Obama names Gregg commerce secretary

President Barack Obama, center, accompanied by Vice President Joe Biden. left, announces his selection of Commerce Secretary-designate Sen. Judd Gregg, ...

President Barack Obama, center, accompanied by Vice President Joe Biden. left, announces his selection of Commerce Secretary-designate Sen. Judd Gregg, R-N.H., right, during a ceremony at the White House in Washington, Tuesday, Feb. 3, 2009. (AP Photo/Pablo Martinez Monsivais)

WASHINGTON (AP) -- President Barack Obama has nominated Republican Sen. Judd Gregg to be Commerce secretary.

Obama announced the nomination at the White House.

If confirmed, Gregg would be the third Republican in the Democrat's Cabinet, joining Defense Secretary Robert Gates and Transportation Secretary Ray LaHood.

It was the last open spot in the senior ranks of the Obama administration.

Obama initially had tapped New Mexico Gov. Bill Richardson for the Commerce job, but he withdrew his nomination amid a grand jury investigation into a state contract awarded to his political donors.

New Hampshire Gov. John Lynch, a Democrat, will appoint a Senate successor. Officials in the state say he will tap Bonnie Newman.

McCain rallies supporters to oppose Obama spending

Sen. John McCain on Tuesday went head-to-head with President Obama by mobilizing his network of campaign supporters against the president's economic recovery package, saying Republicans have not been given enough input.

While praising President Obama for his outreach, Mr. McCain said Democrats are "trying to jam" their bill through after having loaded it up with wasteful spending and without listening to Republicans.

Mr. McCain's opposition e-mail asks people to sign a petition opposing the Senate stimulus bill. It comes a day after Mr. Obama mobilized his own campaign supporters with an e-mail in support of the bill, calling on them to attend house parties this weekend to show their support.

"I cannot and do not support the package on the table from the Democrats and the Obama Administration. Our country does not need just another spending bill, particularly not one that will load future generations with the burden of massive debt," Mr. McCain said.

His strenuous opposition is a blow to Mr. Obama, who in the days before his inauguration met with Mr. McCain and even feted him at a pre-inauguration dinner praising the virtues of bipartisanship.

Mr. McCain signed the e-mail as chairman of his political action committee, Country First PAC.

Daschle withdraws his nomination

Former Sen. Tom Daschle is withdrawing from his nomination to be Health and Human Services Secretary, the White House announced Tuesday amid the former Democratic leader's tax problems.

President Obama said in a statement that Mr. Daschle, who had to pay nearly $130,000 in back taxes and interest for failing to report a gift of a private car and driver as income, asked Tuesday morning to be withdrawn.

"I accept his decision with sadness and regret," the president said in a statement.

The move comes less than a day after Mr. Daschle said he would move forward and senators came to his defense, saying the tax issue was an honest mistake.

"Tom made a mistake, which he has openly acknowledged. He has not excused it, nor do I. But that mistake, and this decision, cannot diminish the many contributions Tom has made to this country, from his years in the military to his decades of public service," Mr. Obama said.

Mr. Daschle, who lost his bid for reelection as senator from South Dakota in 2004, said he refused to be a "distraction" for the task of reforming health care.

"If 30 years of exposure to the challenges inherent in our system has taught me anything, it has taught me that this work will require a leader who can operate with the full faith of Congress and the American people, and without distraction," Mr. Daschle said in a statement. "Right now, I am not that leader, and will not be a distraction."

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Neo-Socialism Down Under

Kevin Rudd reinvents a philosophy to justify bigger government.

From today's Wall Street Journal Asia.

From Washington to Tokyo to London, politicians the world over are using the global financial crisis as cover to extend their powers. In Australia, Prime Minister Kevin Rudd is taking that tack a step further -- he's manufacturing a philosophy to justify his actions.

Kevin Rudd.

In an essay published in the February issue of the Monthly magazine, Mr. Rudd lays out his vision for "social capitalism"; a kind of halfway house between what he calls "extreme capitalism" and "an all-providing state." "Whatever the nomenclature," he writes, "the concept is clear: a system of open markets, unambiguously regulated by an activist state, and one in which the state intervenes to reduce the greater inequalities that competitive markets will inevitably generate."

This is a vision for a greatly expanded state cloaked under the rubric of "free markets," one in which Canberra would decide what inequalities were worth smoothing out and which ones weren't. Australia had that model once; it was called the Gough Whitlam government. In the 1970s, Mr. Whitlam nationalized health and higher education, hiked public-sector wages, increased government spending and pandered to labor unions, a key Labor Party constituency. The result was one of the worst recessions in Australia's modern history.

That's why the Labor Party -- the same Labor Party that Mr. Rudd belongs to -- embraced truly free markets, trade liberalization and deregulation in the 1980s and 1990s. Those reforms underpinned 17 consecutive years of economic expansion. Mr. Rudd makes only a passing reference to this record, acknowledging the Bob Hawke and Paul Keating Labor governments' "ambitious and unapologetic program of economic modernization." He goes further: "Neo-liberalism, and the free-market fundamentalism it has produced, has been revealed as little more than personal greed dressed up as an economic philosophy," he writes. This is a far cry from the economic conservatism for which Mr. Rudd was elected in 2007.

In his essay, Mr. Rudd uses the global financial crisis as a cover to attack his political opponents and talk up his own recent record. The opposition Liberal Party, Mr. Rudd writes, is "the political home of neo-liberalism in Australia" and bears blame for the current financial crisis, while Labor "has acted decisively through state action to maintain the stability of the Australian financial system."

The irony is that Australia was better prepared to deal with the financial crisis because of its long record of liberalization and sound regulatory oversight. Australia wasn't hit by a slew of subprime mortgage defaults or bank runs. Its problems came courtesy of muddled government interventions on foreign shores. Mr. Rudd's Labor government reacted by guaranteeing bank deposits at taxpayer expense, banning short selling and proposing huge public spending programs.

Milton Friedman once wrote: "What most people really object to when they object to a free market is that it is so hard for them to shape it to their own will." It's not necessary to read between the lines of Mr. Rudd's essay to understand that that's what's going on here.

Now Hiring: Lehman

As Bankrupt Firm Winds Down, Gigs There Are Hot Commodity

PETER LATTMAN

It's bankrupt. Its reputation is in tatters. And it has been forced from its plush headquarters building. Yet working for Lehman Brothers Holdings Inc. -- what remains of it -- has become one of the hottest jobs on Wall Street.

That's because Lehman, though a shadow of its former self after selling many of its businesses to Barclays PLC and Nomura Holdings Inc., retains a broad patchwork of assets. It has some $7 billion in cash and more than 1,400 private investments valued at $12.3 billion. Then there's a thicket of about 500,000 derivative contracts with 4,000 trading partners worth some $24 billion.

Then & Now

Associated Press

Then:

CEO: Richard Fuld (above)

Employees: 25,158

Cash on balance sheet: $3.3 billion

Alvarez & Marsal

Now:

CEO: Bryan Marsal, (above)

Employees: 500

Cash on balance sheet: $7 billion

So for now, Lehman is seen as a relatively secure home for throngs of finance professionals thrown out of work in recent months. It's even become a place for former Lehman CEO Richard Fuld to informally hang his hat.

"We're getting swamped with résumés," says Bryan Marsal, a turnaround expert who is now Lehman's chief executive officer. The inquiries, he says, are from people affiliated with marquee names such as Bank of America, Citigroup Inc., and Morgan Stanley.

"It's just a tough, tough time, and there are a lot of good people out there looking for work."

The wages are not great by past standards. But there are hidden benefits. It could take two years or more to wind down the firm. Such a timeline promises the kind of job security that's a rarity on Wall Street today.

Charged with untangling the mess is Alvarez & Marsal, the New York-based restructuring firm where Mr. Marsal is a co-founder. With 150 full-time employees working on the case, its chief task is to sell off Lehman's remaining assets and maximize recovery for creditors, which are owed more than $150 billion.

Mr. Marsal says the goal is to dissolve the firm in 18 to 24 months from now, though several restructuring experts say that's an aggressive timetable.

Alvarez & Marsal got the gig in September after Lehman's board appointed it to administer the bankrupt company's estate. To carry out the mission, Alvarez & Marsal kept 130 Lehman employees on the firm's payroll. It has also recruited back more than 200 former Lehman employees, and is still hiring staff to handle targeted areas such derivatives and real-estate holdings.

Behind the scenes is Mr. Fuld, the firm's former chairman and chief executive, who was widely vilified when Lehman collapsed in mid-September. Though Mr. Fuld was removed from the payroll on Jan. 1 and relieved of his company-provided black Mercedes, Lehman has agreed to let him keep an office at the firm. He's just around the corner from Mr. Marsal, who says he picks Mr. Fuld's brain about Lehman's business several times a week.

"We asked him to stay if he has nowhere better to go," says Mr. Marsal. "He's been very good about making himself available for questions about Lehman assets."

Through a spokeswoman, Mr. Fuld declined to comment.

Lehman's dismantling is an expensive process. Associated costs run about $30 million a month, excluding fees to lawyers and advisers on the case. Employees are paid a salary -- with modest retention bonus added as "a kiss" says Mr. Marsal -- to entice workers to stay at a place with a limited lifespan.

The assignment is a lucrative one for Alvarez & Marsal, which is charging Lehman hourly fees of $550 to $850 for its top executives working on the case, with rich incentive fees for the firm depending on its recovery for creditors.

Despite Lehman's assured dissolution, executive recruiters say it isn't surprising that the collapsed investment bank has become a desirable place to work.

"This is a well-paying job in one of the worst employment markets in history," says Skiddy von Stade, founder of New York-based executive placement firm F.S. von Stade & Associates. "Through the disposition of Lehman's assets, the employees will have a chance to demonstrate their strengths and skills for opportunities down the road -- possibly with the very buyers of these securities and investments."

Mr. Marsal says compensation is in line with similar jobs on Wall Street, yet far below what it was at Lehman. He and his team are "very, very careful" about the expenses of the firm, which he says are generally lean. "The excess of Lehman was the size of the salaries and the expectations of people with the bonus plan," he says.

View Full Image

Reuters

Staff members stand in a meeting room at the Lehman Brothers offices in the financial district of Canary Wharf in London Sept. 11, 2008.

Gone are the pay and perks that came with being a top executive at pre-bankruptcy Lehman. Mr. Fuld and his management team sat on the 31st floor of Lehman's former headquarters, a state-of-the-art steel-and-granite building in Times Square. Barclays bought that site and took it over, so now Lehman's command center is a run-of-the-mill office on the 45th floor of the Time-Life building, which long served as Lehman overflow space.

Mr. Marsal and his team are making due without weekly deliveries of fresh flowers and warm chocolate-chip muffins on Fridays -- perks enjoyed by the firm's former brass. Gone too is the executive dining suite where a private chef prepared lunch for Lehman's top executives. Instead, Mr. Marsal and his crew grab a bite in the cafeteria at Time Inc., which has granted access to the Lehman employees.

Henry Klein is part of Lehman's new topsy-turvy reality. A nine-year Lehman veteran, he oversaw a portfolio of investments in India from the firm's New York office. When Lehman failed, Mr. Klein was transferred to Barclays, but says he had little to do there. "I was at Barclays, but my assets were at Lehman."

Mr. Klein left Barclays in mid-November, and then approached Alvarez & Marsal. Today, he's back overseeing the very assets he says he managed at Lehman.

The 46-year-old Mr. Klein is currently focused on a small $36 million real-estate investment in Hyderabad, a large city in south central India. Lehman may continue to back the deal, but also may have to pull its funding. "It's a difficult decision," says Mr. Klein. "We don't have tons of time."

Luc Faucheux, 39, heads up the desk at the bankrupt entity that trades interest-rate swaps and other fixed-income derivatives. "I always wanted this job," laughs the former Lehman staffer who says he had a related, but less senior role. "Be careful what you wish for, because you might just get it."

"Let's face it," he adds. "Given the state of the world we're in, the things I'm learning working on the largest bankruptcy in history are a set of skills that could be marketable for the foreseeable future."

Rather than immediately sell assets into a depressed market, Alvarez & Marsal has opted to retain and manage a chunk of Lehman's holdings.

Last month, Alvarez & Marsal decided to keep a 49% interest in Lehman's money-management business, Neuberger Investment Management, selling the balance to Neuberger's management. It made a similar move with Lehman Brothers Merchant Banking, the firm's flagship private-equity business. The estate also has held on to more than 100 direct stakes in private companies. These include direct investments made alongside Lehman's private-equity clients in large boom-era buyouts such as First Data Corp. and Texas utility TXU Corp.

So far, Lehman has more than doubled its cash reserves to $7 billion from $3.3 billion, in part through the sale of its headquarters to Barclays. It is also raising money by selling off the firm's sizable art collection, whose value Lehman has pegged at roughly $30 million. Some of the photographs and paintings still grace the halls of Barclays and Lehman's Neuberger unit.

Finally, there is a cavalry of corporate jets valued at $164 million. Lehman has already sold six jets, as well as interests in fractional shares service NetJets Inc. for $53 million. Still on the block: Six more planes, including a Boeing 767, and a Sikorsky chopper.

Some of those jets Lehman owned as investments and only four were used for corporate purposes at any one time, according to a Lehman spokeswoman.

"The fleet's been grounded," Mr. Marsal reassured the bankruptcy judge overseeing the case at a hearing last month. "Nobody is flying around these planes and no one is using the helicopter."

Nationalize This

The Fed's embrace is suffocating AIG.

Thirty years ago, Nobel prize-winning economist Milton Friedman and wife Rose wrote that "the combination of economic and political power in the same hands is a sure recipe for tyranny." As we're learning, it's also really, really expensive.

Washington regulators tempted to nationalize banks don't need to study decades of history to understand the point. Merely consider the last five months, and the nationalization experiment the New York Federal Reserve Bank has conducted at AIG.

In September, the government took control of almost 80% of the giant insurer and to date has provided AIG with more than $150 billion in taxpayer financing. The initial terms of the government assistance were so poorly crafted that some AIG shareholders said the firm would be better off in bankruptcy. After several rewrites to the deal and a lot more taxpayer money at risk, an AIG spokesman now says that executives "hope" that they won't need more federal help.

Still, the firm is reviewing its options. One of them seems to be to seek government guarantees on new categories of assets. So far, taxpayer cash has largely relieved AIG of the burden of bad bets on residential mortgages. The firm is now at a "preliminary" stage in considering whether taxpayers can also help insure AIG's $22 billion in commercial mortgage-backed securities. Meanwhile, the company's stock price hovers near $1 per share, and AIG watchers are beginning to think the feds may never get the taxpayer's investment back. In short, the federal "rescue" appears to be squeezing the life out of AIG.

At the time of the September intervention, AIG had very healthy insurance businesses trapped under a holding company that had bet wrong on housing. Outsiders familiar with the firm say that now even those once-healthy AIG businesses are losing talent and having to cut prices to keep customers. Any price discounting will lead to further losses down the road. The company denies that it is writing unprofitable insurance policies and says that executive defections are within the range of normal turnover.

A clearer picture of AIG will emerge in a few weeks when the company files its annual 10-K report with the SEC. What's clear already is that the company has had difficulty fulfilling its stated plan to sell assets to repay government loans. With institutional buyers and even foreign capital scarce, AIG management is considering selling business units to the public. Buyers aren't very plentiful in that market either, however, as the U.S. suffers through the worst environment for initial public offerings since the 1970s.

We wish AIG well and we should note that the current management -- unlike many of the current directors -- did not create this mess. Still, we're waiting for someone to make the argument that this nationalization of a major financial firm has been a success. AIG has become the intervention that nobody in Washington wants to discuss, least of all the New York Fed or its former President and now Treasury Secretary Timothy Geithner. However, since some of the same people who gave us the AIG debacle are now contemplating plans to nationalize a good chunk of the banking system, it's vital that someone encourages them to learn from their mistakes.

Dodd's Peek-A-Boo Disclosure

The Senator's modified, limited mortgage hangout.

Connecticut Senator Chris Dodd has finally, sort of, kind of, ended 193 days of stonewalling about his sweetheart loans from former Countrywide CEO Angelo Mozilo. At least he did if you were a fast reader and were one of the few reporters he invited to his Hartford office yesterday to review -- but not copy or take -- more than 100 pages of documents related to his 2003 mortgage financings through Countrywide's "Friends of Angelo" program.

These are the files that Mr. Dodd pledged to make public after the news broke last summer that the Chairman of the Senate Banking Committee had received preferential treatment from Countrywide. At first, Mr. Dodd denied everything. Later, he conceded that he'd been given special treatment but thought it was "more of a courtesy."

Heck, we'd all love the kind of courtesy that would have saved Mr. Dodd $75,000 over the life of the two loans he refinanced to the tune of $800,000, according to an analysis by Portfolio magazine. The savings came from rock-bottom interest rates and a free "float-down" -- the right to borrow at a lower rate if interest rates fall before you've closed on the loan.

On Monday, with interest rates -- even for non-VIPs -- near historic lows, Mr. Dodd announced that he would refinance the sweetheart loans with another lender. The rates on the two Friends of Angelo loans were 4.5% and 4.25%, so the Senator will probably end up paying a bit more than he is now. But getting out from under the original loans doesn't shed any light on the key question: Whether Mr. Dodd knew that he got the red-carpet treatment because of his central role in regulating the financial industry. That's what former Countrywide employee Robert Feinberg has claimed to us and others.

We don't know whether the documents Mr. Dodd briefly showed yesterday illuminate this mystery or not, because he didn't release them to us, or to the public or his constituents. Perhaps the reporters he allowed to take a quick peak will tell us more. What he did release to everyone was a set of fact sheets that purport to show there was nothing favorable about the terms Mr. Dodd and his wife received from Countrywide, along with a consultant's report that reaches the same conclusion. Mr. Dodd's office did not respond to our request for the documents themselves, which he promised to release more than six months ago.

But consultant reports -- prepared at the behest of a law firm hired by Mr. Dodd to help him through the Countrywide mess -- tell us nothing about what Mr. Dodd knew and when he knew it. Instead, they are an attempt to change the subject. Mr. Feinberg has said that Friends of Angelo were regularly reminded that they were getting special treatment -- otherwise, what was the point? And he claims to have Countrywide documents that prove that Mr. Dodd was aware that Countrywide had done him favors. Those documents may or may not be among those that Mr. Dodd played peek-a-boo with Monday, but we still don't know. Mr. Dodd said he's "sorry" he didn't release the documents sooner -- just not sorry enough to actually release them, apparently.

Countrywide was for years the biggest single customer of Fannie Mae, the giant government-sponsored mortgage securitizer that has since gone into federal conservatorship. Much of Countrywide's business was built around its ability to sell loans to Fannie, and Mr. Mozilo helped push Fannie to accept dodgier and dodgier paper. Mr. Dodd in turn supported this goal by pressing Fannie to do more for "affordable" housing.

This nexus between Mr. Dodd's public duties and Countrywide's interests is a serious matter involving the Senator's personal ethics and accountability to taxpayers who will be paying for Fannie's bad loans for years to come. If, as Mr. Dodd claims, he has nothing to hide, then why is he still hiding it?

Swiss misses (and hits)

Our annual review of the moving and shaking at Davos

“SOCIAL warming has joined global warming as our biggest challenge,” Alvaro Rodriguez, a Mexican businessman and social entrepreneur, told a group of Davos men and women at last week’s World Economic Forum (WEF). They didn’t need much convincing: while they brainstormed in the Swiss mountains, strikes and riots convulsed the world. There was plenty of enthusiasm, too, for Mr Rodriguez’s solution: promote entrepreneurship in places that, at least until a few months ago, were considered emerging, rather than submerging, markets.

So Davos men and women agreed: the global economic crisis is also a time of great opportunity. That duality defined this year’s WEF, which despite rumours of important people staying away and of a ban on parties, was as busy and boisterous as ever. Here are our other highlights:

Doctor Doom: Nouriel Roubini comfortably saw off Robert Shiller, George Soros, Stephen Roach and Nassim Nicholas Taleb in the dismal-science celebrity death match by predicting the end of the world as we know it. “Why are there so many gloomy economists here?” asked one Davos Man, before concocting a Darwinian theory of natural selection whereby any economist who was optimistic at Davos last year did not get invited back. So if the world has not ended next January, perhaps Davos has seen the last of Mr Roubini.

Reuters

Putting on his friendliest face

Doctor Evil: Everybody had a Vladimir Putin story, even if it was only remarking on how bizarre it was to hear the Russian leader talk of the need for international co-operation while adopting the most hostile body language and persona in WEF history. His cruel dismissal of an offer of help by Michael Dell left the computer entrepreneur looking like he had been punched by Vitaly Klitschko, the (Ukrainian) heavyweight champion of the world, also a Davos attendee.

Book of the week: Wen Jiabao, China’s premier, said he was re-reading Adam Smith’s “Theory of Moral Sentiments”. How many of the capitalists at Davos could say the same? Indeed, how many of them have read it once?

Absent Friends: Reportedly, a visitor without a hotel room tried to check in to the Belvedere as John Thain, an executive recently ousted by Bank of America and no longer welcome in Davos, only to be told that Mr Thain had already arrived. Happily, he got a room when he said, “Actually, I'm Larry Summers.” While failed bankers were not much missed, the lack of heavyweight representation from the Obama administration led some to wonder if Davos was losing its relevance. Others suspect that Team Obama will turn out in force next year, rather than leave the stage to Mr Wen and his brand of Sino-Scottish capitalism.

Best catchphrase: “Doing an Erdogan”, Davos-speak for hissy fit, after Recep Tayyip Erdogan, the prime minister of Turkey, stormed off stage and flew home when he was not allowed to respond to a long rant by Shimon Peres. Runner up: a remarkable number of grey-haired political leaders and company bosses have adopted as their own British Prime Minister Gordon Brown’s self-promoting rallying cry that “Now is no time for novices”.

Top celebrity: No Bono or Brangelina this year, but Davos was not celebrity-free. Jet Li, a Chinese movie star, stole the show. At a session called “From Philanthrocapitalism to Philanthrocrisis?”, he asked Bill Clinton if he could call him “my brother” (yes). He then energised an audience keen for an injection of optimism by describing how he persuaded 1m Chinese to donate to One Foundation, his charity.

Outrageous speculation: Goldman Sachs survived the financial crisis, just, but will it survive the recovery, given how many of its talented bankers are preparing to escape the dead-hand of government regulation by quitting to start their own investment firms? Will Microsoft finally be killed off by Google, the launch of whose free “G-drive” operating system is said to be imminent?

Most alarming statistic: A survey of opinion in 20 countries by Edelman, a public relations firm, found that public trust in business leaders has plunged to new lows. Nearly two-thirds of those surveyed said they trust corporations less today than they did a year ago. The plunge was most dramatic in America: only 38% say they trust business to do what is right (a 20% drop from last year) and just 17% say they trust information from a company’s chief executive.

Best jokes: Q. What is the capital of Iceland? A. About two krona. Q. What is the difference between Ireland and Iceland? A. One letter and about six months.

Least likely terrorist: An Icelandic entrepreneur furiously points to the website Icelanders Are Not Terrorists. Listening to Gordon Brown talk about international co-operation in Davos has been unbearable, he says, given the British prime minister’s use of international anti-terror laws to attack Iceland’s banking system. One-third of Iceland’s population has signed the petition on the website, so when recession-hit Brits send Mr Brown into exile, he had best not go there.

Top letter: A tie between B and J. Many at Davos thought that the best way to save the world economy is to focus on “Banks, banks, banks”, while others called for “Jobs, jobs, jobs”. Either way, the WEF intends to launch a high-level organisation to advise the leaders of the G20 countries on “shaping the post-crisis world”.

Best party: The parties were supposed to have been toned down, but that was just spin. True, some banks thought twice about spending taxpayers’ money on grand cru, though JPMorgan offered cocktails. But reports that McKinsey was not bringing its much-loved dance band happily proved false. Google again delivered the goods, turning its so-called “lounge” into such a hip nightclub that bouncers blocked the corridor of the luxurious Belvedere hotel, forcing irate movers and shakers to wait in line. The bouncers claimed to be Google employees. One was asked if he worked for media relations. He replied, “No, for business development”. For Google’s sake, let’s hope not.

Most inspiring moment: Archbishop Desmond Tutu speaking to pupils at the Dignity Day held in a school in Davos, followed by Peter Gabriel singing his great protest song about the death of Steve Biko, a South African anti-apartheid campaigner. In these dark days, the hopeful words of the song seem even more powerful: “You can blow out a candle,/ But you can’t blow out a fire./ Once the flames begin to catch,/ The wind will blow it higher.” That fire is the right sort of social warming.

Bob Rubin Wants Your Kids to Pay for Banking Mess: David Reilly

Commentary by David Reilly

-- Here we go again. As proposals for a bad bank that would buy lousy assets from U.S. banks gather speed, an old stumbling block is re-emerging -- how to price the holdings the government would buy.

This is rekindling the debate over mark-to-market accounting and its role in the financial crisis, as banks try to find something to blame other than their own ineptitude while shifting losses onto taxpayers’ backs.

The talk about accounting also obscures a bigger issue: Who should shoulder losses from the housing and credit bubbles, us or our kids?

Using market prices makes it more likely that we, and the banks, will have to face immediate pain. Ignoring market prices means we pass the tab to future generations.

Not surprisingly, plenty of people -- now-retiring baby boomers, bank shareholders and executives -- prefer that someone else feels the pain.

For that to happen, these pay-later folks need to insist losses aren’t as big or as bad as mark-to-market makes them out to be. The problem is, markets disagree. So executives such as Robert Rubin attack the practice of using market prices.

Rubin, the former Treasury secretary and Citigroup Inc. director, laid blame for much of the crisis on mark-to-market accounting rules. During a talk at a public gathering in New York earlier this week, Rubin said such accounting did “a great deal of damage.”

Overlooking the Obvious

Never mind that he and fellow directors and executives at Citigroup misjudged the housing and credit markets. Never mind that they were unaware of a $25 billion risk the bank took on by way of collateralized debt obligations. Never mind that Rubin and his ilk didn’t complain back when such accounting led to big bonuses and huge profits in rising markets.

Wells Fargo & Co. Chief Financial Officer Howard Atkins, meanwhile, said Wednesday that any government-owned bad bank would need to buy toxic assets at prices that are based on estimates, or what he called “mark to model,” rather than the market. Never mind that estimates that ignore market values in the hope of capturing long-term, intrinsic value have repeatedly led banks and investors to miss the depth and severity of the crisis.

Thankfully, JPMorgan Chase & Co. chief Jamie Dimon, whose bank has weathered the meltdown better than most, struck a more realistic note during a conference last fall. Asked about market- value accounting, he said banks and investors had to realize that the losses are real.

Bankers’ own actions bear that out. While banks protest that market prices are too downbeat, each quarter they ratchet up loss expectations and chase markets down. And with each big bank acquisition -- Countrywide Financial Corp., Washington Mutual Inc., Wachovia Corp. -- the acquiring bank ends up recognizing huge losses on loans being bought.

Pricing Rotten Assets

If it creates a bad bank, the government will have to choose sides in this debate. Here are some possible outcomes.

Say a bank has a security it wants to sell to the bad bank. The face value is $100. The bank holds it at a value of $85. The market thinks it’s worth $65.

Banks will want the government to purchase assets for as high a price as possible, or at least to find some middle ground above depressed market values.

Buying the security at, or close to, $100 means the government would recapitalize the bank while transferring losses from shareholders to taxpayers.

Well, future taxpayers. They will be the ones who pay down the debt the government hopes to sell to fund this transfer, and make good on any losses. That debt, meanwhile, could prove stifling to the economy, and the losses pushed onto taxpayers could further undermine government finances.

‘Postpone the Pain’

“Creative pricing of toxic assets will only postpone the pain, extend the duration of the crisis, and present a bigger bill,” Northern Trust Securities Inc. economist Asha Bangalore said in a Jan. 23 research note.

If the government purchases the security at $85, the future losses and bill to the public purse would be less. The problem is, this price could cause banks to recognize as permanent their losses on other securities. Right now, they claim those losses are temporary.

Such a move would cripple banks’ regulatory capital ratios. Plenty of banks could still fail. In that case, banks and taxpayers both get hit.

Buying the security at the market price of $65 means banks and the financial system immediately face a day of reckoning. While bank balance sheets would get unclogged, many wouldn’t be able to, or willing to, face the losses.

Nationalizing Banks

“If the government elects to pay fair market value, the bank will likely not elect to participate as capital hits would be too dear,” Oppenheimer & Co. analyst Meredith Whitney wrote in a report yesterday.

That could force the government to nationalize banks or seize them as part of the process of buying up assets. Either way, shareholders would get wiped out.

The strain caused by owning up to losses today would be enormous. It would also make more sense if we want to move out of the crisis sooner rather than later.

And what if market prices indeed overestimate potential losses? We would pass a windfall to future generations, along with a stronger financial system. Nothing wrong with that.

Japan’s Economy Is Killing Far Too Many Japanese: William Pesek

Commentary by William Pesek

-- Ask a group of expatriates in Tokyo which foreign word is used most in Japanese and many will guess “beer,” “ciao” or “OK.”

Not even close. The answer, according to Japan’s cultural affairs agency, is “stress.” Some 98.5 percent of Japanese responding to an August survey, had seen, heard or used the word commonly pronounced “sutoresu” in their native language.

It takes but a split second to realize the logic in this being Japan’s most identified loanword. This is, after all, the home of “karoshi,” or death from overwork. Japan also is a place that consistently logs more than 30,000 suicides a year, many of which are tied to economic worries.

The concept of dying from working too many hours wasn’t invented in Japan, yet its workaholic ways result in a shockingly high incidence for a developed nation. While reliable data are hard to collate, lawyers estimate there are at least 10,000 work- related deaths each year.

That number might skyrocket as the global credit crisis visits Asia’s biggest economy.

“Karoshi will likely pick up again,” says Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo.

Japan’s outlook is worsening by the day. Factory output fell a record 9.6 percent in December. Unemployment had its biggest jump in 41 years and household spending slid 4.6 percent, a 10th month of declines. NEC Corp., Japan’s largest personal-computer maker, is cutting more than 20,000 jobs. The risk of a deep, multiyear recession is growing.

It’s Different

Yet this contraction is different. Schulz says efforts to dismantle Japan’s lifetime employment system have left a third of the workforce with flexible contracts. That means corporations have a tool that they didn’t have a decade ago to adjust to the recession: firing workers.

Japanese firms have moved with unprecedented speed to do just that, starting with the growing ranks of temporary staffers. Fast- rising joblessness in an economy unaccustomed to it means greater stress for more than just those out of work.

“It is worrying to see firms cut temporary workers, ostensibly expecting existing full-time staff to cover the shortage,” says Naomi Fink, Japan strategist at Bank of Tokyo- Mitsubishi UFJ Ltd.

Stressed Workers

There’s a national karoshi hotline, a self-help book to guide the overworked and a law that compensates families of victims, who are almost always men. Japan had the highest rate of employees suffering work-related health problems in a recent study by Kelly Services.

The Troy, Michigan-based recruitment firm questioned 115,000 people in 33 countries. The survey found that as many as three in five Japanese claimed they had been ill or felt unhealthy because of workplace conditions. That was markedly higher than the global average of 19 percent.

A political vacuum in Tokyo isn’t inspiring great confidence that things will improve. Prime Minister Taro Aso’s approval ratings are below 20 percent, and Japan’s main opposition party’s economic ideas are underwhelming, at best. And Japanese know things are bad when even the vaunted Toyota Motor Corp. is forecasting its first loss in 71 years.

The automaker also has been the subject of some unflattering headlines. In November, for example, a court in central Japan ruled in favor of the wife of a 30-year-old Toyota employee alleged to have died from overwork. The government was ordered to pay compensation.

Fabled Salaryman

Karoshi cases are difficult to prove and often go unreported. Business organizations such as Keidanren are calling on companies to offer more flexible schedules to reduce overwork and increase the national birthrate. Corporate executives and the government need to do more to drag Japan’s fabled salaryman from his desk.

This issue isn’t likely to receive the attention it deserves. Aso’s Liberal Democratic Party is preoccupied with staying in power. More energy needs to go into reducing the burden on workers who clock some of the longest hours in the developed world. Much of the overtime worked goes unreported. Vacation days often go untaken.

The key, Fink says, is to increase the productivity of Japan’s workforce. That’s easier said than done. The Organization for Economic Cooperation and Development says labor productivity per hour worked in Japan is 30 percent below the U.S. level.

Killer Year

“If employers lay off to cut costs without raising productivity, karoshi might become an issue,” Fink says.

One also can’t rule out even higher suicide rates, not only in Japan, but also in South Korea and Hong Kong. Psychiatrist Shu- sen Chang of the U.K.’s University of Bristol says the current turmoil in markets risks creating a new wave of suicides, particularly among working-age men.

A Japanese hotline for people considering suicide is stretched to the limit, with the economic crisis thought to be worsening the problem, its director, Yukio Saito, told the Daily Telegraph this month. Even before Japan’s recession deepened in December, Telephone Lifeline was handling 700,000 calls a year.

It’s clear that Japan needs to end its candle-burning corporate culture. It’s less clear how to achieve a better work- life balance as the economy is plunging.

For Japan’s economy, the year ahead could be a killer -- in more ways than one.

Enjoy Stimulus Now, Pay Your $14,000 Share Later: Kevin Hassett

Commentary by Kevin Hassett

Feb. 2 (Bloomberg) -- As bad as the news has been this year, for taxpayers there is much worse news to come.

Economists who study fiscal-policy history divide the world’s governments into two categories. There are the so-called Ricardian governments, which wisely plan their taxes and spending so that they balance over time. Then there are the Nonricardian governments, which spend and borrow until they collapse.

Ricardian governments borrow in bad times and lend in good. Nonricardian governments look like a Madoff investment pool and borrow themselves into oblivion.

The category names refer to the 19th-century economist David Ricardo, who pioneered the study of government finance. His ideas have such resonance that they continue to animate one of the hottest corners of economics.

The bottom line from the latest work is simple: economies of Nonricardian governments can malfunction in bizarre ways. If capital markets lose faith in a government’s long-run commitment to fiscal discipline, it’s the economic equivalent of a meteor strike.

As bad as things have gotten, the good news has been that the world’s investors have been lining up to purchase U.S. Treasuries. The problem for American taxpayers is that the world’s investors have been doing so because they believe the U.S. government is a Ricardian one. That means markets expect U.S. taxpayers to pick up the bill for this mess. Anything else would, of course, be unthinkable.

But oh, what a bill it will be.

Dream On

When the stimulus package, the SCHIP expansion and whatever else our representatives in Washington dream up are on the books, it seems likely that the deficit for this year will approach $1.7 trillion. This is an enormous swing in the U.S. fiscal condition.

Under President George W. Bush -- a big spender in his own right -- the federal budget deficit reached a record $455 billion in fiscal 2008, more than double a year earlier. Government bailouts of banks and other industries that started under Bush, and may accelerate under President Barack Obama, will help push the deficit toward that $1.7 trillion mark.

That is $1.7 trillion in future taxes. Nobody knows exactly when the tax hike will come. It might even be that we shall try to foist the costs on our children. Still, those planning their financial futures should account for the dramatically higher taxes that will be the result of this year’s policies.

Check the Numbers

Suppose the government eventually decides to allocate the bill according to the latest distribution of taxes. In 2006, for example, people with incomes between $50,000 and $75,000 paid about 10 percent of all income-tax revenue. As a thought experiment, how much would those people’s taxes go up if Uncle Sam raises 10 percent of $1.7 trillion from them?

If you run the numbers for that and other income brackets, you’d better sit down. Our spending policies are not digging a hole, they are conjuring up a Stygian abyss.

If your family income in 2006 was between $75,000 and $100,000, the extra taxes that you will have to pay at some point in the future add up to about $14,000.

If your income was between $100,000 and $200,000, your future tax hike will be about $28,000. If your income was between $200,000 and $500,000, then your future tax bill just went up by $90,299.

Everybody Pays

While our tax system is heavily tilted against the rich, even those with relatively low incomes will eventually have to pay. The extra tax bill for someone with 2006 income between $25,000 and $30,000 will be about $2,500.

These numbers are in present value. If government puts off sending you the bill -- and thus must pay interest between now and then -- the bill will be higher. How much higher? If the government waits 10 years to collect the $14,000 from the person with income between $75,000 and $100,000, the bill a decade from now will be about $22,800.

To put these numbers in perspective, suppose that the U.S. government decided that it was going to stimulate the economy by ordering individuals to purchase stuff. Ever attentive to distributional issues, this mandatory purchase program would require less of poorer individuals.

A government program with about the same distributional consequences as this year’s fiscal policy would require a person with an income between $25,000 and $30,000 to buy a really nice 52-inch flat-panel television. Those with incomes between $75,000 and $100,000 would be required to purchase a brand new Chrysler PT Cruiser. Those with incomes between $200,000 and $500,000 would have to purchase a midsize recreational vehicle.

Keep It

The difference between this hypothetical program and what we got, of course, is that in the hypothetical, at least you get to keep the stuff.

These tax bills are also large relative to the typical wealth of individuals in most income brackets. For example, recent Federal Reserve data suggest that the typical person with income around $100,000 has about $300,000 in assets. The new tax liability associated with this year’s policies is a little less than 10 percent of their wealth.

So when you get your tax rebate in the mail after the stimulus package becomes law, do yourself a favor and put it in the bank. Given the big tax hike that is coming, anything else would be irresponsible.

Republican Gregg Set to Be Named by Obama as Commerce Secretary

Feb. 3 (Bloomberg) -- Republican Senator Judd Gregg will be named today by President Barack Obama as his choice for commerce secretary, filling the last Cabinet position, according to two White House officials.

The announcement, set for later today at the White House, marks another demonstration of Obama’s attempts to advance his agenda by reaching across political lines. If confirmed by the Senate, Gregg would join Defense Secretary Robert Gates and Transportation Secretary Ray LaHood as the third Republican member of Obama’s Cabinet.

Gregg’s acceptance of the post suggests he has reached a deal with the administration and New Hampshire’s Democratic governor, John Lynch, to keep the Senate seat in Republican hands. Gregg said yesterday he wouldn’t accept the post at the risk of handing Democrats a 60-vote majority that potentially could force legislation through the Senate.

“I have made it clear to the Senate leadership on both sides of the aisle and to the governor that I would not leave the Senate if I felt my departure would cause a change in the makeup of the Senate,” Gregg, 61, said. “The Senate leadership, both Democratic and Republican, and the governor understand this concern and I appreciate their consideration of this position.”

Economic Plan

From the commerce post, Gregg could become a critical voice in the administration to vouch for the president’s economic policies at a time when Obama’s two-year, more than $800 billion plan to pull the nation out of a recession has run into resistance from congressional Republicans.

Gregg “gives the Obama administration a new and valuable conduit to centrist Republicans in the Senate,” said Charlie Cook, publisher of the nonpartisan Cook Political Report.

The appointment also is likely to be “very pleasing to business groups” because of Gregg’s record, said Linda Fowler, a professor of government at Dartmouth College in Hanover, New Hampshire. Opponents also know him as easy to work with, she said.

“He has a very low-key non-confrontational style,” Fowler said. “He gets along with Democrats.”

In the Senate, Gregg is regarded as a deficit hawk and an independent-minded fiscal conservative.

He has voiced concerns about the size and makeup of Obama’s stimulus package that may reach $900 billion.

TARP Vote

Still, he has shown willingness to work with the new administration. Last fall, then-candidate Obama, 47, spoke with Gregg during negotiations over the Treasury’s financial-rescue plan and the two talked before the Senate’s vote last month to release the second half of the $700 billion Troubled Asset Relief Program fund. Gregg was one of six Senate Republicans who voted to release the money.

Gregg, who chaired the Senate Budget Committee from 2005 to 2007, has called for reining in government spending on Social Security and other federal entitlement programs, which Obama has promised to address.

He also helped champion a five-year, $39.7 billion package of cuts to such programs proposed by President George W. Bush. In 2003, he voted against creation of a Medicare prescription drug program for seniors proposed by Bush.

He parted with Bush on some social policies, including votes in favor of expansion of federal funding for embryonic stem-cell research, which the president opposed.

Iraq War Support

At the same time, he was a staunch supporter of Bush’s Iraq policy. Two years ago, he engineered a Senate vote on a resolution he sponsored keeping in place funding for U.S. troops in Iraq.

As commerce secretary, Gregg would lead a Cabinet department of about 40,000 people, whose role is to boost the U.S. economy, compile economic data, monitor the weather, adjudicate trade complaints and oversee the Census Bureau.

Obama’s first pick to lead the department, New Mexico Governor Bill Richardson, withdrew last month amid a federal investigation.

Democrats currently have 56 seats in the Senate and two independents caucus with them. If Lynch were to appoint a Democrat to replace Gregg and if Democrat Al Franken prevails in the disputed Minnesota race, the party would have a margin to big enough overcome Republican attempts to stall legislation.

Next Election

The seat would be up for election in 2010. Steve Duprey, former New Hampshire Republican Party chairman who was an adviser to Senator John McCain’s presidential campaign, said Democrats will have a shot to claim it then if the Republican appointee doesn’t run.

“In essence it would be a completely open seat and we have no incumbent Republican serving either statewide or from a congressional district,” Duprey said. “It will be a significant challenge” to keep it Republican.

New Hampshire Republicans speculate Gregg’s most likely replacement would be Bonnie Newman, a Gregg family friend who was also served as his chief of staff when he was in the House. She was executive dean at Harvard University’s Kennedy School of Government in Cambridge, Massachusetts, from 2000-2005, and served in the administrations of former presidents Ronald Reagan and George H.W. Bush.

Other Republican possibilities include Tom Rath, a former state attorney general, former Representative Charles Bass, former Governor Walter Peterson and former State House Speaker Doug Scamman.

Ramirez Pumps Cash for Chavez as $40 Crude Imperils Venezuela

Feb. 3 (Bloomberg) -- Rafael Ramirez, president of Petroleos de Venezuela SA, takes the stage at a stadium packed with thousands of beneficiaries of the state oil company’s schools and health clinics, known as missions.

“The social missions, the revolutionary missions, will defend the revolution!” shouts Ramirez, 45, before introducing Venezuelan President Hugo Chavez, campaigning for a Feb. 15 referendum to end term limits so he can serve through at least 2019.

Ramirez, who’s also the country’s oil minister, supplied his government with $34 billion in royalties and taxes in the first nine months of 2008, more than half the national budget. Such funds have enabled Chavez to provide education, health care and low-cost food for what he terms the “Bolivarian Revolution.”

As Chavez drains cash from PDVSA, as his company is known, the Western Hemisphere’s biggest petroleum exporter is falling behind on investment and output targets, said Jorge Pinon, an energy fellow at the Center for Hemispheric Policy at the University of Miami. With crude down 73 percent from a July 11 peak of $147.27 a barrel, Ramirez will have to further trim oilfield spending to maintain payments to his boss, Pinon said.

“He is willing to compromise PDVSA’s role on behalf of the political mission of the state,” Pinon said.

Ramirez declined two written requests for an interview. Chavez wasn’t immediately available to comment, said an official in the presidential press office who declined to give her name because she isn’t an authorized spokeswoman.

Missed Targets

Venezuela’s 2009 budget is based on an oil price of $60 a barrel. Crude fell $1.60 to $40.08 a barrel in New York yesterday.

Oil’s decline comes as PDVSA seeks to boost production, which has missed its growth targets. The company said it pumped 3.27 million barrels a day last year before the Organization of Petroleum Exporting Countries decided to cut production in October.

In 2003, PDVSA forecast that it would be producing 4.4 million barrels a day by 2008.

Output is even lower than the company says, according to a Bloomberg News survey of oil companies and analysts. They estimate it has fallen to 2.15 million barrels daily from 2.61 million barrels since Ramirez took charge in 2004.

Ramirez is seeking investment from foreign oil companies to meet his goal of 4.94 million barrels a day in 2013. On Oct. 30, PDVSA opened bidding to find partners for ventures in the Orinoco Belt, which rivals Saudi Arabia’s and Canada’s tar sands among the biggest petroleum deposits.

Chevron Corp. of the U.S., Britain’s BP Plc, Royal Dutch Shell Plc and Colombia’s Ecopetrol SA each paid $2 million for information on the contracts, which will be auctioned this year, PDVSA said Dec. 2.

Higher Taxes

Chevron, Shell, and Ecopetrol didn’t immediately return calls seeking comment. BP spokeswoman Maria Viso confirmed that the company had purchased and is analyzing the data.

Since coming to office, Chavez forced private oil companies and PDVSA to pay higher taxes and royalties. When he took over operating control of joint ventures and cut off companies’ rights to international arbitration in 2007, ConocoPhillips and Exxon Mobil Corp. left the country and sued for billions of dollars. They’re excluded from new bidding rounds while pursuing lawsuits.

“It’s very unlikely” that PDVSA can fulfill the 4.94 million-barrel goal, said Roger Tissot, an associate consultant in Vernon, British Columbia, with Gas Energy Latin America.

“Chavez’s priority is to focus spending on areas where he can maximize political benefits, and all of them are financed by PDVSA,” said Tissot. “So there is nothing left for the company to increase productive capacity.”

Unlimited Terms

For the past four months, Ramirez has campaigned alongside Chavez, 54, for a constitutional amendment that would let the former lieutenant colonel seek an unlimited number of terms after his current mandate expires in 2012.

Chavez, who has been president for 10 years, was re-elected in 2006, winning 61 percent of the vote.

Much of the president’s popularity stems from his efforts to improve health care and access to higher education, especially among Venezuela’s 9 million poor, said Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington.

“Any government that has presided over this huge an improvement in living standards would be very popular,” Weisbrot said.

Head Taller

Ramirez, who at about 6 feet 6 inches (2 meters) stands a head taller than the president, has worked for Chavez since 2000, when he was appointed to run the government’s newly created natural gas agency, Enagas.

Before that, the engineering graduate from Los Andes University in Merida, who also holds a master’s in energy studies from Central University of Venezuela in Caracas, ran the pipeline department at Inelectra SACA, the country’s biggest engineering company.

In 2002, Chavez named Ramirez and other supporters to the PDVSA board. Protests by company managers against the appointments escalated into a military coup that unseated Chavez for two days.

When Chavez returned to power, he accepted the board’s resignation. Ramirez became Minister of Energy and Mines three months later. An advocate of OPEC output reductions, Ramirez saw oil rise fivefold from 2002 to its July 2008 peak. He opposed adding production as prices climbed last year and was among the first to call for a cut as crude fell.

Budget Soars

As crude surged, Venezuela’s budget soared to 167.5 billion bolivars ($77.9 billion) for 2009, from 26.4 billion bolivars in 2002. Oilfield investment almost doubled to $10.5 billion in the first nine months of 2008 from $5.3 billion a year earlier.

PDVSA’s employee roster rose to 61,900 at the end of 2007 from 45,700 in 2002. Under Ramirez, the company expanded social programs including literacy classes and subsidized food. His wife, Beatrice Sanso, runs La Estancia, a Caracas arts center funded by the oil producer.

The company sends 90,000 barrels of oil a day to Cuba in exchange for visiting health workers, sports trainers and zoo animals. PDVSA’s Citgo Petroleum unit in the U.S. provided 2.67 million barrels of below-market-price heating fuel to low-income households last winter.

Citgo Chief Executive Officer Alejandro Granado began this year’s program on Jan. 29 and said falling oil prices wouldn’t reduce the company’s donations.

Joint Currency

Ramirez’s twin roles involve him in global diplomacy as well as domestic politics and management.

On Nov. 26, he spent the morning with Chavez and chiefs of state from Ecuador, Bolivia, Dominica, Nicaragua, and Honduras discussing the creation of a joint currency. That evening, after a meeting between Chavez and Russian President Dmitry Medvedev, Ramirez signed accords that opened Venezuela’s oil industry to more investment from the country.

At 10 p.m., 12 hours before the federal budget was to be presented to the country’s legislature, he joined Finance Minister Ali Rodriguez at his offices in downtown Caracas.

Rodriguez, 71, a former guerrilla who served as oil minister, OPEC president and foreign minister before his current post, helped Ramirez gain Chavez’s trust.

‘Close Friend’

“I’ve known him since he was a child,” Rodriguez said in a Jan. 8 interview. “His father is a very close friend of mine.”

Ramirez’s lack of political ambition helps him keep his jobs, said Patrick Esteruelas, a Latin America risk analyst with Eurasia Group in New York. He is the longest-serving cabinet member under Chavez, who has dismissed more than 100.

“He has always portrayed himself as a technocrat and servant of state, and so is no threat to Chavez,” Esteruelas said. “He’s been one of Chavez’s longtime supporters. He’s willing to write blank checks.”

Lawmakers Seek to Revise Stimulus; Bill Now in Senate (Update1)

Feb. 3 (Bloomberg) -- Democrats and Republicans are seeking changes worth tens of billions of dollars to President Barack Obama’s economic-stimulus package as the U.S. Senate began debate yesterday on the plan.

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said lawmakers from both parties are developing plans to redirect at least $50 billion to aid the ailing housing industry. Another Democrat, Ben Nelson of Nebraska, said he and other senators are preparing an amendment to cut “tens of billions” of dollars in spending in the plan, saying they doubt it would do much to help the economy.

Senate Minority Leader Mitch McConnell, a Kentucky Republican, said Democrats are ignoring Obama’s call, made in an interview with NBC television, to incorporate Republican ideas in the plan. “The way to build this package is, indeed, to do it on a bipartisan basis, which doesn’t mean just talking to us but including ideas that we think would work,” McConnell said.

Obama discounted the differences over the stimulus legislation, calling them “very modest.” Democratic congressional leaders met with him yesterday at the White House about the measure. A White House statement said, “They agreed on the urgency of passing effective legislation in the short term and committed to continue working together to achieve the bipartisan consensus” that Obama has sought.

Governors Urge Passage

Obama’s plan won backing from a bipartisan group of 19 governors that included Democrats and Obama allies Jon Corzine of New Jersey and Tim Kaine of Virginia and Republicans such as Arnold Schwarzenegger of California and Charlie Crist of Florida.

The governors’ backing came in a letter released this morning by the administration that expressed support for the $819 billion package the House passed last week.

The Senate began work on the bill in hopes of getting a measure to Obama’s desk by mid-February. Senate Majority Leader Harry Reid, a Nevada Democrat, said there will be a number of votes today on amendments. The House passed its version of the bill without any Republican votes.

Democrats, buffeted by complaints the House plan would take too long to boost the economy, got some good news yesterday when the nonpartisan Congressional Budget Office said the Senate’s version would have a quicker impact. The agency said the Senate’s plan, which it estimated would cost $885 billion, would pump about $700 billion into the economy by the end of next year.

Obama’s Goal

That would amount to almost 80 percent of the package. Obama has said his goal is to have three-quarters of the money funneled into the economy within 18 months. The CBO said the House bill would inject about 64 percent of its package into the economy by the end of 2010.

Reid said lawmakers will vote first on an amendment sponsored by Senator Patty Murray, a Democrat from Washington State, which would increase funding for highway, mass transit and water infrastructure projects by $25 billion. That would boost highway funding in the bill to $40 billion from $27 billion.

“Construction projects across the country have been put on hold because states simply don’t have the money,” said Murray. “This amendment invests in tried-and-true projects that get laid-off workers back on the job.”

Jim Manley, a Reid spokesman, said he didn’t know what other amendments would get a vote today.

Fighting Foreclosures

Conrad said he and about eight other senators form a bipartisan group of lawmakers who want at least $50 billion within the stimulus package for programs aimed at fighting housing foreclosures.

“We are really trying to reduce things that have less value in terms of stimulus and investment and move it into a place where we know we really need the money,” he said. Conrad said the lawmakers haven’t agreed on what they would try to cut in the bill to make room for their proposal.

Nelson, who complained the plan includes funds to develop environmentally sensitive spacecraft, said “more than a handful” of lawmakers are working on a plan to reduce spending. Nelson, who said he won’t support the stimulus plan as it is currently written, declined to provide specifics.

McConnell said the plan doesn’t include enough tax cuts or mortgage relief. Republicans are considering offering an amendment that would temporarily offer mortgages with fixed rates between 4 percent and 4.5 percent to homebuyers and homeowners wanting to refinance. The plan would direct Fannie Mae and Freddie Mac to buy the loans to encourage banks to make them.

Republicans believe “that a stimulus bill must fix the main problem first, and that’s housing -- that’s how all of this began,” he said.

McConnell warned Democrats against expanding the stimulus package, saying many of his colleagues believe it is already too big. He also criticized “Buy American” provisions in the bill that would require iron and steel used in projects funded by the measure to be American-made.

“I don’t think we ought to use a measure that is supposed to be timely, temporary and targeted to set off trade wars,” he said. “It’s a very bad idea.”

U.S. Pending Home Resales Rise as Prices, Rates Drop (Update2)

Feb. 3 (Bloomberg) -- More Americans signed contracts to buy previously owned homes in December for the first time in four months, signaling slumping prices may be boosting demand.

The index of pending home resales climbed 6.3 percent to 87.7, the first increase since August, from a revised 82.5 in November, the National Association of Realtors said in a report today in Washington. Pending sales rose in two of four regions.

Record foreclosures are pushing down home values, making homes more affordable for those buyers able to get financing. Still, restrictive lending rules and further price declines are likely to scare away the majority of purchasers, indicating the real-estate recession will persist for a fourth year in 2009.

“Lower prices probably have attracted some buyers,” said David Sloan, a senior economist at 4Cast Inc. in New York, who projected an increase. Still, “the rise may be difficult to sustain.”

Stocks rose following the report, reversing earlier losses, while Treasury securities dropped. The Standard & Poor’s 500 index was up 0.1 percent at 824.89 at 10:28 a.m. in New York. The builder composite index jumped 6.1 percent. The yield on the 10- year note was 2.80 percent, up from 2.72 at the close yesterday.

Economists forecast pending sales to be unchanged in December after an originally reported drop of 4 percent in the prior month, according to the median forecast of 28 economists in a Bloomberg News survey. Estimates ranged from a drop of 5 percent to a 2 percent increase.

Record Vacancies

A record 19 million U.S. houses stood empty at the end of 2008, the U.S. Census Bureau said in a report today. The vacancy rate, the share of empty homes for sale, rose to 2.9 percent in the last quarter, the most in data that goes back to 1956.

The pending purchase report showed resales jumped 13 percent in both the South and Midwest regions. Signed purchase contracts declined 3.7 percent in the West and 1.7 percent in the Northeast.

“The biggest gains were in areas with the biggest improvements in affordability,” Lawrence Yun, the group’s chief economist, said in a statement. The NAR’s affordability index reached a record high in December.

The Realtors group, whose pending sales data go back to January 2001, started publishing the index in March 2005. The gauge was up 2.1 percent from December 2007.

Pending resales are considered a leading indicator because they track contract signings. Closings, which typically occur a month or two later, are tallied in the Realtors’ monthly existing-home sales report. That report for January is scheduled to be released Feb. 25.

December Jump

Purchases of previously owned homes, which account for about 90 percent of the market, climbed 6.5 percent in December from the prior month as foreclosures helped drive median prices down 15 percent from a year earlier.

December sales of new homes, which account for the remainder, dropped to a record low, a report from the Commerce Department showed last week.

The Obama administration is considering giving government guarantees to mortgage holders that modify the terms of their loans to stem the record surge in foreclosures. The proposal, which may also have the taxpayer share in the cost of reducing mortgage payments, is aimed at shielding lenders from default after they loosen loan terms for struggling borrowers.

Lower mortgage rates are already making homes more affordable. The rate on a 30-year fixed mortgage averaged 5.33 percent in December, down from 6.09 percent the previous month, according to data from Freddie Mac.

Still, foreclosures continue to mount. Delinquency filings increased 41 percent in December from a year earlier, RealtyTrac Inc., a seller of default data, said last month.

Prices Drop

Average house prices have fallen by about a quarter from their peaks in mid-2006, according to the S&P/Case-Shiller home price index. Property values in 20 U.S. cities declined 18.2 percent in November from a year earlier, the fastest drop on record, according to a report last week.

The U.S. housing market lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes were worth, according to a report today from Zillow.com. The median estimated home price declined 11.6 percent in 2008 to $192,119 and homeowners lost $1.4 trillion in value in the fourth quarter alone, the Seattle-based real estate data service said.

The slow pace of sales is hurting homebuilders. Ryland Group Inc., based in Calabasas, California, reported its eighth straight quarterly loss on Jan. 28. October and November were “two of the slowest months I’ve ever experienced,” Chief Executive Officer R. Chad Dreier, who has been in the business almost 32 years, said on a conference call with analysts.

Cutting Costs

D.R. Horton Inc., the third-largest U.S. homebuilder by revenue, today reported its smallest loss in five quarters as costs and charges fell faster than revenue.

“Market conditions in the homebuilding industry continued to deteriorate during our first fiscal quarter,” Chairman Donald R. Horton said in the statement. “Rising foreclosures, high inventory levels of both new and existing homes, increasing unemployment, tight credit for homebuyers and eroding consumer confidence” were to blame, he said.

A majority of banks made it tougher for consumers and businesses to get credit in the past three months even as lenders received infusions of taxpayer funds, a Federal Reserve report showed yesterday.

The pain is reverberating beyond builders. DuPont Co., the third-biggest U.S. chemical maker, last week reported a fourth- quarter loss of $629 million.

Profit in the Wilmington, Delaware-based company’s safety and protection business fell 62 percent as sales declined for housing products such as Tyvek weather barrier and Corian countertops. DuPont said it will eliminate 8,000 contractor jobs, twice the target announced in December.

A report from the Commerce Department yesterday showed spending on U.S. private residential construction fell 3.2 percent in December after a 4.1 percent decline the previous month. Last year, spending on home building plummeted a record 27 percent.

U.S. Stocks Fluctuate as Merck, Schering Rise, Motorola Falls

Feb. 3 (Bloomberg) -- U.S. stocks drifted between gains and losses as better-than-estimated earnings at Merck & Co. and Schering-Plough Corp. offset disappointing results at Motorola Inc. and SanDisk Corp.

Merck climbed as much as 5.3 percent after savings from job cuts boosted profit, while Schering-Plough added 3.1 percent on earnings helped by cost reductions and added sales from an acquisition. Motorola, the second-biggest U.S. seller of mobile phones, tumbled 14 percent after suspending its dividend and forecasting a wider-than-estimated quarterly loss. SanDisk, the largest maker of memory cards for cameras, tumbled 22 percent.

The Standard & Poor’s 500 Index slipped less than 0.1 percent to 825.37 at 10:30 a.m. in New York after gaining as much as 0.6 percent. The Dow Jones Industrial Average added 5.73 points, or 0.1 percent, to 7,942.56. About four stocks retreated for every three that rose on the New York Stock Exchange.

“It’s the more defensive companies that are producing better earnings,” said Jonathan Armitage, head of U.S. large- cap equities at the American unit of Schroders, the U.K. manager of $259 billion. “Poorer numbers are coming from anything that’s remotely economically sensitive or cyclical.”

U.S. stocks declined for a third day yesterday after consumer spending slumped for a sixth straight month and companies from Mattel Inc. to Rockwell Automation Inc. posted lower-than-estimated profit. The S&P 500 has retraced more than half of its 24 percent rebound from an 11-year low of 752.44 on Nov. 21.

Stocks in Asia climbed today after governments from Japan to Australia widened efforts to revive economic growth. The MSCI Asia Pacific Index rose 0.5 percent. Europe’s Dow Jones Stoxx 600 Index added 0.7 percent.

Merck, Schering-Plough

Merck, the third-largest U.S. drugmaker, rose 77 cents to $29.20. Income excluding one-time items was 87 cents a share, beating the 74 cent average estimate of 13 analysts surveyed by Bloomberg. Sales fell 3.4 percent to $6.03 billion.

Schering-Plough gained 54 cents to $18.01. The maker of Vytorin and Zetia for cholesterol, for which it shares revenue with Merck, had fourth-quarter profit excluding one-time items of 39 cents a share, topping the 30 cent average estimate of 13 analysts surveyed by Bloomberg.

Earning Slump

Profits decreased 37 percent for the 237 companies in the S&P 500 that have released fourth-quarter results since Jan. 12. Last quarter is projected to mark the sixth straight period of decreasing profits, the longest streak on record.

Motorola slid 65 cents to $3.89 after forecasting it will lose at least 10 cents a share this quarter, excluding some costs. That trailed the 4-cent average of estimates compiled by Bloomberg. The prediction follows a $3.6 billion loss in the previous period amid weak consumer demand for devices such as the touch-screen Krave.

SanDisk slumped $2.47 to $8.81 after saying first-quarter sales will be as low as $475 million, or 25 percent less than the average analyst estimate in a Bloomberg survey.

Aflac Inc. climbed 1.3 percent to $23.32. The largest provider of supplemental insurance said it has sufficient capital after fourth-quarter profit fell 48 percent on investment losses tied to European lenders.

United Parcel Service Inc., the world’s largest package- delivery company, said U.S. volume plunged 3.9 percent in the fourth quarter, the biggest drop since 1999. UPS domestic volume typically mirrors the performance of the U.S. economy. The shares rose 5.4 percent to $44.70 after UPS said it’s freezing management salaries and suspending retirement contributions.

Worst January Losses

The S&P 500 and the Dow posted their worst January losses on record as companies reported disappointing earnings and the economy shrank at the fastest pace in 26 years.

Analysts now forecast a 32 percent drop in earnings for companies on the U.S. benchmark, after saying in March 2008 that net income would rise as much as 55 percent, according to Bloomberg data.

Anadarko Petroleum Corp. climbed 4.1 percent to $37.58. The largest independent U.S. oil and natural-gas producer said fourth-quarter net income more than tripled to $824 million.

Automakers may report a tumble in new vehicles sold today. An average of 30 analysts and economists surveyed by Bloomberg forecast a seasonally adjusted annualized rate of 10.2 million units. In October, the sales rate was 10.6 million, the lowest rate since February 1983, according to Autodata Corp. of Woodcliff Lake, New Jersey.

An Internet KGB for Europe

by Tudor Smirna

French political elites are pushing through, at home and abroad, the most unscrupulous law project on copyright: HADOPI, which stands for Haute Autorité pour la Diffusion des Œuvres et la Protection des droits sur Internet (high authority for the distribution of works and the protection of rights on the Internet).[1]

Its other names are "the three strike approach" or the Orwellian "Creation et Internet." State-capitalist Denis Olivennes, the former president of FNAC and head of the group appointed by French President Sarkozy to elaborate the HADOPI project, is highly recommending the spread of this KGB-style solution either to neighboring countries or directly to the European Union. (Europe's budding superstate is meeting some token nationalist resistance, so, for the time being, it is only agreeing to do things the French way when "state security" is threatened — whatever that means.)

However, it is naïve to think that this law will succeed at the national level and not eventually be included in the European Telecoms Package.

The project is supposed to replace an older law that stipulated a huge fine for copyright infringers. That law proved inefficient, since it required prosecution, defense of the accused, and a judge's decision — much too slow for the copyright police. Instead, HADOPI can act without any traditional legal ties. The High Authority abolishes private-property rights in a widespread a priori presumption of guilt against all users of the Internet. This is generalized aggression. However, the accused can try to avoid the "copyright crime" punishment by seeking a solution through the plodding judicial system of the same state that concocted the HADOPI project. Good luck!

Let's take a chilling look at the nascent High Authority.

The bill presented to the French senate gives the High Authority these duties:

The task of protecting works and objects subject to copyright or to any similar rights as regards the infringements of these rights committed on electronic communication networks used for the provision of online public communication services;

The task of observing the legal supply and illegal use of these works and objects on electronic communication networks used for the provision of online public communication services;

The task of regulating in the area of technical measures for the protection and identification of works and objects protected by copyright or other similar rights.[2]

A KGB for the Internet?

The broad powers that will be given to the High Authority have to be read to be believed. Here are a few examples:

In the exercise of its competence, the members of the college and of the Commission for the Protection of Rights shall receive no instruction from any other authority.

In order for the Commission for the Protection of Rights to exercise its competence, the High Authority shall have at its disposal public agents…

They may, for procedural necessity, obtain all documents, of any format, including data kept and processed by operators of electronic communications…

They may obtain from electronic communications operators the identity, postal address, electronic address and telephone numbers of the holder of the subscription […] without the consent of the bearers of the rights…[3]

How far down the road are sleep deprivation and waterboarding?

The bill's "Mode d'emploi" reveals that after a year of warnings — one e-mail and one snail mail — the High Authority will be unleashed: it is given the power either to suspend the subscriber's Internet service for three months and to ban the subscriber from contracting with any other Internet provider during that time, or to issue "an injunction to take measures to prevent the renewal of the established breach and to give account to the High Authority, where necessary upon penalty."[4]

Furthermore, although the subscriber no longer has Internet access, he is still responsible for paying for the service.[5]

In addition, the ISPs will bear the financial burden of enforcement, one way or another. First of all, they must ensure that no copyrighted material is distributed through their services. Does this mean that the ISPs are to check data packets, one by one, the same way the post office opens letters in wartime or under communism? But at what cost?

Then, if the Authority discovers a copyright "crime," the ISP will be notified about the punishment of one of their contractual parties and ordered to enforce the 3 month Internet suspension. If the ISP does not acquiesce, the Authority may "levy a financial penalty on the service provider of a maximum of € 5,000 per breach recorded."

Even more troubling is the fact that not all of the High Authority's powers are delineated by the bill so that other means of enforcement could be a surprise to everyone involved: "The High Authority shall establish the list of security means accepted as effective in preventing the breaches of obligation."[6]

History Will Teach Us Nothing — with Special Interests Around

The analysts of the present economic crisis are wondering whether we have learned anything from 1929. Or the 1970s. Or the 1990s. But what about 17th-century France?

In his Austrian Perspective on the History of Economic Thought, Murray N. Rothbard tells us of Louis XIV's assault on freedom and prosperity, shortly after the death of his famous finance minister, the wide-scale interventionist Jean-Baptiste Colbert:

More important in stunting France's industrial growth was the disastrous prohibition of the popular new cloth, printed calicoes. Cotton textiles were not yet of supreme importance in this era, but cottons were to be the spark of the Industrial Revolution in eighteenth century England. France's strictly enforced policy made sure that cottons would not be flourishing there.

The new cloth, printed calicoes, began to be imported from India in the 1660s, and became highly popular, useful for an inexpensive mass market, as well as for high fashion. As a result, calico printing was launched in France. By the 1680s, the indignant woollen, cloth, silk and linen industries all complained to the state of 'unfair competition' by the highly popular upstart. The printed colours were readily outcompeting the older cloths. And so the French state responded in 1686 by total prohibition of printed calicoes: their import or their domestic production. In 1700, the French government went all the way: an absolute ban on every aspect of calicoes including their use in consumption. Government spies had a hysterical field day: 'peering into coaches and private houses and reporting that the governess of the Marquis de Cormoy had been seen at her window clothed in calico of a white background with big red flowers, almost new, or that the wife of a lemonade-seller had been seen in her shop in a casquin of calico'.…

Literally thousands of Frenchmen died in the calico struggles, either being executed for wearing calicoes or in armed raids against calico-users. Calicoes were so popular, however, especially among French ladies, that the fight was eventually lost, even though the prohibition stayed on the books until the late eighteenth century. The smuggling of calicoes simply could not be stopped. But it was of course easier to enforce the prohibition against domestic calico manufacture than against the entire French consuming population, and so the result of the near-century of prohibition was to put a total stop to any domestic calico-printing industry in France. The calico entrepreneurs and skilled craftsmen, many of them Huguenots oppressed by the French state, emigrated to Holland and England, strengthening the calico industry in those countries.[7]

Let us now turn to the preamble of the HADOPI project: it declares that the new Internet era has finally arrived and that it is a wonderful opportunity for the dissemination of cultural works, "unprecedented since the invention of the printing press." But, if intellectual property rights are not respected, "never have the conditions for creating these works been so much under threat." Indeed,

the recorded music market has fallen by 50% in volume and in value during the last five years which is reflected by a serious impact both on employment in the production companies and on artistic creation and renewal, with the cancellation of many performers' contracts and a fall of 40% in the number of new performers "signed up" each year. Cinema and television are beginning to feel the first effects of this change in habits and books will probably quickly follow this trend.[8]

The similarities between 17th-century and present-day France are striking: Calico garments — copyrighted goods; strictly enforced policy — HADOPI law; government spies — the High Authority; French ladies — Internet downloaders; domestic calico manufacturing — domestic ISPs; calico entrepreneurs and skilled craftsmen — Internet entrepreneurs and skilled IT specialists; Holland and England — (Fill in the blank, please!)

Error and Aggression

In the case of 17th-century France, economic policies were justified by what we now call mercantilism. Rothbard argues that it was not an economic theory unto itself but only a set of fallacious pleas made by businessmen and their paid bureaucrats to get a bigger piece of the pie at the expense of neighbors, be they individuals or countries. Mercantilism was based on the idea that exchange is "zero sum": one party wins and the other loses. In fact, however, both parties gain from any peaceful exchange.

Regardless of its underlying ideas, the calico all-out ban was instrumental in protecting the less efficient members of an industry from those whose investments were not trapped in old technologies — those who stood ready to come to the profitable service of "French ladies," whose rights were also trampled upon in this process. The old industry wanted to put a stop to this new development, and Louis XIV's army of bureaucrats was set to the task.

In the case of the 21st-century hunt for downloaders, we have, instead of mercantalism, the underlying ideology of IP, the theory that "intellectual property" is akin to real property, and that the rightful owners are deprived of their rights by the masses at large — with the help of new information technology and the development of the Internet.

An international host of lawyers, rent seekers, and bureaucrats are working for the development and enforcement of IP laws. But they labor under the false assumption — as N. Stephan Kinsella shows — that there is a scarcity of ideas.[9]

Ideas are not scarce, and therefore cannot be the subject of property rights. To consider ideas to be property leads logically to actions that will affect the distribution of existing legitimate property. The error of IP, in other words, entails aggression. In fact, "anyone has the right to structure or format his property any way he wishes and this right cannot be severed from him by the way others choose to use their property."[10]

Again, irrespective of the underlying ideas, the download ban is instrumental in protecting the less efficient members of the intellectual and artistic industries at the expense of the entrepreneurs whose investments are not buried in old technologies, who can use the "information era" to obtain profits from their customers. And, of course, the rights of the end users are again trampled. Adapting to new technologies can prove expensive. It is much cheaper to "convince" politicians to pass laws that protect the old-fashioned way of doing business.

State capitalists are again playing the externalities card. After, all, who else is going to pay for the adventures of the High Authority if not the taxpayers, and who else is going to profit from its doubtful success if not the older industries?

Where previously we may have had, in the words of Kinsella, "factual ambivalence" on the consequential merits of IP laws in producing more wealth (intellectual or not), new studies show pure stagnation, deserving not ambivalence but censure.[11] In the case of downloads, the great hunt promises to cripple the Internet. And HADOPI is only one of the state's tentacles.

Tudor Smirna was a summer fellow of the Ludwig von Mises Institute in 2001

Monday, February 2, 2009

Iraq Is Obama's Mideast Pillar

As an Arab democracy, it's a model for what we would like the rest of the Arab world to become.

Imagine yourself as Barack Obama, gazing at a map of the greater Middle East and wondering how, and where, the United States can best make a fresh start in the region.

An Iraqi man holds up an ink-stained finger after casting his vote in Basra, Iraq's second-largest city, Jan. 31.

Your gaze wanders rightward to Pakistan, where preventing war with India, economic collapse or the Talibanization of half the country would be achievement enough. Next door is Afghanistan, where you are committing more troops, all so you can prop up a government that is by turns hapless and corrupt.

Next there is Iran, drawing ever closer to its bomb. You're mulling the shape of a grand bargain, but Israel is talking pre-emption. Speaking of Israel, you're girding for a contentious relationship with the hawkish Benjamin Netanyahu, the all-but certain next prime minister.

What about Israel's neighbors? Palestine is riven between feckless moderates and pitiless fanatics. Lebanon and Hezbollah are nearly synonyms. You'd love to nudge Syria out of Iran's orbit, but Bashar Assad isn't inclined. In Egypt, a succession crisis looms the moment its octogenarian president retires to his grave.

And then there is Iraq, the country in the middle that you would have just as soon banished from sight. How's it doing? Perplexingly well.

The final tallies for Saturday's provincial elections aren't in yet. But a few conclusions are warranted. This time, the election seems to have been mostly free of fraud; four years ago, it was beset by fraud. This time, there was almost no violence; four years ago, there were 299 terrorist attacks. This time, 40% of voters in the overwhelmingly Sunni province of Anbar went to the polls; four years ago, turnout was 2%.

In 2005, Iraqis voted their sectarian preferences. Now sectarian parties are out of fashion. "Those candidates who campaigned under the banner of religion should be rejected," Abdul Kareem told Al Jazeera. "They corrupted the name of religion because they are notorious for being thieves. Religion is not politics." Mr. Kareem is a Shiite cleric.

Also out of fashion: Iran, previously thought to be the jolly inheritor of our Iraq misadventure. In 2005, Tehran's political minions in the Iranian-funded Supreme Council for Islamic Revolution in Iraq -- itself the funder of the dreaded Badr brigade -- swept the field. Candidates loyal to anti-American fire-breather Moqtada al-Sadr also did well. This time, Sadr didn't even dare to field his own slate, and early reports are that the Supreme Council was trounced.

What's in fashion, electorally speaking, are secular parties, as well as the moderately religious Dawa Party of Prime Minister Nouri al-Maliki. This wasn't supposed to happen. The Palestinian parliamentary election of 2006 that put Hamas in power was taken in the West as proof that Arab democracy was destined to yield illiberal results. Saturday's election suggests otherwise, assuming there is a structure that guarantees that Islamists must stand for election more than once.

What about security? A month ago, Gen. Ray Odierno predicted that "al Qaeda will try to exploit the elections because they don't want them to happen. So I think they will attempt to create some violence and uncertainty in the population." But al Qaeda was a no-show on Saturday. Meanwhile, more U.S. soldiers died in accidents (12) than in combat (4) for the month of January. The war is over.

So what are you going to do about the one bright spot on your map -- an Arab country that is genuinely democratic, increasingly secular and secure, anti-Iranian and, all-in-all, on your side? So far, your only idea seems to bid to it good luck and bring most of the troops home in time for Super Bowl Sunday, 2010.

That's a campaign promise, but it isn't a foreign policy. Foreign policy begins with the recognition that Iraq has now moved from the liability side of the U.S. ledger to the asset side. As an Arab democracy, it is a model for what we would like the rest of the Arab world to become. As a Shiite democracy, it is a reproach to Iranian theocracy. As the country at the heart of the Middle East, it is ideally located to be a bulwark against Tehran's encroachments.

There was a time when American strategists understood the role countries could play as "pillars" of a regional strategy. Israel has been a pillar since at least 1967; Iran was one until 1979. Turkey, too, is a pillar, but it is fast slipping away, as is Egypt.

Within the Arab world, Iraq is the only country that can now fulfill that role. For that it will need military and economic aid, and lots of it. Better it than futile causes like Palestine, or missions impossible like winning over the mullahs. With Saturday's poll, Iraq has earned a powerful claim to our friendship.

Yes, you'd rather look elsewhere on the map for a Mideast legacy. But Iraq is where you'll find it. Don't miss your chance.

THE LIBERTARIAN

Tuesday, February 3, 2009

Obama names Gregg commerce secretary

McCain rallies supporters to oppose Obama spending

Daschle withdraws his nomination

Glenn Beck - Weeknights at 5p ET on the Fox News Channel

Neo-Socialism Down Under

Kevin Rudd reinvents a philosophy to justify bigger government.

From today's Wall Street Journal Asia.

Now Hiring: Lehman

As Bankrupt Firm Winds Down, Gigs There Are Hot Commodity

PETER LATTMAN

Then & Now

Then:

Now:

Nationalize This

The Fed's embrace is suffocating AIG.

Dodd's Peek-A-Boo Disclosure

The Senator's modified, limited mortgage hangout.

Swiss misses (and hits)

Our annual review of the moving and shaking at Davos

An Internet KGB for Europe

A KGB for the Internet?

History Will Teach Us Nothing — with Special Interests Around

Error and Aggression

Monday, February 2, 2009

Iraq Is Obama's Mideast Pillar

As an Arab democracy, it's a model for what we would like the rest of the Arab world to become.

No comments:

BLOG ARCHIVE

Tuesday, February 3, 2009

Obama names Gregg commerce secretary

McCain rallies supporters to oppose Obama spending

Daschle withdraws his nomination

Glenn Beck - Weeknights at 5p ET on the Fox News Channel

Neo-Socialism Down Under

Kevin Rudd reinvents a philosophy to justify bigger government.

From today's Wall Street Journal Asia.

Now Hiring: Lehman

As Bankrupt Firm Winds Down, Gigs There Are Hot Commodity

PETER LATTMAN

Then & Now

Then:

Now:

Life Inside Lehman Brothers

Nationalize This

The Fed's embrace is suffocating AIG.

Dodd's Peek-A-Boo Disclosure

The Senator's modified, limited mortgage hangout.

Swiss misses (and hits)

Our annual review of the moving and shaking at Davos

An Internet KGB for Europe

A KGB for the Internet?

History Will Teach Us Nothing — with Special Interests Around

Error and Aggression

Monday, February 2, 2009

Iraq Is Obama's Mideast Pillar

As an Arab democracy, it's a model for what we would like the rest of the Arab world to become.

No comments:

BLOG ARCHIVE