Author: Helena

Culpable malfeasance at the SEC?

“Governance”? I think I was too generous in the post I wrote last night on the flaws in the American theory of governance. Well, okay, I did write that the Bush administration has pursued an active policy of what you might call de-governing this country and all the other parts of the world it could lay its hands on…
Lee Pickard, a former director of the SEC has now said publicly that back in 2004 the SEC changed the rules it applied to the country’s five biggest broker-dealer firms, allowing them to borrow up to 40 times their net capital holdings, where previously they’d been held to the same cap of 12 times net holdings as all the other, smaller brokerage firms.
It was Julie Satow of the New York Sun who broke that story this morning.
Barry Ritholtz of the Big Picture writes,

    Who were the five that received this special exemption? You won’t be surprised to learn that they were Goldman, Merrill, Lehman, Bear Stearns, and Morgan Stanley.

Ritholtz also has some good other writings on the topic there from Lee Pickard.
I got all this with a hat-tip to Bernhard of MoA who notes that Christopher Cox, who has chaired the SEC since 2005, was mentioned by rightwing commentator Bob Novak back in March as an excellent VP pick for McCain. (I note that Novak had been acting strangely for a while, including claiming he didn’t remember he’d knocked over a pedestrian on DC’s K St; and recently, he was diagnosed with a large cancer on the brain.)
All the more ironic that McCain has now called for Cox’s firing.
But there is clearly a far deeper rot at the SEC than just Cox– who became chair after the 2004 rule change, after all.
Congress is in the last portion of its term now. But it and the president between them face a tsunami of huge and very immediate decisions about economic governance. These include:

    1. How to govern the newly nationalized entities to maximize the common good of the citizenry, rather than the take-home of the bankers and their often very cosy-cosy regulators who got us into this mess;
    2. What further steps need to be taken by the federal government to stanch the present rapid erosion of global confidence in the integrity of US economic governance; and
    3. How to hold accountable those responsible for the crisis up until now.

None of these tasks can wait until after January 21. I imagine it is quite possible that as I sit here and write, people at the SEC might be holding a huge shredding party to destroy evidence of past malfeasance. (Two good questions: What influence was brought to bear that resulted in that highly irresponsible 2004 rule-change? Who knew about it at the time? Lee Pickard should certainly be called as a witness.)
And regarding the confidence of overseas investors, yesterday, the overseas edition of China’s People’s Daily published a (signed) commentary arguing that,

    Threatened by a “financial tsunami,” the world must consider building a financial order no longer dependent on the United States…

De-coupling, anyone?
Hat-tip Salah for that Reuters report. Reuters notes that de-coupling is not actually Chinese state policy at this point, and adds:

    Vice Premier Wang Qishan, on a visit to the United States, told U.S. trade officials in a meeting on Tuesday that China and the United States needed to maintain close economic ties with global markets going through such turbulence.
    “The Chinese government is well aware of the fact that the United States, which is the world’s largest developed country, and China, which is the world’s largest developing country, should have constructive and cooperative economic and trade relations,” he said.

Today, in response to the US’s financial woes, stocks on the Shanghai Composite Index plummeted 5.84 percent.
As of July 31, China held $518.7 billion of US T-bills, second only to Japan ($593.4 bn.)
Keep watching all strands of this story. The earth is shifting.

Wesley Clark, underwhelming

I went to see Gen. Wesley Clark speaking at the New America Foundation today. Given that there are, you know, so many important things happening in the arena of global security these days, I thought it would be really interesting and instructive to hear what he had to say. The guy did used to be the Supreme Allied Commander, NATO, after all. And he’s said some very helpful things about the need to engage diplomatically with Iran, made some good criticisms of the invasion of Iraq, etc etc.
Also, he made a brief run to be the Democratic presidential candidate in 2004 (for what that’s worth), and was mentioned by some as a possible running mate for Barack Obama this time round.
Quite a disappointment.
This is how his talk was billed: AMERICA NEEDS URGENT ACTION: NO NONSENSE THOUGHTS ON AMERICA’S ECONOMIC CRISIS AND NATIONAL SECURITY DILEMMAS. (Sorry about the caps. They were there in the invitation.)
He made a short-ish opening statement, which seemed like a Milton Friedman-style version of basic Econ 101. Strongly market fundamentalist, with a big dose of US-first boosterism. His main policy recommendation was to freeze homeowners’ mortgage rates in place for five years. But he said nothing concrete about how, precisely, the government should use the powers its has acquired over Bear, AIG, and the GSE’s to restructure them for the good of the citizenry. Or how the obligations the government has acquired with respect to those acquisitions will be financed; or anything else.
Steve Clemons, who was moderating, had a good opening question about the international effects of the US now being seen as “exporting poisoned financial instruments.” But Clark failed to say anything substantial about the serious issues of international credibility and legitimacy that underlay the question.
I was puzzled. Why was this guy, whose whole professional training had been in military affairs, acting as though he had something of value to say on the current big issues of financial management and economic governance (or, mis-governance)? Why didn’t he say a lot more about the massive national-security challenges of the day?
The only explanation I could come up with was that Clark– like so many people in all branches of the US commentatoriat– is currently very concerned indeed about the state of his own, non-trivial investments. (And apparently somewhat less so about the horrendous crisis that NATO now faces in Afghanistan?)
Clark retired from the military as a four-star general in 2000, with a pension of around $85,000. Plenty to get along nicely on, you’d think? Well, I guess he disagreed. He almost immediately went home to Little Rock, Arkansas, and started working for an investment bank called the Stephens Group. A handy chart here shows you how his earnings rocketed up at that point. This article from Fortune tells you about a $1.2 million sweetheart deal he got from Goldman Sachs and a German manufacturer of industrial gases in early 2004. You get the general picture.
Clark’s is an extremely common, “all-American” story of a person who used the the skills and contacts he acquired while in government service to make a ton of money in the private sector as soon as he left the government. That does not, however, make him any kind of an expert on economics. And it is really a pity that it seems to have distracted him from paying the kind of attention to strategic affairs that the country so sorely needs.
(I asked him about Afghanistan. He answered with a handful of meaningless slogans.)
It is possible he might have made a good Vice-presidential candidate? On balance, I think not.

American approach to governance on the line

On Monday, I wrote a long post here on the two big (and escalating) crises that Washington currently faces: the financial meltdown and the roiling escalation in Af-Pakistan. It was a bit rambly. The main thing that linked the two crises in the post was just their size.
I’ve thought more about the whole topic since. Another crucial thing that links these two crises– as well as most of the other big crises the US has faced in recent years– is that they reveal the degree to which the American theory and practice of governance fails to meet the needs of human communities in today’s complex and interconnected world.
Other examples of what I’m talking about include Washington’s failure to have anything like a workable plan for the reconstruction of post-2003 Iraq, and the parallel failure to have workable plans for reconstruction in New Orleans and the Mississippi Gulf Coast in 2005, or in Galveston, TX today.
I think the key weakness in the American approach to governance is the active dislike and distrust of central government that has run through the whole history of the European settlers here, since the beginning of the colonial settler project. Those original settlers came here, the national myth tells us, because they were fleeing repressive governments back home in Europe. Well, some were doing that, and some merely came along for the free land and bounty that they could get their hands on here. (But they all shared the myth.) … And then, as the east coast became populated, numerous hardy, dissident, and/or land-hungry souls set out westward. And though those west-heading settlers were always well protected by the US Cavalry as they laid claim to more and more “free” land, they still maintained the myth of the “rugged individualist”, perhaps as way of erasing the uneasy memory of the fact that their bounty had, in fact, come to them in good measure from the public trough.
… Americans have nearly always had a robust culture of churches, private associations, and non-governmental groups banding together to look after people’s needs. But they have nearly always also had an exaggerated distrust of the role that governments can and should play, especially in difficult times. FDR, and those later champions of the ‘Great Society’, Presidents LBJ and Nixon, were small blips on the screen of a national picture otherwise dominated by the image of the rugged individualist, pulling him- or herself up “by his or her own bootstraps.”
George Bush’s gutting of the capabilities of the federal government over the past eight years tried to make that picture more real than ever.
… I grew up in England at a time of some non-trivial economic disruption there. The thing I’m missing here in the US today, that I would expect and hope to hear more of, is leaders from different walks of life– including political leaders– talking publicly about how “we are all in the current crisis together”, and “we need to take extraordinary steps to help the most vulnerable among us in these difficult times,” and so on.
I haven’t heard anything of that, yet.
Well, I guess this is only to be expected from a country in which medical care has been deeply marketized, where the materially rich are treated like demi-gods, and where the most common assumption in the mainstream media is that people are concerned about the economy primarily as investors, rather than as working families with pressing social and economic needs.
It would be great if the current crisis could lead to a new, richer understanding here of the intimate relationship between the situation of society (“the public good”) and the situation of the individual citizens.
Now that the federal government has agreed to bail out Bear Sterns, Fannie Mae, Freddie Mac, and the giant insurer AIG, surely we need a deep reconsideration of these issues? In the 21st century, it is quite insane to imagine that we might all live like ruggedly individualist frontiers-people! Our lives are inter-connected with, and interdependent on, the lives of the rest of the country’s citizenry in so many different ways.
So now, we need a new, more explicit and more just social compact, a new view of the role of government in society, and new systems to ensure the accountability of central government to the citizens. Yes, that will certainly involve getting money out of the political system as far as is humanly possible. But it should also involve a real commitment to universal health care, a range of new Keynesian-style public-works projects aimed at renewing the national infrastructure… and a new , much better relationship with the other nations of the world.
The “American way” isn’t looking so good these days– to outsiders, or to many Americans. We can do better.

LAT’s Parker on US influence collapse in Iraq

The L.A. Times‘s Ned Parker has a great piece of reporting from Baghdad in today’s paper, charting the main dimensions of the recent collapse of the US’s influence in Iraq.
He leads with this:

    Once dependent on American support to keep his job, Prime Minister Nouri Maliki has consolidated power and is asserting his independence, sharply reducing Washington’s influence over the future of Iraq.
    Iraq’s police and army now operate virtually on their own, and with Washington’s mandate from the United Nations to provide security here expiring in less than four months, Maliki is insisting on imposing severe limits on the long-term U.S. military role, including the withdrawal of American forces from all cities by June.
    America’s eroded leverage has left Iran, with its burgeoning trade and political ties, in a better position to affect Iraqi government policies.
    It also means that whichever U.S. presidential candidate is elected … will have less ability to sway Baghdad than did the Bush administration.

I have been arguing since early June (e.g., here, here, and here) that the balance of real power between the Bush and Maliki governments, regarding developments in Iraq, has now shifted in the Iraqi’s favor. This, to the point that he now has more ability to influence the Americans’ behavior in Iraq than the other way round. I am glad that Ned Parker has now published this additional batch of evidence that further confirms that judgment.
Many in DC still talk about the ability of Washington to “place conditions on” the financial and security aid that it still gives to the Baghdad government.This, though Maliki has shrugged off and/or avoided meeting all of the stated conditions until now, including enacting an oil law, or holding provincial elections, or conducting the Kirkuk referendum, or… or… or..
Parker quotes one long-time DC-based “conditionalizer”, Colin Kahl of the Center for a New American Security. Kahl says the US still has some ability to influence the Malili government, but that “leverage” is now diminishing.
Parker quotes him as saying:

    “If the next president waits too long, our diminishing leverage will likely disappear altogether, leaving us with two strategic options: resign ourselves to ‘ride the tiger’ — that is, accept that we have to simply accept what the Iraqi government does and, at most, mitigate or help buffer the consequences — or jump off the tiger altogether.”

I guess this latter option would mean leaving Iraq altogether?
Note that Kahl, like the vast majority of other DC analysts, looks at the Iraq issue as either a strictly bilateral (US-Iraq) issue, or a trilateral (US-Iraqi-Iranian) issue. Most DC “insiders” pay far too little heed to the idea that there are numerous other actors who can and should be involved in the search for a durable political outcome in Iraq. These include the Arab League, the United Nations, China, Turkey, and Saudi Arabia, at a bare minimum.
Remembering that these other stakeholders exist, have non-trivial powers, and can help Iraqis and Americans to extricate themselves from the fateful embrace of military occupation in a way that does not involve Iraq splintering into mutually conflicted fragments, is a really helpful thing to do. Involving all these other parties seriously in the diplomacy of the Iraqi end-game– or rather, having the UN involve all of them plus the US and Iraqi governments– is, as I have long argued, the best way to arrive at a “responsible”, that is, non-catastrophic, US pullout from Iraq. It will also very helpfully remind Americans that no, we are not the center of the universe any more.

Pro-McCain Jewish group smearing Obama, Brzezinski

There’s been quite a flurry in the blogosphere over some well-authenticated reports that the Republican Jewish Coalition has been conducting a poll of Jewish voters in selected states in which the pollsters request responses to some blatantly untrue statements about Barack Obama and others, including Pres. Jimmy Carter’s national security adviser, Zbigniew Brzezinski.
Jonathan Cohn of TNR’s The Plank blogged the details of the call he received, which was from a company claiming to be simply a netural polling company.
He wrote:

    The caller ran through a list of politicians, to ask whether I viewed them favorably or unfavorably. All the people you’d expect were on the list: George W. Bush. Barack Obama. John McCain. Sarah Palin. Hillary Clinton. Joe Biden. Joe Lieberman.
    But then there was an odd inclusion: Jimmy Carter.
    I can’t say I made much of it at the time…
    But soon enough I understood why they were asking about Carter. After going over some more issues and confirming the fact that I was likely to vote for Obama, the caller made a series of rather pointed inquiries. Would it affect my vote, he said, if I knew that

      Obama has had a decade long relationship with pro-Palestinian leaders in Chicago
      the leader of Hamas, Ahmed Yousef, expressed support for Obama and his hope for Obama’s victory
      the church Barack Obama has attended is known for its anti-Israel and anti-American remarks
      Jimmy Carter’s anti-Israel national security advisor is one of Barack Obama’s foreign policy advisors
      Barack Obama was the member of a board (sic) that funded a pro-Palestinian chartiable organization
      Barack Obama called for holding a summit of Muslim nations excluding Israel if elected president

    My notes are pretty close to verbatim. (I started typing as soon as I realized I was getting polled.) When the caller was finished, I got a supervisor on the phone and asked if he would tell me who was sponsoring the survey. He said he couldn’t reveal that information.
    All he would tell me was that he was calling from Central Marketing Research Inc. in New York City…

So this morning, there was a small demonstration of outraged pro-Obama Jewish Americans outside the Manhattan HQ of Central Marketing Research. And later today, according to Ben Smith of Politico, the Republican Jewish Committee ‘fessed up to the fact that it had commissioned this “poll.”
David Kurtz of TPM considered the question as to whether this was what’s called a “push poll”– that is, an interrogation designed not to test the views of potential voters but to plant certain smears in their minds about opposing candidates. He concluded that they probably weren’t “push polls” at all, but perhaps polls designed to test-run some negative messages that the RJC or the McCain campaign might be planning. However, Kurtz’s major argument on this point had to do with the relative costs of the two different kinds of interrogation:

    The easiest way to tell which is which is by how long the call lasts. If you’re trying to reach a large number of voters, you keep the calls short and dirty: plant the seed of the smear and move on; otherwise, the costs of phone calls becomes prohibitive. The accounts so far are of calls that last upwards of 15 minutes.

But what if the organization running the polling has stacks of money and is dealing with a fairly sophisticated audience in which a quick-and-dirty operation of planting the smear and moving on could be far less effective than conducting a poll that seemed to be serious, objective, and in-depth before it moved to the smear-planting? How would you tell the difference then?
And the smears certainly have been planted, and have been reverberating for a good chunk of the day around the blogosphere.
.. Including the smear that Carter’s national security adviser Zbig Brzezinski, can appropriately be labeled as “anti-Israel.”
Excuse me????
For example, in Ben Smith’s Politico article, he repeats the entire list of questions that Jonathan Cohn wrote down, as noted above, including the one about “Jimmy Carter’s anti-Israel national security adviser.” Then Smith writes:

    Most of [these] statements are true, at least in part. Obama was friendly with pro-Palestinian leaders in Chicago in his early days in politics, but they denounced him years ago for his support of Israel. Obama’s church bulletin ran articles sympathetic to the Palestinian cause; Brzezinski is an informal advisor to Obama; the Woods Fund, whose board he served on, gave a grant to a community center in Chicago founded by Palestinian activists; and he did propose a summit of Muslim nations.

Thus, Smith left quite unchallenged the proposition that Brzezinski is somehow “anti-Israel.” (He and most other US bloggers also left unchallenged the assertion that Ahmed Youssef is “the leader of Hamas.” These guys are all so incredibly ignorant about Palestinian politics, and they don’t even realize how ignorant they reveal themselves to be!)
So let’s just think about a few salient facts about Brzezinski, and Carter, and the policies that the two of them oversaw when Carter was president… Including the fact that that was the team that brokered Israel’s first-ever peace agreement with an Arab country… And not just any Arab country, but Egypt, which is by far the most strategically weighty Arab country of all, and whose enmity to Israel had been the dominant fact of Israel’s strategic geography from 1948 through 1978.
“Flipping” Egypt from a stance of hostility to Israel to one of full, formal peace with Israel transformed Israel’s strategic position overnight. But Smith and others let stand in their writings the idea that Brzezinski is somehow “anti-Israel”?
(Full disclosure: Back in the day Bill the spouse was Brzezinski’s staff person on Arab-Israeli issues and was deeply involved in his very successful peace diplomacy.)
Sadly, when Pres. Clinton came into office in 1993, the pro-Israeli operatives who surrounded him persuaded him to have nothing at all to do with anyone who’d worked on Jimmy Carter’s successful Arab-Israeli diplomacy. Instead he relied on Dennis Ross, Martin Indyk, and all those other pro-AIPAC ideologues, who thereupon proceeded to waste nearly all the great opportunities Jim Baker and the Norwegians handed them for further peacemaking breakthroughs… One of the few things those ideologues succeeded in doing, however, was planting in the minds even of many Democrats that Brzezinski had somehow been “anti-Israel.” What utter nonsense.
Well, it’s interesting to see that the Republican Jewish Committee has been forced to stoop to such low tactics as these phone calls purporting to be neutral “opinion research” that oh, by the way, just along the way have the effect of spreading so many blatant untruths about Obama, and Brzezinski, and others.
Let’s hope that means that the RJC is actually getting pretty desperate?