Saturday, January 31, 2009

Bad Banks

Washington is now mulling over the idea of forming a “Bad Bank” that would buy up some or all of the toxic assets, the unwise loans, encumbering the books of banks and making them unwilling to lend. This might cost up to $4 trillion dollars, involve buying the assets at more than they are worth, and eventually losing money on them – perhaps most of the money – and all with taxpayer money. So the banks would get well, the unwise managers who got into this mess would keep their jobs and fancy offices and outlandish bonuses, the investors would retain their capital, and the only people who get hurt in this are the taxpayers, to the tune of perhaps $4 trillion dollars, give or take the odd billion!

Here is an alternate suggestion: DON'T bail out the banks for their stupid mistakes. Let the banks in the worst shape go bankrupt, or get bought up at fire sale prices by stronger banks, as ought to happen in a free market system. Let the incompetent managements lose their jobs. Let the investors who were unwise or greedy enough to invest in such risky ventures lose their money. Depositors are of course insured, so their deposits are safe.

Meanwhile, form new, government-capitalized banks, or recapitalize some of the remaining sound banks, using all the trillions Congress proposes to use to buy bad assets or bail out failing banks, and let/direct them to begin to make prudent loans to creditworthy businesses and homeowners. Needless to say, the taxpayer ought to get equity in these banks equivalent to the capitalization supplied, so that eventually in better times these shares can be sold off to help pay the enormous national debt we are accumulating (and the law ought to REQUIRE repayment of debt from the proceeds of such sales , else Congress will just see this as more money they can spend).

The current schemes being considered still look to me like Congress bailing out Wall Street to save them from the consequences of their own folly, at the expense of the taxpayer. And the evidence thus far suggests it isn’t doing anything to solve the main problem – that credit is still frozen despite the billions already poured into the banks.

Thursday, January 29, 2009

Will it work?

The House has now passed an $819 billion dollar stimulus package. Despite President Obama’s attempts to produce a bipartisan bill, not a single Republican voted for it, and the Democrats excluded the Republicans completely while shaping the bill. This doesn’t bode well for bipartisan efforts on the Hill.

The Republicans argue that tax cuts are a more effective way to get money quickly into the economy. But there isn’t much evidence to support that. The Bush stimulus bill earlier in 2008, which gave most people a tax rebate, had almost no perceptible effect on the economy. It seems likely that any tax rebates from this new bill will be similarly ineffective, especially as long as consumers are frightened and worried about the economy and the security of their jobs, if they even have a job by now.

The Democrats argue that the solution is to inject a lot of new money into the economy, but in fact most of what they have proposed in the bill will take years to put in place. Besides that, the bill has become a free-for-all for Democrats to fund every program they ever dreamed of funding. Some, like more money for education or to computerize medical records, are laudable in themselves, but will not have much effect on the economy for years. Others, like $20 million in sod for the Mall in Washington, are just plain stupid.

Nor has the TARP program (the first $700 billion Congress gave away) been particularly impressive. Credit is still tight, and the Wall Street types still don’t get it, as evidenced by the outsized bonuses still being paid even as banks ask for government bailouts. The argument that these bonuses are essential to keep their best talent makes me wonder – what talent? The same bright guys who got us into this mess in the first place? And why did the government have to force Citibank not to take delivery of a new $50 million corporate jet – who was so dumb at Citibank that they thought buying a $50 million jet when you are being bailed out by the government was a good idea?

I expect Congress feels the need to be seen to be doing something, but I don’t hold out much hope that this next $819 billion will have much effect, beyond inflating the national debt and expanding the size of government.

What probably needs to happen is short-term nationalization of the banks, perhaps with some process that takes many of their bad assets off their books. Then the government could force them to begin lending again, and incidentally clean out their incompetent management before letting them go private again. The taxpayers ought to get senior equity out of this, so that when the banks are healthy again they first pay back the U.S. before they resume outsized executive bonuses, multi-million dollar office redecorating, or new $50 million corporate jets.

Monday, January 19, 2009

Recommended - The Last Professor

I recommend the article The Last Professor by Stanley Fish in the Opinion page of yesterday's New York Times. The debate about whether knowledge is valuable for its own sake, or only for its utility in the real world has gone on for centuries, and will probably never be resolved. But there is a related question of whether the traditional ivy-covered-halls model of the university, with required courses not related to acquiring a salable skill, is still valuable in the world. Of course, there are other, subtle, things that go on in such universities, such as establishing membership in an exclusive in-group that may lead to career advancement later on in fields such as law or politics.

But there remains the issue. Undergraduate and graduate work that is required to enter the sciences or engineering or medicine or history or linguistics, for example, is clearly useful. But what about undergraduate or graduate work in, say, poetry or literary criticism? Are these courses just a playground for the idle rich, or do they have some real utility in the world?

Note that I'm not questioning the utility of poetry or literary criticism, just the utility of teaching about them in a university. It's not clear to me that any of the great poets would have been improved by taking such courses. And I'm not sure my own appreciate of poetry was improved by the one course I took in it -- I recall thinking at the time that the lecturer was probably finding in the poems far more symbolism than the poet ever intended, and that symbolism was probably drawn far more from the lecturer's own experience and psyche than the poet's. Perhaps this just reflects my own limitations, but it does make me wonder.......

Of course the traditional university education was long a status symbol, marking off the wealthy aristocracy from the common folk. And university-educated people could always reassert that status in any group by demonstrating that they had read the classics and could quote Greek philosophers. But that carries much less weight in today's world, which values far higher demonstrable achievement in fields such as business or science or politics, so perhaps it has become passe.

Sunday, January 18, 2009

Recommended - Bush Showed US is no Paper Tiger

It's popular, especially among the liberal press, to bash President Bush, and his administration certainly did make enough mistakes. But there is another side to the story, and I recommend Debra Saunders' article Bush showed U.S. is no Paper Tiger, in today's San Francisco Chronicle.

Recommended - Chronicle of a Suicide Foretold: The Case of Israel

I recommend Immanuel Wallerstein's article Chronicle of a Suicide Foretold: The Case of Israel. Wallerstein generally has a perspective on world affairs much different than the conventional wisdom, and so provides a useful counterpoise -- a sort of out- of-the-box view -- on what is going on.

Recommended - From Gaza to Guantanamo

I recommend Victor Davis Hanson's recent article From Gaza to Guantanamo. He wanders a bit in the article, but his core points are worth thinking about.

Recommended - Time for (self) shock Therapy

I recommend Thomas Friedman's Op Ed piece in today's New York Times, Time For (Self) Shock Therapy.

We have pumped hundreds of billions of dollars into the banking system so far, and nothing really seems to have improved. I agree with Friedman - it's time to get real with the banks.

Friday, January 16, 2009

Ambushed on the Potomac

The January/February 2009 issue of The National Interest includes an article by Richard Perle entitled “Ambushed on the Potomac” (no, there isn’t an online version – you will have to find a copy in your library to read the whole article). The gist of the article is that the Federal bureaucracy is a world unto itself, with its own settled world view and prejudices and agenda, and President-elect Obama will soon find, as President Bush did, that he can say what he likes in speeches, but that the civil servants in the State Department and Defense Department and CIA and other key agencies in the bureaucracy will in the end work to implement their own agenda, not his.

Two paragraphs in the article especially drew my attention:

For eight years George W. Bush pulled the levers of government – sometimes frantically – never realizing that they were disconnected from the machinery and the exertion was largely futile. As a result, the foreign and security policies declared by the president in speeches, in public and private meetings, in backgrounders and memoranda often had little or no effect on the sprawling bureaucracies charged with carrying out the president’s policies. They didn’t need his directives: they had their own.

and
It will not be easy to asses objectively the foreign and security policy of the Bush administration anytime soon. Its central feature, the war in Iraq, has generated emotions that all but preclude rational discourse. And it will be nearly impossible to persuade those whose minds are made up – often on the basis of tendentious reporting and reckless blogs – to reconsider what they firmly believe they know. Too much has been written and said that is wildly inaccurate and too many of those who have expressed judgments have done so, not as disinterested observers, but as partisan participants in a rancorous debate.

In the early 1890’s there was a wonderful British TV comedy series entitled “Yes Minister” in which the elected minister, attempting to bring change to his department, is outwitted in each episode by his Permanent Secretary, Sir Humphrey Appleby, a long-serving civil servant with far-flung tentacles throughout the civil servant establishment. Richard Perle argues that much the same happens in real life in the American bureaucracy, and that this accounts for much of the confusion and ineptness in execution that we see from our government.

Wednesday, January 14, 2009

Recommended - Why Israel Can't Make Peace With Hamas

I recommend yesterday's New York Times Op Ed piece Why Israel Can't Make Peace With Hamas -- "Can't" as in "it's not possible". The world still hasn't figured out how to deal with people who are absolutely sure they are doing God's work, and have no ability to entertain even the slightest doubt that they might be wrong - whether they are Muslim militants in the Middle East or American Christian fundamentalists.

Tuesday, January 13, 2009

Recommended - The Difference Between Israel and Hamas

I recommend today’s article The Difference Between Israel and Hamas By Dennis Prager. I am still amazed at the apparent inability of much of the world to see the moral difference between Israel, fighting to reduce attacks on its citizens, and at times for its very life, and its militant Arab enemies, bent on another Holocaust. Of course, the world media is complicit in this – whether from latent anti-Semitism or just an unprincipled drive to sell more news. But I’m amazed at how much of the world’s population buys the largely one-sided view the world media offer.

Sunday, January 11, 2009

Recommended - The Hundred Year's War

I recommend the article "The Hundred Year's War" in the January 8th issue of The Economist. It is a pretty balanced view of the opportunities both the Palestinians and the Israelis have missed to make peace, and how changing geopolitics is making peace less likely.

A class act – finally!

In January 2001, when Bill Clinton left the White House, the Clintons took with them a certain amount of White House furnishings and fixtures that weren’t theirs, and which they had to quietly return shortly afterwards. Clinton White House staffers systematically removed the W key from keyboards throughout the Executive Mansion, and there were other rather childish and vindictive actions, plus of course the rush of highly controversial last-minute pardons. All in all it wasn’t a very dignified exit for the President of the most powerful nation on earth.

This time seems, thank goodness, to be much different. President Bush, recognizing the seriousness of the current international situation and the American economic crisis, has gone far further than any previous president in facilitating a smooth transition. High-level joint Bush-Obama teams have worked to prepare joint crisis plans for possible incidents that might occur during or shortly after the transition. President Bush hosted a private luncheon last week for Obama and all the living former presidents, which was apparently a pretty cordial affair. And Obama and Bush have clearly been coordinating their public responses to the international and economic crises, Obama not to undercut Bush in the last few weeks of his term (“we only have one president at a time”), and Bush not to constrain Obama’s options when he takes office. And it was announced today that on the eve of his inauguration, Obama is hosting a series of dinners to honor, among other people, his former Republican opponent Senator McCain.

By all accounts President Bush and President-elect Obama have developed a good, and even warm working relationship over the past month or so.

I have disagreed with a good many of President Bush’s decisions over the past eight years, but despite the accusations of the more rabid Bush-haters, I have never doubted (a) that he was a good, principled man, or (b) that he really cared about this nation. And it has been clear throughout the campaign that President-elect Obama is a decent man who also cares deeply about America.

Both are class acts. What a relief.

Saturday, January 10, 2009

With friends like this, who needs enemies?

This report from the New York Times appeared this evening on the web:
WASHINGTON – President George W. Bush rejected a plea from Israel last year to help it raid Iran's main nuclear complex, opting instead to authorize a new U.S. covert action aimed at sabotaging Iran's suspected nuclear weapons program, The New York Times reported.

Israel's request was for specialized bunker-busting bombs that it wanted for an attack that tentatively involved flying over Iraq to reach Iran's major nuclear complex at Natanz, where the country's only known uranium enrichment plant is located, the Times reported Saturday in its online edition. The White House deflected requests for the bombs and flyover but said it would improve intelligence-sharing with Israel on covert U.S. efforts to sabotage Iran's nuclear program.

The covert efforts, which began in early 2008, involved plans to penetrate Iran's nuclear supply chain abroad and undermine electrical systems and other networks on which Iran relies, the Times said, citing interviews with current and former U.S. officials, outside experts and international nuclear inspectors who spoke on condition of anonymity. The covert program will be handed off to President-elect Barack Obama, who will deciding whether to continue it.

I’m all for a free press, but surely this boarders on treason. Those current and former officials are clearly disclosing highly classified information, and ought to be prosecuted for it. And once again the New York Times is aiding and abetting the enemy just to get a good story. The last time was when the New York Times revealed that we were tracking Osama Bin Laden and some of his associates by their cell phones, thus instantly alerting them and rendering that technique useless.

With friends like this, who needs enemies?

Friday, January 9, 2009

Would UN Peacekeepers be Useful in Gaza?

The UN Security Council resolution passed last night calling for a cease fire in Gaza was predictably rejected out of hand by both Israel and Hamas, since it was really nothing more than a bit of political theater and did nothing to address the concerns of either party. But in the long run no doubt the UN will push to put UN “peacekeepers” into Gaza. Will that do anything useful?

Well, it was UN “peacekeepers” who stood aside in Rwanda in 1994 while Hutu tribesmen slaughtered some 800,000 Tutsi. It was UN “peacekeepers” who stood aside in Bosnia in 1995 while Serbs slaughtered about 8000 Muslim men in the UN-declared “safe areas” of Srebrenica (in fact, the Serbs used the UN peacekeepers as hostages to deter a military response from the West). It’s UN “peacekeepers” in Lebanon right now who have allowed Hezbollah to rearm, and fire rockets into Israel yesterday.

In general, the record of UN peacekeeping is pretty dismal, and it’s not likely to be any more effective in Gaza. The problem is that the UN peacekeepers are never given either enough force nor adequate rules of engagement to be effective against determined opponents. If the UN were willing to put 10,000 or 20,000 heavily-armed troops into Gaza, and allow them to search buildings and detain suspects and destroy tunnels and shoot militants, it might (possibly) be effective. But of course they wouldn’t do that – they would put in a small, lightly-armed “show” force with a sharply limited brief which will do nothing to deter Hamas from rearming and resuming rocket and suicide bomber attacks, but will make it difficult for Israel to respond.

Putting UN “peacekeepers” into Gaza would just be a publicity move for the UN. It wouldn’t do anything to solve the underlying problems. It would just give all sides time to rearm and prepare for the next phase of the war, as is happening in Lebanon right now.

Wednesday, January 7, 2009

Recommended - The Mideast's Ground Zero

I recommend Thomas Freidman's article yesterday in the New York Times, entitled "The Mideast’s Ground Zero".

Fighting insurgencies

The Israeli incursion into Gaza, with its attendant civilian casualties, points out again that the world as a whole has not yet figured out how to effectively fight an insurgency hiding amidst a civilian population, and even using that civilian population as a deliberate human shield. Israel has had the same problem repeatedly, most recently in Lebanon. And it is essentially the same problem we ourselves face now in Iraq and Afghanistan, and that the French and then we faced in Vietnam forty years ago.

No one in this debacle owns the moral high ground. Israel and Hamas both carry substantial blame, as do all the Arab governments around Israel that have repeatedly stirred up this pot, cynically using the Palestinians as pawns in their power games even as they publically berate Israel for mistreating them. The Palestinians themselves are to blame for voting terrorist organizations like Hamas into power, and shouldn’t be surprised at the consequences. The old colonial powers, led by Britain, are responsible for the inane national borders that promote sectarian violence throughout the region. And the rest of the world, including the U.S., carries substantial blame for largely ignoring the problems in the region except when they boil over into open warfare.

So let’s ignore the rights and wrongs of the situation, which by now are hopelessly muddled. Let’s look at the problem pragmatically. Hamas is a terrorist organization publically committed to the destruction of Israel by any possible means, and feels no compunction to follow “civilized” rules of warfare – they are quite willing to target civilians of all ages with rockets, mortars and suicide bombers. In that respect they really are no different than all nations were during World War II, when both sides (all considered “civilized” nations”) bombed civilians quite deliberately.

Israel is an embattled nation forged in the horror of the Holocaust, surrounded by largely hostile Arab enemies who have twice tried to annihilate them, and under constant attack by fanatical non-state militant groups. One can hardly be surprised that they react as they do – indeed they react as most nations, including ourselves, would. Remember that our own reaction to the 9/11 attack on us, by just a dozen terrorists, was to take down the governments of two entire nations – Afghanistan and Iraq.

It’s pretty clear that the cease fire that so many world leaders are trying to put in place will do nothing to solve the problem. A cease fire now will be hailed by Hamas as a victory (perception is reality, however deluded that perception is) and embolden them to continue attacks on Israel just as soon as Iran and Syria can resupply them with new rockets. An international force to patrol Gaza will only work if it has teeth enough to shut down Hamas rocket and mortar attacks, stop the smuggling of weapons in from Egypt, and prevent suicide bombers from crossing the borders, which means fighting the militants in the streets just as the Israelis are doing now, and despite the public rhetoric no nation really cares enough about the situation to actually risk significant casualties among their own troops.

It is also pretty clear that the major insurgent organizations, like Hamas in Gaza and Hezbollah in Lebanon, have no interest in negotiating a settlement with Israel. Their leaders hold power so long as they can incite hatred of Israel and exploit that hatred. Their supporters in Iran and Syria and elsewhere will fund them only so long as they remain a puppet army against Israel. Cease to oppose Israel and they lose all their power and support. So they have no incentive whatsoever to negotiate a reasonable accommodation.

On the other hand, it is equally clear that if these sorts of insurgencies are allowed to continue, they will lead to repeated bloodshed, reprisals, and acts of terror, not only against Israel, but against everyone – Arab governments not deemed “pure” enough, Western nations seen as supporters of Israel, or any nation that harbors a disgruntled minority. And eventually one of these terrorist groups will get their hands on a nuclear or biological weapon, with disastrous results for all of us.

The Roman Empire was very effective at handling insurgencies, but the world no longer has the stomach for their techniques (level the cities, kill all the men, sell the women and children into slavery, and salt the earth). But in fact it works. Despite administration claims that the “surge” in Iraq reduced violence, the evidence is that sectarian violence really dropped off after enough neighborhoods had been “ethnically cleansed” by local militias, and had once again become pure Shia or pure Sunni, reducing the ethnic tension. The Balkans quieted down after “ethnic cleansing” had realigned the de-facto boarders between opposing groups. And its worth noting that despite public rhetoric in support of the Palestinians, Hezbollah in Lebanon has not piled on with rockets attacks of its own during this Gaza fight – they were hurt badly enough last time that they are reluctant to take on the Israelis again, at least not yet.

In the case of Israel, there will probably never be peace so long as there is a large and resentful Palestinian population embedded within its natural boarders, ready to be whipped into yet another infitada by Israel’s enemies. Fatah in the West Bank seems to be inching toward a reasonable accommodation with Israel that will perhaps lead to stability there. But if Gaza continues to be controlled by terrorists, I don’t see that Israel has much choice but to try to take them out, whatever the civilian casualties.

Tuesday, January 6, 2009

Recommended - Mideast Peace Rests With Arabs, Not U.S., Europe

I recommend Bernard Lewis's new commentary "Mideast Peace Rests With Arabs, Not U.S., Europe" on Bloomberg.com. Bernard Lewis. a retired professor of Near Eastern Studies at Princeton, is one of the leading US experts on the Middle East

Sunday, January 4, 2009

Any European protests about this?

“BAGHDAD, Jan 4, 2009 – A woman hiding among Iranian pilgrims with a bomb strapped under her black robe killed more than three dozen people on Sunday outside a Baghdad mosque during ceremonies commemorating the death of one of Shiite Islam's most revered saints.

The suicide attack, the most recent in a series that has killed more than 60 people in less that a week, was the latest to mar the transfer of many security responsibilities from the U.S. military to Iraqi forces.

The attack in Baghdad's northern Shiite neighborhood of Kazimiyah comes two days after a suicide bomber slipped into a luncheon at a tribal leader's home south of Baghdad and killed at least 23 people. More than a dozen other people have died in other attacks since New Year's Day.”


Any European street marches about this? Any Arab outrage about this? But Gaza…….

Saturday, January 3, 2009

Isn't it interesting....

“LONDON (Reuters) Jan. 3, 2009 – Thousands of chanting, banner-waving demonstrators marched in cities across Europe on Saturday to demand a halt to Israeli bombing in the Gaza Strip. Protests were held in Britain, France, Germany, Greece, Ireland, Italy, the Netherlands, Spain and Turkey as the Israeli offensive entered its second week, and before Israel confirmed ground forces had entered Gaza.”

Isn’t it interesting that a few hundred civilian deaths in Gaza can produce such an outpouring of opposition, yet tens of thousands of deaths in Africa (the 1994 Rwanda massacre involved about 800,000 deaths, the 2003 massacre in the Congo killed more than 1000 in one day, and the Uganda rebels killed more than 400 civilians just this past Christmas Day) cause hardly a ripple, and certainly don’t spark massive street demonstrations in Europe.

And isn’t it interesting that Muslim insurgents, suicide bombers, and militias killed an average of 25 civilians a day in Iraq in 2008 – around 10,000 over the year – without provoking street demonstrations in Europe. In 2007 they averaged about 67 per day – around 25,000 civilian deaths – and even that wasn’t enough to provoke demonstrations. Yet some 300-400 civilian deaths in Gaza (if we believe the higher estimate touted by Hamas) outrages Europe.