Saturday, January 30, 2010

Taiwan Weapon Sale

Obama Administration is proposing to sale more than 6 Billion dollar worth weapons to Taiwan. Question is - is Obama Administration saying to China, if you do not cooperate on Iran, this is what going to happen? I doubt Obama Admin will be able to pull through this 'sale of weapons to Taiwan'. With every passing year as China Economy grows and gets heft, China is becoming more belligerent about Taiwan. From Chinese perspective, all the necessary biding of keeping low about Taiwan is done, behind and the time is approaching to finally swallow Taiwan. So they are not going to keep quiet and will make huge noise as well as damage. Besides, igniting nationalistic emotions is always good for Communist China and that is what Taiwan weapon sale will offer the opportunity.

Should Obama Admin. not do then this sale? No, I am not saying that. All I am saying is, Admin should not make an empty offer just to nudge China in it's Iran policy. Obama Administration must be ready to follow through this weapon sale despite all of it's consequences. In light of Chinese pressure to back from this offer without getting anything in return (say China's turn about Iran policy as an example and possible quid pro) will be extremely damaging to Obama Administration.

In the first year Obama Administration is reasonable in it's Foreign Policy and there are not too many failures apart from apparently non-working Iran policy. So Obama Administration should not invite any avoidable damage with China if it is not ready to follow through what it is saying about Taiwan. My feeling is, it is hard to have confidence about Obama Administration that it will continue to show such 'guts and nerves' in following through the Taiwan offer. One has to wait and see how this show unfolds as in all probability this is just a first 'act'.

Sunshine Days for President Obama

- President talks about freezing some portion of government spending to establish the 'budget hawk' credentials along with small, but reasonably good measures about tax cuts and helping small businesses.
- President starts being a 'loud mouth' about Banks along side of some big sticks like Paul Volcker.
- President gives a reasonably well received State of Union address to Congress.
- Next, Fed Chief nominee Bernanke is confirmed.
- Engagement with Republicans in Congress goes as desired - some tough love talk.
- Finally, you have good GDP number.

Overall, President Obama is executing his much speculated pivotal turn in his political approach ruthlessly and with some initial success. It's objectives are two fold:

- to win back those of his Independent supporters who backed him and Democrats in 2008 and who have now crossed over to Tea Party camp and
- to prepare for 'above the fray' Presidency, modeled bit along Regan, when potentially Republican takes over Congress or for sure when they increase their presence at the cost of Democrats after Nov 2010 election.

Policy wise there seems to be a clear break with Paul Krugman line (more deficit spending) and seems that Summers camp has won here - get reappointment of Bernanke for the second term, restrained spending and explicit adoption of Export driven, Mercantile style economy. In his Saturday speech, President went so far even to proclaim that 'budgetary deficits' can undermine recovery as well! That is quite a turn from 'increasing deficit for recovery'.

It seems Administration wants to live by the risk of 'double dip' rather than extent budgetary support. (Prof. Roubini is back sounding Cassandra at Davos meeting.) Here Administration is adopting the 'standard projection' about American economy - it is going to be a V shaped recovery. Both Bernanke and Summers are betting on that (Geithner does not count when big boys are doing the serious business of money). President must be thinking even if we get 'double dip' it will not be politically harmful to switch back 'spending for recovery' route. He is having both ways, but who said Economic Policy Purity is needed for a politician?

As long as non-depressing economic news (like growing GDP) stays in the news and media portrays Admin as 'on top of deficit control'; public will bare with horrendous 'unemployment news'. Also, 'humble line of talking' (Summers not opening Champagne cork on GDP news); that is always handy too.

So all in all couple of weeks after the MA Senate loss, Obama White House is gathering itself at the cost of Congressional Dems. Those Dems will be left with carcass of Health Care Reform. Essentially Obama White House is 'washing their hands' with HCR to make Congressional Dems to pay the price. Thinking is, if Congressional Dems wanted, either they will come up with a bill on their own or will compromise with GOP for a more bipartisan bill. 'Congress is broken, Senate is hopeless and infighting between two chambers is intractable - so why bother?' that is what White House is thinking. 'Let us live for another day', such an expedient view is winning in White House now that they get a sense that it is possible to be at least a hobbled president like Clinton if not epochal FDR II.

American people - least interested in all this. As long as Obama stays above the muck of Congress and keeps working to help them and Economy starts showing some life; they all are fine.

Bernanke Confirmation

The vote 70-30 was not bad. However, clearly America's ruling class missed an opportunity to make a clean start in recasting Fed and Financial Regulatory System. I guess ultimately it amounted to how much uncertainty and risk Obama Administration wanted as well as what appetite Senate had for such a sweeping reform. Looking back it is understandable that folks accepted for lower risk even if it meant to continue with a compromised Fed chief.

There never had been any doubts about Bernanke's accomplishments, his qualifications and his ability to deliver in future. Once you discard Fed responsibility towards unemployment, it is clear that as far as monetary policy goes; he will be a champion guy. He is on the 'leading edge' of monetary innovations and he will for sure continue to lead that charge. I do not buy much into Fed's responsibility towards unemployment since I think essentially it is tied to taxation & currency exchange policy and hence primarily Congress and Administration have to administer that. This country does not have tradition of 'industrial policy' geared towards increasing businesses and employment. But that is what essentially has to be there. Matt Yeglesias has been talking about that and he is right there. Obama Administration is basically moving in that direction. Whatever preliminary job Administration is doing in rendering 'vision of Americas economy', Larry Summers is talking about export driven economy. President talked about that in his State of Union Address and such an export driven approach needs coordinated economic policy i.e. industrial policy which will be more to be driven by Administration and Congress; not much by Fed. Bernanke Fed will primarily concentrate on interest rates, innovations in setting interest rates (rates on reserves and all that), bank regulation and overall liquidity in the system. Dollar exchange rates, taxation and all other industrial policy matters will be driven by Administration and Congress.

Next question is some are speculating that Bernanke Fed will be weak in guarding Fed independence while negotiating financial regulation system overall since Senate kind of obliged him by appointing for the second term by going against the political wind. There is that possibility, but the sense I get from Bernanke is - he is not arrogant, but clearly he feels that Congress and this nation needed him (Bernanke) more and hence they are reappointing him. Bernanke is a stead fast person with immovable convictions. Success in averting economic collapse and acceptance by American Political System in ignoring his 'accountability failures' are only going to strengthen this streak of Bernanke thinking. The way he will understand all this is as - 'because I have been sticking to my opinions, these guys had to come around and accept my thinking; so there is no reason to change'. So I do not expect Bernanke to change any of his views going forward. He will continue to operate the Fed in the same manner - both with same weaknesses and strengths. One will have to live with that and move on.

Monday, January 25, 2010


Paul Krugman finally comes out in support of Bernanke. Here are the reactions and repeat of my case against Bernanke:

1. Bernanke hired Krugman back at the University and possibly played a role in giving a career break. So one can say that a sense of gratitude may have prevented Krugman to oppose Bernanke. Though one cannot deny completely such an argument, being professional of highest quality and integrity it is unlikely that such a reason will be there for Krugman to back Bernanke. At the most, it might have played a minute-scale role.

2. Krugman himself clearly does not want to be a Fed Chief and seems reluctant to get associated with Obama Administration in any active manner. What better way to achieve that than to support the incumbent for another term!

3. Krugman's main arguments against Bernanke are 3: Bernanke's opposition to financial regulatory reforms, insufficient explanation about regulatory failure of Fed in Housing bubble and unemployment. Of these 3, I agree with the first one, Bernanke is fundamentally not inclined for any deep reforms of the system and openly engages in 'maintaining Fed turf'. About regulatory failures, I think he has at least admitted to certain extent Fed failures in that regard whereas I do not believe addressing unemployment is Fed's top responsibility per say. I believe that is the job for Administration and Congress when Fed has to concern with inflation, soundness of financial system and mechanisms to control asset bubbles.

4. As Krugman said on his blog / Op-Ed, Bernanke is not offering any insights in terms of why Fed failed to notice the housing bubble as an asset bubble of consequences and Bernanke is least interested in proposing mechanisms to avoid such asset bubbles in future. It is not that every one missed. It is that Greenspan Fed missed housing bubble when there were many voices who were pointing those dangers. Further, Bernanke has not acknowledged the role of 'low interests' in that mess as well as ill fated exhortations of Greenspan to take 1 year ARM. As Krugman himself commented, Bernanke wrongly argued in Atlanta in the first week of this year (annual meeting of American Economic Association) that at a national level there was no housing bubble compared to other OECD nations when in reality he ignored regional variations in housing prices and bubbles. That was one of the most blatant and intellectually dishonest attempt by Bernanke to absolve Fed. That one single act fundamentally moved my opinion against Bernanke and it should be so for all those voting Senators too. If we want to inculcate the culture of accountability, those who deny their own accountability should be shown the door. This is a glaring failure of Obama Administration.

5. Bernanke can be like Chief Justice Roberts, who was good in his Senate hearing but as is shown by the last week's campaign finance ruling by Supreme Court; he could very well flip at a crucial moment to decide something on more partisan, ideological basis. This would happen when financial reforms would reach critical juncture. As likely, if Bernanke persists in retaining stranglehold of Fed and it's secrecy; America would loose a chance to reboot the system completely.

6. Krugman thinks that MA Senate election resulted in making Bernanke to loose the support. Politically Senators may have chosen this moment to declare the opposition, but there were many questions open about Bernanke for a while and many have been ambivalent, opposed to him for a while.

7. Bernanke continues to hide working of Fed. He should have provided all the relevant information about AIG dealing of NY Fed since clearly many things were not done right there and biases of Fed to favor big banks were clearly in play. (It is possible even at the last minute more damaging details would come out to derail Bernanke reappointment.)

8. I think that Bernanke vote is as consequential as Iraq War Resolution. People may not hold Senators so tight to this vote, but it is the question of whether America wants to use this opportunity to set in motion a process for 'full house cleaning' rather than half-hearted efforts by continuing with Bernanke.

9. Finally, seems like Krugman also do not want any destabilizing effect on the markets by derailing Bernanke reappointment. I believe caring too much for stability capital market and their reactions has brought this recession in the first place. Next, capital markets will stabilize after a while so one should not be so much worried if it is the question exploiting an opportunity to reboot the system. One cannot reboot the system by retaining the same tainted players whose judgment has been in doubt. As Krugman pointed names of other folks, there are many qualified folks who can be at the helm of Fed while guiding America to map a new financial system.

It is pity that America's rulers do not choose to take this opportunity.

Sunday, January 24, 2010

Krugman Reply

Paul Krugman says it is not the case that Obama Administration pursued Health Care Reform at the cost of attention to Economy. Well, I do not agree. Here are things what could have happened or should have been reasoned:

1. There never was a concrete plan to help Small Businesses as far as Credit goes. It was a natural constituency of Republicans, they would have supported measures to increase credit to small businesses and the jobs picture could have been helped.

2. Krugman mentions about some tax credits for job creation. Clearly Administration did not follow on that.

3. Matthew Yeglesias talked about Germany like 'job sharing' program early on so as not to exasperate reeling job losses. Administration had no intention to follow on that.

4. Again I do not share, but there were plans like Gagnon Plans of increasing liquidity via Fed. Krugman himself lend support for that. Question is what political capital White House spend upon Fed to do this?

5. Krugman should read his fellow columnist Tom Friedman who talks about 'million start-ups'. Did Administration pursue any such plans? I work in Valley and I personally know how so many start ups could be benefited if American Government decided to pick up certain 'equity'. Politically it can be a nightmare, but bringing folks of both parties (since all would have interest in that) and setting up sufficiently independent structure; this could have been pulled off. Administration could have taken help of existing VCs too. Look people did not believe Administration when in early days it pulled off quick bankruptcies of GM and Chrysler; but Administration achieved that. Similarly, it could have pulled off a plan for 'start-ups'; but they did not.

6. Finally, it is Administration's job to be creative here and come up with 'path breaking' plans to generate employment and economy. It cannot say that no such things are specified in Economic Text Books and hence they are going to do Health Care. To argue that exploration of all these means would have been possible while Administration and Congress pursue Health Care Reforms is wrong since Administration failed walk the talk - 'we will do all these things simultaneously'. Once you reject that criticism and still do not do what is needed (job creation and economy); you are free to be irresponsible. That is what this Administration has done.

Krugman or Administration cannot fool American people about the 'bandwidth' of Congress. These guys in Congress barely pull off the regular budget on time and with lot of fits and false starts. Doing 'politics' for everything is what they do. So it would have been wise for Congress and Administration to pursue Job Creation first and then mega projects like Health Care Reform once Economy recovers.

But that is water under the bridge. What matters is even in place of 'job creation'; Administration and Congress could not finish their Health Care Reform. Political selling of that bill was utter failure, Democrats are totally spineless and clueless about the 'governance to complete the ongoing bills' and now we have Administration and Congress with 'eggs' all over their faces.

Bernanke Fizzle Out - Update 4

Looks like Republican Senators are backing Bernanke with the view that any other alternative from this Administration will not be as Conservative as like Bernanke and hence it is better to back whatever is in the hand. Sen. Harch says so. That means the 'meme' of Paul Krugman for Fed is having the effect of GOP Senators running to support Bernanke.

Of course, continuing 'bit tainted' officials from Obama Administration is always good for Opposition because it continues to keep in news, below radar, credibility of these officials and hence of Obama Administration indirectly.

All in all Bernanke confirmation is shaping up along simple 'ideological' preferences with total ignorance of immediate past of financial mess and Bernanke's contribution to that. Those on the Left (Boxer, Finegold) are opposing whereas all mainstream Democrats and Republicans are backing Bernanke. Those Republicans who want to court Tea Party voters will be more uncertain. For example John McCain, who is not easily backing and may oppose.

The immediate need of 'pacifying' markets triumphs over longer term benefits of America.

As of today Bernanke confirmation seems to be a done deal and it is a victory for Obama Administration.

Bernanke Fizzle Out - Update 3

I did not realize that newly elected MA Senator Scott Brown has nothing to do with Bernanke hearing since he will not in all probability be seated in Senate by then, that is next week. So the likelihood of politically charged endorsement or opposition by Sen. Brown is less. However, even if he issues a statement of his support or opposition, it will have outsize significance than any single senator.

Sen. Kerry came out with a strong endorsement of Bernanke. Hope it is not yet another his 'Iraq vote' - I was not for it before I voted.... Clearly, expediency of currying favor with Administration, since so many of his Foreign Policy bills in Senate are linked with White House; has triumphed a good sense here for Sen. Kerry. As usual Sen. Boxer and Sen. Finegold are doing great here by not falling in lines with White House; one of the few Senators who had sense to oppose Bush's Iraq War Resolution then.

All those Democratic senators who want to back Bernanke need to look at Chief Justice John Roberts. Here is what James Fallows has to say in this regard:

"The head of the nation's judicial branch was purposefully deceptive during his "umpire" testimony. Or he had no idea what his words meant. Or he has had a complete change of philosophy and temperament while in his mid-50s. Those are the logical possibilities. None of them is too encouraging about the basic soundness of our governing institutions."

The issue is Bernanke is known Conservative, appointment of Bush and anytime in future his penchant for absolving Fed and backing big businesses / banks can come in way of implementing meaningful Financial Reforms. Already it is well known that Bernanke is opposed to Ron Paul inspired 'Fed Audit' and with every passing, as more details of AIG bail outs come out (how AIG gave away $42 Billion to fulfill at 100% obligations to big banks); it is clear that unless the Fed house is cleaned, there is no possibility of any meaningful reforms. Based on Bernanke's track record he will oppose such clean measures, even if he is in all probability liked by Market and would help to stabilize the economy.

These Democrats, Sen. Kerry and David Axelrod, are wrong to say that they do not want to make Bernanke a 'scapegoat'. No, it is not a question of making one single person 'scapegoat'; it is the question of holding each and everyone involved in this mess 'accountable'. Clearly Obama Administration and Democrats do not have any clue in this regard. As Frank Rich says in NYT, there is no hope for this bunch of Democrats unless they change, the very 'change' which is so rare in Obama reign. It is digging of 'graves' that is what is going on among Democrats...

Saturday, January 23, 2010

America in Turmoil

Now that we have 5% market drop in 3 days, we are getting everyone's attention towards the turmoil America is in after the MA Senate Election. The primacy of Politics has come back with vengeance, not necessarily in any good sense.

What has happened after MA Senate Election is, Tea Party is getting firmly established in American Political Spectrum. What started with NY-23 election, it is culminating in positive result for the Tea Party. So this is how we stand in the Political Spectrum of America today:

Left / Netroots



Tea Party

Media Outlets

Huffington Post, DailyKos, Firedoglake, MoveOn Org

New York Times

RealClearPolitics .com, National Review Online, Weekly Standard,
Wall Street Journal

Fox News, Drudge Report

Visible official / unofficial Leaders

Howard Dean

Barack Obama, Nancy Pelosi, Harry Reid

John McCain, Eric Cantor, Pense, McConnell

Sarah Palin, Glen Beck, Scott Brown(?), Ron Paul(?)


Simon Johnson, Arian Huffington

Paul Krugman, Larry Summers, Thomas Friedman

Fred Barnes, Charles Krauthammer, George Will

Rush Limbaugh

Issue 1 - Fed Chairman Bernanke Second Term



Mixed Support

Possibly Oppose

Issue 2 - Health Care Reform

Mixed Support




Issue 3 - Firing Geithner



Don't care, but politically prefer to continue this 'albatross' for Obama

Don't care, but firing that scum bag is not a bad idea

Issue 4- How to create jobs?

More liquidity via Fed (Gagnon Plan?)

More Pork, dollars for union work like Transportation, Teachers,

Do nothing. Let Big Business grow.

May be help to small business?

Issue 5 - Foreign Wars (Iraq and Afghanistan)

Get out

Stay where we are

More boots on the ground

Get out

Now it is true, that more or less this is how the arrangement has been in America. However, Tea Party is a curious phenomenon where it is a mixture of populism and conservative ideas. It is not just 'ultra conservatism'. Sarah Palin and Glen Beck exemplify that at best. MA Senator Scott Brown ensured that how he would distance from the standard Republican machine and GOP has a classic problem on hand - how to ride the tiger of Tea Party.

Lot of Independents who back Barack Obama originally came from Republican Party. But today those have returned to Tea Party instead of going back home to GOP. That makes Barack Obama and Democratic Leadership's problem acute - they need to cater for three blocks: Left / Netroots, regular Democratic Party and now Tea Party too. Looking at the issues, it is clear that this is near impossible.

Taking on Wall Street is a strategy to address both extremes - Left/Netroots and Tea Party. But inherent Corporists influence of Rahm Emmanuel, Larry Summer, Chuck Schumer of the traditional Democratic Party would not allow Barack Obama to take on Wall Street clearly. Barack Obama is unlikely to undertake 'thorough' reforms here. Case in point is Bernanke re-appointment. If Barack Obama wants to save his politics, he needs to take out that nomination. But that is also at the same time 'giving in' to traditional Republicans because any time your own nomination goes down, you hand a win to opposition i.e. traditional Republicans here.

With Barack Obama's Wall Street fight ingrained for a failure; come November, Republican and Tea Parties are going to increase their presence in Congress at the cost of Democrats. Chances of American Economy improving during this period of turmoil, which can buffer Democrats, are not bright. Going forward with reduced Democratic presence in Congress, Republicans and Tea Party are going to make the life of Barack Obama miserable to ensure that his Presidency does not do anything constructive.

Hence, the importance of completing ongoing bills like Health Care Reform for Democrats - that ensures foundation for their constructive Politics. This means lots of guts and fights. Fight is also needed while taking on Wall Street.

This political fighting spirit seems to be the Achilles heel for Democrats.

Friday, January 22, 2010

Hillary on pot of Gold?

Chinese government has effectively rebuked Hillary when she (knowing the hurdles) asked for 'free internet'. It is obvious, or let us say very easy to understand, why Chinese government would not give in to Hillary demands. It is unlikely that she and State Department would not know it.

So then is this the real 'topic' on which Obama Administration has been waiting for the proverbial fight with China? What better issue than 'internet freedom'? You have the word 'freedom' there so our Tea Party folks will join it. We have 'internet' there so Liberal, Progressive constituency of Google, Silicon Valley and California is all after you. And then it about 'China' - every fight with China is what our Labor would love.

Granted, this is a ultra-cheap punditry and things are always complicated and more serious than what I am arguing here. But it is just a thought - why not Hillary do this 'fight' with gusto? Tremendous political wind is behind her back in this fight.

By her involvement in Haiti and graceful handling, she is continuing her remarkable work as Sec. of State. And now she is following this Google China Internet Freedom fight. Excellent. Madame is really firing on all cylinders and I love what I am watching here. Hope she continues this fabulous job.

Note - No, I was never Hillary fan and never backed her in Dem Primary. In fact my badge of honor is to participate in lone, loosing campaign of Barack Obama in California Primary way back in 2008 Jan.

Bernanke Fizzle out

We get it the games played in Washington - Sen. Finegold backing out Bernanke candidacy while White House still backs him.

The game is after MA Senate election, there is an acute need for Democratic Politicians to show the distance from Obama and White House. That is what is at play here. Chances of Bernanke getting accepted for the second term are dwindling every passing day. That is good and in no uncertain terms Bernanke needs to go. But aha! if Obama withdraws that candidacy he will deprive these Congressional Members of an easy route of 'glory' - the glory of showing 'independence' from Obama White House. Hence the kabuki.

What a fall for the Man of Hope. In one year, instead of changing the Washington, it has changed Obama and he is at full speed to play the same games.

Why is not President simply withdrawing Bernanke candidacy straight without any drama since that is the right thing to do here? Why is he not simply 'firing' Geithnier instead of steadily drawing him in the corner that Geithner is worried about Volcker Bank plans and paint him black? Man, why waste all these public cycles. Do some clean thinking and surgical actions in one go. This is all really disappointing and the Obama White House has become all 'drama' and no consequential actions. Unability to fill these positions is not a valid argument - that is governance, to fill these positions by competent and timely professionals. White House is not doing good here.

Update - With Sen. Boxer as well as indicating her opposition to Bernanke renomination as Fed Chief, the opposition is gathering momentum and looks like it is a matter of time before Bernanke withdraws it or simply time passes to bring the hearing (Jan end is the deadline). So finally Democratic Law makers are making something good, meanwhile White House continues to be a laughing stock. Well, I case someone needs to continue the Bush tradition of 'clueless' commander-in-chief!

Update 2 - After little of thought, it is clear to me that; one has to ponder about support for Bernanke in GOP. Some GOP Senators have strong support to him. Bernanke is Bush appointee and by and large Conservative, siding with Big Banks and Big Businesses. So it is not that easy that GOP Senators would so easily back out. In short the situation is not 41 GOP + few Dems and hence the game is over. Further, what if newly minted Sen. Scott Brown of MA extends his support? He being that Super Hero and Super Senator for the moment, President Obama will be obliged to grant those wishes. So all in all, we will need more Senators to 'defect / peel off' before Bernanke ship goes down.

Contrary to David Brooks who compared Health Care Reform Bill as Iraq situation, actually the Bernanke vote is shaping more along the lines of Iraq war resolution - at least so far. Both Finegold and Boxer had voted against the Iraq war bill and both are at present against Bernanke. Until Bernanke support changes from Iraq war bill support structure to more broader pattern, Bernanke is not out yet. He may still be able to pull off his nomination.

Update 3 - Here

Monday, January 18, 2010

Beyond MA Senate Race

Following are the observations about what is happening in the special Senate election in MA and consequences of that.

- With last PPP poll giving GOP Brown lead of 5 points (51-46), chances of this election breaking for Brown are high now. Another by Research 2000 showed it as a tie, but decrease in % voted for Coakley from their previous poll. No more it is less than 50% chance only for Brown win. One more poll is likely to come out and if that shows an edge to Brown, the probability of GOP win will increase more. Nonetheless, the political ball is with Tea Party now for sure, regardless of what happens.

- If Brown wins this election, he will for sure block Health Care Reform (HCR) and in fact he will be obliged to block it having fought the election in opposing HCR. If Dem Coakley wins the election, Senate could be okay for HCR, but House for sure will become more cautious in supporting liberal elements of HCR. In fact in any case that is going to happen with House members and it will be difficult to hold the Dem caucus in House together. So no matter what, one way or the other, what happens in this election is having the effect of going away from Liberal agenda. In that sense, the 'magic carpet' ride of Obama Election and his agenda has come to an abrupt end. If HCR fails, that will be a dramatic blow to President and Democrats. It will be cruel to this President, but there is nothing that can be done to change the reality. His Presidency will have to survive through this death blow the same way Bill Clinton pulled of in earlier decade.

- What is happening now, primacy of Tea Party and successful opposition by Tea Party to Liberal agenda; Liberal Bloggers like Ezra Klien, Matt Yeglesias, TNR all those folks failed to detect early on. It seems as if the 'high point' of this wonky, policy rich Liberal critique of political commentary has reached. In a way failure of HCR or chasms exposed thereof, is the high water mark of such progressive blogging. Lefty blogs like Daily Kos, Huffington Post and Firedoglake were all burnt in their craving for Public Option ignoring what many in USA were asking at that time - to reduce the excess of Government involvement in people's lives. Whereas wonky blogs like TNR, Ezra Klien and Matt were all busy in debating 'policy nuances' of HCR and failed to recognize the primacy of politics. So it seems continued American involvement of people may have to find new ways of expressing themselves and will have to adjust to the reality of 'Center-Right' polity. It is bit sad and disappointing that all these smart and lefty, progressive bloggers in the end are turning out to be a failure, unable to 'read' people's mind and hence failing to 'lead / guide' American Politics.

- The longer term and larger implications are very different. Congress continues to be good at 'obstructing an agenda' rather than delivering positively on an agenda. The undemocratic Senate (filibuster and disproportional representation to state population) is the root cause here. There is no chance that this government structure would change in America, no matter how much VP Biden talks about that. This is because, every ascending political party finds it unusually beneficial to use this obstructing mechanisms to gain the power and that is what opposition parties are expected to do. It is not GOP's responsibility today to offer agenda. No matter how much Andrew Sullivan says Nihilism of GOP, in Democracy that is what happens. The faulty structure of American Congress amplifies such behavior. This means Congress will continue to give up its role of making 'difference in people' lives and it will all fall on Presidency. Not only President has to win the national election and set agenda, President going forward will be fully required to bring in her 'super majorities' to get this agenda executed. This is a dramatic expansion of Presidential Politics and America is traveling fast on that road. I am not much worried about dictatorial ingredients built in such an arrangement because you have to imagine how towering such President will be - the one who wins Super majorities and gets successful such a vast agenda on her own. It will be multiple times Obama. The reason I worry less for dictatorship, as Tea Party and MA election show, this Union still has amber of electoral independence and political success by igniting that amber is quite easy; it will continue to happen (like Brown in MA - this is not Ted's seat, but the seat of people of Massachusetts.)

- On MLK day, all that can be said is what America needs is another peaceful resistance movement to change this Senate structure of super majority and bringing in the proportional representation in that chamber; if we want Congress to deliver positive agenda. Otherwise we will have to keep on waiting for 'super heroes'. We may like Obama or we may love Obama, but looks like he is not MLK or Lincoln - guys who pulled of 'dramatic change' in short period. Considering how rare it is, waiting for super heroes is never a good strategy and that is not where we want to mortgage America's future. Change within people by people for people is needed.

Thursday, January 14, 2010

Bank Tax - Right Policy Wrong Reasons

Today President announced details of how Fed will levy around $90 to $120 Billion tax on around 50 banks and financial companies over the period of 10 years. One would say it is good to know that White House has at least started to address some of the 'political imbalance' it perpetuated for this long. One can also understand that White House wanted to wait till banking recovers to start talking about this levy. Of course, one suspects the real reason is White House is determining now that it is untenable politically to let banks go free besides the looming international pressure in months to come. Whatever is the reason, it is a good first step and Americans will be glad to hear the details.

However, there is one incorrect thing which this administration is touting of the flavor of 'we fight Al Qeda in Iraq to stop terror attacks back home' i.e. plain and simple political lying or classic 'straw man argument'. Administration is arguing that it is charging banks because it wants to recoup all the losses of TARP presumably caused by banks. Who are they kidding? Banks have returned most of the money with interest and there is no possibility of banks creating losses on their direct capital investment under TARP. Those bank equity / preferred shares investment in banks have been around one third of TARP total.

The losses in TARP are due to investments in AIG, GMAC, Fannie Mae, Freddi Mac, GM and Chrysler; meaning all the non-banks in stricter sense. It is understandable that:
- first of all, all these bail out to above mentioned companies are justified and no one is taking Fed at fault for that (except AIG),
- it is also the case that these losses are partially contributed due to recession apart from 'poor management of these companies and political interface'; and
- finally it is also clear that these companies will not be profitable for long time to come (GM could be in a year or so).

This means why is Administration forwarding 'rob the Peter to pay Paul' type of argument for applying Bank fees? Just because Banks robbed public, i.e. some one else did to pay for themselves (i.e. executives and top traders); does not mean Administration advance the same argument in justifying Bank Fees. Financial Times rightly argues along these lines in it's Editorial.

It is precisely this nauseating, condescending attitude of Politicians whereby they assume that Public needs some simplistic arguments to understand so called complex issues is the real problem of politics in this country. We expect President Obama to talk 'straight' with Americans. Public is quite ahead in understanding issues, it is only Politicians who are refusing to face the reality.

We want Administration to defend Bank fees for what those are for:
- as NYT Editorial pointed, the general cost of the Great Recession caused by these greedy banks is quite high than whatever fees they would pay over a decade (homes lost, jobs lost, assets evaporated, retirement gone, etc.);
- we need ways and means to stop future leverage and these fees on 'liabilities and leverage of banks' is one of the many steps needed; and
- it is a way to replenish part of budgetary deficit at this juncture when 'money is short' for the Fed.

Actually, as NYT Editorial and many others have pointed out, such fees only address one part and it does not address the issue of 'how to stop bonuses' to bank executives who do not deserve those as well as how to stop continued risky compensation practices at these banks.

We want Administration and President Obama to support these fees for right reasons and not some hypothetical / wrong reasons which they want to 'stuff' gullible public. No one is trying to shield bad bankers here. However, let us be straight and honest here.

Sunday, January 10, 2010

Unraveling of Obama Presidency?

From latest PPP polling reports it seems Republican candidate is ahead of Democratic to fill Ted Kennedy's Senate seat in Massachusetts. The GOP candidate is actively campaigning as the 41st vote to block Obama's Health Care Reform (HCR). Indeed if GOP candidate wins that election, it will be one of the biggest upsets because you cannot get more thorough bred Dem State than MA. Such a result will be a death blow to Obama Presidency. Years of political investment, very rare Dem majority needed to pass legislation in the broken American system, the paid opportunity cost of relegating Economy on back burner for passing HCR; all that will become a 'sunk cost' and it is doubtful whether President and Democrats can politically recover from that morass.

Chances of this upset win are still less than 50%, but it shows the scary times this Presidency finds itself. The primary fault for bringing situation to this precarious stage is with Senate Leader Harry Reid who knowing that there are no votes for Public Option (PO) continued to play the politics of PO and wasted enormous amount of precious legislation time. Practically he should have simply taken the Senate Finance Committee passed bill as is. That could have brought him one or two GOP votes as well (Snowe and possibly Collins); would have given him the comfort of solidity of votes; it would have forwarded the best cost controlling bill among all proposals and it would saved time. Agreed that he got his leadership call right when he decided to jettison GOP votes and concentrate on Dem block only. But then again that focus exactly exposed shameful shenanigans of Lieberman and Nelson and time was lost. All that has contributed to bring this situation on the precipice of a dramatic political failure.

Through out these legal proceedings in Congress, White House and President Obama demonstrated a classic weakness - tendency to leave crucial details to Congress and in the process to loose precious time while Congress makes circles. If Obama White House was more pro-active early on in HCR; lot of things could have been done right way in the first place itself and the bill would have passed in 2009. Same with the Stimulus Act - they left it to Congress and they passed a substandard bill (though better than their early disaster versions crafted by House Committee Head Obey). It is clear that Obama White House is 'over learning' lessons of past Clinton Administration where attempts to dictate things to Congress brought down the whole house.

As if one HCR looming disaster is not enough, there are other more serious problems cropping up and that is exposing fatal weaknesses of the political strategy followed by this White House. First and for most, it is clear that Americans have paid more serious immediate and long term price than potential advantages of HCR when this administration and Congress relegated 'fixing Economy' project to the second place. The failure is in a wrong political call in setting policy priorities. But there is more to that - when critics and well wishers pointed President Obama dangers of taking too many things simultaneously; they were derided and scoffed and President Obama claimed that he will and is capable of handling things simultaneously. Now we know that he has failed to 'walk the talk'. No matter which way one cuts, fact is he and his Administration have deprived Economy policy making from the top priority (barring war and national security) it deserves.

In political balancing act, after tremendous attacks from Conservatives and Libertarians, last year President Obama tried to contain people's expectation by saying that "we all know what Governments can do and can not do" in reference to more policy measures in addressing unemployment. This is contrary to the overall 'interventionist' philosophy he has adopted nor it sits well with Neo-Keynesian Economic approach (generally vociferously advocated by Paul Krugman) which he seems to follow. Even if one grants the freedom of not getting dogmatic about all this, then is President Obama going to the front and telling people that 'his administration would not do more and doing anything more is more damaging in longer term'? Why some half-hearted measures to pacify some Lefty Congress members? Why play politics there when Americans are loosing left and right economically? This will become very clear when Senate would propose another 'small bill' to invigorate jobs which will be smaller than a measure passed by House and President Obama will meekly sign that knowing it will not solve the problem. If deficit funding is the problem of such stimulus measures, why President Obama is hesitant in introducing taxes on rich? If 'now' is not the time to introduce taxes on rich then when? Are we expecting to wait for 2 more years for Tax Reforms and then be with an egg on face as like HCR?

Say what you of Nancy Pelosi's House, at least House never wasted time in passing bills including crucial 'cap and trade' bill which will fundamentally reorient American Economy (which is what required at this time). Granted that House bills are of lesser quality, but at least such a swift and forceful political response on time not only brings confidence to Americans that their political system can solve their burning problems; it does not have the stigma of 'opportunity cost sunk' by way of time lost. On the other hand poor Senate Leadership by Reid and wrong political strategy by Obama White House have compounded already weaker Political system and rendered it dysfunctional. We Americans are paying the price. Since Meridith Whitney said in last summer that credit is not flowing to Small Business, around six months have passed and what has been done? That is what happens when we say that this Administration and this Dem Congress, Senate in particular, are not 'focused' on economy and focusing on HCR at the cost of people's livelihood.

Finally, to pour oil on fire; not only this Administration is ignoring employment issue; it is literally 'sleeping' with those who caused this mess - Wall Street Bankers. Treasury Secretary Tim Geithner's needs to go now. Henry Blodget has an excellent post about this and Geithner replacement should not be another Wall Street Banker like JPM boss Jamie Damon. Even Ben Bernanke's time is up too. The way Bernanke attempts to absolve himself and Fed from the Great Recession, as he tried to explain in his speech in Atlanta last week; that is wrong and disgusting. Failure of regulation regime is all right and a correct diagnose, but Fed was complicit too in ignoring dangers of CDO or lax mortgage writing terms. Nobody bothered about corruption of Rating Agencies. We know that when Alan Greenspan was vehemently rejecting Fed criticism of fueling housing bubble, we Americans paid the price. Similarly we know that despite all that Bernanke has done to pull this Economy out of the mess, he is wrong when he does not accept any criticism of Fed and is simply engaged in preserving Fed Turf while at least few in Congress are realizing that we need to redraw the Fed charter.

If President Obama wants to address the political challenges thrown by Tea Party, he needs to take initiative and withdraw Ben Bernanke candidacy from Fed Chairmanship. Bernanke's service to this country is done and though more is left to do on economy repair; any continuation of his at Fed is damaging. It does not sit well when President Obama wants to give big lectures about 'accountability' whereas Bernanke is busy in freeing Fed from any accountability in creating the mess.

Team of rivals - the time is now. President Obama can rectify some of these damages if he brings in Fed critics like Ron Paul on board and by taking help of GOP Congressional members (John McCain or Eric Cantor); forms a Congressional committee to redraw the Fed mandate and to find a person to replace Bernanke who will implement this new blue print. As much as Democrats have political need to blunt political challenges of Teat Party, GOP is equally interested in facing down Tea Party. That is the unique political opportunity this President has. To exploit this opportunity, Preside Obama will need to:
- replace Tim Geithner by a non-banker;
- start on war footing efforts in Congress to redraw Fed and find replace for Bernanke and
- completely focus on 'fixing economy' as well as initiating efforts for strategic transformation of American Economy (like cap and trade bill to put a price on Carbon and kick start Green Economy).

If these things do not happen, Obama Presidency and Dems in Congress will be at the mercy of 'unemployment reduction' at slow place as Economy mends on it's own. But people will know then that while Americans were suffering this Presidency and Congress remained on side line without doing things which otherwise were possible for them. What we will get is President Obama's Katrina Moment.

Saturday, January 09, 2010

Tired of Israel

There are not many things which Obama White House is getting right recently. But one of them which White House is getting right is this murmured policy of withdrawing from Palestine-Israel conflict. If this article in Haaretz is to be believed, indeed it is good that Obama White House is showing the withdrawal symptom from this conflict. Rahm Emanuel is the point man here and what he is pulling off here is admirable, essentially in the best interests of America.

You see there is no point wasting time and political capital with Israel if PM Netanyahu is not interested in restricting settlements nor when he is not in a position to pull off necessary political shift due to intransigent Liberman, hard line Israeli FM and his faction. Americans and Obama Administration are not soft on Palestine and especially after what happened over Christmas would not tolerate any violent tactics of Palestinians. But it seems that for all the advance negotiations of Obama Administration with Israel, current Israeli government thinks that it can pull off a miracle on their own. Well, then good luck.

Not that this Administration line is without any risks of it's own or they did not make errors early on. Israel can decide to launch unilateral attack on Iran, further undermining America's leverage with Arabs. Israel can make strategic moves in going into the comfort zones of Russia or China or both. That is all fine and those all are valid concerns. But for American Government, which is hobbled by the recalcitrant economy and multitude of challenges all across the board; the supply of political capital is quite limited.Simply there is only finite time available for this conflict in White House.

If it is means folding the American tent in Galilee, collect the marbles and go home; well so be the case. American public will hardly fault Obama Administration for such a reversal. We have to understand, the only game in the town of Washington DC is 'jobs and jobs'. Everything else is dispensable.

Friday, January 08, 2010

Obama Responds

So in the case of 'underwear bomber' over Christmas of 2009 it seems that it was not a failure of any 'identifiable' person. Otherwise what President Obama wanted to indicate in his yesterday's speech that he would have fired that person. President says it was a 'systematic failure' rather.

It is possible that one cannot locate any single person or group of persons responsible for dropping the ball in this episode. When that is the case, to insist that President Obama fires some body for the sake of fulfilling public's blood thirst does not make sense. Since President Obama made it amply clear that he holds his Administration Leaders and Intelligence folks accountable, he holds himself responsible and that he said so publicly and he has instituted some mechanism to hold folks accountable on ongoing basis; all that can provide some relief to American people. It will buy some time for Obama Administration.

His speech once again showed his 'core' power - articulation, clarity and moral compass in reasonable shape. I suspect though not fully satisfied, Americans will grant one more chance to this Administration.

What do we make of all the Administration changes President talked about? It is 'wait and watch' approach. Proof of the pudding will be in eating and hence Americans will be patiently observing how things work out in months to come.

Clearly this White House is Politically alert even if on back foot. President laid down chain of accountability forcefully and publicly, leading up to himself, and he was very explicit in characterizing these acts as 'America at war' (which would pacify Conservatives and Independents to some extent).

However, he went beyond all that. Tom Friedman has been arguing for long that Muslims themselves need to condemn senseless violence of Islamic Fundamentalists of Al Qeda type and he has been in a way suggesting that American Leadership shows the courage in 'calling Muslim Leadership' for their coy behavior. President Obama went to that well today when he said that America will make efforts to proactively make it clear to Muslim Societies that 'nihilism' of Al Qeda is not going to take them anywhere. Pretty soon, it is clear that President Obama would not hesitate in crossing the line and start holding leadership of those Muslim countries responsible if they do not actively speak against such Islamic Fundamentalists and their violence.

One hopes that Obama Administration not only remains politically alert but also executes on these promised changes. Eight years after 9/11, America has failed to pull off some basic stuff in preparedness:
- like a single Database of potential terrorists which can uniformly inform all involved parties to do their job effectively,
- a single throttle point which determines leads to follow along with an ownership layout for that case and
- finally end to end tracking of all identified leads along with information about actions taken which would also make it easy to enforce accountability.

This is all shameful and it needs to be rectified as soon as possible.

Friday, January 01, 2010

Choosing Sides

Matthew Yglesias argues that Iraq and Afghan style 'boots on the grounds' is exorbitantly expensive strategy to deal with extremists who intend harm to USA. There is a point in that. He is pointing out the dangers of repeating same strategy in case of Yemen, now that American Mainstream Political Establishment has started to realize this new sanctuary. In place of this expensive counterinsurgency strategy, Yglesias advocates cheaper way of funneling some resources to local forces to wage and continue the war against those forces which intend harm to USA.

Assumptions in such advocacy are:
- those local forces are present in the first place;
- the ruling junta is engaged in activities which deprive indigenous people of their own benefits while sponsoring terrorism against West and other countries (what if those people are taking care of their own people?) and
- the internal struggle for power needs to translate in stopping of Terrorism or activities which are against the interests of rest of the world.

Libya for a while pursued Terrorism as a state policy but continued to take care of their own people so as there was no locus standi for any internal forces to wage a battle against the State. North Korea does not have any such viable internal forces. And then we have the classic case of Iran - though there are internal factions, taking side of any of these factions does not seem like achieving the goal of stopping nuke development as all factions seem committed to this strategy.

'Taking sides' - that is what Yglesias approach is essentially - worked in case of Iraq when in Anbar province General Petraeus took the side of Sunnis. Against Soviet Union, Americans took the side of Mujaheddin (fore runners of current Taliban) and it worked and today America is betting with Karzai. In Pakistan, it has been a blur picture with mixed results.

So such an approach works as long as you have, what Yglesias calls local forces, present and their interests and America's interests are aligned for at least some areas with tangible results to America upon success of these forces. In absence of that, we are at sea; as like in Iran.

Andrew Sullivan on Iran

The eminent blogger of our time, Andrew Sullivan, writes about what political choices President Obama can undertake with regards to Iran. Andrew has been undertaking 'in depth' blogging about past and ongoing resistance movement in Iran against their current rulers. Very few blogging sites or Media outlets have undertaken such a vigorous coverage of happenings in Iran. His credibility and track record in this area is unmatched and for that reason no one can argue lightly against his views.

Precisely because Andrew has been the leading light on 'thinking about Iran' it is important to address his contentions and prescriptions. There are two points he makes in his long and in depth blog post:
- it is not about 'us' (meaning Americans or those in West who back political freedom and resistance movement to attain such freedom) and
- America and West will inevitably have to accept Iran with Nuclear weapons.

His first contention is obvious and straight forward to agree with. His indirect and at times direct aim over there is to refute the line 'march of freedom will solve the problem of hostile regimes' kind of argument of Bush Government (Cheney and Rice propounded that line further). No one is under any NeoCon impressions that such 'march of freedom' will bring peace to West. Realism in classic American tradition has triumphed, we do not have Bush Administration any longer, American Foreign Policy is no more beholden by NeoCons and President Obama has firmly planted the Realism in American Foreign Policy.

It is his second contention where there any many problems. Andrew rules out any military action because he thinks that it will ignite kind of Islamic Terrorism which West will not be able to withstand and effectively Western societies will burn away in that reaction (or another oil shock can debilitate global economies). And then there are no other options available like workable sanctions as he rightly diagnoses that in the end Russia and more over China will not come around such sanctions. As a result, there is no choice apart from accepting the nuclear Iran; that is his argument.

The basic flaw in this argument is Andrew, effectively in kind of irresponsible way, completely ignores what will be the consequences of Nuclear Iran. As many have pointed, straight forward consequences of this developments will be:
- Sunni Arab states like Saudi Arabia, Syria and Egypt will necessarily go after Nuclear weapons and
- Iran will embolden Hezhbolla and Hamas to strike against Israel (one reason why Hamas may prefer to lie low now - wait until internal Iran turmoil subsides and Iran acquires nukes).

Nuclear Iran will for sure ignite the ultimate race among all these Middle East Nations to don the mantle of Islamic Leadership. Those who fail to point out this or attempt to put forward some erudite argument saying why this will not happen; are essentially playing with fire. Such arguments are wrong and rest of the world will be then needed to concede the 'space' to Iranian Islamic way of life. Iran has been trying to get hold in Arab-Israel conflict as a way to establish credentials to establish Islamic Leadership (so as Iranian strength is not just limited for Shi'ite brethren but extends to Sunni brotherhood too). With nukes, there will not be any end to violence which will be unleashed by Hamas.

So the real question is what is the cost of undertaking any military or surgical attacks in Iran; especially feared backlash. What Andrew implies that such a backlash will be across the board in Middle East, kind of Islamic backlash; that is not convincing. Why would Sunni Arabs, Saudi and Egypt would participate in any such anti-Western violence? They will not. If the argument is we have remnants of Sunni Al-Qeda joined by new groups of Shi'ite militants; is it any worse than when Nuclear Iran is igniting violence for Hamas? How do we know that nuclear Iran will be only content with Arab-Israel conflict? What permutations with China and Russia would complicate the whole way of life for Western Countries and rest of the world?

The reason risks of nuclear Iran must be fully understood and challenges of stopping Iranian nukes must be met is, it is pretty clear that regardless of who governs Iran; pursuit of nuclear weapons will be unchanged. Exactly since Iran's internal resistance is 'not about us' and it is about them. This means by now American Realism has fully understood that any regime change in Iran has no relation with the constant danger of Iran in pursuit of nuclear weapons. That danger has be to met and nullified. Iran signed NPT and in clear volition of that and many other UN resolutions is pursuing nuclear weapons. The end goal of nuclear disarmament, which President Obama wants to pursue so earnestly as he articulated in his UN speech and Noble Peace Prize Acceptance speech; will not be achieved when nuclear Iran ignites the nuclear arms race in Middle East. We just have to look at South Asia to understand how deep animosities entrenched over multiple cartography changing wars is a recipe for nuclear arms race when one nation acquires nukes. Further, though nuclear Pakistan never came close to any kind of Islamic Leadership, failed Pakistani state is equally a danger considering all the proliferation which goes on.

As commentators like Andrew Sullivan (the whole bunch mentioned Marc Lynch here) do not want to evaluate the 'cost and consequences side of the ledger' when Iran attains nuclear weapons; they conveniently reject the option of military action in the fear of starting global reactions. Obama Presidency may have started in a darker period, but it can never be darker than when Leader of the Free World looses any gumption to stop descend of the Middle East into a nuclear era which eventually will result in:
- annihilation of Jewish State and
- end of Western way of life as we know.