The Mitchell Report

Up The Creek Without a Paddle

“To be accepted as a paradigm, a theory must seem better than its competitors, but it need not, and in fact never does, explain all the facts with which it can be confronted.”
The Structure of Scientific Revolutions
Thomas S. Kuhn

Dear Friends,

If you find it difficult to pinpoint or articulate a governing principle, a doctrine - dare we say, a paradigm -- about whether the U. S. should intervene in Libya, Bahrain, possibly Syria, and wherever else revolutionary spirits may awake, welcome to the 21st Century.

Consider for a moment, the basis on which precepts - national security interest, humanitarian concern, responsibility to protect, affordability - you believe decisions of this magnitude should be made.

And then imagine that you're the President of the United States.

America confronts a world as complex and uncertain as at any time in history, and we do so without “an American paradigm” - a foreign policy and national security paddle to rival George Kennan's “containment policy,” which kept us upright and afloat for a full half-century.

Hence, today's inquiry - Whither America in the 21st century global order?

And on that question, there are competing theories, schools, and models, which 
reach beyond those insipid rhetorical claims -- we're in decline and we're still No. 1. - and ask us to consider our view of the first order questions.

Today we'll consider the work of three scholars who confront this question with differing perspectives, and who eschew traditional metrics about power and balance of power. As you'll note, each sees a narrower, less expeditionary and interventionist role for America.  

First up is “Washington Rules: America's Path to Permanent War,” by Andrew Bacevich, professor of history and international relations at Boston University, Colonel, U. S. Army (ret.), and a prolific author and essayist.

As the title implies, Bacevich is a contrarian of the first order whose personal transformation from orthodoxy to heterodoxy (or apostasy) is described in his Introduction, “Slow Learner:”

“By temperament and upbringing, I had always taken comfort in orthodoxy. In a life spent subject to authority, deference had become a deeply ingrained habit. I found assurance in conventional wisdom. Now, I started, however hesitantly, to suspect that orthodoxy might be a sham. I began to appreciate that authentic truth is never simple and that any version of truth handed down from on high - whether by presidents, prime ministers, or archbishops - is inherently suspect. The powerful, I came to see, reveal truth only to the extent that it suits them. Even then, the truths to which they testify come wrapped in a nearly invisible filament of dissembling, deception, and duplicity. The exercise of power necessarily involves manipulation and is antithetical to candor.”

Bacevich's call for America to return to its roots as a non-warrior nation finds inspiration from a succession of strange philosophical bedfellows, beginning with President John Quincy Adams -- who opined in 1821 that the United States, “goes not abroad, in search of monsters to destroy,” a sentiment articulated 24 years earlier in George Washington's Farewell Address and 165 years later in President Dwight Eisenhower's. In addition, he incorporates thinking from diplomat George Kennan, Senator William Fulbright, social critic Christopher Lasch, Medal of Honor recipient and Marine General David Shoup, and Martin Luther King.

According to Bacevich, at the heart of the American Century were its credo - to lead, save, liberate, and ultimately transform the world - and its trinity - global military presence, power projection, and interventionism. 

“Together, credo and trinity - the one defining purpose, the other practice - constitute the essence of the way that Washington has attempted to govern and police the American Century. The relationship between the two is symbiotic. The trinity lends plausibility to the credo's vast claims. For its part, the credo justifies the trinity's vast requirements and exertions. Together they provide the basis for an enduring consensus that imparts a consistency to U.S. policy regardless of which political party may hold the upper hand . . . From the era of Harry Truman to the age of Barack Obama, that consensus has remained intact. It defines the rules to which Washington adheres; it determines the precepts by which Washington rules.”

The author closes with his vision for America's role in the 21st century -- “a new trinity:”

“First, the purpose of the U. S. military is not to combat evil or remake the world, but to defend the United States and its most vital interests.”

“Second, the primary duty station of the American soldier is in America.”

“Third, consistent with the Just War tradition, the United States should employ force only as a last resort and only in self-defense.”

So much for orthodoxy. As the author laments: “Question its claims and your prospects of being heard in the hubbub of national politics become nil.”

Next comes the work of Bruce D. Jones, director of the Center on International Cooperation at New York University, and director of the Managing Global Order project at the Brookings Institution, where he serves as Senior Fellow. Earlier this month, Jones published a Brookings Foreign Policy monograph, “Largest Minority Shareholder in the Global Order LLC: The Changing Balance of Influence and U. S. Strategy.”

Leaving little to the imagination with that title, Jones succinctly states the case for his thesis:

“America's dominance is dulled, but its influence is sustained. From its new position, the United States confronts not a rigid bloc of emerging powers, but complex and shifting coalitions of interest. The greatest risk lies not in a single peer competitor, but in the erosion of systems and institutions vital to U. S. interests and a stable order. U. S power is indispensible for international order, but not sufficient. No longer the CEO of the Free World Inc., the United States now holds a position akin to that of the largest minority shareholder in Global Order, LLC.

Like much of the literature on globalism, the global order, power in a multipolar world, and the like, Jones focuses on those nations commonly called “the rising powers:” the BRIC countries (Brazil, Russia, India, and China) as well as a second and third tier of nation-states, including Australia, Canada, Chile, Iran, Korea, South Africa, Spain, and others.

And the questions are to what extent and in what ways will these 'rising powers' affect the international system, for which he offers three postulates:

o “First, rapid growth is generating exponential increases in the demand for scarce supplies of energy and consumable resources.”

o “Second, emerging powers have every interest to maneuver for greater influence over the rules of the global economic game.”

o “Third, the simple fact is that with rising capacity comes rising ambition.”

Where Bacevich sets out to save the soul of a nation and to 'call it home,' literally and figuratively, Jones' concern is with how the current and future administrations should retool American strategy to optimize its influence and its capacity to bend the global order in the direction of stability and predictability while protecting its national security.

Finally, we have “The Frugal Superpower: America's Global Leadership in a Cash-Strapped Era,” by Michael Mandelbaum, the Christian Herter Professor and director of American Foreign Policy at Johns Hopkins' School for Advanced International Studies (SAIS). Known to many outside the academy as Tom Friedman's tutor on the broad range of foreign policy and national security issues, Mandelbaum is noted also for two skills not often found in the same body - keen intellectual insight and economy of language.

Hence the title, which captures his thesis in 11 words, and in the following 194 pages, he posits that, “Just what the United States will and will not do will be the most important issue in international relations in the years ahead.”

And in Chapter 1 -- “The Tyranny of Numbers” - he lays out the predicate for America's choices:

“The collapse of 2008, the surge in American indebtedness, and the retirement of the baby boomers with the resulting explosion of claims on the federal government will create a different economic imperative: higher taxes more saving, and less consumption. This change will reduce the resources available for all public purposes: there will be less to go around. Along with other publicly funded activities, the change will impose new limits on the conduct of foreign policy. It will do so by altering the framework within which American foreign policy is made and carried out.” 

Mandelbaum reminds us that all great powers have experienced periods of waxing and waning in power and influence, citing historian Paul Kennedy's thesis of “imperial overstretch,” but adds two caveats: 

“First, the American decline will not be nearly as steep as the previous ones.

“No other country will, in the foreseeable future, rise to challenge America's global role, let alone supplant it as the most powerful member of the international system.”

And then this:

“What the world's strongest power faces in conduct of its foreign policy is not only (and perhaps not mainly) weakness in relation to others but also, where usable foreign policy resources are concerned, scarcity.”

What sets Mandelbaum's thesis apart from the rest is his unequivocal policy recommendation - to reduce the American consumption of oil. As his tutee, Tom Friedman, reminds us in his many op-eds on the subject, Mandelbaum says very simply: “Thus it is that the United States is waging a war against terrorism and funding both sides.”

And in what he calls a policy of “New Containment,” he observes that:

“Substantially reducing the role of oil in the American, Chinese, and global economies would, over the long term, lower the cost of America's international obligations in one final way: it would enhance the prospects for democracy, and therefore for democratically inspired peaceful foreign policies. Oil is the enemy of democracy.

Each of these messengers takes primary aim at a different audience: Bacevich is addressing the citizenry, calling on them to help steer the country away from guns and back to butter; Jones aiming his message directly to the White House and the foreign policy and national security decision-makers and managers; and Mandelbaum is teeing up a new way for the Congress and the Administration to think about national security and the politically challenging necessity of imposing a gasoline tax.

And now it's over to you.


R. Garrett Mitchell
The Mitchell Report
March 24, 2011

 

Mark Twain on Foreign Policy

March 1, 2011

 

The difference between the almost right word & the right word is really a large matter--it's the difference between the lightning bug and the lightning.
- Mark Twain’s Letter to George Bainton, 10/15/1888

 

 

Dear Friends,

 

Mark Twain and foreign policy?

 Some would say that’s a clear case of ‘never the twain shall meet,’ but if we permit a modicum of poetic license, it might just make sense.

 If you’ve been reading the editorial and op-ed pages of various periodicals during these last few weeks of tumult in Northern Africa and the Middle East, you’ve been treated to an array of thought experiments from various points on the political spectrum suggesting that the Obama administration – and the President himself – have been moving sluggishly, clumsily, uncertainly, and ineptly.

 Many pundits believe that in Egypt and Libya, for example, America should have been out front from the get-go in vocal support of the forces of democracy and against the instruments of oppression, i.e., the ruling regimes and their supporters.

 It’s hard to disagree with this sentiment, but sentiments are not the basis for making policy. The bigger question is: Does it pass the sensibility test? Is it sensible?

 

Twain’s counsel on vocabulary -- ‘the difference between the almost right word & the right word is really a large matter” – provides an analog for evaluating foreign policy. That the difference between the almost right foreign policy and the right foreign policy is really a large matter, and a subtlety lost on more than one American president.

 

It is, for example, captured in the difference between two words that seem almost the same: simple and simplistic.

 

The former means, “easily understood or done, presenting no difficulty; plain, basic, or uncomplicated in form, nature or design.

 

Whereas the latter is about, “treating complex issues and problems as if they were much simpler than they really are.”

 

Now, to the claims about America’s failure to lead the parade on Egypt, Libya, and elsewhere.

 

Is this a simple matter or a simplistic notion?

 

Of course America belongs with the forces of freedom and democracy wherever they are opposed by autocrats and kleptocrats. If we’re not always in a position to ‘stand’ for that, we certainly do ‘speak’ for it?

 

Of course we deplore the brutality of despots and autocrats, wherever and whenever they are found -- in the USSR, the PRC, Latin America, Africa, throughout the Middle East and across the Mahgreb. How we actually deal with them is another matter, indeed.

 

In the Arab and Muslim world, America has a checkered history stretching back for decades and decades that cannot be expunged in the short term, even with the most artful ‘public diplomacy.’

 

However, on each occasion of political awakening in the Middle East, including many false starts over many years, the world looks to America to strut the stage on behalf of the forces for democratization and liberalization. If not the United States, then who? And if not visibly and vocally, then how?

 

Well, there are multiple reasons why leading a rhetorical parade can be a trap for the U. S, and damaging to the forces for moderation and secular governance in the region, as well-- a cross between a “Catch 22” and a “Trojan horse,” ergo a “lose-lose proposition.”

 

Americans need to understand the profusion of complexities and contradictions that come with “Made in the USA” throughout the region. On the one hand, it is our values that people admire and wish to emulate; and on the other hand, it is our policies that have created so much ill will for so long with “the Arab street.”

 

Over the course of modern history in the Middle East – following the collapse of the Ottoman Empire and the eventual withering away of colonial powers – America’s paramount interest has been about oil. Period. As a consequence, our policies have been driven by that interest, creating an irremediable discontinuity – or “the mother of all contradictions,” if you prefer.

 

But let us not simplify our history: oil was vital to the national security interest, so we did what nation-states do. We acted in our national interest, but with policies that put our democratic values and national security interests at loggerheads -- hence, the indelible tarnish that stains the American brand in the Middle East.

 

Does that mean that America must t-h-i-n-k v-e-r-y c-a-r-e-f-u-l-l-y before it insinuates itself in circumstances such as the popular uprisings in Egypt, Tunisia, Libya, Iran, Bahrain and elsewhere?

 

Of course.

 

In most of the Arab-Muslim world, an American ‘endorsement’ is a double-edged sword, at best, and the kiss of death, to many – a reinforcement of the duality of our walk and our talk. Millions throughout the region know precisely which side we’ve been on – talking democracy and freedom while walking the status quo and support for autocrats who have made the Middle East safe for petroleum-driven economies in the western hemisphere and elsewhere.

 

What happens next in each of these countries is a matter for Egyptians, Libyans, Tunisians, and whoever else may follow to determine on their own, despite the risk potential to the global economy and the transnational community.

 

Instead of intervening, even with the best of intentions, America would do well to take this moment to commence a major policy realignment – one that matches its walk with its talk, and that looks ahead to a new era in Arab Middle East governance, recognizing that this may be years and even decades in the making. And that would suggest waiting for a formal invitation to help while eschewing another intervention – preemptive, preventive, presumptive, or otherwise.

 

 

R. Garrett Mitchell

The Mitchell Report

March 1, 2011

 

 

 

 

 

 

 

 

What Do We Do Now?

“If I am elected, I don't want to wake up on the morning of November 9 and have to ask myself, 'What in the world do I do now?'”

JFK Note to Clark Clifford, August 1960

Dear Friends,

For all but a few hundred Americans, the long political contest ends -- presumably -- one week from tonight (pause for applause.)

But for those few hundred, new challenges and two important numbers -- 77 and 100 -- present themselves the very next morning.

77: the time until Inauguration Day 2009, a fleeting presidential transition period of eleven weeks.

100: as in, "The First 100 Days,” the political trope that comes to us from FDR's presidency in the early months of 1933.

No matter which ticket prevails, the new President-elect won't face JFK's predicament. That's because each campaign has operational teams focused on these 177 days: the Obama-Biden group is led by former Clinton chief-of-staff and think tank CEO John Podesta; and the McCain-Palin team is headed up by former Nixon and Ford presidential assistant and lobbying firm CEO William Timmons.

Both teams will benefit from the considerable contributions of scores of scholars and practitioners who have collaborated on the transition and launch phases of a half-century of presidencies, and whose findings and recommendations provide a range of thoughtful options about how best to manage these two critical phases of a new presidency.

These contributors include the Center for American Progress, Center for Excellence in Government, Center for Congressional and Presidential Studies, National Academy of Public Administration, Partnership for Public Service -- and John Hamre, former Deputy Secretary of Defense and now CEO at Center for Strategic and International Studies, the American Enterprise Institute's renowned political scholar, Norman Ornstein, and many academics, including American University's, Dr. James Thurber, Colby College professor Calvin McKenzie, and others.

Among the most seasoned of these experts is Stephen Hess, senior fellow emeritus at the Brookings Institution, who has just written a remarkably readable, eminently utilitarian, and uncommonly unpretentious book (for Washington DC think tanks!) -- “What Do We Do Now: A Workbook For The President-Elect” -- from which the theme of this TMR and the JFK quotation are taken.

Hess has been engaged in every presidential transition since Eisenhower-to-Kennedy, and has been a member of two blue-ribbon panels convened to make recommendations for Reagan-to-Bush and Clinton-to-Bush.

And as the country prepares for the most important presidential transition since Hoover-to-Roosevelt or Buchanan-to-Lincoln, “What Do We Do Now” is a book every serious political junkie ought to own.

Though Hess may blanch at the comparison, he's created a kind of “Cliff Notes” or “Transitions for Dummies.” He makes serious subject matter accessible -- easy but never breezy -- and in doing so, he's given interested observers an opportunity to evaluate this presidential transition, just like symphony-goers who take musical scores to concerts to know whether the conductor and the orchestra got it right.

Thanks to the scholarship of Hess and scores of other “transitionists”, here's TMR's take on what to look and listen for -- seven not-so-secret thoughts about doing it right.

o First, quickly assemble the White House staff.

The highest priority is to assemble the White House staff, including chief of staff, personnel director, counsel, press secretary, Congressional relations chief, even a speechwriter or two.

These people make the trains run on time, they're essential for the cabinet vetting process, they're there to deal with Congress, they give the new administration one voice, and they make an important statement about who's in charge -- because a new president doesn't need cabinet appointees freelancing on policy or politics.

They are the first line of offense and defense.

o Second, identify the key national security, homeland security, and economic security nominees ASAP.

It is critical to bring on board the key actors whose jobs are central to the Constitutional commitment to “insure domestic Tranquility, provide for the common defence.”

This would include cabinet secretaries at Defense, Homeland Security, State, Treasury, and Justice. But also deputy and secondary posts in those agencies, as well as those responsible for counterterrorism and national emergency management, for example.

o Third, keep your friends close and your enemies closer.

Bring Congress into the act from the outset -- the leadership of both parties, key committee chairs, and Members who are known to have a vested interest in, knowledge of, and passion for the issues that will be central to those first 100 days.

It is always wise to consult with Congress, but it's too often given perfunctory attention and subsumed by the agenda of the new Administration. However, 2008 is not just another year and much is expected from the 44th presidency, thanks largely to the serial missteps of the 43rd.

With two wars being waged in the Middle East, a tottering national and global economy, and political instability fomenting in virtually every continent, reaching across the aisle and up Pennsylvania Avenue are not just figures of speech, they are essential steps in regaining our national strength and our international respect and prestige.

o Fourth, “Beware the Jubjub bird, and shun the frumious Bandersnatch!”

We turn to Lewis Carroll's, Jabberwocky, in search of a metaphor that will capture the importance of avoiding the avoidable errors and pitfalls -- the ones that use up precious political capital and spill blood in the waters.

For example, if you have in mind an Attorney General nominee who has broken the law -- speeding tickets are permissible, but tax liens are not -- take a pass, even if he is “best of class.”

Or, if you've promised to shut down Guantanamo, first figure out what legal and morally defensible options exist to relocate the detainees. On the other hand, if you made this a major campaign commitment, and the press presses you on this in the transition, have a good look in the mirror.

It's probably a good idea to resist the temptation to give the First Lady a substantive policy assignment, even if she is more qualified than anyone on the staff or in the cabinet.

o Fifth, be careful about bipartisanship.

Having just said that “reaching across the aisle and up Pennsylvania Avenue” is essential to the promotion of the national interest, this is a cautionary note about how best to accomplish those objectives.

It's about the much celebrated and somewhat seductive notion of bipartisan cabinet appointments.

Here are three things to bear in mind when conversation turns to the benefits of a bipartisan cabinet, and when comparison is made to JFK's appointments of Douglas Dillon at Treasury, Robert McNamara at Defense, and the offer to “Wise Man” Robert Lovett to take his choice of State, Defense, Treasury or Justice.

First, bipartisanship ain't what it used to be, and the road back is long and rocky.

Second, if the best choice for Treasury, Homeland Security, Interior, or State is a member of the other party, fine. But if the choice is being made primarily in the service of bipartisanship, that's a miscalculation of priorities.

Third, the tension and conflict in Washington DC isn't simply Republicans versus Democrats -- although there's plenty of that to go around -- it's about which branch of government has the power -- Congress or the Executive, Article I or Article II. To assume that a bipartisan cabinet will soften those R v. D battles is errant logic; and it's equally important to understand that it will be of no help with the more contentious schism between Congress and the Administration.

Additionally, it's important to acknowledge that the moment a member of the opposition party becomes a cabinet officer, it is assumed that she or he is “carrying water” for the President, so the asset becomes a limited liability or worse.

The best form of bipartisanship is regular consultation with members of both parties and between both branches of government. And in 2008, sadly, that is a very steep challenge. It's doable with great and sustained effort, but if the expectation is that the opposition will be grateful, remember those roseate predictions about American soldiers being greeted as liberators by Iraqis.

o Sixth, ignore siren calls.

There will be innumerable invitations to leap into the breach to become a “kind-of” President before Inauguration Day.

Ignore them.

They will come daily from the political press, a little less frequently from constituencies who aided in the electoral process, self-serving bundler-donors, and potentially from the sitting President who may invoke the notion that it is important for the President and President-elect to act together on questions of national security.

Ignore them and him.

Wait your turn. Take a cue from Lincoln in 1860 and FDR in 1932, both of whom (rightly) determined that they would “take office” when they “took office,” and not before -- much to the dismay and anger of Presidents Buchanan and Hoover.

o Seventh, “Break glass only in case of emergency.”

You've seen those safety warnings on trains, in buildings, and elsewhere. It's good advice for Presidents, and you could say that it's an analog to the West African proverb that President Theodore Roosevelt often quoted -- “Speak softly and carry a big stick.”

It's advice that could have made a big difference in the presidency of George W. Bush and his viceroy, Dick Cheney, lessons the next president must not ignore.

If the polls are accurate, Barack Obama may be on his way to an historically significant Electoral College and popular vote victory -- equal in impact if not necessarily electoral votes to Ronald Reagan's 1980 sweep of Jimmy Carter by a margin of 489 to 49 or to FDR's galloping defeat of Herbert Hoover in 1932 by an almost identical margin of 472 to 59.

If so, President-elect Obama will be well advised to be magnanimous in victory, respectful of those who voted for his opponent and members of Congress who lost their seats, and to demonstrate how resolve and humility can be partners in political leadership.

If by some improbable set of circumstances, the election of 2008 turns out like 1948 -- “Dewey Wins” -- then John McCain will every reason to be humble, respectful, and magnanimous.

No matter the outcome, the President-elect must be mindful that this election has been watched as closely in countries around the globe as at home, and to understand that their great hope -- as it is ours -- is that E Pluribus Unum is both this nation's enduring mission statement as well as a new commitment to global cooperation in the 21st century.

Ah, September: Moral Hazard Month

Ah, September: Moral Hazard Month
September 19, 2008
 
 
“Moral hazard” is the term economists use to describe the fact that insurance can change the behavior of the person being insured . . . The savings-and-loan crisis of the nineteen-eighties was created, in large part, by the fact that the federal government insured savings deposits of up to a hundred thousand dollars, and so the newly deregulated S. & L’.s made far riskier investments than they would have otherwise. .
The Moral Hazard Myth
Malcolm Gladwell
New Yorker Magazine
8/29/05
 
 
Dear Friends,
 
September is “Back to School Month,” and this one offers a teachable moment for Americans of all ages about a concept known as “moral hazard,” which is a slippery little devil, as we shall see.
 
It’s taken me a long time to get the gist of it, and the truth is every time I hear the term used by a commentator or policy wonk, I have to reexplain it to myself.
 
Initially, I thought it described a powerful temptation that tested one’s moral mettle -- e.g., finding a bag full of cash in your office building elevator on the day your job was eliminated; playing a round of golf and filling out your scorecard a la Bill Clinton; or being a comparatively new state officeholder and getting a call from someone you’d met once asking if you’d be his vice presidential running mate.
 
Things you know you shouldn’t do, but which are tempting -- and -- difficult to account for -- morally, that is.
 
The dictionary wasn’t helpful because every reference was about insurance -- “the loss to an insurance company resulting from possible lack of prudence or honesty on the part of policyholder.” Not to put too fine a point on it, but I’ve never used “moral” and “insurance” in the same sentence or conversation, so I was still confused.
 
But after consulting a couple friends in the think tank world, I learned that the term is used in the world of politics and public policy to characterize public policy decisions that may encourage future risky and costly private behavior for which taxpayers could be responsible.
 
Or in slightly more cynical terms, situations in which enormous and costly errors are made by the wealthy and powerful and for which little folks are on the hook.
 
Okay.
 
Take September, for example.
 
Fannie Mae and Freddie Mac; AIG, Lehman Brothers, and Merrill Lynch; and just yesterday, news that the powers-that-be are considering putting together the largest financial bailout in American history.
 
And the month isn’t over.
 
Five financial giants at the heart of America’s capital markets, all headed for extinction. Wall Street reeling, stock exchanges around the globe experiencing huge losses, investors small and large wondering whether the country is in freefall, and a President with virtually no political capital and personal credibility to help soothe the country’s jangled nerves.
 
So it has fallen to Treasury Secretary, Hank Paulson and Federal Reserve Chairman, Ben Bernanke to take the lead on a scenario that even Hollywood wouldn’t have conjured up.
 
Lehman Brothers’ CEO, Richard Fuld, had good reason to believe that the government might come to his firm’s rescue, given its bailout of Fannie Mae, Freddie Mac, and the salvage operation of Long Term Capital Management, which was organized by the New York Federal Reserve Bank a decade ago.
 
Turns out he guessed wrong. Who knew?
 
Had he known with certainty that the federal government would not be the court of last resort for a large failing financial institution, his firm (and others) might not have engaged in certain kinds of high risk investment instruments and practices. And having chosen not to do that, they might not be in Chapter 11 today.
 
Maybe, maybe not.
 
The same could be said about Merrill Lynch, but thanks to the good judgment of a new CEO who saw that gravity was rapidly evacuating Merrill’s market value, and who understood that his endgame options were evaporating precipitously, the firm stayed in the private sector, even if in the belly of the whale.
 
And I’m told that if you understand the finer details of credit default swaps (CDO’s) --- and, no, I don’t -- you’ll appreciate even more how Merrill CEO John Thain may have pulled off the most artful and legal legerdemain since Tom Sawyer got Ben to paint the fence.
 
Fannie and Freddie you know about -- sort of. Taken over by the government, which means that taxpayers are ultimately responsible for any losses that might be incurred. Counterbalancing that is the reality that if the government hadn’t stepped in, markets will still be falling, and current and future homeowners would be in a world of hurt.
 
Capping it all was this week’s AIG mega-deal, the details of which are still unfolding, but which demonstrate two verities:
 
First, size matters. If you’re going to fail be v-e-r-y big, bigger than Lehman Bros., apparently.
 
Second, that capitalism (in its slightly modified September 2008 configuration) and morality are strange bedfellows.
 
So if you’re confused about how the experts can rationalize the AIG deal and the Lehman non-deal, and which meets the moral hazard test and which does not, you’re not alone.
 
This doesn’t mean you’re right and they’re wrong. It means that when push comes to shove, the moral hazard standard gets v-e-r-y fuzzy, and then disappears from sight.
 
If you’ll pardon the leap from AIG to Abraham Lincoln, you’ll recall that when Lincoln ordered the suspension of writs of habeas corpus during the Civil War -- for which he took unmitigated political heat -- he said: "[A]re all the laws, but one, to go unexecuted and the government itself go to pieces, lest that one be violated?"
 
Now, one week in advance of the first presidential debate, we might ask ourselves about moral hazard and the McCain–Palin ticket.
 
If one believes that the CEO’s of Fannie and Freddie, Lehman, Bear Stearns, Merrill, Countrywide and other financial institutions were brazen, careless, or negligent in their management decisions -- at great cost to stockholder value and the impact on the American and global economy -- consider Senator John McCain’s selection of Sarah Palin.
 
Even if you admire Palin, find her story compelling, and believe that she’s a quick study, it’s a very long, cold ride on one of those throbbing snow machines to equate that with her being qualified to be vice president of the United States. And, using McCain’s financial advisor Carly Fiorina’s logic, she’s also unqualified to be vice president of Hewlett-Packard.
 
Yet, there she is, chosen because John McCain needed to change the dynamic in his faltering presidential run. A number of qualified candidates from which to choose, but only one who offered three things he needed most: first, red meat -- caribou presumably -- to excite the Republican base of social conservatives; second, strengthening the ticket’s appeal to women, and particularly to disaffected Hillary supporters; and third, buzz -- driving Democrats to distraction and sending the political press into overdrive to vet her in a way that McCain had clearly not done.
 
And if there’s one thing the Republican base hates more than Democrats, it’s the press.
 
But her selection by McCain is a political decision purely in his self-interest with enormously risky implications for the national interest, as this month’s historic financial meltdown and this week’s bombing of the U. S. embassy in Yemen remind us.
 
Just imagine Sarah Palin at the helm.
 
Much of the hoopla about McCain’s stunningly impetuous choice has been spun to fit the persona of that young Navy pilot who survived the horror of the Hanoi Hilton and came home to run for office, and who has built a reputation of bucking his party on key political and public policy issues. It’s a narrative of independence, courage, and audacity. It’s a modern day “Mr. Smith Goes to Washington.”
 
Fine, but this isn’t a movie.
 
And the point is that John McCain didn’t just bet his ranch, he mortgaged ours -- and with a subprime, no less.
 
And we best understand that now.
 
McCain is a big risk taker, a frequent risk taker, and a man for whom risk has been a way of life. That’s admirable in some instances and select vocations, even in the Senate, but it isn’t what we’re looking for in #44.
 
We have seen what bold and risky, strong and wrong, and our way or the highway looks like at 1600 Pennsylvania Avenue, and we have had enough.
 
After twenty-two years in the United States Navy and twenty-six in the United States Congress, one would think John McCain would understand the implications of moral hazard.
 
But apparently not.
 
While he expresses outrage at the greed and selfishness on Wall Street and pontificates on the platinum parachutes that those failed financial CEO’s are bailing out with while their stockholders and employees are left with pennies on the dollar, he ought to take a good, long, hard look in the mirror.
 
That’s if he’s still got the courage.
 
 
 
 

SARAH, PALE IN COMPARISON

“To govern is to choose.”

Pierre Mendes France

SAY GOODNIGHT, PAUL

If you're only tool is a hammer, you tend to look at all problems as nails.

Mark Twain

The Envelope, Please

I'm going to want somebody with integrity; I'm going to want somebody with independence, who's willing to tell me where he thinks or she thinks I'm wrong; and I'm, I'm going to want somebody who shares a vision of the country where we need to go, that we've got to fundamentally change not only our policies, but how our politics works, how business is done in Washington."

Barack Obama
Meet The Press
7/27/08

Early Morning Thoughts on Rereading Lewis Thomas

“

There is a short passage near the very end of the Mahler in which the almost vanishing violins, all engaged in a sustained backward glance, are edged aside for a few bars by the cellos. Those lower notes pick up fragments from the first movement, as though prepared to begin everything all over again, and then the cellos subside and disappear, like an exhalation. I used to hear this as a wonderful few seconds of encouragement: we'll be back, we're still here, keep going, keep going.”

“Late Night Thoughts on Listening to Mahler's Ninth Symphony”
Lewis Thomas

Houston, We've Had a Problem

Houston, we've had a problem.”
Astronaut James Lovell
Apollo 13
April 13, 1971

Her Finest Hour

They may forget what you said, but they will never forget how you made them feel.”