Press Briefing

May 29, 2010

Statement by the President on Efforts by Secretary Gates to Reform Pentagon Spending
http://www.whitehouse.gov/the-press-office/statement-president-efforts-secretary-gates-reform-pentagon-spending

The global financial crisis: Why were some countries hit harder? By S. Pelin Berkmen, Gaston Gelos, Robert Rennhack, James P. Walsh
http://www.voxeu.org/index.php?q=node/4806

The Top Ten Lessons of the Global Economic Meltdown. By Walter Russell Mead
http://blogs.the-american-interest.com/wrm/2010/05/24/the-top-ten-lessons-of-the-global-economic-meltdown/

On Memorial Day - What we owe to the fallen, and to those now serving.
http://online.wsj.com/article/SB10001424052748704596504575272732097688358.html

'Pieces of Eight': The Constitution and the Dollar - With everyone suddenly fretting about the need for a new world reserve currency, unorthodox views on the Federal Reserve are getting a new hearing.
http://online.wsj.com/article/SB10001424052748704852004575258282696297108.html

Empire State Charter Victory - But unions extract some pieces of Silver
http://online.wsj.com/article/SB10001424052748704596504575272632354287918.html

Move Right and Lose: Evidence from the 2000-2008 U.S. Senate Elections
http://www.thedemocraticstrategist.org/strategist/2010/05/move_right_and_lose_evidence_f.php

Entitlements Are Forever - The legal fight over California's attempt to balance its budget.
http://online.wsj.com/article/SB10001424052748703691804575254330454011848.html

Whither Fannie and Freddie? A Proposal for Reforming the Housing GSEs
http://economics21.org/commentary/whither-fannie-and-freddie-proposal-reforming-housing-gses

Uribe, The Man Who Saved Colombia - Eight years ago, Latin America's oldest democracy was on the brink. The outgoing president explains how he restored the peace.
http://online.wsj.com/article/SB10001424052748704717004575268763528382500.html

The Fruits of Stagnation - Europe's shrunken economies yield good news for global-warming campaigners.
http://online.wsj.com/article/SB10001424052748704269204575270143314430382.html

Memorandum from White House Counsel Regarding the Review of Discussions Relating to Congressman Sestak
http://www.whitehouse.gov/the-press-office/memorandum-white-house-counsel-regarding-review-discussions-relating-congressman-se

Rahm to Bill to Joe - The former president as political cutout in the case of Sestak
http://online.wsj.com/article/SB10001424052748704596504575272702149862906.html

All The News That Fits: Junk science and The New York Times. By Henry I. Miller
http://www.forbes.com/2010/05/19/science-new-york-times-agriculture-opinions-columnists-henry-i-miller.html
On Andrew Pollack's news articles on issues related to genetic engineering applied to agriculture

No, We Don't Need a Teacher Bailout. By Neal McCluskey
http://www.cato.org/pub_display.php?pub_id=11852

A Look at the Senate Democratic Proposal for Immigration Reform: Is the Glass Half Empty, Half Full or Shattered on the Ground?
http://www.cato.org/pubs/irb/irb_may2010.pdf

Press Briefing

May 28, 2010

Joint Statement of the U.S.-Japan Security Consultative Committee
http://www.state.gov/r/pa/prs/ps/2010/05/142318.htm

Meatloaf From a Petri Dish Is Innovator’s Goal for the Masses
http://www.bloomberg.com/apps/news?pid=20601124&sid=aI9nZXjYAzeE

What Our Intelligence Agencies Could Learn from Silicon Valley - The clamor to increase the power of the Director of National Intelligence is mistaken. We need less hierarchy and centralization.
http://online.wsj.com/article/SB10001424052748704717004575268783383613118.html

Bank funding and liquidity management: new report from the Committee on the Global Financial System
http://www.bis.org/press/p100527.htm

Canceling, delaying, banning domestic offshore exploration will increase tanker traffic, foreign imports
http://www.instituteforenergyresearch.org/2010/05/27/white-house-pr-political-response-misguided/

Toward a global risk map, by Stephen Cecchetti, Ingo Fender and Patrick McGuire. BIS Working Papers No 309
http://www.bis.org/publ/work309.htm

Global risk maps are unified databases that provide risk exposure data to supervisors and the broader financial market community worldwide. We think of them as giant matrices that track the bilateral (firm-level) exposures of banks, non-bank financial institutions and other relevant market participants. While useful in principle, these giant matrices are unlikely to materialise outside the narrow and targeted efforts currently being pursued in the supervisory domain. This reflects the well known trade-offs between the macro and micro dimensions of data collection and dissemination. It is possible, however, to adapt existing statistical reporting frameworks in ways that would facilitate an analysis of exposures and build-ups of risk over time at the aggregate (sectoral) level. To do so would move us significantly in the direction of constructing the ideal global risk map. It would also help us sidestep the complex legal challenges surrounding the sharing or dissemination of firm-level data, and it would support a two-step approach to systemic risk monitoring. That is, the alarms sounded by the aggregate data would yield the critical pieces of information to inform targeted analysis of more detailed data at the firm- or market-level.


What Our Intelligence Agencies Could Learn from Silicon Valley - The clamor to increase the power of the Director of National Intelligence is mistaken. We need less hierarchy and centralization.
http://online.wsj.com/article/SB10001424052748704717004575268783383613118.html

Near-zero interest rates have made investors susceptible to the same stresses at the same time.
http://www.bipartisanalliance.com/2010/05/fed-and-may-6-flash-crash-near-zero.html

Medicare and Double Standards - An ObamaCare mailer tells some howlers.
http://www.bipartisanalliance.com/2010/05/this-week-medicare-sent-flyer-to.html

How to Handle North Korea - Pass the South Korea free trade agreement and give up on negotiating with Kim Jong Il
http://online.wsj.com/article/SB10001424052748704717004575268992030246802.html

Statement by the President on Votes to Repeal “Don’t Ask, Don’t Tell”
http://www.whitehouse.gov/the-press-office/statement-president-votes-repeal-don-t-ask-don-t-tell

Obama's Blowout Preventer - In case you hadn't heard, Ken Salazar had a reform plan . . .
http://www.bipartisanalliance.com/2010/05/obamas-blowout-preventer-in-case-you.html

Study Reveals that Regulatory Spending and Staffing Reaches All-Time High. The George Washington University and Washington University in St. Louis
http://www.gwu.edu/explore/mediaroom/newsreleases/studyrevealsthatregulatoryspendingandstaffingreachesalltimehigh

Regulatory Spending Rose under Bush
http://www.cato-at-liberty.org/2010/05/26/regulatory-spending-actually-rose-under-bush/

White House: Growing Businesses and Putting Unemployed Workers Back on the Job
http://www.whitehouse.gov/blog/2010/05/27/growing

Obamacare’s Cooked Books and the “Doc Fix”
http://fixhealthcarepolicy.com/in-the-news/obamacares-cooked-books-and-the-doc-fix

Remarks by the President on the Gulf Oil Spill
http://www.whitehouse.gov/the-press-office/remarks-president-gulf-oil-spill

Panicked Republicans risk future energy development
http://online.wsj.com/article/SB10001424052748704269204575270842009220082.html

American Action Forum: Labor Markets and Health Care Reform: New Results (PDF)
http://americanactionforum.org/files/LaborMktsHCRAAF5-27-10.pdf

The White House Blog: A Blueprint for Pursuing the World that We Seek
http://www.whitehouse.gov/blog/2010/05/27/a-blueprint-pursuing-world-we-seek

Recommitting to a Strong National Defense, by The Honorable Eric Cantor
http://www.heritage.org/Research/Lecture/Recommitting-to-a-Strong-National-Defense

Budget Hearing for the University of the District of Columbia. By Alice M. Rivlin, Senior Fellow, Economic Studies. Brookings Institution.
http://www.brookings.edu/testimony/2010/0414_community_college_rivlin.aspx

Republicans in the Senate: Evaluating the Kagan Nomination - What is known, so far, about President Obama’s choice for the Supreme Court
http://rpc.senate.gov/public/_files/EvaluatingtheKaganNominationFINAL052610_2_.pdf

This week Medicare sent a flyer to seniors: The act passed by Congress "will provide you and your family greater savings and increased quality health care"

Medicare and Double Standards. WSJ Editorial
An ObamaCare mailer tells some howlers.WSJ, May 28, 2010

In the full-circle department, recall the moment last September when Senator Max Baucus and Medicare went after the insurer Humana for having the nerve to criticize one part of ObamaCare. It turns out those same regulators have different standards for their own political advocacy.

This week Medicare sent a flyer to seniors, ostensibly to inform them of what ObamaCare "means for you." Many elderly Americans are worried—and rightly so—about where they'll rank in national health care, given that the new entitlement is funded by nearly a half-trillion dollars in Medicare cuts. They must have been relieved to hear that "The Affordable Care Act passed by Congress and signed by President Obama this year will provide you and your family greater savings and increased quality health care."

That's the first sentence of the four-page mailer, and it gives a flavor of the Administration's respect for the public's intelligence. It goes on to mention "improvements to Medicare Advantage," the program that Democrats hate because it gives nearly one out of four seniors private health insurance options. "If you are in a Medicare Advantage plan, you will still receive guaranteed Medicare benefits."

But that's not what Medicare's own actuary thinks. In an April memo, Richard Foster estimated that the $206 billion hole in Advantage will reduce benefits, cause insurers to withdraw from the program and reduce overall enrollment by half. Doug Elmendorf and his team at the Congressional Budget Office came to the same conclusion, as did every other honest expert.

That's also what Humana told its customers, warning that seniors "could lose many of the important benefits and services that make Medicare Advantage so valuable." Medicare threatened the Kentucky-based company with fines and regulatory punishments for "misleading and confusing" beneficiaries, then issued a blanket gag order on Advantage insurers. The agency later backed down, once its Cosa Nostra message had been signed, sealed and delivered.

Medicare's flyer includes answers to other pressing questions in Boca Raton and Scottsdale, such as allowing children up to age 26 to remain on their parents' health plans, and further misleading commentary about keeping the program "strong and solvent." Dave Camp, the ranking Republican on the Ways and Means Committee, believes the mailer may violate the prohibition on using taxpayer dollars for political propaganda.

The larger issue is the White House's view of political opposition. It seems to think its assertions will be true if they are repeated often enough, as long as no one is allowed to disagree.

The Fed and the May 6 'Flash Crash' - Near-zero interest rates have made investors susceptible to the same stresses at the same time

The Fed and the May 6 'Flash Crash'. By MARK SPITZNAGEL
Near-zero interest rates have made investors susceptible to the same stresses at the same time.WSJ, May 28, 2010

Regulators have been busy searching for the cause of the May 6 "flash crash" when the market dropped by 9.3% and then recovered within minutes. I think it's a good bet no cause will be found; there is still no consensus on what triggered the one-day 20% stock market crash of 1987. But even if there was no trigger, market conditions created by the Federal Reserve's easy money policy definitely made the crash more likely.

The market is a critical system. To illustrate, let's consider another fragile system: the earth's crust. Imagine geologists scouring through the debris of a big earthquake in search of its trigger—as in, "Let's investigate anyone jack hammering in the minutes leading up to the quake." It is intuitively obvious that earthquakes don't have identifiable triggers. We know that big earthquakes, which happen very rarely, are nothing more than many little earthquakes piled on top of each other due to stresses built up within intricate networks of faults. These little fissures cascade into enormous ruptures. The more correlated the fissures, the more delicate the system.

Back to markets. Think of every investor holding a risky position. Then think of all of these investors together in a big herd. Each member of the herd focuses on what the others will do next, since the only reason anyone takes a position is because others are initiating like-minded ones.

When imitative behavior starts happening in markets en masse, expect funny things to happen to liquidity. All you need to know about market dynamics—as I learned as a Chicago pit trader—is that market prices always adjust to the level where market-makers see balanced two-way order flow between buyers and sellers. All market-makers want to do is buy at the bid price, sell at the offer price, and at the end of the day go home unscathed. When there are only buy orders, for instance, expect market-makers to be unwilling to sell to those buyers until the price has adjusted to the point where they see roughly equal buyers and sellers again. To expect them to do anything else is to imagine them as charities.

So when you combine imitative behavior with noncharitable market-makers, there will be seismic waves from time to time. What makes our current system particularly prone to global ruptures is that hair-trigger traders have crowded into exceedingly risky bets. Why would that be, with the crash of 2008 so fresh in traders' minds?

This type of alignment among investors in risky positions is precisely what the central economic planners at the Federal Reserve intended when, in response to the historic credit collapse, they commanded interest rates to zero and signaled that they would prop up all risky assets.

The profitability of an investment is simply its return on capital beyond the cost of that capital. It is against this spread that investors must assess risk. So when the Fed distorted the cost of capital following the 2008 collapse by lowering it for many by roughly 2% (to about 0% for banks), it had the same effect as the 2% higher aggregate dividend yield for stocks or higher credit spreads for investment grade bonds. Suddenly what was toxic looked cheap.

The Fed lured everyone to buy everything and anything that was risky—and did so itself with outright purchases of risky assets like mortgage-backed bonds. Anyone eager for easy profits fell right in line, bidding up dangerous assets like clockwork. Sensing safety in numbers, the herd quickly followed, and in no time the market had consumed the Fed's gifted 2% profit spread and then some.

All in all, it seemed like an impressively engineered recovery. In reality, it was an ephemeral illusion caused by distorting investors' assessment of risk. Despite what zero interest rates were signaling, savers flush with cash weren't flooding the capital markets and credit wasn't expanding.

The Fed has managed to align every little market fault right with each other such that they all succumb to the very same stresses at the very same time. Meanwhile—no surprise—the world remains a very seismically active place. What's extraordinary is that the Fed continues this intentional deception about the real cost of credit, even as we've repeatedly witnessed the consequences of this policy.

Left alone, the market works naturally, with waves of buy-order ruptures and waves of sell-order ruptures. Sometimes mini-ruptures coincide to form much larger ones, such as on May 6. But searching for a discreet trigger for such events is futile. To find the real source of the system's excessive fragility, the regulators will need to look much closer to home.

Mr. Spitznagel is the founder and chief investment officer of the hedge fund Universa Investments LP, based in Santa Monica, Calif.

Obama's Blowout Preventer - In case you hadn't heard, Ken Salazar had a reform plan . . .

Obama's Blowout Preventer. WSJ Editorial
In case you hadn't heard, Ken Salazar had a reform plan . . .WSJ, May 28, 2010

BP and the Coast Guard yesterday were cautiously optimistic that the "top kill" maneuver could stanch the Gulf of Mexico oil leak, and let us hope this is the beginning of the end of the disaster. In Washington, meanwhile, the White House's panicked efforts to put a tourniquet on the political consequences were notably less successful.

"I take responsibility," President Obama said at his press conference yesterday—though responsibility for what? As he explained it, the Deepwater Horizon disaster was predominantly a failure of government, namely, the "scandalously close relationship between oil companies and the agency that regulates them." Mr. Obama is referring to the Minerals Management Service, or MMS, and he claims the Administration had a plan to end this putative regulatory capture.

Interior Secretary Ken Salazar "was in the process of making these reforms," Mr. Obama continued. "But the point that I'm making is, is that, obviously, they weren't happening fast enough. If they had been happening fast enough, this might have been caught." In other words, this is really the fault of the Bush Administration, like everything else.

It would certainly be interesting to hear more details about this no doubt ambitious and unprecedented reform that no one knew anything about until this oil disaster. Mr. Obama made no mention of it when he announced in late March that new offshore areas would be opened to oil and gas development.

"This is not a decision that I've made lightly," the President said at the time. "It's one that Ken and I—as well as Carol Browner, my energy adviser, and others in my Administration—looked at closely for more than a year."

The ex post facto reform effort did get off to a start yesterday with Elizabeth Birnbaum's sacking as the head of MMS. The Administration wants Americans to believe that, finally, someone less corrupted by industry will run the joint—though it has been run for years, under Democratic and Republican Administrations, with rules established by Congress.

But is this the same Elizabeth Birnbaum who Mr. Salazar nominated to run MMS last June? Why yes, it is. "Her in-depth knowledge of energy issues, natural resource policy and environmental law as well as her managerial expertise and work in coalition building," Mr. Salazar said then, "will be especially important as we advance President Obama's new energy frontier and lay the foundation for a clean energy economy."

Mr. Obama's faith in government is so expansive that he thinks it can build a "new energy economy," so perhaps it's not surprising that he also thinks government could have averted the Gulf spill:

To wit, that a far-flung bureaucracy like MMS would have prevented a platform 40 miles offshore—using the planet's most advanced engineering technology to execute the undersea equivalent of landing on the moon—from suffering a massive explosion that killed 11 people and caused the rig to sink 4,993 feet to the ocean floor. Presumably, too, this oversight would have ensured that the cement around the wellhead's casing pipe sealed properly, and that the blowout preventer didn't malfunction, among other miracles.

Mr. Obama added yesterday, with his customary modesty, that "we're also moving quickly on steps to ensure that a catastrophe like this never happens again." This mainly seems to mean delaying or banning any offshore drilling leases in America.

The White House extended its moratorium on deep water drilling permits for another six months, suspended upcoming lease sales in the Gulf, suspended indefinitely 33 deep water exploratory wells, and delayed a drilling program in Alaska's Chukchi and Beaufort seas that was scheduled for next month. The green lobby has been obsessed with the last item for years; a crisis is a terrible thing to waste.

Drilling on the Outer Continental Shelf accounts for about 27% of U.S. domestic oil production, and overreacting politically to a genuine disaster isn't in anyone's interests. Senator Mary Landrieu (D., La.) noted in a recent letter to Mr. Salazar that the moratorium even on the 57 Gulf platforms drilling in shallow water, which is much safer and with fewer risks, will result in more than 5,000 lost jobs if work doesn't resume within six weeks.

More broadly, whatever Mr. Obama's ambitions for windmills and plug-in cars, the world is dependent on oil. Most of the demand growth is coming from China, India and the developing world, and if America doesn't produce its own energy it will merely import it from somewhere else.

Messrs. Obama and Salazar claim to believe that one more bureaucratic reshuffle can prevent oil spills. They would be more honest, and reduce cynicism about government, if they acknowledged that no human endeavor is without risk, and that government can't prevent every accident.

Obamacare's Cooked Books and the “Doc Fix”

Obamacare's Cooked Books and the “Doc Fix”, by James Capretta
May 26, 2010

The Obama administration continues to insist (see this post from White House budget director Peter Orszag) that the recently enacted health-care law will reduce the federal budget deficit by $100 billion over ten years and by ten times that amount in the second decade of implementation. They cite the Congressional Budget Office’s cost estimate for the final legislation to back their claims.

And it is undeniably true that CBO says the legislation, as written, would reduce the federal budget deficit by $124 billion over ten years from the health-related provisions of the new law.
But that’s not whole story about Obamacare’s budgetary implications — not by a long shot.

For starters, CBO is not the only game in town. In the executive branch, the chief actuary of the Medicare program is supposed to provide the official health-care cost projections for the administration — at least he always has in the past. His cost estimate for the new health law differs in important ways from the one provided by CBO and calls into question every major contention the administration has advanced about the bill. The president says the legislation will slow the pace of rising costs; the actuary says it won’t. The president says people will get to keep their job-based plans if they want to; the actuary says 14 million people will lose their employer coverage, many of whom would certainly rather keep it than switch into an untested program. The president says the new law will improve the budget outlook; in so many words, the chief actuary says, don’t bet on it.

All of this helps explain why the president of the United States would be so sensitive about the release of the actuary’s official report that he would dispatch political subordinates to undermine it with the media.

It’s not the chief actuary’s assignment to provide estimates of non-Medicare-related tax provisions, so his cost projections for Obamacare do not capture all of the needed budget data to estimate the full impact on the budget deficit. But it’s possible to back into such a figure by using the Joint Tax Committee’s estimates for the tax provisions missing from the chief actuary’s report. When that is done, $50 billion of deficit reduction found in the CBO report is wiped out.

And that’s before the other gimmicks, double counting, and hidden costs are exposed and removed from the accounting, too.

For instance, this week House and Senate Democratic leaders are rushing to approve a massive, budget-busting, tax-and-spending bill. Among its many provisions is a three-year Medicare “doc fix,” which will effectively undo the scheduled 21 percent cut in Medicare physician fees set to go into effect in June. CBO says this version of the “doc fix” would add $65 billion to the budget deficit over 10 years. The entire bill would pile another $134 billion onto the national debt over the next decade.

If the Obama administration gets its way, this three-year physician-fee fix will eventually get extended again, and also without offsets. Over a full 10-year period, an unfinanced “doc fix” would add $250 to $400 billion to the budget deficit, depending on design and who is doing the cost projection (CBO or the actuary).

Administration officials and their outside enthusiasts (see here) say the Democratic Congress shouldn’t have to find offsets for the “doc fix” because everybody knows a fix needs to be enacted and therefore should go into the baseline. (By the way, the history of the sustainable growth rate [SGR] that Ezra Klein provides at the link above is a misleading one. The SGR was a replacement for a predecessor program that too had run off the rails — the so-called “Volume Performance Standard” enacted by a Democratic Congress in 1989.)

But supporting a “doc fix” is not the same as supporting an unfinanced one on a long-term or permanent basis. Not everybody in Congress is for running up more debt to pay for a permanent repeal of the scheduled fee cuts, which is why such a repeal has never been passed before. In the main, the previous administration and Congresses worked to find ways to prevent Medicare fee cuts while finding offsets to pay for it.

But that’s not the policy of the Obama administration. The truth is the president and his allies in Congress worked overtime to pull together every Medicare cut they could find — nearly $500 billion in all over ten years — and put them into the health law to pay for the massive entitlement expansion they so coveted. They could have used those cuts to pay for the “doc fix” if they had wanted to, as well as for a slightly less expansive health program. But that’s not what they did. That wasn’t their priority. They chose instead to break their agenda into multiple bills, and “pay for” the massive health entitlement (on paper) while claiming they shouldn’t have to find offsets for the “doc fix.” But it doesn’t matter to taxpayers if they enact their agenda in one, two, or ten pieces of legislation. The total cost is still the same. All of the supposed deficit reduction now claimed from the health-care law is more than wiped out by the Democrats’ insistent march to borrow and spend for Medicare physician fees.

And the games don’t end there. CBO’s cost estimate assumes $70 billion in deficit reduction from the so-called “CLASS Act.” This is the new voluntary long-term-care insurance program that hitched a ride on Obamacare because it too created the illusion of deficit reduction. People who sign up for the insurance must pay premiums for at least five years before they are eligible to draw benefits. By definition, then, at start-up and for several years thereafter, there will be a surplus in the program as new entrants pay premiums and very few people draw benefits. That’s the source of the $70 billion “savings.” But the premiums collected in the program’s early years will be needed very soon to pay actual claims. Not only that, but the new insurance program is so poorly designed it too will need a federal bailout. So this is far worse than a benign sleight of hand. The Democrats have created a budgetary monster even as they used misleading estimates to tout their budgetary virtue.

There is much more, of course. CBO’s cost projections don’t reflect the administrative costs required to micromanage the health system from the Department of Health and Human Services. The number of employers looking to dump their workers into subsidized insurance is almost certainly going to be much higher than either CBO or the chief actuary now projects. And the price inflation from the added demand of the newly entitled isn’t factored into any of the official cost projections.

We’ve seen this movie before. When the government creates a new entitlement, politicians lowball the costs to get the law passed, and then blame someone else when program costs soar. Witness Massachusetts. Most Americans are sensible enough to know already that’s what can be expected next with Obamacare.

Zero-Sum Earmarks - A new study finds that pork hurts at home

Zero-Sum Earmarks. WSJ Editorial
A new study finds that pork hurts at homeWSJ, May 27, 2010

For Members of Congress, becoming a committee chairman means more power to spend and thus help for the home district, right? That's certainly the common wisdom. But according to new research from Harvard Business School, the increased federal spending causes local companies to lose sales and cut back on research, payroll and other expenses.

The results surprised Harvard professors Lauren Cohen, Christopher Malloy and Joshua Coval, who expected to see politically connected firms prosper from federal largesse. Instead, the research, which covered 1967 to 2008, found that "strong and widespread evidence of corporate retrenchment" accompanied Congressional seniority. According to Mr. Coval, the research shows federal dollars "directly supplant private sector activity—they literally undertake projects the private sector was planning to do on its own."

The chairmanship of a powerful Senate committee such as Finance or Appropriations typically brings an increase of 40% to 50% in earmark spending for the home state. In the House, top dogs haul an average of 20% more to their states. Yet in the first year after a chairman's rise, the paper notes, the average firm in his state "cuts back capital expenditures by roughly 15%." The behavior typically continues until the Congressman steps down, and it is felt in particular by firms that have the strongest ties to the home state.

Part of the problem is that public money is "crowding out" investment opportunities for firms. "Some of our results point towards the role of competition for state specific factors of production, including labor and fixed assets such as real estates," the authors write. "Public spending appears to increase demand for state-specific factors of production and thereby compel firms to downsize and invest elsewhere." They add that "We also find evidence that the effects are most pronounced in sectors that are the target of earmark spending."

The same side effects may now be observed as the federal stimulus program also ripples through the broader economy: In the first quarter of 2010, USA Today reported, private paychecks made up the lowest share of personal income in history as government spending rose to its highest levels ever. That trend inevitably leads to higher taxes and further economic harm.

Democrats and Republicans have promised earmark reform for years, only to abandon the effort in favor of "bringing home the bacon" and incumbent protection. The Harvard study suggests the Congressmen are really bringing home less economic prosperity.

Obama's Russia Tribute - What he gave away in return for watered-down Iran sanctions

Obama's Russia Tribute. WSJ Editorial
What he gave away in return for watered-down Iran sanctions.WSJ, May 27, 2010

When the Obama Administration last week secured the Kremlin's support for U.N. sanctions on Iran, the White House touted a big dividend from its "reset" in relations with Russia. Now the price for Moscow's cooperation is becoming clearer, and the only ones who should be cheering are the Russians and Iranians.

Three days after Secretary of State Hillary Clinton announced the deal on a diluted Security Council resolution, she quietly met an explicit demand from Russia's Foreign Minister Sergei Lavrov. Buried in last Friday's Federal Register, the State Department announced it was ending long-standing sanctions against four Russian entities that had helped Iran's nuclear weapons and missile programs.

The draft U.N. resolution also includes a loophole for Russia, which would be allowed to deliver the five S-300 surface-to-air missiles that Moscow agreed to sell Tehran in 2005. The S-300s can intercept missiles and aircraft but fall outside the U.N. resolution's ban on the sale of eight categories of conventional weapons to Iran. Mikhail Margelov, the head of the foreign affairs committee of Russia's upper house of parliament, crowed last Friday that sanctions "will not hit current contracts between Russia and Iran."

All of this came on top of the White House decision a week earlier to resubmit to Congress a civilian nuclear cooperation pact with Russia. This was another goodie for Moscow.

These so-called "123 agreements"—named after a section of the Atomic Energy Act of 1954—open the door to technology transfers, commerce in nuclear materials and joint research between the U.S. and select countries. The Bush Administration negotiated the deal with the Kremlin but shelved it after the Russians invaded Georgia in August 2008.

President Obama said that "the situation in Georgia need no longer be considered an obstacle" and that "the level and scope of U.S.-Russia cooperation on Iran are sufficient to justify" the deal. Unlike a treaty, Congress doesn't ratify the pact but has 90 days to act or the deal automatically goes into force. Democrat Edward Markey and Republican Jeff Fortenberry last week introduced a resolution in the House to stop the deal.

It's an uphill but worthy effort. Russia continues illegally to occupy Georgian territory, but the larger problem is its proliferation. Both Republican and Democratic Administration have turned a blind eye to Russian misbehavior. When the Bush Administration submitted the agreement for review, the Government Accountability Office criticized the mandatory accompanying "proliferation statement" on Russia as shoddy and incomplete.

Starting in the 1990s, Moscow sold Iran nuclear centrifuges and missile technology. One company sanctioned until last week, the state arms exporter Rosoboronexport, was put on the list as recently as 2008, while the Moscow Aviation Institute helped Iran develop ballistic missiles.

Nonetheless, the Obama Administration now says "Russia's approach to Iran has evolved," in the words of State spokesman P.J. Crowley. Gary Samore, the White House arms control coordinator, insists that "the Russians understand that the consequences [of shipping the S-300s] would be very severe."

These assurances don't square with Russian statements or actions. The week that President Obama sent the nuclear cooperation pact to Congress, Russian President Dmitry Medvedev was in Damascus touting future nuclear business with Iran's close ally in terrorism. "Cooperation [with Syria] on atomic energy could get a second wind," he said.

In return for all this, the Administration gets weak sanctions similar to the three sets the Bush Administration won without paying such a high tribute. If this represents what the Administration calls "smart diplomacy," we'd hate to see what we give up when we're dumb.

Press Briefing

May 27, 2010

Federal Prez: The Promise of Clean Energy
http://www.youtube.com/watch?v=ulyTh0VtZb8

The Ongoing Administration-Wide Response to the Deepwater BP Oil Spill: May 26, 2010
http://www.whitehouse.gov/blog/2010/05/26/ongoing-administration-wide-response-deepwater-bp-oil-spill-may-26-2010

'Death panels' were an overblown claim – until now
http://dailycaller.com/2010/05/27/death-panels-were-an-overblown-claim-until-now/

Applying the Tools of 21st Century Statecraft to Public Engagement
http://blogs.state.gov/index.php/entries/tools_public_engagement/

Europe-Bank Lenders? Coalition of Unwilling
http://online.wsj.com/article/SB10001424052748703341904575266722784462634.html
Few Step Up to Risk Their Money for Long; New SEC Rule Makes Money Funds Even Less Interested

US State Dept: Citizen Safety in the Western Hemisphere
http://www.state.gov/p/wha/rls/fs/2010/142263.htm

The House has violated PAYGO rules by nearly $1 trillion
http://blog.heritage.org/2010/05/27/morning-bell-this-congress-has-no-shame

The Recovery Starts With Sound Money - The willingness to work for the sake of future prosperity is a universal human quality, but people must believe there is a link between effort and reward
http://online.wsj.com/article/SB10001424052748704026204575266251915530206.html

Notable & Quotable - John Fund on Chris Christie's political toughness
http://online.wsj.com/article/SB10001424052748704717004575268630100057138.html

Zero-Sum Earmarks - A new study finds that pork hurts at home
http://www.bipartisanalliance.com/2010/05/zero-sum-earmarks-new-study-finds-that.html

Congress Gets Mean - The Democratic tax bill's double whammy on carried interest firms
http://online.wsj.com/article/SB10001424052748704026204575266881281707488.html

How Democrats’ Government Takeover of Health Care Will Lead Employers to Drop Coverage
http://rpc.senate.gov/public/_files/ABitterPill.pdf

Rising Rate of Media Misrepresentation
http://www.acsh.org/factsfears/newsID.1468/news_detail.asp
MSNBC's Nightly News last night  devoted a short segment to an "Extreme  Eating" list of high-calorie restaurant meals compiled by the  Center for Science in the Public Interest (CSPI).

Remarks at the African Diplomatic Corp's Celebration of Africa Day. By Johnnie Carson, Assistant Secretary, Bureau of African Affairs
http://www.state.gov/p/af/rls/rm/2010/142261.htm

U.K. Prosecutors Will Drop AIG Financial Unit Probe
http://www.businessweek.com/news/2010-05-26/u-k-prosecutors-will-drop-aig-financial-unit-probe-update1-.html

Britain reveals extent of nuclear arsenal for first time
http://www.japantoday.com/category/world/view/britain-reveals-extent-of-nuclear-arsenal-for-first-time

The Sun is Shining on Solar Subsidies in California Today
http://www.instituteforenergyresearch.org/2010/05/26/the-sun-is-shining-on-solar-subsidies-in-california-today/

President Obama Talks Jobs in California
http://my.barackobama.com/page/community/post/elizabethchan/gGGj9k

Obama's Russia Tribute - What he gave away in return for watered-down Iran sanctions
http://www.bipartisanalliance.com/2010/05/obamas-russia-tribute-what-he-gave-away.html

A New Age of Reform - The mood in the country suggests the U.S. may be at the start of an era of political and economic reform
http://online.wsj.com/article/SB10001424052748704717004575268523673781674.html

The Ongoing Administration-Wide Response to the Deepwater BP Oil Spill: May 25, 2010
http://www.whitehouse.gov/blog/2010/05/25/ongoing-administration-wide-response-deepwater-bp-oil-spill-may-25-2010

Yes, the Gulf Spill Is Obama's Katrina - Where was the White House plan, and why has it been so slow to make decisions?
http://online.wsj.com/article/SB10001424052748704717004575268752362770856.html

ObamaCare vs. Small Business - Why the National Federation of Independent Business supports the constitutional challenge to the health-insurance mandate
http://online.wsj.com/article/SB10001424052748704113504575264802756326086.html

Press Briefing

May 26, 2010

How We Created the First Synthetic Cell - The assembled genome is the largest chemically defined structure ever synthesized in the laboratory.
http://online.wsj.com/article/SB10001424052748704026204575266460432676840.html

Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output
http://www.cbo.gov/doc.cfm?index=11525

A Crisis of Competence in the Gulf
http://blog.heritage.org/2010/05/26/morning-bell-a-crisis-of-competence-in-the-gulf/

The Greatest Myth of the George W. Bush Presidency
http://www.instituteforenergyresearch.org/2010/05/25/the-greatest-myth-of-the-george-w-bush-presidency/

The Case Against the Land-Mine Treaty - Without the DMZ minefield, nuclear weapons would be the main deterrent protecting South Korea
http://online.wsj.com/article/SB10001424052748704852004575258433073503318.html

Corporations Against Corporate Welfare. Note: At least when the political costs outweigh the political favors.
http://online.wsj.com/article/SB10001424052748704026204575266601413204676.html

Of Politics and Oil - The Washington panic, and the realities of the Gulf Coast spill
http://online.wsj.com/article/SB10001424052748704026204575266903446455896.html

The Panic, Round Two: What Would Reagan Do?
http://online.wsj.com/article/SB10001424052748704113504575264940533857802.html
Giant pools of capital are sitting idle in unproductive deposits or inflation hedges. They could easily fund job growth if real, after-tax prospects improved.

The Subjects of the Constitution. By Nicholas Quinn Rosenkranz, Georgetown University Law Center
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1611210
Stanford Law Review, Vol. 62, No. 5, 2010

Reclaiming the Northern Border: The Future of Plan Ecuador
http://blogs.state.gov/index.php/entries/ecuador_future

John Paul Stevens, leader of the Resistance
http://www.scotusblog.com/2010/05/john-paul-stevens-leader-of-the-resistance

President Obama Needs More Legal Tactics Against Terrorists, by Benjamin Wittes, Senior Fellow, Governance Studies
http://www.brookings.edu/opinions/2010/0514_miranda_wittes.aspx

Remarks at Colby College Commencement, by Judith A. McHale, Under Secretary for Public Diplomacy and Public Affairs
Waterville, ME, May 23, 2010
http://www.state.gov/r/remarks/142197.htm

Stimulus by Spending Cuts: Lessons from 1946
http://www.cato.org/pubs/policy_report/v32n3/cp32n3-1.html

International Energy Outlook 2010-Highlights
http://www.eia.doe.gov/oiaf/ieo/index.html

Seniors Will Lose Big Under Obamacare
http://fixhealthcarepolicy.com/in-the-news/side-effects-seniors-will-lose-big-under-obamacare

American Jobbery Act - Dissecting this week's stimulus bill

American Jobbery Act. WSJ Editorial
Dissecting this week's stimulus billWSJ, May 25, 2010

President Obama and Democrats on Capitol Hill are publicly fretting about the dangers of spending and debt, which can mean only one thing: Another big spending "stimulus" bill is in the works. And sure enough, the House plans to vote this week on $190 billion in new spending, $134 billion of which it won't even pretend to pay for.

Sander Levin, the new Ways and Means Chairman, calls this exercise the American Jobs and Closing Tax Loopholes Act. Mr. Levin has waited 28 years to ascend to this throne and this is the best he can do? "Jobs" were also the justification in February 2009 for the $862 billion stimulus that has managed to hold the jobless rate down to a mere 9.9%. Maybe Mr. Levin's spending can hold it down to even greater heights.

The nearby table gives a flavor of what's in this grab bag of political payoffs, corporate welfare and transfer payments. There's $24 billion to help states pay the exploding tab for Medicaid, the same program that ObamaCare expands by some 16 million new recipients. The bill also offers $1 billion for summer jobs for teens, whose jobless rate is 25.4%. Congress could do far more to create teen jobs if it merely suspended last year's minimum wage increase to $7.25 an hour, which priced millions of young workers out of the labor market. But that would be too rational.

The biggest item is $65 billion to prevent a 21% cut in Medicare physician reimbursements. Democrats promised this to the American Medical Association in return for its ObamaCare support, but they left the $65 billion out of the health-care law to make it look less expensive. Now they're pushing it through under separate cover when they assume the press corps won't notice.

The $47 billion to extend unemployment insurance to nearly two full years will bring the total spent on this program to $137 billion during this recession—five times more than in either of the prior two recessions. That's nearly as much as the federal corporate income raised in 2009.
The sages in Congress continue to claim that these payments for not working will lead to more work. Representative Jim McDermott recently declared on the House floor that jobless payments are "one of the most effective forms of economic stimulus" because "every unemployment dollar spent returns $1.64 of economic benefits." So let's lay off everybody, pay them for not working, and watch the economy really boom. Where do they teach this stuff?

This bill is also one of the most expensive corporate welfare giveaways in recent years with subsidies for municipal bond traders, cotton farmers, yarn producers, sheep growers, Hawaiian sugar cane cooperatives, motor sports businesses, renewable energy firms, the steel lobby, and so on. Any industry that doesn't get a tax credit or other handout in this bill should fire its lobbyist.
All of this is "paid for," in the Beltway lingo, with a net tax increase on business of about $40 billion and at least $134 billion of new debt. There's a new 24 cent a barrel tax on oil companies, which would flow to consumers in higher gas prices, because Congress says the industry's profits are excessive.

U.S. multinational companies would pay a higher tax rate on their overseas income, which will not help them create more jobs here. The better way to discourage job outsourcing is to cut the corporate income tax rate, but Mr. Levin and his union allies will have none of that.
Managers of private equity and venture capital firms that provide the start-up and expansion funding to businesses would see their tax rate rise to as high as 35% from 15% today—a huge tax increase when businesses are starved for capital. And small, often family-owned Subchapter S companies that provide professional services would be required to subject more of their profits to the self-employment tax. These firms already pay up to 35% tax on these profits, so under the Democratic plan their tax rate could reach 50%.

Perhaps you're wondering what happened to the "pay as you go" budget rules that Mr. Obama announced to great media fanfare as recently as February. Democrats now say "paygo" doesn't apply because this spending qualifies as an "emergency." But while the new spending isn't paid for, Democrats are insisting that the bill's extension of the R&D tax credit and small business depreciation allowance must be offset by the tax increases.

Oh, and by the way, the President is unveiling a new line-item veto proposal this week to "rein in wasteful spending and hold Congress accountable," as Senator John Kerry put it yesterday in a press release. If any of them were remotely serious, they'd start by line-item vetoing this entire bill.

Press Briefing

May 25, 2010

U.S.-China Strategic and Economic Dialogue 2010 Outcomes of the Strategic Track
http://www.state.gov/r/pa/prs/ps/2010/05/142180.htm

We, Robot. By Peter W. Singer, Director, 21st Century Defense Initiative, The Brookings Institution
http://www.brookings.edu/opinions/2010/0519_drone_wars_singer.aspx

"Power"-less Pakistan. By Charles K. Ebinger, Director, Energy Security Initiative, & Kashif Hasnie, Expert on International Security and Natural Resource Management.
The Brookings Institution
http://www.brookings.edu/opinions/2010/0519_pakistan_ebinger.aspx

How High are Your State’s Electricity Prices?
http://www.instituteforenergyresearch.org/2010/05/04/how-high-are-your-states-electricity-prices/

The Brookings Institution: How We're Doing as Debt Fears Rise
http://www.brookings.edu/papers/2010/0523_recovery_renewal.aspx

Iran and North Korea March On - Pyongyang's behavior shows why we must stop the mullahs from getting the bomb
http://online.wsj.com/article/SB10001424052748704113504575264270768612284.html

Sufrage, Schooling, and Sorting in the Post-Bellum U.S. South. By Suresh Naidu
http://tuvalu.santafe.edu/~snaidu/papers/suffrage.pdf

Cap and Flee - California refutes its own 'green jobs' policy
http://online.wsj.com/article/SB10001424052748703559004575256981030653158.html

Come party with Lady Gaga. By Caitlin Moran
http://entertainment.timesonline.co.uk/tol/arts_and_entertainment/music/article7129672.ece

The Tax Caps Cometh - Massachusetts shows how to put a lid on education spending increases
http://online.wsj.com/article/SB10001424052748704113504575264663842523880.html

Christopher Hitchens: 'I was right and they were wrong'
http://www.guardian.co.uk/books/2010/may/22/christopher-hitchens-decca-aitkenhead
From hero of the left to neocon turncoat, and still battling on: Christopher Hitchens talks to Decca Aitkenhead about old arguments and his new memoir

The Road To Economic Serfdom. By Peter Boone and Simon Johnson
http://baselinescenario.com/2010/05/23/the-european-road-to-economic-serfdom/

Briefing on Trip to Indonesia
http://www.state.gov/g/142165.htm

America’s amazing success since 1980: Why Krugman is wrong.
http://www.themoneyillusion.com/?p=5164

Angels (Back) in America. WSJ Editorial
Dodd spares start-up financiers.
WSJ, May 25, 2010
http://online.wsj.com/article/SB10001424052748703957904575252430233003388.html

We take our policy victories wherever we can get them amid Washington's march to Europe-dom, so we're pleased to report that the Senate finance reform that passed last week did not contain new regulations on investors who finance start-up companies.

Chris Dodd's original draft contained numerous provisions targeting angel investors, the wealthy individuals who directly fund innovative new businesses that are still too small to attract venture capital. Currently they can do so with minimum government interference, but the bill would have subjected entrepreneurs seeking angel capital to a 120-day Securities and Exchange Commission review, which would ensure that many of these budding companies die a slow bureaucratic death. Angel investors would also have been subject to net worth and income requirements more than double today's, as well as a 50-state regulatory scheme that would replace today's single federal standard.

This attack on the businesses that create most new jobs in the U.S. and had nothing to do with 2008's financial panic was too much even for the Senate, which removed these restrictions in an uncontroversial voice vote earlier this month. Special credit goes to Missouri Republican Kit Bond, who led the charge, though Mr. Dodd and other Democrats cosponsored Mr. Bond's amendment and at least had the sense to recognize a mistake.

Still, the fact that such a destructive provision made it that far shows how little the Members and staff now running Congress understand about wealth creation and the sources of American prosperity.


Washington's $1 Trillion Opportunity - It's been 60 years since we streamlined our federal government. These days there are plenty of savings to be found.
http://online.wsj.com/article/SB10001424052748704113504575264463277182700.html

Multinational banks: They did not run away during the crisis. By Giacomo Calzolari   Micol Levi   Giorgio Barba Navaretti   Alberto Franco Pozzolo
http://www.voxeu.org/index.php?q=node/5083

Federal President Ignores Sudan's Genocide - African hopes are fading as the U.S. lets President Omar al-Bashir escape justice
http://online.wsj.com/article/SB10001424052748704113504575264273090491244.html

The Budgetary Impact and Subsidy Costs of the Federal Reserve’s Actions During the Financial Crisis
http://www.cbo.gov/doc.cfm?index=11524

American Jobbery Act - Dissecting this week's stimulus bill
http://online.wsj.com/article/SB10001424052748704113504575264532051783298.html

How Civilization Deals with Torture States
http://mises.org/daily/4295

The Buck Stops Nowhere
http://blog.heritage.org/2010/05/24/morning-bell-the-buck-stops-nowhere

Japan's problem is supply, not demand
http://super-economy.blogspot.com/2010/05/paul-krugman-wrote-in-nyt-that-we-are.html

Press Briefing

May 24, 2010

A Legal Analysis of the New Arizona Immigration Law
http://digs.by/cJ5UWM

Rand Paul's Constitution - The Kentucky candidate's bad history
http://online.wsj.com/article/SB10001424052748704852004575258483848750578.html

An Obama-Bush Victory. WSJ Editorial
http://online.wsj.com/article/SB10001424052748704226004575262821804852424.html

A court upholds Presidential war powers
WSJ, May 24, 2010

It isn't often we can say that the Bush and Obama Administrations have won a joint triumph in the war on terror, but they got one on Friday from the D.C. Circuit Court of Appeals. A three-judge panel ruled unanimously that detainees held by the U.S. military at Bagram Air Force base in Afghanistan do not have habeas corpus rights under the Constitution.

The anti-antiterror lobby filed the case on behalf of three unlawful enemy combatants to extend the reach of the Supreme Court's 2008 Boumediene v. Bush decision that gave habeas rights to Guantanamo detainees. The Bush Justice Department had opposed this intrusion on Presidential war powers, and to its credit the Obama Administration maintained the same position. A district court judge found for the detainees, but the D.C. Circuit reversed.

As the opinion by Judge David Sentelle points out, extending habeas to a facility in an active war zone such as Afghanistan would mean that any prisoner held anywhere by the U.S. military would have such rights. The opinion doesn't say so, but such a policy would put unelected lawyers in the middle of every wartime decision on military detention. Such meddling would put U.S. soldiers at greater risk, while giving them far less incentive to detain terrorists on the battlefield lest GIs have to play "CSI: Kandahar" to gather evidence so our enemies won't be released at the prodding of the ACLU.

The lawyers for the detainees vow to appeal to the Supreme Court, but it's notable that the D.C. Circuit panel included a Carter (Harry Edwards) and Clinton appointee (David Tatel) as well as Mr. Sentelle, who was appointed by Reagan. This is a bipartisan show of judicial deference that is worth applauding.


Weekly Address: President Obama Establishes Bipartisan National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling
http://www.whitehouse.gov/blog/2010/05/22/weekly-address-bp-spill-independent-commission

The New Lords of Finance - Why Wall Street and Washington both like 'reform'
http://online.wsj.com/article/SB10001424052748704852004575258582650393448.html

'60 Minutes' Gets it Wrong on Phthalates
http://www.acsh.org/factsfears/newsID.1458/news_detail.asp
CBS' 60 Minutes may be known for its investigative news, but on Sunday it failed to thoroughly examine the claims against phthalates, a group of chemicals that help to make plastic flexible. Sunday's segment perpetuates baseless allegations against these everyday chemicals, creating unfounded health scares in homes nationwide.

Strategic and Economic Dialogue Opening Session. By Hillary Rodham Clinton, Secretary of State. Great Hall of the People, Beijing, China
http://www.state.gov/secretary/rm/2010/05/142133.htm

Congress's Carried Interest Tax Folly - The latest soak-the-rich scheme will mean less capital investment and fewer new jobs
http://online.wsj.com/article/SB10001424052748704852004575258401601217646.html

No Dietary Cure for Autism
http://www.state.gov/s/ct/rls/rm/2010/142110.htm

EPA to BP: Disperse a Different Dispersant
http://www.acsh.org/factsfears/newsID.1451/news_detail.asp

A Message from the President: "They backed down". By Christopher Hass, barackobama.com
http://my.barackobama.com/page/community/post/obamaforamerica/gGGBRr
On Thursday, the Senate passed historic Wall Street reform. This movement proved again that the strongest special interests, who for so long have called the shots in Washington, can be beat.

America's new culture war: Free enterprise vs. government control. By Arthur C. Brooks
http://www.washingtonpost.com/wp-dyn/content/article/2010/05/21/AR2010052101854.html

Secretary Clinton Highlights Importance of American Exports to Overseas Markets During Visit to Boeing Maintenance Facility in Shanghai, China
http://www.state.gov/secretary/rm/2010/05/142130.htm

Goldman and Washington's Wall Street Takeover - The SEC's case is weak, but it helped the government justify sweeping new powers over the financial industry
http://www.bipartisanalliance.com/2010/05/goldman-and-washingtons-wall-street.html

Macroprudential instruments and frameworks: report published by the Committee on the Global Financial System (CGFS)
http://www.bis.org/press/p100521.htm

Remarks At USA Pavilion Gala Dinner, by Hillary Rodham Clinton, Secretary of State, U.S. Pavilion at Shanghai Expo, Shanghai, China
http://www.state.gov/secretary/rm/2010/05/142123.htm

Americans Can’t Afford the Democrats’ $23 Billion State Bailout
http://rpc.senate.gov/public/_files/RPCEdFactsStateBailoutFINAL.pdf

Return of the Nervous Weekend - Two years ago the world looked to Washington and its 'Sunday night specials.' Now it's Europe's turn
http://online.wsj.com/article/SB10001424052748704852004575258302164643496.html

Goldman and Washington's Wall Street Takeover - The SEC's case is weak, but it helped the government justify sweeping new powers over the financial industry.

Goldman and Washington's Wall Street Takeover. By EDWARD JAY EPSTEIN
The SEC's case is weak, but it helped the government justify sweeping new powers over the financial industry.WSJ, May 22, 2010

When President Obama signs the new financial regulation act the government will assume sweeping new powers over Wall Street. The passage of this bill did not occur in a vacuum. The administration carefully laid the groundwork by inculcating public fear that the great financial houses betray investors by rigging securities to fail. Exhibit A: the SEC's recent fraud case against Goldman Sachs.

The agency's complaint alleges that Goldman Sachs defrauded the investors in its Abacus 2007-AC1 fund by not disclosing the role played in the fund's creation by John Paulson, a hedge fund operator who stood to make an immense profit if the fund failed. It might be a great conspiracy case—if the SEC could come up with a plausible conspiracy.

Mr. Paulson wanted to make a billion dollar wager that subprime-backed mortgages would collapse. So he went to Goldman Sachs, which, like the other major financial houses, is in the business of creating such customized gambling products for clients.

For a $15 million fee from Mr. Paulson, Goldman created Abacus 2007-AC1. It provided exposure to a portfolio of 90 subprime home mortgage-backed securities. If the underlying securities did not default, those who took the long side of Abacus would collect handsome profits. If the housing bubble burst, those who took the short side would win heavily.

Goldman found three participants to bet long—ACA Capital Holdings, a bond insurer, IKB Deutsche Industriebank (a Germany-based specialist in mortgage securities), and itself. ACA went long on the deal. It sold a $900 million credit default swap on Abacus and effectively invested most of the $40 million it got from selling the swap to Goldman in the Abacus deal itself. ACA's wholly owned subsidiary, ACA Management, had sole authority to pick every one of the 90 securities in the portfolio. IKB bought $150 million worth of Abacas's notes, and Goldman put up $90 million to complete the financing.

Mr. Paulson was the lone short, buying ACA's credit default swap from Goldman. All four participants in the Abacus deal had the same data about the 90 underlying securities. What separated them was their opinion of the direction of the housing market. Mr. Paulson felt it was headed toward a collapse; ACA considered this so unlikely that it gave nearly 20 to 1 odds on its credit default swap. Mr. Paulson won the bet.

So where is the fraud? The SEC says Goldman withheld material information from ACA and IKB by not disclosing the history of the deal, including Mr. Paulson's role in the creation of Abacus. Of course, ACA knew someone was short the deal, since it sold Goldman a $900 million credit default swap precisely for that purpose. Goldman did not say that Mr. Paulson was that counterparty. But his identity may not have been a mystery to ACA.

Mr. Paulson's top lieutenant in the deal, Paolo Pellegrini, testified to the SEC in its investigation of the matter in 2008 that he had informed ACA Management that Mr. Paulson's hedge fund was betting against the transaction. If so—and Mr. Pellegrini had no reason to perjure himself since he had no obligation to disclose anything—ACA possessed the information that Goldman withheld, and went ahead with the deal. IKB bank, which bought Abacus's AAA-rated notes, may not have known about Mr. Paulson's role in Abacus.

The real issue here turns on the term "material," which the SEC defines as facts an investor would reasonably want to know before making an investment. The agency contends that Mr. Paulson's role in suggesting securities to ACA was "material." Prior to this case, the SEC did not always consider a deal's history material, taking the position in hundreds of other such deals that how a fund was constructed, including how its rating was achieved with rating agencies, did not require disclosure. That was before Wall Street became a political bete noire.

Nevertheless, the SEC voted in a split decision (all the Republicans voting against) to accuse Goldman of civil fraud. It alleges that Mr. Paulson "heavily influenced" ACA Management to pick losers but provides no theory as to why ACA Management, whose corporate parent was risking $940 million, would do anything but pick the least risky subprime bonds. As it turned out, the subprime securities ACA picked for the portfolio failed. But so did the vast majority of securities based on subprime mortgages. Since 99% of them were marked down by the rating agencies by the end of 2008, Abacus would have likely suffered the same fate had ACA picked 90 other such securities.

ACA's losses on Abacus were less than 5% of the $22 billion in losses it suffered in its other subprime funds (in which Mr. Paulson was not involved). When the time came to pay off the Abacus wager, ACA, hit by $68 billion in credit default swaps, couldn't make good. Its Abacus debt fell to the Dutch bank ABN-AMRO, which had back-stopped ACA. The Royal Bank of Scotland, which had the misfortune of merging with the Dutch bank, paid Mr. Paulson.

No one can fault the SEC for wanting to restore faith in Wall Street by ferreting out financial frauds. But its case against Goldman Sachs does not add up. It implies a conspiracy without co-conspirators. If Goldman had designed its own fund to fail, it could have retained the credit default swap it got from ACA for its own account rather than selling it to Mr. Paulson. Instead, it invested $90 million of its own money into Abacus. Goldman's records showed it lost $75 million (after taking its $15 million fees into account). The SEC has issued no complaint against Mr. Paulson in this deal.

Not only is there no motive or logic for Goldman to have sabotaged its own fund, but the SEC complaint fails to cite any evidence it did. Nevertheless, it has brilliantly succeeded in implanting that idea in the media. On April 18, Paul Krugman stated in his New York Times column that "the S.E.C. is charging that Goldman created and marketed securities that were deliberately designed to fail, so that an important client could make money off that failure. That's what I would call looting." In fact, the SEC complaint never alleges that Goldman deliberately designed any securities to fail.

Even though the widely echoed "designed to fail" charge is an invention, it helped convert a civil case of nondisclosure into one of Grand Theft Wall Street in the public imagination. The message—Wall Street deliberately betrays investors—served a political end. It helped provide cover for the government's desire to manage the financial universe.

Mr. Epstein is the author of "The Hollywood Economist" (Melville House, 2010).

Press Briefing

May 23, 2010

Remarks At The Council On Foreign Relations, by James B. Steinberg, Deputy Secretary of State. Washington, DC, May 19, 2010
http://www.state.gov/s/d/2010/142120.htm

Five Questions for Pres. Obama on Fuel Economy Standards
http://www.instituteforenergyresearch.org/2010/05/21/five-questions-for-pres-obama-on-fuel-economy-standards/

Travel Diary: Secretary Clinton Op-Ed on U.S.-China Achievements Beyond Expo
http://blogs.state.gov/index.php/site/entry/travel_diary_clinton_op-ed_us_china

Gross National Debt: $13 trillion and counting
http://rpc.senate.gov/public/_files/debtchartsv2.pdf

Born to Veto - Christie saves New Jersey from a tax increase
http://online.wsj.com/article/SB10001424052748704852004575258751835748206.html
"New Jersey does not have a tax problem; New Jersey has a spending and size of government problem."

Dennis Blair Departs - Another victim of intelligence reform
http://online.wsj.com/article/SB10001424052748704852004575258382267478018.html

Intelligence disputes are usually murky, though the sacking of Dennis Blair isn't among them. Explanations for the Director of National Intelligence's exit this week range from Mr. Blair's turf wars with the CIA and at the White House to the failure to pre-empt three domestic terror attacks, two of which failed out of blind luck. But Mr. Blair is really a casualty of the failed "intelligence reform" of the last decade.

Mr. Blair's successor will be the fourth DNI in the five years since the office was stood up in 2005, and this unfortunate man or woman will also supposedly integrate and manage the 16 intelligence satraps. As we and other critics predicted at the time, however, the DNI has merely become another bureaucracy layered on top of the other bureaucracies, with some 1,500 employees often doing what others elsewhere also do. In a bureaucratic classic, Mr. Blair and CIA chief Leon Panetta clashed last year over naming intelligence chiefs abroad. Mr. Panetta won.

As good an illustration as any of the dysfunction is the report that nominally precipitated the former Admiral's pink slip. The Senate Intelligence Committee identified 14 gaps that might have prevented Umar Farouk Abdulmutallab from boarding his Christmas Day flight, one being that "no one entity within the IC [intelligence community] has sole responsibility nor bears the entire burden of either connecting dots or accountability for failing to do so." Except that isn't a Senate conclusion: It comes from the official statement the National Counterterrorism Center—the only agency Mr. Blair controlled day to day—gave to investigators.

The Senate indictment is damning, though its Senate authors unfairly exempt themselves. The 2004 bill that putatively made the Counterterrorism Center the government's one responsible, accountable entity—a kind of antiterror CEO—passed the House 336-75 and the Senate 89-2, rushed along by the cheerleading of the 9/11 Commission. Mr. Blair is another memento of how pointless if not detrimental this reshuffling of the bureaucratic deck chairs was for the realities of the w— on t——.

Plotting a Democratic Comeback - Pennsylvania's governor, Ed Rendell, says the tea parties will throw up flawed GOP candidates like Rand Paul and that his party should run on the success of the stimulus.
http://online.wsj.com/article/SB10001424052748704852004575258261059419530.html

Lessons From a Torpedo - Placating Kim Jong Il doesn't change North Korea's behavior.
http://online.wsj.com/article/SB10001424052748703691804575254583245786418.html

Press Briefing

May 22, 2010

Confronting a Resilient al-Qa'ida: The United States Strategic Response
Daniel Benjamin, Coordinator, Office of the Coordinator for Counterterrorism, The Washington Institute for Near East Policy. Washington, DC, May 21, 2010
http://www.state.gov/s/ct/rls/rm/2010/142110.htm

New nuclear deal is an Iranian triumph
http://www.thejc.com/news/world-news/32004/analysis-new-nuclear-deal-iranian-triumph

No More Crying ’Spanish Flu’. By Michael Fumento. Forbes.com, May 20, 2010
http://fumento.com/swineflu/spanish_flu.html

Every Day Is Trade Day. Dipnote, the US State Dept Blog
http://blogs.state.gov/index.php/site/entry/trade_day

Raising Arizona’s Defense
http://blog.heritage.org/2010/05/21/morning-bell-raising-arizonas-defense/

The Caribbean Basin Security Initiative: A Shared Regional Security Partnership
http://www.state.gov/r/pa/scp/fs/2010/142088.htm

Dismissing the Black Panthers and the Professionals at Justice
http://blog.heritage.org/2010/05/20/dismissing-the-black-panthers-and-the-professionals-at-justice

The Message to the U.S. in Germany’s Ascension
http://blog.heritage.org/2010/05/20/the-message-to-the-u-s-in-germany%E2%80%99s-ascension/

China Under Pressure - Chinese school stabbings. By Michelle Tsai
http://www.slate.com/id/2254176
After car accidents, for instance, drivers usually sort things out between themselves, figuring out how much money one owes the other and exchanging cash more or less on the spot. Most conflicts are settled peacefully in this way, but occasionally things get violent, and then an "eye for an eye" philosophy prevails.

Press Briefing

May 21, 2010

United States reaffirms commitment to addressing global hunger and food security through Feed the Future initiative
http://www.usaid.gov/press/releases/2010/pr100520.html

NGO's BPA Report Intended to Frighten, Not Enlighten. By Robert L. Brent MD, PhD, D.Sc
http://www.acsh.org/factsfears/newsID.1445/news_detail.asp

The Dangerous Illusion of 'Nuclear Zero' - Why even speculate about a nuclear posture that would require world peace as a precondition?
http://www.bipartisanalliance.com/2010/05/dangerous-illusion-of-nuclear-zero-why.html

Timor-Leste Restoration of Independence Day
http://www.state.gov/secretary/rm/2010/05/142046.htm

The Never Ending Renewable Energy Handout: Senate Committee seeks to make renewable energy handout “permanent”
http://www.instituteforenergyresearch.org/2010/05/20/the-never-ending-renewable-energy-handout/

Privatization Can Help Greece - Keynesians warned against Thatcher's policies in 1981. They were proven wrong
http://www.bipartisanalliance.com/2010/05/privatization-can-help-greece.html

The Madness of Cotton - The feds want U.S. taxpayers to subsidize Brazilian farmers
http://www.bipartisanalliance.com/2010/05/madness-of-cotton-feds-want-us.html

Business Executives for National Security, Annual Policy Forum. Speech by Ellen Tauscher, Under Secretary for Arms Control and International Security
Washington, DC, May 19, 2010
http://www.state.gov/t/us/142005.htm

Goodbye, Employer-Sponsored Insurance - Companies are discovering that it's cheaper to pay fines to the government than to cover workers
http://online.wsj.com/article/SB10001424052748703880304575236602943319816.html

The Bankrupting of America - We have a ruinous collaboration of elected officials and unionized public workers
http://online.wsj.com/article/SB10001424052748703315404575250610059801620.html

State of Metropolitan America
http://www.brookings.edu/metro/StateOfMetroAmerica.aspx

The Fear Returns - Europe's policy panic is feeding another financial panic
http://online.wsj.com/article/SB10001424052748703559004575256843791551332.html

Estonia's Lessons for Greece - Europe's problem isn't the euro, but the failed fiscal policies of its political class
http://online.wsj.com/article/SB10001424052748703559004575256690853453952.html

United States to Assist Palestinian Refugees in Syria
http://www.state.gov/r/pa/prs/ps/2010/05/141996.htm

A Dose of Reality: Fact-Checking the White House on Health Insurance Policy
http://fixhealthcarepolicy.com/reality/

The White House Blog: Wall Street Reform and Sending Remittances
http://www.whitehouse.gov/blog/2010/05/20/wall-street-reform-and-sending-money-home

Junk Economics: A Closer Look at Those Shocking Health Insurance Profits
http://fixhealthcarepolicy.com/in-the-news/junk-economics-a-closer-look-at-those-shocking-health-insurance-profits

House Republicans Push Back Against Job-Killing Value-Added Tax
http://republicanleader.house.gov/blog/?p=884

The Dangerous Illusion of 'Nuclear Zero' - Why even speculate about a nuclear posture that would require world peace as a precondition?

The Dangerous Illusion of 'Nuclear Zero'. By DOUGLAS J. FEITH AND ABRAM N. SHULSKY
Why even speculate about a nuclear posture that would require world peace as a precondition?
WSJ, May 21, 2010

Moving toward "nuclear zero" is a signature theme of this administration. President Barack Obama's vision of a world without nuclear weapons is certainly grand. The problem is that our current policies lack coherence and rest on other-worldly assumptions.

Consider the administration's recently released Nuclear Posture Review (NPR). One of the conditions that would permit the United States and others to give up their nuclear weapons "without risking greater international instability and insecurity" is "the resolution of regional disputes that can motivate rival states to acquire and maintain nuclear weapons." Another condition is not only "verification methods and technologies capable of detecting violations of disarmament obligations," but also "enforcement measures strong and credible enough to deter such violations."

The first condition would require ending the Arab-Israeli conflict, settling the Korean War, resolving Kashmir and the other India-Pakistan disputes, and defusing Iran's tensions with its neighbors and with the U.S. It also means solving any other significant conflicts that might arise.

Verification would be tough, but even if technology could solve the problem, the question remains: What kind of "enforcement measures" do those who drafted the NPR imagine?

As of now, the U.N. Security Council is the only conceivable policing agency and its record is weak. What, for example, did the Security Council do when Iraq violated the Geneva Convention on poison gas in the 1980s, or when North Korea recently violated the Nuclear Non-Proliferation Treaty? There simply are no good grounds for relying on the Security Council's will to enforce treaties.

U.S. efforts to organize sanctions in response to Iran's illegal pursuit of nuclear weapons have been exercises in frustration. The Security Council deal announced on Tuesday falls far short of the "crippling sanctions" the administration had once intended. This experience undermines the credibility of any threat of enforcement measures—even against a state not allied with a veto-wielding Security Council member. And if China, Russia or an ally of either were someday to cheat on the ban, enforcement would be precluded by veto.

Is some kind of "world executive" envisioned to implement, or at least authorize, enforcement measures over objections from major powers? If so, it's hard to see how the U.S. or any other great power would relinquish its sovereign rights to independent action and self-defense.

"Strong enough" enforcement would have to include military measures. Is the idea here a U.N. military force that could fight large wars, as some diplomats proposed when the U.N. Charter was negotiated in the late 1940s? Or would military enforcement be the duty of the strongest state, presumably the U.S.? Only an arrangement verging on world government—an entity that could deploy overwhelming military power against a violator without interference by other powers—could possibly fill the bill.

The administration recognizes that knowledge about physics cannot simply be eradicated. "In a world where nuclear weapons had been eliminated but nuclear knowledge remains, having a strong infrastructure and base of human capital would be essential to deterring cheating or breakout, or, if deterrence failed, responding in a timely fashion," the NPR says. So even in a world of nuclear zero, the U.S. would have to remain able to rebuild its nuclear capability in a "timely" fashion. Presumably other nuclear-capable states would conclude the same for themselves.

In the event of a serious crisis, countries would race to reconstitute their nuclear arsenals. The winner would enjoy a fleeting nuclear monopoly, and then come under severe pressure to use its nuclear weapons decisively. The resulting instability could make the competitive mobilizations of the European armies in 1914 look like a walk in the park.

So what are the benefits of endorsing nuclear zero as America's goal? Proponents argue that embracing nuclear zero will increase cooperation from other countries against proliferators like North Korea and Iran. But what is this hope based on? America's embracing nuclear zero may take away a debating point from countries unwilling to cooperate with us, but it does nothing to change their interests. The deal Brazil and Turkey cut with Iran this week shows that Mr. Obama's embrace of nuclear zero does not translate into international cooperation where it really matters.

Endorsing nuclear zero makes it even harder for the U.S. government to maintain the nuclear infrastructure that the president says is essential for our security. Why should a bright young scientist or engineer enter a dying field—especially when innovation is discouraged by support for a permanent ban on weapons testing, and by the renunciation of new weapons development? The NPR states that the administration aims to "enhance recruitment and retention" of technical personnel, but its policies seem sure to drive them away.

The NPR stresses that the world's nonproliferation regime requires a strong U.S. nuclear umbrella. Yet the proposal can hardly increase confidence in America's determination to maintain its longstanding global role. U.S. friends overseas worry about their security in a world where America seems determined to shed its burdens as a nuclear power. This will likely spur nuclear proliferation—not discourage it.

President Obama has constructed U.S. nuclear-weapons policy on the assumption that it is helpful to set our goal as the complete abolition of such weapons. But the NPR makes clear that not even the Obama administration can really imagine a world without nuclear weapons. Meanwhile, the president's visionary notions appear likelier to undermine rather than further his own goals of nuclear nonproliferation and stability.

Mr. Feith, a former under secretary of defense for policy, is a senior fellow at the Hudson Institute and the author of "War and Decision: Inside the Pentagon at the Dawn of the War on Terrorism" (Harper, 2008). Mr. Shulsky is a senior fellow at the Hudson Institute and was director of strategic arms control policy at the Department of Defense from 1982 to 1985.

Privatization Can Help Greece - Keynesians warned against Thatcher's policies in 1981. They were proven wrong.

Privatization Can Help Greece. By ALLAN H. MELTZER
Keynesians warned against Thatcher's policies in 1981. They were proven wrong.
WSJ, May 21, 2010

What could the leaders of the International Monetary Fund and the European Union have had in mind when they agreed to lend Greece more than $100 billion in exchange for promises to restore stability? After initial relief, markets soon recognized that the program was not sufficient and not likely to be maintained.

When countries joined the common European currency, they gave up the right to use monetary policy to inflate or devalue. That left wage reduction and fiscal restraint as the only recourse in a crisis. With Greece's money wages and government debt too high, the IMF-EU relief effort does not add any new options. Instead it delays default by offering yet more debt as a solution to too much debt, and it gives the Greek government more time to do what it has been unable to do—lower public-sector wages by about 20% and reduce the budget deficit by 10% of GDP.

This only prolongs uncertainty and offers debt-holders a promise by the Greek government that will be hard to honor. No wonder markets are skeptical.

What would have worked? Much of Greece's industry and commerce, including much of the tourist industry, is owned by the state. It should be sold with the proceeds used to reduce public debt. That would make the remainder of the debt more sustainable and transfer workers to the private sector where competitive pressures for lower wages and increased productivity would more closely align employment costs and reality. If the socialist government returned more of the economy to the private sector, Greece would have a better chance of economic recovery.

Much of the Greek economy not owned by the state is "underground," in the so-called informal sector, where wages and incomes adjust quickly to the market. Greece also should offer an amnesty for unpaid back taxes to those who join the legal sector.

If after selling assets the remaining debt is still unsustainable, Greece will have to default (it will be called restructuring, but it is nonetheless default). To lessen the pain from losses borne by Greek and foreign lenders following default, the country should commit to fiscal policies monitored by the European Union. But it should reject the IMF-EU loan. More debt, even subsidized debt, is not the right answer.

The main benefit to Europe of the IMF-EU program is that the Spanish government has agreed to additional reductions in current and future spending. This was a difficult and unpopular political decision given the very high level of unemployment in Spain. A Spanish default would force France and Germany to choose either massive help to Spain or bailing out the losses on Spanish debt at German and French banks. German banks hold $240 billion of Spanish debt but only $43 billion of Greek debt.

Keynesians who think reducing public spending during a recession is a disastrous error should recall that they warned British Prime Minister Margaret Thatcher in 1981 that Britain would never recover if she continued with her tight fiscal and monetary policy during Britain's deep recession. Mrs. Thatcher declined to take their advice. Expectations about Britain's future changed for the better, and a long, productive recovery began soon after.

Greece's government should take heart from her example. The new government in Britain might remember this as well. And so might the Keynesians in the Obama administration.

Mr. Meltzer is a professor of economics at Carnegie Mellon University, the author of "A History of the Federal Reserve" (University of Chicago Press, 2004), and a visiting scholar at the American Enterprise Institute.

The Madness of Cotton - The feds want U.S. taxpayers to subsidize Brazilian farmers

The Madness of Cotton. WSJ Editorial
The feds want U.S. taxpayers to subsidize Brazilian farmers
WSJ, May 21, 2010

U.S. cotton farmers took in almost $2.3 billion dollars in government subsidies in 2009, and the top 10% of the recipients got 70% of the cash. Now Uncle Sam is getting ready to ask taxpayers to foot the bill for another $147.3 million a year for a new round of cotton payments, this time to Brazilian growers.

We realize that in today's Washington this is a rounding error. But the reason for the new payments to foreign farmers deserves attention. If it becomes a habit, it is unlikely to end with cotton.

Here's the problem: The World Trade Organization has ruled that subsidies to American cotton growers under the 2008 farm bill are a violation of U.S. trading commitments. The U.S. lost its final appeal in the case in August 2009 and the WTO gave Brazil the right to retaliate.

Brazil responded by drafting a retaliation list threatening tariffs on more than 100 U.S. exports, including autos, pharmaceuticals, medical equipment, electronics, textiles, wheat, fruits, nuts and cotton. The exports are valued at about $1 billion a year, and the tariffs would go as high as 100%. Brazil is also considering sanctions against U.S. intellectual property, including compulsory licensing in pharmaceuticals, music and software.

The Obama Administration appreciates the damage this retaliation would cause, so in April it sent Deputy U.S. Trade Representative Miriam Sapiro to negotiate. She came back with a promise from Brazil to postpone the sanctions for 60 days while it considers a U.S. offer to—get this—let American taxpayers subsidize Brazilian cotton growers.

That's right. Rather than reduce the U.S. subsidies to American cotton farmers that are the cause of the trade fight, the Administration is proposing that U.S. taxpayers also compensate Brazilian cotton farmers for the harm done by the U.S. subsidies. Thus the absurd U.S. cotton program would dip into the Commodity Credit Corporation to pay what is a bribe to Brazil so it won't retaliate.

Talk about taxpayer double jeopardy. As Senator Richard Lugar (R., Ind.) said recently, the commodity credit program was established to assist U.S. agriculture, "not to pay restitution to foreign farmers who won a trade complaint against a U.S. farm subsidy program."

Mr. Lugar wants the subsidies to U.S. farmers cut by the amount that will have to be sent to Brazil. He adds that a better option would be to take on the trade-distortions of the cotton program. "I am prepared to introduce legislation to achieve these immediate reforms," he wrote in an April 30 letter to President Obama.

This is probably tilting at political windmills, since Mr. Obama has shown no appetite for trade promotion, much less confronting a cotton lobby supported by such Democrats as Arkansas Senator Blanche Lincoln. But we're glad to see that at least Mr. Lugar is willing to call out the absurdity of U.S. taxpayers subsidizing foreign farmers to satisfy the greed of a few American cotton growers.

Press Briefing

May 20, 2010

The Conference Room That Re-Arranges Itself
http://spectrum.ieee.org/automaton/robotics/robotics-software/the-conference-room-that-rearranges-itself

Scientists Create First Synthetic Cell, Opening New Era in Biology
http://digs.by/dwFN8r

Our Global Challenges: Improving the Resources Trade. By Robert D. Hormats. Under Secretary for Economic, Energy and Agricultural Affairs
CSIS-University of Miami Council on Foreign Relations Roundtable. Washington, DC, May 18, 2010
http://www.state.gov/e/rls/rmk/2010/141987.htm

The Tax Cuts Didn't Cause the Budget Deficit
http://www.heritage.org/Research/Commentary/2010/05/The-Tax-Cuts-Didnt-Cause-the-Budget-Deficit

Remarks by President Obama at Official Arrival Ceremony
http://www.whitehouse.gov/the-press-office/remarks-president-obama-official-arrival-ceremony

Dodd Bill is Just the Beginning of 'Too Big to Fail'
http://blog.heritage.org/2010/05/20/morning-bell-dodd-bill-is-just-the-beginning-of-too-big-to-fail

United States-Mexico Security Partnership: Progress and Impact
http://www.state.gov/r/pa/prs/ps/2010/05/142019.htm

How About a Good Catholic Story? - Cristo Rey students work hard inside and outside the classroom
http://atheistsforchristianism.blogspot.com/2010/05/cristo-rey-network-students-work-hard.html

Public Schools Need a Bailout - Washington didn't let Wall Street fail. Why should we do less for our kids? By Randi Weingarten, president, American Federation of

Teachers
http://online.wsj.com/article/SB10001424052748703957904575252760030285560.html

The Reduced Credit Act - Seventeen Senate Republicans vote for price controls
http://online.wsj.com/article/SB10001424052748703315404575250563499231670.html

Germany Shoots the Messengers - First thing we do, let's kill all the short sellers
http://online.wsj.com/article/SB10001424052748703691804575253994183448372.html

Deal with Fannie and Freddie Now or We'll Pay Later
http://www.heritage.org/Research/Commentary/2010/05/Deal-with-Fannie-and-Freddie-Now-or-Well-Pay-Later

The 'Disclose' Act would make election law even more incomprehensible and subject to selective enforcement for political gain

Chuck Schumer vs. Free Speech. By Joan Aikens, Lee Ann Elliott, Thomas Josefiak, David Mason, Bradley Smith, Hans A. von Spakovsky, Michael Toner and Darryl R. Wold
The 'Disclose' Act would make election law even more incomprehensible and subject to selective enforcement for political gain.
WSJ, May 19, 2010

Editor's note: The following article is co-authored by former Federal Election Commissioners Joan Aikens, Lee Ann Elliott, Thomas Josefiak, David Mason, Bradley Smith, Hans A. von Spakovsky, Michael Toner and Darryl R. Wold:

As former commissioners on the Federal Election Commission with almost 75 years of combined experience, we believe that the bill proposed on April 30 by Sen. Chuck Schumer and Rep. Chris Van Hollen to "blunt" the Supreme Court's decision in Citizens United v. FEC is unnecessary, partially duplicative of existing law, and severely burdensome to the right to engage in political speech and advocacy.

Moreover, the Democracy Is Strengthened by Casting Light On Spending in Elections Act, or Disclose Act, abandons the longstanding policy of treating unions and businesses equally, suggesting partisan motives that undermine respect for campaign finance laws.

At least one of us served on the FEC at all times from its inception in 1975 through August 2008. We are well aware of the practical difficulties involved in enforcing the overly complex Federal Election Campaign Act and the problems posed by additional laws that curtail the ability of Americans to participate in the political process.

As we noted in our amicus brief supporting Citizens United, the FEC now has regulations for 33 types of contributions and speech and 71 different types of speakers. Regardless of the abstract merit of the various arguments for and against limits on political contributions and spending, this very complexity raises serious concerns about whether the law can be enforced consistent with the First Amendment.

Those regulatory burdens often fall hardest not on large-scale players in the political world but on spontaneous grass-roots movements, upstart, low-budget campaigns, and unwitting volunteers. Violating the law by engaging in forbidden political speech can land you in a federal prison, a very un-American notion. The Disclose Act exacerbates many of these problems and is a blatant attempt by its sponsors to do indirectly, through excessively onerous regulatory requirements, what the Supreme Court told Congress it cannot do directly—restrict political speech.

Perhaps the most striking thing about the Disclose Act is that, while the Supreme Court overturned limits on spending by both corporations and unions, Disclose seeks to reimpose them only on corporations. The FEC must constantly fight to overcome the perception that the law is merely a partisan tool of dominant political interests. Failure to maintain an evenhanded approach towards unions and corporations threatens public confidence in the integrity of the electoral system.

For example, while the Disclose Act prohibits any corporation with a federal contact of $50,000 or more from making independent expenditures or electioneering communications, no such prohibition applies to unions. This $50,000 trigger is so low it would exclude thousands of corporations from engaging in constitutionally protected political speech, the very core of the First Amendment. Yet public employee unions negotiate directly with the government for benefits many times the value of contracts that would trigger the corporate ban.

This prohibition is supposedly needed to address concerns that government contractors might use the political process to steer contracts their way; but unions have exactly the same conflict of interest. So do other recipients of federal funds, such as nonprofit organizations that receive federal grants and earmarks. Yet there is no ban on their independent political expenditures.

Disclose also bans expenditures on political advocacy by American corporations with 20% or more foreign ownership, but there is no such ban on unions—such as the Service Employees International Union, or the International Brotherhood of Electrical Workers—that have large numbers of foreign members and foreign nationals as directors.

Existing law already prohibits foreign nationals, including corporations headquartered or incorporated outside of the U.S., from participating in any U.S. election. Thus Disclose does not ban foreign speech but speech by American citizen shareholders of U.S. companies that have some element of foreign ownership, even when those foreigners have no control over the decisions made by the Americans who run the company.

For example, companies such as Verizon Wireless, a Delaware corporation headquartered in New Jersey with 83,000 U.S. employees and 91 million U.S. customers, would be silenced because of the British Vodafone's minority ownership in the corporation. But competing telecommunications companies could spend money to influence elections or issues being debated in Congress.

The new disclosure requirements are unnecessary, duplicating information already available to the public or providing information of low value at a significant cost in reduced clarity for grass-roots political speech. In many 30-second ads, Disclose would require no fewer than six statements as to who is paying for the ad (the current law already requires one such statement). These disclaimers would take up as much as half of every ad.

The Disclose Act also creates new disclosure requirements for nonprofit advocacy groups that speak out. These groups already have to disclose their sponsorship, but Disclose requires them to go further and provide the government with a membership list. This infringes on the First Amendment rights of private associations recognized by the Supreme Court in NAACP v. Alabama. Groups can avoid this only by creating a new type of political action committee called a "campaign related activities account."

The result of these overly complex and unnecessary provisions is to force nonprofits to choose between two options that have each been found unconstitutional by the Supreme Court: Either disclose their members to the government or restrict their political spending to the campaign related activities account. This runs contrary to the explicit holding in Citizens United that corporations (and unions) may engage in political speech using their general treasuries.

These requirements will be especially burdensome to small businesses and grass-roots organizations, which typically lack the resources for compliance. So the end effect of all of this "enhanced disclosure" will be to ensure that only large corporations, unions and advocacy groups can make political expenditures—the exact opposite of what the sponsors claim to desire.

While the Disclose Act does include an exemption for major media corporations, it does not include websites or the Internet, which means the government can regulate (and potentially censor) political dialogue on the Web. Additionally, the law would require any business or organization making political expenditures to create and maintain an extensive, highly sophisticated website with advanced search features to track its political activities.

As a result, small businesses, grass-roots organizations, and union locals that maintain only basic websites would be discouraged from making any expenditures for political advocacy, because doing so would require them to spend thousands of dollars to upgrade their websites and purchase software to report information that is already readily available to the public from the FEC. Large companies and unions could probably meet this requirement, so once again the bill benefits large, institutional players over small businesses and grass-roots organizations.

The Disclose Act's abandonment of the historical matching treatment of unions and corporations will cause a substantial portion of the public to doubt the law's fairness and impartiality. It makes election law even more complex, more incomprehensible to ordinary voters, and more open to subjective enforcement by those seeking partisan gain.