Ignore the chickenhawks pushing for an Iran coup

Ignore the chickenhawks pushing for an Iran coup

By LEON HADAR
WASHINGTON CORRESPONDENT

MUCH has been said and written in recent days about the way the demonstrators in Tehran have been utilising new kinds of 'social media' to challenge the Iranian theocratic regime. Protestors blog, post to Facebook, and most intriguing, coordinate their protests on Twitter, the messaging service.

On Twitter, young Iranians and their supporters post reports and links to photos from demonstrations along with accounts of street fighting and casualties around the country. So will this revolution be twitted?

Perhaps. But in any case, with all the attention focused on Tehran's Twitter Revolutionaries, we shouldn't forget the other impressive group of revolutionaries that has emerged in Washington just as the media started reporting on allegations about a rigged Iranian presidential election and angry protesters were gathering in Teheran.

I'm referring here to the many brave US lawmakers, op-ed columnists, television talking-heads, think-tankers and bloggers who are angry that President Barack Obama has refused to punish the Ayatollahs in Iran by, say, bombing Iran into the stone age or doing a regime change in Tehran. Hence Republican Senator and former presidential candidate John McCain - thank God for small mercies - is now criticising the man who beat him last November for not talking tough with the Iranians like - I kid you not! - former President George W Bush.

'Look, these people are bad people and I know that it was unpopular to call them part of an axis of evil or whatever it was, but we just showed again that an oppressive regime will not allow democratic elections, free and democratic elections,' Mr McCain told reporters last week.

Yep. President Obama should follow the footsteps of his predecessor who certainly knew how to talk tough ('Bring them on') to Osama Bin Laden (and then let him get away to Pakistan) and to Saddam Hussein (and then generating a military fiasco in Iraq) and to Iran (and then helping it emerge as a regional power).

So Mr McCain, who during the campaign entertained an audience while singing Bomb, Bomb Iran to the tune of an old Beach Boys hit, is now advising President Obama on doing his version of the 'right thing' in Iran.

Mr McCain is at least a war veteran. Most of the other critics of Mr Obama's policy of maintaining a distance from the political upheaval in Iran are veterans of the battles of the blogs that took place before and during the Iraq War. They are so-called chicken-hawks who continue to protect such neoconservative bastions as the American Enterprise Institute (AEI) and the Weekly Standard, and who not long ago were promising us that the Iraq War would be a 'cake walk', and that Iraqis would greet Americans as liberators with garlands and sweets.

Now after that Iraqi Mission Not-Really Accomplished, they seem to be coming back to life, showing up once again on all the televisions news shows and authoring new op-eds for prestigious publications, despite the fact that much of their foreign policy agenda has been bankrupted and is now lying ruined on the sands of Mesopotamia.

Well . . . never mind. Now they suggest that America should exert all its power to lend a helping hand to former prime minister Mir-Hossein Mousavi as he and his supporters attempt to challenge the presidential election results, a move that will only play into the hands of the ruling Ayatollahs and President Mahmoud Ahmadinejad, who hope to portray Mr Mousavi and the protesters as American stooges.

Ironically, these same American critics who now depict Mr Mousavi as Iran's Gorbachev were warning on the eve of the Iran election that even if Mr Mousavi would win, the Americans would have no choice but to confront Iran over its nuclear military programme and consider giving Israel a green light to strike that country's nuclear facilities.

But now they explain that Mr Mousavi's election will ignite a democratic revolution in Iran and mark the start of a new era in US-Iran relationship. Trying to make sense of that kind of intellectual gibberish that passes for foreign policy analysis in Washington these days, I recalled Twiddle-dee and Twiddle-dum, those two silly characters from Lewis Carroll's Alice in Wonderland.

The two were known for talking nonsense all the time: 'This must be Thursday. Never could get the hand of Thursdays, though on a whole, Thursdays have been pretty good'. Their names derived from the expression 'twiddling my thumbs' which is to say they had nothing to do, like: 'Oh, I'm doing nothing, but twiddling my thumbs'.

So let's forget about Twitter. When it comes to the revived chickenhawks of Washington, the revolution will be twiddled.



Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.

Obama using political wealth for health reform

Business Times - 24 Jun 2009


Obama using political wealth for health reform

The President is intent on getting the healthcare legislation passed by Congress this year

By LEON HADAR
WASHINGTON CORRESPONDENT

IT'S beginning to feel as though the American political system is reverting to an election campaign mode. Is President Barack Obama running for re-election?

That was at least the impression of journalists who were covering Mr Obama's announcement on Monday that he was going to use all the weapons in his political arsenal to win the coming fight in Congress and around the country over his plan to reform the nation's ailing healthcare system.

It was clearly one of the major opening shots in what are expected to be long and costly political and legislative battles over health care.

'Yes we can,' Mr Obama told reporters at the White House as he discussed the decision by the drug companies to put a price ceiling on prescription drug coverage for the elderly that is offered through the federal government programme Medicare.

'We are going to get this done,' he said, referring to his healthcare programme, suggesting that the agreement by the pharmaceutical companies could serve as a model for similar cooperation between government and the medical industry on reducing healthcare costs.

'This is a significant breakthrough on the road to healthcare reform,' Mr Obama said, 'one that will make a difference in the lives of many older Americans.'

The launch of the White House's campaign for healthcare reform is taking place at a time when Mr Obama is beginning to slip in the public opinion polls and as both Democrats and the media are becoming more sceptical of his policies.

While most opinion polls suggest that Mr Obama continues to enjoy wide public backing for his leadership, Americans seem to be much less supportive of his key policy initiatives, including the effort to save General Motors and Chrysler, and are worried about the increasing fiscal costs of his programmes to fix the American economy. Hence concerns over the growing budget deficit seem to be rising to the top of the public's agenda.

In that context, while most Americans are in favour of ensuring that every citizen has access to health care, they are much less enthusiastic about the notion that reforming the system could require new and huge government spending.

In fact, leading Democratic lawmakers on Capitol Hill are worried that Mr Obama may not be able to win approval on Capitol Hill despite the fact that his party now controls both the House of Representatives and the Senate.

'To be candid with you, I don't know that he has the votes right now,' Democratic Senator Dianne Feinstein of California said on CNN on Sunday. 'I think there's a lot of concern in the Democratic caucus.'

Which explains why Mr Obama is trying to revive some of the passion exhibited by his supporters during the presidential campaign which helped get him elected last November.

Mr Obama explained during the 2008 election campaign that, taking into consideration the strong political opposition, he would not propose a single-payer system like the one that operates across the border in Canada.

In fact, the Obama administration has not put forward a very specific healthcare plan. Instead, it is proposing a general direction for reform and leaving the details of the plan up to Congress where debate over the issue is expected to begin this week.

According to the broad parameters of Mr Obama's plan, the current private insurance programme will continue to exist with the government exerting more regulation over their operations by imposing practice guidelines on providers.

Coverage would be mandated for employers and individuals and a government-run plan would be set up in competition with private insurers.

Americans would be able to choose either private insurance or the public plan, but the private insurance would face a host of new regulations that are expected, among other things, to prohibit pricing premiums on the basis of risk.

And on the top of all of that, the government would offer financial aid to low-income people to purchase insurance.

Most experts agree that the rising cost of health care in the United States poses a long-term threat to the country's fiscal health. And critics of Mr Obama's ideas for reform argue that it will not bring down the cost of health care and, if anything, could end up costing more than US$1 trillion over the next 10 years (according to estimates by the non-partisan Congressional Budget Office).

This burden will probably fall mostly on the middle class through direct and indirect taxes.

Moreover, many lawmakers are worried that the government-backed healthcare programme would force private insurers to raise their premiums and make them less competitive.

Mr Obama and his aides have indicated that they are ready to work together with Congress to reach a compromise on the healthcare legislation.

But as Mr Obama made it clear on Monday, he was intent on getting the legislation this year when the White House still has quite a lot of political capital to spend and before Washington starts getting ready for the midterm Congressional elections next year when the incumbent party could start losing Congressional seats, making it even less likely that Congress would support reforming health care.

Mr Obama was clearly encouraged by data in a New York Times report that showed strong public support for a government-run insurance plan that would compete against today's private plans.

Similarly, a Wall Street Journal-NBC poll found that more than half of respondents support the Obama approach and 62 per cent said they would support a requirement that every American have insurance.

Indeed, aides to the President insist that he is ready to take advantage of his personal popularity and to use the Internet and other new media to go directly to the American people - in the same way he did during the election campaign - and ask them to press the reluctant Republicans and Democrats on Capitol Hill to pass a healthcare reform bill.

Who knows? We may start seeing the cool Obama losing his temper for a change.



Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.

Mountain crisis, mouse reform

Business Times - 20 Jun 2009


Mountain crisis, mouse reform

The financial restructuring plan unveiled by Obama is high on rhetoric but low on solid proposals to prevent future catastrophes in the financial system

By LEON HADAR
WASHINGTON CORRESPONDENT

DURING the height of the current financial crisis, at a time when the perception on Wall Street and in Washington had been that the sky was falling and that, at a minimum, the American economy and the entire capitalist system were about to collapse, the hope among progressive Democratic lawmakers and activists - and the fear among bankers and hedge fund investors - was that newly elected President Barack Obama would lead a crusade to change the way business was done on Wall Street.

After all, it was Mr Obama who had warned during the election campaign last October that Americans were 'living beyond their means, from Wall Street to Washington to even some on Main Street'.

In fact, pundits speculated that after the falling of financial giants like Lehman Brothers and American International Group (AIG) and the recognition that the failure of such entities that were described as 'too big to fail', Washington would resist the political pressure from lobbyists representing Big Money in Washington and would take steps towards a sweeping restructuring of the financial industry.

At the end of the day, the banks, the insurance companies and other financial institutions would become smaller, more manageable and more responsive to Washington's regulators. In fact, doing business on Wall Street would once again be the kind of mind-numbing and dull career that it used to be before the deregulation boom in the 1980s and the 1990s, and would cease to attract America's best and brightest.

When President Obama laid out in Washington on Wednesday his 89-page plan to overhaul this country's financial markets and reshape the federal system of financial regulation - which was described by administration officials as the biggest overhaul of its kind in decades - his rhetoric still reflected those earlier expectations.

'It is an indisputable fact that one of the most significant contributors to our economic downturn was an unravelling of major financial institutions and the lack of adequate regulatory structures to prevent abuse and excess,' Mr Obama stated.

'A culture of irresponsibility took root from Wall Street to Washington to Main Street. And a regulatory regime basically crafted in the wake of a 20th century economic crisis - the Great Depression - was overwhelmed by the speed, scope and sophistication of a 21st century global economy,' he said.

But the much anticipated Obama plan whose outlines were drawn up by Treasury Secretary Tim Geithner and National Economic Council director Lawrence Summers stopped short of the sweeping changes of the way business is done in Washington and Wall Street.

In particular, the plan refrains from taking comprehensive steps to reorganise the existing regulatory agencies and to create a new and powerful super-regulator.

President Obama stressed that he made that decision to maintain a 'careful balance' in regulating the financial industry after consulting congressional leaders, industry experts and consumer advocates.

'I believe that our role is not to disparage wealth, but to expand its reach; not to stifle the market, but to strengthen its ability to unleash the creativity and innovation that still makes this nation the envy of the world,' Mr Obama stressed.

'So that's our goal: to restore markets in which we reward hard work and responsibility and innovation, not recklessness and greed, in which honest, vigorous competition in the system is prized, and those who game the system are thwarted.'

According to Mr Obama's proposals, the Federal Reserve Board would supervise financial firms considered 'too big to fail', while a new 'council of regulators' led by the Treasury Department would monitor risk across the financial system.

At the same time, the Securities and Exchange Commission (SEC) would demand greater disclosure by hedge funds and regulate exotic financial instruments such as credit default swaps. And the administration is also calling for a new agency to protect consumers, the Consumer Finance Protection Agency.

Some on Wall Street have been critical of the president's plan and, in particular, the call for more government involvement in the financial industry, and a legion of lobbyists is now camping on Capitol Hill, where Congress will start debating Mr Obama's proposals in the coming weeks.

The Congressional hearings will be led by two leading Democratic leaders, Representative Barney Frank of Massachusetts and Senator Christopher Dodd of Connecticut, who promised that legislation along the lines of Mr Obama's proposals would be enacted before Congress adjourns for the year.

But there were many smiling faces on Wall Street after President Obama presented his plan on Wednesday. The heads of the financial industry are content that the Fed will be responsible for regulating their business - which explains why the more populist critics on the political left and right are unhappy.

The US central bank and its leaders are perceived as allies of Wall Street in Washington who lack both the political will and technical expertise to regulate the large financial companies, as has been demonstrated before and during the current crisis when the Fed seemed to fail in its efforts to contain the problems that were facing such institutions as Wachovia, Citigroup and Bank of America.

It's also unclear what kind of power the proposed council of regulators will have in terms of affecting the decisions made by the Fed.

'We have resisted creating an all-powerful central bank to this point, and the experiences of countries which have concentrated too much power in one entity serve as cautionary tales,' said Mark Warner, a Democratic senator from Virginia who sits on the banking committee, who wants to give more regulatory power to the council of regulators.

'A systemic risk council is not a silver bullet, but it avoids the pitfalls of entrusting systemic risk responsibility to one agency,' he said.

The main question on the minds of US lawmakers and other observers will be the following: will the reformed regulatory structure headed by the Fed be able to monitor those institutions that are 'too big to fail' and prevent the series of catastrophes that have devastated the financial industry in the last two years?

In short, will the Fed have the necessary resources and power to detect the kind of problems that had confronted Lehman Brothers and AIG before Washington is faced with only two choices - either let these financial institutions fail or force the American taxpayer to bail them out?

We shall see if the words in the final legislation match the rhetoric.




Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.

On Iran, etc.

http://www.dailystar.com.lb/article.asp?edition_id=1&categ_id=5&article_id=103223#


Thank God Obama favors the 'old' Mideast
By Leon T. Hadar
Commentary by
Friday, June 19, 2009

State Condoleezza Rice travelled to Lebanon in an effort to bring an end to the war raging there between Israel and Hizbullah. At the time, she tried to market to reporters in Washington a somewhat odd spin on the violence taking place, not only in Lebanon but also in Iraq and Israel and Palestine. "What we're seeing here is, in a sense, the growing - the birth pangs of a new Middle East, and whatever we do, we have to be certain that we're pushing forward to the new Middle East, not going back to the old Middle East," Rice explained.
Indeed, the Bush administration's Freedom Agenda was challenging the status quo in the "old" Middle East by using US military and diplomatic power to promote democracy in Iraq (by ousting Saddam Hussein and holding free elections), in Lebanon (by forcing Syria to withdraw its troops and holding free elections), and in the Palestinian Authority (by pressing for elections), a process that would eventually produce political reforms in the rest of the Middle East, including Iran.

Ignoring the lessons of history, and dismissing warnings about the hurdles facing a campaign to implant Western-style democracy at gunpoint, the Bush administration inadvertently helped to give birth to a "new" Middle East in Iraq, Lebanon and Palestine, that was in some ways, less peaceful, less tolerant, and less democratic than the "old" one. And these efforts all had the effect of strengthening Iran.

The recent good news has been that President Barack Obama seemed to favor the more realistic US approach towards the Middle East that assumed the need for American diplomatic engagement with the existing regimes in the region. Focused on securing US interests, the Obama team has downplayed the importance of exporting American-style democracy. Notwithstanding the soaring rhetoric of his historic address in Cairo, Obama seems to be going back to the "old Middle East."

There is no doubt that Obama's rejection of neoconservative grand designs of fighting Islamo-fascism and remaking the Middle East, like his commitment to renew the Israeli-Palestinian peace process, has helped reduce anti-Americanism while empowering those players that favor stronger ties with the United States and the West.

From that perspective, the victory of the pro-Western coalition in Lebanon's parliamentary election, as well as the energizing of the reformist forces during the presidential election in Iran, could be attributed in part to the impact that Obama's message had on political groups calling for political change and openness to the world. Such individuals are now less concerned that they would be perceived as puppets of an anti-Muslim and militaristic United States.


But Obama's Cairo address should not be seen as the launching pad for a new and gentler American campaign - using soft power this time - to democratize the Middle East.

To be sure, Washington and its allies should be relieved that the coalition led by Hizbullah, and backed by Iran, failed to emerge as the winner in Lebanon. But the outcome of the election there should not be misconstrued as a victory for liberal democracy. The system of confessionalism that exists in the country helps to secure the power of recognized religious groups based on demographics. But the current arrangement is based on a distribution that reflects the results of the last official census taken in 1932. Claims that the winning coalition necessarily represents liberal values are undermined by the revelation that it received considerable financial support from Saudi Arabia, which, unlike Iran, doesn't permit women to vote in elections.

In fact, the elections in Lebanon and Iran (as well as earlier contests in Iraq and the Palestinian Authority) point to the fact that the drive for democracy - and, in particular, the push for elections - poses a threat to US interests in the Middle East. These elections have empowered social groups, including the working class and the rural poor, who tend to be more conservative, more religious, and more nationalistic in their political outlook and who don't necessarily share the more secular and liberal values of the West.

Watching the young and "cool" men and women in Tehran, demonstrating in support of the "reformer" Mir Hossein Mousavi (a member of the political establishment), many Westerners seemed to have adopted the wishful thinking that Iran is on a brink of a Western-oriented democratic revolution. The notion that the majority of Iranians may not be "like us" and don't share our dreams or aspirations was clearly very difficult to accept.

But any move on Washington's part to further isolate the ayatollahs in Tehran in order to force political change there would likely be as ineffective as the effort to punish the communists in Beijing in the aftermath of the Tiananmen protests of 1989. Instead, as in the case of China, US diplomatic and economic engagement with Iran could help create conditions more conducive for economic and political reforms, perhaps without the added pain of those birth pangs.


Leon Hadar is a research fellow in foreign policy studies at the Cato Institute and the author of "Sandstorm: Policy Failure in the Middle East." This commentary was written for THE DAILY STAR.

Spending like there is no tomorrow

Business Times - 19 Jun 2009


Spending like there is no tomorrow

It seems in Washington's new financial universe, a trillion here and a trillion there are nothing more than small change

By LEON HADAR
WASHINGTON CORRESPONDENT

MANY years ago one of America's elder statesmen, the late Everett Dirksen, a Republican Senator from Illinois who had spoken often and passionately about the debt ceiling, federal waste and the growth of government, was reported to have made the following observation about US government spending: 'A billion here and a billion there, and pretty soon you're talking real money.'

It is not difficult to imagine Mr Dirksen turning over again and again in his grave these days after finding out that Washington has approved about US$13 trillion worth of bailouts over the last year; that the US deficit this year will run nearly US$2 trillion (as a result of financial bailouts and the stimulus package); and that the current national debt exceeds US$11 trillion.

Indeed, the Congressional Budget Office (CBO) has warned of a cumulative deficit of about US$8 trillion over the next decade. And in case you did not know it, in the American system one trillion is one thousand times one billion. Real money, indeed.

But it seems that in Washington's new financial universe, a trillion here and a trillion there are nothing more than small change. Hence, President Barak Obama and his aides are now proposing a plan to restructure the ailing American healthcare system that, according to the CBO, 'would result in a net increase in federal budget deficits of about US$1.0 trillion over the 2010-2019 period'.

And remember that these figures don't represent a complete cost estimate of the new healthcare system. That will have to be debated in Congress and it will need to include the huge subsidies that the government will have to pay for the coverage of the poor and the elderly, which means that the cost of the plan could actually come to about US$1.5 trillion over the 2010-2019 period.

Officials and lawmakers in Washington explain that the federal government had no other choice but to borrow and spend trillions of dollars to help the American economy avoid a rerun of the 1930s Great Depression, and there are some signs that such efforts are indeed creating the conditions for an economic recovery.

But the same officials and lawmakers are worried that expanding federal deficit and the mounting debt are going to have long-term catastrophic impact on the American economy.

Yet these concerns don't seem to have any major effect on the spending habits in Washington where the talk is about adding another trillion here - which company needs a government bailout today? - and another trillion there, with the costly plan to reform the healthcare system being the latest example.

The federal deficit remains the elephant in Oval Office. As the government is spending its way out of the recession, it could be creating inflationary pressures that end up putting upward pressure on interest rates and killing the economic recovery.

And while no one is seriously contemplating a scenario in which the United States goes bankrupt a la Iceland, a US government inflating its way out of debt endangers its credibility and reduces the confidence of the financial markets in the American economy.

The soaring US debt which puts downward pressure on the value of the US dollar has already ignited fears among foreign holders of US government bonds, led by China which is the largest creditor with more than US$700 billion invested in Treasury bonds.

Indeed, according to Republican Representative Mark Kirk who returned recently from a trip to China that included talks with government officials and central bank chief Zhou Xiaochuan, senior Chinese leaders have privately voiced fear over the soaring US budget deficit and said that they were increasingly looking to diversify from the US dollar.

'We heard across the board - in private - substantial, continuing and rising concern,' the Congressman told an audience at the Center for Strategic and International Studies, a Washington think tank. 'It's clear that China would like to diversify from its dollar investments,' he said.

In fairness to President Obama who has been accused by Republicans of being a 'socialist' who is responsible for the dramatic rise in government spending, most of these unrestrained fiscal policies go back to the presidency of George W Bush.

Mr Obama and his economic aides insist that one of the main ways to cut on runaway spending and avoid a fiscal disaster is by fixing the healthcare system.

'If we do not fix our healthcare system, America may go the way of GM (General Motors); paying more, getting less, and going broke,' Mr Obama said during an address before member of the American Medical Association in Chicago this week.

The expected costs of the healthcare reform plan have ignited opposition not only from Republican lawmakers but also from many Democrats on Capitol Hill who sense a rising public disenchantment with the level of uncontrolled government spending.

Responding to these public sentiments, Mr Obama has called on Congress to follow that budgetary restrictions that demand paying for expenditures with funds that are made available as the programme is in progress (so-called pay-as-you-go rules).

Moreover, Obama administration officials describe the proposed reform of the healthcare system as part of a wider overhaul of other large government programmes as well as the tax system that will help reduce the federal deficit to a manageable levels.

It is more likely, however, that any serious attempt to reduce the budget deficit would force the White House and Congress to make politically unpopular decisions, including raising taxes on the middle class and imposing cuts on government programmes that enjoy huge public support, like the national pension scheme (known in this country as Social Security).

And that is not going to happen any time soon.




Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.

Is Obama ditching his challenge to Wall St?

Business Times - 16 Jun 2009


Is Obama ditching his challenge to Wall St?

He and his aides may be embracing a more gentle approach to financial system reforms

By LEON HADAR
WASHINGTON CORRESPONDENT

AGAINST the backdrop of economic crisis and Washington's decision to bail out some of Wall Street's leading financial institutions earlier this year, there were expectations that the Obama administration would respond to rising populist sentiments with ambitious proposals to enforce tough federal government regulations on the financial system.

Some even thought that this would include direct intervention in corporate pay decisions and the creation of a powerful government regulatory agency.

President Barack Obama is expected to announce this week his plan to overhaul regulation of America's chaotic financial system. The conventional wisdom in Washington and Wall Street now is that the administration and Congress will probably adopt measures that would allow the government to liquidate troubled financial institutions.

But the administration is not likely to launch a Big Bang-type transformation of Wall Street. It will instead embrace a series of less dramatic steps to prevent future financial panics and protect the interests of consumers purchasing financial products.

Mr Obama, a Harvard graduate whose political and financial backers included leading investment bankers, has never been considered to be a traditional populist. However, as a presidential candidate during the height of the financial crisis, he did challenge the status quo in Wall Street and called for a major reform of the financial system.

Indeed, during the presidential campaign Mr Obama proposed, among other things, that non-bank mortgage brokers and companies be regulated like banks, that overlapping and competing regulatory agencies be streamlined and that a financial market oversight commission, to identify and monitor threats and risks to the financial system, be created.

After taking office, President Obama seemed to suggest that excessive compensation in the private sector contributed to the financial crisis and that the government needed to do something about it. He made that argument after disclosures that AIG, the insurance giant, had paid bonuses of US$165 million even as it accepted billions from the government.

The reports ignited huge public anger and led Congress to approve legislation restricting such compensation in companies benefiting from government bailouts.

Now a sense that the financial meltdown may be over and strong opposition from Washington lobbies that represent the financial sector and enjoy support on Capitol Hill have forced Mr Obama and his aides to step back from their more ambitious ideas and embrace a more 'gentle' approach to reforms in the financial system.

While the Obama administration has yet to deliver its plans for overhauling the financial industry to Congress - and those plans will have to be negotiated and approved by the lawmakers - there are some indications that the administration is not going to call for merging several government bureaucracies into a powerful federal regulatory agency and instead propose adding new regulators to the current mix.

Moreover, the announcement by the administration that 10 banks plan to pay back money they received through the bailout plan and its decision to reject the idea of direct government intervention in corporate pay decisions is bound to lead some critics to suggest that there is a return to 'business as usual' in Washington when it comes to dealing with the dysfunctional financial system.

Hence the Obama administration made it clear that when it comes to regulating corporate pay, it will issue regulations governing pay at companies that receive government assistance, such as AIG, and limit top executives at the publicly assisted firms to bonuses no greater than one-third of their annual salaries.

At the same time, the administration will not be seeking to regulate compensation for executives in the rest of the corporate world. Critics of the financial industry have proposed that the administration use the tax code to regulate executive compensation.

'We do not believe it's appropriate for the government to set caps in compensation,' Treasury Secretary Timothy Geithner told lawmakers. 'We're not going to prescribe detailed prescriptive rules for compensation. All those things would be ineffective, could be counterproductive in some ways.'

He also said that the administration will ask Congress to give shareholders an opportunity to affect executive pay and to require that corporate compensation committees be independent from company management. 'We'd like to see better transparency and accountability, frankly,' Mr Geithner explained.

The concern among Democrats on Capitol Hill that the Obama administration, in the face of pressure from Wall Street, may be retreating from its earlier commitment to use its power to force financial institutions to change their policies became evident when Mr Geithner testified in Congress after the announcement that 10 large banks - JPMorgan, Morgan Stanley, Goldman Sachs, US Bancorp, Capital One, American Express, BB&T, Bank of New York Mellon, Northern Trust and State Street - have been cleared to begin paying back billions of dollars in federal bailout money to the Troubled Asset Relief Programme (TARP).

Hence Mr Geithner was asked whether banks will make more loans once they are no longer tied to the TARP.

'What kind of assurance do you have that these banks that return this money are going to be issuing credit, which was one of the original goals?' Senator Richard Durbin, a Democrat form Illinois, asked the Treasury Secretary who admitted that the banks have not provided such guarantees.

The other bit of conventional wisdom is that the 'stress tests' given to the banks were too lenient, ensuring that the banks would pass them, has helped to add to the impression that the main goal of the administration was to restore confidence in the financial system as quickly as possible at the cost of a major restructuring of this system.

But Obama administration officials insist that they are not trying to restore the status quo ante but are adopting more 'realistic' policy goals that would eventually lead to some gradual changes in the architecture of the financial industry.


Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.

Obama is the realist, not neocon critics

Business Times - 11 Jun 2009


Obama is the realist, not neocon critics

By LEON HADAR
WASHINGTON CORRESPONDENT

IN THE aftermath of his Cairo address to Muslims last week, neoconservative critics of US President Barack Obama's foreign policy are portraying him as a spacey idealist who, in the tradition of president Woodrow Wilson, is trying to recreate the international system based on a wild fantasy that, as Robert Kagan puts it, 'nations will act on the basis of what they perceive to be the goodwill, good intentions or moral purity of other nations, in particular the United States'.

In particular, out-of-job neocons are blasting the supposedly naive approach of the current White House occupant towards the Middle East with his emphasis on the need to open a diplomatic dialogue with Iran and Syria and promote a resolution of the Israeli-Palestinian conflict.

And they warn that a region where players operate based on crude Realpolitik principles would be resistant to Mr Obama's lofty notions of democracy and peace, and that his policies would end up eroding US power.

That's delicious coming from Mr Kagan and a bunch of, well, spacey ideologues who, since 9/11, have been trying to convince Americans that their fantasy of launching a crusade against Islamo-Fascism and remaking Iraq and the entire Middle East along the lines of Western-style liberal democracy would help bring stability and peace, and create the conditions for resolving Israeli-Palestinian peace. And on top of all that, it would have strengthened US influence in the region, no less.

There is no need to do here another retrospective about the eight years of the presidency of George W Bush in order to conclude that his naive foreign policy approach weakened US position in the Middle East and elsewhere, helped strengthen the influence of Iran and its satellites in the region, including Iraq. Worse, the US invasion of Iraq played into the hands of radical Islamic terrorists.

If anything, it was Mr Bush with his Freedom Agenda and his commitment to remake the Middle East, the world - if not the entire galaxy - safe for democracy, who seemed to have tried to do a lousy impersonation of president Wilson.

And by the way, Mr Bush's policies failed to advance political and economic freedom in the Middle East and to bring about an Israel/Palestine accord. In fact, the series of Bush-induced 'colour revolutions' around the world proved to be nothing more than colourful media events.

Unlike Mr Bush's foreign policy, Mr Obama's is grounded in the traditional mode of realism. During his Cairo address, Mr Obama did reiterate American commitment to the principles of liberal democracy, including the support for rights of women and religious minorities.

The difference between Mr Obama and Mr Bush is that the new president, unlike his predecessor, doesn't consider the promotion of American values as the overriding issue in US foreign policy. Protecting US security is the core national interest and that sometimes requires engagement with authoritarian regimes such as Iran and Syria, not to mention close alliances with the kind of governments that rule Saudi Arabia and Egypt.

And in any case, America doesn't have the will or the power to remake the world in its image. It can best 'export' its values through example (soft power) - which is one of the reasons why it needs to close down Guantanamo prison camp - and through diplomatic engagement, global trade and the exchange of ideas.

Hence, Mr Obama's rejection of the notion that there is an inevitable 'clash' between the West and Islam - the two, as he explained, are not monolithic entities - and his emphasis on the need to deal and resolve real issues. This includes the US occupation of Iraq and the plight of the Palestinians as well as Palestinian terrorism and Iran's seeming desire to develop nuclear capability.

There is nothing idealistic or dreamy about Mr Obama's goals in the Middle East or in other parts of the world, such as his interest in improving relationships with China and Russia. It is a vast improvement over the never-ending sermonising that characterised much of the Bush administration's attitude towards these countries.

The current US military build-up in Afghanistan and the more muscular approach towards Pakistan make it clear that Mr Obama is willing to apply military power when necessary - but not as the first option to achieve American interests and not as a means to launch ideological crusades.

That doesn't mean of course that Mr Obama is likely to achieve all or even most of his foreign policy goals. Much will depend on the ability of the president and his aides to ensure that their costly objectives match up with available US power resources.

That is the kind of exercise that was rarely tried by Mr Bush and his neocons, and explains why Mr Obama is being forced now to clean up the horrible mess that his predecessor had made.



Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.

Lower job loss rate does not equal a recovery

Business Times - 09 Jun 2009


Lower job loss rate does not equal a recovery

By LEON HADAR
WASHINGTON CORRESPONDENT

US President Barack Obama returned to Washington, after his trip to the Middle East and Europe, where he will presumably try to boost efforts towards what some officials and pundits are describing now as 'economic recovery'.

Economic recovery you said? But the US Labor Department reported on Friday that 345,000 Americans lost their jobs last month - adding to the six million already out of work since this recession began - as US unemployment rose to 9.4 per cent, which is the highest rate since 1983. And if one recalls the so-called 'bank stress tests', the unemployment rate applied in their worst case scenario was 8.9 per cent. So a 9.4 unemployment rate does not sound like great economic news.

Yet, both officials in Washington and investors in Wall Street seemed to be in a cheerful mood after the report was issued on Friday and digested over the weekend. They pointed out that the May figures were lower than expected and that it was the fewest jobs lost in eight months.

Hence, the current conventional wisdom is that the rate of US job losses is slowing down, that the economy is coming to the end of the plunge, the downturn is slowing, and it is possible that the worst is behind us and that the roller coaster is at the beginning of an upturn.

Indeed, there are signs that some sectors, such as health care, hospitality and education, are even adding jobs, while in industries such as retail, construction and finance, the job losses have clearly slowed down.

But vice-president Joseph Biden wasn't celebrating when he talked with reporters over the weekend. But he sounded a bit optimistic and made it clear that the Obama administration was going to do its best to accelerate the economic momentum.

'As much progress as we've already made, we still have a long, long way to go on the road to recovery,' Mr Biden said. 'A lower job-loss rate is not our goal,' he stressed. 'We will not be satisfied until we're adding jobs on a monthly basis' while getting Americans into secure jobs with good incomes, he said.

As part of this strategy, Mr Obama explained yesterday how the administration was speeding up implementation of his US$787 billion economic stimulus plan to boost its recovery efforts. More than 150,000 jobs have been saved or created by the first 100 days of the stimulus. Another major reason for the decline in job cuts have been the improving conditions in the financial markets.

But it was not surprising that the Republicans in Washington have been accentuating the negative. 'Today's announcement that the unemployment rate hit a 26-year high of 9.4 per cent demonstrates how much middle-class families, small businesses, and workers are struggling during one of the worst economic downturns in decades,' House Minority Leader, Republican John Boehner of Ohio said in a statement. He said the economy has lost more than 2.5 million jobs since the stimulus took effect 100 days ago.

Moreover, many economists expect the unemployment rate to rise above 10 per cent by the end of the year, getting close to 10.8 per cent which was the record for the post-1945 period. Indeed, there are growing concerns that the bankruptcy of General Motors could drive job losses higher in the coming months. Also worrisome is the very slow growth in the level of hourly wages. And if you add the official unemployment figures to part-time workers and those who are not counted as unemployed because they have stopped looking for work, the rate of underemployment is probably above 16 per cent.

The expectation among administration officials is for more improvement in the labour markets as the effects of the economic stimulus package become more evident in the construction industry as well as in the health and education sectors. They hope the economy will start to pick up by the end of summer. The hope is that the GDP growth will then start heading towards positive territory, indicating that the recession could be over.

At a minimum, the signs that the US economy may finally bottom out coupled with a slow recovery could certainly spell political good news for Mr Obama and the Democrats as they prepare for the midterm Congressional election next year.

But with their wealth eroded and facing high debt burden and tight credit conditions, most Americans still face bleak economic times, especially if the unemployment rate rises above 10 per cent. And even if the US economy starts to recover, the concerns over rising debt and the potential for inflation and growing downward pressure on the US dollar could mean that the good economic news could be followed by more bad economic news.



Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.

The 'New GM' will find it tough driving out of trouble

Business Times - 03 Jun 2009


The 'New GM' will find it tough driving out of trouble

By LEON HADAR
WASHINGTON CORRESPONDENT

AFTER buying more than 60 per cent of General Motors (GM), America Inc and the millions of American shareholders (aka taxpayers) are probably not very cheerful owners of a company going through the fourth largest bankruptcy in US history. In fact, America Inc's CEO and President Barack Obama told reporters on Monday that the federal government was a 'reluctant shareholder' in GM, he had 'no interest in running GM' and 'the federal government will refrain from exercising its rights as shareholders on all but the most fundamental decisions'.

In any case, no one has been surprised that after years of losses and the recent collapse in sales, GM would file for bankruptcy protection or by the fact that the federal government ended up with ownership in the company that during its heyday in the 1950s was regarded as an integral component of a booming American economy.

Or as its former president Charles Wilson had put it: 'What was good for our country was good for General Motors, and vice versa.' Mr Wilson's dictum made some sense in the 1950s when GM was one of the country's largest employers and exporters, and was clearly instrumental in strengthening US economic productivity. These days, on the other hand, it seems that what's good for GM is not necessarily very good for US taxpayers who, through the federal government, will be infusing close to US$50 billion in exchange for the privilege of 60 per cent ownership in a 'New GM', a business with very murky economic prospects.

The smaller company intended to get rid of Saturn, Hummer and Saab brands, shutting down several major plants and about half of the 6,000 dealerships, and most of Pontiac (by selling the divisions where possible), and continue while closing about a dozen plants, and eliminating about 20,000 jobs. And if one takes into consideration the US federal government will share in the ownership of GM with local governments in Canada and the United Auto Workers (UAW), it wouldn't be an exaggeration to describe the New GM as a public-owned company.

And that is clearly a reality that infuriates free market critics. They warn that by taking large stakes in GM and in Chrysler as well as in several other major companies, including Citigroup, American International Group, and Fannie Mae and Freddie Mac, the US federal government is using taxpayer money to subsidise failing businesses and in the process distorting the rules of the capitalist system. It is creating public companies that would respond to pressure from politicians and interest groups as opposed to being driven by market forces.

'Obama is making us like Sweden' is the common refrain heard in Washington when conservative policy analysts meet to discuss the economy these days. But President Obama continues to insist, like he did on Monday, that the federal government is a reluctant stakeholder in automakers, insurance companies, banks and mortgage lenders, and that his administration has done that as a step of last resort that was in the public's interest, and that after reorganising these businesses and introducing new rules, they hope to get rid of their stakes and return them to private ownership.

While the public interest argument might make sense when it comes to the federal government bailing out bankrupted financial institutions (although even in this case contrarian economists raise the 'moral hazard' issue), it's not clear why owning GM and other automakers is in the public interest of US taxpayers. And it's certainly not in the interest of the average taxpayer as a shareholder, since no one seriously expects that he or she would make a profit on, or even get back, the 'loan' they made to GM.

Moreover, while Mr Obama and his aides maintain that they are infusing GM with dollars because they want to protect the money that had already been loaned by making the company more efficient and profitable, the fact is that the decision to rescue the company was based on political reasons - a response to the pressure that Detroit, including the powerful auto workers union, exerts on the Democratic Party and its representatives in Washington.

At the same time, the Obama administration, reflecting its ideological priorities, is pressing GM to make smaller and more efficient cars which the company will not be able to do unless the president and Congress decide to impose high taxes on gasoline. And everyone knows that that will not happen any time soon for political reasons.

Ironically, as the US government is taking ownership stakes in another American company, the centre-right government in Sweden is beginning to sell off state-owned pharmacies, one of the country's few remaining nationalised companies, as part of an ambitious programme of liberal economic reforms started in 2006. Perhaps the Obama administration should consider making the US more like today's Sweden.


Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.