Thursday, August 16, 2007

The Foreign Policy Genius of Rudy: The Solution for Iran; Squack Like a Chicken

Tough talk... threatening to whip an enemy with a limp noodle. God, if I was the Iranian leadership, I'd be losing, you know, all bowel control -- from laughing my ass off.
“The theocrats ruling Iran need to understand that we can wield the stick as well as the carrot, by undermining popular support for their regime, damaging the Iranian economy, weakening Iran’s military, and, should all else fail, destroying its nuclear infrastructure,” [Rudy allegedly] wrote.
Link.

But being a fair and balanced outlet, here's the entire piece so you can see for yourself what Rudy might offer as Our Next Leader:
Toward a Realistic Peace
By Rudolph Giuliani

From Foreign Affairs, September/October 2007


Summary: The next U.S. president will face three key foreign policy challenges: setting a course for victory in the terrorists' war on global order, strengthening the international system the terrorists seek to destroy, and extending the system's benefits. With a stronger defense, a determined diplomacy, and greater U.S. economic and cultural influence, the next president can start to build a lasting, realistic peace.

Rudolph W. Giuliani, former Mayor of New York City, is a candidate for the Republican presidential nomination.

We are all members of the 9/11 generation.

The defining challenges of the twentieth century ended with the fall of the Berlin Wall. Full recognition of the first great challenge of the twenty-first century came with the attacks of September 11, 2001, even though Islamist terrorists had begun their assault on world order decades before. Confronted with an act of war on American soil, our old assumptions about conflict between nation-states fell away. Civilization itself, and the international system, had come under attack by a ruthless and radical Islamist enemy.

America and its allies have made progress since that terrible day. We have responded forcefully to the Terrorists' War on Us, abandoning a decadelong -- and counterproductive -- strategy of defensive reaction in favor of a vigorous offense. And we have set in motion changes to the international system that promise a safer and better world for generations to come.

But this war will be long, and we are still in its early stages. Much like at the beginning of the Cold War, we are at the dawn of a new era in global affairs, when old ideas have to be rethought and new ideas have to be devised to meet new challenges.

The next U.S. president will face three key foreign policy challenges. First and foremost will be to set a course for victory in the terrorists' war on global order. The second will be to strengthen the international system that the terrorists seek to destroy. The third will be to extend the benefits of the international system in an ever-widening arc of security and stability across the globe. The most effective means for achieving these goals are building a stronger defense, developing a determined diplomacy, and expanding our economic and cultural influence. Using all three, the next president can build the foundations of a lasting, realistic peace.

Achieving a realistic peace means balancing realism and idealism in our foreign policy. America is a nation that loves peace and hates war. At the core of all Americans is the belief that all human beings have certain inalienable rights that proceed from God but must be protected by the state. Americans believe that to the extent that nations recognize these rights within their own laws and customs, peace with them is achievable. To the extent that they do not, violence and disorder are much more likely. Preserving and extending American ideals must remain the goal of all U.S. policy, foreign and domestic. But unless we pursue our idealistic goals through realistic means, peace will not be achieved.

Idealism should define our ultimate goals; realism must help us recognize the road we must travel to achieve them. The world is a dangerous place. We cannot afford to indulge any illusions about the enemies we face. The Terrorists' War on Us was encouraged by unrealistic and inconsistent actions taken in response to terrorist attacks in the past. A realistic peace can only be achieved through strength.

A realistic peace is not a peace to be achieved by embracing the "realist" school of foreign policy thought. That doctrine defines America's interests too narrowly and avoids attempts to reform the international system according to our values. To rely solely on this type of realism would be to cede the advantage to our enemies in the complex war of ideas and ideals. It would also place too great a hope in the potential for diplomatic accommodation with hostile states. And it would exaggerate America's weaknesses and downplay America's strengths. Our economy is the strongest in the developed world. Our political system is far more stable than those of the world's rising economic giants. And the United States is the world's premier magnet for global talent and capital.

Still, the realist school offers some valuable insights, in particular its insistence on seeing the world as it is and on tempering our expectations of what American foreign policy can achieve. We cannot achieve peace by promising too much or indulging false hopes. This next decade can be a positive era for our country and the world so long as the next president realistically mobilizes the 9/11 generation for the momentous tasks ahead.

WINNING THE EARLY BATTLES OF THE LONG WAR

The first step toward a realistic peace is to be realistic about our enemies. They follow a violent ideology: radical Islamic fascism, which uses the mask of religion to further totalitarian goals and aims to destroy the existing international system. These enemies wear no uniform. They have no traditional military assets. They rule no states but can hide and operate in virtually any of them and are supported by some.

Above all, we must understand that our enemies are emboldened by signs of weakness. Radical Islamic terrorists attacked the World Trade Center in 1993, the Khobar Towers facility in Saudi Arabia in 1996, our embassies in Kenya and Tanzania in 1998, and the U.S.S. Cole in 2000. In some instances, we responded inadequately. In others, we failed to respond at all. Our retreat from Lebanon in 1983 and from Somalia in 1993 convinced them that our will was weak.

We must learn from these experiences for the long war that lies ahead. It is almost certain that U.S. troops will still be fighting in Iraq and Afghanistan when the next president takes office. The purpose of this fight must be to defeat the terrorists and the insurgents in Iraq and Afghanistan and to allow these countries to become members of the international system in good standing. We must be under no illusions that either Iraq or Afghanistan will quickly attain the levels of peace and security enjoyed in the developed world today. Our aim should be to help them build accountable, functioning governments that can serve the needs of their populations, reduce violence within their borders, and eliminate the export of terror. As violence decreases and security improves, more responsibility can and should be turned over to local security forces. But some U.S. forces will need to remain for some time in order to deter external threats.

We cannot predict when our efforts will be successful. But we can predict the consequences of failure: Afghanistan would revert to being a safe haven for terrorists, and Iraq would become another one -- larger, richer, and more strategically located. Parts of Iraq would undoubtedly fall under the sway of our enemies, particularly Iran, which would use its influence to direct even more terror at U.S. interests and U.S. allies than it does today. The balance of power in the Middle East would tip further toward terror, extremism, and repression. America's influence and prestige -- not just in the Middle East but around the world -- would be dealt a shattering blow. Our allies would conclude that we cannot back up our commitments with sustained action. Our enemies -- both terrorists and rogue states -- would be emboldened. They would see further opportunities to weaken the international state system that is the primary defense of civilization. Much as our enemies in the 1990s concluded from our inconsistent response to terrorism then, our enemies today would conclude that America's will is weak and the civilization we pledged to defend is tired. Failure would be an invitation for more war, in even more difficult and dangerous circumstances.

America must remember one of the lessons of the Vietnam War. Then, as now, we fought a war with the wrong strategy for several years. And then, as now, we corrected course and began to show real progress. Many historians today believe that by about 1972 we and our South Vietnamese partners had succeeded in defeating the Vietcong insurgency and in setting South Vietnam on a path to political self-sufficiency. But America then withdrew its support, allowing the communist North to conquer the South. The consequences were dire, and not only in Vietnam: numerous deaths in places such as the killing fields of Cambodia, a newly energized and expansionist Soviet Union, and a weaker America. The consequences of abandoning Iraq would be worse.

Our goal is to see in Iraq and Afghanistan the emergence of stable governments and societies that can act as our allies against the terrorists and not as breeding grounds for expanded terrorist activities. Succeeding in Iraq and Afghanistan is necessary but not sufficient. Ultimately, these are only two battlegrounds in a wider war. The United States must not rest until the al Qaeda network is destroyed and its leaders, from Osama bin Laden on down, are killed or captured. And the United States must not rest until the global terrorist movement and its ideology are defeated.

Much of that fight will take place in the shadows. It will be the work of intelligence operatives, paramilitary groups, and Special Operations forces. It will also require close relationships with other governments and local forces. The next U.S. president should direct our armed forces to emphasize such work, in part because local forces are best able to operate in their home countries and in part in order to reduce the strain on our own troops.

A STRONGER DEFENSE

For 15 years, the de facto policy of both Republicans and Democrats has been to ask the U.S. military to do increasingly more with increasingly less. The idea of a post-Cold War "peace dividend" was a serious mistake -- the product of wishful thinking and the opposite of true realism. As a result of taking this dividend, our military is too small to meet its current commitments or shoulder the burden of any additional challenges that might arise. We must rebuild a military force that can deter aggression and meet the wide variety of present and future challenges. When America appears bogged down and unready to face aggressors, it invites conflict.

The U.S. Army needs a minimum of ten new combat brigades. It may need more, but this is an appropriate baseline increase while we reevaluate our strategies and resources. We must also take a hard look at other requirements, especially in terms of submarines, modern long-range bombers, and in-flight refueling tankers. Rebuilding will not be cheap, but it is necessary. And the benefits will outweigh the costs.

The next U.S. president must also press ahead with building a national missile defense system. America can no longer rely on Cold War doctrines such as "mutual assured destruction" in the face of threats from hostile, unstable regimes. Nor can it ignore the possibility of nuclear blackmail. Rogue regimes that know they can threaten America, our allies, and our interests with ballistic missiles will behave more aggressively, including by increasing their support for terrorists. On the other hand, the knowledge that America and our allies could intercept and destroy incoming missiles would not only make blackmail less likely but also decrease the appeal of ballistic missile programs and so help to slow their development and proliferation. It is well within our capability to field a layered missile defense capable of shielding us from the arsenals of the world's most dangerous states. President George W. Bush deserves credit for changing America's course on this issue. But progress needs to be accelerated.

An even greater danger is the possibility of a terrorist attack on U.S. soil with a chemical, biological, radiological, or nuclear weapon. Every effort must be made to improve our intelligence capabilities and technological capacities to prevent this. Constellations of satellites that can watch arms factories everywhere around the globe, day and night, above- and belowground, combined with more robust human intelligence, must be part of America's arsenal. The laudable and effective Proliferation Security Initiative, a global effort to stop the shipment of weapons of mass destruction and related materials, should be expanded and strengthened. In particular, we must work to deter the development, transfer, or use of weapons of mass destruction. We must also develop the capability to prevent an attack -- including a clandestine attack -- by those who cannot be deterred. Rogue states must be prevented from handing nuclear materials to terrorist groups. Our enemies must know that they cannot murder our citizens with impunity and escape retaliation.

We must also develop detection systems to identify nuclear material that is being imported into the United States or developed by operatives inside the country. Heightened and more comprehensive security measures at our ports and borders must be enacted as rapidly as possible. And our national security agencies must work much more closely with our homeland security and law enforcement agencies. We must preserve the gains made by the U.S.A. Patriot Act and not unrealistically limit electronic surveillance or legal interrogation. Preventing a chemical, biological, radiological, or nuclear attack on our homeland must be the federal government's top priority. We must construct a technological and intelligence shield that is effective against all delivery methods.

Military victories are essential, but they are not enough. A lasting, realistic peace will be achieved when more effective diplomacy, combined with greater economic and cultural integration, helps the people of the Middle East understand that they have a stake in the success of the international system.

DETERMINED DIPLOMACY

To achieve a realistic peace, some of what we need to do can and must be accomplished through our own efforts. But much more requires international cooperation, and cooperation requires diplomacy.

In recent years, diplomacy has received a bad name, because of two opposing perspectives. One side denigrates diplomacy because it believes that negotiation is inseparable from accommodation and almost indistinguishable from surrender. The other seemingly believes that diplomacy can solve nearly all problems, even those involving people dedicated to our destruction. When such efforts fail, as they inevitably do, diplomacy itself is blamed, rather than the flawed approach that led to their failure.

America has been most successful as a world leader when it has used strength and diplomacy hand in hand. To achieve a realistic peace, U.S. diplomacy must be tightly linked to our other strengths: military, economic, and moral. Whom we choose to talk to is as important as what we say. Diplomacy should never be a tool that our enemies can manipulate to their advantage. Holding serious talks may be advisable even with our adversaries, but not with those bent on our destruction or those who cannot deliver on their agreements.

Iran is a case in point. The Islamic Republic has been determined to attack the international system throughout its entire existence: it took U.S. diplomats hostage in 1979 and seized British sailors in 2007 and during the decades in between supported terrorism and murder. But Tehran invokes the protections of the international system when doing so suits it, hiding behind the principle of sovereignty to stave off the consequences of its actions. This is not to say that talks with Iran cannot possibly work. They could -- but only if we came to the table in a position of strength, knowing what we wanted.

The next U.S. president should take inspiration from Ronald Reagan's actions during his summit with Soviet leader Mikhail Gorbachev in Reykjavík in 1986: he was open to the possibility of negotiations but ready to walk away if talking went nowhere. The lesson is never talk for the sake of talking and never accept a bad deal for the sake of making a deal. Those with whom we negotiate -- whether ally or adversary -- must know that America has other options. The theocrats ruling Iran need to understand that we can wield the stick as well as the carrot, by undermining popular support for their regime, damaging the Iranian economy, weakening Iran's military, and, should all else fail, destroying its nuclear infrastructure.

For diplomacy to succeed, the U.S. government must be united. Adversaries naturally exploit divisions. Members of Congress who talk directly to rogue regimes at cross-purposes with the White House are not practicing diplomacy; they are undermining it. The task of a president is not merely to set priorities but to ensure that they are pursued across the government. It is only when they are -- and when Washington can negotiate from a position of strength -- that negotiations will yield results. As President John F. Kennedy said in his inaugural address, "Let us never negotiate out of fear. But let us never fear to negotiate."

Another step in rebuilding a strong diplomacy will be to make changes in the State Department and the Foreign Service. The time has come to refine the diplomats' mission down to their core purpose: presenting U.S. policy to the rest of the world. Reforming the State Department is a matter not of changing its organizational chart -- although simplification is needed -- but of changing the way we practice diplomacy and the way we measure results. Our ambassadors must clearly understand and clearly advocate for U.S. policies and be judged on the results. Too many people denounce our country or our policies simply because they are confident that they will not hear any serious refutation from our representatives. The American ideals of freedom and democracy deserve stronger advocacy. And the era of cost-free anti-Americanism must end.

Since leaving the New York City mayor's office, I have traveled to 35 different countries. It is clear that we need to do a better job of explaining America's message and mission to the rest of the world, not by imposing our ideas on others but by appealing to their enlightened self-interest. To this end, the Voice of America program must be significantly strengthened and broadened. Its surrogate stations, such as Radio Free Europe and Radio Liberty, which were so effective at inspiring grass-roots dissidents during the Cold War, must be expanded as well. Our entire approach to public diplomacy and strategic communications must be upgraded and extended, with a greater focus on new media such as the Internet. We confront multifaceted challenges in the Middle East, the Pacific region, Africa, and Latin America. In all these places, effective communication can be a powerful way of advancing our interests. We will not shy away from any debate. And armed with honest advocacy, America will win the war of ideas.

STRENGTHENING THE INTERNATIONAL SYSTEM

The next U.S. president will share the world stage with a new generation of leaders, few of whom were in office when the attacks of 9/11 occurred but all of whom have been influenced by their impact. This will be a rare opportunity for American leadership to make the case that our common interest lies in defeating the terrorists and strengthening the international system.

Defeating the terrorists must be our principal priority in the near future, but we do not have the luxury of focusing on it to the exclusion of other goals. World events unfold whether the United States is engaged or not, and when we are not, they often unfold in ways that are against our interests. The art of managing a large enterprise is to multitask, and so U.S. foreign policy must always be multidimensional.

A primary goal for our diplomacy -- whether directed toward great powers, developing states, or international institutions -- must be to strengthen the international system, which most of the world has a direct interest in seeing function well. After all, the system helps keep the peace and provide prosperity. Some theorists say that it is outmoded and display either too much faith in globalization or assume that the age of the sovereign state is coming to a close. These views are naive. There is no realistic alternative to the sovereign state system. Transnational terrorists and other rogue actors have difficulty operating where the state system is strong, and they flourish where it is weak. This is the reason they try to exploit its weaknesses.

We should therefore work to strengthen the international system through America's relations with other great powers, both long established and rising. We should regard no great power as our inherent adversary. We should continue to fully engage with Europe, both in its collective capacity as the European Union and through our special relationship with the United Kingdom and our traditional diplomatic relations with France, Germany, Italy, and other western European nations. We highly value our ties with the states of central and eastern Europe and the Baltic and Balkan nations. Their experience of oppression under communism has made them steadfast allies and strong advocates of economic freedom.

America is grateful to NATO for the vital functions it is performing in Afghanistan and elsewhere. Yet NATO's role and character should be reexamined. For almost 60 years, it has been a vital bond connecting the United States and Europe. But its founding rationale dissolved with the end of the Cold War, and the alliance should be transformed to meet the challenges of this new century. NATO has already expanded to include former adversaries, taken on roles for which it was not originally conceived, and acted beyond its original theater. We should build on these successes and think more boldly and more globally. We should open the organization's membership to any state that meets basic standards of good governance, military readiness, and global responsibility, regardless of its location. The new NATO should dedicate itself to confronting significant threats to the international system, from territorial aggression to terrorism. I hope that NATO members will see the wisdom in such changes. NATO must change with the times, and its members must always match their rhetorical commitment with action and investment. In return, America can assure them that we will be there for them in times of crisis. They stood by America after 9/11, and America will never forget.

As important as America's Western alliances are, we must recognize that America will often be best served by turning also to its other friends, old and new. Much of America's future will be linked to the already established and still rising powers of Asia. These states share with us a clear commitment to economic growth, and they must be given at least as much attention as Europe. Our alliance with Japan, which has been strengthened considerably under this administration, is a rock of stability in Asia. South Korea has been a key to security in Northeast Asia and an important contributor to international peace. Australia, our distant but long-standing ally, continues to assume a greater role in world affairs and acts as a steadfast defender of international standards and security. U.S. cooperation with India on issues ranging from intelligence to naval patrols and civil nuclear power will serve as a pillar of security and prosperity in South Asia.

U.S. relations with China and Russia will remain complex for the foreseeable future. Americans have no wish to return to the tensions of the Cold War or to launch a new one. We must seek common ground without turning a blind eye to our differences with these two countries. Like America, they have a fundamental stake in the health of the international system. But too often, their governments act shortsightedly, undermining their long-term interest in international norms for the sake of near-term gains. Even as we work with these countries on economic and security issues, the U.S. government should not be silent about their unhelpful behavior or human rights abuses. Washington should also make clear that only if China and Russia move toward democracy, civil liberties, and an open and uncorrupted economy will they benefit from the vast possibilities available in the world today.

Our relationships with other American nations remain of primary importance. Canada and Mexico, our two closest neighbors, are our two largest trading partners. With them, we share a continent, a free-trade agreement, and a commitment to peace, prosperity, and freedom. Latin America faces a choice between the failures of the past and the hopes of the future. Some look to the governments of Bolivia and Venezuela, and their mentor in Cuba, and see an inevitable path to greater statism. But elections in Colombia, Mexico, and Peru show that the spirit of free-market reform is alive and well among our southern neighbors. Cuba has long stood out in Latin America, first as one of the region's most successful economies, later as its only communist police state. The death of Fidel Castro may begin a new chapter in Cuban history. But America should take nothing for granted. It must stand ready to help the Cuban people reclaim their liberty and resist any step that allows a decrepit, corrupt regime from consolidating its power under Raúl Castro. Only a commitment to free people and free markets will bring a prosperous future to Cuba and all of Latin America.

More people in the United States need to understand how helping Africa today will help increase peace and decency throughout the world tomorrow. The next president should continue the Bush administration's effort to help Africa overcome AIDS and malaria. The international community must also learn from the mistakes that allowed the genocide in Darfur to begin and have prevented the relevant international organizations from ending it. The world's commitment to end genocide has been sidestepped again and again. Ultimately, the most important thing we can do to help Africa is to increase trade with the continent. U.S. government aid is important, but aid not linked to reform perpetuates bad policies and poverty. It is better to give people a hand up than a handout.

Finally, we need to look realistically at America's relationship with the United Nations. The organization can be useful for some humanitarian and peacekeeping functions, but we should not expect much more of it. The UN has proved irrelevant to the resolution of almost every major dispute of the last 50 years. Worse, it has failed to combat terrorism and human rights abuses. It has not lived up to the great hopes that inspired its creation. Too often, it has been weak, indecisive, and outright corrupt. The UN's charter and the speeches of its members' leaders have meant little because its members' deeds have frequently fallen short. International law and institutions exist to serve peoples and nations, but many leaders act as if the reverse were true -- that is, as if institutions, not the ends to be achieved, were the important thing.

Despite the UN's flaws, however, the great objectives of humanity would become even more difficult to achieve without mechanisms for international discussion. History has shown that such institutions work best when the United States leads them. Yet we cannot take for granted that they will work forever and must be prepared to look to other tools.

EXTENDING THE INTERNATIONAL SYSTEM'S BENEFITS

Most of the problems in the world today arise from places where the state system is broken or has never functioned. Much of the Middle East, Africa, and Latin America remains mired in poverty, corruption, anarchy, and terror. But there is nothing inevitable about this. For all these troubled cases, there are many more success stories that deserve to be celebrated. The number of functioning democracies in the world has tripled since the 1970s. The poverty rate in the developing world has been cut by roughly one-third since the end of the Cold War. Millions of people have been liberated from oppression and fear. Progress is not only possible, it is real. And it must continue to be real.

America has a clear interest in helping to establish good governance throughout the world. Democracy is a noble ideal, and promoting it abroad is the right long-term goal of U.S. policy. But democracy cannot be achieved rapidly or sustained unless it is built on sound legal, institutional, and cultural foundations. It can only work if people have a reasonable degree of safety and security. Elections are necessary but not sufficient to establish genuine democracy. Aspiring dictators sometimes win elections, and elected leaders sometimes govern badly and threaten their neighbors. History demonstrates that democracy usually follows good governance, not the reverse. U.S. assistance can do much to set nations on the road to democracy, but we must be realistic about how much we can accomplish alone and how long it will take to achieve lasting progress.

The election of Hamas in the Palestinian-controlled territories is a case in point. The problem there is not the lack of statehood but corrupt and unaccountable governance. The Palestinian people need decent governance first, as a prerequisite for statehood. Too much emphasis has been placed on brokering negotiations between the Israelis and the Palestinians -- negotiations that bring up the same issues again and again. It is not in the interest of the United States, at a time when it is being threatened by Islamist terrorists, to assist the creation of another state that will support terrorism. Palestinian statehood will have to be earned through sustained good governance, a clear commitment to fighting terrorism, and a willingness to live in peace with Israel. America's commitment to Israel's security is a permanent feature of our foreign policy.

The next president must champion human rights and speak out when they are violated. America should continue to use its influence to bring attention to individual abuses and use a full range of inducements and pressures to try to end them. Securing the rights of men, women, and children everywhere should be a core commitment of any country that counts itself as part of the civilized world. Whether with friends, allies, or adversaries, democracy will always be an issue in our relations and part of the conversation. And so the better a country's record on good governance, human rights, and democratic development, the better its relations with the United States will be. Those countries that want our help in moving toward these ideals will have it.

USING ECONOMIC AND CULTURAL INFLUENCE

Economic development and engagement are proven, if not fail-safe, engines for successfully moving countries into the international system. America's robust domestic economy is one of its greatest strengths. Other nations have found that following the U.S. model -- with low taxes, sensible regulations, protections for private property, and free trade -- brings not only national wealth but also national strength. These principles are not ascendant everywhere, but never has it been clearer that they work.

Ever more open trade throughout the world is essential. Bilateral and regional free-trade agreements are often positive for all involved, but we must not allow them to become special arrangements that undermine a truly global trading system. Foreign aid can help overcome specific problems, but it does not lead to lasting prosperity because it cannot replace trade. Private direct investment is the best way to promote economic development. The next U.S. president should thus revitalize and streamline all U.S. foreign-aid activities to support -- not substitute for -- private investment in other countries.

Our cultural and commercial influence can also have a positive impact. They did during the Cold War. The steadfast leadership of President Reagan, working alongside British Prime Minister Margaret Thatcher and Pope John Paul II, helped the Soviet Union understand that it could not bully the West into submission. Although such leadership was essential, alone it might not have toppled the Soviet Union in the time that it did. But it was effective because it came with Western economic investment and cultural influence that inspired people in the Soviet Union and the Warsaw Pact countries. Companies such as Pepsi, Coca-Cola, McDonald's, and Levi's helped win the Cold War by entering the Soviet market. Cultural events, such as Van Cliburn's concerts in the Soviet Union and Mstislav Rostropovich's in the United States, also hastened change.

Today, we need a similar type of exchange with the Muslim countries that we hope to plug into the global economy. Jordan, Kuwait, Qatar, and the United Arab Emirates are pointing the way by starting to interpret Islam in ways that respect the distinctiveness of their local cultures but are consistent with the global marketplace. Some of these states have coeducational schools, allow women to serve in government, and count shopping malls that sell Western and Arab goods side by side. Their leaders recognize that modernization is their ticket to the global marketplace. And the global marketplace can build bridges between the West and the Islamic world in a way that promotes mutual respect and mutual benefit.

Economic investment and cultural influence work best where civil society already exists. But sometimes America will be compelled to act in those parts of the world where few institutions function properly -- those zones that lack not only good governance but any governance -- and in states teetering on the edge of conflict or recovering from it. Faced with a choice between leaving a troubled zone to anarchy or helping build functioning civil societies with accountable governments that can serve as bulwarks against barbarism, the American people will choose the latter.

To assist these missions, the next U.S. president should restructure and coordinate all the agencies involved in that process. A hybrid military-civilian organization -- a Stabilization and Reconstruction Corps staffed by specially trained military and civilian reservists -- must be developed. The agency would undertake tasks such as building roads, sewers, and schools; advising on legal reform; and restoring local currencies. The United States did similar work, and with great success, in Germany, Japan, and Italy after World War II. But even with the rich civic traditions in these nations, the process took a number of years. We must learn from our past if we want to win the peace as well as the war.

PRINCIPLED STRENGTH

Civilization must stand up and combat the current collapse of governance, the rise of violence, and the spread of chaos and fear in many parts of the world. To turn back this tide of terror and defeat the violent forces of disorder wherever they appear, America must play an even more active role to strengthen the international state system.

In this decade, for the first time in human history, half of the world's population will live in cities. I know from personal experience that when security is reliably established in a troubled part of a city, normal life rapidly reestablishes itself: shops open, people move back in, children start playing ball on the sidewalks again, and soon a decent and law-abiding community returns to life. The same is true in world affairs. Disorder in the world's bad neighborhoods tends to spread. Tolerating bad behavior breeds more bad behavior. But concerted action to uphold international standards will help peoples, economies, and states to thrive. Civil society can triumph over chaos if it is backed by determined action.

After the attacks of 9/11, President Bush put America on the offensive against terrorists, orchestrating the most fundamental change in U.S. strategy since President Harry Truman reoriented American foreign and defense policy at the outset of the Cold War. But times and challenges change, and our nation must be flexible. President Dwight Eisenhower and his successors accepted Truman's framework, but they corrected course to fit the specific challenges of their own times. America's next president must also craft polices to fit the needs of the decade ahead, even as the nation stays on the offensive against the terrorist threat.

The 9/11 generation has learned from the history of the twentieth century that America must not turn a blind eye to gathering storms. We must base our trust on the actions, rather than the words, of others. And we must be on guard against overpromising and underdelivering. Above all, we have learned that evil must be confronted -- not appeased -- because only principled strength can lead to a realistic peace.

Link.

With Allies Like These, Who Needs Enemies

It's true; Our Leaders are succeeding in reforming the Middle East.

Just not in any way that makes it safer, reduces terrorism, or helps our allies.
Iran's president, Mahmoud Ahmadinejad, signalled his determination to counter US global power yesterday by meeting his Afghan counterpart, Hamid Karzai, in a demonstration of growing Iranian influence in Afghanistan.The visit - Mr Ahmadinejad's first to Afghanistan, where the US, Britain and other western powers are engaged in a bitter struggle with the Taliban - is certain to alarm the Bush administration, which accuses Tehran of destabilising its efforts and claims the Taliban is being armed with Iranian weapons. * *

* * *

The trip came just a week after Mr Karzai, a key US ally, clashed publicly with President Bush about the nature of Iran's involvement. Addressing a joint White House press conference last week, Mr Bush said: "I would be very cautious about whether or not the Iranian influence in Afghanistan is a positive force." Mr Karzai flatly contradicted him by describing Iran as "a helper and a solution".
Way more here.

Scary Stuff: Maybe the End Really is Coming

Over the longer term, the ability to expand credit without a monetary constraint has sustained both the U.S. economy and financial markets. We are now witnessing what it means to have that flow of credit stanched to the mortgage market. For the equity market, it removes a major prop under prices; that is, the ability to arbitrage cheap credit versus equity, or in simpler terms to borrow on the cheap to buy stocks. Without those financial steroids, equities have folded like Mark McGwire in front of a Congressional committee.

But more important are the implications for the nation as a whole.

"The Roman Republic fell for many reasons, but three reasons are worth remembering: declining moral values and political civility at home, an overconfident and overextended military in foreign lands, and fiscal irresponsibility by the central government," says David Walker, the head of the Government Accountability Office, in a recent speech. "Sound familiar? In my view, it's time to learn from history and take steps the American Republic is the first to stand the test of time."
Link.
So they argued that P/E ratios should not be based on only one year’s worth of earnings. It is much better, they wrote in “Security Analysis,” to look at profits for “not less than five years, preferably seven or ten years.”

This advice has been largely lost to history. For one thing, collecting a decade’s worth of earnings data can be time consuming. It also seems a little strange to look so far into the past when your goal is to predict future returns.

But at least two economists have remembered the advice. For years, John Y. Campbell and Robert J. Shiller have been calculating long-term P/E ratios. When they were invited to a make a presentation to Alan Greenspan in 1996, they used the statistic to argue that stocks were badly overvalued. A few days later, Mr. Greenspan touched off a brief worldwide sell-off by wondering aloud whether “irrational exuberance” was infecting the markets. In 2000, not long before the market began its real swoon, Mr. Shiller published a book that used Mr. Greenspan’s phrase as its title.

Today, the Graham-Dodd approach produces a very different picture from the one that Wall Street has been offering. Based on average profits over the last 10 years, the P/E ratio has been hovering around 27 recently. That’s higher than it has been at any other point over the last 130 years, save the great bubbles of the 1920s and the 1990s. The stock run-up of the 1990s was so big, in other words, that the market may still not have fully worked it off.

Now, this one statistic does not mean that a bear market is inevitable. But it does offer a good framework for thinking about stocks.

Over the last few years, corporate profits have soared. Economies around the world have been growing, new technologies have made companies more efficient and for a variety of reasons — globalization and automation chief among them — workers have not been able to demand big pay increases. In just three years, from 2003 to 2006, inflation-adjusted corporate profits jumped more than 30 percent, according to the Commerce Department. This profit boom has allowed standard, one-year P/E ratios to remain fairly low.

Going forward, one possibility is that the boom will continue. In this case, the Graham-Dodd P/E ratio doesn’t really matter. It is capturing a reality that no longer exists, and stocks could do well over the next few years.

The other possibility is that the boom will prove fleeting. Perhaps the recent productivity gains will peter out (as some measures suggest is already happening). Or perhaps the world’s major economies will slump in the next few years. If something along these lines happens, stocks may suddenly start to look very expensive.

Link.

Salon's Beltway Insider Hack Aptitude Test

Get out from behind that computer! Stop whining about the news! You -- yes, you! -- can go on the road and be a campaign reporter! But first you must pass the ACTAT -- the Advanced Campaign Trail Aptitude Test.

For the first time, Salon is bringing the secret standardized mainstream-media test to the public, publishing the actual* questions reporters must answer correctly before they can travel with any candidate. This is not a basic news quiz. This is the real deal.* It's hard.

How to take the test: Number a piece of paper 1 to 30, and take the test. Check your answers against the answer key on Page 3. If you get only five to 10 questions right, you qualify as a well-informed citizen. If you get more than 15 right, you may be focusing too much time on politics and not enough on your family. If you get every question right, you can have my job.*

*Just kidding.

1. What new high-tech device has John Edwards campaign manager Joe Trippi been showing off on the campaign trail in recent weeks?

A. The SCRAM, an alcohol detection anklet made famous by Lindsay Lohan
B. The SatTime 500, a digital watch that displays the GPS location of Sen. Edwards
C. The BlackBerry Pearl
D. The iPhone
E. The Sony VAIO VGN-UX280P, a 6- by-4-inch laptop
2. On the day he announced his presidential campaign, Joe Biden got in trouble for:

A. Saying he doesn't like the taste of corn
B. Texting a congressional page
C. Pledging to bomb Pakistan to kill Osama bin Laden
D. Calling Barack Obama "clean" and "articulate"
E. Confusing Sunnis with Shiites
3. According to the Washington Post, former John McCain campaign manager Terry Nelson had which cinematic sound clip playing on his computer in the weeks before he resigned from the campaign?

A. "Nobody puts baby in a corner." -- Johnny Castle from "Dirty Dancing"
B. "Where's the fucking money?" -- The Dude from "The Big Lebowski"
C. "Mr. Corleone never asks a second favor once he's refused the first, understood?" -- Tom Hagen from "The Godfather"
D. "The horror ... The horror." -- Col. Walter E. Kurtz from "Apocalypse Now"
E. "You can't handle the truth." -- Col. Nathan R. Jessep from "A Few Good Men"
4. "Kum & Go" is:

A. A prophylactic sold primarily in South Carolina
B. A famous ice cream parlor in Manchester, N.H.
C. A gas station chain in Iowa
D. John McCain's strategy for winning the Iowa caucuses
E. (Insert Bill Clinton joke here)
5. In early August 2003, which Democratic candidate led his rivals in national presidential primary polls?

A. John Kerry
B. Howard Dean
C. John Edwards
D. Joe Lieberman
E. Richard Gephardt
6. The last time Mike Gravel held public office, the president was:

A. Jimmy Carter
B. Ronald Reagan
C. George H. W. Bush
D. Bill Clinton
E. Warren G. Harding
7. Ingrid Newkirk, the president of People for the Ethical Treatment of Animals, is mad at Mitt Romney because he:

A. Drowned a bag of kittens in a Michigan river when he was 11 years old
B. Invested in a company that demonstrated surgical products on live dogs
C. Put his dog, Seamus, on his station wagon roof rack during a family vacation
D. Deliberately mocks dolphins on the campaign trail
E. Often hunts wild boar in Texas with an automatic rifle
8. Which two 2008 presidential candidates were behind-the- scenes players in the Watergate scandal that brought down Richard Nixon? (Pick two)

A. Duncan Hunter
B. Chris Dodd
C. Hillary Clinton
D. Joe Biden
E. Fred Thompson
F. Ron Paul
G. Sam Brownback
H. Barack Obama
9. When he announced his resignation from the White House, Bush advisor Karl Rove called Hillary Clinton a:

A. "Talented, treacherous, markedly wicked candidate"
B. "Brilliant, bodacious, deeply dishonest candidate"
C. "Solid, soulful, truly underestimated candidate"
D. "Masterful, maniacal, totally unstoppable candidate"
E. "Tough, tenacious, fatally flawed candidate"
10. As of Wednesday, the South Carolina primary will be held on:

A. Jan. 1
B. Jan. 20
C. Dec. 24
D. Dec. 16
E. It's a trick question, since Democrats have scheduled the primary for Jan. 29 and Republicans for Jan. 19
Match each of the following stump speech passages with the candidate who uttered it.

11. "All for Jesus. All for Jesus. All for Jesus. All for Jesus."

12. "There is this narrow window. It doesn't come around that often -- maybe once a generation -- where we have the opportunity to put our shoulder against the wheel and move history in a better direction."

13. "We came to power in 1994 to change government and government changed us."

14. "I'm no superman. What I've learned by managing things is the key is bringing good people together."

15. "I am committed to doing what we must in the 21st century to not just reassert America's moral authority and leadership, but to come up with innovative solutions to deal with the problems we face, because we cannot do it alone."

A. John McCain
B. Mitt Romney
C. Sam Brownback
D. Barack Obama
E. Hillary Clinton
16. What must-read campaign blog has Hillary Clinton communications director Howard Wolfson called the "new purveyor of conventional wisdom"?

A. The Drudge Report
B. Marc Ambinder at the Atlantic
C. Ben Smith at the Politico
D. Chris Cillizza at the Washington Post
E. Teagan Goddard's Political Wire
17. Which of Mitt Romney's five sons says "Braveheart" is a favorite movie, says "my dad" is his hero, enjoys water-skiing, snow skiing and reading, and recently visited each of Iowa's 99 counties in an R.V.?

A. Tagg
B. Matt
C. Ben
D. Josh
E. Craig
18. Flip Romney is:

A. The sixth Romney son, who is gay
B. The nickname for Mitt Romney, given by his wife, Ann, after he made the whole family pancakes
C. A talking dolphin who shows up at campaign events
D. The nickname for Romney's favorite granddaughter, who is a gymnast
E. The dance move Romney breaks out after eating fried Twinkies on a stick
19. Which of the following is not the name of a city or town in Iowa?

A. Oak Bluffs, home of the 400-pound wax ball
B. Oskaloosa, "The Place to Stop, Shop, Play, Stay"
C. Ottumwa, former home of the Ottumwa Box Car Loader Co.
D. Osage, former home of 19th century author Hamlin Garland
E. Oelwein, former site of the Chicago Great Western Railway repair shop
Match each of the following passages of canonical campaign reportage to its author:

20. "For years I've regarded [Richard Nixon's] very existence as a monument to all the rancid genes and broken chromosomes that corrupt the possibilities of the American Dream; he was a foul caricature of himself, a man with no soul, no inner convictions, with the integrity of a hyena and the style of a poison toad."

21. "It occurred to me during the summer of 1988, in California and Atlanta and New Orleans, in the course of watching first the California primary and then the Democratic and Republican national conventions, that it had not been by accident that the people with whom I had preferred to spend time in high school had, on the whole, hung out in gas stations."

22. "People are unpredictable by nature, and although you can take a nation's pulse, you can't be sure that the nation hasn't just run up a flight of stairs, and although you can take a nation's blood pressure, you can't be sure that if you came back in twenty minutes you'd get the same reading. This is a damn fine thing."

23. "The likeliest reason why so many of us care so little about politics is that modern politicians make us sad, hurt us deep down in ways that are hard even to name, much less talk about. It's way easier to roll your eyes and not give a shit. You probably don't want to hear about all this, even."

24. Warren G. Harding "writes the worst English I have ever encountered. It reminds me of a string of wet sponges; it reminds me of tattered washing on the line; it reminds me of stale bean-soup, of college yells, of dogs barking idiotically through endless nights."

A. H.L. Mencken
B. Hunter Thompson
C. E.B. White
D. Joan Didion
E. David Foster Wallace
25. Former presidential candidate Tommy Thompson sometimes traveled with a motorcycle gang of supporters who wore black T-shirts embossed with what slogan?

A. "One of our own"
B. "Open road to the White House"
C. "Tommy Thompson: The legend rolls on"
D. "Tommy Thompson: He's got the chopper"
E. "Eat my rubber, Brownback"
26. Which senior campaign official is so afraid of flying that he regularly drives to events as far away as Iowa?

A. Rick Davis, campaign manager for John McCain
B. Ben Ginsberg, campaign attorney for Mitt Romney
C. Howard Wolfson, communications director for Hillary Clinton
D. David Axelrod, chief political advisor for Barack Obama
E. Rob Wasinger, campaign manager for Sam Brownback
27. Which presidential candidate brought an Elvis impersonator from Texas to perform for voters at the Republican Iowa straw poll?

A. Tommy "Spinout" Thompson
B. John "Roustabout" Cox
C. Duncan "GI Blues" Hunter
D. Ron "Follow That Dream" Paul
E. Mike "Love Me Tender" Huckabee
28. Why has Rudy Giuliani been photographed repeatedly while dressed as a woman?

A. As mayor of New York, he wanted the Greenwich Village vote
B. It was Halloween
C. He was performing on "Saturday Night Live" and for charity dinners
D. It made New York safer E. He just adores haute couture
29. In his 1995 memoir, "Dreams of My Father," Barack Obama admits to:

A. Subscribing to Playboy
B. Changing his middle name from Jefferson to Hussein
C. Knowing all the words to "Sweet Child o' Mine"
D. Embellishing his résumé to get into Harvard Law School
E. Trying marijuana and cocaine
Extra credit (because no one can be expected to get it right):

30. Romney's traveling press secretary is a former statehouse bureau chief for the Boston Herald named Eric ...

A. Fehrnstrom
B. Fernstrom
C. Fernshtrom
D. Fernsthrum
E. Ferhnhstrom
Answers are on Page 3.

Here's how to score your answers:

0-5 correct. Cub. Give it a few years. You are not yet ready for the trail.

6-15 correct. Up-and-comer. Occasional campaign bus rides allowed.

16-25 correct. Trail ready. Head for the Iowa State Fair.

26-30 correct. Top-tier pencil. You are in a select group. Go scoop the New York Times.

1. D -- iPhone

2. D -- Clean, articulate

3. B -- Lebowski

4. C -- Gas station

5. D -- Lieberman

6. A -- Carter

7. C -- Dog on roof

8. C and E -- Clinton and Thompson

9. E -- Fatally flawed

10. E -- Trick question

11. C -- Brownback

12. D -- Obama

13. A -- McCain

14. B -- Romney

15. E -- Clinton

16. B -- Ambinder, though this fact has not been previously reported

17. D -- Josh

18. C -- Talking dolphin

19. A -- Oak Bluffs

20. B -- Thompson

21. D -- Didion

22. C -- White

23. E -- Wallace

24. A -- Mencken

25. A -- One of our own

26. C -- Wolfson

27. C -- Duncan Hunter

28. C -- "SNL" and charity dinners

29. E -- Marijuana and cocaine

30. A -- Fehrnstrom, go figure
Link and links.

The Greatness of Our Beloved Leader Does Not Diminish as His Term Nears its End

Our Beloved Leader always kept his priorities straight, always knew what was important: Vacation over all other matters.
What happened Tuesday in Crawford, Texas: "What the president loves to do when he's at his ranch is to spend time outdoors," White House spokeswoman Dana Perino said. "And I know today that they were maybe going to do some trail building, some bike-trail building that they do out there, so that they can then mountain bike. And I wouldn't be surprised if the president got in some fishing, as well as some time with his wife, Laura, Mrs. Bush, and maybe other family and friends ... And I would expect that [later in the week] there would be some brush cutting to do, although it is 107 degrees, so I don't know how many people are going to be able to stand it. The president, obviously, likes the heat, so maybe everyone else is just going to have to suffer through it."

What happened Tuesday in Iraq: Four suicide bombers drove trucks into Qahataniya, a town 75 miles west of Mosul, and blew themselves up almost simultaneously. The Associated Press reports that at least 200 people were killed and 300 more people were wounded.
Link.

News from the Future

News from the Future -- Read it now, then again after it happens:
Gen. David Petraeus' September report on the success of the "surge"? As Think Progress notes, Bush administration officials are telling the Los Angeles Times that it will "actually be written by the White House, with inputs from officials throughout the government."

Wednesday, August 15, 2007

Why Rudy Deserves to be Our Next Leader

He can be even worse than what we suffered the last eight years.

The Hypocricy of Our Primary Leader

Invading Iraq was a lousy idea in 1994. What changed? Leadership of the cohort of the insane.

Hey! Another Dirty Post: Sad or Depressing?

Or maybe just a little bit, you know, maybe just a little bit of a turn on, or maybe funny?

I dunno, you decide --

Here
.

More About Rove; Gone but not Gone

As I hypothesized in my recent farewell-to-Rove post, really, just how gone is he going to be? And being a beloved Republican, if he works on an informal, reduced level, the GOPers do take care of their own.

Anyway, one pro opines, seconding this amateur:
Karl Rove told reporters Monday that he doesn't anticipate taking a "formal role" in the campaign of any Republican contender in 2008. His reason: He said his wife might kill him if he did.

But there's another reason, and it should be obvious to anyone familiar with the way Americans -- even Republicans -- have come to view the Bush administration. As Adam Nagourney writes in today's New York Times, campaign aides for the 2008 Republican contenders responded with "silence" Monday when asked if Rove would be welcome to join their teams.

Of course, Rove doesn't have to take a "formal" role in any Republican campaign to make his mark on it. As Nagourney notes, "A look at the roster of every Republican presidential candidate finds people who have worked with [Rove], and they have brought some of his methods to this race." Rove's protégés and the men for whom they work would surely be happy to have the help of the man who put George W. Bush in the White House twice, just as long as no one sees them getting it.

Rove said Monday that he'll never be more than a phone call away. He said he'd be "happy" to offer his opinion to his "friends" in the 2008 campaign because he's an "opinionated person" and would like to see a Republican win.
Link.

This is, after all, the way the world works, just that simple.

On the other hand, one wonders: Is he a rat deserting a sinking ship, as it were?
If Karl Rove was responsible for the remarkable ascent of the Republican Party since 2000, he is equally responsible for what is beginning to look like its vertical collapse. With the Christian right deeply disappointed at Bush and in search of a candidate for the 2008 election, economic conservatives alienated by the White House's failure to impose fiscal discipline on the Congress when the Republicans were in charge of both houses, and congressional Republicans caught in the undertow of a failing president's failed war, the party Rove predicted would become a permanent majority is no more. Rove could put the party together, but in the end he proved incapable of holding it together.
Then, getting back to my original point, if Rove is to be any sort of player in the 08 cycle, he can't really do it out of the White House, particularly at this time....

And of course there's way more:

Jay Rosen on how the Washington press corps (or corpse as we like to reference them since their journalistic sensibilities are dead) got played by Maestro Rove.

Test your knowledge of Rove trivia
.

Really, Rove some sort of failure? (I think not but let me get back to you on that sometime after the next election....)

What does John Edwards have to say about this? (Not a lot, just concise.)

And not that there's anything funnt bout the harm Rove did to this country, but let's end this post with a laff via Top5.

Tuesday, August 14, 2007

You Stayed too Late, But at Least You're Finally Going; Rove's Greatest Hits

Ooops! The WarRoom forgot all his scummy "tactics"...!
The outing of Valerie Plame: Rove leaked the identity of CIA operative Valerie Plame to Robert Novak and to Matthew Cooper in the summer of 2003. For as long as it could -- or as long as it needed to -- the White House adamantly denied that Rove was involved in Plame's outing. White House press secretary Scott McClellan said in September 2003 that "the president knows" that Rove wasn't involved and that it was "ridiculous" to suggest that he was. In October 2003, McClellan said he had spoken with Rove and Scooter Libby and that they had "assured" him that they were "not involved in this." Rove himself was cagey: "I didn't know her name. I didn't leak her name," he told ABC early on, a formulation he repeated for Larry King at the Republican National Convention in August 2004. Only after Bush was reelected in 2004 did we learn the truth: Rove had, in fact, been "involved." And while he may not have leaked Plame's "name," he confirmed for both Novak and Cooper that ambassador Joseph Wilson's wife worked for the CIA. Asked about the revelation that Rove had, in fact, been involved, Bush said in June 2006: "I trust Karl Rove."

Karl Rove and Patrick Fitzgerald: When Rove first sat down with FBI agents investigating Plame's outing, he somehow forgot to mention that he had revealed Plame's identity to Matthew Cooper. He somehow forgot to mention it a second time when he first testified before Patrick Fitzgerald's grand jury. Four visits to the grand jury room later, Rove somehow managed to avoid the perjury, false statement and obstruction of justice charges Scooter Libby ultimately faced. In his opening statement at Libby's trial, Libby defense attorney Ted Wells argued that the White House had tried to make Libby take the fall for outing Plame because Rove "had to be protected." After Libby was convicted, a puzzled juror asked, "What are we doing with this guy here? Where's Rove?"

Rove and the U.S. attorneys purge: We don't know the extent of Rove's role in the decision to fire a slew of U.S. attorneys last year, in part because the president has used claims of executive privilege to block those who do know -- including Rove -- from responding to congressional subpoenas, in part because the Republican National Committee hasn't turned over e-mail messages Rove sent via a private RNC account, and in part because Rove reportedly continued to delete such e-mails even after he was told not to. Among the things we do know: White House press secretary Tony Snow said the notion of firing all 93 U.S. attorneys had been Harriet Miers' idea and "her idea only." Confronted on March 15, 2007, with an e-mail message suggesting that Rove had advocated the idea, Snow said that Rove had actually opposed the idea. One day later, Snow retreated completely: "It has been described as [Miers'] idea," he said, "but I don't want to try to vouch for origination. At this juncture, people have hazy memories."

Rove and Jack Abramoff: Rove has claimed that convicted GOP lobbyist Jack Abramoff was just a "casual acquaintance." The House Committee on Oversight and Government Reform subsequently identified 82 contacts between Abramoff's team and Rove's office, including a series of communications in which Abramoff set Rove up with tickets to watch the NCAA basketball tournament from his skybox at what was then known as the MCI Center in Washington.

Rove and terrorism: In June 2005, Rove did publicly what he'd so often accomplished more privately: He painted Democrats as terrorist sympathizers. "Conservatives saw the savagery of 9/11 in the attacks and prepared for war," Rove said in a speech in Manhattan. "Liberals saw the savagery of the 9/11 attacks and wanted to prepare indictments and offer therapy and understanding for our attackers." Rove -- whose boss, at this point, has sent 3,689 U.S. soldiers to their deaths in Iraq -- argued that comments Sen. Dick Durbin had just made about Guantánamo Bay were "putting our troops in greater danger," then added: "No more needs to be said about the motives of liberals."

Rove and the long view of history: Earlier this year, Rove told the Washington Post that the disaster called Iraq notwithstanding, the "Bush doctrine" of preemptive war will go down as the president's biggest legacy. "It has a logic of force and nature and reality that will cause people to examine it, adjust it, test it, resist it -- but ultimately embrace it."

Rove and his own legacy: "I'm a myth," Rove says as he prepares to step down. "There's the 'Mark of Rove.' I read about some of the things I'm supposed to have done, and I have to try not to laugh."
Link.

Meanwhile, even without Rupert's people actually in charge, the Journal swoons from the vapors....
Karl Rove's departure from the White House leaves Republicans without their best strategist in a generation, raising the question of whether the party next year will continue his hardball strategy of playing to the conservative base and picking off just enough independent voters to win elections.
There are in fact scumbags all over, waiting to fill Rove's shoes, I'm sure. Like Lee Atwater's illness then death was the end of an era -- til protege Rove got his chance to shine.
'For President Bush, Mr. Rove's resignation, effective at the end of this month, all but certainly signals the end of whatever hopes he still had of winning major political victories in Congress. Still, Mr. Rove said the president is "going to use every lever he's got command over...right up to noon on Jan. 20, 2009."
Yes, how gone is Karl? Anyone ever hear of phones and email and Crackberries?
Friends and foes alike said the power and success of Mr. Bush's longtime political adviser and White House deputy chief of staff often were exaggerated.
No, look at the record of patently unfit radical nutjobs he got elected. No exaggeration; guy was a cancer on a free society. We'll have a remission but the cancer's essentially still there.

And as for the Journal's high-octane vapors and hallucinations, there's... aww, I was going to just link to it but we know how I feel about the Journal these days and the Bancrofts' demonstration of the evils of inherited wealth....

One of our biggest arguments with Karl Rove was over the Bush Administration's first-term steel tariffs. We opposed them, and in one editorial calling for their repeal we scored "Secretary of State Rove" for letting politics trump U.S. interests. Mr. Rove never gave any quarter, and when trade promotion authority passed Congress in 2002 by 215-212, he tracked us down to read a list of Members who had voted aye: They all belonged to the Steel Caucus.

The episode captures the essential Rove -- the political strategist whose larger purpose was always to advance President Bush's policy goals. In this case, he judged that Congress would never give Mr. Bush free-trade expansion power without evidence first of tough trade enforcement. We think Congress would have done so anyway, and that the steel tariffs and 2002 farm bill hurt America's trade leadership in the world. But right or wrong, Mr. Rove has always been as much policy wonk as political operative, and always loyal to the President's agenda.

This truth is hard for many partisans to accept on both the left and right, as yesterday's reaction to Mr. Rove's resignation announcement shows. Democrats either rejoiced that the evil "Bush's Brain" is gone, or blamed him as Barack Obama did as "an architect of a political strategy that has left the country more divided." The former is a way of diminishing Mr. Bush, while the latter is highly selective history.

Mr. Bush's 2000 campaign strategy was explicitly to be "a uniter, not a divider." The contested election outcome made the Bush Presidency polarizing from the start, however, and some Democrats have never considered him legitimate. The debate over Iraq and Mr. Bush's response to the war on terror has compounded the rancor. Mr. Rove is hardly any more "divisive" than any other political strategist; has everyone forgotten James Carville or Harold Ickes? The difference is that Mr. Rove's remarkable run of success -- first in Texas, then nationwide from 2000-2004 -- has caused many on the political left to assume he must be cheating. Otherwise, how could anyone vote for these Texas yahoos?

The events of September 11 and Iraq have made this predominantly a war Presidency, and that fact has also colored Mr. Rove's record for better or worse. For the better, it provided the political capital to retake the Senate in 2002, pass the Bush tax cuts that spurred the economy, and frame the Bush Doctrine. Mr. Rove was especially vital to the first two. And as he argues, much of that policy toward terrorism is likely to be adopted by future Presidents of either party. With his recent "invade Pakistan" riff, Mr. Obama has himself signed on to the view that countries should not be allowed to harbor terrorists.

For the worse, the trouble in Iraq sapped Mr. Bush's public support early in his second term and diminished his ability to pass major domestic reform. Social Security was the most notable casualty, followed this year by the collapse of immigration reform. Republicans suffered major Congressional losses last year, though in this Messrs. Bush and Rove aren't much different than Eisenhower in 1958, LBJ in 1966, or Reagan in 1986. Our own sense is that the biggest GOP liability last year was corruption in Congress, not Iraq.

As on steel tariffs, we've had our differences with this White House's political-policy calculations. Especially in the first term, Mr. Bush refused to discipline Republican spending excesses and caved to GOP demands to water down Medicare reform. He also failed to protect the Constitutional right to free speech by signing campaign finance "reform." And he was too willing to toss school choice over the side while compromising on No Child Left Behind, among other things.

On the other hand, this Presidency has not squandered its mandate trying to play "mini-ball," as Mr. Rove puts it. Social Security and immigration reform are important for the country, and we'd argue as well for the political interests of the Republican Party. They were worth the effort. The same people complaining that Mr. Bush gave too little heed to public opinion spent the 1990s complaining that Bill Clinton did nothing without consulting a poll.

This is an especially controversial position to take now on immigration, and it's a notable irony that some of Mr. Rove's most vitriolic critics yesterday were on the restrictionist right. We know how he feels. Mr. Rove believes that a GOP that alienates Hispanic voters will soon be a minority party, and in this he is surely right. President Bush won 44% of the Hispanic vote in 2004, and a decline to Bob Dole's percentage of below 30% in 1996 would make it hard for any Republican President candidate to win in New Mexico or Colorado, and perhaps even Arizona and Nevada. Until Tom Tancredo wins a statewide race, we'll assume Mr. Rove is a better judge of coalition building.

Mr. Rove is no Merlin or Rasputin, as much as liberals and some reporters want to believe it. He is above all a George Bush man. His rare mastery of history, demographics and policy made him a formidable political force, and we suspect it is his success far more than his methods that infuriates his critics.

Monday, August 13, 2007

Just a Reminder that We're Losing in Afghanistan, Too

Isn't this interesting? The world's sole super-power isn't omnipotent....

Link
.

And more bad news, albeit old and obvious: Serving in Iraq really sucks, big time. (Sorry, kids, Vietnam was far, far worse, although it ended far faster...).

What Bothers Me, What Doesn't

Doesn't:

This license to wiretap act: near immediate sunset provision -- just in time for the heart of the 08 election cycle! -- there actually just a few Dems actually voting for it, and it was what Our Beloved Leaders wanted, not the Dems. Forget Big Media's braying, the Dems hands are fairly clean. And it's a far less crisis for the party.

Of course, maybe Big Media should be as obsessed with the sub-prime meltdown....

Does:

The sub-prime mortgage meltdown.

A large swath of consumers in a consumer-driven economy relatively impoverished... need I go on? Ripples, folks.... From relatively poor homeowners to all homeowners as the realty market goes to mushy to lenders and financial institutions worldwide.... Not a good thing at all; only questions are How bad, For how long?

Tom Tomorrow and, Implicitly, What Rove Wrought



Link
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The Evil One Resigns; Too Little, Far Too Late

"Evil" is an abused, over-used word or term.

But when one looks at the career of Karl Rove, well, the word fits.

As the headline said, it's too little, too late, and far too much harm has been done....

But in honor of Rupert's takeover of the Journal, I am smashing the payment wall for you, dear Reader; it's only appropriate....

Warning: There is virtually no proof in what follows!
Karl Rove to Resign
At the End of August
By a WALL STREET JOURNAL Staff Reporter
August 13, 2007 4:00 a.m.

Karl Rove, President Bush's longtime political adviser, is resigning as White House deputy chief of staff effective Aug. 31, and returning to Texas, he said in an interview with Paul Gigot, editor of The Wall Street Journal's editorial page. (See related editorial1.)

Mr. Rove, who has held a senior post in the White House since President Bush took office in January 2001, told Mr. Gigot he first floated the idea of leaving a year ago. But he delayed his departure as, first, Democrats took Congress, and then as the White House tackled debates on immigration and Iraq, he said. He said he decided to leave after White House Chief of Staff Joshua Bolten told senior aides that if they stayed past Labor Day they would be obliged to remain through the end of the president's term in January 2009.

"I just think it's time," Mr. Rove said in the interview. "There's always something that can keep you here, and as much as I'd like to be here, I've got to do this for the sake of my family." Mr. Rove and his wife have a home in Ingram, Texas, and a son who attends college in nearby San Antonio.


In the interview, Mr. Rove said he expects Democrats to give the 2008 presidential nomination to Sen. Hillary Rodham Clinton, whom he described as "a tough, tenacious, fatally flawed candidate." He also said Republicans have "a very good chance" to hold onto the White House in next year's elections.

Mr. Rove also said he expects the president's approval rating to rise again, and that conditions in Iraq will improve as the U.S. military surge continues. He said he expects Democrats to be divided this fall in the battle over warrantless wiretapping, while the budget battle -- and a series of presidential vetoes -- should help Republicans gain an edge on spending restraint and taxes.

Mr. Rove has advised Mr. Bush for more than a decade, working with him closely since Mr. Bush first announced he was running for governor of Texas in 1993 and serving as chief strategist in his presidential campaign in 2000. Before joining the White House, he was president of Karl Rove & Company, the Austin, Texas-based public affairs firm he founded. Mr. Rove first became involved in Republican politics in the 1970s.

The Wall Street Journal published the interview Monday.


Link
.

Speaking of the lies, I mean interview....
COMMENTARY

'The Mark of Rove'
By PAUL A. GIGOT
August 13, 2007; Page A15
Washington

These are the days of Republican doubt, with President Bush fighting an unpopular war, Congress in opposition hands, and a 2008 presidential field trailing Democrats in nearly every poll. But don't tell that to Karl Rove, Mr. Bush's political alter ego, who even as he prepares to resign from the White House after six and a half years sees recovery ahead.


Sitting in the book-lined living room of his townhome on Saturday afternoon, a relaxed, cheerful and typically rambunctious Mr. Rove hands over two sheets of paper on which he has tapped out a pair of outlines. One says "Up to Now," and summarizes what he thinks are the achievements to date of the Bush presidency. The second, "Months Ahead," lays out an agenda for the next year and a half.

"He will move back up in the polls," says Mr. Rove, who interrupts my reference to Mr. Bush's 30% approval rating by saying it's heading close to "40%," and "higher than Congress."

Looking ahead, he adds, "Iraq will be in a better place" as the surge continues. Come the autumn, too, "we'll see in the battle over FISA" -- the wiretapping of foreign terrorists -- "a fissure in the Democratic Party." Also in the fall, "the budget fight will have been fought to our advantage," helping the GOP restore, through a series of presidential vetoes, its brand name on spending restraint and taxes.

As for the Democrats, "They are likely to nominate a tough, tenacious, fatally flawed candidate" by the name of Hillary Rodham Clinton. Holding the White House for a third term is always difficult given the pent-up desire for change, he says, but "I think we've got a very good chance to do so."

If that quinella pays off, however, Mr. Rove will have to savor it from somewhere other than his West Wing office. He's resigning effective Aug. 31 -- 14 years after he began working with Mr. Bush on his campaign for Texas governor, 10 years after they began planning a White House run, and after 79 months in the political cockpit of a tumultuous presidency.

"I just think it's time," he says, adding that he first floated the idea of leaving to Mr. Bush a year ago. His friends confirm he had been talking about it with others even earlier. But Democrats took Congress, and he didn't want to depart on that sour note. He then thought he'd leave after the State of the Union, but the Iraq and immigration fights beckoned. Finally, Chief of Staff Josh Bolten told senior White House aides that if they stayed past a certain point, they were obliged to remain to Jan. 20, 2009.

"There's always something that can keep you here, and as much as I'd like to be here, I've got to do this for the sake of my family," Mr. Rove says. His son attends college in San Antonio, and he and his wife, Darby, plan to spend much of their time at their home in nearby Ingram, in the Texas Hill Country.

Mr. Rove doesn't say, though others do, that this timing also allows him to leave on his own terms. He has survived a probe by a remorseless special counsel, and lately a subpoena barrage from Democrats for whom he is the great white whale. He shows notable forbearance in declining to comment on prosecutor Patrick Fitzgerald, who dragged him through five grand jury appearances. He won't even disclose his legal bills, except to quip that "every one has been paid" and that "it was worth every penny."

What about those who say he's leaving to avoid Congressional scrutiny? "I know they'll say that," he says, "But I'm not going to stay or leave based on whether it pleases the mob." He also knows he'll continue to be a target, even from afar, since belief in his influence over every Administration decision has become, well, faith-based.

"I'm a myth. There's the Mark of Rove," he says, with a bemused air. "I read about some of the things I'm supposed to have done, and I have to try not to laugh." He says the real target is Mr. Bush, whom many Democrats have never accepted as a legitimate president and "never will."

It is his long and personal relationship with Mr. Bush that has made Mr. Rove arguably the most influential White House aide of modern times. The president calls him to chat about politics on Sunday mornings, and they have a contest to see who can read the most books. (Mr. Rove is winning.) I've known Mr. Rove for 19 years and spoken to him hundreds of times. Yet I can't recall a single instance where he disclosed how his views differed from Mr. Bush's. Mr. Bolten hasn't decided on a replacement, and Mr. Rove's duties may yet be divided up.

Mr. Rove's political influence has been historic, notwithstanding the rout of 2006. His crucial insight in 2000 was recognizing that Mr. Bush had to be both an alternative to Bill Clinton's scandalous behavior and "a different kind of Republican." In 2002, the president's party gained seats in both the House and Senate in a first midterm election for the first time since 1934.

And in 2004, for only the second time in history, a president won re-election while helping his party gain seats in both houses of Congress; the other time was 1936. Much has been made of John Kerry's ineptitude, but the senator won some eight million more votes than Al Gore did in 2000, and Mr. Rove claims Democrats outspent Republicans by $148 million thanks to billionaire donations to "527" committees. Yet amid a difficult war, Mr. Bush won by increasing his own vote by nearly 25% over 2000, winning 81% of U.S. counties. The Rove-Ken Mehlman turnout effort was a spectacular achievement. If it did nothing else, that 2004 victory put John Roberts and Samuel Alito on the Supreme Court.

A big debate among Republicans these days is who bears more blame for 2006 -- Messrs. Bush and Rove, or the behavior of the GOP Congress. Mr. Rove has no doubt. "The sense of entitlement was there" among Republicans, he says, "and people smelled it." Yet even with a unified Democratic Party and the war, he argues, it was "a really close election." The GOP lost the Senate by its 3,562 vote margin of defeat in Montana, and in the House the combined margin in the 15 seats that cost control was 85,000 votes.

A prominent non-Beltway Republican recently gave me a different analysis, arguing that the White House made a disastrous decision to "nationalize" the election last autumn; this played into Democratic hands and cost numerous seats.

"I disagree," Mr. Rove replies. "The election was nationalized. It was always going to be about Iraq and the conduct of Republicans." He says Republican Chris Shays and Independent-Democrat Joe Lieberman survived in Connecticut despite supporting the war, while Republicans who were linked to corruption or were complacent lost. His biggest error, Mr. Rove says, was in not working soon enough to replace Republicans tainted by scandal.

What about that new GOP William McKinley-style majority he hoped to build -- isn't that now in tatters, as the country tilts leftward on security, economics and the culture? Again, Mr. Rove disagrees. He says young people are if anything more pro-life and free-market than older Americans, and that, despite the difficulties in Iraq, the country doesn't want to be defeated there or in the fight against Islamic terror. He recalls how Democrats thought driving the U.S. out of Vietnam would also help them politically. "Instead, Democrats have suffered ever since on national security," he says.

Mr. Rove also makes a spirited defense of this president's policy legacy, sometimes more convincingly than others. On foreign affairs, he predicts that at least two parts of the Bush Doctrine will live on: The policy that if you harbor a terrorist, you are as culpable as the terrorist; and pre-emption. "There may be a debate about degree," he says, "but it's going to be hard for any president to reverse that."

He's less persuasive on Medicare, where he insists that market reforms and health savings accounts are building a "critical mass" of popular support that will make them unrepealable. Yet Democrats are even now trying to kill Medicare Advantage, blocked only by the promise of a veto. If Mrs. Clinton wins in 2008, the Medicare drug expansion may prove to have been all spending and no reform.

He also insists that Social Security reform was worth the failed effort, and that Mr. Bush's ideas will be adopted inevitably by some future president. I ask if, given Mr. Bush's falling approval ratings in 2005 due to Iraq, he shouldn't have pushed for something less ambitious. Not a chance. "You cannot advance on the fronts you want to advance if you're playing mini-ball," he says, once again sounding like Mr. Bush.

As for 2008, he says, Americans "do want change," but "every election is a change election"; even in 1988, when Ronald Reagan was popular, the Gipper famously said at the nominating convention for George H. W. Bush that, "We are the change." Adds Mr. Rove, "I don't want to be Pollyanish about it, but if we keep our nerve and represent big things, we'll win." He won't cite a favorite, if he has one, among the GOP candidates, though he has friends in the various campaigns. He'll offer advice, if asked, but at 56 years old says he is done with political consulting.

He'd like to teach eventually, but he has no specific job plans, save to write a book on the Bush years, which "the boss," as in Mr. Bush, "has encouraged me to do." As for what his own White House mistakes have been, Mr. Rove winces and says, "I'll put my feet up in September and think about that."

And what about Jeb Bush in 2012? Mr. Rove first says with a tone of skepticism, "Ask Jeb." Then he adds, "You better get a younger man. My wife would kill me."
Link.

Sunday, August 12, 2007

Love that Rudy

Link. (And thanks to my Chipazoid for the link in the first place! Chip: call me when in N.Y.C. and the first round is on me -- if you don't get carded first!)

Apocalypse Now?

Is an economy overly lubricated with loose money recklessly invested about to tank? Is it 1929 all over again? (God knows this adminsitration is straight out of the 1920s.)
Worse than LTCM: Not Just a Liquidity Crisis; Rather a Credit Crisis and Crunch

Nouriel Roubini | Aug 09, 2007
The global market turmoil got ugly today forcing the ECB and the Fed to inject liquidity in the financial system as the concerns about subprime, credit and debt turned into a full blown liquidity run and crisis. As in 1998 at the time of the LTCM crisis, the Fed and global central banks decided to ease monetary policy in between meetings and injected a large amount of liquidity into the system. Coming two days after the Fed tried to prevent perceptions of a "Bernanke put" by signaling in its FOMC statement no Fed easing and no bail out of the financial system, the Fed actions today are certainly ironic if necessary given the massive liquidity seizure in the financial markets.

But the current market turmoil is much worse than the liquidity crisis experienced by the US and the global economy in the 1998 LTCM episode. Let me explain why. Economists distinguish between liquidity crises and insolvency/debt crises. An agent (household, firm, financial corporation, country) can experience distress either because it is illiquid or because it is insolvent; of course insolvent agents are – in most cases - also illiquid, i.e. they cannot roll over their debts. Illiquidity occurs when the agent is solvent – i.e. it could pay its debts over time as long as such debts can be refinanced or rolled over - but he/she experiences a sudden liquidity crisis, i.e. its creditors are unwilling to roll over or refinance its claims. An insolvent debtor does not only face a liquidity problem (large amounts of debts coming to maturity, little stock of liquid reserves and no ability to refinance). It is also insolvent as it could not pay its claim over time even if there was no liquidity problem; thus, debt crises are more severe than illiquidity crises as they imply that the debtor is insolvent, i.e. bankrupt, and its debt claims will be defaulted and reduced. In emerging market crises of the last decade, we had liquidity crises (i.e. a solvent but illiquid sovereign) in Mexico, Korea, Brazil, Turkey; we had debt/insolvency crises (a sovereign that was both illiquid and insolvent) in Russia, Ecuador, Argentina.


The 1998 LTCM crisis was mostly a liquidity crisis: the US was growing then at 4% plus, the internet bubble had not burst yet, we were in the middle of the "New Economy" productivity boom, households were not financially stretched and corporations were not financially stretched with debt either. In spite of those sound and solvent fundamentals the collapse of Russia – a country then with the GDP of a country such as the Netherlands – caused a global liquidity seizure and crisis of the type experienced by credit markets in the last few weeks: sudden demand for cash liquidity, sharp increase in the 10 year swap spread, sharp increase in the VIX gauge of investors’ risk aversion, liquidity drought in the interbank and euro-dollar market, deleveraging of highly leveraged positions, reversal of the yen carry trades. With the exception of the credit event in Russia, this was not a credit/insolvency crisis. And since it was a liquidity crisis the Fed easing – 75bps – was successful in restoring in a matter of weeks calm and liquidity in financial markets. Even that liquidity episode had painful credit fallout: it is not remembered by most but the entire subprime mortgage industry went bankrupt in 1998-99 following the LTCM liquidity crisis. So a liquidity shock event triggered massive credit events then.

Today we do not have only a liquidity crisis like in 1998; we also have a insolvency/debt crisis among a variety of borrowers that overborrowed excessively during the boom phase of the latest Minsky credit bubble.

First, you have hundreds of thousands of US households who are insolvent on their mortgages. And this is not just a subprime problem: the same reckless lending practices used in subprime – no downpayment, no verification of income and assets, interest rate only loans, negative amortization, teaser rates – were used for near prime, Alt-A loans, hybrid prime ARMs, home equity loans, piggyback loans. More than 50% of all mortgage originations in 2005 and 2006 had this toxic waste characteristics. That is why you will have hundreds of thousands – perhaps over a million - of subprime, near prime and prime borrowers who will end up in delinquency, default and foreclosure. Lots of insolvent borrowers.

You also have lots of insolvent mortgage lenders – not just the 60 plus subprime ones who have already gone out of business – but also plenty of near prime and prime ones. AHM – that went bankrupt last week – was not exposed mostly to subprime; it was exposed to near prime and prime. Countrywide has reported sharp losses not only on subprime lending but also on prime ones. So on top of insolvent households/mortgage borrowers you have plenty of insolvent mortgage lenders, subprime and - soon enough - near prime and prime.

You will also have – soon enough – plenty of insolvent home builders. Many small ones have gone out of business; now it is likely that some of the larger ones will follow in the next few months. Beazer Homes – a major home builder - last week had to refute rumors of its impending insolvency; but so did AHM a few weeks before its insolvency. With orders for home builders falling 30-40% and cancellation rates above 30% more than a few home builders will become insolvent over the next year or so.

We also have insolvent hedge funds and other funds exposed to subprime and other mortgages. A few – at Bear Stearns, in Australia, in Germany, in France – have already gone bankrupt or are near bankrupt. You can be sure that with at least of $100 billion of subprime alone losses – and most losses are still hidden given the reckless practice of mark-to-model rather than mark-to-market - many more will go belly up. In the meanwhile the CDO, CLO and LBO market have completed closed down - a “constipated owl” where “absolutely nothing moves” the way Bill Gross of Pimco put it. This is for now a liquidity crisis in these credit markets; but credit events will occur given that the underlying problem was not of of liquidity but rather one of insolvency: if you take a bunch of to-be-defaulted subprime and near prime mortgages and you repackage them into RMBS and then these RMBS are repackaged into various tranches of CDOs, the rating agencies may be using magic voodoo to turn those junk BBB- mortgages into AAA tranches of CDOs; but this is only voodoo as the underlying assets are going to be defaulted on.

Moreover, the recent sharp widening in corporate credit spreads is not just a sign of a liquidity crunch; it is a sign that investors are realizing that there are serious credit/solvency problems in some parts of the corporate system. Ed Altman, a colleague of mine at Stern, is recognized as the leading world academic expert on corporate defaults and distress. He has argued that we have observed in the last few years record low default rates for corporations in the U.S. and other advanced economies (1.4% for the G7 countries this year). The historical average default rate for US corporations is 3% per year; and given current economic and corporate fundamentals the default rate should be – in his view - 2.5%. But last year such corporate default rates were only 0.6%, i.e. only one fifth of what they should be given firms' and economic fundamentals. He also noted that recovery rates - given default - have been high relative to historical standards.

These low default rates are driven in part by solid corporate profitability and improved balance sheets. In Altman’s view, however, they have also been crucially driven - among other factors - by the unprecedented growth in liquidity from non traditional lenders, such as hedge fund and private equity. Until recently, their demand for corporate bonds kept risk spreads low, reduced the cost of debt financing for corporations and reduced the rate of defaults. Earlier this year Altman argued that this year "hot money" from non traditional lenders could move to other uses for a number of reasons, including a repricing of risk. If that were to occur, he argued that the historical patterns of default rates - based on firms’ fundamentals - would reassert itself. I.e. we are not in a new brave world of permanently low default rates. He said: "If we observe disappointing returns to highly leveraged and rescue financing packages, some of the hedge funds may find it difficult to cover their own loan requirements as well as the likely fund withdrawals. And broker-dealers who are not only providing the leverage to the hedge funds but whom are also investing in similar strategy deals will recede from these activities." The same could be said of the consequences of the unraveling of some leveraged buyouts. Altman suggested that triggers of the repricing of credit risk could also be "disappointing returns to highly leveraged and rescue financing packages". So he argued that the unraveling of the low spreads in the corporate bond market could occur even in the absence of changes in US and/or global liquidity conditions.

Thus, until recently the insolvent firms in the corporate sectors included corporations that could service their debt only by refinancing such debt payments at very low interest rates and financially favorable conditions. Many firms, under normal liquidity conditions, would have been forced into distress and debt default (either of the Chapter 7 liquidation form or Chapter 11 debt restructuring form) but were instead able to obtain out-of-court rescue and refinancing packages because of the most easy credit and liquidity conditions in bubbly markets. Now that we are observing a liquidity and credit crunch and a vast widening of credit spread you will observe a sharp increase in corporate defaults and a further risk in corporate risk spreads.

Insolvent and bankrupt households, mortgage lenders, home builders, leveraged hedge funds and asset managers, and non-financial corporations. This is not just a liquidity crisis like in the 1998 LTCM episode. This is rather a liquidity crisis that signals a more fundamental debt, credit and insolvency crisis among many economic agents in the US and global economy. Liquidity runs can be resolved by the liquidity injections by a lender of last resort: in the cases of the liquidity crises of Mexico, Korea, Turkey, Brazil that international lender of last resort was the IMF; but in the insolvency crises of Russia, Argentina, and Ecudaor the provision of the liquidity by the lender of last resort – the IMF – only postponed the inevitable default and made the eventual crisis deeper and uglier. And provision of liquidity during an insolvency crisis causes moral hazard as it creates expectations of investors’ bailout. Thus, while the Fed and the ECB had no option today but to provide massive liquidity in the presence of a most severe liquidity crunch and run, they should not delude themselves that this liquidity injections can resolve the deep insolvency problems of many overstretched borrowers: households, financial institutions, corporates. Insolvency/credit crises lead to financial and economic distress – hard landing of economies – and cannot be resolved with liquidity injections by a lender of last resort. And now the vicious circle of a weakening US economy – with a housing recession getting worse and a fatigued consumer being at the tipping point - and a generalized credit crunch sharply has increased the probability that the US economy will experience a hard landing. We are indeed at a "Minsky Moment" and this recent financial turmoil is the beginning of a much more serious and protracted US and global credit crunch. The risks of a systemic crisis are rising: liquidity injections and lender of last resort bail out of insolvent borrowers - however necessary and unavoidable during a liquidity panic- will not work; they will only pospone and exacerbate the eventual and unavoidable insolvencies.

Thursday evening update:
Countrywide, the US largest mortgage lender, announced that it faces "unprecedented disruptions" in the debt market and secondary market for mortgages that "could have an adverse impact on the company's earnings and financial condition, particularly in the short-term." Same for WaMu. This is a serious and scary development. As reported by Reuters:

Two of the largest U.S. providers of home loans, Countrywide Financial Corp (CFC.N: Quote, Profile, Research) and Washington Mutual Inc (WM.N: Quote, Profile, Research), on Thursday said difficult mortgage market conditions are likely to hurt operations in the near term.
Countrywide, the largest mortgage lender, said it faces "unprecedented disruptions" in the debt market and secondary market for mortgages. It said these "could have an adverse impact on the company's earnings and financial condition, particularly in the short-term."

Washington Mutual, the largest U.S. savings and loan, said liquidity in the market for less-than-prime home loans and securities backed by the loans has "diminished significantly." It said that while this persists, its ability to raise liquidity by selling home loans will be "adversely affected."

The lenders offered their assessments in quarterly reports filed with the U.S. Securities and Exchange Commission.
Link.

Vote for Me, I was There Too

Speaking to reporters in Cincinnati, Giuliani said: "I was at ground zero as often, if not more, than most of the workers. ... I was there working with them. I was exposed to exactly the same things they were exposed to. So in that sense, I'm one of them."
Link.

And I spent time there too soon after 9/11....

Someone Agrees with Me! It's Not Just Me!

Chris Dodd with Glenn Greenwald:
I carry every day, and have for 26 years, a copy of the U.S. Constitution given to me by Robert Byrd [takes Constitution out of his back pocket]. And to me, what could be more fundamental? With all due respect, I care about health care, education, global warming. But if you get this wrong -- what do you got? A trade association. Who wants to be president of a trade association?

And this [holding the Constitution] is the spark, the illumination, it is, if I may so say, the envy of many around the world. We have been a guiding set of principles. What is going on with the rule of law isn't just happening here. . . Other countries are saying, "We can do this, too." So there has been an erosion in the world with the rule of the law. Having led the world in the rule of law in the post-World War II period, and having nations reluctantly moving in the direction we were moving in, and they now see the U.S. has retreated, and they are making a hasty retreat themselves.

Josh Tucker [of NYU] makes the point about the Soviet Union collapse -- You can make the case that it was military, and that was part of it, but he believes and I believe that it was the rule of law. It was Eastern European countries recognizing that this was a total sham, beginning with the Prague Spring and 1956. The Soviet Union collapsed because it rotted from within, they just rotted without the rule of law. So in addition to the other factors, this has international reverberations, beyond just what happens in our own country.

WTF News Presents American Justice

Thank God George W. Bush is president so we are free to live under a system of law.

Not.
EIGHTY-NINE DAYS AFTER HE WAS DEPORTED from the Los Angeles County jail system to Tijuana, mentally troubled U.S. citizen Pedro Guzman returned to his home in Lancaster this week, shivering, stuttering and re-igniting a host of uncomfortable questions for the L.A. County Sheriff’s Department and U.S. Immigration and Customs Enforcement (ICE).
The full story is here. Feel free to weep.

Today's Poster from the General

Link. (And more here.)

A Big Wet Kiss for Rudy

Not from me, from someone at the New Yorker who drank the Rudy-flavored Kool-Aid.

And just in case anyone needed it, more proof that the quality of the magazine has been going continually downhill since the Tina era and why it's yet another major media property that's growing ever more irrelevant.

For something a little more factually-and-reality-based, there's this
and this and this.

None are So Blind (Deaf and Dumb) as Big Media Journalism

Or: Alienating the audience drives it away, a continuing story... that's going unreported....

A clue to the media's problem is reflected in the most-disliked institution, which happens to be Big Media's most-fawned-over institution....
The overall image of the cable news networks as a group has fallen significantly since the beginning of the decade. In the summer of 2001, favorable ratings for cable news networks outnumbered unfavorable by 88% to 12%, based on those who could rate them. Currently, 75% express a favorable opinion of cable news networks, such as CNN, Fox and MSNBC.

The ratings for Fox and CNN, individually, are comparable to those for cable news networks collectively; 75% of those able to rate Fox have a favorable impression of the network, while 72% say the same about CNN. Positive views of CNN have fallen substantially over the past two decades. In 1987, fully 91% of those able to rate CNN offered a favorable assessment and positive ratings were about as high in 1992 (95%). Today, just 72% of those who rate CNN individually say the same.

Ratings of large nationally influential newspapers such as the New York Times and the Washington Post also have dropped in recent years. Just six-in-ten Americans who offer a view of major national newspapers give a favorable assessment. This is virtually unchanged from 2005, and down 14 points from 2001. Local news outlets – local TV and papers that respondents are most familiar with – retain the highest favorability ratings among those who can rate them.

Meanwhile, ratings of other political institutions have been falling at a comparable rate. The share giving a favorable rating to the Supreme Court stands at 66% today, down from 78% in 2001, while fewer than half (45%) give a favorable rating to Congress, down from 65% in 2001. As a result, news organizations continue to be seen more favorably by the American public than most governmental institutions, despite their declining ratings.
Link to way, way more, put together so simply that even Pinch Shulzberger might be able to understand it without someone explaining it to him (and noting for him that it doesn't apply to the Times (joke/not joke)). (And Fox wins the wingnut game, at least with its papers, by slopping on sex and sports.)