe never learned, is that markets rest on a base called "confidence." Destroy confidence and you send markets lower. There are several ways to shake confidence and in just a few weeks Obama seems to have at least learned how to accomplish that. He has acheived the largest decline of any president ever in stock averages since the recording began some 90 years ago, Now that's change. (See 1, 1a and 1b below.)

No one ever told them it might be cheaper by the dozen and a little "Uncle Miltie" humor! (See 2 below)

Cap omissions by raising taxes but don't tell anyone. Just let consumers find out in their future utility bills. (See 3 below.)

Steve Forbes offers Obama some common sense advice but it is doubtful Obama is capable of understanding because he probably never studied accounting. probably never owned many stocks and certainly is too smart. (See 4 below.)

We are back to where we always get when our government runs out of money - can politicians, elected to do the nation's business, pass the required legislation that will continue to fund the cookie monster with its unending appetite for taxes? (See 5below.)

Has an Obama supporter and Nobel winner begun to lose confidence and question why the 'dithering?' (See 6 below.)

When fire fighters arrive at a fire, water pressure is important. Eventually Obama will buy our way out of the economic mess we are in with his spending and waste programs. Whether there will be anything left of the structure remains to be seen and whether we will recognize it also is questionable. It appears Francis Cianfrocca believes the experts have no clue how to fight this fire. If so, that just adds more fuel. (See 7 and 7a below.)

Obama went to Ohio today and congratulated some Columbus police rookies hired with one year government funding. By the time he arrived from D.C. more people became unemployed in the pirvate sector than were hired by Columbus. What happens next year when government money is no longer available to that city?

It would seem to me there are two logical solutions:

First, why not cut every American, including illegals, a check for $10,000 and demand they go out and spend it buying things they don't need which is what we have been doing for years and second, increase government employment by the 8 million unemployed.

That should get the economy rolling but it is not 'change' so I doubt Obama will consider it.

have a great weekend.

Dick


1) Obama Economy, Cont.

Recessions don't last forever, but bad policies can prolong the pain.

The Dow Jones Industrial Average fell another 281 points yesterday, or 4%, while President Obama began his political push for nationalizing health care and Barney Frank called upon state, local and federal officials to prosecute "those people whose irresponsible and, in some cases, criminal actions helped bring about this crisis." (In what must have been an oversight, Mr. Frank left himself off the target list.) Citigroup -- subject of three federal "rescues" so far -- closed at $1.02 a share.

Amid so much joy, we thought our readers might like to compare where we are so far in this recession compared to previous downturns. Economist John Cogan of the Hoover Institution has looked at the numbers, and you can see the trends in the nearby chart showing job losses over the months of recession.

So far at least, the current downturn, which officially began in December 2007, isn't much more severe than the average of all recessions since 1970. This month the downturn turns 15 months old, which is one month less than the recession of 1981-82, though job loss hasn't yet been as severe. (Today's jobs report for February could change that.) The recession of 1973-75 lasted 16 months and job loss was also worse. Many Americans may have forgotten those nasty recessions because the last two -- in 1990-91 and 2001 -- were only eight months long and shallow. But even in the worst modern downturns, after 15 months the sources of recovery were forming and the end was in sight.

The larger point is that economies don't spiral down forever without a reason and without policy encouragement. What's worrying about the plunge in equities since January 2, and especially in the last week since Mr. Obama released his radical budget, is that it has come amid the unveiling of the President's policy agenda. Equity prices have reacted to those proposals by signaling that they expect a much deeper and longer recession.

The optimistic message in Mr. Cogan's comparisons is that recessions eventually end. How long they last, and how severe they get, depends in part on the choices our leaders make. The choices that Mr. Obama and Congress are making so far are not contributing to confidence, much less to recovery.


1a) Stocks Should Matter to Obama
By GERALD F. SEIB

Any president, particularly the current one, has a lot of things to worry about. Should the level of the Dow Jones Industrial Average be one of them?

In a word: yes.

The question seems especially relevant after Thursday's stock selloff drove the Dow Jones Industrial Average down further to 6594.44. Presidents usually pretend they don't pay much attention to such stock-market gyrations. If it's been said once from a White House podium, it's been said a thousand times: "Markets rise, markets fall. We worry about the fundamentals of the economy instead."

President Barack Obama gave his own version of that response this week, declaring in response to a reporter's question: "You know, the stock market is sort of like a tracking poll in politics. It bobs up and down day to day, and if you spend all your time worrying about that, then you're probably going to get the long-term strategy wrong."

But amid today's economic wreckage, it isn't that simple, and Mr. Obama knows it. He illustrated as much by immediately following his "tracking poll" comment, which drew quick attacks from Republicans, with a more extraordinary statement: He delivered something between a plug and a plea for investors to return to the stock market:

"What you're now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it."

That suggests the president grasps a new reality. The level of the stock market matters a lot more now than before, for political as well as economic reasons. Economically, it is a producer (or destroyer) of wealth for far more Americans than ever before. Politically, it represents a far more important barometer of the nation's climate and psyche today than it does in normal times.

Which isn't to say the Dow Jones Industrial Average is, or should be, the most important economic indicator for the Obama team. In both economic and political terms, unemployment remains the most sensitive.

"Unemployment is always, always the trump card when it comes to the economy," says Peter Hart, a Democratic pollster who helps conduct the Wall Street Journal/NBC News poll. Unemployment's impact, he says, is "direct" and "devastating."

Still, the market and its health matter more on Main Street than ever before. On the psychological front, Republican pollster Bill McInturff, who conducts the Journal/NBC poll with Mr. Hart, says recent polling indicates that economic confidence began to plunge when housing prices and the stock market both dropped, suggesting that rebuilding consumer confidence will require both stable real-estate prices and a "decent" Dow Jones Industrial Average.

Indeed, Mr. McInturff notes that in a January Journal/NBC poll, equal percentages of Americans cited the decline in the stock market and the broader slowdown in the economy as a factor having "a great deal" of impact on them. In other words, people were as likely to feel hurt by the stock market's decline as by the overall economic decline.

There's an explanation for that finding, of course, which is that stocks have become steadily more important in the real economic condition of average Americans. The spread of 401(k)s and individual retirement accounts means market conditions penetrate tens of millions more homes now, which is one of the most significant changes in the structure of the economy in the past generation.

Figures compiled by the Investment Company Institute, the national association of investment firms, tell the tale. The institute conducts an annual survey of American households to gauge stock ownership. It found that the number of American households owning mutual funds -- the most common vehicle for holding stocks -- more than doubled between 1987 and 2007, to 55.3 million households from 22.5 million. The percentage of households owning mutual funds during that period rose to 47.7% from 25.1%.

Put another way, a drop in the stock market now has a real -- not just a psychological -- impact on the well-being of half of America's households.

The effects are demonstrable. A new Journal/NBC poll, released this week, found that the Americans most likely to have stock investments -- those with family incomes above $50,000 -- also are markedly more likely to say they are very dissatisfied with the economy. In other times, that distinction might have gone to those on the lowest income rungs.

On a purely political level, Mr. Obama surely has noticed that his ideological foes are starting to point to the stock market as an indicator of low faith in his economic policies. "If I were one of his advisers," says Mr. McInturff, "I would certainly see this as an additional rationale for trying to keep the market at least no worse than where it was when he became president -- and hopefully better."

All of which raises the question of what the president could actually do to get the stock market moving upward. That's not easy. Building confidence in his administration's bank-bailout plan is key, as is improving overall consumer and investor psychology.

And on that front there's at least some good news. In the new Journal/NBC News poll, 16% said they still consider stocks a generally safe investment -- not a great finding, but not much worse than the 21% who said that in flush times back in 2005. Amid today's carnage, the number could be a lot worse.


1b) Obama, the Budget and the “Un” Stimulus package
Published in Valuation Expectations

In January 2009, the S&P500 index lost 8.6%, the worst January in its history. In February 2009, the S&P500 index lost 11%, the second-worst on record following the 18.4% decline in 1933. On March 1, 2009, the S&P500 lost 4.66%, the worst first day of March in its history. We know it feels like a century ago, but it was just in December 2008, Bloomberg surveyed market strategists for their 2009 S&P 500 price targets. Collectively, strategists were looking for a gain of 21.8% from the index's level then, or for the S&P500 to end 2009 at a price range of 975 to 1300. Call them stupid, but didn’t we all kind of enter 2009 a bit concerned of missing a market rally? After all, the S&P500 climbed 20% to end 2008 at 903.25 from its November 2008 low of 752.44. Although we knew 2009 was going to be a very challenging year, we believed a recovery would happen sooner rather than later.

What has happened? There was certainly very bad news such as steadily rising unemployment, a disheartening GDP decrease of 6.2% in Q4 2008, the fastest pace since 1982, rising foreclosures, falling home sales and prices, rising credit card defaults, and continuing banking troubles. While all that news was bad, it was hardly surprising. The market had been waiting for the government to unveil a logical plan to deal with banks, given the build up for our new Treasury Secretary, and had hoped for a restoration of some fiscal discipline of the federal government. Those hopes turned out to be short lived. Starting with Geithner laying an egg during his first major address to the nation about the banking crisis, things only got worse as the month progressed.

Here are the various plans and proposals from the federal government that have been passed, or will likely be passed in the near future, which are largely responsible for the market slide, in our opinion.

1. (2/13/2009) The “Un” Stimulus package passed. The $787 billion stimulus package was pieced together in 4 weeks and quickly passed in the Senate and House, with the final bill not read by a single House member before its passing. Rather than serving the purpose of stimulating the economy, a big portion of the government spending, which accounts for 2/3 of the bill, is to significantly expand federal power, promising to give billions of dollars in grants to local schools, to replace lost state aid, and to increase the federal share of Medicaid payments. While it is very questionable whether this package creates any sustainable stimulus, the bill represents 2.5% of two years’ US GDP, dwarfing Franklin Roosevelt's New Deal which never increased the deficit by more than 1.5% of the nation's GDP even during its biggest-spending year of 1934.

2. (2/18/2009) The Irresponsible Homeowner Affordability and Stability Plan: This plan aims to provide several forms of assistance to as many as 7-9 million home owners who may be at risk of defaulting on their mortgages. By investing in failure, we worry this will fundamentally change average American people’s views on self reliance and financial responsibility. In addition, because this plan is focused on reducing mortgage rates, and investors/lenders will be forced to cover a portion of the mortgage rate reduction, it will deter private sector investment from entering the mortgage market in the future. In addition to the overall concept, from a capital market perspective there are also some particularly troubling provisions in the bill.

A) To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his/her loan, he/she can get up to $1,000 each year for five years.

B) It encourages the enactment of legislation allowing bankruptcy judges to alter the terms of certain mortgage loans, a practice that to date has been prohibited by federal law.

C) The program applies for loans made on Jan.1, 2009 or earlier and mortgages for single-family properties that are worth up to $729,750.

The formal endorsement by the President of a bankruptcy provision that allows judges to alter the terms of certain mortgages significantly increases the risk to lenders of all mortgages..........

2) HOW THE JEWS GOT THE 10 COMMANDMENTS

God went to the Arabs and said, "I have Commandments for you that will make your lives better."

And the Arabs asked, "What are Commandments?"

And the Lord said, "They are rules for living."

"Can you give us an example?"

"Thou shalt not kill."

"Not kill? We're not interested."

So he went to the Blacks and said, "I have Commandments."

And the Blacks wanted an example, and the Lord said, "Honor thy Father and Mother."

"Father? We don't know who our fathers are."

So He went to the Mexicans and said, "I have Commandments."

And the Mexicans wanted an example, and the Lord said, "Thou shalt not steal."

"Not steal? We're not interested."

He went to the French and said, "I have Commandments."

The French wanted an example and the Lord said, "Thou shalt not commit adultery."

"Not commit adultery? We're not interested.

So, he finally went to the Jews and said, "I have commandments."

"Commandments?" They said, "How much are they?"

"They're free."

"We'll take 10."

-0-

And rom Milton Berle:

Folks, this is a historic moment. The first woman being honored by a Friars' Club roast. And the first time we've invited women in here for one of our roasts. So guys, let's cut out the four-letter words. OK?



Good. We've got that settled. Now, it's my distinct pleasure to introduce the star of the evening -- the hysterical, the amazing, wonderful...



LUCILLE TESTICLE!

3)The Climate Change Lobby Has Regrets Cap and trade is going to cost them.By KIMBERLEY A. STRASSEL
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Jim Rogers is not happy with the Obama administration. Ever since the White House unveiled its costly climate program, the CEO of Duke Energy has been arguing the proposals amount to nothing more than a tax. Indeed.

Mr. Rogers belongs to the U.S. Climate Action Partnership, about 30 companies that decided they were going to dance with the U.S. government to the tune of global warming legislation. The group demanded a "cap-and-trade" system, figuring they'd craft the rules so as to obtain regulatory certainty, with little upfront cost. At the time, Mr. Rogers explained: "If you don't have a seat at the table, you'll wind up on the menu."


AP
Energy company executives testify on Capitol Hill, March 2007.
Duke sat, yet it and its compatriots are still shaping up to be Washington's breakfast, lunch and dinner. The Obama plan will cost plenty, upfront, which will be borne by Mr. Rogers's customers. The Duke CEO tells me that he still sees opportunity to change the proposal: "This is not my first rodeo, in terms of working with the legislative process." There nonetheless may be a lesson here for companies that invite the U.S. government to saddle them with huge, expensive regulations.

"People are learning," says William Kovacs, vice president of environment, technology and regulatory affairs at the U.S. Chamber of Commerce (which has been cautious about embracing a climate plan). "The Obama budget did more to help us consolidate and coalesce the business community than anything we could have done. It's opened eyes to the fact that this is about a social welfare transfer system, not about climate."

Truth is, any cap-and-trade system is a tax, even if Mr. Obama's plan has only started to force business proponents to admit it. The government sets a cap on how much greenhouse gas can be emitted annually. Companies buy and sell permits that allow them to emit. Customers bear the price of those permits.

But the political question was always how that first batch of permits would end up with companies. Corporate support rested on the belief they'd be "allocated," for free. This would allow them to delay the day when they'd have to pass costs on to consumers, and ignore, for now, the "tax" question.

It didn't take long for the pols to figure out they could auction off permits and spend the loot. President Obama's auction bonanza would earn the feds $650 billion in 10 years, according to the administration's budget estimate -- and that's a low, low, low estimate.

Thus Mr. Rogers's lament. No one can now pretend that this isn't going to cost, and Duke is going to be tagged as tax collector via higher electricity bills. If the customer outrage won't be enough, some utilities will also be forced into fights with state regulators, who have to approve the rate-hike requests.

Congress isn't sympathetic. Most Democrats want the money to spend, while many Republicans have written off companies asking for government freebies. "What you saw when [the Climate Action Partnership] was draping itself in the name of saving mankind, what they were really doing was trying to create the largest earmark in modern history," says Tennessee Republican Sen. Bob Corker of the "allocation" system.

Mr. Corker has been having fun exposing the self-dealing in recent climate bills. Companies aside, he blew an early whistle on Congress's ambitions to use an auction system to enrich itself. During last year's debate on Sen. Barbara Boxer's (D., Calif.) climate bill, he offered an amendment to require rebates of all auction funds to American families. It helped kill the bill, as did a growing awareness among Midwest and Southern Democrats that the legislation would disproportionately hammer their industries and constituents.

Mr. Obama is promising to return auction money to Americans, via a tax cut he proposed on the campaign trail. Mr. Corker calls this a "sleight of hand," since people were counting on a tax cut in any event. Nobody told them they'd have to fund it with higher energy costs. It's also a wealth transfer -- electricity users in coal-heavy Ohio, for instance, will be funding tax cuts for green Californians. Not that congressional spenders have any intention of using this money for tax cuts in the first place.

All this foreshadows the political battles to come. With the business community moving more uniformly against the bill, the administration will be looking to cut a deal. One way to buy support is to offer a certain percentage of the permits for free. Next comes the fight over how much money the government gets to keep versus how much goes to states or individuals. Expect a lot of political courting of Midwest and Southern members, on whom the fate of the Obama plan hinges.

Business leaders might do better to use this as an opportunity to kill the beast. They might get some credit for protecting their customers from what they are now, finally, admitting is a giant tax -- in the middle of a recession.

4) Obama Repeats Bush's Worst Market Mistakes
By STEVE FORBES

What is most astounding about President Barack Obama's radical economic recovery program isn't its breadth, but its continuation of the most destructive policies of the Bush administration. These Bush policies were in themselves repudiations of Franklin Delano Roosevelt, Mr. Obama's hero.

The most disastrous Bush policy that Mr. Obama is perpetuating is mark-to-market or "fair value" accounting for banks, insurance companies and other financial institutions. The idea seems harmless: Financial institutions should adjust their balance sheets and their capital accounts when the market value of the financial assets they hold goes up or down.

That works when you have very liquid securities, such as Treasurys, or the common stock of IBM or GE. But when the credit crisis hit in 2007, there was no market for subprime securities and other suspect assets. Yet regulators and auditors kept pressing banks and other financial firms to knock down the book value of this paper, even in cases where these obligations were being fully serviced in the payment of principal and interest. Thus, under mark-to-market, even non-suspect assets are being artificially knocked down in value for regulatory capital (the amount of capital required by regulators for industries like banks and life insurance).

Banks and life insurance companies that have positive cash flows now find themselves in a death spiral. Of the more than $700 billion that financial institutions have written off, almost all of it has been book write-downs, not actual cash losses. When banks or insurers write down the value of their assets they have to get new capital. And the need for new capital is a signal to ratings agencies that these outfits might deserve a credit-rating reduction.

So although banks have twice the amount of cash on hand that they did a year ago, they lend only under duress, or apply onerous conditions that would warm Tony Soprano's heart. This is because they know that every time they make a loan or an investment there is a risk of a book write-down, even if the loan is unimpaired.

If this rigid mark-to-market accounting had been in effect during the banking trouble in the early 1990s, almost every major commercial bank in the U.S. would have collapsed because of shaky Latin American and commercial real estate loans. We would have had a second Great Depression.

But put aside for a moment the absurdity of trying to price assets in a disrupted or non-existent market, of not distinguishing between distress prices and "normal" prices. Regulatory capital by its definition should take the long view when it comes to valuation; day-to-day fluctuations shouldn't matter. Assets should be kept on the books at the price they were obtained, as long as the assets haven't actually been impaired.

Mark-to-market accounting does just the opposite. When times are good, it artificially boosts banks' capital, thereby encouraging more investing and lending. In a downturn it sets off a devastating deflation.

Mark-to-market accounting is the principal reason why our financial system is in a meltdown. The destructiveness of mark-to-market -- which was in force before the Great Depression -- is why FDR suspended it in 1938. It was unnecessarily destroying banks.

But bad ideas never die. Mark-to-market was resurrected by the Financial Accounting Standards Board and became effective in the fall of 2007 (FASB rule 157) to the approval of the Bush administration, its Treasury Department, and the Securities and Exchange Commission. Even as FASB 157 began to take its toll on financial institutions last year, Mr. Bush refused to kill or suspend it. When Congress voiced displeasure last fall, the administration and regulatory authorities made some cosmetic changes, but the poisonous essence remained.

Another horrific Bush policy that Mr. Obama has left untouched concerns short selling. In 1938, the SEC, created by FDR, enacted the so-called uptick rule, which held that investors could not short a stock unless it went up in price. In July 2007, the SEC, whose commissioners were handpicked by the White House, got rid of the rule. Market volatility exploded.

Compounding this lunacy was the SEC's inexplicable failure to enforce the rule against "naked" short selling. Before an investor can short a stock, he is supposed to borrow the shares and pay a broker or stockholder a fee. What sellers soon realized was that the SEC was turning a blind eye to naked short-selling, thus adding even more pressure to beleaguered bank equities. Short sellers quickly saw how mark-to-market made seemingly invincible companies vulnerable to destruction. They picked their targets and relentlessly sold financial stocks short.

If the president really takes Roosevelt's legacy seriously, he should suspend mark-to-market accounting rules, restore the uptick rule, and enforce the prohibition against naked short selling. If he doesn't, historians will look back in utter amazement at Mr. Obama's preservation of Mr. Bush's worst economic policies.

5) Congress OKs Measure Temporarily Extending Government Funding
By PATRICK YOEST and COREY BOLES

The Senate approved a temporary measure to prevent the federal government from shutting down at midnight Friday.

Following the House's vote to approve the extension a short time ago, the measure will now be forwarded to the White House for President Barack Obama's signature.

The action would extend funding levels of the majority of federal government departments at fiscal year 2008 levels until midnight Wednesday.

The action was made necessary after a dispute in the Senate late Thursday night drew out consideration of a $410 billion spending bill until next week, with Democrats falling one vote short of ending debate on the bill.

With the failure of the Senate to approve the spending bill, a temporary extension of federal government funding would be necessary. Otherwise, the government would be forced to cease operating at midnight Friday.

Senate Majority Leader Harry Reid (D., Nev.) decided to delay a vote that would have ended debate on the measure and set up a final vote because Democrats "would be probably a vote short." According to Sen. Reid, several Republicans, including Sen. John Ensign (R., Nev.) still wanted to offer amendments to the bill.

Sen. Reid said he hopes to have a series of votes on amendments to the bill on Monday night, but it's unclear when a final vote will occur on the bill.

"We've had a significant number of amendments, but enough is in the eye of the beholder," he said.

Sen. Ensign's amendment would restore funding to the bill for a school voucher program for low-income students in Washington, D.C. The bill currently would end funding for the program -- which enjoys strong support among congressional Republicans -- after the 2009-10 school year.

Senate Democrats have argued that the bill, which essentially combines nine appropriations bill, sets higher funding levels across the board for domestic agencies and departments, and resolves the unfinished work of last year. Funding under current law, which maintains spending at 2008 levels, is set to expire Friday.

6) Dither
By PAUL KRUGMAN

Last month, in his big speech to Congress, President Obama argued for bold steps to fix America’s dysfunctional banks. “While the cost of action will be great,” he declared, “I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade.”

Many analysts agree. But among people I talk to there’s a growing sense of frustration, even panic, over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern.

Here’s how the pattern works: first, administration officials, usually speaking off the record, float a plan for rescuing the banks in the press. This trial balloon is quickly shot down by informed commentators.

Then, a few weeks later, the administration floats a new plan. This plan is, however, just a thinly disguised version of the previous plan, a fact quickly realized by all concerned. And the cycle starts again.

Why do officials keep offering plans that nobody else finds credible? Because somehow, top officials in the Obama administration and at the Federal Reserve have convinced themselves that troubled assets, often referred to these days as “toxic waste,” are really worth much more than anyone is actually willing to pay for them — and that if these assets were properly priced, all our troubles would go away.

Thus, in a recent interview Tim Geithner, the Treasury secretary, tried to make a distinction between the “basic inherent economic value” of troubled assets and the “artificially depressed value” that those assets command right now. In recent transactions, even AAA-rated mortgage-backed securities have sold for less than 40 cents on the dollar, but Mr. Geithner seems to think they’re worth much, much more.

And the government’s job, he declared, is to “provide the financing to help get those markets working,” pushing the price of toxic waste up to where it ought to be.

What’s more, officials seem to believe that getting toxic waste properly priced would cure the ills of all our major financial institutions. Earlier this week, Ben Bernanke, the Federal Reserve chairman, was asked about the problem of “zombies” — financial institutions that are effectively bankrupt but are being kept alive by government aid. “I don’t know of any large zombie institutions in the U.S. financial system,” he declared, and went on to specifically deny that A.I.G. — A.I.G.! — is a zombie.

This is the same A.I.G. that, unable to honor its promises to pay off other financial institutions when bonds default, has already received $150 billion in aid and just got a commitment for $30 billion more.

The truth is that the Bernanke-Geithner plan — the plan the administration keeps floating, in slightly different versions — isn’t going to fly.

Take the plan’s latest incarnation: a proposal to make low-interest loans to private investors willing to buy up troubled assets. This would certainly drive up the price of toxic waste because it would offer a heads-you-win, tails-we-lose proposition. As described, the plan would let investors profit if asset prices went up but just walk away if prices fell substantially.

But would it be enough to make the banking system healthy? No.

Think of it this way: by using taxpayer funds to subsidize the prices of toxic waste, the administration would shower benefits on everyone who made the mistake of buying the stuff. Some of those benefits would trickle down to where they’re needed, shoring up the balance sheets of key financial institutions. But most of the benefit would go to people who don’t need or deserve to be rescued.

And this means that the government would have to lay out trillions of dollars to bring the financial system back to health, which would, in turn, both ensure a fierce public outcry and add to already serious concerns about the deficit. (Yes, even strong advocates of fiscal stimulus like yours truly worry about red ink.) Realistically, it’s just not going to happen.

So why has this zombie idea — it keeps being killed, but it keeps coming back — taken such a powerful grip? The answer, I fear, is that officials still aren’t willing to face the facts. They don’t want to face up to the dire state of major financial institutions because it’s very hard to rescue an essentially insolvent bank without, at least temporarily, taking it over. And temporary nationalization is still, apparently, considered unthinkable.

But this refusal to face the facts means, in practice, an absence of action. And I share the president’s fears: inaction could result in an economy that sputters along, not for months or years, but for a decade or more.

7) The Search for an Economic Policy
By Francis Cianfrocca

It would be refreshing if someone big and important stood up to say that policymakers really haven't a clue how to improve the economic and banking crises. But no one in a position of political authority is apparently willing to do so, least of all the New Masters of the Universe in Washington. Therefore, the task falls to me.

In the US, there's a growing sense that President Barack Obama's Administration just doesn't know what to do about the worsening economic and financial picture. Consumer demand continues to fall, jobs continue to be lost at a rate of more than half a million a month, the credit crisis is still as bad as ever, and housing is still far overpriced.

The bright spot, if it is one, is that Fed Chairman Ben Bernanke has been doing more than anyone else in the world to get ahead of the deepening problems in the capital markets. The leaders of the world's other central banks are mostly watching him and waiting to see if anything works. So far, a lot has worked, but the economic problems that are of greatest concern haven't been touched.

Bernanke's academic specialty has been his studies of the Great Depression, particularly of the dynamics through which a long chain of bank runs and capital-market stresses turned into the worst episode of sustained high unemployment in our history. He also watched closely as Japanese authorities mismanaged their deflationary situation in the early Nineties.

What he concluded is that at a time like this, monetary authorities have to act as fast as possible, and in as much size as possible.

However, he concluded this not because he knows it will work, but rather because nothing else has been known to work. We're in totally uncharted territory, and so far nothing in the broad economy is looking any better.

The trouble began in mid-2007 as a liquidity crisis. Institutions like banks, Wall Street firms and hedge funds were suddenly unable to continue financing their holdings of illiquid assets like mortgage-backed securities. This forced them to de-leverage by selling off other assets that did have liquid markets, like stocks, high-quality corporate debt, and ultimately even commodities like crude oil. That's how markets started crashing.

The point rapidly came at which banks simply stopped lending to each other, even overnight, because of fears that anyone could default, even the biggest names, a fear that was borne out time after time.

Bernanke, followed by other policy makers, aggressively moved to fill this liquidity gap with a vast array of emergency lending facilities. After all, the first job of a central bank is to be a lender of last resort. The Fed has executed this role in gargantuan size, eventually guaranteeing the borrowings of entities across the whole spectrum of short-term capital markets.

In the process, they've printed more new money than I would have even thought possible just two years ago. The Fed nearly tripled the size of its balance sheet (the most basic driver of the money supply) last fall, as it tried (successfully) to prevent the total global meltdown that almost occurred after the collapse of Lehman Brothers. People who don't follow financial markets closely don't realize how narrowly we missed a terrible disaster.

**********
Today, the capital markets are more or less stable. Interbank borrowing is happening at historically high interest rate spreads, but it's happening. Corporate bond and mortgage issuance is still slow and expensive, but it's not near zero anymore. Commercial paper is rolling over reasonably well.
But the great disease that Ben Bernanke most feared has struck us and taken root. As in the early Great Depression, the waves of capital-market distress have washed over into the real economy, where people go to work and produce goods and services, and where they borrow to fund major purchases and business expansion.

You can see it in the stock markets, which are the financial markets most visible to ordinary people, and most reflective of the real economy (a stock price measures how much money a company is expected to make in the future). After a long lag, stock markets are finally showing major declines.

The hard part, in policy terms, is to figure out where we go from here. The liquidity problems that originally gripped the banking system have morphed into solvency problems, with banks too under-capitalized as a result of investment losses to make any new loans.

And the stock market declines are now causing major distress among public pension funds (the ones that pay retirement benefits to teachers, firefighters and local bureaucrats). They'll soon be needing huge bailouts, along with General Motors, the banks, state governors, millions of homeowners who can't afford their mortgages, and everyone else we're afraid to see fail.

But bailing out everyone means that precious capital is being redirected back to places that have failed. There are good reasons why we should do a certain amount of this (a systemic banking failure would be disastrous). But available private capital today is the rarest commodity in the world, and the continuing string of bailouts is sucking out the little that exists. That's why prices for US Treasury securities continue exceptionally high, while every other asset class in the world except gold is declining. The government is grabbing all the capital that might be used for private industry and consumer borrowing, and using it on bailouts and badly-designed fiscal stimulus to prop up people who have already failed and can't lead a recovery.

**********
You could well argue that if not for government borrowing, there would be little to no private credit formation and things would be even worse. That's true, in the near term at least. The world is in the process of readjusting its level of debt to a far more realistic one that matches the long-term stable rate of economic growth. Markets are like water flowing downhill. They always go where they want to, and the most you can do is slow them down a little.
What I'm saying is that the world economy got far ahead of itself in the last several years. Why that happened is a subject for a book (maybe a shelf full of books). But it's unwinding rapidly now, and this is the deflationary pressure we see everywhere. We don't need as many autoworkers or factories, because people won't be spending as much on new cars as they once did. And people still need to adjust to lower housing values in many parts of the country.

This process is plain, simple reality. The deleveraging and rebalancing simply has to happen. It's a fast, disruptive process but ultimately a very healthy one. To be blunt, it's like a big dog walking into your kitchen out of the rain. He plants his feet and shakes all the water off. It's smelly and disgusting and you have to clean off your kitchen and yourself, but then it's done and you move on. That's how we're shaking off the debt overhang caused by years of underpriced capital.

The government is flailing because they don't want to allow this process to proceed at its own pace. So they're doing a whole raft of desperate things, like the stimulus package, the desultory bank half-nationalizations, and the exceptionally dangerous attempts to prevent mortgage foreclosures.

Bernanke's approach is to try anything, as long as it's different from what was tried in the past. The Administration's approach is to assume that we can get back to partying like it was 2006 as long as we push enough extra money into the system. It would be far better for everyone if they stepped back, got out of the way, let everyone rebuild her personal balance sheet, and let the housing markets find their own level.

What could we be doing that would really have a positive effect? There's nothing we can do to stem the reduction of debt and the increase in personal savings. (Repeat: there's nothing we can, or should, do about that.)

**********
What we could be doing is to encourage the eventual return of business and consumer confidence. That's because a good shot of economic growth would provide the resources to make all the other problems less bad. But here, the Administration is doing its worst job of all.
The recently-announced budget would be radical and damaging to business confidence in the best of times. But these are the worst of times, and the budget is nothing short of disastrous. We're being told to expect tax increases on high earners, business income and capital, increases in business regulation, a new energy tax on the whole economy ("cap and trade"), and the biggest expansion in government spending since World War II.

If you're a businessperson, as I am, your reaction can only be to conclude that President Obama doesn't like you. The Administration's stated policies make it very uncertain and unattractive for businesses to try to expand and create new jobs, now and for years to come.

The damage that our young president has already caused to the economy is hard to overstate, because it has a very long tail. It's going to take years to rebuild business confidence now -- and in terms of economic growth, those will be lost years.

7a) Continuing Job Losses May Signal Broad Economic Shift
By PETER S. GOODMAN and JACK HEALY

Another 651,000 jobs disappeared from the American economy in February, the government reported Friday, as the unemployment rate soared to 8.1 percent — its highest level since 1983.

The latest grim scorecard of contraction in the American workplace largely destroyed what hopes remained for an economic recovery in the first half of this year, and added to a growing sense that 2009 is probably a lost cause.

Most economists now assume that the American fortunes will not improve before near the end of the year, as the Obama administration’s $787 billion emergency spending program begins to wash through the economy.

“The current pace of decline is breathtaking,” said Robert Barbera, chief economist at the research and trading firm ITG. “We are now falling at a near record rate in the postwar period and there’s been no change in the violent downward trajectory.”

Indeed, the monthly snapshot of the national employment picture worsened an already abysmal picture as the government revised upward the number of jobs lost in December and January. The economy has now lost at least 650,000 jobs for three consecutive months, the worst decline in percentage terms over that length of time since 1975.

Since the recession began, the economy has eliminated roughly 4.4 million jobs, and more than half of those positions — some 2.6 million — disappeared in the last four months.

The acceleration has convinced some economists that, far from an ordinary downturn after which jobs will return, the contraction under way reflects a fundamental restructuring of the American economy. In crucial industries — particularly manufacturing, financial services and retail — many companies have opted to abandon whole areas of business.

“These jobs aren’t coming back,” said John E. Silvia, chief economist at Wachovia in Charlotte. “A lot of production either isn’t going to happen at all, or it’s going to happen somewhere other than the United States. There are going to be fewer stores, fewer factories, fewer financial services operations. Firms are making strategic decisions that they don’t want to be in their businesses.”

For American policy makers, such a reality poses fundamental challenges to the traditional response to hard times. For decades, the government has reacted to economic downturns by handing out temporary unemployment insurance checks, relying upon the resumption of economic growth to deliver needed jobs. This time, argues Mr. Silvia, the government needs to put a much greater emphasis on retraining workers for careers in other industries.

In the auto industry, for example annual American car sales have dropped from some 17million a year a few years ago to 9 million now. Even if sales increase to 10 or 12 million, that still leaves a lot of unneeded factories.

“That’s a lot of workers that are not coming back,” Mr. Silvia said. “That’s a lot of steel, a lot of rubber, a lot of suppliers that are not coming back. It’s really challenging to us as a society.”

President Obama responded to the figures by declaring that “this country has never responded to a crisis by sitting on the sidelines and hoping for the best” and asserting that government has a huge role to play in bringing out the best in the American people.

“I know that throughout our history we have met every great challenge with bold action and big ideas,” he told police academy graduates in Columbus, Ohio, on Friday. “That’s what’s fueled a shared and lasting prosperity.”

Mr. Obama cited the unemployment figures as further evidence that those who opposed “the very notion that government has a role in ending the cycle of job loss at the heart of this recession” are on the wrong side of history. (The president’s stimulus package was approved by the House with no support from minority Republicans, whose leader, Representative John A. Boehner, is from Ohio.)

In February, another 168,000 manufacturing jobs were eliminated, bringing losses over the last year to 1.2 million. In Michigan, where the troubles of the auto industry have been particularly traumatic, the unemployment rate is at 10.6 percent, the highest of any state.

“The people who do what I do in the Detroit area are a dime a dozen,” said Kim Allgeyer, 46, a machine toolmaker in Westland, Mich., who was laid off in January from a company that makes manufacturing assembly lines for the Detroit automakers. Since then, he has failed to find another full-time job, subsisting on day labor and one weeklong stint for contractors. He is thinking of moving to Louisiana or Mississippi to seek work as a shipbuilder.

“Who’s going to put me to work?” he asked. “Where’s the work at? It’s just a great big black hole.”

Much the same can be said for financial services, which gave up another 44,000 jobs in February. During the housing boom, banks hired tens of thousands of well-compensated traders, analysts and marketers to sell mortgage-backed securities and other exotic flavors of investments. That industry is unlikely to return to anything close to its former shape.

Retailers are shuttering stores as the era of easy money fueled by rising house prices and abundant credit gives way to a new period in which millions of households are being forced to confine their spending to their paychecks, limiting their trips to the mall. The economy lost 39,500 retail jobs in February, and has eliminated more than 500,000 in the last year.

The United States has been neglecting job training programs for decades, argues Andrew Stettner, deputy director of the National Employment Law Project in New York. In current dollars, the nation devoted the equivalent of $20 billion a year on job training in 1979, while spending only $6 billion last year.

The stimulus spending bill includes $4.5 billion in additional monies for job training. But under current programs, many of those eligible for training are given vouchers that cover only a semester or two at community colleges, while careers in growth industries like biotechnology and health care typically require two-year degree programs.

“We have to seriously look at fundamentally rebuilding the economy,” Mr. Stettner said. “You’ve got to use this moment to retrain for jobs.”

Friday’s report reinforced the degree to which the economy is being assailed at once by panic in the financial system, falling household spending power and plunging real estate prices, with growing numbers of companies resorting to wholesale layoffs after months of merely declining to hire.

“There’s been no place to hide,” said Stuart Hoffman, chief economist at PNC Financial in Pittsburgh. “Everybody in every industry has lost jobs or is feeling insecure about whether they’re going to keep their jobs or how their company’s going to do."

Some economists suggested the substantial increase in layoffs reflected the anxiety that has gripped the financial system since last fall when major Wall Street institutions failed, notably the giant investment bank Lehman Brothers. Borrowing costs have spiked for American companies, making even healthy businesses reluctant to expand and hire. Perhaps even more decisive, the collapse last fall has left many companies spooked.

“There was a huge increase in uncertainty and a huge hit to confidence which caused a large rethinking among businesses,” said Ethan Harris, co-head of United States economics research. “That caused a big downshift in employment.”

In similar crises, like the stock market crash of 1987 and the near collapse of the enormous hedge fund Long Term Capital Management in 1998, dysfunction continued to grip markets for about six months, Mr. Harris said, suggesting that this episode may be nearing its end.

But history also shows that when fear lifts, the economy returns not to normalcy but to wherever it was when the crisis began, Mr. Harris said. That means that even if order is restored to the financial system, the economy will still be staring at a recession.

And order cannot be restored, many economists say, until the Obama administration creates and executes a credible plan to remove the bad loans choking the balance sheets of financial institutions.

“The 800-pound gorilla is whether we face up to the bad loans in the financial system,” said Alan Levenson, chief economist at the trading firm T. Rowe Price in Baltimore.

Taxes Up and Up - So Can Spend More and More!

If Democrats were vaguely interested in responding to our nation's financial plight they would 'change' their entire leadership and most committee chairs in both the Senate and House and select others with more common sense, less commitment to partisanship and extreme liberal ideology. I suspect the nation would be greatly relieved, the markets would respond and we might move forward.

If the Demwits were truly interested in freeing up capital and getting the market to function better they could increase the loss deductibility on earned income from $3m to say $50M or even more.

What we are witnessing is the first president in my lifetime who seems not to understand or appreciate capitalism and believes attacking Wall Street is the 'change' that will bring the nation together.

Sent to me by a neighbor, friend and fellow memo reader. It is dangerous to assume Israel and Netanyahu will repeat Olmert's perfidious mistakes. The administration's policies could push Israel over the edge. (See 1 below.)

Like the old "Casablanca" song about "It's Just The Same old Story" that is what Obama means by 'change' - your taxes are going up and up and up so spending and government can grow and grow and grow. (See 2 and 2a below.)

Iran and the problem it presents and the problem Obama will eventually have to face unless he chooses to ignore it and sweep it under the 'appeasement' rug, which, at present seems, to be his poloicy.

Historically market declines that reach depression levels (10% decline in GDP) have also been overwhelmingly associated with wars.

I continue to urge my memo readers to get and read Norman Poderetz' book: "WW 4." Also read the article below by Caroline Glick.

It's the Czech story all over again - different names but same story. Sacrifice a nation to appease another in hopes of buying peace. Obama is a trained lawyer and probably has little knowledge of history so hecould be more prone to repeat its mistakes.(He also is a social radical. See 3 and 3a below.)

Meanwhile, the Obama Administration appears ready to have direct dialogue with Iran and is being advised by Brzezinski and Scowcroft. (See 4 below.)

More Obama foreign policy happenings. (See 5 and 5a below.)

More interesting reading. (See 6, 6a and 6b below.)

Have a great weekend.


Dick



1) McCain's Brother Speech On The Jews & Israel

There is a lot of worry popping up in the media just now -- "Can
Israel Survive?" Don't worry about it. It relates to something that
Palestinians, the Arabs, and perhaps most Americans don't realize --
the Jews are never going quietly again. Never. And if the world
doesn't come to understand that, then millions of Arabs are going to
die. It's as simple as that.

Throughout the history of the world, the most abused, kicked-around
race of people have been the Jews. Not just during the Holocaust of
World War II, but for thousands of years. They have truly been "The
Chosen People" in a terrible and tragic sense.

The Bible story of Egypt 's enslavement of the Jews is not just a
story, it is history, if festooned with theological legend and
heroic epics. In 70 A. D. the Romans, which had for a long time
tolerated the Jews -- even admired them as 'superior' to other
vassals -- tired of their truculent demands for independence and
decided on an early "Solution" to the Jewish problem. Jerusalem was
sacked and reduced to near rubble, Jewish resistance was pursued and
crushed by the implacable Roman War Machine -- see ' Masada '. And
thus began The Diaspora, the dispersal of Jews throughout the rest
of the world.

Their homeland destroyed, their culture crushed, they looked
desperately for the few niches in a hostile world where they could
be safe. That safety was fragile, and often subject to the whims of
moody hosts. The words 'pogrom', 'ghetto', and 'anti-Semitism' come
from this treatment of the first mono-theistic people. Throughout
Europe , changing times meant sometimes tolerance, sometimes even
warmth for the Jews, but eventually it meant hostility, then
malevolence. There is not a country in Europe or Western Asia that
at one time or another has not decided to lash out against the
children of Moses, sometimes by whim, sometimes by manipulation.

Winston Churchill calls Edward I one of England 's very greatest
kings. It was under his rule in the late 1200's that Wales and
Cornwall were hammered into the British crown, and Scotland and
Ireland were invaded and occupied. He was also the first European
monarch to set up a really effective administrative bureaucracy,
surveyed and censused his kingdom, established laws and political
divisions. But he also embraced the Jews.

Actually Edward didn't embrace Jews so much as he embraced their
money. For the English Jews had acquired wealth -- understandable,
because this people that could not own land or office, could not
join most of the trades and professions, soon found out that money
was a very good thing to accumulate. Much harder to take away than
land or a store, was a hidden sock of gold and silver coins.. Ever
resourceful, Edward found a way -- he borrowed money from the Jews
to finance imperial ambitions in Europe, especially France .. The
loans were almost certainly not made gladly, but how do you refuse
your King? Especially when he is 'Edward the Hammer'. Then, rather
than pay back the debt, Edward simply expelled the Jews. Edward was
especially inventive -- he did this twice. After a time, he invited
the Jews back to their English homeland, borrowed more money, then
expelled them again.

Most people do not know that Spain was one of the early entrants
into The Renaissance. People from all over the world came to Spain
in the late medieval period.. All were welcome -- Arabs, Jews, other
Europeans. The University of Salamanca was one of the great centers
of learning in the world -- scholars of all nations, all fields came
to Salamanca to share their knowledge and their ideas. But in 1492,
Ferdinand and Isabella, having driven the last of Moors from the
Spanish Shield, were persuaded by the righteous fundamentalists of
the time to announce "The Act of Purification". A series of steps
were taken in which all Jews and Arabs and other non-Christians were
expelled from the country, or would face the tools and the torches
of The Inquisition. From this 'cleansing' come the Sephardic Jews --
as opposed to the Ashkenazis of Eastern Europe . In Eastern Europe ,
the sporadic violence and brutality against Jews are common
knowledge. 'Fiddler' without the music and the folksy humor. At
times of fury, no accommodation by the Jew was good enough, no
profile low enough, no village poor enough or distant enough.

From these come the near-steady flow of Jews to the United States .
And despite the disdain of the Jews by most 'American' Americans,
they came to grab the American Dream with both hands, and
contributed everything from new ideas of enterprise in retail and
entertainment to becoming some of our finest physicians and lawyers.
The modern United States , in spite of itself, IS The United States
in part because of its Jewish blood.

Then the Nazi Holocaust -- the corralling, sorting, orderly
eradication of millions of the people of Moses. Not something that
other realms in other times didn't try to do, by the way, the
Germans were just more organized and had better murder technology.


I stood in the center of Dachau for an entire day, about 15 years
ago, trying to comprehend how this could have happened. I had gone
there on a side trip from Munich , vaguely curious about this Dachau .
I soon became engulfed in the enormity of what had occurred there
nestled in this middle and working class neighborhood.

How could human beings do this to other human beings, hear their
cries, their pleas, their terror, their pain, and continue without
apparently even wincing? I no longer wonder. At some times, some
places, ANY sect of the human race is capable of horrors against
their fellow man, whether a member of the Waffen SS, a Serbian
sniper, a Turkish policeman in 1920's Armenia , a Mississippi
Klansman. Because even in the United States not all was a Rose
Garden. For a long time Jews had quotas in our universities and
graduate schools. Only so many Jews could be in a medical or law
school at one time. Jews were disparaged widely. I remember as a kid
Jewish jokes
told without a wince - "Why do Jews have such big noses?"

Well, now the Jews have a homeland again. A place that is theirs.
And that's the point. It doesn't matter how many times the United
States and European powers try to rein in Israel, if it comes down
to survival of its nation, its people, they will fight like no
lioness has ever fought to save her cubs. They will fight with a
ferocity, a determination, and a skill, that will astound us.

And many will die, mostly their attackers, I believe. If there were
a macabre historical betting parlor, my money would be on the
Israelis to be standing at the end. As we killed the kamikazes and
the Wehrmacht soldaten of World War II, so will the Israelis kill
their suicidal attackers, until there are not enough to torment
them..

The irony goes unnoticed -- while we are hammering away to punish
those who brought the horrors of last September here, we restrain
the Israelis from the same retaliation. Not the same thing, of
course -- We are We, They are They. While we mourn and seethe at
September 11th, we don't notice that Israel has a September 11th
sometimes every day.

We may not notice, but it doesn't make any difference. And it
doesn't make any difference whether you are pro-Israeli or you think
Israel is the bully of the Middle East . If it comes to where a new
holocaust looms -- with or without the concurrence of the United
States and Europe -- Israel will lash out without pause or restraint
at those who would try to annihilate their country.

The Jews will not go quietly again.

Joe McCain

2) The Obama Double Tax Whammy
By Gregory V. Helvering

President Obama's proposal to provide only a 28 percent benefit for charitable contributions by top-bracket taxpayers is part of a double whammy, since he proposes at the same time to raise the top bracket from 35 to 39.6 percent. The double-barreled increase/decrease reflects a two-part strategy that is much more than a simple tax increase. Less civil society and more government power is the result.


Taken alone, an increase in tax rates would result in more charitable giving: if one receives a 39.6 percent benefit from giving to charity, and one previously gave $1,000 at an after-tax cost of $650 (based on a 35 percent deduction), one can now give $1,076 at the same after-tax cost of $650.


In addition, higher tax rates might increase charitable contributions even beyond that, since higher rates also have a psychological effect. When the state and federal government together take close to 50 percent of the income of top-bracket taxpayers, those taxpayers increasingly prefer giving money to charity rather than sending it to government. They may round the $1,076 contribution up to $1,250 (or higher): in that instance, the $1,000 contribution that used to cost the government $350 turns into a $1,250 contribution costing the government $500.


By simultaneously increasing tax rates to 39.6 percent and decreasing the tax benefits of deductions to 28 percent, the government can (a) eliminate the increased tax incentive for giving and thus protect its new revenue; and (b) at the same time, reduce the tax benefit for the giving already occurring and thus generate even more money for the government. The government keeps its higher revenues that might be reduced by increased contributions, while the charities see existing contributions fall (since the tax cost to contributors of even the existing level of contributions increases). There is an effective shift of money from private charity to government -- the exact opposite of what would occur if there were only a single whammy (an increase in tax rates).


So the Obama plan hurts not only top-bracket taxpayers, but the charities themselves. The administration has an answer to this, but as Jacob Sullum notes in "Obama's Charitable Taking," the response reveals the underlying philosophy behind the two-whammy proposal:


In response to nonprofit organizations worried that limiting the deduction for charitable contributions will reduce donations, The Washington Times reports, [Budget Director Peter] Orszag "said Mr. Obama took care of that by giving charities government money to make up part of the difference." Orszag noted that "in the recovery act, there's $100 million to support nonprofits and charities." In essence, then, Obama plans to take money people otherwise would have given to the charities of their choice and give it to the charities of his choice.


The increase/decrease proposal will thus shift significant funds from charities chosen by taxpayers to government-chosen charities that are politically connected (or at least politically correct). Charities that want to share in the increased government largesse will need to ensure that their goals and activities are the ones the government wants to support. Civil society is weakened and government empowered.


Taxpayers who might otherwise choose to opt out of the 39.6 percent tax -- by increasing contributions to charitable, educational, and religious institutions they want to support -- will thus find that exit strategy blocked by the 28 percent deduction limit. Any increased contributions will necessitate an 11.6 percent toll charge to be paid to the government along with the contribution.


Audacious, no? If you are a taxpayer and think you can choose to support worthwhile charities instead of paying more money to the government, Obama is here to tell you: no, you can't. If you are a charity and think that, as a private institution with private support, the government cannot affect the direction of your activities, Obama also has a response: yes, we can.

2a) Warning! Bracket Creep Ahead!
By Tom Bruner


With a guarantee that only those making more than $250,000 a year will see a tax increase it is probably a good time to talk about something that has not been a problem for decades: Bracket Creep.


Bracket creep is the result of a progressive tax system in an inflationary environment. In a progressive tax system the rate at which income (or whatever the basis for taxation is, but for this discussion it is income) is taxed at a greater rate as income goes up. The increases are incremental in a discreet number of brackets, of which there are currently six. The net effect is that the last dollar earned is taxed at a greater rate than the first dollar earned as long as enough is earned to advance out of the lowest bracket.


In a relatively inflation-free environment earners move up the brackets as a result of gaining earning power and so greater income. Progressive tax policies can be accused of having the effect of diminishing motivation to improve one's earning power since rewards are effectively less as income, and so the marginal tax rate, increases.


In an inflationary environment income levels rise more or less in time with rising prices: more for those with valued skills, less for those without. As one's income rises, so too does his or her marginal tax rate. However, due to inflation, buying power does not increase with increasing income. This is why bracket creep is a problem and why a $250,000 income will not mean "rich" for long.


Inflation and Finance


Inflation, the decline of purchasing power, is caused by a number of factors. Most relevant now is massive increases in government spending. Technically this is demand-pull inflation. Inflation has not been zero for a very long time, and arguably some inflation is better than disinflation because the latter causes inventories to decay value over time. When inflation is tame, as it has been for over twenty years, the gradual decline in purchasing power is not noticed. Fluctuations in food and fuel prices mask the effect in the short term, and annual merit raises preserves buying power in the long term.


The impending flood of government spending can be financed in one or a combination of three ways. The three are: Increase Tax Revenue, Borrow, and Print Money. Increasing taxes on those making over $250,000 will not pay the bill. Confiscating the entire income of the top 10% of earners in the United States would not pay half of the proposed deficit, and that would work only once as top earners lose all motivation to earn anything. Increasing tax revenues would help but, contrary to what would make sense at first glance, that generally only happens when tax rates are lowered. This policy is not currently under consideration.


Borrowing money, which the government accomplishes by selling bonds, has been an ongoing government activity for generations. There is no point in putting a number here for the total debt as of now, it changes constantly, so just visit the Debt Clock. Perspective is important when looking at numbers that, in a perfect world, would be presented in scientific notation. Remember that debt, when managed responsibly, is a good thing for both borrower and lender. The borrower uses the capital to improve operations in some way, and the lender earns interest income on funds for which there is no better use.


There are few lenders with adequate resources to provide the incredible pile of cash needed to fund the proposed government programs. Recent losses in the equity markets has drained the private sector of capital, so it comes to China. But China has only about $2 trillion on hand at the moment, and the best possible use is probably not to lend it all to the United States. The Chinese economy is slowing too and they have their own stimulus packages to finance. Secretary of State Clinton may have some favors to call in from the Chinese, but they may not be able to provide financing even if they want to.


In principle the Chinese may be interested in seeing this process through:



The principle governing our economic policy is to proceed with all the essential work of economic construction within our power and concentrate our economic resources on the war effort, and at the same time to improve the life of the people as much as possible, consolidate the worker-peasant alliance in the economic field, ensure proletarian leadership of the peasantry, and strive to secure leadership by the state sector of the economy over the private sector, thus creating the prerequisites for our future advance to socialism.
-- Our Economic Policy, Mao Tse-tung (Mao Zedung)


So, if the Chinese care to help finance our advance to socialism, perhaps they will put economic considerations aside and approve the loan. The priorities seem remarkably similar now in the U.S. as in China in 1934. Twenty-four years after writing this Mao launched the Great Leap Forward, and perhaps as many as 20 million Chinese died from starvation and related diseases. Mao resigned his position as head-of-state, but remained popular and powerful as party chairman (they only have one party, greatly simplifying the decision of whether to report a politicians party affiliation in the press), kicking off the somewhat less disastrous Cultural Revolution a few years later. If the Chinese, given their recent history, believe that this proposed loan is beneficial to both lender and borrower, considering political implications as well as economic ones, then they will approve the application. Time will tell.


Another observation by Mao from Our Economic Policy:


As regards the private sector of the economy, we shall not hamper it, indeed we shall promote and encourage it, so long as it does not transgress the legal limits set by our government. For the development of private enterprise is essential to the interests of the state and the people at the present stage. Needless to say, private enterprise is now preponderant and will inevitably continue to occupy a dominant position for a considerable time.


Mao was arguably more supportive of the private sector in 1934 than the President of the United States is in 2009. Now that's progress! Perhaps it would help if the current administration adopted this policy of promoting and encouraging the private sector, like Mao?


Print Money


Since the rich do not have enough money to confiscate, and the Chinese may not be inclined to provide debt financing, it is likely that it will be necessary to print money. Of course in the digital age the money does not need to be literally "printed;" actual currency is only one part of the money supply. The informal definition of inflation is "too much money chasing too few goods." Providing a job in the bike path industry pays the bills and provides more self-esteem than public assistance, but it produces no good or service with economic value so money chasing goods goes up, supply of goods stays the same - which way does inflation go?


Of the trillions of dollars in stimulus and other spending, which started in the previous administration and is accelerating in the current one, only a fraction will stimulate the economy without introducing inflationary pressure. For example, if a new bridge or improvements to an existing one cuts transport time and fuel consumption it provides real economic value, albeit indirectly. Projects in this category are being considered. This does not suggest that bike paths and Salt Marsh Harvest Mouse conservation efforts are not necessary or that they are bad ideas, only that government spending in some areas will tend to have better economic results than spending in other areas.


There is a perverse side to this strategy. Whatever bonds can be sold will be repaid with considerably shrunken dollars, and we get to keep the bike paths. So if inflation exceeds the interest rate paid on the debt, the bonds are a bargain in the long run for the government, not so much for the lender. The lender knows this and will act accordingly.


Those who live in the shadow of a macroeconomic game of chicken should expect to become familiar with terms like bracket creep, stagflation, and another measure of economic performance of little interest for the last couple of decades: the Misery Index. And do not be surprised if you find yourself among the rich taxpayer class sooner than expected.

3) A Nuclear Iran: Obama's Dire Strait
By Peter Glover and Michael J. Economides

The economic downturn may have given the Obama White House its first major crisis, but the fast-looming Iran nuclear crisis is about to give him his second.


It was some of the Administration's highest ranking officials, Chairman of the Joint Chiefs, Adm. Mike Mullen and the Secretary of Defense Robert Gates that put the exclamation marks on the issue on March 1.


Mullen when asked on CNN whether Iran "might now have enough fissile material to make a bomb" he answered: "We think they do, quite frankly." He went on to add "Iran having a nuclear weapon, I believe, for a long time, is a very, very bad outcome for the region and for the world."


Secretary Robert Gates, speaking on NBC's "Meet the Press," while acknowledging the Iranian problem said of Iran, "They're not close to a stockpile, they're not close to a weapon at this point and so there is some time." What he was not pressed about is the duration of this time. It may be running out fast.


Even before his inauguration on January 20, President Obama, trying to show his differentiation from single-minded, "cowboy" George W. Bush, has been expansive on the philosophy of new international co-operation, multi-lateral working with previously considered rogue countries, even promising new talks without pre-conditions with Iran. But, as regards the latter, Obama has been conspicuously short on specifics. Meanwhile, in what can only described as a suicide wish and one that can only be possible in that part of the world, Teheran continues to flaunt the fact it is closing fast on its nuclear goals, whatever they may be.


While the issue of how and when new talks might be conducted may define the White House thinking, President Obama needs to consider two equally serious questions if Israel, as appears increasingly likely under prime minister Benjamin Netanyahu, moves militarily against Iran. First, how, given it is Iran's nuclear-build partner, will Russia react? Second, what contingency plans does Obama have to safeguard vital American and world oil supplies if, as threatened, Iran moves to close the vital Strait of Hormuz?


Latest Key Developments


In an op-ed in the Jerusalem Post, Edwin Black noted four key developments since mid-January that have ratcheted up the stakes since President Obama's inauguration. They include:


Iran launching a space satellite - claiming it was to ‘monitor earthquakes and enhance communications'

The International Energy Agency admitting it had underestimated Iran's nuclear stockpile by about one-third.

Iran boosting the number of its centrifuges to over 5,400 (actually, Iran now claims it has reached its target figure of 6,000)

Benjamin Netanyahu becoming Israeli Prime Minister

As with North Korea's recent claim that it too was about to launch a "communications satellite", the response from Western politicians and the media alike was cynical. The Washington Post claimed the North Korean's had "dressed up a long-range ballistic missile". Is anyone in the West gullible enough to really believe the Iranian Mullahtocracy was doing anything other than testing its own missile delivery system? The IEA has also stated that it totally underestimated Iran's capacity to manufacture sufficient low-enriched uranium to create at least one nuclear bomb. If the latest Iranian claims over the number of centrifuges it possesses is even remotely close to be correct, that process is set to speed up dramatically. Equally significant is the return to power in Jerusalem of Benjamin Netanyahu, a man deeply committed to pre-emptive action to prevent Iran achieving its nuclear potential.


Reality vs Wishful Thinking


With Israeli politicians themselves also wanting to avoid any sort of military intervention, most in the West appear to be pinning their hopes on a combination of Obama-instigated talks and the possibility that the Iranian hardliner President Mahmud Ahmadinejad might be voted out of office in upcoming Iranian elections in June.


Just what diplomatic arm-twisting President Obama might bring to the table that has not already been tried remains a mystery. With tension mounting, EU leaders are, yet again, even at this late hour with Operation Nuclear Iran almost up and running, calling for more sanctions. As we have written previously, sanctions had little chance of working and now are 3-D: a diplomatic dead duck. That leaves talks. If they fail, as even the Obama fawning New York Times asked, "Then what?" Hope that a victory for more moderate former president, Mohammed Khatami, would make a significant difference must be a forlorn one. As recently put by one Iranian diplomat, it was an article of "faith within the regime that they all have to support the nuclear program".


Endless talks and ostrich-like head hiding are hardly an option for Israel faced with what it -- and many others -- consider a deeply ideological regime committed to Israel's destruction, and about to achieve the means to ‘deliver' it. And, with the potentially hawkish threat of the Bush administration downgraded to the dovish diplomacy of the Obama White House, the fear is that yet more talking can only buy Teheran more time. Time Israel undoubtedly believes it no longer has.


Israel's Covert War


Recent reports reveal that Israel has been conducting a covert war against Iran's nuclear program in a bid to avoid military intervention and slow down Iran's nuclear progress using hitmen, sabotage and other means. According to Reva Bhalla, a key analyst with Stratfor, the US private intelligence company, the "decapitation" program has been aimed at taking out key scientists and others. Mossad, for instance, is believed to have been behind the death of Ardeshire Hassanpour, a top Iranian nuclear scientist who died from "gas poisoning" in 2007. But the limitations of a covert operation of this kind was recently put into perspective by Vince Canastraro, former CIA counter-terrorism chief, who said, "You can't get rid of a couple of people and hope to affect Iran's nuclear capability."


So when Iran began testing its first nuclear reactor in late February it was a signal the program was approaching the ‘point of no return' feared by the West and by Iran's neighbors in the Middle East alike. As the reactor whirred into action, Iranian nuclear scientists were waxing lyrical on their achievements. Gholamreza Aghazadeh, the head of Iran's Atomic Energy Organisation, claimed that an extra 1000 centrifuges had been brought online (making 6000) since just last November. He also alluded to a new nuclear milestone that would be reached in April this year.


The Russian Role


At Aghazadeh's shoulder during the launch at the Bushehr plant was Sergei Kiriyenko, head of Rosatom, Russia's state-owned nuclear company and Iran's full partner in the project. Is this what is driving Iran's freewheeling attitude to world opinion? The dual knowledge that the Obama administration is desperate to avoid military conflict but also because Iran may have a Russian ‘bodyguard'.


It remains hard to see what diplomatic leverage Obama can employ that has not already been tried. That leaves military force. And with Hamas and Fatah currently patching up their differences and a ceasefire in Gaza, it leaves Israel, with its new prime minister, free to concentrate on the Iranian threat.


So what does President Obama do if final talks fail? All the indications are that there is no back-up plan. If Israel should then take the only action logically left open, President Obama will immediately be faced with two equally serious issues: first, what will Iran's partner Russia do? (and what should the US do if Russia does take action?) Second, the Iranians will close the Straits of Hormuz cutting off vital world and US oil supplies. The first is clearly a major issue, but is not our concern here. The second is. 90 percent of oil exported from the Persian Gulf is carried on oil tankers through the Straits of Hormuz. A staggering 35 percent of all transnational oil trade passes through. A headline that the Straights are closed will sky-rocket the oil price. Headlines ruled prices when they went to almost $150 (only last July) and economic crisis headlines brought it down to an unsustainable $40. There was no rational reason for either. But then there has never been as dire headline than the potential closing of the Straits of Hormuz.


The Iranian nuclear affair is plainly reaching its denouement. If proposed talks fail even President Obama will find it difficult to restrain an Israel that fears for its very existence, threatened as explicitly and clearly as could be by Ahmadinejad. In the event of a military strike by Israel, Obama is likely to have to deal with an irate Russian ‘project manager' as well as Iranian ‘fallout'. Moreover, if he fails to react swiftly to protect the oil supply through Hormuz, he will quickly see what appears to be his total lack of contingency energy planning turn into a full-blown domestic security nightmare.

3a)How Obama, Hillary and Kerry will, ultimately, bring peace to the Middle East
By Caroline B. Glick

Compare and contrast the following three events:

At the International Atomic Energy Agency's Board of Governors meeting on Wednesday, George Schulte, the US ambassador to the IAEA pointed an accusatory finger at Syria. Syria, Schulte said, has not come clean on its nuclear program. That program of course, was exposed in September 2007 when Israel reportedly destroyed Syria's North Korean built, Iranian financed al Kibar nuclear reactor.

In its report to its board of governors, the IAEA stated that in analyzing soil samples from the bombed installation, its inspectors discovered traces of uranium. The nuclear watchdog agency also noted that the Syrians have blocked UN nuclear inspectors from the site and from three other suspected nuclear sites.

Reacting to the IAEA report, Schulte said that it, "contributes to the growing evidence of clandestine nuclear activities in Syria." He added, "We must understand why such [uranium] material - material not previously declared to the IAEA - existed in Syria and this can only happen if Syria provides the cooperation requested."

On Tuesday, at a press conference in Jerusalem with outgoing Foreign Minister Tzipi Livni, visiting US Secretary of State Hillary Clinton announced that the Obama administration is sending two senior envoys to Syria. Their job, as she put it, is to begin "preliminary conversations," on how to jumpstart US-Syrian bilateral ties.

Clinton's statement made good headlines, but she was light on details. On Wednesday, hours after Schulte accused Syria of covering up its illicit nuclear program, US Senator John Kerry helpfully filled in the blanks about the nature of the Obama administration's overtures to nuclear-proliferating Damascus. In an address before the left-leaning Saban Center for Middle East Policy at the Brookings Institute in Washington, the Chairman of the Senate Foreign Relations Committee, who just returned from a visit to Syria, Israel and the Palestinian Authority said that the purpose of US overtures to Syria is to appease Syrian President Bashar Assad.

If in the past, both American and Israeli policymakers interested in engaging Syria have made ending Syria's alliance with Iran a central goal of their proposed engagement, Kerry dismissed such an aim as unrealistic. In his words, "We should have no illusions that Syria will immediately end its ties with Iran."

Indeed, as far as Kerry is concerned, Syria's role in these talks is not to actually give the US anything of value. Rather, Syria's role is to take things of value from the US - and of course from Israel.

Kerry proposed that in exchange for Syrian acceptance the US's offer of friendship and Assad's willingness to negotiate an Israeli surrender of the Golan Heights, the US should consider "loosening certain sanctions" against Syria. Doing so, he claimed will also be good for the US economy because it will open new opportunities for US businesses.

On the surface, the disparate statements by Schulte, Clinton and Kerry present us with a puzzle. In Geneva, Schulte noted that Syria is a nuclear proliferating rogue state that has refused to cooperate with UN nuclear inspectors. And in Jerusalem and Washington, Clinton and Kerry ignored Syria's dangerous actions, and advocated a policy of appeasement.

At the same IAEA Board of Governors meeting this week, the agency reported that Iran has produced more than a thousand kilograms of low enriched uranium - enough to build a bomb after further enrichment. That enrichment can be completed by year's end with Iran's 5,600 centrifuges. Moreover, between the Russian-built, soon to be opened nuclear reactor in Bushehr and Iran' illicit heavy water reactor in Arak, Iran will have the capacity to build plutonium-based bombs within two years.

Commenting on the IAEA's report on Iran, US Admiral Michael Mullen, the Chairman of the Joint Chiefs of Staff acknowledged that Iran has enough uranium for a bomb. Seemingly contradicting Mullen, Defense Secretary Robert Gates claimed that there is no reason to worry about all that uranium because Iran won't have a bomb for some time given that the uranium it possesses is not sufficiently enriched to make a bomb.

For his part, US President Barack Obama is receiving guidance on contending with Iran from former Congressman Lee Hamilton, who co-authored the Baker-Hamilton Iraq Study Group report published in December 2006. That report called for the US to coordinate the withdrawal of its forces from Iraq with Iran and Syria - the principal sponsors of both the Shiite and Sunni insurgencies in the country. It recommended that the US purchase Syria's good will by pressuring Israel to surrender the Golan Heights to Damascus and Judea, Samaria and Jerusalem to Hamas. It recommended that the US win Iran's trust by accepting it as a nuclear power and pledging not to overthrow the regime.

In an interview last month with Washington Post columnist David Ignatius, Hamilton reiterated those recommendations. He claimed that the starting point for US-Iran discussions is for the US to "state our respect for the Iranian people, renounce regime change as an instrument of US policy, seek opportunities for a range of dialogue across a range of issues, and acknowledge Iran's security concerns and its right to civilian nuclear power."

Hamilton assured Ignatius that these recommendations have been adopted by the White House.

All of the above show that there is no contradiction between what the Obama administration understands about Iran and Syria and the policy it has adopted towards them. Specifically, as Schulte's and Mullen's statements make clear, the administration is aware of the dangers that both Iran and Syria constitute to global security. And as Clinton, Kerry, Gates and Hamilton all make clear, the administration's policy for dealing with those dangers is to change the subject and hope the American public won't notice or mind.

To this end, the administration is now asserting that Iran and Syria - the two most active agents of regional instability - share the US's interest in a stable, democratic Iraq. And owing to their sudden devotion to stability, Obama's surrogates tell us the Syrians and Iranians will support the new anti-Syrian and anti-Iranian Iraqi democracy and even protect it after the US withdraws its forces from the country.

Then too, as both Kerry and Clinton made clear, the administration plans to ignore Syria's support for Iraqi, Palestinian and Lebanese terrorism, its nuclear proliferation activities and its massive ballistic missile arsenal as well as its strategic alliance with Iran. Rather than confront Syria about its bad behavior, the administration favors a policy based on making believe that in his heart of hearts, Assad is a liberal democrat who aspires to peace, and hope, and change.

But the core of the administration's campaign to ignore Iran's nuclear program - as well as Syria's - is its unrelenting quest for the big payoff: Palestinian statehood.

This week Iran staged yet another "Destroy Israel" conference in Teheran, replete with Mahmoud Ahmadinejad's trademark Holocaust denial, Supreme Leader Ali Khamenei's ritual castigation of the Jewish state as a "cancerous tumor," and the US as a treacherous enemy, and Ali Larijani's threat to attack Israel's suspected nuclear sites. The conference enjoyed a newfound sense of international legitimacy taking place as it did just after burka-clad Annette Benning's goodwill Hollywood celebrity visit to the mullocracy.

The genocidal pageantry in Teheran, elicited no significant response from Clinton and Kerry. They had bigger fish to fry. While the administration and its supporters seem to believe that the US has no right to make demands on Iran and Syria which, they assert, are both just advancing their national interests, for them Israel is a completely different story. As Clinton and Kerry demonstrated this week, the administration and its supporters will not stop making demands on Israel.

Kerry justified Syria's continued alliance with Iran by saying that Syria should be expected to "play both sides of the fence [with the US and Iran] as other nations do when they believe it is in their interests."

But Israel has no right to similarly take what action it deems necessary to secure its interests. In Kerry's view, the time has come for the US to show that it is serious about Palestinian statehood and the way to do that is to force Israel to block all Jewish building in Judea and Samaria.

In his words, "On the Israeli side, nothing will do more to make clear our seriousness about turning the page than demonstrating - with actions rather than words - that we are serious about Israel freezing settlement activity in the West Bank."

He also called for the US to compel Israel to open its borders with Gaza. And he said that from his perspective, it is unacceptable for the incoming Netanyahu government not to embrace establishing a Palestinian state as its most urgent goal.

Clinton joined Kerry his efforts to compel the Jewish state to ignore its national interests in the cause of the higher goal of Palestinian statehood. Like him, she attacked Israel for not handing control over its borders with Gaza to Hamas. And like Kerry, she stated repeatedly that her greatest goal is to establish a Palestinian state.

Clinton's unique contribution to that great "pro-peace" endeavor this week was her outspoken criticism on Wednesday of the Jerusalem municipality's decision to enforce the city's building and planning ordinances equally towards both Jews and Arabs. That policy was made clear this week when city inspectors destroyed illegal buildings in both Jewish and Arab neighborhoods.

Since as far as Clinton is concerned, Israel will one day be required to throw all the Jews out of East, South and North Jerusalem to make room forwhat she believes is the "inevitable" Palestinian state, Israel has no right to treat Arabs and Jews equally in its soon-to-be-inevitably divided capital city. Arabs should be allowed to break the law at will. When Israel insists on enforcing its laws without prejudice, Clinton condemns it for being anti-peace.

Kerry argues that by forcing Israel to give its land to the Palestinians the US will be promoting regional stability by doing the bidding of anti-Iranian Arab states like Egypt and Saudi Arabia. But even if putting the screws to Israel makes Cairo and Riyadh happy, their happiness will have no impact whatsoever on Iran's nuclear weapons programs or on Syria's proliferation activities. That is, Israeli land giveaways will have no impact on regional stability.

And that's precisely the point. The Obama administration has no intention of preventing Iran from becoming a nuclear power or Syria from maintaining its alliance with the mullahs. The White House seeks far more modest ends.

Through its policies towards Israel on the one hand and Iran and Syria on the other, the Obama administration demonstrates that it has already accepted a nuclear Iran. Its chief concern today is to avoid being blamed when the mushroom clouds appear in the sky. And it may well achieve that aim. After all, how could the administration be blamed for a nuclear Iran when it has wholly devoted its efforts to advancing the righteous cause of peace?

4) US Afghan parley likely to include Iran
By HILARY LEILA KRIEGER

What's this?

US Secretary of State Hillary Clinton on Thursday proposed holding a regional conference on Afghanistan on March 31 that would likely include Iran.


If Iran were to attend, it would mark an opening in relations between the Islamic republic and the Obama administration, which has been exploring ways of engaging with Teheran.

The conference would be held under the auspices of the UN and look at ways of harnessing international efforts to improve the situation there.

"Iran borders Afghanistan. In the early days of the military efforts by the United States and our allies to go after the Taliban and al-Qaida, Iran was consulting with our ambassador on a daily basis," Clinton told reporters in Brussels. "Where it is appropriate and useful for the United States and others to see whether Iran can be constructive, that will be considered."

The development came the same day that US Senate Foreign Relations Committee Chairman John Kerry held a hearing on American policy toward Iran, in which he said, "If ever there was an urgent challenge that will require a multi-dimensional solution, surely it is Iran's nuclear program."


He praised the idea of talking to Iran, saying, "We must engage directly with Iran, and I'm glad that this idea's day is coming."

But he cautioned, "We must be honest with ourselves: We will not solve this problem just by talking directly to Teheran. While Iran was just talking to the IAEA and the Europeans, it deftly sidestepped every supposed red line laid down by the international community. While Iran was just talking to the world, it moved to the threshold of becoming a nuclear-capable state."

The committee heard testimony from two former US national security advisers, Zbigniew Brzezinski, who served under Jimmy Carter, and Brent Scowcroft, who worked for George H.W. Bush.

Brzezinski began by stressing actions that US shouldn't take, to avoid prejudicing the negotiations, arguing against ratcheting up sanctions, threatening the use of force, speaking of regime change and setting deadlines for the negotiations, unless the aim was for the talks to break down and for America to be able to blame that breakdown on Iranian intransigence.

Accordingly, he criticized a story in Haaretz this week that said Israel told Clinton to impose a time frame on talks for them to have impact.

"We should be very careful not to become susceptible to interested parties" and their policies on Iran, he warned.

He also took issue with Israel's contention that a nuclear-armed Iran would be an "existential threat," and argued that deterrence in the form of extending America's nuclear umbrella to friends in the Middle East should allay Jerusalem's concerns.

The US, Brzezinski maintained, faced more of an existential threat from the Soviet arsenal when he was in the White House, in the 1970s, than Israel did now, and deterrence proved effective in that case.

Both Brzezinski and Scowcroft agreed that the biggest threat came not from Iran acquiring a nuclear weapon but from the impetus such an acquisition would give to a regional nuclear arms race.

Many pro-Israel figures have assailed Brzezinski and Scowcroft for their views on the Middle East, and the choice to invite the two to testify did not sit well with several activists.

"The choice of Brzezinski and Scowcroft sent up two yellow flags when I heard they were given such prominence," one Jewish leader said of Thursday's hearing. "When Brzezinski used his short opening statement to say Secretary of State Hillary Clinton should be cautious about listening to Israel's ideas, the red flag really went up. After all, Israel knows an awful lot about Iran and what they do that's against the interest of peace."

5) Obama Shouldn't Sacrifice Allies To Please Russia
By Michael Rubin

On March 2, "The New York Times" reported that U.S. President Barack Obama had written to Russian President Dmitry Medvedev suggesting that reconsideration in Moscow of the extent of its support for Iran's nuclear program might result in a U.S. suspension of plans to establish a missile-defense system in Poland and a radar station in the Czech Republic. The Russian leadership rebuffed Obama's outstretched hand. Moscow, Medvedev said, would welcome discussions about missile defense, but would not link such talks to its policy toward Tehran.

Too often, new U.S. administrations assume that the reason for the failure of engagement lies more with their predecessors than with their adversaries. Obama is no different, but rushing into diplomatic initiatives, however well intentioned, can be costly.

The impact on the North Atlantic Treaty Organization (NATO) of Obama's proposed quid pro quo with Russia could be profound. Founded in 1949 as a collective-defense pact against the Soviet Union, NATO spanned continents and the Atlantic Ocean.

Equal Protection
For collective defense to work, however, President Harry S Truman determined that all NATO members should enjoy equal defense. Western Europe would not simply be strategic depth for the United States, but would enjoy the same level of protection. NATO expanded over the years. Greece and Turkey joined in 1952; West Germany in 1955; and Spain in 1982. With the fall of the Iron Curtain, NATO moved eastward. Poland, Hungary, and the Czech Republic joined in 1999, and Slovenia, Bulgaria, Romania, and the Baltic states five years later.

Central and Eastern Europe have always been sensitive to the perception that they retain second-class status within both the European Union and NATO. As the Russian government grew more belligerent in its opposition to the radar station and antiballistic-missile base, some U.S. diplomats floated the idea of placing the facilities in older NATO members, such as Italy or the United Kingdom. Former President George W. Bush rightly opposed such a compromise in order to signal that every NATO member was equal, and that Eastern Europe was not simply strategic depth.

It was to cement this point that both Prague and Warsaw agreed to host such facilities despite sizable domestic opposition. Scrapping the European antiballistic-missile coverage altogether would, in effect, relegate first-tier missile defense to North America, which maintains its early warning radar and missile defense in Canada, Alaska, and the continental United States.

While Obama and his aides campaigned for a return to realism in foreign policy, their approach to diplomacy suggests dangerous idealism. The Obama era may have begun on January 20, but neither Moscow nor Tehran abide by the U.S. political calendar. It is not possible to simply "reboot" relations.

Common Interests
For Russian Prime Minister Vladimir Putin, realism means maximizing Russian power. He does not seek good relations with the West; he seeks the resurrection of Moscow as the leader of an informal empire corresponding to the borders of the former Soviet Union. Putin appears to see Russian aid to the Iranian nuclear program as a win-win situation for Moscow. On one hand, Russian nuclear assistance to Iran has netted Rosatom, the Russian state nuclear-power agency, billions of dollars. Russian military sales -- either direct or channeled through Belarus -- are icing on the cake. On the other hand, in the unlikely event that the United States strikes Iran militarily, the price of oil will shoot up, pulling the shaky Russian economy out of recession.

Iranian officials, likewise, see the United States' back against the wall. On February 11, 2008, commemorating the 29th anniversary of the Islamic Revolution, Iranian President Mahmud Ahmadinejad announced: "I officially declare that Iran has become a true and real superpower.... I say with a loud voice that the era of imperialism and [U.S.] bullying has come to an end."

In fact, the time for a deal such as the one outlined in Obama's letter to Medvedev may already have expired. On February 27, delivering the Islamic republic's official sermon, Ali Akbar Hashemi Rafsanjani, among the most powerful figures in Iran today and himself once a target of U.S. engagement, declared, "Even if the Russian experts don't complete the Bushehr nuclear power plant, Iranian experts will finish the job."

Obama may see his offer to Russia as pragmatism, but gestures create precedent. U.S. allies who fear that Washington is willing to sacrifice allies for the sake of diplomatic convenience may question whether alliances remain built on today's interests only, or also on shared values and history. If, after all, Russian antagonism forces U.S. concessions over Poland and the Czech Republic, why not increase Russian belligerence in the Caucasus, Central Asia, or on the Korean Peninsula? If the Obama administration signals that Poland and the Czech Republic are on the table, why should Ukraine and Georgia not be? Why should China not expect to deal over Taiwan, or why should Iran -- another target of Obama's desire to engage -- not demand concessions on Israel?

Diplomacy should always be a strategy of first resort. But Obama should realize that diplomacy with dictatorships is not the same as diplomacy among democratic nations. If democracies can be swayed with values and incentives, altering autocrats' behavior often requires far more complex coercion, not simply idealistic letters. If Washington is to remain strong, its alliances must remain strong. The White House must learn that the best security comes from supporting allies, not cutting deals over them.



5a) Aid for sale in Hamas' Gaza
by Asaf Romirowsky and Nicole Brackman

There was a bit of head-scratching going on recently in the hallowed halls of the UN.

After weeks of rebuking Israel for preventing humanitarian aid to flow into Gaza, UN officials were forced to cancel deliveries of aid into the Hamas-controlled territory after terrorists broke into a UN Relief and Works Agency warehouse and made off with 800 tons of blankets, food and other basic commodities to sell them to the highest bidders.

Israeli officials have been saying all along that Hamas routinely diverts humanitarian aid. In April, fuel trucks destined for UNRWA warehouses were overtaken. It was reported in August that Hamas gunmen had hijacked more than 10 trucks destined for the Palestinian Red Crescent Society full of food and medical supplies.

All that is only more ironic given the worldwide castigation of Israel for allegedly preventing humanitarian aid to flow into Gaza during the military operation.

And the criticism wasn't limited to the issue of aid. The UN (and the international community) was quick to condemn Israel for allegedly targeting an UNRWA-run school, despite widespread acknowledgement that Hamas routinely employs such facilities as "civilian shields" in an attempt to draw Israeli fire.

The incident where IDF fire hit an UNRWA school in the Jabalya refugee camp in Gaza is indeed tragic. At the time, UNRWA insisted there were no terrorists in the school compound and the Israelis were "careless," with UNRWA Operations Director John Ging claiming that mortars had hit the school, killing dozens and wounding more.

Just days ago, though, UN officials admitted that Israel had not hit the school at all, but an area outside it. Ging admitted that his original claims were wrong.

It may have taken the embarrassment over such a glaring error to get the UN to acknowledge what the Israelis have been saying all along: that Hamas' callous use of civilians as shields is itself a humanitarian crisis.

Despite the new information, it's worth taking a close look at the historical ties between UNRWA and Hamas. UNRWA has long been a major employer for Hamas members, and has lent its facilities to Hamas and other terror organizations for weapons-related purposes.

For example, in May, we learned that Awad al-Qiq, who was targeted by the Israeli military, was a U.N. employee and headmaster of a top prep school in Gaza. Al-Qiq, a science teacher, was also in the rocket business while at the same time educating Palestinian youth.

Since Hamas' takeover of Gaza in 2006 after Israel's unilateral withdrawal in August 2005, UNRWA hasn't raised explicit objections to the brutal Hamas violence that enabled the terrorist group to take the Gaza Strip by force.

UNRWA appears to be chiefly concerned with its own survival and continued funding. As Karen AbuZayd, the commissioner general of UNRWA, said after the Hamas takeover, "We are not scared. Donor countries have not in any way said they will stop their aid to UNRWA.

"On the contrary, we were approached by many of these countries, even Israel, asking us to continue our services to Palestinian refugees and perhaps even extend these services to do things we haven't done before."

To be perfectly blunt, the theft of humanitarian aid by Hamas (not to mention its ruthless use of its own people as targets as well as shields) only proves the point: Dead civilians are not Israel's goal but Hamas'.

According to Hamas' thinking, the more Palestinian victims there are, the more the international community will try to pressure Israel to avoid any further military operations.

Now that the shooting has stopped, the Obama administration has pledged to provide some $900 million to help rebuild Gaza. Governments and NGOs serious about assisting Palestinian Gazan society must insist on accountability whereby that reconstruction funding is allocated independently and transparently.

When it comes to doling out the money, UNRWA and Hamas - both of whom seem to be more focused on empty rhetoric rather than working towards a peaceful Palestinian civil society - should be bypassed.

6) Obama's Left Turn: Centrists fear that the president's budget reveals his liberal leanings.
By Stuart Taylor

Having praised President Obama's job performance in two recent columns, it is with regret that I now worry that he may be deepening what looks more and more like a depression and may engineer so much spending, debt, and government control of the economy as to leave most Americans permanently less prosperous and less free.

Other Obama-admiring centrists have expressed similar concerns. Like them, I would like to be proved wrong. After all, if this president fails, who will revive our economy? And when? And what kind of America will our children inherit?

The house is burning down. It's no time to be watering the grass.

But with the nation already plunging deep into probably necessary debt to rescue the crippled financial system and stimulate the economy, Obama's proposals for many hundreds of billions in additional spending on universal health care, universal postsecondary education, a massive overhaul of the energy economy, and other liberal programs seem grandiose and unaffordable.

With little in the way of offsetting savings likely to materialize, the Obama agenda would probably generate trillion-dollar deficits with no end in sight, or send middle-class taxes soaring to record levels, or both.

All this from a man who told the nation last week that he doesn't "believe in bigger government" and who promised tax cuts for 95 percent of Americans.

The president's suggestions that all the necessary tax increases can be squeezed out of the richest 2 percent are deceptive and likely to stir class resentment. And his apparent cave-ins to liberal interest groups may change the country for the worse.

Such concerns may help explain why the Dow Jones industrial average plunged 17 percent from the morning of Inauguration Day (8,280) to its close on March 4 (6,876). The markets have also been deeply shaken by Obama's alarming failure to come up with a clear plan for fixing the crippled financial system -- which has loomed since his election four months ago as by far his most urgent challenge -- or for working with foreign leaders to arrest the meltdown of the world economy.

The house is burning down. It's no time to be watering the grass.

This is not to deny that the liberal wish list in Obama's staggering $3.6 trillion budget would be wonderful if we had limitless resources. But in the real world, it could put vast areas of the economy under permanent government mismanagement, kill millions of jobs, drive investors and employers overseas, and bankrupt the nation.

Meanwhile, liberal Democrats in Congress are racing to gratify their interest groups in a slew of ways likely to do much more harm than good: pushing a union-backed "card-check" bill that would bypass secret-ballot elections on unionization and facilitate intimidation of reluctant workers; slipping into the stimulus package a formula to reimburse states that increase welfare dependency among single mothers and reduce their incentives to work; defunding a program that now pays for the parents of some 1,700 poor kids to choose private schools over crumbling D.C. public schools; fencing out would-be immigrants with much-needed skills.

Not to mention the $7.7 billion in an omnibus spending bill to pay for 9,000 earmarks of the kind that Obama campaigned against: $1.7 million for research on pig odors in Iowa; $1.7 million for a honeybee factory in Texas; $819,000 for research on catfish genetics in Alabama; $2 million to promote astronomy in Hawaii; $650,000 to manage beavers in North Carolina and Mississippi; and many more.

Meanwhile, the stimulus package is stuffed with spending such as "the $88.6 million for new construction for Milwaukee public schools, which, reports the Milwaukee Journal Sentinel, have shrinking enrollment, 15 vacant schools, and, quite logically, no plans for new construction," in the words of conservative columnist Charles Krauthammer.

Obama can take credit for keeping campaign promises (which he might have been wiser to defer) on health care, energy, and more, and for ending some of George W. Bush's budget gimmickry. But he has been deceptive in basing his deficit projections on phantom expenditure cuts and wildly optimistic revenue estimates, and in proclaiming "a new era of responsibility" to be paid for by raising taxes only on "the wealthiest 2 percent of Americans."

The numbers don't add up -- and still won't if and when, as seems almost certain, Obama ratchets up his so-far-fairly-modest new taxes on the top 2 percent. "A tax policy that confiscated 100 percent of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue," according to a February 27 editorial in The Wall Street Journal. "That's less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable 'dime' of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion."

Resurgent Democratic liberals and wounded Republican conservatives get most of the media attention.

As for the budget's $2 trillion in projected net "savings," Obama's budget director, Peter Orszag, admitted in testimony on Tuesday under questioning by Rep. Paul Ryan, R-Wis., that $1.6 trillion comes from phantom cuts of the money that would be needed to sustain the troop surge in Iraq for another decade -- money that nobody ever intended to spend.

Other supposed savings -- especially from Medicare -- seem unlikely to materialize absent benefit cuts, which Obama has not proposed. And the cost of any health care legislation -- to be drafted largely by a Congress that is allergic to the kind of cost-cutting necessary to make universal care sustainable -- is likely to be two or three times the $634 billion over 10 years that Obama has budgeted.

Meanwhile, "politics trumps economics" in Obama's housing program, says Washington Post columnist Robert Samuelson. It targets tax credits narrowly on first-time homebuyers with weak credit ratings while creating few incentives for the more affluent and credit-worthy people who have the collective buying power to revive the housing market. Obama also supports a "cram-down" proposal -- authorizing bankruptcy judges to unilaterally cut distressed homeowners' payments -- that would be hopelessly unadministrable at best and might drive up mortgage rates.

Small wonder that liberal commentators who complained about Obama's initial stabs at bipartisanship are ecstatic about his budget. And small wonder that some centrists who have had high hopes for Obama -- including New York Times columnist David Brooks, my colleague Clive Crook, David Gergen, and Christopher Buckley -- are sounding alarms.

In a March 3 column headed "A Moderate Manifesto," Brooks wrote: "Those of us who consider ourselves moderates -- moderate conservative, in my case -- are forced to confront the reality that Barack Obama is not who we thought he was. His words are responsible; his character is inspiring. But his actions betray a transformational liberalism that should put every centrist on notice.... The only thing more scary than Obama's experiment is the thought that it might fail and the political power will swing over to a Republican Party that is currently unfit to wield it.... [We] thus find ourselves facing a void. We moderates are going to have to assert ourselves. We're going to have to take a centrist tendency that has been politically feckless and intellectually vapid and turn it into an influential force."

Exactly right, except perhaps the "intellectually vapid" part. But turning centrist values into an influential political force will take some doing. Although almost 30 percent of Americans call themselves political independents, the political and intellectual classes are so ideologically polarized that resurgent Democratic liberals and wounded Republican conservatives get most of the media attention.

With the Republican Party in ruins and dominated by such hard-right conservatives as Rush Limbaugh, no center-right figure on the scene today has the stature to lead a loyal opposition against a popular president who puts a moderate face and an eloquent voice on an ambitiously liberal ideology.

Fortunately, a dozen or so centrist Democrats in the Senate are voicing concerns about the more profligate spending proposals. Together with the Senate's three centrist Republicans, they could hold back the liberal tide and appeal to the more moderate angels of Obama's nature.

I still hold out hope that Obama is not irrevocably "casting his lot with collectivists and statists," as asserted by Peter Wehner, a former Bush aide and a leading conservative intellectual now with the Ethics and Public Policy Center, in Commentary magazine's blog Contentions.

And I hope that the president ponders well Margaret Thatcher's wise warning against some collectivist conceits, in a 1980 speech quoted by Wehner: "The illusion that government can be a universal provider, and yet society still stay free and prosperous.... The illusion that every loss can be covered by a subsidy. The illusion that we can break the link between reward and effort, and still get the effort."

6a) Barack Obama bets the farm in $4 trillion poker game:The President believes he can change US politics for a generation. If he's wrong he could bankrupt the whole country
By Tim Reid

One of the most seductive elements of Barack Obama's ascent to the White House was his unshakeable conviction that he was being called upon, at a time of epochal peril, to bend the arc of history America's way.

Only a candidate possessed with such boldness and self-belief would have challenged Hillary Clinton for the Democratic nomination two years after leaving the Illinois state senate, promising in his first campaign speech to “transform a nation and usher in a new birth of freedom on this Earth”.

Only a man who frequently compares himself to America's greatest President, Abraham Lincoln, would declare that when he was elected, “the rise of the oceans will begin to slow”. Only someone who believes that America is on the crest of a dangerous historic wave - and that he “can help guide it” - would have undertaken a glitzy world tour midway through the campaign.

Such ostentatious gambles underscored his promise to transform US governance, and with his intellect and cool temperament made a combination many found thrilling.

In his first month in office he has pushed through an unprecedented $787 billion economic stimulus package, announced plans to save the car industry, stabilise the stricken banking sector and stem the flood of home repossessions.

Then came his near-$4-trillion budget last week. It is a manifesto to usher in a new age of government activism that involves levels of borrowing and spending never before seen in the US and is a document of such staggering ambition and risk that even some of Mr Obama's Democratic supporters are suddenly beginning to feel a little queasy.

A keen poker player, Mr Obama is gambling not only his own presidency, but the future well being of the country. If he pulls it off, they might find room for him on Mount Rushmore. If he fails, he could bankrupt the world's largest economy.

There have been only a few watershed moments in US history, and this is one. In the face of such a dark economic crisis, Mr Obama believes that timidity will beget catastrophe. He believes that the peril of the moment compels him to tackle both the short and long-term financial problems all at once - and quickly.

What he unveiled last week was one of the most audacious agendas announced by a new president. He declared his intention not just to pump trillions of dollars into a short-term rescue for the economy, but also to press ahead with enormously costly plans to trigger a green industrial revolution, transform education and provide health coverage to all Americans. These are issues that have bedevilled Congress and other presidents for decades. Achieving just one would be an extraordinary achievement. Mr Obama wants all three - and fast.

What was most striking about the budget - including that it will explode the federal deficit to $1.75trillion this year, its highest since the Second World War - was that it was a ruthless declaration of how Mr Obama intends fundamentally to change the American social contract, from Right to Left.

Its goal is not just to rescue the economy. It is to crush conservatism, end the age of anti-tax, anti-regulation policies that have been the guiding philosophies of US governance for a generation, and usher in a fresh “epoch”, as his aides call it, of New Deal-Great Society wealth redistribution and central intervention that were repudiated by Ronald Reagan 30 years ago. Much of his agenda will be paid for by a ten-year, $1 trillion tax increase on families earning more than $250,000 a year, beginning in 2011, a move that critics say risks stunting the economic recovery.

Mr Obama and his aides are particularly attracted to the notion, put forward by the Yale political scientist Stephen Skowronek, that most of the truly transformative US presidents - and there are only a handful - followed failed ones. They include Thomas Jefferson after John Adams, Lincoln after James Buchanan, FranklinD. Roosevelt after Herbert Hoover and Ronald Reagan after Jimmy Carter.

Their belief is that these presidents were able to reshape, for at least a generation, the governing philosophy and electoral alignment because the public rejected the era that preceded them. Yet presidents who believe that they are governing at such transformational moments - as Mr Obama does - take bigger risks to achieve momentous change. The stakes he has placed on the table with his budget are extraordinary.

What has begun to trouble some even within his own party is that Mr Obama's pledge to spend the US out of recession, while slashing the budget deficit to $533 billion within four years, already looks recklessly optimistic. Few dispute, even among Republicans, the need for healthcare reform or to wean America off foreign oil. It is the scale of debt that Mr Obama is willing to incur to achieve these goals that is causing such heartburn.

And it is not just Americans who desperately need him to prevail. As Gordon Brown said in Washington this week, while pledging faith in the President's plans, everyone is watching the US economy. The entire developed world is banking on Mr Obama to succeed.

But much of his promise to rein in the deficit rested on a projection that the recession will cease and the US economy grow next year, but nobody can clearly see an end to this slump. The central question - how to stop the banking sector from collapse - is still a work in progress. They prefer huge injections of cash to stop the banks dying - but stop short of nationalisation - while they try to work out how to rid them of at least $2 trillion of toxic assets. There is still a significant chance that the scale of debt involved could devour Mr Obama's presidency.

The markets are so unnerved about Mr Obama's ability to rescue the financial sector, and by the numerous bailouts that have had little effect, that wealth is being destroyed on Wall Street at a rate not seen since the 1930s. The President said on Tuesday that he does not worry about “the day-to-day gyrations of the stock market”, but investors have made it clear that his economic prescriptions have so far failed to reassure them.

Mr Obama also says that much of his programme will be paid for by reducing the cost of the wars in Iraq and Afghanistan. Yet he has just ordered 17,000 more troops to Afghanistan for a war that his Defence Secretary says will be a long and difficult slog, and he is still groping for a strategy in Pakistan.

“We are always better off on the high wire,” David Plouffe, Mr Obama's campaign manager, said last year. Now Mr Obama is President, watching from below has become both enthralling and terrifying.

6b) Deception at Core of Obama Plans
By Charles Krauthammer

Forget the pork. Forget the waste. Forget the 8,570 earmarks in a bill supported by a president who poses as the scourge of earmarks. Forget the "$2 trillion dollars in savings" that "we have already identified," $1.6 trillion of which President Obama's budget director later admits is the "savings" of not continuing the surge in Iraq until 2019 -- 11 years after George Bush ended it, and eight years after even Bush would have had us out of Iraq completely.

Forget all of this. This is run-of-the-mill budget trickery. True, Obama's tricks come festooned with strings of zeros tacked onto the end. But that's a matter of scale, not principle.

All presidents do that. But few undertake the kind of brazen deception at the heart of Obama's radically transformative economic plan, a rhetorical sleight of hand so smoothly offered that few noticed.

The logic of Obama's address to Congress went like this:

"Our economy did not fall into decline overnight," he averred. Indeed, it all began before the housing crisis. What did we do wrong? We are paying for past sins in three principal areas: energy, health care, and education -- importing too much oil and not finding new sources of energy (as in the Arctic National Wildlife Refuge and the Outer Continental Shelf?), not reforming health care, and tolerating too many bad schools.

The "day of reckoning" has now arrived. And because "it is only by understanding how we arrived at this moment that we'll be able to lift ourselves out of this predicament," Obama has come to redeem us with his far-seeing program of universal, heavily nationalized health care; a cap-and-trade tax on energy; and a major federalization of education with universal access to college as the goal.

Amazing. As an explanation of our current economic difficulties, this is total fantasy. As a cure for rapidly growing joblessness, a massive destruction of wealth, a deepening worldwide recession, this is perhaps the greatest non sequitur ever foisted upon the American people.

At the very center of our economic near-depression is a credit bubble, a housing collapse and a systemic failure of the entire banking system. One can come up with a host of causes: Fannie Mae and Freddie Mac pushed by Washington (and greed) into improvident loans, corrupted bond-ratings agencies, insufficient regulation of new and exotic debt instruments, the easy money policy of Alan Greenspan's Fed, irresponsible bankers pushing (and then unloading in packaged loan instruments) highly dubious mortgages, greedy house-flippers, deceitful homebuyers.

The list is long. But the list of causes of the collapse of the financial system does not include the absence of universal health care, let alone of computerized medical records. Nor the absence of an industry-killing cap-and-trade carbon levy. Nor the lack of college graduates. Indeed, one could perversely make the case that, if anything, the proliferation of overeducated, Gucci-wearing, smart-ass MBAs inventing ever more sophisticated and opaque mathematical models and debt instruments helped get us into this credit catastrophe in the first place.

And yet with our financial house on fire, Obama makes clear both in his speech and his budget that the essence of his presidency will be the transformation of health care, education and energy. Four months after winning the election, six weeks after his swearing in, Obama has yet to unveil a plan to deal with the banking crisis.

What's going on? "You never want a serious crisis to go to waste," said Chief of Staff Rahm Emanuel. "This crisis provides the opportunity for us to do things that you could not do before."

Things. Now we know what they are. The markets' recent precipitous decline is a reaction not just to the absence of any plausible bank rescue plan, but also to the suspicion that Obama sees the continuing financial crisis as usefully creating the psychological conditions -- the sense of crisis bordering on fear-itself panic -- for enacting his "Big Bang" agenda to federalize and/or socialize health care, education and energy, the commanding heights of post-industrial society.

Clever politics, but intellectually dishonest to the core. Health, education and energy -- worthy and weighty as they may be -- are not the cause of our financial collapse. And they are not the cure. The fraudulent claim that they are both cause and cure is the rhetorical device by which an ambitious president intends to enact the most radical agenda of social transformation seen in our lifetime.