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All the news that fits we print (in reverse chronological order): 
Financial melt down;  between Nov. 4 and Inauguration, "during the election" articles here.  What went before the end of Primary Season...issues '08.



P R E S S    R E P O R T S    S E L E C T E D    B Y    U S  . . .


Obama Calls for Budget Reform as Deficits May Last for Years
Wall Street Journal
By HENRY J. PULIZZI
JANUARY 6, 2009, 2:23 P.M. ET

WASHINGTON -- President-elect Barack Obama warned Tuesday that the federal deficit is likely to rise to close to $1 trillion this year, saying the exploding budget gap underscores the need for long-term reform of the nation's finances.

Following a meeting with his economic and budget team, Mr. Obama told reporters that the plan being crafted to jump start the economy will ban earmarks, the pork-barrel projects lawmakers insert into legislation without review. He repeated that the stimulus package will be evaluated by an oversight board, and said taxpayers will have access to information on how their money is spent.

"We're already looking at a $1 trillion budget deficit or close to a $1 trillion budget deficit, and potentially we've got $1 trillion deficits for years to come," Mr. Obama said.

"We're going to have to stop talking about budget reform and we're going to have to fully embrace it. It's an absolute necessity."

The president-elect's remarks Tuesday were the latest in his drive to sell lawmakers and the public on a stimulus plan that could approach $775 billion over two years, legislation that will further pressure the already record-high deficit.

Mr. Obama met at his transition office with Rahm Emanuel, Chief of Staff-designate; Timothy Geithner, Treasury Secretary-designate; Peter Orszag, Director-designate, Office of Management and Budget; Rob Nabors, Deputy Director-designate, Office of Management and Budget; Christina Romer, Director-designate, Council of Economic Advisors; and Lawrence Summers, Director-designate, National Economic Council.

The session was aimed at reviewing the medium-term budget outlook and discussing a fiscal 2010 budget that puts the government on a path to reduce the record deficit.

The government ran a record budget deficit of $454.8 billion for fiscal 2008, which ended in September.

"We're going to have to bring significant reform not just to our recovery and reinvestment plan, but to the overall budget process, to address both the deficit of dollars and the deficit of trust," Mr. Obama said. "We'll have to make tough choices, and we're going to have to break old habits."

It's time for Americans to make a new start
Don Russell (columnist for The Stamford ADVOCATE)
Posted: 01/04/2009 02:44:47 AM EST

I am constantly amazed by my change of attitude once the new year gets into gear. This year, the change has come with more speed than is usual.

Although the purveyors of gloom and doom told us consistently that the holiday season was going to be disastrous as far as retail sales were concerned, I found that in stores that I frequented sales were brisk. Some of my friends with business backgrounds tell me that the reality is that everybody loves a bargain, and that for sure in 2008 prices on most gift items were lowered beyond imagination. Cuts in price as high as 60 and 70 percent was the norm in many stores. That, they claim, is the reason at least some retailers were busy in a decidedly down year.

So it is time for most of us to follow the advice contained in lyrics of a familiar old song that reads this way: "Pick yourself up, brush yourself off, and start all over again." But I am afraid in many places, that song is not being taken to heart. The American Dream seems to have flown out the window. Businesses are being shuttered, likely never to open again.

That prompts the question: Has the good old American spirit, the ability to start over, to reach for success once again, been diminished to accepting failure permanently?  Perhaps for some that is true, and I lay the reason for that feeling into the laps of the naysayers, the people who consistently compare the financial woes of today with those of 1929, when the Great Depression began. In some ways the two eras are similar. There are people who are really down on their luck living in shelters and eating at soup kitchens. Families have lost their homes and have been forced to trade the comforts of home for dormitory-style living rather than live on the street.

There was little in place in 1929 to act as a fail-safe. President Herbert Hoover was telling the country not to worry, and that everything financial was OK. When the banks failed, people began to realize the severity of the faltering economy. Factories closed their doors. Pictures of men standing in seemingly endless lines to apply for jobs or to obtain food for their families appeared daily on the front pages of newspapers across the land.

As far as the banks and financial institutions were concerned, the Great Depression caused the government to institute regulations and controls to see to it that bank failures to the point that depositors would lose their savings and other investments would not happen in the future.  However, all of the fail-safes did not prevent the problems of 2008.

On the other hand 2008, was a year that made history. An African American, Barack Obama, was elected president - a first for this country that has given many people hope that we are on the right track and have reached a point where better understanding will finally prevail.  And perhaps we will see the country's infrastructure, which has been neglected for so long, rebuilt and rehabilitated. That alone would put many back to work.

School buildings especially need attention.

There is hope for the end of the Iraq war and the conflict in Afghanistan, and a more sensible approach to negotiating with world leaders to convince them once again that we are a country willing to sit down and use diplomacy, not threats.  In my opinion, the administration entering office on Jan. 20 offers hope, with plans and programs that help us look forward to better days and a short-lived economic downturn.

As of this moment though, economic experts are painting a dim picture of the future. According to some pundits, it is going to take some time to untangle the web of financial problems.  That won't happen overnight. But it has always been the responsibility to we elders to see to it that there is a positive future.

W has been taking it for more than 8 years from the media, so what's a shoe or two?
First Lady Says Shoe-Throwing an Assault
NYTIMES
By THE ASSOCIATED PRESS
Filed at 9:12 a.m. ET
December 28, 2008

WASHINGTON (AP) -- First lady Laura Bush says President Bush laughed it off, but that it was an ''assault'' when an Iraqi reporter threw his shoes at the president during a news conference in Baghdad.

In an interview aired Sunday on Fox News Sunday, Mrs. Bush said she was not amused.

The president deftly dodged the shoes and wasn't hit. He continued the news conference with Iraqi Prime Minister Nouri al-Maliki after security officials dragged the journalist from the room.

Mrs. Bush says the president is a ''natural athlete'' and that he ''laughed it off,'' but that she thinks people should view the incident as an ''assault.''

On the other hand, she says the incident shows that Iraqis today are enjoying more freedom to express themselves.


You asked, "how will the Republicans ever regain control of Congress?"
The Gas Tax
NYTIMES Editorial
December 26, 2008

President-elect Barack Obama and the Democrats in Congress seem to have a clear vision of the auto industry they think the country needs. It must be financially self-sufficient. It also must be capable of producing highly fuel-efficient, next-generation vehicles that can help the nation cope with climate change and finite supplies of oil.

Yet for all the conditions attached to it, the multibillion-dollar aid package for Detroit’s carmakers approved by the White House (with Mr. Obama’s support) fails to address one crucial question: Who will buy all the fuel-efficient cars that Detroit carmakers are supposed to make?

The danger is that too few will, especially if gasoline prices remain low. Therefore, it might be time for the president-elect and Congress to think seriously about imposing a gas tax or similar levy to keep gas prices up after the economy recovers from recession.

Americans did not buy enormous gas guzzlers just because Detroit marketed them relentlessly. They bought them because they wanted big cars — and because gas was cheap. If gas stays cheap, Americans would be less inclined to squeeze their families into a lithe fuel-efficient alternative.

Furthermore, even if the government managed to convert General Motors, Chrysler and Ford to the cause of energy efficiency, cheap gas could open the door for a competitor — Toyota, perhaps? — to take over the lucrative market for gas-chuggers, leaving Detroit’s automakers eating dust once again.

Americans have flirted with fuel-efficient cars before only to jilt them when gas prices fell. In the late 1970s, for instance, they spurned light trucks as gas prices doubled. But as gas prices declined between 1981 and 2005, the market share of sport-utility vehicles, pickups, vans and the like jumped from 16 percent to 61 percent of vehicle sales in the United States.

The recent infatuation with the Toyota Prius and other fuel-efficient cars could well come to a similar end. It took a gallon of gas at $4.10 to push the share of light trucks down to 45 percent in July. But as gasoline plummeted back to $1.60 a gallon, their share inched back up to 49 percent of auto sales in November.

There are several ways to tax gas. One would be to devise a variable consumption tax in such a way that a gallon of unleaded gasoline at the pump would never go below a floor of $4 or $5 (in 2008 dollars), fluctuating to accommodate changing oil prices and other costs. Robert Lawrence, an economist at Harvard, proposes a variable tariff on imported oil to achieve the same effect and also to stimulate the development of domestic energy sources.

In both cases, the fuel taxes could be offset with tax credits to protect vulnerable segments of the population.

While oil prices are all but sure to rise again as the world emerges from recession, further tempering consumption with a gas tax would both slow the rise in the price of crude and steer more revenue from energy consumption to the United States budget, rather than that of oil-exporting countries.

A bitter recession is not the most opportune time to ratchet up the price of energy. But if the Obama administration is to meet its twin objectives of reducing the nation’s dependence on foreign oil and cutting its emissions of greenhouse gases, it needs to start thinking now about mechanisms to curb the nation’s demand for energy when the economy emerges from recession in the future.

This also would serve as a signal to American automakers and American drivers that the era of cheap gasoline is not going to last.

PRUDEN: Only 26 days left for Bush-bashing
Wesley Pruden
Friday, December 26, 2008
ANALYSIS/OPINION:

With only 26 days left to harangue, mock and bash President Bush, some of our colleagues in the media aren't wasting a day. Bashing ex-presidents, except for the ex-presidents with shrill prominent wives, isn't nearly as much fun as bashing while he's still the real thing.

There's method in the gladness at the New York Times, which relieved itself at the beginning of Christmas week with an umpity-thousand word accusation - beginning on Page One and continuing across several acres of newsprint inside - that George W. Bush invented the meltdown of the subprime housing market, which in turn has led to the collapse of Detroit and all kinds of bad things for Atchison, Topeka and maybe even Santa Fe.

The point of the epic was clearly to portray George W. as the new Herbert Hoover, so that when recession becomes Depression (with the capital-D) not a single rabbit will be safe anywhere and everyone will remember who did it and - voila! - the Republicans will be shut out of the White House and control of the Congress for a generation, and maybe more.

It's not quite fair picking on the New York Times, which has had a rough week, having to apologize for printing a fake letter from the mayor of Paris belittling the Senate qualifications of Caroline Kennedy, and then, worse, for printing a recipe for a fennel and citrus salad that omitted instructions for using "the finely grated zest of one lemon." Life is tough on the Upper East Side, for man and fennel alike. The rush to get in a last few licks at a sitting Republican president is a game a lot of bashers play. Some of the bloggers were bitterly disappointed - complaining is the main point of blogging - that George W. didn't call off the election, as pointy-headed bashers freely predicted through the summer months that he would, or call out the National Guard to prevent the inauguration. There's still time for that, but not only has George W. so far failed to declare himself president-for-life, he's going out of his way to make things easy for the president-elect. He even bailed out Detroit, giving Barack Obama the opportunity to decry later his delaying the inevitable, when Detroit finally craters, or he can bail out the bailout later, as he hears opportunity knocking.

But bashing George W. is the only news that's fit to print in certain places: "There are plenty of culprits [to blame for bad economic news]," reported the New York Times, "like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk. But the story of how we got here," (and here comes the curve ball), "is partly one of Mr. Bush's own making ... "

But we never get to the other "partly" bits, the parts about how "Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk," and how Sen. Charles Schumer, a Democrat of New York, and Rep. Barney Frank, a Democrat of Massachusetts, did more than any other 10 men to insulate Fannie Mae from nosy regulators and effective federal supervision. Fannie and her senior executives - one of whom was (and maybe still is) Barney's special friend - grew rich on taxpayer largesse while blowing on the kindling of the fire that melted the subprime housing market.

The worthies at the New York Times are worried, like George W. himself, about his legacy. They all should know better; legacies are not plucked from the pantry shelf, but develop over the years without help or hindrance from either critic or legacee. George W.'s critics are spooked by what happened to Harry S. Truman, who straggled back to Missouri with the contempt of nearly everyone ringing in his ears ("to err is Truman") and within two decades became one of our most popular ex-presidents. Now is the time to blame the president for everything bad, and give him credit for nothing good. It's mere coincidence that America has been safe from Islamist terror every day since 9/11.

Gratitude always comes easier for the least among us. George W.'s compassionate conservatism has saved millions of lives in Africa, those who but for the billions of dollars this president spent there would have died of AIDS or malaria. His approval rating, in the low 20s at home (and no doubt near zero on the Upper East Side), reaches 80 percent in Africa, where women with a clearer understanding of reality name their sons after him. The bashers have to get their licks in now, while the bashing is good.

Wesley Pruden is editor emeritus of The Washington Times.

Time to Reboot America
NYTIMES
By THOMAS L. FRIEDMAN
December 24, 2008

I had a bad day last Friday, but it was an all-too-typical day for America.

It actually started well, on Kau Sai Chau, an island off Hong Kong, where I stood on a rocky hilltop overlooking the South China Sea and talked to my wife back in Maryland, static-free, using a friend’s Chinese cellphone. A few hours later, I took off from Hong Kong’s ultramodern airport after riding out there from downtown on a sleek high-speed train — with wireless connectivity that was so good I was able to surf the Web the whole way on my laptop.

Landing at Kennedy Airport from Hong Kong was, as I’ve argued before, like going from the Jetsons to the Flintstones. The ugly, low-ceilinged arrival hall was cramped, and using a luggage cart cost $3. (Couldn’t we at least supply foreign visitors with a free luggage cart, like other major airports in the world?) As I looked around at this dingy room, it reminded of somewhere I had been before. Then I remembered: It was the luggage hall in the old Hong Kong Kai Tak Airport. It closed in 1998.

The next day I went to Penn Station, where the escalators down to the tracks are so narrow that they seem to have been designed before suitcases were invented. The disgusting track-side platforms apparently have not been cleaned since World War II. I took the Acela, America’s sorry excuse for a bullet train, from New York to Washington. Along the way, I tried to use my cellphone to conduct an interview and my conversation was interrupted by three dropped calls within one 15-minute span.

All I could think to myself was: If we’re so smart, why are other people living so much better than us? What has become of our infrastructure, which is so crucial to productivity? Back home, I was greeted by the news that General Motors was being bailed out — that’s the G.M. that Fortune magazine just noted “lost more than $72 billion in the past four years, and yet you can count on one hand the number of executives who have been reassigned or lost their job.”

My fellow Americans, we can’t continue in this mode of “Dumb as we wanna be.” We’ve indulged ourselves for too long with tax cuts that we can’t afford, bailouts of auto companies that have become giant wealth-destruction machines, energy prices that do not encourage investment in 21st-century renewable power systems or efficient cars, public schools with no national standards to prevent illiterates from graduating and immigration policies that have our colleges educating the world’s best scientists and engineers and then, when these foreigners graduate, instead of stapling green cards to their diplomas, we order them to go home and start companies to compete against ours.

To top it off, we’ve fallen into a trend of diverting and rewarding the best of our collective I.Q. to people doing financial engineering rather than real engineering. These rocket scientists and engineers were designing complex financial instruments to make money out of money — rather than designing cars, phones, computers, teaching tools, Internet programs and medical equipment that could improve the lives and productivity of millions.

For all these reasons, our present crisis is not just a financial meltdown crying out for a cash injection. We are in much deeper trouble. In fact, we as a country have become General Motors — as a result of our national drift. Look in the mirror: G.M. is us.

That’s why we don’t just need a bailout. We need a reboot. We need a build out. We need a buildup. We need a national makeover. That is why the next few months are among the most important in U.S. history. Because of the financial crisis, Barack Obama has the bipartisan support to spend $1 trillion in stimulus. But we must make certain that every bailout dollar, which we’re borrowing from our kids’ future, is spent wisely.

It has to go into training teachers, educating scientists and engineers, paying for research and building the most productivity-enhancing infrastructure — without building white elephants. Generally, I’d like to see fewer government dollars shoveled out and more creative tax incentives to stimulate the private sector to catalyze new industries and new markets. If we allow this money to be spent on pork, it will be the end of us.

America still has the right stuff to thrive. We still have the most creative, diverse, innovative culture and open society — in a world where the ability to imagine and generate new ideas with speed and to implement them through global collaboration is the most important competitive advantage. China may have great airports, but last week it went back to censoring The New York Times and other Western news sites. Censorship restricts your people’s imaginations. That’s really, really dumb. And that’s why for all our missteps, the 21st century is still up for grabs.

John Kennedy led us on a journey to discover the moon. Obama needs to lead us on a journey to rediscover, rebuild and reinvent our own backyard.

Merry Christmas!

Guess Who Doesn't Like the Press
And the feeling may be mutual.
by Stephen F. Hayes
12/29/2008, Volume 014, Issue 15

On April 21, 2008, the day before Pennsylvania's Democratic primary, Barack Obama sat at the counter of the Glider Diner in Scranton. Senator Bob Casey Jr., who had endorsed Obama and was traveling with him throughout the state, occupied the next stool. It had all the makings of a great photo-op--home state senator, local eatery, lots of cameras. There was just one problem: those pesky reporters.

As Obama cut into his butter-soaked waffle--fork in his left hand, knife in his right--one newshound wanted the candidate's reaction to the news of the day. Former President Jimmy Carter had traveled to the Middle East to meet with leaders from Hamas. In an exchange during one of the primary debates, Obama had promised that his administration would seek to engage America's enemies--a position that Hillary Clinton had called "naïve" and "irresponsible."

"Senator, did you hear about Jimmy Carter's trip?"

"Why is it that I can't just eat my waffle?" Obama snapped with his mouth full. One reporter at the diner wrote that the candidate glared "sternly" at the questioner--the wrong kind of audacity, apparently.

"Just asking," said the reporter.

Obama, perhaps realizing how his reaction might look, offered a little smile. But he still refused to answer.

"Just let me eat my waffle."

Obama finished his breakfast, lost the Pennsylvania primary, won the Democratic nomination, and after riding a wave of media adulation unseen in recent times, is now less than a month from becoming our 44th president. And he still doesn't like the press.

At a press conference in Chicago on Wednesday to introduce Obama's longtime friend Arne Duncan as the nominee to be secretary of education, John McCormick, a reporter for the Chicago Tribune, asked Obama a two-part question about the fallout from the arrest of Illinois governor Rod Blagojevich. "First of all, .  .  . do you favor or oppose a special election to fill your vacancy?" McCormick asked. "And secondly, you told us at your first press conference after the election that you were going to take a very hands-off approach to filling that spot. Over the weekend, the Tribune reported that Rahm Emanuel, your incoming chief of staff, had presented a list of potential names .  .  ."

Obama had heard enough. "John, let me just cut you off, because I don't want you to waste your question. As I indicated yesterday, we've done a full review of this. The--the facts are going to be released next week. It would be inappropriate for me to comment, because the--the--for example, the--the story that you just talked about in your own paper, I haven't confirmed that it was accurate, and I don't want to get into the details at this point. So do you have another question?"

McCormick tried once again to ask Obama about his "hands-off" approach to filling the seat, and Obama once again refused to discuss it. So McCormick tried to get an answer on the special election. It didn't work. "You know," said Obama, "I've said that I don't think the governor can serve effectively in his office. I'm going to let the state legislature make a determination in terms of how they want to proceed."

Having tried gamely to get the president-elect to answer one of his questions, McCormick gave up. "Do you or Duncan have a better jump shot?" he wondered.

"Duncan, much better. That one's an easy one."

It was easily the most direct response Obama gave in any of his five press conferences last week, and it was probably the most direct response he has given since winning the presidential election on November 4.

Barack Obama has promised to run the most transparent White House in history. As he said throughout the campaign, this election was about us, not him. So it makes some sense that he would let us see what we will be doing. The president-elect has held a record number of press conferences, and quite naturally he has earned lavish public praise for the frequency of his appearances.

But take the time to look at what he has actually said in these engagements and you will be less impressed.

At his first press conference, three days after the election, he backed some kind of stimulus package and artfully dodged several tough questions. CNN's Candy Crowley, for instance, noted that Obama had begun receiving intelligence briefings and asked whether he thought the intelligence agencies were doing a good job sharing information. "I have received intelligence briefings. And I will make just a general statement. Our intelligence process can always improve. I think it has gotten better. And, you know, beyond that, I don't think I should comment on the nature of the intelligence briefings." Crowley also asked whether he'd learned anything in his briefings that gave him second thoughts about any of the policies he advocated during the campaign. "I'm going to skip that." (Obama did talk at some length about buying a dog for his daughters.)

Obama's second press conference focused on the economy. The president-elect had come out in favor of some kind of stimulus package--something he hoped would pass "either before or after inauguration." Reporters, not unreasonably, wanted a little better idea of what he actually wanted. So the first question was: "What are the details on your proposed stimulus package: how much it's going to cost, where the money's going to come from, and when do you want to see it enacted?"

Obama said he wanted it quickly but was short on specifics. "I want to see it enacted right away. It is going to be of a size and scope that is necessary to get this economy back on track. I don't want to get into numbers right now."

Another reporter wanted to know whether he intended to repeal the Bush tax cuts or simply let them expire at the end of 2010. Obama offered some of the platitudes leftover from his campaign and then deferred his answer. "Whether that's done through repeal or whether that's done because the Bush tax cuts are not renewed is something that my economic team will be providing me a recommendation on."

A third reporter noted that Senator Schumer had suggested a $700 billion stimulus package and pointed out that a noted investor thought $1 trillion would be better. She asked Obama for a range. "I'm not going to--I'm not going to discuss numbers right now, Kim, because I think it's important for my economic team to come back with a recommendation."

And on it went. At press conference after press conference, Obama introduced his new appointees and took a few questions. But only rarely did he give a direct and substantive answer.

To a certain extent, Obama's reluctance to answer is understandable. After all, as he put it in the opening statement of his initial press conference as president-elect: "The United States has only one government and one president at a time." He is right, of course, and it's smart--or at least defensible--for him to pass on questions that might make the current president's job more difficult.

But Obama seems to get annoyed at perfectly reasonable questions that have nothing at all to do with his one-president-at-a-time position. When the president-elect introduced Hillary Clinton as his choice to become secretary of state, Peter Baker from the New York Times asked him an obvious question. Noting that Obama had mocked Clinton's foreign policy experience during primary season, Baker wondered why he had settled on her to lead his administration's foreign policy team.


BAKER: Going back to the campaign, you were asked and talked about the qualifications of the--your now--your nominee for secretary of state, and you belittled her travels around the world, equating it to having teas with foreign leaders; and your new White House counsel said that her résumé was grossly exaggerated when it came to foreign policy. I'm wondering whether you could talk about the evolution of your views of her credentials since the spring.

OBAMA: Look, I'm in--I think this is fun for the press, to try to stir up whatever quotes were generated during the course of the campaign.

BAKER: Your quotes, sir.

OBAMA: No, I understand. And I'm--and you're having fun. (Laughs.)

BAKER: I'm asking a question.

OBAMA: And there's nothing wrong with that. I'm not--I'm not faulting it.


The president-elect suggested that those things he said during the campaign might not be all that reliable. "I think if you look at the statements that Hillary Clinton and I have made outside of the--the heat of a campaign, we share a view that America has to be safe and secure and in order to do that we have to combine military power with strengthened diplomacy."

He finished with a testy statement of the obvious. "I think she is going to be an outstanding secretary of state. And if I didn't believe that, I wouldn't have offered her the job. And if she didn't believe that I was equipped to lead this nation at such a difficult time, she would not have accepted. Okay?"

In a New York Times Magazine profile of Robert Gibbs, the incoming White House press secretary, Mark Leibovich reveals that the Obama campaign emulated the "Bush model" of tight information control. Campaign manager David Plouffe acknowledged that they "talked a lot about the Bush model" inside the campaign and, like the Bush White House, sought to limit the spread of information internally so as to avoid the leaking that badly damaged the campaigns of Obama's rivals.

There are other similarities. During the 2004 election, Dick Cheney famously kicked the New York Times off his campaign plane. Obama apparently did the same to three newspapers this fall--the Washington Times, the New York Post, and the Dallas Morning News--all of which had endorsed John McCain. At the time, the Obama campaign cited space concerns. But when Leibovich asked Gibbs whether reporters were kicked off the plane for considerations other than space, Obama's spokesman first said "no" but later amended his response. "On occasion, yes," Gibbs said, adding that such instances were infrequent. "I mean, were there occasions? Sure."

How does that square with Obama's promise to move beyond politics and to run the most transparent and open White House in history?

Just let him eat his waffle.

Stephen F. Hayes is a senior writer at THE WEEKLY STANDARD. 
Report Arrives on Obama-Blagojevich Staff Contacts
Wall Street Journal
By JONATHAN WEISMAN
December 22, 2008

Barack Obama has said that when all is revealed, it will be clear that neither he nor his staff had any contacts with Illinois Gov. Rod Blagojevich that could be considered improper.

The president-elect's office says it will release on Monday the promised report giving a full accounting of those contacts, and Obama aides say the official under the most scrutiny -- Chief of Staff Rahm Emanuel -- will be exonerated after weeks of innuendo that they have long said was unfair.

Journalists, readers and viewers may be busy wrapping presents, lighting their menorahs or just eating when the report is released -- while Mr. Obama is in Hawaii and out of public view.

But there will be no revelations worth burying during the holidays anyway, transition sources say.

Nobody has accused Mr. Obama or his staff of legal wrongdoing. But the transition team's sometimes awkward handling of the issue has raised anticipation of just what the report might say -- and what the fallout might be.

The day of Mr. Blagojevich's arrest, the president-elect said he couldn't comment on the governor's alleged efforts to sell Mr. Obama's vacated Senate seat. The next day, he did comment, calling for Mr. Blagojevich's resignation and offering assurances that neither he nor his aides were involved in any deal making.

Then he promised to account for any and all contacts between his staff and the governor's, setting a release within days. Finally, he said the account was complete, but he wouldn't release it until Christmas week.

The slow dribble "hurt him slightly," because it made him look like an ordinary politician in scandal mode, not the antipolitician people believed they voted for, said Ron Bonjean, a Republican consultant who dealt with scandals affecting then-Senate Majority Leader Trent Lott and then-House Speaker Dennis Hastert.

Joe Lockhart, a former White House press secretary who dealt with Clinton-era scandals, said Mr. Obama was right to play it safe with the release of the contacts, to make sure the accounting is complete.

"At this point, they have the benefit of the doubt when they say, 'We don't think we know anything, but we'll look,' " Mr. Lockhart said. But if reporters find contacts the Obama team either missed or left out, the terms will change. "When you're caught you're seen as fast and loose," he said.

Regardless of how clean the Obama camp is, the release of the report isn't likely to be clean. Thursday, former President Bill Clinton released a list of 205,000 donors -- many of them foreign governments -- to his foundation, which he had promised to do as a condition for his wife Sen. Hillary Clinton's nomination as secretary of state. That set off a scramble to tie donors to policy predicaments facing the Obama administration.

The coming Blagojevich release will have the same effect.

"The contacts are a potential Pandora's box," Mr. Bonjean said. "They'll take reporters in all different directions, like having dozens of little rabbits running around the White House."

Popularity Isn’t Everything
NYTIMES
By WILLIAM KRISTOL
December 22, 2008

You gotta love Dick Cheney.

O.K., O.K. ... you don’t have to. But consider this exchange with Chris Wallace on “Fox News Sunday”:

WALLACE: Did you really tell Senator Leahy, bleep yourself?

CHENEY: I did.

WALLACE: Any qualms, or second thoughts, or embarrassment?

CHENEY: No, I thought he merited it at the time. (Laughter.) And we’ve since, I think, patched over that wound and we’re civil to one another now.

No spin. No doubletalk. A cogent defense of his action — and one that shows a well-considered sense of justice. (“I thought he merited it.”) Indeed, if justice is seeking to give each his due, one might say that Dick Cheney aspires to being a just man. And a thoughtful one, because he knows that justice is sometimes too harsh, and should be tempered by civility.

Now Cheney isn’t, I’m afraid, always wise. For example, he’s still a defender of Defense Secretary Donald Rumsfeld. He even told Wallace he disagreed with the decision to fire Rumsfeld: “I was a Rumsfeld man ... I thought he did a good job for us.”

I couldn’t disagree more. But Cheney’s loyalty to Rumsfeld didn’t stop Cheney from being a key behind-the-scenes player in encouraging George Bush to order the surge of troops to Iraq at the end of 2006 — after Rumsfeld had resisted adding troops for years. I’m told by several key advocates of the surge that Cheney was crucial in helping the president come to what was a difficult and unpopular decision — one opposed at the time by the huge majority of foreign policy experts, pundits and pontificators. Most of them — and the man most of them are happy won the election, Barack Obama — now acknowledge the surge’s success. But don’t expect them to give much credit to Cheney.

But enough in defense of the nation’s most unpopular Republican. Let me turn to the nation’s most unpopular Democrat, Gov. Rod Blagojevich of Illinois.

After all, how many of today’s politicians can claim to be a living embodiment of a great American tradition — in this case, the corrupt machine politicians? Their credo was laid down about a century ago by Tammany Hall’s George Washington Plunkitt: “I seen my opportunities and I took ’em.”

Blagojevich is even more terse: “I want to make money.” And when an opportunity came along — a vacant Senate seat — he didn’t sit around studying polls and consulting focus groups. He got to work. He knows — as Americans have always known — that the good things in life aren’t free. As he put it eloquently in discussing the vacant Senate seat, “I’ve got this thing, and it’s [expletive] golden, and, uh, uh, I’m just not giving it up for [expletive] nothing.”

It’s also nice, in this day and age, to see an example of family togetherness and marital harmony. Rod and his wife, Patti, seem to be in accord on so many things. For example, in a disinclination to turn the other cheek. During a Nov. 3 telephone conversation between Blagojevich and an aide about a hostile Chicago Tribune editorial, Patti was heard in the background urging a receptive Rod to punish the corporation that owns The Tribune and the Chicago Cubs: “Hold up that [expletive] Cubs [expletive] ... [expletive] them.”

But I was only truly won over to Blagojevich on Friday, when he pledged: “I will fight this thing every step of the way. I will fight. I will fight. I will fight until I take my last breath.” He then quoted the opening lines of Rudyard Kipling’s “If.”

If you can keep your head when all about you

Are losing theirs and blaming it on you,

If you can trust yourself when all men doubt you,

But make allowance for their doubting too;

If you can wait and not be tired by waiting,

Or being lied about, don’t deal in lies,

Or being hated, don’t give way to hating ...

But Blagojevich carefully cut off his recitation before the stanza’s last line: “And yet don’t look too good, nor talk too wise.”

Blagojevich must have known he’d violated this maxim. He’d tried to look too good, coiffing his hair with a special brush he keeps with him at all times. (According to The Washington Post, he “goes ballistic when he can’t put his hands on it.”) More important, he’d talked too wise — especially when being bugged by the F.B.I. But you’ve got to give Blagojevich credit for a kind of self-knowledge in omitting from his statement the damning last line of the stanza.

I’ve never heard Dick Cheney quote Kipling. But I suspect he might like Kipling, and that Kipling would admire him — a man who has never gone out of his way to look too good, nor talk too wise, but who has always, in four decades of public service, sought “to fill the unforgiving minute/With sixty seconds’ worth of distance run.”


Bleeding Heart Tightwads
NYTIMES
By NICHOLAS D. KRISTOF
December 21, 2008

This holiday season is a time to examine who’s been naughty and who’s been nice, but I’m unhappy with my findings. The problem is this: We liberals are personally stingy.

Liberals show tremendous compassion in pushing for generous government spending to help the neediest people at home and abroad. Yet when it comes to individual contributions to charitable causes, liberals are cheapskates.  Arthur Brooks, the author of a book on donors to charity, “Who Really Cares,” cites data that households headed by conservatives give 30 percent more to charity than households headed by liberals. A study by Google found an even greater disproportion: average annual contributions reported by conservatives were almost double those of liberals.

Other research has reached similar conclusions. The “generosity index” from the Catalogue for Philanthropy typically finds that red states are the most likely to give to nonprofits, while Northeastern states are least likely to do so.  The upshot is that Democrats, who speak passionately about the hungry and homeless, personally fork over less money to charity than Republicans — the ones who try to cut health insurance for children.

“When I started doing research on charity,” Mr. Brooks wrote, “I expected to find that political liberals — who, I believed, genuinely cared more about others than conservatives did — would turn out to be the most privately charitable people. So when my early findings led me to the opposite conclusion, I assumed I had made some sort of technical error. I re-ran analyses. I got new data. Nothing worked. In the end, I had no option but to change my views.”

Something similar is true internationally. European countries seem to show more compassion than America in providing safety nets for the poor, and they give far more humanitarian foreign aid per capita than the United States does. But as individuals, Europeans are far less charitable than Americans.  Americans give sums to charity equivalent to 1.67 percent of G.N.P., according to a terrific new book, “Philanthrocapitalism,” by Matthew Bishop and Michael Green. The British are second, with 0.73 percent, while the stingiest people on the list are the French, at 0.14 percent.

(Looking away from politics, there’s evidence that one of the most generous groups in America is gays. Researchers believe that is because they are less likely to have rapacious heirs pushing to keep wealth in the family.)

When liberals see the data on giving, they tend to protest that conservatives look good only because they shower dollars on churches — that a fair amount of that money isn’t helping the poor, but simply constructing lavish spires.  It’s true that religion is the essential reason conservatives give more, and religious liberals are as generous as religious conservatives. Among the stingiest of the stingy are secular conservatives.

According to Google’s figures, if donations to all religious organizations are excluded, liberals give slightly more to charity than conservatives do. But Mr. Brooks says that if measuring by the percentage of income given, conservatives are more generous than liberals even to secular causes.

In any case, if conservative donations often end up building extravagant churches, liberal donations frequently sustain art museums, symphonies, schools and universities that cater to the well-off. (It’s great to support the arts and education, but they’re not the same as charity for the needy. And some research suggests that donations to education actually increase inequality because they go mostly to elite institutions attended by the wealthy.)

Conservatives also appear to be more generous than liberals in nonfinancial ways. People in red states are considerably more likely to volunteer for good causes, and conservatives give blood more often. If liberals and moderates gave blood as often as conservatives, Mr. Brooks said, the American blood supply would increase by 45 percent.  So, you’ve guessed it! This column is a transparent attempt this holiday season to shame liberals into being more charitable. Since I often scold Republicans for being callous in their policies toward the needy, it seems only fair to reproach Democrats for being cheap in their private donations. What I want for Christmas is a healthy competition between left and right to see who actually does more for the neediest.

Of course, given the economic pinch these days, charity isn’t on the top of anyone’s agenda. Yet the financial ability to contribute to charity, and the willingness to do so, are strikingly unrelated. Amazingly, the working poor, who have the least resources, somehow manage to be more generous as a percentage of income than the middle class.

So, even in tough times, there are ways to help. Come on liberals, redeem yourselves, and put your wallets where your hearts are.

The Madoff Economy
NYTIMES
By PAUL KRUGMAN
December 19, 2008

The revelation that Bernard Madoff — brilliant investor (or so almost everyone thought), philanthropist, pillar of the community — was a phony has shocked the world, and understandably so. The scale of his alleged $50 billion Ponzi scheme is hard to comprehend.

Yet surely I’m not the only person to ask the obvious question: How different, really, is Mr. Madoff’s tale from the story of the investment industry as a whole?

The financial services industry has claimed an ever-growing share of the nation’s income over the past generation, making the people who run the industry incredibly rich. Yet, at this point, it looks as if much of the industry has been destroying value, not creating it. And it’s not just a matter of money: the vast riches achieved by those who managed other people’s money have had a corrupting effect on our society as a whole.

Let’s start with those paychecks. Last year, the average salary of employees in “securities, commodity contracts, and investments” was more than four times the average salary in the rest of the economy. Earning a million dollars was nothing special, and even incomes of $20 million or more were fairly common. The incomes of the richest Americans have exploded over the past generation, even as wages of ordinary workers have stagnated; high pay on Wall Street was a major cause of that divergence.

But surely those financial superstars must have been earning their millions, right? No, not necessarily. The pay system on Wall Street lavishly rewards the appearance of profit, even if that appearance later turns out to have been an illusion.

Consider the hypothetical example of a money manager who leverages up his clients’ money with lots of debt, then invests the bulked-up total in high-yielding but risky assets, such as dubious mortgage-backed securities. For a while — say, as long as a housing bubble continues to inflate — he (it’s almost always a he) will make big profits and receive big bonuses. Then, when the bubble bursts and his investments turn into toxic waste, his investors will lose big — but he’ll keep those bonuses.

O.K., maybe my example wasn’t hypothetical after all.

So, how different is what Wall Street in general did from the Madoff affair? Well, Mr. Madoff allegedly skipped a few steps, simply stealing his clients’ money rather than collecting big fees while exposing investors to risks they didn’t understand. And while Mr. Madoff was apparently a self-conscious fraud, many people on Wall Street believed their own hype. Still, the end result was the same (except for the house arrest): the money managers got rich; the investors saw their money disappear.

We’re talking about a lot of money here. In recent years the finance sector accounted for 8 percent of America’s G.D.P., up from less than 5 percent a generation earlier. If that extra 3 percent was money for nothing — and it probably was — we’re talking about $400 billion a year in waste, fraud and abuse.

But the costs of America’s Ponzi era surely went beyond the direct waste of dollars and cents.

At the crudest level, Wall Street’s ill-gotten gains corrupted and continue to corrupt politics, in a nicely bipartisan way. From Bush administration officials like Christopher Cox, chairman of the Securities and Exchange Commission, who looked the other way as evidence of financial fraud mounted, to Democrats who still haven’t closed the outrageous tax loophole that benefits executives at hedge funds and private equity firms (hello, Senator Schumer), politicians have walked when money talked.

Meanwhile, how much has our nation’s future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else?

Most of all, the vast riches being earned — or maybe that should be “earned” — in our bloated financial industry undermined our sense of reality and degraded our judgment.

Think of the way almost everyone important missed the warning signs of an impending crisis. How was that possible? How, for example, could Alan Greenspan have declared, just a few years ago, that “the financial system as a whole has become more resilient” — thanks to derivatives, no less? The answer, I believe, is that there’s an innate tendency on the part of even the elite to idolize men who are making a lot of money, and assume that they know what they’re doing.

After all, that’s why so many people trusted Mr. Madoff.

Now, as we survey the wreckage and try to understand how things can have gone so wrong, so fast, the answer is actually quite simple: What we’re looking at now are the consequences of a world gone Madoff.
Madoff misled SEC in '06, got off
The Wall Street Journal (via the Greenwich TIME)
By Gregory Zuckerman
Article Launched: 12/18/2008 08:04:39 AM EST

Securities and Exchange Commission investigators discovered in 2006 that Bernard Madoff had misled the agency about how he managed customer money, according to documents, yet the SEC missed an opportunity to uncover an alleged Ponzi scheme.

The documents indicate the agency had Madoff in its sights amid multiple violations that, if pursued, could have blown open his alleged multibillion-dollar scam. Instead, his firm registered as an investment adviser, at the agency's request, and the public got no word of the violations.

Harry Markopolos - who once worked for a Madoff rival - sparked the probe with his nearly decadelong campaign to persuade the SEC that Madoff's returns were too good to be true. In recent days, The Wall Street Journal reviewed emails, letters and other documents that Markopolos shared with the SEC over the years.

When he first began studying Madoff's investment performance a decade ago, Markopolos told a colleague at the time, "It doesn't make any damn sense," he and the colleague recall. "This has to be a Ponzi scheme."

For Markopolos, the arrest last week of Madoff was something of a vindication after his long campaign. At a certain point, he says, "I was just the boy who cried wolf."

A lawyer for Madoff declined to comment on Markopolos's allegations.  On Jan. 4, 2006, the SEC's enforcement staff in New York opened an investigation, based on Markopolos's allegations, into whether Madoff was, in fact, running a Ponzi scheme.

The SEC staff received documents from Madoff and Fairfield Greenwich, a hedge fund that placed money with Madoff on behalf of its clients. The SEC also interviewed Madoff, his assistant, an official from Fairfield Greenwich and another employee.

Among other things, the SEC found that Madoff personally "misled the examination staff about the nature of the strategy" used by the Fairfield funds and other hedge-fund accounts, and also "withheld from the examination staff information about certain of these customers' accounts," the SEC documents say.

The SEC report said that neither Madoff nor the Fairfield funds disclosed to investors in the Fairfield funds that Madoff was the investment adviser.  A lawyer for Fairfield couldn't be reached for comment.

The SEC report also said Madoff had violated rules requiring investment advisers to register with the SEC, which makes them subject to inspections and examinations. Investment advisers must register if they have more than 15 clients.

The staff recommended closing the investigation because Madoff agreed to register his investment-advisory business and Fairfield agreed to disclose information about Madoff to investors. The SEC report said the staff closed the case "because those violations were not so serious as to warrant an enforcement action."

Markopolos says his suspicions started in late 1999, after a colleague returned from New York with tales of Madoff's trading prowess. Whether the markets were up, or down, Madoff managed to clock in with steady gains of 12 percent or so a year, reportedly achieving that by trading a mix of stocks and stock-index options.

Markopolos says his bosses liked the look of those returns - and asked him why he couldn't do the same thing.  Under pressure to deliver, Markopolos and a colleague at their Boston investment outfit tried to reconstruct Madoff's purported strategy. Their results paled in comparison, and Markopolos began suspecting possible fraud.

His bosses told him to go back and check the math, given Madoff's renown as a trader.

So Markopolos turned to Daniel DiBartolomeo, a top financial mathematician in Boston. DiBartolomeo says he spent hours poring through Markopolos's data, and ultimately agreed: The strategy Madoff said he used couldn't have achieved the returns he boasted of.  In early 2000, Markopolos shared his explosive concerns with Edward Manion, a staff examiner at the SEC's Boston office.

In his documents, Markopolos said that there's a chance "I'm an idiot for wasting your time." But he argued forcefully that "I believe an SEC visit is warranted" to look into Madoff's practices.

"This sounds serious," Manion told him, inviting Markopolos in for a meeting.  In May 2000, Markopolos says he sat down with Manion and an SEC attorney.

Markopolos argued his case: A key part of Madoff's strategy relied on buying and selling options on the Standard & Poor's 100-stock index. But Markopolos said his research showed there weren't enough S&P-100 options in existence at the time to support Madoff's stated strategy, given all the money he seemed to be managing. So something else must be going on.

Markopolos, a native of Erie, Pa., who had trained in "unconventional warfare," including intelligence gathering, as a reservist in the Army, says he came to "consider Madoff a domestic enemy."

In the months after the initial meeting with the SEC, Markopolos kept hearing about Madoff's outsized gains, and how the firm was growing - sparking frequent calls to Manion to discuss the case.  Over a year passed. Then, in late 2001, Manion told Markopolos the case appeared to have fallen through the cracks. He asked Markopolos to resubmit his documents and arguments, so they could be passed on to the SEC's New York office.

Markopolos sent the documents, adding three pages arguing that the fraud was growing in size as Madoff's assets under management grew beyond $12 billion.  Markopolos also diagrammed how he believed the Madoff organization seemed to work, using a Byzantine flow chart with circles, squares, rectangles and arrows.

Markopolos continued to receive sympathetic calls from Manion. "He's the one that kept me going, I would have stopped long ago," Markopolos says.

But Manion pointed out that any investigation would have to be conducted by the New York office, where Madoff's firm was based.

Markopolos says that worried him. "I was told that the relationship between the SEC's Boston and New York offices is about as warm and cordial as the Yankees-Red Sox rivalry," Markopolos says.

Markopolos left his firm in 2004, and started a fraud-investigation practice. Markopolos's old colleagues, prodding him not to give up, spoke by phone for hours at a time about Madoff.

"Some people play fantasy sports, that was how it was with us - Madoff was our fantasy sport," Markopolos recalls. "We wanted him nailed."

In 2005, an SEC official in Boston called to say the agency was again looking into the case, and told Markopolos to contact Meaghan Cheung, a supervisor in SEC's New York office, Markopolos recalls.  In November 2005, Markopolos sent Cheung a 21-page report outlining his concerns.

He presented a series of 29 "red flags," ranging from in-depth mathematical calculations that purported to show the Madoff investment strategy couldn't work, to little more than rumor or innuendo - such as claims that a group of Arab investors were barred from using a major accounting firm to examine Madoff's books.

He also questioned the fact that Madoff, unlike most money managers of his stripe, didn't charge his investors a fee for handling their money. Instead, he seemed to make profits on commissions generated by the trades on investors' behalf.

"Bernie Madoff's returns aren't real," Markopolos said. "And if they are real," it's because Madoff might be engaging in "front running," or buying shares for his investors' accounts just before filling orders for other clients that have the potential to send the price higher, an illegal practice.

Markopolos's allegations against Madoff were far from bulletproof. Markopolos provided no definitive evidence of a crime. His reports were laden with frothy opinions.  In his lists of "red flags," he occasionally got things wrong. Sometimes he even misstated the starting date of his own campaign against Madoff.

Cheung was a respected attorney known for quickly bringing high-profile charges against executives of cable-television company Adelphia Communications several years earlier, after that company issued a questionable earnings report.  Markopolos thought he had a chance for his campaign to succeed.

"I had my hopes up, I thought it was a good enough package that they would go and shut this man down," Markopolos recalls.

He sent an email adding more evidence - noting that he might be eligible for the SEC's bounty program if it turned out that Madoff was, in fact, front running.  An SEC spokesman wouldn't comment on the agency's communication with Markopolos.

In its resulting investigation, the SEC searched for evidence of "front running" but found no indications that was happening, according to an individual familiar with the matter.

Investigators also checked out Markopolos's claim that Madoff was running a Ponzi scheme. But the billions of dollars of assets held by Madoff's asset-management unit appeared to match those that various investment firms said they had placed with Madoff, suggesting that there weren't problematical.

Today, it is now known that that Madoff had many more investors - such as individuals and charities - which weren't disclosed in regulatory filings, making it harder for investigators at that time to ascertain precisely how much money he was managing.

On Tuesday, SEC Chairman Christopher Cox also said that Madoff kept several sets of books and false documents. That, too, could have thrown off investigators a few years ago.

As part of the inquiry, the SEC did find that the firm had violated technical rules about executing trades.

Early this year, Markopolos made one last major effort after receiving an email from Jonathan Sokobin, an official in the SEC's Washington, D.C., office whose job was to search for big market risks. Sokobin had heard about Markopolos and asked him to give him a call, according to an email exchange between them.

With low expectations, Markopolos got in touch. "The way I figured it," he says, "if they didn't believe you at $5 billion, and not at $10 billion, they didn't believe you at $30 billion, then why would they believe you at $50 billion?"

Markopolos also sent Sokobin an email - with the stark subject line "$30 billion Equity Derivative Hedge Fund Fraud in New York" - saying an unnamed Wall Street pro recently pulled money from Madoff's firm after trying to confirm trades supposedly done in his account, but discovering that no such trades had been made.  It was his last try. He never heard back about his allegations regarding Madoff.

"I felt pretty low," Markopolos recalls.  Sokobin, through an SEC spokesman, declined to comment.

Last Thursday, as Markopolos watched his children take a karate lesson near his home in Whitman, Mass., 20 miles outside Boston, he checked his voice mail, trying to ignore the noise from the children. Walking out to the foyer, Markopolos returned one of the calls, and heard an old friend tell him that Madoff had been arrested.

"I kept firing bigger and bigger bullets" at Madoff, "but I couldn't stop him," Markopolos says. With the SEC's mea culpa and Madoff's arrest, "I finally felt relief."

The Great Unraveling
NYTIMES
By THOMAS L. FRIEDMAN
December 17, 2008

Hong Kong

The stranger, a Western businessman, slipped into the chair next to me at an Asia Society lunch here in Hong Kong and asked me a question that I can honestly say I’ve never been asked before: “So, just how corrupt is America?”

His question was occasioned by the arrest of the Wall Street money manager Bernard Madoff on charges of running a Ponzi scheme that bilked investors out of billions of dollars, but it wasn’t only that. It’s the whole bloody mess coming out of Wall Street — the financial center that Hong Kong moneymen had always looked up to. How could it be, they wonder, that such brand names as Bear Stearns, Lehman Brothers and A.I.G. could turn out to have such feet of clay? Where, they wonder, was our Securities and Exchange Commission and the high standards that we had preached to them all these years?

One of Hong Kong’s most-respected bankers, who asked not to be identified, told me that the U.S.-owned investment company where he works made a mint in the last decade cleaning up sick Asian banks. They did so by importing the best U.S. practices, particularly the principles of “know thy customers” and strict risk controls. But now, he asked, who is there to look to for exemplary leadership?

“Previously, there was America,” he said. “American investors were supposed to know better, and now America itself is in trouble. Whom do they sell their banks to? It is hard for America to take its own medicine that it prescribed successfully for others. There is no doctor anymore. The doctor himself is sick.”

I have no sympathy for Madoff. But the fact is, his alleged Ponzi scheme was only slightly more outrageous than the “legal” scheme that Wall Street was running, fueled by cheap credit, low standards and high greed. What do you call giving a worker who makes only $14,000 a year a nothing-down and nothing-to-pay-for-two-years mortgage to buy a $750,000 home, and then bundling that mortgage with 100 others into bonds — which Moody’s or Standard & Poors rate AAA — and then selling them to banks and pension funds the world over? That is what our financial industry was doing. If that isn’t a pyramid scheme, what is?

Far from being built on best practices, this legal Ponzi scheme was built on the mortgage brokers, bond bundlers, rating agencies, bond sellers and homeowners all working on the I.B.G. principle: “I’ll be gone” when the payments come due or the mortgage has to be renegotiated.

It is both eye-opening and depressing to look at our banking crisis from China. It is eye-opening because it is hard to avoid the conclusion that the U.S. and China are becoming two countries, one system.

How so? Easy, in the wake of our massive bank bailout, one can now look at China and America and say: “Well, China has a big-state-owned banking sector, next to a private one, and America now has a big state-owned banking sector next to a private one. China has big state-owned industries, alongside private ones, and once Washington bails out Detroit, America will have a big state-owned industry next to private ones.”

Yes, an exaggeration to be sure, but the truth is the differences are starting to blur. For two decades, a parade of U.S. officials came to China and lectured Beijing on the necessity of privatizing its banks, said Qu Hongbin, the chief economist for China at HSBC. “So, slowly we did that, and now, all of a sudden, we see everybody else nationalizing their banks.”

It’s depressing because China in many ways feels more stable than America today, with a clearer strategy for working through this crisis. And while the two countries are looking more alike, they appear to be on very different historical trajectories. China went crazy in the 1970s, with its Cultural Revolution, and only after the death of Mao and the rise of Deng Xiaoping has it managed to right itself, gradually moving to a market economy.

But while capitalism has saved China, the end of communism seems to have slightly unhinged America. We lost our two biggest ideological competitors — Beijing and Moscow. Everyone needs a competitor. It keeps you disciplined. But once American capitalism no longer had to worry about communism, it seems to have gone crazy. Investment banks and hedge funds were leveraging themselves at crazy levels, paying themselves crazy salaries and, most of all, inventing financial instruments that completely disconnected the ultimate lenders from the original borrowers, and left no one accountable. “The collapse of communism pushed China to the center and [America] to the extreme,” said Ben Simpfendorfer, chief China economist at Royal Bank of Scotland.

The Madoff affair is the cherry on top of a national breakdown in financial propriety, regulations and common sense. Which is why we don’t just need a financial bailout; we need an ethical bailout. We need to re-establish the core balance between our markets, ethics and regulations. I don’t want to kill the animal spirits that necessarily drive capitalism — but I don’t want to be eaten by them either.

Obama Rides the Rails to Power
NYTIMES
By Katharine Q. Seelye
December 15, 2008, 11:20 am

Update | 4 p.m. Barack Obama and his family will make their way into Washington for his inaugural next month by train, with a whistle-stop procession that will begin with an event in Philadelphia.

The train tour, on Saturday, Jan. 17, will stop in Wilmington to pick up Joseph R. Biden Jr. and his family and proceed to Baltimore for another event before arriving in Washington.

The presidential party will be traveling on a special charter train.

Inaugural planners say the railway ride will allow people who aren’t going to Washington for the inaugural to participate in it just the same.

“As part of the most open and accessible inauguration in history, we hope to include as many Americans as possible who wish to participate, but can’t be in Washington,” Emmett S. Beliveau, executive director of the 2009 Presidential Inaugural Committee, said in a statement. “These events will allow us to do that while honoring the rich history and tradition of previous inaugural journeys.”

Bill Clinton similarly arrived in Washington for his first inauguration, in 1993, in a procession from Monticello, home of Thomas Jefferson.  The tradition is as old as the country itself. George Washington traveled to his inaugural in New York City, then the capital, from his home in Mount Vernon, and celebrations erupted along the route. A ceremonial barge took him across the Hudson into Manhattan.

Alas, back in those days, they hadn’t figured out the whole inaugural ceremony yet, so Washington had to wait a week before actually taking the oath of office.

Mr. Obama’s route most directly recalls that of Abraham Lincoln, who rode from Springfield to Washington by train in 1861. While cheering throngs greeted him along the way, the last bit of Lincoln’s journey, from Philadelphia to Washington, was made at night incognito to outfox the “Baltimore Plot” to assassinate him.  Harold Holzer, author of “Lincoln: President-Elect,” said that until Lincoln had to hide, he had made 100 speeches along the train route. He said that Mr. Obama’s train trip brings him “full circle in his homage to Lincoln,” which began in February 2007 with Mr. Obama’s announcement of his candidacy in Springfield.

European Crass Warfare
NYTIMES
By PAUL KRUGMAN
December 15, 2008

So here’s the situation: the economy is facing its worst slump in decades. The usual response to an economic downturn, cutting interest rates, isn’t working. Large-scale government aid looks like the only way to end the economic nosedive.

But there’s a problem: conservative politicians, clinging to an out-of-date ideology — and, perhaps, betting (wrongly) that their constituents are relatively well positioned to ride out the storm — are standing in the way of action.

No, I’m not talking about Bob Corker, the Senator from Nissan — I mean Tennessee — and his fellow Republicans, who torpedoed last week’s attempt to buy some time for the U.S. auto industry. (Why was the plan blocked? An e-mail message circulated among Senate Republicans declared that denying the auto industry a loan was an opportunity for Republicans to “take their first shot against organized labor.”)

I am, instead, talking about Angela Merkel, the German chancellor, and her economic officials, who have become the biggest obstacles to a much-needed European rescue plan.

The European economic mess isn’t getting very much attention here, because we’re understandably focused on our own problems. But the world’s other economic superpower — America and the European Union have roughly the same G.D.P. — is arguably in as much trouble as we are.

The most acute problems are on Europe’s periphery, where many smaller economies are experiencing crises strongly reminiscent of past crises in Latin America and Asia: Latvia is the new Argentina; Ukraine is the new Indonesia. But the pain has also reached the big economies of Western Europe: Britain, France, Italy and, the biggest of all, Germany.

As in the United States, monetary policy — cutting interest rates in an effort to perk up the economy — is rapidly reaching its limit. That leaves, as the only way to avert the worst slump since the Great Depression, the aggressive use of fiscal policy: increasing spending or cutting taxes to boost demand. Right now everyone sees the need for a large, pan-European fiscal stimulus.

Everyone, that is, except the Germans. Mrs. Merkel has become Frau Nein: if there is to be a rescue of the European economy, she wants no part of it, telling a party meeting that “we’re not going to participate in this senseless race for billions.”

Last week Peer Steinbrück, Mrs. Merkel’s finance minister, went even further. Not content with refusing to develop a serious stimulus plan for his own country, he denounced the plans of other European nations. He accused Britain, in particular, of engaging in “crass Keynesianism.”

Germany’s leaders seem to believe that their own economy is in good shape, and in no need of major help. They’re almost certainly wrong about that. The really bad thing, however, isn’t their misjudgment of their own situation; it’s the way Germany’s opposition is preventing a common European approach to the economic crisis.

To understand the problem, think of what would happen if, say, New Jersey were to attempt to boost its economy through tax cuts or public works, without this state-level stimulus being part of a nationwide program. Clearly, much of the stimulus would “leak” away to neighboring states, so that New Jersey would end up with all of the debt while other states got many if not most of the jobs.

Individual European countries are in much the same situation. Any one government acting unilaterally faces the strong possibility that it will run up a lot of debt without creating much domestic employment.

For the European economy as a whole, however, this kind of leakage is much less of a problem: two-thirds of the average European Union member’s imports come from other European nations, so that the continent as a whole is no more import-dependent than the United States. This means that a coordinated stimulus effort, in which each country counts on its neighbors to match its own efforts, would offer much more bang for the euro than individual, uncoordinated efforts.

But you can’t have a coordinated European effort if Europe’s biggest economy not only refuses to go along, but heaps scorn on its neighbors’ attempts to contain the crisis.

Germany’s big Nein won’t last forever. Last week Ifo, a highly respected research institute, warned that Germany will soon be facing its worst economic crisis since the 1940s. If and when this happens, Mrs. Merkel and her ministers will surely reconsider their position.

But in Europe, as in the United States, the issue is time. Across the world, economies are sinking fast, while we wait for someone, anyone, to offer an effective policy response. How much damage will be done before that response finally comes?

Cars, Kabul and Banks
NYTIMES
By THOMAS L. FRIEDMAN
December 14, 2008

If there is anything I’ve learned as a reporter, it’s that when you get away from “the thing itself” — the core truth about a situation — you get into trouble. Barack Obama will have to make three mammoth decisions after he takes the oath of office — on cars, Kabul and banks — and we have to hope that he bases those decisions on the things themselves, the core truths about each. Because many people will be trying to throw fairy dust in his eyes.

The first issue will be whether to bail out Detroit. What is the core truth about Detroit? Auto executives will tell you that it’s the credit crisis, health care, retirement costs and unions. Sure, those are real. But the core truth is that for way too long Detroit made too many cars that too many people did not want to buy. As even General Motors conceded in its apology ad last week: “At times we violated your trust by letting our quality fall below industry standards and our designs become lackluster.” Walk through any college campus today. You don’t see a lot of Buicks.

Over the years, Detroit bosses kept repeating: “We have to make the cars people want.” That’s why they’re in trouble. Their job is to make the cars people don’t know they want but will buy like crazy when they see them. I would have been happy with my Sony Walkman had Apple not invented the iPod. Now I can’t live without my iPod. I didn’t know I wanted it, but Apple did. Same with my Toyota hybrid.

The auto consultant John Casesa once noted that Detroit’s management has gone from visionaries to operators to caretakers. I would say that they have now gone from caretakers to undertakers. If they are ready to bring in some visionaries and totally restructure — inside or outside of bankruptcy — so they can make money selling cars that people will want to buy, then I say help them. I’d hate to see the Detroit auto industry go under. But if all we are doing is prolonging auto undertakers, then we have to let nature take its course.

After Detroit, Mr. Obama will be asked to bail out Afghanistan. Watch out. The tide has turned against us there because too many Afghans don’t want to buy our politics, or, more precisely, the politics of our ally, the corrupt government of President Hamid Karzai. That is “the thing itself.”

The main reason our Iraq bailout — a k a “the surge” — has had a positive effect is because Iraqis voted with their own guns and their own lives, taking on both Al Qaeda and pro-Iranian Shiite militants. Iraq has avoided bankruptcy for the moment — a total meltdown — because enough Iraqis wanted what we were selling: freedom from extremists. That is the thing itself, and right now I’m not seeing enough of that thing in Afghanistan. Beware of a Kabul bailout.

But maybe the most flagrant area where we continue to avoid looking at “the thing itself” is with our banks. What we are dealing with there is the effect of a credit bubble that began in the late-1980s with the advent of global securitization — the chopping up and bundling into bonds of everything from home mortgages to student loans to airplane leases, and then selling them around the world.

When you take this much leverage and this much globalization and this much complexity and start it in America, and then blow it up, you have a nuclear financial explosion. The deflating of this credit bubble is so wealth-destroying that even the most prudent banks have been ravaged by it.

What to do? The smartest people I know in banking are praying that Obama’s Treasury Department will tackle “the thing itself.” That is, do a real analysis of what the major banks are worth in a worst-case scenario. Then determine, if, on that basis, they have viable, survivable equity-to-asset ratios.

Those that do should get more government investment. Those that are close should be forced to find new investors and merge. And those not viable should be shut down and have their bad assets bought by a government-owned body (which would sell them over time) and their deposits shifted to healthy banks to make those banks even healthier. Some experts believe we still need to close 1,000 banks.

This process will be painful, but probably by the end of a year the market will clear, investors will come in, and the surviving banks will be ready to lend to each other and you and me. The “thing itself” here is that banks still don’t want to lend because they still don’t know the true value of their own balance sheets, let alone anyone else’s.

The market has to clear. We can do it painfully and quickly, as we did with the dot-coms, or we can be Japan and drag it out.

So whether its cars, Kabul or banks, we have to stop wishing for the worlds we want and start dealing with the things themselves. If Obama does, his first year will be excruciatingly painful, but he could have three years after that to be creative. If he doesn’t, I fear that cars, Kabul and banks will dog his whole presidency.

The Ambassador’s Report
NYTIMES
By DAVID BROOKS
December 12, 2008

Your Excellency,

Your humble ambassador requests the honor of your time so that he may apprise you of the mood and conditions in Washington. Seeking nothing for himself, but only seeking to serve your most Serene Majesty, your ambassador has been working tirelessly to understand the spirit of the American capital.

Your ambassador discerns three emotions. At the most obvious level, the U.S. capital is enjoying a season of rebirth. Sixty-seven percent to 75 percent of Americans have positive feelings toward Barack Obama and his transition. Perhaps up to four million people will attend the inauguration, possibly filling the entire space between the Capitol and the Lincoln Memorial.

Washingtonians do not speak of this as a political transition. They speak of the inaugural as a cultural, psychological and historic event. It seems to have become, in their minds, like an ancient tribal rite — the purging of sin, the elevation of the pure, the moral regeneration of the nation’s soul. It would not surprise your ambassador if the Americans were to throw a sacrificial goat into a volcano as part of the primal offerings.

Second, there is a feeling of audacity sweeping the ruling circles. America’s rulers have widened their eyes, enlarged their perspectives.

For example, zeros have lost their meanings. The amount of consideration once devoted to a proposal costing $3 billion is now devoted to a proposal costing $300 billion. Americans have entered the age of budgetary infinity.

Once a $100 billion stimulus package was large, but now the stimulus proposals have passed through $300 billion to $500 billion on their way to infinity. Some Americans believe the automakers should be bailed out even without the reforms proposed by Senator Bob Corker. But without those reforms, which were shot down in the Senate Thursday night, the bailouts would go on and on into infinity.

Once, Americans considered health care and energy reform to be gigantic undertakings. Now President-elect Obama describes these initiatives as mere subplots in his economic rescue effort. Your humble ambassador has heard analysts casually tick off the elements of the Obama plan: enact the largest infrastructure project in 50 years, initiate the broadest tax cut in history, reorganize 14 percent of the American economy, replace the carbon-based economy with a renewable-energy economy, restructure the auto industry, perhaps even rescue the Detroit Lions.

Democrats also talk about passing a stimulus plan on Day One. That is, they seek to pass a piece of legislation perhaps equal to half the federal budget without a single hearing or a second of floor debate. Your humble ambassador has not seen the Americans in such a fit of transformational zeal since the run-up to the Iraq war.

Something has been revealed about the psychology of the nation’s capital. When investors in New York become gripped by fear, they pull inward. When Washingtonians are gripped by fear, they rush outward, with bigger and more daring plans. The risk tolerance in the financial world has shrunk to zero, but the risk tolerance in the political world has risen to infinity.

Once America was a decentralized country, but now all roads lead to Washington. Mighty C.E.O.’s abase themselves before junior House members. Governors and mayors come groveling. The status of the lowliest bureaucrat has risen delightfully, and there is a feeling of overflowing abundance amid the national scarcity as Washington spends the trillions it doesn’t have. Such is the local boom that your humble ambassador can drive from his residence, and in a few minutes he can count 10 McMansions under construction.

And this leads, sad to say, to the third layer of emotion: anxiety. Many of those swept up in the excitement of this historical moment also have the nagging sensation that perhaps the laws of gravity, economics and history have not been repealed. Perhaps Mr. Obama’s talents, while great, are not as great as his self-confidence. Perhaps the New Deal paradigm everybody is applying doesn’t actually fit the circumstances. Certainly something big needs to be done to calm this crisis, but perhaps in the doing, some unholiness is being unwittingly and rashly created.

Why is it, some ask, that America is so slavishly following the same failed route earlier taken by the Japanese — from bank capitalization, to industrial bailouts to infrastructure spending? Why is it that the pork-meisters in Congress are already distorting the best-laid stimulus plans? Why are there so few saying “no” to any budget request? Why do so many of the plans being offered rely upon a Magic Technocrat — an all-knowing Car Czar who can reorganize Detroit, an all-seeing team of Olympians who decide which medicines doctors will be allowed to prescribe?

The wisest Americans are throwing piles of money around, while looking nervously for signs of fiscal ruin. Your humble ambassador will remain your eyes and ears, and will scoop up any stray billions he finds lying around.

Only John McCain seemed to care about this issue...click here.
While Detroit Slept
NYTIMES
By THOMAS L. FRIEDMAN
December 10, 2008
 As I think about our bailing out Detroit, I can’t help but reflect on what, in my view, is the most important rule of business in today’s integrated and digitized global market, where knowledge and innovation tools are so widely distributed. It’s this: Whatever can be done, will be done. The only question is will it be done by you or to you. Just don’t think it won’t be done. If you have an idea in Detroit or Tennessee, promise me that you’ll pursue it, because someone in Denmark or Tel Aviv will do so a second later.

Why do I bring this up? Because someone in the mobility business in Denmark and Tel Aviv is already developing a real-world alternative to Detroit’s business model. I don’t know if this alternative to gasoline-powered cars will work, but I do know that it can be done — and Detroit isn’t doing it. And therefore it will be done, and eventually, I bet, it will be done profitably.

And when it is, our bailout of Detroit will be remembered as the equivalent of pouring billions of dollars of taxpayer money into the mail-order-catalogue business on the eve of the birth of eBay. It will be remembered as pouring billions of dollars into the CD music business on the eve of the birth of the iPod and iTunes. It will be remembered as pouring billions of dollars into a book-store chain on the eve of the birth of Amazon.com and the Kindle. It will be remembered as pouring billions of dollars into improving typewriters on the eve of the birth of the PC and the Internet.

What business model am I talking about? It is Shai Agassi’s electric car network company, called Better Place. Just last week, the company, based in Palo Alto, Calif., announced a partnership with the state of Hawaii to road test its business plan there after already inking similar deals with Israel, Australia, the San Francisco Bay area and, yes, Denmark.

The Better Place electric car charging system involves generating electrons from as much renewable energy — such as wind and solar — as possible and then feeding those clean electrons into a national electric car charging infrastructure. This consists of electricity charging spots with plug-in outlets — the first pilots were opened in Israel this week — plus battery-exchange stations all over the respective country. The whole system is then coordinated by a service control center that integrates and does the billing.

Under the Better Place model, consumers can either buy or lease an electric car from the French automaker Renault or Japanese companies like Nissan (General Motors snubbed Agassi) and then buy miles on their electric car batteries from Better Place the way you now buy an Apple cellphone and the minutes from AT&T. That way Better Place, or any car company that partners with it, benefits from each mile you drive. G.M. sells cars. Better Place is selling mobility miles.

The first Renault and Nissan electric cars are scheduled to hit Denmark and Israel in 2011, when the whole system should be up and running. On Tuesday, Japan’s Ministry of Environment invited Better Place to join the first government-led electric car project along with Honda, Mitsubishi and Subaru. Better Place was the only foreign company invited to participate, working with Japan’s leading auto companies, to build a battery swap station for electric cars in Yokohama, the Detroit of Japan.

What I find exciting about Better Place is that it is building a car company off the new industrial platform of the 21st century, not the one from the 20th — the exact same way that Steve Jobs did to overturn the music business. What did Apple understand first? One, that today’s technology platform would allow anyone with a computer to record music. Two, that the Internet and MP3 players would allow anyone to transfer music in digital form to anyone else. You wouldn’t need CDs or record companies anymore. Apple simply took all those innovations and integrated them into a single music-generating, purchasing and listening system that completely disrupted the music business.

What Agassi, the founder of Better Place, is saying is that there is a new way to generate mobility, not just music, using the same platform. It just takes the right kind of auto battery — the iPod in this story — and the right kind of national plug-in network — the iTunes store — to make the business model work for electric cars at six cents a mile. The average American is paying today around 12 cents a mile for gasoline transportation, which also adds to global warming and strengthens petro-dictators.

Do not expect this innovation to come out of Detroit. Remember, in 1908, the Ford Model-T got better mileage — 25 miles per gallon — than many Ford, G.M. and Chrysler models made in 2008. But don’t be surprised when it comes out of somewhere else. It can be done. It will be done. If we miss the chance to win the race for Car 2.0 because we keep mindlessly bailing out Car 1.0, there will be no one to blame more than Detroit’s new shareholders: we the taxpayers. 

The Brightest Are Not Always the Best
NYTIMES
By FRANK RICH
December 7, 2008

IN 1992, David Halberstam wrote a new introduction for the 20th-anniversary edition of “The Best and the Brightest,” his classic history of the hubristic J.F.K. team that would ultimately mire America in Vietnam. He noted that the book’s title had entered the language, but not quite as he had hoped. “It is often misused,” he wrote, “failing to carry the tone or irony that the original intended.”

Halberstam died last year, but were he still around, I suspect he would be speaking up, loudly, right about now. As Barack Obama rolls out his cabinet, “the best and the brightest” has become the accolade du jour from Democrats (Senator Claire McCaskill of Missouri), Republicans (Senator John Warner of Virginia) and the press (George Stephanopoulos). Few seem to recall that the phrase, in its original coinage, was meant to strike a sardonic, not a flattering, note. Perhaps even Doris Kearns Goodwin would agree that it’s time for Beltway reading groups to move on from “Team of Rivals” to Halberstam.

The stewards of the Vietnam fiasco had pedigrees uncannily reminiscent of some major Obama appointees. McGeorge Bundy, the national security adviser, was, as Halberstam put it, “a legend in his time at Groton, the brightest boy at Yale, dean of Harvard College at a precocious age.” His deputy, Walt Rostow, “had always been a prodigy, always the youngest to do something,” whether at Yale, M.I.T. or as a Rhodes scholar. Robert McNamara, the defense secretary, was the youngest and highest paid Harvard Business School assistant professor of his era before making a mark as a World War II Army analyst, and, at age 44, becoming the first non-Ford to lead the Ford Motor Company.

The rest is history that would destroy the presidency of Lyndon Johnson and inflict grave national wounds that only now are healing.

In the Obama transition, our Clinton-fixated political culture has been hyperventilating mainly over the national security team, but that’s not what gives me pause. Hillary Clinton and Robert Gates were both wrong about the Iraq invasion, but neither of them were architects of that folly and both are far better known in recent years for consensus-building caution (at times to a fault in Clinton’s case) than arrogance. Those who fear an outbreak of Clintonian drama in the administration keep warning that Obama has hired a secretary of state he can’t fire. But why not take him at his word when he says “the buck will stop with me”? If Truman could cashier Gen. Douglas MacArthur, then surely Obama could fire a brand-name cabinet member in the (unlikely) event she goes rogue.

No, it’s the economic team that evokes trace memories of our dark best-and-brightest past. Lawrence Summers, the new top economic adviser, was the youngest tenured professor in Harvard’s history and is famous for never letting anyone forget his brilliance. It was his highhanded disregard for his own colleagues, not his impolitic remarks about gender and science, that forced him out of Harvard’s presidency in four years. Timothy Geithner, the nominee for Treasury secretary, is the boy wonder president of the Federal Reserve Bank of New York. He comes with none of Summers’s personal baggage, but his sparkling résumé is missing one crucial asset: experience outside academe and government, in the real world of business and finance. Postgraduate finishing school at Kissinger & Associates doesn’t count.

Summers and Geithner are both protégés of another master of the universe, Robert Rubin. His appearance in the photo op for Obama-transition economic advisers three days after the election was, to put it mildly, disconcerting. Ever since his acclaimed service as Treasury secretary in the Clinton administration, Rubin has labored as a senior adviser and director at Citigroup, now being bailed out by taxpayers to the potential tune of some $300 billion. Somehow the all-seeing Rubin didn’t notice the toxic mortgage-derivatives on Citi’s books until it was too late. The Citi may never sleep, but he snored.

Geithner was no less tardy in discovering the reckless, wholesale gambling that went on in Wall Street’s big casinos, all of which cratered while at least nominally under his regulatory watch. That a Hydra-headed banking monster like Citigroup came to be in the first place was a direct byproduct of deregulation championed by Rubin and Summers in Clinton’s Treasury Department (where Geithner also served). The New Deal reform they helped repeal, the Glass-Steagall Act, had been enacted in 1933 in part because Citigroup’s ancestor, National City Bank, had imploded after repackaging bad loans as toxic securities in the go-go 1920s.

Well, nobody’s perfect. Given that John McCain’s economic team was headlined by Carly Fiorina and Joe the Plumber, the country would be dodging a fiscal bullet even if Obama had picked Suze Orman. But I keep wondering why the honeymoon hagiography about the best and the brightest has been so over the top. Washington’s cheerleading for our new New Frontier cabinet superstars has seldom been interrupted by tough questions about Summers’s Harvard career or Geithner’s record at the Fed. For that, it’s best to turn to the business press: Andrew Ross Sorkin at The New York Times, for one, has been relentless in trying to ferret out Geithner’s opaque role in the catastrophic decision to let Lehman Brothers fail.

No doubt the Pavlovian ovations for the Obama team are in part a reaction to our immediate political past. After eight years of a presidency that valued cronyism over brains (or even competence) and embraced an anti-intellectualism apotheosized by Sarah Palin, it’s a godsend to have a president who puts a premium on merit. I also wonder if a press corps that underrated Obama’s political prowess for much of the campaign, demeaning him as a professorial wuss next to the brawny Clinton and McCain, is now overcompensating for that mistake. No one wants to miss out a second time on triumphal history in the making.

This, too, is a replay of what happened when Kennedy arrived, beating out the more seasoned Richard Nixon and ending eight years of Eisenhower rule. “Rarely had a new administration received such a sympathetic hearing at a personal level from the more serious and respected journalists of the city,” Halberstam wrote. “The good reporters of that era, those who were well educated and who were enlightened themselves and worked for enlightened organizations, liked the Kennedys and were for the same things the Kennedys were for.” They couldn’t imagine that “men who were said to be the ablest to serve in government in this century” would turn out to be architects of America’s “worst tragedy since the Civil War.”

Post-Iraq, we’re unlikely to rush into a new Vietnam. But we ignore the past’s lessons at our peril. In his 20th-anniversary reflections, Halberstam wrote that his favorite passage in his book was the one where Johnson, after his first Kennedy cabinet meeting, raved to his mentor, the speaker of the House, Sam Rayburn, about all the president’s brilliant men. “You may be right, and they may be every bit as intelligent as you say,” Rayburn responded, “but I’d feel a whole lot better about them if just one of them had run for sheriff once.”

Halberstam loved that story because it underlined the weakness of the Kennedy team: “the difference between intelligence and wisdom, between the abstract quickness and verbal facility which the team exuded, and true wisdom, which is the product of hard-won, often bitter experience.” That difference was clearly delineated in Vietnam, where American soldiers, officials and reporters could see that the war was going badly even as McNamara brusquely wielded charts and crunched numbers to enforce his conviction that victory was assured.

In our current financial quagmire, there have also been those who had the wisdom to sound alarms before Rubin, Summers or Geithner did. Among them were not just economists like Joseph Stiglitz and Nouriel Roubini but also Doris Dungey, a 47-year-old financial blogger known as Tanta, who died of cancer in Upper Marlboro, Md., last Sunday. As the Times obituary observed, “her first post, in December 2006, took issue with an optimistic Citigroup report that maintained that the mortgage industry would ‘rationalize’ in 2007, to the benefit of larger players like, well, Citigroup.” It was months before the others publicly echoed her judgment.

For some of J.F.K.’s best and brightest, Halberstam wrote, wisdom came “after Vietnam.” We have to hope that wisdom is coming to Summers and Geithner as they struggle with our financial Tet. Clearly it has not come to Rubin. Asked by The Times in April if he’d made any mistakes at Citigroup, he sounded as self-deluded as McNamara in retirement.

“I honestly don’t know,” Rubin answered. “In hindsight, there are a lot of things we’d do differently. But in the context of the facts as I knew them and my role, I’m inclined to think probably not.” Since that interview, 52,000 Citigroup employees have been laid off but not Rubin, who remains remorseless, collecting a salary that has totaled in excess of $115 million since 1999. You may be touched to hear that he is voluntarily relinquishing his bonus this Christmas.

Rubin hasn’t been seen in a transition photo op since Nov. 7, and in the end Obama chose Paul Volcker as chairman of his Economic Recovery Advisory Board. This was a presidential decision not only bright but wise.

The Horror in Mumba
NYTIMES Editorial
December 1, 2008

We share the horror, the pain and the disbelief that Indians are feeling as they absorb the appalling details of the terrorist attacks in Mumbai that left nearly 200 dead. We also recognize and understand the questions Indians are asking themselves, and the anger they are feeling, about what some are calling their own 9/11.

How can their government have ignored the warning signs? A 2007 report to Parliament warned that the country’s shores were poorly protected — and some or all of the attackers arrived by boat. Why weren’t the police and the army better prepared to respond? Sharpshooters outside the Taj Mahal Palace & Tower Hotel did not have telescopic sights, so they could not get off a shot for fear of killing hostages rather than the terrorists.

Most of all, who is to blame and who should pay the price for such cruelty?

Deccan Mujahedeen, the group that claimed responsibility — the term itself is so chillingly flawed — is unknown. But Indian and American intelligence officials saw signs pointing to Lashkar-e-Taiba, an Islamist group from the disputed region of Kashmir that is increasingly collaborating with the Taliban and Al Qaeda. What makes that especially frightening is that the group received training and support from Pakistan’s intelligence services, before it was officially banned in 2002.

We fear that whoever was behind it, the carnage will unleash dangerous new furies between nuclear-armed India and Pakistan. And we fear it will divert even more of Pakistan’s attention and troops away from fighting extremists on its western border with Afghanistan.

India’s prime minister, Manmohan Singh, has so far shown extraordinary forbearance. But there are already strong calls for him to retaliate — with or without proof of who was behind the attack. We urge him to carefully consider the consequences.  India’s leaders must be very careful not to ignite a religious war inside their own borders. Any military confrontation with Pakistan would be hugely costly in human life. And even the threat of war would be hugely damaging to India’s extraordinary economic progress.

The Bush administration must use all of its influence to ensure that India’s leaders recognize these dangers. And it must assure the Indians that it will bring all of the pressure it can on Pakistan to cooperate fully with the investigation — no matter where it leads.

We were heartened when Pakistan’s civilian government immediately agreed to send the new chief of the country’s powerful intelligence agency, the ISI, to India. We hoped that meant the government was confident that the ISI played no role in the attack. Or that it was finally prepared to purge its ranks of all those who have aided and abetted extremists.

Unfortunately, the offer was quickly withdrawn after the Pakistani Army and opposition parties objected. The government then announced that a lower-level intelligence official would go at some point. By Saturday, Pakistani officials were blustering as if they were the victims. Despite all of the recent horrors Pakistan has suffered, its military and intelligence services still do not understand that the terrorists pose a mortal threat to their own country.

In coming days India will have to look inward to see where and how its government failed to protect its citizens. The United States is still learning the lessons of its own failures before 9/11, but it can help in the process.

Washington’s most important role will be to urge the Indians and Pakistanis to step back from the brink. The next administration will then have to move quickly to encourage serious negotiations over the future of Kashmir and genuine cooperation to defeat extremists.

Deficits and the Future
NYTIMES
By PAUL KRUGMAN
December 1, 2008

Right now there’s intense debate about how aggressive the United States government should be in its attempts to turn the economy around. Many economists, myself included, are calling for a very large fiscal expansion to keep the economy from going into free fall. Others, however, worry about the burden that large budget deficits will place on future generations.

But the deficit worriers have it all wrong. Under current conditions, there’s no trade-off between what’s good in the short run and what’s good for the long run; strong fiscal expansion would actually enhance the economy’s long-run prospects.

The claim that budget deficits make the economy poorer in the long run is based on the belief that government borrowing “crowds out” private investment — that the government, by issuing lots of debt, drives up interest rates, which makes businesses unwilling to spend on new plant and equipment, and that this in turn reduces the economy’s long-run rate of growth. Under normal circumstances there’s a lot to this argument.

But circumstances right now are anything but normal. Consider what would happen next year if the Obama administration gave in to the deficit hawks and scaled back its fiscal plans.

Would this lead to lower interest rates? It certainly wouldn’t lead to a reduction in short-term interest rates, which are more or less controlled by the Federal Reserve. The Fed is already keeping those rates as low as it can — virtually at zero — and won’t change that policy unless it sees signs that the economy is threatening to overheat. And that doesn’t seem like a realistic prospect any time soon.

What about longer-term rates? These rates, which are already at a half-century low, mainly reflect expected future short-term rates. Fiscal austerity could push them even lower — but only by creating expectations that the economy would remain deeply depressed for a long time, which would reduce, not increase, private investment.

The idea that tight fiscal policy when the economy is depressed actually reduces private investment isn’t just a hypothetical argument: it’s exactly what happened in two important episodes in history.

The first took place in 1937, when Franklin Roosevelt mistakenly heeded the advice of his own era’s deficit worriers. He sharply reduced government spending, among other things cutting the Works Progress Administration in half, and also raised taxes. The result was a severe recession, and a steep fall in private investment.

The second episode took place 60 years later, in Japan. In 1996-97 the Japanese government tried to balance its budget, cutting spending and raising taxes. And again the recession that followed led to a steep fall in private investment.

Just to be clear, I’m not arguing that trying to reduce the budget deficit is always bad for private investment. You can make a reasonable case that Bill Clinton’s fiscal restraint in the 1990s helped fuel the great U.S. investment boom of that decade, which in turn helped cause a resurgence in productivity growth.

What made fiscal austerity such a bad idea both in Roosevelt’s America and in 1990s Japan were special circumstances: in both cases the government pulled back in the face of a liquidity trap, a situation in which the monetary authority had cut interest rates as far as it could, yet the economy was still operating far below capacity.

And we’re in the same kind of trap today — which is why deficit worries are misplaced.

One more thing: Fiscal expansion will be even better for America’s future if a large part of the expansion takes the form of public investment — of building roads, repairing bridges and developing new technologies, all of which make the nation richer in the long run.

Should the government have a permanent policy of running large budget deficits? Of course not. Although public debt isn’t as bad a thing as many people believe — it’s basically money we owe to ourselves — in the long run the government, like private individuals, has to match its spending to its income.

But right now we have a fundamental shortfall in private spending: consumers are rediscovering the virtues of saving at the same moment that businesses, burned by past excesses and hamstrung by the troubles of the financial system, are cutting back on investment. That gap will eventually close, but until it does, government spending must take up the slack. Otherwise, private investment, and the economy as a whole, will plunge even more.

The bottom line, then, is that people who think that fiscal expansion today is bad for future generations have got it exactly wrong. The best course of action, both for today’s workers and for their children, is to do whatever it takes to get this economy on the road to recovery.
Lest We Forget
NYTIMES
By PAUL KRUGMAN
November 28, 2008

A few months ago I found myself at a meeting of economists and finance officials, discussing — what else? — the crisis. There was a lot of soul-searching going on. One senior policy maker asked, “Why didn’t we see this coming?”

There was, of course, only one thing to say in reply, so I said it: “What do you mean ‘we,’ white man?”

Seriously, though, the official had a point. Some people say that the current crisis is unprecedented, but the truth is that there were plenty of precedents, some of them of very recent vintage. Yet these precedents were ignored. And the story of how “we” failed to see this coming has a clear policy implication — namely, that financial market reform should be pressed quickly, that it shouldn’t wait until the crisis is resolved.

About those precedents: Why did so many observers dismiss the obvious signs of a housing bubble, even though the 1990s dot-com bubble was fresh in our memories?

Why did so many people insist that our financial system was “resilient,” as Alan Greenspan put it, when in 1998 the collapse of a single hedge fund, Long-Term Capital Management, temporarily paralyzed credit markets around the world?

Why did almost everyone believe in the omnipotence of the Federal Reserve when its counterpart, the Bank of Japan, spent a decade trying and failing to jump-start a stalled economy?

One answer to these questions is that nobody likes a party pooper. While the housing bubble was still inflating, lenders were making lots of money issuing mortgages to anyone who walked in the door; investment banks were making even more money repackaging those mortgages into shiny new securities; and money managers who booked big paper profits by buying those securities with borrowed funds looked like geniuses, and were paid accordingly. Who wanted to hear from dismal economists warning that the whole thing was, in effect, a giant Ponzi scheme?

There’s also another reason the economic policy establishment failed to see the current crisis coming. The crises of the 1990s and the early years of this decade should have been seen as dire omens, as intimations of still worse troubles to come. But everyone was too busy celebrating our success in getting through those crises to notice.

Consider, in particular, what happened after the crisis of 1997-98. This crisis showed that the modern financial system, with its deregulated markets, highly leveraged players and global capital flows, was becoming dangerously fragile. But when the crisis abated, the order of the day was triumphalism, not soul-searching.

Time magazine famously named Mr. Greenspan, Robert Rubin and Lawrence Summers “The Committee to Save the World” — the “Three Marketeers” who “prevented a global meltdown.” In effect, everyone declared a victory party over our pullback from the brink, while forgetting to ask how we got so close to the brink in the first place.

In fact, both the crisis of 1997-98 and the bursting of the dot-com bubble probably had the perverse effect of making both investors and public officials more, not less, complacent. Because neither crisis quite lived up to our worst fears, because neither brought about another Great Depression, investors came to believe that Mr. Greenspan had the magical power to solve all problems — and so, one suspects, did Mr. Greenspan himself, who opposed all proposals for prudential regulation of the financial system.

Now we’re in the midst of another crisis, the worst since the 1930s. For the moment, all eyes are on the immediate response to that crisis. Will the Fed’s ever more aggressive efforts to unfreeze the credit markets finally start getting somewhere? Will the Obama administration’s fiscal stimulus turn output and employment around? (I’m still not sure, by the way, whether the economic team is thinking big enough.)

And because we’re all so worried about the current crisis, it’s hard to focus on the longer-term issues — on reining in our out-of-control financial system, so as to prevent or at least limit the next crisis. Yet the experience of the last decade suggests that we should be worrying about financial reform, above all regulating the “shadow banking system” at the heart of the current mess, sooner rather than later.

For once the economy is on the road to recovery, the wheeler-dealers will be making easy money again — and will lobby hard against anyone who tries to limit their bottom lines. Moreover, the success of recovery efforts will come to seem preordained, even though it wasn’t, and the urgency of action will be lost.

So here’s my plea: even though the incoming administration’s agenda is already very full, it should not put off financial reform. The time to start preventing the next crisis is now.

The Obama Team’s New York Ties
NYTIMES
By Sewell Chan
November 25, 2008, 1:09 pm

As President-elect Barack Obama prepares to take office, there have been some rumblings about New Yorkers anxious over the ascension of Chicagoans to positions of power in Washington. But some of those fears may be premature. A number of the Obama team’s key players have roots in New York City, and two top appointees, Eric H. Holder Jr., who is likely to become attorney general, and David Axelrod, who will be senior adviser to the president, graduated from Stuyvesant High School in Manhattan.

Mr. Holder, who was born in the Bronx, played basketball for Stuyvesant, where he graduated in 1969 before going on to Columbia College and Columbia Law School. Mr. Axelrod, who was the chief strategist for the Obama campaign, grew up in Stuyvesant Town. He graduated from Stuyvesant in 1972 before attending the University of Chicago. (He stayed there.)

The Web site for Stuyvesant’s alumni has made note of the Holder-Axelrod connection, but it has not been widely noted elsewhere.

“It’s a math and science high school by tradition, and noted for its Nobel laureates, but less well known is the fact that many of the alumni have gone into public service,” said Alec Klein, a journalism professor at Northwestern University and author of a book about Stuyvesant, “A Class Apart: Prodigies, Pressure, and Passion Inside One of America’s Best High Schools” (Simon & Schuster, 2007).

Mr. Klein added, “The school attracts students who are interested in changing the world — not only in math and science, but through public service, the arts and other means.”

And there are others in the Obama circle with strong New York City roots.

Richard J. Danzig, who was secretary of the Navy in the Clinton administration and is being considered for a senior national security position, was born in the city and graduated from the Bronx High School of Science in 1961.

Gov. Edward G. Rendell of Pennsylvania, who might become secretary of energy or transportation, was born on the Upper West Side and attended Riverdale Country School in the Bronx.

Jacob J. Lew, who was director of the Office of Management and Budget in the Clinton administration and could assume a rule as an economic adviser under Mr. Obama, graduated from Forest Hills High School in Queens in 1972 before going on to Harvard.

The New York City schools chancellor, Joel I. Klein, who was an assistant attorney general in the Clinton administration, graduated from William Cullen Bryant High School in Long Island City, Queens.

Still others were at least born in New York City. They include Richard C. Holbrooke, a longtime diplomat, who attended high school in Scarsdale, in Westchester County; Cassandra Q. Butts, a friend of Mr. Obama’s from law school, who is being considered for appointment as a White House adviser and who lived in Brooklyn until she moved to North Carolina at age 9; and Timothy F. Geithner, the nominee for Treasury secretary, who was born in Brooklyn but grew up in Africa and Asia.<