Bullying CBO. WSJ Editorial
Intimidator in Chief
WSJ, Jul 23, 2009
The Washington Post recently ran a story quoting Democrats as bragging that President Obama has deliberately patterned his legislative strategy after LBJ’s, circa 1965.This may explain the treatment of Douglas Elmendorf, the director of the supposedly nonpartisan Congressional Budget Office who last week told Congress that you can’t “save” money on health care by having government insure everyone.
For that bit of truth-telling, he was first excoriated by Senate Majority Leader Harry Reid. Then he was summoned, er, invited to the White House for an extraordinary and inappropriate meeting Monday with President Obama and a phalanx of economic and health-care advisers.
Writing on his blog after news of the meeting became public, Mr. Elmendorf diplomatically noted that “The President asked me and outside experts for our views about achieving cost savings in health reform.” No doubt he did. But Mr. Elmendorf, a Democrat, will also have received the message that continuing apostasy will not be good for his future political career.
As Douglas Holtz-Eakin, the Republican who ran CBO from 2003 to 2005, put it, “The only appearance could be that they’re leaning on him. CBO was created for Congress, for independent analysis. The White House did him [Elmendorf] a terrible disservice.” On second thought, perhaps we’re being unfair to LBJ, whose method was a combination of muscle and flattery. Mr. Obama learned his methods in Chicago.
Wednesday, July 22, 2009
DLC: More Growth, Less Gridlock: Toward a New Trade Agenda
More Growth, Less Gridlock: Toward a New Trade Agenda. By Edward Gresser
DLC Policy Report, July 20, 2009
Editor's Note: The full text of this report is available in PDF format.
Executive Summary
Trade policy has made little progress over the last decade. Since 2000, the U.S. has reached no major multilateral trade agreement and has left its own trade regime static. The WTO's Doha Round has been stalled for years, and in the Bush era trade debates devolved into a series of emotional arguments over a free-trade agreement program that touches only a small fraction of America's trade and has had little impact on growth, employment or national security.
President Obama has a chance for a fresh start, and in most ways his global-economy policy has in most ways started out very well. The administration has taken a strong line against the revival of protectionism, which, as history has taught us, would otherwise pose a threat to recovery from the financial crisis. Policymakers have worked with Congress to ease public anxieties through a major expansion of Trade Adjustment Assistance (TAA), and the White House has embraced an ambitious Strategic and Economic Dialogue with China on macroeconomics, climate change and security policy. Focus is now turning toward legislation that would upgrade the Food and Drug Administration's (FDA) inspection systems.
Trade liberalization has been slower to show progress. This reflects the fact that the trade agenda Obama inherited contributes much less than trade policy could to his new administration's main economic and foreign policy goals.
Over the next year, the administration needs first to clear the decks, and then shift the trade agenda to one that directly supports its top objectives: recovery from crisis, improved relations with the world generally and Muslim states in particular, and developing new, high-tech sources for America's future growth, innovation and high-wage employment. As the Obama administration works to pull the nation out of its economic crisis, trade policy should accordingly work to spur growth by promoting innovative new industries and clean technologies at home, and by supporting the globe's poorest citizens and reconciliation with the Muslim world.
Today's agenda has three big problems:
Archaic Tariffs: First, the U.S. trade regime contains archaic tariffs that fail to protect jobs, but are very effective at obstructing growth and job creation in poor countries and large majority-Muslim states. In so doing, the incumbent tariff regime conflicts with America's development and security goals. To date, the administration has not proposed any major overhaul.
Stalled Free Trade Agreements: Second, the Free Trade Agreement (FTA) program that has dominated trade debate for the last decade is delivering only modest results for the U.S. and poor results for our partners, while creating intense discord. The FTA program's effectiveness seems to be waning anyway, as companies value the flexibility of global supply chains more than the tariff benefits they receive through compliance with FTA rules of origin.
The Doha Hurdle: Third, the intense focus on agriculture in the Doha Round of the World Trade Organization (WTO), though a good idea in its own right, has not led to multilateral trade progress on farm trade reform, but has nevertheless blocked potential progress on larger industrial sectors.
The administration and its chief trade negotiator, U.S. Trade Representative Ron Kirk, face a daunting challenge in clearing the decks of the agenda they inherited. Over the next year, Kirk should work to pass the remaining three free trade agreements (with Panama, Korea and Colombia) and then shelve efforts to promote additional FTAs for the time being. Meanwhile negotiators should make a major effort to conclude the Doha Round.
Once the decks are cleared, the administration should center trade policy on a new agenda that does more for American economic and national security. This new agenda would include:
Tariff Reform: Providing broad tariff waivers for the low-income countries and large majority-Muslim states now excluded from the FTA network and other, more ambitious preference programs.
Broad, Sectoral Agreements: Concluding WTO "sectoral" agreements among the world's major economies (though not necessarily all WTO members) covering goods and services in the big new industries likely to be the sources of growth, innovation and job creation for the United States in the next decade, including information and media industries, health technology and services, clean energy and environmental technologies.
Regional Initiatives: Promoting regional initiatives with Europe and Asia, which should be focused not on existing disputes or regulatory issues, but on issues likely to emerge in the next decade: the treatment of nanotechnology, biotechnology, privacy and other technologically driven issues. Additionally, or alternatively, the Obama administration should work to rationalize the existing fragmented FTA networks in Latin America and the Pacific.
Download the full report
Ed Gresser is a Senior Fellow and Director of the DLC's Global Economy Project.
DLC Policy Report, July 20, 2009
Editor's Note: The full text of this report is available in PDF format.
Executive Summary
Trade policy has made little progress over the last decade. Since 2000, the U.S. has reached no major multilateral trade agreement and has left its own trade regime static. The WTO's Doha Round has been stalled for years, and in the Bush era trade debates devolved into a series of emotional arguments over a free-trade agreement program that touches only a small fraction of America's trade and has had little impact on growth, employment or national security.
President Obama has a chance for a fresh start, and in most ways his global-economy policy has in most ways started out very well. The administration has taken a strong line against the revival of protectionism, which, as history has taught us, would otherwise pose a threat to recovery from the financial crisis. Policymakers have worked with Congress to ease public anxieties through a major expansion of Trade Adjustment Assistance (TAA), and the White House has embraced an ambitious Strategic and Economic Dialogue with China on macroeconomics, climate change and security policy. Focus is now turning toward legislation that would upgrade the Food and Drug Administration's (FDA) inspection systems.
Trade liberalization has been slower to show progress. This reflects the fact that the trade agenda Obama inherited contributes much less than trade policy could to his new administration's main economic and foreign policy goals.
Over the next year, the administration needs first to clear the decks, and then shift the trade agenda to one that directly supports its top objectives: recovery from crisis, improved relations with the world generally and Muslim states in particular, and developing new, high-tech sources for America's future growth, innovation and high-wage employment. As the Obama administration works to pull the nation out of its economic crisis, trade policy should accordingly work to spur growth by promoting innovative new industries and clean technologies at home, and by supporting the globe's poorest citizens and reconciliation with the Muslim world.
Today's agenda has three big problems:
Archaic Tariffs: First, the U.S. trade regime contains archaic tariffs that fail to protect jobs, but are very effective at obstructing growth and job creation in poor countries and large majority-Muslim states. In so doing, the incumbent tariff regime conflicts with America's development and security goals. To date, the administration has not proposed any major overhaul.
Stalled Free Trade Agreements: Second, the Free Trade Agreement (FTA) program that has dominated trade debate for the last decade is delivering only modest results for the U.S. and poor results for our partners, while creating intense discord. The FTA program's effectiveness seems to be waning anyway, as companies value the flexibility of global supply chains more than the tariff benefits they receive through compliance with FTA rules of origin.
The Doha Hurdle: Third, the intense focus on agriculture in the Doha Round of the World Trade Organization (WTO), though a good idea in its own right, has not led to multilateral trade progress on farm trade reform, but has nevertheless blocked potential progress on larger industrial sectors.
The administration and its chief trade negotiator, U.S. Trade Representative Ron Kirk, face a daunting challenge in clearing the decks of the agenda they inherited. Over the next year, Kirk should work to pass the remaining three free trade agreements (with Panama, Korea and Colombia) and then shelve efforts to promote additional FTAs for the time being. Meanwhile negotiators should make a major effort to conclude the Doha Round.
Once the decks are cleared, the administration should center trade policy on a new agenda that does more for American economic and national security. This new agenda would include:
Tariff Reform: Providing broad tariff waivers for the low-income countries and large majority-Muslim states now excluded from the FTA network and other, more ambitious preference programs.
Broad, Sectoral Agreements: Concluding WTO "sectoral" agreements among the world's major economies (though not necessarily all WTO members) covering goods and services in the big new industries likely to be the sources of growth, innovation and job creation for the United States in the next decade, including information and media industries, health technology and services, clean energy and environmental technologies.
Regional Initiatives: Promoting regional initiatives with Europe and Asia, which should be focused not on existing disputes or regulatory issues, but on issues likely to emerge in the next decade: the treatment of nanotechnology, biotechnology, privacy and other technologically driven issues. Additionally, or alternatively, the Obama administration should work to rationalize the existing fragmented FTA networks in Latin America and the Pacific.
Download the full report
Ed Gresser is a Senior Fellow and Director of the DLC's Global Economy Project.
Delivery of US Assistance to Aid Pakistan's Crisis Response
Delivery of U.S. Assistance to Aid Pakistan's Crisis Response
Bureau of Public Affairs, Office of the Spokesman, Washington, DC, July 22, 2009
Special Representative for Afghanistan and Pakistan Richard C. Holbrooke announced today that $165 million in U.S. funds are being committed to programs for humanitarian relief, early recovery, and long-term reconstruction efforts to support the internally displaced in Pakistan. The distribution of these previously pledged funds will boost the capacity of critical programs to meet the changing needs of displaced families in Pakistan.
The $165 million will be channeled both to meet the ongoing needs of displaced persons, located in camps and in host communities, and also to address the needs of families as they return to rebuild their homes and communities in the North-West Frontier Province (NWFP) of Pakistan.
Specifically:
· $45 million will be provided by the U.S. Agency for International Development (USAID) to support locally driven rehabilitation of basic infrastructure, including: water systems; health facilities; schools; roads; and bridges – maximizing the use of local labor and resources.
· $30 million will be contributed by USAID for small-scale infrastructure and community development grants for displaced families in NWFP.
· $25 million will be provided by USAID to give families resources needed to rebuild their homes and livelihood. This will be facilitated through community-driven, quick-impact cash-for-work programs in areas of reconstruction and return. This could include removal of rubble and rehabilitation of irrigation systems in conflict-affected areas. As part of this assistance, USAID will support Pakistani government efforts to rebuild public buildings and facilitate the return of civil servants.
· $23 million will be contributed to the UN High Commissioner for Refugees (UNHCR) from the State Department’s Bureau for Refugees, Population and Migration (PRM) for humanitarian relief and managing the voluntary return of displaced families to their homes. This includes providing emergency shelter and non-food items to camps managed by UNHCR, as well as to displaced families in host communities. It also includes protecting children from violence and reuniting unaccompanied children with their parents, and funding facilitated transportation to assist the Pakistani authorities to support the return of displaced people to their homes.
· $20 million will be provided by USAID to rebuild education infrastructure across Dir, Swat, and Buner. More than 315 schools in NWFP have been damaged or destroyed due to the Taliban insurgency, and nearly 4,000 more are serving as informal camps for approximately 200,000 internally displaced persons.
· $12 million will be contributed to the International Committee of the Red Cross (ICRC), from the State Department’s bureau for refugees, to be used for humanitarian operations and assistance for returning families as they rebuild their lives. This includes support for operations that assist displaced families in host communities and in camps run by the Pakistan Red Crescent Society/ICRC, help for those who need to trace their family members, and provision of aid to people living in conflict-affected areas.
· $10 million will be provided by USAID’s Office of Foreign Disaster Assistance (OFDA) for immediate livelihood and agriculture programs, mobile health clinics in Buner and Swat, and cash-for-work activities. As part of this assistance, OFDA will provide tool kits valued at approximately $2 million, which will be distributed through the International Organization for Migration (IOM) and will include supplies such as shovels, pickaxes, and hammers.
Much of this money was included in the Obama Administration’s supplemental appropriation for Pakistan last month, and the new disbursements will enable UNHCR, ICRC, IOM and other courageous relief organizations to more effectively and expeditiously serve the Pakistani people.
In addition to new programs from existing financial commitments, the State Department will provide a new grant of nearly $1 million that will allow the Pakistani government to work with U.S. and Pakistani telecom companies to deploy an SMS-text messaging system designed to help displaced families obtain critical information from the government, international relief agencies, and local community members.
Today’s announcement is a further indication of the American people’s commitment to support the Pakistani people in their time of need. Since May 2009, the Obama Administration has committed more than $320 million to the Pakistani people to help them respond to this crisis. In addition to its own contributions, the U.S. Government has also actively encouraged financial contributions from other countries.
PRN: 2009/764
Bureau of Public Affairs, Office of the Spokesman, Washington, DC, July 22, 2009
Special Representative for Afghanistan and Pakistan Richard C. Holbrooke announced today that $165 million in U.S. funds are being committed to programs for humanitarian relief, early recovery, and long-term reconstruction efforts to support the internally displaced in Pakistan. The distribution of these previously pledged funds will boost the capacity of critical programs to meet the changing needs of displaced families in Pakistan.
The $165 million will be channeled both to meet the ongoing needs of displaced persons, located in camps and in host communities, and also to address the needs of families as they return to rebuild their homes and communities in the North-West Frontier Province (NWFP) of Pakistan.
Specifically:
· $45 million will be provided by the U.S. Agency for International Development (USAID) to support locally driven rehabilitation of basic infrastructure, including: water systems; health facilities; schools; roads; and bridges – maximizing the use of local labor and resources.
· $30 million will be contributed by USAID for small-scale infrastructure and community development grants for displaced families in NWFP.
· $25 million will be provided by USAID to give families resources needed to rebuild their homes and livelihood. This will be facilitated through community-driven, quick-impact cash-for-work programs in areas of reconstruction and return. This could include removal of rubble and rehabilitation of irrigation systems in conflict-affected areas. As part of this assistance, USAID will support Pakistani government efforts to rebuild public buildings and facilitate the return of civil servants.
· $23 million will be contributed to the UN High Commissioner for Refugees (UNHCR) from the State Department’s Bureau for Refugees, Population and Migration (PRM) for humanitarian relief and managing the voluntary return of displaced families to their homes. This includes providing emergency shelter and non-food items to camps managed by UNHCR, as well as to displaced families in host communities. It also includes protecting children from violence and reuniting unaccompanied children with their parents, and funding facilitated transportation to assist the Pakistani authorities to support the return of displaced people to their homes.
· $20 million will be provided by USAID to rebuild education infrastructure across Dir, Swat, and Buner. More than 315 schools in NWFP have been damaged or destroyed due to the Taliban insurgency, and nearly 4,000 more are serving as informal camps for approximately 200,000 internally displaced persons.
· $12 million will be contributed to the International Committee of the Red Cross (ICRC), from the State Department’s bureau for refugees, to be used for humanitarian operations and assistance for returning families as they rebuild their lives. This includes support for operations that assist displaced families in host communities and in camps run by the Pakistan Red Crescent Society/ICRC, help for those who need to trace their family members, and provision of aid to people living in conflict-affected areas.
· $10 million will be provided by USAID’s Office of Foreign Disaster Assistance (OFDA) for immediate livelihood and agriculture programs, mobile health clinics in Buner and Swat, and cash-for-work activities. As part of this assistance, OFDA will provide tool kits valued at approximately $2 million, which will be distributed through the International Organization for Migration (IOM) and will include supplies such as shovels, pickaxes, and hammers.
Much of this money was included in the Obama Administration’s supplemental appropriation for Pakistan last month, and the new disbursements will enable UNHCR, ICRC, IOM and other courageous relief organizations to more effectively and expeditiously serve the Pakistani people.
In addition to new programs from existing financial commitments, the State Department will provide a new grant of nearly $1 million that will allow the Pakistani government to work with U.S. and Pakistani telecom companies to deploy an SMS-text messaging system designed to help displaced families obtain critical information from the government, international relief agencies, and local community members.
Today’s announcement is a further indication of the American people’s commitment to support the Pakistani people in their time of need. Since May 2009, the Obama Administration has committed more than $320 million to the Pakistani people to help them respond to this crisis. In addition to its own contributions, the U.S. Government has also actively encouraged financial contributions from other countries.
PRN: 2009/764
Arrogance
Arrogance. By John Stossel
RealClearpolitics, July 22, 2009
It's crazy for a group of mere mortals to try to design 15 percent of the U.S. economy. It's even crazier to do it by August.
Yet that is what some members of Congress presume to do. They intend, as the New York Times puts it, "to reinvent the nation's health care system".
Let that sink in. A handful of people who probably never even ran a small business actually think they can reinvent the health care system.
Politicians and bureaucrats clearly have no idea how complicated markets are. Every day people make countless tradeoffs, in all areas of life, based on subjective value judgments and personal information as they delicately balance their interests, needs and wants. Who is in a better position than they to tailor those choices to best serve their purposes? Yet the politicians believe they can plan the medical market the way you plan a birthday party.
Leave aside how much power the state would have to exercise over us to run the medical system. Suffice it say that if government attempts to control our total medical spending, sooner or later, it will have to control us.
Also leave aside the inevitable huge cost of any such program. The administration estimates $1.5 trillion over 10 years with no increase in the deficit. But no one should take that seriously. When it comes to projecting future costs, these guys may as well be reading chicken entrails. In 1965, hospitalization coverage under Medicare was projected to cost $9 billion by 1990. The actual price tag was $66 billion.
The sober Congressional Budget Office debunked the reformers' cost projections. Trust us, Obama says. "At the end of the day, we'll have significant cost controls," presidential adviser David Axelrod said. Give me a break.
Now focus on the spectacle of that handful of men and women daring to think they can design the medical marketplace. They would empower an even smaller group to determine -- for millions of diverse Americans -- which medical treatments are worthy and at what price.
How do these arrogant, presumptuous politicians believe they can know enough to plan for the rest of us? Who do they think they are? Under cover of helping uninsured people get medical care, they live out their megalomaniacal social-engineering fantasies -- putting our physical and economic health at risk in the process.
Will the American people say "Enough!"?
I fear not, based on the comments on my blog. When I argued last week that medical insurance makes people indifferent to costs, I got comments like: "I guess the 47 million people who don't have health care should just die, right, John?" "You will always be a shill for corporate America."
Like the politicians, most people are oblivious to F.A. Hayek's insight that the critical information needed to run an economy -- or even 15 percent of one -- doesn't exist in any one place where it is accessible to central planners. Instead, it is scattered piecemeal among millions of people. All those people put together are far wiser and better informed than Congress could ever be. Only markets -- private property, free exchange and the price system -- can put this knowledge at the disposal of entrepreneurs and consumers, ensuring the system will serve the people and not just the political class.
This is no less true for medical care than for food, clothing and shelter. It is profit-seeking entrepreneurship that gave us birth control pills, robot limbs, Lasik surgery and so many other good things that make our lives longer and more pain free.
To the extent the politicians ignore this, they are the enemy of our well-being. The belief that they can take care of us is rank superstition.
Who will save us from these despots? What Adam Smith said about the economic planner applies here, too: The politician who tries to design the medical marketplace would "assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it."
Copyright 2009, Creators Syndicate Inc.
RealClearpolitics, July 22, 2009
It's crazy for a group of mere mortals to try to design 15 percent of the U.S. economy. It's even crazier to do it by August.
Yet that is what some members of Congress presume to do. They intend, as the New York Times puts it, "to reinvent the nation's health care system".
Let that sink in. A handful of people who probably never even ran a small business actually think they can reinvent the health care system.
Politicians and bureaucrats clearly have no idea how complicated markets are. Every day people make countless tradeoffs, in all areas of life, based on subjective value judgments and personal information as they delicately balance their interests, needs and wants. Who is in a better position than they to tailor those choices to best serve their purposes? Yet the politicians believe they can plan the medical market the way you plan a birthday party.
Leave aside how much power the state would have to exercise over us to run the medical system. Suffice it say that if government attempts to control our total medical spending, sooner or later, it will have to control us.
Also leave aside the inevitable huge cost of any such program. The administration estimates $1.5 trillion over 10 years with no increase in the deficit. But no one should take that seriously. When it comes to projecting future costs, these guys may as well be reading chicken entrails. In 1965, hospitalization coverage under Medicare was projected to cost $9 billion by 1990. The actual price tag was $66 billion.
The sober Congressional Budget Office debunked the reformers' cost projections. Trust us, Obama says. "At the end of the day, we'll have significant cost controls," presidential adviser David Axelrod said. Give me a break.
Now focus on the spectacle of that handful of men and women daring to think they can design the medical marketplace. They would empower an even smaller group to determine -- for millions of diverse Americans -- which medical treatments are worthy and at what price.
How do these arrogant, presumptuous politicians believe they can know enough to plan for the rest of us? Who do they think they are? Under cover of helping uninsured people get medical care, they live out their megalomaniacal social-engineering fantasies -- putting our physical and economic health at risk in the process.
Will the American people say "Enough!"?
I fear not, based on the comments on my blog. When I argued last week that medical insurance makes people indifferent to costs, I got comments like: "I guess the 47 million people who don't have health care should just die, right, John?" "You will always be a shill for corporate America."
Like the politicians, most people are oblivious to F.A. Hayek's insight that the critical information needed to run an economy -- or even 15 percent of one -- doesn't exist in any one place where it is accessible to central planners. Instead, it is scattered piecemeal among millions of people. All those people put together are far wiser and better informed than Congress could ever be. Only markets -- private property, free exchange and the price system -- can put this knowledge at the disposal of entrepreneurs and consumers, ensuring the system will serve the people and not just the political class.
This is no less true for medical care than for food, clothing and shelter. It is profit-seeking entrepreneurship that gave us birth control pills, robot limbs, Lasik surgery and so many other good things that make our lives longer and more pain free.
To the extent the politicians ignore this, they are the enemy of our well-being. The belief that they can take care of us is rank superstition.
Who will save us from these despots? What Adam Smith said about the economic planner applies here, too: The politician who tries to design the medical marketplace would "assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it."
Copyright 2009, Creators Syndicate Inc.
Tuesday, July 21, 2009
Jindal: How to Make Health-Care Reform Bipartisan
How to Make Health-Care Reform Bipartisan. By BOBBY JINDAL
WSJ, Jul 22, 2009
In Washington, it seems history always repeats itself. That’s what’s happening now with health-care reform. This is an unfortunate turn of events for Americans who are legitimately concerned about the skyrocketing cost of a basic human need.
In 1993 and 1994, Hillary Clinton’s health-care reform proposal failed because it was concocted in secret without the guiding hand of public consensus-building, and because it was a philosophical over-reach. Today President Barack Obama is repeating these mistakes.
The reason is plain: The left in Washington has concluded that honesty will not yield its desired policy result. So it resorts to a fundamentally dishonest approach to reform. I say this because the marketing of the Democrats’ plans as presented in the House of Representatives and endorsed heartily by President Obama rests on three falsehoods.
First, Mr. Obama doggedly promises that if you like your (private) health-care coverage now, you can keep it. That promise is hollow, because the Democrats’ reforms are designed to push an ever-increasing number of Americans into a government-run health-care plan.
If a so-called public option is part of health-care reform, the Lewin Group study estimates over 100 million Americans may leave private plans for government-run health care. Any government plan will benefit from taxpayer subsidies and be able to operate at a financial loss—competing unfairly in the marketplace until private plans are driven out of business. The government plan will become so large that it will set, rather than negotiate, prices. This will inevitably lead to monopoly, with a resulting threat to the quality of our health care.
Second, the Democrats disingenuously argue their reforms will not diminish the quality of our health care even as government involvement in the delivery of that health care increases massively. For all of us who have seen the Federal Emergency Management Agency’s response to hurricanes, this contention is laughable on its face. When government bureaucracies drive the delivery of services—in this case inserting themselves between health-care providers and their patients—quality degradation will surely come. House Democrats seem willing to accept that problem to achieve their philosophical aim—the long-term removal of for-profit entities from the health-care landscape.
Third, Mr. Obama’s rhetoric paints a picture of a massive new benefit that will actually cost average Americans less than what they pay today. The Democrats want middle-class taxpayers to believe they won’t feel the pinch of this initiative, even as their employers are assessed massive new taxes. They might as well try to argue that up is down. The analysis of the Democrats’ proposal by the Congressional Budget Office shows that it will not reduce government spending on health care, and that it will substantially increase the federal deficit—and this despite all the tax increases.
I served in the U.S. House with a majority of the current 435 representatives, and I am confident that if given the proper amount of legislative review, they will not accept the flawed Pelosi plan that is currently stuck in committee. Yet there is general agreement among Republicans and Democrats that we need health-care reform to bring costs down. This agreement can be the basis of a genuine, bipartisan reform, once the current over-reach by Mr. Obama and Mrs. Pelosi fails. Leaders of both parties can then come together behind health-care reform that stresses these seven principles:
•Consumer choice guided by transparency. We need a system where individuals choose an integrated plan that adopts the best disease-management practices, as opposed to fragmented care. Pricing and outcomes data for all tests, treatments and procedures should be posted on the Internet. Portable electronic health-care records can reduce paperwork, duplication and errors, while also empowering consumers to seek the provider that best meets their needs.
•Aligned consumer interests. Consumers should be financially invested in better health decisions through health-savings accounts, lower premiums and reduced cost sharing. If they seek care in cost-effective settings, comply with medical regimens, preventative care, and lifestyles that reduce the likelihood of chronic disease, they should share in the savings.
•Medical lawsuit reform. The practice of defensive medicine costs an estimated $100 billion-plus each year, according to the American Academy of Orthopaedic Surgeons, which used a study by economists Daniel P. Kessler and Mark B. McClellan. No health reform is serious about reducing costs unless it reduces the costs of frivolous lawsuits.
•Insurance reform. Congress should establish simple guidelines to make policies more portable, with more coverage for pre-existing conditions. Reinsurance, high-risk pools, and other mechanisms can reduce the dangers of adverse risk selection and the incentive to avoid covering the sick. Individuals should also be able to keep insurance as they change jobs or states.
•Pooling for small businesses, the self-employed, and others. All consumers should have equal opportunity to buy the lowest-cost, highest-quality insurance available. Individuals should benefit from the economies of scale currently available to those working for large employers. They should be free to purchase their health coverage without tax penalty through their employer, church, union, etc.
•Pay for performance, not activity. Roughly 75% of health-care spending is for the care of chronic conditions such as heart disease, cancer and diabetes—and there is little coordination of this care. We can save money and improve outcomes by using integrated networks of care with rigorous, transparent outcome measures emphasizing prevention and disease management.
•Refundable tax credits. Low-income working Americans without health insurance should get help in buying private coverage through a refundable tax credit. This is preferable to building a separate, government-run health-care plan.
These steps would bring down health-care costs. They would not bankrupt our nation or increase taxes in the midst of a recession. They are achievable reforms with bipartisan consensus and public support. All they require is a willingness by the president to slow down and have an honest discussion with Americans about the real downstream consequences of his ideas. Let’s start there.
Mr. Jindal is governor of Louisiana.
WSJ, Jul 22, 2009
In Washington, it seems history always repeats itself. That’s what’s happening now with health-care reform. This is an unfortunate turn of events for Americans who are legitimately concerned about the skyrocketing cost of a basic human need.
In 1993 and 1994, Hillary Clinton’s health-care reform proposal failed because it was concocted in secret without the guiding hand of public consensus-building, and because it was a philosophical over-reach. Today President Barack Obama is repeating these mistakes.
The reason is plain: The left in Washington has concluded that honesty will not yield its desired policy result. So it resorts to a fundamentally dishonest approach to reform. I say this because the marketing of the Democrats’ plans as presented in the House of Representatives and endorsed heartily by President Obama rests on three falsehoods.
First, Mr. Obama doggedly promises that if you like your (private) health-care coverage now, you can keep it. That promise is hollow, because the Democrats’ reforms are designed to push an ever-increasing number of Americans into a government-run health-care plan.
If a so-called public option is part of health-care reform, the Lewin Group study estimates over 100 million Americans may leave private plans for government-run health care. Any government plan will benefit from taxpayer subsidies and be able to operate at a financial loss—competing unfairly in the marketplace until private plans are driven out of business. The government plan will become so large that it will set, rather than negotiate, prices. This will inevitably lead to monopoly, with a resulting threat to the quality of our health care.
Second, the Democrats disingenuously argue their reforms will not diminish the quality of our health care even as government involvement in the delivery of that health care increases massively. For all of us who have seen the Federal Emergency Management Agency’s response to hurricanes, this contention is laughable on its face. When government bureaucracies drive the delivery of services—in this case inserting themselves between health-care providers and their patients—quality degradation will surely come. House Democrats seem willing to accept that problem to achieve their philosophical aim—the long-term removal of for-profit entities from the health-care landscape.
Third, Mr. Obama’s rhetoric paints a picture of a massive new benefit that will actually cost average Americans less than what they pay today. The Democrats want middle-class taxpayers to believe they won’t feel the pinch of this initiative, even as their employers are assessed massive new taxes. They might as well try to argue that up is down. The analysis of the Democrats’ proposal by the Congressional Budget Office shows that it will not reduce government spending on health care, and that it will substantially increase the federal deficit—and this despite all the tax increases.
I served in the U.S. House with a majority of the current 435 representatives, and I am confident that if given the proper amount of legislative review, they will not accept the flawed Pelosi plan that is currently stuck in committee. Yet there is general agreement among Republicans and Democrats that we need health-care reform to bring costs down. This agreement can be the basis of a genuine, bipartisan reform, once the current over-reach by Mr. Obama and Mrs. Pelosi fails. Leaders of both parties can then come together behind health-care reform that stresses these seven principles:
•Consumer choice guided by transparency. We need a system where individuals choose an integrated plan that adopts the best disease-management practices, as opposed to fragmented care. Pricing and outcomes data for all tests, treatments and procedures should be posted on the Internet. Portable electronic health-care records can reduce paperwork, duplication and errors, while also empowering consumers to seek the provider that best meets their needs.
•Aligned consumer interests. Consumers should be financially invested in better health decisions through health-savings accounts, lower premiums and reduced cost sharing. If they seek care in cost-effective settings, comply with medical regimens, preventative care, and lifestyles that reduce the likelihood of chronic disease, they should share in the savings.
•Medical lawsuit reform. The practice of defensive medicine costs an estimated $100 billion-plus each year, according to the American Academy of Orthopaedic Surgeons, which used a study by economists Daniel P. Kessler and Mark B. McClellan. No health reform is serious about reducing costs unless it reduces the costs of frivolous lawsuits.
•Insurance reform. Congress should establish simple guidelines to make policies more portable, with more coverage for pre-existing conditions. Reinsurance, high-risk pools, and other mechanisms can reduce the dangers of adverse risk selection and the incentive to avoid covering the sick. Individuals should also be able to keep insurance as they change jobs or states.
•Pooling for small businesses, the self-employed, and others. All consumers should have equal opportunity to buy the lowest-cost, highest-quality insurance available. Individuals should benefit from the economies of scale currently available to those working for large employers. They should be free to purchase their health coverage without tax penalty through their employer, church, union, etc.
•Pay for performance, not activity. Roughly 75% of health-care spending is for the care of chronic conditions such as heart disease, cancer and diabetes—and there is little coordination of this care. We can save money and improve outcomes by using integrated networks of care with rigorous, transparent outcome measures emphasizing prevention and disease management.
•Refundable tax credits. Low-income working Americans without health insurance should get help in buying private coverage through a refundable tax credit. This is preferable to building a separate, government-run health-care plan.
These steps would bring down health-care costs. They would not bankrupt our nation or increase taxes in the midst of a recession. They are achievable reforms with bipartisan consensus and public support. All they require is a willingness by the president to slow down and have an honest discussion with Americans about the real downstream consequences of his ideas. Let’s start there.
Mr. Jindal is governor of Louisiana.
WSJ Editorial: Repealing ERISA
Repealing Erisa. WSJ Editorial
WSJ, Jul 20, 2009
One by one, President Obama’s health-care promises are being exposed by the details of the actual legislation: Costs will explode, not fall; taxes will have to soar to pay for it; and now we are learning that you won’t be able to “keep your health-care plan” either.
The reality is that the House health bill, which the Administration praised to the rafters, will force drastic changes in almost all insurance coverage, including the employer plans that currently work best. About 177 million people—or 62% of those under age 65—get insurance today through their jobs, and while rising costs are a problem, according to every survey most employees are happy with the coverage. A major reason for this relative success is a 1974 federal law known by the acronym Erisa, or the Employee Retirement Income Security Act.
Erisa allows employers that self-insure—that is, those large enough to build their own risk pools and pay benefits directly—to offer uniform plans across state lines. This lets thousands of businesses avoid, for the most part, the costly federal and state regulations on covered treatments, pricing, rate setting and so on. It also gives them flexibility to design insurance to recruit and retain workers in a competitive labor market. Roughly 75% of employer-based coverage is governed by Erisa’s “freedom of purchase” rules.
Goodbye to all that. The House bill says that after a five-year grace period all Erisa insurance offerings will have to win government approval—both by the Department of Labor and a new “health choices commissioner” who will set federal standards for what is an acceptable health plan. This commissar—er, commissioner—can fine employers that don’t comply and even has “suspension of enrollment” powers for plans that he or she has vetoed, until “satisfied that the basis for such determination has been corrected and is not likely to recur.”
In other words, the insurance coverage of 132 million people—the product of enormously complex business and health-care decisions—will now be subject to bureaucratic nanomanagement. If employers don’t meet some still-to-be-defined minimum package, they’ll have to renegotiate thousands of contracts nationwide to Washington’s specifications. The political incentives will of course demand an ever-more generous “minimum” benefit and less cost-sharing, much as many states have driven up prices in the individual insurance market with mandates. Erisa’s pluralistic structure will gradually constrict toward a single national standard.
Yet a computer programming firm, say, and a grocery store chain have very different insurance needs, and in any case may not be able to afford the same kind and level of benefits. Innovation in insurance products will also be subject to political tampering. Likely casualties include the wellness initiatives that give workers financial incentives to take more responsibility for their own health, such as Safeway’s. Some politicians will claim that’s unfair. High-deductible plans with health savings accounts are also out of political favor, therefore certain to go overboard. If you have one of those and like it, too bad.
The new Erisa regime will be especially difficult to meet for businesses that operate with very slim profit margins or have large numbers of part-time or seasonal workers. They may simply “cash out” and surrender 8% of their payroll under the employer-mandate tax. A new analysis by the Lewin Group, prepared for the Heritage Foundation, finds that some 88.1 million people will be shifted out of private employer health insurance under the House bill. If those people preferred their prior plan, well, too bad again.
The largest employers—though not all—may clear the minimum bar, at least at first. But in addition to the “health choices” administrative burden, the cost of labor will rise because the House guts another key section of Erisa. Currently, lawsuits about employee benefits are barred under the law, allowing large employers to avoid the state tort lotteries in disputes over coverage. No longer. As a gratuity to the trial bar, Democrats will now subject businesses to these liabilities in the name of health “reform.”
So when Mr. Obama says that “If you like your health-care plan, you’ll be able to keep your health-care plan, period. No one will take it away, no matter what,” he’s wrong. Period. What he’s not telling the American people is that the government will so dramatically change the rules of the insurance market that employers will find it impossible to maintain their current coverage, and many will drop it altogether. The more we inspect the House bill, the more it looks to be one of the worst pieces of legislation ever introduced in Congress.
WSJ, Jul 20, 2009
One by one, President Obama’s health-care promises are being exposed by the details of the actual legislation: Costs will explode, not fall; taxes will have to soar to pay for it; and now we are learning that you won’t be able to “keep your health-care plan” either.
The reality is that the House health bill, which the Administration praised to the rafters, will force drastic changes in almost all insurance coverage, including the employer plans that currently work best. About 177 million people—or 62% of those under age 65—get insurance today through their jobs, and while rising costs are a problem, according to every survey most employees are happy with the coverage. A major reason for this relative success is a 1974 federal law known by the acronym Erisa, or the Employee Retirement Income Security Act.
Erisa allows employers that self-insure—that is, those large enough to build their own risk pools and pay benefits directly—to offer uniform plans across state lines. This lets thousands of businesses avoid, for the most part, the costly federal and state regulations on covered treatments, pricing, rate setting and so on. It also gives them flexibility to design insurance to recruit and retain workers in a competitive labor market. Roughly 75% of employer-based coverage is governed by Erisa’s “freedom of purchase” rules.
Goodbye to all that. The House bill says that after a five-year grace period all Erisa insurance offerings will have to win government approval—both by the Department of Labor and a new “health choices commissioner” who will set federal standards for what is an acceptable health plan. This commissar—er, commissioner—can fine employers that don’t comply and even has “suspension of enrollment” powers for plans that he or she has vetoed, until “satisfied that the basis for such determination has been corrected and is not likely to recur.”
In other words, the insurance coverage of 132 million people—the product of enormously complex business and health-care decisions—will now be subject to bureaucratic nanomanagement. If employers don’t meet some still-to-be-defined minimum package, they’ll have to renegotiate thousands of contracts nationwide to Washington’s specifications. The political incentives will of course demand an ever-more generous “minimum” benefit and less cost-sharing, much as many states have driven up prices in the individual insurance market with mandates. Erisa’s pluralistic structure will gradually constrict toward a single national standard.
Yet a computer programming firm, say, and a grocery store chain have very different insurance needs, and in any case may not be able to afford the same kind and level of benefits. Innovation in insurance products will also be subject to political tampering. Likely casualties include the wellness initiatives that give workers financial incentives to take more responsibility for their own health, such as Safeway’s. Some politicians will claim that’s unfair. High-deductible plans with health savings accounts are also out of political favor, therefore certain to go overboard. If you have one of those and like it, too bad.
The new Erisa regime will be especially difficult to meet for businesses that operate with very slim profit margins or have large numbers of part-time or seasonal workers. They may simply “cash out” and surrender 8% of their payroll under the employer-mandate tax. A new analysis by the Lewin Group, prepared for the Heritage Foundation, finds that some 88.1 million people will be shifted out of private employer health insurance under the House bill. If those people preferred their prior plan, well, too bad again.
The largest employers—though not all—may clear the minimum bar, at least at first. But in addition to the “health choices” administrative burden, the cost of labor will rise because the House guts another key section of Erisa. Currently, lawsuits about employee benefits are barred under the law, allowing large employers to avoid the state tort lotteries in disputes over coverage. No longer. As a gratuity to the trial bar, Democrats will now subject businesses to these liabilities in the name of health “reform.”
So when Mr. Obama says that “If you like your health-care plan, you’ll be able to keep your health-care plan, period. No one will take it away, no matter what,” he’s wrong. Period. What he’s not telling the American people is that the government will so dramatically change the rules of the insurance market that employers will find it impossible to maintain their current coverage, and many will drop it altogether. The more we inspect the House bill, the more it looks to be one of the worst pieces of legislation ever introduced in Congress.
The Fed’s Exit Strategy, by Ben Bernanke
The Fed’s Exit Strategy. By BEN BERNANKE
WSJ, Jul 21, 2009
The depth and breadth of the global recession has required a highly accommodative monetary policy. Since the onset of the financial crisis nearly two years ago, the Federal Reserve has reduced the interest-rate target for overnight lending between banks (the federal-funds rate) nearly to zero. We have also greatly expanded the size of the Fed’s balance sheet through purchases of longer-term securities and through targeted lending programs aimed at restarting the flow of credit.
These actions have softened the economic impact of the financial crisis. They have also improved the functioning of key credit markets, including the markets for interbank lending, commercial paper, consumer and small-business credit, and residential mortgages.
My colleagues and I believe that accommodative policies will likely be warranted for an extended period. At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road. The Federal Open Market Committee, which is responsible for setting U.S. monetary policy, has devoted considerable time to issues relating to an exit strategy. We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner.
The exit strategy is closely tied to the management of the Federal Reserve balance sheet. When the Fed makes loans or acquires securities, the funds enter the banking system and ultimately appear in the reserve accounts held at the Fed by banks and other depository institutions. These reserve balances now total about $800 billion, much more than normal. And given the current economic conditions, banks have generally held their reserves as balances at the Fed.
But as the economy recovers, banks should find more opportunities to lend out their reserves. That would produce faster growth in broad money (for example, M1 or M2) and easier credit conditions, which could ultimately result in inflationary pressures—unless we adopt countervailing policy measures. When the time comes to tighten monetary policy, we must either eliminate these large reserve balances or, if they remain, neutralize any potential undesired effects on the economy.
To some extent, reserves held by banks at the Fed will contract automatically, as improving financial conditions lead to reduced use of our short-term lending facilities, and ultimately to their wind down. Indeed, short-term credit extended by the Fed to financial institutions and other market participants has already fallen to less than $600 billion as of mid-July from about $1.5 trillion at the end of 2008. In addition, reserves could be reduced by about $100 billion to $200 billion each year over the next few years as securities held by the Fed mature or are prepaid. However, reserves likely would remain quite high for several years unless additional policies are undertaken.
Even if our balance sheet stays large for a while, we have two broad means of tightening monetary policy at the appropriate time: paying interest on reserve balances and taking various actions that reduce the stock of reserves. We could use either of these approaches alone; however, to ensure effectiveness, we likely would use both in combination.
Congress granted us authority last fall to pay interest on balances held by banks at the Fed. Currently, we pay banks an interest rate of 0.25%. When the time comes to tighten policy, we can raise the rate paid on reserve balances as we increase our target for the federal funds rate.
Banks generally will not lend funds in the money market at an interest rate lower than the rate they can earn risk-free at the Federal Reserve. Moreover, they should compete to borrow any funds that are offered in private markets at rates below the interest rate on reserve balances because, by so doing, they can earn a spread without risk.
Thus the interest rate that the Fed pays should tend to put a floor under short-term market rates, including our policy target, the federal-funds rate. Raising the rate paid on reserve balances also discourages excessive growth in money or credit, because banks will not want to lend out their reserves at rates below what they can earn at the Fed.
Considerable international experience suggests that paying interest on reserves effectively manages short-term market rates. For example, the European Central Bank allows banks to place excess reserves in an interest-paying deposit facility. Even as that central bank’s liquidity-operations substantially increased its balance sheet, the overnight interbank rate remained at or above its deposit rate. In addition, the Bank of Japan and the Bank of Canada have also used their ability to pay interest on reserves to maintain a floor under short-term market rates.
Despite this logic and experience, the federal-funds rate has dipped somewhat below the rate paid by the Fed, especially in October and November 2008, when the Fed first began to pay interest on reserves. This pattern partly reflected temporary factors, such as banks’ inexperience with the new system.
However, this pattern appears also to have resulted from the fact that some large lenders in the federal-funds market, notably government-sponsored enterprises such as Fannie Mae and Freddie Mac, are ineligible to receive interest on balances held at the Fed, and thus they have an incentive to lend in that market at rates below what the Fed pays banks.
Under more normal financial conditions, the willingness of banks to engage in the simple arbitrage noted above will tend to limit the gap between the federal-funds rate and the rate the Fed pays on reserves. If that gap persists, the problem can be addressed by supplementing payment of interest on reserves with steps to reduce reserves and drain excess liquidity from markets—the second means of tightening monetary policy. Here are four options for doing this.
First, the Federal Reserve could drain bank reserves and reduce the excess liquidity at other institutions by arranging large-scale reverse repurchase agreements with financial market participants, including banks, government-sponsored enterprises and other institutions. Reverse repurchase agreements involve the sale by the Fed of securities from its portfolio with an agreement to buy the securities back at a slightly higher price at a later date.
Second, the Treasury could sell bills and deposit the proceeds with the Federal Reserve. When purchasers pay for the securities, the Treasury’s account at the Federal Reserve rises and reserve balances decline.
The Treasury has been conducting such operations since last fall under its Supplementary Financing Program. Although the Treasury’s operations are helpful, to protect the independence of monetary policy, we must take care to ensure that we can achieve our policy objectives without reliance on the Treasury.
Third, using the authority Congress gave us to pay interest on banks’ balances at the Fed, we can offer term deposits to banks—analogous to the certificates of deposit that banks offer their customers. Bank funds held in term deposits at the Fed would not be available for the federal funds market.
Fourth, if necessary, the Fed could reduce reserves by selling a portion of its holdings of long-term securities into the open market.
Each of these policies would help to raise short-term interest rates and limit the growth of broad measures of money and credit, thereby tightening monetary policy.
Overall, the Federal Reserve has many effective tools to tighten monetary policy when the economic outlook requires us to do so. As my colleagues and I have stated, however, economic conditions are not likely to warrant tighter monetary policy for an extended period. We will calibrate the timing and pace of any future tightening, together with the mix of tools to best foster our dual objectives of maximum employment and price stability.
—Mr. Bernanke is chairman of the Federal Reserve.
WSJ, Jul 21, 2009
The depth and breadth of the global recession has required a highly accommodative monetary policy. Since the onset of the financial crisis nearly two years ago, the Federal Reserve has reduced the interest-rate target for overnight lending between banks (the federal-funds rate) nearly to zero. We have also greatly expanded the size of the Fed’s balance sheet through purchases of longer-term securities and through targeted lending programs aimed at restarting the flow of credit.
These actions have softened the economic impact of the financial crisis. They have also improved the functioning of key credit markets, including the markets for interbank lending, commercial paper, consumer and small-business credit, and residential mortgages.
My colleagues and I believe that accommodative policies will likely be warranted for an extended period. At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road. The Federal Open Market Committee, which is responsible for setting U.S. monetary policy, has devoted considerable time to issues relating to an exit strategy. We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner.
The exit strategy is closely tied to the management of the Federal Reserve balance sheet. When the Fed makes loans or acquires securities, the funds enter the banking system and ultimately appear in the reserve accounts held at the Fed by banks and other depository institutions. These reserve balances now total about $800 billion, much more than normal. And given the current economic conditions, banks have generally held their reserves as balances at the Fed.
But as the economy recovers, banks should find more opportunities to lend out their reserves. That would produce faster growth in broad money (for example, M1 or M2) and easier credit conditions, which could ultimately result in inflationary pressures—unless we adopt countervailing policy measures. When the time comes to tighten monetary policy, we must either eliminate these large reserve balances or, if they remain, neutralize any potential undesired effects on the economy.
To some extent, reserves held by banks at the Fed will contract automatically, as improving financial conditions lead to reduced use of our short-term lending facilities, and ultimately to their wind down. Indeed, short-term credit extended by the Fed to financial institutions and other market participants has already fallen to less than $600 billion as of mid-July from about $1.5 trillion at the end of 2008. In addition, reserves could be reduced by about $100 billion to $200 billion each year over the next few years as securities held by the Fed mature or are prepaid. However, reserves likely would remain quite high for several years unless additional policies are undertaken.
Even if our balance sheet stays large for a while, we have two broad means of tightening monetary policy at the appropriate time: paying interest on reserve balances and taking various actions that reduce the stock of reserves. We could use either of these approaches alone; however, to ensure effectiveness, we likely would use both in combination.
Congress granted us authority last fall to pay interest on balances held by banks at the Fed. Currently, we pay banks an interest rate of 0.25%. When the time comes to tighten policy, we can raise the rate paid on reserve balances as we increase our target for the federal funds rate.
Banks generally will not lend funds in the money market at an interest rate lower than the rate they can earn risk-free at the Federal Reserve. Moreover, they should compete to borrow any funds that are offered in private markets at rates below the interest rate on reserve balances because, by so doing, they can earn a spread without risk.
Thus the interest rate that the Fed pays should tend to put a floor under short-term market rates, including our policy target, the federal-funds rate. Raising the rate paid on reserve balances also discourages excessive growth in money or credit, because banks will not want to lend out their reserves at rates below what they can earn at the Fed.
Considerable international experience suggests that paying interest on reserves effectively manages short-term market rates. For example, the European Central Bank allows banks to place excess reserves in an interest-paying deposit facility. Even as that central bank’s liquidity-operations substantially increased its balance sheet, the overnight interbank rate remained at or above its deposit rate. In addition, the Bank of Japan and the Bank of Canada have also used their ability to pay interest on reserves to maintain a floor under short-term market rates.
Despite this logic and experience, the federal-funds rate has dipped somewhat below the rate paid by the Fed, especially in October and November 2008, when the Fed first began to pay interest on reserves. This pattern partly reflected temporary factors, such as banks’ inexperience with the new system.
However, this pattern appears also to have resulted from the fact that some large lenders in the federal-funds market, notably government-sponsored enterprises such as Fannie Mae and Freddie Mac, are ineligible to receive interest on balances held at the Fed, and thus they have an incentive to lend in that market at rates below what the Fed pays banks.
Under more normal financial conditions, the willingness of banks to engage in the simple arbitrage noted above will tend to limit the gap between the federal-funds rate and the rate the Fed pays on reserves. If that gap persists, the problem can be addressed by supplementing payment of interest on reserves with steps to reduce reserves and drain excess liquidity from markets—the second means of tightening monetary policy. Here are four options for doing this.
First, the Federal Reserve could drain bank reserves and reduce the excess liquidity at other institutions by arranging large-scale reverse repurchase agreements with financial market participants, including banks, government-sponsored enterprises and other institutions. Reverse repurchase agreements involve the sale by the Fed of securities from its portfolio with an agreement to buy the securities back at a slightly higher price at a later date.
Second, the Treasury could sell bills and deposit the proceeds with the Federal Reserve. When purchasers pay for the securities, the Treasury’s account at the Federal Reserve rises and reserve balances decline.
The Treasury has been conducting such operations since last fall under its Supplementary Financing Program. Although the Treasury’s operations are helpful, to protect the independence of monetary policy, we must take care to ensure that we can achieve our policy objectives without reliance on the Treasury.
Third, using the authority Congress gave us to pay interest on banks’ balances at the Fed, we can offer term deposits to banks—analogous to the certificates of deposit that banks offer their customers. Bank funds held in term deposits at the Fed would not be available for the federal funds market.
Fourth, if necessary, the Fed could reduce reserves by selling a portion of its holdings of long-term securities into the open market.
Each of these policies would help to raise short-term interest rates and limit the growth of broad measures of money and credit, thereby tightening monetary policy.
Overall, the Federal Reserve has many effective tools to tighten monetary policy when the economic outlook requires us to do so. As my colleagues and I have stated, however, economic conditions are not likely to warrant tighter monetary policy for an extended period. We will calibrate the timing and pace of any future tightening, together with the mix of tools to best foster our dual objectives of maximum employment and price stability.
—Mr. Bernanke is chairman of the Federal Reserve.
Monday, July 20, 2009
Why Toxic Assets Are So Hard to Clean Up
Why Toxic Assets Are So Hard to Clean Up. By KENNETH E. SCOTT and JOHN B. TAYLOR
Securitization was maddeningly complex. Mandated transparency is the only solution.
WSJ, Jul 20, 2009
Despite trillions of dollars of new government programs, one of the original causes of the financial crisis -- the toxic assets on bank balance sheets -- still persists and remains a serious impediment to economic recovery. Why are these toxic assets so difficult to deal with? We believe their sheer complexity is the core problem and that only increased transparency will unleash the market mechanisms needed to clean them up.
The bulk of toxic assets are based on residential mortgage-backed securities (RMBS), in which thousands of mortgages were gathered into mortgage pools. The returns on these pools were then sliced into a hierarchy of "tranches" that were sold to investors as separate classes of securities. The most senior tranches, rated AAA, received the lowest returns, and then they went down the line to lower ratings and finally to the unrated "equity" tranches at the bottom.
But the process didn't stop there. Some of the tranches from one mortgage pool were combined with tranches from other mortgage pools, resulting in Collateralized Mortgage Obligations (CMO). Other tranches were combined with tranches from completely different types of pools, based on commercial mortgages, auto loans, student loans, credit card receivables, small business loans, and even corporate loans that had been combined into Collateralized Loan Obligations (CLO). The result was a highly heterogeneous mixture of debt securities called Collateralized Debt Obligations (CDO). The tranches of the CDOs could then be combined with other CDOs, resulting in CDO2.
Each time these tranches were mixed together with other tranches in a new pool, the securities became more complex. Assume a hypothetical CDO2 held 100 CLOs, each holding 250 corporate loans -- then we would need information on 25,000 underlying loans to determine the value of the security. But assume the CDO2 held 100 CDOs each holding 100 RMBS comprising a mere 2,000 mortgages -- the number now rises to 20 million!
Complexity is not the only problem. Many of the underlying mortgages were highly risky, involving little or no down payments and initial rates so low they could never amortize the loan. About 80% of the $2.5 trillion subprime mortgages made since 2000 went into securitization pools. When the housing bubble burst and house prices started declining, borrowers began to default, the lower tranches were hit with losses, and higher tranches became more risky and declined in value.
To better understand the magnitude of the problem and to find solutions, we examined the details of several CDOs using data obtained from SecondMarket, a firm specializing in illiquid assets. One example is a $1 billion CDO2 created by a large bank in 2005. It had 173 investments in tranches issued by other pools: 130 CDOs, and also 43 CLOs each composed of hundreds of corporate loans. It issued $975 million of four AAA tranches, and three subordinate tranches of $55 million. The AAA tranches were bought by banks and the subordinate tranches mostly by hedge funds.
Two of the 173 investments held by this CDO2 were in tranches from another billion-dollar CDO -- created by another bank earlier in 2005 -- which was composed mainly of 155 MBS tranches and 40 CDOs. Two of these 155 MBS tranches were from a $1 billion RMBS pool created in 2004 by a large investment bank, composed of almost 7,000 mortgage loans (90% subprime). That RMBS issued $865 million of AAA notes, about half of which were purchased by Fannie Mae and Freddie Mac and the rest by a variety of banks, insurance companies, pension funds and money managers. About 1,800 of the 7,000 mortgages still remain in the pool, with a current delinquency rate of about 20%.
With so much complexity, and uncertainty about future performance, it is not surprising that the securities are difficult to price and that trading dried up. Without market prices, valuation on the books of banks is suspect and counterparties are reluctant to deal with each other.
The policy response to this problem has been circuitous. The Federal Reserve originally saw the problem as a lack of liquidity in the banking system, and beginning in late 2007 flooded the market with liquidity through new lending facilities. It had very limited success, as banks were still disinclined to buy or trade such securities or take them as collateral. Credit spreads remained higher than normal. In September 2008 credit spreads skyrocketed and credit markets froze. By then it was clear that the problem was not liquidity, but rather the insolvency risks of counterparties with large holdings of toxic assets on their books.
The federal government then decided to buy the toxic assets. The Troubled Asset Relief Program (TARP) was enacted in October 2008 with $700 billion in funding. But that was not how the TARP funds were used. The Treasury concluded that the valuation problem seemed insurmountable, so it attacked the risk issue by bolstering bank capital, buying preferred stock.
But those toxic assets are still there. The latest disposal scheme is the Public-Private Investment Program (PPIP). The concept is that private asset managers would create investment funds of half private and half Treasury (TARP) capital, which would bid on packages of toxic assets that banks offered for sale. The responsibility for valuation is thus shifted to the private sector. But the pricing difficulty remains and this program too may amount to little.
The fundamental problem has remained untouched: insufficient information to permit estimated prices that both buyers and sellers find credible. Why is the information so hard to obtain? While the original MBS pools were often Securities and Exchange Commission (SEC) registered public offerings with considerable detail, CDOs were sold in private placements with confidentiality agreements. Moreover, the nature of the securitization process has made it extremely difficult to determine and follow losses and increasing risk from one tranche and pool to another, and to reach the information about the original borrowers that is needed to estimate future cash flows and price.
This account makes it clear why transparency is so important. To deal with the problem, issuers of asset-backed securities should provide extensive detail in a uniform format about the composition of the original pools and their subsequent structure and performance, whether they were sold as SEC-registered offerings or private placements. By creating a centralized database with this information, the pricing process for the toxic assets becomes possible. Making such a database a reality will restart private securitization markets and will do more for the recovery of the economy than yet another redesign of administrative agency structures. If issuers are not forthcoming, then they should be required to file the information publicly with the SEC.
Mr. Scott is a professor of securities and corporate law at Stanford University and a research fellow at the Hoover Institution. Mr. Taylor, an economics professor at Stanford and senior fellow at the Hoover Institution, is the author of "Getting Off Track: How Government Actions and Interventions Caused, Prolonged and Worsened the Financial Crisis" (Hoover Press, 2009).
Securitization was maddeningly complex. Mandated transparency is the only solution.
WSJ, Jul 20, 2009
Despite trillions of dollars of new government programs, one of the original causes of the financial crisis -- the toxic assets on bank balance sheets -- still persists and remains a serious impediment to economic recovery. Why are these toxic assets so difficult to deal with? We believe their sheer complexity is the core problem and that only increased transparency will unleash the market mechanisms needed to clean them up.
The bulk of toxic assets are based on residential mortgage-backed securities (RMBS), in which thousands of mortgages were gathered into mortgage pools. The returns on these pools were then sliced into a hierarchy of "tranches" that were sold to investors as separate classes of securities. The most senior tranches, rated AAA, received the lowest returns, and then they went down the line to lower ratings and finally to the unrated "equity" tranches at the bottom.
But the process didn't stop there. Some of the tranches from one mortgage pool were combined with tranches from other mortgage pools, resulting in Collateralized Mortgage Obligations (CMO). Other tranches were combined with tranches from completely different types of pools, based on commercial mortgages, auto loans, student loans, credit card receivables, small business loans, and even corporate loans that had been combined into Collateralized Loan Obligations (CLO). The result was a highly heterogeneous mixture of debt securities called Collateralized Debt Obligations (CDO). The tranches of the CDOs could then be combined with other CDOs, resulting in CDO2.
Each time these tranches were mixed together with other tranches in a new pool, the securities became more complex. Assume a hypothetical CDO2 held 100 CLOs, each holding 250 corporate loans -- then we would need information on 25,000 underlying loans to determine the value of the security. But assume the CDO2 held 100 CDOs each holding 100 RMBS comprising a mere 2,000 mortgages -- the number now rises to 20 million!
Complexity is not the only problem. Many of the underlying mortgages were highly risky, involving little or no down payments and initial rates so low they could never amortize the loan. About 80% of the $2.5 trillion subprime mortgages made since 2000 went into securitization pools. When the housing bubble burst and house prices started declining, borrowers began to default, the lower tranches were hit with losses, and higher tranches became more risky and declined in value.
To better understand the magnitude of the problem and to find solutions, we examined the details of several CDOs using data obtained from SecondMarket, a firm specializing in illiquid assets. One example is a $1 billion CDO2 created by a large bank in 2005. It had 173 investments in tranches issued by other pools: 130 CDOs, and also 43 CLOs each composed of hundreds of corporate loans. It issued $975 million of four AAA tranches, and three subordinate tranches of $55 million. The AAA tranches were bought by banks and the subordinate tranches mostly by hedge funds.
Two of the 173 investments held by this CDO2 were in tranches from another billion-dollar CDO -- created by another bank earlier in 2005 -- which was composed mainly of 155 MBS tranches and 40 CDOs. Two of these 155 MBS tranches were from a $1 billion RMBS pool created in 2004 by a large investment bank, composed of almost 7,000 mortgage loans (90% subprime). That RMBS issued $865 million of AAA notes, about half of which were purchased by Fannie Mae and Freddie Mac and the rest by a variety of banks, insurance companies, pension funds and money managers. About 1,800 of the 7,000 mortgages still remain in the pool, with a current delinquency rate of about 20%.
With so much complexity, and uncertainty about future performance, it is not surprising that the securities are difficult to price and that trading dried up. Without market prices, valuation on the books of banks is suspect and counterparties are reluctant to deal with each other.
The policy response to this problem has been circuitous. The Federal Reserve originally saw the problem as a lack of liquidity in the banking system, and beginning in late 2007 flooded the market with liquidity through new lending facilities. It had very limited success, as banks were still disinclined to buy or trade such securities or take them as collateral. Credit spreads remained higher than normal. In September 2008 credit spreads skyrocketed and credit markets froze. By then it was clear that the problem was not liquidity, but rather the insolvency risks of counterparties with large holdings of toxic assets on their books.
The federal government then decided to buy the toxic assets. The Troubled Asset Relief Program (TARP) was enacted in October 2008 with $700 billion in funding. But that was not how the TARP funds were used. The Treasury concluded that the valuation problem seemed insurmountable, so it attacked the risk issue by bolstering bank capital, buying preferred stock.
But those toxic assets are still there. The latest disposal scheme is the Public-Private Investment Program (PPIP). The concept is that private asset managers would create investment funds of half private and half Treasury (TARP) capital, which would bid on packages of toxic assets that banks offered for sale. The responsibility for valuation is thus shifted to the private sector. But the pricing difficulty remains and this program too may amount to little.
The fundamental problem has remained untouched: insufficient information to permit estimated prices that both buyers and sellers find credible. Why is the information so hard to obtain? While the original MBS pools were often Securities and Exchange Commission (SEC) registered public offerings with considerable detail, CDOs were sold in private placements with confidentiality agreements. Moreover, the nature of the securitization process has made it extremely difficult to determine and follow losses and increasing risk from one tranche and pool to another, and to reach the information about the original borrowers that is needed to estimate future cash flows and price.
This account makes it clear why transparency is so important. To deal with the problem, issuers of asset-backed securities should provide extensive detail in a uniform format about the composition of the original pools and their subsequent structure and performance, whether they were sold as SEC-registered offerings or private placements. By creating a centralized database with this information, the pricing process for the toxic assets becomes possible. Making such a database a reality will restart private securitization markets and will do more for the recovery of the economy than yet another redesign of administrative agency structures. If issuers are not forthcoming, then they should be required to file the information publicly with the SEC.
Mr. Scott is a professor of securities and corporate law at Stanford University and a research fellow at the Hoover Institution. Mr. Taylor, an economics professor at Stanford and senior fellow at the Hoover Institution, is the author of "Getting Off Track: How Government Actions and Interventions Caused, Prolonged and Worsened the Financial Crisis" (Hoover Press, 2009).
Germany's Spies Refuted the 2007 NIE Report
Germany's Spies Refuted the 2007 NIE Report. By BRUNO SCHIRRA
'Work on nuclear weapons can be observed in Iran even after 2003'
WSJ, Jul 20, 2009
President Obama has committed to trying diplomacy to stop the Iranian bomb. Time, though, is on the mullahs' side, not least because so much of it was wasted after the 2007 U.S. National Intelligence Estimate made the improbable case that Iran had suspended its nuclear weapons program in 2003. This assessment not only contradicted previous U.S. intelligence consensus but -- as recent court documents show -- also the conclusions of a key U.S. ally with excellent sources in Iran -- Germany.
The Bundesnachrichtendienst (BND), Germany's foreign intelligence agency, has amassed evidence of a sophisticated Iranian nuclear weapons program that continued beyond 2003. This usually classified information comes courtesy of Germany's highest state-security court. In a 30-page legal opinion on March 26 and a May 27 press release in a case about possible illegal trading with Iran, a special national security panel of the Federal Supreme Court in Karlsruhe cites from a May 2008 BND report, saying the agency "showed comprehensively" that "development work on nuclear weapons can be observed in Iran even after 2003."
According to the judges, the BND supplemented its findings on August 28, 2008, showing "the development of a new missile launcher and the similarities between Iran's acquisition efforts and those of countries with already known nuclear weapons programs, such as Pakistan and North Korea."
It's important to point out that this was no ordinary agency report, the kind that often consists just of open source material, hearsay and speculation. Rather, the BND submitted an "office testimony," which consists of factual statements about the Iranian program that can be proved in a court of law. This is why, in their March 26 opinion, the judges wrote that "a preliminary assessment of the available evidence suggests that at the time of the crime [April to November 2007] nuclear weapons were being developed in Iran." In their May press release, the judges come out even more clear, stating unequivocally that "Iran in 2007 worked on the development of nuclear weapons."
The judges had been asked to consider an appeal in the case of a German-Iranian businessman accused of brokering supplies for Iran's nuclear weapons program. The Federal Prosecutor had charged the defendant, identified by the authorities only as "Mohsen V.," with violating Germany's War Weapons Control Law and the Foreign Trade Act. A lower court in Frankfurt refused to try the case on the grounds that it was unlikely that Iran had a nuclear program at the time of the defendant's activities in 2007, citing the NIE report as evidence.
That's why the Supreme Court judges had to rule first on the question of whether that program exists at all. Having answered that question in the affirmative, the court had to rule next on the likelihood of the defendant to be found guilty in a trial. The supreme court's conclusions are unusually strong.
"The results of the investigation do in fact provide sufficient indications that the accused aided the development of nuclear weapons in Iran through business dealings."
The supreme court thus annulled the lower court's decision to throw out the case, demanding that the Frankfurt-based judges try the defendant on the original charges.
The case itself sheds light on how these networks function. According to the supreme court judges, the businessman has brokered "industrial machines, equipment and raw materials primarily to Iranian customers," for Iran's nuclear weapons program.
According to the same decision, the defendant's business partners in Tehran "dealt with acquiring military and nuclear-related goods for Iran and used various front companies, headquartered for example in Dubai and the United Arab Emirates, to circumvent existing trade restrictions." According to the judges, Mohsen V. also tried to supply to Tehran via front companies in Dubai "Geiger counters for radiation-resistant detectors constructed especially for protection against the effects of nuclear detonations."
Defendant Mohsen V.'s various business contacts in Iran, Russia, Germany, and the Near and Middle East are listed in the prosecutor's files and in the judges' decision. So is information related to the secret supply of "two high-speed cameras needed to develop nuclear warheads. The delivery of the cameras to the final customers in Iran occurred on November 1, 2007 at the latest." The Karlsruhe judges wrote that, by his own admission, Mohsen V. was "aware of the cameras' possible use in the military arena."
The court's decision and the BND's reports raise the question of how, or why, U.S. intelligence officials could have come to the conclusion that Iran suspended its program in 2003. German intelligence officials wonder themselves. BND sources have told me that they have shared their findings and documentation with their U.S. colleagues ahead of the 2007 NIE report -- as is customary between these two allies. It appears the Americans have simply ignored this evidence despite repeated warnings from the BND. This suggests not so much a failure of U.S. intelligence but its sabotage.
The politicized 2007 NIE report undermined the Bush Administration's efforts to rally international support for tough action against Iran. The world's best hope is that the Obama Administration is not being fed the same false sense of security.
Mr. Schirra is an investigative reporter in Berlin and author of "Iran -- Sprengstoff für Europe," Iran -- Explosives for Europe (Econ, 2006). Belinda Coopers translated this article from the German.
'Work on nuclear weapons can be observed in Iran even after 2003'
WSJ, Jul 20, 2009
President Obama has committed to trying diplomacy to stop the Iranian bomb. Time, though, is on the mullahs' side, not least because so much of it was wasted after the 2007 U.S. National Intelligence Estimate made the improbable case that Iran had suspended its nuclear weapons program in 2003. This assessment not only contradicted previous U.S. intelligence consensus but -- as recent court documents show -- also the conclusions of a key U.S. ally with excellent sources in Iran -- Germany.
The Bundesnachrichtendienst (BND), Germany's foreign intelligence agency, has amassed evidence of a sophisticated Iranian nuclear weapons program that continued beyond 2003. This usually classified information comes courtesy of Germany's highest state-security court. In a 30-page legal opinion on March 26 and a May 27 press release in a case about possible illegal trading with Iran, a special national security panel of the Federal Supreme Court in Karlsruhe cites from a May 2008 BND report, saying the agency "showed comprehensively" that "development work on nuclear weapons can be observed in Iran even after 2003."
According to the judges, the BND supplemented its findings on August 28, 2008, showing "the development of a new missile launcher and the similarities between Iran's acquisition efforts and those of countries with already known nuclear weapons programs, such as Pakistan and North Korea."
It's important to point out that this was no ordinary agency report, the kind that often consists just of open source material, hearsay and speculation. Rather, the BND submitted an "office testimony," which consists of factual statements about the Iranian program that can be proved in a court of law. This is why, in their March 26 opinion, the judges wrote that "a preliminary assessment of the available evidence suggests that at the time of the crime [April to November 2007] nuclear weapons were being developed in Iran." In their May press release, the judges come out even more clear, stating unequivocally that "Iran in 2007 worked on the development of nuclear weapons."
The judges had been asked to consider an appeal in the case of a German-Iranian businessman accused of brokering supplies for Iran's nuclear weapons program. The Federal Prosecutor had charged the defendant, identified by the authorities only as "Mohsen V.," with violating Germany's War Weapons Control Law and the Foreign Trade Act. A lower court in Frankfurt refused to try the case on the grounds that it was unlikely that Iran had a nuclear program at the time of the defendant's activities in 2007, citing the NIE report as evidence.
That's why the Supreme Court judges had to rule first on the question of whether that program exists at all. Having answered that question in the affirmative, the court had to rule next on the likelihood of the defendant to be found guilty in a trial. The supreme court's conclusions are unusually strong.
"The results of the investigation do in fact provide sufficient indications that the accused aided the development of nuclear weapons in Iran through business dealings."
The supreme court thus annulled the lower court's decision to throw out the case, demanding that the Frankfurt-based judges try the defendant on the original charges.
The case itself sheds light on how these networks function. According to the supreme court judges, the businessman has brokered "industrial machines, equipment and raw materials primarily to Iranian customers," for Iran's nuclear weapons program.
According to the same decision, the defendant's business partners in Tehran "dealt with acquiring military and nuclear-related goods for Iran and used various front companies, headquartered for example in Dubai and the United Arab Emirates, to circumvent existing trade restrictions." According to the judges, Mohsen V. also tried to supply to Tehran via front companies in Dubai "Geiger counters for radiation-resistant detectors constructed especially for protection against the effects of nuclear detonations."
Defendant Mohsen V.'s various business contacts in Iran, Russia, Germany, and the Near and Middle East are listed in the prosecutor's files and in the judges' decision. So is information related to the secret supply of "two high-speed cameras needed to develop nuclear warheads. The delivery of the cameras to the final customers in Iran occurred on November 1, 2007 at the latest." The Karlsruhe judges wrote that, by his own admission, Mohsen V. was "aware of the cameras' possible use in the military arena."
The court's decision and the BND's reports raise the question of how, or why, U.S. intelligence officials could have come to the conclusion that Iran suspended its program in 2003. German intelligence officials wonder themselves. BND sources have told me that they have shared their findings and documentation with their U.S. colleagues ahead of the 2007 NIE report -- as is customary between these two allies. It appears the Americans have simply ignored this evidence despite repeated warnings from the BND. This suggests not so much a failure of U.S. intelligence but its sabotage.
The politicized 2007 NIE report undermined the Bush Administration's efforts to rally international support for tough action against Iran. The world's best hope is that the Obama Administration is not being fed the same false sense of security.
Mr. Schirra is an investigative reporter in Berlin and author of "Iran -- Sprengstoff für Europe," Iran -- Explosives for Europe (Econ, 2006). Belinda Coopers translated this article from the German.
Sunday, July 19, 2009
The Post and Abu Zubaydah Part II: Ali Soufan Exposed
The Post and Abu Zubaydah Part II: Ali Soufan Exposed. By Marc Thiessen
NRO, Sunday, July 19, 2009
On March 29, the Washington Post published a front-page story called “Detainee’s Harsh Treatment Foiled No Plots,” in which staff reporters Joby Warrick and Peter Finn declared that “not a single significant plot was foiled as a result of Abu Zubaida's tortured confessions.”
Although they don’t call it that, Warrick and Finn have published what amounts to a full retraction on the front page of the Post this morning.
They write: “Although Abu Zubaydah was not a member of al Qaeda and had limited relations with bin Laden, he was a font of information on the membership of the terrorist group because of his long standing ties with [Khalid Sheikh] Mohammed and North African jihadists” (emphasis added). He became this “font of information” after the use of enhanced interrogation techniques.Moreover, they acknowledge that Zubaydah provided information that led to the capture of al-Qaeda terrorist Jose Padilla only after enhanced interrogation techniques were employed. (Padilla was captured as he arrived in Chicago on a mission from Khalid Shiekh Mohammed, or KSM, to carry out terrorist attacks in the U.S.)
This contradicts the assertions of FBI agent Ali Soufan, who claims that he got the information about Padilla from Zubaydah before enhanced interrogation techniques were applied by the CIA. Writing in the New York Times in April of this year, Soufan wrote: “Along with another F.B.I. agent, and with several C.I.A. officers present, I questioned [Zubaydah] from March to June 2002, before the harsh techniques were introduced later in August. Under traditional interrogation methods, he provided us with important actionable intelligence. We discovered, for example, that Khalid Shaikh Mohammed was the mastermind of the 9/11 attacks. Abu Zubaydah also told us about Jose Padilla, the so-called dirty bomber.”
This last statement, it turns out, is a flat lie. According to today’s Post, Zubaydah did give up the information about KSM before enhanced interrogations began. Then a CIA team took over and began implementing enhanced interrogation techniques, including forced nudity and sleep deprivation. After this, the Post reports today: “Agency officials decided to let the FBI back into the interrogations, but on the condition that forced nudity and sleep deprivation be allowed to continue. . . . Under FBI questioning, Abu Zubaydah indentified an operative he knew as Abdullah al-Mujahir, the alias, he said, of an American citizen with a Latino name. An investigation involving multiple agencies identified the suspect as Jose Padilla, the al Qaeda operative later convicted of providing material support for terrorism. ‘In two different bits, after sleep deprivation, is when Abu Zubaydah gave clues about who Padilla might be.’”
In other words, contrary to Soufan’s assertion in the Times, he only got the information that led to Padilla after the CIA began to implement enhanced interrogation techniques.
Padilla is often dismissed as the man behind a fanciful “dirty bomb” plot, and the Post notes today that he was convicted of “material support for terrorism.” In fact Padilla was a protégé of al-Qaeda’s third in command, Mohammed Atef, who had been sent to America by KSM to carry out a much more sinister and realistic attack on America — a plot to simultaneously blow up apartment buildings using natural gas. He trained for this mission in al-Qaeda camps, and was given $10,000 by KSM and his right-hand man, Ammar al-Baluchi, to carry it out. The night before his departure for America, KSM, Ammar, and KSM’s nephew and 9/11 plotter Ramzi bin al Shibh hosted a farewell dinner for Padilla and his accomplice.
The reason he was convicted of “material support for terrorism” is because the Justice Department could not prosecute him for the full panoply of his crimes without allowing Padilla to call KSM, Ammar, and Ramzi bin al-Shibh as witnesses — thus risking the exposure of highly classified information. They chose to pursue lesser charges rather than expose sources and methods. But the full extent of Padilla’s activities was laid out in a speech by Deputy Attorney General James Comey in June 2004.
The bottom line is that today’s story in the Post proves that: 1) the original Post assertion that “not a single significant plot was foiled as a result of Abu Zubaida's tortured confessions” is flat wrong — the Padilla plot was broken up because of the CIA’s use of enhanced interrogation techniques; and 2) Ali Soufan’s assertion that he got this information before the implementation of enhanced interrogation techniques is false.
NRO, Sunday, July 19, 2009
On March 29, the Washington Post published a front-page story called “Detainee’s Harsh Treatment Foiled No Plots,” in which staff reporters Joby Warrick and Peter Finn declared that “not a single significant plot was foiled as a result of Abu Zubaida's tortured confessions.”
Although they don’t call it that, Warrick and Finn have published what amounts to a full retraction on the front page of the Post this morning.
They write: “Although Abu Zubaydah was not a member of al Qaeda and had limited relations with bin Laden, he was a font of information on the membership of the terrorist group because of his long standing ties with [Khalid Sheikh] Mohammed and North African jihadists” (emphasis added). He became this “font of information” after the use of enhanced interrogation techniques.Moreover, they acknowledge that Zubaydah provided information that led to the capture of al-Qaeda terrorist Jose Padilla only after enhanced interrogation techniques were employed. (Padilla was captured as he arrived in Chicago on a mission from Khalid Shiekh Mohammed, or KSM, to carry out terrorist attacks in the U.S.)
This contradicts the assertions of FBI agent Ali Soufan, who claims that he got the information about Padilla from Zubaydah before enhanced interrogation techniques were applied by the CIA. Writing in the New York Times in April of this year, Soufan wrote: “Along with another F.B.I. agent, and with several C.I.A. officers present, I questioned [Zubaydah] from March to June 2002, before the harsh techniques were introduced later in August. Under traditional interrogation methods, he provided us with important actionable intelligence. We discovered, for example, that Khalid Shaikh Mohammed was the mastermind of the 9/11 attacks. Abu Zubaydah also told us about Jose Padilla, the so-called dirty bomber.”
This last statement, it turns out, is a flat lie. According to today’s Post, Zubaydah did give up the information about KSM before enhanced interrogations began. Then a CIA team took over and began implementing enhanced interrogation techniques, including forced nudity and sleep deprivation. After this, the Post reports today: “Agency officials decided to let the FBI back into the interrogations, but on the condition that forced nudity and sleep deprivation be allowed to continue. . . . Under FBI questioning, Abu Zubaydah indentified an operative he knew as Abdullah al-Mujahir, the alias, he said, of an American citizen with a Latino name. An investigation involving multiple agencies identified the suspect as Jose Padilla, the al Qaeda operative later convicted of providing material support for terrorism. ‘In two different bits, after sleep deprivation, is when Abu Zubaydah gave clues about who Padilla might be.’”
In other words, contrary to Soufan’s assertion in the Times, he only got the information that led to Padilla after the CIA began to implement enhanced interrogation techniques.
Padilla is often dismissed as the man behind a fanciful “dirty bomb” plot, and the Post notes today that he was convicted of “material support for terrorism.” In fact Padilla was a protégé of al-Qaeda’s third in command, Mohammed Atef, who had been sent to America by KSM to carry out a much more sinister and realistic attack on America — a plot to simultaneously blow up apartment buildings using natural gas. He trained for this mission in al-Qaeda camps, and was given $10,000 by KSM and his right-hand man, Ammar al-Baluchi, to carry it out. The night before his departure for America, KSM, Ammar, and KSM’s nephew and 9/11 plotter Ramzi bin al Shibh hosted a farewell dinner for Padilla and his accomplice.
The reason he was convicted of “material support for terrorism” is because the Justice Department could not prosecute him for the full panoply of his crimes without allowing Padilla to call KSM, Ammar, and Ramzi bin al-Shibh as witnesses — thus risking the exposure of highly classified information. They chose to pursue lesser charges rather than expose sources and methods. But the full extent of Padilla’s activities was laid out in a speech by Deputy Attorney General James Comey in June 2004.
The bottom line is that today’s story in the Post proves that: 1) the original Post assertion that “not a single significant plot was foiled as a result of Abu Zubaida's tortured confessions” is flat wrong — the Padilla plot was broken up because of the CIA’s use of enhanced interrogation techniques; and 2) Ali Soufan’s assertion that he got this information before the implementation of enhanced interrogation techniques is false.
Friday, July 17, 2009
The Assassins Debate - Why Seymour Hersh is still wrong about Cheney's hit squad
The Assassins Debate. By Michael C. Moynihan
Why Seymour Hersh is still wrong about Cheney's hit squad
Reason, July 17, 2009
A few months ago on this website, I cast doubt on a claim by investigative journalist Seymour Hersh that former Vice President Dick Cheney was running “an executive assassination ring” out of his West Wing office. Urging caution when repeating such claims—predictably, outside of the conspiracy-friendly websites like Raw Story and Digg, only MSNBC’s Keith Olbermann reported this dubious "scoop"—I argued that because Hersh had previously admitted exaggerating stories in order to “convey a larger truth,” a healthy dose of skepticism was warranted.
The story quickly disappeared, only to be reanimated this week by CIA director Leon Panetta’s revelation that the Bush administration deliberately obscured an unnamed secret CIA program from Congress. A flood of stories from the Wall Street Journal, The Washington Times, The Washington Post, Newsweek, and The New York Times followed, revealing that the CIA plan involved the targeted assassination of al-Qaeda targets. Many observers quickly connected the dots back to Hersh. The Huffington Post’s Sam Stein wondered if the CIA, with whom the Bush administration famously battled, was “hiding Cheney's executive assassination ring." A handful of indignant emailers, claiming vindication on behalf of Hersh, demanded a retraction of my blog post.
Not a chance.
Let's briefly revisit Hersh’s bombshell assassination claims. Last March, during a speech at the University of Minnesota, the Pulitzer Prize-winning investigative journalist revealed that the CIA "was very deeply involved in domestic activities against people they thought to be enemies of the state (emphasis added)." He offered the following as evidence: "[T]here was a story in the New York Times that if you read it carefully mentioned something known as the Joint Special Operations Command—JSOC it's called...They do not report to anybody, except in the Bush-Cheney days, they reported directly to the Cheney office...It's an executive assassination ring essentially."
But this is a non-sequitur. Hersh first references a secret, as-yet-unreported CIA program focusing on domestic targets after 9/11—which, as of this writing, hasn't been uncovered by those investigating the Panetta story, though it certainly doesn’t strain credulity—and quickly shifts gears to a discussion of the Joint Special Operations Command (JSOC), a special unit of the United States Special Operations Command known for tracking and assassinating the Jordanian al-Qaeda leader Abu Musab al-Zarqawi.
As pointed out by sources familiar with the program, Panetta cancelled the CIA operation before it became "fully operational,” though Hersh claims the Cheney “executive assassination ring” has been “going on and on and on” for years. Here is Newsweek's Mark Hosenball and Michael Isikoff, describing the lumbering and troubled evolution of the program:
Top CIA officials ultimately concluded the program posed an unacceptable risk of failure or exposure, according to another former official. As a result, the initial plans proposed by officers of the Directorate of Operations—now known as the National Clandestine Service—were put on hold by CIA Director George Tenet before he left office in 2004, former officials said. Tenet's two successors, Porter Goss and Gen. Michael Hayden, kept the plans in the deep freeze. But a former official said that until Panetta killed the program outright last month, the CIA never totally abandoned the plans for kill teams...
One journalist looking into the program—a person, it is worth noting, deeply critical of Bush and Cheney's terrorism policies—suggested a more logical explanation. Hersh, he informed me, might have stumbled across the program exposed this week but perhaps "didn't understand what his sources were telling him." When asked if these revelations vindicated the "executive assassination ring" claim, another journalist working on the story told me that those who connect the Panetta revelations to Hersh's breathless talk in Minneapolis "have no idea what they are talking about."
Simply put, Hersh’s narrative of an operational, domestic cadre of assassins doesn’t fit with what we know about the plan scuttled by Panetta.
Nevertheless, The Daily Beast’s Benjamin Sarlin huffed that Hersh "was mocked in March when he referred to Dick Cheney’s secret squad of CIA assassins" but now it appeared that Hersh was "prescient," the "man who knew Cheney’s secret." Those who distrusted Hersh would soon be forced to eat crow: "Yesterday, the New York Times reported the hidden program in question was a death squad authorized by Dick Cheney without Congressional approval—almost exactly what he described."
But as The Daily Beast editors soon realized, the Times story said nothing about domestic operations, didn't mention JSOC, a group not even under CIA command, and told a very different story than Hersh. An editor’s note was tacked on to the piece, telling readers that the article "was updated to reflect differences between Hersh’s story and The New York Times'." The claim that Hersh’s story was "exactly" what the Times reported vanished (though it can be viewed via Google’s cache), replaced with a more equivocal sentence: "Now, there are key differences between Hersh's reporting and the Times' latest piece."
In an attempt to keep the "executive assassination ring" angle in play, Sarlin’s updated story concluded gamely that "The Times and Hersh could conceivably be reporting two distinct squads." MSNBC’s Keith Olbermann offered a similar conclusion, telling a guest that "Seymour Hersh's hint of the story in Minnesota in the spring was about stuff run out of the Pentagon and specifically not tied to the CIA," though there might be "two secret assassination squads."
The desire to eschew these contradictory facts in pursuit of a political point spread throughout the blogosphere. Soon after Cheney's former national security adviser John Hannah told CNN’s Wolf Blitzer that it was “certainly true” that the there was a “well-vetted process, interagency process” targeting “those that have committed acts of war against the United States,” Center for American Progress blogger Satyam Khanna wrote that "a former Cheney aide suggests that Hersh’s account of [an] 'executive assassination ring' is 'certainly true.'" Well, no he didn’t.
My concern here is not with the efficacy, legality, or existance of Dick Cheney’s program to rub out members of al-Qaeda, but with those who warn us that journalism in the run up to the Iraq War failed the American people because its practitioners placed furthering a political agenda over the supremacy of truth. If the mainstream media in 2002 was hamstrung by sloppy and biased reporting, thereby necessitating a counterrevolution in blogging and online reporting, have the Enragés, the young bloggers who demanded higher standards and an upending of the old order, already become Robespierres? Is it now OK to engage in sloppy and lazy journalism, provided that the stakes are smaller and your target is widely considered to be a bastard?
In reporting the Panetta story, it was “old media” print journalists like Siobhan Gorman, Eli Lake, Joby Warrick, and Scott Shane that informed and illuminated, while the partisans of the new media took up the rear, pounding round pegs into square holes.
During the 2008 election, one writer praised the new breed of online journalists while cautioning that in rushing to scoop the mainstream media, Internet upstarts often risk missing “nuance and context,” valuing quantity over quality. Web journalists, he continued, often settle “for a timely article rather than a complete one,” though this is “an avoidable problem.”
Indeed it is. And the author, Huffington Post political reporter Sam Stein, might want to start taking some of his own advice.
Michael C. Moynihan is a senior editor of Reason magazine.
Why Seymour Hersh is still wrong about Cheney's hit squad
Reason, July 17, 2009
A few months ago on this website, I cast doubt on a claim by investigative journalist Seymour Hersh that former Vice President Dick Cheney was running “an executive assassination ring” out of his West Wing office. Urging caution when repeating such claims—predictably, outside of the conspiracy-friendly websites like Raw Story and Digg, only MSNBC’s Keith Olbermann reported this dubious "scoop"—I argued that because Hersh had previously admitted exaggerating stories in order to “convey a larger truth,” a healthy dose of skepticism was warranted.
The story quickly disappeared, only to be reanimated this week by CIA director Leon Panetta’s revelation that the Bush administration deliberately obscured an unnamed secret CIA program from Congress. A flood of stories from the Wall Street Journal, The Washington Times, The Washington Post, Newsweek, and The New York Times followed, revealing that the CIA plan involved the targeted assassination of al-Qaeda targets. Many observers quickly connected the dots back to Hersh. The Huffington Post’s Sam Stein wondered if the CIA, with whom the Bush administration famously battled, was “hiding Cheney's executive assassination ring." A handful of indignant emailers, claiming vindication on behalf of Hersh, demanded a retraction of my blog post.
Not a chance.
Let's briefly revisit Hersh’s bombshell assassination claims. Last March, during a speech at the University of Minnesota, the Pulitzer Prize-winning investigative journalist revealed that the CIA "was very deeply involved in domestic activities against people they thought to be enemies of the state (emphasis added)." He offered the following as evidence: "[T]here was a story in the New York Times that if you read it carefully mentioned something known as the Joint Special Operations Command—JSOC it's called...They do not report to anybody, except in the Bush-Cheney days, they reported directly to the Cheney office...It's an executive assassination ring essentially."
But this is a non-sequitur. Hersh first references a secret, as-yet-unreported CIA program focusing on domestic targets after 9/11—which, as of this writing, hasn't been uncovered by those investigating the Panetta story, though it certainly doesn’t strain credulity—and quickly shifts gears to a discussion of the Joint Special Operations Command (JSOC), a special unit of the United States Special Operations Command known for tracking and assassinating the Jordanian al-Qaeda leader Abu Musab al-Zarqawi.
As pointed out by sources familiar with the program, Panetta cancelled the CIA operation before it became "fully operational,” though Hersh claims the Cheney “executive assassination ring” has been “going on and on and on” for years. Here is Newsweek's Mark Hosenball and Michael Isikoff, describing the lumbering and troubled evolution of the program:
Top CIA officials ultimately concluded the program posed an unacceptable risk of failure or exposure, according to another former official. As a result, the initial plans proposed by officers of the Directorate of Operations—now known as the National Clandestine Service—were put on hold by CIA Director George Tenet before he left office in 2004, former officials said. Tenet's two successors, Porter Goss and Gen. Michael Hayden, kept the plans in the deep freeze. But a former official said that until Panetta killed the program outright last month, the CIA never totally abandoned the plans for kill teams...
One journalist looking into the program—a person, it is worth noting, deeply critical of Bush and Cheney's terrorism policies—suggested a more logical explanation. Hersh, he informed me, might have stumbled across the program exposed this week but perhaps "didn't understand what his sources were telling him." When asked if these revelations vindicated the "executive assassination ring" claim, another journalist working on the story told me that those who connect the Panetta revelations to Hersh's breathless talk in Minneapolis "have no idea what they are talking about."
Simply put, Hersh’s narrative of an operational, domestic cadre of assassins doesn’t fit with what we know about the plan scuttled by Panetta.
Nevertheless, The Daily Beast’s Benjamin Sarlin huffed that Hersh "was mocked in March when he referred to Dick Cheney’s secret squad of CIA assassins" but now it appeared that Hersh was "prescient," the "man who knew Cheney’s secret." Those who distrusted Hersh would soon be forced to eat crow: "Yesterday, the New York Times reported the hidden program in question was a death squad authorized by Dick Cheney without Congressional approval—almost exactly what he described."
But as The Daily Beast editors soon realized, the Times story said nothing about domestic operations, didn't mention JSOC, a group not even under CIA command, and told a very different story than Hersh. An editor’s note was tacked on to the piece, telling readers that the article "was updated to reflect differences between Hersh’s story and The New York Times'." The claim that Hersh’s story was "exactly" what the Times reported vanished (though it can be viewed via Google’s cache), replaced with a more equivocal sentence: "Now, there are key differences between Hersh's reporting and the Times' latest piece."
In an attempt to keep the "executive assassination ring" angle in play, Sarlin’s updated story concluded gamely that "The Times and Hersh could conceivably be reporting two distinct squads." MSNBC’s Keith Olbermann offered a similar conclusion, telling a guest that "Seymour Hersh's hint of the story in Minnesota in the spring was about stuff run out of the Pentagon and specifically not tied to the CIA," though there might be "two secret assassination squads."
The desire to eschew these contradictory facts in pursuit of a political point spread throughout the blogosphere. Soon after Cheney's former national security adviser John Hannah told CNN’s Wolf Blitzer that it was “certainly true” that the there was a “well-vetted process, interagency process” targeting “those that have committed acts of war against the United States,” Center for American Progress blogger Satyam Khanna wrote that "a former Cheney aide suggests that Hersh’s account of [an] 'executive assassination ring' is 'certainly true.'" Well, no he didn’t.
My concern here is not with the efficacy, legality, or existance of Dick Cheney’s program to rub out members of al-Qaeda, but with those who warn us that journalism in the run up to the Iraq War failed the American people because its practitioners placed furthering a political agenda over the supremacy of truth. If the mainstream media in 2002 was hamstrung by sloppy and biased reporting, thereby necessitating a counterrevolution in blogging and online reporting, have the Enragés, the young bloggers who demanded higher standards and an upending of the old order, already become Robespierres? Is it now OK to engage in sloppy and lazy journalism, provided that the stakes are smaller and your target is widely considered to be a bastard?
In reporting the Panetta story, it was “old media” print journalists like Siobhan Gorman, Eli Lake, Joby Warrick, and Scott Shane that informed and illuminated, while the partisans of the new media took up the rear, pounding round pegs into square holes.
During the 2008 election, one writer praised the new breed of online journalists while cautioning that in rushing to scoop the mainstream media, Internet upstarts often risk missing “nuance and context,” valuing quantity over quality. Web journalists, he continued, often settle “for a timely article rather than a complete one,” though this is “an avoidable problem.”
Indeed it is. And the author, Huffington Post political reporter Sam Stein, might want to start taking some of his own advice.
Michael C. Moynihan is a senior editor of Reason magazine.
Is Food Aid for Africa Working?
Is Food Aid for Africa Working?: A Wall Street Journal reporter asks if western food aid policies are truly providing aid. By Brian Doherty
Reason Magazine, Jul 17, 2009
Although billions have been spent on foreign development and food aid to Africa in the decades since World War II, over half a billion people remain undernourished in Africa today according to the U.S. Department of Agriculture—a number that's 53 percent higher than it was in 1992 when the government first began accumulating such figures.
While the reasons for continuing poverty are manifold, Western government programs such as food aid and agriculture and ethanol subsidies deserve their share of the blame. So argues the new book Enough: Why the World's Poorest Starve in an Age of Plenty (PublicAffairs), written by Wall Street Journal reporters Roger Thurow and Scott Kilman, each of whom have years of experience writing page-one stories for the Journal on African matters, particularly African famine.
Unlike anti-aid anaylsts such as William Easterly and Dambisa Moyo, Thurow and Kilman see plenty of room for more (intelligent) action on the part of Western governments. In fact, Kilman argues that genuine agricultural development aid has yet to be sufficiently and intelligently attempted.
But their reporting in the Journal and in Enough provides vivid examples of the ways both aid policy and U.S. farm policy hurts, not helps, the long-term well-being of Africans as they struggle for self-sufficiency.
Senior Editor Brian Doherty spoke with Scott Kilman in July.
See interview in the link above.
Reason Magazine, Jul 17, 2009
Although billions have been spent on foreign development and food aid to Africa in the decades since World War II, over half a billion people remain undernourished in Africa today according to the U.S. Department of Agriculture—a number that's 53 percent higher than it was in 1992 when the government first began accumulating such figures.
While the reasons for continuing poverty are manifold, Western government programs such as food aid and agriculture and ethanol subsidies deserve their share of the blame. So argues the new book Enough: Why the World's Poorest Starve in an Age of Plenty (PublicAffairs), written by Wall Street Journal reporters Roger Thurow and Scott Kilman, each of whom have years of experience writing page-one stories for the Journal on African matters, particularly African famine.
Unlike anti-aid anaylsts such as William Easterly and Dambisa Moyo, Thurow and Kilman see plenty of room for more (intelligent) action on the part of Western governments. In fact, Kilman argues that genuine agricultural development aid has yet to be sufficiently and intelligently attempted.
But their reporting in the Journal and in Enough provides vivid examples of the ways both aid policy and U.S. farm policy hurts, not helps, the long-term well-being of Africans as they struggle for self-sufficiency.
Senior Editor Brian Doherty spoke with Scott Kilman in July.
See interview in the link above.
WaPo Editorial: Mr. Paulson on the Hot Seat - A congressional inquiry into the financial crisis and bailout ignores what went right
Mr. Paulson on the Hot Seat. WaPo Editorial
A congressional inquiry into the financial crisis and bailout ignores what went right.
Friday, July 17, 2009
HERE, MORE or less, is the state of the U.S. financial system as we enter the second half of 2009: The top 20 U.S. banks -- once thought to be insolvent and possibly in need of nationalization -- have survived a government stress test and begun raising private capital. The three-month London Interbank Offered Rate, which rises when banks are illiquid, has declined steadily since March. Several recipients of government bailout funds have repaid them. The Treasury Department felt confident enough of the system's soundness to deny further help this week to CIT Group, a previous recipient of bailout money.
All of this good news must be marked "tentative," of course, for the simple reason that the banks are floating on a sea of government-supplied liquidity, in the form of a near-zero Federal Reserve target rate, open-ended Treasury support to Fannie Mae and Freddie Mac, and multiple government credit guarantees. This is far from a self-sustaining recovery, and a new shock could push the system back to the brink. But all things considered, we could be doing much worse.
Under the circumstances, you might have thought Congress would hold a hearing about what has gone right so far and how to turn this incipient and vulnerable progress into something more permanent. Instead, we got yesterday's backward-looking affair at the House Committee on Oversight and Government Reform, the latest in a series of sessions aimed at December's federally engineered merger of Bank of America and Merrill Lynch, which has ended up costing taxpayers about $50 billion. Resentment of bailing out Wall Street is a bipartisan affair, so both Republicans and Democrats on this committee are determined to show how wrong it was for officials, including Federal Reserve Chairman Ben S. Bernanke, then-New York Fed boss Timothy F. Geithner and then-Treasury Secretary Henry M. Paulson to strong-arm Bank of America chief executive Kenneth D. Lewis into swallowing Merrill even after it turned out that the former Wall Street powerhouse faced much bigger losses than previously known.
In the witness chair yesterday, Mr. Paulson pretty much pleaded guilty to telling Mr. Lewis that he would be out of a job if he reneged -- with the explanation that the alternative would have been worse, namely a financial meltdown that would have spread around the world and probably cost taxpayers many billions more than did the Merrill-Bank of America merger or the bailout of insurance giant AIG. "By far the biggest advantage to the taxpayers is what didn't happen," Mr. Paulson said. Unsatisfied, several committee members arraigned Mr. Paulson for allegedly bailing out the banks and AIG to benefit his former Wall Street firm, Goldman Sachs. As proof, they cited Goldman's record profit of $3.4 billion in the second quarter.
Even though Mr. Paulson didn't quite dare to say it, Goldman's good quarter is a sign that he and other decision-makers made the right calls back in the scary fall and winter of 2008. The objective of government policy should be to get financial firms to where they are once again profitable without taxpayer support. It's absolutely true, as members of the committee said and as Mr. Paulson acknowledged, that the bailout of Wall Street is fraught with moral hazard: It broke the basic rule of capitalism, which says that business executives should bear all the costs of their bad decisions. But it's also true that financial stability is a public good. When the collapse of one or more financial institutions threatens to destroy financial stability, a government bailout can serve the public interest. Believing that, Mr. Paulson and his colleagues made some very difficult decisions under dangerous conditions. The ultimate results of those tough choices are still unknown. A fairer congressional inquiry, though, would start from the premise that, if he had not taken the actions that he did, the subject of today's investigations might have been a much, much bigger catastrophe.
A congressional inquiry into the financial crisis and bailout ignores what went right.
Friday, July 17, 2009
HERE, MORE or less, is the state of the U.S. financial system as we enter the second half of 2009: The top 20 U.S. banks -- once thought to be insolvent and possibly in need of nationalization -- have survived a government stress test and begun raising private capital. The three-month London Interbank Offered Rate, which rises when banks are illiquid, has declined steadily since March. Several recipients of government bailout funds have repaid them. The Treasury Department felt confident enough of the system's soundness to deny further help this week to CIT Group, a previous recipient of bailout money.
All of this good news must be marked "tentative," of course, for the simple reason that the banks are floating on a sea of government-supplied liquidity, in the form of a near-zero Federal Reserve target rate, open-ended Treasury support to Fannie Mae and Freddie Mac, and multiple government credit guarantees. This is far from a self-sustaining recovery, and a new shock could push the system back to the brink. But all things considered, we could be doing much worse.
Under the circumstances, you might have thought Congress would hold a hearing about what has gone right so far and how to turn this incipient and vulnerable progress into something more permanent. Instead, we got yesterday's backward-looking affair at the House Committee on Oversight and Government Reform, the latest in a series of sessions aimed at December's federally engineered merger of Bank of America and Merrill Lynch, which has ended up costing taxpayers about $50 billion. Resentment of bailing out Wall Street is a bipartisan affair, so both Republicans and Democrats on this committee are determined to show how wrong it was for officials, including Federal Reserve Chairman Ben S. Bernanke, then-New York Fed boss Timothy F. Geithner and then-Treasury Secretary Henry M. Paulson to strong-arm Bank of America chief executive Kenneth D. Lewis into swallowing Merrill even after it turned out that the former Wall Street powerhouse faced much bigger losses than previously known.
In the witness chair yesterday, Mr. Paulson pretty much pleaded guilty to telling Mr. Lewis that he would be out of a job if he reneged -- with the explanation that the alternative would have been worse, namely a financial meltdown that would have spread around the world and probably cost taxpayers many billions more than did the Merrill-Bank of America merger or the bailout of insurance giant AIG. "By far the biggest advantage to the taxpayers is what didn't happen," Mr. Paulson said. Unsatisfied, several committee members arraigned Mr. Paulson for allegedly bailing out the banks and AIG to benefit his former Wall Street firm, Goldman Sachs. As proof, they cited Goldman's record profit of $3.4 billion in the second quarter.
Even though Mr. Paulson didn't quite dare to say it, Goldman's good quarter is a sign that he and other decision-makers made the right calls back in the scary fall and winter of 2008. The objective of government policy should be to get financial firms to where they are once again profitable without taxpayer support. It's absolutely true, as members of the committee said and as Mr. Paulson acknowledged, that the bailout of Wall Street is fraught with moral hazard: It broke the basic rule of capitalism, which says that business executives should bear all the costs of their bad decisions. But it's also true that financial stability is a public good. When the collapse of one or more financial institutions threatens to destroy financial stability, a government bailout can serve the public interest. Believing that, Mr. Paulson and his colleagues made some very difficult decisions under dangerous conditions. The ultimate results of those tough choices are still unknown. A fairer congressional inquiry, though, would start from the premise that, if he had not taken the actions that he did, the subject of today's investigations might have been a much, much bigger catastrophe.
Judges Don't Belong on the Battlefield - Recent decisions have altered the way we're fighting in Afghanistan
Judges Don't Belong on the Battlefield. By DAVID B. RIVKIN JR. and LEE A. CASEY
Recent decisions have altered the way we're fighting in Afghanistan.
WSJ, Jul 17, 2009
Earlier this year, a Washington D.C.-based federal court extended the constitutional right to habeas corpus to three foreign nationals detained by U.S. forces in Afghanistan. The case, Maqaleh v. Gates, represents yet another step in the federal judiciary's transformation from Alexander Hamilton's "least dangerous branch" into a fully active policy maker.
Historically, the constitutional right to habeas corpus -- an ancient process permitting prisoners to challenge the legality of their confinement -- was available only to individuals present in the U.S., or to American citizens held by federal authorities overseas. In a leading World War II case, Johnson v. Eisentrager (1950), the high court decided, with "bright line rules," that habeas corpus is unavailable to foreign citizens held outside the U.S.
But last year, the high court reversed itself in Boumediene v. Bush. The court held, by a 5-4 vote, that foreign nationals detained at Guantanamo Bay, Cuba, also have a right to habeas corpus. Articulating a new, multifactor test for determining who can receive habeas corpus overseas, the court left open the possibility that aliens detained at any U.S. controlled foreign facility could sue the government for their release.
In Maqaleh the court concluded that three detainees, held at Bagram airbase in Afghanistan, but actually captured in other countries, have habeas corpus rights under the U.S. Constitution. It reasoned that permitting the president to move captured enemies from one location to another without judicial review would simply give the executive too much power.
What really is at stake is whether the president's actions overseas -- especially in military operations -- are to be subject to judicial supervision. In this light, the courts have never been so bold. Although the Maqaleh court denied it, the premise of its decision is that the Constitution permits judicial involvement in all U.S. actions abroad. While this particular ruling involves habeas rights in Afghanistan, there is in fact no principled limitation on the court's reasoning. The real test in any particular case is whether a federal judge believes the president is operating with insufficient constraints on his authority.
This new state of play has already affected U.S. military operations. American special forces, have now limited their activities in the Afghan-Pakistan border region -- where al Qaeda and the Taliban are now most active -- to avoid claims by enemy fighters that they were captured outside of Afghanistan, in Pakistan. If those enemy fighters were captured outside of Afghanistan, then according to the Maqaleh decision, they are eligible for habeas relief. This provides a strategic sanctuary for Pakistan-based enemy operatives, who are now effectively immune from U.S. ground attacks.
This is obviously not the first time the courts have overstepped their proper constitutional bounds, seeking a political role for themselves. Notorious examples include the Supreme Court's efforts to preserve slavery in Dred Scott v. Sandford (1857) and its determination to oppose federal economic regulation during President Franklin D. Roosevelt's New Deal. In each case, the judges have eventually been strong-armed back, through the force of the public opinion and political pressures, to a more appropriate role.
The sooner this process begins, the better. A good first step would be some questions for Supreme Court nominee Sonia Sotomayor by the Senate. Senate members should determine her views on the proper role of judges in reviewing U.S. military operations overseas.
Justice Robert Jackson, writing in the Eisentrager case, explained why foreign enemies should not have access to American courts. "It would be difficult to devise more effective fettering of a field commander than to allow the very enemies he is ordered to reduce to submission to call him to account in his own civil courts and divert his efforts and attention from the military offensive abroad to the legal defensive at home." The question is: Does Ms. Sotomayor agree?
Messrs. Rivkin and Casey, Washington D.C.-based attorneys, served in the Department of Justice during the Ronald Reagan and George H.W. Bush administrations.
Recent decisions have altered the way we're fighting in Afghanistan.
WSJ, Jul 17, 2009
Earlier this year, a Washington D.C.-based federal court extended the constitutional right to habeas corpus to three foreign nationals detained by U.S. forces in Afghanistan. The case, Maqaleh v. Gates, represents yet another step in the federal judiciary's transformation from Alexander Hamilton's "least dangerous branch" into a fully active policy maker.
Historically, the constitutional right to habeas corpus -- an ancient process permitting prisoners to challenge the legality of their confinement -- was available only to individuals present in the U.S., or to American citizens held by federal authorities overseas. In a leading World War II case, Johnson v. Eisentrager (1950), the high court decided, with "bright line rules," that habeas corpus is unavailable to foreign citizens held outside the U.S.
But last year, the high court reversed itself in Boumediene v. Bush. The court held, by a 5-4 vote, that foreign nationals detained at Guantanamo Bay, Cuba, also have a right to habeas corpus. Articulating a new, multifactor test for determining who can receive habeas corpus overseas, the court left open the possibility that aliens detained at any U.S. controlled foreign facility could sue the government for their release.
In Maqaleh the court concluded that three detainees, held at Bagram airbase in Afghanistan, but actually captured in other countries, have habeas corpus rights under the U.S. Constitution. It reasoned that permitting the president to move captured enemies from one location to another without judicial review would simply give the executive too much power.
What really is at stake is whether the president's actions overseas -- especially in military operations -- are to be subject to judicial supervision. In this light, the courts have never been so bold. Although the Maqaleh court denied it, the premise of its decision is that the Constitution permits judicial involvement in all U.S. actions abroad. While this particular ruling involves habeas rights in Afghanistan, there is in fact no principled limitation on the court's reasoning. The real test in any particular case is whether a federal judge believes the president is operating with insufficient constraints on his authority.
This new state of play has already affected U.S. military operations. American special forces, have now limited their activities in the Afghan-Pakistan border region -- where al Qaeda and the Taliban are now most active -- to avoid claims by enemy fighters that they were captured outside of Afghanistan, in Pakistan. If those enemy fighters were captured outside of Afghanistan, then according to the Maqaleh decision, they are eligible for habeas relief. This provides a strategic sanctuary for Pakistan-based enemy operatives, who are now effectively immune from U.S. ground attacks.
This is obviously not the first time the courts have overstepped their proper constitutional bounds, seeking a political role for themselves. Notorious examples include the Supreme Court's efforts to preserve slavery in Dred Scott v. Sandford (1857) and its determination to oppose federal economic regulation during President Franklin D. Roosevelt's New Deal. In each case, the judges have eventually been strong-armed back, through the force of the public opinion and political pressures, to a more appropriate role.
The sooner this process begins, the better. A good first step would be some questions for Supreme Court nominee Sonia Sotomayor by the Senate. Senate members should determine her views on the proper role of judges in reviewing U.S. military operations overseas.
Justice Robert Jackson, writing in the Eisentrager case, explained why foreign enemies should not have access to American courts. "It would be difficult to devise more effective fettering of a field commander than to allow the very enemies he is ordered to reduce to submission to call him to account in his own civil courts and divert his efforts and attention from the military offensive abroad to the legal defensive at home." The question is: Does Ms. Sotomayor agree?
Messrs. Rivkin and Casey, Washington D.C.-based attorneys, served in the Department of Justice during the Ronald Reagan and George H.W. Bush administrations.
WSJ Editorial Page: one of the greatest raids on private income and business in American history in a matter of weeks
A Reckless Congress. WSJ Editorial
Democrats want to ram through one of the greatest raids on private income and business in American history.
WSJ, Jul 17, 2009
Say this about the 1,018-page health-care bill that House Democrats unveiled this week and that President Obama heartily endorsed: It finally reveals at least some of the price of the reckless ambitions of our current government. With huge majorities and a President in a rush to outrun the declining popularity of his agenda, Democrats are bidding to impose an unrepealable European-style welfare state in a matter of weeks.
Mr. Obama's February budget provided the outline, but the House bill now fills in the details. To wit, tax increases that would take U.S. rates higher even than most of Europe. Yet even those increases aren't nearly enough to finance the $1 trillion in new spending, which itself is surely a low-ball estimate. Meanwhile, the bill would create a new government health entitlement that will kill private insurance and lead to a government-run system.
Hyperbole? That's what people said when we warned about this last fall in "A Liberal Supermajority," but even we underestimated the ideological willfulness of today's national Democrats. Consider only a few of the details:
[graph Top income tax rate including 2.9%. Some countries and US States. http://s.wsj.net/public/resources/images/ED-AJ861_1radic_NS_20090716184020.gif]
A huge new income surtax. The bill's main financing comes from another tax increase on top of the increase already scheduled for 2011 under Mr. Obama's budget. The surtax starts at one percentage point for adjusted gross income above $350,000 in 2011, rising to two points in 2013; a 1.5 point surtax at incomes above $500,000, rising to three in 2013; and a whopping 5.4 percentage points in 2011 and beyond on incomes above $1 million.
This would raise the top marginal federal tax rate back to roughly 47% or 48%, if you include the Medicare tax and the phase-out of certain deductions and exemptions. With the current top rate at 35%, this would be the largest rate increase outside the Great Depression or world wars.
The average U.S. top combined state-federal marginal tax rate would hit about 52%. This would be higher than in all but three (Denmark, Sweden, Belgium) of the 30 countries measured by the OECD. According to the nearby table compiled by the Heritage Foundation, taxpayers in at least five U.S. states would pay higher marginal rates even than Sweden. South Korea, which Democrats worry is stealing American jobs, would be able to grab even more as its highest rate is a far more competitive 38.5%.
House Democrats say they deserve credit for being honest about the tax increases needed to fund their ambitions. But then they also claim that this surtax would raise $544 billion in new revenue over 10 years. America's millionaires aren't that stupid; far fewer of them will pay these rates for very long, if at all. They will find ways to shelter income, either by investing differently or simply working less. Small businesses that pay at the individual rate will shift to pay the 35% corporate rate. When the revenue doesn't materialize, Democrats will move to soak the middle class with a European-style value-added tax.
Phony numbers. Democrats will have to come up with something, because even the surtax puts their bill at least $300 billion short of honest financing. The public insurance "option" doesn't even begin until 2013 and the costs are heavily weighted toward the later years, but the tax hikes start in 2011. So under Congress's 10-year budget window, the House bill is able to pay for seven years of spending with nine years of taxes. Andy Laperriere of the ISI Group estimates the bill would add $95 billion to the deficit in 2019 alone.
Then there's yesterday's testimony, from Congressional Budget Office (CBO) Director Doug Elmendorf, that ObamaCare's cost "savings" are an illusion. Mr. Obama claims government can cover more people and pay less to do it. But Mr. Elmendorf told the Senate Finance Committee that "In the legislation that has been reported we don't see the sort of fundamental changes that would be necessary to reduce the trajectory of federal spending by a significant amount. And on the contrary, the legislation significantly expands the federal responsibility for health-care costs."
Further on the public plan: "It raises the amount of activity that is growing at this unsustainable rate."
No matter, Speaker Nancy Pelosi is whisking the bill through House committees even before CBO has had a chance to score it in detail. As Wisconsin Republican Paul Ryan put it to us, "We will not have read it, and we will not have a score of it, but we will have passed it out of committee."
A new payroll tax. Unemployment is at 9.5% and rising, but Democrats will nonetheless impose a new eight percentage point payroll tax on employers who don't provide health insurance for employees. This is on top of the current 15% payroll tax, and in addition to a new 2.5-percentage point tax on individuals who don't buy health insurance. This means that any employer with more than $400,000 in payroll would have to pay at least 25% above the salary to hire someone. Result: Many fewer new jobs, with a higher structural jobless rate, much as Europe has experienced as its welfare states have expanded.
Other new taxes, including an as yet undetermined levy on private health plans. This tax, which Democrats say could raise $100 billion or so, would make it even harder for private plans to compete with the government plan, which would already benefit from government subsidies and lower capital costs. For good measure, the House bill also gets the ball rolling on tax increases on foreign-source corporate income.
We could go on, and we will in coming days. But the most remarkable quality of this health-care exercise is its reckless disregard for economic and fiscal reality. With the economy still far from a healthy recovery, and the federal fisc already nearly $2 trillion in deficit, Democrats want to ram through one of the greatest raids on private income and business in American history. The world is looking on, agog, and wondering why the United States seems intent on jumping off this cliff.
Democrats want to ram through one of the greatest raids on private income and business in American history.
WSJ, Jul 17, 2009
Say this about the 1,018-page health-care bill that House Democrats unveiled this week and that President Obama heartily endorsed: It finally reveals at least some of the price of the reckless ambitions of our current government. With huge majorities and a President in a rush to outrun the declining popularity of his agenda, Democrats are bidding to impose an unrepealable European-style welfare state in a matter of weeks.
Mr. Obama's February budget provided the outline, but the House bill now fills in the details. To wit, tax increases that would take U.S. rates higher even than most of Europe. Yet even those increases aren't nearly enough to finance the $1 trillion in new spending, which itself is surely a low-ball estimate. Meanwhile, the bill would create a new government health entitlement that will kill private insurance and lead to a government-run system.
Hyperbole? That's what people said when we warned about this last fall in "A Liberal Supermajority," but even we underestimated the ideological willfulness of today's national Democrats. Consider only a few of the details:
[graph Top income tax rate including 2.9%. Some countries and US States. http://s.wsj.net/public/resources/images/ED-AJ861_1radic_NS_20090716184020.gif]
A huge new income surtax. The bill's main financing comes from another tax increase on top of the increase already scheduled for 2011 under Mr. Obama's budget. The surtax starts at one percentage point for adjusted gross income above $350,000 in 2011, rising to two points in 2013; a 1.5 point surtax at incomes above $500,000, rising to three in 2013; and a whopping 5.4 percentage points in 2011 and beyond on incomes above $1 million.
This would raise the top marginal federal tax rate back to roughly 47% or 48%, if you include the Medicare tax and the phase-out of certain deductions and exemptions. With the current top rate at 35%, this would be the largest rate increase outside the Great Depression or world wars.
The average U.S. top combined state-federal marginal tax rate would hit about 52%. This would be higher than in all but three (Denmark, Sweden, Belgium) of the 30 countries measured by the OECD. According to the nearby table compiled by the Heritage Foundation, taxpayers in at least five U.S. states would pay higher marginal rates even than Sweden. South Korea, which Democrats worry is stealing American jobs, would be able to grab even more as its highest rate is a far more competitive 38.5%.
House Democrats say they deserve credit for being honest about the tax increases needed to fund their ambitions. But then they also claim that this surtax would raise $544 billion in new revenue over 10 years. America's millionaires aren't that stupid; far fewer of them will pay these rates for very long, if at all. They will find ways to shelter income, either by investing differently or simply working less. Small businesses that pay at the individual rate will shift to pay the 35% corporate rate. When the revenue doesn't materialize, Democrats will move to soak the middle class with a European-style value-added tax.
Phony numbers. Democrats will have to come up with something, because even the surtax puts their bill at least $300 billion short of honest financing. The public insurance "option" doesn't even begin until 2013 and the costs are heavily weighted toward the later years, but the tax hikes start in 2011. So under Congress's 10-year budget window, the House bill is able to pay for seven years of spending with nine years of taxes. Andy Laperriere of the ISI Group estimates the bill would add $95 billion to the deficit in 2019 alone.
Then there's yesterday's testimony, from Congressional Budget Office (CBO) Director Doug Elmendorf, that ObamaCare's cost "savings" are an illusion. Mr. Obama claims government can cover more people and pay less to do it. But Mr. Elmendorf told the Senate Finance Committee that "In the legislation that has been reported we don't see the sort of fundamental changes that would be necessary to reduce the trajectory of federal spending by a significant amount. And on the contrary, the legislation significantly expands the federal responsibility for health-care costs."
Further on the public plan: "It raises the amount of activity that is growing at this unsustainable rate."
No matter, Speaker Nancy Pelosi is whisking the bill through House committees even before CBO has had a chance to score it in detail. As Wisconsin Republican Paul Ryan put it to us, "We will not have read it, and we will not have a score of it, but we will have passed it out of committee."
A new payroll tax. Unemployment is at 9.5% and rising, but Democrats will nonetheless impose a new eight percentage point payroll tax on employers who don't provide health insurance for employees. This is on top of the current 15% payroll tax, and in addition to a new 2.5-percentage point tax on individuals who don't buy health insurance. This means that any employer with more than $400,000 in payroll would have to pay at least 25% above the salary to hire someone. Result: Many fewer new jobs, with a higher structural jobless rate, much as Europe has experienced as its welfare states have expanded.
Other new taxes, including an as yet undetermined levy on private health plans. This tax, which Democrats say could raise $100 billion or so, would make it even harder for private plans to compete with the government plan, which would already benefit from government subsidies and lower capital costs. For good measure, the House bill also gets the ball rolling on tax increases on foreign-source corporate income.
We could go on, and we will in coming days. But the most remarkable quality of this health-care exercise is its reckless disregard for economic and fiscal reality. With the economy still far from a healthy recovery, and the federal fisc already nearly $2 trillion in deficit, Democrats want to ram through one of the greatest raids on private income and business in American history. The world is looking on, agog, and wondering why the United States seems intent on jumping off this cliff.
Ted van Dyk: Obama Needs to 'Reset' His Presidency
Obama Needs to 'Reset' His Presidency. By TED VAN DYK
The president we have is very different from the man who campaigned for the office in 2008.
WSJ, Jul 17, 2009
Time out, Mr. President.
As we approach the August congressional recess, it's clear that our economic distress is deeper than we thought, and thus your health-care and energy initiatives are in danger of stalling out. You could use a reset button for domestic policy.
Let's take it from the top.
Your presidential campaign was superb. You restored hope to millions -- including me -- who had been demoralized by the political polarization that characterized the presidencies of Bill Clinton and George W. Bush. You talked about reaching across party and ideological lines to get the public's business done. Your biography was appealing, and for those of us who entered politics motivated by the civil-rights struggle, your candidacy represented an important culmination.
You displayed an intellect and sense of cool that made us think you would weigh decisions carefully and view advisers' proposals with skepticism.
The first warning signals for me came with your acceptance speech at the Democratic National Convention. In it, you stressed domestic initiatives that clearly were nonstarters in the already shrinking economy.
I had greater concern when you staffed your administration and White House with a large number of Clinton administration retreads who had learned their trade in the never-ending-campaign culture of the Clinton years. Some appeared to represent what you had pledged to eradicate in the capital.
Many of the missteps that have followed flowed, in part, from your reliance on these Clinton holdovers. Your chief of staff, Rahm Emanuel, defined your early strategy by stating that the financial and economic crises presented an "opportunity" to jam through unrelated legislation. To many of us, the remark was cynical and wrong-headed.
The crises did not represent an opportunity. They presented an obligation to do one thing: Return our financial system and our economy to good health.
Since January, your advisers have compared your situation to those of Presidents Franklin D. Roosevelt and Lyndon Johnson after their landslide victories in 1932 and 1964. In fact, your situation is quite different. Most centrally, FDR's and LBJ's victories and congressional majorities were far larger than yours. Thus their mandates were stronger.
FDR's first months in office were devoted entirely to financial and economic recovery. His big domestic initiative, Social Security, was not enacted until 1935. LBJ pushed an ambitious Great Society agenda into law in 1965. But the U.S. economy was growing robustly in 1965. Johnson referred to it as "an endless cornucopia" which would generate tax revenues to pay for the Great Society. When he learned in mid-1967 that the projected federal budget deficit was $28 billion -- almost twice the amount projected six months earlier -- he went to Congress to push for tax increases in order to prevent Vietnam War and Great Society spending from creating unacceptable deficits.
Your staff recently has compared your strategy in pushing health-care and energy initiatives to the way Johnson pushed his Great Society legislation. That's not a fair comparison. Johnson's initiatives were framed in the White House by his administration. But at every stage, congressional leaders of both political parties and financial, business, labor and other private-sector leaders were consulted. Johnson wanted to assure that his legislation was substantively sound and could get consensus support in the Congress and the country.
Your strategy, by contrast, has been to advocate forcefully for health-care and energy reform but to leave the details to Democratic congressional committee chairs. You did the same thing with your initial $787 billion stimulus package. Now, you're stuck with a plan that provides little stimulus until 2010. A president should never cede control of his main agenda to others.
This tactic has already had negative consequences. Frightened by the prospective costs of your health-care and energy plans -- not to mention the bailouts of the financial and auto industries -- independent voters who supported you in 2008 are falling away. FDR and LBJ, only two years after their 1932 and 1964 victories, saw their parties lose congressional seats even though their personal popularity remained stable. The party out of power traditionally gains seats in off-year elections, and 2010 is unlikely to be an exception.
What adjustments should be made?
- Cut back both your proposals and expectations. You made promises about jobs that would be "created and saved" by the stimulus package. Those promises have not held up. You continue to engage in hyperbole by claiming that your health-care and energy plans will save tax dollars. Congressional Budget Office analysis indicates otherwise.
It's time to re-examine these initiatives. Could your health plan be scaled back to catastrophic coverage for all -- badly needed by most families, but quite affordable if deductibles are set at the right levels? Should the Rube Goldbergian cap-and-trade proposals be replaced with a simple carbon tax, with proceeds to be allocated to alternative-fuels development?
The evolving health and cap-and-trade bills are loaded with costly provisions designed to gain support from congressional leaders and special-interest constituencies. In short, they have become an expensive mess. This legislation will not clear Congress by the August recess, as you have requested, and could be stalled for the remainder of 2009. Settle for incremental change: Do not press Democratic legislators to vote for something they fear will destroy them in 2010.
- Talk less and pick your spots.You are outdoing even Johnson and Mr. Clinton with your daily speeches in the capital and around the country.
Applause and adulation are gratifying. But the more you talk, the less weight your words will hold. Let voters see you at your desk, conferring with serious people about serious matters. When you do choose to talk, people will understand that it's important and they should listen.
- Conform your 2009 politics to your 2008 statements. During your campaign, you called for bipartisanship and bridge-building. You promised to reduce the influence of single-issue and single-interest groups in the policy process. Yet, in your public statements, you keep using President Bush as a scapegoat.
You have ceded content of your principal proposals to Democratic congressional leaders who in large part have yielded to special-interest constituencies and excluded Republican leaders from policy formulation. This certainly was the case with the stimulus plan. It has been the case with health and energy legislation, with the notable exception of Sen. Max Baucus's attempt in the Senate Finance Committee to develop genuinely bipartisan legislation.
You have an enormous reservoir of goodwill among Americans of all persuasions. They want you to succeed. Level with them and trim your proposals to what is practical in the current environment.
You had things right in 2008. Take a timeout. Get back to yourself. Make a fresh start.
Mr. Van Dyk was Vice President Hubert Humphrey's assistant in the Johnson White House and active in national Democratic politics over 40 years. He is the author of "Heroes, Hacks and Fools," (University of Washington Press, 2008).
The president we have is very different from the man who campaigned for the office in 2008.
WSJ, Jul 17, 2009
Time out, Mr. President.
As we approach the August congressional recess, it's clear that our economic distress is deeper than we thought, and thus your health-care and energy initiatives are in danger of stalling out. You could use a reset button for domestic policy.
Let's take it from the top.
Your presidential campaign was superb. You restored hope to millions -- including me -- who had been demoralized by the political polarization that characterized the presidencies of Bill Clinton and George W. Bush. You talked about reaching across party and ideological lines to get the public's business done. Your biography was appealing, and for those of us who entered politics motivated by the civil-rights struggle, your candidacy represented an important culmination.
You displayed an intellect and sense of cool that made us think you would weigh decisions carefully and view advisers' proposals with skepticism.
The first warning signals for me came with your acceptance speech at the Democratic National Convention. In it, you stressed domestic initiatives that clearly were nonstarters in the already shrinking economy.
I had greater concern when you staffed your administration and White House with a large number of Clinton administration retreads who had learned their trade in the never-ending-campaign culture of the Clinton years. Some appeared to represent what you had pledged to eradicate in the capital.
Many of the missteps that have followed flowed, in part, from your reliance on these Clinton holdovers. Your chief of staff, Rahm Emanuel, defined your early strategy by stating that the financial and economic crises presented an "opportunity" to jam through unrelated legislation. To many of us, the remark was cynical and wrong-headed.
The crises did not represent an opportunity. They presented an obligation to do one thing: Return our financial system and our economy to good health.
Since January, your advisers have compared your situation to those of Presidents Franklin D. Roosevelt and Lyndon Johnson after their landslide victories in 1932 and 1964. In fact, your situation is quite different. Most centrally, FDR's and LBJ's victories and congressional majorities were far larger than yours. Thus their mandates were stronger.
FDR's first months in office were devoted entirely to financial and economic recovery. His big domestic initiative, Social Security, was not enacted until 1935. LBJ pushed an ambitious Great Society agenda into law in 1965. But the U.S. economy was growing robustly in 1965. Johnson referred to it as "an endless cornucopia" which would generate tax revenues to pay for the Great Society. When he learned in mid-1967 that the projected federal budget deficit was $28 billion -- almost twice the amount projected six months earlier -- he went to Congress to push for tax increases in order to prevent Vietnam War and Great Society spending from creating unacceptable deficits.
Your staff recently has compared your strategy in pushing health-care and energy initiatives to the way Johnson pushed his Great Society legislation. That's not a fair comparison. Johnson's initiatives were framed in the White House by his administration. But at every stage, congressional leaders of both political parties and financial, business, labor and other private-sector leaders were consulted. Johnson wanted to assure that his legislation was substantively sound and could get consensus support in the Congress and the country.
Your strategy, by contrast, has been to advocate forcefully for health-care and energy reform but to leave the details to Democratic congressional committee chairs. You did the same thing with your initial $787 billion stimulus package. Now, you're stuck with a plan that provides little stimulus until 2010. A president should never cede control of his main agenda to others.
This tactic has already had negative consequences. Frightened by the prospective costs of your health-care and energy plans -- not to mention the bailouts of the financial and auto industries -- independent voters who supported you in 2008 are falling away. FDR and LBJ, only two years after their 1932 and 1964 victories, saw their parties lose congressional seats even though their personal popularity remained stable. The party out of power traditionally gains seats in off-year elections, and 2010 is unlikely to be an exception.
What adjustments should be made?
- Cut back both your proposals and expectations. You made promises about jobs that would be "created and saved" by the stimulus package. Those promises have not held up. You continue to engage in hyperbole by claiming that your health-care and energy plans will save tax dollars. Congressional Budget Office analysis indicates otherwise.
It's time to re-examine these initiatives. Could your health plan be scaled back to catastrophic coverage for all -- badly needed by most families, but quite affordable if deductibles are set at the right levels? Should the Rube Goldbergian cap-and-trade proposals be replaced with a simple carbon tax, with proceeds to be allocated to alternative-fuels development?
The evolving health and cap-and-trade bills are loaded with costly provisions designed to gain support from congressional leaders and special-interest constituencies. In short, they have become an expensive mess. This legislation will not clear Congress by the August recess, as you have requested, and could be stalled for the remainder of 2009. Settle for incremental change: Do not press Democratic legislators to vote for something they fear will destroy them in 2010.
- Talk less and pick your spots.You are outdoing even Johnson and Mr. Clinton with your daily speeches in the capital and around the country.
Applause and adulation are gratifying. But the more you talk, the less weight your words will hold. Let voters see you at your desk, conferring with serious people about serious matters. When you do choose to talk, people will understand that it's important and they should listen.
- Conform your 2009 politics to your 2008 statements. During your campaign, you called for bipartisanship and bridge-building. You promised to reduce the influence of single-issue and single-interest groups in the policy process. Yet, in your public statements, you keep using President Bush as a scapegoat.
You have ceded content of your principal proposals to Democratic congressional leaders who in large part have yielded to special-interest constituencies and excluded Republican leaders from policy formulation. This certainly was the case with the stimulus plan. It has been the case with health and energy legislation, with the notable exception of Sen. Max Baucus's attempt in the Senate Finance Committee to develop genuinely bipartisan legislation.
You have an enormous reservoir of goodwill among Americans of all persuasions. They want you to succeed. Level with them and trim your proposals to what is practical in the current environment.
You had things right in 2008. Take a timeout. Get back to yourself. Make a fresh start.
Mr. Van Dyk was Vice President Hubert Humphrey's assistant in the Johnson White House and active in national Democratic politics over 40 years. He is the author of "Heroes, Hacks and Fools," (University of Washington Press, 2008).
Wednesday, July 15, 2009
Big Pharma Gets Played: Congress repays business silence with price controls
Big Pharma Gets Played. WSJ Editorial
Congress repays business silence with price controls.
WSJ, Jul 16, 2009
As an old Washington hand, pharmaceutical lobbyist Billy Tauzin should know better than to trust a politician. His corporate clients and their shareholders may soon pay for his attempt to get cozy with ObamaCare.
Mr. Tauzin -- the former Democratic Congressman turned Republican turned pharmaceutical frontman -- has been assuring his CEO employers that he can get them a good deal if they negotiate with Democrats instead of opposing them on health care. And to show its bona fides, the drug lobby announced in June an agreement with Senate Finance Chairman Max Baucus, promising $80 billion over the next decade to defray drug costs for seniors and to finance the Obama plan. Mr. Tauzin believed this giveaway would spare his industry from price controls and the reimportation of cheaper foreign drugs that would reduce company margins and profits.
Mr. Tauzin should have demanded a pre-nup. House Democrats declared last week that they aren't bound by Senator Baucus's deal. And this week they released a health-care bill that pocketed the industry concessions for senior drug coverage, and also imposed the very price controls Mr. Tauzin thought he'd shelved. These mandatory "rebates" on drugs for seniors would cost the industry $50 billion more over a decade than the $80 billion the industry promised Mr. Baucus. And that's optimistic. Democrat Henry Waxman cheerfully explained it was only "equitable" to devote the industry's "windfall" profits to seniors.
Meanwhile, Mr. Tauzin's fellow Cajun, Louisiana Republican David Vitter, sponsored an amendment that passed the Senate last week to allow Americans to buy cheap drugs from Canada over the Internet. Among the 55 Senators who voted for this form of drug reimportation was none other than Mr. Baucus. As for the White House, Mr. Waxman last week said he'd been told that the Administration also doesn't feel bound by the $80 billion agreement. This isn't surprising since Mr. Obama had co-sponsored the same legislation with Mr. Vitter when he was an Illinois Senator in 2006.
In case this isn't enough of a doublecross, Senate Democrats are also considering hefty new taxes on health insurance and . . . pharmaceutical companies. Price tag: $100 billion. Let's just say the companies' return on their investment in Mr. Tauzin's political strategy is looking negative.
Meanwhile, the insurance and hospital industries that struck similar deals with Democrats are also being taken for a ride. Liberal Senators may pare back billions of dollars of tax breaks now claimed by nonprofit hospitals. The House legislation contains the new "public option" that insurance lobbyist Karen Ignagni hoped to forestall with her industry's cost savings proposals. It also guts payments for Medicare Advantage, which allows seniors to buy into private plans offered by Mrs. Ignagni's members.
Democrats remember the failure of HillaryCare, and they blame industry ads that alerted the public to the rationing and loss of choice that will accompany government health care. Their negotiations this time around are intended to buy business silence, at least long enough for Democrats to spring legislation into law before the companies have enough time to educate the public and defeat it.
Big Pharma and others have been played for suckers. We'd say these companies deserve what they get, except that the real victims of government health care will be American patients.
Congress repays business silence with price controls.
WSJ, Jul 16, 2009
As an old Washington hand, pharmaceutical lobbyist Billy Tauzin should know better than to trust a politician. His corporate clients and their shareholders may soon pay for his attempt to get cozy with ObamaCare.
Mr. Tauzin -- the former Democratic Congressman turned Republican turned pharmaceutical frontman -- has been assuring his CEO employers that he can get them a good deal if they negotiate with Democrats instead of opposing them on health care. And to show its bona fides, the drug lobby announced in June an agreement with Senate Finance Chairman Max Baucus, promising $80 billion over the next decade to defray drug costs for seniors and to finance the Obama plan. Mr. Tauzin believed this giveaway would spare his industry from price controls and the reimportation of cheaper foreign drugs that would reduce company margins and profits.
Mr. Tauzin should have demanded a pre-nup. House Democrats declared last week that they aren't bound by Senator Baucus's deal. And this week they released a health-care bill that pocketed the industry concessions for senior drug coverage, and also imposed the very price controls Mr. Tauzin thought he'd shelved. These mandatory "rebates" on drugs for seniors would cost the industry $50 billion more over a decade than the $80 billion the industry promised Mr. Baucus. And that's optimistic. Democrat Henry Waxman cheerfully explained it was only "equitable" to devote the industry's "windfall" profits to seniors.
Meanwhile, Mr. Tauzin's fellow Cajun, Louisiana Republican David Vitter, sponsored an amendment that passed the Senate last week to allow Americans to buy cheap drugs from Canada over the Internet. Among the 55 Senators who voted for this form of drug reimportation was none other than Mr. Baucus. As for the White House, Mr. Waxman last week said he'd been told that the Administration also doesn't feel bound by the $80 billion agreement. This isn't surprising since Mr. Obama had co-sponsored the same legislation with Mr. Vitter when he was an Illinois Senator in 2006.
In case this isn't enough of a doublecross, Senate Democrats are also considering hefty new taxes on health insurance and . . . pharmaceutical companies. Price tag: $100 billion. Let's just say the companies' return on their investment in Mr. Tauzin's political strategy is looking negative.
Meanwhile, the insurance and hospital industries that struck similar deals with Democrats are also being taken for a ride. Liberal Senators may pare back billions of dollars of tax breaks now claimed by nonprofit hospitals. The House legislation contains the new "public option" that insurance lobbyist Karen Ignagni hoped to forestall with her industry's cost savings proposals. It also guts payments for Medicare Advantage, which allows seniors to buy into private plans offered by Mrs. Ignagni's members.
Democrats remember the failure of HillaryCare, and they blame industry ads that alerted the public to the rationing and loss of choice that will accompany government health care. Their negotiations this time around are intended to buy business silence, at least long enough for Democrats to spring legislation into law before the companies have enough time to educate the public and defeat it.
Big Pharma and others have been played for suckers. We'd say these companies deserve what they get, except that the real victims of government health care will be American patients.
John Yoo: Why We Endorsed Warrantless Wiretaps
Why We Endorsed Warrantless Wiretaps. By JOHN YOO
The inspectors general report ignores history and plays politics with the law.
WSJ, Jul 16, 2009
It was instantly clear after Sept. 11, 2001, that our security agencies knew little about al Qaeda's inner workings, could not detect its operatives' entry into the country, nor predict where it might strike next.
Suppose an al Qaeda cell in New York, Chicago or Los Angeles was planning a second attack using small arms, conventional explosives or even biological, chemical or nuclear weapons. Our intelligence and law enforcement agencies faced a near impossible task locating them. Now suppose the National Security Agency (NSA), which collects signals intelligence, threw up a virtual net to intercept all electronic communications leaving and entering Osama bin Laden's Afghanistan headquarters. What better way of detecting follow-up attacks? And what president -- of either political party -- wouldn't immediately order the NSA to start, so as to find and stop the attackers?
Evidently, none of the inspectors general of the five leading national security agencies would approve. In a report issued last week, they suggested that President George W. Bush might have violated the 1978 Foreign Intelligence Surveillance Act (FISA) by ordering the interception of international communications of terrorists without a judicial warrant. The report also suggests that "other" intelligence measures -- still classified only because they are yet to be reported on the front page of the New York Times -- similarly lacked approval from other branches of government.
It is absurd to think that a law like FISA should restrict live military operations against potential attacks on the United States. Congress enacted FISA during the waning days of the Cold War. As the 9/11 Commission found, FISA's wall between domestic law enforcement and foreign intelligence proved dysfunctional and contributed to our government's failure to prevent the 9/11 attacks.
Under FISA, to obtain a judicial wiretapping warrant the government is supposed to show probable cause that a specified target is a foreign agent. Unlike, say, Soviet spies working under diplomatic cover, terrorists are hard to identify. Yet they are vastly more dangerous. Monitoring their likely communications channels is the best way to track and stop them. Building evidence to prove past crimes, as in the civilian criminal system, is entirely beside the point. The best way to find an al Qaeda operative is to look at all email, text and phone traffic between Afghanistan and Pakistan and the U.S. This might involve the filtering of innocent traffic, just as roadblocks and airport screenings do.
In FISA, President Bush and his advisers faced an obsolete law not written with live war with an international terrorist organization in mind. It was to meet such emergency circumstances that the Founders designed the presidency. As John Locke first observed, foreign threats "are much less capable to be directed by antecedent, standing, positive laws." Legislatures are too slow and their members too numerous to respond effectively to unforeseen situations. Only the executive can act to protect the "security and interest of the public."
The power to protect the nation, said Alexander Hamilton in the Federalist, "ought to exist without limitation," because "it is impossible to foresee or define the extent and variety of national exigencies, or the correspondent extent & variety of the means which may be necessary to satisfy them." To limit the president's constitutional power to protect the nation from foreign threats is simply foolhardy. Hamilton observed that "decision, activity, secrecy, and dispatch will generally characterize the proceedings of one man, in a much more eminent degree, than the proceedings of any greater number." "Energy in the executive," he reiterated, "is essential to the protection of the community against foreign attacks."
Clearly, the five inspectors general were responding to the media-stoked politics of recrimination, not consulting the long history of American presidents who have lived up to their duty in times of crisis. More than a year before the attack on Pearl Harbor, President Franklin Delano Roosevelt authorized the FBI to intercept any communications, domestic or international, of persons "suspected of subversive activities . . . including suspected spies." FDR did not hesitate long over a 1937 Supreme Court opinion (United States v. Nardone) interpreting federal law to prohibit electronic surveillance without a warrant. It is too late to do anything about it after sabotage, assassinations and 'fifth column' activities are completed," he wrote in a secret 1940 memo authorizing the wire tapping. Indeed, he continued to authorize the surveillance even after Congress rejected proposals from his attorney general, Robert Jackson, to authorize national security wiretapping without a warrant.
Every federal appeals court to address the question has agreed that the president may gather electronic intelligence to protect against foreign threats. This includes the special FISA appeals court, which in a 2002 sealed case upholding the constitutionality of the Patriot Act held that "the President did have inherent authority to conduct warrantless searches to obtain foreign intelligence information." The court said it took the president's power "for granted," observing that "FISA could not encroach on the President's constitutional power."
Now, according to the inspectors general, those of us in government following the 9/11 terrorist attacks should have assumed that the usual peacetime rules for domestic wiretaps applied and interpreted FISA in a most curious way -- to delete the president's traditional authority as commander in chief to collect signals intelligence in wartime.
The 1952 Supreme Court case of Youngstown Sheet & Tube v. Sawyer is the IG's lodestar. In Youngstown, the Court addressed President Harry Truman's effort to seize steel mills shut down by a labor strike during the Korean War. Truman claimed that maintaining production was necessary to supply munitions and material to American troops in combat. Youngstown correctly found that the Constitution gives Congress, not the president, the exclusive power to make law concerning labor disputes. It does not, however, address the scope of the president's power involving military strategy or tactics in war. If anything, it supports the proposition that one branch cannot intrude on the clear constitutional turf of another.
Moreover, earlier Justice Departments -- reaching across several administrations from both parties -- had likewise concluded that Youngstown did not limit the president's legitimate conduct of foreign affairs and national security policy. This is why all administrations have refused to accept the 1973 War Powers Resolution and have regularly engaged in military conflicts without congressional approval.
Our Constitution created a presidency whose function is to protect the nation from attack. Gathering intelligence -- including intercepting enemy communications -- has long been a key aspect of war. Our military and intelligence agencies cannot attack or defend the nation unless they know where to aim. As we confront terrorists who remain intent on attacking the U.S., using weapons we cannot anticipate, we should be skeptical of those who insist that we radically change the way this country has always made war.
Mr. Yoo is a law professor at the University of California, Berkeley. He was an official in the Justice Department from 2001-03 and is a visiting scholar at the American Enterprise Institute.
The inspectors general report ignores history and plays politics with the law.
WSJ, Jul 16, 2009
It was instantly clear after Sept. 11, 2001, that our security agencies knew little about al Qaeda's inner workings, could not detect its operatives' entry into the country, nor predict where it might strike next.
Suppose an al Qaeda cell in New York, Chicago or Los Angeles was planning a second attack using small arms, conventional explosives or even biological, chemical or nuclear weapons. Our intelligence and law enforcement agencies faced a near impossible task locating them. Now suppose the National Security Agency (NSA), which collects signals intelligence, threw up a virtual net to intercept all electronic communications leaving and entering Osama bin Laden's Afghanistan headquarters. What better way of detecting follow-up attacks? And what president -- of either political party -- wouldn't immediately order the NSA to start, so as to find and stop the attackers?
Evidently, none of the inspectors general of the five leading national security agencies would approve. In a report issued last week, they suggested that President George W. Bush might have violated the 1978 Foreign Intelligence Surveillance Act (FISA) by ordering the interception of international communications of terrorists without a judicial warrant. The report also suggests that "other" intelligence measures -- still classified only because they are yet to be reported on the front page of the New York Times -- similarly lacked approval from other branches of government.
It is absurd to think that a law like FISA should restrict live military operations against potential attacks on the United States. Congress enacted FISA during the waning days of the Cold War. As the 9/11 Commission found, FISA's wall between domestic law enforcement and foreign intelligence proved dysfunctional and contributed to our government's failure to prevent the 9/11 attacks.
Under FISA, to obtain a judicial wiretapping warrant the government is supposed to show probable cause that a specified target is a foreign agent. Unlike, say, Soviet spies working under diplomatic cover, terrorists are hard to identify. Yet they are vastly more dangerous. Monitoring their likely communications channels is the best way to track and stop them. Building evidence to prove past crimes, as in the civilian criminal system, is entirely beside the point. The best way to find an al Qaeda operative is to look at all email, text and phone traffic between Afghanistan and Pakistan and the U.S. This might involve the filtering of innocent traffic, just as roadblocks and airport screenings do.
In FISA, President Bush and his advisers faced an obsolete law not written with live war with an international terrorist organization in mind. It was to meet such emergency circumstances that the Founders designed the presidency. As John Locke first observed, foreign threats "are much less capable to be directed by antecedent, standing, positive laws." Legislatures are too slow and their members too numerous to respond effectively to unforeseen situations. Only the executive can act to protect the "security and interest of the public."
The power to protect the nation, said Alexander Hamilton in the Federalist, "ought to exist without limitation," because "it is impossible to foresee or define the extent and variety of national exigencies, or the correspondent extent & variety of the means which may be necessary to satisfy them." To limit the president's constitutional power to protect the nation from foreign threats is simply foolhardy. Hamilton observed that "decision, activity, secrecy, and dispatch will generally characterize the proceedings of one man, in a much more eminent degree, than the proceedings of any greater number." "Energy in the executive," he reiterated, "is essential to the protection of the community against foreign attacks."
Clearly, the five inspectors general were responding to the media-stoked politics of recrimination, not consulting the long history of American presidents who have lived up to their duty in times of crisis. More than a year before the attack on Pearl Harbor, President Franklin Delano Roosevelt authorized the FBI to intercept any communications, domestic or international, of persons "suspected of subversive activities . . . including suspected spies." FDR did not hesitate long over a 1937 Supreme Court opinion (United States v. Nardone) interpreting federal law to prohibit electronic surveillance without a warrant. It is too late to do anything about it after sabotage, assassinations and 'fifth column' activities are completed," he wrote in a secret 1940 memo authorizing the wire tapping. Indeed, he continued to authorize the surveillance even after Congress rejected proposals from his attorney general, Robert Jackson, to authorize national security wiretapping without a warrant.
Every federal appeals court to address the question has agreed that the president may gather electronic intelligence to protect against foreign threats. This includes the special FISA appeals court, which in a 2002 sealed case upholding the constitutionality of the Patriot Act held that "the President did have inherent authority to conduct warrantless searches to obtain foreign intelligence information." The court said it took the president's power "for granted," observing that "FISA could not encroach on the President's constitutional power."
Now, according to the inspectors general, those of us in government following the 9/11 terrorist attacks should have assumed that the usual peacetime rules for domestic wiretaps applied and interpreted FISA in a most curious way -- to delete the president's traditional authority as commander in chief to collect signals intelligence in wartime.
The 1952 Supreme Court case of Youngstown Sheet & Tube v. Sawyer is the IG's lodestar. In Youngstown, the Court addressed President Harry Truman's effort to seize steel mills shut down by a labor strike during the Korean War. Truman claimed that maintaining production was necessary to supply munitions and material to American troops in combat. Youngstown correctly found that the Constitution gives Congress, not the president, the exclusive power to make law concerning labor disputes. It does not, however, address the scope of the president's power involving military strategy or tactics in war. If anything, it supports the proposition that one branch cannot intrude on the clear constitutional turf of another.
Moreover, earlier Justice Departments -- reaching across several administrations from both parties -- had likewise concluded that Youngstown did not limit the president's legitimate conduct of foreign affairs and national security policy. This is why all administrations have refused to accept the 1973 War Powers Resolution and have regularly engaged in military conflicts without congressional approval.
Our Constitution created a presidency whose function is to protect the nation from attack. Gathering intelligence -- including intercepting enemy communications -- has long been a key aspect of war. Our military and intelligence agencies cannot attack or defend the nation unless they know where to aim. As we confront terrorists who remain intent on attacking the U.S., using weapons we cannot anticipate, we should be skeptical of those who insist that we radically change the way this country has always made war.
Mr. Yoo is a law professor at the University of California, Berkeley. He was an official in the Justice Department from 2001-03 and is a visiting scholar at the American Enterprise Institute.
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